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It is clear that the labour market situation calls for moderate wage increases. Unlike the situation prevailing during the two previous bargaining rounds, unemployment has increased and employment has declined recently. Nor are there any labour shortages, other than in a few areas. It is also a positive sign that the rate of wage increase has been declining over the past year and that the same applied to expected inflation. Given the present low inflation rate, even limited nominal wage increases will lead to a fairly good development in real wages, which trade union representatives usually emphasise. The nominal wage increases put forward now are lower than those of recent years. Meanwhile, there is of course always a risk of shocks from the actual negotiation process. It is not unthinkable that some of the increase in productivity is used as justification for higher wage-paying capacity. This could be particularly worrying if the wage negotiations assume that the improvement in productivity is permanent and it later shows a rapid decline. At our meeting last week we considered that there was reason to make a further slight downward revision to unit labour cost figures, which in turn had effects on domestic inflationary pressure. The labour market has been weak and most indications are that there is reason to be slightly more pessimistic with regard to employment in future. The rate of wage increase could therefore be slightly lower than we assumed in December. | Over the Christmas holidays I read a book by the former US Treasury Secretary Robert Rubin.1 He takes up this issue and motivates why he strongly advised President Clinton against holding public opinions on monetary policy, advice followed by the President. According to Rubin, there is always a risk that the bond market will be affected if there is the slightest suspicion that the central banks' actions are governed by political pressure.2 I think that the fact that he - with his decades of experience on Wall Street - brings up this argument and that he does so despite the widespread respect enjoyed by Greenspan's Federal Reserve, shows that the argument cannot be waved aside. One could object that the Riksbank's legal independence is greater than that of the Federal Reserve. On the other hand, the low-inflation regime is relatively new in Sweden and our market is also small and influenced to a large degree by external agents, who often lack in-depth knowledge of how our system works. At present, the economic and political developments in Sweden are so stable that political manoeuvring of the type we have seen hardly has any effect on the markets, although some concern has been expressed by foreign analysts. However, politicians who enter the discussion with strong opinions in a stable situation should probably reflect over how they might act in future in more problematic situations. | 1 |
Economic activity would have been lower and unemployment – particularly youth unemployment – higher. This would have had a disproportionately higher impact on the incomes of the poor and the young. At the same time, inflation would have been lower, which research shows transfers wealth from younger households to older households, who are more likely to be savers.3 So the ECB not acting also carried distributional implications. Further, the deeper and more prolonged recession would likely bring about greater hysteresis, depressing future growth and hence returns for savers. Overall, households would have been worse off had the ECB not acted. Counterfactual discussions aside, how have households fared across the euro area? To gauge the effect on different euro area households, we can draw upon results from the Eurosystem’s Household Finance and Consumption Survey (HCFS), conducted in 2010 and 2014. Even though these surveys do not cover the period since the introduction of the negative deposit facility rate, they do coincide with declines of 2-year euro area benchmark bond yields by 130 basis points and 10-year bonds by 110 basis points. Euro area net financial income as a fraction of total household income fell slightly. When looking more closely at households grouped by wealth quintiles, we find that households with the lowest net wealth, whose debt payments are higher than their financial income, had an unchanged position. Households with the highest net wealth, whose financial income is much higher than their debt, had the most marked fall in income. | See Gordon, R.J., (2016), “The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War”, Princeton U.P. and Goodhart C., P. Pardeshi and M. Pradhan, (2015), “Workers vs pensioners: the battle of our time”, Prospect Magazine, December. 3 Adam, K and J. Zhu, (2014), “Price level changes and the redistribution of nominal wealth across the euro area”, Journal of the European Economic Association, 14 : 871–906. 4 Deutsche Bank Research, Focus Germany – Difficult times for German savers, 4 October 2016. 5 Bundesbank monthly report October 2015. 6 Rostagno M., Bindseil, U., Kamps, A., Lemke, W., Sugo, T. and T. Vlassopoulos, Breaking through the zero line – The ECB’s Negative Interest Rate Policy, Brookings Institution, Washington DC, 6 June 2016. 7 For a more detailed discussion of the challenges for euro area banks and the interlinkages with monetary policy see Praet, P. (2016), “Monetary policy and the euro area banking system”, Speech at ECMI Annual Conference, Brussels, 9 November 2016. 5/5 BIS central bankers' speeches | 1 |
The Stability and Growth Pact and all the efforts of the Eurogroup over the years to maintain a coordinated and disciplined fiscal policy have been vital and should be continued in the future. But in addition to continuing along these lines in the coming decade, efforts should focus on designing and adopting the necessary structural policies. If we observe how these divergences are perceived in the different countries, we can gain insight into the importance of efforts to push through structural reforms. Many in Spain believe that the divergence problems witnessed in the Spanish economy in recent years are to do with the fact that certain euro area countries are lacking in dynamism and therefore have much lower growth potential than we do. And it's true. Spain has a higher degree of privatisation that makes its economy much more dynamic. Also, the weight of public spending in the economy is much lower. Advances in competition in many industries affords higher growth potential for Spain than for other euro area countries. The problem of being in an area with countries with lower growth potential is that when the ECB set its interest rates in the 2000-2004 period, it did so at a level which, though arguably high for these other countries, was very low for Spain. And that entailed higher debt, higher inflation and, therefore, a loss in competitiveness for our country. But look now how such divergences are seen from the other countries. | Those of us privileged to meet every fortnight in Frankfurt bear constant witness to the success of this undertaking, which is unique in the process of European construction. The Eurosystem blends centralised and decentralised decision-making, reflecting perfectly the common European project. On one hand the ECB takes centralised decisions for three hundred and thirty million citizens who have the euro as their common currency, while on the other, the Eurosystem operates in a highly decentralised and co-operative manner. The National Central Banks are involved in many joint projects. But allow me to discuss one with which I have been closely concerned in recent years: the launch and design of Target 2 securities which, behind this singular acronym, is an ambitious project that will facilitate securities settlement throughout Europe. This platform is being designed and constructed by four central banks: Germany, France, Italy and Spain. Any pro-European would be most satisfied to see officials of the banks from these countries working together every day on a common project. BIS Review 24/2009 1 Critics of the euro, who are quite frankly a minority today, try to argue that the divergences observed across the Monetary Union members in terms of inflation and growth during its first ten years have been a problem. But the figures are not on their side. Over the past decade, inflation and growth diversity among the EMU members has been very moderate compared with what had previously occurred. | 1 |
In addition, more countries have shown signs of further tightening in their labor markets, which will continue to put pressure on wages (figure 7). 3 Against this inflationary backdrop, most central banks have raised their benchmark rates and/or signaled a path of faster withdrawal of monetary stimulus. The Fed made its largest rate hike in two decades, anticipating additional raises at upcoming meetings and a reduction of its balance sheet from June onwards. Sweden, India, and Australia surprised the market by initiating monetary normalization in the face of increased inflationary pressures. The European Central Bank confirmed that it will end unconventional stimulus in the third quarter of this year, although it remains more cautious about raising rates. Central banks in Latin America have continued to raise policy rates in the face of growing inflation. (figure 8). In this context, and comparing with the closing of the March MP Report, global markets are increasing their risk aversion, reflected in higher long-term rates, falling stock prices, and an appreciated dollar. In any case, these trends have seen important changes in the period, with some recent reversal of these changes. The Chilean market has had a more favorable performance compared with its external peers. Compared to the end of the previous MP Report, long-term rates have remained unchanged, the depreciation of the peso is around the average of emerging economies and stock prices have risen, although specific factors have played a role in the latter (figure 9). | All of this is to say that climate strategies are set to be a key focal point of financial institutions’ business and risk decisions going forward. Within the property sector, it is encouraging to see major banks in Malaysia already offering targeted financing solutions for green residential homes in what used to be a niche market for a handful of smaller institutions. Also important are solutions that can help reduce GHG emissions from existing homes on the books of financial institutions, and increase their resilience to climate hazards. Such products are putting sustainability at the forefront of consumers’ minds not only when they decide to purchase a property, but also in making future decisions regarding renovations, or energy and water supply systems. The introduction of such products is also an important start to collecting critical data for the assessment of risk differentials between green and other mortgages by financial institutions. While these developments are encouraging, experience in other markets would suggest that there is much more that financial institutions in Malaysia can do to unlock the potential to scale up green housing finance. For example, current financing activities are largely focused on the end consumer, which is just one part of the housing value chain. The incorporation of green considerations in funding extended to developers and those involved in construction activities such as engineers and raw material suppliers remains largely untapped, and can help offset or spread over time the generally high upfront costs associated with green buildings. | 0 |
Because we definitely think this is an important issue, and we definitely want to be helpful and use the resources we have, both in terms of research and our convening power, to try to take this forward. So, let’s have a conversation. Dr. Olajide Oladipo: Next question please. I’m still expecting a student. 10 / 15 BIS central bankers' speeches President Dudley: Good morning. My question will be in the form of appeal. This is for small homeowners. Recently, the Fed announced about increasing the interest rate. But I don’t know how long the Federal Open Markets Operations committee will actually sit for that. But what I’m appealing for is for that period to be extended. We just came out from an economic recession. Thank God we didn’t get to the depression part of that business cycle. Many homeowners basically, particularly small homeowners, they are struggling to fix their credits. And because their credit scores are so terrible, they cannot refinance, and therefore they are locked in with high interest rates – we are talking about thousands and thousands of dollars. Banks are making money off them because they cannot refinance. If you go ahead and increase that interest rates when they are still struggling to pay what they have now, I think many will lose their homes. So, my appeal is for the Fed to please, let the current interest rates stay – give a little bit more room for small homeowners to fix their credit scores so that they can refinance. | But unfortunately people offer these things, and it’s really quite tragic, because the people who fall for these things often are people that are not so sophisticated, of not so large means, and they can’t afford to be sending money to fraudsters hoping that there might be a big prize from the Federal Reserve Bank in New York or somewhere else down the road, which of course there’s not. Dr. Olajide Oladipo: Thank you. I think we have – I just have time to take only one more question. Audience Member: Actually, the question I wanted to ask is for the students. Why do you refuse to ask questions? Dr. Olajide Oladipo: Somebody wants to ask now. Thank you. Audience Member: How are you, sir? My question for you today is what are, or were, your daily habits or rituals that helped you get to the level of success that you have today? President Dudley: Oooh, I can’t think of any rituals. Habits. I guess what I would say is I’ve always just tried to learn more. So basically, it’s always about trying to find opportunity to, what I call, grow my human capital. So, I think – my view of the way to success is find a job that’s interesting to you, because you need that passion about what you do. If you don’t have passion about what you do, it’s not going to feel like a lot of fun and you’re not going to do it with a great enthusiasm. | 1 |
Both in the United States, through the Sarbanes-Oxley Act, and in Europe, at the level of the Commission as well as in Member States (I will only mention here the French Financial Security bill which is to adopted soon), a lot of work is being undertaken to address the problems that surfaced during the last three years in this field. I will limit myself to two comments that both evolve around the simple idea that co-ordination is crucial on these questions: · Financial services are increasingly delivered on a global scale. The regulation and oversight of financial markets can no longer ignore the reality that measures taken by any country may have consequences outside that jurisdiction. Hence the necessity for a reinforced dialogue between regulators, central banks and market participants as a means for managing regulatory spill-overs or frictions that otherwise could occur in highly interdependent and increasingly integrated financial markets, and more generally addressing global financial stability issues. Let me recall that structures such as the Financial Stability Forum already play a widely recognised role in fostering these exchanges and promoting co-ordination. Such a dialogue is all the more necessary between the US and European authorities, as 4 BIS Review 32/2003 they represent the main financial centres. In that regard, the recent initiatives undertaken by the EU authorities are welcome. This dialogue should be the beginning of a sustained and deepening process of mutual understanding, co operation and, above all, commitment on transatlantic regulatory equivalence. | The successful introduction of a broad range of pan European and sector-based indexes, and the subsequent launch of derivatives and new investment vehicles such as Exchange Traded Funds (or “trackers”) based on these new indices, highlights this change in investors’ approach. Empirical evidence suggests indeed that sector-related factors are playing an increasing role in price dynamics. As integration enlarges the range of potential investors, it also fosters the development of private equity and the financing of young and innovative firms, a trend that is obviously welcomed. 1.4 Behind the scene, supporting the evolutions that I just touched upon, market infrastructures have undergone radical changes. As an example, as regards trading infrastructures, the creation and expansion of EURONEXT is a striking illustration of the on-going consolidation process: the EURONEXT group now links the French, Belgian, Dutch and Portuguese stock markets, and has concluded co-operation agreements with several other European markets. The group also significantly increased its presence on interest rates derivatives markets. This ongoing movement of consolidation affects securities clearing, settlement and depository infrastructures, as providers aim to propose an integrated transaction service covering the entire securities processing cycle. In the field of post-market infrastructures, CLEARNET is pursuing its pan-European expansion by completing its operational integration throughout the EURONEXT area. The clearing house also reached an agreement with its Italian counterpart, enabling it to offer central counterparty services for transactions executed on the Italian government securities market. | 1 |
This may result in additional tax liabilities and hence higher issuance costs for sukuk when compared with conventional bonds under the existing tax regime. 7. It is therefore necessary to refine our tax laws to provide a tax framework for sukuk that is comparable to the one applying to conventional bonds. But this does not mean that we are going to confer special tax favours on the Islamic finance sector; rather, our aim is to level the playing field so that financial instruments of similar economic substance will be given similar tax treatments. 8. On this, I am very pleased to see that an amendment bill has been introduced into the Legislative Council earlier this year. The bill adopts a prescriptive and religion-neutral approach, and covers five of the most common types of sukuk globally. Products that can meet the key features and qualifying conditions specified in the bill will be given tax treatments similar to those currently afforded to conventional bonds. This means that sukuk issuers and investors alike will no longer be subject to additional tax and stamp duty charges over and above what they would need to pay for conventional bonds. So, passage of the bill will be a very positive step forward in furthering the development of Islamic finance in Hong Kong. Synergy between Hong Kong and Malaysia 9. With the legal infrastructure to be in place soon, the next important step will be to develop the Islamic financial markets here. | RQFII) scheme. 5. Hong Kong is fortunate to have made a good start in offshore RMB business. Since the introduction of offshore RMB business in 2004, we have developed a wide variety of RMBdenominated financial products. In particular, the offshore RMB bond market in Hong Kong is by far the largest in the world. We also possess the largest RMB liquidity pool outside of 1 KFH Research. 2 Zawya. 3 KFH Research. BIS central bankers’ speeches 1 Mainland China. As at the end of 2012, the aggregate amount of RMB customer deposits and certificates of deposits has reached a high of 720 billion yuan. Notwithstanding these, when it comes to Islamic finance, Hong Kong is a relative newcomer and would need to catch up in this area. Legislative exercise to promote the development of sukuk market 6. In developing Islamic finance, we are taking a step by step approach. As a first step, our current focus is to put in place the supporting legal infrastructure. Specifically, the HKSAR Government is set to change the tax laws in Hong Kong to facilitate the development of the sukuk market. In terms of economic substance, sukuk are no different from conventional bonds. However, since Islamic law prohibits the payment and receipt of interest, sukuk are often structured with the use of special purpose vehicles and multiple transfers of underlying assets. | 1 |
The system is mandatory for all workers at companies that are part of the agreement. In this system, 4.5 per cent of labour income is allocated up to a cut-off point. If a worker earns more than the cut-off amount, 30 per cent of the difference is added to the original allocation.4 The individual also has a number of investment options to choose from in this system. Once again, the conclusion here is that pension wealth among those included in this pension scheme agreement is more evenly distributed than other wealth. Another way of expressing this is that many people in Sweden do not own their own home and have no financial assets but as a result of their labour income, they benefit from elevated asset prices as they have a share in funded collective pension systems. So how many of them are there? We don’t know at present, as no wealth statistics on the individual level have been recorded since 2007. A government inquiry has recently started to look at whether Sweden shall once again compile wealth statistics on the individual level.5 The Riksbank has been stressing for a long time the importance of reintroducing these statistics as soon as possible. An important reason is that household indebtedness has shown a rising trend in recent years and we now know more about households’ debt than about their assets. | Addressing the problems and challenges at an earlier stage will contain the deterioration, and will enhance the prospect for a positive solution. As our economy evolves and transitions towards higher value added activities, the financial support services that is being provided by the financial institutions also needs to evolve. Financial institutions have to recognise that SMEs will increasingly become specialised and diversified, and will require a much more customised and differentiated financial services. Financial institutions will also need to broaden their dimension to look beyond the traditional business activities and be positioned be able to provide financial services to businesses in new areas of growth such as green technology, medical sciences, and information technology. Today, the true value of companies is also not just measured by their tangible assets, but also includes their intellectual capital. The adoption of more dynamic methodologies to assess the businesses value should therefore be beyond collateral and historical performance. For this, financial institutions have to continuously be ahead of innovation and the new growth areas to be able to take into consideration the new related risks in their assessment. Technology will also have a vital role to support efficient services and greater outreach. Financial institutions should also encourage technological enhancements by SMEs through the provision of financing, including adoption of end-to-end supply chain management solutions and greater expansion into regional production networks. On this note, let me take this opportunity to congratulate Institute of Bankers Malaysia for the launch of this book. I applaud the initiative undertaken. | 0 |
Investments in financial assets and real estate – Financial institutions are no longer required to ensure that $ credit facilities extended for investment purposes be withdrawn when the investments are either wholly or partially liquidated. This will relieve FIs of the need to institute additional arrangements to track their non-resident client's investments in financial assets. These measures, which take effect from tomorrow, should pave the way for even greater liquidity and range of activities in the FX, equity and debt capital markets. They should also attract offshore $ activities back onshore. We are still maintaining the two core requirements of the non-internationalisation policy – the restriction on lending for purposes of speculating on the $ and the requirement to swap into foreign currency the proceeds of $ loans, debt or equity issues if these proceeds are to be used offshore. Some market participants have suggested that we should go all the way and lift these requirements too, but we continue to believe it wise to maintain a basic stance of not encouraging internationalisation of the $ through these two requirements. They are unlikely to hinder the activities of legitimate players. They will also provide us basic safeguards in case activity in currency markets turns out not to be self-stabilising, which from time to time seems to be the case. Conclusion The new financial landscape offers many opportunities for the astute market players and investors, but at the same time, presents many challenges for regulators and supervisors. | It requires firms which are strong in technology and know-how, with systematic managements and meritocratic practices, firms which can hold their own against foreign competition, and with the potential to grow into significant industry players. Even then, such firms will complement, not replace, foreign investments by MNCs. Following this philosophy, Singapore’s economic policies will therefore remain externally oriented. We will continue to push for free trade, welcome investments, and integrate into the global economy, even as we promote entrepreneurship and seek to build Singapore firms into regional players. The pressures of globalisation can be uncomfortable, and the changes they force upon us can be painful. But globalisation has helped us to build a stronger, more resilient economy, one better prepared to hold our own against formidable competitors, and deliver a high and rising standard of living for our population. On capital account liberalisation, countries are now acutely aware that sound macroeconomic management is a key prerequisite, without which no regime of exchange controls can deliver stability. They also realise that they must sequence liberalization judiciously, and strengthen financial supervision and prudential safeguards as they liberalize. In the aftermath of the crisis, no Asian country imposed capital controls, apart from Malaysia. But several tightened safeguards to reduce the risks of destabilising capital flows, and to shield domestic foreign exchange and money markets from speculative pressures emanating from abroad. They improved monitoring, and discouraged trading in currencies that was not related to the real economy. | 1 |
However, this does not prevent giving consideration to the real economy – growth and employment – when this can be done without jeopardising the inflation target. This is also clearly stated in the preparatory work on the Sveriges Riksbank Act. The Riksbank uses the repo rate – the rate at which the banks can borrow or deposit funds in the Riksbank - as its monetary policy instrument. When interest rates are low, demand is usually high households save less and companies invest more - which leads to a gradual increase in prices. The reverse applies when interest rates are high. However, the interest rate should not be higher than it needs to be to guarantee that the Riksbank’s inflation target can be met. With hindsight, we can note that inflation was below target in 2004-2005 and that the interest rate was therefore too high. The main explanation for this is that productivity growth was higher than expected and international price developments were weaker. Competition has also become stiffer in many different markets and has contributed to low inflation. It is very difficult to predict at an early stage what is happening in the economy and the Riksbank was far from alone in being mistaken in its forecasts. Almost all other analysts made similar, or larger, forecasting errors during this period. At the previous monetary policy meeting, the Executive Board unanimously decided to hold the repo rate unchanged. | If the economies of our most important trading partners recover, and if the financial markets begin to stabilise, it is likely that the Swiss economy will also pass through the cyclical trough during the course of the year 2010. Faint signs that the economy is gaining a little ground have recently become evident abroad. The SNB’s measures are aimed at reducing the danger of deflation in Switzerland. To maintain price stability in the future, pinpointing the optimal date for exiting from the current zero interest rate policy will be critical. Although the reduction in liquidity can be carried out swiftly and easily in technical terms, the practical details are extremely challenging. Correct assessments by decision-makers are very important in view of the particularly high level of model uncertainty at present. In addition, firmness will be required in the face of political pressure so that necessary, but unpopular corrective measures can be taken in good time. BIS Review 54/2009 1 | 0 |
Today, it contributes around a tenth. China has been the mirror image. Having contributed less than 5% in 1980, today China is the single largest source of global saving, contributing around one fifth. It has been argued by some that these trends could simply reflect different cultural attitudes towards saving among US and Chinese citizens. In the US, it is often said that there is a culture of spending rather than saving – neurologically, the impatience gene may be dominant (Haldane (2010)). In China, by contrast, the culture may be biased towards saving rather than spending, with the patience gene dominant. In other words, differences in agents’ rate of time preference, or degree of patience, might account for savings imbalances (Buiter (1981)). 4 BIS Review 174/2010 But a recent survey of time preferences in 45 countries suggests cultural differences are not the full story (Wang, Rieger and Hens (2010)). Asked to choose between a payoff this month and a larger payoff next month, 68% of US students choose to wait; they exhibit patience. Facing the same trade-off, 62% of Chinese students made the same choice. These differences are small. 3 They are also the “wrong way around” to explain imbalances. So if cultural factors are not the explanation, what is? Charts 8 and 9 plot national saving rates in China and the US, broken down on a sectoral basis. There are striking differences in saving behaviour across the government, household and corporate sectors in the two countries. | Significant progress been achieved in particular in the Islamic capital market where the outstanding amount of Islamic private securities amounted to USD79 billion or 54.3% of the total outstanding private securities in the market. The number of Shariah-based unit trust funds have also increased to 136 with a net asset value of over USD5.2 billion while 85% of the listed Malaysian stocks are Shariah-approved counters. The second strategy is to accord greater emphasis on the enabling environment for increased innovation in the Islamic financial industry. The product range in Islamic finance has now expanded into a broad spectrum of innovative instruments, including investment and equity linked products based on musyarakah, mudarabah and ijarah. These products are competitive both in terms of product structure and pricing. The enhanced depth of the Islamic financial markets, in particular, the sukuk market, has increased the attractiveness of the Islamic financial instruments as an asset class for investment. The drive for innovation has been supported by the investment in human capital development. A sufficient pool of the talent and expertise has been key to the development of the Islamic financial hub in Malaysia. The International Centre for Education in Islamic Finance (INCEIF) was established in 2006. INCEIF which has an international faculty and students from more than 40 countries is focused on programmes for Islamic finance professionals and specialists in Islamic finance. | 0 |
In other words, should a requirement arises for a tightening in the public budget, we assume that this requirement will be met by measures for cutting down on expenditures rather than increasing the indirect taxes. Any deviation from this framework may lead to a revision of the outlook for inflation and monetary policy. Distinguished Members of the Press, BIS Review 100/2008 13 A protracted period of rising food and energy prices has been hampering our disinflation efforts since the adoption of the inflation targeting regime. Ongoing uncertainties resulting from global as well as domestic factors that led to a significant deterioration in inflation expectations necessitated a more cautious monetary policy stance. In this respect, in order to prevent the said uncertainties to be reflected on the general pricing behavior, we have conducted a monetary tightening over the past three months. Monetary tightening was effective in containing inflation expectations, as the deterioration in inflation expectations came to a halt in July. Current stance of the monetary policy supports disinflation. We expect inflation to remain at elevated levels in the short term before gradually moderating towards the targets. Our revised inflation forecasts suggest that the inflation targets of 7.5 percent, 6.5 percent, and 5.5 percent set for the next three years are attainable, even under quite conservative assumptions on food and energy prices. | Recent readings on domestic sales, production and confidence indicators suggest a similar outlook. At this point, I would like to remind you that the indicators regarding the course of domestic demand are presented in detail in the July Inflation Report. BIS Review 100/2008 7 Figure 8: Private Consumption (Seasonally Adjusted, Billions, YTL) 19 18 17 16 15 14 13 08Q1 07Q3 07Q1 06Q3 06Q1 05Q3 05Q1 04Q3 04Q1 03Q3 03Q1 12 Source: TURKSTAT, CBT. Data on consumer credits suggest that monetary conditions continue to be restrictive. Consumer loans have been growing at a moderate pace compared to the periods of vigorous domestic demand (Figure 9). The decline in risk appetite and the tightening in global credit conditions are likely to restrain credit expansion in the period ahead. Figure 9: Consumer Loan Growth Rate (Q-on-Q, in real terms) 80 Housing Automobile 60 Other 40 20 0 06.08 03.08 12.07 09.07 06.07 03.07 12.06 09.06 06.06 03.06 12.05 09.05 06.05 03.05 -20 Source: TURKSTAT, CBT. Overall, domestic demand conditions continue to support disinflation (Figure 10). Therefore, the underlying inflation is expected to decelerate in the medium term. | 1 |
