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I I F | T F Y


This book provides a treasure of information on the Institute of International Finance.
It shows why it was born in 1982 and how it evolved to become a major force in the
international financial system.
Jacques de Larosire,
Advisor to the Chairman, BNP Paribas Group, and former Managing Director of the IMF

The Institute of International Finance was born twenty-five years ago to help banks
address the looming Latin American debt crisis. In todays world of volatile capital mar-
kets, the Institute has become a crucial source of analysis and a vital bridge between
the public and private sectors. This is the history of an organization that has shown
leadership in meeting the challenges of global finance.
Nicholas F. Brady,
Chairman, Darby Overseas Investments Ltd, and former U.S. Secretary of the Treasury

The financial world and the major governments were uninformed and therefore
unprepared when the LDC debt crisis began in 1982. The IIF was created after that to
fill the information gap. It has gone on to play a crucial role in helping markets function
better and to reduce the risk of systemic financial problems. This book provides the first
detailed analysis of how this important organization evolved and of the role that it plays
in todays complex world.
Martin Feldstein,
Professor of Economics, Harvard University, and President and CEO of the National
Bureau of Economic Research


Table of Contents

Foreword by the Chairman of the Board of Directors, Dr. Josef A. Ackermann . . .III
Foreword by the Managing Director of the Institute, Charles H. Dallara . . . . . . . . .V

CHAPTER 1: OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Institute at Twenty-Five Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Membership, Structure and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
The Institutes Mission Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Summary of Chapters Two to Five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

CHAPTER 2: ECONOMIC WORK OF THE INSTITUTE . . . . . . . . . . . . . . .29

Departmental Structure and Analytical Approach . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Historical Challenges and Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Changing Product Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Contributions to International Policy Debates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Lessons from the Past and Implications for the Future . . . . . . . . . . . . . . . . . . . . . . .52

CHAPTER 3: GLOBAL FINANCIAL REGULATION . . . . . . . . . . . . . . . . . . . .55

Origins and Early Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Work on Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Early IIF Involvement in the Amendments of the 1988 Basel Accord . . . . . . . . . . .60
The Work with the Joint Forum on Conglomerates . . . . . . . . . . . . . . . . . . . . . . . . . .63

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The Expansion of IIF Regulatory Work into the Emerging Markets . . . . . . . . . . . .64
Regulatory Lessons from the 199798 Financial Turmoil in Emerging Markets . . .64
Emerging Market Regional Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Work on Basel II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Implementation Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Other Basel-Related Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Recent Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Strategic Dialogue on Effective Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Good Industry Practices for Liquidity Risk Management . . . . . . . . . . . . . . . . . . . . .85

CHAPTER 4: EMERGING MARKETS POLICY ISSUES . . . . . . . . . . . . . . . . .93

Early Steps, 19841989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
Expanded Role, 19901993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
Dallaras Vision of a Robust Dialogue with the Public Sector, 1993 . . . . . . . . . . . . .99
Collaboration with the MDBs, 19942000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Crisis Management after the Mexican Peso Crisis . . . . . . . . . . . . . . . . . . . . . . . . . .104
Crisis Prevention and Resolution after the Asian Crises in 1997 and Russias
Default in 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
First Principles, the Special Committee, and the Equity Advisory Group, 2001 . . . .111
Argentinas Default, the IMFs Proposed Sovereign Debt Restructuring Mechanism,
and the Principles for Stable Capital Flows and Fair Debt Restructuring . . . . . .115
Dialogue with the Paris Club . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
Investor Relations Scaled Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132


ORGANIZATIONAL DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
A Member-Driven Institute from the Start . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Building the Young Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138
Broadening Membership, Adding Momentum to Events . . . . . . . . . . . . . . . . . . . . .140
Evolving Mission of the IIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
Establishing IIF as the Leading Voice of the Private Financial Community . . . . . .148
Moving IIF Events to a New Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
Expanding Meetings, Broadening the Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156
Taking Stock and Driving Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163

Annex A: Institute Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169
Annex B: Founding Member Institutions of the IIF (1983) . . . . . . . . . . . . . . . . . .177
Annex C: Current Member Institutions and Affiliates . . . . . . . . . . . . . . . . . . . . . . .179
Annex D: IIF Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187
Annex E: Former Board Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .191
Annex F: Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .199
Annex G: Current Senior Staff Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .201

II | T C
Foreword by the Chairman of the Board
of Directors, Dr. Josef A. Ackermann

emaining at the forefront of current develop-
ments has always been one of the strengths of
the Institute of International Financeand
now, on the occasion of the Institutes twenty-fifth
anniversary, it is an appropriate moment to step back
and take a look at the world of international finance,
the focal point of the Institutes activities.
This publication invites you to take a fascinating
journey through the changing landscape of the global
financial system over the past quarter-century. During
this period, there have been extraordinary challenges,
Dr. Josef A. Ackermann opportunities and progress in the global economy and
international financial system. Furthermore, we have
seen unprecedented growth in international capital flows, in the scope and sophisti-
cation of financial markets and instruments, and in the importance of emerging market
economies, which now account for more than half of global GDP. These developments
have sustainably increased the integration and interdependence of institutions and
economies across the world, while extending the boundaries of opportunity for market
participants and raising the challenges for policymakers and regulators.
Time and again this dynamic environment has confirmed the raison dtre for the
Institute, while making it imperative for the organization to continuously adapt to the
changing needs and priorities of its membership. Indeed, one of the great strengths
of the Institute has always been its capacity to anticipate change and remain ahead of
the curve in the service of its members. Over the years, the Institute has expanded its
range of products and services well beyond its traditional, but nevertheless still vital,
focus on emerging market economies. In particular, the Institute of International

Finance has become a key resource for its members in numerous areas, such as inter-
national financial regulation, policy issues on emerging markets as well as training
and professional education.
The broadening of the Institutes scope has been accomplished with a remarkably
lean but highly skilled and dedicated staff and management, and they will remain part
of the Institutes inherent strengthfacilitated by the ability to draw on the extraor-
dinary reservoir of talented people provided by its members. The Institute has also
been fortunate enough to have a succession of extraordinarily talented Managing
Directors, starting with Andr de Lattre and including Horst Schulmann, who guided
the Institute through the turbulence of the late 1980s, as well as Charles Dallara, who
has been leading the Institute since 1993. From the very beginning, the Institute has
benefited immeasurably from the expert guidance and governance of a Board of
Directors composed of individuals of the highest distinction and experience in
international finance.
In celebrating the Institutes twenty-fifth anniversary, we can take great satisfaction
from what has been achieved. In tackling the challenges that lie ahead, we will remain
committed to being the most influential global association of financial institutions,
as set out in our mission statement. And we will continue to strive to sustain and
enhance our distinctive role on the basis of the professional excellence of our research,
the unmatched breadth of our membership, our extensive relationships with policy-
makers and regulators, and the strength of our governance. In looking back at the
experience gained over the past twenty-five years and taking stock of where we are
today, it is a pleasure to see that the Institute is ideally positioned to face the chal-
lenges of the future, while serving the broad interests of our members and fostering
global financial stability.

IV | F
Foreword by the Managing Director
of the Institute, Charles H. Dallara

he Institute of International Finance was con-
ceived at a gathering at Ditchley Park,
Oxfordshire, England in May 1982. It has been
the Institutes tradition since 1994 to follow the model of
that embryonic meeting and gather together global finan-
cial leaders biennially to review the economic and finan-
cial landscape and to consider how the work of the
Institute should evolve to serve its members in light of
changing conditions. During the most recent of these
Ditchley Park meetings held at Lake Como, Italy, in
June 2006, the Institutes Chairman, Josef Ackermann,
Charles H. Dallara inquired as to whether we had ever developed a record of
the Institutes many accomplishments and activities over
the years. This question to me has now resulted in this impressive history of the
Institutes first two and a half decades.
The broad contours of global financial developments over this period are well
known, characterized by the Latin debt crisis, the integration of emerging market
economies into the global economy, the penetration of global capital markets into
these economies, occasional but costly financial crises, the growing integration of local
emerging markets and global markets, and in recent months the stress that has arisen
from sub-prime mortgages and their securitization. What is less well known is how
the Institute has grown and adapted over the years to play a meaningful role in this
world of global finance. This volume captures the story of that growth and evolution
and weaves into this tapestry the vital contributions of many men and women
throughout the world of global banking and finance.
The building and maturation of the Institute into the worlds leading global asso-
ciation of financial institutions mirrors the globalization of both financial firms and
the world economies. At the same time, the contributions and role of the Institute are

F | V
unique as it has become a special bridge in global finance between the public and private
sectors, a channel through which leading banks in emerging markets become integrated
into the global financial system, and a source of stability arising from both its contri-
butions to the global architecture and its solid, independent economic analysis.
It is not feasible to seek to single out the many individuals who have contributed
to the rise of the Institute; the following chapters provide much evidence of the con-
tributions of many key players. In this Foreword, however, I would like to pay special
homage to Jacques de Larosire and Bill McDonough for their foresight in both
anticipating the need for an organization such as the Institute and for supporting its
formation. Former Vice Chairman of Chase Manhattan Bank, Bill Ogden, who sadly
is no longer with us, also merits special recognition for the leadership he provided in
bringing about the creation of this organization.
The book itself makes clear that the Institute has benefited from the extraordinary
leadership of the Board throughout its history, from the first Chairman, Richard Hill of
the Bank of Boston, through our current Chairman, Dr. Josef Ackermann of Deutsche
Bank. Our Vice Chairmen have also made critical contributionsof particular note is
the long-standing role of Bill Rhodes of Citigroup, our First Vice Chairman. Many other
board members have also committed considerable time and energy and shared their
vast experience in helping to steer this organization over the past decades.
I would like to express my deep sense of respect and appreciation for the highly
professional and dedicated staff that has been the heart and soul of the Institute
throughout its first quarter of a century. It often comes as a surpriseif not a shock
to many observers of the Institutes activities and influence to learn that even today,
with over 365 members, our total staff numbers less than 100. To the extent that we
have made a meaningful difference for our members and, more generally, to the stability
of the global financial system, it is in no small part due to the immense contributions
of the IIF staff.
Finally, the development of this history book since that first conversation at Lake
Como has been a long and arduous endeavor. I would like to pay special tribute to
those who served as principle authors of individual chapters of this book: Bill Cline
(Chapters 1 and 2), Abdessatar Ouans and Judson Berkey (Chapter 3), Lex Rieffel
(Chapter 4) and Frank Vogl (Chapter 5). Research assistance was provided very capably
by Nadia Islam and Maria Ho, and many current IIF staff devoted time and energy
to these drafts. Ian McDonald merits our thanks for his outstanding editing job. A
special debt of gratitude is owed to Howard Handy, who took on the role of Project
Coordinator and performed it with immense skill and tireless effort. Without his
dedication, this history book would have never been transformed from a gleam in
our Chairmans eyes to the impressive document it is today.
It has been a privilege for me to be part of the leadership of this organization for
more than one-half of its first quarter of a century. The events of the last few months
have reminded us all of the risks involved in global finance and the volatility that can
surround markets at times. It is important, therefore, that all involved in the Institutes
development not only take pride in what has been accomplished but look ahead with
confidence that the Institute is ready to respond effectively to the challenges that lie
ahead and become an even more important presence in global finance.
VI | F
1 Overview


n the morning of May 9, 1982, thirty-eight senior bankers and finance
officials from multilateral organizations and central banks gathered in a small
library in Ditchley Park to contemplate the looming cloud of the interna-
tional debt crisis. Two days later emerged the idea to create what is now known as the
Institute of International Finance. The Institute has since witnessed a major expansion
in the financial system and several financial crises. Throughout its history, the Institute
has helped its members navigate through the increasingly complex financial landscape
and weather financial turbulence. It did so by providing sound economic analysis,
research, and a forum for identifying best practices, building consensus, and formu-
lating a common voice in engaging with the official sector on policy issues. [A timeline
covering the origins of the Institute and milestones in its evolution is given in Annex A]
This volume provides a synthesis of the Institutes work in its first 25 years. Each
chapter deals with one of the main functional areas of the Institute: economic analysis
of emerging market economies (Chapter 2), regulatory issues (Chapter 3), international
financial policy issues affecting emerging markets (Chapter 4), and membership, events
and organizational developments (Chapter 5). The authors are former officers and senior
staff of the Institute and, in one case, a long-time consultant to it. Their direct experi-
ence in and knowledge of the Institute has contributed to an account that is intended
to be accurate, informed, and objective. After a brief outline of the origins, evolution,
and structure of the Institute, and of its current mission and activities, this chapter
concludes with a synopsis of the principal areas of the work of the Institute that are
described in the remainder of this volume.

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CO-CHAIRMEN: T.A. Green David O. Nordby

William S. Ogden National Westminster Bank Mellon Bank
Chase Manhattan Bank Takeo Kani Shijuro Ogata
Peter Leslie Industrial Bank of Japan Bank of Japan
Barclays Bank Axel Kollar Grant L. Reuber
West Deutsche Landesbank Bank of Montreal
PARTICIPANTS: Francis Mason Harold Rose
A.R. Barber Chase Manhattan Bank Barclays Bank
Midland Bank
Eiichi Matsumoto H.O. Ruding
A. Blank Bank of Tokyo Amsterdam-Rotterdam Bank
Algemene Bank Nederland
Donald McCouch Winfried Spaeh
Werner Blessing Manufacturers Hanover Dresdner Bank
Deutsche Bank
William McDonough Werner Stange
George J. Clark First National Bank of Chicago Morgan Guaranty
Neil J. McMullen Ernest Stern
C.T. Conover National Planning Association World Bank
Comptroller of the Currency
Paul Mentre d Loye Walter S. Surrey
W. Peter Cooke International Monetary Fund Surrey and Morse
Bank of England
Alfred F. Miossi Alexander C. Tomlinson
J. de Larosire Continental Illinois National Planning Association
International Monetary Fund
Kazuo Nakamura R.A. Utting
C. David Finch Mitsubishi Bank Royal Bank of Canada
International Monetary Fund
Eric Whittle
Lloyds Bank International

In the late 1970s, Neil McMullen, Director of the International Department of the
National Planning Association (NPA, a group of business and labor leaders dating
from the 1930s) became concerned that the task of recycling of oil surpluses could
become too large for private markets. McMullen recognized that multilateral institu-
tions and major industrial country governments would need to become involved. In
1980 he proposed that the NPAs Committee on Changing International Realities hold a
series of meetings on how to strengthen the recycling process and help maintain the
creditworthiness of developing countries. In 1981 the Committee formed a Steering
Group to prepare for a confidential meeting of 35 to 40 of the leading international
financial decision makers and analysts from the private and public sectors.1
Key members of the Steering Group included William Ogden of Chase Manhattan
Bank, George J. Jack Clark of Citibank, William McDonough of First National Bank
of Chicago, Alfred Miossi of Continental Illinois, and McMullen. It was agreed that
Ogden would chair the meeting, which he was eager to do. However, in the lead-up to
the meeting, Ogden became ill and this resulted in a postponement of the gathering
by about six months. The meeting eventually took place at Ditchley Park (Oxfordshire)
Institute of International Finance, The 20th Anniversary of the Founding of the Institute at Ditchley Park
(Washington: IIF, 2002).

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Jacques de Larosire, William McDonough, then William Ogden, then Neil McMullen, then
then Managing Director, Vice Chairman, First Vice Chairman, Chase Director, International
IMF National Bank of Chicago Manhattan Department, NPA

in May 1982 with Ogden and Peter Leslie of Barclays Bank as Co-Chairmen. [A listing
of attendees at the original Ditchley meeting is given in Box 1]
At the Ditchley meeting, McDonough (later the long-serving President of the New
York Federal Reserve Bank) proposed that an institution be created within the banking
community to supplement efforts by official agencies and banks to gather information
on debtor countries. Crucial support for the idea by Jacques de Larosire (then Managing
Director of the International Monetary Fund) helped forge a consensus at the meeting
that such an institution was needed.
A private-sector institution to monitor and evaluate developing country debt was
needed because such data and analyses at official institutions, especially the Bank for
International Settlements (BIS) and International Monetary Fund (IMF), were often
confidential and not available to the private sector.2 Information available to the banking
community was often out of date and not of uniform quality. Moreover, in a telling
recapitulation, the Institute in its 2002 review noted the sense among participants at
the Ditchley Meeting:

Many of the larger, money-center banks, are perceived as being guarded with
their information The smaller banks, which do not have the same resources
available for in-depth economic analysis, may feel led astray by the larger
banks. The smaller banks relied on the wisdom of the money-center banks
in deciding to participate in sizable syndicated loans to the developing world
and probably did not examine sufficiently the merits of their own involvement.3

The proposal envisioned that information would be obtained from official reports
by the BIS, IMF, and World Bank, providing that governments of the borrowing
countries agreed. Information would also come from member banks and from country
missions comprising a staff member of the new institution and a few senior bankers
In contrast, After the banks set up their own monitoring organizations such as the Institute of International
Finance (located just one block from the IMF headquarters in Washington), the staff regularly exchanged
information with them. James Boughton, Silent Revolution: The International Monetary Fund, 19791989
(Washington: International Monetary Fund, 2001), p. 406.
Annual Report, Institute of International Finance, 2002.

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October 26, 1982, The Financial Times.
Reprinted with permission.
October 26, 1982 by the New York Times Co.
Reprinted with permission.

knowledgeable about the country in question. At a follow-up meeting in New York

on October 2627, 1982 (also chaired by Ogden), 31 representatives of leading banks
from the major industrial countries met once again and approved plans for a nonprofit
organization to be located in Washington, a location that implied independence from
the money-center banks and proximity to the IMF and World Bank. There would be a
small, high-quality staff, led by an executive director and two or three deputy directors.
Any lending institution with significant international loans would be eligible for
membership, and voting power on the board of directors as well as membership fees
would be based on the size of a banks international exposure.
By October 1982, the urgency for such an organization was greatly heightened by
Mexicos suspension of payments in the previous August and the looming prospect of
a rapid spread of the debt crisis to Brazil and other economies in the region. In January
1983, the Institute was legally incorporated, with 38 founding members, all of them
banks. They included 17 from Europe, 10 from the United States, 4 each from Canada and
Japan, and 3 from Brazil. William Ogden continued to be a guiding force throughout
this process as Chairman of the formation committee of the embryonic organization,
and later as Chairman of the Interim Board of Directors. He went on to chair the first
membership meeting in Washington (September 24, 1983) before stepping down shortly
thereafter at the successful conclusion of what was seen by the Board as the formative
phase. At that point, the membership of the Institute elected Richard D. Hill of the
Bank of Boston as Chairman of the Institute and Andr de Lattre of the Banque de
France was appointed Managing Director with effect from January 1, 1984. By 1984
the Institutes membership had surged to 188 institutions, of which a dozen were associate
members (some of them official credit agencies and others multinational organizations).

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For most of its first decade, the Institute concentrated on economic analyses of devel-
oping countries and the working out of the 1980s debt crisis. In 1986 and 1987, for
example, the IIF issued about 30 country reports and 40 shorter country updates each
year on 48 economies (12 in Africa-Middle East, 11 in Asia-Pacific, 9 in developing
Europe, and 16 in Latin America).4 This was the period of the Baker Plan, named
after then U.S. Treasury Secretary James A. Baker III, which set a target of concerted
new lending to countries with rescheduled debt that undertook adjustment programs.
Analysis of these economies was crucial for Institute members making decisions about
new loans (including loans for trade credits). The Institute also served as a forum for
bank views on such elements of the debt strategy as the development of a menu of
means of participation (including debt-equity swaps).
The launch in 1989 of the Brady Plan of collateralized debt reduction (named after
then U.S. Treasury Secretary Nicholas F. Brady) began to close the chapter on the 1980s
debt crisis and set the stage for the new emerging markets capital market of the 1990s,
with its growing role for sovereign bonds and portfolio equity flows. By the early 1990s,
many of the smaller banks had exited from lending to developing countries, as the large
syndicated loans of the early 1980s had become a thing of the past and the debt crisis
had made many banks wary of long-term loans to emerging markets. The Institutes
membership reflected the change, with a drop in the number of small banks but a
growing number of non-bank financial firms. Thus, there were 40 bank members in
1987 from the United States, but by 1993 the number had fallen to 18 (partly reflecting
the process of bank mergers and acquisitions). Conversely, the number of U.S. asset man-
agement and other non-bank private firms (associate members) had risen from 3 to 13.
In 1990, the Board of Directors expanded the Institutes mandate to include policy
work on international financial issues, especially regulatory matters. Through expert
working groups from among the membership, in the early 1990s the Institute con-
tributed to the debate on disclosure of derivatives and on amendment of the 1988

Richard Hill, First Chairman, Andr de Lattre, First Managing

IIF Board of Directors Director of the IIF

Chapter 2 and Annual Report 1987.

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Basel Capital Accord requirements for bank capital. The Institutes Managing Director
at that time, Horst Schulmann, pressed work on the transition to market economies
in post-Soviet Europe, and the Institute pushed for market-oriented and voluntary
approaches in the evolving international debt strategy (including vocal opposition to
the IMF shift toward lending into arrears, or loans to countries in arrears to private
creditors that had not reached agreements with them).
With the arrival of Charles Dallara as the new Managing Director in 1993, the
Institute moved further into systemic policy work, an area that included paying close
attention to the possibilities for private-public cooperative financing with multilateral
development banks. Soon afterward, the Mexican peso crisis in 199595 and then the East
Asian and Russian financial crises in 199798 focused Institute policy work on crisis
management and resolution. Meanwhile, country analytical work also took on heightened
importance, as evaluation of the prospects for the East Asian crisis economies, Russia,
and then Brazil, Turkey, and Argentina became vital for the Institutes members.
Work on the regulatory front intensified as the Basel Committee on Banking
Supervision, which provides a forum for regular cooperation on banking supervisory
matters, moved to develop the Basel II capital and regulatory framework, and task
forces and working groups at the highest levels from among the Institutes membership
contributed crucially to the public-private dialogue in this area. One reason was simply
that among the IIF membership were some of the large financial institutions with
sophisticated internal models of risk management that came to play an important
role in the regulatory structure that emerged, and the public sector welcomed technical
consultation on these issues. The Basel II structure announced in 2004 included key
features that reflected consideration of Institute views. A parallel development was
that the Institutes membership from among financial institutions in emerging market
economies, and the services provided to these economies, grew rapidly in the decade
following the East Asian crisis. This development reflected regional concerns that
emerging market viewpoints be considered in the changing regulatory framework
for international banking, as well as the growing interest of institutions from these
regions in global best practices and participation in a global financial forum.

Horst Schulmann Charles Dallara

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Figure 1 shows the number of members in the Institute and its annual revenues since
its first year of operation in 1983. As noted above, total membership quickly climbed
to almost 190 during the depths of the 1980s debt crisis and held at about that level
until 1993. There was then renewed growth in 1994 and 1995, followed by a surge in
membership to around 300 during 19961999, which reflected buoyant emerging market
capital flows in 1996, and then the increased need for country and policy analysis in
the face of the financial crises of the late 1990s. Rising membership in this period also
reflected interest in the Institutes work on regulatory policy, and renewed confidence
that the Institute had an updated, refreshed mandate built around three pillars: country
economic analysis, regulatory issues, and international financial policies toward
emerging markets. Several leading financial institutions, including Credit Suisse,
Deutsche Bank, HSBC, ING, and Socit Gnrale, joined or rejoined the Institute
in 1994-96, strengthening the Institutes credibility both in Europe and globally.
After a second period of relatively steady membership in 200005, there was
another brisk rise during 2006-07, bringing the total number of members to over 365
as of July 2007. The corresponding levels of revenues rose from about $4.8 million in
1987 (equivalent to about $8.4 million at 2006 prices) to about $25 million in 2006.5
Thus, from 1993 to the present, the total number of members has approximately
doubled and total revenue has approximately tripled in real terms.
There have been two major changes of direction in the Institutes membership
over the course of its first 25 years: diversification from an initial predominance of
banks to a much greater inclusion of mutual funds, asset management firms, and
other non-bank institutions; and expansion to include far more members from
emerging market economies today than in the early years. [A listing of the original
members of the IIF is provided in Annex B and a full listing of the current members
appears in Annex C.] From the outset, the Institute permitted full membership for
banks and associate membership for other firms.6 A number of leading central banks
around the world with ongoing interest in the work of the Institute have become
Special Affiliates of the IIF, and the principal multilateral development banks are
also affiliates. As shown in Figure 2, the number of associate members and affiliated
organizations rose from only 7 percent of the total in 1987 to about one-third in
1996, a share that persisted by 2006. Associate members in the early years included
export credit agencies and central banks, but by the late 1990s the bulk of associate
members were non-bank private firms such as securities houses, asset managers,
trading companies, and mutual funds.7
The relative shift toward non-bank firms reflected the rise of bonds and portfolio
equity in capital flows to emerging markets in the 1990s, and the relative decline in
bank flows (especially during the crisis years late in the decade). The absolute numbers
See Annual Reports.
In 1996 full membership eligibility was extended to include globally active securities firms and in 2001 to include
insurance companies. Full members are eligible to participate in working groups that develop financial industry
consensus positions. Dues are based on assets for full members and on entity type for associate and affiliates.
By 1996 there were 20 associate members in Japan (many of them trading companies) and 50 in the United
States (many of them securities and asset management firms).

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400 30
350 25
200 15
50 5
0 0
Members Rev. ($ mn)

for banks also reflected a wave of bank mergers.8 The resulting relative shift was espe-
cially marked in the United States, where mergers proceeded much more rapidly than
in Europe. U.S. membership included 40 banks and 4 associates in 1987 but had
swung to 16 banks and 40 associates by 2006.
The swing in the relative number of members from institutions headquartered in
industrial countries to those from emerging market economies was even more dramatic
(although because many of the latter were smaller institutions, the corresponding
swing in membership composition by total assets and voting rights was considerably
smaller). As shown in Figure 3, among full members (banks), those from developed
countries numbered about 140 in 1987 and about 85 by 2006, whereas the number
of banks headquartered in emerging market economies rose from about 30 to about
150. The most noteworthy increase in emerging market bank members was in the
Middle-East/North-Africa region. 9

The Institute has adhered to its original design of keeping a lean staff. Total personnel
rose from about 40 in the late 1980s to about 65 in the late 1990s and 70 today. The
largest group has traditionally been in the Economics Department, which conducts
the ongoing reporting and analysis on emerging market economies. In contrast, the
Institute has relied heavily on leveraging a relatively small in-house staff with the help
of expert working groups from among the membership in carrying out its mission in
the areas of financial regulation and emerging markets policy issues. In recent years
the share of total personnel in the Economics Department has fallen and that in the
Policy, Regulatory and Events Departments has risen.10

In the United States, about one-third of the 34 named banks that were members in 1987 but not in 2006 had
been acquired by member banks, and another third had merged into non-member banks.
From 1987 to 2007, the number of bank members rose from 7 to 64 in the Middle East and North Africa region
(not including non-bank associates and affiliates). Also dramatic was the rise in the number of member banks
from China (from none to 13).
In 1999 the economic staff accounted for 45 percent of total positions; by 2006 the share was down to 35 percent.

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1987 1996 2006

Banks Other



1987 1996 2006


The Institute has enjoyed strong continuity of leadership. There have been only
three Managing Directors: Andr de Lattre, from 1984 to 1986; Horst Schulmann,
from 1987 to 1992; and Charles Dallara, who has served for the past 14 years. Josef
Ackermann of Deutsche Bank, Chairman of the Board since 2003, was a Vice Chairman
in 1995 and again in 19992002. William R. Rhodes of Citigroup served for eleven
years as Vice Chairman and since 2003 as the First Vice Chairman. Cees Maas of ING
Group has been an IIF board member since 1996, Treasurer since 1999, and Vice
Chairman since 2003.

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Josef Ackermann William R. Rhodes Cees Maas

The Institute has rotated its leadership to ensure geographical balance (Box 2). In
the early years when the Managing Director was a European, the Chairman was an
American. The Chair has been a European or Japanese since the early 1990s, largely
coinciding with the period of an American Managing Director. Japanese bankers
served as one of the Vice Chairmen for several years after the chairmanship shifted
from Toyoo Gyohten of Bank of Tokyo to Georges Blum of Swiss Bank Corporation.
In recent years the growing importance of emerging market economies in the
Institutes membership has been reflected by the inclusion of Vice Chairmen from
Brazil (Roberto Setbal of Banco Ita, since 2003) and China (Liu Mingkang of Bank
of China, in 200102). [A list of current members of the IIFs Board of Directors is
given in Annex D and a listing of former directors appears as Annex E]


The Institutes Annual Report for 2006 began with its mission statement, which
was revised in 2004 to reflect evolving activities and changing needs of the members:

The Institute of International Finance is committed to being the most influ-

ential global association of financial institutions. We strive to sustain and
enhance our distinctive role on the basis of the professional excellence of our
research, the unmatched breadth of our membership, our extensive relation-
ships with policymakers and regulators, and the strength of our governance.
Our mission is to support the financial industry in prudently managing risks,
including sovereign risk; in developing best practices and standards; and in
advocating regulatory, financial, and economic policies that are in the broad
interest of our members and foster global financial stability.

(The full text of the IIF Mission Statement appears in Annex F)

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In his accompanying remarks to the 2006 Annual Report, Chairman Josef Ackermann
stressed the Institutes keen understanding of emerging market economies and attention
to fundamental analysis and differentiation of risks in these economies, noting the
need for objective, independent, and timely analysis to serve an increasing number
and range of investors. He highlighted a recent Institute publication on a strategic
dialogue with regulators and emphasized progress in implementing the Institutes
Principles for Stable Capital Flows and Fair Debt Restructuring, including the formation
of a high-level Group of Trustees for oversight (see Chapter 4). He underscored the
growing importance of the Institutes events and professional development programs,
having noted in the previous years annual report that the Institute had organized
close to 100 events worldwide that year.

Toyoo Gyohten Georges Blum Liu Mingkang Roberto Setbal



William Ogden 1983 1 Chairman of the Board, Swiss Bank Corporation
(Chairman of formation committee and Interim Sir John Bond, 19982003
Chairman, Board of Directors), Vice Chairman, Chairman, HSBC Holdings plc
Chase Manhattan Bank
Josef Ackermann 2003
Richard D. Hill 198386 Chairman of the Management Board and of
Chairman of the Executive Committee, Bank the Group Executive Committee, Deutsche
of Boston Bank AG
Barry Sullivan 198691 MANAGING DIRECTORS 2
Chairman of the Board and CEO, First Andr de Lattre 198486 3
National Bank of Chicago former Deputy Governor, Banque de France
Antoine Jeancourt-Galignani 199194 Horst Schulmann 198792
Chairman and CEO, Banque Indosuez former State Secretary, German Finance
William R. Rhodes (Acting Chairman) 1994 Ministry
Vice-Chairman, Citibank Charles Dallara 1993
Toyoo Gyohten 199497 former Managing Director, J.P. Morgan, and
Chairman, Bank of Tokyo Assistant Secretary, US Treasury

William Ogden served as Interim Chairman until October 1983 when Richard Hill was appointed.
John Haseltine served as Acting Managing Director following the departure of Horst Schulmann in 1992
until the arrival of Charles Dallara in 1993.
Andr de Lattre served as Managing Director-Designee in 1983 and was formally appointed Managing
Director in 1984.

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For his part, Managing Director Charles Dallara stressed that the Institutes role
as an effective bridge between the public and private sectors has never been greater.
He reported that the Institute had launched a potentially far-reaching proposal to
work with regulators in identifying and implementing means of increasing the effi-
ciency of financial service regulation, as well as its consistency across borders. He
highlighted a new Committee to develop a set of recommended industry practices for
liquidity risk management. Dallara also judged that Participants in emerging markets
finance are now well placed to use the voluntary principles as a valuable framework
for strengthening the fabric of crisis prevention and crisis management should more
challenging times lie ahead.
It is perhaps fitting to recognize that, with the machinery for country review and
dialogue set in place with the Principles (see Chapter 4), the Institute had gone a long
way toward making a reality out of a vision dating back to the first Ditchley meeting
in 1982 that: The institution would act as a forum in which borrowing countries, on
a strictly voluntary basis, could meet regularly with private banking institutions to
review future economic plans and financial projections.11
Overall, the Institutes mission has remained true to the twin goals envisioned by its
co-founders: an objective, independent source of information and analysis of sovereign
risk, and a forum to advance the interests of private financiers on key public policy
issues.12 Arguably the Institute has done both in a fashion that has benefited the general
public, including those in emerging market economies, as well as its own members.


core responsibility of the Institute from the start has been the provision of economic
analysis and data on emerging market economies, to enhance the risk management
capabilities of IIF members. The Institute provides economies of scale for its members,
as the smaller member firms typically have not had sufficiently large in-house staffs for
comparable work on emerging markets. For the larger member institutions, the IIF
economic work serves as a counter-check on in-house analysis on some countries and
permits leaner staffing on others. The economics work of the Institute is valued by
the membership for its analytical rigor, objectivity and independence.
Since the mid-1980s the Institute has provided analysis and monitoring on about
50 emerging market economies. In a lean structure geared toward efficient resource
utilization, a Director has been responsible for each of four regions (Africa-Middle
East, Asia-Pacific, developing Europe, and Latin America). Each Director works with
a small team of economists and support staff: typically each economist is responsible
for 35 countries. Country visits are central to the preparation of Country Reports.
Including shorter Updates, Special Briefings on key new developments, regional reports,
and country notes for the Principles initiative, the economic work on individual
emerging market economies provides a total flow of some 110 reports annually. In

IIF, Ditchley Park, op. cit., p. 8.
Charles Dallara, Ibid, p. 4

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addition, the Economics Department has historically included a small group working
on cross-country analysis of key economic variables (such as major international
exchange rates and oil prices) and capital markets.
The Institutes country database is a unique feature of its economic work. Comprising
some 250 economic variables, and with special emphasis on debt and maturities, the
database often requires the painstaking development of estimates that go well beyond
published data from governments or international institutions.
Chapter 2 seeks to place the economic work of the Institute in the context of the
changing historical challenges. It emphasizes that the 1980s debt crisis which gave
birth to the Institute posed a critical threat to the international banking system. For
the 13 largest U.S. banks, for example, exposure in just five Latin American countries
exceeded 150 percent of capital, and exposure to developing countries facing debt
problems was generally as high, or higher, in the larger banks in Europe and Japan.
By 1984 there were some 190 members of the Institute from among 39 countries.
Members accounted for 80 percent of total international banking exposure to developing
countries. Of the large (Group I) banks with (then) more than $20 billion in interna-
tional exposure, 17 were IIF members; and more than 70 percent of banks eligible at
the Group II level ($1 billion to $20 billion international exposure) were members. A
close working relationship developed with the International Monetary Fund, as docu-
mented in an official history of the IMF.
The transition from reform programs combined with concerted lending to avoid
default (initial response and Baker Plan) to collateralized debt reduction (Brady Plan)
initially caused serious misgivings for the IIF in view of the seeming tilt toward a less
voluntary approach. However, by about 1993 favorable capital markets developments
and a corresponding rise in business opportunities for member banks contributed to
a more favorable Institute attitude toward the Brady Plan. In 1995 Mexicos peso crisis
temporarily chilled the new emerging capital market. The successful management of
the crisis opened the way for capital flows to reach a new high of over $300 billion in
1996, spurred by a decline in U.S. interest rates.
By April 1997 the Institutes flagship publication Capital Flows to Emerging Market
Economies warned that yield spreads had fallen so low that they might not be covering
risk. A statistical study by the cross-country analytical group found that spreads had
fallen more than could be explained by economic fundamentals, as measured by debt
ratios and other variables. The country reports were beginning to flag the vulnerabilities
in key countries that would become the epicenter of the 199798 financial crises. In
their press conference at the annual meeting of the Inter-American Development
Bank in Barcelona in March, 1997, IIF Managing Director Dallara and Vice Chairman
Bill Rhodes warned that emerging capital markets were becoming highly liquid and
spreads were falling below levels reflective of the risks. IIF Reports on Thailand in late
1996 and May 1997 warned about the large current account deficit, the need for a
more flexible exchange rate, and weaknesses in a financial system overexposed to
property loans. Thailands devaluation in July 1997 triggered the East Asian crisis.

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Ive never seen such liquidity as Ive seen today and Ive been around a long time.
We have to be careful in this environment that credit standards are maintained.
William R. Rhodes, as quoted by the Financial Times, March 20, 1997, in Barcelona

The crisis spread to Indonesia and then Korea. An IIF briefing note in May 1997
had warned about high corporate debt and non-performing loans in Korea. In the
face of a collapse in reserves by late 1997, an international rescue program, along with
the relatively voluntary conversion of short-term bank claims to 3-year government-
guaranteed obligations, stemmed the Korean crisis.
Russias devaluation and default in mid-August 1998 was perhaps the most severe
blow to emerging markets. IIF country reports in previous years had repeatedly
warned about Russias vulnerability, which stemmed from large capital flight and
strong impediments to the fiscal adjustment and structural reforms needed to imple-
ment the IMF stabilization program. The January 1998 report emphasized that this
vulnerability was intensifying in the face of less favorable capital markets as a result
of the East Asian financial crisis, falling oil prices, and high interest rates needed to
sustain the exchange rate anchor.
Contagion from Russia swept away Brazils quasi-fixed exchange rate at year-end.
Nearly alone among forecasting groups, the IIF team correctly judged in its January
1999 report that Brazils IMF agreement and fiscal adjustments would enable the country
to avoid an outburst of extremely high inflation despite the exchange rate collapse.
After a brief calm, by 2001 crises developing in Turkey and Argentina threatened
emerging markets. In Turkey, an IMF stabilization program in 2000 based on an
exchange rate anchor had sharply reduced inflation but left the currency seriously
overvalued and the current account in large deficit. A collapse in market confidence in
early 2001 forced devaluation, which triggered stronger fiscal adjustment. By mid-year,
following an enlargement of IMF financial support, the Institutes report judged cor-
rectly that external debt servicing would continue without interruption.
In Argentina, an overvalued peso from the currency board arrangement and inad-
equate fiscal adjustment set the stage for a series of domestic political crises. These
precipitated a vicious spiral of rising risk spreads, jeop-
ardizing the sustainability of Argentinas large external
debt. An IIF staff team in July 2001 met with then Finance
Minister Domingo Cavallo and underscored the impor-
tance of achieving the zero-deficit plan of fiscal adjust-
ment. Managing Director Dallara and Director for Latin
America Frederick Jaspersen met with Cavallo in Buenos
Aires in late October and urged him to pursue a com-
prehensive debt restructuring and reform package in a
cooperative fashion, noting that many investors were
prepared for such a plan. An Institute bulletin later that
year considered that the domestic debt restructuring and
Domingo Cavallo

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the plan for subsequent relatively market-friendly restructuring of external debt might
succeed, but only with decisive domestic political support. Instead, the government
refused to devalue and engage in voluntary debt reduction. By year-end riots and
deaths forced the resignations of the President and Finance Minister. It was a mark of
the growing maturity of emerging markets that there was no generalized contagion
from Argentina by 2002 and after. However, Argentinas default ushered in a different
and at times acrimonious process that eventually led to the authorities unilateral
restructuring of debt.
Brazil entered capital market difficulties once again in 2002 as a result of a sharp
decline in investor confidence as it became apparent that left-wing Workers Party
candidate Luiz Incio Lula da Silva was likely to win the presidential election. In August
a meeting at the New York Federal Reserve Bank between banks and Brazilian officials
was organized with the active involvement of Vice Chairman Rhodes and quiet encour-
agement by the IIF. The announcement after that meeting of the banks willingness to
stabilize credit lines helped boost market confidence. The IIF team produced four
country reports on Brazil in 2002. By September, it judged that public debt could follow
a sustainable path of gradual reduction, and by December Lulas choice of a strong eco-
nomic team provided grounds for optimism that adequate fiscal adjustment would take
place. It did, and by April 2003 lending risk spreads had moderated sharply once again.
Since 2004 there has been a renewed boom in capital flows to emerging market
economies, and a compression of risk spreads to new lows. In this period, the Institute
once again warned that spreads might be falling too low to compensate for risks.
In addition to its core country reports, the Institutes economic portfolio has included
an evolving array of cross-country products. A pattern for these products has been
the shift away from emphasis on data discovery in the earlier years toward timely
analysis, as country data have become much more widely available (for example,
through central bank and finance ministry websites). Most of the economic work is
available only to members on a confidential basis, but there are important exceptions
such as the widely distributed Capital Flows to Emerging Market Economies. Detail on
such categories as resident lending abroad makes this report (produced three times
per year) a preferred source on capital flow data, even in some official quarters. The
regional aggregates in the public report are built up from the country-level estimates
available only to members.
In periodically revising its suite of economic products, the Institute has benefited
from the views of its Economic Advisory Committee (EAC), which is made up of
experts from across the membership. The two meetings annually of the EAC bring
together 5060 representatives from member firms participating in the EAC and provide
an opportunity to refine the economic teams diagnosis of global economic issues
and key emerging market country prospects.
Other products include regional briefings at the annual meetings of the multilat-
eral development banks, and special studies related to international financial policy.
The Institute played a major role in the mid-1990s in pressing for improved coverage
and timeliness of data release by emerging market economies. In 1995 an Institute

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working group developed a set of benchmark standards for data coverage, periodicity,
and timeliness, and its report in September of that year anticipated the development
of corresponding IMF standards in the Special Data Dissemination Standard (SDDS)
launched in April 1996. In April 1996, and again in April 1997, the Institute issued
reports on actual data-release practices of about 30 major emerging market economics,
based on surveys reviewed by relevant country officials. Thereafter the Institute judged
that the new SDDS system of the IMF had greatly enhanced transparency in emerging
markets and had matured sufficiently to make further IIF surveys of country practices
unnecessary at that time.
On crisis management, the economic group issued a special study in 1998 evaluating
critiques that the IMF had advocated unduly recessionary policies in response to the
East Asian crisis. It found that high interest rates had been needed to avoid further
exchange rate collapse but that fiscal tightening had initially been excessive. In 1999,
the group issued a report on whether the Mexican financial rescue had caused moral
hazard. The empirical tests described in the report showed that spreads were higher
rather than lower after the Mexican rescue, after taking account of changes in funda-
mentals and global capital market conditions. The economic team surveyed member-
firm practices in evaluating country risk and coordinated the report of the Working
Group on Country Risk for the Institutes work on Basel II regulatory reform.
Chapter 2 concludes by drawing lessons from the Institutes economic work over
the past 25 years, which include the following: the great importance of fiscal prudence;
the desirability of exchange rate flexibility to provide resilience to shocks and help
avoid excessive current account deficits; the need for careful evaluation of external cash
flow (illustrated by highly credit worthy but highly-illiquid Korea in late 1997); the
crucial importance of a sound banking system; the importance of political stability;
and the need for cooperative action by both the private and public sectors in the reso-
lution of debt and financial crises.
Over the years the Institutes country reports have developed the reputation for
frank, objective analysis, directly presented, with a special touch for integrating eco-
nomic, political, and financial aspects of risk evaluation. Members have increasingly
made extensive use of IIF research, as illustrated by the 2006 monthly average of
11,000 downloads of Institute reports and statistical databases from the Institutes
website. Chapter 2 suggests that the role of the Institute in analyzing emerging market
economies could become even more important in the future if the recent pattern of
reduced IMF lending to these countries continues.

GLOBAL FINANCIAL REGULATION (CHAPTER 3) By the 1990s, owing to rapid

financial globalization, in part the result of major progress in information technology,
financial sector authorities realized they needed to modernize the regulatory and
supervisory framework, most notably through the Basel Committee for Banking
Supervision. During the first several years of the decade, the Institute gained the
credibility to be well positioned to act as a central forum for private financial institu-
tions in their discussions on global regulatory issues.

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The Institutes early regulatory work focused on derivatives, such as options, futures,
and swaps. While derivatives were seen to play the key stabilizing role of unbundling
and intermediating components of financial market risk, their explosive growth, and
frequently cross-border nature raised questions about supervisory implications.13 In
1991 the central bank governors of the Group of 10 major industrial countries (the
G-10) initiated a series of reports on this issue, emphasizing disclosure and reporting.
In the fall of 1992, the Institute formed the Task Force on Bank Derivative Activities,
with members from 20 internationally active banks and securities firms. The Task Force
developed industry consensus views, published in May 1993, emphasizing risk manage-
ment, netting, capital adequacy, and disclosure. At end-1993, the IIF Board of Directors
reconstituted the Task Force as a Working Group to concentrate on disclosure and
transparency of derivatives. In August 1994, the Working Group issued its Disclosure
Framework. It called for global comparability in annual reports for key components
of derivatives activity, with both quantitative and qualitative disclosure on levels and
counterparty credit. The reports supported further efforts on market risk disclosure
that would combine traditional on-balance-sheet and off-balance-sheet items.
The IIFs technical expertise and its ability to develop survey information from among
its membership put it in an ideal position to carry on a dialogue with the BIS on deriv-
atives. Many of the Institutes 1994 Working Group proposals on disclosure were included
in subsequent official reports. In 1996, the Working Group carried out a survey of
banks disclosures of derivatives in annual reports, encompassing 77 financial institu-
tions with a notional value of $63 trillion of derivatives outstanding. On credit risk,
the survey found a much greater adherence to the IIF recommendations than to other,
quasi-official proposed frameworks. On market risk, it found most firms provided a
basic level of qualitative disclosure, and more limited value-at-risk disclosure.

The IIF has developed into an institution that provides good staff work, good
analysis, and talks with a degree of competence and confidence that makes
it listened to. I think that is its achievement.
Sir Callum McCarthy, Chairman, Financial Services Authority, U.K.

In an early episode of reform of the 1988 Basel Capital Accord standards, in 1993
the Basel Committee released consultative papers. The Institutes Working Group on
Capital Adequacy published a response in October, supporting the Committees move
toward a more meaningful calibration of capital adequacy within the basic 8 percent
requirement of the 1988 Accord. However, instead of the new framework suggested
by the Basel Committee, the Working Group proposed that regulators allow banks
with sophisticated internal risk management and measuring systems to calculate their
capital adequacy requirements by using internal models (Chapter 3). This proposal
was a precursor of the eventual structure of Basel II a decade later.
The total notional value of derivatives rose from $20 trillion at end-1990 to $47 trillion by end-1995 and $370
trillion by mid-2006, or about 7 times gross world product (Chapter 3 and BIS Quarterly Review, March 2007).

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In 1996 the Institute established a Task Force on Conglomerate Supervision. The
IIF was an ideal venue for such work because of its diverse membership of banks,
securities firms, and insurance companies. The first report of the Task Force in February
1997 expressed concern that the public sector needed to focus more on risk types. A
report by the Task Force in July 1998 strongly objected to group-wide regulatory capital
formulas. Again anticipating Basel II, it urged regulators to create the next generation
of oversight tools based on the measurement and management of risk types
The Asian and Russian financial crises of 199798 spurred new work by the Institute
on regulatory questions affecting emerging markets in particular. In 1997 the Basel
Committee issued a set of 25 Core Principles for Effective Banking Supervision, in part
reflecting input from regulators in important emerging market economies. The Institute
formed regional working groups for Asia and for Central and Eastern Europe to examine
the proposals, marking a major expansion of such activity in emerging market economies.
In 1998 the Institutes Steering Committee on Emerging Markets Finance (see
Chapter 4) commissioned a Task Force on Risk Assessment and a Working Group on
Loan Quality to seek lessons from the 199798 crises. The Task Force found that the
crises revealed weaknesses in risk management. Most firms did not fully appreciate
the positive correlation between market trends and individual counterparty risk, and
there were weaknesses in internal control procedures. In its March 1999 report, the
Task Force recommended robust stress testing and scenario analysis, and improved
integration of country economic analysis and risk measurement systems. The July
1999 report by the Working Group suggested common definitions for asset classifica-
tion, after an IIF survey found sharply differing definitions of non-performing assets.
The report suggested that supervisors world-wide should adopt a common reporting
format on asset quality, and proposed five specific reporting categories (standard,
watch, substandard, doubtful, and loss).
The most significant part of the regulatory work in the Institutes first quarter-
century was its contribution to the policy debate in the development of Basel II capital
standards. The Institute was ideally positioned to play a key role in this effort. It had
gained credibility with the official sector in its earlier work on derivatives and on the
1996 market risk amendments to Basel I. Member firms in the Institute had expertise
and information that the official sector needed to consult because of the complexity
of the issues. The Basel II process involved formal official invitations for comments
from the private sector, and the Institute provided an ideal vehicle for the industry to
respond. On occasion the regulators needed to test-drive certain proposals, and for
this purpose the Institute had in place a network of member institutions with confi-
dential models capable of doing so. The Institute had earned the trust of member firms
that confidentiality would be respected, making such exercises possible. Throughout
this period, the Institute engaged dynamically with the official community at the
technical as well as senior levels, including through regular meetings between the
IIFs Steering Committee and their official counterparts.

