NEW CHALLENGES FROM THE FINANCIAL MARKETS, GOVERNMENTS AND THE PUBLIC
Chairman: Peter Bakstansky, Senior Vice President, Federal Reserve Bank of New York

Key issues facing central banks
Kenneth Lay
Deputy Treasurer, The World Bank

Viewed from the perspective of the World Bank, what are the main external issues facing central bank risk managers today – and which new challenges will emerge in the near future? Kenneth Lay provides an overview of the work of the World Bank with central banks world-wide, the typical risk management problems they encounter and the range of solutions currently on offer.

Risk identification
Richard Farrant
Former Managing Director, UK Financial Services Authority and former Chief Executive, Securities and Futures Authority

Risk challenges can come in many new forms. It is relatively straightforward to model those for which there is a sufficient run of data, and a store of case studies; but what is much harder to quantify and control are those new forms of risk that emerge from unexpected quarters. In this session, participants will be asked to share their experiences and views on recent episodes that challenged them professionally and for which the literature seemed to provide little guidance.

Managing Reputational Risk
Peter Bakstansky
Peter Rodgers
Secretary to the Bank, Bank of England

Managing reputational risks and relations with governmental institutions Establishing and maintaining the credibility of the central bank is not just a matter of making the right monetary policy decisions but of presenting and explaining them to the public and to markets in ways that enhance the credibility of the policy-making institution.

RISK ASSESSMENT AND PERFORMANCE MEASUREMENT
Chairman: Professor Gordon Gemmill, Professor of Derivatives, City University Business School

Risk management: change is the only constant
Dr Benedikt Koehler
former General Manager, Nord LB, London

This talk takes a historical view of the main trends in risk management in the private sector in recent years. Dr Koehler looks at not only models and methodology, but also at the management structure of banks, the changes in banking culture and the role of corporate governance. What does superior risk management mean for banks and supervisors?

Roundtable chaired by Professor Gemmill
Identifying and managing central bank balance-sheet
exposures including reserve management risks

The management of external reserves (and liabilities) has undergone profound changes in recent years with the introduction by most central banks of a far more professional approach. But academic research and concepts of “best practice” continue to evolve. In this presentation, Professor Gemmill challenges delegates to re-appraise their basic approach to the measurement of risks and the risk/return trade-off in the management of external reserves.

The role of derivatives: risks and opportunities
Gordon Gemmill

This presentation argues that derivatives are relatively simple, facilitate the management of risk in individual banks and are unlikely to cause financial instability. More than a decade ago Merton Miller wrote that derivatives were the most significant financial innovation of the previous twenty-five years. There seems to be a large gap between the popular view of them and that held by the academic community. This talk will ask whether central banks should be concerned.

Presenter: Dr Colin Lawrence
Former Associate Professor of Money and Financial Markets, Graduate School of Business, Columbia University, NYC former Head of Risk Management, Union Bank of Switzerland, former Global Head of Market Risk Management, the Barclays Group Risk Management in the 21st Century - Regulation, Technology and Operational Risk

Risk Management in the 21st Century - Regulation, Technology and Operational Risk

This day examines risks thrown up by rapid changes in the nature of banking and how central bankers should respond. The nature of banking is changing radically. The new economy (globalisation and technological innovation) is biting into transaction costs, transparency and profitability of the banking sector. Shocks such as major emerging market crises (Americas/Asia); liquidity crises (such as Long Term Capital Management) and debt default (Russia) can be swiftly transmitted globally as information is disseminated through all equity and bond markets. Within the above context we are interested in understanding what indeed is (or ought to be) the role of regulators with particular emphasis on risk management policies locally (within a country) and regionally.

The Value Chain
The value chain of the risk process is the context of our discussion:

Firstly, we need to measure accurately the riskiness of each regulated bank. Secondly, we need to understand how each bank determines its economic capital and enterprise-wide risk management policies. Thirdly, we need to evaluate how regulatory capital is determined taking account of the sociological and technological infrastructure of the banking system. Fourthly, regulators and central bankers have to develop international codes of conduct and co-operation such as the Basel accord as well as ad hoc intervention to prevent any potential economic meltdown. The seminar will address all the four components of the risk value chain.

Risk measurement, risk strategy, regulatory capital and systemic exposure in the context of the environment discussed above, namely rapid technological and regional/global change.

Case studies

Dr. Lawrence will present a “straw man” version of the risk management process. This will be followed by a question and answer session. A number of case studies will then be selected by the participants and discussed by the group. Prior to the seminar, participants will be asked to send in a case study pertaining to an event that occurred in their economy related to risk management. All participants will then discuss each presentation within the context of the straw man risk process.

Finally, the group will reach conclusions about best practice for central bankers and the varying degrees of intervention across different economies and cultures.

ORGANISING THE CENTRAL BANK ON RISK MANAGEMENT PRINCIPLES
Chairman: George Vojta, Westchester Group

Central bank accounting, financial reporting and risk management
Jeremy Foster
Partner, PriceWaterhouseCoopers

There is a growing recognition around the world of how important it has become to have a common business language for accounting, governance and financial reporting. Harmonisation of standards has been a long road, but we are at last seeing some evidence of convergence. Where do central banks fit within this scheme, which appears to have more to do with commercial institutions than central banks? Jeremy Foster will also give his perspective on risk management practices at the central banks where he has been a consultant.

Advances in risk management in the Eurosystem
Agnes Van den Berge
Head of Financial Markets Department, National Bank of Belgium

As head of the financial department of the National Bank of Belgium, Mrs Van den Berge has been closely involved in introducing state-of-the-art risk managment in the European System of Central Banks. Here she reports on experience to date and possible lessons for other central banks.

Central bank risk management from a broad perspective
Harald Bøhn
Head of Governor’s Office, Norges Bank

The session examines how a leading central bank structures the risk managment function, with an emphasis on stress-testing key systems.