BIS holds Annual General Meeting and releases its 74th Annual Report

28 June 2004

Press release

“Faster growth at last”, said the Bank for International Settlements (BIS) in its Annual Report, released today. Growth in virtually every region other than the euro area has markedly exceeded the consensus forecasts of a year ago, aided by unusually strong fiscal and monetary stimulus. There has not to date been a worrisome pickup in consumer inflation, although output gaps in some countries are narrowing. The crucial challenge facing policymakers as the economic cycle turns up is how best to tighten policy without destabilising a global economy that continues to exhibit various imbalances.

Nout Wellink, President of the Bank, addressed representatives of more than 100 central banks and international institutions attending the Bank’s Annual General Meeting in Basel, Switzerland. He said, “There is no immediate prospect of generalised inflation that would require a substantial tightening of policies … The rapid rise in commodity prices has created perhaps the most visible threat to global price stability.”

Mr Wellink also noted that the financial industry may have magnified the impact of easy monetary policy, for example by increasing the supply of credit to households. This may in turn have contributed to price pressures in housing markets. Investors may also have been encouraged to borrow cheaply over the short term to finance investments in longer-term or more speculative paper.

Commenting on last year’s massive intervention to resist exchange rate appreciation, mostly by central banks in Asia, Mr Wellink pointed out that the eventual movement of exchange rates could be more abrupt than if a greater degree of flexibility had been allowed. Asian monetary authorities are now dominant players in the markets for high-grade US dollar bonds and this leaves both exchange rates and interest rates in the industrial countries exposed to potential changes in their policies.

Looking forward, Mr Wellink noted that although economic prospects were currently excellent, global imbalances were too large. He cautioned that macroeconomic policies cannot remain so expansionary if stability is to be maintained over the medium term. “Risks that may seem to have a comfortable medium-term horizon at present could materialise all too suddenly,” he said, “leaving policymakers with much reduced room for manoeuvre.”

Malcolm Knight, BIS General Manager, reported on the Bank’s activities, and highlighted enhancements in accounting policies and disclosure that have brought them more into line with developments in international financial reporting. Mr Knight pointed to strong growth in the Bank’s balance sheet in a climate of uncertainty and extensive foreign exchange intervention. “The growth in currency deposits from Asia has been particularly marked, with nearly half of total deposits now coming from this region.” The BIS reported a balance sheet total of SDR 167.9 billion, or nearly USD 249 billion, at 31 March 2004, and a net profit of SDR 536 million. After payment of the dividend of SDR 225 per share, which cost SDR 104 million, the remainder of the profit was transferred to reserves.

Mr Knight also reported that six central banks1 became new BIS shareholders over the past year. “Our goal is to involve the central bank community as widely as possible and, increasingly, include the supervisory community as well”, he said. Commenting on the adoption of a new capital adequacy framework by the Basel Committee on Banking Supervision, he observed: “Just as the first Basel capital standard was adopted in over 100 jurisdictions, I am convinced that supervisory authorities worldwide will want to upgrade their regulatory regimes in line with Basel II once they have adequately prepared themselves to do so”.

The Annual Report, the overview and Mr Wellink’s speech are available in English, French, German, Italian and Spanish on the BIS website (, or on request from Mr Knight’s speech is available in English on the BIS website.

1 Bank of Algeria, Central Bank of Chile, Bank Indonesia, Bank of Israel, Reserve Bank of New Zealand and Central Bank of the Philippines.