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Basel I in 1988 had sought to level the playing field among international banks by
requiring that all of them adhere to a minimum capital base (8 percent of assets) based
on simple risk weightings of assets that were highly arbitrary.14 By the 1990s there was
increasing recognition that this one-size-fits-all approach failed to capture differing
degrees of risk, thereby unduly discouraging low-risk and encouraging high-risk
loans. In particular, it did not provide a means to recognize more advanced risk
measurement techniques (Chairman of the Basel Committee; see Chapter 3).15 The
essence of the Institutes contribution to Basel II was to convey to the Basel Committee
the views of member institutions on the best ways to fine tune regulatory capital to
reflect risk. A centerpiece of this view was the desirability of allowing those firms
with sophisticated internal risk assessment and management models to determine
their own capital requirements rather than adhere to standardized official formulas. An
implicit premise of this approach was the notion that well run financial institutions
would generally take prudent and systemically benign capital management decisions in
their own best interests, rather than gamble with shareholder resources by skimping
on capital. The official task would then be to sort out which institutions met such cri-
teria, and to design more generalized formulas for those that did not.
The Institutes Working Group on Capital Adequacy continued its work following its
1993 report. By 1997, Tom de Swaan, Chairman of the Basel Committee (199798),
developed regular exchanges with the IIF on the next phase of reform. In 1998 his
successor, William McDonough, issued a call to arms to the Institute at an IIF dinner,
hosted by Bill Rhodes of Citibank. He said that the Basel Committee would be
launching a comprehensive Basel II project and that he would be looking to the
Institute to help shape it.
In March 1998 the Institutes Working Group on
Capital Adequacy published a blueprint for a post-Basel
accord. The Working Group was in touch with the official
sector throughout the drafting process. The report
called on the Basel Committee to recognize banks internal
credit-risk-modeling systems in determining regulatory
capital cushions tailored to real risk. It stressed that this
approach would be a win-win strategy for both the regu-
lators and the banks because it would instill a strong
incentive for banks to upgrade their risk management
capacity. The report suggested a tiered approach with
one tier that would permit banks meeting certain condi-
Tom de Swaan, then Chairman of tions to use internal models, and a second tier applicable
the Basel Committee
to banks that did not meet these conditions.

In the context of the 1980s there had been concern that the Japanese banks in particular enjoyed an unfair
advantage from being allowed to maintain low capital-asset ratios.
One of the most important dimensions of these advances was the move of banks toward a portfolio-based
approach to managing economic capital.

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It was of utmost importance to try to have a coordinated view of the global
banking industry in order to be able to discuss with the Basel Committee the
most important questions. In fact, the IIF has been the single platform to
forge a consensus between global banks about the key principles. And so it
has played a very important part in discussions with the Basel Committee.
Daniel Bouton, Chairman and CEO, Socit Gnrale

The report contributed to a shift in the thinking of the Basel Committee. The
Committees first consultative paper on a Capital Adequacy Framework, issued in
June 1999, incorporated several principles that were consistent with the Working
Groups views. The consultative paper proposed a Three-Pillar Approach that would
balance quantitative capital requirements (pillar one) with supervision (two) and dis-
closure (three). Chapter 3 judges that the proposed pillar approach was very much
along the lines the IIF had proposed, and that this favorable preliminary outcome
marked a turning point toward greatly intensified regulatory work by the Institute.
In July 1999, the Institute formed the Steering Committee on Regulatory Capital,
one of the most senior groups ever assembled by the Institute. It was initially chaired by
Jan Kalff of ABN AMRO, with Peter Godsoe of Bank of Nova Scotia as Vice Chairman.
Subsequently chaired by Daniel Bouton of Socit Gnrale (2003) and currently by
Stephen Green of HSBC (since 2005), with Tom de Swaan, currently with the Van
Lanschot Bankiers N.V., as Vice Chairman, the Steering Committee has met regularly
with the Basel Committee, and its working groups have met with their Basel
Committee counterparts.
The Basel Committee again issued consultative papers in January 2001 and April
2003. The IIF published formal reports in response to each. The Institute contributed
to a series of Basel Committee quantitative impact studies. Through its working groups,
the Institute compiled results of regulatory exercises on an anonymous basis and
delivered analytical reports to the Committee providing the consensus views of industry.


1980s the Institute pursued low-profile contacts with financial officials of G-10 coun-
tries and the international financial institutions through working groups of senior
bankers and experts from among its membership. In 1984, it formed the Working
Party on the Future of International Lending and in 1985 a related Baker Initiative
Committee. In 1986, the IIF Board appointed a Task Force on Long-Term Solutions
for reestablishing capital market access for middle-income countries by cooperative
action among creditor and debtor countries, international financial institutions, and
commercial banks. The Task Force issued a report in 1987 on Restoring Market
Access, and in January 1989 issued the widely circulated report entitled The Way
Forward for Middle Income Countries.
Also, in the course of the 1980s, the Institutes leadership initiated a process of
communicating the views of the global banking community on key policy issues of the

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day to the Chairmen of the IMFs ministerial-level policy body, the Interim Committee
(later the International Monetary and Financial Committee), and the World Bank-IMF
Development Committee. The first such letter was transmitted in the spring of 1985
under the signature of then Managing Director Andr de Lattre. Similar communications
followed in subsequent years, becoming a regular twice-yearly exercise to coincide
with the spring and fall meetings of the IMF and the World Bank.
Early policy letters focused on the management of the debt problems of the 1980s.
They reaffirmed the commitment of the global banking community to cooperate
with the public sector to support developing countries that were pursuing adjustment
programs; argued for voluntary, market-oriented mechanisms, such as debt-for-equity
swaps, for resolving debt problems; endorsed the menu approach adopted by Brazil
in its 1988 rescheduling; and called for a reversal in the decline of IMF lending during
that period. After the 1989 launch of the Brady Plan for collateralized debt reduction,
subsequent letters emphasized limits to what banks could do consistent with their
fiduciary responsibilities, and argued against IMF lending to countries in arrears as
counterproductive to systemic incentives.
In 1990 the Board of Directors adopted a new mission statement on an expanded
role for the Institute on policy issues affecting the international financial system, and
especially international banking. Within a year the IIF issued policy papers on building
free market economies in Central and Eastern Europe, expanding bank participation
in export and investment finance, financial sector reform, direct investment in Latin
America, and the inadvisability of official lending to countries in arrears.
The Institute further strengthened its scope for policy work in 1993 in selecting
Charles Dallara as its new Managing Director. As a former U.S. Executive Director of
the IMF, a senior official of the U.S. Treasury Department, and former Managing Director
at J.P. Morgan, he brought a strong combination of skills in policy formation and
experience in financial markets. He soon identified three pillars for the Institutes work:
continuation of analytical work on emerging market economies; work on global regu-
latory and banking issues; and collaborative work by the private financial and official
sectors on emerging-market policy issues. These areas of focus were proposed by Dallara
and approved by the Board of Directors at his first Board meeting in September of 1993.
The Institutes organizational structure and senior staff changed accordingly, although
the regulatory and emerging markets policy departments were relatively small.
The Institutes policy work in 199394 initially focused on collaboration with the
multilateral development banks (MDBs). The IIF sought to encourage MDB mechanisms
to achieve a synergy between private and official sector lending for sound development
projects, including loan guarantees. In 1994 the Inter-American Development Bank
(IDB) consulted with the IIF in the development of its new Private Sector Department.
In 1996 an IIF study group on the International Finance Corporation (IFC) called on
the IFC to avoid inappropriate competition with the private sector. By 1998 the IDB
launched a new program of guarantees reflecting IIF working group recommendations,
and Chapter 4 concludes that the main achievements of the IIFs work regarding the
MDBs was with the IDB.16
A side benefit was to enroll several MDBs as associate IIF members and strengthen ties through their relationships.

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Institute work on crisis avoidance and crisis management in the 1990s began in
the aftermath of the Mexican peso crisis. This first crisis involving mainly government
bonds rather than syndicated bank loans was not amenable to the 1980s formula of
reschedulings led by bank advisory committees. Led by the U.S. Treasury and the IMF,
the public sector stepped in with large liquidity support, which helped stem the crisis
but provoked charges that private bondholders were being bailed out at public
expense. The G-10 responded with a working party report on proper policies for
The Resolution of Sovereign Liquidity Crises (the Rey Report) issued in May 1996.
The report stressed the need for private-sector burden-sharing, rejected an interna-
tional bankruptcy mechanism, raised the possible need for broadening IMF lending
into arrears, and suggested incorporating restructuring clauses in bond covenants.
The Institute undertook a parallel study in a working group chaired by Deputy
Managing Director and Chief Economist William Cline. In September 1996, it issued its
report on Resolving Sovereign Financial Crises, which on several points was relatively
close to the G-10 reports views. However, it called for a delay of IMF disbursements
pending an agreement in principle with creditors on resolving suspended payments
(and opposed lending into arrears). The IIF report explicitly reaffirmed, nonetheless,
that the private sector does not seek or expect Mexico-type bailouts in the future.
As it turned out, its implicit expectation that large public lender-of-last-resort inter-
vention would no longer be necessary proved premature, as did the reports judgment
that the Mexican crisis had been unique and that the new capital market of the 1990s
was relatively immune to systemic defaults by developing countries.
Following the East Asian financial crisis, there were once again parallel strategy
reports from the official sector (from the expanded G-22 including both industrial
and major developing countries) and the IIF. The Institutes 1998 Steering Committee
on Emerging Markets Finance was co-chaired by William Rhodes (Citigroup and IIF
Vice Chairman) and Josef Ackermann (Deutsche Bank). The January 1999 report of
its Working Group on Financial Crises in Emerging Markets recommended that financial
firms increase the rigor of their stress-testing and scenario analysis; that authorities in
borrowing countries develop regular briefings for private investors; and that borrowing
countries consider market-based contingency financing arrangements from the private
sector. For crisis resolution, the report judged that for prompt restoration of capital
market access, the 1990s approach of large but temporary official support was prefer-
able to the 1980s approach of standstills, reschedulings, and concerted lending, as shown
by the successful results in Mexico, Korea, and Thailand. It attributed the failure of this
approach in Indonesia and Russia to lack of domestic political conditions for prompt
adjustment measures. The report fine-tuned traditional opposition to IMF lending
into arrears to allow exceptions where a broad spectrum of private creditors saw such
lending as a positive step. It recognized that individual countries might wish to incor-
porate collective-action clauses in bond offerings but opposed as counter-productive
any international attempt to make such clauses mandatory.
A centerpiece of the Steering Committees work was its focus on sovereign investor
relations. The Institute was among the first to disseminate the concept of investor
relations as a vehicle for avoiding crises. Based on the experience of Mexicos investor

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relations program created after its 199495 crisis, an IIF Policy Department note in
1999 outlined the elements of a strong investor-relations program. In 19992004, the
Institute organized meetings of G-10 and then G-20 international and borrowing-
country officials with representatives of the financial sector. In 2005, the Institute
published a report assessing investor relations and data transparency practices in the
30 largest emerging-market economies.
Chapter 4 identifies an important shift in the Institutes policy initiatives begin-
ning in 2001 in the light of what were essentially forced restructurings by Pakistan,
Ukraine, and Ecuador. These restructurings reflected public-sector pressure for private
sector involvement on a basis that seemed more involuntary and less cooperative
than the legacy of the 1980s debt strategy. In particular, Paris Club bilateral resched-
ulings were made conditional on unilateral restructuring of bond debt to the private
sector, although subsequent annual meetings of IIF member representatives with
Paris Club officials contributed to more cooperative approaches.
In early 2001, at the urging of IIF Chairman Sir John Bond, the Institutes emerging
markets policy staff began working with member firms to spell out principles on
restructuring. The Institute launched a new high-level Special Committee on Crisis
Prevention and Resolution, again co-chaired initially by Rhodes and Ackermann. At
the same time the Institute inaugurated its Equity Advisory Group (EAG), chaired by
Frank Savage of Savage Holdings (then Chairman of Alliance Capital International)
and David Salisbury, formerly with Schroders Ltd. The formation of the EAG reflected the
growing importance of fund and other asset managers within the Institutes member-
ship and the need for a new focus on equity capital flows as well as debt to emerging
markets. A year later the EAGs working group report on Policies for Corporate
Governance and Transparency in Emerging Markets emphasized rights of minority
shareholders, responsibilities of boards of directors, transparency and disclosure, and
adherence to internationally recognized accounting standards. Over the next four
years the Institute issued country assessments of corporate governance practices for
nine major emerging market economies.
Unilateral default by a new government in Argentina at the end of 2001, and the
public sector debate on the proposed Sovereign Debt Restructuring Mechanism (SDRM),
spurred heightened IIF activity on crisis resolution. In June 2002, for the first time, the
Institute issued a joint statement with five other financial-industry associations, setting
forth principles for restructurings (including greater use of collective action clauses).
The group subsequently developed model bond clauses and a code of conduct for
creditors, debtors, and international institutions in crisis prevention and resolution.
In September 2002, Bank of France Governor Jean-Claude Trichet suggested that
an informal code of conduct be embraced by both the public and private sectors. The
Institute enthusiastically welcomed and pursued the idea. Former IMF Managing
Director Jacques de Larosire (then at BNP Paribas) became Co-Chair of the Special
Committee following Ackermanns assumption of the IIF Board chairmanship. Key
support for the work of the Special Committee also came from Mexicos Finance
Minister, Francisco Gil Daz and Brazils Central Bank President, Arminio Fraga.

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Sir John Bond, former Chairman, Jean-Claude Trichet, then Francisco Gil Daz, then
IIF Board of Directors Governor, Bank of France Minister of Finance, Mexico

In his policy letters in 2002 and 2003, IIF Managing Director Dallara opposed an
SDRM or other statutory approaches to restructuring. The Institute made vigorous
efforts to oppose the SDRM, which most of its members considered to be ill-advised
and potentially undermining the rights of private investors in emerging markets. By
February 2003, Mexico launched its first sovereign bond issue (under New York law)
containing a collective action clause, at no apparent borrowing-rate penalty. Eleven
other emerging market governments also did so during the course of the year. The
opposition of Mexico and other key borrowers to an SDRM, for fear that it would be
counterproductive to the borrowing ability of creditworthy economies, contributed
to growing opposition to the proposal. By May 2003, the new U.S. Treasury Secretary,
John Snow, stated that the SDRM was unnecessary and infeasible.
Intense work in 200304 following up on the Trichet suggestion led by the end of
2004 to an agreement between financial industry associations and representatives of
major emerging market economies on Principles for Stable Capital Flows and Fair
Debt Restructuring. These outlined a mechanism for dialogue and cooperation to
help avoid full-blown crises, and rules of engagement for creditor-debtor negotiations
when debt restructuring could not be avoided. Chapter 4 notes the Principles frame-
work constitutes arguably the most important improvement in systemic architecture
since the 1989 Brady Plan. Indeed, the approach was unique in that it involved an
unprecedented collaboration between the investor and creditor community and the
sovereign issuers community.
Key emerging market partners in the development of the Principles included
financial officials from Brazil, Mexico, Turkey, and Korea. As support for the SDRM
waned, the G-7 gradually came around to support the voluntary code of conduct or
Principles. A crucial step in international support for the proposal was the statement
by the G-20 industrial and emerging market countries welcoming the Principles in a
press release issued in Berlin on November 21, 2004. The Principles were then imme-
diately released in a press conference in Washington. On the latter occasion, Mr.
Francisco Gil Daz, Minister of Finance and Public Credit of Mexico, noted:

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These Principles provide a framework for cooperative actions by debtors
and creditors which should strengthen emerging markets finance and underpin
flows to these markets. They can contribute significantly to avoiding crises
and, when necessary, facilitate a timely, orderly restructuring of debt. We see
these Principles as complementary to the introduction of Collective Action
Clauses in bond contracts, which we have included in our new bond issues
since early 2003. We encourage other issuers and market participants to
embrace this initiative in order to extend its effectiveness in global markets.

The IIFs lead financial sector partner was the International Primary Market
Association, although a number of other associations had also been involved in the
development of the Principles, including the Emerging Market Traders Association.
By 2005 work on the Principles shifted to broadening the base of support and to
implementation. A number of other emerging market sovereigns embraced the approach,
including Indonesia, India, China, and South Africa. A number of major official cred-
itor institutions also affirmed their support for the Principles. IMF Managing Director
Rodrigo de Rato welcomed the Principles as a positive step in crisis prevention and
resolution, noting that although they had not been tested yet, at the minimum, the
Principles could help guide expectations about the conduct of debtors and creditors
when seeking to overcome unsustainable debt.17 Support from a growing number of
global banks was also offered.
In carrying out the Principles, country analysis by IIF staff was to identify short-
comings in investor relations and data provision, as well as warning signs of vulnera-
bility. A prominent Group of Trustees was formed to review implementation of the
Principles. This was co-chaired by European Central Bank President Jean-Claude Trichet,
Brazils Central Bank Governor Henrique Meirelles, and former Japanese Vice-Minister
of Finance and Chairman of Bank of Tokyo Toyoo Gyohten. By 2006, the Institute
was convening various meetings on implementation of the Principles involving rep-
resentatives from issuing countries, senior executives from financial firms, and officials
from creditor countries and multilateral institutions. In April 2007, a roundtable on
Deepening Access to International Capital Markets: the Roles of Issuers and Investors,
brought together senior officials from a range of countries as well as a diverse group
of market participants. Also participating were the President of the European Central
Bank, Jean-Claude Trichet, and the International Monetary Fund Managing Director,
Rodrigo de Rato. On this occasion, broad support was expressed for the Principles,
and progress to date toward their adoption by issuers and investors was welcomed.

MEETINGS AND TRAINING PROGRAMS (CHAPTER 5) This historical perspective

concludes by reviewing the growing importance of international events, meetings,
and training programs in the Institutes work. The chapter provides further depth in

Speech at the IIF Spring Membership Meeting, Madrid, April 1, 2005.

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describing many of the trends in the Institutes evolution already discussed in this
initial summary, and adds numerous vignettes on contributions by leading personalities.
Unquestionably, the Institutes most conspicuous meetings are its semi-annual full
membership meetings. These began as intimate events, sometimes held on Institute
premises, and have grown to large gatherings with two days of substantive presentations
capped by gala functions that attract up to 800 members and guests. Speakers at these
events have constituted a Whos Who of international financial policymakers and
leaders of the global financial industry. Venues have included the elegant and historic
Prague Castle, Shanghai, Athens, Singapore, Dubai, and Madrid (see Chapter 5).
Citigroups Bill Rhodes has observed that these IIF global membership meetings
have contributed to a widespread perception of the IIF as the leadership organization
of its kind, while stressing also the importance of the IIFs regional meetings around
the world (which) in many ways are the heart and the soul of our full agenda of
eventsthey are greatly appreciated by the members. An important example is the
set of regional meetings of chief executive officers (CEOs) that have evolved over the
last 11 years. The Institute launched these meetings to help its emerging market members
develop regional consensus views. It has held regional CEO roundtables, occasional
forums for exchange of views between regional financial firms and their supervisors,
forums on regional risk management for chief risk officers, and open programs
bringing the Institutes work to wider groups. Regional bank CEO meetings were
first held in 1996 in Central Europe and in 1997 in the Middle East and North Africa.
Regional meetings began in Latin America and in Asia in 2000. These meetings con-
tinue to be held annually. The Institute created working groups of chief risk officers
in these regions to help emerging market institutions prepare for the transition to
Basel II and to provide a forum for the articulation of regional views.

The Institute of International Finance at 25 is a robust organization that has become
an important part of the infrastructure needed for a well-functioning international
financial system. The Institute was born just before the onset of the debt crisis of the
1980s, when it provided urgently needed information and analysis on debtor countries
to the banking sector, thereby contributing to responsible collective action that not
only helped avert a major international banking collapse but also provided time for
countries to adopt programs of reform and adjustment. Since then, the Institute has
evolved to meet the changing requirements of the times. It has provided a unique
network of expertise as an input to global regulatory reform. It has provided responsible,
market-based, and realistic industry inputs into the development of international
policy on the prevention and resolution of financial crises. The Institutes central role
in developing the innovative mechanism for country dialogue among issuers, creditors,
and other stakeholders within its Principles for Stable Capital Flows and Fair Debt
Restructuring could prove to be a particularly important contribution to the global
financial architecture.

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Howard Handy, Abdelatif Al-Hamad, Ibrahim Dabdoub and Yusuke Horiguchi with distinguished guests at the
Middle East/North Africa Forum in Kuwait in 2006

The Institutes rigorous analytical work on emerging market economies provides

its membership with an important shared resource for the management of risk and
evaluation of investment opportunities, and on occasion has contributed to improving
the economic policies pursued by some of these economies, including macroeconomic
policies, data transparency, and better investor relations. The evolution of the Institutes
membership has also tracked the changing reality of increased involvement of non-
bank financial institutions in emerging markets finance, and of the rising relative
importance of emerging market economies and their financial institutions in the
international economy.
Like a well-functioning international trade regime, a well-functioning system for
international capital flows can make, and has made, an important contribution to
improving living standards for the four-fifths of the worlds population living in
emerging market economies and other developing countries. There is every reason to
anticipate that in the coming decades the Institute can continue to play, and further
strengthen, its constructive role in the international financial system, serving not only
its member institutions but the global community at large.

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Governor Zhou Xiaochuan and William Rhodes at the 2004 Spring Rodrigo de Rato, Managing
Membership Meeting in Shanghai Director, IMF

John Snow, former U.S. Josef Ackermann with H.E. Kazimierz Marcinkiewicz (then Prime
Secretary of the Treasury Minister, Poland) and Dr. Ngozi Okonjo-Iweala (then Finance Minister,
Nigeria) at the 2006 Spring Membership Meeting in Zurich

Chansy Phosikham, Tran Xuan Ha, Tharman Shanmugaratnam and

Sri Mulyani Indrawati at the ASEAN Finance Ministers Forum, 2006
Annual Membership Meeting in Singapore

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2 Economic Work
of the Institute


hroughout its history the Institutes core responsibility has been to provide
its members with ongoing economic analysis and data on developing coun-
tries, especially on their external debt. At the founding meeting at Ditchley
Park, near London, in May 1982 (see Chapter 1) the focus was on the difficulty
banks have in determining just how much any country has borrowed given that the
banks do not trade such information among themselves, and that the countries
themselves often had no satisfactory information about the amounts they have bor-
rowed or when their debts would mature.1 From the outset it was expected that the
Institute would send teams to overseas countries to assess the state of the economy,
make suggestions and prepare reports for distribution to Institute members.2
The Institute was incorporated in January 1983. Its Articles of Incorporation
included in its purposes:

to collect, analyze, and disseminate information regarding the economic

and financial position of particular countries which are substantial borrowers
in international markets so as to provide the members with a better factual
basis on which each member independently may analyze extensions of credit
to borrowers in such countries3

Robert A. Bennett, Bankers Said to Plan Meeting on World Debt, New York Times, [c. Oct 1982].
Paul Taylor, Banks to Establish Commercial IMF to Monitor Lending, Financial Times, [c. Oct 1982]
Articles of Incorporation of the Institute of International Finance, January 11, 1983, Art. 3.

E W I |
John Woodley Anthony Bottrill William Cline Yusuke Horiguchi

Although the Institute began with only 38 relatively large banks as members, within
two years its membership included nearly 200 commercial banks. Most of these did
not have the in-house staff to provide the information and analysis on developing
economies that by then was crucial in light of the challenges of resolving the Latin
American debt crisis. The official agencies and the IMF in particular had such a
capacity but their reports were typically confidential, and public sector interests
inherently did not fully coincide with those of the private lenders.
By 1987 the Institute was monitoring a long list of countries: 12 in Africa and the
Middle East, 11 in Asia and the Pacific (including Australia), 9 in Europe (including
East Germany and Portugal), and 16 in Latin America.4 In an organizational structure
that has remained unchanged, a Director for each of these four regions has typically
supervised the work of some three economists, and the Deputy Managing Director
has supervised the work of the department as a whole (which has also included a
cross-country research unit).5 This structure has meant that, typically, one economist
was responsible for covering three or four economies.
Another enduring feature of the economic work has been the importance of the
country visit to the Institutes analysis and reports. In a visit typically lasting up to
one week, the country economistoften jointly with the regional Directorconducts
interviews with officials and local private sector economists and bankers. These dis-
cussions enrich the diagnoses and forecasts in the country report and provide a vehicle
for feedback from the private financial sector to officials in finance ministries and
central banks of the countries covered. The country visits have also provided access
to data (such as detailed fiscal accounts) not otherwise availablealthough the move
of many emerging market economies toward publishing economic data on official
websites, which began in the late 1990s, has tended to shift the balance of mission
work from emphasis on such fact-finding toward discussion and diagnosis.
A range of country-specific reports have been issued by the Institute over the past
20 years. The full country report is typically the result of a country visit and contains
a review of economic trends; an analysis of macroeconomic, trade, and exchange rate
Annual Report, 1987.
Deputy Managing Directors for the economic work of the Institute have been Horst Schulmann (198486),
W. John R. Woodley (198788), Anthony R. H. Bottrill (19891995), William R. Cline (19962001), and
Yusuke Horiguchi (2003-present, as First Deputy Managing Director). Howard Handy served as Acting
Deputy Managing Director throughout 2002.

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BY REGION: Tier 11 Tier 21 Tier 31
ASIA China Philippines Indonesia Malaysia Pakistan
India Thailand
EUROPE Hungary Russia Bulgaria Romania
Poland Turkey Croatia Slovakia
Czech Republic
LATIN AMERICA Argentina Mexico Chile Peru Costa Rica Panama
Brazil Colombia Venezuela Ecuador Uruguay
AFRICA/ South Africa Egypt Israel Algeria Kenya Oman
MIDDLE EAST Bahrain Kuwait Qatar
Cte dIvoire Lebanon Saudi Arabia
Iran Libya Tunisia
Iraq Morocco UAE
Jordan Nigeria
Country Report 2 2 1
Outlook Update 23 Occasional Occasional
Special Briefing Issued as warranted Issued as warranted Issued as warranted
for each country for each country for each country

Tier classification reflects interest and importance of countries to IIF member firms.
Actual reports issued in 2006 included 54 Country Reports, 4 Regional Reports, 20 Outlook Updates, and 22
Special Briefings. All reports are available to members on the IIF website ( or in hard copy by request.

policies; an assessment of political stability; and a full database and economic forecast.
The country update is typically briefer and not based on a mission. The special briefing
introduced in recent years is a note focused on a key new development (such as the
introduction of capital controls in Thailand or the implications of the election of a
leftist government in Bolivia). The economic work has also included an array of cross-
country and regional analyses and briefings.
Both the content of the economic report and its geographic coverage are adopted
and fine-tuned from time to time by the Institute, in consultation with the member-
ship. The IIFs current country coverage and frequency of reports is given in Box 3.
Taken as a whole, over the years the Institutes country economic work has provided
a major increase in the analysis of developing economies available to the private sector
compared with what was available prior to the creation of the Institute. This flow of
analysis has provided economies of scale and afforded members far greater coverage
of these economies than would have been feasible in-house for all but the very largest
of them. Even some of the largest financial institutions have found that the Institutes
economic work has permitted them to maintain leaner within-firm economics staffing
than otherwise would have been necessary. In addition, through the semi-annual
meetings of the Economic Advisory Committee, the Institutes economic team has
maintained close contact, and exchanged ideas on an ongoing basis, with the leading
emerging-market economists in member firms, and in this way has been better able to
keep apprised of private sector sentiment than otherwise might have been the case.

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The Institutes economic research and analytical work on key emerging markets
has a well-deserved reputation for objectivity, independence and analytical
rigor. It provides essential input for our members risk management and
business strategies.
Josef Ackermann, Chairman, IIF and Chairman, Management Board and the Group Executive
Committee, Deutsche Bank AG

The IIF country database warrants special mention in an overview of the economic
work. The early emphasis on developing data on external debt has remained a central
feature of the work. Country economists take great pains to arrive at consistent esti-
mates on external debt, often going beyond the published government or international
institution data to arrive at more meaningful estimates through rigorous evaluation
of balance of payments and other data. The standard country database contains annual
series on GDP aggregates, prices, exchange rates, external trade and balance of payments,
external financing by type (direct investment, equity, bilateral assistance, lending by
official creditors and international financial institutions, commercial banks, and other
private creditors), external debt by creditor and by public versus private sector bor-
rowers, short-term versus long-term external debt, amortization paid and interest due,
the profile of trade by principal commodities, fiscal balances, and monetary indicators.
The country databases and forecasts in turn provide the detailed information needed
for the aggregate regional and global capital flow estimates and projections, a widely
recognized hallmark of the Institute that is made available to the general public.


1980s DEBT CRISISThe convening of the original Ditchley meeting in May 1982
was prescient because the Latin American debt crisis was not yet underway. Poland
had experienced debt-servicing difficulties in 1981, and major international banks had
agreed on a rescheduling. However, in November of that year, Polands declaration of
martial law and the resulting suspension of official export credits by industrial countries
(Paris Club) made further bank rescheduling likely. There was more than Poland to
talk about, however. Argentinas exchange rate anchor had collapsed in 1981, bringing
high inflation and recession, and the military governments invasion of the Falkland
Islands in March 1982 boded ill for that countrys international financial relations.
More broadly, however, several other heavily indebted developing countries were
also on the brink of crisis. In the late 1970s, large capital flows to these economies had
helped sustain their growth despite higher oil-import costs owing to OPEC oil price
shocks. And this process, whereby the financial surpluses of the oil-exporting countries
were recycled to developing countries via the industrial country banks, was endorsed
by industrial country policymakers. The advent of syndicated bank loans with a spread
above a floating interest rate based on LIBOR (London Inter-Bank Offer Rate) had
brought about the institutional change necessary to enable these capital flows. There
had been a long-standing freeze in international bond markets as a consequence of the

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widespread bond defaults of the 1930s. The surge of
international interest rates to the high teens as the
Volcker shock (a monetary contraction introduced by
U.S. Federal Reserve Chairman Paul A. Volcker) sought to
curb U.S. inflation meant, however, that the burden on
indebted countries from floating interest rates soared.
Then, in 1982, exports also faltered, as the United States
and other major economies entered into the worst global
recession since the 1930s.
In August 1982, Mexico suspended payments on
external debt. The shock to market confidence contributed
Paul A. Volcker, former Charman to a reduction in new lending to Brazil, which already had
of the Board of Governors, U.S. a large current account deficit and high ratio of external
Federal Reserve
debt to exports. As Mexico and soon Argentina and Brazil
entered acute payments difficulties in late 1982, crisis management depended on decisive
actions by such officials as U.S. Federal Reserve Chairman, Paul Volcker, his U.K. coun-
terpart Gordon Richardson, IMF Managing Director, Jacques de Larosire, U.S.
Treasury Secretary Donald Regan, Citibanks Bill Rhodes in his leadership of the bank
advisory committees, and top financial officials in the debtor countries, including
Mexicos Jesus Silva Herzog and Brazils Affonso Celso Pastore.6
By December, international financial rescue packages had been put in place for both
Mexico and Brazil. These involved the rescheduling of principal coming due and new
lending by the banks amounting to about $5 billion for each of the two countries.
Commitment to this lending was the precondition for IMF support which, together with
support from the BIS and the U.S. government, constituted a package of new official
sector lending that was larger in volume but shorter in maturity. It was in this intense
period during the initial outbreak of the Latin American debt crisis that representatives
of 31 major banks met and agreed on formation of the IIF (see Chapter 1).
The debt crisis was a classic case of the need for collective action. Acting together, the
lenders could provide sufficient support to give time to countries to pursue adjustment
programs, with the prospect of eventual servicing of their debt. If instead all players
sought to exit lending immediately, their attempts to do so would force default and
entail inevitable losses to creditors. The stakes in successful collective action were high.
The banking systems in several industrial countries were at risk from the Latin American
debt crisis. The 13 largest U.S. banks had combined exposure to five Latin American
economies (Argentina, Brazil, Chile, Colombia, and Venezuela) amounting to $54 billion,
or 158 percent of their capital.7 Exposure to 17 heavily indebted developing countries
amounted to 130 percent of capital of all banks in the United States, 135 percent for
French banks, 45 percent for German banks, and 85 percent for U.K. banks.8 Large
For a discussion of behind-the-scenes crisis management in this period, see James M. Boughton, Silent Revolution:
The International Monetary Fund, 19791989 (Washington: International Monetary Fund, 2001), chapters 78.
William R. Cline, International Debt: Systemic Risk and Policy Response (Washington: Institute for
International Economics, 1984), p. 24.
End-1982 for United States and United Kingdom, end-1984 for France and Germany. William R. Cline,
International Debt Reexamined (Washington: Institute for International Economics, 1995) pp. 7282.

E W I |
Japanese banks also had major exposure. If there had been a sudden loss of, say, two-
thirds of the value of bank claims on developing countries facing debt problems
through forced forgiveness (about the percentage loss imposed by Argentina on its
creditors in 2004), the heart of the U.S. and international banking systems would
have been bankrupt.
Global economic conditions would then surely have become far worse than they
already were as a result of the most severe world recession since the 1930s. Indeed,
eight years later, the Chairman of the IIF stated in the Annual Report for 1990 The
Institute was created in 1983 in response to one overriding issue in the banking industry
a possible breakdown in the financial system resulting from the sovereign debt problem.
The rescheduling of long-term loans coming due; the extension of additional
new money through concerted lending in close coordination with financing by
the IMF, the World Bank, and the Inter-American Development Bank; and the parallel
adoption of policy reforms within the debtor countries became the basic strategy for
managing the crisis for most of the 1980s. With its membership of banks from around
the world with exposure to international loans, the Institute was well positioned to
serve as a sounding board for bank views in developing the debt strategy. The gover-
nance structure of the Institute ensured that the views of the intermediate and smaller
banks were heard at board meetings, as well as those of the large banks. The number
of banks in the Institutes membership had soared from 38 founding members in
January 1983, to 188 large and small banks headquartered in 39 countries by mid-1984.
By then, members included banks with 80 percent of total international banking
exposure to developing countries. Seventeen of the 20 international banks eligible at
the Group I level (more than $20 billion in international exposure) were members,
and more than 70 percent of those eligible at the Group II level ($1 billion to $20
billion in international exposure) were members.9
The primary leadership among the banks in shaping the country-specific resched-
ulings and new lending in the early phase of the debt crisis was provided by the bank
Advisory Committees, typically some 15 or so lead banks most directly involved in
Andr de Lattre, recounts in his memoir that in early 1984 (when he was Managing Director) the Institute con-
vened a working party of about 50 banks from the IIF membership to review the debt problem. At the meeting,
no one believed in the miracle plans [such as assumption of the debt by creditor countries or by existing or
new international organizations]. There was no other possible strategy than that of rescheduling on a case by
case basis, supported by strict conditionality and reserving the most favorable treatment for the debtors that
made the most serious adjustment efforts. He notes that, Only a single question seriously divided the group
the question of the small banks. He judged that of the 567 banks that had signed the rescheduling agree-
ment with Argentina, some 350 had no normal business in developing countries and had become caught up in
that activity only through syndicated loans led by the large banks. He proposed that, we should quickly help
them disengage from their loans, inviting them to do so with a sharp discount, to concentrate the negotiations
among a much more limited number of banks truly concerned. Although many representatives of large banks
agreed, others argued that the largest possible number of banks involved would give the greatest weight to the
defense of creditors, and that it was important to have everybody on board. Notably this was the view of Bill
Rhodes of Citibank, then Chairman of the Advisory Committees for several of the largest debtor countries. The
working party thus chose to reject the idea of an exit-vehicle for the small lenders. de Lattre notes that in
later years in the 1980s many medium and small banks, notably the regional U.S. banks, did disengage through
selling their loans at a loss on the secondary market. Andr de Lattre, Servir aux Finances (Paris: Comit pour
lHistoire conomique et Financire de la France, 1999), pp. 33436. See also, Walter Sterling Surrey and Peri
N. Nash, Bankers Look Beyond the Debt Crisis: The Institute of International Finance, Inc., Columbia
Journal of Transnational Law, vol. 23, 1984, pp. 111130.

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James A. Baker III, former Barry Sullivan, former Nicholas F. Brady, former
U.S. Treasury Secretary Chairman of the Board, IIF U.S. Treasury Secretary

lending to the country in question. The Institute also contributed to articulating the
banking sectors views on the evolving debt strategy, as illustrated by its reaction to
announcement of the Baker Plan. In early October, 1985, U.S. Treasury Secretary
James Baker called for coordinated new bank lending of $20 billion to 15 heavily
indebted countries over three years, linked to intensified adjustment efforts in the
debtor countries and further support from the international financial institutions.
Later that month the Institute convened a meeting of 58 creditor banks with officials
from the IMF, the World Bank, and U.S. Treasury Under Secretary David C. Mulford to
discuss the Plan. The Institutes press release following the meeting indicated that the
participants had welcomed the idea of a coordinated approach, although IIF
Managing Director Andr de Lattre noted that no public commitment was being
made at this time.10
In the process of concerted bank lending, coupled with strengthened country
adjustment programs and additional official financing, some of the smaller banks with
less exposure relative to their other business found it tempting to refuse to participate.11
Over time, especially as the secondary loan market developed, the approach of debt
rescheduling and new lending broadened to a menu that also included alternative
means of participation, such as debt-equity swaps and buybacks.
Reflecting the role of the Institute in meeting these challenges, Chairman Barry
Sullivan observed in the 1987 Annual Report: Each year brings greater strains on the
cohesion of the banking community on core issues pertaining to the debt problem.
This past year proved that the Institute can be instrumental in building consensus
and influencing policy debate. In the 1988 Annual Report, Managing Director Horst
Schulmann referred to the report of the 198688 Task Force on Long-Term Solutions
to the debt problem with emphasis on restoring capital market access. Published in
January 1989, as The Way Forward for Middle-Income Countries, the report endorsed
Boughton, p. 425.
As a contemporary observer put it: At the present time, private commercial banks are not unanimous in
their willingness to continue restructuring existing debts and providing new money financing for the devel-
oping countries. Many of the smaller banks now feel that they should not have tried to play ball with the big
boys, particularly when only the big boys knew all the signals. (Surrey, 1984, p. 130.)

E W I |
the concerted case-by-case approach based on policy reforms, new lending and vol-
untary debt conversion. The Report also included an analysis of debt-for-equity
swaps, which, it was estimated, had cut the face amount of bank debt by $26 billion
in 198588 and stimulated associated direct investment.
After nearly a decade, the Latin American debt crisis moved toward resolution
with the shift in strategy from the Baker Plan of concerted lending to the Brady Plan
of moderate debt forgiveness, combined with partial guarantees of restructured debt
and another phase of reform.12 The move by some leading banks, especially Citibank,
to set aside much higher loan-loss provisions by 1987 and thereafter (in part in response
to Brazils aggressive default in that year) had paved the way for this shift, as well as
for the earlier debt-for-equity swaps. More fundamentally, in many countries, including
bellwether Mexico, there was a growing political call for the sharing of the burden
of adjustment by creditors. There was also growing sympathy among U.S. and other
industrial country legislators and political leaders, including U.S. President George
H. W. Bush and Treasury Secretary Nicholas Brady, for such a solution.
In part, the need to move from rescheduling to debt reduction reflected the presence
of an internal transfer problem of fiscal pressure from the servicing of a given amount of
dollar debt costing much more in domestic currency after devaluations, even as the exter-
nal transfer problem began to ease from growth of exports. The extent of the eventual
Brady debt reductions was typically about 35 percent. Nonetheless, both Columbia and
Chile avoided any debt forgiveness whatsoever (to their later benefit in lower risk spreads
in international borrowing), even though they had had higher debt burdens than some
other countries that did receive debt reductions, such as Venezuela. This distinction
reflected a difference in the political will to maintain a strong credit reputation.
The 1989 transition to the Brady Plan appears initially to have caused severe mis-
givings among the membership and in the leadership of the Institute because of the
tilt toward less voluntary debt reduction. At the outset leading bankers from the United
States and Europe vociferously opposed the launch of the Brady Plan. Nevertheless,
the U.S. Treasury persisted with the plan, led by
Secretary Brady, strongly supported within the Treasury
by Under Secretary Mulford and Charles Dallara and
outside the Treasury by the Japanese and the IMF in
particular.13 During this time a few leading U.S. bankers,
including Bill Rhodes of Citigroup, and Rod Wagner of
J.P. Morgan, met with the U.S. Treasury and urged that
in impending debt reduction, emphasis be placed on an
orderly process. By July 1989, Mexico had negotiated the
first debt reduction agreement under the Brady Plan.
Some months later in the Institutes Annual Report
for 1989, the Chairman decried the new policy of the IMF
David C. Mulford, then
U. S. Treasury Under Secretary of providing lending even if a country stood in arrears
The two successive strategies were named for U.S. Treasury Secretaries James A. Baker III and Nicholas F. Brady.
Within the G-7, support from the Japanese for the Brady Plan was crucial, led by Vice Ministers of Finance
Toyoo Gyohten and Makoto Utsumi.

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to banks (lending into arrears) so long as the country was engaged in good-faith
negotiations. He called for a reversal of this policy as a means of reestablishing creditor
unity. The Managing Director observed: The new strategy raises awkward questions
when measured against its ultimate objective of assisting heavily indebted middle-
income countries to become more competitive and to repair their creditworthiness.
As the decade closed, the opening up of the former Soviet Bloc represented new
opportunities for the private sector and new responsibilities for the economic work of
the Institute, especially the need to extend reporting and assessments to a large number
of new countries. The Institute also formally recognized that its mandate warranted a
broadening of its functions to include greater use of the Institute as a forum to address
the increasing number of issues that potentially have major long-term effects on inter-
national banking. In 1986 it had already recognized such a role in seeking consensus
on management of the debt crisis. The subsequent years would show that the most
important area for consensus seeking on non-debt financial policy issues would be in the
area of revised capital requirements under the Basel II accord. Nonetheless, despite the
broadening of the policy mandate, the Board confirmed that economic analysis of
major borrowing countries would continue to be the primary role of the Institute
(Annual Report, 1990).

THE EARLY 1990s AND EMERGING MARKETSThe Brady Plan paved the way
for more normal relations of the major developing economies with foreign creditors.
Banks were no longer the sole source of major lending, however. The debt crisis had
tended to make the banks wary of long-term sovereign loans, and they tended to
focus on shorter-term trade credit. By the mid-1990s two new major alternative
sources of external funding were emerging: bonds and portfolio equities.
Long moribund since the defaults of the 1930s, the bond market received a strong
impetus from the conversion of tens of billions of dollars of bank loans into Brady
bonds, whose principal was guaranteed by U.S. Treasury zero-coupon bonds.14 The
Brady bonds were then tradable in the financial markets. Moreover, the exclusion of
bonds from the reschedulings of the 1980s, primarily because of the small amounts
of bonds outstanding at that time, conveyed the impression that bonds were senior to
bank claims in case of trouble. By the end of the decade, this perception was proved
wrong by recourse to bond restructurings in Pakistan, Ukraine, Ecuador (where even
Brady bonds were reopened for further debt reduction), and, most dramatically,
Argentina. Developing country stock markets were also emerging, as the capital
controls associated with the 1980s debt crisis began to be lifted.
Even as the ink was still drying on some of the major Brady deals (199394 for
Argentina and Brazil), capital flows to the middle-income countries began to surge,
in part because of low interest rates in the United States following the 1991 recession.15
For the two-dozen major emerging market economies, bond and other non-bank

Financing for debtor countries to purchase the collateral was provided from a large pool of funds set aside
by the IMF, the World Bank, and the Japanese Export-Import Bank.
The rate on 10-year U.S. Treasury bonds fell from an average of 8.5 percent in 198790 to 6.4 percent in
199193 before rebounding to 7.8 percent in 1994a rebound that contributed to the Mexican crisis.

E W I |
credits rose from net inflows of less than $10 billion annually in 198890 to about
$30 billion in 1991, $50 billion in 1992, and $75 billion in 1993.16 Reflecting this
trend, the economic work of the Institute was increasingly being used by investment
banks and other non-bank financial institutions. For example, the number of U.S.
non-bank (associate) members in the Institute rose from 4 in 1987 to 15 by 1993,
and by then most of the large investment banking houses were members.
The Institutes evaluation of the Brady Plan mellowed in the face of these positive
developments and the changing attitudes of its members, many of which were beginning to
benefit from the new business opportunities in emerging markets. By 1990, a number
of senior bankers were quietly acknowledging the necessity of the Brady Plan. In the
1993 Annual Report, the new IIF Managing Director, Charles Dallara, noted: Banks con-
tinued to make progress in negotiating agreements on debt relief for troubled borrowers
and that deals recently agreed with Brazil, Bulgaria, Ecuador, and Poland might bring
the total face value of restructured claims of major borrowers to about $110 billion.
As indicated above, Dallara had been a senior U.S. Treasury official under both
Secretaries Baker and Brady, and had played an instrumental role in the shift in
policy from the plan named for the former to that named for the latter.
Just as capital market access for the major developing countries was taking on new
life, howeverwith net private flows to major emerging market economies rising from
$73 billion in 1991 to $175 billion in 1994the Mexican peso (Tequila) crisis placed
a temporary chill on the market. The run-up to the signing of the North American
Free Trade Agreement (NAFTA) had spurred large inflows of direct investment and
other capital to Mexico, which had contributed to a large current account deficit of
8 percent of GDP. In 1994, the first year of NAFTA, a sharp rise in U.S. interest rates
combined with successive Mexican political crises (including assassination of the
leading presidential candidate) and growing market doubts about the large external
deficit and the fixed exchange rate regime led to a sharp loss of reserves and difficulty
in renewing dollar-indexed government debt (tesobonos). Yet the nearly fixed
exchange rate made external adjustment difficult. The leadership of the Institute had
engaged in a dialogue with the outgoing Mexican economic team in late 1994,
encouraging them to devalue or float the exchange rate, but the team was divided over
the wisdom of this move and concerned that devaluation might imply failure for the
otherwise creditable policies of the Carlos Salinas administration.
By early 1995, Mexicos new government had been forced to abandon the exchange
rate anchor, and with a steep devaluation there were large losses by foreign holders of
short-term government paper paying high interest rates in pesos (cetes). The first
international financial rescue package of the 1990s was quickly mounted, led by the
U.S. government. This time the debts in question were mainly attributable to govern-
ment bonds and bills held by a myriad of dispersed investors, so there was no repeat
of the bank reschedulings and concerted lending of the 1980s.

IIF, Comparative Statistics for Emerging Market Economies, December 1998, p. 70.

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LATE-NINETIES: FROM BOOM TO CRISISSuccess in managing the Mexican
crisis, together with a retreat in U.S. interest rates, spurred net foreign private capital
flows to emerging markets to new heights of over $300 billion by 1996.17 After severe
increases in risk spreads to over 1,000 basis points in Mexico and Argentina in early
1995, by the second quarter of 1997 Latin American Eurobond spreads steadily declined
to a tightly bunched average of 170 basis points for Argentina, Brazil, and Mexico,
and only about 75 basis points for Chile and Colombia. The decline in emerging
market spreads was part of a broader phenomenon of falling risk premiums, as
spreads also fell on high-yield corporate bonds in the U.S. market (from an average
of about 580 basis points at the outset of 1995 to about 430 basis points by June 1997).18
The 1996 boom was so robust and the decline in spreads so substantial that the
Institute was becoming increasingly concerned about froth in emerging markets. In
March 1997, at a press conference at the Barcelona meeting of the IDB, IIF Vice-
Chairman Bill Rhodes and Managing Director Charles Dallara expressed concern
that emerging capital markets had become overly exuberant and risk spreads unduly
narrow. The April 1997 report on Capital Flows to Emerging Market Economies sug-
gested: Spreads are so thin in some cases as to raise the question of whether the
underlying risk is being adequately compensated in all cases. Statistical work then in
progress by the IIF economic research team, published only by December when it
looked less prescient but more validated by experience, estimated that spreads fell
more than can be explained by improved economic fundamentals, as measured by
standard variables such as economic growth, inflation, and debt ratios.19
Concern about unduly thin risk spreads turned out to be warranted, as 1997 saw
the emerging markets boom turn to bust, this time starting in East Asia with run-offs
in short-term loans. The crisis began in Thailand. The IIF country report on Thailand
in November 1996 had warned about the large current account deficit and the need
for greater exchange rate flexibility to replace the fixed exchange rate. The May 1997
briefing note highlighted weaknesses in the financial system from overexposure to
property loans and, more generally, the prospect of a long adjustment to correct the
overheating of the mid-1990s. As it became evident that foreign exchange reserves
were overstated by the practice of selling forward dollar contracts, the stage was set
for the currency collapse in July, with its shock to the domestic banking system.
The East Asian crisis then spread to Indonesia and eventually even Korea. Despite
its strong industrial base and impressive performance in manufactured exports, Koreas
short-term external loans were extremely high relative to external reserves, in part as
a consequence of liberalization of short-term borrowing instead of the safer long-term
equity. The IIF briefing note on Korea at the May 1997 meetings of the Asian

Net foreign private capital flows to 26 emerging market economies eased from $188 billion in 1993 to $175
billion in 1994 but then rose to $233 billion in 1995 and $334 billion in 1996. The swing was sharper for
bank, bond, and other net credits: from $91 billion in 1993 to $75 billion in 1994, followed by a surge to
$127 billion in 1995 and $206 billion in 1997. IIF, Capital Flows to Emerging Market Economies, April 2002.
Average for BB, B, and C- rated bonds. William R. Cline and Kevin J. S. Barnes, Spreads and Risks in
Emerging Markets Lending, IIF Research Papers No. 97-1, December 1997.
Ibid, p. 25.

