Risk Management For Central Banks And Other Public Investors

This page intentionally left blank Risk Management for Central Banks and Other Public Investors Domestic and foreign financial assets of all central banks and public wealth funds worldwide are estimated to have reached more than USD 12 trillion in 2007. How do these institutions manage such unprecedented growth in their financial assets and how have they responded to the ‘revolution’ of risk management techniques during the last fifteen years? This book surveys the fundamental issues and techniques associated with risk management and shows how central banks and other public investors can create better risk management frameworks. Each chapter looks at a specific area of risk management, first presenting general problems and then showing how these materialize in the special case of public institutions. Written by a team of risk management experts from the European Central Bank, this much-needed survey is an ideal resource for those concerned with the increasingly important task of managing risk in central banks and other public institutions. Ulrich Bindseil is Head of the Risk Management Division at the European Central Bank. Fernando Gonza´lez is Principal Economist at the European Central Bank. Evangelos Tabakis is Deputy Head of the Risk Management Division at the European Central Bank. Risk Management for Central Banks and Other Public Investors Edited by Ulrich Bindseil, Fernando Gonza´lez and Evangelos Tabakis CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521518567 © Cambridge University Press 2009 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2009 ISBN-13 978-0-511-47916-8 eBook (EBL) ISBN-13 978-0-521-51856-7 hardback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. Contents List of figures List of tables List of boxes Foreword page x xii xv xvii Jose´-Manuel Gonza´lez-Pa´ramo Introduction xx Ulrich Bindseil, Fernando Gonza´lez and Evangelos Tabakis Part I Investment operations 1 1 Central banks and other public instit