Bank For International Settlements


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Bank For International Settlements

  1. 1. ACKNOWLEDGEMENT With immense please we are presenting “BANK FOR INTERNATIONAL SETTLEMENTS” Project report as part of the curriculum of ‘PGDM’. We wish to thank all the people who gave us unending support. I express my profound thanks to Mr.Rahul Magan , project guide and all those who have indirectly guided and helped us in preparation of this project. I also like to extend our gratitude to all staff and our colleagues of College of Management, who provided moral support, a conductive work environment and the much-needed inspiration to conclude the project in time and a special thanks to my friends who are integral part of the project. Thanking you. Suyash Krishna 1
  2. 2. Abbreviations A.G.M. BL CC CD DD D.G.M. D.M.D. JBLFCB JBDPS M.D. MT OD OL P.O. SB S.L SME S.O. S.P.O. SS STD TT UC Assistant General Manager Bad Loss Cash Credit Current Deposit Demand Draft Deputy General Manager Deputy Managing Director Janata Bank Limited, Farmgate Corporate Branch Janata Bank Deposit and Pension Scheme Managing Director Mail Transfer Over Draft Other Loan Principal Officer Savings Bank Account Small Loan Small and Medium Enterprises Senior Officer Senior Principal Officer Sub Standard Short Term Deposit Telegraphic Transfer Unclassified 2
  3. 3. Executive Summary The Bank for International Settlements (BIS) (in French, Banque des règlements internationaux (BRI)) is an international organizations of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks”. As an international institution, it is not accountable to any single national government. The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City. As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 58 member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. Failures to keep monetary policy in line with reality and make monetary reforms in time, preferably as a simultaneous policy among all 58 member banks and also involving the International Monetary Fund, have historically led to losses in the billions as banks try to maintain a policy using open market methods that have proven to be based on unrealistic assumptions. Central banks do not unilaterally "set" rates, rather they set goals and intervene using their massive financial resources and regulatory powers to achieve monetary targets they set. One reason to coordinate policy closely is to ensure that this does not become too expensive and that opportunities for private arbitrage exploiting shifts in policy or difference in policy, are rare and quickly removed. Two aspects of monetary policy have proven to be particularly sensitive, and the BIS therefore has two specific goals: to regulate capital adequacy and make reserve requirements transparent. 3
  4. 4. Registered offices of the BIS The BIS maintains no office, branch, or affiliate other than those listed below. Location: Centralbahnplatz 2 Basel Switzerland Postal Address: Telephone: Fax: CH-4002 Basel (+41 61) 280 8080 (+41 61) 280 9100 and (+41 61) 280 8100 BISBCHBB SWIFT address: Website: Representative Office for Asia and the Pacific Location: 78th floor, Two International Finance Centre 8 Finance Street, Central Hong Kong Special Administrative Region of the People's Republic of China 4
  5. 5. About BIS The mission of the Bank for International Settlements (BIS) is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks. In broad outline, the BIS pursue its mission by: promoting discussion and facilitating collaboration among central banks; supporting dialogue with other authorities that are responsible for promoting financial stability; conducting research on policy issues confronting central banks and financial supervisory authorities; acting as a prime counterparty for central banks in their financial transactions; and serving as an agent or trustee in connection with international financial operations. The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People's Republic of China and in Mexico City. Established on 17 May 1930, the BIS is the world's oldest international financial organization. As its customers are central banks and international organizations, the BIS does not accept deposits from, or provide financial services to, private individuals or corporate entities. The BIS strongly advises caution against fraudulent schemes. 5
  6. 6. Organization and governance The BIS's people The BIS currently employs 647 staff from 54 countries. All members of staff are required to behave in accordance with general principles laid down in the staff code of conduct . The BIS Compliance Charter describes the guiding principles for managing compliance at the Bank. Governance structures The governance of the Bank is determined by its Statutes, which were last revised in June 2005 following a review of the governance of the Bank by three leading independent legal experts. The three most important decision-making bodies within the Bank are: the General Meeting of member central banks the Board of Directors the Management of the Bank Decisions taken at each of these levels concern the running of the Bank and as such are mainly of an administrative and financial nature, related to its banking operations, the policies governing internal management of the BIS and the allocation of budgetary resources to the different business areas. The Bank's administrative and budgetary rules apply to the committees hosted by the BIS. Other aspects of the committees' governance are the responsibility of the body to which each reports. 6
  7. 7. General Meetings The BIS currently has 60 member central banks, all of which are entitled to be represented and vote in the General Meetings. Voting power is proportionate to the number of BIS shares issued in the country of each member represented at the meeting. At the Annual General Meeting, key decisions by member central banks focus on distribution of the dividend and profit, approval of the annual report and the accounts of the Bank, adjustments in the allowances paid to Board members, and selection of the Bank's external auditors. The Annual General Meeting is held in late June/early July. Extraordinary General Meetings must be called in order to amend the Statutes of the Bank, change its equity capital or liquidate the Bank. Member central banks Members are the central banks or monetary authorities of: Algeria, Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Macedonia (FYR), Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the United States, plus the European Central Bank. 7
  8. 8. Board of Directors The Board is responsible for determining the strategic and policy direction of the BIS, supervising the management, and fulfilling the specific tasks given to it by the Bank's Statutes. It meets at least six times a year. Four advisory committees assist the Board in its work: The Administrative Committee reviews key areas of the Bank's administration, such as budget and expenditures, HR policies and IT. The Committee's Chairman is Jens Weidmann. The Audit Committee meets with internal and external auditors, as well as with the compliance unit. Inter alia, it examines matters related to the Bank's internal control systems and financial reporting. The Committee is chaired by Luc Coene. The Banking and Risk Management Committee reviews and assesses the Bank's financial objectives, the business model for BIS banking operations, and the risk management frameworks of the BIS. The Committee's Chairman is Stefan Ingves. The Nomination Committee deals with the appointment of members of the BIS Executive Committee and is chaired by the Board's Chairman, Christian Noyer. The Board of Directors may have up to 21 members, including six ex officio directors, comprising the central bank Governors of Belgium, France, Germany, Italy, the United Kingdom and the United States. Each ex officio member may appoint another member of the same nationality. Nine Governors of other member central banks may be elected to the Board. In addition, one member of the Economic Consultative Committee serves as observer to BIS Board meetings, on a rotating basis. The observer participates in the Board's discussions and may be a member of one or more of the four committees which assist the Board in its work. The Board of Directors elects a Chairman from among its members for a three-year term and may elect a Vice-Chairman. The Board has adopted Codes of Conduct for members of the Board of Directors and for the observer at meetings of the Board of Directors. 8
  9. 9. General Managers Name Nationality Dates Jaime Caruana Spain April 2009 – present Malcolm D. Knight Canada April 2003 – September 2008 Sir Andrew Crockett United Kingdom January 1994 – March 2003 Alexandre Lamfalussy Belgium May 1985 – December 1993 Gunther Schleiminger Germany 1981 – May 1985 René Larre France 1971–1981 Gabriel Ferras France 1963–1971 Guillaume Guindey France 1958–1963 Roger Auboin France 1938–1958 Pierre Quesnay France 1930–1938 9
  10. 10. BIS activities A meeting place for central banks Currently more than 5,000 senior executives and officials from central banks and supervisory agencies participate in meetings organized by the BIS every year. The most important meetings held at the BIS are the regular meetings of Governors and senior officials of member central banks. Held every two months in Basel, these gatherings provide an opportunity for participants to discuss the world economy and financial markets, and to exchange views on topical issues of central bank interest or concern. The main result of these meetings is an improved understanding by participants of the developments, challenges and policies affecting various countries or markets. An atmosphere of openness, frankness and informality amongst participants is critical to the success of BIS meetings. Other meetings of senior central bank officials focus on the conduct of monetary policy, the surveillance of international financial markets and central bank governance issues. In addition, the BIS organizes frequent meetings of experts on monetary and financial stability issues as well as on more technical issues such as legal matters, reserve management, IT systems, internal audit and technical cooperation. Though targeted mostly at central banks, BIS meetings sometimes involve senior officials and experts from other financial market authorities, the academic community and market participants. Research and statistics The economic, monetary, financial and legal research of the BIS supports its meetings and the activities of the Basel-based committees. The BIS is also a hub for sharing statistical information amongst central banks, and for publishing statistics on global banking, securities, foreign exchange and derivatives markets. Research is carried out primarily by BIS staff, supplemented by visiting researchers from central banks and the academic community. From time to time, the BIS organises special meetings and conferences with central bank researchers and academics. This research finds its way into the Bank's regular publications, such as the Annual Report and Quarterly Review, and into its BIS Papers and Working Papers series, as well as external publications such as professional journals. Seminars and workshops Through seminars and workshops organised by its Financial Stability Institute (FSI), the BIS promotes dissemination of the work undertaken by the supervisory community. The FSI not only familiarises financial sector supervisors worldwide with the recommendations of the Basel Committee on Banking Supervision , but also provides practical training for senior participants. Cooperation with regional central bank groupings also helps to make information about BIS activities more widely known. This cooperation takes the form of participation in meetings by regional central bank groups and the organisation of ad hoc joint meetings or workshops. 10
