The work of the Financial Stability Institute: past, present and beyond

Welcoming remarks by Fernando Restoy, Chairman, Financial Stability Institute, Bank for International Settlements, at the Financial Stability Institute's 20th anniversary conference "A cross-sectoral reflection on the past, and looking ahead to the future", Basel, Switzerland, 12 March 2019.

BIS speech  | 
27 March 2019

Introduction

Good morning, ladies and gentlemen.

On behalf of the Financial Stability Institute and the Bank for International Settlements, I am delighted to welcome all of you to our 20th anniversary conference. Together, we would like to take you on "a cross-sectoral reflection on the past, and a look ahead to the future".

Over the next day and a half, we will reflect on the main post-crisis developments in financial regulation. In so doing, we will focus particularly on the challenges authorities face to properly implement these reforms and deal with emerging risks to financial stability and other policy objectives.

The Financial Stability Institute is here to help supervisory authorities address challenges that could potentially threaten the financial system. Indeed, the FSI was set up after the series of crises that hit the world economy in the 1990s. Many of these started in emerging market economies but their effects then rippled outwards to the advanced economies too. At that time, Hans Tietmeyer, then President of the Deutsche Bundesbank and Chairman of the G10 central bank governors, said:

"Financial system weakness has been at the heart of the recent crises. By strengthening the capacity of officials to identify sources of vulnerability and to implement rigorous preventative measures, the [Financial Stability] Institute should help address this problem."

In this way, capacity-building in the official financial sector was baked into the FSI's mandate, which tasks it with helping supervisors strengthen their financial systems worldwide. A major part of this mission is to support the implementation of global financial standards and sound supervisory practices. This was how the press release announcing the FSI's establishment put it:

"The need to strengthen financial systems worldwide has led to increased demand for assistance in implementing sound policies in all areas bearing on financial system stability. To help respond to these demands, and to improve the effectiveness with which training is planned, coordinated and delivered, the BIS in a joint initiative with the Basel Committee on Banking Supervision is establishing an Institute for Financial Stability."

Two people were instrumental here: the BIS General Manager Andrew Crockett; and the Basel Committee Chairman of that time, Tom de Swaan. I would like to take this opportunity to pay tribute to both of them for their leadership and foresight.

Since then, the FSI has been constantly adapting and innovating to deliver on its mandate in a way that contributes to the BIS's goal of promoting financial stability and which meets the needs and demands of the financial supervisory community. Having reached the 20-year mark, we thought that it would be timely to organise an event like this one and invite friends and colleagues who have contributed to our work over the years to give us the chance to reflect about the past and - more importantly - to look into the future of financial regulation and supervision.

I would like to use these welcoming remarks to briefly review some of the key achievements in the FSI's history and to share our current and future priorities in the years to come.

A quick look at the past

At its outset, the FSI was guided by an advisory board chaired by Andrew Crockett and comprising a number of eminent officials including Jerry Corrigan, Bill McDonough, Guillermo Ortiz, Tommaso Padoa-Schioppa and Michel Prada.

To direct the Institute's day-to-day activities, John Heimann was appointed as the FSI's first chairman. John did a tremendous job in launching the Institute and cementing its reputation by focusing its early work on helping supervisors implement the Core principles for effective banking supervision. To this end, the FSI launched a programme of outreach seminars in Basel and worldwide in which a key role was played by interactions between the official financial sector community, academia and the private sector.

In December 2000, Josef Tošovský became the second FSI Chairman. When Josef took over the FSI, the financial system was showing clear signs of fragility from the bursting of the technological bubble, corporate fraud scandals and the 9/11 terrorist attacks. Investor confidence slumped, leading to the stock market crash in 2002.

Around the same time, there was a growing realisation that the financial markets had evolved so far that the 1988 Capital Adequacy Framework, or Basel I, could no longer adequately reflect the risks that banks were facing. This was true, in particular, of the internationally active banks. Basel I also showed how difficult it is to keep up with ongoing financial innovation. To address these weaknesses, the Basel Committee released Basel II in June 2004.

Against that backdrop, Josef, with the support of Andrew Crockett, made a number of enhancements. These included:

  • Further increasing the FSI's international footprint. During Josef's tenure, the annual programme of events increased to around 50 seminars and meetings per year.
  • Widening the scope of its work. In 2002, the FSI started its training activities for insurance supervisors, laying the foundation for a strong working relationship with the International Association of Insurance Supervisors (IAIS). Moreover, in 2004, the FSI began organising its high-level meetings for heads of banking supervision. These events have evolved into an acknowledged forum for senior policymakers worldwide.
  • And last but not least, launching FSI Connect, a highly successful initiative. This is the BIS's e-learning and reference tool for central bankers and banking supervisors. FSI Connect is now the major source of training for supervisory agencies, reaching almost 230 financial authorities in 160 jurisdictions worldwide.

