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Bank for International Settlements - the new role of central banks

BIScom Subsection: 
Editorial Staff

In a speech to a conference on the 12 March, 2019, to mark the 20th Anniversary of the Financial Stability Institute, Mr Agustin Carstens, General Manager of the Bank for International Settlements, set out what the FSI has achieved and objectives for the future.

Mr Carstens said that, in its first 20 years, "the FSI has been a key instrument for the BIS to accomplish its goal of promoting financial stability through international cooperation. In particular, the FSI has contributed significantly to capacity-building in central banks and supervisory authorities worldwide, helping them strengthen their financial systems."

He said "The establishment of the FSI in 1999 was the result of a joint proposal made by the BIS and the Basel Committee on Banking Supervision in response to G7 leaders' call to strengthen financial stability worldwide after several crises that took place earlier that decade. At the time, the initial idea was for the FSI to assist countries with the implementation of the Core Principles for Effective Banking Supervision and to gradually broaden the scope of its activities with time, but always with a focus on helping jurisdictions in their pursuit of financial stability." That is true but at the outset that was not what it did: it provided another voice to repeat the messages put out by the OECD about small jurisdictions, with a particular emphasis on low tax jurisdictions. It was at at time that the OECD and the FATF were pushing for tax harmonisation and information exchange and the focus was on secrecy and the mechanisms by which financial centres attracted business. Its initial reports were little more than parroted comments from those two inter-twined bodies which, ultimately, meant the G7. It was not ever an independent voice.

Later, it was subsumed within the BIS and its work became much more orientated towards governance and supervision and at that point, it developed its own function albeit as a division of BIS.

"much has happened that has affected the landscape of the global financial system and shaped the FSI that we have today. For example, the institutional architecture for financial sector oversight has changed markedly. We have seen a pendular movement in which supervisory authorities in some jurisdictions have been separated from the central bank, and then reunited with it after the crisis. In some cases, this was accompanied by an expansion of the roles played by the central bank to include, in addition to microprudential supervision, macroprudential and resolution functions. More recently, central banks and supervisory agencies have also been asked to contribute to other policy objectives such as financial innovation, financial inclusion or even environmental protection."

It is this that has proved the value of a department with a specific focus and has assisted in the development of a broadly common approach to both supervision and risk. It has also enabled central banks to develop a degree of independence from government "potential synergies across policy objectives have gained relevance in the design of the institutional architecture. Yet a plurality of objectives within a single agency could generate policy conflicts that may not always be solved in a socially optimal way. Moreover, the accumulation of power within a single agency may be used as the basis for challenging the independence of central banks vis-à-vis elected officials."