The Basel Committee on Banking Supervision
A History of the Early Years 1974–1997
By Charles Goodhart
Publisher: Cambridge University Press
Print Publication Year: 2011
Online Publication Date:September 2011
Chapter DOI: http://dx.doi.org/10.1017/CBO9780511996238.007
An early warning system?
As already discussed in Chapter 2, the concerns that were uppermost in the minds of the G10 governors when they established the BCBS in the autumn of 1974 related to the Herstatt collapse, the resulting turmoil in foreign exchange markets and the sustainability of international capital flows (rather than the home/host supervisory issues that had been the focus of the work of the Groupe de Contact). This is clear from the initial mandate that the Governors gave the Committee, as follows:
The Governors of the Group of Ten, at their  December meeting at the Bank for International Settlements, discussed the problems of assuring the solvency and liquidity of banks, basing themselves on a summary report prepared by the BIS on existing regulations and supervisory practices. To carry further the work in this field and to prepare for future discussions among themselves, the Governors decided to establish a new committee to be made up of two experts from each country, one from the supervisory and one from the foreign exchange side. The committee will take as its starting point the BIS summary report and will give particular attention to the need for an early warning system. It was noted that from this point of view the quality of supervision is at least as important as the regulations themselves.
So, the one specific task that the BCBS was asked to undertake was to explore the possibility of an early warning system (EWS) for international financial crises. The Committee turned to this immediately: it was on the agenda for all five meetings in their first year (1975). Despite the fact that the BCBS had been invited to act on establishing an EWS, the members soon discovered, in their discussions, that they were unwilling to do so.
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