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BIS central bankers’ speeches 11 These alternative models of corporate governance offer a different balance of power between capital and labour. Indeed, the distinction between the two is blurred: the owners of, and workers for, the robots are in effect one and the same. These governance structures may allow a more equitable distribution of robotic rents and generate greater value for the companies themselves and for wider society. Turning to the nearer-term, what if any implications do these labour market trends carry for the economy and monetary policy? Last week, the MPC set out its view in the quarterly Inflation Report. This painted a picture of solid UK growth, alongside subdued price pressures. The UK is growing roughly at trend, but inflation is 2 percentage points below target. The picture among other advanced economies is not greatly dissimilar. The UK inflation picture is relatively easy to explain, at least in an accounting sense. The lion’s share of inflation’s weakness is accounted for by external factors – weak world prices and a strong exchange rate. These factors are themselves in part a reflection of weak world demand, pushing down the prices of oil and other commodities. The impact of external disinflationary pressures on UK inflation is thus likely to be persistent. Nonetheless, in time these external pressures should wane. What will then determine UK inflation is the evolution of domestic costs, specifically labour costs. The UK labour market has been hard to read over the past few years. | This workshop will provide an opportunity for all GCC organizations in the statistical community to share national experiences, and lead discussions to identify areas for mutual cooperation for further improvement in data production and presentation. I may emphasize here that timely availability of reliable and mutually consistent national data would be of great help to the GCC Monetary Council in its task of preparing for the achievement of the ultimate goal of GCC Monetary Union. It will also provide the basis for judicious policy formulations even after the establishment of the Monetary Union for the region. I therefore urge you all, to actively engage in workshop discussions to fully understand these matters, come to useful conclusions and make your deliberations fruitful. Dear Participants I hope that by the end of the workshop you will have achieved at least the following two objectives: 1. Sufficient statistical insight to effectively address burgeoning data-related issues and concerns, and be in a position to produce intended statistical forms and table, and; 2. Identification of some future work based on mutual cooperation. I thank you all for your attention and wish all a productive and rewarding workshop. 2 BIS Review 170/2010 | 0 |
Above and beyond this, in taking on the market maker of last resort function, a central bank assumes significant financial and reputation risks. To summarise, the direct and indirect costs of this kind of market intervention need to be weighed up against the overall economic costs of a system-wide implosion of liquidity. At a time of significant stress in the system, we must probably retain a second line of defence of this kind for use when needed, if we are to carry out our task of ensuring sustainable welfare growth in the spirit of our mandate. However, liquidity or market assistance of this kind needs to be examined carefully, case by case. It must be planned as a distinct supplement to the first line of defence and clear principles laid down in connection with its provision. Last but not least, it must only be used to “kick-start” a market that is fundamentally capable of survival. Taking on a permanent market replacement function is something that should, fundamentally, be avoided. 11 Conclusion Ladies and gentlemen, I now come to the conclusion of my remarks today. The accumulation of systemic risk represents a serious threat to the stability of financial systems. It is therefore important, on the one hand, to recognise this risk at an early stage and, on the other, to develop measures capable of containing it. I have spoken about four fundamental criteria for evaluating measures of this kind. | If we want central bank control over leverage to be stronger in the future, shadow banks need to be part of what we consider “banks” tout court. In fact, by 2007 the size of the official and shadow banking systems, measured by the total amount of assets, had become essentially the same. 3 But there is also an issue of quality – or, if you prefer, of composition – of finance. Due to the increased risk aversion resulting from the financial crisis, collateralised lending is bound to increase in the future, even in markets where traditionally unsecured lending was the most important source of finance (e.g., the euro area interbank market). As a consequence, the demand for securitised assets – of the type that shadow banks have learned to create in the past – is set to increase further in the future, as institutions demand such types of debt to use as collateral. To put it in a nutshell, we will continue to need the functions, the financial products and the expertise that the shadow banks have been offering. But, we need to make sure that these activities are performed in a non-disruptive way. The new financial landscape can also reinforce the effectiveness of monetary policy. I already mentioned that most of the funding of financial institutions – whether banks, brokerdealers, hedge funds or shadow banks – is short-term. In other words, a key function of the financial system is maturity transformation. | 0 |
A model will never be able to provide an exhaustive description of reality, but a good macro model can and should be a framework for ratiocination. In this way, the model plays an important role in the analytical basis for interest rate setting. At the same time, there are many questions and conditions about which we are uncertain and where models cannot help us. For example, we do not know whether the high rate of growth in productivity is a permanent phenomenon or whether it will gradually fall back. We have little precise knowledge about what is driving productivity growth. It may be that we are seeing a period of equilibrium with higher employment, lower unemployment and lower wage shares than earlier. But we are uncertain how long this period will last. Even if we use different models and anecdotal information, we cannot escape the need for a healthy portion of qualified judgement when making forecasts and setting the interest rate. My experience from as far back as the 1970s is that in the event of major disturbances and structural changes in the economy, one essentially has to rely on general insights about the functioning of the economy. Models that rely heavily on regressions easily break down. | This symmetry means that both negative and positive deviations from the target are equally undesirable. The ECB too points out that the marked decline in the equilibrium real interest rate has meant that the effective lower bound for nominal interest rates is likely to limit monetary policy more often. It also emphasises that one consequence of this is that strong or sustained monetary policy measures are needed when the interest rate is close to the lower bound to avoid negative deviations from the inflation target becoming permanent. It also notes that the new strategy may mean that inflation periodically will be above the target, but, unlike the Federal Reserve, it has chosen not to introduce an average target.7 Mutual dependence We have thus seen that a prerequisite for fiscal policy and monetary policy to be effective is that they have a stable long-term foundation. For fiscal policy, there must be confidence that public debt is stable over the long term and, for monetary policy, there must be confidence that the central bank can keep inflation low and stable. In order for monetary policy to be able to use the policy rate to counteract economic downturns and increased unemployment, it is also necessary for average inflation not to be too low. | 0 |
As this discussion illustrates, the literal-but-symmetric interpretation of the MINIMAX approach to robust monetary policy would imply very ‘activist’ policy responses in the face of uncertainty. In this framework, from having their foot to the floor with the monetary accelerator, policymakers might have to switch in short order to stamping on the monetary brake. Unsurprisingly, on my reading, that characterisation also finds little sympathy in policymaking circles. In the interests of avoiding tail outcomes, such activism threatens to induce volatility into monetary policy, financial markets, the economy and inflation in other circumstances, which is both costly and hard to communicate. But the research on monetary policy and uncertainty as a whole has influenced the discussion and conduct of policy in practice. I would pick out a number of lessons that have been drawn. The magnitude and evolution of uncertainty and risk can, do and should influence monetary policy decisions. Not all uncertainty is the same. The way uncertainty influences monetary policy decisions depends on the circumstances and the nature of the uncertainty – its source, its persistence, its magnitude – that is being faced Monetary policy should not be paralysed in the face of uncertainty. If policymakers were to wait until all uncertainty is resolved before taking decisions, they would wait forever. At the same time, there is no general rule that says policy responses should either be attenuated or more activist in the face of uncertainty. | 16 All speeches are available online at www.bankofengland.co.uk/news/speeches 16 Charts Chart 1: The social loss associated with different monetary policy rules under different calibrations of lambda Source: Bank calculations Chart 2: The relative performance of level-based and difference-based rules under different relative importance of persistent vs temporary shocks Source: Bank calculations 17 All speeches are available online at www.bankofengland.co.uk/news/speeches 17 Chart 3: Impact of a persistent risk premium shock that is misjudged to be temporary Source: Bank calculation Chart 4: Impact of simultaneous persistent and temporary risk premium shocks (relative weight 2.3 times) Source: Bank calculations 18 All speeches are available online at www.bankofengland.co.uk/news/speeches 18 Annex: Model specification This model is based on a variant of a model developed by Harrison, Seneca and Waldron. It consists of 5 basic equations. IS curve: 𝑦̃𝑡 = 𝐴𝑦̃𝑡−1 + 𝐵𝔼𝑡 𝑦̃𝑡+1 − 𝐶(𝑖𝑡 − 𝔼𝑡 𝜋𝑡+1 − 𝑟𝑡∗ ) Phillips curve: ∗ 𝜋𝑡 = 𝐷𝜋𝑡−1 + 𝐹𝔼𝑡 𝜋𝑡+1 + 𝐺[𝐻(𝑦̃𝑡 + 𝑦𝑡∗ ) + 𝐽(𝑦̃𝑡−1 + 𝑦𝑡−1 ) − 𝐾𝑧𝑡 ] + 𝑢𝑡 Potential output 𝑦𝑡∗ : ∗ 𝑦𝑡∗ = 𝐿𝑧𝑡 + 𝑀𝑦𝑡−1 Natural rate 𝑟𝑡∗ : ∗ ∗ 𝑟𝑡∗ = 𝑁𝑦𝑡−1 + 𝑄𝑦𝑡∗ + 𝑆𝔼𝑡 𝑦𝑡+1 − 𝜈𝑡 where all capital letters denote functions of underlying parameters, 𝑦̃𝑡 is the output gap, and the risk premium 𝜈𝑡 , the cost-push disturbance 𝑢𝑡 and productivity 𝑧𝑡 follow exogenous autoregressive processes. | 1 |
This is one instructive example of how consumer or investor bodies, such as CASE, can play a useful role bringing together and articulating the common concerns of consumers. The second example is structured deposits. Structured deposits have become a popular new investment instrument providing the chance of higher returns than conventional fixed deposits, in exchange for the risk of lower returns if the bet turns out wrong. However, the calculation of returns and risks on such products may be complex. The average retail investor may not understand what the outcome depends on, much less judge the odds of things working out in his favour. Investors may also be misled by the assumption that, being deposits, such products are very safe. Nevertheless, MAS has not prohibited such structured deposits, because that would restrict investor choices and would benefit neither the industry nor the consumers. But under our disclosure-based philosophy, it is important that consumers understand exactly what they are buying. So MAS has proposed guidelines for full and meaningful disclosure of the risks involved, including reasonable illustrations of potential benefits, and clear explanations of any limits on returns. We have also required banks distributing such products to treat these as investment products rather than deposits which can be sold over-the-counter by bank tellers. These guidelines are currently under consultation. MAS will monitor how the market develops to see if further action is required. Going forward, we will produce educational materials to help consumers understand these products better. VI. | We now expect the economy to grow between 0.5-1% this year. But we believe that in the short-term recovery will still be less vigorous, compared to previous cycles. This reflects the continuing restructuring in the Singapore economy, particularly in low-end manufacturing. However, both the manufacturing and services sectors appear poised to ride the recovery and next year we expect GDP growth to pick up to 3-5%. 1 Source: Asian Development Bank. 2 The Business Times, 30 Oct 2003 “KL’s growth will average 6% in 2004-05: Mahathir”. 3 The Business Times, 24 Oct 2003 “Global economy bouncing back, says IMF”. 4 The Business Times, 5 Sep 2003 “East Asia will be fastest with 6.1% growth in 2003”. In the financial services sector, stock market activity reached record levels, with fund management and corporate finance activity also growing strongly. Following several negative quarters, the financial sector started growing again in the second and third quarters. As a result, growth in the first three quarters of this year averaged about 2.5%. The sector should register moderate growth for the rest of the year, and strengthen further into 2004. Prospects for Singapore’s financial centre What does the improved economic and financial outlook mean for Singapore’s financial sector? Back in 1998, when the Financial Sector Review Group was developing strategies for growing the financial sector, we thought that Singapore could become an international financial centre for certain activities, like London. For example, we were already the fourth largest FX centre in the world. | 1 |
Among cryptoassets are what are generally known as cryptocurrencies, conceived for use as a means of payment, and those known as digital tokens, conceived for obtaining financing and which confer on the purchaser the right to receive remuneration, or to exercise certain rights. The Bitcoin is an example of the former. The so-called ICOs (Initial Coin Offerings) are an application of the latter. Both have been the subject of growing interest, and there are at present numerous and highly heterogeneous initiatives. While their impact so far on global financial stability is considered to be limited, they pose a series of risks, in areas such as consumer protection and the prevention of moneylaundering and the financing of terrorism, which the authorities monitor closely and on which they have issued warnings and statements. In this connection, it should be stressed that these are assets of a marked speculative nature, without the backing of supervisors and susceptible to fraud or price manipulation. They cannot be considered as money or as deposits, and they do not enjoy the protection of the regulations governing banking and investment products. It is worrying that, in a setting in which less than half the population understands the concept of compound interest rates, there is such demand for complex assets with these characteristics. Lastly, I wish to refer to the risk of authorising – owing to a lack of knowledge or of due care – access to personal information that would preferably have been kept private. | Without losing sight of the interest this seminar has in the challenge the new technologies pose, I would like to focus today on another major challenge that is not exclusive to the banking industry but applicable to everybody: financial education. Allow me first to set out, non-exhaustively, some of the results drawn from the Survey of Financial Competences presented by the Banco de España and the CNMV last month. I shall then refer to how important it is to continue dedicating efforts to financial education, especially in the current context of financial innovation. The Survey of Financial Competences The Survey of Financial Competences, which is included in the National Statistics Plan, adapts for Spain a questionnaire devised by the International Network for Financial Education, coordinated by the OECD. The aim is to measure, in an internationally comparable way, the financial competences of the population aged 18 to 79. The Survey measures these competences from different perspectives, and obtains information on: (i) financial literacy; and (ii) knowledge, holding, acquisition and use of financial products. To measure financial literacy, the Survey poses questions on three basic financial concepts: i) inflation; ii) compound interest rates; and iii) risk diversification. | 1 |
Moreover, the study finds that measures such as attracting foreign workers and raising the retirement age from 60 to 65 have only small impact at boosting the economy’s long-term growth and that the key to maintaining high growth rate lies in enhancing productivity growth rather than trying to squeeze out more hours from the aging population. While improvement in educational and skill attainment of the labor force and de-bottlenecking of inefficient sectors such as improvement in the logistic system and water management for irrigation are most obvious policies, financial deepening must not be neglected. It is the efficiency of resource allocation which includes funds and capital that enhances economic productivity, hence, raising the economy’s long-term growth potential. This is the focus of the rest of my talk to which I now turn. Ladies and Gentlemen, As you know, the fundamental function of financial markets and intermediaries is to channel funds from those who have a surplus of savings to those who have a deficit. If financial markets are functioning efficiently, they contribute to an optimal allocation of resources, reduce the cost of capital, and allow for risk-sharing and risk-diversification. Well-developed and efficient financial markets contribute to higher productivity growth because they are better at channeling capital from sectors in decline to those with growth opportunities, in a BIS Review 118/2008 3 process of Schumpeterian “creative destruction” that ultimately drives economic growth. | In pursuit of this we look at factors affecting the underlying robustness of the financial system, as well as potential “triggers” which, especially at times of structural weakness, could bring on a crisis. Our remit is of course in relation to the UK financial system – but this work has a substantial international dimension, given the openness of the UK economy, and the international character of much of the City. What does this mean in practice? The Bank’s financial stability work include such things as overseeing the UK payments systems; analysing broader developments in the banking, securities and insurance sectors, and the evolving strategies of London’s securities exchanges; looking at developments in emerging market economies; and contributing to the debate on the reform of the international financial system. In short, the Bank’s financial stability team has to analyse and respond to any developments – market or institutional; structural or temporary – that could threaten financial stability. Our second relevant core purpose is to promote the competitiveness of the UK financial services sector. This is not a lobbying function; we are concerned with the promotion of effectiveness and efficiency, not the acquisition of favours. Nor is it a responsibility exercised only in respect of UK owned firms. The UK financial services sector is more truly international than that in any other country in the world. The Bank, and the other authorities in the City, have an unwavering commitment to openness, and the provision of a level playing field to all firms regardless of nationality. | 0 |
Under these circumstances the Riksbank has chosen to use currency interventions to underscore that the movements in the krona’s exchange rate have been unduly abrupt and exaggerated. BIS Review 80/1998 | I’ll highlight two areas where markets have evolved in ways that raise questions about their resilience, even if all the intermediaries are safe. They might mean investors aren’t able to take the liquidity of markets for granted if they adjust. In both cases, there is no proven problem for markets or the economy. Inquiries are, as the police like to say, ongoing. Through our market intelligence gathering, I’m pleased to say that market participants are helping with those inquiries. And I look forward to the contributions of this Centre too. i) (Mis) use of volatility measures Against a backdrop of relatively stable markets, some investors may have developed an appetite for betting that a range of markets, including bond markets, will remain stable. 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 That means selling options – effectively insurance against moves in market prices. A put option, for example, is insurance against falling prices. An investor who buys this insurance is guaranteed a sale price for the asset insured, regardless of what happens to the market. If prices are currently higher but then fall below the guaranteed price, an investor that wants to sell will incur some loss – think of this as the insurance excess – but the insurer will pay for the rest. If markets stay stable, as the insurer is betting they will, no payout is made and the insurance collects a premium. While markets are stable, it’s a nice little earner for the insurer. | 0 |
In spite of the island-wide CIT system introduced by the Central Bank and LankaClear, some banks prefer to send physical cheques through courier services to Colombo from outstation areas, where LankaClear regional offices operate. We are not certain yet whether bank customers get the T+1 facility for which the system was intended. 4 BIS Review 13/2008 Although the main purpose of the CIT system is to clear outstation cheque transactions, it is noted that the full benefits of this technology are not passed on to customers by way of speedy cheque clearing due to reluctance by some banks to upgrade their cheque imaging technologies partly because of the cost of acquiring new machines or for reasons known only to banks themselves. What is clear is that sophisticated and modern IT development has not been customer centric, aiming at reducing their transaction costs or enhancing service. The situation has improved after much persuasion by the Central Bank, but not through initiatives taken by banks. 8. Staying ahead 8.1 The banking sector is being driven by globalization, consolidation and convergence across the world with the pressure focused on achieving increased shareholder value through measurable investments in technology, cost reduction and performance management. Customers today require easily accessible services operating on a global platform, while investors strive for optimizing and maximizing returns. Successful banking institutions stay ahead and set the trends by adapting to market shifts, being proactive, keeping up with customer demands, and implementing change. | Rapid advancement and gains to the banking sector 1.1 Overall, technological innovation has brought about the speedy processing and transmission of information, easy marketing of banking products, enhancement of customer access and awareness, wider networking and, regional and global links on an unprecedented scale. IT development has thus changed the product range, product development, service channels and type of banking services, as well as the packaging of such services, with significant efficiencies not only in the banks, but also the ancillary and feeder services to banks. The financial services industry has thus become virtually dependent on IT development. Most banks make visible efforts to keep up with new systems and processes. 1.2 The development in ICT has enabled banks to provide more diversified and convenient financial services, even without adding physical branches. The present day ATMs are more sophisticated machines that can scan the customer and a bank teller, accept cash or cheques, facilitate customer application for loans and allow for face-to-face discussion with a service representative via video. 1.3 The development of Internet services, which is an extensive, low-cost and convenient financial network, has facilitated banking services to customers, anywhere and anytime. Along with Internet and Web-based services, a need for changing core banking architecture has emerged. The introduction of new core banking systems by some banks and their links with the improved telecommunication network has enabled banking transactions to be done on-line, in contrast to the batch-processing mode used earlier. | 1 |
Housing transactions and mortgage approvals have started to show signs of life. House prices have picked up. A healthy housing market is good for our economy and will help to support the recovery. Most importantly, it will underpin further increases in house building, which has played an important role in driving the economic growth we’ve enjoyed this year and which, as a nation, we need to see. It will foster greater labour mobility by allowing people to move more easily to where new jobs are being created. It will help to support consumer confidence. But let’s not be naive. Anyone with more than a passing interest in British economic history is aware that the UK housing market has a sort of microwave type quality to it, with a tendency to turn from lukewarm to scalding hot in a matter of a few economic seconds. The Bank is fully aware of this risk. The good news, however, is that it’s far better equipped to respond to these types of risks than in the past. In particular, the new Financial Policy Committee (FPC) – the sister Committee to the MPC – has explicit responsibility for maintaining the resilience of the financial system. And, together with the other regulatory bodies, the FPC has the policy instruments which can address potential excesses in the housing market – and in other markets – which pose a threat to the stability of the financial system. | The global economic crisis, which deeply affected all countries of the region, was accompanied by slowed exports, reduced remittances and other foreign currency inflows, increased uncertainty and slowed credit growth. Although 2010 is expected to be accompanied by a gradual improvement in the world economic environment, many of the factors that negatively affected the Albanian economy will continue to be present even during this year. The stimulating fiscal and monetary policy helped supporting the economic activity during 2009. However, fiscal trajectories and the need for long-term stability suggest that the Albanian economy can not rely for a long time on fiscal stimulus. Against this background, in 2010 a more conservative fiscal policy is necessary and is welcomed by the Bank of Albania. In a medium- and long-term horizon, we are of the opinion that fiscal sustainability should be ensured through a clear and prudent fiscal rule. Under new circumstances, the economic growth should be based more on boosting the private sector of the economy and bank credit plays a key role in this regard. The good financial health of our banking system and the progressive improvement of liquidity conditions and risk premiums in domestic and foreign financial markets are encouraging developments. The easing of monetary conditions and the liquidity injections by the Bank of Albania have supported and will further support this process. | 0 |
In concrete terms: • the management structure of the Bank of Albania was completed; • the Audit Committee, composed of three Supervisory Council members, started its activity; • the Inspector General resumed reporting to the Supervisory Council; • the Medium-term Development Strategy and Medium-term Budget for 2016–18 were approved; • the new organisational structure was approved; • the head offices renovation and construction works were completed; • and the Museum of the Bank of Albania was launched. These highlights contributed to strengthening good governance, accountability and subsequently enhancing public confidence in the Bank of Albania. The monetary policy intensified the simulating stance during 2015. The Bank of Albania lowered the key rate twice, continued to inject the necessary liquidity in the financial markets and clearly communicated the future monetary policy stance. Our monetary policy was successful in easing the financing conditions in the economy and helped in the return of the Albanian economy to a positive development track. In particular, interest rates on new lek loans and servicing costs of existing credits fell. Lek credit increased, offsetting the continuous fall of the credit portfolio in foreign currency. Also, the share of lek credit in the total credit portfolio has been increasing, from around 28% in 2008 to 43% in 2015. These actions have played a vital role in accelerating the economic growth during the last two years. During 2015, the banking system continued to expand its activity. | Suitable arrangements will also be introduced to ensure that relevant or equivalent experience and expertise in the cybersecurity field will be appropriately recognized. Cyber intelligence sharing platform 8. Last but not least, the third pillar of the CFI is to develop a new piece of infrastructure for the purpose of sharing intelligence on cyber attacks. Just like any conventional warfare, intelligence is the key to success. While individual banks can develop their own intelligence network, the coverage of such intelligence and the timeliness of receiving cyber attack alerts may at times be limited. At the same time, the entry barriers for launching cyber attacks, in terms of costs and the hardware and techniques required, have become much lower. The speed in which hackers may launch cyber attacks, which may well be targeting at not just one bank but several banks at the same time, has greatly increased. So it will be of great help if the banks could collaborate by proactively sharing information and intelligence of cyber attacks or the imminent threats of such attacks. The timeliness of receiving alerts or warnings from a commonly shared intelligence platform will be of immense help for banks to prepare for cyber attacks even before they are launched. 9. I am pleased to announce that the HKMA, in collaboration with The Hong Kong Association of Banks (HKAB) and ASTRI, is going to launch a Cyber Intelligence Sharing Platform, with access open to all the licensed banks in Hong Kong. | 0 |
Regulators and supervisors should try to make the playing field as level as possible and certainly be on the look out for regulatory distortions which unduly favour the creation of particular products or limit the creation of other welfare-improving innovative instruments. But the market place should decide which products match issuer and investor desires once all risks are correctly priced. 44 Looking into a crystal ball what are some of our expectations for future financial market developments? We will put forward 7 suggestions: • First, there will be additional focus on simpler, more standardised products. For example, it would be a surprise and probably undesirable if mezzanine resecuritisations were to reappear. Simpler products should be easier to understand and therefore less prone to radical changes in expectations of their likely performance. Improved stability of expectations should help sustain market liquidity during periods of stress. Standardised products also economise on information requirements and therefore also improve liquidity in secondary markets. • Second, products will be more transparent in design and content, to improve the ease of monitoring and hence lower information costs. Increased transparency should not be confused with reams of data. The issuance documentation for many securitisations often contained a barrage of statistics. For CDOs of ABS, these documents could run to thousands of pages given that the documentation for each underlying ABS could already comprise of hundreds of pages. Any investor with the appetite to conduct due diligence would have found this volume of information completely indigestible. | And notwithstanding the current squeeze on the availability of credit (and withdrawal of many products), households have also benefited from a significant expansion in the range of saving and borrowing products compared to the position 20 years ago. 14 The practical examples described above clearly demonstrate the benefits of financial innovation. Enhancing the capability to transform and transfer risk, and thus improving the matching of the supply of risk products to the demands of end investors offers the prospect of lower risk premia and greater financial efficiency. And that in turn should lower the cost of capital for firms and improve the ability of households to smooth their lifetime consumption and to insure against unexpected outcomes. 4 BIS Review 93/2008 15 Taking an even further step back, there is a beguiling vision of financial innovation taking us closer towards a world of more complete and efficient markets for state-contingent contracts. The ability to decompose and trade the distribution of many dimensions of fundamental risks creates a potential lattice of efficient risk prices which can then, by arbitrage, be used to price efficiently the combinations of these risks embedded in “natural assets” and in “synthetic assets” structured to meet investor demand. Section 4: Frictions and Market Imperfections 16 The previous section described how financial innovation has widened the range and choice of financial products available to corporates and households to facilitate improved risk management. But it also noted the potential importance of market imperfections and frictions in the provision of such contracts. | 1 |
