I think you need to be really, really good at math to understand them, and I am not, so I don't try. But I do know that the BIS, which is really black helicopter land for the conspiranoiacs, is working on solving the systemic risk problem.
>> FSF: Progress made in addressing concerns raised by
by Highly Leveraged Institutions
Financial Stability Forum
17 May 2001
The Financial Stability Forum (FSF) published today a
report by Howard Davies, Chairman of the UK FSA and
Chairman of an earlier FSF Working Group, on progress in
implementing recommendations endorsed by the FSF last
year to address concerns about Highly Leveraged
Institutions (HLIs). The recommendations addressed the
systemic risks raised by the near collapse of Long-Term
Capital Management in the autumn of 1998, and the
concerns triggered by the operations of HLIs in the financial
markets of emerging market economies.
The progress report was discussed at a meeting of the FSF
earlier this year. It draws on work carried out by various
supervisory and private sector groupings, including a joint
task force of the Basel Committee on Banking Supervision
and IOSCO, a multidisciplinary working group on public
disclosure sponsored by four international financial services
regulatory organisations, a group of major market
participants in the foreign exchange markets, and the Global
Documentation Steering Committee.
The report notes that good progress is being made to
strengthen counterparty risk management and
regulatory oversight, notably with regard to senior
management reporting of HLI exposures, general standards
of credit analysis, due diligence and documentation.1
However, credit providers need to make further progress in
the measurement of credit exposures, including the conduct
of comprehensive stress tests. Supervisors remain
concerned about the ability of regulated firms to resist
market pressures, in particular on initial margin.
Disclosure of information by HLIs to credit providers has
improved in terms of both quality and quantity. But progress
remains inconsistent, with confidentiality concerns and
competitive pressures sometimes limiting information flows.
The report notes that a comprehensive voluntary study
involving key financial institutions and hedge funds in setting
out a basis for improvements in public disclosure of
financial risks has been completed.2 Progress towards
introducing mandatory public disclosure requirements for
HLIs/hedge funds has been limited, however.
Leading foreign exchange market participants have agreed
a set of Good Practice Guidelines for Foreign
Exchange Trading to help address concerns that large
and concentrated HLI positions could have the potential to
influence materially market dynamics in small and
medium-sized open economies.3 The guidelines have been
endorsed by the bodies responsible for foreign exchange
market standards in the main financial centres and will be
incorporated into existing codes of market conduct.
Progress is also being made in addressing weaknesses
in legal documentation practices revealed by the market
disturbances of 1998.4 But it has proved difficult to achieve
improvements in the consistency, where appropriate,
between different industry standards. The earlier HLI report
noted that legal documentation underlying all financial
contracts is a crucial building block in the stability of the
financial system.
The progress report also draws on an analysis of recent
developments in the hedge fund industry, based on an
update by the IMF of an earlier study for the working group.
This update is being released as an annex to the progress
report.
When the FSF discussed the progress report at its earlier
meeting this year, it confirmed its prior decision to review
thoroughly all the recommendations of the Working Group in
March 2002.
The report is available on the FSF website at
fsforum.org
Note for editors
For related information, please see
Report of the Working Group on HLIs, April
2000 (http://www.fsforum.org/Reports/RepHLI.html)
Press Communiqué after the Fifth Meeting of
the Financial Stability Forum
(http://www.fsforum.org/Press/P20010323.html)
The FSF was established in February 1999 to promote
international financial stability through enhanced information
exchange and international co-operation in financial market
supervision and surveillance. It brings together on a regular
basis national authorities responsible for financial stability in
significant international financial centres, international
financial institutions, sector-specific international groupings
of regulators and supervisors, and committees of central
bank experts. The FSF is chaired by Andrew Crockett,
General Manager of the Bank for International Settlements,
in a personal capacity.
Further information on the FSF is available at
www.fsforum.org.<<
bis.org
See also:
bis.org
fsforum.org
iosco.org |
