Financial Risks, Stability, and Globalization Papers presented at the IMF's eighth Central Banking Seminar held in Washington, D.C.—June 5–8, 2000 Editor: Omotunde E.G. Johnson

Contents
Foreword   Horst Köhler
Preface   Stefan Ingves
Acknowledgments   Omotunde E.G. Johnson
I. Introduction
Financial Risks, Stability, and Globalization: Overview of Issues and Papers Omotunde E.G. Johnson Opening Remarks: The IMF and the Financial Sector Stanley Fischer
II. Risk Management and Governance in Financial Institutions
On Internal Ratings, Models, and the Basel Accord: Issues for Financial Institutions and Regulators in Measuring and Managing Credit Risk David Stephen and Michael Fischer Comments Paolo Marullo Reedtz Huw Evans Calculating Counterparty Credit Exposure When Credit Quality Is Correlated with Market Prices W. Trevor Uhl and Charles R. Monet Comments Liliana Schumacher Jeffrey A. Brown Alternative Approaches to Regulation and Corporate Governance in Financial Firms David T. Llewellyn Comments Klaas H.W. Knot David Marston Insurance in the Development of Financial Services: Policy Implications and Issues for a Research Program Orio Giarini
III. Financial Crises and Contagion
On the Welfare Costs of Systemic Risk, Financial Instability, and Financial Crises Koichi Hamada Comments Heikki Koskenkylä Omotunde E.G. Johnson Assessing the Ability of a Financial System to Withstand Financial Stress: A Market Perspective Christopher T. Mahoney Comments Lex Rieffel Charles Enoch
IV. Domestic Monetary and Financial Policies
Safety-First Monetary and Financial Policies for Emerging Economies Andrew Powell The Central Bank's Role in Fostering Financial System Stability: A Canadian Perspective Malcolm Knight Dynamic Inconsistency of Capital Forbearance: Long-Run Versus Short-Run Effects of Too-Big-to-Fail Policymaking Edward J. Kane Comments Andi Kloefer Tomás J.T. Baliño Fiscal Support in Financial Sector Restructuring: Analytical Issues Timo Välilä Comment Jong-Koo Lee Changes in Bank Behavior During Japan's Financial Crisis Hiroshi Nakaso and Morichika Hattori Comments Ceyla Pazarbaşıoğlu Barbara Baldwin International Capital Mobility and Domestic Financial System Stability: A Survey of Issues V. Sundararajan, Akira Ariyoshi, and İnci Ötker-Robe Comments Felipe Morandé Latifah Merican Cheong
V. International Cooperation
International Cooperation for Financial System Stability Ydahlia Metzgen, Marco Rossi, and Przemyslaw Gajdeczka Comments Eduardo Fernandez-Arias Gerald Grisse On International Cooperation and Standards and Codes André Icard The Changing Role of the IMF and the World Bank in Assessing and Promoting Financial System Soundness Carl-Johan Lindgren Assessing Financial Sector Soundness: The Role of the IMF Stefan Ingves, Alfredo M. Leone, Paul Hilbers, and Mark O'Brien Comments Richard Freeman Youssef El-Khalil List of Participants

This book contains the proceedings of the IMF's eighth Central Banking Seminar, which was held June 5–8, 2000, and organized by the IMF's Monetary and Exchange Affairs Department in collaboration with the IMF Institute. Since they began in 1983, these seminars have been organized every two to three years; the seventh in the series took place in January 1997. The seminars have provided a useful forum for wide-ranging discussions on a number of central banking issues among senior practitioners from the IMF membership. The objective has not necessarily been to reach definitive conclusions or to arrive at a consensus on any issue. The topics chosen feature prominently in current debates in the monetary, banking, and exchange areas. The seminars also are an opportunity to inform relevant and interested parties about the IMF's current analytical and policy work in the areas concerned.

This volume takes its title from the theme of the eighth seminar, "Financial Risks, Stability, and Globalization." Apart from staffs of the IMF and the World Bank, participants were drawn from the Bank for International Settlements, the Inter-American Development Bank, private financial firms, academia, regulatory and supervisory agencies, and central banks. Officials from over 35 countries were represented. The diversity of the specialties and backgrounds of the main speakers and the commentators demonstrates the complexity of the topics discussed. As expected, the diversity contributed strongly to the depth of the discussions.

The topics themselves are of immense concern to the IMF, in general, and its Monetary and Exchange Affairs Department in particular. Indeed many of the issues raised feature prominently in the IMF's Article IV consultations and technical assistance. But the topics also reflect the growing amount of time and energy that policymakers, including central bankers, in all parts of the world have had to devote in recent years to safety, efficiency, and stability of the financial system. Macroeconomic policymakers particularly seek to understand the major factors determining risk management, efficiency, and stability in financial systems; the economic costs of suboptimal levels of risk management, efficiency, and stability; and the nature of optimal policy interventions. In this context, the IMF in its relations with countries has been paying great attention to banking and financial sector issues, such as bank soundness, systemic bank restructuring, and the safety and efficiency of systemically important payment systems, and their interaction with the macroeconomic environment. It has been the intention in organizing this seminar to reflect some of this ongoing work of the IMF and to obtain the views of other experts on these issues. We hope that the volume will be of value to policymakers as well as researchers.

 

Stefan Ingves Director Monetary and Exchange Affairs Department International Monetary Fund