bdl compared to fdl and ecb

8/8/2019 Bdl Compared to Fdl and Ecb

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Independence of LebaneseCentral Bank compared with

FED and ECB

Project presented by:

Aline Chelala Kahwaji

Rebecca Sidawi

Anthony SaadeMarwan Azouri

To:

Dr. Nehme AZOURY


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Outline:1. Lebanese Central Bank (BDL)

2. European Central Bank (ECB)3. Federal Bank Reserve (FED)

4. Independence of the CB

5. How to perform a better Governance


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Part 1: Lebanese Central

Bank (BDL)


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History & context of BDL Due to the fact that concession to issue the

Lebanese pound was coming to an end in

1963. Lebanon decided, since theConvention of May 29, 1937 to create a

central bank.

It started to operate effectively on 1st April,

1964.

It has established the Banque du Liban with

the privilege of issuing the national currency.


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History & context of BDL BDL is a legal public entity enjoying financial

and administrative autonomy.

The capital is totally appropriated by theState.

The rate of the Lebanese pound was set inpure gold.

The hard currencies were to be computed onthe basis of the new provisional legal rate,and for the State external expenses, theycontinued to be transferred at the free market

rate.


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History & context of BDL The gold and foreign-currency assets

included in the balance sheet of the

Banque du Liban had to be revalued on

the basis of the new provisional legal

rate.

The coverage of the Lebanese pound issecured with gold (9,222,000 ounces)

and dollar reserves


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History & context of BDL A partial transformation of the Lebanese

pound to the Euro might be considered

in the near future, depending on the

development of economic and

commercial activities of the country.


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Mission, Function and

Objectives

Monetary and economic stability,Monetary and economic stability,

Soundness of banking sector.Soundness of banking sector.

Development of money & financial markets.Development of money & financial markets.

Development & regulation of the paymentDevelopment & regulation of the paymentsystem and instruments.system and instruments.

Money transfer operations.Money transfer operations.

Cooperation with GovernmentCooperation with Government

Foreign Currency SupervisionForeign Currency Supervision

Control of LiquidityControl of Liquidity

Banking Regulations InsuranceBanking Regulations Insurance


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Structure and Governing

Body

Governor (6y.)4th Vice Gov. 2

nd Vice Gov.

1st Vice Gov. (all 5y.)

3rd Vice Gov.


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Directors of BDL Mr. Riad T. Salameh Governor & Chairman

Mr. Raed H. Charafeddine First Deputy

Governor Mr. Saed Andari Second Vice-Governor

Mr. Muhammad Baasiri Third Vice-Governor

Mr. Harout Samuelian Fourth Vice-Governor

Mr. Alain Biffani Director General of theMinistry of Finance.


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Management of BDLTHE GOVERNING BODY

The Governor

Vice-Governors The Central Council:

Governor

The fourVice-Governors

The DirectorGeneral of the Ministry of Finance

The DirectorGeneral of the Ministry ofEconomyand Trade

The Government Commissariat


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Branches & Departments of

BDL BDL Branches (9 all over Lebanon)

BDL Departments (19)

Accounting Banking Branches Current Op. Fin. Markets

Fin. Op. Foreign

Studies

Foreign

Exchange

Gen.

Secretariat

IT

Inspection &

Audit

Legal Personnel Training &

Develop.

Real Est. &

Fin. Assets

Purchase &

MaintenanceStats & Econ.

Research

Treasury Org. &

Development


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Control procedures of BDLControl on financial operations for fighting

money laundering:

Ascertain that correspondents dealing with them really

exist. They must make sure that the foreign bank with which

they deal Is not a shell bank.

Exercise control on their operations with clients to avoid

involvement in money laundering operations.


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Control procedures of BDLChecking the client's identity, determining the economic rightowner (the actual beneficiary) of the intended operation

Adopting clear procedures for opening new accounts. Theymust also check the identity of all their permanent and transientclients, whether resident or non-resident.

Requesting from each client a written statement about theidentity of the economic right owner (the actual beneficiary) ofthe intended operation, notably his full name and residential

address and information about his professional and financialstatus.

Checking periodically the identity of the client or re-determinethe economic right owner.


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Control procedures of BDLControlling some operations and clients

Enquiring from the client about the source and destination of funds.

When accepting a check drawn or executing banking transaction orwhen the value of the check or transaction exceeds USD 10,000 or itsequivalent the bank must:

- Make sure that it has received the notification, the source and

destination of funds, and the identity of both the beneficiary and the

beneficial owner.

- Keep this notification for a five-year period.

Informing the Governor of the Banque du Liban in his capacity as

chairman of the Special Investigation Commission.