E W I |
Charles Dallara introduces 1997 Fukuoka Forum participants, including J. Antonio M. Quila of the Asian Development
Bank; John D. Taylor, Head of the Private Sector Group of the ADB; Timothy F. Geithner, Senior Deputy Assistant
Secretary of the Department of Treasury; Mitsuo Sato, President of the ADB; Toyoo Gyohten and William Rhodes

Development Bank warned about high corporate debt, rising non-performing loans in
the banking system, and the persistent problem of high industrial concentration and
unduly close ties between government and business. The mid-December IIF country
report on Korea emphasized the risks from low reserves and persistent market appre-
hension, and anticipated a severe recession in 1998 accompanied by corporate bank-
ruptcies. At the end of 1997, a large international rescue program from the official sector
was mounted. Then in early 1998, as market pressures persisted, the G-7 strongly encour-
aged foreign banks to join in the effort by stretching out their short-term claims on
Korean banks. The banks agreed to convert these claims into three-year government-
backed securities at higher interest rates. The Institutes management played a low-key
role in supporting stabilization, working with Korean Finance Minister Lim Chang Yuel.
The conversion of the bank claims helped restore confidence and set the stage for a
partial recovery of the collapsed currency, an easing of high domestic interest rates, and a
beginning of financial sector reform. By 1999 the economy experienced a strong recovery.
The most severe shock of the late 1990s, however, was Russias sharp devaluation
and default on treasury bills in mid-August 1998. That event triggered repercussions
in global markets (including the collapse of the hedge fund Long Term Capital
Management) and dimmed the prospects for avoiding a spread of the East Asian crisis
to Latin America. Institute reporting on Russia had pointed out for several years the
difficulty Russia faced in scaling back large fiscal deficits and outsized capital flight,
both of which meant that large inflows of financing from private foreign lenders would
have to be sustained to maintain the rubles fixed peg to the dollar. A briefing to the
Institutes Economic Advisory Committee in November 1997 and the January 1998
country report warned that greater reluctance of private lenders to increase exposure,
aggravated by adverse global capital market conditions following the East Asian crises,
would bring forward an unavoidable devaluation. The January report underscored
that the exorbitant real interest rates needed to support the ruble, if maintained,
would result in large and widespread losses among domestic banks and trigger severe
liquidity problems. A further report in early August pointed out difficulties likely to

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Guillermo Ortiz, then Minister of Pedro Malan, former President, Fernao Bracher, former President,
Finance and Public Credit, Mexico Brazil Central Bank Brazil Central Bank

be experienced in servicing short-term foreign debt well in excess of reserves. Although

the report noted that market confidence might be restored if decisive executive and
Duma action on fiscal accounts and privatization were to materialize, it conveyed
strong doubts that this outcome would occur.
By the end of the year, contagion from Russia had contributed to an unraveling
of the exchange rate anchor in Brazil. Despite a sizable package of foreign official
assistance in December, the real depreciated by 40 percent in January 1999, and the
authorities were compelled to boost interest rates to nearly 40 percent to stem capital
outflows. The Institutes February 2, 1999 country report judged that because of
rapid progress in January in passing the fiscal adjustments provided for in the IMF
agreement, confidence would likely rebuild, but that the economy would remain in
recession for the rest of the year. The report projected that inflation would rise, but
only to the low double digits. By the time of the IIF Annual Membership Meeting in
the fall of 1999, guest speaker Fernao Bracher, President of a member bank from
Brazil (Banco BBA Creditanstalt) and former Brazilian Central Bank President, was
able to point out that the Institute had been virtually alone in projecting that inflation
would not explode despite Brazils past history in which exchange rate depreciation
spurred inflation in a mutually-reinforcing vicious circle.
The three years 199799 were thus a period in which the management and economic
staff of the Institute were constantly on the firing line in evaluating the successive
phases of what turned out to be persistent turmoil in emerging markets. At the same
time, IIF management worked informally at times with IIF members and the IMF, the
New York Federal Reserve Bank, and leading authorities around the world to support
efforts to stabilize crises and put in place policies that would restore market confidence.
The 1998 Annual Report bore a cover depicting a lighthouse and port waters at dusk,
accompanied by the caption Clear analysis and practical policy recommendations in a
sea of uncertainty. It reported that in 1998 there had been an intensive round of
missions to and reports on the East Asian crisis early in the year, early and persistent
warning of the impending financial collapse in Russia, and timely analysis on the
breaking financial crisis in Brazil.

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The Institute was by no means always right. Its September 1998 Brazil report, for
instance, though correctly anticipating a major new program of international support
after the October presidential elections, erred in expecting only an acceleration in the
exchange rate crawl rather than the collapse in the currency that took place in January.
But even in such a case, the economic analysis was systematically rigorous, the risks
to the central forecast were made clear, and the ongoing contact between Institute
staff, management and country officials in key missions provided important feedback
from the foreign private sector to policymakers in the countries in question.

THE NEW CENTURYAfter a brief respite, emerging markets returned partially to

crisis mode in 2001 with the intensifying difficulties of two of the largest borrowers,
Turkey and Argentina. In its work on Turkey, the Institute had repeatedly pointed out
the dangers to financial stability stemming from the lack of progress on structural
reforms. In the June 1999 report, the Institute noted that a disinflation program relying
on a de facto exchange rate pegsuch as that begun at the beginning of 2000 with IMF
encouragementwould be difficult to sustain without a political support strong enough
to enact decisive structural reforms. The report highlighted medium-term risks to the
unrestructured banking system stemming from the fixed exchange rate regime and
potentially large fiscal costs associated with the governments guarantee of bank deposits.
In February 2001, a collapse of market confidence led the authorities to abandon
the stabilization program begun in the previous year. The exchange rate anchor had
succeeded in slowing inflation sharply, but had seriously eroded competitiveness, even
as domestic spending surged. The current account deficit swelled as a result, as did
risky bets by poorly regulated and supervised domestic banks. After a political crisis
in February triggered a devaluation, a stronger fiscal adjustment effort was begun
that has since been sustained. Stronger policies and a flexible exchange rate helped
restore market confidence, together with IMF support. The latter was subsequently
increased in line with Institute assessments of greater need in the more difficult capital
market conditions that followed the September 11 attacks in the United States.
In Argentina, through most of 2001 external reserves were falling and deposits in
domestic banks were declining. The economy had been in recession since 1999. The
currency-board link of the Argentine peso to the dollar at a time of exceptional dollar
strength, recession in Brazil (Argentinas most important export market), insufficient
fiscal adjustment, and an unraveling of domestic political rules of the game doomed
the Convertibility Plan that had tamed high inflation in the 1990s.
In the wake of vicious street riots involving fatalities at end-2001, the President
and Finance Minister resigned. The revolving-door series of presidents that followed
in subsequent weeks brought not only devaluation, breaking the sacrosanct currency
board, but also a populist default on external debt, which at about $100 billion con-
stituted the largest sovereign default in history. Argentina did not arrive at a restruc-
turing agreement with its private creditors until 2004, and even then a relatively low
percentage of foreign private creditors (as opposed to domestic creditors who held a
sizable portion of the claims) agreed to the arguably confiscatory terms. At about a

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two-thirds reduction in value, the extent of debt forgiveness was much closer to that
for official loans to poor African nations than to the Brady Plan cuts of about 35 percent.
Throughout 2001, the IIF economic team focused intensively on the deteriorating
Argentine situation. A mission to Buenos Aires in July, led by the Deputy Managing
Director, included direct discussions with then Finance Minister Domingo Cavallo
that emphasized the importance of delivering on the recently announced zero-deficit
fiscal plan. The report issued on August 3 warned that, it remains unclear that the
recent measures, even with stronger international support, will be sufficient to achieve
a path of sustainability. It will take a sustained period of political support and discipline
as well as continued support by the international community for Argentina to avoid
debt servicing difficulties. In this report as in many others at crucial junctures, the
Managing Director participated directly in the deliberations within the economic
team in arriving at the proper diagnosis and forecast.
In late October 2001, IIF management visited Buenos Aires, where they sought
unsuccessfully to persuade Cavallo to devalue the peso, tighten fiscal policy, and seek
a cooperative debt restructuring. By mid-November 2001, the IIF Monthly Economic
Bulletin focused on the governments imminent restructuring of $60 billion in debt
held by local banks and pension funds and its plan to restructure subsequently a
comparable amount of foreign-held claims, both at full maintenance of principal but
with major interest savings from a cap of 7 percent on the interest rate. The Bulletin
noted the risks but suggested that, with decisive political commitment, such a restruc-
turing could succeed. Time ran out on the market-friendly government, however, as
year-end riots and deaths forced its resignation. The new populist governments
default and devaluation then set the stage for the depression of 2002.
The final episode of crisis in emerging markets, before they entered a period of
several years of calm, arose in Brazil in 2002 when it became clear that the long-time
leftist candidate Luiz Incio Lula da Silva was likely this time to win the presidential
elections in October. Lending spreads surged to over 2,000 basis points, and many
financial sector analysts feared that Brazil would be forced to default on its external
debt. To help stem the crisis, the IMF secured commitments from the presidential
candidates (including Lula) to continue fiscal prudence, and on this basis provided
intensified support (boosting its lending commitment to $30 billion at the end of
August). On August 26, Brazilian officials met with leading international banks at the
New York Federal Reserve in a meeting quietly supported by IIF management as well as
by IIF Vice Chairman Bill Rhodes in a more active role. After that meeting the banks
publicly expressed their support for Brazils program and their willingness to maintain
trade lines, helping to calm the markets. Brazil soon weathered its second external
sector crisis in less than three years.
The IIF economic team produced four country reports on Brazil in the course
of 2002. In its September report, it projected that Brazils public debt could follow a
sustainable path of gradual reduction from its level of 60 percent of GDP if the new
government strengthened public finances, but noted that even with the presidential
candidates pledge of fiscal continuity there were risks of policy slippage under a

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Banks Other credits FDI Portf. Equity

April 23, 2002, The Financial Times. Reprinted with permission.

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Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06

more populist Lula administration. Although spreads had eased to 1,600 basis points
by the time of the December report, it judged that a more ambitious fiscal target was
needed to restore confidence, and noted that Lulas selection of a moderate economic
team provided some grounds for optimism that this would be forthcoming. In the
February 2003 IMF program the new government did just that, boosting its target for
the fiscal surplus (excluding interest) by half a percent of GDP to 4.25 percent. By
late April, Brazils borrowing spreads were back down to 600 basis points.
By 2003 net private capital flows to emerging market economies nearly doubled
from their low plateau of 200102, and by 2004 for the first time in eight years they
exceeded their 1996 peak, reaching about $350 billion. The total continued to escalate
to about $500 billion in 2005 and again in 2006. This resurgence was in large part
attributable to rapid export growth, plentiful liquidity and low interest rates in a context
of a buoyant global economy.20 It also reflected strengthened macroeconomic policies
in a number of emerging markets, including Brazil and Turkey, and an upswing in
FDI inflows as economic reforms were advanced in China, India and emerging Europe.
As shown in Figure 4, it was foreign direct investment that held up the best throughout
the crisis years in the late 1990s. Net bank lending swung from high levels in 1996 to
negative flows (net repayments) of about $50 billion annually at the height of the crises
(199899) and remained low through 2003; however, by 200506 net bank lending was
strong again and not far below the level of direct investment. Bonds and other non-bank
credits held up better than net bank flows in 199899 but by 2001-02 had also fallen
close to zero. Nonetheless, by 2004-06 net lending through bonds and other non-bank
vehicles had recovered strongly to a level of about $100 billion a year. Portfolio equity
flows, which together with bonds had been a major new source of financing by 1993,
followed a gradually declining path through the mid-1990s, falling to about zero by
2002 before staging a strong recovery to new highs, reaching about $70 billion by 2006.
Thus, the U.S. 10-year Treasury bond rate averaged about 4.3 percent in 2003-05 and was still only 4.7 percent in 2006.

E W I |
The strong performance of the emerging bond market by 2004-06 was especially
impressive given the shock from Argentinas default. The message from the capital
markets seemed to be that the severe contagion characterizing emerging markets in
the late 1990s had given way to a more mature market capable of differentiating
sharply among countries.
The renewed boom in capital flows to emerging market economies by 2004-06
was also evident in the compression of risk spreads back to, and then below, the lows
not experienced since the first half of 1997 before the outbreak of the East Asian
financial crisis. Figure 5 traces the path of the spread for the J.P. Morgan Emerging
Markets Bond Index from 1992 through 2007.21 The spreads for this index hit their
all time high of about 1600 basis points at the time of the Mexican crisis in early 1995.
They fell sharply to a low of about 360 basis points in September of 1997 before
surging to 1400 basis points in September 1998 immediately after the Russian default.
Their subsequent decline was much more gradual than after the Mexican crisis, and
was punctuated by surges, most notably a return to about 1000 basis points in the
autumn of 2002 at the peak of fears about the new government in Brazil. By the
beginning of 2005, however, the spread was back down to the 350 basis-point level
of mid-1997, and by early 2006 it had declined to around 200 basis points.
By October of 2004 the IIF economic team was once again warning against the
possibility that the current low level of emerging market bond spreads do not adequately
reflect the downside risks facing global capital markets By early 2006, although it noted
sources of strength behind the falling spreads, including lower ratios of public debt to
GDP and external debt to exports, as well as significant country buybacks of outstanding
bonds, the Institute warned of risks to emerging markets from a spike in energy prices.22
By January 2007, almost exactly a decade after its warnings on thin spreads prior
to the East Asian crisis, the Institute cautioned the seeming lack of concerns among
a large portion of investors about market implications of a possible adverse turn in
the world macroeconomic outlook is a point of vulnerability It noted that:

The stellar performance of capital flows in recent years as well as emerging

market asset prices goes far beyond fundamentals and favorable global
conditions. An increasing number of hedge funds and pension funds
have joined in purchasing fixed-income instruments and equities The
deepening of local markets with the increased participation of non-resident
investors, new types of securities, particularly derivatives and an
extension in maturities have left emerging markets debt more manageable
than at any other previous point in the history of the market. These positive
developments can have a downside. Periods of favorable financial condi-
tions in the past were often followed by rather sudden reversals. Presently,
reasonably strong fundamentals in many emerging market countries reduce
EMBI through July 2004; EMBI+ thereafter. Source: J.P. Morgan Emerging Markets Bond Index.
IIF, Capital Flows to Emerging Market Economies, October 2004 and March 2006.

| C
the likelihood that a setback would be as severe as in the past. Nevertheless,
countries need to firmly adhere to prudent macroeconomic policies and
reinvigorate structural reforms Countries at particular risk are those with
still weak public sector balance sheets, large current account deficits, and
less well-anchored inflation expectations.23


In addition to country missions and reports, the economic work of the Institute has
included an evolving set of periodic cross-country analytical products and seminars
with and for members. The changing composition of this portfolio of products and
services over time has reflected changing circumstances. An underlying pattern has
been a shift in emphasis from data discovery to analysis as data became more available,
in part as a consequence of the Institutes own efforts to press the IMF to insist on
higher standards for country data dissemination, as discussed below.
Consequently, in the early 1990s, the economic group produced monthly packets
with a single sheet of data and brief paragraphs on each of some 30 major developing
economies (Monthly Economic Review). This data-updating product was supplemented
by the thrice-yearly Key Indicators for Selected Emerging Market Economies, which reported
comparable debt ratios and other metrics for the 20 largest countries and provided
an update analysis for some half-dozen among them where this was most warranted by
developments. By the late 1990s, in part in light of discussion with economists from
member institutions in the Economic Advisory Committee, it became clear that the
increased availability of country economic and financial data on the internet made
the data-updating function of decreasing importance, but that the turmoil that had
characterized emerging markets in the late 1990s had elevated the importance of
timely analysis.
As a result, in 2001 the Monthly Economic Bulletin replaced the two previous
products. Like its precursor, it provided the most recent information on some 20 data
series for 24 emerging market economies, but it also provided a vehicle for a prompt
evaluation of the most crucial developments of the month, not only for a handful of
individual countries but also for major developments in international financial markets.
In more recent years, the continued need for timely analysis of specific events also
contributed to a rebalancing from full-fledged country reports toward more emphasis
on country updates and a new series of Special Briefing reports.
Changing times and circumstances were also reflected in reports on debt and debt
restructuring. In the late 1980s and early 1990s, the Institute produced periodic estimates
of country indicators according to what was known as the Bank of England (BOE)
matrix, in part to assist member banks affected by BOE provisioning requirements that
called for capital set-asides for loans to countries that had experienced default within
a specified multi-year period. Similarly, through the mid-1990s, the Institute prepared
inventories of debt-restructuring agreements. The need for both of these products
IIF, Capital Flows to Emerging Market Economies, January 2007.

E W I |
ebbed as the 1980s debt crisis receded into the past and as the World Bank began pub-
lishing its annual compilation of debt-restructuring agreements.
The great bulk of the Institutes work is provided to its members on a confidential
basis, and accordingly its economic work is far greater than is apparent to the public
eye. A notable exception is its Capital Flows to Emerging Market Economies, prepared
three times a year. This publication reports regional aggregates focusing on net flows by
capital category, and includes estimates of resident capital outflowswhich have often
been central to understanding the capital account. Thus, in recent years there has been
a paradox of large aggregate current account surpluses among emerging market
economies, combined with large private capital inflows. This overfinancing of the balance
of payments has translated in part into a buildup in reserves, but has also gone in part
to finance resident outflows, which for example in 2006 amounted to about $230 billion
(about half of private net inflows).
The identification of resident outflows makes the IIF capital flows data unique, in
comparison, for example, with IMF and World Bank data on capital flows and debt
which aggregate resident and non-resident private flows.24 In some circumstances
direct estimates of resident outflows have been crucial to a diagnosis of the situation,
as in the case of Russias coexistence of large trade surpluses with massive capital
flight as a precursor to the countrys 1998 crisis.25
The capital flow data made available to the public on a regionally aggregated basis
are summaries of more detailed country estimates available only to Institute members.
These estimates are also prepared three times a year. The discipline of the timetable for
this set of estimates helps ensure that the economic work is globally consistent throughout
the year in terms of the updating of country databases to reflect the most recent forecast
for such major influences as growth in industrial countries, key currency exchange rates
against the dollar, commodity prices, and oil prices.
Throughout its existence the Institute has benefited from an exchange of ideas
with economists and country specialists on the staffs of member institutions. In the
early years, a few such experts would typically participate in each of the country mis-
sions. As the Institute became better established and developed its own relationships
with finance ministries and central banks, this practice became less common. More
recently, the countries for which members request participation in IIF missions have
tended to shift (though not exclusively) toward the smaller and less-well-studied
economies, in which in-house expertise of member institutions is less deep.
A two-way flow of ideas between the Institutes economic team and member-
institution economists has also been maintained through the Economic Advisory
For example, the September 1999 issue of the IIFs Capital Flows to Emerging Market Economies placed the
1996-98 three-year total of net private inflows from non-residents at $737 billion for 26 large emerging mar-
ket economies, but also reported total resident net outflows of $476 billion in the same period. In contrast,
the International Monetary Funds issue of International Capital Markets for the same month placed the
three-year total for net private capital flows at only $426 billion, despite encompassing the full set of devel-
oping and transition economies and despite including four sizable economies omitted in the IIF set (Israel,
Hong Kong SAR, Singapore, and Taiwan, China ).
Thus, the December 1998 IIF report on Russia placed net resident outflows at $29.5 billion in 1996 and $30.9
billion in 1997. No measure of this massive capital flight was reported in the IMFs publicly available capital flows
data, which indicated that aggregate net private flows were -$2.6 billion in 1996 and +$1 billion in 1997 (ibid).

| C
Gregory Fager, IIF Jeffrey Anderson, IIF Howard Handy, IIF Frederick Jaspersen,
Director, Asia/Pacific Director, European Counsellor/Director, IIF Director, Latin
Department Department Africa/Middle East America Department
Department (until 9/07)

Committee (EAC), which meets twice annually (usually once in the United States and
once abroad). This gathers some 5060 experts for two days of discussion on regional
economic outlooks and global economic and financial prospects. Leading figures in
the private and public financial sectors have often been featured as speakers at these
events. Over the years the meetings have helped anchor the Institutes economic work in
the realities faced directly by private financial-sector practitioners. Also, the economic
team has periodically conducted surveys of EAC members concerning issues or the
utility of various economic products.
Country briefings by the Institutes economists have been an important part of the
Institutes work, especially in recent years as the range of Institute events and conferences
has expanded (see chapter 5). In particular, the economic team regularly presents global
and regional economic briefings to a wide audience from across the membership at the
Institutes spring and fall membership meetings. In addition, the annual meetings of
the regional development banks (primarily, IDB, Asian Development Bank (ADB),
and European Bank for Reconstruction and Development (EBRD)) have served as
occasions for Institute economists to host country briefings for member representatives.
The preparations for these events include the issuance of Regional Overview reports.
In its ongoing reviews of its economic products, the Institute has consciously avoided
creating country ratings. While a number of considerations have contributed to this
policy, a fundamental reason is that country economic analysis at the Institute tends to
avoid any attempt to collapse a countrys complicated political and economic realities
into a single number, index, or ratio. Similarly, the Institute has rejected the licensing of
country reports for use in securities prospectuses, partly in light of possible legal liability,
but more importantly because of the need to assure its independence and objectivity.


Work carried out by the economics group has contributed to the international debate
on several areas of emerging markets policy. One important case was the development
of international standards for country data published by governments. In 1995, based
on findings of a working group of IIF members, chaired by Deputy Managing Director
Anthony Bottrill, and a survey of country practices, the Institute published a report
setting desirable standards for economic and financial data in terms of coverage,

E W I |
periodicity, and timeliness.26 For example, these standards called for the release of data
on international reserves within two weeks, monthly trade data with a lag of only one
month, and short-term external debt on a quarterly basis with a lag of three months.
These were the first such standards published by any global organization following the
Mexican crisis.
The surveys found that most countries did provide data on the twenty or so key
variables identified by the Institute. However, for some important categories, such as debt
amortization schedules, private sector debt, and public sector borrowing, a third or more
of the countries did not provide data; and for a much longer list of variables the frequency
and timeliness of data release fell below the Institutes benchmarks. In 1996, and then again
in 1997, the Institute published the results of follow-up surveys, after taking account of
the commentary on draft results submitted by finance ministries and central banks.27
There were significant improvements in both coverage and timeliness of data
between the initial 1995 practices and those conducted in 1997. A parallel effort was
under way at the IMF to develop its Special Data Dissemination Standard (SDDS), and
Institute economists contributed to the discussions on the development of those stan-
dards. By 1998 the economic team judged that there had been sufficient improvement
in the system for tracking country data in general, and in the SDDS in particular, that
further surveys by the Institute were no longer needed.
The proper strategy for managing financial crises in emerging markets was a recurrent
theme on which the Institutes economic group provided analysis, spurred initially by the
Mexican peso crisis. In September 1996, and again in January 1999, the Institute published
reports of high-level working groups on financial crises.28 The first report underscored
the importance of a case-by-case, market-based approach and warned against creating
new international bankruptcy mechanisms. In commenting on the then-recent report
of the G-10 industrial countries, the 1996 report agreed with its conclusions in favor of
a case-by-case approach and rejecting international bankruptcy mechanisms, but ques-
tioned its suggestion that officially sanctioned standstills on bond payments might be
needed, as well as the associated endorsement of IMF lending into arrears.
The 1996 report stated that the Working Group firmly agrees with the G-10 on ruling
out massive official sector financing along the lines of the action taken to contain the
Mexican peso crisis (p. 19). This view was consistent with the persistent IIF message in the
late 1990s and early 2000s that the private sector was not seeking a bail-out by the official
sector. As it turned out, nonetheless, a major lender-of-last-resort function of the IMF
proved to be crucial in addressing most of the crises that followed within the next six
years, although not on as large a relative scale as in the Mexican case and in most cases
with a substantial parallel role of private support absent in the Tequila crisis (including
conversion of short-term bank loans in Korea and endeavors to maintain credit lines in

IIF, Improving Standards for Data Release by Emerging Market Economies, September, 1995.
IIF, Data Release Standards for Emerging Economies: An Assessment of Country Practices, 1996; Data Release
Practices of Emerging Market Economies: 1997 Assessment, 1997.
IIF, Resolving Sovereign Financial Crises, 1996; Report of the Working Group on Financial Crises in Emerging
Markets, 1999. The working groups were chaired by Deputy Managing Director and Chief Economist William
Cline. Representatives of approximately thirty member firms active in emerging markets, including commercial
banks, securities firms, and fund managers, participated in each of these working groups.

| C
Brazil).29 Presciently, the 1996 report expressed openness to what later became known
as collective action clauses for super-majority revision of payment terms in bonds.30
The 1999 report had the benefit of experience accumulated in the East Asian and
Russian crises. It judged that there had been relatively successful management of the
Mexican, Korean, and Thai crises, and that lack of success in Indonesia and Russia was
attributable to the lack of domestic political conditions for prompt implementation of
adjustment measures (p. 7). Among its recommendations, the Working Group called
for the IMF to publish the Article IV reviews of country policies (a step that by now has
been accepted by most countries). In a recommendation that prefigured the Institutes
subsequent initiative in developing a set of Principles for emerging markets (see
Chapter 4), it also proposed (p.5) that:

Authorities of countries which regularly access the international capital markets

should develop a system of regular briefings for private investors Should
market sentiment deteriorate or imbalances arise, borrowing countries should
seek the advice of their principal private international financial institutions

The 1999 report reaffirmed the case-by-case approach and judged that Private
sector participation in crisis resolution efforts should be on an essentially voluntary
and market-related basis In some cases, cooperation among lenders in the mainte-
nance of trade and other short-term credit lines may be a key element of private sector
participation (p. 8). Within just a few months, this latter approach was in fact mobi-
lized to help stem Brazils currency crisis.
Economic research publications at the Institute also contributed to the debate. A
research paper in 1998 on the role of the IMF in the East Asian crisis broadly rejected
the charges that the programs were outdated austerity recipes.31 The study found that
critics of high interest rates failed to recognize that these had been necessary to stem
currency collapses. It did find, however, that the Fund had initially underestimated the
severity of the crises and should have given greater weight to cyclical considerations in
setting its fiscal targets, as the IMF itself later acknowledged. In 1999, another research
paper examined the popular hypothesis that moral hazard from official support in the
Mexican crisis had caused excessive lending in the following two years.32 It found that
after controlling for the changes in economic fundamentals in emerging market
economies and in international capital market conditions, the spreads on emerging market
bonds were actually somewhat higher after the Mexican crisis than before it (p. 1).

Debt to the IMF surged to about 5 percent of GDP in Mexico in 1995, Korea in 1998, and Brazil in 2003, before
falling sharply again in each case, but in the Mexican crisis the total headline support was much larger (about 12
percent of 1994 GDP), and a large portion was in loan guarantees from the United States.
The 1996 report stated: there is some attraction of the notion of moving toward ex ante inclusion of clauses
in bond covenants that provide for rescheduling with a high majority rather than unanimity of holders. (p. 41).
William R. Cline, IMF-Supported Adjustment Programs in the East Asian Financial Crisis, IIF Research
Papers No. 98-1, May 1998.
Xiaoming Alan Zhang, Testing for Moral Hazard in Emerging Markets Lending. IIF Research Papers
No. 99-1, August 1999.

E W I |
The economics team also coordinated the work program and report of the
Working Group on Country Risk as part of a broader program of IIF responses to
Basel II proposals on regulatory capital.33 The report reviewed the analytical frame-
work based on probability of default, expected loss, and economic capital needed to
cover unexpected loss up to a given degree of certainty. It surveyed the practices of
three-dozen major international banks in monitoring and evaluating country risk.
The report made recommendations on some of the specific proposals under consid-
eration by the Basel Committee. Also, it enumerated a set of minimum standards
appropriate for banks internal country risk systems, which included a systematic
process for taking country risk into account in allocating economic capital.


A systematic review of the more than one thousand country reports on emerging
market economies produced by the Institute over the past quarter century would
clearly bring out a number of fundamental principles and lessons.
A central lesson is that fiscal prudence is crucial to sustained economic growth
and continuity in investor confidence. Fiscal problems were central to the sluggish
recovery from the 1980s debt crisis in Latin America, and particularly in the episodes
of high and hyperinflation that characterized some of these countries experiences.
Doubts about fiscal solvency again underlay financial crises in Argentina, Brazil, and
Turkey in 20012002.
A second lesson is that exchange rate flexibility provides a resilience to shocks that
is missing in a regime of fixed exchange rates, and that the use of fixed rates for the
purpose of having an anti-inflationary anchor can be illusory and risky. This lesson
was harshly taught on numerous occasions, including in Mexico at the end of 1994,
Thailand and much of East Asia in 199798, Russia in 1998, Brazil at the end of 1998,
Turkey in late 2000 and early 2001, and most spectacularly in Argentina at the end of
2001. Exchange rate flexibility also provides greater scope for maintaining external
competitiveness and avoiding severe vulnerability from large current account deficits.
A third and related lesson is the continued importance of a careful examination of
the external cash flow situation of an economy in evaluating risk. This lesson was most
vividly illustrated by the way in which even one of the strongest emerging market
economiesthat of Koreawas swept up in the East Asian financial crisis because of
vulnerability to high short-term debt in the face of relatively low reserves and lack of
information on reserve levels.
A fourth lesson is the paramount importance of a sound domestic banking system,
not only well regulated and supervised by officials, but also subject to market discipline
through ample disclosure requirements. The East Asian, Russian, and Turkish crises,
in particular, highlighted vulnerability from weak domestic banks. The cleaning up of
banking system failures has often imposed extremely high fiscal costs on governments.
A fifth lesson is that even after assessing the coherence of the design of macroeco-
nomic policies, country risk analysis must also take account of the political climate.

IIF, Report of the Working Group on Country Risk, 2000.

| C
Political will is indispensable to a governments ability to deliver on an intended eco-
nomic program, especially in the areas of fiscal balance and structural reform. Within
the past decade, the crises in Russia in 1998 and Argentina in 2001, were stark reminders
of this reality. The case of Brazil in 2002 further shows that capital market perceptions
of political stability can matter as much as the substance of political conditions. In
the 1980s, as suggested by the contrast noted earlier between heavily indebted Chile
and lightly indebted Venezuela, and as illustrated by the shift to outright default in
Brazil in 1987, it was often political more than economic factors that determined a
countrys debt strategy. It is thus reassuring that in its 2001 survey of member bank
practices in country risk analysis, the Institutes Working Group found that a large
majority of institutions give major weight to political factors alongside economic and
financial considerations, including in implementation of quantitative models among
those institutions relying on such models.34 Since the beginning, political analysis has
been indispensable to the Institutes work.
A sixth broad lesson is that there is a role for both the public sector and the private
sector in the resolution of debt and financial crises. The private sector has proven
more capable than many had expected at working out restructuring agreements for
bonds, despite their widely dispersed holdings in contrast to the syndicated bank
loans that dominated in the 1980s. The public sector has achieved substantially more
successes than failures in forceful lender-of-last-resort operations. Losses by private
creditors in the cases of failure have been more than sufficient to avoid inducing
moral hazard from public lender-of-last-resort intervention. Cooperative approaches
in which the public and private sectors work together skillfullyas in Korea in 199798
and Brazil in 1999 and again in 2002are the best means of effective crisis manage-
ment. Furthermore, new forms of cooperation have emerged such as the Principles
for Stable Capital Flows and Fair Debt Restructuring (see Chapter 4) that can and
already are contributing to a more resilient system.
For the future, new challenges will surely arise. Emerging market economies today
are unusually flush with foreign exchange reserves, and some are running current
account surpluses rather than deficits. With a few exceptions, they have largely tamed
the inflationary scourges of the past. Many of them are achieving impressive sustained
growth. These buoyant conditions may not last, however, especially if the unwinding
of the large U.S. external deficit proves disruptive rather than benign. The emerging
market economies, like those of the industrial countries, are also increasingly influenced
by the emerging giants, China and India. Their financial and equity markets are increas-
ingly part and parcel of international markets and hence subject to international market
swings. This vulnerability was most recently illustrated in the spring of 2007 by the
nearly uniform, if temporary, retreat of emerging market stock markets in tandem
with temporary sell-offs in the United States and other industrial countries (following,
of course, large run-ups in most of these markets over the preceding three years).
Whatever challenges arise in the future in emerging markets, it will be important
that the private financial sector be well prepared to diagnose and forecast economic

Ibid, pp. 15, 17.

E W I |
and political forces affecting these markets. The traditional role of the IMF in this
task will presumably continue and ideally be exercised in ever-expanding transparency
through such measures as the publication of Article IV reports. However, success in
crisis management, at least for now, has ended the need by most major emerging
market economies for ongoing Fund lending programs, and indeed most have fully
repaid the IMF. There may thus be a larger relative role for private sector analysis of
these economies going forward. The essential role of the IIF in providing this analysis
to its members is evident in such indicators as the approximately 11,000 monthly
downloads from the member-access area of its website.35
The founders at Ditchley Park in 1982 proved right at the time that a private sector
institution such as the Institute of International Finance could contribute to a better
international system to finance economic development in emerging market economies.
Their vision remains valid today.

Annual Report, 2006.

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3 Global Financial


nlike its economic work, which was enshrined in the Institutes Articles of
Incorporation and envisaged by the Ditchley Group as its raison dtre,
its regulatory policy work was not explicitly anticipated by its founding
fathers. Rather, it developed as a response to the evolving global financial environ-
ment and market trends as well as a new Management and Board vision formed in
the early 1990s. The Institutes regulatory policy work was first conceived in terms of
individual advocacy projects. Despite initial hesitancy on the part of the regulators,
especially in Europe, to engage with regulated institutions, growing demand by IIF
members for such work spurred the development of a new core activity for the IIF.
In the 25 years since the establishment of the Institute, the financial industry has
been changed dramatically by globalization, major innovations in risk management,
and by the advances in computer technology. The period has seen the evolution and
development of complex instruments to mitigate and transfer risk, which have afforded
banks innovative and more efficient ways to intermediate savings by measuring, man-
aging, and ultimately trading a broad range of risks. However as witnessed by the
strains in the marketplace in the summer of 2007, the complexity and opaqueness of
these instruments continue to raise concerns. At the same time, the growing interna-
tionalization of capital markets has continued to blur traditional legal, jurisdictional,
and geographic boundaries in financial markets. This trend substantially increased
interconnectivity in markets, spurred a wave of consolidation across sectors and borders,
and led to the emergence of truly global financial players.

G F R |
In the face of these dynamics, financial-sector authorities have sought to adapt
regulatory and supervisory frameworks to keep pace with the fast-changing landscape
and risk-taking profile of the financial sector. The BIS and related organizations,
including most notably the Basel Committee on Banking Supervision, were the official
sectors focal point for global coordination of banking and related regulatory issues.
The far-reaching reforms that have ensued have had a profound impact on the Institutes
membership. There has been a growing recognition of both the need for, and the
potential value to be gained from, enhanced consultation and cooperation on regula-
tory and supervisory issues between the official sector and the banking community.
These developments converged to bring the Institute to the center stage of the global
regulatory and supervisory debate.
The Institutes early forays into regulatory policy sought to extend the main features
of the IIFs economic workresponsiveness to members needs, a global perspective,
objectivity, and independenceto a new domain and a different set of policymakers.
This objective was accomplished by periodic analyses designed to inform members
of regulatory developments with a global impact and to foster discussion among risk
managers, as well as policy papers articulating the consensus of participants. In addi-
tion, the Working Group on Capital Adequacy was established in 1991 to provide a
forum for IIF members to develop common pointers on the 1988 Basel Accord and its
implementation. This was the Institutes first venture into global advocacy on behalf
of its members on regulatory issues.
In 1993 and 1994, the Institute produced a quarterly Banking Law and Regulation
Report, which analyzed specific regulatory policy trends that had a global impact.
This report was superseded in 1997 by two new products, which aimed at increasing
awareness among the IIF membership of global supervisory trends and the Institutes
regulatory policy activities:
The Regulatory Policy Newsletter, published semi-annually, provided analytical
summaries of reports issued by the international supervisory groups1 as well as
updates on the ongoing activities of Institute working groups, roundtables, and
regional meetings.
The Financial Law and Regulatory Report, also issued semi-annually, provided a
thematic analysis and an in-depth look at emerging global regulatory issues and
proposals, with the view to alerting the membership to changes in the regulatory
and supervisory environment.
These publications were well received, but were discontinued in the early 2000s as
the response to the Basel II proposals prompted the IIF to redeploy its resources toward
more pressing demands.
The engagement in regulatory policy also created two new elements in the Institutes
work: proactive advocacy and Board endorsement of public documents. Initially
individual meetings were held to introduce policymakers to the Institutes consensus
positions. By the late-1990s, however, the IIF had adopted a multi-dimensional and

These included the Basel Committee on Banking supervision, the International Organization of Securities
Commissions, the G-7, G-10, IMF, and BIS.

| C
strategic approach to advocacy which included a significantly higher profile for the IIFs
positions in leading publications and events, and the development of IIF-sponsored
conferences. The Boards approval of IIF policy recommendations was designed to
signal to policymakers and markets that such recommendations were supported by
the financial firms represented on the Board of Directors and the participants in the
consensus-building process. The input and oversight of Board members into the
process also enhanced the credibility of the Institutes recommendations.
The Institutes work on regulatory issues has evolved since the early 1990s as it has
responded to the changing needs and priorities of its members and has focused on a
succession of key issues and reforms (see Box 4).
In all of these activities, the Institute has worked closely with the membership and
has established effective channels of cooperation with key global regulatory and
supervisory authorities. In the course of this cooperation the Institute has become the
central vehicle through which member firms across the globe communicate consensus
views to regulators on a wide range of key regulatory issues.
Achieving a prominent position in the dialogue with the official sector came as a
result of sustained efforts on the part of the IIFs Managing Director and Board Members
engaging with policy makers on key regulatory issues affecting the industry. Early ini-
tiatives on the part of the IIF to build a relationship with the Basel Committee included
Charles Dallaras engagement with Tommaso Padoa-Schioppa in his capacity as Chairman
of the Basel Committee, and later with his successors. This was complemented by


1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Bank Derivative Activities

Amendments to the 1988

Basel Capital Accord

Work with the Joint Forum on Conglomerates

Post Mortem
Crises of 199798

Emerging Market Regional Activities

Work On Basel II

on Effective


G F R |
various initiatives on the part of a number of IIF board members. In particular, Bill
Rhodes hosted a dinner in New York on emerging markets issues which provided an
opportunity for interaction with Bill McDonough as incoming Chairman of the Basel
Committee. This event sowed the seeds for a deeper collaboration with the Basel
Committee. The regulatory work has thus become a core IIF activity and a vital element
of its mission. At the suggestion of Andrew Grockett, then General Manager of the
BIS, IIF management worked with the BIS in support of regular informal gatherings
of senior bankers and central bank officials at the BIS. These meetings, although not
focused directly on regulatory issues, helped deepen the Institutes role within central
banking and regulatory circles. These meetings have continued under the leadership
of Malcolm Knight, current General Manager of the BIS.

The Institutes entry into the regulatory debate in the early 1990s focused on what were
then considered to be exotic financial instruments: interest rate swaps. Policymakers,
financial firms, and corporations recognized that the ability to slice and dice risk
and then trade that risk were creating important shifts in financial intermediation.
These shifts enabled financial institutions to offer clients flexible financing options
while enhancing their ability to manage risks.2
The Institute was then well positioned to provide an objective view on the rapid
development of the derivatives market and the implications for the financial industry.
Among the Institutes first steps was an exercise designed, in coordination with member
firms, to gather information on derivative activities. Better information and under-
standing of derivatives was seen as a sine qua non for an objective assessment of the
implications of derivative markets for policy and for the functioning of the financial
market, especially in light of the rapid growth and size of the derivative market
(estimated at close to $20 trillion at end-1990).3
At the same time, the G-10 initiated a series of reports under the auspices of the
then Euro-Currency Standing Committee of the BIS.4 These reports shed light on the
derivative financial instruments and their use, and dealt with the supervisory implica-
tions of their rapid expansion. As the Hannoun Report noted, better information
facilitated not just the exercise of central banks safety and stability obligations, but
also their responsibilities for the formulation and implementation of monetary policy.5

Derivatives are vehicles for unbundling risks. Derivative transactions transform risk exposure by unbundling the
individual components of financial market risk and intermediating them through separate customized instruments.
Increasing to $31 trillion in 1993 and further to $47 trillion at end-1995.
The work of these groups led in October 1992 to the Promisel Report (Recent Developments in International
Interbank Relations), which provided the groundwork and analysis to frame the policy issues relating to deriva-
tive activities. This was followed, by the Fisher Report (Public Disclosure of Market and Credit Risk By Financial
Intermediaries), which focused on the transparency of financial risk exposures. In February 1995, the BIS
published the Brockmeijer Report (Issues of Measurement related to Market Size and Macroprudential Risks in
Derivative Markets), which identified central banks information requirements with regard to derivative markets.
Macroeconomic and Monetary Policy Issues Raised by the Growth of Derivative Markets, report of the
Working Group established by the Euro-Currency Standing Committee of the Central banks of the Group of
Ten Countries, Basel, chaired by Herv Hannoun, Banque de France, November 1994.

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In the fall of 1992, under the leadership of Acting Managing Director John Haseltine
and Barbara C. Mathews, Regulatory Counsel, the Institute established the Task Force
on Bank Derivative Activities as a forum for exploring the potential consensus among
member banks on the regulation and disclosure of their derivative activities. The
Task Force team consisted of risk managers from 20 banks. The IIF facilitated their
consensus-building process by chairing the meetings. The first IIF regulatory policy
report was released in May 1993.6 That report was well received by both the banking
and regulatory communities, and contributed to the seminal work of the G-30 on the
risk management of derivatives as well as the official sectors work on disclosure frame-
works for derivatives.
Recognizing the success and importance of this work, the IIF Board of Directors, at
end-1993, authorized an expansion of the Institutes global regulatory policy activities,
presenting this as one of the three pillars of the Institutes future work. The Task Force
was reconstituted as a Working Group with a tight focus on disclosure and transparency.
In August 1994, its Disclosure Framework7 represented the consensus of global industry
on disclosure standards and comparability in annual report presentations of counter-
party credit risk associated with derivatives transactions. Although the report did not
present consensus recommendations for disclosure of market risks, it supported efforts
to move the industry forward to create an integrated framework to combine off-balance
sheet items with traditional on-balance sheet items consistent with business practices.
The Institutes work on derivatives contributed to improved transparency in the
industry.8 Its derivative disclosure framework was broadly accepted and implemented
industry-wide.9 As IIFs Managing Director, Charles Dallara noted: Greater transparency
in the derivative field is in everyones interest. Todays recommendations, when imple-
mented, should contribute to the effective functioning of global markets.10
The IIF revisited market risk issues in January 1996. In order to gauge market
practices prevailing at the time, the Institute conducted a survey of banks trade-related
disclosures in their 1995 annual reports.11 The survey compared the firms disclosures
against the recommendations of four key reports: (i) the IIF August 1994 Disclosure
Framework; (ii) the Fisher Report; (iii) International Organization of Securities
Commissions Framework; and (iv) the Basel Committee on Banking Supervision
report. That survey found that the IIFs market standard for the disclosure of
derivatives was used significantly more than the alternatives.

An Integrated Bank Regulatory Approach to Derivative Activities.
A Preliminary Framework for Public Disclosure of Derivative Activities and Related Credit Exposures.
The Disclosure Framework report underscored the issue of transparency by stating Financial market participants
and the official sector share an interest in the continued robustness of the international financial system.
Both share a commitment to the enhancement of efficient competition by increasing the amount and quality
of information available to market participants (page 8).
A survey conducted in early 1995 by the Institute (Derivatives Credit and Market Risk Disclosure Survey),
capturing firms representing about 81 percent of total global notional amount of derivatives outstanding at
end-1993, showed that the IIF recommendations were broadly adopted by the industry, with over 95 percent
of all respondents adopting some part or all of the recommendations.
IIF Press release, September 8, 1994.
The survey covered 77 financial institutions from the top 100 over the counter derivative dealers in 18 countries,
accounting for $63 trillion in notional value of derivatives outstanding at the time.

G F R |
The effectiveness and practicality of the Institutes working group process and the
evidence that IIF recommendations were gaining traction in the markets placed the
IIF in an ideal position to engage with the BIS in an informal dialogue concerning
the scope and content of the BISs suggestion for the creation of a global regulatory
reporting framework to capture derivative activities. The first invitation for the IIF to
brief the BIS occurred on March 16, 1996. Based on the discussions in that meeting
and subsequent discussions with bankers, the IIF then prepared a letter in October
1996 supporting the creation of a global regulatory reporting framework to capture
derivative activities. It also collaborated with the BIS as it refined proposals for a
global regulatory reporting framework.
The success of this early initiative by the Institute set the stage for a considerable
expansion in its regulatory work. The initiative had been accepted by the industry, wel-
comed by the official sector, and had proved influential in shaping the final reform. The
Institutes effectiveness in quickly positioning itself at the heart of the debate was strength-
ened by its advocacy strategy. This aimed to identify policy objectives shared by financial
firms and their regulators so that regulatory frameworks could be aligned with best
practices across markets. As a result, the Institute adopted a strategic operating method-
ology to match the pace of innovation among its member firms. This was intended to
take a proactive role both in preparing the industry in advance of supervisory initiatives
and in helping global financial regulators anchor their work on market experience.
The Institutes disclosure proposals subsequently appeared in key BIS reports, which
shaped a global regulatory disclosure framework to capture derivative activities. The Fisher
Report and the Brockmeijer Report echoed many of the recommendations found in the IIF
Working Groups framework related to credit risk.12 Many of the features and recom-
mendations of the IIFs Working Group also made their way into the Basel Committee
and the IOSCO Technical Committees derivative disclosure recommendations.13
The Institutes success in these early regulatory endeavors was in large part owing
to the strong support provided by its Board of Directors and the active engagement
of the various risk managers from member firms that developed balanced recom-
mendations, based on market experience, that were conveyed to the official sector.


Starting in 1993, the Basel Committee began work on amending the 1988 Basel Capital
Accord, which had set an international standard for banks regulatory capital. The
planned amendment was designed to address a growing risk segment on bank balance
sheets, namely market risk associated with trading activities.
The Institute anticipated that the proposed amendment to the Basel Accord would
begin a broader process to align national as well as global banking regulation and

For example, in the Summary and Recommendations section of the Fisher Report, an implicit reference is
made to the Institutes work: The paper complements disclosure formats for financial trading activity recently
proposed by accounting and private market associations.
The joint Basel/IOSCO paper on Public Disclosure of Derivative Activities of Banks and Securities Firms,
October 1999.

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April 5, 1997, Handelsblatt GmbH. Reprinted with permission.

supervision with market realities. It also realized that the exercise itself and the resulting
changes in the regulatory and supervisory framework would have important implica-
tions for the Institutes membership structure. In particular, the proposed amendment
gave the Institute a new and greater relevance to the investment banking community.
This prompted the Institute to offer access by investment banks to full membership
(formerly they had been eligible only for associate membership) thereby opening the
way to their representation on the IIF Board.
In response to a series of Basel Committee Consultative Papers,14 the Institute recon-
vened the Working Group on Capital Adequacy in July 1993, and published its response
in October 1993.15 The Working Group generally supported the Basel Committees move
toward a multi-dimensional measure of capital adequacy for banks trading books.
However, it did not support the proposals themselves. Instead, the Institute made a far-
reaching proposal in calling upon regulators to allow banks with sophisticated internal

In April 1993, the Basel Committee released its much-anticipated Consultative Papers (netting for capital
requirements for credit risk; capital adequacy requirements for market and foreign exchange risks; and
measuring and reporting requirements for interest rate risk).
Report of the Working Group on Capital Adequacy A Response to the Basel Committee On Banking Supervision,
Consultative Papers, October 1993, IIF.

G F R |
risk management and measuring systems to calculate their capital adequacy requirements
by using internal models, rather than using the Basel Committee suggested framework.16
This proposal supported banking soundness and stability by providing incentives for
banks to operate a more sophisticated risk management system than was necessary to
meet the regulatory minimum, while promising to reduce the cost of compliance.
The revised proposals on guidelines for market risk capital issued by the Basel
Committee in 199517 incorporated many of the Institutes recommendations, including
the option of using internal models to calculate market risk for capital-adequacy pur-
poses. As stated in the Basel Committee Proposal to issue a supplement to the Basel
Capital Accord to cover market risks: The main change introduced is to envisage the
possible use of proprietary in-house models for measuring market risks as an alter-
native to a somewhat amended version of the standardized measurement framework
originally proposed.18
In July 1995, the Institute welcomed the Basel Committees revised proposal and
offered suggestions for its implementation.19 The debate then shifted to implementing
the proposal and there was an increase in both formal and informal exchanges
between the Institute and the Basel Committee.
The Basel Committee called upon the banking industry to suggest a reasonable
methodology for measuring one component of market risk in the context of the
internal models approach (that is, the specific risk associated with distinct issuer
characteristics rather than more generally observable and quantifiable general risks).
It was prepared to reconsider its approach in this area.20 This step was ground-breaking
since it gave the financial sector the opportunity to propose a market-sensitive solution
rather than having regulators create their own model.
Responding to this challenge, the Institute convened a group of 15 banks in a
Working Group on Quantitative Issues. Here, the Institute was able to rely on the
skilled resources of the membership and also to demonstrate its balanced approach.
After in-depth analysis, the Working Group recommended that the 50 percent link
for the calculation of specific risk-capital requirements be eliminated for those banks
meeting certain qualitative criteria, and proposed qualitative standards to assist
supervisors in determining eligibility for this exception.
This pioneering work foreshadowed the use of specific qualitative requirements that
would allow more advanced approaches. The Basel II rules now provide qualitative
criteria for using the IRB in credit risk and the Advanced Measurement Approach in
operational risk.

IIF Annual Report, 1995.
Planned Supplement to the Capital Accord to Incorporate Market Risks, Basel Committee on Banking
Supervision, April 1995.
The internal model approach adopted by the Basel Committee permits banks to calculate their market risk
capital requirements using their proprietary risk measurement systems if they meet certain qualitative stan-
dards and use certain parameters.
A Response to the Planned Supplement to the Capital Accord to Incorporate Market Risks, IIF Working Group
on Capital Adequacy, October 1993.
Overview of the Amendment to the Capital Accord to Incorporate Market Risks, Basel Committee on Banking
Supervision, January 1996 (page 7, paragraph 20).

