Global Financial Strategy - Mario Draghi, Chairman of Financial Stability Board

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Mario Draghi, Chairman of Financial Stability Board

Wednesday 19 January 2011 – by Andrew Hickley

Draghi has had to balance his chairmanship of the Financial Stability Board with an equally challenging day-job governing the central bank of Italy. With a series of dramatic FSB proposals, Draghi’s stock has surged in 2010, placing him runner-up in the GFS Power 50.

Draghi’s chairmanship of the Financial Stability Board, located within the corridors of the Bank for International Settlements, has established the Italian as one of the most influential regulators on the planet.

Mandated by the G20 to coordinate the work of national financial authorities and international standard setters, the FSB’s role in 2010 cannot be underestimated in setting the agenda for reforms to the ways in which international financial institutions conduct their business.

Under Draghi’s leadership, the FSB issued proposals on derivatives in central counterparties and reducing the use of credit ratings agencies. But perhaps most significantly, the board proposed dramatic new policies at the G20 summit in South Korea.

Under the package, countries will be forced to adopt resolution frameworks for systemically important financial institutions (SIFIs) and large transnational institutions – or global SIFIs (G-SIFIs) – which will be forced to adopt a higher loss absorbency capacity than even the Basel III regulations recommend.

Draghi’s report recommended that all jurisdictions undertake legal reforms to ensure that they have a feasible resolution in place which does not require the use of taxpayer funds. This is the Italian’s own contribution to try to remove ‘too-big-to-fail’ from the dictionary forever. With the FSB’s report endorsed, Draghi and his board have now been tasked with recommending additional detail on G-SIFI loss absorbency.

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With engagement in 2011 set to continue in conjunction with the IMF, BIS, the World Bank and the International Organization of Securities Commissions and the Organisation for Economic Cooperation and Development, Draghi’s committee will air their input into a vast amount more of international issues than any other panel.

Notably, Draghi’s name has been linked in the past year with the role of President at the European Central Bank. However he has been cool on the ECB’s approach under Jean-Claude Trichet of mass-purchasing bonds. If he was to go for the role, he would no doubt face a fight against German central banker Axel Weber, with Jean-Claude Trichet will be vacating in October.

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