  11. 11. Banking services for central banks The BIS offers a wide range of financial services to assist central banks and other official monetary institutions in the management of their foreign reserves. Some 140 customers, including various international financial institutions, currently make use of these services. BIS financial services are provided out of two linked trading rooms: one at its Basel head office and one at its office in Hong Kong SAR. 11
  12. 12. BIS History The establishment of the BIS The Bank for International Settlements was established in 1930. It is the world's oldest international financial institution and remains the principal centre for international central bank cooperation. The BIS was established in the context of the Young Plan (1930), which dealt with the issue of the reparation payments imposed on Germany by the Treaty of Versailles following the First World War. The new bank was to take over the functions previously performed by the Agent General for Reparations in Berlin: collection, administration and distribution of the annuities payable as reparations. The Bank's name is derived from this original role. The BIS was also created to act as a trustee for the Dawes and Young Loans (international loans issued to finance reparations) and to promote central bank cooperation in general. The reparations issue quickly faded, focusing the Bank's activities entirely on cooperation among central banks and, increasingly, other agencies in pursuit of monetary and financial stability. The changing role of the BIS Since 1930, central bank cooperation at the BIS has taken place through the regular meetings in Basel of central bank Governors and experts from central banks and other agencies. In support of this cooperation, the Bank has developed its own research in financial and monetary economics and makes an important contribution to the collection, compilation and dissemination of economic and financial statistics. In the monetary policy field, cooperation at the BIS in the immediate aftermath of the Second World War and until the early 1970s focused on implementing and defending the Bretton Woods system. In the 1970s and 1980s, the focus was on managing cross-border capital flows following the oil crises and the international debt crisis. The 1970s crisis also brought the issue of regulatory supervision of internationally active banks to the fore, resulting in the 1988 Basel Capital Accord and its "Basel II " revision of 2001-06. More recently, the issue of financial stability in the wake of economic integration and globalisation, as highlighted by the 1997 Asian crisis, has received a lot of attention. Apart from fostering monetary policy cooperation, the BIS has always performed "traditional" banking functions for the central bank community (eg gold and foreign exchange transactions), as well as trustee and agency functions. The BIS was the agent for the European Payments Union (EPU, 1950-58), helping the European currencies restore convertibility after the Second World War. Similarly, the BIS has acted as the agent for various European exchange rate arrangements, including the European Monetary System (EMS, 1979-94) which preceded the move to a single currency. 12
  13. 13. Finally, the BIS has also provided or organised emergency financing to support the international monetary system when needed. During the 1931-33 financial crisis, the BIS organised support credits for both the Austrian and German central banks. In the 1960s, the BIS arranged special support credits for the French franc (1968), and two so-called Group Arrangements (1966 and 1968) to support sterling. More recently, the BIS has provided finance in the context of IMF-led stabilisation programmes (eg for Mexico in 1982 and Brazil in 1998). BIS archives The BIS archives are open to the public. Under the BIS open archive rules, all records relating to the Bank's business and operational activities which are over 30 years old are available for consultation, with the exception of a limited number of records. The 1930s and 1940s The 1930s Despite the breakdown of the international monetary system caused by the Great Depression and growing political tensions in the 1930s, central bank Governors continued to meet in Basel each month up until the beginning of the Second World War. Although the scope for effective international cooperation was limited during this period, the BIS offered an environment in which central bankers could maintain active contact and exchange views. Participants of the first BIS Annual General Meeting, 1931 Cartoon showing central bank Governors parading at the 1933 London World Economic Conference before conference president Ramsay MacDonald. Members 13
  14. 14. of the BIS Management are depicted in the The Bank continued to offer a range of financial services to central banks and quickly acquired a crowd. solid reputation for economic research and analysis. The Second World War With the outbreak of war in 1939, it was no longer possible for representatives of belligerent countries to attend BIS meetings, even in neutral Switzerland. But Board members were convinced that the BIS needed to be kept alive to assist in financial and monetary reconstruction after the war. To provide for the Bank's survival, the Board decided to suspend all Board meetings for the duration of the war. It also adopted a neutrality declaration excluding banking operations that might benefit one belligerent party to the detriment of another. The BIS maintained its banking services to assist central banks and fulfil the Bank's own obligations so far as was consistent with neutrality. Wartime conditions and the constraints of the neutrality declaration resulted in a rapid decline in BIS banking operations. Monthly turnover plummeted to a small fraction of prewar activity. Throughout the war, the BIS continued to collect interest payments due by Germany in respect to the investments the BIS had made in the German economy in 1930/31. Investigations after the war revealed that the German Reichsbank had used large quantities of gold stolen from central banks in the occupied territories to make wartime payments to a number of institutions including the Swiss National Bank and the BIS. During the war, the BIS received, by way of German interest payments, 3.7 Press clipping, 1940 tonnes of such gold which, it later emerged, had been taken from the central banks of Belgium and the Netherlands. The BIS cooperated fully with the postwar investigations and returned all this gold by 1948. 14
  15. 15. Postwar and Bretton Woods The postwar period The Bretton Woods Agreement of 1944 called for the abolition of the BIS. There was widespread suspicion about BIS wartime activities and some felt that there was little scope for the BIS to play a useful role within the Bretton Woods framework alongside the International Monetary Fund (IMF) and the World Bank. In reaction, central banks, particularly in Europe, came out strongly in favour of keeping the BIS alive - it was, after all, their institution, not an institution in the hands of governments. The BIS's credibility was further restored by its full cooperation with the investigation into the looted gold issue and full restitution of all such gold found in its possession. It became apparent soon after the war that the BIS had an important part to play in the financial reconstruction of Europe. As East-West relations deteriorated into the cold war, the BIS provided a valuable point of contact between central bankers on both sides of the Iron Curtain. The Bretton Woods era Central bank cooperation at the BIS between the end of the Second World War and the early 1970s focused on Swedish economist Per Jacobsson implementing and defending the Bretton Woods (1894-1963), international monetary system, which was based on freely BIS Economic Adviser 1931-1956, convertible currencies at fixed but adjustable exchange Managing Director of the IMF rates. 1956-1963. Courtesy of Öffentliche Bibliothek, Universität Basel 15
  16. 16. In the 1950s, as Agent of the European Payments Union (EPU), the BIS played a significant technical role in helping European countries make their currencies fully convertible. After the Second World War, foreign exchange controls were in place in all European countries. These controls were a serious obstacle to free trade. The EPU was a mechanism designed to gradually do away with these exchange restrictions and to make European currencies freely convertible on the international markets. It was highly successful, so much so that at the end of 1958 full convertibility was restored across Europe and the EPU was wound up. After 1958, the Bretton Woods system of freely convertible currencies at fixed exchange rates was fully operational. But it soon became apparent that it required a good deal of international cooperation to keep it running smoothly. The BIS now began to play an important part in coordinating crisis management among central banks, whenever the gold price, the position of the reserve currencies (the dollar and the pound sterling) or other monetary imbalances threatened to undermine the international monetary system. These efforts - Gold Pool, swaps network, sterling support arrangements, etc - were coordinated at the BIS in the context of the newly established Group of Ten (G10) They helped to prolong the lifespan of the Bretton Woods system during a period of unprecedented economic growth, the "silver fifties" and the "golden sixties", but could not prevent its eventual breakdown. By the early 1970s the value of the dollar was in effect determined by the markets, marking the end of the Bretton Woods system. Various attempts to restore the system of fixed exchange rates proved short-lived and by 1973 the era of floating currencies had begun. Despite this lack of enduring success, the efforts which took place over these years to manage and sustain the Bretton Woods system established a lasting framework of institutionalised cooperation among central banks. Much of this took place in the informal and discreet environment of the BIS, enhancing its role as a forum for central bank cooperation. 16
