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The margin exchanged to reflect those losses and gains (VM) across UK CCPs in Q1 2022 were larger than those observed during the 2020 Covid crisis. [6] UK CCPs’ aggregate initial margin requirements also increased, but by relatively less than we saw during Q1 2020. [7] This was partially because the shocks to asset prices were less broadbased, and partially because commodity markets had gone through a period of volatility just a few months earlier, so initial margin was already elevated. Page 4 Some early lessons Just because central clearing has been a success, does not mean that CCPs and CCP regulators do not need to keep learning. CCPs have been central to making the financial system safer over the past decade. But we have also seen new significant strains that need to be addressed. Policy makers and market participants have deliberately and sensibly put CCPs in the centre of the financial system. To continue to earn that trusted role we need to keep learning – we cannot be defensive. I see three areas for further work (1) Tackle the side effects without sacrificing the cure By design, post-crisis reforms mean that in events of market turmoil losses are crystalized promptly and risk is repriced. But as we have seen in 2020 and again in 2022 this can mean very sharp strains on liquidity in parts of the system. The answer here is obviously not to return to pre-2008. We need to avoid having such short memories that we return to a pre-Lehman system. | In practice it is not always so easy to distinguish between what is important for credibility and various factors can interact in a complicated manner. Two cases can, however, be discerned: BIS Review 56/1997 -6- - In the first case, the problem of credibility is primarily based on a lack of confidence in the central bank as such and in monetary policy. In the long-term perspective, the task is then the establishment of a trackrecord. Laws that guarantee independence can be an important support in this process. In the short term, there is probably most often not much that can be done other than to show by action--increases in interest rates--that one is sticking to one’s objectives. - More difficult to assess and manage are situations in which the currency’s depreciation is a consequence of weakening credibility in the general direction of economic policy. Investors in the financial market may, for example, think that the risk has increased for a change of regimes in the future, when the target for price stability may be abandoned at least temporarily as a result, for example, of government financial problems. In Sweden this was probably the most common explanation for the recurrent periods of exchange rate turbulence during the 1990s. In situations of this type, monetary policy itself cannot do the job, and what is worse, in the short term the costs of monetary policy measures may be considerable. | 0 |
This is one of the many lessons that we have learnt from the crisis, but certainly not the only one. There are also important lessons regarding the economic governance of the euro area, the sustainability of public finances, the regulatory reforms of the financial sector, etc. to be learned. In my address today, I would like to share with you some reflections on what we need to do in order to draw such lessons and what, in my view, represents the way forward for the European Monetary Union. II. The state we are in The idea that highly integrated financial markets are always conducive to macroeconomic and financial stability is not the only economic notion that has been challenged by the crisis. The current crisis was preceded by the “Great Moderation”, a period of reduced macroeconomic and financial volatility and improved economic performance that began in the mid-1980s. During this period, the progression of economic history as a succession of cyclical booms and busts seemed to have come to an end in many advanced economies. Some economists even referred to specific countries as “Goldilocks” economies, with this term meaning their supposed ability to grow on a sustained basis at a rate that was neither too high to generate inflation nor to low to cause unemployment. The trust in the ability of our financial markets and economies to smoothly overcome any disturbances came to an end in the summer of 2007, when the financial “turmoil” began. | It is these risks that are particularly relevant for risk management in banks, following an economic dictum that has been attributed to several people over the years, including an author of science fiction novels and an American General. The general was Leonard Porter Ayres, who also worked as a statistician and economist. When asked by a group of reporters to impart some words of wisdom gathered from his long years of economic study, Ayres replied: “It is an immutable economic fact that there is no such thing as a free lunch.” I am pretty sure that everyone in this room has used that phrase at least once. Translated into the language of finance, it reads: whoever wants to make a profit has to take a risk. The returns, however, are mostly generated right away, whereas the risk might only materialise in the future. This is where good risk management comes into play. Banks and the entire banking system have indeed become much more resilient to shocks. Nevertheless, good risk management is still necessary. It should enrich decision-making by providing a medium and long-term view, and it should highlight the downside to every upside. In a way, risk managers have to be the spoilsports. The same is, of course, true for banking supervisors. One of the tasks of banking supervisors is to ask questions when things are going well, and to intervene when they are not. Therefore, risk managers, as well as banking supervisors, explicitly advocate a forwardlooking, risk-based approach. | 0 |
Excluded observations account for approximately 0.5% of the entire sample. Notes: For all models, the dependent variable is “failure”. Standard errors are shown in brackets. 26 (*) Significant at the 10% level (**) Significant at the 5% level (***) Significant at the 1% level BIS central bankers’ speeches Table 6: CAMEL-based determinants of bank failure for FDIC-insured banks(a) Variable Risk-based capital ratio Asset quality Efficiency ratio Return on assets Liquid asset ratio McFadden R2 Likelihood Ratio (Chi-square) Coefficient –0.04*** (0.01) 0.05 (0.03) 0.001 (0.001) –0.16** (0.07) –0.07*** (0.01) 0.075 261.12*** (a) Sample excludes outlier banks with very large risk-based capital and leverage ratios. Excluded observations account for approximately 0.5% of the entire sample. Notes: For all models, the dependent variable is “failure”. Standard errors are shown in brackets. BIS central bankers’ speeches (*) Significant at the 10% level (**) Significant at the 5% level (***) Significant at the 1% level 27 Chart 1: Number of employees in UK regulatory (a) bodies and the finance industry, 1979–2012 Chart 2: Number of employees in US Federal regulatory bodies and number of commercial (a) banks, 1935–2010 Source: Bank of England, Securities and Investment Board, Financial Services Authority annual reports, Capie (2010), Office for National Statistics and Bank calculations. | (*) Significant at the 10% level (**) Significant at the 5% level (***) Significant at the 1% level BIS central bankers’ speeches 25 Table 4: Horse-race between different indicators of bank solvency for major global banks(a) Model 1 Model 2 Model 3 Model 4 Model 5 –0.23 (0.20) T1 Risk-based –0.55 *** (0.18) T1 Leverage –0.44 * (0.25) CT1 Risk-based –0.70 *** (0.23) CT1 Leverage –0.08 (0.05) Market risk-based Market leverage McFadden R2 Model 6 0.023 0.177 0.070 0.203 0.071 –0.20 *** (0.06) 0.216 Model 7 0.97 (1.47) –0.48 (2.04) –1.52 (1.36) 1.22 (1.99) 0.13 (0.11) –0.35 * (0.20) 0.317 (a) Regression based on a smaller sample (45 global banks). This is because of missing information on market capitalisation (where banks were not publicly listed) or on consistent pre-crisis estimates of Core Tier 1 capital. Notes: For all models, the dependent variable is “failure”. Standard errors are shown in brackets. (*) Significant at the 10% level (**) Significant at the 5% level (***) Significant at the 1% level Table 5: Risk-based capital versus leverage, FDIC-insured banks(a) Variable Model 1 Leverage ratio –0.01 (0.01) Risk-based capital ratio Model 2 Model 3 –0.06*** (0.01) 0.27*** (0.03) –0.22*** (0.03) (a) Sample excludes outlier banks with very large risk-based capital and leverage ratios. | 1 |
The bank was taken over by the estates of the realm, and is the precursor to the Riksbank which was founded in 1668. There were countless bank runs in the United States at the end of the 1920s and the beginning of the 1930s. Argentina and Indonesia were hit at the end of the 1990s and the beginning of the 2000s. And as recently as September 2007 the British building society Northern Rock suffered a bank run. I shall return to this shortly. It is clear that even the most recent financial turmoil is a question of an imbalance between assets and liabilities, although the assets and liabilities have come to look rather different than in the fictitious example. Essentially this is a question of the same thing, namely lending at long durations that is funded in short durations. The awareness of this inherent instability and the difficulty in seeing where the risks lie meant that there was sometimes too little liquidity in parts of the money market. What is new is that banks around the world have become much more dependent on the securities markets for managing risks and financing themselves. In 2007 we had concrete evidence of how sensitive the banks have become to liquidity shocks in these markets. Problems in the securities markets have almost never before returned to the bank systems with such force. The importance of financial stability When Northern Rock suffered problems, the British authorities took a number of exceptional measures. | There is an evident risk that the crisis management can be prolonged by political negotiating games. When the stakes are high, there is a risk that many countries will choose to play their cards close to their chest as long as possible. In the worst case scenario, this could lead to crisis measures not being taken in time, which could have devastating results for all those involved. In September 2007 a Nordic-Baltic crisis exercise was organised around a financial crisis scenario. Taking part in this exercise were the central banks, financial supervisory authorities and finance ministries of all of the five Nordic countries and the central banks of the Baltic states. Without going into any details, I can reveal that the exercise brought to light many deficiencies in coordination – both between authorities within individual countries and across national boundaries. In particular, it showed that measures taken unilaterally by the authorities in one country can easily have disastrous consequences for financial stability in other countries. It also further emphasises the importance of continuing to develop the cooperation and ensuring that national regulations do not form an obstacle to cross-border crisis management. In a crisis it is essential that the authorities in different countries understand one another’s assessments of the situation and preferable that they can reach a common view. This makes demands for common criteria and joint terminology. It must also be possible to coordinate various measures across borders, such as emergency liquidity assistance and payments of deposit guarantee funds. | 1 |
Pension reforms if correctly done can also have a significant impact on financial market development when pension funds are encouraged to act as institutional investors involved on the capital market. Participation of pension funds in the capital market can lead to improved clearing and settlement on the one hand, as well as provide more sensitive price information – resulting in better resource allocation, and increasing the availability of capital for financing development. In some developing countries such as Chile, pension funds facilitated internal resource transfers, enabling the government to service its international debts without extreme fiscal adjustment and avoided the drainage of resources that emanates from foreign debt payments. In addition, the funds provided a source of borrowing that did not require excessively high interest payments. Africa can learn from such experiences and undertake necessary reforms to unlock this kind of resource. Pension funds can therefore offer African countries an alternative source of development finance, provide an avenue for restructuring public finances and for the promotion as well as development of the capital markets. 3 Harvey Morris, ‘African states tap pension funds’, in the Financial Times, 24 October 2007. BIS Review 126/2009 3 (c) Stock markets Another important avenue for harnessing resources for the financing of development on the continent is the stock market. Stock markets have grown in number across the globe over the past two decades and emerging and developing country markets have accounted for a significant share of this growth. | The discovery of resources on the shores of the Continent should be carefully handled so that the funds that are realised as much as possible are used in the development of the African continent. Exploitation of the natural resources by foreign investors should ideally involve value addition on the continent. This is one way through which Africa would benefit from its rich resource base. 4 BIS Review 126/2009 Conclusion The challenges of mobilizing domestic resources for the medium-to-long term development require higher levels of domestic resource mobilization. Africa needs a paradigm shift in terms of sources of development finance. This is because the resources that it has domestically in terms of official international reserves and pension funds can be used to finance infrastructural development and investments in other productive sectors of the economy. Capital markets can also be a source of finance for private and public sector investment projects. Africa needs to maintain the sound macroeconomic policies which led to the positive growth that the continent has witnessed in the last decade, and continue with policy reforms aimed at reducing the cost of doing business. This is the best way to ensure that domestic resources as well as foreign resources have a positive and long lasting impact on the African continent’s economic growth and poverty reduction outcomes. BIS Review 126/2009 5 | 1 |
Ladies and Gentlemen, The next important question is “how to carefully set the appropriate path and pace of further integration in the new economic and financial landscape?” With the principle of market-led integration in our region, the role of the authorities is in terms of promoting integration and establishing infrastructures that may be too costly at the initial stage for the private sector. In this spirit, the direction and speed of integration will be largely determined by market forces. The private sector will therefore, all the more important, need to spearhead with their ingenuity, creativity, and determination and also work closely with authorities. However, the authorities still have a main role in determining the degree of capital account openness which is a necessary condition for greater financial integration with external markets. It is true that resisting further capital account liberalization over an extended period is likely ineffective and counterproductive. Yet, as recent events have demonstrated, large and volatile capital flows can become a destabilizing effect on an economy, and, with limited monetary policy tools, it may be necessary to “throw sand in the wheel” when circumstances warrant to preserve the overall economic and financial stability. This is still a topic for open debate, but I think I would like to move on to other important points. Ladies and Gentlemen, To facilitate greater integration both at the global and regional levels, increased economic and financial resiliency is unquestionably a prerequisite for success. In our region, much has been achieved since the Asian financial crisis recovery period. | Mr. Erçel explains developments in the Turkish economy that help in understanding the country’s market opportunites Speech by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, on the occasion of the Conference on “Private provision of infrastructure in Turkey” held at Çiragan Palace in Istanbul on 3/4/97. For a comprehensive understanding of the opportunities offered by Turkey’s market, I should stress the implications of our journey toward liberalisation. In 1980, with world conditions changing and the domestic economy in crisis, Turkey launched a structural adjustment program based on free market principles and an outward-looking economic policy. Since then, a series of liberalisation measures have been taken. The most significant accomplishment of the Turkish liberalisation process is that it has restructured economic relations. Both the financial system and the foreign exchange system have been liberalised. Before discussing Turkey’s economic performance, I would like to describe some features of our foreign exchange system and financial system. Let me begin with the foreign exchange system. Efforts to liberalise Turkey’s balance of payments go all the way back to the Great Depression, and ever since the 1930’s, the issue has been whether to liberalise the current account or the capital account. Now these questions have been settled. Let me summarise the state of the foreign exchange regime under five headings: 1. Residents are permitted to buy, sell, and use foreign exchange freely. 2. | 0 |
While inflation of 4 per cent may not sound much higher than 2 per cent, the difference is large enough that people would have greater need to take account of inflation explicitly in their decision making, especially if it also becomes more variable. Third, the case for creating more room to cut policy rates rests on two assumptions: that other policies to boost aggregate demand are unavailable or inefficient; and that shocks that lead to the ZLB being a significant constraint are reasonably frequent. As far as the former goes, as already noted, there is evidence suggesting that unorthodox monetary policies have had some traction and usually one would also expect that there would be scope to apply a fiscal stimulus too. But there is clearly less room for manoeuvre if a banking crisis also begets a fiscal crisis, as often turns out to be the case. Banking crises typically also raise credit spreads, which cannot be offset by a cut in the nominal policy rate by central banks caught at the ZLB. The case for raising the inflation target to minimise the risk of these situations arising depends crucially on how frequently they are expected to occur in the future. To the extent that the Great Contraction represents a once-in-a-century event and the subsequent changes in regulation and financial market structure are effective in reducing the likelihood of a repeat, the case for raising the target rate of inflation will be correspondingly weakened. | New projects such as the Konkola Deep Mine, Lumwana Mine and Nickel Mining in the Southern Province have come on board in addition to other mining initiatives going on in most provinces of the country. Another key development in the sector has been the revival of zinc production, once, one of Zambia’s metal exports in the 1970s. Sable Zinc of Kabwe (owned by Metorex) has commenced processing the mining dumps in Kabwe. Ladies and Gentlemen, although investment in the mining sector requires massive capital by large conglomerates, the majority of our citizens are increasingly involved in the sector BIS Review 77/2008 1 through the supply of goods and services to support the mines. However, the main challenge to the growth of this sector has been the availability of finance. Most companies struggle to find finances to meet their contract obligations. The need for financing is immense especially as the mining sector is growing year on year and will need to acquire new equipment and spare parts as the mining companies invest heavily in the development of new mines. It is gratifying to know that the USD 50 million facility in favour of the Zambian Mining Services Companies being signed today, is expected to assist major players in the supplies and services sub-sector of the mining industry to execute contracts with mining companies. | 0 |
584–596; and Samuelson, P. (1964). “Theoretical notes on trade problems,” Review of Economics and Statistics 46, pp. 145–154. For an application to the euro area, see: Honohan, P. and P.R. Lane (2003). “Divergent inflation rates in the euro area,” Economic Policy 37, pp.359-94. 2 See: Bayoumi, T. and B. Eichengreen (1992). “Shocking aspects of European Monetary Unification,” NBER working paper no. 3949; Obstfeld, M. and G. Peri (1999), “Regional nonadjustment and fiscal policy: Lessons for EMU,” NBER Working Paper No 6431. 3 An analysis of this issue made prior to the introduction of the euro is offered by: Dornbusch, R., C.A. Favero and F. Giavazzi (1998). “Immediate challenges for the ECB: Issues in formulating a single monetary policy,” Economic Policy 26, pp. 25–64. BIS central bankers’ speeches 1 recent years has been driven by differences in the impact and diffusion of a common shock, namely the financial crisis. The crisis has been a global shock that affected all countries in the euro area – and others, of course. It started with the emergence of market tensions in mid-2007 associated with uncertainty about the valuation of US mortgage-backed securities and escalated sharply in September 2008 with the bankruptcy of Lehman Brothers. The varying impact of this shock on financial conditions across countries has led to a potential for dramatically different transmission of the single monetary policy stance determined by the ECB’s Governing Council. | Important to quantify the risks Normally, all risks that may have significance for the monetary policy decisions have been gone through by the Monetary Policy Department or the Financial Stability Department. But events may of course occur that are impossible to predict, or risks may arise at a later stage in the process that are very difficult to evaluate, such as the effects of the Lehman Brothers bankruptcy in autumn 2008. One central issue with regard to how the monetary policy decision-making process is set up is what stance the decision-makers, that is, the Executive Board, should take with regard to risks that for various reasons are not directly incorporated in the forecasts. If individual Executive Board members consider that there are observable risks and suspect that these may have significant consequences, the Riksbank will of course try to analyse these in depth. But it is not always easy to quantify such risks, and thus it may be difficult to include them in the actual forecast. The question then is how these risks should be taken into account in the monetary policy decisions. I consider it important to try to quantify as far as possible the risks deemed relevant to the monetary policy decisions. This is particularly so when it comes to risks with a low probability, but which would have substantial consequences for the way the economy develops, such as a burst housing bubble, so it is important to try to quantify how the risks are affected by the various alternative actions. | 0 |
It has long been known that projects usually end in failure not because they are bad but because somebody does not understand what his or her role in the process involves, or even why this process exists. Communication improves the level of understanding and acceptance on the part of all stakeholders. It helps create commitment observed in diasporas, and also creates room for internal motivation. It was as early as at the beginning of the 21 century that public administration in Singapore knew the art of project implementation, which institutionalised the role of communication in project planning. 1 p.m. Lunch with a friend. Global brought him a small gift from his weekend family trip to an exotic country. It was a real bargain, and it only took a few minutes to arrange for the trip on the way home from the Friday visit to a modern art gallery. Both Global and his wife are lovers of modern art. All they had to do was to get in touch with their virtual travel agent and they could both go through the offers displayed on the screen in his car, consulting an e-expert. They decided to go for the most exotic trip, which was also quite affordable. Global competition does its job. Their only concern was not to miss the plane. Global and his friend do not waste their time ordering meals, as an e-waiter has already sent suggested menu to their communicators (in Global’s case, consulted with his e-dietician). | STAGE 3 – TWO-WAY INTERACTION The publicly accessible website offers the possibility of an electronic intake with an official electronic form to start the procedure to obtain this service. This implies that there must be a form of authentication of the person requesting the services (75% – 99% in the figure). Stage 4 – Full electronic case handling: The publicly accessible website offers the possibility to completely treat the public service via the website, including decision and delivery. No other formal procedure is necessary for the applicant via "paperwork" (100% in the figure). More information available in Online Availability of Public Services: How is Europe Progressing? Web Based Survey on Electronic Public Services. Report of the Fifth Measurement, Capgemini for European Commission, October 2004. BIS Review 90/2006 7 | 1 |
Dimitar Bogov: When pressures on prices are relieved, we will stimulate economic growth Interview with Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, in “Kapital” weekly magazine, published on 8 November 2012. * * * Bank affairs are always possible In the countries in the region banking affairs have erupted, in connection with criminal activities of some banks in conjunction with politicians. What is the situation in Macedonia? Is everything under control in the banking sector? NBRM controls the banks in terms of their compliance with the regulations, the quality of corporate governance, and assesses the risks that banks undertake in their operations. Banking supervision is a strong prevention against criminal operation. But that does not mean that as anywhere in the world, banking affairs could not take place also in the banking sector in Macedonia. Spasijka Jovanova The National Bank of the Republic of Macedonia lowered the forecasts for the economic growth this year to 1 percent and raised the concerns of inflation. The condition when no growth is registered, i.e. there is a downturn, and there is higher inflation, is called stagflation, which is the worst stage of an economic crisis. Is the Macedonian economy in such a stage? I would not agree that the Macedonian economy is entering stagflation. However, there were unusual movements in the world economy. | Macedonia will have to save more What are your expectations for the Macedonian economy in 2013, which is expected to be perhaps more difficult and more turbulent than this year? What, according to you, will be the biggest economic challenges and problems next year? It will be another year full of uncertainty for the world and especially for the European economy. Thus, the export demand for Macedonian products is unlikely to improve. So, we cannot expect that to boost economic growth. However, our expectation for the economic growth in Macedonia is to be much better than this year, driven by diversification of the production into new export-oriented facilities that started to work this year, or will start to work in the next year, as well as infrastructural facilities for which funding has already been secured from foreign sources. Both politicians and economists globally are of a divided opinion in terms of the economic policy that should be conducted in order to emerge from the crisis. Some advocate austerity, others encourage spending to stimulate growth. Which policy you prefer and think is right for Macedonia? According to me, those are “false” discussions. If a country has a room for increased spending, certainly now is the time to stimulate the economy. But unfortunately, there are not many such countries worldwide. Developed economies were spending more than they could afford for years, and now they do not have any room for fiscal stimulus left. | 1 |
Both are intended to make Swiss franc investments less attractive, thereby easing pressure on the franc. This is important given that the franc remains significantly overvalued. Our expansionary monetary policy is aimed at stabilising price developments and supporting economic activity. Our new conditional inflation forecast suggests that inflation will rise faster over the coming quarters than we predicted in March, principally due to the significant increase in oil prices in the intervening period. The effect of this oil price rise on annual inflation vanishes after the first quarter of 2017. The new conditional forecast moves closer to that of the last quarter from then on, and is in line with it from 2018. This forecast shows that our expectations for the medium-term development of inflation and the Swiss economy remain essentially unchanged. At –0.4%, our inflation forecast for the current year is 0.4 percentage points higher than in March. For 2017, we expect inflation to be 0.3%, somewhat higher than assumed in the previous quarter. For 2018, we continue to anticipate inflation of 0.9%. The conditional inflation forecast is based on the assumption that the three-month Libor will remain at – 0.75% over the entire forecast horizon. Global economic outlook Since the assessment of the inflation and economic outlook for Switzerland is heavily influenced by economic developments abroad, let me now present our assessment of the global economy. The moderate recovery in the global economy is continuing, supported by ongoing highly expansionary monetary policy worldwide. | Compensation for the gold price risk and the dollar exchange rate risk, in particular, is relatively poor. It is therefore inevitable that tighter bounds will be set on SNB profit distribution, once the existing distribution reserve has been exhausted. BIS Review 123/2006 3 | 0 |
But the flip-side is that this process has moved forward in fits and starts, it has not enjoyed a broad degree of consensus and it has sometimes failed to be as rigorous and ambitious as the gravity of the situation required. Likewise, since the onset of the tensions there has been – occasionally notable – headway in the ongoing adjustment of the most vulnerable national economies, sometimes in step with the strict conditionality imposed under the financial support programmes under way. But here, too, action has broadly tended to be behind instead of ahead of events. BIS central bankers’ speeches 1 In these conditions, it is the European Central Bank that has positioned itself as the fundamental bulwark against the crisis. And, ultimately, this is buying time for the Member State governments, in both their responsibility for domestic economic policies and as co-managers of the common European Project, to make resolute progress in resolving the problems at the root of this crisis. We should not forget that the extensive range of non-conventional measures deployed by the ECB since the start of the crisis – the 3-year LTROs being one of the most recent and successful examples here – are, by their very nature, limited over time. And, more important still, these measures do not affect the fundamental imbalances which are ultimately at the source of and responsible for the crisis. | For instance, organising this forum in Bucharest might be an opportunity for us to persuade our guests to get a flavour of the Romanian wines. As far as the Czech beer is concerned, Romanians do not need much convincing – they are already into it. I do wish you all excellent and productive discussions. Thank you! 2 BIS central bankers’ speeches | 0 |
We can quantify the losses in terms of days of lost output. Given the regional GDP of $ trillion, a rough calculation yields a loss of $ billion for each full-day equivalent of lost output in the region. BIS central bankers’ speeches 3 A considerable part of this lost activity will be offset over time or be replaced by a temporary shift of activity from hard-hit areas to less-affected places. But, in a services-based economy, much activity cannot be shifted in time: restaurants, for instance, can’t serve six meals a day to make up for lost business. The fact that many people who would have dined in lower Manhattan in the weeks following Sandy are instead patronizing restaurants near their homes or near temporary work sites represents an offset for the regional economy as a whole. But that’s little consolation for the original restaurant, which may in turn need to lay off some of its people or could even possibly go out of business. And, of course, this applies even more dramatically to businesses in hard-hit places along the regional shoreline. Against this, reconstruction began soon after the storm was over and has likely intensified since then. The repair and replacement of damaged or destroyed infrastructure, homes, and businesses is likely to continue for some time. Programs will need to be well designed in order to achieve maximum beneficial impact. | Failure would suggest a degree of political dysfunction that could undermine U.S. economic leadership and could encourage global corporations and investors to invest elsewhere. Make no mistake: Credible fiscal consolidation will not be painless, no matter what form it takes. The burden will be felt across many sectors of the economy and we must expect that the resulting fiscal drag will exert some restraint on economic growth. Nevertheless, there is no reason why a carefully crafted plan would need to put the economic recovery at risk. A credible plan, after all, would likely have very positive effects on confidence. In particular, I believe that business investment would respond positively to a credible plan. More generally, reducing uncertainty over future tax rates, entitlements and other spending programs has to be a positive development in terms of reducing uncertainty that can constrain economic activity. By clarifying the rules of the road, a credible fiscal plan is likely to reduce the incentive of households and businesses to delay spending and investment. This would likely offset fiscal drag to a meaningful degree. 6 BIS central bankers’ speeches Conclusion To sum up, while it is still too early for a precise estimate of the economic impact of Sandy, I expect a negative impact on fourth quarter national and regional economic growth, but a minimal long run effect nationally and regionally. This has happened during a period where too many people remain without the jobs that they need to help support their families and themselves. | 1 |
