G20 Watchdog Reports Markets Resilient After UK Brexit Vote, According to Reuters

By Huw Jones

LONDON – The global financial system has demonstrated resilience in managing market volatility following the UK’s decision to leave the European Union, according to the Financial Stability Board (FSB).

Chaired by Bank of England Governor Mark Carney, the FSB oversees financial regulation among the Group of 20 economies. During a recent meeting in China, the board discussed the fluctuations in the market triggered by the UK’s EU exit, which caused the British pound to hit its lowest point in 30 years.

The FSB stated, “During this period, the global financial system has continued to function effectively.” It reassured that authorities are closely monitoring market conditions and are prepared to tackle any potential financial stability challenges that may arise.

Some financial institutions have expressed concerns over stretched market liquidity, which could complicate the system’s ability to absorb shocks. While banks have attributed this issue to stricter regulatory measures that increase their costs of providing liquidity, the FSB remains skeptical of this perspective. “On balance, the evidence to date suggests that the reforms have reduced the likelihood that a deterioration in market liquidity could lead to broader financial stability problems,” it noted.

However, the FSB highlighted existing risks associated with defaulting or non-performing loans, as well as the incomplete repair of bank balance sheets, particularly emphasizing challenges related to lenders in the euro zone.

On the regulatory front, the European Central Bank is set to evaluate a plan by Monte dei Paschi to divest from non-performing loans, as the Italian bank endeavors to bolster its balance sheet in compliance with regulatory expectations. The issue of non-performing loans will again be prominent when the results of this year’s EU stress test for major banks are disclosed later in July.

The FSB’s meeting in Chengdu will provide an update to G20 finance ministers regarding the advancements made in enhancing the safety of the financial system since the crisis of 2007-09. The board announced that global regulators will release a report by year’s end detailing a “toolkit” for addressing misconduct in banking.

Additionally, the meeting explored potential regulatory measures concerning banker compensation and firm governance aimed at reducing misconduct risks. The FSB is also investigating ways for auditors to better identify warning signs of excessive risk-taking at major banks, setting a goal to reduce audit-related “quality issues” by 25%.

Furthermore, the board approved the inclusion of a representative from the European Central Bank’s banking supervisory unit in FSB meetings, reflecting the ECB’s increasing influence in global regulatory discussions.