  17. 17. Towards European Monetary Union For more than 30 years the BIS was closely associated with the process of European monetary integration, not only providing a venue for discussions among European central bankers but also contributing to the technical infrastructure for European exchange rate arrangements. In 1964, the Committee of Governors of the Central Banks of the Member States of the European Economic Community began to meet regularly at the BIS to discuss the coordination and integration of monetary policy at EEC level. In the early 1970s, when the Bretton Woods system was breaking down, Signing the European the Committee of Governors agreed to put limits on exchange Monetary System agreement rate fluctuations between participating European currencies as at the BIS, 13 March 1979 a first step towards closer integration (the so-called "Snake"). A European Monetary Cooperation Fund was set up in 1973 to support the operation of the "Snake" mechanism and the BIS was appointed Agent for it. With the introduction of the European Monetary System in 1979, these responsibilities were significantly extended and the BIS continued to fulfil them, at times in turbulent market conditions, until the establishment of European monetary union. Over time, the Committee of EEC central bank Governors, supported by a BIS secretariat, developed into a cohesive body for policy exchange and coordination. In 1988/89 some of its members served in a personal capacity on the Delors Jean-Claude Trichet, President of the Committee, which issued a report in 1989 setting European Central Bank, 2005 out a model for an independent central bank committed to price stability. Their recommendations decisively influenced the framework for European economic and monetary union set out in the Maastricht Treaty of 1992. 17
  18. 18. The BIS and the pursuit of global financial stability The growth and globalisation of financial markets during the final decades of the 20th century shaped the nature of central bank cooperation at the BIS. The BIS has assisted - and continues to assist - the pursuit of global monetary and financial stability in two main ways: by providing emergency financial assistance to central banks in case of need; and by supporting experts from national central banks and supervisory agencies in proposing measures and developing standards aimed at strengthening the international financial architecture, and in particular international banking supervision. Central bank assistance From its very first days, the BIS has acted as an agent for the central banking community in providing short-term emergency support, helping to address financial crises threatening the stability of the international financial system as a whole. Early on, during the financial crisis of 1931-33, the BIS organised support credits for, amongst others, the Austrian and German central banks. Later, in the 1960s, the BIS arranged special support credits for the pound sterling, including two so-called Sterling Group Arrangements, and for the French franc. More recently, the BIS has provided emergency finance for IMF-led stabilisation programmes, eg for Mexico in 1982 and Brazil in 1998. The BIS is able to make these large credits available very quickly thanks to the substantial foreign exchange deposits its banking services attract from central bank customers worldwide. In advancing funds to address a financial crisis, the BIS operates on behalf of a group of participating central banks which provide the necessary backing and ultimate guarantee of repayment. 18
  19. 19. Banking supervision and financial stability The growth of international financial markets and of cross-border money flows in the 1970s highlighted the lack of efficient banking supervision on an international level. National banking supervisory authorities basically regulated domestic banks and the domestic activities of international banks, while the international activities of these banks were not always closely supervised. The collapse in 1974 of Bankhaus Herstatt in Germany and of the Franklin National Bank in the US prompted the G10 central bank Governors to set up the Basel Committee on Banking Supervision. In 1988 this Committee issued the Basel Capital Accord, introducing a credit risk measurement framework for internationally active banks that became a globally accepted standard. A revision of this Capital Accord, known as Basel II, is being implemented worldwide. Such standards aim to achieve a better and more transparent measurement of the various risks incurred by internationally active banks, limiting the possibility of contagion in case of a crisis and strengthening the global financial infrastructure overall. Besides the Basel Committee on Banking Supervision, other BIS-based committees that help promote monetary and financial stability are: the Committee on the Global Financial System (CGFS - since 1971), the Committee on Payment and Settlement Systems (CPSS - since 1990) and the Markets Committee (since 1964). With its economic, monetary and financial research, the BIS supports the work of these Baselbased committees and organisations. The BIS is also a hub for sharing statistical information amongst central banks, and for publishing statistics on global banking, securities, foreign exchange and derivatives markets. In 1999, the Financial Stability Institute (FSI) was created to promote dissemination of the work undertaken by the supervisory community, and to provide practical training for financial sector supervisors worldwide. 19
  20. 20. The BIS's Basel buildings Grand Hôtel ET Savoy Hôtel Univers 1930-77 The BIS originally rented the Grand Hôtel et Savoy Hôtel Univers at Centralbahnstrasse 7, Basel for only two years. As it turned out, the Bank remained there until 1977, spreading out into offices in several adjacent buildings as more space was needed. The BIS briefly left these premises during the Second World War. The Swiss authorities had made evacuation plans for border areas such as Basel in the event of invasion. In May 1940, as this threat from Germany appeared imminent, the BIS moved its headquarters to Château d'Oex (Vaud), remaining there until that October. The Tower Eventually it became clear that the original premises could no longer accommodate the Bank's expanding staff and activities. Between 1966 and 1972 the BIS progressively acquired the land upon which the Tower stands today. In 1969 the Bank's architect, Martin Burckhardt, submitted three designs for a new building to the BIS Board of Directors from which they selected a round tower, 82 metres in height comprising 24 storeys. This design, however, was never implemented. The Basel chapter of the Schweizer Heimatschutz (Swiss Heritage Society) objected that the height of the proposed tower would disturb Basel's historic skyline. The original design had to be modified, reducing the height to 69.5 metres and the number of floors above ground to 20. In a public referendum in 1971, 69% of voters favoured the new design. The BIS opened for business in the Tower in March 1977. A substantial increase in the BIS’s activities, membership and staff has continued to put pressure on office space. In 1997, an architectural competition for a possible redesign of the Tower and other properties on the site was won by the Japanese firm Toyo Ito and Associates. Plans for redeveloping the Tower site were not initiated, however, as a new opportunity arose for resolving BIS office constraints with far less disruption to daily activities. 20
  21. 21. The Botta building In 1998 UBS sold its building on Aeschenplatz, Basel, to the BIS, together with the connected neo-baroque villa. After extensive internal renovation, BIS banking, risk control and IT services were transferred to the new premises in 1999. The building was designed by the renowned Swiss architect Mario Botta for a competition held in 1986 to develop new premises in Basel for UBS. His design takes the form of a "Rundecke", a "rounded corner" set back from the street to avoid dominating the airy and open Aeschenplatz. The building has six storeys above ground, hiding another six below. 21
  22. 22. Basic Structure of the BIS A. Decision-Making Bodies of the BIS The BIS is governed by three decision-making bodies. The first decision-making body consists of representatives, or Governors, of the fifty-five member central banks. The Governors hold general meetings every two months to vote on key banking regulatory and governance issues. The second governing body of the BIS is its Board of Directors. The Board determines the strategic and policy direction of the bank. Board members include Governors of the central banks of Belgium, France, Germany, Italy, and the United Kingdom, as well as the Chairman of the Board of Governors of the U.S. Federal Reserve System. The BIS Governors may elect additional, but not more than nine, Board members from other member central banks. The Board elects a Chairman and Vice Chairman and meets at least six times a year. The third decision-making body of the BIS is the Bank Management. The Bank Management carries out the policies determined by the Board and oversees the bankís day-to-day activities. The Management consists of a General Manager, who acts as the bankís chief executive officer, department heads, other senior officials, and Chief Representatives from the two representative offices. B. Committees Under the BIS The BIS governs several committees, most of which were formed by the Group of Ten, or G-10. (The G-10 is actually a group of eleven industrialized nations—Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States—that meet once a year to consult and cooperate on economic, monetary, and financial matters.) Under the guidance of the BIS, these committees conduct analysis and provide policy recommendations to support central banks and other agencies. This section describes the four main committees under the BIS and how they work to further the BISí overarching goals of ensuring international financial cooperation and stability. 22
