The Financial Stability Board (FSB) is highlighting cracks in the global economy and emerging downside risks.
At a meeting in Ottawa on Monday, the FSB Plenary discussed the latest market developments and vulnerabilities in the global financial system. Although policy-makers note that global growth remains solid, it has also “become more uneven across economies, and some downside risks have begun to materialize,” the FSB says in a news release.
Certain developments warrant regulators’ attention, the FSB says. For instance, rising interest rates in advanced economies has contributed to a “marked tightening of financial conditions in some emerging market economies,” some asset classes, including real estate, “are showing signs of overvaluation,” and geopolitical uncertainties also persist.
Additionally, new forms of interconnectedness within the industry have emerged that could transmit or amplify certain risks. As a result, the FSB says that global standards-setters must understand how new market structures could respond to market shocks; and, that the FSB’s recommendations to address structural vulnerabilities arising from asset management activities need to be implemented.
Looking ahead to 2019, the FSB will evaluate the reforms to end too-big-to-fail policies, explore ways to address the risk of market fragmentation, study the financial stability implications of decentralized financial technologies, and developing practices for responding to and recovering from cyber incidents.