At the international level, the issuance of the first sovereign global Islamic sukuk by the Government of Malaysia in 2002 has been followed by a series of other issues. Corporations and multilateral development institutions have also embarked to issue Islamic financial instruments resulting in an increase in the range of products in the international capital market. Islamic sukuks have now breached the USD15 billion mark. The Islamic sukuks have attracted a broad range of investors. In 2004, to deepen our capital market further, Malaysia liberalized our exchange administration rules to allow multinational corporations and multilateral agencies to raise ringgit denominated papers in our domestic bond market. Multilateral financial institutions including the International Finance Corporation and the World Bank have since issued Islamic based ringgitdenominated instruments. We welcome the origination and issuance of Islamic financial instruments to be issued in Malaysia. The growth in Islamic asset and wealth management has also been phenomenal arising from the diverse and innovative structures of Islamic investment funds, including Islamic hedge funds. It is BIS Review 4/2006 1 estimated that more than 250 Shariah-compliant mutual funds are currently managing approximately USD300 billion in assets. Shariah-compliant screening techniques have been able to improve riskadjusted returns on Islamic investment funds which in turn have led to its adoption in improving the risk-adjusted returns of conventional equity funds. | 12 The Bank of England is now working with the FCA and HMT to make this a reality, and we will issue our new blueprint for RTGS in early May. Coordinated Developments in Hard and Soft Infrastructure My third example of the Bank’s efforts to realise FinTech’s promise is our work with industry to help coordinate advances in hard and soft infrastructure. New technologies could transform wholesale payments, clearing and settlement. In particular, distributed ledger technology could yield significant gains in the accuracy, efficiency and security of such processes, saving tens of billions of pounds of bank capital and significantly improving the resilience of the system. 13 12 See “Enabling the FinTech Transformation”, the speech Mark Carney intended to deliver at Mansion House on 16 June 2016. Available at: http://www.bankofengland.co.uk/publications/Pages/speeches/2016/914.aspx. 13 Oliver Wyman and Santander estimated that distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by $ per annum by 2022. See: https://santanderinnoventures.com/fintech2/ 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 Securities settlement seems particularly ripe for innovation. A typical settlement chain involves many intermediaries, making it comparatively slow and keeping operational risks high. Industry has begun to work together to determine how distributed ledger technologies could be used to solve these issues at scale. The Bank is participating in several related initiatives. To help distinguish distributed ledger’s potential from its hype, we have completed our own Proof of Concept. | 0 |
It must be borne in mind that models are no more than a highly simplified and limited image of the real world. While their simplicity does make them very useful in the work of identifying risks, it is also perhaps their chief disadvantage. Models fail to catch a great deal of what is happening in a dynamic and complex environment. Events in the autumn of 1998 and the problems at that time in connection with the American hedge fund LTCM are a telling example of the limitations of risk models, or perhaps rather of errors in the ways they are used. Firstly, there was the evident difficulty in separating the management of market risks from credit risks. As a result of major shifts in market prices, the credit risks, which had seemed to be negligible initially, suddenly became considerable. Loans are often provided against collateral in the form of securities; the securities are not pledged for their full value, which leaves a margin for unforeseen events. This buffer, however, is often relatively small. Additional collateral, it is said, can always be called for if market prices make this necessary. Alternatively, the existing collateral can be realised. There has been a tendency to disregard both the potential credit risk in arrangements of this type and the possible refinancing and liquidity risks. What happened with LTCM in the autumn of 1998 showed that market value can deteriorate so rapidly that there is not enough time for calling in and receiving additional collateral. | It is not sustainable in the long term to have a wage development that entails the cost of labour increasing more than the value of the goods and services produced. This means that real wage costs can only increase at the same rate as productivity growth. The stronger the growth in productivity, the higher the wage costs can be without triggering inflation, as long as they take into account any reduction in working hours and other secondary wage costs. The basis for this reasoning is that the economy is in balance, which is characterised by, for instance, stable wage shares and profit shares. Profit shares - profits as a percentage of value added - have fluctuated around 30 per cent for the entire economy. Since 1995, real wage costs have risen more quickly than productivity growth and wage shares. This is not sustainable in the long run. It is necessary, in the long term, for wage shares and profit shares to be at a level where profitability in Sweden is on a par with our competitors to safeguard a level of capital formation and employment that will best promote the development of our welfare. 2 BIS Review 7/2003 A couple of different approaches/rules of thumb are used in the wage formation debate to evaluate the scope for wage increases in the long term, or to estimate a "wage cost norm". | 0 |
All in all, the prospects for inflation from the demand side look a bit better than they did when the repo rate was last raised. Another positive sign is that the wage agreements that have been concluded so far in 1998 indicate a rate of wage increases that is somewhat lower than in the main scenario described in December. However the recent weakening of the krona is a cause for concern. If it turns out to be permanent, it could affect inflation prospects. In the Riksbank we are now finalising the next Inflation Report, in which we will present an inflation forecast reaching into the first quarter of the year 2000. There, factors such as the Asian crisis, the wage negotiations and the exchange rate developments will be weighed and put into a larger context. The view of the inflation prospects that will result from this process will form the basis for future monetary policy. | The Relation Between a Central Bank’s Degree of Independence and Inflation 14 ITA 12 SP NZLD 8 UK FRA SWE DEN CDA 6 BEL 4 NLD 10 AUS USA JPN GER SWZ 2 0 0 1 2 3 Degree of independence 4 5 Source: SOU (Govt official reports) 1993:20 It should be stressed that an independent position for the Riksbank is not the same thing as a monetary policy conducted without democratic control. The monetary policy objective has been made law by those who are popularly elected. It is making the objective operational BIS Review 14/1998 -6- and the ongoing work to secure the goal decided by the Riksdag that has been delegated to the Riksbank. Question 4: Why 2 per cent? The question of how the monetary policy objective should be made operational has several dimensions. By selecting a clear objective for monetary policy, it is possible to monitor and evaluate it in an effective way. This is especially important when the Riksbank is being given an independent status. A clearly defined inflation objective also has the advantage of being able to function as an “anchor” for households’ and businesses’ expectations. This function alone can be an important feature, not least when a regime of low inflation is being established. The objective for the Riksbank’s monetary policy is inflation of 2 per cent annually, as measured by the consumer price index. | 1 |
They should be expected to be responsible and active, searching for information and understanding the risk profile of products, especially those with a greater degree of complexity. With an approach based on these principles they will be able to take their decisions responsibly, assuming levels of debt that are reasonable, not only in the light of their sustainability at present, but also in the future. However, consumers must not only have access to information, they must also be able to assess it. Institutions must play a role in this respect, offering their customers the products that best suit their needs and informing and advising them accordingly. In addition, in recognition of the importance of raising the acumen of bank customers, the Banco de España is developing a project to educate, through the lnternet, the users of financial products and services. The project’s first phase will be available at the beginning of next year. Allow me, like every year, to conclude by referring to other aspects of the management of the Banco de España. As part of our ongoing effort to increase the transparency and improve the communication of the Bank’s activities, this year’s Annual Report includes an additional chapter on the management of the Banco de España in 2003. This chapter summarises the main tasks performed and the organisational changes made at the Banco de España. I should like to stress that the Banco de España has continued to press ahead with the reforms necessary to adapt the institution to its new challenges. | This will aim to ensure continuity with the aforementioned framework, as well as compatibility with the IAS, permitting a far-reaching and consistent reform of the current model. Accordingly, the new circular will assist institutions in complying with the IAS; it will select the most prudent options when the international standards propose more than one, so recognising the particularities of financial institutions; and, finally, by permitting a common accounting framework, it will prevent the choice of accounting options from being a factor that may distort competition. Allow me to end this review of the challenges facing financial institutions by pointing out that their responses must be supplemented by market discipline and by the action of financial-services consumers. In effect, market discipline is an essential supplement for supervisors; market participants, by rewarding those institutions that act appropriately, generate the necessary incentives for managers to behave prudently. Yet, for market discipline to be possible, market participants need to have the necessary information. This is why the promotion of transparency is of paramount importance, to ensure that institutions report information that is reliable and based on generally accepted valuation principles in a timely and opportune fashion. This qualitative and quantitative information must enable the results obtained by institutions, the risks they are assuming and the practices employed in their management and control to be assessed. Finally, in a non-zero-risk world, the action of consumers of financial products and servces is, as I have already mentioned, very important. | 1 |
Figure 6 Imacec (*) Mining activity (change from previous moving quarter, percent) (annual change, percent) 3 3 40 2 20 20 1 0 0 Total 2 Nonmining 1 0 0 -20 -1 -1 -40 15 16 17 18 19 Mining output index-20 -40 15 16 (*) Seasonally-adjusted series. Sources: Central Bank of Chile and National Statistics Institute (INE). 11 40 Mining Imacec 17 18 19 Figure 7 Manufacturing exports (*) (contribution to annual change, percentage points) 15 15 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 -20 2014 2015 2016 Price Volume 2017 Total 2018 (*) Component of price obtained using differential between nominal and real exports. Source: Central Bank of Chile. | Chilean exports performed well during 2018, partly reflecting an increase in volume exports from all economic sectors in general. Worth noting were shipments manufacturing products, which reached their highest nominal growth since 2011, supported also by the favorable evolution of the international prices of many of these products (figure 7). IV. International scenario Internationally, there has been a more marked slowdown in growth in the main economies. The data was particularly weak in the Eurozone, with a significant adjustment of trade inside and outside the region in the fourth quarter of 2018. In China, growth went from 6.8% in the first quarter, to 6.4% in the fourth. Moreover, concerns about how intense this global deceleration may become have been exacerbated. Different shortterm activity indicators underperformed the market forecast: the outlook for firms in the manufacturing sector (PMI) has deteriorated, manufacturing output has slowed or even contracted in several economies and international trade has weakened (figure 8). Preoccupation over the weakening of the economies, together with lower inflationary pressures and high financial volatility, resulted in an increase in monetary and/or fiscal stimuli in several countries. In the US, the Federal Reserve took a considerable turn in its monetary policy stance, showing itself open to maintaining its 4 expansionary orientation for some time longer, in contrast to the tighter signals emitted up to the third quarter. This led to a significant decline in US long-term interest rates. which has even translated into reversal of the US yield curve (figure 9). | 1 |
Sukhdave Singh: Global RMB – challenges and implications Keynote speech by Dr Sukhdave Singh, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the HSBC Forum: China Globalising: RMB Rising (Malaysia) – “Global RMB: Challenges and Implications”, Kuala Lumpur, 12 August 2014. * * * It is an honour and pleasure to be here with you this morning to talk about what is likely to be the most important development affecting the global monetary system since the introduction of euro. Should the RMB become a global currency, it will transform the global financial landscape. In fact, the RMB could potentially define this century, in the same manner that the US dollar dominated the previous century. In my remarks today, I would like to share some thoughts on the potential for the RMB to achieve the status of a global currency. Where it to do so, what will the potential impact be on the global monetary system? Finally, I will touch on the implications for Malaysia. The world is ready, is China ready? From where we stand today, the world is clearly ready for a global RMB. The question is whether China itself is ready. There is no question that the RMB would become an international currency. The only question is how big of an international currency. Will the RMB’s role in the international trade and finance reflect the status of China as the second largest, and soon to be the largest, economy in the world? | American companies have a strong collective interest in sustaining public support for global integration, improving the quality of public goods the government provides in education, health care and infrastructure, and in preserving confidence in U.S. fiscal sustainability. Thank you. 4 BIS Review 84/2007 | 0 |
According to a recent study by the British Think Tank New Financial, it will take the lead in the EU in 14 of 30 sectors studied2. This polycentric structure would improve the circulation of the abundant savings in the euro area – a surplus amounting to EUR 360 billion last year – channelling them towards financing needs on the continent. Besides, euro area businesses have been lacking equity financing for many years now. The Capital Markets Union – and what I more broadly call a “Financing Union for Investment and Innovation” – is even more essential given the prospect of Brexit. European governments all agree in principle; but so far it remains a blind spot in the recovery strategy. Let us at last turn words into action. II. Preparing Europe payments for the digital currency age Payments are not a usual topic for Europlace and distinguished financial forums. Indeed, they used to be considered as technical, back-office and even boring stuff. But a revolution is underway, and if we collectively miss it, it would mean a massive disintermediation of banks in the two key assets linked to payments: daily customer relations, and personal data. And it would also mean a major loss of sovereignty for Europe. To this day, the coexistence and complementarity of central bank and commercial bank money as settlement assets has structured the payment landscape. Yet this structure is increasingly being questioned. | Ample liquidity: refinancing operations (TLTRO III, PELTROs) Also in keeping with our mandate, I would like to briefly mention that we have been able to rely on the traditional tools we have at our disposal. For example, we have made changes to our existing refinancing operations and introduced new pandemic emergency longer-term refinancing operations (PELTROs) in order to provide credit to the banks and the real economy. As a result, we have seen a surge in the provision of credit in support of the real economy as well as a related knock-on effect on asset prices. Supervisory measures – the need for an innovative approach to tackle the crisis I would now like to look at the supervisory side, where the ECB has had to take an innovative 3/5 BIS central bankers' speeches approach to tackling the crisis. As I mentioned earlier, what is true for our bold monetary policy response to the pandemic is also true for our supervisory response: our measures are exceptional and temporary and within the regulatory boundaries of the internationally agreed framework. The ECB was one of the first supervisory authorities to recommend that all banks under its supervision restrict their dividend distributions in the light of the impact of the COVID-19 pandemic. Soon after our announcements in March, other supervisory bodies around the world followed suit with similar measures. While not binding, most banks have followed the ECB’s recommendation. | 0 |
Lim Hng Kiang: Impact of current issues to Asia’s growth and the global environment ahead Keynote address by Mr Lim Hng Kiang, Deputy Chairman of the Monetary Authority of Singapore and Minister for Trade and Industry, at the Merrill Lynch Asia Rising Stars Conference 2008, Singapore, 14 May 2008. * * * Ladies and Gentlemen, It gives me great pleasure to address this gathering of industry leaders and rising businesses in Asia. I find the term “Rising Star” a very apt description of Asia. It reflects the rising importance as the region, and its companies, many of which are growing rapidly and looking towards the world. The Asian story has taken on a more pan-regional character with a vibrancy underpinned by strong growth in intra-Asian trade and investments. Indeed, there are many rising stars. Asia and its companies have featured strongly in an increasingly interconnected world. The globalization trend can be seen from many aspects – movement of products and services, capital and talent. Through these links, there is greater access to global markets and resources. At the same time, there is also greater interdependence and susceptibility to contagion effect during crises. This presents a unique set of challenges and opportunities to Asia and its companies. This conference is a good opportunity to take stock of these challenges and opportunities. You will get to hear from many expert speakers on what holds for the rising Asian business and for the investors considering Asian opportunities. | In such an environment, companies too will have to carefully manage the higher input and other costs and how much of that to pass on to consumers, to preserve your margins without losing either competitiveness or affordability. BIS Review 60/2008 1 Subprime crisis and Asia’s continued push to deepen capital markets The second issue is the turmoil in global financial markets. The transmission of the crisis is a good illustration of how inter-connected financial markets are today. The problem started with US subprime mortgages, in fact a relatively small part of the US mortgage market, but it rapidly escalated into other securitized markets, to more generic debt capital instruments and eventually into the wholesale or LIBOR money markets. From there, as central bank surveys have shown, there is now a general tightening of lending conditions to end-borrowers, which are exerting a drag on the US and Western European economies. Asia has felt some of the tremors of this crisis, but as yet we have been relatively unscathed. In the banking sector, a number of banks in the region wrote off losses on their US sub-prime mortgage related assets. Compared to their peers in the US and Europe, the impact on their balance sheets and profitability has been less severe. This can be attributed to a combination of factors. Following the Asian financial crisis, banks here had taken active steps to improve their credit standing by enhancing their capital base. | 1 |
Banks that believe the authorities consider them to be too big to fail may assume excessive risk and their creditors may supply them with credit at a cost that is too low. For instance, if banks believe that the central bank will solve any liquidity problem, this will weaken their efforts to prevent such problems from arising - and if they occur, from solving problems in the interbank market. The use of credit on special terms in situations where financial stability is not threatened is associated with indirect costs. The situation must thus be carefully examined before loans on special terms are granted. If it is widely known and recognised that if an institution’s problems are confined to liquidity, it should be possible for the institution to raise loans in the market. A problem bank’s creditors - often other banks - will in such a situation make their own assessment of the bank’s solvency. In principle, it is not a foregone conclusion that the central bank and other authorities would be in a better position to evaluate an institution’s solvency than its own creditors. Implicit insurance schemes, which are in fact what loans on special terms are, may impair the effective functioning of markets and lead to excessive risk-taking among banks. It may take a long time before the costs come into evidence. In a crisis situation it is important to take into account the long-term benefits of not providing support such as better functioning markets and more appropriate risk-taking. | First: there are now a larger number of financial groups, which comprise banks, insurance and mortgage companies, etc. The size of these entities has increased the risk of negative systemic effects if problems should occur in one of them. On the other hand, size increases the scope for spreading risk. Second: the number of foreign financial institutions in Norway has increased. They will normally operate in several markets and engage in a broader range of activities. They may thus be more resilient to a recession or a crisis situation in Norway than banks whose activity is confined solely to Norway. The risk of contagion to other institutions is thereby reduced. Third: globalisation of financial markets means that events outside Norway feed through to the Norwegian economy faster and with greater force. Payment system As mentioned, several measures have been introduced to strengthen the payment and settlement system. At the same time, the volume of payments has increased sharply. The risk of problems in the banking sector spreading through the payment system has not been eliminated. A high-priority task of Norges Bank is to identify risks and, together with the industry, contribute to more secure and effective systems. It has also become increasingly important for our settlement systems to have good international links. Interdependence of financial and monetary stability The objective of monetary stability - which in Norway means exchange rate stability and low inflation - and the objective of financial stability are interdependent. | 1 |
We will now in parallel (i) engage actively in a public consultation from next Monday, (ii) study within the HLTF all the regulatory, technical, financial stability issues, (iii) start experimentations within NCBs, of which the Banque de France intends to be an active contributor including in Retail CBDC. Following this “three-tracks approach”, towards mid-2021 the Eurosystem will decide whether to launch a digital euro project, which would start with an investigation phase. Whatever the decision, it would complement cash, not replace it. The Eurosystem, the Banque de France, will never abandon cash, as it is part citizen’s freedom in choosing their means of payments, and hence their trust in the currency. 3/ A European mobilisation on private payments infrastructure, thanks to the engagement of major European banks – including French ones – in the so-called “European payments initiative” (EPI). We definitely need to go beyond existing national schemes, and offer crossborder solutions and a pan European brand. EPI needs to be detailed, opened up to other banks and jurisdictions, and accelerated. But it definitely warrants the full support of the Eurosystem. We should additionally ensure that efficient public infrastructure such as TIPS is compatible. Let me stress that there is no contradiction between considering a euro-CBDC and supporting EPI. We may probably need both, and we should in any case build them to be complementary. My preference would be to seek a renewed public/private partnership for the dissemination of central bank money in a retail form. | Despite being weighed down by one of the most severe droughts during the past year, farm income and rural consumption have recently regained their momentum, as rainfalls are back to its normal level. In the meantime, public investment and stimulus measures have also helped restore private confidence, while strong growth in the tourism sector continues to reinforce the momentum of our economic recovery. Ladies and Gentlemen, Such positive economic development should indeed be welcomed. However, it should not distract us from making continued investment on a more important task which is to undertake the much-needed structural adjustments. This is what I referred to as “an engine overhaul” in my talk last year. Fortunately, technology and innovation offer very powerful tools which can be used to accelerate our growth engine. We need to first position ourselves to receive the full benefits of their arrival – both in terms of human capital and infrastructure. The good news is that the government has already launched several initiatives geared in this direction. Throughout this forum, you will get to learn about the rationale and aspiration of key reform initiatives, such as the new S-curve, public private sector collaboration, and upgrading of the tourism and the healthcare sectors. The Bank of Thailand also plays a critical role in this engine overhauling process, both through our conduct of monetary policy and financial sector development policy. | 0 |
17 All speeches are available online at www.bankofengland.co.uk/speeches 17 Producing something along these lines would be a new departure for macro-economic policy, if not for some of the other arms of policy. Analyses of monetary policy have tended to emphasise the economy-wide effects, measured in terms of macroeconomic outcomes like GDP, unemployment and inflation. This still makes sense as a means of explaining the social good monetary policy is offering. But messages often land most effectively when they are personalised. Monetary policy has an important personalised impact on most people’s lives. Some scorecard-like device could, at times of significant change in the monetary policy stance, help explain, in simple terms, the personal as well as societal benefits monetary policy confers. It would seek better to explain how monetary policy is affecting your job, your cost of living, your GDP. This should help make monetary policy relevant to people’s everyday lives. At a time of diminished trust, and some scepticism, it could potentially make a contribution towards improving public understanding of, and trust in, monetary policy. It would mean the next time someone shouts from the audience “That’s your bloody GDP”, we would have right of reply: “Oh no it’s not; it’s yours too.” 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 References Agerström, J, Carlsson, R, Nicklasson, L and Guntell, L (2016), ‘Using descriptive social norms to increase charitable giving: The power of local norms’, Journal of Economic Psychology, Vol. 52, pp. 147-153. | In general, the young are borrowers with a stock of debt, the old are savers with a pool of assets. 18 Bunn et al (2018). We also use the Family Resources Survey (FRS) for household incomes. 20 See https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/debt/methodologies/wealthandassetssurveyqmi 21 As discussed in Vermeulen (2016), for example. The ONS Wealth and Asset Survey is probably the UK household survey with the best coverage of the tails of the distribution. 22 The measure of wealth used is net total wealth, comprising financial, property, physical and pension assets, net of debt. There is a question about how much households are aware of pension wealth, and therefore value it. The distributions are not especially sensitive to whether pension wealth is included. 19 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 If we overlay the income and wealth distributions in 2007 and 2013 (the end-date for our exercise), these are pretty-much identically-shaped (Charts 5 and 6). On that basis alone, there has not been any clear shift in income or wealth inequality since the crisis. Standard summary measures of inequality, such as the Gini coefficient, confirm that conclusion: for both income and wealth, the Gini is largely unchanged. 23 On the face of it, then, this does not strongly suggest that the relaxation of monetary policy since the crisis has significantly worsened inequality. Unless, that is, other factors have more than counterbalanced the effect of monetary policy. | 1 |
Only if the krona were abolished and replaced as legal tender by the euro, in a similar manner as Panama and Liberia have done with respect to the dollar, would exchange rate risk and the associated interest rate risk premium disappear. However, it is good for thought that no country with its economy in good order has chosen this path. Seignorage then accrues to another country or group of countries and all influence over monetary policy is surrendered. Nor is it clear that such a path would be acceptable to the European Central Bank. Participation in the Monetary Union would be a preferable option to adopting the unions currency unilaterally as this would allow for a share in seignorage and give the possibility for influencing monetary policy decisions. This would, however, require membership of the European Union as I mentioned earlier and any decision in that regard of course concerns wider issues than only monetary and exchange rate arrangements. This is of course a very general analysis of the options we face, but nevertheless shows that the issue is more complicated than we are sometimes led to believe. All the alternative options have strengths and weaknesses. Also, future developments and what will actually be on offer are still in doubt. One reason is that the European Monetary Institute, the precursor of the European Central Bank, has not been empowered to discuss linkages with any non-member of the European Union. The task of preparing Monetary Union has been more than sufficient. | Ladies and gentlemen, Moving from the financial side to the real side, let me share with you the Monetary Policy Committee’s latest assessment to summarize where the Thai economy stands at the moment. This year, the Thai economy is projected to gradually recover, driven mainly by government spending and the tourism sector. Government spending, mainly through small investment projects, has lent support to the recent economic recovery. Contribution from large-scale infrastructure projects is expected to become more evident in the latter half of this year. Meanwhile, tourism has been an important growth driver, with a broad-based improvement in a number of tourists from China and other regions. In 2016, we estimate that more than 32 million foreign tourists, improving from 30 million last year, will choose Thailand as one of their destinations. In addition, the Thai economy has benefited from expansion of investment in certain sectors, notably those related to telecommunication and alternative energy. Exports of goods to CLMV countries, which now account for around 10 percent of our total exports, has supported economic growth and has potential to grow further, despite a decline in export volumes of oil in recent months due to temporary factors. Overall, the Monetary Policy Committee forecasts that the economy will grow at 3.1 percent in 2016, picking up from a growth rate of 2.8 percent in 2015 and 0.9 percent in 2014. However, I must admit that overall momentum of the Thai economic recovery remains slow at this stage. | 0 |
Stresses in liquidity and market functioning could also be temporary, as the market learns to adapt to the Desk’s presence in the markets. So far, though, there seems to be little evidence that the current pace of purchases is prompting deterioration in market liquidity or straining the market’s ability to deliver securities. Conclusion Overall, I believe the Desk has effectively and efficiently carried out the FOMC’s directive to purchase additional Treasury securities and agency MBS in a transparent fashion that achieves the FOMC’s policy objectives, supports orderly market functioning, and obtains competitive market prices. I also believe that the Federal Reserve’s balance sheet policies have been effective in easing financial conditions, particularly with respect to helping make historically low borrowing costs available to existing and prospective American homeowners, as well as lowering interest rates to spur business investment and household spending. Thank you for listening to me today. I would be happy to take a few questions. References Brainard, William and James Tobin. 1968. “Pitfalls in Financial Model Building.” American Economic Review, Vol. LVIII, no. 2 (May). Fleming, Michael. 2000. “The Benchmark U.S. Treasury Market: Recent Performance and Possible Alternatives.” Federal Reserve Bank of New York Economic Policy Review, Vol. 6, no. 1 (April): 129–45. Fleming, Michael. 2002. “Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings.” Federal Reserve Bank of New York Staff Reports, no. 145, March. 21 The Desk also purchases dollar roll contracts when implied financing rates are sufficiently positive. Such operations occurred in December 2011. | Indeed, the FOMC chose to adjust the policy by extending the MEP to the end of 2012, beyond its planned completion in June 2012, in order to support a stronger economic recovery and help ensure that inflation, over time, reached a rate most consistent with its dual mandate. Market participants recognized the program’s conditionality and adjusted their expectations for additional policy accommodation prior to the announcement of the extension of the program. Indeed, results from the Desk’s Survey of Primary Dealers prior to the announcement indicated that respondents placed 60 percent odds on the Committee either increasing the duration of Federal Reserve holdings, for instance by extending the MEP, or expanding the size of the portfolio through asset purchases without short-term Treasury sales at the June 2012 FOMC meeting.3 There are also other examples of the FOMC adjusting its balance sheet based on its ongoing assessment of the economy. The advantage of the current policy is that it relates asset purchases to economic conditions and the efficacy and costs of the policy in a more explicit and transparent manner. This should enable market participants to recalibrate their expectations more continuously in light of incoming information and may provide some additional reassurance against downside risks. Despite the changes in communication around the current purchases, their intended purpose and the way that I anticipate the purchases will impact the economy are similar to previous policies. The purchases are conducted to help achieve the FOMC’s dual mandate of maximum employment and price stability. | 1 |
