Prepared by Warren Coats (MAE) and Peter Phelan (U.K. Financial Services Agency, retired). The report was reviewed by the Banking Regulation and Supervision Agency, which agreed with its findings.
The SBAs are the well-qualified, on-site bank examiners of the BRSA. Quoting from the Banking Law: “Assistant sworn bank auditors shall be appointed from among candidates who have received a graduate degree in relevant fields and has successfully passed a competitive examination. Those who have worked as an assistant sworn bank auditor for at least three years shall be appointed a sworn bank auditor by virtue of a resolution adopted by the Board with affirmative votes of minimum five members after they have successfully passed the proficiency examination.” (Competition for acceptance to the SBAs is high, and they enjoy a reputation with the pubic for high competence and honesty.)
It should be noted that prudential regulations prior to the establishment of the BRSA in August 2000 were issued by the Treasury in its capacity as supervisory authority for banks.
Unless stated otherwise, the banking sector will refer to banks other than SDIF banks. SDIF banks have both a large foreign currency exposure and negative net worth, thereby distorting the picture if aggregated with other batiks. Their losses are guaranteed and paid for by the Treasury/SDIF. State-owned banks are included. As they do not do a large foreign currency business and comply with the limits, including or excluding them does not materially change the picture.
Most of the SDIF banks were recapitalized in December. As a result, their positive net worth was restored until interest rate increases reduced the value of the government securities that they received.
In January 2001, banks entered into US$27 billion in forward foreign currency sales and US$36 billion in forward foreign currency purchases. The net forward purchases of US$9 billion, contributed to the cover for what would otherwise have been net foreign currency liabilities of US$11 billion.
In the London foreign exchange market, for example, transactions consist primarily of such speculative deals. In 1998, out of a daily turnover of US$637 billion on the London market, at most 7 percent were with non-financial counterparties (Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 1998, Bank for International Settlements, May 1999).
On the other hand, the monthly consolidated report is based on the data from the last day of the month only and could thus give rise to month-end window-dressing behavior.
Means consolidation of financial companies within the banking group.
While existing regulations are satisfactory, they are being replaced soon by more modern and effective regulations (see section C below).