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Control procedures of BDLControlling some operations and clients

Adopt a risk-based approach to classify clients and transactions:

- Customer risks

- Country risks

- Service risks

Establish risk-based control measures and procedures, andadopt the following measures and procedures :

- Raise awareness concerning strict control as a priority.- Obtain more detailed information about clients

- Obtain the necessary administrative approvals, which allowdealing with customers and executing transactions.

- Undertake periodic reviews of relationships with customers.

- Make continuous peer comparisons


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Control procedures of BDLCommittees and administrative units in charge of the controlof operations for fighting money laundering, and their tasks.

Establish a special committee consisting of the DirectorGeneral, the Risk Director, the Operations Director, the TreasuryDirector, the Branches Director, and the person in charge of theUnit.

Establish a unit to ascertain compliance with the laws,

regulations and procedures in force, hereafter named "theCompliance Unit".

Appoint an officer responsible for the control of operations.


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Control procedures of BDLFinal Provisions

Establish a computerized central archive of Collected information

that would include, for indicative purposes but not restrictively, thenames circulated by the Special Investigation Commission, and those

of holders of doubtful accounts reported by the bank/financial institution

itself. The latter must also notify the SIC about any account opened

subsequently by any of these persons, whether directly, indirectly, or by

proxy.

Ensure an ongoing training of their staff and the participation of the

concerned officers and those responsible for training in relevant

seminars, workshops and lectures, so that they may keep abreast of

money laundering-fighting methods.

Not close any suspicious account before consulting with the SIC.

Keep a special record of persons who open or activate accounts by proxy.

Require, for recruitment, the highest standards of honesty


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Control procedures of BDLFinal Provisions

Instruct their staff that, subject to liability, they must refrain from

notifying Clients when the SIC proceeds to investigate or audit theiraccounts, until the SIC makes a decision on lifting banking secrecy on

he said accounts and notifying the concerned clients.

Inform their branches operating abroad that they must, as a minimum,

apply the procedures mentioned in these Regulations, provided they

are not incompatible with the laws and rules of the host country.

When enlisting the help of intermediaries such as brokers and

introducers, to deal only with those who meet the criteria adopted by

banks and financial institutions in dealing with their clients.


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Social responsibility issues

of BDL1.The safeguard of monetary and economic stability

2.The safeguard of the soundness of the banking sector

3.The development of money and financial markets

4.The development and regulation of the payment systems

and instruments

5.The development and regulation of money transfer

operations including electronic transfers

6.Development and regulation of the clearing and

settlement operations relative to different financial andpayment instruments and marketable bonds.


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Part 2: European Central

Bank (ECB)


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History & context ofECB Plans for a single currency started in the late1960's

Three levels of EMU integration: EUAccession, Exchange Rate Mechanism(ERM), Eurozone

Maastricht Treaty of1992, Copenhagen

Criteria of1993, individual AccessionFramework

Four Convergence Criteria to join Eurozone


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Three level ofEMU integration:


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FourConvergence Criteria:1. Inflation Rate, should be no more than 1.5

percent.

2. Government finance.Should not exceed 3% of the annual deficit tothe GDP.The government debt should not exceed 60%of the GDP.

3. Exchange rate, applicant countries should havejoined the ERM (European Rate Mechanism)under the EMS (European Monetary System).

4. Long term interest rate, should not exceed 2%.


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History & context ofECB The national central banks are an

integral part of the ESCB (Eurosystem

Central Bank).

European Central Bank siege is in

Germany, Frankfurt.


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Mission, Function and

Objectives Monetary and economic stabilityMonetary and economic stability

Development & regulation of the payment systemDevelopment & regulation of the payment systemand instruments.and instruments.

Money transfer operations.Money transfer operations. Cooperation with Governments and NCBsCooperation with Governments and NCBs

Foreign Currency SupervisionForeign Currency Supervision

Control of LiquidityControl of Liquidity

Banking Regulations InsuranceBanking Regulations Insurance Supervising the four convergence criteria'sSupervising the four convergence criteria's


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Structure and Governing

Body


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The tasks of the governing

body Governing Council:

- Formulating monetary policy, which means, keyECB interest rates and liquidity.

- Adapting guidelines and decisions to ensure theperformance of the tasks of the Eurosystem.

Executive Board:- Implementation of the monetary policy.- Preparation of meetings for the governing council.- Conduct of the day - to - day business.

General Council:- Reports on the four convergence criteria.- Contributes in advisory functions, collection ofstatistical data, the reporting activities and the layingdown of the conditions of the employees.