We revised the year-end inflation forecasts for 2016 and 2017 upwards by 1 point and 0.5 points, respectively, compared to the October Inflation Report forecasts. As I have just mentioned, driven mostly by oil prices, USD-denominated import prices have registered a considerable decline since October 2015. When analyzed jointly with exchange rate developments, the downward revision in the assumption for oil and import prices is expected to pull down the end-2016 inflation forecast by 0.6 points compared to the October Report forecast. On the other hand, the portion of January 2015 public price adjustments which exceeds the inflation target, is likely to push the end-2016 inflation forecast up by 0.4 points. Another influential factor on forecasts in this period proved to be the rise in net minimum wages. Given the announced support by the government and the effects of this minimum wage rise on demand and costs to the employer, we revised the end-2016 inflation forecast upwards by 1 point. Considering the effect of the minimum-wage-rise, we attribute 0.3 points of this to the food inflation, which we raised from 8 to 9 percent for 2016. Lastly, we estimate that a higher-than-projected actual inflation rate at end-2015 compared to the October Inflation Report forecast coupled with the rise in core inflation indicators will push the end2016 inflation by 0.2 points. | There are also reasons for closer study of the potential threats to the stability of the financial system arising from such developments. Finansinspektionen and the Riksbank play important roles here. If the infrastructure is instead mainly owned and run by the users, the problems may not primarily concern pricing, but rather how the conditions for changing established structures are affected. Here I am thinking of the incentives for new developments and the possibilities for new participants to become established in the market. This is extremely important to avoid rigid structures in the financial markets. The conclusion is that it must be possible to adapt the rules and supervision governing the companies working in the financial infrastructure to the organisational form chosen by the companies. In a changing world, our task is to ensure we employ the best methods for carrying out our supervision and oversight work. The picture is further complicated by the fact that the authorities in different countries become involved when consolidation work crosses national boundaries. EU regulations Another important driving force for change is the new regulations being produced within the EU, arising from the Financial Services Action Plan of 1999. One of the purposes of these plans was to harmonise regulations for securities trading between the different European countries. The EU has decided to introduce what is known as the Lamfalussy Process to achieve the target of implementing all parts of the plan prior to 2005. | 0 |
As the financial industry continues to evolve in response to regulatory, technological and business factors, I expect new issues will emerge that potentially threaten individual firms, and supervisors need to be prepared to address them. Conclusions Effective supervision and regulation help create the environment where financial institutions provide critical intermediation services in a sustainable manner over time. A key lesson of the financial crisis and the post-crisis period is that stronger, more resilient financial firms can dampen rather than amplify shocks to the system. The greater resilience we observe today relative to the pre-crisis period suggests the U.S. financial sector is better positioned to continue to provide the critical services to households and businesses that are necessary to support the U.S. economy across a wide range of potential macroeconomic and financial conditions. It is also essential to distinguish the intended consequences of supervision and regulation where informed choices are made based on careful data analysis from the unintended consequences where outcomes are not consistent with policy objectives. This requires both a conceptual framework to identify costs and benefits to society as a whole, and empirical analysis to measure them. In my view, it is entirely appropriate to continuously evaluate and rigorously assess the impact to ensure that the observed outcomes are consistent with stated objectives such as greater resilience, efficient financial intermediation over time, and financial stability. | According to the National Federation of Independent Business, the proportion of small businesses that report credit as hard to get has declined to pre-crisis levels.11 This is consistent with the generally easing credit conditions across most loan classes over the last several years reported in the Fed’s Senior Loan Officer Opinion Survey, particularly in commercial and auto loans, but also expanding more recently into other types of household credit.12 This evidence suggests banks continue to provide this core financial service. 4/7 BIS central bankers' speeches Turning to capital market activities, (Figure 8) plots non-interest revenues from core businesses —trading, investment banking, fiduciary activities, and securities brokerage. While trading revenue has declined, non-interest revenue of other types has generally grown in line with GDP, showing the compositional shift in revenue. The changes reflect the ongoing shift toward activities that generate more stable income streams such as fiduciary and brokerage activities. Looking within the trading business, there is also some evidence that activities are becoming less risky, less opaque, and less complex, e.g., level 3 trading assets have declined as a share of total trading assets over this period and there has been a shift toward central clearing of derivatives even as volumes continue to grow.13 I conclude this section by emphasizing that the supervisory goal is not to allocate credit or to dictate specific aspects of business models, but rather to ensure that firms are resilient so that they can meet the broader policy objectives of the sustainable provisions of financial services and financial stability. | 1 |
Weak design of crisis management frameworks may also lead to ex ante excessive risk-taking in the private sector (e.g., “too-big-to-fail” behaviours) and, in cross-border crises, to a lack of trust and free-riding behaviours by crisis management authorities, amplifying the initial shock. Since the 1970s, the frequency of financial instability episodes has increased globally. This prolonged trend appears to coincide with the gradual undoing of the post-war financial and regulatory structures. The shift towards less stringent financial regulation, combined with 1/5 BIS central bankers' speeches breakthroughs in financial innovation, has profoundly altered the incentive structures underpinning the financial industry. This is likely to have been a primary cause of the episodes of financial instability that punctuated the global economic history of the 1980s, 1990s and 2000s and reached a climax with the global financial crisis.1 To prevent the emergence of such bad outcomes, a sound, system-wide approach to financial regulation is of the essence. But what is the role of monetary policy? Can monetary policy be conducted in a way that reduces the likelihood of financial instability? The long-running debate on these issues within academic and policy-making circles can be broadly broken down into three different viewpoints.2 The first is the “pre-crisis consensus” view, which argues that monetary policy should maintain a relatively narrow mandate of price stability, leaving financial stability to prudential authorities. Under this view, the monetary authority should only take financial stability concerns into account in so far as they affect the outlook for price stability and economic activity. | In addition, sufficient digital infrastructure should be put in place as it will considerably strengthen other modes of connectivity. The internet and mobile communication connectivity will radically change the ways in which businesses operate and people interact, as they drive productivity and efficiency of all sectors. It will also facilitate financial, transport and logistics services, as well as open door to knowledge sharing for people across the subregion. While digital technology is rapidly improving in some GMS countries, there remains large “digital divide” both within and between countries that should be narrowed. BIS central bankers’ speeches 1 The second aspect is trade and investment connectivity. Intra-regional trade and investment activities have continued to flourish, mainly thanks to complementarities among GMS economies. Many GMS countries have varied and abundant natural resources, young population and low labor costs, while the others can offer technological know-how and financing. With varying industry specializations, the diversity among GMS members has contributed to stronger regional supply chain network, and in the future should magnify national strengths towards a higher competiveness of the whole subregion. Amid thriving trade and investment, Thailand is well-positioned to serve the whole subregion, owing to our established legal framework, financing facility, infrastructure, logistics and IT capability. This can be seen by prospering business activities along the Thai border with other GMS countries. Last year, Thailand’s 25 border customs checkpoints with Myanmar, Laos and Cambodia registered impressive trade flows of more than 500 billion baht. | 0 |
It has been the impressive growth in productivity that has been the fundamental factor behind the stunning improvement in the output/inflation mix we have been observing these past several years. What accounts for this improvement in productivity, and is it sustainable? These questions are really at the heart of the debate as to whether the United States is or is not a “new economy”. No one disagrees that the surge in the production of computers and software has been integral to the recent upswing in productivity. Where the differences in view enter is over the deeper sources of productivity growth and the sustainability of the productivity improvements - that is, whether they are temporary or permanent. Those suggesting that there is no “new economy” argue that the recent improvement in US productivity growth is easily explained: it is a combination of a normal cyclical reaction to a surge in demand and a pickup in the growth of the capital stock, most notably high-technology equipment and software. Once growth in demand settles down, this view holds, and investment in high technology slows, productivity growth will moderate. Even proponents of this view recognize, however, that the rapid increase in productivity and output growth in the computer industry will likely increase the growth rate of the economy over the longer term. By contrast, those supporting the idea of a “new economy” tell us that what we are witnessing in the US economy is the fruition of some longer-term trends in information technology, deregulation, globalization and labor markets. | Over the same period, core CPI inflation has fallen from average annual rates of over 6% to 2%. One important sign of underlying change is that the volatility of economic fluctuations has declined since the mid-1980s, evidenced by the fact that there has been only one recession in the United States in the past 17 years. Improved macroeconomic policy management and such positive supply factors as generally lower commodity prices certainly have contributed to the strong performance of the US economy in recent years. Also critical has been the emergence of new technologies, specifically the adoption of “just-in-time” inventory systems, which we copied from Japan. Research at the Federal Reserve Bank of New York suggests that these new inventory systems have helped account for a significant reduction in the magnitude of inventory swings and hence less volatile growth of the US economy. The spate of recent announcements of new resource management systems by auto companies, retailers, and others suggests that we have not yet exhausted the potential benefits from such inventory and production systems. These inventory and production management techniques are just one aspect of the most significant factor that has characterized the improved performance of the US economy, which is non-farm business productivity growth. As I have noted, this had averaged about 1½% a year over the previous 20 years, but since 1995 has improved steadily. | 1 |
One example of this has been the exponential growth in “liquid alternatives”, giving retail mutual fund investors access to hedge fund-like strategies.17 The compression of liquidity risk premia suggests that investors are assuming any future withdrawals from funds will be conducted in an environment of continuous market liquidity and that the value of their fund holdings will not fall substantially when they exit. The risks to that assumption are in only one direction. The dynamic that fund under-performance tends to be punished with outflows creates the possibility of the sorts of spirals that were previously associated with leveraged investors. That potential procyclicality is reinforced by the selling of volatility-linked products by funds seeking to boost income through insuring tail risks. 14 Chart 7 shows model-based estimates of liquidity premia across corporate bond markets. On these measures, premia have returned to their pre-crisis levels. 15 Feroli, Kashyap, Schoenholtz, Shin (2014). 16 Chart 10 shows the increasing share of “redeemable funds” in overall assets under management. 17 Chart 11 shows the particularly sharp growth in assets under management in high-yield funds. BIS central bankers’ speeches 7 Although they were short-lived, the bouts of market turmoil in the past year have illustrated how there can be sudden and sharp outflows, particularly from high-yield and emerging market funds, resulting in illiquidity in the markets for those instruments.18 The macroprudential risk is that any revelation that continuous liquidity is illusory could generate potentially sharp changes in asset allocation. | The baseline assessment would include the environmental risk of a bank’s lending and other businesses. In this Phase, the HKMA will need to work with the industry to develop a ___ (a) common framework, drawing on the latest international standards and best practices. The HKMA will also, in collaboration with the relevant international bodies, such as the International Finance Corporation (IFC), provide capacity building and training programmes to banks in Hong Kong for better understanding of the green principles and methodology in undertaking the baseline assessment. Phase II – once we have completed the baseline assessment of banks in Hong Kong in Phase I, the HKMA will engage the industry and other relevant stakeholders in a 1/3 BIS central bankers' speeches (b) consultation on the supervisory expectation or requirement on Green and Sustainable Banking going forward. The key objective of this Phase is to set tangible deliverables for Hong Kong’s banking industry to become “greener” and “more sustainable”. Phase III – once the deliverables have been set, the next Phase is Implementation, (c) Monitoring and Evaluation. The success of this Phase depends crucially on appropriate measurement of the “greenness” of the banks and the timely disclosure of progress or the lack of it. 4. With the support of the banking industry, I expect Phase I could be completed within around 12 months’ time from now. Responsible Investment 5. In the past few years, there has been a significant shift in mind-set amongst asset owners on Green and ESG investments. | 0 |
It is therefore necessary for the payment system and credit markets to function so we can carry out our monetary policy tasks efficiently. Financial stability is thus a necessary condition for efficient monetary policy. As I have said on an earlier occasion, our task of safeguarding financial stability is in some ways like taking care of an electricity network. Most people give it very little thought until there is a power failure. But since last autumn one can say that there have been severe disruptions in the network and numerous measures have been required to keep the electricity flowing. Although there are some indications that the crisis is not as acute now as it was last autumn, many markets would probably not be functioning if the authorities in various countries were not regularly taking measures to promote financial stability. The effects of the crisis are also still affecting the situation for monetary policy and access to credit in the economy. Although the spread between Swedish mortgage rates and risk-free securities such as government bonds has declined since the most intensive phase of the crisis, households are for instance still facing slightly higher interest rates than normal if they want to fix their mortgage rates at longer periods. The financial crisis may also result in declining access to credit. Many companies in the Riksbank’s company survey state, for instance, that they are finding it difficult to borrow at longer maturities. The financial crisis has also contributed to a fall in equity and house prices. | At the present moment, the current configuration remains complex, with a significant number of national exchanges, clearing houses and central securities depositories. Further consolidation of some of the European infrastructure is advisable. The ECB has a particular interest in an integrated securities infrastructure because it uses it in the context of the collateralisation of its intraday credit operations for payment system purposes and its monetary policy. In addition, a major disruption in a securities settlement system could undermine the stability of financial markets. There are numerous private and public-sector initiatives under way to promote the integration, efficiency, and security of the European securities infrastructure. The “Standards for Securities Clearing and Settlement in the European Union” that have been drawn up jointly by the ESCB and the Committee of European Securities Regulators (CESR) are an important initiative. In its communication on “Clearing and Settlement in the European Union”, the European Commission recently outlined the actions it intends to undertake to improve clearing and settlement arrangements, which are welcomed by the ECB and the Eurosystem. In particular, we agree that the barriers as identified by the “Giovannini Group”, must be eliminated. In addition, we concur that some parts of the clearing and settlement industry deserve careful attention from a competition policy point of view. Finally, in order to ensure the smooth operation of the markets and guarantee financial stability, we share the Commission’s view that a sound regulatory framework is essential. | 0 |
Reduced global imbalances could also entail rising long-term interest rates globally when the Asian countries with surpluses cut back their purchases of US government securities. This would probably also entail a weaker real exchange rate for the dollar. However, it is difficult to assess the consequences of this for the Swedish economy. There will always be current account surpluses and deficits as conditions differ from country to country. The fact that capital flows to rapidly-developing economies, where the return on capital is relatively high, also entails a redistribution of capital that makes the global economy more effective. Therefore, in my view, we should not set targets for the size of current account surpluses or deficits. Sweden can be seen as an example of the fact that a large surplus is not necessarily an expression of an underlying imbalance in the economy. However, significant deviations in the current account may be a sign that something is not quite right in the economy. They can also interact with other weaknesses, for example weaknesses in the financial system, as was the case before the financial crisis. It is therefore important to continue monitoring the development of global imbalances and to understand what lies behind major deviations. Although considerable improvements in the regulation of the financial markets are underway, there is always a risk that new weakness will develop that we do not see until it is too late. | Interest rate risk measures the potential for loss which results from a mismatch between the term structure of a bank’s assets (e.g. mortgages) and that of its liabilities (e.g. customer deposits). While the term structure of assets gets increasingly longer, that of liabilities remains very short. The rise in credit risk was due, on the one hand, to the deterioration in the outlook for the Swiss economy. A slowdown in economic growth in Switzerland could have a negative impact on domestic credit quality, with the result that banks would face the prospect of writeoffs on their assets. On the other hand, the continued strong rise in mortgage loans and real estate prices has also caused credit risk to increase further in the past few months. Furthermore, the results of our mortgage lending surveys suggest a high risk appetite on the part of individual banks. In this regard, the Federal Department of Finance (FDF) submitted two important measures for consultation which should counter potential imbalances in the real estate and mortgage markets: more risk-sensitive capital requirements for mortgage lending and a countercyclical capital buffer. With more risk-sensitive capital requirements, incentives for mortgage lending should be structurally improved. The countercyclical buffer is a component of the Basel III framework and represents a variable capital requirement which is only activated in the event of excessive credit growth. As soon as credit growth weakens again, the buffer can be deactivated. | 0 |
In contrast to the main refinancing operations, these longer-term market operations are not aimed at signalling the Eurosystem’s monetary policy stance. The ECB announces standard allotment volumes in advance. Therefore, interest rates from these operations are to be seen as indicators of market conditions. III. Regular assessment of monetary, financial and economic conditions Finally, I should like to report on the Governing Council’s regular assessment of monetary, financial and economic conditions. We consider the current monetary trend for the euro area to be compatible with continued price stability in the euro area. The 12-month growth rate of the broad monetary aggregate M3 decreased from 5.0% in October 1998 to 4.5% in November 1998. The three-month moving average of M3 (covering the months September to November 1998) stood at 4.7%, i.e. very close to the reference value of 4½% per annum. With respect to the broadly based outlook for price developments and risks to price stability, financial market developments may be seen as indicating a favourable assessment of the recent monetary policy decisions of the Eurosystem, signalling that financial market participants expect the environment of price stability to continue. In this connection, I could mention the fall in longterm interest rates at the start of 1999 to new historical lows and the fact that the yield curve has shifted downwards. Indeed, conditions for investment at the start of Monetary Union are favourable. This relates, in particular, to the currently prevailing low interest rate level, which significantly reduces the costs of financing for investors. | Ladies and Gentlemen, Bank Negara Malaysia attaches great importance to payment system efficiency and will also continue to promote its security, reliability and efficiency, together with the industry and payment service providers, to foster an innovative payments industry. The FPX platform is an excellent example of this collaborative effort, and I wish to commend MEPS, and the pilot group of banks and corporations for their tremendous effort and commitment in developing the FPX solution. The launching of the FPX marks an important milestone in the development of Malaysia’s payments system. Thank you. 2 BIS Review 63/2004 | 0 |
Illiquid assets continue to be a small proportion of the total, generally of the order of 2%, and the houses mitigate the maturity transformation risk in holding these, and marketable assets of more doubtful liquidity (such as some emerging market instruments), by matching with long-term borrowings. What is certainly true is that the securities houses have expanded their activities enormously - with balance sheets extending to $ billion, which puts them in this respect on a par with large international banks. And, given their focus on trading activity - in money, capital and foreign exchange markets - they are, of course, huge counterparties of the banks, with very large exposures both among themselves and between them and the banks, but with the important distinction that exposures between, or to, securities houses are more typically secured. Size in any event does not in itself mean that the securities houses now have the special, distinguishing, characteristics of banks - any more than the long-term savings institutions or the money funds or indeed large non-financial corporates, which may also have huge balance sheets and which may also have large Treasury operations in-house to manage the funds for own account. Systemic risk So it seems to me that banks are indeed still special insofar as they continue to perform distinctive economic functions and insofar as their liabilities and assets still have distinctive characteristics. | In fact the public interest in non-banking financial activity has certainly increased in this sense - both in terms of the range of BIS Review 13/1997 -8- activities covered and the standards of protection demanded - as is reflected in the spread of financial regulation over the past 10-20 years as the activities themselves have expanded. Our own Financial Services Act, for example, which provides for formal regulation of investment business dates only from 1986. A corollary of this broadening public interest is that multifunctional financial services providers are bound to be subject to a broadening range of functional regulation - however such regulation is structured. What I think is less clear is the extent and nature of the public macro-prudential interest in non-banking financial activities. I have argued that other, non-banking, financial activities are not - because of the different characteristics of the related liabilities and assets subject to runs in the same way as banks, and that they are not therefore subject to contagious systemic - disturbance in the same sense as banks. But that does not mean that non-bank financial institutions cannot face liquidity pressures. It does not mean either that the failure of a non-bank financial institution could not - through its direct credit or settlements exposures to other financial institutions (bank or non-bank) - have damaging knock-on effects. | 1 |
These shocks, of which some have prolonged impacts, caused inflation to exceed the targets during this period (Chart 1). Chart 1. Inflation developments in Turkey between 2002-2008 (*) November inflation rate was used for 2008. Source: TURKSTAT and CBT. BIS Review 3/2009 1 The first serious shock to the inflation-targeting regime in Turkey arose upon a time when international capital conditions changed to the disadvantage of developing countries and capital outflow was experienced in many countries including Turkey, from May 2006 onwards. In this period, depreciation of the New Turkish Lira (TRY) around 30 percent and the lack of confidence created by financial turbulence combined with sharp increases in food prices due to drought led inflation rates increase and inflation expectations exceed the targets considerably. In order to avoid any permanent effect on pricing behaviors, the Central Bank tightened monetary policy significantly and took a series of additional policy measures. These measures varied from suspending foreign exchange buying auctions to several arrangements regarding TRY and foreign exchange liquidity. Even though the gap between inflation expectations and inflation targets widened following fluctuations, inflation and inflation expectations were to a great extent brought under control, owing to the measures taken. In the period covering 2007 and onwards, the main factors impeding the disinflation process were sharp increases in oil and other commodity prices in the international markets along with adjustments in administered/directed prices. | In addition to these forecasts, reports also provide information regarding the envisaged course of monetary policy. Since 2007, inflation forecasts, which extended to eighteen-month periods at the outset, started to cover a twoyear time-span. In the face of the extraordinary supply-side shocks experienced since the last quarter of 2007 and with a view to improving the predictability of monetary policy, since April 2008, the Central Bank has added projections to the baseline scenario under alternative scenarios based on the food and energy prices. Moreover, the forecast horizon has been extended to three years for economic agents to have a clearer vision of the future and develop a longerterm perspective. The main objective of sharing inflation forecasts and the likely policy stance with the public is to promote main principles of inflation targeting; i.e. transparency and foreseeability. Such an approach has helped strengthen the monetary transmission mechanism via expectations channel in recent years. However, the Central Bank preferred to avoid providing hints on the course of short-term interest rates in the recent period, as monetary policy now needs to be 6 BIS Review 3/2009 relatively more flexible given the current conjuncture with exceptional uncertainties in the global economy. | 1 |
Banking system supervision In early 2010, the Bank of Albania changed its banking supervision organisational framework, orienting and relating it directly to risks associated with the financial activity. In parallel, the Bank of Albania re-conceptualised its supervision focus and strategy in accordance with risks posed to Albania’s banking and financial system. Transparency and publication of information on banking and financial products and services were in focus of supervision in 2010. Encouraging enhancement of private financial agents’ transparency is also reflected in amendments made to regulatory framework during the year. 4 BIS central bankers’ speeches High commission fees on banking products and services were a sensitive issue that was addressed over the past year and will constitute a priority in the upcoming period. The Bank of Albania, through its analyses, played a key role in discussions about this matter, aiming to tackle it timely and duly. Also, issues related to anti-money laundering, transparency and compliance with prudential regulations were an important part of the supervisory process in 2010. In view of strengthening the supervisory process on banking institutions, the Bank of Albania has signed a number of cooperation agreements with central banks in the region and with European ones, where parent banks have their headquarters. Strengthening the supervisory regulatory framework In 2010, the Bank of Albania finalised drafting of several new regulations and amended some other regulations on banking supervision. This process aimed at compliance with Basel Committee standards and EU Directives, taking into account international best practices and Albanian banking system developments. | Positive developments in the external sector of the economy, primarily owing to expansion of exports and foreign currency inflows from the Eurobond, contributed to the generation of contained pressures in the foreign exchange market. From the macroeconomic viewpoint, 2 BIS central bankers’ speeches relative exchange rate stability during the year reflected a new equilibrium in foreign currency demand and supply. In sectorial terms, the Albanian economy development relied chiefly on growth of industry and services sectors, while construction sector continued to contract in 2010. Industry and services sectors benefited, to a great extent, respectively, from foreign demand and structural shift of the domestic demand to short-term consumption goods. In the short- and mid-term horizon, both sectors are expected to remain the main supporting pillars of the Albanian economy. Agriculture, the other important sector of the Albanian economy, marked a positive performance in 2010. Even so, based on the broader concentration of the country’s population and the great potential for development, the increase in this sector’s productivity remains a long-term priority. Money and financial markets Monetary developments in the past year were in line with the performance of the real sector of the economy, reflecting simultaneously the fully restored confidence in the financial system, improved supply and demand ratios in the financial markets and prudent liquidity management policy of the Bank of Albania. Expansion of monetary stock by 10.6% on average complied with the economy’s demand for money and did not trigger any inflationary tendencies in the economy. | 1 |
The infrastructure demand in Asia is huge. ADB estimates put the overall infrastructure investment needs of Asia at $ billion per annum over the 2010–2020 period. In the meantime, there is no lack of investors interested in infrastructure investment or financing. Despite a generally longer investment cycle, infrastructure projects can offer relatively stable returns and a hedge to inflation. That is why sovereign wealth funds, insurance funds and institutional investors have shown a growing interest in infrastructure investment in recent years. However, despite this increasing interest in infrastructure investment, there are significant impediments in channeling savings into infrastructure financing in emerging Asia. Put it in the language of bankers, there is a shortage of “bankable” projects, due to lack of a credible public-private partnership (PPP) framework; deficiency in regulatory regime and legal environment for contract enforcement; lack of transparency for monitoring project implementation; and political uncertainty. The above impediments call for coordinated efforts to facilitate financial intermediation, lower barriers to investment, enhance PPP standards, and improve project governance and delivery. A number of international and regional efforts have been made on this front, including but not limited to the establishment of the Global Infrastructure Hub by G20, the launch of the Global Infrastructure Facility by World Bank, and the setting up of the new Asian Infrastructure Investment Bank focusing on promoting infrastructure development in the region. | Opening Ceremony of Asian Financial Cooperation Association (AFCA) Keynote Speech by Dr. Veerathai Santiprabhob, Governor of the Bank of Thailand Beijing, July 24, 2017 Vice President Mr. Ma Kai, Vice Premier of China Mr. Guo Shuqing, Chairman of the China Banking Regulatory Commission (CBRC) Mr. Chen Yuan, Vice Chairman of the Chinese People's Political Consultative Conference Mr. Jin Liqun, President of the Asian Infrastructure Investment Bank (AIIB) Mr. Norman Chan, Chief Executive of the Hong Kong Monetary Authority (HKMA) Mr. Tian Guoli, Chairman of AFCA Excellencies, Executives of financial institutions, Ladies and Gentlemen. A very good afternoon to you all, Today’s opening ceremony of the Asian Financial Cooperation Association (AFCA) is a very auspicious occasion, and I am honoured to be a part of this historical event. I would like to congratulate the Chinese government for successfully establishing AFCA – a new forum, which I am certain, will play a significant role in enhancing financial connectivity and cooperation within Asia. I would therefore like to take this opportunity to share with you my thoughts on how we can further enhance financial connectivity to ensure sustained shared benefits – as stated in AFCA’s mission1. Ladies and gentlemen, People have long been connected by trade along the ancient Silk Road dating back more than 2,000 years ago. Today in modern times, many trade and investment agreements between China and other Asian countries have promoted close economic ties in the region. | 0 |
