Central Banking, Financial System Stability and Growth
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    Central Banking, Financial System Stability and Growth Central Banking, Financial System Stability and Growth Presentation Transcript

    • Central Banking, Financial System Stability and Growth Presented by Piero Ugolini May 6, 2009 Central Bank of Nigeria
    • Errare Humanum Est!!!
      • Seneca the Younger Year 4 BC !!!
      • And he added:
      • “ Sed Perseverare est Diabolicum”
    • Are we learning from past mistakes?
      • Debt crisis 1986– Brazil and others
      • University books : MBA – a country never defaults !!!
      • Was it true?
    • What did we learn from the 80’s debt crisis?
      • International Cooperation
      • Exchange of information
      • Transparence
      • Creation of Paris and London Clubs
      • Better management and corporate governance
      • Risk management
      • Stress test
      • Off-balance sheet items – Contingent liabilities
      • Supervision
    • Asian crisis- What Happened?
      • Until 1997 Asia attracted almost half of the total capital inflow from developing countries
      • Paul Krugman “ Asian economic Miracle”
      • Thailand, Indonesia, and S. Korea exports dropped, capital outflows, devaluations, etc…
    • What did we learn?
      • Among other things --- it became clear that the world needed international standards:
      • BCP
      • IAIS
      • IOSCO
      • CPSS
      • Transparency
      • AML
      • Overall better supervision and reduction of Government interference with the financial sector
    • Crisis of 2007-8
      • Excess liquidity and low interest rates in the US
      • Financial innovation and products disseminated w/o duly supervision
      • Housing bubble in the US and expectations of increasing values in the housing market
      • Poor supervision in the mortgage markets
      • Unsatisfactory market risk assessment
    • Crisis of 2007-8-cont.
      • Unregulated market for derivatives
      • Lack of transparency in key segments of financial markets –minimal information on pricing, trading volume, and others
      • Credit rating agencies did not do their job
      • Weaknesses in resolution procedures
      • Accounting practices: amplify business cycles- credit expansion/contraction
    • Crisis of 2007-8 cont.
      • Poor corporate governance
      • Weaknesses in Disclosure- risk associated
      • Supervisory and regulatory policies not adequate to capture the problems
      • Multilateral surveillance? US had no FSAP!
    • Are we ready for the future?
      • Let’s look at 3 actions on the crisis:
      • G-20 April 3, 2009
      • US Government
      • De Larosiere report for the EU-February 25, 2009
    • G20 – London, April 2,2009
      • The main objectives of the G-20 was summarized in their Communiqué’:
      • Restore confidence, growth, and jobs
      • Repair the financial system to restore lending
      • Strengthen financial regulations to rebuild trust
    • G20 – London, April 2,2009 cont.
      • Fund and reform international institutions
      • Promote global trade and investment and reject protectionism
      • Build an inclusive, green, and sustainable recovery
    • Strengthening financial supervision and regulations
      • Establishment of a new Financial Stability Board (FSB) as a successor to FSF
      • FSB to work closely with IMF
      • Reshape regulatory system to take account of macro-prudential risks
    • Strengthening financial supervision and regulations cont.
      • Extend regulation and oversight to include hedge funds
      • Address tax havens
      • Improve accounting standards
      • Extend oversight to CRA and address conflict of interest
    • US Government
      • To cope with the crisis : four phases
      • First :intervention to contain the contagion and restore confidence in the financial system
      • Second: restore economic growth
      • Third: introduce changes to minimize risk and prevent future crises
      • Fourth: deal with the political, social effects of the financial crisis
    • US Government cont.
      • Contain contagion
      • ----Macro-level :
      • Lowering interest rates
      • Expanding money supply
      • Monetary easing
      • Restore confidence in the financial sector
    • US Government cont.
      • ---Micro-level:
      • Financial rescue packages for firms in difficulty
      • Guaranteeing deposit at banks
      • Injections of capital
      • Disposing of toxic assets
      • Restructuring mortgages
      • Dealing with foreclosures
      • Addressing unemployment benefits
    • US Government cont.
      • Restore economic growth
      • The impact of the US crisis has had a world impact on country economies, enterprises, financial institutions and investors, and households—response: monetary and fiscal stimulus packages
    • US Government cont.
      • Introduce changes to prevent future crises
      • G-20 leaders’ Summit on Financial Markets and the World Economy- Washington DC November 15, 2008
      • G 20 leaders’ Summit -London- April 2, 2009
      • G20 leaders’ Summit – November 2009
    • US Government cont.
      • Dealing with Political, Social and security effects-
      • The role of the US on the world stage and its impact on :
      • Political leadership
      • Ideologies and state capitalism
      • International leadership
      • Supranational political and economic organizations
      • Poverty and flow of resources
    • U.S.Banking Regulators
      • Office of the Comptroller of the Currency
      • Federal reserve System
      • Federal Deposit Insurance Corporation
      • State banking Authority
      • Office of Thrift Supervision
      • State Thrift Supervision
    • The U.S. System
    • U.S. Banking Regulators
      • - OCC issues licenses & supervises national banks
      • - 50 states have agencies to issue state licenses and supervise their banks, as well as branches from banks domiciled in other states
      • - OTS issues licenses for federal thrifts and their holding companies & supervises both
      • - FDIC insures deposits of all national banks, some state banks and all federal thrifts, some state thrifts
      • - 50 states have agencies to issue state licenses for thrifts and supervise them
      • - National Credit Union Administration issues federal credit union licenses, supervises & insures them and  insures some state credit unions
      • - 48 states have agencies to issue credit union licenses and supervise, some states may still have insurance funds for state credit unions
      • -50 states have agencies to issue insurance licenses & supervise insurance companies, agents, brokers,etc.
