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Ajith Nivard Cabraal: Developments in the evolution of central banking and challenges faced by central bankers Inaugural speech by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the International Course on Central Banking organized by the Centre for Banking Studies, Colombo, 22-23 May 2007. * * * Ladies and Gentlemen, I am pleased to be here to address you at the opening ceremony of this international course on Central Banking. Let me also welcome all the participants to the course and extend to the participants from overseas countries and Prof. Sinclair, a very warm welcome to our country. The Centre for Banking Studies(CBS) has provided training opportunities for officers in the financial sector in Sri Lanka over the last 26 years. It also has past experience in coordinating a number of international programmes of the SEACEN Centre, APRACA and World Bank held in Sri Lanka. Also several officers of central banks in SARRC countries have participated in the scheduled programmes of the Centre, though they were not specially designed for an international audience. This Central Banking course in fact is the very first international programme designed and conducted by CBS. I am glad that there are 14 overseas participants at this first programme. I congratulate CBS for successfully organizing it. I am sure that there will be more overseas participants in the forthcoming international programmes. Our plan is to invite eminent resource persons to conduct these international programmes. | I am glad that we were able to have the service of Prof. Peter Sinclair of university of Birmingham who h as served as Director, Centre for Banking Studies, of the Bank of England to conduct this programme. Ladies and gentlemen, let me highlight some interesting developments in the evolution of central banking and some challenges faced by central bankers. The role of central banks has evolved over past several decades. You may recall that the original task of central banks was not the conducting of monetary policy or supporting the banking system but financing government spending. The oldest central bank of the world, the Bank of Sweden was established in 1668 largely as means to finance military spending . The Bank of England was said to have been created in 1694 to fund a war with France. Even as recently as late 1940’s a labour chancellor of the exchequer, Stafford Cripps was said to have described the Bank of England as “ his bank”. Today, it is a taboo for most central banks to finance government deficits. Most countries have managed their affairs without a central bank for a long time. At the beginning of this century there were only 18 central banks. The USA managed without a central bank until 1913. Private banks issued their own currency notes and coins and banking crises were fairly frequent. The Federal Reserve Bank of USA was established mainly to supervise banks and act as lender of last resort. | 1 |
This final distribution after final macroeconomic price and quantity adjustments is, however, much more difficult to assess because it is still in progress and can only be measured afterwards. II.1 The ex-ante distribution of the extra energy bill As shown on slide 8, before any compensatory measures, households would bear more than one third of the bill according to this estimates, while companies would bear a bit less than two thirds. The general government would at this stage hardly be hit because of its tiny share in domestic energy consumption. This ex-ante distribution is almost not affected by the various measures of the (extra) energy bill itself, mentioned earlier (see I.3). II.2 The effect of the fiscal measures: a range of estimates The burden distribution is considerably modified after the government compensatory measures: the share for households goes down to around 5%, while that of the general government goes up to at least 35% of the overall burden, according to our first, “restrictive”, approach. The share of companies goes down, but more moderately, just above 55 percent. Page 10 of 14 Note that the distribution after compensatory measures depends of course on the scope of budgetary measures that are considered. In our “restrictive” approach, we have taken into account only those measures specifically targeted at the oil or the gas bill, such as the rebate on fuel prices or the compensatory subsidies to gas suppliers. Other choices may also make sense. | The significance of having as our own the world’s second most important currency is not lost upon a central banker. For, beyond its proven economic benefits, the euro signifies the virtual elimination of the potential risk of an exchange rate crisis to which the currencies of small, open economies are exposed on a daily basis in a world characterized by the free movement of capital. We have now traded in this vulnerability for the greater security and credibility afforded by a major international currency. The euro has indeed been a success story in many respects. The disciplines of Economic and Monetary Union (EMU) were intended to promote the creation of a macroeconomic environment in which countries could thrive in an increasingly competitive market place. The euro area’s track record in terms of price stability, trade expansion and employment creation suggest that these expectations have been largely fulfilled. The Central Bank of Malta is, therefore, proud to have become a member of the Eurosystem. From an institution charged with the preservation of price stability in Malta and with safeguarding the integrity of our national currency, the Bank now shares responsibility with the other members of the Eurosystem for shaping monetary policy in the best interest of 320 million people in fifteen countries. This is a task which my colleagues at the Bank and I approach with confidence and enthusiasm. From a national perspective, the challenge now is to maximize the benefits of participation in monetary union by making further progress on the path of reform. | 0 |
Constantinos Herodotou: Address - Annual General Meeting of the Association of Cyprus International Financial Firms (ACIFF) Address by Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at the Annual General Meeting of the Association of Cyprus International Financial Firms (ACIFF), Nicosia, 10 February 2022. *** It is my pleasure to address the open session of the Annual General Meeting of the Association of Cyprus International Financial Firms (ACIFF) today and present the current situation of the Cyprus and European banking sectors as well as the challenges ahead. I will also try to shed some light on the trends and developments in the banking industry. Let me start with an update on the Cyprus banking sector. We are now almost a decade after the peak of the Financial Crisis in Cyprus and looking at our banks' key financials, we observe a significant balance sheet derisking and an improvement in their loss absorption capacity. This is despite the shocks caused by the on-going pandemic. Specifically, the capital position of our banks, measured through the common equity tier 1 ratio rose from 14,2% at the end of 2014 to 17,2% at the end of September 2021. This is well above the EU average of 15,7%. In addition, during the same period a noteworthy clean - up from non-performing loans has taken place, where troubled loans in the banking sector have been reduced from 28,3bln euros in 2014 to 4,3bln euros in October 2021. Nonetheless, the NPL ratio in the Cyprus banking sector is still high, ca. | Therefore, besides greater financial integration, the other two key pillars of the financial Blueprint relate to collaboration to promote financial inclusion and financial stability within ASEAN. ASEAN financial integration also promotes a gradual and prudent liberalisation of the capital account and it recognises the right of countries to take temporary capital flow management measures should these flows threaten to undermine stability. There is also ongoing work to strengthen regional surveillance arrangements, regional financial safety nets, and the regional crisis management and resolution framework. Therefore, while recognising the benefits of financial integration, there is also awareness of the risks, and this has led to a cautious but progressive approach that we hope would ensure that financial integration indeed contributes to sustainable growth of the ASEAN economies. 2 BIS central bankers’ speeches Conclusion I will conclude with my view of the role of integration for Malaysia. Since the financial crisis, Malaysia’s growth has become more dependent on domestic demand and less dependent on external demand. While the resilience of domestic demand in the challenging environment is a noteworthy achievement, the reduced contribution of the external sector has clearly pushed Malaysia on to a lower growth trajectory. Since 2007, the contribution of net exports to real GDP growth has been negative with the sole exception of 2014. Over the longer term, the contribution of the external sector will need to expand to support a healthy and sustainable economy. Therefore, for Malaysia, economic integration and strengthening our economic ties with other countries is a necessity. | 0 |
Short-term capital inflows and outflows are probably the most important factor determining movements in the krone exchange rate from day to day, from week to week and from one quarter to the next. They are governed by expectations concerning future returns. Changes in expectations concerning the future value of the krone can trigger extensive capital movements. As a rule, Norges Bank does not intervene in foreign exchange markets with a view to influencing the krone exchange rate. The krone is floating, and the value of the krone fluctuates in periods by the same magnitude as exchange rates in other open economies. Nevertheless, the prevailing stability of the krone is largely a reflection of confidence that inflation in Norway will be kept at a low level. Our experience is that changes in the Norwegian interest rate level only have a predictable effect on the krone exchange rate when the change in interest rates also contributes to stabilising inflation. However, the relationship between interest rates and price and cost developments is uncertain. The setting of interest rates thus requires the use of professional judgement and discretion. The basis for exercising discretion is subject to limitations, however. Should any doubt arise as to whether the interest rate is oriented towards nominal stability, this would trigger substantial capital movements. Interaction with income formation A precondition for a stable krone exchange rate against European currencies is that price and cost inflation in Norway must over time not exceed the corresponding aim for inflation of the European Central Bank (ECB). | What we are seeing is a sharp increase in private holdings of assets both in Norway and abroad. This constitutes the core of globalisation. Capital finds its way to the highest return irrespective of national borders. Challenges posed by a global capital market The Norwegian capital market is part of a Nordic market, which is being increasingly integrated into an international capital market. Capital markets are a very efficient tool for channelling funds from savers to investors. Capital markets act as a catalyst for restructuring and growth, but also for financial bubbles and crises. This places new demands on economic policy. If a country is to benefit from a free capital market, it must draw up legislation providing for regulations and supervision that ensure stability. Countries with poorly developed capital markets may benefit from some limitations. They should exercise some caution in opening these markets too suddenly. The flow of capital is like electricity. Adequate insulation should be in place before it is turned on. When the Nordic countries liberalised credit markets in the 1980s, we experienced considerable problems because supervision and rules were not adequate. The same was witnessed in the crisis in Asia and Russia a few years ago. Inadequate and ineffective legislation and supervision resulted in weak control of financial sectors in the beleaguered countries. The liberalisation of the capital market within a country requires national regulations and supervision. The liberalisation of capital movements across national borders requires coordination and regulation at an international level. | 1 |
6 BIS central bankers’ speeches was left open to interpretation. Meanwhile, for the first time in history, shareholder primacy had been hard-wired into companies’ statutory purposes. The microeconomics of companies Given this corporate structure, what incentive problems might arise among stakeholders? It is worth noting up front that the existence of these frictions is not, in of itself, a criticism of the current corporate model. All corporate governance models embody these frictions to some degree. A set of fully state-contingent contracts among all stakeholders could eliminate them. But this first-best is infeasible (Hart (1995)). So the aim of any corporate governance model is to minimise these frictions, rather than eliminate them, in a second-best or worse world. In identifying incentive frictions within a company, it is useful to consider three distinct sets of stakeholder relationships: • First, between shareholders and managers. • Second, between shareholders/managers and other company stakeholders (bondholders, depositors, borrowers and employees). • Third, between the firm’s internal stakeholders and external stakeholders (regulators, government and wider society). Shareholders and managers In a modern public company, shareholders and managers are distinct and serve distinct roles. This separation has a micro-economic rationale. From Fama and Jensen (1983), it generates gains from specialisation, with risk/return monitoring undertaken by the board of Directors (acting on behalf of shareholders) and risk/return decision-making by management. The micro-economic question is at what cost this separation is achieved. | Experience in the run-up to the crisis suggests, if anything, the opposite. Paying in equity appears to have increased the probability of failure. Among US bank CEOs pre-crisis, the top five equity stakes were held by Dick Fuld (Lehman Brothers), Jimmy Cayne (Bear Stearns), Stan O’Neill (Merrill Lynch), John Mack (Morgan Stanley) and Angelo BIS central bankers’ speeches 7 Mozilo (Countrywide). This is not a random sample. 16 It also suggests the macro-economic costs of this principal/agent problem may have been non-trivial. (b) Collective action problems: the “ownerless corporation” A second stakeholder friction arises because a diffuse and dispersed set of shareholders are likely to find it difficult to corral management (Shleifer and Vishny (1986)). There is a coordination problem among shareholders. Moreover, most individual shareholders tend to have modest amounts of skin in the game. This reduces their incentives to exercise corporate control in the first place. This shareholder collective action problem is not new. It lay at the heart of Berle and Mean’s concern about “ownerless corporations” in the 1930s. But there are good reasons for believing this problem may have become more acute since then, as the shareholder base has become more fragmented and diffuse and shareholder co-ordination more difficult (Kay (2012)). One reason is that the role of institutional investors has changed. They have tended historically to play an important stewardship role. But this role has waned. As recently as 1990, pension funds and insurance companies held more than half of UK equities. | 1 |
As you might suspect, Principle 17 on last look likely consumed the most time and energy of any of the principles in the Code. In many areas within the last look principle there was broad consensus as to what constitutes good practice. What was clear from this process was that market participants seemed to define last look in different ways and apply it in different ways as well. Last look is described in the Code as a practice in which a market participant receives a trade request and has the opportunity to accept or reject that trade request against its quoted price. The Code notes that if utilized, last look should be used as a risk mechanism to verify validity and/or price. The principle focuses on the importance of transparency and fairness. Market participants should be clear about whether and, if so, how last look might apply to their client trade requests to allow clients to make an informed choice regarding their execution. In one particular area—that of trading during the last look “window”—there was a definite diversity of views. On the one hand, some market participants argued that such trading activity would always be detrimental to the client as it could move the market in a direction that is not to the client’s advantage. On the other hand, some market participants felt that such trading activity could increase their ability and willingness to conduct client trades presented by clients without necessarily placing the clients at a disadvantage. | I do not have the answers for all of them but I believe these questions are important and relevant for us to address today and in days ahead. What I can tell you definitively is that the work on the integrated policy framework (IPF) is highly important as the environment that ASEAN policymakers are navigating through becomes increasingly challenging. On this note, I look forward to an engaging and fruitful discussion today. To my ASEAN colleagues, let us use this opportunity to share our views and experiences with the IMF. To our IMF colleagues, it is my hope that you will consider these views and continue to engage with regional policymakers as you work towards finalising the work on the IPF. 3/3 BIS central bankers' speeches | 0 |
My assessment is that the problems we saw in March this year did not spread quite as much as they would have done if Ba- 5 See Board of Governors of the Federal Reserve System (2023). 6 [30] sel III had not been introduced. The banks now have more capital and more liquidity and are therefore better equipped to withstand various forms of shock.6 However, it should be noted that Basel III is not yet fully implemented.7 Negotiations are currently under way on how the final parts of Basel III will be introduced in the EU and some of the proposals entail less strict rules than those set out in the Basel standards. I would like to take this opportunity to emphasise the importance of full, timely and consistent implementation of all Basel standards in all countries, including the EU. Although the events of March did not hit the EU particularly hard, we need to learn lessons from what has happened in other parts of the world. This is important to ensure that the risks do not materialise in our part of the world as well. So what is new in the current situation and how do the existing global standards for bank regulation compare with this background? First of all, I would like to emphasise that I am not primarily talking about the situation or the regulations in Sweden, but more about the global standards, as it is these that are now being questioned. | Fragmentation in various segments of the financial market has been a major obstacle to the smooth conduct and transmission of monetary policy, and ultimately to our ability to deliver BIS central bankers’ speeches 1 on our mandate. Also owing to determined actions the ECB has taken, fragmentation has receded significantly since the height of the financial crisis. Unsecured money market rates are trading again at reasonable spreads over their secured counterparts. Sovereign bond spreads in the euro area decreased significantly from their peaks in 2012. Together, these developments reflect the gradual return of confidence among investors in the euro area. Yet, we still face a situation where our very accommodative monetary policy stance does not sufficiently reach some final borrowers in the euro area. This is because credit markets in some parts of the euro area are still impaired and show only timid signs of recovery. As a result, credit growth continues to contract and credit conditions – while having eased recently – remain overall tight from a historical perspective. Importantly, costs of bank funding have improved, but are still relatively high in some Member States. Where they are lower, they are not passed on in full to the real economy. The monetary policy measures decided in June and September this year, the Targeted Longer-term Refinancing Operations and the purchase programmes for asset-backed securities and covered bonds, are designed to overcome these obstacles. | 0 |
For the past few years, Thailand’s growth was filled with imbalances, creating the so-called “two-speed economy.” On the high-speed track, exports of goods and services had been expanding robustly in tandem with improved 2/5 external demand, consistently contributing over half of the GDP growth. The benefits from these growths, however, were felt mostly by those associated with the export sector— especially large exporters—leaving behind the low-speed domestic demand track. Private investment’s gradual growth was also concentrated only within the export sector, while private consumption growth registered well below historical average as strong export growth and pickup in manufacturing did not lead to higher employment and higher household income. Excess production capacity in certain manufacturing sectors and a movement towards automation in manufacturing processes were some of the reasons often cited for this disconnect. In addition, a high level of household debt constrained private consumption growth as households had to use additional income to service their debt obligations rather than spending on goods and services. More recently, even though the imbalances still exist, we started to observe a change in this trend. We begin to see a more broad-based growth in exports, reaching beyond large exporters. We also begin to see steady growth in private consumption and private investment, making the strong growth performance in the first half of 2018 even more meaningful. Along with the recovery in private consumption and private investment was the pick-up in loan growth, particularly consumer and SME loans. | We pray to the almighty Allah that the Kingdom’s citizens will have many returns of this dear and national occasion and that the Custodian of the Two Holy Mosques, HRH the Crown Prince and the Second Deputy Prime Minister will be in good health. May the Kingdom continue to enjoy security and stability, so that the development march will continue under our wise leadership. 2 BIS central bankers’ speeches | 0 |
To this end, we have comprehensively reformed the financial system since the crisis. Both capital requirements and contingent liquidity have increased ten-fold. The major UK banks now have the balance sheets to withstand a disorderly cliff-edge Brexit, however unlikely that may be. A series of measures have eliminated toxic forms of shadow banking and are transforming the rest into resilient market-based finance. An effective financial system is fair: fair to end-users and fair to the taxpayers who provide the ultimate backstop to the system. Fairness requires markets that are professional and open, in which everyone is accountable for their actions. That is why the UK has led the global effort to address misconduct and restore trust in financial markets. We have sharpened incentives through compensation rules that align risk and reward. The Senior Managers Regime has re-established the link between seniority and accountability. And the private sector is developing standards of market practice that are well understood, widely followed and up-to-date with market developments. 2 An effective financial system is dynamic. With the foundations of resilience and fairness reinforced, the UK financial sector is innovating to serve the changing real economy just as it did during three industrial revolutions and two waves of globalisation. 2 The global FICC Market Standards Board (FMSB) is developing readily understood standards for their markets. And the global FX Committees have published the FX Global Code, the first globally consistent code of conduct for FX markets. | 13 And the City is leading the underwriting of local currency green bonds, where annual issuance could range in the hundreds of billions of dollars. For its part, the Bank of England has helped catalyse the private sector’s TCFD. We are working closely with the People’s Bank of China to build domestic and cross-border markets to finance the transition to a low carbon economy. And we are coordinating with fellow central banks and supervisors representing more than a third of global output and emissions to develop supervisory approaches to ensure the financial system is fit for the transition. c) The New Demographics As the world is changing it is ageing. The ratio of the population aged over 65 to those of working age in advanced economies has increased from 15% in 1950 to 30% in 2015, and is projected to rise to 50% over the next twenty years. Over the same period, this ratio is projected to double to over 25% in emerging markets. The macroeconomic consequences of these shifts are already evident, with the large, rapidly growing pool of retirement savings depressing interest rates and pushing up asset prices. 14 The need to manage this growing pool of savings will drive further growth in the wealth management, insurance and pension industries. And it will require new products, for example to meet the unpredictable costs of long-term care. In the process, market-based finance, which has already accounted for almost all corporate credit growth since the crisis, will become even more important. | 1 |
Productivity in the United States, however, has not been faster than in Sweden. During the first half of the 1990s, Swedish productivity growth was among the most vigorous in the world, which resulted in increased prosperity for Swedish citizens. During the 1950s and 1960s, productivity growth in Sweden increased further. This was partly due to considerable reconstruction needs following the Second World War and the robust demand that resulted from this. In addition, trade was liberalised during this period which led to stiffer competition, and - most of all - capital formation was rapid. The favourable productivity growth during these years furthered Sweden’s prosperity. In 1970, Sweden was in fourth place in the OECD league in terms of GDP per capita, which means that it was one of the four richest countries in the world. During the period that followed, however, productivity growth was appreciably slower and it is widely known that the 1970s and 1980s were bad periods for Sweden. Today, Sweden finds itself in 17th place in the OECD league and is below the average for industrialised countries. What caused this decline then? It may be relevant to look at the reasons behind Sweden’s weak growth during the 20 years up to the mid 1990s. These are mistakes that we need to avoid in the future. When I discuss this unsuccessful period in Sweden I will mainly focus on productivity since it is the measure that determines our standard of living. We then have to somewhat modify the growth formula that I mentioned earlier. | So, as regards net investment, in other words the contribution to capital formation, this was more than halved as a percentage of GDP in the mid 1970s. This meant two things. First, capital growth per employee, or per hour worked, fell. For a number of years, investment dropped so much that capital per employee in the business sector actually declined. In other words, each employee worked with less capital. In order to illustrate what capital per employee means, we can take an extreme example, namely what a lone worker can accomplish when digging with a spade and iron bar compared with a hydraulic excavator. The latter represents considerably more capital per employee than just digging with a spade, as well as substantially less physical effort for the worker. Therefore, we should expect productivity growth to fall when capital per employee declines. But there is also another indirect effect. With new capital, new technology is introduced into the production process. Investment is the means for putting new technology and research into practical production. Through investment, new methods and new technology are ushered into production processes. For this reason, we should expect less technological progress in production when capital formation falls. An excavator is so much more than a large number of spades; it represents entirely new technology that affects the whole production process. Figure 1 shows that capital formation, net investment as a percentage of GDP, fell in the mid 1970s from around 15 per cent of GDP to about 5 per cent. | 1 |
On this front, a study conducted by the Hong Kong Government in conjunction with TMA earlier concluded that there are no major legal or regulatory obstacles to transactions involving wholesale Islamic financial instruments in Hong Kong. 13. However, there is a need to refine the tax regime in Hong Kong in order to provide a level playing field between sukuk and conventional bonds. Owing to Shariah requirements, structuring sukuk often involves the originator setting up a special purpose vehicle for the purposes of issuing sukuk to sukuk holders, and multiple transfers of underlying assets between the originator and the sukuk issuer in order to generate profits. These complex structures, which are not required for conventional bonds, may incur additional tax and stamp duty expenses for the sukuk issuers. 14. I am pleased to see that an amendment bill to address this issue has been introduced into Hong Kong’s Legislative Council and is now in the final stages of enactment. 3 2 Source: Institute for International Finance. BIS central bankers’ speeches The bill, once passed, will enable sukuk to enjoy tax treatments similar to those currently afforded to conventional bonds. This would be a significant milestone in the development of a sukuk market in Hong Kong. 15. Apart from providing a level playing field, equally important is the active participation of market players, including non-Islamic arrangers, issuers and investors in the Islamic capital markets, as they will be the ones who lead market development in the future. | Last year alone, oil revenues in the Gulf Cooperation Council countries were estimated to be about $ billion.3 Mainland China has been one of their favourite investment destinations given its strong economic growth and emerging market opportunities. 9. On the other side, Mainland China is facing huge funding needs for infrastructure development projects. As China’s global financial centre, Hong Kong is an important conduit for Mainland companies to access the international markets and the preferred offshore capital raising centre for Mainland issuers over the past decade. This is apparent from the fact that over half of our stock market capitalisation is Mainland-related and from the high participation of Mainland entities in our dim sum bond market. 10. Against this backdrop, we believe Hong Kong is well-placed to meet the strong investment demand from the Middle East and other parts of the world for Mainland-related Islamic financial products. At the same time, Hong Kong can also provide an ideal platform for issuers from the Mainland and other parts of Asia to issue Islamic financial instruments for satisfying their funding needs. Bringing Islamic capital markets to the mainstream 11. Addressing one of the key issues to be discussed today, Hong Kong’s involvement in Islamic finance will also help to bring Islamic capital markets to the mainstream in two ways: provide a level playing field and encourage market participation in Islamic finance. 12. To bring Islamic financial products to the mainstream, a key task would be to level the playing field with their conventional counterparts. | 1 |
This is especially true for low value transactions and cross-border remittances, where fees can be as high as 13% of the value of funds transferred.4 These high costs impede not only remittances but also bilateral trade and investment. We therefore need to work on solutions that will promote competition and innovations, making these services more affordable. While a complete solution for cross-border transfers is yet to emerge, significant progress has been made with respect to payment solutions within each GMS country. In Vietnam, OnePay allows customers to make financial transactions on e-commerce websites, as well as deposit funds into their bank accounts without visiting a physical bank branch. Wing in Cambodia, BCEL in Laos and Wave Money in Myanmar all provide instant money payments and transfers through mobile phones to recipients who do not have bank accounts. In Thailand, PromptPay is a modern, faster payment system that provides free transfer services for transactions up to 5,000 baht (or about 150 US dollars), one of the cheapest rates in the world. PromptPay allows individuals and businesses to transfer money between banks and e-wallets using their mobile phone or citizen ID numbers. | I have three key messages on GMS connectivity to share with you today and would like to invite you to be a part of this exciting journey: Let’s think of the young vibrant graduate I mentioned, there is so much potential and opportunity she can explore. She can broaden her skills and horizon as she gains experience and professional networks over time. She will unavoidably face some challenges along the way. But with support from her peers, together with technological advancement, she will be able to stay on course for success. This is similar for our vibrant GMS. First: The GMS is a region full of opportunities. This is owing to its geography, complementarity and connectivity among its members and with other regions; Second: GMS’s endowments and opportunities can be expanded through enhancing financial connectivity, technology and innovation; and Third: Despite many challenges, policymakers and their private-sector partners can make a difference to the GMS region. *** 1 1. Why do I say that the GMS is a region of opportunities? Over the past 25 years, integration within the GMS has deepened, integrating a diverse group of members through physical, trade, investment as well as people-to-people connectivity. Even more remarkable is the recent growth momentum of the GMS. | 1 |
