Financial And Operational Risk Management For Central

2003 Training Courses/Seminar Series

Financial And Operational Risk Management For Central Bankers

4-day intensive residential programme, 31 August - 4 September 2003
Venue: Christ's College, Cambridge

Dear Delegate,

Economic uncertainty and financial sector weakness expose all central banks to increased risks. These cannot be avoided. They can however be identified, measured and managed. Increasingly, central bankers realise that this job, of creating a coherent framework for accepting, understanding and managing risk, is at the very heart of what they do. But it is not straightforward. This course is designed to highlight the problems and challenges that central bankers face in managing risk, and examine how some leading central banks have tackled them.

At the same time, central bankers face demands to improve their performance. How can central banks achieve both increased returns and improved risk management? That challenge is at the centre of their work - and of this seminar/training course. Case studies will examine how central banks can improve their management of financial market risks. Key sessions will discuss the most effective means of organising and coordinating effective contingency plans to limit the consequences of operational failure or disasters. But how can separate and seemingly diverse risk considerations be brought together and managed within a central bank?

An elite panel of experts drawn from a variety of disciplines will lead discussions to enable delegates to compare their central bank's techniques and policy frameworks against those of leading institutions and the cutting edge of academic research. Presenters will examine in detail how to identify, measure, and manage the most important risks that are faced by today's central bankers.

One particularly important risk will receive special attention. This arises from the fact that historical volatility may be a very poor guide to risks, especially when low measured volatility is a reflection of a particular policy environment. At a time when interest rates/inflation are historically low in many countries, can central banks rely on this continuing? How should they prepare their own balance sheet for an upturn in the interest rate cycle?

Delegates benefit from a roundtable format that facilitates informal and candid discussion of sensitive policy issues with their peers and leading experts. Even experienced senior central bankers need to compare their concepts of "best practice" with those of their counterparts in other central banks and official institutions. They need, occasionally, to step back from day-to-day pressures and swap experiences and perspectives with contemporaries. This training course/seminar aims to meet all these needs.

The conference sponsor, Central Banking Publications Ltd, is an independent organisation delivering a range of regular publications, directories, research studies and electronic media services for monetary authorities and financial supervisors worldwide. This independent standpoint naturally encourages free discussion and potentially allows a broader coverage of issues than conferences organised by official institutions.

We are once again proud to present a distinguished panel of speakers, with Charles Goodhart as the course adviser, and we are also delighted to welcome Peter Nicholl, Governor of the Central Bank of Bosnia and Herzegovina, as chairman for the week.

Now in its fifth year, Central Banking Publication's annual training course/seminar series has welcomed over 450 delegates from 95 countries. We look forward to welcoming you to Cambridge on August 31st.

Yours sincerely,
William Clarke CBE PhD
Chairman, Central Banking Publications


:::Monday 1st SEPTEMBER
DEVELOPING AN OVERALL FRAMEWORK FOR RISK MEASUREMENT AND MANAGEMENT Chairman: Peter Nicholl, Governor, Central Bank of Bosnia and Herzegovina

Risk management at the Bank of England Paul Chilcott Head of Risk Analysis and Monitoring Division, Bank of England Paul Chilcott will present the Bank of England's approach to risk management. He will conceptualise the types of risks to be confronted and explain who or what is responsible for controlling these. What control processes are used to manage risks and what are the methods by which these are monitored? He will also introduce delegates to "the risk matrix", one of the more innovative risk management initiatives at the Bank of England.

Managing reputational risks and relations with governmental institutions Peter Bakstansky Senior Vice-President, Federal Reserve Bank of New York Peter Rodgers Secretary of the Bank, Bank of England A central bank's most valuable asset is its reptation. Presenting and explaining policy is essential for establishing and maintaining credibility. A commitment to transparency and accountability is a prerequisite for a modern independent central bank, but can this on occasion conflict with the need to enhance credibility? How can central banks manage what can be termed reputational risk? The people in charge of external communications in two of the world's leading central banks discuss how their institutions set about meeting these challenges.

Regulating the regulators: accountability and control for central banks and supervisors Charles Goodhart Professor of Banking and Finance, London School of Economics Central banks and regulatory agencies are under continuing pressure to demonstrate to stakeholders that they are exercising their powers in an efficient and effective manner; for many this is a statutory requirement. However, the practical and conceptual difficulties of measuring performance in these fields are daunting. This workshop analyses these critical issues and discusses how central banks and regulatory agencies can develop an improved means of demonstrating their effectiveness.

A framework for financial stability Charles Goodhart Professor of Banking and Finance, London School of Economics The importance of financial stability has become a mantra for central banks and regulators. Yet despite the development and success of monetary policy frameworks, institutional arrangements which safeguard financial stability are less well understood. Leading academic and central banker Charles Goodhart offers insights into how central banks can approach the issues.

