More resilient, better managed, less complex: Strengthening FMUs and linkages in the system

Abstract

The 2008 financial crisis made it clear that financial stability involves not only the safety and soundness of banks, but of many different types of financial institutions such as insurance companies, financial market utilities (FMUs) and other non-bank financial firms. Today, we have a much keener appreciation of how financial stability is dependent on the strength of financial institutions and on the soundness of the interconnections between, and across, firms. Recognising these connections, the Dodd-Frank Act of 2010 expanded the Federal Reserve’s supervisory authority to include a broader range of financial institutions, including bank holding companies, insurance companies, savings and loan holding companies, and some FMUs. Although these institutions differ in many ways, the over-arching supervisory goals remain the same: firms need to be more resilient to shocks; better managed, with governance structures in place to establish the appropriate decision-making processes, behaviours and incentives within firms; and less complex, with credible mechanisms in place for resolution without causing systemic disruption across the financial system.