The underlying inflation measured as the CPIF (CPI with a fixed mortgage interest rate) is expected to be just below 2 per cent during the greater part of the forecast period. CPI inflation, on the other hand, will vary significantly, as CPI also considers changes in interest rates on mortgages, which are affected by the decisions we take regarding the repo rate. 4 BIS Review 11/2010 Inflation measured in terms of the EU harmonised index, the HICP, has recently been higher in Sweden than in the euro area (Figure 20). During the autumn, this was just below 2 per cent in Sweden, while it was negative in the euro area. HICP does not include prices of owner-occupied housing, and thus inflation measured in terms of HICP and CPIF are largely the same. The relatively high HICP inflation in Sweden is primarily due to the heavy increase of unit labour costs in Sweden over the last three years, averaging approximately 5 per cent per year (Figure 21). In addition, the Swedish krona weakened during the financial crisis, pushing up import prices. In turn, the rapid increase of unit labour costs over the last three years is primarily due to the fact that productivity fell for three years in a row, in addition to which hourly wages increased more during that three-year period than during the immediately preceding three-year period. This development will be reversed during the forecast period. | After the Second World War the abandonment of the “golden standard” changed things completely. The introduction of the fiat money changed the monetary policy framework dramatically, forcing the financial stability issues to take back seats in the central banks considerations. There were two main reasons for financial stability being less of a worry. First, by using the fiat money the role of the lender of the last resort was not limited anymore. The central bank could lend to commercial banks as much as they wanted to borrow, just printing new money. There was no need to hold a parity to anything. Second, many central banks faced serious troubles in order to meet their ultimate target, the price stability, within the new fiat money environment. Therefore the policy focus shifted and huge effort was concentrated on finding a new appropriate policy framework. The situation was even more complicated due to the fact that both aforementioned points were closely interdependent. To illustrate this point, let's assume that there was an inflationary pressure which caused redistribution disturbances to the financial system as it led to the redistribution of wealth from lenders to borrowers. The central bank either had not established the appropriate framework for dealing inflation yet, or even worse, inflation had not been viewed as an undesirable phenomenon. On the other hand, the central bank was ready to fulfil its role as a lender of last resort. But saving the commercial banks from imminent bankruptcy further increased inflationary pressures. At the end this caused kind of inflationary trap. | 0 |
The increase in payroll tax rates, the rise in high income tax rates, the increase in taxes associated with the Affordable Care Act, and the sequester will result in fiscal drag of about 1¾ percentage points of GDP in 2013, an unusually large amount of fiscal restraint when the economy doesn’t have strong forward momentum and unemployment is still elevated. In terms of the labor market, we have seen only a moderate improvement in labor market conditions over the past six months or so. After an encouraging pick up in the pace of job creation around the turn of the year, the employment report for March showed a gain of only 88,000 jobs. While I don’t want to read too much into a single month’s data, this underscores the need to wait and see how the economy develops before declaring victory prematurely. I’d note that we saw similar slowdowns in job creation in 2011 and 2012 after pickups in the job creation rate and this, along with the large amount of fiscal restraint hitting the economy now, makes me more cautious. Since September, payroll employment has increased an average of 188,000 per month, compared with an average of 172,000 per month over the previous two years. The unemployment rate has declined from a peak of 10 percent in October 2009 to 7.6 percent in March; however, much of the decrease is due to a fall in the number of people actively looking for a job. | Furthermore, as of March there were still almost 3 million fewer jobs than at the end of 2007, and the ratio of employed Americans to the working age population was actually lower than it was at the end of the recession. Also, in an indication that employment is far from healthy, job finding rates have changed little since the recession. New York Fed staff research agrees with the broad consensus that cyclical factors are the major reason for the continued weakness in labor market conditions. In sum, these developments lead me to expect sluggish real GDP growth over the course of 2013 of about 2 to 2½ percent. As such, I anticipate that the unemployment rate will decline only modestly through the rest of the year. In the near term, there is considerable uncertainty about the outlook, particularly because the multiplier effects from fiscal drag and sequestration are still unclear. This uncertainty should gradually decline – for better or for worse – over the coming months, as the sequester’s impact takes hold and more economic data come in, giving us a clearer picture of the forward momentum of the economy. Inflation, as measured by the personal consumption expenditure deflator, is currently well below the Federal Reserve’s objective of 2 percent. There is substantial slack in the labor market and in the markets for goods and services, and underlying measures of inflation are subdued. Moreover, peoples’ expectations of inflation remain well anchored at levels consistent with our 2 percent longer-run objective. | 1 |
For instance, when I look at the negative growth of the last quarter – minus 1.2 per cent in France – one comforting aspect was that three-quarters of the decline was due to a reduction in 4 BIS Review 29/2009 inventories. So that was of course much better for the future because it means that once the inventories are back to the required level, to the level that corporates want to have, production starts up. So it is difficult to comment without seeing all the explanations. For the time being I have the feeling that our situation will be relatively, slightly better than that of some of our neighbour countries. What was one of our weaknesses in the past – that is a strong reliance on domestic demand and domestic consumption for growth, and certain weakness in net exports – has become a strength in the downturn. Exports have fallen, like in Germany, but their weight in GDP is much lower, so that it has hit the economy less. The consumer spending trend has remained positive. Compared to countries like Spain or the UK the average indebtedness of households was lower, so that the effect of the turmoil on consumer spending has been also relatively lower than in other countries. For all these reasons we felt that we had some slightly better resilience, but we must remain prudent. FT: Should Germany do more in terms of fiscal stimulus? CN: I think that they have decided on a second package that is sizable. | I would certainly agree that we should not blur the distinction between monetary policy and fiscal policy. That does not mean there is not a good understanding. The fact that governments have taken all the actions that they have taken to support the financial system is extremely important for central banks. It is certainly easier to accept a broad range of collateral when you know that the banking system as a whole is backed by the clear declaration by governments that they will not let a systemic institution fail. FT: This position of the ECB appears to assume there is no risk of deflation. But do you think that the risks of deflation have increased, given the sharp contraction in economic growth that we have seen? CN: Of course one should always remain prudent. We know that, given the evolution in prices of energy and non-processed foods, it is likely that we will have a few months toward the middle of the year with slightly negative inflation figures. But that is very different from the persistent decline in prices that characterises deflation. I do not think personally that the risks of deflation are very high in the euro area for several reasons. One is that we have increased liquidity by a considerable amount. In both the US and the euro area, central banks have increased liquidity in the system in one year by roughly the same amount, proportionately, as the Bank of Japan did in the early 1990s’ banking crisis in five years. | 1 |
Some analysts estimate – and at the Banco de España this appears to be a technically reasonable estimate – that, owing to the labour reforms, the economic growth threshold for job creation may have been lowered, which should impel the start of a correction in the unemployment rate with what are still moderate GDP growth rates. As regards private-sector debt, Spanish households strongly increased their debt in the expansion preceding the crisis; their debt ratio rose from less than 70% of gross disposable income in 2000 to close to 130% in 2007 and 2008. Non-financial corporations moved on a 2 BIS central bankers’ speeches similar path, which lasted longer over time, with their debt ratio climbing from over 60% of GDP in 2000 to a peak of over 140% in 2010. Here, too, there are signs of correction. Since 2010, households’ and firms’ debt has fallen by almost 10 pp and 20 pp, respectively. Admittedly, though, such restructuring is slow as a result of weak nominal growth in household and corporate income. But the soundness of the recovery will unquestionably also depend on the progress made in normalising financing flows. Since 2009, outstanding credit extended by our banking system to Spanish non-financial corporations and households has been contracting uninterruptedly. As at September 2013 it was 5.4% lower than a year earlier, but the decline was more marked for firms than for households: a decline of somewhat more than 9% for the former, and of 4.5% for the latter. | The sensitivity of wages to the cyclical situation has stepped up since mid-2012 which, in principle, suggests the labour market is functioning more in step with developments in the economy and the clearly declining trend of inflation. Indeed, in September the consumer price index posted a year-onyear rate of 0.3%, resuming a favourable difference vis-à-vis our European partners. The excessive dependence of the Spanish economy on the construction sector in the previous expansion no doubt entailed a factor of vulnerability. From the onset of the crisis in 2008, the deterioration of this sector was continuous; from then to the second quarter of this year, its real value added posted a cumulative decline of more than 40%, far higher than that recorded by the market economy as a whole, which did not exceed 10%. A major challenge facing the Spanish economy today is to have other industries, other than construction, take up the baton in terms of the creation of value added. And here, too, there are positive signs in recent quarters. The industrial sector achieved moderately positive growth in the second quarter, helped no doubt by the sound performance of exports. And the same occurred with the services sector. Despite the containment of labour costs and while bearing in mind that the data show a less adverse trend in unemployment, this is the most serious of our macroeconomic imbalances and that showing most resistance to correction. | 1 |
UK banks will be required to hold a CCyB of 2% of UK risk-weighted assets when risks are around standard – that is when risks are neither particularly elevated nor subdued.26 We can use the GDP-at-risk model to provide a lens for understanding the risk environment: for example, the 35th to 65th percentile of the historical distribution of GDP-at-risk (see Chart 4) is a range of around -0.8 to 0.8. 25 At the time, the FPC also noted that there were gaps and shortcomings in the measurement of risk-weights (for example, risks associated with defined benefit pension fund deficits were not captured). In light of this, the FPC judged at the time that the appropriate level of Tier 1 capital requirement for the UK banking system was 13.5% of risk-weighted assets, based on existing measures of risk weights. In December 2019, the FPC reviewed the judgements underpinning this assessment, and confirmed that its 2015 benchmark remained appropriate. 26 In December 2019, the FPC announced that it was raising the level of the UK CCyB that it expects to set in a standard risk environment from the region of 1% to the region of 2%. Consistent with this, and given its assessment that risks were standard, the FPC raised the CCyB from 1% to 2%. This takes effect with a one-year lag, and so will become a binding constraint from 16 December 2020. For further information, see the December 2019 Financial Stability Report. | 10 All speeches are available online at www.bankofengland.co.uk/news/speeches 10 FIGURE 4: Haircut schedule for LIBOR-linked collateral This graduated approach reflects the clear feedback we received from firms on our discussion paper last year. It is intended to give firms the incentives, certainty and time they need to prepare for LIBOR transition, replacing LIBOR-linked collateral with risk free rate alternatives and maintaining drawing capacity throughout. Careful analysis suggests that this should be a manageable task in the time available, but we will monitor this closely and continue to work with impacted firms on their plans. Concluding remarks I began my remarks by comparing LIBOR transition to a motor race. For some, I know it may have felt at times more like a Le Mans endurance race than a Grand Prix. But dawn is at last approaching – and the finish line is drawing nearer. For sterling markets in particular, 2020 is a critical year. The announcements we have made today, coupled with the huge efforts going on right across the private and public sectors, demonstrate I hope that, working together, we can keep sterling markets at the forefront of LIBOR transition. Thank you. 11 All speeches are available online at www.bankofengland.co.uk/news/speeches 11 | 0 |
The credit easing package and expanded APP has been effective too in reducing wholesale funding costs for banks, allowing banks to pass on better funding conditions to their customers. Since summer last year the average cost of borrowing for euro area non-financial corporations has fallen by around 70 bps, and by 90 bps and 110 bps for NFCs in Spain and Italy, respectively. The latest evidence from the July Bank Lending Survey confirms the improvement in credit conditions. During the second quarter of 2015 credit standards continued to ease for firms, and even more so for households. Reflecting the endogenous relationship between credit supply and demand, credit demand also increased among both groups driven mostly by the low level of interest rates. The impact of the expanded APP on bank funding costs has been partially reversed by the recent market repricing. Here, however, the credit easing package and our broader asset purchases could act as complements, in particular the Targeted Long-Term Refinancing Operations. For the APP, the ECB defines the volume of liquidity it would like to inject, but cannot determine the price; for TLTROs, we define the price of the liquidity, but banks determine the volume. One tool can therefore act as an automatic stabiliser for the other. Indeed, as wholesale funding costs for banks have risen, so has the attractiveness of the TLTRO. This substitution effect accounts in particular for the higher participation in the fourth operation by banks in less vulnerable countries. | Peter Praet: The ECB’s asset purchase programme – the impact so far Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the Eurofi conference, Luxembourg, 9 September 2015. * * * The ECB’s expanded asset purchase programme has met with our initial expectations. First of all, it has strongly signalled the ECB’s commitment to deliver its medium-term price stability objective, which has in turn been reflected in an upward shift in inflation expectations at all horizons. In keeping with this, any second round effects on inflation from the steep drop in oil prices last year appear to have been forestalled, and the tightening of medium-term real rates we saw towards the end of last year has been reversed (though the path of real rates implied by markets has recently steepened noticeably). More generally, the signalling effect of the APP has been visible in solidifying business and consumer confidence underpinning a broadening economic recovery. The expanded APP, together with our credit easing package launched in summer 2014, has also had a positive impact on both market and bank credit dynamics. The cost of marketbased debt fell to historically low levels in the early part of 2015, and though it has risen in recent months, financing flows have remained robust. This implies a “first order” monetary policy effect from our interventions. | 1 |
Based on the data collected, and considering renewals in those cases where they are possible, the average term of office at the Eurosystem’s NCBs is 11.8 years. 11 ANNEX 5 - Code of Conduct for high-level European Central Bank Officials (2019/C89/03) The main points covered in the Code of Conduct for high-level European Central Bank (ECB) Officials are as follows: - Standards of ethical conduct: officials shall observe the highest standards of ethical conduct and integrity. They are expected to act honestly, independently, impartially, with discretion and without regard to self-interest. They shall be mindful of the importance of their duties and responsibilities, shall take into account the public character of their functions and shall conduct themselves in a way that inspires ethical conduct within the Eurosystem, the European System of Central Banks and the Single Supervisory Mechanism, and maintains and promotes public trust in the ECB. - Principle of independence: officials shall act independently and objectively in the interest of the Union as a whole, regardless of national or personal interest, and not seek or take instructions from EU institutions, bodies, offices or agencies, from any government of a Member State or from any other body. - Professional secrecy: officials shall not disclose any information covered by the obligation of professional secrecy obtained in the exercise of their duties and responsibilities that has not been made public or is not accessible to the public except deliberately as part of the communication strategy of the ECB. | Legal independence is represented in the institution’s own legal personality, which is different from that any other State or General Government agency may have. As a result of this personality, the Banco de España has the autonomy to assume contractual rights and obligations with third parties and to take decisions under its remit, which are legally binding for those concerned. Functional independence means that, under the principles of observance of the law and the general interest that govern its conduct, the Banco de España has the instruments needed to perform its function and the autonomy to decide on the internal resources and processes it deploys to fulfil the objectives assigned to it. This autonomy extends to its internal organisation (divisions, departments and posts, with their tasks and procedures). As an exception, a matter to which I shall return, there is currently the possibility of government review of some of its decisions in the supervisory sphere. Personal independence means that senior management, the Council members and employees of the Banco de España can do their work “independently” in the exercise of the functions entrusted to the institution. Here, independence means that in the decisions taken and in the attendant actions, members of the institution must be free from external interference and be guided exclusively by rigour and professional competence. | 1 |
And I would also like to urge you to take a little time off to visit some places of interest, while you are in this beautiful country, Sri Lanka. Thank you. BIS Review 50/2004 1 | Given the famous ‘long and variable lags’ in the transmission of monetary policy, an immediate policy response to the gas price shock could not have prevented some rise in headline inflation.9 In line with its remit, the MPC needed to act to steer inflation back to its 2% target on a sustainable basis, in a difficult environment where the adverse terms of trade impact of higher imported energy prices weighed on domestic real incomes and spending. In doing so, it was crucial that monetary policy was prepared to act to contain so-called second-round effects in price, wage and cost developments, which threaten to impart a self-sustaining momentum to inflation, even as the original impetus to higher inflation from rising gas prices dissipates. By its nature, that more persistent component of inflation would last to the horizons at which monetary policy does have an effect on price developments – it is thus any such persistence in inflation that the MPC (in its recent communication) has flagged as the driver of more ‘forceful’ policy actions. Bank of England Page 7 This is where the impact of higher gas prices interacts with developments in the labour market. Even as economic activity in the UK has weakened as higher gas prices weighed on household spending power, the labour market has remained tight. The unemployment rate recently reached its lowest level since the mid-1970s. Recruitment difficulties in a tight labour market has supported stronger underlying wage growth. | 0 |
The construction industry is showing a positive trend in the south-eastern region, primarily due to public building projects, while western Oppland is experiencing weaker activity. On the whole, enterprises providing services to the household sector are faring better than those oriented towards the business sector, primarily due to weak developments for customers in the construction industry, corporate customers that are in competition with foreign companies or dependent on customers in these categories. Employment is stable, but many enterprises, particularly in the public sector and the construction industry want to downsize in response to higher costs, lower budgets or as part of general, planned workforce cutbacks. Developments in Raufoss may have a considerable impact on the local community. Pay increases are expected to be considerably lower in 2003 than in 2002. Wage growth is highest in the public sector. There are wide regional variations in unemployment. At end-April, 3.2 per cent of the labour force in Hedmark and 2.9 per cent in Oppland had registered as unemployed. This is well below the national average of 3.9 per cent. The increase in unemployment on a national basis in 2002 primarily occurred in the service industries. In January, manufacturing took over the lead as the industry with the highest increase in unemployment. Manufacturing unemployment is now 3700 higher than a year ago. Agriculture and forestry account for a larger share of employment in Hedmark than in other counties. Because of the large tracts of forest in this county, forestry is a particularly important sector. | On average, it was 1.1% in this period, dropping 1.8 percentage points from the previous quarter. The rapid decline of annual inflation rates, which has started in the third quarter of the past year, is driven mainly by the slowdown of price rise in food items during this period, as well as the stability of prices of other consumer goods. Inflation performance has reflected the simultaneous action of supply and demand factors. On the supply side, slowdown of commodity prices in international markets and of inflation in our trade partners, combined with the stable exchange rate, have transmitted lower imported inflation rates to our economy. Likewise, contribution of administered prices has been lower. Inflation expectations have been anchored and production cost pressures contained. On the demand side, pressures remain low, conditioned by the continuation of the negative output gap. Reduction of factual inflation rates, shifting of the inflationary pressures balance to the down side and the increase of aggregate demand below its potential, under the conditions of a controlled fiscal policy, have created the space for further increase of the monetary stimulus to the economy during the first quarter of the year. The Bank of Albania has lowered the key interest rate twice, bringing it down to the historic low of 4.25%. Such a decision, besides being in line with maintaining price stability over the medium term, provides the appropriate conditions for boosting private demand at home. | 0 |
Alongside Bercy this time, and French banks, I fully support the Commission and ECB’sii target of applying the output floor on a consolidated basis: we must not create new obstacles to Banking Union, and the reluctance of “host” countries has no other basis than a form of harmful protectionism. Regarding insurance, the Commission also published in September its proposed amendments to the Solvency II rules, which look set to lead soon to a final compromise text at Council level, under the French Presidency of the European Union. They have our full support, to facilitate long-term, sustainable investment (support for equity investment, integration of climate objectives), without increasing overall capital requirements for insurers. Further advances have also been made in anti-money laundering and combating the financing of terrorism (AML/CFT) with the creation of a dedicated directorate within the ACPR, which will notably monitor the risks linked to crypto-assets. The ACPR is in part to thank for France’s excellent results in its evaluation by the Financial Action Task Force (FATF), with the French AML/CFT system recently receiving the highest possible score for quality. In customer protection, the industry-wide agreement reached in February 2022 under the aegis of the Ministry of the Economy will ensure greater transparency in management fees for life insurance and retirement savings contracts, with insurers required to publish a fee schedule for each contract as of 1 July 2022. But we need to ensure savers are even better informed. | Ardian Fullani: Development of the interbank market in Albania and the Bank of Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Forum “Interbank Market Development and Improvement of Operational Policy at the Bank of Albania”, Tirana, 21 June 2010. * * * Dear bank managers, Dear colleagues, We are gathered here today to discuss an essential issue concerning the performance of our financial market and the Albanian economy on the whole: interbank market development and strengthening. I do believe that the role and importance of the interbank market is clear to all attendees. It represents the first link of liquidity trading in economy and the most transparent price setting mechanism. By providing the appropriate instruments and partners for liquidity trading, the interbank market allows the refinancing of short and medium-term positions and facilitates the mitigation of your business’ liquidity risk. The banking system and the interbank market represent the exclusive setting monetary policy operates in. A developed, active and efficient interbank market enhances the efficiency of central bank’s monetary policy, transmitting its impulses into the economy best. Thus, the development of the interbank market smoothes the progress of financial intermediation and boosts lending to economy, hence improving the country’s economic and social welfare. The deepening and broadening of the financial market is one of the key structural reforms in economy. It should be ceaseless and it requires the commitment of domestic and external factors. | 0 |
A gradual increase in the repo rate, where the policy is brought step by step onto a less expansionary path, in my opinion reduces the risk of a development that would lead to abrupt adjustments in house prices and household indebtedness later on. This also thus reduces the risk of an unfavourable development of the real economy 3 . In this context, I would, however, emphasise that the reference to household indebtedness and house prices is not, as some have understood it, an expression for our having introduced new targets alongside the inflation target. There are though, as I have just explained, reasons to take into account the impact of these factors on the real economy and inflation, even in a longer perspective, and under different designs of monetary policy. Uncertainty over the future repo rate path We thus always try to be as clear as possible about our view of future macroeconomic developments, including the monetary policy with which this development is normally associated. One question that therefore deserves a comment, before I finally go on to discuss current moentary policy, is how accurately is the future repo rate depicted by market expectations as expressed in implied forward rates? It is important to remember that our view of the development of the repo rate at the monetary policy meetings is based on the information available at the time of the decision. Our considerations may, of course, subsequently be changed due to new statistics becoming available or to the economy facing unforeseen shocks. | But if successfully executed, these objectives are mutually reinforcing and will lay the foundation for a more sustainable and vibrant First World economy. Moderation in growth Why is China growing more slowly? As China reaches a more mature stage of development, it is simply unrealistic to expect it to grow at the same rate as before. China is confronted with the reality of supply-side constraints that every economy eventually runs into. • According to UN projections, China’s working-age population (aged 15–59), is projected to shrink by 0.6% each year over the next 15 years. Slower growth does not mean anaemic growth. China may no longer grow at 8–10%, but it is well positioned to grow by 6 to 6.5% for the next five years. With the right mix of structural reforms, there is substantial scope for China to achieve faster catch-up in productivity and income levels. • China’s per capita GDP is modest by international standards and its labour productivity remains well below the frontier. • The less developed regions in China still have scope to grow at rates that are higher than the national average, and this process of internal convergence is itself an important source of future productivity growth. The large size of the Chinese economy means that, at even more moderate rates of growth, the incremental demand from China will be quite substantial in absolute terms – and this is what matters for the global economy. | 0 |
An important part of the IMF’s work with debt management in the poor countries is therefore to strive for the resources that are released in the country are invested long-term and in a way that benefits all the population. Research shows that IMF lending and programs are successful. In the years a program is implemented, and the countries save to finance their deficits, growth is normally decreased a bit. After a few years, the countries can however reap the fruits of a more stable economy, in terms of lower inflation and higher growth. Successful programs also have a positive effect on social policy in the countries. Expenditure on education and healthcare in the poorest program countires increased by four per cent per capita between 1985 and 1998, and these areas now account for a larger share of the government budgets. Countries with IMF programs have seen more children in schools, increased literacy and access to clean water, and lower child mortality. 5 BIS Review 78/2000 Swedish participation in the IMF Sweden is one of the creditor countries in the IMF. In the board we share a seat together with the seven other Nordic and Baltic countries. As well as other country groups, we have an office in Washington with representatives who work full time on pursuing our interests on the board. I worked at this office myself for over four years as Nordic-Baltic representative in the board. | Although we have seen marked improvements in the critical areas of capital, liquidity, and resolution, we have not yet fully addressed the root causes of many of the problems that have plagued the financial sector. I am thinking of not only the excessive risk-taking and leverage in the run-up to the crisis, but also the repeated scandals related to LIBOR, FX, money laundering, sales practices; unfortunately, the list goes on and on. Underlying these scandals is often an inadequate corporate culture, where accountability and ethical conduct have fallen by the 1/3 BIS central bankers' speeches wayside. The good times we’re in can exacerbate these problems in three ways. First, there’s a risk of complacency setting in—an “if it ain’t broke, don’t fix it” mentality. Second, in a strong economy, the hard numbers that we tend to focus on when examining profits, losses, capital, and liquidity can look like everything’s coming up roses, even when an uncomfortable reality lies beneath. And, finally, culture is a long-run investment that takes many years to develop and requires constant reinforcement to preserve. If you let it erode, you can’t go to the market and obtain a new “culture” overnight. As I mentioned, establishing a more robust regulatory framework was absolutely necessary for a healthier, more resilient financial system. But, it is far from sufficient. The danger we face today is that people may conclude that the hardened defenses are enough, and other supervisory activities around culture, conduct, and governance are superfluous. | 0 |
The interaction between the collateral framework and liquidity regulation is of great importance, especially for the Eurosystem.10 Let me illustrate this. A possible strategy for euro area banks to meet their LCR requirements is to increase their reliance on central bank funding using non-HQLA collateral. This is due to two features of the LCR calibration, which are of particular relevance for the ECB. First, the LCR and the Eurosystem’s monetary policy framework differ as regards the definition of qualifying assets. The stock of HQLA accepted in the LCR is narrower than the stock of assets which are eligible as collateral for the Eurosystem’s monetary policy credit operations. For example, asset backed securities (ABS) and uncovered bank bonds are accepted as Eurosystem collateral, but do not qualify generally as HQLA in the LCR. In addition, the LCR and the Eurosystem’s collateral framework differ as regards haircuts that are applied to specific categories of assets.11 Thus, there is no alignment between the definition and the risk assessment of liquid assets and the central bank’s collateral framework. This is justified by the different purposes of liquidity regulation and of the central bank’s collateral framework: the collateral framework protects the balance sheet of the central bank and, without prejudice to this objective, can support monetary policy transmission to the economy, which calls for a broader range of eligible assets, especially in such a diverse region as the euro area. This is also justified by the global nature of the LCR while central banks frameworks are all different. | The inadequacies of banks’ liquidity management became apparent when some markets for long-term debt securities (including ABS, ABS CDOs, etc.) experienced a sudden re-pricing, resulting from the fact that risks were not properly reflected in their prices. Banks faced BIS central bankers’ speeches 1 substantial liquidity outflows and shortages owing to their excessive exposure to these instruments and their excessive reliance on short-term and volatile secured market funding sources. In the US, this phenomenon mainly materialised as a “run on repo”;1 in the euro area, it resulted into drying up of foreign currency funding, severe strains in bank unsecured funding, and/or a reduced access to repo through clearing houses. In all cases, the central bank had to step in and to expand its liquidity provision to banks. What does this imply for liquidity regulation? Regulations should start from first principles, and we therefore have to identify the market failures or negative externalities that liquidity regulation aims at addressing. I consider that there are three main objectives for liquidity regulation: a) to reduce the impact of uncertainty on the bank risk profile, b) to build up liquidity buffers and c) to mitigate the systemic characteristics of a liquidity crisis. Maturity transformation gives rise to liquidity risk since, by definition, a bank engaging in maturity transformation cannot honour sudden and large withdrawal requests by depositors. They may face similar difficulties if interbank market lenders refuse to roll over their loans. | 1 |
