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The Financial Stability Institute (FSI)

The Bank for International Settlements and the Basel Committee on Banking Supervision jointly
created the Financial Stability Institute (FSI) in 1999 to assist financial sector supervisors around
the world in improving and strengthening their financial systems.
Objectives
The FSI's objectives are to:

promote sound supervisory standards and practices globally, and to support full
implementation of these standards in all countries.
provide supervisors with the latest information on market products, practices and
techniques to help them adapt to rapid innovations in the financial sector.

help supervisors develop solutions to their multiple challenges by sharing experiences in


seminars, discussion forums and conferences.

assist supervisors in employing the practices and tools that will allow them to meet
everyday demands and tackle more ambitious goals.

Main activities
The FSI achieves its objectives through the following main activities:

Events for financial sector supervisors such as conferences, high level meetings, and
seminars held in Switzerland and globally
FSI Connect, an online learning tool and information resource for financial sector
supervisors

Publications such as FSI surveys, occasional papers and a quarterly newsletter

Research at BIS

The BIS carries out research and analysis to contribute to the understanding of issues of
core interest to the central bank community, to assist the organisation of meetings of
Governors and other central bank officials and to provide analytical support to the
activities of the various Basel-based committees.
The BIS also comments on global economic and financial developments and identifies
issues that are of common interest to central banks. The research agenda of the BIS is
focused on key areas of interest to central banks, such as monetary and financial stability,
monetary policy and exchange rates, financial institutions and infrastructure, financial
markets, central bank governance, and legal issues.
The research by BIS economists finds its way into the BIS research publications found on
this website, including BIS Papers, Working Papers and Other publications (a
compilation of miscellaneous reports).

FSI events and programme


The FSI offers an extensive programme of seminars and meetings for supervisors. More than 50
events are held annually.

Conferences, high-level meetings and discussion forums are designed for senior
executives in financial supervisory agencies.
Seminars in Switzerland provide opportunities for senior supervisors to learn about, and
exchange views on, leading concepts related to financial sector supervision and
regulation.
Regional seminars are organised jointly by the FSI and regional supervisory groups in
various locations around the world. The topics for each workshop are chosen by the FSI
in close consultation with the heads of the regional groups. Participation in these
workshops is limited to delegates from the organisations represented on the regional
supervisory group.

FSI 2014 Programme:

Overview, (PDF 2 pages, 41 kb)


Full programme, (PDF 48 pages, 1597 kb)

FSI Connect
FSI Connect is an online learning tool and information resource developed by the Financial
Stability Institute for financial sector supervisors around the world.

FSI Connect features extensive content. The main component of FSI Connect is a
comprehensive set of tutorials covering supervisory guidance, techniques and practices;
capital adequacy and solvency, including Basel II, Basel III and Solvency II; key risks,
such as credit, market and operational risk, and their management; accounting; and,
financial instruments. FSI Connect also offers tutorials related to deposit insurance and
payment systems. The content ranges from fundamental to intermediate and advanced
levels.

FSI Connect is:

Dynamic
FSI Connect tutorials provide the most up-to-date information that supervisors need to
perform their jobs. Newly developed tutorials are added on a continuous basis.
Flexible
FSI Connect can be used by supervisors at all levels of an organisation to gain a

broad understanding of supervisory topics, to refresh or expand their knowledge in a


particular area, or to quickly access specific information. Its proven learning
methodology and many interactive components make learning interesting and promote a
high level of knowledge retention.
FSI Connect is available by subscription to all central banks, supervisory authorities and deposit
insurers. More information about FSI Connect, including an interactive tour, is available at
www.fsiconnect.org.

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Financial Stability Institute (FSI)


publications
FSI Basel Implementation Surveys

2014 FSI Survey - Basel II, 2.5 and III Implementation, July 2014
2013 FSI Survey - Basel II, 2.5 and III Implementation, July 2013

2012 FSI Survey - Basel II, 2.5 and III Implementation, July 2012

FSI Bank Capital Surveys

2010 FSI Survey on the Implementation of the New Capital Adequacy Framework,
summary of responses to the Basel II implementation survey, August 2010 (Occasional
Paper No. 9)
2008 FSI Survey on the Implementation of the new capital adequacy framework in nonBasel Committee member countries, summary of responses to the Basel II
implementation survey, February 2009