Second, it seems reasonable to wait and observe potential ripple effects of TLTRO III repayments in bond markets before starting the bond portfolio run-off, as it will allow us to assess the effective impact of balance sheet reduction on financial conditions. After first allowing markets to absorb significant TLTRO III repayments, the normalisation of the ECB’s balance sheet could be followed by ending full reinvestment of the APP portfolio. As announced by President Lagarde last month, we will decide on the key principles of the reduction of our APP portfolio at our December monetary policy meeting. And why we should end APP reinvestments before PEPP reinvestments? In my opinion, a “first-in-first-out” staggered approach is preferable for at least two reasons. First, PEPP reinvestments remain an important line of defence against (pandemic-related) fragmentation episodes, so they are potentially pledged for reallocation across jurisdictions while the lasting vulnerabilities caused by the pandemic continue to pose a risk to the smooth transmission of our monetary policy. Second, we previously declared that PEPP reinvestments will not end up until at least the end of 2024, while our forward guidance on APP reinvestments was open-ended. We have clearly stated our intention to continue APP reinvestments for an extended period of time past the date when we started raising the key ECB interest rates. Moreover, our balance sheet policy will depend too on the operational framework that we adopt for the foreseeable future. | It had lowered its DFR all the way to zero and had even begun to reduce it further, reaching an annual interest rate of -0.2% in late 2014. But even at these very low interest rates, the economy remained sluggish, and inflation stayed persistently below the ECB’s target (at the time, an inflation rate below, but close to, 2%), even falling occasionally into negative territory. In these circumstances, the ECB had to reach for new, “unconventional” tools to meet its inflation target. In particular, the ECB initiated a rapid expansion of its balance sheet, both 4 By way o f illustratio n, in the latest SMA, the median respo ndent anticipated that the DFR wo uld reach 2.5% in the seco nd quarter o f 2023. 5 While the central bank can set any interbank interest rate abo ve zero , it canno t set that rate far belo w this thresho ld, because then ho useholds would simply hold o nto cash – thereby receiving a 0% interest rate – rather than save at negative rates, and banks wo uld start co nverting their electro nic reserves – yielding a negative return – into currency. Banks can o ffer depo sits at zero rates to avo id this risk of ‘financial disintermediation’, thus absorbing the adverse impact o f negative interbank rates themselves. In the lo ng run, this may reduce banks’ pro fitability, which may h amper the bank mo netary po licy transmissio n channel. | 1 |
These are examples of leading practice, and they are not at this point standard operating procedure across the range of institutions where they should be. Systematically assessing the evolving frontier of leading risk management practice is a useful way to ensure that we continue to build on the significant improvements in the overall stability and resilience of the U.S. financial system that have been achieved over the past two decades. This is important to do on a continuing basis to strengthen the shock absorbers in the financial system. It is important to do even when, or perhaps particularly when the overall economic environment looks quite favorable, as it does today. We look forward to working with the foreign banking community to continue to identify ways in which risk management practices can be strengthened. It is in our mutual interest to insure that the practices employed broadly by the industry continue to move towards the frontier of risk management practices. Thank you. BIS Review 36/2004 3 | Therefore, my first conclusion is that from the economic perspective the dilemma between deepening and enlarging is rather imaginary. In fact, both these processes are going on around us at every moment, and the authorities have a limited ability to choose between these two aspects of integration. The political dimension makes the question much more complex. Despite the aforementioned conclusion that economic integration is relatively independent of political will, an appropriate institutional framework is undoubtedly important for the pace of integration and the future shape of European markets. But politicians are caught between their vision of an integrated Europe and pressure from many of their voters to defend their current positions. Their inability to explain the benefits of integration to the electorate is a source of frustration and puts limits on any further political deepening and enlarging of the more and more economically integrated area. This may lead to a temptation to use the argument of an imaginary choice between deepening and enlarging. But businesses will not ask politicians for permission to move to Balkan countries or Turkey, or to continue concentrating their activities inside the present EU. The role of the authorities is to support, not hamper these processes. Therefore, my second conclusion is that frustration with the inability to politically consolidate the existing area should not become a reason for constraining its political expansion. In the end, business would find its way through, but Europe would lose. BIS Review 50/2006 1 | 0 |
IMF-SNB 8TH HIGH-LEVEL CONFERENCE ON THE INTERNATIONAL MONETARY SYSTEM CHALLENGES FOR MONETARY POLICY AND THE GLOBAL SAFETY NET IN AN EVOLVING GLOBAL ECONOMY Baur au Lac, Zurich, Switzerland, May 8th, 2018 Remarks by Mario Marcel, Governor of the Central Bank of Chile ∗ PANEL I: Challenges for Monetary Policy from Global Financial Cycles I would like to thank the organizers for the opportunity to discuss the evolving relationship between Global Financial Cycles and monetary policy at the national level. This is a topic especially important to emerging market economies (EMEs) like mine, for which economic and financial openness went hand in hand with strengthening its macroeconomic policy framework over the last 30 years. Such external openness leads analysts to frequently rank my country very high in terms of exposure to international trade and financial shocks, only to see such shocks having a milder impact on the economy when they happen. While we believe that such gap is to a large extent due to our appropriate monetary and fiscal policies and the institutions supporting them, we are aware that this does not mean full insulation from global developments, including, of course, Global Financial Cycles. Structural differences between advanced economies (AEs) and EMEs may be relevant to the nature and impact of Global Financial Cycles EMEs tend to depend more on foreign financing, due to lower domestic saving capacity. At the same time, EMEs usually have shallower domestic capital markets. These two factors make EMEs particularly vulnerable to changes in international capital flows. | Thanks to deregulation, more Swedes have been able to borrow at a reasonable rate of interest, making it possible for a larger number of people to own their own homes and to better distribute their consumption over their lives. In this respect developments in Sweden have largely followed those in the US and the UK. Of course such deregulation - or rather reregulation - is not problem-free. The fact that a greater number have the opportunity to borrow also implies increased risks in the financial system. But in the absence of risks, growth opportunities also decrease. The important thing therefore is that the risks can be managed in the event of a crisis, which, for instance, requires strong consumer protection. Here Sweden has also been at the fore by being the first to publish regular stability reports for the financial sector, with a view to avoiding any reoccurrence of a systemic collapse similar to that at the beginning of the 1990s. There are now signs on the Continent that the pace of financial market reform has increased. This is partly because the EU Member States, as a part of the Lisbon strategy, have agreed to implement the Financial Services Action Plan. Only last week new steps were taken to harmonise securities trading between the EU Member States through the signing of the Investment Services Directive. This affords both private investors and institutions greater opportunities to trade on exchanges other than those in their own country. | 0 |
The cause of this recession—a global pandemic—means that our economic future will be determined in large part by the path of the virus. It’s impossible to know exactly how and when workers and businesses will be fully back to work and when consumers will return to the businesses that are open. Despite the uncertainty, I’m going to spend some time today discussing what the scale of the challenge looks like for New York State, and for the U.S. economy as a whole. I’m also going to outline the Federal Reserve System’s response. The Fed is well-known for setting interest rates. But we play a number of other roles, and have a key responsibility for ensuring that the financial system is working to support the economy, which has been crucial during this crisis. Before I continue, let me give the Fed disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. A Diverse State One of the particular strengths of New York State is its diversity—and this is especially true from an economic perspective. In Western and Central New York there are top-tier universities, manufacturing businesses, a thriving professional services industry, as well as popular tourist destinations. Since the 2008 financial crisis, the declining population trend in Upstate New York of earlier decades had largely stabilized. In recent years, new businesses had sprung up and unemployment had fallen to historic lows. | In view of an increased inflationary pressures environment, we have embarked on a gradual process of monetary policy normalisation, aimed at timely returning inflation to the target and at a rather low costs to the economic activity. Nevertheless, the sound balance sheets of households and enterprises, the further expanded Albanian exports, and the decreased uncertainty in response to the expected reduced inflation will continue to feed the economic growth, in turn the latter is expected to remain in positive territory. The sound position of banking system is an added guarantee for the expansion of the economic activity. The healthy and liquid financial balance sheets of the banking sector guarantee that the latter will continue to funding the Albanian households and enterprises, by supporting the expansion of both consumption and investments as well as meeting the temporary needs for liquidity. The coverage and transmission in an objective manner of news to public is an important factor in meeting our objectives for a stable economic and financial environment. In this light, I am pleased to see that the media coverage of the economic and financial developments in Albania and abroad has been fully in compliance with our 1/4 BIS - Central bankers' speeches expectations. For this purpose, I would like to thank you for the professionalism and integrity you have demonstrated throughout 2022. In addition, I reaffirm that the Bank of Albania is completely open to listen to your opinions and suggestions for further heightening our collaboration. | 0 |
Philipp Hildebrand: SNB’s performance against the background of financial market developments Introductory remarks by Dr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 15 December 2005. * * * Developments in the financial markets The international financial markets have been dominated in recent months by four key developments. Long-term capital market yields have improved; the equity markets have, on the whole, exhibited very positive developments; the US dollar has continued the uptrend which set in at the beginning of this year; and the gold price has climbed sharply. The movements of the past few months in the international capital markets are largely attributable to economic developments and US monetary policy. Long-term dollar interest rates climbed significantly in the second half of the year thanks to the robust economic climate, the positive outlook in the US and the continued normalisation of monetary policy by the Federal Reserve. A rise in yields was also observed outside the US. The spread between US and European capital market rates, however, remained considerable. This is not least reflected in the differing business cycle phases of the US and European economies. Despite the improved economic outlook and higher oil prices, inflation expectations have, on the whole, remained moderate on both sides of the Atlantic. The three major economic areas – US, Japan and Europe – exhibited divergent equity market developments. While the US equity market largely maintained its sideways trend, the European indices firmed substantially. | Only by doing so, we could lay the grounds for a second assessment in a three-year time, which shall not only observe the accomplishment of these recommendations, but also determine new priorities towards financial system development. Thank you! 2 BIS Review 88/2005 | 0 |
Yet the stability and growth pact, which helps to ensure budget discipline in Euroland, imposes restrictions on the fiscal policy of the individual members. By contrast, interventions in the field of fiscal policy on a European level would hardly be in contradiction to the stability and growth pact. For a long time to come, however, the Union's budget is still likely to be too modest to bring about the desired effects within the Union by means of a stabbility-oriented fiscal policy. For the time being, fiscal policy is therefore not a realistic option. Finally, one should take into account that by its very nature a monetary union promotes the division of labour between the participating countries. Instead of being evened out, differences between countries may thus become more acute. In fact, regional specialisation in the United States is more pronounced than it currently is in Europe. Major industries have joined together in national clusters - car manufacturers in Detroit, software producers in Silicon Valley, the film industry in Hollywood. One might argue, in this context, that the Fed in Washington faces the same problems as the ECB in conducting a common monetary policy that fits economically diverging regions. However, there are two remarkable differences between the United States and Euroland. First, the US labour market exhibits a higher degree of flexibility, and second, the United States are a federal state with a large budget and fiscal policy power of its own. The European Union (EU) is still far removed from all this. | Financial crises are much more likely to be associated with corrections of asset values where asset purchases have been financed with debt rather than equity. Aggregate global debt – public, private and financial – is now around 320% of global GDP, close to its record highs. Excluding financial sector debt, the debt of the real economy is around 240% of global GDP.6 But aggregates can only tell you so much. And they can hide a multitude of sins. We need to need to look not just at the level of the total, but the growth rate and sustainability. And we need to drill down into the composition to see where the risks are most prominent. Growth, level and sustainability Research suggests that it is the growth rate of debt rather than its actual level that is the leading indicator of financial crises. Bank of England work based on 130 downturns in 26 advanced economies since the 1970s suggests that a rapid build up of debt is the best early warning indicator of a recession.7 Other academic work supports this conclusion.8 The actual level of debt matters rather in determining the depth, as opposed to the probability, of the crisis. So we need to look at the growth rate as well as the level. 6 See IIF Global Debt Monitor. Of the 317% of global debt to GDP, 60pp is household debt, 90pp is to non-financial corporates, 86 is government, and 80pp is financial corporates. | 0 |
I tell the Bank’s new entrants I can promise them only one thing: they will be telling their families and friends about this moment in history and, uniquely, they can write its next chapter. As a public servant, this is as good as it gets. Any lengthy career in public policy will inevitably be punctuated by crisis. In my case, crises have provided not just the punctuation marks, but most of the words, sentences and paragraphs too. In public policy, crises are the ultimate learning experience. They are also the moments when the Overton window of opportunity is widest and the opportunity for change greatest. Crises are moments of challenge and opportunity in equal measure. I am very fortunate to have experienced plenty of both. My time of the Bank has been evenly split between its twin statutory functions, monetary and financial stability. These functions, embedded in the Bank’s Royal Charter in 1694, remain its statutory centrepiece today. (The Bank’s third objective, fighting the French, has by contrast tended to be downplayed.) Over the intervening 327 years, both monetary and financial stability have had their fair share of challenges and opportunities. These have perhaps come thicker and faster over the past 27 years than the preceding 300. I want to offer a few retrospective thoughts on the evolution of monetary and financial stability over the past 30 years before turning to central bank communications, a crucial ingredient of both. Bank of England policy frameworks and practices have undergone an astonishing transformation over that period. | Risk had been dispersed and diversified to the four winds, courtesy of an ever-more interconnected global financial system and ever-more sophisticated financial instruments.17 The Great Moderation in the economy also meant finance faced fewer shocks than in the past. 13 Haldane and Kruger (2001). Fischer (1999). 15 Evanoff et al (2015). 16 Taylor and Schularick (2012). 17 Greenspan (2002). 14 11 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 11 When it came to assessing risks to the financial system, unlike with monetary policy, there was no off-the-shelf model. In pursuit of one, I started looking to other disciplines for inspiration. From the mid-2000s, I began discussion with a set of scientists – physicists, evolutionary biologists, epidemiologists – on the models they used to understand complex, adaptive systems. I was hoping they might provide some analytical clues when it came to modelling the complex, adaptive world of finance. I was in luck. There was a well-developed field of complexity science, with applications in most of the natural sciences and some of the social sciences. Economics and finance was a notable exception. Once I had retro-fitted these models to the financial system, I wrote a note and sent it to the Governors in 2005. It was titled “Public Policy in an Era of Super-Systemic Risk”. It made some bold claims about financial system resilience, most of which jarred with the prevailing orthodoxy.18 Financial integration, it argued, was a double-edged sword. It was fantastic for risk-dispersal when the good times rolled. | 1 |
Moreover, the dissemination of the Bank of Thailand's data to the public has been improved through the access to information through the web site and the use of the Interactive Voice Response. BIS Review 6/2001 5 The various improvements to the Bank of Thailand have also started to show results. In this regard, the Bank of Thailand was invited by the Bank for International Settlements (BIS) to hold shares with other prominent central banks in the world. But the work does not end here. The improvement within the Bank of Thailand must continue to ensure the Bank is an organisation which is ready to learn and develop itself as well as being the main economic organisation with accepted international working standards. More importantly, it is necessary to have an ability to maintain monetary and financial institution stability effectively and have the confidence of the public. In 2001, we projected the economy to grow at around 4 %, a similar rate compared to this year. In the first half, economic activity is projected to be somewhat stabilised. However, given a cleared economic and political environment, higher growth is anticipated in the second half of the year. Following the adoption of an accommodative monetary policy stance by the Bank of Thailand to foster economic growth, which has enabled a continued downward adjustment of market interest rates, domestic spending is expected to pick up next year, as there is usually a lag of 1 – 1.5 years before monetary policy will result in increased spending. | Philipp Hildebrand: Globalisation and current developments in the financial markets Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Swiss Institute of International Studies, Zurich, 13 March 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Fundamentally, globalisation is not a new phenomenon, and yet the world has changed dramatically in the past twenty years. This is also evident in financial markets, where, since August 2007, a local event like the correction in the US residential property market has rapidly developed into a global event. We are now experiencing the first truly major crisis of financial globalisation. The longer the crisis lasts, the harder it will be – but also the more important – to keep in mind the advantages of financial globalisation and preserve them in the long run. There is a need for regulatory correction, and such a need will remain in the future. The existing system of regulation and supervision should be further improved. The regulation of liquidity and equity, in particular, needs to be fine-tuned, strengthened and adjusted to the latest developments in financial markets. However, it is possible that more will be needed than just the fine-tuning of regulations. The buffers in the financial system have to be strengthened. In simple terms, what is ultimately required is that international banks strengthen their capital backing. At the same time, bigger liquidity cushions are needed. | 0 |
Russia’s invasion of Ukraine exacerbated the supply-side problems and led to a further surge in prices for a range of commodities. Since summer, reduced gas supply from Russia to Europe, combined with an unusually hot, calm and dry summer, has pushed up gas and electricity prices to very high levels. This has also led to higher energy prices in Norway. Chart: Inflation is broadly based With Norwegian businesses facing higher costs for labour, energy and intermediate goods, many are now raising their selling prices for goods and services. In recent months, consumer price inflation has been rising rapidly. In the year to September 2022, consumer prices measured by the CPI rose by close to 7 percent. Without the electricity cost support package for households, inflation would have been nearly 10 percent. The rise is broadly based across a range of goods and services, both imported and domestically produced. This chart shows the change in prices across 60 CPI sub-indices, with 44 of them having shown a price rise of more than 2 percent over the past 12 months. And for many of them, the rise in prices is now very high. The rise in prices for 16 groups has exceeded 10 percent. Energy and food prices have shown a particularly sharp rise, but we also see a pronounced rise in prices for some services such as air travel and hospitality, and goods such as books and household articles. | Under current circumstances, increasing government savings and adhering to fiscal discipline are essential to control the risks brought about by the current account deficit rising on the back of the decoupling between domestic and foreign demand. Our inflation forecasts take the fiscal projections of the MTP as given. A revision in the monetary policy stance may be considered, should the fiscal stance deviate significantly from this framework, having an adverse effect on the inflation outlook. In the upcoming period, monetary policy will continue to focus on sustaining price stability. To this end, we will meticulously evaluate the impact of macroprudential measures taken by the CBRT and other institutions on the inflation outlook. Fulfilling commitments to fiscal discipline in the medium-term and strengthening the structural reform process would facilitate the relative improvement in Turkey’s sovereign risk, and thus bolster macroeconomic and price stability. Maintaining fiscal discipline will also provide more flexibility for monetary policy and contribute to social welfare by keeping interest rates at low levels permanently. In this respect, timely implementation of the structural reforms envisaged by the MTP and the European Union accession process remains to be of utmost importance. Thank you for your attention. BIS central bankers’ speeches 15 | 0 |
During the period between December 2012 and December 2013, when the repo rate was unchanged at 1 per cent, I advocated interest rate cuts of 0.25 percentage points. Is it reasonable to believe that such a small cut would have any tangible effect on developments? Of course, we cannot know with any great degree of certainty what would have happened if monetary policy had been different than it was, but we can use economic and statistical models to assess the consequences. An analysis using the Riksbank’s macro model Ramses15 indicates that a repo rate that was 0.25 percentage points lower during most of 2013 would have meant that inflation would have been a couple of tenths of a percentage point higher today (see Figure 5). This may not seem much, but it corresponds approximately to the downturn in inflation we have observed since the start of 2013 and these are important tenths of a percentage point in a situation where inflation has already been low for a long time.16 The effect could be greater if one took into account the fact that a lower repo rate in 2013 would probably have affected expectations of future monetary policy during 2014 and onwards. Moreover, I was not merely advocating a lower repo rate, but also a lower repo-rate path during this period. A lower repo-rate path should have affected expectations of future monetary policy in an expansionary direction and thereby contributed further to higher inflation. 14 Swedish Bankers’ Association (2013). | When the krona appreciates, this has both a direct effect on inflation, which is pushed down when import prices fall, and an indirect effect in that the demand for Swedish-produced goods and services is affected negatively. Strong krona contributes to low inflation The possibility for monetary policy to steer the exchange rate is limited, but there is nevertheless reason to believe that the krona has become stronger than it would otherwise have been because of our leaning against the wind. If foreign exchange market participants see an increased difference between the yield on a Swedish treasury bill and the yield on foreign equivalents, the Swedish treasury bills and thus the Swedish krona will be more attractive and therefore more expensive – that is, the krona will appreciate. Although it is difficult to see clear links between observed exchange rates and interest rate differentials, a positive interest rate differential usually coincides with a strong krona (see Figure 1). The difficulty in seeing clear links is due to expectations having considerable significance for trade on the financial markets. The market rates and the krona rate do not change when the Riksbank makes its repo-rate decisions, they change when market participants’ expectations of future repo-rate decisions change. Figure 1. | 1 |
Svein Gjedrem: The outlook for the Norwegian economy and monetary policy assessments Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at a presentation of the Monetary Policy Report 1/09 at Goldman Sachs, London, 26 March 2009. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 25 March, Monetary Policy Report 1/09 and on previous speeches. Please note that the text below may differ slightly from the actual presentation. * * * Introduction Norges Bank’s Executive Board decided yesterday to reduce its key policy rate by 0.50 percentage point to 2.00 per cent. The Monetary Policy Report, published yesterday, indicates that the key policy rate should be gradually reduced further to a level of around 1 per cent in the second half of 2009. Financial crisis but active public measures In September 2008, the turbulence in financial markets erupted into a full-blown global crisis. Global economic growth was already slowing, but the situation has deteriorated in the past few months of 2008. The turnaround hit hard, with synchronised effects on virtually all financial and goods and services markets, not only in the US but also in Europe, Asia, Latin America and Oceania. We are now in the deepest downturn in OECD countries in the postwar period. GDP in the OECD area as a whole is expected to fall in 2009 for the first time since the Second World War. | Norwegian money market premiums are expected to edge down ahead in line with premiums in global markets. BIS Review 37/2009 3 The global downturn led to a marked fall in prices for oil and other commodities through autumn 2008. Oil prices have for a period now hovered around USD 45 per barrel. Oil futures prices have fallen and indicate an oil price of around USD 55 per barrel in 2010. Other commodity prices that are important for the Norwegian economy have also fallen sharply. Metal prices are particularly sensitive to cyclical developments. Futures prices for a selection of raw materials indicate unchanged or moderately rising prices in the next few years. Many countries that have been hit by the economic setback will see an improvement in their terms of trade and growth in their disposable income. 4 BIS Review 37/2009 The current downturn followed a period of very high global and domestic economic growth, supported by favorable trading conditions. Few countries benefited more than Norway from the economic upturn, which drove up prices for oil, gas and other export commodities. At the same time, an increasing number of cheap consumer goods were imported from new EU countries and from Asia. Norway’s real disposable income increased by more than 40 per cent from 2002 to 2008, more than that of any other western country. But our terms of trade are now deteriorating. | 1 |
Of course falls in house prices tend to coincide with a slowdown in the wider economy because they are affected by the same factors – notably falls in real income and employment. But they can also feed back into activity. First they slow housing investment and transaction flow which hits builders and related services like estate agents and conveyancers. The purchases of white goods and furniture tend to go hand in hand with transactions in the housing market. So the slowdown in the number of people moving home is likely to impact on spending on those goods. Falling house prices limit how much households and small businesses can borrow today and that pulls down consumption and investment. Also by reducing their expectations of what they will be able to borrow tomorrow either to compensate for a reduction in income or a need to spend, some households and firms may increase their precautionary savings. Finally, falling house prices redistribute wealth. Those who already own houses and expect to trade down in future and realise a capital gain, are worse off. On the other side, those hoping to trade up or who are not yet on the housing ladder are better off (although the tighter constraints on lending may mean they have to save a bigger deposit to enter the market). The former will tend to reduce their consumption; the latter will tend to do the 4 BIS Review 114/2008 opposite. In a perfect market these two effects might balance out. | Events are still moving quickly, so I hope you will understand why I am not going to attempt a live commentary on events. I hope that the massive and far-reaching measures the US Government has now announced will restore greater calm and confidence in their banking system. Stabilisation of US markets and banks should have a beneficial knock-on effect on wider international markets too. But we will continue to monitor the situation closely, in consultation with our counterparts in the US and elsewhere, in order to judge whether any further measures are needed. Inflation outlook This morning I want to take a wider perspective and discuss how the credit crunch is affecting the wider UK economy and draw some medium-term lessons for economic policy. BIS Review 114/2008 1 And the first point to make is that the turmoil in financial markets has not been the only shock to our economy in the last 12 months. In any other week more attention would have been given to the fact that for the second successive quarter the Governor had to write an open letter to the Chancellor on behalf of the Monetary Policy Committee to explain why inflation was more than a percentage point away from the target of 2%. In fact inflation has risen from 2.1% in December to 4.7% in August and it seems set to peak above 5% soon. The immediate driver of that increase has been the international commodity cycle (Chart 1). | 1 |
oil prices in the risk scenario stand at $ a barrel in 2018–2019, and fall to this level by the end of 2017. We have updated some internal parameters. They will be published today in the Monetary Policy Report. We have kept those predictions in the scenario with growing oil prices, at $ there have also been some minor revisions but general trends remain unchanged. In essence our estimates have not changed since last December. RBC Media Holding’s QUESTION: Two questions, please. First. You have cited many factors which favour the rate cut, but the significance of constraining factors remains relatively unclear. Do they include uncertain fiscal policy and reshuffles in the Ministry of Economic Development? Could you please repeat what prevents you from reducing the rate more rapidly and why the rate of reduction is 0.25 pp – is this a new norm? And question two. Economists say that the key rate is losing significance in terms of the economy, i.e. businesses are watching it less closely. Do you see any considerable difference between 9.75% and 9.5%? How important is the key rate at this time? ELVIRA NABIULLINA: Indeed, we took into account many positive factors as we made the decision to cut the rate, however inflation risks still persist. We consider them more likely to be medium-term than shortterm risks. Monetary policy takes effect with a lag of six to nine months, therefore when in making a decision we have to bear in mind its effects not only this year, but also in 2018. | On the subject of the fundamental value of the exchange rate. It’s true that this concept is employed by many experts, and so too by us; we have expressed this on several occasions. However, this concept must be treated with great care. My view is that this is a very conditional concept. We at the Bank of Russia have a number of models to measure this basic reading of the exchange rate. It would be fair to say that we estimate this deviation to be much smaller than does the Ministry of Finance. According to other models these deviations appear smaller. But in any case, what exactly is the fundamental rate of exchange? This is the rate of exchange necessitated by the current balance of payments, current account and capital outflow combined. Yet it is anyone’s guess to gauge the exact influence of basic and short-term drivers on this value. This is, as I have previously stated, a very conditional concept. As we see it, in a floating exchange rate environment, as we see it, no matter what deviations are in place, the impact from objective factors will ultimately result in an equilibrium which brings the interests of exporters, importers and borrowers into balance. In our view the issue should be addressed in this way. Second. Our reserve replenishment policy. | 1 |
