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Financial Stability Board: under the spotlight

Friday 17 June 2011 - by Will Henley

The Financial Stability Board is charged with maintaining the openness and transparency of the financial sector, yet its own internal processes are shrouded in secrecy. Should emerging markets get a greater say and will Mario Draghi step down as chair? Will Henley reports.

In a matter of weeks the Financial Stability Board will unleash highly anticipated proposals on global systemically important financial institutions.

The rules are expected to prescribe higher capital surcharges and, like those coming on over the counter derivatives, resolution regimes and shadow banking, may have a seismic impact on the financial industry.

Touted by US Treasury secretary Tim Geithner as the "fourth pillar" in the global economic governance architecture - after the World Bank, International Monetary Fund and World Trade Organization - the board is tasked with a central role in averting another crisis.

And yet, for all the fierce debate over who will take over at the IMF - whether it will be presided over by an emerging market representative or a European once again - few headlines have been written about the impending vacancy at the top of the FSB.

Mario Draghi, the governor of the central bank of Italy, who has been chairman of the FSB and its predecessor the Financial Stability Forum since 2006, is due to step down in April next year when his second three-year term expires.

However, as the shoo-in to replace Jean-Claude Trichet at the European Central Bank in November, it is highly possible that he may decide to leave his part-time role at the FSB even before then.

"It is somewhat ironic," says Lawrence Goodman, president of the New York-based Center for Financial Stability, "that a lot of the attention at present is on succession at the IMF.

"The FSB also plays such a critical role in ensuring that the world financial system's infrastructure is robust and well coordinated."

On Tuesday, at his first hearing before European parliamentarians, Draghi repeatedly referred to his work on the board in the past tense. It could have been a quirk in translation, or a Freudian slip.

But to date Draghi has given no indication that he intends to relinquish his post in the autumn if, as expected, he is approved by European parliamentarians and eurozone members on 23 and 24 June.

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2011-07-13 14:25:34 | Per Kurowski
Bank regulators that ignore all bank crises have resulted either from fraudulent behavior or excessive lending to what was perceived as “not-risky”, and that none has resulted from excessive lending to what is perceived as “risky”, do not know about regulations and should not be regulating.

Banks regulators that do not know that their concern is not the credit ratings being right but the credit ratings being wrong, and so that therefore the last thing you want to do is to set up capital requirements for banks that are based on the credit ratings being right, do not know about regulations and should not be regulating.

Bank regulators that place a risk weight of 0 percent on triple-A rated sovereigns and 100 percent on small businesses and entrepreneurs, and so that a risk adjusted dollar of interest paid by the sovereign is worth infinitely more in terms of returns on bank equity than a risk adjusted dollar of interest paid by a small businesses and entrepreneurs, are communists.