Implementation of the new capital adequacy framework in non-Basel Committee member


countries, summary of responses to the 2006 follow-up Questionnaire on Basel II
implementation, September 2006 (Occasional Paper No. 6)

Implementation of the new capital adequacy framework in non-Basel Committee member


countries, summary of responses to the 2004 Basel II implementation assistance
questionnaire, July 2004 (Occasional Paper No. 4)

FSI Occasional Papers1

No. 10: Liquidity transfer pricing: a guide to better practice, by Joel Grant, December
2011
No. 9: 2010 FSI Survey on the Implementation of the New Capital Adequacy
Framework, summary of responses to the Basel II implementation survey, August 2010

No. 7: Institutional arrangements for financial sector supervision, results of the 2006 FSI
Survey, September 2007

No. 6: Implementation of the new capital adequacy framework in non-Basel Committee


member countries, summary of responses to the 2006 follow-up Questionnaire on Basel
II implementation, September 2006

No. 5: Potentially endogenous borrowing and developing country sovereign credit


ratings, by Gregory D Sutton, July 2005

No. 4: Implementation of the new capital adequacy framework in non-Basel Committee


member countries, summary of responses to the Basel II implementation assistance
questionnaire, July 2004

No. 3: Public asset management companies in East Asia, by Ben Fung, Jason George,
Stefan Hohl and Guonan Ma, February 2004
Case studies

No. 2: The transformation of the financial services industry, by H Onno Ruding, March
2002

No. 1: The organisational structure of banking supervision, by Prof. C A E Goodhart,


November 2000

FSI Award papers


Every two years, the FSI grants an award to the author of an original essay on a topic related to a
financial regulatory or supervisory issue of current interest.
Winning papers

2012: Managing systemic risk from the perspective of the financial network under
macroeconomic distress
by Jae Hyun Jo, Financial Supervisory Service, Korea, September 2012
2010: Regulatory use of system-wide estimations of PD, LGD and EAD
by Jesus Alan Elizondo Flores, Tania Lemus Basualdo, Ana Regina Quintana Sordo,
Comisin Nacional Bancaria y de Valores, Mexico, September 2010

2008: Stress Testing Credit Risk: Comparison of the Czech Republic and Germany
by Petr Jakubk, Czech National Bank and Christian Schmieder, Deutsche Bundesbank
and European Investment Bank, September 2008

2006: Stability of a "through-the-cycle" rating system during a financial crisis

2004: A review of credit registers and their use for Basel II


by Carlos Trucharte Artigas, Bank of Spain, September 2004

2002: Framework for the assessment of bank earnings


by Rodrigo Luis Rosa Couto, Banco Central do Brasil, September 2002

The role of the Bank for International Settlements in


promoting financial stability
Presentation by Malcolm D Knight General Manager of the BIS,
at the Basel British Swiss Chamber of Commerce, Basel, 2
February 2004
Good afternoon, and thank you for giving me this opportunity to renew the long-standing ties
between the British Swiss Chamber of Commerce and the Bank for International Settlements.
I feel a special affinity with your association. First, there is my connection with Britain. Every
Canadian citizen is also a British subject. But my warmest links with Britain go back to the time
I spent there in the 1960s and 1970s, doing my MSc and PhD degrees, and then teaching as a
member of the economics department of the London School of Economics. And it was also
during the early 1970s that I had my first extensive contacts with Switzerland.
During those years I was part of the International Monetary Research Programme that was
operated jointly by the LSE and the Graduate Institute of International Studies at the University
of Geneva. That experience taught me both about international finance and about the special
challenges confronting the Swiss economy in Europe, and on the broader global stage.
So it has been a special pleasure for me to renew my work in both these areas since my arrival
here in Basel 10 months ago.