Monetary and fiscal policies are being implemented with a high degree of expansiveness, so as to limit any effects of the current international crisis as much as possible. This is, undoubtedly, very good news. Thank you very much. References Ahrend, R., B. Cournède, and R. Price (2008), “Monetary Policy, Market Excesses and Financial Turmoil” OECD Economics Department Working Paper # 597. Becerra, S., L. Ceballos, F. Córdova, and M. Pedersen (2009), “Evolución reciente de las tasas de interés de colocación,” Manuscript, Central Bank of Chile. Brunnermeier, M.K. (2009), “Deciphering the Liquidity and Credit Crunch 2007-08,” Journal of Economic Perspectives 23(1): 77-100. Central Bank of Chile (2009), Monetary Policy Report, January. De Gregorio, J. (2008a), “Estabilidad de precios y estabilidad financiera: algunas reflexiones en la actual crisis financiera global,” Economic Policy Paper # 28, Central Bank of Chile. De Gregorio, J. (2008b), “Monetary Policy and Commodity Prices in Turbulent Times 2008,” in Katuri Nagaswara Rao (ed. ), Global Financial Markets: Managing Turbulence, The Icafai University Press. Diamond, D.W. and R. Rajan (2009), “The Credit Crisis: Conjectures about Causes and Remedies,” NBER Working Paper # 14739. Felton, A. and C. Reinhart (2008), “The First Global Financial Crisis of the 21st Century,” CEPR-Voxeu.org. García, P. and R.O. Valdés (2005), “The Inflation Process in Chile: Changes and Stability,” Manuscript, Central Bank of Chile. Glaeser, E.L., J. Gyourko, and A. Saiz (2008), “Housing Supply and Housing Bubbles,” Journal of Urban Economics 64(2): 198-217. Taylor, J. | In this way, although we will not be spared the effects of the global crisis, we can indeed mitigate their impact. Now, I will start out by presenting a short discussion on the relationship between monetary easing and the origin of the current global crisis. Then, I will discuss the evolution of inflation and output. Next, I will address monetary policy decisions and I will close this presentation with some final remarks. On the origins of the crisis: monetary policy or financial regulation? A lot has been written on the causes of the crisis and, certainly, this is not the time to analyze the myriad of factors which led to it.1 But I certainly do want to talk about the interrelationship 1 Interesting analyses on the origins of the crisis may be found in the articles compiled in section I of Felton and Reinhart (2008). For more recent discussions see Brunnermeier (2009), and Diamond and Rajan (2009). BIS Review 41/2009 1 between the performance of the financial system and the abundant liquidity after the interest rate cut in the United States following the plunge of the high-tech bubble in 2000. Many blame the US expansionary monetary policy as the main cause of the crisis. Such policy would have caused the housing bubble. However, monetary policy easing does not necessarily bring about bubbles in asset prices or even adjustments that may cause such striking effects as the ones we have witnessed in the United States. | 1 |
The implementation of this PvP link comes at an opportune time in view of the need to better manage the increased settlement risk due to the rapid growth in FX transactions and to assist financial institutions, in particular banks, to comply with the standards recommended by the international standard setting bodies. Driving the rapid growth in FX activities of the regional currencies has been Asia’s expanding share in global trade and investment flows. In the past decade, trade between Asia and the rest of the world had grown tremendously. Asian economies’ export of goods and services, as a percentage of the world total, increased significantly from 29% in 2002 to 38% in 2012, amounting to $ trillion. Asian economies’ total imports also increased significantly in the same period from 32% to 47%. Meanwhile, the investment flows between Asia and other regions have also intensified. Supported by the robust trade performance and increasing capital flows, activities in the regional FX market have increased significantly. According to the latest triennial survey on global FX market activity of the Bank for International Settlements (BIS), the average daily turnover in FX transactions involving Asian currencies increased by 172% from $ billion equivalent in 2001 to $ billion equivalent in 2010. BIS central bankers’ speeches 1 Against this backdrop of rapid growth in global FX activities, the Basel Committee on Banking Supervision issued an updated guidance on management of FX risk in February 2013. | Jaime Caruana: What’s next for Basel? Remarks by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the “Basel II: Reality Check” Conference, sponsored by Financial Times Business and the Banker Magazine, London, 10 November 2004. * * * 1. Introduction and overview I would like to thank the Banker magazine and the Financial Times Business for inviting me to join this important discussion today on the practical implications of the new capital framework for banking organisations. It is an honour to represent the Basel Committee on Banking Supervision at this event. The organisers have selected a provocative and highly appropriate title for this conference. As I will discuss this morning, the “real” reality checks for Basel II lie just ahead. Basel II’s effectiveness in encouraging improvements in risk management, and in motivating banks to hold adequate levels of capital, will depend principally on the degree to which it reflects the true risks and rewards facing banks. That is the focus for banks and supervisors now as we work toward the implementation of the new framework. Will Basel II be effective in promoting sound risk management? I am confident that the answer is yes on at least two levels. On the microeconomic level, I believe that Basel II will help to increase the rigour and comprehensiveness of an individual bank’s decision-making. | 0 |
It is seldom possible to demonstrate clear effects of interventions and that could not be done on this occasion, though the depreciation was broken during the day in question. Later in the autumn the krona appreciated again. BIS Review 111/1999 2 It seems to me that two main factors lie behind the krona’s appreciation in the past twelve months. One is a normal rebound from last autumn’s excessive weakening. This happened during the winter and was particularly pronounced because the euro’s introduction at the beginning of the year had made some investors concerned about the krona. The other factor is the increasingly clear picture of a strong economy with a budget surplus, low inflation and high growth. Moreover, the higher growth in Sweden compared with the euro area has influenced appraisals of the respective levels of interest rates. Specific events and statements may have played a part in the timing of the appreciation but it seems to me that the crucial influence has come from more fundamental economic considerations. The discussion of monetary policy has also acquired a new dimension. The procedure with the new Executive Board from the beginning of this year enables Board members to differ from the current majority view of inflation prospects and monetary policy measures. Board members have in fact differed on a number of occasions, as is clear from the published minutes. On two occasions, divergent opinions have also been registered regarding the level of the repo rate. | That is probably not happenstance. It may jeopardise internal cohesion and besides making monetary policy decisions, we have to work together in running an organisation. Then there is the risk that a policy of openness inhibits the internal discussion. (That is the background to the published minutes not reporting exactly what each member said at the meeting.) A third problem and the one that has attracted most attention has to do with our external communication. Before commenting more on the third point, it is perhaps advisable to point out that these problems had already been recognised when the new system was launched. That I mention them here should not be taken to mean that they have caused concern since then. More personification The changes from the beginning of this year were prepared at the Riksbank last autumn. After contacts with the Bundesbank, the Bank of England and others, a structure was drafted for the communication of monetary policy. Eight to ten monetary policy meetings a year would be held at set times. Press notices and inflation reports in connection with these meetings would form the corpus of our joint communications. Divergent opinions would not be revealed before the minutes have been published some time after each meeting. 3 BIS Review 111/1999 This arrangement does impose some restrictions on the outspokenness of Board members. | 1 |
We have worked closely with our colleagues in the International Accounting Standards Board to avoid conflicts between Pillar 3 and the broader accounting standards. In fact, the Committee views Pillar 3 as a further refinement of the accounting standards that apply to banks’ specific exposures. Because we recognise that we have much to do in this area, we will continue to monitor accounting and market developments in the light of Pillar 3. Our dialogue with accounting standards-setting bodies and the accounting profession will continue to grow in the years to come. Conclusion: Basel Committee & the Global Research Community I hope that this conference will help to identify the policy options that supervisors have in order to address emerging issues in risk management, financial reporting, and transparency so that we can work toward a more stable banking system. We can expect the financial services industry to quantify new aspects of risk while refining the existing measurement and management techniques. Innovation and advances in the banking industry’s quantitative tools will open up many new areas for us to study that may enhance our ability to interpret financial information, to aggregate and report data, and to leverage the power of markets to motivate responsible business behaviour. On that note, on behalf of the Basel Committee, I would like to thank the research community in member agencies, in academic circles, and in the industry for your contributions to our work. | The most challenging recommendations found in the report are those requiring a change in mindset, such as the identified lack of awareness of AML risks in non-bank financial institutions and the wider professional community, resulting in a very low number of suspicious transactions reports Page | 4 being filed by them. We all have a collective responsibility and nobody can procrastinate in getting our house in order. On a related note, our size will always present diseconomies of scale for large correspondent banks when evaluating their risk-adjusted returns from Maltese business. The risk aversion of these banks is impacting more heavily on the smaller jurisdictions. It is essentially a market failure, a true manifestation of asymmetric information. This does not mean, however, that we should be complacent and fatalist. While banks and authorities continue to search for technical solutions, we are all duty-bound to endeavour to convince these banks that they are dealing with a reputable jurisdiction and that our market players are fit-for-purpose in an age of increasing global financial transparency. These correspondent banks have neither the time nor the interest to understand risky business models or the overly-complex structures of your clients. As practitioners, you are the system’s first line of defence. The more layers of controls in the system, including a thorough understanding of clients and business models, and the less complex their corporate structure, the easier it is for banks to service them. There is indeed purpose in our cause to safeguard what we have achieved so far. | 0 |
I think it is correct to say that second only to the articles of association, a Board Charter is probably the most important corporate governance policy document which defines the respective roles, responsibilities and authorities of the board and management in setting the direction, the management and control of an organisation. It is a document that is useful to both old and new directors, particularly those who may not be familiar with how a company conducts its business and what is expected of them as directors. In this respect, the charter serves the following functions among many; One-source reference – a board charter is a one-source document which clearly sets out how the board and directors are to perform their roles. As an induction tool – a board charter acts as an induction tool for new directors and senior managers. Standard key board documentation – it contains documentation templates for such things as the board meeting agenda and board paper format. Having said this, I need to place a rider by stating that these charters that you will be examining this morning only set out minimum standards of what the boards are required to do. Some institutions present here may already have charters which are more elaborate than the model charters. That is fine as you will not be required to downgrade your existing charters. But for those institutions which might not have any charters, it may well be useful to consider customising the model charters. | Her findings provide some support for a decrease in volatility around monetary policy meetings, but no strong evidence to suggest that financial market volatility around the publication of new data has changed after Norges Bank began to publish interest rate forecasts. Another study that might provide useful input is Ehrmann and Fratzscher’s (2007) analysis of developments in US market rates in the period between monetary policy meetings under two different communication regimes. I will close by concurring with Blinder and colleagues (2008) when they write that: “… the publication of projected paths for the central bank’s policy rate appears to be the “new frontier” in central bank communication. But it has been practised in so few countries for so few years that we have little empirical knowledge of its effects as yet. As more data accumulates, this should be a high-priority area for future research.” It is reassuring to know that the economist that has begun this important work is Lars Svensson. References Blinder, Alan S., Michael Ehrman, Marcel Fratzscher, Jacob De Haan and David-Jan Jansen (2008): “Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence”, Journal of Economic Literature 46, 910-945. Ehrmann, Michael and Marcel Fratzscher (2007): “Social Value of Public Information – Testing the Limits to Transparency”, European Central Bank Working Paper 821. Holmsen, Amund, Jan F. Qvigstad, Øistein Røisland and Kristin Solberg-Johansen (2008): “Communicating monetary policy intentions: The case of Norges Bank”, Norges Bank Working Paper 2008/20. | 0 |
With over half of total trade in Asia being intra-regional trade, and with this proportion still on an increasing trend, economies in the region are becoming increasingly interdependent among themselves, arguably more so than each of them depends on the developed economies in Europe and America. By comparison, the degree of financial integration in Asia is disproportionately low. For example, all of the Asian economies have probably lent more individually to the United States than they have collectively to other Asian economies. 4. Whether we like it or not, we now find ourselves in the unenviable position of holding a substantial part of our savings in the financial liabilities of an economy that does not save, fearing that a diversification of a small part of such holdings might lead to a sharp fall in the value of the rest, thus shooting ourselves in the foot. We also find ourselves somewhat stuck with recycling a large part of our savings through the developed markets back into the region in a much more volatile form, occasionally creating havoc in our monetary and financial systems. 5. We find ourselves - we are told - contributing to the global imbalance by saving too much and spending too little, although those that tell us pay little attention to the fact that we do have typhoons and heavy rains, earthquakes and tsunamis, and we need to ensure that we are able to help ourselves as much as possible in case of need. | If we can succeed in implementing the reforms that are still outstanding, there is a chance that economic growth can be propelled to a level beyond the current economic upswing. BIS Review 100/2006 1 | 0 |
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. | First of all, the ECB’s accountability practices have evolved over time.3 With the launch of European banking supervision in 2014, specific accountability arrangements were established for the ECB’s supervisory arm. We also strengthened our relationship to reflect the greater complexity of the ECB’s monetary policy measures. For example, when the ECB was taking unprecedented action during the exceptional circumstances caused by the pandemic, I held an ad hoc exchange of views with the political group coordinators of this Committee. Moreover, we have agreed to interact more closely in the context of the ECB’s strategy review and ensure that our regular dialogues play a key role in how we inform about the exercise. The outcome of the review will also provide an opportunity for us to consider the ECB’s accountability practices. The ECB’s accountability has also been enhanced by a better flow of information between our 4 2/4 BIS central bankers' speeches two institutions. As we discussed last February4, this requires us to continuously aspire to communicate as clearly and as openly as possible. As part of this endeavour and also in response to parliamentary and public demands, the ECB has already started providing more detailed information about its asset purchases and current holdings on its website. Today I can announce an additional transparency measure. | 0 |
Nor Shamsiah Mohd Yunus: DFIs of the future - maximising development impact Welcome remarks by Ms Nor Shamsiah Mohd Yunus, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the World Bank and Bank Negara Malaysia Forum on Performance Measurement for DFIs "DFIs of the Future: Maximising Development Impact", Kuala Lumpur, 9 August 2018. * * * I would like to thank the World Bank for collaborating with Bank Negara Malaysia to organise this important event as we think deeply about the future of development finance, especially on how we can elevate the role of development financial institutions in Malaysia to achieve greater development impact. This is timely as the country is charting its future direction. History tells us that economic development is a collective responsibility. The success story of Malaysia’s development journey over the past six decades is a testament to this. Our goal has always been to achieve sustainable and inclusive growth, consistent with the 2030 Agenda for Sustainable Development advocated by the United Nations. Thus, the development priorities of the nation and the materialisation of the 17 United Nation’s Sustainable Development Goals (SDGs) will be key for us over the next few years. To this end, development financial institutions or DFIs in short, play a very crucial role. The first DFIs in Malaysia were established in the 1960s and 1970s as specialised financial institutions with specific mandates to develop strategic sectors, spanning agriculture, infrastructure, small and medium enterprises, export-oriented and high-technology industries. | As REFF provides risk mitigation 2/5 BIS central bankers' speeches mechanisms such as guarantee and insurance in addition to financing, it has attracted the private sector as co-investors and guided the financial institutions to develop capacity in risk management of renewable energy projects. This demonstrates that with in-depth understanding of the sectors they are serving, DFIs can design solutions which achieve the desired impact, whilst crowding in private capital. Key Message 2 – Performance measurement framework anchored on developmental objectives will ensure alignment of business strategies to deliver the highest value My second point relates to adopting a performance measurement framework for DFIs that is anchored on development objectives. This is to ensure alignment of business strategies to deliver the highest value to society. DFIs play an important role in bridging financing gaps by participating in markets not adequately served by the private sector. These are often developing sectors and markets which are characterised by high risks and uncertainties. Therefore, by extension, we cannot evaluate DFIs using mere financial indicators as they are not adequate to capture the contributions of DFIs to the wider economy and growth of the nation. DFIs must also be measured by the additionalities they create. | 1 |
3 Potential vulnerabilities to geopolitical risks also arise from an overreliance of EU participants on non-EU players in financial market infrastructures and digital financial services. This includes the dominant position of non-EU payment-related service providers in intermediating European payment transactions, the overreliance of EU market participants on third-country clearing services, and the rapid rise of non-EU “Big Tech” firms and the complexity of the crypto-ecosystem, which is dominated by a few large cryptoasset service providers (e.g. exchanges) often located outside the EU. In short, the EU - like many other economies around the world, including the UK - faces a number of external trade and financial vulnerabilities related to its high integration into global value chains and high dependence on certain imports, exports and non-domestic financial market infrastructures. New globalisation trends In the midst of numerous and strong geopolitical shocks, governments and firms are trying to reduce these vulnerabilities. It is obviously too early to know how and to what extent these attempts will affect globalisation trends, but they seem to be shifting from “dependence to diversification, from efficiency to security and from globalisation to regionalisation”. 8 First, companies are reducing their dependence on certain suppliers - i.e. seeking greater diversification - which can be very useful in reducing the impact of global supply shocks. Thus, according to some surveys, by the end of 2021 almost half of the companies had diversified their supplier base compared with only 5% that had implemented measures to return production to the company’s home country. | In the particular case of the EU, and with a view to at least partially offsetting the costs of deglobalisation and to ensure a more robust and resilient EU economy, in my view strategic autonomy policies should be accompanied by a substantial deepening of EU integration, particularly in those areas where integration is less advanced. In this regard, structural policies are needed at EU level to promote the integration and interconnection of EU markets - particularly energy markets - and to strengthen the single market, which will not only make it more resilient to shocks but will also increase competitiveness. Not only in the energy market, but also by promoting a genuine single market for services. Moreover, joint financing mechanisms must be put in place to safeguard this common effort without weighing too heavily or too unevenly on national public finances. Joint financing arrangements would enable EU institutions to finance large-scale programmes subject to a common quality standard and to evaluate their compliance in a homogeneous manner. Finally, it is essential to make progress in extending risk-sharing mechanisms - public and private - in the EU. This should be done in three ways. First, the Economic and Monetary Union (EMU) needs to equip itself with a permanent macroeconomic stabilisation capacity. Second, it is essential that the Banking Union be completed with the construction of an EU deposit guarantee system. | 1 |
In contrast, a stronger impulse from public expenditure is expected, particularly from investment. On the private consumption side, we expect it to keep growing for the rest of the year at a slower pace than was forecast in June (table 2). Annual CPI inflation, still affected by high monthly variations early in the year and the direct effects of the recent depreciation of the peso will remain above 4 percent throughout the remainder of 2014. By 2015, in line with the lower inflationary pressures that are inferred from the cyclic evolution of the economy and the high basis of comparison, annual inflation of both the CPI and the CPIEFE will have a quick descent to 3 percent. Then it will hover around 3 percent until the end of the forecast horizon, this time the third quarter of 2016 (figure 9). This inflation trajectory is based on the assumption that the indirect effects of the nominal and real depreciation of our currency will be more than offset by the state of the capacity gaps over the projection horizon. The Board’s assessment yields that the current level of the real exchange rate (RER) is consistent with the cyclical state of the economy and the internal and external financial conditions, although it is slightly above the range of its estimated longterm values. As a methodological assumption, it considers that the exchange rate will have a slight appreciation in real terms over the long run, as the cyclical conditions of our economy normalize. | Getting over Covid Speech given by Andrew Bailey Governor of the Bank of England Resolution Foundation 8 March 2021 I am grateful to Lauren Barnes, John Barrdear, Philip Bunn, Andy Haldane, Jonathan Haskel, Karen Jude, David Latto, Clare Macallan, Nick McLaren, Marko Melolinna, Sophie Piton, Alex Rattan, Kate Reinold, Michael Saunders, Fergal Shortall, Brad Speigner, Silvana Tenreyro, Matt Tong, Jan Vlieghe, and Chris Young for their assistance in helping me prepare these remarks. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice Introduction It’s a great pleasure to be participating in a Resolution Foundation event today. I wish I could say what a pleasure it is to be at the Foundation, but that has to remain a hope for the future. I am going to talk today about the future, the post Covid future as the economy recovers from this traumatic experience. If I had to summarise the diagnosis, it’s positive but with large doses of cautionary realism. To summarise, after starting with some description and assessment of the Covid shock to the economy, I am going to draw out four important points: Covid has been both a demand and supply shock to the economy, and the recovery therefore has to be in both elements, unusually so for recoveries I think. Absent a dual recovery, dealing with the issues that arise will be more difficult. | 0 |
Mugur Isărescu: Building our place in Europe - young Romanians pushing the boundaries in technology Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the conference "Building our place in Europe - young Romanians pushing the boundaries in technology", Bucharest, 24 October 2016. * * * Ladies and gentlemen, I am delighted to have been invited to address some of the best and the brightest of Romania’s younger generation. I must say I am impressed that you have built such a strong community here in the UK, judging by the large number of people present and the fact that this reunion is at its ninth edition. I congratulate the Romanian Embassy in the UK, the British-Romanian Chamber of Commerce, the Raţiu Foundation and all the other entities involved in the organisation of this event. I am happy to see that Romanian authorities, academia and non-government organisations are working towards strengthening the connection with Romanians abroad. We, at the National Bank of Romania, are also very interested to make use of the expertise of Romanians who have studied or worked abroad. Let me be more specific: we have now around 75 employees who either got post-graduate degrees at Western universities or have working experience in top European institutions, such as the European Central Bank, the European Commission or the Eurostat. Moreover, our internship programme is open to undergraduates studying abroad and we are glad to see increasing interest from such applicants. | I don’t know whether you share my optimistic opinion and view, I do hope so, but either way, the fact that you are here on a Saturday shows that you want to stay connected, both with other members of the Romanian diaspora and with your home country. Thank you for your attention and I hope that at the end of the day you will have plenty of reasons to consider it a day well spent. 4/4 BIS central bankers' speeches | 1 |
Paul Tucker: Monetary policy and the financial system Remarks by Mr Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, at the Institutional Money Market Funds Association Annual Dinner, London, 2 April 2008. * * * Alongside many others, the money market fund industry has for months now been grappling with turmoil and fragility across financial markets. It continues to pose serious challenges for all of us, and so I shall use this evening to summarise briefly a few of the strands in my own thinking about monetary policy and the financial system. Monetary policy First, monetary policy. The tightening of credit conditions domestically and internationally makes it likely that aggregate demand will slow, with a risk that it will slow considerably. There is, in consequence, a meaningful downwards threat to inflation over the medium term. Usually, the MPC would respond by cutting Bank Rate sufficiently to offset more or less entirely what we judged, over time, to be the impact of the tighter financial conditions on the path of spending, so as to ensure that aggregate demand remained broadly in line with the economy’s productive capacity. But conditions do not favour such a “business as usual” approach to demand management. That is because, alongside those downside risks to inflation, there are also upside risks to inflation over the medium term – and I am stressing “medium term” – stemming from the rise in commodity prices and the decline in sterling’s exchange rate. | The central projection in February’s Inflation Report was for inflation to return to close to the 2% target over the coming two to three years, conditional on the market’s expectation of further cuts in Bank Rate. But nor does the strategy determine a definite path for Bank Rate over the coming months. Each of us on the MPC must form a judgment month by month on which of the risks to the inflation outlook – from financial conditions or from rising costs – is proving more potent, and so a judgment on the degree to which we can set a course that underpins demand. Since the February Inflation Report, oil prices are around 10% higher, and sterling’s exchange rate around 4% lower, so the immediate cost pressures are worse. The good news is that, in the labour market, nominal earnings growth has so far remained subdued, notwithstanding the rise in near-term inflation expectations revealed by a range of surveys. BIS Review 38/2008 1 This is perhaps suggestive of the adjustment in real take-home pay made necessary by the sharp increase in firms’ costs due to the further rises in commodity prices. In manufacturing, firms’ input costs have risen sharply over the past twelve months; and output price inflation has reached nearly 6%. A big question is to what extent competition amongst retailers will dampen the pass through into retail prices. Anecdotally, retailers still sound as though they are competing fiercely on prices, and driving down other costs in order to maintain their margins. | 1 |
I would only like to mention that the National Bank has commenced the activities for implementing BASEL II in the Macedonian banking system. Does and will this crisis have an impact on our economies? It already has and it will have an additional impact depending on its duration. The first blow is for the real sector. In all of our countries, depending on the structure of the economy, the export sector will be most severely hit. BIS Review 18/2009 5 Consensus Forecasts of October 2008, envisages that the growth of the US economy will equal 1.4% and in 2009 it will be 0%, with a projected fall of the personal consumption and faster decline in the investment consumption. The growth of the EU economy for 2008 has been adjusted downward (1.4%) and for 2009 it is 0.6%. For an illustration, 60% of the Macedonian export is in the EU countries. The trading conditions have already deteriorated and we project further deepening of the trade and the current account deficits, whereas the increased minus between the exports and the imports will act toward reducing our growth rate. We expect a negative impact also in the capital and financial accounts, but at this moment it is difficult to quantify it. Banking will not be hit directly. There is no exposure in risk-bearing financial instruments. Deposits are dispersed according to the regulations. | High settlement fees could discourage institutions and portfolio managers from taking full advantage of advances in risk management techniques. Finally, a high cost structure for securities settlements could influence competition among financial centres. The efficient processing of commercial and financial transactions, including those generated by securities trading, is a necessity in a marketplace as competitive as ours is in the United States today. In my view, we are likely to see much more competition among financial centres in the future because financial centres provide a source of high-paying jobs. Cities around the world will increasingly compete to be prime financial locations. In sum, your efforts in moving to T+1 are part of an industry-wide effort to reduce risk and thereby ensure that our payment and settlement system continues to work well under all conditions. We are supportive of your efforts and applaud your initiative because we all want our payment and settlement system to remain sound, secure and efficient as it adapts to the changing needs of our global economy. 3 BIS Review 93/2000 | 0 |