For instance, we are currently facing a massive loss of biodiversity, to which some scientists refer to as the sixth mass extinctioniii and the first one caused by humankind. Indeed, the figures are daunting: according to the last WWF Living Planet Reportiv published this month, the world’s wildlife populations have declined by 69% on average since 1970. Other distressing biophysical patterns beyond climate change and biodiversity loss include pressures on freshwater availability and soil erosion. There is at least one conceptual framework to understand our multiple and interconnected ecological degradations, that of “planetary boundaries” developed by Johan Rockström and his colleagues.v These scientists identified and started to quantify nine planetary boundaries, which correspond to nine Earth subsystems or processes that define the “safe operating space for humanity”. Crossing certain thresholds (for instance, when there is too much CO2 concentrated in the atmosphere, or when biodiversity loss reaches a certain point) can trigger irreversible and massive consequences. These are the famous tipping points: when exceeded, specific Earth subsystems can irreversibly shift toward a new state, with potentially devastating consequences for human populations, let alone for ecosystems and other forms of life. For instance, evidence is mounting that tipping points related to the loss of the Amazon forest could occur more rapidly than previously thought, and have consequences on several planetary boundaries. | House price declines were reported in all but 11 states. House prices in Arizona and Florida, two of the housing boom states, declined by 8 percent. Distressed sales as a fraction of all repeat-sales increased to more than 40 percent after having declined into the low 30s earlier in the year. Some housing economists are forecasting house prices to fall by 10 percent or more this year. The growing inventory of defaulted mortgages continues to weigh down any recovery in the housing market. According to the most recent Mortgage Metric Report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, there were 598,000 newly initiated foreclosures in the third quarter of 2010. 1 This inflow of new foreclosures exceeded the outflow due to completed foreclosures and properties sold through short sales and deeds in lieu. As a result, the foreclosure pipeline increased to 1.9 million mortgages – double the level from a year earlier (Chart 6). Efforts to modify mortgages have not managed to prevent the foreclosure pipeline from increasing. As a consequence, distressed sales are expected to grow even further over the coming year. The combination of declining house prices and increasing delays in the foreclosure process will put upward pressure on default rates as well as losses on defaulted mortgages. CoreLogic estimates that in the third quarter of 2010 there were 10.8 million borrowers in negative equity where the balance on the mortgage exceeds the current value of the property. | 0 |
Although circumstances differ, our experience may also be of value to others. Forward guidance in general Up until the 1990s, the code of conduct among central bankers was one of secrecy. Today, however, central banks strive to be transparent. This development reflects a general trend towards greater transparency in modern societies. For some central banks, including Norges Bank, a change from fixed exchange rates to an inflation targeting regime also highlighted the importance of greater transparency. Transparency is necessary for accountability. With accountability the central bank can build credibility and trust, both by showing that the objectives are actually attained in the longer run, and by explaining deviations from targets. Forward guidance, understood as information about future policy intentions, may be viewed as a natural extension of this accountability framework. Economic agents are forward-looking, and hence the future stance of monetary policy matters to them. As Michael Woodford has stated, “For not only do expectations about policy matter, but, at least under current conditions, very little else matters.” 1 In macroeconomic theory, the importance of expectations has been appreciated since the rational expectations revolution of the 1970s. In the early 1990s, theorists started to model monetary policy as setting the interest rate. 2 Central bankers have since had a theoretical 1 Woodford, M. (2005): “Central Bank Communication and Policy Effectiveness,” NBER Working Paper 11898. 2 See Taylor, J. | The illustration is from our third Monetary Policy Report in 2012. If monetary policy at that time had given weight only to the low level of inflation, the key policy rate should have been lowered sharply and kept close to zero for some time, as indicated by the red dotted line in the upper left panel. Inflation would then have been predicted to pick up relatively fast, partly owing to a weaker exchange rate. Taking into account our second criterion for an appropriate interest rate path, the key policy rate would have been somewhat higher in the short term, as indicated by the blue dotted line. Inflation would have been predicted to take somewhat longer to rise towards the target, but developments in output and employment would have been more stable. Finally, taking into account considerations of robustness (criterion 3), we reached the interest rate forecast indicated by the black dotted line. [Chart: Decomposition of change in the interest rate path] Our communication of interest rate decisions is aided by a decomposition of changes in the interest rate path. This is a model-based illustration of how the change in the interest rate forecast from one report to the next can be decomposed into contributions from exogenous disturbances. The intention is to communicate the driving forces behind any changes in the interest rate path. The chart illustrates the different forces behind the change in the interest rate path from the last report in 2012 to the last report in 2013. | 1 |
4 BIS central bankers’ speeches The second concern remains, however. In sum, my primary concern about rising energy prices is not so much that they will lead to higher inflation, but that they will subtract from household income and thus weaken the economy. Financial markets are also not expecting sharply higher rates of inflation. The difference between the 10 year Treasury rate and the 10 year inflation-protected Treasury security (TIPS) rate provides a measure of the expected average inflation rate over the next decade. As shown in Figure 16, the average expected inflation rate by this measure is still below what the markets expected prior to the recession and the necessary expansion of the Fed’s balance sheet. Concluding observations Thankfully, we are seeing signs that the economy is experiencing a more self-sustaining recovery. However, it is important not to lose sight of how much excess capacity remains. It is likely to take at least four years to return to full employment from the current unemployment rate of 9.4 percent. It is also likely that measures of core inflation will remain well below 2 percent over the same period. This suggests that the signs of improvement we have seen so far are not worrisome, but are most welcome. A sustained period of the economy growing well above its potential – not just for a few quarters – is exactly what we need. The current level of accommodation from monetary and fiscal policy is appropriate. | As Figure 3 shows, in the current recovery, growth in consumption has been much slower than in the 1982 recovery and has, unfortunately, tracked the anemic initial recovery from the 2001 recession. While the 2001 recession damaged many a household’s finances, through an abrupt decline in stock-market wealth, the current recovery has been hampered by households trying to rebuild their finances given sharply diminished housing wealth in addition to declines in the value of their other investments. While there have been concerns about business fixed investment, Figure 4 shows that this component of GDP has grown quite well relative to the last two recoveries – although somewhat slower than the 1982 recovery. Despite the concern over economic uncertainty voiced by many businesses, investment has been growing. The real laggard in this recovery has been housing. While housing is a relatively small component of GDP, it can be quite volatile – and often grows rapidly during an economic recovery. In addition, purchases of appliances, home furnishings, and housing-related services are impacted by slowed housing activity. Given the problems that flow from the bursting of the housing bubble, Figure 5 shows that residential fixed investment is roughly where it was at the trough of the recession – and thus not providing its more usual contribution to growth in the early stages of a recovery. Just how moribund the housing market has been is shown in Figure 6. Both housing starts and building permits have leveled off, but are showing no signs of a significant recovery yet. | 1 |
Although each case is, in some sense, unique, and international experiences are not easily transferable, its analysis provides some useful background to understand the Chilean case. The first is to confirm the exceptional nature of the Chilean experience, due to its size and speed. In addition, given the factors that motivate migration— particularly from Venezuela—one can think that it will not be reversed any time soon. Secondly, recent immigration is characterized by an average population that is more qualified, younger and with a greater labor participation than the Chilean population. Third, relative to other countries, Chile poses fewer legal impediments to enter the labor market, and unlike other migratory cases, shares the language and other cultural aspects with a majority fraction of the immigrant population. To update our trend growth estimate, we use the population projections for the period 1992-2050, published by the National Statistics Institute (INE) at the end of 2018. These reflect the significant immigration flow observed since 2015, which is expected to continue to be important in the coming years (Figure 5). This affects the projection of the labor factor and, through it, the growth capacity of the economy. The other forecasting assumptions do not undergo major changes with respect to the fiscal year of 2017, except for the updating of the Quarterly National Accounts figures and an explicit modeling of the way in which capital and total factor productivity respond to the immigration-related increase in the labor factor. | In this judgment, the initial fall in productivity is combined with Page 3 of 18 the increase in the labor force and the expected lags in the adequacy of the capital stock in response to this phenomenon. The updating of potential growth, together with the performance of the economy in the first quarter, drive the activity gap level (-0.7 percentage points) to be wider than previously considered (Figure 6). It is important to note that, with respect to last December, the estimated level of the activity gap is greater in the beginning—the first quarter of 2019—, but also throughout the projection horizon. Although first-quarter activity figures play a role in the former, in the latter the fundamental factor is the potential growth update. The baseline scenario assumes that the gap will gradually close along the projection horizon, although at a slower pace than previously expected due to the magnitude of the adaptation process that the economy will have to go through in the face of the migratory shock. II.5. The neutral MPR About the neutral policy rate, I think a couple of conceptual clarifications are in order. The neutral MPR is defined as the rate that is consistent with a GDP in its equilibrium (trend) level and an inflation rate in the 3% target. All this, once the effects of transitory shocks in the economy have dissipated. | 1 |
Orderly functioning financial markets are vital not only for the efficient allocation of financial resources in the economy but it is also essential for the transmission of the monetary policy and for preserving financial stability. While competitive forces are expected to result in efficient and optimal outcomes, central banks in emerging economies have had the important role of balancing between the market forces and intervention with the objective of ensuring the orderly functioning of the financial markets. It needs to be recognised that several important preconditions need to be in place to generate equilibrium prices that reflect the underlying fundamentals. This includes the institutional and market infrastructure, the incentive structure, the rules of the game and the level of financial literacy that recognise and understand the market signals. When these elements are still yet to be fully developed in many emerging economies, it increases the risk to instability. Thus, as a result of the stage of development of such markets, or its size or prevailing market imperfections, emerging economies have tended to be more vulnerable to greater volatility and circumstances in which markets do not self-equilibrate. The recent global financial crisis has shown that such dislocations have occurred even in developed financial systems. Institutional structures and rules that become deficient and less relevant heighten the risk for such unstable market conditions. Experience has also shown that such market dislocations have severe and far reaching adverse implications on the overall economy. | Investment on the contrary has fallen less than expected due to the dynamism in specific sectors (energy, public transportation) while its fundamentals continue to anticipate a weak performance. In this context, long-term interest rates have resumed an upward trend since the beginning of September, with 10-year peso rates close to 7% and indexed rates at 2.6%. These levels were observed in October 2021 and before that in February 2011. Most of this recent increase is related to external financial conditions. Consumer interest rates are at 28%, while commercial rates are around 15%, values not seen for more than a decade. Meanwhile, housing rates remain at just over 4%. Real 2 Bilateral Meetings commercial and consumer loans fell by more than 2.2% and 3.0%, while housing loans grew by 2%. Projections and monetary policy decisions A key driver for declining inflation is that the economy continues with the adjustment process which started this year, after the large imbalances it accumulated in 2021. In our forecasts, the economy will begin to contract in annual terms from the end of the third quarter of 2022 and continue to do so in 2023. This will keep the activity gap in negative territory for several quarters, which is consistent with the spending adjustment required to reduce inflation to the 3% target within two years. The spending adjustment will also reduce the high level of the current account deficit. | 0 |
Rodrigo Vergara: Chile's September 2016 Monetary Policy Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, of the Monetary Policy Report before the Honorable Senate of the Republic, Santiago de Chile, 7 September 2016. * * * The Monetary Policy Report of September 2016 can be found at www.bcentral.cl Introduction Mr. President of the Senate, Mr. Ricardo Lagos-Weber, honorable senators, ladies, gentlemen, I thank you for inviting the Board of the Central Bank of Chile to present our Monetary Policy Report. As it does in September each year, this issue coincides with the Central Bank’s Report to the Senate, presenting our vision of the recent macroeconomic and financial developments in Chile and abroad, together with prospects and implications for monetary policy conduct. After more than two years above the tolerance range, last July the CPI’s annual inflation descended to 4%. The baseline scenario that I will be sharing with you in a minute assumes, as do private expectations, that it will continue to approach the 3% target in the coming months, to close the year at 3.5%. Why has it been so high for so long? We can blame it on the significant depreciation of our peso, driven by the much needed readjustment of an economy confronted with the end of the commodity price supercycle, the end of a very pronounced cycle of mining investment, and a domestic weakening associated with a decrease in the country’s capacity for long-term growth. | Potential growth differs from trend growth in that it can be affected by temporary shocks to productivity and constraints to factor use that may alter our productive capacity over the short term, but not in the 3 / 14 BIS central bankers' speeches long. That is why our trend GDP growth estimates are a little higher than our potential growth estimates. Our latest evaluations place trend growth at 3.2%, three tenths of a point less than year ago estimates. Meanwhile, we forecast potential growth for 2016 and 2017 between 2.5% and 3%, compared with the 3% to 3.5% range estimated last year for the same period. Moreover, incoming figures suggest that potential growth will take longer to converge with trend growth. Anyway, our assessment of the current output gap is not very different from what we foresaw a year ago. This, because although since then we have revised downward our 2016 GDP growth figure by something more than one percentage point, at the same time we lowered our estimate for potential growth and 2015 GDP growth was revised up (figure 10). In recent months, financial conditions from the standpoint of borrowing costs have remained favorable. The fees charged in commercial, consumer and mortgage loans are near record lows. At the same time, growth in the stock of consumer and commercial loans has recovered from a year ago. The opposite is true of mortgage loans, which have decelerated from earlier this year. This low credit cost coincides with also low long-term interest rates. | 1 |
Thus, by promoting a digital euro we must acknowledge that the Eurosystem is potentially putting its reputation at stake in that it remains liable for the overall functioning of the digital euro architecture whether it decides to rely on third parties for its distribution and operation or not. That said, the biggest source of concern is how a non-controlled expansion of the digital euro as a form of investment could, indeed, threaten the ability of authorities to properly maintain financial stability. As a matter of fact, a too attractive and accessible digital euro could foster a significant migration of banks deposits, thus compromising their intermediation and lending capacity plus also likely destabilizing the entire banking system in times of financial stress. To prevent these macroeconomic consequences from happening, ongoing discussions are currently focusing on what potential safeguards could be built into the digital euro, yet final decisions remain pretty much open at this stage. The main reason being they not only depend on the practical feasibility of the various available tools but also on the likelihood of different scenarios to materialize and the extent to which the latter may actually compromise banks’ resilience. As such, the fine-tuning of design features of the digital euro calls for additional research which I strongly believe the members of CEBRA are best positioned to provide us with. As of today, operational and legal considerations have been the bulk of our work thus far. | Intrinsically Linked, One with the Force The FOMC is mandated by Congress to promote maximum employment and price stability. The goals of our dual mandate are intrinsically linked. Specifically, price stability is essential for the economy to reach its full potential and to sustain maximum employment over the long term. Since the pandemic, imbalances between demand and supply have persisted throughout the economy, leading to high inflation and a tight labor market. Although we have seen some signs of a gradual cooling in the demand for labor—as well as for some goods and commodities—overall demand continues to exceed supply. I'll first discuss what this means for employment. At the national level, job growth has been robust, with monthly job gains averaging about 220,000 over the past three months. Other indicators show that labor demand is gradually slowing, yet remains very strong. For example, job openings have come down from their peak level in March of last year. Still, the ratio of job openings to unemployed far exceeds levels prevailing before the pandemic, when the labor market was very strong. Similarly, quit rates have been gradually declining, but are above pre-pandemic levels. In addition, the unemployment rate is at a historically low level of 3.4 percent. And in April, the employment-to-population ratio for those between the ages of 25 and 54 reached the highest level since 2001. The strength of the labor market is evident in parts of the Federal Reserve's Second District. Fairfield County in Connecticut has fully recovered from the pandemic. | 0 |
Kate Barker: Monetary policy – from stability to financial crisis and back? Speech by Ms Kate Barker, Member of the Monetary Policy Committee, Bank of England, at the National Institute of Economic and Social Research, London, 8 March 2010. * * * I would like to thank Matthew Corder and Jake Horwood for research assistance and I am also grateful for helpful comments from other colleagues. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. It is a particular pleasure for me to have the opportunity to return to NIESR, where I worked in the early 1980s in the aftermath of a previous recession, to talk in my present role as a policy-maker. At that time, one of my responsibilities was to monitor and project world trade – I am very thankful that I didn’t have to deal with the analysis of a fall in trade of the magnitude seen in this recession, when world trade 1 fell by a cumulative 18% over the fourth quarter of 2008 and the first quarter of 2009, before starting to recover – up 11% on the low point by the end of 2009. | But with the public sector now seeking to reduce its own deficit, concern over likely improvement in the UK’s external balance would suggest that a fast recovery in the UK would only be possible if the household and corporate sector balance sheets were to deteriorate. It is relevant for monetary policy decisions to consider whether 6 BIS Review 27/2010 this implies a renewed risk to economic and financial stability further in the future. So the judgement about the choice of policy horizon remains, for me at least, one which is finely balanced. I am here suggesting that the optimal horizon to consider may depend on the precise economic circumstances. There may be merit in considering risks beyond the present forecast horizon which might result from different choices of paths for future monetary policy. Quantitative easing These difficulties of policy judgement are compounded by uncertainties around quantitative easing (although it is important to recall that the low level of Bank Rate is also having a continuing expansionary impact on the economy). These uncertainties can of course be overstated, as quantitative easing works in many respects in a similar way to changes in Bank Rate. And I have no hesitation in saying that it was the right policy to deploy, and to deploy at significant scale, in the circumstances which faced us last spring when the downside risks to the economy were very significant. | 1 |
It appears that growth in investment will increase in the period ahead: the high level of investment in the petroleum sector will contribute to higher investment growth in the offshore supplier industry. There are signs of rising investment in the construction industry. "Repatriation" is also being considered in Rogaland: the Gjestal Spinneri spinning company is looking at the possibility of investing in a new facility in Oltedal, enabling the company to transfer production from the UK to Norway. Employment is rising, with the most marked increase in the construction sector. Almost a third of the enterprises report that shortages in the supply of qualified labour may constrain output growth. Through the past year, there have been increasing reports of higher selling prices. One in four manufacturing enterprises is expecting a higher rise in prices this year than in 2004. In retail trade, two in three enterprises are expecting an accelerating rise in prices. The picture is mixed for the corporate service sector. Profitability is still improving considerably in all sectors. This reflects both an increase in volume and cost reductions. In the adopted budget for 2005, the structural, non-oil deficit increases compared with 2004. It therefore appears that fiscal policy will provide some stimulus to growth this year. In the National Budget for 2005, the underlying rise in expenditure over the central government budget was projected at 5.2 per cent, which is somewhat lower than the previous year and somewhat lower than projected nominal growth in mainland GDP. | rates based on a sufficiently large number of transactions. The Libor administrator, ICE Benchmark Administration (IBA), reacted to the FSB report by announcing further improvements to ensure that the Libor rates would become better established through the use of actual transactions. Such actual transactions will be used either directly, for calculating the Libor rates, or indirectly, for underpinning the contributions. In this context, the inclusion of short-term loans to large customers or money market instruments, in addition to interbank market transactions, is being examined as a future possibility. In order to assess the FSB proposals, surveys are being conducted to collect data in the currency areas concerned. The SNB conducted such a survey at the beginning of summer for Switzerland, collecting data on bank transactions on the interbank market and with large customers, as well as on trade in money market instruments. More than 50 domestic and foreign banks took part in the survey. The results confirmed that the small number of actual transactions on the money market currently constitutes a problem for the creation of robust benchmark interest rates. Consequently, it seems improbable that a pure transactions-based approach could be implemented for the Swiss franc. This is also the case if other transaction types and additional instruments are taken into account. For this reason, the Swiss franc Libor will continue to be based mainly on contributions by participating banks. 1 2 IOSCO is the International Organization of Securities Commissions. | 0 |
We are all eyewitnesses to the tremendous economic impact of the integration of hundreds of millions of people in China, India, and the former Soviet Union into the world trading system. Globalisation has magnified world supplies of manufactured goods and capital as well as the labour force. Prices of all three have changed, and we have not been immune to those changes. Between 1995 and 2005 the prices of consumer goods imported into Britain fell by around one-third relative to the average price of other goods and services. But the greater supply of manufactured goods from newly-industrialised countries has come at the cost of a greater demand by those same countries for energy and raw materials of all kinds. The prices of oil, steel, copper, lead and nickel have all more than doubled. And in a buoyant British labour market it is not just foreign-born footballers who have been in demand. Over the past two years, around half a million migrant workers (or possibly considerably more, we simply do not know) have arrived from the new member countries of the European Union and elsewhere in the world. It is unlikely that migration on that scale has had no effect on wages, or, indeed, on rents and house prices. Some of you may be tempted to think that because the growth of the Chinese economy has affected key prices in our own economy, inflation in Britain is now largely determined overseas. Low inflation in industrialised countries, it is argued, is made in China. | But I hope you can see that in its deliberations, the MPC has adopted the spirit, if not the literal shape, of the Round Table. BIS Review 94/2006 3 | 1 |
The takaful and insurance industry also facilitated affected certificate holders by offering temporary deferment of contribution and premium to promote continuity of takaful protection coverage. More than 1.1 million9 certificate and policyholders have benefited from this relief measure. While the pandemic has yet to peak in some countries, others including Malaysia are heading towards periods of recovery while continuously managing the risk of virus resurgence. As this phase commences, Islamic finance has significant potential and role to play. Three attributes, at least, come to mind on how Islamic finance can respond and contribute meaningfully towards sustainable and inclusive growth: First, Islamic finance must be value-driven and impact-focused to deliver Maqasid Shariah (the objectives of Shariah). The intrinsic values of Islamic principles are aligned with a vision of economic growth that is balanced, sustainable and inclusive. Shariah advocates for balance between wealth creation and wealth circulation. This in turn promotes fairness and ihsan in promoting the attainment of benefits as well as preventing harm. This crisis has indeed created a wealth of opportunities for Islamic finance. Shariah contracts can deploy a diverse range of capital that is risk-absorbent, patient and philanthropic in nature using instruments such as risk sharing, waqf and sadaqah to support inclusive finance. The flexible nature of such capital encourages allocation of resources towards entrepreneurial ventures and social impact projects that can improve and rebuild well-being of society. It can also to some extent help smoothen structural adjustments in the economy. | Banks were therefore willing to approve credits in order to establish a relationship with such a profitable customer as LTCM. At the same time, the fund’s reticence about its risk profile made it difficult for creditors to form an accurate picture of the total risks. The banks were evidently unaware of the size of the credits that other players had provided, which by itself is remarkable. Neither did they fully appreciate what the large positions might have for consequences if the collateral had to be called. In other words, the banks ought not to have relied to such an extent on the collateral, in the form of securities, they had accepted for their loans. Lending of this type requires that even the banks obtain a picture of the borrower’s total situation. Had they done so in the case of LTCM, the outcome would certainly have been different. The problems last autumn also revealed shortcomings in current risk models and the management of certain types of risk. The banks must pay more attention to how the models work in the event of a pronounced change in market conditions. The markets moved to such an extent that historical estimates of co-variations ceased to apply. The crisis accordingly offers several lessons: 7 BIS Review 23/1999 • In the light of what happened in international financial markets last autumn, all participants in the financial system must improve their credit policies. | 0 |
The policy rate in the UK has been 0.5 percent for some time. In the Bank of England’s assessment, a further reduction would not serve any useful purpose. 8 Nor has the ECB found it appropriate to reduce the policy rate further, but is prepared to expand its asset purchase programme if necessary. 9 Central banks also influence long-term interest rates For monetary policy to work, it must have an effect on more than short-term money market rates. The interest rates that influence inflation and employment are those facing enterprises and households. In economies with well-functioning money and credit markets, a reduction in the policy rate will relatively quickly push down market rates. In recent years, there have been cases where this did not happen. The most serious situation that has arisen occurred after the Lehman Brothers collapse. The resulting uncertainty led to very high risk premiums. Despite substantial policy rate cuts, market rates remained high. 8 Bank of England (2013): Note on Negative Interest Rates for Treasury Committee. 9 Cœuré, Benoît (2015), Member of the Executive Board of the ECB: “How binding is the zero lower bound?” (speech given on 18 May 2015), European Central Bank. 4 BIS central bankers’ speeches In response, a number of central banks, particularly the Federal Reserve and the ECB, intervened directly in those money and credit market segments that had been hardest hit. | The role of central banks has been to counteract an even deeper and more prolonged downturn. This is the challenge to which monetary policy has responded. Chart: Investment and consumption But there have been strong headwinds. We have had an illustration of the claim that downturns following financial crises are deeper and more persistent than other downturns. 12 As a result, the impact of monetary policy has been weaker than otherwise. Enterprises, households and governments made use of ample capital and low interest rates in the precrisis years to debt finance consumption and investment. When the downturn occurred, there was a need for considerable deleveraging, while weak growth prospects have dampened the willingness to invest. In many countries, the downturn was further amplified as banking systems with low resilience had to deal with large loan losses. The uncertainty that arose during the financial crisis has persisted for a long time, dampening the willingness to take on financial risk, and the willingness to save has increased. Chart: GDP The pace of global growth is expected to pick up gradually in the coming years. In the US and the UK, the first two countries to introduce quantitative easing, the recovery is on a firm footing. Unemployment has come down. Increased economic activity has contributed to a substantial reduction in government deficits. In the euro area, the recovery continues to be fragile. A large portion of the workforce is unemployed and production equipment stands idle. However, growth is gradually picking up. | 1 |
