RD News 12April12

• FT: When the Tail Event becomes the standard risk

• Regulators should encourage more diversity in the financial system by Charles A.E. Goodhart and Wolf Wagner

• FSB: Comments received on the FSB consultative document on a Common Template for Global Systemically Important Banks
• Comments from national and international industry associations are published, including those from the British Banker Association, the Institute for International Finance and US Associations.
• Further engagement will include a workshop in Basel on 2 May 2012.

• FSB: is undertaking a peer review on risk governance, with feedback to be submitted by 11 May 2012
• The review covers banks and broker-dealers; insurers and other non-bank financial institutions are not covered.
• It focuses on:
• Board responsibilities and practices;
• Risk management function;
• Independent assessment of the risk governance framework by internal audit and third parties.

• BIS working papers:
• Loan loss provisioning practices of Asian banks by Frank Packer and Haibin Zhu
• Examines “whether banks in Asian jurisdictions have in fact been provisioning in a fashion that reduces financial system procyclicality.”
• “The analysis of Asia’s post-financial crisis experience should be of interest to the many national and international authorities that are now considering measures to promote more forward-looking provisioning practices, so that banks enter periods of worsening credit quality with higher levels of reserves, providing a buffer to reduce the downward pressure on earnings and capital that would otherwise occur.”
• Main findings:
• Japanese banks show procyclical provisioning;
• Countercyclical loan loss provisioning by banks dominates throughout emerging Asia, and most strikingly so in India;
• The degree to which policy initiatives were responsible for this, as opposed to simply more prescient behaviour on the part of banks, remains a subject for future investigation.
• Systemic risk in global banking: what can available data tell us and what more data are needed? by Eugenio Cerutti, Stijn Claessens and Patrick McGuire
• Summary of the literature on systemic risk assessment.
• Four examples of data-related challenges, demonstrating that “many aspects of global systemic risk cannot be captured using existing data.”
• Discussion of the most significant data limitations, and a brief overview of international initiatives to deal with them.

• BIS speech: Shareholder value and stability in banking: Is there a conflict? by Jaime Caruana

• BIS: Progress report on Basel III implementation
• Also this week the EBA published the results of its Basel III monitoring exercise, using data submitted by 158 banks from June 2011 (summary here).

• BIS: Central bankers continue work on mapping cross-border financial exposures
• Collection of papers relating to a 2011 workshop look at issues of cross-border flows and some of the difficulties encountered in trying to develop towards the ideal of a “globally consolidated balance sheet”.
• The discussion paper for the workshop argues that an inability to “see” such a balance sheet at the level of institutions or even nations, means that systemic risks cannot be monitored, and that a globally consolidated approach to measuring the ‘where’, ‘who’ and ‘how’ of financial exposures is needed.
• The Irving Fisher Committee on Central Bank Statistics (IFC) has said it will produce a further discussion paper to follow up this work.

• IMF: Global Financial Stability Report
• Chapter 3 probes the implications of recent reforms in the financial system for market perception of safe assets.
• Notes the likely trend for a rise in the demand for safe assets at a time when there is likely to be a restricted supply. Useful boxes contain an analysis of the effect of Basel III and the changes to the OTC derivative market on the demand for safe assets.
• (Chapter 4 investigates the growing public and private costs of increased longevity risk from aging populations.)

• In the Wake of the Crisis: leading economists reassess economic policy
• A book by Olivier J. Blanchard, David Romer, A. Michael Spence and Joseph E. Stiglitz

• ICFR-SUERF Conference “Future Risks and Fragilities for Financial Stability” on 8 March 2012.
• Report by Stefano Pagliari, ICFR
• Notes by Alistair Milne, Loughborough University

• Speech by Andrea Enria: Supervisory policies and bank deleveraging: a European perspective, arguing that a deleveraging process is needed in the banking sector.

• Speech by Michael Cohrs, member of the FPC, BoE: Crisis and crash: lessons for regulation
• Reflects on the causes and consequences of the financial crisis, the authorities’ response and the changing structure of financial regulation in the UK (BoE news release summary here).

• Newsletter for the Eurofi High Level Seminar in Copenhagen held on Thurs 29 Mar 2012 (Eurofi is a European think tank dedicated to financial services)
• Contributions from Jaime Caruana (p2) and Paul Tucker (p8), as well as discussion of the evolution of the business models of financial institutions (p2-6) and of risk weighting of sovereign debt (p13).