One important one, which is implicitly being debated in some jurisdictions but not in a way noticed by anyone other than specialists, is whether clearing houses should adopt what is called Gross Margining rather than Net Margining. What this means is that a clearing member – ie a dealer – could not net off positions of their various customers and their own house position when the amount of margin they have to hold with the clearing house is determined. That would affect the incentives of clearing members to collect minimum margin amounts from their customers. And, more generally, it would probably reduce the amount of leverage in the system and simplify the chain of credit. Again, my point is not at all to advocate a position on this one way or another. It is to note that this is about more than investor protection through the segregation of client moneys, and so needs to be debated against the goal of preserving stability without impairing efficiency. Post-trade infrastructures: trade repositories Moving on from CCPs, a quick appeal – in fact, two if I may – to the securities regulator community on Trade Repositories. They are one of the most interesting innovations brought forth by the crisis. They are expected to house information, on a trade-by-trade basis, on the type of contract, notional value, currency, maturity, counterparties of derivative transactions. This needs somehow to extend to valuation(s) and collateral terms. My appeal to the US, EU and Asian authorities is twofold. | Those requirements were meant to be exacting if the securities were issued onto the public markets. In Europe, it seems most issuers of ABS and CDOs chose to list them in Ireland or Luxembourg. In many jurisdictions, including the USA, the requirements were deliberately less exacting if the securities were distributed solely via the “private markets” to wholesale or sophisticated investors. This prompts two thoughts. First, with hindsight, could Listing Authorities and securities regulators8 do more in the future to ensure that the disclosure around complex securities are comprehensible, coherent and, crucially, simple and short enough to be capable of being absorbed? And should Listing Authorities be more willing to step in and require changes to the structure of complex securities where they conclude that the disclosure is inadequate and just cannot realistically be made adequate? Have “risk factors” become so numerous, wordy and wide-ranging that they lose their impact? In their understandable desire to avoid validating products and securities, have securities regulators retreated too far towards simply checking that the required boxes have been ticked? Perhaps I am imagining it, but I recollect a period in which Listing Authorities were guardians of the integrity of primary markets. That over time came to rely upon disclosure. And that ended up meaning accepting documents that were comprehensive rather than comprehensible. Where something is incomprehensible, and has reached a scale where it could even jeopardise stability, the relevant authority should say so. | 1 |
As one of the key intermediation linkages in the global market place, the MIFC can have an important role in accelerating the process of bridging and strengthening the relationship between the international Islamic financial markets and thereby expand the investment and trade relations between the Middle Eastern, West Asia and North Africa regions with East Asia. Situated centrally in the Asian time zone, Malaysia is well positioned to effectively serve the East Asian region. Among the key intermediation role for MIFC is to act as a centre for origination , issuance and trading of Islamic capital market and treasury instruments such as sukuks, and to act as an investment gateway to the region specialising in Islamic fund and wealth management, and as a takaful and retakaful centre. In promoting capital and cross-border trade flows between the financial communities of these regions, it will thereby strengthen the international integration of our domestic Islamic financial system. In addition, this initiative is expected to improve further the performance of the Islamic financial industry and strengthen its competitive edge in this increasingly more challenging global environment. Currently, assets of the Islamic banking and takaful in Malaysia have been increasing at a double digit growth rate of 19 percent and 25 percent respectively in the recent five years. The Islamic banking and takaful markets which amounted to RM122 billion and RM6.6 billion in assets are among the largest in the world. The Islamic sukuk market has now exceeded RM120 billion and represents the largest Islamic bond market in the world. | In building the base, the financial institutions in Malaysia , onshore and offshore, are encouraged to develop a niche in the overall landscape for MIFC. Players with expertise in structuring Islamic instruments should capitalise on the tax incentives by having the syndication team to be based in Malaysia for the BIS Review 104/2006 3 issuance of ringgit and non-ringgit sukuks out of Malaysia, while those with investment and private banking as well as fund management expertise should intensify their focus on efforts in this area and structure innovative Islamic investment instruments. Existing players are also urged to be MIFC players and develop Malaysia as their regional hub with the potential to have the international currency business operations either through the onshore regulatory framework or under the Labuan offshore structure. The success of MIFC will depend on the collaborative efforts of the financial regulators, the delivery system, the industry players and the supporting professionals. In meeting the MIFC objectives, we encourage the exploitation of this new growth area. At the onset, it is also emphasized that an equally important part of this process is having the right people in place with the appropriate skills, having in place the appropriate systems and governance framework to ensure the viability and sustainability of this industry. This morning's dialogue will provide the opportunity to deliberate the issues from the different perspectives and dimensions so that the full potential of the MIFC initiatives can be realized. On this note, I wish you a successful Dialogue. Thank you. | 1 |
And add-ons to these capital and liquidity buffers for institutions posing the greatest systemic risk are being discussed to address the second. 9 In essence, this is a taxation solution to the systemic risk pollution problem. 10 There is a second approach. On 21 January 2010, US President Barack Obama proposed placing formal restrictions on the business activities and scale of US banks. Others have made complementary proposals for structural reform of banking. 11 Typically, these involve separation of bank activities, either across business lines or geographies. In essence, this is the prohibition solution to the systemic pollution problem. This sets the scene for a great debate. It is not a new one. The taxation versus prohibition question crops up repeatedly in public choice economics. For centuries it has been central to the international trade debate on the use of quotas versus subsidies. During this century, it has become central to the debate on appropriate policies to curtail carbon emissions. 12 In making these choices, economists have often drawn on Martin Weitzman’s classic public goods framework from the early 1970s. 13 Under this framework, the optimal amount of pollution control is found by equating the marginal social benefits of pollution-control and the marginal private costs of this control. With no uncertainty about either costs or benefits, a policymaker would be indifferent between taxation and restrictions when striking this cost/benefit balance. In the real world, there is considerable uncertainty about both costs and benefits. Weitzman’s framework tells us how to choose between pollution-control instruments in this setting. | Thank you very much for your attention. BIS Review 96/2010 5 | 0 |
I do not see this as inconsistent with inflation targeting because it is the stability of inflation over long periods, not year to year changes, which is crucial to economic success. The key principles underlying flexible inflation targeting are credibility, predictability and transparency of decision-taking, and they will remain the cornerstone of successful monetary policy in the future. Conclusions Governor Leigh Pemberton’s 1992 lecture concluded with a message for the LSE: “in a world of price stability you might not think of inviting the Governor of the Bank of England to address you”. Had price stability guaranteed financial stability, and had I achieved my long-held ambition of being boring, that might have been true. Unfortunately, it is not how things have worked out! What I have tried to show tonight is that the case for price stability is as strong today as it was twenty years ago – both in theory and in practice. The clarity and simplicity of the inflation target helps to anchor inflation expectations on the target. We forget the lessons of the 1970s and 1980s at our peril. In the end, the essence of central banking is to maintain confidence in, and the value of, paper money. It is far too soon to bury inflation targeting. Together with central bank independence, it played a key role in bringing price stability to the UK. | 20 Rajan (2005) argues that the “search for yield” was an important ingredient in the story of the crisis. 6 BIS central bankers’ speeches long-term commitments (pension funds and insurance companies, for example) need to match the yield they promised on their liabilities, with the yield on their assets. When interest rates are high, they can invest in safe assets to generate the necessary revenue. When interest rates are low, however, they are forced to invest in riskier assets to continue to meet their target nominal rate of return. That tends to push down risk premia and lower the price of borrowing. Other investors too find it difficult to accept that in a world of low nominal and real interest rates equilibrium rates of return will not meet their previous expectations. 21 If these mechanisms are important, the financial cycle may be heavily influenced by monetary policy, especially when interest rates are low. That also creates the possibility of a trade-off between monetary and financial stability. All three examples suggest that the conventional analysis of the trade-off between the volatility of inflation and the volatility of output is likely to be far too optimistic. Does this add up to a case for “leaning against the wind” of rising asset prices rather than waiting to “mop” up after the bust? Certainly we have seen that monetary policy cannot fully offset the effects of financial crises for two reasons. First, crises may impact output before the response of monetary policy is felt. | 1 |
These scenarios are plausible representations of the future consequences of climate change depending on the severity of the physical damage and the speed and effectiveness of the policies rolled out globally to support the transition to a sustainable economy. Specifically, an extreme scenario is defined, based on the assumption that no measures are taken to mitigate climate change, which would naturally entail materialisation of the physical risks. An alternative scenario involves an orderly transition, in which the measures necessary to reduce the volume of CO2 emissions in accordance with the Paris Agreement are taken promptly and progressively. As the measures are introduced gradually, the physical and transition risks are considerably reduced. Disorderly transition is a third scenario, under which measures to combat climate change are not taken until a relatively late stage, so that it is necessary to reduce emissions to a greater extent than under the orderly transition scenario in order to achieve the same emission reduction target. As a result, the transition risks increase. A growing number of central banks and financial supervisors have begun to carry out climate change stress tests, making use of these scenarios, adapted as necessary to reflect the specific features of each economy. In September 2021, the results of the ECB’s stress tests were published. They covered approximately 4 million companies worldwide and 1,600 consolidated banking groups in the euro area and incorporated the impact of both physical and transition risks over a 30year period. | European banks would also face impairment of their corporate bond holdings under these scenarios, further reducing their profitability and solvency. As already mentioned, the impact would be uneven across economic sectors and geographical areas, and therefore the effects on banks across different countries would also be uneven. A very important point here is that banks’ potential response to the materialisation of risks is not currently modelled in these stress tests, since the aim is to show what would happen precisely in the absence of any such response. In reality, however, banks can be expected to respond to the increase in the probabilities of default associated with the materialisation of physical risks in the event of inaction, which would exacerbate the negative implications for activity in these areas. The possibility of response makes the climate stress test methodology even more complicated, but it is a key element which will have to be incorporated in future. In addition, the ECB is currently conducting bottom-up stress tests in which banks will assess their exposure to climate risks. The exercise began with a questionnaire for banks, the aggregate results of which are due to be published in the summer. At the Banco de España we have also carried out top-down stress tests to assess the resilience of the Spanish banking sector to climate-related transition risks,17 and we are currently carrying out various empirical analyses to approximate the potential impact of the physical risks. | 1 |
Clearly, then, there has been a rapidly rising tide of banking information. Or has there? The Godfather of information theory, Claude Shannon, defined information in terms of its ability to reduce our uncertainty. 60 But page length and certainty are not synonyms. As even professional investors find banks’ annual reports somewhere between undigestible and unfathomable, it seems possible more banking information, in the conventional sense, may have made for less banking information, in the Shannon sense. One interesting diagnostic comes from looking at the nature of the information provided by banks’ annual reports, rather than its quantum. Linguistic analysis provides a range of metrics for determining the complexity of a language, including word and sentence length. 61 By taking a range of measures of linguistic complexity, and applying them to banks’ annual reports, we can get a window on Shannon’s measure of information-content. Chart 3 plots six metrics of linguistic complexity, as applied to the annual reports of the four largest UK banks. 62 It compares them with a series of alternative publications, specifically a UK broadsheet newspaper, a UK tabloid newspaper, a set of recent Bank of England reports, a selection of my own speeches, and a selection of speeches by the leaders of the UK’s main political parties. These comparators have no significance beyond the fact that they are examples of material written for a general audience. What this demonstrates is that banks’ annual reports rank highly on the linguistic complexity scale, well above even a broadsheet newspaper. | The second element is for supervisors to conduct independent reviews of a bank’s capital adequacy relative to its risk profile, while the third is to help improve the ability of market forces to exert discipline on management behavior. These last two elements, which I will address in more detail in a moment, have been adopted by the Basel Committee as key parts of our proposal to revise the international standards on capital regulation. Risk-focused supervision In terms of the "risk-focused" approach to supervision, many of my colleagues would agree that what makes bank supervision so challenging is the need to keep pace with such a dynamic, fast-moving, and diverse industry. Consequently, supervision must be adaptive. The banking industry is intensely competitive and firms must constantly identify new markets, new products, and new ways to do business. Innovative products and technologies can quickly alter a bank’s exposure to risk. Continuous innovation in the industry and increasingly rapid changes in risk profiles demand that supervisors, too, keep up with the latest developments and work to anticipate them to ensure that our regulatory framework remains relevant and timely. Likewise, supervision needs to be flexible. We all know that the banking sector encompasses organizations that vary greatly in scope, size, and risk appetite, so it’s obvious that regulations that are useful for small, community mortgage banks will not apply equally well to massive, multinational trading banks, and vice versa. | 0 |
First, there is the theological meaning of faith as “belief in religious doctrine”, “spiritual apprehension of divine truth apart from proof” or, more generally, “belief founded on authority”. Here, Blaise Pascal springs to mind as an advocate of a strict separation between faith and reason. In his view one could not arrive at faith by means of reasoning but only “through the heart”. On this first definition my answer to the question posed by the title of my lecture is “no”. I would prefer to confine faith, in the sense of unquestioned belief, strictly to the private and religious sphere. When it comes to central banking neither the central banker’s actions nor the public’s expectations can afford to just rely on faith devoid of proof or evidence. Moreover, I do not regard it as helpful to characterise central banking as some sort of mystical art that is to instil awe and worship. On the contrary, I consider that the public would be generally ill-advised to put “blind trust” into particular individuals or institutions. This is an important lesson to take away from liberal economic and political philosophy as well as from the overwhelming merits of the democratic system of government. Ultimately, trust must be earned, it is granted temporarily, it must be checked and it must be backed up by hard evidence, not be based purely on faith or belief. | Ensuring that banks have the capacity to lend If the first aim for policy is ensuring that banks have the incentives to remain engaged is economically important lending, the second is ensuring that they have the capacity to do so. A pre-condition for this is that banks are appropriately capitalised, as I have already discussed. But what also matters is the landscape of the banking sector – that is, whether the banking sector is sufficiently efficient and diversified to ensure a stable supply of credit. According to some indicators the European banking sector is characterised by over-capacity relative to the size of the market. For example, the Herfindahl-Hirschman concentration index for the euro area currently stands at around 700; as a general rule, a figure below 1000 signals low concentration. 8 This suggests that one factor in difficulties facing the sector is that it is not operating at the efficient frontier – and consequently, that there would be macroeconomic benefits to some restructuring and consolidation. We also saw during the crisis that the banking sector in the euro area was not well-diversified on either the asset or liability sides. Cross-border exposures mainly comprised of short-term debt, which meant that when bank assets were hit by an adverse shock, funding quickly dried up. The result was that risk-sharing through the banking system virtually collapsed 7 See for example Buch, Claudia and Esteben Prieto (2014), “Do better capitalized banks lend less? Long-run panel evidence from Germany”, International Finance 17:1. | 0 |
The second is a measure of gambler’s luck in gearing up those assets. In effect, ROE is skill multiplied by luck. So which has been the dominant determinant of banks’ ROE, historically and recently? Chart 2 looks at the decomposition given by equation (1) for UK banks over the period since 1920. Movements in leverage have clearly been the dominant driver. Since 2000, rising leverage fully accounts for movements in UK banks’ ROE – both the rise to around 24% in 2007 and the subsequent fall into negative territory in 2008. Chart 3 looks at the same decomposition across a panel of 70 global banks at the end of 2007. The vertical axis measures return on assets and the horizontal axis leverage. The curves are iso-ROE lines, drawn at 5%, 20% and 40%. The distribution of points lies along a downward-sloping curve. Two implications follow from this. First, the downward slope is consistent with global banks targeting a ROE, perhaps benchmarked by peers’ performance. The Bank’s market intelligence in the run-up to crisis suggested that such “keeping up with the Jones’s” was an important cultural influence on banks’ decision-making. Second, Chart 3 suggests that banks kept up in this competitive race by gearing-up. Banks unable to deliver sufficiently high returns on assets to meet their ROE targets resorted instead to leveraging their balance sheets. During the golden era, competition simultaneously drove down returns on assets and drove up target returns on equity. | Philipp Hildebrand: Risk management Introductory remarks by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 14 December 2006. * * * As I have reported at a number of recent media conferences, the SNB has updated its investment policies for foreign exchange reserves over the past few years. I would like to take this opportunity to look back, once again, at our motives for these adjustments and to outline the context of conflicting objectives within which the investment policy of a central bank operates. I would like to devote special attention to risk management, which performs a key function in investment policy at the SNB. Looking at the current structure of our foreign exchange reserves, it is evident that we have moved a certain distance from the traditional structure of central bank portfolios. Traditional portfolios consisted almost exclusively of short-term government bonds in USD as well as, possibly, EUR or JPY. By contrast, we at the SNB have gradually diversified our currency risks over the past few years, have lengthened the maturities of our investments and invested in additional bond categories and in shares. As a result of these adjustments, we are probably one of the most innovative central banks in the area of investments nowadays. However, I would like to stress the fact that we have never pursued innovation for its own sake. | 0 |
The Future of Money Speech given by Mark Carney, Governor of the Bank of England To the inaugural Scottish Economics Conference, Edinburgh University 2 March 2018 I am grateful to Alice Carr, Wayne Chapman, Victoria Cleland, Ben Dyson, Martin Etheridge, Andrew Hauser, Cordelia Kafetz, Jack Meaning, James Southgate and Iain de Weymarn for their assistance in preparing these remarks. 1 All speeches are available online at www.bankofengland.co.uk/speeches “Everyone can create money; the problem is to get it accepted” – Hyman Minsky 1 It is a great pleasure to join the inaugural Scottish Economics Conference, which brings together students from six universities with proud intellectual traditions. I would like to congratulate the students who have shown such initiative in creating this event. My only regret is that the ‘#BeastFromTheEast’ has prevented me from joining you in person, though given my topic, there is something appropriate about joining you virtually. ………………………………………..… This £ note is significant. Figure 1: a £ banknote Significant because it honours Adam Smith, the great moral philosopher and hero of the Scottish Enlightenment. Significant because it is a significant amount of money, enough to buy you a burger and a few pints at the Pear Tree pub this evening, or if you fancy a quieter but highly stimulating night in, copies of Smith’s Wealth of Nations and The Theory of Moral Sentiments at Blackwell’s. Significant because without money the decentralised exchange of Smith’s invisible hand could not operate. | We participate in the process of making the most important decisions regarding the banking sector in the euro area, i.e. not only the Bulgarian banks but the European banks. In making all these decisions, our vote matters as much 2/5 BIS - Central bankers' speeches as the vote of Germany, France, Italy, Spain, or any one of the other euro area Member States. So, instead of waiting for the relevant decisions to be sent to us for implementation, we actively take part in the process of making these decisions. I must assure you that there is a big difference. Financial implications are another important aspect of our membership. You can probably recall some observers' concerns as to how our membership in the Banking Union would burden the Bulgarian banks with unbearable fees. Indeed, the Bulgarian banks pay fees related to Banking Union membership, but the financial benefits are considerably greater. The Single Resolution Mechanism alone saves the Bulgarian banks not less than BGN 160 million a year which, in turn, improves their financial result. Or, if we use the terminology of insurance, the Bulgarian banks get a much greater protection for a much lower premium. As regards the BNB which, as I said, is already a part of the euro area in terms of its key activities, at this stage the preparedness for full accession is related most of all with technical and logistic issues. Organisation has been set up for monthly reporting on the progress and the outstanding challenges. | 0 |
The deviation between market expectations and the actual interest rate has been substantial in periods. There is no reason to believe that Norges Bank will not also have to reassess its interest rate forecasts as new information emerges about economic developments. According to the monetary policy strategy in Inflation Report 2/06, the sight deposit rate should be in the interval 2¾ - 3¾ per cent in the period to the publication of the next Inflation Report on 1 November, conditional on economic developments that are broadly in line with projections. Monetary policy is oriented towards a gradual increase in the interest rate - in small, not too frequent steps towards a more normal level. The analyses in Inflation Report 2/06 were based on a gradual increase in the interest rate towards a more normal level. In the first six months of 2006, the key rate was increased in two increments of 0.25 percentage point. There were prospects that the interest rate would rise further at about the same pace. At the meeting on 27 September, Norges Bank’s Executive Board decided to leave the key rate, sight deposit rate, unchanged at 3.00 per cent. The background for the decision was formulated as follows: "There is now little slack in the Norwegian economy. A steadily rising share of enterprises lacks the capacity to accommodate increased demand, largely because of labour shortages. The labour market has grown considerably tighter, and there are several signs that wage growth is picking up. | The challenge to monetary policy is how the interest rate should be set ahead in order to prevent disturbances both to inflation and economic growth. As a general rule, central banks influence the shortest money market rates via the policy rate. However, economic agents’ consumption and investment decisions depend more on their interest rate expectations. Hence, monetary policy functions primarily by influencing expectations regarding future interest rates. Economic agents therefore need to understand the central bank’s intentions in its interest-rate setting. In the November 2005 Inflation Report, Norges Bank published its own forecast for the interest rate for the first time. The aim is to enhance the predictability of monetary policy. With a predictable monetary policy, market participants can react to new information in a way that contributes to stabilising developments in output and inflation. Norges Bank’s interest rate forecast is based on seeking to achieve an interest rate path that provides a reasonable balance between the objective of stabilising inflation at target and the objective of stabilising developments in output and employment within a reasonable time horizon, normally 1 - 3 years. Interest-rate setting is also assessed in the light of developments in property prices and credit. Norges Bank forecasts inflation, output and the interest rate simultaneously. There is considerable uncertainty associated with the estimates of capacity utilisation in the economy (the output gap), and there is no simple relationship between developments in capacity utilisation and developments in inflation. | 1 |
As a number of you are aware, between July 2013 and December 2015, the New York Fed conducted two counterparty pilot programs with small firms, the first focused on treasury operations and the second on mortgage operations. As we announced at the time, we initiated these programs to explore ways to broaden access to open market operations and to determine the extent to which firms beyond the existing primary dealer community could augment the New York Fed’s operational capacity and resiliency in its monetary policy operations. We very much appreciate the NASP’s efforts to encourage eligible firms to participate. The experience gained through these programs informed changes in the New York Fed’s eligibility criteria for primary dealers, which were announced in November 2016. At that time, the minimum net regulatory capital (NRC) threshold for broker dealers was reduced from $ million to $ million. And to better align the capital threshold for banks with the new NRC thresholds, the minimum Tier 1 capital threshold for banks was raised from $ million to $ billion. At the same time, a 0.25 percent minimum Treasury market share threshold was introduced to more directly quantify the business capabilities of firms expressing interest in becoming a primary dealer. | 3 6/7 BIS central bankers' speeches 3 Potter, Gradual and Predictable: Reducing the Size of the Federal Reserve’s Balance Sheet, October 11, 2017. 4 See Potter, Implementing Policy with the Balance Sheet, November 6, 2017, for further discussion of lessons from experience with balance sheet policy. 5 The maturity structure of the balance sheet was only loosely incorporated into the purchase plan. Purchases of Treasury securities were targeted at maturity sectors; within each sector, specific issues were selected for purchase using a relative-value approach based on a spline fitted to market prices. Sack, Implementing the Federal Reserve’s Asset Purchase Program, February 9, 2011. Treasury securities acquired through reinvestment are purchased in proportion to issuance. Agency MBS purchases are distributed across instruments roughly in proportion to anticipated gross issuance of those securities at the time. Potter, The Implementation of Current Asset Purchases, March 27, 2013. 6 Early FOMC discussions of balance sheet normalization, then referred to as an “exit strategy,” were predicated on an intention to return to, as put in the January 28, 2009, meeting transcript, “a more normal framework for conducting monetary policy,” which meant a return to an asset and liability structure closely resembling that which prevailed before the financial crisis. Normalization-related matters were discussed in the minutes to most of the FOMC’s 2009 meetings. | 1 |
Eddie Yue: Evolution of financial consumer protection and education in Asia Speech by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the HKMA-SFC-OECD Asian Seminar, Hong Kong, 13 December 2012. * * * André (Laboul),1 Ashley (Alder),2 distinguished guests, ladies and gentlemen, Good morning. It’s my pleasure to be among such distinguished company, and for such an important topic. On behalf of the Hong Kong Monetary Authority (HKMA), thank you all for joining us and I look forward to the discussion here today. In discussing consumer education and protection, the focus must of course be on benefiting the consumer. That said, there is more than an element of enlightened self-interest for the rest of us. For the pathway to profit does not divert around the consumer interest. It runs right through it. Indeed, the best companies – those with long-term sustainable models of growth – operate on the basis of a natural synergy between what is good for customers and good for business. This is an old lesson – but it’s one we are relearning in the aftermath of the global financial crisis. One of the gripping aftershocks from the crisis has been the mis-selling complaints against some financial institutions. Such cases are, of course, deeply damaging to those individual institutions. Yet they also impact on us all. When the dust settles after each successive scandal, the lasting impression threatens the reputation not just of individual firms, but of whole sectors. | The reforms since 2011 to the public pension system (the progressive raising of the retirement age; the definition of a sustainability factor linking the initial pension to changes in life expectancy; the introduction of a new pension indexation system; and the segregation from the system of specific non- contributory pensions that should be financed through general taxes and not through social security contributions) have been in the right direction as far as the sustainability of the system is concerned. Apart from these reforms, there are insurance and saving mechanisms that can help supplement the unfunded pension system. But, as I said earlier, a key factor for the public pension system is the buoyancy of employment. It is in this nexus between employment, pensions and public finances where, I believe, the “hard core” of the difficulties facing our economy in the years ahead is concentrated. 3. The reduction in private debt and in the net external debit position The third challenge facing the Spanish economy is high private debt and the heavy dependency on external financing. The Spanish economy’s net external debit position stood at around 93% of GDP at end2015, far above the level in other euro area or developed countries in a debit position, not to mention core Monetary Union economies such as Germany, Belgium and the Netherlands, which run an external credit position. | 0 |
The financial crisis has emphasised the close links between the health and behaviour of banks and the state of the economy. We are remembering a very uncomfortable lesson from history that should not have been forgotten. But, forgotten it was. We have a very big programme of reforms under way, with the central objective that we must not let a financial crisis of this scale happen again. At the heart of this programme we are trying to knit together monetary policy and financial stability in both its macro- and micro-prudential forms, something that has not been done properly for a long time. I say that quite deliberately, because such coherence was not present prior to the reforms of 1997, so this is more than a change to recent arrangements. The new macro-prudential approach to financial stability will see the establishment of the Financial Policy Committee (FPC), charged with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. In June, the Chancellor announced that the government would amend the Bill to give the FPC a secondary objective so that, subject to being content on the first objective, it should support the economic policy of the government, including its objectives for growth and employment. Currently, the FPC is acting in an interim capacity to undertake as far as possible the future statutory FPC’s macroprudential role. | In 2008, the Bank of Zambia issued banking licences to 5 new banks to operate in Zambia. As at 31 May 2011, Institutions under Bank of Zambia supervision as at 31 May 2011 were: 18 commercial banks, 10 leasing finance companies, 3 building societies, 51 bureaux de change, 1 savings and credit bank, 1 development finance institution, 26 microfinance institutions (MFIs) and 1 credit reference bureau (CRB). The sector has also recorded tremendous growth in business with growth witnessed in various innovative activities carried out by the banks in order to meet the needs of increasing number of customers. Some of the innovations include: An increase in automated teller machines (ATMs) including deposit taking ATMs; E-banking; Telephone banking services; BIS central bankers’ speeches 3 In-store banking services – banks can provide some banking services within the premises of stores; Mobile top-up services – banks can sell airtime on behalf of mobile phone providers through ATMs; Truck-banking services – the model entails engagement of agents for provision of cash-in/cash-out transactions for clients where banks have no footprint; Bancassurance – banks can sell insurance products on behalf of insurance companies; and Introduction of Visa debit and credit cards. | 0 |
