FSB issues report on leverage in non-bank financial intermediation

The Financial Stability Board (FSB) has published a consultation report on leverage in non-bank financial intermediation (NBFI). The proposed policy recommendations are addressed to FSB member authorities and standard-setting bodies. They aim to enhance the ability of authorities and market participants to monitor vulnerabilities from NBFI leverage, contain NBFI leverage where it may create risks to financial stability, and mitigate the impact of these risks.

The nine policy recommendations cover:

• Risk identification and monitoring, supported by a suite of risk metrics, and work to assess and address data challenges
• Measures to address financial stability risks related to NBFI leverage in core financial markets, including measures that affect specific activities, types of entities, and concentration-related risks
• Counterparty credit risk management and private disclosure
• Addressing inconsistencies by adopting the principle of “same risk, same regulatory treatment”
• Enhancing cross-border cooperation and collaboration

Entities in scope are non-bank financial firms that use leverage, either financial or synthetic, including hedge funds, other leveraged investment funds, pension funds, and insurance companies. Where relevant, banks and broker-dealers are also in scope in their role as leverage providers.

• Financial Stability Board press release