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The Institutes work on conglomerates began in early 1996 with the establishment of
the Task Force on Conglomerates Supervision. It reflected both increased interest by
the official sector in the supervision of financial conglomeratesmany of which
were and are Institute membersand financial sector concerns including the official
sectors proposals in relation to the corporate structures.21 The Institute suggested that
the focus should be on the supervisory implications of financial market globalization
and globally active financial institutions. The G-7 group of industrial countries noted
the importance of this issue in both its 1995 Halifax and 1996 Lyon communiqus,22
and the Joint Forum on Financial Conglomerates was created to take the work forward.23
The Institutes Task Force on Conglomerate Supervision prepared two reports. The
first, issued in February 1997, presented a preliminary private-sector perspective on
how diverse, globally-active financial institutions should be supervised.24 In particular,
it recommended that supervisors adopt a risk-based approach to oversight of globally
active, diversified financial institutions and suggested that the ongoing improvements
in cross-border information-sharing and cooperation should be paired with a common
regulatory focus on risk types rather than on corporate entities. It added that, any
significant policy decisions taken at this early stage that focus on corporate structure
could be misguided.At the same time, the Task Force recognized the importance of
disclosure and dialogue, noting that increased transparency also is a necessary con-
dition for an effective and meaningful supervisory framework.
The second report of the Task Force, issued in July 1998,25 supported the Joint
Forums efforts to increase communication and cooperation among a groups financial
supervisors. However, it objected to the concept of group-wide regulatory capital for-
mulas on the ground that such an approach would not adequately address the actual
risks contained in market portfolios. It stressed the need to develop a regulatory system
more consistent with management practices and reiterated that regulatory requirements
should be based on the groups risk profile.
This conclusion foreshadowed the thinking underpinning Basel II by urging supervi-
sors to create the next generation of oversight tools based on the measurement and

The Tripartite Group of bank, securities, and insurance regulators, in their July 1995 report The Supervision
of Financial Conglomerates, noted in paragraph 20 of their executive summary The Tripartite Group is of
the view that the way in which a conglomerate is structured is crucial to effective supervision. It believes that
supervisors need powers, at both the authorization stage and on a continuing basis, to obtain adequate
information regarding managerial and legal structures, and if necessary, to prohibit structures which impair
adequate supervision. Where supervision is impaired, supervisors should be able to insist that financial con-
glomerates organize themselves in a way that makes adequate supervision possible.
The G-7 Halifax summit communiqu of 1995 urged a deepening of cooperation among regulators and
supervisory agencies to ensure an effective and integrated approach on a global basis. This triggered the May
1996 response of the Basel Committee and IOSCO. The G-7 Lyon summit communiqu of 1996 aimed at
enhancing cooperation among the authorities responsible for the supervision of internationally active finan-
cial institutions by clarifying their roles and responsibilities.
The Joint Forum was established under the aegis of the Basel Committee on Banking Supervision (BCBS),
IOSCO, and the International Association of the Insurance Supervisors (IAIS). It issued its seven consultative
papers in February 1998.
Report on Financial Supervision in a Global Market: A Preliminary Private Sector Perspective, IIF, February 1997.
Report of the Task Force on Conglomerates Supervision: Response to the Consultative Papers Released by the
Joint Forum on Financial Conglomerates, IIF July 1998. A press conference was held on September 9, 1998, to
formally announce the publication of the document.

G F R |
management of risk types, as this will enable them to adapt to the new realities of the
financial market place in a flexible and efficient way, even as they foster implementation
of prudent risk-management practices at financial institutions.26 In sum, the Institute,
with its increasingly diverse membership, was an ideal forum for a cross-sector dialogue
among banks, securities firms, and insurance members, and provided a balanced and
credible response to global regulatory initiatives, such as that of the Joint Forum.
The Institute revisited the supervision of banking and insurance activities in
November 2002, as regulators continued to grapple with the pressures generated by
growing market convergence across sectoral lines and yet continued sector-based
supervisory standards, often with considerable geographic constraints. The IIF co-hosted
a roundtable with the United Kingdoms Financial Services Authority on the growing
overlap between banking and insurance activities. And, in 2003, the IIF co-hosted a
roundtable discussion with the Joint Forum on trends in risk management across
financial sectors. This open exchange between the private sector and the different
functional regulators underscored the financial industrys commitment to greater
alignment between internal risk management and regulatory guidelines.


As the IIFs economic, emerging markets policy, and regulatory policy work expanded
during the 1990s, so did its membership. Much of the growth came from emerging
market banks that benefited from the globalized market. In addition, in its role as the
global association of financial institutions, it was increasingly important for the IIF
to reflect the views of a broader range of financial firms.
It was therefore natural for the Institute to expand its regulatory policy work to
the emerging market economies. An important vehicle for this outreach was the Basel
Committees proposal for a comprehensive framework for banking supervision for all
countries through the Core Principles for Effective Banking Supervision27 (Box 5).
Thus, the IIF was creating regional risk management groups in the emerging markets
before the Asian and Russian crises, which forced the private and the official sectors
to take a retrospective look at these events and draw lessons from them.


Responding to the emerging market financial crises in 1997 and 1998, the Institutes
Board of Directors established in May 1998 the Steering Committee on Emerging Market
Finance, together with four Working Groups and a Task Force, to draw lessons from
the crises and develop concrete proposals to deal with them. This was an unprecedented
undertaking, with more than a hundred IIF member firms participating. The regulatory
aspects of this work focused on identifying weaknesses in risk management and finding
common ground for defining and classifying nonperforming assets (Box 6).
Report of the Task Force on Conglomerates Supervision: Response to the Consultative Papers released by the
Joint Forum on Financial Conglomerates, IIF July 1998, page 25.
Submission for the G-7 Heads of Government at the June 1997 Denver Summit Strengthening Banking
Supervision Worldwide: Recent Initiatives of the Basel Committee on Banking Supervision, Basel, April 1997.

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In April 1997, the Basel Committee issued a comprehensive set of Core Principles for Effective
Banking Supervision (BCP) as part of its efforts to strengthen prudential supervision in all coun-
tries. This proposal constituted a significant expansion of the Basel Committee standard-setting process
and the first articulation of a comprehensive framework for banking supervision, which benefited
from input from supervisors in key emerging markets. The document set forth 25 basic principles
that must be in place for a supervisory system to be effective. These were thought of as minimum
requirements that may need to be strengthened to address particular risks in the local financial
system. The idea behind issuing these principles was to (i) set a standard; (ii) encourage supervisors
to formally endorse it; (iii) use it to benchmark existing supervisory arrangements; and (iv) establish
a time-table to address the deficiencies where inconsistency with the principles are identified.
The Institute formed two regional Working Groups (one in Central and Eastern Europe and the
other in Asia) to respond to the Basel Committees proposals. This was the first time such regional
working groups were formed and a major expansion in the reach of the Institute to emerging markets.
The reports issued by the two groups, which strongly supported the draft BCP, were well received
by the Basel Committee and in their own way contributed to enhancing the stature and credibility
of the Institute as the global association of banks. The Working Groups applauded the collaborative
efforts undertaken by the Basel Committee in articulating the proposed Core Principles but noted
that the implementation of specific core principles could pose some challenges for some supervisors
in the proposed time frame. The Central and Eastern European Group underscored the need for
adequate supervisory resources and recommended the creation of a regional training center to
enhance supervisory skills.1 The Asian Working Group recommended that supervisors adopt a
risk-based focus when implementing the Core Principles and avoid creating duplicative regulatory
requirements, and called supervisors to increase transparency concerning the terms of cross-
border information-sharing agreements.
The Institute also participated actively in the consultation process that led to the revision of the
Core Principles. The Institute, in response to the consultative process launched by the Basel
Committee in April 2006, mobilized its Working Groups and provided regulators with feedback and
recommendations in regard to the proposals. Many of those recommendations were reflected in
the revised set of Core Principles, which were issued by the Basel Committee in October 2006.

Following the successful roundtable held by the Institute at the Hong-Kong membership meeting, the World
Bank announced the creation of a training center for financial supervisors.

The Institutes pursuit of a post mortem following the crises of the late 1990s
and its efforts to mobilize resources from its membership illustrated the Institutes com-
mitment to sound practices and global stability, its belief in the power of transparency,
and the trust placed in it by the membership. Indeed, the debates and analytical work
initiated by the Institute at that time demonstrated:
Support for financial system safety and soundness. The debate in various forums on
emerging market finance was geared toward drawing lessons from the experience
of the key financial players in order to strengthen the system and avoid future crises.
Support of transparency. The contribution made by the Working Group on Loan
Quality not only informed the Basel Committee, as it reviewed and updated the
treatment of credit risks, but also encouraged transparency by calling for an
improvement in the public disclosure of banks asset quality and greater public
release of aggregate information by supervisory authorities. This was recognized
in the BIS review, which noted that the IIFs primary aim in publishing the

G F R |

The work of the Steering Committee On Emerging Market Finance was supported by four Working
Groups and a Task Force. While the work of the Steering Committee and its supporting groups
was much broader, regulatory issues were the focus of the Task Force on Risk Assessment and
the Working Group on Loan Quality.

TASK FORCE ON RISK ASSESSMENT: The Task Force examined financial institutions risk management
experiences in East Asia and Russia, to highlight risk-management strengths and weaknesses, identify
best practices for managing exposures in emerging market economies, and offer recommendations
based on lessons learned from these crises. Its key finding is that the crises exposed weaknesses in
the risk-management systems at both the technical level (as most firms did not fully appreciate the
positive correlation between market trends and individual counterparty) and a risk-management level
(weaknesses existed in internal control procedures). The report of the Task Force, which was pub-
lished in March 1999, included the following key recommendations aimed at financial institutions.1
Have in place robust stress testing and scenario analysis programs and ensure that results
are translated into meaningful management tools, through limit structure.
Improve integration of country economic analysis and risk measurement systems.
Enhance the quality and frequency of communicating firm-wide portfolio strategies to line
The Task Force also urged financial policymakers in emerging markets to remove impediments to
the development of local capital markets.

WORKING GROUP ON LOAN QUALITY: Both the supervisory agencies and the banks themselves
felt the need for a global benchmark on the definition of problem loans and criteria for loan clas-
sification, as this would increase transparency. The IIFs Working Group on Loan Quality took the
initiative of putting forward common definitions for asset classification and credit quality disclo-
sure, focusing on industrial and emerging markets. The Institute conducted a survey on current
bank practices in defining nonperforming loans, which found vastly differing definitions of non-
performing assets and wide-ranging asset ranking and reporting systems. The Working Groups
report, which was published in July 1999, contained the following key recommendation:2
Supervisors world-wide should adopt a common reporting format to capture asset quality
Banks should provide confidentially to their supervisors information on outstanding balances
for loans and other commercial financial assets accounted for on an accrual basis (the
banking book) categorized by quality;
Banks should establish five reporting categories (Standard, Watch, Substandard, Doubtful, and
Loss) for which banking supervisors would then aggregate the data across banks, lumping the
five categories into three and releasing these aggregates to the market on a semiannual basis.

Report of the Task force on Risk Assessment, IIF, March 1999.
Report of the Working Group on Loan Quality, IIF, July 1999.

report was to contribute to improving transparency by establishing a framework

for communicating information on asset quality of banks.28
Members confidence in the Institutes handling of highly confidential information.
The work within the Task Force on Risk Assessment required sharing highly con-
fidential information on members risk-management experiences in East Asia and
Russia. This was necessary to uncover weaknesses in risk management and internal
controls, and bring to the international financial community at large lessons and
best practices for the future.
International Banking and Financial Markets, BIS Quarterly Review, November 1999, page 13.

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As financial regulators began to scrutinize emerging market supervisory frameworks, the
Institute took the opportunity to help its growing body of emerging market members
forge common positions and articulate a regional view. The Institute followed a multi-
track approach to include (i) regional meetings of bank chief executive officers (CEOs)
from emerging market economies; (ii) periodic sessions for financial institutions and
their supervisors to exchange views at the regional level; (iii) forums for chief risk officers
(CROs) in emerging markets to discuss regional risk management challenges and pri-
orities; (iv) technical CRO sessions to discuss views on international financial regulatory
policy-reform proposals; and (v) open programs (fee-based conferences) to bring
Institute work to wider groups and help fill the knowledge gap that had been identified
by bankers and regulators (Box 7).

The IIFs contribution to the formulation of the new Basel Accord revision was long
and complex. Along the way, it redefined the Institutes role and involvement in the
official policy debate. The five years it took to complete the Basel II Accord (June
1999June 2004) were especially intensive for the Institute, with deep involvement in
the reform process both at the technical and the senior policy levels across all regions
of the world. A detailed analysis of the technical work of the Institute during the five
years leading up to the final version of the Basel II Accord is beyond the scope of this
chapter. The approach followed here is intended to highlight the key steps in the
process and the role of the Institute.
The Basel Capital Accord, first elaborated in 1988 and subsequently revised for
Market Risk in 1996, provided both a consistent, internationally agreed framework
for assessing regulatory capital to cover risks held by commercial banks and a common
definition of regulatory capital needed to cover those measured risks. By 1998, advances
in risk-management and measurement practices increasingly rendered the Capital
Accord rules outdated.
As William McDonough, then Chairman of the Basel Committee and President of
the Federal Reserve Bank of New York put it, The 1988 Accord became outdated to a
large extent because it was a relatively simple and static document: its one-size-fits-all
approach to capital regulation represented an important advance as a universally
accepted standard, but it did not provide a means to recognize more advanced risk
measurement techniques. It quickly fell behind as the pace of innovation in technol-
ogy, financial products, and markets accelerated.29 In particular, there was a widening
gap between the Basel approach to credit risk and market realities, as banks gradually
moved to a portfolio-based approach for managing economic capital.
As also recognized by the Basel Committee in its June 1999 report, Another related and increasing problem
with the existing Accord is the ability of banks to arbitrage their regulatory capital requirement and exploit
divergences between true economic risk and risk measured under the Accord. Regulatory capital arbitrage can
occur in several ways, for example, through some forms of securitization, and can lead to a shift in banks
portfolio concentrations to lower quality assets. Finally, for some types of transactions, the Accord does not
provide the proper incentives for risk mitigation techniques. For example, there is only minimal capital relief
for collateral, and in some cases, the Accords structure discourages the use of credit risk mitigation techniques.

G F R |

The Institutes regulatory involvement in emerging markets focused on four regions (Eastern and
Central Europe, Middle East and North Africa Region (MENA), Asia, and Latin America), and
involved a multi-prong approach including:

ANNUAL CONFERENCES OF REGIONAL BANK CEOS. These were designed to promote the
exchange of experiences and to explore the possibility for regional responses to issues facing
banks. The first conferences occurred in 1996, when CEOs from Central European banks met to
discuss key regulatory and bank-management issues and how best to position themselves for
globalization and growing competition. This was followed by the formation of other regional
groupsLatin America, in 1997; Middle East and North Africa (MENA), also in 1997; Asia, 2000,
and the Maghreb, 2005. These regional CEO groups meet on an annual basis and over time have
broadened their focus to include a range of economic and financial topics as well as regulatory
issues. (See also Chapter 5).

REGULAR CHIEF RISK OFFICER (CRO) FORUMS. To assist emerging market members prepare for
the Basel II transition, the Institute created standing working groups in four emerging market
regions (Middle East and North Africa, Central and Eastern Europe, and Latin America regions)
to provide its emerging market bank members with a forum to express regional views on interna-
tional regulatory reform proposals. Depending on the project, regional working groups either
issue their own reports or incorporate their views into broader Institute projects.

consultation increased considerably with the Basel II process, prompting the Institute to initiate
regional technical meetings of senior risk managers, under the auspices of the Steering
Committee on Regulatory Capital. These meetings ensured that the Institutes member banks
around the world were aware of, and involved in, the response to the Basel Committee reform
proposals. The first four such meetings were held in 1999 and early 2000 for the regions of
Eastern and Central Europe (Prague, September 1999); MENA (Manama, October 1999); Asia
(Hong Kong, November 1999); and Latin America (Miami, February 2000). This was followed by
another round of regional technical meetings in early 2001 (January in Budapest, February, 7 in
Doha, February, 9 in Singapore, and March, 2 in Miami).

strong collaborative relationship with Josef Tosovsky and his colleages at the Financial Stability
Institute (FSI) of the Basel Committee, primarily through the organization of high level meetings
between bankers and their supervisors. In these meetings, senior bankers and national and
regional heads of banking supervision meet to discuss a wide range of topics including Basel II
implementation, the Basel Core Principles, Anti-Money-Laundering issues, and other regulatory
topics. Meetings have taken place in several locations including Mexico City, Dubai, Abu Dhabi,
Bahrain, and Cape Town.

OPEN PROGRAMS. These fee-based events were initiated in 2001 to bring Institute work to a
wider group of interested parties in both emerging markets and global financial centers among
the international financial community. Since their inception, some 25 such fee-based conferences
have been held worldwide (including venues in New York, London, Paris, Vienna, Istanbul, Cairo,
Sao Paolo, Johannesburg, Toronto, and Miami).

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The Institute, through its Working Group on Capital Adequacy, realized that this
misalignment, if not corrected, could undermine the credibility of the Basel Accord
as a tool for promoting sound risk management practices that increase financial system
safety and soundness30 and lead to distortionary behavior purely for regulatory capital
purposes.31 The Institute was also aware of the increased attention being devoted by
bank supervisors to credit risk and the work under way at the official level to revisit the
Capital Accord. The Institutes Working Group on Capital Adequacy seized this
opportunity to shape the direction of the changes that were being contemplated.
The Institutes Working Group on Capital Adequacy worked intensively to develop
a consensus on prior work in the market-risk area. In March 1998, the Institute pub-
lished a report containing its first set of recommendations for a post-Basel Accord.32
This report was influential in shaping the views of the official sector and foreshad-
owed many of the concepts now familiar under Basel II.
The report called on the Basel Committee to move quickly toward recognizing
banks internal systems of credit risk modeling to generate regulatory capital cushions
that would be more attuned to real risks. It made the case that such a system would
be a win-win proposition by providing incentives for banks to upgrade their risk
management while strengthening the Basel Accords ability to safeguard the financial
system. It also called for the Basel Committee to move from a uniform approach to
regulatory capital cover for credit risk to a tiered approach that would be geared to
the realities of todays global capital markets.33
During the same period, the Basel Committee began to address the key issue of
using credit risk modeling for determining regulatory capital. It published a report in
April 1999 on Credit Risk Modeling: Current Practices and Applications. This report
provided four key criteria for permitting the use of internal models to set regulatory
capital and the preconditions for this. The Working Group on Capital Adequacy wel-
comed the Basel proposals in October 1999 (Response to Credit Risk Modeling: Current
Practices and Applications) and suggested the need for objective indicators to guide
supervisors and ensure transparency of supervisory decisions, as this was important
to maintain a level playing field.
The IIF then supplemented its arguments with quantitative material. It conducted
a joint exercise with the International Swaps and Derivatives Association (ISDA) to
assess the variety of credit risk models used by leading international banks34 across
different portfolios (corporate bonds and loans, middle markets, mortgages, retail
credit, and emerging markets). The joint industry team analyzed the extent to which
different modeling systems would generate similar risk measures if key inputs and
Report of the Working Group on Capital Adequacy, March 1998, page 37.
The existing framework: (i) created incentives for marginal banks to engage in riskier activities; (ii) may have
encouraged business migration to unregulated markets; and (iii) created regulatory burdens on commercial
banks relative to the growing number of competitors the financial market place.
Recommendations for Revising the Regulatory Capital Rules for Credit Risk, report of the Working Group on
Capital Adequacy, IIF, Washington D.C., March 1998.
The WGCA March 1998 envisaged a twotiered approach. Tier one would apply to banks that do not apply
internal models for their credit risk profile while tier two would permit banks to use their internal models, if
certain conditions are met.
A group of 25 commercial banks from 10 countries participated in a formal testing program.

G F R |
modeling assumptions were similar, and ascertained the models sensitivity to the
same risk factors and the impact that different risk factors would have on model out-
puts. The IIF and ISDA produced a detailed quantitative study. Its results showed that
models yielded directionally consistent outputs when given similar inputs and that
the most significant drivers of risk measures were credit quality, correlation, and loss
given default. The IIF and ISDA met with the Basel Committee Models Task Force to
discuss these results.
This quantitative work helped set the stage for future collaboration between the
IIF and the Basel Committee on the Quantitative Impact Studies associated with
Basel II. In those studies, IIF members provided to IIF staff their internal regulatory
capital calculations (including proprietary model assumptions and parameters)
under tightly guarded security protocols.
The Basel Committees first consultative paper was published in June 199935 and
echoed several of the key principles accepted by the Institutes membership. Now that
broad agreement seemed to exist on the direction of change, the focus moved to the
discussions of modalities and other details of the reform. To build on this momentum,
the Institute strengthened its focus by creating a Steering Committee of Chief Risk
Officers and Chief Executive Officers to monitor the Working Groups activities. The
Institute also increased the pace and scope of its interaction with the Basel Committee
to maximize opportunities for transparency and consultation among technical and
senior executives in the financial and regulatory arenas.
Given the significance of the proposals, the IIF developed a formal project structure
for this work that paralleled that of the Basel Committee itself. This included:
Steering Committee on Regulatory Capital. This group was created in July 1999
to define the strategic direction of the Institutes regulatory work and guide its
overall response to the Basel Committee proposals. It has been chaired by senior
executives from leading financial institutions. The first Steering Committee
chairman was Jan Kalff, Chairman of the Bank Managing Board, ABN AMRO,
with Peter Godsoe, Chairman of the Board and CEO, Bank of Nova Scotia, as
Vice Chairman. In 2002, Daniel Bouton, Chairman and CEO of Socit Gnrale,
became the Chairman of the Steering Committee and held this position until
late in 2005, when Stephen Green, then Group Chief Executive, HSBC Holdings
plc, took over the Chairmanship. At that time, Tom de Swaan, a member of the
Managing Board and Chief Financial Officer of ABN Amro Bank N.V., also
became Vice Chairman of the Committee. A listing of the current membership
of the Steering Committee is given in Box 8.
The Steering Committee guides the work of several working groups including:36
Working Group on Capital Adequacy (WGCA). The pre-existing WGCA was
brought under the aegis of the Steering Committee and was directed to provide
responses to the Basel Committee technical groups on the credit risk proposals.

The Basel report A New Capital Adequacy Framework, Basel Committee on Banking Supervision, June 1999.
The Steering Committee published several reports formally responding to the Basel Committees capital
reform proposals in 2000, 2001, and 2003.

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(As of July 31, 2007) Ken Kilgour

Senior Executive Vice-President and
CHAIRMAN: Chief Risk Officer,
Stephen K. Green Risk Management
Group Chairman CIBC
HSBC Holdings plc James Garnett, Jr.
Head of Risk Architecture
VICE - CHAIRMAN: Citigroup
Tom de Swaan Wolfgang Hartmann
Member of the Supervisory Board Member of the Board of Managing Directors
Van Lanschot Bankiers N.V. and Chief Risk Officer
Commerzbank AG
Shom Bhattacharya Tobias Guldimann
Group Risk Officer Chief Risk Officer
Allied Irish Bank plc Credit Suisse Group
Riyad Al-Dughaither Tonny Thierry Andersen
Senior Vice President Chief Financial Officer
Chief Credit and Risk Officer Danske Bank A/S
Arab Banking Corporation Hugo Banziger
Roberto Setbal Chief Risk Officer and
President and Chief Executive Officer Member of the Management Board,
Banco Ita S.A. Group Board
Deutsche Bank AG
Gustavo Marturet
Chairman and Chief Executive Officer Otto Steinmetz
Banco Mercantil Member of the Board of Managing Directors
Dresdner Bank
Matias Rodriguez Inciarte
Vice Chairman Demetrios Moschos
Banco Santander Central Hispano Chief Economist
Emporiki Bank
John Walter
Senior Vice President Dirk Wilhelm Schuh
Bank of America Chief Risk Officer
Ronan M. Murphy
Group Chief Risk Officer Karel De Boeck
Member of Group Executive Member of the Exectutive Committee and
Bank of Ireland Group Chief Risk Officer
Fortis Bank
Brian J. Porter
Executive Vice President & CRO James Gunner
Global Credit Risk Management Senior Executive
Bank of Nova Scotia HSBC Holdings plc
Mohamed Ozalp Cees Maas
Vice Chairman Honorary Vice Chairman/
Banque Misr Advisor to the Executive Board
ING Group
Robert Le Blanc
Risk Director Pietro Modiano
Barclays Capital General Manager
Intesa Sanpaolo S.p.A.
Michel Konczaty
Chief Risk Officer Adam Gilbert
BNP Paribas Group Managing Director
J.P. Morgan Chase & Co.

G F R |

Carol Sergeant Jan Sinclair

Chief Risk Director and Member of the Group Head of Group Treasury,
Executive Committee Member of the SEB Group Management
Lloyds TSB Group Committee
Yoshihiro Watanabe SEB
Senior Managing Director and CRO Daniel Amadieu
Mitsubishi UFJ Financial Group Director of the Basel II Project
Tetsuji Kosaki Socit Gnrale
Managing Director Paul Smith
Mizuho Financial Group, Inc. Director, Group Risk Standard
David Wong Standard Bank of South Africa
Treasurer Anders Karlsson
Morgan Stanley Chief Risk Officer
Michael Hamar Swedbank AB
Group Chief Risk Officer Walter Stuerzinger
National Bank of Australia Group Chief Risk Officer
Carl-Johan Granvik UBS AG
Executive Vice President & Chief Risk Officer Henning Giesecke
Group Credit and Risk Control Chief Risk Officer
Nordea Bank AB Unicredit Group
Morten Friis Russell Playford
Chief Risk Officer Senior Vice President
RBC Financial Group Wachovia Corporation
Peter Nathanial Jir Kunert
Group Chief Risk Officer Chairman, Board of Directors
Group Risk Management Zivnostenk Banka
Royal Bank of Scotland Group

Working Group on Operational Risk (WGOR). This was a new group formed in
2000 to explore how a regulatory capital framework for operational risk could be
measured. It was initially chaired by Thomas Fischer, Group CRO of Deutsche
Bank AG, with Christopher Roberts, Joint CEO of Tokai Bank (Europe) plc, as
Vice Chairman. Later, from 2003 to 2006, Christopher Roberts, Joint CEO of UFJ
International, became chairman of the WGOR. The current Chairman is Aldo
Sprano, Head of Operational Risk for Unicredit Group. The Group worked
intensively on a range of technical issues in order to crystallize industry thinking
and build consensus on appropriate methods for managing and measuring
operational risk. It also collaborated with its Basel counterparts, the Accord
Implementation Group (AIG) and the Risk Management Group (RMG).37
Working Group on Market Risk (WGMR). The WGMR was established under the
guidance of the Steering Committee, and in 2005, the WGMR interfaced with the
Basel Committees AIG Working Group on the Trading Book to address technical
issues related to the implementation of the Basel Accord rules on the trading
Report of the Working Group on Operational Risk Response to the Basel Committee on Banking Supervision
Regulatory Capital Reform Proposals, IIF, Washington DC, May 2001.

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Stephen K. Green, Aldo Sprano, Head of Peter C. Godsoe, former Christopher Roberts, CEO,
Group Chairman, HSBC Operational Risk, Chairman, Bank of Nova UFJ International plc
Holdings plc Unicredit Group Scotia

Daniel Bouton, Chairman and Fouad Masrieh, Edoardo Ginerva, Andres Portilla, and Oliver Fratzscher
CEO, Socit Gnrale at the IIF Open Program on Basel II and Risk Management in Manama,
Bahrain, 2005.

book, especially in regard to market risk. It also works with the ISDA and LIBA to
address issues relating to the trading book, most recently focusing on incremental
default risk.
Working Group on Country Risk (WGCR). This group was formed specifically
to examine the potential impact of the Basel Committee proposal to rely exclusively
on external-rating-agency assessments to determine the capital requirements for
sovereign lending.38
Task Force on Home /Host Issues. In 2002, the Steering Committee created this
Task Force to engage the Basel Committees Accord Implementation Group at a
high level on major implementation issues and, in particular, on the balance of
responsibilities between home and host supervisors. The Task Force is chaired by
Tom de Swaan, member of the Supervisory Board of Van Lanschot Bankiers N.V.

The Working Group on Country Risk produced a report for the Basel Committee that outlined principles of
sound country risk assessment. The issue became less prominent as the Basel Committee revised its proposals
to allow for the use of internal, as well as external, ratings in the IRB Approach and to allow for use of local
currency ratings in the Standardized Approach.

G F R |

IIF Steering Committee

Basel Committee
On Regulatory Capital
Accord Implementation Group (AIG) Working Group on
Capital Adequacy (WGCA)
Validation Operational Trading
(AIGV) Risk (AIGOR) Book (AIGTB)
Working Group on
Policy Development Group (PDG) Operational Risk (WGOR)
Modeling Research Liquidity Definition Basel II
(RMMG) (RTF) of Capital Capital Working Group on
Monitoring Market Risk (WGMR)

Accounting Task Force (ATF) Three Way Dialogue Group

Conceptual Financial Audit
Three Way
Dialogue Task Force on Home/Host
Framework Instruments
Issues Practices
Task Force on
International Liaison Group (ILG) Corporate Governance


The IIF Committee and working group structure and its Basel Committee coun-
terparts are summarized in Box 9. On substance, there were three consultative papers
issued by the Basel Committee. The First Consultative Paper (CP1) was issued in
June 1999, followed by CP2 in January 2001, and CP3 in April 2003. The Institute
responded to these papers and to the associated technical work carried out by the
Basel Committee in several ways:
The IIF groups (Steering Committee, Working Group on Capital Adequacy (WGCA),
and Working Group on Operational Risk (WGOR)) published formal reports in
response to each of the Basel Committee consultative papers. Consequently,
reports were produced in March 2000 to respond to the initial Basel Committee
proposals (CP1), in May 2001 to respond to CP2, and in July 2003 to respond to
the third set of proposals from the Basel Committee CP3.39
The IIF Working Groups and Steering Committee provided letters and other
publicly available written responses to the Basel Committee or its subgroups on
particular technical issues.40 This helped provide the Basel Committee with the
key information they needed to make strategic choices about how to develop the
Basel rules in an efficient and effective manner.
The IIF undertook specialized studies on specific topics, sometimes at the request of
the Basel Committee and sometimes on the Institutes own initiative. Topics included:

IIF Response to the Basel Committee on Banking Supervision Regulatory Capital Reform Proposals, March
2000, May 2001, and July 2003.
Subjects that were addressed in this manner included the definition of default for credit risk capital calculations,
loss given default experience, the classification of operational risk losses, the treatment of equity holdings,
the treatment of lending to small and medium sized enterprises, and the division between the banking book
and the trading book, among others.

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retail lending (October 2000 and June 2002); operational risk management and
measurement practices (August 2000); credit risk capital allocation processes
(May 2000); and the treatment of non-financial collateral (April 2002).
The IIF contributed to the Basel Committees series of periodic quantitative tests
(Quantitative Impact Studies, QIS). For each of these tests the IIF, working through
the WGCA and WGOR, collected results of the regulatory exercises, compiled them
on an anonymous basis, and delivered an analytical report that provided the Basel
Committee, or its subgroups, with the consensus industry views on the results of
the tests. These were used as the basis to refine further the Basel revision proposals.
At each stage of the process the Steering Committee would meet with the Basel
Committee and working groups would meet with their counterparts (the Models
Task Force in the case of the WGCA and the Risk Management Group in the case of
the WGOR). The IIF presented the consensus view, although individual banks were
still able to put forward their own views and positions. This provided the Basel
Committee with a multi-layered and nuanced set of views on any given issue.
The message of the IIF was heard and considered, as illustrated by the statement of
the Basel Chairman in 2003: The New Accord still has its limits, however. Members of
the IIF and others have cited as an example the failure to recognize use of full credit
risk models, which would adjust a banks capital requirements in accordance with the
benefits of diversification in its balance sheet. As you know, the Committee evaluated
proposals that would have allowed advanced banks to estimate the degree to which
their assets might behave similarly or default together. For the time being, we have
decided instead to establish standard estimates of diversification that banks would apply.
I know that many members of the IIF have accepted that choice as prudent for now,
but you have also cautioned us that this decision is incompatible with the existing
treatment of market risk and the emerging practices in operational risk management.41
Throughout the Basel II process, the IIF used its regional meeting structure to ensure
that the emerging market views were appropriately represented in the discussion.
Meetings were held in all four major emerging market regions (Central and Eastern
Europe, Latin America, Asia/Pacific, and Middle East/North Africa) in 1999, 2000,
and 2001. While they never issued their own formal reports or comments, the views
of the regional emerging market groups were reflected in the Steering Committee
and Working Group reports.
The unprecedented level of open and informal dialogue with the supervisory
community has been both useful and successful. By bringing the collective experience
of IIFs members to the dialogue, the Institute has enriched the official debate,
anchoring decisions on market realities and encouraging regulators to make reforms
consistent with best market practices (Box 10).
In sum, the Institute contributed to effectively moving the new capital framework
toward a closer alignment with banks internal risk-management practices, as noted by
Josef Ackermann, Chairman of the Board of Directors of the IIF: We take pride in the
constructive role the Institute played in helping shape this new accord in closer alignment
Remarks by Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on
Banking Supervision, at the IIF Annual Meeting, Dubai, 21 September 2003.

G F R |

The key areas where IIFs contributions helped shape the debate and the direction of the reform,

SPECTRUM APPROACH TO CAPITAL REQUIREMENTS.1 This was an idea first proposed by the
Steering Committee on Regulatory Capital in its March 2000 response to the initial Basel Committee
proposals. The Spectrum Approach was an idea that banks should be allowed to use (and should-
be provided with regulatory capital incentives to use) increasingly more sophisticated methods to
determine capital requirements. This was incorporated into the Basel Committee proposals on
both credit risk (in the form of the Standardized, IRB Foundation, and IRB Advanced Approaches)
and operational risk (in the form of the Basic Indicator, Standardized, and Advanced Measurement
Approach (AMA) approaches). The approach was reinforced by the willingness to permit banks
not only to use increasingly sophisticated approaches but also to use internal data.2


EXPOSURES. Building on the distinctions created in the Standardized Approach (where corporate,
bank and sovereign lending had different risk weights), the IIF Working Group on Capital Adequacy
encouraged the Basel Committee to accept different capital assessments for retail lending, spe-
cialized lending (e.g. project finance), and equity holdings in the IRB Foundation and Advanced
Approach, and provided detailed qualitative and quantitative information to justify these. These
different assessment processes recognized the unique risk profiles of such exposures and helped
more closely to align the regulatory capital requirements with internal risk management practices.


RISK. This was an issue of importance to many emerging market banks owing to the increased
funding of loans in local currency. Thus, they did not want to be unfairly penalized for having to
base their capital requirements on foreign currency ratings only.

reform proposals, non-financial collateral (i.e. receivables, residential and commercial real estate,
and other physical collateral) would only have received limited recognition. The IIF undertook
quantitative studies on the issue, which helped provide supervisors with the comfort to expand
the recognition of such collateral more broadly.


Measurement Approach broke new ground in that it provided specific criteria to allow banks to
use internal models to determine their operational risk regulatory capital requirement as long as
certain qualitative and quantitative standards were met. These standards focused on model
inputs and some key model parameters but provided banks with flexibility to develop internal
models that were consistent with their overall approach to the management and measurement
of operational risk.

CREATION OF AN ACCORD IMPLEMENTATION GROUP to facilitate consistent implementation of

the Basel II rules across jurisdictions. This is increasingly important to banks as they operate in
multiple jurisdictions and seek to have as consistent treatment as possible, while still recognizing
the need for national jurisdiction and specific approaches.

The spectrum approach to using internal ratings is a multi-stage approach, depending on the sophistication
of the banks involved. See a fuller description in Chapter 2, page 21, of the report of the Working Group on
Capital Adequacy, Response to the Basel Committee on Banking Supervision Regulatory Capital Reform
Proposals, March 2000.
Probability of default and loss-given-default statistics in the case of credit risk calculations, and loss data, sce-
narios, and other control indicators in the case of the AMA.

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with the realities of the financial industry.42 Daniel
Bouton, then Chairman of the IIFs Steering Committee
on Regulatory Capital, underscored the mutual benefit
from the two-way dialogue with the Basel Committee
throughout the Basel II reform, saying: The Basel
Committee has capitalized on the best supervisory
thinking, leveraging risk-management advances made by
the industry to make possible this fundamental change.

Continuing its tradition of helping members stay ahead
Jaime Caruana, then Chairman of the curve on regulatory trends, the Institute and its
of the Basel Committee
members began to think about the challenges of imple-
mentation before the final Basel accord was issued. In April 2004, just prior to the
issuance of the Basel II Framework document, New Accord, several members of the
IIFs Steering Committee met informally with the then Basel Committees Chairman,
(Jaime Caruana) and Vice-Chairman and Chairman of the Accord Implementation
Group, as well as other key Basel Committee members, at the IIFs office in Washington
D.C. In that meeting, the Steering Committee stressed the importance of consistent
implementation of the new Accord across markets and followed up with a letter under-
scoring the industrys views on the coordination between home and host supervisors,
loss-given default factors to account for economic downturn, and the hybrid advanced-
measurement approach for operational risk.
The Steering Committee also issued a report in November 2005 that underscored
the industrys support for Basel II and detailed the industrys main concerns and
issues requiring attention by the Basel Committee, as well as by regional and national
regulators.43 These included the final calibration of the Accord; issues arising from
staggered international implementation schedules (see Financial Times article below);44
operational risk issues; home-host and cross-border issues; implementation of the new
trading book regime;45 and a considerable number of specific emerging market issues.
The Institutes activities related to Basel II implementation continue today. The IIF
Home Host and Implementation Issues Task Force is currently undertaking work on
such key areas as Pillar 2 and Pillar 3 implementation, in close collaboration with the
Basel Committee, the Accord Implementation Group, and their subgroups.

Chairmans remarks, IIF Annual Report, 2005.
The Implementation of Basel II: A Report of the Steering Committee on Regulatory Capital, IIF, November 2005.
The Steering Committee expressed concern that different implementation schedules have been set without a
clear guidance as to how the implications of a staggered implementation or the so-called gap year will be
dealt with.
Resolving the trading book process would be essential in the successful implementation of the Accord.
The IIFs WGCA, participating in a joint working group including the Basel Committee and IOSCO,
worked on related issues and was designated as the lead organization to conduct work on the trading
book/banking book definition issue. Ultimately this led to the publication in July 2005 of the joint Basel
Committee/IOSCO report The Application of Basel II to Trading Activities and the Treatment of Double
Default Effects. This was subsequently incorporated formally into the Basel II Accord. The IIF, through a
new Working Group on Market Risk, cooperated closely during 2005 and 2006 with the Basel/IOSCO
Working Group on Market Risk on interpretative and implementation questions.

G F R |
November 15, 2005, The Financial Times. Reprinted with permission.

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The revisions by the International Accounting Standards Board (IASB) of key provisions in the
accounting standards prompted the IIF to form an Accounting Task Force, under the chairman-
ship of Cees Maas, then Executive Board Member and CFO of ING Group, and Vice Chairman and
Treasurer of the IIF. This led in part to the launching in 2003 of the Three-Way Dialogue initiative
to facilitate the dialogue among financial institutions, regulators, and accounting standard-setters,
and to promote convergence between banking regulations and international accounting standards.
The IIF, Basel Committee Accounting Task Force, and IASB held several meetings during 20032006.
Discussions under the Three-Way Dialogue identified specific areas in which regulation and
international accounting standards diverged, resulting in burdensome reconciliation exercises for
financial institutions. These included fair valuation and hedge effectiveness, loan loss provisioning
practices, U.S. GAAP/IAS convergence, and adjustments for gains and losses arising from fair
valuation. The IIF has also established an Accounting Working Group to advise the Three-Way
Dialogue and discuss strategies to alleviate problems faced by member institutions. The useful-
ness of this initiative was widely recognized, and Jaime Caruana, then Chairman of the Basel
Committee, noted in his speech in Dubai in 2003: Yet as the Institutes comment letter reminds us,
there are also other areas of the New Accord, such as its treatment of provisions and the valua-
tion of financial instruments, where supervisors and accounting professionals should continue to
work toward convergence. We think that in order to contribute to financial stability, accounting
standards should be consistent with sound risk management and control practices in banks and
should facilitate market discipline.


At the same time as it was intensely involved in the Basel II process, the Institute
saw the need to initiate a tripartite dialogue among its members, regulators, and
accounting-standard setters to promote convergence between banking regulations
and international accounting standards (Box 11).
Two other main activities were undertaken by the Institute during 2005.
First, the Institute participated in the work of the International Auditing and
Assurance Standards Board (IAASB) consultative group, to provide private sector
perspectives and ensure that the new auditing standards are developed with due
consideration for the potential impact on member risk management practices.
Second, in response to an invitation by the Basel Committee to provide industry
input, the Institute set up an IIF Task Force on Corporate Governance in 2005 to serve
as a main interlocutor with the Basels Working Group on Corporate Governance. The
latter had been set up to review and update its 1999 guidance on corporate governance
in banking organizations. The IIF Task Force met with the Working Group on two
occasions and provided written comments on two Basel draft documents. The Basel
Committees final paper, released in February 2006, reflected a number of positions
taken by the industry. For example, the Basel report confirmed that financial entities
should not necessarily be subject to different corporate governance norms, or be held
to higher standards than other firms; ensured that requirements placed on directors
did not blur the separation of duties between Board and Management; and confirmed
that statements of corporate social responsibility should not be part of mandatory
corporate governance requirements.

G F R |
Over the years the Institute has developed effective mechanisms for detecting market
trends and engaging with the official sector and market participants to ensure a bal-
anced response. Its chief objective is to contribute to the soundness and stability of
the global financial system while ensuring that new regulations are efficient, effective,
and anchored in market realities.


The Institutes initiative in 2005 to launch the Strategic Dialogue grew out of years of
constructive engagement with supervisors and financial sector regulators world-wide.
It also grew from its desire to build on this special relationship with the official sector
and find a framework for broader, more comprehensive, and sustained engagement,
to achieve the shared goals of regulatory efficiency and effectiveness.
While there were many considerations underlying the Institutes initiative, a few
are worth highlighting. They include:
the pressure placed on both regulators and financial institutions to adapt to the
accelerating pace of change in financial markets;
the need to address the widening gap between continued rapid globalization and
integration of financial markets and the mostly national character of regulation;
the growing complexity of regulations and uncertainty in the current regulatory
environment that may impede the achievement of core regulatory objectives
while increasing the regulatory burdens on the financial service industry;
the concern that some regulatory approaches may inadvertently produce inefficiency
and inconsistencies that may undermine soundness and competitiveness; and
the concern that overly detailed regulations may not be well suited to maintaining
regulatory effectiveness as market practices evolve rapidly.
Charles Dallara, summarized the need for such a Strategic Dialogue: The need
for a strategic approach at this time reflects in part an increasing contrast between
the rapid pace of globalization of financial firms and markets, and regulation that
remains rooted in national policies and legislation. We believe that a long-term dia-
logue can facilitate a process of adaptation by both regulators and firms to new global
realities, building on the cooperative efforts already underway.46
To pursue this initiative, the IIFs Executive Committee and Board of Directors
approved in 2005 the formation of a Special Committee for a Strategic Dialogue on
Effective Regulation, which was initially co-chaired by IIF Executive Committee
members Peter Wuffli, Group Chief Executive Officer of UBS AG, and Sir George
Mathewson, Chairman of the Royal Bank of Scotland Group. Following Sir George
Mathewsons retirement, William B. Harrison Jr., then Chairman of the Board, J.P.
Morgan Chase & Co., took the role of co-Chairman until his retirement from the
Committee in May, 2007. Peter Wuffli resigned from the Committee in July, 2007.
A listing of participants in the Special Committee is given in Box 12.

Institute of International Finance, Press Conference, Opening Statement, December 13, 2006, New York.

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(As of June 30, 2007) Alan Cohen

Global Head of Compliance
CHAIRMAN: Goldman Sachs Group, Inc.
Mr. Peter Wuffli Gregory Wilson
Group Chief Executive Officer President
UBS AG Gregory P. Wilson Consulting
Stephen Green
Carl Sheldon Group Chairman
Senior Partner HSBC Holdings plc
Allen & Overy
Cees Maas
Dermot Gleeson Honorary Vice Chairman/
Chairman Advisor to the Executive Board
AIB Group ING Group NV
Anastasia Kelly Kang Chung Won
Executive Vice President President & Chief Executive Officer
American International Group, Inc. Kookmin Bank
John Hawke Eric Stobart
Partner Director of Public Policy & Regulation
Arnold & Porter LLP Lloyds TSB Group
Roberto Stubal Philip Hrle
President & Chief Executive Officer Principal
Banco Ita S.A. McKinsey and Co.
W. Peter Cooke John Drzik
Board Member President
Bank of China Mercer Oliver Wyman
Mark Harding Christopher B. Hayward
General Counsel Senior Vice President, Finance Director
Barclays Bank plc Merrill Lynch
Baudouin Prot Yoshihiro Watanabe
Chief Executive Officer Senior Managing Director &
BNP Paribas Group Chief Risk Officer
Michael Helfer Mitsubishi UFJ Financial Group
General Counsel Sir David Walker
Citigroup Senior Advisor
Martin Blessing Morgan Stanley International
Member of the Board of Managing Directors Takis Arapoglou
Commerzbank AG Chairman of the Board &
Urs Rohner Chief Executive Officer
COO & General Counsel National Bank of Greece S.A.
Credit Suisse Group Ibrahim Dabdoub
Hugo Banziger Chief Executive Officer
Chief Risk Officer & National Bank of Kuwait, S.A.K.
Member of the Management Board Jean-Pierre Bguelin
Deutsche Bank AG Chief Economist
Pictet & Cie Banquiers

G F R |

Eugene A. Ludwig Jill M. Considine

Chairman / Founder & Chairman of the Board
Chief Executive Officer The Depository Trust & Clearing Corporation
Promontory Financial Group, LLC Rainer Masera
Gordon M. Nixon Member of the Board of Directors
President & Chief Executive Officer UBM
RBC Financial Group Tom de Swaan
Marcus Wallenberg Chairman
Chairman IIF Task Force on Basel II
SEB Axel P. Lehmann
Daniel Bouton CEO
Chairman and Chief Executive Officer North America Commercial
Socit Gnrale Zurich Financial Services
H. Rodgin Cohen
Sullivan & Cromwell LLP Stephen Sanders
Lars O. Grnstedt Head of Group Regulatory Risk
Chairman Royal Bank of Scotland
Svenska Handelsbanken Darryll Hendricks
Carl Eric Stalberg Global Head of Quantitative Risk Control
Executive Chairman UBS AG
Swedbank (ForeningsSparbanken)

The core objectives of the initiative were noted by Peter Wuffli: We have recognized
that the most constructive way to advance the mutually shared goal of regulatory effi-
ciency in global financial markets is to move ahead with a dialogue between leaders of
globally active firms and senior officials of the regulatory community. This will help
assure focus on the common objectives of supporting a vibrant, growing, and competitive
global economy and ensuring financial system stability, while building mutual under-
standing on how best to streamline and improve the efficiency of regulation across
national borders.
The Special Committee met in November 2005, developed initial proposals and
refined them during the course of 2006. It released its Proposal for a Strategic Dialogue
on Effective Regulation in December 2006. In addition to a number of discussions
that collated varied regulatory views, a meeting in London between members of the
Special Committee and other CEOs of IIF-members with regulatory leaders of the
European Union refined thinking on the issue. The views expressed in the Proposal
were refined through extensive dialogue, both across the IIF membership and with a
number of leading members of the regulatory community. The Special Committee
also held a robust dialogue with public-sector organizations, including the Joint
Forum and the Financial Stability Forum on the Guiding Principles. The Committee
benefited from the results of a formal survey of the CEOs of IIF members designed
to deepen the inquiry and confirm its broad validity.

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Having mutual trust and respect for judgment as the foundation for effective regulation.
Encouraging collective market-based solutions whenever possible;
Prioritizing global coordination as an essential part of any jurisdictions regulatory process;
Supporting a meaningful legislative dialogue with input from both industry and regulators;
Recognizing that effective and efficient regulation requires assessing policies and new
initiatives dynamically;
Promoting contingency planning as an ongoing, joint obligation of the public and private
sectors; and,
Ensuring proportionate enforcement that is consistent with efficient and effective regulation.

Peter Wuffli, then CEO, UBS AG Sir George Mathewson, then William B. Harrison, then Chairman
Chairman, Royal Bank of Scotland and CEO, J.P. Morgan Chase

The Proposal included Guiding Principles to facilitate industry discussion with

the regulatory community to make international regulation more efficient and
effective (Box 13). As former IIF Board Member William Harrison, then Chairman
of the Board, J.P. Morgan Chase & Co. noted: This is the first time that the global
financial industry has put forward a set of Guiding Principles to frame relations
with the regulators and to place them on a more consistent footing across the
globe. Our work on application of the Principles will initially stress three areas
of particular importance where concerns existglobal coordination of regu-
latory policies; enforcement practices; and anti-money laundering issues.
Inefficiencies in these areas can best be addressed through cooperative efforts47

Institute of International Finance, Press Conference, Opening Statement, December 13, 2006, New York.

G F R |
The Special Committees Proposal highlighted some concrete benefits to both
regulators and industry, including:
(i) deepening industry understanding of the fundamental objectives of regulatory
bodies and understanding on the part of regulators of industry structures
and approaches;
(ii) improving focus on the origination and development of clearly targeted
policies, as well as on their implementation;
(iii) supporting existing public sector efforts to improve regulation and establish
best-practice approaches to meeting regulatory objectives;
(iv) deepening understanding of the international dimensions of regulatory
practices and requirements and enhancing international communication
and cooperation among regulators;
(v) making regulation more effective by identifying and rectifying unduly burden-
some or counterproductive practices or approaches;
(vi) addressing the cycle of complexity, whereby market responses to regulation
lead to further, more detailed regulation rather than to a review of the goals
of the original regulation;
(vii) fostering a dialogue on effective regulation that can meaningfully inform
legislative and public discussion of regulatory issues; and
(viii) promoting enforcement policies that recognize good-faith compliance and
avoid retrospective application of changes in regulatory and market practices.