It is about innovation, inclusion, and inspiration. Everything we do in FinTech must always have a larger purpose – to improve the lives of individuals, to build a more dynamic economy, to promote a more inclusive society. This is the FinTech spirit. And over the next five days of this Festival, may you find that spirit and may you be inspired to break new ground, and seek a better, newer world. Thank you all for your support. Have a great FinTech Festival! 9/9 BIS central bankers' speeches | It is against this background that financial sector supervision should also be directed at financial institutions that pose the greatest risks, such as, non-bank financial institutions. In this regard, the adoption of the risk-based approach allows the supervisor to devote more supervisory effort to those areas that have a high-risk profile. This therefore, entails that supervisory authorities should shift their focus from the traditional Capital, Assets, Management, Earnings, Liquidity, and interest rate Sensitivity (CAMELS) approach to a more risk-based approach. A risk-based supervisory approach would involve the identification of key risks, the level of these risks and the key risk areas. After identifying these risk factors, a comprehensive supervisory framework with appropriate resources is then assembled to mitigate the risks. The amount of resources required is dependent on the level and intensity of the perceived risk. However, suffice to mention that this does not mean that the risk-based supervisory approach ignores the strengths of the CAMELS approach, but rather addresses the weaknesses by putting more emphasis and resources on areas with potentially higher risk. Ladies and Gentlemen As many of us are aware, financial sector operations have become complex nowadays, as they entail, among others, managing financial, market and operational risks, which depend, to a large extent, on public confidence in the financial system. In this regard, proper supervision is critical to minimising risks as well as ensuring the stability of the financial sector and engendering public confidence. | 0 |
Along with purely statistical procedures, the estimation of the long-term equilibrium level of the non-financial private sector’s long-term financing that the calculation of these indicators requires can be done using models that include the determinants of the demand for credit [Galán y Mencía (2021)]. In any event, the decision to activate the CCyB, which is reviewed quarterly, should not follow an automatic rule based on the trend of this indicator; rather, the regulations in force emphasise the need to take other complementary indicators into account. The Banco de España also tracks potential imbalances in house prices, and in the current account balance, among others. This latter variable reflects how in small, open economies, when the financial cycle is in expansion, a portion of this financing is usually obtained abroad, consequently materialising in a current account deficit. It is moreover crucial to analyse the sectoral disaggregation of credit indicators to identify risks that may be originating in specific sectors. Lastly, we pay particular attention to the output gap, which I will discuss in greater detail later. 13 As to the cross-sectional dimension of systemic risk, the key indicators seek, inter alia, to measure the relative size of a bank, its centrality in the national banking network, its interconnectedness to the rest of the financial system and to other countries’ financial systems, and the complexity of the activities it pursues. | Challenges facing the Spanish economy First, regarding fiscal policy, let me stress that maintaining high public debt over a prolonged period may have negative effects on economic growth: it raises financing costs for the economy; it makes it necessary to run substantial primary surpluses that demand higher tax levels or lower levels of productive spending; it lessens the room for countercyclical fiscal policy measures to address potential adverse shocks; and it is a source of vulnerability in the face of changes in market investor sentiment. Accordingly, resuming fiscal consolidation is a priority, so as to enable the progressive reduction of the public debt/GDP ratio and of the structural deficit, in line with the demands of European and national fiscal rules. The fiscal consolidation process should, moreover, be compatible with an improvement in the quality of public finances. The adjustment needed should be anchored in a mediumterm programme in which the measures allowing the attainment of budgetary objectives should be spelt out, along with a prudent macroeconomic and public revenue forecast. Furthermore, the composition of the adjustment takes on particular importance, as it should be conducive to a greater contribution of public finances to the economy’s potential growth. Population ageing is also a challenge of the highest order for the sustainability of public finances. Specifically, the latest estimates of its impact on public spending on pensions, health and long-term care reveal a significant increase in expenditure on these areas over the next three decades. | 0 |
An insurance company like GE Life, which is located in the heart of a dynamic growth region, is well-positioned to capture the growing opportunities. Achieving sustainable long-term growth, however, is highly complex. Among the many segments in financial services, the life insurance industry has probably the longest time horizon. The industry takes on assets and liabilities that literally last a lifetime. Good actuarial data and analysis provide an important basis for risk pricing and management. But future trends and developments such as increasing longevity or medical breakthroughs are harder to predict. Hence, a sound framework on asset-liability management and a continual focus on risk management are critical. At the same time, markets are changing and innovating rapidly. Competition comes from many sources, while the needs of customers will continue to evolve. To keep up with the competition, intermediaries have to continue to invest in research and development, and provide value-adding products and services in risk management, underwriting, actuarial analysis, investment and financial advice. This is especially important in the context of Singapore’s maturing population who will need good retirement planning services in order to remain financially independent through their golden years. Another key implication of the long time horizon is the special relationship with the policyholder. In general, both the insurance company and the policyholders are entering into a long-term financial commitment. In any long-term relationship, the quality of trust is of utmost importance. This relationship of trust can only be sustained by good advisory and sales practices. | At the company level, the FICS accreditation status recognizes GE Life’s commitment to benchmark the competencies of its workforce to international best practices. At the staff level, the FICS certification status helps promote individual attainment of the standards of professional competency and fair dealing in the insurance marketplace. We hope that GE Life will continue to keep up the momentum to participate in industry-wide efforts to raise the 2 BIS Review 97/2008 professionalism in the industry. We hope that we will catalyse a whole-of-industry involvement in this FICS effort. Conclusion I am therefore delighted this afternoon to present the FICS Accredited Assessment Service Provider award to GE Life. It is both a celebration of your achievements over the last 100 years, and an affirmation of your commitment to continued excellence, building on the core values that have served you so well. May I also congratulate the 12 pioneer candidates who are awarded FICS Certification today. The industry looks to you to uphold the high standards of personal integrity, competency and professional conduct expected of all agents. On this note, I congratulate Mrs Fang Ai Lian and the staff of GE Life on this happy day, and wish you greater success for the next 100 years to come. BIS Review 97/2008 3 | 1 |
Prasarn Trairatvorakul: Bank of Thailand’s policy direction in 2011 Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Bank of Thailand, Bangkok, 26 January 2011. * * * With retrospect, the year 2010 testified to the strength and resilience of the Thai economy. Economic activity was able to continue uninterrupted, despite various unfavourable shocks such as political unrest, volatile capital flows, flood, and delayed economic recovery in some advanced economies. Policy measures, both monetary and fiscal, had been supporting factors. The economy expanded by as much as 8 per cent in 2010 as a result. Given the strong growth momentum and solid economic fundamentals, the Thai economic growth is expected to expand at 3–5 per cent this year. This pace of growth is consistent with the long-term potential growth of the economy, and is an indication that the economic activity has returned to its normal, more balanced state. This is in contrast with the catching up episode last year, characterized by extraordinary growth rate. As the economy operates closer to its potential, the demand pressure on prices will begin to accumulate, and consequently inflation is projected to be higher than those registered in the last couple of years. The rising costs, stemming largely from commodity prices, can further add to upward pressure on prices. Upside risks to inflation should return to focus this year, while the downside risks to growth should continue to abate. Meanwhile, many risk factors of the previous year may continue to pose threat. | Of relevance is that excessive risk-taking behaviours featured prominently as a key factor contributing to the Crisis. In addition, what makes the Global Financial Crisis different is the extent of the economic and financial inter-linkages within and across borders, which explains the far-reaching impact of the crisis. While the greater interconnectedness of economies and financial systems has brought about opportunities, it has also resulted in greater risks. The Global Financial Crisis has resulted in the re-assessment of how policymakers view the achievement of macroeconomic and financial stability. There is a growing recognition that emerging risks to macroeconomic and financial stability have to be identified and managed in a more holistic and effective manner. As the economy and financial system grow in complexity, policymakers have to strengthen the understanding of the macroeconomic and financial inter-linkages in order to be able to effectively assess the implications of any potential risk on the economy. Before the Global Financial Crisis, the predominant view was that unfettered markets, selfcorrections and minimal interventions would deliver the best economic outcomes. However, recent experiences have shown that policy interventions to correct market misalignments after a crisis may prove too late as the aftermath could be extremely costly. This, therefore, call for policies to be pre-emptive rather than reactive. For policymakers, the aim is to preserve macroeconomic and financial stability, and build the country’s resilience to shocks. Macroeconomics stability is a very important prerequisite for businesses and individuals to undertake economic activities. | 0 |
This "credit equivalent amount" is approximately 175 percent of tier-one capital, about 15 percent higher relative to capital than five years ago. This measure of the underlying credit exposure in OTC derivatives positions is roughly a fifth of the aggregate total credit exposure of the largest bank holding companies. This is a relatively conservative measure of the credit risk in total derivatives positions, but, for credit derivatives and some other instruments, it still may not adequately capture the scale of losses in the event of default in the underlying credits or the consequences of a prolonged disruption to market liquidity. The complexity of many new instruments and the relative immaturity of the various approaches used to measure the risks in those exposures magnify the uncertainty involved. • Internal risk management systems have improved substantially since the mid-1990s, but most firms still face considerable challenges in aggregating exposures across the firm, capturing concentrations in exposures to credit and other risks, and producing stress testing and scenario analysis on a fully integrated picture of exposures generated across their increasingly diverse array of activities. The greater diversity of institutions that now provide demand for credit risk, or are willing to hold credit risk, should make credit markets more liquid and resilient than would be the case if credit risk was still held predominantly by banks or by a smaller number of more uniform institutions, with less capacity to hedge those exposures. | At the same time, we must ensure that banks, especially the larger ones, go back to their core business of extending credit to the real economy and refrain from engaging in the kind of risk-taking that gave rise to the recent crisis. Priority must, therefore, be given to the one measure that is most likely to influence the banks’ ability to take risk, that is the BCBS proposals on bank capital. Capital buffers must henceforth be commensurate with the degree of risk undertaken. It is no longer acceptable that profits are privatised and losses socialised. In a broader context, another important challenge is to ensure that systemic risks are addressed without unduly constraining financial innovation and integration. Finally, the opportunity provided by the current period of reflection should also be used to examine the possible consequences of some of the reform proposals for the functioning of financial markets and for the implementation of monetary policy, and by extension also for the real economy. References 1. European Central Bank, The Incentive Structure Of The “Originate And Distribute” Model, 2008. 2. Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, “The Challenge of Central Banking in a Democratic Society”, 1996. 3. http://www.reuters.com/article/idUSN0132320120071003 4. The High-Level Group on Financial Supervision in the EU, 2009. BIS Review 67/2010 3 5. Basel Committee on Banking Supervision, “Strengthening the resilience of the banking sector”, 2009. 6. Basel Committee on Banking Supervision, “International framework for liquidity risk measurement, standards and monitoring”, 2009. 7. | 0 |
13 The index correlates well with our forecast for the change in the key policy rate over the coming year, derived from each vintage of our interest rate forecast. The chart is consistent with households being well informed about the interest rate changes predicted by Norges Bank. Concluding remarks Let me summarise: Norges Bank has provided forward guidance through publishing conditional forecasts for the key policy rate for almost a decade. Our overall experience is positive. We have indications that our reaction pattern is well understood, that agents understand the conditionality of our forecast and that they do pay attention to our predictions of future rates. Over time, however, we should be measured on whether we meet our overriding objective, price stability. A credible interest rate forecast shedding light on the reaction pattern of the central bank provides a clear commitment to price stability and contributes to anchoring expectations. 13 When the index is above 50, the share of households that expect bank rates a year ahead to be higher than today is larger than the share that expect it to be lower. BIS central bankers’ speeches 7 How forward guidance is best provided will depend on economic and institutional factors. A decade of forward guidance in Norway indicates, however, that regularly publishing our own interest rate forecasts is a robust strategy. However, there are unsolved issues. After the international financial crisis, robustness and the interaction between monetary policy and financial stability have become more pressing concerns for monetary policymakers. | Tripathy et al, “Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK” show that constrained banks issued fewer high LTI mortgages after the FPC’s policy was introduced. They also find evidence supporting the macroprudential benefits of the policy. The local areas with greater exposure to constrained lenders experienced smaller declines in house prices in the aftermath of the EU referendum in June 2016, when house prices fell across most UK regions. 15 11 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 11 The distinction between expectations effects and credit constraints matters in another way. To the extent that demand for housing is simply subdued by dampened household expectations about the future, there is no ‘loss’ to households. If however, demand for housing is held back by credit constraints, transactions which are desired are ‘lost’. One needs to be careful however about assuming that relaxation of credit constraints will lead to all otherwise ‘lost’ transactions taking place. The thought experiment I carried out earlier suggested that almost 10 million additional transactions would have occurred from 2007 to 2020 had transactions remained at their-pre financial crisis level. But this assumed that house prices remained at the actual levels we saw over the period. In the absence of increased supply, the evidence suggests that much of the additional demand would have fed into higher prices, raising indebtedness in the short term but eventually choking off the additional demand. | 0 |
Stefan Ingves: Housing and monetary policy – a view from an inflation targeting central bank Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Federal Reserve Bank of Kansas City's Economic Symposium, Jackson Hole, Wyoming, 1 September 2007. * * * I am honoured to have been asked to participate in this final panel debate in such distinguished company. What I intend to bring to this panel is an account of how Sveriges Riksbank, an inflation targeting central bank, takes into consideration developments in asset prices, house prices in particular, and our experience thus far of doing so. Hopefully this account will be of interest, since it illustrates some of the challenges – analytical and pedagogical – that policy makers face when deciding on the appropriate way of bringing asset price developments into monetary policy decisions making. In going through events in the past few years I will also touch on the criticism that the Riksbank has received from various directions – members of the public in Sweden, financial market participants, and from some members of academia. As a matter of fact, some of the criticism levelled at the Executive Board has come from within the Bank, i.e. from members of the staff. As I will elaborate below, this reflects that there are no simple answers to the question of what the proper role is for house prices in an inflation targeting framework. | Let me say at the outset what I and other members of the Executive Board have said on many occasions – Sveriges Riksbank does not have a target either for the level of house prices or for house price inflation, or for any other asset price for that matter. However, when we observe long periods of high growth rates in asset prices and debt, growth rates that appear to be unsustainable in the long run, our view is that it is not reasonable to completely ignore that there may be risks associated with this, even though it is difficult to give consideration to these risks in any simple manner in our regular forecasting process. What this view has meant in practice is fairly marginal changes in the timing of our interest rate changes and substantial public oral and written focus on the issue. Having said that, and for the benefit of those not familiar with the monetary policy framework in Sweden, let me provide a short background. Sveriges Riksbank is an inflation targeting central bank, having adopted an explicit target for inflation in 1993, effective from 1995. Our goal is to keep inflation at 2 per cent in terms of changes in the CPI. The regime has now been in place for well over ten years, and there is broad agreement that the regime has been a successful one; CPI-inflation has been low and stable over the period, averaging around 1.3 per cent, while the real economy has experienced annual growth of around 3 percent. | 1 |
Given its proven success at maintaining market rates in line with Bank Rate, as well as the benefits of operational continuity, the Bank is minded to keep using a variant of the current floor system for controlling market rates. And, as the quantity of reserves supplied falls towards the quantity demanded by market participants, we will stand ready to meet SMF participants’ demand for additional reserves through regular open market operations. In addition, there is a strong case for holding some longer maturity assets, such as gilts, to back the stable portion of demand for banknotes, and indeed we had already started to do this ahead of the financial crisis. 29 How large a quantity of reserves SMF participants will demand, and therefore how large our future balance sheet will be, is an open and difficult question. As well as changing our own monetary policy toolkit, the financial crisis has changed the behaviour of financial institutions, including in ways that are significant for the size of our balance sheet. In particular their demand for reserves and for liquid assets more generally, is much greater than it was before the crisis. That reflects a combination of tighter regulation which requires them to hold larger buffers of liquid assets, and more prudent management which means that banks have learnt the lessons of the crisis and the value of maintaining liquidity, as well as the fourfold increase in the number of SMF participants. This change was not caused by QE and the expansion of our balance sheet. | Finding the right balance Speech given by Dave Ramsden, Deputy Governor for Markets and Banking Society of Professional Economists Annual Conference, London 28 September 2018 With thanks to Amy Lee and Tom Smith for their assistance in preparing these remarks and to staff across Markets and BPFR and elsewhere in the Bank for their many contributions, as well as to my colleagues on the MPC and among the Governors for their helpful comments and suggestions. 1 All speeches are available online at www.bankofengland.co.uk/speeches Introduction It’s an honour to be invited to talk here for the Society for Professional Economists (SPE) today, and I’m very grateful to Bloomberg for the opportunity to speak again in their fantastic HQ. Although I’ve spoken many times at the Society’s events over the years either in my previous role at the Treasury or in in my ongoing role as President of the SPE this is the first time I’ve spoken at the Society in its new guise as the Society for Professional Economists and in my role as the Bank of England’s Deputy Governor for Markets and Banking. This week is national inclusion week in the UK. And in that spirit I do think the SPE’s new moniker, which Kevin Daly has championed, is more inclusive and speaks to a wider group of economists. That is borne out by the excellent turn-out today. At the same time we need to improve diversity in today’s economics 1 profession, in central banking and in finance more generally. | 1 |
The Association has built a strong foundation for its important role in bringing the industry to new heights with the full support of the industry players to realise the shared vision under the industry’s five-year Strategic Blueprint. We have made tremendous strides in setting a clear path for the future. I am confident that the best for this industry is yet to come. Well done to the Association on a great first year. 4 BIS central bankers’ speeches | Just as in Finland, the Swedish price stability target was initially a self-imposed commitment on the part of the central bank, but afterwards it received expressed support from the Swedish parliament and government. I shall now briefly describe developments in Sweden following the introduction of the inflation target. The Riksbank's target of an inflation rate of 2 per cent +/- 1 percentage point would apply, according to a decision by the General Council in January 1993, with effect from 1995. During the interim period from allowing the krona to float free until 1995, inflation and expectations would be brought down from the high levels that had prevailed during the 1980s. Confidence would be regained. The Riksbank decided to publish regular Inflation Reports in order to attain greater understanding for the drawing up of our policy and the bases on which our decisions are made. The importance of transparency was reinforced in conjunction with the Riksbank being made more independent and its objectives being laid down in a special act, as of 1999. Transparency makes it easier for our employers, the Swedish parliament, to evaluate us. The Riksbank now publishes four Inflation Reports a year, where we describe clearly and in detail actual inflation trends, report the bank's assessment of the future path of inflation and draw conclusions for the direction of monetary policy. In Sweden we have also chosen to publish minutes of monetary policy discussions at our meetings and to report how the Executive Board members vote on this issue. | 0 |
Elvira Nabiullina: Review of Russia's economic and financial developments in 2018 Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the plenary session of the State Duma of the Russian Federation, Moscow, 30 May 2019. * * * Good afternoon, esteemed colleagues. Today, I draw to your attention the report on the Bank of Russia’s activity in 2018. The Report was sent to the State Duma three weeks ago, and we had a chance to discuss it in working groups, at parliamentary group meetings and at the joint meeting of relevant committees. Allow me to express my gratitude for your attentive consideration and deep interest in what we do. I would like to dwell on our key activities determined by the Constitution and the Central Bank Law. They are associated with the national development goals set forth in the Presidential May decree and strategic goals of the Bank of Russia. I will start with monetary policy issues. Our main goal is near 4% inflation. This is stipulated in the Presidential decree. Low inflation is paramount to long-term investments and a rise in public prosperity. We first reached the inflation target in 2017, as we had promised. Since that period, our policy has aimed to keep inflation close to this level. In 2017 and early 2018, both internal and external factors were favourable and we could cut the key rate, whereas in the second half of 2018 serious inflation risks emerged. | Its first stage, which included the expansion of the rate corridor, improved applications of the bonus-malus coefficient, and an update of driving licence categories, has already reduced the cost of OSAGO in nearly all regions, with a countryaverage decrease in the policy cost totalling 4%. The next stage involves rate personalisation for drivers; it should ultimately solve problems faced by OSAGO policy holders. Firstly, it should put an end to the injustice when careful and responsible drivers have to pay for those who drive in a 3/7 BIS central bankers' speeches risky manner and often have accidents. Microfinance organisations The microfinance market faces the same fair criticism now as in recent years because of usurious interest rates, and incredible fines and penalties. We came up with a serious tightening of the regulation of microfinance organisations. Currently, there are half as many such organisations in the market as there used to be five years ago. From now on, the law caps interest rates at 1% per day, while the full cost of borrowing with all fines and penalties included is limited to 1.5 times the loan amount. These conditions will allow borrowers to use microfinancing to settle their temporary financial problems without running the risk of ending up in an even worse situation. Moving forward, we believe that one of our priorities is to prevent losses from illegal operations in the economy and damages from fraud suffered by households. | 1 |
For example, some additional confusion may arise from the fact that more than one consolidating supervisor will be involved. On top of this there would be several consolidating central banks and several consolidating ministries of finance. Therefore, I think that the lead authority model will not be sufficient for handling crises in large cross-border banks. In particular, it does not solve the basic dilemma of giving one country the mandate and opportunity to act, while letting the host country retain its responsibility for financial stability. The accountability problem also remains. To my mind, the lead authority model is a model that will work best for banks with limited cross-border activities that are insignificant in the host countries. But for large cross-border banks, I’m afraid that it will work only as long as the going is easy and the weather is fair. Another route that has been suggested is to give the home country authorities a formal mandate to act in the interest of all relevant countries, either through a European mandate or some kind of binding contract between relevant countries. A lead supervisor with a European mandate seems nice in theory and aims at solving the conflicts of interest by creating a central decision-making body. In practice, however, it could easily become very bureaucratic and inefficient. If we are establishing a central decision-making body anyway, why act through authorities from 25 different countries? | According to a study by Hoggarth et al, the average drop in GDP following a financial crisis is 15-20 percent. The social costs from a banking failure can thus be substantial and involve many countries in various degrees. This, in turn, will most certainly have the effect of giving rise to difficult negotiations on how burdens should be shared between the countries involved. The larger the banking group, the more countries that are involved in its cross-border activities, and the more important the bank is to the functioning of the financial system in a country, the higher the stakes will be for individual countries and the trickier and tougher the negotiations will be. But why is this relevant in a crisis management perspective? Couldn’t we just go about and deal with the most urgent phase of a crisis first, and take care of burden sharing later, when we all know the facts? In my opinion, we cannot afford to wait that long. Uncertainty about the distribution of social costs in the event of a cross-border banking bankruptcy can seriously hamper the ability to act in an emergency situation. In particular, there is a risk that crisis management will be held up by a negotiation game between nations unless there are some previously made arrangements for burden sharing. | 1 |
It needs to break out of the shadows of insurance by evolving new business and operating models. Concepts in takaful with rich potential, such as mutual takaful remain largely untested. The mutual model has a long history. It is also enjoying a resurgence with the rise of new online, peer-to-peer insurers in other countries. This is just one model. There might be others. Boards and senior management should lead the way in exploring these developments and charting new territory. This will require more active engagement of shareholders to develop a clear vision for the company and enlist support for bold strategies that will change the status quo for the better. 4/6 BIS central bankers' speeches Various programmes such as FIDE and FIDE Forum already include content to help prepare directors in future proofing their institutions. The focus will be even stronger going forward. We are also pleased to announce that a specialised executive Islamic finance education programme tailored for directors of Islamic banks and takaful operators will be launched in the first half of this year. It will equip directors with an appreciation and knowledge of Islamic finance by incorporating practical business perspectives. With this, directors are better able to contribute towards growth and innovation, beyond their roles in ensuring that their institutions operate within sound Shariah and risk management parameters. At the level of employees, the reality is that good talent is in short supply. And so, the industry must take a longer view in its human capital strategies. | The introduction of the Financial Markets Committee (FMC) measures has put in place the foundation for a healthier and more vibrant financial and foreign exchange market. As a result of the strong economic performance in 2017 and the improved sentiments following these measures, the ringgit has strengthened by 14.6% in 2017 and 2018 thus far. The ringgit has also been of the most stable currency in the region. As our economic outlook remains strong, the ringgit will continue to reflect this strength. For Bank Negara, we have always indicated that market forces will determine the value of the ringgit. There has never been a target level for the ringgit exchange rate. With the economy and financial markets constantly evolving, fixation on a particular level of ringgit exchange rate is counterproductive, if not detrimental to the economy. What matters for Bank Negara and all of us here is to ensure that any adjustments taking place is done in a gradual and orderly manner, without causing undue disruptions to businesses and households. The foreign exchange market can sometimes be very fickle. Therefore, we should always remain on our guard, as the global economic and financial conditions may change rapidly following many developments such as normalisation of interest rates, geopolitical risks and the tendency to adopt policies that might curtail open trade. The ringgit’s recent appreciation and stability is not something that we should take for granted. What we have learnt in recent years is to never downplay the unexpected. | 1 |
In the four largest euro area countries. 12. Altavilla, C., Barbiero, F., Boucinha, M. and Burlon, L. (2020), ”, Working Paper Series, No 2465, ECB, Frankfurt am Main, “ The great lockdown: pandemic response policies and bank lending conditions September. 13. “In the realm of ideas, everything depends on enthusiasm; in the real world, all rests on perseverance.” CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 [email protected] Reproduction is permitted provided that the source is acknowledged. Media contacts 7/8 Copyright 2021, European Central Bank 8/8 | Adnan Zaylani Mohamad Zahid: Keynote address - Bank Negara Malaysia and the Malaysian Bar Joint National AML/CFT Conference 2019 Keynote address by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Bank Negara Malaysia and the Malaysian Bar Joint National AML/CFT Conference 2019, Kuala Lumpur, 29 August 2019. * * * It is a great pleasure and honour to welcome you this morning to the Joint National Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Conference 2019. I understand that this conference, jointly organised by Bank Negara Malaysia and the Malaysian Bar, forms part of the initiatives under the capacity development programme to elevate the understanding and level of AML/CFT compliance outside of the financial sector, the designated non-financial businesses and professions and other non-bank financial sectors or in brief known as the DNFBP sectors and the legal fraternity, in particular. On this note, I would like to express Bank Negara Malaysia’s appreciation to the Malaysian Bar for their continuous support to Bank Negara Malaysia as the competent authority under the AntiMoney Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), particularly in advancing AML/CFT capacity development initiatives. Apart from today’s conference, the Malaysian Bar has also since mid-2018, incorporated AML/CFT requirements as part of its Continuing Professional Development (CPD) module, in addition to the on-going engagements and discussions to instil compliance culture among the legal fraternity. | 0 |
