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Other labour market indicators have also been strong, with a 200,000 increase in HMRC payroll numbers in May and an increase in job vacancies to above pre-pandemic levels. Most strikingly, private sector regular pay rose by 5.6% in the April data – though it is important to note that this is boosted by compositional effects, and by a base effect from spring last year. Aiming off for these transitory factors ‘underlying’ pay growth appears close to pre-pandemic levels. As Andrew Bailey set out in his recent speech, the compositional and base effect in the data meant that even if the level of average earnings was flat for the rest of the year, the growth rate would peak at nearly 8%. Putting all that together I expect to see another high reading in the May earnings numbers when they are published tomorrow. The latest REC survey for June reported labour demand growth at record highs, staff availability declining at a record rate, and pay growth rising fast. Against that backdrop it is not surprising that the labour market is a recurring theme of the intelligence on economic conditions that we receive from our agents and from our (virtual) regional visits. Finally there has also been significant news in inflation. UK CPI inflation rose to 2.1% in May, and then to 2.5% in this morning’s June data release. That represented material upside news to our May short-term projections, and as a result also represents a faster move to above-target inflation than we had been expecting. | Navigating the economy through the Covid crisis Speech given by Dave Ramsden, Deputy Governor for Markets & Banking The Strand Group, King’s Business School 14 July 2021 With thanks to Tom Smith and Michael Yoganayagam for their assistance in preparing these remarks, and to numerous colleagues, including Saba Alam, Andrew Bailey, Nick Bate, Max English, Greg Kidd, Andrew Hauser, Maggie Illingworth, Sarah Illingworth, Sean Maloney, Alex Rattan, Andrea Rosen, Michael Saunders, Fergal Shortall and Silvana Tenreyro, for their many helpful contributions. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice Introduction It’s very good to be back speaking at this 51st Strand Group event and in my role as a Visiting Professor at King’s. This is the third Strand Group event I’ve spoken at but my first time speaking to you virtually. I’ve been involved in forecasting throughout my career, both in my current role as a Monetary Policy Committee (MPC) member and in my previous civil service career at HM Treasury.1 Outside of work I’m also a keen mountain walker – most recently being lucky enough to spend some time on the Isle of Skye – and it’s hard not to see parallels between the two activities. Forecasts act as a map for policymakers of where the economy is heading, showing what adjustments to the current path are needed to avoid impending hazards and ensure they safely reach their policy objectives. | 1 |
Figure 2 Commodity prices (*) (index, 2009=100) 240 240 210 210 180 180 150 150 120 120 90 90 60 60 30 30 06 Edible oils 07 08 Sugar Meats 09 Dairy 10 11 Cereals WTI oil (*) Except for WTI oil, FAO indexes are used. Source: Bloomberg. 6 BIS central bankers’ speeches Figure 3 Inflation (annual change, percent) CPI Core CPI (4) 10 10 6 6 8 8 6 6 5 5 4 4 4 4 2 2 3 3 0 0 2 2 -2 -2 1 1 -4 -4 0 0 05 06 07 08 U.S.A. Emerging Asia (2) 09 10 11 05 06 07 Eurozone Emerging Europe (3) 08 09 10 11 Latin America (1) (1) CPI anc Core CPI include: Brazil, Colombia, Mexico and Peru. (2) CPI includes China, Indonesia, Malaysia, South Korea and Thailand. Core CPI includes South Korea and Thailand. (3) CPI includes Czech Rep., Hungary, Poland and Russia. Core CPI excludes Russia. (4) Uses definition of each country. Sources: Bloomberg, CEIC Data and statitics institutes of respective countries. | Japan China Latin America World Inflación -0.6 -0.4 -0.2 -0.2 -0.8 -0.8 -0.2 -0.4 Consenso de mercado PIB 0.6 0.2 0.7 - Inflación -0.3 -0.3 -0.4 - PIB 0.5 0.5 0.3 - Inflación -0.35 -0.5 -0.3 -0.2 -0.8 -0.27 -0.4 0.5 0.4 0.3 0.7 0.46 - (*) For comparison purposes, the shocks of the respective studies have been adjusted to equal magnitudes. Sources: Central Bank of Chile, Deutsche Bank, International Monetary Fund and OECD. 12 BIS central bankers’ speeches Figure 12 International prices of commodity foodstuffs (1) External price index of foodstuffs relevant to Chile (2) monthly index, January 2007 and June 2010=100 (índice, enero 2007=100) 170 170 170 170 160 160 160 160 150 150 150 150 140 140 140 140 130 130 130 130 120 120 120 120 110 110 110 110 100 100 100 t t+5 t+10 t+15 07 08 January 2007-June 2008 09 In pesos 10 11 100 In dollars June 2010-February 2011 (1) Based on FAO index that uses average prices of monthly transactions in the main markets. (2) Based on weights of international prices of the various foodstuffs according to shares in CPI basket. | 1 |
There is a very nice paper in the latest NBER issue which is called “When Inequality Matters to Macro and Macro Matters for Inequality”. So indeed, that places within macro the question of inequality – inequality which has been increasing too much in the past few decades. Changes are being discussed and are taking place I just hope that progress could be quicker. How does that impact central banking? We thought we could just target inflation, now you are saying the next generation has to consider all of these different preferences of agents, multiple equilibria, inequality... Well first of all, central banks will always focus mostly on control of inflation, or more broadly macroeconomic stabilisation. The regime of flexible inflation targeting will not change in the visible horizon, and that is because it allows central banks to take a medium-term perspective towards hitting the inflation target. The advantage of adopting this gradualist approach to reaching the target, is – as [leading monetary economist and former Riksbank official] Lars Svensson has demonstrated very convincingly – that you can allow for some consideration of stabilisation of the 6/8 BIS central bankers' speeches economy in trying to move gradually towards the inflation target. What will change are the models used to analyse the consequences of policy – and the set of instruments that will have to be used. Central banks in the future will have to respond in a different way if they want to achieve the overall objective of reasonable inflation and macroeconomic stabilisation. | Consideration is thus given to the sustained implications of monetary stability measures on the real economy. The law therefore requires the Bank to take a balanced view to avoid the adoption of rigid frameworks that may result in strong biases that would lead to a fundamental and sustained damage to the economy. This balance is also extended to the explicit role of the Bank in developing an inclusive financial system in its responsibility to develop a sound and progressive financial system. These considerations are particularly important for emerging market economies so as to ensure balanced economic progress and development. The new Central Bank of Malaysia Act 2009 also institutionalises the autonomy for the formulation of monetary policy, thus providing for the integrity and credibility of the decisions made. It also provides for greater flexibility in monetary policy implementation, allowing for a diversified range of instruments that can now be deployed for the implementation of monetary policy. As financial markets trend towards greater sophistication and demonstrate periods of extreme volatility, central banks must have commensurate capabilities to conduct monetary policy operations in order to maintain price stability. Equally important is the mandate to provide oversight over the money and foreign exchange market to ensure the orderly development and functioning of the markets. These necessary powers are however, combined with a system of checks and balances to enable the Bank to act decisively, but yet having in place safeguards so as to enhance transparency and accountability. | 0 |
Other components were: • fiscal policy oriented towards full employment • regulation of credit within limits specified in a separate credit budget • channelling of loans through the state banks • regulation of capital movements • low nominal interest rates stipulated by the government authorities • a fixed, though adjustable, krone exchange rate • use of price regulation • an active business policy through state ownership and state grants and subsidies The proposal to establish an incomes policy council did not receive support. There was just too much control and coordination. Now, only 30 years later, very little of this system remains. The building was not solid enough. We know from experience that fiscal policy alone cannot ensure a high level of employment. The structure of the labour market and of wage formation is probably of greater importance. The direct regulation of credit, interest rates and capital movements broke down and was phased out in the 1980s. The krone is floating. Price regulation no longer plays a role as a macroeconomic instrument. The scope of business policy has become more general. State ownership in the Norwegian business sector remains extensive, but the management of ownership has been totally revised following the negative experience of companies in Kongsberg, Mo i Rana and Syd-Varanger. I would like to highlight two factors that have taken on considerable importance for economic policy. | Norway’s export revenues and government revenues can be expected to be very high as long as production remains high, and as long as the global market allows producing countries to extract substantial economic rent. At the same time, we know from experience that revenues may vary sharply from year to year. As a result of the high level of earnings and fluctuations in these revenues, the most important contribution fiscal policy can make to stabilising the Norwegian economy is to provide a sound, long-term plan for the use of petroleum revenues. Attempts to use the central government budget to fine-tune economic activity may, at worst, have a destabilising effect if these attempts are perceived as being a departure from the long-term plan for the phasing in of petroleum revenues. It is necessary to show that fiscal policy can be applied symmetrically in periods of economic expansion and contraction. A year and a half ago, the Government and the Storting adopted new guidelines for economic policy, which call for an annual use of petroleum revenues equivalent to the expected real return on the Government Petroleum Fund. At the same time, the Government issued a new operational mandate for monetary policy. Norges Bank shall set the key rate with a view to maintaining low and stable inflation. Monetary Policy Regulation (1) • Monetary policy shall be aimed at stability in the Norwegian krone's national and international value, contributing to stable expectations concerning exchange rate developments. | 1 |
And the central role these firms occupy in our financial system and the consequences to other firms and to the stability of the financial system should one of them face significant financial or operational difficulties requires that they hold a higher margin of capital above economic capital than would be appropriate for smaller institutions with a similar risk profile. These arguments are compelling on their own, and they are made more compelling by the challenges ahead facing the U.S and the world economy. The increased stability in macroeconomic outcomes that has characterized the last two decades, the relative ease with which the U.S. financial system weathered the stress of the equity market shock and September 11, the increased mobility of the world’s savings and the optimism produced by the acceleration in productivity growth, have all worked to lower expected future volatility and risk premia. BIS Review 28/2005 3 The reduction in credit losses and in realized volatility has created room for institutions to take greater risk without showing deteriorating risk-based capital measures. But the macroeconomic environment may not prove to be as benign in the future as it has in the recent past. And it is important that the major financial institutions in particular sustain a strong capital cushion at levels that will enable them individually and the U.S. financial system as a whole to manage safely in a more uncertain and perhaps more volatile world. Thank you. 4 BIS Review 28/2005 | For the smooth financing of our economy and for financial institutions Overall, 2016 was a good year for the financing of our economy, thanks also to the professionals that you are: the growth of credit to the economy in France is the strongest of all the major countries of the euro area. For companies, the latest figures at end-November are +4.9%, compared with + 2.2% in the euro area. Credit to households increased too in 2016, by +4.2%, compared with +1.9% in the euro area. And this credit expansion has been accompanied by some of the lowest interest rates in Europe. 2/3 BIS central bankers' speeches the strength of French banks and insurance companies has been confirmed. On the insurance side, the solvency of the French market is largely met, with a Solvency Capital Requirement ratio (SCR) of 209% for groups and 222% for individual institutions on 1 January 2016, compared to the regulatory minimum of 100%. As regards banks, the major groups show prudential ratios well above the minimum requirements, with in particular an average CET1 solvency ratio (“full CRD4”) of 12.7% at end-June 2016, which is more than twice that of 2008 (5.8%). Elsewhere in Europe, in particular in Italy, certain banks still show difficulties: these problems are manageable but urgent action is required. Fortunately, this feeling of urgency seems at last to prevail. For the smooth financing of our economy, 2017 requires that action be taken in five priority areas: Basel 3. | 0 |
Most importantly – and this is the lie – complacency among individuals and institutions, fed by a long period of macroeconomic stability and rising asset prices, made this remorseless borrowing seem sensible.3 When the crisis broke, policymakers quickly dropped the received wisdoms of the Great Moderation and scrambled to re-learn the lessons of the Great Depression.4 Minsky became mainstream.5 Lie II: “Markets Always Clear” A deep-seated faith in markets lay beneath the new era thinking of the Great Moderation. Captured by the myth that finance can regulate and correct itself spontaneously, authorities retreated from their regulatory and supervisory responsibilities.6 The second lie, the belief that “markets always clear,” has two dangerous consequences.7 First, if markets always clear, they can be assumed to be in equilibrium— or said differently “to be always right”. If markets are efficient, then bubbles can neither be identified nor can their potential causes be 2 Raghuram Rajan (2010), “Fault Lines: How Hidden Fractures Still Threaten the World Economy”. This emphasis on the endogenous tendency of financial systems to become unstable is reminiscent of Hyman Minsky’s “financial instability hypothesis” (Minsky (1992)). 4 See for example, Krugman, P, (1999, updated and reissued 2008), The Return of Depression Economics and the crisis of 2008, Penguin. | The holder of a single share would have been liable for the equivalent of four times the salary of a teacher of the time. It is not surprising therefore that within about a decade unlimited liability had all but disappeared from the British banking scene, to be replaced with regimes that limited the liability of shareholders in one way or another.2 I would not propose that we go back to a system of unlimited liability for bank shareholders. But the City of Glasgow Bank episode is interesting because it shows that the public policy challenges of dealing with failing banks are not new. When a bank fails, the money has gone. Someone has to pay for the losses, however. The question is ‘who pays?’ This question has probably be-devilled public policy since banks were invented. ‘Who pays?’ – the past It goes back much further than late Victorian Britain. The Code of Hammurabi – written by the King of Babylon in around 1,800BC – included a provision that if the harvest failed due to adverse weather then the ‘debt-tablet’ would be washed in water and interest on the loan would be cancelled for that year. | 0 |
But more recent figures from the London Chamber's report, published last December, on the contribution of Asian business to London's economy, suggest that the ethnic minority population manages or owns some 20% of London's private sector businesses, with the Asian community alone accounting for half that - or some 10% of the total. These figures make a powerful point, which is underlined by the presence of so many Asian and nonAsian business and professional people here this evening. They illustrate very vividly the great benefit that can accrue to our society, as a whole, from providing the opportunity to all the people in the UK, whatever their background, to realise their full potential and achieve all that they can in their different fields. It underscores the importance of non-discrimination, whether ethnic or religious, sexual or social, to the material as well as the moral progress of our whole community. It is a real pleasure to be with you. In his letter of invitation to me, your Chairman - Subhash Thakrar - suggested that I could talk about anything I wanted to this evening, provided it was the state of the economy, and provided I tell you what precisely will happen to interest rates. Let me begin by trying to explain to you what we at the Bank - through the MPC - are tasked to do, and why. The task sounds straightforward. | Following the Lehman Brothers bankruptcy last September, banks became ever more reluctant to lend to each other as a result of a sharp increase in the perceived risks of counterparty default and a continued lack of transparency about the health of banks’ balance sheets. 5 Since last October, the ECB has provided unlimited funding in euro at fixed interest rates over periods up to six months against an expanded list of eligible assets for use as collateral in Eurosystem refinancing operations. This extraordinary expansion of liquidity provided to euro area banks is reflected in the growth of the Eurosystem’s balance sheet. Between the end of June 2007 and the end of April 2009, the balance sheet of the Eurosystem increased by about EUR 600 billion, and had reached EUR 1.51 trillion which is equivalent to 16% of the nominal GDP of the euro area. By comparison, the size of the Federal Reserve System balance sheet had reached 14% of the US nominal GDP at the end of April 2009. III. The effectiveness of central bank policies How effective have the ECB policies been in mitigating the impact of the crisis on the financial system and the economy? We can assess this by first examining the effects of the measures taken on the money and credit markets. The provision of unlimited amounts of liquidity (against adequate collateral) in the interbank money market and the sharp reduction in the ECB’s key policy rates to exceptionally low levels have resulted in a significant improvement in money market conditions. | 0 |
In addition, cost pressures in many countries are moderate after several years of high unemployment and low wage growth. Chart: Money market rates for trading partners The low level of inflation has led central banks to implement further monetary policy easing over the past year. Policy rates are now negative in a number of countries. In addition, several central banks have introduced other instruments to stimulate economic activity and mitigate the risk of deflation. The European Central Bank (ECB) has expanded its asset purchase programme to include government bonds. The Riksbank, the central bank of Sweden, introduced a government bond purchase programme at the beginning of last year. On the other hand, the Federal Reserve raised its policy rate for the first time in nine years in BIS central bankers’ speeches 1 December 2015. Trading partners’ policy rates can be expected to remain low for a long period ahead. External developments influence the Norwegian economy through several channels: through demand for Norwegian goods and services, through financial markets and the exchange rate and, not least, through commodity prices. Chart: Oil prices The fall in oil prices began in summer 2014 and continued through 2015. Oil prices have picked up again somewhat in recent months to just over USD 45 per barrel, but are still at less than half of their pre-fall level. Futures prices have also decreased in the past year. These prices now indicate only a moderate rise in oil prices ahead. | The Ministry of Finance will assess the need to modernise the regulation on monetary policy. After 15 years of the current regulation, a review may be in order. I would, however, emphasise that our experience of the current monetary framework is positive. Confidence in low and stable inflation is firmly anchored. The primary task of monetary policy must always be price stability. When inflation is firmly anchored, monetary policy can also contribute to stable developments in the real economy. Monetary policy can react quickly to cyclical changes, as was the case during the financial crisis when the key policy rate was markedly reduced in order to limit the downturn. The framework has also functioned well in face of the substantial decline in oil prices. The flexibility and room for the exercise of judgement provided by the mandate has strengthened monetary policy and the Norwegian economy. Thank you for your attention. BIS central bankers’ speeches 3 4 BIS central bankers’ speeches BIS central bankers’ speeches 5 6 BIS central bankers’ speeches BIS central bankers’ speeches 7 | 1 |
