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While a stronger alignment with actual economic risk is necessary, it is also important that the new requirements do not imply excessive procyclicality. When I speak of “pro-cyclicality”, I am referring to the interactions between the financial and real sectors of the economy, which tend to be mutually reinforcing and to amplify business cycle fluctuations. Just as a period of economic growth will tend to be accompanied by excessive risk-taking on the part of financial institutions, strong credit growth, asset price bubbles and, ultimately, the building-up of systemic risks, a strong contraction in economic activity may lead to a marked slowdown in financial flows, including credit, which hinders the recovery. Pro-cyclicality implies that capital requirements are loose 6 BIS Review 129/2009 in a boom, allowing banks to lend more in relation to their capital, while they are tight in a downturn, which induces banks to cut back lending to the private sector even further than they would in the absence of these requirements. While these mechanisms are to some extent justified by the different degrees of risk prevailing in the different phases of the business cycle, it is important that they do not lead to the excessive effects I just described. The pro-cyclical impact of regulatory capital requirements is currently being analysed by the relevant authorities, including the ECB. These assessments could provide a basis for developing an appropriate counter-cyclical buffering mechanism, which is a precondition for enhancing financial stability over the medium to long term. | Looking at just the past four or five years, there is no doubt that certain laws of economics have been stretched to their limits and, in order to convince outsiders that the stakes have not been set too high, we have had to insist – and rightly so, I hope – that Iceland’s economic environment has various advantages that are not immediately obvious to those who are accustomed to operating in larger and more restrictive conditions. Here there is great flexibility, official measures are very transparent and channels of communication are shorter, which enables easier decision-making so that households, businesses and the authorities are quicker to respond to economic incentives or challenges than is the case elsewhere. To give you all a more complex and interesting topic to discuss at a conference such as this, the government itself promoted a number of measures that will benefit Iceland and its people in the long run. However, their timing and scope may have been more questionable. Thus the government itself was mostly responsible for attracting the largest single investment that has ever been made in Iceland, to which the state-owned power company, Landsvirkjun, had to respond by matching it with an investment of its own on the same scale. The inflow of capital was enormous. | 0 |
The results showed that banks’ risk-weighted assets differ to an extent that goes well beyond what can be explained by business models and historical experiences. If we just take the banking-book results, two banks with exactly the same assets could report capital ratios that differ by as much as 4 percentage points. The potential for differences this wide, particularly as they are derived from only a part of a bank’s business, weakens confidence in the measurement of bank capital. Of course, this was not a total surprise. It was a reflection of what I mentioned earlier; that internallymodelled risk weights lead to capital not keeping pace with asset expansion. This has undermined the confidence in banks and in the credibility of the whole concept of banks’ internally-modelled risk weights. Ensuring consistency in the implementation of risk-based capital standards will therefore be a key factor in restoring confidence in banks. The Committee is thus assessing bank capital ratios with a view to ensuring that they appropriately reflect the risks that banks face. There should be “truth in advertising” for the regulatory ratios that banks present. To achieve this, the regulatory framework needs to deliver readily comprehensible and comparable outcomes. In my view, these assessments, both the jurisdictional and the thematic that compares risk-weighted assets, are absolutely vital for achieving our goals. This will be an important focus for the Committee in the coming years. I would now like to take a step further and focus on the link between implementation and how the system should be calibrated. | It is also standard procedure that new regulations are subject to industry consultation and in many cases additional discussions also take place with the industry itself, as well as with investors, to avoid unintended consequences. In this context, however, let me remind us all that the reactions we get from the banking industry are sometimes slightly biased, if I dare say so. A telling example is the lobbying effort during the design of the Basel II framework. As part of that work, in 2003 the Committee consulted on a new securitisation framework, which, with the benefit of hindsight, turned out to be very weak. Yet the comments from the industry on the proposed securitisation framework were in general quite alarming. Allow me to quote just a couple of the replies to the consultation proposal that the Committee received (all of which are publicly available): • One bank wrote: “The prescribed risk weightings for securitisation exposure(s)…result in excessive risk weights compared to the economic risks of securitisation tranches, particularly for retail and mortgage portfolios.” – This particular bank happened to incur $ billion in losses from CDOs during the crisis.5 • Another bank wrote: “If adopted, the current proposal for securitisation will materially impair the ability of banks to distribute risk from their own balance sheets into the 2 Calculations of costs are based on Laeven, L and F Valencia (2013) using data from the banking crisis database and calculations of the BIS and the Riksbank. | 1 |
BIS central bankers’ speeches Besides these fundamental goals, Banking Union also involves two practical aspects of more immediate concern that I will now address: (i) the repairing of banks’ balance sheets to unclog the impaired credit channel and consolidate the on-going mild economic recovery; (ii) the reduction of the bank-sovereign loop in order to further mitigate the remaining financial fragmentation6. I will complete my remarks by addressing the role of the SRM as the necessary complement to the SSM in the Banking Union and finally, by dwelling upon the broader implications of Banking Union for European Integration. I will only briefly touch upon the SSM as my colleague Danièle Nouy will elaborate on SSM issues during her speech later today. Bank recapitalisation and the economic recovery In the past few years, one could hear many voices urging European policy makers to repair the balance sheets of banks so that these could again lend to the real economy and jump start GDP growth. There will be no growth without finance, the narrative goes. In this vein, the fact that the U.S. has returned to robust economic growth faster than Europe has been, to a large degree, attributed to policy-makers acting quickly to repair the balance sheets of U.S. banks. This narrative, while intuitively compelling, is missing two crucial points. The first is that euro area bank balance-sheet repair has started for some time already. | 2 Holthausen, C. and T. Ronde (2004): “Cooperation in international banking supervision”, ECB Working Paper 245. 3 On financial stability as a public good, see for instance Beck et al (2010): Bailing out the Banks: Reconciling Stability and Competition An analysis of state-supported schemes for financial institutions. 4 Banking union and the future of banking, speech by Vítor Constâncio, Vice-President of the ECB, at the IIEA Conference on “The Future of Banking in Europe”, Dublin, 2 December 2013; Towards the Banking Union, speech by Vítor Constâncio, Vice-President of the ECB, at the 2nd FIN-FSA Conference on EU Regulation and Supervision “Banking and Supervision under Transformation” organised by the Financial Supervisory BIS central bankers’ speeches 1 developed before the crisis. Without unified supervision, it was impossible to contain the build-up of such imbalances in the pre-crisis period. National supervisors had to respect the single market rules and lacked the macro-prudential tools to offset the effects of large capital inflows. As I have often underlined, private debt intermediated by the banks, more than public indebtedness, was at the heart of developments in peripheral countries.5 By introducing supervision at the European level, the Banking Union now offers a possibility to better pre-empt such developments in the future – and therefore to better protect the real economy and financial stability in the whole area. A third objective of the Banking Union is the contribution it can provide to financial integration, by separating banks’ robustness from sovereigns and consequently reduce markets’ fragmentation. | 1 |
As head of the Hong Kong Monetary Authority I have repeatedly been asking our community to stick it out. We have seen downward adjustments in asset markets of about 50% in less than twelve months. While not taking a view as to whether BIS Review 85/1998 -5- such adjustments are adequate in the circumstances, we can do without the excessive and destabilizing interest rate volatility brought about by market manipulation. We can do without what is now clearly proven to be the excessive interest rate premium brought about by the continuous presence of the market predators. We can do without the market overshooting that many of our neighbouring economies have been made to suffer. We can do without confidence being undermined by the greed of those that are intent only on making profits at the expense of our people. We have the wherewithal to tackle the situation and we did so decisively. The third accusation is that we have dangerously departed from the currency board discipline and ventured into discretionary monetary management. We have not. And without bothering you with too much technical detail, the measures introduced recently have the effect of strengthening the currency board arrangements of Hong Kong rather than eroding them. There has been much confusion about this matter, stemming from the somewhat academic debate as to whether a currency board should also be responsible for the provision of liquidity to the banking system that involves an increase in the monetary base. | At the onset of the crisis, governments along with financial regulators have deployed sizeable stimulus packages and various assistance programmes in order to contain the crisis and stabilise the economy. This includes addressing demand and supply disruptions, maintaining cash flows and keeping workers employed. In Malaysia, the total stimulus package amounted to USD 73.55 billion (RM3056 billion) with an additional fiscal injection by the government totalling 1/4 BIS central bankers' speeches RM45 billion. As at September 2020, a total of 2.63 million workers and 321,000 employers had benefitted from the Wage Subsidy Programme, involving an expenditure of RM10.4 billion. To provide further stimulus to the economy, the Bank has reduced the overnight policy rate (OPR) by a cumulative 125 basis points (from 3.00% to 1.75%) this year, alongside reduction in the statutory reserve requirement by 100 basis points (from 3.00% to 2.00%). The reduction in the OPR is intended to provide additional policy stimulus to accelerate the pace of economic recovery. The financial industry, including Islamic financial institutions, also lent support to their borrowers and customers. In the first half of 2020, a total of RM120 billion7 was disbursed in lending/ financing to SMEs, with more accounts being approved8 in aggregate in 2020 compared to the same period in previous years. Islamic financial institutions and related associations have been actively educating and reaching out to affected borrowers about the financial assistance programmes available in response to the pandemic. | 0 |
Only towards the end of that decade, with first a Labour and then a Conservative Government recognising that the control of inflation was the first step towards any semblance of a coherent macroeconomic policy, did the transition from the Great Inflation to the Great Stability begin. But the first steps were faltering. It took two painful recessions and sterling’s exit from the Exchange Rate Mechanism in September 1992 to reach the goal of low inflation. Even then, the long-term commitment of the United Kingdom to low inflation was not fully believed by financial markets. Granting independence to the Bank of England was the dramatic constitutional change that convinced financial markets of the United Kingdom’s conversion to stability as the basis of macroeconomic policy. Next Sunday is the tenth anniversary of the historic announcement on the morning of Tuesday 6 May 1997 that the Bank of England would be granted independence. Although that decision was both unexpected and far-reaching, we had been preparing to implement the manifesto commitment to introduce a monetary policy committee to help the Bank formulate its advice to the Chancellor in the context of the previous regime, in which the Chancellor decided on the level of interest rates following a meeting with the Governor. On the very day that Gordon Brown and Ed Balls entered the Treasury carrying a draft letter to the Governor setting out proposals for Bank of England independence, the Bank completed a paper for the incoming team setting out proposals for how an advisory committee might operate. | 3 Nationally Determined Contributions. 3/3 BIS central bankers' speeches | 0 |
This will reduce barriers to entry by making it easier for third party providers to ‘plug into’ the banks’ systems to manage customers’ accounts on their behalf. Figure 1: Impact of reforms The reforms are designed to increase innovation, competition and security in payments and banking services – to give us better information, more competitive pricing and new services in the use of the 97% of our money provided by the private banking system. They pave the way for improved and more secure smartphone apps, including the so-called ‘aggregators’ that aim to help customers shop around and switch providers of financial services frictionlessly. 15 15 The energy market is sometimes cited as a possible comparator for consumer switching. In that market, five and a half million customers in the UK switched provider in 2017. 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 Just as many of us have come to use our smartphones as a single tool for things that we used to do over multiple devices, so PSD2 and Open Banking could, at least in theory, enable apps that centralise our personal financial affairs, offer us advice on how we might more efficiently manage our finances (for example, by recommending that more money could go into a savings account, or rival bank that is offering better interest). | The first is that these claims are denominated in Sterling, the ‘unit of account’ in the UK, the common measuring stick of economic value that we all accept, that is governed by the Bank of England under the authority of Parliament. The Bank’s Monetary Policy Committee is charged with ensuring the stability of the currency’s value in terms of what it can buy. The second is that the private banks that hold our transactional accounts (i.e. take deposits) and create money by issuing claims on themselves, have to operate within a comprehensive legal and regulatory framework – supervised by the Bank of England and the FCA. This framework itself has been greatly strengthened since the financial crisis. It is designed to ensure that the banks that are authorised to take deposits and issue claims on themselves in return, are robust and can absorb losses. They have access to the lending facilities of the Bank of England to meet any shortages of liquidity. Up to £ of deposits are protected by a statutory deposit guarantee scheme paid for by the banking industry. Banks are also now subject to ‘resolution’ requirements to ensure that in the unlikely event of failure they can be stabilised and subsequently broken up, sold or wound down to the degree necessary while protecting depositors’ ability to make and receive payments – and without requiring taxpayer money. The payment systems through which claims on private banks are exchanged, are likewise supervised by the Bank of England. | 1 |
The ethnicity pay gap then began increasing steadily between 2006 and 2014 (red dots), averaging 6% over the period. Recently, it has begun to fall (green dots), reaching just under 4% in 2018. Chart 11 shows that higher ethnic minority participation in the workplace has only been associated with lower pay gaps very recently. This, and the relatively volatile pattern in the ethnicity pay gap over time, presents something of a puzzle. We might instead expect pay disparities to decline as ethnic minorities become better represented in the labour market through higher participation. 14 All speeches are available online at www.bankofengland.co.uk/speeches 14 Chart 11: Ethnic minority participation and unconditional pay gaps Ethnicity pay gap (per cent) 12 2006 ‐ 2014 10 2015 ‐ 2019 8 6 1997 ‐ 2005 4 2 0 ‐2 ‐4 55 56 57 58 59 60 61 62 63 64 65 Ethnicity participation (per cent) Source: ONS Labour Force Survey and Bank of England calculations. Note: A positive ethnicity pay gap in this chart indicates that ethnic minorities earn less than their white counterparts, whereas a negative ethnicity pay gap indicates that ethnic minorities earn more than their white counterparts. Looked at by qualification, white workers earn more than ethnic minorities for most levels of qualifications. The exception are those with “other” or no qualifications living outside London. | Looked at over time, Chart 23 shows that this gap was quite volatile in the early part of the sample, although the coefficients are also insignificant for this period. Since 2009, the ethnicity pay gap has remained in double digits for most of the period and has been statistically significant.13 Chart 23: Conditional ethnicity wage gap under specification (6) Difference in lnpay 0.1 Not statistically significant Statistically significant 0.05 0 ‐0.05 ‐0.1 ‐0.15 Ethnicity pay gap ‐0.2 1994‐1998 1999‐2003 2004‐2008 2009‐2013 2014‐2019 Source: ONS Labour Force Survey and Bank of England calculations. Note: A negative ethnicity pay gap in this chart indicates that ethnic minorities earn less than their white counterparts, whereas a positive ethnicity pay gap indicates that ethnic minorities earn more than their white counterparts. The raw, unconditional pay data suggests that wage patterns may vary significantly across different ethnic minority groups, with some pay gaps negative and others positive. To see whether these effects hold true having accounted for compositional effects, we can run (7) with separate binary variables for each ethnicity group i relative to a white control group, namely: mixed/multiple ethnic groups, Indian, Pakistani, Bangladeshi, Chinese, other Asian background, Black/African/Caribbean/Black British and “Other”. 13 This may in part because of the rising proportion of ethnic minorities in the sample population. | 1 |
Over the years, I have returned to China many times and witnessed its remarkable transformation first-hand. How China has changed! Revolutionary songs in public have given way to pop songs in karaoke lounges. Mao jackets have been discarded in favour of Gucci, Armani and other luxury brands. I am told that many Chinese go to Hong Kong to buy branded goods, while many Hong Kongers cross over to Shenzhen to buy cheap imitations. China is today the third biggest luxury goods market worldwide. 10. The physical transformation of China is remarkable enough but the mindset change is even more impressive. When Deng Xiaoping pronounced that the colour of the cat is not important so long as it catches mice, pragmatism supplanted ideological purity. Today, there are more capitalists in China than in Japan. According to a recent Xinhua article (13th October 2005) entitled " China's Rich Get Gloriously Richer", the total wealth of China's 400 richest people grew by 40 percent in 2004 and amounted to 7 percent of GDP. The Chinese have made a strategic choice to pursue what they call BIS Review 83/2005 1 'socialism with Chinese characteristics'. But to me, it is capitalism with Chinese characteristics. China has also embraced globalisation and with its admission to the World Trade Organisation in 2001, China will have to play by international trade rules. There is no turning back. As China grows, it has a vested interest to strengthen the international system that has enabled its success. 11. | We must therefore consider whether cash has any important characteristics that are not shared by bank deposits and whether there is a need for other forms of central bank money in addition to cash. Cash has a number of unique characteristics: It is a credit risk-free alternative to deposit money. It is an independent back-up solution if electronic systems fail. It is legal tender that can be used by all. 4/5 BIS central bankers' speeches For Norges Bank, the question is whether a CBDC could supplement cash to maintain confidence in the monetary system and ensure that Norway’s future payment system is safe and efficient. A list of factors that should be given weight in an assessment of whether Norges Bank should issue a CBDC was presented by a Norges Bank working group in May. Phase 2 of the assessment is now in progress. The working group is focusing on the purposes of a CBDC, the solutions that best serve these purposes and their impact. The working group’s report will be published in spring 2019. This is a long-term process and it is too early to draw any conclusions. A premise underlying the work is that a CBDC must not impair the ability of banks and other financial institutions to provide credit. Conclusion The various developments reflect a payment system in change. It is important to look up and envision the situation a few years ahead. Where do we want to be then? | 0 |
However, the pattern of its recovery is, so far, relatively weak in comparison with other similar cyclical phases. The financial restructuring being implemented by certain large corporations, which has limited their ability to spend on new projects, and persisting factors of uncertainty over the pick-up in demand may have been behind the as-yet subdued response of this investment component Goods exports expanded at a faster rate than their markets, despite the loss of competitiveness induced by the appreciation of the euro. This favourable result was offset, however, by the sluggish behaviour of tourism and by the rise in imports, boosted by the euro appreciation. Consequently, net external demand exerted a significant contractionary effect on GDP, which has run into the opening months of 2004. It should be borne in mind, moreover, that the employment adjustment in the industries most exposed to foreign competition may be reflecting the fact that the defence of market share is, in some cases, based on unsustainable processes that erode the economy’s overall competitiveness in the medium term. 4 BIS Review 39/2004 Notable among the achievements in 2003 was the improvement in inflation which, after starting the year at a rate of 4%, ended it at 2.6%. This sizable downward adjustment partly reflects the removal of certain transitory elements from the index which had had an upward effect in 2002, but it was also the result of the restraining impact of import prices, favoured by the euro appreciation and the slowdown in oil prices. | The difficult times of past years, during which most institutions showed notable resilience, led many of them to undertake reforms designed to reduce costs, such as the sale of non-strategic assets, and these decisions should now be bearing fruit. The improved situation of financial institutions at the international level seems to be borne out by the favourable outlook for their future performance that agents operating in the markets have. In 2003 this perception was reflected in rising stock market prices, reduced implied volatilities and narrowing risk premia. Spanish deposit institutions, thanks to their sound initial position and the fact that the Spanish economy outperformed the EU average, were less severely hit by the difficulties of past years. They were thus in a position in 2003 to benefit from the favourable international financial situation, from the rebound of the securities markets, and from the continued strong relative performance of the Spanish economy. In particular, Spanish deposit institutions enjoyed higher growth of earnings and profitability in 2003. This allowed the effects of a more competitive environment and low interest rates to be offset by larger business volumes and tighter control of operating expenses. Also, lower doubtful assets allowed bad debt provisioning to be reduced thanks to the smaller need for provisions to the specific fund (partly counteracted by changes in the statistical and general funds), thereby boosting the institutions’ profit and loss accounts. Solvency ratios held steady and default ratios stood at historical lows. | 1 |
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. | With the US rate hike cycle drawing nearer, the window for the region to get prepared for a tightening in financial conditions is getting smaller. It is therefore important for policy makers to contain further build-up of leverage, and to ensure banks will properly manage interest rate and exchange rate risks, and can withstand any potential deterioration in loan quality. It is encouraging to see that policymakers in many economies in the region have taken pre-emptive policy actions to lower credit growth and slow house price inflation. The biggest challenge now is when and how to relax these measures when market conditions reverse. 6. Second, policymakers will need to have sufficient backstop to mitigate systemic risk in the financial system in the event of a disorderly exit of US monetary policy. In this regard, the ASEAN+3 Chiang Mai Initiative Multilateralisation Arrangement, the regional financial safety net, could help to mitigate the risk of financial contagion by providing financial resources to members in the event of short-term liquidity difficulties. BIS central bankers’ speeches 1 7. Third, structural reforms remain the best way to reduce vulnerabilities and achieve sustainable growth over the long-term. We have been moving forward on this front through a deepening of intraregional trade, strengthening private and public-sector balance sheets and improving market infrastructure. But a lot more needs to be done. There is still ample scope to tackle structural impediments to growth and stability such as further capital market development, product and labour market reforms and service-sector reforms. | 1 |
It is now over a year since the Occupy movement commenced its journey and entered the collective conscience of the public and policymakers. One year on, what has it achieved? Some have suggested rather little, that Occupy’s voice has been loud but vague, long on problems, short on solutions. Others have argued that the fault-lines in the global financial system, which chasmed during the crisis, are essentially unaltered, that reform has failed. I wish to argue tonight that both are wrong – that Occupy’s voice has been both loud and persuasive and that policymakers have listened and are acting in ways which will close those fault-lines. In fact, I want to argue that we are in the early stages of a reformation of finance, a reformation which Occupy has helped stir. Let me start with the contribution of the Occupy movement itself. Occupy has been successful in its efforts to popularise the problems of the global financial system for one very simple reason: they are right. By this I do not just mean right in a moral sense. For sure, Occupy have touched a moral nerve in pointing to growing inequities in the allocation of wealth and incomes globally. The 99% certainly agrees. But so, more interestingly, do a high and rising share of the 1%. Yet it is the analytical, every bit as much as the moral, ground that Occupy has taken. For the hard-headed facts suggest that, at the heart of the global financial crisis, were and are problems of deep and rising inequality. | What I confess I did not anticipate at that time was the difficult international environment in which we've had to operate over the past four years - including both the global economic slowdown and the persistent strength of sterling against the surprisingly weak euro. It must be that external environment - which has clearly had a dampening effect on demand and output in this country - that is, for us, the frost that burns. 2 BIS Review 64/2002 There was nothing that we could do ourselves directly to address the causes of these problems which had their origins abroad. What we could do - and indeed have done - is to offset as best we could the effects of the external frost by turning up the domestic heat in our economy, cutting interest rates to their lowest level for 40 years - which is where they've been for the past 12 months - consciously encouraging consumer spending on the back of rising house prices and a rapid build up of household debt. So although we've been reasonably successful in maintaining stability in the UK economy as a whole, we've had to live with a painful imbalance within the economy - between the internationally exposed sectors, including much of manufacturing, which have been having a torrid time, and the domestically-oriented sectors which have been doing relatively well. Essentially, faced with the external frost we've turned up the domestic heat - without that we'd all have felt cold! But this approach is not without risks. | 0 |
2 Ecinci, Kalemli-Ozcan and Sorensen (2007), Financial integration within the EU countries: the role of institutions, confidence and trust, NBER working paper. BIS Review 17/2008 1 Research presented this afternoon also threw a positive light on the role of financial integration with respect to Central and Eastern European countries. In fact, this contrasts a bit with some previous literature that argued that developing and emerging market countries are less able to reap the benefits of financial integration. One paper argued that foreign banks appear to allocate credit more efficiently than domestic banks in this region. 3 And, accordingly, another finds that financial integration has helped convergence and economic growth in Central and Eastern European countries. 4 Financial integration is also of key importance for the performance of the tasks of the Eurosystem. First, a well-integrated financial system enhances the smooth and effective transmission of monetary policy throughout the euro area. Second, financial integration is relevant for our task of contributing to the safeguarding of financial stability. Integrated markets reinforce the shock-absorption capacity of the system, as they are more liquid and offer better opportunities for financing and risk distribution. Finally, without prejudice to the main objective of price stability, we support the general economic policies of the European Union. What is the current state of European financial integration? Here I will be very brief today, as I have characterised this already at various occasions in the past and as financial integration is not a fast-moving process. | Finally, we provide central banking services that also foster financial integration. For example, most recently we successfully launched TARGET2, the second generation of our large-value payment system. By moving from a system composed of mutually interconnected national real-time gross settlement systems to a common system with a single shared platform for payments, we achieve further harmonisation for users in different countries and realise considerable scale economies. We achieved a single price structure for both domestic and cross-border transactions, the possibility of consolidated liquidity management for cross-border financial institutions and a harmonised set of cash settlement services for a variety of connected systems. The new system started in November last year with the first wave of countries. More countries will join in a few days and the last wave will follow in May this year. With a view to maximising the benefits from TARGET2, the Eurosystem is currently also exploring the possibility of providing settlement services in central bank money for eurodenominated securities transactions. The objective of this project, called TARGET2Securities, is to concentrate securities and cash settlements within Europe on an efficient, single platform. The user requirements of the system are currently the subject of a public consultation. The Governing Council will take into consideration the views of the stakeholders as well as the relevant public authorities prior to making a decision, by mid2008, on whether to launch the project. | 1 |
When the prices of some goods fell, such as imports in the late 1990s, people had more disposable income to spend on other goods and services. That pushed up demand in those sectors and encouraged companies to raise prices. Conversely, when some prices rose, as with energy prices over the past two years, the resulting squeeze on income available to spend on other goods and services helped to bear down on inflation in those sectors. With steady growth of money spending, a change in relative prices can be consistent with stable inflation overall. Monetary policy – a credible commitment to the inflation target and a broadly stable growth of total money spending – was then, and is always, the key to low and stable inflation. That point was made forcefully in a speech in February by the late David Walton, whose untimely death in June was a great loss to the Monetary Policy Committee. Over the past couple of years our economic performance has not been quite as “nice” as in the NICE decade, but it was “not so bad”. 2 In 2005, output growth slowed to 1.9% and inflation rose to 2.5%. Back in 1976, to describe this as “not so bad” would have been the understatement of the year. It followed a period of rather strong nominal domestic demand growth which, by placing pressure on the supply capacity of the economy, accounted for some of the subsequent pickup in inflation. | As with the Arthurian legends, epitomised by King Arthur’s Round Table above us, that too is a myth. Despite large changes in relative prices, the average change in prices – inflation – has been remarkably stable. Indeed, it is striking that in a decade in which prices moved so much, overall inflation was more stable than in any decade for a hundred years. It was a decade that in my first speech as Governor, I described as NICE – a non-inflationary consistent expansion. 1 How can inflation be stable when individual prices move around so much? The explanation is that inflation is the result, in the old adage, of too much money chasing too few goods. Inflation arises when the total amount of money spending (or nominal demand) in the economy is greater than the value today of the available goods and services. When the Bank of England changes Bank Rate to keep consumer price inflation close to the target of 2%, we influence – albeit imprecisely and with a time lag – the amount of money spent in the economy and so the inflation rate. In short, inflation is made at home. Nevertheless, we cannot and do not control the price of every item in your shopping basket. That distinction between changes in individual prices and changes in the average level of prices is 1 Speech at an East Midlands Development Agency/Bank of England Dinner in Leicester, October 2003. | 1 |