The factors that could trigger such a sequence of events include, for instance, US share prices continuing to fall or a decline in house prices. On the other hand, developments in the USA could be stronger and the positive spread effects to the surrounding world greater than we have estimated. A large part of Sweden’s exports is to the euro area and economic activity in these countries is therefore particularly important to us. The improved growth prospects in the USA will contribute to the recovery in Europe. However, a continued weak development on the European labour market and an unexpectedly high inflation rate will probably subdue the recovery somewhat. Germany, which is an important market for Swedish products, is still showing a very weak development. According to some leading indicators, European companies have become more optimistic recently. However, profit margins have been pushed down by the fact that productivity has fallen and when productivity falls, labour unit costs rise, which in turn reduces the scope for investment. This could be an explanation for the recent high inflation rate in the euro area. When the level of economic activity rises and productivity increases, the inflation rate is expected to subside. In addition, the high inflation rate can be partly explained by “secondary” effects from earlier price increases on food and energy, and possibly by rounding-off effects on the introduction of euro banknotes. (Diagram 3 - inflation in the euro area) Growth prospects are good for several important Swedish export markets in the rest of Europe. | But it took a crisis caused by the failure of Lehman Brothers to trigger the coordinated government plan to recapitalise the system. It would be a mistake, however, to think that had Lehman Brothers not failed, a crisis would have been averted. The underlying cause of inadequate capital would eventually have provoked a crisis of one kind or another somewhere else. So where does this leave us? The recapitalisation plan is having a major impact on the restoration of market confidence in banks. Perhaps the single most important diagnostic statistic is the credit default swap premium – an indicator of market concerns about solvency of banks. These premia have fallen markedly since the announcement of the UK plan. From the close of business on 7 October to now the premia on the UK’s five largest banks have more than halved. We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner. As concerns about the viability of our banks recede, banks should regain the confidence of the market as recipients of funding. There are already some signs of greater activity. But the age of innocence – when banks lent to each other unsecured for three months or longer at only a small premium to expected policy rates – will not quickly, if ever, return. | 0 |
As a first key step in developing these approaches, the Basel Committee gathered information about banks’ internal ratings systems. Our findings indicate that there is presently no single standard for the design and operation of such a system. Thus, I see the importance of establishing appropriate guidelines for the use of internal ratings systems. These guidelines should ensure that internal ratings appropriately reflect the credit risk in each category of exposure. Additionally, it is important that we develop robust disclosure guidelines for internal ratings information to ensure that capital requirements are comparable across banks and countries. Standardized approach A revised standardized approach is still very important to us at the Basel Committee, as some banks may not have the internal resources to implement an internal ratings-based approach, and some supervisors have indicated that implementation of this approach would create resource strains for them. Further, we want to ensure that those banks that look to the Accord as the common standard many of which are located in emerging market countries - can subscribe to the revised framework. In order to improve the risk sensitivity of the standardized approach without becoming overly complex, the Committee has proposed the use of external credit assessments, such as credit ratings. Many comments noted drawbacks to this approach, but those that have seriously considered the trade-off between simplicity and risk sensitivity generally have agreed with the Committee’s decision to make use of external credit assessments. | It is imperative that we stay on track in our goal to release a new capital adequacy framework by early next year, with a comment period and industry implementation to follow shortly thereafter. BIS Review 50/2000 4 Corporate governance My remarks thus far have focused on the need for a more risk-reflective capital framework. Clearly, a strong capital position is crucial to the sound operation of any banking organization. It allows banks’ board of directors and senior management to focus on strategic objectives and growth opportunities, supports the business activities of the organization, and provides the financial strength necessary to sustain the occasional losses that are inevitable in a business of taking calculated risks. In this latter sense, capital represents the last line of defense against potential loss-creating problems. But, I want to briefly address the first line of defense - effective bank management, which increasingly is an important element of today’s supervisory framework as banks’ activities and their associated risks become ever more complex. There are several aspects to effective bank management. The importance of good corporate governance cannot be overemphasized. Broadly speaking, corporate governance refers to the organizational infrastructure necessary to achieve a workable corporate strategy, to effectively implement that strategy, and to continually evaluate its risks and benefits to the organization. These basic infrastructural elements include: – independent and competent outside directors; – capable and experienced management; – a coherent corporate strategy and business plan; and, – clear lines of responsibility and accountability. | 1 |
We believe Project Guardian can help pave the way for the next evolution of financial markets in Singapore We want to create a future where: any asset can be fractionalised; no market is too big to access; trading costs are drastically reduced; and trust can be established with greater transparency and better accountability We invite everyone to join us on this exciting journey of tokenisation. Submit your proposals to our FinTech Regulatory Sandbox for live experimentation. As you can see from the examples of Project Ubin+, Project Orchid, and Project Guardian, there is much more to the digital asset ecosystem than cryptocurrencies. The real value in the crypto industry comes not from speculating in cryptocurrencies but from tokenising assets and placing them on a distributed ledger for use cases that increase economic efficiency or enhance social inclusion. The question is often asked: does Singapore want to be a crypto asset hub? If a crypto hub is about experimenting with programmable money, yes we want to be a crypto hub. If it is about applying digital assets for use cases like atomic settlement, yes we want to be a crypto hub. If it is about tokenising real and financial assets to increase efficiency and reduce risks in financial transactions, yes we want to be a crypto hub. 8/11 BIS - Central bankers' speeches But if it is about trading and speculating in cryptocurrencies, that is not the kind of crypto hub we want to be. | We will partner financial institutions to integrate more advanced datasets into their financing frameworks. The Digital Marketplace aims to synergise connectivity across the Greenprint utilities and facilitate access to ESG data. It will facilitate linkages between ESG FinTech solution providers and investors, financial institutions, and corporates. It will also house an ESG Data Directory to facilitate discovery and access to the ESG datasets contributed by the Greenprint digital utilities and collaborators. We aim to launch the Digital Marketplace next year. Through Project Greenprint, we want to make Singapore a launchpad for ESG FinTech solutions that will help drive Asia's and the world's transition to net-zero. Conclusion Let me conclude. The five desired outcomes – instant remittance, atomic settlement, programmable money, tokenised assets, and trusted sustainability data – remind us that everything we do in Finance, Technology, and FinTech must have a larger purpose. We want to expand economic opportunity, enhance social inclusion, reduce risks, and protect our planet. The essential feature of the five FinTech projects to achieve these desired outcomes is 10/11 BIS - Central bankers' speeches collaboration – collaboration between the public and private sectors; collaboration between incumbent financial institutions and emerging FinTech firms; and collaboration across borders. Like the five elements of Water, Fire, Earth, Metal and Wood, it is exchange and interactions that generate growth and new possibilities. It is what the Singapore FinTech Festival is all about. 11/11 BIS - Central bankers' speeches | 1 |
As of now, though, there are few signs that the disruptions in this one sector of the credit markets will have a lasting impact on credit markets as a whole. Indeed, economic theory and recent practical experience offer some reassurance against both these specific concerns and more general worries about the implications of credit market innovations for the performance of the financial system. The rapid growth in these new types of credit instruments is, of course, a sign of their value to market participants. For borrowers, credit market innovation offers the prospect of increased credit supply; better pricing; and a relaxation of financial constraints. For investors, new credit instruments bring the prospect of broader risk and return opportunities; the ability to diversify portfolios; and increased flexibility. And for lenders, innovations can help free up funding and capital for other uses; they can help improve credit risk and asset/liability management; and they can improve the return on capital and provide new and cheaper funding sources. By spreading risk more broadly, providing opportunities to manage and hedge risk, and making it possible to trade and price credit risk, credit market innovation should help make markets both more efficient and more resilient. They should help make markets better able to allocate capital to its highest return and better able to absorb stress. Broad, deep and well-functioning capital markets complemented by strong, well-capitalized banks, able to provide liquidity in times of strain, make for a more efficient financial system: one which contributes to better economic growth outcomes over time. | By setting up the Pension Fund, we have separated the extraction of oil and gas from the actual spending of the petroleum revenues. This has probably resulted in higher production of oil and gas over the past two decades. 14 BIS Review 37/2008 The Pension Fund was formally established in 1990, but it was not until 1996 that the first allocation – NOK 2 billion – was made to the Fund. Since then, it has grown to around NOK 2 trillion (well above USD 350 billion). The Fund is fully integrated with the government budget, and the same priorities are imposed on spending from the Fund as on any other government spending. This means that the entire petroleum revenues, as well as the return, go into the Fund. Then, as part of the budget resolution, the Storting decides on an annual transfer from the Fund to cover the government budget deficit. This procedure effectively prohibits use of the capital in the Fund for purposes not considered sufficiently important to be prioritised in the regular budget process. BIS Review 37/2008 15 The fiscal rule states that the Government is to spend – as an annual average through the business cycle – the expected real return on the Fund, estimated at 4 per cent. This cyclically adjusted transfer is estimated at a good NOK 80 billion this year – that is around 10 per cent of public expenditure. It is estimated that the transfer will increase in the years ahead. | 0 |
And we uphold the integrity of the banking system. 12. 160-plus incumbent banks and new virtual banks — including banks built by tech giants — operate in our ecosystem. They may have different fintech strategies. They may try and grow their digital banking businesses in different ways. But it’s precisely this diversity that 1/4 BIS central bankers' speeches makes the Hong Kong banking market so dynamic and well-positioned to drive innovation. This diversity is crucial to our vision of shaping Hong Kong into a global fintech hub. 13. So Hong Kong has embraced a new era for smart banking. But what will thenext era look like? How will we bring our vision to life? I think we’re all here today with those questions in mind. 14. At the HKMA, we know data will be vital to the future of banking. Data analytics is pivotal in customer authentication, credit assessment, and compliance monitoring. Indeed, data is key to almost every banking function. It is perhaps the most powerful tool for delivering the timeless banking principles I mentioned. As we head into the next era, data will enable better service, greater trust, and more efficient capital management. 15. Going back to my dining analogy, you could say data is banking’s “secret sauce”. It makes every meal better — no matter how you serve it. And that is why the HKMA is adopting a data-centric strategy to support the future of banking in Hong Kong. 16. | I have been talking a lot about our efforts to promote diversity and innovation through a level playing field. That reflects our supervisory role. Equally important is our role in fintech market development. This market development mandate is the context for our new data strategy. Let me give you some background. Data and the next era 17. Hong Kong businesses and people are embracing technology. They’re ready for the future. With more data and more analytical tools at our disposal, we should ensure that our data infrastructure continues to improve. Let’s consider where we are today. 18. To begin with, valuable and rich data are scattered across different sectors and entities. It’s often hard to access these data – and it’s hard to verify their validity. 19. What is more, information moves between data providers and banks via a whole host of bilateral, one-to-one connections. Those connections lack compatible protocols and standards. That makes data sharing inefficient and difficult to scale. 20. All of this makes it hard for bankers to collect holistic information from customers about their business or financial activities when they want to provide credit or related services. And that creates real impediments to banks’ ability to better serve their customers. 21. Impediments for banks often mean painful consequences for customers, especially small and medium-sized enterprises. When banks can’t perform credit assessments based on up-to-date business data, they may instead require collateral such as property before making a loan. This is a longstanding problem with SME financing. 22. | 1 |
Perhaps, the greatest challenge is to achieve a lasting peace. Economic growth and peace are interlinked. Therefore, the process to accelerate economic growth and the peace process need to move in tandem. Further, structural reforms have to be continued. In this connection it is necessary to convince all stakeholders of the need for reforms to enhance the efficiency in the economy. Macroeconomic management has to be strengthened further to contain macroeconomic imbalances. In this regard, we have had the benefit of considerable assistance from international financial institutions, in particular, the IMF, World Bank and the ADB. Not only have they provided funds at critical times, but they have also been most helpful in providing technical assistance and advice. Sound macroeconomic management requires that the fiscal consolidation process be continued as required in the Fiscal (Responsibility) Management Act, to enhance public investment, attain a sustainable level of public debt, and reduce inflationary pressures. This has to be accompanied by the continuation of a monetary policy that would maintain price stability and avoid the emergence of inflationary pressures that are highly injurious, particularly to the most vulnerable groups in society. The Central Bank will continue to focus on this area. In addition, reforms in the financial sector need to be pursued vigorously to ensure a vibrant and stable financial environment that would be able to take advantage of the links to the international markets and support growth. The high international price of fuel is a major concern. | Poverty still remains at significant levels; marked disparities in regional economic activity are clearly evident; unemployment, although declining, is still high, particularly among the youth; agricultural productivity is low, resulting in low farmer income and higher prices for consumers; despite some diversification of the economy, exports are concentrated in a few commodities and a few markets, thereby increasing the vulnerability of the economy; the fiscal deficit has remained high, resulting in inflationary pressures and increasing public debt; and essential economic infrastructure remains inadequate. These concerns have been aggravated by the tragic consequences of the tsunami that resulted in the loss of so many lives and extensive destruction of property. Today, the challenge is to consider how to achieve a balanced growth with economic and social stability. Let me now highlight some of the specifics on recent economic developments and policy challenges. Macroeconomic developments Sri Lanka was able to maintain an annual average economic growth of around 5 per cent in the post liberalization era. The country’s resilience to adverse shocks has improved with a significant diversification of economic activity, particularly in the export structure. This enabled Sri Lanka to achieve a growth of 5.4 per cent in 2004, in spite of several major shocks, such as the surge in international oil prices, a severe drought in the early part of the year and floods later in the year and finally, the tsunami disaster. Per capita income has increased to US dollars 1,030 in 2004. | 1 |
Net savings by UK companies currently stand at around 1% of GDP. That means, when we look at household disposable income per head, we find it has essentially flat-lined since 2009 (Chart 4). Even as GDP has recovered, household incomes have essentially stagnated. Even the notion of the “average household” needs careful interpretation. Looking at a different “average” – the household in the centre of the distribution or median – suggests this flat-lining in disposable incomes may have pre-dated the crisis (Chart 4). Half of all UK households have seen no material recovery in their real disposable incomes since around 2005. Or, put more evocatively and provocatively, the majority of UK households have faced a “lost decade” of income. Next let’s look at employment. The aggregate numbers here are hugely impressive, with 2½ million new jobs created since 2010. The UK unemployment rate has fallen like a stone, from 8.5% in 2011 to around 5% currently. And the news gets better. Chart 5 breaks down these new jobs into full-time, part-time and self-employment. It is clear that the lion’s share of the jobs’ increase over the past few years is accounted for by rises in full-time work. This has been not just a jobs-rich recovery, but a full-time, jobs-rich recovery. Yet the nature of work may matter every bit as much as headline jobs numbers. Work is about more than just the money; it adds to life satisfaction and self-esteem and lowers anxiety and 4 4 Bernanke (2011). | The sharing of sovereignty is also the pre-condition for any risk-sharing mechanisms at the euro area level. The recent Report by the Four Presidents mentioned the gradually development of a fiscal capacity for the EMU – that is, a common budget for the euro area distinct from the EU budget. It identified two possible functions of such fiscal capacity: first, facilitating the adjustment to country-specific shocks; and, second, providing financial incentives for structural reforms. Reflections on this are at a very early stage and the pros and cons need to be carefully weighed but it is a very important component of a fiscal union. There is a long debate going back to the Werner Report in 1971 or to the preparation of the Maastricht Treaty on the degree of fiscal integration that is necessary to sustain a monetary union. In my view the key question on taking detailed decisions remains that of efficiency, being necessary to assess whether there are economic benefits in excess of costs in moving some expenditure to the euro area level. Economic union The third pillar, economic union, is necessary to ensure the conditions for prosperity within a monetary union and thereby prevent countries from becoming a burden on others. Without the possibility for exchange rate adjustment, countries have to remain sufficiently flexible to adjust through other channels as underlined by the theory of Optimal Currency Areas. | 0 |
In Malaysia, the payment system has significantly transformed over the last 25 years. The journey started many years ago in 1997, major changes to the payment landscape occurred with the consolidation of the three ATM networks in the country into MEPS. This initiative removed duplication and enhanced the network multiplier effects. In fact, Malaysia was among the first in the world to complete the migration to the more secure chip-based payment cards in 2005. To provide a roadmap for the development, in 2011, Bank Negara Malaysia developed a 10-year Financial Sector Blueprint which amongst others, outlined the initiative to displace paperbased payment instruments, namely cheques and cash, in favour of the more convenient and cost effective e-payment methods. We now have PayNet, the domestic shared infrastructure at the heart of the country’s payment systems. We envision PayNet to be a catalyst, one that challenges the status quo to drive its diverse members to foster competition and innovation, develop cost effective solutions and advance financial inclusion through digital payments. We should expect PayNet to ensure that the payment infrastructure of this country will always be at the cutting edge of technology. This will enable the economy to innovate, be competitive and productive. The results speak for themselves; we have made great strides. Payment card spending has increased by more than threefold since 2006 to RM176.9 billion in 2017. From 2011 to 2017, epayments per capita have more than doubled to 111 transactions. | We do not need to suffer the agony of remembering our account numbers ever again. The RPP will be facilitated by a National Addressing Database (NAD) and an interoperable QR code payment scheme. Seamless and secure payments between bank and non-bank e-money accounts will also become a reality. Given the overwhelming benefits from this initiative, it is incumbent on all of us to drive the promotion of RPP, such as in facilitating user registration with the NAD and merchant adoption of the common QR code. Let us make the RPP services a household service and transform all mobile phones into mobile wallets. The RPP should not be merely a banking service, but a lifestyle solution. The industry ought to build upon the RPP and enhance its research and development capabilities. One such area is through the publication of Open Application Programming Interfaces (or better known as Open APIs). Based on our interaction with the banking community, there is interest for this among our banks. The Bank’s survey last year indicated that more than 50% of banks in Malaysia view Open API as a high priority. Thus, the industry should leverage on Open API to facilitate collaboration with fintech firms to introduce innovations and facilitate new use cases to enhance the RPP’s value proposition to businesses and consumers. Notably, the RPP can offer a treasure trove of data. This can be mined to develop more tailored payment solutions, fraud detection capabilities, and to support potential strategic partnerships with financial or non-financial players. | 1 |
Another benefit of centralisation of portfolio management through delegation is that it allows firms to aggregate the execution of trades across vehicles, thereby achieving better outcomes for the end investor. It enables multi-manager funds that allow investors to diversify exposure to managers while minimising costs. And from an investor protection standpoint, centralised portfolio management allows investment firms to more efficiently address ‘fair allocation’ requirements – fairly allocating purchases or sales across all clients in similar strategies and to aggregate similar strategies when forming the performance ‘composites’ that are presented to prospective clients. Delegation, of course, has to exist within a framework of regulation to ensure investor protection. Fund managers need to delegate responsibly. Delegation must not be allowed to become devolution. Managers should not use delegation to escape their obligations and accountability for managing their investors’ money. They must supervise and track activities that have been delegated. And the entities to which they delegate must be regulated appropriately in their own jurisdictions. Supervisors in the respective jurisdictions need to be able and willing to cooperate. There are of course already global norms covering delegation. In 2000, IOSCO set out broad principles to underpin the regulation of delegated functions. In the EU, these have been already implemented through the likes of UCITS and AIFMD. I do not want to comment here on the detail and motivation of the current EU proposals. | But, as the global pool of non-bank assets has grown, the US share has declined while the share of emerging economies, most notably China has increased. (Chart 1) The growth of market-based finance since the crisis does not, as some have claimed, represent the movement of toxic risks out of the regulated banking sector into less regulated areas. Indeed the opposite, if anything is true, in that we have seen a movement within market-based finance away from the more dangerous forms of ‘shadow banking’ – away from the types of activities that were at the centre of the financial crisis and that amplified and transmitted stress to other parts of the financial system. 2 Much of this shift is the result of the post crisis regulatory reforms. As the Financial Stability Board (FSB) noted in its report to the G20 this year, ‘a series of measures are eliminating toxic forms of shadow banking and transforming the remaining into resilient market-based finance’. 3 In a nutshell, market-based finance has become a bigger part of the global system, more broad based regionally and less engaged in the riskier aspects of shadow banking. From a financial stability perspective, that is generally a good thing. There are a number of aspects of the growth in market-based finance that reduce financial stability risks. Most obviously there is the benefit of diversification. A strong, market-based channel of financial intermediation in the economy avoids over-reliance on the banking system and creates resilience. | 1 |
These developments were expected to bring important benefits to the financial system and the broader economy: o As part of the securitisation process credit risk is now “sliced and diced” and more widely spread in the financial system to be sold to a wide spectrum of investors o In theory, banks can offload those risks from their balance sheets to other financial investors – including hedge funds – and use their overall capital more efficiently o In this way, also in theory, risk is allocated to those agents best equipped and most willing to take it o So the overall capacity of the system to bear risks is, everything equal, increased With hindsight, we now see some unanticipated problems and difficulties associated with those innovations: BIS Review 144/2007 1 o There is no incentive for originators of loans to assess – let alone monitor – the creditworthiness of borrowers since they expect to transfer the totality to other investors. This explains the explosion of lending to subprime borrowers, with more and more "exotic" features during the last two years. This may also have fuelled the dynamism of the LBO market. o The process has gone with an increasing complexity of instruments, which combine an extensive use of derivatives with customization to individual investors' needs. This has made valuation and risk assessment more difficult. o Indeed, valuation of complex instruments is currently at the forefront of discussions between regulators, market participants and investors. | François Villeroy de Galhau: Digital innovation - what role can we play as central banks? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Singapore Fintech Festival, 8 November 2021. * * * Ladies and Gentlemen, It is always a great pleasure for me to have the opportunity to speak at the Singapore Fintech Festival, and I wish to thank Ravi Menon and the Monetary Authority of Singapore for organizing it. Although I am joining from Paris today, I look forward to coming back to Singapore soon to continue exchanging. Innovation may not be the first thing that comes to mind about central banks. After all, our institutions have been around for quite some time: MAS just turned 50 – and I take this opportunity to congratulate this golden Jubilee –, and Banque de France is more than 2 centuries old. We are more associated with stability than disruption… Yet the blossoming of digital innovation has the potential to transform the financial system in its entirety. We have to embrace these changes, but there are also things that we need to preserve in this process: the stability of the financial system. Innovation and stability can appear as contradictory in the short run; but they are complementary through a common value; a keystone: trust. Trust of the public in money. To be implemented effectively, these dual principles of innovation and stability require a cooperative setting. | 0 |
If confidence in public finances begins to loosen, many who would normally be willing to lend to the government, that is, buy government securities, will be reluctant to do so due to concerns about not getting their money back. When fewer people are willing to lend and those who do demand a higher return for the risk they take, interest rates rise. In turn, this means that government expenditure increases, the situation worsens and there is a risk of entering a negative spiral with increasing expenditure and rising deficits and interest rates. In a worst case scenario, fiscal tightening may be required in an already poor economic situation in order to restore confidence. To succeed with this is, of course, very difficult, as the austerity measures mean that the economy will shrink further in the short term. This, in turn, reduces the tax base and simultaneously increases the need for support for vulnerable groups. Given that there is confidence in the sustainability of public finances, there is also room to use fiscal policy to counter recessions and address structural problems in the economy. To a large extent, fiscal policy stabilisation of economic activity takes place via so-called automatic stabilisers, without any political decisions having to be made.3 However, if there is confidence in public finances, it is also possible to make decisions about expenditure increases or tax cuts, so-called discretionary fiscal policy, without this giving rise to doubts about the sustainability of the finances. | One recent example is the collaboration with the Carbon Disclosure Project, a leading international environmental disclosure platform, to launch a climate risk assessment project that assists corporates especially SMEs in reporting company-level, climate-related data to help financial institutions assess risk and make credit decisions. Let me now turn to the third critical element, which is talent. And this is also our key focus area. We are undertaking multiple tasks here. Number one is training. We began by collating and sharing information about highquality training courses and qualifications through a centralised platform run by the Centre for Green and Sustainable Finance. Number two is incentives. Through a government-funded green finance training scheme, we provide subsidies to help market practitioners, students and graduates obtain training and qualifications related to green and sustainable finance. 2/4 BIS - Central bankers' speeches Number three is developing a regulator-approved knowledge framework, or what we call the Enhanced Competency Framework, to provide a more structured programme for banking practitioners to build their knowledge and expertise in green and sustainable finance. This is a major undertaking that calls for close collaboration between the public and private sectors. It requires more than just regulatory push. The developmental work is equally important to provide the necessary ecosystem that supports climate financing. Indeed, Hong Kong has gone a long way in this regard and has firmly established its leadership role in the field of green and sustainable finance. As a snapshot, green and sustainable debt issuance in Hong Kong totalled $ billion in 2021. | 0 |
My speech today focuses on 3 areas: • Firstly, I will provide an update on the recent developments in Malaysia’s payment ecosystem and the progress that we have made thus far in accelerating the country’s migration to e-payments; • Secondly, I will highlight how JomPAY helps to address the current limitations in online bill payments and how it complements the existing efforts to expand epayment services; and • Finally, I will elaborate on the importance of industry-wide collaborative efforts and the role that MyClear and the industry can play in bringing the online bill payments market to greater heights. Recent developments in Malaysia’s payment ecosystem The use of cash and cheques remains prevalent in Malaysia. Malaysia’s cash usage measured by currency-in-circulation (CIC) over GDP was about 6% in 2013, which is 100% higher than the average in advanced economies 1. Likewise, Malaysia’s cheque usage per capita was 6.6 in 2013, which is 33 times higher than that in advanced economies 2. But the recent measures being instituted have shown tangible results. I am pleased to inform you that promising progress has been made since the introduction of the Pricing Reform Framework in May 2013 and the more concerted efforts taken to improve and promote the use of Interbank GIRO (IBG). In 2014, cheque usage declined at a faster rate of 10%, compared to only 3% in 2013. At the same time, the number of IBG transactions increased by 36% in 2014 compared to 19% in 2013. | Muhammad bin Ibrahim: Increasing payment efficiency to improve productivity Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the JomPAY’s Official Launch Event, Kuala Lumpur, 9 April 2015. * * * In today’s challenging and rapidly evolving world, one must constantly find innovative and efficient ways to remain productive, or risk being left behind. As payments represent an indispensable activity for both individuals and businesses, increasing payment efficiency through the adoption of electronic payments (e-payments) will improve productivity and reduce the cost of transactions. At the macro level, the adoption of e-payments has the potential to enhance Malaysia’s overall economic efficiency and competitiveness. The benefits in terms of cost savings and efficiency gains from a successful migration to epayments are substantial. The launch of JomPAY today is part of the journey towards realization of these objectives. JomPAY provides greater efficiency, convenience and accessibility for the public to make bill payments. It also represents a conscious strategy that will contribute towards making the way we conduct financial transactions more efficient. | 1 |
