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Nor is this just a question of learning about parameter values. That would yield an optimal state-contingent procedure for updating the monetary policy rule. It is that we are unwilling to commit now never to learn from future experience. So we would not want to embed any rule deeply into our decision-making structure, such as giving it the force of law or making it part of the constitution. Instead, we delegate the power of decision to an institution that will implement policy period by period exercising “constrained discretion”. The status and purpose of such institutions can be embedded into the law or constitution, which may increase the cost of reversing the delegated powers, but the optimal policy path should be open to change in response to learning. Since 7 4 As reported by Gore Vidal (2003). BIS Review 5/2004 we cannot hope to describe ex ante what it is we expect to learn, and since new ideas are unlikely to be uniformly recognised and instantly accepted, it may be sensible to delegate both the immediate policy decision and the process of learning to the same institution.8 An interesting example of seeking flexibility to allow for learning occurred during the writing of the US constitution. One draft clause specified that Congress should be allowed to “… emit bills on the credit of the United States”. There was a debate on a proposition to strike out the clause. | First, they expand the possibility frontier of the technology of collective decisions and can be designed to raise the cost of those decisions deviating from pre-announced contingent paths. Second, they are set up explicitly to exercise a degree of discretion - “constrained discretion” - subject to the broad objective of price stability. Discretion is inevitable because of the need to learn about the economic environment. Institutions thereby become repositories of experience and knowledge which they communicate to society as a whole. III. Case Study I: Exchange rate regimes in Brazil and the UK I want to illustrate the importance of institutions and the credibility of their stability by three case studies. My first example concerns the collapse of exchange rate regimes in Europe and Latin America. It demonstrates that economic institutions require a broad base of political support if financial markets are to believe that those institutions are likely to survive. For a while fixed exchange rate regimes enjoyed a degree of support in both Europe, with the Exchange Rate Mechanism (ERM), and Latin America. But experience shows that, in terms of credibility in financial markets, the design of those policy regimes was less important than the fact of their having broad political support. Brazil in 1998-99 is a case in point. In 1998 Brazil operated a crawling peg exchange rate regime. | 1 |
A combination of financial fragility and weak business and consumer confidence has weighed heavily on the Japanese economy, and on the Yen; and the financial thunderstorms, which broke initially last year over a number of other countries in Asia, are still intermittently rumbling around the region and elsewhere. The economic fallout from these developments poses a serious downside risk to the growth of world activity and threatens the emergence of potentially large international payments imbalances. It is a dangerous environment. All of this has prompted a far-reaching re-examination of the international monetary structure, and in the meantime it presents the international monetary authorities with some difficult immediate management challenges. It also, of course, represents an uncertain international background for the conduct of monetary policy in this country. Our own overall economic performance over the past year was again very encouraging. Output growth (on the latest data, to the first quarter of this year) was 2.9% significantly above the rate of inflation (measured by the GDP deflator) for the fourth time in the past five years - which I think is unprecedented in post-war British experience. On this basis over the past five years annual output growth has averaged some 3.1% while annual inflation has averaged 2.2%. And unemployment - on the conventional claimant count basis - fell further last year, to 4.8% on the latest figures, the lowest since the summer of 1980. The task, of course, is to sustain this pattern of relatively steady growth with low inflation into the medium and longer term. | Mr. George comments briefly on the global economy and on recent economic performance in the United Kingdom Speech by the Governor of the Bank of England, Mr. E.A.J. George, at the Dinner with the Lord Mayor for Bankers and Merchants of the City of London on 11/6/98. The past year, since we last enjoyed the generous hospitality of the Mansion House, on this great City of London occasion, has been a testing time. It has been characterised by major imbalances in both the global economy and here in the United Kingdom - which have complicated the task of policy-makers everywhere, including the task of the Bank of England’s now legitimised Monetary Policy Committee. Internationally there has been good news in the enviable performance of the United States - Goldilocks - economy, with continuing robust domestic demand growth and further falls in unemployment, with so far remarkably little inflationary pressure. To the extent that this performance can be sustained, it provides substantial underpinning for the global economy as a whole. And there has been encouraging news, too, in the re-emergence of domestic demand growth in the Continental European countries as they prepare to take the final step to monetary union. That is a promising context for the launch of a strong, credible, currency and I wish the European Central Bank every success in its historic task. Domestic expansion with monetary stability within Europe is in the interest of us all. Elsewhere though the international situation has been decidedly less benign. | 1 |
Zamani Abdul Ghani: The SME sector in Malaysia Speech by Mr Zamani Abdul Ghani, Deputy Governor of the Central Bank of Malaysia, at the Signing of Strategic Alliance Agreement between Credit Guarantee Corporation Malaysia Berhad (CGC) and Dun and Bradstreet (D&B) Malaysia Sdn Bhd, Kuala Lumpur, 3 July 2007. * * * Yang Berbahagia Datuk Wan Azhar Wan Ahmad Chief Executive Officer Credit Guarantee Corporation Malaysia Berhad Mr. William Lim Wah Liang Group Executive Director Dun & Bradstreet (D&B) Malaysia and Singapore Distinguished guests, Members of the media, Ladies and Gentlemen, Assalammualaikum w.b.t. and Good Morning It gives me great pleasure to be here with you this morning to officiate and witness yet another milestone of progress for the Credit Guarantee Corporation Malaysia Berhad. I would also like to take this opportunity to thank both CGC and Dun & Bradstreet Malaysia Sdn. Bhd. for the invitation to be a part of this significant occasion. The forging of this strategic alliance between CGC and D&B is indeed timely. In the long run, we believe this initiative would bring much benefit to the financial sector and contribute greatly towards the development of the SME sector, especially in enhancing SMEs' access to financing as well as market penetration and awareness on the importance of SMEs. The SME sector has been and shall remain one of the key drivers of the nation's economic growth. | To overcome this perception, there should be adequate and reliable credit information mechanism, such as an SME credit bureau, that serves the needs of both the SMEs' and the potential lenders'. The establishment of a proposed SME Credit Bureau under this strategic alliance between CGC and D&B would complement other initiatives of the Government and the financial sector to further enhance SMEs' access to financing. One of the most important roles of the Bureau is to make available SME information, which includes their operational and financial status to potential lenders. In addition to relevant and timely information, potential lenders could also take comfort that the information is independently provided, hence increasing its reliability. The importance of a credit bureau in the current environment cannot be over-emphasized. A World Bank report stated that a good credit information infrastructure can contribute significantly towards assisting SMEs' access to capital. The report further highlighted that small firms with access to credit bureaus have a 40% chance of obtaining a loan, whereas firms without access to credit bureaus have only a 28% chance of receiving a loan. Therefore, significant opportunities exist to increase lending activities to SMEs in Malaysia with the establishment of an SME credit bureau. BIS Review 76/2007 1 Currently, information available for lenders to assess the creditworthiness of Malaysian SMEs is quite fragmented. Although there are a number of parties providing information on SMEs, the information are mostly tailored towards specific requirements and does not add the necessary values required from the perspective of potential lenders. | 1 |
We also need to build bridges to the future and shape a recovery that makes our economies fit for the future. But bridges need solid foundations. Europe’s future must be built on strong democratic legitimacy. Europe’s citizens must be at the centre of the debate about the Europe that we want to build as we emerge from the crisis. As their elected representatives, you, together with the European Parliament, have a crucial role to play in making their voices heard. I now look forward to our debate. [1] In French: “J’ai toujours pensé que l’Europe se ferait dans les crises, et qu’elle serait la somme des solutions qu’on apporterait à ces crises.” See Monnet, J. (1976), Mémoires, Fayard, Paris. [2] In French: “[la Communauté européenne] elle-même n’est qu’une étape vers les formes d’organisation du monde de demain.” See Monnet, J., ibid., p. 617. [3] Following a significant drop in the first quarter of 2020, euro area real GDP fell by 11.8% in the second quarter, resulting in a record cumulative decline of 15.1% in the first half of the year. [4] ECB staff macroeconomic projections for the euro area, September 2020. [5] Milasi, S. et al. (2020), “ The potential for teleworking in Europe and the risk of a new digital divide”, VoxEU, 14 August. [6] Lagarde, C. (2020), “Payments in a digital world”, speech at the Deutsche Bundesbank online conference on banking and payments in the digital world, 10 September. | This is an incarnation of the wise measures adopted by the government under the leadership of the Custodian of the Two Holy Mosques to carry out more structural reforms (institutional and regulatory) which we have begun to feel their positive effects in all aspects of economy. It will be appropriate here to say a few words about the dynamic and crucial role played by the banking sector in the Kingdom, which is manifested in the substantial increase in the credit extended to the private sector which grew by 29 percent annually during 2003 – 2005; and it amounted to Rls 436 billion at the end of 2005. As a result of the expansion in banking business, the assets of the banking sector increased by 14.4 percent annually during the past three years (2003 – 2005). At the end of the first quarter of 2006, they stood at Rls 797.4 billion, constituting about 70 percent of the Kingdom’s economy. Deposits with the banking sector rose by 13.7 percent annually during the past three years, and they amounted to Rls 521.5 billion at the end of the first quarter of 2006. The positive indicators of the banking sector which rest on the robust fundamentals of the Saudi economy have prepared an appropriate environment for banks to adapt to successive, regional and international changes during the previous period. Banks operating in the Kingdom have been able to overcome the crises that hit other economies, and have been able to benefit from banks’ experiences and modern banking technology. | 0 |
Jean-Claude Trichet: The Euro after two years: present situation and prospects Speech by Mr Jean-Claude Trichet, Governor of the Banque de France, at a conference organised by “The Economist”, held in Madrid, on 7 February 2001. * * * Ladies and gentlemen, it is a great pleasure and an honour for me to be invited to speak in this seminar organised by The Economist, today in Madrid. I also thank Arthur Andersen and the Banco Bilbao Viscaya for their contribution to this gathering. It is also a great pleasure to meet again with my colleague Jaime Caruana, between two meetings of the ECB Governing Council. I am particularly happy to express my views on the already successful existence of the euro and Monetary Union, and the conditions and prospects for its further success. st As you all know, within ten months, on 1 January 2002, the euro will become a reality across Europe as euro banknotes and coins are introduced. This will be the largest monetary change over the world has ever seen. However, it should be recalled that for all economic, monetary and institutional st purposes, Monetary Union was created on 1 January 1999. Then, a decisive event in the history of Europe occurred. The euro was born and the irreversible nature of this change has convinced an increasing number of economic players that the success of the euro is necessary for Europe. | According to the IMF, this effect is estimated to have contributed 1.5-2.0 percentage points per annum to inflation for EU countries catching up on productivity. The recent statistics available for the United States also confirm that wage and salary differentials within the euro area are by no means atypical in a monetary union : for example, in the US the average weekly earnings in the non-durable goods sector stood at USD 546 at the national level, while standing at USD 437 in Mississippi and USD 644 in New Jersey. I am convinced that we can be reasonably confident in the increasing integration of European countries, and in the fact that economic developments are becoming more and more correlated in the area. It has been highlighted, in the academic field, by several empirical investigations that business cycles are becoming more synchronous across Europe. Secondly it has often been questioned whether EMU can be a success without some form of enhanced political union. Certainly, for EMU to function well, all Member States must be aware of the spill-over effects of all their national policies, especially their budgetary policies. In this regard, we are in favour of strong co-ordination between economic policies, while respecting the independence of the Eurosystem. This co-ordination is contained in the Treaty itself, which obliges Member States to treat national economic policies “as a matter of common interest” and subjects them to a multilateral procedure. Even more importantly, the euro zone is not devoid of mechanisms conducive to an appropriate policy mix. | 1 |
3 Federal Reserve Bank of New York, Short-Term Inflation Expectations Continue to Decline, Tick up Slightly in Longer Term , January 9, 2023. 4 Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement , December 14, 2022. 5 Board of Governors of the Federal Reserve System, Plans for Reducing the Size of the Federal Reserve's Balance Sheet , May 4, 2022. 4/4 BIS - Central bankers' speeches | An excellent example of Ben’s interdisciplinary work is his book ‘The Moral Consequences of Economic Growth’, published in 2005. Economists have written countless papers on how to increase growth. But very few have addressed the question of why growth is desirable in the first place, in particular for societies that are already rich. Ben’s book fills this gap. It argues that economic growth improves the moral character of society. People tend to be more generous and tolerant towards each other when the economy grows. Economic stagnation, on the other hand, is associated with repression and bigotry. Ben’s latest book, ‘Religion and the Rise of Capitalism’, was published last year. It describes how religion has shaped economic thinking since the beginning of our discipline. The early economic thinkers of the European Enlightenment, such as Adam Smith, were not committed to religion. Ben argues, however, that their world view was profoundly influenced by developments in religious thinking. There is therefore a close connection between religion and the beginning of modern capitalism. With this I would like to conclude my remarks, since you are surely eager to learn more about this fascinating topic from Ben himself. Ladies and gentlemen, please join me in welcoming Benjamin Friedman with a big round of applause. Page 4/4 | 0 |
Second, we could see demand pressures on either side of the most likely outcome. Demand could be weaker if Covid continues to be a material health concern and prompts more caution in activity and spending habits. But there is also an upside risk that the substantial build-up of excess savings in the last year or so raises consumer spending to a larger degree than currently projected. Third, we could also see wage pressures arising if the number of people in work or seeking work does not return to pre-Covid levels, and inactivity remains at a higher level. A return of labour supply is therefore important. Fourth, a further challenge would arise if these temporary price pressures have a more persistent impact on medium-term inflation expectations, which shift to a higher level inconsistent with the target. As set out in the Minutes of the MPC’s June meeting, taking together the evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judges that UK inflation expectations currently remain well anchored. It will be important to continue to monitor closely movements in measures of medium-term inflation expectations, however, and to adjust policy accordingly. The post-pandemic economy I want to look further forwards, to the second big question that will shape the performance of the economy. I have described the bounce-back of the economy from the Covid shock. | A persistently high rate of increase in house prices can in isolation engender expectations of a further rise and can thus prove to be self-reinforcing for a period and push up credit demand. At the same time, the switch to a flexible inflation targeting regime reduces the possibility of exposing households to a double shock in the form of higher unemployment and higher interest rates, as was the case prior to the banking crisis in the beginning of the 1990s. If the economy is exposed to disturbances that may lead to higher unemployment, inflation will normally decline and interest rates will be lowered. High debt growth increases the vulnerability of households to economic disturbances. As a result of low interest rates, the household interest burden will remain fairly low in spite of high debt growth. It may prove to be particularly challenging for borrowers to assess their debt-servicing 4 BIS Review 53/2004 capacity over time in a period when the interest rate is abnormally low. Such a low interest rate also places particular demands on banks in assessing the creditworthiness of borrowers. The interest rate can be used to reduce credit demand. At present - with low interest rates abroad and a close link between domestic interest rates and the krone - a tighter monetary policy would restrain credit demand primarily because job security would be reduced as a result of a stronger krone. Summary of the situation in the Norwegian economy A turnaround in the Norwegian economy has occurred. | 0 |
The crisis opportunity costs for UK and euro-area citizens have been the highest for at least a century.2 Much the same picture emerges if we look at measures of the fiscal cost of crisis. Again, there are a number of methods for gauging this cost. But one simple metric is to look at the pattern of government debt-to-GDP ratios after the Great Depression and Great Recession, recognising that the larger part of the debt sustainability cost of crisis typically arises from the denominator shrinking than from the numerator rising. Chart 2 plots these debt-to-GDP ratios, again for the US, UK, France and Germany. It suggests that, in the decade after the Great Depression, levels of government debt relative to GDP had increased by around 28 percentage points in the US, 9 percentage points in Germany, but actually declined in the UK. Since the Great Recession, levels of debt relative to GDP have increased by, on average, 1 For example, Hoggarth, Reis and Saporta (2001). 2 Figures in this paragraph calculate a continuation of pre-crisis GDP using the average growth rate of output in the 10 years preceding the crisis. 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 28 percentage points for the same set of countries. The fiscal cost of the Great Recession, at least on this metric, is larger than during the Great Depression. | Aikman et al (2014) discuss where the classification of failure departs from Laeven and Valencia (2010). 23 All speeches are available online at www.bankofengland.co.uk/speeches 23 instrument if policymakers have a low tolerance for failure. That matters if, for example, the costs of higher capital requirements increase non-linearly (Greenwood et al (2017)). These points are also evident if we assess individually the performance of the RWCR and NSFR. Chart 18 and Table 3 below show that hit rates of 80 or 90% can only be achieved with high false alarm rates and stringent calibrations of these metrics. Overall, each metric individually does somewhat worse than the leverage ratio in balancing hit and false alarm rates. And similar results hold when the loan to deposit (LTD) ratio is considered instead of the NSFR in the wider sample (Chart 19). | 1 |
Negative surprises in these markets might amplify shocks and impair the functioning of key markets, potentially even affecting the financing of the real economy. The surge in volatility witnessed last February illustrates this point. Central bank policies are affected by this scenario in at least two dimensions. First, it makes more challenging the definition of an adequate monetary policy normalisation path. A too-rapid adjustment of monetary policy could trigger the materialisation of some of the risks mentioned. A too-gradual adjustment may ultimately force policy to be tightened more rapidly to contain overheating, thus giving rise to the “snap-back” scenario. By the same token, the persistence of very easy financial conditions and very low volatility extends the “search for yield” behaviour of investors and the build-up of vulnerabilities in the financial system. In this regard, effective communication by central banks throughout the monetary normalisation process will be key to helping anchor financial conditions, despite the threat of heightened volatility. Second, in this complex environment, it is particularly important to emphasise the role played by one of the major policy innovations generated during the financial crisis, namely the development of macroprudential policy frameworks. The proper and timely use of the new macroprudential tools, together with the regulatory and supervisory overhaul of the global banking system undertaken in recent years, should help to contain the build-up of financial imbalances. However, given its novelty it’s difficult to know ex-ante how effective these new macroprudential tools will be. In addition, multiple new challenges remain and need to be dealt with. | It is most appropriate he should be our first Keynote Speaker given his profound knowledge on the topics to be addressed in this conference. Among his recent honours, I would recall that last year he received the 2016 Bernácer prize at the Banco de España as the best European economist under the age of 40 working in macroeconomics and finance. His keynote speech today will focus on “Central bank swap lines”. Ricardo, we are very grateful to have the opportunity to exchange views with you again in our institution. The floor is yours. 5/5 | 1 |
1 BIS Review 96/2000 Second, faith is used in everyday language as a synonym for “belief”, “reliance” and “trust”, which could perhaps be interpreted in the sense of “well-founded expectation”. In this context one could think of faith as a probabilistic statement. Immanuel Kant has associated faith with an intermediate degree of certainty, in between mere “opinion” but short of “knowledge”. On this definition my basic answer to the question becomes “yes”. At least in the example of the institution I represent, I see good reasons to believe that the public in Europe should and that it can rely on the European Central Bank to fulfil its mandate and maintain price stability. This sort of “reasoned faith” or “confidence” is (as it should be) underpinned by a sound institutional setup, the application of well-established economic principles and, last but not least, by the quality and determination of the people dedicated to this task. A third aspect of faith relates to “keeping a promise” or “engagement” as in “acting in good faith”, in the sense of reflecting “honesty of intention”. For Thomas Hobbes “to have faith”, “to trust” and “to believe a man” are synonymous. One could think of this dimension of faith as representing a twosided relationship, rather than a unilateral act of faith. From this perspective faith - or here better: trust - is similar to a contract established between two parties. | Fourth, MAS is partnering Enterprise Singapore to host “Deal Fridays” – which are basically curated events to match emerging growth companies with investors seeking private market opportunities. Deal Fridays began last month and will take place every Friday until the Singapore FinTech Festival cum Singapore Week of Innovation and Technology in November. 3/7 BIS central bankers' speeches Last year, MAS surveyed angel investors, family offices, and venture capitalists to try to get a sense of how much money is potentially on the table. By their own account, there is about $ billion in total available for direct investment into ASEAN start-ups during 2019-21. We hope that Deal Fridays can encourage the deployment of this capital. Sleeping Well: Investing for Retirement with Ageing Demographics Next, sleeping well – or securing sufficient funds for retirement. Safe investment is needed for retirement planning, as the world’s population ages. Populations are ageing across most countries. 2018 was a milestone of sorts: for the first time in human history, persons aged 65 or over outnumbered children under 5 years of age. The rate of demographic ageing will be particularly rapid in Asia. The proportion aged 65 or over in East and Southeast Asia is expected to increase from 11% in 2019 to 24% in 20504 . As people live longer and the workforce shrinks, individuals will face an uphill struggle to fund longer retirements. Retirement planning should thus start young. Starting early gives you more time to reap the benefits of compounding interest. | 0 |
5 Figures 1 and 2 show a comparison of the accuracy of the forecasts in the period 1999-2008 for CPI inflation and GDP growth for a number of analysts. The red bars show the absolute mean error adjusted for differences in publication dates. The blue bars show the mean error with positive or negative sign. The shorter the blue bars, the smaller the systematic over- or underestimation has been – and the less bias the forecasts have had. If the bar is above the zero line the mean error has been positive and the forecasts have on average been too low, and vice versa. In the case of both inflation and GDP growth, the Riksbank's accuracy has been relatively good and its bias relatively small compared to other forecasters. Was monetary policy well-balanced ex ante? Given that it has been determined that the central bank's forecasts are normally satisfactory, the next step is to analyse, ex ante, the monetary policy deliberations the central bank has conducted on the basis of the forecasts. The first question to answer is whether the monetary policy conducted has been efficient. Given the information available at the time the decision was made, would it have been possible, by selecting a different interest rate path, to have stabilised inflation or the real economy better without stabilising the other less well? Would it even have been possible to achieve a better stabilisation of both? | By remaining true to the revolution – while not wasting our time and energy in refighting it – we can all turn our attention to the challenges of the future. In this way we will reinforce the stability of the financial system, for the good of the people of the United Kingdom. The revolution is over. Long live the revolution! 6 Have big banks gotten safer? By Natasha Sarin and Lawrence H. Summers, September 2016, available here: https://www.brookings.edu/bpea-articles/have-big-banks-gotten-safer/ 9 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 9 | 0 |
We have also worked on a data dashboard for the top management to track gender progress through KPIs on an annual basis, we have launched leadership and mentoring programs to strengthen strategic skills and encourage female to apply for management positions, we guarantee gender equitable panels in managerial recruitment processes, we are deploying training in unconscious bias, we have an internal D&I manifesto and we are working closely on a regular basis with our colleagues of the ESCB and SSM on a specific network to advance diversity and inclusion in our institutions. These actions are already proving we are on the right path, but events, such as this, sharing different views, challenges, approaches, and possible ways of improving, allow us to discover new pathways to become more efficient in the fulfilling of our goal: gender equality in central banks. Thank you very much and enjoy the sessions! 2 | In fact the issue of central bank independence, Ladies and Gentlemen, is as old as central banking itself, having been debated on and off over the past couple of hundred years. Many of the “transitional economies” of Eastern Europe also have adopted reforms aimed at BIS Review 136/2007 1 making their central banks more independent. 19th and 20th century economists such as, David Ricardo and John Maynard Keynes have all added their views to the subject. There seem to be consensus that central banks must be given a charter which includes a strong commitment to price stability, and the freedom and sufficient scope to pursue it. This means that while central banks may not have goal independence, they should have instrument independence. One need not dwell on the desirability of price stability. Economies work better if investment and wage decisions are not thwarted and confused by high inflation. However, the fears in some respects are associated with the financing of fiscal deficits that governments in the developing world from time to time have to run to meet, for instance, social obligations or indeed provide public goods. This indeed is a genuine fear (including others that may be identified) that this symposium must address. There are arguments that there is a fundamental conflict between independence and an obligation to finance the budget deficit – a conflict which often is resolved at the expense of price stability. | 0 |
However, there is another area in which the Confederation and cantons have made an even more important contribution to the independence of monetary policy. They put the favourable years before the crisis to good use by making their public finances pretty weatherproof. As a result, Switzerland was one of the few countries where government finances did not deteriorate substantially in the crisis. Sound government finances are essential not only for the competitive strength of an economy but also for safeguarding social security institutions – and thus for social cohesion. In the long term, excessive government indebtedness can also endanger price stability and the independence of monetary policy; one reason for this is that it increases the temptation to keep interest rates very low for longer than necessary. At this point, I would like to draw a preliminary conclusion with regard to the SNB’s role in monetary policy. I am firmly convinced that no change is needed in the SNB’s current mandate and therefore with regard to its fundamental role in monetary policy. Our job is to ensure price stability while taking due account of economic developments. This is a sensible and credible mandate. Our clear definition of price stability has also stood the test of time. The SNB equates price stability with a rise in the national consumer price index of less than 2% a year. Deflation – in other words, a protracted decline in the price level – also breaches the goal of price stability. However, we do not react automatically to inflationary developments. | At the end of the sales programme, the National Bank still held 1,290 tonnes of gold, corresponding to one third of the value of its currency reserves. Even though it has been demonetised, the yellow metal still plays an important role in our reserves. It is an asset category that traditionally affords good protection in times of crises in the international monetary system. It also allows us to hold part of our reserves on our own country, which is not possible with financial assets. Moreover, as expressly requested by Parliament, Article 99 of the Federal Constitution requires the National Bank to hold part of its currency reserves in gold. The Governing Board considers that the holdings of 1,290 tonnes are appropriate to the current international environment. It does not intend to proceed with further sales of gold. Distribution of profit This General Meeting of Shareholders will find a special place in the National Bank's annals, as you are going to decide on how the proceeds of the gold sales are to be distributed. This will close a chapter first opened in 1997, when a group of experts came to the conclusion that the SNB's currency reserves were larger than required for the execution of its mandate and that it could thus consider selling half its gold holdings, once the Swiss franc's gold parity was discontinued. | 0 |
