CCBS
Publications
Financial Stability and Central Banks -
Selected Issues for Financial Safety Nets and Market
By Lisa Halme, Charistain Hawkesby, Juliette Healey, Indrek Saapar and Farouk Soussa
In 1998, the Bank of England's Centre for Central Banking Studies (CCBS) under its Director, Professor Maxwell Fry, began a programme of Academic Workshops. These workshops aim to explore a topic of relevance to central banks by inviting around 20-25 central bankers for discussions with academics, international policy makers and fellow participants over a period of a week. Following a workshop three or four of the participating central bankers stay on at CCBS to take part in a project, usually lasting around ten weeks.
This year the CCBS hosted three academic workshops. The first, in January, looked at "Financial Market Data for International Financial Stability" and the second, in April, looked at "Lessons for Central Bankers from Recent Financial Crises". The final academic workshop of the year, and the one which has prompted today's conference, took place in September under the title "Central Bank Responsibility for Financial Stability".
It is a daunting prospect. Particularly given that there is no single definition of "financial stability" that all policy makers would be happy to call their own. Financial stability is not like monetary policy - there is no obvious measurable indicator that we should benchmark our activities against. Look at central banks around the world and you will find a spectrum of responsibilities in this area.
What all central banks do have in common is an interest in financial stability as a public policy objective, as a key factor influencing macroeconomic performance and the potential for systemic disturbances. Various structural factors can affect financial stability, and public authorities have a range of tools they can use to influence these structural factors and to address crisis situations when they occur. Many of these factors and tools were discussed during the September workshop, but not all the issues raised could be followed up by the subsequent project team.
Given the scope of potential topics and the short timetable, the project team had to narrow down their focus. In doing so, the team have attempted to address topical issues while trying to avoid overlap with recent and prospective work by international financial committees and working groups. The theme linking all four papers is that of the provision of safety nets (LOLR and deposit insurance) and the promotion of market discipline. The papers have focused on developed countries but the issues raised are relevant to all countries in varying degrees and the papers have attempted to draw out the relevance for different types of economies.
Farouk Soussa's paper focuses on "too big to fail" institutions and whether they take on additional risk and whether they have a competitive advantage. Liisa Halme's paper looks at bank corporate governance as a way of promoting market discipline. Indrek Saapar's paper looks at conglomerisation and the issues raised for the provision of LOLR and deposit protection. And Christian Hawkesby's paper looks at institutional arrangements and in particular how one might assess the pros and cons of establishing a consolidated supervisor outside of the central bank. The usual disclaimer applies;- the views expressed in these papers are those of the authors and not necessarily those of their organisations, nor those who commented on the earlier draft. The papers are preliminary and the authors would welcome further comments (by post or e-mail (ccbs@bankofengland.co.uk)). We hope to finalise the papers and publish them early in the New Year.
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