More guidance required on central bank risk management

The Bank for International Settlements should provide guidance on best practice for central bank risk management, says Paul Fisher, executive director for markets at the Bank of England.

Speaking at the National Asset-Liability Management conference in London, Fisher (pictured) observed that few other central banks had “as big a risk management function as the Bank of England”, and called on the Bank for International Settlements to provide best practice in this area.

He also focused on the importance of credit assessment. The Band of England (BoE), like other central banks around the world, has broadened the list of eligible collateral it accepts as part of its various liquidity facilities – for instance, it accepts own-name securities and pools of loans under its discount window facility. This means accurate credit assessment is vital.

“This is an important part of what we do,” said Fisher. “We maintain in-house a credit assessment team, and we make our own credit rating assessments for all our counterparties and all the issuers of the securities we hold.”

To ensure it has enough time to conduct due diligence on these assets, the BoE has been encouraging banks to ‘pre-position’ collateral ahead of the need to draw on the facility. There is now more than £265 billion of collateral pre-positioned for use in the discount window facility, Fisher said – once haircuts have been applied, that means the BoE could lend around £160 billion without the need for further collateral checks.

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