Dear Delegate,

The global credit crisis that started in mid-2007 has set a new agenda for the financial stability function performed by central banks.

It is clear that the repercussions of the crisis will be long-lasting and potentially very severe. Amongst these will be an inevitable reassessment of the way central banks, financial regulators and national governments manage banking crises.

In addition to the headline-grabbing credit turmoil, central bankers admit to considerable unease over related developments in financial markets, notably the impact of hedge funds and the persistence of asset price bubbles on financial stability.

As new financial products and vehicles emerge, the challenge for policymakers responsible for financial stability is to stay abreast of these concerns and formulate a robust policy response.

These have to take account of global market developments but they also need to be tailored to fit the unique institutional, economic and political conditions in individual countries.

In such a market environment, policymakers know that policy to promote the stability of the financial sector requires new methods of surveillance which track threats to the system as a whole.

This course identifies the current threats to financial stability and draws on the experiences of leading central banks, regulatory authorities and academic experts to examine how macro-prudential surveillance is most effectively conducted. 

The focus throughout is on identifying what works and what does not. The course is structured around a number of themes:
           

• Identifying current sources of instability and evaluating the fall-out from the current bout of market instability since mid-2007;
  
• The practice of macro-prudential surveillance: how leading institutions are developing tools, procedures and organisational structures to safeguard their banking systems and financial markets;

• Best practice reporting: how can central banks best present and communicate their insights and views on developments adversely affecting the stability of the financial system, without allowing the publication of those thoughts to trigger instability itself;
  
• Crisis management: what defences can central banks and supervisors put in place before and during a crisis strikes? The course will emphasise that policymakers need to create the incentives for prudent behaviour.

The seminar meets in roundtable format to allow an international group of delegates maximum opportunities to learn from each other and from an elite panel of speakers.  Each session of the seminar is structured to allow participating supervisors and central bankers an opportunity to “benchmark” their work against best practice internationally and to exchange views with their peers in an informal setting.  

Since 1999, over 1,400 supervisors and central bankers have attended roundtable seminars hosted by Central Banking Publications Ltd, publisher of Central Banking and Financial Regulator journals. We look forward to welcoming you to this seminar in Windsor.

Yours sincerely,

Robert Pringle
Managing Director

Sunday 30th March

Registration and Welcoming Dinner

Monday 31st March

Identifying Current Sources of Instability

How can central banks best monitor financial stability risks?
Introductory roundtable discussion, led by Philip Davis

This roundtable discussion will give the group an opportunity to consider together the most pressing potential threats to financial stability and to discuss the main challenges facing their organisation, in terms of both external threats and internal capacity constraints. Delegates will be encouraged to step back and consider what their financial stability work entails and how the transformation in international financial markets continuously changes the nature of their work.

The credit crunch: setting a new agenda for financial stability
Simon Hall
Editor, Financial Stability Report, Bank of England (Invited)

The credit crunch that has resulted in a bout of severe financial market instability has raised a number of questions about central banks’ role in the pursuit of financial stability. Will the fall-out result in a reversal of the trend towards decentralising financial market supervision and emergency liquidity assistance to distressed institutions? Is the framework for financial stability analysis and lender-of-last-resort functions too bank-dominated in the context of increased disintermediation? Finally, the global nature of the credit crisis is hardly surprising given the rapid liberalisation of banking sectors and capital markets in recent years – does this call for increased cross-border cooperation between financial authorities in financial stability analysis and liquidity assistance? This session will focus on the extent to which the credit crisis has set a new agenda for the financial stability function.

Data needed for macro-prudential surveillance
Mattias Persson
Head, Financial Stability Department, Swedish Riksbank

Macro-prudential surveillance, like all economic analysis, depends on the ability of policymakers to identify, define, collect and analyse relevant and timely data. Information gaps, which have the potential to mask the build-up of financial-sector weakness, can seriously undermine this effort. This session examines the data needed to perform macro-prudential surveillance, evaluates the financial soundness indicators now being tracked by institutions such as the IMF and discusses the lessons learned from the credit crisis in terms of data needs for financial stability analysis.

Publishing a financial stability report
John Fell
Head of Financial Stability, European Central Bank

Central banks have increasingly moved towards publishing regular financial stability reviews/reports to underpin their thinking in the area. Indeed, for many financial stability departments the research and analysis that goes into this review provides the major focus for their work. However, authors face serious constraints, not least the need to be cautious in their judgments, which could in fact have a detrimental affect on market stability and even individual financial institutions if the assessment is unduly gloomy. A second challenge is to present (necessarily) technical analysis in a format that is accessible to the general public. This session examines how the European Central Bank has addressed some of these challenges, and explores the salient issues to consider when publishing a financial stability report.