If Parliament had not passed the emergency legislation in October 2008, thereby ensuring that there was a functioning banking system and that domestic deposits were secure, if capital controls had not been introduced in November 2008, if we had not been so successful in repairing domestic balance sheets, if the economic recovery had been weaker and the rate of return on domestic assets had been lower, then the domestic assets of the old banks would have been worth much less, as would the offshore krónur. In this scenario, these positions might have exited Iceland long since, at just a small fraction of the value they had just before the resolution of the old banks. Instead, the domestic assets of the old banks amounted to 25% of GDP and the stock of offshore krónur was estimated at around 15% of GDP. It was clear that free exportation of these positions without mitigating action would have resulted in a new currency crisis, with potentially serious effects on financial stability. That was both economically and politically unacceptable. As a matter of fact, the population had been promised solutions to these problems entailing no negative effect on the exchange rate. The Icelandic authorities have publicised three versions of their capital account liberalisation strategy: the first in 2009, the second in 2011, and the current one in June 2015. It was under the second strategy that the stock of offshore krónur was reduced through a series of auctions. | Second, even if the authorities should, for some obscure reason, allow these krónur to go through the onshore market at this point, they would never command the current onshore rate. The position is simply too large, and that applies even if we look only at the current liquid part. It would simply push the market in front of it. Third, these numbers are within the range where offshore krónur have been trading in auctions and in the market. Fourth, the most important number is 190. This is found partly by looking at what will happen to our FX reserves if we buy the entire position at this rate. It will take us below the metrics that both we and the IMF think we should prudently meet when we start lifting capital controls on domestic residents. We are willing to stretch that far, however, in order to facilitate an amicable solution, as we are confident that we can rebuild reserves to the required level in the next few months. Second, why are the authorities not offering longer-term bonds as a part of the solution? That was the initial intention when work on auction design began. At that time, the idea was to have a multi-product auction offering foreign currency, long-term euro-denominated bonds, and long-term króna-denominated bonds. The deliberations revealed, however, that such a structure would have involved significant risks for Iceland. First, a multi-product auction carries more operational risk than a straightforward FX auction. | 1 |
The reasons behind this phenomenon are the decreasing expectations of investors as to the expected rate of return that compensates the assumed risk. At the same time, better transparency of enterprises (monitoring of the senior management, supervision over shareholders, and making them subject to the market discipline) entails a decrease in the agency costs that result from the mismatch of investment objectives between the management and the shareholders. As a consequence, enterprises can more easily raise funds for financing their initiatives. 7 Large companies are more inclined to promote regulations and laws that improve the transparency of financial markets and reduce the asymmetry of information among market participants. In addition, institutional reforms that improve the market transparency and the quality of communicated information are implemented, under the influence of investors. The deregulation that is taking place removes artificial market entry barriers and facilitates their smooth operation. Thus, globalization stimulates the financial market development, which in turn gives enterprises easier access to capital. Higher availability of funds may impact investments and in this way stimulate the economic growth. 8 Introduction of the euro has eliminated the FX risk and contributed to abolition of investment limits related to the items of securities portfolio denominated in foreign currency. This has lowered the cost of raising capital from 0.5 to 3 percentage points. At the same time, the convergence of those costs took place among the EU-15 within the same economy sectors. | The challenges In my introductory comments, I suggested that much of the anxiety surrounding SWFs stems from the fact that their increasing presence in mature markets presents a challenge to some long-held assumptions about how the global economy works. Let me elaborate a little bit on three such assumptions. As you will see, they are very much interlinked. 7 This is shown in table 1 in the appendix. Sources: Truman (2007a, 2007b), IMF, Morgan Stanley, FT. 8 Morgan Stanley, Standard Chartered, Deutsche Bank and Merrill Lynch all recently produced estimates, ranging from USD 2.5 to 3.5 trillion. 9 Global reserves amounted to USD 4.7 trillion in the second quarter of 2007, according to IMF's COFER database. 10 2006 estimate by Mckinsey Global Institute. The size of pension fund assets held by OECD countries is estimated at USD 13.2 trillion by the OECD. 11 The estimates of Merrill Lynch, Deutsche Bank, Morgan Stanley and Standard Chartered are, respectively, that SWFs will grow to USD 7.9 trillion by 2011, USD 9 trillion by 2015, USD 12 trillion in 2015 and USD 13.40 trillion by 2017. 12 According to SNB calculations, excess reserves of developing countries according to the Greenspan-Guidotti rule reached USD 2.5 trillion in the second quarter of 2007. 13 These are located in the US (Alaska Permanent Reserve Fund), Australia and Norway. | 0 |
Svein Gjedrem: Monetary policy and the economic situation Speech by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at a meeting of the Troms Fish Farming Association, Harstad, 13 March 2003. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 5 March and on previous speeches. Please note that the text below may differ slightly from the actual presentation. The Charts in pdf can be found on the Norges Bank’s website. * * * The operational target of monetary policy as defined by the Government is inflation of close to 2½ per cent over time. Norges Bank sets the interest rate so that future inflation will be equal to the inflation target of 2½ per cent. Interest rates were reduced this winter in response to the change in the inflation outlook. The inflation projections were revised downwards as a result of weaker cyclical developments in the world economy, a sharp drop in interest rates internationally and a strong krone. In addition, the Norwegian business sector is feeling the effects of the high Norwegian cost level. Moreover, growth in domestic demand has slowed. Household purchasing power has been reduced as a result of higher electricity prices. The weak prospects at home and abroad are in turn having an impact on the Norwegian labour market and the outlook for wage growth and inflation in the years ahead. | The sharp rise in electricity prices may also affect other consumer prices. Wage developments this year and next will play an important role over the next one to two years. The inflation projections depend on the assumptions concerning the interest rate and the exchange rate. In the Inflation Report, we presented two alternative paths for the Norwegian economy. We judged that a gradual easing of monetary policy seemed appropriate. In one scenario, the tight monetary policy stance was held unchanged. Inflation then fell below target over the next few years. In another scenario, monetary policy was relaxed in line with market expectations. Inflation then moved up and was higher than the inflation target. Actual developments may, however, deviate from both paths. Norges Bank will continuously assess developments in the global economy, the Norwegian economy and the krone exchange rate, and set the interest rate with a view to achieving the inflation target. BIS Review 14/2003 5 | 1 |
From this perspective, the standardisation of data and the draft Non-Financial Reporting Directive - which will be discussed this year - for adoption hopefully next year, under the French Presidency - will be the battle to be fought in 2021. And it would be unacceptable - at a time when progress on climate change is moving in the right direction and Europe has won the first round of climate-related values - for Europe to lose the second round, i.e. that of measuring these values using standards and published data. 2.3 Incorporate climate risk, into order to reduce it in all of our operations and in the economy The third part of our triptych, the very core of our activity, and the most powerful: reducing our climate risk in concrete terms, through our asset purchase and Page 6 sur 8 collateral policies. This ambition requires great dexterity; but it is rooted in a conviction: we have in our hands the tools to move forward, concretely, strongly. I propose to start decarbonising the ECB's balance sheet in a pragmatic, gradual and targeted manner for all corporate assets, whether they are held on the central bank's balance sheet (purchases) or taken as collateral, without including government securities. There are at least two arguments for such a priority: 1/ it is very difficult to differentiate between the climate policies of the euro area countries. 2/ Conversely, non-financial corporations are clearly identified as players whose activities are the most carbon intensive. | More specifically, the Eurosystem could use indicators that measure the effort that an issuer makes over a given period to reduce its carbon emissions compared with its peers in the same Page 7 sur 8 economic sector. Here, we have most of the data. The most advanced 2° alignment methodologies, even if they have yet to be finalised, are advantageous in that they take into account both past efforts and future commitments to reduce "carbon" emissions over a predetermined horizon. This sector-specific and dynamic assessment over time provides a greater incentive and would prevent all issuers in carbon-intensive sectors from being blindly "punished" (contrary to an exclusion-based approach). For collateral, this asset valuation adjustment could be directly applied. But our ambition must equally apply at least as much to corporate bond purchase programmes. Here, we are obliged to purchase assets at the market price; but I believe it is possible and desirable to recalibrate the purchase limits per company (tilting) on the basis of climate criteria. For instance, the Eurosystem could limit its securities purchases from issuers whose climate performance is not compatible with the Paris agreement. Conversely, securities issued by "aligned" companies could be purchased in larger quantities. This approach, applying to all companies and our Corporate Sector Purchase Programme, would be more comprehensive than a Green QE, whose quantitative impact would be lower because it would be targeted at green bonds only. | 1 |
That story, at least for smaller countries, is somewhat more unique than the first. However, it must be remembered that although these two stories differ, they interact in important ways. Thus the unsustainable boom that Iceland experienced during the years 2005–2007 was fuelled by a combination of favourable external conditions, macroeconomic mismanagement, and aggressive domestic bank lending. 3 An English version of the SIC report summary can be found on the Althingi website: http://sic.althingi.is/. For my views on the subject, I refer you to a speech I made in Bergen early this year: http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=7592 and my speech at the Annual General Meeting of the Central Bank of Iceland: http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=7699. BIS Review 63/2010 3 As so often occurs in great tragedies, the two stories converged in a grand finale in early October 2008, when nearly nine-tenths of Iceland’s banking system collapsed when its three large cross-border banks – Glitnir, Landsbanki, and Kaupthing – were taken into special resolution regimes on the basis of the emergency legislation that had just been passed by Parliament. This added significantly to the recessionary forces that were already at play in the Icelandic economy as the macroeconomic imbalances created in 2005–2007 subsided. However, the question of cause and effect is still open; i.e., what is the specific contribution of the banking collapse over and above an international recession and a domestic macroeconomic adjustment? | Implementation of Basel III for liquidity ratios by parent banks may have implications for domestic banks and monetary policy implementation in our countries. The liquid assets of our domestic banks are composed at large portion of domestic CB-bills and T-bills and accordingly, they are without investment rating (S&P BB with stable outlook; Fitch BB+ with sable outlook). This could cause serious disruption of design and effectiveness of monetary policy. Possibly, it could ask for transition from market based instruments to direct measures -such as reserve requirement. Another challenge is to straighten the coordination with the home-host supervisory authorities. It is extremely important and central to the country’s financial stability. NBRM is adequately included in the operation of some of the supervisory colleges, but not for all 2 BIS central bankers’ speeches Macedonian subsidiaries of foreign banks. As a result, NBRM is not always adequately informed, which could harm its ability to effectively determine the necessary capital level of these banks. In addition, there are still some unresolved gaps in regulatory coordination between home and host countries in the EU Single Supervision Mechanism. And last but not least, the future challange will be impact of Single Resolution Mechanism for a European banking union to our banks and the prospective scaling-back of unconventional monetary policy that could affect the borrowing costs. Summing up, the ongoing international regulatory reform, though primarily intended to promote financial stability, may also have some unintended adverse effects on emerging and developing economies, with SEE region not being an exemption. | 0 |
At the PRA we have found this two way dialogue valuable in guiding the development of the Op Res policy, and in that spirit, my remarks today aim to keep you informed on the next steps on our Op Res roadmap. The need to focus on this topic has never been more pressing. Since our original Discussion Paper: the Covid pandemic; the ongoing shift of services to the Cloud; and, more recently, the terrible events in Ukraine have all brought fresh challenges to the overall operational resilience of the sector. This has included the need to shift to remote working at short notice, address the risk posed by dependencies on services and third party providers (including those located in highly disrupted areas of the world), and highlighted an increasing need to focus on cyber resilience. The good news is that the sector has, to date, shown itself to be resilient in the face of these challenges. However, while clear progress has been made, there is still distance to travel to a point where firms across the sector reach the level of operational resilience we expect to see. This has been highlighted by a variety of operational outages still occurring frequently, such as payment outages, app and website failures, and incidents at third party providers. These incidents often attract significant attention from both customers and the media, emphasising the need for demonstrable resilience to underpin broader confidence in the financial sector. | This builds on the two-way dialogue we have enjoyed to date, and industry bodies like UK Finance also have the opportunity to play a key part in facilitating information sharing and the building of expertise across the sector. In taking forward this work, we will continue to build on the close and collaborative approach we have taken to date with our fellow regulators; both domestically with the Financial Conduct Authority (FCA), and also internationally though standard setting bodies like the Basel Committee, supervisory colleges and the bilateral engagement we have with other supervisors. We recognise the importance firms attach to a coordinated approach on this topic. Implications from other relevant upcoming policies Finally, I would also like to highlight some other areas of ongoing work that have implications for Op Res. In particular, the Bank of England’s (Bank) Cyber Stress Test5 and the work the Bank, FCA and PRA are undertaking with HM Treasury on potential ways to address the risks posed by Critical Third Parties (CTPs). We published information on the first of these, the Cyber Stress Test, in the FPC’s March 2022 record6. Whilst it is a distinct exercise to the topics I have outlined today, we expect the findings will prove valuable in informing thinking about operational resilience more broadly. And on the second topic, CTPs, this a complex topic and to make sure our thinking is fully informed by industry perspectives the FCA, Bank and PRA are planning to publish a joint Discussion Paper on CTPs in 2022. | 1 |
Developments in the PRA’s supervision of annuity providers Speech given by Charlotte Gerken, Executive Director Insurance Supervision The 18th Conference on Bulk Annuities 29 April 2021 I would like to thank Anu Ralhan and Rob West for their help in preparing these remarks. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice Thank you to Westminster and City for inviting me to speak at your bulk purchase annuities conference. At the time the 2020 conference was scheduled to take place, we were all grappling with the early impacts of the COVID 19 pandemic on our work, our lives and loved ones. In the months since, life insurers’ staff have worked hard and in challenging circumstances to serve their customers in very difficult times. As companies, life insurers have so far come through the pandemic well. That is not to say things have been perfect, but we recognise the commitment of firms and their staff to ensuring business continuity – particularly important when considering in the case of annuity providers that an annuity may be a substantial portion of the retirement income of the recipient. | A framework that takes some signals from market prices could be more forward looking, for example, recognising the market pricing of climate risks, rather than a backwards view of the risks of failure. However, any alternative framework may bring in new risks, potentially in being over risk-sensitive; or for example if provisions are linked to credit spreads, there may be incentives to value assets nearer the top end of the plausible range, understating the credit spread. While this is likely a smaller risk for traded corporate bonds, the shift to less liquid assets brings in greater scope for valuation uncertainty, which may also need to be factored into the FS. Conclusion I have focussed today on risks inherent in the MA, in particular on risks from less liquid assets stemming from uncertainty about the credit rating, uncertainty around valuations, and uncertainty about the amount of MA benefit that should be taken as a credit to insurers’ balance sheets. These are all risks that insurers’ Boards and senior management need to be across and to understand the vulnerabilities in assumptions that have to be made. The MA is a significant benefit for firms, in bringing forward unrealised profits that are then available to be deployed to grow businesses, or to reward shareholders. However, an addition to the risk-free rate is appropriate for annuities where they are well matched, and the MA is a valuable source of resilience for annuity writers. | 1 |
That’s how we like it: and the lesson you should draw from our readiness to tighten policy over the past seven months is that we are on the case. I hope that will give you the confidence to focus on your main business; creating wealth and ‘making people happy’. BIS Review 41/2004 3 | This is further complemented by the proliferation of payment cards, particularly electronic money, which enables banking and payment services to be conducted without a bank account or visits to traditional bank branches. According to data from the Consultative Group to Assist the Poor, or CGAP, there will be more than 120 mobile money schemes in developing countries by the end of 2009, more than double the number in 2008. CGAP estimates that by BIS Review 162/2009 1 2012 some 1.7 billion people will have mobile phones but no bank account, and 20 percent will be using mobile money. A key challenge, to implement a commercially viable and workable mobile banking solution, especially where population density is low, is to achieve a critical mass of users required to reap economies of scale to keep transaction cost low. This is even more relevant if the aim is also to promote financial inclusion as financial services would have to be offered at affordable costs. Thus, a requirement for an open and interoperable mobile platform that facilitates the participation of many service providers and that offers a broad range of services is critical in developing a sustainable and efficient solution for both providers and users. The other type of branchless banking is the use of non-bank financial service providers, also referred to as Business Correspondents in certain jurisdictions. | 0 |
This has complicated the Bank in its efforts to constrain inflation in recent times. One factor has been the changes that took place in the mortgage loan market in autumn 2004 when the commercial and savings banks began competing with the Housing Financing Fund (HFF). The Central Bank’s policy rate hikes impact the interest rates of non-indexed lending by commercial banks and savings banks and the non-indexed end of the domestic bond market. However, for a long time they had little impact on long-term interest rates. Some critics cite this as proof that the Central Bank of Iceland’s measures do not have the same effect as those of other central banks. Yet the development in Iceland is by no means an isolated occurrence. The US experience offers an immediate example. The Federal Reserve began raising its federal funds rate early in 2005 in progressive steps until early this year, from 1% to 5.25%. These hikes had no effect on long-term interest rates in the US, which have been broadly steady since 2005 apart with only minor fluctuations in either direction. US monetary authorities were puzzled by this development. I cite this example because it has been claimed that, unlike the Central Bank of Iceland’s decisions, the impact of changes in the Federal Reserve’s rates is immediately transmitted in full to long-term interest rates. | It involves a Star Trek chair and a bank of monitors. It would involve tracking the global flow of funds in close to real time (from a Star Trek chair using a bank of monitors), in much the same way as happens with global weather systems and global internet traffic (Haldane (2011)). Its centre piece would be a global map of financial flows, charting spill-overs and correlations. Such a global financial surveillance system could serve a number of policy ends. It would allow policymakers to monitor the evolution of the financial system in real time, as it expanded, contracted and changed shape. It would also allow them to simulate and stresstest this system to help detect impending financial cliff-edges. The IMF would be the natural guardian of this global-financial-map-cum-stress-testing-machine. To give this concept some (literal and metaphorical) colour, Chart 18 shows a bank of heatmaps of correlations across a wide range of assets (safe and risky) and a large set of countries (advanced and emerging). There are shown at three dates – a pre-crisis period of calm, the Lehmans Brothers crisis of 2008 and at present. These correlations are grouped in two ways, by asset class and by country. The correlation matrix broadly matches the patterns from the earlier heatmaps. Temperatures appear to be rising over time, with flare-ups at times of crisis. With this map now encompassing a wider range of assets and countries, the strength of these correlations underscores the genuinely global nature of today’s international financial system. | 0 |
Similar to many economies in the region, commercial banks in Thailand will start maintaining capital according to Basel II by the end of next year, and by the end of 2009 for banks with the advanced approach. IAS 39, on the other hand, will be fully enforced by the Federation of Accounting Professions in the beginning of 2010. However, the Bank of Thailand has already adopted some parts of IAS 39, namely the impairment of assets since December last year, and we are now considering adjusting the related regulations to be in line with the concept of IAS 39. For Basel II, preparations on the supervision side started a number of years ago. The Bank has set up several internal working groups to study the guidelines and its suitability to the Thai market. Staff were sent abroad for training on Basel II implementation. Experts from other supervisory authorities and consultants were invited to hold seminar and training on the underlying concepts, applications, and supervision issues. The drafting of the Thai version of Basel II has been quite involving. During the drafting, the Bank of Thailand carefully studied other countries guidelines and consulted with other supervisors to gain insights on the suitability of Basel II to the Thai financial system. As a result, we have made some necessary adjustments to the guideline taking into consideration its practicality. Banks in Thailand have been consulted in the process so that the guideline does not impose extra unnecessary burden. | Such effort can be as close as forming an alliance to pool the necessary data for model development, or as loose as sharing the costs of training and seminar similar to the one we are having here today. I should now end my talk. It has been a pleasure to share with you a regulator’s perspective on the implementation of Basel II and IFRS. I hope my remarks and observations have been useful. We are traveling on an important and challenging path towards achieving a robust and resilient financial system, and steady progress is being made. You, as a key stakeholder, are also an important part of this journey. I wish the rest of the seminar great success and accomplish its objective, and be interesting and educating to all. Thank you very much. 4 BIS Review 114/2007 | 1 |
Making sure the financial system is robust and resilient is probably the most important thing the central bank can do in this respect. I would like to turn now to the issue of how the initial step in normalization is going. The U.S. bond market response to lift-off has been very mild. There has been no bond market “taper tantrum” such as what occurred in 2013 when Chairman Bernanke discussed the possibility of tapering Federal Reserve asset purchases. Normalization is also going very well in the sense that, even with an extraordinarily large balance sheet, the tools we have developed to raise the federal funds rate (and other money market rates) have so far worked well. The federal funds rate is trading close to the middle of the new target range of 25 to 50 basis points and other money market rates have moved up in tandem. Why is this noteworthy? To explain, I’ll first have to provide some background on how monetary policy used to work before the crisis and then compare that regime with how it works now. 4 BIS central bankers’ speeches Before the financial crisis, banks valued reserves – even though the Federal Reserve paid no interest on them – because the Federal Reserve kept their supply scarce. | Role of the Bank of England That brings me to the role of the Bank. Our work is focused on building resiliency to the risks from climate change into the financial system, so that it can steward the real economy to an orderly transition to net-zero. Being resilient means pro-actively managing climate risks and pre-emptively reducing them. This is central to the Bank’s mission. Indeed earlier this year climate change was made one of the Bank’s strategic priorities.8 I became the Executive Sponsor for the Bank’s work on climate change in 2016, at a time when there was only a handful of people at a handful of central banks working on climate-related issues. But since then the scope and depth of our work and that of other central banks has expanded significantly. We are working domestically and internationally with key stakeholders including government, industry, investors, regulators, and climate scientists to further this critical agenda. 8 Bank of England Annual Report 2020 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Climate action at the Micro-level: Disclosure and Risk Management So what are we asking financial firms to do? Put simply, they need to make financial decisions that take the risks and opportunities from climate change into account. The first step in achieving that is to have the right information. That is why the Bank has been making the case for some time for consistent, comparable, and comprehensive climate disclosures. | 0 |
But we also believe that the quality and credibility of the regulations would be reinforced by the possibility of including certain limits, such as those currently being considered by the Basel Committee, to overcome the shortcomings and doubts mentioned. Arguably, the best way to achieve this aim is by converging the estimation methodologies used by institutions and supervisory practices in respect of model validation. However, under the Basel framework, considering the significant national differences, this is a very difficult task. Accordingly, we believe that setting certain explicit, verifiable and uniform limits on the models, without this resulting in excessive standardisation, would be a realistic and desirable goal. Striking a good balance between risk sensitivity on the one hand and simplicity and comparability on the other is the aim of the negotiations and reconciliation of positions under 5/7 way on the Basel Committee so as to shape the final design, thus bringing the reform of Basel III to a close. Issues outstanding for conclusion of the reform of the capital framework In January this year, the Basel Committee’s Group of Governors and Heads of Supervision formulated the two objectives of the reform: to address the issue of unjustified variation in risk-weighted assets, avoiding any significant across-the-board increase in capital requirements. The Committee has already published for public consultation a first proposal on ending the use of internal models to calculate operational risk, which henceforth would have to be measured using only the standardised approach. | These objectives of macro-economic policy – monetary and overall fiscal policy – will certainly be familiar to you in this country; they are at the heart of the policies being pursued right across Europe; BIS Review 36/2001 1 and they are the policies endorsed, too, by all the members of the IMF in the Madrid Declaration adopted at the IMF Annual Meeting in 1994 and expanded and updated two years later. Of course on occasion the flesh proves to be weaker than the spirit – and achieving these macro-economic objectives is not easy in practice even as a technical matter. But the intention – the international commitment to macro-economic stability – is clear. Acceptance of the aim of macro-economic stability served to bring into sharper focus the structural, supply side, of the economy – that is the whole raft of influences that can affect the underlying growth rate of capacity and thus the growth rate of aggregate demand that can be sustained. And here, too, there has been a strengthening international presumption in favour of open markets and free competition – both domestically and internationally – with a continuing strong presumption against predatory trade or exchange rate manipulation. The justification is that undistorted competition contributes to potential global economic growth through increased efficiency and the more effective allocation of productive resources. Faster growth in turn provides a more favourable context for addressing social concerns, including the issue of poverty. | 0 |
In this period, the financial sector has become very vulnerable and edged away from its main duty of financing production. Today, we are happy to see that enhanced competition and economic stability following the decline in inflation and ease of the impact of inflation-oriented uncertainties on financial markets, financial intermediation mechanism has started to operate more efficiently. Moreover, serious steps are being taken towards establishment of banking sector-real sector relationship. The ratio of total credits to total deposits, which has been on the rise since 2003, is a clear indicator of this process. However, let me draw your attention to one point. It is clear that, in order to maintain financial stability in the current environment of relative economic stability, the relationship between banking sector and the real sector needs to be developed not only towards credit utilization, but also with respect to risk evaluation. The progress of risk management in the banking sector will ensure that the companies have sounder financial structures, that they develop more transparent financial tables and adopt modern management style. To express it more openly, the progress of modern risk management in both the financial as well as the corporate sectors will prevent developments that may arise out of the imbalance between assets and liabilities, stemming from different perceptions in the process of transition to price stability, and jeopardize financial stability. | The breakthrough in financial theories has contributed to this development and made it possible to create instruments for buying and selling risks. When writing history, we must not forget IT developments. Without these it would not have been possible to rapidly calculate and update the values of instruments, model parameters and risks in individual cases or in portfolios. The emergence and development of markets for risk management instruments and even institutions’ internal risk management would have been delayed. The combination of new financial instruments and markets has led to better conditions for risk distribution, where those who are best-equipped and most willing to take on risks can do so, while those who want lower risk can reduce their exposure. Sometimes, risk distribution is seen as a zero-sum game, but this is incorrect. A financial agent may take on further risk if this covaries with other risks in such a way as to reduce the total risk in the agent’s portfolio. This example can be stretched to cover society as a whole, where there were probably people and companies who had not achieved the risk portfolio that best reflected their willingness and ability to take on risk, but will now be better able to do so with the new instruments and markets. My overall assessment is that there is no doubt that this development has contributed to the financial system’s capacity to carry out its fundamental tasks, while its resistance to destabilising shocks has been reinforced. | 0 |
