Tag: Bank for International Settlements

BIS develops fund to channel c.bank reserves to Asia green bonds, BFSI News, ET BFSI

Banking & Finance

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TOKYO, – The Bank for International Settlements (BIS) said on Thursday it had developed an Asian Green Bond Fund to channel global central bank reserves to green projects in the Asia Pacific region.

The fund will provide a pipeline for central banks to invest in bonds issued by sovereigns and corporates that comply with strict international green standards, the BIS said in a statement.

“The fund will work closely with the Asian Development Bank (ADB) and other development financial institutions as well as other issuers,” the statement said.

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Banks in EU “window dress” to escape higher capital charges, says BIS paper, BFSI News, ET BFSI

Banking & Finance

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LONDON: Some of the European Union‘s biggest banks are holding less capital than they should by using transactions to temporarily compress their balance sheets, a research paper from the Bank for International Settlements said on Thursday.

After several banks had to be rescued by taxpayers during the global financial crisis over a decade ago, global regulators now designate the biggest among them as globally systemic banks or G-SIBs to face tougher capital rules.

Each year, G-SIBs are slotted into buckets, with tougher rules for those in the higher buckets.

The paper from the BIS, a forum for central banks based in Basel, Switzerland, said “window dressing” or using transactions to compress assets and liabilities at the end of the year, is blurring data used by regulators and thus affecting the actions they take.

The volume and riskiness of assets and liabilities determine how much capital must be held, but banks are able to “manage down” their G-SIB score and reduce their capital surcharges, the paper said.

“Up to 13 banks in the EU would have faced more intense supervision and higher capital requirements in the absence of window dressing,” the paper said, without naming them.

“Of these, three banks would have been added to the G-SIB list, whereas 10 banks would have been allocated to a higher G-SIB bucket in at least one year,” the paper added.

Window dressing has long been a bugbear of regulators, but the paper from the BIS suggests that regulators should be taking a more granular approach to designating G-SIBs, which affect the stability of the financial system.

“Our findings underscore the importance of supervisory judgement in the assessment of G-SIBs and call for greater use of average as opposed to point-in-time data to measure banks’ systemic importance,” the paper said. (Reporting by Huw Jones)



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BIS, BFSI News, ET BFSI

Banking & Finance

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By Marc Jones

LONDON: Central banks and financial regulators urgently need to get to grips with the growing influence of ‘Big Tech‘, according to top officials from central bank umbrella group the Bank for International Settlements (BIS).

Global watchdogs are increasingly wary that the huge amounts of data controlled by groups such as Facebook, Google, Amazon and Alibaba could allow them to reshape finance so rapidly that it destabilises entire banking systems.

The BIS, in a paper led by its head Agustin Carstens, pointed to examples such as China where the two big tech payment firms Alipay and WeChat Pay now account for 94% of the mobile payments market.

China has already rattled its markets with a series of clampdowns https://www.reuters.com/world/china/no-gain-without-pain-why-chinas-reform-push-must-hurt-investors-2021-07-28 on top tech and e-commerce firms. Last November regulators torpedoed the public listing of Jack Ma’s fintech Ant Group and in the nine months since other tech giants and, lately, tutoring firms, have all faced scrutiny.

In many other jurisdictions too, tech firms are rapidly establishing footprints, with some also lending to individuals and small businesses as well as offering insurance and wealth management services.

“The entry of big techs into financial services gives rise to new challenges surrounding the concentration of market power and data governance,” the BIS paper https://www.bis.org/publ/bisbull45.pdf published on Monday said.

There was scope for “specific entity-based rules” notably in the European Union, China and the United States, it added.

“Any impact on the integrity of the monetary system arising from the emergence of dominant platforms ought to be a key concern for the central bank.”

Stablecoins – cryptocurrencies pegged to existing currencies such as Facebook’s Diem – and other Big Tech initiatives could be “a game changer” for the monetary system, the paper added, if the “network effects” of social media and e-commerce platforms turbo-charged their uptake.

