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The only exception from the pattern is Slovenia, where the costs of government borrowing went on a rising track in the period of 2011-2013, reflecting the banking system crisis and the adverse feedback loop to the sovereign segment. The average long-term interest rate in the 2008-2012 equaled close to 7%, and declined to an average of 3.7% in the 2013-2015 period, which is an adjustment of around 3 p.p. Also, the spread of the interest rates of countries in the region relative to the interest rate of Germany, as a risk-free anchoring rate, followed a declining path, and hence more favorable conditions to borrow. Some of the simple indicators for the fiscal space, like the interest rate – growth differential, although improved compared to the acute phase of the crisis, still is less favorable relative to the precrisis period. | Chart 10: External positions and assets prices indicators y/y growth rates of stock market indices Current account deficit in % of GDP Region CEE SEE SRB Baltics ROM HUN CRO MKD BIH SLO BUL POL 15.0 5 10.0 0 5.0 -5 0.0 -5.0 -10 -10.0 -15 -15.0 -20.0 -20 2007-2004 2012-2007 2015-2013 -25.0 AVERAGE(2009-2012) -25 IIP, net as % of GDP Region CEE AVERAGE(2013-2016) Real Estate Prices, y/y change in % SEE Baltics 0 BUL CZR EST CRO LAT LIT HUN POL ROM SLO MKD SRB 12 -10 10 8 -20 6 -30 4 2 -40 0 -50 -2 -4 -60 -6 -8 -70 2007-2004 2012-2008 2015-2013 average 2010-2013 average 2014-2016 Source: International Monetary Fund, Balance of Payments Statistics, WEO October 2016 Database, Eurostat. Despite the absence of sizable inflows, relatively high external financial exposure of the region underlines the risks in case of global tightening of the financial conditions in the context of tightening of the US monetary policy or a “surprise” tapering by ECB. | 1 |
Following a long period of unusually good economic performance, characterised by relatively steady growth and low and stable inflation in the advanced economies and rapid growth and development in key emerging market economies, we have seen the eruption of a systemic financial crisis of quite unusual intensity and international reach. The nearest precedent is probably the widespread closing of international capital markets on the eve of the First World War. And associated with that, we have seen the sharpest internationally synchronised slowdown in growth in the post-war period, together with an unprecedented contraction in world trade. To the public at large our present troubles are the fault of: whiz-kid financiers, who created financial instruments that even they didn’t properly understand; greedy bankers, who pursued profit and personal reward without regard to risk or common sense; somnolent supervisors, who failed to adequately regulate and restrain those bankers; and negligent central bankers, who allowed an explosion in liquidity, credit and asset prices that supported the whole rotten edifice. And all the while, the culprits were cheered on by an economics profession that was over-enamoured of theoretical models, blind to the lessons of history and subject to a severe case of “group think”. Wasn’t it blindingly obvious that the whole house of cards would come crashing down at some point? As one of those involved in responding to the crisis – and some might charge also a bit part in creating the conditions for it – I want to look this evening at how we got here. | Cogley, T. and Sargent, T. (2005), ”Drifts and volatilities: monetary policy and outcomes in the post-WWII US”, Review of Economic Dynamics, vol. 8, pages 262-302. Curdia, V., and Woodford, M. (2009), “Credit frictions and optimal monetary policy”, mimeo. Dooley, M.P., Folkerts-Landau and Garber, P. (2004), “The revived Bretton Woods system”, International Journal of Finance and Economics, vol. 9, pp. 307-313. Dowd, K., Cotter, J., Humphrey, C. and Woods, M. (2008), “How unlucky is 25-sigma?”, Nottingham University Business School CRIS working paper 2008.III, March. Freeman, R.B. (2008), “Labor market imbalances: Shortages, surpluses or what?”, in J. Sneddon Little, ed., Global Imbalances and the World Economy, pp. 159-182. Federal Reserve Bank of Boston: Boston. 18 BIS Review 101/2009 Furceri, D., and Mourougane, A. (2009), “The effects of financial crises on potential output: New empirical evidence from OECD countries”, OECD Working Paper 699, May. Gerali, A., Neri, S., Sessa, L., and Signoretti, F. M. (2008), “Credit and banking in a DSGE model”, mimeo. Gertler, M., and Karadi, P. (2009), “A model of unconventional monetary policy”, mimeo, NYU, April. Goodfriend, M., and McCallum B.T. (2007), “Banking and interest rates in monetary policy analysis: a quantitative exploration”, Journal of Monetary Economics 54(5), pp. 1480-1507. Goodhart, C. A. E., P. Sunirand, and D. Tsomocos (2005), “A risk assessment model for banks”, Annals of Finance 1(2), pp.197-224. Goodhart, C. A. E., P. Sunirand, and D. Tsomocos (2006), “A model to analyse financial fragility”, Economic Theory 27 (1), pp.107-42. | 1 |
But it is equally important not to give rise to unrealistic expectations about how fast potential output can grow. The Central Bank’s analysis and forecasting work always aims to answer this question, which is one of the most important in monetary policy implementation. Inflation subsided somewhat in 2012, falling from 6½% at the beginning of the year to just over 4% at year-end. The Bank’s February forecast assumed that this trend would continue, provided that the króna did not weaken further. According to the forecast, inflation should be close to target around the middle of next year. Whether that happens earlier or later depends primarily on developments in the exchange rate. It was therefore a disappointment to see how much prices rose in February, raising twelve-month inflation once again. It is always imprudent to read too much into individual measurements, and it has yet to come to light how much of that increase was based on temporary factors. Furthermore, the exchange rate has risen more than 5% since the beginning of the year, which could affect the next measurements. Nonetheless, this inflation measurement gives good reason for caution, and if the role of temporary factors proves smaller than might appear at present and inflation declines to the target more slowly than previously forecast, it will be necessary, other things being equal, to withdraw monetary accommodation sooner than would otherwise be required. The Central Bank’s interest rates have been unchanged since November 2012, when they were raised by 0.25 percentage points. | Exchange rate volatility vis-à-vis the euro area has declined, while it would continue to exist vis-à-vis the US dollar even after integration. The as yet more flexible labour market ushered in by the transition period II of the Bilateral Agreements I is the flagship of Swiss economic policy. It keeps unemployment and the resultant national costs low in the long term and strengthens the incentives for individual performance. It is essential to translate openness and flexibility, also with respect to internal structural reforms and external relations, into autonomously implemented reforms and a practical global orientation. BIS Review 49/2004 1 | 0 |
First, the slower pace of GDP this year is expected to close the positive output gap. In recent years, GDP was growing faster than potential. Second, the fall in global oil prices in Q4 2018 and the deregulation of the electricity distribution market have exerted a dampening effect on inflation. Third, the two rounds of monetary policy tightening last year by MAS will continue to have a restraining effect on inflation. CPI-All Items inflation for the year is projected to be between 0.5 and 1.5%. Private road transport costs could pick up slightly from 2018 with higher car prices more than offsetting lower petrol prices. Accommodation costs are likely to decline, but at a slower pace this year. Overall inflation in Singapore remains well below the historical average. MAS’ monetary policy stance remains appropriate against the backdrop of subdued inflation and weakening growth prospects. Last year, MAS began the process of monetary policy normalisation by exiting from the zero percent appreciation path of the nominal effective exchange rate $ policy band. MAS increased slightly the slope of the policy band in April 2018 and again in October 2018, against the backdrop of healthy economic growth and gradually rising inflation. In April this year, with inflationary pressures stabilising and the output gap beginning to narrow, MAS kept the policy stance unchanged. Our current stance of a modest and gradual appreciation path of the $ policy band will help to keep the economy close to potential and ensure medium-term price stability. | Global investments have suffered from weakening business confidence. In Q1 this year, G3 investment growth moderated to 3.4% on a year-on-year basis, from 3.7% last year. In the ASEAN-4 economies, year-on-year growth in fixed investment spending has pulled back sharply, to 3.1% in Q1 this year. This is half the pace seen in 2018. There are three factors driving the current weakness in manufacturing, trade, and investment. a downturn in the global electronics cycle; the lagged effects of deleveraging in China; and the trade conflict between the US and China. 1 / 11 BIS central bankers' speeches Of the three factors, the trade conflict poses the biggest risk to global growth outcomes. Cycles in electronics production are a common feature and structural trends in digitalisation and the Internet-of-Things should support a recovery eventually in chip production in the next few years. As for deleveraging in China, there has clearly been an easing of the policy stance in recent months in response to the slowing economy. If the trade impasse between the US and China drags on and further tariff measures are imposed, growth in the second half of 2019 is likely to be weaker than earlier envisaged. MAS’ estimates suggest that the direct impact of the tariffs that have been introduced to-date would already shave off a cumulative 0.3% points from global GDP growth over 2019– 2020. The indirect effects on business and consumer sentiments and financial markets are difficult to estimate. | 1 |
To begin with, it is important to remember that there is generally no contradiction between low and stable inflation and good growth and employment. The whole point of having an inflation target is that it provides the economy with a stability that creates the right conditions for sustainable economic growth. So it is correct that price stability is the overall objective of the Riksbank’s activities. Nor do we have any specific target for production or employment in the same way that we have a specific target for inflation. Does this mean then that we are by definition, and indeed should BIS Review 2/2008 3 be, “inflation nutters” who only care about the inflation target when deciding on the interest rate? 1 When they drew up the new wording for the 1999 Sveriges Riksbank Act the possibility of the Riksbank having a target for the real side of the economy was also discussed. For various reasons the legislators decided that it would not be appropriate. For example, both earlier experiences and economic theory show that an expansionary monetary policy that fuels inflation will not increase employment or lead to higher growth in the long term. Such a policy has on the contrary had negative consequences for households and companies. So, as monetary policy cannot be used to achieve a lasting higher level of employment or growth in the economy, it would not be appropriate to have specific targets for the real side of the economy. | Annual company accounts, however, are to be recorded in Norwegian kroner and in the Norwegian language unless otherwise provided for by regulation or separate decisions by the Ministry of Finance. The annual report must be written in Norwegian. Under certain circumstances, consolidated accounts may be recorded in a foreign currency. Accounts expressed in a foreign currency may also be published as a supplement to accounts in Norwegian kroner. A third question was whether it should be possible to quote financial instruments traded on the Oslo Stock Exchange in euros and, if so, whether this would require changes in stock exchange legislation. A broadly based committee appointed by the Oslo Stock Exchange has addressed this question. The committee concluded that, although this situation may change, there is little interest in the Norwegian securities market in quotations and settlements in euros. The committee found no legal obstacles to quotations and settlements in euros. Consequently, the Ministry of Finance has not found a basis for recommending changes to stock exchange rules. The Ministry of Finance has also considered whether conversion to euros should be regarded as realisation within the interpretation of tax legislation. The Ministry has concluded that the parties’ positions are not actually altered by conversion. The Ministry therefore maintains that assets and liabilities recorded in the currency of an EMU country cannot be considered as realised after that currency was replaced by the euro. | 0 |
14 Jonathan D. Ostry, Andrew Berg and Charalambos G. Tsangarides, “Redistribution, Inequality, and Growth,” IMF Staff Discussion Note, SDN/14/02, 2014. 15 Thomas Piketty, Capital in the Twenty-First Century, Belknap Press, 2014. 16 Joseph A. Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Harvard University Press, 1934. See also Philippe Aghion and Peter Howitt, “A Model of Growth Through Creative Destruction,” Econometrica, Vol. 60, No. 2, pp. 323–351, 1992; Katsuhito Iwai, “Schumpeterian Dynamics: An Evolutionary Model of Innovation and Imitation,” Journal of Economic Behavior and Organization, Vol. 5, pp. 159–190, 1984. 17 Hiroshi Nakaso, “Asian Economy: Past, Present, and Future,” Speech at Securities Analysts Association of Japan International Seminar, April 24, 2015. 18 The Wall Street Journal, “Asia Seeks to Reach the ‘Unbanked’,” March 18, 2015. 6 BIS central bankers’ speeches therefore the prospects for further strong economic growth, will be completely different once the issue of limited availability of banking services is addressed. Conclusion In my presentation today, I have emphasized that productivity growth is crucial to sustaining hitherto robust economic growth in Asia. Among many other things, in my view, the continued accumulation of human capital, market-friendly institutional setups and strong financial sectors, all play an important role in productivity growth. We have seen many positive developments in this respect in Asia, but much more needs to be done. What I have discussed today could be broadly categorized as structural reforms. | Within the tolerance range around its reserves target, a bank has no incentive to pay more than Bank Rate for an additional unit of reserves, or to charge less than Bank Rate for lending an additional unit of reserves, and the demand curve is relatively flat. The length of the flat portion of the curve depends on the size of the tolerance range set by the Bank. If the tolerance range is very small, market interest rates will be relatively sensitive to variations in 6 If the system as a whole already has excess reserves (relative to the commercial banks’ collective target), the Bank can drain reserves by issuing short-term Bank of England bills. BIS central bankers’ speeches 3 the supply of reserves. That is because small variations in supply could potentially move banks into using the deposit or lending facility. If the tolerance range is very wide then banks have little or no incentive to distribute reserves around the market to meet their targets precisely. Alternative frameworks for setting interest rates This system of reserves targets is just one of a number of systems that would be used to implement the policy rate. Indeed, as a system for influencing market rates, these arrangements could be seen as overly complicated. Since March 2009, when the Bank embarked on its asset purchase program known as QE, we have been implementing Bank Rate in a rather simpler fashion. The Bank’s asset purchases were financed by creating additional central bank reserves. | 0 |
When credit is rationed by banks with large market shares, in regional or national terms, sound investment projects are also postponed. This results in an adverse feedback loop, with banks incurring higher loan losses and weaker earnings – as economic activity stalls. Banks operate with very low levels of equity capital. A manufacturing enterprise or a firm in the service sector should preferably have an equity ratio of between 30 and 70 per cent, depending on the level of risk involved. Banks can operate with a far lower level of equity capital because they are supposed to diversify risk, have sound management systems and be well regulated and under supervision. 6 In Norway, banks’ equity capital makes up six per cent of their assets. Before the Second World War, the ratio was over 10 per cent, falling to five per cent in the postwar period. Government capital injections resulted in a rise in equity capital at the beginning of the 1990s, but the ratio has fallen again in recent years. 6 16 Figures for banks’ equity capital before 1918 are based on: Jan Tore Klovland (2007): “A reconstruction of the balance sheets of savings banks in Norway 1822-1875” and “A reconstruction of the balance sheets of commercial banks in Norway 1848-1900” in Øyvind Eitrheim, Jan Tore Klovland and Jan F. Qvigstad (Ed.) (2007): “Historical Monetary Statistics for Norway – Part II” Norges Bank’s Occasional Papers, No. 38, Oslo. Statistics Norway is the source for figures from 1919 to 1995. | Available here 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: DMO and Bank Calculations. Past values adjusted for inflation (April 2020 equivalents). Moment 7: central banking on the home front Table 1 and Chart 15 summarise the scale of the Bank’s recent balance sheet operations: a balance sheet that has expanded by almost a third in three months, and will reach nearly 40% of annual UK GDP by mid-year. To deliver that, we are doing more than ten times the number of weekly operations than in the pre-Covid19 period (Chart 16). This is eye-popping by itself. But, more extraordinary still, virtually all of it has been done remotely – hundreds of billions of pounds worth of operations delivered from peoples’ bedrooms, attics and kitchens, whilst isolated on their own, or caring for children and other relatives. The Bank has long embraced home working as part of its flexible working arrangements – but the sheer scale of what has been done – what we have had to do – would frankly never have been contemplated by choice. Preparation began early – and the 12 All speeches are available online at www.bankofengland.co.uk/news/speeches 12 technology that enables all of our critical operational functions, and the operational and risk controls that go with them, were quickly re-configured to support working from home. By the time of the MPC’s first policy package on 11 March, we were already operating on a fully-live split-site basis. | 0 |
By contrast, the euro area was more exposed to the energy crisis than the US, given its proximity and higher energy dependence to Russia and especially Russian gas. As long as inflation is largely caused by supply side factors such as energy prices, interest rate hikes cannot address the problem. Hence the ECB reacted when the inflation rate in the projected horizon breached its 2% target and saw signs of infiltration of inflation into demand side factors of the economy. Consequently, the ECB started raising interest rates in July 2022. However, it had started normalising its monetary policy much earlier in 2022 by terminating the PEPP and APP bond purchases. The second main difference relates to the labour market dynamics of the two economies. The US labour market exhibited at a relatively early stage, a greater degree of tightness, evidenced by stronger wage growth in the US than in the euro area. This higher degree of US labour market tightness was another key factor in explaining the medium-term inflationary pressures. By contrast, in the euro area, the pick-up in wage growth is relatively a more recent phenomenon. Characteristically, US labour costs increased by 5.8% in 2022, and almost 12% in the two year period 2020-2022. In the euro area, data until the third quarter of 2022 show that labour costs have increased by 2.8%, with a cumulative growth of 7% over the same period of 2020-2022. | 1/4 BIS - Central bankers' speeches As regards other economic developments specific to the euro area, despite the recent favourable GDP outturns, Russia's unjustified war against Ukraine and its people, continues to act as a headwind to euro area growth. Whilst supply chain bottlenecks are gradually easing and the supply of gas has become more secure, inflationary pressures remain elevated. Specifically, following a peak of headline inflation at 10.6% in October 2022, in February this year it still stands at 8.5%. At the same time, core inflation, which excludes the volatile items of energy and food and therefore captures demand pull forces of inflation, continues on an upward trajectory moving from 5.0% in October 2022 to 5.6% in February this year. In addition, wages continue to grow fast, supported by robust labour markets, with some catch-up to high inflation becoming the main theme in wage negotiations. In this setting of high headline and core inflation, monetary policymakers must ensure that inflation does not become entrenched. Therefore, from an expansionary monetary policy up until the end of 2021, the ECB has moved through the neutral range and continued moving into the restrictive monetary policy interest rate range, currently at 2,5%. At the last ECB Governing Council meeting beginning of February, we reiterated the need to stay the course in raising interest rates at a steady pace and keeping them at restrictive levels to ensure a timely return of inflation to our two per cent medium-term target. | 1 |
They facilitate the allocation of resources and their deployment within a financial system by reducing risk and transaction costs. By facilitating market exchange of complex financial services they can be taken as a means to achieve efficiency gains within a financial system. Various mechanisms are provided to clear and settle securities transactions. Common features of these mechanisms are, e.g., that they provide for a technical infrastructure to exchange payment and settlement instructions and that they rely on commonly agreed rules and processes. There is widespread agreement that these mechanisms have been fairly successful in reducing settlement risks and transaction costs. With respect to the business activities of market utilities I can mention, e.g., the dematerialization and immobilisation of securities or the increasingly pervasive application of the delivery-versus-payment principle. In essence the clearing and settlement function provided in a financial system contributes to the reduction of imperfections and thereby makes possible increasingly more integrated and efficient BIS Review 28/2003 1 economic systems. This improvement, in turn, facilitates capital accumulation and technological innovation that underlie the implementation of investment projects. Thereby a long-term economic growth process is supported and, correspondingly, welfare is improved. Let me state the obvious with Levine (1997): “the development of financial markets and institutions is a critical and inextricable part of the growth process […]”. However, despite the tremendous efficiency gains obtained through the emergence of the financial system, the improvement process is far from being over. | At the start of my testimony, I stressed that the key objective of economic policy at the current stage of the crisis must be to ensure the most favourable conditions possible for when the economy emerges from lockdown. However, more persistent adverse effects on certain sectors after the pandemic has been brought under control cannot be ruled out, although it is undoubtedly too early to anticipate how extensive they will be, or which activities will bear the brunt of the impact. Further, certain tentative indications suggest that, in the long term, demand could fall in some sectors, such as retail trade, and increase in others, such as logistics, technology, and IT systems. In view of this possibility, it would seem advisable to make the relevant preparations through arrangements to ease cross-sectoral and cross-company reallocation and to strengthen the lifelong learning of workers, especially considering that a priori the cross-sector transferability of knowledge between potential losers and potential winners does not appear to be particularly feasible.12 11 For illustrative purposes, if, as a result of implementing structural reforms, potential growth were to rise by 0.5 pp per annum, the debt ratio under the previous simulation would be 6 pp lower in 2030. 12 B. Anghel, A. Lacuesta and A. V. Regil (2020), “Transferibilidad de habilidades de los trabajadores en los sectores potencialmente afectados tras el Covid-19”, Artículos Analíticos, Banco de España, forthcoming. | 0 |
These lie at 75 points above and 75 points below the repo rate respectively. The difference between the lending and deposit rates is sufficiently large for the banks normally to view it as more profitable to balance deficits and surpluses in their payments at the end of the day on the interbank market, rather than utilising the Riksbank's lending and deposit facilities. Both a bank with a surplus and a bank with a deficit win by depositing or borrowing in other banks at rates between the Riksbank's deposit and lending rates. The fact that the interbank rate normally lies at the centre of the corridor, i.e. close to the repo rate is because the Riksbank usually offers the banks the opportunity to borrow or deposit sufficient funds at the repo rate so that no bank will need to utilise the more expensive alternatives offered by the deposit and lending facilities. The condition for this is that the possibilities in the interbank market have been exhausted. Outstanding notes and coins and other items on the Riksbank's balance sheet mean that the banking system currently has to borrow from the Riksbank. To avoid the necessity of converting a large loan stock every day, the Riksbank every week offers the banks the possibility of borrowing via repurchase transactions with a duration of one week at the monetary policy-steered repo rate. | Other mechanisms that in certain situations can reduce the impact of monetary policy from its normal level include the banks tightening their credit standards - known as a credit crunch - because they cannot increase their credit risk exposure, for example, as a result of the capital adequacy rules. 4 BIS Review 80/2001 Following a long period of a strong expansion in credit, based on lenders' expectations of continued growth and high wealth levels, a severe downturn in the economy and falling asset prices can, for instance, lead to the banks limiting their lending due to uncertainty over the quality of their existing loan stock. With hindsight, the banks can conclude that they have probably misjudged credit risks earlier and thus lent money at an interest rate that was too low, as well as failing to reserve sufficient funds to cover future losses. Monetary policy relief can in such situations have less impact than otherwise, as the banks are not prepared to make loans even to profitable investments. To summarise, there is good reason to try to learn more about what affects monetary policy's impact, for instance, via the banks, in different situations. Developments on the financial markets over time and differences between various countries indicate that the impact on demand and inflation of a particular monetary policy measure should differ between periods and between countries. | 1 |
It has now been raised at six monetary policy meetings in a row, to its current level of 1.75 per cent, and we expect that it will continue to be successively raised to a more normal level. Two conclusions Now, after the financial crisis, I think we can draw two conclusions on our actions in conjunction with the crisis. Firstly, we did not see the crisis coming. As I mentioned previously, we wrote and talked about the Swedish banks’ increasing risk-taking in the Baltic, the rapid rates of increase in 6 BIS central bankers’ speeches household indebtedness and in housing prices, and the low price of risk. We also wrote about the problems on the US mortgage market. But the crisis hit us from an unexpected direction. We hadn’t expected that the banks would face such comprehensive problems in obtaining funding on the markets. Secondly, the Riksbank reacted quickly and forcefully once the crisis hit Sweden. The comprehensive lending to the banks, combined with the rapid and forceful lowering of the repo rate, contributed to mitigating the impact of the crisis on the Swedish economy. One fortunate circumstance was that lending to the banks is what a central bank is always assumed to be able to do in its role as lender of last resort. The measures we needed to undertake were thus within the framework of our remit. | Not least, the Riksbank’s responsibility for financial stability should be clarified. Secondly, we lack tools to prevent crises, a weakness that is partially connected with the unclear allocation of roles. Although Finansinspektionen has the task of promoting stability and efficiency in the financial system and has tools that can be used to influence the banks’ behaviour, it does not have the explicit task of counteracting macroeconomic risks. At the Riksbank, we have interpreted the present laws relatively broadly to mean that we are to safeguard the stability of the financial system, while, at the same time, we lack effective tools to do this. Thirdly, we need a new regulatory framework specifying how the central government is to handle banks in crisis. Today, banks that cannot pay their debts are declared bankrupt – just like any other company in the same situation. This is often a lengthy process and bank customers may have to wait several years to get their money back. Furthermore, it is not enough for each country to have its own solution. Banks are increasingly working across national borders. The government and Riksdag must also decide whether Sweden should have the same regulations for the financial sector as other countries. Financial crises can lead to very high economic costs and there are a number of risks that are specific to Swedish financial stability, not the least of these being the Swedish banks’ great dependence on obtaining funding on the international capital markets. | 1 |
The overall banking system represented more than 700% of GDP. In terms of employment, every third job was related to the financial and professional service sector. An active use of the relevant policy tools could – and indeed should – have curbed these unsustainable developments. But prudential supervision was too weak and did not prevent the build-up of large financial sector imbalances. Asset growth outpaced deposit inflows. Banks became increasingly exposed to funding vulnerabilities. They tried to attract deposits by offering very high deposit rates – on average, nearly 2 percentage points higher than in the rest of the euro area 1. Domestic credit expansion and imprudent lending practices fuelled a domestic property boom. As the bubble burst, non-performing loans increased dramatically. Moreover, Cypriot banks underwent sizeable losses following the Greek debt restructuring. This further deteriorated the soundness of their balance sheets. The lop-sided nature of the economic model was not confined to the banking sector alone. At the same time, significant external and internal imbalances had built up – notably persistent current account deficits, significant losses in competitiveness, rising fiscal deficits and public debt. All this left Cyprus in a weak position to tackle the problems of its banking sector. And these problems appeared to be daunting – especially compared to the small size of the 1 The rate for term deposits from households and non-financial corporations as of March 2013 was 4.4% in Cyprus and 2,5% in the euro area. BIS central bankers’ speeches 1 economy. | It was only by acquiring these skills that workers could transition to where new jobs were being created. By keeping one step ahead of the machine, technological unemployment could be avoided. A shorter, more seamless skills transition reduced the hit to workers’ incomes and lowered the risk of skills atrophy, which might otherwise cause lasting damage to employment. This social infrastructure might be called “enabling” institutions. Another set of institutions provided workers with support to cushion the hit to their finances and well-being during the painful and lengthy period of job transition. This might be financial support, in income or loans. It might be housing or shelter. Or it might be social or emotional support. This social insurance ensured that lives were underpinned, inequalities held in check and the social fabric held together. It reduced recession risk, for individuals and for societies. These might be called “insuring” institutions. 32 29 Allen (2005) documents the stagnation of real wages in Britain from 1800 to 1840. IMF (2017). 31 Allen (2009) discusses Engels’ pause in the context of the British economy from 1760 to 1913. 32 Of course, many other institutions played a role in the labour market beyond the “enabling” and “insuring” ones mentioned here. For example, the ‘Poor Laws’ in the 1800s meant that the poor had to enter workhouses with terrible conditions to receive help in the form of clothes and food. | 0 |
10 BIS central bankers’ speeches Table 2 International baseline scenario assumptions 2014 2015 (f) Jun.15 MP Report Sep.15 MP Report Dec.15 MP Report Growth 2016 (f) Jun.15 MP Report Sep.15 MP Report Dec.15 MP Report 2017 (f) Sep.15 MP Report Dec.15 MP Report (annual change, percent) Trading partners' GDP 3.4 3.3 3.1 3.0 3.7 3.4 3.2 3.4 3.3 World GDP at PPP 3.4 3.4 3.2 3.1 3.7 3.5 3.4 3.5 3.5 United States Eurozone Japan China India Rest of Asia (Excl. Japan, China and India) Latin America (excl. | Zamani Abdul Ghani: Scaling up financial inclusion through branchless banking Remarks by Mr Zamani Abdul Ghani, Deputy Governor of the Central Bank of Malaysia, at the Microfinance Policymakers Forum “Scaling up Financial Inclusion through Branchless Banking”, Kuala Lumpur, 2 December 2009. * * * Introduction Good afternoon and welcome to Malaysia. It is very encouraging to see so many senior policymakers gathered here today to participate in this Microfinance Policymakers Forum. Thank you for taking the time to be here and for contributing your knowledge. The motivation for today's event has its roots in the forum of the United Nations Advisory Group for Inclusive Financial Sectors which was held in May this year in Kuala Lumpur. As many of you may be aware, in recognition of the importance of financial inclusion, the United Nations established the United Nations Advisory Group on Financial Inclusion in 2006. The group advises the United Nations and member states on issues relating to the advancement of the financial inclusion agenda on a global scale. Since its establishment, many successes have been achieved. These include increasing the public awareness on the importance of financial inclusion, assisting governments in the design of regulatory systems that facilitate the creation of financial services for the poor, encouraging the use of holistic measures to gauge the progress of financial inclusion as well as collecting and disseminating best practices to further advance financial inclusion. One of the topics that received considerable attention at the UNAG forum was branchless banking. | 0 |