Moreover, life expectancy has grown sharply in the last 45 years, meaning that generally it is now necessary to save for a longer retirement period. The relatively well-financed occupational pension plans in Switzerland – one of the few countries in the world to have a mandatory system – also contribute to the high saving rate. This system helps to accumulate the savings that will be necessary in future to support the growing numbers of pensioners and years spent in retirement. 7 Many countries with ageing populations do not have a comparable system in place. Contributions to occupational pension schemes are currently recorded as savings in the national accounts. This mandatory pension 7 It can be assumed that even more capital will have to be saved in future to maintain occupational pension benefits at their current levels. Page 9/13 system with its high contribution rates thus also influences the high saving rate in Switzerland. The saving rate in Switzerland is at this high level because the Swiss population is rapidly ageing and we have a relatively well-financed pension system compared with other countries. In other words, there is an economically plausible reason why Switzerland has a current account surplus. Against the backdrop of demographic developments, when corrected for statistical distortions, the current account surplus or savings surplus is not excessive but entirely legitimate. I will now turn to the last factor contributing to the persistently high current account surplus, and that is the distinctive industrial structure of the Swiss economy. | Under net labour income, salary payments to cross-border commuters who work in Ticino but live in Milan, for example, are included 2 The special topic in the SNB publication Swiss Balance of Payments and International Investment Position 2016 (pp. 31–38) summarises the methodology for drawing up the balance of payments and the relationships between the main aggregates. Page 3/13 under expenses. The current transfers item comprises, among other flows, expenses of the Swiss Confederation for economic development cooperation. In most countries, the trade balance dominates the current account balance and the other components often contribute very little. 3 By definition, the current account balance also corresponds to the difference between savings and domestic investment in an economy. This relationship is represented in equation 2. 4 If a country has a current account surplus, it is saving more than it is investing domestically. In this case, the surplus capital is exported abroad. By contrast, a country with a current account deficit imports capital from the rest of the world because it is investing more than it is saving. This view – the so-called financial account – is the mirror image of the current account. A country with a current account surplus – or a financial account surplus – accumulates claims (or credits) vis-à-vis counterparties abroad, so-called foreign assets. A country with a current account deficit, on the other hand, accumulates liabilities, i.e. debt visà-vis counterparties abroad, so-called foreign liabilities. The difference between foreign assets and foreign liabilities is termed the net international investment position. | 1 |
This has had a considerable influence on the inflation outlook. The interest rate has been reduced by 4.5 percentage points, and the krone has appreciated by about 10 per cent. The interest rate reductions this year will make a significant contribution to bringing inflation back to target. In the short term, the effects will primarily be channelled through a weaker krone. In the somewhat longer term, the fall in interest rates will also lead to higher inflation than would otherwise have been the case through stronger demand in Norway. Inflation back on target at the two-year horizon We now expect inflation to move up and stabilise around the inflation target at the two-year horizon. Output and employment are picking up. In our projections, capacity utilisation is stable with an output gap, as calculated by Norges Bank, close to zero.3 Uncertainty associated with inflation projections Projections are uncertain. Experience of uncertainty surrounding inflation forecasts would indicate that when monetary policy is oriented towards reaching the target of 2½ per cent, inflation will remain within the interval of +/- 1 percentage point around the target in four out of five years. This is consistent with the experience of other countries with an inflation targeting regime. It should be noted, however, that this level of accuracy is based on a period of stable inflation in the OECD countries. | In recent years, capacity utilisation has declined from a high level and is now on a par with the level prevailing in the years 1995-1997, before the rise in costs accelerated. Consumer price inflation in 2003 and the background for the deviation from the target In the years 1998-2002, the Norwegian economy was characterised by substantial labour shortages and a considerably higher rise in labour costs than among trading partners. Last year was the fifth consecutive year of very high annual growth. Wage growth was substantially higher than the level that over time is consistent with the inflation target and with normal productivity growth. Pay increases varied widely across the different groups. In Norges Bank’s view, there was therefore a substantial risk of new wage-wage spirals. Further rounds of such strong wage increases might have led to a decline in output and employment. Monetary policy was therefore tightened through an interest rate increase last summer while the krone remained strong. At the one-year horizon, the strong krone would push down inflation to below 2½ per cent, but subsequently the effects of strong wage growth would dominate. Last year, Norges Bank’s Executive Board struck a balance between the consideration of stable inflation developments in the short term and the consideration of stabilising developments in output and employment. Inflation was thus expected and intended to be low in 2003. In the October 2002 Inflation Report, inflation was projected to fall to 1¾ per cent in summer 2003. | 1 |
As chairman of the Global Economy Meeting which takes place every two months in Basel, under the auspices of the BIS, I mentioned regularly in 2006 as well as in the first months of 2007 that my colleagues and I were judging that there was a significant underpricing of risks in global finance. This situation was substantiated by a very low level of spreads, a very low level of risk premia, an abnormally low level of volatility in a large number of markets. We had explicitly and publicly called for institutions and markets to prepare themselves for a correction that was both unavoidable and necessary to pave the way for more sustainable path of global finance. Such analysis and diagnosis were reflected pretty well in most Financial Stability Reviews published by central banks, not the least in the ECB publication a long time before the market correction. The BIS publications were themselves equally clear in this respect. Second, a good analysis and a pertinent diagnosis are a necessary condition for future necessary market corrections to be as smooth and as orderly as possible. But it is not a 8 See European Commission (2006), Financial services: Commission proposes self-regulatory improvements to deposit guarantee schemes, Brussels, 28 November. 6 BIS Review 17/2008 sufficient condition per se as is clearly demonstrated in the present episode of turbulence and as was regularly observed in the previous periods of sharp and abrupt market corrections. | Transparency because enhanced public information on institutions as well as on financial instruments is the only way we have to avoid contagion and herd behaviour in times of difficulty. Holism because, technology and globalisation helping, we have progressively built global finance on the basis of the very close interconnections of all markets, all institutions, all economies. We must continue to improve our full understanding of the functioning of the financial system as a whole. The Financial Stability Forum gathering banking, insurance and market surveillance authorities, central banks, international financial institutions, treasuries etc., was the first major illustration of this necessity to address the global financial system as a whole. We have to reinforce considerably this holistic approach. And Anticyclicality because a number of rules and regulations, on the one hand, and of behaviours of public and private institutions as well as of markets, on the other hand, have a tendency to be largely procyclical, amplifying the booms as well as the busts in the cycle. We must look at all parts and parcels of global finance with a view to diminishing progressively their procyclical components which implies, in particular but certainly not exclusively, eliminating as much as possible asymmetry in the treatment of booms and busts and extending as much as possible, where needed, the time horizon adopted by all the institutions concerned. Many thanks for your kind attention. BIS Review 17/2008 7 | 1 |
Confidence in the credibility and stability of private money are fundamental components of financial stability. Innovation But let’s go back to stablecoins and innovation in payments. Stablecoins are digital tokens that aim to maintain a stable value vis-a-vis existing forms of money6. Their origin stories generally trace back to the crypto world. Most forms of cryptoassets, like Bitcoin, are too volatile to be attractive as a widespread means of payment. We have seen time and time again that if money is not reliably stable most people will not want to use or accept it as payment. There is no reason to think this time is different7. To solve this, stablecoins have turned to the age-old solution of anchoring their value to national currencies, often with a promise to ensure that the value remains 1 for 1 at all times. Stablecoins therefore could potentially serve as a substitute for a commercial bank deposit. Both stablecoins 2/5 BIS central bankers' speeches and banks are offering a representation of what a private company owes its customers – an IOU – which can be transferred as a means to pay for things. Both are promising (or at least aspiring to) stability against and interchangeability with money issued by central banks. It is possible in this context that stablecoins could scale up and grow rapidly, and become widely used as a trusted form of sterling-based retail payments. To be clear – I don’t know if this will happen. | Safety nets have also been developed and enhanced, such as in the form of liquidity support to member countries via the ASEAN+3 Chiang Mai Multilateral Swap initiative which consists of a USD120 billion currency swap facility, aimed to support countries with short-term liquidity needs and to supplement existing international financial arrangements. These various developments certainly have significantly enhanced the region’s capability to holistically manage the inflows and to safeguard against the risk of sudden capital flow reversal and the instability that it would bring. Malaysian market developments Let me turn to some recent key developments in the Malaysian financial sector. The domestic financial landscape is undergoing transformation due to our continuous efforts in financial deregulation and liberalisation. Pursuant to financial liberalisation measures announced by Prime Minister Dato’ Sri Najib Tun Razak, the central bank has granted 5 commercial banking licences to foreign banks in June this year, with mega Islamic banking licences to follow suit. Foreign equity limits in investment banks, Islamic banks and insurers have been raised while more operational flexibilities have been granted. In addition, the government has announced plans to increase foreign investment limits for the government linked investment companies such as the Employee Provident Fund. Importantly, these 2 BIS Review 162/2010 liberalisation measures will further strengthen our inter-linkages with financial markets in other parts of the world. | 0 |
By providing another avenue for financing with the development of the corporate bond market, firms are able to improve their ability to balance debt and equity to better manage the degree of leverage while reducing the impact of shocks arising from over-dependence on any single form or source of financing. The development of corporate bond markets in the region has also enhanced the efficiency of capital allocation by providing an avenue for investing one of Asia’s hallmarks - its large reserve of savings arising from trade surpluses. By developing the regional bond markets, it would enable firms to tap alternative sources of financing at competitive cost thereby contributing to increased efficiency, higher investment and consequently to overall growth. The launch of the Asian Bond Fund (ABF) in June 2003 marks the first significant step in regional financial co-operation and integration, and augurs well for the future development of the Asian regional bond market. The Asian Bond Market will not only serve to facilitate the re-investment of a portion of Asia’s reserves back into the region but what is equally important is that it allows for the efficient allocation of savings for productive investments and at the same time broadens and deepens the regional bond markets. In the process, the level of corporate governance in the region would be enhanced as well. Indeed, developing such an alternative source of financing would serve as a more resilient source of long-term financing with improved matching of the currency and maturity profiles of assets and liabilities. | Policy makers in the region recognise the challenges that emanate from a more competitive environment and have continued to re-examine and redefine strategies geared towards building the capacity of domestic enterprises and thereby enhancing their contribution to growth of the domestic economy. In addition, efforts have also been made to develop new areas of growth to ensure a more diversified economy. Countries have increasingly shifted to areas of their natural comparative advantages, whether in agriculture, ICT, construction and infrastructure or services-related sectors in order to benefit from their inherent strengths. Seven, a new wave of FDI in the region Apart from intra-regional trade, intra-regional foreign direct investment (FDI) flows have increasingly operated as a strong force for growth in the East Asian region. Regional FDI has largely been traderelated. Early FDI in East Asia was mainly derived from Western multinationals, particularly the US. The second wave of FDI after the late 1970s was predominantly Japanese capital which flowed into East Asia, in search of lower costs of production. Today, the cumulative stock of Japanese FDI has surpassed that of American investments. Since the late 1980s, as Taiwan, Hong Kong and Singapore transformed into capital surplus economies that moved up the value chain, investments by these newly industrialised economies gained significance in Asia. This has represented the “third wave” of FDI in the region. The East Asian region is thus witnessing a steady inflow of FDIs from the NIEs to ASEAN and China. | 1 |
The MPC’s post-meeting statement made clear of the need to monitor the situation in the global market closely so that the stance of monetary policy can be appropriately and flexibly calibrated to ensure price stability and steady growth. Finally, the last point I want to stress is that the ability of the Thai economy to weather external shocks and global slowdown at this time are now much greater compared to the situations say ten years ago. 2 BIS Review 29/2008 First, the country’s economic fundamentals have improved from the crisis years, with solid external positions marked by current account surpluses, high level of international reserves, and much lower level of external debt. This stronger financial position will enhance the ability of the economy to cushion itself against external shocks. Second, our banking sector is in excellent shape, with good profitability, strong capital base, and improved asset quality. The corporate sector is also in good financial shape with strong earnings and low financial leverage. These qualities will make the private sector more resilient to the impact of economic volatilities from outside. And third, policy regime in Thailand has become more flexible, especially the exchange rate, with market force now playing a dominant role in allocating resources. Such attribute provides the private sector with a mechanism to efficiently adjust to the impact of external shocks. | Bandid Nijathaworn: Economic volatility in the Year of the Rat Speech by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at a seminar on “Economic Volatility in the Year of the Rat, Fight or Flight”, organised by the Foreign Correspondents’ Club of Thailand, Bangkok, 6 March 2008. * * * Thank you and good evening, Let me begin first by thanking the FCCT for the invitation. It must have been a long while since I last visited or spoke at a FCCT event, so it is good to be back. Tonight’s topic is economic volatility in the year of the Rat. According to Chinese astrology, Rat is an auspicious animal, and the year of the rat is usually a year of plenty, bringing opportunity and good prospects. So, I think we have a good start. And judging from what has been happening, this year looks to be interesting and challenging both for the markets and policymakers. At this time, we are seeing widespread fears of recession in the US, a deepening of the credit problem, and stubbornly high oil prices. These developments are definitely a negative setting for the global economy and financial markets. Tonight, my talk will focus on global economic volatility and possible implications for Thailand. And I want to do this by offering a perspective on how we see things developing from a financial regulator’s point of view. First, the US economy. Latest economic data from the US are not positive. | 1 |
Two other excellent papers on this topic are the ECB’s “Distributed ledger technologies in securities posttrading” at https://www.ecb.europa.eu/pub/pdf/scpops/ecbop172.en.pdf; and ESMA’s “The distributed ledger technology applied to securities markets” at https://www.esma.europa.eu/sites/default/files/library/2016– 773_dp_dlt.pdf. BIS central bankers’ speeches 7 and consultation on new functionality to deliver synchronisation with innovative technologies. – Second, as regulator and supervisor, we will ensure that financial market infrastructures are subject to high standards of resilience and soundness, whatever technological form those infrastructures take in the future. That in turn means developing a supervisory net that is sufficiently flexible to cover the risks posed by new technologies, in a proportionate manner, as they develop. – Third, we will continue to act as a catalyst for change – through our research work on the policy and technical questions raised by the distributed ledger and central bank digital currencies 9; and working with innovative firms on applications of new and existing technology to central banking topics through our new Fintech Accelerator 10. It is not our job to second guess the market where innovation is rife. But where direction is required on standards, consistency with regulatory needs or policy requirements, we will play our full part, alongside other national central banks through the FSB, G20 and Basel processes. Conclusions We have come a long way from those mouse-jabbing days in Wapping. | The learning and sharing among peers will also encourage cross-fertilisation of ideas, identification of best practices, and collaboration in green investments. 11. Asia is a good starting point for this global alliance. It represents a good mix of developed and emerging economies at different stages of economic development. Each has its unique set of environmental challenges but together we share a common commitment to creating a greener and more liveable region. Closer to home, Hong Kong hosts three quarters of the world’s 100 largest banks, with many of their Asia Pacific headquarters based here. So, we are uniquely placed to serve as the testing ground for the Alliance by connecting banks in the region to their global peers to facilitate sharing and learning. We are confident that the experience gained in Asia will provide useful insight and reference for the IFC to promote green banking in other parts of the world.10. Equally important, by helping banks build their capacity, the Alliance will complement the efforts of banking regulators across jurisdictions to enhance the banking sector’s management of climate-related risks and promote sustainable banking. Participating banks will benefit greatly from the IFC’s wealth of knowledge and expertise in the field of green finance. The learning and sharing among peers will also encourage cross-fertilisation of ideas, identification of best practices, and collaboration in green investments. 12. The Alliance is a new initiative for both the HKMA and the IFC. Today marks the first step of an exciting journey. | 0 |
1 Keynote speech delivered by His Excellency Dr. Mohammad Y. Al-Hashel, Governor, Central Bank of Kuwait in the 12th High Level Meeting for the Middle East & North Africa Region, jointly organized by the Basel Committee on Banking Supervision, the Financial Stability Institute and the Arab Monetary Fund, held on December 7, 2016 in Abu Dhabi, UAE. 1 To start with, technology is supporting the outreach of formal financial services to the millions of otherwise unbanked customers. According to the World Bank, the poorest 20% of the world population is more likely to have access to a mobile phone than to clean water and sanitation. Capitalizing on this opportunity, a number of countries have managed to swiftly expand access to finance in recent years. Globally, number of adults who were previously out of formal financial system has dropped by 20% during 201114 alone. As these encouraging trends suggest, digitalization offers an unprecedented opportunity to improve access to finance to the millions of people who have remained financially excluded so far. Likewise, programing breakthroughs like blockchain are potentially transforming the way we verify transactions and enforce contracts. By allowing parties to transact without central intermediaries, blockchain can strip off costs, reduce inefficiencies, and enhance customer services. Host of other innovations are reshaping the way we transfer money or obtain credit. For instance, mobile wallets are enabling payments by smart phones, peer-to-peer lending is providing new sources of financing, and roboadvisors are offering financial advice. | The pass-through effect has been gradually becoming weaker, as a consequence of the transition to the floating exchange rate regime, increasing competitiveness, inflation targets increasingly assuming the role of being an anchor owing to reliable economic policies, as well as changes in the pricing behavior of producers and consumers. Especially in the recent period, the effects of the changes in the exchange rate on inflation were lower than expected, and at the same time were weaker and more lagged compared to previous periods. As a matter of fact, worldwide examples also show that in economies that have achieved price stability, the pass-through effect on prices of exchange rate movements becomes weaker owing to the BIS Review 36/2005 7 prevalence of pricing in terms of the domestic currency, thus perceiving any depreciation of the national currency as temporary, and companies resort to price adjustments much less frequently. In fact, it is inevitable that exchange rate developments will influence prices in Turkey due to the fact that the goods basket of the CPI mainly consists of imported goods and imported intermediate goods make up a significant portion of input costs. Another contributory factor is that Turkey is a small sizeopen economy obtaining goods at global prices. Yet, studies conducted under the umbrella of the CBRT point to an evident breach regarding the reflection of exchange rate developments on prices following the 2001 Crisis. The pass-through effect of the historically high exchange rates on prices seems to have weakened especially in case of non-tradable goods. | 0 |
But liquidity has begun to develop in derivatives and cash markets. And, earlier this year Federal Reserve Board economists published research demonstrating how forward-looking term rates can be derived from SOFR futures and swaps markets. However, we are still some time off from a point at which a robust, IOSCO-compliant term rate can be created, and use of such a term rate should be limited to certain segments of the loan market and to fallbacks for new contracts. I want to emphasize that the industry must not wait for a SOFR term rate to transition away from LIBOR. In my view, the biggest challenge isn’t liquidity or the creation of a term rate, it’s a willingness on the part of the market to stop using LIBOR. We need a mindset shift where firms realize that every new U.S. dollar LIBOR contract written digs a deeper hole that will be harder to climb out of. If companies are going to use LIBOR, they need to start including robust fallback language in the contract, so that if LIBOR ceases to exist, chaos does not ensue. This is an area of recent progress I mentioned earlier. The International Swaps and Derivatives Association (ISDA) has led great work on the development of contingencies for some derivatives products for the scenario where U.S. dollar LIBOR ceases to exist. The public consultation on fallback language for some non-U.S. dollar derivatives contracts took place last year. | To complement the institutional framework, a Financial Intelligence Analysis Unit was established to strengthen the anti-money laundering regime and to combat the financing of terrorism. As part of the authorities’ efforts to create a reputable financial centre, in late 2002 the IMF / World Bank were requested to conduct a Financial Sector Assessment Programme (FSAP). The assessment concluded that Malta’s financial system appeared to be healthy and well supervised, with a comprehensive legal framework and strong adherence to most international standards and codes. At the same time, the report also noted that, mainly because of the predominance of two large banks, the system was highly concentrated and exposed to the country’s narrow economic base. Malta as an international financial centre EU membership in 2004 proved to be an important catalyst in the further development of the financial services industry. Malta now benefits from the greater credibility conferred by EUcompliant legislation and access to passporting rights in the vast European market, which allows licensed financial institutions to exploit previously unavailable avenues for growth. Malta has also capitalized on its other strengths. Its small size facilitates access to the single regulator, allowing for a swift licensing process and the possibility of custom-made solutions. The financial services industry is supported by a modern telecommunications infrastructure and a plentiful supply of experienced, English-speaking tax professionals, legal and accounting firms and other service providers. Labour and rental costs are competitive, while Malta’s geographical position enables it to serve as a finance hub in the Mediterranean region. | 0 |
David Clementi: The Bank of England's roles in monetary and financial stability Speech by Mr David Clementi, Deputy Governor of the Bank of England, at the Association of Private Client Investment Managers and Stockbrokers (APCIMS) Annual Conference, London, 19 October 2001. * * * Introduction Thank you for the kind invitation to address your conference today. APCIMS performs an important function, representing and informing the views of a wide range of private client investment managers, brokers and banks. Its voice is increasingly heard in a number of public debates. At one time, back in 1984, I worked very closely with a number of private client firms as we sought to sell shares to the retail market in British Telecom, the first of the large privatisation issues. It's good to see that a number of the firms involved then are represented here today. When Angela Knight asked me to speak, she said she wanted something which would allow us all, in the midst of our day-to-day preoccupations, to lift our eyes to the horizon. That reminded me of Harold Wilson's description of John F Kennedy: "he had his eyes on the horizon, but his feet on the ground." "Keep your eyes on the horizon and your feet on the ground" certainly ought to be written into every modern central banker's contract of employment. Looking to the future, assessing risks to our economic and financial systems, and - where necessary - acting on these assessments is absolutely core to what we do. | How governments deal with this income disparity will not only be reflected in social and political outcomes, but also economic ones as it is the low and middle income groups that have the highest marginal propensity to consume. Similarly, a lack of success in dealing with the high youth unemployment in the crisis affected economies could have lasting consequences and put these young people on a permanently lower earnings path, further contributing to both income inequality and weaker growth. 4 BIS central bankers’ speeches To conclude, let me summarise my key message: Economically, things are looking better than they have been in a long time. However, the legacy of the crisis remains and will remain with us for some time yet. And this will continue to cloud the outlook and will be a concern and challenge to policymakers as they try to steer the global economy out of the crisis on to a more sustained and sustainable growth path. BIS central bankers’ speeches 5 | 0 |
Even before knowing these figures, what our monetary policy strategy suggests and allows us to do, is to avoid overreacting to short-term fluctuations. The conduct of monetary policy, especially in moments of uncertainty like the one we are currently experiencing, must anticipate longer-term tendencies. Thus, while in the first and second quarter output will not be as dynamic as it was through January, in the medium term the reconstruction efforts and the normalization of output and demand will provide a strong impulse to the economy. The marginal productivity of the capital stock that must be recovered is high, and all the activities associated with the production of non-tradable goods, such as construction, will face a large increase in demand. The main contribution that monetary policy can make is to ensure a stable environment for reconstruction works to proceed without straining our economy. Evidence found in the international literature indicates that natural disasters have permanent negative effects only in low-income economies. It also shows that, although these are essentially exogenous phenomena, the magnitude of their effects is endogenous to the 6 BIS Review 61/2010 scenario, with factors such as the quality of policies and institutions tending to mitigate the damages. Chile has solid institutions and an economic policy framework that allows for the implementation of any measures necessary for reconstruction. As a result, the catastrophe of last February 27 does not compromise our country’s prospects for progress and development. | Finally, there will be an additional effect associated with the public and private reconstruction efforts. The ultimate impact on growth and inflation will BIS Review 61/2010 3 depend, among other factors, on the magnitude, composition and timing of those efforts, on the sources of funding that are used and on the focus of the related expenditures. As for the size of the loss in productive capital stock, the Board’s working assumption for this Report’s baseline scenario is that the catastrophe destroyed 3 percent of the economy’s net capital stock. Such an estimate, which is detailed in a box inside the Report, is based on the damage survey published by the government on March 23 and on the historical ratio between the gross value and the net value of the capital stock. To clarify this calculation, it is important to explain how this capital stock is measured. First, the gross capital stock equals the value of assets used in the productive process, valued “as new”. In other words, the nominal gross value of the capital stock can be proxied by the replacement cost. Second, the net value of the capital stock is the gross value of the capital stock minus the assets’ depreciation. This distinction between gross and net value of capital is important, because the latter – the net value – is what matters when measuring the economy’s productive capacity and, therefore, trend GDP, the output gap and inflationary pressures. | 1 |
Globally, stable inflation expectations and the underutilisation of capacity suggest that there is no inflationary pressure. According to the SNB’s inflation forecast, price stability in Switzerland is not under threat for the next few years. As the crisis recedes, however, central banks will face the challenge of returning monetary policy to normal in a timely manner and reabsorbing liquidity. The SNB’s mandate is to ensure price stability while taking due account of economic developments. We will continue to take all action necessary to fulfil this mandate. 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches References Alesina, Alberto and Lawrence H. Summers, 1993. Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence. Journal of Money, Credit and Banking 25(2): 151–62. Barro, Robert J. and David B. Gordon, 1983. Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics 12(1): 101–121. Bernholz, Peter, 2003. Monetary Regimes and Inflation – History, Economics and Political Relationships. Edward Cheltenham: Elgar Publishing. Budina, Nina, Tidiane Kinda, Andrea Schaechter and Anke Weber, 2012. Fiscal Rules at a Glance: Country Details from a New Dataset. IMF Working Paper 12/273. FDF, 2012. Die Schuldenbremse – eine Erfolgsgeschichte. www.efd.admin.ch/ dokumentation/00737/00782/02006/index.html?lang=de (20 November 2012). Feld, Lars P. and Kirchgässner, Gebhard, 2008. On the Effectiveness of Debt Brakes: The Swiss Experience. In: Sturm, J. E. and R. Neck (eds. ): Sustainability of Public Debt. | The MPC has rightly stressed that the timing of the first Bank Rate increase is less important than the path thereafter – that is, the degree and pace of increases after they start. In particular, we expect that eventual increases in Bank Rate will be gradual and limited. That is because the economy will face the ongoing challenges of public and private balance sheet repair, a 10% appreciation of sterling over the past year or so, and muted growth in our main export markets. In addition, in the medium term, higher capital, liquidity and other prudential requirements can be expected to lead to higher spreads between borrowing rates and risk-free rates than before the crisis. Moreover, a highly indebted private sector is particularly sensitive to interest rates.4 Caution over the path of rate increases once they begin is also needed because we start at a point from which interest rates cannot easily be reduced. The effects of an excessive or an excessively rapid tightening of monetary policy could prove damaging and difficult to undo. Perhaps for these reasons, financial markets expect Bank Rate to rise to only 2¼% over the next three years and, on that basis, the MPC expects the economy to move towards internal balance – almost closing the output gap – in the same period. Just achieving internal balance will not be enough to guarantee a durable expansion. It matters how we do so. | 0 |