  23. 23. 1. Basel Committee on Banking Supervision (BCBS) Responding to the 1974 failure of two internationally active banks—Herstatt Bank in Germany and Franklin National Bank in New York!=—central bank governors of the G-10 established the BCBS in 1975. The BCBS, governed by the BIS, consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The main duty of the BCBS is to regulate capital adequacy of internationally active banks and improve the quality of global banking supervision. The BCBS formulated and published twenty-five Core Principles for Effective Banking Supervision (Core Principles) in 1997. These principles were outlined under the topics of Licensing and Structure, Prudential Regulations and Requirements, Methods of Ongoing Bank Supervision, and Cross-Border Banking. The main impetus for issuing these proposals was to ensure that all countries were implementing banking supervision techniques used by developed countries. Due to an increase in cross-border financial transactions, the BCBS realized a need to revise its Core Principles. Therefore, the BCBS published revised Core Principles in October 2006, which gave more focus on cross-border issues and sound risk management and corporate governance practices. In addition to the Core Principles, the BCBS has also focused on creating capital adequacy guidelines for internationally active banks. The amount a bank holds as ìcapitalî is calculated by subtracting the bankís liabilities from its assets. The term ìcapital adequacyî refers to the level of capital banks must hold in regards to riskiness and liquidity of some of its assets. The BCBS published its first set of capital adequacy guidelines, known as Basel I, in 1998. Basel I was developed to calculate the capital adequacy of internationally active banks in relation to credit risk (the risk debtors will not fulfill their obligations repay their loans). However, Basel I had its disadvantages. One major complaint about Basel I was that it failed to sufficiently measure risks, since the scheme only took into account credit risks and failed to consider other risks, such as operational risks (risks associated with inadequate or failed internal processes, people, or systems). Therefore, with input from significant players in the international financial community, the BCBS revised its framework and published Basel II in June 2006. The goal in enacting Basel II was to establish an international banking framework to further a sound, stable international banking system by making sure that banks enjoy consistent capital adequacy regulation, calculated to measure all associated risks. The BCBS also enacted Basel II to ensure that minimum capital requirements would not create inequality among internationally active banks. Basel II is currently in various implementation stages in several countries around the world. In a newsletter published in May 2007, the BCBS reported that a ìsignificant numberî of countries have implemented the Basel II Framework and several other nations have established the proper infrastructure and are preparing for implementation in 2008 and 2009. 23
  24. 24. 2. Committee on the Global Financial System (CGFS) The CGFS was established in 1971 as the Euro-currency Standing Committee. The committeeís original mandate was to monitor international banking markets. However, due to an increase in off-shore banking activities, the G-10 Governors changed its name and revised its mandate in 1999. Now, the CGFS is charged with identifying and assessing potential sources of stress in global financial markets. The committee also works to further the understanding of the structural underpinnings of financial markets by publishing many papers on a variety of topics, such as monetary policy. Additionally, the committee works to improve the functionality and stability of financial markets. The CGFS hosts quarterly discussions with its member nations and publishes numerous reports on important issues. 3. Committee on Payment and Settlement Systems (CPSS) The CPSS was created in 1990 as a forum for the central banks of G-10 nations to monitor and analyze developments in payment systems and coordinate central banksí oversight functions with regards to payment systems. In essence, the role of the CPSS is to promote sound and efficient payment and settlement systems. The CPSS conducts detailed studies on payment and settlement systems and publishes reports on its findings to help member countries develop the most efficient payments systems. The CPSS has developed important standards, codes, and best practices for the banking industry by its publications of Core Principles for Systematically Important Payments Systems, Recommendations for Securities Settlement Systems, and Recommendations for Central Counterparties. 4. Markets Committee The Markets Committee was established in 1962 as the Committee on Gold and Foreign Exchange with the creation of the Gold Pool—an effort to stabilize the price of gold. When the Gold Pool collapsed in 1968, members continued to meet and the Markets Committee developed as a result of those meetings. Over the last few decades, the committee has become a forum for discussions about recent developments foreign exchange and other financial markets, possible future trends, and implications current events have on the financial markets. The Markets Committee meets during the bimonthly meetings of the BIS member central banks. 24
  25. 25. Current Role of the BIS With background on the structure of the BIS, you can better understand how the BIS functions today. Its functions have greatly evolved since its early days of managing Germanys reparation payments. In its current operations, the BIS focus on two main goals: (1) to foster international monetary and financial cooperation; and (2) to maintain monetary and financial stability. A. Fostering international monetary and financial cooperation One of the bankís main duties is to foster international monetary and financial cooperation, especially for its member central banks. In order to achieve this goal, the BIS operates in four different ways, all of which are described below. 1. A forum to promote discussion and facilitate decision-making processes among central banks and within the international financial community The BIS holds regular meetings of the BIS Governors, central bank officials, and experts in monetary and financial stability. The meetings of the Governors and senior officials of central banks are held every two months at the BIS headquarters. These meetings facilitate discussions regarding the world economy and financial markets. Through these meetings, the BIS creates a forum for discussion that allows participants to share information and make policy decisions that affect the international financial community as a whole. The bank also sponsors meetings with experts in specific, often highly technical, financial issues. Such meeting topics have included internal audit and technical cooperation and IT systems for the financial community. 2. A principal counterparty for central banks in their financial transactions The BIS offers numerous financial services to over 140 customers, including central banks and other international financial institutions. Such services include central banks investing their global foreign exchange reserves (assets of central banks held in currencies other than their nationís currency) with the BIS. Over the past few years, central banks have invested approximately 6% of their foreign exchange reserves with the BIS. Additionally, the BIS offers fixed-term deposits as well as other more complicated financial instruments, including money market instruments, tradable instruments, and foreign exchange and gold services. The BIS also offers asset management services, such as fixed income portfolios invested in government bonds or high-grade credit securities, to central banks. Moreover, the BIS offers short-term credits to central banks either secured with collateral or, in times of financial crises, secured by a group of supporting central banks. 25
  26. 26. 3. A center for economic and monetary research on important global issues The BIS has a broad research agenda, which is divided into the following six key areas: (1) monetary and financial stability; (2) monetary policy and exchange rates; (3) financial institutions and infrastructure; (4) financial markets; (5) central bank governance; and (6) legal issues. The purpose of BIS research is to assist with the Governorsí meetings and help BIS committees focus their work on the important issues affecting the international banking community. To disseminate its research, the BIS distributes regular publications in the form of Annual Reports, Quarterly Reviews, BIS Papers, and Working Papers. The BIS distributes its Annual Report in June of each year and each report covers several topics, such as issues in emerging market economies, foreign exchange markets, and the global economy. Additionally, the BIS distributes Quarterly Reviews, which provide detailed information on developments in international banking and financial markets within a three-month time span. The BIS Papers are documents prepared for various meetings within the BIS; accordingly, topics vary widely. For example, Evolving banking systems in Latin American and the Caribbean: challenges and implications for monetary policy and financial stability was published in February 2007 in preparation for a BIS-hosted meeting of central bankers in Kingston, Jamaica. The purpose of this paper was to highlight the ways in which smaller economies of Latin America and the Caribbean have dealt with the changes in their financial systems during the previous decade. Like the BIS Papers, Working Papers cover a variety of topics. However, the Working Papers differ in that they are written by BIS economists and do not necessarily represent the views of the BIS as a whole, just those of the authors. In addition to its publications, the BIS also disseminates its research via seminars and workshops organized by the BISí Financial Stability Institute (FSI). The main role of the FSI is to help supervisors in the financial community strengthen their financial systems. The FSI sponsors over fifty events each year. For example, the FSI conducts seminars in Switzerland to educate senior supervisors on the leading concepts of financial sector supervision and regulation. Additionally, the FSI works with regional financial supervisor groups to conduct regional seminars on various topics geared toward specific financial issues in the region. These seminars are especially helpful to the banking systems of emerging nations. One such regional event was the FSI-sponsored seminar on Practical Skills in Risk-Based Supervision in Cairo for supervisors in the Arab Monetary Fund. 26