But then, some may fear that instead of finding a black cat we shall find a fat tiger taking up much of the room, playing havoc, tearing up things, creating chaos and not wanting anybody to know about it. I firmly believe that the disclosure of relevant information by market participants will make markets work better. This could be done directly or indirectly through regulators and special purpose agencies such as credit registrars or custodians. The information should include data that will enable the financial position of significant market participants to be assessed objectively, such as their degree of leverage and their exposure to specific markets. This would help counterparties, such as the banks extending credit to them and the investors using their services and entrusting their savings to them, to take decisions based more on rational analyses rather than on herding behaviour. The information should also include data that will enable overall market positions and their concentration to be established. This would help the regulator in effectively ensuring systemic stability, taking regulatory action where necessary to manage or limit the systemic risks or simply to disclose publicly the relevant aggregate information for the benefit of all market participants. This is of course easier said than done. When you are dealing with international markets operating over the counter, with participants possibly registered in cyberspace, how and on what authority do you obtain that information, or impose regulatory measures, desirable as they may be? | While there is wide sympathy for our decisive action against market manipulation, we have been cautioned by some on the need not to be confused by herding behaviour. Others have challenged us to come up with hard evidence that manipulation existed, reminding us of the established academic theory of market manipulation, and urging us to examine carefully the history of the events leading to last August, collect data and conduct econometric research into them. While I agree that all these need to be done where possible, I must tell you that such advice reminded me of what Andrew Crockett, the General Manager of the BIS and Chairman of the Financial Stability Forum, once told me. He said that the economic theorists are those that attempt to look in a dark room to find a black cat. The economic historians are those that attempt to look in a dark room to find a black cat that is not there. And the econometricians, who conduct all those regression analyses from the data collected, are those that attempt to look in a dark room to find a black cat that is not there and say that they have found it. I certainly do not wish to be involved in that sort of thing. But there is surely one thing that ought to be done, if we are serious about the matter. Using the same analogy of the dark room and the black cat, why don’t we just light up the room and look? | 1 |
Liquidity needs to be deployed and invested to generate returns. As the liquidity pool increases, financial institutions should capitalise on this and develop the range of renminbi money, bonds and equity products, which can leverage on the RQFII access. The impact of the Chinese economy on Asia, including Malaysia has been significantly broadbased and encompassing. Financial linkages with China have strengthened. China’s financial markets, already among the world’s largest markets, will be home to a growing number of global Chinese multinational companies with global outreach. The strong interest and commitment to infrastructure building and financing will be a long term theme that will shape Asia and China’s presence in the global markets. There are huge potential that lies ahead and we must be ready to tap the opportunities in all these initiatives. Our financial institutions, corporations and businesses should work together to ensure the readiness of our businesses and economy to keep up with the developments and capture these opportunities. With this, I wish you will have a fruitful discussion and insightful conference today. 4/4 BIS central bankers' speeches | A first cost is that it may create confusion as to the objective of the monetary authorities: inflation or the exchange rate. In our case, we have dealt with this through transparent mechanisms whereby we anticipate the amounts and terms of interventions, and by maintaining a flexible exchange rate. In addition it has always been clear that the exchange rate is not an objective and the main goal of the Central Bank is price stability. A second cost is of a financial nature. Foreign reserves are invested in highly liquid and secure instruments of developed countries, whose interest rates are lower than those of domestic instruments used to finance their acquisition. Conversely, the benefits of having these reserves are the enhanced security they provide in case of an abrupt cut of external financing. These benefits are hard to measure, but it is reasonable to expect that they will decline as the availability of reserves increases, as has been occurring in Chile since 2008. Allow me to express some final thoughts. Final thoughts News during these last weeks have led us to a scenario in which the effects of the deteriorating external situation that we forecast some time back are not evident and in which inflationary pressures stemming from a higher cost of energy have resurfaced. Hence, if a few months ago it was clear that the most likely scenario for monetary policy in emerging economies was a further loosening, today it is much less clear so. | 0 |
Our challenge in the coming years will be to consolidate this Board, in order to enhance our assessment of risks threatening the stability of the Chilean financial system. Lesson number two is that, in the face of threats to financial stability, preventive actions work best, seeking to anticipate the problems. The costs of a crisis of this nature are high and long-lasting, so even at the risk of being mistaken, we’ll rather be safe than sorry. Still, the interest rate as an instrument is neither sufficient nor necessarily effective in preventing financial imbalances to develop. More focused instruments are needed – ranging from financial regulation to given the market clear signals of the risks –, which permit to take direct action on the problem. Given the nature of the regulation and supervision framework of the Chilean financial system, every now and then this policy will call for close coordination between the Central Bank and the Superintendences. Lesson number three is that, during episodes of financial stress, the Central Bank also requires using a battery of instruments – aside from the short-term interest rate – to help stabilize the economy. During the crisis of 2008–2009, the Central Bank of Chile introduced new tools to inject liquidity into the economy and enhance the effectiveness of its monetary policy making. Also, in 2008 and 2011, we intervened in the forex market, obeying both to a prudential motivation (i.e., accumulating more international liquidity) and to a conjunctural one: the evolution of the real exchange rate. | However, its effects can be mitigated by monetary, fiscal and financial policy actions. Although the negative scenarios dominate, it is possible that Eurozone policy makers succeed in building a set of measures and reforms that soon restore market confidence. In any case, in such a scenario, given the required fiscal adjustments, the developed economies would continue to lag for a long period and would hold on to their loose monetary policies for some time. This would intensify the dichotomy between growth in advanced and emerging countries. In this context, a resurgence of capital inflows to emerging economies is a possibility. Domestically, one risk that cannot be ruled out are stronger effects from the higher external uncertainty, hitting harder the local financial markets, confidence, and consumption and investment decisions. Notwithstanding the capacity of economic policies to mitigate the effects of a more adverse external environment, it is important for the private sector to properly administer financial risks. Worth noting are the favorable financial indicators of the corporate sector (figure 10). In addition, currency mismatches continue to be stable and bounded, despite the increasing role of external debt as a source of funding. Still, it must be pointed out that financial intermediaries would be wise to keep a watchful eye on credit risk, considering its negative effects on external demand implied in the risk scenarios. 4 BIS central bankers’ speeches As for households, on average the financial situation has not deteriorated. The recent increase in private consumption has evolved hand in hand with labor income. | 1 |
For instance, there is great uncertainty over what the consequences of the turmoil in the world financial markets might be for economic developments. In Sweden there are signs of a slowdown and GDP increased at a slightly slower rate than expected, according to statistics published by Statistics Sweden just over a week ago. At the same time, inflation is high and above the target. World market prices for some commodities, such as oil, have risen sharply over a period of time and this is a challenge for central banks around the world. New information of significance for inflation is constantly coming in. As the Riksbank has also pointed out on several occasions, inflation expectations have risen in recent months and they are above our target of 2 per cent. There may be several different reasons for this. The most important reason is probably that actual inflation has risen and this usually leads to expectations rising. The Riksbank monitors inflation expectations closely; the important thing is that they do not become entrenched at a high level, whatever the reasons behind them. To curb expectations we would have to act more forcefully. To summarise – our strategy has not changed and our target stands firm. We will continue to use a large number of alternative measures of inflation in our work, not least to illustrate the direct effects of our own interest rate policy. But the focus will be on our target variable, the CPI. | For a small number of you, we will need better information and visibility going forward to bring you in line with others. We will start that discussion with you now. For those going in to TPR, it will be a gradual evolution. These firms have had extensive interaction with the PRA’s supervisors over the past three years – we have seen substantial preparations by 9 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 9 these firms as part of their authorisation submissions and we have worked together with firms on a large number of thematic reviews. And, for those considering coming to the UK to operate, it provides clarity on our approach so you can consider how best to meet our expectations. For our regulatory colleagues around the world, we look forward to continuing to build our open and supportive relationships. 10 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 10 | 0 |
Stefan Ingves: The Riksbank and the Swedish economy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Swedish Association of Local Authorities and Regions, Tylösand, 28 May 2007. * * * Introduction Firstly, thank you for the invitation to come and speak to this assembly. Today I will talk about my views on the role of the Riksbank and about the current monetary policy situation, roughly as expressed in the discussion at the May monetary policy meeting. International economic activity remains good Sweden is a very open economy and large parts of the business sector are dependent on being able to sell their products to customers abroad. If the economies in countries around us are doing well, then the Swedish economy also does well. In recent years global growth has been extremely high. We believe that the growth rate will slow down slightly in 2007 and 2008, but will nevertheless remain high. After many years of high growth the US economy has now entered a slowdown phase. Economic activity has been dampened above all in the housing sector, but also in the manufacturing industry. Productivity growth is lower. The earlier upturn in house prices has slowed down and residential construction has declined. The problems have been aggravated by the fact that it has been easy for people with low incomes to obtain large loans for housing. As yet the problems in the housing market do not appear to have spread to the rest of the economy. | However, information on why the repo rate is being kept unchanged is in principle just as important for understanding the monetary policy conducted as is information on why the repo rate is being adjusted. Secondly, we have decided to make changes with regard to monetary policy signalling. By this I mean how we on the Executive Board of the Riksbank communicate what we intend to do with the interest rate. Now that we publish an entire path for the interest rate, the need to signal between the meetings has declined. Our conclusion is that there will not normally be any reason between the monetary policy meetings to give an indication of how the interest rate will be set. In exceptional cases, such as when an event occurs that radically changes the economic situation, while there is a long time to go until the next meeting, there may be reasons to signal between two monetary policy meetings. Of course the individual Executive Board members should continue to be able to express their own opinions publicly. But this is above all a question of afterwards clarifying and explaining personal deliberations made in connection with the monetary policy meetings. Differences of opinion within the Executive Board will also, as before, be made clear when the minutes of the meetings are published. This leads me on to the third change we have decided to make. | 1 |
Brealey, R, Cooper, I and Kaplanis, E (2011), ‘International Propagation of the Credit Crisis: Lessons for Bank Regulation’, Journal of Applied Corporate Finance, Vol 24, No 4, pp36-45. Brown, S and Vitter, D, “Ending Too Big To Fail: Terminating Bailouts for Taxpayer Fairness Act”, http://www.brown.senate.gov/download/tbtf-bill-summary Cihak, M, Demirguc-Kunt, A, Martinez Peria, MS and Mohseni-Cherghlou, A (2012), ‘Bank Regulation and Supervision around the World: A Crisis Update’, World Bank Policy Research Working Paper Series, No 6286. Demirguc-Kunt, A, Detragiache, E and Merrouche, O (2010), ‘Bank capital: lessons from the financial crisis’, Policy Research Working Paper Series, No 5473. Fisher, R (2013), “Ending 'Too Big to Fail': A Proposal for Reform Before It's Too Late”, Remarks before the Committee for the Republic, Washington D.C., available on: http://www.dallasfed.org/news/speeches/fisher/2013/fs130116.cfm Furlong, F (1988), ‘Changes in Bank Risk-Taking, Federal Reserve Bank of San Francisco Economic Review, Spring, pp 45-56. Gigerenzer, G (2007), Gut Feelings: The Intelligence of the Unconscious, Penguin/Allen Lane. Goodhart, C (2011), The Basel Committee on Banking Supervision: A History of the Early Years, 1974-1997, Cambridge University Press, Cambridge, UK. Haldane, A (2009), ‘Rethinking the Financial Network’, Speech delivered at the Financial Student Association, Amsterdam. Haldane, A (2012), ‘On being the right size’, speech delivered at the Institute of Economic Affairs’ 22nd Annual Series, The 2012 Beesley Lectures, London Haldane, A and Madouros, V (2012), “The Dog and the Frisbee”, given at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium, “The Changing Policy Landscape”, Jackson Hole, Wyoming. | Since bottoming out in late 2009, employment here on the island has rebounded by almost 2 1/2 percent. So we’ve come a bit more than halfway back to the early 2008 peak. Moreover, these job gains have come despite ongoing job cuts in local government. While other parts of the region sustained job losses in local government starting in 2010, Long Island’s just started in the spring of last year, creating a drag on the labor market overall. Nevertheless, the private sector has picked up the slack. This is most pronounced in professional and business services, finance, leisure and hospitality, and health care. Even the island’s manufacturing sector has added jobs over the past year. Another sign that a recovery is taking hold on Long Island is that banks that were created just before or just after the financial crisis – while only a small portion of the local market – are starting to show signs of growth. Long Island’s labor market has also been aided by its proximity to New York City. With a large portion of the island’s workforce commuting to New York City, especially from Nassau County, the brisk job creation we’ve seen in the city has helped matters here as well. Unemployment here on the island topped out at 7.6 percent back in late 2009, and it has hovered around 7 percent for most of the past year – a high rate to be sure, but well below both the national and state levels. | 0 |
But it cannot yet be said that productivity growth in the Swedish economy has improved to the same extent. Neither have we registered a similar growth of investment, which could then be a leading indicator that the new technology is being introduced on a wide front. In the 1990s the stock of corporate capital, for example, grew twice as fast in the United States as it did in Sweden. It is certainly conceivable that the high level of the Stockholm stock exchange represents expectations that productivity growth will also move up in Sweden. The sum of the values of individual companies can serve as a yardstick of what is expected of the stock market as a whole and this presumably reflects expectations of how the total economy will develop. And if current share prices are regarded as reasonable, there will clearly have to be an appreciable increase in future profits. This can then be interpreted as expectations of an overall improvement in productivity growth and thus of a higher potential output. An alternative interpretation could be that the stock market is at least partially over-valued. A third possibility is, of course, that the development of share prices is explained by a combination of these two factors. It still seems too hazardous, however, to assume that potential growth in Sweden has moved up towards the level in the United States. It is possible - perhaps even probable - that similar supply factors will emerge in the future and the Riksbank must be alert to this. | However, due to the increase in household net debt, net interest expenses will fall considerably less than this. The impact of the interest rate decline also depends on how long interest rates are expected to remain low. When the sight deposit rate was reduced last autumn, longer interest rates showed relatively little change. The interest rate reductions in December and January, combined with the decline in inflation, have had a stronger impact on long-term interest rates. This indicates that financial market participants expect interest rates to remain low for a longer period. The rise in inflation from February to March, however, gave rise to somewhat higher interest rate expectations and a stronger krone exchange rate. The outlook for the business sector is brighter now. The fall in the value of the krone over the past year has strengthened Norwegian business and industry. The business sector is, however, still feeling the effects of the sharp rise in labour costs over a period of several years. Relative labour costs measured in a common currency are in line with the level prevailing in 1990, but approximately 10 per cent higher than in the mid-1990s. The internationally exposed sector has been scaled back. Companies that are still in operation may be in a better position to cope with the high wage level. In 2003, employment and investment both fell, although investment picked up somewhat towards the end of the year. Efficiency-enhancing measures are expected to continue to characterise the business sector in 2004. | 0 |
1 His professional preoccupations included how international capital flows, trade and labour mobility influence people’s well-being. These factors remain uppermost in policymakers’ minds as they seek to secure the resilient dynamism we all need for sustainable prosperity. And they are among the factors I want to consider this evening in discussing the impact of the UK’s European Union (EU) membership on the Bank of England’s objectives. Today we are publishing a report that examines this question. 2 I would like to be clear at the outset what this report is about, and what it is not. Our report is solely concerned with how EU membership affects the Bank’s ability to achieve our core objectives of maintaining monetary and financial stability. It is not a comprehensive assessment of the pros and cons of the United Kingdom “being in Europe.” And for the benefit of those of you who join us from the ranks of the nation’s press corps, I say again that this report it is not a comprehensive assessment of the pros and cons of the United Kingdom “being in Europe”! Answering that question involves much, much broader issues. Issues for others to analyse, describe and debate. And even those contributions will only be partial responses to a question that only the British people can decide. 1 Cairncross, A K (1953), Home and foreign investment 1870–1913, Cambridge University Press. 2 Bank of England (2015), EU Membership and the Bank of England, October. Available here. | A direct consequence of this growth was that the short-term liabilities associated with the shadow banking system – repos and commercial paper – exceeded the level of demand deposits as seen in Chart 3. Despite this rapid transformation of the financial system, the liquidity protections put in place for demand deposits (deposit insurance and access to the Fed’s discount window) were not available to these new funding sources. This lack of liquidity protection was a source of systemic risk that was building in the financial system – akin to underbrush that builds up in a forest over time increasing the risk of a major fire. The Panic of 2007, however, required a trigger – a spark to ignite the fire. As I will describe in more detail in a moment, subprime mortgages provided the spark. Once the fire was started, the Fed was confronted with fighting the fire using a set of tools designed for a 20th century banking crisis – not a 21st century shadow banking crisis. As a result, the Fed had to improvise and design new tools as it battled the financial blaze. Another choice would have been to let the fire burn on the theory that this is the best way to clear away the underbrush that has built up over time. The great risk with this strategy is that the fire burns out of control creating considerable collateral damage in the process. | 0 |
Touching on the issue of security, the banking industry has implemented additional security features such as the introduction of two-factor authentication to ensure the validity of Internet banking users in addition to the use of user identification and password. For your information, the losses due to Internet banking fraud, accounts for only 0.0002% of the total transactions of RM3 trillion recorded in 2012 and this figure has declined to 0.0001% of the transaction amount of RM2.6 trillion in the first nine months (January – September) this year. The speakers will share with us more about the safety features and safe practices to conduct Internet banking afterwards. To encourage the migration to e-payments, Bank Negara Malaysia has announced a new pricing strategy for payment services in March this year. The transaction fee for IBG conducted via Internet and mobile banking has been reduced from RM2 to 10 sen with effect from 2 May 2013. This is to give the public and businesses an 11 month head-start to adopt e-payments before the cheque processing fee of 50 sen is imposed on 1 April 2014. The adjustment to the IBG and cheque prices is to align them closer to their cost of production. The actual cost of production is about RM3 per cheque and currently consumers pay only 15 sen for the stamp duty per cheque leaf. The 11 months delay in the increase in cheque fee was intentional to allow the public and businesses to familiarize themselves with the use of online banking to conduct e-payment transaction. | Along with reflecting the risks, the agreement explicitly acknowledges how important the financial system should be for efficiently channelling the resources needed to transform our economy towards a sustainable model. These two factors, namely the risks and the opportunities and incentives associated with the change in economic model to combat climate change, have grown in significance on international financial agencies’ agendas. Allow me to mention, non-exhaustively, some of these initiatives: - the work on sustainable finance during the last three mandates of the G20, - the establishment of responsible investment principles by the United Nations, - the creation of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, - the establishment of the OECD green finance and investment centre, - the Sustainable Banking Network established by the World Bank, - within the EU, the European Commission’s action plan on sustainable finance - in the central banking and banking supervision environment, the work by the Network for Greening the Financial Sector (NGFS), of which the Banco de España is a member. In sum, the Paris agreement message to involve the financial sector has hit home and is prompting numerous courses of action. 3/5 You will be discussing many of these initiatives at length in the ensuing roundtable. But in the rest of my speech I wish to briefly set out the role the Banco de España, as a central bank and as a supervisor, can perform regarding this collective challenge. | 0 |
The purpose of the HKMA intraday liquidity facility is to promote more efficient RMB payment flows between banks; and (b) The HKMA will also designate a number of banks active in the CNH market as Primary Liquidity Providers (PLPs). Banks that are designated as PLPs are committed to using and developing Hong Kong as the global platform for supporting their offshore RMB businesses. They are also committed to expanding their market-making activities in CNH market. In return, the HKMA will offer a repo line to each of the PLPs so as to facilitate more efficient liquidity management when they carry out market-making and other business activities in the CNH market. This bilateral repo line can be used by the PLPs as intraday or overnight liquidity management purposes. The HKMA is now finalising the list of PLPs and the necessary documentation. We hope to be able to announce the list of PLPs very shortly. Ladies and gentlemen, let me conclude by saying that the competitive edge of a successful financial centre depends crucially on its soft powers, not just on hard infrastructure. Hong Kong is uniquely well positioned to take advantage and play a pivotal role in the new era of China’s growth story and in the internationalisation of RMB. Hong Kong enjoys both first-mover advantages as well as many irreplaceable structural advantages, given Hong Kong’s very close links with the Mainland in trade, investment and finance under the “One Country, Two Systems” principle. However, there is absolutely no room for complacency. | It is aiming at preserving and improving the situation of employees and of all our fellow citizens in the euro area. Such a responsible policy directly benefits those who are unemployed by significantly improving their employment possibilities. It benefits all our fellow citizens by supporting the purchasing power of their income, thus preserving the well-being of euro area households. And it contributes to meeting one necessary condition for sustainable long-term growth and active job creation in the euro area, which is price stability. Naturally there are also a number of other factors that are contributing to sustainable growth and job creation, in particular sound public finances and, as I already said, structural reforms that enhance competition, increase productivity and foster economic flexibility in order to elevate the growth potential of our vast euro area economy. Augmenting the growth potential of Europe is a major goal for all of us. Background information Table 1: Compensation per employee growth (whole economy) across euro area countries 2 BIS Review 52/2007 Table 2: Unit labour costs growth (whole economy) across euro area countries Table 3. Labour productivity growth in the euro area countries BIS Review 52/2007 3 Table 4. Employment growth in the euro area countries Table 5. Unemployment rates across euro area countries 4 BIS Review 52/2007 | 0 |
In such instances, we need to have a close co-operation between the FIUs in order to ensure that we are able to be ahead of those with criminal intent. Further, I was particularly impressed that all of you are hoping to have an action plan to be implemented thereafter. 2 BIS Review 133/2008 My dear friends, it goes without saying that we need to come out strongly in our efforts to deal with all these matters. We have seen world economic frameworks being threatened, and being under tremendous pressure during the past one month or so. We have seen unprecedented chaos and turbulence. Nevertheless, we have been able to come through because of the diligent work that we have done. In our own country, there were times when we were encouraged to deregulate, deregulate and deregulate. Fortunately, we did not deregulate as much as we were advised to, by certain quarters. Because of that, we had a few fences around our economy; and those fences today are the important buffers that are protecting us when the unparallel financial tsunami is hitting the entire world. When you have fences, it is difficult for outsiders to come in. At the same time, however, when an external disaster strikes, the fences come in handy, because the fences protect you. So, in a way, we have been protected by some of the safeguards that we had installed in our systems. Even when we opened out our economy, we were careful, and we opened out slowly. | The third segment is better detection of economy sensitivity to shocks, which is achieved by establishing sector accounts, and in their frames financial accounts, which will disclose the links between all sectors in an economy, and therefore, the possibilities for shock spillover from one sector to another. In 2017, for the first time, the National Bank prepared financial accounts for all sectors of the economy, which were submitted to Eurostat in an experimental format. The fourth segment is the improvement of the statistical communication process. In this context, on a regular basis, we are making efforts to improve communication with the public, also by conducting surveys for the satisfaction of the reporters and users, creating the possibility for direct electronic communication on all issues related to statistics and undertaking financial education activities. In 2016, we started with a regular publication of press releases on statistics, as well as a project, which is in the final phase, for establishing a statistical internet portal for external data users. In doing so, in the basis of all these new statistical requirements, lies the need for providing granular, rather than aggregate data. The crisis has not called into question the traditional aggregate economic statistics, but has shown that it is not enough. | 0 |
Permit me to pay tribute to all other former Governors who have contributed immensely to our institutional development over the years. I want to take this opportunity to thank them all for their contributions in reforming the Bank and upholding the dignity and effectiveness of our noble institution. Your Excellency, distinguished guests, the recent global economic and financial crisis was a wake-up call to the realisation that low and stable inflation, a sound banking system, as well as high and sustainable economic growth, though necessary, are not sufficient conditions for financial stability. As you are aware, the Bank had developed the Financial Sector Development Plan (FSDP) which was approved by cabinet in 2009, to address the shortcomings in the financial sector. It is expected that funding for the FSDP would be provided under a basket fund arrangement with development partners, including KfW, GTZ, and AfDB, with the World Bank assuming a leading role. The Bank is in the process of setting up a secretariat for successful implementation of the FSDP for which the Head has been appointed. Your Excellency, distinguished ladies and gentlemen, permit me to proceed with the discussion on the highlights of the reform policies to reposition the Bank and the current state of their implementation. Strengthening the supervisory role of the Bank of Sierra Leone Your Excellency, distinguished guests, even though the Bank was granted legal sanction by the Bank of Sierra Leone Act 2000, its powers and operational autonomy are limited. | Also, government’s drive towards improving electricity supply and distribution, with the completion of the Bumbuna Hydroelectric Power Plant and additional thermal plants, contributed to increased productivity particularly in the manufacturing sector. However, going forward, there is a need to achieve a higher growth rate to stimulate economic activities and create more employment. Your Excellency, ladies and gentlemen, the state of the economy was presented by the Honourable Minister of Finance and Economic Development, in his statement of Economic and Financial policies for 2011. During 2010, fiscal policy was geared towards enhancing revenue mobilisation to support government’s expanded capital expenditure requirements. Emphasis was therefore placed on improving tax administration by reducing inefficiencies in tax collection and increasing the levels of compliance. The performance of the newly introduced Goods and Services Tax (GST) was encouraging, with a compliance rate of 60 percent. This is an indication of hope for future revenue performance in Sierra Leone. On the other hand, expenditures exceeded the budgetary targets due to salary increases, expenditure on the health sector and infrastructural outlays. In this regard, the Bank would like to stress that the global financial crisis has resulted in global austerity measures worldwide, and Sierra Leone should not be left behind in making difficult financial choices. Compared to 2009, the year 2010 reflected a wider deficit which was financed mainly from the drawdown of Multilateral Debt Relief Initiative (MDRI) resources, some external financing and domestic borrowing mainly through Ways and Means Advances. | 1 |