The PRA agrees with longstanding and justified concerns raised by the industry on the sensitivity of the risk margin to interest rates, and its overall quantum when interest rates are low. The Government’s April Consultation Document[9] lays out reform proposals. The potential impact of these reforms can be significant. For general insurers, we believe that a roughly 30% cut in risk margin can be justified, similar to the impact on EU firms of reform proposals made by the European Commission. This outcome would therefore ensure no disadvantage on competitiveness grounds for GI firms. For life insurers, given the longer term nature of the insurance risks and the presence of closely matched assets, we believe that a greater reduction of around 60% is possible – but only if the FS is also reformed to better reflect credit risk retained by life insurers. Simultaneous reform of both risk margin and MA can also correct a potential distortion in the current framework that has become apparent over time. Namely that, broadly speaking, under the Solvency II regulatory regime, some long term insurance risks – in particular, longevity risk – appears to have been highly-capitalised, relative to credit risk. This has created an environment where life insurers have been retaining less and less insurance risk, but acquiring additional credit risk, including counterparty credit risk. This trend has become more evident since Solvency II came into force, and raises questions about the effectiveness of the regime, in terms of both competitiveness and in mitigating risks to our statutory objectives. | The first and third of the Government review objectives are also mutually supportive: breadth of investment is essential to the business model of a large part of the UK industry, so by removing unnecessary barriers to investment we further both objectives. So why focus on competitiveness and productive investment today? Apart from being front of mind in most of my discussions with the insurance sector, they feature amongst the principles the PRA ‘has regard to’ when making rules or designing policy. Matters that PRA ‘has regard to’ serve to focus the decision-makers’ minds in weighing up how best to advance the PRA’s objectives given to us in law[4]. To put this more colloquially, the PRA does not make rules or design policy solely in pursuit of a secondary objective or the goals underlying a ‘have regard’. Rather, the existing secondary competition objective, and also the principles underlying our ‘have regards’ shape how we go about advancing our primary objectives. We have thought carefully about the impact of our potential reforms in these areas. So, I want to explain how we’re having regard to competitiveness and productive investment as we develop reform proposals. Investment flexibility and productive investment Looking first at investment flexibility. UK insurers manage almost £ of investment assets, and it is an objective of regulatory reform to support the productive investment of those funds. | 1 |
It is likely that in the second half of this year, the UK economy will return to positive, if modest, growth. Financial markets have improved, with banks finding it easier and less costly to access wholesale funding markets, and in time this should ease lending conditions to households and businesses. These developments are encouraging. But they need to be seen in context, and we should be under no illusion that the path to a sustained recovery will be smooth and painless. Output is still well below and unemployment well above their levels of a year ago, and are likely to remain so for sometime. To keep inflation close to the 2% target, monetary policy tries to keep a balance between overall demand and supply. Judging that balance, given an impaired banking sector and the likelihood of a significant fiscal tightening over the next few years, is particularly difficult. At the moment, inflation is 1.1%. Many have forgotten that only a year ago it reached 5.2%. It is likely that inflation will remain volatile over the coming year. It will pick up over the next few months reflecting higher petrol prices, recent falls in sterling and the reversal of the cut in VAT. Looking through these short-run factors, however, inflation will be determined by the path of money spending relative to the supply capacity of the economy. Over the past year money spending, which normally expands at around 5% a year, has fallen by 5%. | In the bank’s drive for excellence and customer satisfaction, the Bank of Sierra Leone has continued and will continue to create the enabling environment for safe and sound banking. For instance, in collaboration with other stakeholders, the Bank of Sierra Leone is putting in place measures to implement all provisions of the Anti-Money Laundering Act so as to prevent money launderers using our financial system for their criminal activities. A recently concluded workshop organised by UNODC/GIABA//Bank of Sierra Leone succeeded in drafting a National Anti-Money Laundering Strategy with the aim of providing a framework for an Anti-Money Laundering regime that will ensure effective crime prevention and detection, and at the same time avoid creating excessive burden on the financial system and its users. The workshop attracted various stakeholders, including the Association of Commercial Bankers in Sierra Leone to which GTB is an active member. The Bank of Sierra Leone shall continue to maintain the open door policy and encourage dialogue in the process of ensuring a sound and stable financial system. BIS Review 79/2006 1 Mr Chairman, Distinguished Ladies and Gentlemen, allow me to close this brief remarks by once again congratulating the Board, Management and staff of the Guaranty Trust Bank (SL) Limited for another step taken to enhance the public image of the bank. I thank you for your attention. 2 BIS Review 79/2006 | 0 |
The ECB has been asked to assume responsibility for this mechanism, and to mould the existing national supervisory authorities into an effective and efficient federal supervisory team. We are making good progress on this front, and the SSM should become fully operational in the last quarter of 2014. Before we take on this task, we want to get an adequate view of what we will be supervising. In the coming months, the ECB will therefore undertake a balance sheet assessment. The importance of this exercise cannot be overestimated. This comprehensive exercise will encompass three steps: First, a supervisory risk assessment to review, quantitatively and qualitatively, key risks, including liquidity, leverage and funding. Second, an asset quality review (AQR) to enhance the transparency of bank exposures by reviewing the quality of banks’ assets, including the adequacy of asset and collateral valuation and related provisions. 2 BIS central bankers’ speeches Third, a stress test to examine the resilience of banks’ balance sheet to stress scenarios. These three elements are closely interlinked. The comprehensive assessment will conclude with an aggregate disclosure of the outcomes, at country and bank level, together with any recommendations for supervisory measures. This comprehensive outcome will be published prior to the ECB assuming its supervisory role in November 2014, and will include the findings of the three pillars of the comprehensive assessment. We will not publish any preliminary or intermediate results and I am quite surprised about the noise you hear these days in all directions about the possible outcome of the exercise. | The programme has provided 20 students with the opportunity to gain exposure to tech roles in finance that leads to potential employment with the bank. The 12-month programme – double the duration of typical internships – ties in students’ work projects with their final year core curriculum, making their learning more applied and practical. These examples show that with the right support and programmes, polytechnic graduates who are willing to put in their best can succeed in the financial sector. We need more financial institutions to do what JP Morgan, OCBC, and some others are doing. And we need to scale up these efforts. MAS is working with the industry to develop meaningful programmes and support mechanisms to facilitate the hiring of polytechnic graduates by financial institutions. The second group that we’re looking at is mid-career professionals from other sectors who are keen to pivot to the financial sector. This is already happening organically. Take for example Zainon Yussof, who started her career as a customer service officer in the healthcare sector. Last year, she took up a traineeship opportunity offered by BlackRock, a global asset management firm. Zainon learnt to help people plan their financial future and also picked up valuable tech programming skills. Her background in customer service enabled her to address client queries effectively and collaborate with stakeholders to find solutions to problems. This landed her a permanent role, as an analyst with BlackRock’s Aladdin Technology Team. Another example is Edris Boey. Edris started her career as a financial auditor at KPMG. | 0 |
Both factors are viewed today as important elements in the quest for stable prices which are a prerequisite for sound economic development. Stable prices can only be achieved when those responsible for monetary policy are in a position to take decisions based on a longer-term view. Short-term activism, caused by an attempt to finetune the economy, invariably results in higher inflation, higher interest rates and a loss of credibility. Giving the central bank a clear goal and protecting it from outside interference is thus a basic ingredient of a successful monetary policy. Viewed from that angle, the ECB is in a comfortable position. However, a good legal framework is not sufficient for ensuring a successful monetary union. The ECB must also be in a position to conduct a coherent monetary policy for all participating countries. There will no longer be a German monetary policy and there will no longer be a French monetary policy: There will only be a European monetary policy. It will thus no longer be possible to conduct a monetary policy that is in tune solely with the economic situation in a specific country. For a European monetary policy to be successful, the economic situation in the member states of EMU must therefore be comparable. To put it another way: the economic situation in the participating countries should converge before EMU starts. The EU tries to achieve convergence by making membership of the EMU subject to a country’s ability to satisfy so-called convergence criteria. | There are, however, still various risks associated with the introduction of a single currency. Two I would like to mention: First, problems related to the decision on which countries are allowed to participate right from the start, and second, problems related to the transition period. In an ideal world, the decision on which countries can participate in EMU would be based primarily on economic factors. Given the various expectations associated with the single currency, it is unavoidable that EMU is as much a political as it is an economic project. The decision on membership will thus be influenced by both political and economic factors. As the likelihood rises that some important countries will not be able to comply strictly with the convergence criteria, political factors will become more important. A loose interpretation of the convergence criteria for some countries would make it politically much more difficult to exclude other countries, which also miss some convergence criteria, from participating in the EMU. Depending on how well this selection process is handled, expectations about the future course of monetary policy by the ECB will be either positively or negatively affected. Should political BIS Review 102/1997 -4- factors unduly dominate economic factors, there is undoubtedly a potential for creating expectations about a less than optimal degree of political independence for the ECB. The ECB would therefore face an uphill battle at the start of EMU. | 1 |
Still others fault inappropriate government policies and perhaps complacency in not taking early action. BIS Review 91/1997 -5- All in all a rather confusing picture. At the risk of causing even greater confusion, let me try to identify and articulate the monetary problems that Asian economies have been facing. 23. Capital inflow must be at the top of the list. At the beginning of the decade, net capital inflow to emerging markets was less than $ billion a year. By 1996, however, this had increased to $ billion. Asia has received roughly half of this capital inflow, thanks to the rather attractive basic economic fundamentals. These fundamentals, incidentally, have remained attractive today, notwithstanding the recent turmoil in Asian financial markets. The key factors that contributed to the surge in capital flows into the region include Japan’s willingness to export capital as a result of sustained and large current account surpluses. The rising costs of production in Japan, associated with the appreciation of the yen have forced many Japanese firms to relocate their production to the rest of Asia. Also contributing was the low interest rate policy in the industrial economies, particularly in Japan in the post-bubble phase, which has flooded the global market with liquidity. Increasing amounts of mutual funds and pension funds of these economies looked for higher returns in the emerging markets. | Then there are the more forward-looking arrangements for the development and linkages of elements of the financial infrastructure to facilitate the efficient and safe financial intermediation across monetary systems. 13. Obviously no one point on this wide spectrum of international monetary co-operation can be considered as the ideal situation. Much depends on the needs arising from the circumstances, and the circumstances are changing all the time. But along with financial liberalization and the globalization of financial markets, the trend, to the extent that one can be ascertained, seems clearly to be one of increasing monetary co-operation. As is well known, European monetary co-operation is aiming for monetary integration by 1999, having moved in the past 50 years from BIS Review 91/1997 -3- information exchange to policy co-ordination. Whether this could be achieved on time or not, and whether monetary integration should necessarily then be considered as the final goal of monetary co-operation in other regions, we shall have to wait and see. But one has to admire the vision of the pioneer thinkers. I understand that the French economist Jacques Rueff actually declared way back in the 1950s that “Europe will be created via a currency or not at all”. 14. By contrast, Asian monetary co-operation is considerably less well structured. There is traditionally some exchange of information, mostly on a bilateral basis, through meetings conducted annually, and largely prior to a game of golf or even on the golf course. | 1 |
The needs are huge, and the goal of increasing assets held in retirement savings products from EUR 200 billion to EUR 300 billion is well within our reach. I would also stress the need to ensure that policyholders are adequately informed about retirement savings products, especially – as with all unit-linked products – if they do not include a capital guarantee. Within Europe, the forthcoming Solvency 2 review must include a full and frank assessment of the framework that has now been in place for three years. Of course, insurers have significantly improved their risk and capital management under Solvency 2, and the insurance market is now more resilient and better equipped to cope with financial crises. But these positives must not be allowed to overshadow the questions that need to be asked after such a radical change, particularly about the impact on equity investment and the financing of the European economy, along with issues relating to volatility and complexity. The very fact that we’re calling it a “review” for 2020 means that, by definition, maintaining the status quo cannot be an option. As the preparatory work gets underway, I would like to see every topic, even the most awkward, raised and dealt with. I urge insurers to play an active role in the consultations and I can assure you that the ACPR will make its presence felt in the coming discussions. | I recommend giving it a read: the report itself is a treasure trove of data, and the results do you credit. The average solvency capital requirement (SCR) coverage ratio on the French market climbed from 222% in 2016 to 238% in 2017. What’s more, in the first quarter of 2018, the French insurance market overtook Germany and the United Kingdom to become Europe’s number-one market, with over EUR 35 billion in direct premiums written in non-life insurance and over EUR 2.100 trillion in technical provisions. It also leads in investment capacity: commanding total assets of EUR 2.7 trillion in September 2018, France’s insurance sector is far and away the largest institutional investor in Europe, accounting for over one-third of the total assets of euro area insurers. In comparison, France makes up 21% of euro area GDP. Insurers, then, are a crucial asset for France, and their critical role in financing the economy can and indeed must grow further. Corporate equity is vital to innovation and hence to a vibrant economy, but in mid-2018 equity was equivalent to just 77% of GDP in the euro area and 76% in France, compared with 124% in the United States. II. Tapping into regulatory opportunities. I would like to start this section off by noting that France’s introduction of a flat tax on capital income on 1 January has not had the slightest detrimental effect on life insurance, despite fears on this score within your industry. | 1 |
But equally it would be wrong to jump to the opposite extreme, given there are clearly major welfare gains from improved choice of financial products and better matching of risks. 41 So what are some of the lessons for financial innovation? What will the landscape look like in 5-10 years’ time, once the dust has settled and institutional changes can be implemented to address the frictions identified? What if anything can policy do to facilitate or expedite this process of adjustment? 42 A first observation is that it is important to distinguish between different financial products. As shown in Table 1, there has been a huge dispersion in activity in different innovative products over the past year. For example, the corporate CDS market grew by 36% in the second half of 2007 and appears to be underpinned by strong demand. Other derivative and option markets have also continued to grow very rapidly. But on the other hand, new issues of corporate CDOs, CLOs and ABS CDOs have virtually completely stopped. Complex structured products with a high premium on information requirements and with a high bespoke element have thus fared much worse than simpler innovative instruments where there is more natural two-way trading and liquidity. Moreover, it is important not to lose sight that the success of some products and failure of others is a standard feature of the innovation process and of a competitive economy. | An investor wanting to make an inter-temporal transfer without taking on any credit risk, for example, could then buy a bond and purchase credit default swap protection, thus retaining exposure to the cash flows on the risk free component of the underlying instrument. Synthetically, this expands the volume of low risk investment portfolios. On the other side, a market is created for those who specifically want to trade default risk which allows cleaner pricing of this dimension of risk. Efficient markets for each element should raise the efficiency of the corporate bond market as a whole, with attendant benefits for both borrowers and investors. • Furthermore, because credit default swaps have different maturities, investors could, for example, buy the corporate bond and retain the resulting exposure to default risk in the near term. But they could also buy protection against default at longer horizons, about which they may be more uncertain. • Moreover, nominal corporate bonds can also be separated into a nominal and inflation-linked risk component if the corporate also issues inflation-indexed bonds. BIS Review 93/2008 3 Investors can utilise these instruments to buy or sell protection against exposure to inflation risk. As noted above, the markets for single-name corporate credit default swaps have become more liquid than the underlying bonds given the flexibility and specificity they provide to endinvestors. 9 The underlying components of risk can, of course, also be recombined by financial engineering to create new financial products with different risk characteristics. | 1 |