The Proposal was well received by the industry as well as the official sector.
The Financial Stability Forum noted through its Chairman, Mario Draghi, Governor,
Banca dItalia: The FSF welcomes the IIFs efforts to enhance dialogue between
regulators and the financial industry on regulatory issues and market weaknesses
that warrant attention. Financial regulators and financial services firms share a
common view of principles that underlie good regulatory practice.

The support from the official sector and challenges ahead were well captured by
Sir Callum McCarthy, Chairman, Financial Services Authority, U.K.: The Institutes
Proposal is a welcome initiative, which has the broad support of the FSA. Too much
of the rhetoric in the past has focused on an essentially adversarial relationship between
the regulator and the regulate. That should not be the case. The Proposal represents a
constructive approach to improving these key relationships. The challenge nowfor
regulators and those regulatedis to advance from good intentions to concrete results.48
Responding to these challenges in implementing the Proposal, Peter Wuffli, then
Group Chief Executive Officer of UBS AG, noted: We intend to advance these guiding
principles by discussing a wide range of issues with the regulators and working together
with them on implementation. This initiative also complements other public-private

Institute of International Finance, Press Conference, Opening Statement, December 13, 2006, New York.

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sector discussions currently taking place and adds momentum to efforts already underway
to improve regulation. In addition, our strategic dialogue initiative complements the
work of the IIF and the regulators on Basel II, liquidity management, and accounting,
and gives us a framework to consider other areas where high-level review is in order.49
The IIF is working to take the Strategic Dialogue forward on a number of different
fronts. In addition to specific policy areas where there is scope to achieve greater
efficiency, a number of regional initiatives were undertaken in the first half of 2007.
In May 2007 the IIF and the Korean Financial Supervisory Commission/Financial
Supervisory Service (FSC/FSS) hosted a high-level gathering of public and private
sector representatives from across the Asia/Pacific region in Seoul. The meeting
focused on mechanisms to improve regulatory coordination and industry consultation
in the region as well as to consider how to achieve the consistent implementation of
international standards across such an economically diverse region. In June 2007, a
small group of bankers and regulators from the Nordic and Baltic countries met in
Stockholm, hosted by SEB, to explore how to build on the already robust tradition of
dialogue in that region to achieve greater efficiency in cross-border regulation. In both
cases, participants at the meeting stressed that it was the first time that such an event
had been organized and that there was immense value in such informal public/private
sector discussions. In the Asia/Pacific region, a Task Force was proposed to take the
Effective Regulation initiative forward in the region.


In late 2005, the IIF established a Special Committee on Liquidity Risk. The Committee
chaired by Ahmass Fakahany, then Vice Chairman and Chief Administrative Officer
(current President) of Merrill Lynch, with Chris Grigg, Chief Executive of Barclays
U.K. Business Banking, as its Vice Chairman. It includes representatives from about
forty of the largest global financial institutions. The objective of the Special Committee
is twofold: first, to develop a perspective and recommendations on liquidity risk meas-
urement, monitoring, management, and governance at financial institutions and, second,
provide the groundwork for a constructive engagement with the regulators, and more
generally, make it part of a new strategic dialogue with the authorities.
The Special Committee considered that major changes in the liquidity characteristics
of international markets warranted a closer look. These changes included the global-
ization of firms and the financial system, the increasingly concentrated number of
firms that provide market volume and liquidity, the increased reliance on secured
funding, and the lack of harmonization of global liquidity standards. IIF Managing
Director, Charles Dallara, pointed out that The last few years have seen innovations
in global finance, with rising roles for hedge funds and private equity groups, growth
Institute of International Finance, Press Conference, Opening Statement, December 13, 2006, New York.
The notion of best practices was nuanced in this project. As underscored in the Special Committee on
Liquidity Report Principles of Liquidity Management (IIF, March 2007): Firms needs and strategies can, for
legitimate business reasons, vary considerably, so that the Recommendations proposed must be understood
as describing a range of good practices, not a prescriptive list of necessarily best detailed practices.
Moreover, all Recommendations and commentary apply on a comply or explain basis, and controlled firms
may have good reasons to take quite different approaches.

G F R |
Sir Callum McCarthy, Chairman, Ahmass Fakahany, President and Chris Grigg, Chief Executive,
Financial Services Authority U.K. COO, Merrill Lynch UK Business Banking, Barclays
Bank plc

of derivative instruments, and sizable increases in capital flows to emerging markets.

Against this background we considered it prudent to reexamine risk management

On March 12, 2007, the Special Committee released a report defining good
practice standards and stressed that it was useful to intensify the dialogue with
the regulators on modernizing liquidity risk management rules. In presenting
the report, Ahmass Fakahany, then Chairman of the IIF's Special Committee on
Liquidity Risk and Vice Chairman and Chief Administrative Officer of Merrill
Lynch, said: Today we are releasing a report, Principles of Liquidity Risk
Management, which has been developed over the last year by industry leaders.
It contains more than 40 recommendations on liquidity risk management to the
financial services industry and to the regulatory authorities. Given the recent
growth and breadth of asset classes globally, this is a good time to review risk
management approaches and to raise the bar, as and where appropriate.52

This report focuses on funding liquidity risk, exploring appropriate practices, and
making a number of recommendations for the private sector on three broad topics:
governance and organizational structure for managing liquidity; an analytical frame-
work for measuring, monitoring, and controlling liquidity; and stress testing and
contingency planning. For the official sector, the recommendations reflected approaches
that could both facilitate liquidity management for firms and make the system overall
more robust. These included such issues as home-host coordination; harmonization
of regulations; principle-based not rule-based liquidity regulations; and the

Leaders of Global Finance Stress Comprehensive Liquidity Risk Management Approaches at a Time of
Changing Market Conditions, Press Release, Washington D.C., New York, London, March 12, 2007

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expansion and harmonization of the range of collateral accepted by central banks
and settlement systems. The intent of the report is to raise expectations for liquidity
risk management and to generate a constructive dialogue on risk management issues.
The report has been welcomed widely by the regulatory community as a significant
contribution to international discussion of an important topic. This topic had been
somewhat eclipsed by capital issues for a few years, but is now a major focus of official
attention given current market conditions. The Special Committee has taken advantage
of a number of invitations to present its views to the regulatory and central banking
communities and continues to do so. The Special Committee anticipates that various
official working groups, as well as individual central banks and supervisors, will be able
to use the report as a point of departure for further work on liquidity questions.

G F R |
IIF Board members and guests at the 2003 Annual Membership Meeting in Dubai

Sir John Bond, Lady Elizabeth Bond and Josef Ackermann Jacob A. Frenkel (Merrill Lynch) and Gustavo
at 2003 the Spring Membership Meeting in Berlin A. Marturet (Banco Mercantil) at the 2003
Spring Membership Meeting in Berlin

Pinar and Yavuz Canevi, Chairman, Turk Ekonomi Bankasi Cees Maas and Ademaro Lanzara
(BNL) at the 2003 Annual
Membership Meeting in Dubai

| I I F
Francisco Gonzalez and Jose Manuel Durao Phil Gramm and William J. McDonough at the 2004 Annual
Barroso at the 2005 Spring Membership Membership Meeting in Washington
Meeting in Madrid

B.Y. Koo (Korea Center for International Finance), Peter Wuffli, and Gerd Husler and Klaus-Peter
Yusuke Horiguchi at the 2005 Annual Membership Meeting in Washington Mller at the 2007 IIF Open
Program in Frankfurt

Charles Dallara, Rita Maas, Peixin Dallara, and David Anna and Gbor Erdly, Managing Director,
Eldon at the 2004 Spring Membership Meeting in Shanghai HIBTRADE KFT

T F Y |
IIF ASEAN Finance Ministers Forum at the 2006 Annual Membership Meeting in Singapore

Geoffrey Bell, Francisco Gil Daz and Otto Steinmetz at Roger W. Ferguson (former VC, U.S. Federal
the 2006 IIF Ditchley Conference in Cernobbio Reserve) and Ricardo Lagos (President, Chile) at
the 2006 Spring Membership Meeting in Zurich

Stephen K. Green and the Honorable Goh Chok Tong (Senior Minister, Singapore) at the 2006 Annual
Membership Meeting in Singapore

| I I F
Josef and Pirkko Ackermann Michael Wattleworth, Narendre Jhadav, Suman Bevy, Bejoy das Gupta
and Ed Baker at the IIF Open Program in Mumbai in 2004

Lex Rieffel, former Director, IIF Barbara Matthews, former IIF Banking Advisor and Regulatory Counsel,
Multilateral Policy Department Jan Kalff, former Chairman, Managing Board, ABN Amro, and John
Haseltine, former IIF Deputy Managing Director

IIF Economists Bejoy Das Gupta, Jeffrey Anderson (current Director,

European Department), Sabine Miltner and Xiaoyong Wu at the IIF
office, 1994

T F Y |
4 Emerging Markets
Policy Issues

uring the 1980s, a close working relationship evolved among commercial
banks, finance officials in the G-10 countries, and senior managers of the
international financial institutions as they jointly addressed the critical prob-
lems of the heavily indebted middle-income countries. The IIF became involved in this
process (as described in Chapters 1 and 5), and the Institutes growing visibility during
this period was a precursor to the more active role it has played since the mid-1990s.
The need to interact with the public sector on crisis prevention and crisis resolution
in emerging markets moved to the top of the IIFs agenda as a response to the financial
crises that occurred in Mexico in 1994, and then in Thailand, Indonesia, and Korea
three years later. Over the next few years, the Institute initiated regular contacts with
key official sector entities, notably the G-7, G-10, and G-20 finance ministers and
central bank governors; the IMF, World Bank, and regional development banks; and
the Paris Club.
The Mexican peso crisis and the subsequent Asian crisis called for a strong response
by the IIF. Building on earlier experiences with working groups of experts from member
firms and dialogue between public sector officials and senior financial industry exec-
utives, the IIF Board of Directors established a Steering Committee on Emerging Markets
Finance in 1998, co-chaired by two Board members, to guide the Institutes work on
crisis prevention and resolution. The initial aim was to promote a cooperative approach
with officials from the G-10 countries and the IMF, which would be reminiscent of
the cooperation that was a hallmark of the strategy adopted during the 1980s to
resolve the problems of the heavily indebted middle-income countries.

E M P I |
In the wake of the Asian crises, however, the G-10 and the IMF adopted an approach
that was less cooperative, arguably contributing to a series of unilateral bond restruc-
turings in 1999. These in turn led to a search for more systematic solutions to sovereign
debt crises, prompting a proposal by the First Deputy Managing Director of the IMF
in 2001 to establish a Sovereign Debt Restructuring Mechanism (SDRM). Official
approaches in 200203 also contributed to Argentinas take-it-or-leave-it bond-exchange
proposal in 200304.
At the same time the efforts of the Steering Committee and its successor, the Special
Committee on Crisis Prevention and Resolution in Emerging Markets, emphasized the
importance of cooperative approaches for resolving debt crisis. The Committees high-
lighted the changes in the composition and volume of capital flows that were taking
place during the 1990s, and the implications of these changes for crisis prevention
and resolution. The work of the Committees also had a marked impact on the archi-
tecture of the international financial system in four areas: data transparency, investor
relations, corporate governance, and crisis management. In particular, the Principles
for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets, introduced
at the end of 2004, were the product of the close collaboration between officials in
emerging market countries that enjoyed excellent access to international capital markets
and the global financial community. These principles arguably represented the most
substantial improvement in the architecture of the system since the Brady Plan of 1989.
They also signaled a system that would be less IMF-centered, while at the same time
recognizing the continued important role of the Fund.
Though the Principles were still relatively new, their impact was already measurable
at the end of 2006. They were being embraced by a growing circle of emerging market
countries and accepted increasingly by the G-10 and the IMF. Already they have had
a positive impact on policies designed to forestall or resolve crises in countries as
diverse as Hungary and Belize. Most important, they provide a foundation that could
mitigate the incidence and severity of future crisis.
The experience gained since 1994 in pursuing policy work in these areas places the
IIF in a strong position to play a leading role in the years ahead as private capital
flows continue to grow relative to flows of official capital, and the emerging market
economies as a group account for a growing share of the worlds GDP.

EARLY STEPS, 19841989

Low-profile contacts with finance officials in the G-10 countries and multilateral
institutions like the IMF and World Bank began shortly after the Institute was estab-
lished. They grew steadily during the 1980s along four distinct tracks: (a) the Working
Party on the Future of International Lending; (b) the Task Force on Long-Term Solutions;
(c) policy letters from the IIF Managing Director to the Chairmen of the IMFs
Interim Committee (later, the International Monetary and Financial Committee) and
the Joint World Bank-IMF Development Committee in advance of their semi-annual
meetings; and (d) close monitoring and reporting on debt-restructuring operations
in the London Club and the Paris Club.

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public sectors strategy for addressing the 1980s debt crisis, which began with Mexicos
payments crisis in August 1982, passed through three distinct stages. These were con-
certed lending, the Baker Plan in 1985, and the Brady Plan in 1989. During this period,
the commercial banks that established the IIF came around to using the IIF at times
as a spokesman in implementing and adapting the debt strategy.
One of the first initiatives of the IIF Board to develop a consensus among member
banks on the evolving debt strategy was to create the Working Party on the Future of
International Lending. The Working Party held its first meeting in January 1984 and
met at least twice a year through 1988. Many members of the Working Party were
also members of the Baker Initiative Committee, which was created in 1985 to collab-
orate with finance officials in implementing concerted lending in individual debtor
countries. Committees were also formed to focus on specific issues, including legal
aspects, regulatory and accounting aspects, currencies used, the treatment of trade
credit and inter-bank lines of credit, and insurance and guarantees.

TASK FORCE ON LONG-TERM SOLUTIONSAt the end of 1986, the IIF Board
appointed a Task Force on Long-term Solutions to help formulate and present
longer-term solutions to the debt problems in the middle-income countries. The
Managing Director chaired the Task Force and its members were senior representatives
from 13 IIF member banks. The focus of the Task Force was on how middle-income
countries could regain access to market borrowing through the cooperative efforts of
creditor and debtor countries, international financial institutions, and commercial banks.
The Task Force issued its first report in 1987 on Restoring Market Access: New
Directions in Bank Lending. The report offered new approaches to resolving the debt
problems and served as a basis for discussions with the IMF and the World Bank about
the role of banks in the evolving strategy for overcoming this systemic threat. A second
reportThe Way Forward for Middle Income Countrieswas approved by the IIF
Board, issued in January 1989, and widely circulated and discussed in the international
financial community.
The nature of the IIFs relationship with the public sector at that time is reflected
in the Chairmans Letter introducing the Institutes 1988 Annual Report: While the
Institute has taken the leadership in finding a consensus among its bank members
and formulating a comprehensive message, that message must be transmitted to policy
makers in creditor and debtor countries. We call on our members to discuss the
report with those in policy-formulating positions in their own countries.
These two reports, and the technique of producing them in the framework of a
task force or working group of experts from member firms, were precursors to the IIFs
extensive work after 1994 on crisis prevention and crisis management. Another IIF
staff report in 1988, putting forward a proposal for an SDR allocation, became a model
for other reports produced by the staff independently of a working group of experts
from member firms. A year later, the staff undertook a special study of financial sector
reform in emerging market economies that was summarized in the 1989 Annual Report.

E M P I |
In the lead-up to the introduction of the Brady Plan on March 10, 1989, and in
the course of its implementation thereafter, the pace of IIF-initiated contacts with
high-level finance officials increased. For example, in February 1989, Managing
Director Horst Schulmann testified before the U.S. Congress on the international debt
situation; in October 1991, he testified on the break-up of the Soviet Union. In
December 1991, IIF Board Chairman Antoine Jeancourt-Galignani and Managing
Director Schulmann called on IMF Managing Director Michel Camdessus.

1980s, the Institute began to communicate to the chairmen of the IMFs ministerial-
level policy body, the Interim Committee and of the World Bank-IMF Development
Committee, the views of the global banking community on key policy issues of the
day. The first such letter was transmitted in the spring of 1985 under the signature of
the then IIF Managing Director, Andr de Lattre. Similar communications followed
in subsequent years, becoming a regular twice-yearly exercise to coincide with the
spring and fall meetings of the IMF-World Bank. This practice continues today. (See
Financial Times coverage of recent Policy Letters below.)
Early policy letters focused on the management of the 1980s debt problems; they
reaffirmed the commitment of the global banking community to cooperate with the
public sector in supporting developing countries that were pursuing adjustment pro-
grams; reiterated the advantages of the cooperative, market-based, case-by-case approach;
endorsed voluntary, market-oriented mechanisms, such as debt-for-equity swaps and
the menu approach adopted by Brazil in its 1988 rescheduling; and called for a
reversal in the decline of IMF lending during that period. After the 1989 launch of
the Brady Plan for collateralized debt reduction, subsequent letters emphasized limits
to what banks could do consistent with their fiduciary responsibilities, and argued
against IMF lending to countries in arrears as counterproductive to systemic incentives.
While a few individual member banks were instrumental in collaborating with
G-7 and IMF officials in developing the innovative techniques that helped pave the
way for the Brady Plan, the large majority of IIF member banks initially resisted the
Plan. The Institute, serving as a spokesman for the commercial banking industry, made

Antoine Jeancourt-Galignani, former Michel Camdessus, former

Chairman, IIF Board of Directors Managing Director, IMF

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September 15, 2005, the Financial Times. Reprinted with permission.

E M P I |
clear the limits to what commercial banks could do consistent with their fiduciary
responsibilities to engage in bankable business. At the same time, IIF policy letters
highlighted the risks in the Brady Plan, which included the potential erosion of
discipline in the international financial system.


One early step by the IIF beyond country analysis was to prepare quarterly surveys of
Paris Club and London Club debt-restructuring agreements. In addition to providing
information for risk management, these were helpful tools for bankers involved in
debt negotiations.


As the debt crisis of the 1980s wound down and the banking industry began to focus
less on minimizing losses and more on developing new business, the IIFs Board of
Directors adopted in 1990 a new mission statement for the Institute. Entitled Expanded
Role of the Institute, the statement re-affirmed the IIFs primary focus on the credit-
worthiness of major borrowing countries, but added as a second priority work on policy
issues which have potentially far-reaching effects on the international financial system
and, in particular, international banking. On issues where there was a consensus among
the membership, the Managing Director was to propose a plan of action, working
with task forces created by the Board and composed of experts from member banks.
Within a year of having been given this new mandate, the IIF issued five policy papers:
Building Free Market Economies in Central and Eastern Europe: Challenges
and Realities
Expanding Bank Participation in Export and Investment Finance with Middle-
Income Countries
Financial Sector Reform: Its Role in Growth and Development
Fostering Foreign Direct Investment in Latin America
Improving the Official Debt Strategy: Arrears Are Not the Way
Two policy messages were given particular emphasis in the IIF Managing
Directors letters to the ministerial-level policy committees of the IMF and World
Bank during 199193. One was the threat to the international financial system posed
by IMF lending to countries in arrears to commercial banks. The other was the great
potential for new ways to share risks between commercial banks and official lenders
(multilateral development banks and export credit agencies) to catalyze the private
capital required to support strong economic growth in middle-income countries.
In connection with this second message, a dialogue with export credit agencies
(ECAs) in OECD member countries was led by Tony Bottrill, the IIFs Deputy Managing
Director. A series of annual conferences on Project and Investment Finance was
launched in London at the beginning of 1991 that brought together project finance
experts from IIF member firms with senior managers from the World Bank, the Inter-
national Finance Corporation (IFC), the Multilateral Investment Guarantee Agency
(MIGA), and the ECAs. The first conference generated a letter to OECD Secretary
General Jean-Claude Paye highlighting concerns of commercial banks related to fixed-
rate financing from ECAs and to tied aid.

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Following the conference in London, a Working Group on Trade and Investment
Finance was formed. At a meeting in May 1991 with representatives from the U.S.
Export-Import Bank and Japans Ministry of International Trade and Investment (MITI),
the Working Group discussed an IIF staff paper on Expanding Bank Participation in
Trade and Investment Finance. In October, the IIF organized a discussion in Washington
with the heads of a number of leading ECAs focusing on specific countries of mutual
interest. The second conference was held in London at the beginning of 1992, and the
third was held in Washington in May 1993. The fourth and last conference in this
series was held in April 1994 in St. Petersburg at the time of the annual meeting of
the European Bank for Reconstruction and Development (EBRD).
Other related activities in this period included a half-day meeting with G-7 Export
Credit Agencies (May 1993), a luncheon meeting co-hosted by the IIF Managing
Director and IFC Executive Vice President Jannik Lindbaek (September 1993), and a
meeting in New York of project finance experts with representatives from the World
Bank and IFC (February 1994).
While several task forces and working groups were established before 1991, the
Working Group on Capital Adequacy established in that year by the IIF Board (see
Chapter 3) became the model for many of the working groups and task forces created
over the next 10 years to focus on emerging market policy issues because of its strong
orientation toward dialogue with the public sector.


SECTOR, 1993
In September 1992, the IIF Board of Directors was informed of Horst Schulmanns
plans to step down from his position to assume the presidency of Hesse Landeszentral
Bank in Germany. Sadly, Schulmanns untimely death occurred soon after he took up
his new appointment.
At the September 1992 meeting, the Committee discussed the mandate for the
next Managing Director. It concluded that a broader mandate would attract stronger
candidates and that it should extend beyond economic analysis of borrowing countries.
Also, the Committee noted that issues related to the international financial institutions
would be of special importance. The members agreed to search for a candidate with
broad experience and prestige in the international community who could serve as a
recognized spokesperson and would play an important role in developing the broader
mandate of the Institute.
The following year, the Board appointed Charles Dallara to be the IIFs third
Managing Director. During the 16 years he spent at the U.S. Treasury Department,
Dallara developed a keen appreciation of cooperation between the public sector and
the private sector in dealing with issues in international finance. The years when
Nicholas Brady was Treasury Secretary, from September 1988 to January 1993, were
especially important in highlighting the value of collaboration between the public
sector and the financial industry.
Dallara took up the position as the IIFs Managing Director mid-1993. Within a
few months of his arrival, the Institute had a new agenda that was described as the

E M P I |
three legs of a stool. These were analytical work on emerging markets of the kind that
had been the IIFs preoccupation from the beginning in 1984, policy work on global
regulatory and banking issues that had begun to develop in 1991, and collaboration
by the financial community with the G-7 and the multilateral institutions on emerging
market policy issues.
Soon after taking up his new responsibilities at the IIF, Dallara began planning
for another Ditchley meeting to set the stage for his vision of making the Institute a
major player in the international financial system. The group of 39 distinguished
financial leaders that assembled at Ditchley Park in May 1994, included eight senior
public sector officials and five bankers from emerging market countries. Six of these
participants had been at the founding meeting at Ditchley Park in 1982, including
Bill McDonough and Jacques de Larosire. Strong support for the Institutes new
emphasis on collaboration between the private sector and multilateral institutions
was evident at this meeting.
The IIFs work on emerging markets policy gathered fresh momentum thereafter.
Lex Rieffel, former U.S. Treasury official experienced in Paris Club operations and
other debt issues, was hired to lead the newly formed Multilateral Policy Department.
Dialogue with senior finance officials intensified, as the IIF arranged substantive
discussions with the IMF, the G-7 deputies, the G-20 deputies, the Paris Club, and
individual G-7 finance ministers and central bank governors.


As the heavily indebted borrowing countries regained their creditworthiness following
the implementation of the Brady Plan, the commercial banking industry became
increasingly interested in lending to private-sector borrowers in these countries. The
most attractive opportunities were in the areas of privatization of state-owned enter-
prises and infrastructure projects. In both cases, however, political risks were significant
and therefore the banks looked for sources of risk mitigation.
Among the possible sources, the World Bank and the regional development banks
appeared to be in the best position to mitigate political risks. Their own lending pri-
orities were shifting from balance of payments support for governments to capital
projects in the private sector. Accordingly, the IIF began to engage the Multilateral
Development Banks (MDBs) in a collaborative effort to facilitate more commercial
bank lending for sound projects with substantial development benefits and to explore
the synergies between MDB lending or guarantees of private finance.
The IIFs collaboration with the MDBs was a natural outgrowth of the series of
annual conferences on Project and Investment Finance between February 1991 and
April 1994. The scope of this effort began to widen at an initial meeting in London for
senior managers from IIF member firms with then EBRD President Jacques de Larosire
in July 1994, and then at the first informal luncheon for Executive Directors of the
World Bank with the IIF Managing Director and senior staff members in June 1994.
A noteworthy development in respect to collaboration with the MDBs was an
invitation in 1994 from the Inter-American Development Bank (IDB) for the IIF to

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advise Makoto Sunagawa, the head of its newly established Private Sector Department,
on a new strategy for private sector lending. This invitation grew out of a meeting for
senior managers from IIF member firms with the IDB President, Enrique Iglesias, and
his management team, and the follow-up included a meeting in New York with prac-
titioners from leading commercial and investment banks. These efforts contributed
materially to the successful launch of the IDBs first lender-of-record loan syndication
in October 1995.
Another important stage in collaboration with the multilateral institutions was
reached in April 1995 when the World Bank-IMF Development Committee considered
a paper on infrastructure financing prepared by IIF staff on the basis of consultations
with leading project finance experts in member firms. The paper outlined a program
of action by the MDBs and the governments of industrial and developing countries
to promote private financing for infrastructure projects in emerging markets.
Collaboration with the MDBs expanded in 1995 to include the Asian Development
Bank (ADB) through a meeting at the ADB headquarters in Manila for senior man-
agers from IIF member firms with ADB President Mitsuo Sato and his management
team. In October, reflecting the growing activity in this area, the IIF began to issue a
special newsletter to members, entitled Multilateral Update.
The Institutes work during 1996 in the area of collaboration with the MDBs
reached a new plateau on the strength of four activities. First came a report on the
IFC, prepared by a study group of experts from member firms, which recommended
measures to help the IFC avoid inappropriate competition with the private sector.
Next came two conferences focusing on banking reform, one at the IDBs annual
meeting in Buenos Aires and one at the EBRDs annual meeting in Sofia, Bulgaria.
Finally, the IIFs Board of Directors created the Advisory Committee on Project
Finance, chaired by Frans van Loon of ING Bank. In addition, the IIF organized
second round meetings with Richard Frank, head of the Private Sector Group in
the World Bank, with IDB President Iglesias, and with EBRD President de Larosire.
Collaboration with the MDBs peaked in 1997 as financial crises erupted in Thailand,
Indonesia, and Korea, and the Institute began to shift its attention toward collaboration
with the G-7, the G-20, and the IMF on crisis prevention and resolution. Three sepa-
rate working groups of project finance experts in member firms were created under
the Advisory Group on Project Finance to formulate specific recommendations to the
World Bank, IDB, and ADB, respectively. Formal reports were completed by each of
these groups, endorsed by the IIF Board of Directors, and released publicly. In addition,
a precedent was set when the IIF was invited by IDB management to brief its Executive
Board on the report of the IIF Working Group.
Other notable achievements included the joint ADB-IIF Forum on Developing Asian
Financial Markets in conjunction with the ADB annual meeting in Fukuoka in 1997.
This meeting brought together for the first time the managers responsible for the
risk-sharing products in each of the major MDBs. The results of this effort to
strengthen collaboration with the MDBs were mixed. Clearly new relationships between
individual firms and managers in the MDBs were established that were considered
productive by both sides. Apart from the IDB, however, significant changes were hard

E M P I |
IIF Ditchley Conference, 1994

James Wolfensohn, former Former IMF Managing Director Jacques de Larosire with IIF First Vice
President of the World Bank Chairman, William R. Rhodes of Citibank, at the Spring Membership
Meeting in Washington

Omar Kabbaj, former President, ADB President Mitsuo Sato met with IIF members in Manila,
African Development Bank January 1995

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to detect in the policies and practices of the MDBs that might enable their risk miti-
gation to be used more effectively in projects involving private investors and lenders.
The high point of 1998 was the first meeting for senior managers from IIF member
firms with then World Bank President, James Wolfensohn. This was followed by the
creation of a Panel of Experts from IIF member firms to advise Jonathan Fiechter,
head of the World Banks Special Financial Operations Unit, on advancing financial
sector reform in the three crisis countries in Asia. The fruit of the IIFs collaboration
with the IDB materialized with the launching of a new program of guarantees reflect-
ing recommendations made by the IIFs IDB Working Group. The year also included
the first meeting for senior bankers from member firms with the President of the
African Development Bank (AfDB), Omar Kabbaj, and the formation of a Joint
IIF/AfDB Private Sector Advisory Committee.
In 1999, the Advisory Committee on Project Finance was renamed the Advisory
Committee on Multilateral Development Bank Operations to reflect a broadening of
its range of activities. The Committee met with newly appointed World Bank Managing
Director (and IFC Executive Vice President) Peter Woicke and the Manager of the
IDBs Private Sector Department, Hiroshi Toyoda, who was also newly appointed. In
addition, a new Working Group on MDB B-loans was formed, which delivered its
report in July 2000. This report addressed the implications of B-loans for the preferred
creditor status of the MDBs and suggested changes to B-loan agreements to make
participation more attractive to commercial lenders.
A forum on Regional Monetary and Financial Cooperation was held at the
ADBs annual meeting in Manila, and a meeting was held with newly appointed EBRD
President Horst Khler that focused on the impact of Russias default on EBRD oper-
ations of interest to IIF member firms. At the end of 2000, collaboration was extended
to the European Investment Bank (EIB) through an initial meeting with EIB President
Philippe Maystadt, which focused on EIB operations in emerging market economies.
After 2000, collaboration with the MDBs through the IIF declined as a result of
two developments. One was frustration over the lack of progress in developing new
approaches to risk mitigation by MDBs that were attractive to the global financial
industry. The MDBs seemed reluctant to see their competitive advantages erode and
to shift to a less dominant role in emerging markets finance as commercial banks,
investment banks, and a rapidly growing universe of asset managers entered the scene.
The other was the impact the IIF was having on the evolving architecture of the inter-
national financial system as the G-10, the IMF, and other official bodies sought to
develop more effective approaches to crisis prevention and resolution. Following
the retirement of Frans van Loon, the Advisory Committee on MDB Operations
was dissolved in 2003.
A related development in this area was membership in the IIF by the MDBs. At
the end of 1993, the only MDB that had joined the IIF was the IFC. Later in 2006, the
World Bank Group, the Inter-American Development Bank, the Asian Development
Bank, the African Development Bank, and the European Bank for Reconstruction and
Development had also become participants in the IIF. Other multilateral institutions

E M P I |
Peter Woicke, then Executive Philippe Maystadt, EIB President Horst Khler, then EBRD
Vice President, IFC President, and current
President of Germany

that had joined were the European Investment Bank, the European Development
Finance Institutions (EDFI), the Council of Europe Development Bank, the Nordic
Investment Bank, and the Corporacion Andina de Fomento (CAF).


The instinctive reaction of the U.S. Treasury Department and other G-10 finance officials
to the Mexican peso crisis that erupted at the end of 1994 was to mobilize a multilateral
package of balance-of-payments financing ($38 billion from the IMF and the United
States alone) that would help Mexico avoid default while it implemented a program
of macroeconomic and structural policy reforms designed to restore the countrys
creditworthiness. Notably absent from this operation was a burden-sharing approach
along the lines of the Brady Plan. A major factor in the change was the low level of
commercial bank exposure as a result of the earlier conversion of old loans to Brady
Bonds at a substantial discount, and the natural reluctance of the banks to take on new
exposure in countries that had taken advantage of the Brady Plan. Another factor was
the perception among finance officials that it would be difficult to have a dialogue
with the large number of individual and institutional bondholders.
Despite the quick success of the rescue operationand the crucial importance of
stabilizing Mexicothe U.S. Government was criticized for bailing out commercial
banks and other private creditors. The charge was based on the fact that investors in
tesobono (short-term, dollar-indexed Mexican government securities) received full
value when the instruments matured despite the large depreciation of the peso during the
crisis. Without the rescue package, the Mexican government would not have had the
dollars it required to pay off these obligations when they became due, investors would
have suffered losses, and Mexico could have faced a financial and economic collapse.
The public sectors response to the controversy surrounding the Mexican rescue
operation came in part in the form of a working party created by the G-10 finance
ministers and central bank governors in response to a mandate from the G-7 heads

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of state and government at their summit meeting in Halifax, Canada, in mid-1995.
The G-10 working party was chaired by Jean-Jacques Rey, Deputy Governor of the
Belgian central bank. Its report on The Resolution of Sovereign Liquidity Crises
was issued in May 1996. Since private investors were being portrayed by some analysts
as the villains in the Mexican rescue operation, the IIF undertook a parallel effort to
present the global financial industrys views on appropriate steps to avoid such crises
in the future, and to resolve them effectively when they did nevertheless occur.
Initially the Economics Department took the lead, building on the expertise of
Deputy Managing Director and Chief Economist William Cline, who had produced a
benchmark assessment of the 1980s debt crisis before coming to the IIF. Over the next
23 years, as this work became more substantial, the Multilateral Policy Group assumed
an increasing share. After the Asian crises in 1997-98, the Multilateral Policy Group
(ultimately a Department) had the lead on most aspects of the Institutes work on
crisis prevention and resolution.
A first step by the Institute was the establishment of a working group of experts
from member firms to prepare a report on Improving Standards for Data Release by
Emerging Market Economies. Issued in September 1995, the report set forth criteria
for timely release of key economic data by emerging market economies. In April
1996, the Institute published a follow-up report assessing the practices of 28 major
borrowing countries against its new standard. This initiative preceded the G-10
report and the IMFs establishment of a Special Data Dissemination Standard (SDDS)
and a General Data Dissemination Standard (GDDS). Although the IMF did not
accept the Institutes suggestion to merge the two exercises, the dialogue that developed
on this topic led to improvements on both sides. Ten years later, the IIFs data trans-
parency work was folded into its work on investor relations.
A second step was the establishment of another working group with leading prac-
titioners from 35 member firms, chaired by Cline, to develop a market-based
approach to avoiding and resolving crises in emerging markets. This led to a report
issued in September 1996 on Resolving Sovereign Financial Crises. The report began
by noting the change in the structure of debt flows from private sources to emerging
market economies, away from long-term commercial bank lending toward international
bonds and domestic-currency debt. Next, it emphasized giving priority to crisis
avoidance and spelled out steps in this direction that could be taken by debtor countries,
creditor countries, and the IMF. Finally, it called for a market-based approach to
crises in the future, pointing out that negotiation between private creditors and the
country rather than official orchestration reduces the risk of politicization and thus
moral hazard. (As part of this effort, the IIF also organized special meetings with
leading financial industry lawyers and fund managers, which contributed to the
expansion of IIF membership.)
The G-10 report highlighted the reluctance of the public sector to mobilize large
financial rescue packages along the lines of the Mexican package, It stressed the
importance of burden sharing by private creditors, including the incorporation of
special clauses (collective action clauses) in bonds issued by emerging market

E M P I |
countries that would facilitate the rescheduling of these
obligations. The IIF report affirmed that private creditors
to emerging market borrowers should bear the conse-
quences of the risks involved, and should not be bailed
out by the public sector. The report also called attention
to the changes in the composition of capital flows to
emerging market countries, which called into question
certain crisis-resolution techniques that had been effective
in the past.
To promote dialogue between the public sector and
the global financial community on crisis resolution, the
Stanley Fischer, then First Deputy IIF organized a series of meetings with the IMF, beginning
Managing Director, IMF
with a luncheon meeting with IMF Executive Directors
from the G-10 countries in July 1995. Other meetings included a dinner with IMF
First Deputy Managing Director, Stanley Fischer, in Tokyo in May 1997, a second meeting
with Fischer in New York in March 1998, a meeting with then IMF Managing Director
Michel Camdessus in September 1999, and a meeting with his successor as IMF
Managing Director, Horst Khler, in June 2000 (barely a month after he took office).
A reading of the G-10 and IIF reports would suggest that the two points of view
were close on the main points of crisis prevention and crisis resolution. Ironically one
of 11 elements of the framework for a flexible, case-by-case approach to crisis reso-
lution was to be cooperative and non-confrontational. Less than three years later, the
approach adopted by the G-10 under the rubric of private sector involvement was
widely viewed in the global financial community as less than fully cooperative. This
was perhaps because of the continuing concern that there was no mechanism to
ensure that the private sector would sustain its support for countries that had lost
market confidence.


The G-10 strategy for dealing with the Mexican crisis was good news for Mexico but in
a number of ways had a negative impact on the international financial system. It made
the public sector gun shy in the face of the Asian crises in 1997, tipping it away from
cooperative approaches in subsequent crises, a trend that culminated in the unilateral
approach Argentina announced in 2003 to restructure its defaulted bond debt.
The crises that erupted successively in Thailand, Indonesia, and Korea in the second
half of 1997 took most observers by surprise because of the success these countries,
and others in East Asia, had had in avoiding debt-servicing problems in the 1980s.
Various IIF reports had drawn attention to the gathering risk in these markets (see
Chapter 2).
Stung by the charge of having bailed out private investors in Mexico, the United
States did not mount similar rescue operations for Thailand and Indonesia. Despite
IMF financing for those countries, the burden of domestic adjustment needed to

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avoid default was relatively high, and in Indonesias case perhaps too high. As in the
case of Mexico in 1994, these two Asian countries had relatively small amounts of
commercial bank debt outstanding to the public sector when their crises hit. This
limited the extent to which restructuring of this debt could contribute to resolving their
problems. In the case of Korea, by contrast, the amount of public-sector financing
was quite high ($21 billion, or 19 times Koreas quota, in the case of financing from
the IMF, out of a total of $57 billion of official financing) and there was also a large
commitment from commercial bank creditors. Specifically, the commercial banks
converted $22 billion of short-term claims on private Korean banks in government-
guaranteed long-term (up to three years) bonds.
Russias default in August 1998 was precipitated by serious policy weaknesses,
with market players also perhaps misreading shifting IMF signals. The break-up of
the Soviet Union had left Russia with a large external debt-service burden and a weak
institutional framework for macroeconomic management. Financial strains in Russia
grew after the Asian crisis, in part because private investors and lenders became more
risk-averse. Russia turned to the IMF for balance-of-payments support, and such
support was forthcoming, notwithstanding what could arguably be considered a
relatively weak adjustment program.
This operation gave some investors the impression that the G-7 might have con-
sidered Russia too strategic to fail and contributed to an increase in their exposures
despite slippages by Russia in implementing its program. When Russia went back to
the IMF in July 1998, it was not successful in obtaining more financing. A month
later, it decided unilaterally to restructure at a discount its domestic debt, much of
which was held by foreigners. At the same time it suspended payment on external
debt owed to private creditors and devalued the ruble.
In a reprise of the post-Mexico exercise, the G-10 countries launched a major
study of the Asian crises, with one remarkable difference. The Asian-crisis exercise
drew in representatives from the major borrowing countries through the creation of
the G-22 forum of finance ministers and central bank governors.
While the seeds of the G-22 were planted by U.S. President Bill Clinton at the APEC
Summit in Vancouver in November 1997, the birth of the G-22 was announced by U.S.
Treasury Secretary Robert Rubin in a speech at Georgetown University two months
later. The G-22 held its first meeting in Washington in April 1998. Finance ministers
and central bank governors from 14 systemically significant emerging market
economies joined their counterparts from the G-7 countries, plus Australia. Three
working groups were formed to focus respectively on transparency and accountability,
strengthening financial systems, and resolving international financial crises. They
issued their reports in October 1998.
To ensure that the experience and views of the global financial industry were not
overlooked in the G-22 exercise, the IIF Board of Directors raised the ante. In an
unprecedented policy initiative to recommend practical steps for preventing and
resolving crises in emerging markets, a Steering Committee on Emerging Markets
Finance (Box 14) was created in 1998, composed of senior executives from member

E M P I |


A stronger and earlier two-way relationship between the official community and the private
financial community could do much to reinforce the global framework for productive and sus-
tainable flows of private capital to emerging markets.
The value of intensifying public-private cooperation is underscored by the impressive pace
and scope of the changes taking place throughout the international financial system.
The Institute and its members stand ready to work constructively with financial officials in these
areas [where closer cooperation between the public sector and the private sector is needed].
Policies to make emerging market economies more resilient. Sound economic policies remain
the first line of defense for emerging market economies against financial crises.
Management of short-term debt flows. Short-term credit plays an important function in finan-
cial markets, especially in financing trade and providing liquidity for the interbank market.
Policies that create a bias in favor of short-term financing should be corrected. Impediments
to long-term flows, especially direct investment, should be removed. Improvements in trans-
parency in this area should be given priority.
Financial sector reform. Undercapitalized banking systems and thin capital markets remain a
major source of vulnerability. A broad approach is called for including actions by emerging
market authorities, multilateral agencies, and private investors and lenders. Important steps
by official bodies to strengthen financial systems in the past two years include the develop-
ment of Core Principles by the Basel Committee on Banking Supervision in 1997.
Proactive strategies to improve investor relations. The Steering Committee recommends that
emerging market authorities adopt proactive strategies of investor relations to reduce their
vulnerability to adverse shifts in market perceptions of their creditworthiness. Investor rela-
tions activities can help authorities navigate through calm as well as turbulent periods of
market sentiment.
Transparency. Further progress is needed in five areas: data standards, creditor reporting,
IMF transparency, Paris Club transparency, and financial sector soundness.
Risk management. For financial firms, stress testing and scenario analysis should be compre-
hensive, country analysis should be more closely integrated with risk measurement systems,
and strong, independent risk control units should be put in place. For policymakers, emerging
market economies should foster the development of long-term debt markets, robust legal
frameworks for perfecting and enforcing security arrangements should be formulated as
quickly as possible, and steps should be taken to require consolidated financial statements
from affiliated companies.
A country-focused, market-friendly approach including the following five elements is critical to the
constructive involvement of the private sector in future crises: confidence-restoring programs, official
support, spontaneous flows of private capital, tailored approaches, and public-private cooperation.
Efforts to force losses on private investors and lenders exposed in a crisis country are likely to
backfire. Three proposals being considered by the public sector appear to reflect misconceptions
about how emerging market finance has evolved over the past decade and how market participants
are likely to behave in the future: forced bond renegotiation and bond clauses, IMF lending into
arrears, and stays of creditor litigation.
Prompt and effective implementation in a cooperative framework will be required to strengthen the
foundations and reinforce the suppleness and adaptability of the international financial system.
In the period ahead, various participants in the international financial arena should each proceed
independently to implement improvements that do not depend on others. They should also work
together to implement improvements that require cooperation, both at the systemic level and the
country level.

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Gordon Brown, then Chancellor Hans Tietmeyer, then President, Timothy Geithner, then Under
of Exchequer, U.K., current Bundesbank, Germany. Secretary of the Treasury,
Prime Minister, U.K. U.S.A.

firms, and co-chaired by William Rhodes (then Vice Chairman, Citigroup/Citibank,

and Vice Chairman of the Institute of International Finance) and Josef Ackermann
(then Member of the Board of Managing Directors, Deutsche Bank AG).
Five working groups were established under the Steering Committee, focusing
respectively on resolving financial crises, risk assessment by financial firms, trans-
parency, loan quality, and the liberalization of capital movements. A Preliminary
Report was issued on the eve of the IMF/World Bank annual meetings in October
1998, shortly before the G-22 reports were issued, and four working group reports
were issued between January and June 1999. The Steering Committees Summary
Report was also issued in June 1999.
While the working groups were preparing their reports, the Steering Committee
held a number of meetings with senior finance officials in order to foster a genuine
dialogue. These included meetings with the G-22 deputies (October 1998), U.K.
Chancellor of the Exchequer Gordon Brown, German Bundesbank Governor Hans
Tietmeyer (December 1998), U.S. Treasury Under Secretary Timothy Geithner
(September 1999), and IMF Managing Director Michel Camdessus (September
1999). Leading officials were also invited to meet with the working groups. A wide
range of activity was undertaken at the direction of the Steering Committee, including
special meetings with lawyers and fund managers.
The IIF provided the global financial industry with an excellent platform to
organize its views and an effective vehicle to convey them to the public sector. Several
related developments are noteworthy:
Following a consensus in the IMFs Interim Committee to move forward with an
amendment to the IMF Articles of Agreement to extend the formal jurisdiction
of the IMF to include capital account transactions, the IIF Steering Committees
Working Group on Capital Account Liberalization highlighted a number of con-
cerns on the part of the global financial industry. These misgivings were reflected
in letters from the IIF Managing Director to the Chairman of the Interim
Committee during this period, in the two reports of the Steering Committee,
and in the meetings organized by the IIF with senior officials in the IMF and the

E M P I |
G-10 governments. In 1999, the IIF Board of Directors decided not to publish the
draft report of the Working Group on Capital Account Liberalization because the
campaign to amend the IMFs Articles had lost momentum, in part because of
the concerns highlighted by the IIF.
A centerpiece of the Steering Committees work was its focus on investor relations
as a tool of crisis prevention. Based on the experience of the investor relations
program created by the Mexican government after the 199495 crisis, the IIFs
Multilateral Policy Department produced a special note in 1999 outlining the
main elements of a strong investor relations program, and it organized a series of
meetings in 1999, 2000, and 2001 for officials from G-10 countries and leading
emerging market economies to exchange views on investor relations. The benefits
of investor relations programs were highlighted in the reports of the Steering
Committee and the Managing Directors semi-annual letters to the Chairmen of
the policy committees of the IMF and World Bank. The public sector gradually
embraced the concept, even to the point of the IMF Institute collaborating with
the IIF on a seminar about investor relations (held in November 2001) for officials
from developing countries.
In May 2000, Horst Khler succeeded Michel Camdessus as Managing Director
of the IMF, moving from the Presidency of the EBRD, where he had been a strong
supporter of collaboration with the private financial industry via the IIF. Two
months later, he established the Capital Markets Consultative Group (CMCG) as
a forum for dialogue with the private financial community. The IIF Managing
Director became a member of this group at its inception, along with a number
of senior executives in IIF member firms who were active in the policy work of
the IIF, including serving on the Steering Committee and its successor, the
Special Committee. The CMCGs first joint Working Group on Creditor-Debtor
Relations focused on the topic of investor relations.
In March 2001, the IMF announced the creation of a new Capital Markets
Department, reflecting the growing importance of private capital flows in the inter-
national financial system. Gerd Husler, who had represented Dresdner Bank on
the IIF Steering Committee, was appointed as the first head of the new department.
In September 1999, the G-7 finance ministers decided to replace the G-22 (which
had grown to include 32 countries) with the G-20 forum of finance ministers
and central bank governors. Under the strong leadership of Canadian Finance
Minister Paul Martin, the G-20 was successful in establishing itself as a viable
forum in a world where economic power was shifting from the G-10 countries to
the systemically significant emerging market countries that had been the focus of
the IIF since its inception. Recognizing the dominant role of the private sector in
emerging markets finance, the G-20 deputies, in collaboration with the IIF,
organized an exchange of views with representatives of the global financial
industry at a meeting in Toronto in August 2000. Additional exchanges of this
kind took place up to 2004.
The Paris Club initiated a series of annual discussions with representatives from the
global financial community. (See discussion on dialogue with the Paris Club below.)

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A series of forced bond restructurings in 1999 and the emergence of a new form of
risk in emerging markets financeinvoluntary restructuringgave further impetus
to the IIFs growing role in the policy area after 2001. Some analysts have concluded
that the unilateral bond restructurings by Pakistan, Ukraine, and Ecuador in 1999 were
foreshadowed in the G-22 working group report on resolving international financial
crises, and subsequent statements by leading G-7 and IMF officials. Nonetheless, these
unilateral restructurings took market participants by surprise because they constituted
a break with the cooperative approach that had been pursued earlier, which appeared to
have the continued support of the public sector. Moreover, the new G-7 and IMF approach
was introduced through the Paris Club, which agreed to reschedule debt owed by these
three countries on the condition that they unilaterally restructure their outstanding
bond debt even though doing so did not appear necessary for long-term debt sus-
tainability and no attempt was made to find a consensual approach to burden sharing.
As it became apparent that the G-7 and the IMF were searching for a new approach
to crisis resolution in emerging markets and having difficulty in coming up with an
approach consistent with the rapidly changing nature of international capital markets,
IIF Managing Director Dallara proposed to the Board of Directors that the Institute
move into a higher gear at the end of 2000. Building on the work of the Steering
Committee, the IIF staff worked intensively with member firms to craft a set of
Principles for Private Sector Involvement in Crisis Prevention and Resolution. At
the same time, two new high-level bodies were designed: the Special Committee on
Crisis Prevention and Resolution (Box 15) and the Equity Advisory Group (Box 16).
This approach was unveiled in January 2001. Underscoring the continuity of the
Institutes role, the former Co-Chairmen of the Steering Committee, William Rhodes
(Senior Vice Chairman, Citigroup/Citibank) and Josef Ackermann (Member of the
Board of Managing Directors, Deutsche Bank), became the Co-Chairmen of the
Special Committee. The Equity Advisory Group was created to reflect the growing
importance of fund managers and other asset managers in both emerging markets
finance and the activities of the IIF, and its founding Co-Chairmen were Frank
Savage (then Chairman, Alliance Capital International) and David Salisbury (former
Chief Executive Officer, Schroders Ltd).
The nine Principles proposed at the beginning of 2001 included four under the
heading of reducing vulnerability while building market access, two under the heading
of responding to signs of eroding market confidence, and three under the heading of
more difficult situations. An important message in this classification was the view
of market participants that most incipient crises in indebted countries could be over-
come through constructive responses on their part in close consultation with key
investors and lenders, including the IMF, to ensure their continued support, rather than
by resorting to damaging debt restructuring. These Principles were fully consistent with
the market-based, case-by-case approach to financial crises that had been espoused
by the IIF from its inception.