And only three years ago the Bank’s Court held its annual out-of-London meeting in Liverpool’s imposing Town Hall. I am particularly pleased to launch this, the third edition of the Merseyside Economic Review. The Partnership had its origins in a Daily Post campaign over a decade ago (‘who speaks for Merseyside?’). It broke new ground then and it has been breaking new ground ever since. The Economic Review was the first of its kind for any UK City Region. And the Partnership’s report on ‘the Gender Agenda: Women in the Merseyside economy’ is another first. The value of the Partnership’s approach is clear. Economic regeneration is a highly complex long term business which has to bring together many different bodies and initiatives – at local, regional, national, European and even international levels. It’s only too easy to lose sight of the big picture. But successful partnership rests on shared goals and clear expectations. This Review charts the way: it sets out in clear and simple terms what the Partnership is seeking to achieve and it assesses progress against measurable objectives. It has the credibility that comes from being grounded in serious analysis of the issues confronting Merseyside. And it has benefited from the advice of an independent panel of distinguished experts. There is no doubt that the performance of monetary policy has benefited greatly from setting clear objectives and measuring progress in a transparent and open way. | A strong krone and low external price impulses will continue to have a dampening impact on inflation, and inflation will remain below target for some time. Further ahead, higher capacity utilisation and profitability in the business sector point to a pickup in wage growth. At the same time, the fall in import prices will slow. To conclude: Norway has weathered the financial crisis better than most countries, and the economic recovery in Norway is now on a firm footing. Currently, interest rates are low, with the key policy rate at 2 per cent. In the years ahead, there are prospects for fairly strong growth in the Norwegian economy, driven by solid income growth, rising investment and high population growth. On balance, the consideration of stabilising inflation, as well as developments in output and employment, imply a gradual increase in the key policy rate towards a more normal level. Thank you for your attention. BIS central bankers’ speeches 11 | 0 |
13 Trade repositories provide a comprehensive overview of the transactions in the markets they serve, which contributes to better risk management, public supervision and oversight as well as market discipline. The ECB actively supports the current work to develop such a central database for the EU repo market. 14 It could be established in a joint effort by public authorities and the financial industry. b) Collateral optimisation Let me now turn to the second point on collateral optimisation. As recognised in the CPSS report, the “efficient and flexible use of collateral facilitates market participants’ collateral management and can contribute to the development of liquidity and smoothly functioning repo markets”. This was considered to hold true for repo markets in normal times as well as allowing an enhancement of the resilience of repo markets in times of stress. The need for efficient and flexible use of collateral facilities has even become 12 See, for instance, D. Duffie and H. Zhu, “Does a Central Clearing Counterparty Reduce Counterparty Risk?”, Review of Asset Pricing Studies, Vol. 1, Issue 1, December 2011. 13 Trade repositories are central databases that compile and aggregate data across various execution and clearing venues. 14 See Vítor Constâncio, Introductory remarks to the ECB workshop – Repo market and securities lending: towards an EU database, 3 December 2012, see https://www.ecb.int/press/key/date/2012/ html/sp121203.en.html. BIS central bankers’ speeches 5 greater in the past couple of years, taking into account the generally increasing demands for collateral assets coming from various quarters. | For example, the EONIA rate – the rate of unsecured overnight lending between some of the largest euro area banks – is an important first link in the chain of monetary policy transmission. Ever since the financial turmoil started in August 2007 – more than five years ago – and then became a severe crisis with the bankruptcy of Lehman Brothers one year later in 1 I wish to thank Fiona van Echelpoel, Benjamin Hanssens, Florian Heider, and Marie Hoerova, for their contributions to this speech. I remain solely responsible for the opinions contained herein. 2 CPSS report: “Strengthening repo clearing and settlement arrangements”, September 2010. BIS central bankers’ speeches 1 September 2008, money markets have not been operating smoothly. The outbreak of the financial crisis has been well documented, but it is worthwhile recalling the extent of the shocks, which are still being felt today. 3 Within a few days after the demise of Lehman Brothers on 15 September 2008, the EURIBOR-OIS spread, which had been zero a little over 12 months before, rose to a staggering 186 basis points (in the United States the spread rose to 365 basis points). In addition, cash-rich banks were apparently no longer lending to cash-poor banks. The flow of liquidity in the financial system came to a sudden stop. Prior to the bankruptcy of Lehman Brothers, banks hardly ever deposited funds at the ECB (where they earn the deposit facility rate, which at the time was 1% less than the policy rate). | 1 |
At the global level, the fall of the Soviet empire, the conversion of emerging Asia to market economics, accelerating advances in science and innovation in information technology and a deepening and widening of globalised financial markets have all been, or are, part of the powerful phenomenon of globalisation. At the European level, the adoption of the euro by 12 countries, structural reforms in goods and labour markets and the enlargement of the Union are some of the key developments in this respect. Therefore, disentangling the shocks that continually hit the euro area economy and assessing their impact on the risks to price stability in real time remains a very demanding task, in spite of the progress made in statistical data compilation, economic theory and econometrics over the past decades. In such a complex environment, a single model or a limited set of key indicators is not a sufficient guide for monetary policy. Instead, an encompassing and integrated set of data is required. The development of statistics for the euro area and the future priorities for further enhancements reflect this requirement. A rich set of timely statistical data is a necessary but insufficient precondition for sound monetary policy-making. Only if the information is structured and analysed in a consistent way will monetary policy makers be in a position to take the most appropriate decisions to obtain their policy goals. | Let me elaborate a bit more on these three themes: the need for an encompassing and integrated set of data, the achievements of, and outlook for, euro area statistics and the ECB’s framework for analysing this information. Monetary policy and the need for an encompassing and integrated set of data If we lived in the world of macroeconomic textbooks, a few simple models with a limited set of variables would be a sufficient basis for monetary policy-making and the statistical requirements could be kept to a minimum. As we all know, the real world is much more complex and, therefore, information needs are much more elaborated. In such a world, a rich and integrated set of data is needed because macroeconomic models, synthetic indicators and unconnected statistical indicators are often too rough a guide to the current and likely future development of the economy. As mentioned before, central banks have to take decisions under conditions of constant uncertainty. The economy is never at rest. A multitude of disturbances of diverse nature affect the economy all the time: financial shocks, demand shocks, supply shocks etc., and these cannot easily be distinguished in real time, let alone foreseen. In their attempts to identify disturbances and track how they spread through the economy, central banks are assisted by models. But too often, existing models are not sufficiently sophisticated instruments to identify shocks. For one thing, their focus may be too narrow, in a way that makes them BIS Review 67/2004 1 unduly selective. | 1 |
The neutral interest rate normally refers to the real rate of interest that has neither an expansionary nor a contractionary effect on the economy. 1 Central banks cannot influence the neutral interest rate but they must consider it when they adjust their policy rates. It is the relationship to the neutral interest rate that determines how expansionary or contractionary a particular monetary policy is. By causing the short-term real interest rate to temporarily deviate from the neutral interest rate, the central bank can affect resource utilisation and inflation via different channels. I would like to thank Mikael Apel for his assistance with the text for this speech, Emelie Theobald for help with the diagrams, Elizabeth Nilsson for translation to English and Kerstin af Jochnick, Björn Andersson, Meredith Beechey Österholm, Charlotta Edler, Rebecka Hallerby, Stefan Laséen, Åsa Olli Segendorf, Marianne Sterner and Ulf Söderström for helpful comments. 1 For a more detailed description, see for instance Kaplan (2018). ∗ 1 [24] One important problem with the neutral interest rate currently being so low is that monetary policy has less scope to stimulate the economy when necessary, as it is difficult to cut the policy rate as much as would be required. Moreover, estimates of the neutral interest rate and its driving forces usually indicate that it will remain low for a fairly long time to come. 2 This raises difficult questions both in the shorter and slightly longer perspective. | A couple of the rate-cutting phases we have had during this period have also been a little unusual. What happened in 1996 in particular, when the repo rate was cut from almost 9 to just over 4 per cent, was largely a question of confidence in the inflation target become established and enabling a substantial cut in the policy rate. The substantial rate cut in connection with the global financial crisis, from 4.75 to 0.25 per cent within the course of a year, was also special, as crises of this kind are fortunately rare (see Figure 3). In the United States, which has a longer history of a floating exchange rate, it is usually estimated that the policy rate is cut by around 5 percentage points in economic downturns. 5 It is reasonable to assume that in Sweden, which is a small open economy, a larger share of the adjustment in an economic downturn will come through the exchange rate than is the case in the United States. Let us say, without claiming any scientific exactness, that it would be desirable to cut the repo rate by 2.5–3 percentage points in a normal economic downturn. If the downturn were to occur at the beginning of 2021 and the policy rate were cut 4 Rudebusch (2016) shows that the probability of an economic upturn being broken does not now increase in proportion to the time it has lasted. However, this was the case with the economic upturns prior to the Second World War. | 1 |
In addition, collateral security must, as stipulated by the attendant regulations, be assessed as a market value calculated in a manner that is prudent and sustainable over time, i.e. it is possible that the experience of potential losses in adverse situations over the last twenty years may not be consistent with the characteristics of the current situation. This has to be taken into account by institutions in calculating the capital consumed by real-estate loans under the advanced Basel II approaches. But this need for prudent assessment is not limited to credit institutions: appraisal companies play a key role in Spain’s financial system and hence it is essential for them to operate under the clear prudential guidelines laid down in their specific regulations. The sustainability of results, their recurrence, the diversity of income sources and the ongoing search for efficiency are needed to strengthen the line of defence represented by the high profitability of Spain’s institutions. In this respect, we must not overlook the behaviour of the liabilities side of bank balance sheets. The financing of this high volume of assets has been made possible by their access to efficient financial markets after Spain joined the euro area. This enabled them to supplement their traditional deposit-based financing, which despite its strong momentum is insufficient to finance lending activities. | The dollar’s fall in the period 2002-04 has not prompted a turnaround in the progressive widening of the US external deficit, either because, as is well known, depreciations tend only to correct currentaccount deficits with a lag, or because of the aforementioned asymmetry in the behaviour of the dollar against the main currencies and the fact that it has scarcely depreciated against the currencies of the countries that are running the counterpart surpluses. In turn, in a situation of large current-account surpluses and strong capital inflows, the Asian countries with de jure or de facto fixed exchange rates against the dollar continued to build up sizable international reserves. The need of the Asian central banks to place these reserves also partly explains another salient feature of economic developments in 2004: the maintenance of long-term interest rates at abnormally low levels. This is also largely attributable to the persistence of low inflation expectations, set against highly credible counter-inflationary monetary policies, and to the conditions of ample liquidity in which international financial markets operated. For much of the year, European bond yields were markedly synchronous with their US counterparts, despite the different position of the fundamentals of the two economies. From November, however, European rates declined, moving progressively away from US rates so that the yield spread between these areas widened considerably. This more recent development is consistent with the uncertainty over economic recovery in the euro area and the brighter outlook for the US economy. | 1 |
Ivan Iskrov: Financial progress and prospects Speech by Mr Ivan Iskrov, Governor of the Bulgarian National Bank, at the Sixth Business Roundtable with the Government of Bulgaria, Sofia, 21 March 2006. * * * Dear Minister Oresharski, Ladies and gentlemen, It is a pleasure for me to participate together with the Minister of Finance in this panel event dedicated to the financial development and prospects of this country’s economy. Based on the statutory division of labour between the Central Bank Governor and the Finance Minister on the one hand, and between the Central Bank and the Government on the other, in my speech I will deal mainly with the issues relating to the country’s external position, the development of bank lending and inflation, and the impact these variables have on the BNB’s policy. I would like to immediately underscore that these issues cannot be discussed, outside the context of economic growth prospects, the accession of our country to the EU, and the trends of development in world economy. For better understanding of Bulgarian economy in the recent years, several global trends influencing significantly the development of our economy should be highlighted. Firstly, the dominance of the principle of free trade and the liberalization of capital movement, combined with the investors’ increasing propensity to hold assets issued by third country residents, brought about the on-going growth of international trade and exchange of capital. | Looking at the prospects and having in mind the country’s strategy for expeditious accession to the euro area, however, this is a macroeconomic variable which faces the country with the greatest challenges. The inflation criterion, as defined in the Maastricht Treaty (this is not the place to deal with the issue how good this definition is), is very strict and requires a purposeful policy going beyond the monetary and fiscal policies. In Bulgaria’s case, under the currency regime of fixed exchange rate and extremely conservative fiscal policy, untapped prospects should be sought in encouraging competition and improving the business climate, thus ensuring to the economy the flexibility to respond to exogenous changes (including with regard to the prices of raw materials) and enabling supply to react more promptly to increases in demand (both domestic and external). In the past year, inflation reached 6.5 % under the strong proinflationary impact of the increase in the prices of energy resources (direct contribution of 1.0 % in the overall price increase).In addition, the largescale floods resulted in an unexpected increase in foodstuff prices (contribution of 2.6 % in the overall price increase). This year, inflation is expected to decline to 6.0%. The slow process of decreasing inflation is mainly determined by the harmonization of indirect taxes with the minimum levels in the EU, pursued early in the year. | 1 |
At the heart of those distortions lay turmoil in the government bond market – the largest capital market in the euro area. The government bond market is extremely important for price formation in other capital market sectors – for bank and corporate bonds, for example. Spreads between the yields on the government bonds of euro area countries increased to levels that, in a number of cases, significantly exceeded those justified by fundamentals. Yields on Spanish and Italian ten-year government bonds incorporated premia of more than 6 and 5 percentage points respectively relative to German government bonds. Even at the short end of the yield curve, distortions could be observed: in July 2012 the yields on Spanish and Italian two-year government bonds peaked at 6.6% and 5.1% respectively, while the ECB’s main refinancing rate was 0.75% at that time. Those spreads could, in part, be attributed to concerns by market participants regarding the sustainability of public finances. Fiscal reasons alone did not provide a full explanation, however, because the rapid rise in spreads in the first half of 2012 was not accompanied by an equivalent deterioration in those countries’ fundamentals. At the same time, there was an acute risk that contagion would affect other euro area countries, pointing to systemic risks that were not limited to specific countries. A key factor driving those developments was fears in the markets regarding an involuntary break-up of the euro area – i.e. | fears concerning the “reversibility of the euro” and the BIS central bankers’ speeches 1 associated implicit exchange rate risk. This view was supported by model calculations which showed that, in July 2012, the spread that could not be attributed to fundamentals stood at up to 2 percentage points for Italian and Spanish two-year government bonds. There were also signs that international firms were hedging against the risk of individual Member States leaving the euro area. Britain’s financial supervision authorities were advising financial institutions to be prepared in the event of the euro area collapsing. Moreover, Spanish and Italian banks lost their access to market-based financing instruments. Between April and July 2012 Spanish bank bonds to the value of € billion matured, but no more than € billion of Spanish bank bonds could be newly issued during that period. Against that background, we had to conclude that, in individual parts of the euro area, the steering of monetary policy was not functioning fully, or was in part not functioning at all. The key interest rate had lost its key function, with considerable disruption of the transmission of monetary policy on account of the implicit exchange rate risk. This economic environment clearly pointed to a significant credit crunch and a severe decline in economic activity. There was a risk of an incipient deflationary spiral – a process involving continual declines in prices. Price stability would then no longer have been ensured across the euro area. | 1 |
By end-2007, consumer inflation had reached 8.4 percent, exceeding the 4-percent target. However, the fall of core inflation (which excludes items beyond the control of monetary policy such as food and energy) to 4.8 percent confirmed that the monetary tightening implemented in 2006 was the right policy choice. During this period, domestic demand and capacity conditions also continued to support the disinflation process. In early 2008 the supply side shocks in food and energy prices started to exert significant inflationary pressures, as they reached unprecedented levels above and beyond expectations. For instance, October 2007 Inflation Report, based on forecasts of international agencies, had foreseen oil prices around USD 70 per barrel in 2008 and a gradual correction in food prices. In other words, it was assumed that supply side shocks would be temporary and that they would lose impact after a while. These forecasts were in line with pricing in forward and futures markets. However, these expectations did not materialize. Both crude oil prices and agricultural commodity prices continued to rise. The adverse impacts of supply shocks reached unprecedented levels during the first half of 2008. 4 BIS Review 82/2008 Under normal circumstances, supply shocks are expected to have a temporary impact on relative prices, not changing the course of medium-term inflation. Nevertheless, the emergence of multiple shocks at the same time and their persistence for a considerable period aggravated the risks on pricing behavior. | At times during the 1970s and 1980s, when the so-called anglo-saxon model of relatively unbridled financial markets was not delivering particularly good results in terms of economic growth, there was some envy of what one might depict as the institutional model of corporate ownership, as evident in Germany and Japan for example. In this model much of the equity of major businesses is closely held by friendly groups of long-term investors including one’s bankers and associate companies. It has been argued that this arrangement provides the best environment for long-term growth and stability, in contrast to the situation where businesses are exposed fully to the cut and thrust of the stock markets, which are characterised as being populated by people seeking only short-term profit and ever alert to opportunities for takeovers, asset stripping and the like. But experience of the 1990s does not support that view. Germany and Japan have been the laggards of the decade. The true cost to Japan of the longstanding cosy relationships between banks, industrial corporations and government ministries has become apparent. And we watch in some amazement the reaction among some sections 1 BIS Review 135/1999 of the political and business communities in Germany to the Vodafone/Mannesmann takeover battle an almost unprecedented (for Germany) hostile bid, no more palatable for being from abroad - along with the government’s efforts to save the Holzmann construction group, not to mention the authorities’ stout defence of the largely state-owned domestic regional banking network there. | 0 |
Except for a few interludes, they have partied along for decades using the people’s money as though life were an endless summer, storing nothing to draw upon for the blustery fall and the bleak winter that inevitably follow. Now a fiscal reckoning is upon us. The gig is up. Congress can no longer carry on as before, oblivious to the deleterious effect of spending our, and the successor generations’, money with unfunded abandon. Tongue firmly in cheek, Carol Reed might have reminded us that there are alternative versions of this fable. In 1924, Somerset Maugham wrote a version about two brothers: one an ant-like hard worker and the other a grasshopper wastrel. In the end, the grasshopper marries a rich widow who dies and leaves him a fortune.2 Case closed! In Things Change, a film released by Columbia Pictures in 1988, the character played by Don Ameche recites a version in which the grasshopper, fed up with all this moralizing about the virtues of hard work and saving for a rainy day, just up and eats the ant. I think we can safely assume that neither of these scenarios will occur. No one is going to bail out the government at the last minute. The ants that are the hard-working taxpayers are, if anything, poised to chew up and spit out improvident politicians should they fail to put an end to fiscal profligacy. | In their solution to the debt crisis, our political leaders must develop an entirely new structure of incentives for private businesses and investors to put their money to work creating jobs here at home. Only fiscal authorities have the power to affect this outcome. Monetary authorities, like me and my colleagues on the Federal Open Market Committee of the Federal Reserve (FOMC), have limited influence. We can fill the gas tank with attractively priced fuel – abundant and cheap money – needed to propel the economy forward. But we cannot trigger the impulse to step on the pedal and engage the transmission mechanism of job-creating investment by the 2 2 See Collected Short Stories, by William Somerset Maugham, New York: Penguin Books, 1972. BIS central bankers’ speeches private sector. This is the province of those who write our laws and regulations – the Congress of the United States. I firmly believe that the Federal Reserve has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with. But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $ trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses. | 1 |
Or will protectionism rear its head? Although these may be slow burn, gradual issues, they could over time have a significant effect on labour supply. I would expect that those involved with monetary policy will have this area on their radar screens for many years to come. Such a new way of thinking about the labour market alters how we need to think about capacity in the economy in general and indeed the output gap in so many areas of the economy. Pensions and longevity The last of my four areas today is longevity and pensions. I hesitate to mention it, because for many this is an area more for social policy than for monetary policy. But for me there is a clear monetary policy dimension. I will not attempt a long commentary on the underlying issues. We are all familiar with the facts, both as they relate to the need to anticipate working longer; and to the policy of governments in many countries of transferring risk in pension provision from the state towards the individual. In addition we are increasingly aware that returns on many asset categories that are suitable for inclusion in pension funds have been more modest in recent years. For monetary policy the key issue is how and over what timeframe will these changes impact on savings, which at a domestic level are likely to have to increase to provide adequate income in retirement. | In particular how best to assess the sometimes bewildering quantity and variety of data; yet to keep a sense of perspective in relation to the big issues. There is for example the need to understand the implications of the frequent data revisions and updates: how to think about them and what conclusions we need to draw ahead of the next policy decision. But it is the big picture issues, all of which have puzzling unknowns, which have fascinated me most. We spend considerable time reflecting on these in our quarterly forecast round, when we estimate the course of the economy and inflation three years ahead. The November Inflation Report was published a couple of weeks ago and provided an analysis of the UK economy, the factors influencing policy decisions and the MPC's latest forecasts for inflation and output growth. The models of the economy that we use to produce these projections provide a framework to organise thinking on how the economy works and how different economic developments might affect future inflation. The forecasts need to reflect the uncertainty in the economy. The technique we rely on is “fan charts”. [Chart 1] They show the Committee’s best collective judgement about the balance of risks and uncertainty around the central case. It means that members can agree on the overall outlook and balance of risks, even though they may come to that view for slightly different reasons. | 1 |
Jessica Chew Cheng Lian: Harnessing innovation for the sustainability of the MSB industry Speech by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Money Services Business Asia Pacific Conference 2017 "Harnessing Innovation for the Sustainability of the MSB Industry", Kuala Lumpur, 5 September 2017. * * * It is my great pleasure to be here with you today at the Money Services Business Asia Pacific Conference 2017. I would like to congratulate the Malaysian Association of Money Services Business for organizing this event. Thank you for allowing me an opportunity to offer some remarks on this occasion. Over the last decade, the global MSB industry has made significant strides. Worker remittances have more than doubled to USD420 billion between 2007 to June 2017, providing critical resources that have helped lift families and communities in developing countries out of poverty, and facilitating greater talent mobility. Meanwhile, the currency exchange business has followed the fortunes of global business travel expenditures that have surpassed USD1 trillion annually, as well as over a billion international tourists arrivals recorded annually for the last 7 years. At the same time, the cost of money remittances has also fallen. The global average remittance cost has come down from above 10% a decade ago to 7% in 2016. Several countries have already met or surpassed the World Bank’s target of reducing costs to 5%. | Innovation is as much about creating new institutions and smart collaborations to advance common goals, as it is about inventing a new product. We see this in the notion of “co-opetition”, where competing firms have found benefits in coming together to build shared infrastructure, or to facilitate the exchange of information for the purpose of preventing criminal activity and guarding against cyber threats, all the while remaining fierce competitors in their product and service offerings. Innovation is also about constantly finding better ways to do things within an organisation in order to deliver a better customer experience and to keep organisations interesting and fresh. It is about changing mindsets and culture to ensure that institutions never become tired or irrelevant. It is about re-thinking our approach to developing the workforce so that we are at our most agile to deal with new challenges and risks. These are all important aspects of innovation and I am reminded that in Malaysia’s own journey to transform the MSB industry, we benefitted from charting new and sometimes, untested paths to solve the problems that we faced. For example, we learnt from and then re-defined the principal-agent model to meet the dual objectives of maintaining broad access to money services while raising compliance and operational standards. We departed from conventional regulatory and supervisory approaches, on the conviction that we could not achieve our objectives through enforcement alone. | 1 |
In the Monetary Policy Report we assumed that GDP growth in Sweden will be 2.1 per cent this year and 1.2 per cent next year. Several factors indicate a slowdown in growth. For instance, Swedish exports will be negatively affected by the weaker international growth, particularly in the United States. Moreover Swedish households’ consumption will slow down for several reasons. Real disposable incomes will show weaker development and real wealth will be dampened. Households’ expectations are very pessimistic. At the same time, there are factors that may to some extent hold back a slowdown. The financial balance in Sweden is good; the current account shows very large surpluses and public sector finances are robust. The latter make it reasonable to assume further fiscal policy stimulation over the coming years. In addition, the Swedish financial sector has fared relatively well in the international financial turbulence, which reduces the risk of a serious credit crunch. But growth will nevertheless slow down. This means that the labour market will deteriorate towards the end of the year. We assumed in the Monetary Policy Report that the rapid increase in employment would come to a halt this year and that employment would fall slightly over the coming two years. We also assumed that the decline in unemployment would cease and that unemployment will increase slightly in the coming two years. BIS Review 100/2008 3 Inflation is high but expected to fall towards the target of 2 per cent Inflation was 4.4 per cent in July. | We were unanimous on the one decision to raise the interest rate by 0.25 per cent, but not on the other decision regarding the interest rate path. The majority of the Executive Board members considered it reasonable to have an interest rate path that involved a substantial probability of a further two increases during the year, while the minority considered it reasonable to have an interest rate path that involved some probability of one further increase. The minority’s assessment was that the slowdown of the economy that is now BIS Review 100/2008 5 taking place would dampen inflationary pressures to a greater extent than assumed in the main scenario. There would therefore be less need to continue increasing the interest rate. 4. Developments during the summer I have earlier discussed what happened during the summer in the world around us. The trend of falling growth and rising inflation has broadly continued. One important change is that the oil price and other commodity prices have begun to fall, which may further slow down price increases. The dollar has risen in value against the euro and the krona, which also means that the krona has weakened against a weighted average of other currencies. The financial market turmoil has also continued. I intend to conclude by summarising the important new information on developments in the Swedish economy since the monetary policy meeting at the beginning of July. | 1 |