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Executive Board Jean-Claude Trichet

President of the ECB

Lucas D. PapademosVice-President of the ECB

Lorenzo Bini SmaghiMember of the Executive Board

Josee Manuel Gonzalez-ParamoMember of the Executive Board

Jurgen StarkMember of the Executive Board

Gertrude Tumpel-GugerellMember of the Executive Board


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Management ofECB


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Tasks and the control

procedure1. To conduct foreign exchange operations

2. To define and implement monetary policy

3. To promote the smooth operation ofpayment systems

4. To hold and manage the official foreignreserves of the participating EU memberState

5. Collection and compilation of statistics

6. International cooperation

7. Advisory functions

8. Issuance of banknotes


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Definition of some of the Tasks

and the control procedure1. Eurosystem policies:

The Governing Council of the ECB is in charge of monetary policy for the

single currency. This includes the definition of price stability, how

inflationary risks are analyzed, etc.

2. Deciding, coordinating & monitoring the monetary policy: The ECBinstructs the NCBs on the details of the required operations (value, time,

date, etc.) and checks their successful execution.

3. Interventions on the foreign exchange markets:

If needed, also jointly with individual NCBs. This involves the buying

and/or selling of securities on foreign exchange markets.

4. Monitoring financial risks:This involves assessing the risks of securities, either those purchased in

the context of the investment of the ECB's own funds and foreign

reserves or of those securities that have been accepted as collateral in

Eurosystem credit operations.

5. Banknotes:

the ECB has the exclusive right to authorize the issuance of banknoteswithin the euro area.


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Part 3: Federal Reserve Bank

(FED)


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Background: Since the charter for the Second Bank of the

United States was allowed to expire the U.S. hadbeen without a central bank for almost eightyyears. After different financial panics, particularlya severe one in 1907, some Americans becameconvinced that their country needed some sort ofbanking and currency improvement, that would

provide a ready reserve of liquid assets, whenthe USA is threatened by financial panics, and inaddition allow for currency and credit to expandand contract seasonally within the U.S. economy.


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History of the FED: The Federal Reserve System was

created by an act of congress on

December 23, 1913 served as thenations central bank. The Systemconsists of a seven member Board ofGovernors with the HQ in Washington,

D.C., and twelve Reserve Bankslocated in major cities throughout theUnited States.


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History of the FED: The Federal Reserve Act

is the act of Congress that

formed the Federal

Reserve System, thecentral banking system of

the United States of

America, which was

signed into law by

President WoodrowWilson.


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Structure and Body: 12 Federal reserve banks for12 districts in

the states 7 members board governors elected by the president of the

United State of America and confirmed by the senate, theyserve for a period of14 years.

Chairman is elected from the board of governors for 4years.

Federal Open Market Committee Board of governors

Governor of NY FRB

4 other FRB governors

Federal Advisory Council


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Formal Structure of FED


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Informal Structure of FED


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Executive Board of the FED Ben Bernanke Chairman of the board

Donald Kohn Vice - Chairman

Kevin Warsh

Elizabeth Duke

Danielle Tarullo And two other vacant position


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Role and responsibility of each

body:

Roles and Responsibility of the 12 FRBs Clear checks and issue currency

withdraw damaged currency from circulation evaluate proposed banks mergers

administer discount loans in their own districts

coordinate between business community and the FRS

examine bank holding companies and state chartered

banks collect data on local business conditions

Participate in the monetary policy through their staff ofprofessional economists


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body:

Roles and Responsibility of the Board of

Governors

decide about the monetary policy

Sets reserve requirements

sets the presidents salary and the officers

review bank mergers specify activities of the bank holding

companies


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body: Roles and Responsibility of the FOMC

(federal open market committee)

Meets eight times per year decides regarding the conduct of the open market

operations

after each meeting they set the federal fund anddiscount rates

They issue the three research books (Green, blueand beige books).


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Part 4: Independence of the

CB A Comparison Between:

BDL

ECB

FED


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Concept of dependency Central Bank have the authority to decide about the

monetary policy

Central Bank have the authority to ensure price stability

Central Bank is able to take a long term decisions

There is no interference of government orpolitical leaders


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Relation with the Inflation Theres a negative correlation between Independence and

inflation:

BDL : existence of inflation (Lack of independency)

FED : control of inflation (decision maker)

ECB : controls inflation by setting low interest rates (decision

maker)


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Relation with budget deficit Theres a correlation between Independenceand budget

deficit. The most independent CBs revealed a budget deficit

BDL: government spending still high, so the BDL is not highly

independent

FED: The Federal Reserve act prohibits the Fed from buying the

debt directly from the Treasury instead the Fed buys treasury

bonds in the open market.

ECB: no direct relation with budget deficit because its not a

national CB


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Relation with the GDP Theres no relation between these variables and

independence. But higherinflation is associated with lower

economic growth. The primary goal must be to promote

price stability.