As always, we are monitoring developments carefully and in connection with the Monetary Policy Update in April will make a renewed assessment of the international outlook in which we will also take into account how events in Japan may affect the development of the global economy in the slightly longer term. Sweden At the latest monetary policy meeting in February, we decided to raise the repo rate from 1.25 per cent to 1.50 per cent and our assessment was that the repo rate would need to be increased to 3.6 per cent by the end of the forecast period, that is in three years’ time. My assessment was that we will need to raise the repo rate by 0.25 per cent at every meeting in 2011 to 2.75 per cent at the end of the year. This entails a somewhat steeper upward path in the second half of 2011 than the repo-rate path presented in the main scenario of the Monetary Policy Report. However, in light of the uncertainty about the development of interest rates, I did not enter a reservation against the repo-rate path but confined myself to commenting on this at the meeting (see Figure 17). I will now discuss my view of monetary policy in the years ahead in a little more detail and take the picture of the economic outlook presented in the latest Monetary Policy Report as my starting point. | I take such credibility risks extraordinarily seriously. The 1930s were an episode of even worse Fed policymaking. This was a period of far greater economic dislocation and hardship. When thinking about the 1930s, I find it useful to turn to the wisdom of Milton Friedman and Anna Schwartz from their book titled A Monetary History of the United States, 1867–1960. Friedman and Schwartz discuss how monetary policy in the early 1930s actually contributed to the contraction, despite the fact that bank reserves increased significantly over that period. Broad monetary aggregates contracted, even though bank reserves were higher, because 1) banking panics and the weak real economy led the public to hoard cash and 2) banks wanted to increase reserve ratios as insurance against liquidity shortages and runs. As a result, the amount of lending supported by a given level of reserves fell dramatically, and the U.S. economy experienced a period of deflation. However, the Fed failed to see that it was running a restrictive monetary policy. One reason was they were striving to stay on the gold standard, which dictated policies to counter gold outflows. In addition, the Fed interpreted the excess reserves on banks’ books and the associated low level of money market interest rates as signs of an accommodative financial environment and so did not aggressively loosen monetary policy. | 0 |
And I should not fail to mention either that the recent dynamism of Spanish households' deposits and the progressive return of credit to a more sustainable growth rate has also helped cushion Spanish banks’ funding requirements. In these conditions, the Spanish credit system has found alternatives to recourse to the markets for medium-term financing to cover its funding requirements. More specifically, issuance of shorter-dated securities, such as commercial paper, has been stepped up and more intensive use has been made of the leeway provided by the Eurosystem’s monetary policy operational framework to cover liquidity requirements. In relation to the latter, I should like to emphasise that this possibility has been available to Spanish banks, as it has to all other banks of the area, since the very outset of monetary union, and it therefore comes as no surprise that it is used to a greater extent at times like the present. That said, the use currently being made of this facility remains moderate, as shown by the fact that the liquidity raised by Spanish banks as a proportion of total Eurosystem operations is barely commensurate with the weight of Spanish GDP in the euro area, or that this facility accounts, according to end-2007 data, for only 1.3% of the total bank balance sheet. Clearly, recourse to these alternative facilities is to some extent temporary; it is taking place in a situation of heightened uncertainty and it is not reasonable to think that it is going to be perpetuated. | When Paul Volker brought down US inflation from 13 % to 3 % in three years, he did it by setting a cap on Central Bank money growth. And symmetrically, when the Japanese authorities had to fight deflation, they resorted to a "quantitative easing" policy, which basically meant they were targeting a specific amount of Central Bank money. There has been considerable debate over the theoretical underpinnings of those policies: namely whether a specific channel of transmission of monetary policy, independent of interest rates, could be identified. In any case, those experiments show, in my view, that setting a path for money growth (or its level) can prove very effective in controlling expectations - or pin down the price level - in an extreme environment. • In more normal circumstances, however, the relationship between money and prices is more subtle and uncertain. In modern market economies, the demand for money exhibits - at least in the short and medium run - some chronic instability, if not unpredictability, a point to which I shall come back later. This has led to the demise of monetary aggregates as targets of monetary policy, and, in some countries, they have been abandoned as indicators as well. But we still think, in the euro area, that Friedman is right in the very long run. Our research has established that low frequency movements in money growth and inflation are closely correlated, retaining fluctuations with a period of 8 to 10 years. | 0 |
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. | Against the background of the current economic developments, it offers the necessary flexibility. Shortfalls in tax revenues and additional expenditure arising automatically from the economic situation support the economy. Where there is room for manoeuvre, additional fiscal policy measures can be effective. They should be timely, targeted and temporary, and take account of the respective country-specific situation with regard to state finances. Notwithstanding all budgetary measures for supporting the economy in the short term, we need to ensure the sustainability of fiscal policy in the medium to long term. Public confidence in the soundness of state finances must not be undermined as this would also impair the effectiveness of the economic policy measures. Therefore, “exit strategies” from the current fiscal stimuli should be already thought of. Structural reforms Structural reforms in the countries of the euro area are very important for two reasons in particular. They are necessary in order to enhance the flexibility and resilience of the euro area economy and to increase its growth potential. Such structural reforms relate to the markets for goods and services, and the labour market. Reforms of the goods and service markets should strengthen competition and accelerate an effective restructuring. An example of successful reform is the telecommunications sector, where liberalisation has enhanced competition, increased the variety of products and lowered prices, to the benefit of consumers. Labour market reforms should have two goals: to promote appropriate wage-setting and to facilitate labour mobility – the mobility between sectors of the economy and between regions. | 0 |
That would help to provide some protection, beyond the DGS, for users of the monetary services that banks provide via overnight and short-term deposits; it could provide a small degree of protection against runs; and there could be an element of social justice in insulating, say, small firms and charities from the first line of loss. But, I say ‘some’ uninsured deposits because I am doubtful whether very large, wholesale deposits placed at term maturities (eg billions of pounds for six months or more) should be preferred. They are not monetary deposits, in the sense of being transaction balances; and they are not placed by households or small firms or charities. Moreover, if they were to be preferred, it would be likely that a chunk of bonded finance would over time morph into borrowing-instruments that had the legal form of ‘deposits’. That would increase the cost of any residual bond issuance. 9 See Tucker, P. M. W. (2009), The crisis management menu, “Too little attention was paid to core liquidity holdings: a treasury portfolio comprising the [Floating Rate Notes] issued by other banks does not leave a distressed bank with many options in the face of system-wide stress.” 10 Of course, if the DGS is bankrupt and a country’s government is bankrupt, the DGS may not be able to pay out. That is very serious, but it cannot be solved by the design of bank resolution regime. | 8 The trigger for statutory resolution would be, broadly, that the conditions for the group being authorised as a bank or dealer were no longer met and there was no reasonable prospect of repair. It should be underlined that what is described here is nothing to do with so-called ‘contractual bailin’, which has been a source of confusing distraction over the past year or so. ‘Contractual bailin’ typically refers to bonds that convert into equity or write down under a trigger establishes purely in the contract documentation. But if the trigger is the firm’s capital ratio dipping below a high threshold, the bond is in fact for recovery not for handling abject distress. If, at the other end of the spectrum, the trigger is falling below a low capital ratio, there can be no assurance that the firm would survive in the markets long enough for the bond to be triggered before the firm had to go into statutory resolution. And if the suggestion were that the contractual trigger should give the regulators discretion, most Resolution Authorities would want to avoid writing down or converting bonds outside the statutory resolution process, since that provides protections for creditors, and gives the RA protections and powers for the achievement of a clear statutory objective established by the legislature. Bailin is not about a specific type of bond – a so-called ‘bailin bond’ – but about the application of a statutory resolution power to bonds of any kind within a statutory resolution. | 1 |
Andrew G Haldane: Credit is trust Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at the Association of Corporate Treasurers, Leeds, 14 September 2009. I would like to thank Paul Fullerton, Simon Hall and Salina Ladha for help in the preparation of this speech. * * * It is good to be back in Yorkshire. I say back because I grew up around 10 miles north of here. When I left over 20 years ago, Leeds looked and felt very different to today. Nowhere is the contrast greater than in the financial sector. In 1995, almost 74,000 people were employed in financial and related business services, accounting for around 20% of employment in Leeds. By 2009 this had risen to over 116,000, or around 30% of employment. Today, Leeds has a legitimate claim to be the UK’s second largest financial centre. A short history of banking in Yorkshire The foundations for this success were laid much earlier. The history of banking in Yorkshire dates back over 250 years.1 Pease and Co of Hull, established in 1754, are thought to be Yorkshire’s oldest private bank. In the same decade, banks were founded in Leeds and Bradford. By the end of the 18th century, Yorkshire had a well-established network of over 40 banks in around 16 regional towns and cities. In the first two decades of the 19th century, private banking in Yorkshire continued to thrive, spreading to around 30 towns and cities. | Meanwhile, it is clear that all models – no matter how good they are – need interpretation from the perspective of the events that the moment poses and in the view of the dominant phenomena of time. Dear participants, COVID-19, coupled with the issues it has caused and the restrictions taken to contain it, continues to dominate both our economic and social life and activity. It has also certainly become an important part of the analysis and research work of the central bank. This is not a surprise. I think that the shock triggered by the pandemic and the related effects will continue to be part of the research agenda for a long time, even after the pandemic is over. However, recent developments show that the research agenda of the central banks have been enriched by the study of other risks, such as those related to climate change and environmental protection, demographic risks, digitalisation and digital currency. These have been identified as big and long-term challenges to both the global economy and the authorities of every country. The Bank of Albania has started to work on to establish the infrastructure for modelling and analysing these phenomena. It is crucial to not think of these topics only for the purpose of testing assumptions or academic discussions, but rather to consider them in the concrete framework of policy making and decision taking. I am confident these topics will become important themes for discussion themes in our Research Workshop in the future. | 0 |
Meeting the challenges of innovation and its diffusion as well as ensuring the labour force’s employability and flexibility, requires that human capital is continuously adjusted to labour market needs through improved education and training, as well as lifelong learning. The last decades have already brought about an enormous increase in the level of educational attainment. However, so far investment in human capital in Europe is still clearly inadequate for a “knowledge-intensive” economy. In 2003, the US annual expenditure on higher education institutions represented 2.9% of GDP, while in the euro area it only represented 1.2% 16 . The gap is mainly a result of greater private funding. European universities should be allowed and encouraged for instance to seek complementary private sources of funding and legal, and other barriers to public-private partnerships between universities and businesses should be removed. A better and more effective education system, as estimated by some research of the European Commission, might add as much as 0.3 to 0.5 percentage points to the annual EU GDP growth rate 17 . Macroeconomic stability to support higher and sustainable growth As mentioned earlier, the supply-side determinants of long-term growth that I have emphasised should not be understood as an exhaustive explanation for the growth performance of the European economy. We should also look beyond the microeconomics of the supply-side and ensure an appropriate macroeconomic framework in Europe. First of all, sound national fiscal policies in Europe are of the essence because they ultimately are supporting growth and stability. | The Risk-Based Capital Framework and Risk-Based Supervisory approach give room for institutions to innovate and take more risks as long as adequate controls and risk management practices are in place. BIS Review 103/2006 1 Liberalisation of the general insurance industry MAS will also continue to encourage greater participation from a wide range of global insurance players in our market. In 2000, we lifted the moratorium on admission of new direct general insurers and removed the 49% limit on foreign shareholding in locally-owned direct insurers. Since then, the industry landscape has evolved considerably. Today, we have a diverse network of 58 direct insurers, many of whom are specialist insurers, 27 professional reinsurers and 60 captives. Most of the top international insurance and reinsurance brokers are also here. We continue to see interest from more players seeking to establish a presence here. We will consider all applicants that are well-capitalised, have an acceptable rating, and are managed by experienced professionals with a good track record even if the company is newly established. Singapore as an insurance hub Singapore has achieved a critical mass of insurance players and activities, becoming an insurance hub. This critical mass means a wide range of insurance products and services are available. Singapore is a logical choice for those seeking to purchase insurance because they know that there are capacity and expertise here. Indeed, Singapore serves as an important regional reinsurance centre as well as the largest captive domicile in Asia. Asia holds many opportunities for insurance. | 0 |
In particular, with an ever globalised world, competition is no longer local – the private sector cannot just compete locally when the flows of goods, capital and talent are global. Furthermore, in a global stage, long-term relevance can only be sustained through genuine competition-driven competitiveness rather than through public sector support. To develop both an appropriate incentive structure and a market-driven environment, it is crucial that market and price distortions are removed and greater competition is introduced, such as through deregulation, liberalisation and greater transparency of rules and regulations. While the government moves towards this, the private sector must be ready to operate in this more open and competitive environment. An example of an industry within Malaysia in which a private sector-led competitive environment is being developed is the BIS Review 158/2009 5 financial sector. Over the last several years, the domestic financial sector has been gradually liberalised and subjected to greater global competition, with the dual aims of enhancing the role of the financial sector as a source of growth and as a key enabler and catalyst of economic growth. Growth of the financial sector also strengthens Malaysia’s economic interlinkages with other economies. Liberalisation is done after ensuring that the financial institutions are in a state of readiness to compete in a more competitive and challenging environment. | I noted particularly that the Association could play a role in three main areas: by acting as an industry representative and interlocutor with regulators; by establishing common standards and documentation; and by promoting market transparency and efficiency. I am glad to say that the Association has delivered on its promises in each of these areas. Its website is, for example, now up and running, and is an important source of information for both members and non-members. If I could put in a plea, however, it would be for more market statistics to be made available on the parts of the website that are open to non-members - or honorary members such as the HKMA. In its representational role, the Association offered very helpful comments last year on the draft guideline that the HKMA prepared on the management of the risks associated with syndicated lending. Our initial draft generated a certain amount of heat. This was I think largely due to a feeling on the part of the industry that we had overplayed the inherent risks of syndicated lending. We therefore made it clear in the final version of our guideline - which we issued in non-statutory form - that syndicated loans are not necessarily riskier than other types of lending. Indeed, the distribution of lending among participants is designed to reduce risk by sharing it. | 0 |
It’s this widening dislocation that has depressed real incomes. One way to measure the strength of “second-round effects” is to ask how changes in the “wedge” between output and consumer prices affect near-term nominal wage growth. Are external hits to real income absorbed relatively quiescently, without much of an effect on domestic inflation? Or is there sufficient resistance that people want to claw back in higher nominal pay what they’ve lost from higher import prices? This was something that received quite a bit of attention from labour market economists during the 1980s and 1990s. It was clear then that external influences on real incomes – from changes in import prices or taxes – could have significant second-round effects. Using data from 1956-85, the economists Layard, Nickell and Jackman estimated that a 1% hit to real incomes pushed up near-term nominal wage growth by somewhere between Bank of England Page 13 0.5 and 0.6 percentage points5. The rapid response of pay growth to the big hike in VAT in 1979 was one example. Over time, however – and above all during the inflation targeting period – this sensitivity seemed to decline. Chart 7 plots rolling estimates of this coefficient over the past thirty years. According to these, nominal pay growth during the inflation targeting era has become increasingly desensitised to shifts in the wedge between consumer and output prices. There were periods when it might have responded. After the financial crisis, sterling fell, pushing up the cost of imports, and productivity growth declined. | Yet there was almost no perceptible response of nominal pay and domestic prices. Economists attributed this decline either to the change in monetary regime itself, or – more often – to greater flexibility in the labour market. Chart 7: Lower sensitivity of wages to real income shocks during inflation targeting period Rolling coefficient on wedge between consumer and output prices using 18-year regressions. Dotted line shows coefficient estimated by Layard, Nickell and Jackman (LNJ) on 1956-85 sample. Source: Layard, Nickell and Jackman (1991), ONS and Bank calculations. But it was hard to be confident about these estimates. Labour-market flexibility isn’t set in stone. In a speech in 20066, Charlie Bean suggested that increased ease of migration, in both directions, might have reduced the sensitivity of real wages to shifts in labour demand. It’s possible that, by adding a degree of friction to 5 Layard, Nickell & Jackman (1991), ‘Unemployment: Macroeconomic Performance and the Labour Market’. 6 Bean (2006), ‘Globalisation and Inflation’. Bank of England Page 14 the inflow and outflow of migrant workers, the combination of Brexit and the pandemic have made the labour market less adaptable than it was a few years ago. There may be other reasons why susceptibility to second-round effects can vary. During the one period in which higher import prices seriously impinged on real incomes, following the financial crisis, unemployment was also much higher than it is today. | 1 |
Since the single European currency was introduced on 1 January 1999, the Swiss franc's nominal appreciation has been more than offset by the inflation differential between Switzerland and the euro area. The competitive position of our exporters has thus improved against their European counterparts. The dynamism of the Asian economies has boosted demand for commodities, notably oil. The soaring price of this "black gold" continues to pose a serious threat to the recovery of the industrialised economies. Guardedly optimistic outlook for 2005 As it is benefiting from price stability, low interest rates and a strong competitive position, the Swiss economy is well placed to profit from the world economic upturn. However, the outlook for the global economy in 2005 is not quite as good as it was in the past year: growth is put at around 4%, down from 5% in 2004. Growth will continue to be driven by Asia and America. Europe – and especially 2 BIS Review 30/2005 Germany, our biggest market – will continue to chug along with a growth rate of between 1.5% and 2%. In this slightly less dynamic environment, the Swiss economy is unlikely to exceed its 2004 growth figure. Business activity has fallen off slightly since the autumn but should slowly gain momentum again in the next few months. Overall, we are expecting GDP to grow by about 1.5%. | Jean-Pierre Roth: Review of the Swiss economy Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Bank’s Annual General Meeting, Berne, 29 April 2005. * * * Dear shareholders Dear guests 2004: the economic upswing continues The economic upswing that began in summer 2003 continued last year. Economic growth moved into the positive zone and came close to its potential level once again. While growth was slightly negative in 2003, it reached 1.7% for 2004 as a whole. The recovery in Switzerland is due in large part to the rebound in global economic growth, which reached its highest level since 1976. Swiss companies have benefited from this situation: last year, exports rose by 6.7% – a significant increase compared with the 2003 figure. This figure reflects our exporters' continuing wish to adapt to changes in demand, as well as the untiring efforts to streamline Swiss industry and maintain Switzerland's appeal as a location for business. The Swiss economy's strong presence on the international markets has been a reality for a long time. As our direct investments abroad have grown, however, it has taken on a new dimension in recent years. Not everyone is aware that while Switzerland is a champion in savings, it also boasts a performance in the area of foreign investments that is unrivalled. In 2003, we invested some CHF 20 billion abroad – a sum equivalent to almost 20% of national savings. | 1 |
It is already easy to open an account with another bank and to 9 See, for instance, BIS (2018). 10 See Juks (2018). 11 This is highlighted by among others the BIS (2018) and Camera (2017). 5 [9] rapidly transfer money there electronically, so this risk does not increase with an e-krona. Another possibility is of course to invest the money in short-term government securities. If people stop trusting the banking system as a whole, it is of course more attractive to invest in an e-krona than in cash, which is the only alternative today in such a situation. However, the Riksbank already has a large toolbox to manage situations with a confidence crisis in the banking system. An e-krona would moreover make it possible to rapidly deal with such a situation by supplying e-kronas to those who want to withdraw money from their bank accounts. This would be more effective than it is with cash today, which could reduce the contagion risk between banks. 12 If people know that it is easy to withdraw their money, the risk of a bank run should decline. It may also be the case that the banks become less likely to take risks if they know that they must take better care of their deposits. 13 Many people react at the very idea of a central bank being able to issue digital money. They are afraid that it would entail a major change, a new role for the Riksbank. | Similarly, the factories of Giorgio Armani, Gucci, and Prada were repurposed to produce medical overalls to support the overwhelmed Italian healthcare system. 2/7 BIS central bankers' speeches Improved visibility and transparency on shipments can help make supply chains more flexible and resilient. Of course, it is not as easy to retrofit ships to carry different types of cargo as it is for airlines to convert passenger planes to cargo planes But the shipping and logistics industries can use digital technologies to improve coordination of supply chains, have more timely notifications of shipment delays, and enhance fleet management and route optimisation. Integrated supply chains are more resilient – with more seamless solutions and end-to-end connectivity across online and offline logistics activities. The rise of e-commerce platforms has launched a move towards end-to-end supply chain integration. Alibaba and Amazon are challenging traditional logistics players by developing their own warehouses and fulfilment centres. Of course, digital connectivity cannot fully replace physical connectivity because goods still have to be moved. Businesses are therefore adopting omni-channel marketing and distribution approaches, connecting with suppliers and customers both online and offline. Integrated supply chains also mean strong inter-linkages across adjacent sectors – maritime, aviation, rail and road transport, with trading, logistics, and finance. Let me highlight a Singaporean initiative in this space. The Monetary Authority of Singapore (MAS) and Infocomm Media Development Authority (IMDA) have jointly launched a digital platform called Business sans Borders (or BSB). | 0 |
The road ahead These initiatives are important down-payments towards closing the trust deficit. Yet even if these initiatives are necessary steps, are they likely to be sufficient? The Bank’s Open Forum suggested that would be an optimistic conclusion. So too would the evidence from various opinion polls and, indeed, from banks’ own assessments of their culture. If so, what further initiatives might help in closing the Great Divide? It may be tempting to conclude that the trust gap can be closed by simply having a bettereducated public, one which better appreciates the important role finance plays in supporting the economy and wider society. On this diagnosis, closing the Great Divide would call for enhanced public understanding of finance, perhaps through a targeted public education programme. Yet as Gillian Guy, CEO of Citizen’s Advice, perceptively pointed out at the Bank’s Open Forum, the perception gap may as much reflect the lack of understanding of the public on the part of those inside finance as a lack of understanding of finance on the part of the public. I think that is spot on. Closing the perception gap calls for a two-sided effort. (a) Enhancing public education A great many people find financial issues difficult and boring. That is a weak foundation for making good financial choices. At least some of those problems originate in the mental block many people encounter when it comes to mathematics. Finance is a numbers game. | Clearly, then, there has been a rapidly rising tide of banking information. Or has there? The Godfather of information theory, Claude Shannon, defined information in terms of its ability to reduce our uncertainty. 60 But page length and certainty are not synonyms. As even professional investors find banks’ annual reports somewhere between undigestible and unfathomable, it seems possible more banking information, in the conventional sense, may have made for less banking information, in the Shannon sense. One interesting diagnostic comes from looking at the nature of the information provided by banks’ annual reports, rather than its quantum. Linguistic analysis provides a range of metrics for determining the complexity of a language, including word and sentence length. 61 By taking a range of measures of linguistic complexity, and applying them to banks’ annual reports, we can get a window on Shannon’s measure of information-content. Chart 3 plots six metrics of linguistic complexity, as applied to the annual reports of the four largest UK banks. 62 It compares them with a series of alternative publications, specifically a UK broadsheet newspaper, a UK tabloid newspaper, a set of recent Bank of England reports, a selection of my own speeches, and a selection of speeches by the leaders of the UK’s main political parties. These comparators have no significance beyond the fact that they are examples of material written for a general audience. What this demonstrates is that banks’ annual reports rank highly on the linguistic complexity scale, well above even a broadsheet newspaper. | 1 |
11 Central Bank of Chile 29 June, 2017 Slide 15 Potential for financial development ▪ DLT may contribute for the development of emerging countries in several aspects: i. ii. iii. iv. v. Universal access to financial services by consumers and small-medium enterprises Enhanced security of remittances and transactions among vulnerable sectors Higher competition and less concentration of the financial sector Reduced costs for participation in the formal economy Easier access to public services based on improved government databases Potential for financial development [SLIDE 15] DLT may contribute for the development of emerging countries in several aspects: (i) universal access to financial services by consumers and small-medium enterprises; (ii) enhanced security of remittances and transactions among vulnerable sectors (the poor, migrants, rural areas); (iii) higher competition and less concentration of the financial sector, and (iv) reduced costs for participation in the formal economy and easier access to public services based on improved government databases. Recent experiences with M-Pesa in Africa and with Unique ID in India are good examples of such development trends. However, some obstacles and risks still deserve attention. An efficient use of financial services may require larger investments in education and financial literacy. Recent experience shows that even in developed countries people often misuse financial instruments. Consumers often suffer from large debt burdens and complex contracts that they do not understand. Also, some of the new financial instruments—such as digital currencies—may facilitate tax evasion, fraud and illegal transactions. | And because now is the time to strengthen our economic instruments in order to deal with a future European recession, the day it comes. Otherwise monetary policy may be overburdened. My second wish concerns our country. The French economy is in much better shape, but there are still major drags on growth. At around 1.9%, we are above our potential growth rate, which means that we are coming up against more structural limiters. There are at least two indications of this: a persistent negative growth differential vis-à-vis the euro area of around half a percentage point, and a current account deficit and hence a lack of competitiveness. In order to increase the speed of the French economy, we need to boost the power of the engine: reforms, including those underway, are therefore necessary. And, beyond bureaucratic barriers or corporate interests, the greatest priority is to reform vocational training and apprenticeships: we cannot remain in a situation where we have almost 3 million unemployed, of whom 600,000 are young people, and companies cannot recruit the skills they need. I hear this everywhere from the entrepreneurs who participate in the advisory boards of the Banque de France, from Besançon to Châteauroux last week. According to INSEE, hiring difficulties have been the main obstacle to corporate activity. My third wish is for financing. Often, the Governor of the Banque de France encourages banks to lend more; this is not the case at present! Bank lending in France is very buoyant. | 0 |