Looking forward

When I arrived at the FSI in early 2017, I had a tough act to follow. John's and Josef's achievements had shaped the FSI into a widely recognised player in the capacity-building world, with a strong international presence through its programme of outreach events and FSI Connect.

Having said that, it was also very clear in 2017 that the financial system had continued to change. In particular, the Great Financial Crisis and the resulting reforms have profoundly reshaped both the industry and the regulatory framework. We now have not only a more sophisticated and risk-sensitive crisis prevention framework but also a new system for resolving systemic financial institutions that are failing.

Furthermore, financial sector authorities must now pursue an even wider range of policy goals. In addition to safeguarding financial stability and market integrity, supervisors are often expected to contribute to other objectives, such as competition, technological innovation or financial inclusion. All of these add complexity to their role, hence increasing the demand from central banks and supervisory authorities for capacity-building.

In this new world, we felt there was a need to adjust both the services and products offered by the FSI and the way it interacts with its main stakeholders, basically the supervisory community. With the support of former BIS General Manager Jaime Caruana, and the current one, Agustín Carstens, the FSI has repointed its strategy, building upon its strengths and adding the following features to our work:

  • Enhancing our coordination with key stakeholders. A major development in this area has been the reactivation of the FSI Advisory Board. This is chaired by the BIS's General Manager and comprises a small but diverse group of central bank governors, heads of financial authorities and chairs of standard-setting bodies and regional supervisory groups. Among the members of the Advisory Board, we were fortunate to have Nestor Espenilla Jr, Governor of Bangko Sentral ng Pilipinas, who recently passed away. So let me take this opportunity to pay tribute to him.
  • Widening the scope of the FSI programme of events to cover relevant cross-sectoral topics and increasing our outreach to senior officials. Key developments in this area include the launch of a series of cross-sectoral conferences, such as this one, and the extension of our high-level meetings to the insurance sector.
  • Exploiting FSI Connect more intensively to deliver online courses for financial sector supervisors. Building upon the successful experience with the FSI-IAIS online course for insurance supervisors, we are collaborating with the International Monetary Fund to offer an online course on the fundamental aspects of banking supervision based on FSI Connect material and a series of webinars. We expect this course to be attended by few hundreds of staff members of supervisory organisations and central banks every year.
  • Supporting financial sector authorities through policy implementation work. The aim here is to explore the range of policy approaches in different jurisdictions on key regulatory and supervisory issues. Our findings are presented through the FSI Insights series. Since 2017 we have published 15 of these papers, covering practical policy matters such as proportionality, stress-tests, non-performing loans, resolution, cyber-security and suptech, to name but a few. So far, we have been very happy with the reception of these publications.

As for the future, the FSI will be guided by the Innovation BIS 2025 Strategy, as approved by the BIS Board of Directors last November. BIS 2025, as we call it, provides that the FSI's core business will continue to be support for the implementation of global financial standards and for the adoption of sound policies in the new institutional, regulatory and technological environment. The following main initiatives are part of our strategy:

  • Expanding the offering of online training courses to cover more advanced topics and cross-sectoral themes such as fintech and cyber-security.
  • Playing a more active role in addressing regulatory and supervisory developments related to technology and innovation. To this end, the FSI will be creating a repository of technology-related regulatory developments and it will further develop a recently created informal network of experts on enhancing supervisory work through technology.
  • Providing support for financial crisis management through a library of previous crisis episodes and the coordination of exercises that test the performance of existing crisis management frameworks in a cross-border context.
  • Continuing to expand our FSI Insights series with new comparative studies on regulatory and supervisory approaches with a special focus on technology and crisis management.

As you can see, there should be enough to keep us busy in the years to come.

Final remarks

Let me conclude these remarks with two thoughts.

First, from its outset, the FSI has been constantly adapting itself to the needs of the financial supervisory community, with the aim of contributing to the BIS's financial stability mission. Despite that evolution, two aspects of the FSI's work have remained unchanged since the beginning: (i) helping to build the capacity of financial supervisors worldwide; and (ii) contributing to the effective implementation of global regulatory standards and sound supervisory practices. The FSI remains committed to these core elements in the years to come.

Second, the FSI today owes a great deal to three sets of people:

  • The leadership of visionaries, including Andrew Crockett, Tom de Swaan, the hard work of the previous years John Heimann and Josef Tošovský.
  • The hard work over the years of every single member of the FSI's qualified and committed staff.
  • The invaluable support of the friends and colleagues who are with us in this room today.

I would like to thank you all for your continuing encouragement and engagement.