The Financial Stability Forum (FSF) was founded in 1999 by the G7 Finance Ministers and Central Bank Governors following recommendations from Hans Tietmeyer, President of the Deutsche Bundesbank. Dr Tietmeyer had been commissioned by the G7 to recommend new structures for enhancing cooperation among national and international supervisory bodies and international financial institutions so as to promote stability in the international financial system. In April 2009 the G20 called on the FSF to be re-established as the Financial Stability Board (FSB) with a broadened mandate to promote financial stability.

Recently the FSB's chairman, Mario Draghi, published a speech setting out some useful insights into the FSB's role and responsibilities. A primary role of the FSB is to undertake the diagnosis of regulatory, supervisory and financial policy changes needed to maintain global financial stability. To deliver this the FSB aims to ensure that the work of national authorities and the international standard setting bodies is appropriately prioritise, effectively coordinated and focused on the health of the financial system as a system, that gaps in the regulatory agenda are identified and filled, and that overlaps and inconsistencies are avoided.

In relation to the development of financial stability policies the FSB's primary focus is the identification of structural weaknesses:

Mr Draghi accepted that major changes to the global regulatory system are needed. He argued that there needs to be a system which is built on less leverage, where capital and liquidity buffers are much stronger, where all institutions or infrastructure capable of posing significant risk are subject to appropriate oversight and safeguards, and where no institution is too big to fail. The FSB will propose measures to reduce the risks posed by systemically important institutions by October 2010.

He also argued that there needs to be a systematic effort to reverse the misalignments in incentives that came to characterise part of the financial system. The FSB published principles on compensation earlier this year and it is now calling on national authorities to take action to implement these principles consistently.

At the beginning of November the FSB published four reports which were submitted to the G20. The most interesting of these is the progress report made to the Pittsburgh Summit in September as it includes a description of the action taken to date to implement the policy measures for improving financial regulation.