The Financial Stability Board (FSB), established in 2009 after the global financial crisis, is initiating an investigation into the accumulation of debt outside traditional banks. This move aims to regulate hedge funds’ borrowing activities and enhance transparency in financial markets. The FSB, headquartered in Basel, Switzerland, operates as a coordinating body for national financial authorities, international organizations, and standard-setting bodies. It monitors and analyzes the financial system, offering recommendations on issues that may impact global financial stability. However, its decisions are not legally binding on member institutions. India actively participates in the FSB, holding three seats in its Plenary.
Facts/Terms for UPSC Prelims
- Financial Stability Board (FSB): The FSB is an international organization established in 2009 by the G20 to coordinate the efforts of national financial authorities and international standard-setting bodies. It aims to develop and promote effective financial sector policies to ensure global financial stability.
- Hedge Funds: Hedge funds are investment funds that pool capital from accredited individuals and institutional investors. They employ various strategies to generate returns, often including higher-risk investments and leveraging, which can lead to increased borrowing.
- Basel, Switzerland: Basel is a city in Switzerland and serves as the headquarters of the FSB. It is a hub for international finance and hosts several prominent financial organizations and institutions.
- G20: The Group of Twenty (G20) is an international forum consisting of major economies. It plays a crucial role in addressing global economic issues and financial stability, with member countries working together to coordinate policies and initiatives.
- Secretary (Dept of Economic Affairs), Deputy Governor-RBI, and Chairman-SEBI: These are three key positions representing India in the FSB’s Plenary. The Secretary of the Department of Economic Affairs, the Deputy Governor of the Reserve Bank of India (RBI), and the Chairman of the Securities and Exchange Board of India (SEBI) play important roles in shaping India’s engagement with the FSB on financial stability matters.