      •  
    • … In addition to for the Financial Sector
      • Securities Exchange Commission
      • Commodity futures Trading Commission
      • Federal Housing Finance Agency ( Fannie Mae/Freddie Mac)
    • The High Level Group on Financial Supervision in EU
      • The Group proposes 31 recommendations
      • A new regulatory agenda
      • Stronger coordinated supervision
      • Effective crisis management procedures
    • The High Level Group on Financial Supervision in EU cont.
      • Disclaimer
      • “ The views expressed in this report are those of the High-level Group on supervision.
      • The members of the Group support all the recommendations.
      • However, they do not necessarily agree on all the detailed points made in the report”.
    • The High Level Group on Financial Supervision in EU cont.
      • Some of the main points in the report
      • Revision of Basel II: minimum capital, reduce pro-cycliclity,off-balance sheet items,banks’internal control-fit and proper
      • Regulation of Credit rating Agencies
      • Accounting: mark-to-market
      • Corporate governance: bonuses
    • The High Level Group on Financial Supervision in EU cont.
      • Risk management: internal systems
      • Crisis management : appropriate and equivalent crisis prevention policy
      • Harmonization of Deposit guarantee scheme
      • Supervision: creation of a European System of Financial Supervisors ( ESFS)
      • Creation of an European Systemic Risk Council ( ESRC) to be chaired by ECB President
    • The High Level Group on Financial Supervision in EU cont.
      • Early warning financial stability : IMF, FSF, BIS, and ESRC
      • Macro-prudential oversight : ESRC linked to the ECB /ESCB to bridge between macro- and micro- oversight
      • Greater role for the IMF in multilateral financial sector surveillance
      • FSAPs should be compulsory
    • What Kind of Reforms are needed for the Global Financial System?
      • By summarizing the previous slides :
      • Macroeconomic Surveillance: need for some authorities to alert about housing bubbles and too low interest rates that may fuel investments in high risk assets
      • Multilateral financial sector surveillance : to set up an early warning system ?
      • Early remedial-crisis management resolution
    • What Kind of Reforms are needed for the Global Financial System?
      • Bilateral surveillance : FSAPs mandatory
      • Improved supervision: Basel II needs to be revisited and corrected: gradual increase in capital requirements, elimination of pro-cyclicality, stricter rules for off-balance sheet items, and tighter rules on liquidity management
      • Supervision extended to all institutions of systemic importance- information on hedge funds, off-balance sheet items, investment funds, all institutions operating as a “parallel banking system”– see US experience-
    • What Kind of Reforms are needed for the Global Financial System?
      • Accounting : Improvements in the principles- mark to market- IASB to be strengthened
      • Credit Rating Agencies : need to separate rating and advisory functions and to be supervised
    • A Single Regulator?
      • Advantages:
      • To respond to the changing structure of the financial services sector
      • To realize economies of scale
      • To deliver economies of scope
    • A Single Regulator?
      • Economies of scope
      • As a result of deregulation, innovation, competition, and proliferation of financial products : risks and products traditionally typical of one sector are now spread across sectors
      • Conglomerates make difficult for sector-based regulators to supervise and assess their risk management and operations
    • A Single Regulator?
      • A world Bank survey of 15 countries ( 2002)
      • Found that the main reasons for adopting a single regulator were to supervise better a financial system moving towards universal banking, solve communication problems among multiple regulators, and to maximize economies of scale
    • A Single Regulator?
      • The 2008 edition of “ How Countries Supervise their Banks, Insurers and Securities Market” lists 40 countries that had single regulator in 2007 compared with 10 in 1990.
      • How about the internal structure?
    • Sector Silos or Integrated Structure?
      • The benefits of an integrated structure :
      • Economies of scale : common approaches and procedures for regulatory functions
      • Facilitate response to changes in financial market structures and products
      • Exploit economies of scope : common framework for risk-based supervision and consistent policy across sectors
    • Sector Silos or Integrated Structure?
      • Facilitate cooperation, coordination, and information sharing arrangements
      • Reinforce different cultures and approaches within the regulator
      • Facilitate the creation of an effective and efficient “ one-stop shop” to stakeholders, applicants for licensing, regulated firms, and overseas regulators
    • Integrated Silos
      • Licensing
      • Supervision
      • Policy decision
      • Legal/Enforcement
      • Markets/Listing
      • Company registry
      • Support operations
      • Others
      • Banking
      • Insurances
      • Securities
      • Company compliances
      • Pensions
      • Trust Funds
      • Others
    • Countries with Single Regulator and Integrated Internal Structure
      • Australia
      • Canada
      • Denmark
      • Estonia
      • Finland
      • Hungary
      • Ireland
      • Isle of Man
      • Japan
      • Latvia
      • Mexico
      • Norway
      • Qatar
      • Singapore
      • Sweden
      • UK
    • TWO QUESTIONS?
      • Are Governments going back as influential shareholders in the banking business?
      • “ Too big to fail” but “Not too big to save”?
    • As the World Turns
      • In Florence, in the fourteenth century, two banks “ Bardi and Peruzzi”, were the giants of the industry! (The Medici Bank took over from them)
      • Both banks collapsed because they failed to collect loans from two special clients:
      • ---“ Edward III, King of England and --Robert the Angevin, King of Naples.
      • In 2008 we have a financial collapse because we could not collect loans from poor people!!!!!
    • Many Thanks!!!
      • For the invitation to this Celebration
      • All my best wishes to the
      • Central Bank of Nigeria!