There is nothing bad per se about speculation, high risk taking or even high levels of remuneration, provided the principals fully assume the consequences of their actions, and provided, in particular, that the tax payer remains out of the picture. It is clear that our financial system did not satisfy this requirement. In the BIS Review 33/2010 3 advanced G20 countries, public-sector capital injections to the banking sector so far have been estimated at 3.4% of GDP! 3 This is a lower bound for the risks assumed by the public sector; the latter may have been closer to 25% of GDP for the major western economies, according to a recent estimate by J.C. Trichet. 4 There is absolutely no economic, let alone moral, justification for situations where individuals enjoy high levels of remuneration or high returns when times are good, while the public sector has to come to the rescue when times are bad. In an ideal world, it should now be the responsibility of the financial sector – rather than regulators – to come up with credible proposals for change. These proposals must inevitably imply that all the main players, in particular managers and creditors, have much more at stake than in the past. Depending on how creative we are in finding solutions, financial institutions will have to be smaller and less prone to risk taking. For managers, at the very least, this must mean bonuses being tied to the long-run performance of their firm. Logically, one could envisage going further. | The second reason is that transparency reduces the inevitable uncertainties related to monetary policy implementation. If markets know how we judge future inflationary pressures and how we may react to these, they can better predict our future monetary policy. Improved predictability of monetary policy leads to fewer painful surprises in the economy. Moreover, less uncertainty about monetary policy reduces both risk premiums in financial markets, and financing costs. The third rationale for central bank transparency is public and political accountability. Central banks are mandated to act in the interest of their country, usually by maintaining price stability. This can imply unpopular decisions, which is essentially the reason for central bank independence. . Central banks should thus be free from public and political pressure. But it is obvious that some mechanism must be set in place to ensure accountability of independent central banks. Transparency about monetary policy is essential to central bank ensure accountability. However, transparency in itself is BIS Review 55/2006 1 not enough. The statements made by central bankers must be accessible to the public and must be subject to scrutiny. Here, a critical press has a very important role to play. 2. Communication of monetary policy by the Swiss National Bank In order to improve monetary policy effectiveness and enable public accountability the Swiss National Bank started to regularly explain its monetary policy decisions to the public already in the 1970's. | 0 |
Against this background, the central banks of accession countries should simultaneously be concerned about the need to further advance disinflation and to catch-up with real income and price levels in the euro area. The strict respect of the Maastricht inflation criterion should be seen as a medium-term objective and not as an immediate goal, if progress towards the achievement of this criterion would jeopardise the catching-up process. Nevertheless, the ultimate fulfilment of the Maastricht criteria over the medium term should provide monetary policy with the appropriate 2 BIS Review 84/2001 framework for gradually lowering inflation rates, thereby contributing to macroeconomic stability and sustainable growth. Together with the maintenance of inflation differentials with the euro area, catching-up in terms of real per capita income and price levels may also imply an appreciation of the real exchange rate. In this fashion, exchange rate policy should support the convergence process without any constraint to real sustainable growth. Again, neither the Eurosystem nor the ECOFIN Council can recommend a single exchange rate policy as the appropriate one to be pursued along the road towards the adoption of the euro. It is clear, however, that some accession countries will have to modify their exchange rate strategies to make them compatible with ERM II requirements. This applies mainly to the existing free floats (e.g. Poland) and pegs against anchors other than the euro (e.g. Latvia and Lithuania); in these cases, it will be crucial to identify the optimal timing of the revision of the different regimes. | The importance of the Bank’s role in this has been recognised through the Chancellor’s recent remit and recommendation letters to the Bank’s policy committees, which set out that the transition to a net-zero economy is now a part of the government’s economic strategy that the committees must have regard to.9 So what does this mean a central bank should do in practice? Financial system First, and foremost, it means building resiliency at a micro and macro level. We do this by ensuring the financial system proactively manages and pre-emptively mitigates the financial risks from climate change. That task falls squarely within the mandate of the Prudential Regulation Authority (PRA) and the Financial Policy Committee (FPC). The PRA has set supervisory expectations for banks and insurers to ensure they adopt a strategic approach to climate change and develop capabilities to effectively identify, measure, manage, and where outside appetite, mitigate the financial risks from climate change. This is a necessary component of protecting the safety and soundness of PRA-regulated firms. The FPC, alongside the PRC, will launch next week a Climate change Biennial Exploratory Scenario exercise – the CBES – to assess the resiliency of individual banks, insurers and the wider financial system to different climate scenarios. This type of scenario modelling and analysis is critical to enabling real decisions on climate-related risks by financial firms and policymakers. Assessing resiliency against a range of scenarios enables us to prepare for what might happen in the absence of certainty about what will happen. | 0 |
Contrary to the US, the use of modern technology and communications has made it possible for market operations not to be concentrated at a single geographical location, but to be carried out simultaneously at all of the National Central Banks. The same type of arrangement applies in other monetary areas (cash management, payment systems, etc.). 1.4. The Eurosystem benefits from an efficient operational framework The operational framework is based on two main guidelines: - a range of monetary policy instruments selected in accordance with the principles of an open market economy, a level playing field, simplicity and transparency: these instruments enable the smooth adjustment of banking liquidity and effective steering of short-term interest rates. - procedures guaranteeing a high level of security for all interbank transactions and large-value payments within the euro area and with other countries in the European Union, with in particular the TARGET system, which played a predominant role in the integration process of the euro money market. BIS Review 4/2006 3 2. The strategic framework also contributes to the efficiency of the single monetary policy From the outset, there was a consensus among the designers of the Eurosystem that the Single monetary policy would require a clear strategic framework. This framework can be characterised by two main principles: a quantitative definition of price stability and a medium-term orientation of monetary policy. 2.1. | Sunil Mendis: A brief look at financial information technology Keynote address by Mr Sunil Mendis, Governor of the Central Bank of Sri Lanka, for the Financial Information Systems Seminar, Colombo, 8 September 2004. * * * His Excellency Akio Suda, the Ambassador for Japan in Sri Lanka, Mr Yoshihisa Onishi, Executive Director, FISC, other officers from the FISC in Japan, Ladies and Gentlemen, The Central Bank of Sri Lanka is happy to co-sponsor this programme together with the FISC of Japan (Center for Financial Industry Information Systems), in view of the importance of financial information technology in the financial services industry. Sri Lanka is no exception to continuous changes in the technology used by its financial services industry. In a market driven financial system, for information to be effective, there should be two vital ingredients, that is system integrity and timeliness - both of which are crucial. The more dependable your information systems are, the more efficient and competitive banks can be as a player in the financial services industry. That is why we see banks investing heavily in IT. Globally too, with the interdependence of markets their integration is facilitated through information systems which link these markets which make the world a very small place indeed on a PC monitor where the whole world is virtually at your doorstep. | 0 |
Now, put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. Your most likely reaction is to cross your arms, plant your feet and say: “Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.” 6 BIS central bankers’ speeches Moreover, you might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? | Five of the top six foreign exchange holders in the world are now Asians. 10. The strong fundamentals -- a young, educated, flexible workforce, stable government, good natural resources and communications infrastructure, openness to trade and innovation, and high savings and investment rates -- these have not basically changed. Asia is still outward-looking, with open markets and openness to technology and innovation. The aspirations of Asia are also real: an entrepreneurial approach to innovation, competition and better standards of living for the rising urban population. Where Asians have perhaps kept their eyes off the ball is the need to develop the services sector in complementary step with the manufacturing or export sectors. Delays in opening the financial sectors to global competition make them vulnerable to real sector excesses or imbalances, such as the overconcentration of risks in certain areas, including the asset markets. 11. The momentum of growth depends critically on continued vigorous trade reform, fiscal prudence and improvements in finance, health and education policies. Increasingly, exports are changing from labour-intensive industrial production, and more toward higher value-added industries and services. This poses the challenge of sustaining productivity growth. 12. The Asian turmoil being a financial turmoil on the surface, let me focus on the interesting way Asia recycles its surplus savings. As my colleague Joseph Yam has consistently pointed out, a large portion of Asian foreign exchange reserves is invested in assets of the OECD countries, which provides safe and liquid instruments. | 0 |
The upper half illustrates the effect of the repo rate on inflation and resource utilisation during the forecast period, and the lower half illustrates the effect of the repo rate on indebtedness and risk in the longer run.6 In the situation we have had in recent years – with inflation undershooting the target – a lower repo rate and repo-rate path has typically meant that inflation will approach the target faster, but also that household indebtedness – and thereby the risks in the longer run – will increase more. Our most recent assessment assumes that household indebtedness, measured as debt in relation to disposable income will increase from an already high level, and moreover increase somewhat faster than in the previous forecast (see Figure 9). At the same time, the percentage of loans at a variable rate is increasing. This is natural in a situation where the Riksbank is signalling that interest rates will be low for a long time. However, the combination of high indebtedness and a large percentage of variable-rate mortgages makes households more sensitive to changes in interest rates. The low inflation is motive for lower interest rates – indebtedness must mainly be managed within other policy areas As on so many previous occasions in recent years, the monetary policy balance in July concerned balancing the low inflation against the high household indebtedness and the risks this entails. | As the financial stability authority we are also responsible for monitoring stability at the level of the sector as a whole. While we have multiple policy hats the common denominator in this space is ensuring that the sector has adequate operational resilience – that is that firms can continue to provide critical services that are important for their own integrity and the functioning of the sector. If a firm’s operations are interrupted, we want to be sure that they can be recovered quickly and reliably especially where they are systemically important. Three observations at this point: a) First to stress our accent on financial stability. Our efforts target first those firms where operational failures may result in disruption to the provision of vital financial services to the real economy or in dislocation to the rest of the sector. That does not mean the failures in customer facing applications do not matter. It is just that, where no immediate systemic dislocation results from such an outage, any consumer detriment will be a concern for our colleagues at the Financial Conduct Authority (FCA) more than it is for us. b) Second, operational resilience is different from operational risk. In operational resilience we are describing a policy outcome we want to deliver in terms of the system functioning. This may be a by-product of effective operational risk management. | 0 |
But also from the supply side developments were, for a period at least, positive, partly because there was an increase in the working-age population. In recent years, however, it has become evident that many people have ended up outside the labour market, partly as a result of a rise in sick leave. As regards productivity growth, the trend in recent years has been more positive. At GDP level it has been approximately 2 per cent per year or slightly above. This differs from the situation in the 1970s and 1980s. It is likely that the changes in monetary and fiscal policy and increased transparency with stiffer competition have been important in this regard. So how should we feel about developments in the near future? When it comes to productivity, there is reason for optimism, even if the high figures seen in the 1990s partly reflect both rapid growth in the private sector compared to the public sector and robust growth in the ICT sector. Our economy is more open and has greater competition and downward price-pressure in many sectors. The cost pressures in the public sector also have a similar impact. The outlook is considerably gloomier for the labour supply. As I mentioned, developments are now on a downward trend. One cause of this is that economic policy in some respects has become less focused on raising labour force participation. In terms of both transfers and taxes, changes have been implemented that reduce the incentive to work. | Long-term yield spreads on Germany and central government debt in 2002 as a percentage of GDP for Finland, Italy and Sweden 250 250 120 120 200 100 100 150 80 80 100 100 60 60 50 50 40 40 0 0 20 20 -50 0 Finland 200 Italy Sweden 150 -50 1997 1998 1999 2000 2001 2002 2003 0 Finland Italy Sweden Sources: Eurostat and the Riksbank. Chart 2. Productivity growth in the corporate sector and the output gap in Sweden 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 Productivity, corporate sector Output gap -6 -6 -8 -8 75 78 81 84 87 90 93 96 99 02 Sources: Statistics Sweden and the Riksbank. BIS Review 42/2003 5 Chart 3. | 1 |
Although a negative nominal interest rate is not more unnatural in economic terms than a negative real interest rate, it is evident that the former, unlike the latter, is perceived as going against social and economic conventions. I therefore strongly suspect that it would be difficult to foster understanding for a policy that means that individuals have to “pay to save”. This is perhaps a limitation that one must simply accept. Ultimately, the legitimacy of, and confidence in, an independent institution like the Riksbank is based on the general public understanding the policy conducted, or at least not considering it to be illogical and unjust. This does not mean that I am saying we should refrain from using the scope that there seems to be for holding the repo rate at a negative level in situations where this is necessary to avoid major costs for the economy. But there are limits as to how far the rate can be cut. And, as I said, my view is that it would be difficult to cut the rate so low that people were forced to pay to have money in the bank. Do expectations affect the future repo rate? If one has cut the repo rate as far as one considers possible, one can also try to affect expectations of the future repo rate among economic agents in a way that 7 Jansson (2016). 5 [24] stimulates demand. | The Governing Council therefore supports the implementation of the ambitious objectives described in the evaluation report.” In terms of the broader service to Spanish society we have just mentioned, let me remind you that three CEMFI faculty members currently participate in the Council of Economic Advisors of the Spanish Ministry of Economic Affairs, two have recently been appointed members of the Advisory Committee of the Ministry of Inclusion, Social Security and Migration, one is a member of the Advisory Board of the Spanish Independent Agency for Fiscal Responsibility, and another one is chair of the Scientific Committee of the Spanish State Research Agency. In addition, last December, CEMFI signed an agreement with the Ministry of Inclusion, Social Security and Migration to collaborate in the evaluation of 34 pilot projects to improve the design of poverty reduction policies. CEMFI will participate both in the design and the evaluation of the projects, and researchers will be able to use the data generated by these evaluations for the production of papers publishable in scientific journals. Carrying out these evaluations will allow CEMFI to take a qualitative leap forward, positioning itself as an academic institution of reference in the evaluation of public policies in Spain. I would like to thank Samuel Bentolila and Mónica Martínez-Bravo for leading this important initiative. | 0 |
Yet, at around 1%, they are still close to the long-term average inflation rate. Interest rates, too, have remained very low across all maturities in the past few quarters. Mortgage rates have declined further, reaching a new low in October. Government bond rates have also fallen to new lows. My colleague, Fritz Zurbrügg, will discuss developments on the financial markets in more detail. Despite falling mortgage rates, mortgage lending growth slowed again. At the same time, real estate prices continued to rise. However, as in 2013, price momentum is weaker than in previous years. This suggests that the measures to contain developments on the mortgage and real estate markets are starting to have an impact. Yet the imbalances that have built up on these markets in recent years remain the same. It is still too early for an all-clear. The SNB will continue to monitor the situation closely. My colleague Jean-Pierre Danthine will discuss this topic in more detail in his presentation. 2 BIS central bankers’ speeches Since the last monetary policy assessment, the Swiss franc has moved closer to the minimum exchange rate, and has thus strengthened against the euro once again. At the same time, both it and the euro have depreciated against the US dollar. Overall, the exportweighted real external value of the Swiss franc is virtually unchanged compared to last year, and thus continues to lie considerably above its long-term average. The Swiss franc is still high. | In view of the elevated deflation risks, the minimum exchange rate remains the key instrument for ensuring appropriate monetary conditions. A further appreciation of the Swiss franc would have a major impact on wages and prices, and would push inflation well into negative territory. Companies in Switzerland would once again be forced into drastic price cuts, in order to remain competitive. In such a scenario, price stability would be seriously compromised. The minimum exchange rate helps to reduce such deflation risks. SNB monetary policy Let me close with a few additional explanations of SNB monetary policy. On 30 November, the Swiss voters rejected the gold initiative. The initiative demanded that the SNB hold at least 20% of its assets in gold, that it sell no more gold and that it store all its gold in Switzerland. We are relieved that the gold initiative has been rejected. As we have pointed out on several occasions, had the initiative been accepted this would have seriously impaired the implementation of a stability-oriented monetary policy. Let me just take this opportunity to reiterate that, in an international comparison, the SNB’s gold holdings are high. Gold has always been, and will remain, an important component of our currency reserves and we have no intention of selling gold. In the prevailing international environment, the monetary policy challenges facing the SNB remain considerable. The situation is still particularly difficult in the euro area. | 1 |
This in turn means that the board and the senior management are now placed with greater accountability and responsibility in this area. This approach also benefits the industry as they are not hamstrung to introduce new and innovative products and services. The intent is also to improve the time-to-market. However, it comes with a responsibility. Financial institutions are expected to apply the standards judiciously and proportionately. This should take into account risks within their business activities and strategies, and the role and relationships within the broader financial system. Another issue organisations face in the conduct of their businesses arises from principal-agent relationships. Establishing clear behavioural norms with the right combination of controls and incentives, to shape the desired behavior is key. For all the above, the compliance function can play a meaningful role in this process. Compliance in the context of broader responsibilities to society As the theme for this conference suggests, compliance is a responsibility. What I have said so far has focused on perspectives from the point of view of individuals within the industry. However, compliance must also be viewed in relation to the broader financial system and society itself. A key lesson from the global financial crisis in 2008 was that individual behavior, even though well intended and rational from an individual’s point of view, can cause massive damage at the aggregate level. In many ways, the complexity of rules that apply to the financial system is a reflection of its important role in the economy and society. | Three points are worth mentioning on compliance: First, it is not the end, it is a means to an end; Second, it should be viewed within a broader context of a financial institution’s responsibilities to society; and Third, it should be approached in partnership with other key participants in the financial system. Compliance as a means to an end The past decade has been a turning point for compliance. Arising from major systemic failures of governance, regulators have since elevated the importance of compliance. For good reason, this has led to tighter regulations, greater scrutiny and stronger enforcement. The industry has in turn, invested heavily in their compliance function. It is estimated that some firms could spend up to 10% of their revenues on compliance within the next few years. This is by no means an insignificant amount. Yet, as we have seen over the recent years, this has not put a stop to money laundering and terrorism financing. A case in point is a major bank in the Asia Pacific region which is being investigated for more than 50,000 violations of money laundering and terrorism financing. Perhaps we need to take a step back and question if the industry has the right understanding of compliance. If the motivation for the increased compliance is merely to abide strictly by the rules and follow the book, thus avoiding scrutiny from regulators, this is misplaced. | 1 |
At the other, some countries have opted for full insulation from exchange rate fluctuations by renouncing monetary independence. Consequences of the new international monetary order What are the consequences of this new international monetary order? The first positive consequence is undoubtedly the increased stability of the international monetary system. Indeed, one of the paradoxes of our times is that the apparent disorder of today is far more stable than the apparently ordered system of the past. In the presence of high capital mobility, the two most resilient exchange rate regimes are those that today dominate the planet: very flexible regimes and very hard pegs. The move away from intermediate regimes has reduced the probability of costly financial crisis. Thus the priority given by central banks to price stability and the abandonment of the exchange rate anchor has resulted in more – rather than less – foreign exchange stability. Evidence of this are recent potentially destabilising events, like the recent war in Lebanon, which have passed without major international financial turmoil. This brings me to the new division of labour between private and public agents that I mentioned in the introduction. The increased stability is based on a new contract between society and monetary authorities: Those countries that, like Switzerland, have chosen the flexible exchange rate regime, base the success of their monetary policy on the credibility and transparency of their central banks. We are no longer – thankfully – attempting to construct a kind of Maginot line to contain international capital flows. | Jean-Pierre Roth: Implications for business of the new international monetary order Address by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Annual Conference of the International Business Academy, University of Fribourg, Fribourg, 8 December 2006. This address has been prepared with the help of Mrs Maria Rueda Maurer, International Research and Technical Assistance Unit, Swiss National Bank. * * * It is a pleasure for me to be here discussing one of the most important issues of our times: financial globalisation and its implications for international business. Globalisation, the landmark of the dawn of the 21st century, has opened up new opportunities for growth and prosperity on the planet. It has created fantastic investment perspectives to those firms that can compete internationally. But it has also changed the rules of the game and brought about new challenges. Today, the success and the survival of international business are determined more than ever at the private level. Because goods and capital are free to move across national borders, protection from risks emanating from globalisation can be a matter for private strategy only, rather than public policy. This, I think, is the main difference between the globalised world of today and the partitioned world of separated nations in the past. | 1 |
Zeti Akhtar Aziz: Role of central banks in emerging economies Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Svein Gjedrem Colloquium, Oslo, 18 November 2010. * * * Introduction Central banks continue to be challenged with changing demands as the environment before us is rapidly being transformed. These fundamental and pronounced changes have prompted calls for a review of the role of central banks in the financial system and in the economy. Frequently, such calls have been precipitated during a financial crisis, as was the case during the Asian financial crisis and more recently during this current global financial crisis. However, such institutional reforms undertaken in periods of exceptional conditions risks influencing the nature and direction of the reforms. While the reforms following a crisis may address the immediate term demands, of equal importance is the medium and the longer term implications of the reforms. Perhaps, an important lesson for central banks is that such reinvention and modernisation should be undertaken during the good times so that we will not be subjected to such changes during the worst of times. In essence, in such a dynamic environment, central banks need to continue to adjust and evolve to remain relevant and, thus, useful. It is my great honour to be invited to speak at the Norges Bank Colloquium held in honour of Governor Svein Gjedrem. | While several emerging economies have successfully relied on macro prudential measures to contain the formation of such asset bubbles, the foreign exchange market is not like any other market. With a daily transaction amounting to USD4 trillion, it is the most liquid and dynamic market in the world. The role of sentiment and expectations has resulted in a market that is frequently prone to excessive movements and overshooting. As highly open economies, disruptions and disequilibrium in the foreign exchange market have far reaching consequences in the real economy. Intervention operations to maintain orderly market conditions reinforced by sterilisation operations have aimed at ensuring liquidity in the market and at ensuring that the market conditions reflect the underlying economic fundamentals. Similar to the presence in other financial markets, this is to ensure the sustainability of the efficient functioning of the market. Central banks and crisis containment and management The world going forward is likely to continue to be affected by financial crisis. History has shown that there have been more than a hundred distinct banking crises in this recent two decades. The prospect of surviving such a crisis is not only about building resilience but also having the capacity to manage it. Central banks have a critical role in crisis containment and management, in particular, to provide liquidity, to restore the efficient functioning of financial markets, to lead resolution programmes and to restore confidence to the financial system. | 1 |
Few are those who can define it and fewer still those who can measure it. Yet it has entered the popular lexicon and with good reason: the one thing we do know is that productivity is crucial to our pay and living standards over the longer run. Productivity is what pays for pay rises. And productivity is what puts the life into living standards. History, distant and recent, makes this only too clear. It is no coincidence that productivity, pay and living standards have moved in lock-step over the past millennium – flat-lining for the first three-quarters before sky-rocketing in the final quarter - as each new industrial revolution has dawned (Chart 1). Pay and living standards have increased over fifteen-fold since 1750. Productivity explains why. More recent experience has been more painful. Since 2008, productivity in the UK has essentially flat-lined. This is almost unprecedented in the modern era, a “lost decade” and counting. And it has been mirrored, as in the past, in a lost decade for pay too (Chart 2). Inflation-adjusted pay has stood still since the crisis, something also almost unprecedented in the modern era. 1 This prolonged pause has become known as the productivity problem. In the UK, the problem is a big one by any historical standard. And it is cold comfort that the UK shares this problem with much of the Western World and a decent chunk of the emerging market world. | On the other hand, the need of private businesses to carry out new investments has been low, against the backdrop of a moderate demand for goods and services and the existence of spare capacities in production. Fiscal policy has been stimulating during 2011. For the first ten-month period of the year, budget deficit posted ALL 30.9 billion or about 33.0% higher than a year earlier. The performance of budget deficit has been determined by the sluggish increase in expenditures and revenues by an annualized rate of 3.9% and 1.4%, respectively. The stimulating fiscal BIS central bankers’ speeches 1 policy has been winding down steadily following the first quarter of the year, as also shown by the decelerated increase in public spending and budget deficit. This fiscal stance has contributed to maintaining the level of public debt under control. The Bank of Albania assesses the latter as one of the most essential indicators of macroeconomic stability at home. In this context, we encourage fiscal authorities to take appropriate measures, in order to ensure long-term sustainability of public debt. Foreign demand has supported the Albanian economic growth, notwithstanding the concerns surrounding the global economy and especially our trading partners. Albanian exports continue to grow, albeit at decelerated paces compared with the previous year. Exports grew 27.3% in the third quarter of the year, while imports grew 8.6% over the same period. Trade deficit increased 6.8% in the first nine-month period of the year. | 0 |
I am pleased to announce today three initiatives aimed at further improving efficiency and liquidity in the Singapore dollar corporate debt market. 40. First, MAS will provide swap liquidity to primary dealer banks handling Singapore dollar debt issuance for foreign corporates. These offshore entities usually have no need for the Singapore dollar funds raised and mostly swap them into a foreign currency, usually US dollars. Although the pricing mechanism in the foreign exchange and cross currency swap market is efficient, swap markets have a tendency towards one-way flow because of Singapore’s excess savings over investments. This can lead to uncertainty in the pricing process of the bond issuance. We will therefore support swap transactions at marketdetermined prices, which will ultimately enable swap market liquidity to build in the longer tenors. 41. Second, MAS will partner the industry to create a Singapore dollar corporate debt securities lending platform, from which key players will be able to borrow securities for market making. By providing greater assurance that banks will be able to deliver any given security, this platform will reduce the risk of market makers being squeezed in the event they are unable to short-cover the bonds they have sold. Improved market liquidity will mean that asset managers can be more certain of their ability to enter and exit their positions with minimal price slippage. 42. Third, MAS has initiated a price discovery platform where market participants will contribute end-of-day prices for a universe of Singapore dollar corporate bonds. | Fiscal consolidation is expected to shave off a cumulative 2–2.5% points from GDP growth in the US, UK, and the Eurozone over the next three years. 11. Second, deleveraging by US households. Since the bursting of the credit bubble in 2008, US household debt has declined by 5% in absolute terms and 15% as a percentage of disposable incomes. More than two-thirds of the reduction in debt stock was due to default of mortgage and other consumer debt. It is hard to tell what is a sustainable level of household debt, but most estimates suggest that US households are just about a third to halfway through the deleveraging process. This means probably another 3–5 years of sub-par household consumption growth in the US. 12. Third, deleveraging by Eurozone banks. There are two factors at work here. One, the quality of Eurozone bank assets has come under pressure. Two, Eurozone banks are required to improve their capital adequacy positions so as to buffer against shocks. In particular, European banks are required to achieve a minimum core Tier 1 capital ratio of 9% by June this year. To the extent that banks cannot achieve the target capital ratios through retained earnings and capital raising, they will have to reduce their balance sheets. They can do this by selling assets or reducing lending. Both will have a dampening effect on economic activity. Given the global footprint of many Eurozone banks, the effects will be felt not just in Europe but elsewhere in the world. | 1 |