BDL : Slow growth

FED : Monitors GDP in order to decide on the best monetary policy

ECB : keeps inflation low to maintain price stability


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Bureaucratic behavior The objective of bureaucracy is to maximize its own

welfare. The most important factoraffecting the CB is to

increase its power.

BDL : ups and down, depending on the personality of the governor

FED : tries to avoid conflicts with the government and preserve its

autonomy

ECB : it has the sole responsibility regarding the operationalframework


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Political business cycle A CB who is susceptible to political direction orpressure

may encourage economic cycles (boom and bust).

BDL : it is still concerned with politicians short-term objectives

FED : Its monetary policy does not always conform with political

objectives

ECB : it has a total political independence


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MonetaryPolicy An Independent CB can run a more credible monetary

policy, making market expectations more responsive to

signals from the CB.

BDL : decides for monetary policy and sets terms and regulations

FED : implements a non inflationary policy which Stabilizes

economic cycle & financial markets

ECB : with ECB, markets know what to expect. The ECB decides

separately


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Fiscal Policy Fiscal policy is not isolated from monetary policy. Its

important to reach economic stability.

BDL : coordination between the BDL and the government

(Taxation)

FED : Sometimes the monetary policy of the Fed outweighs the

Fiscal policy of the government

ECB : it has no fiscal agent function as its not a national CB.

Theres no financing of the public sector.

Part 5: How to perform a better


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Part 5: How to perform a better

Governance and what was the

response of the BDL


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The Organization for Economic Cooperation and Development (OECD)

principals define corporate governance as involving a set of relationships

between a companys management, its board, its shareholders, and other

stakeholders. Corporate governance also provides the structure through which

the objectives of the company are set, and the means of attaining thoseobjectives and monitoring performance are determined

From a banking industry perspective, corporate governance involves the manner

in which the business and affairs of a bank are governed by its board and senior

management, including how they:

Set the banks strategy and objectives,

Determine the banks risk tolerance/appetite

Operate the banks business on a day-to-day basis

Protect the interests of depositors, meet shareholders obligations,

and take into account the interests of other recognized

stakeholders; and

Align corporate activities and behavior with the exception that the

bank will operate in a safe and sound manner, with integrity and in

compliance with applicable laws and regulations.

Corporate Governance


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Importance of Corporate

GovernanceCentral Banks must definitely have strong corporate governancepractices because:

It manages a big portion of the nations wealth

It influences the growth of economy

It may influence the other non-banking sector One single bank may cause a general crisis

Good Corporate Governance will ensure:

Better information flows

Strategic decision making

Improved market understandingMore efficient allocation of resources

Reduction of capital costs

Prevention of abuse of minority shareholders rights

Building trust among investors

Long lasting business relationship with stakeholders


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Objective of Banking Control

Commission of Lebanon The Banking Control Commission of Lebanon (BCCL) was established in 1967

by law no. 28/67, as an administratively independent body to replace the

banking control department of the central bank.

The commission is composed of five members who are appointed by the council

of ministers for a five-year term The BCC's function is to supervise banks, financial institutions, money dealers,

brokerage firms and leasing companies.

The BCC performs its supervisory functions as an independent body, but in

close coordination with the Governor of the Central Bank

The BCC evaluates financial soundness of regulated entities. This is done

through on-site and off-site reviews


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Corporate Governance BDL issued intermediary circular No.60 requiring all investments and

placements and decisions of a bank to be taken by specializedcommittee

This committee is responsible to study and understand all kinds of

investments in capital and money market.

BDL issued intermediary circular No.116 requiring banks to assesssuch operations by using stress testing to make necessary adjustmentsbased on each banks risk appetite.

The objective is to control the risk of financial investment through

creation of various committees that made up of qualified individualswho are able to distinguish different types of risks.

The Central Bank emphasized on stress testing scenarios that clearlyidentify the various market risks: foreign currency, bond risk, stock riskas well as other financial related risks


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BDL issued basic circular No.103 requiring certain qualifications andcertificates for some key positions in banks and financial institutions.

BDL issued basic circular No.122 that defines rules for the rotation ofexternal auditors

BDL issued basic circular No.106 that defines the principles ofcorporate governance in the financial and banking sector according toBasel Committee requirements.

The Basel Committee on banking supervision is a committee ofbanking supervisory authorities which was established by the centralbank governors of the group of ten countries in 1975.

The committee guidance assists banking supervisors and provides areference point for promoting the adoption of sound corporategovernance practices by banking organizations in their countries. Theprinciples also serve as reference point for the banks own corporategovernance efforts.

Corporate Governance


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THANKYOU !

bdl compared to fdl and ecb

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