The Financial Stability Board (FSB) will address structural vulnerabilities in asset management to minimise the risk of sudden stops in time of stress, Bank of England governor Mark Carney has said.
Writing to the G20 finance ministers and central bank governors ahead of a meeting on 17 March, Carney – who is chair of the FSB - explained asset management is a priority for the group.
He said the importance of asset management has grown rapidly, and collectively buy-side firms run risk accounts for almost two thirds of identified shadow banking, up from one third prior to the financial crisis.
“Given that new forms of shadow banking activities are certain to develop in the future, FSB member authorities must maintain and continue to invest in an effective and ongoing programme of surveillance, data sharing and analysis so as to support judgements on any required regulatory response in the future,” Carney wrote.
He added asset management has created new sources of funding and investment, promoting capital flows and reducing reliance on bank funding, making the industry more important than ever.
Carney warned financial ‘reform fatigue’ could “erode our willingness to rely on each other’s systems and institutions and, in the process, fragment pools of funding and liquidity, create inefficiencies and frictions, reduce competition and diminish cross-border capital flows.”
So implementation of reforms must be more dynamic and the FSB is assessing the current reforms, including any unintended consequences for emerging markets and developing economies.