  27. 27. 4. An agent or trustee in connection with selected international financial operations The BIS often assists in the execution of various international financial agreements. For example, the BIS acted as the agent for the European Currency Union Clearing and Settlement System from 1986 until 1998. Additionally, the BIS assumed responsibilities in rescheduling Brazilian external debt during the countryís financial crisis of 1994. During the Brazilian financial crisis, the BIS served as collateral agent to hold and invest bonds in U.S. dollars issued by Brazil under its rescheduling agreements. B. The BIS Plays an Important Role in Maintaining Global Monetary and Financial Stability 1. The BIS provides emergency financial assistance when needed One way in which the BIS helps to stabilize the monetary and financial markets is to provide emergency financial assistance to central banks in times of need. The BIS accomplishes this by working very closely with the IMF, which is charged with assisting countries in financial crises by making short-term loans to the governments in need. While the IMF focuses on the financial health of the country as a whole, the focus of the BIS is narrow, focusing on an individual countryís central banking operations. For the IMF to succeed in helping a nation out of a financial crisis, the BIS must be present to oversee the nationís banking system and to coordinate funding from other central banks. For example, the BIS worked with the United States, Canada, and the IMF to collect an estimated $48.8 billion to assist Mexico when its pesoís devaluation triggered a devastating crisis during 1994-95. A portion of this $48.8 billion included a $10 billion short-term facility raised by the BIS to help Mexico overcome its short-term liquidity crises. With the support of several central banks, the BIS also funded one-half of a $12 billion swap facility, which was designed to help Mexico get through its August 1995 presidential election. The 27
  28. 28. 2. The BIS supports standards and policies to strengthen the international financial architecture Another way the BIS works to stabilize the monetary and financial markets is by supporting central banks and supervisory agencies by proposing measures and developing standards to strengthen the international financial architecture. For example, the BISí support of the BCBS was significant in the promulgation of the Core Principles and enacting Basel I and Basel II. The BISí involvement and guidance to the other committees discussed above are further examples of the BISí work to maintain international monetary and financial stability. The BIS also works with other multilateral financial institutions in its endeavor to strengthen the international financial community. The BIS works closely with the IMF, the World Bank, and the regional development banks to create international standards in several areas including the following: data dissemination; fiscal, monetary, and financial policy transparency; banking regulation and supervision; securities and insurance regulation; accounting, auditing, and bankruptcy; and corporate governance. For example, the BIS and the IMF worked with central banks, financial agencies and other banks to create a Code of Good Practices on Transparency in Monetary and Financial Policies. Another example of the BISí cooperation with other multilateral financial institutions is its work with the World Bank in formulating principles for international remittances. Remittances— transfers of funds from immigrant workers in developed countries to their families still living in their native developing nations—have increased significantly during the past decade. This increase in remittances created a need for the development of principles to guide recipient countries in order to improve the market for these transfers. Therefore, in January 2007, the BIS and World Bank published a report that analyzed remittances and set forth five general principles recipient countries should follow. According to the report, the principles abide by the public policy concerns regarding remittances and strive to create a safe and efficient market for remittance transfers. 28
  29. 29. Monetary & financial stability Promoting monetary and financial stability is one key objective of the BIS. Bimonthly meetings of the Governors and other senior officials of the BIS member central banks to discuss monetary and financial matters are instrumental in pursuing this goal. The standing committees located at the BIS support central banks, and authorities in charge of financial stability more generally, by providing background analysis and policy recommendations. The committees are: the Basel Committee on Banking Supervision the Committee on the Global Financial System the Committee on Payment and Settlement Systems the Markets Committee the Central Bank Governance Forum the Irving Fisher Committee on Central Bank Statistics The BIS secretariats prepare the meetings of the committees, draw up background papers and reports and publish the work of the groups they serve. In addition, several independent organisations involved in international cooperation in the area of financial stability have their secretariats at the BIS: the Financial Stability Board the International Association of Insurance Supervisors the International Association of Deposit Insurers. 29
  30. 30. Basel Committee on Banking Supervision The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. The Committee's members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The present Chairman of the Committee is Mr Stefan Ingves, Governor of Sveriges Riksbank. Public consultation is an integral element of the Basel Committee's standard setting process. See the list of the Committee's proposals that are currently open for comment. International regulatory framework for banks (Basel III) "Basel III" is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to: improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source improve risk management and governance strengthen banks' transparency and disclosures. The reforms target: bank-level, or microprudential, regulation, which will help raise the resilience of individual banking institutions to periods of stress. macroprudential, system wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time. These two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system wide shocks. 30
  31. 31. Basel III is part of the Committee's continuous effort to enhance the banking regulatory framework. It builds on the International Convergence of Capital Measurement and Capital Standards document (Basel II). Compilation of documents that form the global regulatory framework for capital and liquidity (Basel II, Basel 2.5 and Basel III) Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools The Basel Committee has issued the full text of the revised Liquidity Coverage Ratio (LCR) following endorsement on 6 January 2013 by its governing body - the Group of Central Bank Governors and Heads of Supervision (GHOS). The LCR is an essential component of the Basel III reforms, which are global regulatory standards on bank capital adequacy and liquidity endorsed by the G20 Leaders. The LCR is one of the Basel Committee's key reforms to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The LCR promotes the short-term resilience of a bank's liquidity risk profile. It does this by ensuring that a bank has an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted into cash easily and immediately in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario. It will improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. 31
  32. 32. The LCR was first published in December 2010. At that time, the Basel Committee put in place a rigorous process to review the standard and its implications for financial markets, credit extension and economic growth. It committed to address unintended consequences as necessary. The revisions to the LCR incorporate amendments to the definition of high-quality liquid assets (HQLA) and net cash outflows. In addition, the Basel Committee has agreed a revised timetable for phase-in of the standard and additional text to give effect to the Committee's intention for the stock of liquid assets to be used in times of stress. The changes to the definition of the LCR, developed and agreed by the Basel Committee over the past two years, include an expansion in the range of assets eligible as HQLA and some refinements to the assumed inflow and outflow rates to better reflect actual experience in times of stress. Once the LCR has been fully implemented, its 100% threshold will be a minimum requirement in normal times. During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement. The GHOS agreed that the LCR should be subject to phase-in arrangements which align with those that apply to the Basel III capital adequacy requirements. Specifically, the LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019. This graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity. 2015 Minimum LCR requirement 2016 2017 2018 2019 60% 70% 80% 90% 100% The GHOS agreed that, during periods of stress it would be entirely appropriate for banks to use their stock of HQLA, thereby falling below the minimum. Moreover, it is the responsibility of bank supervisors to give guidance on usability according to circumstances. The GHOS also agreed that, since deposits with central banks are the most - indeed, in some cases, the only - reliable form of liquidity, the interaction between the LCR and the provision of central bank facilities is critically important. The Committee will therefore continue to work on this issue over the course of 2013. 32
  33. 33. Mervyn King, Chairman of the GHOS and Governor of the Bank of England, said, "The Liquidity Coverage Ratio is a key component of the Basel III framework. The agreement reached today is a very significant achievement. For the first time in regulatory history, we have a truly global minimum standard for bank liquidity. Importantly, introducing a phased timetable for the introduction of the LCR, and reaffirming that a bank's stock of liquid assets are usable in times of stress, will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery." Committee on the Global Financial System The Committee on the Global Financial System (CGFS), which is chaired by William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, monitors developments in global financial markets for central bank Governors. The Committee has a mandate to identify and assess potential sources of stress in global financial markets, to further the understanding of the structural underpinnings of financial markets, and to promote improvements to the functioning and stability of these markets. It fulfils this mandate by way of regular monitoring discussions among CGFS members, through coordinated longer-term efforts, including working groups involving central bank staff, and through the various reports that the CGFS publishes. The CGFS also oversees the collection of the BIS international banking and financial statistics. The CGFS, formerly known as the Euro-currency Standing Committee, was established in 1971 with a mandate to monitor international banking markets. Its initial focus was on the monetary policy implications of the rapid growth of off-shore deposit and lending markets, but attention increasingly shifted to financial stability questions and to broader issues related to structural change in the financial system. Reflecting this change in focus, the G10 Governors decided on 8 February 1999 to rename the Committee and to revise its mandate. As of January 2010, the Chairman of the CGFS reports to the Global Economy Meeting, which comprises a group of 31 central bank Governors as members. Fact sheet: Committee on the Global Financial System The Committee on the Global Financial System is a central bank forum for the monitoring and examination of broad issues relating to financial markets and systems. It helps to elaborate appropriate policy recommendations to support the central banks in the fulfilment of their responsibilities for monetary and financial stability. In carrying out this task, the Committee places particular emphasis on assisting central bank Governors in recognising, analysing and responding to threats to the stability of financial markets and the global financial system. 33