E M P I |

(As of January, 2001) Jacques de Larosire

Josef Ackermann David C. Mulford
Member of the Board of Managing Directors Chairman International
Deutsche Bank AG Credit Suisse First Boston
William Rhodes Paulo C. Leme
Vice Chairman Managing Director
Citigroup/Citibank Emerging Markets Economic Research
Goldman, Sachs & Co.
MEMBERS Stephen Green
Tom de Swaan Executive Director, Investment Banking &
Managing Board Member Markets
Risk Management Division HSBC Holdings plc
Yoshiyuki Fujisawa
Bernd Fahrholz Chairman
Chairman The Industrial Bank of Japan, Ltd.
Dresdner Bank AG
Cees Maas
Roberto Setbal Member of the Executive Board and Chief
President and Chief Executive Officer Financial Officer
Banco Ita S.A. ING Group NV
Fernando Fernndez Ernest Stern
Chief Economist Managing Director
Banco Santander Central Hispano J.P. Morgan Chase & Co.
Cezary Stypulkowski Jacob Frenkel
President Chairman, Sovereign Advisory Group and
Bank Handlowy w Warszawie, S.A. Global Financial Institutions Group
Liu Mingkang Merrill Lynch & Co., Inc.
Chairman and President Sir David Walker
Bank of China Senior Advisor
John F. Crean Morgan Stanley International
Senior Executive Vice President Masashi Kaneko
Credit & Risk Management President and Chief Executive Officer
Bank of Nova Scotia Nikko Securities Co., Ltd.
Kenji Yoshizawa Mohamed El-Erian
Deputy Chairman Managing Director
The Bank of Tokyo-Mitsubishi, Ltd. Fixed Income
Sir Andrew Large PIMCO
Deputy Chairman
Barclays Bank plc

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(As of January, 2002) Jonathan M. Kelly

Director of Research, Emerging Markets
CO-CHAIRMEN Fidelity Investments
Edward Baker Victor L. L. Chu
Chief Executive Officer Chairman
Chief Investment Officer of Emerging First Eastern Investment Group
Markets Equities
Grzegorz Konieczny
Alliance Capital, Ltd.
Senior Vice President/Portfolio Manager
Peter Wuffli Central and Eastern Europe
President of the Group Executive Board Franklin Templeton Investment
Jeremy Paulson-Ellis
MEMBERS Genesis Investment Management, Inc.
Khalid Sheikh
William F. Browder
Vice President
Chief Executive Officer
Group Risk Management Country Risk Policy
Hermitage Capital Management
Ibrahim S. Dabdoub
Bernard Sucher
Chief Executive Officer
Managing Director
National Bank of Kuwait, S.A.K.
Alfa Asset Management
Mark H. Madden
Thomas O'Malley
Managing Director
Head of Corporate Governance
Global Emerging Markets
AXA Investment Management
Pioneer Investment Management USA Inc.
Andrzej Dorosz
Thomas V. Reilly
Managing Director, Head of European
BRE Bank's Investment Fund
Cheryl Hesse Putnam Investments
Vice President and Senior Counsel
Dominik Meyer
Capital Group International, Inc.
Chief Executive Officer
Mary Lynn Putney Private Equity Holdings AG
Managing Director Rentenanstalt Swiss Life
Citi Venture Capital
Iain Richards
Dipak Rastogi Head of the Corporate Governance Team
Vice Chairman, Emerging Markets Schroders Investment Management Limited
Citigroup Investments, Inc.
Petra Salesny
Gordon Clancy Legal, Tax & Execution
Managing Director, Asia Pacific Head Swiss Life Private Equity Partners Ltd.
Citigroup Venture Capital Emerging Markets
Kenneth King
Christiane Seyffart Managing Director
Head of Emerging Markets and Country Rexiter Capital Management Limited
Risk Analysis
Mark Bridgeman
CC Economics
Dresdner Bank AG
Emerging Markets Research
Lindsay M. Forbes Schroders plc
Director, Equity Support
Sean Chong
European Bank for Reconstruction and
Vice President
Legal & Compliance
Templeton Asset Management, Ltd.

E M P I |

J. Mark Mobius James R. Fenkner

President Strategist
Portfolio Management - Equity Troika Dialog
Templeton Asset Management, Ltd. Daniel Wolfe
Peter Clapman Managing Director
Senior Vice President & Chief Counsel Troika Dialog
Corporate Governance Mehran Nakhjavani
TIAA-CREF Director
UBS Asset Management

The Special Committee promptly formed two working groups. The Working
Group on Crisis Prevention, chaired by Sir David Walker (Senior Advisor, Morgan
Stanley International), began by elaborating on earlier recommendations related to
data transparency, financial sector soundness, and investor relations. It also considered
new issues such as the use of a contingency financing facility created by the IMF in
April 1999. The Working Group on Crisis Resolution, chaired by Tom de Swaan (then
Member of the Managing Board and Chief Financial Officer, ABN AMRO Bank N.V.),
focused on a possible new consultative mechanism in the form of a Private Sector
Advisory Group; various steps to minimize the impact of free riders, such as col-
lective action clauses and exit consents; and a legal strategy targeting vulture funds. It
also began to explore new ways to include bondholders in negotiations to restructure
sovereign bonds, and to enhance cooperation with the Paris Club.
The Equity Advisory Group (EAG) held its first meeting in January 2001, with the
participation of fund managers holding in their portfolios about $70 billion in emerging
market equities. The EAG created a Working Group on Corporate Governance and
Transparency chaired by Ed Baker (then Alliance Capital Ltd.) with a mandate to develop
a practical code of corporate-governance principles from an investors perspective.
The code was published the following year, in February 2002, in the report on Policies

Gerd Husler, then Director, Paul Martin, then Finance Frank Savage, then Chairman,
International Capital Markets Minister, Canada Alliance Capital International
Department, IMF

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February 13, 2002, The Financial Times. Reprinted with permission.

for Corporate Governance and Transparency in Emerging Markets. The code advocated
actions to strengthen minority shareholder rights, enhance the responsibilities of
corporate boards of directors, increase transparency and disclosure, and ensure adher-
ence to internationally recognized public accounting standards. Following its release,
the Working Group created eight country-specific Task Forces to promote the adoption
of the code.
In 2003, the Equity Advisory Group carried forward its work on corporate gover-
nance, with Peter Wuffli (UBS) joining Edward Baker as Co-Chairman. A revised version
of the IIFs Policies for Corporate Governance and Transparency in Emerging Markets
was issued in May, and country assessments were published for Poland, Mexico,
South Korea, and South Africa. Further such country reports followed in subsequent
years (including those on China, Russia, Brazil, Turkey, Lebanon, India, South Africa,
Indonesia, Malaysia, and the six member states of the Gulf Cooperation Council).


Two events at the end of 2001 shook the emerging markets financial system and
ushered in the most recent phase of the IIFs work on emerging market policy issues.
First, Argentina stumbled in its efforts to avert a financial crisis. A collapse of the

E M P I |
Sir David Walker, Senior Ed Baker, former CEO, Arminio Fraga, former President,
Advisor, Morgan Stanley Alliance Capital International Central Bank of Brazil

countrys flawed currency-board regime at the end of that year brought a new gov-
ernment to power that opted for a confrontational approach to restructuring its
obligations to bondholders following the largest sovereign debt default in history.
Second, just a month before Argentinas default, then First Deputy Managing
Director of the IMF, Anne Krueger, unveiled a proposal to create a Sovereign Debt
Restructuring Mechanism (SDRM) to preside over the debt-restructuring process in
future defaults. Both these events galvanized the IIF and provided a strong motivation
to its members to develop a better approach to crisis prevention and crisis resolution.
In December 2001, Charles Dallara wrote a letter to IMF Managing Director Horst
Khler, on behalf of the IIF, which challenged the logic of the proposed SDRM approach
and recommended instead that market-based mechanisms be explored. This commu-
nication, which called for concerted efforts to enhance crisis prevention, and voluntary,
cooperative interactions between debtors and creditors when problems do arise, con-
tained the seeds of the strategy later laid out in the Principles for emerging markets
(see below).
Two milestones were reached in 2002. In April, the Special Committee issued an
Action Plan with specific recommendations to make crisis prevention operational
in several areas and a three-pronged approach to restructuring sovereign debt. In
June, at the initiative of the IIF, a joint letter with five other financial industry associ-
ations was sent to the G-7 finance ministers and central bank governors that outlined
a set of principles for crisis management, including greater use of collective-action
clauses in sovereign bond contracts. The other organizations were the newly formed
Emerging Markets Creditors Association, EMTA (formerly the Emerging Markets
Traders Association), the International Primary Market Association, the Securities
Industry Association, and the Bond Market Association. (In September, the Securities
Markets Association joined what became known as the Gang of Six.) Following up
on the letter, this group of associations developed model bond clauses and a code of
conduct to guide the behavior of creditors, debtors, and international institutions in
crisis prevention and resolution. The support of IIF Chairman Sir John Bond (Chairman,
HSBC Holdings plc) was instrumental in their initiative on a code of conduct (Box 17).

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March 22, 2002, The Financial Times. Reprinted with permission.

In September 2002, Banque de France Governor Jean-Claude Trichet, partly in

response to the work that was underway in the IIF and aware that the SDRM proposal
had generated very mixed reviews, floated the idea of developing an informal code
of conduct that would be embraced by the public sector as well as the private sector.
Trichets proposal was welcomed by the IIF and its membership, and was the starting
point for what would emerge in 2004 as the Principles for Stable Capital Flows and
Fair Debt Restructuring in Emerging Markets.
In a related development, Jacques de Larosire (Advisor to the Chairman, BNP
Paribas Group) replaced Josef Ackermann in 2002 as Co-Chairman of the Special
Committee when Ackermann succeeded Sir John Bond as Chairman of the IIF Board
of Directors. As a former Managing Director of the IMF, President of the EBRD, and
Governor of the Banque de France, de Larosire was a pre-eminent figure in emerging
markets finance. He was a firm believer in dialogue between the public sector and the
private sector and in consensual approaches to resolving financial crises in emerging
markets. His presence at the meetings for the private sector with the Paris Club was
also critical to the growing sense of cooperation evident in this dialogue after 2002.
Combined with William Rhodes unmatched experience in commercial bank debt-
restructuring operations, the two Co-Chairmen of the Special Committee gave excep-
tional credibility to its work. Critical support for the work of the Special Committee
also came from representatives of leading emerging market issuers, notably Mexicos
Minister of Finance and Public Credit Francisco Gil Daz, and Arminio Fraga,
President of the Central Bank of Brazil.

E M P I |

the following principles should guide the actions of parties in emerging markets finance and
provide a framework for their behavior. Parties adhering to this Code of Conduct agree however,
that the Code of Conduct is only a guideline for their actions and that none of its provisions has,
or should be given, any legal effect as a matter of contract, comity or otherwise.


Sound policies, structural reforms, transparency, adherence to standards and codes, rule of law,
sound risk management, and IMF surveillance are all essential parts of crisis prevention. Six par-
ticular points, however, are worth emphasizing:
1. Properly functioning capital markets are built on the mutual expectations created by the rule
of law and by the basic principle that, whether or not they choose to enforce their rights, all
market participants are entitled to performance of their contracts in accordance with their
terms. Policies, attitudes, and institutions that support and tend to give effect to these basic
principles are essential and must consistently be encouraged and strengthened.
2. Thorough analysis and sound risk management by investors/creditors can minimize the risks
of contagion, especially when coupled with robust investor relations programs by debtors.
IMF lending decisions should be supportive of such efforts.
3. Market-based exchange rate regimes can be an important ingredient in facilitating adjust-
ment without crises, especially with a foundation of sound fiscal and monetary policy.
4. Consideration should be given to the development of a central database of sovereign bor-
rowing which is accessible to all market participants. Such a project could be based on the
current IIF database, perhaps in collaboration with the IMF.
5. The voluntary inclusion of marketable collective action clauses in bond documentation, in
the context of market-oriented transactions, should be encouraged at all times. As designed,
these clauses will enhance transparency and thereby strengthen crisis prevention, as well
as facilitate orderly debt restructuring where necessary. Greater transparency in the docu-
mentation of bond issues generally, for example by supplementing existing IPMA summary
disclosure guidelines with a proposed checklist of key bond provisions, would also help to
promote crisis prevention.
6. Sovereign debtors should subscribe to and comply with the IMFs Special Data
Dissemination Standard. A comprehensive approach to strengthening crisis prevention is an
integral part of this Code of Conduct. The essential elements of such an approach are set
forth in the Appendix.


(A) Sovereign debtors should:
1. Take strong measures aimed at stabilizing the macroeconomic environment, revitalizing
structural reform, and laying the basis for renewed growth. It is vital that political support for
these measures be developed.
2. Work with the IMF to strengthen policies, obtaining IMF financial and programmatic support
as appropriate as part of a process of restoring growth and market access.
3. Engage in an early and intensified dialogue with key investors and creditors to help deter-
mine approaches most likely to rebuild market confidence, making use of an advisory group
comprised of leading private sector emerging market participants that would give way to a
country specific creditor group in cases where restructuring cannot be avoided. In particular
at a very early stage of potential financial difficulties, proactive liability management in
consultation with market participants could play an effective role in promoting market

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confidence. In this connection, the sovereign should consider ways to limit the potential
spillover effect on the countrys private sector external obligations.
4. Avoid measures that would violate the rights of foreign or domestic investors, preserving
an open investment environment that respects investment rights, and avoiding exchange
controls on non-residents except for temporary periods in exceptional circumstances. In this
connection, authorities should acknowledge the deleterious effect of resident capital out-
flows and work toward making domestic investment more attractive.
5. In connection with a preliminary determination by the debtor that debt restructuring may be
(a) Take appropriate steps to establish a sound foundation for a consensual approach
toward avoiding or resolving its financial crisis, such as retaining international financial
and legal advisors, initiating contact with any creditor committee in formation, and con-
sulting with key creditors before any payments are missed in order to explore alternative
market-based approaches to addressing debt-service problems (such as voluntary roll-
over requests or debt exchanges).
(b) If debt restructuring becomes unavoidable, identify officials responsible for consulting
with creditors and engage in a constructive process of regular dialogue and meetings
with representatives of bondholders and other key creditors, ensuring mutual under-
standing of unfolding events and a continuous exchange of views.
(c) Negotiate promptly, in good faith, and directly with a broadly representative group of
creditors (including bondholders) the terms of any proposed restructuring. In connection
with any such restructuring discussions, the reasonable costs of such creditor groups
financial and legal advisors should be borne by the sovereign debtor.
(d) Disclose to all creditors details regarding all outstanding financial obligations, including
proposed treatment thereof.
(e) Disclose fully all bonds and loans owned or controlled, directly or indirectly, by the sover-
eign and ensure that such obligations are not voted in respect of such restructuring.
(f) Disclose fully to its investors/creditors central aspects of its economic policies and programs,
including all assumptions, commitments, and targets involved in any IMF-supported program.
(g) Avoid discriminating among creditors based on domicile, currency, maturity, or type of entity.
(h) Seek a comparable rescheduling from all official bilateral creditors.
(i) Seek to maintain debt service during negotiations as a sign of good faith and, to the
extent necessary, resume full payment of all principal and interest as soon as possible.
(j) Before announcing the final terms of any such debt restructuring (whether by amend-
ment, exchange offer, or otherwise), engage in constructive negotiations with bondhold-
ers and other key creditors; and avoid any coercion of creditors by impairing existing
bond and loan provisions.
(k) Ensure that contractual rights remain fully enforceable throughout the negotiating and
restructuring process.
(B) Market Participants should:
1. Participate in an active dialogue with sovereign debtors in support of their effort to rebuild
market confidence and access.
2. Accept full responsibility for their investment and credit decisions in emerging markets, with
full recognition that creditors should bear the consequences of their decisions in order to
reinforce market discipline.
3. Recognize that IMF decisions on lending to debtor countries should be consistent with IMF
access policies determined by its members that involve firm limits on access, with flexibility
only for exceptional circumstances, and should be based primarily on considerations relating
to the country and the global financial system.

E M P I |

4. As part of an effort to avoid a broad-based restructuring of sovereign debt:

(a) Commercial banks and investment houses should consider participation in a voluntary,
industry-wide, temporary maintenance of trade and inter-bank advances in the context of
continued debt service and strong performance under a convincing policy framework
supported by an IMF program; consider requests to roll over short-term claims on public
and private sector borrowers in the same context.
(b) Holders of marketable instruments such as bonds can help minimize undue contagion
and support the sovereigns reform efforts and economic performance by consistently
evaluating investments on their merits; and consider requests to roll over short-term
maturities in the same context as 4. (a).
5. Take appropriate steps to establish a sound foundation for a consensual approach toward
avoiding or resolving a sovereign financial crisis, such as endeavoring to collect and dissem-
inate creditor contact data and to begin the process of forming a representative creditor
committee, considering the appropriate time to engage legal and financial advisors, initiating
contact with representatives of the sovereign and of the official sector, and setting up a
communications link to the broader creditor community. Creditor committees should adopt
internal rules and practices to guide their activities and be prepared to function effectively in
coordinating across instruments, with other creditor classes and with the official sector.
6. Should the debtor seek a restructuring, creditors should:
(a) Engage in regular consultations with the debtor in order to exchange information and to
consider the best means of promptly restoring market access.
(b) Work with other creditors and the debtor to finalize a broadly representative creditor
committee as soon as reasonably practicable after the debtor indicates its intent to seek
a debt restructuring (say 60 days). Such a committee should provide a forum for the
debtor to present its economic program and financing proposals and should be staffed
sufficiently to collect and analyze economic data and to evaluate, disseminate and gath-
er creditor input with respect to such financing proposals, as well as to negotiate and
disseminate a definitive proposal and administer a voting process.
(c) Engage in good faith negotiations with the debtor over the terms of a restructuring.
(d) Endeavor that enforcement action against the debtor or its assets (such as declaring
cross-defaults and accelerating principal, as well as bringing law suits and foreclosing
on collateral) is taken only as deemed necessary to preserve and protect asset values
and contract rights.
(C) The IMF and the G-10 should:
1. Support and encourage policies and actions by sovereign debtors that are consistent with
the Code of Conduct.
2. Provide policy advice and, if consistent with the IMF Articles and access policies, temporary
balance of payments financing in support of a strong, bold economic program designed to
foster macroeconomic stabilization and lay the basis for renewed growth and job creation.
3. Vigorously support all efforts to avoid default and a comprehensive restructuring, including
informal approaches to regaining market stability. In this connection, assiduously avoid any
appearance of encouraging a debtor to default.
4. Disburse financing to the debtor during an event of default only if following consultations
with creditors it determines that the country is negotiating in good faith directly with its
external creditors and endeavoring to maintain debt service payments to creditors on an
equitable basis.

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5. Support restructuring of the full range of bilateral credit on a basis broadly comparable to
the restructuring of the private claims.
6. Approve exchange controls only on a temporary, exceptional basis and as part of an initial
phase of a bold reform program.
7. Engage in meaningful consultations with key private creditors regarding the best means of
preserving and protecting asset values and contract rights during the restructuring process
and the most effective approach to restoring market access. Confidential and sensitive infor-
mation that might arise during the course of negotiation with debtors would, of course, be
carefully guarded.
8. Suspend any disbursements to a country that has violated the basic rights of foreign
investors or creditors.
A Joint Monitoring Group (JMG) should be established to monitor all matters relating to this Code
of Conduct. The JMG would consist of a small number of representatives of issuing countries,
creditor countries, private investors and creditors, the IMF, and the BIS, who would meet from
time to time as appropriate in order to review such matters. The JMG could be consulted by any
party regarding any aspects of compliance or noncompliance with this Code of Conduct.

The semi-annual letters from the IIF Managing Director in 2002 and 2003 called
attention to the efforts being made by the private sector to find common ground
with the public sector on crisis prevention and resolution, and stressed the strong
objections within the global financial community to the SDRM and other institu-
tionalized or statutory approaches to crisis management.
The IIFs proactive approach to policy issues in the area of crisis prevention and
resolution began to pay off in 2003. In February, Mexico issued the first emerging
market bond under New York law that contained a collective action clause. This
initiative was consistent with the Special Committees recommendations on the use
of such clauses. The Mexican bond was well received in the marketplace and 11 other
countries successfully issued bonds with similar clauses in 2003, for a total of $28 billion.
Two months later, at the spring meeting of the IMFs International Monetary and
Financial Committee (formerly the Interim Committee), the newly appointed U.S.
Secretary of the Treasury, John Snow, expressed the view that a permanent debt
restructuring institution along the lines of the SDRM proposed by the IMF was neither
necessary nor feasible. This development effectively put paid to the SDRM proposal
to the relief of IIF member firms and many other investors and creditors.
Following up on Jean-Claude Trichets suggestion the previous year, the IIF (together
with the other financial industry associations with which it began collaborating in 2003
on crisis management) developed a draft Code of Conduct. It was built on the premise
that all participants shared a common interest in strengthening the international system
to promote private capital flows in the context of growth and stability. It was the
springboard to an important breakthrough at the end of 2004 when agreement was
reached with major issuing countries on the Principles for Stable Capital Flows and
Fair Debt Restructuring in Emerging Markets (the Principles) (Box 18). Another critical

E M P I |


General disclosure practice. Issuers should ensure through disclosure of relevant information
that creditors are in a position to make informed assessments of their economic and financial sit-
uation, including overall levels of indebtedness. Such disclosure is important in order to establish
a common understanding of the countrys balance of payments outlook and to allow creditors to
make informed and prudent risk management and investment decisions.
Specific disclosure practice. In the context of a restructuring, the debtor should disclose to all
affected creditors maturity and interest rate structures of all external financial sovereign obliga-
tions, including the proposed treatment of such obligations; and the central aspects, including
assumptions, of its economic policies and programs. The debtor should inform creditors regard-
ing agreements reached with other creditors, the IMF, and the Paris Club, as appropriate.
Confidentiality of material non-public information must be ensured.
Regular dialogue. Debtors and creditors should engage in a regular dialogue regarding informa-
tion and data on key economic and financial policies and performance. IRPs have emerged as a
proven vehicle, and countries should implement such programs.
Best practices for investor relations. Communication techniques should include creating an investor
relations office with a qualified core staff; disseminating accurate and timely data/information
through e-mail or investor relations websites; establishing formal channels of communication
between policymakers and investors through bilateral meetings, investor teleconferences, and
videoconferences; and maintaining a comprehensive list of contact information for relevant market
participants. Investors are encouraged to participate in IRPs and provide feedback on such infor-
mation and data. Debtors and investors should collaborate to refine these techniques over time.
Policy action and feedback. Borrowing countries should implement economic and financial poli-
cies, including structural measures, so as to ensure macroeconomic stability, promote sustain-
able economic growth, and thereby bolster market confidence. It is vital that political support for
these measures be developed. Countries should closely monitor the effectiveness of policies,
strengthen them as necessary, and seek investor feedback as warranted.
Consultations. Building on IRPs, debtors should consult with creditors to explore alternative
market-based approaches to address debt-service problems before default occurs. The goal of
such consultations is to avoid misunderstanding about policy directions, build market confidence
on the strength of policy measures, and support continuous market access. Consultations will not
focus on specific financial transactions, and their precise format will depend on existing circum-
stances. In any event, participants must not take advantage of such consultations to gain a com-
mercial benefit for trading purposes. Applicable legal restrictions regarding material non-public
information must be observed.
Creditors support of debtor reform efforts. As efforts to consult with investors and to upgrade
policies take hold, the creditor community should consider, to the extent consistent with their
business objectives and legal obligations, appropriate requests for the voluntary, temporary main-
tenance of trade and inter-bank advances, and/or the rollover of short-term maturities on public
and private sector obligations, if necessary to support a borrowing countrys efforts to avoid a
broad debt restructuring. The prospects of a favorable response to such requests will be
enhanced by the commitment to a strong adjustment program, but will also depend in part on
continued interest payments on inter-bank advances and continued service of other debt.
Voluntary, good-faith process. When a restructuring becomes inevitable, debtors and creditors
should engage in a restructuring process that is voluntary and based on good faith. Such a
process is based on sound policies that seek to establish conditions for renewed market access

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on a timely basis, viable macroeconomic growth, and balance of payments sustainability in the
medium term. Debtors and creditors agree that timely good faith negotiations are the preferred
course of action toward these goals, potentially limiting litigation risk. They should cooperate in
order to identify the best means for placing the country on a sustainable balance of payments
path, while also preserving and protecting asset values during the restructuring process. In this
context, debtors and creditors strongly encourage the IMF to implement fully its policies for lend-
ing into arrears to private creditors where IMF programs are in place, including the criteria for
good faith negotiations.
Sanctity of contracts. Subject to their voluntary amendment, contractual rights must remain fully
enforceable to ensure the integrity of the negotiating and restructuring process. In cases where
program negotiations with the IMF are underway or a program is in place, debtors and creditors
rely upon the IMF in its traditional role as guardian of the system to support the debtors reason-
able efforts to avoid default.
Vehicles for restructurings. The appropriate format and role of negotiation vehicles such as a
creditor committee or another representative creditor group (hereafter referred to as a creditor
committee) should be determined flexibly and on a case-by-case basis. Structured, early negoti-
ations with a creditor committee should take place when a default has occurred in order to
ensure that the terms for amending existing debt contracts and/or a voluntary debt exchange are
consistent with market realities and the restoration of growth and market access and take into
account existing CAC provisions. If a creditor committee is formed, both creditors and the debtor
should cooperate in its establishment.
Creditor committee policies and practices. If a creditor committee is formed, it should adopt rules
and practices, including appropriate mechanisms to protect material nonpublic information; coor-
dinate across affected instruments and with other affected creditor classes with a view to form a
single committee; be a forum for the debtor to present its economic program and financing pro-
posals; collect and analyze economic data; gather, evaluate, and disseminate creditor input on
financing proposals; and generally act as a communication link between the debtor and the cred-
itor community. Past experience also demonstrates that, when a creditor committee has been
formed, debtors have borne the reasonable costs of a single creditor committee. Creditors and
debtors agree jointly what constitute reasonable costs based on generally accepted practices.
Debtor and creditor actions during restructuring. Debtors should resume, to the extent feasible,
partial debt service as a sign of good faith and resume full payment of principal and interest as
conditions allow. Debtors and creditors recognize in that context that typically during a restruc-
turing, trade lines are fully serviced and maintained. Debtors should avoid additional exchange
controls on outflows, except for temporary periods in exceptional circumstances. Regardless of
the specific restructuring mechanics and procedures used (i.e. amendment of existing instru-
ments or exchange for new ones; pre-default consultations or post-default committee negotia-
tions), restructuring terms should be subject to a constructive dialogue focused on achieving a
critical mass of market support before final terms are announced. Debtors should retain legal
and/or financial advisors.
Avoiding unfair discrimination among affected creditors. The borrowing country should avoid
unfair discrimination among affected creditors. This includes seeking rescheduling from all official
bilateral creditors. In line with general practice, such credits as short-term trade related facilities
and interbank advances should be excluded from the restructuring agreement and treated sepa-
rately if needed
Fairness of voting. Bonds, loans, and other financial instruments owned or controlled by the sov-
ereign should not influence the outcome of a vote among creditors on a restructuring.

E M P I |
February 17, 2004, The Financial Times. Reprinted with permission.

source of support at this juncture came from Murilo Portugal, Executive Director for
Brazil in the IMF who later became IMF Deputy Managing Director.
At the outset, it was assumed that the Principles would spell out distinct roles
for emerging market issuers, the IMF, the G-10 countries, and market participants.
Significantly, the IMF and the G-10 countries opted to stand back and see what the
issuers and market participants could develop on their own.
In the end, the breakthrough came in the form of collaboration between officials
in half a dozen leading emerging market economies and half a dozen senior managers in

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Vittorio Corbo Lioi, Leszek Balcerowicz, and Caio Koch-Weser at the John Lipsky, First Deputy
2004 Ditchley Conference in Versailles. Managing Director, IMF

IIF member firms. The core partners on the emerging market side were Brazil, Mexico,
Korea, and Turkey. Among the officials who deserve recognition as the founding
fathers of the text from this side were Alexandre Schwartsman (Deputy Governor,
Central Bank of Brazil), Alonso Garcia Tames (Under Secretary, Ministry of Finance,
Mexico), Tae-Shin Kwon (Vice Minister of Finance and Economy, Korea)and Ibrahim
Halil anaki (Under Secretary of Treasury, Prime Ministers Office, Turkey).
Institutionally, the IIFs partner on the financial-industry side was the International
Primary Market Association (IPMA), based in London, with its Chairman, Robert Gray,
playing a key role.1 From the sell side, an important source of support was John
Lipsky (J.P. Morgan Chase), a member of the Special Committee who subsequently
became a participant in the Principles Consultative Group, and then in September
2006 took office as the First Deputy Managing Director of the IMF. Finally, mention
should be made of the quiet but effective encouragement of Terrence Checki of the
New York Federal Reserve throughout the process.

The Principles address significant remaining gaps in the architecture of global

finance. In particular, they provide flexible guideposts for cooperative behavior of
all parties concerned when restructuring debt in todays world of capital markets
finance. I believe this represents an important milestone in the effort to build a
system which promotes global cooperation, growth and financial stability.
Jean-Claude Trichet, President of the European Central Bank, and Co-Chair, Group of Trustees

The Principles represented the beginning rather than the end of a process (Box 18).
They addressed two gaps in the policy framework for crisis management and resolution:
first, a mechanism for dialogue and cooperation to help countries avert a crisis by
timely action to address emerging problems, and, second, rules of engagement for

In July 2005, IPMA merged with the International Securities Market Association and the new entity is known
as the International Capital Market Association (ICMA).

E M P I |
Reprinted from the Wall Street Journal April 14, 2005, Dow Jones & Company, Inc. All rights reserved.
Reprinted with permission.

debtor-creditor negotiations to restructure debt should a crisis become inevitable.

These rules provided a voluntary, market-based framework and on a case-by-case basis
to complement the use of collective action clauses in bond contracts. There were four
of them: Transparency and timely flow of information; Close debtor-creditor dialogue
and cooperation to avoid restructuring; Good faith actions; and Fair treatment.
The Principles were announced on the eve of the November 2004 meeting of
G-20 finance ministers and central bank governors in Berlin. They were immediately
welcomed by the G-20, reflecting in part the close consultation that had been maintained
with that body in the process of drawing up the Principles. Caio Koch-Weser, State
Secretary at the German Federal Finance Ministry, played a critical role in moving
the Principles through the G-20. Support also came from John Taylor, Under
Secretary for International Affairs at the U.S. Treasury Department, Jon Cunliffe,

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Tsunehiro Nakayama, Chairman, Merrill Lynch Japan and Terrence Murilo Portugal, then Executive
Checki, Executive Vice President, Federal Reserve Bank of New York Director, IMF, current Deputy

Alexandre Schwartsman, former Alonso Garcia Tames, former Ibrahim H. anaki,

Deputy Governor, Central Bank Undersecretary of Finance and Undersecretary of Treasury,
of Brazil Public Credit, Mexico Turkey

Tae-Shin Kwon, former Vice IIF Ditchley Conference, Versailles, France in 2002
Minister of Finance and Economy,

E M P I |

(As of July 31, 2007) Derrill Allatt

Houlihan Lokey Howard & Zukin
Tom de Swaan Robert Gray
Van Lanschot Bankiers N.V. HSBC Bank, Plc.
Monika Machon Brian C. Henderson
AIG Global Investment Corp. (Europe), Ltd. Merrill Lynch & Co., Inc.
Gyrgy Surnyi Hur Kyung Wook
Banca Intesa Ministry of Finance & Economy, Korea
Hartadi A. Sarwono Alejandro Werner
Bank Indonesia Ministry of Finance and Public Credit, Mexico
Saeed Ladjevardi Sergey Storchak
Bank of Tokyo-Mitsubishi UFJ, Ltd. Ministry of Finance of the Russian Federation
Jacques de Larosire Karim Abdel-Motaal
BNP Paribas Morgan Stanley International, Ltd.
Paulo Viera de Cunha Johan Schoeman
Central Bank of Brazil National Treasury, Republic of South Africa
Cristin Echeverra Yi Gang
Central Bank of Chile Peoples Bank of China
William R. Rhodes Ibrahim anaki
Citigroup, Inc. Undersecretariat of Treasury, Turkey
Dagmar Linder Brett Hammond
Deutsche Bank AG TIAA-CREF
Suzanne Gahler
F&C Emerging Markets Limited

Second Permanent Secretary at the U.K. Treasury. Christian Noyer of the Banque de
France, David Dodge Governor of the Bank of Canada, and Henrique Meirelles,
Governor of the Central Bank of Brazil, Augustin Carstens, Deputy Managing Director
of the IMF also provided strong encouragement. In November 2006, the G-20 again
took note of the Principles and welcomed the growing number of countries and
creditors that by that time were committed to them.
In 2005, the Principles moved into the implementation phase which, issuers and
market participants agreed, would be supported by three pillars:
First, technical work by the IIF staff, initially, to analyze countries where the first
signs of a crisis were appearing and, then, to assess the prospects of other countries
that were involved in some phase of the Principles process.
Second, a Principles Consultative Group (PCG), made up of senior emerging market
officials and market participants was established to monitor regularly individual
country cases in light of expectations set out in the Principles (Box 19). This
process has since become well established largely through conference calls about
every two months. In these exchanges, PCG members have sought to ensure that
the Principles are viewed not only as a guide to resolving crises but also as best
practices for non-crisis situations.

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The third pillar is the Group of Trustees, which is composed of eminent leaders
in global finance and co-chaired by Jean-Claude Trichet, President of the
European Central Bank, Henrique Meirelles, Governor of the Central Bank of
Brazil, and Toyoo Gyohten, President of the Institute for International Monetary
Affairs, Tokyo (Box 20). The Group of Trustees is charged with reviewing the
evolution of the international financial system as it relates to emerging markets,
reviewing the development and implementation of the Principles, and preparing
proposals for strengthening them. The Trustees are not involved in specific country
cases, but are responsible for reviewing the work of the PCG. The first such review
took place in September 2006 on the occasion of the Trustees inaugural meeting.

The Principles are a reflection of the unique collaboration between sover-

eign issuers and private investors in shaping a more predictable framework
for emerging markets finance. Their implementation is in the best interest of
issuers and investors alike.
Ali Babacan, Minister of State in Charge of Economy, and Chief Negotiator of Turkey for European
Union Affairs, Turkey

Actions taken in 2006 by economies as diverse as the Dominican Republic, Indonesia,

Mexico, and Morocco provided evidence of growing support for the Principles. In
addition, the government of Belize and its investors adopted the cooperative approach
of the Principles in restructuring the countrys external debt. Also in 2006, the IIF
organized several meetings that brought together representatives from borrowing
countries, senior executives from leading financial firms, and finance officials from
creditor countries and multilateral institutions to exchange views on the interpretation
and implementation of the Principles. (The first Report on Implementation by the
Principles Consultative Group was released in September 2006. Further such reports
will be issued annually.)

Yusuke Horiguchi, Philippe Hildebrand, Arminio Fraga, and Terrence

Checki at the 2006 IIF Ditchley Conference at Cernobbio

E M P I |

(As of July 31, 2007) Francisco Gil Daz

Former Minister of Finance and Public Credit
Jean-Claude Trichet Sir David Walker
President Senior Advisor
European Central Bank Morgan Stanley International Limited
Henrique de Campos Meirelles Fathallah Oualalou
Governor Minister of Finance and Privatization
Central Bank of Brazil Morocco
Toyoo Gyohten Leszek Balcerowicz
President Professor
Institute for International Monetary Affairs Warsaw School of Economics
Ngozi Okonjo-Iweala
MEMBERS Distinguished Fellow
Jacob A. Frenkel The Brookings Institution
Vice Chairman,
Zhou Xiaochuan
American International Group
Chairman, People's Bank of China
Group of Thirty
Montek Singh Ahluwalia
Francisco Gonzlez Rodriguez Deputy Chairman
Chairman and CEO Planning Commission, India
Sheikh Hamad Al-Sayari
Jacques de Larosire Governor
Advisor to the Chairman Saudi Arabian Monetary Agency
BNP Paribas
Trevor A. Manuel
Vittorio Corbo Lioi Minister of Finance
Governor South Africa
Central Bank of Chile
Richard Waugh
William R. Rhodes President and CEO
Chairman, President, & CEO, The Bank of Nova Scotia
Citibank, N.A.
Herbert M. Allison
Senior Vice Chairman, Chairman, President and CEO
Citigroup Inc. TIAA-CREF
Klaus-Peter Mller Ali Babacan
Chairman of the Board of Managing Directors Minister of State in Charge of Economy
Commerzbank AG Turkey
Nicholas Brady Paul A. Volcker
Chairman Former Chairman of the Board of Governors
Darby Overseas Investments, Ltd. U.S. Federal Reserve System
Caio Koch-Weser Pedro Pablo Kuczynski
Vice Chairman
President and CEO
Deutsche Bank AG
Westfield Capital
Arminio Fraga Neto
Kwon O-kyu
Deputy Prime Minister
Gavea Investimentos Ltd
Sri Mulyani Indrawati
Xavier Musca
Minister of Finance
Director General of the Treasury and
Economic Policy
Andrew Crockett France
J.P. Morgan Chase International Josef Ackermann (ex-officio)
Chairman of the Board of Directors
Institute of International Finance

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The Principles provide debtors and creditors with a clear framework for
close dialogue and cooperation on both avoiding and resolving crises in
emerging markets finance. They have already proven useful and are destined
to become a major force in promoting global financial stability.
Jacques de Larosire, Advisor to the Chairman, BNP Paribas Group

Meanwhile, the Special Committees two working groups remained active during
2005 and 2006. In cooperation with the Equity Advisory Group, the Working Group
on Crisis Prevention took up the subject of local-currency debt in emerging markets,
including the growing participation of institutional investors and foreign investors. The
Working Group on Crisis Resolution explored the IMFs policy on lending to countries
with outstanding arrears to private creditors. It also looked into ways in which the
Principles could be incorporated into market operations such as bond prospectuses.
The Principles demonstrate the value of the IIF as a vehicle for strengthening the
architecture of the international financial system. They represent a breakthrough in
collaboration between the private sector and the emerging market economies, both
of which play much larger roles in global finance than before. It is significant too that,
in contrast to the experience of the past sixty years or so, when systemic improvements
have invariably been driven by the G-10 and the IMF, those bodies were on the side-
lines of this initiative. Going forward, however, the support of the G-10 and the IMF
in implementing the Principles is expected to make a helpful contribution in specific
cases. (The IMF has, in fact, been a regular participant in the PCG process.)


In February 2000, at the initiative of the Institute, a meeting for representatives from
IIF member firms was arranged with the Chairman of the Paris Club, Jean Lemierre.
This initial discussion led to a series of annual Paris Club meetings, beginning in
April 2001, to exchange views between the private sector and the Paris Club creditors.
This effort to reach out and build bridges, championed by Paris Club Chairman Jean-
Pierre Jouyet, who succeeded Lemierre in July 2000, when the latter became President
of the EBRD, made important contributions to the adoption of cooperative approaches
in several subsequent debt rescheduling and restructuring cases.
Closely linked to the Principles, a breakthrough occurred in 2004 at the annual
exchange of views with the Paris Club. That meeting was the first to focus on individual
country cases and was the result of several years of informal exploration, led by the
Institute, of how best to engage in such discussions. The meeting was also the first to
allow for a significant exchange of views on upcoming cases, which at that time included
Argentina and Iraq. Time was also set aside to discuss the Paris Clubs initiative known
as the Evian approach toward debt reduction for middle-income countries. The
experiment was considered a success by both sides and country-specific discussions
at subsequent meetings were even more candid and detailed.

E M P I |
The Institute began promoting investor relations as a tool of crisis prevention in 1999
as part of the work of the Steering Committee on Emerging Markets Finance. These
efforts continued under the Special Committee and its Working Group on Crisis
Prevention after their establishment in 2001. At the end of 2002, the IIF launched an
experimental Sovereign Investor Relations Advisory Service (SIRAS) to assist coun-
tries in putting in place best practices for their investor relations programs. Such
assistance was provided to Indonesia in 2005, and discussions have been under way
with a number of other emerging markets.
The Institutes initiatives on investor relations and data transparency were brought
together in 2005 in an exercise that resulted in the publication of a benchmark report
on Investor Relations: An Approach to Effective Communication and Enhanced
Transparency. This report provided detailed assessments of the investor relations and
data-transparency practices of the 30 most active emerging market borrowers. Scores
were developed for each country, based on 20 criteria related to best practices. The
value of this initiative was evident in an update report issued in September 2006,
which found significant improvements in investor relations and data transparency
practices in four countries.

Jean Lemierre, former Jean-Pierre Jouyet, former

Chairman, Paris Club Chairman, Paris Club

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5 Membership, Events,
and Organizational


rom the outset, the architects of the IIF saw the Institute as being very engaged
with its members and believed that its services should evolve closely in line with
members needs and priorities. Over its 25 years, those needs and priorities have
changed substantially. The Institute, through the active direction of its Board of
Directors and its Managing Director, has developed an expanding set of products and
initiatives that provide members with a wide range of opportunities for involvement,
such as: attendance at numerous committees, working parties, and task forces; partici-
pation at a steadily growing number of membership meetings and events organized in
line with the growth of membership and activities; as well as opportunity for interac-
tion with key public sector authorities and multilateral institutions, such as the IMF,
the World Bank, and the BIS.
Most frequently, members are engaged in the IIFs overall work through a broad
range of events. The prime events in the IIFs first decade involved meetings of the
Board of Directors and its committees, as well as the annual spring and fall member-
ship meetings. The latter were usually confined to one half day. They usually featured
economic research presentations by the IIF staff together with a small number of
outside speakers.
The IIF held its first annual membership meeting on September 24, 1983.
Representatives from 180 banks from 40 countries attended. William S. Ogden, Vice
Chairman of Chase Manhattan Bank, presided at the event, where a new Board of

M, E, O D |

1983 Annual Membership Meeting Washington, DC, USA

1984 Spring Membership Meeting Washington, DC, USA
1984 Annual Membership Meeting Washington, DC, USA
1985 Spring Membership Meeting Washington, DC, USA
1985 Annual Membership Meeting Seoul, Korea
1986 Spring Membership Meeting Washington, DC, USA
1986 Annual Membership Meeting Washington, DC, USA
1987 Spring Membership Meeting Washington, DC, USA
1987 Annual Membership Meeting Washington, DC, USA
1988 Spring Membership Meeting Washington, DC, USA
1988 Annual Membership Meeting Berlin, Germany
1989 Spring Membership Meeting Washington, DC, USA
1989 Annual Membership Meeting Washington, DC, USA
1990 Spring Membership Meeting Washington, DC, USA
1990 Annual Membership Meeting Washington, DC, USA
1991 Spring Membership Meeting Washington, DC, USA
1991 Annual Membership Meeting Bangkok, Thailand
1992 Spring Membership Meeting Paris, France
1992 Annual Membership Meeting Washington, DC USA
1993 Spring Membership Meeting Frankfurt, Germany
1993 Annual Membership Meeting Washington, DC, USA
1994 Spring Membership Meeting Washington, DC USA
1994 Annual Membership Meeting Madrid, Spain
1995 Spring Membership Meeting Washington, DC, USA
1995 Annual Membership Meeting Washington, DC, USA
1996 Spring Membership Meeting Istanbul, Turkey
1996 Annual Membership Meeting Washington, DC, USA
1997 Spring Membership Meeting Washington, DC, USA
1997 Annual Membership Meeting Hong Kong SAR, China
1998 Spring Membership Meeting Rome, Italy
1998 Annual Membership Meeting Washington, DC, USA
1999 Spring Membership Meeting Washington, DC, USA
1999 Annual Membership Meeting Washington, DC, USA
2000 Spring Membership Meeting The Hague, Netherlands
2000 Annual Membership Meeting Prague, Czech Republic
2001 Spring Membership Meeting Hong Kong SAR, China
2001 Annual Membership Meeting CANCELLED
2002 Spring Membership Meeting New York, NY, USA
2002 Annual Membership Meeting Washington, DC, USA
2003 Spring Membership Meeting Berlin, Germany
2003 Annual Membership Meeting Dubai, United Arab Emirates
2004 Spring Membership Meeting Shanghai, China
2004 Annual Membership Meeting Washington, DC, USA

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2005 Spring Membership Meeting Madrid, Spain

2005 Annual Membership Meeting Washington, DC, USA
2006 Spring Membership Meeting Zurich, Switzerland
2006 Annual Membership Meeting Singapore
2007 Spring Membership Meeting Athens, Greece
2007 Annual Membership Meeting Washington, DC, USA

Directors was elected, comprising 18 bankers from institutions in Asia, Europe, the
Middle East, and North and South America. Ogden, who had co-chaired with Peter
Leslie of Barclays Bank at the initial conference at Ditchley Park in the United
Kingdom in May 1982 which led to the establishment of the IIF, served as the Institutes
interim Chairman until all formal and practical arrangements were in place to launch
the organization officially.

William McDonough, then Vice Chairman of the First National Bank of Chicago,
who had attended the Ditchley Park meeting and was one of the key promoters
of the idea of the IIF, has stated that, We thought that it was important for us
to have excellent relationships with the International Monetary Fund, the
World Bank, and the Inter-American Development Bank. Two conclusions
flowed from that: one, put the headquarters in Washington, because thats
where the major international institutions are, and secondly, make sure
that we had somebody running what we had decided to call the Institute
of International Finance who could deal effectively on those levels, and
this pointed us towards somebody with a very distinguished civil service

The first annual membership meeting was a milestone. Not only had all formalities
of incorporation been put in place, the Washington location for the IIF had been
determined, and the membership had elected a Board of Directors, but it was also
announced that Andr de Lattre, a former Deputy Governor of the Banque de France,
would become the IIFs first Managing Director, with effect from January 1, 1984.
As the IIF started to get off the ground, de Lattre noted that there were more than
500 banks involved in syndicates that had made loans to Latin American countries
that could no longer service their foreign debts. He said, Our first preoccupation was
to identify really interested banks, which turned out to be a little less than two hundred
ten very big banks having more than $10 billion claims, around forty or fifty fairly
large banks, and a similar number of medium-sized banks and then a hundred
smaller banks.

M, E, O D |
The 180 banks that were to first join the IIF collectively accounted for over three-
quarters of the worlds total bank debt to the non-OECD countries. There was a
major effort from the very start to ensure the initial membership was geographically
diverse. For example, Ibrahim Dabdoub, CEO, National Bank of Kuwait, and a current
member of the IIF Board of Directors, recalled that, I was one of the founding fathers
of the Institute because our bank was involved in international loan syndications.
There werent too many Arab banks at that time, maybe two or three Arab banks
that were involved in the international loan syndications. I remember the first
meetings in Washington and I was a Board member then representing Middle East
North African countries.
Speaking at the first annual meeting of the IIF, William Ogden said the event
marks the end of an encouraging beginning for the Institute. He added, The
organizational phase of bringing the Institute into being with the broadest represen-
tation of the international banking community is now behind us. The challenge ahead
is for the Institute to demonstrate that it can make an effective and meaningful contri-
bution toward the process of international lending.
Significantly, the IIFs leadership enjoyed strong initial support from the heads of
major multilateral institutions. They encouraged the IIF to be an active interlocutor
with the official sector. Perhaps not surprisingly, A.W. Clausen, who for more than a
decade had served as the Chief Executive of Bank of America, was an early promoter
of the idea of an IIF from his chair in the early 1980s as President of the World Bank.
Ernest Stern, then Senior Vice President for Operations, had represented the World
Bank at the 1982 Ditchley conference (and years later, when he was an executive at
J.P. Morgan, served on the IIFs Board of Directors). In the course of the 1980s there
were to be many meetings between the IIFs leadership and both the IMFs and World
Banks senior management.

The IMF encouraged the young IIF from the outset, including at the seminal
Ditchley Park meeting in 1982. McDonough believes that this support was
essential to secure acceptance among leading commercial banks for the
creation of the IIF. The then IMF Managing Director, Jacques de Larosire,
recalled recently that in 1982, with the onset of the debt crisis, the international
financial system was in great danger and on the brink of seizure. The
solution, he said, required the active participation of the IMF, the sovereign
debtors, and the creditors, who were mainly the commercial banks. He noted,
It made a lot of sense to bring together commercial banks on a more permanent
basis, not just on an ad hoc basis, to enable them to reflect on their strategies
and their ongoing engagement with the IMF. This is why I supported the idea
of the IIF when it was proposed by Bill McDonough in 1982.