In these funds, the cost is the risk of suspension or the risk of dilution as other investors exit first. The opacity of those costs tilts the investment playing field towards funds that offer daily redemption. And that tilting of the playing field could have been a barrier to the opportunity to invest in the most illiquid assets – assets that require great patience, such as infrastructure, private equity or venture capital. The fund industry itself notes that funds offering daily dealing are “not realistic for funds investing in highly illiquid assets”. 20 See report by the Task Force on Climate-related Financial Disclosures (June 2019): ‘2019 Status Report’. See report to Government by the Green Finance Taskforce (March 2018): ‘Accelerating Green Finance‘. See page 49 of the Investment Association UK Funds regime working group report (June 2019) ‘Final report to HM Treasury Asset Management Taskforce’. 18 19 20 11 All speeches are available online at www.bankofengland.co.uk/news/speeches 11 So the unlevel playing field could have been a barrier to greater investment in patient forms of capital – a central tenet of the government’s framework for raising productivity.21 For a fair and transparent fight, the risk of suspension or dilution would be properly factored into the pricing and redemption terms of open-ended funds. If that were the case, those funds that invest for the long term and require more patience from investors could look relatively more attractive. | But falls in oil and commodity prices can have a more lasting impact on inflation – and hence become relevant for monetary policy – if they feed into core inflation. That can happen under two circumstances. The first is if price falls are symptomatic of weakening global demand, rather than a boost to global supply. Then, lower oil prices might be accompanied by declining net exports, which could in turn cause firms to cut back on investment and drag down core inflation. This blunts the growth-bolstering effect of lower commodity prices. Imported inflation might also be depressed as foreign producers cut prices in reaction to weakening global growth. The second circumstance is if there is a succession of supply shocks that keep inflation low for a long period and cause firms and households to revise down their inflation expectations. In that situation, low oil and commodity prices can have “second round effects” as lower expectations feed into wage bargaining and price setting, thereby affecting core inflation. Then, the effect of supply shocks becomes more similar to demand shocks. In both cases, central banks end up facing a situation not of a benign supply shock, but rather of an adverse demand shock that, if left unaddressed, could derail price stability over the medium-term. That would call for a more forceful monetary policy response. Importantly, there were signs in the past that such circumstances were present in the euro area. | 0 |
Last but not least, let me say something about capability and capacity building in combating ML/TF. Private sector bodies such as ACAMS are important in the training of AML/CFT specialists, and will certainly complement the internal programmes of financial institutions. The need to deepen capabilities and enhance capacity applies equally to us as a regulator and to law enforcement agencies. 31. One newer development is the greater use of technology tools and solutions including in the area of data analytics. I know many of you, in your respective firms, are already tapping on technology tools to improve your ability to detect fraud or unusual activities. Some of you are aware of the ongoing discussions in Singapore to develop utilities that can streamline “KYC” processes and uplift the overall quality and consistency of such checks and customer onboarding. We can expect the increased use of technology especially in the areas of AML/CFT screening and risk monitoring. 32. As a financial regulator, the MAS is able to look for linkages and patterns across financial institutions. These may include emerging risks or irregular relationships, or networks and linkages between entities or actors. MAS is therefore also investing in the use of technology and analytics. Recently, we announced the formation of a dedicated Data Analytics Group which will complement and support the analytics units in our supervisory teams. This internal analytics “hub-and-spoke” model will deepen our “SupTech” capability, in turn allowing MAS supervisors to better tap the “RegTech” capability that many FIs have embarked on. | The bank then forwards this money to a subsidiary bank in another country. The subsidiary in turn lends the money to an end customer. If we now assume that the borrower is unable to repay the loan, for example because he has borrowed in a currency other than the one he has his income in, then the subsidiary bank may find it difficult to repay its loan from the parent bank. The parent bank may then in turn find it difficult to repay its loan. This means that the liquidity risk in foreign currency ends up in Sweden although the lending that created the risk took place outside Sweden’s borders. The best solution for limiting the liquidity risk is that the central bank or the supervisory authority in the country where the risk develops takes action. However, if the authority in this country does not deal with the situation we must ask ourselves whether the situation poses a serious risk to the Swedish banks and, if so, whether we should act, for example by introducing a reserve requirement in foreign currency for the Swedish bank. Action on the part of the Riksbank is a second best solution, but this alternative is probably still better than doing nothing at all. We will therefore investigate the measures we can take to better limit the risks that are built up outside Sweden in the future. In this connection, the possibility to set reserve requirements is one of the alternatives we are investigating. | 0 |
Excessive risk taking or overly aggressive expansion usually lead to rather unhappy endings, as the financial history is littered with so many such failure cases. As for the regulators, they should stay true to the risk-based approach with the right sense of proportionality and should adopt an open mind on how the risk can be addressed. The regulators should stand ready to discuss with the industry to see if (c) there can be alternative ways of dealing with the risks identified. The industry is always closer to the markets and the clients they serve and should therefore have a better sense of how to get things done in a way that would cause less disruption or inconvenience. The regulators must not fall into the trap of complacency, and should constantly stay on alert and maintain a sense of unease even in good or peaceful times. Banking and (d) financial crises can never be avoided all together, but we can at least build sufficient buffers to lower their chance of occurrence or when they happen, the damage can be reduced or contained. The industry should stand ready to challenge the regulators if the severity of the risk is overstated or there are better alternatives than what has been put on the table. On the (e) other hand, the industry must avoid over-interpreting or gold plating the regulators’ requirements in such a way that is safe from the compliance point of view but would create bad customer experience without enhancing the underlying risk management outcomes. 16. | The northbound Stock Connect has presented a huge opportunity for Hong Kong to develop risk management capability for understanding of the risks and the pricing of such risks for offshore investors interested in the A share markets. Apart from helping to channel foreign investments into the Mainland market, the Stock Connect has also contributed to the inclusion of bigger weights of A shares in the global stock market indices such as the MSCI. Asian Equity Derivatives Hub 8. Another recent trend that is relevant is that several international financial firms have decided or are planning to relocate their Asian equities derivatives booking hubs from Europe to Asia. This is very logical as the underlying securities and clients are based in Asia. The HKMA welcomes these moves and stands ready to facilitate such moves, on the condition that the booking business must be accompanied by the necessary risk management functions. Again, this will enhance Hong Kong’s position as the risk management hub for Asian equities and derivatives, particularly Mainland related stocks. Bond Connect 9. By the same token, the launch of the northbound Bond Connect in 2017 has opened another window of opportunity for Hong Kong to enhance its risk management functions for offshore investors wishing to invest in the Mainland bond market. It is still early days yet, but I am confident that Bond Connect offers attraction to those investors who prefer using a nominee holding structure through the Central Moneymarkets Unit of the HKMA. | 1 |
In this context, early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments. We will also evaluate the broader impact of recent oil price developments on medium-term inflation trends in the euro area. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate. This would imply altering early next year the size, pace and composition of our measures. In response to the request of the Governing Council, ECB staff and the relevant Eurosystem committees have stepped up the technical preparations for further measures, which could, if needed, be implemented in a timely manner. All of our monetary policy measures are geared towards underpinning the firm anchoring of medium to long-term inflation expectations, in line with our aim of achieving inflation rates below, but close to, 2%, and contribute to a return of inflation rates towards that level. Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the third quarter of this year. This was in line with earlier indications of a weakening in the euro area’s growth momentum, leading to a downward revision of the outlook for euro area real GDP growth in the most recent forecasts. | The latest data and survey evidence up to November confirm this picture of a weaker growth profile in the period ahead. At the same time, the outlook for a modest economic recovery remains in place. On the one hand, domestic demand should be supported by our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and significantly lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. On the other hand, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments in the public and private sectors. BIS central bankers’ speeches 1 These elements are reflected in the December 2014 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 0.8% in 2014, 1.0% in 2015 and 1.5% in 2016. Compared with the September 2014 ECB staff macroeconomic projections, the projections for real GDP growth have been revised substantially downwards. Downward revisions were made to the projections for both domestic demand and net exports. The risks surrounding the economic outlook for the euro area are on the downside. In particular, the weak euro area growth momentum, alongside high geopolitical risks, has the potential to dampen confidence and especially private investment. In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook. | 1 |
Again, as noted, we have a variety of tools to remove excess reserves at a time when that becomes appropriate. As a result, I agree with many forecasters who expect disinflation in the near term. The substantial excess capacity in labor markets that I mentioned earlier has caused compensation to decline quite markedly (see Figure 11). Because employee compensation is the main cost component for most companies, lower labor costs enable businesses to improve profit margins without substantial price increases – particularly as the demand for goods and services improves. This brings us back to Yogi Berra, who famously said, “When you come to a fork in the road, take it.” At times, a fork in the road is exactly what confronts monetary policymakers. We would face a fork, for example, if inflationary pressures were building despite a high unemployment rate. In this case, the choice between restraining inflation and supporting employment is a difficult one, and the policy decision becomes more complicated. However, with employment well below the level of full employment, and disinflation continuing to move us away from my own inflation target of 2 per cent, one does not currently need to make such trade-offs. Another possible complication could occur if very low interest rates were causing excessive, leveraged bets that were inflating the price of assets that have macroeconomic importance. While we need to be vigilant against the buildup of asset bubbles, there is little evidence of such a problem now. | Eric S Rosengren: Considering the routes to a policy destination Speech by Mr Eric S Rosengren, President and Chief Executive Officer of the Federal Reserve Bank of Boston, at the Money Marketeers of New York University, New York, 5 May 2010. Accompanying figures to this speech can be found on the Federal Reserve Bank of Boston’s website. * * * I am happy to be with you this evening. I appreciate your warm welcome, and your invitation to join the long and distinguished line of individuals who have addressed the Money Marketeers over the decades. 1 I have always taken some delight in Yogi Berra quotes. As a Red Sox fan, I could always hope that garbled metaphors by the legendary Yogi would be as confusing to the players as they were to the public, which might translate into opportunities when the Red Sox came to New York. Alas, in the early going this season it is not the Yankees that seem confused. Yogi Berra was not only a great catcher and manager, but also an astute observer of the obvious. | 1 |
In addition, it will be crucial to continuously monitor the progress made in order to keep up the momentum for reform and, possibly, to identify elements that may require further follow-up action. The FSF will play an instrumental role in monitoring the efficacy of the implementation of its recommendations. I would like to point out that some of the financial system weaknesses exhibited during the recent financial market correction present more structural, longer-term challenges and will require our continued attention in the coming years. Let me draw your attention to four important issues in this regard. First, it will be crucial to ensure adequate transparency regarding financial markets, institutions and financial instruments. The availability of adequate information is the basic prerequisite for sound investment decisions, effective risk management and market discipline. In this way, transparency not only contributes to a more efficient allocation of capital, but is also the best insurance against irrational herd behaviour and the propagation of financial turbulence. Various episodes of financial stress, including the most recent one, have clearly demonstrated that the lack of reliable financial information is a key element in the excessive building up and unwinding of financial imbalances. The continuous enhancement of financial disclosure requirements, accounting rules and valuation practices in line with market developments will therefore be indispensable. Second, pro-cyclical features of the regulatory framework need to be identified and addressed. | To ensure progress towards best practices in this field as well as to respond to the increasing need for the effective cross-border mobilisation of liquidity, closer coherence of supervisory requirements and approaches with respect to liquidity risk is also warranted. The recently published consultation paper by the Basel Committee on “Principles for Sound Liquidity Risk Management and Supervision” constitutes an important starting point in that direction. Finally, the institutional arrangements for cross-border cooperation among authorities should be further enhanced, both during situations of financial distress and in normal times. As regards crisis management arrangements, one priority in my view will be to clarify responsibilities and procedures to support timely and well-targeted public sector action. The recently agreed EU-wide Memorandum of Understanding between supervisory authorities, central banks and finance ministries on cooperation in cross-border financial crisis situations could also serve as a basis for improvements at the international level. With regard to ongoing supervision, I fully support the FSF’s proposal to set up colleges of supervisory authorities for the largest globally active institutions by the end of this year. In the 6 BIS Review 86/2008 EU, such informal institutional infrastructures of supervisors to support greater informationsharing and coordination in the supervision of cross-border groups are already in place. Our experience in Europe points to a number of elements that are crucial for ensuring the effective functioning of supervisory colleges, which may also be relevant for further developing the international arrangements in this field. | 1 |
Már Guðmundsson: Managing capital flows in a financially integrated area – lessons from the Icelandic financial crisis Remarks by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at a conference organised by the International Monetary Fund, Bank of Estonia and Sveriges Riksbank on Nordic-Baltic financial linkages and challenges, Tallinn, 13 December 2013. * * * Accompanying charts can be found at the end of the speech. I would like to thank Eesti Bank, Sveriges Riksbank, and the IMF for inviting me to speak at this most interesting event. In my remarks, I will focus on those aspects of the Icelandic financial crisis that are most closely associated with the topic of this session, which is financial integration. I will draw out some salient features of that story and then link them to several lessons that might be of more general relevance. In the autumn of 2008, two separate but interrelated sub-stories of the recent Icelandic financial and economic saga converged in a tragic grand finale. These are: 1. Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. This is a story that has played out many times around the globe, and many of its elements have been seen before in Iceland. 2. The rise and fall of three cross-border banks operating on the basis of EU legislation (the European “passport”). | This story was much more unique, as it involved the first banking crisis in Europe since the EU single market was formed in the early 1990s. Let me briefly discuss each of these in turn, in order to set the stage for the policy discussions. First, the macroeconomic boom-bust story. All the usual suspects were present: very strong capital inflows fuelling a credit and asset price boom that subsequently turned into a bubble at the same time as the economy overheated and an unsustainable external position developed, as could be seen in a double-digit current account deficit. And macroeconomic and prudential policies were not up to the task. At the deepest level, this part of the story was related to three factors: 1. The complications that tend to arise with macroeconomic management as very small, open economies become more and more financially integrated; 2. The specific conditions of ample and cheap credit at the global level; 3. And major policy mistakes in Iceland, both of the type that would be deemed to be such in any book (such as giving an already overheated economy a demand stimulus), and those more closely related to the orthodoxy prevailing at the time: freely floating exchange rates, interest rate policy focusing mainly on low inflation in terms of goods and services, and good micro-supervision; and let the markets do the rest. The first factor is perhaps of interest here. | 1 |
François Villeroy de Galhau: New Year wishes to the Paris financial centre New Year wishes to the Paris financial centre by Mr François Villeroy de Galhau, Governor of the Bank of France, Paris, 16 January 2019. * * * I would like to wish you all a very warm welcome to this magnificent Golden Gallery, which has just celebrated its three hundredth anniversary. The Banque de France and the ACPR have also established long-standing ties with the other public authorities and the players involved in the financing of the economy, and this cooperation plays a crucial role in ensuring financial stability and consumer protection. In view of this long-established relationship, I am all the more happy to extend to you our warmest personal wishes, for yourselves, your loved ones, and for all your staff. First, a word on the economic situation. Although it is less glorious than what was expected a year ago, it is still relatively satisfactory: according to our surveys and despite the slowdown resulting from the yellow vests movement, economic activity in France increased by 1.5% in 2018. We expect the same figure for 2019. However, we face three challenges: uncertainty, impatience and isolationism – which can feed on each other at the dawn of this new year: uncertainties, from Brexit to Chinese growth; the impatience that weighs everywhere on the sustainable reform efforts, and the isolationism embodied by the US protectionist postures. | This year will also be the year of the European elections on May 26, which are essential for Europe, and of the French Presidency of the G7, which may be an opportunity for furthering effective solutions at the international level. Tonight, however, I would like to focus on three wishes for the smooth financing of the economy: for the euro, for financial stability, and finally for inclusive finance. 1 - My first wish is for the euro, which has just celebrated its 20th anniversary The euro is an undeniable success. Average annual inflation has been brought down from 4.9% over the two decades preceding the euro to 1.7% over the past two decades. This has contributed to preserving the purchasing power of European citizens. Financing costs are significantly lower. Our currency is now supported by 75% of euro area citizens, and 72% of French citizens: it is the highest level ever achieved since 2003. In 2019, euro area growth – although down – is expected to remain above its potential. In this environment, the normalisation of our monetary policy, which started with the successful termination of our net asset purchases in December, remains desirable. It must be gradual – according to the sequencing that we specified – and pragmatic - in the implementation timeframe where we must keep our options open in the face of uncertainty. At the same time, we need to finally strengthen our Economic Union, particularly if we are to face a downturn. | 1 |
The investment-saving gap moved to surpluses averaging 10 percent of GDP in the first three years after the crisis, from the pre-crisis deficits average of 7 percent of GDP before 1997. Such magnitude of change is indicative of the depth of the adjustment Thailand had to go through. Although the initial imbalance in the lead up to the crisis was not small, the adjustment was amplified partly by the wave of contagion effect in the early years of the crisis which brought pressure on the capital account, the exchange rate, and growth. Now, while we can look back to the last two years of growth of around 4 percent, signs of fragility still abound, with important issues remaining to be resolved. This includes the continued reform of the banking sector and the resolution of the costs of financial sector restructuring. The main fragility in the recovery process at this time is the weakness in domestic demand. The problem is compounded by the slow growth in bank credit and the weak corporate balance sheets, particularly the non-export sector. Unfortunately, the current external environment does not bode well for the recovery, going forward. The global slowdown is posing strains on Thailand’s export, and is adding pressure to the current account and external stability. Official GDP forecast this year is around 2.0-2.5 percent. Given the change in external environment, this year will be more a time for consolidation than for expansion. | Finding solutions to this problem is not going to be easy. But this is where efforts to revive the domestic economy will need to focus on. New lending is perceived as risky given the current negative factors on the macro fronts and external factors, while NPL overhang preoccupied bankers’ attention and kept them from renewing their client relationship. To address this problem, the authorities have chosen to approach the problem in three ways: BIS Review 70/2001 3 · First, to further accelerate corporate debt restructuring by improving the legal frameworks and by setting up a national asset management corporation to deal with the remaining unresolved problem loans. Progress on this front is most visible. The law establishing the Thai Asset Management Corporation, or TAMC, was passed and operations set to begin soon with all asset transfer to be completed by September. A key benefit of TAMC is the advantage of being a single creditor of the transferred asset. This would allow TAMC to deal effectively and speedily with the unresolved debts that involve multiple creditors. Also, the vast executive powers given to TAMC by law would make it easier for TAMC to take a comprehensive approach to debt restructuring, and have the ability to deal with cases that might warrant corporate restructuring and change of management. · Second, to introduce a scheme of credit guarantees which would provide a facility of risksharing between corporate borrowers, the Government, and banks based on market mechanism. | 1 |
This constraint paves the way for scenarios characterised potentially by self-fulfilling expectations and that lead to unfavourable outcomes in which funding suddenly dries up and the country affected may find itself bound to default on its debts, irrespective of the soundness of its economic fundamentals. Euro area governments have spent almost two years trying to construct some mutual insurance mechanism that will perform a market-stabilising role, so far unsuccessfully. While waiting for them to achieve this, a disproportionate part of the task of defending the stability of the euro area has fallen on the European Central Bank. Since the sovereign debt crisis broke, we have on the ECB Governing Council adopted numerous non-conventional measures to restore the workings of specific financial market segments – namely the money and public debt markets – that have proven crucial to bringing the operation of the monetary policy transmission mechanism back onto a more normal footing. BIS central bankers’ speeches 3 Early in the crisis the ECB adopted a generous liquidity-providing policy vis-à-vis financial institutions, implementing it over these years using far-reaching measures. | However, what is quite certain is that the size of structural change required will be large, comparable to what Thailand experienced during the economic liberalization of the 1980s and 90s. This change, almost by definition, will not be easy. If Thailand overcomes this hurdle, it will benefit from exporting more goods, possibly more hi-tech, to the region while becoming part of the regional supply chain and enjoying a greater range of imports. But while the domestic outlook appears positive, the global environment remains uncertain. The lingering euro debt crisis and fragile US recovery continue to weigh on global growth. Why? Current technical solutions do not address deep-rooted long-term problems. As a result, resolution has been delayed, adding to uncertainty. Moreover, the longer the delay, the more interest rates and fiscal stimulus in both the US and euro area will be pushed to new limits. The tightened policy space means that new shocks will be hard to manage and could derail the ongoing recovery. In my view, it appears that the global economy currently lacks the clear leadership especially in regards to getting the advanced economies out of the woods. Countries which had previously provided the leadership for global macroeconomic management through, for example, the International Monetary Fund, are now caught in the dilemma of solving their own economic problems versus choosing policy options for the greater good of the global economy. This is a separate issue deserving of its own discussion. | 0 |
Jean-Pierre Danthine: Market volatility, Swiss National Bank liquidity measures and foreign exchange reserves Introductory remarks by Mr Jean-Pierre Danthine, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Berne, 15 December 2011. * * * I would like to address three main issues today. These are the acute market volatility experienced this summer, the impact of the Swiss National Bank’s (SNB) liquidity measures and minimum exchange rate upon our money and foreign exchange (FX) markets, and the management of our FX reserves. Acute market volatility The second half of 2011 has, until now, been marked by an extraordinary degree of uncertainty. Volatility on the equity, bond and foreign exchange markets has increased markedly, reflecting investors’ concerns about the softening of global growth, the European sovereign debt crisis, the US debt ceiling crisis and the resilience of the international banking system. Signs of this acute volatility abound. Allow me to highlight three recent examples. Firstly, between July and early August, the VIX Index, a measure of the volatility of the S&P 500, abruptly doubled. Secondly, the MSCI World Index, a measure of the state of global equity markets, decreased by almost 20% between early July and late September, rebounding in October, only to fall again afterwards. As concerns about bank solvency and credit risk increased banks being at the heart of the crisis the benchmark MSCI World Banks Index also fell by over 25% between early July and late September. | Thirdly, as concerns over the security of corporate and government bonds grew, the premia investors have had to pay against bond defaults have increased very significantly. The perceived decrease in the creditworthiness of key European companies and Western European sovereign bonds was highlighted by the very sharp rise of several benchmark credit default swap (CDS) indices for these markets.1 The foreign exchange market has been of particular concern to the SNB, as the Swiss franc’s safe haven properties and the growing dearth of alternative “safe” assets led to massive movements in our currency, which required the SNB to act. In early August, the real effective exchange rate of the Swiss franc peaked at an estimated level of almost 40% above its post-1990 long-term average.2 The extent of this deviation was very rare, in historic terms, as the previous high point, at the end of 1995, was only 12% above the same long-term average. Since the introduction of the euro in 1999, the volatility of the EUR/CHF exchange rate has averaged approximately 5%.3 In August it rose to almost 30%. As chart 1 shows, three of the largest ever daily negative movements in the EUR/CHF exchange rate also occurred in this period. Since the introduction of the minimum exchange 1 The Markit iTraxx Europe Index, for example, which is composed of 125 investment grade entities from six sectors (auto, consumer, energy, financial, industrial and TMT), more than doubled between July and September. | 1 |
These two winds have stirred up the water through which the UK economy must pass. The westerly gale first hit us in August as developments in the US mortgage market led to turmoil in global financial markets. For some years, banks were able to borrow cheaply in world capital markets to expand their lending. They packaged the resulting loans and sold assets backed by those loans to capital market investors. They were able to do that because some investors had failed to adjust to lower rates of return caused by high savings in emerging economies and low inflation at home. Those investors engaged in a “search for yield” by buying risky assets without always understanding fully the risks attached to them. Families and businesses had access to more finance at lower cost. That was most obvious in the growth of the US sub-prime mortgage market, where the potential problem of lending to people who could not repay when the interest rate was reset on their floating rate mortgages was becoming only too clear. In the United Kingdom too, borrowing and spending growth were strong and inflationary pressures built up. BIS Review 8/2008 1 But in August all that changed dramatically. Rising default rates in the US mortgage market led investors around the world to question whether they were being adequately compensated for the risks they were bearing on a wide range of assets – not just those associated with sub-prime mortgages. | The prices of those assets fell, and markets closed for a range of complex credit instruments. As I said two years ago, “risk premia have become unusually compressed and the expansion of money and credit may have encouraged investors to take on more risk than hitherto without demanding a higher return. It is questionable whether such behaviour can persist”. And, as we have seen, it hasn’t. The re-pricing of risk that is still continuing is not a process that we should try to reverse. Adjustment to this has been painful for banks in the major financial centres in two ways. First, with some asset markets closed, banks found funding more difficult. Some needed to finance loans they had made but had then expected to package up and sell. Others needed to finance off-balance sheet investment vehicles that were no longer able to fund themselves. At the outset of the crisis, banks were concerned to protect their liquidity position. But increasingly, attention has turned to a second, more fundamental concern. As a range of asset prices fell, banks began to report large losses. Uncertainty about the scale and location of losses led to concerns about the adequacy of bank capital and hence the ability of the banking system to finance continued economic expansion. At the end of last year, sentiment in financial markets worsened markedly. So in mid-December, central banks around the world announced a co-ordinated set of actions in money markets. | 1 |