31.05.2022 Crypto-assets: a financial authority’s view Masters in Finance Closing of the Speakers Series, ESADE Pablo Hernández de Cos Governor Good afternoon. I am delighted to be here today to address an audience of recent Masters graduates. Not only as recognition of the growing importance of furthering our education in such a changeable world, but also because it affords me the opportunity to talk about cutting-edge themes with those who will play a leading role in the future of our society. Among the many topical issues I could have selected for my address, I believe crypto-assets are the most suitable choice. Among other reasons, because young high-earners who study or work and live in big cities are precisely those who best fit the typical crypto-asset investor profile in Spain.1 Despite being a somewhat misleading term, so-called “virtual currencies” have already been part of our lives for over a decade now. However, only in recent times a series of factors have emerged that seem to be underscoring their ultimate potential to end up playing a significant role in the financial system. | Cryptoassets represent a new competitive threat for traditional transactional services, with some variants (such as stablecoins) also potentially compromising deposit-taking activities as 17 See “Assessment of Risks to Financial Stability from Crypto-assets”. FSB (2021). 18 https://www.bde.es/f/webbde/Secciones/Publicaciones/InformesBoletinesRevistas/InformesEstabilidadFinancera/22/F SR_2022_1_ChE.pdf 19 This extends to all matters concerning compliance with the tax obligations associated with investing in these markets. With this in mind, Spain has announced new reporting obligations that are expected to enter into force in 2023. The treatment of such assets for the purposes of the various different taxes has to date been resolved in the form of requests for binding rulings from the Directorate General of Taxation. 20 See “Research Note: Cryptoasset consumer research 2021”. FCA (2021). 21 Specifically, even though half were University graduates, almost two thirds of the crypto-asset owners interviewed admitted to having limited or zero understanding of the most basic features of the associated risks and rights. See “Cryptoassets in Asia: consumer attitudes, behaviour and experiences”. OECD (2019). 22 See “Cryptic Connections: Spillovers between Crypto and Equity Markets”. Iyer, T. (2022), IMF Global Financial Stability Notes, No. 2022/01. 6 they intend to become a store of value. As highlighted in some recent papers, a disorderly disintermediation in the event of an accelerated substitution of bank deposits for such digital assets could ultimately affect the banking sector’s net financing capacity and lead to credit being rationed or becoming noticeably more expensive. | 1 |
The slow and uneven vaccine rollout, even in some advanced economies, and its very limited availability in the LICs are matters of serious concern. Enabling global access to effective and affordable vaccines is a global responsibility, and an ethical and moral issue. We support the Managing Director’s Global Policy Agenda (GPA) and its wellplaced focus on creating conditions for a safe exit from the crisis followed by a sustained, strong and inclusive global economic recovery. We welcome the GPA’s recognition of difficult challenges facing many developing countries in pursuing their development and social objectives, while facing severe financing constraint and high debt. We further welcome the increasing IMF emphasis on middleincome countries as many face stalled growth and large financing needs in tighter market conditions. Our constituency is a heterogeneous group of countries and a mix of fragile and conflict-affected states, middle-income and frontier economies, and oil exporting countries. The crisis has severely impacted all countries of our constituency. Our authorities reacted swiftly to the crisis and implemented measures to alleviate its impact on lives and livelihoods, with some of our members benefitting from Fund emergency and/or Upper Credit Tranche (UCT) facilities. The economic recovery is gradually taking shape in our constituency, but at varying pace and degrees. The rebound of international oil prices provided welcome relief to oil exporters in our constituency, but financing pressures continue to persist, and economic diversification challenges remain. | We support the IMF in scaling-up its work on the macro-critical implications of climate change, digitalization, poverty alleviation, youth employment, and inclusiveness in general. We look forward to the successful conclusion of a new general SDR allocation of $ billion and encourage the Fund to work on options for voluntary reallocations of SDRs for the benefit of poorer members. We welcome the doubling of the New Arrangements to Borrow, as well as the renewal of the Bilateral Borrowing Agreements to meet the members’ high and growing overall demand for Fund resources and the shift towards UCT arrangements. We welcome the work on the 16th General Review of Quotas and reaffirm our commitment to a strong, quota-based, and adequately resourced IMF at the center of the global financial safety net. 2/2 BIS central bankers' speeches | 1 |
In facilitating this transition, Bank Negara Malaysia is reducing transaction fees for the RENTAS system (the real time gross settlement system operated by Bank Negara Malaysia) for payments made by financial institutions on behalf of their customers. With effect from 15 July 2008, the RENTAS transaction fee imposed on the member banks will be reduced by RM1.00, from RM2.50 to RM1.50. This reduction in fees will result in a corresponding reduction in bank charges imposed by member banks on their customers for RENTAS payments with effect from the same date. In addition, the banking industry will be reviewing the fee structure for fund transfers to apply a fixed fee instead of the existing Inland Exchange Commission of 0.03%. In this environment, the SMEs also need to initiate their own measures to complement those undertaken by the Government and the banks. Achieving cost efficiency and productivity improvements needs to be a priority for SMEs. SMEs should look at every facet of their business operations to identify ways to streamline processes, eliminate waste, consolidate activities and adopt new technology and energy-efficient processes. SMEs that operate in common geographical locations and that have similar production inputs, should also consider pooling their purchase requirements to benefit from bulk discounts by suppliers, in addition to sharing common costs such as transportation. In this regard, the Chambers of Commerces and industry associations can have a key role. They can facilitate the bulk purchase of raw materials for their members. | The market for information and statistics There are market based statistics-producers in developed countries. The market agents are ready to pay a price in order to acquire such statistics. The producers of statistics conduct frequent market surveys, analyse results, supply them on line at a price and help market agents to create wealth. Unfortunately, in Sri Lanka, we do not have such market based statistics-producers. The collection and analysis of vital data that are useful to market agents are being done by a few governmental organisations. Like any other product supplied by the government, such data are also supplied as a public good free of charge. Even when the governmental agencies could sell statistics at a price, they do not venture to do so, because they are guided by such principles as “doing utmost benefit” to people as a social service. The country too, therefore, expects free goods from these governmental organisations. But this creates a problem known as “the agent-principal problem” in economics. The agent-principal problem The agent-principal problem is typical to any government service. It says that the agent who is a government bureau or a department or even a university does not have incentive to produce its output at its best. The principal who is the user of the service, on the other hand, is scattered and not in a position to influence the agent to improve quality. | 0 |
True, some of them had to do with political change and policy uncertainty to the heart of the developed world, but on top of that, major empirical and theoretical puzzles are challenging central tenets of monetary policy. In particular, inflation appears not to be responding to monetary policy as expected in advanced economies. Despite record- low interest rates over many years and massive liquidity injections by central banks through asset purchase programs, inflation has not picked up as expected. Explaining the apparent unresponsiveness of inflation has become a theoretical and empirical challenge that has drawn great attention from academia and policymakers in the last couple of years. Inflation dynamics and the way they interact with other economic variables are, of course, crucially important to central banks that have price stability as their core mandate. Most of them currently deliver on this mandate under a forward inflation targeting framework, whereby the stance of monetary policy seeks to achieve convergence of forecasted inflation to the target over a medium-term horizon. This prevents central banks from having to respond to short-term price volatility, but if inflation does not respond to monetary impulses as predicted by models, policymaking may become a much more complex game. If price responses get delayed in a highly accommodative environment, financial imbalances may build up, fiscal discipline may be eroded and inflation risks may get underpriced by markets, exposing themselves to reversals with data surprises in the future. | In pursuit of this we look at factors affecting the underlying robustness of the financial system, as well as potential “triggers” which, especially at times of structural weakness, could bring on a crisis. Our remit is of course in relation to the UK financial system – but this work has a substantial international dimension, given the openness of the UK economy, and the international character of much of the City. What does this mean in practice? The Bank’s financial stability work include such things as overseeing the UK payments systems; analysing broader developments in the banking, securities and insurance sectors, and the evolving strategies of London’s securities exchanges; looking at developments in emerging market economies; and contributing to the debate on the reform of the international financial system. In short, the Bank’s financial stability team has to analyse and respond to any developments – market or institutional; structural or temporary – that could threaten financial stability. Our second relevant core purpose is to promote the competitiveness of the UK financial services sector. This is not a lobbying function; we are concerned with the promotion of effectiveness and efficiency, not the acquisition of favours. Nor is it a responsibility exercised only in respect of UK owned firms. The UK financial services sector is more truly international than that in any other country in the world. The Bank, and the other authorities in the City, have an unwavering commitment to openness, and the provision of a level playing field to all firms regardless of nationality. | 0 |
It is admitted that the Treasury is actually free of foreign debt and virtually debt-free domestically, if one takes into account its deposit balance in the Central Bank. The Bank’s foreign reserves and equity have never been larger than they are today. However, it has been said that Iceland’s banks have grown substantially, which makes the foreign reserves proportionally smaller. It is appropriate to remember that banks in Iceland, as elsewhere, are responsible for their own operations, and they must demonstrate prudence and sound risk management. According to the banks’ own declarations, to which the Financial Supervisory Authority has not commented, their financing status is at least comparable to that of comparable foreign banks. Therefore, they need not rush into disadvantageous credit markets ahead of others. However, it cannot be denied that the Icelandic economy’s total debt is too high, which can be traced to the decisions made by financial institutions and other companies in the market. If the Central Bank’s foreign reserves are compared with those of several countries outside the largest currency zones, it can be seen that, according to information from the International Monetary Fund, Iceland’s reserves as a percentage of per capita income are equal to or greater than those in, for instance, Australia, Sweden, Canada, and New Zealand. In terms of importation of goods, Iceland’s position is also excellent. Only New Zealand is stronger overall. In terms of importation of goods and services, Iceland is well above average. | The Central Bank itself takes the view that criticism of its work is desirable. Within the Bank, all are aware that, for every decision made, several options were possible, and the decision to embrace one option over all others is accompanied by a variety of consequences. In making decisions under such circumstances, there must be ample room for comment, contrasting viewpoints, and criticism. And – thank goodness – the Central Bank has not been free of such comments and criticism. Indeed, most comments have been presented in a responsible and appropriate manner and have been both helpful and useful in the broadest sense. That is not to say that there aren’t exceptions – predictable canting litanies that are of little use to anyone – but valuable comments have nonetheless been salient and they are heard and considered. Last Tuesday, after the Easter holidays, the Bank announced several amendments to its internal rules and terms. Those amendments were designed to grease the wheels of the financial markets, which must now tolerate deteriorating operating conditions. The Icelandic government has also announced a bond issue that is launched with the same objective. Though the Central Bank does not wish to make too much of these changes, the purpose is to pave the way for easier operation of the financial system during at time of difficulty on the global front. | 1 |
So, instead of providing forecasts – a risky enterprise that I will leave to the expert speakers at this conference – let me set out what I think will be the key driving forces for the global economic outlook and examine their implications: First, fiscal policy is on the rise, chiefly in the US but also in the other major advanced economies. Second, monetary dominance is giving way to monetary divergence and financial conditions are tightening globally. Third, the challenge of balancing growth and stability will become more acute in China and emerging Asia. Fourth, a rise in trade protectionism and, more broadly, a pushback against globalisation, can seriously undermine growth prospects not just in 2017 but also over the medium-term. The rise of fiscal policy Let me begin with the new kid on the block – fiscal policy. Since the global financial crisis, across the advanced economies, monetary policy used to be the only game in town as governments struggled to restore debt sustainability. Fiscal policy is now, for the first time since 2009, turning more expansionary. 2/7 BIS central bankers' speeches According to the BIS, estimated cyclically adjusted primary balances in the advanced economies turned slightly negative in 2016. This is likely to continue in the years ahead. What is behind this shift in the balance of the policy mix? First, policymakers are increasingly recognising the limits to unconventional monetary policies and the associated financial stability risks. | 6 What could be done to minimise the risks associated with these developments? Certainly, the build-up of debt across different sectors needs to be monitored. Also, the regulation and supervision of the non-bank financial sector needs to be revisited. Despite some recent improvements, it is fair to say that, compared to the banking sector, we do not have enough information about the activities of non-bank financial intermediaries, nor sufficient understanding of their interconnectedness with other market players. We also lack consistently tested macroprudential policy tools that could be used to address the risks that have been already identified in this market segment. Progress in this direction is of the utmost importance. “New” risks Of course, the risks to global financial stability originating from low profitability in the banking sector and the search for yield by different market participants should be carefully monitored and addressed going forward. Yet as I mentioned before, in a rapidly changing world and in an ever-evolving financial sector, regulators should likewise heed a set of emerging risks which could also be potentially dangerous for financial stability. And this because, in many cases, we do not have the data, or even the conceptual framework, to analyse their implications (especially when compared to the more traditional risks). - Technology-related risks: cyber risks I will launch the discussion on these “new” risks by referring to those associated with the adoption of new technologies. Clearly, new technologies are not just a risk, they are also an opportunity. | 0 |
I would like to commence my speech by reviewing the global economic outlook, given its ongoing influence on our policies. Volatilities in financial markets continue amid uncertainties about global monetary policies and concerns over global growth. Interest rate volatility experienced some decline right after the anticipated first Fed rate hike in December 2015; however, volatilities began increasing as of early 2016 mainly due to worries about the Chinese economy and geopolitical developments (Chart 1). The global economic slowdown since 2014 continued into the second half of 2015, especially across emerging market economies. Commodity prices remained on the decrease as well. Developing economies were largely affected by the global fluctuations in this period. Portfolio inflows stayed weak and exchange rate volatilities remained high (Chart 2). The effects of global market volatility were felt in the Turkish economy as well. However, reduced domestic uncertainty and the CBRT’s tight monetary stance and other liquidity –and financial-stability– oriented policies limited these effects. Chart 1. Chart 2. (MOVE Index) (Basis Points) (4-Week Moving Average, Billion USD) VIX and US Interest Rate Volatility Index Source: Bloomberg. BIS central bankers’ speeches Portfolio Flows to Emerging Economies and Currency Volatility Index (JPMVXYEM) (Percent) Source: EPFR, Bloomberg 1 1. Monetary policy and financial conditions As you all know, we released a road map on 18 August 2015 regarding the policies to be implemented before and after the normalization of global monetary policies. | 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. | 1 |
Florin Georgescu: Challenging the status quo in management and economics Opening remarks by Mr Florin Georgescu, First Deputy Governor of the National Bank of Romania, at the Strategica International Academic Conference "Challenging the Status Quo in Management and Economics", Bucharest, 11 October 2018. * * * Distinguished guests, Ladies and Gentlemen, I am glad to welcome you at the National Bank of Romania, as we host today the 6th edition of this prestigious international conference, together with the National University of Political Studies and Public Administration, and the Romanian Academic Society of Management. The debates today will be held under a generous and timely topic: “Challenging the Status Quo in Management and Economics”. We couldn’t have a better moment to discuss challenges to the status quo than today, as we witness a whole range of economic, social and political forces pushing for change all over the world. If this change is in the sense of progress or not, that remains to be seen. I trust that your presentations and insights will shed more light on these trends. I confess that I had a look at the titles of the presentations in both days of the conference, and the word that appears most frequently in these titles is knowledge. And I realize that not less than 50 years ago, Peter Drucker, the philosopher and management guru, launched the concept of knowledge economy. Since then, economists and management specialists of all doctrines, put knowledge at the forefront of their views of the world. | Ravi Menon: Asia's digital transformation Remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the GIC Institutional Investors Roundtable, Singapore, 31 October 2018. * * * Ladies and gentlemen, good morning. I thank GIC for the invitation and am pleased to meet all of you. Why FinTech? About three-and-a-half years ago, the Monetary Authority of Singapore (MAS) made a momentous decision - to promote an innovative and dynamic financial sector by working with the industry to harness the power of technology. We saw that technology was transforming the way people live their lives, the way companies deliver products and services, and the way cities work and connect. Meanwhile, the financial industry globally was facing the headwinds of slower economic growth, tighter regulation, and keen competition from non-financial technology players. Technology presented an opportunity to inject new dynamism and new growth in financial services. It was an opportunity to increase efficiency in an industry that had some of the most archaic practices around – just think of interbank payments and settlements. It was an opportunity to manage risks better: financial institutions were pouring ever more resources into compliance and risk management – and still getting into trouble. Most of all, it was an opportunity to improve people’s lives to bring financial services to the unbanked and uninsured in Asia; to help a growing middle class plan its finances more holistically and efficiently; to help enterprises raise money, make payments, and tap new markets. | 0 |
More extensive powers to achieve financial stability In the area of financial stability, our new Central Bank Act incorporates an explicit mandate of the Central Bank for financial stability. This mandate is articulated in terms of the risks to financial stability that includes risks that disrupts the financial intermediation process (including the orderly functioning of the financial markets), or which affects public confidence. The Act also provides comprehensive provisions for heightened surveillance, pre-emptive actions and expanded resolution powers to facilitate the swift and orderly resolution of financial crises. The Bank may also take appropriate intervention actions to avert risks that stem from unregulated entities. The Act further acknowledges the importance of coordinated policy measures across different agencies whose actions can affect financial stability. Accordingly, the new Act provides for cooperation arrangements with other supervisory authorities and the ability of the Central Bank to make recommendations to such authorities on measures or safeguards for promoting financial stability. These new powers are complemented by strengthened institutional arrangements in the form of the establishment of a Financial Stability Executive Committee that will be formed to ensure the effective coordination of regulatory authorities in financial resolution. Enhanced governance and accountability framework With these enhanced powers, the governance and accountability framework in the Act has also been strengthened considerably. This relates to the enhanced role of the Board of Directors' in the oversight of the management of the Bank. | In particular, it stated that the Committee expects it will be appropriate to maintain the federal funds rate at its current target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.9 By linking future policy actions to economic outcomes and ultimately our dual mandate goals, this forward guidance clearly describes the key elements of the FOMC’s reaction function to economic developments and a changing outlook. Ready to Adapt One of the most important, but perhaps overlooked parts of our August announcement is that we will review our longer-run framework roughly every five years. This represents the Fed’s commitment to transparency and our willingness to continue to adapt to changing circumstances. Reviewing our longer-run framework and approach to our goals more frequently will ensure we are well prepared for the future, whatever it may bring. Conclusion I’ll conclude with this: these are extraordinary times. The announcement of changes to our longer-run framework comes during one of the most challenging periods our country and our economy have ever faced. These changes to the framework mean that we are well positioned to deliver on our dual mandate goals and support a strong and sustained economic recovery. 1 See Board of Governors of the Federal Reserve System, Statement on Longer-Run Goals and Monetary Policy Strategy, as amended effective August 27, 2020. | 0 |
Liquidity-constrained institutions were forced to sell assets at increasingly distressed prices, which accelerated margin calls for leveraged actors and amplified mark-to-market losses for all holders of the assets, including regulated firms. Here, too, government regulators and supervisors had insufficient data to determine the degree and location of leverage in the financial system. More generally, the crisis revealed that regulators, supervisors, and market participants could not fully measure the extent to which financial institutions and markets were linked. A critical lesson from this crisis is that supervisors and investors need to be able to more quickly evaluate the potential effects, for example, of the possible failure of a specific institution on other large firms through counterparty credit channels; financial markets; payment, clearing, and settlement arrangements; and reliance on common sources of short-term funding. A better system of data collection and aggregation would have manifold benefits, particularly if the data are shared appropriately among financial regulators and with a systemic risk council if one is created. It would enable regulators and a council to assess and compare risks across firms, markets, and products. It would improve risk management by firms themselves by requiring standardized and efficient collection of relevant financial information. It also would enhance the ability of the government to wind down systemically important firms in a prompt and orderly fashion by providing policymakers a clearer view of the potential impacts of different resolution options on the broader financial system. | Foreigners investing in Malaysia are also free to hedge with onshore banks their committed flow of funds such as the repatriation of investment proceeds, dividends and profits from Malaysia as well as the purchase of ringgit assets in Malaysia. There is free mobility of inward and outward movement of funds relating to both foreign direct investment and portfolio capital investments. Multilateral development banks and multinational corporations may also issue ringgit or non-ringgit denominated instruments in the domestic bond market. To enhance the delivery system, an executive committee of key government officials, financial regulators and industry players has been has been set up for the implementation of the initiatives to support the operations in the Islamic financial system. Among others, an "executive green lane" has been accorded to expedite applications by expatriates for long-term employment passes with multiple entry visas. The Foreign Investment Committee rules will also be relaxed further to allow 100 percent foreign equity ownership in these financial institutions. Moreover, the Islamic financial system will also adopt a conducive stance on Shariah interpretations and practices, consistent with its international dimensions. It will mutually recognise and accommodate the various juristic reasoning that has been approved by recognised Shariah advisers. In conclusion, I wish the Malaysia Country showcase a success. I invite the business and financial communities from this region and the Malaysian delegation to capitalise on this event to arrange for business meetings on the sideline of this Summit. Thank you. 2 BIS Review 48/2007 | 0 |
For this, we have put in place a comprehensive Islamic financial system that includes Islamic banking, takaful and Islamic money and capital markets. These activities are adequately supported by the legal, human capital, Shariah and regulatory infrastructure, a diversity of players and a wide range of products and services. To further promote the international dimension of Islamic finance in Malaysia, the Malaysian Government has also launched an initiative known as the Malaysia International Islamic Financial Centre or MIFC. The MIFC initiative is specifically undertaken by the collective efforts of the country's financial and market regulators, including Bank Negara Malaysia, the Securities Commission, the Labuan Offshore Financial Services Authority (LOFSA) and Bursa Malaysia, together with the participation of the industry representing the banking, takaful and capital markets. It is aimed towards building greater intermediation linkages between the East Asian and Middle East regions which will in turn, further expand interregional trade and cross border investment flows. As part of the MIFC initiatives, local and foreign financial institutions are allowed to establish International Islamic Banks (IIBs), International Takaful Operator (ITOs), as well as International Currency Business Unit (ICBUs) to undertake international currency business in Islamic finance with non-residents through either a locally incorporated entity or a branch. This entity is granted attractive tax packages in terms of a 10-year tax holiday. The Foreign Investment Committee rules have been further relaxed to allow 100 percent foreign equity ownership in these financial institutions. | The first is to share with you selected major developments in the Malaysian Islamic finance industry that signify the vast potential for continued strong growth of Islamic banking and takaful in Malaysia. I will then endeavour to provide some highlights on how Malaysia has strengthen its position as a preferred platform for global takaful and retakaful activities, within a broader aspiration for Malaysia to be one of the key international Islamic financial centres. Finally, I will present some areas in the development of global Islamic finance, including takaful and retakaful, where Malaysia can play a major role. II. Significant developments in Malaysian economy and Islamic financial industry A decade after the Asian financial crisis, the Malaysian economy including its financial system is at its strongest position. With this growth, Malaysia has greater economic flexibility to shift to new areas of growth and thus sustain the development momentum. Economic growth has been achieved with relative price stability, low unemployment and strong external balances. The level of savings remains high at 37 percent as a percentage to the GDP while the level of external reserves remains strong at nearly USD100 billion. GDP per capita at current prices has increased to about USD 6,000 in 2006. Malaysia has also taken advantage of globalization to strengthen its economic and financial relationships with the major trading blocs across the globe. In 2006, the total value of the external trade exceeded for the first time the RM1 trillion mark. Malaysian investment abroad has also grown in strength. | 1 |
Normally these things carry on uninterrupted during recessions: output of public services is in general less volatile than private-sector output (Chart 3). But on this occasion, sweeping all before it, the pandemic curtailed many of these more standard activities, even after the full lockdown was ended in the summer. In the third quarter of this year, for example, real healthcare output – as estimated by the ONS – was still more than 20% lower than in 2019Q3. Taken together, measured declines in measured health and education output accounted for a quarter of the near-9% drop in aggregate GDP during the course of that year. Note that there’s been no decline in nominal spending on public services, or the collective incomes of people who work in them. Employment in public services has continued to rise and so have average wages. It’s just that, at least as measured in the national accounts, productivity in that sector has declined and the implicit price of those services – the so-called “deflator” – has risen. The result is an additional wedge, relative to any normal downturn, between (measured) real GDP and household incomes. Chart 3: Drop in GDP partly reflects a steep fall Chart 4: Households protected from fall in in measured output of public services. This has national income no impact on household incomes Sources: ONS and Bank calculations. Sources: ONS and Bank calculations. | I can only wish for a holistic approach someday; but we certainly cannot wait until we know everything on all nature-related risks before we act on climate. Page 6 sur 13 B. What we don’t know yet Drawing a parallel with the progress made on climate, we face two significant challenges ahead for biodiversity issues: metrics and scenarios (“IPCC type”) and macroeconomics and finance (“NGFS type”). 1. Biodiversity metrics and scenarios Biodiversity – and even more so nature – is complex and multidimensional: for example, biodiversity measurement cannot be reduced to a single metric like the concentration of greenhouse gas in the atmosphere and the associated rise in temperature for climate change. We still lack understanding on, and especially awareness of, this phenomenon. Thankfully, the IPBES, which we could describe as the IPCC equivalent for biodiversity, is advancing knowledge and raising awareness about biodiversity. It provides landmark assessments of biodiversity loss and ecosystem services, including work on scenarios that we could explore further as we aim for improved risk assessment by the financial sector, just like we did with IPCC scenarios. | 0 |
Borrowers needed to sell assets to meet the calls; some highly leveraged firms were unable to meet their obligations and their counterparties responded by liquidating the collateral they held. This put downward pressure on asset prices and increased price volatility. Dealers raised margins further to compensate for heightened volatility and reduced liquidity. This, in turn, put more pressure on other leveraged investors. A self-reinforcing downward spiral of higher haircuts forced sales, lower prices, higher volatility and still lower prices. This dynamic poses a number of risks to the functioning of the financial system. It reduces the effectiveness of monetary policy, as the widening in spreads and risk premia worked to offset part of the reduction in the fed funds rate. Contagion spreads, transmitting waves of distress to other markets, from subprime to prime mortgages and even to agency mortgagebacked securities, to commercial mortgage-backed securities and to corporate bonds and loans. In the current situation, effects were felt in the municipal and student loan markets. The most important risk is systemic: if this dynamic continues unabated, the result would be a greater probability of widespread insolvencies, severe and protracted damage to the financial system and, ultimately, to the economy as a whole. This is not theoretical risk, and it is not something that the market can solve on its own. It carries the risk of significant damage to economic activity. | There are those who have suggested that by intervening to forestall, and ultimately prevent, a bankruptcy filing by Bear Stearns, the Federal Reserve risks magnifying the chance of future financial crises, by insulating market participants from the consequences of excessive risk taking. It is important to recognize that had we not acted we would in effect have penalized those individuals, companies and financial institutions that had behaved more prudently, but would have suffered significant damage from the effects of default by a major institution. The negative consequences to Bear’s owners and employees from recent events have been very real – so real that no owner or executive or director of a financial firm would want to be in Bear Stearns’ position. While we clearly knew that our actions, both in the context of the JPMorgan Chase transaction and in the establishment of the Primary Dealer Credit Facility would affect incentives for financial market participants, adding to the risk of “moral hazard,” we believe that the lesson of the actual outcome for equity holders will serve to check and even diminish incentives for undue risk-taking. I believe that the actions taken by the Federal Reserve on a number of fronts in recent months have reduced some of the risk to the economy that is inherent in this adjustment in financial markets. | 1 |