  34. 34. Membership Members are deputy governors, other senior officials of central banks, and the Economic Adviser of the BIS. Member institutions are: Institutions Reserve Bank of Australia Bank of Korea National Bank of Belgium Central Bank of Luxembourg Central Bank of Brazil Bank of Mexico Bank of Canada Netherlands Bank People's Bank of China Monetary Authority of Singapore European Central Bank Bank of Spain Bank of France Sveriges Riksbank Deutsche Bundesbank Swiss National Bank Hong Kong Monetary Authority Bank of England Reserve Bank of India Board of Governors of the Federal Reserve System Bank of Italy Federal Reserve Bank of New York Bank of Japan 34
  35. 35. Committee on Payment and Settlement Systems The Committee on Payment and Settlement Systems (CPSS) contributes to strengthening the financial market infrastructure through promoting sound and efficient payment, clearing and settlement systems. The CPSS is a standard setting body for payment, clearing and securities settlement systems. It also serves as a forum for central banks to monitor and analyse developments in domestic payment, clearing and settlement systems as well as in cross-border and multicurrency settlement schemes. The CPSS undertakes specific studies in the field of payment and settlement systems at its own discretion or at the request of the Governors of the Global Economy Meeting. Working groups are set up as required. Through the publication of the CPSS/IOSCO Principles for financial market infrastructures, which replaces the three previous sets of international standards set out in the Core principles for systemically important payment systems (CPSS, 2001); the Recommendations for securities settlement systems (CPSS-IOSCO, 2001); and the Recommendations for central counterparties (CPSS-IOSCO, 2004), the Committee has contributed to the set of standards, codes and best practices that are deemed essential for strengthening the financial architecture worldwide. The Committee publishes various reports covering large-value funds transfer systems, securities settlement systems, settlement mechanisms for foreign exchange transactions, clearing arrangements for exchange traded and over-the-counter derivatives and retail payment instruments, including electronic money. The 'Red Book' on payment, clearing and settlement systems, which provides extensive information on the most important systems in the CPSS countries, is periodically revised and a statistical update of the data it contains is published each year. 35
  36. 36. Irving Fisher Committee on Central Bank Statistics The Irving Fisher Committee on Central Bank Statistics (IFC) is a forum of central bank economists and statisticians, as well as others who want to participate in discussing statistical issues of interest to central banks. The IFC is established and governed by the international central banking community and operates under the auspices of the Bank for International Settlements (BIS). It is associated with theInternational Statistical Institute (ISI). The IFC has adopted the name of Irving Fisher, an internationally renowned economist and statistician, for his work on economic measurement and many other topics related to monetary and financial stability of interest to central banks. His wide-ranging contributions to economics and statistics and his multi-disciplinary approach serve as an example for the IFC's objectives and activities. Fact sheet - Irving Fisher Committee on Central Bank Statistics Objective The objective of the IFC is to promote the exchange of views amongst central bank economists, statisticians and policy makers as well as others who want to participate in discussing statistical issues of interest to central banks, including those relating to economic, monetary and financial stability. The IFC in particular strives to strengthen the relationship between compilers of statistics and the community of users and analysts of statistical information, both in and outside central banks. Membership The IFC has four categories of members: Full institutional members, comprise central banks or international and regional organisations formally involved in central banking issues; Associate institutional members, comprise central banks, central bank related institutions, or international and regional organisations formally involved in central banking issues, which do not wish to become full institutional members; Associate individual members, consist of economic or statistical experts from public and private sector organisations and from the academic community, including members from ISI sections and committees. In order to be accepted as an associate individual member, a person should meet a number of selection criteria. Applications for associate individual membership should be addressed to the IFC Secretariat Honorary members, are elected in recognition of their outstanding contributions to the work of the IFC. 36
  37. 37. Governance The IFC is currently chaired by Dato' Muhammad bin Ibrahim, the Central Bank of Malaysia. The Committee is composed of the designated representatives of the full institutional members. It elects the Executive which manages the affairs of the IFC in accordance with the Statutes and the decisions and guidelines of the Committee. Secretariat The BIS provides the Secretariat of the Committee. Paul Van den Bergh, Assistant Head of Statistics and Research Support, is the senior BIS official responsible for IFC matters. The Secretariat is also supported by Christian Dembiermont and Claudia Huber. The Financial Stability Institute (FSI) The Bank for International Settlements and the Basel Committee on Banking Supervision jointly created the Financial Stability Institute (FSI) in 1999 to assist financial sector supervisors around the world in improving and strengthening their financial systems. Objectives The FSI's objectives are to: promote sound supervisory standards and practices globally, and to support full implementation of these standards in all countries. provide supervisors with the latest information on market products, practices and techniques to help them adapt to rapid innovations in the financial sector. help supervisors develop solutions to their multiple challenges by sharing experiences in seminars, discussion forums and conferences. assist supervisors in employing the practices and tools that will allow them to meet everyday demands and tackle more ambitious goals. Main activities The FSI achieves its objectives through the following main activities: Events for financial sector supervisors such as conferences, high level meetings, and seminars held in Switzerland and globally FSI Connect, an online learning tool and information resource for financial sector supervisors Publications such as occasional papers and a quarterly newsletter 37
  38. 38. Banking services for central banks The BIS offers a wide range of financial services specifically designed to assist central banks and other official monetary institutions in the management of their foreign exchange reserves. Some 140 customers, including various international financial institutions, currently make use of these services and on average, over the last few years, some 4% of global foreign exchange reserves have been invested by central banks with the BIS. BIS financial services are provided out of two linked trading rooms: one at its Basel head office and one at its office in Hong Kong SAR. The Bank continually adapts its product range in order to respond more effectively to the evolving needs of central banks. Besides standard services such as sight/notice accounts and fixed-term deposits, the Bank has developed a range of more sophisticated financial products which central banks can actively trade with the BIS to increase the return on their foreign assets. The Bank also transacts foreign exchange and gold on behalf of its customers. In addition, the BIS offers a range of asset management services in sovereign securities or highgrade assets. These may be either a specific portfolio mandate negotiated between the BIS and a central bank or an open-end fund structure - the BIS Investment Pool (BISIP) - allowing customers to invest in a common pool of assets. The two Asian Bond Funds (ABF1 and ABF2) are administered by the BIS under the BISIP umbrella: ABF1 is managed by the BIS and ABF2 by a group of external fund managers. The BIS extends short-term credits to central banks, usually on a collateralised basis. From time to time, the BIS also coordinates emergency short-term lending to countries in financial crisis. In these circumstances, the BIS advances funds on behalf of, and with the backing and guarantee of, a group of supporting central banks. The Bank's Statutes do not allow the Bank to open current accounts in the name of, or make advances to, governments. The BIS does not accept deposits from, or generally provide financial services to, private individuals or corporate entities. 38
  39. 39. Financial statements The BIS publishes audited annual financial statements as at 31 March each year in its Annual Report, which provides a comprehensive overview and analysis of the Bank's balance sheet and profit and loss account, together with other financial, capital adequacy and risk management disclosures in line with international accounting frameworks. It also publishes unaudited semiannual financial statements as at 30 September each year. The BIS balance sheet amounted to SDR 212.0 billion at 31 March 2013, a decrease of SDR 43.7 billion since its financial year end in March 2012. Liabilities The size of the BIS balance sheet is in normal circumstances driven by placements from customers. On 31 March 2013, customer placements (excluding repurchase agreements) amounted to SDR 183.8 billion, compared with SDR 215.4 billion at the previous financial year end in March 2012. Around 90% of customer placements are denominated in currencies, with the remainder in gold. Currency deposits decreased from SDR 195.8 billion at 31 March 2012 to SDR 166.2 billion at end-March 2013. The share of currency placements denominated in US dollars was 75%, whereas euro-denominated funds accounted for 8%. Gold deposits amounted to SDR 17.6 billion at 31 March 2013, a decrease of SDR 2.0 billion over the year. Assets The assets held by the BIS consist of government and quasi-government securities, reverse repurchase agreements and investments with highly rated commercial banks of international standing. In addition, the Bank owned 115 tonnes of fine gold at 31 March 2013. The Bank manages its credit exposure in a prudent manner, with more than 94% of the Bank's credit exposure rated A- or higher as at 31 March 2013. Statement of Account The Statement of Account gives a current overview of the Bank's assets, liabilities and equity. It is produced monthly, as required by Article 49 of the Bank's Statutes. 39
