Bank for International Settlements – BIS

On 5 August 2024, the Volatility Index, or VIX, experienced its largest one-day spike ever, surpassing those seen during the 2008 financial crisis and the March 2020 episode. In the latest BIS Bulletin, Karamfil Todorov and a co-author delve into this unprecedented event to uncover the underlying causes. Our analysis shows that the spike was primarily driven by the asymmetric widening of bid-ask spreads, particularly for out-of-the-money (OTM) put options, driving up their mid-prices. The large weight of these illiquid options in the VIX calculation led to an outsize effect on the index. Market makers' adjustments of quotes in response to uncertain conditions and to avoid imbalanced books played a crucial role. Other potential factors, like volatility ETFs and dispersion trades, were less important. Investors need to be aware of the features underlying the VIX calculation, particularly the fact that VIX is based on quotes instead of actual trades and that OTM puts play an outsize role. Understanding these dynamics is critical, as VIX serves as a barometer of financial stress and impacts risk management and trading decisions. For a deeper dive, read our analysis: https://bit.ly/4e0lG85 #BISBulletin

The past week has been a whirlwind of meetings and engagements for the BIS delegation visiting Washington, DC. A huge thanks to the International Monetary Fund and The World Bank for organising a timely and thought-provoking Annual Meetings programme from 21 to 26 October. Our team engaged in discussions with global leaders, policymakers and experts, sharing insights and collaborating on solutions on topics ranging from the impact of geopolitics on international trade and finance to tokenisation, the future of banking and finance, cross-border payments and other pressing economic and financial challenges. Among the highlights was General Manager Agustín Carstens laying out the lessons learned from the 2023 banking turmoil at the Institute of International Finance, where Basel Committee Secretary General Neil Esho, BIS Innovation Hub Head Cecilia Skingsley, Financial Stability Institute Chair Fernando Restoy Lozano and Economic Adviser and Head of Research Hyun Song Shin also spoke. Deputy General Manager Andrea M Maechler, Ms Skingsley, Mr Shin and Committee on Payments and Market Infrastructures Head of Secretariat Tara Rice participated in a high-profile event with our partners on the future of cross-border payments and presented a joint BIS-CPMI report for the G20 on tokenisation, highlighting the opportunities, risks and future considerations for central banks. Ms Maechler also spoke at the Washington, DC Economic Festival. We jointly organised a conference on geopolitics and finance with the Peterson Institute for International Economics and the World Trade Organization and were pleased to be the regulatory co-host of DC Fintech Week, working with Georgetown University. Mr Carstens closed out the week with a panel at the The Group of Thirty.   #IMFMeetings #WBGMeetings #AnnualMeetings #GlobalEconomy #DCFintechWeek 

The Bank for International Settlements (BIS) and its central bank partners have successfully completed the first phase of the Project Mandala proof of concept, demonstrating the feasibility of embedding compliance with country-specific regulatory requirements into a common protocol for cross-border transaction. This experimental project is a collaboration between the BIS Innovation Hub Singapore Centre, the Reserve Bank of Australia, the Bank of Korea, Bank Negara Malaysia, and the Monetary Authority of Singapore (MAS). To increase the efficiency and speed of cross-border transactions, Project Mandala addresses the challenge posed by disparate regulatory and policy measures across jurisdictions. This is achieved by automating compliance procedures, enhancing transparency around country-specific policies and providing real-time reporting and improved auditing and monitoring capabilities for regulators and supervisors. This architecture ensures that all necessary compliance checks have been completed before the payment is initiated. Upon completion of all required checks, the Mandala system automatically generates verifiable compliance proofs, which can travel with any digital settlement asset or payment instructions across borders. To preserve privacy, the compliance proofs can be verified without revealing any of the underlying customer data. The project proved its technical feasibility through two primary use cases: 1. Cross-border lending between Singapore and Malaysia 2. Cross-border financing for capital investments between South Korea and Australia Project Mandala aligns with the G20 priority actions for enhancing cross-border payments, as it has the potential to reduce costs, increase the speed of transactions and improve regulatory transparency of cross-border payments. Learn more here: https://lnkd.in/d7C6A7uf #BISInnovationHub #CrossBorderPayments

🌐 The #IAISStrategicPlan 2025-2029 was published today. Developed through a rigorous process of engagement with IAIS members and stakeholders, it will guide the work of the #IAIS over the next five years. As a standard-setting body and a membership-driven association, the IAIS is uniquely positioned to support its members in strengthening insurance supervision across the globe. “The 2025-2029 Strategic Plan builds on the achievements of the previous five-year period. Looking ahead, the IAIS will place a greater emphasis on implementation of our standards and on the themes of #ClimateChange, #DigitalInnovation and #SocietalResilience”, said Shigeru Ariizumi, IAIS Executive Committee Chair. 🔷 In conjunction with the Strategic Plan, the IAIS has also adopted its corresponding Financial Outlook for 2025-2029, available only to members. 👉 Download the IAIS Strategic Plan 2025-2029: https://lnkd.in/e63CiH8k 📰 Read the press release: https://lnkd.in/eYSqKJVn #IAIS2024 #InsuranceNews #InsuranceSector

