Risk Moment RES

http://www.centralbanking.co.uk/publications/books/rmt09.htm

The 2009 edition of RBS Reserve Management Trends will be published, and available for download here on March 18 2009

Downloadable pdf available 00.01am March 18 2009. Order now
Now in its fifth annual edition, RBS Reserve Management Trends is the world’s leading independent source of hard data on central bank reserve management - data vouchsafed by reserve managers themselves.

Exclusive survey report
The book contains an exclusive report of a survey of 39 central banks, responsible for more than $3 trillion in reserve assets, on their responses to the global financial crisis.

As well as detailed analysis of the answers, all comments and observations volunteered by reserve managers are reproduced in full.

This year the survey provides the first detailed analysis of how central banks have responded to the crisis and how they intend to manage reserves in the light of upheavals in markets around the world.

This year the survey focuses on:

How global financial turmoil has impacted reserve-management policies
How reserve managers view counterparty risk
How central banks reacted to illiquidity in major markets
How views on the assets that are seen as attractive have changed
How central banks will look to diversify
How the amount of reserves will change
The answers may surprise you. Taken together the answers provide a snapshot of how countries manage their reserves at this time of unprecedented market turmoil.

Chapters by specialists
The book features six chapters by expert authors drawn from central banks, academia and the private sector.

Diversification reconsidered
Han van der Hoorn of the European Central Bank rethinks central banks approach to diversification. Does it always reduce risk?

Market meltdown
James Barth, Tong Li and Triphon Phumiwasana explore in depth the turbulence of 2008 in assets of interest to reserve managers.

Global decline
Kit Juckes and David Simmonds analyse what the crisis will mean for the development of reserves at a global level.

Strenght in numbers
For Joshua Aizenman the crisis has shown the benefits of large holdings of reserves for countries around the globe. But how they have used the reserves has varied, he shows.

Policy dilemmas
Could rational reserve management undermine a central bank’s financial stability role? This and other uncomfortable dilemmas are discussed by Ludek Niedermayer, a former vice-governor of the Czech National Bank.

Liquidity risk revisited
Ib Hansen, who heads the financial markets function at the Danish central bank, discusses the impact of the crisis on reserve management there, the intervention of autumn 2008, and how the central bank will be managing liquidity and counterparty risks in the future.

Statistical digest
Comprehensive tables by country displaying in user-friendly form the major trends in foreign exchange and gold reserve holdings, with currency and country breakdowns, and with gold marked to market rather than at an arbitrary historic cost.

RBS Reserve Management Trends 2009 is the fifth in a series of annual publications dedicated to providing an ongoing commentary on official reserve management. The series draws on expert opinion and experience of practitioners to allow central bankers to benchmark their policies against those of their peers.

RBS Reserve Management Trends 2009 is published by Central Banking Publications Ltd, an Incisive Media company. It builds on several previous publications in this field, including How Countries Manage Reserve Assets (2002), purchased by over 80 central banks, and four previous editions of RBS Reserve Management Trends.

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Table of contents

Trends in reserve management – 2009 survey results
Nick Carver and Robert Pringle, Central Banking Publications

Rethinking the risks of diversification
Han van der Hoorn

The credit crunch and yield spreads
James R. Barth, Tong Li and Triphon Phumiwasana

A new era for global reserves
Kit Juckes and David Simmonds

When liquidity and reserve management collide
Ludek Niedermayer

Reserves and the crisis: a reassessment
Joshua Aizenman

Liquidity risk revisited
Interview by Nick Carver

Appendix 1 Survey questionnaire

Appendix 2 Survey replies

Appendix 3 Reserve statistics

Trichet warns on ‘complacent’ markets

By Richard Beales in Boston

Published: April 18 2007 19:56 | Last updated: April 18 2007 19:56

Jean-Claude Trichet, president of the European Central Bank, on Wednesday called for concerted market action to improve transparency in global credit derivatives markets, where he said “opacity” made it difficult to assess risks to the financial system.

The private, over-the­-counter nature of derivatives markets makes them notoriously difficult to measure and monitor, but the explosive growth in the use of credit derivatives continues as increasing numbers of traditional asset managers and pension funds join investment banks and hedge funds in the market.

“The opacity of the credit derivatives market, and especially of structured synthetic instruments, is a potential source of concern,” Mr Trichet said.

He added that the ECB would encourage industry initiatives to promote transparency. “The reduction of systemic risk is not an objective for central banks exclusively.”

Mr Trichet’s remarks came as the leading industry body released data showing that the outstanding notional volume of credit derivatives contracts more than doubled to $34,500bn in 2006.

The International Swaps and Derivatives Association, at whose annual meeting Mr Trichet was speaking, also said interest rate derivatives saw higher than usual growth last year with the market expanding by 34 per cent to $285,700bn outstanding notional.

Mr Trichet said while credit derivatives allowed market participants to improve risk management and distribute exposures more widely than in the past, this enhanced the resilience of the financial system only if certain conditions were met.

These included accurate measurement and pricing of risks, strong risk management and an appropriate mix of investor views, behaviour and risk appetite, as opposed to a mass of money taking the same positions.

Supporters of the role of credit derivatives often point to the large-scale collapses of companies such as Enron, WorldCom and Parmalat, and the fact that no banks were brought down as a result, as proof of the markets functioning correctly.

However, Mr Trichet said the conditions he spoke of were not always met and that credit derivative instruments had not yet been seriously stress-tested.

“Aggressive investors display a more volatile risk-­taking attitude, and their balance sheets are not necessarily resilient enough to withstand major shocks or increases in volatility,” he said.

Ken Lewis, chief executive of Bank of America, also speaking at the conference, emphasised the importance of derivatives to risk management. He conceded, however, that the financial industry’s response to potential problems with derivatives had “not always been reassuring”.

The industry had allowed, for example, the build-up of problems with executing and documenting credit derivatives trades, which resulted in extreme regulatory pressure to clean the industry up last year. But banks and the rest of the industry needed to understand and act pre-emptively, for the good of both clients and the market, to avoid a backlash of over-regulation.

“Derivatives do not eliminate risk – they simply redistribute it. The underlying risks still exist,” he said.

“Understanding where those risks are and who is holding them is primarily the responsibility of those who have taken them on. But to some degree it is also our [collective] responsibility.”

Separately, a European Central Bank report said private equity poses only a remote risk to financial stability and Europe’s banking industry.

The pioneering survey of 41 large banks found scant evidence that corporate leveraged-buyouts (LBOs) by private equity groups could create serious difficulties for the financial system.

Additional reporting by Paul J. Davies in London

Copyright The Financial Times Limited 2007

http://www.ft.com/cms/s/1a1b6912-edcf-11db-8584-000b5df10621.html