What about the longer-term risks facing the banks in Hong Kong? Or, to put the question in a larger context, what are the longer-term processes shaping the banking sector that carry risks as well as opportunities? We in the HKMA have identified a few of these in an internal exercise that is still ongoing but I would like to share with you today our preliminary views on five of them. They are: • structural shift in the banking sector • China risk • technology risk • diversification risk • changing international standards. In the remainder of this talk, I shall deal with each of these areas in turn, focusing more on how we think banks in Hong Kong should tackle these processes and risks, and less on our corresponding supervisory responses or strategies, which in any case are still being developed. My main message is that, while banks need to focus clearly on the short-term risks I have already outlined, we should not lose sight of the more fundamental forces that will shape the landscape of the banking sector in the years to come. If they do not take these forces into account, individual banks not only face growing risks, but they could be in danger of losing their competitiveness. Structural shift in the banking sector First, the structural shift in the banking sector. | Concluding, I would like to thank all the researchers, the speakers, the audience and our collaborators, who responded positively to our call for participation. With these words, I wish you all fruitful deliberations, I wish the conference all success and I wish all the guests an enjoyable stay in Tirana. Thank you! 2/2 BIS central bankers' speeches | 0 |
Yiu-kwan Choi: The debt market of Hong Kong - what can we offer to investors? Keynote address by Mr Yiu-kwan Choi, Deputy Chief Executive of the Hong Kong Monetary Authority, at the third Annual Asia Pacific Bond Congress, Hong Kong, 13 June 2006. * * * Mr. Shale, distinguished guest, ladies and gentlemen, It gives me great pleasure to speak at this year’s Asia Pacific Bond Congress. On behalf of the Hong Kong Monetary Authority, I would like to extend my warmest welcome to everyone here today, especially those of you who have traveled from afar to visit us. I would like also to thank Euromoney for organizing this excellent event, and for organizing it in Hong Kong for the third time. It is a clear recognition of the important role of Hong Kong - Asia's World City, in the bond markets of the Asia Pacific region. Like many other financial markets, the bond markets in the Asia Pacific region have recently seen plenty of new developments, challenges as well as opportunities. I am glad to see that the Congress has rightly covered many of these latest issues, and I am sure that for those who were here yesterday would have learnt from my colleague, Ms Julia Leung, about the Hong Kong Monetary Authority’s efforts in enhancing regional cooperation. | Today we focus very much on the price increases on some services after the introduction of euro coins and notes, but let us bear in mind that prices on durable goods that are more subject to cross border comparisons, have indeed increased less than the average or even decreased. There are already signs of a convergence of prices on such durables and there is also area-wide euro pricing from some firms, which reflects increased price competition across borders. To conclude, the Monetary union presents an attractive proposition for Sweden, given that we continue to improve the functioning of wage formation and labour markets and that we ensure a solid institutional foundation for fiscal policy to stabilise the economy. The same could in fact be said about the euro area countries: With structural reforms and more solid foundations for fiscal policy, the present EMU-countries would have much better possibilities for employment growth and productivity gains. Monetary Union is putting pressure on both industry and politicians to improve their performance in the years to come. 4 BIS Review 70/2002 | 0 |
Eddie Yue: Internationalisation of the renminbi – trends and developments Keynote address by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the 5th Hong Kong - London RMB Forum, Seminar on RMB Business, Hong Kong, 11 December 2015. * * * Katharine [Braddick], Peter [Alexander], distinguished guests, ladies and gentlemen, It gives me great pleasure to be hosting the 5th Hong Kong – London Renminbi (RMB) Forum. May I extend a very warm welcome to all of you attending this Seminar which forms part of the Forum, especially our guests travelling from London. This annual congregation is a reflection of the importance we place in the long-established RMB business co-operation between Hong Kong and London. And, the Seminar could not have come at a better time. Just 10 days ago, the International Monetary Fund announced its decision to include the RMB in its Special Drawing Rights basket. Naturally, the Hong Kong Monetary Authority welcomes the announcement as it represents a milestone in the development of the RMB. The IMF’s decision reaffirms the Chinese currency’s status as a freely usable currency, and enhances the representativeness of the SDR basket. Indeed, based on market projections, the RMB’s inclusion in the basket could bring up to $ trillion worth of investments in RMB assets by central banks, sovereign wealth funds, supranational organisations, large pension funds and institutional investors over the next five years. | And there will be more to come. We look forward to the launch of the Shenzhen-Hong Kong Stock Connect, and looking further ahead, the Mainland authorities have announced plans to consider implementing the Qualified Domestic Individual Investors scheme (QDII2) on a trial basis. It’s certainly true that individuals on the Mainland have shown a great deal of interest in diversifying their investment holdings. This is an area where we see Hong Kong having a strong competitive advantage, with our strategic location, our expertise in private banking and wealth management business, coupled with our strong client networks on the Mainland. To BIS central bankers’ speeches 1 capitalise on these emerging opportunities, we have been liaising closely with the Mainland authorities on QDII2.The second trend is that not only is Chinese capital “going out”, Chinese companies are also increasingly "going out". Outward direct investments (ODI) by China to the rest of the world amounted to RMB758.5 billion in 2014, a 63% rise over the past five years. And, it’s interesting to note that 16% of these flows are settled in RMB, up from a mere 3.7% in 2011. This “going out” trend has been continuing for some time, but has been given fresh impetus by the greater desire of Chinese enterprises to diversify into other non-RMB asset classes. New policy measures by the Mainland authorities, notably the ‘Belt and Road’ initiative, has also played a key role. | 1 |
At the same time, we have seen the risks in this development in no uncertain terms. The flows in the financial system have increased substantially while the system has become increasingly complex and difficult to survey. The mutual dependence of the various markets has increased. This means that crises can more quickly and more forcefully hit an increasing number of economies at the same time. The important thing now is to find the right tools for managing these new risks; to find instruments for a better-balanced development. We need a better insight into the build-up of global risks. This requires increased cooperation between public authorities around the world. It requires greater harmonisation of regulations and supervision. It requires a better readiness to manage cross-border crises. And to find the means to counteract the build-up of large imbalances we must begin to think along new lines. At present the functioning of the financial system is being maintained with the aid of the measures implemented by public authorities. One sign that the crisis is no longer as acute is that the TED spreads have fallen in Sweden, as well as the United States and the euro area. These spreads are now back to around the same levels that prevailed immediately prior to the worsening of the crisis in autumn 2008. But the financial markets are still functioning much less efficiently than normal. It is also still difficult for companies to finance themselves in the capital market. | The banks created special intermediaries off their balance sheets to hold and structure the securitised credits. This made it possible for the banks to increase leverage both on and off the balance sheet. However, explicit and implicit guarantees from the banks to these special companies meant in practice that the risks led directly back to the banks' balance sheets. The result of all these new instruments and artificial intermediaries was a motley and almost impenetrable structure. A wide range of asset types with idiosyncrasies in pricing arose. This also made them more difficult to value. Moreover, the complicated links between the banks and their special investment vehicles made it difficult to see exactly what the banks' exposures were. Eventually, no one knew where the risks were. The increasing amount of credit not only made investors highly indebted in relation to their equity, many banks also did not really have enough capital in relation to the risks they took. When economic activity began to decline in the USA and prices fell on the US housing market, many institutions suffered major losses. Above all, however, a great deal of uncertainty arose. It proved to be simply impossible to know with any certainty who was exposed to "toxic assets", that is assets that risked losing value as a result of major credit losses. The realisation that many institutions could be more in debt than appeared to be the case on their balance sheets fuelled this uncertainty. | 1 |
2/5 BIS central bankers' speeches However, the evolution of finance must also be managed appropriately to avoid displacement and exclusion. This would include underserved groups and segments that are currently deemed too ‘risky’ by traditional risk metrics. Advancements of any sort always come with trade-offs. For one, with the rapid progress of genetic sciences, it is only a matter of time before chronic diseases such as cancer and diabetes can be predicted even before birth, thereby potentially denying affected individuals of insurance coverage. Automation and artificial intelligence may also result in the displacement of certain segments of the workforce or some segments of society being denied medical protection. Finance, when used properly is an enabling tool. But if abused, it can be a destructive tool with devastating consequences. Finance without ethical considerations will magnify the negative aspects and lead to lasting consequences as the global financial crisis demonstrated. Technological progress would mean excesses can be magnified even further, spreading the risks to a wider segment of the society. Regulators, therefore, stand at the nexus between magnifying the benefits of access to finance and managing the excesses of finance. There are moral and ethical considerations that regulators and policymakers will have to confront as we go forward. Four possible future scenarios Let us conceptualise these themes into four scenarios, an approach that could provide a peek into what is in store, as we visualise the future. The first scenario is “Tech-Savvy Incumbents” a. | In the case of Asia, the sharp devaluation and swift recovery in exports led the Asian economies to become addicted to large volume of export at low prices. And, in the case of Thailand, with little incentive to invest in research and development to raise the products’ value and enhance human capital, the average growth of labor productivity3 had trended down from the 1990s to 2000s. Ladies and gentlemen, This brings me to my third part on the lessons from the Asian financial crisis. I would like to offer three reflections that may not necessarily pertain to Europe but may provide food for thought for policymakers. First, conventional policy prescriptions may not be appropriate for unusual circumstances and there is no one-size-fits-all solution. Asia was a case in point of ill-timed austerity measures. Public sector debt in Thailand then was less than 15% of GDP; yet the policy prescription for Thailand was to tighten fiscal policy and maintain tight monetary policy, resulting in (interbank) interest rate rising from 10% at the beginning of 1997 to over 20% at the end of 1997. With large private external debt beyond the ability of the country to service, a way out should have been debt restructuring with international creditors to give the country a breathing space and avoid the painful shock from the sharp reversal in capital. | 0 |
But the general sentiment is not one which would be entirely out of place today. It is not difficult to see why. The profile of central banks may never have been higher than today. The responsibilities of central banks may never have been greater than today. And the actions taken by central banks may never have been larger or as far-reaching as today. It is no coincidence that they have recently been described, variously and colourfully, as “masters of the universe” and “the only game in town”. 3 At the same time, central banks have faced mounting criticism, and some mistrust, of their actions, responsibilities and influence, at least in some quarters. Some have suggested tweaking, perhaps even 4 reversing, central banks’ degree of operational independence over monetary policy. Others have suggested constraining, perhaps even removing, central banks’ degree of discretion over monetary policy. 5 This story has all the hallmarks of a Charles Dickens novel. Depending on who you follow on Twitter, for central banks it is the best of times and the worst of times; it is an age of wisdom and an age of foolishness; it is an epoch of belief and an epoch of incredulity. A happy ending to this story is by no means assured. These views may be polarised, perhaps even caricatured. But they matter. Trust is the lifeblood of all things monetary and financial, including central banks. | Yves Mersch: Challenges for completing Europe’s economic and monetary union Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the MNI Connect event, Singapore, 13 October 2015. * * * Over the past few months, Europe has faced two exceptional challenges. First, there was the new adjustment programme for Greece. And second, there has been the large influx of refugees, a challenge that is very far from the competences of the European Central Bank (ECB). Though very different in nature, these two events offer a common lesson for future challenges that we will collectively face: that Europe is strong only when it acts on the basis of solidarity and cooperation. I would like to talk about two further topics of importance today: first, the ECB’s assessment of recent economic developments and their implications for our monetary policy stance; and second, the necessity for completing Europe’s economic and monetary union. Over the summer, industrial production and other indicators of economic activity in the euro area have shown signs of resilience. Yet at the same time, the macroeconomic environment has become more challenging. The ECB’s latest macroeconomic projections indicate a weaker economic recovery and a slower increase in inflation rates than was expected earlier in the year. Inflation will remain close to zero in the very near term, before rising again towards the end of the year. | 0 |
As a market facilitator, the HKMA is joining hands with various stakeholders to keep enhancing our platform. We are assisting the HKSAR Government in implementing a multi-year green bond issuance programme totalling $ billion. Meanwhile, we have set up a cross-agency steering group that brings together financial regulators and Government agencies in order to create a concrete roadmap to promote green finance in Hong Kong, through addressing crosssectoral regulatory issues and coordinating market development efforts. We will also explore with our Mainland counterparts collaboration opportunities in the green finance space to support 1/2 BIS central bankers' speeches China’s commitment to achieving carbon neutrality in 2060. 9. Talent and capacity is key to our green strategy. In a recent survey jointly conducted by the HKMA and the banking industry, climate-related risk management was identified as an area with skill gap among practitioners. This challenge is not unique to Hong Kong. The launch of the Alliance is therefore most timely to fill that gap by – - providing a learning and sharing platform for banks to acquire the knowledge and tools to transform into “greener” banks; - helping banks seize climate-related investment opportunities; and - providing thought leadership to advance the green agency globally. 10. Equally important, by helping banks build their capacity, the Alliance will complement the efforts of banking regulators across jurisdictions to enhance the banking sector’s management of climate-related risks and promote sustainable banking. Participating banks will benefit greatly from the IFC’s wealth of knowledge and expertise in the field of green finance. | Third, the euro area has a balanced current account. As such, the euro area does not contribute to global imbalances, one of the main challenges facing the global economy and the world community. It is worth stressing that the euro area is the relevant dimension to consider for a vast single currency and economic area with a common exchange rate and monetary policy. And there, the numbers are clear: the euro area current account balance averaged less than 0.1% of GDP over 2005–2007 before the global crisis broke out, according to IMF figures. Moreover, the euro area current account is still projected by the Fund to be broadly balanced this year and the next up to 2015. The picture is very different in other parts of the world. A concern is that after some partial reduction induced by the crisis, global imbalances are starting to widen again. This raises challenges for international monetary and financial cooperation. The euro area has a significant stake in effective global re-balancing, notably through sounder domestic policies worldwide which, in turn, would contribute to global external stability. The global economy has a lot of homework to do if it is to address these challenges. People of goodwill, inspired by the desire to keep the global economy “open, market-based, just and protective” will surely be needed to that end. Credit should therefore be given to initiatives such as the Global Economy Prize to encourage them to press ahead in that direction. 2 BIS central bankers’ speeches | 0 |
MONETARY POLICY REPORT PRESENTATION BEFORE THE FINANCE COMMISSION OF THE HONORABLE SENATE OF THE REPUBLIC Mario Marcel Governor Central Bank of Chile 9 December 2020 The December 2020 Monetary Policy Report can be visited at http://www.bcentral.cl. 0 I. Introduction Mr President of the Senate’s Finance Commission, Senator Jorge Pizarro, Senators members of this Commission; ladies and gentlemen, I am grateful for your invitation to present the vision of the Board of the Central Bank of Chile (CBC) on recent macroeconomic developments, their prospects, and implications for monetary policy. This vision is contained in detail in the December 2020 Monetary Policy Report, published this morning. It also provides the background for the Board’s decision at last Monday’s Monetary Policy Meeting. As has been seen since the start of this year, the local and international economic scenario continues to be shaped by the evolution of the Covid-19 pandemic, the measures that have been adopted to control it, and how these have affected the mobility of people and the functioning of the economy. In our country, economic activity has recovered part of the steep drop it suffered between March and May of this year. This has been accompanied by a drop in the number of cases—which has resulted in fewer mobility constraints than in midyear—, individuals and businesses adjusting to a new form of operation because of the pandemic, and the boost provided by monetary and fiscal policy, along with other support measures for households. | Meanwhile, if a vaccine is available sooner, herd immunity could be achieved more quickly in the country, lifting some supply-side restrictions and leading to a faster and more robust recovery in expectations and demand. To the extent that the recovery of supply is the dominant factor in these scenarios, the monetary policy trajectory may not be significantly altered from the central scenario. But if there is a scenario in which weak investment is more persistent, either because of uncertainty and/or because of the sequels of the pandemic, the reduced demand could ease the medium-term pressures on inflation. This would result the MPR being held at its technical minimum for longer, and the possibility of deepening the use of unconventional measures. The economy is going through a complex recovery process that faces the challenges of both the pandemic and the political climate following the social crisis that broke out just over a year ago. The central scenario assumes that the latter will follow the institutional path approved by Congress. However, if new political and social tensions materialize that call this path into question, the negative impact on the economy may go beyond what the CBC may be able to neutralize with its traditional and unconventional toolkit. Let us bear in mind that the government, businesses, households, and financial institutions have withstood the pressures of the last 15 months by making extensive use of the buffers accumulated in previous years, which has deteriorated their equity position. | 1 |
But the severity of the crisis increased dramatically following the failure of Lehman Brothers in the autumn of 2008. Confidence in the very essence of banking – as well as in individual financial institutions – was shaken to its core and the most severe banking crisis for almost a century was triggered. As we now know, this led to a deep and highly synchronised global recession. Output in virtually every corner of the world fell sharply. Global trade flows contracted by a staggering 15% in the two quarters following the failure of Lehmans. Over the same period, output at home is estimated to have fallen by 4 1/4% – the largest fall in UK GDP over a two-quarter period since quarterly records began. The speed and severity of the downturn cannot be explained solely by the tightening in credit conditions. The impact of the banking crisis was greatly amplified by the accompanying collapse in business and household confidence. Firms’ concerns about their ability to access the working capital needed to run their businesses was compounded by the bleak and uncertain prospects for demand. In response, production was slashed and business spending was severely curtailed. Stock levels were run down at an unprecedented pace, as companies met demand from existing inventories and economised on working capital. Faced with growing spare capacity there was little incentive for businesses to invest in new plant and machinery, and capital expenditure contracted by almost 20% in the first six months of 2009 alone. | Spencer Dale: 2009 – a review of the economic year Remarks by Mr Spencer Dale, Executive Director and Chief Economist of the Bank of England, at the Chairman’s Annual Breakfast, Essex Institute of Directors, Billericay, 2 December 2009. * * * I would like to thank Rohan Churm, Julia Giese and Chris Young for their considerable help in preparing these remarks. The views expressed are my own and do not necessarily reflect those of other members of the Monetary Policy Committee. Introduction Thank you for the invitation to speak to you this morning. On the occasion of the Chairman’s Annual breakfast, I thought it would be fitting to look back over the events of the past year. A year which started with our country – together with much of the rest of the world – in economic freefall. A year in which many firms and families suffered significant hardship, as output fell markedly and unemployment rose. But a year which is ending with signs that the economy is stabilising and has turned a corner on the road to recovery. Financial crisis and collapse in confidence The financial crisis obviously predates the beginning of this year. The first signs of the instability can be traced back to at least the summer of 2007, when the emerging sub-prime mortgage crisis in the United States and the resulting pressure on banks’ balance sheets around the world led to a sharp tightening in the availability of credit. | 1 |
2 Mr Ashley Alder, Chief Executive Officer, Securities and Futures Commission. 3 See Edelman Trust Barometer 2012, Hong Kong (HK trust in banks 74% and financial services 62% compared to a global average of 47% and 45%, respectively. See slides 13 and 15). (http://www.slideshare.net/DavidRBrain/2012-edelman-trust-barometer-hong-kong-deck1232012checkedfinal#btnNext) BIS central bankers’ speeches 1 prioritise above all the customer, not profit maximisation. Or, combining both pillars, we could summarise all that into a single, rather old-fashioned word: integrity. In theory, that’s a standard to which we are all happy to sign on to. And yet, the temptation to put product before service, profit before client, is very real. I am sure we have all seen sufficient examples in different places. I believe there are a number of actions financial institutions can and should take to guard against such dangerous practices. I will mention just three very briefly. First, greater transparency and disclosure of the benefits and risks of investment products. Second, more responsibility placed on financial institutions with respect to assessing the suitability of a product for a customer given his/her risk appetite. Third, simpler procedures and freer access for consumer to complaint and redress mechanisms. These are all things that many financial institutions have embedded into their corporate culture and I encourage all others to do the same. “The role of financial regulators (the HKMA)” This brings me to the second group, financial regulators. Given my role, I will focus specifically on the example of the HKMA. | In response to the changing landscape following the collapse of Lehman Brothers, the HKMA expanded its efforts to protect and educate consumers, and this change resulted in the creation in April 2010 of our Banking Conduct Department. I will focus first on our work to strengthen consumer protection before going on to saying something about our work on consumer education. HKMA & consumer protection In terms of consumer protection, first, the HKMA has introduced new requirements on banks and issued guidelines on the selling of investment products. These include (a) requiring audio-recording the customer risk profile assessment and sales process to provide audit trails for reviews by banks and the regulators; (b) implementing a pre-investment cooling-off period in the sale of unlisted structured products to less sophisticated customers (such as the elderly or first-time buyer); and (c) requiring banks to carry out continuous reviews of product risk and inform investors of any upward changes to the risk ratings of the products they have purchased. These requirements were in addition to existing measures introduced by the Hong Kong Securities and Futures Commission (SFC) on the supervision of securities companies’ selling activities. Second, the HKMA is active in monitoring banks’ compliance with these and other regulatory requirements through thematic on-site examinations. Banks are expected to have control processes and procedures in place to ensure adherence to the conduct regulations. In addition, to monitor compliance levels among banking staff, the HKMA conducts mystery shopping trips. Third, the HKMA has strengthened consumer protection by working with partners. | 1 |
Douglass North’s definition is a good starting point: “humanly devised constraints that structure political, economic and social interactions”. 24 So defined, institutions are social infrastructure. They include formal or legal institutions, like Parliaments, judiciaries, central banks, social safety nets and schools. But they also include less formal associations and groups, such as universities, trade unions, guilds and charities. As for their genesis, history suggests institutions emerge for a variety of reasons. Sometimes they have been a direct response to political upheaval. Some of the largest transformations in political institutions have th resulted from revolutions: in the UK, after the Glorious Revolution of the 17 century, in France after the th th French Revolution of the 18 century, in the United States after the Civil War of the 19 century. At other times, institutions have emerged in response to the pressing financial or social needs of citizens. Often, those times of most pressing financial and social need have coincided with sharp changes in the economic environment which have left large swathes of society worse-off. And often, technological disruption and displacement have been the root cause of these sharp changes in the economic environment. The three Industrial Revolutions provide a useful set of case studies. Each caused technological disruption and significant job displacement. Each had, as a result, a wrenching and lasting impact on the job and income prospects of large swathes of society. Each caused a significant and sustained period of hardship for many. | Balance of payments and tourism Our balance of payments performance in the past three years has been very favourable: from running a heavy deficit, with a negative current account balance up to 10% of GDP in 2007, we are now in a different position, with few, but brief precedents in Spanish economic history, marked by a current account surplus against a background of significant GDP growth and job creation. In the first nine months of this year (the figures for September were published today), the Spanish economy’s net lending (i.e. the cumulative surplus on the current account balance and the capital account balance) stood at € billion, compared with a surplus of € billion in the same period of 2014; that is to say, it has more than doubled thanks to the reduction in net foreign interest payments. The widening of the surplus on capital account and the increase in the positive balance on goods and services, as a result of the improvement in the energy balance and, to a lesser extent, in the surplus on non-tourist services, were also a contributing factor. 2 BIS central bankers’ speeches The tourism balance has contributed positively to the improvement in the current account balance. In the January-September period, the tourism surplus was € billion, a very similar figure to that recorded in the same period in 2014. | 0 |
Wage costs have great significance As total wage costs comprise almost 70 per cent of the total value added in the economy, developments in wage costs have decisive significance for the development of costs and prices. Making an assessment of future developments in wage costs is therefore a natural and central element in the Riksbank's analysis of inflation prospects. If there is an overly rapid increase in wage costs, companies may be forced to raise their prices significantly and this would result in inflation exceeding the target level. This would require tightening monetary policy, i.e. raising the repo rate. Although this would bring inflation back to the target level, it would be at the cost of an increase in unemployment. In the long term, however, developments in unemployment are essentially dependent on how well the labour market and wage formation function. Monetary policy has affected the wage formation process; the uncertainty over future price developments has declined thanks to inflation targeting. Wage-earners no longer need worry that their pay rises will be eaten up by overly rapid price increases. At the same time, employers find it easier to determine the size of the scope for wage increases. It also appears as though what is usually termed "monetary illusion" may have disappeared. The labour market organisations appear today to focus to a greater extent on real wage cost increases. The strong confidence in the inflation target has meant that these organisations' inflation expectations have been at a level of around 2 per cent since 1996. | Sustaining recent progress is a key priority for the Bank of England as I know it is for the SPE. People often ask me what my professional responsibilities in the Bank are. The most formal description is contained in the Bank’s Senior Managers and Certification Regime return. The SM&CR is a critical element of the post-crisis regime for accountability in the whole financial sector, ensuring there is a clear public line of sight running from the senior leadership through to every key function carried out by a financial institution. 2 The SM&CR is an essential part of the soft infrastructure underpinning improved conduct and therefore fairer and more effective financial markets in the UK and globally. 3 The SM&CR entry for me is long, and so I will just flag a few of my key responsibilities. What these boil down to is that among the Governors I have operational responsibility for the Bank of England’s balance sheet. It is the Bank’s balance sheet that is going to be the focus of my talk today. The balance sheet is integral to the operations undertaken in the areas I oversee, Markets and Banking, Payments and Financial Resilience. And it is central to the Bank’s mission for monetary and financial stability: the balance sheet is the hard infrastructure that supports much of the Bank’s policy activity. For most of the time it may not be as newsworthy as some of the tools it supports, like Bank Rate, QE or “lender of last resort”. | 0 |
