Financial Stability Board (FSB): what is it and what are its functions

Sushree Behera

26 June 2023

The intricate nature of the global financial system demands meticulous attention to ensure its stability. In this pursuit, the Financial Stability Board (FSB) assumes a pivotal role. As financial markets continue to merge, it becomes increasingly imperative to establish an international entity that arranges and advocates for policies aimed at shielding the system from systemic risks and potential crises.

We shall delve into the functions, structure, and historical evolution of the FSB, thereby bestowing upon you a comprehensive comprehension of its paramount importance in upholding financial stability.

Table of Contents

What is the Financial Stability Board (FSB)?

Having been established in 2009, the Financial Stability Board (FSB) serves as a global institution. It operates internationally, assuming the responsibility of supervising and offering recommendations pertaining to the complex global financial system.

It serves as a platform for cooperation and collaboration, fostering synergy among national authorities, international bodies responsible for setting financial standards, and global financial institutions.

The Financial Stability Board (FSB) comprises a distinguished assembly of 68 member institutions. These include central banks, finance ministries, regulatory bodies, and supervisory authorities from 25 jurisdictions, along with 10 international organizations and six Regional Consultative Groups (RCGs).

The FSB embarks on its noble mission. The primary goal of the FSB is to champion financial stability by diligently identifying vulnerabilities, assessing risks, and implementing apt policy measures in response.

How soes the Financial Stability Board work?

The Financial Stability Board (FSB) efficiently facilitates international coordination and collaboration. It does so through a vast network comprising member institutions and jurisdictions, including central banks, regulatory bodies, and finance ministries. FSB serves as a vital platform for the exchange of information. It also facilitates comprehensive analyses and the formulation of policies to address emerging risks and challenges within the financial sector.

The Financial Stability Board (FSB) ensures harmonized cooperation and consistency in its endeavors. It follows a meticulous three-stage process, as delineated in the FSB’s annual work program. Comprising essential components such as the Plenary, the Steering Committee, and supplementary committees and sub-groups as required, the FSB operates cohesively to fulfill its mandate.

The Plenary is the authoritative body within the FSB and is responsible for making critical decisions. When it comes to giving operational direction, the Steering Committee is crucial. The work of the Financial Stability Board (FSB) is an excellent example of steadfast adherence to these key values and is guided by the ideals of transparency, accountability, and inclusivity.

Functions of the Financial Stability Board

In order to fulfill its objective of fostering financial stability, the Financial Stability Board carries out a variety of essential functions. These functions encompass:

Detection and evaluation of systemic risks: The FSB diligently monitors and scrutinizes developments within the global financial system, discerning potential risks that could jeopardize stability. Through comprehensive risk assessments and the dissemination of informative reports, it endeavors to raise awareness and foster appropriate policy responses;

Establishment and advocacy of international financial standards: The FSB collaborates with esteemed international bodies responsible for setting financial standards. It spearheads the development and advocacy of robust regulatory and supervisory standards. These standards encompass critical domains such as banking, insurance, securities markets, and market infrastructures;

Oversight of policy implementation: The FSB assumes the responsibility of evaluating the implementation of agreed-upon policies and standards across its member jurisdictions. Conducting meticulous peer reviews, it furnishes valuable recommendations to enhance the efficacy of regulatory and supervisory frameworks;

Facilitation of coordinated crisis responses: During periods of financial strain or crisis, the FSB plays a pivotal role in orchestrating policy responses at the international level. It serves as a facilitator, promoting effective communication and collaboration among relevant authorities. By mitigating risks, restoring confidence, and upholding the stability of the global financial system, the FSB actively contributes to crisis resolution efforts.

Structure of the Financial Stability Board

The Financial Stability Board boasts a robust and intricate structure, ensuring effective governance and representation. Its key components encompass:

Plenary: Serving as the apex decision-making body, the Plenary comprises distinguished representatives from member institutions. Convening multiple times throughout the year, this esteemed assembly engages in comprehensive discussions, charting strategic priorities and setting policy directions;

Standing Committees: The FSB houses various standing committees, each entrusted with specific areas of focus. These committees diligently undertake in-depth work pertaining to policy development, implementation monitoring, and the provision of technical expertise. Illustrative examples of standing committees include the Standing Committee on Supervisory and Regulatory Cooperation and the Standing Committee on Assessment of Vulnerabilities;

Secretariat: Acting as the backbone of the FSB, the Secretariat offers invaluable administrative support, facilitating the day-to-day operations. It assumes responsibility for harmonizing the FSB’s workstreams, preparing reports and publications, and maintaining fruitful communication with member institutions and external stakeholders.

History and evolution of the FSB

The establishment of the Financial Stability Board can be attributed to the formation of the Financial Stability Forum (FSF) in 1999, which was sparked by the occurrence of the Asian financial crisis. Initially, the FSF focused on fostering cooperation among its member institutions.

The overarching goal was to advance international financial stability. The FSF underwent a profound metamorphosis after the global financial crisis in 2008. It was reconfigured into its present form, the Financial Stability Board, in 2009.

The Financial Stability Board (FSB) has undergone continual evolution since its establishment. It has adapted to tackle emergent challenges within the financial system. FSB has diligently expanded its membership. It has also broadened its mandate and assumed a pivotal role in driving the reform of global financial regulations. The FSB’s commitment to its mission is unwavering.

It has significantly contributed to bolstering the resilience and stability of the international financial system. It remains an influential entity, actively engaged in ongoing endeavors to safeguard against future crises.