Financial Stability Board

Updated on January 29, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is The Financial Stability Board (FSB)?

The Financial Stability Board (FSB) is an internationally recognized organization tasked with monitoring and offering recommendations regarding the global financial system to ensure stability and safeguard against systemic risks. Its establishment in 2009 stemmed from the financial crisis of 2007-2008, and it is currently headquartered in Basel, Switzerland.

Financial Stability Board

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It promotes financial stability, identifies systemic risks, fosters international cooperation, sets standards, and enhances the resilience of the global financial system. Facilitating coordination and collaboration among stakeholders reduces the likelihood and severity of financial crises and supports sustainable economic growth. Moreover, enhancing the global financial system’s resilience helps mitigate the potential adverse effects of market fluctuations and external shocks.

Key Takeaways

  • The Financial Stability Board (FSB) is an internationally recognized organization committed to promoting and preserving global financial stability. Serving as a coordinating and advisory body, it facilitates collaboration among policymakers, central banks, regulatory authorities, and international organizations from diverse nations.
  • The primary goal of the FSB is to identify and address vulnerabilities and risks in the global financial system to prevent and mitigate financial crises.
  • The FSB operates by monitoring, analyzing, and making recommendations on key aspects of the financial system. It assesses emerging issues that could impact global financial stability.

How Does The Financial Stability Board Work?

The Financial Stability Board is crucial in promoting and ensuring global financial stability by monitoring the global financial system and providing recommendations to address potential risks and vulnerabilities.

The Financial Stability Board comprises 68 member institutions, encompassing central banks, finance ministries, supervisory and regulatory authorities, international organizations, and Regional Consultative Groups (RCGs). These members represent 25 jurisdictions, covering various countries and regions.

The FSB follows a three-stage process to ensure effective coordination, cooperation, and consistency in its operations:

  1. Monitoring and identifying risks: The FSB continuously monitors global financial markets, macroeconomic indicators, and emerging risks to identify potential vulnerabilities to financial stability. It analyzes data and trends, assesses systemic risks, and identifies areas where policy actions may be required to mitigate risks and enhance resilience.
  2. Policy development and recommendation: Based on its monitoring and analysis, the FSB develops policies, standards, and recommendations to address identified risks and vulnerabilities. It collaborates with standard-setting bodies and international organizations to develop and promote these policies. The FSB’s recommendations include banking, insurance, securities, market infrastructures, and shadow banking.
  3. Implementation and evaluation: The FSB encourages member institutions and jurisdictions to implement the recommended policies and standards. It facilitates information sharing, cooperation, and capacity building among member authorities to support effective implementation. The FSB also conducts peer reviews to evaluate the performance of agreed policies and assess their effectiveness.

The Financial Stability Board report helps comprehensively analyze global financial market trends, potential risks, and policy recommendations to enhance financial stability and mitigate systemic vulnerabilities.

The Financial Stability Board mission is to promote cooperation, information sharing, and dialogue on financial stability issues among members, international organizations, and Regional Consultative Groups (RCGs) to ensure diverse perspectives and regional representation.

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Principles

The FSB operates based on practical principles that guide its activities and promote financial stability. These principles include:

  1. Comprehensive Approach: The FSB takes a comprehensive approach to financial stability, considering the interconnections and interdependencies among different parts of the financial system. It recognizes that risks can arise from various sources and that addressing them requires a holistic understanding of the financial system.
  2. Identifying and Assessing Risks: The FSB is committed to identifying and assessing potential risks and vulnerabilities to financial stability. It thoroughly monitors and analyzes global financial developments, macroeconomic indicators, and emerging threats. It helps in the early detection of risks and allows for timely policy responses.
  3. Setting International Standards: The FSB works collaboratively with standard-setting bodies and other international organizations to develop and promote international financial standards and best practices. These standards cover banking, insurance, securities, market infrastructures, and shadow banking. Setting consistent and robust standards helps strengthen the financial system’s resilience globally.
  4. Peer Reviews and Accountability: The FSB conducts peer reviews of its member jurisdictions to assess their adherence to international financial standards and evaluate the effectiveness of their regulatory and supervisory frameworks. These reviews enhance transparency, accountability, and the exchange of good practices among member institutions.
  5. Crisis Management and Resolution: It ensures proper crisis management and helps build resolution frameworks to address potential systemic crises. It promotes the development of effective resolution regimes for financial institutions and encourages the establishment of frameworks that can handle cross-border financial crises efficiently.
  6. Resilience and Continuity: It aims to enhance the resilience and continuity of the financial system. It emphasizes the importance of risk management practices, stress testing, capital and liquidity requirements, and corporate governance to mitigate systemic risks and ensure the smooth functioning of financial markets.

Members

FSB has 71 member institutions. These members include central banks, finance ministries, supervisors, and regulatory authorities from 25 jurisdictions. Additionally, the FSB has 13 international organizations and standard-setting bodies as members. The FSB also collaborates with six Regional Consultative Groups, which extend its reach to 65 other jurisdictions worldwide.

These institutions play a crucial role in shaping and implementing policies related to financial stability in their respective countries. Additionally, the FSB collaborates with 13 international organizations and standard-setting bodies, bringing valuable expertise and perspectives to the discussions and policy formulation process. These international organizations contribute to developing global financial standards and best practices.

The RCGs allow these jurisdictions to actively participate in the discussions, share insights, and contribute to the FSB’s work. This broad membership composition provides a comprehensive and inclusive approach to addressing global financial stability concerns. It facilitates the coordination and cooperation necessary to maintain a resilient and stable global financial system.

Frequently Asked Questions (FAQs)

1. Who established the financial stability board?

FSB was established by the finance ministers of G20 countries and central bank governors in April 2009. It was created to replace the Financial Stability Forum (FSF), formed in 1999. The decision to establish the FSB was made during the G20 summit held in London in April 2009, following the global financial crisis that unfolded in 2008.

2. How does the Financial Stability Board (FSB) defines fintech?

The FSB acknowledges that fintech encompasses various innovative technologies and business models that impact financial services. The FSB recognizes that the scope of fintech is constantly evolving, and its definition may vary across jurisdictions and over time.

3. What is the organizational structure of the FSB?

The organizational structure of the Financial Stability Board (FSB) consists of a Plenary, which provides strategic direction and oversight, a Secretariat that handles administrative functions, and a network of standing committees and working groups focused on specific areas of financial stability. The FSB also collaborates with international organizations and standard-setting bodies to ensure coordination and cooperation in promoting global financial stability.

This article has been a guide to what Is Financial Stability Board (FSB). Here, we explain it with a list of its members and its principles. You may also find some useful articles here –

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