Banking system resilience efforts weakening warns FSB

investmentnews.com:

Global efforts to tame ballooning risks outside the banking system are losing steam, the Financial Stability Board said on Monday, with a top official warning it will take longer than expected to get a full picture of vulnerabilities at hedge funds, private credit firms and other investors.

The FSB, which convenes the most powerful central bankers, regulators and finance ministries, swept into 2024 on a mission to deal with risks at financial institutions whose scrutiny fell further behind that of traditional banks in the aftermath of the financial crisis. The rhetoric was backed up by an ambitious work program, including gathering data on the institutions’ use of leverage, as well as their capacity to meet margin calls in times of stress, and separate work on open-ended funds. 

While the FSB still plans to make initial recommendations in all three areas by the end of this year, it will have carry out additional work to compile data on non-banks “more holistically,” said John Schindler, the group’s secretary general.

“We’ve learned that there’s more obstacles here than we had realized,” Schindler said in an interview as the FSB published a progress update. “It will take us longer to get through these data issues.”

The difficulties underscore the challenge of taming risks in a diverse sector whose oversight can fall between a dozen bodies in a single jurisdiction, making global coordination a mammoth task. In some countries there are legal impediments to sharing data within a single market, never mind across borders. Some firms in the industry are also lobbying against additional disclosures, which they see as burdensome and pointless.

FSB chair Klaas Knot, in a letter to the Group of 20 finance ministers and central bank