Caleb M Fundanga: Growing investor confidence in Zambia’s economy Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Afreximbank/PTA Bank Financing Agreements Signing Ceremony, Lusaka, 10 June 2008. * * * • The President of AFREXIM Bank • The President of PTA Bank • Chief Executives and representatives of Financial Institutions Present • Distinguished ladies and gentlemen I am greatly honoured to be given an opportunity to make these brief remarks at this signing ceremony of two important financing agreements. I wish to extend a warm welcome to all of you gathered here today, particularly those who have travelled from outside the country. I hope that you will not only have a pleasant ceremony today but also have fruitful deliberations at the Euromoney Conferences starting tomorrow at this same venue. I also hope you will find time to explore the beautiful scenery and experience the warm hospitality that Zambia has to offer. Mr President, Ladies and Gentlemen, over the recent past, the Zambian economy has performed relatively well. This is reflected in the overall macroeconomic stability which has been underpinned by positive growth rates in real Gross Domestic Product, low inflation, relative stability in the exchange rate of the Kwacha against major currencies, stable financial sector and improved banking services. However, although incomes have generally increased, the challenge that still remains is that of meeting the basic needs of the majority of Zambians in order to uplift their living standards. | This ceremony is therefore more than timely as the Government is working tirelessly towards empowering its citizens economically and at the same time increasingly diversifying the economy and promoting export led growth. It is for this reason, Mr President that the Government established the Citizen’s Economic Empowerment Fund under the Citizens Economic Empowerment Act of 2006 in order to promote empowerment of citizens in various economic activities. This signing ceremony is yet another indication of the growing investor confidence in Zambia’s economy. You will be glad to note that the country’s total investment pledges rose more than ten times over to US $ billion in 2007 from US $ million recorded in the year 2001. This is an indication of the vast investment potential and improving investor confidence due to the macroeconomic stability particularly lower inflation and the sound fiscal polices that the Government has put in place. Institutional capacity has also been enhanced with effective supervision of the financial system to promote efficient operations of the banking sector. Mr President, the mining sector continues to be the major economic activity in the country. Following the liberalisation of the sector and subsequent privatisation of the mines, Government has continued to facilitate mineral exploration by the private sector and created an attractive investment environment through the maintenance of macroeconomic stability. This has sustained renewed interest in mining, reflected in a complete rebound in the mining sector on the Copperbelt and North Western province start up of new mines. | 1 |
We also have a contingent term repo facility that we could activate at a higher frequency if needed; and we – like the ECB – can lend to a very broad range of counterparties against a wide range of collateral. Central banks and regulators must also be clear that liquidity facilities and buffers are there to be used. For example, in October, the Bank clarified our supervisory expectations to re-emphasise our commitment to providing liquidity in the ordinary course of business. We do not expect firms to justify any usage, nor is there any presumption they would use their own buffers before our facilities. Next year’s first system-wide liquidity stress test will be another opportunity to demonstrate that liquidity buffers are fully useable. Increased central clearing would be a capital-efficient way to further improve repo market liquidity; this would be most effective if smaller institutions participated directly. And a more holistic approach by firms to internal capital management would make them more agile, including not applying the leverage ratio at the desk level. 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Liquidity concerns also go to the heart of otherwise immensely positive developments in market-based finance. As is the case for banks, the institutions at the heart of market-based finance, particularly open-ended investment funds, must prudently manage their leverage and liquidity. Mismatches between redemption terms and the liquidity of some funds’ assets means there is an advantage to investors who redeem ahead of others, particularly in stress. | After a period, the rise in prices for domestically produced goods and services also slowed. Inflation measured by the CPI-ATE reached its lowest level in the first months of 2004. Inflation remained at less than ½% until after the summer before picking up in the autumn. Inflation moved up primarily as a result of a slower decline in prices for imported consumer goods. The depreciation of the krone since the beginning of 2003 has contributed to these developments. In addition, the rise in prices for domestically produced goods and services stabilised, and towards the end of 2004 there was a tendency towards a higher rise in prices for these goods and services. Prices for imported consumer goods fell more than expected at the beginning of 2005, while the tendency towards a more rapid rise in prices for domestically produced goods and services has persisted. So far in 2005, inflation measured by the CPI-ATE has been around ¾ per cent. The other Nordic countries have also experienced falling inflation. Inflation has declined, and is now relatively low in Sweden, Denmark, Finland and Norway. The year-on-year rate of underlying inflation in these countries was around 1 per cent in March. A common feature of the low level of inflation in the Nordic countries seems to be the sluggish trend in prices for imported consumer goods, even though developments have not been entirely the same in all the Nordic countries. BIS Review 34/2005 1 Reliable information about the economic situation is important when setting the interest rate. | 0 |
If the individual members sent out different signals it was probably also difficult to distinguish a clear message from this "cacophony of voices", to quote Professor Blinder again. This type of problem seems rather unnecessary. A central bank should be able to be so clear with regard to its view of the future that there should be no need for loosely-grounded speculations and interpretations – it should not be necessary to be a Kremlinologist to interpret the Riksbank. We hope that we have solved this problem with our new way of working. A further weakness of the earlier signalling process concerned the responsibility the Riksbank has in its role as independent authority. It is a question of democracy. This responsibility includes, for instance, the fact that the general public must have good insight into the decision-making process – the decisions at the monetary policy meetings must be made in a correct manner. This is why minutes are taken at the monetary policy meetings and then published, and the chairman and deputy chairman of the General Council of the Riksbank have the right to attend the Executive Board meeting. There must be no doubt that the interest rate decisions are actually made at the monetary policy meetings and not at some other point in time – in some informal way that prevents insight. If the signalling prior to the meetings leads people to believe that the interest rate decisions have been made in advance of the meetings, then doubts may arise. | I believe that there is a broad understanding among households, companies and market agents that we need to adapt monetary policy and reconsider how we should set BIS Review 106/2007 3 the repo rate in future when new information changes the economic picture. We have been clear about the fact that a forecast is by definition uncertain and that it becomes more so the further ahead it stretches. And the interest rate path presented in the Monetary Policy Report is indeed a forecast. It is not a promise! The fact that we do not have perfect knowledge of the future is no reason to refrain from being as open and clear as possible with regard to what we believe will happen. We must form an opinion of how the policy rate should develop in the future regardless of whether we publish it or not. If it turns out that we have made an incorrect assessment in our forecast, it would not have been less incorrect just because we had refrained from telling anyone about it. It is hardly reasonable that we should try to gain greater credibility by hiding things or sending unclear signals about one of the most important variables in our analysis. I believe it is better that we are open about what our decisions are based on, now that the inflation target is so well-established that we are able to be open. | 1 |
I would thus like to share with you now some thoughts on the nature of these challenges and the contribution that central banks can make to address them effectively. 1.The digitisation of the economy and its challenges for sovereignty A- The digitisation of the economy has led to a profound change in financial ecosystems. The development of an Internet-based network economy has provided businesses with more direct access to consumers, while reducing the fixed costs of launching and operating services This change has gone hand in hand with changing lifestyles and increased expectations in terms of simplicity, availability, immediacy and even personalisation of services. This is commonly referred to as the “customer experience". The emergence of digital banks, where interaction with the customer is mainly carried out via a mobile application, is an example of a response to this new standard in terms of practices. Changing patterns in practices have also prompted some companies to position themselves between customers and traditional service providers in very specific segments in order to offer value-added services. This “re-intermediation” has given rise in Europe to a continuous adaptation of regulations in order to regulate and secure data sharing, which is the driving force behind open banking. This trend benefits both relatively small players (FinTechs) and technology giants whose business model is based on the monetisation of data (Gafams and BATX, whose entry into the European market is more recent). These changes are the natural result of a process of creative iteration, and promise to simplify practices by diversifying them. | One thing is clear in our work, it is time to take stock on this issue. Thank you. 4 BIS central bankers’ speeches | 0 |
And the reforms do pay off: the remarkable labour productivity growth performance in some network industries in Europe over the last ten years provides a perfect example of the positive impact on labour productivity growth of easing regulations and fostering competition. For example, in the telecommunication sector which was largely liberated in the course of the 1990s, hourly labour productivity grew on average by 8.5% in the euro area over the period 1996-2003 compared to 6.9% in the US. The euro area HICP index for telecommunications fell by 35% relative to the overall euro area HICP index in the period 1998-2005. The third prerequisite for higher growth in the euro area is the unlocking of business potential by creating an entrepreneurial-friendly economic environment. This includes lowering costs imposed by public sector administrations for existing firms and business start-ups. Let me illustrate this with some figures. According to the World Bank, in 2004, the average cost of starting a business with up to 50 employees in the euro area (excluding Luxembourg) is estimated to have been around ten times larger than in the US 12 . The policy implication of lowering business regulation is that EU countries can help to raise economic growth by avoiding an excessively restrictive regulatory environment for firms. The immense importance of this issue is increasingly appreciated by European governments and several initiatives at national or EU level have started to implement actions for a “better regulation”. | BIS Review 44/2006 1 considerably improved our understanding of what has happened in the mid nineties with the end of what has been called the Solow paradox… On this side of the Atlantic one can understand why we did not observe the same jump in labour productivity: on the one hand the share of I.T production in the GDP is significantly lower and, on the other hand, the absence of sufficient flexibility in the economy in general does not permit to benefit from the rapid diffusion of innovation in general and of I.T in particular in the other sectors of the economy. To sum it up Europe would still be in the Solow paradox. But there is a second paradox in the case of Europe or perhaps more than a paradox: a conundrum. Why is it that not only we did not improve our productivity when the US did it – around the mid eighties – but that we observed on the contrary a very significant diminishing of our productivity? This phenomenon seems to me only half understood through traditional explanations: the impact of specific policies aiming at drawing back to work a significant number of previously unemployed unskilled workers – with a low level of productivity – that have been launched in several European economies; and a degree of under-investment hampering the stock of capital allocated to each employee. But it explains only around half of the diminishing of the labour productivity growth. | 1 |
All economic players benefit from lower interest rates: households, when they purchase a property, companies when they invest, but also governments and hence taxpayers. In addition, the euro has helped consolidate the European single market, by eliminating currency fluctuations for corporates, simplifying day-to-day life for citizens and promoting capital market integration. Lastly, the economic size of the euro area and the stability of its currency have enabled the euro to play an important international role. Today, the euro accounts for 20% of international reserves, second only to the US dollar. An internationally recognised currency generates economic gains: financial markets are more attractive to domestic and foreign investors, more liquid, and thus more efficient. But it also carries a political weight: when Mario Draghi speaks at the G7 or G20, the whole world listens to Europe attentively, just as when Janet Yellen speaks for the United States. Page 4 sur 6 Overall, this list of benefits is impressive, particularly when you think that the euro is only 19 years old. More importantly, we have come this far despite the global financial crisis, which triggered the deepest recession in three generations and despite the euro area sovereign debt crisis a few years later. The robust economic recovery in the euro-area now enables us to pursue a path of gradual normalisation of our monetary policy. | Indeed, the current turmoil has underscored the importance of robust liquidity management by banks, as well as the need for supervisory approaches which keep pace with structural market developments. Many initiatives with a view to addressing issues and risks arising from the recent financial market turbulence that go into the right direction have already been launched, both at the international level, namely by the Financial Stability Forum, and at the EU level, with the ECOFIN agreeing to a roadmap for action by 2008, and also by the private sector. They must be pursued now with even stronger impetus. In this respect, co-ordination at the global level should be ensured. In closely interlinked financial markets, any policy measure should be agreed to and consistently applied at the international level. Fifth, in the same vein, there is a need to reflect carefully on the “originate-anddistribute” business model. The period ahead is likely to provide a first material test of changing banking business models and the increased reliance on secured funding. Although currently profitable and well capitalised, many banks will experience income and credit losses, which may trigger a re assessment by some of them of the suitability of the so-called originate-and-distribute business model. The current episode has also shown that the transfer of credit risk outside the banking sector may ultimately not be effective. This is related with reputational and other concerns, which induce banks to take credit risk back onto their balance sheets. | 0 |
Although the depreciation of the krone since September 2008 will redress the balance somewhat, we must nevertheless expect job losses in manufacturing. Indeed, recent years’ growth in this industry was an unexpected break in the long-term trend. Norwegian households have built up debt over many years. In the mid-1990s, debt was one fifth higher than income. In 2008, debt was twice as high as income. We have no clear basis for determining what constitutes sustainable debt. People today spend less of their income on basic necessities and have more to spend on their homes and mortgages. Changes in credit markets have provided greater opportunities to spread consumption over a lifetime. The public safety net is also gradually being expanded, which may lead to lower saving. BIS Review 16/2009 11 The experience of recent years nevertheless indicates that the level of debt is on the high side. Growth in private consumption slowed sharply when interest rates rose to more normal levels through 2007. Household debt is largely secured on residential property. When residential property falls in value – and we are probably not at the end of this road yet – consumers have less leeway. A larger number will want to reduce their debt, and banks will curtail lending. All in all, it must be expected that households will deleverage and be more cautious in their consumption and investment in the years ahead. It is easy to bury one’s head in the sand when the economic situation deteriorates. | The flow of liquidity has improved slightly, and interbank rates have fallen. In the US and Europe, these rates were more than 2 percentage points above the key rate in October last year, but now the gap has been halved. As a result, the low rates set by central banks are having a greater effect. In the US, mortgages and corporate loans have become cheaper after the Federal Reserve began to purchase bonds and commercial paper issued by mortgage banks and firms. In Germany, Sweden and Denmark, mortgage rates have decreased markedly. And in Norway, borrowing rates have fallen and credit to homebuyers is flowing again. Equity and commodity prices are still fluctuating widely, but the decline is no longer steep. BIS Review 16/2009 9 Lower key rates, higher public expenditure and reduced taxes will push up demand for goods and services, gradually stabilising output and employment and preventing inflation from becoming too low. There are also strong self-regulating mechanisms in market economies that can easily be underestimated when times are at their bleakest. Corporate profitability is being squeezed, but the rise in unemployment will result in lower wage growth, which will curb the impact on earnings. Investment is falling sharply, but there will in time be a need for new houses and commercial buildings and to replace obsolete machinery. Households all over the world are now increasing their saving and reducing debt. When debt eventually reaches a sustainable level, consumption will pick up. | 1 |
Marzunisham Omar: Risk and opportunity – managing risk for development Welcoming remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of Malaysia, at the WB-BNM Seminar on the World Development Report 2014 “Risk and Opportunity: Managing Risk for Development”, Kuala Lumpur, 29 April 2014. * * * It is my pleasure to welcome you to Sasana Kijang this morning to the seminar on the World Development Report 2014, with the theme “Risk and Opportunity: Managing Risk for Development”. Reading through the Report, I’m struck by two observations: • first, in the past 50 years, middle-income countries have been in recession 14 to 16 per cent of the time and low income countries, a staggering 27 per cent of the time. • second, from 1970 to 2011, there were 147 banking crises in 116 countries. So, while the world has, in the last 50 years, made significant progress in terms of economic development, poverty eradication and overall standard of living, the above observation begs the question of whether the global economy is also more prone to crises, highlighting the fragility of the economic system that is currently in place. This reinforces the need to have a proper framework to identify and manage risks, towards achieving a common shared goal of sustaining long-term development. Almost six years after the collapse of Lehman Brothers, the world economy is still coping with the aftermath of the Global Financial Crisis, notably the worst financial crisis in the last 70 years. | Today, four out 5 2/7 BIS central bankers' speeches of the top 10 global exchanges are in Asia 5 and Asia contributes nearly half of the total number of IPOs globally6. During the same period, Asia’s bond market has grown at an annualized growth rate of 24% to reach USD 4.7 trillion in 2015, accounting for 9% of global corporate bond market outstanding volumes7. Some analysts8 estimate that the size of the financial system in Asia could reach USD 200 trillion by 2030. This is four times its current size and more than double the projected size of the U.S. financial system. Developments in global markets will be increasingly driven by Asia’s growing economic and financing needs. This is well-evidenced in the wealth management9 space. In 2015, as global high networth individual (HNWI) wealth grew at a modest 4% globally and just 2% in North America, Asia-Pacific wealth expanded by 10%. 2015 also became the year that AsiaPacific overtook North America for the first time to become the region with the most HNWI wealth and population globally10. HNWI growth in Asia-Pacific has doubled over the decade and if the trend persists, Asia-Pacific will represent two-fifths of the world’s HNWI wealth by 2025. In infrastructure financing, Asian financial institutions will be well placed to meet the significant financing needs of around USD 8 trillion of infrastructure projects in Asia, as estimated by the Asian Development Bank (ADB). In commodity markets, Asia’s influence has also grown stronger. | 0 |
In this regard, I would like to point out that the inclusion of information technology developments in financial services is increasingly drawing the attention of central banks, regulatory and supervisory authorities worldwide. Both international and domestic practices show that a comprehensive approach through collaboration considerably supports the achievement of 1/3 BIS central bankers' speeches effective and optimal results. A concrete example of aligned efforts in this regard is exactly the one in the field of payments. In this field, the measures undertaken by the Government of Albania for the digitalisation of government services and recently for the draft-law “on billing and monitoring system of circulation”, which aims at increasing and strengthening the fiscalisation of the Albanian economy, appear to fully harmonise with the initiatives undertaken by the Bank of Albania, through the National Payment System Committee, for modernising the payment market and increasing financial inclusion. The Bank of Albania has worked on drafting a new legal and regulatory framework, which aims at promoting digitalisation in the area of payment services. The compilation of the draft-law “On payment services” is considered as the first and crucial step in the framework of reforming and digitalising the small-value payments. In concrete terms, this draft-law is seen to considerably encourage the competition in the market, by providing a crucial contribution to the establishment of low cost services and easily accessible by the large public. | Dear ladies and gentlemen, The promotion of the above objectives is not only important for the functions of the Bank of Albania as the monetary authority, but it also provides an essential contribution to the economic development and welfare of the general public. All these developments would provide the expected effects only if they are based on measures in the framework of financial education of the public. Being aware that financial literacy constitutes a significant instrument for promoting the development of the market, for more than a decade, the central bank has been engaged in designing and developing educational programmes to address the needs of groups of interest. It is not a coincidence that the focus of central bank, in both, advanced and developing countries, is on enhancing financial literacy. Numerous studies have shown that financial education has multiple benefits. Being familiar with the basic financial and economic concepts, appropriately knowing and using banking products and financial instruments as well as the ability to manage personal and household finances, are crucial to achieve individual, and societal welfare. On the other hand, a well-informed financial decision of households helps central banks to accomplish their mandate in achieving price stability and safeguarding financial stability. A better understanding of monetary policy accelerates its effective transmission to the real economy. Meanwhile, the quality of decisions for financing or investment has a direct impact on the stability of the whole financial system. | 1 |
It also started to become clear for old Taraldsen; but immediately afterwards, he became very confused again; because he understood the entire scope of this; he had the entire town's bills of exchange in his head; and of course he had seen a lot of this kind of thing during his long life but all of those were trifles compared to what would happen now. His voice shook as he almost ceremoniously asked: "Will Carsten Løvdahl's papers be protested?" "Yes," replied Marcussen without looking up. Old Taraldsen trotted out of the offices; but on the steps he met the messenger from Aktiebanken: "Is it true? – Taraldsen!" "Now the entire town is going to collapse," answered the old man, throwing up his arms in despair. Kielland’s description of a financial crisis and its consequences was realistic. There was speculation then and there is speculation today, but in other kinds of financial instruments than at that time. We might find employees at Lehman Brothers today who have expressed themselves in the same way as old Taraldsen. It seems to be an inherent property in financial markets that financial bubbles and crises occur from time to time. A monetary policy that is oriented towards stabilising inflation and inflation expectations will reduce the impact. We have seen that when the interest rate is raised to restrain the rise in prices for goods and services, it also has the effect of stabilising house and property prices. In some areas, however, regulations and frameworks – cf. | Svein Gjedrem: Monetary policy from a historical perspective Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the conference to mark the 100th anniversary of the Association of Norwegian Economists, Oslo, 16 September 2008. The text may differ slightly from the actual presentation. * * * Introduction Let me begin by offering my congratulations to the Association of Norwegian Economists on its 100th anniversary. One hundred is a respectable age. In Norway, the introduction of a university degree in economics was certainly an important stimulus in the first part of the last century. In the period since the Second World War, major changes in society have increased the demand for expertise in the field of economics. And economists are constantly gaining new insights. This also applies to the field of central banking, even though one of the fundamental central bank responsibilities – to safeguard the value of money – was as important 100 years ago as it is today. Monetary policy in Norway has changed considerably over the past 100 years. The government, with the support of the Storting, has now defined an objective for monetary policy of low and stable inflation. Norges Bank sets its interest rate with a view to achieving price stability. This has not always been the case. Monetary policy in Norway Norges Bank was established in 1816 and was placed directly under the Storting (Norwegian parliament). The government had no control or influence. | 1 |
Rather, the purpose is to overcome weaknesses in our analytical tools related to the possible buildup of financial imbalances resulting from keeping interest rates low over time. Monetary policy will continue to react to shocks that affect the medium term path for inflation, output and employment. After a decade of learning, inflation targeting has become more flexible. Flexibility is good to have, and easy to lose. The inflation target has to be reached over time, otherwise our credibility is put at risk. In assessing various considerations, monetary policy must be geared to meeting its primary objective of low and stable inflation. There are limits as to how many goals monetary policy can meet. Other instruments must be used to attain other objectives. To ensure that new or further financial imbalances do not build up we also need a tighter international overarching policy framework to address the stability of the financial system as a whole. A macroprudential policy framework should be part of this new framework. Macroprudential policy framework Financial market participants can trigger self-reinforcing economic fluctuations. Individual banks and investors do not necessarily take into account the overall risk in the financial system. The consequences became clear during the financial crisis: banks had inadequate equity capital, relied excessively on short-term wholesale funding and had insufficient buffers of liquid assets. 2 BIS central bankers’ speeches The new international regulatory framework is intended to remedy this situation. | A decade of inflation targeting The Norwegian economy emerged quickly and fairly painlessly from the recent global economic downturn. Since 2001, economic policy in Norway has been guided by a fiscal rule and a flexible inflation target. With solid government finances based partly on petroleum revenues and firmly anchored inflation expectations, there was room for manoeuvre both in monetary and fiscal policy when the financial crises hit. Inflation in Norway is currently low, but it has been close to target over the past decade. During this period, monetary policy has faced demanding trade-offs, and the application of judgment has been put to a test. We have gradually learned more about the functioning of our economy under an inflation targeting regime. Let me touch upon some of these insights. Fairly soon after we had adopted inflation targeting, we learned how demanding it may be to strike a balance between different monetary policy considerations in a small open economy. When the key policy rate is raised to restrain a pronounced rise in domestic inflation, it may strongly impact the exchange rate, as we experienced in the period 2002–2003. Both the real economy and inflation were affected. Midway through the decade, global inflation rapidly declined. China’s entry into the WTO, and increased imports from Asia to the west led to a persistent fall in import prices. The combination of very low inflation and strong economic growth posed new challenges for monetary policy. Interest rates – both in Norway and abroad – were set at low levels. | 1 |
There are several reasons for this: 4 BIS Review 65/2008 First, labour has flowed into Norway from other countries. The opening of the labour market to the new EU countries has provided us with access to a reserve of labour. Initially, workers came to Norway on short-term assignments. They produced in Norway, but their consumption largely took place in their home country, with an attendant increase in the economy’s net production capacity. An increasing number of workers subsequently moved to Norway and took up residence here, often accompanied by their families. This still increases production, although the higher number of foreign workers who want to settle in Norway also puts added pressure on domestic resources. Per capita output is not likely to increase as a result of this kind of immigration. Access to foreign labour may nonetheless relieve shortterm bottlenecks in some sectors. In 2007, the population increased by about 55 000, with net immigration coming to 35 000. This is the highest rise in the population ever recorded. This trend seems to have continued so far this year. BIS Review 65/1008 5 Second, businesses in Norway have become more efficient in their operations, resulting in lower costs. It has been profitable to hire more employees despite the high wage level in Norway. The business sector has made use of new technology and businesses have been restructured. The many sweeping reforms of the 1980s and 1990s – the fundamental shift in 1 the Norwegian economy – resulted in more efficient markets. | Since December 2009, the yuan has appreciated almost four percent, while this figure is much closer to ten percent for most EMEs. The comparison is even more dramatic when looking at a longer period of time. This has been achieved through massive reserve accumulation and limited financial integration. However, for measures in the foreign exchange market to have real effects – that is, on the real exchange rate, which is the relevant variable from the point of view of competitiveness – these measures need to have some support from the real side of the economy. In the case of China, this is a very high savings rate. China saves about half of its GDP and the resulting current account surplus sustains a depreciated real exchange rate. Otherwise, attempts to maintain a depreciated nominal exchange rate sooner or later lead to inflation, which is the way to achieve relative price adjustment when the nominal exchange rate is not allowed to adjust. The U.S., in turn, is undertaking an extraordinary monetary expansion. Beyond having reached the zero lower bound for the federal funds rate, unconventional measures are adding additional monetary stimulus. In particular, the massive purchase of securities implemented in the so-called QE2 program. This explains why the dollar has reached its lowest level in several decades (Figure 3), but this is not only the result of expansionary monetary policy, but also of the lack of domestic demand and of the external imbalances. | 0 |