Benoît Cœuré: Investing in Europe – towards a new convergence process Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the Panel “The big rethink for a stronger Europe”, The Economist Roundtable with the Government of Greece, Athens, 9 July 2014. * * * I would like to thank Lucas Guttenberg, Jean-Francois Jamet and Marion Salines for their contributions. I remain solely responsible for the opinions contained herein. Summary Economic and Monetary Union (EMU) is a political triathlon. It requires resilience and resolve to perform well at all times in the three disciplines of a currency union: fiscal policy, economic policy and financial policy. EMU is a team effort. Only if every participant performs well can the euro area team be strong. This is the most important lesson from the crisis. The European economy is undergoing a moderate recovery, but complacency would be unwarranted. To really overcome the crisis, there are some remaining major challenges still to be faced. The euro area is not in a financial crisis anymore, but it must still contend with high debt, low growth and unacceptably high unemployment. These are reason enough to remain alert and continue acting. In recent years, economic policy-making rightfully focused on re-establishing the most important necessary condition for growth: stability. For companies to invest, for firms to hire, for households to consume, a stable economic environment is tantamount. | In all these areas, we have made substantial progress in recent years. During the crisis, the ECB has taken all appropriate measures to ensure that price stability provided an anchor in an uncertain and volatile economic environment. Consistent with this principle, our recent decisions have aimed at addressing the risk of too long a period of low inflation and at ensuring that inflation expectations remain firmly anchored. As for financial stability, the crisis has shown us how the functioning of an economy becomes impaired without a well-functioning, robust financial system. This requires striking the right balance between insuring against crises, curbing risk-taking behaviour and mitigating moral hazard with a strong incentive framework. The establishment of the European Stability Mechanism and the launch of banking union, with its Single Supervisory Mechanism and Single Resolution Mechanism, have been milestones in this respect. The stabilisation and ongoing repair of the Greek banking system is another example. As a third dimension, the crisis has shown us the kind of existential threat to monetary union that can be brought about by the build-up of excessive imbalances, i.e. by the lack of fiscal and macroeconomic stability. The lesson drawn from this existential threat was that there was a need to reform economic governance. We should be very careful now not to roll back this achievement, in particular in the fiscal domain. New growth will not be generated by new debt. On the contrary: sound fiscal policies are essential for growing out of debt. | 1 |
Macroeconomic risk management The main risk stemming from the world economy is the deceleration of the US economy. We still do not know, and there are unusually big uncertainties, about the depth and duration of the US slowdown. However, this slowdown should not be a surprise, and is an expected consequence of a correction in US current account imbalances. The adjustment to those imbalances, sooner or later had to result in economic slowdown and a correction of exchange rates (see, e.g., De Gregorio, 2007, and Obstfeld and Rogoff, 2007). Indeed, as I argued some time ago, a current account reversal should occur sooner or later and a depreciation of the dollar should help. The Central Bank of Chile included among the risks described in the Inflation Report, the correction of global imbalances since January 2004. The adjustment was triggered and seriously aggravated by the subprime crisis. Usually central banks define a baseline scenario to orient monetary policy. We make public this scenario in three Monetary Policy Reports that are presented to the Senate. Deviations from the baseline scenario result in adjustments of the path of monetary policy. Risk management becomes central when deviations are not small, and the probability of occurrence of large and disruptive deviations becomes significant. In that case, strong actions may be needed, which may result in large deviations from the policies envisioned in the base projection. In this context, we can interpret current policy actions in the US as exactly doing risk management. | Finally, drawing upon lessons from the recent experience I will talk about risk management in monetary policy, and what it implies in such an uncertain economic environment as we face today. Commodity prices and domestic adjustment Recent increases in the prices of commodities have been dramatic: many reached record highs in a very short period of time. This increase has been particularly broad across commodities and unexpectedly persistent. Commodity price indices (index 1967=100) 500 1000 400 800 300 600 200 400 100 200 0 00 Total Food 01 02 03 04 05 06 07 0 08 Metals Source: Commodity Research Bureau (CRB). BIS Review 39/2008 1 Copper price (US cents/Lb.) 2006 2007 305 323 2008 (f) 2009 (f) Jan. MPR 295 Mar. -- Jan. MPR 250 Mar. -- Deutsche Bank (7 mar) Scotiabank (20 mar) JPMorgan Chase (14 mar) Barclays (13 mar) Merril Lynch(19 mar) Cochilco (9 jan) IB's Mean 332 295 315 354 308 310 321 325 325 310 343 320 310 325 274 -228 295 291 270 272 306 250 246 326 291 270 284 Futures (1) 316 368 314 357 Actual Mean (2) 313 350 Central Bank of Chile (1) Futures consider average of the last 10 working days prior to 20 March 2008. | 1 |
MONETARY POLICY’S CURRENT CONSTRUCTION A long target horizon permits a gradual monetary adjustment When assessing monetary policy’s construction, we look ahead to assess the path of inflation in the coming twelve to twenty-four months. A relatively long target horizon does have the drawback that earlier assessments may have to be revised. One reason for choosing a long horizon - with the attendant difficulties in making reliable forecasts - is the time lag before effects of monetary policy materialise. By acting in good time, it is possible to adjust interest BIS Review 35/1998 ˝ -7- policy more gradually and smoothly. In this way, any consequences that altered inflation prospects may have for the monetary stance will usually be gradual and small. With a shorter target horizon, the inflation assessments might be more accurate but the monetary policy responses would have to be more pronounced in order to fulfil the target. There would also be wider fluctuations in output and employment. Real factors like production and employment are accordingly taken into account when making this choice. In view of the difficulties in assessing and forecasting economic tendencies and monetary policy effects exactly, the Riksbank has opted for one to two years as its normal target horizon. Lower CPI figures The forecasting problem can be illustrated with assessments from the National Institute of Economic Research; I use them here simply as an example, not to single out the National Institute from other forecasters. | Moreover, falling interest rates have lowered house mortgage interest costs. Then there is the Government’s proposed reduction of tobacco tax. However, the price shocks from the supply side are mainly transitory and tend to lower the CPI temporarily but not necessarily inflation’s underlying trend. It follows that these effects probably should not have much influence on monetary policy. This holds even though the CPI change figures are likely to move outside the lower tolerance limit for a time during 1998, mainly on account of the lower tobacco tax. How strong is the upward trend? As I mentioned earlier, the primary concern for monetary policy is inflation’s underlying rate and trend. In that the monetary conditions have been expansionary for some time and both economic activity and resource utilisation are rising, Sweden should be moving BIS Review 35/1998 ˝ -8- towards a situation with some increase in underlying inflation. This phase may not be imminent or involve anything dramatic but rising resource utilisation will ultimately lead to it. But there are some factors which may defer it. They have to do with the momentum in the Swedish economy and the impact that may come from the crisis in Asia. Another central factor is the exchange rate’s underlying trend. In addition there is the increasingly discussed uncertainty about the sustainability of international share prices. To sum up, most of the evidence suggests that economic growth in Sweden will become stronger in the coming two years. | 1 |
Abdul Rasheed Ghaffour: Opening remarks – Forum on Central Bank Foreign Currency Operations Opening remarks by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the OSSP-BNM-SEACEN Forum on Central Bank Foreign Currency Operations, Kuala Lumpur, 6 August 2020. * * * It is my great pleasure to welcome all participants to the OSSP-BNM-SEACEN Forum on Central Bank Foreign Currency Operations. My appreciation also goes out to OSSP and SEACEN Centre for organising this forum. Although we have been looking forward to hosting all delegates and speakers in Kuala Lumpur, I am glad that technology has enabled us to come together regardless of this challenging time. I believe this forum is timely, given the myriad of issues associated with the current global landscape and the evolving environment for cross-border payment operations. The COVID-19 pandemic has caused widespread disruption within an inconceivably short period. We see disruptions in the lives and livelihoods of families and individuals; in the way work is done and trade conducted; and in our perspective of the world and our solutions to its problems. In at least one area we see the pandemic accelerate a growing trend both domestically and internationally – in digital trade and e-commerce. Retail purchases have more than halved year-on-year, and this gap is quickly filled by the rapid growth of e-commerce. This digitalisation trend is likely to continue post-pandemic with new norms in day-to-day domestic as well as cross-border economic activities. | The test of resilience of a bank or a system lies in its ability to absorb losses when a shock occurs – that is, its loss absorption capacity. For an individual bank, various tools, apart from surcharges or levies, should be considered. At the system level, adopting similar rules across institutions to prevent regulatory arbitrage should not inadvertently reduce the diversity in the global financial system. A variety of business models and investors with different risk appetites and liability-matching requirements may make for a more resilient system. 18. In the same vein, national regulators should explore a variety of approaches that are best suited to their conditions. Indeed, many emerging economies have banks that are systemic only in their local context, and national regulators need to consider how best to deal with these, even as we work together on global banks of systemic significance. 19. Third, post financial crisis, there is an understandable distrust of markets and supervisory judgment, and a preference to “hard-wire” most measures under Pillar 1 on capital. But we must not swing too far. Supervisors need to regain confidence and be prepared to exercise supervisory judgment – many economies have used macroprudential tools with some success by applying discretion. There is also scope for greater disclosure and market discipline under Pillar 3. Indeed, in the proposals relating to contingent capital – whether convertible bonds or bail-in arrangements, an understanding of the market dynamics relating to these instruments is crucial to their success. 20. Fourth, a sophisticated approach is not necessarily superior. | 0 |
So asset purchases aimed at flattening the yield curve are probably best kept in the locker marked For Emergency Use Only. 4. The objectives of monetary policy: the inflation target Following Japan’s “lost decade”, and given impetus by the deflation scare after the bursting of the dot-com bubble, a number of studies appeared evaluating the likelihood of other advanced economies reaching the ZLB. Simulations of macroeconomic models where monetary policy follows some version of a Taylor rule suggested that an inflation target of 2 per cent would entail relatively frequent episodes of the ZLB acting as a binding constraint on monetary policy (Reifschneider and Williams 2000; Coenen, Orphanides and Wieland 2004). For example, in simulations with the Federal Reserve Board’s macroeconometric model, Reifschneider and Williams found that the ZLB was reached about 10 per cent of the time. Nonetheless, these studies suggested that with an inflation target as low as 2 per cent, the adverse effects of the ZLB on macroeconomic volatility would be relatively modest. That was because the magnitude and duration of the constraint on policy actions were pretty mild. Only with inflation targets of 1 per cent or less did the ZLB result in noticeably higher variability of output and inflation. So an inflation target of 2 per cent or so looked to provide enough room for monetary policy under most circumstances. | But keeping interest rates low in the future will boost future inflation, thus raising expected inflation and boosting activity today. The problem is that the central bank lacks the incentive to stick to this strategy once economic conditions have improved and the ZLB episode is past, i.e. the policy is time inconsistent. So the central bank needs to have some way of making credible a commitment to what will subsequently seem like future irresponsibility; words alone will not suffice, unless reneging on those words carries a significant reputational cost. It is important to distinguish this policy strategy from simply communicating that policy rates are likely to stay low because output and inflation are expected to stay low. That may help to align expectations with the views of the policy maker and be valuable in aiding transparency, but does not represent the pursuit of a policy strategy under commitment. As noted above, the earlier deflation scare, following the collapse of the dot-com bubble, had already persuaded the FOMC not only to keep the target Federal Funds rate at an especially low level, but also first to indicate that it would remain low for an “extended period” and then to indicate that the monetary stimulus would be withdrawn at only a “measured” pace. This has something of the character of attempting to reap the benefits of being able to commit in the future by sticking to past promises. | 1 |
First, the Eurosystem is developing a securities holdings statistics database. “Securities holdings represent a field where exposures are often concentrated, and a lack of sufficiently comprehensive, consistent and granular information has been identified” (Draghi 2012). Second, more detailed balance sheets information of all financial intermediaries have been developed. Third, a matrix of integrated sector accounts has been devised and is published on a quarterly basis. Fourth, quarterly information on cross-border holdings of financial assets and liabilities by euro area residents is compiled, allowing for monitoring of cross-border exposures. The second lesson of the crisis was that data production should be multipurpose. The granularity of the data means in fact better use of the micro-foundations of the macro statistics. Albeit the need for more granular data primarily came as a result of the requirements of the macro-prudential oversight, their weight for the monetary policy is very large as well. As monetary policy-makers we want to act proactively and this requires identification of the risks in advance, which very often requires “going beyond the aggregates”. Hence, both for monetary policy purposes and financial stability purposes, variety of granular data and indicators are needed, which allows for data “outliers” and “tail risks” to be noticed. It is more natural than to seek for harmonized data collection systems, serving both mandates of central banks, monetary policy and financial stability. Of course this requires extraordinary coordination among the compilers of the data. It is easier when the central bank serves as a supervisor at the same time. | It intensified in August the same year, with the bankruptcies of the British bank, Northern Rock, and troubled banks in Denmark and Germany. On 15 September 2008, the crisis took a new and dramatic turn when 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. In the days and weeks that followed, banks tightened credit standards on new loans to households and enterprises. At that time, global economic growth was already slowing, but the situation deteriorated significantly throughout the last few months of 2008. The turnaround hit hard, with synchronised effects on virtually all financial and goods and services markets, not only in the US but also in Europe, Asia, Latin America and Oceania. For a long period there were hopes that growth in China and other emerging market economies would hold up. But they are also severely affected by the crisis. During the year, we saw a bank, credit and liquidity crisis in the financial system which gradually came to encompass a crisis in the real economy. The contraction in the world economy has resulted in a substantial decline in traditional exports, and global trade has fallen markedly since autumn last year. The global downturn also led to a marked fall in prices for oil and other commodities through autumn 2008. | 0 |
In other words, the Riksbank would not just keep inflation low and stable, but also help to solve the unemployment problem. Today, it is generally accepted that a central bank cannot lastingly increase growth and employment by conducting a systematically expansionary monetary policy. A risk with a statutory, numerical dual mandate is also that politically uncomfortable reforms, that actually could lastingly increase employment, are not implemented on the grounds that employment is the Riksbank’s responsibility. The dual mandate would in this case do more harm than good. The evaluations made of the Riksbank on behalf of the Riksdag have so far argued against the introduction of an explicit, numerical employment target for monetary policy. At the same time, it has been taken for granted that the policy should be flexible insofar as it, in addition to the inflation target, should also try to stabilise fluctuations in employment. 27 The current arrangement with an inflation target and other reasoning in the preparatory works feel about right for me. Greater consensus on consideration for financial stability Another issue is whether flexible inflation targeting should also include taking the degree of financial stability into consideration. 28 This issue has sometimes been perceived as very controversial, but I think I see greater consensus among experts. I think it is obvious that there are close links between monetary policy and financial stability. The degree of financial stability affects how monetary policy measures spread to inflation and employment (the socalled transmission mechanism). | This was followed with the establishment of other institutions, which included the Securities Commission and the domestic rating agencies. The Bank also put in place a comprehensive and modern depository, delivery and settlement system to facilitate the issuance, trading and settlement of debt securities in the market. Mechanisms to increase liquidity in the market to enhance the overall price discovery process were also introduced through the provision of updated market information. In addition, measures were also introduced to release the captive holdings and to facilitate the efficient borrowing and lending of securities. More flexible foreign exchange policies was also implemented to facilitate capital raising and investment by non-residents to further accelerate the development of our domestic bond market. Today, the Malaysian bond market is the largest in the ASEAN region, accounting for nearly 90 percent of our gross domestic product. Corporations now have access to more innovative and sophisticated financing solutions through the bond market to meet their diverse funding requirements. Financing through the bond market by the corporate sector now accounts for 58 percent of their total financing compared to 33 percent prior to the Asian financial crisis, when there was greater reliance on the banking system for financing. With the advent of new financing instruments and supporting infrastructure, trading activity in the secondary market have also increased by more than three fold, with the trading volume now amounting to RM516 billion. A key development of the Malaysian financial market is the enormous growth of the sukuk market. | 0 |
François Villeroy de Galhau: Exiting unconventional monetary policies in an uncertain world Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Euro 50 – CF40 – CIGI Roundtable, Paris, 25 October 2018. * * * Ladies and Gentlemen, Bienvenue à Paris. It is a pleasure to welcome you to the Banque de France for this conference on “exiting unconventional monetary policies”. I must say that you have picked the right moment for such a discussion: I have just returned from Frankfurt, where the Governing council of the ECB held a monetary meeting. Like other central banks, we are now pursuing a course of gradual normalisation in an uncertain world. Allow me to begin by giving some highlights on our domestic strategy for the euro area, before elaborating on the challenges that we collectively face at the global level. ** 1. Monetary policy in the euro area: where are we heading? The euro area is experiencing a broad-based economic expansion. Q2 2018 was the 21st successive quarter of economic growth. 9.2 million jobs have been created since 2013 and the unemployment rate has fallen from 12.1% to 8.1%, although this figure is still too high. The output gap was probably closed by the end of last year. Recent survey data on the growth outlook have been somewhat weaker, although less so in France. But our outlook for inflation is still firming. | It is too early to say whether this will eventually affect the distribution of profit to the Confederation and the cantons. There is no need for action at this stage. The profit distribution agreement between the Federal Department of Finance and the SNB sets out clearly defined threshold values for a review. The current agreement – which runs until the end of 2017 – will be reviewed at the latest with regard to the distribution for the 2013 financial year. Should the distribution reserve, which has been built up over the last few years, be depleted before then, the agreement calls for an immediate review. BIS Review 173/2010 3 It is currently too early to say anything definite about the outcome of the review. Seen from the current perspective, it would come as no surprise, however, if the annual distribution had to be reduced somewhat. We have repeatedly emphasised that an annual distribution of CHF 2.5 billion cannot be guaranteed in the long term. 4 BIS Review 173/2010 | 0 |
However, one welcome outcome from this experience is the consolidation of the banking sector, which is much more aware of the constant need for prudent risk management and good corporate governance. From our end, the Bank has also undergone a significant re-orientation of its supervisory techniques and approaches. These are now largely in line with international best practices and also constitute a platform on which we shall meet the future challenges facing the financial sector in the 21st Century. Ladies and Gentlemen, from time to time developments are associated with setbacks and the Bank of Zambia is no exception. Here I am referring to the issue of polymer notes which were introduced sometime last year. The introduction of these notes as we have explained at several fora was meant and is still meant to have cleaner notes in the economy and more importantly to have notes with a relatively longer life-span before replacement, than the traditional paper notes. With a relatively longer life-span, the nation would save resources because the frequency of replacing the notes would greatly be reduced. However, due to technical problems experienced by the printer, most of the notes have been fading faster than expected. May I re-assure the nation that we have continued to work with the printer and a solution is being worked out in the quickest time possible. Needless to say that this problem has posed a big challenge for all of us at the Bank of Zambia. | Madam Chairperson, with respect to its organisational and functional structure, the Bank has overtime undergone modifications to suite its role as a monetary and supervisory authority. In addition, structural changes have been necessitated by the continuously changing demands along with changes in the economy and especially in the dynamic financial markets. From a handful of departments at inception currently, the Bank comprises the following core departments, Economics, Financial Markets, Bank Supervision, Non-bank Financial Institutions Supervision, Banking, Currency and Payment Systems, and the Regional Office in Ndola. The support departments include Procurement and Maintenance, Finance, Bank Secretariat, Human Resources, Information Technology and Internal Audit as well as a Security Division. In order to streamline the operations of the Bank and improve its performance, a performance agreement system for employees was introduced in 1995. This was meant to bring about a new work culture with emphasis on professionalism, based on the philosophy, “The BoZ Way means Action”. Mr President, Ladies and Gentlemen, since the 1996 Bank of Zambia Amendment Act, the Bank has continued to enjoy operational autonomy with regard to the formulation and implementation of monetary policies and attainment of relative financial system stability. The ability of the Bank to continually meet quantitative benchmarks set by Government and cooperating partners, can be attributed to the focus of its monetary policy on creating a stable macroeconomic environment as a precondition for sustainable economic growth. | 1 |
The pattern is clear from similar periods in the past, for example the autumn of 1998 when Russia suspended payments on parts of it s government debt and a major American hedge fund collapsed. What happens is that certain currencies weaken, others, particularly large ones, appreciate, share prices fall, bond rates are unchanged or rise, short-term interest rates decline and the price of gold moves up. Exchange rate shifts of this type are normally transient. The krona has in fact strengthened just recently as markets have become more stable. The IT bubble has burst At the time of our previous meeting in March, economic activity was slowing generally throughout the world but above all in the United States. This tendency had also reached Sweden. Important factors behind the almost simultaneous and marked deterioration of the global picture and perhaps particularly in the United States were, for example, energy price increases, rising interest rates, falling stock markets and the sudden downturn in corporate investment. The prospect of lower profits, a clear slump on the world’s stock exchanges and more pessimistic expectations have led to a marked worsening of investment activity. To illustrate how they believe the American economy will develop, observers have resorted to letters of the alphabet. A V implied a quick recovery, where the favourable outlook for profits meant that the accumulated imbalances would not be a major problem. This alternative rested on a persistently strong belief in a high potential growth rate, with investment in new technology continuing to play an important part. | 3 Long-term interest rates, income growth and house prices Favourable economic developments in Norway have had an impact on developments in our property markets. House prices have risen sharply over the past 14 years. Real house prices have almost trebled. This rise has been considerably stronger than earlier. Moreover, the rise in house prices has spanned a long period. With the exception of a few months in 2003, house prices have risen continuously since 1992. This is the second longest period of rising real prices since 1819. Statistics for earlier years do not exist. House prices also rose in the 18 years between 1954 and 1972, albeit at a more moderate pace. BIS Review 15/2007 7 Norway is not the only country where house prices have shown a strong rise over a long period. House price inflation has been particularly high in Ireland and the Netherlands, but Denmark, the UK and Spain also stand out. The countries where house price inflation has been high are the same countries where economic growth has been strongest. Since prices are rising in tandem in many countries, it is natural to look for common driving forces. With increasing cross-border flows of intermediate goods, capital and increasingly so labour, prices will largely reflect growth and competition in the global economy. If capital or labour becomes too expensive in one country, businesses can relocate production. Prices for fixed factors of production, such as property, will on the other hand reflect income developments in different countries. | 0 |
To ensure that affected businesses could access COVID-19 loans quickly and at favourable conditions, the federal government, commercial banks, the Swiss Financial Market Supervisory Authority (FINMA) and the SNB engaged in unprecedented collaboration. The government guaranteed the loans; 2 the banks used their existing client relationships to process applications and disburse the funds; and the SNB set up the COVID-19 refinancing facility (CRF) – a new refinancing tool designed to complement the COVID-19 loan programme. This package of measures enabled firms to receive a government-guaranteed bank loan within one business day at the attractive rate of 0% and with a minimum of bureaucracy, and the banks could refinance their loans at the SNB policy rate of –0.75%.3 In addition to the CRF, the SNB took other measures to facilitate lending. At the recommendation of the SNB, the Federal Council deactivated the countercyclical capital buffer. Doing so made it easier for banks to reallocate capital to where it was most needed. The SNB also raised the exemption threshold on the sight deposits that commercial banks hold at the central bank. Since negative interest is charged only on the portion of the sight deposit account balance that exceeds the exemption threshold, this measure helped substantively lower the interest burden for the banking sector as a whole. 4 Overall, the CRF greatly facilitated the disbursement of COVID-19 loans to firms. Participation was sizeable: 20% of all Swiss firms participated in the programme, with total loan volume amounting to 2.4% of GDP. | And the third, the program design will have greater likelihood to be adopted since it has utilized the best expertise available and has the highest degree of perceived legitimacy, since the governance of the Resolution Board better reflects the interest of all stakeholders, be they borrowers, creditors and private markets. The challenge to IMF reform on crisis prevention and crisis resolution has many dimensions, and recommendations that have been made to address this challenge are wide-ranging. Given the limited time that we have, I hope my contributions today have been useful. In closing, I would like to stress that the IMF has responded well to the needs for reform with new important initiatives and measures that are now showing positive results. I am confident that, going forward, the IMF will be able to come up with a credible reform agenda that will lead to greater improvements in our capabilities to maintain the stable economic and financial environment which is essential for the well-being of the global economy. Thank you. 4 BIS Review 24/2006 | 0 |
This means that the economy has significant excess slack and implies that we face meaningful downside risks to inflation over the next year or two. Also, there are those who express anxiety about whether the Fed has the tools and the will to raise the federal funds rate when the time is appropriate. I want to assure you that the Fed has the tools to tighten monetary policy regardless the size of its balance sheet. Moreover, we have the will to do so in order to keep inflation in check. Turning first to the developments in financial markets, there is little doubt that we have seen a vast improvement over the past six months. The major equity indices have risen sharply, credit spreads have narrowed and bank equity prices have generally shown a substantial recovery. Many large financial and nonfinancial firms have found it relatively easy again to tap the debt and equity markets. The recovery in financial asset prices has been mirrored – albeit with a lag – in the economy. Industrial production has begun to rebound as the pace of inventory liquidation has slowed. Housing prices and activity have recovered somewhat – aided by the improvement in housing affordability and the first-time homebuyer tax credit. Fiscal stimulus is providing support to consumption and to state and local infrastructure spending. The vicious cycle we had a year ago – in which the deterioration in financial markets led to economic weakness and that weakness reinforced the tightening of financial conditions – has been broken. | In part for those reasons, a number of countries have over recent years developed indices of well-being, drawing on a much wider array of economic, social and environment factors. For example, in the UK the Office for National Statistics (ONS) has begun tracking 43 separate measures of well-being grouped into 10 categories: personal well-being, relationships, health, participation in civic society, where we live, personal finance, the economy, education and skills, governance and the natural environment. These different metrics are slightly apples and oranges – and some may be bananas. Nonetheless, a variety of empirical studies have found these categories to be important determinants of individuals’ subjective well-being. 12 A good starting point is personal well-being – people’s sense of whether their lives are satisfying. Chart 28 plots an index of personal wellbeing since 2012. At an aggregate level, it suggests a rising tide of well-being, consistent with a growing economy. There are also few clear distributional differences in this pattern of wellbeing, with different regions, ages and income groups all rising. Other measures of well-being paint a more mixed picture. Of the 43 measures of well-being tracked by the ONS, 17 have seen some improvement since 2012. Many of these improvements are among economic indicators – employment, income and wealth. In some ways more interesting, however, the majority of these well-being measures have not improved during the recovery, while a fifth have deteriorated. Interestingly, the areas of weakness chime with some of the messages I heard from charities in Nottingham last year. | 0 |