Likewise, digital banking has become the norm. A rapidly growing volume of financial transactions in our banks are now performed digitally – be they account opening, signing up for credit cards, or receiving wealth advisory services. A private sector survey of retail customers [8] released earlier this month noted that: 70% of respondents have used online banking frequently since the start of the pandemic. 80% of Singaporeans agree that they will continue to bank online even after the pandemic dies down. Businesses too are making greater use of online financial services and channels. MAS is pleased that our financial institutions are stepping up their digitalisation efforts despite the challenging economic environment. The take-up of the Digital Acceleration Grant that was announced in April as part of the $ million support package has been very encouraging. More than 350 financial institutions and FinTech firms have applied for the grant to adopt digital solutions to strengthen operational resilience, improve productivity, and better manage risks and engage customers. We are also pleased that the FinTech sector is alive and kicking despite COVID-19. FinTech firms in Singapore have raised $ million in equity funding in the first half of this year, 19% higher than over the same period last year. This is further boosted with $ million in M&A. That this was achieved at the height of the COVID-19 crisis demonstrates investors’ confidence in the long-term value FinTech firms will create. We now have an estimated 1000 FinTech firms in Singapore, compared to 600 last year. | In other words, their use has been driven by purely economic and commercial motives. 17. The growing concerns over SWFs and various proposals to restrict either the mode of their investments or areas in which they might invest are signs of a worrying trend of rising investment protectionism, and pose a risk to international financial stability. We are 4 BIS Review 51/2008 sympathetic to concerns in recipient countries and acknowledge that these worries, if left unaddressed, would only increase protectionist sentiments. In our last meeting, the IMFC called on the IMF to play a role in identifying best practices for SWFs. We share the view that as a multilateral platform, the Fund could play a useful role in this area, by allowing issues to be discussed in an open and neutral manner. We welcome the inclusive, collaborative, and voluntary approach taken by the Fund. The principles should focus on governance, institutional arrangement, and transparency and be co-written by the SWFs and for the SWFs, hence would help increase ownership of the best practices, which is critical to its successful adoption. We also welcome the parallel work undertaken by the OECD in drawing up a similar set of guidelines for recipient countries to forestall the risk of protectionism. It is highly important that in drafting such guidelines, the standards for SWFs should not be more onerous than for other large institutional investors. Conclusion 18. | 0 |
The gross domestic savings have been even lower over the last five years, swinging around 2.5% of GDP, on average. Since 1995, the gross investments have virtually never exceeded 20% of GDP. The foreign investments, except in the years of large BIS Review 25/2007 1 privatizations by foreign companies, are also low, barely 2% of GDP, on average, in the last 4 years. The total bank assets, even though registering a fast growth over the last years, making up roughly 50% of GDP, still shows low level of financial intermediation in the country. The above figures were target of a deep impact of the external shocks the country suffered, besides, of course, the inexcusable delay of many essential reforms of the vital sectors of the country. | Dear guests, The fact that the leaders of this Fund offered to present their financial services in the Republic of Macedonia, the Central Bank certainly encouraged and supported this initiative, shows that these important partners consider the Republic of Macedonia a friendly environment for launching various mutually beneficial business initiatives and projects. Yet, we do not forget though, that some of these institutions had no doubts whatsoever about the Republic of Macedonia even in the most difficult periods for us after gaining the independence, since when nobody else was coming, they were here. We certainly appreciate that. Regardless of all above, we still have many reasons that urge us to notice and convince others why is it good to invest in the Republic of Macedonia and to develop partnership with our economic agents and, of course, to inform on the activities that all of us in our country perform, directed towards increasing the attractiveness of the Republic of Macedonia as investment destination. Hence, we definitely need such financial offers. The economic growth could be accelerated by more investments, competitive offer of financial instruments and products, which are likely to eventually bring about lower costs for borrowing capital. The potential investors should be aware that the Macedonian financial sector is booming, but that the room for investments is yet to be opened. The gross national savings is low, not more than 12-17% of GDP, over the recent several years. | 1 |
Looking at the size of the largest firm’s assets in relation to GDP across a spectrum of industries, finance is by far the largest (Chart 22). The extent of balance sheet growth was, if anything, understated by banks’ reported assets. Accounting and regulatory policies permitted banks to place certain exposures off-balance sheet, including special purpose vehicles and contingent credit commitments. Even disclosures of on-balance sheet positions on derivatives disguised some information about banks’ contingent exposures. This rapid expansion of the balance sheet of the banking system was not accompanied by a commensurate increase in its equity base. Over the same 130 year period, the capital ratios of banks in the US and UK fell from around 15–25% at the start of the 20th century to around 5% at its end (Chart 23). In other words, on this metric measures of balance sheet leverage rose from around 4-times equity capital in the early part of the previous century to around 20 times capital at the end. If anything, the pressure to raise leverage increased further moving into this century. Measures of gearing rose sharply between 2000 and 2008 among the major global banks, other than US commercial banks which were subject to a leverage ratio constraint (Chart 24). Once adjustments are made to on- and off-balance sheet assets and capital to give a more comprehensive cross-country picture, levels of gearing are even more striking. | The today initiative is a significant event, to sustain the growth of financing for this vital part of the economy and it will help to soften the negative impacts of the world economy slowdown. I encourage the banking system and the other players of the market to undertake similar initiatives in order to not impede the financing of small projects, which owns the possibility to be transformed into profitable enterprises. At the same time to maintain a stable and long-term progress of the country, in line with its European aspirations, the banking system should go on the way toward the perfection of service versus the clients, the intensification of communication and public education. Bank of Albania believes that the sources of the stable growth for the mid-term and long-term period consist not only on the encouragement of the work productivity increase or of the investments in industry and construction, but also in other strategic sectors. For the Albanian economy as a developing economy, domestic investments and foreign direct investments in strategic sectors as tourism and infrastructure shall be a real foundation to the economic growth. The positive chain effects are expected to be reflected on the preservation of the steady growth rhythms. Hence, the overall macroeconomic stability will be seen as a precondition in promoting the further intensification of the domestic and foreign investments. | 0 |
Page 19 of 19 But nobody, from central government to various locally elected representatives, appears ready to give up ground. Is it illusory, for example, to dream of the principle of one entity being in charge of one area of expertise? It may be instructive to take a look at how the Germans make their federalism work in practice. *** To conclude, yes, there is still hope... because, as Paul Éluard so aptly put it, "There is another world, but it is inside this one"... especially if we combine a number of ingredients – in which I firmly believe – to cure our current democratic malaise. (i) First, a long-term perspective and perseverance, free from shorttermism; (ii) a focus on ex-post results, rather than merely surrendering to the tyranny of media announcement effects; (iii) clarity of responsibilities and management autonomy, rather accumulating expertise and creating ‘rival power bases'; (iv) and mutual enrichment between academic reflection and economic action - I see this as a positive thing for monetary policy, and I hope it will be for transforming public services. And what better place for believing in these things than right here in the Académie des sciences morales et politiques? Thank you for your attention. Page 20 of 19 Sauvé, J.M., Où va l'État ?, Speech, Conseil d’Etat, 8 April 2013. de Tocqueville, A., L’Ancien Régime et la Révolution (1856). | Unfortunately, the law of entropy gets in the way, with ever more complex legislation and administrative procedures. xix This complexity hurdle primarily hurts the most insecure and vulnerable groups. xx This situation is detrimental to inclusion and trust as well as to our country's competitiveness and attractiveness: an abundance of regulations reduces competition, discourages entrepreneurs and hampers productive investment. We need to learn to regularly "take a broom" to those constraints that are vestiges of the past or which are no longer useful. This requires a massive, structured and costed simplification drive. The recent announcement by the Minister of Transformation and Public Services xxi of a plan to simplify procedures for citizens at ten key moments in their lives is a step in the right direction. To be able to simplify processes, we also need to invest in the digitalisation of tasks and applications: these can represent a crucial source of innovation and time saved for employees. Alas, the most telling example of administrative complexity can be found in the territorial organisation of our public action, which now comprises a whole stack of departments and local levels, characterised by overlapping responsibilities. The least we can say is that this situation is "not conducive to improving the service provided to households and businesses, nor to making public action more efficient". xxii There is widespread dissatisfaction with the loss of responsibility - who gets to decide what? - the time lost and the additional costs. | 1 |
William C Dudley: Regulation and liquidity provision Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the SIFMA Liquidity Forum, New York City, 30 September 2015. * * * The charts can be found at the website (Federal Reserve Bank of New York). The financial crisis and the ensuing recession exacted a high cost on the country. Real gross domestic product (GDP) declined by over a half of a trillion dollars. Total nonfarm payroll employment declined by 8.7 million jobs, and 5.8 million households lost their homes to foreclosure. Extraordinary fiscal and monetary policy efforts were required to prevent a collapse of the financial system and the onset of a world-wide economic depression. In the aftermath, new regulations, such as Basel III and the Dodd-Frank Act, were implemented to strengthen the financial system and to limit the risk of a future financial crisis. Some opponents of tougher bank regulation claim that the increased regulatory requirements, such as the higher capital requirements and new liquidity standards, that have been imposed on large financial institutions in the aftermath of the financial crisis have reduced these firms’ market-making capacity. As a result, so the argument goes, this is leading to less liquidity for trading securities, and to more illiquidity events in which the prices of financial assets move sharply and become temporarily unmoored from their fundamental valuations. | In Japan, the impact of the first arrow of monetary stimulus is at risk of being blunted by the recent consumption tax hike. • The Bank of Japan has just announced a further expansion in stimulus – an openended asset purchase at a rate of about 15% of GDP a year until the inflation target of 2% is met. • Meanwhile, the third arrow remains largely in its quiver. In China, the challenge is to strike a delicate balance between implementing the reforms necessary for long-term sustainability while supporting short-term growth and stabilising the property market. • The reform agenda that emerged out of the Third Plenum offers a credible and comprehensive blueprint for the way forward. • The leadership is keenly aware of what needs to be done and is committed. • But significant execution risks remain. In India, there is a new government in place committed to improving the business environment for investment and building the infrastructure necessary for a strong manufacturing sector. • But India needs to accomplish this while taming inflation and reducing its fiscal deficit, not to mention recalibrating the dynamic between the centre and the states that is critical for reforms to take root. BIS central bankers’ speeches 1 Reverting to mean or different this time? The weak and uneven global recovery post-Crisis has raised concerns about the pace of future economic growth and what it means for returns on investments. | 0 |
Any significant increase in net external leverage or a recurrence of entrenched macroeconomic imbalances on the back of the large investment projects could weaken Iceland’s creditworthiness. These were the main points highlighted by Standard & Poor’s and there is every reason to take them seriously. Of course it is crucial for the Republic to enjoy a good credit rating. It is important for the Treasury’s access to markets and investors, and for its credit terms. Iceland’s sovereign rating also represents the ceiling for ratings of Icelandic banks and other rated institutions. Favourable ratings are vital for the banks’ expansion abroad and for their growing need for easy access to foreign credit. Thus the Treasury and the banks share an interest in Iceland being able to maintain its good credit rating. Ladies and Gentlemen As I mentioned earlier, the Central Bank raised its policy interest rate by 0.25 percentage points last week. The Bank has thereby raised its policy rate by 3.7 percentage points since its first hike in May last year. These measures reflect the Central Bank’s view that, given the current economic situation and the scenario two to three years ahead, it is much more effective to ensure a sufficiently tight stance in good time rather than to wait and take action later. Belated measures to tighten the monetary stance entail a risk of higher inflation afterwards, and thereby a far greater risk for the financial system, businesses and households. | The only conclusion that can be drawn from the massive growth in lending by the banks is that they have overstepped the mark. There is no question that this surge in lending is a major contributor to the current expansionary forces in the economy, which have fuelled inflation and call for a higher policy interest rate than otherwise. The banks are a pillar of the Icelandic economy. They insist that the Central Bank and the Government should act with restraint and promote economic stability, so they also have to make comparable demands towards themselves. In the long run, no economy can sustain this huge expansion in credit that originates in the banking system. Last week the Central Bank published its quarterly Monetary Bulletin in which it discusses economic and monetary developments and prospects and has published its new macroeconomic forecast. Without going into detail here, the broad finding is that robust private consumption will continue and investment will increase, especially business investment, for reasons including that aluminium-related projects have been stepped up for this year, as I mentioned earlier. Public consumption growth is expected to be modest, however. GDP growth will be 6.4% this year. It will be marginally less next year, when growth of private consumption and investment will also slow down. The positive output gap will widen considerably this year and in 2006. This year the current account deficit will peak at 12% of GDP, then shrink next year, contrary to previous forecasts. | 1 |
Working with the Bank of England’s Resolution team, the PRA will need closely to integrate recovery and resolution planning within its supervision; and in my view should embed a proactive intervention framework akin to the US Prompt Corrective Action within its supervisory approach to deal with the inevitable situations where firms get into the danger zone. Above 2 BIS Review 121/2010 all, these tools should support competition in the industry, by accepting that there will be winners and losers. In two years’ time, we will have a new system of financial regulation in the UK. Those of us involved can assure you that the transition is not a small task, but I can also assure you that the Bank is fully committed to working with the FSA to ensure a smooth transition. There is a great deal to be done to implement the new system of regulation, to articulate and build the public interest in financial stability, and thereby to improve the stability of the system itself. Basel III, macroprudential tools, countercyclical buffers, are all things that Adair and I get excited about. They are important foundations of good policy. But on their own they don’t win the public interest argument for financial stability. To do that, we have to build the case that the industry will serve the needs and interest of the public. The authorities cannot do this alone. Building confidence in the financial system takes effort and time. It is a common goal and in the interest of everyone. | While the ONS have suggested that the official data are likely to be better at picking up small retailers and unconventional shopping channels, such as internet purchases, the conformity of the picture given by the Distributive Trades survey with other potential indicators of spending, such as consumer confidence and the Agents reports, have led us to place less weight on the official data on retail spending for the present. 2 BIS Review 95/2008 The surveys will not always provide the best coincident guide, however. For instance, during the 1999-2002 period, the official data suggested greater swings in manufacturing output growth than did the Industrial Trends survey (see Chart 3). Now, during this period, we know that there was a rapid expansion in ICT-related activities, followed by a sharp contraction. The simple balance of “ups” over “downs” in the Industrial Trends survey could therefore be expected to have failed to reflect adequately the sharp movements in that sub-sector’s activity. So, for this period, the official data probably gave a better picture of what was going on. BIS Review 95/2008 3 A second use of surveys is in the application of forward-looking questions to form a view of the near-term outlook. In that regard, questions on business and consumer confidence, and on the trend in orders and backlogs, can give some indication of likely trends in output and spending. | 0 |
Gent Sejko: Supervisory policies after the start of the Banking Union – initial experiences and outlook for CESEE economies Intervention by Mr Gent Sejko, Governor of the Bank of Albania, in 6th ECB Conference on CESEE: “CESEE, old and new policy challenges”, session’s topic “Supervisory policies after the start of the Banking Union – initial experiences and outlook for CESEE economies”, Frankfurt am Main, 10 June 2015. * * * Dear participants: I am honored and pleased to be in this important conference among distinguished professionals of banking and financial industry! I want to start by thanking the organizers for the invitation to be here, but also to congratulate the ECB on its new building: I wish it is as functional, as it is beautiful! Coming from the banking industry, I have been feeling the impact on the banking activity arising from the changing economic and financial environment due to recent global financial crisis. Since my appointment as the new Governor of the Bank of Albania at the beginning of this year, I have been seriously estimating the challenges we face in order to maintain the stability of our banking sector and ensure that it is fit to play its role in support of Albania’s economic growth. In my intervention today, I would like to share with you how we see the impact of changes in the financial landscape, including those in supervision superstructure, on the financial system of CESEE countries and more specifically on Albania’s one. | Indeed, it will take only a few seconds to authenticate our currency notes. For example, to apply the simplest “Look” technique, what is needed is only for us to hold the currency notes against a light. This will allow us to verify simultaneously at least four important security features in all of our currency notes; the 3D Agong’s watermark, bright electrotype numeral, perfectly register see-through mark or windowed colour shifting security threads with texts. This technique is the easiest and the simplest manner as no special gadget is required. Coupled with a few other techniques contained in the My Ringgit apps we can make a firm conclusion on the authenticity of the currency notes. BIS central bankers’ speeches 1 Similarly, our new coins are also sufficiently protected by unique security features. In the course of designing the coins, the Bank had engaged with various stakeholders to ensure that the new coins are not only practical but sufficiently protected as well. Each coin denomination is unique in term of size and security features to ensure no fake coins can pass through the coin authentication machines. As part of our financial education effort, Bank Negara today is launching a mobile application called My Ringgit. This application enables the general public to learn about the most practical and easiest techniques to authenticate our currencies and learn in greater detail the security features found in our currency notes. | 0 |
