To know whether the system get more or less prone to a banking crisis, the authors use “model simulations and econometric estimates based on a world-wide dataset,” and “find an M-shaped relationship between financial stability of a country’s banking sector and its interconnectedness.”

In particular, “for banking sectors that are not very connected to the global banking network, increases in interconnectedness are associated with a reduced probability of a banking crisis. Once interconnectedness reaches a certain value, further increases in interconnectedness can increase the probability of a banking crisis.” Their “findings suggest that it may be beneficial for policies to support greater interlinkages for less connected banking systems, but after a certain point the advantages of increased interconnectedness become less clear.”

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Despite growing interest among policymakers, there is no theory of independent fiscal institutions. The emerging literature on “fiscal councils” typically makes informal parallels with the theory of central bank independence, but a very simple formal example shows that such a shortcut is flawed. The paper then illustrates key features of a model of independent fiscal agencies, and in particular the need (1) to incorporate the intrinsically political nature of fiscal policy – which precludes credible delegation of instruments to unelected decisionmakers – and (2) to focus on characterizing “commitment technologies” likely to credibly increase fiscal discipline.

Introduction:

The fiscal legacy of the economic and financial crisis of 2008-09 brought to the fore serious concerns about the capacity of governments to maintain sustainable public finances. Several vulnerable countries came under severe market pressure, while government bond yields in countries considered so far as safe havens also started rising. Of particular concern is the fact that the large fiscal deficits and ballooning government debts caused by the crisis came on top of already substantial inherited liabilities and ahead of intensifying demographic pressures on entitlement spending. These trends are on a collision course with the intertemporal budget constraint, making ambitious and sustained consolidations unavoidable.  The challenge is formidable and markets are on the watch, pushing governments to look for ways to firm up the credibility of their commitments to sound public finances.

While formal fiscal policy rules have long been used to contain tendencies toward fiscal profligacy (e.g. Fabrizio and Mody, 2006; and Debrun and others, 2008), it has been argued that many of the limitations and failures associated with numerical rules—most notably their inflexibility in the face of unusual circumstances—could be overcome by establishing nonpartisan agencies. Through independent analysis, assessments, and forecasts, such bodies could enhance policymakers’ incentives to deliver sustainable policies.

Despite a fairly active public debate, no full-fledged theory has either established the desirability of such institutions or derived first-order principles likely to secure their effectiveness. In a sense, this is hardly surprising, as one can only theorize about a welldefined object. In reality, the literature on independent fiscal agencies covers a wide array of specific (and sometimes outlandish) academic proposals as well as a number of existing institutions, including the Central Planning Bureau in the Netherlands, the High Council of Finance in Belgium, and the more recent Swedish Fiscal Policy Council and United Kingdom’s Office of Budget Responsibility. At best, existing papers propose a taxonomy (Debrun and others, 2009; Calmfors, 2010), but there currently is no consensus on the tasks these agencies should be assigned, what institutional form they should take, and on whether they should complement or instead substitute for a rules-based framework.

Expositions of the rationale for non-partisan agencies nevertheless share a common thread, the canonical illustration of which is Wyplosz (2005). First, there is a review of the many reasons why fiscal policy tends to systematically deviate from a socially optimal solution, with often an emphasis on common pool problems, short-termism, and time-inconsistency.  Second, the author(s) lament(s) the ineffectiveness of fiscal policy rules. It is argued that the main problem with the latter is that the simplicity required for their smooth operation limits their appropriateness outside normal circumstances, undermining their credibility as soon as uncommon conditions prevail. For example, deficit ceilings fail to trigger discipline in good times—when compliance is more likely to result from automatic stabilizers rather than conscious actions—but bind in bad times, forcing undesirable procyclical contractions. Third, the author(s) call(s) on our sense of déjà vu to draw a parallel with the case for central bank independence, which is also based on the idea of an expansive bias affecting unconstrained discretionary policies, and on the manifest failure of rigid rules (e.g. caps on the growth of certain monetary aggregates) to address that bias.

The aim of this paper is to assess the theoretical framework anchoring the policy debate on politically independent fiscal agencies. After setting-up a basic model of fiscal policy (Section II), I show that the parallel with independent central banks is theoretically flawed because most models of fiscal bias cannot demonstrate why elected officials would want to establish such institutions in the first place (Section III). In addition, the idea of fiscal delegation is misleading because the very fear of delegating may motivate principled, yet baseless opposition from politicians. I then suggest—still using simple formal illustrations— that any full-fledged theory of fiscal agencies should (1) incorporate the intrinsically political nature of fiscal policy and the infeasibility of delegating policy instruments to unelected officials and (2) focus on characterizing mechanisms that encourage ex-post compliance with ex-ante commitments (“commitment technologies”) to fiscal discipline (Section IV). Some practical conclusions are drawn in Section V.

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Their paper reviews the economic and technical issues involved in the planning and early implementation of the reform, including the money transfers to households (via newly created bank accounts) and the public relations campaign that were critical to the success of the reform. It also looks at the reform from a chronological standpoint, in particular in the final phases of the preparation. The paper concludes by an overview of the main challenges for the second phase of the reform.