Arizona and California) have adopted a less prudent approach to the management of their public finances than others. BIS Review 51/2010 3 4 BIS Review 51/2010 There is no doubt that fiscal policies have been put on a path that is not sustainable. Indeed, as simulations for the euro area show, without a very ambitious fiscal adjustment effort, the debt ratio is projected to continue rising in the next decades. With an annual structural deficit reduction of only 0.5% of GDP, it will take the euro area 20 years or more to return to the pre-crisis debt-to-GDP level. Substantially stronger consolidation efforts are warranted to bring the debt ratio down to a more prudent level of below 60% of GDP and to prepare for the rising budgetary costs of the ageing population. BIS Review 51/2010 5 The challenges are particularly large for countries with relatively high government deficit and debt levels, as well as a rapidly ageing society, and even more so for those that face relatively high interest rates and low potential growth. Outside the euro area, bringing the public debt ratio back to safer regions appears even harder for the United Kingdom, the United States and Japan. Given their high budget deficits and the high and rising debt levels, they must undertake very strong consolidation efforts to manage a reversal of the rising trend in public debt ratios. Growing fiscal imbalances, if not promptly corrected, are a cause of concern for several reasons. | From the very beginning, we have been aware of the fact that keeping our non-standard measures in place for longer than necessary would entail the danger of creating harmful distortions. Therefore, we designed the measures with exit considerations in mind. In view of the improvements in financial market conditions seen since last spring, we have started to gradually phase out some of them. More specifically, we have stopped providing liquidity in foreign currencies, and we have stopped operations involving maturities longer than three months. Also, we have decided to return to variable rate tenders in the regular three-month operations towards the end of this month. However, the Eurosystem will continue to provide liquidity support to the euro area banking system at very favourable conditions in its shorter-term refinancing operations (that mature after one week and after approximately one month). We have decided to do this for as long as necessary and at least until mid-October this year. The speed and path of the subsequent gradual phasing-out of the non-standard measures will depend on economic and financial market developments. The remaining measures are not many. They include, inter alia, the tender procedures to be applied in the main refinancing operations and the operations with a duration of one maintenance period, approximately one month (which could be returned to variable rate tenders). All our actions will remain fully in line with the objective of maintaining price stability over the medium term. We do not know today what normality will look like after the crisis. | 1 |
Annual headline Consumer Price Index (CPI) inflation remains below 3%, although it has sped up in recent months, reaching 2.7% in July. Core inflation, meanwhile, which excludes the more volatile prices in the consumer basket (ie. food and energy), remains below 2%. Both figures are in line with expectations. Globally, the US-China trade conflict has intensified which, together with the cyclical state of the US economy and its divergence from that of other developed economies, has led to a global appreciation of the dollar and a fall in commodity prices. All this has affected hardest the emerging economies that are perceived as the most vulnerable. For now, global growth projections have had limited changes. In Chile, the exchange rate has again acted as a cushion that has protected the local financial market. The Board of the CBC has continued to apply a clearly expansionary monetary policy, keeping the monetary policy interest rate (MPR) at 2.5% since May of last year. At yesterday’s monetary policy meeting we held the rate unchanged and announced that the evolution of macroeconomic conditions makes it less necessary to maintain the current monetary stimulus, so that if the current scenario continues, the rate should begin to fall in the coming months. This will allow both headline and core inflation to converge to the target during 2019. | All Saudi banks now provide a range of products that are compliant with Shari’a requirements and with financial engineering specifications of the highest levels under the supervision of well-reputed Shari’a committees and top class financial professionals. In the context of supporting such efforts, SAMA’s IOB has offered many programs, courses and symposia in the area of developing, marketing and supervising Shari’a compliant products. The number of bankers benefiting from those programs stood at 6,300 who participated in 374 programs during the last seven years. These endeavors have considerably helped in developing Islamic banking in Saudi Arabia without undermining compliance with Islamic Shari’a or the technical flexibility needed by an emerging and dynamic market. Dear Audience, It is very important to mention that the industry of Islamic financial services should be completely integrated into the global financial markets while maintaining at the same time its distinguished nature and unique services. The industry should also be subject to the same level of supervisory control as other financial institutions. Any breach of standards, practices or application by Islamic banks will not only be an obstacle to their services and products, but it will also serve as a hindrance to accepting their services and products by international financial markets. Consolidating a bank’s financial data with those of all its subsidiaries and branches is another principle that must be applicable to all banks, and such principle is necessary for ensuring consolidated and comprehensive supervision by the supervisory authorities in the bank’s home country. | 0 |
These elements and the fact that MPR is within a range considered neutral, makes us believe that the deceleration of domestic demand will become more evident in the coming months. Nonetheless, this process will occur at a rate lower than what we expected a few months ago. A significant part of the impulse of private consumption relies on the strength of the labor market. The unemployment level is at its lowest level of the last 15 years, in spite of a deceleration in job creation. Outstanding is the quality of newly created jobs, with a greater share of wage earners. This type of employment, due to its stability, is more prone to generate consumption of durable goods and increases households’ borrowing capacity, thus feeding back into a rise in consumption. As expected, a low unemployment rate with few output gaps is consistent with greater wage pressures. Real wages have increased between 2 and 3% during several months, while growth of nominal wages has been close to 7%. Indicators of consumer confidence have maintained a positive trend in the last months, although they remain in a pessimistic zone. Investment in 2010 and 2011 was boosted by the acquisition of machinery and equipment. This has recently been changing, with a greater dynamism in Construction and Public Works. The increased importance of Construction is related to residential construction and infrastructure, the latter linked to Mining and Energy projects. | Overall, in recent weeks, market expectations have raised the projections of short-term inflation. In addition, in the short term, inflation is affected by supply shocks that can have significant effects. Developments in the international oil market do not help the outlook for domestic inflation. Recent geopolitical tensions in the Middle East, which, among other consequences, led to an embargo on Iranian exports, and a harsh winter in the Northern Hemisphere have made the actual and expected oil price to escalate. The Brent price has risen more than 15% during the current year, while projections taken from futures contracts have also risen and point to an average price for oil of near $ per barrel during 2012. The persistence of a high price always raises worldwide concern because of its implications on inflation and growth. Concerns regarding inflation deal with the direct impact of fuel and energy inflation, and also with the secondary effects that they cause, which could be accentuated in an environment with a narrow output gap. Final thoughts Before I end my presentation, I would like to share some thoughts on monetary policy. As mentioned at the beginning of this presentation, our task as economic policymakers is made more difficult in a more uncertain environment. We make our best decisions based on whatever information is available at the moment. Currently, decision making relies on certain elements that point to opposite directions. On one hand, the international scenario is very complex, even though when compared to a few months back, the tensions seem somewhat smaller. | 1 |
According to preliminary national accounts figures, mainland GDP grew by 2.2% from 2009 to 2010. Norges Bank’s regional network contacts expect solid growth to continue in the coming quarters. Unemployment is low. There are prospects of BIS central bankers’ speeches 1 fairly strong growth in the Norwegian economy ahead, driven by solid income growth and an increasing population. Chart: Population growth In 2010, the population grew by 1.3 per cent. With the exception of 2008, this is the highest rate of population growth since 1920. A high birth rate has contributed, but strong population growth primarily reflects high inward migration. This is boosting demand for goods and services, including housing. Nonetheless, it is likely that a high proportion of labour immigration will enable the economy to grow faster without fuelling price and wage pressures, even though bottlenecks may arise in some areas. Chart: Consumer prices 2010/11 The rise in consumer prices slowed through 2010, and in recent months inflation has been fairly low. Inflation has varied from month to month as a result of wide fluctuations in electricity prices. Overall CPI inflation rose by 2.5 per cent in 2010. If we exclude fluctuations in energy prices, the rise in prices has been low. In 2010, CPIXE inflation was 1.7 per cent. Chart: Interest rate forecasts Norges Bank raised its key policy rate to 2 per cent in May 2010. Through 2010 the Bank’s interest rate forecast was adjusted down, and further increases were deferred. | Chairperson, it is now my pleasure to invite the Secretary to the Treasury who is also the Chairman of the FSDP Steering Committee to give us a few remarks before we call upon the Guest of Honour, to give us his keynote address and to officially open this forum. BIS Review 131/2009 3 | 0 |
However, the second half of the twentieth century saw many central banks also taking on the responsibility for statute-based micro prudential supervision. In many parts of the world banking laws were passed for the first time and the central bank often became the bank supervisor. In this process the distinction between the micro- and macro- perspectives became blurred. What has changed in the past ten to fifteen years is that central banks have started to give much more explicit emphasis than in the past on their macro prudential responsibilities and have distinguished it more clearly from the micro-supervision perspective. This renewed emphasis has several different sources. One of them was undoubtedly the financial crises that hit Asia in 1997. This experience showed that even if the individual banks in a financial system appear to be sound, the system itself can still be overwhelmed by financial shocks. For example, the system can be exposed to a common risk that isn’t obvious from looking at each bank individually. In the Asian crisis countries the exposures of banks to foreign exchange risks didn’t show up on bank balance sheets. The risks were instead in the balance sheets of their major borrowers, who had borrowed heavily in foreign currencies even though they had domestic currency cash-flows. And this also points to another feature of macro prudential concern – it cannot stop at the traditional boundary of the banking system, but must look at the risks in the nonbank financial sector and at the structure of household and corporate balance sheets. | Tharman Shanmugaratnam: Update on the Singaporean economy Statement by Mr Tharman Shanmugaratnam, Managing Director of the Monetary Authority of Singapore, delivered at the MAS Annual Report 2000/2001 media conference in Singapore on 12 July 2001. * 1 * * Introduction MAS has had an eventful year, shaping monetary policy in a challenging and uncertain environment and continuing to liberalise and enhance standards in the financial sector. 2 Monetary policy In January this year, MAS decided to maintain the existing exchange rate policy stance of allowing a modest appreciation of the trade-weighted Singapore dollar within an unchanged policy band. This policy was aimed at capping medium-term inflationary pressures, while continuing to be supportive of economic activity as growth came off its cyclical high and moderated to a slower pace. Economic activity slowed much more in the first half of 2001 than was expected, causing market sentiment to shift against the Singapore dollar. Strong demand for US dollars to fund merger and acquisition activities by domestic corporates, and a strengthening of the US dollar against the major currencies, exerted further downward pressure on the Singapore dollar. The $ weakened over the period, from the top of the policy band at the start of the year to the lower half of the band at end June. This trend was consistent with the change in underlying economic and market conditions. | 0 |
Shortly afterwards, the SNB decided once again to increase banks’ sight deposits substantially, to CHF 120 billion; this step was followed by a further – final – increase, this time to CHF 200 billion. 2 BIS central bankers’ speeches CHF 432.2 billion at the end of 2012 (cf. chart 3), proving beyond doubt that the SNB is willing to accept balance sheet risks in order to enforce its monetary policy. Last year, the SNB’s shareholders, the Confederation and the cantons all learned that these risks can have real consequences. For the year 2013, for the first time in its history, the SNB was unable to pay any dividends or distribute any profit, as the fall in the gold price and exchange raterelated losses had led to a very negative annual result. As you might expect, this decision was not greeted with rapturous applause. However, the critical point here is that the principles of the SNB’s profit distribution agreement were not called into question. People generally recognised and accepted the fact that a larger balance sheet goes hand in hand with higher potential loss. Despite having successfully enforced the minimum exchange rate of CHF 1.20 per euro for several years, in January 2015 the SNB concluded that the measure had become untenable and was therefore no longer justified from a monetary policy point of view. What led to this far-reaching reassessment? Let us briefly re-wind to 2014. | The industry trends underlying the pick-up in trade are encouraging. The global electronics sector is on a strong upswing. Semiconductor exports surged by 20% in 2017. This reflects both a cyclical upturn as well as a structural uptrend, as products ranging from smartphones to automobiles and home electronics become increasingly chip-intensive. The broad-based, geographical spread of the current economic expansion is perhaps the strongest basis for its durability. The rising tide is lifting most boats. The advanced economies are leading the charge. The US economy is expected to grow at or above trend, driven by strength in consumption, a healthy labour market, and better prospects for business fixed investment with the enactment of the tax reform package. 1/7 BIS central bankers' speeches The Eurozone economy was probably the most pleasant surprise of 2017, with a strong recovery in household spending and private investment. There is still slack in the economy, suggesting that the growth momentum is likely to be sustained. The Japanese economy has recorded the longest growth streak in 16 years, with a resurgence in exports and investment. Emerging market economies – especially in Asia – are benefitting from the positive spill-overs from the advanced economies as well as healthier macro fundamentals. Emerging Asia is benefiting from the pick-up in the global electronics cycle, recovery in commodity prices, steady domestic demand, and benign financial conditions. China is likely to see a moderation in growth this year but not cool off sharply. | 0 |
These have, inter alia, (i) reintroduced prudential filters to neutralise the effect of the change in the value of public debt on capital; (ii) allowed reserves at central banks to be excluded from the leverage ratio calculation; (iv) incorporated a favourable provisioning treatment for exposures with public guarantees; (v) brought forward the entry into force of certain measures, such as the supporting factor for SMEs and the new prudential treatment of software; and (v) allowed market model overshootings to be ignored, given the volatility arising from the COVID crisis. 5 As regards the usability of buffers, the BCBS, the European Banking Authority (EBA) and the SSM have in various statements referred to the objective pursued with the introduction of liquidity and capital buffers in Basel III, reiterating that such buffers may be used appropriately to support the economy in a situation like the current one. Also, the message has been conveyed that supervisors will allow sufficient time for these buffers to be replenished. At the same time, the BCBS and the EBA have published technical guidelines on the prudential treatment of guarantees and moratoria, clarifying that the flexibility required by the current health situation must not be at the expense of the prudence needed when recognising and provisioning for non-performing loans. | I doubt that rules alone can accomplish this. Telling people to be ethical doesn’t make it so. Seeing others engage in ethical decision-making is, by contrast, quite powerful. With that prologue, let me turn to my first message: Stay in banking. This might be a surprising message in light of my introduction. Nonetheless, banking is important work. Society relies on its financial system to “create substantial value for our society.” 3 As investor and author John Bogle has written: “[Banking and finance] facilitate the optimal allocation of capital among a variety of users; it enables buyers and savers to meet efficiently; it provides remarkable liquidity; it enhances the ability of investors to capitalize on the discounted value of future cash flows, and other investors to acquire the right to those cash flows; it creates financial instruments [. . . ] that enable investors to assume additional risks, or to divest themselves of a variety of risks by transferring those risks to others.”4 To fulfill its potential for creating value for society, the financial system needs talented and dedicated people at the helm. This is especially true for banks, which are indispensable to our economic system. As the philosopher Onora O’Neill has observed, banking requires more than just technical competence.5 Bankers must reproduce their efforts and results with reliability. And, above all, bankers must be honest. They must do what they say and say what they mean. This is necessary for the financial system to be viewed as trustworthy. | 0 |
One obvious concern would be if a prime broker or clearing bank was paralysed, including for reasons unconnected to its activity in fast markets – say because of a cyber attack. I think it is fair to say that our understanding of how market functioning would respond in such a scenario – i.e. one in which a number of, in particular high-frequency, liquidity providers were denied market access – remains relatively limited. If there is a common theme across all three of my examples, it is the limits of our understanding. None of the points I have raised with regard to market resilience are wholly new. We at the Bank are following developments in the structure of these markets and their implications for financial stability closely, 19 including through discussions within the Bank’s Financial Policy Committee (FPC). And as regulator both of many participants in electronic markets and some of those markets themselves, the Financial Conduct 19 See, for example, Shafik, M (2015), ‘Dealing with change: liquidity in evolving market structures’ and the analysis of the sterling flash crash in box 3 of the Financial Stability Review, November 2016 (pages 39-41). 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 Authority (FCA) too has remained deeply engaged and responsive to those developments which fall under its purview. 20 Likewise, in none of these cases have I argued that there is a risk flashing red that requires an immediate response. | 12 So whilst these behaviours are presumably rational – and cost-effective – for individual market participants, we are mindful that an aggregate reduction in transparency has the potential to hamper efficient price discovery. 13 Moreover, the steps some participants are taking to conceal information raises questions about how the aggregate efficiency benefits from faster markets are shared. Finally, the occurrence of flash crashes indicates that, even if fast market prices are more efficient in general, they are not always so. Collectively, these observations suggest we should at least temper the headline conclusion that fast markets are more efficient: as is often the case, the story here is somewhat nuanced. Fast markets and market resilience I want to look now at the implications for resilience, both of individual firms and of markets – that is, whether they can function effectively in bad times as well as good. Again, fast markets may bring some important benefits. For example, because they place less reliance on risk warehousing by intermediaries, they were generally resilient during the 2008-09 financial crisis. Stresses were concentrated in those markets that had relied on dealer balance sheets: in our case the Bank of England introduced a ‘market maker of last resort’ scheme for corporate bond markets in 2009 to offset 7 A regulated multilateral trading system, subject to a range of regulatory requirements relating to: pre and post-trade transparency and non-discriminatory access. 8 A trading venue where counterparties can post trading interest without making such information publicly available. | 1 |
Mr Meyer gives a central banker’s view from Switzerland Speech given by Mr Hans Meyer, Chairman of the Governing Board of the Swiss National Bank, at the Swiss-American Chamber of Commerce, in New York on 1 October 1999. * * * Environment The Swiss will remember the last few years as a time of important economic and social challenges with mixed feelings. If one attempts to put events into a larger context, the first thing that comes to mind is that in the course of time, there have always been periods of intense change which were followed by calmer ones. Such fluctuations can occur because different events, with their positive or negative consequences, may have a more or less coincidental cumulative effect. As a rule, however, there is a remarkable logic behind the way events unfold. All things considered, it appears to be entirely logical that at the close of this century, we should have reached an economic and social turning point. An era is coming to an end, which – in a broad sense – we still associate with the post-war period. During this period, our economic development was characterised by remarkably steady real growth. Especially during the first decades following the Second World War, pent-up demand created extraordinary dynamism. Economic output improved continuously not only in terms of quantity but also of quality, leading to unprecedented growth as well as more widespread prosperity. In the course of this development, the public sector witnessed a remarkable expansion. | To briefly illustrate the current state of play of our supervisory practices, I would like to mention the “suptech” approach underway at the ACPR: the supervisory authority’s aim is to take advantage of innovation to better carry out its missions at the best cost for the community and thus prepare the supervision methods for tomorrow’s financial processes. To date, four tools developed in intrapreneurship with the support of the Banque de France’s Lab, our space dedicated to innovation, have been created and should concretely increase the efficiency of our supervisors. But I would like to focus for a moment on the contribution that we can make, as a central bank and supervisory authority, to the development of the regulatory framework. In this area, I think it is important to recall a few principles that underpin our vision as a supervisor and central banker with regard to the changes in the regulatory framework of the financial system. First of all, I would like to stress that no regulatory framework is set in stone. We must keep an open mind, and have the necessary understanding and lucidity to adapt frameworks to technological evolutions - or even revolutions -, as well as to their challenges and associated risks. Secondly, this adaptation must, in my view, preserve and consolidate two fundamentals of financial sector regulation: the financial stability objective and the principle of monetary sovereignty. | 0 |
Against this backdrop, we welcome two European texts that are currently being finalised (i) the Digital Operational Resilience Act (DORA), which aims, among other things, to bring critical service providers under the supervision of financial regulators; (ii) and the Digital Market Act (DMA), which is intended to ensure that service providers have equal access to the hardware and software components of electronic devices. These competition and sovereignty concerns should also be taken into account in the revision of PSD2. Secondly, the industrial lever. While our market is and must remain open, it is nonetheless essential to encourage innovation by European players. This is why, in the area of payments, the Banque de France actively supports the EPI2 initiative for a modern European solution. In conclusion, we can see that the changes taking place in the financial sector offer the prospect of even more accessible, efficient and innovative financial services, while at the same time raising new challenges for both market participants and public authorities. I am convinced that the only way to meet these challenges is through a multi-faceted approach, with cooperation between public and private players. That is why the Banque de France is fully committed to promoting innovation within a framework of trust: first, at the level of the regulatory framework and as a supervisor, then by facilitating private initiatives and mobilising the market, and lastly, as a driver and player in innovation. | The deployment of tokenised settlement assets across borders would also pose a risk to our monetary sovereignty, if it resulted in the use of stablecoins backed by foreign currencies or CBDCs. B- To reconcile competition and sovereignty, a “retail” central bank digital currency is obviously a potentially important lever. 1- This was the main aim of the investigation phase launched by the Eurosystem in July last year. Issuing a retail CBDC, nevertheless, raises a number of operational challenges. In particular because financial intermediaries, including banks, play a key role in the security and financial stability of our monetary and financial system. Introducing a CBDC must therefore neither result in the conversion of a significant proportion of bank deposits into assets held in CBDCs – in normal times as well as in times of stress – nor compete with banks in their day-to-day relations with their customers. These issues need to be addressed by design in the architecture and functionality of a digital euro, for example by introducing holding limits or by promoting an intermediated model. This is why it is essential that the financial intermediaries, along with the other stakeholders, be properly involved in the investigation phase that we are conducting: an expert advisory group has already been set up at European level,1 and this consultation will be extended to all stakeholders in the coming months, in particular via the European and French market bodies at our disposal. 2- But other levers will be needed to reconcile competition and sovereignty. First and foremost, the regulatory lever. | 1 |
Rubin also points out that the president was able, by showing a clear respect for the Federal Reserve's independence, to increase his own credibility and build-up confidence in economic policy in the United States and in the functioning of the financial markets. This is a view I can sympathise with. The question is then how we in Sweden should act to ensure that confidence in our total economic policy is as great as possible. Essentially, this of course means doing the right things. In our case, ensuring price stability in accordance with our own definition. However, I believe that the ways in which the authorities responsible for fiscal policy and monetary policy cooperate can also play a role here. In this aspect I can see clear advantages in the interplay between government and central bank in the United States and the United Kingdom. Maintaining mutual respect for one another's tasks, they have a close cooperation to conduct an overall policy that will benefit their country as much as possible. This is a desirable form of cooperation, particularly for small countries and I believe that we in Sweden have come a long way towards this since the mid-1990s. It would be a negative development if the pattern were broken and we instead slipped into a form of interplay similar to that in continental Europe, where national finance ministers blame their problems on the ECB and where sharp words are regularly aimed in the opposite direction. Thank you. | (Figure 3). 3. CPI and UND1X inflation Percentage 12-month change 14 14 12 12 10 10 CPI UND1X 8 8 6 6 4 4 2 2 0 0 -2 1990 1992 1994 1996 1998 2000 2002 -2 2004 Sources: Statistics Sweden and the It is not easy to determine what effect the various changes in economic policy have had individually. However, when taken as a whole they have led to an overall changeover in stabilisation policy. A clearer allocation of roles has been created in economic policy. The task of monetary policy is to attain BIS Review 9/2004 3 price stability, while fiscal policy is to secure a long-term sustainable development in public finances. The government and the Riksdag (parliament) also have the task of increasing the number of those in regular employment to 80 per cent. This clear allocation of roles is an important reason behind the more successful economic policy over the past ten years. The current monetary policy situation The international recovery is increasingly evident During 2001 there was a downturn in global economic activity, which was partly due to the financial setback following on from the stock market bubble in the second half of the 1990s. Resource utilisation fell and growth in the OECD area as a whole was 1 per cent that year. | 1 |
In Chile, these needs are particularly important because, in the first weeks of the social crisis, many companies found themselves in a similar situation, which may have consumed a large part of their liquidity cushions and may have been unable to replenish them. To facilitate access to credit for individuals and companies, especially smaller ones, the CBC Board established the Conditional Facility for Increased Lending (FCIC) whereby 4-year loans are granted to banks, with an interest rate equivalent to the MPR and in a magnitude that increases according to the refinancing and credit operations in the most stressed segments. This facility will initially provide resources of about USD 5 billion. A third transmission channel relates to the deterioration of business and consumer expectations and its impact on investment and consumption. Prior to the aggravation of the sanitary emergency, both were already in pessimistic territory and the current situation makes a reversal difficult. A box in this Report presents the results of a survey that the Bank conducted in the second half of March among the participants in the Business Perceptions Report. A major deterioration in their outlook for employment and activity during the next six months was revealed, which must be weighed in the light of the impact on businesses since the social unrest of October 2019. | These discussions aim to help us all on a journey we have embarked, a journey that can only be made through constant and diverse dialogue until we reach common ground and close to perfection possible solutions. Thank you, ladies and gentlemen, for your attention. I wish you a lively and successful debate. 2 BIS central bankers’ speeches | 0 |
Lee Hsien Loong: Consolidation and liberalisation: building world-class banks Speech by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the Association of Banks Annual Dinner, Singapore, 29 June 2001. * * * Introduction Two years ago, MAS embarked on the first phase of a programme to liberalise the banking industry. The aim was to strengthen our local banks through competition, provide Singaporeans with quality banking services, and enhance Singapore's position as an international financial centre. We phased in the liberalisation measures progressively, to give local banks time to upgrade themselves to meet the competition, and maintain the stability of the financial system. The first package of measures in 1999 comprised a few main elements. MAS permitted 4 Qualifying Full Banks (QFBs) to establish up to 10 locations each, relocate their existing branches and share ATMs among themselves. We granted 8 new Restricted Bank licences to banks that wanted to expand their wholesale $ business. We also gave Offshore Banks more flexibility to lend in Singapore dollars and engage in $ swaps, and even wider leeway to 8 Qualifying Offshore Banks. These measures marked the start of a major and irreversible process of change. We could not foresee exactly how the industry would respond and develop. So MAS committed to reviewing progress at the half-way mark before deciding on further liberalisation measures. We have now completed this review. | Today, I would like to speak more on the roles of the Government and the financial sector. Role of the Government and the financial sector First, the Government. The roles of Government to lead, convene, set standards, invest, educate and champion – are all quite obvious. The Government plays a leading role in setting the stage for the nation’s climate agenda. This includes setting the national targets for green projects according to identified priority sectors, as well as the financing needs and technical information. It is important for this information to be available publicly to create the requisite awareness for mobilisation of green finance. Moving forward, the push for disclosure through the establishment of a national framework for carbon emissions reporting is another critical enabler to increase data availability and transparency for a systematic transition to a low-carbon economy. This will contribute towards the development of more data driven climate policies and targeted carbon emissions reduction schemes. Second, the role of finance. We have spoken about the critical need to bring in private capital for green investment. The Bank, as a financial regulator, recognises this key role of finance and has introduced various measures towards this end. Given physical, transition and liability risks and their implication to the economy and financial system, there is a bona fide recognition that climate risk is well within our mandate of safeguarding monetary and financial stability. With that, the Bank has taken a phased and proactive approach in strengthening financial system resilience to climate risk and in driving sustainable finance. | 0 |