Tuesday, 1st April

Hedge Funds, Banking Sector Integration and Risk Transfer

Understanding the impact of hedge funds
Giles Drury
Senior Manager, Financial Services Advisory, KPMG

Recent high-profile successes – and failures – have moved hedge funds up policymakers’ agenda. However, regulators are at present divided as to the extent to which hedge funds need to be brought within the regulated sphere – something they have move towards cautiously. In this session the speaker, who is a co-author of an authoritative report on hedge funds by KPMG, will provide a perspective on the industry, outline what potential dangers hedge funds pose to systemic stability and survey the emerging approaches to regulation.

Emerging challenges of foreign bank ownership
Sean Craig
Senior Economist, IMF Monetary and Exchange Affairs Department (invited)

The rapid expansion in foreign ownership of banking systems in many emerging markets has brought substantial benefits to these economies. But, it has also altered the nature of risks to financial stability: while the risk of a traditional solvency crisis is lower, risks related to the potential for capital flow volatility originating in the financial sector have increased. An understanding of this change and the incentives facing foreign banks in emerging markets is necessary to assess the risks posed by rapid credit growth and to develop policy responses.

Credit transfer and derivatives: implications for macro-prudential surveillance
Imene Rahmouni
Head, Markets and Financial Stability Division, Banque de France

Innovative credit risk transfer techniques (in particular collateralised debt obligations), which convert credit risk into a marketable commodity, have improved non-bank investors’ access to credit markets. However, as the credit crisis has made clear, these innovative instruments are not always sufficiently tried and tested. This session examines emergence of these instruments, what central bankers and regulators can learn from the implosion of this market in recent months and what impact the re-pricing and re-packing of risk will have on the financial stability function of central banks.

The risk of financial contagion
Geoffrey Wood
Professor of Economics, Cass Business School

The theory and evidence on financial contagion – the process by which financial instability is transferred across markets and across borders – continues to evolve with every crisis. Indeed, the move towards a more coordinated assault between central banks on the credit problems in late-2007 was triggered largely by fears over spill-over effects between countries and markets. This session critically assesses the recent literature on contagion and evaluates its relevance to today’s policy challenges.

Wednesday 2nd April

Policy Levers and Risk Mitigation

Liquidity management and banking crises
Philip Davis
Professor of Economics and Finance, Brunel University

The central bank’s ability to inject liquidity into markets and individual institutions is one of the key policy levers available to financial market authorities in a crisis. This session analyses the principles which underlie the use of the lender of last resort (LOLR) instrument, starting from the concept of bank liquidity risk and bank runs ― and the role of sound regulation and bank risk management which should make LOLR unnecessary. It highlights the need to distinguish LOLR activity in “normal times” and “crisis periods”. It finally examines critically recent episodes of central bank liquidity support.

Northern Rock case study: deposit insurance and LOLR
Speaker to be confirmed

The implosion of Northern Rock in September last year sent shock waves through the British financial establishment and caused considerable damage and embarrassment to the Bank of England, the Financial Services Authority and the government. Many observers have since pointed to flaws in the British approach to emergency liquidity assistance and suggested that a more comprehensive deposit insurance scheme could have avoided the collapse of the bank and ensuing fears on the stability of the entire British banking system. This session aims to draw out the lessons from the Northern Rock collapse and assess their relevance to other countries.

Empirical work on financial stability and the use of stress testing
Michael Boss
Senior Economist, Oesterreichische Nationalbank

As important as a grounding in economic theory on causes of financial crises, is an understanding of empirical work on recent episodes of financial instability. The increased frequency of financial crises over the last quarter of a century provides a wealth of empirical evidence regarding the onset, costs and outcomes of financial crises. Yet, surveillance of key indicators does not, by itself, provide a means of estimating the impact on the banking sector of a destabilising event, such as a sharp decline in asset prices. This session will also examine the use of stress tests, and details the experience of institutions like the Bank of England in adopting such techniques.

Group discussion: new development in empirical analysis
Led by Michael Boss

This session will discuss how empirical tools such stress tests and Value-at-Risk modelling are applied at different central banks. A key question will be how the findings of empirical research is disseminated and used to inform policymaking. This session will allow delegates to benchmark existing practices at their home institutions against those of others.

Thursday 3rd April

Banking capital and lessons learned

The role of bank capital regulation in risk mitigation
Patricia Jackson
Partner, Risk Management Practice, Ernst and Young and former Head of Financial Industry and Regulation Division, Bank of England

The past 20 years have seen increasing moves to develop and harmonise capital requirements in the G10 and beyond – culminating in Basel II.  Why are capital requirements seen as important for financial stability? Do they conflict with monetary policy goals? 

Lessons learned and action points
Wrap-up session, led by chairman

The day and course concludes with a discussion led by the chairman. This provides a chance for delegates to share views and experiences gained during the four days of the course and draw conclusions and action plans which they can take back to their home institution.