It could lead to a fragmentation of existing payment infrastructures to the detriment of the public good. “Given the potential for rapid change, the absence of currently dominant platforms should not be a source of comfort for central banks,” the paper said.

It said they should anticipate developments and formulate policy based on possible scenarios where Big Tech initiatives are already reshaping payments and other parts of financial systems.

“Central banks and financial regulators should invest with urgency in monitoring and understanding these developments” it added. “In this way, they can be prepared to act quickly when needed.”



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BIS, BFSI News, ET BFSI

Banking & Finance

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Central bank digital currencies can offer “finality, liquidity and integrity”, and could provide strong data governance as well as privacy standards based on digital identities, the Bank for International Settlements (BIS) said on Wednesday. The backing for such currencies by the Switzerland-headquartered BIS, which is also known as the central bank of all central banks, also comes at a time when there are ongoing intense discussions in India and many other countries on crypto currencies.

Noting that central banks stand at the centre of a rapid transformation of the financial sector and the payment system, BIS said Central Bank Digital Currencies (CBDCs) represent a unique opportunity to design a technologically advanced representation of central bank money, one that offers the unique features of finality, liquidity and integrity.

“Innovations such as crypto currencies, stable coins and the walled garden ecosystems of big techs all tend to work against the public good element that underpins the payment system.

“The DNA (Data-Network-Activities) loop, which should encourage a virtuous circle of greater access, lower costs and better services, is also capable of fomenting a vicious circle of entrenched market power and data concentration. The eventual outcome will depend not only on technology but on the underlying market structure and data governance framework,” BIS said.

On Wednesday, BIS released a chapter titled ‘CBDCs: an opportunity for the monetary system’ that is part of its Annual Economic Report 2021.

To realise the full potential of CBDCs for more efficient cross-border payments, BIS said international collaboration will be paramount.

“Cooperation on CBDC designs will also open up new ways for central banks to counter foreign currency substitution and strengthen monetary sovereignty,” it

A few countries, including China, are working on CBDCs.

An analysis BIS found that CBDCs would best function as part of a two-tier system where the central bank and the private sector work together to do what each does well.

From a practical perspective, the BIS said the most promising CBDC design would be one tied to a digital identity, requiring users to identify themselves to access funds. A careful design would balance protecting users against the abuse of personal data with protecting the payment system against money laundering and financial crime, it added.



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Central bank group BIS warns of runaway markets, BFSI News, ET BFSI

Personal Finance

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The surge in financial markets following COVID-19 vaccine breakthroughs and the U.S. election has left asset prices increasingly stretched, central bank umbrella group the Bank for International Settlements (BIS) has cautioned.

The BIS’ quarterly report on Monday noted how credit markets and some of world’s biggest stock markets had surpassed their pre-pandemic levels despite the significant degree of uncertainty that still remains over the pandemic as it continues to spread.

Claudio Borio, Head of the BIS Monetary and Economic Department, said a rally had been justified by the vaccine news and ongoing fiscal and monetary stimulus, but there were also signs of an overshoot.

“A certain amount of daylight between risky asset valuations and economic prospects appears to persist,” Borio said, adding that “questions about overstretched valuations” had already been present before the coronavirus crisis.

The Basel-based BIS’ views are often watched by economists as the world’s top central bankers take part in its behind-closed-doors meetings.

Borio said one of the developments it was particularly wary of was the rapid easing of stress in corporate credit markets.

“We are moving from the liquidity to the solvency phase of the crisis,” Borio explained to reporters.

“We should be expecting more bankruptcies going forward yet credit spreads are quite low by historical standards, and indeed while banks are pricing risk more carefully we don’t see the same in capital markets.”

He added that with $17.5 trillion worth of bonds now carrying negative yields – meaning that investors effectively pay rather than get paid to hold them – many money managers were being pushed into riskier and riskier assets.

That itself is a risk and underscores the “tricky waters” major central banks are now navigating. They have provided trillions worth of stimulus this year and are expected to continue to do so going forward.

“The outlook is rather uncertain and you would rather err on the side of doing too much as opposed to doing too little,” Borio said.



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