Promoting the twin goals of sustained non-inflationary economic growth and financial stability
has been the overarching mission of the BIS throughout its history. And this is what I want to
talk to you about today.
But first let me say just a few words about what the BIS is and does. The Bank was founded in
1930, making it worlds oldest international financial institution. Its immediate task was to act as
trustee and agent for the international loans intended to finalise settlement of the reparations
stemming from World War I hence the name: the Bank for International Settlements. However,
this name did not fully reflect the nature of the Banks primary mission even in 1930, and it
certainly does not do so today.
The primary intention of the Banks founders was to create a focus for cooperation among
central banks. First, the BIS was to act as the bank for central banks. It would accept deposits of
a portion of the foreign exchange reserves of central banks and invest them prudently to yield a
market return. We still do this today, managing a balance sheet of some USD 230 billion,
equivalent to about CHF 290 billion.
The second important role of the BIS is to provide a forum for policy discussions and
international cooperation among central banks. Over the years, the BIS has established a rich
structure of meetings in which governors and other senior central bankers can exchange
information and opinions on the state of the world economy and its implications for monetary
and financial stability policies.
And the solid foundations for these discussions are the economic analysis and statistical work
that are performed by the BIS staff.
I think it is no exaggeration to say that through these activities the BIS has left an indelible
mark on the history of international financial cooperation over the past seven decades. Let me
just take three examples from the years following World War II.
First, I think of the reconstruction of Europe after the Second World War. Back in 1950, the BIS
was asked to become the agent of the European Payments Union, which was established to
restore order to the system of payments for imports and exports among the countries of Europe in
the early postwar years. The EPU was highly successful: multilateral convertibility of the
European currencies in international payments for current goods and services was restored earlier
than foreseen. And in 1958, its task completed, the EPU was wound up a true success story!
My second example relates to the monetary unification of Europe. From the mid-1970s to the
early 1990s, the BIS was the key meeting place for European central bankers as they laid the
groundwork for monetary union. Some of you will remember the Delors Report, which outlined
the essential blueprint for the creation of a unique new European Monetary Union and the
establishment of a European Central Bank. The Report was drafted in the late 1980s, here in
Basel, in a meeting room on the first floor of the BIS.
My third example is the creation, by central bank governors, of a number of key permanent
committees of experts on various aspects of the international monetary and financial system. Let

me give just one illustration. In the early 1970s, discussions about how to enhance prudential
supervision of the commercial banking industry resulted in the creation of the Basel Committee
on Banking Supervision. This influential Committee has flourished, and is now in the process of
finalising the so-called Basel II Accord. I will say more about this shortly.
I could give you many other illustrations of the contributions that the BIS has made to
international financial cooperation.
But I would prefer to talk about two broad trends that have motivated most of our initiatives in
this arena over the past decade. One trend is the increasing globalisation of economic and
financial activity. The other trend is the greatly increased focus on the promotion of financial
stability, in all countries, both developed and developing.
The globalisation of markets for final goods, financial and non-financial services, and even
factors of production has been one of the most striking developments of at least the past two
decades.
And it is perhaps in the area of financial services that one can find some of the most compelling
evidence of the impact of globalisation. In the early 1980s, cross-border transactions in securities
in the major industrial countries represented less than 10% of GDP. Today, these transactions
swamp GDP in most of them.
As of the end of 2002, the stock of cross-border claims on the books of banks in the major
financial centres was close to USD 14 trillion. To put this in perspective: it is equivalent to just
under half of the annual output of the total world economy in 2002.
The other key trend, the increased focus on the promotion of financial stability, is closely tied to
the first issue of globalisation, and has very much shaped the activities of the BIS in recent years.
Our concern to promote financial stability involves not only the promotion of price stability, but
also support for deep and robust financial markets, for sound financial institutions, and for a
stable overall infrastructure for the financial industry.
Why worry about these elements of a stable financial system in a modern market economy?
Well, I am convinced that, over the long term, economic and financial systems based on open
competition and global market forces can achieve outcomes that are far superior to those possible
in a highly regulated and controlled environment.
But that said, such market-based systems can, and do, display elements of vulnerability. Markets
can be dysfunctional and they can be subject to failures and breakdowns. Investor and borrower
behaviour does not always produce sufficiently deep and liquid markets, or prices that
consistently reflect economic fundamentals. And, as we have seen in the cases of Enron and,
more recently, Parmalat, the essential tools of transparency and oversight that financial markets
require the standards of accounting, reporting and auditing practices applied to financial
transactions can be unacceptably deficient.