30/09/2020 The LIBOR Countdown Has Not Stopped - FEDERAL RESERVE BANK of NEW YORK SPEECH The LIBOR Countdown Has Not Stopped September 29, 2020 Michael Held, Executive Vice President and General Counsel Remarks at the IMN Virtual Investors' Conference on LIBOR Thank you for that kind introduction, and for the opportunity to speak to you all today. As always, my remarks reflect my own views and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.1 The last time I spoke publicly about LIBOR transition was almost 18 months ago,2 when the end of LIBOR still seemed reasonably far away and the world in general seemed much more predictable. I said then that what kept me up most at night was whether my daughter would get into a good kindergarten in Brooklyn, but that reference rate reform was only a little further down the list. You’ll be relieved to know that my daughter is now in a great school, and it’s very close to home. In fact, it’s in our living room. A year and a half ago, I never could have anticipated how different and uncertain every single part of our lives would become. Now, there’s a whole host of new worries atop the list of things that keep me up at night. I’m sure that’s true for all of you as well, as individuals and families but also as leaders of institutions dealing with the bizarre and uncertain times we find ourselves in. | You should make sure that any other reference rate you use meets similarly high standards, and is fully transparent about how it’s calculated, what it’s based on, and exactly how it complies with the IOSCO principles. The ARRC and ISDA also went through an extensive public consultation process in constructing their recommended fallbacks that will kick in when LIBOR becomes unusable. The overriding goal of that process was to minimize value transfer and ensure as much as possible that the transition did not disadvantage borrowers or lenders, or one side of a LIBOR swap. And those are the same https://www.newyorkfed.org/newsevents/speeches/2020/hel200929 4/6 30/09/2020 The LIBOR Countdown Has Not Stopped - FEDERAL RESERVE BANK of NEW YORK fallbacks that will apply under the ARRC’s proposed New York legislation. Anyone considering using different fallbacks should likewise keep those concerns top of mind. Making it Official Before I wrap up, I’d like to talk about the role of the official sector in the transition. It might seem at times that our role has consisted mostly of forming working groups and giving speeches where we harangue market participants to just get on with it already—kind of like this one. Of course, as I mentioned, the New York Fed has stepped up by producing SOFR, which is key to the transition. | 1 |
Operational risk and infrastructure failures have played a prominent role in past financial crises, and the infrastructure weaknesses that have characterized the credit derivatives markets since their inception are an ongoing source of concern. The major market participants, both the dealers and the traditional and non-traditional investors, are in the process of improving the infrastructure that supports these markets. The changes underway to clean up the backlog of unconfirmed trades and to automate the entire post-trade-processing environment will help reduce operational risk in the derivatives market and reduce some sources of uncertainty that could exacerbate a market shock. The efforts underway to reach agreement on an approach for settlement in events of default are important for addressing the risks inherent in a market where the value of derivatives substantially exceeded the value of the underlying instruments. We are encouraged by the progress made to date, and will continue to encourage further improvements. Second, we believe that the major dealers, as well as the large commercial and investment banks, should take a cold, hard look at financing conditions and margin practice, particularly with respect to hedge fund counterparties and in OTC derivatives. The reports issued by the Counterparty Risk Management Policy Groups I and II both make the important observation that the financial system is likely to be more resilient under conditions of stress when counterparties set initial margins at levels that are likely to be sustainable in less benign conditions. | Measuring these broader risks is harder today because the classic array of historical stress events drawn from the past 25 years of financial crises are probably even less valuable than they were as an illustration of how market dynamics might unfold today in response to similar changes in asset prices and credit losses. Those past crises would likely cause less damage today, if they were to recur, because of the many changes in the structure of our financial system - namely, the greater dispersion of credit and market risk, the improvements in risk management, the size of the capital cushions, and the improvements in many parts of the payment and settlement infrastructure. But most crises come from the unanticipated. Assessing a firm’s exposure to risk in the tail of the distribution requires, among other things, an evaluation of the impact of the failure of a major counterparty and the impact that failure might have on other counterparties and on market prices. It requires, for the largest institutions, an understanding of the constraints the firm may face in its ability to adjust positions or hedge against further losses without amplifying the shock. And it requires anticipating potentially adverse effects on market liquidity, as other market participants react to actual and anticipated losses. In the financial system we have today, with less risk concentrated in banks, the probability of systemic financial crises may be lower than in traditional bank-centered financial systems. | 1 |
Liquidity insurance facilities that underpin banks' funding are obviously helpful to that, as they increase the probability of bank-dealers being able to finance unwanted inventory. But some voices have argued that the authorities should act more directly to preserve market liquidity; or, in other words, that central banks should stand ready to act as a Market Maker of Last Resort. 23 Certainly, the profound changes in the structure of the financial system over recent decades should not leave us blindly attached to mid-19 century precepts. But nor can we be blind to the challenges in embarking on acting as MMLR. In the first place, whereas lending to a bank does with certainty give that bank more liquidity, entering a market as a buyer does not automatically enhance the liquidity of that market. Secondly, whereas central banks can protect themselves against the risk in secured loans by requiring more collateral if conditions deteriorate, an outright purchase is a one-off transaction; if we pay too much given the true risk, that’s that. cushion, a bank should hold a core of the most reliably liquid assets, such as cash and high quality government bonds or similar instruments, to guard against the most sever stress scenarios”. 23 For example see, Buiter W and Sibert A (2007), “The Central Bank as Market Maker of Last Resort”, Maverecon – Willem Buiter’s Blog (http://maverecon.blogspot.com/2007/08/central-bank-as-market-maker-oflast.html). This section has benefited from internal discussions with Kalin Nikolov and Roger Clews. 10 BIS Review 67/2009 So this is new territory. | 27 Work is underway under the auspices of the Financial Stability Board, which published Principles endorsed by G20 heads of government in April; and in the Basel Committee of Banking Supervisors. These issues were also discussed recently by Eric Rosengren, President of the Federal Reserve Bank of Boston in a speech at the Institute of Regulation and Risk, Hong Kong, 5 May 2009 “Challenges in Resolving Systemically Important Financial Institutions”. 12 BIS Review 67/2009 many others have said, 28 we need to find a solution to Too-Big-To-Fail, or too interconnected, too complex – however one wants to think about it. That might involve requiring banks to have credible resolution plans for themselves, with higher regulatory capital and liquidity charges entailed if they do not. As we have seen across many countries during the current crisis, governments can otherwise end up having to provide capital support in order to prevent the financial system unravelling, with unfathomable costs for the real economy and so for households. The long lesson of history is that we must build a resilient system; but that we and our successors would be foolhardy to imagine that governments will never again need to provide capital to save the day. If that is right, then society needs principles and policies for what might be called “Capital of Last Resort”, to sit alongside the Lender of Last Resort (LOLR) principles developed by and for central banks since the 19th century. Clear and timeless principles in this area barely exist. | 1 |
Regional seminar of the International Financial Corporation and Bank Al-Maghrib on “Utilization of Public Credit Registry data for the Central Bank’s institutional functions” Rabat, February 22, 2018 -----------------------Opening remarks by Mr. Abdellatif Jouahri Governor of Bank Al-Maghrib ------------------------ Excellency the Ambassador of Japan, IFC Country Manager for the Maghreb region, Ladies and gentlemen, It gives me great pleasure to welcome you today to the Bank Al-Maghrib training center in Rabat for this seminar on the “Utilization of Public Credit Registry data for the Central Bank’s institutional functions”. I would first like to express my sincere thanks to all the participants and speakers for having accepted our invitation, and more particularly to the IFC representatives, Mr. Xavier REILLE and Mr. Oscar MADEDU, and their team here for their valuable contribution to preparing this meeting. I would also like to give special thanks to His Excellency Ambassador Takuji HANATANI and through him the Japanese Government, which has made a vital contribution to developing credit information-sharing infrastructure in Morocco. The relevance of this meeting lies in the sharing of experiences between the participating experts. The seminar panels, scheduled throughout the day, will set the stage for fruitful discussions between: central banks which are well advanced in terms of operating credit registries or which are starting to set them up, on the one hand; and those which are preparing to meet the new challenges such registries impose in terms of micro and macro-prudential supervision and monetary policy, on the other hand. | Equally important are the risks associated with the circulation of banknotes and coins and the lesser value means of payment that are part of the day to day lives of every Chilean. The autonomy of the Central Bank also means that the quality of its institutional management is a special responsibility. Although it is not part of the State’s administration, it is equally owned by every Chilean, who rightfully demand an efficient use of their resources. To undertake all these tasks, it is important to recognize that trust in a central bank also rests on its prudence. An institution responsible for price stability and financial stability cannot afford to improvise or experiment. In this regard, it is important to acknowledge the potential, but also the limits of monetary policy. In particular, we must reaffirm that it does not have the capacity to affect the mediumterm trends of the economy and not even completely eliminate the cyclical variations that affect it. Our main contribution to the country’s development is, in line with the mandate of our Organic Law, to keep inflation low and stable, reducing economic volatility and financial risks, with the expectation that by reducing uncertainty we will facilitate investment, employment and consumption decisions that shorten the cycle. The right mix of prudence and determination is not easy to calibrate. Prudence is necessary to correctly assess the implications of changes in the economic environment, resisting the temptation to look for the easy way out, which can prove very costly in the medium term. | 0 |
(2) Includes the United States, Japan, the United Kingdom and the Eurozone. (3) Includes Australia, Canada, Norway and New Zealand. Source: Central Bank of Chile based on data from CEIC and the International Monetary Fund. Figure 10 Long term indebtedness and financial burden (percentage of disposable income) 80 18 70 15 60 12 50 9 40 6 30 3 20 0 Jun.02 Jun.03 Jun.04 Jun.05 Jun.06 Indebtedness Jun.07 Jun.08 Jun.09 Financial burden Source: Central Bank of Chile based on information from SBIF, SVS, SuSeSo. BIS Review 9/2010 11 Figure 11 National employment and unemployment rate (seasonally-adjusted series, percent) 3 12 2 10 1 8 0 6 -1 4 -2 2 97 99 01 03 05 Quarterly change in employment 07 09 Unemployment rate Sources: Central Bank of Chile and National Statistics Bureau (INE). | Thomas Jordan: Monetary policy in a climate of increased uncertainty Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the SNB Money Market Event, Geneva, 1 November 2007. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Uncertainty about the extent and distribution of losses from US “subprime” mortgages has resulted in a marked squeeze on financial markets. In particular, there is considerable uncertainty concerning the true valuation of securitised assets and structured products based on subprime mortgages. Demand for liquidity has surged. In certain instances, the crisis of confidence among financial market participants was so pronounced that some markets did not function at all. The “re-pricing of risk” has caused risk premia for most financial instruments to soar. Risk premia are important for the Swiss National Bank (SNB) for two reasons. On the one hand, they act as economic signals and should therefore be as unbiased as possible in the way they reflect underlying risks. In addition, there are certain risks attached to extreme values of risk premia. Abrupt and uncontrolled corrections could lead to instability on financial markets and interfere with their smooth functioning. On the other hand, risk premia affect the restrictiveness of monetary policy. An increase in such premia tightens monetary policy. The SNB monetary policy concept, where the three-month Libor is at the centre of the implementation of monetary policy, takes systematic account of changes in risk premia. | 0 |
It means we are better able to reflect the requirements of the firms that use the services we provide and ultimately the people of the UK. And we can balance the potentially competing needs of different stakeholders on an informed basis rather than relying only on the views of longstanding contacts. A key piece of engagement took place in summer 2018 when we ran a joint consultation10 with Pay.UK and the Payments Systems Regulator on the implementation of ISO 20022. Over 70 organisations replied and their responses11 helped refine our approach, for example on Legal Entity Identifiers (LEIs). Responses showed widespread support for making LEIs mandatory for transactions between financial institutions in CHAPS. Many respondents also saw the benefits of mandating LEIs for a wider range of payments but flagged the need for wider adoption of LEIs before these benefits could be fully reaped. The Bank has committed to working with key stakeholders including HM Government and the Global LEI Foundation (GLEIF), as well as providing further education about the wider economic value of the LEI. This will lay the foundations to make LEIs mandatory for a much wider set of CHAPS payments in the future. We are also seeking industry views on whether the renewed RTGS service could facilitate synchronised settlement and importantly what the demand might be. Synchronisation, or atomic settlement, is the concept that two or more transactions (payments or movements of assets) are linked in such a way as to ensure that each transaction completes if, and only if, they complete together. | Their relationships with sponsor banks are sometimes very ambiguous. There may be a gap between the legal commitments taken by the banks through liquidity support and credit enhancements, and the “true” level of responsibility they felt obliged to take to protect their reputation. This conjunction of complexity and fragility may have been too much for the system to bear. So it is worth to pause and ask ourselves whether we can eliminate those vulnerabilities and still keep the benefits associated with securitization, especially in terms of financial innovation. One good starting point is to look at the economic and financial rationale for securitization. Securitization is meant to perform two functions: the first, and most "advertised" in recent years, is to allocate and distribute risks, hopefully to those agents and investors best equipped and most willing – to carry it. The "slicing and tranching" process allowed banks to offload credit risk from their balance sheets and transfer it to other financial investors. But, historically, securitization is borne out of the more simple desire to shortcut banking intermediation by using markets to directly match the needs of lenders and borrowers. Since both have different liquidity preferences, this usually involves the issuance of tradable – i.e. liquid-securities which can be sold to the ultimate investors. Thus, a well functioning securitized system would meet two characteristics: (1) allow for a permanent reallocation of risk between market participants according to their preferences, expectations and risk aversion; and (2) make liquidity (market liquidity) permanently available throughout the system. | 0 |
Therefore, HKMA’s efforts to build a strong banking sector, including the distribution of maturity risks through the mortgage corporation and the creation of an efficient RTGS payment system are all necessary efforts to prevent an external shock from affecting the banking system. In particular, the RTGS system allows the HKMA to monitor closely banks’ settlement transactions on a real time basis. Banks would also have to fund their settlements and provide ample liquidity on a more prudent basis. All these are in line with our objective of making the markets more efficient to enable the free market to clear aggregate supply and demand at an equilibrium price quickly. 36. But we should always remember that there is no free lunch. The fixed exchange rate regime implies a flexible economy to adjust to the exchange rate. Hong Kong has high flexibility, attributable to a high savings rate, entrepreneurial spirit and high labour productivity. A fixed exchange rate is a discipline on both the private and public sectors: the economy adjusts to the exchange rate, not the other way around. We do not pretend to say that a fixed exchange rate is the perfect system, because even the IMF admits that there is no perfect system. But it is the best system for Hong Kong. The linked exchange rate system is here to stay. Conclusion 37. As one of the contributors to the World Bank study on the Asian Miracle, I have never considered the Asian growth story as a miracle. Paul Krugman called it perspiration, not inspiration. | In addition to the robust currency board mechanism, the linked exchange rate system is underpinned by some of the strongest fundamentals in Asia, if not the world: • Growth is strong, at 5.5%. • Fiscal position has been consistently strong, with an average fiscal surplus averaging 2% of GDP for the past decade. Fiscal surplus in 1997 so far is 4.4% of GDP and is expected to exceed 5% of GDP. • The government has no external debt. • Exchange Fund and Land Fund together have more than $ billion in assets. • Corporate debt ratios are amongst the lowest in Asia. • The external account is broadly in balance. 32. The free markets and strong fundamentals mean that the nature of the shock is absorbable. Hong Kong does have a strong competitive edge, since we are a service economy with 83% in the services sector. As a major investor and integrator of production in the region, with manufacturing concerns in China and Southeast Asia, Hong Kong companies could adjust production to areas which have the greatest export competitiveness. In addition, the mainland Chinese economy is still growing at 8-9% per annum, with low inflation, a balanced external account and strong BIS Review 109/1997 commitment to reforms in the enterprise and financial sectors. All these auger well for Hong Kong as the main gateway to the Chinese market. 33. The current higher interest rates reflect somewhat a slightly higher risk premium in Asia due to the currency turmoil. | 1 |
Criticising these two pillars is not only pointless, but is also dangerous: • Pointless: the ECB was able, within its institutional framework and mandate, to be active, innovative and responsive…even more than some political institutions. Damage the central bank’s independence and you undermine its strength and agility, the very things that protect an economy in a crisis. • Dangerous: these two pillars, enshrined in the Treaty, are the legal and democratic foundation of our legitimacy and capacity to act – and not only in “Northerners” eyes. Furthermore, they are the foundations of European’s trust in their currency. To give only one example: the Eurosystem cannot cancel public debt, neither legally nor “fiduciary”: a suspicion of fiscal dominance would give rise to monetary distrust as seen in history and more recently in some emerging market economies. Independence and the price stability mandate are not an obstacle to the ECB’s powerful action. On the contrary, they are its two best levers. I will come back to this. II. What European policies for the gradual exit? Talking about European solidarity, arguably, Europe could have done more. But let us not forget that the glass is at least half full, thanks to the major support from the Eurosystem, but also the SURE framework of the European Commission to help preserve jobs, and the welcome agreement last Friday on unconditional ESM [European Stability Mechanism] credit lines to finance health expenditure. Page 6 sur 10 Let us now look to the future. | 3 In addition, agreements were entered into between central banks so that liquidity in different currencies could be provided across borders. Many banks were particularly in need of US dollar funding. After the failure of Lehman Brothers, the financial system became fully dependent on central bank funding. The situation required new instruments. Central banks supplied liquidity at longer maturities than normal and eased the collateral requirements for central bank loans. Many countries introduced government-guaranteed credit lines and swap lines for lending liquid securities – primarily government securities – against less liquid securities. In a number of countries, central banks have purchased both public and private bonds with longer maturities directly in the market. Private bonds have primarily been purchased with a view to improving liquidity and reducing bond premiums. The Government Bond Fund was also established for that purpose. Government bond purchases can influence long-term government bond yields and indirectly the interest rate on mortgage and corporate bonds and asset prices. Moreover, the Bank of England notes that the purchases increase the money supply, which can contribute to underpinning inflation expectations. It has not been relevant for Norges Bank to buy government bonds in the market. But we have also been highly active. As mentioned, we reduced the key policy rate from 15 September last year. We supplied substantial liquidity to the banks and eased the collateral requirements for loans. We entered into a credit agreement with the Federal Reserve and supplied US dollar liquidity to Norwegian banks. | 0 |
Figure 1: A stylised depiction of the monetary policy trade-off The blue line in the figure is the Phillips curve, which summarises the structure of the economy and, in particular, how changes in demand, via the output 9 gap, affect inflation. The economy’s equilibrium is at the intersection of these two lines. In the case of an inflationary shock that induces a trade-off, the Phillips curve shifts up, as shown in the figure. Monetary policy needs to tighten to lower pressure on resources and reduce inflationary pressures, such that the economy ends up on the 9 Originally formulated by Phillips (1958), albeit as a relationship between wage growth and unemployment. See: Phillips, A. W. (1958). "The Relationship between Unemployment and the Rate of Change of Money Wages in the United Kingdom 1861-1957". Economica, 25 (100): 283–299. 5 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches 5 red line, consistent with the policymaker’s preferences (as shown by the dotted arrows in the figure). The slope of the Phillips curve is crucial in determining in the size of the fall in output needed to reduce inflation to an acceptable level – the sacrifice ratio. Figure 2: Stylised policy responses Frequently, the economy experiences shocks that drive inflation and output in the same direction. These shocks to aggregate demand can include variations in government consumption, households’ desire to consume, or business’ desire to invest. Increases in demand put pressure on the use of resources, causing prices to rise. | Among the latter, ADB was the first to issue RMB bond in Hong Kong in October 2010. A number of multilateral agencies also issued RMB bonds in Hong Kong after ADB’s debut issue. With the rapid growth of China’s cross-border trade and investment flows, the offshore RMB bond market would provide a useful financing platform and facilitate the greater use of RMB in these transactions, thereby minimising the currency risk associated with the use of a third currency. Notwithstanding the encouraging developments over the past years, the capacity of the regional bond markets is still limited compared with the huge infrastructure and other financing needs of the region, resulting in heavy reliance on bank financing. Much work still needs to be done, including but not limited to expanding the issuer and investor types, gradual liberalisation of barriers to entry of non-resident investors, promoting financial infrastructure linkages, improving corporate disclosure and transparency, more standardisation in legal and governance terms, to name a few. Policymakers will have a key role to play in facilitating market developments and removing market impediments in the process. And we hope to see ADB, the region’s long-standing partner in promoting bond market development, to further its efforts and cooperation with governments in the region on this front. Thank you. 2 BIS central bankers’ speeches | 0 |
Consequently, issues relating to information sharing, allocation of powers, responsibilities, accountability and coordination among the various agencies must be clearly and explicitly addressed at the outset. The legislative mandates would need to provide clear roles and responsibilities for each relevant authority. This will form the foundation for the adoption of an integrated and coordinated approach. The need for such coordinated action becomes particularly important in conditions of an imminent financial crisis. Having in place a crisis management framework would allow for its prompt and effective implementation. The issues relating to the effective management of the inter-relationships between the safety net participants were brought to the forefront recently in the United Kingdom, testing the framework in which the functions of lender of the last resort and the supervisory function are placed in separate entities. In comparison, when a single agent such as the central bank is entrusted with these respective functions, the interrelationship issue, as well as potential conflicts and trade-offs become internal and would be resolved across the organisation. It would nevertheless still need to rely on an adequate accountability regime among the respective departments or divisions that are responsible for each mandate. Malaysia's own experience during the Asian financial crisis exactly ten years ago allowed the Central Bank as a single regulator, to promptly respond to the liquidity and solvency issues that were confronting the financial system. The preemptive action that was supported by a comprehensive resolution programme significantly reduced the cost of the crisis on the financial system and the overall economy. | Dear ladies and gentlemen, Safe and efficient fulfilment of the economy’s need for money, in terms of value and structure, and guaranteeing the confidence of the public in our currency, which is one of our main responsibilities, have been at the core of our efforts in preparing this new series. Therefore, I am very honoured to unveil today, for the first time, for the eyes of the public, this new series of banknotes. As the Governor of the Bank of Albania, through this symbolic signing, I open the doors for the first two banknotes of the new series to start their journey and circulate in the Albanian economy. In the hope that the new banknotes will be welcomed by the public, let me now present to you their design. I would also like to call on the public to handle banknotes with due care, in order to preserve their durability, quality and integrity. From 30 September 2019, the banknotes of the new series 200 lek and 5000 lek will be legal tender in the Republic of Albania and will be used as means of payment, alongside the existing banknotes. 2/2 BIS central bankers' speeches | 0 |
Relative unit labour costs in the manufacturing industry: Sweden compared to TCW-weighted countries Index, 1970-01-01=100 120 120 110 110 100 100 90 90 80 80 70 70 60 60 50 50 40 40 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Source: OECD Note: Converted to SEK. Figure 4. Real hourly wages Annual percentage change 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 Source: National Mediation Office 10 BIS Review 154/2008 Figure 5. Unit labour costs in entire economy Annual percentage change, seasonally-adjusted data 8 8 Unit labour costs Productivity Labour costs per hour 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 94 96 98 00 02 04 Note: Broken lines and columns are the Riksbank’s forecasts. 06 08 10 Sources: Statistics Sweden and the Riksbank Figure 6. | Our assessment now is that hourly wages will increase on average by 3.7 per cent per year during the three-year period 20072009 measured using the National Mediation Office's method for presenting statistics, and by three tenths more using the method for presenting wage developments in the National Accounts. This is around half a percentage point per year more than during the previous three-year agreement period. … and a weaker development of productivity will lead to higher cost increases Labour costs per produced unit have, however, increased considerably more than we expected in the spring of 2007 as the development of productivity has been much weaker than we predicted at that time. In February 2007, we predicted that unit labour costs would increase by 2.3 per cent per year during the period 2007-2009. We now calculate that unit labour costs will increase by an average of 3.8 per cent per year in 2007-2009 compared to the figure of practically zero per cent per year in 2004-2006 (see Figure 5). This means that many companies are now faced with the choice of either increasing their prices to counteract the decline in profitability, which may be difficult in the present situation with a steady decline in demand, or of making staff cuts. Our assessment is that the companies will probably choose the latter. Price increases will be moderate while employment will decrease significantly. In the three preceding agreement periods, the high rate of increase in productivity helped to keep unit labour costs down. | 1 |
Thus, while banks take some advantage of the arbitrage opportunity, competitive conditions in the unsecured money markets haven’t proven strong enough to narrow the spread between the fed funds rate and the IOER rate to very small and stable levels, and the floor on rates that IOER is meant to provide appears soft. Although longer-term correlations remain fairly robust, the federal funds rate and other money market rates are no longer moving as closely together on a day-to-day basis. In recent years, the fed funds rate has been relatively stable on a day-to-day basis, while other 6 The Federal Reserve also pays interest on required reserve balances, which reduces the opportunity cost that depository institutions incur by holding required reserves at a Federal Reserve Bank. The Federal Reserve Board is responsible for setting the rate of interest on reserves. Since December 16, 2008, the interest rates on required reserve balances and excess reserve balances have been ¼ percent, although the rates need not be the same. 7 Although interest on reserves represents an overnight rate, it is calculated and paid out on a lagged basis according to two-week reserves management maintenance periods. The payment is based on daily account balances and a weighted average of applicable overnight rates over the maintenance period. | Evolution of New York Fed’s Effort In the ten years that followed the financial crisis, we have continued to see a stream of misconduct scandals and cultural failures, and a corresponding increase in significant litigation and enforcement activity, with costs estimated at an aggregate of $ billion worldwide.3 At the New York Fed, our work in advocating culture and behavior reform in the financial sector 1/5 BIS central bankers' speeches started in late 2013 when our former President, Bill Dudley, delivered a speech on the “too-big-tofail” problem. | 0 |
Independence is not only secured in legislation, but also by the people that have embodied it for the past 20 years: Wim Duisenberg, Jean-Claude Trichet, and today, Mario Draghi. I would go so far as to talk of a threefold independence: from national governments of course, but also from pre-existing camps (the hawks and the doves) or schools of thought, even if all three of them have their own well-established economic background. Consequently, they have been able to take a pragmatic approach to innovation: for example, when Jean Claude Trichet addressed bank liquidity risk through the Fixed Rate Full Allotment in 2008 or introduced the first security purchases with the SMP in 2010; and of course when Mario Draghi gave his “whatever it takes” speech in July 2012 or began expanding non-standard instruments in 2014. And finally, independence from trends in the media and short-termism, which I shall come back to later. C - The spirit: general European interest These three men have also upheld the European spirit, through their culture and their convictions. Far from being a technocratic arrangement, initially the euro was actually a political aspiration advocated by Helmut Kohl, Jacques Delors and François Mitterrand in parallel with German reunification. And it is now supported by 75% of euro area citizens, the highest approval rating since 2003, and as much as 85% of Luxembourgers and 81% of Germans [slide 4]. This popular support is our greatest success and our greatest asset. | Various indicators suggest that yields have fallen further from a low level, and that prices have risen once again. Moreover, there are isolated signs that risk appetite among the domestically focused banks has, if anything, increased again over the last six months. For example, affordability risk and direct interest rate risk at domestically focused banks have risen once more. The SNB will continue to monitor developments on the mortgage and real estate markets closely. Accordingly, it will regularly reassess the need for an adjustment of the countercyclical capital buffer. Announcement of issue date I would like to round up my speech with a few remarks on the new banknote series. On 14 August 2015, the SNB announced that it would begin issuing the new Swiss banknote series in April 2016. The first denomination to be released will be the 50-franc note. Today, we can announce the exact issue date. The new 50-franc note will be presented to the public for the first time at a news conference on 6 April 2016, and will first be issued on Tuesday, 12 April 2016. The new notes will be put into circulation continuously from that date onwards. A largescale information campaign will inform the general public about the new note and on ways to check its authenticity. The remaining banknotes in the series will be issued subsequently at half-yearly or yearly intervals. The SNB will announce each new issue date well in advance. The current eighth banknote series will continue to be legal tender until further notice. | 0 |