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Ibrahim Dabdoub, CEO, Attendees at the IIF 1994 Annual Membership Meeting in Madrid
National Bank of Kuwait

Attendees at the IIF 2005 Annual Membership Meeting in Washington, D.C. A.W. Clausen, former President,
World Bank

Ernest Stern, then Senior Vice David Hale, Chairman, Hale Advisors and Peter Cooke, former Chairman,
President, World Bank Basel Committee

M, E, O D |
de Lattre has noted that the establishment of the IIFs initial programs represented
an unprecedented challenge. He said that never before had commercial banks from
a host of countries come together to form an organization of this kind.
The focal point of these activities was developing what de Lattre called economic
intelligence for the member banks about the countries that had defaulted on their
debts. In addition, building relationships with the multilateral institutions was also a
key priority. This not only concerned the debt issue, where the IMF and the World
Bank were encouraging dialogue with the new IIF, but also regulatory matters. The
first IIF Managing Director pointed out that while the member banks all knew their
national regulators well, they had never met before in an international framework to
discuss global banking regulation and thus, noted de Lattre, referring to the first
annual membership meeting, the first such meeting, very actively supported by Peter
Cooke, who was then head of the Basel Committee, set a precedent and took place at
the offices of the IIF in early 1984.
A core challenge for the IIF was to reflect its memberships strategic perspectives on
the debt crisis. Directly after the first annual meeting, work started on planning for
an IIF working partywhich was to be the first of many. The resulting Working
Party on the Future of International Bank Lending had representatives of 20 member
banks, from various countries with varying levels of international exposure, with the
mandate both to review the lessons learned from the initial post-Mexican crisis
rescheduling discussions and to consider ways to enhance the security and efficiency
of future bank lending to developing countries.1
In mid-1984, the Institute had 191 commercial banks as members, and at its meet-
ing in London the Board of Directors discussed establishing a Membership Committee
and whether the Institute should have associate members. The Board resolved that
full membership should be reserved for commercial banks, but associate membership
would be open to other financial institutions with international exposure. In future
years there would be a good deal of Board discussion about defining this in much
greater detail, and full membership was eventually open to insurance companies and
asset management firms. The very large number of banks that had quickly joined the
new organization attested to the gap the Institute came to fill for such firms that had
significant exposure to highly indebted developing countries; they saw key benefits in
obtaining research from the IIF and in having an organization representing their views
to liaise with the official institutions, most notably the International Monetary Fund.
From the start, the Institute decided to hold its annual membership meeting and a
spring membership meeting at the same time as the key ministerial meetings of the
IMFs Interim Committee and the World Bank-IMF Development Committee. These
took place in Washington D.C. in the spring of 1984 and it was evident to IIF members
that planning the Institutes meetings to coincide with the IMF-World Bank conferences
could help to promote greater exchanges of view between the private and public sector
leaders of finance.
See also chapter 3.

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In fact, the first guest speaker at an IIF membership conference was IMF Managing
Director de Larosire, who gave a keynote address at the 1985 Spring meeting that
was held in the IIFs offices on Pennsylvania Avenue in Washington, one block from
the IMFs headquarters. de Larosire spoke about the Funds strategies for dealing
with sovereign debt issues. In the course of his remarks he applauded the Institute for
its accomplishments in improving the information base available to the banks and in
making credit assessments. He underscored his support for the IIF and for cooperation
between it and the Fund.
That meeting was to establish a pattern for membership meetings that would evolve
gradually over the following decade. The meeting opened with a presentation of the
economic research work of the IIF by then Chief Economist Anthony Bottrill. This
was followed by a series of workshops led by the IIFs economics staff that covered a
range of regional and special debt-related topics. M. de Larosires speech came after
lunch and was followed by an informal discussion between the members and the man-
agement of the IIF on issues relating to the Institutes future development. At the spring
1986 meeting, for example, exactly the same pattern was used, with Federal Reserve
Board Chairman Paul Volcker the guest speaker.
In June 1985, the IIF held its first regional banking meeting in Frankfurt, West. At
this meeting, which was hosted by Commerzbank, European IIF member banks gathered
to discuss how the Institute could best serve its members in that region. On the eve
of the meeting the members were addressed at a dinner by Karl Otto Phl, President
of the Deutsche Bundesbank. The meeting attracted top bankers and officials and
highlighted how far the IIF had come in a very short time.

Commerzbanks current CEO Klaus-Peter Mller, who is also a member of the

IIFs Board of Directors, has pointed-out, I believe that the influence of the
IIF can only be understood if you go back into the founding years of the
Institute when we simply had not a single voice speaking on behalf of the
international banking community. We had national banking federations and
associations, we had continental groupings like the European Federation,
but for the global community of financial institutions there was no voice. So
the IIF was founded to become that voice and it developed very rapidly, to
become an accepted voice for the financial community around the globe. So
the impact that the IIF has had is in part to be explained by the fact that it
seems that the IMF, the World Bank, and many others with global responsi-
bilities were waiting for something like the IIF to be created.

M, E, O D |
In September 1986, Richard Hill retired and Barry Sullivan was elected Chairman of the
IIFs Board of Directors (see Chapter 1). At the time, the Institute had 177 full members
and 13 associate members. Discussions proceeded in the Board about the need to expand
the membership. There was concern that the IIF should, first and foremost, be an
organization of commercial banks. At a meeting of the Board of Directors in December
1986, it was agreed that there should be three categories of associate membership:
production companies, trading companies, and government agencies involved in financ-
ing activities with debtor nations. It was also agreed that a number of large insurance
companies could join as associates.
To broaden the appeal for members and potential members and create greater
public awareness of the IIF, the Managing Director noted at the December 1986
Board meeting that a Banking and Communications Department was being estab-
lished: To enhance the Institutes role as a spokesman for the industry, and as a
forum for the exchange of ideas among the Institutes members, governments and
multilateral institutions.
Also, the Board was eager to use events to develop membership and the tempo
and number of meetings accelerated. In January 1987, the IIFs Working Party on the
Future of International Lending met in Washington and involved representatives of
over 50 member firms. IIF Chairman Barry Sullivan stressed that this meeting was
taking place in a crucial period when exchanges of views on resolving the debt crisis
between the private and the official financial institutions was important. Outside
speakers at this meeting included Max Watson, Chief of the International Capital
Markets Division at the IMF, and Eugene Rotberg, Treasurer and Vice President of
the World Bank. The task of crafting the Institutes policies on the debt issue took
centerstage at four board meetings in 1987, at the first country risk seminars organized
by the Institute in Tokyo and in Zurich, and at EAG meetings in Zurich and in
Washington DC.
By 1988, the Institute was moving into a new phase where its meetings and its
profile would become more publicly visible. In part this reflected a gradual shift in
the Board of Directors toward widening membership from purely commercial banks
to including investment banks. In part, too, it reflected the strongly shared view of
the Board and Managing Director Schulmann, who had assumed the position in
1987, that a key IIF role was to influence public policies, especially those of the IMF
and World Bank regarding developing countries debt.
Speeches by top public sector officials were becoming a regular feature of IIF
meetings. These both added to their attractiveness to bankers and highlighted efforts
of the Board of Directors to promote the IIFs role as a forum for the exchange of
views between private and public financial leaders. For example, speakers at major IIF
meetings in 1988 included New York Federal Reserve President E. Gerald Corrigan and
the former Chairman of the U.S. Federal Reserve Board, Paul Volcker.
Meanwhile, the Institutes spring and annual membership meetings were becoming
larger events and no longer could be housed in the IIFs offices. The April 1988 meeting,

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for example, took place at Washingtons Ritz-Carlton Hotel and was attended by 140
people from 69 member institutions.
Throughout the 1980s, the IIFs Board of Directors and the Managing Director
sought to expand events, develop more working groups, and organize greater oppor-
tunities for dialogue between public and private sector finance leaders. By the late
1980s, it had become evident that to strengthen the IIFs activities in these areas it
needed to become more publicly visibleto be seen more widely as having influence
on public policy. This was illustrated, for example, in January 1989, when IIF Chairman
Barry Sullivan presented the IIFs report, The Way Forward for Middle-Income Countries,
to the media at Washingtons National Press Club. This was the IIFs first press con-
ference. He emphasized that, Our report is a consensus document. It represents the
viewpoints of our member banks around the world.
While the focus of the IIF was still overwhelmingly on debt problems, the leader-
ship had always considered that the Institute had the potential to play an important
role in international bank regulatory issues. Some of these issues were highlighted,
for example, at the spring membership meeting in April 1988, where Robert Bench, a
partner at Price Waterhouse and former U.S. Deputy Comptroller of the Currency,
spoke about the bank capital adequacy approaches of the Basel Committee on Banking
Supervision; Rutherford Poats of the World Banks Legal Department spoke about
the new Multilateral Investment Guarantee Agency; and, John A. Bohn, Chairman of
the U.S. Export-Important Bank, spoke about the operations of export credit agencies.
While banking regulation started to emerge as a key IIF issue, the main emphasis
continued to be placed on the debt problems of developing countries, and in this context
1989 was to prove to be a pivotal year. The critical role of IIF events was underscored by
the intense interest of IIF members in the Brady Plan which would be the dominant
topic in IIF meetings in 1989 and directly thereafter. At the spring membership meeting
in April 1989 at Washingtons Watergate Hotel, for example, there were presentations
by officials from the IMF and the World Bank and a keynote luncheon address to
describe the U.S. Governments approach by then U.S. Treasury Assistant Secretary
(and current IIF Managing Director) Charles H. Dallara.

Paul Volcker, former Chairman, Vclav Klaus, President, Czech

Board of Governors, U.S. Republic
Federal Reserve

M, E, O D |
The successful implementation of the Brady Plan ended the debt crisis of the 1980s.
It also posed formidable challenges to the leadership of the IIF, which until now had
seen resolution of the debt crisis as a raison dtre of the Institute. There was a need
to review the organizations mission, which was made all the more pressing by declining
At the time of the IIFs annual membership meeting in October 1991 in Bangkok,
which coincided with the IMF-World Bank annual meetings there, the Institute had
135 member commercial banksa significant decline compared, for example, with
1987 when there were 167 full members. A number of banks had left the Institute,
including U.S. firms that, having worked through the debt crisis, were now adopting
largely domestic strategies, such as Norwest Minneapolis, First Fidelity of New Jersey,
and National Bank of Washington D.C.; in addition there were institutions that had
merged into others, such as Bank of New York and Irving Trust in 1989.
Chairman Barry Sullivan and Managing Director Schulmann recognized the need
to go back to the drawing board and determine ways in which the IIF could broaden
its appeal. Events and meetings were to become an increasingly important component
of the IIFs agenda. Efforts would be launched to widen the agenda to embrace trade
and investment finance and new sources of external financing. Moreover, they recog-
nized that a key to the IIFs future growth would be to find ways to enhance its interna-
tional appeal. Subsequent years would see many more meetings of IIF members outside
of the United States.
Then, for the first time the Board considered appointing a non-American as
Chairman, and in January 1991 Antoine Jeancourt-Galignani, Chairman and CEO
of Banque Indosuez, was elected. He took over from Barry Sullivan, who remains the
last American to serve as the Chairman of the IIFs Board (William Rhodes, however,
served as the IIFs Acting Chairman in 1994). At the same time, the Board elected Rhodes,
who was then the Vice Chairman of Citibank NA, and Hisao Kobayashi, Managing
Director of Dai-Ichi Kangyo, as Vice Chairmen (Rhodes later became First Vice
Chairman of the IIFs Board.)
As the new Chairman of the IIF took the helm in 1991, a key strategy was to
expand the involvement of member firms in dialogue with key official institutions.
The Institute already had an array of committees and task forces and offering partici-
pation in these to senior executives from a rising number of banks was seen as one
avenue for expanding IIF membership. A Board sub-group on membership also
determined in 1991 that the IIF should be making a special effort to get new bank
members from emerging countries.
The board also decided that the IIFs appeal to banks would be enhanced by
strengthening its regulatory focus. In June 1991, the new Working Group on Capital
Adequacy met in London to review both the practical effects of the Basel Accord on
risk-weighted capital requirements and the possible effects from further requirements
to cover market risks. As it noted at the time: This is the first Institute working
group to be formed under the widened mandate of the IIF to deal with issues of
general international banking interest.

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In time, the events that brought IIF members together with the Basel Committee
on Banking Supervision were to become of great value for both sides. William
McDonough recalled that in the 1990s, at a time when he served as President
of the New York Federal Reserve Bank and Chairman of the Basel Committee,
Without the IIF it would have been far more difficult for regulators, such as
the Basel Committee, to fully understand the critical issues that confronted
the banks. The meetings with the IIF were an excellent sounding boardwe
trusted them (the banks) and they trusted us (the regulators).

The Spring Membership Meeting in 1992 in Paris was a time to look both back
and ahead. The guest speaker was de Larosire, then Governor of the Banque de
France. He noted, for example, that when the debt crisis broke out in August 1982, the
combined foreign debt of the three largest Latin American countries alone came to
nearly $230 billion and the portion of this debt owed to commercial banks stood at
$150 billion. He said that now there were countries that by virtue of successful economic
adjustment programs had achieved both a return of flight capital and renewed access
to international capital markets.
The IIF sought new avenues to broaden its interests and base. The universe of
emerging markets was expanding following the collapse of the Soviet Union and the
adoption of market economies across Eastern and Central Europe. The IIF became
heavily absorbed with this epochal development. The Managing Director expounded
on reform in this region, for example, at a press conference in 1991. Indeed, this region
and, particularly, the reunification of Germany, became a major personal interest for
Schulmann, and one that influenced him to think of returning to Germany. In
September 1992, he informed the IIFs Board of Directors that he would leave the
Institute the following month to become President of the Landeszentralbank of the
State of Hesse and a member of the German Bundesbank Council. The Deputy
Managing Director, John Haseltine, became Acting Managing Director.
At the same Board meeting, there was once again a substantive discussion of
broadening the membership of the IIF. The prospective search for a new Managing
Director was seen as a fitting opportunity to review the IIFs mandate. Chairman
Jeancourt-Galignani said in summing up the discussion that the case for a broader
mandate was founded on the common interests of banks involved in the international
financial marketplace in bringing their views to the attention of regulatory and
governmental authorities, as well as the media around the world. He noted that the
Board concluded that the international financial institutions would be of particular
importance to banks in the years ahead and the IIF could have a special role to play
in dealing with these institutions on behalf of the international banking community.
The Board also agreed that it was very important for the IIF to continue to explore
ways in which it could make a contribution in regulatory matters.

M, E, O D |
The Board recognized at this time that such a bold regulatory thrust may have a
particular appeal to some of the very large banks that had still not joined the Institute.
These banks were perceived as important targets to recruit. A broader agenda of IIF
activities and events was seen as part of the strategy to attract these banks.
In its search for a new Managing Director, the Board once again determined that
a prominent leader with public sector experience would be best suited to continue
the successful work of the Institute in the 1980s in building bridges and fostering in-
depth dialogue between the leaders of global finance from the public and the private
sector. Charles Dallara was selected and assumed his position in July 1993. He had
been a Managing Director at J.P. Morgan & Co., following more than 20 years in the
U.S. Government, including military service. He had served from 198489 as the U.S.
Executive Director on the Board of the International Monetary Fund. He was a key
advisor to U.S. Treasury Secretary James Baker and was deeply involved in the formula-
tion of the Plaza Accord in 1985. In addition, he had also become well known to IIF
members in his roles in the late 1980s as Assistant Secretary of the Treasury for Policy
Development and Assistant Secretary for International Affairs under Secretary Brady.
In this latter position he had been instrumental in the development and implementa-
tion of the Brady Plan.
The challenge to the new Managing Director was to find more effective ways to
keep the IIF relevant, to expand its influence and to revitalize its membership. Dallaras
response came quickly. In the fall of 1993, following intensive discussions with the
IIFs Board of Directors, he forged a new agenda for the Institute that would involve
increased advocacy and that would be based on three pillars. These pillars were designed
to increase and adapt country economic research to capital market developments;
broaden IIF activities (including meetings and events involving members) on issues of
global banking regulation; and expand programs to enhance dialogue for the members
with multilateral organizations and policy-makers on emerging markets policy.
To strengthen support for the new agenda, Dallara invited 39 international finan-
cial leaders back to Ditchley Park in April 1994. This meeting was to start another IIF
tradition. In the years since a leadership group of IIF Board Directors, senior statesmen
of global finance, and public sector leaders have come together with IIF senior man-
agement for closed-door meetings regularly every two years in so-called Ditchley
conferences (held, in fact, in a variety of locations). These events have strengthened
relations between the participants and yielded new ideas for the development of the
IIF and its policy approaches.
The IIF Ditchley conferences have had a profound impact on the core agenda of
the IIF. The off-the-record sessions explore the critical dynamics in international
finance and highlight new trends and areas of potential vulnerability. In these discus-
sions, typically held over a two-day period, the participants meet in both informal
sessions and roundtables. In this relaxed atmosphere, they exchange views and touch
upon topics that have, occasionally led to the establishment of a new IIF special com-
mittee or an expanded area for IIF research. These meetings have provided the Institutes
management with a sounding board for new ideas and an opportunity to enhance their
understanding of the primary concerns about global financial developments of the

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worlds leading private-sector practitioners. The most recent Ditchley meeting took
place in Cernobbio, Italy in June 2006. A list of attendees is given in Box 22.
In 1994, the Board of Directors elected Toyoo Gyohten, Chairman of the Bank of
Tokyo, as its Chairman. He was the first Japanese national to hold this position, and
he brought to the Board a background of leadership in both the Japanese public and
private sectors. As Japans top international finance official in the mid-1980s, he had
worked closely with Dallara, who was then at the U.S. Treasury. Together, they would
forge a leadership team intent upon implementing the Boards mandate to enhance
the global appeal and recognition of the Institute. This team was complemented by
Citibank Vice Chairman William Rhodes, who had served for several years as the IIFs
Vice Chairman, and by Josef Ackermann, then President of the Executive Board of
Credit Suisse, who was elected IIF Vice Chairman in July 1995. At its core, as Gyohten
was to note in 1995, The Institute offers a powerful vehicle for financial institutions
to work together to strengthen risk management across a range of markets.

As Josef Ackermann, Chairman of the Management Board and of the Group

Executive Committee, Deutsche Bank, and Chairman of the IIFs Board of Directors,
has stated, Our industry is a people business and the more you have very senior
people from different institutions, actively participating in our discussions, the
better it is for the industry and for the future of the IIF. As long as we have the
commitment of senior people and major institutions from all different parts of
the world, the more forceful, the more convincing the work of the IIF will be.

The accelerating globalization of finance was not only changing financial markets,
but engaging a wider array of institutional participants. The Board of Directors
recognized this and made key changes in 1994 to the Institutes By-Laws to change
the fee structure (introducing a fee system based on global assets) and also open the
membership to investment banks and securities firms. Stalled efforts to broaden the

Gabor Erdely and Cezary Rodney Wagner, Narayanan

Stypulkowski at the IIF Ditchley Vaghul, and Ernest Stern at the
meeting of 1994. IIF Ditchley meeting of 1994.

M, E, O D |

Hassan Abdalla Charles Dallara

Vice Chairman and Managing Director Managing Director
Arab African International Bank Institute of International Finance
Josef Ackermann Jacques de Larosire
Chairman of the Management Board and the Advisor to the Chairman
Group Executive Committee BNP Paribas Group
Deutsche Bank AG Pridiyathorn Devakula
Herman Agneessens Governor
Chief Financial Officer and Chief Risk Officer Bank of Thailand
KBC Group Robert Edgar
Montek Singh Ahluwalia Chief Operating Officer
Deputy Chairman, Planning Commission ANZ Banking Group Limited
India Ahmass Fakahany
Bader Al Sa'ad Vice Chairman and Chief Administrative
Managing Director Officer
Kuwait Investment Authority Merrill Lynch & Co., Inc.
Khaled Al-Fayez Arminio Fraga Neto
Chief Executive Officer Chairman
Gulf International Bank Gavea Investimentos Ltda.
Anis Abdullah Al-Jallaf Jacob A. Frenkel
Chairman Vice Chairman, American International Group
Dubai Investments (AIG) and Chairman
Hamad Al-Sayari Group of Thirty
Governor Francisco Gil Daz
Saudi Arabian Monetary Agency Minister, Ministry of Finance and Public Credit
Ali Babacan Mexico
Minister of State in Charge of Economy, and Dermot Gleeson
Chief Negotiator of Turkey for European Union Chairman
Affairs Allied Irish Bank Group
Republic of Turkey Prime Ministry Stephen Green
Leszek Balcerowicz Group Chairman
President HSBC Holdings plc
National Bank of Poland Toyoo Gyohten
Geoffrey Bell President
President Institute for International Monetary Affairs
Geoffrey Bell and Company Howard Handy
Michael Bradfield Counsellor and Director
Partner Institute of International Finance
Jones Day Gerd Husler
Agustn Carstens Counsellor and Director, International Capital
Deputy Managing Director Markets Department
International Monetary Fund International Monetary Fund
Terrence Checki Philipp Hildebrand
Executive Vice President Member of the Governing Board
Federal Reserve Bank of New York Swiss National Bank
Jon Cunliffe
Managing Director
H.M. Treasury

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Yusuke Horiguchi Mario Monti

First Deputy Managing Director and Chief President
Economist Universit Bocconi
Institute of International Finance Danile Nouy
Thomas Jones Secrtaire Gnral de la Commission
Vice Chairman Bancaire
International Accounting Standards Board Guillermo Ortz
Chung Won Kang Governor
President and CEO Central Bank of Mexico
Kookmin Bank H. Ersin zince
Vclav Klaus Chief Executive Officer
President Trkiye Is Bankasi A.S.
Czech Republic Corrado Passera
Malcolm Knight Managing Director and Chief Executive
General Manager Officer
Bank for International Settlements Banca Intesa SpA
Bernd Knobloch Luiz Pereira da Silva
Chief Executive Officer Advisor to the Minister and Secretary of
Eurohypo AG Ministry of Finance
Pedro Pablo Kuczynski Godard Brazil
President of the Council of Ministers Tommaso Padoa-Schioppa
Peru Economy Minister
Ademaro Lanzara Italy
Deputy Chief Executive Officer William R. Rhodes
Banca Nazionale del Lavoro Senior Vice Chairman
Cees Maas Citigroup Inc.
Vice Chairman and Chief Financial Officer Chairman, President, and CEO
ING Group NV Citibank NA
Gustavo Marturet Pierre Richard
President Chairman of the Board of Directors
Mercantil Servicios Financieros and Banco Dexia Group
Mercantil Jean-Pierre Roth
Peter McCarthy Chairman of the Governing Board
Deputy Managing Director Swiss National Bank
Institute of International Finance Roberto Setbal
Sir Callum McCarthy President and Chief Executive Officer
Chairman Banco Ita S.A.
Financial Services Authority Otto Steinmetz
Charlie McCreevy Member of the Board of Managing Directors
European Commissioner for Internal Market Dresdner Bank AG
and Services Josef Tosovsky
European Commission Chairman, Financial Stability Institute
Henrique de Campos Meirelles Bank for International Settlements
Governor Zhou Xiaochuan
Banco Central do Brasil Governor
Sabine Miltner People's Bank of China
Senior Advisor to the Managing Director and
Director of Emerging Markets Policy
Institute of International Finance

M, E, O D |
Institutes membership in Europe were reactivated, and major global banks, such as
Deutsche Bank, HSBC, Credit Suisse, ING, and Socit Gnrale joined the Institute.
So too did a number of fund management institutions and leading financial firms
headquartered in emerging market countries. The new refreshed leadership agenda,
the higher public profile, and the changes in its By-Laws combined to set the IIF on a
growth path that has endured until now.


The Mexican crisis of 199495 was a blunt reminder of the risks in emerging markets
finance. The Institute promptly issued a series of reports on the crisis, and held a
number of related meetings. The meetings included one in New York in January 1995
that attracted more than a hundred representatives of member firms. As Gyohten was
to write in the IIFs 1995 Annual Report, the Institute has established itself as the
leading global voice for the private financial community.
Risk management was a central theme that ran across the spectrum of the IIFs
work with increasing frequency and prominence. The Managing Director and the
Board of Directors agreed to raise the public profile of the IIF by holding more press
conferences, working more closely with the international media, and publishing more
of its reports. The publication several times a year of IIF forecasts on private capital
flows to emerging markets provided opportunities for the Managing Director to
highlight the Institutes research and to promote the risk-management theme.
IIF task forces and working groups, which brought together representatives of
member firms, were increasingly engaged in critical risk-management issues. For
example, in September 1994, the IIF released a report by its working group on deriv-
atives. In another initiative, directly after the outbreak of the Mexican crisis, the
Institute convened another working party that issued a report in November 1995.
That report called on national authorities of emerging market countries to increase
transparency and adhere to recommended data standards for the publication of key
economic information (encompassing national accounts, inflation, external payments,
assets and debt, monetary accounts, and fiscal accounts). With an increasing number
of meetings of specialized working groups concerned with bank regulatory issues and
emerging markets finance, and larger and more newsworthy conferences, the IIF was
positioning itself to become the premier global forum for exchanges of views among
finance practitioners on key international issues.

Angel Gurra, Mexicos Minister of Foreign Affairs from December 1994 to

January 1998 and thereafter Minister of Finance and Public Credit to December
2000 and today the OECD Secretary-General, has noted that, The IIF became a
problem-solver, it became a forum, it became a source of advice and counsel,
and it also served to be a way in which we could pass the message on to
third parties and try some things to see if they would fly or not.

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I was very impressed, pointed out Jean-Claude Trichet, who as a senior French
government official had frequently engaged with the IIF and who is now President of
the European Central Bank, during that period, namely after the 80s and the drama
of the 80s, by the role of the IIF and its ability to keep up with the changes, the struc-
tural changes of the 90s. It was so important to have a private sector that would be as
alert, as agile, as well-organized as possible, and, speaking as a representative of the
public sector, I have appreciated that very much indeed.
Trichet reflected a view that was consistent with a key goal of the Managing
Director at that time, and which was in accord with a mandate that ran back to the
earliest days of the IIF, to further expand and deepen ties between the membership and
leading public sector institutions. In 1995, for example, links were forged between the
Institute and the major regional development banksthe Inter-American Development
Bank, the Asian Development Bank, and the European Bank for Reconstruction and
Development. In time, the IIF would regularly hold seminars for its members at the
annual meetings of the regional institutions, as well as press conferences.
The higher profile of the Institute, the expanding range of its work, and its growing
appeal to a wider cross-section of financial services firms, were to further boost
membership. More than forty institutionsthen a record numberjoined the IIF in
1996, taking the total to 236. They included asset management and insurance compa-
nies such as Alliance Capital Management and American International Group (AIG).
A major effort was made to attract members from emerging markets countries that
were rapidly moving ahead to expand their international economic ties and in 1996
new members included the Bank of China and the Kuwait Investment Authority.
The Board of Directors itself was also becoming more diverse. Board members
were engaged in apprising financial leaders in their regions of the Institutes work.
Thus, for example, IIF Board member Cezary Stypulkowski, President of Bank
Handlowy w Warszawie, Poland, was frequently engaged in conversations that were to
contribute to a significant rise in the number of Central European banks joining the
IIF. By the spring of 1996, for example, three banks from the Czech Republic and
others from Hungary and from Poland had become members so setting a base for
what would be in future years a significant expansion of IIF activities, including
regional events, in Central and Eastern Europe.
Meanwhile, a sustained effort had been launched to broaden and strengthen the
Board, and this too was to play an important part in raising the IIFs profile and the
prestige of its events. Looking back in 2007, Cees Maas, Honorary Vice-Chairman/
Advisor to the Executive Board, ING Group, and Vice Chairman and Treasurer of the
IIF Board of Directors, noted, An important achievement has been the broadening and
deepening of the leadership in the board. Many CEOs of the large international operating
banks are willing to spend their time in the Board and this is very important for the
work the IIF does, and for the support the IIF gets from its membership in the banks.
I think this is a feature of the really great work done at the IIF over the past decade.
In the spring of 1996, the IIF convened another high-level Ditchley retreat, and
its spring and annual meetings attracted large audiences and leading public figures.
More than 200 representatives of member firms attended the Spring Membership

M, E, O D |
Meeting in Istanbul and double that total participated in the annual Membership
Meeting in Washington in the fall. The range of country interests of the IIF member-
ship was rapidly expanding and key speakers were included on the programs from
countries that had not previously been on the IIFs radar screen, reflecting the new
dynamics in emerging markets finance. Among the speakers at the Washington
conference, for example, were South African Finance Minister Trevor Manuel and
then Prime Minister (now President) Vclav Klaus of the Czech Republic.

President Klaus recalled that, for the Czech Republic, which was seeking to
establish itself on the global economic stage it was valuable to be able to par-
ticipate in major IIF events. He said, I must say that for me and for our part of
the world the IIF was very helpful in bringing us in, in making us real partici-
pants of the game For us, at the beginning, it was absolutely crucial.

Jacques de Larosire, Edward A. George (Governor, Bank of England) Eduardo Escasany (Grupo Financiero
and William McDonough at the 1996 IIF Ditchley Conference. Galicia) and Ademaro Lanzara (BNL)
at 1996 IIF Ditchley Conference.

Nigel Wicks, Murray Corlett, Hilmar Kopper and Josef

Ackermann at the 1996 IIF Ditchley Conference.

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AIG Vice Chairman and former Governor of the Central Bank of Israel Jacob
Frenkel noted that the IIFs major membership meetings had become Unique
platforms for representatives of governments to present their economic perspectives
to the capital markets. The IIF had built a platform that no other organization could
build and it has established an outstanding track record in this area.
The IIF was refining its mandate in line with its evolution, which was to see in the
years ahead a quantum increase in the number of meetings and events that it would
organize around the globe. In its 1996 Annual Report the IIF articulated its three
primary goals:
To support members risk management, asset allocation, and business development
in emerging markets;
To serve as a forum for the private financial community on the policies of official
multilateral agencies whose actions affect the business interests of IIF members; and,
To provide a vehicle for the exchange of views on global financial and regulatory
issues and to advance the common views of its members with key regulatory


In April 1997, Georges Blum, Chairman of Swiss Bank Corporation, succeeded
Gyohten as IIF Chairman. The groundwork of the previous years set by the IIFs
Board under Gyohtens leadership and by the management, coupled with the rising
international interest in emerging markets finance, enabled the IIF to take its events
and meetings to a new level, starting in 1997. These meetings were to attract consider-
able media attention and membership. The IIF was widely seen to be the place where
major trends in the world of global finance were candidly and forcefully discussed.
The IIFs Spring Membership Meeting in 1997 brought out the increasing respect
that the Institute was receiving from leaders of public finance. Among the speakers at
the meeting in Washington were U.S. Federal Reserve Board Chairman Alan Greenspan,
Netherlands Central Bank Governor Wim Duisenberg (who was to become the first
President of the European Central Bank and to address a subsequent IIF annual meeting
in Prague in that capacity), Tom de Swaan, then Chairman of the Basel Committee
on Banking Supervision, and Ibrahim A. Al-Assaf, Saudi Arabian Minister of Finance
and National Economy.
As the Asian crisis was gathering momentum and with the U.K. transfer of Hong
Kong to the Peoples Republic of China, there was particular interest in the annual
meetings of the IMF and World Bank, and the associated annual meeting of the IIF,
in Hong Kong in September. On the eve of the IIF annual meeting, the Institute hosted
a Roundtable on Financial Stability and Supervision in Emerging Markets in con-
junction with the Group of 10, the Basel Committee, the International Organization
of Securities Commissions, and the IMF and the World Bank. Speakers included U.S.
Treasury Secretary Robert Rubin, the then Chairman of the Deputies of the G-10,
Mario Draghi, and the heads of the IMF and World Bank, respectively Michel
Camdessus and James Wolfensohn.

M, E, O D |
Trevor Manuel, Minister of Jacob Frenkel, former Governor, Bank of Israel, and George Soros,
Finance, South Africa Chairman, Soros Fund Management

Angel Gurra, Secretary- Cezary Stypulkowski, Liu Mingkang, former Joseph C. K. Yam, Chief
General, OECD Managing Director, Chairman, Bank of China Executive, Hong Kong
J.P. Morgan Monetary Authority

Alan Greenspan, former Josef Tosovsky (BIS) and Gilles de Margerie (Credit Agricole) at the
Chairman of the Board of 2004 IIF Ditchley Conference in Versailles
Governors, U.S. Federal Reserve

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In 1982, in his capacity as Managing Director of the IMF, Mr. de Larosire attended the meeting of
bankers convened at Ditchley Park, England which led to the founding of the IIF (see Chapter 1)
and he has been associated with the Institute ever since. During the mid-1980s, Mr. de Larosires
leadership at the IMF contributed to the success of the strategy for resolving the debt crisis of the
1980s that affected many developing countries. In 1987, he became Governor of the Banque de
France and from 1993 until his retirement from public service 1998 he was President of the European
Bank for Reconstruction and Development. Currently he is Advisor to the Chairman of BNP Paribas.
At the Institutes Annual Meeting in September 1997, the Board of Directors announced a three-year
annual essay competition to honor Jacques de Larosire for his contributions to international finance.
A jury of distinguished financial personalities was constituted to select the winning essays, which
were published widely and disseminated to member firms. The jury was chaired by former IIF
Chairman Toyoo Gyohten and included Mr. de Larosire.
1998: Kevin L. Mellyn and Matthew I. Saal, A Perspective on the Risk and Regulatory
Implications of Market-Centric Financial Systems.
1999: David Crichton-Miller and Phillip B. Worman, Seeking a Structured Approach to Assessing
Government Risk in Emerging Markets.
2000: Avinash D. Persaud, Sending the Herd off the Cliff Edge: The Disturbing Interacting
Between Herding and Market-Sensitive Risk Management Practices.

The annual meeting itself, where the IIF would announce a record membership of
275 institutions, was both a gala celebration and an in-depth and fast-paced meeting
of international financial leaders on critical issues. The first day saw presentations by
the IIFs Chief Economist and Deputy Managing Director William Cline and his senior
economics team, followed by a dinner, at which the speaker was Joseph C.K. Yam,
Chief Executive of the Hong Kong Monetary Authority. Directly thereafter, a special
event was held to honor Jacques de Larosire. From the very start of the IIF, he had
stimulated strategic dialogue between the membership of the IIF and the official sector.
In his honor the IIF announced that it was launching a special international essay prize
(See Box 23). The tribute to him was led by former U.S. Federal Reserve Chairman
Paul Volcker. Other speakers included Deutsche Bundesbank President Hans
Tietmeyer and Governor of the Bank of Israel Jacob Frenkel.
Senior public-sector leaders from Asia spoke at the meetings plenary sessions the
next day and emphasized that, despite the Asian crisis, the impact of China on global eco-
nomics and finance would become ever more central. The sense of impending change
was captured in a speech by William McDonough, then President of the Federal
Reserve Bank of New York. He said, As I look at the membership of the Institute of
International Finance gathered here in Hong Kong, I cannot help but be impressed as
to how truly global financial markets have become. Realizing that this meeting is being
hosted here in Hong Kong, with the Peoples Republic of China as the host country,
further underscores how rapidly the world is changing and how interdependent we are.

M, E, O D |
The IIF also developed an increasing number of regional events. In 1996, the IIF
held its first annual meeting of Central European bank chief executive officers and it
set plans for regular meetings of a similar kind in other regions. In 1997 the IIF initi-
ated its first Middle East-North African conference of bank chief executive officers.
This conference has since become a regular annual event. The first was hosted by the
National Bank of Kuwait, whose Chief Executive Officer, Ibrahim Dabdoub, had long
been a member of the IIFs Board of Directors. Looking back at these MENA meetings,
Dabdoub noted at the most recent gathering in Doha, Qatar, in February 2007 that,
"The IIF has played a most important leadership role in organizing the gatherings
of chief executives, which have become increasingly productive and have provided a
unique forum for a substantive exchange of views among the leaders of finance in the
Middle East. Starting with the first CEO Forum in 1997 in Kuwait, these conferences
have attracted a rising number of leaders as modernization and internationalization
of banking in our region has become a major priority.
During the following three years the IIF built on the momentum that was evident
in its rising number of high-profile 1997 events. In 1998, John Bond (later Sir John),
Group Chairman of HSBC Holdings plc, took over as Chairman of the IIFs Board
of Directors and encouraged IIF management to build on its early and important ties
to financial leaders and institutions in China. Significantly, Liu Mingkang, Chairman
and President of the Bank of China, joined the Board and its Executive Committee in
2000 and the following year he became a Vice Chairman alongside William Rhodes of
Citigroup/Citibank, Josef Ackermann of Deutsche Bank and Tasuku Takagaki of the
Bank of Tokyo-Mitsubishi. Liu Mingkang was the first IIF Board Vice Chairman from
an emerging market country.

Sir John Bond has noted that, Im particularly pleased that when I was
involved with the Institute we had our first Vice Chairman from China, Mr. Liu
Mingkang, who made an enormous contribution to the InstituteTheres an
inexorable law of international finance, and that is that logically the worlds
largest economy should produce the worlds largest financial institutions,
because financial institutions are really a mirror of the economy, theyre a
leveraged play on the economy if thats what you like to describe them. It was
clear to me that China was set on a course to become the worlds largest
economy, in absolute terms at some point in this century, probably earlier than
most people think, if not in GNP per capita terms. Therefore attracting the
Chinese banks into the Institute and encouraging them to participate was
hugely important.

The participation of leading executives of major member firms on key emerging

markets issues was enhanced when the Board of Directors established in 1998 a Steering
Committee on Emerging Markets Finance, co-chaired by William Rhodes and Josef

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Sheikh Salem A. Aziz Al-Sabah, Governor Central Bank of Kuwait, Charles Dallara, Ibrahim Dabdoub,
and John Haseltine at the first MENA CEO meeting in Kuwait, 1997

Ackermann. The committee had four specific working groups concerned with financial
crises, transparency, liberalization of capital movements, and loan quality. In 1999
the Board established the Steering Committee on Regulatory Capital, chaired by Jan
Kalff, Chairman of the Managing Board of ABN AMRO Bank, with Peter Godsoe,
Chairman and CEO of Bank of Nova Scotia as Vice Chairman. This committee was
also to establish a series of working groups and task forces. We provided, I think, a
very active forum for both the public and private sector to get together, share ideas,
and to work together, said Mr. Rhodes looking back at the initiation of these com-
mittees. He added, We have done this not only at our various meetings, in the sense
of the regular meetings that we hold, but also in working groups. As an example, Ive
chaired the Steering Committee on Crisis Management and Crisis Prevention for the
last decade, and thats been one of our key committees as has the committee on regu-
latory affairs dealing with Basel II.
The two Steering Committees were to spearhead the work that the IIFs leadership
would pursue on international finance and bank regulatory issues in the following years.
The meetings of the committees and their key working groups would bring together
leaders of finance to exchange views, often together with the heads of public sector
institutions, from the IMF to the BIS. As the Basel Accord was being reviewed, for
example, Danile Nouy, then at the Basel Committee on Banking Supervision, noted
that it was important for the regulators to be able to meet with the most senior mem-
bers of the banking community 2 on a global basis to hear first hand their concerns and
their constructive approaches. Ms. Nouy noted that the IIF was and is unique in its
global breadth.
The activities of these groups and the rising profile of the IIF added to the
Institutes prestige and the respect it gained from leading ministers of finance and
central bank governors. Their participation in the spring and annual membership
meetings of the IIF became a regular feature. Moreover, the increasing attention that
these meetings attracted also encouraged major financial services firms to sponsor the
events, so providing the resources that would enable the Institute to further expand

See Box 8 in Chapter 3 for a listing of the members of the Steering Committee on Regulatory Capital and Box 12 in
Chapter 3 for a listing of the members of the Special Committee for a Strategic Dialogue on Effective Regulation.

M, E, O D |
Vclav Havel, then Wim Duisenberg, then Danile Nouy, then
President, Czech President, European Secretary General,
Republic Central Bank Basel Committee on
Banking Supervision

the meetings. For example, leading Italian financial institutions were the key sponsors
of the Spring Membership Meeting in Rome in May 1998, while Alliance Capital, Bank
of America, J.P. Morgan, and Morgan Stanley Dean Witter, were the lead sponsors of
the fall meeting in Washington. Major sponsors of the Annual Membership Meeting
in 1999 were Bank One, Chase, Commerzbank, and CCF Groupe. Since then, sponsor-
ship of IIF meetings by member firms has become a regular feature and is regarded
as mutually beneficial.


As Schulmann had surmised almost a decade earlier, the new political realities of
Central and Eastern Europe enormously expanded the opportunities and the challenges
for financial services firms engaged in emerging market economies. The 1990s saw
rapid growth of many of the IIFs activities in the region, which came to a symbolic
head in September 2000, when for the first time the annual membership meeting
was held in Central Europe. The political and historical significance of the event was
highlighted by an address to the participants in the IIFs meeting by then Czech Republic
President Vclav Havel in the magnificent grand salon of Prague Castle.
The roster of speakers included Wim Duisenberg, the first President of the
European Central Bank. It was also the first annual membership meeting to include
Central European member banks among the sponsors. These included Ljubljanska
Bank, Trk Ekonomi Bankasi (TEB), Zivnostenska Bank of the Czech Republic, and
Bank Handlowy w Warszawie, who joined with Bank-Austria Creditanstalt, Sanpaolo
IMI Group of Italy, and Deutsche Bank.
Through its expanding number of policy and bank regulatory steering committees,
working groups, and task forces in emerging markets, as well as the major spring and
annual meetings and a rising number of regional meetings, the annual agenda of
conferences organized by the IIF around the world grew swiftly. An Events Department
was created within the Institute and increasing attention was being given to securing
sponsorships for these activities and raising their public profile. Regional CEO meetings
in both Asia and in Latin America were added to the list of regular annual events in
2000 and a regional CEO meeting for Maghreb was initiated in 2005.

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The regional meetings would be complemented by a rising number of special
regional events designed to bring bank chief risk officers and regulators together to
focus on specific, highly topical international regulatory developments and their
regional implications, such as the Basel II Accord.
By 2007, the Institute was organizing a dozen regional membership meetings a
year that involved either chief executive officers or chief risk officers. These events
increasingly brought together leading finance ministers, central bank governors, and
banking regulators from the individual regions, together with a small number of global
experts from the key money market centers. The agendas attracted a rising number
of the most senior executives of regional financial services firms, which in turn added
value to these conferences in terms of informal networking and exchanges of views.
In the Middle East, for example, the IIFs regional events provided participants
with unique forums to chart progress and determine future actions against a back-
ground of increasingly intensive regional efforts to modernize financial institutions,
both public and private, and strengthen cross-border banking. The agenda of the
2005 CEO meeting in Abu Dhabi not only included global economic issues, but also
sessions on regional capital market issues, human resource developments in Middle
East banking, as well as retail banking. The 2007 CEO conference in Doha added the
topic of Islamic banking.

The experience of regional CEO meetings and the IIFs reputation for organiz-
ing events that added value for the chief executives led to an unprecedented
conference in Athens, Greece, in 2005. This brought together for the first time
the CEOs of leading banks from Greece and Turkey and the banking associations
of both countries in active engagement with the IIF. Yannis Costopoulos,
Chairman of Alpha Bank of Greece and an IIF Board Director, noted at the time
there was great value in the IIF initiating this meeting as, Banks in our countries
are increasingly engaged in a highly competitive environment for financial
services, both at home and abroad. We face many mutual challenges and by
coming together we have begun to learn from one another.

H. Ersin zince, Chief Executive Officer of Trkiye Is Bankasi and Chairman of the
Banks Association of Turkey, and also a current member of the IIF Board of Directors,
said directly after the Athens conference (see quote above), We have held very fruitful
discussions. Both the Greek and Turkish banking systems are strengthening their per-
formance and preparing to face the changing environment in which we both operate.
This meeting was an excellent opportunity to discuss approaches for cooperation and
regional development and share the experiences of our Greek counterparts regarding
the EU accession process.
Bill Rhodes has noted that over the years the IIF built a very important forum for
the leaders of finance from both the public and the private sectors. He emphasized that

M, E, O D |
Attendees at the Middle East/North Africa CEO meeting in Muscat, 2006

the full membership meetings have contributed to the perception of the IIF as the
leading organization of its kind. In addition, said Rhodes, the IIFs regional meet-
ings around the world have over the years become exceptionally important. In many
ways they are the heart and the soul of our full agenda of eventsthey are greatly
appreciated by the members.
As the regional meetings entered a new phase in 2001, the Institute launched a
series of Open Programs. These were designed to broaden the IIFs reach around
the world. Through these meetings, non-members from the international financial
community would be encouraged to participate in one-or-two-day conferences on
topical issues. In the following years, the IIF undertook a number of further initia-
tives in the training and professional development area. These included seminars on
country risk analysis and a recent series of programs aimed at financial professionals
covering key areas in banking and finance. (See Box 24 on IIF training and profes-
sional development programs.)
In the fall of 2001, shortly after the attack on the New York World Trade Center,
the Board of Directors of the IIF decided to underscore the global financial communitys
solidarity with the people of New York City by holding the Spring 2002 membership
meeting in that city. Many of the major IIF meetings take months to plan and prepare,
but the timeframe to arrange the New York event was extremely compressed. The event,
both in terms of the quality of its speakers and participants and the magnificence of
its locations, did not fail to impress.
The opening conference dinner took place on the podium of the Temple of Dendur
at the Metropolitan Museum of Art. The dinner speaker, addressing the IIF assembly
via satellite from Washington D.C. was Alan Greenspan, Chairman of the U.S. Federal
Reserve Board. The conference the next day included presentations by John Taylor, Under
Secretary of the U.S. Treasury for International Affairs; Pedro Malan, Minister of Finance
of Brazil; Kemal Dervis, Minister of Economics of Turkey; and an array of private
financial leaders. The conference closed with a dinner at the American Museum of
Natural History and featured an address by Chinas Vice Minister of Finance, Jin Liqun.

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In recent years the Institute has launched a number of initiatives in the areas of training and pro-
fessional development targeted at specific segments of the financial community. These initiatives
are also intended to generate new sources of non-dues revenues
These initiatives take the form of fee-based Open Programs, Corporate Governance Programs,
and Understanding Country Risk.
Open Programs are one-to-two-day fee-based conferences that focus on key issues in global
finance and banking. Some 25 Open Programs have been held in a variety of worldwide loca-
tions since the program was established in 2001.
Corporate Governance Programs are two-to-three-day conferences for Directors, CEOs,
and Executive Managers in banks to address issues and concerns in corporate governance.
Regional programs have been held in Lausanne and Bahrain, while programs tailored to a single
bank were held in Budapest and Miami. A special program designed for Indian banks was
held in Mumbai. A one-day version of this program was developed in 2007 and held in Dubai
and Mumbai.
Understanding Country Risk is a two-day program aimed at presenting and discussing key
issues and techniques involved in conducting country risk analysis. Six programs have been
held since the program was started in 2004, including two at the IIF in Washington D.C. In
addition to participation fees, the IIF obtains sponsorship for this program.
This is a recent initiative that is being developed to meet the rapidly changing skill needs
demanded by the global financial industry. The various educational and training sessions offered
by the IIF are structured to broaden and update the knowledge base of the financial professionals
and executives. By drawing on the breadth and depth of experience from among its membership
of the worlds leading international financial institutions, the IIF provides uniquely relevant course
material. The subject matter is calibrated to the participants, and is scaled from entry-level pro-
fessionals to senior executives. The programs are conducted in the major international financial
centers or the preferred venue of the hosting institution.
The IIF conducted three PDPs in 2006, two of which were for entry-level professionals from
Korean financial institutions. The focus on Korea was demand-driven and reflected an ongoing
financial sector reform program aimed at spurring development of the domestic capital markets
and opening avenues for residents to invest abroad.
The first program, Investment Banking 1, was held over a two-week period in October 2006
and was split between New York City and Washington D.C. This program was tailored primarily
to meet the needs of Kyobo Securities, an IIF member.
The second program, Managing Global Expansion 1, was held in Seoul in early November
2006. The one-week program was open to all Korean financial institutions and the Institute
recruited experienced instructors from abroad for on-site presentations. The subject matter
was selected after an informal survey of member firms in Korea.
A third PDP, Private Banking and Wealth Management 1, took place over a two-week period
in July 2007 in Lausanne, Zurich, and Milan. The instructional sessions were delivered in col-
laboration with the Swiss Finance Institute, University of Zurich, and the Swiss Bankers
Association. Guest senior executives came from UBS, Banca Intesa, Pictet & Cie, Merril
Lynch, Credit Suisse, Zurich Financial, and Unicredit Group.
The IIF plans to offer a fourth PDP in October 2007, which is essentially a repeat of Investment
Banking 1 that was held in the fourth quarter of 2006. The upcoming program will also be split
between New York City and Washington D.C. Korean financial institutions will again be the target
market, allowing the IIF to capitalize on the success of the 2006 program.

M, E, O D |
Gustavo Marturet, Jorge Londoo Saldarriaga, Charles Dallara and Gerd Husler (Lazard International)
Roberto Setbal at the Latin American CEO Meeting in Cartegena, 2007 and Klaus-Peter Mller at the 2007
IIF Open Program in Frankfurt

H. Ersin zince and Yannis Costopoulos at the Marco Voljc, Pavel Kavnek and Jiri Kunert at the
2003 Spring Membership Meeting in Berlin Central Europe CEO Meeting in Prague, 2002

Josef Ackermann with IIF staff at the 2005 Annual Membership Meeting in Washington, D.C.

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Graduates of the Investment Banking Training Program 2006 in Washington

Just as Sir John Bond had encouraged the IIF to expand its range of events in his
position as Chairman of the IIFs Board of Directors, so too did his successor, Josef
Ackermann of Deutsche Bank, who became Chairman of the IIF Board of Directors
in 2003. He believed the events held for the IIFs membership provided unique
opportunities for the members and for leaders of the public sector, and contributed
to the rising public-policy influence of the Institute and public awareness of it.
By carefully selecting locations for its membership meetings, the Institute was able
to expand its global visibility and its reach. The Prague meeting in 2000 was successful
in raising the profile of the IIF in Central and Eastern Europe, and the annual
membership meeting in Dubai in 2003 was to have a similar impact on the Middle
East, especially in the Gulf area. Opened by Sheikh Mohammed bin Rashid Al
Maktoum, then Crown Prince of Dubai (current Ruler) and Defense Minister of the
United Arab Emirates, the conference attracted considerable attention from IIF members
and from the media. With Iraq on the minds of many, there was intense interest in
understanding the politics of the wider region. Keynote addresses by the new Turkish
Prime Minister, Recep Tayyip Erdogan; U.S. Treasury Secretary John Snow; Trevor
Manuel, Finance Minister of South Africa; and Kamel al-Kilani, then Iraqs Minister of
Finance, highlighted the economic and geo-political complexities unfolding in this region.
The Institutes spring conference in Shanghai in 2004 was to underscore the IIFs
emphasis on building interest in its work in China. The meeting started with a press
conference led by IIF Board Chairman Josef Ackermann and included Victor Chu,
Chairman and CEO of First Eastern Investment Group, which highlighted the IIFs
work on corporate governance in China and which was prominently featured in the
Peoples Daily. The interest in the IIF and the respect for it by Chinas leaders was
indicated by their participation in the meeting. Presentations were delivered by Vice
Premier Huang Ju; Han Zheng, Mayor of Shanghai; Governor Zhou Xiaochuan of the
Peoples Bank of China; Governor Chen Yuan of the China Development Bank;
Chairman Andrew Sheng of the Hong Kong Securities and Futures Commission;
Chairman and President Xiao Gang of the Bank of China; and Chairman Zhang
Guangsheng of Shanghai Pudong Development Bank.

