By Mr Brian Quinn, an Assistant Director of the Bank of England
Mr Brian Quinn, an Assistant Director of the Bank concerned with banking supervision, discusses a range of issues connected with country risk. He starts by examining the statistical difficulties of defining and measuring country risk and goes on to consider ways in which banks should deal with it in their accounting and management systems. From the viewpoint of a banking supervisor, Mr Quinn then addresses the implications of recent debt-servicing difficulties for banks' capital adequacy and their provisioning policies. He concludes that:
- Banks are heading in the right direction to strengthen their balance sheets to reflect the risks arising in connection with their holdings of problem sovereign debts; but still more needs to be done.
- 'It is the job of the banks and the supervisors, working together, and in co-operation with the accounting profession, to rebuild and strengthen the position of the banks so that they are better able to withstand the pressures that a resumption of these problems would bring'.