So when nominal interest rates change, the real interest rates that determine real consumption and investment decisions change with them. And markets may operate with ‘excess supply’ or ‘excess demand’ for as long as it takes wages and prices to adjust to shifts in either demand or supply. Rather, it is over longer stretches of time that monetary policy is indeed ‘neutral’, and that we can think of the level of economic activity as being driven entirely by supply. By facilitating low and stable inflation, monetary policy helps create conditions conducive to economic growth. But other forces will ultimately determine the growth path of the economy. Economic growth – and with it the prospects for our real national income – will be determined by technological progress, investment and innovation, and by skills and trends in the population. Equally, both the structure of the economy and the distribution of real national income are beyond the realm of monetary policy. Yes, monetary policy affects asset prices and unemployment over the near term. And yes, excess demand or supply may give rise to sectoral imbalances. But over the longer term, these features of our national economy will be driven by real factors and by structural policies rather than monetary policy. Over time, even the level of interest rates is determined by such structural factors. While monetary policy steers market interest rates here and now, we do not set Bank Rate in a vacuum. | This global resolve is in fact, fundamentally in congruence with, and accentuates the role and relevance of Islamic finance on the global economic stage in this post-crisis era. Islamic finance, through its emphasis for the attainment of socioeconomic goals based on the objectives of Shariah, provides the discipline that enhances the prospect of strengthening the global economy and overall financial stability. The relatively better performance and the sustained momentum of the growth in Islamic finance during this period of global financial turmoil exemplifies its inherent strengths – its emphasis on a strong linkage to productive economic activity which predisposes the economy to financial deepening without the excesses, its emphasis for accountability, disclosure and transparency and its inbuilt checks and balances, all of which underpin Islamic finance as a stable form of financial intermediation that strengthens its prospects as a contributor to economic growth and financial stability. While the amount of funds managed in the Islamic financial system is still only a fraction of the total assets of the international financial system, it represents that portion of financial activities that is truly supported by underlying productive capacity that generates growth of economies across continents. It is this form of financial activities that we would want to encourage, as opposed to the financial flows that are destabilising and not contributing to generating real economic activity. | 0 |
Multipurpose: Consumer can use money paid in advance to purchase goods and services from different retailers determined by the e-money issuers E-money can be categorized into network-based and card-based depending on how the value is stored. - Storing value in a network basis requires no physical item to store value but is kept in the service providers' system. - Storing value in a card-basis is the use of a plastic card with embedded chip to store value. E-money is regarded as non-traditional financial services which lead to new ways of security and control implementation. Furthermore, it may facilitate money laundering activities. That is why in Thailand, we prohibited the transfer money among customers without going through service providers' data system. In addition, the system must be able to trace all activities. A bank should set a maximum limit of e-money that can be used . And, it can only be issued in Thai Baht currency and used in Thailand. IT outsourcing means allowing other service providers to perform on behave of a financial institution IT functions which are normally done by the institution itself. By the advent of rapid changes in technology and competition, financial institutions tend to reduce costs and to improve their services by outsourcing some technology-related functions to third parties both within and across borders. In Thailand, we see a few distinctive characteristics of IT outsourcing services. - Full scope of IT operations. | But these opportunities can only be realised if new forms of digital money are safe – which means recognising and properly regulating the elements that are age-old. I am grateful to Morgane Fouche, Matthew Osborne, Stephanie Haffner, Robert Page and James Pople-Hoskins for their help in preparing these remarks. I am also grateful to Antoine Lallour, Nicholas Butt, David Copple, Shiv Chowla, Andrew Hauser and Victoria Cleland for their helpful comments. 1 Private money mainly takes the form of deposits held in bank accounts. The only form of public money accessible to the general public is cash, in the form of coins and notes. 2 This is based on the amount of cash held by the public as a share of total cash and sight deposits. See Part V of ‘A millennium of macroeconomic data’, Research dataset, Bank of England. 3 See LINK News and media contact, 'Coronavirus Crisis means cash use down but UK still withdrawing £ from ATMs each week’Opens in a new window; See LINK, 'Statistics and trends’Opens in a new window; See chart A in ‘New forms of Digital money’ DP, June 2021. Moreover, in practice, the UK authorities remain committed to ensuring access to cash to those that need it. The Bank, HMT, FCA and the PSR have been working together on the Joint Authorities Cash Strategy group to monitor the use of cash, ATM availability, and ensure cash remains available despite the impacts of Covid. 4 See the example of the Corralito in Argentina. | 0 |
For example, between 2003 and mid-2007, corporate loans to construction and real estate activities constituted almost 60% of total flows of loans to non-financial corporations in the euro area. 6 The easy flow of credit to the housing sector contributed to the overheating of property markets in some countries. When the crisis set in, the declines in credit were most pronounced in countries such as Spain, Ireland, Belgium and Greece, which had been experiencing double-digit credit growth rates during the lead-up to the crisis. Banking credit developments prior to the crisis were excessive owing to a combination of three factors: 1) financial innovation; 2) insufficient supervision, and 3) a highly accommodating monetary policy. Let’s take a quick look at these factors. The significant advances in financial innovation over the last decade fuelled the idea that asset liquidity had increased and that there was a greater potential for risk diversification. This idea proved, in part, to be an illusion. When the crisis erupted, the presumed liquidity of these assets disappeared. Banks’ balance sheets were thereby clogged by illiquid assets. The growing role of infrastructure for clearing and settling OTC trades – non-standardised and predominantly bilateral – created uncertainty regarding the distribution of exposures among the various counterparties, fuelling their mutual distrust. Another factor that helped create the perception of greater liquidity was the increased funding available from wholesale financial markets. | 3 See D. Gerdesmeier, H.-E. Reimers and B. Roffia, “Asset price misalignments and the role of money and credit”, ECB Working Paper Series, No 1068. The authors find that the credit growth gap, the investment-to- 30 BIS Review 10/2010 For example, the global credit-to-GDP ratio gap, an indicator of the risk of speculative bubbles, had exceeded its threshold in mid-2007. Likewise, the credit growth gap and the investment-to-GDP ratio had been on a strong upward trend, signalling the turmoil to come. Looking at the various market segments confirms the excessive ease with which banking credit had been obtained, for instance, the boom in lending to finance leveraged buyouts (LBOs). 4 Fast credit growth in the period leading up to the crisis took place against a background of high capital ratios. 5 This was likely driven by four main factors. First, a large share of the credit granted by large banks, in particular, was shifted off-balance sheet via securitisation. Second, non-banks (financial leasing companies, credit card firms, etc.) also contributed to the credit flow. Third, the high profitability of banks contributed to the bolstering of their balance sheets. Finally, most banks, particularly those in the United States, were operating under the Basel I regime. Increasing risks, therefore, were not fully reflected in minimum capital requirements. The flow of credit, apart from being “excessive”, was in part also channelled to insufficiently productive uses. There was excessive leverage in some sectors, which contributed to the misalignment of underlying asset prices. | 1 |
As described 10 In addition to improving competition in money markets, by conducting a daily operation with a known, fixed rate, the Fed can reduce uncertainty and absorb day-to-day variations in the supply of and demand for funds and collateral. An eligible lender that cannot earn the IOER rate and that has an unexpectedly large amount of funds to invest would be able to place the funds in the ON RRP facility rather than sell them in the market at an unusually low rate. This should reduce downward pressure on money market rates. 11 See the discussion in the minutes to the June and July FOMC meetings, http://www.federalreserve.gov/monetarypolicy/fomcminutes20140618.htm and http://federalreserve.gov/monetarypolicy/fomcminutes20140730.htm. 12 See the Survey of Primary Dealers and the Survey of Market Participants BIS central bankers’ speeches 5 earlier, if the magnetic pull of IOER alone is insufficient, ON RRPs should help to form a floor on rates by providing a risk-free, overnight asset to a broad range of non-bank investors. As a result of these forces, the effective funds rate should generally print within the target range. That said, as the Chair noted during her September press conference, the Committee expects that the effective fed funds rate may vary within the target range and could even move outside of it on occasion. For example, the effective rate could move outside the target for a day or two around key financial reporting dates, such as quarter-ends, when some banks’ marginal balance sheet costs are particularly high. | It’s an argument which seems to say, we can’t value the firm, we can’t supervise it, and we can’t resolve it, so therefore let’s ensure it has a very large amount of equity financing, what I call the “Big Equity” argument. Honestly, it’s a nonsense. Large amounts of equity financing will not be available for such firms, so the best we can say is that this is a route to a radically different financial system, but in that world the risk goes somewhere else, and we shall still be worried. But this is not an argument against having non-risk based tools like the leverage ratio in the supervisors’ toolbox. They are very important, because to understand risks well, we need more than one view of the firm. And the leverage ratio is an important other view. But I want to emphasise that understanding risk is at the heart of supervision. BIS central bankers’ speeches 1 But this, of course, begs a very important question. Why did supervision go wrong in the period before the financial crisis, and what do we learn from that bad experience? Let me offer a number of thoughts on that. First, supervision was never given sufficient prominence and attention. It’s a very real skill. In my experience it demands not just high levels of technical skill but also interpersonal skills – to get very strong egos to change their thinking and actions – do things that they had not intended – to recognise the public interest. | 0 |
However, I suspect that these efforts will not fully succeed without measures to develop marketplaces and infrastructures that promote greater transparency for all OTC derivatives activity, including more and higher-quality information on prices and transaction volumes. OTC derivatives dealers have natural incentives to favor opaque, decentralized markets that preserve their information advantage relative to other participants. The greater profit margins that derive from this advantage create incentives to favor more bespoke OTC derivatives over more standardized OTC instruments. Making more and better pricing information available to a wider range of market participants will increase competition and lessen the profit incentives that stem primarily from the opacity of these instruments and markets. Improving transparency should make the benefits that stem from standardization such as increased liquidity, reduced transaction costs, and lower counterparty risks more dominant, helping push the evolution of the OTC derivatives market in the direction of greater standardization and homogeneity. This doesn’t mean that bespoke products will vanish. They will continue to exist. But they will exist primarily because they better serve the needs of the OTC derivatives customer, not because they create an informational asymmetry that allows rents to accrue to the securities dealer. Greater transparency would also have other benefits. If regulators had ready access to current OTC derivatives transaction information in trade repositories, I suspect that this would serve as a brake on the use of OTC derivatives that are used for more questionable purposes. For example, this includes trades undertaken to evade accounting rules or to circumvent investment charter limitations. | Christian Noyer: After the global crisis, which models of growth? Keynote speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the CIGS (The Canon Institute for Global Studies) – EHESS (Ecoles des Hautes Etudes en Sciences Sociales) International Symposium “After the global crisis, which models of growth?”, Tokyo, 3 October 2011. * * * Let me begin by saying I am delighted to be here with you today. I am of course conscious that the world is experiencing major economic turbulence and that Japan has suffered this year a series of particularly cruel catastrophes. As you know, I have profound admiration for your country, and we French wish to show our solidarity with you in the face of these ordeals. I would like to warmly thank the organisers of this symposium – which should be fascinating – for giving me this opportunity to speak to you. I thank the Canon Institute for Global Studies and its Chairman, my friend Governor Fukui. I also thank the France-Japan Foundation of the EHESS and its Director, Sebastien Lechevalier. In 2009, the Banque de France was one of the first institutional sponsors of this Foundation, whose objective of promoting greater intellectual and cultural exchange between Japan and France is highly commendable. Our two countries have much to learn from each other and a great deal to gain from deeper collaboration. I do therefore strongly welcome this initiative. | 0 |
Negative repo rate and bond purchases – to safeguard the credibility of the inflation target The fact that we now have introduced a negative interest rate and begun purchasing government bonds in Sweden is basically because we want to safeguard the role of the inflation target as nominal anchor. I mentioned earlier that monetary policy should give consideration to financial stability. But this is because financial stability is a necessary condition for attaining stable inflation in the long run. Conditions for being able to give 23 For further information, see “Low global interest rates”, article in the Monetary Policy Report, October 2014, Sveriges Riksbank. See also Hamilton, D., Harris, E. S., Hatzius, J. and West, K.D., “The Equilibrium Real Funds Rate: Past, Present, and Future”, University of California at San Diego Working Paper, 2015. BIS central bankers’ speeches 9 consideration to financial stability in monetary policy decisions are that inflation expectations are firmly anchored around the target and that inflation is fairly close to the target. With hindsight, we can see that inflation has been lower than the Riksbank and most other forecasters had expected. And this doesn’t only apply to Sweden; inflation is very low in most developed countries. What happened in Sweden last year, when inflation continued to be lower than expected at the same time as inflation expectations continued to fall, has thus rather dramatically changed the conditions for monetary policy. | Lars Heikensten: The integration of European banking - some regulatory challenges Speech by Mr Lars Heikensten, Governor of Sveriges Riksbank, at the seminar “The Integration of Financial Markets in Europe”, at the “Riksdagshuset” (Swedish Parliament), Stockholm, 21 April 2004. * * * Thank you for inviting me to share my views on the integration of financial markets in Europe. We have just heard about the positive role capital markets might have in fostering economic growth and stability. We have also heard about how the regulatory process has been changed to promote the growth of an integrated European market for capital and securities. It is my hope that also the area of bank regulation will become part of this simplified process. It is certainly needed. Compared to the European securities market, the banking market is lagging many years behind in terms of integration. True, large companies may have access to foreign bank funding as well as to international debt and equity markets. When it comes to choosing your bank at the retail level, however, Swedish households and small and medium sized companies are left to a market which is to more than 90 percent dominated by Swedish banks. This situation is shared by most other EU countries. This is not a problem in itself. Swedish (or, in general, domestic) banks might very well be excellent. However, most of us tend to believe that cross-border integration, just as trade, is something good because it increases competition. | 0 |
Krzysztof Rybiński: Single euro payments area from the point of view of the National Bank of Poland Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the Conference of the Polish Bank Association, Single Euro Payments Area, SEPA Organisational Structure in Poland – SEPA PL, Klub Bankowca (Bankers’ Club), Warsaw, 10 October 2006. * * * Ladies and Gentlemen, Not all of you may know that the first bank that fulfilled many functions of a modern central bank was established in 1609. It was the Bank of Amsterdam. This bank issued its own money, managed its supply through open market operations and operated an RTGS system for large volume payments, although the meaning of the term “system” was slightly different four hundred years ago as compared to its current meaning 1 . Four hundred years ago, the RTGS system of the Bank of Amsterdam completed payments equal to the Netherlands’ GDP within three weeks. Today, many countries need less than a week for the same task. Bankers who managed floren’s agio in the seventeenth century could have never dreamt that four hundred years later we all would not only use a single European currency, but also implement standards of the Single Euro Payments Area, or SEPA. SEPA is to be real. It is part of a vision of united Europe where payment services are part of the single market. | Such views should take into consideration the interests of European and Polish consumers, the interests of Polish banks and the interests of the institutions comprising the infrastructure of the Polish payment system. Moreover, they should be coherent with the assumptions of the Lisbon Strategy, i.e. with the obligation to prepare the European Union economy for global challenges of the 21st century. A separate issue is to specify the pace of works in Poland as regards the implementation of SEPA standards and mechanisms that have already been worked out. According to the timetable approved by the EPC, Poland will have to comply with SEPA standards for euro transactions already in 2008. However, the lack of established date for Poland’s accession to the euro area means that Poland should have more time to implement solutions specific for SEPA, which would mean that necessary investments and changes could be spread over time. On the other hand, it seems that early involvement of Polish banks and infrastructural institutions in the approved solutions, e.g. through the implementation of mechanisms to lower costs in the sector, through increased efficiency and attractiveness of offered payment services and through strengthened security of financial transactions, could be extremely significant for increasing their own competitive edge on the overall European scale. Thus, it seems that the above dilemma over the appropriate pace of works should be thoroughly analysed by the banking community and infrastructural institutions. | 1 |
Relaxing monetary policy too little might not be enough to break the upward pressure on the franc; relaxing monetary policy too much might lead to inflationary tendencies later on. The dilemma faced by the SNB would become even greater should the pressure on the Swiss franc to appreciate become more pronounced. In such a situation, we could react by pegging the exchange rate of the franc to the Euro. A peg could either be temporary or the Swiss authorities could decide to link the Swiss franc permanently to the new single currency through a fixed exchange rate. BIS Review 102/1997 -5- A permanent peg could do away with the problem of an appreciating currency. It would, however, have major drawbacks: First, we would give up our relative autonomy in setting the course of monetary policy in Switzerland. Monetary conditions in our country would be determined entirely by the ECB. As a consequence, interest rates would rise close to the level prevailing in the EMU. Adapting to this new level of interest rates would pose major problems, especially for the real estate sector and for those sectors of the economy which rely on low interest rates to finance their capital-intensive production. Second, choosing the right parity in a system with fixed exchange rates is a very difficult task. A peg that would leave the Swiss franc overvalued would force the SNB to follow a monetary policy that is too restrictive. | Switzerland is to be represented as an entirety, as a country open to the rest of the world and also as a meeting place for the world. The focus should not be on any individuals, inventions or achievements. Much rather, a basic attitude and its manifestations should be conveyed: Switzerland as a platform for dialogue, progress, humanitarian commitment, exciting experiences, creativity and the search for practical approaches to solutions within organisations. It is envisaged that these topics will be dealt with through the lens of economics, education, research and development, human rights, tourism and recreation, culture and, lastly, sports. Six topics have to be depicted, namely the activities of negotiating and exchanging, teaching and researching, helping and mediating, enjoying and relaxing, creating and designing, and deciding and implementing. Each of these topics will be assigned to one denomination of the new banknote series. The artistic representation must emphasise the topics rather than specific events or institutions. The traditional portrayal of personalities and the depiction of institutions and previous achievements should be dispensed with. The illustration of a university, for example, should not serve as a self-portrayal but could symbolise “progress”. As previously, the banknote series should form a “family” both with regard to content and design. In other words, although each banknote type must have its own characteristics, they must at the same time share sufficient features to be easily recognised as part of the new series. | 0 |
Therefore the developments in these expectations play an important role in Central Bank analyses and evaluations. In this framework, analyzing the inflation expectations for the next 12 months and 24 months as of April, the following points emerge: Though consumer inflation expectations for the next twelve months have declined, the rate of decline has been slowing down significantly since February and expectations have to some extent been 6 BIS Review 67/2006 following a horizontal course. The fact that long-term consumer expectations relating to the next 12 and 24 months are slightly above the targets is interpreted as a development that requires prudence with respect to the falling inflation process. Nevertheless, the course of longer-term expectations at low levels is an encouraging development as regards the success of inflation targeting (Graph 9). Graph 9. CPI Expectations Regarding Next 12 and 24 Month Periods (Annual Percentage Change) 9 Next 12-Month 8 Next 24-Month 7 6 5 4 Apr-06 Feb-06 Dec-05 Oct-05 Aug-05 Jun-05 Apr-05 Feb-05 Dec-04 3 Source: CBRT. Supply and demand developments Supply-demand balance Distinguished Guests, At this point, I would like to touch on our evaluations relating to supply and demand developments in the light of national income data released at the end of March. In the last quarter of 2005, Gross Domestic Product (GDP) increased by 9.5 percent compared to the same period of the previous year. Hence, GDP growth was realized as 7.4 percent throughout 2005. | Chart 7: A selection of ‘green bond’ structures One concern sometimes expressed with this first generation of green bonds is that there are no binding requirements as to what constitutes a green project, and hence bonds may sometimes be labelled green on spurious grounds.33 There have been various attempts to address this issue, for instance the Climate Bonds Initiative’s Taxonomy and Certification Scheme34 and the European Union’s Green Bond Standard35, which set out more robust scientific criteria for identifying projects which genuinely help with climate change. The model also requires an issuer to have fairly sizeable green capital expenditures in order to issue a bond liquid enough to appeal to mainstream investors. 31 https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Green-Bonds-Principles-June-2018-270520.pdf BIS Quarterly Review, September 2020 33 Consistent with this, researchers have so far failed to identify a near-term relationship between green bond issuance and subsequent reductions in carbon emissions (https://www.bis.org/publ/qtrpdf/r_qt2009c.htm) – though there clearly are many possible reasons for this result, not all of which suggest greenwashing. 34 https://www.climatebonds.net/standard/taxonomy 35 https://ec.europa.eu/info/business‐economy‐euro/banking‐and‐finance/sustainable‐finance/eu‐green‐bond‐standard_en 32 13 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 13 An alternative approach is to link some element of the financial return on the bond to the achievement by the issuer of a particular climate sustainability outcome, without linking the bond to specific green expenditures. | 0 |
The June 2014 Eurosystem staff macroeconomic projections foresee a gradual increase in annual HICP inflation towards levels consistent with our definition of price stability. The pace of the increase is, however, slow. From 0.7% in 2014, inflation is expected to reach 1.1% in 2015 and, more uncertainly, 1.4% in 2016. All three figures have been revised downward in comparison with the March 2014 ECB staff macroeconomic projections and portray a situation distant from our objective of keeping inflation below but close to 2% in the medium-term. Inflation developments alone go a long way in motivating the combination of the measures announced by the Governing Council of the ECB on 5 June, to provide additional monetary policy accommodation and to support lending to the real economy. This package included further reductions in the key ECB interest rates, new longer-term refinancing operations targeted to stimulate credit creation, and preparatory work related to outright purchases of asset-backed securities. In addition, the ECB committed to an extension of the fixed-rate full allotment regime in tender procedures and decided to suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme. Over time these measures will contribute to a return of inflation to levels closer to 2% and safeguard the anchoring of medium to long-term inflation expectations. Nevertheless, with policy interest rates close to the effective lower bound and persistently timid growth prospects, there is a small, but non-insignificant risk that any additional adverse shock may open the door to a more protracted period of low inflation. | It fell by as much as 10 percentage points according to some estimates as the shocks from the crisis – deleveraging, the slowdown in world trade and the increase in uncertainty – pushed the natural rate very deep into negative territory. 6 Even using QE, it was difficult for monetary policy to follow the natural rate down to the level necessary to offset the shock and to close the output gap over the policy horizon. In other words, though it appeared exceptionally loose by historical standards, bank rate at ½% and a very large, £ programme of asset purchases, in retrospect, constituted a tight policy setting relative to what the economy needed to offset the shock. This is perhaps one reason why the UK recovery from the post crisis recession was slow by historic standards. It is generally acknowledged that the exceptional monetary policies implemented in the years immediately following the crisis were necessary. However, we are now eight years on and monetary policy still appears to many exceptionally loose by reference to historical rates of interest. Can this still be justified by reference to the natural rate? My own view is that it can. The natural rate, according to most estimates, has risen since 2012 from its deep post-crisis trough. It is now closer to the zero mark but it’s still likely to be negative. | 0 |
This aspect also requires additional discussions. Now, I would like to proceed from current risks to the trends in the financial sector. Digitalisation might be an even more significant trend for finance than for the economy in general. Actually, the financial sector has been extensively applying advanced technologies for a long time already. An ecosystem, which is the most powerful business model, is exactly the result of a fusion of technologies and finance. Ecosystems have become so powerful that they now impact not only the development of and competition in the financial sector, but the real economy as well, considerably altering consumer behaviour, distribution channels, and work conditions for suppliers of non-financial services. Ecosystems provide great convenience to consumers, but on the other hand, they involve new challenges to regulation. It is essential not to hinder the development of ecosystems and simultaneously not to leave them unattended as there are risks to competition and a possibility of an even larger share of the state in the financial sector. Last week, we published a consultation paper on the regulation of ecosystems built around banks and are beginning to discuss it. The key thing we believe essential to do now is to control the risks of banks as the centres of emerging ecosystems. These risks are associated with increasing investments in nonfinancial assets, as not all these investments will probably turn out to be successful, and a part of them might depreciate, which might involve risks for creditors and depositors. | The potential costs of the support measures taken – capital injection, asset purchases, and guarantees of bank debt – in the G7 countries together with Australia, the Netherlands, Spain and Switzerland amount to about twenty per cent of GDP in these economies. 1 Moreover, the consequences of the crisis in terms of job, output and wealth losses, unprecedented increases in public spending and declines in public revenues are enormous. In the end, the citizens of the individual countries involved will have to foot the bill, one way or another. Arguably the most important intangible cost, however, is the fact that governments had to issue an explicit guarantee for systemically relevant institutions, in effect executing a partial government take over of the financial system. 2 Going forward, the world of finance will not be the same anymore. It should therefore come as no surprise that at the national and international level intensive efforts are underway to increase the resilience of the financial system. In recent months, these international reform efforts have included the presentation of many reports and recommendations. The Financial Stability Board (FSB) has published two comprehensive sets of recommendations to improve financial regulation. 3 Both have been endorsed by the G20 leaders. The public sector has not been alone in issuing 1 The outlays totalled eight per cent of GDP. These figures relate to government support measures introduced between September 2008 and June 2009. Source: “An assessment of financial sector rescue programmes”, BIS paper No 48, July 2009. | 0 |
The MAS may accumulate or sell foreign assets, principally through its intervention operations in the foreign exchange market, to manage the float of the Singapore Dollar. Given Singapore’s positive net savings and persistent capital inflows, the nominal exchange rate often tends to appreciate more than what is required to keep inflation low and stable. The MAS accumulates foreign assets on average in the process of managing the Singapore Dollar within its policy band even as it sells foreign assets during times of stress on the Singapore Dollar. As the central bank, the MAS is the most conservative of the three investment entities, with the OFR invested mainly in safe and liquid assets. The OFR is sized to take into account its role as a buffer against a large and sudden outflow of capital that would undermine confidence in the exchange rate and Singapore’s macroeconomic stability. Traditional measures of reserve adequacy such as the number of months of imports the OFR could finance if all other sources of foreign financing dried up are less relevant for Singapore. A sizable and liquid OFR sends a clear signal that MAS has the wherewithal to resolutely defend the Singapore Dollar against speculative attacks. The GIC is a professional fund management company that manages the government’s foreign assets. These assets are separate from the OFR. The history of GIC begins with the MAS. Through the 1970s, Singapore ran persistent fiscal surpluses, received sizeable capital inflows, and had an elevated private savings rate. | A stable financial system features solid cushions that reduce the risk of problems spreading from one institution or market to other institutions or markets, or across borders. This risk constitutes a systemic risk, i.e. the risk of failure of the financial system. 1 BIS Review 124/1999 Disturbances that may develop into a systemic risk can be transmitted through financial institutions and financial markets. Stable institutions are solid institutions in which there is general confidence, whereas stable markets are markets where there are no “excessive” price variations. The banks are in a special position. They transform short-term deposits into long-term loans. They are responsible for payment settlements, and bank deposits serve as a means of payment. The volume of amounts outstanding in the interbank market is sizeable. As a result, problems in one bank may rapidly spread to other banks. The financial strength of banks is thus important for financial stability. The more capital a bank has the larger the losses it can absorb. The risk of contagion is thus reduced. A bank’s capital adequacy ratio is not the only variable that must be taken into account. A bank’s earnings provide an indication of the bank’s future financial position. Another important factor is the size of a bank’s loss provisions. Financial unrest spreads through payment and settlement systems. These systems can also be at the origin of risk. This occurs when banks credit customers before they have received settlement from the payer bank. | 0 |
