Volatility rises in capital flows, asset prices: FSB

Amid persisting vulnerabilities in the global system, the Financial Stability Board (FSB) has said volatility in capital flows and asset prices increased in the last several weeks.
FSB, which works to ensure global financial stability, represents entities from 24 nations and jurisdictions, including India, and international financial institutions, among others.
"Despite important progress in strengthening the resilience of the global financial system, some parts of the system remain in a state of incomplete repair," FSB said in a statement today.
The meeting of the board, held in Basel yesterday, discussed vulnerabilities affecting the global financial system.
Noting that some jurisdictions have to continue improving the capitalisation of their banking systems, the board emphasised on the need for having further resilience.

The European Central Bank's preparation for the single supervisory mechanism, among others, is expected to bring in more clarity on the availability of adequate capital backstops, to strengthen the euro zone banking system.

"In other parts of the world where credit growth has been very rapid over recent years, building further resilience remains a priority," the statement said.
According to the board, over the last several weeks, volatility in interest rates, asset prices and capital flows has increased.
"Market participants and supervisory authorities should incorporate in their stress tests scenarios that involve considerably elevated interest rate risk, widening credit spreads, falls in asset prices, and material volatility in foreign exchange markets and capital flows," it said.

The observations come at a time when many emerging markets, including India, are seeing substantial volatility in their currencies and stocks amid the US Federal Reserve plans to slow down bond buying activities.
Besides, FSB has decided to set up a panel of regulators and central banks to review existing interest rate benchmarks, including Libor.
The proposed Official Sector Steering Group would also convene and guide the work of a Market Participants Group that would review options for robust reference rates that meet the needs of the private sector and any potential transition issues.
"The Steering Group will examine whether the governance and processes around these benchmarks meet agreed international standards...," the statement said.