We remain committed about both the need for the market to continue to drive transition forward moving new 7 All speeches are available online at www.bankofengland.co.uk/news/speeches 7 issuance onto alternative rates and converting legacy exposure where possible; and also to ensuring there is a solution for those contracts that legitimately cannot be converted from Libor. That is why the UK government announced last month its intention to legislate to provide the FCA with increased powers to deliver an orderly wind-down of critical benchmarks, such as Libor. 7 It remains in the interests of financial markets and their customers that the pool of contracts referencing LIBOR is shrunk to an irreducible minimum ahead of LIBOR’s expected cessation, leaving behind only those contracts that genuinely have no or inappropriate alternatives and no realistic ability to be renegotiated or amended. Those that decide to rely on regulatory action, enabled by the legislation the UK Government plans to bring forward, will not have control over the economic terms of that action. | I am sure that its long experience, accumulated knowledge and proficient staff make the Central Bank of the Republic of Turkey an institution that can fulfil these expectations. I am proud of this institution. I owe a great debt of gratitude to my colleagues, who have greatly contributed to our accomplishments and to our policy implementation. BIS Review 47/1997 | 0 |
Thus, the reform agenda will need to pay proper attention to capacity building of banks and regulators. Nevertheless, there are warranted rationales for its use in financial stability tool kit in an appropriate manner, given national context. In terms of measures to address systemic risk, the proposed ideas include systemic capital charge, capital for OTC derivatives, and cross-border bank resolution framework. Again, the same emerging market issue and dimension should be properly recognized. Turning to the key microprudential policy framework currently being discussed at the international forums to ensure individual financial institution’s stability, the BCBS has proposed a package to address previous shortcomings in risk-based supervision as follows. For Pillar I, regulatory capital for securitisation exposure is enhanced. In addition, the quality and transparency of capital is strengthened especially Tier I capital, which would consist mainly of common equity and retained earnings. For Pillar II, supplemental guidelines are issued by requiring banks to manage firm-wide, concentration and reputational risks more effectively. Valuation and stress-testing practices are also improved. Moreover, compensation and bonus scheme should be aligned with longterm risk taking behaviour and performance. Turning to Pillar III, focus is given to disclosure requirements to reduce uncertainties associating with securitization exposures. Additional requirements include, for example, 2 BIS Review 131/2009 sponsorship of off-balance sheet vehicles, and resecuritisation exposures. On top of these, a new regulation on liquidity risk management, namely the so-called liquidity coverage ratio could be introduced, going forward, subjected to further work. | Accordingly, we continue to estimate that the current high level of inflation will be temporary, a vision that is shared by market agents, as inflation expectations one and two years ahead have remained around 3 percent (figure 4). As I said at the beginning, the biggest news in several months comes from domestic demand and output, which posted a quite weaker performance than our forecasts. In the second quarter GDP grew 1.9 percent while domestic demand dropped 0.9 percent annually (figure 5). Expenditure’s poor performance permeated its every component, where worth noting was the fast deterioration of the most persistent ones, such as non-durable consumption and investment in construction and engineering works. By sectors, trade, especially wholesale, fell in annual terms, while a large number of manufacturing branches posted meager results. Only those most linked to the export sector show marginally more favorable figures. The evolution of expenditure has also driven a reduction in imports, causing a sharper adjustment to the current account (figure 6). In fact, while a year ago the annual deficit of the current account amounted to 4 percent of GDP and was expected to increase further, at the end of the second quarter it was at 2.4 percent of GDP and is now expected to end the year at 1.8 percent of GDP. This level, plus the peso depreciation and its effects on exports, mean that we can look at this variable’s future behavior with ease. | 0 |
In addition, the rise in incomes, the presence of abundant foreign capital, the expansion of the banking sector and sometimes negative real interest rates all contributed to rapid credit growth in transition countries. Again, the rates of growth were almost unprecedented before, and in 2007 they reached around 60% year on year in Bulgaria, Romania and around 40.6% in Lithuania. 11 After a previously suppressed consumption, the process of credit growth was understandable and desirable for economic growth. However, the rates of growth are only adding to demand pressures in these countries, and in combination with the other factors, adding to the rise of inflation, rise of imports and further worsening of the current account position. Dear guests, At the current time, these developments pose two particular challenges for the policy makers in transition countries, one a short-term and the other a longer term. The short term challenge is how to lower the risk of high current account deficits, which can cause wider financial crisis, combined with a currency crisis in countries with pegs and currency boards. Both the economic theory and the economic history are clear that current circumstances are not the most favorable for these countries. Worsening current account deficits are not sustainable and can not continue forever. The more they widen, the bigger the pressure becomes for real exchange rate depreciation as a way of restoring competitiveness. | This of course can be a bit easier for countries with flexible exchange rates, which can achieve it by nominal depreciation (and thus risk rise in inflation). However, countries with fixed rates are sometimes forced to abandon their exchange rate regime, as they do not have any other way out of real overvaluation of their currencies. Another risk in the short term might be the contagion of financial crises from abroad, which would combine with fragilities and thus prompt financial and economic difficulties in these countries. The long-run challenges for transition countries are related to the simultaneous maintenance of competitiveness and nominal convergence. What is next for the new EU member states is certainly achieving EMU membership and all of them agree that the stability and opportunities of the single currency are their goal. While achieving this seemed easier a few years ago, the prospects are somewhat worsened in the light of the recent developments. The record high oil prices and the high food prices additionally augmented the inflationary pressures in these countries. The high inflation in most of the transition countries makes them breach the first of the four Maastricht criteria. What is even worse, the forecasts for the next several years for most of the countries show they will probably not meet the 10 Source: EBRD Transition report 2007: November update and NBRM calculations. Data for 2007 are estimates. 11 Source: EBRD Transition report 2007: November update. Data for 2007 are estimates. 4 BIS Review 74/2008 inflation criterion. | 1 |
4 BIS central bankers’ speeches Third, they prompt work at bodies such as the Basel Committee for Banking Supervision, the International Organization of Securities Commission or the Committee on Payments and Settlement Systems, to establish the standards and infrastructures and create a level playing field, which are necessary for global markets to function in a smooth and safe way. In so doing, they foster risk-sharing through decentralised markets, avoiding the need to coordinate in the first place. Against the background of the possible “deglobalisation” forces that I mentioned earlier, and given the ongoing transition to a more multipolar currency system, this work may become even more crucial. To summarise, I am not convinced that the existing approach to monetary policy coordination should be fundamentally overhauled at the current juncture. Due to knowledge and legitimacy gaps, we should not believe that there can be a “global planner” which sets the rules or prescribes the monetary, prudential, fiscal and structural policies that each country shall pursue. However, countries can and should maintain the foundations for coordination to make global markets a safer place and allow for joint action in times of crises. The evolution of the IMS The IMS during the Bretton Woods era was strictly rules-based with fixed exchange rates and a gold standard. While appropriate in a world with capital controls and relatively modest trade flows, it proved to be too inflexible in the presence of large idiosyncratic shocks and growing internationalisation. | This has taken place since the demise of the Bretton Woods system at the bilateral level in the context of the IMF’s Article IV consultations and it has expanded recently at the multilateral level with the IMF’s Spillover and External Sector Reports as well as the G20 Mutual Assessment Process, not to mention regional exercises. The resulting recommendations are however not binding and therefore constitute only a light form of multilateralism. Clearly, countries may be reluctant to submit to closer scrutiny, fearing that the recommended policies may not be in their national interest. Thus, better awareness and maintaining a spirit of multilateralism will be a crucial element in strengthening the effectiveness of surveillance and contributing to global stability. This requires institutions that are both legitimate and effective. In particular, lack of progress in global governance reform (reflecting the shift towards a multipolar world) would fuel a lack of trust in the IMS. It would encourage the ring-fencing of national systems and the re-nationalisation of savings, harming growth and jobs in all economies. BIS central bankers’ speeches 5 Conclusion Let me conclude. The belief that the comfortable pre-crisis world could return is long gone. And I also believe that we should not aspire to turn the clock back. The global economy has changed fundamentally, and there is clearly a greater understanding of the role of crossborder linkages. The current IMS leaves countries with more domestic policy options to counter adverse idiosyncratic shocks than the inflexible system of the Bretton Woods era. | 1 |
Gigerenzer, G (2014), ‘Risk Savvy: How To Make Good Decisions’, ISBN: 978-0241954614. Guttentag, J and Herring, R (1986), ‘Disaster Myopia in International Banking’, Essays in International Finance No 164. Haldane, A (2015a), ‘Growing, Fast and Slow’, speech given at the University of East Anglia, available here: http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech797.pdf. Haldane, A (2015b), ‘Drag and Drop’, speech given at the BizClub lunch, Rutland, available here: http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech810.pdf. Haldane, A and Nelson, B (2012), ‘Tails of the Unexpected’, speech given at the University of Edinburgh Business School, available at: http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech582.pdf Heim, C and Mirowski, P (1987), ‘Interest rates and crowding-out during Britain’s industrial revolution’, Journal of Economic History Vol 47 Pages 117–139. Hills, S, Thomas, R and Dimsdale, N (2010), ‘The UK recession in context — what do three centuries of data tell us?’, Bank of England Quarterly Bulletin 2010 Q4. Hills, S, Thomas, R and Dimsdale, N (2015), ‘Three Centuries of Data - Version 2.1’, available here: http://www.bankofengland.co.uk/research/Pages/onebank/datasets.aspx. Homer, S and Sylla, R (1991), ‘A history of interest rates’, ISBN: 978-0471732839. Jeffers, O (2012), ‘Stuck’, ISBN: 978-0007263899. Keynes, J (1936), ‘The General Theory Of Employment, Interest, And Money’, ISBN: 978-1494854744. 12 BIS central bankers’ speeches King, M and Low, D (2014), ‘Measuring the “World” Real Interest Rate’, NBER Working Paper 19887, available at: http://www.nber.org/papers/w19887.pdf. Malmendier, U and Nagel, S (2011), ‘Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?’, Quarterly Journal of Economics Vol 126 Issue 1. Mehra, R and Prescott, E (1985), ‘The Equity Premium: A Puzzle’, Journal of Monetary Economics No 15. | Nonetheless, Table 1 suggests that the average cycle has typically been in the range 3 to 5 percentage points – towards the upper end in the period since 1970, towards the lower end in the period since 1994. Fairly sizeable degrees of interest rate headroom have been necessary in the past. An interesting thought-experiment is to assess the likelihood of future interest rates having risen sufficiently to give monetary policy the headroom necessary to cushion a recession. Chart 13 plots a set of cumulative probabilities of official interest rates exceeding a set of interest rate thresholds – 2% (the “John Bull threshold”), 3% (the average loosening cycle since the 1990s) and 5% (the average loosening cycle since the 1970s). 7 With yield curves currently low across the major advanced economies, the probabilities of interest rates exceeding these thresholds are modest. Even at a ten-year horizon, the probability of UK rates exceeding 2% is only around 50%, 3% around 40% and 5% around 20%. If financial markets’ guesses about interest rates are realistic, it is odds-against there being sufficient monetary policy headroom to cushion a typical recession. If we now compare the probabilities of interest rates being at these thresholds with the probabilities of recession, a striking conclusion emerges. Recession probabilities exceed interest rate threshold probabilities by a factor of anywhere between 1.5 and 4 (Chart 13). For example, a conservative estimate of the probability of recession over a ten-year horizon is around 80%. | 1 |
It will also contribute to the prompt detection of errors and deviations from targets, allowing banks to implement corrective measures and develop buffers as appropriate at an early stage. Banks should be encouraged to develop systems that allow managers to identify and understand the risks they are facing, consider the risks that may arise in the future, and respond promptly and actively to both. This will maximise the likelihood that they can continue to operate, even in the most difficult of conditions. Continued outreach and dialogue A second lesson I have learned through the development of Basel II is that communication with interested parties is absolutely essential. One reason we were able to incorporate leading practices into Basel II is because of the open and transparent process by which the Framework was developed. There has been a steady dialogue with the industry since the Committee began discussing revisions to the capital Accord back in 1999. Many of the firms represented here today contributed extensive and valuable feedback to the Committee on its proposals over the years. The Committee has tried to explain to the industry as clearly as possible its objectives and methods during this process, and in turn firms and industry associations have shown a willingness to engage in a serious dialogue to find practical, prudent solutions. This has helped supervisors to better understand the state of industry practice. Where we have found these practices to be reasonable and appropriate we have tried to incorporate them into the revised Framework in a sound manner. | The main shock to financial stability and monetary policy would be if asset prices were to drop sharply at the same time as the growth of real disposable income slows down at the end of the aluminium-related investment boom. Lending developments As I mentioned before, lending growth is a cause for concern, both for financial stability and the Central Bank’s inflation target. Domestic lending grew at a brisk pace in 2003 and this development appears to be heading in the same direction this year. Total domestic lending by deposit money banks over the twelve months to the end of January increased by about 23%, which is above a rate consistent with longterm price stability and economic stability. The period 1998 to 2001 provides a recent example of the consequences of heavy credit growth. Both arrears and loan losses rose in the wake of the credit boom, leading to a temporary tightening of the commercial banks’ and savings banks’ foreign funding. While the recession and the ensuing strain on the financial system are now over, it can be partly ascribed to relatively favourable economic conditions and the consequently sharp turnaround in the exchange rate of the króna that financial companies only sustained minor setbacks. Proportionally, the highest growth in deposit money banks’ lending has been to foreign borrowers, but foreign currency-denominated lending to domestic entities has also surged, by more than 45% over the past 12 months. | 0 |
While each individual is responsible for maintaining high standards of integrity in their personal conduct and everyday work, the institution's management has a duty to ensure that the systems in place do not become an impediment to individual acts of honesty, transparency and integrity. Encouraging staff at all levels to voice their concerns, fostering an environment of healthy debate, and championing individual examples of personal integrity in the workplace are all important steps towards a robust check and balance system within the institution. A strong governance framework would promote these ideals, while mitigating the worst effects of their absence. This includes, among others, clear roles and accountabilities across all key actors or leaders within the institution, strong whistleblowing policies, transparent procurement procedures and a continuous commitment towards awareness training on best practices in these. In this regard, leaders have an important role to play; from setting the right tone from the top to exhibiting the right values and behaviours, that is walk the talk. Within Islamic finance, these are practices that are in line with the principle of Maqasid Al-Shariah. The consideration of wider social welfare and the greater good should form the basis of all personal conduct, and on a higher level, institutional decisions. Valuebased intermediation, or VBI, similarly calls for Islamic financial institutions to deliver the highest ethical standards in all aspects of businesses by embedding self-discipline and continuous improvement within their operations and practices. This is in line with Shariah principles of righteousness (or what we call ihsan) and consultation (or istisharah). | Initiatives include: anchoring more regional and global VC and PE players in Singapore; 7 / 10 BIS central bankers' speeches deepening the talent pool; enhancing ancillary professional services to better support VC activity; and building a pipeline of alternative market platforms that can facilitate private market exits for PE/VC investors. Second, we are working to strengthen Singapore’s value proposition for Asian companies to issue bonds. The growth potential for Asian bonds remains strong, particularly as companies in the region are looking to fund their growing operations and raise longer term capital. Let me mention three schemes that MAS has put in place to make Singapore the choice location for regional bond issuance. To attract new Asian issuers to Singapore’s bond market, MAS introduced the Asian Bond Grant scheme earlier this year. Under the grant, MAS will co-fund up to $ of issuance-related expenses for firsttime Asian issuers. To support bond issuers adopting environmentally sustainable practices, there is a Green Bond Grant scheme. The scheme will offset up to $ of the costs relating to the external review required of a green bond. And the latest – To encourage issuers to be rated and to nurture a healthy credit rating culture in the SGD bond market, MAS will soon be introducing a SGD Credit Rating Grant. Issuers can claim 100% of their credit rating expenses, up to $ per issuer. Details will be released shortly. We strongly encourage regular domestic issuers to consider obtaining ratings. | 0 |
0,4 / 1,0 / 1,8 One approach to a more detailed separation of trend or core inflation from these types of transitory price effects involves looking at the various indicators of underlying inflation that have been developed at the Riksbank. Whereas annual CPI inflation in the period 1996–98 averaged 0.7 per cent, inflation as measured by UND1X, which excludes interest expenditure, taxes and subsidies, averaged 1.5 per cent. As measured by UNDINHX, which also excludes goods that are mainly imported, inflation amounted instead to 2.1 per cent. However, the latter indicator disregards a large proportion of the factors that contribute to a weaker price trend for goods in the longer run. 6. Conclusions about inflation 1996-98 ■ Inflation - measured with the CPI - was below the target and the lower tolerance limit during 1996-1998 ■ CPI-inflation has been markedly affected in all three years by transitory effects that are easy to identify ■ Excluding more transitory price effects, inflation has been inside the stipulated tolerance interval This review shows that in all three years (1996–98) inflation has been below the target expressed in terms of the CPI. However, excluding more transitory price effects that monetary policy neither can nor should try to counter in full, inflation has been inside the stipulated tolerance interval. I shall be returning to the reasons why price effects of this type should be disregarded in an appraisal of the Riksbank’s monetary policy. | It is essential to channel them more towards financing the two major transformations of the coming decade: the ecological and digital transformations. As regards the economic situation, listening to more than 8,000 companies, we will publish our next monthly survey on Tuesday 11 January, and will provide a first assessment of the effects of the fifth wave. We remain confident that they will be relatively limited: we have learned over the past two years that every Covid wave, however serious, has diminishing economic effects. In our December projection, we showed that even an adverse scenario of further severe health restrictions – which is not the case today – would not prevent the French economy from returning by next year to the GDP trajectory it would have followed in the absence of the Covid crisis. These possible restrictions would admittedly reduce average growth in 2022, but this should be fully offset by additional growth in 2023. The other short-term issue is of course that of inflation: it is now close to its peak in our country (December showing first signs of stabilisation) and in the euro area. While remaining very vigilant, we believe that supply difficulties and energy pressures should gradually subside over the course of the year. We should then return not to the low inflation of the past, but to a new inflation regime close to our 2% target, with monetary policy normalising in stages accordingly. | 0 |
This project is essential to overcome the problems of fragmentation which still beset European markets and which cause the perception of risk associated with banks’ liability instruments to differ depending on the jurisdiction in which they operate. However, as you know, to ensure that non-viable banks are resolved in the same way in the various Member States of the euro area, it does not suffice to have a set of common regulations; rather, it is necessary to have a single resolution authority to ensure that the regulations are applied uniformly in all countries. Similarly, the financial support needed for orderly bank resolution must be available under similar conditions whenever required. Clearly the lack of a full European resolution mechanism (including uniform rules, a single authority and a common fund) would limit the effectiveness of the single supervisory mechanism. In that case, the single supervisory mechanism would have to resort to a complex system of interaction with the national authorities (which would have to continue using their resources to cover the fiscal effects of the problems of non-viability detected by the supervisor) to ensure financial stability. In this respect the draft legislative proposal submitted by the European Commission (EC) last July for the establishment of a single resolution mechanism is very timely. The EC proposes the creation of a single resolution agency or authority, which would manage a common fund fed by contributions from the industry and ultimately report to the European Commission. | Nevertheless, as we have seen in the crisis, the availability of a large volume of capital does not per se guarantee an institution’s resilience in the face of sufficiently adverse shocks. That justifies the introduction of further restrictions, such as those setting a maximum leverage ratio and minimum liquidity, which are currently subject to an observation period that will culminate in them being definitively parameterised and incorporated into the new regulatory requirements. Finally, the new legislation includes macroprudential tools which seek to complement the requirements aimed at strengthening each institution's solvency with obligations directed at protecting the system as a whole. Two measures stand out among the macroprudential measures envisaged: those seeking to reduce the procyclicality of microprudential regulation by introducing a countercyclical capital buffer, and those aimed at mitigating the systemic effects of the possible insolvency of individual banks. The second set of measures includes an additional capital buffer for systemically important banks, which is complemented by supplementary requirements for those institutions with the capacity to affect the global financial system. Further, the new legislation includes the adoption of additional macroprudential controls (in the form of capital buffers, changes in risk weightings, etc.) for banks on the basis of their exposure to specific sectors where marked imbalances can be identified. Undoubtedly, these regulatory changes will exert a noticeable positive effect on the capacity of banks to withstand periods of stress and that will result in less frequent and milder crises which, furthermore, should entail lower costs for the public. | 1 |
Any financial system - and the Swiss system is no exception - can be misused in order to transfer or recycle money issued from, or linked to illegal activities, including terrorism, drug trafficking, illicit trades in weapons, modern slavery, and corruption, just to name a few. To be sure, a money laundering risk already existed in the past. As a result of globalisation, however, and of the growing significance of organised crime, the risk has increased considerably in recent years, not just in my country, but in every major financial centre. For this reason, a dense network of legal regulations, controls and self-regulatory mechanisms is necessary in order to make a financial centre as unattractive as possible for criminal funds. Switzerland has been one of the first countries to introduce strict anti-money laundering laws. They cover the activities not only of banks, but also of any other financial intermediary such as insurance companies, funds managers, lawyers and even fiduciaries. Our experience so far has shown that an efficient fight against financial crime requires two specific rules: first, the application of strict due diligence procedures that includes careful identification of the customers, i.e. of the beneficial owners of the assets involved; second, the obligation, imposed to the market intermediaries to inform the authorities in case of any founded suspicion of money laundering. I am fully convinced that an effective fight against money laundering can only be successful if an active co-operation between financial institutions and authorities is promoted. | Jean-Pierre Roth: The challenges of an international financial centre: the Swiss case Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, to the British-Swiss Chamber of Commerce, London, 26 February 2002. * * * It gives me great pleasure to have the opportunity to address your distinguished assembly today. Like all the Swiss I know, I always enjoy coming to London. Even though there are considerable differences between our two countries, we have many things in common. We are both proud of our history and of our colourful traditions, we cherish our freedom and our independence. What’s more, in both our countries, the financial industry has been a pillar of our economic strength in recent times. But these days, the most striking parallelism between the United Kingdom and Switzerland can be seen in monetary affairs. Both countries are “outs”: they do not belong to the Euro-zone. In Britain, the currency is still the pound sterling and, in Switzerland, we still have a preference for our franc. We thus both face the same challenge: living next to a large currency area which absorbs most of our foreign trade. This situation is new for both of us. It is of course not up to the Swiss central bank governor to speculate how long this situation will last in the United Kingdom. | 1 |
Ladies and gentlemen, The economic crisis, which occurred in 1997, caused the Bank of Thailand to review its role and task as the central bank of the country. This review pointed to a number of weaknesses in the Bank of Thailand's work in the past. As a result, the Bank has embarked on a comprehensive restructuring and modernisation programme aimed at improving the works of the Bank of Thailand to best serve the roles and responsibilities as a central bank. The strategy focused on 4 aspects, namely organisational structure and work process, human resource management, decision marking process, and database and information technology. The Bank of Thailand started the restructuring programme at the beginning of 1999 with the revamping of the management levels. Emphasis was placed on shorter lines of command, which facilitate fast and effective problem solving. The organisation is divided into five main business groups; namely, monetary stability, financial institution stability, corporate support services, financial institution rehabilitation and strategic capabilities. Objectives, roles, and responsibilities of each group are clearly stipulated. In 1999, the modernisation programme put the main emphasis on improving the work process. | As for Thailand’s international financial position, even though exports will not be as buoyant as this year due to a less favourable external environment and imports will continue to increase in line with the economic recovery, the current account will continue to record a surplus in the year 2001, though of a smaller amount. Although the Thai economy will continue to expand, there are a number of important issues to be taken into consideration: The first issue: The US economic slowdown External risks will be increased as the US economy is expected to slow in the coming year. How much should we be concerned about this, given that the USA is a major industrial country and the major export market for Asian countries? The degree of Thailand’s exposure to the US market can be considered moderate, as exports to the US market constitutes about 21% of Thailand’s total exports. Major export goods include textiles, electrical appliances, electrical parts and integrated circuits. Over the years, the structure of Thai exports has diversified considerably in terms of both markets and goods, thus reducing over dependence on any particular market or goods. It is expected that this diversified structure and the enhanced price competitiveness will help cushion any adverse effects on Thai exports caused by the US economic slowdown. The second issue: Restoring public confidence Given that exports will slow down, economic recovery will have to rely more on domestic demand which in turn depends on the recovery of purchasing power. | 1 |
10 BIS central bankers’ speeches Chart 1 Total AUM of US insurance companies, pension funds, mutual funds and other funds, 1946 – 2013 ICPFs Mutual funds (a) Other non-property funds Per cent of GDP 250 Chart 2 Total AUM of UK insurance companies, pension funds and mutual funds, 1980 – 2012 ICPFs Mutual funds Per cent of GDP 250 200 46 51 56 61 66 71 76 81 86 91 96 01 06 11 150 150 100 100 50 50 0 Source: US flow of funds 80 83 86 89 92 95 98 01 04 07 10 Chart 3 Relationship between GDP per capita and managed assets Chart 4 Global assets under management in selected specialised mutual fund types(a) 60,000 50,000 40,000 Emerging market Corporate bond High Yield Mortgage-backed Total Return $ billions 900 30,000 800 700 600 500 400 20,000 0 100 200 300 AUM of ICPFs and mutual funds as per cent of GDP 0 Source: OECD, ONS, Investment Management Association and Bank calculations (a) Other non-property funds include closed-end funds, exchange-traded funds and money market mutual funds GDP per capita, $ current prices 200 300 10,000 200 0 100 Source: OECD Statistical database and Bank calculations. | We now have more effective foreclosure law, a credit bureau, and accounting standards such as IAS 39 that conform to international best practices. Moreover, under the Deposit Protection Agency Act which will replace the current blanket deposit guarantee in place since 1997, the establishment of the Deposit Protection Agency should reduce banks’ moral hazard and enhance market discipline. That is by putting pressure on banks to improve financial strengths if they want to attract and retain depositors. As part of Thailand’s efforts to advance reforms, the Bank of Thailand will, under the secondphased financial master plan, focus on improving efficiency and intermediary functions of the financial sector by reducing regulatory costs, enhancing legal and information infrastructure, and increasing the level of competition through further deregulation and liberalisation. Deregulation would potentially involve expanding business scope and enhancing the role of existing players, including banks, non-banks and other niche banks. One of the key factors for deciding the optimal number and type of new players would be the value added that new financial institutions, be they universal banks or niche banks, could bring to the financial system, such as technical expertise and product innovations. Having said this, I wish to emphasize that we will also closely look at the risks from potential concentration of market power and financial instability stemming from disorderly competition and exits. Last but not least is better governance to bring about better risk management. | 0 |
