FSB warns of financial system fragility
The situation in the financial sector is getting better, but remains very fragile. That's the assessment of the Financial Stability Board (FSB). "The situation is much better than one year ago," said Mario Draghi, governor of the Italian central bank and chairman of the FSB global watchdog."The markets are becoming risky again, bankers are becoming risk takers again.
"At the same time, bankers should be aware of the fragilities in the system. The general situation is better than what we could expect a year ago. I don’t think it’s as good as the markets think it is. Bankers should be aware of the fragilities in the system. They should have in mind that there are many fragile sides to this beginning of the recovery."
Draghi noted the high levels of financing that governments will require in the years ahead. "This, combined with changes in the markets' perception of sovereign risk, is by itself causing a significant fragility and might cause in the end some crowding out of private financing," he said.
The FSB is made up of senior representatives of national central banks, regulatory and supervisory authorities and ministries of finance, international financial institutions, standard setting bodies, and committees of central bank experts.
The FSB’s members agreed to review by March the implementation of measures the Group of 20 nations backed to restrain bonuses and executive compensation. The FSB will draw up a framework to identify which nations outside its membership aren’t meeting the standards and may publish a list of those which are uncooperative. The board will also present options in June on how to handle the risks posed by large banks.
The FSB said in a release that the official support measures should now be more targeted to address specific areas of weakness than during the height of the crisis. "It is important that liquidity and risk capital be directed toward supporting credit to sectors that will contribute to a stronger real economy, including small and medium-sized enterprises," it said.
The Bottom Line:If Mr Cable has his way...
"If Mr Cable had his way, all the big banks would be broken up and bonuses would be virtually eliminated - a sure-fire way in my view of guaranteeing an end to the UK’s ability to compete as an international financial centre. Let’s not forget that this is a man who is on record as saying that everyone who works in a bank has an ‘aristocratic lifestyle’ clearly demonstrating his lack of understanding of the sector." A tough line on bankers’ bonuses could make a brain drain of financial talent a distinct possibility, warns Paul Marsden. Read more