These ratios are many times what they were prior to the crisis (Chart 1). Recognising the feedback mechanisms that so Sources: PRA regulatory returns, published accounts and Bank calculations. Note: Refers to major UK banks. For detailed definitions see notes to Chart B.1 in the November 2017 Financial Stability Report. amplified the severity of the crisis, there were also reforms designed to ensure the stability of the financial 3 4 Bean (2010) and Svensson (2015). Tucker (2011). 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 system as a whole. Extra capital is now required for institutions judged to be systemically important. Trading in many derivatives has been shifted to central clearing houses, and the associated collateral requirements tightened. And in several countries new authorities have been created to identify and mitigate system-wide risks, using what is known as “macro-prudential” policy. In the UK, macro-prudential policy is conducted by the Financial Policy Committee (FPC), housed within the Bank of England. Mirroring the set-up for the Bank’s Monetary Policy Committee (MPC), the FPC’s remit is set by the UK government but it is operationally independent of the executive and accountable directly to parliament. There are many instruments that might fall under the heading of macro-prudential policy, some of which – quantitative restrictions on lending, for example – have, in one form or another, been around for a long time (Elliot et al. (2013), Goodhart (2015)). Others, such as the counter-cyclical capital buffer, are newer. | The improvement we have seen in the economy over the last year and the abovetarget inflation we have experienced point to the need to begin the process of withdrawing the very substantial level of monetary stimulus which was put in place to counter the big financial shocks we experienced in late 2008 and early 2009. Such a policy should not be a threat to the recovery. In my view it is the key to sustaining the recovery. It is the right response to an economy which is growing but experiencing persistent above-target inflation. It would reduce the risk of a future shock to confidence if current above-target inflation does become more deeply embedded and interest rates then need to rise more sharply to combat it. And it would provide more confidence to the public and the business community that the MPC takes its remit seriously and is determined to ensure that this recovery is built on the solid foundation of price stability. BIS Review 134/2010 13 | 0 |
Central bank responses have also tended to adapt themselves to the structure of the respective financial systems, and to the specific dysfunctions and tensions. For instance, the fact that the banking sector plays a predominant role in channelling credit in the euro area economy — compared with the Anglo-Saxon model which is underpinned to a greater extent by the capital market — was from the outset a distinguishing feature in the design of the ECB’s response. Also, set against the strategies deployed by the Federal Reserve or the Bank of England, based principally on “quantitative easing”, the Eurosystem’s response has been more complex over time, adapting itself to the difficulties that have arisen at the BIS central bankers’ speeches 1 different stages of the euro area crisis, though seeking always to act on the segments of the transmission monetary policy mechanism that were seen to be most impaired. The perception that the interbank market had ceased to operate as an efficient liquidity distribution mechanism between banks meant that the liquidity-provision policy had to become more flexible. And, when the crisis worsened in September 2008, far-reaching changes had to be made to the monetary policy operational framework, to allow the ECB to meet the system’s gross liquidity needs, with a substantial expansion of the size of its balance sheet. | Central bank measures in the monetary area In the conventional monetary policy domain, since there was no inflationary risk over the relevant horizon owing to the deterioration of the economic outlook, the central banks’ priority has been preventing the disinflationary process in the Western economies from translating into deflation. Back in October 2008, in a concerted move the central banks of the main economics cut interest rates by 50 basis points, and this was followed by further cuts in late 2008 and early 2009. Currently, after an unprecedented monetary impulse, rates stand at one of the lowest points in history. The narrowing of the room for manoeuvre for conventional monetary policy measures gave a leading role to liquidity-provision policies and the implementation of exceptional or non-conventional measures, aimed at ensuring the transmission of interest rate cuts to agents’ financial costs and to facilitating their access to funding. Since the crisis began in August 2007, there have been numerous innovations in monetary policy implementation. These have involved increasing the number of institutions with access to central bank funding; extending the collateral eligible in monetary policy operations; lengthening the maturities at which liquidity was supplied to the market; and public and private asset-purchase programmes (or loans to the private sector for such purchases). As a result, there has been an unprecedented expansion in the balance sheets of the central banks concerned, and a substantial change in the composition of their assets. | 1 |
As a result, equity capital is eroded by around 3 ½ percentage points of risk-weighted assets. Yet despite this assumed marked worsening in the global economic weather, the FPC judged that UK households and businesses would continue to be supported by our banking system. 2 BIS central bankers’ speeches 2. Financial conditions and macroprudential policy The improvement in the price and availability of credit is one sign of the normalisation of the UK financial environment. Another is that, after seven years of deleveraging, aggregate credit to the UK private non-financial sector has begun to grow again (Chart 2). This has not been a debt-fuelled recovery. Aggregate private credit growth is modest compared to pre-crisis conditions, and is just now coming into line with nominal GDP growth (Chart 3). Chart 2: Credit growth in the private sector is recovering Private non-financial sector credit growth (oya) Sample average 25 20 Per cent 15 10 5 0 1967 1968 1970 1972 1973 1975 1977 1978 1980 1982 1983 1985 1987 1988 1990 1992 1993 1995 1997 1998 2000 2002 2003 2005 2007 2008 2010 2012 2013 -5 Source: Bank of England. | Carney, M (2013), “The spirit of the season”, Speech at the Economic Club of New York, December. Carney, M (2015a), “From Lincoln to Lothbury: Magna Carta and the Bank of England”, lecture at Lincoln Cathedral, July. Carney, M (2015b), “Inflation in a globalised world”, remarks given at the Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. August. Christiano, L, Eichenbaum, M and Evans, C (2005), “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1–45, February. Cloyne, J and Hurtgen, P (2014), “The macroeconomic effects of monetary policy: a new measure for the United Kingdom,” Bank of England working papers 493, Bank of England. Gali, J (2011), “The Return Of The Wage Phillips Curve,” Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 436–461, 06. Gilchrist, S, and Zakrajsek, E (2015), “Customer Markets and Financial Frictions: Implications for Inflation Dynamics”, paper prepared for the 2015 Economic Policy Symposium organised by the Federal Reserve Bank of Kansas City at Jackson Hole, Wyoming. August. Greenslade, J, Millard, S and Peacock, C (2008), “How has globalisation affected inflation dynamics in the United Kingdom?”, Bank of England Quarterly Bulletin, Q3. Groen, J and Mumtaz, H (2008), “Investigating the structural stability of the Phillips curve relationship,” Bank of England working papers 350, Bank of England. Leeper, Sims and Zha (1996), “What Does Monetary Policy Do?,” Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. | 1 |
Annex Chart 1 Equity indices during crises S&P 500 equity index FTSE All-share equity index Cumulative decline from peak (per cent) Cumulative decline from peak (per cent) 0 10 0 10 20 20 30 30 40 40 50 50 60 60 1929 crash 70 1973 oil crisis 80 Current crisis 1929 crash 1973 oil crisis Current crisis 70 80 90 90 0 6 12 18 24 Months from peak 30 36 Sources: Global Financial Data Inc. and Bank calculations. (a) Previous peaks taken as: 1929 crash = 7 September 1929; 1973 oil crisis = 11 January 1973 and current crisis = 9 October 2007. 20 0 6 12 18 24 Months from peak 30 36 Sources: Global Financial Data Inc. and Bank calculations. (a) Previous peaks taken as: 1929 crash = 30 September 1929; 1973 oil crisis = 12 December 1972 and current crisis = 10 October 2007. Kamstra, M and Shiller, R J (2009), “The Case for Trills: Giving People and their Pension Funds a Stake in the Wealth of a Nation”, Cowles Foundation Discussion Paper No.1717. | It was only such an infusion that would allow us to maintain stability, as well as be able to have the much needed funds to keep the infrastructure development effort going. Some financially savvy members of the Opposition too, realized the significance of such a fund infusion into the economy, and tried their utmost to scuttle that effort. But, fortunately, we were able to defeat those endeavours, and raise the all important bond, and tide over the risky period. The infusion of the new funds immediately brought stability to the economy and also acted as an important stimulus for growth, with the new additional resources quickly filtering down into the economy. Hence, as a result of the move, the Fiscal framework was supported with the moderation of interest rates; the monetary framework was facilitated with the stabilization of prices; and exchange rate was supported by the buttressing of international reserves. Mr. Chairman, I believe that, some day when Sri Lanka’s economic history is being written, this 2007 infusion of $ 500 million through the international sovereign bond, would be marked as a major “turning point” in our economic landscape. I also believe that the benefits of this land mark move has been of an enduring and permanent nature, as evidenced by the fact that, over the next 5 ½ years, the Government has been able to raise a further $ ½ billion from international bonds, with the coupon rates tightening considerably each year. | 0 |
The Central Bank continued to withdraw the excess liquidity in the market mainly via New Turkish Lira deposit transactions in the Interbank Money Market within the CBRT and repo transactions in the Repo and Reverse Repo Market of the Istanbul Stock Exchange, on an overnight basis. However, when the excess liquidity withdrawn via overnight operations increased, the Central Bank has started to issue liquidity bills from July onwards in addition to its overnight operations in order to increase the flexibility and efficiency of liquidity management. Overnight interest rates in the market were generally around the borrowing rate of the Central Bank, depending on the withdrawal of the excess liquidity by the Central Bank via overnight operations. Hence, the borrowing rate of the Central Bank has continued to be an indicator for money markets. BIS Review 4/2008 7 Based on the information currently available, i) The increase in base money, ii) Coupon and principle redemption by the Treasury to the Central Bank, iii) Treasury’s being net foreign exchange debt payer, will have a lowering effect, while; iv) The Central Bank’s net foreign exchange purchases, v) Interest payments to be made by the Central Bank for required reserves and excess liquidity absorbing transactions, vi) The decline in Treasury cash accounts within the Central Bank will have an increasing effect on the level of the liquidity in the market in 2008. | While, it forms a basis for the accountability principle, the law does not specify the size of the deviation from the target that will require such an explanation. In other words, details of accountability mechanism are left to the Central Bank’s own initiative. Therefore, the Central Bank has established an effective and enforceable accountability mechanism by setting a symmetrical uncertainty band of 2 percentage points in both directions around the point target. As stated above, the inflation target has been defined over a very comprehensive CPI index. The CPI index also comprises of price items that are beyond the control of the monetary policy such as food, energy and administered goods. In emerging markets like Turkey, shortterm fluctuations in exchange rates can lead to unpredictable temporary fluctuations in inflation as well. Since a sudden reaction of monetary policy to factors that are beyond its control will increase volatility in macroeconomic variables, inflation-targeting central banks adopt a medium-term approach and allow temporary fluctuations in inflation as long as the expectations are under control. In this framework, the primary objective of setting an uncertainty band is to establish a measurable criterion that will enable to determine to what extent the deviations from the point target will be tolerated with respect to the accountability principle. In view of the above-mentioned factors, it has been decided to keep the uncertainty band at 2 percent for 2008 as well. | 1 |
Of course, the Banking Union is now an integral part of the Euro project. In fact, like pillars in a building, the BU provides resilience and stability to the whole Euro project. As such, the BU is in its own right one of those transformative developments that have contributed to deepening our level of integration. 2/5 However, unlike the single market or the adoption of the euro, the BU was not the result of a joint vision by EU leaders on the need to enhance banking supervision and resolution across the Eurozone. Instead, it was the outcome of bold and swift defensive reactions to preserve the single currency in the wake of the European financial and sovereign debt crisis. Indeed, it was the crisis that led to the conviction that a common and enhanced framework for banking supervision and resolution was needed to help break the link between banks and sovereigns. This conviction gave rise to the Single Supervisory and the Single Resolution Mechanisms, which, so far, are the key components of the BU. Another important development related to the Single Resolution Mechanism came to fruition last December, when the European Stability Mechanism was recognised as a common backstop to the Single Resolution Fund for both solvency and liquidity support. Today the rationale behind the creation of the SSM and the SRB seems obvious. But, to be fair, before the European sovereign crisis erupted, there had been only a few warnings against the risks that a fragmented banking supervision landscape within the Euro area involved. | On the other hand, the contagious nature of financial turmoil with globalized financial markets is such that the possibility of further attacks on our currency, unsuccessful as they inevitably would turn out to be, could not be dismissed. The banks have therefore been somewhat reluctant to lend longer term money in the interbank market since the October shock, even though they are flushed with liquidity, as reflected by the clearing balance of the banking system being at a high level. This perhaps reflects a lack of depth in the debt market which we have been separately trying to address. As a result, while the short term interest rates of the Hong Kong dollar, for example for overnight money, have fallen to quite low levels, significantly below corresponding US dollar interest rates, the yield curve has become sharply upward sloping, with one-month and longer term money commanding a significant premium over corresponding US dollar interest rates. 25. But I believe the Hong Kong dollar yield curve will in time flatten further, as it has done so after the sharp hike on 23 October 1997. There will, nevertheless, be occasional jumps, as sentiment continued to be affected by events in other economies in the region and possibly beyond. | 0 |
This would subdue growth in Sweden, which has around 40 per cent of its exports to the euro countries. Conclusions and ways forward It would be wrong to say that globalisation is a force of nature that cannot be stopped. However, it would be very costly for an individual country or region to try to remain outside of this process. This alternative does not really exist in practice. That applies in particular to a country like Sweden, which is small and strongly dependent on foreign trade, and integrated with the outside world. At the same time, globalisation brings new demands and challenges. Many of these require global or regional solutions. There are thus two additional paths to take: One is that society and the business sector try to manage the changed conditions that globalisation involves in the best way possible, and one is that Sweden together with other countries/organisations actively works to promote regulatory systems, 6 BIS Review 35/2006 infrastructures, foreign aid and cooperation in the fields that require widespread support. This applies in particular to the global imbalances I have described here. Mobilisation of resources In the domestic field, the challenge for Sweden in future is to develop and renew the business sector so that we can meet the increasingly stiff competition. The general government and local governments will probably be unable to create very many new jobs; Sweden’s demographic situation means that taxes will be used to maintain the level of service and transfers that already exists. | With the view of enhancing the transparency and tradability in the secondary market, measures are being taken to introduce a new primary issuance system for Treasury bills. A distinct electronic trading platform, with a central counter party (CCP) arrangement for government securities, along with required legal 35 reforms to deepen and broaden the secondary market for Treasury bills and Treasury bonds, as well as a mechanism to disseminate secondary market information on debt instruments through the proposed e-trading platform and a clearing house are to be established. In addition, the Medium Term Debt Strategy (MTDS) is to be further streamlined with the assistance of multilateral agencies. Further, we will introduce amendments to the Local Treasury Bills Ordinance (LTBO) and Registered Stock and Securities Ordinance (RSSO) to ensure smooth and efficient functioning of the debt management system. In view of the increased volatility in global financial markets, we also intend to reduce the threshold for foreign investment in rupee denominated Government securities from 10 per cent of the outstanding Government securities stock at present to 5 per cent. Management of the Employees’ Provident Fund In discharging powers and duties vested with the Monetary Board in relation to the largest superannuation fund in Sri Lanka, Employees’ Provident Fund (EPF), the Central Bank has strived to improve the services provided to its stakeholders, while ensuring the enhancement of the return to members and the safety of the Fund. During 2018, the EPF continued its fund management activities to enhance returns by aligning the investment strategy with market conditions. | 0 |
On the need for clarity in monetary policy-making”, European Central Bank Working Paper No. 26. 47 As cited in Petra M. Geraats (2007): “The Mystique of Central Bank Speak”, in International Journal of Central Banking, March 2007, p. 37. 48 Effective communication to market participants is particularly important. As economists with a university background, we often feel the need to build up a series of arguments and weigh various considerations before arriving at a conclusion. But this can sometimes render communication less effective. Financial market participants prefer to be presented with the conclusion first so that they can respond to it quickly. 10 BIS Review 140/2009 The third criterion for good communication is that it must be honest. I referred earlier to the principle that the external communication should reflect the internal deliberations. It is an honest matter to communicate that decisions are difficult and often made on an uncertain basis. But it is just as important – and more challenging – to explain why it is difficult and which factors have been considered and given weight. Before the rebuilding of Bislett Stadium in 2004, the organisation Bislett Alliansen was to decide where the Bislett Games should be moved. The choice stood between Drammen and Bergen. They chose Bergen. The head of the organisation said to the Norwegian news agency NTB: “I have participated for almost 20 years, and this was the most difficult decision I have been involved in. | D4 6 994 9F 6 36 59F 6 . 1 6 D6 6 79796 /86F1 94 D4 D4 6791 94 1 74F91 M D4 5 94 797791 D4 797791 9764791 LL D4 D F4 5 6 2 6 6 5 89 9 5# 9 5# 6 6 5# 9 $ $ 5 6 96 9 6 2 [ 9 6 #59" 595 6 2 %96 2 5 96 6 2 #5 $ _ # 2 65 69C 8 66: 66 56 65 6656 L5 82 6 F F5 F 65 51 91 51 9 95 F 65 6G GG6G 2 36 E1 2 9 6 66165 5 L5 6 L5 951 662 I9 862 25 G 6 862 3 65 5 4 G2 5 2 01232 92 36 632 %2 %2 (.7 (.7 (8+ ' 8.F2 9*M* (F ((.7 B (.7 B (.7 + 9*M* ., %M* 9*M* , %M* %M* 17MM.FF.7 8M7 FU78M (.7 T 8%2 (.7 B 8*-7MM* B (.7 8F(* U. (.7 00 $ 3 3 3 3 4 5 .+5?,@14121 $ | 0 |
You might recall that in setting out the economic case for membership of the European Union (EU) on this occasion last year, I emphasized that the candidate countries needed to seriously question the way they had managed their economies in the past and to resolve to improve their performance. I warned against underestimating the entity of the task because the necessary changes were pervasive, affecting both institutions and mindsets, policies and work practices, and they also entailed costs. It was this same realization of the difficult challenge implied by EU membership that lay behind the call I made, the day after the referendum result was confirmed at the April general elections, for an early mobilization of all the nation’s resources. It is, therefore, somewhat disappointing that there persists today an insufficient awareness of the profound economic implications of that decision and of the need for all to work hard to secure the benefits of membership. This is all the more surprising given the threat posed by the continuing weakness in our major export markets. The Major Challenges Facing the Maltese Economy It is against this background that I propose to focus attention on four major challenges which I believe must be tackled with urgency if the economy is to return to a higher path of sustainable growth and development. | I do not need to tell you that there is still a lot to be done. You have said so yourselves many times. These good words must be transformed into actions, and soon, because time is running out. It is no good having the right diagnosis if you don’t apply the medicine and cure the disease.” 6 BIS Review 50/2003 | 1 |
Up to a certain amount, banks’ demand for central bank reserves is completely inelastic (due to central bank reserve requirements, internal and external liquidity regulation and other factors). Beyond this amount, however, the decision to hold excess reserves responds to risk-return considerations as for any other asset: if a bank decides to hold a certain amount of excess reserves, it is because their risk-adjusted return dominates that of other assets. As I mentioned earlier, while an individual bank can decide to hold less excess reserves, in the short run the banking system as a whole cannot dispose of excess reserves. Since, in equilibrium, supply must equal demand, if interest rates on central bank deposits (the riskfree remuneration of excess reserves) are at levels such that demand for reserves exceeds supply, banks will be willing to hold on to the excess reserves present in the market. This is likely to be the case in a situation of high risk aversion, where – like today – the risk premia demanded to hold risky assets are so high that their risk-adjusted return is lower than that offered by the deposit rate. If, however, banks become more willing to accept risks, their demand for excess reserves for a given deposit rate will decrease and they will look for more attractive alternative uses for these funds: riskier assets and/or loans. | What can the Federal Reserve bring to the table? First and foremost, we can convene the industry and, as needed, drive toward consensus. We can bring strong research and analysis to the table. We can synthesize the large volume of payments research developed by industry, think tanks, consultants and academics, as we’ve already done for ourselves, as well as provide research by Federal Reserve economists. We can analyze use cases, as we’ve done over the last six months. And to help shape the consensus, we can draw on the basic principles that have guided Federal Reserve provision of payments services over the postwar period: access, efficiency, security and resiliency. Historically, the Federal Reserve’s focus has been on the interbank clearing and settlement of payments, operating efficiency, such as the conversion from paper to electronics, technologies that extend and improve accessibility, and infrastructures and services that are robust to security threats. Moving forward our strategy maintains emphasis on those key areas, but expands our focus to the flow of a payments transaction from end to end, enduser to end-user. The vision is to make sure the core services we provide enable and encourage innovation among payments providers who serve the end-users at the two ends of the payment. The end-to-end view means that payment initiation and delivery of good funds to end-users in the future state need to be timely, cost-effective, safe and easy. When we talk about timeliness and a faster payments system, what exactly does that mean? | 0 |
The key to solving this policy dilemma is to make sure that firms hold enough liquidity (and capital) in the good times so that, when a downturn hits, supervisors can take a relaxed view about firms using those holdings as buffers to absorb the macro shock. That was not the position post 2008/09 when banks had not been holding enough liquidity or capital in the good times. It is an aim of the new regulatory frameworks put in place post-crisis, that banks should hold bigger liquidity buffers in normal times. The Bank of England’s balance sheet can also be used actively to backstop liquidity for the system as a whole, via the banking system, and the new operating frameworks put in place over the past 5 years will allow that to happen more quickly and easily. How will this all co-ordinate in practice? When the Bank, HMT and FSA took joint action in 2012 to reignite the recovery via the Funding for Lending Scheme – reviewed in my two previous talks to you – the FSA, as predecessor to the PRA and having two members on the interim FPC, contributed by relaxing liquidity requirements and making it clear that liquidity buffers were there to be used. This was a crucial element of the package. | In short, the FPC and PRA have many different, independent policy decisions to make. Ensuring both financial stability and safety and soundness of firms, requires both policy sets. The issue is sometimes raised as to how systemic stability and safety and soundness interact – especially during or after a financial downturn, when defensive actions by financial firms may be pro-cyclical. This is perhaps the period when cooperation and communication between the committees comes to the fore most strikingly, and forward guidance on policy can be most effective and necessary. The FPC and MPC will want to make sure that the regulatory system is not pro-cyclical – they will want to avoid anything that reduces the capacity for credit creation when the wider economy needs most support from its financial sector. One might worry that supervisors would see the general relaxing of requirements – the use of capital and liquidity buffers – as weakening the safety and soundness of their firms. In fact, the PRA also needs to recognise the relevance of the economy-wide situation to its objectives. Weakness in the real economy in a general downturn is one of the biggest threats to the safety and soundness of firms, as it can lead to substantial impairment of asset values. More than this, the consideration of capital and liquidity is more subtle than many people seem to appreciate. It is often asserted that requiring firms to hold more capital automatically reduces the capacity to lend. That is not the case. | 1 |
BIS Review 33/2004 5 (iii) Bank specific supervisory CAR requirements. The third component is supervisory CAR. Like other supervisors, MAS may impose additional bank-specific supervisory CAR to address risks not adequately covered by the minimum requirement. MAS has refined the framework for setting these supervisory CAR add-ons. It takes advantage of MAS’ existing risk-based supervisory approach and is based on MAS’ risk assessment of individual banks. In line with international practice, these supervisory CAR add-ons will be kept confidential. Impact of the revisions The adjustments in our CAR framework will allow local banks to manage their capital more flexibly. Banks which have lower risk profiles and which are better managed will enjoy lower total regulatory CAR requirements than before. At the same time, the adjustments will maintain prudential standards observed by supervisors in other major financial centres, which tend to be more stringent than the minimum standards stipulated under the current Capital Accord. Overall, these changes will result in modest but meaningful reductions to the CAR requirements, but they may or may not translate into immediate capital reductions for the banks. Leading banks tend to maintain capital at levels well above regulatory minimums, and that will undoubtedly prove to be the case in Singapore as well. In managing their capital positions, banks will also take into account their future expansion plans, as well as the risks they potentially face in their business environment. Non-internationalisation of Singapore dolla $ policy The second policy adjustment concerns the non-internationalisation of Singapore dollar. | This is the first and most important challenge of the Basel Committee in the next few years. As part of this process we will adhere to the published schedule for our fifth quantitative impact study. And I believe that we already have the tools at our disposal to deal with any issues that arise from the QIS5 exercise, or that arise during this period of implementation. To be sure, a key element is not to add further details to Basel II, but rather to focus on achieving a quality implementation of the new Framework. Therefore, I do not anticipate any significant change to the Framework during the period bankers and regulators are tackling initial implementation challenges. But the main challenge is the cross border home host cooperation. On this point I would not underestimate the work and efforts that supervisors are devoting to this issue. One final related point. The staggered implementation, specially the timetable differences with EEUU raises transitional crossborder issues that will need to be managed through greater collaboration between the EU and US supervisors, but I can assure you that both sides are even more committed to this than before, and that our efforts will be redoubled in this respect. Ultimately, I hope that this commitment and effort will promote even more effective implementation. A second related challenge is to enhance the cooperation with non-G10 supervisors. | 0 |
We have chosen a two-year horizon for monetary policy because this is considered to give sufficient scope in most cases to ensure acceptable developments in the real economy. However, the exact rate at which inflation should be brought back on target within this horizon will of course depend on the shocks the economy has suffered 4 . Sometimes the deviations from target can be so large that there is reason to allow inflation to return to target beyond the normal two-year horizon. In these cases, we shall explain this clearly in connection with our decisions. These thoughts on how to take into account developments in the real economy are of course not unique to the Riksbank. Although the formal guidelines may vary slightly from country to country, I believe it is correct to say that all central banks with an inflation target conduct flexible inflation targeting, that is, they give some consideration to real economic activity. In other words, we are not "inflation nutters” to borrow Mervyn King’s famous expression. Our aim is not in all situations to bring inflation back on target as quickly as possible and at any cost. At the same time, flexibility is part of the strategy that has gradually changed during the period with an inflation target. This is only natural as this type of flexible application of monetary policy assumes that there is considerable confidence in the inflation target – confidence that must first be won. | These goals and principles should include common requirements vis-à-vis GSC operators before they start their operations, such as clear and proper risk management policies and means, regarding their stabilisation mechanisms, legal certainty of users’ redemption rights and potential claims on underlying reserve assets, and regarding linkages and exposure between their core components and the other entities of the financial system. In addition, there is a need to agree on adequate cross-border oversight principles and schemes between authorities in charge of jurisdictions impacted by the potential circulation of stablecoins. To that end, we could take inspiration and review existing standards and principles for cross-border cooperation in the field of market infrastructures or AML-CFT. - Thirdly, making concrete efforts – including live experimentations – to address weaknesses of the current payment and settlement landscape Adjusting the regulatory and oversight frameworks might not be enough as we have to make sure stablecoins do not become a bad solution to a real problem. Our current financial system order rests on multiple issuers of settlement assets linked to the anchor settlement asset provided by central banks. In order to preserve the incentives and benefits for innovation, efficiency and stability, central banks as issuers of the reference settlement asset need to revisit and possibly adapt the conditions under which they make that settlement asset available. In that perspective, central banks could, for instance, issue their money in digital form, the so-called concept of Central Bank Digital Currency (CBDC). | 0 |