The business of banking is changing. Tech firms, such as big techs and fintechs, now deliver various financial services traditionally provided by banks, often by obtaining licences or forming partnerships with banks. In these partnerships, the tech firm takes the lead in customer engagement, while the bank provides its infrastructure to operationalise the tech firm’s financial service offerings. Tech firms’ involvement in banking has led to an expanded and more distributed banking value chain, presenting both opportunities and challenges. Regulatory frameworks typically manage these challenges by overseeing the banks, though some jurisdictions have implemented a range of policy responses. These include initiatives to adjust prudential and conduct requirements, clarify supervisory expectations and review the regulatory perimeter and supervisory approach. In the latest FSI Insights, Irina Barakova, Johannes Ehrentraud and Lindsey Leposke explore the evolving role of tech firms in banking, the nature of their partnerships with banks and the implications for the banking value chain and regulatory frameworks. As tech firms' roles in financial services grow, careful monitoring and potential policy responses are essential to ensure financial stability and maintain public trust. https://lnkd.in/eyr85hZW #FinancialStabilityInstitute

We are proud to share that General Manager Agustín Carstens has been honoured with the Distinguished Leadership and Service Award by the Institute of International Finance. This prestigious award recognises his outstanding leadership, sustained and significant contributions to the global economy through public service. Congratulations, Mr Carstens! 📸 IIF

Deadline approaching: Submit your paper for the Conference on Financial Intermediation 2025 by 31 October. Read more: https://bit.ly/4dUm8Vq The conference brings together globally leading researchers to present their latest work on financial intermediation and related areas, covering both empirics and theory. It aims to attract leading researchers from academia and policy institutions as well as early career researchers in the field. Organised with SFI Swiss Finance Institute and Center for Economic and Policy Research, the event discusses advances in theoretical and empirical research on financial intermediation. Topics include but are not limited to banking, non-bank financial institutions, macro-finance, household finance, and fintech.

The financial stability benefits of implementing outstanding Basel III standards need to be locked in fully and consistently, and as soon as possible because the timing and location of the next banking crisis cannot be predicted, according to Erik Thedéen, Chair of the Basel Committee on Banking Supervision and Governor of the Sveriges riksbank. Speaking at the annual membership meeting of the Institute of International Finance (IIF), Mr Thedéen said, “In the near term, when it comes to Basel III, all Group of Central Bank Governors and Heads of Supervision (GHOS) members have unanimously reaffirmed their expectation of implementing all aspects of the framework in full, consistently and as soon as possible.” In pursuing its mandate, Mr Thedéen also highlighted three key messages: (i) Banks’ boards and senior management have both the primary and ultimate responsibility for overseeing and managing risks. (ii) Global bank prudential standards are a public good. Lobbying for deviations at a national level might provide short-term (private) gains but will ultimately threaten global financial stability. (iii) We cannot forget the lessons from past banking crises to prepare effectively for the future. The Committee should keep an open mind as to whether additional adjustments to the Basel Framework are warranted over the medium term and focus on global financial stability issues that require a global response. Read the full speech here: https://lnkd.in/dt3ypmrC #BaselCommittee #BaselIII

What is the future of cross-border payments? How can we make them faster, safer and more inclusive? That was the focus of an event we co-hosted in Washington DC this week with the Brazilian G20 presidency, the International Monetary Fund and The World Bank. In a high-powered session moderated by Deputy General Manager Andrea M Maechler, panelists including the Bank of Italy’s Fabio Panetta, South African Reserve Bank’s Lesetja Kganyago, European Central Bank’s Christine Lagarde, and Central Bank of Cambodia’s Serey Chea emphasized that governance, not technology, holds the key to safe and inclusive fast payments across borders. In a keynote address, General Manager Agustín Carstens noted that digital tokens and programmable platforms have the potential to change how we transfer money and other assets. Next, in a panel moderated by Tara Rice, Head of Secretariat of the BIS Committee on Payments and Market Infrastructures, Cecilia Skingsley, BIS Innovation Hub Head, shared how the Agorá project, which brings together 40 financial firms and seven central banks, could enhance wholesale cross-border payments through tokenisation. Regarding the implementation of enhancements to cross-border payments, Economic Adviser and Head of Research Hyun Song Shin, in his closing remarks, underlined the importance of coordination, international guidance, and best practices. Learn more about the tokenisation in the context of money and other assets in a new BIS, including CPMI, report: https://lnkd.in/ehxYs8T9 Learn more about the governance and oversight framework for fast payments interlinking: https://lnkd.in/efVdDkJD Learn more about Project Agorá: https://lnkd.in/ecb8fx5E Photos: BIS/IMF

In a new speech, Agustín Carstens outlines risks to the expected soft landing for the global economy and calls for policy prudence. ➡️ Real interest rates may remain higher than they were before the pandemic as central banks deal with a structurally more inflation-prone landscape. ➡️ Fiscal policy may not be restrained enough to ensure financial stability, with government debt near all-time highs. ➡️ Productivity growth may remain sluggish in most advanced economies, which will make it harder to deliver low inflation and robust growth. ➡️ Greater market volatility, and the potential for adverse spillovers to other markets and financial intermediaries, may be a permanent feature of the landscape. To guard against these risks and ensure resilience and stability, prudent monetary policy, fiscal consolidation and structural reforms are all necessary. Read the full speech here: https://bit.ly/3YtKMrv