Andrew Bailey: It’s a recovery, but not as we know it Speech by Mr Andrew Bailey, Governor of the Bank of England, Mansion House, London, 1 July 2021. * * * Introduction Lord Mayor, there has been nothing usual about the last sixteen months. Even long-standing neighbours like the Bank and the Mansion House have had to resort to video conferences rather than popping round for a word. And one of the trickiest issues for all of us is dress code and etiquette – is this a ties on or off video, who knows? I can admit that I don’t seem to be a very good predictor of dress code. But you did throw me not long ago Lord Mayor, when we had a video call about an hour before we were both speaking at an event, and I can reveal that you were dressed in a Mansion House bomber jacket. So, white tie to black tie to bomber jacket. I should say that by the time of the event, the Lord Mayor had changed into something more conventional. The story so far Conventional is not a word I have used about the performance of the economy in the last sixteen months. Last calendar year, UK GDP declined by an annual growth rate of 9¾%, and based on our last forecast in early May we expect it to grow by 7¼% this year. It’s more meaningful to express the level of activity relative to the end of 2019 (pre-Covid). | BIS central bankers’ speeches 1 The euro area economic governance framework and the crisis Let me first briefly review the economic governance of the euro area at the outset. The most distinctive feature of EMU is that it combines a single monetary policy with largely decentralised fiscal and economic policies. In such a framework, a key challenge is to ensure a high degree of self-responsibility or, expressed in other words, to ensure that unsound national policies do not even materialise and do not, in any event, undermine the stability of the common currency. These challenges were abundantly clear to the founding fathers of EMU: rules on fiscal spending were laid down in the Maastricht Treaty, and supplemented by systems for the coordination of economic policy. Together, they are now generally referred to as the European economic governance framework. The fiscal constraints in EMU – given the two reference values, namely the ceilings of 3% of GDP on budget deficits and of 60% of GDP on government debt – are probably the best known elements of the fiscal framework. But the framework was, in fact, far more comprehensive, even before the recent reform of economic governance. A set of rules imposed preventive limits on government borrowing, requiring Member States to achieve close-to-balance budgets over the business cycle. These rules were meant to place debt on a sustainable footing and, at the same time, to create fiscal room for manoeuvre for “rainy days”. | 0 |
This shift represented not a change in policy but a response to changed circumstances. 4 BIS Review 138/2010 One of the prerequisites for lifting the capital controls without causing exchange rate instability is a sufficiently strong external balance – preferably a surplus. That prerequisite has already been met to the extent that the Central Bank has initiated regular foreign exchange purchases in the market. Excluding the estates of the failed banks, there is a sizeable trade surplus. When winding-up proceedings conclude, there will be a net debt to non-residents; however, it will probably not be large enough to eliminate the underlying surplus. The fundamental problem lies not with the current account balance but with capital movements. Residents’ payments on foreign loans will probably exceed inflows of new borrowed funds or other investments as long as Iceland’s access to foreign credit markets is BIS Review 138/2010 5 constrained and economic recovery is delayed. However, Landsvirkjun’s recent bond issue indicates that foreign credit markets are not entirely closed, although few firms are in a position to obtain foreign credit and the terms are far from favourable. It would arguably be wise to commence capital account liberalisation while the real exchange rate is relatively low. With a relatively low real exchange rate, owners of ISK assets en masse are less likely to view the removal of capital controls as a selling opportunity, and it is more likely that foreign investors will view it as an opportunity to acquire krónur from those wishing to sell. | While the capital controls are being removed, the risk-adjusted interest rate differential between Iceland and its trading partners must be sufficient to make ISK assets attractive relative to foreign currency alternatives. On the other hand, there are strong arguments for a considerable reduction in interest rates, provided that the capital controls keep the króna stable. Whether the interest rate at any given time is appropriate depends in part on the timing of the phased capital account liberalisation. Both the market and the Monetary Policy Committee face uncertainty about when, and in what stages, it will be possible to lift the controls. In line with transparent monetary policy implementation, the Monetary Policy Committee has explained how this uncertainty affects its decisions. To that end, the Committee has given an account of various factors that affect the prospects of continuing the phased capital account liberalisation that began in November 2009. Uncertainty about key Supreme Court decisions and the third IMF review increased the likelihood that the next stage of liberalisation could be delayed quite a while. The bond market appeared to interpret this delay to be more fundamental in nature than the Monetary Policy Committee intended to convey in its statement, thus contributing to the decline in yields that had begun somewhat earlier. The uncertainty had abated by the time the Monetary Policy Committee met in September, and the Committee explained this in its statement. Furthermore, the Committee implied that it would inevitably consider this point in its next interest rate decisions. | 1 |
The transferors may have proper insight into the nature of the risks. But to whom have the risks been transferred? Are the transferees actually aware of the risks they have taken on? And are they in the best position to monitor these risks as they evolve? How do they acquire day to day knowledge about the quality of those risks? Going further, what might they do when they find out? 2 BIS Review 29/2003 Some of the concerns being expressed by private and public sector commentators in these areas are, in my view, important and worthy of further examination. Those concerns I’m talking about include: a lack of aggregate data on derivative positions; lack of transparency in accounting for them; and the potential for unexpected concentrations of risk to build up. Although in principle this redistribution of risk should be benign we simply do not have the information at present to judge what the actual impact has been. But why is all this relevant to insurance? It’s certainly true that in a lot of cases originating banks have laid risks off to other banks. There are many possible reasons for this: for diversification or to avoid concentration; opportunities to earn fees; regulatory arbitrage; and different views on pricing and spreads. But it is also well known too that risks have been transferred from banks to various areas of the insurance world. That includes reinsurance, where the degree to which such risk has now been concentrated is difficult to assess. | In our Sydney roadshow, I was particularly impressed by the keen interest and high level of curiosity of the Australian audience, who wanted to understand more what RMB internationalisation was all about and what it meant for them as corporates with trading and investment links with China. We were then at an early stage of this long and exciting journey of RMB internationalisation. At that time, the cross-border RMB trade settlement scheme was still a “pilot” and only covered selected provinces in the Mainland. RMB trade settlement handled by banks in Hong Kong was only some RMB100 billion a month, which is less than one-fifth of the RMB600 billion registered in March this year. 3. The offshore RMB market in Hong Kong has indeed achieved phenomenal progress in the past three years. Hong Kong’s RMB real time gross settlement system registered an average daily turnover of close to RMB700 billion in April this year, which is about twelve times the level when I visited Sydney in 2011. In the foreign exchange market – another area where activities have picked up sharply – we are seeing an average turnover of RMB spot and forward transactions of some $ billion to $ billion equivalent every day. I also note that remarkable developments have been achieved in Australia, with recent data suggesting that Australia’s RMB payments value increased by close to 2.5 times year on year. | 0 |
Financial stability is a necessary condition to allow the pursuit of other good objectives of public policy – avoiding mis-selling, competition in the provision of financial services etc, things that are rightly not done by the BIS central bankers’ speeches 3 Bank of England but are important to society. Financial stability is not a superior objective to these other goals, but it is in my view a necessary condition to achieve them. And, in reforming regulation we should have in mind that a healthy and competing industry is one that does not rely on the support of public money, either explicitly or implicitly. Thank you. 4 BIS central bankers’ speeches | The activities that will take place during this Week seek to draw the attention of the children and young people to the significance of personal finance and the impact of well-informed decisions on the personal success of each one of us individually, and of the whole society. 1/2 BIS central bankers' speeches Like in any other educational activity of the Bank of Albania, beyond the message that we want to convey, we consider that the inspiration, originality and pro-active thinking are determinant elements for an effective comprehension of a complex, at the same time practical, topic such as finances. We may proudly say that all the submissions for the contests are characterised by these elements, thus demonstrating that, though challenging, the financial education of children and young people may be and is possible. Moreover, their work and commitment is an incentive to us to introduce more ambitious projects and expand this activity, geographically, each year. The contests for students from nine-year schools and high schools have been welcomed and the number of participants has been higher each year. This year, around 55 nine-year schools, 14 high schools, 8 universities and over 1000 pupils and students in 14 cities were involved. This success is also owed to the teachers and professors, whose passion has contributed to materialising all these efforts. | 0 |
This deterioration in competitiveness can be illustrated by the fact that unit labour costs have increased by between 10 to 20 per cent more than in the euro area as a whole since 2000, and even more in relation to unit labour costs in Germany. The deterioration in competitiveness entails less chance of a boost from exports and thus poorer opportunities for a rapid recovery as international demand increases. (Slide: Unit labour costs compared to the euro area). The strong growth in domestic demand in recent years and the weaker competitiveness have resulted in a current account deficit and thus rising foreign debts. (Slide: Current account deficits). In the case of countries with their own currencies one would expect a depreciation of the currency to restore competitiveness. This opportunity is not available to the countries in the euro area. Here, it is instead necessary for wages and prices to fall in relation to other countries. One difficulty in this context is that both public and private debts and the interest payable grow in real terms – that is, a larger part of production goes to meeting the costs of the debts. Developments in Germany show that such internal cost-cutting in relation to other countries is fully possible. The combination of a muted growth in nominal wages and productivity improvements has led to unit labour costs in Germany falling by 15 per cent since 2000, compared with the euro area as a whole. | The cost of the 2022/23 drought already amounts to more than $ 14.14 billion for soybean, wheat and corn producers, Bolsa de Comercio de Rosario, 10 March 2023 ii World Bank, Flood damages and economic losses over USD 30 billion and reconstruction needs over USD 16 billion, October 2022 iii NGFS scenarios portal iv The English version of a recent publication will be available within the next few days; in the meantime, you can refer to the French version of the Bulletin de la Banque de France n°243, Transition vers la neutralité carbone : quels effets sur la stabilité des prix ?, 5 April 2023 v Capital expenditure vi ECB Climate Agenda, 4 July 2022 vii Villeroy de Galhau, F., How central banks should face instability and fragmentation, speech, 12 April 2023 viii European Commission, « Fit for 55 impact assessment », Commission Staff Working Document, no SWD(2020) 176 final, September 2020 i ix Pisani-Ferry (J.) and Mahfouz (S.), « L’action climatique : un enjeu macroéconomique », La note d’analyse, no 114, France Stratégie, November 2022 Villeroy de Galhau, F., and Nagel, J., Fostering European unity: time for a genuine Capital Markets Union, published in French in Les Echos and in German in Handelsblatt on 14 November 2022 x | 0 |
Here, both the African countries themselves and we in the industrialised world can make important contributions. Some historical reflections on globalisation and technological changes Despite all the talk of the “new” global economy, the present international economic integration is actually no new phenomenon. During the fifty years prior to the First World War, there was considerable cross-border mobility for both goods and capital. Then, as now, the increased globalisation was driven by trade liberalisation and major technological advances, thanks to the development of railways, steam engines and electricity. In some respects the integration was even more extensive at the beginning of the 20th century than it is today. For instance, foreign direct investment was a much greater percentage of GDP, labour was much more mobile across national borders and even agriculture was more liberalised. However, in other respects it can reasonably be claimed that the world economy is more interlaced now than it was a hundred years ago. The first difference is that a much larger percentage of the countries in the world now participate in the global economy, after opening up their borders to trade and investment and adopting liberal market reforms. Another aspect that should be highlighted is that although the net flows of international capital are lower than prior to the First World War, the total financial flows are much greater today. | While these structural changes are nothing new in themselves, they make substantial demands with regard to a good business climate where new jobs can be created and to a good capacity for change and flexibility in the labour market, to enable employees to seek work in other industries and regions. This can of course be a difficult process for the individual and his or her family, as if often entails a change of career and also of the area in which he or she works, and perhaps even the area where they live. It is important to facilitate this difficult adaptation process, for instance, by offering support in the form of education, retraining and reasonable compensation during the changeover period. In recent years the allocation of jobs abroad, known as offshoring, has been the focus of debates regarding structural changes. This is not a new trend in itself; as the manufacturing industry has become increasingly internationalised during the post-war period, we have seen equivalent patterns. The new element today is that it is jobs in the services sector, which are sometimes well-paid, that are being increasingly offshored. This opportunity has arisen as a result of the major advances in the ICT sector and the steeply falling information costs. Thus, entire sectors where trade was previously impossible at long distances have been opened up to international competition. The increased trend towards offshoring is primarily driven by large cost savings, which can amount to as much as 60 per cent. | 1 |
Are we now in such a state that by helping the rich, the people who have money to invest, and the people who have businesses to manage makes sense - can the trickle down effect be the best way to get the poor richer. We are on the verge where free competition would mean that everybody would do better. Give everybody equal chance in business and clear and known rules. Ensure the poor would be able to compete by giving them a good education such as the new 12-year compulsory free education under the new Constitution. Making sure that the poor have a reasonable chance to compete rather than stopping the rich from competing might well be the best strategy in the country where economy has taken off and will not look back and go back into the feudal age. That is a major question facing all of us who wish well for Thailand and weigh heavily as a consideration on every action that we take. Let me end my statement by talking about something much nearer to the immediate pace of the recovery. The amorphous leadership is dragging us, but every moment we are climbing resolutely out of the morass, and soon I could see the day when NPLs, although still there, would form only a small portion of the total economy, and Thailand could raise its head once more as a leading country and hopefully not repeat its mistake of overconfidence, caprice and greed. | Moreover, in a particular country, even if its economic fundamentals look good, such a situation can give rise to downward pressure on both the BIS Review 81/1998 -5exchange rate and share prices at the same time as interest rates rise. That suggests that certain investors are reducing all types of holding in the country in question, which is a signal to the country’s decisionmakers that more must be done to enhance general economic policy’s credibility. High standard of discipline throughout economic policy While it is obviously important to discuss how a financial crisis, if it occurs, should be managed, it is at least as important to minimise the risks of a crisis ever materialising. This applies in particular when the financial system is undergoing rapid developments. The transformation in Europe in the coming years must therefore be followed closely. One key factor is economic policy in general. An economy characterised by low, stable inflation, sound government finances and good economic policy credibility also provides a generally stable economic environment. This in turn promotes a sound development of the financial domain. By itself, however, this is not enough. Another highly important matter is the appropriate government supervision of the financial sector. Even central banks that are not directly engaged in this supervision must monitor tendencies in the financial field in order to fulfil their primary tasks of ensuring price stability and financial system stability. There are several reasons for this. Monetary policy is implemented through the financial system’s agents. | 0 |
Thomas Jordan: What are the consequences of the war in Ukraine for the SNB's monetary policy? Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 114th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 29 April 2022. * * * Madam President of the Bank Council Dear Shareholders Dear Guests I would like to warmly welcome you all to our Annual General Meeting, and I am delighted that this year we are able to meet in person again. The geopolitical situation has changed fundamentally in the past few months. Russia’s attack on Ukraine has shaken us all. Our thoughts are with the victims of this terrible war. Considerations of the economic consequences pale by comparison with this suffering. Nevertheless, such deliberations are also important for the citizens of Switzerland, and the Swiss National Bank is therefore working intensively on addressing the impact the war will have. On the one hand, we have to properly contextualise the immediate economic effects. On the other hand, we also have to address questions pertaining to the longer term. I will begin my speech by looking at the closely interconnected global economy as we knew it until just recently, the gains in prosperity it brought, and what it meant for monetary policy. I will go on to explain how the consequences of the war that can already be felt are influencing our current monetary policy. | However, should there be signs of a strengthening and spread in inflationary pressure, we will not hesitate to take the necessary measures to ensure price stability in Switzerland in the medium term. Possible longer-term consequences of the war for monetary policy So much for monetary policy today. However, what could be the longer-term consequences of the war? One key issue in my view is how we are going to deal going forward with the dependencies that have arisen as a result of globalisation. Specifically, which countries will still trade with each other in which goods and services and to what extent? We do not yet have definitive answers to these new questions. From the current perspective, however, it appears possible that in the medium term we will be living in a world that is less integrated than it is today. I would like to focus here on this question: What would a less globalised world mean for monetary policy? There would initially be the impact on inflation and the economy, in other words on the two variables at the core of monetary policy. With a reduction in the division of labour owing to a fragmentation of the global economy, production costs for many goods would rise again. As long as this disintegration persisted, it would be likely to trigger more protracted inflationary pressure. | 1 |
Increasingly our focus here has shifted towards the financing of small and medium-sized BIS central bankers’ speeches 3 enterprises, which heavily rely on bank financing and in many cases are struggling to retain access to credit. These companies may be small, but when they face a funding problem, it is a big problem for all of us, given that they employ around three-quarters of the euro area’s workforce. In June, we decided to launch a series of targeted longer-term refinancing operations – TLTROs – to ensure that banks have sufficient liquidity to lend to the real economy. The TLTROs have been designed to encourage banks to increase their lending to the nonfinancial corporate sector. In addition, we have also taken measures to underpin specific market segments that play a key role in the financing of the economy. Last week, the Governing Council decided to start buying high-quality asset-backed securities and covered bonds in October. We will purchase both existing and newly issued ABS, which are simple, transparent and real in the sense that the underlying assets consist of loans to the euro area non-financial private sector. Let me respond to the concerns recently expressed about the risks posed to the integrity of our balance sheet. It is worth recalling that senior tranches of ABS have proven to be highquality assets. According to the Association of Financial Markets in Europe, only 0.12% of European residential mortgage-backed securities (RMBS) outstanding in mid-2007 have defaulted since then – compared with 22.05% for US RMBS. | Mario Draghi: Keynote speech at the Eurofi Financial Forum Keynote speech by Mr Mario Draghi, President of the European Central Bank, at the Eurofi Financial Forum, Milan, 11 September 2014. * * * Summary We are facing a set of conditions – low growth and low inflation, high debt and high unemployment – that can only be addressed by concerted action on both the demand and supply sides of the economy. This requires that all actors – both at national and European levels – play their parts in line with their respective mandate as laid down in the EU Treaties. No monetary or fiscal stimulus can be successful if not accompanied by the right structural policies – policies that foster potential growth and instil confidence. Investment has been one of the great casualties of the crisis. From peak to trough business investment in the euro area decreased by around 20% since 2008, against 15% in the 1992 recession. We will not see a sustainable recovery unless this changes. A decisive rise in investment is essential to bring inflation where we would want to see it, to kick-start the economy and to bring down unemployment. There are two key areas where national and European level government action can help revive investment. First, the regulatory environment should be made more favourable to economic growth. Second, companies need to have access to more diversified sources of financing: the launch of a capital markets union could contribute to achieving this. | 1 |
Their many initiatives include “Women of the Year” programmes to recognise female employees for outstanding success, as well as their Women’s Initiative Network (WIN) which provides a supportive platform for sharing and engagement among Barclays employees worldwide. 24. Amongst us, there are many women leaders who have blazed the trail in the industry. The moderator for today’s panel discussion, Deborah Ho, has had an illustrious career with financial institutions in Asia and New York and is an IBF Fellow. Deborah serves on the committees of Barclays’ Global Investment Bank Diversity Council and Women’s Initiative Network. She is also Barclays’ representative on BoardAgender. 25. The list goes on and thank you each and every one of you, for inspiring in your own way and for being a role model. Closing remarks 26. It is critical for us to diversify our workforce, especially since it has been shown over and over again that the best performing organisations are those who tap on all of their employees’ talents, both men and women alike. In fact, according to another McKinsey report, gender-diverse companies are 15% more likely to outperform their non-diverse counterparts. 2 27. We must do more in our own capacity to promote and encourage talent development in the financial sector, being an inspiration in our own way. Not simply for the benefit of employers, but to allow every individual an equal opportunity to pursue their goals and dreams, and strive for their best. | The Singapore Diversity Action Committee found that the SGX-listed companies saw 10.2% of board seats held by women in 2015, a notable increase from 7.6% in the previous year; with large companies leading the growth. However, if we compare to other centres like the UK and Hong Kong, the women’s representation on boards is 26.1% and a slightly higher 11.5% respectively. 5. The FWA Gender Survey, results for which will be discussed in depth later, corroborates these findings. While we are heartened that the women participation numbers are healthy at the lower levels, we need to remain focused on encouraging the contribution of women at all levels, and especially at the more senior positions. 6. Singapore’s greatest asset is its people, and developing talent must be a top priority. In MAS, we place great emphasis on talent development, progression and retention in the industry. You may know that we have recently formed the Financial Sector Tripartite Committee (FSTC), which I co-chair with Mr Patrick Tay, Assistant Secretary-General, National Trades Union Congress (NTUC). FSTC brings together the industry associations, government and labour movement, to foster a financial sector workforce that is versatile and well-equipped to seize the opportunities and adapt to the changing needs of the financial services industry. Our overall objective is to build a financial sector that not only reinforces Singapore’s position as a major international financial centre, but most importantly, one that provides good jobs for Singaporeans. 7. Allow me to elaborate on our approach. 8. | 1 |
0112 1011 0711 0411 0111 1010 0710 0709 0709 0409 0109 1008 0708 0408 0108 1007 0707 0407 0107 4.0 1006 2 0706 4.5 0406 3 0410 5.0 0110 4 6.0 1009 5 6.5 *Calculated using linear interpolation of several maturity yields in the CBT Expectations Survey. Yields are from the second survey period. Source: CBT. BIS Review 103/2009 5 Distinguished Members of the Press, As I mentioned at the beginning of my speech, current global conditions play an instrumental role in inflation developments. Inflation rates have plummeted since the second half of 2008 due to downward pressures arising from demand and cost conditions. This downward trend also prevailed in the second quarter of 2009 (Figure 10 and 11). The trend of consumer price inflation in developed markets turned negative in May/June 2009 and dropped to –0.56 percent in June. Consumer price inflation in emerging markets also continued to lose ground to become 4 percent in June. In other words, inflation rates started to post a significant downward trend globally from the last quarter of 2008 onwards. | Playing late relies on having an uncannily good eye and strong nerve. It runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward. This is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk. 9 6 Stein (2014) BIS central bankers’ speeches So which is the better strategy? Benjamin Disraeli told us there are lies, damned lies and statistics. Here my analogy between cricket and the economy breaks down. Economic statistics, as we know, do sometimes lie. Cricket statistics, typically, do not. They tell us that Joe Root averages 43 in test matches to Ian Bell’s 45. In other words, it is a close run thing with the odds at present slightly favouring the front foot. But a good run of scores from either player could easily tilt the balance. That, in a nutshell, is where the MPC finds itself today. Thank you. BIS central bankers’ speeches 7 References Anderson, A and Maule, B “Assessing the risk to inflation from inflation expectations”, Bank of England Quarterly Bulletin 2014Q2. Barnett, A, Batten, S, Chiu, A, Franklin, J and Sebastia-Barriel, M “The UK productivity puzzle”, Bank of England Quarterly Bulletin 2014Q2. | 0 |
It’s notable that later in the same poem I used to open my speech, John Donne writes, “if a clod be washed away by the sea, Europe is the less.” The ongoing uncertainty around Brexit and its eventual outcome is a cause of concern not just for the UK economy, but many of its European trading partners. It’s impossible to predict what the spillover effects will be when Brexit finally reaches a conclusion. 2/4 BIS central bankers' speeches We face similar uncertainty on our own shores regarding trade tensions. I frequently hear from my business contacts that they’re holding off on making investments until the landscape is clearer. And the ongoing uncertainty in both of these situations, rather than the day to day ups and downs, has become a key driver of business decisions. Trade negotiations and Brexit are top of mind when it comes to uncertainty. But geopolitical risks and political upheaval are affecting regions across the globe. It’s striking that in almost every corner of the world geopolitical tensions are threatening to put the brakes on growth. Even if the outcomes of current negotiations are ultimately positive—be they between the U.S. and China, or the UK and the European Union (EU)—the uncertainty created by current events is no doubt having a lasting effect on the economic conditions we’re experiencing today. Furthermore, the interconnectedness of our economies means that literally, no man is an island. If one economy starts to struggle, the spillover effects onto others can take hold rapidly. | The general trend in the market has been to charge SMEs with high interest rates relative to the large scale corporate sector because of the perceived high risk they are supposed to present. Distinguished Invited Guests, my view is that this presumed high risk profile associated with SMEs can be effectively managed by banks if they make the necessary effort to understand the sector and build expertise in dealing with its unique characteristics. I trust that you will double up your effort in building the expertise necessary for your bank to be a major lender to the SME sector. The issue of interest rates is of particular concern to us at the central bank. In response to the current situation, the Bank of Zambia recently took measures aimed at facilitating the reduction in commercial banks’ lending rates with the view to increasing access to credit by private individuals and business entities. Some progress has been made in this area and we are monitoring the situation in the market to ensure that borrowers are enjoying a reduction in their effective lending rates. We do not want the reduction in the base lending rates to be cosmetic, but should be reflected in lower effective lending rates for measures taken so far to be meaningful. Furthermore, with the reduction in the corporate tax rate for banks recently announced by the Minister of Finance in his 2012 Budget, the expectation is for a further reduction in lending rates by commercial banks going forward. | 0 |
I see this as a reasonable possibility, and therefore I think it might be possible that the decline in reserve balances has pushed up overnight rates a bit over time. 17 At this point, I see no evidence that we are at, or close to, the “steep” portion of the demand curve. 18 Let’s run through some places where evidence of such a possibility might be found. To begin with, if we were closing in on the “steep” part, I might have expected to see more above-IOR lending in the unsecured overnight markets, as at least some banks each day found themselves short of reserves and had to borrow them from another bank. In fact, the amount of such above-IOR lending remains low as a share of the overnight bank funding market, as shown in Figure 9. 19 I might also have expected to see shifts in bank payments behavior—for example, more daylight overdrafts or more effort by banks to “optimize” their payment flows— but I have not seen this either. But, most fundamentally, I might have observed a day-to-day relationship between shifts in the stock of reserves and overnight interest rates. Figure 10 shows a scatterplot of daily changes in reserve balances against daily changes in the spread between the IOR rate and the effective federal funds rate; there is no visible relationship. 16 The classic paper on this topic is Poole (1968). | Figure 3 shows a broad selection of secured and unsecured overnight money market rates; it is clear that increases in the target range for the federal funds rate have passed through fully and immediately to the other rates, as expected and intended. Moreover, I have been very encouraged by the relative stability and high degree of comovement among short-maturity money market rates. And second: the balance sheet. 9 The Federal Reserve’s balance sheet grew markedly earlier this decade as a result of large-scale asset purchase programs, which were undertaken to support the economic recovery by easing financial conditions to a greater extent than could be achieved solely through reducing the federal funds rate. For many years, the FOMC has indicated its intention that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities. 10 Starting late last year, the Federal Reserve began a program to reduce its securities holdings by reinvesting principal maturities only to the extent that they exceed gradually increasing caps. 11 This gradual and predictable approach is intended to reduce the balance sheet’s size at an appropriate pace while supporting good market functioning and mitigating the risk of sharp or outsized asset price reactions. The charts in Figure 4 show the evolution of the Federal Reserve’s securities portfolio. | 1 |