18 BIS Review 67/2009 Graph 28: Inflation Forecasts: Baseline and Alternative Scenarios 11 Base Scenario Late Recovery End-Year Inflation Target Percent 9 7 5 3 4 1 2008 2 2009 3 4 1 2 2010 3 4 1 2 2011 3 4 1 2012 Distinguished guests, The developments in fiscal policy are another major factor that may affect the outlook for inflation and monetary policy. Recently, budget revenues have been declining in line with the slowdown in economic activity. Meanwhile, expenditures have been rising due to the counter-cyclical fiscal policy that was put into practice to mitigate the adverse effects of the global crisis on domestic economic activity, leading to a significant rise in the budget deficit. Probable adjustments in excise taxes and/or administered prices in order to stabilize the budget could cause some volatility in inflation over the short term. Moreover, higher financing requirement of the government might weaken the favorable impact of monetary policy decisions and the fiscal measures on economic activity. Therefore, in order to reap gains from the short-term expansionary fiscal policy, it is important to commit to a credible mediumterm fiscal framework that would ensure fiscal discipline and debt sustainability. Uncertainties regarding the magnitude of the impact of problems in global financial markets on the real economy still persist. | However, on each occasion there are also factors that dominate over the common pattern, for instance the current mortgage crisis in the United States and the ensuing contagion effects on the financial markets as a whole. It is partly because of this that the forecasts become uncertain. In addition, it is particularly difficult to predict the turning points in the cycle. As monetary policy acts with a time lag, it must nevertheless be based on forecasts of how we believe that growth and inflation will develop. As time passes, new information is received which may cause us to reconsider our earlier analyses. This means that the forecasts we make regarding, for instance, the repo rate are not promises, but a forecast that is just as uncertain as the other parts of the forecast. I shall try to put some perspective onto the current situation by first going over what we know about Swedish cyclical patterns and then discussing the prominent features of this particular recession. Do we know what governs economic cycles? At the beginning of the 20th century economic cycles were regarded as natural and unavoidable, often in the light of the variations in agricultural production. Then came Keynes in the 1930s with his classical analysis 2 where fluctuations in economic activity were regarded as a result of fluctuations in demand. According to Keynesianism, recessions should be combated by an active policy. | 0 |
Abdul Rasheed Ghaffour: Reimagining the regulatory landscape for payment systems Keynote address by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Global Payments Week 2018 "Reimagining the regulatory landscape for payment systems", Kuala Lumpur, 4 December 2018. * * * Making a payment used to be an ordinary affair. You’d fill up your cart, head on to the cashier, and reach for your wallet. Today, that cart could be a screen, the cashier a machine, and the wallet a phone. In a span of about 10 years, digital innovation has radically transformed payments. Digital technologies now enable payment services to be easily replicated and rapidly scaled, often at a small incremental cost and increasingly by new and non-traditional players. Geographical and time constraints are becoming less relevant when transferring funds especially with the advent of real-time payment services. Mobile money and e-wallets have brought millions more individuals into the financial fold. ‘Super apps’ combined with payments functionalities have created entirely new ecosystems – these enhance user convenience and offer new opportunities for businesses beyond the area of payments. Cash and cards are no longer the only ways to pay – soon, we may no longer even need to present our physical or digital wallet. Last year, a global fast food chain started accepting facial recognition as a mode of authorising payment in China. This is – quite literally – the new face of payments. | To that end, regulations must seek to ensure that payment systems are secure, reliable and resilient. Given the increasingly unpredictable sources of risk, regulatory initiatives would benefit from an ‘assumed-breach’ philosophy. Systemically important payment systems must be set up to be able to withstand disruption. This would entail requiring adequate financial buffers and robust business continuity arrangements to preserve the continuity of key payment services under stressed conditions. With increasing digitalisation, cybersecurity incidences have the potential to not only cause significant business disruptions and monetary losses, but also undermine the trust and confidence in the global financial system. Due to the interconnectedness of the global economy, cyber resilience is only as good as the strength of the weakest link. It is important therefore for regulators to formulate and promote the adoption of holistic cybersecurity strategies that are constantly enhanced. This should be complemented by strong public-private collaboration at both domestic and international level to strengthen collective resilience. With payment systems becoming more efficient and interconnected, it is also important to prevent their abuse by illicit actors, such as for money-laundering and terrorism financing (ML/TF). Notably, the availability of instant payments poses challenges to traditional AML monitoring tools that operate on a batch mode, rather than on a real-time basis. Regulations should thus focus on continuous enhancement of AML controls among industry players, supported by improved AML compliance procedures and more advanced monitoring approaches. | 1 |
Singapore will fully align its regime to FATF’s new requirements; not only because we are a FATF member, but more importantly, we want to discourage tax evasion monies from attempting to enter our system. As other jurisdictions tighten their regimes and tax evasion monies seek cover, Singapore is sending a clear message that it neither wants nor will tolerate these illicit inflows. This being a significant policy move, we will conduct public consultations and welcome stakeholder inputs to shape a regime that is practical to implement and effective in outcome. Third, Singapore will step up its enforcement resources to deal with suspicious transactions reported by financial institutions. The Commercial Affairs Department will double the manpower of the Suspicious Transaction Reporting Office and enhance its analytical and reporting systems to detect criminal activity and illicit funds. Rigorous supervision Having a good AML/CFT framework is not enough. It is necessary to ensure compliance with the framework through supervision. Since MAS’ supervisory activities are not as visible, let me say more about this. MAS uses a risk-based approach, evaluating the money laundering and terrorism financing risks of each institution by taking into account its business activities; types of customers, products and services; its geographical areas of operation, as well as the quality of the institution’s internal risk management systems and processes in mitigating the risks. MAS conducts both off-site surveillance and on-site inspections to check institutions’ compliance with AML/CFT requirements. This ensures that policies and procedures set out in the institutions’ manuals are adhered to on the ground. | Institutions deemed as having higher risk are subject to more frequent onsite inspections. Let me cite some outcomes from our inspections. Institutions that have failed to meet our requirements have been warned or reprimanded in writing. A few have been required to appoint external consultants to conduct a thorough review of their AML/CFT frameworks; others have been asked to increase the resources devoted to this function. In a couple of cases, where the frameworks and procedures were adequate but ineffective management oversight resulted in inadequate implementation, we have asked the senior management to be replaced. In all cases, MAS informs the institution’s parent supervisor of our findings and concerns. Our supervisory approach aims to be preventive in nature. This means that sanctions can be taken against financial institutions for weak AML/CFT controls, even if no predicate offence has occurred. Having reviewed our regulations and our supervisory and enforcement actions, the FATF assessors concluded, “Singapore’s AML/CFT sanctions regime is effective, proportionate, and dissuasive”. In a nutshell, while a lot has been done, our institutions can always do better. MAS is reviewing whether we need to increase our supervisory intensity and is considering if we should make public, sanctions against persistently or egregiously errant institutions. Strengthened cross-border co-operation The third prong of our efforts is international co-operation. | 1 |
That may well be the perspective at desk level, but I suspect it is unfair to many CEOs, who have a 2 As the failure of Hong Kong’s futures clearing house demonstrated in 1987, very bad things happen if a central counterparty fails. Many lessons were drawn. BIS Review 71/2009 3 clear interest in the health, safety and soundness of the system. And if some didn’t recognise it before, they will now – as their predecessors did in the relatively recent past. The key industry associations can also play a constructive role in this whole area – as, indeed, they have in the past. This crisis would have been even worse if ISDA and others had not overseen the introduction of the collateralisation of derivatives-related counterparty credit exposures amongst the dealer community. But there are lessons about extending collateralisation, and standardising terms in vanilla instruments, beyond the dealer community in some circumstances. The debate is not just about clearing houses and post-trade infrastructure. The financial community must also be open to more trading in core, vanilla markets going via exchanges or other well-designed and open trading platforms. If well constructed, that could help to preserve liquidity when times are tough. We would, for example, like to see serious consideration of whether the corporate bond markets could benefit through something along those lines. Bank capital instruments The insurance industry is involved, one way or another, in everything I have touched on this morning. | And the flow of credit outside the banking system may improve, helping to support a recovery in nominal demand. Over the next quarter or so, amongst other indicators I will therefore be looking at what happens to firm and household money holdings, as well as credit flows and risk premia. The Bank’s Asset Purchase Facility schemes for corporate paper are designed to help catalyse that process. The fact that the Bank is buying relatively small amounts of paper may have been misunderstood by some. As the central bank, we are not operating the schemes in order to lend in scale to the real economy, but rather to help revive the markets. Some have described this variant of liquidity insurance as acting as “Market Maker of Last Resort”, and I recently aired some thoughts on the kind of principles that might guide central banks in this area. 1 They include consistency with monetary policy; avoiding undue risk to the central bank; acting as a catalyst; and avoiding attempts to prop up markets that would not be fundamentally viable once peacetime resumes. Yesterday, the Bank issued for consultation some ideas on how we might be able to extend our liquidity insurance, through the APF, to facilities for working capital finance. They cover a possible facility for secured commercial paper, where the underlying assets would be portfolios of SME trade-finance credit, and a facility for supply chain finance. | 1 |
As Andre Gide said, “Trust those who seek the truth but doubt those who say they have found it.” 26 A good example of that is the use of “fan charts” in forecasts produced by the Monetary Policy Committee (MPC) which show the wide range of possible outcomes for a given set of initial circumstances. 27 However, conveying uncertainty increases the complexity of a message, making it increasingly difficult to do in a world where short form is paramount. For example, it is a lot easier to tweet “BoE forecasts growth of 2%” than it is to tweet “If economic circumstances identical to today were to prevail on 100 occasions, the best collective judgment of the MPC is that the mature estimate of GDP growth would lie above 2% on 50 occasions and below 2% on 50 occasions,” even though that would be a more accurate description of the true meaning of the fan charts. In short, the modern challenge for experts is how to communicate with brevity, but without bravado. 28 23 O'Neill, O. (2002) Reith Lectures: A Question of Trust. O’Neill, O. (2017) Questioning Trust, Routledge Handbook (Mineograph). 25 King, M. (2004), “What Fates Impose: Facing Up to Uncertainty,” Eighth British Academy Annual Lecture, December. 26 Gide, Andre (1952), Ainsi soit-il ou Le jeu sont-faits, Paris: Gallimard. 27 Another example is the Chicago Booth IGM Experts Panel, in which economists are asked not only for their responses, but also how confident they are in their answers. | We recommend that the audit committee should be made up of non-executive directors, the majority of whom should be independent. • Sixth, board meetings should be held preferably on a monthly basis, but in any event no less than once every quarter. The board can only fulfil its leadership role if it meets frequently enough and receives sufficient information from management to be able to monitor the financial position and performance of the bank. • Seventh, individual directors should attend at least half of the board meetings held in each financial year. We fully recognize that the effectiveness of a director cannot be measured simply by attendance at board meetings. But equally it is difficult for even the most competent individual to make a contribution if he or she does not turn up for meetings in the first place. • Finally, the HKMA will meet the full board of directors of each bank every year. It is not the intention that the HKMA should participate in board meetings. Rather, we will meet with the board with the aim of strengthening communication between the HKMA and 3 BIS Review 24/2000 the board at the highest level. Among other things, this will give us the opportunity to give the board first hand information on the major findings about the bank that emerged from our onsite examinations and offsite reviews. | 0 |
After a spectacular period of sustained growth during the 1980s, the Japanese economy has stagnated over the past six years, as Japan has struggled to overcome the fragility of its financial system in the aftermath of the infamous Japanese financial bubble. A constraining factor for much of this time has been a widespread resistance to the use of public funds to strengthen the financial system which has, in turn, constrained the financial system in its extension of domestic credit. Japan has been reluctant, too, given the size of its public debt, to use fiscal policy to stimulate the domestic economy. There is now evidence of a change of heart on both these fronts. Japan - which has an extraordinarily strong external position - was never at the eye of the storm which struck Asia around the middle of last year. But if, as I expect, these policy changes now lead to somewhat stronger domestic demand growth, and greater confidence BIS Review 5/1998 -2- in Japanese financial institutions, that will make a crucial contribution to the stabilisation of the region as a whole. The storm struck essentially the ASEAN Four - Thailand, the Philippines, Malaysia and Indonesia - spreading subsequently to South Korea and intermittently battering Hong Kong and elsewhere. It is still not wholly clear - to me at least - quite why the storm suddenly struck. Most crises of this sort have their origins in some evident macro-economic policy failure. | West Bengal has been ruled by the Indian communists for almost 30 years. The Chief Minister wanted to promote foreign investments into West Bengal. His aim was to capture 25 percent of India's IT outsourcing market by 2010. He said that the Indian communists had drawn lessons from the collapse of the former Soviet Union and China's economic reforms. The choice was stark and simple: either perform or perish. 25. The recent bomb attacks in New Delhi have not affected India's growth trajectory. The Indian Government has responded swiftly and with determination. I have full confidence that it will be on top of the security situation. As India grows, the International Monetary Fund (IMF) expects that by 2010, India's exports will more than double, while imports will nearly triple. The consumer market could then be worth $ billion, making it one of the top five globally. To sustain an annual growth rate of 8 percent would require a huge injection of investments, both foreign and domestic, over the next decade. It is this immense demand for infrastructure, education, healthcare and consumer goods that will continue to draw foreign investors and businesses to India. A reinvigorated ASEAN 26. Let me now move on to ASEAN. 27. Prospects for Southeast Asia have brightened considerably. Regional economies have remained stable, despite the recent Bali bombings. 28. With China and India becoming big players in the international market, Southeast Asia has no choice but to respond strategically. | 0 |
(1997), “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets”, European Economic Review 41, 1111–1146. Svensson, Lars E.O. (1999), “Inflation Targeting: Some Extensions”, Scandinavian Journal of Economics 101, 337–361. Svensson, Lars E.O. (2003), “Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others”, Journal of Economic Perspectives 17(4), 145–166. Svensson, Lars E.O. (2005), “Monetary Policy with Judgment: Forecast Targeting”, International Journal of Central Banking 1(1), 1–54. Svensson, Lars E.O. (2009a), “Evaluating Monetary Policy”, in Koenig, Evan, and Robert Leeson, eds., From the Great Moderation to the Great Deviation: A Round-Trip Journey Based on the Work of John B. Taylor, forthcoming, www.larseosvensson.net. BIS Review 16/2010 11 Svensson, Lars E.O. (2009b), “Flexible Inflation Targeting: Lessons from the Financial Crisis”, speech on September 21, 2009, www.riksbank.se. Taylor, John B. (2007), “Housing and Monetary Policy”, in Housing, Housing Finance, and Monetary Policy, Federal Reserve Bank of Kansas City Jackson Hole Symposium, 463–476. Walsh, Carl E. (2009), “Using Monetary Policy to Stabilize Economic Activity”, in Financial Stability and Macroeconomic Policy, Federal Reserve Bank of Kansas City Jackson Hole Symposium. White, William R. (2006), “Is Price Stability Enough?”, BIS Working Paper No. 205, www.bis.org. Woodford, Michael (2007a), “The Case for Forecast Targeting as a Monetary Policy Strategy”, Journal of Economic Perspectives, Fall 2007. Woodford, Michael (2007a), “The Case for Forecast Targeting as a Monetary Policy Strategy”, Journal of Economic Perspectives, Fall 2007. | Ajith Nivard Cabraal: Expanding financial services in Sri Lanka Address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the opening of a new branch office in Jaffna by The Hongkong & Shanghai Banking Corporation Ltd, Jaffna, 11 February 2010. * * * My dear friends, I am delighted to be here in Jaffna today for the opening of a new branch of HSBC, one of the market leaders in global banking. The history of the HSBC in Sri Lanka could be traced back to 1884, when it first commenced operations in Colombo. Today, the largest foreign bank operating in Sri Lanka has moved to Jaffna bringing banking to the doorsteps of people in the Northern Province. This is indeed a historic milestone. This development did not happen by chance. It did not take place automatically. With the liberation of our entire nation in May last year, the Government and the Central Bank have taken determined efforts to expand financial services, facilitate and stimulate economic activities, and develop infrastructure in the North and the East. In fact, I have personally participated at several bank branch openings during the last few months, and our officers have been following up the progress, and these outcomes are a result of such combined efforts. | 1 |
Nature’s education website declares: “Ignoring Population Structure Can Lead to Erroneous Predictions of Future Population Size.”[11] The lesson is no different in markets – underlying market structures matter. CCPs – who are in the risk management business – can help with this by understanding and managing the markets in which they operate. This includes client positions and the role of physical delivery. The recent events in the nickel market are a good example. The historic price moves I just spoke about can be the result of things completely outside of the financial system – weather, plagues, and invasions. But they can also be exacerbated or even driven by market structure. In the case of nickel, much of the price move was related to the build-up of a very large position in the form of a tangled and opaque web of derivative exposures involving a single client. We have seen these before: Archegos, Long Term Capital Management. This time, while the bulk of the contracts were bilateral, many were centrally cleared. There will be important lessons learned from the events in nickel – both with respect to the specific incident and more generally,[12] and I am sure I will have more to report following the conclusions of the independent review we have commissioned. Page 6 When it comes to this early lesson, CCPs could form part of the solution. | Page 1 Central clearing: three lessons and a path forward − speech by Christina SegalKnowles Given at the European Association of CCP Clearing Houses (EACH), Brussels Page 2 Published on 19 May 2022 Christina Segal-Knowles talks about central clearing (a system that helps manage the risks of financial contracts). She says the work to strengthen it is a crucial part of our efforts to enhance the resilience of the UK and global financial system. Christina reflects on recent episodes of extreme market stress, and looks at what could be learnt from them to make central clearing stronger. Speech Thank you for having me – it is a pleasure to be here with you to celebrate the 30th anniversary of EACH. I would have loved to be there in person. But I have another anniversary to celebrate here in London – my son turns 6 today – so I am multitasking! The reality is that Central Counterparties (CCPs) have much to celebrate. A decade ago, incentivising central clearing was a key prong of post-global-financial-crisis reforms. CCPs were central to efforts to move away from the opaque network of insufficiently margined bilateral derivatives contracts that helped to turn a slump in U.S. subprime mortgages into a global financial meltdown. Today, prompt and transparent margining and greater use of central clearing ensures that perceived stress on one major participant does not cause a panic. Greater use of CCPs and the broader reforms to derivative markets have made the financial system more resilient. | 1 |
We see a slowdown in economic development., We do not see, or do not yet see, a recession to be on our hands. So I will not speculate about what we would do if there really were a recession. We will cross that bridge when we come to it or, as my mother used to say: if the skies fall down, all the birds are dead. Interest rates in the United States are higher, but you have to realise that the United States is in a totally different phase of the cycle than we are and whether that will in any way induce capital flows to move differently from what they are moving today remains to be seen. And the third part of your question was, have we in any way made the conclusion that the banks, when the rate was 3 %, were not giving in enough to the demand for credit. No, on the contrary, as you know, the development of credit to the private sector has been quite buoyant over the past few months, although its bias of increase has come down somewhat. The last time I was here, I reported that credit to the private sector was growing at an annual rate of nearly 10%; the latest figure we have now is that it has come down to a rate of slightly over 9%. | This is important because in future while computer knowledge will perhaps not immediately get you a job, it will ensure that you are one step closer to being employed. Ladies and Gentlemen, I also recognize the efforts of the former Students Association who have been soliciting for donations from various organizations. As former students we all have the responsibility of helping the school that has played a key part to what you are today. Let us continue to support our beloved school. I thank you. BIS Review 14/2010 2 | 0 |
When the ECB Governing Council, in December last year, decided to also accept cash as collateral in our securities lending facility, we effectively increased the supply of bonds available in the repo market, thereby swiftly reducing the share of bonds trading special.7 The price effects of this decision can be seen on the next slide. Before we accepted cash as collateral, there was a strong positive relationship between the level of excess liquidity and repo rates, not only for trades backed by German collateral, but also for those involving French and, to a lesser extent, Italian securities. The moment we amended our securities lending facility in December last year, the relationship broke down, as you can see on the right-hand side. 4 / 10 BIS central bankers' speeches Recent ECB analysis confirms the intimate relationship between cash and repo markets and the impact of supply and demand effects.8 The authors estimate that a 1% reduction in the effective supply may increase specialness, on average, by up to five basis points. Studies for the US market come to qualitatively similar conclusions.9 In other words, whether a bond trades special, and by how much, depends crucially on its effective supply, which is itself affected by factors such as the amount of investors that are willing to lend out securities in the repo market. These effects are also found to be persistent. You can see this on the same slide. The “scarcity” premium stabilised in spite of continuously increasing excess liquidity, but did not regress. | The main goal of monetary policy is to maintain price stability. This is of course not an end in itself, but a means to an end. A non-inflationary climate facilitates the free play of market forces and keeps socially damaging developments at bay. Fiscal policy must, basically, aim in the longer term to balance the public budgets. As with monetary policy, it is a question of steady, ongoing efforts. This should be no surprise, considering that the whole spectrum of public sector activities is reflected in the public budgets. This in turn raises the question of what services the state should perform, who should pay for them and how public-services can most efficiently be provided. Where competition policy is concerned, the aim is to create conditions conducive to the free play of market forces. In recent decades, it has unfortunately not always been possible to gain consensus support for the idea of free competition, which is still regarded with scepticism and suspicion by many people. Provided that free competition is able to develop in a stable environment, there can be little doubt that it is the best means to assure optimal use of available resources. When things go wrong, it is generally due not to the principle of free competition itself but to the lack of a stable environment. I would like to stress once again that the task of creating a stable economic framework is a never-ending one: it is a question of constantly working towards - but never actually reaching - the intended goal. | 0 |
The level of outstanding debt as a percentage of the Island’s annual GNP, a ratio used by many fiscal analysts, rose from about 60 percent in 2000 to more than 100 percent in 2013. Debt ratios in this range can inhibit economic growth in that they generally lead to higher financing costs, which in turn, can lead to constraints on access to further financing. The recent downgrading of Puerto Rico’s public debt to non-investment grade was a clear signal that the current fiscal situation poses serious risks to the Island’s economic future. Steps toward fiscal sustainability Next, I will discuss the buildup of Puerto Rico’s public debt and then provide some thoughts on ways to improve the Island’s fiscal health. To open this discussion, it is worth noting some key features of Puerto Rico’s fiscal institutional environment. The Commonwealth has a close relationship with the U.S. government which, in many ways, is analogous to that of a mainland state. Puerto Rico shares a common market and a common currency with the U.S. mainland leading to strong economic interdependencies. Federal aid is a major source of revenue for the Commonwealth and Puerto Rican residents participate in large U.S. social insurance programs such as Social Security and Medicare. In addition, Puerto Rican debt trades as a municipal security in the U.S. capital markets, and much of the interest earned on this debt is exempt from local, state and federal income taxes, regardless of where in the U.S. the investor lives. | Anita Angelovska Bezhoska: Increased availability and use of official statistics in the Republic of North Macedonia Introduction speech by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of North Macedonia, at the marking of the European Statistics Day, Skopje, 19 October 2021. *** Your Excellency Ms. Forsgren Bengtsson, Dear Mr. Simovski and Mr. Stymne, Dear State secretary Ms Gaber, Distinguished speakers, representatives of the non-government sector, colleagues and participantsFor a second year in a row, we are marking the European Statistics Day in specific circumstances, shaped by the global pandemics. The health crisis has infiltrated itself into every single pore of our societies disrupting the world we know. Statistics has not been an exception whatsoever. At the time the crisis hit, statistics area in global terms was already facing many challenges. Producers of statistics were coping with lingering tasks that came as a side effect of the global financial crisis in 2008. Although the lack of statistics was not a cause of this crisis, still it revealed significant data gaps and underlined a need of more frequent, comprehensive and granular data to strengthen policy-making infrastructure. The second challenge rested in unprecedented digitalisation and data proliferation, by both private and public entities. It challenged official statistical producers, which serve as the primary source of data, to innovate their data and data sources, but even more to work intensively on setting proper data governance frameworks. | 0 |
But, there are also other parallels. This includes in particular the arrangements that made the banks’ real risk-taking more abstruse. The banks’ formal and informal promises of loans to special investment vehicles meant that the problems quickly bounced back into the banks' balance sheets. In the Swedish bank crisis one can say that the finance companies in some respects played a corresponding role to the special vehicle. It was the finance companies that primarily financed the expansion in the construction and property markets. The finance companies largely financed themselves in the short term by issuing so-called commercial papers in the BIS Review 30/2008 3 fixed income market. When the property market folded, it was a finance company, Nyckeln, which in September 1990 was the first to throw in the towel when it could not renew its financing. Other finance companies then followed suit. Many of the finance companies were owned by the banks. And the banks were tied by both formal and informal commitments. The losses therefore soon returned to the bank system. In 1991 it became apparent that the banks had substantial problem loans through their exposures to the property branch both directly and indirectly through the finance companies they supported. The bank crisis had become a reality. Perhaps you begin to see a pattern now? | Norman T L Chan: Responding to the financial crisis – financial reform impacts and regulatory regime changes Opening remarks by Mr Norman T L Chan, Chief Executive of Hong Kong Monetary Authority, at the Asian Financial Forum 2010, Policy dialogue: “Responding to the financial crisis – financial reform impacts and regulatory regime changes”, Hong Kong, 20 January 2010. * * * 1. “It has often been said that history, especially financial crisis, tends to repeat itself. Notwithstanding the disturbingly frequent occurrence of seemingly similar financial crises, I am inclined to believe that history does not repeat itself because, upon close scrutiny, no two crises are exactly the same. It may be more correct to say that mistakes will be punished by the market. If people do not learn from their mistakes, then the market will continue to repeat its punishment. The only difference between the major financial crises is that the punishment is getting more and more severe, if not violent.” 2. “Going forward, I can see two possible ways to learn more about the financial markets. One is to learn from past mistakes and do something now. The second is to wait until the next disaster strikes and try to do something there and then. | 0 |
