These are two acronyms that almost no member of the public would recognize. However, the entities that they identify will have more impact on your financial wealth over the next few months than almost any other entities you have heard about.
The FSB is the Financial Stability Board. It was established in April 2009 as the successor to the Financial Stability Forum.
The original organization was founded in 1999 by the finance ministers and central banks of the G-7 Group of Nations. Its purpose was to bring together national authorities responsible for financial stability in order to promote effective regulation and supervision of the global financial system.
The FSB was an expansion of the Forum, created under the auspices of the G-20 Group of Nations, to include input from more nations. The FSB now has representatives from 24 nations and 7 international bodies. The United States has three members: the Federal Reserve Bank, the Securities and Exchange Commission, and the US Treasury. The international agencies who are members include the Bank for International Settlements, European Central Bank, European Commission, International Monetary Fund, Organization for Economic Co-Operation and Development, the World Bank, and the Basel Committee on Banking Supervision.
As you can see, the Financial Stability Board could be construed as an arm of world government. You can view more information on the FSB at www.financialstabilityboard.org.
As part of the organization’s duties, it prepares regular reports on the status of the economies on a global, regional, and national scope. These reports are presented at major international conferences to help officials understand financial problems and to plan and coordinate policies to address them.
The Financial Stability Board made its latest report at the November 3-4 meeting of the G-20 Group of Nations in Cannes, France. This responded to a request from the G-20 to develop a policy framework to evaluate the risk of SIFIs, which are Systemically Important Financial Institutions.
In this G-20 report, the Financial Stability Board stated, “SIFIs are financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity. To avoid this outcome, authorities have all too frequently had no choice but to forestall the failure of such institutions through public solvency support. As underscored by this crisis, this had deleterious consequences for private incentives and for public finances.”
The English translation of that paragraph is that there are banks so large that their failure would risk worldwide economic chaos. Unfortunately, governments have done nothing to prevent this risk or to prepare to manage such crises. As a result, when any SIFI has come to the brink of failure, governments have simply tapped the public treasury, meaning the taxpayers, to bail out the floundering financial institution.
The Financial Stability Board has established a set of policies for dealing with “too big to fail” banks, but none of the measures have been put into practice. In the absence of such regulation, many banks have grown larger than the Gross Domestic Product of the nations where they are located. In other words, any future bailouts could destroy that country’s national balance sheet.
In their report, the Financial Stability Board identified the 29 most dangerous banking institutions around the globe. It admitted that the sudden failure of even one of these huge SIFIs could result in a “contagion risk” that would topple the entire interlocked worldwide financial system.
Among the 29 banks at risk of destroying the global financial system are several from the US. The list includes Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, State Street, and Wells Fargo. Foreign banks on the list with a significant presence in the US include Barclays, HSBC, and UBS.
Many of the American banks on the list have extraordinary potential liabilities of derivatives positions. A minor downturn in some nation or economic sector could be magnified many times to wipe out the ability of one or more of these banks to survive.
The debt problems of European nations including Greece, Italy, Portugal, Spain, and Ireland are very real threats to many of the SIFIs. For instance, several French banks on the list have huge unsustainable positions in Italian government debt. Should the Italian government debt be discounted to the same level as currently planned for Greece, these banks would fail. That could start the domino chain of worldwide financial collapse.
If you don’t like what I have just discussed, you cannot simply dismiss it as my opinion. This analysis was prepared by the Financial Stability Board, whose membership includes the likes of the Federal Reserve Bank, the US Treasury, the Securities and Exchange Commission, the International Monetary Fund, and the World Bank. These are organizations that would only admit this depth of financial problems as a last resort.
That the Financial Stability Board has issued this report is a warning sign that time is short to protect your wealth from the fall in value of paper assets such as currencies, stocks, and bonds. Do you already own your financial insurance in the form of physical gold and silver?
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His bimonthly columns on collectibles can also be read at http://www.lansingbusinessmonthly.com under “Articles” and “Department Columns.”His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.