By Kim Tae-gyu
Staff Reporter
The Financial Stability Board (FSB) assessed that it has made substantial progress in achieving the mandates given by G20 leaders last November and this April at a plenary meeting Tuesday.
The panel said that it would submit two reports to the G20 summit slated for Sept. 24 and 25 in Pittsburgh on progress made in the aftermath of the unprecedented financial crisis.
``Good progress has been made on the policy development needed to implement the package of reforms set out previous Financial Stability Forum (FSF) reports, the G20's Washington Action Plan of November 2008 and the London summit statement of April 2009,'' the FSB said in a statement.
Created by the G7 in 1999, the FSF is a predecessor of the FSB. The latter was formed in line with the recommendation of the G20 Washington summit last November and was announced at the London summit in April.
The FSB said that specific areas where progress was made include a capital framework, accounting standards, risk management and bank disclosures of on- and off-balance sheet exposure.
In addition, it noted that principles for sound compensation practices integrated into the supervisory framework and enhanced oversight regimes for hedge funds and credit rating agencies have been developed.
However, the panel said much work remains to be done to implement the reform agenda in full, such as strengthening the global capital framework and making global liquidity more robust.
In particular, the compensation practices of financial institutes sprouted up as one of the major issues, FSB Chairman Mario Draghi said.
He told reporters after the plenary meeting that compensation is fully in the realm of supervisors, not just a private contract. In other words, regulators can take issue with excessive bonuses given to bank executives that are not aligned to their performance.
FSB View on Economies
The FSB pointed out that markets have shown signs of stabilizing of late but the recovery is propped up by pump-priming measures rather than the resilience of the economy itself.
``Despite welcome signs of movement toward normalization of markets in recent months, fragile elements remain and the supply of credit remains weak,'' the FSB said.
``Although many financial institutions have returned to profitability in recent quarters, this owes much to the extraordinary official measures to stabilize the system,'' it said.
Accordingly, the Basel-based organization said there is no guarantee that the world economy will continue to recover without any hitches and governments need to consider potential risks.
``There is a risk that a revival of concerns about the sustainability of the recovery could trigger renewed banking sector strains and turbulence in asset markets,'' the entity said.
``To address the current challenges, authorities will continue to foster the strengthening and transparency of balance sheets.''
Other risks raised at the FSB meeting were rapidly rising public debt, dangers related to the timing of exit strategies from current expansionary policies, and the challenges of maintaining a proper balance and pace of regulatory reform.
Korean Contribution
South Korea's top financial policymaker Chin Dong-soo, head of the Financial Services Commission (FSC), attended the plenary meeting and made a significant contribution.
In particular, he raised the issue of how to stabilize foreign exchange markets.
According to the FSC, this issue will be included in the FSB report to the G20 summit.
Chin also suggested that not only home but host countries should play bigger roles in operating the supervisory colleges, the framework of putting surveillance and supervision on systemically important financial institutes.
He said that so far, only home countries have played a major role in the supervisory college for cross-border financial companies.
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