From Lender of Last Resort to Market Maker of Last Resort via the dash for cash: why central banks need new tools for dealing with market dysfunction Speech given by Andrew Hauser, Executive Director, Markets Reuters, London 7 January 2021 I am grateful to Tim Taylor for his assistance in writing this speech; and to Andrew Bailey, Imane Bakkar, Yuliya Baranova, Charlotte Barton, Alex Brazier, Jon Bridges, Alice Carr, Geoff Coppins, Ed Denbee, Johnny Elliot, Gerardo Ferrara, Bernat Gual-Ricard, Jon Hall, Sarah Hall, Nicholas Jackson, Joshua Jones, Anil Kashyap, Nick McLaren, Ankita Mehta, Matt Roberts-Sklar and Andrea Rosen for their comments and guidance. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice Introduction Increasingly we look to financial markets, rather than banks, to care for our savings or provide credit. Millions save via pension, investment or exchange traded instruments. Companies and local authorities hold cash in money market funds. And firms, large and small, borrow from capital markets or non-bank lenders. Taken together, fully half of all financial assets are now held outside the banking system. These trends aren’t new – and to the extent that they bring broader access to cheaper, faster, and more diverse financial services, they’re good news. But they do pose novel challenges to financial stability. In particular, as its usage grows, market-based finance seems increasingly prone to liquidity shocks. | 6 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 6 Chart 3: Holdings in Corporate Bond Secondary Market Scheme Source: Bank of England The review of the Bank’s liquidity framework carried out by Bill Winters in 2012 recommended formalising the Bank’s approach to MMLR, setting out public principles under which future interventions might occur.13 Various proposals on these points had been made in the wake of the GFC, by – amongst others – Paul Tucker, Perry Mehrling, Michael Dooley and Stephen Cecchetti.14 But in the event, the Bank – in common with other central banks – chose to say relatively little in public. That reflected a number of factors, including the practical challenges of determining in advance the markets in which central banks might operate, the terms on which they would do so, and the consequences for public money. In the years that followed, the topic received little active attention, either inside or outside central banks. II) Covid, market dysfunction and central bank interventions The experience of Covid has changed that. This is not the place to review the actions taken by central banks since last Spring in detail: many have covered that elsewhere.15 Instead, I want to pull out a number of lessons from that experience that, directly or indirectly, can help inform future tool design. 13 https://www.bankofengland.co.uk/-/media/boe/files/news/2012/november/the-banks-framework-for-providing-liquidity-to-the-banking See for example https://www.bankofengland.co.uk/speech/2009/last-resort-lending-market-making-and-capital, https://press.princeton.edu/books/hardcover/9780691143989/the-new-lombard-street, and the papers from the 2014 workshop on ‘Rethinking the lender of last resort’ held at the Bank for International Settlements (https://www.bis.org/publ/bppdf/bispap79.pdf). | 1 |
The role of economic policy The third engine of growth in the world economy at present is the stimulus provided by a range of policy measures. Economic policies have played a role in stabilising world economic and financial conditions in three ways: first, by direct interventions to underpin the stability of banks and the financial system more generally in many economies; second, through stimulatory fiscal policies; and third, through supportive monetary policies – very low interest rates and direct injections of money to support demand in a low interest rate climate, such as the MPC’s policy of “Quantitative Easing”. However, the current level of stimulus from monetary and fiscal policy was designed to turn around economies in the wake of the traumas we experienced 12–18 months ago. As confidence builds and private spending recovers, it is likely to be appropriate to gradually withdraw at least some of this policy support for demand, without jeopardising growth prospects. The need to re-adjust economic policy is most obvious on the fiscal side, where deficits are very high by historical standards, particularly in the US, Europe and Japan – as Chart 7 shows. These large deficits reflect the important role that public spending and tax policies have played worldwide in stabilising economic conditions during the recession. But to ensure sustainable public finances over the medium-term, these budget gaps will need to be closed over the recovery. | However, as we saw in the mid-2000s, there is also the associated risk of upward pressure on inflation from global energy and other commodity prices, if the momentum of world growth becomes too strong. Fourth, the high degree of stimulus provided by fiscal and monetary policy to combat the recession will need to be withdrawn over a period of time. Returning budget deficits to a more sustainable level will require a prolonged tightening of fiscal policy in many countries, including the UK. Monetary policy can provide an offset by continuing to support the growth of private spending – though the appropriate degree of monetary stimulus will need to be continually reassessed in the light of the progress of the recovery at home and abroad and its impact on inflationary pressures. Given the turbulence we have seen in the major economies of the world over the last two years, it is very natural to worry about setbacks to the recovery, both in the UK and overseas. In the past, economic recoveries have not been smooth and linear. So we should expect to see some variability in growth rates, both at home and abroad, as this recovery develops. However, looking through this data volatility, there are also good grounds for expecting the growth of the world economy to continue to provide a healthy support to the UK’s economic recovery over the years ahead. | 1 |
Buffers to withstand shocks are strong – be it central banks’ reserves or banks’ capital adequacy. Second, ASEAN policymakers have demonstrated that they are able and willing to adjust policies to deal with external and internal stresses. They have raised interest rates pre-emptively. They have allowed their exchange rates to depreciate in an orderly manner, intervening in the FX markets only to moderate excessive movements. 2/3 BIS central bankers' speeches And they have room to use fiscal policy to support growth, as debt positions are generally healthy. Take Indonesia for example. The currency has come under some pressure but the macroeconomic fundamentals are essentially sound. The economy is growing at a respectable 5%. Inflation is under control, at about 3.5% – an achievement compared to the past. The fiscal deficit has come down and is now about 2% of GDP – not an alarming number. Total debt-to-GDP ratio is 30% – a respectable number by any international comparison. The current account deficit has slipped somewhat but, at 3% of GDP, is not unduly large. And it is not unusual for a developing country to run a current account deficit to finance investment for future growth. And Indonesia’s policy responses to-date have demonstrated a willingness to take tough measures to build up resilience The central bank has hiked interest rates. The government has been re-evaluating import-intensive infrastructure spending. Markets can sometimes over-react and investors sell down EME assets in a general knee-jerk risk-off mood. | The US is of course the biggest export market in the world but total US imports account for only 3% of global GDP. Many other countries – especially in Emerging Asia – are trading among themselves without a nexus to the US. These trading linkages will grow over time as demand in these economies grows with a rising middle class, urbanisation, and investment in infrastructure. All the same, a prolonged period of trade tensions is not good for the global economy. The more serious casualty is perhaps not trade but investment. Corporates may scale back investment amidst uncertainty. This will reduce the productive capacity for future growth, delay technological upgrading, and compromise productivity growth. This is why the best response to unilateral trade restrictions is to push ahead with further trade liberalisation among other willing parties instead of retaliation and escalation. If countries do not retaliate against tariffs imposed by the US, the cost to their own 1/3 BIS central bankers' speeches economies is likely to be contained. And a mutually damaging trade war would be averted. And this is what Emerging Asia is doing – liberalising trade within the region and with others. TPP-11 or Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) This will reduce barriers across economies with a GDP of $ trillion, roughly 13.5% of the world economy. It is expected to be ratified early next year. And five to six more countries have expressed interest in joining the CPTPP. | 1 |
Compared with the anomalous situation at present, in which these flows are from the latter countries to the former ones, owing to the combined impact of the absorption exerted by the US economy and the exchange-rate policies in Asia, a smoother working of the world economy should channel surplus saving from the more mature economies to those where the return on capital is higher, as they are at a more incipient phase of development. It should be recalled that many of the achievements of the world economy in recent years, such as moving on to a high, inflation-free growth path and infusing the emerging areas with greater dynamism so as to allow them to achieve standards of living closer to those of the richer countries, are a direct or 2 BIS Review 45/2005 indirect consequence of growing worldwide integration. Globalisation has thus given most countries more fluid access to foreign markets while offering them incentives to concentrate on those industries in which their comparative advantage lies, and it has provided consumers with a wider range of products at more favourable prices. But it should not be forgotten that the rigidity of certain countries’ exchange-rate policies has ultimately triggered protectionist threats in others that see themselves as adversely affected. It is thus vital not to succumb to these protectionist temptations and to persevere with the liberalisation of international trade so that the trends which have allowed the world economy to achieve its recent favourable results may become entrenched. | For emerging economies, capital flow volatility is a fact of life and something that policy makers have to deal with; and we have to acknowledge that the size and volatility of capital flows will only intensify. While the transmission of global shocks to the domestic economy through the real economy channel – that is through trade and investment – is something that we have been dealing with for decades, policy makers today are confronted with the increasingly dominant channel of 1/3 BIS central bankers' speeches transmission of shocks through the financial markets, at least in the immediate term. All of us have experienced how spillovers from external developments that were manifested through capital flow volatility have adversely affected domestic financial markets, asset prices, liquidity conditions and importantly, exchange rates. All these challenges make for a complicated policy environment for ASEAN central banks. Gone are the days when keeping our own house in order is enough. Sure, good fundamentals matter as they have no substitute. They are, however, no longer sufficient. As Keynes rightly pointed out a long time ago, “the market can stay irrational longer than you can remain solvent.” Often, we have seen how external developments that are beyond our control, such as the unprecedented quantitative easing by the advanced economies and the subsequent Taper Tantrum, triggered periods of large inflows followed by sharp reversals in emerging economies with severe consequences. For small open economies, these flows can easily overwhelm the domestic financial markets and lead to build-up of vulnerabilities in the economy. | 0 |
These new instruments should directly target the incentives to extend excessive credit. But there are a number of practical questions to answer before they can be implemented. Charles Bean concludes that it is a mistake to look for a single culprit. Just as in Agatha Christie’s Murder on the Orient Express, those with different motives but similar objectives can all contribute to the same outcome. The economics profession was one of those culprits and there are lessons for the discipline. It could incorporate psychology or behavioural economics into the study of financial markets but this may be unnecessary since much of the story can be explained using standard microeconomics. Economists should take more notice BIS Review 101/2009 1 of history and not treat crises as pathologies that happen in other times or in other places but as a central feature of free-market economies that models should aspire to explain. Finally, macroeconomists have to learn how to put credit markets into their models in a meaningful way and which enable us to model shocks originating in the financial sector rather than just as an amplification mechanism. The Great Moderation, the Great Panic and the Great Contraction The past twenty-four months have been tumultuous for the global economy, for economic policy makers and, indeed, for the discipline of economics. | Similarly, the bank may be thought to be too important to be allowed to fail, in which case people might expect an injection of capital by the state to make good abnormal losses. In any of these cases, there is an incentive for the bank to raise leverage. Moreover, the lower is the perceived uncertainty associated with the loans, the more the bank can afford to leverage up, while maintaining the same uncertainty over the return on its capital. So the environment of the Great Moderation would have been particularly conducive to intermediaries increasing the leverage of their positions. The incentive distortions here are intrinsic to the process of financial intermediation. The next set of distortions is more specific to the present conjuncture and relates to securitisation. Securitisation is attractive because selling on the loans and the attendant risks enables a bank to leverage more loans off its capital. And, as noted earlier, such distribution of risks should in principle be beneficial for the economy. Unfortunately, it transpired that this model, or at least its application in the past few years, suffered from a number of incentive problems. First, there is the obvious one that if a loan originator can sell a loan on at par, then he has less incentive to take care who he lends to. | 1 |
xvi Newton, L (1990) “Overconfidence in the Communication of Intent: Heard and Unheard Melodies.” Unpublished doctoral dissertation (Stanford, CA: Stanford University) as cited in ‘The Curse of Knowledge’ by Heath, C and Heath, D, Harvard Business Review, December 2006. Available at: https://hbr.org/2006/12/the-curse-of-knowledge xvii Luhmann, N (2000), “Familiarity, Confidence, Trust” and H. Farmer, R. McKay, M. Tsakiris. “Trust in Me: Trustworthy Others” “in Gambetta, Diego (ed.) Trust: Making and Breaking Cooperative Relations, electronic edition, Department of Sociology, University of Oxford, Chapter 6, pp. 94 – 107 and Farmer et al (2013). xviii The Bank aims to move female representation at senior levels from 30 to 35 per cent by 2020, and BAME representation at senior levels from 6 to 13 per cent by 2022. xix Social Mobility Commission (2016a), “State of the Nation 2016: Social Mobility in Great Britain”, November;; Cabinet Office (2016), “Socio-Economic Diversity in the Fast Stream”, February; and Social Mobility Commission (2014), “Elitist Britain?”, August; Institute for government research: https://www.instituteforgovernment.org.uk/blog/civil-service-fast-stream-six-charts . See also Friedman, D and Laurison, S (2015), “Introducing the ‘Class’ ceiling”, LSE sociology department working paper; and Social Mobility Commission (2016b), ”Socio-Economic Diversity in Life Sciences and Investment Banking”, July. xx A US study showed that gender and ethnic representation in the US economics profession (academic and student populations) remains below that in other disciplines. Interestingly, diversity had improved in Science and Technology (STEM) subjects and business and management studies, but not in economics. | Our recently created visual summary of the Financial Stability Report, explained how risks in both the UK and the global environment may affect financial stability without the need for dense text. Conclusion Our staff survey last year showed that almost 80% of staff felt that the Bank takes diversity seriously, and 90% of people felt respected. Our direction of travel is encouraging, but we are far from satisfied. To take this to the next level, we have two priorities. First, we need to do more to change the way that we work. To maximise the potential of our people, the Bank needs to embrace fully collaborative working in diverse teams. We have an incredible endowment of skills and experience. We maximise our impact when we get together - across disciplines and across 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 areas. Everyone in the Bank should be able to devote some proportion of their time to such cross-cutting work. Second, we need to make our communications more inclusive. Everyone, every day in the Bank will benefit if our thinking tailored to its audience. This also means making the Bank more permeable, so that internal analysis can be more readily lifted and shared with others. And it means considering what we communicate, through which channels and to whom. Just as having a diverse and talented workforce has been a central pillar of our current strategic plan these priorities will be platforms of our next one. | 1 |
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. | Monetary policy has also benefited from a better government finance situation now compared with 10-20 years ago when there was a trend rise in debt ratios, i.e. government debt as a percentage of GDP, in the majority of OECD countries. Healthier government finances are contributing to stronger macroeconomic performance. Lower borrowing requirements in the public sector contribute firstly to lower real interest rates, which stimulate investment and growth. Secondly, stable government finances boost the credibility of monetary policy. During periods of large deficits and burgeoning government debt there is always a risk from a lender’s point of view that the government will attempt to reduce the real burden of the debt by eroding its real value through increased inflation. The high interest rate levels that Sweden experienced in the wake of the crisis years 1991-93, when nominal long-term rates stood at 12 per cent, was a result of high risk premiums on Swedish bonds owing to lenders’ concerns after a period in which the government debt had risen dramatically. Thirdly, balanced government finances allow automatic stabilisers to have their full effect. This means that demand can be sustained in the economy thanks to unemployment benefit and other factors when economic activity slows if the government finances are in such shape that there is sufficient economic leeway to finance the automatic stabilisers. Generally speaking a more stable climate benefits the economy in many ways. Lower inflation brings with it lower volatility in inflation. | 0 |
This increase in the balance sheets of central banks (reserves) has been pointed out as a source of inconsistency with future price stability. Increasing interest rates to secure price stability in the future will require undoing those operations, which could threaten financial stability. But central banks that are facing this challenge have an instrument that may be very useful in this situation: they have the ability to pay an interest rate on those reserves different from the monetary policy rate. This additional instrument should be enough to secure a smooth exit from their current situation without affecting price stability (see Cúrdia and Woodford, 2010). Again, price stability and ex-post financial stability are mutually consistent. Nevertheless, some analysts have argued that if some unconventional policy interventions have been too extended, price and financial stability may not be consistent from an intertemporal perspective. In effect, some dimensions of unconventional monetary policy, in particular credit policy, involve a fiscal dimension. It has been argued that those fiscal aspects are likely to threaten monetary policy independence and therefore jeopardize price stability (Goodfriend, 2010). Although these concerns are relevant, I think that the key solution to them will be strengthening independence of central banks and generating a more resilient financial system as discussed before. Let me close by addressing the conditionality statement that I made regarding dealing with financial shocks and price stability a while back. In the past, some emerging market economies were incapable of implementing countercyclical monetary policy. | One instrument (namely, the interest rate) is often not enough for pursuing two objectives. More generally, the two objectives should be addressed with more than one instrument. The choice of instrument will depend on both the cause of the financial fragility and the institutional setting of each country. For a start, central banks should work closely with “micro-prudential” supervisors, communicating potential risks so that these can be incorporated into the supervision process or into changes in regulation. A regional house bubble would be a good example of this kind of coordination, with supervisors adjusting provisions accordingly. In addition, central banks 4 Chapter V, Financial Stability Report 1st half 2009, Central Bank of Chile. http://www.bcentral.cl/publicaciones/politicas/pdf/ief2009_1.pdf BIS Review 76/2010 5 should consider macro-prudential regulation that adjusts capital, liquidity or asset quality regulation through the cycle or in periods of higher risk taking. Finally, central banks should not discard using their balance sheet to “correct” the prices of financial assets when these asset prices are leading to increased vulnerabilities in the financial system. In EMEs this is typically the case of a boom where there are signs that the currency may be strengthening beyond its fundamentals, in which case a mechanism of selfinsurance, such as accumulation of reserves, may help to smooth the transition and to have the economy well-prepared for potential reversals of capital flows. In the case of Chile, we have intervened three times in the exchange rate market since the currency was allowed to float in 1999. | 1 |
Prasarn Trairatvorakul: Bank of Thailand’s policy direction in 2013 Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Bank of Thailand, Bangkok, 22 January 2013. * * * Honourable guests and members of the press, Thank you all for attending this annual event, in which I would like to outline the Bank of Thailand (BOT)’s policy direction in 2013. Throughout history, our country might at times be faced with economic challenges and obstacles of different nature and severity, but the BOT’s mission and resolve to safeguard Thailand’s economic and financial stability has remained unchanged since its birth over 70 years go. Today our country is moving into an era of ever-closer linkages, whose scope extends well beyond the technology and communication dimension. It involves regional economic integration, not least among neighbouring countries or what is collectively known as the CLMV area. Within our country itself, the volume of cross-provincial trade and the number of SMEs outside the capital have grown, suggesting that growth has been increasingly inclusive. On the other hand, the greater economic interdependence brought about by closer trade and financial integration could also be a source of systemic risk, if an imbalance, however small, was allowed to develop unchecked. The BOT, as one of the nation’s key policy makers, strives to foster a sound and stable economic environment that enables the private sector not only to grow, but also to retain sufficient resilience and flexibility to withstand competition and uncertainties. | [7] We have also seen firms react to the threat of shortages by ordering more and earlier than usual, which has in turn pushed up inflation along the pricing chain, a phenomenon known as the “bullwhip effect”. [8] Chart 2 Decomposition of HICP inflation excluding energy and food (annual percentage changes and percentage points contributions) Sources: Eurostat and ECB calculations. See Gonçalves, E. and Koester, G. (2022), “The role of demand and supply in underlying inflation – decomposing HICPX inflation into components”. Notes: Items affected by supply disruptions and bottlenecks comprise new motor cars, second-hand motor cars, spare parts and accessories for personal transport equipment, and household furnishings and equipment (including major household appliances). Items affected by the reopening of the economy comprise clothing and footwear, recreation and culture, recreation services, hotels/motels, and domestic and international flights. The latest observations are for October 2022 (flash) for HICPX and September 2022 for the rest. The nature of the shocks has also been blurred on the labour market side by governments’ policy response to the pandemic. It has shielded employment from swings in demand through job retention schemes. [9] And it has led to an increase in public sector employment (Chart 3), especially in healthcare and education. [10] Chart 3 Euro area employment across sectors (index: Q4 2019 = 100) Source: ECB staff calculations based on Eurostat data. Note: The latest observations are for the first quarter of 2022. As a result, the output and unemployment gaps are giving different signals today. | 0 |
For all of these reasons, I do not fully understand the concept of separation, whereas I do understand that of stopping speculation. At the same time as bank failures are continuing, banks have obtained an easing of their liquidity constraints under Basel III. Isn’t this a paradox? That's not what it’s about. We have always believed that a liquidity ratio was necessary – and, incidentally, we have applied our national rules for many years, which is not the case everywhere. But the draft agreement was finalised too quickly and we had to rework it. We need to strike the right balance between strict regulation and supporting the financing of the economy. But will the timetable be put back? Yes, I am in favour of putting it back a bit, if necessary, in order to make these major tradeoffs and to give banks more time for the implementation phase so that they can adapt to the new standards. Should banks carry less sovereign debt? Banks should facilitate the financing of the economy; from this point of view, they should not hold huge quantities of sovereign bonds, even if these constitute liquid assets that are precious in assets and liabilities management. But the excessive concentration of liquid assets on sovereign debt in the calculation of the liquidity ratio can run into difficulties – either when the sovereign has its rating substantially downgraded or, on the contrary, when the country has low levels of debt, such as Australia or Switzerland. | They are based on spurious international comparisons since other central banks – such as the Bank of England – do not print their own banknotes, do not (yet) incorporate the banking supervisor and do not perform tasks such as the management of BIS central bankers’ speeches 3 over indebtedness, which is entrusted to the Banque de France by law. More than 200,000 households debt applications processed every year is no mean feat! We have already made a great effort over the past few years as our staff levels have been cut by nearly 20% in ten years. And we will continue with this effect; but it is based on a detailed analysis of our activities and requires substantial investment in order to increase productivity. Our programme is ambitious but in keeping with the reality of the tasks we perform and respectful of our employees. 4 BIS central bankers’ speeches | 1 |
Efficiency is not satisfactory This observation is particularly associated with the present lending arrangement with Norges Bank and its corresponding collateralisation. At present, all loans with Norges Bank must be covered by security. The last adjustment to this policy was made in September, when collateral requirements were introduced for F-loans as well. Following this change, we now have a system resembling those of many other countries, particularly in Europe. However, the government paper market in Norway is small compared with other countries - which is, for that matter, an advantage - but it also requires us to make better use of available collateral than other countries. When measured in October of this year, the ratio of total turnover to security furnished in the Norwegian settlement system was roughly 5.12 This is on a par with the situation in Stockholm, but far below London, where daily turnover is around GBP 125bn - with highs of almost twice that amount while collateral requirements are at a mere GBP 8bn, i.e. a ratio of about 16. When measured in this way, efficiency is thus at least three times greater in London than in Oslo or Stockholm - and we find nothing to indicate that the system in London is less secure. This indicates that there is room for improvement in the Norwegian system. What areas can we improve? First of all, the retail netting system. The present system is cumbersome and both banks and Norges Bank would like to see some changes. | Some form of unforeseen event, such as changes in regulations or macroeconomic shocks, would probably be necessary to cause prices to fall sharply. The fact that interest rates will rise in the long term should be included in household expectations and can hardly be regarded as an unforeseen event in any economic scenario. The market for apartment buildings has also been characterised by rising prices since 1994. Regulations such as those on utility value, and the system of central rent negotiations, normally leads to stable, even developments in the prices of apartment buildings. However, the conversion of rental properties into tenant-owner associations has resulted in recent years in relatively sharp price rises for apartment buildings. Price developments can, of course, be affected by changed conditions such as a substantial increase in new construction or a rapid decline in demand. However, a low level of housing construction and a high demand for housing, particularly in metropolitan regions, indicates that this will not be the case. Conclusion The Riksbank’s work on monetary policy and financial stability emphasises the importance of transparency, clarity and predictability. These are also important factors in the securities markets in which mortgage institutions are active. I hope that mortgage institutions’ own actions, coupled with the new legislation, will help to render the market for housing finance more efficient. BIS Review 35/2004 3 | 0 |
Also, the OTC derivatives business in foreign exchange, interest rate swaps and credit default swaps had exploded from its start in the early 1980s. The total notional value of the OTC derivatives outstanding for the five largest banks and securities firms currently totals about $ trillion. During this period, there was inadequate attention to the risks that were building up in the system. The regulatory and supervisory framework did not keep up with the changes in size, complexity, interconnectedness and globalization that created growing systemic risk externalities and widened the wedge between private and social costs in the event of failure. Let me mention just a few of the issues: • Capital regulation was lax both in terms of the amount of capital required and the quality of that capital. As a result, many banks did not have the capacity to absorb large shocks and retain access to wholesale funding. • The oversight of the largest securities firms was particularly deficient in terms of ensuring that these firms had sufficient private resources to deal with shocks. The industry was also particularly exposed because in the United States, there was (and remains) no lender of last resort backstop for the securities industry except in extremis.3 • Although global integration brought with it a number of benefits, regulatory coordination did not keep pace with the globalization of financial firms and markets. This allowed the potential magnitude of the negative externalities associated with the failure of globally active firms to expand considerably. | While educated young people are moving abroad, I invite you to consider investments in technology, not only for the automation of processes, but also as an opportunity to prevent the impoverishment of the labour market, thus contributing to setting up conditions for keeping the qualified labour force in this market, which is also part of the elite clientele of the banking market. In conclusion, let me assure you that the Bank of Albania provides the maximum support and attention to all your proposals, not only in capacity of the regulatory authority, but also, as a loyal, supportive and serious partner, aiming at achieving the common objective, that is a developed market which offers attractive possibilities for investors, for financial stability and a fair competition which respect the consumer’s rights. Our decision-making will be transparent and all our initiatives will be guided by a spirit of cooperation with the banking sector, aiming at ensuring highest efficiency. Thank you for your attention! 3/3 BIS central bankers' speeches | 0 |
