The Financial Stability Board (FSB) has been established to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability.
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Assessment of long-term benefits and transitional costs of higher bank capital and liquidity requirements The FSB and the Basel Committee has published reports prepared as input to the calibration of new bank capital and liquidity standards and to inform the transition arrangements for implementation of the new standards. The reports find that there are clear net long-term economic benefits from increasing minimum bank capital and liquidity requirements in order to raise the resilience of the global banking system, and that the transition to stronger capital and liquidity standards is likely to have a modest negative impact on aggregate output. The benefits of higher capital and liquidity requirements accrue from reducing the probability of financial crisis and the output losses associated with such crises. The benefits substantially exceed the potential output costs for a range of higher capital and liquidity requirements. In term of transition costs, if phased in over four years, each one percentage point increase in banks' ratio of tangible common equity to risk-weighted assets will lead to a decline in the level of GDP relative to its baseline path by about 0.20% after implementation is completed. A 25% increase in liquid asset holdings has less than half this impact. The projected impacts arise mainly from banks passing on higher costs to borrowers, which results in a slowdown in investment. A two-year implementation period leads to a slightly larger reduction from the baseline path, with the trough occurring after two and a half years, while extending the implementation period beyond four years makes little difference. In all of these estimates, GDP returns to its baseline path in subsequent years. Invitation for public feedback on risk disclosure practices The FSB has launched a peer review of the implementation of the recommendations concerning risk disclosures by market participants that were made in the April 2008 Financial Stability Forum Report on Enhancing Market and Institutional Resilience. These recommendations related in large part to disclosures about structured products and certain other risk exposures that were of concern to market participants in 2008. The review will focus on implementation of the recommendations by FSB member jurisdictions and by the major financial institutions located in those jurisdictions. We would welcome feedback from investors, audit firms, financial institutions, industry associations and other stakeholders on their practical experiences as users of the resulting disclosures or in implementing the risk disclosure recommendations. Feedback should be submitted by 10 September 2010 to fsb@bis.org under the subject heading "FSB Thematic Peer Review on Risk Disclosure." See the attached press release for more details. |