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Prophet of Basle

John Heimann, chairman of the global financial institutions group at Merrill Lynch and a member of the firm's executive management committee, takes up a new position next month. After 14 years at Merrill he is retiring from Merrill to become chairman of the Financial Stability Institute at the Bank for International Settlements.

The newly-created institute, a join initiative of the BIS and the Basle Committee on Banking Supervision, will essentially aim to help emerging countries upgrade the quality of supervision of their banking systems in line with the 25 core principles for effective banking supervision, which the Basle committee published in April 1997. Eventually, it will examine financial system stability more broadly.

Heimann describes the core principles as "excellent", but also admits they are somewhat idealistic. For example they suggest that in order to prevent abuses arising from connected lending, banking supervisors must "have in place requirements that banks lend to related companies and individuals on an arm's-length basis." All well and good to say it, "but how should the principles be implemented and enforced?" Heimann asks. "Trying to build a common understanding on how to do that, by bringing together supervisors from around the globe, will be the institute's role."

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