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The Financial Stability Board (FSB) announced its 2024 work program, which addresses a variety of challenges including digitalization, resilience of non-bank financial intermediation (NBFI).
Priority areas of work include:
- Supporting global cooperation on financial stability
- Completing resolution reforms
- Enhancing the resilience of non-bank financial intermediation (NBFI)
- Enhancing cross-border payments
- Harnessing the benefits of digital innovation while containing its risks
- Enhancing cyber and operational resilience
- Addressing financial risks from climate change
Among the items, the FSB will continue its work on enhancing the resilience of NBFI, collaborating with standard-setting bodies and international organizations. Key initiatives include exploring policy options for non-bank financial leverage, enhancing liquidity preparedness for margin and collateral calls, and conducting new work on the functioning and resilience of repo markets.
Joseph Cordahi, product strategy director at NeoXam, said in a statement: “The FSB are clearly taking a good look at how repo markets can help enhance the ability of non-bank financial institutions (NBFIs) to meet margin calls in times of heavy volatility. This is incredibly important due to the crucial role that many of these institutions play in the broader financial system.
“NBFIs should also be looking to what they can do to help avoid incidents such as the fire sale of gilts by UK pension funds in September 2022. Having sound internal stress-testing procedures in place can help to assess how funding gaps can be bridged to ensure that margin obligations can be met during future short-term disruptions.”
Jo Burnham, Risk and Margining subject matter expert at OpenGamma, said in a statement: “The work that the FSB is putting into enhancing liquidity preparedness for margin calls comes at a time where many firms are looking to improve their stress testing capabilities. The International Swaps and Derivatives Association (ISDA) announced in September that it would recalibrate its standard initial margin model (SIMM) at fixed semi-annual intervals moving forward, making these parameterizations more regular.
“It is another thing to add to the list of methodologies to understand and how best to stress test them. Over the next couple of years, there is going to be a lot of change in initial margin levels. Upgrade your stress-testing at the same time as upgrading the method that a firm is trying to stress-test adds another layer of complexity. We are having this conversation with clients on a far more regular basis than was the case previously.”