We would anticipate some nudges or policy changes by relevant stakeholders in order to influence behavioural change in consumers. Over the recent years, concerted efforts between the private and public sectors have resulted in a number of specific financial education initiatives being implemented. For example, financial education elements are integrated into the school curriculum for Year 1, Year 4 to 6 and Secondary 1 following effective collaboration between the Ministry of Education and Bank Negara Malaysia. I am pleased that financial institutions and the private sector are also playing their roles to strengthen learning in the classroom through extra-curricular activities in their respective signature financial education programmes. Moving forward, more can be done to instil positive financial values among the 5 million school children through greater sharing of responsibility. I would also like to acknowledge FOMCA’s on-going initiatives in financial education over the years. Indeed, FOMCA has been a valuable partner in the education segment. I wish to take this opportunity to welcome FOMCA’s willingness to join hands with the FE Network to elevate financial literacy of our consumers under the national strategy. 3/4 BIS central bankers' speeches FOMCA, through its affiliates and extensive network nationwide, is well-positioned to contribute on two fronts. The following are my suggestions. Firstly, FOMCA can further expand outreach to educate and create awareness on the importance of financial literacy, particularly to the informal sectors. It is important that our financial education initiatives can be reached to the masses. | Benefits for the non-participating Member States The SSM is open to the participation of all EU member States, including those that have not adopted the euro and perhaps many will do so. How will those states that do not participate in the SSM be affected by Banking Union? It is important to stress here that the playing field really will be level. There will be no disadvantage for banks in countries like Britain that stay out of the SSM. Banking Union will benefit all Member States that are part of the single financial market. And as the leading provider of financial services in Europe, I can see only advantages for Britain from its creation. First, Banking Union will facilitate the completion of the single financial market by simplifying supervisory and regulatory practices, which will facilitate wider market access for banks and investors across Europe. Second, Banking Union will reduce the scope for coordination failures between national supervisors, which will in turn allow for more effective implementation of the single rulebook and convergence of supervisory practices. In this way, the presence of the SSM can be seen as reinforcing the coordination function of the European Banking Authority. The SSM will operate in full compliance with EBA guidance and actively contribute to its work. Third, Banking Union will enhance financial stability in the Europe – and this, more than anything, is what is required for the single market in financial services to thrive. | 0 |
Asia has demonstrated its resilience to the many shocks from the international financial markets and the global economy during this recent global financial crisis. As highly open 2 BIS central bankers’ speeches economies, most economies in Asia have been highly affected by these developments. Stronger domestic demand, greater intra-regional trade and investment, reinforced by resilient financial systems and strong macroeconomic fundamentals, have supported the economic performance of our region. There have been tremendous payoffs for the region from the decade long of financial reforms, institutional building and development of financial infrastructure. Despite the highly challenging environment of slower trade and volatile financial markets, financial intermediation in Asia has continued uninterrupted and financial markets, while more volatile, have remained orderly. It is thus on these strong foundations that the regional financial integration in Asia is not being set back. On the contrary, despite these global developments, the integration process has continued and regional financial cooperation and collaboration has strengthened, reinforced by the increased regional participation and presence of the private sector. Global regulatory reforms Let me now turn to the global regulatory reforms and its implications for Asia. The global regulatory response to the financial crisis is now moving into the implementation phase. At its core are the reforms to build a stronger global regulatory framework to significantly raise the level of resilience of the banking system. While that work has now been largely finalised, the complex task of implementing the new global capital and liquidity standards is just beginning. | This is being reinforced by arrangements for surveillance for assessments of risks to the region and regional frameworks for crisis management and resolution, including arrangements for mutual assistance. Equally important in this process is the cooperation and collaboration among regulatory authorities for sustaining regional financial stability. Much of this work has focused on putting in place strong and effective institutional arrangements to preserve regional financial stability. In the decade following the Asian Financial Crisis, most of Asia has accelerated the pace of financial sector development and reforms. Several of the Asian economies have made significant strides in improving the soundness and efficiency of financial institutions and in developing domestic financial markets. At the regional level, key initiatives have included the development of the regional bond markets through the creation of various Asian Bond Funds and the ASEAN+3 Bond Market Initiatives, the regional arrangements for crisis management that includes liquidity support, and the collaborative efforts advanced under EMEAP to facilitate liquidity management for financial institutions operating in the region through CrossBorder Collateral Arrangements. Currently, while intra-regional cross-border portfolio investments within Asia is relatively small, it has already increased to 28 percent of total assets holdings in 2011 compared with 21 percent in 2001. Another important development that has contributed to greater regional financial integration is the increasing role of Islamic finance in the international financial system. In its early stages of development, Islamic finance was highly domestic-centric in its orientation. | 1 |
We are working to identify and remove any unnecessary regulatory obstacles to transition, and clarify supervisory expectations.8 And we help provide international liaison and leadership through the Financial Stability Board’s Official Sector Steering Group, co-chaired by Andrew Bailey and John Williams. 6 www.fca.org.uk/news/speeches/next-steps-transition-libor www.bankofengland.co.uk/-/media/boe/files/financial-policy-summary-and-record/2019/december-2019.pdf See for instance www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/letter/2019/prudential-regulatory-framework-andlibor-transition.pdf and www.fca.org.uk/markets/libor/conduct-risk-during-libor-transition 7 8 3 All speeches are available online at www.bankofengland.co.uk/news/speeches 3 It is in that spirit that I want today to announce two new initiatives aimed at further supporting LIBOR transition: - First, and in direct response to feedback from market practitioners, the Bank is intending to publish a compounded SONIA index from July 2020. Complementing our existing overnight SONIA rate, the index will provide a flexible tool to help market participants construct compounded SONIA rates in an easy and consistent way, supporting achievement of their 2020 Q3 target for new issuance. - The second relates to the Bank’s own lending operations for banks and other financial intermediaries. From October this year, we will begin increasing haircuts progressively on LIBOR-linked collateral we lend against. This will give firms the time they need to replace that collateral with risk free rate alternatives, ensuring their borrowing capacity is maintained while also protecting public funds. This approach reflects the clear preferences of respondents to our discussion paper last year.9 These initiatives are aimed at turbo-charging sterling transition, helping the market deliver against its commitment to transition away from LIBOR and further de-risking sterling markets. | As pointed out in the Economic Commentary “The lower limit of the Riksbank’s repo rate” (Beechey and Elmér, 2009), which was published on the Riksbank’s website last autumn, one cannot find any problems in the financial markets that can be attributed to low interest rates. Since then a few more months have passed. Both the Monetary Policy Department and the Financial Stability Department at the Riksbank closely follow developments in the financial markets and have very good information about them. There are still no signs that low interest rates have entailed any problems with regard to financial stability or the functioning of the financial markets. The profitability of the major banks, in the form of the net interest margin, has been stable and their share of deposits from households has not changed noticeably. The redistribution of capital on the fund market has also been moderate. The financial infrastructure has not been affected by any problems during the period of low interest rates and resilience against disruptions of the financial infrastructure is deemed to be high. The final paragraph on page 28 mentions risks linked to exaggerated lending and rapid increases in house prices. These risks have been closely studied in both the Riksbank’s most recent Financial Stability Report and by Finansinspektionen (the Swedish financial supervisory authority) in its report on the Swedish mortgage market and bank lending (Finansinspektionen, 2010). | 0 |
Among the fintech services that have enjoyed the greatest success are mobile money and online payments. • In the Philippines, GCash has become a popular mobile remittance services provider that leverages on the network of its telecommunications parent. • In China, transaction volume through third-party payments providers has surpassed RMB 4 billion. Alipay, which dominates the market, has over 700 million registered accounts. 4 BIS central bankers’ speeches The competitive challenge posed by fintech players to Asia’s banks should not be overstated though. The banks are fighting back – developing online platforms to complement their physical branches. We can expect the Asian banking landscape to continue to transform as banks adapt innovations enabled by fintech to stay relevant and competitive. Conclusion Let me sum up. The three driving forces present both challenge and opportunity for banks in Asia. • Economic growth will be slower in the next decade compared to the last two. But the composition of that growth in an increasingly middle class Asia will benefit modern services like banking. • Financial regulation will be tighter and will constrain all banks. But Asian banks will be affected less in relative terms given their stronger capital positions and funding structures. • Technological innovation will threaten to disintermediate banks. But to the extent that Asian banks themselves adopt the new technology platforms, they will strengthen their ability to penetrate unbanked markets and expand their footprint. | Two trends are noteworthy for Asian banks: the rise of the Asian middle class and the regionalisation of Asian corporates. 2 BIS central bankers’ speeches Rising incomes and the agglomeration effects of urbanisation will significantly expand the ranks of the Asian middle class. • In ASEAN, the middle class is projected to make up two-thirds of the population by 2030, compared to less than a quarter in 2010. This rapid expansion of the middle class will spur demand for a wide range of goods and services. Modern services, such as telecommunication, banking and finance, have higher income elasticities of demand compared to traditional services. This means that as income rises and wealth accumulates, the demand for financial services – be it consumer credit, wealth management, or insurance – will rise more than proportionately. As Asian economies develop and integrate further, Asian corporates will expand and internationalise. They will need more funding – not just traditional bank credit but debt and equity financing. They will need more cash management and transaction services. Asian banks who have been serving these corporates in their home markets will follow them as they regionalise their businesses. Financial regulation The second driving force that will shape banking in Asia is financial regulation. The Global Financial Crisis has spurred far-reaching financial regulatory reforms. The ones impacting banks most will be the new Basel III rules. | 1 |
And I trust they and others like them will use it to lead the world, including India, to expanded economic prosperity. Thank you for having me here this evening. 4 P.G. Wodehouse is widely read and wildly popular in India. BIS central bankers’ speeches 7 | Nina Stoyanova : Banks and business Speech by Ms Nina Stoyanova, Deputy Governor and Head of the Banking Department of the Bulgarian National Bank, during the video conference "Banks and Business", organized by the Capital newspaper, 2 December 2020. * * * I would like to welcome you to the video conference on Banking and Business, organized by the Capital newspaper. The banking sector is sending off a challenging year. In 2020, we witnessed the unprecedented pandemic caused by COVID-19, the imposition of measures to prevent its spread, which led to an economic downturn, as well as to many difficulties facing business and the people we have to deal with on a daily basis. However, there were also positive events during the year, such as the inclusion of the Bulgarian lev in Monetary Mechanism II and the establishment of close cooperation between the Bulgarian National Bank (BNB) and the European Central Bank (ECB) in the field of banking supervision in July. 2020 Banks in Bulgaria were able to quickly adapt to the new reality resulting from the pandemic and ensure continuity in the provision of financial services to businesses and citizens. This became possible due to the high degree of electronicization and digitalization of the banking sector in the country. | 0 |
In this connection, the European Convention plans in the coming weeks to announce its proposed draft of the future European Constitutional Treaty, which shall be agreed at the Inter-Governmental Conference to be convened in 2004. As regards monetary policy, the ECB Governing Council has, with a view to adapting the operating arrangements of the euro area to the possible entry of new members, recently recommended changes in its voting procedures, in accordance with the provisions of the Treaty of Nice. The proposed Recommendation was approved by the European Council of 21 March 2003 and introduces a rotation system whereunder the number of governors entitled to vote at any one time is restricted to 15, divided into three groups on the basis of their voting frequency. Without delving into the details of the approved formula, I should like to stress that the criteria of representativeness used in determining the voting rights of each member of the Council will place the Governor of the Banco de España within the first group of Governors, who are authorised to vote in the ECB governing council most frequently, on an equal footing with Germany, France and Italy. The Spanish economy In an adverse external setting, the key characteristic of the period analysed in the Annual Report was the capacity shown by the Spanish economy to sustain a comparatively high growth rate of 2%, and to continue generating employment, which increased by 1.3%. | Commercial banks operating in the eurozone are willing to borrow around 250 billions Euro from the European Central Bank paying the key policy rate and at the end of the same day to deposit the same money at the European Central Bank being paid the discount rate, which is 1 percentage point less, but the spread between the short-term money market rates and the key policy rate still persists. Magnitude of the commercial banks’ position compared with the European Central Bank shows how huge the uncertainty has been. Only restoration of confidence about solvency and financial stability among commercial banks can most probably solve this problem. The third frontier we are concerned about is connected to the emergency liquidity assistance. Under standard circumstances central banks provide liquidity to commercial banks only. In case of an urgent need a commercial bank may ask the central bank for an emergency credit. What we see in the United States today is an attempt to extend this emergency assistance beyond the banking system and provide liquidity against collateral to non-banking firms. On one hand, one understands the effort of the Federal Reserve to provide funding also to the non-banking sector of the economy when the traditional channels are freezing. On the other hand, the Federal Reserve is effectively printing money against collateral with uncertain value and there are concerns when and how the Federal Reserve will close and null these operations to avoid potential inflationary consequences. | 0 |
You might have supposed that this would have weakened the exchange rate, 1 BIS Review 7/2000 shielding us in some degree from weakening external demand growth - but not a bit of it - the exchange rate actually strengthened! But the easing of monetary policy may have helped to reverse the sharp fall in domestic confidence evident throughout the UK economy in the second half of 1998, and to avert the widely predicted slide into recession. In any event, after coming to a virtual stand-still in the fourth quarter of 1998, the economy as a whole bounced back last year, driven largely by domestic demand growth. And, for the economy as a whole, we can now, since 1992, point to the longest period of sustained low inflation - averaging 2.7% on the Government’s target measure, with relatively steady annual growth averaging 2.8% - well above most estimates of our long-term trend rate, together with a sustained rise in the number of people in employment - to an all-time high and an almost continuous month-by-month fall in the rate of unemployment to the lowest rate for about 20 years. But if the performance of the economy as a whole has been relatively encouraging over this period, that is clearly not the case for every sector of the economy. And I am only too well aware that the internationally-exposed sectors - most of agriculture, much of manufacturing industry and some services sectors - wherever they are located within the UK, have suffered. | This completes our network of 12 regional agencies across the UK - with the purpose of keeping ourselves more closely informed of regional economic developments. Previously Neil Kemsley covered Northern Ireland from our Agency in Liverpool and is here to make his farewell - and I am grateful to him for all that he did in reporting on developments here. But Nigel Falls - one of our most experienced regional Agents - is now established here in Belfast itself. He is also with us today. I very much hope that many of you will establish regular contact with him so that he can inform our Monetary Policy Committee each month of the particular problems that exist in Northern Ireland, so that we can take them into account in our monetary policy process. His reports will complement those which Roy Bailie, our Non-Executive Director here in Ireland, gives regularly to our Court of Directors. In our monetary policy role the Bank operates essentially on the demand side of the economy - aiming to keep aggregate demand in line with the supply-side capacity of the economy to meet that demand. But we can also contribute directly on the supply side, by helping to ensure that the financial system properly supports the needs of the wider economy. | 1 |
Sources: Bloomberg and Bank calculations Chart 3: Chart 4: Measures of uncertainty in the UK have fallen sharply1 US unemployment rate has fallen by more than UK Standard deviations from mean (1985-2012) 5 14 4 12 3 10 2 1 8 0 6 -1 4 -2 2 -3 -4 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Swathe of uncertainty indicators First principal component 1 For further details, including of the indicators used and sources, see Haddow, A, Hare, C, Hooley, J and Shakir, T (2013), “Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?”, Bank of England Quarterly Bulletin, Vol. 2, No. 2, pages 100–109. | Although the current account position underscores the need for the recovery to shift over time towards investment and export growth, it would be unreasonable to expect that to have happened already. Recoveries are seldom led by investment and strong demand from the UK’s major trading partners, including the euro zone, appears some way off. Ultimately, a sustained recovery in the UK will require a more robust and balanced global recovery. In summary, the UK has been in a situation where the equilibrium real rate of interest has been negative, but with monetary policy gaining traction, there is early evidence that the liquidity trap will be escaped over time. That is not to suggest the warnings are without merit, that interest rates can return to normal soon, that the risks to financial stability arising from the emergency stance of monetary policy are not real, or that escape would bring the freedom to grow at historic rates. It is in this last respect that the second story for a “secular stagnation”, persistently weak supply, is most relevant. 2. Supply pessimism In many advanced economies, despite persistently disappointing output growth, unemployment rates have remained surprisingly low. Based on a simple Okun relationship, the current UK unemployment rate would be expected to be closer to 14% and the US rate to be around 10%. In fact, they are 7.6% and 7.0% respectively (Chart 4). 2 A point emphasised by Mervyn King, for example here: http://www.bankofengland.co.uk/publications/ Documents/speeches/2012/speech613.pdf. | 1 |
I will also provide empirical evidence that challenges the view that financial regulation has adversely impacted repo market activity so far. But I will also argue that further evidence is needed to draw conclusions on this matter. 1 / 10 BIS central bankers' speeches Asset purchases and repo market activity Let me start with the impact of central bank asset purchases on recent repo market activity. Asset purchases may have two broad effects on repo markets. The first is their impact on excess liquidity. With central banks exchanging large amounts of reserves for longer-dated securities, banks may no longer need to tap the interbank market, both secured and unsecured, to manage their short-term liquidity needs. As a result, trading volumes may fall. The second effect is closer to one of the main transmission channels of asset purchase programmes, namely portfolio rebalancing. In imperfect financial markets, those in need of scarce securities, or those who have a special preference for them, need to bid harder to obtain them, thereby pushing up their price and lowering their yield – which then delivers financial conditions supportive of higher output and prices in the real economy. There is growing empirical evidence that this channel has been very effective in the euro area.4 The flip side to this is that, although purchases are conducted in the secondary cash market, price adjustments in this market can also be expected to affect conditions in the repo market. A simple way to think about this is through short-selling. | Against this background I shall be discussing the current monetary policy appraisal of the Swedish economy, together with some factors of importance for the final assessment. First, however, I shall briefly outline monetary policy’s line of thought. Forecasts and probabilities Monetary policy’s overriding objective is to safeguard the value of money. The annual rate of inflation, measured as the change in the consumer price index, is to be kept at 2 per cent. As it takes time for the Riksbank’s monetary measures to work in full, our actions have to be based primarily on an assessment of inflation’s future path. The policy horizon - the period in which most of the impact of monetary policy materialises - is around twelve to twenty-four months. The Riksbank’s assessment of future inflation is presented continuously in our Inflation Reports. Since the first Report was presented in October 1993, the content has been developed and the Riksbank has, for example, become increasingly explicit in its assessments. In the first two years the Report contained a more general account of how the inflation indicators and inflationary pressure in the economy were developing. From November 1995 onwards the Riksbank has been attaching numbers to its inflation assessments. In the June 1996 Report the inflation assessment was underpinned for the first time with an overall picture of the cyclical position. A further step was taken in September 1997, when the inflation assessment was supplemented with a path for inflation in the forecast period. | 0 |
In particular, according to the ECB’s estimations, the central scenario8 depletes banks’ capital (CET1) ratio by approximately 1.9 pp to 12.6% and the severe scenario by 5.7 pp to 8.8% in 2022. Impaired credit exposures and market risk losses are the key drivers of capital consumption. In any event, in view of the uncertainty and the complex nature of this crisis, and despite the wide range of measures already implemented, the need to develop certain measures further or to address new ones to avoid potential financial instability cannot be ruled out. As I have already said on previous occasions,9 I think our shared aim should be to prevent the current crisis from being accompanied by a widespread tightening of financing conditions or from seriously damaging our financial system. Therefore the authorities must remain vigilant and head off the risks to financial stability stemming from this crisis and we must be ready to provide a forceful, pan-European response should they materialise. Looking ahead, the low profitability of banks is one of the main challenges facing the banking sector in Europe and Spain. Everything points to the very low or even negative interest rate scenario continuing for even longer and, in this environment, banks may find it increasingly difficult to obtain returns without incurring excessive risk. Additionally, they will also have to face competition from potential competitors in the credit market. | Higher provisioning and, especially, the non-recurring adjustment to goodwill, both as a result of the expected downturn in economic conditions on account of the pandemic, were the main causes of lower profits. The losses were concentrated at the two banks with the largest international presence but profits decreased by two thirds at the other banks. In any event, banks’ recurring business has only been affected modestly to date and this is being offset partly by an adjustment to operating expenses and, consequently, they continue to gain in efficiency. 11 Therefore, the price-to-book (P/B) ratio — which compares listed banks’ market capitalisation and their book value — contracted notably in Spain, as in other European countries, by declining to levels of around 0.4, although it subsequently recovered somewhat. 12 One way of illustrating the risks to financial stability posed by the current episode is through simulation exercises which assess prospectively banks’ resilience to adverse macroeconomic scenarios. Accordingly, the ECB conducted a so-called “vulnerability” analysis – to underline their limitations compared with the usual stress tests – in order to measure European banks’ resilience to the strains triggered by the coronavirus. The results published last July show some of the risks identified.7 Specifically, based on these results, the euro area banking sector overall is positioned to withstand pandemic-induced stress, although the reduction in banks’ solvency under the most adverse macroeconomic scenarios would be significant. Furthermore, the results of this exercise show significant heterogeneity across banks. | 1 |
Employees who speak up should be recognized. The courage it takes to speak up, despite the perceived costs, should be counted as a very positive factor in evaluations. And, where raising one’s hand has saved the firm’s money and reputation by avoiding or keeping a problem small, that action should be rewarded. It’s only natural for an economist like me to consider the issue of unintended consequences. One that comes to mind is creating a culture of distrust and suspicion, where everyone looking over his or her shoulder. That would be unfortunate and costly. But, I think it is more likely that a different culture will result. Instead, talented and conscientious people will be happy to remain at a firm or in the industry because their personal and professional values are well aligned. Such employees will feel relief that they can speak up without fear of reprisal, and they can enjoy a clear conscience for having done the right thing. There is significant value in being able to sleep well at night. Moreover, being receptive to diverse and dissenting views will likely yield better results. It is in the industry’s self-interest to deter silence, not only because money will be saved on fines not incurred for misconduct, but also because better ideas will be brought to the table. I believe that business performance will benefit from having a culture in which people feel empowered to speak up. Let me give you a few examples from my own experience at the New York Fed. | One such factor is how a new measure conforms to the current state of the economy and interplays with monetary policy. The suitably-large steps should preferably be taken in the right order. From this point of view I note that two proposed measures, longer fixed-rate periods and reduced tax deductions for interest payments, have opposite effects on how the repo rate affects household finances. Longer fixed-rate periods would weaken the impact of the repo rate while reduced deductions would strengthen its impact. If one worries that the households are myopic in their planning and that they will find it difficult to manage a return to normal interest-rate levels, it is probably appropriate to try to enforce longer fixed-rate periods now that interest rates are still low. If, on the other hand, one worries that the households have too easy access to inexpensive credit and in the near term wishes to see a greater gap between household and corporate interest rates, it is probably more appropriate to reduce the tax deductions. How to take the suitably-large steps in the right order is thus not self-evident, but my assessment is that it is now appropriate to strive for both longer fixed-rate periods and a phasing-out of the right to make tax deductions for the largest interest payments. However, most welcome from my monetary-policy perspective would be measures that lead to a more effective housing market, and in particular to increased housing construction. | 0 |
For instance, this could be called a European Budget Office or “EBO”, which could potentially form the nucleus of what might become over time, and in a gradual manner, a European Ministry of Finance. Strong and independent institutions at the euro area and national levels serve to enhance transparency. They bring the necessary pressure to bear to ensure the conduct of sound policies and effectively counteract possible tendencies towards a lenient implementation of fiscal rules at the level of individual member states. In addition to the “Six-pack” adopted in March 2011 the Heads of State or Government of the euro area also agreed on a “Euro Plus Pact” to strengthen policy coordination with the aim of improving competitiveness and convergence. Under this agreement euro area governments commit to use a set of common indicators to regularly monitor each others progress in areas such as labour-market reforms, reforms to wage-setting arrangements and reforms aimed at improving the sustainability of pension, health care and social benefit systems. Governments who signed the Euro Plus Pact also committed to translate the rules set out in the Stability and Growth Pact into their national legislations. The reform of article 135 of the Spanish constitution in August 2011, which for the first time introduced the principle of budgetary stability into the fundamental law of the country, is a positive example of recent progress made in this area. As a final remark, let me emphasise once again that mastering the current crisis situation requires that all parties involved honour their previous commitments. | Indeed, their continuation would have entailed an increase in the vulnerability of the Spanish economy and the eventual correction would have been even more severe. Cyclical upswings followed by downswings are a normal feature of all economies, although the fact that Spain has recorded high growth rates without interruption for fourteen years may have led agents to forget the existence of this type of cyclical disturbance. Before addressing the central theme of my speech, it would be useful to answer the question why the industrialised countries have suddenly found themselves in such a complicated situation. Part of the answer (the other part being the regulation and supervision failures in many countries) relates to the strong increase in corporate and household debt in numerous countries in recent years, which led, in the presence of highly favourable financial conditions, BIS Review 117/2008 1 to a significant appreciation in the value of financial and real assets. Some economists and institutions have argued that monetary policy was too lax and that central banks should in future pay attention not only to inflation, but also to other financial developments, such as credit, when taking their decisions. In some cases, these favourable financial conditions were harnessed to expand residential and productive investment (as in Spain), while in others consumption was also boosted by the ready availability of financing, leading to a spectacular reduction in household saving ratios, as in the United States. | 0 |
Second, the turbulent environment handicapped the money market and led to a widening of the spread, i.e. by means of an unwelcome interest rate hike. The SNB responded immediately by relaxing its lending conditions for banks. Contrary to certain suggestions, this measure was not intended as a means of increasing the amount of liquidity in circulation on a permanent basis. After all, inflationary pressure would potentially rise given such a scenario. Instead, we acted in a flexible way and adjusted our maturities in accordance with the demands in the lending market so as to provide this market with the buffer it needed. We have consequently introduced three-month loans, whereas the terms we offered previously were never longer than 30 days. We also took joint action with other central banks and provided US dollar liquidity to our counterparties – the first time we have ever taken such a step. 2 BIS Review 50/2008 The gradual tightening of lending conditions within our domestic market is a third factor, albeit one which is still to fully materialise. Indeed, the fear that the liquidity requirements of the two big banks may be having a detrimental impact on credit volumes in Switzerland cannot be excluded. However, the rest of the Swiss banking sector – which accounts for almost two-thirds of Switzerland’s domestic credit supply – posted excellent results in 2007, thereby helping to limit the burden of risk. Furthermore, our figures show that there has so far been no impact on lending growth. | Nevertheless, a gradual revision of banks’ credit risk evaluations appears the likely scenario, simply given the economic uncertainty of recent months. Banks may consequently raise their interest rates for commercial loans or ask their customers to provide additional collateral. The sharp increase in premiums seen on the bond market in recent months would seem to back up such a trend, at least as far as the major corporates are concerned. Such a development might then have a knock-on effect on lending conditions for SMEs. At present, the SNB is carrying out a survey among banks in order to gain a better idea of the direction in which lending conditions are heading. Lessons from these turbulences We can learn a lot from the period of turbulence we are currently experiencing with regard to banking supervision and the stability of the financial system. The Financial Stability Forum (FSF) submitted a number of measures to the G7 countries aimed at enhancing the resilience of financial markets. The SNB was an active partner in drafting this report. Allow me to elaborate on this topic. First, it is astounding that a problem which appears to be confined to one single segment of the mortgage market in one single country could have resulted in crisis of global proportions. | 1 |
