Appendix I. Macroprudential Framework
The note summarizes the proposal for a macroprudential framework suitable for the institutional framework of Bosnia and Herzegovina.22
Prepared by Geof Mortlock (IMF consultant, Financial Safety Net) and José Rutman (IMF consultant, Systemic Liquidity Management and Macroprudential Policies).
As of 11/28/2014 the BARS requests from the banks to report on daily data on deposit structure for the purpose of liquidity monitoring.
The CBA principles are established under the Law on the CBBH (Articles 31 and Article 32). Foreign exchange reserves are defined as: gold and other precious metals; other assets issued by other countries than BiH (banknotes and coins, credit balances, certificates of deposits, bonds, promissory notes, etc.) in freely convertible foreign currency; Special Drawing Rights of the International Monetary Fund any; and forward purchase or repurchase agreements of the Central Bank concluded with or guaranteed by foreign central banks or international financial organizations, and any futures and option contracts of the Central Bank, providing for payment by residents of countries other than BiH in freely convertible foreign currency.
Art. 67 point 1.a of the CBBH Law, prohibits the CBBH, under any circumstances, grant any credit.
Since August 2014, there has been no remuneration because of negative interest rates for short term funds offered by the European Central Bank.
The corresponding regulation of the CBBH on this issue establishes “a) On the next working day, after the expiry of the second consecutive maintenance period in which the bank failed to meet the reserve requirements, discontinue transactions that relate to reducing reserve account upon request of the bank, b) Enable the bank to make payments from the settlement account in the RTGS system only up to the amount of achieved daily inflow on that account.
Additionally, there is a daily minimum requirement of 5 percent.
Or the banks are “gaming” the maturity mismatch regulation.
The other liquidity ratio included was NSFR.
The Basel document establishes that “Local supervisors should discuss and agree with the relevant central bank the extent to which central bank reserves should count towards the stock of liquid assets, i.e., the extent to which reserves are able to be drawn down in times of stress.”
See Technical Note on the compliance with the IADI’s Core Principles for Effective Deposit Insurance Systems.
In this context, the ‘least-cost’ principle refers to the selection of deposit pay-out or deposit account transfer method that involves the least cost to the DIA in terms of amount of funds used for payment less recoveries from the assets of the failed bank; or only up to the amount the DIA would have expended in repaying insured depositors in a liquidation.
The FSF could be based on the principles of the EU Bank Recovery and Resolution Directive (BRRD) with added limited and temporary liquidity support functions (see below).
We expect that the representatives of the banking agencies would join the DIA Management Board after being designated as resolution authorities. The involvement of the SCFS can be also considered although it may prolong the process in circumstances were decisions should be taken promptly.
Such courts already exist in RS.
The list of macroprudential tools include capital surcharge to systemic banks, countercyclical capital buffers, dynamic provisioning, limits in terms of exposure, caps in foreign open positions among others.
The same case is for insurance companies and the securities sector.
Similar to the activities performed when the Annual Report of the CBBH is disclosed.
In cash on the basis of common shares to the bank’s shareholders, awards from the part of the bank’s profit to members of the bank’s bodies and key categories of employees whose professional activities have significant influence on the risk profile of the bank, nor can they repurchase their own shares.
17 out of 27 banks would not have limitations in the payments of dividends. The criteria is not fully in line with Basel III, since does not consider the possibility of partial limitations on dividends payments for banks whose capital is located within the capital buffer.
The capital regulation establishes that most deductions are performed to total capital, while some of them should be done to core capital. As a consequence of the current distortion, which should be amended, there are banks whose core capital is above the total net capital.
This proposal is not the first best solution following best international standards, but this option would fit in the institutional framework of Bosnia and Herzegovina while following international standards.
Signed on June 2008 by CBBH, FBA and BARS.