As I have mentioned before, the medium-term stabilisation of existing government debt levels at around 60% (with inflation at 2%) was consistent with running a headline deficit of around 3% of GDP (see left-hand side figure in slide 4). In the current context, however, the observed prevalence of negative r-g differentials (see the right-hand figure in slide 4) would be consistent with government debt levels stabilising at a higher percentage of output. Given this situation, it is legitimate to ask whether a government debt level above 60% is now the correct figure? The question is not easy to answer, and it will depend on national considerations (the economic fundamentals in the medium-term, the vulnerabilities and resilience of the economy) and, of course, the prevailing financial and monetary conditions. Moreover, the current high levels of government debt evidence the difficulties of transitioning to the medium-term debt anchors. At present, converging towards a debtto-GDP ratio of 60% would require a substantial fiscal effort over a prolonged time frame. Using the historical average values of real growth, inflation and interest rates, the euro area would need to maintain a fiscal surplus of 1.1% of GDP over 20 years in order to reduce the debt ratio to 60% (see left-hand side figure in slide 5). This is substantially higher than the average primary deficit of 0.4% of GDP observed since 1995. For this constant fiscal effort to be at more plausible values, the macroeconomic environment would need to be far more favourable than it has been in recent decades. | And, in this regard, the link between the access to funds and the implementation of reforms should be seen as a crucial incentive. Allow me to also highlight the importance of insisting on a European, medium-term, economic growth-enhancing agenda. In this context, recent energy market developments and the global value chain bottlenecks highlight the importance of reflecting on the principles and way forward for achieving a European “strategic autonomy”. EU-wide structural policies promoting European integration and strengthening the single market will also make our economy more competitive internationally. The Important Projects of Common European Interest, developing new batteries and microelectronics, and those under way in the fields of Hydrogen and Cloud Infrastructure and Services, supported by NGEU funds, are good examples of this. Nevertheless, while it is important to promote these developments from a 8 European perspective, we should also keep in mind that increasing the scale of these projects might generate divergences across Member States. In order to make this compatible with a level playing field and to extract the advantages of economies of scale, it is therefore necessary to fundamentally improve our risk-sharing mechanisms and move further and faster towards a frictionless single market, both for capital and for labour. Banking union and capital markets union The final elements of reform I would like to mention today relate to the completion of the banking and capital markets unions. | 1 |
Notably, the 1994 cycle was associated with a large increase in U.S. long-term bond yields, and appears to represent a case in which there was a considerable gap between what the Fed did in terms of monetary policy tightening relative to initial market expectations. A similar gap was apparent during the taper tantrum in the spring of 2013, when our attempts to provide guidance about the potential tapering of asset purchases ended up confusing market participants, causing many to anticipate an earlier start and more rapid rollout of actual policy rate hikes. These episodes are reminders of the importance of transparency and clear messaging in how the Fed is evaluating the evolving economic landscape, a point I’ll return to shortly. Third, the stance of Fed policy will be far from the only factor affecting external financial conditions for EMEs. Even as the FOMC considers the appropriate timing and pace of moving to a less accommodative policy stance, the ECB and the Bank of Japan are implementing additional easing measures. As a result, external conditions will remain more supportive than would be indicated by a narrow focus on Fed policy alone. Finally, EME fundamentals are likely to be the most important determinant of how their financial conditions respond to Fed policy normalization. This was one of the key lessons of the taper tantrum. At first, market pressure was somewhat indiscriminant across countries. | While the focus of this Summit will be on Islamic finance, it is inevitable that the discussions today will touch on the recent developments in Europe, given the potential impact it may have on the rest of the world and the need to implement strategies and policies for coping with the consequences of these developments. While the financial solutions being implemented in managing the crisis and the measures being introduced to mitigate the impact of the crisis by the rest of the world is important, it can only provide temporary relief. It is the structural policies and reforms that are more challenging to undertake that will ensure fundamental financial stability and a long lasting self sustaining economic recovery. My remarks today will focus on the changes in the Islamic financial landscape and its increased potential to contribute to sustainable growth, increased international connectivity following the increased pace of internationalisation of Islamic finance and new developments to achieve financial stability in the Islamic financial system. The changing financial landscape and the accelerated expansion in Islamic finance have also resulted in changes in the nature of the supporting ancillary services, including education that is being provided for the business and financial sectors. Islamic finance and fostering sustainable growth As the Islamic financial system evolves to become more diversified and more comprehensive to meet the changing requirements of the real economy, it is increasing its potential to fostering sustainable growth. | 0 |
There is now a rich body of evidence that rapid build-ups in mortgage debt increase GDP-at-risk by making downturns both deeper and longer. This relationship is robust across different countries, and across time (Chart 11).19 17 The two tools were calibrated to be broadly consistent with one another. 18 Factors relevant for the calibration of the affordability test (and, by extension, the LTI flow limit given the consistency of calibration between the two) were discussed in the FPC’s 2019 housing review (see December 2019 Financial Stability Report). 19 See, for example, Bridges, J, Jackson, C, and McGregor, D, (2017) ‘Down in the slumps: the role of credit in five decades of recessions’, Bank of England Staff Working Paper No. 659 for cross-country evidence; Mian, A, and Sufi, A (2010), “Household leverage and the recession of 2007 to 2009”, IMF Economic Review 58, pp74-117; Kovacs, A, Rostom, M, and Bunn, P (2018), “Consumption response to aggregate demand shocks and the role of leverage”, Centre for Macroeconomics Discussion Paper 1820, for UK cohort evidence; and Baker, S, (2018), “Debt and the response to household income shocks: validation and application to linked financial account data”, Journal of Political Economy 126(4), pp1504-1557 for US household-level evidence. 19 All speeches are available online at www.bankofengland.co.uk/news/speeches 19 Chart 11: Relationship between household debt and downturns robust across countries and time Source: Aikman, D, Bridges, J, Kashyap, A, and Siegert, C (2019), “Would macroprudential regulation have prevented the last crisis?”, Journal of Economic Perspectives, Winter. | These generally carry a higher yield than the assets purchased in the course of the intervention, typically low-yielding U.S. Treasuries. The difference in yields results in a net fiscal cost. 4 BIS central bankers’ speeches Second, the need for U.S. fiscal consolidation implies that there will have to be offsetting increases in investment and the U.S. trade balance as the recovery proceeds. To illustrate this second point consider the following accounting identity: The public sector balance + the private sector balance = the current account balance Right now the identity holds as roughly: –10 percent of GDP public sector balance + 7 percent of GDP private sector balance = –3 percent of GDP current account balance.5 If the public sector balance must over time move from around –10 percent to around –3 percent to stabilize the federal debt-to-GDP ratio at tolerable levels, then the private sector balance and the current account balance must move by roughly 7 percentage points of GDP to take up the slack. Assuming that the consumption share of GDP still needs to fall over the medium term, the adjustment in the U.S. private balance will have to occur primarily in terms of rising residential or business fixed investment. There does seem to be room for business investment to expand significantly when firms become more confident in the economic outlook, provided that the United States remains a competitive location for investment. But residential investment is unlikely to climb very much for some time given the chronic overhang of unsold homes. | 0 |
The unemployment rate is modestly lower and private non-farm payroll growth a bit higher than earlier in 2012, which is certainly welcome. However, other important indicators including the employment-to-population ratio and job-finding rates are essentially unchanged (Exhibit 10). This suggests that the labor market is far from healthy. Moreover, our policy is based on the outlook for the labor market, not the level of employment or unemployment today. In this context I note that the recent improvement in payroll employment growth, which gets much of the attention, is out-sized relative to the growth rate of economic activity that supports it. We have seen this movie before. When this happened in 2011 and 2012, employment growth subsequently slowed (see Exhibit 11). 8 It avoids the ambiguity of what a change in the forward rate guidance would signal. Is the date being moved out, for example, because the FOMC wants to provide additional accommodation or is the move just due to deterioration in the economic forecast? 9 I draw a distinction here between efficacy and benefit. In my view, the benefit of additional accommodation would diminish as we get closer to our dual mandate objectives and become more confident in the forecast of a strengthening recovery, even if the assessment of the efficacy and cost of the tool were unchanged. 10 Of course, this expectation assumes no new information on efficacy and costs emerges that fundamentally changes my assessment of the merits of the program. | Such expectations are even greater on Islamic finance given that the professed values of this industry are driven by the principles of Shariah which promote fairness, equality and justice. It is from this perspective that Islamic finance practitioners are duty-bound to observe the norms of high ethical conduct to uphold the values and the sanctity of Shariah. The need is even more now, given the increasing complexities faced by Islamic finance brought about by more competition and evolving regulatory requirements, more offerings of sophisticated products and growing cross-border activities. In Malaysia, it has always been our priority from the beginning to develop talent in Islamic finance as we recognise that quality talent is a crucial prerequisite for the continued success of the industry. There has been significant investment in capacity building, in line with our strategic approach in realising the visions of talent development outlined in the Financial Sector Master Plan and the Financial Sector Blueprint. To elevate the next stage of growth would require talents with different levels of technical competency and capabilities. The knowledge of yesterday might be useful for tomorrow, but more likely, would not be sufficient to meet future challenges. It is with this realisation that we should strategically implement a plan of action to develop true professionals who would lead the industry to the next stage of development, and recognised and respected as authorities in their chosen fields. These professionals should produce results that exceed expectations. They should also possess the highest degree of integrity in personal and business dealings. | 0 |
Yesterday we learnt that inflation in May rose to 3.3%. In line with our remit, I sent an open letter to the Chancellor. As I said in my letter, inflation is set to increase further over the next few months. Oil prices have doubled since the beginning of last year, and, in real terms, are now as high as they were in the 1970s. And further sharp increases in domestic gas and electricity prices are probably on their way. So what should the Monetary Policy Committee do in the face of this rise in inflation? The immediate cause of the current pickup in inflation is increases in food and energy prices relative to other prices. They are caused by the pressure of demand on the supply of food and energy in the world as a whole. Part of that pressure may well reflect expansionary monetary policy in the world as a whole. But the rise in commodity prices cannot, by itself, generate sustained inflation in the United Kingdom unless we allow it to. We will not. So although inflation in the UK will rise in the short term, inflation will then fall back. That means that the rate of increase of other prices and domestic costs, notably pay, must remain low. The MPC does not take that for granted. Surveys – including our own – indicate that expectations of inflation have risen, meaning that inflation is likely to have some tendency to persist. | Without a clear guide to the objective of monetary policy, and a credible commitment to meeting it, any rise in inflation might become a self-fulfilling and generalised increase in prices and wages. And surely the lesson of the past fifty years is that, when inflation becomes embedded, the cost of getting it back down again is a prolonged period of sluggish output and high unemployment. Price stability – returning inflation to the target – is a precondition for sustained growth, not an alternative. We are in the most challenging period since the MPC was set up in 1997. But we have the right framework in place to ensure that inflation returns to the target and growth recovers. The stormy waters we are navigating now make for an uncomfortable passage compared with the calm conditions of the nice decade. Our inflation performance then was surprising not so much because inflation was low, but because it was so remarkably stable. Neither inflation nor growth are likely to be as stable in the future. But even if inflation proves to be more variable, it will not be systematically either higher or lower than the target. The right framework is essential if we are to maintain low inflation and steady growth. But there are two recent developments in our economy at present that no monetary policy, whatever the framework, can prevent. The first is the impact on living standards of rising food and energy prices. These prices have risen relative to most other prices. | 1 |
This is also the reason for not only looking at monetary developments and introducing the second pillar in our strategy. This pillar is a broadly based assessment of the outlook BIS Review 4/2000 4 for price developments and risks to price stability. In this context, a host of indicators is analysed, such as interest rates, the output gap, exchange rates, wage developments, developments in public finance, asset prices and surveys of consumer and business confidence. The Eurosystem also examines forecasts of the economic outlook and produces such forecasts itself. They are one piece of information in the second pillar. On the basis of both pillars, central bank interest rates are set at the level which is deemed to be appropriate to maintain price stability in the medium term. Defining the appropriate stance of monetary policy for an area the size of the euro area remains particularly challenging. On the other hand, experience over the last year has clearly demonstrated that there are no insuperable impediments to the conduct of a truly single monetary policy for the euro area. This is underpinned by the proven ability of the Eurosystem to act decisively, noted by its decisions to cut interest rates in April and to raise them in November. At the same time, this is also evidenced by the prevailing climate of price stability, with price increases of around 1% for the euro area on an average annual basis. | 4 Including from a new independent evaluation office that reports directly to the non-executive Chairman. 6 BIS central bankers’ speeches market participants take liquidity for granted and crowd into trades in anticipation of central bank action. The Bank is keenly alert to such risks. The FPC and the FSB are currently analysing these issues and welcome perspectives on whether the market, regulation or both should adjust for the good of the system. Conclusion With the main building blocks of reform in place, now is the time to take stock. It’s vital that we – public authorities and private market participants – work together to reverse the tide of ethical drift. This cannot be a one-off exercise. We need continuous engagement so that market infrastructure keeps pace with market innovation. That’s why the Bank is announcing that it will hold an Open Forum this Autumn which will bring together all stakeholders in FICC markets. Our goal is to discuss the prospects for market functioning, where regulations might overlap or conflict, and whether enough has been done to build the real markets the UK deserves. To prompt an open discussion, we are publishing a detailed paper which reviews these issues and draws out such questions. 5 Everyone has an interest in the future of financial markets, so I would strongly encourage you to engage with our Open Forum process online and at the conference itself. An Open and Accountable Bank welcomes your input. | 0 |
The flood of closures, almost amounting to a panic, caused a further widening of interest rate spreads. LTCM’s situation deteriorated rapidly; by the end of September the fund had lost almost 90 per cent of its capital in the course of nine months. The U.S. Federal Reserve had initiated a meeting with some of LTCM’s counterparties and on 23 September fourteen banks with claims on the fund agreed to take over LTCM as a joint venture and try to wind up the positions in a more orderly manner. The Federal Reserve’s motivation for initiating a solution to the problem was not the sizeable losses that might have been incurred by many of the banks concerned. Its concern instead was the financial system in general. If the banks that had provided loans were to close their large positions spontaneously in a market that was already illiquid and turbulent, other agents who were not directly involved would be hit. The steep price fall would probably have paralysed BIS Review 23/1999 6 the financial markets for a time and this might have triggered a vicious circle of declining confidence and further closures—the Fed perceived a large systemic risk. The ultimate consideration was, of course, the potential hazard for the global economy. It is difficult to say what might have happened if the Federal Reserve had not acted. The banks that were involved had a strong interest in achieving a controlled settlement of their commitments and would probably have acted at some stage. | • This is unfortunate because equity financing is the best way to share risks and opportunities, as well as to support innovation. “Catch-up” growth, as in many Emerging Markets, can be financed by debt. But an economy standing at the technological frontier, as in the U.S. or hopefully as in Europe, is better financed by equity: as innovation is more risky, its funding must have an upside. • The Commission’s Innobarometer survey suggests that funding is the main barrier for promoting R&D and innovation in Europe. What can we actually do? Among others, taxation policies could be revised in favor of equity funding. Innovative schemes also need to be developed at European level, such as European venture capital funds, in order to support the creation and growth of new businesses. Furthermore, a Financing and Investment union is about strengthening the euro area. Short term banking flows have risen after the introduction of the Euro, but the financial crisis demonstrated that the capital markets’ channel of risk sharing was still underdeveloped in the 8 BIS central bankers’ speeches euro area. From the reality of financial fragmentation and its negative economic consequences, we can draw one obvious conclusion: equity financing is clearly the instrument that best allows to smooth asymmetric shocks in a Monetary Union. Its benefits are many (ECB Financial Integration Report 2016): it is less volatile that debt financing and it enhances the companies’ resilience to adverse conditions. | 0 |
A study carried out a few years ago found that all of the four major Swedish banks were among the ten banks in Europe with the highest percentage of encumbered assets.8 After the financial crisis, we can also see that Swedish banks are mortgaging more of their assets than before. The matching between lending and funding may also comprise a risk, both with regard to maturity and currency. In Sweden, the matching between maturities is relatively poor.9 I therefore take a positive view of the plans to introduce new rules to improve matching between maturities for lending and funding. We should be able to create more stability with longer maturities for the banks’ funding. I said at the start that I would keep to the stability and systemic-risk perspective, and have therefore not discussed the level of household indebtedness or the relationship to household assets. This would require a speech that was twice as long! My message is that household indebtedness is at a high level and that we have constructed a housing funding model that has made us sensitive to shocks. We need to have firmly established confidence in the Swedish housing market and the marker for covered bonds from both Swedish and foreign financiers, to ensure that our model functions properly. I am well aware that the risks linked to household indebtedness and the housing market entail very complex questions. I also know that rapid and drastic changes risk leading to severe and dramatic adjustments of debts and housing prices. | Naturally, we wish to avoid this. But at the same time, I think it is important to begin to take action. In the long run, it is no sustainable for debts to continue increasing at the same pace as today. So why does the Riksbank care about household indebtedness? The Riksbank is concerned about household indebtedness partly because international confidence in the Swedish housing and mortgage markets are necessary conditions for our financial system to function smoothly. Financial developments in turn are linked to developments in the real economy. The indebtedness of Swedish households can thus affect the Riksbank’s conditions to carry out its statutory tasks, price stability and financial stability. It is therefore important that the Riksbank continues to follow developments, analyses and highlights risks linked to household indebtedness. 8 See Barclays 2012. (Over-promising? Encumbrance at European Banks, Barclays Capital Equity Research. 9 See Financial Stability Report 2013:2, Sveriges Riksbank. 8 BIS central bankers’ speeches | 1 |
On Banco de España estimates,3 a hypothetical suspension of energy imports from Russia would have an impact on the EU economy of between 2.5% and 4.2% of GDP in the first year, depending on the assumptions as to European economies’ ability to replace Russian 1 See V. Gunnella, V. Jarvis, R. Morris and M. Tóth (2022), Natural gas dependence and risks to euro area activity, ECB Economic Bulletin, Issue 1/2022. 2 The fact that natural gas can adapt to fluctuations in energy demand makes it a key marginal energy resource in electricity generation. See M. Pacce, I. Sánchez and M. Suárez-Varela (2021), Recent developments in Spanish retail electricity prices: the role played by the cost of CO2 emission allowances and higher gas prices, Banco de España Occasional Paper No 2120. 3 See J. Quintana (2022), “Economic consequences of a hypothetical suspension of Russia-EU trade”, Analytical Articles, Economic Bulletin 2/2022, Banco de España. 1 energy imports. By country, the estimated impact is between 1.9% and 3.4% for Germany, between 1.2% and 2% for France, and between 2.3% and 3.9% for Italy. The estimated impact on the Spanish economy is between 0.8% and 1.4% of GDP. These should be considered short-term impacts, which will lessen as the ability to replace Russian energy imports increases. The latest euro area indicators flag a clear economic worsening, as the effects of the full economic reopening fade These recessionary forces are not yet reflected in the euro area economic data for the first half of the year. | Like the MPC, it has external members, drawn from outside the Bank’s executive team, a published record of its meetings and a regular Financial Stability Report to explain how it is using its powers to achieve its statutory objectives. There is substantial cross-membership between these two Committees to ensure effective policy co-ordination. But though the institutional set up for the Financial Policy Committee mirrors that of the Monetary Policy Committee, the nature of its task is different. The Monetary Policy Committee is, in the main, engaged with guiding the economy towards the best achievable path for output consistent with keeping inflation at target – or with bringing it back to target. In the jargon – which some of you in the logistics field, for example, may be familiar with – the problem is one of “optimal control” or “dynamic programming”. What setting for interest rates is consistent, looking forward, with the best central outlook for the economy? The Financial Policy Committee’s job is really about identifying risks and preventing them from crystallising. This is not just about the most likely and visible risks. What we learned in the financial crisis was that the financial system, has a myriad of connections and actors and a phenomenal ability to change and adapt. It needs to be thought of as a complex “ecosystem”. At times of stress, it can behave in very extreme ways – or break down altogether. In such a world, it is not enough to know that every individual part is managing its own risk. | 0 |
New ancillary players such as money brokers have facilitated the development of this market. Islamic finance as a sustainable intermediation process in this more challenging environment has been characterised by powerful forces of change that have brought significant implications on both the domestic and global financial systems, and marked by turbulent financial conditions. This requires the development of robust and resilient financial institutions. Institutional capacity enhancement is a central strategy towards this objective. This requires having a high calibre workforce and management teams with the required expertise, leveraging on the technology, strengthening research and development, and instituting risk management systems. A structured consumer education programme has increased awareness of the Islamic financial system and the advances it offers. The Islamic capital market essentially comprises the equity market and the debt market. Phenomenal growth has been recorded in both these markets. In the debt market, the outstanding Islamic debt securities as at-end June 2003 were 45.5% or RM68.2 billion of the total outstanding private debt securities. In 2002, the new issuance of Islamic debt securities surpassed the conventional private debt securities amounting to RM13.8 billion. It is interesting to note that one-third of the issues have been by multinationals. In the equity market, more than 80% of the counters in the Kuala Lumpur Stock Exchange are Shariah-compliant. The takaful market has also shown impressive growth and the four takaful companies now offers a broad range of products in both family and general business which is comparable to the conventional counterparts. | Against this backdrop, Islamic banking and finance, which is still at its infancy, needs to be ahead of these developments in order to remain a viable and competitive form of financial intermediation. The challenge, therefore, in the Islamic banking industry, is to evolve the development of an Islamic financial system, one which is dynamic, responsive and sustainable. The development of an Islamic financial system, indeed would include the respective sets of the key components comprising the Islamic banking industry, the Islamic money and capital markets, and the takaful market, given the strong linkages, inter-dependence and synergies among these components in the system. In addition, the development of the non-bank financial intermediaries such as development financial institutions, savings institutions and housing credit institutions need to be developed to meet customer demands. These specialised institutions are important in meeting the requirements of the economy which are not met by the nascent Islamic banking institutions. Although the Islamic banking industry may be the core to an efficient Islamic financial system, it would need to have in place the supporting financial infrastructure. Of importance is the Islamic money market. Given the different needs of individual economies, the development of the structure of the Islamic financial system needs to include, at the early stage, the development of the Islamic capital market to provide an alternative source of financing, as well as to create broader and diverse Islamic financial instruments for investors. | 1 |
The taxpayers of some of the most developed countries of the world have been called on to support global banks headquartered in their countries. Indeed, after the Lehman bankruptcy, it is fair to say that the entire global financial system was put at risk by the difficulties of some banks operating worldwide. It quickly became clear that an unprecedented and unacceptable level of systemic risk had built up over the “boom” years. And that a significant amount of taxpayer’s money had been put at risk as a result. This prompted a forceful, and understandable, reaction from all sides. The public, bank investors, regulators, supervisors and politicians alike all agreed that we needed a profound overhaul of the treatment of systemic risk. I believe that the reactions to this challenge from the G-20, at the highest political level, as well as from the Financial Stability Board (FSB) and the Basel Committee of Banking Supervisors (BCBS), have been proportionate to the size of the problems and risks we have encountered since the outbreak of the crisis. The costs have been huge and there is widespread agreement that we cannot allow this to happen again. Nevertheless, we should also recognize that a number of global banks have managed to navigate these rough and unchartered waters without capsizing, Indeed, if you allow me to extend the metaphor, some have even been able to help to calm the waters. | As a recent paper by IMF staff stresses, a branch model for internationalization may be cheaper than one based on subsidiaries. However, it may also be riskier, both for the host and the home markets. Although nobody expects that these banks will need to be liquidated, we have seen sufficient black swans in recent years to show us that we need to hope for the best but be prepared for the worst. And if liquidation were needed, a stand-alone subsidiary model would have important advantages over a branch model, especially if there is substantial deposit taking activity at the local level. I am not saying that the liquidation of a global bank organized through subsidiaries would be an easy task. What I mean is that it would be much easier than for global banks which are deeply interconnected across countries through branches. 2 BIS central bankers’ speeches The stand-alone subsidiaries model has an additional advantage, from the perspective of the supervisor. It is far more symmetric for the local supervisor than the alternative model, allowing them to really supervise the institution. And as a home supervisor, if a foreign bank has a significant share of a domestic market, I would rather have the domestic supervisor deeply involved in the monitoring of that bank. Our experience has taught us that local supervisors usually have a deeper knowledge and more accurate information on developments in their home banking sectors than distant parent company supervisors. | 1 |
ELA as part of general crisis management and resolution Should a financial crisis occur, there are a number of measures that may be used by authorities to limit the consequences of the crisis. In addition to ELA, examples of these measures are financial support to protect the solvency of institutions, brokering of private sector support to or acquisitions of troubled institutions, management of deposit insurance schemes and insolvency procedures for financial institutions. In general, these measures may be undertaken by different authorities. A consequence of this is that cooperation between authorities is an important element of crisis management. The authorities must have a common strategy for how the crisis should be managed in order to avoid excessive support to the financial sector. Excessive support may lead to undue costs to taxpayers and to unsound incentives for the financial sector. In this context, it is important to emphasise that these effects can arise from all kinds of official support. Thus, the authorities must limit the support that is 1 BIS Review 42/2000 offered. Support may be warranted only when there is a considerable risk for a systemic crisis that may lead to a severe decline of real economic activity. Typically, real economic activity is affected by a breakdown of payments systems or restrictive granting of credit, a credit crunch. Traditionally, ELA provided by central banks has been seen as a measure to deal with pure liquidity problems in banks that essentially are solvent. | If any foreigner desired to avail himself of any services, he should necessarily have traveled to the country of services at great costs in terms of both time and money. This is why cross-border services were limited only to areas where foreigners could have them relatively at a low transaction cost. In this context, the services which played a prominent role in the global arena were shipping and insurance services where the service provider visited the buyer and travel, education and health services where the buyer visited the service provider. In all these areas, Sri Lanka had an upstart over other competitive countries. Sri Lanka’s university system at the time of gaining independence was one of the best in the world. It also had a very reliable and high quality curative health system. For shipping services, it had the best comparative advantage by being located on a very important naval route. Its ports in Colombo and Trincomalee had the best cost-advantage. Its highly literate work-force with professional qualifications from the UK and other advanced countries could have provided the best insurance and banking services to the rest of the world. But, due to the inward orientation of the policies adopted since independence, these comparative advantages got shifted to other countries such as Singapore, Hong Kong and Australia. For Sri Lanka, it is, therefore, a story of missed opportunities. It is too late now to lament over the failed past. | 0 |
