Running The Bank Of Central Banks - interview with Andrew Crockett, Bank for International Settlements - Interview

International Economy, The, May, 2001 by Klaus C. Engelen

It is not necessarily the most important, but it is important for us to make sure that all-important financial centers, offshore and onshore, have effective and transparent supervision systems. I am quite encouraged that the offshore centers themselves have recognized, for the most part, the need to strengthen supervision. We are intent on helping them if they want to do that. Overall, it has been a positive experience, although painful in some ways. Some people feel that certain aspects of it were not handled necessarily in the best way, the end result has been to give new impetus to strengthening the financial system.

We also had a group on Highly Leveraged Institutions (HLIs). After the experience of 1998, it was recognized to be very important that these institutions did not constitute a source of instability in the financial system. The report that was produced made a number of important recommendations. Some of them have already been implemented. But we still have further to go. There was also a report on how to manage the risks associated with capital flow volatility. Again, an important issue with major implications for financial stability.

TIE: How is the work on codes and standards progressing?

AC: I think quite well. The Forum had a broadly based working group under Andrew Sheng of Hong Kong that achieved several things in a strategic sense. First of all, it prioritized standards so that, amongst the large number of standards that have been developed, the focus of international implementation efforts is now on twelve core standards. Second, it focused incentives for implementation of standards. Implementation is most effective if countries themselves "buy" into the idea, and if they have appropriate incentives, in the sense that those that do well are rewarded by the market, by the regulators, or the international community. That work is continuing in the Forum. Then the report identified technical assistance and training as important ways of enabling countries to benchmark themselves against standards. The Fund and the World Bank are obviously the vehicle for doing the monitoring and assessment. But the standard-setting bodies also have key roles to play. So, what the Forum was able to do was to help provide a rationale, a road map, and coordination among the many bodies involved, in a process which included key emerging market economies. It is important that emerging markets do not feel they are being pushed into doing something by the industrial countries that they would not want to do on their own.

TIE: The last meeting of the Forum was held in Washington in March. What were the major topics?

AC: We looked at two different aspects of vulnerabilities to the financial system. First, the short-term conjunctural vulnerabilities--what would happen in financial systems if there should be a significant further slowdown in economic activity? And then we looked at longer-term structural trends; trends that may not pose an immediate problem, but that might be longer-term problems.