To our knowledge, these results provide the first direct evidence regarding a meaningful link between survey-based inflation expectations and actual behavior.32 In the second experiment, we studied the formation process of inflation expectations by looking at whether and how survey respondents updated their inflation expectations when they received relevant new information.33 Specifically, we first elicited inflation expectations. We then randomly provided information to a subset of respondents on either past food price inflation, or professional economists’ forecasts of future inflation from the SPF. Finally, we reelicited respondents’ inflation expectations, and studied whether they were correlated with the information content of the signal they received.34 We found that respondents, on average, updated their inflation expectations in response to the information provided, and they did so sensibly and in a direction consistent with Bayesian updating – with larger revisions for less informed respondents and for those with greater baseline uncertainty. Further, there was significant heterogeneity both in how fully informed respondents were about objective inflation measures and in their updating behavior. This finding points to the potential importance of allowing for heterogeneous informationprocessing rules in our economic models. These findings are also consistent with existing sticky-information models of expectations formation, since cross-sectional disagreement falls after the provision of information.35 Results from the experiment also indicate that expectations about changes in the “prices you pay,” like the similar Michigan survey question about “prices in general,” are more responsive to information about food prices than expectations about the rate of inflation. | Together, these policies will help to sharpen the substitution effects necessary for shifting to cleaner transportation modes and improving energy efficiency as carbon taxes rise. Let me make three observations about carbon pricing. First, carbon taxes should be implemented equitably so that they do not overly burden low-income households and SMEs. Singapore does not intend to derive extra net revenue collected from the carbon tax. The carbon tax revenue will be used to cushion the impact on lower-income households through U-Save rebates and incentives to switch to energy efficient appliances. Carbon tax revenues will also be directed to SMEs to help boost their energy efficiency and decarbonisation efforts. This is an economically sound approach: it retains the desired allocative effects of higher carbon taxes while dampening its distributional consequences. Second, green subsidies are useful complements to carbon pricing but they are not substitutes. Subsidies for clean technology and energy efficiency can help to speed up the transition towards sustainability. But they often make economic sense only if combined with some form of carbon pricing. Take for instance subsidies for electric vehicle purchases and infrastructure. Without a price on carbon that is in turn reflected in electricity prices, subsidies for electric vehicles will likely lead to more such cars on the road with little reduction in the number of petrol-powered cars or shift towards cleaner sources of electricity generation. | 0 |
This shift away from a "one-size-fits-all" minimum liquidity requirement would be in line with international best practices for liquidity risk management. The new framework will be announced in the second half of this year. Its implementation will be phased out to minimise potential disruptions to financial markets. As business models and technologies continue to evolve, MAS has kept close touch with market participants and discussed with them the possible risk implications of new activities. We have avoided pre-empting market developments with premature regulation. Regulation has to be responsive but it cannot prejudge how the market will develop and business strategies will crystallise. MAS has issued regulatory guidelines on the provision of financial services through new delivery channels. Examples include the policy statement on capital treatment of internet-only banks; guidelines on technology risk management for all institutions engaging in internet banking; and sound practice guidelines on internet securities trading. The proposed SFA will introduce an authorisation regime to cater to new trading systems, often referred to as Alternative Trading Systems, so as to increase the scope of products available to investors. Developing talent Attracting and developing talent, both Singaporean and foreign, is critical to fostering innovation and a vibrant financial centre. In January this year, MAS announced that a Financial Network for Excellence in Training (f-NExT) would be established to encourage greater collaborative efforts in enhancing workforce capabilities within the financial sector. The Institute of Banking and Finance (IBF) will take on a new role as the central executive arm of f-NExT. | Against the backdrop of a weaker external economic environment and a more protracted global electronics downturn, near term growth prospects for the Singapore economy have turned significantly weaker while inflationary pressures are subsiding. The slowdown reflects a decline in demand, not an erosion of competitiveness. There is no reason for any persistent weakening of the Singapore dollar. MAS has therefore shifted to a neutral exchange rate policy stance, with a policy band centred on a zero percent appreciation of the $ MAS will continue to guide the $ within this exchange rate band, and stands ready to intervene to dampen excessive volatility should this become necessary. 3 Financial sector supervision and development MAS' financial sector policies seek to promote a sound and resilient financial system while facilitating innovation, dynamism and competition. Recent and ongoing initiatives by the MAS have focused on: · harmonising regulation across the financial sector; · liberalising access to the domestic industry; · promoting corporate governance and market discipline; · implementing a risk-focused supervisory framework; and · developing talent in the financial sector. Harmonising regulation Convergence of financial activities and consolidation of financial institutions have made a more harmonised and integrated approach to regulation more urgent. Consistent regulatory treatment for similar products and activities will help level the playing field; it will also lower compliance costs by streamlining relevant regulations and reporting requirements across activities. As an integrated regulator, MAS has made significant progress in harmonising regulation. | 1 |
As well as building collaborative ties across the world, we are also creating partnership closer to home. There is a huge upside in tapping the considerable potential in fintech development in the Guangdong-Hong Kong-Macao Bay Area. The Bay Area has a population of over 66 million and a GDP of over $ trillion. With the deepening of the financial sector and the expanding cluster of technology talents and industrial base, the Bay Area is going to become one of the main engines of growth for China and a very fertile ground for innovation in financial services and fintech. 9. Recognising the importance of cross-border collaboration in the Bay Area, the HKMA, as a start, has signed a Fintech MOU with the Office of Financial Development Service (“OFDS”) 2/4 BIS central bankers' speeches of the Shenzhen Municipal Government. Now, I am pleased to announce that, in pursuing our commitment to collaboration, Hong Kong and Shenzhen will jointly launch three fintech initiatives: (i) A fintech competition; (ii) A soft-landing scheme; and (iii) A talent development programme. Fintech Competition 10. Together with the Shenzhen OFDS, we will organize a fintech competition that is open to participation by Shenzhen and Hong Kong financial institutions. It offers total prizes of more than $ million for the winning fintech products or solutions. I am sure the awards will provide a strong incentive for financial institutions to innovate, either by themselves or in partnership with fintech firms. | While each financial market has many idiosyncratic factors, fintech can offer solutions that cut through different geographical and market boundaries. For example, breakthrough in biometric authentication technology is helpful not only in the advanced markets but also in the developing markets. By the same token, cybersecurity threats can originate from anywhere in the world and is not bound by national boundaries. There is a high degree of commonality in the application of fintech, especially in the context of cross-border financial transactions and flows. So it is crucial for Hong Kong to enhance its collaboration with other financial centres to share experience and learn from each other. In this context, I am very pleased to announce that I have just signed a Cooperation Agreement on fintech with the Managing Director of the Monetary Authority of Singapore (MAS), Mr Ravi Menon. To mark the occasion, a simple ceremony will be held later this morning to exchange the signed Agreement. May I take this opportunity to thank my MAS colleagues for working very hard with us on this most meaningful collaboration. 4. Hong Kong and Singapore are the two leading international financial centres in Asia. Both the HKMA and MAS are actively promoting the use and development of fintech respectively. There is considerable scope for the two places to collaborate and achieve a win-win outcome. A priority area of collaboration is the use of fintech in advancing the hitherto paperbased trade finance system that has been in use for as long as trade existed. | 1 |
And over the past month some of the key spending and activity indicators have been strong. The balance of risks to output growth and inflation has shifted towards the upside. As those risks began to materialise, the MPC acted. The Committee started to raise interest rates to deal with the changing balance of risks last August, and has now raised rates by 75bp in total to keep inflation on track to hit the target. But, by responding early to changes in the inflation outlook, the MPC ultimately needs to raise interest rates by less than would be the case if we delayed. Looking forward, some of the factors responsible for the pick up in inflation through 2006 are likely to unwind during 2007. Oil prices have fallen by around a third since August, and will feed through to petrol and utility prices. The rise in the exchange rate will dampen the impact of higher import prices. It is also important not to exaggerate the effect of stronger demand on inflation. As we pointed out in our November Inflation Report, the ability to recruit migrant labour continues to offer a safety-valve for demand pressures in the economy, and is, no doubt, in some part responsible for the continued muted level of wage pressures. That is a particular help in present circumstances, and has reduced the extent to which interest rates have needed to rise. But how quickly and by how much inflation will fall over the next year or so is difficult to judge. | But the belief that we could avoid the adjustment by pushing up our pay would lead to a self-defeating process of higher wages offset by higher prices. It is the task of the MPC to ensure that the process of adjustment does not lead to a persistent rise in inflation. Bank Rate was raised in order that inflation will come back to its 2% target, and future action will depend upon how those risks to the inflation outlook materialise. The month by month path of interest rates required to bring inflation back to target is a matter of judgment. There is certainly room for reasonable people to disagree about the level or timing of changes in interest rates. There is no absolute truth here, and it is vital that the MPC keeps an open mind at all times. That in essence is my letter to you and all the members of the Birmingham Chamber of Commerce. Achieving the inflation target is, I believe, in the long-run interest of manufacturing no less than the rest of the economy. I recognise that the burden of changes in interest rates often falls disproportionately on manufacturers and other exporters as increases in interest rates push up the sterling exchange rate. And that comes on top of a secular decline – fifty years ago almost 40% of GDP was produced 2 BIS Review 9/2007 by the manufacturing sector. Today that share is around 14%. | 1 |
So equity-linked structured notes, for example, have been out of fashion. High yield (non-financial) corporate bonds and Exchange Traded Funds (ETFs) have both been in. But since the risks in some ETFs were highlighted – by the UK’s new Financial Policy Committee amongst others – some of the more complicated ETFs and those with opaque securities lending programmes, have faded somewhat. It is not that investors are avoiding all credit risk – where it can be properly assessed and a diversified portfolio is possible. For example, the end-investor demand for corporate credit ex-financials is generally very strong. The announcement of OMTs by the ECB and the other announcements by the US Fed and the Bank of Japan, appear to have led to a collective sigh of relief in recent weeks. Yields on Spanish and Italian debt have fallen since the announcement – by 100bps or so at 10 years – and equity markets are up. I hope that the ECB action lays the foundation for a successful resolution of the European debt crisis. The view of markets so far is positive in that regard. I would caution, however, that we have been here before. Along with every other market participant I hope that this time will be different. But central banks cannot solve fundamental problems in the real economy, even using unconventional measures – they can only give the time and space for governments and private sector agents to do so. | Despite their cost magnitude, we persist BIS central bankers’ speeches 1 with these investments because we believe that once properly leveraged they will enable the organisation to do more with less by: (i) increasing staff efficiency and productivity; (ii) strengthening relationships with the organisation’s customers; and (iii) fostering more effective collaboration with various business partners to quicken the speed at which data that is required for decision-making can be provided. In striving to achieve these goals, we are exposed to the likelihood of being affected by the major risks that are attendant with information technology use. Consequently, the institution continues to allocate resources to: (a) make its information systems and the supporting technical infrastructure more reliable and resilient; and (b) protect the integrity of the institution’s data assets. Achievement of the foregoing objectives is heavily dependent on all information technologyrelated activities and investments being channelled in a manner that is consistent with the organisation’s goals and needs – the so called IT/business alignment challenge that appears to be so elusive in many cases. Here, from a management oversight perspective, one cannot overemphasise the necessity of embracing governance mechanisms that are fit for purpose. To remain relevant, the information technology function must continually evaluate and if necessary enhance its existing capability to ensure that it can meet the requirements of core business processes while being in tune with the current and envisaged directions of the organisation. | 0 |
This often results in structural defects in the financial systems that are not conducive to the maintenance of monetary and financial stability; for example, regulatory gaps, low transparency and market concentration. These defects also breed unethical behaviour. Indeed, free and open emerging markets are considered by some as markets that can be rather freely manipulated. They also call them ATMs. But I still believe that financial openness outweighs the risks of financial instability, and that the risks I mentioned just need to be, and can be, managed, simply by being sensible in the development of the financial system, reminding ourselves always that the primary purpose of the financial system is financial intermediation that supports the economy. Although it provides employment for quite a number of people, including us, and profits for a lot of capital, the financial system does not and should not have a life of its own. Gradualism is perhaps a prudent attitude, even if this means taking a little more time or appearing for a time to be not as welcoming as the top players in international finance would like. "Because others have it" is definitely a risky attitude to take in financial development. And as developed markets are going back to basics, a no-frills approach to financial development may not be a bad idea. Financial openness does not mean getting all the top brand names to set up shop in your backyard and importing innovative financial instruments and practices. Indeed, some of those innovative financial instruments may be toxic. | Opening the capital account exposes countries to increased financial volatility. The impact, however, is different for capital importers and exporters. Capital importers face the possibility that flows would abruptly dry up, thus inflicting damaging shocks to their financial systems and national economies. Capital exporters accumulate claims on the outside world and, therefore, run the risk of valuation losses (through exposure to country and exchange rate risk). Ideally, an international open capital account regime would protect both capital importers towards sudden liquidity shocks and capital exporters toward abrupt changes in the value of their assets. These are potential avenues for progress and debate. International liquidity The crisis is a powerful reminder that liquidity – both domestic and international – can never be taken for granted. The provision of international liquidity has been severely disrupted. How will it be provided in the future, and by whom? These are not new questions. In the recent period, Governor Zhu, from the People Bank of China has raised the issue of reserve currencies. According to Governor Zhu, current arrangements for liquidity provision are a source of instability and have played a role in causing the crisis. Governor Zhu has mentioned, in particular, the intrinsic contradiction embodied in the famous “Triffin dilemma”. Because the dollar is the major reserve currency, international liquidity supply depends on the US running a sufficiently large current account deficit which, by itself, aggravates global imbalances and creates instability. | 0 |
Central banks are playing an active role in digital innovation. To support innovation while safeguarding the vital anchoring role of central bank money, the Banque de France is exploring the question of issuing a central bank digital currency, or CBDC. We carried out nine trials 5/6 BIS central bankers' speeches between September 2020 and December 2021 on the issuance of a “wholesale” or interbank CBDC, acting in partnership with a diverse line-up of participants, including commercial banks. These trials showed that a CBDC could significantly improve cross-border payments and interbank processes, such as securities settlement, more generally. On the question of a retail digital euro, the Banque de France is making a full contribution to efforts by the Eurosystem, which, following preliminary work, began an investigation phase on 14 July 2021 aimed at analysing the pros and cons of such a currency. A final decision on whether to launch a digital euro will be taken in the final quarter of 2023 [SLIDE 8]. To preserve the strong complementarity between central bank money and commercial bank money that lies at the heart of our monetary system, the intermediation role of banks must be maintained and banks must be fully involved in this project. A CBDC will be created with banks, not in opposition to or in spite of them. On the climate front, the ECB has adopted an ambitious actionplan [SLIDE 8] to which the Banque de France made a decisive contribution. | However, the European Union holds a trump card as it boasts the world’s largest pool of savings, with the annual surplus of domestic savings over investment regularly exceeding EUR 300 billion. For this reason, we see a critical need to foster equity financing, as it is ideally suited to innovative projects, which entail higher risk-taking. This is also why, on a broader note, we support implementation of the Capital Markets Union [SLIDE 5], which, through a series of technical reforms, will enable Europe’s plentiful savings reserves to be allocated efficiently to companies through market financing. Efforts to strengthen the Capital Markets Union must be conducted in concert with steps to deepen the Banking Union, which remains an absolute priority. These two initiatives are crucial to the continued financial integration of the EU and will ultimately pave the way for investment and innovation to be funded more effectively. That is the diagnosis that I wanted to share: the twin transition to a digital future and a sustainable economy has the potential to weaken not only banks, but also financial stability and the real economy. Yet this is merely a diagnosis, not a prognosis. This same risk could also be a source of beneficial changes. 2. The banking sector: a participant in the digital and green transition 3/6 BIS central bankers' speeches And so I come to what could and should be done to turn these challenges into opportunities. I will talk about three courses of action. | 1 |
Banks must also put in place a transparent whistleblowing policy that enables the escalation of concerns without the risk of reprisal. Good governance is ultimately driven by a workforce that is committed to the highest standards of knowledge, competence and conduct. Competition for talent in the financial industry has intensified greatly, in an environment where public opinion of banks globally is also at an all-time low following the last crisis. Recent trends among graduates of leading business schools worldwide indicate a shift towards other well-paying alternatives to careers in banking, notably to technology and consulting firms. According to the Financial Times, the popularity of banking as a career has dropped 41% since 2008. Globally, banks’ reputations have also been dented to varying degrees by poor quality of service, staggering control failures and misconduct. The professionalisation of the banking industry is therefore critical to strengthen the talent pipeline, while restoring and maintaining public trust in the banking industry. An important step in this direction is the transformation of Institut Bank-Bank Malaysia (IBBM) into the Asian Institute of Chartered Bankers (AICB) as the professional body for bankers and the Asian Banking School as the education service provider. The AICB plays a key role in spearheading the vision of professionalising bankers through the development of professional qualifications, a specialised certification track to support continuing professional development and a membership framework that subjects members to a strict code of conduct, professionalism and ethics. | The prestigious Chartered Banker qualification, for example, aims to provide comprehensive education on banking to support sound judgment and decision-making. The industry should therefore take full advantage of these opportunities to build a solid team of professional bankers that are able to perform effectively in a rapidly evolving landscape. Fundamental role of banks to support inclusive financial participation for all It is important to bear in mind that growth in financial services must also serve to enhance economic opportunity for all. Since the establishment of the Financial Inclusion Framework in 2011, major inroads have been made in widening the accessibility to financial services in Malaysia. Agent banking has been a key strategy to improve access, particularly in the rural areas. 92% of our population has some form of access to financing. Moving forward, expanding public access to financial services will remain important for the remaining 8% of the BIS central bankers’ speeches 5 unbanked population in Malaysia. There will also be greater emphasis on the quality of services provided. The social impact of greater financial inclusion is significant as it helps improve people’s lives. In this respect, banks have a critical role to play to make it easier for people to save, make payments and obtain affordable loans to improve standards of living and build more resilient communities. It would be a remiss to talk about the future of banking without embracing this very fundamental role of banks. | 1 |
Recent history has shown that the Thai economy has the resilience to withstand adverse events and has 4/9 been quick to recover. Over the past ten years the economy has had to endure a number of shocks—externally, from the global financial crisis of 2009 to the beginning of quantitative tightening; and internally, from the domestic political turmoil throughout the decade, big flood of 2011, to the passing of His late Majesty King Bhumibol Adulyadej in 2016. And yet, over the past decade the Thai economy grew on annual average of 3.3 percent; it registered positive current account surplus in eight of the last ten years; and the Thai Baht has been one of the most stable currencies in the region. The economy has been able to overcome these challenges, because it possesses a unique set of qualities, qualities that contribute to our resilience. These key qualities are macroeconomic stability, diversified growth engines, and ability to adapt to new challenges. Ladies and gentlemen, Having sound macroeconomic stability is important for an economy to ensure confidence and provide environment conducive to growth. It also acts as a critical buffer, especially for small open economy, against episodes of external shocks and capital flow volatility. The Thai economy possesses macroeconomic stability in at least four key areas: (1) Our external stability remains strong, with ample foreign reserves, covering 3.4 times short-term external debt. | This year also marks a significant transition for Thailand to return to democracy as the general election was just held over the weekend. Ladies and gentlemen, Undoubtedly, one of the most pressing questions many audiences here today are wondering will certainly be on the implications of the outcome of the election and how that will impact the Thai economy. Unfortunately, it is too early for us to make a call as we still await 1/9 ratification of the election result, formation of the new government, appointments of key members of the cabinet, and announcement of the economic policy. So instead, today I want to focus my talk on long-term perspective of the Thai economy and highlight key qualities of our economic resilience that have allowed the Thai economy to endure a number of domestic and external shocks—many of which in the past, I believe, were much more challenging compared to the impending political change post-election. But before speaking about long-term perspective, allow me to talk briefly on our short-term outlook as our Monetary Policy Committee has just recently revised our economic projections. Looking back the past few years, the recovery of the Thai economy had been largely driven by improvements on the external front from the recovery of global demand. Growth drivers were unbalanced; exports of goods and services acted as the main drivers of growth while domestic sectors were well-below historical average. Last year marked a turning point as growth became more balanced. | 1 |
13 Swings of the pendulum are a frequently used metaphor in studies of financial crises. See, for example, Michael D. Bordo (2003), “Market Discipline and Financial Crisis Policy: a Historical Perspective”, in Market Discipline in Banking: Theory and Evidence. Research in Financial Services: Private and Public Policy, Volume 15, 157–182, Edited by George G. Kaufman, Elsevier Publishers. According to Bordo, the pendulum swings between measures to prevent crises, manage crises and resolve crises. Erik F. Gerding (2006), “The Next Epidemic: Bubbles and the Growth and Decay of Securities Regulation”, Connecticut Law Review, shows how economic upswings are often periods of deregulation and overoptimism in securities markets, while the downturns that follow are marked by austerity and calls for stricter regulation. Moreover, regulations become less effective as time passes, and market participants forget the previous crisis. Gerding provides examples of such cyclical pendulum movements going as far back as the 1600s. BIS central bankers’ speeches 5 extremes. Keynesian policy is often appropriate in a contractionary period, but it also involves saving in times of growth – a component that had been widely forgotten.14 The economists Carmen Reinhart and Kenneth Rogoff have summarised the experience of financial crises all over the world over the past 800 years. They show that history repeats itself. The “truth” most often proclaimed in boom periods just before the bubble bursts is the belief that “this time is different”, which is also the ironic title of the book. | It is not only an attractive book, but is also a very valuable working tool. A special feature of this history of the Swiss currency is that it was not written by a historian, but from the perspective of a monetary theorist. Nevertheless, the author is not only an outstanding monetary theorist and academic teacher, he also has rich practical experience 1 Hans von Keler, *1925, German theologist. BIS central bankers’ speeches 1 as an economic policy advisor. The SNB’s Governing Board would like to thank Ernst Baltensperger for having made such a significant contribution to the understanding of the Swiss franc. We would also like to thank the publishing house, NZZ Libro, and all the individuals participating in this project for their careful handling and publishing of this book. It is now my pleasure to give the floor to Hans-Peter Thür. 2 BIS central bankers’ speeches | 0 |
In addition to the medium and long-term benefits of such a strategy, defining the plan early on would generate greater certainty and trust in public policies, which is particularly important against the backdrop of the monetary policy normalisation I have described. In any event, the course of the war in Ukraine and the subsequent sanctions and retaliatory measures have laid bare the EU’s vulnerabilities and dependencies in key sectors, such as energy, as well as the disparities between Member States in their exposure to such tensions. A challenge of this magnitude underlines the importance of a joint response to common risks. The response to the war in Ukraine must, once again, be more Europe. To address this common challenge, more emphasis has been placed on European “strategic autonomy”. This episode has shown that pan-European structural policies that foster the integration and interconnection of European markets – including energy markets – and strengthen the single market4 will not only generate greater resilience to shocks, but also drive competitiveness. In this respect, joint funding arrangements should be established to safeguard this common effort and avoid any excessive or highly unequal impact on national public finances. Common funding arrangements would allow European institutions to finance large-scale programmes based on shared quality standards and would provide for a uniform approach for assessing programme execution. Headway must also be made in the expansion of the public and private risk-sharing arrangements in the EU. | So, this must be good news – apart from the inconvenient questions one asks from time to time about “How long will it last?” or “Is it sustainable?” For Emerging Market Economies, we have all witnessed the inflow of capital at the initial stages of the QEs, which drove up asset prices and inflationary pressure. This is not surprising as investors have no choice but to take aggressive steps to search for yields globally. This results in a misallocation of resources, as the abnormally low interest rates distort investment decisions by allocating capital away from productive real investment into risky assets that yield higher returns. The lack of real investment in turn reduces medium-term potential growth. Indeed, business investment growth in the US has been lacklustre since the economy recovered from the global financial crisis. The misallocation of resources aside, the search for yield behaviour also leads to a mispricing of risks across a wide spectrum of asset classes. In the US, junk bond issuance has risen sharply in the past few years, accounting for about 24% of all bond issuances so far in 2013, while the average high-yield spread has fallen below 5%. While the buoyancy in the asset markets helps support the economy in the short term, imbalances could build up in the economy and the financial system that may pose a threat to systemic stability when the unconventional monetary policies begin to unwind. 13. | 0 |
Svein Gjedrem: The economic outlook Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to invited foreign embassy representatives, Norges Bank, Oslo, 2 April 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. * * * Excellencies, Ladies and Gentlemen, Since our last meeting about a year ago, the international economic environment has changed dramatically. In my presentation today, I will focus on how the international downturn has influenced the Norwegian economy and the outlook for our economy. The crisis has its core in the financial system, and I will therefore discuss the need for a new international financial architecture. Finally, I will comment on the Government Pension Fund – Global and how the financial crisis has influenced its investments and returns. Sudden global downturn in the real economy In September 2008, the turbulence in financial markets erupted into a full-blown global crisis. On 15 September Lehman Brothers filed for bankruptcy. The next day, money markets seized up. Confidence between banks had been compromised. Liquidity dried up, interest rates rose sharply and equity prices fell. Exchange rate volatility – the daily fluctuations in the exchange rate – showed a marked rise. Bond markets in turn shut down. | Within the Eurosystem, the ECB has established a high-level task force to prepare a comprehensive analysis of the possible benefits and challenges related to retail CBDC, to be discussed in coming weeks within our Governing Council. • In this journey, we must set up appropriate synergies between public and private actors. Unequivocal support should be given to the European Payment Initiative (EPI): this project is essential for the safety, the rapidity and the European sovereignty of payments. Success of EPI is determined by (i) access to a large customer base, (ii) adherence of large merchants, and ultimately interoperability should EPI have ambitions to develop outside of Europe. • Let me stress there is no contradiction, as sometimes feared by commercial banks, between considering a euro-CBDC and supporting EPI. We may probably need both, and build complementarity. My preference would be to seek a renewed public / private partnership for the dissemination of central bank money in a retail form. Possible impacts on the banking sector could be reduced with different tools: for instance, limiting the quantity of digital euro in circulation would prevent excessive shifts of commercial bank money into digital euros. For the Eurosystem, this strategy would imply to clarify the interplay we would like to put in place between EPI and the CBDC, thus validating an intermediated model while providing enough customer proximity and value added to intermediaries (like front-end solutions). | 0 |