  40. 40. About BIS statistics The BIS international financial statistics are a unique source of information on various elements of the global financial system. They include data on: o o o o o o o o o o the cross-border lending and borrowing of internationally active banks in key financial centres, including offshore centres (banking statistics) issuing activity in international and domestic securities markets (securities statistics) activity in over-the-counter and exchange-traded derivatives markets (derivatives statistics and Triennial Survey) effective exchange rate (EER) indices for 58 economies (effective exchange rates) activity in the global foreign exchange markets (foreign exchange statistics) external debt positions of individual countries based on BIS banking and securities statistics as well as on data from other international organisations (external debt statistics) payment and settlement systems in major financial centres (payment statistics) residential property, commercial property and land price indices for 54 economies (property price statistics) long series on credit to private non-financial sectors for 40 economies (statistics on credit to the private sector) indicators developed to monitor global liquidity conditions (global liquidity indicators) 40
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  47. 47. Release calendar of BIS statistics Dataset Publication dates* (for data period shown in brackets) January 2014 February 2014 March 2014 April 2014 May 2014 June 2014 Locational 23 (Q3 2013+ ) 9 (Q3 2013) 25 (Q4 2013+ ) 8 (Q4 2013) Consolidated Banking statistics 23 (Q3 2013+ ) 9 (Q3 2013) 25 (Q4 2013+ ) 8 (Q4 2013) Derivatives International 9 (Q4 2013) 8 (Q1 2014) Domestic and total Debt securities statistics 9 (Q3 2013) 8 (Q4 2013) OTC 15 (Dec 2013) Exchangetraded 9 (Q4 2013) 8 (Q1 2014) Effective exchange rates 16 (Dec 2013) 18 (Jan 2014) 18 (Feb 2014) 16 (Mar 2014) 16 (Apr 2014) 17 (May 2014) Property prices 31 (Nov 2013) 28 (Dec 2013) 31 (Jan 2014) 30 (Feb 2014) 30 (Mar 2014) 30 (Apr 2014) Credit to private sector * Data are released no later than the specified date. 10 (Q3 2013) + 6 (Q4 2013) Preliminary data. 47
  48. 48. Debt securities statistics International debt securities for Q3 2013, and domestic and total debt securities for Q2 2013, were released on 8 December 2013. Statistics on signed international syndicated credit facilities have been discontinued. The BIS debt securities statistics are harmonized with the recommendations in Part 1 of the Handbook on Securities Statistics, which sets out an internationally agreed framework for classifying debt securities issues. The data are published quarterly, and their compilation is explained in an article in the December 2012 BIS Quarterly Review. Derivatives statistics The BIS compiles and publishes three sets of statistics on derivatives markets: notional amounts outstanding and gross market values of OTC derivatives, from the semiannual survey and Triennial Survey, turnover of OTC derivatives, from the Triennial Survey, and turnover and open interest of exchange-traded derivatives, from commercial data sources The objective of the semiannual survey is to obtain comprehensive and internationally consistent information on the size and structure of the largest OTC derivatives markets. They provide data on notional amounts outstanding and gross market values and permit the evolution of particular market segments to be monitored. In conjunction with the banking and securities statistics, they offer a more comprehensive picture of activity in global financial markets as well. Following the initiative from the Committee on the Global Financial System (CGFS), central banks of the G10 countries started in June 1998 reporting to the BIS semiannual OTC derivatives statistics on forwards, swaps and options of foreign exchange, interest rate, equity and commodity derivatives. As of end-June 2004, the BIS also releases statistics on concentration measures, back to June 1998. The data include concentration measures for foreign exchange, interest rate and equity-linked derivatives. Finally, as of end-December 2004 the BIS releases semiannual data on credit default swaps (CDS) including notional amounts outstanding and gross market values for single- and multi-name instruments. Additional information on CDS by counterparty, sector and rating has been made available as of December 2005. As of end-June 2010 more granular information is published on CDS counterparties (eg CCPs, SPVs and Hedge Funds as well as on Index products in the multi-name CDS instruments). 48
  49. 49. BIS effective exchange rate indices The BIS effective exchange rate (EER) indices now cover 61 economies (including individual euro area countries and, separately, the euro area as an entity). The most recent weights are based on trade in 2008-10 and the indices' base year is 2010. Two basket compositions are available: Broad indices comprising 61 economies, with data from 1994 Narrow indices comprising 27 economies, with data from 1964 Nominal EERs are calculated as geometric weighted averages of bilateral exchange rates. Real EERs are the same weighted averages of bilateral exchange rates adjusted by relative consumer prices. The weighting pattern is time-varying, and the most recent weights are based on trade in 2008-10 (see broad and narrow weights). The EER indices are available as monthly averages. Joint BIS-IMF-OECD-World Bank statistics on external debt The BIS banking and securities market statistics are an important element in the Joint BIS-IMFOECD-World Bank statistics on external debt. These include quarterly data from creditor and market sources available from the four participating international organizations. Although the joint statistics do not provide a fully comprehensive and consistent measure of total external debt in each country, they bring together timely and international comparative data in this area. They also provide a breakdown by instrument and, importantly, show measures of shortterm debt not easily available from other sources. The data are available from a joint website in the format of tables and an online database. The four international organizations have improved the debt statistics, which are provided, together with external debt data published by national sources, through an electronic joint external debt hub (JEDH). Payment systems Payment and settlement systems are a core element of the financial infrastructure at the national as well as the international level. TheCommittee on Payment and Settlement Systems periodically publishes reference works on payment arrangements in various countries, widely known as Red Books. The Red Book refers to the publication on Payment and settlement systems in selected countries – the CPSS countries. The statistics included in the Red Book are updated yearly and published separately. The statistics include indicators of retail payment systems and payment instruments as well as of wholesale systems used amongst banks. Moreover, they include data on trading platforms, clearing houses and settlement systems for securities as well as on the systems used to perform cross-border transactions. All data are national data collected by the central banks participating in the exercise. 49
  50. 50. Property price statistics The property price statistics bring together data from different countries. The BIS, with the assistance of its member central banks, 1 has obtained approval of various national data providers to disseminate the statistics as long as the original national sources are clearly indicated. The sources and any relevant disclaimers are listed separately (sources of data). Copyright in these data must be honored. The property price statistics currently include data from 54 countries, and are available at different frequencies. The data differ significantly from country to country, for instance in terms of type of property, area covered, property vintage, priced unit, detailed compilation methods and seasonal adjustment. This reflects two facts. Firstly, that the processes associated with buying and selling a property and hence data available, vary between countries and secondly, that there are currently no specific international standards for property price statistics. However, Eurostat has is taking the lead in drafting a Handbook on Residential Property Price Indices under the aegis of the Inter-Secretariat Working Group on Price Statistics. This handbook will give recommendations on best practice for compiling residential property price indices and will present these in the context of the different user needs for such indices. A draft of the Handbook is available for public comment. The Handbook builds on work undertaken at a number of international meetings over recent years to identify the requirements for improved data on property prices from an economic, monetary and financial stability perspective. Sources of data Country Source institution AT Austria Austrian National Bank AU Australia Australian Bureau of Statistics BE Belgium · Federal Public Service, Directorate General Statistics and Economic Information · STADIM (Study and Advice in Real Estate) BG Bulgaria National Statistics Institute BR Brazil Banco Central do Brasil CA Canada Statistics Canada CH Switzerland Wüest und Partner 50
  51. 51. CN China National Bureau of Statistics of China CY Cyprus Central Bank of Cyprus CZ Czech Republic Czech Statistical Office DE Germany Deutsche Bundesbank, based on data provided by BulwienGesa AG Statistiches Bundesamt, VDPResearch DK Denmark Statistics Denmark EE Estonia Statistics Estonia ES Spain Bank of Spain FI Statistics Finland Finland FR France · National Institute of Statistics and Economic Studies · Ministère de l'Equipement (Ministère de l'Écologie, de l'Énergie, du Développement durable et de la Mer (Meeddm)) · Fédération Nationale de l'Immobilier GB United Kingdom · Series M:GB:0:1:0:2:0:0 and Q:GB:3:1:0:2:0:0: Halifax (original series IUMHXPU and IUQGLHXPU) · Series Q:GB:0:1:2:1:0:0, M:GB:0:1:0:1:0:0 and Q:GB:0:1:0:1:0:0: - Office for National Statistics (original series WMPS and WMPQ). It may be used if the credit "© Crown copyright 2008 Land Registry" is included with the data GR Greece Bank of Greece HK Hong Kong SAR Census and Statistics Department HR Croatia Croatian National Bank HU Hungary · Hungarian Central Statistical Office · Magyar Nemzeti Bank ID Indonesia Bank Indonesia IE Ireland · Series Q:IE:0:1:1:3:0:0, Q:IE:2:1:1:3:0:0, Q:IE:1:1:2:3:0:0 and Q:IE:2:1:2:3:0:0: Department of the Environment, Heritage and Local 51