Of paramount importance in making the financial system more robust is the need for a viable resolution mechanism for large, complex financial firms. The Dodd-Frank Act does this for the nonbank operations of systemically important U.S. financial firms by authorizing the Federal Deposit Insurance Corporation (FDIC), under certain conditions, to establish a “bridge” bank to liquidate the troubled firm’s operations in an orderly manner. Any net outlays incurred by the FDIC in this process must be recovered by assessing levies on the financial industry. This resolution process is beneficial because an orderly resolution prevents the type of catastrophic collapse that leads to widespread market disruption. And it does so in a way that taxpayer funds are not at risk. However, much work needs to be done so that market participants can understand how such resolutions would work in practice. In particular, there will be some uncertainty about the precise conditions that will trigger a resolution under Title II of DFA. Even after DFA, the alternative of a normal Bankruptcy Code filing remains. In fact, DFA requires an evaluation as to why a filing under the Bankruptcy Code is not appropriate. In addition, the Dodd-Frank resolution process is complex, requiring multiple steps. Moreover, the resolution regime in Title II of Dodd Frank could be very difficult to implement for complex, globally active firms. These banks operate in diverse legal regimes worldwide and it is very doubtful that DFA will apply to these banks’ operations outside the United States. | By shadow banks, I mean the largely unregulated financial entities that take credit risk and/or engage in maturity transformation without access to explicit governmental backstops such as the Federal Reserve’s discount window and or deposit insurance. As we saw in the crisis, without such support, these institutions are vulnerable to runs. When this occurred, the shadow banking sector imploded in a way that imposed significant costs on the regulated sector. The risk is that tighter capital and liquidity requirements for the large financial institutions could push much of the business of credit intermediation and maturity transformation from the regulated sector to the unregulated sector. However, this risk is mitigated by the fact that shadow banks heavily rely on credit support and liquidity lines from the regulated sector. The costs of such facilities will be affected by the new capital and liquidity standards for banks. Thus, the economics of the shadow-banking sector are likely to change in a way that makes such activities less attractive. In addition, by increasing transparency and requiring some risk retention by issuers, Dodd-Frank should make the securitization markets in which shadow banks operate less likely to support poorly underwritten credit. Taken together, these changes mean it is less likely that there will be widespread movement of credit and maturity transformation from the regulated sector to the unregulated sector. | 1 |
In addition to lobbying and advising the HKSAR Government on the abovementioned measures that are crucial to Hong Kong’s development as a wealth and asset management centre, the HKMA has seconded staff to provide technical support to the Financial Services Branch during the policy formulation as well as the legislative process. 8. Ladies and gentlemen, while we have done a lot in the past few years to build and reinforce Hong Kong’s platform as the wealth and asset management hub, we fully appreciate that such work is a never ending task as most financial centres in the region, including those in Mainland China, all harbour the understandable aspirations to become an international financial centre. Outreaching to supplement platform building 9. Now let me turn to the second “building block” of soft powers, which is “reaching out”. I am sure most of you would agree with me that the platform building work must be supplemented by appropriate “outreaching” efforts. This is similar to the situation in which a company, having created a very superior and competitive product, needs to do a lot of marketing and advertising in order to increase customer awareness and market share. For this reason, the HKMA has over the past few years undertaken a series of outreaching and marketing programmes with special emphasis on Hong Kong as the Asian hub for wealth and asset management businesses. 10. Hong Kong is already a hub for private wealth and asset management. Nearly 80 of the top 100 global money managers are in Hong Kong. | The system switches to a low-liquidity equilibrium. These liquidity droughts were perhaps the defining feature of the financial crisis during 2007 and 2008. In the model, the likelihood of such systemic liquidity crises depends critically on two key structural characteristics of the financial system – the two c’s: concentration and complexity. The greater the concentration within the financial system, the greater the potential for systemic collapse as larger banks spread a disproportionate amount of financial pain around a densely networked financial system. A greater degree of system complexity has a similar effect, creating more channels for contagion and heightening banks’ incentives to hoard liquidity when the weather worsens. The two c’s are very much features of today’s financial system. On the face of it, that bodes ill for future systemic crises. So what role might policy play in avoiding those crises? The model provides a test-bed to consider a range of policy options, including for haircuts policy. An illustrative policy experiment, based on a simulation of the model in which haircuts spike sharply, is shown in Chart 1. Up the vertical axis is a measure of the probability of a systemic liquidity crisis. Along the horizontal axis is the initial size of the haircut on secured financing transactions. The three lines trace three policy options. Consider first the “baseline” path without policy intervention. Provided haircuts remain high come rain or shine – in the example, above around 20% – the probability of a liquidity crisis remains very low. | 0 |
Joseph Yam: Financial stability issues, dollarisation and price dynamics Opening remarks by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at HKIMR Summer Workshop 2003, Hong Kong, 27 August 2003. * * * Ladies and Gentlemen, I am delighted to welcome you to this first “HKIMR Summer Workshop in Money and Finance”. This is an event that we hope from now on will take place annually. The organisers have put together an interesting programme with three papers dealing with issues that are of current or potential importance for Hong Kong. The first paper, to be presented by Professor Charles Goodhart, focuses on financial stability issues. These issues are of particular interest to an international financial centre, as the success or otherwise in the maintenance of financial stability, and therefore the efficiency of financial intermediation, not only has an impact upon the domestic economy but also on the economy of the region that centre serves. The second paper, to be presented by Professor Genberg, deals with the subject of dollarisation. Dollarisation, in the traditional sense of the US dollar replacing or displacing the Hong Kong dollar as a medium of transaction in respect of domestic economic activity, is in my opinion unlikely to occur here in Hong Kong. This is notwithstanding the operation of a currency board system with the US dollar as the anchor currency. But, from another perspective, we are seeing continuing economic integration between Hong Kong and Mainland China. | But what some of you may know is that he has had a very long involvement in, and influence on, monetary issues here in Hong Kong. This began almost exactly twenty years ago when Hong Kong, suffering from a crisis of confidence in its political future, and without any effective form of monetary control, was on the brink of a financial meltdown. The exchange rate was depreciating sharply and Charles was brought in from the Bank of England to advise us on how Hong Kong could be rescued. He gave valuable advice on a proposal to return to a fixed exchange rate system through the currency board arrangement of linking the Hong Kong dollar to the US dollar. As you all know, that exchange rate link was subsequently established, in October 1983, and it is still in operation now. It commands a high degree of confidence and credibility. It has served Hong Kong extremely well in the past twenty years. In his advice, Charles also covered other strategic issues of central banking for Hong Kong. As the only remaining person in the public sector continuously involved in this area of work from then until now, I can say with some authority that the views of Charles have exerted much influence on the development of the monetary system of Hong Kong. I do not know whether you remember, Charles, your piece of advice to the then Financial Secretary, the late Sir John Bremridge, written on 6 October 1983. | 1 |
In the realistic case when the state variable affecting the probability of a financial crisis is a vector that includes not only leverage but, for instance, maturity mismatch and liquidity mismatch, it is even more the case that additional financial-stability instruments such as restrictions on maturity and liquidity mismatches are superior to the policy rate in achieving and maintaining financial stability. BIS central bankers’ speeches 5 for many years for several reasons, including global imbalances, fiscal policy, and shocks to aggregate demand and supply. This confusion means that the conclusions from this work for monetary policy are not clear. Monetary-policy instruments The standard monetary-policy instruments are the policy rate and communication, including statements and the publication of forecasts of inflation, the real economy and (by some central banks) the policy rate. During the financial crises, in particular when the policy rate is at or close to the zero lower bound, we have seen other more unconventional instruments being used to implement more expansionary policy, as noted above. There is a lively debate and a considerable body of research on the effects of the LSAPs undertaken by the Federal Reserve. Estimates based on a number of recent studies, as well as Federal Reserve estimates, suggest that, all else equal, the Federal Reserve’s QE2 program launched in November 2010 lowered longer-term interest rates by 10 to 30 basis points. | This means that from a monetary-policy perspective the Federal Reserve can unwind the LSAPs at any pace that it deems appropriate when they are no longer needed. Forward guidance about the future policy rate in the form of a policy-rate forecast was adopted by the Reserve Bank of New Zealand in 1997, Norges Bank in 2005, the Riksbank in 2007, and the Czech National Bank in 2008. It has become a standard part of monetarypolicy communication in these central banks. Forward guidance in the form of statements about the future policy rate was introduced by the Bank of Canada in 2009 and the Bank of Japan in 2010. The Federal Reserve introduced language in the March 2009 statement that it anticipated rates to remain at low levels for an “extended period” and in the August 2011 statement that it anticipated rates would remain low “at least through mid-2013.” I have long been in favour of the publication of a policy-rate forecast on a regular basis (Svensson 2003). This is based on both the existing practical experience of publishing such forecasts and the fact that what matters for the economy and private-sector decisions is not what the policy rate is during the one or few months until the next policy meeting but what the longer interest rates are that result from market expectations of future policy rates and term premiums. | 1 |
William C Dudley: The national and regional economic outlook Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Long Island Association, Melville, New York, 19 March 2012. * * * Good morning. I am pleased to be here on Long Island. It is always a pleasure to speak with the business community because of the leadership role you play in your communities and in shaping the economic landscape in the region. So, I thank you all for coming today. Over the past few years, I have been engaged in a series of outreach meetings all across my Federal Reserve District. For example, in 2010 I visited several upstate cities. Early last year I made visits to various parts of the city – Brooklyn, the Bronx, Queens – and to Puerto Rico. In August, I met with community and business leaders and elected officials in Newark, Patterson and Jersey City. In November, I went to West Point and the Capital region. I consider these visits just as important as my trips to Washington, D.C., to help formulate monetary policy or to Switzerland to help shape international bank regulation. Each visit within the region helps me to deepen the relationships with the people I represent. I believe that the understanding of issues and concerns that I gain today will help ensure that the Fed’s policy decisions reflect the public interest in the broadest sense. | It has been well understood by the market, so I see no reason to change it while it works. Mario Draghi, the ECB President, has flagged that the reinvestment of maturing bonds could be the next important policy step for the ECB. Will this become a way for the ECB to provide a little easing? It is an important part of a package of measures that delivers monetary accommodation, sustained monetary accommodation beyond the end of net asset purchases, that is, after December 2018. There are two aspects: we have the enhanced rate guidance and we have the reinvestment policy. So it is clearly part of the package. It will ensure that the ECB keeps a very significant market presence beyond the end of the net asset purchases and for an extended period of time after the end of the asset purchases. That said, we haven’t discussed any details, so any details related to the maturity of our reinvestment, that’s a technical discussion. That’s not something the Governing Council or even our committees have discussed. Is it going to be done before the end of this year? We’ll certainly have to discuss it. I see it as a technical discussion; I don’t see it as a major aspect of our monetary policy when it comes to the maturities. But the commitment to reinvest is important because it will ensure a continued market presence, which is important to maintain the degree of monetary accommodation. | 0 |
Another example is the recent agreement between the National Statistics Institute, the Tax Revenue Service, the Social Security and the Banco de España, as holders of a significant amount of administrative information and of granular data collected for statistical purposes, for the joint design of a collaborative data system to which researchers will have access, provided that the information to be used is for scientific purposes in the public interest. The purpose of this agreement is also to promote the future inclusion of other institutions that hold administrative records or other granular databases of research interest. It is our obligation as the participating authorities to put this agreement swiftly into practice, and to establish what might be an unprecedented landmark in information availability for economic research and evaluation purposes in Spain. The need to improve the economic and financial education of the population Quality data, technical ability, and analytical rigour and independence would thus seem to be the necessary ingredients for setting in place an assessment culture leading to the evidence-based formulation of public policies. In my view, this recipe will be like one for bread without yeast. A third key ingredient is needed: an appropriate economic and financial education for the public at large. With citizens able to critically internalise in their individual economic and financial decisions both the fundamental results of these independent evaluations and the various benefits and costs associated with different courses of action, it would be easier to set an assessment culture in place. | Caleb M Fundanga: Repatriation of bank notes between Zambia and Mozambique Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the Agreement on Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, Lusaka, 4 February 2009. * * * • Your Excellency, the High Commissioner; • Governor Ernesto Gouveia Gove, Governor of the Bank of Mozambique; • Members of the Mozambican delegation; • Bank of Zambia staff present; • Distinguished Invited Guests; • Ladies and gentlemen: May I begin by extending a warm welcome to Governor Gove and members of the Mozambique delegation to Zambia in general and to this signing ceremony of the Agreement on the Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, in particular. Governor, the existence of an extensive border between Mozambique and Zambia has resulted in significant cross-border trade as evidenced by the movement of people, goods and currencies across the border thereby strengthening our shared identity and background as Africans. I must however, hasten to mention that, the cross border trade has hitherto been hindered by the need for traders from both sides of the border to convert funds into United States Dollars and then convert funds back into the other currency when purchasing goods or services. By so doing, cross-border traders incur foreign exchange losses as well as other conversion costs in the process. | 0 |
As we know, trade finance is an integral part of the global trading system and the paper-based system is very inefficient and prone to human errors and fraud. But then it has proved to be very difficult for the trade finance processes to be automated or digitalised mainly because multiple parties and banks in different jurisdictions are involved in a single trade transaction. Unless there is a common global standard for the digitisation of trade-related documents and a trusted central repository, it is pointless for any party or jurisdiction to change the paper-based system on its own. However, with the breakthrough of the Distributed Ledger Technology (DLT), we firmly believe that the time has come for trade finance to move into 1/4 BIS central bankers' speeches the digital era. Together with a consortium of five banks in Hong Kong, the HKMA conducted in the second half of 2016 a proof-of-concept project on the use of DLT to build a trade finance platform in Hong Kong. I am pleased to announce that the proof-of-concept project has been successful in that it can digitise trade documents, automate the processes, allow sharing of required documentation among authorised participants, and reduce human errors and risks of fraud. We are therefore moving into the next phase of the project by developing a full production system. The consortium, now joined by two more banks, is in the process of conducting tender for the system development. | Yiu-kwan Choi: Basel II implementation in Asia Introductory remarks by Mr Yiu-kwan Choi, Deputy Chief Executive (Banking) of the Hong Kong Monetary Authority, at the BCBS/FSI/EMEAP: Basel II Implementation in Asia, Hong Kong, 17 October 2007. * * * Dear colleagues, Good morning. On behalf of the HKMA, I would like to extend a very warm welcome to you all here today to take part in this outreach event organized jointly by the Basel Committee, the FSI and EMEAP, focusing on the IRB validation aspect of the Basel II framework. The event coincides with one of the regular meetings of the Validation Subgroup of the Basel Committee’s Accord Implementation Group, which was held here over the last two days. The Validation Subgroup, or the AIGV as it is commonly called, is one of three subgroups under the AIG that share information and discuss specific issues related to Basel II implementation. The AIGV specifically explores issues related to the validation of systems used to generate the ratings and parameters that serve as inputs into the internal ratingsbased approach to credit risk. The AIGV has done some excellent work, using the regular AIGV meetings as an information dissemination platform for members of this Subgroup to explore various IRB validationrelated issues. The AIGV has also published several high quality supervisory guidance papers covering topics on validation of low-default portfolios, use of vendor products, use test and control expectations for validation under the Basel II IRB framework. | 0 |
However, an important point that should not be forgotten is that the financial sector encompasses a wider scope than just banks. In fact, policymakers in ASEAN have been successful in enlarging the borders of our financial markets by developing more diverse sources of funding for the economy. This is best reflected in the building of deeper and more liquid bond markets arising from the experience of the 1997 Asian Financial Crisis. We are also seeing a shift in the financial landscape through the usage of technology, something that I will elaborate more on later. Thus, the term bankers without borders, should perhaps, be expanded to be finance without borders. Yet, despite the positive outcomes from these and the continued strong need for openness, the conviction for globalisation and international banking seems to be waning. For one, post the global financial crisis, we have seen the rationalisation of operations by many international banks. 1/3 BIS central bankers' speeches We read regularly on the prospects of trade protectionism, how globalisation has created widening inequality and how globalisation is like a train running out of control. No doubt, a key driver of the 2007/2008 financial crisis was indeed financial liberalisation going too far. Interestingly, some, including economists at the Bank of England have also begin to consider the theory of “peak finance” – that global finance has peaked and financial de-globalisation has begun, while others at the BIS have argued otherwise. | It requires firms which are strong in technology and know-how, with systematic managements and meritocratic practices, firms which can hold their own against foreign competition, and with the potential to grow into significant industry players. Even then, such firms will complement, not replace, foreign investments by MNCs. Following this philosophy, Singapore’s economic policies will therefore remain externally oriented. We will continue to push for free trade, welcome investments, and integrate into the global economy, even as we promote entrepreneurship and seek to build Singapore firms into regional players. The pressures of globalisation can be uncomfortable, and the changes they force upon us can be painful. But globalisation has helped us to build a stronger, more resilient economy, one better prepared to hold our own against formidable competitors, and deliver a high and rising standard of living for our population. On capital account liberalisation, countries are now acutely aware that sound macroeconomic management is a key prerequisite, without which no regime of exchange controls can deliver stability. They also realise that they must sequence liberalization judiciously, and strengthen financial supervision and prudential safeguards as they liberalize. In the aftermath of the crisis, no Asian country imposed capital controls, apart from Malaysia. But several tightened safeguards to reduce the risks of destabilising capital flows, and to shield domestic foreign exchange and money markets from speculative pressures emanating from abroad. They improved monitoring, and discouraged trading in currencies that was not related to the real economy. | 0 |
This could be done by stating that we would hold the federal funds rate at extraordinarily low levels until particular markers were reached with regard to the unemployment rate and inflation. I will talk about this in more detail in a minute. Alternatively, I have previously discussed how state-contingent, price-level targeting would work in this regard.7 Another possibility might be to target the level of nominal GDP, with the goal of bringing it back to the growth trend that existed before the recession. I think these kinds of policies are worth seriously contemplating as ways to enhance economic growth and employment while maintaining a disciplined inflation performance. Policy problem Such conditional-trigger and level-targeting policies could result in inflation running at rates that would make us uncomfortable during normal times. I understand this discomfort. The difficulties in reestablishing credibility following the inflation of the 1970s weigh on all central bankers’ minds. And many of us are conditioned by the work of Ken Rogoff8 and others, who note that in normal times, we may want conservative central bankers as institutional offsets to what would otherwise be inflationary biases in the monetary policy process. Given this strong anti-inflationary orientation of central bankers, appropriate policy actions may face a credibility challenge of a different nature than we are used to talking about – can conservative central bankers be counted on to commit to keeping interest rates low in the event inflation rises above their long-run target? | What are the implications of these challenges or qualifications to what is, overall, a favorable picture of the strength of the U.S. financial system? One of the more persistent features of financial history is that discipline tends to ebb and flow to some degree with changes in financial and economic conditions. Even though we have seen a broad-based, secular improvement in risk management practices over the past decade, competitive pressure and the search for return in a low interest rate environment can lead to a relaxation of internal disciplines even as potential risk in the balance sheet increases. There are a number of factors that suggest these forces have not led to the build up of major imbalances that would present a major source of strain as these incentives diminish in a changing financial environment. Net borrowing by the non-financial corporate sector has been quite moderate, especially as compared with the late 1990s. The financial position of this sector is very strong, with declining leverage, particularly for smaller firms, which tend to be more highly levered. Credit to the household sector has of course risen quite considerably, but debt service burdens still look relatively manageable. Net credit growth to emerging market sovereigns has been quite moderate relative to past periods. While growth in commercial bank assets has picked up in recent quarters, it also remains below the pace of the late 1990s. | 0 |
4/4 BIS - Central bankers' speeches | When that finally materializes, I’ll view it as consistent with the result we are trying to achieve, and not a reason to pull back our policies prematurely. If you’re trying to get a car moving that is stuck in the mud, you don’t stop pushing the moment the wheels start turning – you keep pushing until the car is rolling and is clearly free. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches 7 | 0 |
However it is without doubt also a result of activities like this, which introduce or staff to the relevant work that is done in academia and other central banks. Whether you are from Academia or central banks, we are grateful for your continued interest and thankful for your participation. We hope that you and your colleagues will continue to join our workshop in the future, hopefully, in a COVID free world. Hence, we can go back to our traditional ways of the past, and give you the opportunity to present your works at Bank of Albania, engage with our research and introduce yourself to our beautiful Tirana, Albanian culture and the delicious taste of Albanian cuisine. Wish you the best and the most productive event! 3/3 BIS central bankers' speeches | The proportion of the world’s population living in extreme poverty has fallen from just under 40% to 10%. This rapid improvement in prosperity was made possible by the better use of the three factors needed for growth: labour, capital and technology. 1/5 BIS central bankers' speeches After 1990 we saw an increasingly international division of labour. Countries specialised in areas where they were particularly proficient compared with their trading partners. The manufacture of labour-intensive products was outsourced to countries with relatively low wage levels. This increasing division of labour resulted on the one hand in rising incomes, above all in the new production countries, and on the other hand in a decline in goods prices worldwide. This effect was strengthened further by international competition. With increasing economic integration, capital, the second factor influencing growth, could be invested globally. Foreign direct investment and loans helped in the construction of production facilities and infrastructures in the newly opened regions of the world. The high levels of savings in the advanced economies were thus put to productive use in the catch-up growth of these regions. That leaves the third factor: technology. The integration of the global economy led to a massive transfer of knowledge between countries, which greatly accelerated the economic development of the poorer nations. Furthermore, the growth in the number of people participating in the global economy meant that there were a lot more ideas and innovations. | 0 |
Indicators Relating to Risk Premium JP Morgan EMBI+ Turkey Index 5 Ye a r C DS R a te s 1450 1100 1250 1050 850 650 900 700 500 450 300 27-Dec-05 27-Aug-05 27-Apr-05 27-Dec-04 27-Aug-04 27-Apr-04 27-Dec-03 27-Aug-03 27-Apr-03 100 27-Aug-02 50 27-Dec-02 250 Source: Bloomberg. Interest rates remained unchanged in the first quarter of 2006. However, a reduction by 25 basis points was made in April. The consistency of data relating to inflation and economic activity, which were released in the first four months of the year, with Central Bank forecasts specified in the first 12 BIS Review 67/2006 Inflation Report allowed us to act in compliance with the policy perspective that was shared with the public. The benchmark interest rate in the ISE, which has been realized under the overnight borrowing rate since October 2005, displayed a slight increase in March due to the stagnation in interest rate reductions, global liquidity conditions and domestic uncertainties (Graph 19). Graph 19. | The background here is that the policy is currently associated so strongly with a single person, Alan Greenspan, and there is concern about what will happen after him. To me, proposals of this kind about a more pragmatic policy seem rather naive. Policy principles that are less clear-cut, combined with a less transparent basis for decisions, by no means guarantee a BIS Review 98/2000 6 successful policy in the longer run. Just the reverse, I would say in the light of many years of decision-making in economic policy. One of the most important things to do in work of this type is try to build up distinct processes whereby a foundation for decisions based on sound economic analysis is produced systematically and then subjected to as broad a scrutiny as possible. One will then at least have provided conditions for consistent and wise decisions. That in turn is fundamental for all credibility in monetary policy, too. I believe, moreover, that decisions should be made in ways that contribute to insight and afford good opportunities of evaluating them and exacting accountability. These are requirements I consider people in Sweden should be entitled to make of an institution which has been given such a strong and independent status as the Riksbank. The current monetary policy situation Let me conclude by briefly presenting my view of current economic developments and their implications for monetary policy. For a couple of years now the Riksbank has had reason to count on rising economic activity. | 0 |
A good progress of the economic activity and falling risk premia are also reflected on the upsurge of demand for loans by the private sector. Satisfactory parameters of the banking system in terms of liquidity and capitalisation have enabled additional support to the private sector with bank loans. In December, the growth rate of loans to the private sector reached 10.6% year-on-year. In addition to private businesses, which were the main users of credit funding during 2010, positive signals come from household consumers, whose demand for loans increased during the last quarter of 2010. Financial markets are characterised by dropping risk premia and liquidity, reflected in a further decline of yields in the primary market and interest rates in Albanian Lek deposits and loans. In the inter-bank market, short-term interest rates remained close to the key interest rate and showed low volatility. Foreign exchange trading in the domestic market was also calm. The Albanian Lek continued to depreciate in annual nominal terms against foreign currencies, although more slowly compared to 2010. *** Taking into account the information summarised above, the Supervisory Council deemed that inflationary pressures for the medium-term horizon remain contained. Consumer price situation is expected to be under the pressure of price increases in world markets, but, in the absence of second round effects, their impact is expected to be transitional. On the other hand, the actual insufficient demand will continue to condition levels below the potential domestic capacity utilisation, exercising downward pressures on inflation. | The last few decades saw probably the most rapid industrialization since the industrial revolution occurring in ASEAN. ASEAN became renowned for exports of consumer products of great values. We are now hubs for automobile and electronics production. Another noteworthy development in recent times also includes trade expansion among ASEAN nations. Intra-ASEAN trade used to represent only about 12 percent of its overall trade in 1993, but today, that figure has increased to around 25 percent. Moreover, this trend is set to accelerate, resulting in trade expansion both within ASEAN itself, and between ASEAN and the rest of the world. Ladies and Gentlemen, Today, the importance of ASEAN in the global economy cannot be denied. Size-wise, ASEAN population amounts to 565 million with growing middle class population, which means stronger demand for consumer products and financial services. Looking forward, for ASEAN growth to continue and able to avoid disruptive crises, the economic and financial infrastructure that underpins our economic activities must be strong. This brings me to the role of financial policy and strategy to enhance ASEAN strengths. For ASEAN to be strong, a necessary condition is that its financial system must be deep and wide. And its financial institutions must function as intermediaries to allocate funds effectively and efficiently. In the past, ASEAN relied on external source of funding, mainly from developed countries. At present, however, new polar source of funding has shifted towards Asia as well as ASEAN. Having well-developed financial system would enable ASEAN to better recycle its surplus capital among its members. | 0 |