In an ideal world, the global capital market should be one integrated whole, with no restraints on the movement of capital. Then savings could be channelled to their most productive uses and countries could fund their investment needs at the lowest possible cost. But in reality many economies still lack the institutional framework to deal with free capital flows. Furthermore, investors are prone to herd behaviour which can result in large surges of capital into and out of countries. These surges cause bubbles and crashes which can do great harm to economies, especially small and vulnerable ones. The liberalisation of capital accounts must thus be treated with caution. It must not proceed faster than the strength of countries’ domestic financial systems and institutional capability. Controls on “hot money” are difficult to administer and subject to evasion, but they can help make countries less vulnerable to volatile financial markets. For instance in Indonesia, following the liberalisation of the banking sector in the late 1980s, companies made large short-term borrowings in foreign currencies. They circumvented rules intended to prevent this. When the crisis struck, the Indonesian government did not know how much the companies had borrowed. Yet the total was almost $ 50 billion1, more than double Indonesia’s gross foreign reserves. The effects of the capital controls which Malaysia imposed in September 1998 are still being debated. But even Malaysia, which is implacably opposed to speculators out to make a quick profit, still welcomes foreign investors including portfolio investors buying Malaysian shares. | A managed float has not totally eliminated speculative pressures on the $ but for our circumstances it is the most appropriate approach. The best exchange rate regime depends on the specific circumstances of each economy. While it is important to get this right, the exchange rate does not exist in a vacuum. Ultimately, it is the strength of the country’s economy, the soundness of its fiscal and monetary policies and the confidence of both foreign investors and its own citizens in the country that determines whether or not the currency is stable. If these fundamentals are out of kilter, no technical fix of the exchange rate regime will avert a crisis. Hedge funds Perhaps the most controversial issue to have arisen from the crisis is that of hedge funds. They undoubtedly took positions successfully against the Thai baht. The Malaysian Government is certain that hedge funds were behind the collapse of its stock market and currency. Hong Kong and Australia are similarly convinced that hedge funds led attacks on their currencies. BIS Review 93/1999 4 On the other hand there is some evidence that except in Thailand the hedge funds may have been wrong footed in the crisis. George Soros has denied being short on the ringgit, during and several months before the crisis2. A spokesman for Soros Fund Management said in October 1997: “Recent volatility in world financial markets is reflected in the volatility of the Quantum Group’s performance”, a nice cryptic way to say that they had incurred substantial losses. | 1 |
However, the main reason is that the financial cycle has “gone off the rails” – first through a rapid expansion in credit and debt, and then through a sudden contraction when conditions and expectations have changed. If one had been able to prevent or mitigate the upturn, the economic downturn would not have been so deep. Stabilising the financial cycle is therefore an important part of the general stabilisation policy. There is fairly good empirical support for this description. The more households and companies borrow during an economic upturn, the greater the risk appears to be that the upturn will be followed by a deep recession and a slow recovery.4 The cost to society when financial imbalances are to be corrected is often very substantial. The cost of the global financial crisis has been estimated at between 1 and 3.5 times the total production of goods and services in the whole world during one year.5 One argument put forward after the financial crisis is that it is mainly macroprudential policy that is responsible for stabilising the financial cycle, while monetary policy shall focus on stabilising the economic cycle and inflation. Personally, I am very doubtful as to whether one can make such a division. My doubts are based on both theoretical arguments and assessments of what one can physically achieve with different policy instruments. I will now take up some theoretical arguments, after which I will make the discussion more concrete by giving some examples. 2 See, for example, Borio (2012). | For instance, the Riksbank’s analysis of the financial sector became more structured and systematised, and from 1997 we began to present our analysis in the form of Financial Stability Reports. This financial stability work was, however, far from fully-developed when a new financial crisis broke out just over six years ago, this time on a global scale. For instance, we still lacked a system for crisis management. We also failed to prevent a too rapid credit boom in the Baltic region, at the same time as Swedish banks proved to have liquidity problems when the dollar market froze. As the new crisis was deeper and affected a much larger number of countries than the crisis at the beginning of the 1990s, it also acted as a stronger and more worldwide signal that major efforts were needed to avoid financial imbalances causing problems in the economy as BIS central bankers’ speeches 1 a whole. The most concrete expression of this opinion was the emergence of the policy area that came to be known as macroprudential policy, which aims to take the overall view of the financial system as a whole that was lacking prior to the crisis. In this context, it is worth pointing out that in Sweden the boundary between macroprudential policy and supervision of individual banks, microprudential policy, is not particularly distinct because of the market structure we have, with four dominant major banks. | 1 |
Based on the latest microeconomic information available,17 it is estimated that the increase in interest rates since the start of this year (of 1.6 pp for the 12-month EURIBOR,18 the main interest rate to which the stock of mortgages in Spain is linked) will lead to a rise of almost 2 pp in the proportion of households with a high net interest burden.19 This effect would be most pronounced among indebted households between the 20th and 40th percentiles of the income distribution.20 17 This exercise was conducted drawing on information from the 2017 Spanish Survey of Household Finances (EFF by its Spanish abbreviation). The latest Financial Stability Report includes the results of the exercise for various interest rate hike scenarios. It was found that the proportion of households with a high net interest burden would rise by 1.2 pp, 2.3 pp and 3.9 pp, respectively, if interest rates were raised by 100 bp, 200 bp and 300 bp. 18 The 12-month EURIBOR has risen from -0.501% at 31 December 2021 to 1.091% at 20 June 2022. 19 The net interest burden is considered to be high when the ratio of (debt service expenses - interest income from deposits) to household income is over 40%. | However, given the sizeable volume of repayments and the relatively small share of new loans as a proportion of the total stock (owing to the long duration of mortgage loans), the stock of mortgage credit rose by just 1.4% year-on-year in March 2022. In turn, the stock of credit to construction and real estate development continued to decline. Indeed, new housebuilding has not recovered with the same strength as demand for housing, and this is probably being reflected in house prices. Specifically, in 2022 Q1, housing investment accounted for 5.4% of GDP; this compares with 6.2% in 2020 Q1 and is less than half the figure recorded during the real estate boom in the run-up to the global financial crisis. 2 Average debt-to-GDI and debt burden-to-GDI ratios increased in 2020 owing to the decline in GDI. The recovery in GDI drove down these ratios in 2021. 5 Indicators of price imbalances on the real estate market have been showing some minor signs of overvaluation since early 2020. These indicators climbed slightly in 2021 and could increase further if the acceleration in house prices observed in 2022 Q1 takes a firm hold.3 Yet prices are close to their equilibrium levels and distant from the levels reached in the runup to the global financial crisis. In any event, they will have to be closely monitored in the coming quarters. The ongoing macro-financial developments may affect this variable in opposite directions. | 1 |
A medium-term analysis of the relationship between productivity, wages and unit labour costs suggests that this is indeed the case. Between 2000 and 2008, productivity grew by 3.6 per cent but nominal wages increased seven times faster, by almost 28 per cent. As a result, unit labour costs rose by more than 23 per cent during this period, compared with 15 per cent in the euro area. Thus, despite the more moderate pace of relative cost growth during the last few years, Malta must still recover the ground lost in the early years of this decade. In the absence of relevant data, a sectoral diagnosis is not possible, but given that the export sector is a price taker and continues to attract investment, it is likely that the greatest effort must be made by other, mainly non-traded, sectors, including the public sector. To a large extent, Malta’s weak productivity record explains why per capita GDP in relation to the euro area average has stagnated at around 70 per cent since 2003. It is true that this subdued productivity performance was partly offset by higher labour utilisation in the past two years, but the latter is still some 88 per cent of the euro area level. This analysis suggests that the economy’s growth potential can indeed be raised. This should be a key objective. As things stand, for example, should the Commission’s growth projections prove accurate, in 2011 Malta’s real GDP would only have recovered to its 2008 level. | Pridiyathorn Devakula: Monetary policy in Thailand: current challenges and prospects Speech by M.R. Pridiyathorn Devakula, Governor of the Bank of Thailand, to the APFA 2001 Conference held in Bangkok, 24 July 2001. * * * President of APFA, Distinguished Guests, Ladies and Gentlemen, It is an honour to address the 8th Asia Pacific Financial Association Annual Conference, and to welcome the distinguished members of the Asia Pacific financial community. Judging by the attendance I trust that this three-day event will prove most fruitful and rewarding for all participants. I would like to discuss today the current challenges facing monetary policy in Thailand and what we, at the Bank of Thailand, have set out to do to meet those challenges. In so doing, I will briefly review the progress of the past few years, and look forward to some key emphases of our current policies. The current situation On July 2nd this year newspapers in Thailand ran headline stories to remind us of the four-year ordeal since the floating of the baht and the ensuing economic and financial crisis. These have been difficult years as the economy fought hard to regain macroeconomic and financial stability, and the confidence of financial markets. Economic growth shrank by more than 10 percent in 1998. Underlying this was a sharp correction in the current account in response to the depreciation of the exchange rate. The correction was substantial. | 0 |
The monetary base has risen by unprecedented proportions as we tried to prevent a collapse of broad money and credit as happened in the US during the Great Depression and today in Greece. And central bank balance sheets have risen across the industrialised world, as shown in Table 2. That expansion has reflected both money creation through asset purchases and lending against collateral. All major central banks have created new ways to lend against collateral.5 Far from their image as conservative creatures, are central banks at risk of throwing their traditional caution to the wind and ignoring the limits on monetary policy? Two limits are relevant in current circumstances. First, no matter how much liquidity is thrown at the banking system, lending and the economy will not recover if the banking system is inadequately capitalised and suffering from excessive leverage. That is why the Bank of England’s Financial Policy Committee has placed weight on the need for the weaker UK banks to raise capital. It is not surprising that the more strongly capitalised banks in the UK are expanding lending and the poorly capitalised banks are contracting lending. Second, there are limits on the ability of domestic monetary policy to expand real demand in the face of the need for changes in the real equilibrium of the economy. I do not believe that the present problems in the United Kingdom stem only from a large negative shock to aggregate demand. | The process runs as follows: Domestic interest rates at the longer end of the maturity spectrum tend to become more closely correlated with the global rate, or the rate of the largest trading partner, and less correlated with the domestic policy rate. This means that monetary transmission tends to go increasingly through the exchange rate channel, which is only a problem, however, if the exchange rate behaves badly. Unfortunately, there is a lot of evidence to suggest that it does. Uncovered interest rate parity (UIP) does not hold except over long horizons. Interest rate differentials give rise to widespread carry trading, which is by nature a bet against UIP. Exchange rates BIS central bankers’ speeches 1 thus diverge from fundamentals for protracted periods, followed by sharp corrections. So the exchange rate often seems to be as much a source of shocks and instability as a tool for adjustment and stabilisation. Ultimately, these cycles can take the boom-bust form and, in extreme cases, can result in serious financial instability or crisis. The research on this phenomenon is still ongoing, but there is a lot of evidence to suggest that the problem would not disappear even if macroeconomic policies in the traditional sense were perfect. This process was important in the Icelandic episode. The capital inflows were driven by the traditional push and pull factors. | 0 |
The average annual growth rate of above 2.5 per cent is higher than the average in the boom period in the 1980s. In a way, perhaps this is hardly surprising. The weak exchange rate gave exports a strong impetus and there was plenty of unutilised capacity. But I do not think many people expected that such high growth could be combined with low inflation. In these years Sweden has rejected the policy from the decades of high inflation and reinstated the time-honoured tradition of annual price increases around 2 per cent. Inflation has also been low in an international comparison. Judging from the expectations of economic agents, a low-inflation regime has now been established. The composition of growth has also been favourable. After decades of growth that was generated to a high degree by rising consumption—with an accumulation of external debt—it is a healthy sign that expansion been associated with strong export demand and industrial investment. One result of this, the large current-account surpluses since 1994, has made it possible to repay external debt. A dramatic turnaround has also been achieved in government finances. Massive budget deficits have been succeeded by a surplus. This trend is primarily a consequence of the economic recovery, just as declining activity was the main cause of the earlier fiscal collapse. But without the extensive measures for budget consolidation, neither the economic upturn nor the improvement in government finances would have been feasible. Tax increases and spending cuts on the scale we have experienced in recent years obviously leave their mark. | There are several signs that exports will go on slackening; the inflow of export orders has deteriorated and confidence has fallen among purchasing managers in manufacturing. However, the weaker exchange rate may have a contrary effect on exports. The inflation statistics show that inflationary pressure in the Swedish economy is still low. In June and July the price level fell 0.2 per cent. This means that for both months the twelve-month rate of inflation was 0.6 per cent. All in all, it looks as though the growth of domestic demand in 1998 may exceed the assessment in the June report. On the other hand, foreign trade may be somewhat weaker than we counted on at that time. Thus, the figures on real economic developments that have been published since the latest inflation report do not seem to call for any substantial revision of the forecasts. Neither have the summer figures for inflation or the regular surveys of inflation expectations altered the outlook from the early summer. Weaker exchange rate In the June report we counted on some appreciation of the krona in the forecast period. During the summer the krona has weakened and I want to take this opportunity of commenting on the tendency since June. Most of the weakening has occurred in August. In effective terms (TCW) the krona has depreciated somewhat more than 3 per cent since the beginning of June, from 119 to 123. | 1 |
The IMF should not attempt to impose a solution on borrowing countries. It should be willing to lend into arrears in circumstances where countries have chosen the route of a standstill and its associated conditions. But it should not create expectations that exceptional access is the norm. Conclusions Progress can be made only by closer co-operation between the developed and developing countries. The development of standards and codes, the design of IMF lending and the wider agenda of trade liberalisation and international co-operation are examples of the new partnership of which I have spoken. The closeness of the relationship between Britain and India is a compelling reason for our working together in the various international fora to improve the international financial system. In his final report to the British Government on the creation of the Bretton Woods system, Maynard Keynes wrote that "the excellence and closeness of our relations with the Indian delegation deserves special comment. Sir Chintaman Deshmukh handled his case with high dignity, ability and reasonableness; we always supported him on his interests and he always supported us on ours". Perhaps our joint work on international financial architecture will recall the common architectural heritage of the Bank of England and official buildings in New Delhi. Herbert Baker, who, with Lutyens, was responsible for the 8 BIS Review 71/2001 design of early New Delhi also rebuilt the Bank of England in the inter-war period. | Jiří Rusnok: Basel Consultative Group Meeting - welcome speech Welcome speech by Mr Jiří Rusnok, Governor of the Czech National Bank, at the Basel Consultative Group Meeting, Topic "Regulatory Treatment of Sovereign Exposures - Survey of Recommendations", Czech National Bank and Bank for International Settlements, Prague, 4 October 2016. * * * Dear Basel Consultative Group members, Dear experts from all around the world, Dear ladies and gentlemen, Let me warmly welcome you to the Czech National Bank (CNB). We are proud to host the expert meeting on the Basel regulatory reform and its design, using the perspective of emerging markets and developing countries. In the wake of the recent global financial crisis, the Basel Committee on Banking Supervision (BCBS) is making reform steps towards more healthy, stable, and resilient banks and financial systems. The latest Basel reform includes more and better bank capital, leverage and liquidity requirements, as well as macro-prudential measures, ranging from G-SIB surcharges to countercyclical capital buffers. The reform effort is successfully underway and new standards are gradually being implemented worldwide, covering advanced as well as emerging markets and developing countries. When designing further details of the regulatory reform, we have to pay special attention to differences in financial systems among countries and regions. Namely, financial systems in emerging markets and developing countries are often shallower and less liquid than in advanced economies. Therefore, emerging market countries can hardly take over all regulatory measures without modifications. | 0 |
