Non-bank vulnerabilities expose system to shocks – G20 Watchdog

Patchy progress on reforms aimed at making money market funds and other non-bank financial institutions safer has left the global financial system exposed to potential shocks, the G20’s risk watchdog reported.

The Financial Stability Board (FSB) noted that many of the vulnerabilities that led to incidents, such as the need for central banks to inject liquidity to stabilise money market funds during the early COVID-19 lockdowns, remain largely unresolved.

FSB Chair Klaas Knot expressed concern over the uneven progress made by G20 countries in implementing key reforms related to the money market and open-ended funds, margining, and liquidity.

Knot warned that the momentum for these reforms might be waning. He emphasised the urgency of finalising non-bank financial intermediation (NBFI) reforms to enhance the system’s resilience.

Non-banks, including insurers, private equity, and hedge funds, now represent nearly half of global financial assets. The FSB’s call for a strong and timely commitment to these reforms is aimed at strengthening the stability of the global financial system.

Attribution: Reuters.