And, fourth, to ensure that the scale of work on capital adequacy issues does not cause us to overlook the importance, either of liquidity management, or the development of a more robust market infrastructure in the maintenance of financial stability. 4 BIS Review 14/2003 | As of now, we expect neither a recession nor a stagflation in Singapore next year. But there are considerable downside risks in the global economy which bear close watching. MULTI-PRONGED APPROACH TO INFLATION Dealing effectively with inflation requires a multi-pronged approach. monetary policy to directly dampen inflation fiscal support to help vulnerable groups cope with inflation sound labour market adjustments to prevent inflation becoming entrenched First, monetary policy to directly dampen inflation. Singapore’s monetary policy is centred on managing the exchange rate of the Singapore Dollar. When inflationary pressures build up, MAS allows the trade-weighted exchange rate to appreciate faster. A stronger exchange rate helps to directly reduce imported inflation as well as restrain export demand, providing relief to labour market pressures. MAS has been proactive in tightening monetary policy in response to rising inflationary pressures, tightening policy four times in the last nine months. In October 2021, MAS slightly increased the rate of appreciation of the trade-weighted exchange rate policy band as a pre-emptive move when core inflation picked up from 0.7% in Q2 2021 to 1.1% in July-August 2021. MAS was among the earlier central banks in the world to begin normalising monetary policy. In January 2022, MAS added slightly to the rate of appreciation of the policy band in an off-cycle move to lean against gathering inflation momentum. This was before the outbreak of war between Russia and Ukraine. In April 2022, MAS re-centred upwards the exchange rate policy band and further increased its rate of appreciation. | 0 |
This would increase banks’ competitiveness through differentiation and customer service improvement, reduced transaction costs, better risk avoidance, and maintaining a stable customer base and market share. BIS Review 13/2008 7 10.2 It is possible to extend the capabilities of existing systems at a lower cost rather than by increasing mainframe capacities, if core banking and related legacy systems can be modernized by exploring a more service-oriented customer centric architecture. Discussions should be held with vendors and service providers to use Web service and service-oriented architecture that are technology and platform-neutral. Banks’ new IT strategy should not only be based on a customer centric approach but it should also enable transaction cost reduction, financial inclusion and speedy and efficient services to customers. Banks should also aim to pass on concessions and benefits that the government or regulators have given them, or at least share such benefits with customers. To make a real impact, banks should change their mind set, better utilize their IT human resources and capabilities and move towards more cost-effective common or shared IT platforms, which will help improve customer services and financial inclusion. Thank you. 8 BIS Review 13/2008 | Jean-Pierre Roth: Fifteen months of financial crisis – a status report Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Associazione Bancaria Ticinese, Centro di Studi Bancari, Vezia, 3 December 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The financial crisis broke out a little over fifteen months ago. The magnitude of the turmoil experienced by the financial industry has been greater than all the forecasts. So far, our entire attention has been focused on the problems of the financial industry, while the real economy appeared to be passing through this difficult period without too many problems. We now realise that this view was deceptive: the situation in the non-financial sector is deteriorating substantially. This could lead to new challenges in 2009. After having benefitted extensively from the international expansion of the past few years, we are currently experiencing the consequences of a widespread recession. This situation is difficult for our country, but we may be better placed than others for coping with it. BIS Review 150/2008 1 | 0 |
It is difficult to put a starting date on the financial revolution which I am attempting to describe - I mean the era of sophisticated asset and liability management techniques, of ever more exotic derivative and hedging products, and so on. But I guess it got going during the 1970s. Why not before? It seems that for most of the preceding postwar years banking and finance enjoyed a rather cosy and protected existence around the world. Capital controls and domestic regulation tended to constrain the scope for competition or diversification; many domestic banking sectors were cartelised to a significant degree, or in some cases state controlled; cross-border migration was, for one reason or another, rather rare. All in all, the incentive and scope to innovate were weak by today’s standards. The environment changed quite quickly when national administrations began to deregulate their financial sectors at the micro level and to free up movements of capital at the macro level. Just as importantly, the electronic data processing revolution began to open up avenues for financial engineering that could never have been dreamt of before. In the dealing rooms of London - then as now the world’s leading international financial centre - professional mathematicians moved in alongside, or even displaced, the “barrow boys”. Perhaps I should explain that the barrow boy stereotype was a Cockney young man from the east end of London with probably no very accomplished formal education but with strong mental arithmetic and trading skills, acquired from working on market stalls. | However, each board collectively should understand the key strengths, limitations, and judgements within their model. Over-reliance on a single measure can be misleading. Therefore, we want non-executives to have the right tools and sufficient knowledge to be able to challenge model outputs, rather than follow them slavishly. Benefits to be gained through the implementation of a harmonised regime I have discussed the increased flexibility to be afforded firms in business and investment decisions and the expectations placed upon insurers in their knowledge and understanding of the risk exposures and their models. But I would also like to consider the benefits to be gained through the implementation of a harmonised regime. The benefits of Solvency II do not come from the improved prudential regime alone. Insurance markets across the EU have been fragmented. The move towards a more cooperative framework will widen existing opportunities and help create new ones. The new framework seeks to introduce a level playing field across the EU, with risk-based capital standards and robust valuation practices that, together with enhanced disclosure rules, encourage the effective exercise of market discipline through the increased provision of information. From a systemic point of view, a more coherent and understandable regime should enhance confidence in the European insurance industry. This is particularly important at a time where weak real growth is leading to low levels of inflation and interest rates. BIS central bankers’ speeches 3 Financial markets have become increasingly interconnected and that trend has only been slowed temporarily by the global financial crisis. | 0 |
As history bears witness, such strategies are as good, but only as good, as the assumptions that are programmed in, be they about economic forecasts, covariances between various events, or whatever. But even if we felt that these particular strategies were foolproof, there are a myriad of other financial transactions which can only really be consummated by a conscious human decision. The home buyer faced with a choice between taking a mortgage from bank A or bank B is unlikely to have a sophisticated and reliable mathematical model with which to compare the offers and determine conclusively his choice. But the culture nowadays, bred at least in part by the technological feasibilities of the IT era, is one which is likely to place the home buyer under much greater pressure to reach a quick decision than his parents would have been a generation ago, or even his brother five years ago, for fear of losing the best offer - if only he could assess which was the best. There is less time to reflect; less time to seek out disinterested advice. There are of course some areas of finance which appear relatively untouched as yet by this revolution. In the realm of corporate finance, in every jurisdiction so far as I am aware, the documents seeking shareholder support for a merger, for example, are still required to be sent by post, and with a reasonable minimum notice period for response. | While BAME representation at senior levels has increased from 2% to 5% since 2013, we still have some way to go to meet our ambitious target of 13% by 2022. The Bank’s experience is consistent with that of other organisations as documented by “The Middle” (a thorough, evidence-based research report on progressing BAME Talent in the Workplace commissioned by the Black British Business Awards).3 This study concluded that across organisations the challenges were greatest in retaining and promoting ethnic minority professionals from middle management to senior executive roles. We’re pleased that the changes the Bank is already making are consistent with the report’s recommendations. To maintain momentum, the Bank recently created a BAME Diversity Taskforce, chaired by Deputy Governor Sir Dave Ramsden and attended by members of both Court and our BEEM network. This Taskforce is now focusing on: First, supporting the progression of BAME colleagues to leadership roles by rolling out inclusive leadership training for all colleagues and having all senior management including the Bank’s Governors participate in our Sponsorship programmes and mentoring schemes. Second, supporting our ethnic minorities network (BEEM), which has achieved much since its foundation in 2012. This includes implementing reciprocal mentoring of 150 of our BAME colleagues each year. BEEM has also set up, with HR, the Bank's African/ African-Caribbean scholarship programme. Launched in 2015, we have awarded 10 scholarships and 8 bursaries to talented students studying a range of subjects from Chemical Engineering to Politics and International Relations. | 0 |
8 Let me conclude with some remarks on the ongoing process of significant market correction that global finance is experiencing since several months, with its episodes of high market volatility and financial turbulences. The last G7 meeting in Tokyo was a good occasion to exchange views on the underlying causes of the recent turbulences and on the areas where significant improvements will have to be brought about in global finance. The communiqué of the G7 that Ministers and Governors signed captures pretty well the large consensus we have at present on both the methodology and the six domains where we agree action will be necessary. This large consensus is very important because the challenges that we have to cope with are global and the solutions themselves can be nothing but global and very closely harmonised between the economies that are making up the global economy. I think particularly of the two vast continental economies that are on both sides of the Atlantic. On top of stressing the absolute necessity to work very actively, and very united together, to draw the right lessons from the present market correction – which, according to our agreed methodology, we will do when receiving the definitive report of the Financial Stability Forum on the occasion of the next spring meetings of the Bretton Woods Institutions in Washington – I will make three remarks. First, the international community is able to produce a right and pertinent diagnosis of the global finance’s situation. | But it certainly shows this can be done, with great efficiency, by proper internal adjustment. Second, both aggregate and country-based data do not point to widespread and inevitable unsustainability in peripheral Europe. The euro area’s aggregate budget deficit will stand around 4.1% in 2011, less than half that of the UK or the US. The same holds true for public debt, which amounts 85% in the euro area while it will soon cross the 100% mark in the US. The euro area is also the only major currency union with its external accounts in balance, which is an essential element of robustness and a strong guarantee of long-term solvency. Peripheral countries are also improving their fundamentals. The primary deficit of Spain for 2011 will be around 4.7%, half that of the US and the UK. Italy will be one of the very few advanced economies to have a primary surplus, around 0.5%. Both countries announced and adopted major fiscal consolidation and structural reform plans aimed at balancing their budget by 2013. Ireland provides the perfect example that a country with very high deficit and interest rates can reverse the trend if it makes the necessary efforts. The Irish deficit will fall from 32% in 2010 to around 10% in 2011, exceeding the requirements of the EU-IMF programme. At the same time, growth is back and will probably be around 2% this year. The third issue is more subtle. It relates to solvency and liquidity. | 0 |
This complexity stems from the highly dynamic and constantly evolving nature of the financial system. Financial institutions occupy a unique position in any economy. This uniqueness requires financial institutions to balance between growth, profitability and innovation, and the long-run stability of institutions. It is also this unique position that may create a moral hazard where financial institutions are incentivised to take excessive risks on the expectation that the cost of failure would be borne by a third party, for example through government bail outs or through the concept of “bail-in”. This state of affairs, if not managed appropriately, would burden the taxpayers and increase the dissatisfaction of the general public with the industry. The risks and trade-offs that I have mentioned would pose a number of specific issues and challenges for corporate governance. Firstly, the complexity of the operations of financial institutions and financial groups is expected to continue to increase. Financial institutions are becoming larger and more complex as they grow in size and expand abroad. Earlier this year, the six domestic banking groups had overseas operations in 22 countries worldwide, including in all ASEAN member countries. The total overseas assets of the domestic banking groups had also increased by 15.4% from the previous year to RM362.1 billion. The oversight of financial groups with cross border operations is more complex and demanding, as groups have a highly diverse range of businesses, products and services, and diversified clientele bases. Managing people with different cultures will be an additional challenge. | We of course aim to be a more sensible and reasonable prudentist, but the question of ease of exit for our patients has nonetheless become more pressing through time. A well-functioning and competitive market is one in which firms can enter and exit easily. Our competition objective leads us to pay particular attention to this, significantly more I would say than prudential regulators without such an objective. I have frequently bored this audience with the very long list of things we have done to encourage entry, particularly into retail and SME banking markets given the competition issues in them. I will resist the urge to do this again but confine myself to making the simple point that in the 8 or so years since its creation the PRA has authorised 61 new banks, of which 28 are really de novo UK banks, because I think these figures speak for themselves. We have, however, said and done less on ease of exit. By “exit” here we mean the point at which a firm becomes unviable and can no longer sustainably meet obligations to customers using its own resources. While this often ultimately ends in winding-up proceedings, outside of fast failures there is much that can be done beforehand to “ease” their passing1. A reliably safe exit process is a vital corollary of ease of entry, as it allows us to be more accommodating to new entrants. | 0 |
Lorenzo Bini Smaghi: One size fits all? Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the 16th Annual Conference of the German-British Forum “The European Central Bank in a global perspective – central banking and the challenge of rising inflation”, London, 26 May 2011. * * * I wish to thank Huw Pill and Oreste Tristani for their contributions to the speech. I remain solely responsible for the opinions contained herein. Ladies and gentlemen, It is a great pleasure to speak at this German British Forum on the important issue of “The European Central Bank in a global perspective – The challenge of rising inflation”. I would like to address an issue which is raised time and again, namely, can the monetary policy implemented by the ECB fit different underlying economic performances in the Member States of the euro area? And in the current situation, the question is often asked whether the ECB’s monetary policy doesn’t risk hampering the recovery in the euro area periphery and jeopardising the implementation of the adjustment programmes. As I said, the issue is not new, but it is certainly topical. I am sometimes tempted to answer that this is not the right question, or at least that the question comes too late, given that we now have had a monetary union for more than 11 years and there are no alternatives in sight. | However, they also reflect supply and demand factors. On the whole, developments in credit appear to have been, up to now, in line with historical regularities, according to which loans to firms typically lag the economic cycle by a couple of quarters. In fact, credit flows remained positive, even during the period of the most severe contraction in economic activity, presumably as a result of the growing use of credit lines and revolving credit facilities. 23 Therefore, lending to firms can be expected to remain subdued even in the early stages of economic recovery, but it cannot be ruled out that supply factors will continue to restrict credit for some months. 24 The flow of loans to households began to grow again at the end of last year. The quarterly survey on bank lending indicates that the degree of tightening adopted by banks for the granting of credit to firms declined over the last few months of 2009, but remain positive (see Figure 1). It is interesting to note that among the factors that affect banks’ restrictive intentions, neither the one concerning the liquidity position of the banks themselves nor the one concerning access to financial markets seems significant any longer. Both factors now contribute in a positive way to the intentions of banks to grant credit. Considerations relating to the prospects for economic growth and those linked to specific sectors of the economy remain restrictive, but the degree of restriction is declining sharply. | 0 |
Indeed, financial globalisation and digitalisation are also challenging the perception that central banks have a monopoly on the issuing of means of payment. The Riksbank’s responsibility for cash management has changed By law, the Riksbank shall supply the country with banknotes and coins and has the exclusive right to issue them. The law also states that these banknotes and coins are legal tender. Giving central banks a monopoly on the issuing of banknotes and coins, along with a certain degree of autonomy, has been seen as an effective and credible way of managing the supply of means of payment. Payment trends have a long history. From bartering and the first silver coins in Sweden in 995, to the first standardised and collective means of payment in the form of transport bills, which were introduced during the 17th century. Besides cash being much more modern today than when the Riksbank was founded almost 350 years ago, we also have access to several different electronic payment options. The Riksbank’ responsibility for means of payment has been adapted over time as needs have changed. At one point, the Riksbank had over 20 offices around the country, basically one in every county, where banks often deposited and withdrew cash. For a period, the Riksbank also accepted daily takings directly from companies. The Riksbank counted, performed quality checks, invalidated and stored cash. Over time, the Riksbank has rationalised and adapted its cash provision. Today, it is banks and other private entities who are responsible for the distribution of cash. | Fi 2015:02 “Tillgång till betalkonto med grundläggande funktioner [Access to payment accounts with basic functions],” Interim report 2 from the 2015 Payment Services Inquiry (Fi 2015:02) Fleming M.J. and N.J. Klagge (2010), “The Federal Reserve’s foreign exchange swap lines,” Current Issues in Economics and Finance, 16: 4, Federal Reserve Bank of New York. Flodén, M. (2015), ”Sweden needs its inflation target,” speech at Fores, Stockholm, 13 October. Giavazzi, F. and F. Mishkin (2006), ”An evaluation of Swedish monetary policy 1995–2005”, Reports from the Riksdag 2006/2007:RFR 1. Goodfriend, M. and M. King (2016) ”An assessment of Swedish monetary policy 2010–15”, Reports from the Riksdag 2015/16:RFR6. Goodhart, C. and J-C. Rochet (2011), “Evaluation of the Riksbank’s monetary policy and work with financial stability 2005–2010,” Reports from the Riksdag, 2010/11:RFR5. Goodhart, C. (1988), The evolution of central banks, Cambridge, Mass: The MIT Press. IMF (2015), Monetary Policy and Financial Stability, Staff Report, 28 August 2015. 18 BIS central bankers’ speeches IMF (2016), Strengthening the International Monetary System – A stocktaking, IMF Policy Papers, March 2016. Ingves (1982), Den oreglerade kreditmarknaden, Expertrapport till Kreditpolitiska utredningen [The unregulated credit market, Expert report to the Credit Policy Inquiry] (SOU 1982:52). Irwin, N. (2013), “The Alchemists: Three Central Bankers and a World on Fire,” Penguin Books, London. Krugman, P. (2014), “Inflation Targets Reconsidered,” essay presented at the ECB Sintra conference, May 2014. Leeper, E. (2011), "Monetary Science, Fiscal Alchemy", in Macroeconomic Challenges: The Decade Ahead, Federal Reserve Bank of Kansas City Economic Conference Proceedings, 2010 Jackson Hole Symposium, pp. 361–434. | 1 |
I should say that the costs of implementing Basel II will not fall on banks alone - nor will the challenges. In most jurisdictions, regulators too will both face challenges and need to incur costs in expanding staff numbers, in training and in implementing systems. This will be important for them to handle the new approach. After all, it calls for a significantly greater level of expertise on the part of line supervisors than has the existing Basel Accord. And whilst the UK, and a few other jurisdictions, do have that expertise, we need to remember that we are looking at a global market place. And at a global level I detect a deficit of expertise which will require to be remedied. Pillar three and disclosure I would also like to say a few words on pillar three. Pillar three can, it seems to me, play two roles. First, of course, it can play a role within the Basel II context itself, by mitigating the need for complexity in pillar one. Disclosure about the way organisations actually manage their risks can indeed help a better understanding of their risk profile, compared to a study of complex numbers on their own. For example, understanding how a firm conducts its stress testing, or how valuations might be sensitive to different assumptions, could be of real value. But, second, such disclosure could be of value in the general accounting context itself. | Some in the private sector complain that there might be a lack of regulatory level playing field. But my own experience leads me to believe that supervisors themselves are just as aware of this. So I would encourage those in the private sector to work with supervisors in different countries to ensure the delivery of fair supervision across frontiers. If we can achieve confidence in that, then the intention of pillar two acting as a mitigant against greater prescription will I believe be realised in practice. That said, I recognise that in some jurisdictions the thinking behind pillar two represents a new departure in the philosophy, and perhaps legal basis, behind banking supervision. And in that way it represents a considerable challenge. BIS Review 14/2003 1 Maintaining the link with market practice Basel II has been a long process. But it is not an end in itself. Indeed if it were we would never achieve it. The markets, and the risks they give rise to, are not static. It is instructive, for instance, to reflect on just how much risk management theory and practice has advanced in the five years since negotiations on the Accord began. I have long felt that you need some mechanism to ensure that prudential standards remain appropriate as the state of the art moves on. That does not mean that the standards should be in a state of continuous flux. There is a good case for stability in the initial period while the Accord is being adopted. | 1 |
For much of the first half of my 40-year career at the Bank of England, the emphasis of macroeconomic policy as a whole was on short-term demand management designed to manage the perceived trade-off between growth and employment, on the one hand, and inflation and a manageable balance of payments position, on the other. Monetary policy was used in conjunction with fiscal policy and supported with various forms of direct control to pump up demand, when the economy declined and unemployment rose, until inflation and the balance of payments threatened to get out of hand, at which point all the policy levers were thrown into reverse. It was a recipe for short-termism throughout our economy. We gradually learned from experience - perhaps more slowly in this country than some others - that there is no trade-off between growth and stability in the medium and longer term, and that, in managing demand - which of course we continue to do - we needed to pay far more attention to the underlying, supply-side, capacity of the economy to meet that demand. We came to recognise that direct controls merely addressed the symptoms of instability rather than its causes. We realised increasingly that fiscal policy was not well suited to the task of short-term demand management, and needed to be constrained within prudent limits if debt levels were to be sustainable in the medium- and longer-term. | Ours is not a precise science. In fact it's more of an art than a science. And, although we bring as much economic and statistical science to bear as we can, we know that our forecasts, and indeed our policy judgements, are subject to a range of error. They cannot be accurate to every last digit. We can't expect to hit the target all the time, but by consistently aiming to do so (and we do consistently aim to do so looking 2 years or so ahead) we can hope to get reasonably close to the target on average over time. I'll come back in a moment to the objective, and to our experience measured against it. But perhaps I might digress briefly to make a couple of points about the principle of delegation of operational responsibility for monetary policy to the Bank. Some people I know had misgivings about that when it was introduced in 1997 on the grounds that interest rates are intrinsically a matter for elected politicians. But that neglects the fact that within the present framework in this country the Government specifies the objective of policy. That is a political decision insofar as there may be a short-run trade-off between growth and inflation - and the Government delegates only the technical task of setting interest rates to achieve that objective to the Bank. | 1 |
Risk-sharing transactions and undertakings under the participatory finance models in Islamic finance also enhances prospects for increasing financial inclusion and in bringing the financially unserved into the economic mainstream. In many IDB member countries, studies have shown that economic development is constrained by the lack of access to finance, given that only about 30 percent of the adult population use formal financial intermediaries. Greater outreach to small and medium enterprises (SMEs) and microenterprises can be achieved through the wider application of equity-based structures in financing for SMEs and Islamic microfinance given their strong emphasis on promoting entrepreneurship and valuecreating activities. This contributes towards the overall objective of generating inclusive growth that enhances the prospects for job creation. Integration with other financial products such as microtakaful and social welfare arrangements such as endowment (waqf) can also provide a total financial solution for the lower income groups and small businesses. Risk-sharing in Islamic finance also extends to the creation of a more equitable and just distribution of wealth. Redistributive instruments such as obligatory alms giving (zakat), endowment (waqf) and charity (sadaqah) complement risk-sharing financing tools to form part of a comprehensive approach to address poverty and promote social justice within the community, aspects that are important in increasing the potential for a more balanced economic growth. | The explicit risk-sharing element between the financier and customer instils greater discipline and responsibility, given the obligation and economic incentives created for participants to the contract to evaluate the risk profile of the product or investment proposition, the underlying trends in earnings and cash flows, and its income-producing potential. Such a process strengthens safeguards against the widespread mispricing of risks. The strong incentives for financial institutions to understand the nature and level of risk and leverage that is embedded in the Islamic financial instruments would in turn lead to more responsible innovation. This ensures that the products offered are aligned in delivering real benefits for the investors. Reinforced by a combination of stronger governance, enhanced transparency and more robust risk management, the trust-based relationship that underpins Islamic finance is therefore strengthened, thereby promoting overall confidence in the intermediation process. More recently, in this decade, the greater use of equity-based models has been most evident in the sukuk market, with Shariah structures evolving from predominantly lease-based (Ijarah) and mark-up sale (Murabahah) structures to profit and loss sharing partnerships (Musharakah), as well as convertible and exchangeable trusts. The evolution of assetbacked and asset-based sukuk provides further options for investors to diversify their portfolio. Asset-backed sukuk, has profit and loss sharing elements that thus offers investment sustainability. The possibility of a default is minimised, as investors of assetbacked sukuk are not guaranteed to receive income or capital gains, and profits are paid by the issuers only when the underlying assets earn profits. | 1 |
Paul Fisher: Developments in financial markets, monetary and macroprudential policy Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, at Richmond University, London, 25 September 2012. * * * When I gave a speech about the state of financial markets in June 2011, I talked about a process of healing as markets recovered from the Great Recession.1 But since then the patient has not regained anything like a full state of health. In this lecture today, I want to offer a second opinion on the condition of financial markets. But also, as a member of both the Monetary Policy Committee and the Financial Policy Committee, I want to talk about aspects of the monetary and macroprudential policies which are part of the medicine. In particular I want to give some background to a recent initiative by the Bank of England and HM Treasury to revive the economy, the Funding for Lending Scheme. Financial markets have continued to be buffeted by global events over the past year. In particular, the sovereign crisis in the euro area became more acute. It suffered a serious lurch in mid-July 2011 when confidence in Italian politics evaporated and Italian and Spanish sovereign yields rocketed to record euro-era highs (Chart 1). What followed was alarming – a growing fragmentation of euro zone markets as participants positioned themselves to minimise risk in the event of euro break-up. And the story has become more focussed on Spain than Italy. | Partly because I know some banks are acting against a base case of contraction. And partly because some of the funding could be used to refinance existing loans at cheaper rates. But also in the first instance, we have set it up so that the funding can be drawn down in advance or as it is needed, not with a delay. That is just one of the features designed with the macroeconomic benefits in mind. At every stage we asked ourselves how the design choice would best support lending growth. I believe we have made the right choices. BIS central bankers’ speeches 11 I would like to conclude by noting that one lesson from the crisis is just how important it is to have a properly functioning financial sector, expert in allocating savings to consumption and investment. Financial markets are not there to line the pockets of the participants. They exist because there are social and economic benefits from the services they provide. I believe most of the industry understands and accepts this. We need to focus on policies which encourage those benefits. For policy to be effective, it also needs to be joined up. The FLS, jointly launched by Bank and HM Treasury, and with supporting actions from the MPC, the FPC and the FSA shows that the new arrangements among these authorities can ensure that policies work together to get the economy back on track to meet the objectives of low and stable inflation, sustained growth and financial stability. | 1 |