Also in the fact that external conditions forecast to 2015, while less auspicious than expected in September, point to an improvement from this year. And last but not least, in the strength of our economy and our institutions. The significant monetary impulse that has already been added, the increased fiscal impulse and the effect of the peso depreciation on the performance of tradable sectors will lend support to economic activity. The depreciation of our currency has favored the exporting sectors and the regions where some of these sectors are based. It is worth noting that, as can be inferred from our Business Perceptions Report, certain regions of our country, especially to the south, which have endured difficult moments in the past few years, now largely outperform their peers up north. However, as I already mentioned, inflation remains high and above projections, a sign that for the time being monetary policy actions have reached its limit. Although we are convinced that inflation will return to near 3 percent over the course of 2015, we cannot rule out that this convergence is slower than expected. This is important, because in the end, we must not forget that higher inflation hits hardest those most vulnerable sectors of the population, as they have fewer tools to deal with it. In this sense, absent significant changes in the scenario we estimate to be the most likely, we do not see that, in the short run, we should increase the monetary impulse, which is already strong enough. | With growth at nearly 10% p.a. over the past decade, China’s imports of consumption goods have expanded twice as fast as intermediate goods. Singapore’s economic growth remains sluggish. Real GDP growth came in at 0.8% in the second quarter on a quarter-on-quarter, seasonally adjusted annualised basis. Growth in the first half of 2016 has averaged 2.2% in year-on-year terms. The economy’s performance in the second half of 2016 will not be too different from the first half. But there will be some month-to-month volatility in economic activity and the composition of growth will shift somewhat. The trade-related cluster is showing tentative signs of stabilisation with improvement in certain segments. • The electronics industry, which recorded positive sequential growth in April and May, shows tentative signs of a patchy recovery. • The wholesale and sea transport sectors have benefitted from buoyant oil trade. The modern services cluster, which has been a key pillar of growth in the last few years, will see its contribution fall significantly in 2016. • Financial services, which had grown much faster than the rest of the economy in the last four years, will see growth much closer to the overall economy. • Professional services – like architectural and engineering services– which are more exposed to the UK and EU, will experience slower growth. • Info-communication services will see a moderation in growth but will be supported by demand for productivity-enhancing IT solutions in a restructuring economy. The domestic services cluster will continue to see modest growth. | 0 |
At the BIS Review8/2007 11 same time, to enhance the scope of operations of money changers, they will be granted approval to encash Travellers' Cheques from 2007 onwards. As is being done internationally, a close cooperation will also be maintained among all relevant supervisory and regulatory institutions to facilitate the supervision and regulation of financial conglomerates. In this regard, a Working Group of Regulators for Financial Conglomerates comprising the Central Bank, Insurance Board of Sri Lanka, Securities and Exchange Commission of Sri Lanka, Sri Lanka Accounting and Auditing Standards Monitoring Board and the Department of Registrar of Companies has already been established to develop a mechanism of monitoring the systemic risk of conglomerates. In the meantime, the Payment and Settlement Policy has already been drafted in consultation with the National Payment Council, to mitigate risks and increase efficiency. The proposed policy will be implemented during 2007-2010. A local SWIFT Service Bureau will be set up in 2007 to provide a common connectivity point for users to communicate with SWIFTNet from the Disaster Recovery Site. The coverage of the Wide Area Network will be expanded by including the Primary Dealers to resolve the remaining problems relating to registering all investor transactions in the Securities Depository of the Central Bank. This will further enhance the safety of investments in the government securities market. The Central Bank will permit Primary Dealers to diversify their business into certain activities and within limits, with appropriate regulatory and prudential safeguards. | Savings are encouraged by strengthening the financial system and delivering positive real interest rates through appropriate monetary policy measures. The Central Banks’ contribution to promoting investment will be somewhat indirect and will mainly arise from the business confidence that would be generated as a result of maintaining low inflation and minimising the macroeconomic risks. Currently, the Central Bank managed Employees’ Provident Fund (EPF) plays a significant role in supplying both equity and debt capital to the private sector as well as the Government, while generating optimum long term returns for members. The Central Bank will continue to fulfill this role and supply equity and debt capital in 2007 by carefully evaluating investment opportunities and a gradual diversification of investments. In addition, the service provided to the presently active two million members will be enhanced through a comprehensive reengineering programme of the EPF by fully automating its operations, using electronic means to update the member accounts in real time. The Central Bank will also actively explore the possibility of introducing a unified voluntary contributory social security scheme for over three million informal sector workers. This will provide a social security to these workers, while generating large scale savings and funds for investment as well. BIS Review8/2007 13 In keeping with the vision of the Central Bank, access to finance by all segments of the population will be improved through continued development of the finance sector. | 1 |
My point is that, in addition to analysing vulnerabilities in individual countries and general macroeconomic linkages between countries, you also need to look in particular at the major cross-border financial groups and financial infrastructure. The good news is that these are not so many, after all. Of the approximately 8,300 credit institutions in the EU, only nine are defined as truly pan-European and less than fifty have cross-border establishments in more than two countries. When assessing preconditions, regulation and supervision you need to look not merely at individual countries but also at whether there are major differences or gaps in the application between countries or between financial sub-sectors and if this might lead to vulnerabilities, in particular in a crisis situation. As we all know, a common European approach to bank problem resolution has so far not been developed. In a potential or actual crisis situation, we may face “the prisoners’ dilemma” in which the optimal solution may not be achieved since each country would tend first to look to its self-interest. Hence, it is important for a regional FSAP to identify vulnerabilities stemming from potential conflicts between home and host countries in the resolution of a failed financial group, which for instance might have systemic importance in the host country but not in the home country. The common thread in all this is that an FSAP should focus on two things: The weak spots as well as the channels for contagion of weakness. This is what the IMF is doing in its single-country FSAPs. | For instance, while a fixed-exchange rate regime in certain circumstances tends to support financial stability in a country (or group of countries – to refer to the European context) there might be situations in which such a system could have the opposite effect. To underpin financial stability, economic developments should be sustainable, transparent and predictable. This also applies to political decisions, which affect the financial system directly or indirectly. Completing the circle and reverting to my first observations on the increased global linkages, most countries’ financial systems are influenced by developments outside the domestic economy. Linkages come through different channels: macro economic events having international repercussions, for instance through international markets, or “micro events” such as via banks’ cross-border affiliates. BIS Review 52/2006 1 The FSAP – an attempt to tie together the loose ends Given the various pieces needed to shape and maintain a stable and efficient financial system we need a bird’s-eye view to see that they are all in place and that they do not counteract one another. The approach should also identify weak spots from which the financial system potentially might be destabilised. This need for a bird’s-eye view resulted in the creation of the FSAP. The FSAP is intended to cover the pieces I just mentioned – standards, preconditions and institutional setting and the interplay of these factors in the context of the domestic economy. | 1 |
5 Although the Federal Reserve only recently introduced these instruments, versions of interest on reserves and term deposits are standard components of some other central banks’ implementation toolkits. 6 For example, there is much to learn from the experience of the central banks that have implemented negative rates recently. It is important to note that, with the exception of the Swiss National Bank, the implementation of 2 BIS central bankers’ speeches For example, “quantitative easing,” known shorthand as QE, originates with the Bank of Japan’s (BoJ) efforts to stimulate inflation in the early 2000s at the zero bound. In this effort, they targeted the money base and conducted temporary operations and short-term securities purchases to accomplish that liability-driven operating objective. Because the maturity structure of the BoJ’s assets remained relatively short, the bank was able to run down the size of its balance sheet to a more normal level relatively rapidly when it came time to do so and then raise rates using standard implementation tools. In contrast, in the United States and other countries, including Japan, QE is now associated with targets for longer-term asset purchases and extending portfolio duration, to put downward pressure on long-term interest rates. Policy normalization will need to proceed in a different way than it did in Japan in the mid-2000s if most of the additional assets, and the reserve balance liabilities created as a byproduct of their acquisition, remain on the central bank’s balance sheet until they mature in the far future. | But before I go on, let me remind you that the views I express are my own and may not reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System. The topic of this conference may not appear particularly glamorous. It is natural to view monetary policy implementation as a technical and humble exercise next to the flashiness of policy formulation, which has policymakers determining the appropriate level of interest rates. However, for those of us charged with carrying out policymakers’ decisions, there is keen interest in the mechanics. We have the task of designing and executing operations that ensure that policymakers’ instructions are implemented effectively and efficiently, so that their intentions can affect inflation and the real economy. But while monetary policy implementation is just a means to an end, there is no obvious single “right” way to do it, and every central bank’s operating framework reflects history, unique institutional constraints and the market environment, which may change over time. So even though the topic of today’s conference may seem to lack glamour, it is significant, particularly now, since monetary policy implementation and the market landscape have undergone profound changes in recent years. Many advanced economy central banks have adopted a number of new tools to implement monetary policy or used traditional tools in new ways or in unprecedented size, in part because economic conditions have necessitated historically low interest rates that have bumped up against the zero bound for almost seven years. | 1 |
There are several factors that may explain the decline in net interest margin observed in this period. First, it is the result of the increase in the relative share of non-productive assets, that is, assets that do not earn interest, such as non-performing loans or foreclosed assets. In addition, this period saw a severe contraction in banks’ credit portfolios, a reflection of the sharp correction in the high indebtedness accumulated by Spanish households and firms in the pre-crisis years, and of the loss of share of the banking system in the financing of the economy. Banks cushioned the balance sheet effect of this contraction in their credit portfolios by increasing their exposure to other assets, especially through government debt purchases. As these debt securities provide lower returns than lending to households and firms, in the long run this portfolio rebalancing resulted in a fall in the average return on assets. However, when the sovereign debt crisis came to an end, the increase in value of these debt securities provided a positive, albeit short-lived, boost to profitability. On our estimates, the overall effect of these changes in asset composition – associated with the increase in non-performing loans and the decrease in the relative share of credit on balance sheets – would explain some 70% of the decline in net interest margin in the Spanish banking system between 2007 and 2018. | Despite the recent recovery observed in Spanish banking system profitability, the present levels are below the pre-crisis levels and below the cost of capital estimates available. This situation is not exclusive to Spain, but is in fact quite widespread within the euro area. Indeed, the average profitability of Spanish banks is currently somewhat higher than that of the main European banking systems and the euro area average. The breakdown of the return on assets shows that the main reason why Spanish banks’ profit levels are higher than the euro area average is that their net interest income is higher. This reflects the larger relative share of Spanish banking business in less mature markets, such as the Latin American economies, where margins are higher. Conversely, Spanish banks have higher impairment related expenses and provisions than their euro area peers. Average return on equity among Spanish banks is also higher than for banks of other European countries such as Switzerland or the United Kingdom or for Japanese banks. But it is lower than average return on equity observed in other more profitable banking systems, such as the United States, Sweden, Norway, Canada and Australia. In any event, there is a high level of dispersion in profitability between banks, both in Spain and in the rest of Europe. This shows that profitability problems do not affect the sector evenly, given the range of banking business models, both between countries and within each jurisdiction, and also the combination of multiple explanatory factors. | 1 |
Reflecting these gains, a number of emerging market countries have been strong supporters of open trade, a sign of how much the world has changed in recent years. A few examples can help to illustrate some of the benefits of globalization. India’s green revolution—which helped to greatly increase its agricultural productivity and food security—was facilitated by U.S. technology and scientists working with their Indian counterparts. Similarly, as is well known, Indian engineers and entrepreneurs have played a key role in the technology sector’s tremendous achievements in recent decades and now lead some of America’s largest companies, including Google and Microsoft. This success, in turn, has had important benefits for India as well, including increased foreign investment flows and employment opportunities that have helped develop a vibrant information technology ecosystem. But, increased openness to trade is not a panacea in and of itself. Actual benefits depend on a range of other critical factors, including macroeconomic policy, the business and regulatory environment, the legal regime, the quality of infrastructure, and the quality of public services, including education. While the gains from a liberalized trade regime are not guaranteed, the alternative of trying to achieve a high standard of living by following a policy of economic isolationism will fail. Trade has played a key role in nearly all of the high-growth success stories since the middle of the last century. | Indeed, such measures often backfire, resulting in harm to workers and diminished growth. A better course is to learn from our experience. From a U.S. standpoint, we should work to reduce remaining foreign trade restrictions that impair our ability to capitalize on our comparative advantages. For example, market access restrictions can mean that certain U.S. industries cannot realize their full potential. Similarly, weaknesses in the protection of intellectual property rights limit the ability of U.S. producers to realize the full returns from their investments. This lowers profits and diminishes incentives to grow the business and employ more workers. If we are going to enhance the benefits of free trade and better manage its costs, it is critical that we continue to strengthen the global rules-based system. On the positive side, I would point to the WTO’s recent Trade Facilitation Agreement, which addresses customs procedures and could reduce global trade costs by almost 15 percent. But, at a broader level, the momentum behind global trade reform has clearly waned in recent years. This has occurred notwithstanding the fact that there are substantial areas in need of further reform, such as agriculture, services and non-tariff barriers. That momentum needs to be rekindled and reaffirmed. Although advanced economies historically have tended to lead the way, it is important that large emerging market countries now play a greater role. This is appropriate given their growing prominence in the global economy. There are many approaches to dealing with the costs of globalization, but protectionism is a dead end. | 1 |
Speech Embargo 21 September 2017, 5.30 pm Second Karl Brunner Distinguished Lecture Introduction of John B. Taylor Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Zurich, 21 September 2017 © Swiss National Bank Page 1/4 Ladies and gentlemen I am very pleased to welcome you to the 2017 Karl Brunner Distinguished Lecture. The Swiss National Bank established the Karl Brunner Distinguished Lecture Series to pay tribute to academics whose research is of particular relevance for central banking. With this annual lecture, we want to reach a wide audience, including, in particular, students. For this reason today’s event is taking place at the ETH Zurich, which is internationally one of the most renowned academic institutions. I would like to thank the President of the ETH Zurich, Professor Lino Guzzella, for making these fantastic premises available to us. This year, we are paying tribute to John B. Taylor. He is one of the world’s foremost economists. John’s work is characterised by a keen interest in highly relevant questions, from both an academic and an applied point of view. He has made major contributions to economic theory. In addition, by bridging the divide between theory and practice, he is one of few economists to have had a profound impact on economic policy and thus on macroeconomic stability. John is also a very effective teacher. Just let me give you one example. Did you know that Tiger Woods, the famous golf professional, was his student in the introductory class at Stanford? | Total mainland activity increased by 1 percent between 2014 and 2015. This is the lowest pace of economic growth since 2009. Growth may edge down even further this year before gradually picking up again. Growth is being restrained by the marked fall in petroleum investment and weak growth in other business investment, while it is being supported by household consumption, exports of traditional goods and public demand. The depreciation of the krone is also supporting inflation. The rise in prices for imported goods has increased over the past year, and the year-on-year rise in the consumer price index has been just over 3 percent in recent months. Inflation may be dampened ahead by the decline in wage growth and as the effects of the krone depreciation unwind. Chart: Key policy rate The key policy rate was lowered to 0.5 percent at the March monetary policy meeting. According to the Executive Board’s assessment of the outlook in March, the key policy rate may be reduced further in the course of the year. The key policy rate was kept unchanged at the monetary policy meeting in May. There is no crisis in the Norwegian economy, but we are facing restructuring. Restructuring must start in the business sector. Activity in the oil sector will be reduced to a considerably lower level. Other industries must emerge and provide the basis for new jobs. Economic policy can only facilitate this process. Restructuring takes time. Monetary policy is the first line of defence in managing the economy. | 0 |
Rather than borrowing against the rising equity in their homes, mortgage balances have instead essentially stabilized and remain well below their previous levels. As my colleagues will describe in more detail shortly, this stabilization reflects an increase in debt paydown due to a combination of lower interest rates, shorter loan terms and aging of mortgages. This trend is reflected in increased household saving and growing home equity, and we expect these trends to continue to help households rebuild their balance sheets over the near term, thereby further increasing the household sector’s resiliency to shocks. Low interest rates have also been important in driving the household debt service ratio to the lowest levels observed in our data. This means that households have more capacity with which to absorb any temporary adverse income shocks. One clear reflection of these improvements is the very significant decline in delinquency rates. At this point, the great majority of the bad debt from the boom years has been charged off and new foreclosures are at the lowest level we’ve seen in our data. The combination of charge-offs and tight mortgage underwriting standards over the last several years has shifted the stock of outstanding mortgage balances toward lower-risk borrowers, who are typically older with more stable incomes. For all these reasons, the household sector looks much better positioned today than in 2008 to absorb shocks and continue to contribute to the economic expansion. | In the coming years, the greater global participation in this developmental process, both directly and indirectly, would enhance the potential role that Islamic finance would have in contributing towards greater global financial stability in the international financial system. BIS Review 136/2008 5 | 0 |
José Manuel González-Páramo: The European Union and the lessons from the crisis – the way forward Speech by Mr José Manuel González-Páramo, Member of the Executive Board of the European Central Bank, at the RBC Capital Markets’ Central Bank Conference “Impacts and Implications of Integrated Global Markets”, Madrid, 12 May 2011. * * * Ladies and gentlemen, I. Introduction It is a privilege for me to participate in this conference dedicated to the very important topic of the “impacts and implications of integrated global markets”. As we are all aware, from the very start of the current crisis, economic and financial distress has been transmitted around the world through a variety of channels that, together, have formed an unusually rapid and pervasive cross-border transmission mechanism. The high degree of integration in today’s global financial markets is generally seen as one of the factors that have contributed to the amplification and spread of the current crisis. However, the fact that integrated financial markets can contribute to the destabilisation of our economies is not intuitive. Economists usually believe that more integrated and innovative financial markets are conducive to sustained economic growth and reinforce economies’ capacity to withstand shocks. The experience of the last four years shows though that, under certain conditions, financial integration and some types of innovation can increase the scope for contagion across institutions, markets and borders and contribute to the emergence of systemic risks. | Similarly, in other markets, London’s dominance in foreign exchange trading, OTC derivatives, fund management and bond origination means that London is the financial centre for euro wholesale financial services. Even in the area of payment systems the UK accounts for a significant proportion of the euro payments flowing through TARGET, even though for us the euro is a foreign currency. But these are just the immediate, first round effects of the euro. The more substantial challenges are posed by the more uncertain outlook as to just how the euro markets will develop in the medium term. So I want now just to say a little about how the euro markets may develop over the next ten to fifteen years. One thing to keep in mind here is that some of what may happen, though driven by events in the EU, will reflect factors beside the single currency. I think we may well see more privatisation, greater reliance on private provision of pensions, and other structural reforms. If we do, it will significantly affect European, and hence, euro financial markets. But such trends have their roots in the more general process of creating a single market, rather than EMU itself. Considerable progress towards a single EU market for financial services had been made long before the euro. A considerable number of directives are already in place, perhaps most significantly the Investment Services Directive, which was implemented in 1996 and gave regulated firms and exchanges from one Member State a ‘passport’ to do business in another Member State. | 0 |
In the banking system, credit activity is growing moderately, except for mortgage loans. Corporate and consumer loans continue to grow slowly. On one hand, the slowdown of the commercial portfolio is consistent with the economy’s cycle, which coincides with the reduction BIS central bankers’ speeches 5 in demand revealed by the Bank Credit Surveys of the past few months. On the other hand, the consumer portfolio shows zero growth in the lower amount segments, usually associated with lower-income debtors. In the mortgage category, the greater expansion of debt comes from loans of more than five thousand UF, partly explained by the housing price dynamics. Bank financial indicators show the sector losing strength. At the third quarter of 2015, ROE dropped to 15 percent, largely because of reduced interest rate spreads. This reflects the shift in portfolio composition from higher-yield segments (consumer and commercial) to mortgage. The capital adequacy ratio (CAR) continued to decline, to slightly below 13 percent as of August 2015, consolidating a fall of just over one percentage point in the last four years (figure 14). This has occurred in a context where international banks have tended to increase their capitalization levels to strengthen their capacity to respond to episodes of financial stress, in line with the new international regulations (Basel III), or as a voluntary way of building resilience. Although Chile, with capitalization levels of around 14.3 percent in 2009, was around the median of OECD economies, its place today is in the lower part of the distribution (figure 15). | Households have traditionally borrowed mostly for housing, and the current increase in this type of lending is perhaps not so surprising in view of the fact that housing prices in metropolitan areas have risen relatively significantly. What is more remarkable is that lending for other purposes is increasing at a higher rate. It is difficult to see from the statistics exactly how the borrowed money is used, but lending both from banks and finance companies is now growing at a faster rate than lending from mortgage institutions. This has given rise to apprehensions that households are borrowing for consumption or in order to invest in shares, which could lead to rapid increased risks. In order to gain a better understanding of whether or not this is the case, the Financial Supervisory Authority has recently commenced an examination of the banks’ lending to the household sector. 1 Excluding repos. BIS Review 50/2000 2 There are several reasons why property prices play a central role in any discussion of financial stability. In addition to the fact, as I mentioned earlier, that the credit demand among households is largely governed by the demand for and price level of property, property can also be used as collateral for loans. Another reason for monitoring the property sector is that a large part of the banks’ lending is to property companies. These companies also accounted for a large part of the loan losses during the banking crisis in the early 1990s. | 0 |
This may indicate that there is a relationship between the degree of openness and deviations from target, although Canada is an exception. It should also be noted that the figures for the twelve-month rise in consumer prices are considerably more volatile here than in other countries. We see from the figures that consumer prices in Norway, even when tax changes and energy products are excluded, are more volatile than indices in other countries where these products are included. Developments in recent years have also been influenced by the pronounced favourable disturbances to which the Norwegian economy has been exposed. Developments in Norway’s terms of trade provide an illustration. As consumers, we enjoy the benefits of falling prices for many imported goods. As a nation, we benefit from a fall in prices for the goods we import relative to prices for the goods we export. Norway’s terms of trade have improved. The impact of the rise in oil and gas prices is particularly strong. However, there have also been terms-of-trade gains in the mainland economy. The situation in Norway differs from that of our Nordic neighbours. Although the domestic economy is partly insulated from oil price fluctuations through the oil fund mechanism, terms-of-trade gains have been a challenge to monetary policy in Norway. Low imported inflation has put downward pressure on our rate of inflation. At the same time, our currency has remained strong, partly reflecting an improvement in Norway’s terms of trade. | We know that recoveries from financial crises tend to be slow; it takes on average about eight years to reach the pre-crisis level of real per capita income following financial crises. 3 Distorted and damaged financial sectors don’t allocate resources effectively. We may not pay the price for a number of years as the boom builds up. But in the end the price we pay is large when a financial system misallocates resources in the boom and in the following bust. Real GDP per head – the best measure of our aggregate living standard – remains 1% below its pre-crisis peak. This high cost to the economy and to society is why we need not only robust regulation of financial institutions but also of the financial system as a whole. Financial stability and sustainable growth are complements. They are not alternatives. Turning back to the reallocation mechanism, there are now some positive signs. The financial sector is well into its recovery. Bank lending growth to non-financial businesses was positive in 2015 Q1 for the first time since the crisis. Beyond the banking system, the Bank’s agents are reporting private equity firms purchasing debt-laden companies and restructuring their funding. The creation of new firms, a sign of vibrancy and reallocation in the economy, increased by 30% in 2013. And labour market ‘churn’, the movement of workers between firms is almost back to its pre-crisis average having fallen sharply in the crisis. In addition, we have seen a return of business investment over the past two years. | 0 |
Investment advice by persons not carrying on a business: a growing number of online discussion fora, chat-rooms and bulletin boards allow persons to post their opinions concerning securities. An entity providing a platform for public discussion of securities would not attract licensing.11 Neither would a participant, as long as he is not deemed to be “carrying on a business” of providing advice. In the context of dealing, we will treat two common practices as passive conduits. First, websites providing hypertext links to, or advertisements for, licensed dealers. But websites should not advertise for, or link users, to unlicensed dealers, including overseas dealers not licensed by MAS. Second, licensing is not necessary for providing prospectuses and application forms passively on websites, or via email upon the request of investors. These merely improve on the efficiency of paper distribution.12 Websites must not go beyond being passive conduits. MAS will consider portals or websites providing facilities for accepting or relaying orders to dealers as licensable. This is because such a facility carries the risk of failure to transmit trade orders in a timely and accurate fashion, potentially to the detriment of investors. Overseas websites specifically targeting Singapore residents Our final principle deals with overseas websites. MAS will apply the same licensing principles to overseas websites which specifically target Singapore residents, as it does to local websites. This is to ensure that foreign and local internet players are treated on the same regulatory basis. | 10 11 12 Portals which reproduce investment research reports should (a) attribute the report sources accurately, (b) should not exercise editorial control over, or modify contents of reproduced reports, and (c) should not endorse or otherwise comment on the reports. The webpages of such entities should contain disclaimers to the effect that the views expressed are not those of the entities. Websites providing prospectuses and application forms in a passive manner should display disclaimers to the effect that they do not have the intention of inducing investors to subscribe for securities. BIS Review 69/2000 6 Going forward Several of the new licensing principles can be implemented based on the existing Securities Industry Act and licensing framework. Others will require amendments to the legislation. The new provisions will be included in the forthcoming Financial Advisers Act and the Omnibus Securities and Futures Act, and announced in 2001. MAS has already received a number of new applications which fall under the proposed securities licensing framework. These are currently being evaluated. As I have just discussed the licensing principles broadly, interested parties should approach MAS to discuss the details of the revised licensing framework in relation to their business models. MAS will also be seeking further comments from relevant industry players on these changes. Conclusion The vitality and dynamism of global capital markets have ushered in challenging times for the financial services industry. With technology breaking down geographic and sectoral boundaries, links between markets, institutions and instruments will flourish. | 1 |