M, E, O D |
IIFs Open Program on Basel II implementation in Manama, Bahrain, 2005

Josef Ackermann with the late Huang Ju, Vice Premier, China, at the Zhou Xiaochuan, Governor,
2004 Spring Membership Meeting in Shanghai Peoples Bank of China

Xiao Gang, Chairman, Josef Ackermann and H.H. Sheikh Mohammed bin Rashid Al Maktoum,
Bank of China Crown Prince of Dubai (current Ruler), at the 2003 Annual Membership
Meeting in Dubai

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The formidable expansion of IIF activities, best characterized by the sharp increase
in IIF events, prompted the Board of Directors in 2003 and 2004 to conduct a com-
prehensive review of the Institutes mission statement. This led to a new statement
which, as Chairman Josef Ackermann noted in the 2004 Annual report, will serve not
only as a framework but also as an inspiration for our work for many years to come.
As the Institute continued to expand, the most important issues of the day for its
members have driven the content and the breadth of IIF events. The debt default by
Argentina and the response to it by the financial community was one of the two major
issues that stimulated the agendas of scores of IIF programs and led to considerable
work by the IIF on how to avoid such situations in the future. The other prime issue
dealt with bank regulation. Frequently, the topic of greatest concern was the develop-
ment of the Basel II Accord. More broadly, however, key issues of effective and efficient
regulation were to be the focus of attention of participants at IIF conferences.
This determination to highlight the most pressing issues on the minds of IIF
members and to convene meetings with the leading public and private experts on
these topics has become a hallmark of IIF events. The spring meeting in Madrid in
2005 provides an illustration of this approach. The prestige of the event was under-
scored by an address to the members by King Juan Carlos of Spain. A major feature
of the program concerned the Principles for Emerging Market Finance, where IIF
Managing Director Charles Dallara moderated a panel of experts (Jacques de Larosire,
Advisor to the Chairman of BNP Paribas, Murilo Portugal, then Executive Director,
IMF, and Christian Kopf, Vice President Emerging Markets Fixed Income of DWS
Investment Gmbh), which was followed by an address by IMF Managing Director
Rodrigo de Rato. Further keynote addresses by Antonio Palocci Filho, Brazils Finance
Minister, and Ali Babacan, Economics Minister of Turkey, dovetailed with the emerging
markets topic of the day.

Charles Dallara, Yusuke Horiguchi, Ali Babacan (Minister, Turkey),

and Recep T. Erdogan (Prime Minister, Turkey) at the 2003 Annual
Membership Meeting in Dubai

M, E, O D |
H.E. King Juan Carlos of Spain, distinguished guests, and IIF Board Members at the 2005 Spring Membership Meeting

But the regulatory focus has been of no less substance and significance. At its
Spring Membership Meeting in Athens in late May 2007, for example, a Special
Briefing on Regulatory Issues involved Christopher Hayward, Senior Vice President,
Global Treasurer, Merrill Lynch; Nigel Jenkinson, Executive Director, Financial Stability,
Bank of England; and Gerhard Stahl, Head, Risk Modeling Group, German Federal
Financial Supervisory Authority (BaFin). Arnout Wellink, Chairman of the Basel
Committee and President, De Nederlandsche Bank NV, gave the keynote speech.
Moreover, the IIF was continuing to expand the scope of the issues that it placed
on the agenda of its meetings to capture the evolving interests of its broadening and
increasingly diverse membership. For example, at the 2007 Athens meeting, a panel
discussion was held on The Expanding Roles of Private Equity and Hedge Funds in
Financial Capital Markets. This was moderated by Takis Arapoglou, Chairman of the
Board and CEO, National Bank of Greece S.A., and included Axel Weber, President
of the Deutsche Bundesbank; Sir Howard Davies, Director of the London School of
Economics; Philippe Costeletos, Partner at Texas Pacific Group; and Mohsen Fahmi,
Chief Operating Officer at Moore Capital Management.
The energy unleashed over a decade by the IIF in promoting a rising number of
ever-larger events across the globe contributed to an image of an organization that
was at the epicenter of the issues of greatest concern to financial services firms. The
large events were complemented by small, closed-door regional conferences of chief
executive officers and special task force and working party roundtables. These reflected
the essence of what the founders of the IIF saw as an institution of global reach that
would be driven by its members and that would be seen as a key strategic partner for
public-sector financial leaders.
The ability to generate so many high quality programs contributed to strengthening
both the IIFs membership and its finances. On the eve of its twenty-fifth anniversary,
the IIF had over 365 members and associate members. This constituted a rise of more
than 20 percent since the start of the decade and a gain of almost 120 percent since the
early 1990s, when the Board of Directors pondered the new mission and focus of the

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Tsunehiro Nakayama, Sir Howard Davies, and Cees Maas Arnout Wellink, Chairman of the
Basel Committee

Institute as the debt crisis of the 1980s came to a conclusion. The IIFs total revenues in
2007 will exceed $25 million, compared with just over $5 million in 1992.
In 2007, the IIFs calendar of events included a growing number of meetings across
the globe and the range of IIF approaches continued to expand. A number of initia-
tives in the professional development field, in such areas as risk management or
board-level corporate governance, began to feature more prominently on the IIFs
agenda. They reflected both the expanding interests of IIF members and the logical
evolution of the basic research work pursued by the staff of the IIF.
In Singapore, at the time of the IMF and World Bank annual meetings in September
2006, the IIF arranged a meeting that both set a new milestone for the organization
and, at the same time, responded to a framework that the founders of the Institute
back in Ditchley Park in 1982 may have had on their minds. The founders believed
that leaders of banking working together could provide a vital global strategic part-
nership for the leaders of the IMF and the World Bank, who were at the forefront of
securing the international financial system against the massive shocks of the debt
crisis. As noted above, this broad perspective was welcomed by then IMF Managing
Director de Larosire. And thoughts of the harrowing days of the early 1980s may
well have struck him in Singapore as he joined with other global financial leaders at
the first meeting of the Group of Trustees of the Principles for Stable Capital Flows
and Fair Debt Restructuring in Emerging Markets.
Meeting as the Group of Trustees, private and public-sector financial leaders came
together with a common purpose to consider ways to strengthen the international
financial system. They saw each other as colleagues in a joint endeavor. In a world where
high bureaucratic walls sometimes separate regulators from the regulated, central bankers
from commercial bankers, and finance ministry officials from market practitioners, the
collegiality at the first Group of Trustees meeting set a marker for future cooperation.
The people assembled around the table (leaders of major financial firms, governors of
central banks, and elder statesmen of global finance) recognized, above all, that cooper-
ation between all the actors on the international financial stage is essential.3
See Box 20 in Chapter 4 for a listing of members of the Group of Trustees.

M, E, O D |
The challenge of furthering and deepening that cooperation will be at the fore-
front of the IIFs future agenda. The market events of the summer of 2007 reminded
us all of the need for continued vigilance, the importance of further strengthening
transparency, and enhancing our appreciation of the risks embedded in highly com-
plex structured products. As in the past the IIF will continue to closely monitor and
analyze market developments with a view to drawing lessons and sharing them with
its membership. In striving to meet the challenge the IIF will be able to draw its rich
experience of designing and arranging events that highlight the issues of greatest
concern to the membership and that are articulated by the foremost public and
private sector authorities.

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(L-R) Row 1 (seated): Lubomir Mitov, LaRue Ross, Analisa Encinas, Abdessatar Ouans, Tiffany Jager, Yusuke Horiguchi, Charles H. Dallara, Ronald Stanley, Nadia Islam, Jeffrey
Anderson, Sue Newman, Louise Bocquet, Mitsutoshi Adachi, and Erik Lescar. Row 2 (seated): William Nero, Catalina Krauss, Jonathan Clark, Carolina Henao, Sonia Ramirez, Edgar
Luna Mendoza, Helene Hatfield, Marcus Braxton, Anne Louis-Jacques, Karen Davenport, Dzifa Acolatse, Rigoberto DeCastro, and Emilie Striker. Row 3 (seated): Maria Garth, Keith
Savard, Jeffrey Yost, Melissa Kuhlman, Ashlee Christian, Andres Portilla, and Frederick Jaspersen. Standing: Jennifer Carlson, Caitriona O'Kelly, Carlos Janada, Rakhi Kumar,
Jackie Fontana, Mark Lewis, Marcelo Rodriguez, Joshua Smith, Charles Yeakey, Todd Allen, Anna Bryan, William Riordan, Barrie Orellana, Miguel Pealoza, Mohini Singh, Angus
Downie, Maki Katayama, David Zeltwanger, Nader Nazmi, Philip Suttle, Adam Morris, David Hedley, and Bejoy Das Gupta.

M, E, O D |
A Annex A:
Institute Timeline

1982 From May 79, the first meeting of the Ditchley International Financial
Group, or Ditchley Group, is held at Ditchley Park, England (chaired by
William Ogden of Chase Manhattan Bank and Peter Leslie of Barclays Bank),
at which the creation of the IIF is proposed.
In August, Mexico fails to service its debt to its international bank creditors,
and similar problems beset Brazil and Argentina soon thereafter.
Organizational structure (including Articles and Bylaws) and foundation of
the IIF are proposed and for the most part approved at a follow-up meeting
of the Ditchley Group on October 26 and 27 in New York.

1983 The Institute is incorporated in January and officially opens its doors in
Washington, D.C. Top priorities are to analyze the key developing countries
with the largest outstanding foreign commercial debts, to monitor the
policies of multilateral institutions with particular reference to the debt
crisis, and to provide a forum for the exchange of views on critical debt
crisis topics among leading banks.
Richard D. Hill, Chairman of the Executive Committee, Bank of Boston,
is elected first Chairman of the IIF.

I T |
1984 Andr de Lattre, former Deputy Governor of the Central Bank of France and
Special Advisor to the President of the World Bank, is formally appointed
first Managing Director of the IIF on January 1.
Institute membership totals 188.

1985 Plaza Accord agreed to by the Group of 5 to stabilize exchange rates.

U.S. Treasury Secretary James Baker announces the Baker Plan to deal with
the debt crisis.
The Managing Director of the IIF begins issuing semi-annual public policy
statements at the time of the ministerial meetings of the IMF/World Bank,
this first one on the debt crisis.

1986 Barry Sullivan, Chairman of the Board and Chief Executive Officer, First
National Bank of Chicago, is elected IIF Chairman.

1987 Horst Schulmann, former State Secretary, Ministry of Finance of the Federal
Republic of Germany, and former European Communities and World Bank
official, is appointed Managing Director of the IIF.
Group of 7 agrees to the Louvre Accord on exchange rates.
Net private capital flows to major emerging economies, which had exceeded
$100 billion in 1981, amounted to just $30 billion in 1987.

1989 U.S. Treasury Secretary Nicholas Brady announces the Brady Plan to resolve
the debt crisis. This leads to the creation of Brady Bonds and increased access
to international capital markets of emerging market economies.

1990 In April, the IIF is one of the first international organizations to issue a
policy report on the transition of the Newly Independent States of Central
and Eastern Europe.
The IIF expands its work with the multilateral financial institutions to
include export credit agencies and other official lenders to emerging markets.

1991 By end-1991, officially supported programs under the Brady Plan had
already enabled five countries (Costa Rica, Mexico, the Philippines, Uruguay,
and Venezuela) to complete commercial bank debt reduction packages.
Others follow soon thereafter.

| A A
1992 Antoine JeancourtGalignani, Chairman and Chief Executive Officer, Banque
Indosuez, is appointed third IIF Chairman.

1993 Charles Dallara, Managing Director, J.P. Morgan & Co. and former Assistant
Secretary of the U.S. Treasury for International Affairs, is appointed Managing
Director of the IIF.
The Institute launches its regulatory policy work with a Working Group report
entitled An Integrated Bank Regulatory Approach to Derivatives Activities.
The IIF responds to the Basel Committees proposals for market risk capital

1994 Toyoo Gyohten, Chairman, The Bank of Tokyo, Ltd., is elected IIF Chairman.
The IIF publishes its first risk management report, A Preliminary Framework
for Public Disclosure of Derivatives Activities and Related Credit Exposures.
The IIF expands its policy work on the private sector aspects of multilateral
development banks.
Ditchley Conference held at Ditchley Park, England, from April 810 to
celebrate more than 10 years since the founding of the Institute.

1994 Mexican debt crisis.


1995 The IIF is the first organization to publish recommendations to increase

macroeconomic transparency in emerging markets.

1996 Membership grows to 229.

Ditchley Conference held at Ditchley Park, England, from May 1012.
In June, Bank of China joins the Institute, reflecting the beginning of a surge
in membership by banks and other financial institutions in emerging markets.
First quantitative study prepared by the IIF for the Basel Committees Models
Task Force concerning the regulatory capital charges that would result from
the new market risk framework.
The IIF develops work on financial conglomerates.
Net private capital flows to leading emerging markets reach $328 billion
(official net flows amount to less than $8 billion).
First (annual) meeting of Central European bank CEOs.

I T |
1997 Georges Blum, Chairman of the Board, Swiss Bank Corporation, is elected
IIF Chairman.
First IIF Regulatory Roundtable: Supervision in Emerging Market Economies.
The IIF responds on behalf of emerging market member banks to the Basel
Committees proposed Core Principles for Effective Banking Supervision.
In July, the Institute launches its website,
First (annual) meeting of MENA bank CEOs held in Kuwait.
At its Hong Kong SAR, China, Annual Meeting in September, the IIF honors
Jacques de Larosire, then President of the European Bank for Reconstruction
and Development (EBRD), former Governor of the Banque de France, and
former Managing Director of the International Monetary Fund, by announcing
the creation of a special essay competition in his name.
Thailand encounters financial difficulties, followed by others as the Asia
crisis develops.

1998 In response to the Asia crisis, the IIF establishes a high-level Steering
Committee on Emerging Markets Finance, under the co-chairmanship of
two of the IIFs Vice ChairmenWilliam R. Rhodes, Senior Vice Chairman
of Citigroup/Citibank, and Josef Ackermann, Group Chairman, Deutsche Bank
AG. The Committee is charged with developing proposals for improvements
in the worlds financial system and overseeing the work of several affiliated
working groups and a task force.
The IIF publishes the Report of the Working Group on Capital Adequacy,
in which it recommends that the credit risk capital framework be updated
to incorporate credit risk models. This helped initiate a fundamental recon-
sideration of the Basel Capital Accord.
Ditchley Conference held in Perugia, Italy, on May 8 and 9.
First IIF report responding to the Joint Forum on Conglomerate Supervisions
consultative papers on financial supervision and regulation.
Russian debt crisis.
Brazil faces debtservicing pressures.
Membership increases to 284.
The Steering Committee on Emerging Markets Finance publishes its
preliminary report.

| A A
1999 Euro introduced by the European Union.
Sir John Bond, Chairman, HSBC Holdings plc, is appointed IIF Chairman.
The IIF establishes a Steering Committee on Regulatory Capital, under
the chairmanship of Jan Kalff, Chairman of the Managing Board of ABN
AMRO Bank N.V., to consider and react to the proposed Capital Adequacy
framework issued by the Basel Committee on Banking Supervision. Three
working groups address the technical issues associated with the reform.
At the 1999 IIF Annual Meeting in Washington, D.C., the Board of Directors
announces the establishment of the Hans Tietmeyer Ph.D. Scholarship
Program at INSEAD (The European Institute of Business Administration),
generously funded by 13 IIF member banks.

2000 The Steering Committee on Regulatory Capital, the Working Group on

Capital Adequacy, the Working Group on Operational Risk, and the Working
Group on Country Risk each publish reports in which they respond to
the Basel Committees request for comment on proposed changes to the
regulatory capital framework.
First (annual) meeting of Latin American bank CEOs.
First (annual) Asia Program meeting in Hong Kong.
Fifth Ditchley Conference held in Kronberg, Germany, on June 19 and 20.
Turkey begins ambitious disinflation program based in part on sharply slower
exchange rate depreciation but faces growing financial pressures late in the
year after initial success.

2001 The Institute creates the IIF Special Committee on Crisis Prevention and
Resolution in Emerging Markets, again under the Co-Chairmanship of William
Rhodes, Senior Vice Chairman of Citigroup/Citibank, and Josef Ackermann,
Spokesman of the Board of Managing Directors, Deutsche Bank AG.
The Institute publishes Principles for Private Sector Involvement in Crisis
Prevention and Resolution, which serves as a foundation for the work of the
Special Committee.
The IIF establishes the Equity Advisory Group (EAG), charged with improving
corporate governance and transparency standards in emerging markets.
Frank Savage and David Salisbury co-chair the EAG.

I T |
The Steering Committee on Regulatory Capital, the Working Group on
Capital Adequacy, and the Working Group on Operational Risk each publish
a second set of reports in which they respond to the Basel Committees request
for comment on proposed changes to the regulatory capital framework.
Institute membership reaches 315.
Mounting financial pressures force Turkey to abandon its crawling rate peg,
leading to large banking system losses and sharp increases in government
debt, borrowing costs and inflation.
Argentina announces a debt service moratorium towards the end of the year.

2002 The EAG Working Group on Corporate Governance and Transparency

under the chairmanship of Edward Baker, CEO and Chief Investment
Officer, Emerging Markets Equities, Alliance Capitalpublishes Policies
for Corporate Governance and Transparency in Emerging Markets, which
contains a Code of Corporate Governance Principles.
The IIF publishes an Action Plan on key elements of crisis prevention
under the direction of the IIF Special Committee on Crisis Prevention
and Resolution in Emerging Markets.
Daniel Bouton, Chairman and Chief Executive Officer of Socit Gnrale,
succeeds Jan Kalff as the second Chairman of the Steering Committee on
Regulatory Capital.
Ditchley Conference held in Versailles, France, on June 27 and 28 to celebrate
the 20th anniversary of the founding of the Institute.

2003 Josef Ackermann elected Chairman of the Board.

Sovereign Investor Relations Advisory Service launched.
Institute membership reaches 340.
Annual membership meeting held in Dubai, first time in the Middle East region.
Reports of IIF Steering Committee, Working Group on Capital Adequacy
and Working Group on Operational Risk submitted to the Basel Committee
as part of the Basel II consultative process.
IIF Steering Committee met with Basel Committee in Madrid.
In response to growing interest on part of the membership, Iraq was added
to IIF country coverage, and the first country report was issued in August.
Inaugural meeting of Tripartite Dialogue in London, attended by representatives
of the IIF, Basel Committee, and International Accounting Standards Board.

| A A
2004 Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging
Markets launched.
IIF Steering Committee liaised with Basel Committees Accord Implementation
Group, and met with key Basel Committee members in IIFs Washington office.
IIF was designated lead organization to conduct work on trading book/
banking book definition issue along with Basel Committee and IOSCO.
Ditchley Conference held in Versailles, France on June 24 and 25.
IIF launches series of training conferences on Corporate Governance in
collaboration with International Institute for Management Development.
IIF holds the first Regional Economic Forum in Doha, Qatar.
IIF Country Risk Workshops and training sessions launched with three
workshops in the inaugural year.

2005 Stephen Green replaces Daniel Bouton as Chair of the IIF Steering
Committee on Regulatory Capital.
Steering Committee on Regulatory Capital releases a public report on its
activities titled The Implementation of Basel II.
Special Committee for a Strategic Dialogue on Effective Regulation
formed, co-chaired by IIF Executive Committee members Peter Wuffli
and Sir George Mathewson.
IIF forms Special Committee on Liquidity Risk under chairmanship of
Ahmass Fakahany.
Basel Committee forms Working Group on Corporate Governance to review
and update its 1999 guidance literature and invites IIF to provide input.
Institute launches Investor Relations: An Approach to Effective Communication
and Enhanced Transparency, a report providing detailed assessments of the 30
most active borrowers in international capital markets.
IIF initiates annual coverage of the Gulf Cooperation Countries in a regional
report, based on individual country reports.
First Turkish and Greek banks CEO meeting held in Athens, Greece, hosted
by Alpha Bank.
10th Anniversary of first European CEO meeting.
IIF holds first CEO meeting for Maghreb banks.

I T |
2006 IIF ASEAN Finance Ministers Forum launched at Singapore Annual
membership meeting.
Principles Consultative Group conference calls initiated, leading to report
presented to the first Trustees meeting in September.
Ditchley Conference held at Cernobbio, Italy, on June 22 and 23,
and three background papers published.
Governance in Equity Markets (GEM) Service launched.
Institute membership reaches 360, with members representing 60 different
Institute makes significant improvements to its website,
Proposal for a Strategic Dialogue on Effective Regulation released in December.

2007 IIF, ISDA and LIBA submit official comments on the U.S. Banking Agencies
Basel II proposals on behalf of the industry.
Principles of Liquidity Risk Management released in March.
Working Groups on Cross-border Securities Issues and Anti Money
Laundering Issues are established.
Seoul meeting on Effective Regulation between regulators and IIF representatives
from the Asia-Pacific Region.
Stockholm meeting on Effective Regulation between Nordic and Baltic regu-
lators and IIF representatives.
IIF Open Programs, focusing on regulation and risk management, are held in
Frankfurt and Miami.
IIF 25th Anniversary Membership Meeting held in Washington in October.

| A A
B Annex B: Founding Member
Institutions of the IIF (1983)


Banque Bruxelles Lambert S.A. Commerzbank, AG

Kredietbank N.V. Dresdner Bank, AG
Westdeutsche Landesbank Girozentrale
Banco Brasileiro de Descontos S.A.
Banco Ita, S.A. Banca di Roma
Banco Real Banca Nazionale del Lavoro

Bank of Montreal Bank of Tokyo, Ltd.
Bank of Nova Scotia Dai-Ichi Kangyo Bank, Ltd.
Canadian Imperial Bank of Commerce Industrial Bank of Japan, Ltd.
Royal Bank of Canada Mitsubishi Bank, Ltd.

Banque Nationale de Paris
Credit Lyonnais Credit Suisse
Socit Gnrale Swiss Bank Corporation
Union Bank of Switzerland

F M I |
Barclays Bank International, Ltd.
Lloyds Bank PLC
Midland Bank PLC
National Westminster Bank PLC

Bank of America
Bankers Trust Company
Chase Manhattan Bank, N.A.
Chemical Bank
Citibank, N.A.
Continental Illinois National Bank &
Trust of Chicago
The First National Bank of Chicago
Manufacturers Hanover Trust Company
Mellon Bank, N.A.
Morgan Guaranty Trust Company
of New York

| A B
C Annex C: IIF Member
(as of July 31, 2007)
and Affiliates


Banco de la Provincia Ahli United Bank Banco BBM S.A.
de Crdoba S.A. Arab Banking Corporation Banco Bradesco S.A.
Banco Galicia Bank of Bahrain and Banco do Brasil S.A.
Banco Hipotecario S.A. Kuwait B.S.C. Banco Fibra S.A.
Banex Citigroup Middle East Banco Ita S.A.
Gulf Finance House B.S.C. UBS Pactual
AUSTRALIA Gulf International Bank CAIXA
Australia and New Zealand BSC Ita BBA
Banking Group Ltd. Investcorp Unibanco Unio de
Commonwealth Bank United Gulf Bank, B.S.C. Bancos Brasileiros S.A.
National Australia Bank BELGIUM BULGARIA
Ltd. Dexia United Bulgarian Bank AD
Euroclear SA/NV
Bank Austria Creditanstalt Bank of Nova Scotia
KBC Group
AG BMO Financial Group
Erste Bank BERMUDA Canadian Imperial Bank
Raiffeisen International The Bank of N.T. of Commerce
Bank Holding AG Butterfield & Son Ltd. RBC Financial Group
TD Bank Financial Group

Banco de Chile Banco Popular Alpha Bank
BancoEstado Dominicano Aspis Bank
Corp Banca Grupo Financiero Len EFG Eurobank S.A.
Emporiki Bank
Agricultural Bank of Produbanco S.A.
China Piraeus Bank
Bank of Beijing EGYPT
Bank of China Arab African International HUNGARY
Bank of Shanghai Bank CentralEuropean
China CITIC Bank Arab International Bank International Bank Ltd.
China Construction Bank Bank of Alexandria MKB Bank Nyrt.
China Development Bank Banque Misr OTP
China Merchants Bank Commercial International
China Minsheng Banking Bank (Egypt) S.A.E. INDIA
Corporation Egyptian Gulf Bank ICICI Bank
Guangdong Development Faisal Islamic Bank Kotak Mahindra Bank Ltd
Bank of Egypt State Bank of India
Hua Xia Bank National Bank of Egypt
Suez Canal Bank INDONESIA
Industrial Bank Co., Ltd.
Bank Mandiri
Shenzhen Development
Bank Co., Ltd. IRELAND
Banco Cuscatlan
Banco Salvadoreo Allied Irish Bank
Bank of Ireland
Banco Davivienda S.A. FRANCE
Bancolombia S.A. BNP Paribas ITALY
Calyon Banca di Roma
CIC Group Banca Monte dei Paschi
Banco de Costa Rica
Natixis di Siena
Banco Nacional de
Socit Gnrale Banca Popolare di Milano
Costa Rica
Banca Sella S.p.A.
GERMANY Intesa Sanpaolo S.p.A.
Commerzbank AG MCC S.p.A.
Privredna Banka Zagreb
Deutsche Bank AG UniCredito Italiano S.p.A.
Komercn banka, a.s. DZ Bank AG JAPAN
HVB Group Mitsubishi UFJ Financial
Danske Bank A/S Mizuho Financial Group
Norinchukin Bank
Sumitomo Mitsui
Financial Group

| A C
Arab Bank Plc Libyan Foreign Bank Banco Continental de
The Housing Bank for Panam, S.A.
Trade & Finance LUXEMBOURG
Banque et Caisse PERU
Jordan Kuwait Bank
dEpargne de lEtat Banco de Crdito del Per
Kazkommertsbank POLAND
Malayan Banking Berhad
Bank Gospodarki
MEXICO Zywnosciowej S.A.
Hana Bank
Banco Azteca S.A. CitiBank Handlowy
Kookmin Bank
Grupo Financiero Powszechna Kasa
Korea Development Bank
Banamex, S.A. Oszczednosci-
Korea Exchange Bank
Grupo Financiero BBVA Bank Polski S.A.
Shinhan Bank
IXE Grupo Financiero
Banco BPI
MOROCCO Banco Espirito Santo S.A.
Bank of Kuwait and the
Attijariwafa Bank Banco Finantia
Middle East
Banque Marocaine du
Burgan Bank QATAR
Commerce Extrieur
Commercial Bank of Ahli Bank QSC
Kuwait, SAK NETHERLANDS Commercialbank
Gulf Investment ABN AMRO Bank N.V. Doha Bank
Corporation ING Group N.V. International Bank
International Financial Rabobank Nederland of Qatar
Advisors Qatar International
Kuwait Finance House NICARAGUA Islamic Bank
Kuwait International Bank BANPRO Qatar Islamic Bank
National Bank of Kuwait Qatar National Bank
BankMed Banca Comerciala
Banque Audi sal-Audi OMAN
Romana Group
Saradar Group Bank Dhofar
Banque Libano-Franaise BankMuscat SAOG RUSSIAN FEDERATION
Blom Bank S.A.L. National Bank of Oman CJSC KMB-Bank
Byblos Bank S.A.L.
Crdit Libanais S.A.L. PAKISTAN

Fransabank S.A.L. Habib Bank

Lebanese Canadian Bank National Bank of Pakistan
United Bank Ltd

Al Rajhi Bank Bangkok Bank Public Barclays plc
Arab National Bank Company Ltd. HSBC Holdings plc
Banque Saudi Fransi Kasikornbank Public Lloyds TSB Group plc
National Commercial Company Ltd. Royal Bank of Scotland
Bank Siam Commercial Bank Group plc
Samba Financial Group Standard Chartered Bank
SINGAPORE Banque Internationale
DBS Bank Arabe de Tunisie UNITED STATES
Socit Tunisienne de American International
SLOVENIA Group, Inc.
Banque (STB Bank)
SKB Banka d.d. Bank of America
TURKEY Corporation
DenizBank A.S. Citigroup
Standard Bank Group Ltd.
Garanti Bank A.S. CLS Bank International
Oyak Bank, A.S. CoBank
BBVA Tekfenbank A.S. Comerica Incorporated
La Caixa Trk Ekonomi Bankasi DePfa USA, Inc.
Santander Central Trkiye Halk Bankasi A.S. Houlihan Lokey Howard
Hispano Trkiye Is Bankasi A.S. & Zukin
Trkiye Sinai Kalkinma JPMorgan Chase & Co.
SWEDEN Bankasi A.S. Mellon Financial
Nordea Bank AB Trkiye Vakiflar Bankasi Corporation
SEB Group Yapi ve Kredi Bankasi A.S. Merrill Lynch & Co., Inc.
Svenska Handelsbanken Morgan Stanley
UNITED ARAB EMIRATES Northern Trust Company
(FreningsSparbanken) Abu Dhabi Commercial State Street Corporation
Bank The Depository Trust &
SWITZERLAND Commercial Bank of Clearing Corporation
Credit Suisse Group Dubai Wachovia Corporation
UBS AG First Gulf Bank
Zrcher Kantonalbank National Bank of Abu VENEZUELA
Zurich Financial Services Dhabi Banco del Caribe
National Bank of Dubai Banco Mercantil
TAIWAN, CHINA National Bank of Fujairah,
Mega International P.S.C.
Commercial Bank Co., National Bank of Umm Al
Ltd. Qaiwain
Union National Bank

| A C
MBA Banco de Coface Export-Import Bank
Inversiones Crdit Agricole Asset of Korea
Management Korea Center for
AUSTRALIA Lazard Ltd. International Finance
Export Finance and Korea Export Insurance
Insurance Corporation GERMANY Corporation
Euler Hermes Kyobo Securities Co., Ltd.
AG The Olayan Group Kuwait Financial Centre
S.A.K. (Markaz)
Kuwait Investment
Gulf One Investment Bank First Eastern Investment
Islamic International Group
Wafra International
Rating Agency LIM Advisors Ltd.
Investment Co.
Ducroire/Delcredere Export Credit Guarantee
Sociedad Hipotecaria
SA.NV Corporation of India Ltd.
Federal, S.N.C.
Export-Import Bank
Gvea Investimentos
Export Development
Canada JAPAN
Japan Bank for POLAND
Agricultural Development Cooperation
Bank of China Marubeni Corporation RUSSIAN FEDERATION
China UnionPay Co., Ltd. Mitsubishi Corporation Renaissance Capital
The Export-Import Bank Mitsui & Co., Ltd. Group
of China Nippon Export and
Investment Insurance SAUDI ARABIA
EGYPT Jadwa Investment
EFG-Hermes The Saudi Fund for
Nomura Securities
International, Inc. Development
Finnvera Plc Takata Corporation

Fullerton Financial AEGON USA Investment PricewaterhouseCoopers
Holdings Pte Management, LLC LLP
Government of Singapore Allen & Overy, LLP Promontory Financial
Investment AllianceBernstein L.P. Group, LLC
Corporation Allstate Insurance Prudential Financial
Company Putnam Investments
SPAIN AQR Capital Management Rohatyn Group
CESCE Aurelius Capital Standard & Poors
Management, LP Standish Mellon Asset
Bear Stearns Management
Export Risk Guarantee
Booz Allen Hamilton StratEdge Investment
Bridgewater Associates, Inc. Advisers, LLC
Pictet & Cie, Banquiers
CalPERS Templeton Global Fund
Swiss Reinsurance
Capital Group Managers
International, Inc. TIAA CREF
Darby Overseas Tudor Investment
Export-Import Bank Investments, Ltd. Corporation
Ernst & Young Turan Corporation
THAILAND Export-Import Bank Visa International Services
Export-Import Bank of the United States Association
of Thailand Fidelity Management & Wellington Management
Research Co. Company, LLP
UNITED ARAB EMIRATES General Electric Company
Dubai International Goldman Sachs Group, Inc.
Financial Center Hess Corporation
Dubai Investments PJSC Lehman Brothers
Emirates Financial Lehman Brothers Asset
Services PSC Management
MBIA Insurance
Export Credits Guarantee Oliver Wyman
Department PIMCO
Fitch Ratings Pioneer Investment
Management, Inc.

| A C
Banco Central do Brasil African Development
Corporacin Andina de
Banco Central de Chile Fomento
Council of Europe
Development Bank
Association of German
European Bank for
IRAN and Development
Central Bank of the European Development
Islamic Republic of Finance Institutions
Iran (EDFI)
European Investment
Associazione Bancaria Inter-American
Italiana Development Bank
Nordic Investment Bank
PHILIPPINES World Bank Group
Asian Development Bank

Qatar Financial Centre

Spanish Bankers

Banks Association of


Dubai Financial Services

Banco Central del

(Includes all members as of July 31, 2007)

D Annex D: IIF Board
of Directors
(as of July 31, 2007)




Josef Ackermann* William R. Rhodes*
Chairman of the Management Chairman, President and CEO,
Board and the Group Executive Citibank, N.A.
Committee, Deutsche Bank AG Senior Vice Chairman, Citigroup Inc.


Cees Maas* Roberto E. Setbal*
Honorary Vice Chairman /Advisor President, Banco Ita S.A.
to the Executive Board,
ING Group, N.V.

C B D |
Hassan El Sayed Abdalla Ibrahim S. Dabdoub Francisco Gonzlez*
Vice Chairman and Chief Executive Officer, Chairman and Chief
Managing Director, National Bank of Kuwait, S.A.K. Executive Officer,
Arab African International Bank BBVA

Amirsham A. Aziz Charles H. Dallara (ex officio)* Stephen K. Green*

President and Chief Managing Director, Group Chairman,
Executive Officer, The Institute of International HSBC Holdings plc
Malayan Banking Berhad Finance, Inc.

Daniel Bouton* Robert E. Diamond K. Vaman Kamath

Chairman and Chief President, Managing Director and
Executive Officer, Barclays PLC Chief Executive Officer,
Socit Gnrale ICICI Bank, Ltd.

Amy Woods Brinkley Ahmass Fakahany Walter Kielholz

Global Risk Executive, President and Chief Chairman of the Board of
Bank of America Corporation Operating Officer, Directors, Credit Suisse Group
Merrill Lynch & Co., Inc.

Yannis S. Costopoulos* David I. Fisher Nobuo Kuroyanagi*

Chairman of the Board Chairman, President and Chief
of Directors, Capital Group International, Inc. Executive Officer,
Alpha Bank A.E. Mitsubishi UFJ Financial Group,
Inc. and The Bank of Tokyo
Mitsubishi UFJ, Ltd.

| A D
Gustavo A. Marturet Yasuhiro Sato Xiao Gang
Chairman, President, and CEO, Deputy President, Chairman,
Mercantil Servicios Financieros Mizuho Corporate Bank Bank of China
& Banco Mercantil

Klaus-Peter Meller Martin Sullivan SECRETARY OF

Chairman of the Board of President and Chief THE BOARD
Managing Directors, Executive Officer, Michael Bradfield, Esq.
Commerzbank AG American International
Group, Inc.

H. Ersin zince Andreas Treichl

Chief Executive Officer, Chairman and Chief
Trkiye Is Bankasi A.S. and Executive Officer,
Chairman, Banks Association Erste Bank AG
of Turkey

Corrado Passera Marcus Wallenberg

Managing Director and Chairman of the Board,
Chief Executive Officer, SEB
Intesa Sanpaolo

Baudouin Prot Richard Waugh

Chief Executive Officer, President and CEO,
BNP Paribas Group Scotiabank

*Member of the Executive Committee

C B D |
E Annex E: Former
Board Directors


Richard D. Hill 198386 Chairman of the Board Bank of Boston

William S. Ogden 198387 Chairman of formation Chase Manhattan

committee and Interim Board
in 1983, and thereafter Board

William Bolin 1984* Bank of America

Sergio Silva De Freitas 1984* Banco Ita

Edouard Finot 1984* Banque Nationale de


Mario De Luca 1984* Banca di Roma

Abdulla A. Saudi 1984* Arab Banking


Manfred MeierPreschany 1984* Dresdner Bank AG

Richard Puz 1984* Bank of America

Yusuke Kashiwagi 1984* The Bank of Tokyo, Ltd.

Andr de Lattre 198485 Managing Director (198485) IIF

*Served one-year term

F B D |
Robert A. Utting 198485 The Royal Bank of

LarsErik Thunholm 198485 Skandinaviska Enskilda


John Bunten 198485 RepublicBank Dallas

Stuart Fowler 198485 Westpac Banking


Angelo Florio 198485 Banca Nazionale del


Max R. Luthert 198486 Lloyds Bank


Kazuo Nakamura 198486 Mitsubishi Bank, Ltd

Jose Manuel Rivero 198486 Banco Nacional de

Mexico SA

Maurice Armand 198486 Credit Lyonnais

Franz Lutolf 198487 Swiss Bank Corporation

Roy A. Takata, Jr. 198487 The Bank of Tokyo, Ltd.

Francis Mason 198487 Treasurer (198487) Chase Manhattan

Kurt Richolt 198487 Commerzbank AG

Walter Sterling Surrey 198488 Secretary of the Board Surrey & Morse

James W. Bergford 198489 Chase Manhattan

William J. McDonough 198490 First National Bank of


Thierry de Broqueville 198491 Banque Bruxelles

Robert Frick 1985* Bank of America

Paul Richolt 198587 Commerzbank AG

William Farley 198588 First National Bank of


Hans H. Angermueller 198589 Citibank

Paul J. Rizzo 198589 Australia and New

Zealand Banking Group

Anders Ljungh 198591 Treasurer (198790) Svenska Handelsbanken

*Served one-year term

| A E
Giovanni Malvezzi 1986* Cassa di Risparmio delle
Provincie Lombarde

Adroaldo Moura da Silva 198688 Banco do Brasil

Hideo Ishihara 198689 Industrial Bank of Japan

Grant L. Reuber 198689 Bank of Montreal

Guillermo Guemez G. 198690 Banco National de


A. Derrick Plummer 198690 National Westminster

Bank Plc

Barry F. Sullivan 198691 Chairman of the Board First National Bank of

(198691) Chicago

Horst Schulmann 198692 Managing Director (198792) IIF

Alfonso Jozzo 1987* Insituto Bancario San

Paolo di Torino

Serge Boutissou 1987* Credit Lyonnais

Toyohisa Kishi 198788 Fuji Bank

Kenji Yoshizawa 198789 Bank of Tokyo Ltd.

Attilio Bordogna 198790 Monte dei Paschi di


Alan F. Naylor 198790 First Bank N.A. of


Jurgen Sarrazin 198790 Dresdner Bank AG

John J. Simone 198790 Manufacturers Hanover

Trust Co.

Guido Hanselmann 198792 Union Bank of


Jacques Pelletier 198792 Banque Indosuez

Toru Hashimoto 19881989, Vice Chairman (199798) Fuji Bank


Narciso da Fonseca 198890 Banco do Brasil


Yuko Oana 198990 Dai-Ichi Kangyo Bank


Michel Maila 198991 Bank of Montreal

Yoshisuke Mohri 198991 Mitsui Bank Ltd.

Robert G. Murphy 198995 Chase Manhattan

*Served one-year term

F B D |
Kazuhiko Kasai 1990* Fuji Bank

Kiyotaka Kano 199091 Dai-Ichi Kangyo Bank


Manuel Sanchez Lugo 199091 Banco National de


Michael G. Wood 199091 Barclays Bank Plc

Atsuo Hirano 199092 Mitsubishi Bank, Ltd

M. Peter McPherson 199092 Bank of America

John F. Ries 199093 Australia and New

Zealand Banking Group

Romano Pesci 199093 Cassa di Risparmio delle

Provincie Lombarde

Donald G. McCouch 199095 Treasurer (199395) Manufacturers Hanover

Trust Co.

Volker Burghagen 199096 Dresdner Bank AG

J.Anthony Davies 199098 Treasurer (199698), Lloyd Bank Plc

Vice Chairman (1996)

Carl Lowenheilm 199192 Skandinaviska Enskilda


Hisao Kobayashi 199192 Dai-Ichi Kangyo Bank


Makoto Yoshie 199192 Mitsui Taiyo Kobe Bank,

Sakura Bank

Antoine Jeancourt- 199194 Chairman of the Board Banque Indosuez

Galignani (199294)

David A. Hilton 199194 Bank of Nova Scotia

Andr Dirckx 199197 Gnrale de Banque

Yoichi Abe 1992* Sumitomo Bank

Toshio Morikawa 1992* Sumitomo Bank

Seung-Chul Cha 1992* Korea Exchange Bank

Takeshi Tange 1992* Mitsubishi Bank, Ltd

Tony Mauger 199294 Standard Chartered


Inigo de la Sota 199294 Banco Exterior de


Alberto Togni 199296 Swiss Bank Corporation

*Served one-year term

| A E
Rutger Blennow 1993* Skandinaviska Enskilda

Richard Bloom 1993* Bank of America

Cezary Stypulkowski 199300 Bank Handlowy w


Kaoru Hayama 199394 Bank of Tokyo Ltd.

Tosaku Harada 199395 Fuji Bank

Kensuke Hotta 199395 Sumitomo Bank

Rodney B. Wagner 199395 J.P. Morgan

Alistar T.L. Maitland 199397 Australia and New

Zealand Banking Group

Bo Rassmuson 199397 Skandinaviska Enskilda


David A. Coulter 199397, Bank of America,

200304 J.P. Morgan Chase

Ademaro Lanzara 199399 Banca Nazionale del


Marco Antonio Garcia 199495 BEX America

Toyoo Gyohten 199497 Chairman of the Board Bank of Tokyo Ltd.


Murray Corlett 199498 Royal Bank of Canada

John G. Heimann 199498 Merrill Lynch

Chatri Sophonpanich 199498 Bangkok Bank

Gonzalo de Las Heras 199598 Banco Santander

Minoru Eda 199598 Sanwa Bank

Frank Savage 199601 Alliance Capital


Sir David Walker 199602 Morgan Stanley

Rudolf W. Hug 199697 Credit Suisse First


Ernst-Moritz Lipp 199698 Dresdner Bank AG

Eduardo Escasany 199699 Banco de Galicia y

Buenos Aires

John A. Ross 199699 Deutsche Bank

Ernest Stern 199699 J.P. Morgan

*Served one-year term

F B D |
David Band 1997* Barclays Bank

Charles de Croisset 199700 Credit Commercial de


Michael J. Murray 199700 Bank of America

Vesa Vainio 199700 Merita Bank

Wang Xuebing 199700 Bank of China

Yoshiyuki Fujisawa 199702 Industrial Bank of Japan,

ML Japan (2001)

Sir Callum McCarthy 199798 Barclays Bank

Georges Blum 199798 Chairman of the Board Swiss Bank Corporation


Dmitri Tulin 199798 Bank for Foreign Trade

Hans Ulrich Doerig 199799 Credit Suisse Group

Takatsugu Murai 199800 Dai-Ichi Kangyo Bank


Yavuz Canevi 199801 Turk Ekonomi Bankasi

David Eldon 199801 HSBC

Sir Andrew Large 199801 Barclays Bank

Remi Vermeiren 199801 KBC Bank

Chartsiri Sophonpanich 199802 Bangkok Bank

Sir John R.H. Bond 199803 Chairman of the Board HSBC


Gerd Husler 199900 Dresdner Bank AG

E. Stanley O'Neal 199900 Merrill Lynch

Muhammad Abalkhail 199901 Riyad Bank

Robert S. Strong 199901 Chase Manhattan

Tasuku Takagaki 199902 Vice Chairman (199901) Tokyo-Mitsubishi

Rainer S. Masera 199902 Sanpaolo IMI

Gerhard Randa 199902 Bank Austria CA

Peter C. Godsoe 199903 Bank of Nova Scotia

Manuel Medina Mora 199903 Grupo Financiero


Hirokazu Ishikawa 200001 Sumitomo Mitsui Bank

Jacob A. Frenkel 200003 Merrill Lynch

*Served one-year term

| A E
Edward J. Brown III 200003 Bank of America

Bernd Fahrholz 200003 Dresdner Bank AG

Liu Mingkang 200003 Vice Chairman (200102) Bank of China

Marco Voljc 200003 Nova Ljubljanska Banka

Jacob Wallenberg 200006, Skandinaviska Enskilda


Shunichi Okuyama 200102 Sumitomo Mitsui Bank

Donald H. Layton 200103 J.P. Morgan Chase

Herman Verwilst 200104 Fortis Bank

Sir George Mathewson 200106 Royal Bank of Scotland

Tetsuo Shimura 200203 Bank of Tokyo Mitsubishi

Michio Ueno 200203 Mizuho Corporate Bank

Stephan F. Newhouse 200204 Morgan Stanley

Khaled M. Al-Fayez 200205 Gulf International Bank

Alessandro Profumo 200205 Unicredito Italiano

Takahiro Moriguchi 200305 Bank of Tokyo Mitsubishi

Herbert Walter 200305 Dresdner Bank AG

Tom de Swaan 200306 ABN Amro Bank

Ahmed M. El Bardai 200405 Banque du Caire

Alvaro G. de Molina 200406 Bank of America

Tsunehiro Nakayama 200407 Mizuho Corporate Bank

Peter Wuffli 200007 UBS AG

Gordon Nixon 200307 RBC Financial Group

William B. Harrison Jr. 200507 J.P. Morgan Chase

F B D |
F Annex F: Mission


he Institute of International Finance is committed to being the most
influential global association of financial institutions. We strive to sustain
and enhance our distinctive role on the basis of the professional excellence
of our research, the unmatched breadth of our membership, our extensive relation-
ships with policymakers and regulators, and the strength of our governance.
Our mission is to support the financial industry in prudently managing risks,
including sovereign risk; in developing best practices and standards; and in advocating
regulatory, financial, and economic policies that are in the broad interest of our members
and foster global financial stability.

In fulfilling this mission, the IIFs main activities are to:
Provide high-quality, timely, and impartial analysis and research to members
on emerging markets and other central issues in global finance.
Systematically identify, analyze, and shape regulatory, financial, and economic
policy issues of relevance to members globally or regionally.
Develop and advance representative views and constructive proposals that
influence the public debate on particular policy proposals, including those of
multilateral agencies, and broad themes of common interest to participants in
global financial markets.

M S |
Work with policymakers, regulators, and multilateral organizations to strengthen
the efficiency, transparency, stability and competitiveness of the global financial
system, with an emphasis on voluntary market-based approaches to crisis
prevention and management.
Promote the development of sound financial systems, with an emphasis on
emerging markets.
Provide a network for members to exchange views and offer opportunities for
effective dialogue among policymakers, regulators, and private sector financial
Define, articulate, and disseminate best practices and industry standards in
such areas as risk management and analysis, disclosure, corporate governance
and regulatory compliance.
Support education and training efforts of members in priority areas.

In pursuit of these activities, the IIF is guided by the following principles, mindful
of the basic goal of enhancing the efficiency of the international financial system
in support of global growth:
Commitment to Its Members: The IIF will continually endeavor to understand
and respond to members evolving needs and interests in order to help them meet
their goals. The IIF will strive to maintain a broad membership encompassing
financial institutions from a wide range of countries, regions, and market segments.
Sound, Sustainable Finance: The IIF will fund its annual expenses through
membership dues and fees derived from specific initiatives and is committed to
providing cost-effective services to members while maintaining an adequate reserve.
Focus and Relevance: The IIF will concentrate on priority areas, where it can
achieve substantial impact in representing the interests of members based on
its expertise, capabilities, and comparative advantage.
Professional Excellence and Impartiality: The IIF will maintain a staff with the
highest levels of professional skills, ethics, and integrity in order to provide the
highest quality services to members and to influence the competitive market
place of ideas, views and policies.

| A F
G Annex G: Current
Senior Staff Members

Charles Dallara, Managing Director
Yusuke Horiguchi, First Deputy Managing Director and Chief Economist
Ronald Stanley, Deputy Managing Director


David Schraa, Director


Hung Tran, Senior Director and Head of Global Capital Markets Research
Keith Savard, Senior Advisor


Howard Handy, Counsellor and Director (until August 31, 2007)

Gregory Fager, Director

Jeffrey Anderson, Director

C S S M |
Frederick Jaspersen, Director


Philip Suttle, Director


Abdessatar Ouans, Director


Barrie Orellana, Director


Sue Newman, Director

| A G
I I F | T F Y

This book provides a treasure of information on the Institute of International Finance.
It shows why it was born in 1982 and how it evolved to become a major force in the
international financial system.
Jacques de Larosire,
Advisor to the Chairman, BNP Paribas Group, and former Managing Director of the IMF

The Institute of International Finance was born twenty-five years ago to help banks
address the looming Latin American debt crisis. In todays world of volatile capital mar-
kets, the Institute has become a crucial source of analysis and a vital bridge between
the public and private sectors. This is the history of an organization that has shown
leadership in meeting the challenges of global finance.
Nicholas F. Brady,
Chairman, Darby Overseas Investments Ltd, and former U.S. Secretary of the Treasury

The financial world and the major governments were uninformed and therefore
unprepared when the LDC debt crisis began in 1982. The IIF was created after that to
fill the information gap. It has gone on to play a crucial role in helping markets function
better and to reduce the risk of systemic financial problems. This book provides the first
detailed analysis of how this important organization evolved and of the role that it plays
in todays complex world.
Martin Feldstein,
Professor of Economics, Harvard University, and President and CEO of the National
Bureau of Economic Research