Annex L — Prevention and alert protocol

Annex 12 of 17 · ≈ 5 min read · 19 paragraphs · section 34 of 40 · search the book

Purpose. The Preventive Alert Protocol organises the acts of the cross-cutting prevention and alert loop. It determines the materiality thresholds, the structure of the prospective case file, the alert levels, the recipients, the disclosure regime, the response time limits, the conditions of anticipatory action, revision, expiry and ex post evaluation.¶ 1

Obligation to respond. The competent recipient acknowledges receipt within the time limit provided and publishes or communicates, according to the applicable regime, a reasoned response indicating: the elements accepted or contested; the options examined; the measures taken or set aside; the constraints of mandate, of law or of capacity; and the date of reassessment. The obligation bears on the examination and the reasoning, not on the adoption of the recommended option.¶ 2

Graduated disclosure. The protocol distinguishes internal monitoring, coordinated confidential alert, public alert and urgent alert. The choice takes account of the need for action, of the right to information, of data protection, of legitimate secrecy and of the risk that publication provokes a panic, a run or a self-fulfilling prophecy. Every restriction of disclosure is reasoned, controlled and accompanied by a deadline for re-examination.¶ 3

Evaluation. Every alert is closed by a report which compares the scenarios with the outcomes and assesses the timing, the false positives, the false negatives, the actionability, the distributive effects and the effects proper to the communication. The aggregate performance of the alert authority is published periodically.¶ 4

L.1 Alert levels

L.2 Allocation of responsibilities

L.3 Monetary alert protocol (Monetary Cascade Early-Warning)

Impulse of the source jurisdiction. Policy rate and anticipated path; communication surprises; the long end of the curve; balance-sheet reduction; liquidity conditions; backstops; synchronisation with the other major source jurisdictions.¶ 5

Exposure of the recipient countries. External debt and maturities; floating rate; currency; reserves; exchange rate regime; depth of markets; public and private financing needs; dependence on imports; bank capital and liquidity; structure of balance sheets; exposure of households and firms.¶ 6

Second-round reactions. Defensive rise in rates; exchange rate intervention; credit restrictions; fiscal adjustment; reduction of public investment; asset sales; bank contraction; trade and regional transmission.¶ 7

Buffers. Available reserves, fiscal room, access to safety nets, maturity of the debt, exchange-rate hedging, bank capacity, social protection arrangements and administrative capacity. The alert bears as much on the exhaustion of these buffers as on the initial impulse.¶ 8

Content. The Cascade Risk Memorandum identifies: the jurisdictions, sectors and agents exposed; the dominant mechanisms among the fifteen; the interactions and thresholds; the horizon; the scenarios; the uncertainties; the possible benefits; the domestic responses available; the reactions liable to amplify the shock; and the mitigation options.¶ 9

Recipients. The memorandum is addressed, according to the alert level, to the source and recipient central banks, to the ministries of finance, to the IMF, to the BIS, to the Financial Stability Board, to the multilateral banks and to the competent regional mechanisms. The affected parties receive an adapted version where financial confidentiality does not justify a temporary restriction.¶ 10

Response. Each participant in the protocol states the elements it accepts or contests, the measures it envisages, the constraints of mandate and the date of re-examination. A central bank may maintain its decision; the loop then renders visible the trade-off, the mitigation measures and the residual risks, without concluding that there is fault.¶ 11

A menu, never a prescription. According to the case file and the applicable law, the options may include: improvement of communication and of sequencing; technical coordination; activation or preparation of liquidity lines; targeted strengthening of reserves; prudent management of maturities; macroprudential measures; protection of essential expenditure; transition financing; assistance to exposed banks and firms; or the phasing of certain measures. Their presence in the memorandum creates no obligation to adopt them.¶ 12

Proportionality. An option is set aside if it displaces more risk, favours a group without justification, durably weakens price or financial stability, or imposes an institutional cost higher than the avoidable damage. The measures are temporary, revisable and accompanied by an exit plan.¶ 13

Evaluation. After the episode, an independent evaluator compares the memorandum with the outcomes and measures: accuracy of the timing; mechanisms correctly identified; false positives and false negatives; responses taken; costs avoided or displaced; distributive effects; effects proper to the communication; and quality of the coordination.¶ 14

Stopping rules. The protocol remains at level V0 or V1 if the mechanisms are not identifiable, if the data are too weak, if no window for action exists or if disclosure is liable to provoke greater damage. It never issues an amount of preventive attribution and does not use a prior alert as sufficient proof of responsibility after the shock.¶ 15

L.4 Pilot in shadow mode

Shadow Preventive Pilot. For twelve to eighteen months, an independent team produces in real time prospective case files and alert levels on a chosen case, without making them binding or modifying decisions. The alerts are time-stamped and frozen. A second team deals with the same case using the existing monitoring arrangements. At the end of each episode, the results are compared.¶ 16

Three arms. The pilot compares: A, the existing process; B, a light federated protocol linking existing bodies; C, the PAL distributed across HuIB, GIRA, GAF and GSF. The teams use the same data available at the freeze date and do not see the results of the other arms before closure.¶ 17

Indicators. The indicators comprise: usefulness for the decision-maker; timeliness; accuracy; stability; interpretability; false positives and false negatives; actionability; cost; response burden; effect on markets and behaviours; access of the affected parties; quality of the reasoning; and capacity to learn.¶ 18

Decision criterion. The PAL is retained only if it improves information and preparation by comparison with the existing process and with the light protocol, without producing a disproportionate burden, panic, capture or centralisation. Where guarantees are equivalent, the lightest architecture prevails.¶ 19

@incollection{yaiche_hc_annexe_l,
  author    = {Yaïche, Nizar},
  title     = {Annex L — Prevention and alert protocol},
  booktitle = {The Humanity Compact},
  year      = {2026},
  version   = {2.3},
  doi       = {10.5281/zenodo.22746533},
  publisher = {Zenodo},
  url       = {https://humanitycompact.org/ouvrage/annexe-l/}
}

A book by Nizar Yaïche, former Minister of Finance of the Republic of Tunisia. Who is the author?