India’s economy is the 14th largest in the world measured in nominal US dollar terms, but in terms of purchasing power parity, India is the 4th largest economy in the world according to the iMF. India’s GDP in purchasing power terms has also risen substantially, with its share rising from 4.3% to 6.1% of world GDP over the past 15 years. India’s unique characteristics that enhance this growth potential include its dynamic population and demographic structure, as well as its emergence as a global leader in service exports. This dynamism, growth, and positive sentiment has been clearly evident in India’s stock market, which has rallied 40% in 2005, second only to Korea as best performing major market in Asia last year. Sometimes overlooked however, is an informal group of Asian economies (excluding Japan) that account for the majority of trade and GDP in East Asia, known as Asia-9. The Asia-9 economies comprise China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Thailand, and Taiwan. The share of Asia-9’s GDP in purchasing power parity terms has grown from 11.4% in 1990 to 20.6% in 2005. To put this in perspective, this exceeds the EU’s PPP share of world GDP of 18.8%, Japan’s share of 6.7%, and is very close to the United States 20.7% share of world GDP in 2005. But I am not here today to overwhelm you with facts and figures! Today I would like to discuss one of the most important drivers of this phenomenal growth – and that is, international trade. | M R Pridiyathorn Devakula: India and Asia - trade linkages and alliances Remarks by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Wharton Global Alumni Forum, Mumbai, 6 January 2006. * * * Dean Harker, Mr. Ambani, Ladies and Gentlemen, I am honored to be here today among friends and associates of the Wharton Global Alumni. Given that it is the first time that the School is organizing the Forum in India, it seems only fitting that we should be talking about the rise to prominence of India as an engine of growth, both in the region and globally. More importantly, I would like to highlight the potential for India’s trade and investment linkages with East Asia, and how the two regions of South and East Asia can leverage on one another and become a global force to be reckoned with. China and India, Asia’s two largest economies, are often hailed as potential growth areas and the new engines of growth for the world. China’s rising economic prominence has been particularly evident in the past decade and a half, with its gross domestic product (GDP) in purchasing power parity (PPP) terms, measured as a share of total world GDP, rising from 5.7% in 1990 to 13.6% in 2005. India, although coming later into the scene, has quickly caught the attention of the world as a potential global economic powerhouse. | 1 |
SPEECH DATE: 08/12/2021 SPEAKER: Deputy Governor Per Jansson VENUE: Sveriges Riksbank SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se Is it time to review the division of roles in macroeconomic policy? * Sometimes, developments can make you start pondering somewhat larger and more fundamental issues than you might usually do. This is how it has been for me recently. The question I would like to address today is whether it might be time for us to modify our view of the appropriate division of roles in macroeconomic policy, by which I mean our overall fiscal and monetary policy. I am not entirely sure of the answer myself, although I am inclined to believe that it is something we should probably do. In this talk, I will try to explain my preliminary and probably rather unfinished thoughts. What I am quite sure of, however, is that we have reached a point where it is time for us to start discussing what an appropriate division of macroeconomic roles would be. I am glad to say that the number of articles touching upon the subject has increased recently, and I hope that this speech will contribute further to this discussion. But let me take a step back and start from scratch. The devaluation policy reached the end of the road in the early 1990s Thirty years ago, the Swedish economy was in a dire situation. | On the one hand, the recovery of developed economies goes on, but only moderately and insufficiently to reduce the high rates of unemployment (figure 1). Risks are substantial. In fact, the intensity and velocity of the events we saw in Europe in early November are proof of the fragility of the world economy. On the other hand, growth prospects in emerging markets are still positive; commodity prices are still high, with copper standing out recently at record highs, and external financing conditions are good. The sustainability of this imbalanced scenario for the global economy is one of the primary risk factors for next year. Some of the questions we must try to answer and monitor closely are: How fast can emerging economies grow if the advanced economies are further weakened? How can advanced economies grow without incurring in unsustainable current-account deficits? How will the financial tensions in Europe be resolved? Is it possible for expenditure in Chile to grow excessively while ignoring the risks coming from abroad? In this context, the Board has continued to gradually normalize the monetary policy interest rate (MPR), setting it at 3.25% in its December meeting. In the most likely scenario, it will continue to gradually withdraw the monetary stimulus, which will depend on the unfolding of internal and external macroeconomic conditions. Let me now take a closer look at the scenario we believe is the most likely for the next two years and its implications for inflation and monetary policy. Macroeconomic scenario I will begin with the world economy. | 0 |
When the Bank was founded in 1968, Malta formed part of the sterling area, reflecting its past as a British colony and its strong ties with the United Kingdom. When the Bretton Woods system collapsed in 1972, the Maltese monetary authorities decided to break the exclusive link with the pound sterling and to peg the lira to a trade-weighted basket of currencies. During the 1980s the composition of the basket was revised on several occasions until, in 1989, the number of component currencies was reduced to three, the ECU - which had replaced several European currencies - the pound sterling and the US dollar. In 2002, the weight of the euro was raised to 70%, while those of the dollar and the pound were set at 20% and 10%, respectively. Following Malta’s accession to the European Union, in May 2004, the authorities resolved to move swiftly to adopt the euro. A year later, the Maltese lira entered Exchange Rate Mechanism Mark II (ERM II) with a unilateral commitment by the Maltese authorities to maintain its value unchanged at the central parity rate. This central parity rate then became the conversion rate between the Maltese lira and the euro when Malta adopted the single currency at the beginning of 2008. In effect, Malta has moved from a currency union with the pound sterling to membership of the euro area, with a period characterised by a basically fixed exchange rate in between. | The EC forecast shows that both for 2017 and 2018, Malta’s unemployment rate will be 4.9%, which is extremely low when compared to the both the euro area and the EU. During 2017, it is expected that unemployment in the euro area and the EU will be 9.6% and 8.1% respectively. For 2018, 4 unemployment in the euro area is expected to go down to 9.1% whilst that in the EU will also decline to 7.8%. Malta’s general government deficit as a percentage of GDP is also expected to continue on the positive trajectory it has embarked on the in the previous years. It is expected to narrow further to 0.6% in 2017 and remain at this level in 2018. This figure is also compares favourably to the average deficit ratios projected in the euro area19 (2017 and 2018: -1.4%) and the EU (2017:= -1.7% and 2018= -1.6%). For the first time in many years, Malta’s gross government debt to GDP is expected to fall below the 60% threshold. In fact, for 2017 the debt ratio is expected to be 58.0% and to decline even further in 2018 (55.6%). In my view, the main lesson to be learnt from this half a century of experience is that while a flexible exchange rate policy may afford some leeway in the short term, allowing the economy to withstand economic shocks, it is no substitute for structural reforms that achieve greater flexibility in product and labour markets. This is especially the case for small open economies. | 1 |
Accordingly, the yield curve plays a dual role for monetary policymakers: on the one hand, as a transmitter of monetary policy; on the other hand, as a source of information about the expectations and risk assessments of investors about the future macroeconomic environment and the future path for monetary policy. Response of the yield curve to monetary policy in normal times Let me first revisit the benchmark case of how the yield curve reacts to the standard policy tool of variations in short-term interest rates. To this end, I will focus on a rate cut, in order to facilitate the comparison with a subsequent discussion of our unconventional monetary easing policies. When measuring the effect of monetary policy on the yield curve, macroeconomists typically focus on monetary policy shocks: that is, surprise changes in the policy rate that occur independently of other structural shocks, such as innovations in aggregate demand or cost-push shocks. Since monetary policy decisions respond to these other shocks, naive calculations of the co-variation between monetary policy and the yield curve cannot distinguish the contribution of monetary policy from the impact of the underlying structural shocks. Accordingly, the independent role of monetary policy is revealed by focusing on the surprise element in monetary policy decisions, and there is a buoyant literature trying to identify these shocks and measure their impact on the yield curve and the economy. | Notes: Surprise impact normalised to 10 basis points for the six-month maturity. Why do we see a stronger effect on longer maturities when the rate cut takes place in negative territory? One factor here is that cuts in negative territory were often accompanied by communication or at least market perceptions that the ECB was willing to lower the negative rate even further, if warranted by subsequent economic conditions. As a case in point, for the final two of the last five rate cuts, the introductory statement at the press conference clarified that the ECB’s Governing Council “expects the key ECB interest rates to remain at present or lower levels”. This type of communication about the scope of negative rates can provide accommodation even in the absence of actual rate cuts. This mechanism adds another dimension to the standard channels of rate forward guidance. Let me elaborate on this point. Consider the situation in which the central bank is perceived to be constrained by the zero lower bound. Guided by an understanding of the central bank’s reaction function and a depressed macroeconomic outlook, markets may think that in one year’s time, the central bank would like to set negative rates with positive probability but that, if constrained by the zero lower bound, the best the central bank can do in those states of the world is to keep rates at zero. In technical terms: the presence of the lower bound induces a censored distribution for future short rates. | 1 |
The strategy to be employed has not been fully decided, 6 BIS Review 39/2010 but recent speeches by FOMC members and the recent FOMC minutes have begun to convey some of the possibilities. Many of the potential steps described seem to guard against the risks involved. For example, reducing the size of the Fed’s balance sheet through redemptions for now will produce a gradual adjustment that will be easier for the markets to digest. In addition, steps taken to drain reserves ahead of policy tightening may best ensure the success of interest on reserves at influencing other short-term interest rates. Overall, an approach along these lines should help to ensure a smooth exit from the current accommodative stance of monetary policy. Moreover, if the Fed’s intentions are well communicated to the financial market participants, they too should be fully prepared and in the best possible shape for navigating this exit. BIS Review 39/2010 7 | Therefore, the Central Bank must be attentive to steer monetary policy to avoid secondround effects on other prices, wages, or private sector inflation expectations due to supply shocks, that could end up driving inflation persistently away from the 3% target. Of course it also has to foresee the consequences of the business cycle over inflation. It also The efficacy of this monetary policy over the 2000s is evident (Figure 3). BIS Review 97/2007 3 Figure 3: Deviation of inflation from its target Source: Central Bank of Chile. The international financial turmoil Regarding recent developments in world financial markets, the first thing to do is recognize that the adjustment they are undergoing is part of an overdue normalization process in credit risk spreads for a large variety of securities, and volatility levels of the riskier assets prices (Figure 4). In fact, for some time our Financial Stability and Monetary Policy reports have stated that a correction in risk premiums and an increase in market volatility were to be expected, because the good conditions would not last indefinitely, in particular given the monetary policy normalization period in the main economies that was already prolonging for some years. It is very likely that today we are witnessing precisely that correction in risk valuation and volatility. Figure 4: Sovereign risk premiums and volatility (basis points) (1) Risk premium on developed market corporate bonds with less than investment grade risk ratings (CCC to BB), according to Standard and Poor’s. | 0 |
On the basis of these and other data, recent analyses by ECB staff members suggest that the transmission mechanism of monetary policy is normalising.6 The impact of a monetary policy tightening on economic activity – at almost all horizons – is currently not statistically different from pre-crisis regularities. The impact on inflation shows a similar pattern in terms of time variation.7 In sum, the monetary policy framework of the ECB allows policy rates to be changed according to macroeconomic and price developments area-wide, while its non-standard measures aim to maintain monetary policy transmission so as to make the stance of policy rates effective throughout the euro area. The standard and non-standard measures thus complement one another. The standard monetary policy instrument has been used to pursue the ECB’s primary objective of price stability in the euro area as a whole. The non-standard measures have addressed the impediments to monetary policy transmission stemming from financial market dislocations and related threats to financial stability, and have thus helped to avoid cross-country divergence arising from discrepancies in the national transmission of the common monetary policy. These measures have maintained the effectiveness of the single monetary policy in challenging circumstances. During the crisis, the credibility of the ECB has been instrumental in ensuring that medium-term inflation expectations have remained well-anchored around price stability. This, in turn, has significantly helped to ensure that lower nominal yields at various maturities translate into lower real interest rates, and thus support aggregate demand and avoid the spectre of a deflationary spiral. | But, at the same time, I do not think that cross-country differences in Monetary Union, which raise the potential for persistent divergence of economic performance, can or should be ignored. Looking forward, the financial crisis and its impact on the functioning of financial markets in some countries has led to a situation in which cross-country heterogeneity owing to differences in monetary policy transmission may be more pronounced than before the crisis – at least if effective remedial measures are not taken. This new environment has posed, and will continue to pose, challenges to the single monetary policy. How is the ECB dealing with these challenges? Since the start of the financial crisis, the ECB has implemented a set of non-standard measures, taking advantage of the range of instruments available within the Eurosystem’s framework for the implementation of monetary policy. Foremost among these measures has been the adoption of a fixed rate tender procedure with full allotment in the ECB’s monetary policy operations. In conjunction with the flexible nature of the Eurosystem’s collateral framework, these measures allow banks to obtain funding even in the face of market dislocation.5 This has avoided a disorderly deleveraging of bank balance sheets and the associated potential for a fire sale-driven, vicious downward spiral in asset prices and bank capital. In the face of the sovereign debt crisis these non-standard measures, supplemented by targeted asset purchases under the ECB’s Securities Markets Programme, have addressed and contained the country-specific impediments to monetary policy transmission. | 1 |
By design, Basel II served as an incentive device for banks to upgrade their risk management technology. As a by-product, there was a step change in the granularity of the Basel framework. Risk exposures were no longer captured at a broad asset class level. And risk weights on these exposures were no longer confined to five buckets. That meant greater detail and complexity. Reflecting these changes, Basel II came in at 347 pages – an order of magnitude longer than its predecessor. 10 The ink was barely dry on Basel II when the financial crisis struck. This exposed gaping holes in the agreement. In the period since, the response has been to fill the largest of these gaps, with large upwards revisions to the calibration of the Basel framework. Agreement on this revised framework, Basel III, was reached in 2010. In line with historical trends the documents making up Basel III added up to 616 pages, almost double Basel II. 11 The length of the Basel rulebook, if anything, understates its complexity. The move to internal models, and from broad asset classes to individual loan exposures, has resulted in a ballooning in the number of estimated risk weights. For a large, complex bank, this has meant a rise in the number of calculations required from single figures a generation ago to several million today (Haldane (2011)). That increases opacity. It also raises questions about regulatory robustness since it places reliance on a large number of estimated parameters. | Currently there are some 9,000 HLIs with assets under management of about USD 1,600 billion. 4 Despite these impressive figures, the HLI industry remains modest in relative terms. HLIs have a market share which is smaller than the trading books of the five largest international banks and they represent only a fragment of the total debt securities (USD 65,000 billion) and credit default swaps outstanding (USD 25,000 billion). However, more important is the activity of HLIs in some market segments, especially in the more complex ones. In the markets for credit default swaps, distressed debt and emerging market bonds, for instance, roughly half of the trading volume can be attributed to HLIs. In the more traditional markets for interest rate derivatives and mortgagebacked securities, their share drops to only 10% again. 5 2. The benefits of HLIs HLIs have undoubtedly been a source of innovation in the global asset management industry, especially with regard to traded credit products. Moreover, through their flexible and largely unconstrained investment approaches as well as through their extensive use of innovative financial instruments, they have contributed to improving the efficiency of price discovery in financial markets. By buying assets that are perceived to be undervalued and by selling assets that are perceived to be overvalued, HLIs help to move mispriced assets toward their fundamental values. HLIs play an important role in trading and distributing risk. Thus, they enhance market liquidity, perhaps even in periods of stress, when nobody else is willing to take risks. | 0 |
– The new capital requirements require balance sheet rebalancing of internationally active banks, i.e., increase of the capital or reduction in risk weighted assets. Given the still slow recovery process that would be an obstacle for faster increase of capital (through reinvested earnings or new capital injections) this may have implications for the availability of finance. One related issue is the exclusion of minority stakes from consolidated group capital and its implications for the process of deleverage as well as for the development and liquidity of local equity markets (change in the nature of acquisitions). – “Retrenchment in specialty finance due to higher risk weights for certain finance instruments would be particularly harmful to the growth outlook of the region. Some of the sectors most exposed to the retrenchment process are specialty finance lines, particularly infrastructure finance and trade finance. Infrastructure finance is characterized by long maturities, heavy use of syndication, and dependence on long-term dollar funding that makes it particularly exposed to deleveraging” – Cost of finance – “The cost of finance in the region could increase due to inherent inconsistencies in the treatment of sovereign exposures at the solo and consolidated levels. Host supervisors typically apply low risk-weighting for exposures to the host sovereign. However under the forthcoming set of EU regulations, higher risk weights on these exposures could result in a higher cost of finance in the host jurisdiction”. The second channel of transmission is related to the Basel III liquidity framework. | I will talk about where we are in this process and some of the priorities for policy frameworks as well as for the management of risks by financial institutions as we move forward. This, I hope, will provide useful inputs for your deliberation and discussion in this conference. The case for greater financial integration ASEAN is home to more than 600 million people and if considered as a single entity, would represent the sixth largest economy in the world with a combined GDP of USD2.5 trillion. According to the OECD, the region is projected to sustain an average annual growth of 5.6% BIS central bankers’ speeches 1 over the next four years and is expected to be the fourth largest trading bloc by 2050. Concurrently, the standards of living among the general populace will continue to improve. Household purchasing power has risen significantly over the last decade, transforming the region into a thriving hub of consumer demand. The size of ASEAN’s consuming class is expected to double from 81 million to 163 million by 2030. By 2020, Asia is estimated to account for more than half of the total global middle class population, with ASEAN representing more than USD2 trillion of additional consumption within the region. Also, as the sources of economic growth become increasingly domestic-based, this enables many economies to diversify their sources of growth. An important development is the significant increase in intra-regional trade. | 0 |
Slower growth, tighter liquidity, and heightened risk aversion in mature markets generally mean lower commodity prices, less capital flows, and higher interest rates for EM borrowers - conditions that helped produce some spectacular financial crises in the past dozen years. Not a pretty picture, and one that begs the question of what lies around the corner“. However, if asset shortages story is correct, then upcoming US slowdown (or brief recession according to some non-consensual forecasts) would likely further increase excess saving (as fading growth prospects will discourage investment projects and encourage more private saving amid rising uncertainty, only partly offset by higher public dissaving due to automatic stabilizers), and lower valuation of US equities will make the world supply of assets even more scarce. In such situation US economy having hard times may not necessarily lead to higher risk premia for emerging markets (as it was the case in the past) rather any increase in risk premia would be used by investors to enhance returns, spread compression will continue, and yield curve inversion may even deepen on major markets, and knock the door in some emerging markets 20 . PIMCO seems to subscribe to this possibility, although they do not use asset shortage argument, but they do say: “Local markets investments may provide the greatest divergence of returns within the EM universe, with those “developing” economies furthest along the road to “developed” market status able to enact traditional policy prescriptions in a slowing global economy and therefore providing enhanced return potential to local fixed-income instruments“. | It depends on the importance of imported goods in the consumer price index and on whether lower import prices are passed on to consumers. 5 In the UK in the ten years from 1994 to 2004, the price of imported goods fell on average by one per cent per annum, so the direct effect of this on the consumer price index was quite marked. This shows up in the striking contrast between goods and services consumer price inflation (Chart 3). But the impact of greater competition does not stop with prices. Business tells us that greater competition between companies is encouraging them to protect their profits by cutting costs. This involves control of wage growth and the search for productivity improvements. This has been complemented by greater contestability in the labour market due to both greater migration and the potential for out-sourcing and relocation of production should wage demands become excessive. My view therefore is that the disinflationary pressure from globalisation may well have been more substantial than the direct estimates suggest, and this helps to explain why inflation has fallen throughout the world over the last 15 years from 30% in the early 1990s to about 4% in 2003. 6 This 4 The weight of manufacturing in UK gross value added was 14.7% in 2003. (United Kingdom Economic Accounts, 2006q1). | 0 |
5 Source: St.meld. 39 (1993-94). 6 Source: For Sweden: Jennergren and Näslund (1998). For Norway: Norges Bank, Moen (2003). 7 See Hoggarth, Reis and Saporta (2002). 8 Peek and Rosengren (2000) look at the loan supply shock facing U.S. firms borrowing from Japanese banks during the banking crisis in Japan. They identify a substantial impact on U.S. real estate activity from this supply shock. 9 See Ongena, Smith and Michalsen (2003) and Vale (2002). 4 BIS Review 58/2003 good advice, but there is a delicate balance between restoring private ownership quickly and trying to recover as much as possible of the government’s fiscal costs. The Norwegian banking crisis was handled swiftly and transparently and at relatively low cost to the taxpayers. Furthermore, the banks that came out of the crisis had trimmed their operating costs and established much better systems to evaluate credit risks. In one respect, we were rather lucky compared to others. The crisis built up gradually, so there was time to assess the situation and strengthen the defences of the financial system before the crisis became systemic. The banks’ equity capital provided the first line of defence and the banks’ collective guarantee funds the second when bank losses started to soar. The third line of defence - the Government Bank Insurance Fund - was only established when it was evident that the first and second lines of defence did not hold, but it was nevertheless established in time. | First, we did our routine work in the money markets of lending to the banking system against high quality collateral, such as government debt, and at Bank Rate set each month by the Monetary Policy Committee. After some initial volatility, we achieved our primary objective in the money markets of bringing interest rates on overnight borrowing into line with Bank Rate. And over the past two months as a whole, overnight interest rates have, on average, been as close to Bank Rate in the UK as in the euro area and closer than in the US. We were, however, pressed to do more than our routine job and to lend in exchange for other collateral, including the financial assets for which the markets had virtually closed. Banks, in particular, said they wanted us to help them turn illiquid assets into cash. As I told the House of Commons Treasury Committee on 20 September, we were cautious about doing this. The case for caution is, in the jargon, moral hazard. Put simply, such action by us encourages the very risk-taking that caused the present problems. It is crucial that, in making their lending and borrowing decisions, banks face the right incentives. That is why we did offer to lend in exchange for illiquid assets but only at a penalty rate of interest. Support on the scale required by Northern Rock would have been difficult to undertake without it becoming “stigmatised” – regardless of the method adopted. | 0 |
But one should bear in mind that each situation is unique and must be dealt with on the basis of the conditions prevailing at that time. 2 BIS Review 119/2008 Worst case scenario One fundamental function of a central bank is the role as “lender of last resort”. If the Riksbank’s assessment is that financial stability is threatened, we have the possibility, in exceptional circumstances, to contribute liquidity to Swedish banks and other financial companies by granting liquidity assistance on special terms. However, this assumes that these institutions are sound and that they are under the supervision of Finansinspektionen, the Swedish Financial Supervisory Authority. Let us assume, for instance, that a bank that meets the requirements and thus is assessed as having assets that are greater than its liabilities, nevertheless experiences severe problems in financing and acquiring sufficient liquidity to meet its payments. I shall briefly explain how such a situation can arise. In general, the banks finance themselves by borrowing money in the short term and lending it out on a longer term basis. When the banks lend to individuals and companies it is often on long-term contracts, which means that the bank cannot get the money back earlier if this should prove necessary. On the other hand, when the bank receives deposits from individuals and companies, they usually have the possibility to withdraw the money whenever they wish. Also when the banks borrow money in the financial markets this is often as shortterm loans, that is with a short duration. | I would like to take the opportunity to answer the criticism against us that we care too much about the price of oil and food commodities in the world market when we make our monetary policy decisions. The reason given is that we cannot affect these prices with our monetary policy. Of course it is quite true that we cannot affect world market prices. But nor have we tried to stop the direct effects of the upturn in oil and commodity prices. If this had been our aim, the interest rate would have been much higher than it is now. Inflation is also much higher now than our target, because of the direct effects of higher commodity prices. The reason we have not tightened our monetary policy severely is out of consideration to the real economy, production and employment. However, what we are anxious to see is that the indirect effects of the increases in oil and food prices are not allowed to push up inflation more permanently. We conduct a flexible inflation-targeting policy. If shocks occur that mean inflation will deviate from the target, we can allow it to take some time to attain the inflation target. The normal time horizon is a couple of years, but sometimes it may be sooner and sometimes it may need to take a little longer. Weaker growth With regard to growth in Sweden and abroad, my views were more pessimistic than the assessment presented in the September Monetary Policy Update. Developments in the United States appeared particularly uncertain. | 1 |
For instance, leverage levels in the financial sector remain very high. The current low interest rate environment is encouraging risky high-yield strategies; activity on these high-yield markets is sustained; innovations on the ETF market are raising questions and the commodity market is being financialised. The active management of these new complex instruments is thus likely to reach its limits, as happened with CDOs. The current challenge for central banks is two-fold: we need to improve our ability to monitor risks at a system-wide level; we also need to re-establish the moral hazard that the management of the crisis suspended. On their side, banks and market participants need to ensure that they improve their risk management autonomously in order to reduce this 4 BIS central bankers’ speeches hazard, in the interests of their shareholders and depositors, but also of economic development as a whole. Thank you for your attention. BIS central bankers’ speeches 5 | Other factors that have temporarily held down inflation, such as the earlier krona appreciation, the rapidly-intensifying competition in the food retail sector and price pressure on clothing resulting from the EU abolishing textile quotas, are effects that are likely to decrease over time. The fundamental factors are all in place; expansionary monetary and fiscal policy, strong growth in real wages, good underlying productivity growth and stable export demand, particularly from the United States and rapidly-growing emerging markets such as China and the countries in central and eastern Europe. Therefore, we should not become exclusively preoccupied by the current inflation rate. Instead we should keep the right perspective. When developments gradually approach the usual recovery pattern, the indications are that resource utilisation will increase and inflation will approach the target level. There has been concern that an interest rate cut would have a slight effect on consumption and investment, as interest rates are already low and lending is growing rapidly in a situation where housing loans can be obtained at just over 2.5 per cent interest. Companies also have good profits and ample liquidity. Meanwhile there is believed to be a risk that even lower interest rates would further push up house prices through cheaper housing loans. An interest rate cut could thus have a misdirected effect with the risk of future setbacks; little or no effect on achieving the inflation target but a strong impact on the demand for assets such as houses. | 0 |
2 On aggregate, private consumption has been adjusting in tune with the reduction of liquid balances, a less dynamic labor market and more restrictive financial conditions for households. The composition of job creation has shifted from formal salaried workers to self-employed and informal wage earners. Overall, this has maintained a low rate of job creation for several months. In turn, the unemployment rate rose to 8.7% in the February-April quarter and real wages remain low, still affected by high inflation (figure 7). Credit access conditions have become more constrained for households, as reported by our firstquarter Bank Lending Survey. This survey also reports that demand for credit has tightened, in a context of high-interest rates and a growing financial burden, as we reported in our Financial Stability Report for the first half of this year. Investment remains weak, reflecting the performance of the macroeconomic scenario. During the first quarter, seasonally adjusted, gross fixed capital formation fell by -0.9% with respect to the previous period. This decline was seen both in construction & other works and in machinery & equipment, which posted quarterly variations of -0.2% and -1.9%, respectively. This is consistent with the weakness of construction, reflected in the activity data of the National Accounts, the Construction Activity Indicator (Imacon) and the decrease in capital imports since mid-2022 (figure 8). Turning to companies’ perceptions, they continue to evaluate the economic outlook negatively (IMCE). | While a clear consensus on the best way to capture these risks has yet to fully emerge, these are very active areas of risk modeling at banks, and this is clearly a frontier area in both the regulatory and consensus economic capital regimes. In this regard, an important question to ask is how well the current capital frameworks capture the possibility of extreme events, those far in the “tail” of the distribution. Stress testing can play an important role in addressing these concerns. Stress tests should allow institutions to assess likely losses under extreme market events, those that happen too rarely to be captured under traditional value-at-risk measures, but that could cause very significant losses to the institution should they occur. Institutions have long engaged in this kind of analysis for internal management purposes. Now, however, those at the forefront of risk management are assessing the adequacy of their value-at-risk results against stress losses and finding ways of integrating the results of stress testing into their capital frameworks. Indeed, an important aspect of our supervisory process includes critically assessing stress-testing regimes. More rigorous and comprehensive stress testing of large shocks across multiple markets, geographic regions and business lines is vital, particularly for systemically important institutions. In this context, we need to see more attention paid to risks to market liquidity, and the effects on market liquidity that could result from the exit of a major dealer. | 0 |
