Bank for International Settlements

Claire Jones

The Bank for International Settlements has a fascinating section in its latest quarterly report drawing attention to the amount of debt globally, which has soared since the turn of the millennium from under $40trn to hit a whopping $100trn towards the end of 2012. Here’s the chart:

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Claire Jones

Forward guidance is central banking’s latest fad. Since the nadir of the crisis, all four of the major central banks have adopted their own version of it.

But is this fashion for keeps? That depends on whether the policy works.

Guidance involves saying what you’re going to do, before doing it. This, central banks hope, will temper markets’ uncertainty about what happens to interest rates.

Whether it works or not, then, depends on how much markets trust policy makers to do what they say they’re going to do. If investors think policy makers are lying, or central banks lose credibility by reneging on their pledges, then the guidance could harm reputations for a long time to come.

So does it work? According to a paper, published by the Bank for International Settlements today, it does. Well, sort of.

Yet the research also flags that if forward guidance does succeed, it could end up doing more harm than good. Read more

Three months after revealing that banks were using wildly different models to measure risk in their trading books, the Basel Committee on Banking Supervision has signaled that it looking for similar issues in the banking book.

In a report to the Financial Stability Board, the committee said it was looking at data from 100 banks in 15 jurisdictions to see how and why they assigned different risk-weights to their portfolios. Read more

Claire Jones

Foreign exchange intervention has long had a bad reputation; it earned the beggar-thy-neighbour tag back in the 1930s. Now, even actions that aren’t explicitly aimed at influencing the exchange rate, such as the Federal Reserve’s quantitative easing, prompt accusations that central banks are provoking a “currency war”.

A fascinating piece of research, published by the Bank for International Settlements on Tuesday, claims this bad rep is no longer fair. Read more

Claire Jones

“Don’t rely too heavily on monetary policy” is the closest thing that the Bank for International Settlements has had to mantra in recent years.

Monetary policy is no cure-all. But that’s not to say that the BIS thinks the US Federal Reserve was wrong to act with unprecedented force following the collapse of Lehman Brothers in the autumn of 2008. Read more

Claire Jones

Unfortunately, the vicious cycle between the economic health of countries and the weakness of their financial systems has been all too evident over the past year.

Think of Spain. Before the crisis, the country’s debt-to-GDP ratios were among the lowest in the eurozone. But the state of its regional banks, the cajas, has pushed the sovereign’s borrowing costs to euro-era highs, far above the levels seen in members of the single currency with far higher levels public indebtedness. In Greece, the government’s fiscal profligacy is at the root of the problems befalling the country’s financial sector, in part because its banks held so much sovereign debt.

In both countries, the economy is stagnant.

So far, central banks have been called upon to stop the cycle turning even more vicious. But central banks’ actions can only buy time; the ECB’s pledge of a whopping €1trn in cheap three-year loans, revolutionary in every respect, only soothed tensions for a few months.

The Bank for International Settlements has long documented the vicious cycle phenomenon (see here, for instance). In its latest annual report, out Sunday, the so-called central bankers’ bank comes up with a prescription on how to cure it. Read more

Claire Jones

The Basel Committee on Banking Supervision on Tuesday issued the latest round of its reports on how implementation of the Basel standards was going among each the 27 countries that make up the committee’s members.

There were some signs of improvement since October, when the last set of scorecards was released.

Seventeen countries have now published draft regulation on Basel III – up from 11 out of 27 last autumn – though nine of them are covered by the European Union’s draft bill. But Saudi Arabia remains the only one of the 27 countries to have published a final rule. Read more

Claire Jones

As Robin Harding writes here, Bank of Japan governor Masaaki Shirakawa’s speech on the problems of aggressive monetary easing may not have been totally comfortable for his hosts at the Federal Reserve.

Mr Shirakawa was not alone. In comments released today from the same Fed event, Jaime Caruana, head of the influential Bank for International Settlements,  also warns on the dangers of keeping monetary policy too loose for too long.

More uncomfortably for the Fed, the BIS general manager signals that he thinks the major central banks have strayed far beyond the bounds of monetary policy and into the domain of fiscal policy. Read more

Claire Jones

When IMF officials travelled to Iceland in the summer of 2008, they pronounced the health of its financial sector to be good.

The banking system’s reported financial indicators are above minimum regulatory requirements and stress tests suggest that the system is resilient.

IMF, Iceland: Financial Stability Assessment – update, 19 August 2008

Within two months, the island’s three biggest lenders had collapsed, leaving its economy in tatters. Read more

Claire Jones

No longer content with  setting the world’s capital and liquidity standards, the Basel Committee now wants to take on the mantle of global regulatory policeman.

This from the FT’s chief regulation correspondent Brooke Masters:

Teams of global regulators will fan out across the world from next year to ensure that new tougher capital and liquidity standards are enforced correctly, the chairman of the Basel Committee on Banking Supervision said on Wednesday.

Stefan Ingves, the chairman, notes that this new role “represents a significant practical and cultural shift” for a committee that has in the past relied more on persuasion than policing.

However, the very fact that the chairman believes Basel cops are needed to ensure Basel III is properly enforced highlights a similarly significant shift in attitudes towards its regulations over recent years. Read more