The initiatives can also fit in with the broader agenda of ASEAN integration, to leverage on regional resources and promote regional economic integration simultaneously. Closing remarks Let me close my remark by thanking all of you once again for your invaluable contributions to the Thai economy. The Bank of Thailand will continue our work of ensuring a stable financial and economic environment, so that businesses can continue to thrive and individuals can enjoy better standards of living on a sustainable basis. I hope that Thailand will continue to be a destination of choice for your investment, and a country of shared opportunity and prosperity for us all. Thank you 4 BIS central bankers’ speeches | Nevertheless, statements related to the interest rate path can still be useful as they can provide 4 Arguments against the publication of an explicit interest rate forecast by the central bank are discussed in more detail in Goodhart, C. (2001): “Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates”, Federal Reserve Bank of St. Louis Review, July/August 2001 (http://research.stlouisfed.org/publications/review/01/05/165182Goodhart.qxd.pdf) and Mishkin, F. S. (2004): “Can Central Bank Transparency Go Too Far?”, NBER working paper no. 10829 (http://www0.gsb.columbia.edu/faculty/fmishkin/PDFpapers/56959-w10829.pdf) 5 “In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period. ", see press release from the Federal Reserve, Board of Governors, 12 August 2003, www.federalreserve.gov. 4 BIS Review 6/2006 information about why a particular path has been chosen. In addition, such statements can provide some information about our response to conditions outside the Bank’s control. Second, when the central bank deviates from the original projection for future interest rates, an explanation has to be provided. The interest rate forecast is based on incomplete information about the current situation and the functioning of the economy. If the economy is exposed to disturbances, the central bank's assessment of these disturbances must be communicated. The same applies if the central bank should change its view of the functioning of the economy. Professional financial market participants and other economic agents will have little difficulty in understanding that the interest rate will occasionally have to deviate from the forecast. | 0 |
With these guidelines, the different systems can be monitored consistently, while at the same time keeping the administrative effort of the operators at an acceptable level. Business Continuity Planning (BCP) Different experiences in the recent past – from the 9/11 terrorist attacks in the United States to minor local technical difficulties – suggest that measures to strengthen the operational resistance of the Swiss financial sector must be taken. During the past year and a half, the SNB has headed a sectoral working group in cooperation with the SFBC secretariat. The group consists of representatives from infrastructure providers, financial institutions and the authorities and has conducted an in-depth analysis of the business continuity plans of the major players in the financial markets. The Business Continuity Planning (BCP) project focuses on precautionary measures to prevent the likelihood of disruptions. In addition, measures are taken to help cope as efficiently as possible with disruptions, once they have occurred. In its analysis, the working group focused on the two business processes which were considered to be especially critical for system stability and which must be maintained without fail even in exceptional circumstances. Firstly, the supply of liquidity to the financial system with central bank money by means of repos and, secondly, large-value payment transactions between the commercial banks in Swiss Interbank Clearing (SIC). The analysis began with the following scenario: a severe disruption causing the failure of an important operational centre and incapacitating its staff. | In the context of the UK’s highly developed and increasingly integrated financial services industry, in which distinctions between banks, building societies, investment intermediaries, insurance companies and so on have been becoming increasingly blurred, the argument for moving away from a fragmented supervisory and regulatory structure, in which banks were separately regulated, was compelling - and Howard and his team have done a tremendous job in bringing all the different strands of financial services regulation together under the FSA umbrella seamlessly and in a relatively short space of time. A potential downside from the Bank of England’s perspective was the possible loss of information from, or contact with, the banking sector which might reduce our capacity to exercise our responsibility for the stability of the financial system as a whole. Now of course it is early days to begin to assess the new arrangements from this perspective. It is true that we have not had any serious threats to financial stability in this country over the past three years, but I suppose that putting that down to the new structure would be a bit like the man who claimed that the absence of pink elephants in Hyde Park was the direct result of his clicking his fingers there on his regular morning walks. We really haven’t been tested. | 0 |
Financial Stability Report No.14 (2)/2017 Liviu Voinea, Deputy Governor Press conference, Bucharest, 4 December 2017 Your Excellences, Dear colleagues, Dear guests, Thank you for your presence at the launch of the December 2017 issue of the Financial Stability Report, No. 14(2)/2017. Right beside me are three NBR directors who are ready to answer your questions: Mr Eugen Rădulescu, director of the Financial Stability Department, which prepared the Report – I wish to thank all the colleagues involved; Mr Emil Vonvea, director of the Bank Resolution Department – an area having the role to strengthen confidence in the banking sector – the Report also includes a section dedicated to resolution strategies; and Mr Tudor Grosu, director of the Macroeconomic Modelling and Forecasting Department, as part of the analyses in the Report are based on scenarios and econometric models to the development of which his department also contributed. I would like to thank the other departments which cooperated in the preparation of the Report, particularly the Economic Studies Department for the translation. This is the 14th financial stability report launched by the National Bank of Romania. I would like to point out that the Report we are releasing today has been discussed in two meetings of the NBR Board and was unanimously approved by the NBR Board in its meeting of 27 November 2017. The Report presents the risks to financial stability, in close correlation with domestic and international economic developments. | Indicators for credit risk and asset quality percent percent 100 30 250 100 25 90 200 80 20 80 60 15 70 10 60 5 50 0 40 150 100 289 239 234 223 217 129 50 40 20 0 0 OSII group Non-OSII group Total Romanian banking sector LCR – total LCR – EUR component cumulative market share (rhs) OSIIs – other systematically important institutions Note: Ratio of liquidity reserves to net cash outflows. The minimum required level is 80 percent. Source: NBR Sep.14 Nov.14 Jan.15 Mar.15 May.15 Jul.15 Sep.15 Nov.15 Jan.16 Mar.16 May.16 Jul.16 Sep.16 Nov.16 Jan.17 Mar.17 May.17 Jul.17 Sep.17 120 300 NPL ratio restructured loans ratio ratio of non-performing exposures NPL coverage by provisions (rhs) Texas ratio (rhs) Source: NBR 9 Figure 13. Non-performing loan ratio The adjustment pace of the NPL ratio in the EU (September 2014 – June 2017) percent 25 percent 21.5 10 NPL ratio in Romania 8 6 20 4 2 15 0 -2 -4 7.96 10 -6 -8 -10 5 -12 -14 RO CY IE HU BG IT LT AT HR ES LV CZ SK GB DE DK BE FR PL NL FI SE LU PT GR Note: No data are available for SI, MT, EE. | 1 |
In other words, under this definition, the CCyB should allow for the accumulation of shock absorption capacity that banks could use in the downward phase of the cycle to continue providing households and firms with the necessary credit flow. In many macroeconomic and financial contexts, the activation of the CCyB will be justified on the basis of the three objectives mentioned by the BCBS simultaneously. This would certainly have been the case in the boom period of the Spanish economy before the last financial crisis. However, there might be cases where, based on available data, only one or two of these objectives can warrant the activation of the CCyB. In particular, there have been numerous examples of economic recessions not preceded by excessive credit growth. This promptly begs the question: should these buffers be exclusively built when the credit cycle is in a boom phase, or also when the economy is buoyant, i.e. when the business cycle is expanding? In my view, sound arguments may justify the use of the countercyclical capital buffer to accumulate loss-aborbing capacity in good times to be used in bad times, even when there is no evidence of the emergence of excessive credit growth. The main argument, in my view, stems from the evidence that, even in those situations, when the recession comes, borrowers’ default rates rise, 5/11 negatively affecting the profit and loss account and the capital position of banks. | These complementary indicators are: house price imbalances, current account balance, change in credit relative to GDP (credit intensity) and the private sector debt burden. And as an additional important indicator, we are planning to incorporate the output gap, under the assumption that the position of the economy in the business cycle must also play a role in the activation of this tool. The usefulness of using different indicators is especially important in cases like ours, in which the Basel gap does not work well because of the shorter average duration of credit cycles in Spain. Given the time lag implementation in the CCyB, we also carefully monitor the forcasted values of the indicators. Admittedly, accepting the role of macroprudential policies as an additional set of macrostabilising tools increases the potential interactions with other macroeconomic policies. Indeed, the interaction between monetary and macroprudential policies is particularly relevant in a monetary union such as Europe’s and makes a strong case that justifies the introduction of national macroprudential policies. This is because, in a monetary union, monetary policy is defined on the basis of the state of the economy in the Union as a whole and, in some circumstances, it might lead to financial conditions that are too loose for certain country conditions and, therefore, can generate pockets of financial risk in some countries. Activating domestic macroprudential policy by those national authorities in such circumstances will help precisely avoid the emergence of systemic crises. | 1 |
I would like to thank Andrew Bailey, Sarah Breeden, Ben Broadbent, Victoria Cleland, Andrew Hauser and Tom Mutton for their comments. 1. To function money relies on a shared understanding that the relevant instrument can be used to calibrate, exchange, store and settle claims. For further discussion on this point see recent speeches ‘It’s Time to Talk about Money’ (2020) and ‘Do We Need Public Money (2021)’. 2. The Bank of England also issues reserves to financial institutions. This is a form of wholesale money that allows regulated firms to hold claims on the Bank of England. 3. Only the Bank of England issues banknotes in England and Wales, but six banks in Scotland and Northern Ireland also issue banknotes, backed largely by assets at the Bank of England. See Scottish and Northern Ireland banknotes | Bank of England and the Scottish and Northern Irish Banknotes Regulations (2009) for further details. 4. The Payments of Wages Act 1960, as amended by the Truck Act. 5. Some examples of programmable functionality might include: instantaneous currency exchanges with reduced settlement risk; more efficient real estate purchases whereby all parties’ transactions are executed simultaneously by a smart contract; or an automated payment made by a vehicle at a toll booth. 6. Financial Services and Markets Bill (2023) . In December 2022, the Bank of England published a consultation closing on 10 February, setting how it intends to use these new powers. , 7. See for example Haldane, A.: ‘Seizing the Opportunities from Digital Finance’ (2020). 8. | Concluding, I would like to thank all the researchers, the speakers, the audience and our collaborators, who responded positively to our call for participation. With these words, I wish you all fruitful deliberations, I wish the conference all success and I wish all the guests an enjoyable stay in Tirana. Thank you! 2/2 BIS central bankers' speeches | 0 |
Together these banks account for around 73% of the stock of lending to UK households and corporates. I should also note that a significant number of other institutions are close to signing up too and we will update this table in due course. In addition, we will publish the first set of drawdown data in December, although you will have seen that one bank has already announced that it has drawn £ and plans to draw more. That said, it will probably take some time for banks to review fully their lending plans, and it is likely that drawings from the FLS will be spread out over the full window to end-2013. | Øystein Olsen: Management of the Government Pension Fund Global Introductory statement by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), before the Standing Committee on Finance and Economic Affairs of the Storting, Oslo, 2 May 2017. * * * In 2016, it was 20 years since the Ministry of Finance made the first capital transfer to the Government Petroleum Fund, as the Government Pension Fund Global (GPFG) was aptly named at the time. This transfer marked the start of a transformation of petroleum wealth in the form of oil and gas in the ground into financial assets invested outside Norway. Since the first capital transfer was made, the GPFG has grown considerably, to more than 2.5 times the size of GDP. The year 2016 also saw the first net withdrawal from the GPFG. Ahead, the value of the GPFG will therefore, to a greater extent than previously, depend on the return on the fund’s investments. The period of steady growth in the GPFG as a share of the economy is now probably over. The key variables determining the GPFG’s long-term performance have been specified by the Ministry of Finance and approved by the Storting. For its part, Norges Bank has developed its management assignment in accordance with the fund’s growth and in line with the owner’s mandate. At the same time, Norges Bank has focused on its role as advisor in the further development of the fund’s investment strategy. | 0 |
Our latest bank lending survey reported a tightening of overall credit standards, which was stronger than banks had expected in the previous round and suggests that lending may weaken further. Weak lending has meant that money growth has also continued to decline. Conclusion Summing up, the inflation outlook continues to be too high for too long. In light of the ongoing high inflation pressures, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. Overall, the incoming information broadly supports the assessment of the medium-term inflation outlook that we formed at our previous meeting. Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, our past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain. Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. | Employment has continued to grow and total hours worked exceed pre-pandemic levels. At the same time, the average number of hours worked remains somewhat below its pre-pandemic level and its recovery has stalled since mid-2022. As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. Fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area's supply capacity, especially in the energy sector, can also help reduce price pressures in the medium term. In this regard, we welcome the publication of the European Commission's legislative proposals for the reform of the EU's economic governance framework, which should be concluded soon. Inflation According to Eurostat's flash estimate, inflation was 7.0 per cent in April, after having dropped from 8.5 per cent in February to 6.9 per cent in March. While base effects led to some increase in energy price inflation, from -0.9 per cent in March to 2.5 per cent in April, the rate stands far below those recorded after the start of Russia's war against Ukraine. Food price inflation remains elevated, however, standing at 13.6 per cent in April, after 15.5 per cent in March. Price pressures remain strong. Inflation excluding energy and food was 5.6 per cent in April, having edged down slightly compared with March to return to its February level. | 1 |
These elements resulted in a swelling of inventories, durable goods purchases and investments in machinery & equipment. Among the more persistent phenomena that are driving demand and output are the stimulative effect of monetary policy, in an environment where the agents’ balance sheets suffered no permanent damages from either the crisis or 27-F. 2 BIS Review 126/2010 Furthermore, different measures show that financial conditions have advanced toward normalization in recent months, with a more favorable scenario in terms of both interest rates and banks’ lending standards. According to the banking credit survey of the second quarter, credit access conditions were relaxed at the same time that a strengthening of demand was observed. Loans have continued to grow, and interest rates are still low (figure 4). This combines with the good performance of the labor market and expectations of consumers and firms in the optimistic or near-neutral levels. Reconstruction works in the aftermath of 27-F have affected domestic expenditures, albeit with a different composition than was foreseen immediately after the disaster. At first, everyone expected that public and private efforts would focus primarily on infrastructure and construction, but capital goods imports and inventory replacement ended up being much more significant. Still, the baseline scenario assumes that building investment will pick up substantially towards the end of this year and in 2011, with some moderation of investment in machinery & equipment, which is already visible. | BIS Review 126/2010 7 Figure 5 GDP growh in selected regions and countries (1) (2) (annual change, percent) Monetary policy rates in the world (3) (percent) 14 14 12 12 10 10 8 8 0 6 6 -5 -5 4 4 2 2 -10 -10 15 15 10 10 5 5 0 00 02 04 06 América Latina EE.UU. Japón 08 10 0 0 02 04 06 08 10 Developed economies (4) Emerging economies (5) Chile Asia ex Japón Zona Euro (1) Regions are weighted by PPP as in WEO, April 2010. (2) Dots show growth forecasts for 2010 and 2011 respectively included in the baseline scenario of September 2010's Report. (3) Solid lines describe simple-averaged reference rates of each group of countries. Dots show averaged responses from analysts surveyed by Bloomberg during August 2010. These reflect expectations for September 2010, December 2010, March 2011 and June 2011. (4) Includes Canada, the Eurozone, Japan, Norway, Sweden, Switzerland, the U.K. and the U.S.. (5) Includes Brazil, Colombia, China, the Czech Republic, Hungary, Mexico, Peru, Poland, South Africa, South Korea and Turkey. Source: Central Bank of Chile based on statistics institutes of each country, Bloomberg and IMF. | 1 |
Also, we cannot ignore the risks stemming from the longer-term fiscal challenges that we face in the United States. But in the near-term, the most immediate domestic problems may recede rather than become more prevalent. On the housing side, stronger employment growth should lead to increased household formation, which should provide more support to housing demand. And anxieties about the large overhang of unsold homes represented by the foreclosure pipeline may overstate the magnitude of the excess supply of housing. Families that have lost their homes through foreclosures are likely to seek new homes as their income permits, even though many may re-enter the housing market as renters rather than buyers. On the state and local side, a rising economy should boost sales and income tax revenue and help narrow near-term fiscal shortfalls. 1 Moreover, although we do need to remain ever-watchful for signs that low interest rates could foster a buildup of financial excesses or bubbles that might pose a medium-term risk to both full employment and price stability, risk premia on U.S. financial assets do not appear unduly compressed at this juncture. On the inflation side of the ledger, there are some signs that core inflation is now stabilizing. However, both headline and core inflation remain below levels consistent with our dual mandate objectives – which most members of the FOMC consider to be 2 percent or a bit less on the personal consumption expenditures (PCE) measure. | However, with the recent passage of the Economic Growth, Regulatory Relief and Consumer Protection Act, many of these will no longer be subject to DFAST supervisory stress testing or could 2/6 BIS central bankers' speeches participate only on a periodic basis. The very largest and most systemically important firms, including all domestic bank holding companies with assets exceeding $ billion, will continue to be required to participate in DFAST supervisory stress testing on an annual basis. These recent changes are consistent with an emphasis on structural macroprudential concerns, in that they focus the DFAST stress tests on the set of firms that are individually the most systemically important. The intention seems to be to balance the burden of the supervisory stress testing regime against the negative impact that distress at one of these firms could cause to other banks and the rest of the financial system—part of the broader tailoring of the regulatory framework to the size and risk profile of different types of institutions.3 At the same time, however, reducing the set of firms subject to annual DFAST supervisory stress testing seems less consistent with cyclical macroprudential concerns, as it could narrow the window that stress test results provide on the build-up of risks and the loss-absorbing capacity of the banking system. | 0 |
Monetary policy has little to contribute in this regard, whereas fiscal policy and other economic policy instruments are decisive. Rapid wage growth over many years has led to a high domestic cost level. Measured in a common currency, the cost level in Norway relative to our trading partners is 20 percent higher than the historic average for Norway’s oil age. As a result of the high cost level, internationally exposed industries are vulnerable to weaker international growth, a fall in export prices and a stronger krone. The real value of the krone has increased in recent years, reflecting solid domestic economic growth, high oil prices and relatively weak growth among our trading partners. As long as there are no available resources in the Norwegian economy, increased petroleum revenue spending over the central government budget will push up the real value of the krone or undermine competitiveness. This is likely to continue as long as we plough more oil money into the economy. The petroleum fund mechanism and moderate and predictable petroleum revenue spending over the central government budget will nevertheless make a considerable contribution to stabilising economic developments ahead. By limiting petroleum revenue spending to the real return on the Fund, we can also ensure that future generations share the benefits provided by our petroleum wealth. House prices are at a historically high level. The rapid growth in household income has been a key factor behind the rise in house prices for some time. | Key policy rate is low because inflation is low and because the downturn abroad and a strong krone are dragging down on growth in some sectors in Norway. Very low interest rates abroad and high premiums in money and credit markets reinforce this picture. There are unusually wide differences between various interest rates, reflecting the high level of money 4 BIS central bankers’ speeches market and credit premiums. Many households are paying up to 4 percent on housing loans and interest rates on corporate loans range between 5 and 6 percent. When setting interest rates, the Bank does not give weight exclusively to bringing inflation back to target. Weight is also given to the effects of the interest rate on output and employment. At the same time, weight is given to the risk that a prolonged period of low interest rates can lead to elevated risk-taking and excessive debt accumulation in the household and business sector. Such imbalances may have spillover effects further ahead, with substantial effects on output and employment. In the March 2012 Monetary Policy Report, Norges Bank clarified how these considerations are expressed in the Bank’s response pattern. In that connection, the Bank adjusted the criteria to which it gives weight in interest rate forecasting. The key policy rate is set so that inflation is brought back to target. At the same time, inflation targeting is flexible, which means that the path for inflation should be weighed against developments in output and employments. Interest rate setting should also be robust. | 1 |
Nevertheless, despite all the reservations, it should not be overlooked that a monetary union creates facts. The elimination of transaction costs and of exchange rate volatility helps to lower interest rates, stimulates trade and facilitates direct investment within the Monetary Union. The project of the European single market, which, among other things, also serves to encourage mobility among the workforce, is thus provided with further valuable stimuli. Moreover, the stability and growth pact contributes to the harmonisation of economic policy. Asymmetric shocks may thus become less important in the course of time. It is precisely this type of shock that has the most adverse effect on the functioning of a monetary union. 2 BIS Review 60/2002 3. Implications of the euro's launch for Switzerland 3.1. Implications for the Swiss economy and the Swiss franc as a means of payment Like many enterprises in the euro area, Swiss companies benefit from the greater price transparency created by the euro for goods purchased from Euroland. Besides, this leads to enhanced domestic competitiveness with beneficial effects on national prosperity. A further positive effect for Switzerland results from the reduction in the number of European currencies. Hence, foreign currency management becomes easier. The danger of extreme exchange rate fluctuations such as the 70% real depreciation of the Italian lira between 1992 and 1995 has diminished drastically with the disappearance of the most volatile European currencies. Nevertheless, in a system of flexible exchange rates fluctuations can never be ruled out entirely. | i Global Official Institutions Conference, 22 June 2023 Building together a future-proof banking and payment sector in Europe Speech by François Villeroy de Galhau, Governor of the Banque de France Page 1 of 6 Ladies and Gentlemen, I am pleased to be with you for this Global Official Institutions Conference organised by BNPP, and I extend my warmest thanks to Jean Lemierre, Chairman of BNPP’s board of directors, for his invitation to give this speech. Facing the obvious turbulence and challenges of the last 18 months, we come here from different perspectives. Let me focus nevertheless on some common features: I will take the European view, and not only the French one. And I will focus on two delicate interactions between public authorities and private sector financial institutions: - the first one is about the recent past: why did the euro area escape the banking turmoil born in the US and in Switzerland, and can we be safe enough? (I) - the second one is about the next future: why should Central banks stand ready to issue a digital currency? (II) I. Banking turmoil: three blessings and a funeral I spoke after SVB’s failure of ‘Three blessings and a funeral’. Let me start with the funeral, at least the one that we can welcome, but which, unfortunately, is not final. It should be the condemnation and the funeral of mismanagement. | 0 |
Funds have been BIS Review 91/1997 -6- attracted back to the US markets which at the same time strengthened the US dollar, adding to the momentum of that flow. It was a pure case of risk versus return. 27. In addition, growing competition at the low-wage end of industries came from other Asian and non-Asian economies. In Europe, cheaper production came from the restructuring economies of Eastern Europe. Competition came from the revival of Latin American economies with improved access to the US market through NAFTA. In Asia, India and China are emerging as major exporters. As a result, exports in Asia suffered a downturn, while imports continued to rise, leading to growing levels of current account deficits. 28. Then came problems on the exchange rate front. The volatility of key exchange rates, particularly that of the yen against the US dollar, has placed the balance of payments of some Asian economies under considerable stress. For instance, since most Asian currencies are explicitly or implicitly linked to the US dollar, the appreciation of the US dollar severely squeezed the exporters, who have to compete with their rivals in Japan and the emerging economies in other parts of the world. The weakness of the yen revived Japanese exports, placing Japan in direct competition with its major trading partners in Asia, as the cheaper yen stimulated exports of Japanese durable goods and capital goods to Asia, while reducing imports from the region. | V. Safety nets: crisis resolution In free market economy, no policy and no supervision can prevent the possibility of financial distress in any particular financial institution. What the public policy can do is to minimize the likelihood of systemic crisis. Crisis resolution is the key to avoid systemic disturbance. As we know, the ultimate policy choice for the authorities is to find the balance between the public sector and private sector solution from the one hand and between the pre-determined schedule and ad hoc approach from the other hand. Estonia's currency board regime sets for Bank of Estonia clear and strict limits that exclude several options available for the authorities in many other countries. By limiting the money supply to net foreign assets of the central bank, the room for emergency liquidity support is very limited. Therefore, in our case, the private sector solution is preferable and particular modalities of crisis resolution will depend very much on the circumstances. At this point, I would like to refer back to previous parts of my speech and underline that this particular approach rests upon a few strong fundamentals. Continuous analysis of financial system developments and early warning indicators, importance of strong owners and sound risk management in banks, high liquidity and capital requirements – these basic principles are a necessity for us. By combining the principles just mentioned, we can now describe a few hypothetical crisis resolution situations in Estonian financial system. | 0 |
It is up to users to decide whether to use these indicators or not. I assure you that experts from the Bank of Albania will stand by the users, making them wellinformed, highlighting that further improvements will be made in this area. Thank you for your attention! 2 BIS Review 36/2009 | This suggests that the Monetary Policy Committee did not explain well enough that sometimes it is better to raise rates now so as to avoid a much larger rate increase later on. In view of this criticism, I think it appropriate to explain this more fully. In general, Central Bank attempts to keep interest rates as low as possible — but as high as necessary — at any given time. What that optimum level is, however, depends on conditions, and it changes from one time to another. If Central Bank rates deviate from this optimum, the public will bear the expense. If they are higher than need be, inflation could fall below target and GDP growth would be weaker than it might be otherwise. If they are lower than need be, inflation could get out of hand and economic instability could take root. In that case, a much larger rate hike would be needed later on. So interest rates that are too high or too low do not come without costs to the general public. In this instance, it should not be forgotten that household mortgages tend to be long-term loans, and a majority of them are indexed to the CPI. If inflation is kept at target over the long term, these mortgage rates will be lower in the long run than they would be otherwise, even though an increase in short-term central bank rates might sometimes be required. | 0 |
These shocks led to a temporary imbalance of the demand and supply for foreign currency and contributed to creating expectations for further appreciation of the exchange rate, and were accompanied also by a change in the behaviour of certain operators in the economy. They initiated a fast appreciation spiral in the second quarter and were accompanied by a disorder of the functioning of the domestic foreign exchange market. Under these circumstances, the Supervisory Council judged that the rapid appreciation of the exchange rate jeopardised the achievement of our inflation target in the medium-term horizon. Consequently, in full compliance with the price stability objective and without affecting the free exchange rate regime, in June the Council decided: To lower the policy rate from 1.25% to 1.00%. In parallel, overnight loan and overnight deposit rates were also reduced; and, To initiate a foreign currency purchasing programme, aimed at decelerating the pace of exchange rate appreciation and creating the premises for a normal trading activity in the domestic foreign currency market. Lowering the policy rate was aimed at further reducing the costs of financing and mitigating appreciation pressures on the exchange rate. The intervention in the domestic foreign exchange market, as a temporary and extraordinary instrument of the monetary policy, was considered as necessary under the conditions when the space for further lowering the policy rate was limited. Interventions in the foreign exchange market were concentrated in the summer months. | Thus, we have made progress with regard to improving statistics; research; compliance with EU integration criteria, strengthening 1/8 BIS central bankers' speeches the governance; and in many other aspects. Lastly, I would like to underline that the Bank of Albania has fulfilled all the recommendations left by the Assembly. The Annual Report presents in greater detail the activity of the Bank of Albania in 2018, across all the dimensions of its activity. I will present first an overview of the activity of the Supervisory Council, the decision-making body, which also monitors the activity of the Bank of Albania. I will then continue to present the activity of the Bank of Albania, in accordance with the main domains of its activity. *** Activity of the Supervisory Council The Supervisory Council exercises its powers in accordance with the provisions of the organic law and the procedures established in the internal regulation on its organisation and functioning. In 2018, the Supervisory Council met 15 times and approved 76 decisions, of which 55 were acts approved for the first time and 21 were amendments to existing acts. These decisions affect the activity of the Bank of Albania across the board. | 1 |