  52. 52. Government · Series M:IE:0:1:0:1:0:0, M:IE:0:2:1:1:0:0, M:IE:0:8:1:1:0:0, M:IE:1:1:0:1:0:0, M:IE:1:2:1:1:0:0, M:IE:2:1:0:1:0:0, M:IE:2:2:1:1:0:0 and M:IE:2:8:1:1:0:0 Central Statistics Office IL Israel The Central Bureau of Statistics IS Iceland Icelandic Property Registry IT Italy Bank of Italy, based on data provided by Consulente Immobiliare, Bank of Italy and Istat JP Japan · Japan Real Estate Institute (JREI) · Ministry of Land Infrastructure, Transport, Tourism KR Korea, Republic of Kookmin Bank in Korea LT Lithuania Centre of Registers LU Luxembourg STATEC (Institut National de la Statistique et des Etudes Economiques du Grand-Duché du Luxembourg) LV Latvia Latvijas Statistika MA Morocco BANK AL-MAGHRIB MK Macedonia, FYR National Bank of the Republic of Macedonia MT Malta Central Bank of Malta MX Mexico Sociedad Hipotecaria Federal, Valuation Databases MY Malaysia Central Bank of Malaysia NL Netherlands The Dutch Land Registry Office (Kadaster) NO Norway · Statistics Norway · Norges Bank · Norwegian Associatian of Real Estate Agents (NEF) NZ New Zealand Quotable Value Limited 52
  53. 53. PE Peru Banco Central de Reserva PH Philippines Colliers International Philippines PL Poland · Central Statistics Office · National Bank of Poland PT Portugal Inteligência de Imobiliário RO Romania Romania National Institutue of Statistics RU Russia Federal State Statistics Service SE Sweden Statistics Sweden SG Singapore Urban Redevelopment Authority SI Statistical Office of The Republic of Slovenia Slovenia SK Slovak Republic National Bank of Slovakia TH Thailand Bank of Thailand TR Turkey Central Bank of the Republic of Turkey US United States · US Census Bureau · Federal Housing Finance Agency · Corelogic XM Euro area European Central Bank ZA South Africa ABSA Group Limited Disclaimer: Series can be used provided it is attributed as being sourced from ABSA. The information has been derived from sources believed to be accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of the material is accepted by Absa Group Limited and/or the authors of such material. 53
  54. 54. Long series on credit to private non-financial sectors The BIS has constructed long series on credit to the private non-financial sector for 40 economies, both advanced and emerging. Credit is provided by domestic banks, all other sectors of the economy and non-residents. The "private non-financial sector" includes nonfinancial corporations (both private-owned and public-owned), households and non-profit institutions serving households as defined in the System of National Accounts 2008. The series have quarterly frequency and capture the outstanding amount of credit at the end of the reference quarter. In terms of financial instruments, credit covers loans and debt securities. The BIS consulted its member central banks in this endeavor, and is very thankful for the assistance received. 1 The BIS has made every reasonable effort to ensure that the long series on credit are accurate, but no guarantees are made. To encompass as long a period as possible, the construction of the long series required combining data from several sources, such as the financial accounts by institutional sector, the balance sheets of domestic banks, international banking statistics, and the balance sheets of non-bank financial institutions. In turn, some of these statistics were compiled in past periods according to earlier methodological frameworks (eg the System of National Accounts 1968, which was replaced by the System of National Accounts 1993). Where original data were published at annual frequency, the intra-annual observations were interpolated. The combination of different sources and data from various methodological frameworks resulted in breaks in the series. The BIS is therefore, in addition, publishing a second set of series adjusted for breaks, which covers the same time span as the unadjusted series. The break-adjusted series are the result of the BIS's own calculations, and were obtained by adjusting levels through standard statistical techniques described in the special feature on the long credit series of the March 2013 issue of the BIS Quarterly Review. The data for each country include i) credit to private non-financial sectors by domestic banks and ii) total credit to private non-financial sectors. Moreover, for most countries, total credit is broken down into iii) credit to non-financial corporations and iv) credit to households and nonprofit institutions serving households. 54
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  58. 58. Domestic Bank Credit of India 58
  59. 59. Offshore and Onshore market Definition of 'Offshore' 1. Located or based outside of one's national boundaries. The term offshore is used to describe foreign banks, corporations, investments and deposits. A company may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations. Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion. 2. Offshore can also refer to oil and gas drilling operations that are conducted in the ocean. Many countries, territories and jurisdictions have offshore financial centers (OFCs). These include well-known centers like Switzerland,Bermuda and the Cayman Islands, and less-well-known centers likeMauritius, Dublin and Belize. The level of regulatory standards and transparency differs widely among OFCs. Supporters of OFCs argue that they improve the flow of capital and facilitate international business transactions. Definition of 'ONSHORE’ It is based in the home country , especially referring to a company that is registered in the country in which it conducts most of its business , or to funds or activities that are held or located in the home country 59
  60. 60. Differences between Onshore and Offshore Futures Markets Diverse Trading Choices Mainland China's (onshore) futures markets transact via electronic trading, while futures markets outside mainland China (offshore) transact alternatively through electronic trading or open outcry systems, or both methods simultaneously. Types of Futures Contracts Currently, onshore futures markets only have 25 types of futures contracts available for trading, of which 24 are commodity futures and one is stock index futures. There's no options trading. Offshore futures markets, on the other hand, cover all types of products from major exchanges around the world, including futures and options trading of metals, forex, indexes, energy, agricultural products and interest rates, which can satisfy trading needs of different investors with their various investment strategies. Trading Schedule Onshore futures markets are open only 4 hours a day. In contrast, offshore futures markets allow nearly 24-hour trading each day because of the dual trading systems including electronic trading and open outcry that are adopted alternatively or simultaneously. This helps eliminate the risk of pricing gaps at opening. Rules of Position Opening and Squaring Offshore futures markets only have buy and sell orders, and do not deploy the creation and close-out orders that exist in onshore markets. If a customer places transactions of the same underlying asset with contracts in the same month but in an opposite direction, the system will automatically square and close out the positions, instead of forming hedging positions. (London Metal Exchange's swaps trading is an exception.) Limit-Up and Limit-Down Mechanism Offshore futures markets do not have a limit-up/limit-down mechanism in place for most futures contracts. Some products carry a fuse mechanism, which is triggered when the price hits a certain level. At that time, trading may be either suspended and or is allowed to only fluctuate within a certain range. (For details, please see transaction rules.) 60
  61. 61. Margins and Fees In offshore futures markets, margins are typically a fixed amount, while margins in onshore markets are based on a percentage of the contract's value. There are initial margin and maintenance margin. An initial margin is the equity required to initiate a futures position. A maintenance margin emerges when a customer faces a loss and reaches a certain risk level. At this point, the Company would give a margin call to customers or it would enforce liquidation and close out the position. (The Company will make adjustments to margin requirements in the case that exchanges adjust margins according to market conditions.) Fees of offshore futures markets are a fixed amount, with the exception of LME metals, which charge fees on a pro rata basis. Criticisms of the BIS Although the BIS is the oldest operating international financial institution and has been a valuable asset in creating and maintaining economic stability, the bank is not without its critics. Some critics view the BIS as an organization through which a wealthy elite controls the world. Critics are concerned that since control in the BIS is in the hands of a handful of developed countries central banks, it may have the power to shift billions of dollars too easily. Examples of such complaints include the way in which the BIS and the IMF have responded to financial crises. Although the IMF bears the brunt of the criticism for these bailouts, the BIS has also been criticized for its involvement. Critics believe that the wealthy ìWall Street creditors who fund the bailouts have too much input into the monetary policies enforced in the countries in crisis. To alleviate this problem, some suggest that international financial institutions, such as the BIS, should have formal representation from developing countries, which have experienced growing importance in the global economy. Another major criticism of the BIS is its obscurity and secrecy. These critics call for an increase in transparency in the BIS operations. Proponents of the BIS is secrecy, however, insist that some confidentiality is necessary when the BIS facilitates transactions between central banks. For example, if the impact of certain transactions in foreign exchange or gold is made public, then severe consequences could occur in the international financial markets. Other critics call for the BIS to take a greater leadership role in increasing transparency in other financial and banking transactions across the world. They warn that such transparency is necessary to decrease the unfairness to consumers and investors that occurs when the proper information is not made public. Although the Code of Good Practices on Transparency in Monetary and Financial Policies promulgated with the IMF (discussed above) is a good start, critics believe that it will take more than general principles to encourage the necessary transparency. The BIS, 61
  62. 62. with its affiliations with other multilateral financial institutions and its connection with the central banks, is in a great position to take the lead in this endeavor. 62