Financial Independence and Accountability for Central Banks
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Tuesday 18 September
POST-CRISIS FINANCIAL STRENGTH AND INDEPENDENCE
Led by the chairman Kenneth Sullivan, Senior Financial Sector Expert, International Monetary Fund
In this introductory session the chairman will outline the main themes of the seminar and encourage participants to talk about the steps they have taken to improve financial accountability of their central bank, the obstacles they have encountered and the key objectives that they wish to achieve in the future. This discussion will enable later sessions to target the specific concerns of participants.
Lessons from the crisis
Grace Koshie, Secretary to the Board, Reserve Bank of India
In their operations, central banks traditionally favoured an uncomplicated approach. Operations conducted in a limited range of high-quality securities, with a select group of counterparties, were the order of the day. No longer. The financial crisis has forced central banks to broaden the range of assets and counterparties they deal with, exposing their balance sheets to new risks and contingent liabilities. The speaker will draw on the Reserve Bank of India's experience in dealing with the crisis to identify lessons for the sector broadly and look at how the policies and practices of central banking have changed in the past 2-3 years and how, crucially, these changes have impacted balance sheets and independence.
How has the crisis impacted central bank financial strength and independence?
While the media has focused on the massive liquidity injections resulting from the government bond purchases in quantitative easing, central banks have seen the crisis affect their financial performance in different ways. Exchange-rate appreciation, material declines in earnings, rises in policy costs and the need to provide liquidity support to the banking system, have led to significant changes in balance sheets and income statements. This session will draw on participants' experience with how the crisis impacted their banks' financial strength, independence and discuss how central banks are responding.
Wednesday 19 September
BUILDING THE REPORTING FRAMEWORK
IFRS adoption - pros and cons/the impact on the financial position
Marisa Minzoni, Deputy Head, Accounting and Finance Department, Central Bank of Brazil
The number of central banks adopting International Financial Reporting Standards (IFRS) or modelling their financial statements on its basis is rising. The benefits of this are clear: IFRS provides the assurance and comparability of a well-understood reporting framework. In this session, the speaker will share with the group the reasons for adopting IFRS and the issue faced in implementation. She will than reflect on how well IFRS meets the central bank's reporting obligations and its impact on the financial position.
Central bank reporting frameworks: ESCB case study
Polychronis Karakitsos, Senior Finance Expert, Financial Reporting and Policy Division, European Central Bank
Currently, the only international accounting standard specifically designed for central banks is the Eurosystem's accounting rules. These allow central banks who join the euro to report according to a common framework, but they hold lessons that can be applied beyond the single currency area. In this session, the speaker will discuss where the European System of Central Banks framework can add value for central bank reporting, including, notably, the treatment of unrealised gains and losses and will present the impact of applying IFRS on the financial strength of the ECB.
Central bank accountability and transparency: the state of the art
David Schickner, Senior Manager, KPMG
There is no binding set of global standards for central bank financial reporting, indeed many central banks are empowered to define for themselves a set of accounting rules. The speaker will present themes identified in a recent study of accountability and transparency in central banks. Group discussion will look to identify good practices in key areas drawing on the material in the report and experiences of participants.
Reporting performance: alignment with functions and policy
Henrik Gardholm, Head of Accounting Division, Sveriges Riksbank
Financial statements prepared from a profit-maximiser's perspective are a poor fit for reporting central bank performance. A decline in profits, for example, may be due to foreign exchange reserves "falling" in value due to domestic currency appreciation. Increasingly, policymakers acknowledge that central banks need to develop reports that explain their financial results with reference to their mandate and policies, and which attribute costs to functions. With a lack of transparency may have been acceptable in the past, today, ongoing analysis and transparency about sources of expenditure as well as income - are demanded by external stakeholders. In this session, the speakers will discuss the reasons for our functional reporting and what should central banks report about performance and how to do it.
How much capital does a central bank need? (And how can this be ensured?)
Friedrich Karrer, Director of Accounting, National Bank of Austria
At times of heightened uncertainty in financial markets, the central bank's balance sheet becomes the chief weapon in a policymaker's armoury. Yet if financial buffers are used to cover losses and interest income is low, central banks may find they have limited ability to create provisions. Moreover, finance ministers still expect dividends. Central banks can and do function with negative net worth, but this can undermine financial independence and threaten policy effectiveness. The IMF supports the concept of positive capital but has no specific formula for it on a risk-adjusted basis. Rather, it has a dynamic capital-adequacy framework that links concepts of statutory capital, revaluation reserves, accounting, distributions and recapitalisation to provide a framework that maintains capital buffers while ensuring an agreed distribution of realised earnings to government. This session explores how to determine a sufficient level of capital for central banks and what arrangements can be put in place with government to protect this.
Thursday 20 September
FUNDAMENTALS OF FINANCIAL INDEPENDENCE
A central bank perspective on new IFRS amendments
Andrew Hawkins, Partner, PricewaterhouseCoopers
IFRS is designed with profit-maximising institutions in mind, which central banks are not. Furthermore, evolution of IFRS and its convergence with US GAAP has produced material changes to the standards that impact on central bank financial statements. This session will review those recent or pending IFRS amendments and analyse them from a central bank perspective. This session will focus in particular on IFRS 9, including impairment, the changes to "other comprehensive income", and issues of consolidation.
Reporting the Fund's position on a central bank balance sheet
Robin Darbyshire, Former Financial Accountant, Bank of England
The balance sheets of central banks across the world are changing as institutions grapple with ongoing market difficulties. A particular issue is how to report the IMF position and, in this session, the chairman, an experienced IMF official, will facilitate a discussion about how central banks can go about responding to the challenge.
Financial risk management and reporting
The crisis has reinforced the importance of appropriate risk disclosures in central bank financial statements. Here central banks face a delicate balancing act. While the standards define the framework, central banks need to adapt them to meet their own particular needs. Inappropriate disclosures may pose risks to policy outcomes while the unique nature of central bank balance sheets presents particular risks. This session will explore some of the important fault lines, drawing on the speaker's work with central banks around the world.
Central bank financial independence
Central banks need financial resources to be able to perform their functions. To support their operational independence a central bank needs free access to these resources. Yet central banks are public bodies and, typically a source of revenue for the state. This discussion will cover both balance sheet and income elements of financial independence, including functional balance sheets and budgeting.
Friday 21 September
REPORTING OPERATIONAL COSTS AND RISKS
Managing and reporting operational risk
Rudy Wytenburg, Deputy Chief Financial Services, Bank of Canada
Central banks' operational risk exposure is highly complex given their diverse roles and functions. Moreover, while the chances of a high-impact event may be small, the potentially devastating effects it could have on the central bank and the financial system more broadly means it must be reported. This session examines how a leading central bank reports operational risks and their management to senior management and the board.
IT - Alignment with financial and operating reporting
Tony Obisesan, Senior Accounting Expert, Financial Reporting and Policy, European Central Bank (invited)
Central bank's policy focus produces their own versions of IT challenges. While generally processing small volumes of transactions (except in banking and payments systems) the bank often undertakes large value transaction that requires complex and specialist software. This is particularly so in the reserve management and market operations areas. The IT systems further need to meet information requirements for policy decisions, statistics and financial reporting, which creates a special set of demands that financial management information systems must meet. In this session, the speaker will discuss how central banks can tackle these challenges.
Lessons and action points
Led by the chairman
In this session, the chairman will review the key lessons from the presentations and discussions throughout the course. Delegates will be asked to reflect on how the lessons learnt over the four days can be applied at their home institutions and how emerging risks can best be managed.