Rather than appeal to the stately Duchess of York on which my predecessor sailed, I will look to the trusty canoe – a craft that can navigate the most rapid and treacherous waters…provided its paddlers work in sync. Those economic currents are flowing swiftly, with the economy expanding at an annualised rate of 4% and jobs growing at a record pace.2 But there are rapids ahead, with old imbalances persisting and new ones emerging. The economy is still over-levered. The housing market is showing the potential to overheat. And the current account deficit is now at a record level. Navigating these hazards requires close coordination between all those in the boat; that is, between fiscal, monetary and prudential authorities. Tonight I want to explain the Bank’s contribution to delivering a durable expansion characterised by balance in the macroeconomy, the housing market, and the financial sector. Before doing so, I would like to join the Chancellor in paying tribute to two individuals. The first is Sir David Lees, who as Chairman of Court has overseen the transformation of the governance and responsibilities of the Bank. David, I am extremely grateful for your support during my first year as Governor. I’m also enormously grateful for the wise counsel of Charlie Bean during the past year. Always working, Charlie is tonight discharging his duties as President of the Royal Economic Society. Throughout his career, at the Treasury, in academia and at the Bank, Charlie has been a leading thinker and practitioner in the pursuit of macroeconomic balance. | Excessive reliance on consumption or non-tradable sectors, such as housing, all financed by borrowing abroad at an overvalued exchange rate would prove only temporarily satisfying. The UK’s current account deficit is at a record level. The perennial trade deficit has been reinforced by the fact that the UK is growing much faster than its main trading partners. More 3 In May 2013, the MPC projected annual growth of 1.7% for 2014Q1, only half of the rate at which it now estimates the economy to have grown over that period. Meanwhile the 2014Q1 outturn for unemployment, at 6.8%, was some 0.8ppt below the MPC’s May 2013 central projection. Despite these upward surprises to activity, annual earnings growth in 2014Q1 was 0.5ppt weaker than expected in May last year. That contributed to annual unit wage costs growth around 1ppt below the MPC’s May 2013 central projection. 4 Private non-financial sector debt is 163% of GDP. Around two thirds of bank loans to individuals and more than half of loans to businesses are at variable interest rates. BIS central bankers’ speeches 3 recently the sharp fall in the returns we earn on our investments abroad has led to a negative 3% swing in our net investment income. This is not an immediate cause for alarm. As the world and particularly Europe recovers, demand for our products and returns on our investments should increase. | 1 |
The recent floods in Thailand in 2011, was one of the costliest catastrophes in history. As insurance penetration rises across Asia, property insurers will face greater concentration of exposures to natural disasters. Life insurers will also be impacted in other ways, including higher incidences of diseases while also experiencing pressures on long term returns on investment. The insurance industry therefore needs to be able to manage such exposures as well as act as a catalyst for societies to adapt to such climate change. Risk management systems in particular, needs to be able to capture and aggregate exposures to such event risks in a timely manner. Also important is to incentivise efficient energy use through innovative product design and pricing. In addition, the industry needs to come together to seek out opportunities to partner with government and non-governmental organisations to facilitate improvements in urban planning, infrastructure design and building codes. BIS central bankers’ speeches 3 The integration of environmental and social considerations in insurers’ corporate strategies and operations will clearly become increasingly important to long-term sustainability. This must also include a sustained focus on financial inclusion to achieve balanced and equitable growth. Important is to ensure that all households continue to have meaningful access to financial products and services and that even for those that currently have financial access that they do not become financially excluded especially in an environment where financial products and services are becoming increasingly unaffordable or complex. It is estimated that up to 4 billion people worldwide require low-cost insurance protection. | In envisioning the future direction of the industry in our own region, it would be constructive for us to reflect on the evolution of the modern insurance industry and contextualise it to our own prevailing and prospective environment. The modern insurance industry came with the maritime expansion which accompanied cross-border trade activity, and the rapid urbanisation which saw significant human and economic losses experienced during the Great Fire of London. This led to the establishment of the first fire insurance company and the invention of the building blocks for life insurance as we know it today. Then, as societies became more affluent, endowment and with-profit policies grew in significance as instruments for savings. As industrialisation and urbanization intensified, the break down of traditional systems of social protection prompted the expansion of insurance products that covered retirement, accident, medical care and unemployment. Throughout the 20th century, business models have continued to evolve in tandem with the higher levels of financial literacy, rising consumer expectations and advancements in BIS central bankers’ speeches 1 technology. As competition compressed margins, there was a migration beyond tied-agency and commission-based distribution models to include fee-based financial advisors and direct marketing. Bancassurance and the participation of retailers in insurance distribution have also allowed insurers to significantly expand their reach with lower cost structures, while specialisation along the value-chain enabled even greater efficiencies. This more diverse landscape has enabled a much wider and deeper penetration of insurance in the advanced economies. | 1 |
The upfront announcement of the policy targets indicates the transparency of monetary policy operations and we believe that it helps to enhance policy effectiveness. More importantly, it helps the other stakeholders to fall in line with the announced strategy. 2. Government The fiscal policy should support monetary policy to work effectively. Therefore, government’s commitment to maintain fiscal targets is essential. According to the government’s medium term macro framework enunciated in the fiscal management report 2007, the overall deficit in 2007 will be contained at around 7.2% of GDP. The Govt. has taken significant steps to enhance revenue through additional measures such as improvement to tax administration, rationalize current expenditure and improve its debt management policy. The achievement of the first quarter 2007 revenue target is commendable. While maintaining the momentum in revenue targets, it is also necessary to reduce Govt. expenditure and work in tandem with monetary policy to contain inflation. In reducing government expenditure, it is also desirable to link income policies of the Govt., in particular, wage increases to productivity gains. Attempts are made to minimize income expenditure gaps and avoid deficit financing from inflationary sources such as bank financing, in particular, borrowing from CBSL. Govt.’s medium term strategy rests largely on public investments in key sectors and infrastructure that supports growth. It is important that these investments are financed in such way that it would not place excess burden on the budget. In this regard, it is encouraging to note that the Govt. | 2 BIS Review 55/2007 4. Fund managers/dealers/traders Interbank market The tight monetary policy stance adopted by CBSL and its possible continuation would result in increased reliance by banks on the inter-bank call market. Given the self imposed limits by banks on lending to each other, if a few banks attempt to raise a large volume of funds from the inter-bank market , there could be volatility in interest rates. Banks should not often rely on a potentially volatile call money market as an alternative to mobilizing deposits or exploring other funding sources. The heavy reliance by some banks on the call money market drives short term interest rates and make borrowing costs to investors and business community to very high levels. The volatility in the call market also creates uncertainty among the businesses and that adds to inflationary expectations. Forex market Given the current account imbalances, there is a mismatch in foreign exchange inflows and outflows. Sri Lanka’s foreign exchange market is not deep enough to absorb relatively large transactions, though its size and operations have gradually increased. In such a market, huge speculative trades could be rather disturbing and they could move the exchange rate against economic fundamentals. No doubt, forex market is a key source of foreign exchange income to banks. Its price, which is the exchange rate, is determined according to demand and supply forces. | 1 |
This means that they have two key effects. First, they lift the path of potential output, either by raising the inputs to production – the supply and quality of labour and the amount of capital per worker – or by ensuring that those inputs are used more efficiently, i.e. by raising total factor productivity (TFP). And second, they make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors. These two effects are complementary. An economy that rebounds faster after a shock is an economy that grows more over time, as it suffers from lower hysteresis effects. And the same structural reforms will often increase both short-term flexibility and long-term growth. For example, reforms aimed at encouraging reallocation will not only support faster adjustment, but also higher productivity through raising allocative efficiency. 1 Reforms aimed at strengthening competition will not just encourage greater price flexibility, but also higher investment as young firms are able to enter new markets and expand more quickly. 2 A comprehensive package of structural reforms will therefore tend to increase both resilience and growth. These are clearly issues in which any central bank has a keen interest. But this is especially true for the central bank of a monetary union – and even more so in the conditions we face today. Let me explain why. | Others talk about a new debt bubble of uncollateralized loans provided to ill-prepared students who are unlikely to see any real returns to their investments, calling for better oversight and underwriting of loans. Yet others point to the persistent high returns to a college education and argue that the current situation represents primarily a repayment crisis rather than a debt crisis. In my view, all these policy ideas deserve serious consideration. Some scholars argue that the current system turns reasonable levels of debt into crippling payment burdens that can prevent young workers from attaining financial independence and stability. 3 They propose a single, simpler, income-based repayment system. Such a program would undoubtedly benefit many borrowers, allowing them to better smooth consumption. However, the very low cohort repayment rates we see, even ten years after entering repayment, suggest that realized labor market returns to these higher education investments appear to be lower than one would expect. While these returns may gradually increase as the labor market improves, for some the returns may in fact stay low, especially among college dropouts and those who attended some for-profit institutions. Even if the average returns to a college education remain large, or even grow, students generally have a larger amount of debt to pay off. As mentioned earlier, in response to 3 6 Dynarski, Susan and Daniel Kreisman, 2013. “Loans for Edicational Opportunity: Making Borrowing Work for Today’s Students,” Hamilton Project Working Paper, October. | 0 |
It has been tempting for many to take up this type of loan for home purchases even with a poor debt-servicing capacity. These borrowers were banking on a rise in house prices that would allow them to service the loans once interest payments increased and principal payments fell due. Securities were developed around these loan portfolios. A large number of risk-prone investors who were seeking high returns – and with a similar belief that a continued rise in house prices would secure the collateral values – made it easy to find buyers for these securities. Weak developments in house prices towards the end of 2006 and into 2007 led to rising defaults on subprime mortgages. This resulted in a sharp increase in credit spreads for securities backed by this type of loans. Into spring and the early part of summer, a succession of news releases reported large losses and collapses in funds that had specialised in these investments. It was not primarily the size of the actual losses that led to the collapse of the funds, but a shortage of liquidity. The news of mounting losses prompted a sell-off by investors in these funds. As a result of increased losses and sell-offs, the funds had to sell other, more solid securities in a weak market, which made the losses visible and reinforced the exit of depositors and other creditors. The unfolding of events became increasingly redolent of a classic bank run. The turbulence spread during summer. | Given the inflation target, we will be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. Nonetheless, the interest rate path published in Monetary Policy Report 1/07 was higher than in Inflation Report 3/06. The reason for this is that the prospect of stronger-than-expected growth in both Norway and among our trading partners pointed to a higher interest rate path. On balance, this had a greater impact on the interest rate path than a stronger krone. Over time, however, the nominal exchange rate is not the main force. The most important influence on competitiveness in Norwegian business and industry and the purchasing power of the Norwegian krone is changes in the real exchange rate. The real exchange rate can be measured in a number of ways, for example by consumer prices or labour costs in Norway relative to our trading partners measured in a common currency. The real exchange rate has fluctuated widely over time and has deviated over longer periods considerably from the average level since 1970. The real exchange rate has nonetheless shown a tendency to revert to this level. Over time, the exchange rate acts as a buffer in the global economy. When economic activity is high in one country, an appreciation of the country’s exchange rate will have a dampening effect. Conversely, when there is a need to stimulate the economy, a weaker exchange rate will boost growth. | 1 |
If for instance lending to households is weak while lending to companies is strong, and we only have a broad tool such as the policy rate or the countercyclical capital requirements, it will be hard to achieve a policy rate or interest rate margin which is optimal for both sectors. Sector-specific capital requirements would enable increasing the interest rate margin only for the corporate sector, thus avoiding a contraction for households. We can illustrate sector-specific tools by adding an index (S) for sector-specific tools: itlending it t , S ( z t ,S ) ,S It might be assumed that macroprudential policy ought to reduce the need for monetary policy to lean into the wind. This is true to a certain extent. Macroprudential policy is important in offloading monetary policy. If the macroprudential policy tools can increase the interest rate margin, the policy rate can be put at a lower level than would otherwise have been possible without an increase in credit growth. Monetary policy can thereby stimulate a faster economic recovery through other channels, like the exchange rate channel, without risking the financial stability. However, in practice there is a limit to how much prices on different credit markets can be affected through regulation, and how much lending rates can thus diverge from the monetary policy rate. If the divergence is too wide, incentives to circumvent the regulations are also great, i.e. conducting regulation arbitrage. | The most important indicator in this assessment is the credit gap, which is a measure of how much credit growth deviates from its long-term trend. The reason for the credit gap having gained a key role in the assessment is that it has proven to be the indicator that warns of an impending crisis best and sufficiently early. A pure mechanical application of the credit gap can provide a certain guide to when the capital requirement would have been activated (see figure 1).6 Figure 1. Time periods when countercyclical capital buffers should have been activated based on historical measures of the credit gap (per cent). 3 2,5 2 1,5 1 0,5 0 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 Countercyclical buffer Households Non-financial corporations Note: The calculations are based on a mechanical application of the credit gap approach. We can see that the requirement would have been activated on two occasions. The first time would have been a few years before the banking crisis of the 1990s, and the second time around 2005, that is just before the global financial crisis. We can also see which lending makes the credit gap grow by applying the approach separately to different sectors. The driver of activation of the capital requirements in the 2000s is mainly the household sector. | 1 |
Fourth, expert views are inevitably incorporated into projections and there can be good reasons at any moment of decision-making to deviate from the particular views or approaches on which they are based. The two-pillar approach chosen by the Eurosystem - including a prominent role for money as the first pillar - is, to some extent, a reflection of these general limitations of forecasts and projections. I should stress that, because of these limitations, the second pillar of the ECB’s strategy also includes other forms of analysis in addition to macroeconomic projections. First, the ECB’s projections are cross-checked and compared with forecasts produced by others, such as international organisations and private sector entities. Second, the forward-looking information and expectations embodied in financial prices and yields is thoroughly analysed and evaluated. This information can also be compared with the staff projections. Finally, any information that is not contained in the staff projections for practical or timing reasons - such as the latest available outturns of certain data series must also be incorporated into the overall assessment. Developments in individual indicators are also closely followed outside the framework of the forecasting exercise. It follows from this discussion that the Governing Council does not use its staff projections as the main tool for organising and communicating its assessment. Rather, the Governing Council evaluates them alongside - and compares them with - many other pieces of information and forms of analysis organised in the two-pillar framework. | Banks should extend all necessary assistance to help these groups to migrate to the e-payment platform. To realise the full potential of the payment network, banks that offer cheque issuing and ATM cash withdrawal facilities should provide the full suite of funds transfer and electronic payment functionalities over the ATMs. Of the 20 banking institutions that offer ATM services, 17 of them today provide the IBFT service, a real time interbank funds transfer service that enable customers to transfer funds via the ATM in a safe and secure manner. Banking institutions are strongly encouraged to also offer the Interbank GIRO (IBG) via their ATMs as a lower cost option to the IBFT. With over 1,400 new ATMs deployment by MEPS over the next 5 years, in addition to the current 12,000 installed nationwide, there is a significant potential for the ATMs to be used as convenient access points to the public to conduct electronic payment and funds transfer transactions. The widespread availability and reach of the ATMs network should serve the needs of the public not just in the urban areas but also in the rural towns. ATM cards to be used for purchases at Point-Of-Sale terminals Whilst Malaysia has a population of about 29 million, we have a high penetration of 39 million ATM cards. The ATM cards issued by banks that are used for cash withdrawals also have the domestic debit card application which can be used at merchants’ Point-Of-Sale terminals to make purchases. | 0 |
If the Riksbank has not succeeded in building confidence, it would be much more difficult to conduct monetary policy today. I suspect that today's high inflation would have more easily become entrenched and been able to start a price-wage spiral. In that case, the Riksbank would have had to raise the policy rate even more this year, which would have resulted in a greater slowdown in the economy. The purchases in phase 1 may thus have reduced the risk of such a scenario. Is the Riksbank’s financial independence threatened? The valuation losses in Table 1 cannot be directly transferred to an annual result.36 However, since the value of the Riksbank's assets has fallen rapidly, the Riksbank will most likely report a major financial loss this year37 It is not unlikely that the Riksbank's reported equity in the next financial statements will be negative, at least if one disregards unrealised gains in the revaluation accounts for gold and foreign currencies (see Table 4) The fact that capital is shrinking or even becoming negative need not be a problem for a central bank. Some central banks, such as the Federal Reserve and the Bank of England, hand out all of the surplus to their principal and therefore have no capital except a small base fund and any risk provisions. And some central 35 The calculation is based on an alternative where the policy rate is the same. | For example, providing government guarantees for all bank liabilities in one jurisdiction prompted outflows of deposits from other jurisdictions, requiring similar guarantees to be offered elsewhere. This may have resulted in an overall level of intervention that was unnecessarily intrusive and undesirable in terms of the incentives created in the financial sector. In short, the existence of considerable externalities and scope for significant spillovers within a financially integrated region like the euro area may have led to individually reasonable actions resulting in a collectively inferior outcome. Recognising these concerns, the EU institutions have stepped in to ensure that an area-wide perspective, internalising these externalities, is adopted. As we have seen, coordinating both public and private behaviour to achieve a favourable outcome in a multiple equilibrium setting requires both clear and credible programmes at national level, and support and coordination at EU level. After a somewhat hesitant start, the European Union is now moving towards a stronger institutional framework to support this approach. Looking beyond the horizon of existing programmes, the crucial longer-term macroeconomic and financial discipline requires further institutional change and integration, notably an enhanced Stability and Growth Pact, and the introduction of a new and more effective system of macroeconomic surveillance across EU Member States. The creation of the European Systemic Risk Board to conduct macro-prudential surveillance and the three new European Supervisory Agencies for the financial sector also aims to improve the quality and coordination of financial regulation and supervision. | 0 |
However, the ability of Asian banks to continue to take up the slack could be constrained by the already high loan-to-deposit ratio and limited access to US dollar funding. More importantly, it is doubtful whether these non-European banks would have the appetite to take up long-term project and infrastructure financing, which is a specialised business traditionally dominated by the European banks. Any cutback in infrastructure financing could have serious repercussions for developing Asia, which has a strong need to build and upgrade infrastructure networks to promote sustainable growth, create employment opportunities and boost competitiveness. ADB estimates that Asia requires as much as $ trillion in overall infrastructure investment between 2010 and 2020, with an average of $ billion in annual infrastructure spending. It is therefore vital to further develop the capital markets in Asia, in particular the local-currency bond markets, to effectively channel the region’s vast savings to meet its huge demand for infrastructure financing. Asian governments have been making efforts to develop the bond markets. At the national level, initiatives such as consolidation of issuance in a few benchmark maturities and development of interdealer markets have helped increase liquidity and improve reliability of yield curves in a number of jurisdictions. Meanwhile, collaborative efforts are being made in regional forums. A notable example is ASEAN+3’s Asian Bond Markets Initiative with the strong support from ADB. The Initiative has been looking into both demand and supply side issues pertinent to the development of the bond markets. | The time horizon typically extends to two years, or a more ambiguous definition as “medium term.” As long as medium-term inflation expectations remain anchored, the monetary policy helps to reduce the volatility of other variables. In addition, a FIT regime also requires a flexible exchange rate, so monetary policy can be conducted independently. However, a proper FIT should help to stabilize the currency as long as monetary policy should move leaning against the wind. For example, a persistent depreciation of the currency, other things equal, should increase the inflation forecast, although much more moderately than in rigid exchange rate systems. This effect should call for a tightening of monetary conditions, reducing pressures against the currency. Many times it has been argued, especially in non-professional discussions, that inflation targets ignore output fluctuations. As I just argued, this is a mistake. Flexible inflation targets take into account activity and employment, and this is implicit in the choice of the time horizon. Moreover, a credible inflation target is efficient in terms of minimizing the tradeoff between output and inflation fluctuations, and also helps to reduce real exchange rate volatility. Indeed, a flexible inflation targeting regime can maximize welfare and perform much better than an exchange rate or monetary target. What variables should a central bank consider when setting the interest rate? In the regime I just described, the answer to this question is pretty simple: anything affecting inflation over a two-year horizon. | 0 |
The most critical challenge emerging Asia faces is to build economic and financial infrastructure fast enough to properly harness the growth energy and put these capital into productive use. Without adequate financial infrastructure, namely market and legal infrastructure, and financial literacy, there is potential risk that emerging Asia cannot absorb such flows. This could result in misallocation of resources, including asset bubbles and instability. In parallel, public investment in infrastructure projects, as well as social investments in education and healthcare, are keys for increased productivity and economic upgrade. The challenge lies in getting the right balance between growth and stability, in managing large and long-term financing, increasing public investment, while keeping financial discipline. These are complex issues on how to ensure efficient resource allocation. A key strategy is to enhance the role of the market mechanism of the financial sector in Asia to rise to the challenge, and to act as check-and-balance on public policy. In closing, we are at an important turning point where we face paradigm shift. This is one of the realignment of relationship between the market, regulators, and society. In crisis countries, the balance of the relationship between the financial industry and the society shifts because the cost of financial crisis is born by the society. In emerging Asia, public policy including financial regulation comes under pressure from social demand for financial access as well as consumer protection. These naturally accompany the take-off in growth as a result of economic and financial liberalization. | While these measures have merits in safeguarding financial stability, they could have complex and cross-border impact. Even on the monetary policy front, unconventional measures are becoming more conventional. Central banks in the major economies have increasingly used unconventional monetary easing. Though necessary to stabilize their economies at this juncture, these policies have side effects of large and volatile capital inflows into Asia. This further BIS central bankers’ speeches 1 complicates safeguarding of financial stability in other countries including Asia, and could, in turn, trigger some countries to resort to macroprudential measures themselves. Thus, in terms of policy space, we are dealing with a new paradigm of expanded policy tools, with new transmission mechanism, and requiring their own policy framework and governance. So we need to recognize the need for crossborder coordination as well as flexibility in execution given emerging uncertainty. Turning to the more medium-term structural issues, major regulatory reforms especially Basel III, Financial Stability Board reforms, and Dodd-Frank Act are still a known-unknown. We do know that they are designed to redress weaknesses that caused the crisis by enhancing capital and liquidity, while addressing the problems of procyclicality, and too-big-to-fail of SIFIs. For this, their merits are well recognized. But these reforms will reshape the global financial landscape and raise cost of financial intermediation. They will also have implications for cross-border level playing field, regulatory arbitrage, and alter risk profile of banks. | 1 |
But what can be said so far is that we in Sweden have already been in the situation that other countries may be about to enter and have had, for some time, the debate that may be on the horizon there. In this respect, we are, in a sense, ‘ahead of the cycle’, both as regards the development of inflation and the monetary policy debate. It could therefore be worthwhile to summarise our experiences so far. Maybe there will be a few lessons that other countries and central banks may find useful and that have implications for the international debate. So let me start there. When I discuss the lessons that I think we have learned, I would like to divide the period after the global financial crisis into two different sub-periods and discuss them separately: the period of falling inflation 2011–2014 and the period of rising inflation 2015–2017. I would like to emphasise that, as usual, I am expressing my personal opinion. It is possible that my colleagues on the Executive Board have come to the same conclusions as I do here, but it is also conceivable that they have made a different interpretation. See Jansson (2016), where I discuss the criticism of the inflation target in more detail. It should be emphasised that this was one type of criticism that was expressed. In the speech, I also address other types of criticism, with less far-reaching implications. 4 Yellen (2017b). 5 Brainard (2017). 6 Draghi (2017). | If this has boosted loan demand, the successful policy of inflation targeting has been partly responsible. But so far this is just a hypothesis. It is important, however, for households to feel certain about how large their future payments will be. An international comparison suggests that household demand for home loans depends on how the market is structured and particularly on the availability of instruments for households to manage their interest rate risk. Demand mounts in line with the opportunity to manage risk. In the United States and Denmark, households can fix the interest rates on their mortgages for long periods and also refinance these fixed-rate loans at a reasonable cost should interest rates fall. In Denmark, households’ debt ratio is more than 180 per cent, compared with 120 per cent for Swedish households. This is despite the fact that the country has roughly the same proportion of homeowners as Sweden. The supply of mortgages has increased, too. According to the new capital adequacy rules, Basel II, mortgages will be given a lower risk-weighting than today, which means that banks’ capital requirements will be lower if they hold a large proportion of mortgages. The adjustment to this has started already, thus toughening the competition and depressing lending rates. Households have also become an increasingly important borrower group for the major Swedish banks. Lending to households now comprises a little more than 40 per cent of the banks’ total lending. | 0 |
4 BIS central bankers’ speeches mortgage and real estate markets? In my opinion, the answer is no, since, in a longer-term perspective, mortgage rates are still at very low levels. And imbalances on the mortgage and real estate markets remain high. Chart 7a illustrates this using the relationship between developments in real estate prices and rents, while chart 7b does the same using the ratio of outstanding mortgages to GDP. In addition, despite a slight rise in mortgage rates, there are a number of other channels through which the prevailing low interest rate environment could further increase the risks to financial stability. I would now like to look at three of these risks in greater detail. Risks to financial stability First, in the real estate market, there is an increasing focus on movements in the prices of residential investment property. Both private and institutional investors, such as pension funds and insurance companies, can boost the demand for real estate investments even further, either through the search for yield, or because of a lack of other investment opportunities. Yields on real estate investments continue to be well above those on alternative investments, as shown in chart 8a, which compares yields on ten-year Confederation bonds with those on investments in residential real estate.5 This yield difference could cause demand to stay high for the near future, thereby pushing prices up even further. | Dimitar Bogov: What could SEPA bring for the banking and the real sector in the Republic of Macedonia Speech by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the event “What could SEPA bring for the banking and the real sector in the Republic of Macedonia”, organized by The Banking Association at the Economic Chamber of Macedonia, in cooperation with the European Banking Federation (EBF), Skopje, 13 May 2014. * * * Honorable Mr. Stavreski, Vice President of the Government of the Republic of Macedonia and Minister of Finance, Honorable Mr. Janchevski, Chairman of the Banking Association of the Macedonian Economic Chamber Distinguished guests from the banking sector in the Czech Republic Dear representatives of the banking and the real sector in Macedonia Ladies and Gentlemen, One of the primary functions of each central bank is to create conditions for stable, reliable and efficient operation of the payment systems. To achieve this function, and according to the best practices of central banks of the EU Member States, the National Bank performs four basic roles in the payment systems: operational, supervisory, development and catalyst role. The successful performing of these functions is closely related to the importance of payment systems for a national economy. The proper functioning of the systems for large payments, which are owned and managed by central banks, is important for the effective monetary policy conduct. | 0 |
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