BIS Review 21/2009 5 Giving these responsibilities to the Bank is the right choice because they build on the role the Bank already has as LOLR in crisis handling (which nearly always involves a crisis of liquidity). More generally it provides a statutory basis for the Bank’s second core purpose – financial stability – which was not mentioned in the 1998 Act and appeared something of an orphan in the Bank when supervision moved to the FSA. Over the last 18 months of course that has changed and the Bank is now closely involved with the FSA in monitoring and intervening in banks and markets facing stress, as well as reviewing the risks to financial stability more widely and playing a role in forming international policy through bodies like the G20 and the FSF. In effect the Bank has become a second pair of eyes alongside the FSA watching the health of the financial system. The FSA, as the regulator, is informed by “bottom up” knowledge of the position of individual institutions; the Bank is informed by a top down view drawing on its own engagement in many markets and on its analysis of the wider economy. We come together to monitor institutions when they become vulnerable. Some argue that we should go further and move prudential supervision – at least of the main banks - back into the Bank. | BIS Review 21/2009 13 Bank of England Stabilisation MoU Equity & Efficiency Regulation FSA HM Treasury Chart 2 : The Great Stability Variance of inflation ( )A ld De jure gold standard (1855-1913) Floating of the pound to inflation targeting (1972-1992) Bretton Woods (1948-1972) Inter-war period (1922-1939) Inflation targeting (1992-2004) 0 1 2 3 Chart 3: Consumption Growth 14 4 Variance of6output 5 7 Chart 4: Indicators of labour market tightness BIS Review 21/2009 Percentage changes on a year earlier 10 8 6 4 2 0 -2 1973 Q3 1980 Q1 1990 Q3 2008Q3 -16 -12 -4 -6 -8 -4 0 4 8 12 16 Chart 5 : Change in leverage ratios of the major UK banks(a),(b),(c) Maximum-minimum range Interquartile range Change in ratio 40 Median 35 30 25 20 15 10 5 0 -5 02 03 04 05 06 07 08 S o urc e : P ublis he d a c c o unts a nd B a nk c a lc ula tio ns . | 1 |
By purchasing commercial paper, it offers to provide short-term loans – loans that will need to be paid back – to companies of investment grade standing before the virus disruption. It provides an alternative – backstop – source of finance for larger companies in the event that markets are disrupted. The Scheme has lent £ to 68 companies. More importantly, it has also authorised borrowing limits amounting to £ to 199 companies accounting for nearly 2.3 million jobs. The knowledge that this backstop to funding markets is there removes the need for larger companies to run to the banks to insure themselves against market disruption. By standing ready to lend to larger companies, we have protected the space banks have to lend to the wider population of companies. Financial Response II: Support for bank lending The package of measures to support bank lending has gone much further than just protecting their capacity to lend. [See slide 4 of accompanying deck] Banks have been given the funding for new lending. The Term Funding Scheme with additional incentives for SMEs (TFSME), provides 4 year funding for banks, at rates very close to Bank Rate, to match any increase in lending. The scheme provides additional incentives for lending to small and medium sized businesses, with £ of cheap funding for every £ increase in such lending. Crucially, the Government has provided banks with guarantees on new lending. The Coronavirus Business Interruption Loan Schemes guarantee 80% of new lending by banks. | Further to this, in the Q&A on the use of liquidity and capital buffers, the PRA set out its general expectation that any required rebuild of capital buffers would be gradual, and that banks would not be expected to restore their capital buffers in full until a significant time after the end of the current stress. 8 See May 2020 interim Financial Stability Report 7 5 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 5 The financial system is well on the way to filing the financing needs of businesses. [See slide 4 of accompanying deck] By no means all the additional finance to preserve productive capacity has yet been delivered, particularly given the limited appetite many businesses may have to run down their cash buffers in the face of uncertainty. Fuel must continue to be injected. And the fuel may need something extra to be added. That additive is equity. The case for equity There are at least three reasons for adding more equity finance to the mix. First, half of the cash-flow deficit we have identified is accounted for by companies with net debt already more than four times their regular earnings. Although the UK’s corporate sector did not, as a whole, go into this crisis with a stretched balance sheet, a material subset of companies had levered up. | 1 |
Frameworks are in place to facilitate the adoption of sustainable finance by FIs (climate change and principle-based taxonomy, Performance Measurement Framework (PMF) and Value-Based Intermediation (VBI)) My third point is that various frameworks are now being put in place to empower DFIs in sustainable finance, and DFIs can already step up efforts in this space. For example, BNM’s climate change and principle-based taxonomy facilitates all FIs to be part of the driving force that promotes orderly transition towards a low-carbon future. Other frameworks focus on creating incentives that would shape DFIs’ behaviour to be more in tune with their developmental roles. The adage “what gets measured gets managed” reflects the 3/5 BIS central bankers' speeches importance of building a structured and holistic measurement framework for DFIs. This will support DFIs to pursue national economic and social well-being while simultaneously support an orderly transition of the economy towards achieving sustainability goals. In this, it is particularly pertinent for DFIs to advocate accountability, transparency and efficiency since DFIs are also public institutions. Towards this, DFIs that are part of the Value Based Intermediation or VBI community are encouraged to apply impact-based disclosure on value-based practices and financial solutions contributing to the triple bottom line (people, planet and prosperity). Institutions are required to disclose an optimal set of information to stakeholders with an objective to generate intended market discipline and promote stakeholder activism. Similarly, the Performance Measurement Framework or PMF is anchored on the concept of additionality creation by DFIs. | Willem F Duisenberg: Presentation of the ECB’s Annual Report 2001 to the European Parliament Introductory statement by Dr Willem F Duisenberg, President of the European Central Bank, to the European Parliament, Strasbourg, 2 July 2002 * * * Six months ago we witnessed a milestone in European history: the launch of “the euro, our money”, in its visible form. European citizens are now able to perceive - and benefit from - the tangible reality of the euro, and the rapid substitution of legacy currencies at the beginning of this year bears witness to the successful launch of the euro banknotes and coins. The year 2001 provided a particularly challenging environment for the monetary policy of the ECB. The worsening economic outlook was accompanied by short-term upward pressures on prices from various sources, which complicated the conduct of monetary policy. This task was made more difficult by the extreme uncertainty which followed the terrorist attacks in the United States on 11 September. As usual, the monetary policy response of the ECB to such a situation had to look beyond short-term developments, focusing on the risks to price stability over the medium term. From this perspective, we could see that medium-term inflationary pressures were in fact receding. The ECB took account of this by reducing interest rates four times in 2001, by a total of 150 basis points. | 0 |
The recent enactment of the Payment Systems Act 2003 is also a testimony to the Bank’s commitment for greater payment system oversight, and to provide legal certainty to the finality of payment instructions carried out through major payment systems. Social responsibility of banking institutions Sustaining growth in emerging economies requires stability to be preserved in the macroeconomic environment, the financial system and markets as well as social environment. The responsibility of achieving social stability and development should no longer be the exclusive domain of the government. The focus on short-term returns should not be at the expense of long-term sustainability. It is increasingly being advocated that corporate social responsibility is an important part of the business environment. Corporate social responsibility refers to operating business in a manner will also contribute to economic development while improving the quality of life of the workforce and local community and society at large. The banking institutions, being the main provider of financing in the economy, need to assume a much greater role in contributing towards the long-term development of the small and medium-sized enterprises (SMEs). In developing the SME industry into strong and resilient enterprises, banking institutions need to reassess their relationships with the SMEs as financing alone will not guarantee the long-term success of the SMEs. The traditional relationship between creditor and debtor has to evolve into a business partnership whereby banking institutions are expected to play a more participative role in identifying gaps in processes, skills and expertise as well as usage of technology. | The development of the venture capital industry, a better framework for SME financing and the provision of micro financing continue to be important priorities to ensure that credit is made available to all segments of the economy, as well as to support the growth of new areas and industries. Increased focus on developing these financing modes has been supported with higher public sector budget allocations for the venture capital industry and for specific development financial institutions to channel micro-credit to small micro-enterprises. Priority has also been accorded to investment in information and communications technology by the banking sector. With the completion of the consolidation exercise, domestic banking institutions have actively embarked on upgrading their systems, including in product delivery, risk management and information systems. The adoption of technology in the Malaysian banking system has predominantly been to automate business processes. However, more recently technology has been used as a tool to assess and drive business performance. With competition in the market becoming increasingly intense, the ability to understand the drivers of performance and the ability to make prompt response is vital to remain competitive. Business delivery channels and business processes have also been reviewed to enhance efficiency levels and service quality to the customers. Many have formed strategic alliances with partners to enrich their value proposition to their customers through cross-selling of products and services. Indeed, the Malaysian banking industry has now become more consumer-centric. | 1 |
Caleb M Fundanga: Important building stones for successful organisations in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the opening of Investrust Bank PLC 2007 Management Strategic Planning Session, Mfuwe, 11 April 2007. * * * • The Managing Director • Heads of Departments • Members of the Investrust Bank Plc Management Team First of all, I wish to take this opportunity to say congratulations on your 10th anniversary attained on 19th September, 2006. Considering that the Bank opened its doors at a very difficult time when confidence in locally owned banks was at its lowest, reaching 10 years is no mean achievement. The Bank of Zambia is proud to be associated with your achievements and can assure you of our full support now and the future. It was only on 30th March 2007 that Bank of China also celebrated 10 years of operations in Zambia. It is a great privilege and honour for me to officiate at this wonderful and history making occasion in your bank. History making in the sense that you have gathered in this conference to chart a path for your Financial Institution to ensure its sustained growth. Decisions you will make in this gathering are critical to all your stake holders. The public is keenly following your growth and performance. Allow me to remind you of the following issues which I believe are important building stones for successful organizations. 1. | I also commend the Bank for adopting a “Whistle-blowing” policy to help ensure professional conduct is adhered to at all times. These measures, Mr Managing Director will work to your own Bank’s benefit. The Bank of Zambia stands ready to assist in any way in your quest for Best Practice. BIS Review 36/2007 1 4. Lending rates On the banking front, we have witnessed Bank lending rates follow the downward trend. Mr Managing Director, these are positive indicators. I am aware that the perennial complaint from our local business houses has been the prohibitive interest rates charged by banks on credit facilities. There is need to continue work on reducing lending rates further as the current levels are still unbearable by most of our upcoming entrepreneurs. In certain fora, Mr Managing Director, the borrowing culture of Zambians has been heavily criticized. It is said that Zambians borrow with no intention of paying back. It is one of the reasons the Bank of Zambia is taking seriously the matter of the Credit Reference Bureau being operational as soon as possible. The Bank of Zambia is keen to ensure this negative perception is eradicated. 5. Banking services to the unbanked Mr Managing Director, late last year Bank of Zambia launched the findings of the FISCOPE SURVEY, a survey which revealed that 68% of Zambian have no access to banking services. | 1 |
13 See Letter from the Chancellor of the Exchequer to the Governor of the Bank of England: Financial Policy Committee remit: Budget 2020 14 Source: Association of Investment Companies, The Investment Association, and Bank calculations 9 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 9 An investor bias towards open-ended funds arises in part because some seem to offer the irresistible, but inconsistent, combination of a return from holding less liquid assets – like property and corporate credit – and at the same time the opportunity to redeem daily at little cost. A liquid investment with illiquid returns: what’s not to like? [See slide 7 of accompanying deck] Closed ended funds (and open ended funds with long notice periods) might be able to invest in truly illiquid growth capital and offer an even higher return. But not enough to compensate for the appropriate lack of a quick redemption offering. The inconsistency in some open ended funds makes them look unduly attractive. Until of course the inconsistency is exposed, when investors rush for the exits and it hits the headlines.15 This had been the focus of a joint Bank of England-Financial Conduct Authority Review before the virus disruption. The need to meet a potential demand for new equity issuance makes that review now all the more urgent and important. We had already concluded that open ended funds should align their redemption terms with the liquidity of their assets. | 3 See Chancellor of the Exchequer: A Plan for Jobs 2020 See speech by Jon Cunliffe (2020): Financial System Resilience: Lessons from a real stress 5 See letter from FSB Chair Randal Quarles to G20 Finance Ministers and Central Bank Governors: July 2020 4 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 Since central banks acted, markets have opened up again, allowing companies to raise finance. Britain’s companies issued more than £ of new bonds since March. A second response was also needed. The seizure of corporate debt markets meant that larger companies that normally enjoy market access were suddenly faced with uncertainty about access to that finance when it was most needed. They turned, as a precaution, to banks to bolster their cash positions. What followed was not a run on the banks driven by fear about the banks, but a run to the banks driven by fear on the part of businesses about their own access to finance. In a complete contrast to what happened in the 2008 financial crisis, bank lending shot up. Net of repayments, banks lent £ in March – more than 30 times their normal monthly net lending flow as large companies drew on committed credit lines. That threatened to overwhelm the capacity banks have to lend to the wider population of businesses. The Covid Corporate Financing Facility (CCFF), owned by the Treasury and operated by the Bank of England, was designed to alleviate that pressure. | 1 |
How effective we are in meeting this political challenge is likely to depend significantly on how effective we are in improving educational opportunity and achievement in the United States, and perhaps also in improving the design of the temporary assistance we provide those individuals who bear the brunt of the adjustment costs that come with greater global economic integration. These policies by the United States would help improve the prospects of a more benign adjustment process. But they would not be sufficient to produce a more favorable adjustment path. A more favorable adjustment scenario would require policy changes in each of the major economic areas. For global growth to be sustained at a reasonably strong pace during this period of adjustment, the desirable increase in U.S. savings, and the necessary slowing in U.S. domestic demand growth relative to growth of U.S. output, would have to be complemented by stronger domestic demand growth outside the United States, absorbing a larger share of national savings. Exchange rate regimes, where they are currently closely tied to the dollar, will have to become more flexible, allowing exchange rates to adjust in response to changing fundamentals. Reforms to financial systems and to social safety nets over time would help reduce the need for exceptionally high levels of domestic saving we see in many countries. The global nature of these requirements does not imply that the United States can put the principal burden for adjustment on others. | Since 2000, and especially in recent months, the picture has changed. The mines have opted for another strategy and have cut back on price hedging. This strategy change can be partly attributed to more positive expectations regarding the gold price. As a result of the central bank agreement on gold sales, producers no longer fear large-scale sales by the central banks. Moreover, it seems that producers have recently become more upbeat in their assessment of private investment demand. It is interesting, in this respect, that gold producers' hedging activity tends to accelerate market trends. When they expect price decreases, prices do in fact decrease faster as a result of hedging, and when they expect price rises, prices do rise faster owing to the decrease in hedging. Such strategy changes, which are always due to changed market expectations, have to be reckoned with in future as well. • Reviving private investment demand in the industrialised countries has also contributed to giving the gold price a boost. This phenomenon has been particularly pronounced in Japan, but Europe and the United States have also seen gold demand booming. Economic imponderables, concern over the financial health of some companies, heightened political tension in different parts of the world, the terror attacks of September 2001 and concomitantly subdued stock markets have caused investors to increase their holdings of the BIS Review 39/2002 1 yellow metal. It seems as if gold is, for the time being, once again assuming its role of a safe haven investment. | 0 |
Since the power spectrum is a where function of the auto-covariances (including the variance , it can be viewed as a decomposition of the variance of the time-series in terms of frequency. When the power spectrum is normalised by the variance , the resulting standardised function is known as the spectral density. The filter then isolates ‘bands’ in the frequency domain of the spectral density and returns the resulting series. 10 BIS Review 168/2010 Chart 4 Ratio of loans to GDP and assets to GDP (UK) Sources: Shularick and Taylor (2009) and Bank calculations. Chart 5 Ratio of loans to GDP and assets to GDP (US) Sources: Shularick and Taylor (2009) and Bank calculations. The credit cycle is distinct from the business cycle in amplitude as well as frequency. To show this, Charts 6–7 plot the medium-term cycles in real GDP for the UK and US alongside the credit cycle. The amplitude of the credit cycle is twice that of fluctuations in GDP over the medium term. It is roughly five times that of fluctuations in GDP at conventional business cycle frequencies. The peak-to-trough variation in the typical credit cycle has been around 20 percentage points in the UK. For real GDP, it is around 10 percentage points. As a result, BIS Review 168/2010 11 ratios of credit to GDP themselves exhibit a distinct cyclical pattern in the UK and US (Charts 4–5). Chart 6 Medium-term cycle in real GDP and credit (UK) Source: Bank calculations. | Furthermore, our analysis6 shows that there are only limited spillovers from the monetary policy of the Federal Reserve to euro area inflation and output. This suggests that ECB monetary policy actions are, by and large, able to shield the euro area economy from spillovers from US monetary policy. But undoubtedly, there is evidence that US monetary policy is a driver of a “global financial cycle”.7 In step with such a financial cycle the risks to euro area financial stability can change as well. Current financial stability concerns in the euro area As you know, our characterisation of the main risks to euro area financial stability has remained broadly unchanged over the recent years. We see four main risks: The most prominent risk stems from the possibility of a disorderly increase of global risk premia. The second risk is related to renewed debt sustainability concerns, for sovereign debt in particular. The third risk is that banks’ intermediation capacity may be hampered by their continued low profitability. Finally, we are of the opinion that possible liquidity strains in the investment fund sector constitute a growing risk. All four risks are intertwined and would have, if they were to materialise, the potential to be mutually reinforcing. In 2018, a growing economy and improved banking sector resilience were important positive factors supporting financial stability. Now, however, the assessment is affected by a weakening economic growth outlook for the euro area. | 0 |
It also contributed to a growing central government debt. The economy was fuelled during economic upturns, which led to overheating and inflation. The Riksbank’s task was to try to defend the fixed exchange rate. The social partners were instead to contribute to low inflation by ensuring that wage increases were not too high. Soaring wage costs and poorer international competitiveness meant that the system broke down in the mid-1970s. To safeguard the objective of full employment, the krona was devalued by a total of around 40 per cent on five different occasions between 1976 and 1982. Each devaluation held unemployment down temporarily, but instead contributed to kindle the inflation fire until it was time for the next devaluation. Unemployment was also held down in that the number of employees in the public sector increased substantially. The number of persons employed in the public sector increased from 15 to 30 per cent between 1960 and 1980. In my opinion, unemployment was held down during this period using methods that were not sustainable in the long term. I consider this to be the first important aspect to bear in mind when discussing why unemployment is now much higher than it was in the 1970s and 1980s. Towards the end of the 1980s the situation became untenable. Everyone was then counting on the krona being devalued if the rate of increase in prices and wages rose too high. The driving forces for holding down prices and wages had thus disappeared. | Joining T2 and T2S is expected to benefit the participants of the Riksbank’s current settlement services. For instance, they will gain from increased cost-efficiency and harmonisation, that is, alignment with European standards and practices. In the end, that should also lead to improvements for banks’ customers. Importantly, a decision to connect to T2 and T2S should be taken into account by the Swedish banks in their future business and investment planning. My speech today will be about the Riksbank initiatives just referred to and the motives behind them. First, however, I plan to take you on a short tour of the history of payments. This is because I believe there are lessons to be learned here. Lessons that over time have formed the way that we at the Riksbank think about payments and the financial infrastructure in general. As such, they have played into also our recent decisions, of course. Looking at the past, the key observations that I make are the following: Firstly, for a well-functioning monetary system the trust of money is key. A credible issuer can ensure this. Moreover, converging on one monetary unit in a given country, what economists refer to as the uniformity of money, increases simplicity and efficiency. Secondly, technological developments, often far away from payments, are an important driver of change. This goes hand in hand with innovation of ideas, humanity’s ability to react creatively to recognised needs. Sometimes this can even lead to the emergence of new types of business. | 0 |
The ability to continue to do this as we advance forward into the future will however, become more challenging amidst the rapidly changing global environment, characterised by increased competition and a higher degree of global and regional economic and financial integration. Fundamentally, the successful transition of Malaysia towards a high value-added, high income economy will depend on several critical factors. The first is to achieve an orderly shift towards new areas of growth and new areas of comparative advantage. This transformation requires all sectors of the economy to be increasingly involved in higher value added economic activity. In the manufacturing sector, existing industries need to move up the value chain. This will be complemented by knowledge-intensive services sectors, such as information and communication technology (ICT), education and health. While multinationals and large domestic corporations will remain important in these sectors, the contribution of small and medium enterprises (SMEs) have an important role in supporting these new growth areas. The second critical factor is that productivity improvements will become a critical determinant of our future growth prospects. Continuous increases in productivity characterised by greater innovation and efficiency in production and business processes, are vital to achieve this transformation. Indeed, such productivity improvements are taking place in the financial sector. The comprehensive efforts in capacity building and institutional development in the early part of this decade have resulted in the opportunity to achieve scale, and thus allow for increased investment in technology and in people. Increased competition also facilitate this trend. | While it is recognized that the global reforms have been designed to address problems not faced in our financial system and are guided by different value and incentive systems, it is still important that we embrace initiatives that will enable us to avoid the same such mistakes. As more of our banks and insurers venture abroad into the regional markets, financial institutions will also be assessed by investors, analysts and market participants against these global standards. Moving forward, after a consultative process with the industry, the following enhancements will be incorporated to the Risk Weighted Capital Adequacy Framework for banking institutions: 4 BIS Review 146/2010 higher capital requirements to support risks in trading activities, securitizations and counterparty credit exposures; strengthened definitions and criteria for the recognition of Tier 1 and Tier 2 capital; and higher levels of common equity, Tier 1 and total minimum capital requirements which also provide for capital conservations buffers. The appropriate timing of transition to the new requirements, will be determined in 2011. While the Basel Committee has set a generous timeframe for implementation of the new requirements, we anticipate that given the current position of strength of our banking system and together with other jurisdictions, including those in this region, we are in a position to be on a faster track to adopt the new requirements. | 1 |
Percentage of 21-34 year olds living with their parents 1996 1999 2002 2005 2008 2011 2014 15 Sources: ONS and Bank calculations. BIS central bankers’ speeches Chart 30 – Share of people living in absolute poverty after housing costs* Chart 31 – Share of people living in relative poverty after housing costs* Per cent of age group 60 60 Under 16 55 16-65 50 50 45 45 40 40 Over 65 Under 16 16-65 Over 65 35 35 30 30 25 25 20 20 15 15 10 94/95 97/98 00/01 03/04 06/07 09/10 12/13 Sources: ONS and Bank calculations. * A household is defined as living in absolute poverty where their income is less than 60% of 2010/11 median income held constant in real terms. 55 94/95 97/98 00/01 03/04 06/07 09/10 12/13 10 Sources: ONS and Bank calculations. * A household is defined as living in relative poverty where their income is less than 60% of median income. Chart 32 – Financial market measures of inflation expectations Per cent 3.5 23/06/2016 06/07/2016 3.0 2 3 4 5 6 7 8 9 10 2.5 Years Source: Bloomberg and Bank calculations. * Instantaneous RPI inflation implied from swaps. BIS central bankers’ speeches 23 | I note from the very elaborate programme for this meeting that you will in the next three days cover a wide spectrum of issues some of which will focus on factors that constrain SMEs access to finance and some of which will focus on what needs to be done to change this situation. The meeting is, therefore, an opportunity for us to face a number of challenges that characterize this sector. These will include revisiting strategies and approaches to SME financing currently in use as much as it will require a review of current institutional arrangements through which finance is directly delivered to SMEs, on one hand, and those which indirectly obstruct or facilitate this flow of resources, on the other. However, I believe that probably the greatest challenge before this assembly is to attempt to narrow the gap between analysis of the problem and the implementation of measures and actions that work. Meetings, workshops, seminars, etc. on SME financing are plenty at national, regional and international levels. Some of you have had the opportunity to attend several of these meetings in the past. Indeed, some of you have become experts at talking about the subject. Barely two weeks ago, the Bank of Zambia held a financial sector forum here in Lusaka at which views of various stakeholders on what needs to be done to address binding constraints to the SME sector were considered. The fact that the discourse on SME financing continues underpins two significant positions. | 0 |
3 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 Table 2: Islamic finance in the UK – selected timeline 1970's London market brokers offer wholesale liquidity management using commodities 1982 Swiss-based Dar al Mal al Islami opens London office offering investment management services Establishment of first Islamic bank, Albaraka Bank (ceased 1993) 1983 Establishment of first UK Islamic insurance (takaful) company, Takaful UK Ltd 1996 Islamic mortgages offered in the UK by United Bank of Kuwait (now Ahli United Bank) 2003 HSBC Amanah launches Islamic mortgages and bank accounts in the UK 2004 Authorisation of Al Rayan Bank Plc (formerly Islamic Bank of Britain) Court case of Beximco vs. Shamil Bank of Bahrain establishes principle that secular authorities cannot opine on Shari'ah compliance Bank ABC offers Islamic mortgages under Al Buraq brand 2005 Children's Mutual launches Shari'ah compliant Child Trust Fund Lloyds TSB offers Shari'ah compliant current account 2006 Authorisation of European Islamic Investment Bank Plc (ceased in 2018) First sukuk listed on the London Stock Exchange (Tabreed, $ 2007 Authorisation of Bank of London and the Middle East Plc Authorisation of investment firm Amiri Capital (ceased 2018) 2008 FSA outlines regulatory approach to Islamic finance in: "Islamic finance in the UK: regulation and challenges" Authorisation of QIB (UK) Ltd (formerly European Finance House) Authorisation of Gatehouse Bank Plc Authorisation of British Islamic Insurance Holdings/Principle Insurance (ceased 2013) Consultation paper CP08/22 establishes liquid asset buffer requirement for all UK banks 2012 Authorisation of ADIB (UK) Ltd (ceased 2020) HSBC Amanah exits UK market 2013 Authorisation of Cobalt Underwriting London hosts the World Islamic Economic Forum, the first time outside the Muslim world 2014 UK Government issues its first sovereign sukuk Authorisation of Investment firm Arabesque Asset Management TAM Asset Management launches Shari'ah compliant investment funds 2015 Islamic Insurance Association of London established Bank of England commences Shari'ah compliant facilities (SCF) project 2017 Authorisation of Shari'ah compliant crowd funding firm Yielders Columbia Threadneedle Investments launches Shari'ah compliant global equity fund Authorisation of Shari'ah compliant home finance firm Strideup Homes 2018 Al Rayan Bank issues first sterling denominated residential mortgage backed sukuk 2019 Registration of PrimaDollar Factoring, Shari'ah compliant trade finance firm 2020 Authorisation of Investment firm Wahed Invest Registration of several Shari'ah compliant e-money and payment services firms and agents, including: Niyah, Moneemint, Rizq 2021 Planned launch of the Bank of England's Alternative Liquidity Facility (ALF) Sources: Bank internal analysis and FCA Register 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 I am proud to say that the Bank of England has been involved throughout those developments. | In regard to inflation, after a period in which inflation was below the levels the Fed judges to be most consistent with its statutory objectives, on a year-over-year basis, headline CPI (consumer price index) has increased more than 3 percent, which is somewhat above this desired level. The rise in commodity prices over the past year probably will push up headline BIS central bankers’ speeches 3 inflation further in the next few months. It is noteworthy, however, that even with the sharp rise in oil and food prices over the past year (and notwithstanding the more recent drops), there has been limited pass-through into the prices of other goods and services. In fact, most measures of underlying inflation trends – such as core inflation (which excludes volatile food and energy prices) – remain below levels consistent with our mandate for price stability. Going forward, futures markets do not signal that investors expect rapid ongoing increases in commodity prices from current levels. Provided these prices stabilize (or indeed retreat further), I would expect headline inflation to move back to a more mandate-consistent rate. While this process plays out, however, it is critical that we ensure that inflation expectations do not become unmoored. It is much harder to keep inflation in check if people begin to raise their expectations of inflation. At this point, measures of inflation expectations overall remain stable. Economists at the New York Fed have examined inflation expectations using a unique survey that we sponsor. | 0 |
