BIS ANNUAL MEETING
J QUESTION TO ANDREW ROCKET
My question is on the modus operandi with regard to the whole financial structure that you would like to put in place. It appears that the studies done by the Joint Forum, it appears that a whole new infrastructure is needed in order to supervise and regulate not only international banks but also, it appears to be national banks, does this include national banks, financial institutions, credit unions, insurance companies the whole range/
Who do you refer to when you use the term "supervisory authorities?"
Would the supervisory authorities report to the IMF, the BIS or a new agency?
Who would make the decisions as to whether or not a bank has enough capital?
I think when you say "a whole new supervisory apparatus" needed, the answer I would say is no. What is needed is to make sure that the cooperative mechanisms amongst supervisors and regulators are constantly maintained at the most effective level. As you alluded to in your question, we have supervisory regulatory responsibilities that are first of all divided on national grounds -- inevitable when you have individual nation-states, in many countries it is also divided according to the historical concentration of different financial activities -- insurance regulators, commercial bank regulators, investment bank regulators, and so on. What we are now recognizing in a global financial market is that the boundaries between nation-states and the boundaries between different categories between institutions are becoming blurred so that banks are acquiring insurance companies and vise versa. The banks are going cross boarder and acquiring other banks in cross border deals, some times as partners, some times as subsidiaries, some times as complete absorption into the same institution. This creates the multiplicity of organizational forms that need to be regulated and supervised. What we are calling for I think and I believe the IMF and others are doing the same thing is that there should be a clear division of--allocation of responsibilities so that first of all institutions which are increasingly working in the fields of other institutions-- banks taking on insurance companies are subject to the same set of regulations so that nothing falls between the gaps--and also so that there is a clear appreciation on the part of supervisors what their responsibilities are to the stability of the international financial system. The Asian crisis among other experiences has shown that weaknesses in financial systems can have enormously damaging consequences. What we want to make sure is that international best practice is adopted among all the countries that are likely to be vulnerable and all countries so that we can have comprehensive supervisory structure. Up to now that has not been fully comprehensive. With the development of the core Principles of the Basle committee on Banking Supervision and the extension of similar principles to other kinds of activities and other kinds of financial institutions to other supervisors that should become more and more possible. when you ask who do you mean, by the supervisory authorities, concrete we are thinking of the Basle committee which brings together the banking supervisors, the insurance supervisors of the umbrella of the International Association of Insurance Supervisors, and securities supervisors under IOSCO and those have got together as you mentioned.
JV: Who do they report to?
Crockett: Well this is a good question a question to which there is no answer. It is not a formal grouping with a mandated or an international treaty. The Basle on Banking supervision reports to the Governors of the Group of Ten countries. that our understanding, not a formalized arrangement. It is basically a forum whereby national experts can come together to set standards and so too is the IAIS, those are not organizations that report to any higher body such as the IMF or BIS or Min. of finance but are associations of equal supervisors from their national authorities.
Question on dollar to euro in 1999?
Crocket: I think that there is little question that property managed, the euro will be an importance force in the international financial system and I think there will be increasing use of the euro as a reserve currency and an international currency. it does not necessarily follow from this that the euro will be excessively strong as everyone starts to get a hold of euros as a reserve asset. We need to remember that there will be people who will want to issue liabilities in euros and in order to induce people to hold those liabilities, the value of the euro will have to be lower so what the implication of all of this for implications of levels of exchange rate is that it is very difficult to tell but the fact that the euro will be a very important part of the international system, I have no doubt, but whether in 1999 or further that is all up--we will have to wait and see.
What is the main purpose of the Hong Kong office?
the BIS will open up its first regional office outside of Basle in Hong Kong next month. the Asian Regional Office will to facilitate cooperation with central banks in the Asian region in particular in two areas. The Asian central banks are important financial customers of the BIS and we work with them on reserve management issues. Having an office in the same time zone would facilitate this even though the office will not do a banking business to begin with, it will facilitate a banking business. As far as economic cooperation activities, the office will act a a source of information on developments in the region. We expect our economic staff to report back to us on developments. It will help promote cooperative activities with and among central banks in the region, organizing regional meetings and facilitating our trade assistance in the regions.
MR. WHITE - ECONOMIST AT BIS
JV - follow-up to the Eruo. We have Europe amalgamating into a new currency, there's now the FTAA with the Federal Reserve as the central bank there. How does this all fit in with the year 2000. What do you all see in your crystal ball? -- the Basle Committee...
White: I think the year 2000 is a significant complication to the Euro or vis a versa and there is no question that there are a lot of people working hard trying to make the changes to the infrastructure and the operating systems that are really 67 required and it is a very big endeavor and I am confident that it is going to happen but the amount of money which will have to make it happen is significant. You can see it already in our financial institutions.
JV: I have a friend who is rather high up in the US and he asked how do I buy gold and (laughter) he said, "I am gravely concerned that we are not going to make it." I said, "what!"
White: Certainly everybody has been warning about this for the last # of years and certainly not just coming out of this institution -- the Fed, the BOE, certainly the amount of effort being put into this is already very substantial. Here we had a big meeting in May and we had 80 countries on the Year 2000 problem. They have set up a Year 2000 council which includes the CPPS, the basle supervisors, IOSCO, the insurance people and they have a well-developed plan which is directed to warning people over and over again and (2) trying to monitor in a more systematic way to monitor who is doing what. Particularly with the big institutions (financial), are thoroughly prepared---JV: they have 1 1/2 years---
CALL MISS CRITCHELOW FOR A COPY OF THE REPORT FROM THE YEAR 2000