FSB Prioritizes Nonbank Financial Intermediation, Money Market Funds and Cross-Border Payments for 2021

Federal Reserve Board Vice Chair for Supervision Randal K. Quarles, who also serves as Chair of the Financial Stability Board ("FSB"), identified nonbank financial intermediation ("NBFI"), money market funds and cross-border payments as the FSB's priority areas for 2021.

Mr. Quarles stated that NBFI prominence in the financial ecosystem has created greater interconnectedness and, therefore, a need to understand the vulnerabilities arising from risks outside of the banking system. He noted that the NBFI sector accounts for almost half of all global financial assets.

Mr. Quarles referenced the FSB's Holistic Review of the March Market Turmoil in order to highlight one of its most "significant findings": the "dash for cash" that hit prime money market funds ("MMFs") particularly hard. The referenced run was "faster" than the one during the September 2008 crisis in terms of the percentage of fund assets redeemed. Mr. Quarles emphasized that this run was more concerning, given that steps were implemented post-2008 "precisely to reduce the likelihood of such runs." The FSB will publish a report setting out policy proposals to improve MMF resilience which should reduce government interventions and taxpayer support and halt future MMF runs.

With regard to improving the cross-border payments system, Mr. Quarles stated, the FSB must first set "specific, quantitative targets." Such responsibility will fall under the purview of an FSB task force, tasked with (i) publishing a consultative paper in May and (ii) delivering a final set of targets to the G20 in October. Mr. Quarles also stated that, while the FSB's work will focus on its responsibilities to the G20, he recognized that cross-border payments are global and, to that end, the FSB will partner with the World Bank and International Monetary Fund.

Mr. Quarles also revealed that the FSB will release in April "its most ambitious evaluation" of the effects of the post-2008 banking reforms, an evaluation that outlines the work remaining to fully realize the "too-big-to-fail" reforms.