The banking system was upgraded to withstand simultaneous withdrawals of great numbers of people. ATMs were installed in remote parts of the country to make easy for the rural population to get their monetary compensation. Also, the transfers via the banking system prevented circulating large quantities of money thru the country to be administered by officials, who could fall in corrupt practices.

The job was done quite successfully. Indeed, within “days of the start of the Iranian reform Bolivia and Pakistan attempted to raise energy prices to reduce subsidies. Both attempts had to be abandoned in the face of massive public opposition.”

A summary of the work with some excerpts can be read here.

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New and more demanding international standards for payment, clearing and settlement systems have today been issued for public consultation by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO).

The new standards (called “principles”) are designed to ensure that the essential infrastructure supporting global financial markets is even more robust and thus even better placed to withstand financial shocks than at present. They are set out in a consultative report Principles for financial market infrastructures which contains a single, comprehensive set of 24 principles designed to apply to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories (collectively “financial market infrastructures” or “FMIs”). These FMIs collectively record, clear and settle transactions in financial markets.

When finalised, the new principles will replace the three existing sets of CPSS and CPSS-IOSCO standards, the Core principles for systemically important payment systems (2001); the Recommendations for securities settlement systems (2001); and the Recommendations for central counterparties (2004). The CPSS and IOSCO believe that a single set of principles will provide greater consistency in the oversight and regulation of FMIs worldwide.

“Robust and efficient FMIs help to ensure that markets continue to function effectively even in times of crisis. They are an essential prerequisite for financial stability,” said William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and CPSS Chairman.

Hans Hoogervorst, Chairman of the Netherlands AFM and IOSCO’s Technical Committee, added that “FMIs have generally performed well. Nevertheless there were lessons to be learnt both from the recent crisis and from the years of more normal operation since the current standards were issued. With these new principles we believe we have produced a blueprint for the safety and stability of global financial infrastructure that will stand the test of time”.

Compared with the current standards, the new principles introduce more demanding requirements in many important areas including:

• the financial resources and risk management procedures an FMI uses to cope with the default of participants;
• the mitigation of operational risk; and
• the links and other interdependencies between FMIs through which operational and financial risks can spread.

There are also principles covering issues that are not fully addressed by the existing standards. These include new principles on segregation and portability, tiered participation and general business risk.

Published along with the report is a cover note which sets out some specific issues on which the committees are seeking comments during the public consultation period.

Comments on the principles are invited from all interested parties and should be sent by 29 July 2011 (see note 1 below).

After the consultation period, the CPSS and IOSCO will review all comments received and publish a final report in early 2012. As set out in the cover note, the proposal is that relevant authorities will then strive to include the principles in their legal and regulatory framework by the end of 2012 and to apply the principles as part of their regulatory, supervisory and oversight activities as soon as possible. FMIs will be expected to take appropriate and swift action in order to meet the principles.

Notes

1. Comments on the report should be sent by Friday 29 July 2011 to both the CPSS secretariat (cpss@bis.org) and the IOSCO secretariat (fmi@iosco.org). The comments will be published on the websites of the BIS and IOSCO unless commentators have requested otherwise.
2. The CPSS serves as a forum for central banks to monitor and analyse developments in payment and settlement arrangements as well as in cross-border and multicurrency settlement schemes. The CPSS secretariat is hosted by the BIS. More information about the CPSS, and all its publications, can be found on the BIS website at www.bis.org/cpss.
3. IOSCO is an international policy forum for securities regulators. The Technical Committee, a specialised working group established by IOSCO’s Executive Committee, is made up of 18 agencies that regulate some of the world’s larger, more developed and internationalised markets. Its objective is to review major regulatory issues related to international securities and futures transactions and to coordinate practical responses to these concerns.
4. Both committees are recognised as international standard-setting bodies by the Financial Stability Board (www.financialstabilityboard.org)
5. The groups that carried out the work on behalf of the committees were chaired by William C Dudley (see above), Kathleen Casey (Commissioner of the US Securities and Exchange Commission), Daniela Russo (Director General, European Central Bank) and Jeffrey Mooney (Assistant Director, US Securities and Exchange Commission).

Link: http://www.bis.org/press/p110310.htm

Libya holds around 46.4 billion barrels of oil reserves, the largest in Africa, and close to 55 trillion cubic feet (Tcf) of natural gas reserves. In 2010, total oil production (crude plus liquids) was close to 1.8 million barrels per day (bbl/d).

Libyan oil is generally light (high API gravity) and sweet (low sulfur content). The country’s nine export grades have API gravities that range from 26.0 degrees – 43.3 degrees . While the lighter, sweeter grades are generally sold to Europe, the heavier crude oils are often exported to Asian markets.

In 1971, Libya became the second country in the world (after Algeria in 1964) to export LNG. Since then, Libya’s LNG exports have remained low, largely due to technical limitations. Libya’s LNG plant, at Marsa El Brega, was built in the late 1960s by Esso and has a nameplate capacity of about 125 Bcf per year. However, U.S. sanctions prevented Libya from obtaining necessary technology to separate out LPG from the natural gas, thereby limiting the plant’s output by over half of capacity. In 2009, LNG exports increased slightly to 24.4 Bcf, all of which was exported to Spain.

Thank you.