What happened: The Financial Stability Board (FSB) published nine recommendations on leverage in nonbank financial intermediation (NBFI) in its long-awaited final report today. The report was released alongside a webinar where newly elected FSB Chair Andrew Bailey, the Financial Conduct Authority (FCA), and European Central Bank (ECB) summarized the recommendations following stakeholder consultation earlier this year.
Why it matters: The FSB acknowledges the diverse ecosystem of nonbank participants and recognizes that leverage can facilitate hedging, enhance efficiency, and support liquidity in financial markets. While the recommendations are non-binding, the FSB encourages national regulators to consider a range of policy measures, including activity and entity-based measures, to address potential vulnerabilities from nonbank leverage including:
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Implementing “one-size-fits-all” measures does not recognize the heterogeneity of the nonbank sector.
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Minimum haircuts or initial margin requirements in securities financing transactions (SFTs), including government bond repos.
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Enhancing margin requirements between nonbanks and their derivatives counterparties.
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Greater use of central clearing in SFT and derivatives markets.
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Improved collection of nonbank data and identification of gaps in existing reporting requirements.
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Entity-level leverage caps, calibrated by national authorities to reflect market specific risks.
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Indirect leverage constraints linked to risk exposures of nonbanks.
MFA on the issue: MFA’s extensive engagement with the FSB over the past 18 months through bilateral meetings, roundtables, and comment letters has stressed that leverage limits on alternative investment funds are inappropriate and unnecessary. MFA met the FSB earlier this year in Basel, Switzerland and continues to engage regularly with global standard setting bodies, including the FSB, Bank for International Settlements (BIS), and International Organization of Securities Commissions (IOSCO), to emphasize the important role of alternative asset managers in enhancing global capital markets.
MFA released the following statement in response to the FSB’s report:
The report’s recommendations on blunt entity-level caps and minimum haircut requirement are not appropriate tools to reduce risk in the financial system, and could have unintended, negative consequences for economic growth and financial stability.– Bryan Corbett, MFA President and CEO.
Yes, and: Bank of England Governor Andrew Bailey began his three-year term as FSB Chair this month, where he will play a key role in planning and delivering the FSB’s nonbank policy agenda.
What’s next: The FSB has established a task force and workplan to address nonbank data challenges and plans to publish a report on a test case involving leveraged trading strategies in sovereign bond markets by mid-2026.