Real convergence encompasses factors such as labor mobility, price and wage flexibility, exposure towards external shocks, industrial structures, and so on. Judged by these factors, convergence among future members of the EMU still has a long BIS Review 102/1997 -3- way to go. This is important because to be successful a European monetary policy depends exactly on these factors. Without a high degree of real convergence, monetary policy is bound to have different effects in different parts of the monetary union. The very idea of a single European monetary policy would thus become unrealistic. The ECB would come under political pressure to accommodate mutually incompatible wishes from different parts of the monetary union. The result could only be a less than optimal monetary policy and rising inflation and interest rates. For EMU to be successful the member states of the EU should therefore make determined efforts to further real convergence. The convergence criteria as laid down in the Maastricht Treaty require member states of the EU to achieve certain goals by spring 1998. Convergence, properly understood, can however never be something that can be pinpointed to a certain point in time, but must be an ongoing process. It does not make sense to require countries to get their fiscal situation under control by a certain date, just to let them go unpunished on a public spending spree shortly afterwards. Prudent fiscal policies should not only be a requirement for becoming, but also for remaining part of the EMU. | So a certain degree of dispersion of economic parameters might be possible within an integrated economy which has the dimension of the United States, provided this dispersion has economic justification. Il Sole 24 Ore: Even accepting a period of deflation, with all the possible social consequences this might have? Trichet: Yes. We are an immense economy. It is normal that some regions, after growing above the EMU average for some time, and after having accumulated high national inflation, experience a correction and therefore a period of negative inflation, as it is currently happening in Ireland. Il Sole 24 Ore: The recent EU declaration regarding the Greece plan says that member states should push ahead toward a stronger economic governance. What are you expecting: a more coordinated approach or a transfer of competencies from the national to the supranational level? Trichet: As citizens we all have personal opinions on this matter. As a citizen, I would call myself when time comes and when people are ready to move towards an accomplished political federation. As of today our aim is to make the current institutional framework work as best as possible. We call for the full respect of the present Treaty. EMU is politically a bold endeavour: don’t forget that with regard to fiscal policies the Treaty allows the college of governments to impose decisions on other governments and parliaments. Implementing fully the Treaty and the Stability and Growth Pact calls for a much stronger governance in the future than what has been experienced in the past years. | 0 |
The sustainability and continuity of effective policy management depends on the performance of public institutions that have sound policies and governance processes that are formalised in a clear, structured and well-defined framework. Equally important is the accountability. In this aspect, the institutionalisation of policies and processes, which culminates in sound governance serves to preserve good practices and imposes the necessary discipline for objective policy making. The gaps in the market infrastructure in the emerging economies however increase the vulnerability of our respective economies to external shocks. Such shocks have increased in frequency and magnitude, with the risk of prolonged implications on our economic growth. With its important role in the management of domestic macroeconomic and financial stability, Central Banks in this changing environment also need to be strengthened in order to enhance its effectiveness in facilitating conditions to support economic development. My remaining remarks this afternoon will focus on institutional building and economic development from the perspective of Central Banks in emerging economies. In particular, on the role of Central Banks in supporting the development agenda and as an institution building agent. | Taking into consideration even the impossibility of the European Central Bank to serve as liquidity provider to our countries, I would deem that the spaces available to us in the framework of current legal and regulatory aspect have already been exhausted (from the liquidity viewpoint). Otherwise, I would say we have reached a critical point, below which no space for action is left. Let me emphasise that now that the crisis highlighted many “vulnerabilities” of this rapid catching up, the analysis should go beyond just accepting it as valid. This becomes necessary if we take into consideration the designing of a different economic growth model. In this context, I am more and more convinced that the global crisis was a development that advanced in time the need for inevitable steering of many imbalances that our economies accumulated over the last 10-15 years. 2 BIS Review 146/2009 | 0 |
Jean-Claude Trichet: Communication, transparency and the ECB’s monetary policy Keynote speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the New Year’s reception of the International Club of Frankfurt Economic Journalists, Frankfurt, 24 January 2005. * * * Ladies and gentlemen, It is a great pleasure to be here at the New Year’s reception of the International Club of Frankfurt Economic Journalists. This is certainly the right place for me to discuss the “art of external communication”. The members of this club are among the most experienced and knowledgeable watchers of the ECB. Through your reporting you play a decisive role in our communication policy. Along with other media you have the important responsibility of informing the public about the Eurosystem’s monetary policy as well as other central banking activities and of contributing to a constructive public dialogue on our policies. Much has been said about the external communication of central banks in recent years and central bankers have reflected intensively on their external communication. Transparency, candid explanations given to investors, savers, market participants, households and, last but not least, to our 306 million European fellow citizens are of the essence for the ECB and its Governing Council. It is fair to say that communication is an integral part of monetary policy. Why are accountability and transparency so important for monetary policy? | The economic agents and the public need to be convinced that the central bank’s monetary policy decisions are consistently focused over time on achieving the announced aim. In a market-based economy the central bank can directly influence only short-term interest rates through its monetary policy instruments. However, consumption and investment decisions, and thus medium-term price developments, are to a large extent influenced by longer-term interest rates, which depend on private expectations regarding future central bank decisions and future inflation. It is important that these developments in longer-term rates support the objective of maintaining price stability over the medium term. This in turn requires that the central bank is regarded as credible and predictable. A central bank which does not succeed in communicating the principles underlying its monetary policy and is perceived as acting in a non-systematic, discretionary manner will over time endanger its reputation. Therefore, the central bank’s communication should ensure that markets understand the systematic responses of monetary policy to economic developments and the current assessment of the central bank. Successful central bank communication supports predictability and correct price formation in financial markets, contributes to efficient allocation of funds and reduces uncertainty about future interest rates. In an environment where the predictability of interest rate movements and their relation BIS Review 5/2005 1 with key macroeconomic developments is well understood, firms can better manage their balance sheets. This reduces both their vulnerability to economic shocks and their risk management costs and creates the conditions for better investment decisions. | 1 |
Ravi Menon: Asia – no room for complacency Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Paris Europlace Financial Forum, Singapore, 30 November 2011. * * * Mr Christian Noyer, Governor of Banque de France, Distinguished guests, Ladies and gentlemen, Good morning. For those of you who are coming from abroad, a warm welcome to Singapore. Deleveraging out of a debt overhang Molière, a French playwright considered to be one of the greatest masters of comedy, once offered this sobering thought: “Debts are like children; begot with pleasure and brought forth in pain”. Today, the pain he described is palpitating throughout the world and keeping many leaders in government, business, and finance awake at night. The advanced economies are awash in debt. Governments, households, and banks must reduce leverage to restore economic and financial sustainability. But history tells us that deleveraging, while necessary, leads to a prolonged period of slower growth punctuated by increased financial market volatility. The gross government debt-to-GDP ratio is 80% in the UK and in the Eurozone, 100% in the United States, and 230% in Japan. Sovereign debt in aggregate is today at levels not seen since the Second World War. Financial markets, which had hitherto tolerated the build-up in debt, have turned merciless against the Eurozone economies, driving up sovereign spreads and dragging down the ratings of those who hold sovereign paper. | 8 BIS Review 126/2010 Figure 6 Stock market volatility (percent) Long-term interest rates in developed economies (3) (percent) 120 120 6 6 100 100 5 5 80 80 4 4 60 60 3 3 40 40 2 2 20 20 1 1 0 0 0 0 07 08 09 10 Developed markets (1) Emerging markets (2) 05 06 U.S. 07 08 Japan 09 10 Eurozone (1) Uses VIX volatility index. (2) Estimated volatility of the MSCI index in dollars. (3) 10-year government bond interest rates. Sources: Bloomberg and Morgan Stanley Capital International. Figure 7 Output gaps (*) (percent) 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 08 09 June 2010 Report 10 11 -6 September 2010 Report (*) Gray area shows forecast as from the third quarter of 2010. Source: Central Bank of Chile. | 0 |
In the early phases of the upturn, output growth primarily reflected a strong increase in the number of person-hours worked partly owing to the marked increase in average working hours when sickness absence fell in 2004. A high level of inward labour migration after EU enlargement in 2004 also contributed to increasing economic capacity. Historically, there has been a close relationship between the change in prices for domestically produced goods and services and the level of capacity utilisation, here measured by the output gap. This relationship broke down in 2006. Surprisingly low inflation through 2006, despite appreciably stronger output and employment growth, may indicate that developments have been influenced by conditions on the production and supply side of the economy. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are probably several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade considerably. Prices for oil and gas, shipping, fish, industrial commodities and engineering products have increased considerably. Moreover, Norwegian importers have gained access to new markets in central Europe and Asia which offer considerably cheaper consumer goods. The terms of trade have improved by about 40 per cent since 2002. A similar situation has not been seen since World War I when earnings in the shipping industry and other export industries were exceptionally high for a period. Second, an ample supply of labour has boosted output growth. | It would also mean that the Swedish payment infrastructure is to a greater extent harmonised with the rest of the EU, which can increase competition and the quality of the payment services offered to Swedish customers. RIX plays a central role in the Swedish payment system The payment system the Riksbank currently supplies to financial institutions is called RIX. Institutions wishing to become participants in RIX enter into an agreement with the Riksbank. The Riksbank is a public institution, which means that entry to the RIX system is given on competitively neutral terms to institutions meeting the conditions that are set. It is difficult to overestimate the importance of RIX for the Swedish economy. From the time that RIX opens at 0700 hours on a typical working day until it closes at 1700 hours, a good 20,000 payments are settled to a total value of more than 2 According to the international standards on financial infrastructure issued by the CPMI-IOSCO, systemically im- portant infrastructures should settle in central bank money whenever it is practically possible. 3 The Eurosystem consists of the European Central Bank and the national central banks in the euro area. 2 [8] SEK 600 billion.4 RIX is the hub of the Swedish payment system and it is therefore also logical that the functions and accessibility of RIX will be in focus when the Riksbank upgrades its capacity to meet the challenges of the future payment market. The Riksbank is not in any unique situation in this respect. | 0 |
Widespread consultation would be needed, and due account taken of confidentiality rules, before any reporting framework can be implemented.” 7 See Communique Meeting of Finance Ministers and Central Bank Governors Washington, DC, April 18–19, 2013 “We also call for a feasibility study on how information from trade repositories can be aggregated and shared among authorities, so as to enable comprehensive monitoring of risks to financial stability.” 8 See CPSS / IOSCO. Report on OTC Derivatives Data Repository and Aggregation Requirements. January 2012. BIS central bankers’ speeches 7 The goal of financial stability will remain elusive so long as we have financial firms that are judged as “too big to fail.” Some might argue that this is reason enough to break up these firms. I do not believe that this is the best course of action. As I have outlined here today, I prefer a multi-faceted approach that strives to: (1) minimize the risk that a large complex financial firm faces default, (2) have in place a credible resolution regime if a default becomes imminent, (3) improve the resiliency of our financial system so that any shocks resulting from a resolution are not amplified across the system, and (4) build out a global data model for effectively monitoring global financial markets. | As an example, an increasing number of trade repositories are collecting valuable transaction data. However, the full benefit of these data can only be realized if we can aggregate this information across the trade repositories, and if regulators have access to the data needed to support their respective mandates.7 The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) have produced an analysis of some of the foundational steps that need to be taken.8 Again, implementing these steps will take time and will need our continued attention. 5 See FSB and IMF (2009) The Financial Crisis and Information Gaps. Report to the G-20 Finance Ministers and Central Bank Governors. 6 FSB and IMF (2009), recommendation no. 9: “The FSB, in close consultation with the IMF, to convene relevant central banks, national supervisors, and other international financial institutions, to develop by end 2010 a common draft template for systemically important global financial institutions for the purpose of better understanding the exposures of these institutions to different financial sectors and national markets. This work should be undertaken in concert with related work on the systemic importance of financial institutions. | 1 |
In other cases, uncertainty about the possible consequences of Year 2000 disruptions could lead to over-reactions on the part of market participants. As supervisors, we will need to be increasingly alert to the possibility of Year 2000 rumors affecting the liquidity of firms during the latter half of 1999, and should support the disclosure of accurate information in response. The Basle Committee’s Year 2000 Task Force will be developing a contingency planning document focused on issues relevant for bank supervisors. I am pleased to see that the Joint Year 2000 Council also has formed a sub-group to address contingency issues, including sound practices for financial institution contingency planning as well as market-wide aspects. As I see it, there are three broad areas to consider in developing contingency plans. First, each firm should have a contingency plan that covers business continuity issues in the case of operational problems affecting its own systems. Institutions also should develop contingency plans that would help address Year 2000 problems arising from their vendors or customers, or as a result of disruptions to public infrastructure. These plans should seek to assess the risks that firms face in each instance and should focus on the possible measures that may be available to mitigate those risks. Second, supervisors and regulators need to develop their own contingency plans for how they will deal with problems affecting them or the institutions under their jurisdiction. Most organizations have some experience in contingency planning for various types of market disruptions, so this will not be entirely new ground. | In this new world, phenomena which had traditionally a local or even a national impact may be amplified and become dangerous at the global level: amplification of financial cycles, herd behaviour, global contagion. Analysing the opportunities and the risks, and understanding the functioning of our system with a view to making it as stable as possible is a very exiting, ambitious and urgent task. And, last but not least, union. I can not avoid mentioning the question of completing monetary union with the entry of the United Kingdom. I would like to stress the following points in this regard: let us never forget that the UK is unanimously warmly welcomed in the euro area. It depends only on the decision of the British people and of the British authorities to join in. You know that the Germans and the French on the continent, as well as all other nations on the continent are very warmly hoping for a positive decision by the UK. I thank you for your attention. BIS Review 60/2002 5 | 0 |
Unemployment rate in different counties, Q1 1990, Q1 1993 and Q1 2002 Per cent 14 14 Q1 1990 12 10 Q1 1993 Q1 2002 12 10 Q1 2002 for the hole economy 8 6 6 4 4 2 2 0 0 St oc kh ol m U pp Sö sa de la rm an Ö la st nd er gö tl Jö and nk öp in Kr on g ob er g Ka lm ar G ot la nd Bl ek in ge Sk ån e Vä H al st la ra nd G öt al a Vä nd rm la nd Ö re Vä br st o m an la nd D al ar na G äv Vä le bo st er r no g rrl an d Jä m tla Vä nd st er bo tt N or en rb ot te n 8 Source: Statistics Sweden (Labour Force Surveys) BIS Review 40/2002 9 | 36 The inflation target was finally formalised in a new regulation on monetary policy in 2001, a good eleven years after New Zealand, nine years after the United Kingdom and eight years after Sweden. The mandate for Norges Bank states that monetary policy shall, in addition to securing price stability, contribute to stabilising output and employment. It is possible to give weight to cyclical fluctuations in interest rate setting, and to new information, as long as there is confidence that inflation remains near the target. The central bank’s announced interest rate strategy ahead will be adjusted as new information emerges. This stands in contrast to the parity system, which was more rigid. The authorities cannot systematically allow policy to be more expansionary than announced to bring down unemployment. As Kydland and Prescott demonstrated, this would lead to 33 Another difference is that under parity policy the authorities stabilised the price of gold and not the price of a basket of representative goods – the consumer price index. Today, stabilisation of the consumer price index would be described as price level targeting. Inflation targeting, on the other hand, implies stabilisation of changes in the consumer price index. There is also a difference in that there is no longer any redemption obligation. Confidence is not based on gold reserves, but more generally on responsible economic policy as a basis for achieving the inflation target through the active use of the interest rate. | 0 |
Writing back in 1848, John Stuart Mill captured well the societal benefits of diversity: 15 “It is hardly possible to overrate the value, in the present low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar…Such communication has always been, and is peculiarly in the present age, one of the primary sources of progress” More recently, Scott Page (2011) has encapsulated the positive social externality of diversity more formally. Economists love an equation, so here is one: Collective Ability = Individual Ability + Diversity Recent evidence, drawn from a range of disciplines and settings, has tended to confirm Mill and Page’s conjectures. Diversity generates a positive social externality, helping the collective far exceed the sum of its individual parts. Diversity is synergy. This has been found at almost every scale of social grouping, from small communities and organisations, to large economies and nation states. The benefits have been found, too, in non-social settings, such as ecological and logistical systems. 16 One channel through which diversity may improve societal outcomes is by fostering innovation and creativity. If different raw ingredients are added to the intellectual melting pot, the final dish is likely to be richer and more innovative. 17 Psychologists believe that divergent thinking is the cradle of creativity. That is why creativity is often found to be greatest among very young children whose thinking is unconstrained by convention. | So too, arguably, did a lack of gender diversity. 35 And a lack of diversity within the financial eco-system – with many institutions holding very similar portfolios – fed and watered these seeds. This lack of diversity, intellectual and financial, contributed significantly to the depth and severity of the crisis. 36 This old lesson from evolutionary biology and systems theory was learned painfully and abruptly by policymakers and practitioners in 2008. What applies at the level of institutions and systems may also apply at the level of nation states. Democracy can be thought of as a sociological mechanism for maximising the diversity of decision-making. By design, it leans against the hubris bias of autocracy or monarchy while reducing the groupthink bias of single-party rule. As synergy is diversity, so too is democracy. And for the same reasons as among institutions and eco-systems, democracy has also been found to make for more robust decision-making. 37 So much for the benefits. None of this is to say that diversity is costless. History is littered with examples of the problems associated with integrating and assimilating diverse peoples. Several recent empirical studies have corroborated those perceptions, again at both the micro and macro scale. For example, there is evidence that diversity in the workplace may sometimes lower employee morale and job performance. 38 And there is evidence that racially diverse communities have fewer social interactions and thus are associated with lower levels of trust. | 1 |
CPI and Growth) That Sweden in the 1970s and 1980s lost so much ground in terms of prosperity in relation to many other European countries is certainly due in part to the stabilisation policy then being conducted. Prices and wages were allowed to drive each other up, while budget policy was far too weak. Devaluation followed devaluation, with low investment and weak productivity growth as the result. BIS Review 14/1998 -2- High inflation also leads to arbitrary changes in the distribution of income and wealth in society. Wages and profits normally rise at the same rate as inflation. The value of real estate and some financial investments rises even faster. At the same time nominal fixed interest rates and transfers lag behind. The high profits made by the owners of houses and co-operatives in the 1970s and 1980s occurred in practice at the expense of tenants and those with bank savings. Between 1971 and 1974, for example, house prices rose by 50 per cent and agricultural property by 80 per cent. In contrast those who had their savings in bonds or in the bank saw their assets shrink by about a third in real terms. | When this is carefully done the Riksbank – say some of the critics – can use the expected higher inflation (that we ourselves have created) as an argument for making the interest rate increases we have wanted to make all along. This type of criticism was common last autumn, for example, when the BIS Review 14/1998 -8- Riksbank spoke in various connections about its inflation outlook and explained that interest rate increases might be necessary. I have the following answer to these criticisms. To begin with, the Riksbank’s focus on inflation developments is entirely natural. It is undoubtedly our task to show clearly the reasons for our decisions. Without a candid accounting of monetary policy from the Riksbank’s perspective it would be more difficult for the political decision-makers and the general public to evaluate monetary policy and our fulfilment of our objective. Think what type of debate we would have and how monetary policy would be seen if the Riksbank only made its decisions without commenting at all on the outlook for inflation and without giving reasons for its policies. Thus the need for the Riksbank to speak about inflation is obvious. Naturally it cannot be ruled out that in doing so it will influence households and businesses in their views on price developments, however our influence should not be exaggerated. The cause-and-effect relationship is rather the reverse: the Riksbank reacts to inflationary developments, which in turn are determined by a great number of decisions by businesses and households. | 1 |
Only 4.2% of investment accounts intermediated by Islamic banks are suitable to finance transformation, such as in supplying growth capital to industries of the future or new business models. 3. We have also yet to make the most out of the full range of Shariah contracts in finance application today. Benevolent contracts, risk sharing contracts and other asset-based contracts have yet to be fully utilised to offer a broader spectrum of funding, investment and protection solutions. This means that we are not realising the full potential of value-based finance to address contemporary economic and social needs. This also points to a continued need to foster appreciation of the fundamental values of Shariah among market participants and its embodiment in financial solutions, services and conduct. Changes to the way Islamic finance operates cannot happen overnight. But what the industry does today will be crucial in bringing to life the fundamental values of Islamic finance, and showing how it is relevant to address contemporary challenges. In my view, to elevate the values of Islamic finance to the next level, the industry must seek to embody and exemplify the value of ihsan, continuously striving for attainment of excellence. A hadith narrated in Sahih Muslim reported that Prophet Muhammad (peace be upon him) said, "Verily, God has enjoined excellence (ihsan) with regard to everything." Manifesting ihsan in Islamic finance, thus, calls upon all stakeholders to steadfastly find ways to transform and deliver the highest standards in all aspects of its business. | Thomas Jordan: Strong Swiss franc and large current account surplus – a contradiction? Introductory remarks by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Swiss Institute of International Studies, Zurich, 19 February 2013. * * * The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch) For almost 18 months now, the Swiss National Bank (SNB) has been enforcing the minimum exchange rate of CHF 1.20 per euro with the utmost determination. The need for this measure is widely recognised, both domestically and abroad, due to the substantial appreciation of the Swiss franc in summer 2011. At the same time, however, there are isolated voices claiming that given the large current account surplus, the Swiss franc is too weak, and that the SNB should allow the currency to appreciate in order to contribute towards reducing global imbalances. This view is based on a lack of knowledge about the situation in Switzerland. Specific factors are responsible for the Swiss current account surplus. The balance on the trading account, for instance, makes only a modest contribution. The most important elements with regard to the current account surplus are the following: first, investment income from Switzerland's substantial net international investment position, second, financial sector earnings from business with customers abroad, which is traditionally of significance for Switzerland, and third, earnings from merchanting, which have risen sharply over the past decade. The current account surplus is also statistically overestimated. | 0 |
Reports from the Bank’s regional Agents indicated that business sentiment had deteriorated sharply, and the CBI October Industrial Trends Survey showed that optimism about business conditions among manufacturers fell to its lowest level since 1980. The possibility of a recession was widely discussed. The MPC responded to the change in sentiment and to worsening conditions in the world economy. It reduced interest rates by 2½ percentage points between October 1998 and June 1999. There has been a marked turn around in sentiment during this year. Confidence measures have returned to their pre-October 1998 levels. This volatility in sentiment, is not reflected in the statistics on economic growth. The latest estimates of output for the UK show that over the past two years, output growth has been steady and close to trend with the exception of two quarters (1998 Q4 and 1999 Q1) during which a run down in stocks temporarily reduced growth. In part this stability was the result of pre-emptive monetary policy which, by reacting to the forward-looking information in surveys and other data, was able to offset the volatility in confidence feeding through to the real economy. For sometime now, the high level of sterling together with falling world commodity and food prices have restrained retail price inflation. The prices of imports into the UK fell by 15% in the past four years. It is inevitable that this favourable impact on inflation can be only temporary. | In 2022, Norges Bank decided to raise the countercyclical capital buffer rate for banks to 2.5 percent, effective from March 2023, which brings the rate back to its pre-pandemic level. Norges Bank continuously and closely monitors financial market developments and has a contingency framework for taking measures required to safeguard financial stability if needed. Let me conclude. The current high rate of inflation follows a long period of low and stable inflation in our part of the world. Some of the driving forces that kept inflation low in the decades before the pandemic may be going into reverse. Globalisation has been met with gradually growing opposition. Demographic trends are changing. Combined, this could make the job of keeping inflation low more demanding. 4/5 BIS - Central bankers' speeches The global economy will increasingly be impacted by climate change and the need to reduce emissions. Understanding the economic effects of climate change and the energy transition is essential for making forecasts and the right trade-offs in the conduct of monetary policy. This is therefore defined as a focus area in Norges Bank's Strategy 2025. The main contribution monetary policy can make to the transition is to ensure low and stable inflation. A flexible and forward-looking inflation targeting regime, where we look through short-term inflation fluctuations, is a good basis for addressing the structural changes we are facing. A small open economy like Norway will be exposed to shocks, as we have acutely experienced in recent years. | 0 |
1) 𝑦1 = 𝐸1𝑃𝑆 𝑦2 − 𝜎(𝑖1 − 𝐸1𝑃𝑆 𝜋2 + 𝜔𝑠1 ) IS curve 2) 𝜋1 = 𝜅𝑦1 + 𝐸1𝑃𝑆 𝜋2 + 𝜈𝑠1 Phillips curve 3) 𝑠1 = 𝜓𝑘1 Banking sector credit spreads 4) 𝐵1𝐵 = 𝜙0 + 𝜙𝑖 𝑖1 + 𝜙𝑠𝐵 𝑠1 + 𝜉1𝐵 Banking sector real credit growth 5) 𝐵1𝑀 = 𝜙0 + 𝜙𝑖 𝑖1 + 𝜙𝑠𝑀 𝑠1 + 𝜉1𝑀 Market based sector real credit growth 6) 𝛾1𝐵 = (1 + (𝑒𝑥𝑝(ℎ0 + ℎ𝐵 𝐵1𝐵 + ℎ𝑘 𝑘1 ))−1 )−1 Banking sector crisis probability 7) 𝛾1𝑀 = (1 + (𝑒𝑥𝑝(ℎ0 + ℎ𝐵 𝐵1𝑀 ))−1 )−1 Market-based sector crisis probability 8) 𝛾1 = 𝑏𝛾1𝐵 + (1 − 𝑏)𝛾1𝑀 Total crisis probability The IS and Phillips curves determine, respectively, output (𝑦1 ) and inflation (𝜋1 ), as functions of current and expected future output and inflation 17 and the policy interest rate (𝑖1 ). Output and inflation also depend on banking sector credit spreads (𝑠1 ). Spreads push down on aggregate demand in the IS curve by increasing the interest facing borrowers in the economy. They also have a negative near-term effect on aggregate supply, raising inflation for a given level of output via an endogenous cost-push mechanism in the Phillips Curve. | The solution is the Nash equilibrium policy setting for the four policy instruments. 14 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 14 References Aikman, D, Giese, J, Kapadia, S and McLeay, M (forthcoming), “Targeting Financial Stability: Macroprudential or Monetary Policy?” Aiyar, S, Calomiris, C and Wieladek, T (2014), “Does Macro-Prudential Regulation Leak? Evidence from a UK Policy Experiment”, Journal of Money, Credit and Banking, 46(1): 181–214 Ajello, A, Laubach, T, Lopez-Salido, D and Nakata, T (2016), “Financial Stability and Optimal Interest Rate Policy”, Finance and Economics Discussion Series 2016-067. Washington: Board of Governors of the Federal Reserve System. Berrospide, J, Correa, R, Goldberg, L, and Niepmann, F (2016) “International Banking and Cross-Border Effects of Regulation: Lessons from the United States”, Board of Governors of the Federal Reserve System International Finance Discussion Papers No. 1180. Brooke, M, Bush, O, Edwards, R, Ellis, J, Francis, B, Harimohan, R, Neiss, K and Siegert, C (2015), “Measuring the macroeconomic costs and benefits of higher UK bank capital requirements”, Bank of England Financial Stability Paper No. 35. Bush, O, ‘Keynes, Kant and Capital Flows’, The World Financial Review. Cerutti, E, Claessens, S and Laeven, L (2015) “The Use and Effectiveness of Macroprudential Policies: New Evidence”, IMF Working Paper No.15/61. Cesa-Bianchi, A, Eguren Martin, F and Thwaites, G (forthcoming), “Foreign Booms, Domestic Busts: The Global Dimension of Banking Crises” Drehmann, M, Borio, C and Tsatsaronis, K (2011), “Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates”, International Journal of Central Banking 7(4): 189–240. | 1 |
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