In normal times my preference would naturally have been to look through such a development provided that it did not feed into medium-term expectations. Indeed, we had seen inflation fall into negative territory driven by oil prices in 2009, and we had not reacted because we were confident that it would be transitory. The conditions we faced in January this year, however, gave us no such comfort. Our analysis showed that the persistence of low inflation across a range of statistical metrics was higher than in 2009. Measures of core inflation were also less sticky. But for me what was decisive was the loosening in the anchoring of inflation expectations we were witnessing, even at maturities and at horizons that we would normally expect to be more resilient to short-term inflation dynamics. This was in stark contrast to 2009 where inflation expectations hardly moved, even at the short end. The public sector purchase programme It was in this context that we launched the third part of our response, the ultima ratio decision to purchase assets, including public ones, as a tool of monetary policy. It was absolutely crucial that we lifted and re-anchored inflation expectations and warded off these potential second round effects. This is not only because stable inflation expectations are vital for medium-term price stability. It is also because, with interest rates at the effective lower bound, any fall in inflation expectations implies a rise in real interest rates, counteracting the credit easing we were trying to engineer. | And they also signal that liquidity will keep expanding, which supports a flattening of the term structure and further supports the easing of real interest rates and the exchange rate. The effectiveness of these signalling effects is predicated on the implementation of our programme in full, as we have communicated – that is, we will maintain the pace and volume of our intervention until we see a sustained return of inflation towards a level below, but close to, 2 % over the medium-term. In all these ways, our asset purchase programme therefore represents a continuation and extension of our existing measures – it reinforces our credit easing and more generally the bank lending channel. In this sense, I share the view that “quantitative easing” is something of a misnomer. To be sure, the quantity dimension of large-scale asset purchases matters, but only insofar as it affects prices and hence credit conditions. At the same time, we have to clearly distinguish instruments and objectives. In extraordinary circumstances we may need new instruments to meet our traditional objective. But what anchors trust in the central bank is that our objective and strategy stay, constant – and this is even more important when monetary policy becomes more unconventional. For this reason, innovative ideas to change our strategy, such as targeting a price level, would in fact be counterproductive in the current environment. Out goes also the misguided idea to increase our definition of price stability. | 1 |
Øystein Olsen: Ensuring financial stability in turbulent times Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Finance Norway conference, Oslo, 12 April 2011. The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. * * * Introduction The experience of the past few years has clearly shown the cost of financial instability. The near seizure of the financial system in autumn 2008 gave rise to the most severe economic downturn of our time. There was a dramatic decline in international trade and in 2009 world GDP decreased for the first time in generations. Economic policy was used actively in most countries to curb the economic downturn. Substantial resources were deployed in the form of stimulus packages and measures to prevent financial market collapse. Nonetheless, unemployment in the OECD area rose by 15 million in the first year after the outbreak of the crisis. The downturn also led to a sharp fall in tax revenues. Budget deficits ballooned and government debt rose rapidly. Global economic growth has recovered, but the effects of the financial crisis are still evident and will continue to be for some time yet. Unemployment is still high and the current situation and prospects for several countries bear evidence of strained government finances. | ;44= 48B78<48 9 65 61 42626 "9 9 5 9 2 2664 665 2 8 5 526 4 452 621 58 4 4 01242 42 24 49 3 18 8 862 0 52 4 2 24 2 8 2 8 18 5 7 1 743 1 7 5 347 ! 7 7 47 7 7 7 41 7 7 7 7 3 7 437 371 17174 347 9 9 9 4 9 406 04 104 03 03 406 10 5 # 019 04 4 04 4 1 40 46 5 96 0 44 019 019 4 6 0 57 2810 0 6 2046 107 6 56 10 542846 2 80 15 08 2810 810 57 6 0" 0 2810 2 4 57 56 10 2165 6 0" 26 250 15 2 806 15 4 2810 250 15 6 2810 806 15 806 046 6 2822810 048 41 086 0" 07 2165 010!80 08 2810 806 6 0 806 6 806 6 % 806 6 6 6 3 6 6356 74356 2 6 23 566 6 11 6 521 46 7714 6 7351 | 0 |
Furthermore, it is more difficult to force a change in the exchange rate peg through speculative attack, but the repercussions of a successful attack could also be much greater. As a result, it is extremely important that a currency board, like any other exchange rate peg, be supported by fiscal and economic policy. If fiscal policy is not consistent with the fixed exchange rate policy, the peg is likely to fail in the end, no matter how strong the formal commitment to it is. The main disadvantages of a currency board are that the central bank’s possibility of mitigating volatility in banking system liquidity is more limited, and the money supply fluctuates with the foreign exchange reserves. This could put excessive pressure on the domestic financial system and entails a risk to financial stability. The foreign exchange reserves must also be much larger than under a floating exchange rate regime. Most of the countries that have successfully used a currency board are small countries with close links to the anchor area or those planning to adopt the euro. There has been some discussion of the possibility of adopting another currency in Iceland (see Chapter 19). When a country adopts another currency unilaterally, the foreign exchange reserves are used to purchase banknotes and coin in the anchor currency, which is put into circulation instead of the domestic currency. | The main changes consisted in reducing banking credit risk associated with deposits in commercial banks maturing in or before one year. The reference composition for banking risk was reduced from 37% to 20%, while for sovereign risk it was raised from 63% to 80%. Furthermore, during this year the minimum risk rate for banks to be eligible was changed from A- to A, also restricting investments in banking institutions rated A and A+ to a maximum of 5% of the investment portfolio. In line with the new bank deposit policy, deposits maturing in the months of October and November will not be renewed, in order to comply with the newly defined ceilings before December. Regarding asset breakdown by maturity, 60% of resources in the internally managed portfolio are invested in short-term instruments, with average maturity of three months, and the remaining 40% is invested in long-term securities (mainly sovereign bonds) with a duration of 30 months. Thus, average duration for the overall portfolio is 13.9 months. The reference currency composition remains 59% in US dollars and 41% in euros. Despite turbulences in international financial markets, and considering that the biggest fraction of resources is invested in fixed-income sovereign instruments, the annualized return obtained from managing the Central Bank's international reserves in the first half of 2008 was 3.47% measured in foreign currency. 1 The differential return obtained with respect to the benchmark structure was 0.15%. | 0 |
Small, open economies can be vulnerable to large capital movements when powerful instruments are deployed by large countries. A possible side-effect of balance sheet policy is that the private sector also takes longer to strengthen equity capital and reduce risk than it would otherwise have done. With the low price of capital, it costs little to postpone restructuring and put off debt repayment. Finally, confidence in economic policy may be affected. The dividing line between monetary and fiscal policy seems to be more blurred. Balance sheet policy may dampen the effects of market volatility on interest rates and give heavily indebted countries a breathing space and time to adjust. On the other hand, the measures may also reduce the incentive to carry out necessary fiscal tightening. In the euro area, different considerations are now being balanced in the new “Outright Monetary Transactions” (OMT) programme. Under this programme, the European Central Bank (ECB) may only purchase bonds from countries that have entered into a loan agreement under the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM) – which in turn is conditional on a commitment to fiscal tightening. Chart: Corporate borrowing rates One reason for the ECB’s decision to establish the OMT programme is the partial breakdown of the monetary policy transmission mechanism in the euro area economy. There are wide differences in interest rates facing banks and firms across Europe. Although the same key rates apply to all the euro area countries, average corporate borrowing rates differ widely from country to country. | 8 An exit from the krone market may be tight when many investors seek to shift out of krone positions at the same time. This can trigger a considerable depreciation of the krone, as experienced in autumn 2008. On the other hand, Norwegian securities can be perceived as safe havens because the associated credit risk is perceived to be low. Experience has also shown that international turbulence can in periods lead to an appreciation of the krone. A krone that is too strong can over time result in inflation that is too low and growth that is too weak. In that case, monetary policy measures will be taken. In Norway, the key policy rate is the relevant instrument. We still have room for manoeuvre in interest rate setting – in both directions. Foreign exchange interventions are not in principle an instrument suited to influencing the krone exchange rate over a longer period. It would only be relevant should the krone exchange rate move significantly out of line with that deemed reasonable in relation to the underlying fundamentals of the Norwegian economy, and should developments at the same time threaten the credibility of the inflation target. In addition, the interest rate weapon must have already been exhausted. Over the past decade, inflation has been low and stable. This shows that monetary policy has functioned effectively. Transparency about the response pattern and key policy rate forecasts reinforce the impact of monetary policy. | 1 |
Svein Gjedrem: Monetary policy in Norway Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), given at Norges Bank’s Conference on Monetary Policy 2006: Evaluating Monetary Policy, Oslo, 30 March 2006. The speech is based on Inflation Report 1/06 and previous speeches. The Charts in pdf-format can be found on the Norges Bank’s website. * * * 1. Introduction The title of this conference is “Evaluating Monetary Policy”. The conference therefore gives me an opportunity to provide a background for the assessment of monetary policy in Norway. 2. Transparency and communication of monetary policy strategy In most industrial countries, monetary policy is oriented towards low and stable inflation. Low and stable inflation is the most important contribution monetary policy can make to sound economic developments. As a framework for organising and explaining monetary policy, inflation targeting is now common. In our country, inflation targeting was introduced in March 2001. As non-elected bodies, central banks are granted substantial autonomy in the execution of monetary policy. Here, as in many other countries, the political authorities have delegated monetary policy decision-making to the central bank. This means that it has instrument independence, that is, the Bank’s Executive Board sets the short-term interest rate. The Bank is also accountable to the political authorities. | Household consumption played a central role in this respect: this began to recover towards the end of 2003 in the wake of the general economic upturn and the rise in earnings. A good showing by the construction sector also contributed to higher demand for household equipment. In contrast to their counterparts in Germany, Swiss consumers remained relatively optimistic in 2004, and this helped to sustain the level of business activity. Where public-sector demand is concerned, the financial constraints imposed by the Confederation and cantons put a brake on the growth in spending in 2004. For the first time in several years, public-sector demand rose less quickly than the other components of domestic demand. In this initial phase in the economic cycle, the return of confidence would normally have triggered growth in investments aimed at adapting the means of production to future needs. But such an upsurge has so far been largely absent, both in Switzerland and in other European countries. Although the profitability of companies has improved, they have given priority to raising the utilisation of existing BIS Review 30/2005 1 capacity rather than expansion or modernisation, as the latter are considered to entail substantially more risks. As a result, growth in capital spending was modest in 2004. This cautious approach by companies also affected the development of the labour market: contrary to expectations, unemployment fell only slightly in the past year. | 0 |
Developments in other countries are just as important for the krone as developments in the Norwegian economy. Capital flows freely and flows can change rapidly. This can spill over to exchange rates and interest rates as well as output and employment. There is a cost involved for businesses in hedging against fluctuations in the krone. A krone that is stable - but too strong - also entails social costs in the form of low activity. Likewise, a krone that is stable - but too weak - is a source of high inflation. Norway is running a current account surplus as a result of sizeable oil and gas exports. Owing to high oil prices, the current account surplus is rising this year. An increase in the current account surplus will normally result in higher net demand for the domestic currency. In Norway, however, the additional foreign exchange revenues that accrue to the Norwegian state as a result of high oil prices will be invested in foreign securities through the Government Petroleum Fund. As a result, they will not have a direct impact on the balance in the Norwegian foreign exchange market. Oil companies hold a large share of their financial capital in foreign currency, and higher revenues in these companies therefore results in an increase in capital outflows. The effects of changes in the current account on net demand for the Norwegian krone can be illustrated by adjusting the basic balance for transfers to the Petroleum Fund and oil companies’ estimated cash surplus. | Higher demand leads to higher output and employment. Wage growth may pick up. Higher wage growth combined with higher profit margins will result in higher inflation. Lower interest rates normally lead to a depreciation of the krone. Imported goods then become more expensive and inflation accelerates. Expectations play a key role in price and wage formation, and they are influenced by the interest rate. Expectations concerning inflation and economic stability have considerable impact, not least in the foreign exchange market. Petroleum activity constitutes an important part of the Norwegian economy. Oil gives us an economic base that is not available to many other countries. At the same time, the extent of, and fluctuations in, petroleum activity pose a challenge to economic policy in Norway. In a long-term perspective, Norway’s petroleum wealth is to be distributed across generations. The authorities must therefore exercise fiscal discipline, taking into account long-term considerations. In the short term, the substantial capital revenues from the petroleum sector must be managed in such a way that they do not amplify cyclical fluctuations. The Government Petroleum Fund was established in 1990 with a view to safeguarding long-term considerations in the use of petroleum revenues. The idea behind the Petroleum Fund is that the cash flow from an increase in oil prices should accrue to the Fund and be invested abroad and that the increase in oil prices should not affect the wider budget. As a result, the increase in the cash flow does not affect the domestic economy. | 1 |
And indeed one of the benefits of low inflation is that price signals carry more information, making price comparisons worthwhile. Understanding what is happening is relevant to monetary policy. To the extent that a fierce competitive struggle is squeezing retail margins, it is likely to affect the shortrun outlook for inflation. While such a squeeze won’t have an effect on inflation in the longer term, it could herald a lasting improvement in productivity across the sector as a whole. This brings me to my final issue: whether productivity in the UK will accelerate as it seemingly has in the US.6 Since 1995 the growth of US productivity has doubled and the improvement has been sustained through the stock market crash. This is directly relevant to current thinking about US monetary policy. If faster productivity has indeed helped to create a high level of spare capacity and contributed to a higher growth in underlying supply, holding interest rates at historically low levels for some time should not add to inflationary pressures, even if demand grows rapidly. This is a key reason why the Fed believes it can be ‘patient’ in raising interest rates. The US evidence does seem to suggest that productivity has accelerated and that ICT has played a substantial role in raising productivity in non ICT sectors. This answers one puzzle, neatly posed by US economist Robert Solow when he commented that ‘You can see computers everywhere but in the productivity statistics’. | MPC members have always voiced their different views in public, and while this 6 Basu, S, Fernald, J G, Oulton, N, and Srinivasan, S (2003), ‘The case of missing productivity growth: Or, does information technology explain why productivity accelerated in the United States but not the United Kingdom?’, forthcoming in Gertler, M and Rogoff, K (eds) NBER Macroeconomic Annual 2003, MIT Press. Available from the NBER website: www.nber.org. 6 BIS Review 11/2004 is not without risk to the clarity of the message, and has occasionally led to an uncomfortable personalising of decisions, I see it as an inherent part of system not a quirk of particular personalities. The big prize is long term credibility, and nowadays there is no credibility without openness. This is what gives the present framework the flexibility to respond to changing circumstances, and allows members of the MPC to change their minds in the light of experience. And in an uncertain world this openness to learning is a precondition for success under any policy regime. BIS Review 11/2004 7 | 1 |
Least of all should the impression be given that it is somehow possible to have all the gain without any of the pain. We all know, for instance, that virtually all public sector expenditures are in the nature of fixed charges to revenue in the form of wages, social benefits and other handouts, subsidies and debt-servicing costs, leaving relatively few discretionary items of expenditure. This probably explains why we hear many calls for cuts in Government spending, but no specific proposals on where and how much to cut. Likewise, the rigidities which pervade the labour market and work practices have become so fundamentally ingrained in the behavioural patterns of society that they have assumed the status of acquired rights. A number of institutions remain characterised by outdated cultures and practices, while a sizeable part of the population remains stubbornly dependent on subsidies and artificial protection. Under such circumstances it is clear – and recent electoral experience has underscored the fact – that the quest for competitiveness cannot, and indeed should not, be attempted by the Government alone. The change in culture and behaviour that this requires can only be successfully undertaken through the joint efforts of all the interested parties. Faced with similar circumstances, other countries have successfully injected a new dynamism into their economies on the strength of a broad consensus on reform measures among the political and social forces. | The launch that we are witnessing today is a major initiative, the development of a Shariah standard that is integrated with details on operational requirements. This approach ensures a transparent basis of Shariah rulings by the SAC, and provides a convergent in understanding between Shariah scholars and industry practitioners. In judiciary matters, where the SAC serves as a reference point in analysing muamalat cases, the court can also draw on these comprehensive and transparent Shariah standards as basis in arriving at a court ruling. The adoption of the standards by learning institutions will pave the way for greater understanding and acceptance of these standards as a global starting point of reference for the Islamic finance community. As we launch the Educator’s Manual, which is the first of 14 series of manuals, I would like to share my thoughts on our approach in developing the Shariah standards, and would also like to emphasise the importance of embracing diversity and mutual respect in Shariah interpretations. I shall deliberate on two additional areas that stakeholders need to consider to maximise the benefits of having the Manual; reconfiguration of academic programmes and strategising talent deployment. The future growth of Islamic finance, especially cross border, is very much dependent on the harmonisation and mutual recognition of Shariah views and rulings across the globe. It is critical if cross border trades are to be strengthened. Numerous efforts are being pursued to narrow the opinion gaps between scholars through symposiums, roundtables as well as bilateral dialogues. | 0 |
Last year I pointed out that sterling’s exchange rate was at a 15 year low against the dollar, but close to its peak against the euro. In overall terms sterling’s effective Exchange Rate Index against currencies generally had been relatively stable - at around 105 plus or minus 5% - for most of the past 2-3 years. That pattern of BIS Review 40/2002 1 exchange rates made life particularly difficult for the euro-exposed sectors or our economy, and, given that the eurozone represents over 50% of our external trade, contributed significantly to the imbalance within our economy. Happily, from our point of view, and indeed in the context of the global external imbalance, we have recently seen a significant strengthening of the euro against the dollar, and to a lesser extent against sterling, which will help to ease some of the earlier tensions. Sterling’s exchange rate has recently moved to two year high against the dollar and nearly a three year low against the euro. Sterling has consequently also weakened in overall, effective, terms, from some 107 some months ago to currently around 103 - which is still within the earlier range. It is frankly anyone’s guess whether the recent pattern of exchange rate movements will be extended, but what has happened so far, taken together with the improved prospect for global demand, suggests that the adverse external factors weighing down the UK economy over the past two years or so should now diminish. | Regarding the International Capital Standard, which aims to develop an international capital standard in order to be able to establish a comparable basis in terms of prudential requirements for all international groups, recent progress was made in Kuala Lumpur in November 2017 which should lead to, by the end of 2019, a version called “ICS 2.0” that will be used as a reference in international supervision Colleges, for a transitory period of five years. During this timeframe, each internationally active insurance group will have to ensure a compulsory and confidential five-year monitoring period based on the ICS, after which this standard is expected to become effective. Now, I will turn to IFRS17: it would be unreasonable to apply the new IFRS17 accounting framework right now. Given the obvious issue of timing, it is quite welcome that the IASB reopened the discussion and that the application of this standard has now been postponed by one year. This will primarily give us time to reach an agreement on identifying groups of loss-making contracts. We also want to bring the discussion on the 4 treatment of reinsurance contracts held to a satisfactory conclusion. At this point, there is too much room for interpretation in the standard, which could interfere with the comparability and consistent application across countries. In Europe, the current “hot topic” is the forthcoming Solvency 2 review. This review must include a full and objective assessment of the framework that has now been in place for three years. | 0 |
This is a reflection of the exceptional nature of the commodity price shock in terms of its magnitude, its persistence and its broad-based character, affecting commodities across the board, including notably energy but also food commodities.4 It has to be taken into account that, although the shock has been global, Europe has been particularly exposed due to its high dependency on the supply of essential inputs – notably gas – from Russia.5 Indeed, given the magnitude and persistence of the shock, indirect effects have penetrated more deeply into the economy, firms have tended to adjust final prices more often6 and this has triggered a more extensive spread of price rises across the different categories of goods and services.7 In addition, the upward effects of energy and food commodity prices could still be significant in 2023. In the case of food commodities, the transmission of increasing costs along the supply chain could take up to a year8. In the case of gas prices, the pass-through from wholesale prices to final retail prices for consumers varies significantly across countries depending on the regulations in place, the types of contracts used in each national retail electricity market and profit margin developments in the face of rising energy input costs. | Direct financing via capital markets is growing in importance, even though banks are still the most important source of financing in the euro area. Such changes in the financial landscape make the allocation of funds more efficient and are hence most welcome. At the same time, however, they alter the transmission mechanism of monetary policy, and insofar as this alteration is difficult to measure, add uncertainty to monetary policy decisions. Apart from the financial environment, the real economy in the euro area is also currently subject to significant change. Monetary Union has enhanced competition between economic agents in the participating countries. Price transparency between the countries has increased. Both consumers and companies are becoming increasingly more aware of price differences and are reacting accordingly. Greater price differences will be harder to justify and maintain, even though differences in the tax systems and in product specifications will continue to exert an influence on price setting. Fiscal policy may be affected, both by increased competition between countries and by the general need to foster employment and growth in order to comply with the challenges of ageing populations. These realities have triggered tax cuts and the start of more fundamental benefit reforms. However, these efforts must be accompanied by a structural reduction in expenditure in order to support price stability, make further progress in fiscal consolidation and boost economic growth. Overall, the increase in competition, less rigidity and a more flexible structure of the economy should lead to an increase in the sustainable rate of economic growth. | 0 |
Nonetheless, I am not entirely convinced the Bank of England press release which announces “This is Andy deep hanging out in Stoke” will scan. So I am open to crowd-sourced alternative suggestions. Let me give one or two concrete examples of how this regional engagement has helped my own understanding of the economy, its hidden corners, its quiet voices. When UK GDP returned to its pre-crisis peak in 2014 economists told the world the economy had “recovered”. 16 Around 30 seconds into a talk about the “recovery” with charities in Nottingham in 2016, I was put straight. The language of recovery resonated with no-one in the room. This experience was repeated on TV, some months later during the referendum debate, when a questioner in Newcastle put straight one of the participants on tonight’s panel with the memorable line “That’s your bloody GDP, not ours”. 14 http://www.visualscribing.com/ Geertz (1998), with thanks to Grace Blakeley at the Institute for Public Policy Research. The date that real GDP returned to its pre-crisis peak has changed between different vintages of ONS data and was originally thought to have occurred in 2014. In the latest vintage of ONS data, it was in 2013. 15 16 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 When I returned to my desk from Nottingham and plotted GDP regionally as well as nationally, something surprising emerged from the numbers. | Behind the veil lies the ultimate owner – citizens, whether as workers, customers, shareholders, stakeholders or voters. Institutions are executive gatekeepers of these citizen democracies. Ultimately, it is citizens to whom policymakers, economic and otherwise, are accountable. Those of us in the policy game need never to lose sight of that. Despite those ownership rights, it is nonetheless the RSA’s contention that citizens are not at present engaged in the economy, and in economic policy, as fully as would be desirable. They make the case for moving to a deliberative democracy, one in which citizens have a greater say on matters economic and financial. This is a big contention. Nonetheless it is one that I – as a citizen and as someone who works for one of those institutional veils, the Bank of England – fully accept. More than that, the Bank is making strides towards increasing citizen engagement in the economy and understanding of economic policy. In what follows, let me first say a word about the aims and objectives of a programme of citizen engagement, the like of which the RSA are proposing – the “ends”. I will then turn to the “means” – what practically could be done, and indeed is being done, to improve citizen engagement with the economy and economic policy. For reasons of familiarity, I will focus on Bank of England initiatives as one example of such public engagement, although the RSA’s recommendations cover a range of other policymaking functions. | 1 |
I nevertheless think that one can draw some conclusions from these exercises: Firstly: Whatever the authorities do in terms of macroprudential policy measures, changes in fiscal policy or in monetary policy, it will affect the price of money in the economy, that is, loan costs, and thereby the incentives for indebtedness. This means that measures taken in one area must take into account what is being done in other areas. The one hand must be aware of what the other is doing, even if they are not completely coordinated. 10 BIS central bankers’ speeches Secondly: It is clear that of the measures now being discussed, some have much greater potential than others for influencing the incentives for households to borrow. Here the challenge will be to find measures that are sufficiently forceful, but will not be the actual straw that breaks the camel’s back. What one wants to achieve is a controlled adjustment. Thirdly: If we are to deal with the excessively high indebtedness, it is unavoidable that this will have an effect on individual households and entail costs for the economy as a whole – although of course the benefits will ultimately weigh heavier, if we can avoid a really poor outcome. Let me be clear that I do not believe it is enough to solely implement measures that affect the supply and demand for credit through increased loan costs for households. Other measures are also needed. | Jean-Pierre Roth: Steps to strengthen the Swiss financial system Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the news conference, Bern, 16 October 2008. * * * Pursuant to art. 5 of the Swiss National Bank Act (NBA), the SNB shall contribute to the development of our economy and the proper functioning of our monetary system. This is why the SNB has decided to extend a loan not exceeding USD 54 billion to the special purpose vehicle (SPV) set up to take over illiquid assets currently held by UBS. A similar offer has also been extended to the CS Group, which has refrained from making use of such a possibility. For the SNB, this operation is highly unusual, both with regard to its scope and the reasons for it. Scope of operation As to the scope of the operation, USD 54 billion is clearly a substantial amount for the National Bank. I would like to emphasise, however, that the loan amount is entirely guaranteed by the portfolio assigned by UBS, i.e. securities valued at USD 60 billion in the UBS balance sheet. Given the fact that in the past twelve months, UBS has made aggressive write-downs on its risky positions and that its portfolio is fairly diversified (it does not only consist of toxic assets), we feel that the risk of further losses on this portfolio is limited. | 0 |
