Monetary Law Blog

Bank of England Under UK Parliament Scrutiny

Governance at the Bank of England must be strengthened to reflect its new powers, parliamentarians (MPs) on the Commons Treasury Committee have demanded in a report published this week ('Accountability of the Bank of England'). 

Main recommendations:

• The Court of the Bank of England should be transformed into a smaller, more expert Supervisory Board with its own staff.
• The Minister of Finance ('Chancellor') should be responsible and accountable in a period of financial turbulence where public money is at risk; in these circumstances the Chancellor should be given a temporary and limited power to direct the Bank, according to MPs. 

The MPs also propose that:

• The Governor of the Bank be appointed for a single, non-renewable term of 8 years.
• A majority of external members sit on the Financial Policy Committee (FPC) and the Monetary Policy Committee (MPC).
• The new macro-prudential tools to be given to the FPC  be subject to thorough parliamentary scrutiny.

 

Netherlands Plans to Make Call for Bank Run a Criminal Offense

The Dutch government intends to make calls for bank runs a criminal offense. At the start of 2011 the Dutch Ministry of Justice plans to send a draft bill amending the Dutch Criminal Code, it said in a statement today. Under the draft legislation, inciting customers to withdraw their money from a bank may lead to a maximum punishment of a 19,000-euro (approx. $24,881) fine or a four- year prison term.

 

Basel III: A global regulatory framework for more resilient banks and banking systems

Full text of "Basel III: A global regulatory framework for more resilient banks and banking systems", December 2010

From BIS.org ...

The Basel Committee has issued the Basel III rules text, which presents the details of global regulatory standards on bank capital adequacy and liquidity agreed by the Governors and Heads of Supervision, and endorsed by the G20 Leaders at their November Seoul summit. The Committee also published the results of its comprehensive quantitative impact study (QIS).

Mr Nout Wellink, Chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank, described the Basel III Framework as "a landmark achievement that will help protect financial stability and promote sustainable economic growth. The higher levels of capital, combined with a global liquidity framework, will significantly reduce the probability and severity of banking crises in the future." He added that "with these reforms, the Basel Committee has delivered on the banking reform agenda for internationally active banks set out by the G20 Leaders at their Pittsburgh summit in September 2009".

The rules text presents the details of the Basel III Framework, which covers both microprudential and macroprudential elements. The Framework sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the build up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. 

The Committee also issued today Guidance for national authorities operating the countercyclical capital buffer as a supplement to the requirements set out in the Basel III rules text. The primary aim of the countercyclical capital buffer regime is to achieve the broader macroprudential goal of protecting the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risk. In addition to providing guidance for national authorities, this document should help banks understand and anticipate the buffer decisions in the jurisdictions to which they have credit exposures.

 

Economic Governance in the European Union

This week the EU Commission proposed a comprehensive package of legislation regarding fiscal discipline.

From the Commission website:

"The legislative package reinforces Member States’ compliance with the Stability and Growth Pact (SGP) by establishing the new concept of prudent fiscal policy-making (PFPM) and should ensure convergence by Member States towards their Medium-Term Objectives. It also addresses excessive debt – rather than just deficits – more proactively than in the past. Macroeconomic surveillance will also be tightened. A new Excessive Imbalance Procedure (EIP) will prevent and correct macroeconomic imbalances and divergences in competitiveness.

Stronger enforcement is a major part of the new legislative package. Two regulations detail a set of gradual sanctions for non-compliant Member States, including non-interest bearing deposits which would be converted to fines in the event of repeated non-compliance. To reduce discretion in enforcement, a new “reverse voting mechanism” is also envisaged. Under the new voting rules, which would apply when imposing sanctions, a Commission proposal will be considered adopted unless the Council overturns it by a qualified majority.

Finally, effective enforcement of the SGP requires that EU provisions are applied at the national level. A new Directive, therefore, stipulates minimum requirements to be followed by Member States to ensure that their national budgetary frameworks are consistent with the EMU budgetary framework."

European Union Legislature Strikes Deal on EU Wide Financial Regulators

Thursday the European Parliament and Council negotiators struck a deal on the new EU supervisory authorities (ESAs) and the European Systemic Risk Board (ESRB). This means that these new agencies should be up and running by January 2011.

For more info follow this link.

Montenegro: New Central Bank Law and Financial Stability Law

The Parliament of Montenegro has adopted a new Central Bank of Montenegro Law replacing the old Law (except for the provision on Montenegro's legal tender. The new CBM Law is part of new financial system legislation package including a Financial Stability Council Law and other financial laws.

Venezuela: Amendments to Central Bank Law (UPDATED)

Following up on my earlier post regarding changes in the Law of the Central Bank of Venezuela, here is the link to the amendments adopted earlier this year (UPDATE: including a consolidated version of the Law)--in Spanish only.

Venezuela: Amendments to Central Bank Law

Following up on my earlier post regarding changes in the Law of the Central Bank of Venezuela, here is the link to the amendments adopted earlier this year--in Spanish only.

Kosovo: New Central Bank Law

The new Law on the Central Bank of the Republic of Kosovo (CBK) has come into force, revoking the old CBK Law.

Governance Dutch Central Bank To Be Changed

This week The Netherlands' Minister of Finance announced changes to the governance of De Nederlandsche Bank (DNB, the Dutch central bank and prudential supervisor of the financial sector). The Minister will send Parliament proposals to change the central bank law shortly.

These changes include strengthening the Supervisory Board (DNB's internal oversight body) by giving it authority to oversee, amongst other things, the effectiveness of DNB's supervisory policy regarding the financial sector; consequently, the profile of the Supervisory Board's members will be adjusted accordingly.

Furthermore, the Minister proposes limiting the mandate of members of DNB's Governing Board, including its President. Although the seven-year period will remain unchanged, the proposals aim to limit re-appointments to once only; consequently no Governing Board member will stay in office for more than 14 years.

For more information on these changes and other, follow this link--in Dutch only.