The Financial Stability Board (FSB), located in Switzerland, issued a warning on Tuesday ahead of the G20 Summit here that rising interest rates and a declining growth forecast could make it more difficult for borrowers to pay down historically high levels of debt.
The FSB has published two letters from its Chair, Klaas Knot, to G20 Leaders ahead of their Summit in New Delhi on September 9-10.
The first letter describes the efforts made by the FSB to address current financial system vulnerabilities and strengthen the system’s resistance to structural change during India’s G20 Presidency.
The second letter provides to G20 Leaders an update on the G20 Cross-border Payments Roadmap.
In its letter to the G20 leaders, the FSB emphasized the necessity of a robust and secure financial system for maintaining economic growth, particularly in the current climate.
FSB notes the challenging backdrop of strong and persistent inflation and slowing growth, and warns that rising interest rates could impair the capacity of borrowers to service the historically high stock of global debt.
Knot called on authorities to closely monitor asset quality in those sectors most sensitive to higher interest rates, such as real estate. The letter highlights concerns over the build-up of leverage in the NBFI sector, described in a report being delivered to the Summit, and notes that addressing these risks will be a major focus of NBFI policy work next year.
The letter notes that accelerated digitalisation has been the emergence of crypto-assets, including so-called stablecoins.
A number of incidents over the past year have highlighted the vulnerabilities in the crypto-asset ecosystem, which warrant close monitoring given the growing linkages with the traditional financial system.
“New technology brings not only risks but also opportunities. The FSB is coordinating work to take forward the G20 Roadmap to make cross-border payments cheaper, faster, more inclusive, and more transparent. Good progress has been made already,” Knot said.
The communication cross-border payments roadmap said that the first phase – the initial set of actions set out in the 2020 Roadmap – has now largely been completed.
“This year, in the second phase, the authorities and standard setters have focussed their efforts on concrete projects that will make a difference across various parts of the cross-border landscape and on developing further the partnership with the private sector to work to achieve the Roadmap goals,” it said.
The letter emphasizes the need for ongoing political support and persistent work by the public and commercial sectors to accomplish the G20 goals of making cross-border payments more affordable, quick, inclusive, and transparent by 2027.
“Leadership from the G20 has energised the public and private sectors and provided the political impetus, without which change will not happen” it said.
The FSB will submit to the G20 Finance Ministers and Central Bank Governors in October its first report with data on progress toward the quantitative targets and its latest annual report on progress in the individual Roadmap actions.
The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability.
FSB, in a release, said that it brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