Migration path, five years after In 2011 Bank Negara Malaysia had developed a comprehensive roadmap in its Financial Sector Blueprint to drive the migration to e-payments with measurable targets to be achieved by 2020. Over the last 5 years, Bank Negara has worked with the payments industry to put in place conducive regulatory frameworks, agree on market incentive structures and build enhancements to e-payment infrastructure and services. Our aim is to provide an enabling environment for individuals and businesses to migrate away from paper based payment methods and adopt e-payments instruments. The results have been encouraging. Since the implementation of the Pricing Reform Framework in May 2013 and the e-Payment Incentive Fund (ePIF) Framework in January 2015, cheques which had only declined at a marginal rate of 2% on average from 2011 to 2013, had declined at a higher rate of 10% in 2014. The decline in cheque usage had accelerated to 16% for the first 9 months of this year. Consequently, the number of cheques cleared is projected to fall from about 207 million in 2010 to 149 million by the end of 2015. If such decline rate is sustained, the target of reducing cheques to 100 million per year by 2020 would be achieved. The reduction of about 100 million cheques above saves a minimum of RM300m not taking into account other savings in terms of efficiency and security. Similar trend was observed in the number of electronic fund transfer transactions. | Muhammad bin Ibrahim: Developing Malaysia’s payment system landscape Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Payment System Forum and Exhibition 2015 “Moving Forward with e-Payments”, Kuala Lumpur, 3 November 2015. * * * Welcome to the 2015 Payment System Forum and Exhibition 2015, with the theme “Moving Forward with e-Payments”. This year is another important step in our effort to develop our country’s payment system landscape. It marks the mid-way point of our journey to transform our country’s payments infrastructure into one that is highly efficient, secure and competitive as outlined in the 10-year Financial Sector Blueprint from 2011 to 2020. I will focus on 3 areas in my remarks today. • First, I will provide you with an update of where we are in our migration path five years since we launched the Financial Sector Blueprint, and what we have done and achieved so far. • Second, I will share with you some thoughts on how collaborative efforts among various stakeholders in the payment value chain can leverage and thrive on epayments as a strategic tool in today’s increasingly dynamic and competitive environment, and • Third, I will outline the opportunities that can be realised in relation to the Financial Sector Blueprint targets with specific emphasis on key priorities for 2016. | 1 |
In addition, cross-border banks with subsidiary structures have to obey to the rules of the deposit insurance scheme in each country where they are represented. This is complicated and costly for them. Once they have become a member of a scheme and paid into it, it is often impossible to recover the funds in case they would like to streamline the group by moving to a branch structure, e.g. by becoming a Societas Europea. This might discourage cross-border groups from streamlining their company structure, which could become a factor limiting financial integration. In this area as well, I a missing a study providing answers that take all benefits and costs of different options into account. All these observations raise the issue as to whether the mechanisms for coordination at the level of the EU should be used to achieve more convergence in the various aspects of deposit insurance schemes in the context of the presently decentralised approach to financial regulation and stability. This convergence could go in the following directions. First, in addition to setting a lower bound, also the maximum amount covered could be limited and the specification which deposits are included and which not better harmonised. Partial insurance, or the so-called co-insurance, for smaller deposits could be removed where it still exists, as recent experience seems to suggest that it may reintroduce incentives for retail depositors to run a bank. Second, it may be advisable to move towards pre-funded schemes, which are financed through risk-sensitive premia. This would bring bank incentives better in line. | To whet your appetite – and here my comments are aimed particularly at the representatives of the press – I should like to stress that we have been particularly transparent and candid in preparing this work, something which was probably inconceivable just twenty-five years ago. So start looking for the scoops which, no doubt, are hiding within the pages of the book – happy hunting! 2 BIS Review 71/2007 | 0 |
For instance, the proportion of borrowers with a debt burden indicator above 80% (suggesting that people had to spend more than 80% of their monthly income on loan servicing — a heavy debt burden) went up from 23% at the beginning of the pandemic to 30% in the second quarter of this year. That is certainly an area of concern. We are in dialogue with banks, explaining why that situation is dangerous. A bank portfolio might look OK (banks might tell us: see for yourself, our portfolio is being serviced, it is all right). However, when many consumers in the wider system, some of them debt-laden, take out many loans that are unsupported by income growth, risks are bound to increase. In a negative scenario, many borrowers would be unable to service their loans, which would trigger the emergence of social and financial stability risks. With the tools available to us, we are working to cool the market. We have increased add-ons to high-risk consumer loans, with a further increase to take effect from 1 October. We might have to raise those buffers still further. However, they are not an ideal tool. This is how they work: high-risk loans lock more bank capital compared with low-risk loans (and therefore high-risk loans lose economic advantage). However, there is capital stock in the banking system, but it is distributed unevenly. Ultimately, regulatory add-ons propel banks with modest capital reserves to change their strategies, while those with abundant capital may simply lure their customers away. | “Sudden stops” were observed in the funds flowing towards the euro area countries more adversely affected by the sovereign crisis, with changes in the bank deposits in 4 See for instance Cassola, N., A. Durré and C. Holthausen (2011): “Monetary Policy Operations: experiences during the crisis and lessons learnt”, Proceedings of the Sixth ECB Central Banking Conference “Approaches to monetary policy revisited – lessons from the crisis”. 4 BIS central bankers’ speeches stressed and non-stressed countries. These developments were eventually mirrored in the Target balances of the Eurosystem The large differences in financing conditions across countries translated into a very high fragmentation of credit growth across the national dimension. The ability of banks in some countries to deleverage is heavily complicated by the adverse market conditions. Not only do banks in the affected countries often need to deleverage more than others, but also their portfolios consist of less liquid assets (such as domestic sovereign bonds) and they face, ceteris paribus, higher funding costs than their peers in other euro area countries. Often they are even completely cut off from traditional private sources of funding. With the deepening of the sovereign debt crisis, the Eurosystem undertook additional measures, with a particular view to mitigating the increased heterogeneities in the euro area financial conditions. In 2010, the Securities Markets Programme was launched, aimed at certain important segments of the financial market that were dysfunctional, but vital for the transmission of monetary policy signals. | 0 |
The Gini coefficient shown is calculated over final income, which includes direct and indirect payments, benefits, and benefits in kind such as health and education. Source: World Wealth and income database and Atkinson, Anthony B. (2007). The Distribution of Top Incomes in the United Kingdom 1908-2000; in Atkinson, A. B. and Piketty, T. (editors) Top Incomes over the Twentieth Century. A Contrast Between Continental European and English-Speaking Countries, Oxford University Press, chapter 4. 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 0.2 At the same time as these intergenerational divides are emerging, evidence suggests that equality of xi opportunity in the UK remains disturbingly low, potentially reinforcing cultural and economic divides. xii 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 6 All of this matters. As the community groups here in Liverpool will attest, and more formal studies of people’s happiness find, subjective well-being is significantly affected by perceptions of inequality and the sense of community. | And, when we rebound from the shock of the pandemic, the Mittelstand will have to be one of the drivers once again. The coronavirus is a double economic shock. Its effects have hit activity extremely hard, with GDP falling by 6.8% in the euro area last year and 5% in Germany. But it has also accelerated structural changes that will transform our lifestyles and our economies. According to some estimates, the pandemic has brought forward the digital transition in Europe by seven years. [4] And it is estimated that 20% of work hours will move permanently from office to home. [5] This will lead to new patterns of demand and new ways of living. So, our challenge will not only be to recover from the crisis, but also to adapt to the changes it has set in motion. And the Mittelstand – thanks to its agility, its focus on innovation and its commitment to competing by adding value – will have to be at the heart of this process. For now, however, the pandemic is still weighing heavily on our economies, and especially on firms in the services sector. While manufacturing has recovered quite well since the first lockdown last year, buoyed by solid global demand, activity in the services sector has remained subdued owing to the social distancing measures that are still in place today. | 0 |
Another important feature to note is the decentralisation of knowledge: With a touch of their screen, consumers are now able to access an almost infinite repository of information about the products that they want; including comparisons and peer reviews. The days of the insurer or agent knowing best have passed, and it is important to recognise how this tilts the bargaining power in favour of the consumer. From this, there are fundamental questions that need to be asked of the agency force: Are the current incentives of the industry aligned with the best interests of consumers? Should insurance companies still be thought of as the main principals that agents serve, or should consumers be seen as an equal principal in that relationship? How can the remuneration and more generally, culture, change from one focused on volume of sales to one where agents are recognised for more customer-centric, and a consultative role? These are some of the questions that I hope this convention will touch on, and perhaps for me to share some thoughts. 1/4 BIS central bankers' speeches There are many concerns over the potential upheaval of the status quo arising from the digitalisation of services. But I can share with you that we firmly believe that the agency force will continue to have a role to play in the general insurance sector even as it evolves into the Digital Economy. | Encik Adnan Zaylani Mohamad Zahid: Distribution in a digital economy - Customer @ Core Keynote address by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the General Insurance Agents Convention "Distribution in a Digital Economy - Customer @ Core", Bangsar South City, 18 October 2018. * * * Let me first begin by thanking Persatuan Insurans Am Malaysia (PIAM) for hosting this convention and inviting me to deliver the keynote address. This is my first ever engagement with the general insurance agency force but also the insurance industry as a whole and I am very pleased to be here at this fittingly themed convention, “Distribution in a Digital Economy – Customer @ Core”. There is no question that we are now in an era of the Digital Economy. According to the World Bank there has been an accelerated growth of internet access of more than 170% in global accessibility in the past ten years. In 2006, only 17% of the world’s population was estimated to have an Internet connection – but now that number is 46% in 2016. During the same period, Malaysians with Internet access has increased from 52% to 79%, which is a very high number amongst many countries. With such widespread accessibility, a market presence on the Internet has never been more important. | 1 |
There is a risk that the structural changes brought about by the crisis may result in persistently lower productivity growth. It appears that inflation will remain considerably lower in the years ahead than we expected in December. Both the objective of stabilising inflation around the target and the objective of ensuring stable developments in the real economy suggest that the interest rate should be low. Interest rate setting can also be assessed using simple monetary policy rules that prescribe an interest rate path based on actual inflation and output. The calculations are based on projections for inflation and output in the current Monetary Policy Report. The different rules yield somewhat divergent results, but all of them indicate a decline in the interest rate. Rules do not capture possible restrictions in the supply of credit that may affect the monetary policy transmission mechanism. 12 BIS Review 37/2009 Norges Bank has estimated a simple interest rate rule based on the Bank’s previous interest rate setting. 5 The rule includes developments in inflation, wage growth, mainland GDP and central bank key rates abroad. The interest rate in the previous period is also important. The key rate is now below the lower end of the interval projected. Norges Bank has given weight to staving off particularly adverse outcomes and therefore brought forward the decrease in the key policy rate last autumn. | According to an IPCC study, everyday behavioural changes by people which reduce demand for energy – such as adjusting temperature settings in buildings and reducing air travel – can cumulatively lead to substantial reductions in carbon emissions. People across the world are increasingly concerned about climate change and want to do something about it. Climate change is inspiring people to step up to a higher cause, to take collective action for the common good of our planet. Singaporeans too are becoming more environmentally conscious. According to a 2020 study by the Institute of Policy Studies, 61% of Singaporeans surveyed felt that protecting the environment should be prioritised even if it results in slower economic growth and some loss of jobs. More individuals are taking climate-friendly actions, motivated by a desire to preserve a liveable world for future generations. There are many things we can do as individuals to minimise our impact on the climate. We can do energy audits of our homes to identify ways to be more energy efficient. We can reduce food and plastic waste. We can become a zero-waste nation and a circular economy, where we use less resources and re-cycle resources. We can eat lower in the food chain and shift towards more plant-based protein. University of Oxford researchers have found that reducing meat and dairy products from our diet can help to shrink our carbon footprint from food by up to 73%. We can drive less and take public transport more. | 0 |
By then the Central Bank had repeatedly stated that the exchange rate of the króna had become much weaker than warranted by economic fundamentals. The impact of the tight monetary stance was increasingly felt as the year 2001 wore on. The sharp turnaround in the exchange rate at the end of November that year and the agreement between the Federation of Icelandic Labour and Confederation of Employees in December 2001, postponing an inflation-triggered review of wage agreements, eased the uncertainty and changed expectations. Both these events led to a rapid drop in inflation in 2002, and by last November the Central Bank’s inflation target was attained, one year before this was envisaged in the joint declaration by the government and the Central Bank from March 2001. When it became clear that inflation was on a significant downward path, the Central Bank gradually began to lower its interest rates. It also announced that it aimed to cut them in more and smaller steps rather than fewer and larger ones, not least with the idea of maintaining calm in the forex market. Since April last year the Central Bank has lowered its interest rates eleven times by a total of 4.8 percentage points, including the cut announced on February 10. The Central Bank’s rate for its repo agreements with credit institutions is now lower than it has ever been since the current arrangements for such transactions were introduced early in 1998, when it was 7.2%, and in fact is at its lowest level since 1994. | In this regard, the involvement of multilateral agencies such as ADB would be very useful in that not only will it foster investors’ confidence if the multilateral agencies put in their own financial resources, but it will also help build the governments’ capacity in structuring projects, strengthening the PPP framework and improving project governance to make their infrastructure projects commercially viable. Secondly, shortfall in educational inputs has been seen as one of the major constraints for some developing economies to enhance productivity and move up the value chain. It has also been a major reason for the remaining pockets of poverty in the region, including in countries where substantial economic progress has been made but a substantial proportion of the population is still living in poverty. We encourage ADB to further strengthen its support for the educational sector and developing human capital, which are essential to enhancing competitiveness, eliminating poverty and addressing the rising inequality in developing Asia. Thirdly, intra-regional trade has been an important source of growth after the global financial crisis as regional economies increased their domestic demand and reduced their reliance on exports to advanced economies. As the global economy continues to rebalance, the prospect of the region to sustain its growth would very much depend on its ability to hold up domestic demand through sustained productivity enhancement as mentioned above, and further trade integration within the region. | 0 |
With its twenty years of experience the ABB is now mature enough to stop looking on itself only as an intra-branch organisation and to “open up” so as to actively and publicly uphold the views of the Association members and their loyal clients. I will finish by assuring you that we at the BNB will also continue to work invariably for the financial stability of Bulgaria and to enable the banking system to support the growth of the Bulgarian economy. You know that a considerable part of our activity is done in a way that is invisible to the public, including outside the country where the BNB participates in numerous bodies and working initiatives of the EU and the ECB. An example of this is the issue of financial transaction tax – an ill-advised concept which has turned out to suit politicians with populist leanings in Europe. For over two years the BNB has been defending with firmness and argumentation the position that this tax would be detrimental to both the EU economy and the Bulgarian economy. Luckily, just a few days ago (at the informal ECOFIN meeting in Copenhagen on 30 and 31 March) some of the biggest EU countries, like Germany, which had most ardently insisted on introducing a financial transaction tax, practically gave up on that idea because reaching an agreement in the entire EU proved impossible. | Monetary policy cannot alone prevent financial imbalances or secure the competitiveness of the Norwegian business sector. The objective of monetary policy is low and stable inflation and the Bank only has one instrument – the interest rate. Inflation expectations are now firmly anchored, which means that Norges Bank can give weight to stabilising economic developments in interest rate setting. But monetary policy cannot be overburdened. When assessing the various considerations, monetary policy must pursue its primary objective – low and stable inflation. Other economic objectives must be pursued using policy tools such as financial regulation, the tax system and fiscal policy. Thank you for your attention. 8 BIS central bankers’ speeches | 0 |
The Swedish krona also strengthened during the period 2010–2013. This meant that import prices measured in Swedish krona fell, and thus also Swedish consumer prices. However, during 2014 the krona weakened, which instead led to higher prices. Finally, there is a technical factor that is important for inflation as measured in terms of the consumer price index, CPI. When the Riksbank cuts the repo rate to bring up inflation, the immediate effect is the opposite. Households’ mortgage interest expenditure, and thus the CPI, then fall. There is an alternative measure of inflation, the CPIF, which is based on a constant interest rate and therefore not affected by the Riksbank’s repo rate cuts. Many often follow the CPIF instead of the CPI, particularly during periods when the repo rate changes a lot. Inflation expectations indicate confidence in the inflation target It is important that the inflation target is credible. And it becomes credible when the economic agents expect inflation to return to the target following deviations. It is primarily the long-term inflation expectations that indicate confidence in the inflation target. Central economic agents are regularly asked how high they expect inflation to be in the coming years. Figure 5 shows how inflation expectations two and five years ahead have developed since 2010. Initially, expectations five years ahead were actually above the inflation target of 2 per cent. However, during 2014 there was a change, when the five-year expectations fell below the level of 2 per cent. | Table 1 FLS data The table below includes all participating groups that had signed up to the scheme and certified their Base Stock of loans by 24/09/2012 FLS Group Certified lending to UK households and PNFCs Aggregate outstanding FLS £ drawings £ Base Stock of loans as at 30/06/12 Quarterly net lending flow Cumulative net lending since 30/06/2012 1,211,736 n/a n/a n/a Aldermore 1,567 n/a n/a n/a Barclays 181,020 n/a n/a n/a Hinckley & Rugby Building Society 433 n/a n/a n/a Ipswich Building Society 444 n/a n/a n/a Kleinwort Benson 11 n/a n/a n/a Leeds Building Society 7,567 n/a n/a n/a Lloyds Banking Group 443,255 n/a n/a n/a 629 n/a n/a n/a Nationwide Building Society 152,155 n/a n/a n/a Principality Building Society 5,408 n/a n/a n/a RBS Group 214,816 n/a n/a n/a Santander 189,339 n/a n/a n/a Virgin Money 15,093 n/a n/a n/a TOTAL Monmouthshire Building Society The FLS measure of lending covers drawn sterling loans to households and private non-financial corporations (PNFCs) by the FLS Group, which includes all UK resident monetary financial institutions and related specialist mortgage lenders within a group. | 0 |
Risk premiums on projects that do not meet green standards should reflect the higher risk associated with these projects. Similarly, discounts should not be given for so-called green projects unless there are financial reasons for doing so. A green investment does not necessarily involve lower financial risk. In order to identify and adapt to their own climate risk, banks depend on relevant disclosure by 4/7 BIS central bankers' speeches the companies in their lending portfolios. Accurately pricing risk is difficult without information about the level of the borrower’s exposure. For banks, transition risk is also a source of financing risk. There is growing interest in climate risk among financial investors, including those providing credit to banks. The perception that some banks are particularly exposed to transition risk may have implications for banks’ funding costs and access to funding. Thus, just as banks should identify climate risk in their own lending portfolios, they must be prepared for their own investors to demand improved disclosure of climate-related financial risk. The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are in the process of becoming normative. Banks play a vital role in the intermediation of credit to households and businesses. Problems in the banking sector can quickly have negative consequences for the wider economy. Large credit losses or difficulties obtaining funding can have ripple effects in the form of lower lending to households and businesses. Transition risk may therefore contribute to systemic risk. | Central banks and financial supervisory authorities can, within their mandates, promote financial stability by ensuring that financial institutions include climate risks in their risk assessments. Climate risks must be addressed in the same manner as other risks facing the financial sector. To the extent climate risks lead to higher credit risk, funding risk and systemic risk, climate risks should be included in the assessment of whether banks are sufficiently capitalised and have adequate long-term funding. Climate risks and the Government Pension Fund Global Norges Bank manages the GPFG under a mandate from the Ministry of Finance. The capital is invested with the objective of achieving the highest possible return within the limits of acceptable risk. The GPFG’s mandate requires responsible investment activities to be integrated into investment management. The aim of being a responsible investor is in part to support the long-term financial performance of the GPFG's investments. In addition, we seek to mitigate the financial risks associated with environment-related and social conditions in investee companies. Chart: Invested in more than 9 000 companies in 73 countries Seventy percent of the GPFG is invested in equities. With ownership shares in more than 9 000 companies in 73 countries, we take part in global growth and value creation. Many of the companies in the GPFG’s portfolio could be impacted by physical climate change and the consequences of regulatory and technological countermeasures. Climate change could thus influence the GPFG's long-term return. | 1 |
In that Swedish banks are expanding their operations in the other Nordic countries and the Baltic region, developments in those countries are becoming increasingly important for them. Borrowers abroad now account for approximately half of the banks’ total loan stock. The analysis of borrowers has therefore been extended abroad. The major bank groups are analysed in various respects. Profitability trends illustrate the ability of the banks to build up reserves for unexpected losses. Moreover, there is always the strategic risk that a bank with weak profitability will be tempted to try out new, bold lines of business in order to generate a higher return on equity. The analysis of the banks’ credit portfolios can provide an indication of how loan losses are likely to develop in the coming year or two. Another aspect of the analysis is the banks’ liabilities. Traditional banking involves accepting deposits and using the funds for making loans. People’s growing propensity to save in other instruments than bank accounts has forced the banks to finance the growth of credit by borrowing in the capital market. The structure of bank funding provides an indication of the risks in bank liquidity. Monitoring this is perhaps the most difficult part in that the liquidity situation is liable to change very rapidly. If problems in one bank group spread to other players in the system via the banks’ mutual commitments, the payment system may be affected immediately. The Riksbank therefore keeps an eye on interbank exposures. | But it is not just the significance of the banks in the payment system and as a source of credit that warrants their supervision. As The Economist wrote last spring, banks are “the most hazardous economic institutions known to man”. That may sound rather drastic but there is some truth to it. It is not that bankers are a tribe of irresponsible gamblers but that their much-needed function in the economy requires them to act in certain ways. Banking is essentially a matter of taking risks. A bank’s funds (its deposits or its loans from other banks) are liable to disappear at short notice, while realising assets takes longer. Moreover, problems in one bank are liable to spread to other banks. This systemic risk exists because the banks have liabilities with each other in the form of loans or securities transactions and because they participate in the payment system. The similarity of their operations also means that problems elsewhere may hit the banks as a group. Contagious effects may occur, moreover, simply because people suspect that the banks are inter-connected. To a growing extent, oversight of system stability calls for oversight of the financial infrastructure in the sense of the systems that are needed to effect payments and to trade in and deliver financial products. Bankgirocentralen is a case in point. If these systems function properly, there will be less risk of problems either spreading between the participants and from the financial markets, or arising because the system as such is disrupted. | 1 |
If the fixed-income market is to perform its important function, more is needed than participants who set prices for the various assets. There must also be participants who trade actively at those prices. Neither must the counterparty risks be perceived as unduly high because that may deter participants from trading. Moreover, the market must be capable of handling large volumes without this by itself having an appreciable effect on prices. In other words, the market should be adequately liquid. Why is liquidity important for monetary policy? The answer is that in a liquid market, relevant news shows up quickly in interest rates. An adjustment of the Riksbank’s repo rate, for example, has a rapid pass-through to the short market rates, as well as to somewhat longer rates. This applies, of course, in so far as the repo rate adjustment takes the market by surprise. If market participants instead understand how the Riksbank interprets new information in the form of macroeconomic outcomes, they can draw conclusions about the Riksbank’s future actions. News is then reflected in the formation of interest rates at the time when the macroeconomic outcomes are known. The relevant interest rates also react quickly to various forms of information from the Riksbank. Somewhat longer interest rates may be affected, for instance, when we publish a repo rate forecast, a so-called interest-rate path that presents the Riksbank’s assessment of the future development of the policy rate. The conditions for good market liquidity include low transaction costs, management of counterparty risks and market transparency. | To be sure, these efforts are not necessarily being undertaken with equal commitment and intensity in every country. Nor should they be. No country is like any other. We all recognize that countries differ in their histories, traditions and ways of doing business. This is not a question of thinking that there is only one correct model and that each country must adapt to that model. What is at issue, however, and what is desirable is that all countries grow. What the US experience has shown is that productivity gains driven by new technological advances, coupled with the flexibility to shift resources quickly into high-growth areas and the ability to apply the technology in productive ways, can help contribute significantly to this goal. The United States has no wish to be an island of growth in a sluggish global economy. The costs to the US of being strong when others are weak are very real. One has only to look at the weakness of the US current account deficit in recent years to understand why it is in the interest of the United States for the rest of the world’s economies to be strong and competitive with us. The United States cannot indefinitely be the engine of growth for the world economy - the importer of first and last resort - and sustain ever-mounting current account deficits without running the very real risk of economic and financial difficulties that could well weigh on many of the world’s economies. No one wants that. | 0 |
Thus, Board Members may never be aware of the company’s problems. If and when they have been informed of the problems, it may already be too late, as evidenced in the case of Enron. It is for the above reasons that the authorities here in Asia, are pushing for the separation of Chairman and CEO positions so that they cannot be occupied by the same person in order to properly balance the powers and functions of the two roles. It is also fortunate for us that the practice of issuing stock options to directors of financial institutions is not yet widespread among banks in Asia. Ladies and Gentlemen, What I have highlighted is only one facet, and in fact only half of the story of good governance: that is what NOT to follow. Let me turn to the other issue of the missing link in the Western concept of governance. In the Western World, the focus of the governance structure is to protect the interest of the organization and its shareholders. It ensures that the management or staff would not abuse their organisation for personal gains. However, there is nothing in the Western structure of governance that talks about the need for the protection of consumers’ interests, and, more importantly, the interests of society at large. A corporation that grows sustainably does so because it has earned the recognition of its customers. | Peter Pang: Economic and financial outlook for the Asia/Pacific region Welcome remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Launch of the International Monetary Fund’s Regional Economic Outlook, Hong Kong, 28 April 2014. * * * 1. Good afternoon. It is my pleasure to welcome all of you to the launch of the latest issue of the IMF’s Asia and Pacific Regional Economic Outlook. We are honoured to have Mr. Changyong Rhee, Director of the Asia and Pacific Department of the IMF, and his colleagues to share with us today their views on the region’s economic and financial developments, the outlook and the challenges, and what can be done to manage the risks and promote further growth that is sustainable over the years ahead. 2. I totally agree with the theme of this issue of the REO – sustaining Asia’s high growth momentum would require continuing vigilance and reforms. There is little doubt that Asia will continue to grow faster than most other regions in the world. Since the Asian financial crisis, policymakers have implemented many structural reforms making the region more resilient. Asia has also been leading the world recovery after the global financial crisis. Having said that, Asia cannot afford to feel complacent as the road ahead is bumpy. And we will be in unchartered waters when the high tide of global liquidity starts to ebb as the developed economies embark on the normalization of their monetary policies. | 0 |
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