Resolution authorities must also ensure that a firm can continue to meet conditions for authorisation and to be sufficiently well capitalised to command market confidence post-resolution. These principles are reflected in the final TLAC calibration: we worked on the basis that minimum capital requirements would be eroded on the way into resolution, and that G-SIBs would need to be recapitalised to at least a level to continue to meet minimum conditions for authorisation and maintain market confidence on the way out. The FSB agreed that TLAC corresponding to 18% of risk weighted assets (RWAs), or 6.75% of leverage, would provide the minimum necessary to meet these goals, but that more may be necessary depending on 2 BIS central bankers’ speeches firm-specific considerations. Indeed, in transposing TLAC in domestic regulation, several jurisdictions have already indicated that they consider higher requirements to be appropriate for G-SIBs based in their jurisdictions. But the common floor provides a base level that should allow G-SIBs to operate cross-border with something of a level playing field. If this is the agreed minimum end-point for TLAC, in the course of the last year, on the basis of a quantitative impact study (QIS), we also agreed a viable transition path for G-SIBs to implement TLAC. This is reflected in the two-stage conformance period under which G-SIBs need to comply with TLAC of 16% RWAs and 6% leverage by 2019 and at least 18% and 6.75% by 2022. | I have mentioned that finance for small firms should be available and appropriate, but it also needs to be accessible. UK banks and other finance providers have recognised this and have attempted to make themselves more user-friendly to their small business customers. Banks have devoted substantial resources to increasing the awareness and skills of lending managers at the branch level. As a result, many small firms now believe, and perception is important, that banks understand their business better. In recent years, the NatWest/SBRT Quarterly Survey of Small Business in Britain has consistently found that access to finance is not a significant problem for UK small businesses, with just 2% of respondents currently rating it as a key problem facing their business. The Cruickshank Review found no evidence that small firms currently have difficulty obtaining bank finance. The Review, however, did highlight some barriers to the raising of equity, including - again - problems of asymmetric information, the risk level associated with financing new firms with no established track record and the costs for the investor in structuring finance. It also raised issues about conditions in the banking market for SMEs; these have been referred to the Competition Commission. Technology-based small firms Perhaps I could conclude with some words about technology-based small firms. Technology-based firms are vital to the UK economy in maintaining competitive advantage in global markets. Technology-based firms are often themselves entrepreneurial. But just as they have a unique role in the economy; they also have unique financing needs. | 0 |
10 BIS Review 143/2009 Figure 24: Contribution to GDP Growth Figure 25: Contribution to GDP Growth from Production from Spending (Percentage Point) 1 (Percentage Point) 0,5 6 0 3,6 4 -1 2 -0,5 -1,3 -2 -3 -2 -2,5 -3,1 -4 0,1 0,2 0 -0,8 -4 -5 -6 -6 -8 -7,0 Agricul. Indust ry Cons tr. Serv ices Net Tax -6,4 Priv ate Co ns. -7 -8 -3,6 P riv. Inv. -7.0 P ublic Public Sto ck Cons . Invest. Net Exp. GDP GDP Source: TURKSTAT. Source: TURKSTAT. Compared to the previous quarter, the primary determinant of growth in the second quarter was private consumption demand that displayed an upswing, mainly owing to the fiscal stimulus package (Figure 26). While assessing whether the pick-up in private consumption demand indicates a lasting recovery trend or not, it would be wise to evaluate trend discrepancies in different sub-components and interpret data pertaining to the third quarter accordingly. Second quarter national accounts data confirm that the pick-up in private consumption demand stemmed mainly from fiscal stimulus-driven advanced demand for certain goods categories. Meanwhile, the demand for goods that were not subject to tax reductions stayed almost constant (Figure 27). | Figure 26: Contribution to GDP Growth Figure 27: Consumption of Resident and from Spending by Periods Non-resident Households (Percentage Point) (Seasonally Adjusted, at 1998 Prices, Billion TL) 8 7 6 5 4 3 2 1 0 -1 -2 19 7.1 14 5.9 13.5 18 13 3.8 12.5 17 12 16 11.5 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 -0.1 GDP -0.4 -1.0 -1.1 P riv. Stoc k Expo rts Public Privat e Imports Cons . Change Spending Inv. Source: TURKSTAT, CBRT. BIS Review 143/2009 2005 2006 2007 2008 2009 Co nsumption Co nsumption excl. Furniture, Housing Goods and Services, Trans portatio n, Communicat ion Source: TURKSTAT, CBRT. 11 Recently issued data indicate that this trend continued in the third quarter as well and consumption demand has adopted a weaker course following its marked increase during the second quarter. Although private investment is expected to increase slightly in the third quarter, the low capacity utilization rate and the high uncertainty in demand is expected to hold back the recovery in investments. Accordingly, total aggregate domestic demand is expected to stay flat in the third quarter, after increasing significantly in the second quarter (Figure 28). | 1 |
From LIBOR to SONIA: a bridge to the future Remarks given by Andrew Hauser, Executive Director, Markets At the ‘Is Your Business Prepared for LIBOR?’ webinar 18 September 2020 I am grateful to Stefania Spiga for her help in writing these remarks, and to Amber Evans, Tom Horn, Al Hughes and Alieda Moore for their input and guidance. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice Thank you Phil. It’s great to be with you, and it’s great to have such a fantastic line up to discuss this vital issue for every company in the UK. We’re here today to talk about what it will take to get your business ready to transition away from LIBOR. But I want to start somewhere different. I want to start with a bridge: Hammersmith Bridge in London, to be precise. It’s been around forever. People love it: it can carry over 20,000 vehicles a day. And to the naked eye, it seems in the prime of health: beautiful to look at, safe as houses? Well no, actually: it’s completely unsafe. Below that shining metalwork, there are big and growing cracks – and sooner or later, if nothing is done, someone driving over it is going to fall headfirst into the Thames. So the local council has closed the bridge – it had no choice. But the disruption has been huge. Journeys that used to take a few minutes can now take hours. There are traffic jams everywhere. | Further details will be given on their LinkedIn page. o You can find help from the organisations co-sponsoring this event, the Association of Corporate Treasurers and the Confederation of British Industry. Both have a wealth of knowledge and experience with transition – as do UK Finance. o And, if you don’t see what you need, please ask on this session today or later, via your bank, the Working Group, the ACT, the CBI or UK Finance. We are acutely aware this is a difficult time for many businesses, facing an uncertain future in the midst of the Coronavirus epidemic. But it’s just not safe to keep relying on Libor. And it’s not good for your business 2 https://www.rbs.com/rbs/news/2019/07/natwest-completes-markets-first-sonia-loan-for-national-express.html 3 https://www.riverside.org.uk/riverside-breaks-new-ground-with-sector-first-100m-sonia-revolving-loan-facility/ 4 https://www.allenovery.com/en-gb/global/news-and-insights/news/ao-advises-hsbc-bank-as-coordinator-on-new-risk-free-rate-loan-facilities-for- glaxosmithkline-plc 5 The Working Group of Sterling Risk-Free Reference Rates website is available at: https://www.bankofengland.co.uk/markets/transition-to-sterlingrisk-free-rates-from-libor 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 either. A benchmark based on guesswork can’t be relied upon to behave in your interests at times of stress. We saw a vivid illustration of just that in March, when the Bank of England and the Federal Reserve both cut official interest rates sharply, but LIBOR rates actually rose – at a time when transactions underpinning those measures were near-zero. It really is time to get off that failing bridge before it closes for good. We’re here to help, and I look forward to our discussions here this morning. 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 | 1 |
In order to mitigate the inherent pro-cyclical nature of financial activities, to which I will return later, the Basel Committee’s proposals also contain capital buffers and forward-looking provisioning. Finally, the proposals include global minimum liquidity risk requirements enabling credit institutions to withstand a short-term liquidity stress and aiming to ensure longer-term stability in their funding requirements. The objective of this comprehensive package is to enable financial institutions to better withstand the adverse effects of economic shocks. In order to assess the cumulative impact of the proposals, quantitative impact assessments are underway. The outcome will be available in the coming weeks, and will assist decision-makers in properly calibrating the measures. At this stage, therefore, it is premature for me to say anything about the desirable 2 BIS Review 87/2010 calibration of the measures. Nevertheless, I am of the view that the measures are warranted from a conceptual point of view, though their cumulative impact needs to be carefully assessed. Indeed, it is important that the right balance is struck between enhancing banking stability and maintaining a stable provision of credit to the economy. IV. What has been done? The main strands of the reform agenda I come to paint are at various stages of development. It is therefore useful to briefly run through what has already been achieved, in particular in Europe. Starting with the prudential framework for banks, most FSB members, including the EU Member States, have fully implemented the more risk-sensitive Basel II framework. | Among these were exuberant real estate prices, and a flourishing BIS Review 87/2010 1 securitisation business, which facilitated excessive credit growth. A group of countries – including China, Japan, and oil-exporting economies – were saving too much, while others – such as the US – were heavily borrowing to finance consumption and investment. These developments were unsustainable in the long-run. At the same time, in an environment characterised by low interest rates, a global search for yield may have led investors to take on too much risk. On the micro side, it became apparent that market participants’ incentives were not aligned with the risks they were taking, and that some investors were not fully aware of the extent of their exposures, which contributed to the under-pricing of risk. In the banking sector in particular, deficiencies in the design of the prudential framework for banks, in the supervisory review of banks’ risk management procedures and in the rules for compensation and pay were some of the microeconomic factors leading to important vulnerabilities. III. Regulatory and supervisory initiatives currently under discussion After witnessing the first global banking crisis since the Great Depression, it became clear that it was absolutely crucial to get the banking sector on a sound footing again. Policy makers responded rather quickly and forcefully to the crisis, which resulted in a wideencompassing reform agenda. | 1 |
Without wishing to preempt what you shall be taught, I wish to only explain that good corporate governance is one of our strategic objectives and its inclusion as a strategic objective reflects our commitment to align our operations with world best practices, consistent with our vision ‘to be a world class central bank’. The module on Risk Management was included to provide you with knowledge that will enable you appreciate why the Bank has introduced the Risk Management Department. Director - Risk Management will do a presentation during which he will explain what risk management is all about and its relevance to Bank of Zambia. Finally, the inclusion of a module on the Core Functions of the Bank of Zambia is designed to provide you with knowledge on the operations for which the Bank was established. This is important for a number of reasons. First, we want to have a cadre of enlightened and well informed managers who will portray a positive image of the Bank and reflect our standing as a world-class Bank. As managers, you have to have a reasonable understanding of how the Bank’s core activities departments operate and are organised. Second, as managers, especially as “world-class” employees, you are also expected, by the public, to BIS Review 125/2006 1 have a reasonable grasp of issues pertaining to core operations of the Bank. | • But banks have held up well. − In the US, nearly all the largest banks have passed the Federal Reserve’s most recent annual stress test. − In Singapore, an industry-wide stress test conducted by the MAS indicates that Singapore’s banking system will be resilient against severe economic stress scenarios in the major economies and Asian region. • And beyond the stress tests, the global banking system has remained relatively resilient through actual episodes of market stress in recent years: − the May 2013 US taper tantrum; − the Oct 2014 US Treasury “flash crash”; − the Jan 2015 Swiss franc de-pegging; − the Aug 2015 “Black Monday” selloff; and most recently − the Jun 2016 UK referendum. Third, bank lending to the real economy has been stable. • Overall provision of credit to the economy has been maintained even as banks met higher capital and liquidity requirements. − According to the FSB, by the end of 2014, bank lending growth had resumed in all regions of the world. • The cost of financing has not increased, although I suspect that this has had more to do with highly accommodative monetary policies. • There has been no material shortage in the supply of long-term investment financing in most countries surveyed. | 0 |
The holder of a single share would have been liable for the equivalent of four times the salary of a teacher of the time. It is not surprising therefore that within about a decade unlimited liability had all but disappeared from the British banking scene, to be replaced with regimes that limited the liability of shareholders in one way or another.2 I would not propose that we go back to a system of unlimited liability for bank shareholders. But the City of Glasgow Bank episode is interesting because it shows that the public policy challenges of dealing with failing banks are not new. When a bank fails, the money has gone. Someone has to pay for the losses, however. The question is ‘who pays?’ This question has probably be-devilled public policy since banks were invented. ‘Who pays?’ – the past It goes back much further than late Victorian Britain. The Code of Hammurabi – written by the King of Babylon in around 1,800BC – included a provision that if the harvest failed due to adverse weather then the ‘debt-tablet’ would be washed in water and interest on the loan would be cancelled for that year. | So the bank has to have enough debt that can be bailed in to restore its capital so it can continue to operate as an authorised firm while it is being resolved. Smaller banks can be more easily separated into the parts that provide critical economic services and that can be sold and those that do not and can go into insolvency. Only the critical parts would be recapitalised in resolution. They need less bail-in debt. The very smallest institutions do not need to be kept in operation. Their abrupt cessation of activity should not generate contagion or damage the economy. Insolvency rather than resolution is the proportionate strategy here. They do not need bail in debt. Gradualism The second key principle is gradualism. The Bank is proposing to allow the full four-year transition period for banks to meet their MREL requirements. This will allow the market for MREL-eligible debt to develop and allow banks to smooth out their debt issuance, minimising issuance and interest costs. Clarity The third is clarity. Banks and their creditors need to have clarity – clarity in relation to the requirements of the new regime and clarity as to their liability if things go wrong. So we need to avoid uncertainty and get on and implement the EU requirements that came into force at the beginning of this year. Bank creditors need to know where they stand if things go wrong. | 1 |
These changes have also affected the central banks. With the onset of the crisis, the so-called conventional policies and instruments were reconsidered, the scope of our functions increased, and the expectations from us enhanced. Macroprudential function, bank resolution, consumer protection, financial inclusion and literacy are just some of the areas requiring from the central bank to play the leading role. The crisis itself and the subsequent changes to the overall central bank profile and decision-making infrastructure entail modifications in the scope, granularity, and the systematization of the available statistical data. A number of new statistical initiatives (such as the G-20 Data Gaps Initiative) aimed at enriching the statistical spectrum have emerged post crisis. The mere fact that global crisis arose exactly from the financial sector suggests that many of the post-crisis recommendations and needs for changes in the statistical system concern the central banks. The crisis has shown that excessive risk-taking can lead to a collapse of the financial system. Underestimation of the strength of the financial system’s links with the real sector and the cross-border exposures has led to inadequate assessment of macro-financial links within some economies, as well as of the global implications of shocks in some countries. This whole new context, as well as the unconventional responses of central banks to this shock had major implications for the requirements for expansion and modification of the regular statistics, as the most important “ingredient” for making appropriate monetary as well as micro and macroprudential policy decisions. | In this respect, I’d like to look forward and address some of the work we are doing to ensure that the new international capital standard - Basel II - remains flexible and able to adapt to emerging practices and risks. Many of you have a very strong interest in the efforts the Committee is undertaking to consider how best to apply Basel II to certain trading-related exposures using the latest tools being developed by the industry. While this work is still ongoing, I would like to share a status report with you on that effort. Finally, I will highlight some of the work that we are undertaking to promote a smooth and consistent transition to Basel II, including our plans to conduct a review of the calibration of the framework, as well as our efforts in the field of supervisory co-operation and validation, and the key messages that are coming out of these initiatives. The evolution of standards and regulatory burden Allow me to begin by sharing some personal thoughts on a topic that has captured some attention recently: The view, held by at least some in the financial services sector, that the tide of regulation has risen to a high water mark. In my own conversations around the world, I have heard similar concerns from some bankers. Some point to the long debates that have taken place in the accounting BIS Review 17/2005 1 profession. | 0 |
The development of inflation 1870-1999 Inflation 1870-1999 Percentage 12-month change 40 40 30 30 20 20 10 10 0 0 -10 -10 -20 -20 -30 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 -30 Source: Ecowin Without wishing to labour this comparison, it is perhaps nevertheless worthwhile emphasizing that the 20th century was a time of unprecedented economic growth; only Japan’s economy grew faster than Sweden’s. But this historical pattern came to an abrupt end in the 1970s and 1980s. Price stability does not in itself create growth and economic development. These are facilitated mainly by other factors: the legal and institutional framework, the level of education, the will to invest and the availability of capital, technological development, etc. But price stability focuses attention on the rules governing the economy. Those who set prices and negotiate wages do not have to worry about an erosion of future purchasing power but can expect price levels to remain stable. Similarly, there is less uncertainty when it comes to savings and investments, and indeed economic decisions of any kind. Furthermore, the distribution of wealth and income is less arbitrary. This was a key argument for Gösta Rehn, one of LO’s most prominent economists of all time, when he campaigned against inflation under the motto “Hate inflation”. | In that sense, the ECB’s response with unconventional measures is completely logical. When unconventional measures are applied, it is normal to have different views about their effect, including the possibility of a “Japanese” scenario. It would be wrong, however, to put the focus solely on monetary policy without taking into account what is being or not being done to address the global economic uncertainty, and also in the areas of structural reforms and fiscal policy. You have said many times that in order to be effective, the politicians’ attempts to stimulate the economy must be aimed at structural areas, like the labour market, pension reforms and education. What room for action do Bulgarian politicians have when these three areas are concerned? Do you believe that there are unused opportunities? Such opportunities exist, but they are associated with complex and sometimes time-consuming measures. They are not limited only to the labour market, pension reforms and education, but also extend to areas like health care, defence, the modernization of the technical and social infrastructure. Some steps in these fields require serious public resources. It is a good sign that they are implemented within an overall disciplined fiscal framework. Quite a few economists say that the 2% inflation goal, set by the ECB, is a thing of the past given the ageing population and structurally transforming technologies. Do you believe there are grounds to correct this goal? 2/3 BIS central bankers' speeches There are grounds to conduct a strategic review of the monetary policy’s goals. | 0 |
iv Latest data available from the World Wealth and Income Database suggest income shares of the top 1% of: 18% US (2015); 13% UK (2012); 8% Australia (2013); 8% Canada (2013); 10% Ireland (2009). See also: Atkinson, A, Piketty, T, and Saez, E, 2011, “Top Incomes in the Long Run of History”, Journal of Economic Literature, 49(1), 2011, 3-71. v Saez, E and Zuchman, G (2015), “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data”. vi Milanovic, B. (2016), Global Inequality: A New Approach for the Age of Globalization, Harvard. vii As my colleague Ben Broadbent has pointed out, this explains why rising real house prices did not result in large increases in the Gini measure of wealth inequality: compared to financial assets, housing is more evenly distributed among the population, so rising house prices tend to benefit the median in the wealth distribution. See Broadbent, B (2016), “The distributional implications of low structural interest rates and some remarks about monetary policy trade-offs”, speech at the Society of Business Economists Annual Conference, November. viii Credit Suisse Research Institute (2014), Global Wealth Databook 2014, London. See also Alvaredo, F., Atkinson, A. and Morelli, S. (2016), “The Challenge of Measuring UK Wealth Inequality in the 2000s”, Fiscal Studies, 37(1). ix Gardiner, L. (2016), “Stagnation Generation: the case for renewing the intergenerational contract”, http://www.resolutionfoundation.org/publications/stagnation-generation-the-case-for-renewing-the-intergenerational-contract x Hood, A (2016), “The outlook for living standards”, IFS post-Autumn Statement 2016 briefing, Institute for Fiscal Studies. | By contrast, in firms with low levels of cultural capital, formal policies and procedures do not reflect “the way things are really done.” Misconduct results from the norms and pressures that drive individuals to make decisions that are not aligned with the values, business strategies, and risk appetite set by the board and senior leaders. Employees do not speak freely when they have concerns, and directors and senior managers do not find out about improper conduct until it is uncovered by the authorities. Rules may be followed to the letter, but not in spirit. All of this increases misconduct risk and potentially damages the firm and the industry over time. To be clear, I am not saying this is easy. Culture is difficult to assess because it is not a single, point-in-time metric, but a multi-dimensional concept with different implications for different parts of an organization. This complexity suggests that no single metric, solution, approach, or template will work for every firm in every circumstance.5 Consider the different roles of key players in mitigating misconduct risk and building and sustaining a healthy culture. The board of directors, senior management, staff, investors, industry groups, and the official sector might all see and assess aspects of a firm’s culture differently. Today, I will focus on a few of these stakeholders. Boards of Directors In 2017, the New York Fed hosted a culture measurement workshop that included a panel of board members from various financial firms. | 0 |
The sector has been restrained by several factors including the large shadow inventory making its way through the foreclosure pipeline, tight underwriting standards for new mortgage origination, and the sharp slowdown in household formation. Although the corporate sector as a whole is now relatively healthy, there still is a significant constraint on the availability of credit to small business. Business investment continues to expand, but at a restrained pace. I presume that this partially reflects uncertainty over the economic outlook, including the risks around the evolution of U.S. fiscal policy and the crisis in Europe. Fiscal policy has already become restrictive as state and local governments have cut expenditures in response to revenue shortfalls. Moreover, we face the so-called “fiscal cliff” at the start of next year. At the beginning of 2013, federal fiscal policy is scheduled under current law to become sharply contractionary, with abrupt increases in taxes and cuts in spending. Businesspeople tell me that the uncertainty about how Congress and the Administration will deal with the fiscal cliff – and our fiscal challenges more broadly – is already inhibiting hiring and investment. The fiscal cliff represents a threat to the recovery that is wholly avoidable. But we will only avoid it if our politicians act responsibly. We need a credible strategy for bringing down the federal budget deficit over time in a manner supportive of ongoing economic recovery. Any plan should start slowly, but build steadily over time. | Under such an approach, individual countries will have the necessary degree of flexibility to tailor national implementation approaches to reflect the specific characteristics of their respective economies, while committing to uphold the essential regulatory and supervisory principles that underpin financial stability. With Asia’s varied experience in weathering financial crises, in developing our financial systems and in implementing the various regulatory reforms, valuable lessons can be drawn from the region to advance the progress and development of our respective financial systems and of the region as a whole. SEACEN has had an instrumental role for more than 30 years in the efforts to share this knowledge and experience widely among its members through providing a platform for such information sharing and through its research, training and capacity building initiatives. Today, SEACEN takes yet another important step forward in advancing this agenda with the launch of the SEACEN Financial Stability Journal. We live in a world in which the management of financial stability is a highly complex undertaking, and its dimensions have continued to evolve in an environment that is rapidly changing. It is hoped that the Journal will contribute ideas, perspectives and insights and thus generate the intellectual dialogue and discourse on financial stability issues. As a region, Asia has many unique perspectives and experiences to share with others facing similar challenges in managing financial stability. I congratulate the SEACEN Centre on this important initiative. I wish it every success and look forward to contributions from SEACEN members and from the other parts of the world. | 0 |
For example, ASEAN has concluded Free Trade Agreements (FTAs) with Australia, New Zealand, China, Korea, Japan, and India. The ASEAN-China FTA alone covers over 1.9 billion consumers and an estimated trade volume of $ trillion. As Asia grows and comes together economically, global companies that aim to have a share of the pie will have to develop strategies and production models that are customised for Asia. Singapore exists at the confluence of these emerging trade routes within Asia and as well as between Asia and other regions. We have positioned ourselves as Global-Asia hub to take advantage of Asia’s growth. Our strategic location and affinity with other Asian countries made us the location of choice for companies from the West to grow in Asia. In 2011, IBM Services set up an Integration hub here. GlaxoSmithKline too has set up their Emerging Markets & Asia Pacific HQ here to serve the Asian market. At the same time, Asian companies expanding globally often opt for Singapore as their international base. Tata Communications from India has its HQ in Singapore, as do many Chinese companies. To aid these efforts, Singapore has initiatives to attract and develop talent that can thrive globally. For example, in 2010 we set up the Human Capital Leadership Institute to bring talent together to interact with one another and to prepare for the future. Urbanisation and sustainability Second, sustainability challenges will loom larger as the growth of the global economy puts more stress on the environment. | As China’s consumption increases, its rising import demand will have a positive impact on Asia and on the rest of the world. Besides China, India’s middle class is estimated to grow to almost 600 million people by 2025, and almost 60% of Indonesian households, in a country of 240 million people, are expected to reach middle-class status by 2020. The Asian Development Bank projects that, by the middle of the century, Asia will account for more than half of global GDP and will own half of the world’s financial assets and financial institutions. I’m sure all of you are cautious about long-term extrapolations, but this projection is one of many which are reflective of the optimism and growth potential that we see not just in China, but Indonesia and other Southeast Asian countries. As these countries in Asia power ahead, they will drive further economic integration within this region. PricewaterhouseCoopers’ “Future of World Trade” study describes how new trade corridors will form within Asia as a result of this integration. In 1990, 20 years ago, the developed economies dominated the world trade map. Europe was responsible for over half of the world’s exports, although these were mainly intra-Europe flows. In 2010, this map has changed with the global shift in manufacturing to Asia, with China accounting for 9 out of the top 25 bilateral trade routes by value. | 1 |
So far, they have been effective with regard to market confidence, and have contributed to a significant reduction in various credit risk premia. One channel relies on portfolio composition effects. I know that some contributions presented here made that point in a very sophisticated framework, i.e. positive feedback effects may be generated through the greater liquidity of investing entrepreneurs. Obviously, the soundness of the financial system is critical to the success of these unconventional policies. These policies must be viewed as state contingent policies: they are conditional on the state of the economy. A significant part of the intervention is short-term oriented, as the acquisitions focus on short-maturity assets. Furthermore, the assets purchased are usually of very good quality. In most cases, and in particular in the Eurosystem, the increase in the monetary base is determined endogenously by the banking system, motivated by banks’ preference for liquidity and thus by the state of stress of the banking system. Finally, these measures tend to address aggregate risks. These unconventional measures would automatically unwind, as improvements in inter-bank and credit markets would reduce the need to use these facilities. Financial market indicators, risk premia components and their determinants as well as monetary indicators (inflation expectations in addition to monetary and credit developments) should be taken into account to carry out the assessment. Some implications for financial stability This crisis has triggered a debate regarding possible tools to be developed to prevent the build up of financial imbalances and design countercyclical regulatory policies. | Some papers presented during this conference made such a point, calling for a new macroprudential approach and proposing measures of systemic risks that capture risk spillovers and tail risk correlations. I am of course very sympathetic to this approach and I also think that such measures should form the basis of any macro-prudential regulation. The general principle of this macro-prudential regulation is straightforward: it consists in ensuring that supervision manages to limit risks for the stability not only of a particular institution, but also of the entire financial system. Its implementation is however a bit more complex and raises several policy issues: first, there are questions on how to calibrate these macro-prudential instruments so as to address common exposures across financial institutions and the contribution of each institution to system-wide risk; a second issue is how to dampen the inherent procyclicality of the financial system; a third issue is the respective importance of rule-based approaches versus more discretionary tools. Finally, questions 2 BIS Review 74/2009 remain regarding the institutional set-up, in particular as to which institutions should be involved in the process and make the decisions. These issues are currently being debated in various circles and the recently-published de Larosière report made some substantial proposals regarding the institutional set-up. I will not elaborate on all these issues but simply touch on a couple of them. | 1 |