Jean-Claude Trichet: Interview in The Wall Street Journal Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in The Wall Street Journal, conducted by Messrs Brian Blackstone and Marcus Walker on 19 January 2011. * * * WSJ: If 2008 and 2009 were years of crisis, and 2010 was a year of stabilization and recovery. How do you see 2011? What should Davos participants be focused on this year? TRICHET: Since the start of the recovery, in the third quarter of 2009, the real economy has surprised up on the upside. This is encouraging. I see 2011 as a year of continuous hard work, to make the financial sector more resilient and to improve the soundness of fiscal policies. The crisis, which started in 2007 and intensified in September 2008 revealed the fragility of the financial sector first and then the relative vulnerability of public finances in the advanced economies. WSJ: What worries you most? Trichet: To consider that because we managed to avoid a depression and are now experiencing the recovery, we could lose momentum in the reforms that are still urgently needed. That is the main danger. WSJ: This year austerity becomes pan-European. But a recent United Nations report said austerity risks a renewed economic downturn. Do you agree? TRICHET: No, we do not. I do not buy the very simple reasoning that would suggest that pursuing sounder fiscal policy would hamper growth. | In particular, the supervisor should have the real capacity to influence bank managers’ decisions through moral suasion and to formulate non-legally binding recommendations, in the sure knowledge that they will in practice be very widely followed. Supervisory actions would otherwise be excessively hampered by a regulatory framework which, despite having been honed in recent years, can hardly envisage all situations of supervisory significance or include the full range of instruments needed to tackle such situations with the speed required in each instance. Finally, it is difficult for supervision to be effective if it does not include a thoroughgoing review of banks’ financial statements. Allow me to elaborate on this point. Evidently, an essential aim of supervision is to oversee banks’ solvency through the monitoring of capital ratios. Insofar as these ratios are calculated on the basis of accounting information, it is essential to ensure that such information properly reflects the value of the bank’s assets and liabilities. It is true that auditors and securities supervisors also perform this task. However, the specific nature and complexity of bank business, the evident relationship between published financial information and financial stability, and the occasional lack of specificity of prevailing accounting principles all make it advisable that the prudential supervisor should contribute to encouraging supervised banks to follow the best practices, in full conformity with current regulations and the distribution of competencies among institutions thereunder. | 0 |
The aim of these combined measures is to reinforce the conditions for financial stability, promote a sustainable housing market and deliver socially desirable outcomes through responsible lending and borrowing behaviours. III. Financial regulatory reforms These measures foreshadow our broader plans and priorities in the area of financial regulatory reforms going forward. While banks and insurers in Malaysia have avoided the pitfalls that have set back some of the largest and most successful global financial institutions, our ambition to develop a dynamic and robust financial system demands that we remain firmly focused on continuously strengthening the foundations for financial stability. This will take into account our assessment of the domestic conditions, and the nature and direction of risks in the financial system. The regulatory regime will be based on the framework of international standards, specifically those set by the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the Islamic Financial Services Board. Following the global financial crisis, the most profound changes in the international standards have been focused on the banking system. However, as a result of more prudent risk management, a rigorous stress testing discipline and being subject to close supervision by the Central Bank, banks in Malaysia are largely already operating at more conservative capital levels than is being suggested under Basel III. | José De Gregorio: Macroeconomics, economists and the crisis Speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the Annual Meeting of the Society for the Chilean Economy (SECHI), Antofagasta, 4 September 2009. I thank Luis Felipe Céspedes, Eduardo Engel, Pablo García and Mariana García for valuable comments. * * * This is certainly a great opportunity to speak about a subject that has triggered more than a few reflections in me recently, and that was probably best said by Queen Elizabeth’s famous question, made when she was visiting the London School of Economics last year: Why did nobody notice it? As someone who has dedicated his professional life to academic activities and policy making, the question is surely unsettling. The current global financial crisis and recession, whose depth is unprecedented in recent decades, has cast doubts about the work of macroeconomists, the usefulness of their theories, and their capacity to anticipate and deal with crises. These are the issues I will discuss today. Macroeconomics Over the past few decades, macroeconomic theory has evolved, on the one hand, as a discipline whose purpose is solving problems similar to engineering, and, on the other hand, whose purpose is to explain phenomena embodied in economic reality, similar to science (Mankiw, 2006). In fact, macroeconomics was created to solve the problems of the Great Depression. In its beginnings, it was devoted to building large models to evaluate macroeconomic policies in the tradition of engineering. | 0 |
As of Monday, the per-counterparty maximum bid limit was raised from $ billion to $ billion, and an overall size limit of $ billion was imposed for each operation. If the total amount of bids received in an operation is less than or equal to the $ billion size limit, awards will be made at a fixed offering rate. However, if the total amount of bids received exceeds the overall operation size limit, the $ billion in ON RRPs will be allocated through a single-price auction using interest rates that counterparties now include with their bids. Awards are made at a “stopout rate” – the rate at which the overall size limit is achieved – with all bids below this rate awarded in full and all bids at this rate awarded on a pro rata basis. The stopout rate is determined by evaluating all bids in ascending order by submitted rate up to the point at which the total quantity of offers equals the overall size limit. 12 The Federal Reserve will be closely analyzing the results of the ON RRP exercise conducted under these new testing parameters in order to further its understanding of how an ON RRP facility might best be structured during the initial stages of the normalization process. In addition, the Federal Reserve Board has been testing a facility through which it offers term deposits to credentialed depository institutions. Term Deposit Facility (TDF) transactions could be used to temporarily reduce the quantity of reserve balances. | The BoE’s Asset Purchase Facility, through which its Monetary Policy Committee (MPC) purchased £ billion of longer-term assets between 2009 and 2012, was quite comparable in purpose and design to the Fed’s LSAP programs. Moreover, since March 2013, the BoE has reinvested the cash flows associated with maturing gilts in the facility in order to maintain the stock of securities at a steady level. In its February 2014 Inflation Report, the MPC provided guidance on its expected normalization framework, laying out an approach in which its Bank Rate – the deposit rate for central bank reserves in the U.K. – is the active marginal instrument for monetary policy while portfolio-related tools, including reinvestments and asset sales, receive less emphasis. Specifically, the MPC suggested that it intends to maintain its stock of purchased assets, including reinvesting the cash flows associated with maturing securities, at least until it raises its target short-term interest rate from its current level. Meanwhile, the BoJ is still purchasing assets under QQE, which it launched in April 2013. With a goal of increasing its Japanese government bond (JGB) holdings by ¥ trillion per year, it has not yet initiated a discussion of eventual normalization. When that time comes, however, the BoJ will be holding a large portfolio of longer-term JGBs. The BoJ’s balance sheet will therefore look markedly different than it did when the QEP ended in 2006, at which time the BoJ just allowed short-term funds-supplying operations to roll off. | 1 |
The challenge will be to ensure that the various insurance and benefit systems provide the necessary basic safety net but still maintain a strong impetus for people to begin work again. It will probably be necessary to make both general changes in insurance and benefit systems and selective measures to raise labour force participation in groups where the potential to increase the work input is considered relatively large. Examples of these groups are younger people, older people and people born abroad. Conclusion Let me finally return to my starting point and the discussion of long-term growth. I have mainly concentrated on the relationship between potential growth and monetary policy. However, we must not forget that long-term growth has significance for all parts of the economy and one of the most important goals for economic policy in general is to promote a high level of long-term growth. Growth is not the same thing as increased wealth, but growth creates a foundation for increased wealth. It creates greater scope not just for households’ private consumption, but also for financing, for instance, education systems of high quality and a good level of care and welfare and provides better opportunities to achieve other political goals. Potential growth sets the framework for monetary policy. Simplified, one can say that the Riksbank’s task is to keep actual output as close to potential output as possible. | One such effort might include frequent adjustments of the institutions or deposits subject to negative rates (as we have seen recently in Denmark and Switzerland). The complications of the negative rate policy only become greater once one realizes that it is a policy that is intended to be passed through to most deposit and market interest rates, but not to retail depositors. 5. Effects of negative rates on the health of financial intermediaries A robust financial sector is important for many reasons: to direct savings into productive uses; to assist households to smooth consumption; to facilitate trading, payment, clearing, and settlement of financial assets; and to deliver insurance and pensions to people. The health of banks and many other financial institutions depends on earning a spread between what the institutions earn on their assets and what they pay on their liabilities. Negative rates can squeeze bank profits. If banks are earning negative rates on their loans while charging a zero rate to retail depositors, they lose money. If the goal of negative rates is to ease financial conditions and provide stimulus to the economy, then the effects of the policy on the health of financial intermediaries must be carefully assessed. Pension and insurance funds too have potential difficulties in operating successfully in a negative interest rate environment. They often provide liabilities – that is, promises of future pension payments or insurance payments – at nominally fixed rates. If they can only invest in negative yield instruments, their profits could be imperiled. | 0 |
This resulted in the global economy posting a strong recovery in the third quarter. Nevertheless, GDP remained significantly below pre-crisis levels in most countries. Infection numbers have unfortunately risen again rapidly in Europe and the US since October. In response to this, numerous containment measures have once more been adopted, and the population has become more cautious again when it comes to activities with a higher risk of infection. Recent indicators show that this is once more having a detrimental impact on economic activity. In various countries, this could even result in GDP shrinking in the fourth quarter. However, the effects can be expected to be smaller than in spring given that many countries have opted for less severe containment measures. In our baseline scenario for the global economy, we anticipate that the pandemic will be brought back under control in the foreseeable future, and that appropriate measures will prevent further waves of infection. The economic recovery should therefore regain momentum in the course of next year. The monetary and fiscal policy measures adopted worldwide are providing important support in this regard. However, it is likely that global production capacity will be underutilised for some time to come and inflation will remain modest in most countries. This scenario is subject to a high level of uncertainty, and there are risks on the upside and downside alike. On the one hand, the pandemic or trade tensions could additionally hamper economic activity. | News conference Zurich, 17 December 2020 Thomas Jordan Introductory remarks by Thomas Jordan Ladies and gentlemen It is my pleasure to welcome you to the Swiss National Bank’s news conference. Owing to the coronavirus pandemic, we can unfortunately only meet virtually today. The pandemic is placing a very heavy burden on people across the world, and Switzerland is no different. Our sympathies go in particular to those who have fallen ill themselves or who have lost relatives and friends. In my remarks, I will begin by explaining our monetary policy decision and our assessment of the economic situation. I will then discuss the topic of climate change and the SNB. Fritz Zurbrügg will report on developments in the area of financial stability and the impact of the pandemic on the demand for banknotes. Andréa Maechler will then comment on the situation on the financial markets and will look at the upcoming replacement of the CHF Libor with SARON. We will – as ever – be pleased to take your questions afterwards. Monetary policy decision The coronavirus pandemic is continuing to have a strong adverse effect on the economy. Against this difficult backdrop, we are maintaining our expansionary monetary policy with a view to stabilising economic activity and price developments. We are keeping the SNB policy rate and interest on sight deposits at the SNB at −0.75%. In light of the highly valued Swiss franc, we remain willing to intervene more strongly in the foreign exchange market. | 1 |
Moreover, the Governor shall be heard by the Minister for the Economy about the appointment of six members of the Governing Council. Propose to the Governing Council the Council members that shall form part of the Executive Commission. Propose to the Executive Commission the appointment and dismissal of the Directors General, for ratification by the Governing Council. The Governor shall have the powers delegated by the Governing Council or the Executive Commission. 2 Powers of the Deputy Governor Manage, at the highest level, the common internal services of the Banco de España. Stand in for the Governor when the post is vacant or in the event of the latter’s absence or illness. The Deputy Governor shall have the powers delegated by the Governor, the Governing Council or the Executive Commission. 3 Powers of the Governing Council Approve the general guidelines of action of the Banco de España so that it may fulfil the functions entrusted to it. Debate monetary policy matters and supervise the Banco de España’s contribution to implementation of the monetary policy of the European System of Central Banks by the Executive Commission, all in accordance with the ECB’s guidelines and instructions and observing the independence and professional secrecy obligation of the Governor as a member of the ECB’s governing bodies. | The supervisory model is relevant from many standpoints, since it may have a bearing on how efficiently and effectively the goals pursued are attained and ought to resolve possible conflicts of interest across the different areas supervised. In this connection, it should be noted that, after the 2008 global financial crisis, some countries have changed their supervisory models, broadly speaking, by adopting more integrated models and increasing the role of central banks. Among these integrated models I wish to highlight one structured around two separate bodies: a central bank,13 charged with prudential supervision, i.e. the solvency of banks, securities firms and insurance companies, and a second body to oversee all intermediaries’ conduct and protect the investors and customers of various financial products and services. 11 The Directors General, the staff representative and the General Secretary of the Banco de España also attend the Governing Council’s meetings in a non-voting capacity. In addition, the General Secretary acts as the Governing Council's secretary. 12 For a more detailed discussion on this matter, see F. Restoy (2016), La organización de la supervisión financiera, or J. Segura (2018), “La supervisión financiera”, Chapter 3 of Reguladores y supervisores económicos independientes: el caso español, coordinated by J. Segura. For a recent description of supervisory models around the world, see D. Calvo, J.C. Crisanto, S. Hohl and O. Pascual Gutiérrez (2018), “Financial supervisory architecture: what has changed after the crisis?”, FSI Insights on policy implementation, No 8. | 1 |
Economic and political philosophers from Adam Smith (1759) to Hayek (1960) have long recognised that beliefs are part of inherited social capital, which provides the social framework for the free market. Social capital refers to the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other. 9 So what values and beliefs are the foundations of inclusive capitalism? 10 Clearly to succeed in the global economy, dynamism is essential. To align incentives across generations, a long-term perspective is required. For markets to sustain their legitimacy, they need to be not only effective but also fair. Nowhere is that need more acute than in financial markets; finance has to be trusted. And to value others demands engaged citizens who recognise their obligations to each other. In short, there needs to be a sense of society. Social capital has been eroded These beliefs and values are not necessarily fixed; they need to be nurtured. My core point is that, just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. To counteract this tendency, individuals and their firms must have a sense of their responsibilities for the broader system. All ideologies are prone to extremes. Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith. | FPS operates 24 x 7, which means that users can initiate or receive a payment or fund transfer any time throughout the year. It will be very user-friendly as mobile phone numbers or email addresses can be used for receiving HKD or RMB funds. Settlement between banks is real-time, and Hong Kong is one of the few jurisdictions achieving real-time settlement in a retail payment infrastructure. Both banks and SVFs can participate in FPS. This creates a retail payment ecosystem that facilitates money transfers among users of banks and SVFs. The full interconnectivity of all payment participants is, again, likely to be one of first in the world. In addition to FPS, the HKMA is leading a working group to work on a common QR code standard for retail payments. A common QR code standard will facilitate merchants, especially SMEs, in using one single QR code to accept different payment schemes. This would certainly help promote the wider use of mobile retail payments in Hong Kong. 3/6 BIS central bankers' speeches (B) Supervisory Sandbox 2.0 The HKMA will upgrade the existing Fintech Supervisory Sandbox to Sandbox 2.0. There will be three new features in this enhanced version. First, we will set up a Fintech Supervisory Chatroom that would engage the stakeholders at a much earlier stage of project development. The Chatroom will be manned by experts from our Fintech Facilitation Office and Banking Supervision Department. | 0 |
