Tenth International Conference of Banking Supervisors

22 October 1998

Press release

Sydney, 22nd October 1998

On 21st and 22nd October 1998 banking supervisory authorities from about 120 countries and representatives from several international organisations met in Sydney for the tenth International Conference of Banking Supervisors (ICBS), at the invitation of the Reserve Bank of Australia in cooperation with the Australian Prudential Regulation Authority (APRA). The conference was organised jointly by the Australian hosts and the Basle Committee on Banking Supervision.

Proceedings were opened by the Federal Treasurer of Australia, the Hon. Peter Costello and conference sessions were chaired by Mr. William J. McDonough, Chairman of the Basle Committee on Banking Supervision and Mr. Graeme Thompson, Chief Executive Officer of APRA. At the close of the conference, the William Taylor Memorial Lecture was delivered by Mr. Andrew Crockett, General Manager of the Bank for International Settlements. The Prime Minister of Australia, the Hon. John Howard, addressed participants at the closing dinner.

The international conferences, held at two-yearly intervals since 1979, are designed to promote cooperation among national authorities in the supervision of international banking and to enable senior representatives of supervisory authorities from a large number of countries to exchange views on a range of current issues of common concern. The two main themes of the conference on this occasion were the Core Principles for Effective Banking Supervision issued by the Basle Committee in September 1997 and operational risk. In addition, a special panel session, chaired by Mr. Roger Ferguson, a Governor of the Federal Reserve Board and Chairman of the Joint Year 2000 Council, was devoted to issues relating to the risks to banks arising from the conversion of computer operations to cope with the millennium date change.

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In a keynote address, the Chairman of the Basle Committee on Banking Supervision, Mr. William J. McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York, discussed the challenges facing supervisors around the world in current volatile market conditions and updated conference participants on the recent work of the Basle Committee. A principal component of this work has been the development of the Core Principles for Effective Banking Supervision in close collaboration with supervisors around the world as well as with the IMF and World Bank. Mr. McDonough stressed the need to proceed expeditiously in implementing the Core Principles and in identifying areas for which more guidance and assistance is necessary, stating, "The Basle Committee and its members will support the essential efforts of national supervisors to implement the Core Principles by augmenting and elaborating on existing supervisory guidance, providing training, encouraging technical assistance, and working constructively with the International Monetary Fund and the World Bank." Mr. McDonough discussed how the immediate issue in many countries is to address local banking problems, and ways in which such problems have been addressed successfully in the past. He described how the Basle Committee is meeting the challenges that have emerged in the last two years. "Recent events suggest that we are seeing new ways in which the links between credit and liquidity are increased in the financial system, which we must address by working together to update our supervisory tools." He also discussed the Committee's plans to update the Basle Capital Accord, which had played a very important role over the last ten years in strengthening bank capitals around the world.

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The topic of the fist day of the conference was the implementation of the Core Principles for Effective Banking Supervision, a guidance paper for sound banking that had been released by the Basle Committee in September 1997 after intensive consultation with supervisors around the world. Following an introduction by the Secretary General of the Basle Committee, Mr. Frederick Musch, participants considered the challenges they were faced with in implementing the Core Principles in six workshops devoted to specific aspects of the Principles. In the subsequent plenary session, all participants reaffirmed their endorsement for the Principles and pledged actively to promote their implementation at national level, recognising that this was a long-term process in which improvements could always be made. It was agreed that although much was being done, a great deal of work remained.

Conference participants unanimously reaffirmed one of the key aspects of the Core Principles, namely that it is not feasible to build a strong supervisory system unless the necessary preconditions are in place. For example, it is imperative that supervisors have adequate human and financial resources, independence in reaching supervisory judgements and powers to enforce decisions. An adequate accounting infrastructure is also of paramount importance, together with a legal framework that covers contract and property rights, company and insolvency law and legal protection for supervisors.

The announcement that many of the regional groups of banking supervisors would be carrying on the discussions about the implementation of the Principles within their own regions was warmly welcomed. The IMF and World Bank representatives announced that they intended to use the Core Principles as a benchmark for evaluating supervisory regimes around the world and would encourage their rapid implementation through the IMF's Article IV Consultation process and through IMF and World Bank technical missions and programme design. It was stated that the BIS Institute for Financial Stability would be ready to supplement the current supervisory training programmes of the Basle Committee, IMF and World Bank with intensive sessions on key aspects of the Core Principles.

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On the second day, the topic for discussion was operational risk, which was introduced by Mr. Graeme Thompson of APRA. Aspects of operational risk were then discussed in six workshops that addressed: business continuity planning; the role of internal and external audit; the outsourcing of business functions; the Year 2000 problem; electronic banking and electronic money; and operational risks in financial market trading. These discussions resulted in a variety of practical recommendations addressed specifically to the need for banks to protect themselves against operational risk in a more explicit fashion. For example, banks should be required to have in place backup procedures for essential business functions. In respect of Year 2000 preparations, currently the most prominent risk of this type, it was noted that in most countries the banking sector is making good progress but supervisors must continue alerting banks to the necessity to give high priority to the issue, especially in relation to testing and contingency planning. The conference concluded that close attention needs to be paid to operational risk in general and endorsed the recent initiative by the Basle Committee to persuade the banking industry to share information and develop common best practices in this area.

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The next ICBS is to take place in 2000 in New York, at the invitation of the Federal Reserve Bank of New York.