Financial needs are really driven by non-financial desires. People do not desire a housing loan or a fire insurance policy. People desire a house. To provide complete, holistic solutions, you need comprehensive customer data and you need a deep understanding of the customer journey. T h e customer data that most banks have are simply not sufficient to develop a good understanding of the financial situation or needs of their customers. Customers have multiple relationships, with deposits and loans, investments, insurance policies, and retirement plans, spread across many financial institutions. How many financial institutions advising a customer have a complete picture of the customer’s balance sheet – all his assets and liabilities? Some banks have started to offer aggregator services which consolidate financial information such as bank accounts, credit cards, loans, and investments from all the financial institutions serving their customers. This allows financial institutions to provide holistic financial planning. BBVA provides its corporate customers with a consolidated view of all their financial information from about 90 financial institutions. 3 / 10 BIS central bankers' speeches Next, understanding the customer journey. Some banks have begun to offer their corporate customers complete, end-to-end solutions, based on a keen understanding of their customers’ work processes. United Overseas Bank in Singapore provides its corporate customers an integrated digital platform that enables the customer to: generate purchase orders and invoices with a few clicks; streamline its payroll process; and get up-to-date views of its financials. | Technology is akin to Porthos, the fearless musketeer who is eager to try new ways for a better future. In a similar vein, Technology presents us opportunities to revitalise Finance: the opportunity to enhance customer experience; the opportunity to strengthen risk management; and the opportunity to improve cost efficiency. Let me elaborate on each of these opportunities. First, enhancing customer experience. This has become a critical success factor in many industries, including finance. Why? Basically, technology firms have reshaped the way businesses interact with customers. They have empowered customers and set higher bars for customer satisfaction. Whether they are established Big Tech firms or small FinTech start-ups, they pose a competitive challenge to financial institutions. If I have to name one thing these technology firms do very well, much better than financial institutions, it would be that they are obsessively customer-centric. Tech firms embed themselves in the customer journey and use data analytics to deeply understand customer needs. They then provide end-to-end solutions, often customised to individual circumstances. They have agile IT systems, efficient processes, and a culture that emphasises speed. Essentially, tech firms think of themselves not as being in a particular industry, but as platforms, upon which they provide access to the services their customers need. Traditional banks tend to be largely product-centric. The credit card division tries to sell you unsecured credit, the wealth management division tries to sell you mutual funds, the lending division tries to sell you a mortgage. | 1 |
Preparedness to act rapidly and in several different ways has now become part of ordinary monetary policy in Sweden and other countries. During the financial crisis, the Riksbank did not carry out asset purchases. Monetary policy was instead primarily broadened by new forms of, and conditions for lending to the banks. But in 2012, the Riksbank purchased government bonds for SEK 10 billion, a relatively small amount in the context, to create operational preparedness in the event that large-scale asset purchases would later become necessary. And in 2015, when inflation had been too low for too long and the ECB was initiating large-scale purchases of bonds, the Riksbank was able, in a relatively simple way, to make monetary policy more expansionary - that is, to hold down the general level of interest rates in Sweden - via large purchases of government bonds. Correspondingly, this year, we have decided on the purchase of corporate bonds to a value of SEK 10 billion to strengthen monetary policy preparedness. We are thus building up an operational capacity in the event a highly unfavourable scenario arises and more comprehensive purchases, for example of corporate bonds, become necessary to ensure that lending and the financial conditions do not deteriorate too much. In this context, I need to address the Riksbank Inquiry. Previously, in its consultation response, the Riksbank has questioned the actual starting point for the Inquiry's way of looking at monetary policy. | Consequently, other tools than the policy rate will continue to be needed to ensure that other interest 10 See CGFS (2019) for a summary and discussion, and Hansson et al. (2018) for implications for the monetary policy analysis. 11 As I have said, after the financial crisis, new models were developed that included a role for asset purchases; see, for example, Gertler and Karadi (2015). 8 [13] rates and lending develop in such a way that capacity utilisation in the economy is maintained and the inflation target is met. How far can the policy rate be cut? At present, the Riksbank’s policy rate is at zero per cent and, according to the Monetary Policy Report from November 2020, the Executive Board’s best assessment is that it will remain there over the entire forecast period, which is to say until the end of 2023. At the same time, we have emphasised that the policy rate may be cut to below zero, should the circumstances justify it. We have done this before – cut the policy rate to slightly below zero, that is. Between February 2015 and December 2019, the policy rate lay in the range of -0.1 to -0.5 per cent. Our experiences of this period were mainly positive, as the low policy rate contributed to inflation again rising towards the target without any major negative side effects. Cutting the repo rate ‘deeply’ is another thing, however. | 1 |
• The published Allsopp analysis included a challenge from the major central banks to the major market participants to develop a new settlement mechanism. In short, find a solution or we will find one for you! I recount this history to highlight the magnitude of the achievement CLS represents. The establishment and growth of CLS is undoubtedly one of the most significant accomplishments in global financial markets in the post-war period and a major breakthrough in managing settlement risk in an over-the-counter market. BIS central bankers’ speeches 1 • The largest part of the achievement, of course, is the difficult job of making it happen. CLS was actually the third major concept for FX settlement. It succeeded because the industry collectively got firmly behind CLS and because of the hard work of the many people in the CLS organization, whose commitment and efforts continue to this day. Let me highlight three dimensions of CLS’s success. First, its growth and its scope. When it went live in 2002, CLS began settling FX transactions in just seven currencies with 39 settlement members. Today it settles in 17 currencies with 63 settlement members and 16,000 third party users. Volumes and values of transactions settled via CLS have also expanded significantly. Today CLS is settling average daily values of nearly $ trillion and average daily volumes of 1 million transactions. On its peak settlement value day, March 19, 2008, CLS settled over 10 trillion U.S. dollars equivalent. Second, adaptation to a rapidly changing foreign exchange market. | As global competition intensifies, Thailand can neither simply keep growing on the back of capital accumulation nor dwell on massive production of low value-added goods. Desirable product features such as high quality and consistency are needed to sustain export competitiveness, and to maintain linkage to the global arena with clear focus on market awareness and adaptability. Recently, there have been positive signs in some industries such as jewelry, garments, and food, where production technology has been upgraded to increase competitiveness of these industries and to move them up the value chain. Unfortunately, while such developments are encouraging, they have not been adequately spread out to other industries. By the time these adjustments are completed, it may have been too late, probably rendering losses in a number of industries. What we need now is a national agenda that comprehensively looks at competitiveness of all parts of the real sector. Industries that can no longer compete in the world market will have to be gradually phased out. Other industries that depict competitive edge and growth potential in the global arena will warrant further plans to upgrade technology, increase added values, and develop marketing strategies. These plans will have to be implemented through a concerted national effort so as to ensure better resource allocation along with greater value creation. Reforming the real sector would however need to be complemented by strengthening of the financial sector. A notable example of such a strategy is the establishment of the Thai Asset Management Corporation or TAMC. | 0 |
However, with less than three years of being fully transparent about our future policy intentions, it is too early to draw a conclusion regarding macroeconomic stability. An intermediate objective of communication is to provide a better understanding of the Bank’s reaction pattern. One test of this to consider the volatility of market interest rates on the day Norges Bank decides the interest rate. If the new communication approach has been successful, one should expect that the interest rate decisions are more predictable. Chart 5 shows the magnitude of market rate changes on the day the interest rate is decided. We see that volatility in market interest rates has on average been smaller after we started publishing our interest rate forecasts. Although one cannot exclude the possibility that the reduction in volatility is caused by other factors than policy communication, it seems that our reaction pattern has become somewhat better understood. One internal effect of publishing interest rate forecasts is that it provides discipline in the internal decision process and good incentives for the staff. I have observed how transparency has changed the motivation and discipline of the economists within Norges Bank. By publishing our own interest rate forecast, each sector expert will see how his or her judgment might affect policy. Moreover, by following the principle that what is communicated externally should reflect the internal decision process, we need to think extra hard about what we do internally. Transparency makes the public better capable of evaluating the central bank’s analyses and policy assessments. | How should we ensure the integrity of the advisers and avoid groupthink? I welcome more research on these and other issues related to the role of the staff. Good decisions require qualified people, an appropriate incentive structure, and a good decision-making process. In addition, good decisions become more effective if they are communicated well. Transparency generally improves both the quality of communication and the decision-making process. My ambitious goal is that Norges Bank shall be at the forefront in terms of communication and decision-making processes. Thank you for your attention. 8 BIS Review 132/2008 BIS Review 132/2008 9 10 BIS Review 132/2008 BIS Review 132/2008 11 | 1 |
Finally, I am concerned about a potential interaction between the financial uncertainty associated with the tapering program and the political uncertainty about fiscal negotiations in the US in the coming months. To close our conference, tomorrow we will have a policy panel where three distinguished economists: Guillermo Calvo, Vittorio Corbo, and Maurice Obstfeld, will share their thoughts on the end of QE and its consequences for emerging markets. We have navigated through challenging times in recent years. The decisive action of policymakers worldwide has spared the global economy from further trouble. In many cases policy has had to go ahead of research. But we should take time to think hard about these events; their causes; their mechanisms; and the benefits and costs of the policies being implemented. This will allow us to finish the course and to derive important lessons for the future. I am confident that the discussion of the next two days will help us advance toward this goal. I would like to finish this presentation by thanking Claudio Raddatz, Diego Saravia, and Jaume Ventura for putting together an exciting program and all of you for coming to participate and share in the discussion. Thank you References Bianchi, J. (2011) “Overborrowing and Systemic Externalities in the Business Cycle,” American Economic Review, American Economic Association, vol. 101(7), pp. 3400–3426, December 2011. Dell’Ariccia, G., Laeven, L., and Suarez, G. (2013) “Bank Leverage and Monetary Policy’s Risk‐ Taking Channel: Evidence from the United States,” IMF Working Paper 13/143, International Monetary Fund. | Ooi Sang Kuang: Expanding ASEAN-EU economic links - the role of the euro Closing remarks by Mr Ooi Sang Kuang, Deputy Governor of the Central Bank of Malaysia, at the Euro Conference - “Expanding ASEAN-EU Economic Links - The Role of the Euro", Kuala Lumpur, 15 July 2005. * * * Yang Berhormat Dato' Mustapa bin Mohamed, Minister in the Prime Minister's Department Mr. Klaus Regling, Director General, European Commission Your Excellency Ambassador Thierry Rommel Excellencies Distinguished speakers and guests Ladies and gentlemen, Indeed, we have come to the end of a very fruitful set of discussions at this Conference. I was pleased to note that the tone of our discussions has underscored that the bilateral spirit of cooperation between ASEAN and the EU is intact and strong. I sensed a unanimous recognition that it is only by continuing to work together and cooperate with each other that we can reinforce this positive partnership to perpetuate continued shared prosperity. Against the background of strengthening our partnership, I sensed the acknowledgement among participants that we do have a dynamic partnership, but that there remains more to be done to foster greater symmetry in the relationship for increased wealth creating possibilities. I believe the Conference has set in motion how the prevailing economic and financial developments as well as prospects in ASEAN and the EU can contribute further to the agenda of taking our partnership forward. | 0 |
3 2 See The Brave New Business Cycle: No Recession in Sight, William Dudley and Edward McKelvey, January 1997, Goldman Sachs Economic Research Group. 3 Adding financial intermediation to these models has become a very active area of research. See, for example, the recent work of Vasco Curdia and Michael Woodford in “Credit Spreads and Monetary Policy,” Federal Reserve Bank of New York Staff Report No. 385. 2 BIS Review 23/2010 Events of the past decade confirm that financial conditions matter and that the fed funds rate is not a sufficient statistic with which to assess the impact of monetary policy on the real economy. Of course, this is not news to the Federal Reserve, which has explicitly taken financial conditions into account in its conduct of monetary policy. This is evident in the transcripts of the FOMC meetings that are publicly available and the numerous references to financial conditions in the FOMC minutes that go back more than a decade. An analysis of the FOMC minutes over the past decade indicates that references to financial conditions have been frequent, especially recently. Exhibit 1 illustrates the percentage of paragraphs in the minutes (excluding the directive and some other paragraphs associated with administrative matters such as the election of the chairman) that mention the phrase “financial conditions.” As can be seen, there have been frequent references over the past decade. One peak occurred in 2000 when the stock market peaked and began to deflate. | Transparency enhances the effectiveness of monetary policy by helping to guide the expectations of economic agents and bring them into line with policy objectives and actions. For these reasons, the ECB has striven to be as transparent as possible, communicating clearly, and by a variety of means, its policy objective, its strategy, its assessment of the economic situation, and its view of the outlook for price stability and associated risks. There is no doubt, however, that communication is a challenging task. I can assure you that we at the ECB – in light of the mandate that was assigned to us by the Maastricht Treaty and the trust and credibility we have earned from more than 313 million citizens – take this challenge very seriously. *** Chairman, Governors, Professors, dear friends, I have on behalf of the Executive Board and Governing Council of the ECB to thank all of you for having accepted our invitation and for having contributed so actively to the discussions. The ECB considers important to permanently guard against complacency and to remain open to criticisms and suggestions, to take regularly stock of the advances of academic research. I thank you for your attention. 2 BIS Review 110/2006 | 0 |
Shaping the global governance structure At their summit in Pittsburgh last September, the G20 leaders “…designate[d] the G20 to be the premier forum for our international economic cooperation”. As an effective and powerful group, the G20 featured prominently in the broad international efforts to stabilise the global economy in late 2008 and early 2009. Without its prompt and comprehensive action, the consequences of the crisis would have been much worse. Among the G20 measures of 2009 were the efforts to strengthen confidence in international financial institutions, the IMF in particular, to permit it to play an effective role in tackling the crisis. Indeed, the G20 increasingly uses the IMF as an instrument of its policy implementation. 4 The membership of the G20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Korea, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union. The G20 was formed as a new forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization. 5 The International Monetary Fund (IMF) is an organisation of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. | 2 BIS Review 44/2010 In addition, real interest rates in Norway fell markedly through the 1990s from high levels. This was because the fixed krone exchange rate regime maintained through the period managed to bring down inflation and inflation expectations. Moreover, growth in public spending was rapidly reduced once business sector activity had recovered. Economic shift Over the past decade Norway experienced an economic shift. The cost level began to rise. This was related to the sharp improvement in Norway’s terms of trade at the time and a gradual pickup in growth abroad. Prices for Norwegian exports such as oil, gas, metals, minerals, fish and freight, rose markedly, while prices for imported goods fell. From 2003 to 2008, terms-of-trade gains alone pushed national income up by more than 20 per cent, or a good 4 per cent per year. Institutions and mechanisms had also been put in place to manage the sharp increase in income. Norway’s sovereign wealth fund, the Government Pension Fund Global, and the fiscal guidelines were established with the express purpose of making the mainland economy less susceptible to fluctuations in the oil price. Improved terms of trade, higher revenues and increased government spending contributed to a stronger krone and a shift in real resources towards sheltered sectors. At the same time, the fiscal rule provided a basis for growth in business sectors other than the oil industry and the public sector through the decade. | 1 |
At the same time, financial flows were gradually liberalised and a global financial system emerged, with the active participation of global banks and investment firms. In addition, foreign direct investment inflows have increased tenfold since 1993. The opening up of the current account and the subsequent expansion of trade and financial flows enabled many countries to raise their development status. In this vein, GDP per capita in low and middle income countries doubled in constant terms from 1995 to 2016, while extreme poverty was notably reduced. The Spanish experience since the mid-1980s, when we joined the European Union, constitutes a canonical example of the benefits that the opening up and liberalisation of an economy can bring about in terms of growth and economic modernisation. The need to reform the global governance model However, we should admit that the multilateral system that emerged from Bretton Woods has been sluggish in adapting to a changing world. A world in which emerging economies play a greater role in the global economy than they did in the past. This has undermined some of its legitimacy, causing disaffection among some of its members and impairing the consensus needed for agreements to be reached at international level. The emergence of the global financial crisis in 2008 highlighted the need to rebalance representation on global fora in order for effective concerted action to be achieved. | Pablo Hernández de Cos: Signature of the banking protocol for the financial inclusion of the elderly Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, at the Ministry of Economic Affairs and Digital Transformation, Madrid, 21 February 2022. * * * First Deputy Prime Minister, ladies and gentlemen. Good morning everyone and many thanks to the Ministry for inviting me to speak. The Protocol presented here today concerns an issue that is affecting many aspects of our lives. I am of course referring to the accelerated digitalisation of our societies, a phenomenon which has clear benefits for citizens. Indeed, national and European public authorities are firmly committed to accelerating this process and for example, the Next Generation EU funds are centred precisely on driving digitalisation. There are also clear benefits for the financial sector overall and the banking sector in particular. The new digital channels give instant and continued access to financial services, without the need to visit the bank. It is hardly surprising, then, that digitalisation is a key financial inclusion strategy in many emerging countries. From the standpoint of financial stability, which, as we all know, is essential for guaranteeing citizens’ well-being, digitalisation also has important benefits. It leads to efficiency gains that help reinforce the soundness and resilience of the banking sector. | 0 |
Though they looked and felt like chaos, these dynamics were in fact manifestations of a new network order. The second key robustness result concerns the “long-tailed distribution” of connected networks. The degree of a node measures the number of links to other nodes. So the degree distribution could be thought of as a histogram of the number of links for each node. For a network whose links are randomly configured, this degree distribution would be symmetric and bell-shaped; it would have a fat middle and thin tails. 5 For example, Allen and Gale (op.cit). 6 For example, May and Anderson (1991), Albert et al (2004), Kinney et al (2005), Watts (2002). 7 For example, at the Bank of England by Nier et al (2008) and Gai and Kapadia (2008); and by Battiston et al (2009) and Gallegati et al (2008). BIS Review 53/2009 5 But many real-world networks do not exhibit these properties, including the internet, biological food webs and epidemiology networks. 8 Instead these networks have been found to have a thin middle and long, fat tails. There is a larger than expected number of nodes with both a smaller and a larger number of links than average. Some financial networks, such as payment systems, have also been found to exhibit long tails. 9 Long tails have been shown to have important implications for network robustness. In particular, long-tailed distributions have been shown to be more robust to random disturbances, but more susceptible to targeted attacks.10 Why? | But, looking beyond that, the US economy is underpinned by its robust financial system, by continuing rapid underlying productivity growth, and by strongly supportive monetary and fiscal policies, so that most forecasters anticipate US growth of 2 ½ - 3% this year and somewhat more next. There's even been a better tone in equity and credit markets since mid-October, and some signs of a recovery in ICT investment. On that basis - and notwithstanding the recent disappointing performance of the Eurozone particularly the German - economy - that suggests a reasonable prospect of a continuing but relatively slow pick-up in the rate of growth in our major export markets. And we should also be helped by the recovery of the euro against both sterling and the dollar through the past year. This moderately positive external environment should, looking forward, bring a gradual pick up in external demand and help to stabilise, and subsequently improve, the prospects for business investment in the UK. So the key question on the domestic front remains what is likely to happen to consumer demand: will it fall away abruptly - as some people fear - or will it moderate more gradually as others expect? The truth is that no-one can know the answer with any great confidence - those who claim to know with certainty are always the ones to be wary of in the forecasting business. | 0 |
For them, one of the major advantages of joining a monetary union is stronger economic growth thanks to lower transaction costs and reduced exchange rate risk. Moreover, for countries that have historically experienced high and volatile inflation and thus high interest rates, adopting the euro brings a fall in nominal and real interest rates, thereby reducing government and private debt burdens. Given these positive effects, why has Switzerland not embraced the euro or, at least, pegged the franc to the euro? To my mind, there are four main reasons for this. • The first is that retaining our own currency, within the framework of flexible exchange rates, gives us the freedom to choose the level of domestic inflation. • Secondly, monetary independence allows a better reaction to country-specific shocks. • Thirdly, monetary integration would lead to higher interest rates in our capital market. • And finally, any tentative move to peg the franc to the euro, as long as Switzerland is not at least in the process of becoming an EU member, would destabilise rather than stabilise our currency. Let me review these points in detail. 2 BIS Review 46/2006 Choice of monetary policy goal The European Central Bank's main task is to guarantee price stability in the euro area. The ECB achieves this by, in its own wording, "aim[ing] at maintaining [consumer price] inflation below, but close to, 2% over the medium term". The National Bank Act defines the SNB's main task, too, as the achievement of price stability. | No doubt, however, that a point target can also be attractive, as it is clearer and constitutes a stronger anchor for expectations. Given the SNB's excellent track record with regard to price stability – twelve years of inflation below 2% – we can benefit from firmly anchored expectations without having to accept the unnecessary constraints that a point target would imply. The third subtlety is that, while the SNB defines price stability as inflation of less than 2%, the ECB, which has more or less the same definition, aims for a rate close to 2%, and the Bank of Israel has an inflation target of 1 to 3%. Why is it that the three central banks have different views as to what exactly constitutes price stability? There are several considerations here, but the most important is the historical perspective. For central banks that have faced relatively high and volatile inflation levels in the past, a comparatively high inflation target is already ambitious. Only once expectations have been anchored, can further steps towards price stability be envisaged. This is true for Israel, where keeping inflation between 2% and 3% is a huge step forward as compared with historical records. For the ECB, which still has to cope with adjustment difficulties (such as higher inflation in countries that are catching up, like Spain or Greece), an inflation rate "close to 2%" seems reasonable. Monetary independence thus allows a country to choose the level of inflation it finds appropriate. | 1 |
On the contrary, new barriers could be erected either in the form of capital controls or through national regulations forcing financial BIS Review 76/2010 11 institutions to ring fence local pools of capital and liquidity. There would be little convergence in domestic financial systems and regulations. Foreign exchange reserves would keep growing, both in absolute and in percentage of world GDP. This scenario may be seen as the only realistic response to increased diversity in a multipolar world. Such an evolution could also be defended on the ground that the assumed benefits of financial harmonization and integration have not really materialized (Rodrik et al. 2008). Furthermore, the crisis has shown that no financial system can claim to be intrinsically superior and countries could feel justified in adopting and promoting their own models. The systemic consequences, however, are not clear. In such a world, current account imbalances would be heavily influenced by public actions and policies. Regulatory competition would dominate the localization of financial activities and the allocation of savings. In the absence of some “rules of the game”, tensions would naturally arise between countries, most likely through conflicts about exchange rate regimes and policies. An opposite scenario would see the progressive opening of all capital accounts, together with some (more or less intensive) convergence in financial systems and regulations. This would allow for the emergence of a unified world capital market, an efficient allocation of savings across countries and a smooth financing of current account imbalances. | This matters because the size and nature of pass-through is likely to depend on the monetary policy regime. Moreover, pass-through from changes in the exchange rate to import prices, and then to consumer prices, has varied considerably over time. As my fellow MPC member Adam Posen pointed out recently, a range of studies suggest that exchange rate passthrough declined during the period of Great Stability (Posen 2010). Even ex post, the impact of the depreciation on consumer prices is hard to assess. The peak impact of the exchange rate depreciation on CPI inflation was probably somewhere in the range of 2 to 3 percentage points. While the scale of the total pass-through to retail price inflation appears broadly similar to past experience, companies seem to have passed through increases in import cost more quickly than in the recent past. 3 That quicker passthrough is likely to help explain why inflation over the past year or so has been higher than the MPC had anticipated. What evidence is this based on? The production of goods (excluding energy) tends to be more import-intensive than that of services, so the relative trends in goods and services price inflation can help to assess the impact of the depreciation on consumer prices. Between 1997 and 2008, annual non-energy industrial goods price inflation averaged around 6 percentage points lower than services price inflation. But that wedge closed during 2009, as non-energy industrial goods price inflation soared and services price inflation fell to below its historical average (Chart 1). | 0 |
Over the past year, developments in financial markets have been largely dominated by several political events, while generally positive economic news seemed to matter much less. These political events ranged from trade tensions, especially between the US and China, to Brexit-related developments, a slowdown in emerging market economies, most notably in Argentina and Turkey, and also the rise of populist movements in some European countries that have led to tensions, particularly between Italy and the European Commission. All this led to volatility in financial markets, with a constant turn in Risk-On /Risk-Off sentiment, which has made it more challenging for investment strategies. As a Central Bank, financial market developments are of a direct interest to us as these have an impact on both the domestic banking system and the Central Bank itself. While such volatility in financial markets and persistence of interest rates at a relatively low level in Europe have continued to exert pressure on interest income flows and potential on capital gains, and hence impinge on profitability, nevertheless domestic banks have absorbed such turbulence relatively well. For the Page | 3 year ahead, the situation is likely to remain equally challenging on interest income and profitability, as signs are emerging that world economic growth, including in Europe, is losing momentum. This could be also particularly challenging for the process of the normalization of the monetary policy stance in Europe, which is likely to be very gradual. | 2 BIS central bankers’ speeches When leaning against the wind of the credit cycle, macro-prudential authorities do, like their monetary policy colleagues, still need to find the optimal path. To use the words of the UK Chancellor, their objective is not to ensure “the stability of the graveyard”. How they balance cost and risk, where they set the trade-offs, will depend in large part on how confident they are about the underlying resilience of the system – in other words how well they have done on the first impulse. International governance The second big change I want, therefore, to highlight is the development since the crisis of much stronger international governance. This stems from the creation, at the April 2009 G20 London summit, of the Financial Stability Board (FSB). And, equally important, from the decision at the Summit that the FSB should report directly to the G20 Leaders and Finance Ministers to give it the necessary “clout”. Working with the standard setting organisations like the Basel Committee, the FSB has provided the drive and coordination to reform and develop global standards for bank capital, liquidity, and resolution. If one remembers the best part of a decade that it took to develop and reach agreement on the Basel 2 capital standard, the progress made and international agreement reached over the past 5 years has been extraordinary. | 0 |
In September of this year, a Regional Conference on Climate Change was organised to raise awareness and call for action in managing climate change risks and opportunities, attracting more than 500 board of directors and senior management of financial institutions, 3/5 BIS central bankers' speeches regional central banks and supervisory authorities. A technical workshop had also been hosted earlier by the Bank with strategic partners to evaluate and manage environmental and social risks in the energy and primary commodity sectors for VBI CoP members and risk managers of financial institutions. Another focus area of the Bank is in developing greater standardisation of understanding and definition of green finance for the domestic financial industry. The development of a principlesbased taxonomy aims to achieve this, which would support informed decisions and analysis of exposures to climate change in fund raising, lending and investment activities. Ultimately, this can potentially increase financing to green projects. The first draft of the taxonomy is targetted before the end of this month and we would welcome feedback from the industry on this. The Joint Committee on Climate Change is also there to build industry capacity, by sharing knowledge, expertise and best practices in assessing and managing climate-related risk. The four sub-committees formed under the Joint Committee are in the midst of developing their action plans, including strategies and initiatives to upskill financial institutions in managing climate-related risks and transition to a low carbon economy. | Successful further cooperation along these lines is in the interests of us all. BIS Review 77/2010 1 | 0 |
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