Basel II, in my view, is fundamentally about better risk management and corporate governance on the part of banks, as well as improved banking supervision and greater transparency. It is also about increasing the stability of the global financial system, to the benefit not only of banks, but also consumers and businesses. The new capital framework attempts to achieve these objectives with three mutually reinforcing pillars. The first pillar aligns minimum capital requirements more closely with banks’ actual underlying risks. Qualifying banks may also rely partly on their own measures of those risks, which will help to create economic incentives to improve those measures. In concept the first pillar is similar to the existing capital framework in that it provides a measure of capital relative to risk. What is new are the second and third pillars. The second pillar – supervisory review – allows supervisors to evaluate a bank’s assessment of its own risks and determine whether that assessment seems reasonable. It is not enough for a bank or its supervisors to rely on the calculation of minimum capital under the first pillar. Supervisors should provide an extra set of eyes to verify that the bank understands its risk profile and is sufficiently capitalised against its risks. The third pillar – market discipline – ensures that the market provides yet another set of eyes. The third pillar is intended to strengthen incentives for prudent risk management. Greater transparency in banks’ financial reporting should allow marketplace participants to better reward well-managed banks and penalise poorly-managed ones. | These disruptions are also reflected in the monetary, financial and payments spheres – which we scrutinize as central banks and supervisors –, where digitalisation is bringing about a triple revolution – and it is far from over: (i) First, the arrival of new players: new actors born from the tech world – Fintechs and Bigtechs – are challenging historical players with radically new approaches to financial services and at present much less regulation; (ii) Second, the emergence of new assets: crypto-assets from the blockchain universe in the form of tokens: they will not be credible as “crypto-currencies”, but could be used as settlement means – think of stablecoins for instance; (iii) Lastly, the emergence of decentralised market infrastructures: new technologies tend to reduce the use of proven centralised settlement systems. 2/3 BIS central bankers' speeches These revolutions offer the potential for increased market efficiency while reducing costs and time. But they entail several risks, and they could lead to significant concentration effects among a few dominant private networks: these would in practice “re-intermediate”, but without the trust and regulation associated with the architecture of the monetary and financial edifice that we – public and private players – have built together over a period of decades. In the face of this major challenge, we need to both innovate and regulate. | 0 |
If I may digress briefly into anecdote, I recall that Bill McDonough once related that he had asked his staff why, under the market risk amendment to the capital accord, it had been decided to apply a three-times multiplier to the outcome of VAR models. Why three times? The answer came back that three times was selected because “two times was too low and four times was too high”. I imagine that the process of selecting 4% minimum equity was very similar to this. The selection of a capital ratio ought, ideally, to depend upon answers to the following questions: what is the risk we are trying to limit? What is a good measure of that risk? What residual level of risk are we willing to tolerate? And how do we fix a capital level so as to achieve that residual level? These questions were not explicitly addressed back in 1988, although possibly we can infer some of the implicit answers from the regime that was established. However, although neither 1988’s Accord’s measure of risk nor its selection of the minimum capital ratio may have been scientifically derived, the Committee’s statement that we will at least maintain the overall level of capital in the system indicates that, ex post, they are reasonably happy with what the 1988 Accord achieved. But what exactly do they mean by this statement? And how do we go about achieving their intended outcome? Is it, indeed, a reasonable outcome to strive for? I will try to address these questions. | Corporate bankruptcy law grew up as it became clear that market forces delivered losers as well as winners and that some orderly means was needed of dealing with the losers. In this way, bankruptcy law supports the market mechanism. The situation is no different in a sovereign context. A well-articulated framework for dealing with sovereign liquidity problems should reduce the inefficiencies and inequities of the current unstructured approach to standstills. It would support the international capital market mechanism. It would be no 7 BIS Review 70/2000 more likely to induce debtors to default than bankruptcy law is to induce corporate debtors to default. In neither case is default a soft option. We would of course hope and expect sovereign standstills to be the exception rather than the rule. But it is better to plan for all contingencies, and to articulate these plans, than have international public policy made on the hoof. In this respect, crisis-fighting shares many similarities with fire-fighting. Fire-prevention is ideal, but will never entirely prevent fires occurring. So it makes sense to have a fire-fighting plan, which everyone understands and abides by, to minimise the damage when fires do occur. Would standstills work? The issue of whether standstills should form a part of the official sector’s toolkit of responses remains under active debate. A number of arguments against the use of standstills have been made by policymakers, academics and the private sector. Let me try and articulate some of the concerns. | 1 |
There are some speculations about the Stock Exchange in Vienna wanting to be the market for the region [Vienna is the second smallest SE in the EU.]. However, individual countries would prefer to either remain independent, or to cooperate more closely with some bigger partners - such as the Frankfurt Stock Exchange. As shown above, the financial sector is generally in good shape. There are some differences among the individual parts of the financial sector, but the main part [the banking sector] is as sound and BIS Review 53/2003 9 strong as never before. This is due to several reasons, such as the improving legal environment, improving management, or even outright government financial assistance in the past. However, the greatest difference is due to the privatization to foreign banking institutions. These institutions have brought all the necessary components for successful long-term banking. The legislative and regulatory framework has been harmonized with the acqui communautaire. The harmonization has been confirmed by EC Peer reviews and by the multinational financial institutions (such as the IMF and World Bank during their FSAP process). Of course, there is still a lot of work to be done. The legislation and regulation shall be more streamlined, the area of law enforcement needs to function more efficiently, changes in accounting standards must be made. But these tasks are not related purely to the EU accession. They would have to be done under any circumstances. The financial sectors in the new member states are functioning efficiently, and are stable and competitive. | This alliance marks a new era in the global consolidation of financial markets, with its stocks traded continuously for 13 hours a day on two continents and offering corporate issuers and international investors the opportunity to deal in two of the world's major currencies, the US dollar and the euro. French banks today have a leading position in equity derivatives markets, with more than 25% of the worldwide market. New opportunities have arisen in this sector, with the development of the Asian instruments, which are still at an early stage, as well as products related to environmental and sustainable development issues. The French expertise in these markets is based on a strong education in mathematics and finance that leads to excellence in financial fields and a large pool of academic talent. In this chain of services, French banks are able to propose an end-to-end secured service based also on their leadership in post-trade and securities services. 2 BIS Review 51/2007 These market-driven services are reinforced by a strong and innovative “buyside” coming from the good position of the French asset management industry. Quality of services in the asset management industry is another key opportunity for international investors. Assets under management have tripled over the past ten years and consequently the French asset managers have built up a strong and global network and position Five of the largest French firms now rank among the top 25 asset management companies in the world, operating worldwide including in new fast-growing markets in Asia. | 0 |
The correlation between Eurostoxx 50 and BIS Review 71/2002 3 2 Financial stability 2.1 Like every modern and independent central bank, the Eurosystem and its individual components, the ECB and the national central banks of the euro area, have to fulfil two main functions: firstly, ensuring price stability, and secondly, preserving financial stability. Discussions about the role that central banks should play in circumstances of illiquidity or financial distress are as old as central banks themselves. The involvement of central banks in financial stability issues stems from the superiority of central bank money in the final settlement of transactions on financial markets. Central bank money enables market participants to have risk-free and low-cost working balances – risk-free because the counterpart risk on a central bank is assumed to be zero, low-cost because, in the TARGET system, the cost of intraday credit is limited to the opportunity cost of depositing the appropriate level of collateral. Therefore, central banks are concerned with the robustness of payment systems and the financial positions of banks participating in the money market, in order to prevent systemic risk that could stem, for instance, from the potential “domino effect” if a participant fails to meet its settlement obligations. Central banks are concerned also by financial stability from a monetary policy point of view. I would say that price stability can be regarded as the bedrock of financial stability, while financial stability is critical to the efficiency of monetary policy. Let me elaborate further on these two points. | Such fluctuations can also expose bank portfolios to a higher risk of losses, inducing banks to compensate for these risks by restricting credit. Let me stress that, although a price stability oriented monetary policy is conducive to financial stability over the long term, episodes of financial instability have been known to take place during periods of low inflation. Price stability must be therefore regarded as a necessary but not sufficient condition. Other parameters influence financial stability, among which financial integration is of particular interest from the point of view of a central bank in the Euro area. 2.2 The relationship between financial integration and financial stability is twofold: • First, the liquidity redistribution function has taken on a new dimension as participants in the market are dealing with a wider range of counterparties, and actually trade larger unit amounts. Some bank treasurers in Paris mention that the average face value in euro of single transaction today is equivalent to the face value of a transaction in French franc in 1998, that is, more than six times higher. • Second, financial market integration is related to the trend towards the greater share of markets in the allocation of assets. At the end of 2000 financial assets in the euro area were Dow Jones is 70% over the period January 1999- October 2002 (70% when the measure is based on SP500), and 100% between CAC and Eurostoxx50 (97% between DAX and Eurostoxx 50). | 1 |
Eva Srejber: What role do asset prices and credit play in monetary policy Speech by Ms Eva Srejber, First Deputy Governor of the Sveriges Riksbank, at The Adam Smith Seminars, Thun, Switzerland, 30 June 2004. The references for the speech can be found on the Sveriges Riksbank’s website. * * * I would like to begin by thanking you for inviting me for the third consecutive year to speak at the Adam Smith Seminars. Today I shall discuss the significance of asset prices and credit for economic stability. For several years now there has been a dramatic rise in many countries in the prices of owner-occupied housing as well as in household debt. In Australia, Spain and England, house prices have more than doubled since 1997. In Sweden, house prices have risen more than 70 per cent over the same period. Before the turn of the millennium it was mainly the sharply rising equity prices and highly indebted firms that were in focus. What has been driving these developments, what role has been played by monetary policy, and what are the possible future effects on the economy? These are questions I shall be discussing today. A strong expansion in credit and increasing asset prices have preceded almost all banking crises and the majority of deep recessions in countries around the world over the past one hundred years or so. In many cases inflation has at the same time been low and stable before the crisis. | First, I would start with regulations for small and medium-sized banking institutions. As I discussed earlier, we must ensure that the firms whose failure could impose the greatest costs on ordinary borrowers and savers have the capital, liquidity and risk management standards appropriate to that risk. But, the majority of banks in the United States do not come close to falling into this category. For smaller institutions, the regulatory and compliance burdens can be considerably lighter because the failure of such a firm will not impose large costs or stress on the broader financial system. Also, we must recognize that smaller firms have less ability to spread added compliance costs across their business. All else equal, an increase in compliance burden can create an unintended competitive advantage for larger institutions. We should also recognize the important role that smaller banking institutions have in supporting local communities around the country. The ability to lend to local businesses often depends on close bank-customer relationships, and on knowledge that is often difficult to develop when the home office is very distant. 5/6 BIS central bankers' speeches There have been efforts by regulators at the Federal Reserve and elsewhere to reduce the regulatory requirements for such institutions, and that is something that we should continue to work on. Lawmakers could also evaluate statutory thresholds to see if they should be raised to apply to fewer, larger institutions. For example, the Dodd-Frank Act sets a higher prudential regime for those firms with $ billion or more in assets. | 0 |
This means that heavy and prolonged interventions may intensify the pressure on the krone over time, steadily increasing the necessary volume of intervention purchases. The foremost example of such a game situation in Norway’s exchange rate policy history was Friday 20 November 1992, when Norges Bank made intervention purchases for NOK 37 billion from the time the market opened until the time it closed. Intervention purchases amounting to NOK 14 billion were also made the previous day after Sweden allowed its currency to float. Norges Bank had thereby depleted its foreign exchange reserves by more than NOK 50 billion in the course of six trading hours over two days. Norges Bank does not want to intervene in such a way that this type of game situation arises. Nor can we expect other central banks to help us to an extent that makes a decisive contribution to our resistance. However, the Bank may use interventions to a limited extent if the krone moves substantially out of line with what we consider to be reasonable based on fundamentals or in the event of exceptional short-term volatility in thin markets. In such situations, we must assume that the risk of ending up in a game situation against exchange market players is marginal. The instrument available to Norges Bank for influencing economic fundamentals is the interest rate. If the exchange rate comes under pressure, Norges Bank can counter this over time by adjusting interest rates. | If interest rates had not moved up, the business sector could have continued to build up debt for a somewhat longer period, which would hardly have promoted long-term stability. Somewhat higher losses on corporate lending are now expected, although there is hardly any imminent risk to the financial strength of the banking system. However, there is cause for concern about the evolution of the structure of the Norwegian financial industry in the longer term. The free flow of capital in Europe paves the way for structural changes in the European financial industry. These changes will be prompted by the increased use of fund-based pension systems and the ever wider application of technology in the euro area. Banks in Europe will become larger, more efficient and more competitive, and securities markets will be larger and more liquid. Structural changes are also taking place in the financial industry in the Nordic countries. Nordic financial institutions are adjusting capacity, enhancing efficiency and realising economies of scale. The largest banks are developing their activities, with the Nordic area as their home market, by building up their branch networks or through acquisitions. Not many Norwegian financial institutions have found it profitable to participate in this process. The government’s ownership in the banking sector was expanded as part of the solution to the Norwegian banking crisis. It was not necessary to allow ownership to be permanent. Currently, the government owns the state banks, Postbanken and more than 50% of Norway’s two largest commercial banks. | 1 |
I will though: update on progress towards a global Insurance Capital Standard; talk about the fledgling UK market for Insurance-Linked Securities and our own new insurers unit; reiterate the messages on underwriting and reserving in wholesale insurance and reinsurance markets from Anna Sweeney’s Dear CEO letter earlier this year; discuss capital management, building on a Supervisory Statement we published in May; share some data we collect on the sensitivity of the capital surpluses of UK life insurers to various market movements and encourage greater consistency in disclosure of such sensitivities by insurers as well as of the drivers of changes in their capital positions over time. Update on progress towards an International Capital Standard The International Association of Insurance Supervisors (IAIS) began work on an international capital 1 standard (ICS) for Internationally-Active Insurance Groups in 2014. A third consultation paper on ICS version 2.0 will close on 30 October. I encourage UK insurance groups to take part in this consultation and in the final round of field testing next year. The Standard will then be finalised ahead of a five-year monitoring period starting in 2020. During this period Internationally-Active Insurance Groups will report a reference ICS confidentially to their group-wide supervisors, including for discussion in regulatory colleges. But it will not be the basis of their regulatory capital requirements. Calculation of the reference ICS and the additional reporting is not meant to be burdensome. | Insurers can therefore partially reverse any deterioration in their capital position due to a higher risk margin if interest rates fall by applying to the PRA to recalculate their TMTP upwards. For example, TMTP recalculation would have reduced the decrease in aggregate capital surplus following a 100bps fall in interest rates by about two thirds as at end-2017. Conversely, if the risk margin falls because of an increase in interest rates, the PRA may require recalculation so that TMTP is not overstated. % change in surplus (excluding any TMTP recalculation Chart 4: Aggregate market risk sensitivities for UK life insurers 50% Aggregate market risk sensitivities for UK life insurers YE16 YE17 25% 0% -25% -50% Source: Aggregated UK life insurers market risk sensitivity submissions Some individual insurers have published many of these market risk sensitivities. But the pattern is inconsistent across firms. I held a roundtable with insurance analysts and investors on disclosure around a year ago. 9 I took away that they find Solvency II disclosures more useful than accounting disclosures, at least in the current state of insurance accounting. And a consistent set of such sensitivities was near the top of their disclosure wish list. I hope insurers and industry groups will work towards an industry standard in this area, perhaps drawing on what they report to us. | 1 |