Or, even if investors do not differ greatly in their attitudes toward duration risk, they may require lower compensation for holding duration risk when they have smaller amounts of it in their portfolios.” [25] Vayanos, D. and Vila, J. (2009), “A preferred-habitat model of the term structure of interest rates”, NBER Working Paper, No 15487. [26] For the euro area, flow effects are found to be small, yet sometimes significant, see, e.g., the overview in Arrata, W. and Nguyen, B. (2017), “Price impact of bond supply shocks: Evidence from the Eurosystem’s asset purchase program”, Banque de France Working Paper, No 623; as well as De Santis, R. and Holm-Hadulla, F. (2017), “Flow effects of central bank asset purchases on euro area sovereign bond yields: evidence from a natural experiment”, Working Paper Series, No 2052, ECB; or Schlepper, K., Ryordan, R., Hofer, H., and Schrimpf, A. (2017), “Scarcity effects of QE: a transaction-level analysis in the Bund market”, Deutsche Bundesbank Discussion Paper, 06/2017. [27] For quantifying the yield curve impact via the duration channel in the United States and the euro area, see respectively Li, C. and Wei, M. (2013), “Term structure modelling with supply factors and the Federal Reserve’s large-scale asset purchase programs”, International Journal of Central Banking, 9(1), pp. 3–39; and Eser, F., Lemke, W., Nyholm, K., Radde, S. and Vladu, A. (2019), “Tracing the impact of the ECB’s asset purchase programme on the yield curve”, Working Paper Series, No 2293, ECB. [28] See, e.g., Hammermann, F., Leonard, K., Nardelli, S. and von Landesberger, J. | Of course there are many exchange rates for sterling against different currencies, but the relative strength of sterling and the dollar against the euro has been surprising. Over the past five years or so, sterling has risen by almost 40% against the euro. No doubt part of this euro weakness is accounted for by the strength of domestic demand in the US and UK, which, at least in the case of the US, has been driven by higher productivity growth. But the resulting current account deficits cannot be sustained at their present levels indefinitely. Following the sharp slowdown of the world economy last year, it is those countries with the largest current account deficits, the US and UK, which are experiencing a more robust recovery than that in countries, such as the euro area and Japan, with current accounts close to balance or in surplus. In the short run, this pattern of growth could exacerbate current account imbalances. But it is encouraging that the slowdown has proved more short-lived than was feared. US GDP growth was positive in the final quarter of last year, following only one quarter of falling output, and is expected to be substantially positive in the first quarter of this. Here at home, growth is expected to be positive in the first quarter, following one quarter of growth close to zero. And manufacturing output has now started to rise in both the US and UK. Surveys of business confidence have turned round markedly. | 0 |
An FA representative could earn a basic commission of 50% of the policy’s annual premium in the first year, and another 40% of the annual premium during the following five years. His supervisor would in turn earn overriding commissions throughout the first six years. There is typically a third tier comprising the agency managers who also get overrides. Total overrides during the first six years can amount to 70% of the policy’s annual premium. Together, the total commissions and overrides earned by the representative and his supervisors would be equivalent to about 160% of the policy’s annual premium. FAIR will examine whether this commission structure aligns the interest of representatives with the long term interest of consumers, whether these representatives have the adverse incentive to sell products that pay them higher commissions, and whether the tier structure provides value for the customer or merely adds cost. Most major jurisdictions have long moved away from the tiered structure. The United Kingdom and Australia are moving towards a fee-based model. They have, in fact, banned commission payments from product manufacturers to financial institutions except in the case of pure-protection products. Enhance transparency of distribution and other costs A third way in which we can lower distribution and related costs is to enhance the transparency of these costs. Presently, benefit illustrations show the total distribution costs but hide the direct payout to a representative. Customers should know what they are paying for. | Ravi Menon: Financial advisory services – putting the customer first Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Life Insurance Association 50th Anniversary Gala Dinner, Singapore, 26 March 2012. * * * LIA President, Mr Tan Hak Leh Distinguished guests, ladies and gentlemen, good evening. Role of life insurance and financial advisory services Saving for the future, investing for returns, and protecting against risk – these are the fundamentals of managing our finances. Yet so few of us do it well. We are far better at earning an income than investing it and protecting against risk. To make matters worse, many life insurance and investment products are often not easy to understand. Many people are not financially savvy. And many of those who are, do not have the time to review the range of insurance and investment products available, and understand what is best suited for their needs. This is where financial advisory service comes in. Financial advisers can help people identify their insurance and financial planning needs and recommend suitable products. The roles of insurers and financial advisers are intimately intertwined. It must be so. Insurance protects dependants. Investments grow savings and wealth. How can we buy insurance without regard to our broader investment portfolio? Likewise, how can we invest without considering how well we are protected against death or disease? Life insurance and financial advisory services go hand in hand. | 1 |
As historical evidence suggests, it is possible for financial imbalances to develop even in an environment of stable and low inflation. Therefore as the second implication, it is impossible to avoid crises without discipline in financial markets. Then it naturally follows that the risk management developed as a distinct banking discipline in the 1990s. New tools and methods to manage the market and credit risk were developed, and brought about a dramatic increase in the volume of capital movements in the financial sector and variety of instruments. Efficient supervision became the vital part of this internal discipline. I should also admit that, as financial engineering contributes to development of new and complex instruments, such instruments also create obstacles to supervisory authorities given their sophisticated structures. As a result, a long debate started among both academics and policy makers as to whether the objective of price stability or financial stability should take priority for a central bank. I do not want to take sides in this debate. We, central bankers, are responsible for providing a stable economic environment, in which the economy operates efficiently in the long run. And prerequisites for a stable economic environment are both price stability and financial stability. So, there is always a strong reason for keeping financial stability in the central banks’ reaction functions. Therefore, these two objectives are not in conflict in the long run, but are complementary to each other. Accordingly, financial stability has increasingly become an auxiliary objective of central banks to pursue. | Cards can be physically stolen or credit card numbers can be acquired by thieves over the phone, internet or website and then used illegally to rack up debts. Access Bank must therefore, develop adequate security measures that can protect it and its clients from the crimes which seem to pervade the electronic based payment platforms. To fight this crime, you will need to educate your customers on how to safely and securely conduct transaction using their cards. You will help prevent fraud by educating your customers on what to do when they lose their card or wallet, how to secure their card by, for instance, not giving out credit card information anyhow or on the website and the need to check statements closely. On their part, cardholders must also do their part as responsible 2 BIS central bankers’ speeches cardholders, including paying off balances on credit cards as required, not loaning credit cards to others or divulging credit card information to anyone not entitled to it. Chairman, Ladies and Gentlemen, let me reiterate my words of commendation to Access Bank for introducing this product on the market. It is a great product which when used properly will benefit both the bank and its customers. This outcome is however, predicted on customers using the card wisely and responsibly and on the bank issuing cards to clients after a careful vetting and scrutiny and charging fair interest on the product. Failure to choose creditworthy customers will lead to defaults which may trigger excessive charges. | 0 |
Also, we should strengthen regional coordination on crisis management, for example, in dealing with home regulator on the resolution of SIFIs, supplemented by a process of supervisory surveillance of SIFIs’ operating in the region that extends to highly interconnected markets such as OTC derivatives and interbank transactions. Third, is the need to strengthen the regional financial system through greater regional financial integration and development of a robust region-wide financial infrastructure. At this time, efforts to strengthen financial systems through reform and institutional building are being carried out visibly at the national level. In Thailand, the Bank of Thailand has embarked on its second Financial Sector Master Plan aimed at promoting greater efficiency through competition, expanding access to financial services, and strengthening local financial 2 BIS Review 105/2010 infrastructure. But at the regional level, large benefits to the region’s longer-term growth and welfare can be gained by promoting closer integration of financial systems in the region through the development of the region’s asset market, the banking sector, financial technology and financial infrastructure. All this will help ensure a continued translation into productive investment of the region’s high savings, intermediated by Asia’s own financial system. This is a feature that, in my view, is most critical for achieving and ensuring sustained economic growth and prosperity in Asia. I hope this brief remark is useful. Again, I would like to thank Bank Negara Malaysia and the ADBI for the invitation. Thank you. BIS Review 105/2010 3 | The Fund serves as a buffer between current petroleum revenues and the spending of these revenues in the Norwegian economy. It is important to note that the entire petroleum revenues, as well as the return on the Fund, go into the Government Pension Fund. Then, an amount equal to the non-oil budget deficit is transferred into the fiscal budget. This mechanism ensures three objectives: First, the variability in petroleum revenues is isolated to the growth rate of the Fund. Second, any use of the Fund is integrated into the ordinary budget routine and does not undermine the fiscal budget as a single instrument for assigning priority to different needs. And third, the amount of spending of petroleum revenues, that is the size of the non-oil budget deficit, can be aligned with the needs of fiscal policy as well as with the targeted intergenerational distribution. Note that this setup for the Fund can work with different fiscal rules or guidelines for how large the non-oil budget deficit should be. In Norway, the Storting (Norwegian parliament) has approved a fiscal guideline that implies that the annual non-oil deficit should, on average over time, be limited to 4 per BIS Review 45/2007 1 cent of the Pension Fund. This is equal to the long-term expected real return on the Fund. Such a guideline provides predictability in the level of spending. If the government disregards the guideline, enterprises will loose an important reference in gauging the expansiveness in fiscal policy. | 0 |
We are now focusing our efforts on four major areas: first, building Hong Kong’s international profile and forging closer ties with market participants in the Middle East; secondly, promoting market infrastructure and establishing policies conducive to the development of Islamic finance; thirdly, promoting talent and knowledge of Islamic financial principles among market professionals in Hong Kong; and fourthly, encouraging the development and launch of Islamic finance products in Hong Kong. Concluding remarks Ladies and gentlemen, the potential for the growth of Islamic finance is clear. The foundations for its development here in Hong Kong have already been laid. It is essential for all of us to look beyond the current global financial turbulence and treat the development of Islamic finance as an investment in the future. With this in mind, I would like to encourage all of you, whether you are regulators, financial institutions or investors, to look critically at the opportunities that lie before us. Islamic finance is a new asset class that has the potential to bring new economic growth to Hong Kong and the region given our wealth of knowledge in financial intermediation, our experience, and our agility in adopting innovative products. So let us work together towards building a stronger and stronger link and increasing cooperation with other global players to identify and capitalise on new opportunities. Today’s holding of the Islamic Finance Forum in Hong Kong is a significant step on a journey that is just beginning. I look forward to travelling this road with all of you. Thank you. | It is my hope, therefore, that you will include on your agenda issues to do with ICT solutions to address financial inclusion for sustainable development. Let me now turn my attention to another key issue that I expect delegates to discuss at this Conference. This relates to the crucial role that the SADC IT Forum plays in the Regional Indicative Strategic Development Plan (RISDP), which is the SADC long-term (15-Year) Strategy. It is envisaged that the Committee of Central Bank Governors (CCBG) in SADC will continue to work on the process of monetary and financial integration in the region. In order to meet this aspiration, there is a need to harmonise central banking practices and procedures across the SADC region and benchmark these against international best practices. I therefore trust that this Conference will seek to prepare a RISDP Action Plan which will steer ICTs within the SADC region to higher levels. Equally important, I also expect that this initiative will assist central banks to harmonise ICT functions and come up with shared regional communication infrastructures that promote economic development. Distinguished Delegates, at this juncture let me also thank representatives of the hardware and software suppliers for coming to this Conference. These are our partners and the technologies that have been implemented in our central banks would not have been possible without their technical advice, expertise and innovation. | 0 |
Figure 2 Inflation indicators (*) (annual change, percent) 8 8 Core services 6 CPI 6 4 4 2 2 Core CPI 0 Core goods 0 -2 -2 -4 -4 13 14 15 16 17 (*) Starting from January 2014 the new indexes with base year 2013=100 are used, and are thus not strictly comparable with previous figures. Sources: Central Bank of Chile and National Statistics Institute. 2 5. Although in the baseline scenario headline inflation is expected to continue declining in the coming months towards the lower bound of our tolerance range, it is foreseen to return to 3% by the end of 2017 and fluctuate close to target towards the first quarter of 2019. Market expectations are very similar to our forecasts. Convergence of inflation rests on two main assumptions: first, that our RER will remain relatively stable at its current levels --a level we believe is consistent with fundamentals-- and, second, that the output gap will gradually close by the end of this year (Figure 3). | Today I will cover three key areas: • Firstly, how we want to expand access to RTGS to enhance financial stability and promote competition; 1 Bank of England, A blueprint for a new RTGS service for the United Kingdom, https://www.bankofengland.co.uk/paper/2017/ablueprint-for-a-new-rtgs-service-for-the-uk 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 • Secondly, how we are examining ways of supporting settlement across innovative payment technologies; and • Finally how ISO 20022 implementation will support innovation, harmonisation and resilience. Improving access The Bank wants to see the next generation of RTGS support greater competition and innovation within the payments industry. Expanding access to the service also has the benefit of providing greater financial stability by reducing operational reliance on a small number of banks and lowering the credit exposures between direct and indirect participants. We have therefore changed the access criteria to enable non-bank Payment Service Providers (PSPs) to join. Earlier this year Transferwise was the first non-bank to gain direct access to RTGS, followed soon after by Ipagoo. Going forward we also want to make the onboarding process smoother and more efficient. For instance, we intend to introduce automated testing, which will reduce the burden and manual effort required by both new and existing participants when someone joins RTGS. And we will introduce simulators to help onboarders better familiarise themselves with RTGS and the full functionality it offers before going live. Innovative payment technologies The UK is a world-leader in financial services technology and innovation. | 0 |
In a broad sense a need for greater transparency was recognised in relation to public policy, to the relationship between the public and private sectors, to corporate governance and accounting and so on. In a narrower sense there was seen to be a need for greater and more timely disclosure of financial information generally, but especially in relation to countries’ true foreign exchange reserve positions and in relation to their short term external debt. The general point is that we cannot reasonably expect markets to make a proper assessment of the risks of their lending if they do not have adequate information in accessible form. The corollary is that where they do have adequate information they can be expected to accept the penalty if their judgements prove ill-founded. The second condition for more stable capital flows is stronger financial systems. That includes for example the broadening of capital markets so that the allocation of capital is less concentrated on local banking systems. It includes robust financial infrastructure - for example payments and settlements systems. And it includes more effective financial regulation and supervision. A key feature of future arrangements for me in this area is the encouragement of more active management of short-term foreign currency assets relative to liabilities, by both the public BIS Review 36/1998 -6- sector and the local banks, taking account of the nature of the exchange rate regime. weaknesses in this area, above all, in my view that turned the Asian problem into a panic. | Durmuş Yılmaz: Global crises and economic governance Speech by Mr Durmuş Yılmaz, Governor of the Central Bank of the Republic of Turkey, at the conference on “Global crises and economic governance”, İnönü University, Malatya, 15 April 2010. * * * Distinguished Rector, Distinguished Academicians and Esteemed Guests, First of all, I would like to thank everyone who has contributed to the organization of this conference, primarily Prof. Cemil Çelik, the Rector of İnönü University and distinguished faculty members of the university. I take great pleasure in participating in such an event with you. I would like to start my speech with a brief evaluation of the global financial crisis. Later on, I will share with you my observations related to developments in the global economy and the Turkish economy. After presenting a brief overview of the monetary policy implemented and the measures taken by the Central Bank during the crisis, I would like to close my speech with the monetary policy exit strategy, which we announced to the public yesterday. As you know, problems that emerged in the US subprime mortgage market in the second half of 2007 spread the whole world to reach threatening levels for both financial and economic stability. We can say that the reaction of market players and the public has gone through four subsequent stages since the eruption of the crisis. These stages can be summarized as those of Denial, Disappointment, Panic and Hope. | 0 |
This is to ensure that the adopted international standards are consistent with Asia’s long-term interest in sustaining economic growth and stability, while helping to promote higher standards for banking supervision and regulation globally. To this end, I think emerging markets Asia, as a group, must aim for a coordinated response on at least three fronts. First, is the coordinated approach with respect to implementing the new global regulatory standards. This means emerging market Asia needs to aim for a degree of flexibility whereby national or regional variation or discretion is warranted in pursuing the shared global standards. The aim of flexibility is to adapt the new standards for local settings, taking account of the vast diversity that exists in levels of development and structures of the region’s financial systems. The dimensions which such adaptive flexibility may apply include timing of implementation, as well as technical calibration of policy measures. Second, to ensure an effective adoption of the global standards, Asia needs to establish a regional approach or standards on the key regulatory and supervisory issues. For example, on the issue of cross-border supervision, we need more effective home-host relationships with more authority for host supervisors with regard to information sharing especially during a crisis, and national discretion on capital and liquidity requirements of local operations of SIFIs. | The focus on a macro-perspective of systemic risk is definitely important and the use of macroprudential measures is not new in Asia, especially in the context of limiting credit and asset price excesses that can have broader financial stability implications. Recently, however, macroprudential measures have been used, in combination with monetary policy, to manage the macro-implications of large capital inflows. To this end, while the short-term benefits of macroprudential policies for financial stability purposes are clear, they are no substitute for a proper alignment of macroeconomic policy. The challenge, therefore, is how to appropriately utilise macroprudential policies in the context of managing both economic and financial stability. Going forward, therefore, emerging markets Asia will have to address these important policy challenges, and the way they go about meeting the challenge will have important implications not only for Asia’s own growth and stability, but also for the continued resilience of Asian financial systems, as well as the future of international banking. Against this background, I want to leave you with a few thoughts on the way forward. My overriding message is simple: given the complexity of the proposed reforms, the recent experience of implementation and coordination gaps, and the implications that the new global standards can have for Asia’s growth prospects and the stability of the financial system, it is important that Asia plays a stronger role in shaping global policies. | 1 |
This has led to its proliferation through multiple layers of leveraging and disproportionate distribution, in turn, which could result in higher systemic risks, thus, increasing the potential for instability in the financial system. In addition, transparency represents a basic tenet underlying all Islamic financial transactions. There is an inherent obligation on Islamic financial services providers to meet the appropriate standards of transparency. It is from the profit-sharing feature of Islamic financial transactions that imposes a high level of disclosure in the financial contract. The accountabilities of the respective parties involved in the transaction are clearly defined in the contract. This transparency also provides a strong incentive for Islamic financial institutions to appropriately manage risks. This disclosure allows the market to assign the appropriate risk premiums to the respective companies and thus the potential for the enhanced role of market discipline to take effect. These inherent features as required by the Shariah injunctions provides inbuilt checks and balances which serves to ensure financial stability in the Islamic financial system. These features are also reinforced by the development of a comprehensive regulatory and supervisory regime which has been strengthened considerably with the establishment of the Islamic Financial Services Board in 2002. It's establishment has also contributed to the harmonisation in the development of Islamic finance across different jurisdictions. Finally, education institutions have been established to develop the supply of professional talent and expertise in Islamic finance to support the growth and development of Islamic finance going forward. | The Islamic financial system is also well supported by a significant number of diverse players in the banking, takaful and capital market. Finally, for a dual financial system, the tax reforms have been undertaken to accord neutrality in treatment between conventional and Islamic financial products. The establishment of a national central Shariah Council has been important to ensure harmonisation of Shariah decisions in the Islamic financial services industry. The Islamic financial industry in Malaysia has experienced rapid transformation in recent five years. The product range has now expanded into broad array of innovative instruments. Several new Islamic financial products were introduced which included residential mortgage backed securities, commodity based financing, as well as investment and equity linked product based on musyarakah, mudarabah and ijarah. The Islamic financial system in Malaysia has evolved as a competitive component of the overall financial system, complementing the conventional financial system as a driver of economic growth and development. Malaysia continues to foster the expansion of the dual banking system where both, the Islamic and conventional systems operate in parallel to deliver innovative and competitive financial products and services. More recently, the increased pace of liberalisation in the Islamic financial services industry has increased foreign presence and participation in our domestic Islamic financial system. This has increase the diversity of players in our system. The Malaysian bond market has also been liberalised to enable foreign entities to raise ringgit and foreign denominated funds in our domestic market. | 1 |
I also intend to briefly comment on how I viewed the current situation in the labour market in connection with the monetary policy meeting in May and what significance this had for my stance at the meeting. However, I will not give any new monetary policy signals. But first I shall begin by providing some historical perspective on this issue by giving an account of the background to the economic policy change of regime at the beginning of the 1990s. From fine-tuning stabilisation policy to "stable game rules” Unemployment is currently high in comparison with the levels that prevailed during the 1970s and 1980s. Open unemployment at that time varied between 1.5 and 3.5 per cent. In the mid-1990s open unemployment went up to just over 8 per cent, while during recent years it has varied between 4 and 6 per cent. However, the factors that contributed to holding down unemployment during earlier decades at the same time contributed to the economic crisis at the beginning of the 1990s and also to the need for an economic policy change of regime. From the 1950s up to the mid-1970s the authorities in Sweden attempted to conduct what is usually known as fine-tuning stabilisation policy. This involved trying to parry fluctuations in economic activity with an active fiscal policy. This policy was relatively successful up to around the mid-1960s. With the target of full employment in their line of vision, politicians were then tempted to conduct an economic policy that was on average too expansionary. | Chart: The 50-krone banknote (The Lighthouse) As Norwegians, we carry with us a long and rich history of living from and with the sea – from the seafarers of the medieval Saga Age to today’s international shipping companies. For centuries, the shipping route along our coast was our lifeline. Goods from all over the country were ferried via inland waterways out to the coast and from there to other parts of Norway and to other countries. From near and far, other goods came in return. But the coastline of Norway is also dangerous. Without seamarks and lighthouses, safe travel along the coast or through narrow coastal channels would be impossible. A total of 21 000 lighthouses and seamarks safeguard navigation along our coast. Chart: The 100-krone banknote (The Gokstad Ship) Seamarks have a long history in Norway. As early as the year 869, Vikings on their way home were able to steer their ships towards the mouth of the Hardangerfjord guided by a bonfire built on a clifftop cairn. The Vikings were not only plunderers and pillagers, but boatbuilders and, not least, skilled seamen. They built Norway’s reputation as Europe’s leading sea power, while the sea took them out into the world and into contact with other cultures. The Vikings were also traders, and they knew that the sea was a versatile resource. Ever since the end of the Ice Age, when the glaciers retreated and the very first Norwegians made their homes near the seashore, we have harvested food from the sea. | 0 |
My second lesson from the crisis was that we need to think about resilience much more broadly. Reflecting that, economic policy makers now think as much about stability over the financial cycle as we do over the business cycle – a broader definition of resilience. One major response to the financial crisis was the creation of a new Financial Policy Committee as part of the Bank of England, giving it an explicit mandate to identify, monitor and take action to remove risks to the financial system. The Committee’s goal is to ensure the financial system is resilient to shocks, so that it doesn’t again act as an amplifier, worsening the impact on households and businesses in the real economy, as it did in the crisis. My MPC colleague SIlvana Tenreyro sets out these arguments in detail in her spech “The fall in productivity growth: causes and implications”, available online at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-fall-in-productivity-growth-causesand-implications.pdf. 4 6 All speeches are available online at www.bankofengland.co.uk/news/speeches 6 The FPC has been active in pursuing this goal. We have a mandate to ensure the safety and soundness of the financial system as a whole. To do that, one of the things that we do is to regularly reassess and actively adjust the amount of loss-absorbing capital that banks, who are at the heart of the financial system, are required to hold as our assessment of the level of risks changes. (Our tool for doing this is called the counter-cyclical capital buffer rate, or CCyB.) | What ASEAN central banks are aiming for is to enable businesses and individuals to make and receive electronic payments more conveniently yet less costly. A prominent example here is the “Asian Payment Network” which translates to full regional ATM interoperability. Through this initiative, an ASEAN 1 World Bank website (2014) (http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD) 2 ASEAN-6 includes Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand. BIS central bankers’ speeches 1 resident, for instance, can use his or her local ATM card to withdraw cash from a machine in another ASEAN country without having to pay the fees charged by third-party payment providers. 8. We can see that the upcoming realization of the AEC is a springboard for a more vibrant GMS region. However, the benefits for the region go beyond the AEC. I can see some points where tangible outcomes will take place in the near future. 9. The first one is the more integrated production networks of the main industries which dominate the GMS. We all know that the region has a comparative advantage in primary industries which are demanded by other ASEAN countries. This is why we have observed the large inflows of investment into agro-industry, garment and mining sectors. Realizing the high potentials of these sectors, we have also seen contract farming practices in Laos, where key commodities such as corn and sugarcane are produced using advanced technology and practices. 10. The other point concerns the development of infrastructure. | 0 |
Svein Gjedrem: The economic outlook for Norway Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), for Norges Bank’s regional network, Region East, 19 November 2008. Please note that the text below may differ slightly from the actual presentation. The speech is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 29 October and Monetary Policy Report 3/08. * * * Financial market imbalances The first signs of an emerging crisis in financial markets came into evidence in early 2007. The crisis intensified in August last year and entered a new phase in March this year when the US authorities had to bail out the investment bank Bear Stearns. What began as isolated losses in a small segment of the US housing market gradually had substantial spillover effects on the global financial system. The crisis took a new and dramatic turn when Lehman Brothers, the fourth largest US bank, filed for bankruptcy on 15 September this year. The failure contributed to a weakening of confidence between financial market participants, and many financial markets abroad, but also in Norway, almost stopped functioning. Confidence was further eroded when the crisis spread to US commercial and savings banks. Among other things, bondholders suffered losses after the largest US savings bank – Washington Mutual – was split up and partially acquired by JPMorgan Chase in the wake of heavy mortgage losses. | In such decision-making situations it may be appropriate to implement measures that can reduce the uncertainty and stave off particularly adverse outcomes for the economy. This now implies a more active monetary policy than normal, both in interest rate setting and through liquidity policy measures. When setting the key policy rate, we must also take account of developments in premiums in money market rates, other bank funding costs and bank deposit and lending rates. Weight has been given to moving forward the reduction in the key policy rate so that lending rates for households and firms can gradually be reduced. Norwegian banks, households and some businesses have increased their borrowings considerably in recent years. It is important that the necessary deleveraging does not take place too abruptly. Lower interest rates, combined with liquidity measures, may curb the impact of the financial crisis on output and inflation. At the monetary policy meeting on 29 October, Norges Bank’s Executive Board decided to reduce the key policy rate by 0.50 percentage point to 4.75 per cent. The Executive Board's assessment was that the key policy rate may lie in the interval 4-5 per cent in the period to the publication of the next Monetary Policy Report in March 2009, unless the Norwegian economy is exposed to new major shocks. Thank you for your attention! | 1 |