Now let me come to the risks that a generalised move towards universal banking could entail, and the ways and means of containing them. The main risk, of course, is the emergence of conflicts of interest. One such potential conflict of interest may arise within any bank, between the bank’s own risk-taking activity and risk-taking for its customers. The classic example of this is the potential conflict of interest between credit-granting and securities underwriting, but this is only one example. The traditional way of avoiding the misuse of such conflict-creating situations is (a) to devise an organisational structure with clearly distinguishable lines of responsibility, (b) to avoid flows of “inside” information between the various activities, (c) to attribute to each activity costs, income and profits, and (d) to entrust external auditors with the surveillance of the systems put in place. The end-result will, of course, never be entirely safe. Moreover, the building of “Chinese walls” inside a multi-polar banking organisation may weaken, or even destroy, the synergy between those poles, i.e. it may undermine the rationale of a multi-polar organisation. I would not want, however, to overstate the internal conflict of interest argument. In the long run, the kind of conflict to which I have referred is unlikely to be very strong. In a longer-term perspective, no bank can afford to favour its own risk-taking activity at the expense of its customers - especially if auditing makes it certain that any misuse of the bank’s powers would come to light. 3. | In the long run, inflation is a monetary phenomenon: it cannot happen without an (at least) accommodating expansion of the money supply. And we know from historical experience that more often than not the major source of any such inflationary increase in the money supply has been the direct financing of government by the central bank. Hungary has not been an exception to this general rule - rather its confirmation. And once inflation is established, interest rates go up. Except for very short periods, it is impossible to keep market interest rates below the rate of inflation: who would be ready to undertake financial savings the remuneration of which would imply a loss in real financial wealth? To try to keep interest rates low by monetary financing of the government is a self-defeating device. It may work for a few months, but would end up producing more inflation and higher, not lower, interest rates certainly higher nominal interest rates, but very likely also higher real rates. The simple reason for this is that people are not fools - at least not for a long time. Monetary financing of the government is therefore likely to combine two evils at the same time: inflation and high interest rates. BIS Review 16/1997 -4- 2. The accumulated and potential future losses of the NBH on account of its borrowings in foreign currency have been taken over by the government. This is a salutary cleaning-up operation which ought to have been carried out long ago. | 1 |
Findings show, for example, that an effective climate policy need not be expensive and that allowing for extreme events is inexpensive insurance against substantial but uncertain future climate costs, see Chart 1.22 The blue line indicates that the costs of overestimating the effects of climate change are not particularly prohibitive. This is because the carbon tax is an effective tool to reduce climate change at a low cost. The red line indicates, on the other hand, that the cost of underestimating climate change can be very substantial. Chart 2. Global warming for various carbon taxes. Degrees Celsius 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 2020 2060 2100 2140 2180 Temperature without a tax Carbon tax in the EU (200 SEK/ton) Global carbon tax (200 SEK/ton) Global "swedish" carbon tax (1100 SEK/ton) Source: Hassler et al. (2020) Chart 2 shows estimates of the global temperature increase in four different scenarios. The first scenario (blue line) indicates what happens if we don’t implement any political measures. The temperature will then have increased by almost 3O C by 2100, and by around 9O C by 2200. The red line show that a carbon tax only within the EU has a very small effect on global warming. | 14 [18] weight to “green assets”34 or perhaps avoid “brown” assets? If climate change is seen as a threat to financial stability, it may seem unreasonable that central banks themselves should hold bonds, the market pricing of which does not take into account the climate-related risk that the company contributes to. An alternative to the purchase of green bonds could be to refrain from buying bonds from companies that create carbon emissions over a certain level. I do not have an answer to the question of what action the Riksbank will take in this issue if we are faced with a scenario where we need to decide whether to extend and broaden our bond purchases. My message today is that we are participating in the ongoing international work to analyse and draft recommendations on an appropriate way forward. These questions are extremely complex. They require analysis of legal frameworks, of how green and brown assets are defined, any potential side-effects, how effective the measures would be compared with other types of measures, and the effects of policy tightening, i.e. selling assets if the economic cycle turns.35 Central banks are taking the climate issue seriously The Riksbank constantly faces new challenges that affect price stability and financial stability. Climate adaptation is one of many changes currently affecting the Swedish and the global economy. Digitalisation, a greying population, trade conflicts and, most recently, the coronavirus are other important issues that also create new challenges for us and for other central banks. | 1 |
It is important to recognize that any credible approach to addressing the TBTF problem, including the one we are pursuing today, necessarily implies changes to the structure and business mix of financial firms and financial markets. Moreover, it is important to stress that not all of these adjustments will be in the private interests of these firms, and some will result in changes to the price and volume of certain financial services. These are intended consequences, not unintended consequences. Too big to fail is an unacceptable regime. The good news is there are many efforts underway to address this problem. The bad news is that some of these efforts are just in their nascent stages. It is important that as the crisis recedes in memory, that these efforts not flag – this is a project that needs to be seen to a successful conclusion and then sustained on a permanent basis. Thank you for your attention, I would be happy to take a few questions. BIS central bankers’ speeches 9 | Governments in the G7 agreed that intervention in the currency markets should be undertaken only when there was a collective view that exchange rates had become out of line with their longer run fundamental values. That reticence served us well. But over the past two decades, some governments, particularly in Asia and the euro area, have tried to fix exchange rates without putting in place mechanisms to ensure that competitiveness could be rebalanced by other means. That has contributed significantly to the problems facing us. It is crucial to the health of the world economy that we find ways of allowing competitiveness to adjust so that trade imbalances, and hence the present scale of indebtedness, can be reduced. Neither liquidity nor austerity are answers to the question of how to restore a loss of competitiveness. Dealing with these structural issues will take time. Meanwhile, how do we resolve the immediate crisis of confidence in some banks and sovereigns? Since the summer, there have been renewed concerns about the adequacy of the capital of banks in the euro area to absorb likely future losses, thus jeopardising their ability to raise funds. Wholesale funding dried up for many banks over the summer, and share prices of European banks are around 35% lower today than at the start of July. A transparent recognition of losses and a substantial injection of additional capital are necessary to restore market confidence. | 0 |
How Malaysia survived the global financial crisis Let me conclude by outlining why we had not been adversely affected by the recent financial crisis. Banking system maintained strong financial and capital buffers at end 2008 during the peak of the crisis as evidenced by: Strong capital position with RWCR of 12.6% and core capital ratio of 10.6%. Ample liquidity with total interbank placements of more than RM150 billion with BNM that can be unwound to release RM liquidity to the system at any time. Low exposures to foreign currency (FX) denominated assets. Banks’ leverage position remains manageable and lower than foreign institutions abroad. – Balance sheet leverage (i.e. total assets / common equity) for the Malaysian banking system of about 15 times (vs. global average of about 20 to 30 times). Banks had strengthened institutional set-up and capacity post Asian Financial Crisis through: More robust risk management standards and practices. Stronger corporate governance structure. Smooth implementation of the Standardised Approach of Basel II’s Capital Adequacy Framework. Balanced and diversified business portfolios. Enhanced financial infrastructure post Asian Financial Crisis through: Enhanced depth and size of bond and Sukuk market (about 107 % of GDP). Strengthened financial safety nets (e.g. establishment of Malaysian Deposit Insurance Scheme)/Danajamin/CDRC/SDRS. Strengthened regulatory and supervisory approach (e.g. gradual move towards principles based regulations, adopting of risk based supervision). Legislative reforms (e.g. | José Manuel González-Páramo: Re-starting securitisation Keynote speech by Mr José Manuel González-Páramo, Member of the Executive Board of the European Central Bank, at the Association for Financial Markets in Europe/European Science Foundation (ESF) and Information Management Network Global ABS (AssetBacked Securities) 2010 Conference, London, 16 June 2010. * * * Ladies and gentlemen, I. Introduction I am very pleased to be here in London to participate again at the AFME/ESF and IMN Global ABS Conference. Today, I would like to share with you some thoughts on the restarting of the ABS markets, in the light of the important role that it should play from a macro-financial point of view. More precisely, I shall first outline the role which securitisation should play in the financial system and why this role is important. Then, I shall assess in more detail the current situation of the securitisation markets. Finally, I would like to make some considerations on the way forward for the restarting of the ABS markets. In doing so, I shall assess what has been done and what still needs to be done to reach a sustained rebound of the securitisation markets. II. Current financial market conditions To set the stage, I shall refer to the ECB’s latest Financial Stability Review, published on 4 June, which analyses in detail the so-called large and complex banking groups (LCBGs), and the findings of which may, with some caution, be extended to the euro area banking sector as a whole. | 0 |
But do not expect a zero risk environment - and do not demand it. Fear of failure is the antidote for instability. It will go a long way to underpin the long term health of the financial system. 5 Governor Lars Heikensten “The Riksbank’s Work on Financial Stability”: Speech at Göteborgs University, 25 November 2003. BIS Review 5/2004 9 | During parts of 2006 house prices in Denmark, for example, rose at an annual rate of more than 20 percentage points, which was way above the Swedish increase. In the countries where 8 BIS Review 70/2010 real house prices had previously increased more rapidly than in Sweden, they have in most cases experienced fairly large price falls in connection with the crisis. For instance, in Denmark real house prices have fallen by around 20 per cent since the peak levels in 2007. So are developments in the Swedish credit and housing market cause for concern? My view is – not in the short term. But nor do I believe that the growth we have seen in household borrowing and house prices over the past decade is sustainable in the long term. The reason I do not believe developments to be a problem right now is that there are nevertheless reasonable explanations for the price increases. Recently it is probably the case that factors such as the fact that it is still cheap to borrow, and that households and companies according to indicators are regaining confidence, have contributed to the nevertheless strong development. There has also been relatively little new housing built in recent years, at least in relation to demand. The housing market is what one might call “regionally segregated” and migration to metropolitan areas has put upward pressure on house prices in these areas. Prices have also increased by far the most in Stockholm, Göteborg and Malmö. | 0 |
The view that the central bank should only react if the forecasts indicate problems may appear reasonable, but there are some uncertainties in this, particularly with regard to how this should be translated into practical policy. In situations where house prices and lending are rising very quickly, the central bank can see risks in this development, even if it cannot be sure whether a bubble is building up. It may then be difficult and even inappropriate to remain completely passive, even if the main line of the forecasts is that developments will be balanced. If house prices were then to plummet and pull down demand and inflation, the consequences could be very severe, which is clearly illustrated by the current financial crisis. The conclusion the Riksbank has reached with regard to monetary policy is therefore that this type of risk may need to be taken into consideration in a different way than the normal procedure, via the forecasts for inflation and the real economy. As indicated in the policy document "Monetary Policy in Sweden", this could be done by beginning a phase of interest rate increases slightly earlier than would otherwise have been the case, or by postponing a phase of interest rate increases. In addition, we highlight and warn against various types of risk, for instance in our speeches and reports. This was how we acted for instance in 2006. | Recognizing the clear need for a more risk-sensitive and flexible Basel Accord, the new framework is intended to more closely align regulatory capital requirements with underlying risks, and to provide banks and their supervisors with a range of options for the assessment of capital adequacy. There is more emphasis on banks’ own internal methodologies as well as other elements that are critical to ensuring the capital adequacy of banks, such as strong risk management and sufficient public disclosure of information. The Committee has also discarded the one-size-fits-all framework for the calculation of minimum capital requirements. Instead, the proposed framework provides a menu from which banks can choose, with the authorization of their supervisor and depending on the complexity of their business as well as the quality of their risk management. The Basel Committee is seeking comments on the proposed framework until the end of May and plans to finalize the new Accord well before the end of this year, during which time the Committee will pursue an active dialogue with non-G10 supervisors. It is envisioned that the revised Accord will be implemented in 2004. The role of a sound and stable macroeconomic environment A sound and stable macroeconomic environment is also crucial for financial stability, and more generally for promoting sustainable growth. The converse--macroeconomic overheating--raises the likelihood of an eventual crisis, first by promoting excessive, and eventually unsustainable, external and internal borrowing. | 0 |
As a consequence, consumers can benefit from lower prices, higher real incomes, and greater variety and quality of goods and services. Increased openness may also reduce wasteful rentseeking behavior on the part of protected industries and the related costs of corruption. These benefits from open trade are very evident in India. Academic research has found substantial gains for India following its dramatic trade reforms in the 1990s, which benefited consumers via lower prices and firms via higher markups. These higher profit margins spurred innovation and provided funds for the development of new products. Looking ahead, the upcoming implementation of the goods and services tax in India—which will create a common market internally—is expected to provide many of the same benefits as trade liberalization does internationally. Openness to trade has certainly played a large role in the economic ascent of Asia. Following the rise of Japan, Korea, Taiwan and others, fast growth in China and India has lifted hundreds of millions of people out of extreme poverty—an unprecedented feat in human history. The benefits 2/6 BIS central bankers' speeches of economic integration and other reforms are exemplified in India’s higher growth rate since the introduction of market reforms in 1991. Growth has averaged 6.5 percent annually in the postreform period, compared to about 4 percent annually over the prior 40 years. Indeed, India is the fastest-growing major economy in the world today. | This is why we should rely on a suite of models, and on actual data as much as on models. - the restrictive effects on activity, while being in mean reversed in 2025, are quicker than the dampening effects on inflation: hence we should be patient and consistent, including in our explanations to the broad public. The estimated transmission lags of monetary policy in the literature vary from one year5 to more than two years6. But interpreting these lags is more art than science. Overall transmission lags of monetary policy to inflation can vary over time and across jurisdictions, depending on factors such as the level of interest rates, the phase of the cycle and the sectoral structure of the economy (e.g. share of manufacturing, services, or housing). In the current tightening cycle, several factors suggest that the lag in transmission of policy to the real economy may be at the upper end of the two-year range. First, the current tightening cycle started from exceptionally low levels of real interest rates – as measured by nominal OIS rate deflated by market inflation expectations. 5 5. Smets and Wouters (2005); see also ECB NAWM model presented in P. Lane’s lecture on 16/02/2023, “The euro area hiking cycle: an interim assessment”. 6 Badinger and Schiman (2023), Measuring Monetary Policy in the Euro Area Using SVARs with Residual Restrictions. American Economic Journal: Macroeconomics 2023, 15(2): 279–305, or; see also ECB-BASE model. | 0 |
Benoît Cœuré: What yield curves are telling us Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the Financial Times European Financial Forum "Building a New Future for International Financial Services", Dublin, 31 January 2018. * * * Accompanying slides. The US Treasury yield curve flattened considerably last year, reducing the spread between tenyear and two-year US Treasury yields to less than 60 basis points. When Alan Greenspan first referred to a bond market “conundrum” in 2005, the spread was around 80 basis points.1 In the euro area, by contrast, the term spread remained broadly unchanged last year. At face value, a simple reconciling factor of recent international bond price developments is the tightening cycle that has gained traction in the United States. It is well known that a rise in policy rates typically leads to a flattening of the sovereign yield curve as long-term rates tend to increase by less than short-term rates. In my remarks this morning I will try to shed some more light on the potential factors currently affecting long-term rates. I will argue that, in and of itself, policy normalisation in the US cannot fully explain the pronounced flattening of the US Treasury curve. | The US yield curve is currently at its flattest level for more than ten years, with ten-year Treasuries yielding just about 60 basis points more than two-year bonds. At the start of 2017, the difference was around 130 basis points. You can also see that the German Bund curve is currently about twice as steep as the US Treasury curve and has remained relatively stable, with ten-year bonds over most of the time yielding around 100 basis points more than two-year bonds – not very far from the average observed over the past 20 years. My second slide focuses on the US Treasury curve. What you can see here is the ten-year yield 1/7 BIS central bankers' speeches and a model-based breakdown of the yield into its two main components: the average of the current and expected future short-term interest rates over the maturity of the bond and the term premium. All series are shown as cumulative changes since the start of last year. Two facts can be drawn from this chart. The first is that the recent marked flattening of the curve reflects what markets call a “bear flattening” – that is, short-term rates have been rising faster than long-term rates. This is evident from the fact that the ten-year yield – the blue solid line – today is about the same as it was a year ago. Short-term interest rates, meanwhile, have risen by around 90 basis points. | 1 |
I should add that we will also expect individual financial institutions to design and implement appropriate programs for transitioning employees affected by digital disruptions, beyond compensation arrangements. Preparing society for digital finance My final point has to do with preparing society for digital finance. The consumer experience of financial services is changing dramatically. This is happening on several levels. Customer interfaces are shifting online. The basic commodity of finance – money – is being replaced by electronic forms. Financial products are offered as part of a seamless solution for customers buying property, subscribing to a mobile phone or data package, going on a holiday or enrolling in university. This in turn alters the relationships that a consumer develops, which can be several 4/5 BIS central bankers' speeches layers removed from the entity that is ultimately providing a financial product or service. Frameworks and business practices designed to protect consumers have not fully kept up with these changes. This can increase risks to consumers – from a lack of transparency, misrepresentations, the inappropriate use of data to unfairly discriminate against consumer segments, legal loopholes, and financial fraud. Greater access to financial services itself through the entry of new and unconventional players can also contribute to overindebtedness. More needs to be done to better prepare society for digital finance. | In the world of finance, some of the questions being asked today are: What makes a bank a bank? Will digital currency ever replace central-bank issued money? Or more likely, will central banks issue their own versions of digital currency and in the process, disintermediate banks? Are banks selling financial products, or are they offering a lifestyle, opportunity and the freedom to pursue a new and different path in life? What business are banks really in? When everyone stopped using film in cameras, one wonders if Kodak realised that it was actually in the business of capturing memories. Or when smartphones burst into the mobile handset market, did Nokia realise that their business was not selling mobile handsets, but connecting people with the world around them? Three years ago, McKinsey predicted that technological advancements will redefine the landscape of finance, and then went on to argue that incumbents had – at most – a brief window of five years to adapt or risk becoming obsolete. You may or may not agree with this, but I think it would be hard to deny that a shake-up of the industry is already present. To some extent, the finance industry has been responding. Total IT spending is estimated at over $ billion every year across the regions of North America, Europe, Asia Pacific and Latin America. In 2016, a single global bank spent $ billion, or 16% of its expenses on technology. | 1 |
Mr George discusses national and regional economic prospects in the light of the external environment Speech given by Mr E A J George, Governor of the Bank of England, to the Northern Ireland Chamber of Commerce & Industry and Prince’s Trust on 26 January 2000. * * * Mr President, Ladies and Gentlemen, It seems only a very short time ago that I last had the pleasure of visiting Northern Ireland - in fact it was in May 1998. Time flies when the world about us is changing fast as it certainly has been in so many respects in the intervening period. Let me start with the world economy. We were already then in the grip of the financial shock that had started in emerging markets in Asia in 1997. But that shock intensified through 1998 - spreading to Russia and parts of Latin America and elsewhere - and at one point, following the collapse of the US hedge fund LTCM, threatening to engulf the financial system of the industrial world. The economic consequence of this financial turmoil was a sharp slowdown in the world economy to around half its longer-term trend rate of growth. It could have been far worse. The slowdown could have turned into an actual downturn had the industrial countries - led by the United States and the United Kingdom and closely followed by the Eurozone and Japan - not succeeded in stimulating their own, domestic, demand. | Huge progress has been made towards implementation of the Good Friday agreement since I was last here in Belfast - the Referendum, the elections and the introduction of devolved government. It is an immense tribute to the extraordinary efforts of the many people involved in keeping an inevitably difficult process on track. The economic prize of permanent peace and political stability is potentially very substantial. It will make Northern Ireland more attractive as a place in which to invest and in which to live and work; it will make it more attractive, too, as a place to visit. And devolved government will allow the fundamental supply-side issues, which are what determine the underlying sustainable growth rate of the economy, to be addressed within the local community. That process has already begun with the report last year of the Economic Development Strategy Review Steering Group - Strategy 2010. And, I agree with their conclusion - that if you play to your considerable strengths and tackle the structural weaknesses which they identify, then Northern Ireland can have a prosperous future. We all have a part to play in this. The Bank of England’s primary role is to help to maintain the stable macro-economic environment - in the interests of the UK economy as a whole but in the interests also of Northern Ireland. The specific purpose of my present visit is in fact to open, officially, our Northern Ireland Agency, which is a direct result of my earlier visit. | 1 |
In the case of personal income tax and VAT receipts, increases of 1.7% and 2.7% are projected. As to social security contributions, the main regulatory change consists of a 5% increase in the maximum contribution bases. Progress in the reform of the banking system Before concluding, I shall briefly mention the progress in the reform and strengthening of our banking system. This task is at the heart of the responsibilities and concerns of the Banco de España, and, as we all know, it has required a most considerable contribution of public funds. At present we are at a most advanced phase in the ongoing recapitalisation and restructuring of our banking sector. As you know, the starting point was in 2009, when the FROB (the Fund for the Orderly Restructuring of the Banking Sector) was created, and the process moved up a gear in 2011 further to Royal Decree-Law 2/2011 on the strengthening of the financial system, which raised capital requirements. But the decisive steps were taken in 2012, with Royal Decree Laws 2/2012 and 18/2012 on the clean-up of the financial system, the Memorandum of Understanding agreed in July with the European Commission, and the financial support facility of up to € billion annexed to this agreement; and, finally, Law 9/2012 on the restructuring and resolution of credit institutions. | Closing this gap will require further adjustments that will never prove easy because restoring growth will be a gradual process. We must also be mindful of the problems posed by the dynamics of the public debt/GDP ratio and its perspectives in the short term. So far, and as is usual in the initial phases of fiscal consolidation processes, this ratio has continued growing, with a forecast for 2014 of 98.9% of GDP. Reversing this trajectory is vital for ensuring the future sustainability of public finances, but it will require running primary surpluses for a prolonged period; naturally, the sooner we achieve sustained economic growth, the smoother this adjustment process will be. To tackle these challenges, institutional developments geared to ensuring budgetary rigour must be pursued. The independent fiscal responsibility authority, which will foreseeably start up in 2014, must reinforce the quality and independence of budgetary programming. Here I would like to mention the planned review of regional government financing arrangements and the creation of the committee of experts for the reform of the tax system, who are expected to submit their report in the coming months. 4 BIS central bankers’ speeches As for the public pension system, I shall reiterate what I said before the Economic Affairs Committee last June on the presentation of the Annual Report of the Banco de España. The public pension system is a fundamental factor of economic and social stability and it is in everybody's interest to address the risks of shortfalls arising as a result of demographic developments. | 1 |
At its very first meeting the Committee debated the merits of “gradualism” in adjusting interest rates. Although the debate attracted some interest, looking back over ten years it is hard to see that it had any practical impact. As chart 8 shows, there is no obvious persistent trend in the frequency of rate changes over the lifetime of the MPC. Economic conditions have determined the number and direction of rate changes. There is some indication that the number of changes was lower in the second than in the first five year period. But that reflected the size and nature of the shocks over the respective periods, and also the building of credibility which meant that market anticipations of future actions allowed the Committee to offset shocks by smaller changes in interest rates. It is striking that the MPC is in the middle of the ranking of the major central banks by the number of interest rate changes a year – see table 3. My view, therefore, is that it is the economic data which lie behind the debate and decisions of the MPC. Do you agree? To answer that question the Bank of England asked the Society of Business Economists (SBE) to carry out a survey of its members. The aim was to discover what kind of information was of most use to private sector economists in trying to understand the future path of interest rates at different horizons, and how the communications of the MPC were perceived as part of that process. | Secondly, Estonia has avoided volatile short-term capital flows due to strong fiscal stance. While these "soft" policy principles support crisis prevention by providing relatively stable and transparent environment, the resilience of the system depends ultimately on the actions of market participants themselves. The task of the authorities is to provide an adequate regulatory framework and to undertake maximum effort for the supervision of the implementation of these regulations. There is another interesting, albeit still debated issue – to what extent should the supervisors rely on banks' internal risk control models and ratings. Estonian banking supervisors have taken relatively forward-looking approach in that respect by increasingly relying on risk-based approach of supervision. At the same time, and having in mind rapidly developing economy and currency board arrangement, we believe that our banking system should have also robust liquidity buffers as well as sufficient capital to withstand the fluctuation of asset prices. Therefore, we have set relatively high reserve requirement half of what the banks can meet by the holdings of high-rated foreign assets. We will further adjust the system of reserve requirements in the future as monetary policy framework will converge towards the eurosystem principles. Finally, I would like to stress that as an essential element of the safety net, the Deposit Insurance Fund is functioning well and has proved its usefulness already two years ago. The immediate task for Estonian authorities is to introduce the investor protection scheme for the other parts of the financial system. | 0 |
The analysis also captures the notion that credibility is endogenous and adversely affected by delaying reform implementation. 18 For more on the importance of front-loading structural reforms see speech by Cœuré, B., on “Structural reforms: learning the right lessons from the crisis”, at the Bank of Latvia Economic Conference 2014, Riga, 17 October 2014. 19 Blanchard, O., and F. Giavazzi (2003), “Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets.” Quarterly Journal of Economics, Vol. 118, February 2001. 20 See for example Burda, M., and J. Hunt (2011), “What Explains the German Labour Market Miracle in the Great Recession?” NBER Working Papers No. 17187, June 2011; and Brenke, K., U. Rinne, and F. Zimmermann (2013), “Short-Time Work: The German Answer to the Great Recession.” International Labour Review Vol. 152, Issue 2, June 2011. 21 Di Mauro, F., and M. Ronchi (2015), “Centralisation of wage bargaining and firms’ adjustment to the great recession: A micro-based analysis.” CompNet Policy Brief, No. 8. May 2015. 22 See for example Forni, L., A. Gerali, and M. Pisani (2010) “Macreconomic Effects of Greater Competition in the Service Sector: the case of Italy.” Macroeconomic Dynamics, 2010; or Faini, R., J. Haskel, G. Navaretti, C. Scarpa and C. Wey (2006), “Contrasting Europe’s Decline: Do Product Market Reforms Help?” in Boeri, T., M. Castanheira, R. Faini, and V. Galasso (eds. ), Structural Reforms Without Prejudices, Oxford University Press. | 4 BIS central bankers’ speeches raise GDP per capita by about 11% after ten years for the average EU country. In the US, which starts from a more favourable position, the benefit would be under 5%. 10 And it is not difficult to understand why the benefits of reform could be so high in the euro area. High levels of structural unemployment, compounded by high numbers of underemployed and discouraged workers, imply a latent potential in our economies for a major positive shock to labour supply (Chart 5). We also have scope for a large catching-up in terms of productivity growth. TFP has increased by only 1.5% between 2000 and 2014 in the euro area, far below the 10.9% increase in the US over the same period (Chart 6). The type of policies that could release this upward shock to potential growth are not just those focused on price flexibility. They include, on the labour supply side, policies aimed at providing job search support for the long-term unemployed and requalification for the low skilled. And on the TFP side, policies that encourage the reallocation of resources – which could be powerful in the euro area given the wide and skewed distribution between the least and most productive firms 11 (Chart 7) – and policies that accelerate the diffusion of new technology, where the euro area on the whole lags some way behind the US (Chart 8). There are many other examples one could give. | 1 |