:::Tuesday 2nd SEPTEMBER
MEETING NEW CHALLENGES FROM THE FINANCIAL MARKETS Chairman: Peter Nicholl, Governor, Central Bank of Bosnia and Herzegovina
Development of investment portfolio management techniques in a central bank Etienne Lavigne Head of Middle Office, National Bank of Belgium To operate in global financial markets central banks have adopted reserve management techniques used by commercial banks. Not all however are appropriate. The speaker, Head of the Middle Office at the National Bank of Belgium, demonstrates the suitability and adaptation of the latest portfolio techniques to reserve management at a central bank. In particular the session will explore development of the benchmark allocation, the importance of active portfolio management and the usefulness of performance attribution.

Taking an active approach: reserve portfolio performance in an era of low returns Roberts L. Grava Executive Board Member, Bank of Latvia Central banks are increasingly under pressure to increase the return on their reserve portfolios, yet face historically low returns on traditional assets. How can central bank improve their performance? The speaker, Head of the Market Operations Department at the Bank of Latvia, shows how central banks can justify looking beyond traditional asset classes in rethinking their reserve portfolios. How can central banks use risk management tools to enable performance - not just limit it?

Risk management in market operations Isabelle Strauss-Kahn Director, Market Operations Division, Banque de France Central banks must ensure stability and liquidity in domestic money markets. Essential to fulfilling this role is the appropriate choice of policy instruments, assets and the management of credit risk. The speaker will discuss the latest developments in the Eurosystem's risk management techniques for market operations. This session will also address the relationship between financial independence and accountability and how this affects a central bank's aim of ensuring financial stability.

How a central bank can maintain financial stability - an overview Bill Allen Deputy Director, Bank of England The Bank of England's responsibility to maintain the stability of the financial system as a whole is undertaken by the Bank's Financial Stability Wing. Bill Allen discusses what financial stability is, what the public sector needs to do to sustain it, and what is the role of central banks.

:::Wednesday 3rd SEPTEMBER
INTEGRATING OPERATIONAL RISK INTO A CENTRAL BANK'S RISK STRATEGY Chairman: Peter Nicholl, Governor, Central Bank of Bosnia and Herzegovina

Establishing a culture of operational risk governance Jens Ulrich Head of Risk Control, Bank for International Settlements Essential for tackling operational risk is the implementation of an appropriate framework for managing and measuring operational risk. The presenter will discuss the BIS's own approach to operational risk management and measurement for its operations. This incorporates operational risk management at the business unit level, control self-assessment managed by internal audit and quantitative operational risk measurement by risk control.

Quantitative techniques for operational risk measurement Professor Carol Alexander Chair in Risk Management, Reading University Central banks, both in their banking activities, but also as supervisors, need to be aware of the latest technical developments in modelling operational risk. The session will explore how central banks can apply rigorous and quantitative techniques to assessing, measuring and managing operational risk.

Creating and implementing effective contingency plans Roundtable discussion led by Peter Nicholl Governor, Central Bank of Bosnia and Herzegovina The recent blackouts that affected the eastern United States and Canada highlighted the need for central banks to have effective contingency plans and efficient management structures to deliver them. What sort of system is necessary to maintain central bank services in order to preserve confidence in local and international markets? Peter Nicholl will lead a discussion on how central banks can provide checks, safeguards and contingency facilities as well as integrate operational risk considerations into their risk management framework.

:::Thursday 4th SEPTEMBER
ORGANISING THE CENTRAL BANK ON RISK MANAGEMENT PRINCIPLES Chairman: Peter Nicholl, Governor, Central Bank of Bosnia and Herzegovina

The role of the risk audit Jeremy Foster Partner, PricewaterhouseCoopers This session will examine the role of the auditor in the risk management process. How can auditors determine cost-effectiveness of the controls in place? The presentation will address the key considerations for central bank audit and, in the form of a case study, present the approach a central bank can take to these challenges. How can "best practices" and standards lead to the reinforcement of the role of internal audit in central bank governance? How can internal audit ensure quality in financial reporting?

Central bank accounting, financial reporting and risk management Ian Goodwin International Monetary Fund John Nugée Head of Official Institutions Group, State Steet Global Advisors and former Head of Reserve Management, Bank of England In the wake of corporate accounting scandals in some of the biggest and most widely respected companies, there is a growing recognition around the world of the importance of good governance and financial reporting. Indeed, ensuring effective governance is a key component of managing reputational risk. Ian Goodwin looks at where central banks fit within this trend, particularly in the area of the management of foreign reserves and the requirements of the IMF's safeguards assessment policy. John Nugée follows this with an examination of some of the practical consequences of applying accounting standards to reserve portfolios, including examples where the result may not be entirely as expected or desirable from a reserves management point of view. A general discussion will cover topics raised in the presentations, as well as the role of capital and reserves in absorbing residual risks that are not fully hedged or transferred to ensure financial independence.

How good risk management adds value George Vojta Chairman, Financial Services Forum This session assesses the overall impact of a central bank's risk management framework. How, for instance, can better risk management contribute to a country's creditworthiness in financial markets? What are the benefits of good governance and risk management? How can performance be measured and enhanced?