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Financial Systems

At the Seminar "Promoting Financial Stability", held in Brasilia on November 11, 1999, which was jointly organized by the BIS, the Central Bank of Brazil and the CEMLA, the representatives of the Central Banks of Argentina, Brazil, Colombia, Chile, Guatemala, Jamaica, Mexico and Venezuela gathered together with the purpose of evaluating the possibility of forming a Forum aimed at strengthening the systematic analysis of the various factors that influence the regional financial stability.

The creation of the Forum comes from the suggestions raised at the first seminar held on this subject in Ciudad de Mexico, in May 1999. At that time, it was deemed advisable that central banks in general, and in particular their various areas involved in matters related to financial stability, should have a more fluent communication. It is important to highlight that these issues have been dealt with primarily under the scope of the Basle Committee on Banking Supervision, a forum that is primarily devoted to the analysis of these and other topics related to the agencies charged with the supervision of financial institutions, which in general are not dependant of central banks in the region.

Those issues related to financial stability have been dealt with under a non-systemic focus, given the fact that the analyses have been directed primarily to legal and accounting aspects, essentially oriented to aspects of surveillance and inspection of financial institutions considered individually. Thus, it is also desirable to have macro- and micro-economic analyses in place that deeply reflect the various aspects included under the scope of responsibilities central banks are charged with or on which central banks are interested.

An impression exists that within central banks these issues have been analyzed in isolation by the various relevant areas. This has precluded a unique perspective or a more integral focus of the problem.

The release of standards and best practices regarding the activities of the various kinds of financial institutions and specific working areas in the central banks demands a higher level of communication and the exchange of experiences, which would be specially useful in the process of adapting those standards.

Higher information flows required by the ever growing financial integration have not yet reached a satisfactory level and quality. These processes are not yet sufficiently systematized, either for information exchanges among central banks or exchanges with other local authorities.

General Working Methodology and Scope of the Activities

The Forum will carry out its activities based on the following general principles:

• It will be a technical cooperation forum, for open discussion and exchange of experiences in specific matters related to financial stability.

• It will focus its efforts on studying the implications in the region of the criteria, standards and principles issued by the various organizations and forums related to financial stability, as well as the debate and analysis of specific issues or aspects that are not subject of analysis under the scope of those organizations. Information related to compliance with the above mentioned standards will be compiled and systematized.

• It will propose those issues that, due to their importance or seriousness for central banks, deserve to be discussed in depth. For every topic proposed, the specific issues to be studied will be specified in advance.

• It will focus its activities on the interests and perspective of central banks on subjects related to financial stability. However, discussions might be opened to other kinds of financial system regulators so as to enrich the effort.

• Although at first the work will be aimed at increasing information and communication among central banks and their relevant areas, in case it is deemed necessary or relevant the Group may propose that the results of the study of any particular topic be submitted to the Meeting of the Governors of Central Banks of CEMLA.

In the first stage the following topics were selected to be studied in the short term:

• The new capital adequacy rules in banking institutions and the various prudential rules that must accompany them.

• Concentration, property and global character of banking institutions.

• Precision of the concept of financial instability.

• Systemic liquidity policy, considering both local and foreign currency liquidity.

• Other mechanisms of financial intermediation - the stock market.

The following preliminary working methodology was deemed appropriate:

• First, a glossary of frequent terms in financial stability matters will be prepared aimed at unifying the use of terminology.

• A detailed index of specific issues to be dealt with and/or analyzed will be prepared for each topic, together with a time schedule to be observed regarding the completion of the different stages of each work and the definition of the purpose of the research. In this first instance, CEMLA will propose the contents or indexes for each topic, which subsequently will be submitted to the consideration of the central banks that constitute the Forum.

• Once a consensus is reached regarding the indexes of topics to be analyzed, these indexes will be communicated to all central banks throughout the region.

• CEMLA and those institutions forming the Forum will identify those officers within each central bank that are currently working in the various specific issues and aspects that have been defined. In order to create a consultation network for every topic, a list of these officers will be prepared and subsequently distributed among all central banks. Independently of bilateral communications, it is deemed appropriate to appoint a concentrator to whom every central bank will send its comments. Likewise, a space will be created in CEMLA's web page to this end.

• If it is deemed appropriate, the Forum might propose the elaboration of a base-document for discussion in connection with preliminary ideas expressed so far and existing bibliography, so as to arrange a meeting at which to deal systematically with the relevant topic. Whenever the suitability of a meeting is evaluated, the expert(s) in each issue will be identified in order for him(them) to present his(their) ideas and contribute to nourish discussions among the members of the Forum.

• Eventually, the new ideas and/or conclusions reached in these studies might be submitted to the Central Banks' Board of Governors

Members of the Forum

Centro de Estudios Monetarios Latinoamericanos, A.C.
Durango 54, Col. Roma, México, D.F., México, 06700
+52 (55) 5061 6640