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.

 

A Global Central Bank

An International Monetary Policy Committee accountable to world leaders, that is what the Committee on International Economic and Policy Reform proposes in its report Rethinking Central Banking.

This International MPC sould comprise representatives of major central banks and report on the aggregate consequences of individual central banks policies. According to the Committee this would encourage large-country central banks to internalize the spillover effects of their policies.

The Committee also propose that central banks should go beyond their traditional focus on inflation fighting and adopt an explicit financial stability objective; macroprudential policy should be used alongside monetary policy in pursuit of this 'new' objective.

The Committtee's report can be downloaded from the Brookings Institution website.

The role of central banks after the crisis

"The current crisis will have far-reaching consequences for the role and responsibilities of central banks. They will need to pay greater and more symmetric attention to financial considerations in framing their monetary policy. They will also need to play an important role in any macroprudential policy framework that is set up - even when they are not responsible for detailed implementation. But wider responsibility requires greater accountability. Strengthened governance arrangements must both ensure accountability and provide central banks with the autonomy needed to conduct monetary policy and financial stability policy."

Abstract of a speech by Mr Jaime Caruana, General Manager of the BIS, to the Observatory of the European Central Bank, on 19 January 2011.

For the full text of the speech, follow this link to the BIS website.

 

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.

 

Central Banks and Their Role in Macroregulation and Financial Stability: Perspectives From Chile and Bolivia

Central banks’ contribution to financial stability – the experience of Chile
Speech by Mr Enrique Marshall, Board Member of the Central Bank of Chile, at the Central Bank of Bolivia's First Financial Workshop "Macroregulation and Financial Stability", La Paz, 29 September 2010.

The role of central banks in macroprudential regulation – the case of Bolivia
Opening remarks by Mr Gabriel Loza Telleria, Acting President of the Central Bank of Bolivia, at the Primera Jornada de Estabilidad Financiera, La Paz, 29 September 2010.

International Monetary and Financial Law: The Global Crisis

This new book edited by Mario Giovanoli and Diego Devos (respectively, former and current General Counsel of the Bank for International Settlements) is organized around four main topics:

1. The Reform of the International Financial Architecture
2. Financial Regulation and Supervision: the Crisis Test
3. Financial Crisis Resolution and Litigation Issues
4. Money, Central Banks and Payment Obligations

The articles are written by many distinguished lawyers, such as Sean Hagan (General Counsel, International Monetary Fund), Thomas Baxter (General Counsel, Federal Reserve Bank of New York), Bernd Krauskopf (General Counsel, Deutsche Bundesbank), and Antonio Sáinz de Vicuña (General Counsel, European Central Bank).

 

Macro-prudential Regulatory Policies: The New Road to Financial Stability?

In conjunction with the International Monetary Fund, the Federal Reserve Bank of Chicago will hold its 13th annual International Banking Conference on September 23–24, 2010. This year, the conference examine the role of macroprudential regulation in the financial sector. Shocked by the experience of the last few years, many argue that the more traditional microprudential regulatory tools are inadequate to create a safe and stable financial system. Instead, it is argued, there is a need for both microprudential approaches to regulate individual institutions and macroprudential approaches to manage the overall financial system risks. However, a number of important questions must be answered:

• What are the theoretical motivation for such regulation?
• How would it interact with other regulatory and macroeconomic policies, especially monetary policy?
• What would be the specific macroprudential tools?
• Who should have control over the macroprudential tools?
• How should a macroprudential regulator be structured?
• Where should it be housed?
• How can macroprudential policies be structured across national borders?
• What role, if any, can market discipline play in supporting macroprudential objectives?

These and related issues will be addressed at the two-day conference.

For more information and registration follow these links: Federal Resever Bank of Chicago and International Monetary Fund.

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.

Basel Committee reaches broad agreement on capital and liquidity reform package

From the BIS website:

"The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, met on 26 July 2010 to review the Basel Committee's capital and liquidity reform package ...Governors and Heads of Supervision reached broad agreement on the overall design of the capital and liquidity reform package. In particular, this includes the definition of capital, the treatment of counterparty credit risk, the leverage ratio, and the global liquidity standard. The Committee will finalise the regulatory buffers before the end of this year. The Governors and Heads of Supervision agreed to finalise the calibration and phase-in arrangements at their meeting in September."

For more info, please follow this link.

An Autopsy of the Financial System: Suicide, Accident, or Negligent Homicide

On the World Bank blog 'All About Finance' you will find an interesting post and video by Professor Ross Levine. The post summarizes his presentation at the World Bank on April 28 entitled 'An Autopsy of the Financial System: Suicide, Accident, or Negligent Homicide?' The video of the event is available here.

Professor Ross Levine is the James and Merryl Tisch Professor of Economics at Brown University. In this blog entry, he addresses three issues: (1) The causes of the cause of the financial crisis, (2) Core approaches to financial regulation, and (3) Systemic improvements. He also directs readers to longer treatments of each of these issues.

The All About Finance blog is run by a team under leadership of Asli Demirgüç-Kunt who is the Chief Economist of the Financial and Private Sector (FPD) Development Network and Senior Research Manager of Finance and Private Sector (DECFP) in the World Bank's Development Economics Research Group.