Svensson also took up the possibility, as a last resort and in a hypothetical situation with a zero interest rate and very low inflation expectations, of introducing a temporary exchange rate target to bring up inflation expectations. This method would involve first introducing a price level target and then depreciating the currency to attain this price level target. It would in theory make inflation expectations rise and inflation accelerate. The real interest rate would therefore be lower, which would stimulate production and employment. My own opinion is that the Riksbank should not even temporarily hold the krona exchange rate at an artificially low level. When the repo rate is cut, this normally means that the krona weakens. But the current weakening of the krona began back in August last year before the repo rate cuts were made and ought mainly to be due to the financial crisis. There are primarily three reasons against temporary interventions to keep the krona at a low level. The first is that there is no reason to do this, as underlying inflation and inflation expectations are close to 2 per cent. The second reason is that the current problem is that this is a global crisis and all countries cannot depreciate their currencies at the same time to stimulate production and push up inflation. The third is that our experiences of trying to solve problems by depreciating the currency are not positive. | 6/8 BIS central bankers' speeches • Digital bonds have many advantages: - they can be issued in smaller denominations; - primary issuance settlement times can be shortened; and - coupon and redemption payments can be automated. Decentralised Finance Web 3.0 can potentially disrupt the world of Finance. This is the phenomenon of decentralised finance or DeFi, where end-users perform financial transactions directly with one another using smart contracts, without the need for financial intermediaries. It is a fundamentally different approach to financial infrastructure, compared to the centralised systems of today. DeFi is already a growing reality, albeit nascent. Crypto tokens are bought and sold on decentralised exchanges, without the need for intermediaries to clear and record the trade. Another example is borrowing and lending, where anyone can lend and borrow directly to others via a liquidity pool managed by a smart contract. DeFi has the potential to yield significant economic and social benefits. By replacing intermediaries and central counterparties, these open crypto networks can potentially reduce the cost of finance. When firms of all sizes, and even individuals, can directly access financial infrastructure, it could mean more competition and inclusion. But DeFi is not without risks and vulnerabilities. These open crypto networks are not at the stage where they can meet the high standards of governance, security, and resilience that are required of critical infrastructure by central banks and regulators. | 0 |
Unlike inflation, where falling behind the curve would entail a degree of pain down the road when policy eventually needs to catch up, there is no catching up if we fall behind the curve on climate change. It is a one-shot game. And the consequences of getting it wrong would be catastrophic. Responding to climate change is not simply about taking into consideration the effects of the green transition on inflation, nor the possible repercussions of physical and transition risks on financial stability. But it is also about actively taking steps that helps influence the incentives and willingness of society to alter their behaviours in such a way that mitigates adverse climate change. The most impactful channel for central banks in this respect is through the financial system. Incentives, mindsets, and expertise in the financial sector must be geared so as to ensure that sufficient resources become available to finance the green transition. This requires a collaborative approach, both among agencies within a country, as well as internationally. Initiatives being pursued by bodies such as the Network of Central Banks and Supervisors for Greening the Financial System are therefore critical. Forging ahead amidst shifting grounds Mervyn King once said that central banking should be boring. There was a time when that was true. There may come a day when it is true again. But that is not today. The task at hand is far from straightforward. Maintaining economic and financial stability amidst the shifting fault lines will require a steady hand. | To see through the noise of rapidly changing circumstances and distill the essence that policy should respond to. It will require humility in our understanding of the world so that we can adapt to incoming information and seek broad input from all stakeholders. And it will require staying focused on achieving our core mandates, ensuring that expectations for our policy goals are commensurate with the tools we have while recognizing the potential unintended side-effects of those tools. For 80 years, the Bank of Thailand's commitment to growth, stability and prosperity of the Thai economy has been unwavering. We will remain steadfast to this commitment in 3/4 BIS - Central bankers' speeches navigating through the uncertain terrain ahead. Thank you all again for being part of this conference and I look forward to learning from your insights. 4/4 BIS - Central bankers' speeches | 1 |
As regards interest rates, both real and nominal rates have fallen continuously since the mid 1990s. For households this has entailed significantly lower mortgage costs. At the end of 1992 the banks' average nominal lending rate to households was just over 15 per cent and inflation stood at just over 2 per cent. Now, the average lending rate is around 6 per cent, while inflation has remained at about the same level. So households can incur more than double the amount of debt today and still have lower debt-servicing costs. The favourable economic climate from the mid 1990s also contributed to a drop in unemployment, on the one hand, and an increase in wages on the other. All in all, this led to a rise in household disposable income. Moreover, disposable income has continued to increase during the period of relatively weak economic activity in recent years. This has been mainly due to unemployment remaining low, in spite of the economic slowdown. So low interest rates and high growth in household disposable income are two fundamental factors that could explain the rise in prices in the housing market. Furthermore, there is no excess supply in the housing market similar to that seen at the beginning of the 1990s when housing construction was encouraged through various kinds of grants and tax subsidies. Instead, there is very little construction of housing today, and discussions are concerned rather with how to step this up. | Lars Nyberg: Developments in the property market Speech by Mr Lars Nyberg, Deputy Governor of Sveriges Riksbank, at the seminar on properties, Malmö, 2 September 2003. * * * I would like to begin by thanking you for the opportunity to come to Malmö and speak about the Riksbank's view of developments in the property market. Of course, these developments are not only of interest to those of us present today. They are important to all people, as movements in property prices have significance both for the real economy and financial developments in Sweden. When property prices rise, we feel more financially secure and increase our consumption, which leads to a rise in employment and growth. We might even borrow a bit more from the bank if we can. Normally, there is no harm in this. But there is a limit, of course, to the burden of debt households can bear without giving rise to worrisome risks. Should the debt of commercial property companies also swell, it could entail risks for the stability of the entire banking system, a point that was illustrated so well during the crisis at the beginning of the 1990s. On account of this, the Riksbank monitors developments in the property market carefully. We usually divide it into two segments, which give rise to different questions and reflections. The first segment is the housing market. Since 1997, housing prices have risen by just over 50 per cent, measured in current prices. | 1 |
Greater substitutability between money and bonds – something which might be seen as symptomatic of ‘well-functioning markets’ where financial frictions are modest – will reduce the overall impact of QT since less capital gain is required to sustain the higher holdings of bonds after implementation, but implies that a larger proportion of QT’s overall impact on asset prices occurs upon announcement rather than implementation. I appreciate that this description of the model’s intuition is a little hard to digest. So let me simply draw out three positive implications of the modelling exercise. First, the exercise is consistent with the view – already embodied in the Bank survey paper that I mentioned – that the impact of QT (or QE) works via its impact on asset prices. Crucially, asset price developments – at least for core assets such as gilts – are observable in real time on open markets. Although the mechanisms at play in this interpretation of QT are fundamentally derived from monetary quantities and portfolio behaviour, they find practical expression in the market yields and spreads on which monetary policy decisions are normally conditioned. Second, the exercise sheds light on the issue of whether QT (or QE) works mainly through its impact on the stock of assets held at the central bank or via the flow of purchases made by the central bank. | [11] They identified a number of channels through which QE influences asset prices and yields, including: (a) increasing demand for longer maturity or riskier assets (the ‘portfolio balance’ channel); (b) lowering market liquidity premia (the ‘liquidity’ channel); and (c) influencing expectations of future policy rates (the ‘signalling’ channel). For a moment, I will focus on the portfolio balance channel. QE entails buying government bonds from the market using central bank reserves created for the purpose. Let’s imagine for the time being that these bond purchases are made from asset managers such as insurance companies or pension companies (NBFIs), who indeed hold large quantities of such instruments. The implementation of QE shrinks NBFIs holdings of longer-term bonds and substitutes them with liquid, short-dated and capital certain assets (bank deposits) on NBFI balance sheets. For NBFIs to be willing to hold a larger proportion of money in their overall portfolio, other things equal the return to holding bonds rather than money must decline, implying a rise in government bond prices and thus a decline in sovereign bond yields. To the extent that NBFIs try to diversify out of money into other longer-term assets, they will also increase the price of those assets (and thereby raising equity prices and lowering corporate bond yields). In short, portfolio rebalancing in the aftermath of a QE operation weighs on yields and eases financial conditions. What is striking about this account of the transmission of QE is its fundamentally ‘monetarist’ nature. | 1 |
It will be even worse, according to the banks advocating this level playing argument, if their national supervisor imposes capital or liquidity requirements that exceed the international standards. 14. Pillar 2 of the Basel Accord was of course introduced, at least in part, to do just this by enabling supervisors to make adjustments in minimum required levels of capital to reflect individual bank risk profiles, but even here we are met with “level playing field” arguments – complaints that other jurisdictions don’t use Pillar 2 to the same extent – or at all – and so we should not use Pillar 2 aggressively or else we will “damage” or “ham-string” our banks. But if this is the case, then if all banks seek to maximise their profits, by pushing down or “optimising” their capital and liquidity levels and taking on more risk – focused on the Basel standard as the ultimate benchmark – then do we not risk the standard actually encouraging a “race to the bottom”? Is it a race that may lead to higher profits or RoE for banks and their shareholders only in the short term? Is it a race that could create, in the longer term, serious problems for the safety and soundness of the banks concerned and financial vulnerabilities for society as a whole? 15. I don’t profess to know all the answers to the questions I have just raised. No matter what, there is a clear and indisputable need to enhance the resilience and robustness of the global financial system. | Thus, according to the IMF, we deal with a global investment drought 10 , considering the fact that during the five years following the Asian crisis of 1997-1998, the 8 A series of articles on the topic was commenced with the work of M.Dooley, D.Folkerts-Landau and P.Garber „An Essay on the Revived Bretton Woods System“, NBER Working Paper 9971, September 2003. 9 A hypothesis of a global savings glut was formed for the first time by Ben Bernanke in March 2005 in his speech at a meeting of Virginia economists’ association. 10 For example in speeches by the IMF Managing Director Rodrigo Rato and the IMF Research Department Director Raghuram Rajan in January and February of 2006. BIS Review 19/2006 3 level of investments was about 7 percentage points lower than during five years before the crisis. Therefore, an appropriate recommendation for these countries is not limiting their savings rate but enhancing their investment climate. According to other hypotheses, the major factor behind the global imbalances is the low level of savings in the US household and public sectors 11 , i.e. the fact that Americans spend more than they earn and that the budget deficit, from a substantial surplus in the year 2000, turned into a level estimated at 4.7% of the GDP in 2004. | 0 |
In the years leading up to the start of the crisis there was a dearth of prudential supervision, but I am quite prepared to acknowledge that there have been periods where the opposite has been true. My point here is that I don’t think the system of integrated regulation demonstrated the ability to deliver a stable equilibrium of conduct and prudential supervision. Third, there is something of an inbuilt tendency within integrated regulation to play down the active debate of issues where conduct and prudential regulators find themselves with potentially conflicting objectives. Of course, it can be said that the “twin peaks” approach that we are introducing could lead to endless debate and no outcomes. My own view is that that is not correct, and that the benefits of clarity in defining the objectives of the PRA and the new Conduct Authority, the FCA, will dominate any other consequences. There are several important reasons why reform of financial regulation will, in my view, be an important step forward, starting with establishing very clear public policy objectives for financial regulation to which we, as the regulators, are fully committed. For both banks and insurance companies, the PRA will have the objective of promoting the safety and soundness of firms. Consistent with this objective, it will focus on the potential harm that firms can cause to the stability of the financial system in the UK. We define a stable financial system as one that is resilient in providing the critical financial services that the economy needs. | This is a lesson of history, and one that should not have been forgotten. But, forgotten it was. At present the FPC is pursuing two important objectives: seeking to increase the resilience of the UK banking system, including to the threats emanating from the euro areas; and, subject to being content with the path towards greater resilience, supporting the creation of credit in the UK economy. I am in no doubt that if banks take reasonable steps to enhance their resilience, they will be better placed to sustain the availability of credit to the economy by lowering their cost of funding and reducing their vulnerability to unanticipated events. Macro-prudential regulation takes a system-wide view of the risks we face and the buffers of capital and liquidity that banks should hold against possible stress events. This is very clearly the resilience objective for the system, to which the FPC attaches great weight. Banks in the UK have made substantial progress over the last four years in building that resilience, from of course a very low base. We believe that there is further to go on capital, and the FPC has set this position out, but in doing so we should not forget the distance that has been travelled. We should also remember that more capital cannot be conjured from thin air, particularly as there are at present quite severe constraints around the rate of return earned by banks due to low interest margins and redress for past misdeeds on conduct issues. | 1 |
One reason for these developments is that net price gains on securities have increased in this period. Bearing in mind that this was a favourable period for securities markets, it will be difficult to maintain the income share from price gains in periods of more normal returns in securities markets. With a slower rise in house and commercial property prices and lower lending growth, combined with a normalisation of loan losses, banks may find it more difficult to maintain the high level of profitability that we have witnessed in recent years. The new capital adequacy rules have had a strong impact on Norwegian banks and will continue to do so in the years ahead. How banks choose to utilise capital freed up as a result of the reduced minimum capital requirements, may have an impact on both competition and structure in the Norwegian banking sector. Freed-up capital may be used to finance lending growth, acquire other institutions or pay back capital to shareholders and other stakeholders. On average, Norwegian banks’ capital adequacy is solid. However, the substantial reduction in minimum capital requirements, even though there are transitional arrangements, also entails some risk that banks will reduce their capital to such an extent that the buffer needed to meet unforeseen events may become smaller than advisable. Banks’ profitability may also depend on the duration and severity of liquidity problems in international financial markets. Although Norwegian banks are probably somewhat less exposed than banks in many other countries, the impact may nonetheless be felt. | These variables also affect the exposures of different entities to various categories of risk. This is very much what we observe in practice, where even imbalances arising in some other sector often create ripple effects throughout the financial system and, where this is not robust enough, in the rest of the economy. Consistently with this view, it can be argued that financial stability is best pursued by implementing a coherent set of policies which respond to the underlying macroeconomic fundamentals. Recent episodes of financial crisis, for example, have shown that through their effects on expectations and on 1 This paper was delivered at a seminar organised by Société Universitaire Européenne de Recherches Financières (SUERF), in conjunction with the Central Bank of Malta on Thursday 27 March 2003. 2 Knight, M. 2002. “The Central Bank’s Role in Fostering Financial System Stability: A Canadian Perspective”, in Financial Risks, Stability, and Globalization; ed. O.E.G. Johnson. Washington, D.C.: International Monetary Fund. pg. 314. asset prices more generally, unchecked variations in property prices can contribute to precipitating a crisis. Similarly, it is often forgotten that a combination of excessive public deficits with an over reliance on short-term capital flows and an overvalued currency is the perfect recipe for a turnaround in market confidence, and consequently for sudden reversals in capital flows. | 0 |
In the last Inflation Report, it was the Executive Board’s assessment that the projections conditional on the market’s interest rate expectations seemed to provide a reasonable balance between the objective of bringing up inflation, while avoiding excessive growth in output and employment. The previous Inflation Report, from July 2004, stated that “the most appropriate alternative now seems to be that the interest rate should be kept unchanged for a longer period than indicated by market expectations.” After this, we saw that interest rate expectations fell. By communicating our view concerning interest rate expectations, Norges Bank seeks to influence interest rate expectations. The objective is for interest rate expectations to be consistent with economic developments where inflation is on target over time and output is stable around its potential level. Most often, however, there will be a number of ways to achieve this. We need some references that provide some indication of whether a given interest rate path is reasonable. It is natural to turn first to monetary policy theory. In the theoretical literature, the trade-off between price stability and stability in the real economy is often described as a problem of minimisation, where the central bank wants to minimise a loss function, which includes variations in output and variations in inflation. The central bank shall then choose the path for the interest rate ahead that minimises the expected discounted “losses” in all future periods. In practice, no inflation-targeting central bank uses a loss function of this kind directly. | Of course, we do not believe that increased competition alone can explain developments in the Norwegian economy in the last couple of years. There have been many driving forces behind low inflation and developments in output. Nevertheless, the developments resulting from the model analysis are fairly consistent in qualitative terms with the picture we seem to be observing for the Norwegian economy. Inflation and the interest rate are low. Real wages have risen and consumption growth is high. Mainland investment and in particular housing investment have gradually increased substantially. The number of man-hours worked has also picked up markedly, although employment growth measured by the number of persons has been more subdued. The model can thus support an assumption that increased competition in the Norwegian economy is one of several driving forces behind low inflation. The model may also provide an indication of the appropriate monetary policy response to such disturbances. However, let me again emphasise that this model is still in the development process and that in addition to this model, we are also working on other empirically-based analyses to understand relationships in the Norwegian economy. It is important to have an abundance of tools so that we can combine different models and theories in our economic analyses. Conclusion The lesson from Kydland and Prescott was that economic policy can achieve better results if the authorities can commit themselves to a pre-established set of credible policy rules. | 1 |
The supervisory work needs to take the overall systemic situation into account but the macro analysis they need could well be performed elsewhere and shared with the supervisors. The next question is what kind of mandate the central bank needs for its financial stability work. This is a tricky issue. An inflation-targeted monetary policy is relatively straight-forward, but how to define “financial stability”? A seemingly precise definition, without matching tools, could lead to failures and reduced confidence in the central bank, and also for its monetary policy. On the other hand, if the definition is too general it will be impossible for Parliament and others to evaluate how the central bank manages the task. Maybe, there could be a hierarchy of targets – a broad one in the legislation and a narrower one, which may be adapted to the actual situation, which is then communicated by the central bank to the general public on a regular basis. This is similar to monetary policy practices. A related issue is the one on central bank independence. Our present independence refers to the conduct of monetary policy. Do we need an extension so that it also covers our work on financial stability? This question has not been fully analysed yet, but I think that the politicians would hesitate to transfer such powers unless central bankers can find really strong arguments. | A clear illustration of this renewal and redirection of competence at the Riksbank is that the number of employees has fallen significantly in this period from 1,100–1,200 including companies, or 750 excluding companies, to the current level of 350, while personnel costs are at approximately the same level as previously. Today, more than 70 per cent of our employees have an academic degree and we have some 50 PhDs. I am sure that the same tendencies can be seen in other central banks. The concrete effects of this in our case are that we have reduced our involvement in cash management to a minimum, subcontracted the production of statistics, rationalised our administration and so on. In other words, we simply decided to perform only those tasks that we had the potential to perform better than anyone else. Only around 5 per cent of the Riksbank's employees worked directly with monetary policy and financial stability when we began this journey (even fewer if we include all those who worked with the manufacture of cash in our companies); today, more than one third of our employees work in these policy fields. Traditional operational duties for a central bank like cash management, payment system, asset management and statistics still occupy a significant share of our workforce, but they are not dominating the organization like they used to. Managing independent and self-financed institutions, we must find ways to constantly put the pressure of efficiency on the organisation ourselves. | 1 |
Such possible profit squeezes could also prompt financial institutions to take on inappropriately risky assets to earn an apparently positive 8 BIS central bankers’ speeches return. These concerns are present to some extent at very low rates, but they are magnified at negative rates of interest, a point made by Ben Bernanke in his 2004 speech on the topic. 9 A special case in the United States concerns the 2a-7 money market mutual funds, which are more prevalent in the United States than in Europe. Money market mutual funds are institutions that offer a floating rate of interest to shareholders that is intended to maintain the value of a share in the fund equal to par, or very close to par, at all times. With negative interest rates, and in the absence of a sponsor that is willing to subsidize shareholders in the fund, such a financial institution would not be able to return a dollar invested today to a shareholder the next day. In such circumstances, the fund must disband, as it has “broken the buck.” Recent SEC reforms specify that prime institutional funds be offered only shares expressed as floating Net Asset Values in 2016, but retail and Treasury-only money funds will retain a fixed NAV share structure, and therefore will still be subject to this complication in an environment of negative nominal rates. 10 6. Signal of deflation Another complication centers on the signaling effects I mentioned earlier. | Among the latter, ADB was the first to issue RMB bond in Hong Kong in October 2010. A number of multilateral agencies also issued RMB bonds in Hong Kong after ADB’s debut issue. With the rapid growth of China’s cross-border trade and investment flows, the offshore RMB bond market would provide a useful financing platform and facilitate the greater use of RMB in these transactions, thereby minimising the currency risk associated with the use of a third currency. Notwithstanding the encouraging developments over the past years, the capacity of the regional bond markets is still limited compared with the huge infrastructure and other financing needs of the region, resulting in heavy reliance on bank financing. Much work still needs to be done, including but not limited to expanding the issuer and investor types, gradual liberalisation of barriers to entry of non-resident investors, promoting financial infrastructure linkages, improving corporate disclosure and transparency, more standardisation in legal and governance terms, to name a few. Policymakers will have a key role to play in facilitating market developments and removing market impediments in the process. And we hope to see ADB, the region’s long-standing partner in promoting bond market development, to further its efforts and cooperation with governments in the region on this front. Thank you. 2 BIS central bankers’ speeches | 0 |
Moreover, Paris offers the leading source of highly qualified financial services personnel. Consequently, many global banks have already decided to transfer the majority of their market activities to Paris. This new system will require a single rulebook implemented in a harmonised manner. And we are close to achieving it in the banking sector, but we are not quite there in the insurance sector. It is thus necessary to further strengthen the role of the European supervisory authorities, and France supports – although it remains a little too alone in doing so – the Commission’s proposed reform of the ESAs. For example, EIOPA must be allowed to create, at its own initiative, cooperation platforms to better supervise entities whose activities mainly involve cross-border transactions performed under the freedom to provide services regime. EIOPA’s role as a neutral mediator in the internal model approval process at group level must also be reinforced, without giving it direct power in the approval process, which would undermine its neutrality. 2/3 BIS central bankers' speeches This “financial Eurosystem” will also require shared infrastructures within the Union capable of offering services beyond the confines of the euro area: examples such as T2S and TIPS, the new interbank instant payment settlement system, both multi-currency services, show us that it is possible. We must also deal with the question of private monopolies in the clearing sector. We must ensure that critical key players do not become “too big to fail”. | In the short term, effectively manage the risks of Brexit As part of their tasks, the ACPR and the Banque de France closely monitor two main types of risk associated with the prospect of Brexit: those that could threaten financial stability and those that could undermine customer protection. It is important to avoid the cliff-edge that would arise from a No Deal Brexit. The economic consequences would naturally be far more serious for the United Kingdom than for the rest of the European Union. At this stage, our analysis, like that of the ECB, which as you know jointly carried out an in-depth technical study with the Bank of England, has not identified any major risks to financial stability. In the words of Mr Draghi: “It would really take an extraordinary amount of lack of preparation to materialise the financial stability risks that might come from a hard Brexit.1 The clearing of interest rate derivatives nevertheless deserves particular attention, as the UK clearing houses have a virtual monopoly in the sector. In the event of a No Deal Brexit and without taking any specific measures, this could represent a systemic risk. Therefore, should it unfortunately be necessary, we support the solution adopted by the European Commission to temporarily recognise the equivalence of the UK legislative framework under EMIR 1 and to authorise the United Kingdom’s clearing houses to continue providing clearing services to European financial institutions until EMIR 2 comes into effect. | 1 |
Therefore, the materialization of upside risks would require further tightening of the monetary policy stance, while downward surprises in food and energy prices would be perceived as an opportunity to bring inflation back to the target in a shorter period. Figure 15: Inflation Alternative Scenarios Forecasts, Base Scenario Medium Term Target Base Scenario Pessimistic Scenario Optimistic Scenario and 12 10 Percent 8 6 4 2 12 2011-I 2010-IV 2010-III 2010-II 2010-I 2009-IV 2009-III 2009-II 2009-I 2008-IV 2008-III 2008-II 2008-I 2007-IV 0 BIS Review 62/2008 A protracted period of rising food and energy prices have led to significant breaches in inflation targets since the adoption of the inflation-targeting regime and consequently increased the stickiness in inflation expectations, as economic agents have become more backward looking. Under normal conditions, supply shocks are expected to alter relative prices rather than the underlying inflation trend. Nevertheless, the fact that several longlasting shocks appeared concurrently has increased the risks to price setting behavior. As a matter of fact, recent studies by the Central Bank reveal that economic agents have been increasingly grounding their expectations on past inflation figures. In this respect, recent developments in the pricing behavior and the underlying inflation trends are of particular concern. It may be necessary to pursue a tighter monetary policy should the price setting behavior deteriorate. | Distinguished Guests, Another major risk to the inflation outlook is a sharper than expected slowdown in global economic activity, which, in turn, could lead to further volatility in financial markets. The eventual impact of financial turmoil on global economic activity triggered by mortgage loans in the US economy is yet to be seen. These uncertainties have been dampening the risk appetite and thus slowing capital flows to emerging economies. The CBT will not react to temporary fluctuations in financial markets. Yet, we will not hesitate to tighten monetary policy in case of a significant worsening in the overall pricing behavior. Under current liquidity conditions, I believe it is useful to note that the Central Bank has the resilience to implement a strong monetary tightening within a short time. The recent cuts in the amount of foreign exchange auctions, reduced FX borrowing of the Treasury and the increase in demand for money has led to a decline in the withdrawal of excess liquidity in the overnight market. The said tendency is expected to persist in the upcoming period, which will thus lead to relatively tighter monetary conditions. This framework not only allows the Central Bank to perform more resilient and efficient liquidity management but also to adopt tighter monetary policy without the need for a Monetary Policy Committee Meeting. | 1 |
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