The Financial Stability Board and the International Organisation of Securities Commissions have published for public consultation ‘Assessment methodologies for identifying non-bank, non-insurer Global Systemically Important Financial Institutions, IOSCO has said in a statement.
Systemically important financial institutions are institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity.
According to the FSB, which was established to coordinate at the international level the work of national financial authorities and international standard setting bodies, the publication of the proposal is part of efforts towards tackling risks to global economic stability.
The Chairman, FSB, Mr. Mark Carney, was quoted as saying “the proposals are an essential first step towards addressing the risks to global financial stability and economic stability posed by the disorderly failure of financial institutions other than banks and insurers. They are integral to solving the problem of financial institutions that are too big to fail.”
For his part, the Chairman, IOSCO Board, Mr. Greg Medcraft, explained that the development of assessment methodologies for identifying non-bank, non-insurer global systematically important financial institutions was challenging.
This, he said, was because the methodologies needed to capture the wide range of business models and risk profiles in the non-bank non-insurer financial space while maintaining broad consistency with the overall SIFI framework.
Consequently, he said, “This public consultation will help us to better understand the market intermediaries and investment funds whose failure pose systemic risks. I look forward to industry views.”
According to the statement, work on the publication began following a request by G20 leaders at the Cannes Summit in November 2011, that the FSB, in consultation with IOSCO, should prepare methodologies to identify systemically important non-bank non-insurer financial entities.
This was a year after the G20 leaders had endorsed the FSB framework for reducing the systemic and moral hazard risks posed by SIFIs.
“The implementation of the FSB SIFI framework requires, as a first step, the assessment of the systemic importance of financial institutions at a global level (or G-SIFIs),” the statement said.
Drawing from the past successes, the assessment methodologies for identifying NBNI G-SIFIs are aimed at complementing the methodologies that currently cover banks and insurers.
“While the consultative document proposes specific methodologies for the identification of NBNIG-SIFIs, it does not designate any specific entities as systemically important or propose any policy measures that would apply to NBNI G-SIFIs,” the statement explained.
Source: Punch (by Simon Ejembi)