One interesting question is whether contingent capital, i.e., debt that is converted to capital if a particular event is triggered, can be devised in such a way as to enhance capital standards. There may well be a role for contingent capital, in effect defining in advance a debt-to-equity swap. In order for such a contingent convertible capital structure to be effective, it will be 7 It will thereby be important to carefully assess the combined effect of these changes. To this end, the Basel Committee will conduct a quantitative impact study in 2010, before determining the final calibration of the improved requirements. 8 To reduce the procyclicality of capital regulation, promoting more forward-looking provisions is an additional promising avenue to pursue. In this area, progress will depend a great deal on the accounting standard setters. The Basel Committee is working closely with accounting standard setters on this issue. 9 In the case of Switzerland, several adjustments are made to total assets. Most importantly, the domestic lending business is excluded. BIS Review 145/2009 3 crucial that the converted capital be equivalent to true, loss-absorbing core capital and incorporate a precise definition of the event that triggers conversion. The Basel Committee and the FSB have committed themselves to examining this further. 10 More robust liquidity requirements The crisis has also provided a number of important lessons regarding liquidity. On the whole, banks’ liquidity holdings were clearly insufficient. This holds true for the quantity but, crucially, also for the quality of liquidity. | Nobody could tell, at the outset, to what extent the introduction of the single currency would affect the functioning of the single market of goods and services, or the very nature of financial markets or price and wage-setting behaviour across the euro area. Indeed, times of institutional change are arguably times in which private expectations may fail to converge on a focal point. The widely-held assumption has been that the statistical patterns emerging from an aggregation of pre-EMU data may not reveal much about the structure of the new economic entity, and any inference drawn on its basis may - in extreme cases - even be misleading. This is all the more likely when we consider the fact that, as far as monetary and financial convergence in the future euro area was concerned, it was based upon a concept of “benchmarking”, namely convergence towards the best performers, which suggests that aggregation of the EMS data might be even less predictive. Such a situation has called for a cautious interpretation of model results and, even more importantly, for a broad information basis in order to cross-check the interpretation of various pieces of information. This implies a need for detailed and high-quality statistics for the euro area. The construction of a comprehensive statistical support has confronted the ECB with a number of practical issues, to which I now turn. Statistics for the euro area: achievements and outlook Over the past ten years, major progress has been achieved in developing statistics for the euro area. | 0 |
Crimes also reduce productivity and increase leakages in the economy as resources and manpower need to be channeled towards combating crimes instead of more productive utilization of resources. From the reputational perspective, Malaysia cannot afford to be seen as a weak link in the chain of international efforts to combat money laundering and terrorism financing. Although in the previous Mutual Evaluation in 2007, we received commendable ratings, the coming Mutual Evaluation in November this year will be based on a more holistic methodology where BIS central bankers’ speeches 1 greater focus will be on the effectiveness of our implementation. If we did not attain good rating, the consequences could be high. We do not want our country to be listed in the FATF Public Statement as country with significant deficiency in AML/CFT. As you are aware, compliance with FATF Standards helps maintain our country’s reputation and the reputation of our businesses, including financial institutions, on the world stage. Globally, a country’s rating on compliance with FATF Standards on AML/CFT is often considered as a key measure of the robustness of the country’s AML/CFT regime. Unfavourable rating would mean that Malaysian businesses, including financial institutions, would face greater scrutiny, higher costs of doing business, delays and other time consuming and unnecessary barriers when doing business with overseas counterparts. The impact of money laundering and terrorism financing risks to the financial institutions and financial system is no less severe. We all understand that financial institutions operate on the basic tenets of public confidence and integrity. | Encik Abu Hassan Alshari Yahaya: Continuing efforts to combat money laundering and terrorism financing in Malaysia Keynote address by Mr Encik Abu Hassan Alshari Yahaya, Assistant Governor of the Central Bank of Malaysia, at the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Compliance Conference 2014, Sesana Kijang, Kuala Lumpur, 17 September 2014. * * * It is my great pleasure and honour to welcome all of you today to our annual Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Conference. Today’s line up of programme and most importantly, your presence here today underscores our continuing efforts to combat money laundering and terrorism financing in Malaysia and the critical importance of the role that financial services industry contributes in supporting regulators, government and law enforcement to tackle and mitigate the threats. I am pleased to note that today we have close to 350 participants representing banking, insurance, takaful, investment and securities industries in Malaysia. I also would like to take this opportunity to express my appreciation to all the speakers and moderators for your willingness to share knowledge and views for the two concurrent sessions that we will be having later this morning. Money laundering is a serious global problem Money laundering is a serious global problem. At the global level, the International Monetary Fund (IMF) estimated the extent of money laundering to be at 2% to 5% of global GDP. | 1 |
On the other, direct micro-level evidence on mark-up behaviour over recent years suggests a potential pick-up in their trend and variability. To the extent that the historical evidence is consistent with a sequence of larger mark-up shocks, it would be expected to have made the task of monetary policymakers somewhat harder. Both output and inflation will have deviated more significantly and persistently from their long-run values. And although interest rates will have been adjusted somewhat more often in response, the trade-off inducing nature of these shocks places constraints on the degree of stabilisation monetary policy can achieve. 20 Taylor (1979). The larger proportionate reduction in inflation than in output gap variability arises because mark-up shocks account for a larger proportion of the historical variance of inflation than output. 22 The interest rate smoothing term in the COMPASS Taylor rule will also have a role to play here in limiting the extent of the policy response to the mark-up shock. 21 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 The limitations of this simulation approach need also to be borne in mind. First, the simulations consider only the effects of temporary mark-up shocks, whereas in practice shocks may have been repeated and persistent, as well as large. Second, more fundamentally, these simulations take the underlying model of the economy as given – a strong, and probably unrealistic, assumption. The competitive structure of the product market is one of the “deep parameters” in most standard macroeconomic models. | Policy is again assumed to follow a Taylor rule, with varying weights on output and inflation. Mark-up shocks have a material impact on output and especially inflation variability, even with monetary policy cushioning their effects. The variance of inflation is reduced by around a quarter, and variance of the output gap by around 10%, when mark-ups shocks are switched-off. The policy possibility frontier of 21 output/inflation variabilities is shifted outwards materially by the presence of mark-up shocks. The scope for monetary policy to cushion these shocks is relatively limited. Chart 15 plots the variability of interest rates alongside output variability, for the same set of policy rules. Mark-ups shocks affect interest rate variability relatively modestly. 22 And the variance of interest rates is reduced by only around 5% when mark-up shocks are switched-off. This tells us that trade-off inducing shocks to mark-ups leave the (path and variability) of interest rates less affected than inflation. Clearly, this simulation places an upper bound on this shift as it effectively removes shocks to mark-ups. In practice, the evidence on how the variability of mark-ups may have evolved is mixed. On the one hand, macro evidence suggests a fall in the variability of both output and inflation in many countries recently, a finding that has been attributed by some to a lower incidence of mark-up shocks (for example, Smets and Wouters (2007) and Kapetanios et al (2017)). | 1 |
Some other countries in Europe allowed costs to rise at broadly the same pace over a number of years. Now that these countries are in a downturn with a high level of spare capacity, they are improving competitiveness. If the Norwegian economy enters a downturn, the high level of costs in our country may become a hindrance in the competition for tenders and market shares. A floating exchange rate is a buffer against economic shocks. The experience of 1998 and 2008, for example, indicates that the krone will depreciate in the event of a sharp drop in oil prices. When inflation is firmly anchored, the rise in consumer prices will not accelerate even if the krone weakens. Norges Bank can then allow the krone to fall in value without having to implement a large degree of monetary policy tightening. This will dampen the downturn in the mainland economy, hence facilitating restructuring in the business sector. Should the outlook for the petroleum industry show a significant shift, Norway will have to start down the hard path of economic adjustment. What we need above all is a profitable and efficient business sector that can adapt to new times. In that respect, there are some aspects of the Norwegian economy that give cause for reflection. Chart 12: Mainland GDP – stable nominal growth On the surface, developments are positive. Nominal mainland GDP growth at current prices has been almost surprisingly stable. | At the same time, our increasing dependence on oil and gas increases the vulnerability of the Norwegian economy. We know that neither of these sources will spring eternal. The theme of my speech this evening is how to enhance the resilience of the Norwegian economy. Continued weak growth prospects, but less fear When the financial crisis washed over the Norwegian banking sector in autumn 2008, we were reminded of how dependent we are on the world around us. Nonetheless, the Norwegian economy weathered the crisis well. After about a year, the downturn in Norway was over. Chart 1: Emerging economies are driving oil demand One of the main reasons is that there is strong demand for Norwegian goods in countries where economic growth remains robust. The centre of gravity in the world economy is shifting. In the course of the next few decades, China will most likely be the largest economy in the world. Emerging economies – with China at the forefront – are the main driving force behind the increase in demand for crude oil and other commodities. As a result, prices for Norwegian export goods have remained high, even in the context of declining growth among our traditional trading partners. Chart 2: Strong improvement in terms of trade 1 From Johan Borgen’s novel “De mørke kilder” [The Dark Springs], first published in 1956, Gyldendal Norsk Forlag. BIS central bankers’ speeches 1 The emergence of newly industrialised economies has also led to lower import prices in Norway. | 1 |
11 The Bank will complement this by intensifying its dialogue with key market players and observers, in order to strengthen its capacity to identify and interpret new developments that influence the behavior of the financial sector and the economy at large. Such dialogue with the outside world of both market players and regulators will also be part of a broader and more transversal effort to involve the technological dimension in the different areas of our work. Through several concrete initiatives, including technological laboratories and an observatory, we will enhance our capacity to comprehend, analyze and formulate hypotheses about the impact of disruptive technologies on the Bank's business model and financial intermediaries, adopting innovations that can help us maintain the quality and availability of the services provided by the Bank. We also aspire to perfect the regulatory framework in a timely manner in order to advance in those areas that offer an opportunity to strengthen the financial system and mitigate risks in the event that some of these disruptive technologies become accessible to everyone in the financial industry. Our 2018-2022 strategic plan also includes various initiatives to strengthen the Bank's insertion in its economic and institutional environment. I can mention some efforts to simplify regulations, ensure environmental and financial sustainability, active transparency and financial education. With this we seek to reflect that the Central Bank of Chile, despite being an autonomous institution of an essentially technical nature, is recognized as part of the society in which it must lead by example as an organization. | This “procyclical systemic instability” of the system is itself a complex concept which calls for analysis of the interplay between diverse BIS Review 161/2009 3 phenomena such as: herd behaviour, contagion from common or correlated exposures, counterparty relationships, and undesired procyclical effects of prudential rules, of accounting rules, of behaviour of credit rating agencies, etc. Another important domain in assessing systemic risk is the analysis of the inter-linkages between the financial sector itself, taken as a whole, and the real economy. Financial imbalances often mirror real-economy imbalances. The adverse feedback loop between a fragile system, prone to procyclicality, and the real economy might be devastating, as has been demonstrated by the recent crisis experience. This means that unsound macro-policies over time, including macro imbalances, can themselves trigger financial imbalances, which in turn would aggravate instability and fragility in the real economy. Sources of systemic risk are particularly difficult to assess. By definition, they stem from the interrelations between the various elements in the system and are hence inherently complex. We know that the evolution of systems under stress is particularly difficult to capture. Furthermore, the materialisation of a risk is very often a sharp, abrupt and rapid non-linear phenomenon which calls for non-standard analysis. For example, in a very large and highly complex financial system, the channels through which risks are propagated are very difficult to capture comprehensively. A deep understanding of leverage, correlations and concentrations of exposures is key in this respect. | 0 |
Given that objective, the determinants of aggregate demand, and a short-run trade off between output and inflation, the monetary policymaker is assumed to proceed by setting interest rates in the light of the outlook for demand relative to supply and for inflation. The central bank decides a nominal interest rate, which it establishes in the money markets 3 . As the prices of many goods and services are sticky, this has the effect of enabling the central bank to move 1 Some of the points made here were prefigured in my written submission to the House of Commons’ Treasury Select Committee ahead of a confirmation hearing on my reappointment to the MPC. See ‘Treasury Committee Questionnaire ahead of appointment hearing for Mr Paul Tucker’, The Monetary Policy Committee of the Bank of England: appointment hearing, First Report of Session 2005-06, Volume II. 2 ‘Inflation targeting and the IMF’, International Monetary Fund, March 2006. 3 A completely new framework for doing so in the UK was introduced last week. See ‘The Framework for the Bank of England’s Operations in the Sterling Money Markets’ (the ‘Red Book’), May 2006. BIS Review 46/2006 1 around the actual short-term real rate of interest relative the ‘natural’ or ‘neutral’ real rate 4 that would prevail in the absence of those frictions. Broadly, another consequence of prices and wages being sticky, together with some inertia in inflation, is that when shocks hit the economy, the central bank cannot get inflation to return to target instantly. | The successes we have scored so far in this area will not have been possible without the support and contribution we have received from the Board of Trustees of this Charity. On behalf of the Board of Directors, Management and Staff of the Bank of Sierra Leone, I will like to thank them for their dedication and hard work. Within a short period of time the Board of Trustees comprising six members have worked tirelessly and assiduously to actualise the objectives of the Bank, and in the process attract BIS Review 32/2008 1 the attention and admiration of the public. As a result, the Charity has started receiving contributions from individual members of the International Community. I therefore want to take the opportunity to single out the laudable gesture of Mr Paul Wilson and Mr Glyn Williams of De La Rue in England who in their personal capacities donated generously towards the Trust. As recent as this morning, the Trust has received contribution from Mrs Sheila Lee, mother of Mr Tom Lee. Their initiative is worthy of commendation. I therefore wish to thank them profusely through Mr Tom Lee who also is a member of the De La Rue family and who has been an effective Ambassador of the Trust, for their humanitarian gesture. This I believe should serve as an inspiration for our local collaborators to follow suit. | 0 |
Ardian Fullani: Basel II, its implications, opportunities and challenges ahead for Albania and Southeastern Europe Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Southeastern European Financial Forum, the Second Edition, Bucharest, Romania, 11 November 2005. * * * Ladies and Gentleman, The topic to be discussed at this forum is certainly timely. You need not look any further than news headlines to understand why risk management matters so much. Several events remind us that when banks lack the commitment to manage their risk prudently, they will fail to uphold their responsibilities to their shareholders and public at large. Consequently, the cost to society can be high and the impact on the economy devastating. Sound corporate governance comes about only when there is a genuine commitment to do the right thing and to manage risks in whatever form they may arise. Risk managers must provide timely, objective and accurate information to their management. In turn, senior management and board of directors need to make sure that there is an atmosphere of transparency within the firm, one that promotes healthy and disciplined risk taking. In order to improve understanding and management of risk, the Basel Committee has been formulating regulatory approaches to foster a safe and sound banking system and greater stability within financial sector. It has become clear, though, that the 1988 Accord and many of its amendments have become outdated and overtaken by advances in the banking and the financial sector, and other economic developments. | Ultimately, the common theme in all our efforts is to further the aims of the European Union. These are to promote peace, its values and the well-being of its peoples. As the recent events in Ukraine demonstrate, these aims remain as attractive and compelling as ever. Thank you for your attention. BIS central bankers’ speeches 5 | 0 |
Following the Lehman Brothers bankruptcy last September, banks became ever more reluctant to lend to each other as a result of a sharp increase in the perceived risks of counterparty default and a continued lack of transparency about the health of banks’ balance sheets. 5 Since last October, the ECB has provided unlimited funding in euro at fixed interest rates over periods up to six months against an expanded list of eligible assets for use as collateral in Eurosystem refinancing operations. This extraordinary expansion of liquidity provided to euro area banks is reflected in the growth of the Eurosystem’s balance sheet. Between the end of June 2007 and the end of April 2009, the balance sheet of the Eurosystem increased by about EUR 600 billion, and had reached EUR 1.51 trillion which is equivalent to 16% of the nominal GDP of the euro area. By comparison, the size of the Federal Reserve System balance sheet had reached 14% of the US nominal GDP at the end of April 2009. III. The effectiveness of central bank policies How effective have the ECB policies been in mitigating the impact of the crisis on the financial system and the economy? We can assess this by first examining the effects of the measures taken on the money and credit markets. The provision of unlimited amounts of liquidity (against adequate collateral) in the interbank money market and the sharp reduction in the ECB’s key policy rates to exceptionally low levels have resulted in a significant improvement in money market conditions. | Job losses in construction and government, however, continue to weigh down growth. Meanwhile, New York City’s unemployment rate has edged down steadily over the past year, though it remains unacceptably high at 8.9 percent. Unfortunately, as in the rest of the nation, much of the recent drop in the unemployment rate has come from people withdrawing from the labor force so that they are no longer counted as unemployed. Some of the unemployed have been able to find jobs, but not in large numbers thus far. Where do Queens’ residents find employment? While many of them commute to work in other boroughs (primarily Manhattan), Queens has a formidable industrial base of its own. As the home to the city’s two major airports, the volume of air traffic coming through Queens ranks third highest among U.S. counties. Not surprisingly, then, transportation is Queens’ BIS central bankers’ speeches 5 largest industrial specialty; it accounts for 12 percent of total employment – four times the national average. Air transportation alone accounts for 6 percent of Queens’ jobs, or 15 times the nationwide share. But, of course, Queens has a diverse economy, with jobs in industries ranging from medical care to construction, not to mention printing and a number of other manufacturing industries that benefit from being in a large population center. During the recent recession, Queens’ dynamic economy was hard hit, yet it proved more resilient than Manhattan’s and much of the nation’s. | 0 |