When financial stability is lost, the costs can be grave not only for the country in which the
financial turmoil emerges, but also for the international financial system as a whole. We saw this
in the 1990s when confidence in international capital flows was shaken. First the Mexican crisis
in 1994/95 and then the Asian crisis in 1997/98 undermined the confidence of international
investors and imposed significant economic and social costs on all affected countries.
In order to foster a global dialogue, the BIS has enlarged its membership since the mid-1990s, to
move from an exclusive focus on the industrial countries to include, by the beginning of the new
millennium, the central banks of a number of large and systemically important emerging market
countries. Now, alongside the Chairmen or Governors of the US Federal Reserve Board, the
ECB or the Bank of Japan, the Governors of the Peoples Bank of China, the Central Bank of
Brazil, the Reserve Bank of India and other systemically important emerging economies
participate actively in the meetings we organise, whether in Basel, through our offices in Hong
Kong SAR and Mexico, or in collaboration with central banks around the world.
Financial stability issues occupy a prominent place on the agenda of central bank governors
when they meet every other month at the BIS. Central banks are not directly responsible for each
and every aspect of financial stability, but they are the guardians of the overall soundness of their
national financial systems. And so they attach great importance to the careful monitoring of the
various building blocks of the financial system.
Finally, let me focus on one of these building blocks which is now very much in the news:
promoting the soundness of commercial banks.
Banks are among the most important players in the global financial system. They process
enormous volumes of payments resulting from countless transactions in the economy each day.
They safeguard our savings and circulate credit, the lifeblood of any economy, to businesses and
consumers alike.
Commercial banks clearly play a special role in the workings of the financial system. And so
central bankers take a special interest in encouraging all banks to operate safely and soundly.
And today, central bank governors and bank regulators are working hard to reform one of the
most important tools that they have to encourage banks to operate safely. This challenge is
known in financial circles as the Basel II process. What exactly is this about?
The challenge is to promote sound risk management practices in banks in a way that ensures that
they are adequately capitalised and prudently managed while not hindering a banks ability to
pursue opportunities and profits responsibly. Well capitalised and well managed banks can serve
as efficient intermediaries of credit, not only in good times, but also in periods of strain.
Currently, banks are subject to rules regarding their capitalisation that were first adopted by the
Basel Committee in 1988. The rules are quite simple. The 1988 Basel Accord stipulated that
internationally active banks should hold an amount of capital that is roughly in line with simple
measures of the riskiness of their assets, and that all banks should be subject to the same capital
charges the aim being to create a level playing field. The Accord was originally designed for

the internationally active banks of the most advanced financial systems, but its appeal has been
such that more than 100 countries have adopted it to date.
Unfortunately, the simplicity of the 1988 Accord has also proved to be a weakness. Advances in
methodology, technology and telecommunications have changed the way in which banks
measure and manage their risks. Financial innovations have introduced new banking products,
many of which the 1988 Accord had not anticipated or did not address.
Over the past five years, the Basel Committee has been working to develop a New Capital
Accord, or Basel II. The New Accord is intended to reflect the improvements in banks
abilities to measure risk. It is also intended to align regulatory capital requirements more closely
with the actual degree of risk that banks face. But equally important, the New Accord will
provide incentives to banks to improve their management of risk.
The Basel II process has not been easy. The Basel Committee has tackled some extremely
complex issues. It has consulted widely and openly with banks, with industry associations and
with other stakeholders, to improve the proposals and build the necessary support for them.
But the efforts have already proved worthwhile. Both commercial bankers and central bankers
have acknowledged the need for a New Accord and have offered strong support to the
Committees efforts. Currently, the Committee expects to resolve the outstanding issues by mid2004, which will allow banks and countries to continue to prepare for its implementation.
In closing, let me leave you with this thought: in a world of change and innovation, promoting
financial stability must be seen not only as a continuous process, but also as a multifaceted
challenge that calls for strong commitment to open and honest international cooperation. The
BIS remains committed to this mission, which has evolved and gained importance since we first
opened our doors in 1930. And this is likely to keep us in Basel for a long time to come. Thank
you.

Monetary & financial stability - Overview


Promoting monetary and financial stability is one key objective of the BIS. Bimonthly meetings
of the Governors and other senior officials of the BIS member central banks to discuss monetary
and financial matters are instrumental in pursuing this goal. The standing committees located at
the BIS support central banks, and authorities in charge of financial stability more generally, by
providing background analysis and policy recommendations.
The committees are:

the Basel Committee on Banking Supervision


the Committee on the Global Financial System

the Committee on Payments and Market Infrastructures

the Markets Committee

the Central Bank Governance Forum

the Irving Fisher Committee on Central Bank Statistics

The BIS secretariats prepare the meetings of the committees, draw up background papers and
reports and publish the work of the groups they serve.
In addition, several independent organisations involved in international cooperation in the area of
financial stability have their secretariats at the BIS:

the Financial Stability Board


the International Association of Insurance Supervisors

the International Association of Deposit Insurers.