But, as you are aware, the current growth rate of investment has been around 9 percent, and this makes investment promotion a very challenging and important policy agenda going forward. My own assessment is that this policy challenge can be achieved by strengthened fiscal policy efforts as public investment has been progressing in recent years. Infrastructure projects, which have been long delayed due to political problems, are now back on track. The construction of airport rail link came to a completion last year. Two more railway routes under the plan of Bangkok Mass Transit System are presently under construction. Several other railway projects in other regions other than Mass Transit in Bangkok are also in 1 Inflation rate of 2.6 percent is the average rate during 2001–2010 while 5.1 percent is the average rate during 1990–1996. 2 Average GDP growth rate during 2001–2010. 3 Chuenchoksan, S. and Nakornthab, D. (2008). “Past, Present, and Prospects for Thailand’s Growth: A Labor Market Perspective,” Discussion paper. Bank of Thailand. 2 BIS central bankers’ speeches the pipeline. These public investments are welcomed steps towards further infrastructure developments, which will help lower logistic costs and boost Thailand’s productivity. In my view, public investment can and must do more to lower production costs and crowd in private investment over the medium term. Having said that, the physical infrastructure must be complemented by human capital development, to enhance productivity and potential growth. | We don’t want three years of boom followed by three years of bust. Second, the country’s potential growth rate should be high enough to continuously raise the people’s general standard of living. And, third, growth should maximize inclusiveness. By this I refer to maximizing the exposure of everyone to economic development, both in terms of participation in the development process and in the sharing of its benefits. This would lessen the problem of inequality, and foster social harmony. That said, I wish to underscore that, even though growth is the most visible factor, growth alone is not sufficient but sustainability and inclusiveness are also crucial to ensure long-term economic success. Looking at economic strengths and weaknesses in the context of these three success factors should provide for a better understanding of the role of central bank and policymakers in advancing the economic development agenda for Thailand. Indeed, these success factors entail three corresponding fundamental responsibilities for policymakers. The first responsibility is to ensure continued macroeconomic stability, which is a prerequisite for economic sustainability, by gearing our economy towards operating at the potential level. Second is to raise the people’s standard of living by expanding the potential growth rate of the economy. Third, to maximize inclusiveness, we have to ensure the equal exposure to economic opportunities for all. Ladies and Gentlemen, Let me start with the first success factor, namely economic sustainability, which I consider to be Thailand’s most important strength. After the 1997 crisis, Thailand has no longer experienced the current account deficit problem. | 1 |
Paul Fisher: The state of the financial markets Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, at the Institutional Investor Institute, Bedfordshire, 29 June 2011. All speeches are available online at www.bankofengland.co.uk/publications/speeches. * * * I would like to thank Ronnie Driver, Andrew Harley, Tanveer Hussain, Ben Wensley, Richard Windram and Chris Young for their help in preparing this speech. Any views expressed are solely those of Paul Fisher and should not be ascribed to the MPC or FPC unless explicitly stated as such. The Bank of England has two core purposes. The first is maintaining monetary stability. That means achieving stable prices as defined by the Government and ensuring confidence in the currency. The second is contributing to financial stability. That entails identifying, monitoring, and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The interim Financial Policy Committee (FPC) was set up by the Government earlier this year to help meet this objective.1 It has now had its first round of meetings and a record of its first policy meeting and the associated Financial Stability Report were published just last week.2 To help meet these objectives, the Bank runs a Market Intelligence (MI) programme, which involves frequent meetings and conversations between Bank staff and a wide range of external market contacts to gather and analyse information from market participants. | The growing interest for attending the Conference confirms once again the significant contribution of the Conference to the enrichment of the knowledge and exchange of experience of the representatives of the central banks in regional and international frames. Nevertheless, the Conference would not be a unique treasure of knowledge and experience, if it did not include the representatives of the domestic financial system and the payment service providers, which by their continuous active participation and involvement in the panel discussion, contribute to the thematic comprehensiveness of the Conference. The Conference will cover the latest developments in payment and securities settlement systems, as well as payment services on global, European and national level. In the global context, Mr Klaus Löber, the esteemed expert from the European Central Bank, will elaborate on the new developments in the area of implementation of the PFMIs, work on retail payments, cyber security, digital innovations and correspondent banking. These are very important issues for central banks given that we also promote the safety and efficiency of payment, clearing and settlement, thereby supporting financial stability and the wider economy. In addition, the developments in the compliance area regarding the prevention of money laundering, financing of terrorism, insider dealing, fraud, corruption and other criminal offences are in the focus of the Conference, as well. In this context, we appreciate the contribution of Mr Oliver Schufmann, the representative of Commerzbank, who will present their experience regarding the compliance activities. | 0 |
The Fourth Industrial Revolution could differ from its three predecessors in terms of scope, scale and speed. Scope Thus far, each wave of technological change has increased the importance of cognitive tasks relative to noncognitive ones. In other words, machines have largely substituted for human hands not heads. Workers have been able to improve their skills and take on newly created sets of cognitive, higher value tasks – tasks beyond the cognitive limits of machines. Rapid improvements in computing power, the increased availability of big data and advances in artificial intelligence and machine learning mean smarter machines are already replacing a broader range of human activities than before, reaching well into the range of “heads”. New technologies may increasingly provide intelligence, sensory perception, and reasoning which previously only labour could provide. Technological optimists 10 believe future automation will move beyond substituting for the ‘routine-manual’ human tasks th technology performed in the late 20 century to almost the entire spectrum of work. 11 It may be left to people to provide “hearts” – that is, tasks that require emotional intelligence, originality or social skills such as persuasion or caring for others. And if new forms of bespoke mass creativity are made possible by the new global economy, human “hands” may once again take over (a form of cottage industry going full circle). 12 One thing that could be different is the effects of demographics. An ageing population will lead to greater demand for care and a straight decrease in labour supply. | This practice is also in line with recommendations in economic literature. Commodity-exporting countries tend to experience wide fluctuations in their exchange rate. Australia is one example. Fluctuations in commodity prices lead to changes in countries’ terms of trade, which measures the ratio of export to import prices. Fluctuations in the terms of trade affect the exchange rate. This dampens the effects of commodity price changes on profitability in business and industry. The exchange rate thus serves as a buffer against changes in the terms of trade. In Norway, the petroleum fund mechanism and the fiscal guidelines dampen the effect on the exchange rate of changes in oil prices. We have nevertheless stated previously that we must be prepared for fluctuations in the value of our currency that are more in line with the fluctuations observed in other countries. The exchange rate will vary. The exchange rate may also act as an automatic stabiliser. In periods when economic activity is too high - or there are expectations of overheating - the exchange rate may appreciate, even if Norges Bank does not change the key rates. Similarly, the exchange rate may depreciate if the activity level is too low. 2 BIS Review 2/2003 In the long term, monetary policy determines the average level of inflation. Therefore, over time, monetary policy also has a significant influence on the nominal exchange rate. Output is determined by the supply of labour, capital and technology. | 0 |
Since then, reform of the policy regime to increase flexibility, especially the exchange rate, has contributed importantly to greater resiliency and abilities of the economies in Asia to adjust to changes in the external environment. So, the fact that the Asian economies have done better this time is not only because of the policy response during the crisis, but also because of the policy choice that was made long time ago to increase flexibility. Let me now turn to the second part of my talk on the post-crisis environment and the challenges for emerging markets. The challenges for emerging markets in the post-crisis world will be shaped importantly by the forces of change that will emanate in the new global economic and financial environment. Some of these forces will relate to cyclical shifts in trade and financial flows in response to 2 BIS Review 36/2010 new configuration of risk and opportunities that arises. Others will represent a more fundamental change as the new structure of economic and financial relations between countries emerges to replace the old structure that had been dismantled by the crisis. Recent discussion on this issue has pointed to the new normal global growth, the rise of Asia, and the increased role of government in the economic system as the new economic realities in the post-crisis world. But amongst these three possible new changes, I think the most important that will have far-reaching implications for emerging economies will be the durability and the composition of global growth. | Two particularly important exceptions have been the gradual fixing of the exchange rates between members of the European Union, culminating in monetary union, and the more or less formal policies of the newly industrialised Asian countries and Japan to keep the value of their currencies stable against the dollar. Moreover, the Asian central banks have been accumulating large dollar reserves. For most of the post-war period, the quantity of central bank reserves held by Asian central banks was of the same order of magnitude as the reserves held by the G-7. Over the past 15 years, both Japan and non-Japan Asia have rapidly increased their reserves, which are now nearly ten times as large as the combined reserves of the rest of the G-7. Two thirds of these reserves are in dollars, a much larger proportion than the US share of world output. The counterpart to the Asian bloc’s current account surpluses and acquisition of dollar reserves has been large current account deficits in the US. There is nothing inherently wrong with such ‘imbalances’. In principle, they reflect the use of financial markets to allocate savings from around the world to the most profitable investment opportunities. But there is likely to be a limit to the amount of debt that one country can issue as a result of persistent deficits before investors start to worry about its ability or willingness to repay. | 0 |
And, to date, many of the largest firms have considerably improved their capital levels and capital planning processes. Simply addressing the quantity of capital and the quality of the planning processes isn’t enough, though. And without elaborating too much on something I’m sure you are quite familiar with, the reasons include: • Capital ratios and numerical targets are snapshots in time – and often a lagging indicator of financial condition. • These snapshots don’t incorporate the future – they don’t anticipate what might happen in different economic times or in different market conditions. • Capital ratios don’t incorporate the impact on a firm’s ability to generate revenues during stress periods – and thus don’t indicate a firm’s ability to rebuild capital as necessary. • So, clearly, stronger capital standards need to be combined with a better ability to anticipate the future – to incorporate a more forward-looking element into assessing the financial strength of a firm. Thus, supervisory and risk management tools need to expand to include stress testing – and from this came the supervisory stress test and resulting Federal Reserve Capital Rule and the requirements in Dodd-Frank for stress testing. I think it’s fair to say that the new capital rules will and should change how firms think about risk within their organizations. | Accordingly, we expect inflation will be, with 70 percent probability, between 6.0 percent and 7.8 percent (with a mid-point of 6.9 percent) at end2015 and between 3.7 percent and 7.3 percent (with a mid-point of 5.5 percent) at end-2016. We estimate that inflation will stabilize around 5 percent in the medium term (Chart 21). In the second quarter of 2015, exchange rate movements delayed the recovery in the core inflation trend, causing the year-end inflation forecast to be raised by 0.5 point. On the other hand, the improvement in import and food prices compared to the previous Report reduced the year-end inflation forecast by 0.1 point and 0.3 point, respectively. As a result, import and food prices are estimated to offset the adverse effects of core inflation figures in the second half of the year. Accordingly, we revised the end-2015 inflation forecast, which was set as 6.8 percent in the April Inflation report, upwards by 0.1 point. We kept the end-2016 inflation forecast, which was 5.5 percent in the previous report, unchanged. Considering that the downward revision in the average oil price assumption will pull down the end-2016 inflation by around 0.1 point, this effect will be compensated for by the effect coming from the rise in inflation forecast for end-2015, so we left the end-2016 inflation forecast intact (Chart 21). We are of the opinion that base effects will continue to determine the course of inflation for the rest of 2015. | 0 |
Instead, this caused a significant current account deficit widening. Therefore, in order to preserve the GDP growth trend, economic policies should focus on its sustainability. In the quest for supporting potential growth and increasing the resilience of the economy, there is no substitute for a coherent mix of macroeconomic policies and structural reforms. A durable economic growth is extremely important also from the perspective of euro adoption, as it would lead to progress in convergence, which will put us on the right track for achieving the goal of joining the Eurozone. In order to stay on course, economic growth and convergence must advance in line with economic fundamentals. Otherwise, the gains, as spectacular as they might be, could be jeopardised by abrupt setbacks. At the end of the day, forcing convergence or postponing convergence is equally harmful. I had the honour to be one of the vice-presidents of the National Committee for Substantiation of the National Euro Changeover Plan, founded last year, which prepared a set of documents that emphasise the need for a substantial degree of convergence before entering the euro area. In fact, it is the Maastricht Treaty that explicitly stipulates the need for “a high degree of sustainable convergence”. Yet, this requirement seems to have been overlooked sometimes. Let me point out that by convergence I refer to all four types of convergence that must be taken into account: nominal, real, institutional and structural. Nominal convergence is easily quantifiable, as the specific criteria are clearly defined in the Maastricht Treaty. | (2012): “Are American Homeowners Locked into Their Houses? The Impact of Housing Market Conditions on State-to-State Migration”, Working Paper No. 12-1, Federal Reserve Bank of Boston 10 BIS central bankers’ speeches | 0 |
With this, the Banque de France became the cornerstone of the monetary and financial system spanning the entire French economy.4 Since the Bank was first established in 1800 through to the present day, our core mandate has been to guarantee monetary stability and, through our supervisory, refinancing and lender-of-last-resort policies, to 1 See the Decree of 2 May 1848, indicating that the decision of the Board of Directors of the Banque de Bordeaux was adopted on 27 April, following the decision by the General Council of the Banque de France on 24 April. 2 The branch opened its doors with the decrees of 27 April and 2 May 1848. 3 The other branches that opened in spring 1848 were in Rouen, Nantes, Marseille, Le Havre, Lille, Toulouse, Orléans and Lyon. 4 Leclercq, Yves, 1999, La formation d'une banque centrale: la Banque de France (années 1830 - années 1850), Revue économique Vol. 50, pp. 151-174 1 preserve financial stability. By establishing a branch network, we strengthened and enhanced our ability to serve the regional economies. Moreover, in each era, the Bank has tailored the approach taken to execute its statutory mandate, catering to the economic and financial environment and the institutions of the time in order to provide France's regions with the best possible support. | The first such ‘sustainability-linked bond’ was issued by Enel, an Italian electricity producer, and offered a ‘step up’ coupon penalising the issuer if it failed to meet a specific target for the share of renewable energy in its installed capacity. Such bonds are not a complete answer to the concern of greenwashing: the degree of challenge in the target remains the choice of the issuer, for example, and the use of funds cannot be traced to specific projects in the same way as use of proceeds bonds. But they do illustrate the type of innovation now underway in capital markets. Chart 8: Total green bond issuance Chart 9: Corporate green bonds outstanding by nationality of issuer Source: Climate Bonds Initiative (CBI) data (including all selflabelled green bonds aligned with CBI’s Climate Bonds Taxonomy and with at least 95% use of proceeds financing or refinancing green/environmental projects) and Bank Source: CBI data and Bank calculations. calculations. The billion dollar question, of course, is whether the market is yet discriminating in favour of climate-positive investment, and away from the reverse. There are some encouraging signs from recent primary issuance: green bonds issued by European companies in September priced on average nearly 10 basis points inside existing curves, and tighter than other non-green issuance over the same time period (Chart 11). That’s real money: for example, the average -15bp new issue premium on VW’s recent € green bond issues will save the firm around € a year in interest costs compared to a conventional bond. | 0 |
In trade documentation, Singapore is exploring how we can use DLT to link our National Trade Platform to trade platforms in other countries, such as Hong Kong. The DLT-based platform will allow users to exchange digital trade documents across borders with confidence. A vibrant and growing DLT ecosystem in Singapore Innovation and technology will be the main drivers of growth in the future. The MAS has been working actively with the financial industry to create a Smart Financial Centre, where innovation is pervasive and technology is used widely. We want to do this to increase efficiency, manage risks better, create opportunity, and improve people’s lives. Building a strong DLT ecosystem is part of this broader FinTech strategy. And the DLT ecosystem in Singapore has been growing handsomely. There are now approximately 50 locally based FinTech startups in the DLT space. The local universities are doing research in various aspects of DLT. Venture capitalists are looking for interesting DLT ideas to invest in. Major technology consulting firms and system integrators have set up in Singapore dedicated practices or teams for DLT. An effective way to develop the ecosystem is through collaborative projects that bring together various parties. And MAS has been an active participant in such projects, helping to co-create solutions together with the industry. 3/5 BIS central bankers' speeches Project Ubin: Using DLT for inter-bank payments Project Ubin is a good example of such collaboration as well as challenging the status quo. | The problem statement is this: In a real-time gross settlement payment system, transactions typically go through a single trusted party, often the central bank. The challenge MAS posed itself was: can we create a more efficient inter-bank payment and settlement system without MAS acting as the trusted party? This began Project Ubin – a collaborative effort among MAS, the Singapore Exchange, ten banks, six technology companies, and six academic institutions. Over the course of the project, more than 150 people were trained in DLT. Phase 1 of Project Ubin successfully demonstrated that banks are able to transact with one another on an Ethereum-based prototype without going through the MAS. MAS issued a digital representation of the Singapore Dollar – a central bank digital currency – and placed it on the distributed ledger for domestic inter-bank settlement. Phase 2 of Project Ubin – just recently concluded – successfully produced three software models that achieved decentralised netting of payments in a manner that preserved transactional privacy. The next step in Project Ubin is to extend the application to cross-border payment and settlement. Cross-border payments today rely on a correspondent banking network. Banks hold balances with one another and settlement occurs through the adjustment of these relative balances. There is counterparty risk, liquidity is split, and reconciliation is a major pain point. In cases where multiple correspondent banks are involved, transactions may take days and at high cost to customers. | 1 |
Moreover, to the extent that the Committee wants to mitigate the risk of a sharp increase in long-term rates, it could judge that it would prefer not to commit to agency MBS sales. Expectations about future MBS sales or actual sales have the potential to generate or amplify such an upward spike in long-term rates. If the Committee believes that it could be costly in terms of credibility to incur a period of no remittances to Treasury – a notion I am personally somewhat skeptical about – avoiding MBS sales would also reduce this risk. Indeed, the Committee might conclude that it was better on all three counts to allow the agency MBS securities to run off passively over time.10 10 This would also provide additional stimulus at the margin, since the degree of accommodation provided by our balance sheet holdings is related to how long the public expects us to hold the assets. 8 BIS central bankers’ speeches An important challenge for us will be to think carefully about what combination of actions and communications will best ensure that when we do eventually judge that it is appropriate to begin normalizing policy, the initial tightening of financial market conditions is commensurate to what we desire. There is a risk is that market participants could overreact to any move in the process of normalization. | Overall, economic activity is likely to be very weak for the remainder of this year, before gradually recovering in the course of 2010. In particular, the substantial fall in commodity prices since the summer of 2008 is supporting real disposable income and thus consumption. In addition, external as well as domestic demand should increasingly benefit from the effects of the significant macroeconomic stimulus under way as well as from the measures taken so far to restore the functioning of the financial system both inside and outside the euro area. Taking all these measures and their effects into account, as well as the pronouncedly negative growth in the first quarter of this year and the most recently published forecasts by public institutions, the risks to this outlook remain broadly balanced. On the downside, there are concerns that the turmoil in financial markets could have a stronger impact on the real economy, as well as that protectionist pressures could intensify and that there could be adverse developments in the world economy stemming from a disorderly correction of global imbalances. At the same time, there may be stronger than anticipated positive effects due to the decrease in commodity prices and to the policy measures taken. Annual HICP inflation was, according to Eurostat’s flash estimate, 0.6% in April, unchanged from March. As explained on earlier occasions, the decline in inflation since last summer primarily reflects the sharp fall in global commodity prices over this period. Moreover, signs of a more broad-based reduction in inflationary pressure are increasingly emerging. | 0 |
Mr. Meyer addresses the competitiveness of financial centres from a Swiss perspective Address by the Chairman of the Governing Board of the Swiss National Bank, Mr. Hans Meyer, at the International Bankers Club Luxembourg, held in Luxembourg on 23/3/98. Both Luxembourg and Switzerland are major financial centres in Europe. The performance and competitiveness of the financial services industry are thus of key economic and social importance to both countries. I should like to use this opportunity to say a few words on the subject from what may be a somewhat unusual perspective. The factors which determine the competitiveness of an industry are basically the same as those determining the success of the entire economy. In both cases, we are looking at a multitude of quite diverse factors with varying degrees of importance. Today, I would like to single out just three of them which I believe are of particular significance: economic stability, social equilibrium (i.e. political stability), and the human factor. Although each of these elements could be dealt with separately, they should ultimately be viewed in a broader context. Let’s start with economic stability. I define this as a state of balanced development across the economy as a whole, characterised by steady growth, a modest inflation rate and low unemployment. One of the main prerequisites for achieving such a state is the ability not only to create but to sustain an appropriate economic framework. This is primarily an objective for monetary policy, fiscal policy and competition policy. | In Norway, the banks dealt with the problem loans themselves, and there is good reason to try to achieve this, where possible: the originating banks themselves are the best placed to deal with the problem loans. However, this presupposes that the problem loans account for only a limited proportion of total lending, so that the banks are able to continue to operate normally. Sweden and Finland established a “bad bank” that took over the high-risk loans. But this was in most cases done only after the state had nationalised the banks and was thereby able to control the kinds of loans that were transferred to the “bad bank”. Third, banking crises do not need to be prolonged. In the Nordic economies the prompt and extensive writing down of problem loans and recapitalisation of the banks limited the economic downturn, which lasted only around a few years. This experience stands in contrast to that of Japan, where loan losses were recognised too slowly, with substantial and decade-long consequences for economic developments. All that said, however, the challenges facing banks today require a broader set of instruments than those used by the Nordic authorities 20 years ago, for two main reasons: First, the situation for banks is more complex. The authorities have to distinguish more clearly between insolvent banks and banks that are solvent but in need of more capital in order to increase lending. The lessons from the Nordic banking crisis can be drawn on for the insolvent banks. | 0 |
Hughes, P and White, E (2010), ’The Space Shuttle Challenger disaster: A classic example of Groupthink’, Ethics & Critical Thinking Journal, Vol. 2010, Issue 3, pp. 63. Iaryczower, M, Lewis, G and Shum, M (2013) ‘To elect or to appoint? bias, information, and responsiveness of bureaucrats and politicians’. Journal of Public Economics 97, 230–244. IMF (2013), ‘Key aspects of macroprudential policy’, available at: http://www.imf.org/ external/np/pp/eng/2013/061013b.pdf. Janis, I (1972), ‘Victims of groupthink: A psychological study of foreign policy decisions and fiascos’, Boston: Houghton Mifflin Company. 14 BIS central bankers’ speeches Janis, I (1982), ‘Groupthink: A psychological study of policy decisions and fiascos’, Boston: Houghton Mifflin Company. Jensen, M and Meckling, W (1976), ‘Theory of the firm: Managerial behavior, agency costs and ownership structure’, Journal of Financial Economics, Volume 3, Issue 4, pp. 305–360. Kahneman, D (2011), ISBN 978–0374275631. ‘Thinking Fast and Slow’, Farrar, Straus & Giroux, Kahneman, D and Tversky, A (1979), ‘Prospect Theory: An Analysis of Decisions Under Risk’, Econometrica 47, Chart 10 shows the fan chart for inflation from the Bank’s most recent inflation report, pp 313–327. Kaplan, A (1964), ‘The Conduct of Inquiry: Methodology for Behavioral Science’, Transaction Publishers. King, M (2010), ‘The MPC ten years on’, lecture to the Society of Business Economists. Available at: http://www.bis.org/review/r070507a.pdf. King, M (2013), ‘Monetary policy: many targets, many instruments. Where do we stand?’, Speech given at the IMF Conference on ‘Rethinking Macro Policy II: First steps and early lessons’. Available at: http://www.bankofengland.co.uk/publications/Documents/speeches/ 2013/speech649.pdf. | The Fintech Hub together with the FCA have just conducted the first survey of regulated firms’ applications of AI. The survey aims to establish a consistent picture of the state of deployment and readiness within financial services. This includes understanding how advanced firms are in their deployment of AI and what specific business lines they are applying it to. Deepening our understanding will help us work out where policy can support the safe and productive deployment of AI in finance. Conclusion My time today only allows me to give a partial picture of the Bank’s work on fintech. Even so, I hope the examples I have given have illustrated the breadth and depth of our commitment to enabling innovation, empowering competition and embracing fintech in a safe and effective way, as well as the role of the Bank’s Fintech Hub in driving that. 11 See https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/technology/deloitte-cn-tech-ai-and-you-en-170801.pdf See https://www.sas.com/content/dam/SAS/documents/marketing-whitepapers-ebooks/third-party-whitepapers/en/artificialintelligence-banking-risk-management-110277.pdf 12 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 | 0 |
Additionally, despite the fact that the more productive companies have gained weight in their respective sectors over the past decade, there are still certain obstacles limiting the efficient allocation of resources. Specifically, there is a need to analyse the level of competition in sectors with persistently high profit margins. It would also be desirable to reduce the impact of factors preventing the most productive companies from growing. In this regard, the regulatory thresholds contingent on company size in the legislation need revising. Making decisive progress on this structural reform agenda is crucial to increasing the economy's long-term growth and laying the foundations for a society that offers its citizens more opportunities. Many of the policies I referred to earlier foster reductions both in the economy’s structural imbalances and in inequality, such that it should be possible to build a broad-based consensus for their approval, despite the obvious difficulties caused by the current political fragmentation. The challenges for the financial sector In the wake of the last crisis, Spanish banks carried out a thorough process of balancesheet clean-up, recapitalisation and restructuring which, over the last four and a half years, has markedly improved the industry’s position on basic parameters, such as asset quality or levels of profitability and solvency. Starting with asset quality, between December 2013 and June 2018 there was a very significant reduction in non-performing loans and foreclosed real-estate assets. Similarly, return on equity returned to positive terrain with rates above the euro area average, recovering from its slump to -25% in 2012. | In the March 3/4 BIS central bankers' speeches 23 statements, the FOMC also announced it would start to purchase agency commercial mortgage-backed securities (CMBS) to smooth market functioning in that market that helps to finance multi-family housing. For more on the deterioration of CMBS market functioning, the Fed purchases and their impact on the CMBS market during this period, see Woojung Park, Julia Gouny, and Haoyang Liu, Federal Reserve Agency CMBS Purchases, Federal Reserve Bank of New York Liberty Street Economics, July 16, 2020. 9 FSB Sets Out Action to Maintain Financial Stability during COVID, July 15, 2020. 10 John C. Williams, Rising to the Challenge: Central Banking, Financial Markets, and the Pandemic, Remarks at the 16th Meeting of the Financial Research Advisory Committee for the Treasury’s Office of Financial Research (via videoconference) (July 16, 2020). 4/4 BIS central bankers' speeches | 0 |
To sum up, it is conceivable that banks could profit from the low interest rate environment in commission and trading business. However, earnings on interest business are expected to come under pressure, especially if interest rates are below zero. Therefore, the extent to which the current interest rate situation weighs on profitability depends not least on the degree to which a bank or banking system is geared towards interest business. In practical terms, what does this mean for the Swiss banks? For the Swiss banking sector as a whole, interest and commission business are of roughly equal importance as sources of revenue, with both contributing around 35% to net earnings in recent years (slide 6).In comparison, as this table shows, banks in the euro area generate more than half of their earnings from interest business. The banking system in Switzerland is thus generally less dependent on interest business than elsewhere. This is a consequence of the comparatively greater importance of commission and trading business at the big international banks and the asset management-focused private banks. Then there are the domestically focused banks – essentially the regional, cantonal and Raiffeisen banks. As is clear from their income statements, these institutions are principally active in interest business. Net interest income – i.e. the difference between interest income and interest expenses – accounts for almost 70% of their earnings. | 9 The level of this imputed interest rate is not set by the regulator and 9 Banks generally stipulate that the cost of a residential property, based on an imputed interest rate of 5% plus amortisation and maintenance costs, must not exceed one-third of the borrower’s gross income. When assessing affordability risk for mortgage lending, the SNB likewise bases its calculations on an interest rate of 5%. Page 9/10 varies between banks. However, if this interest rate were to be lowered in the current environment, borrowers, banks and the economy as a whole would face significant risks. It is especially important when assessing affordability and the relevant interest rate to remember that real estate is normally purchased over a long time horizon of several decades. Interest payments for a mortgage will thus be incurred for the duration of this period, in the course of which rates may well be significantly higher than they are today. While a sharp interest rate rise is unlikely in the short term, there is considerable room for a substantial upward correction in the medium term. It is worth bearing in mind that long-term interest rates are currently about 300 basis points below what was considered normal during the pre2008 era. It is thus vital that borrowers and banks do not exclude the possibility of a sharp interest rate rise in the medium term and, that they ensure their ability to cope should such a scenario come to pass. | 1 |