For example, our stress test last year encompassed a wide range of UK macroeconomic risks and associated losses that could be associated with Brexit, including a disorderly exit, with UK GDP falling by almost 5%, falls in commercial and residential property prices of over 30%, Bank Rate increasing by 4 percentage points and unemployment rising to 9½%. UK banks were able to withstand that stress and still have more than adequate capital to maintain lending to households and businesses. To be clear, the Bank of England is confident that major UK banks have the balance sheets and liquidity positions to withstand a cliff-edge Brexit. 19 An alternative scenario that would also require a tighter path for policy is weaker supply growth. 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 For risks that private financial institutions cannot self-solve, the Bank of England is working with HMT to find solutions. For example, the Government has led by committing to put in place if necessary a temporary permission regime to ensure that EU firms can continue their activities in the UK for a limited period after withdrawal. 20 And where the issues are cross border, the Bank is working with the ECB to manage risks in the period around Brexit related to financial services, through a new technical working group chaired by President Draghi and myself. A more disorderly transition, or a materially different end state from our assumption, would have implications for monetary policy. | 6 7 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 expected to be gradual and, even once spare capacity had been absorbed, the appropriate level of Bank Rate was expected to be materially below the pre-crisis average of 5%. Out of that guidance came the phrase ‘limited and gradual’, so often repeated it has now become part of the monetary policy furniture. Importantly, it is widely recognised by UK households and businesses whose expectations of rate increases have remained well anchored as the recovery has progressed (Charts 3b and 3c) as well as by financial markets (Chart 3a). Similar guidance was subsequently adopted by the FOMC and ECB. 8 Chart 3: Households and businesses have consistently expected increases in interest rates to be gradual and limited a) Historic UK Bank Rate tightening cycles Cumulative change, percentage points 2.0 1.8 1.6 September 1994 September 1999 November 2003 October 2006 1.4 1.2 1.0 August 2006 0.8 0.6 May 2018 Inflation Report market interest rate path November 2017 0.4 0.2 0.0 Months since first increase in Bank Rate Sources: Bank of England, Bloomberg Finance L.P. and Bank calculations. Notes: Tightening cycles since the start of inflation targeting in 1992. Tightening cycles are shown up to when interest rates reached their highest level before they were next reduced. The curve is estimated using instantaneous forward overnight index swap rates in the 15 working days to 2 May 2018. | 1 |
Market participants do not anticipate a rise in key rates in the US, the euro area and the UK until the end of 2010. The interest rate differential between Norway and trading partners has increased. The krone exchange rate has remained fairly stable through winter, although it is somewhat stronger than projected in October. The krone is expected to remain at about the current level to the end of the third quarter and then gradually depreciate somewhat thereafter. BIS Review 38/2010 1 Growth in the Norwegian economy came to a halt in autumn 2008, and Norway entered a downturn in early 2009. The decline appears to have ended in the second quarter of 2009. Capacity utilisation is lower than normal, but the downturn seems to be relatively mild. Activity has been underpinned by substantial interest rate cuts combined with higher public spending and high oil investment. Fiscal policy was very expansionary in 2009. Petroleum revenue spending increased sharply, and by close to 3 per cent of mainland GDP. Revenue spending will rise further this year. Our projections are based on information from the final budget and the projections in the National Budget for 2010. In line with this, the level of the structural, non-oil budget deficit is maintained at this level to the end of the projection period. According to the fiscal rule, the fiscal deficit should be reduced to about 4 per cent of the capital in the Government Pension Fund Global (GPFG) when the economy resumes a normal level of activity. | From my viewpoint as a central banker, I hope that banks indeed seize on this opportunity, because I think it would ultimately lead to a more robust banking sector as a whole. For example, European securitisation markets would improve risk-sharing among banks: one can imagine a world where small, local banks originate loans while larger, global banks securitise and market them. And a true CMU would also mean convergence of some parts of insolvency law and deepening of markets for distressed debt, which would help banks work through NPLs more quickly in future and hence increase the resilience of the banking sector to shocks. Moreover, if bank finance declines in importance over the longer-term, that might also encourage some much needed consolidation in the banking sector, which would in my view be beneficial for the real economy. We see at the moment that overcapacity hinders the recovery of bank profitability, as weaker banks distort competition and make it difficult for other banks to re-price loans.4 Whether all this materialises, however, hinges crucially on how far-reaching the CMU project really is. The Commission’s Action Plan for CMU has put forward many areas for further work, but each will take years to implement. What type of CMU will ultimately emerge therefore remains to be seen. I am sure Commissioner Hill will give us more guidance on this tomorrow. 3 Ryan, R., O’Toole, C. and McCann, F. (2014), “Does bank market power affect SME financing constraints?”, Journal of Banking and Finance. | 0 |
Due to the past few years’ wage settlements, households have strengthened their financial position at the expense of private and public enterprises. House prices have edged up after stagnating earlier this year. Household borrowing has moderated somewhat, but is still high. Against this background, growth in private consumption is expected to be fairly high in the period ahead. Consumer spending on goods is rising, pointing towards growth in private consumption this year on a par with our projections in the June Inflation Report. 1 Mainland GDP is projected to rise less than trend growth this year and to reach trend levels in 2004. In 2005, GDP growth is projected to be higher than trend growth. Investment activity in mainland Norway is low. Investment in the petroleum sector is rising, but a large share of the increase in demand is being met by imports. Public consumption increased sharply in 2002, but there will be little stimulus to the economy from the public sector this year. Growth will mainly be fuelled by private 1 Projection in Inflation Report 2/03 based on assumptions concerning forward rates and a gradually declining krone exchange rate. BIS Review 38/2003 3 consumption in the second half of this year and into 2004. We expect that investment in mainland enterprises will gradually pick up from a low level. In order to set an appropriate interest rate, it is important to be be able to form a reasonably accurate picture of the economic situation. | 2 Based on assumptions concerning forward rates and a gradually declining krone exchange rate. 3 Based on assumptions concerning forward rates and a gradually declining krone exchange rate, and an assumption that monetary policy easing will not translate into stronger wage growth. 4 BIS Review 38/2003 Capacity utilisation in the Norwegian economy is now neither abnormally high nor abnormally low. However, available statistics indicate that economic growth came to a halt during the winter. A global upswing will contribute to stronger growth in Norway. Growth is sluggish already, however, with stagnation in many business sectors. Since inflation is also low, a low interest rate is appropriate now. But it is always a question of weighing one consideration against another. Since December last year, monetary policy has been eased to a greater extent and more rapidly than has been customary. Following this phase of substantial easing, uncertainty with regard to economic developments in the period ahead has been somewhat greater than normal. With the easing that has been implemented, we must be particularly alert to changes in private consumption, wage growth and the krone exchange rate. If households expect the interest rate to remain low, private consumption may increase more than has been assumed. House prices and household borrowing may again accelerate. However, increased slack in the labour market and declining migration to the largest towns will reduce these effects. The risk of stronger growth in household demand must be weighed against the sluggish developments in the business sector. | 1 |
Meanwhile, October's Economic Expectations Survey (EES) anticipates a one-year inflation of 6.3% and a two-year inflation of 3.9% (7.0% and 3.8% in September). Inflation insurance contracts have shown some increases in the last few weeks, consistent with the greater pressure implied by the rise in the exchange rate. As of December of this year, they expect the annual CPI increase to be around 12.7%, somewhat above what they expected at the beginning of last month. On other hand, breakeven inflation implicit in the fixed income market has declined in recent weeks. Activity and demand August Imacec showed a null annual growth. Excluding mining activity, there was an annual increase of 1.3%, with a monthly rise of 0.7% in the seasonally adjusted series. This increase in the total Imacec contrasted with market expectations, which anticipated an annual drop in the indicator. It should be noted that sectors with a high impact on the dynamics of activity and demand, such as construction, industry and commerce, among others, continue to contract as expected. There are service sectors that show greater resilience. This is explained by specific factors, such as the low base of comparison in the provision of education services, the persistently greater dynamism of activities linked to business services, and the greater added value of energy generation, given the greater rainfall this year. On the demand side, the available indicators suggest that the adjustment of private consumption is taking place broadly in line with our forecasts. | Elvira Nabiullina: Speech - Federation Council’s Financial Market Development Board meeting Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the Federation Council’s Financial Market Development Board meeting, Moscow, 8 December 2020. * * * Good afternoon, dear Speaker and fellow colleagues, There is no denying the fact that the financial sector plays a critical part in the context of our efforts to deliver on the national development agenda. Financial intermediaries and the stock market work to ensure that savings transform into investment, businesses obtain the resources they need for development, and consumers gain the tools to grow their wealth. It is within our regulator’s mandate to oil the gears of all these mechanisms and make sure the financial sector provides excellent performance. This means that the costs of businesses and consumers related to their financial objectives should go down. And this means, as the Speaker has mentioned, that we should secure the emergence of long-term money. My deputy, Sergey Shvetsov, is here today to tell you more on our financial market agenda. In my opening remarks, I would like to expand on a number of key points in our operations as a regulator, which have, in my view, major implications. It would be fair to say that this year has spurred transformation in the financial sector. Among key developments are accelerated digitalisation, the Bank of Russia’s switch to soft monetary policy, falling interest rates in the economy, pandemic-induced borrowers’ problems and a large volume of restructured loans. | 0 |
In a situation of stress, individual banks hoard rather than lend liquidity. The system then co-ordinates itself on a low liquidity equilibrium. Liquidity then has negative spillovers, imposing negative externalities; illiquidity is a public bad. And with asset prices and liquidity falling and haircuts rising, the credit multiplier becomes self-reinforcing downwards. Given these pro-cyclicalities, there have been recent proposals by both policymakers and academics to regulate collateral requirements.1 This is one possible arm of so-called macroprudential policy. Within the UK, haircuts on secured financing or OTC derivative transactions have been identified as one possible tool for executing macroprudential policy.2 The UK’s new interim Financial Policy Committee, housed in the Bank of England, will provide advice to government on possible macroprudential tools over the next year or so. The debate on haircuts as a policy tool is live internationally too. In a recent speech in Atlanta, US Treasury Secretary Tim Geithner proposed the introduction of international minimum standards for margins on derivatives transactions.3 This would be akin to the international minimum standards for capital adequacy introduced through the Basel agreements. Since 1934, the US authorities have had regulatory powers to impose minimum margin requirements on lending against equity and some other assets – so-called Regulation T. But these policies have not been used actively, with minimum margins unchanged since 1974. To date, analysis of the macroprudential role of haircuts has been largely descriptive. | A further important feature is the expectation that, where available, asset managers and owners will make disclosures of the aggregate greenhouse gas (GHG) emissions embedded in their investment portfolios. Achieving broad coverage will take time and obviously depends on adoption by issuers. Implementation We are pleased that all Task Force member organisations, companies with market capitalisations of around $ trillion and financial institutions responsible for assets of $ trillion, have today announced their support for the disclosure recommendations. 5 With better disclosure, a market in the transition to a 2-degree world can be built. That market will expose the likely future cost of doing business, of paying for emissions, and of changing processes given both those charges and tighter regulation. And it will help smooth price adjustments as opinions change, rather than concentrating them in a short, dangerous space of time. Early disclosure rules allowed 20th-century financial markets to grow our economies by pricing risks more accurately. The spread of such standards internationally has helped lift more than a billion people out of poverty. Climate-related disclosures could be as transformative for 21st-century markets. 5 Bloomberg data and Bank calculations using market capitalisation as at 12 December 2016 and assets at end-2015. 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 6 | 0 |
The fastest pace of sales in the previous business cycle was 17 million units for all of 2005. While there may be some additional upside potential to these sales given the quite long period over which they were depressed 2 BIS central bankers’ speeches relative to fundamentals, it seems unlikely that they will continue to grow at the rate they have over the past few years. Housing is another area where the upside risks are likely to be less than what we might expect under more normal conditions. We have seen an impressive recovery of multi-family housing starts over the past few years. However, starts of single-family homes continue to languish at relatively low levels despite the fact that home prices have risen substantially over the past two years and mortgage rates remain quite low. Mortgage lenders continue to be extremely risk averse and mortgage credit to those with lower credit scores is still significantly constrained. There is nothing on the horizon that would lead me to believe that situation will change in a material way any time soon. Lastly, over the past few months the exchange value of the dollar has appreciated while growth prospects of key trading partners, particularly the Euro Area, have dimmed. Of course, the appreciation of the dollar is likely due in part to increasing confidence that growth prospects in the U.S. have improved. Therefore, this development does not mean we should abandon the consensus forecast. | Those technological giants (Alipay and WeChat pay) grew so big to build their own ecosystems, a walled garden where fragmentation of the market happened. The terms platformisation and super-apps were coined there. The state then intervened to retain control over the system and to build a one, common, integrated payments system accessible to everyone. To level the playing field. In countries where cash is almost out of use, and the private sector provides digital payments at scale, the financial stability concerns paved the way for the CBDC entry. This is why Swedes started it - to provide a backstop to private payment rails and to render it as a central point of conversion between private digital currencies – a monetary anchor. But what are the main drivers for developing the CBDC here in the eurozone? What drives the ECB and the CNB to follow this path? Because, in essence, and let me be honest here, if we want to pursue our monetary goals, we do not need a new form of money. By affecting the cost of funds, we can do our monetary job well. So, what is it that drives us towards the CBDC, or better to say, towards the digital euro? THE DIGITAL EURO The main reason behind the digital euro project is the declining use of cash. Cash was the most frequently used payment method at the point of sale (POS) in the euro area in 2022 and was used in 59% of transactions, down from 79% in 2016 and 72% in 2019. | 0 |
Bakarudin Ishak: Linking United Kingdom & Malaysia – opportunities and solutions in fundraising and investments Introductory address by Mr Bakarudin Ishak, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Forum “Linking United Kingdom & Malaysia: Opportunities and Solutions in Fundraising and Investments”, organised by TheCityUK, London, 29 September 2015. * * * On behalf of the Malaysian delegation, I am pleased to be here today at this forum with the theme “Linking United Kingdom & Malaysia: Opportunities and Solutions in Fundraising and Investments”. It is a great opportunity to jointly organise this event with TheCityUK which we hope will further enhance Malaysia-UK relationship in Islamic finance and strengthen the investment and financial ties between the two countries. Appreciation note Our utmost appreciation goes to TheCityUK for hosting this Forum and the warm hospitality extended to Malaysian delegates. We would also like to extend our appreciation to Trowers & Hamlins for holding this Forum at its venue. Trowers & Hamlins is Malaysia’s first foreign law firm to be granted a Qualified Foreign Law Firm (QFLF) licence. This allows them to operate independently in Malaysia and advise on international legal issues including on Islamic finance matters. The entry of foreign legal firms will create a symbiotic environment to accelerate the Malaysian legal firms’ capabilities at the international front. | 2 BIS central bankers’ speeches We are committed to jointly resolving any outstanding issues, if any, for the purpose of advancing Islamic finance activities in both countries. We hope significant deals could be initiated following today’s event to facilitate cross-border flow of funds between both countries and regions, with the Malaysian delegation ready to share their experiences and expertise in this area. For example, Malaysian players can partner with the UK players to structure a syndicated Islamic financing facility or joint lead-arrange a sukuk issuance for any of the identified UK regeneration projects. Both London and Kuala Lumpur can succeed and prosper as leading global financial centres in Islamic finance. We are open to challenges and new ideas and look forward to working together with TheCityUK through a strengthened partnership to achieve these objectives in the years to come. A UK-Malaysia Working Group may provide that strategic platform to holding continuous dialogues for this purpose. With this, I wish the Forum an engaging and fruitful discussion. Thank you BIS central bankers’ speeches 3 | 1 |
Free capital movement makes it more difficult to isolate a country from the global financial cycle – and indirectly thereby from monetary policy in large countries – even if they have a floating exchange rate. Some go so far as to say that developments on the financial markets imply that, regardless of the exchange rate regime, there are only two alternatives. Either one has free capital movement and accepts that it is then difficult or impossible to conduct a monetary policy of one’s own, or one conducts one’s own monetary policy but counteracts the free movement of capital.29 However, this appears too strong a conclusion. The main line of inquiry so far is that countries with floating exchange rates can conduct a monetary policy of their own, but that domestic monetary and financial conditions have become more sensitive to shocks from abroad, and that it has thus become more complicated to pursue a well-balanced monetary policy.30 How can international spillover effects be managed? If one now considers that spillover effects from larger countries’ monetary policy via the global financial markets are a problem, how can one resolve it? One possibility, at least on paper, would be for central banks around the world to coordinate their policy. I am personally not particularly optimistic about the possibilities or the usefulness of trying to achieve an international coordination of monetary policy in any more formal sense. Ultimately, the national central banks have the task of fulfilling mandates that are determined 27 See, for example, Rajan (2014). | Without exceeding the terms of this legal mandate, proper compliance requires, as I stated earlier, that banking supervision should be able to adapt to changes in its environment. One group of these changes covers aspects such as financial innovation, concentration and internationalisation, i.e. all developments present in the system and the attendant trends. Banking supervision must know how to capture and interpret the latter, as part of a threefold aim: to encourage their positive aspects; to eliminate, or at least minimise, processes which may prove harmful; and to adapt its own procedures to new circumstances. Only in this way will banking supervision, observing to the full the system's underlying rationale and the initiative of its agents, be able to avoid or correct, at the lowest possible cost, the imperfections of the markets, especially the externalities that may harm third parties. The second no less important group of changes to which banking supervision must adapt is in relation to the demands posed by society. I consider two such demands to be particularly significant. The first is the growing social demand that supervision should promote not only sound, stable and efficient financial systems but systems, moreover, which are governed by increasingly stricter codes of conduct giving rise to practices and conduct subject to ever-higher standards. Among the practical consequences of this demand are, among others, improvements in transparency, in corporate governance and in banks’ knowledge of their clients, as I mentioned earlier. | 0 |
In particular, a one-off shift in the level of wages as part of the adjustment to a transitory unexpected increase in the price level does not imply a trend shift in the path of underlying inflation. Moreover, in examining the implications of the current increase in energy prices, it is necessary to take into account the full macroeconomic implications of adverse external shocks and supply shocks in the energy sector, including the associated headwinds for the economic outlook and the negative wealth effect associated with a deterioration in the terms of trade. Through these mechanisms, an energy price shock can simultaneously raise headline inflation but exert downward pressure on the path of underlying inflation. In addition to rate forward guidance, calibrating the volume of asset purchases also plays an important role in ensuring that the monetary stance is sufficiently accommodative to deliver the timely attainment of our medium-term two per cent target. In particular, the compression of term premia through the duration extraction channel plays a quantitatively-significant role in determining longer-term yields and ensuring that financing conditions are sufficiently supportive to be consistent with the delivery of our medium-term inflation objective.2 In conclusion, in addition to learning from the research presented and discussed at this year’s event, I look forward to seeing how this year’s strategy review (and our ongoing implementation of the strategy) shapes the research that will be presented in future editions of this annual conference series. With that, let me offer my best wishes to all conference participants for an exciting two days. | The narrower the gap between actual production and the capacity ceiling and the lower unemployment happens to be in relation to its equilibrium level, the greater will be the risk of higher inflation. From this also follows a need to know whether the equilibrium level of unemployment has risen. If that is the case, measures should be taken specifically to lower the equilibrium level, a task that is outside the scope of monetary policy. Where is unemployment’s equilibrium level? What is unemployment’s current equilibrium level in Sweden? As always when one goes from a theoretical analysis to practical economics, everything becomes much more complex. Unemployment’s equilibrium level is not an observable quantity. One has to make do with estimates and their inevitable uncertainty means that interpretations have to be cautious. The available estimates suggest that equilibrium unemployment in Sweden moved up in the early 1990s and, in terms of registered unemployment, is now somewhere in the interval between 4.5 and 7.5 per cent.3 The OECD also counts on a marked increase in the 1990s; in the latest report on Sweden the current level is put at between 6 and 7 per cent.4 There is not, in fact, complete agreement that equilibrium unemployment has moved up sharply.5 But what suggests that it has, even though we cannot be sure of its exact level, is that otherwise the high unemployment should have acted as a strong restraint on wage formation. The actual development of wages does not indicate this. 3 See e.g. | 0 |
If the MPC chooses to ease policy and expand the balance sheet further as part of that, the Bank is operationally ready to do so. But at some point, as part of a future tightening strategy, the time will come to start reducing the stock of purchased assets. Given the sums involved, this is not something to do lightly – so the MPC has set out the steps it will follow: - First, the MPC does not intend to begin QT until Bank Rate has risen to a level from which it could be cut materially if required. The MPC currently judges that to be around 1.5%.12 - Second, QT will be conducted over a number of years at a gradual and predictable pace, chosen by the MPC in light of economic and financial market conditions at the time. - Third, the QT path will take account of the need to maintain the orderly functioning of the gilt and corporate bond markets including through liaison with the Debt Management Office. - And, fourth, the QT path can be amended or reversed as required to achieve the inflation target. When might this all start? No time soon, if you ask the financial markets! The current forward yield curve does not reach 1.5% at all (Chart 7). But options markets price in a small probability of it occurring, and (as the chart shows) expectations can shift quite rapidly: less than a year ago the implied central case start date was in 2021. | This, in turn, will mobilise more public and private sector investments through co-financing and greatly enhance the support available to developing members. We are also glad to see that governments are working together and making significant steps in promoting infrastructure development. They include, for instance, the establishment of the Asian Infrastructure Investment Bank and the G20 Global Infrastructure Initiative and Global Infrastructure Hub. These initiatives underscore the commitment by governments from within and outside the region to give infrastructure investment a fresh impetus. By bringing new funds and new ways for development assistance, they will serve to complement the existing efforts by ADB in meeting the region’s vast development needs. As highlighted in the theme for this year’s Annual Meeting, fostering cooperation among development partners – existing and new, private and public, national and multilateral – is crucial for reaping synergy and maximising development impact. ADB has a hailed tradition of cooperating with other partners in delivering results. By working together, we believe that ADB and its partners in the region will go a long way in mobilising funds and building the capacity of developing members in delivering high-quality infrastructure projects. As an international financial and business centre in the region, Hong Kong, China has an active role to play in supporting and promoting infrastructure investment in Asia. Corporates, as well as national and multilateral development agencies including ADB and IFC, have been making extensive use of Hong Kong, China’s deep financial markets in raising funds for infrastructure projects. | 0 |
If one were to type “life insurance” and do an image search over the internet, a very common picture is that of the umbrella; and it is easy to understand why – insurance as protection, a cover, or a shield. But the umbrella has to be a dependable one, when one needs it most. 4. Two critical factors underlie consumers’ confidence in the life insurance industry: i. First, insurers, together with financial advisers, must be regarded as trustworthy and reliable. Consumers must be able to depend on them to provide appropriate financial advice and life insurance products to meet their needs; and issues of fairness and transparency must underscore the relationship. ii. Second, given the long-term commitments, insurers must be financially resilient to be able to weather different economic, financial and industry cycles and have adequate financial resources to be able to honour claims. 5. Today, let me therefore take stock of two key policy thrusts that MAS has embarked on with many of you here – the FAIR initiatives and RBC2 – to enhance trust and resilience of the insurance industry respectively. Enhancing consumers’ trust in the life insurance industry: FAIR initiatives 6. I will start with the Financial Advisory Industry Review or FAIR. MAS first announced FAIR in 2012 with the formation of a review panel. FAIR aims to improve the quality of financial advice provided by the financial advisory industry by promoting fair dealing, and to raise the efficiency of the distribution of life insurance and investment products in Singapore. 7. | 1/5 BIS - Central bankers' speeches Therefore, we are not at the beginning of this road, we are in the home stretch, and we had come through an important and difficult part of this road when our country joined the European Banking Union and the Bulgarian lev joined the European Exchange Rate Mechanism. What is next? If we want to complete the accession process successfully, we need to accomplish a few groups of tasks. The first and the most important task is to meet the convergence criteria or the socalled Maastricht criteria. At present, Bulgaria complies with the criteria of the public finances, the long-term interest rates, and the exchange rate stability. Some of these indicators exceed the requirement by a substantial positive margin. Let me remind you, for instance, the wellknown fact that our ratio of debt to gross domestic product is the second lowest one in the European Union. The exchange rate is unshakable and is backed by the foreign exchange reserves of the Bulgarian National Bank, which have reached their historically highest level. The only criterion that we are not complying with is the one of inflation. Behind this are both external and internal factors, but this is the subject of another indepth debate. The second group of tasks includes the commitments taken during the preaccession period. These are the measure in four spheres – the non-bank financial sector, anti-money laundering measures, the insolvency framework, and the management of state-owned enterprises. | 0 |
Moreover, a few months after the start of the pandemic, a significant number of activities, such as trade and education, had adapted their operation to do business under the newly imposed restrictions, resorting to digital or telematic means. To a large extent, this has been possible thanks to the experience, capacity and buffers accumulated over many years within the framework of economic policy adopted in Chile. Fiscal prudence, expressed in the structural balance rule, generated assets and borrowing capacity to meet spending needs and adopt a countercyclical fiscal policy in the current situation. Monetary policy kept inflation low and expectations firmly anchored, generating space to strongly expand its expansionary stance by using both conventional and unconventional instruments. The rigor of our banking regulation, which is expected to be strengthened with the adoption of Basel III standards, allowed banks to expand their loans and respond to the cash flow difficulties of the companies. The depth of our capital market allowed large companies and the government to continue finding financing in the local bond market. The floating exchange rate continued to act as a buffer against external shocks, and the diversification of foreign trade allowed Chile to benefit from the anticipated recovery of China and other Asian economies. All this has made this crisis different from previous cycles, not only because of the origin and magnitude of the initial shock, but also because of its propagation mechanisms and mitigating factors. | Simon M Potter: Concluding remarks at the Monetary Policy Implementation in the Long Run Conference Concluding remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the Monetary Policy Implementation in the Long Run Conference, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota, 19 October 2016. * * * Thank you for participating in the conference “Monetary Policy Implementation in the Long Run” here at the Federal Reserve Bank of Minneapolis. Over the past two days we have engaged in productive and thought-provoking discussions of the evolution of monetary policy implementation across global central banks. These discussions will help shape the way the Federal Reserve thinks about monetary policy implementation in the future. The Federal Reserve’s implementation of policy has evolved in important ways in recent years, including using the balance sheet as an active policy tool at the zero lower bound (ZLB). | 0 |
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