The main thing is that our future decisions shall remain dependent, first and foremost, on the economic data. Amidst the uncertainty, I am calling, more than ever, for pragmatism. What is the current level of market inflation expectations? After remaining fairly stable for a long period below the 2% inflation target, expectations initially increased markedly in the recent period – including five-year ahead expectations which are the most important for us – and rose to over 3% in spring 2022. 6 See François Villeroy de Galhau (2022), Jackson Hole Economic Symposium, 27 August 2022, “Monetary policy post pandemic: balancing between science and art, predictability and reactivity”. 5 Page 6 of 19 But these expectations have since improved spectacularly as energy prices have subsided; swap markets are now expecting inflation to fall rapidly towards 2%, including in one year’s time. This can also be seen in five-year options markets. 6 Page 7 of 19 These expectations can be regarded as too volatile, or a little too premature when it comes to the inflation decline. But they still have a significant impact on the rise in expected real rates, and this leads me to the channel of financial conditions. The channel of financial conditions and demand The fact that an expectations channel exists does not mean that monetary policy only works like a magical incantation. | 4 For an analysis of the dynamics of the money supply during the public health crisis, see Bê Duc, Bricongne, Bussière, Jude, Penalver, Sédillot, Vari and Wicky, “The increase in the money supply during the Covid crisis: analysis and implications”, Banque de France Bulletin No. 239, 2022. 2 3 Page 4 of 19 The expectations channel While the steering of monetary aggregates has become less important, the steering of inflation expectations has gained significant ground in modern monetary theory, especially since the work of Michael Woodford.5 These expectations play a key role – be they those of the financial markets in determining the level of interest rates, or those of economic agents (businesses and households) in guiding decisions on future prices and wages. I shall come back to the expectations of households and businesses later on, as they are more difficult to measure and influence. At this stage I would like to concentrate on market expectations, and the way in which the central bank should guide them. The essential variable here is the credibility of its communication and action. This credibility is underpinned first by a solid institutional foundation: I would just like to point out that this year marks the 30th anniversary of the law of August 1993 granting 5 Michael Woodford, Interest and Prices: Foundations of a Theory of Monetary Policy (2003), Princeton University Press. 4 Page 5 of 19 the Banque de France its independence. | 1 |
Today, the Swedish bank market is far more dynamic and a large number of both Swedish and foreign financial companies offer products covering everything from unit trusts to mortgages. Although competition could probably be improved even more, developments are moving in the right direction. From a European perspective, the Swedish banks currently make relatively low charges for their services and have low profit margins on their deposits and lending - these are in any case no higher 11 than in the rest of Europe. Today the Swedish banks are in the forefront with regard to technology and have rationalised their operations, with fewer offices and employees than banks out in Europe. Despite this, profitability is relatively modest, which indicates that the price level is under pressure and competition is functioning. However, the company concentration is still very high on the bank market. The four major banks together have a market share of 70-90 per cent within most product segments. A number of "niche" banks have become established over the past year, but they still account for a small, albeit growing, share of the market. The bank market differs from, for instance, the retail trade in that the confidence and personal contact with the bank is perceived as very important. The customers also face complex choices; it is often difficult to assess and compare different services and suppliers. In addition, establishing new banking and insurance relations involves work for the customer. | 6 BIS Review 25/2002 The EU and EMU EU membership is one of the structural factors that are assumed to have increased competition in recent years. The idea in creating the EU's common market was to abolish the legal and administrative impediments to trade and thereby increase competition between and within the member states of the EU. This, together with better usage of economies of scale, would cause price levels to converge. It is now 9 years since the common market came into force and we can conclude that the price differences between the member states still remain. There are also considerable differences between the USA and the EU with regard to price spread. Almost one-third of all brands has a price spread of between 60 and 100 per cent within the EU. The corresponding figure in the USA is 9 per cent. One reason for this is that even if the legal trade impediments have been largely removed, there still remain a significant number of non-tariff trade barriers in the form of, for instance, various standards that segment the national markets. Transport costs and differences in consumer preferences are also factors that counteract market integration. A clear sign of market segmentation is that the price differences between the countries are significantly larger than within the countries. The EU/EEA countries trade almost 90 per cent with one another. Internal trade is therefore approximately as important or more extensive here than it is in the USA. | 1 |
“The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong”, National Bureau of Economic Research Working Paper 14631. White, William R. (2006). “Is Price Stability Enough?”, Bank for International Settlements Working Paper 205. White, William R. (2009). “Should Monetary Policy ‘Lean or Clean’?”, Federal Reserve Bank of Dallas Globalisation and Monetary Policy Institute Working Paper 34. Williams, John C. (2009). “Heeding Daedalus: Optimal Inflation and the Zero Lower Bound”, Brookings Papers on Economic Activity, 2, 1–50. Woodford, Michael (2003). Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press: Princeton, NJ. Woodford, Michael (2010). “Financial Intermediation and Macroeconomic Analysis”, Journal of Economic Perspectives, 24(4), 21–44. | Most of the time this should not 8 BIS central bankers’ speeches happen, as both aggregate demand and credit market shocks will tend to push the two policies in the same direction. Differential movements are more likely to arise in the face of supply disturbances. For instance, a beneficial supply shock will tend to push inflation below target, warranting a looser monetary policy, while it may also encourage a credit boom, warranting tighter macroprudential policies. But in any case, it is not clear that is such a problem. The instruments address different distortions, so one should expect them to move in different directions from time to time. Moreover, it is likely that the regulatory dials will be adjusted much less frequently than policy rates, so co-ordination should not be that significant an issue7. My concluding observations relate to the broader context within which macroprudential policies are conducted. Credit booms are times when everyone feels good and risks seem slight. Taking the credit punch bowl away before the party gets out of hand will be controversial, and banks and borrowers will be quick to claim “this time is different”. That is a good reason for delegation to a separate committee or agency with a longer perspective, much as we do with monetary policy. Even so, the pressures not to take action may be intense. Making macroprudential policies rule-based would be one response. | 1 |
See chart “Real exchange rate against Norway’s trading partners” at the end of the speech. Substantial oil revenues are now being ploughed into the Norwegian economy. Since the turn of the millennium, annual petroleum revenue spending has increased by a good NOK 100 billion. According to uncertain forecasts in government documents 5, another NOK 40 billion or so will be phased in over the next ten years. The cost level in Norway is a thermometer indicating how much the Norwegian economy can sustain without developing a serious case of Dutch disease. The temperature is now high. 4 Measured in international currency at the exchange rate prevailing on 31 December 2008. 5 See Table 3.6 in Report No. 2 (2009–2010) to the Storting: Revised National Budget 2010. BIS Review 78/2010 3 Measured against Norway’s trading partners, the cost level is now almost 20 per cent higher than the average for the oil age. Norwegian labour has never been as costly as today. Norwegian businesses will often lose contracts given the current high level of spare capacity in other countries. And it has never been more profitable to relocate activities abroad. The economic geography of Norway will change over the next 10–15 years. Norway’s cost level and low growth in Europe will bring pressure to bear on jobs and businesses in manufacturing communities. Job losses will have the most severe effects in areas where manufacturing is the most important industry. Entire manufacturing sectors may be lost. | Ong Chong Tee: Confidence in and resilience of the life insurance industry Speech by Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision) of the Monetary Authority of Singapore, at the Life Insurance Association (LIA) Annual Luncheon 2015, Singapore, 4 March 2015. * * * Dr Khoo Kah Siang, President of the Life Insurance Association, Distinguished guests, Ladies and Gentlemen. 1. Thank you for inviting my colleagues and I to the Association’s 13th Annual Luncheon. 2. Modern life insurance is said to have its beginnings in London more than 300 years ago by a company called Amicable Society for a Perpetual Assurance, with the aim of allowing an amicable distribution of contributions to be made by deceased members to their surviving wives and children. But even during the times of Ancient Rome, it is believed that some forms of life insurance existed to help mitigate the costs of burials of deceased members and to provide for their surviving families. While clearly much has changed in the industry, the central tenet of the industry has remained – to provide financial protection to dependants and in current times, also as a means of savings and wealth management. 3. A life insurance purchase is in essence a legal promise. In exchange for payment of premiums, an insurer will honour claims and make payment as agreed under the insurance policy. Hence given the typically long term nature of the commitments, confidence in and resilience of the life insurance industry must underscore its growth and development. | 0 |
More specifically, their legality is safeguarded by virtue of the risk management measures with which they are associated, to ensure that the Eurosystem would not suffer losses if the collateral were realised. In this way, the ACCs which are not loss sharing like the standard monetary policy instruments, can be classified as “adequate collateral” in accordance with Article 18.1 of the Statute of the ESCB. Even though the tools we use are not new and had been deployed previously, we adapted them further during the current crisis. At the same time, our actions complemented other European or national policies, such as the provision of public sector guarantees on the fiscal side. Taken together, these measures have reinforced the effectiveness of liquidity support offered to the real economy. We should ensure, however, that the collateral easing measures do not inadvertently lead to further fragmentation and the re-introduction of a Tier-2 collateral framework. More importantly, they should respect the level playing field throughout the euro area. It is true that the expansion of the ACC frameworks can increase the overall complexity and opaqueness of the ACC collateral landscape. The country-specific legal and institutional features of these frameworks could give rise to additional legal risks in relation to our collateral framework. Therefore, as with the PEPP, it is crucial that our collateral easing packages are designed as strictly temporary measures that will remain in place until September 2021 or only as long as the direct consequences of the pandemic are with us. | The requirements set by the authority are in line with those prescribed by Basle, including the riskweight approach to assess capital adequacy, with weights of 0%, 20%, 50% and 100%, the division of the constituents of capital in tiers 1 and 2 and capital required to cover exchange risk and interest rate risk. Additional measures to strengthen prudential rules in Brazil included regulations issued in 1998 (internal controls), 1999 (credit risk classification) and 2000 (liquidity risk). As a result of the internal controls regulation (Resolution 2554), the board of directors is considered responsible for the smooth functioning of the internal control system, internal auditors must present semi-annual report on the quality and effectiveness of internal controls and supervision can restrict activities and operations where the internal controls are not satisfactory. Resolution 2682, on credit risk classification, introduced a forward-looking approach, specifying that loans must be classified not only according to their past due status, as it was previously done, but also based on the creditworthiness of borrower and on the nature of the transaction. Banks, according to Resolution 2.804 must follow specific liquidity management policies, such as: sound liquidity practices, the use of alternative scenarios and the application of stress tests (reviewed by supervisors). Returning to the implementation of Basle II, supervision in Brazil is as yet undecided with respect to the date of implementation or the timetable to be followed, as this will depend very much on the intentions and readiness of the banks and on the existence of robust and consistent databases and models. | 0 |
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. | If losses have to be shared on a large scale this can put the core of the financial system in peril. Corporate bonds and securitised assets can have similar risks, especially if they are effectively held in the banking system. Debt instruments generally can be destabilising if they cannot easily be restructured when losses occur. Equity provides the most efficient form of risk sharing, suggesting perhaps that this area should be a priority for CMU. The nature of investors also matters in ensuring that an increase in cross border market-based financing in the EU does not increase financial stability risks. In general, sources of market-based financing are more likely to be resilient if the investor base is diverse, not excessively reliant on leverage and “sticky”. It is abundantly clear from all of the above that achieving the necessary step change in market-based financing in the EU means a marathon not a sprint. Although it shares its nomenclature with Banking Union, Capital Markets Union is a very different animal. The former is essentially designed to improve stability of and between the euro members through institutional change and moving major financial stability responsibilities to sit at the euro level alongside monetary stability. It was possible to make these institutional changes relatively quickly, though their implementation will take longer. Capital Markets Union, in contrast, aims to deepen and widen the single market, though it needs to have regard to financial stability. It does not require institutional change. | 0 |
And firms’ labour costs grew an estimated 1.3% in the last quarter of 2014, close to core inflation. Consumer confidence and retail sales growth are at their highest in over decade. Similarly real income growth is on course to be the strongest for more than a decade. Firms’ investment intensions are robust. Surveys point to solid growth consistent with trend. There is little evidence of a deflationary mindset setting in. 13 That reflects an excess of saving over investment. That in turn reflects a combination of factors including the protracted process of balance sheet repair in both public and private sectors, and more secular factors like demographics (ageing and slower population growth), the higher steady state costs of financial intermediation relative to the pre-crisis period, and, possibly, lower productivity growth, as a consequence of lasting scars from the crisis. See Carney, M (2013), “The spirit of the season” at The Economic Club of New York; and box on page 42 of Bank of England (2014), Inflation Report, August. 14 Protracted pass-through, generated by stickiness in the domestic price of imported goods, challenges the classical view that the exchange rate provides an efficient shock-absorber in the face of foreign shocks. 15 These figures refer to the quarter-on-quarter annualised growth rate of the Average Weekly Earnings series. | In other words, what happens when certain assets that are considered relatively safe, and in some cases are used as safe havens, are not considered as being that safe any more? The crisis has shown the importance of financial markets relying on liquid and safe assets to protect against systemic risk. Traditionally, the government bonds of advanced economies 4 BIS Review 126/2010 have played this role. What scenarios open up if advanced economies’ sovereign debt assets are no longer perceived as risk-free assets? How would this affect the functioning of financial markets? There is no doubt that there would be some direct spillover to all other assets. The riskiness of the global portfolio can be expected to rise more than proportionately. Indeed, if the public sector is itself over-leveraged, who can back up the public sector? 2 It can be expected that higher yields and lower asset prices would exert downward pressure on economic activity through increases in the costs of external finance, negative wealth effects and negative effects on confidence. 3 A world without default-free assets would have further implications for economic activity because these are the prototype of “information-insensitive” instruments, i.e. they serve as “money” and provide the basic functions of money when the opportunity cost of holding money becomes too high. 4 For instance, information-insensitive assets are an important source of collateral in financial markets. The disappearance of “good” collateral would reduce credit supply and thus impair economic activity. | 0 |
Goh Chok Tong: Staying ahead of the Asian curve Speech by Mr Goh Chok Tong, Senior Minister of the Republic of Singapore and Chairman of the Monetary Authority of Singapore, at Barclays Asia Forum, Singapore, 1 November 2007. * * * I extend a warm welcome to all of you, especially to those who have not come to Singapore in recent years. I would also like to thank Barclays for organising this Asia Forum as well as this weekend’s Singapore Open. I hope the Singapore Open will grow in prestige as you expand your presence in Singapore and Asia. Singapore’s economic growth rates in the past few years have surprised many, including ourselves. We did not expect to be able to consistently achieve growth rates of above 6% per annum as we are a mature economy. Yes, we have remade our economy but the good growth was also due to the buoyant world economy and a surging Asia. Singapore’s future growth will depend not only on our own efforts but also on our ability to anticipate trends in our external environment and stay ahead of the curve. This morning, I would like to share with you how we see developments in Asia and the challenges before us. Political outlook Let me start with the political outlook. I believe that Asia will remain stable and the regional environment conducive to growth. Post-9/11, the world had to adjust to new insecurities posed by terrorism. | In this kind of uncertain economic environment, it is all the more important that we should be trying to maximize the opportunities to develop trade and investment links between neighbouring economies. That is why this Symposium is timely and important. The existing economic links between Fujian, Hong Kong and Taiwan provide a solid platform on which to build for the future. Taiwan and Hong Kong are already major trading partners with Taiwan’s exports to Hong Kong accounting for 23.5% of its total exports in 1997. Visitors from Taiwan also account for a significant proportion of the total number of visitors to the territory and thus make a major contribution to the tourist industry in Hong Kong which, as you will know, currently needs all the help it can get. 4. Trade between Hong Kong and Fujian is also growing rapidly in both directions and both Hong Kong and Taiwan are a major source of overseas investment into the Province. There are over 10,000 Hong Kong enterprises in Fujian. 5. The Hong Kong presence in Fujian includes a number of banks from Hong Kong, including Bank of East Asia. The same bank also maintains a branch in Taiwan which puts it in a good position to take advantage of the triangular trading links between Fujian, Hong Kong and Taiwan. In its role as an international financial centre, Hong Kong is also the host to a number of banks from Taiwan. The Taiwanese presence here consists of 4 licensed banks, 2 restricted licensed banks and 3 representative offices. | 0 |
I think that pragmatism should prevail as to the form of the private sector involvement in crises resolution. But there is a need for general principles to highlight the roles and responsibilities of the public and private sectors, such as those that have been defined in the framework adopted by the G7 at the Köln Summit in June 1999. Among these principles, I would particularly stress: – the focus on the medium term sustainability of a country’s financing position; – the objective to achieve comparability of treatment between and within a country’s bilateral official and private creditors. 1.5 Choice of the right exchange rate regime The sustainability of any exchange rate regime depends crucially on its consistency with a country’s domestic macroeconomic and structural policy framework. This being said, the choice of an exchange rate regime should rest on the following principles: – So-called “corner solutions” are not necessarily the only available options. Free floating rates may help to accommodate volatile capital flows and asymmetric shocks; however, they might not prevent misalignments leading to balance of payments desequilibrium, they might prove disruptive for the real sector of small open economies, which often lack the size for developing the necessary market infrastructure to cope with exchange rate instability. Currency boards can be warranted only under very specific circumstances. | Efforts have now to be pursued as regards the prioritization of these Standards and Codes (the Financial Stability Forum Task Force on Implementation identified 12 of such Codes and Standards out of 65) and the development of incentives to implement them. Is there a better demonstration that we are experiencing globalization than to observe that 65 global workshops including countries in transition and emerging economies have worked out 65 Codes and Standards to be implemented BIS Review 52/2000 2 universally? The commitment of economies to implement Codes and Standards might be reinforced if market participants reflect information on observance of Codes and Standards in differentiated credit ratings. 1.4 Private sector involvement The main objectives of private sector involvement is to avoid moral hazard and other distortions in the functioning of international financial markets and to facilitate more orderly adjustments in case of crisis. Market participants should be encouraged to assess adequately the risks involved in investment decisions on the basis of a country’s underlying fundamentals, including the soundness of its financial system, rather than on the expectation that official flows will possibly support repayments to them in times of crisis. We have to promote approaches that permit appropriate coordination among creditors, and between creditors and borrowers. Appropriate instruments to reach that goal include collective action clauses, private contingent credit lines, call options on interbank credit lines and the removal of put options from bond contracts. | 1 |
To receive an LOLR credit, a bank must on the one hand be systemically relevant and, on the other hand, be solvent and able to furnish sufficient collateral. Without collateral, the National Bank cannot grant any credit. This fundamental principle is enshrined in the National Bank Act. By disclosing our terms to the banks in advance, we are eliminating any possible misinterpretation of the liquidity risks and helping to ensure that preparations are in place for a liquidity crisis which can never be ruled out altogether. This is what we refer to as “constructive clarity”. Conclusion To sum up, I would like to reiterate that the situation of the Swiss financial system is stable. However, this gratifying conclusion should not allow us to rest on our laurels. Maintaining a stable financial system in the long term calls for constant efforts to prevent and cope with crises. While this challenge must primarily be met by the private sector, the authorities can, should and must support its efforts. Financial Stability Report 2004 (424 kb) BIS Review 39/2004 3 | If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions. Thank you very much for your attention. I will now be happy to answer your questions. BIS central bankers’ speeches 1 | 0 |
It is intuitively easy to understand that the amount of money in the economy is a decisive factor for the price of the goods produced in the country. In modern economies, where payments are largely made electronically, the monopoly on issuing banknotes is no longer an equally evident condition for enabling monetary policy to determine price trends. Today, it is instead the right to determine the terms in the systems for large electronic payments between banks and the opportunity to influence how much the banks shall borrow or deposit in the Riksbank that enable us to steer interest rates. For electronic payments to be able to function as money, it is necessary for the central bank to be perceived as guarantor for these means of payment in the same ways as with banknotes. This role can only be fulfilled by a central bank and in this way one can say that the possibility to determine price trends in the economy still lies with the monopoly on issuing money. The Riksbank governs the shortest interest rate in the interbank market, so that it normally remains close to the monetary policy-steered repo rate. The fact that the Riksbank can steer the interbank rate is primarily due to the fact that each individual bank participating in the system handling large interbank payments - known as the RIX system - always has an opportunity to borrow and deposit money in the Riksbank overnight at the lending and deposit rates set by the Riksbank. | Even loans with a longer duration could in principle be financed by short-term borrowing on the interbank market. The lending rate in the interbank market will thus comprise the bank's financing cost for this loan and is therefore an important factor when the bank decides the lending rate it will offer the company. For loans with a longer fixed term, expectations of the development of the repo rate during the duration of the loan will affect the financing cost and thus the lending rate the bank sets for a longer term loan. A bank that has a surplus to invest can in the same way choose between investing it in the interbank market and lending money. The interbank rate will thus influence the lending rate the bank offers households and companies as it comprises an alternative yield. In addition to the interbank rate, however, the banks' lending rates are determined by many other factors. When setting interest rates, the banks must of course compensate themselves for the credit risks connected with the loan and at the same time reserve funds in their own capital to meet any future losses. The fact that banks from time to time make differing assessments of borrowers' credit rating should not in itself affect how much the banks' lending rate changes when the repo rate is raised. The impact from monetary policy should not, therefore, change merely as a result of the banks changing their assessments of the credit risk. | 1 |
The current economic situation Before the war, the world economy was on a path of gradual recovery, following the most acute phase of the pandemic, although the recovery was already flagging from the second half of 2021 owing to global bottlenecks and the increase in inflationary pressures. The gradual path of recovery in activity prior to the Russian invasion of Ukraine was, in any case, highly uneven across geographical areas and sectors of activity. Thus, while some economies had already regained or even surpassed their pre-crisis levels of activity, others had not. Spain, despite having one of the highest levels of vaccination in the world, was among the latter. At the end of 2021, Spain’s output was still 3.8 percentage points (pp) below its pre-pandemic levels, while in the euro area as a whole this gap had already closed. One factor that would explain the difference in progress is the sectoral composition of activity. In particular, the recovery tends to be more delayed in those countries, like Spain, in which services that are highly dependent on personal interaction, such as those linked to tourism, account for a large share of the economy. Economic developments in Spain, and in the rest of the world, have been affected by upward inflation surprises since the second half of 2021, driven in particular by energy and food, although there has also been a slight rise in underlying inflation. Between December 2020 and March 2022, the annual increase in consumer prices rose from -0.6% to 9.8%. | The European Central Bank’s monetary policy Against the recent backdrop of high inflationary pressures, the European Central Bank (ECB) has continued with the normalisation of its monetary policy initiated last December. The Governing Council has explicitly expressed its willingness to maintain optionality, gradualism and flexibility in the conduct of monetary policy going forward. In the current climate of uncertainty, this is deemed necessary to allow us to respond to incoming data to fulfil the ECB’s mandate to pursue price stability and to contribute to safeguarding financial stability. Indeed, the war in Ukraine is increasing the short-term upward inflationary dynamics, adding to the pressures generated by rising energy prices, bottlenecks and the normalisation of demand. The intensification and prolongation of these short-term inflationary pressures make it more likely that second-round effects will emerge and, therefore, that the inflation dynamics will become entrenched in the medium term. However, the war is having an adverse effect on economic growth, which could potentially be significant, particularly in the short term, in a setting where euro area GDP remains below its potential level. Overall, the upside risks to the inflation outlook have intensified, particularly in the near term. Although various indicators of long-term inflation expectations drawn from financial markets and surveys of professional forecasters put inflation at around 2%, there are preliminary signs, which will have to be monitored carefully, of those indicators being revised to above-target levels. In step with the normalisation of monetary policy, net purchases under the pandemic emergency purchase programme (PEPP) were discontinued on 31 March. | 1 |
Mario Draghi: ECB press conference – introductory statement Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 8 September 2016. * * * Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis. Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of € billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. Today, we assessed the economic and monetary data which had become available since our last meeting and discussed the new ECB staff macroeconomic projections. Overall, while the available evidence so far suggests resilience of the euro area economy to the continuing global economic and political uncertainty, our baseline scenario remains subject to downside risks. Our comprehensive policy measures continue to ensure supportive financing conditions and underpin the momentum of the euro area economic recovery. | Looking ahead, on the basis of current oil futures prices, inflation rates are likely to remain low over the next few months before starting to pick up towards the end of 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should increase further in 2017 and 2018. This pattern is also reflected in the September 2016 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.2% in 2016, 1.2% in 2017 and 1.6% in 2018. In comparison with the June 2016 Eurosystem staff macroeconomic projections, the outlook for HICP inflation is broadly unchanged. Turning to the monetary analysis, broad money (M3) continued to increase at a robust pace in July 2016, with its annual rate of growth standing at 4.8%, after 5.0% in June. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.4% in July, after 8.7% in June. Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations increased to 1.9% in July 2016, compared with 1.7% in June. The annual growth rate of loans to households remained stable at 1.8% in July. | 1 |
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