Today, total employment is up 5 percent from pre-pandemic levels and is at a nine-year high, and the unemployment rate is at a record low. The recovery has been broad-based, but we've seen particular strength in certain industries like professional business services, transportation and warehousing, and manufacturing. Tourism rebounded significantly too, with hotel occupancy rates reaching above 75 percent. Soaring Inflation All in all, maximum employment has been achieved. But inflation remains unacceptably high, and we are far from the Fed's longer-run inflation goal of 2 percent. Since early last year, inflation has increased rapidly to levels many of you have not seen in your lifetimes. This experience is not unique to the United States; nearly all countries around the world are seeing rising costs, and central banks everywhere are working to contain them. The rise in inflation has been extraordinary. In December 2020, overall inflation, as measured by the 12-month percent change in the personal consumption expenditures (PCE) price index, was 1.3 percent. In May of this year, it was 6.3 percent. A significant portion of this sharp rise reflects global increases in food and energy prices. But, even excluding those costs, the "core" inflation rate has increased from 1.5 percent a year and a half ago to 4.7 percent today. It's more than just numbers. High inflation is incredibly harmful, especially to those that can least afford to shoulder the escalating costs of necessities like food, fuel, and housing. | The unemployment rate has been steady in the past few months near its historical low and was 3.6 percent in June. There are now far more job openings than people looking for work, and employers are still struggling to fill roles. The economy experienced a rapid recovery from the pandemic last year, but I expect growth to slow considerably this year as the waning effects of fiscal stimulus, less favorable financial conditions, and slower growth abroad all weigh on our economy. By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. Specifically, I currently expect real GDP growth in the United States to be below one percent this year, and then to rebound slightly to around 1-1/2 percent next year. With overall growth slowing to below its trend level, I expect the unemployment rate to move up from its very low current level, reaching somewhat above 4 percent next year. Economic Conditions in Puerto Rico Similar to the mainland, employment in Puerto Rico has rebounded quickly and strongly. Before the pandemic, the economy was just showing signs of emerging from a decade-and-a-half-long economic slump, during which both the population and employment had fallen by about 16 percent. Then, in the spring of 2020, employment tumbled another 14 percent, a far steeper decline than after Hurricane Maria in 2017. The subsequent turnaround has been astounding. | 1 |
To be clear, this is not going against the wish of Parliament in establishing these structures; rather, it is designed to reinforce that wish by making the pieces work closely together. And, it also emphasises that the Bank of England is a public policy institution with the overarching objective and responsibility of serving the public good. Interestingly, the language that we found to describe this public good comes from the Bank’s original Charter of 1694, though I should recognise that the detail of the description of what constituted the public good in 1694 is rather different from the one we have today. The key thing about a public good is that no individual or group of individuals can be excluded from using or consuming it, and use by one individual does not reduce the availability to others. Fresh air is a public good, and so is the stability of the economy. In our world, history shows that it takes a crisis to provide a decisive impetus to create and maintain the emphasis on the public good. Thus, stable low inflation – monetary stability – received its decisive impetus in many countries, including the UK from the painful experience of high inflation, most notably in the 1970’s. Out of that came a broad consensus on a central idea – low inflation is a necessary condition for stable economic growth and its resulting benefits for well-being. | There is another lesson that I draw from this history, namely that there must be some difficult impediments to achieving the goal of institutional stability in financial regulation. To start with, achieving consistency and clarity in identifying the objective of regulation has been a problem in the past. The new approach anchors the PRA’s primary objectives of the safety and soundness of firms and the protection of insurance policyholders in the broader goal of the stability of the financial system. This very clearly ties together micro and macro-prudential regulation, whose objectives are consistent. And, we now have a secondary objective around the competition implications of our actions, which I welcome. Just under two weeks ago we announced changes to the Bank of England’s strategy and structure. In doing so, we adopted a single mission, namely to promote the public good through achieving and maintaining financial and monetary stability. This single mission is much more than just the speak of management, it is a clear change intended to promote the integration of the Bank of England’s objectives of monetary and financial stability. This integration of objectives into a single mission represents a very deliberate decision that the Bank of England should not be organised as a series of silos defined by our different statutory objectives and by the structure of policy making committees given to us in legislation. | 1 |
China Finance: The recent revised GDP data indicates that China has become the third largest economy in the world. What opportunities and challenges do you see posed by the increased role of China in the world?" Trichet: The progress of the Chinese economy is absolutely striking. I have myself the memory of the city of Peking at the beginning of the 80’s. And I can measure how difficult it is for today’s visitors to imagine what Peking or any other Chinese big city looked like only 25 years ago. This remarkable success of the Chinese society and the Chinese economy is profoundly changing China as well as it contributes to a profound change of the world. China is called to take all the global responsibilities which are the counterpart of its economic and financial global influence. BIS Review 18/2009 3 | BIS Review 2/2006 3 This leaves us with no simple or clear doctrine for the role of asset prices in monetary policy regimes. Asset prices probably matter more than they once did, but what that means for monetary policy necessarily depends on the circumstances. Perhaps it makes sense to conclude with the more general observation that changes in the size of balance sheets increase the importance of sustaining the credibility of monetary policy, because they increase the costs of a loss of credibility or a negative shock to credibility. We live with considerable uncertainty about the sustainability of the pattern of relatively low risk premia and reduction in the cost of insurance against future macroeconomic and financial volatility. That uncertainty necessarily adds to the normally substantial degree of uncertainty we face in making monetary policy judgments. All these factors strengthen the case for being open about what we do not know. And it reinforces the case for preserving confidence in our commitment to keep underlying inflation low over time, and for retaining the capacity to respond with flexibility to the challenges we face in this uncertain world. Thank you. 4 BIS Review 2/2006 | 0 |
By contrast, the role of non-banks such as investment funds, pension funds and insurance companies may increase since they are in a better position to offer the products that are in higher demand. As a matter of fact, in recent years non-banks have been increasing their share in the financial system as a result of different factors and not only due to demographic changes. In any case, the financial sector will need to adapt to these changes, offering new products that cater for the needs of the population. It is worth mentioning that these developments are taking place against a background of low profitability in the banking sectors in many jurisdictions including the euro area, Japan, the United Kingdom and Switzerland. In many cases, the ROE of the banking sector is not only well below levels seen before the crisis but it is also lower than banks’ cost of equity. 14 Ageing can also have consequences for the stability of financial systems. A permanent lower level of risk-free interest rates might foster a search for yield by financial intermediaries. On the one hand, this process would leave financial intermediaries and the final investors more exposed to shocks. On the other hand, the valuation of some assets might become too stretched, increasing the risk of sharp adjustments in the future. Against a background of ultra-low interest rates, in recent years some financial intermediaries, such as investment funds, have increased the average maturity of their bond portfolios and their exposure to exchange rate risks. | Allow me now to address the degree of integration of the European banking sector. I have already indicated that the Banking Union has met one of its key objectives: to contribute to 5 See FT https://www.ft.com/content/82624c98-ff14-11e9-a530-16c6c29e70ca 6/10 weakening the link between bank risk and sovereign risk. But, additionally, when it was launched it was assumed that the Union could lead to a more integrated banking system. Today, however, the greater degree of institutional integration has not been accompanied by an increase in cross-border activity in the sector. The share of domestically owned banks in national banking systems remains high, at approximately 83%, the same level as in 2014, before the launch of the SSM.6 We should thus acknowledge that banking consolidation across jurisdictions remains minimal, and most firms and individuals in the euro area continue to depend on their national financial systems. Economic agents can appreciate daily the benefits from the single market and the euro. Yet regrettably, no tangible benefits can currently be discerned to stem from the Banking Union in terms of greater competition in prices and financial services. The truth is that European citizens and companies continue to face obstacles to investing in European markets. National pensioners and investors have access to different investment products and their rights differ as a result of different local insolvency laws. Lastly, I pointed out earlier that the banking sector continues to be mainly national, and it remains closely linked to the country’s sovereign risk. | 0 |
All of these seemingly low risk activities appear to deliver above-average returns on equity, ranging from a high of around 50% on treasury and asset management services to around 20%+ on retail financial services. One potential explanation of these high returns is that the risk associated with these activities, and hence the capital allocated to them, may be under-estimated by banks’ models. Another is that the demand for these services is highly price inelastic – for example, because of information imperfections on the part of end-users of these services. Anecdotally, there is certainly evidence of a high degree of stickiness in the demand for retail financial services. Statistically, an adult is more likely to leave their spouse than their bank. In a UK context, there have been a number of studies by the authorities on the degree of competition within retail financial services, including by the Competition Commission (2005) and the Office of Fair Trading (OFT) (2008). The OFT market study found a very low rate of switching of personal current accounts between banks – fewer than 6% per year. By itself, however, this low switching rate does not necessarily imply a market failure. For example, it could be the result of a reputational equilibrium in which money gravitates to banks whose brand name is recognised and respected. A more obvious market friction in the UK retail financial services market derives from “free in credit” banking. | For this reason, it is important that a detailed strategy be designed as soon as possible for achieving a gradual and sustained reduction in fiscal imbalances, to be implemented when the pandemic has been overcome. This strategy should also place the emphasis on improving the quality of public finances, from the viewpoint of their composition, in terms of the various types of revenues and expenditures, to ensure that it is geared towards boosting long-term economic growth. And it is important to stress that although, as I have already mentioned, this fiscal consolidation strategy should only be implemented when the economic effects of the crisis have been overcome, the design and communication of its basic aspects should be undertaken without delay, as this would boost economic policy credibility and, in consequence, the expansionary effects of the current fiscal measures. The size of the challenge is so large that successfully addressing fiscal consolidation will require a comprehensive review of the tax system and of all expenditure items. Also, this objective will be facilitated by the implementation of the structural reforms that I spoke of earlier. 4 Conclusion I should like to conclude with a reflection which I think needs to be clarified, especially in this seat of popular sovereignty. In the last part of my address, I have referred to a set of economic policy actions that involve changes (some of them substantial) to the institutional 10 See J. Pijoan-Mas and P. Roldán-Blanco (2020), Dual Labour Markets and the Equilibrium Distribution of Firms, mimeo. | 0 |
Furthermore, relative prices change more than they did before, but monetary policy cannot affect them except in the short term. Sometimes it can be difficult to distinguish between such relative price changes and a general rise in the price 3 level, which depends in the long run on monetary policy. In addition to this, it can often be difficult to determine at any given time which changes are temporary and could possibly be mitigated through economic policy and which ones are more permanent and nothing much can be done about, at least through monetary policy. These are exactly the conditions we are experiencing at present. There are clear indications that the equilibrium real exchange rate has risen with improved terms of trade, increased national saving, and a vastly improved external position. In addition, there are indications that equilibrium interest rates have fallen since before the crisis, and they have probably fallen still further as monetary policy has grown more credible and inflation expectations have been anchored more firmly at the target. In both instances, the question of how much remains unanswered. As far as the exchange rate is concerned, conventional measuring methods do not indicate that the real exchange rate is clearly above its equilibrium level. This is supported by the Bank’s analysis, to be published next week in Financial Stability, which shows that 85% of inflows into the foreign exchange market in 2016 were attributable to the current account surplus and transactions between residents. | Near-term developments in nominal and real interest rate will be determined by economic developments and the inflation outlook. The MPC attempts at all times to keep interest rates no higher than they must be in order to hold inflation at target over the medium term. Based on these considerations and assuming that there are no major unforeseen changes in the current situation, the scope for further reductions in nominal interest rates could develop in the near future. The Government has initiated a review of the monetary policy framework. The Central Bank of Iceland supports this process and will participate actively in it. It is important both to take into account what monetary policy can achieve and to acknowledge what it cannot do. It is also important to bear in mind that significant changes have already been made in monetary policy conduct since the pre-crisis period, as I have discussed in detail in this setting in the past. Nevertheless, various additional changes need to be considered, and the Central Bank cannot change the most important element of the equation: that monetary policy, fiscal policy, other economic policy, and decisions taken in the labour market must pull together to the maximum extent possible. I would also like to emphasise the importance of preserving the monetary policy achievements that I have discussed. 6 Honoured guests: The Central Bank’s foreign exchange reserves totalled over 810 b.kr. or 7½ billion US dollars, at the end of February. This is equivalent to about one-third of GDP. | 1 |
One usually says that the central banks are the lender of last resort. The need to have a “liquidity emergency service” is based on normal banks’ operations being characterised by borrowing money at short maturities and then lending this money at longer maturities. This is the so-called maturity transformation that exposes the banks to liquidity risk. Sometimes the banks’ access to funding may suddenly decline, without it being possible – or socio-economically desirable – for them to reduce their lending at the same pace. This does not usually lead to any problems. A bank that needs more funding can normally borrow from other banks that have a surplus (or it can issue its own bonds). However, sometimes the liquidity problems are so serious that the banks cannot manage them on their own. If, for instance, confidence in a bank were weakened so that depositors feared they would not be able to get their money back, the bank might be subjected to a bank run that it is unable to manage on its own. There is also a risk that problems in one bank may spread to other banks, as the banks are interconnected. Even banks that do not have any problems may be affected as a result of rumours spreading. | In view of the requirement for growth of Islamic financial transactions to be linked to real economic sectors, salient issues on stronger corporate governance and more efficient human resource management are discussed in a pre-concluding chapter of the book. Renowned industry practitioners and academicians have contributed to the book, providing deep insights, perspectives and views that are supported by practical experiences which will be invaluable to those who wish to understand the critical regulatory issues in Islamic finance. Contributions by the two respected co-editors who have extensive knowledge on the subject and are internationally recognised for their academic publications on Islamic finance, completes the book as an indispensable reference for all. It is hoped that in addressing the implications of the recent global financial crisis on the regulation of Islamic financial services, this book will provide further clarity and understanding on the multi-dimensional goals of policymakers and regulators in ensuring that the resilience of the Islamic financial system and its core tennets are aligned with the evolving global regulatory developments. Let me take this opportunity to congratulate the two co-editors for their invaluable contribution in enriching the body of authoritative information on the regulation of Islamic finance. Thank you. 2 BIS central bankers’ speeches | 0 |
18 See Janet L. Yellen, “A Challenging Decade and a Question for the Future,” Herbert Stein Memorial Lecture, National Economists Club, Washington, D.C., October 20, 2017. In a recent set of simulations using traditional monetary policy strategies based on simple policy rules, Federal Reserve Board economists estimate that the zero lower bound would bind with significantly higher frequencies than in previous analyses. See Michael T. Kiley and John M. Roberts, “Monetary Policy in a Low Interest Rate World,” Brookings Papers on Economic Activity Conference Drafts, Washington, D.C., March 23–24, 2017. 19 She acknowledged, however, that the simulations on which her analysis was based could overstate the FOMC’s current ability to respond to a recession, given little scope to cut the federal funds rate and the possibility that stimulus associated with forward guidance and asset purchases could be reduced with long-term rates already quite low. See Janet L. Yellen, “ The Federal Reserve’s Monetary Policy Toolkit: Past, Present and Future,” opening remarks at the Federal Reserve Bank of Kansas City’s Economic Policy Symposium, Designing Resilient Monetary Policy Frameworks for the Future, Jackson Hole, Wyoming, August 26, 2016. 20 Most participants did not indicate support for using the balance sheet as an active tool in other situations or for other purposes. See Minutes of the Federal Open Market Committee, November 1-2, 2016. 21 Some surveys of the numerous studies of central bank bond purchase programs include: Joseph E. Gagnon, “Quantitative Easing: An Underappreciated Success,” Peterson Institution for International Economics Policy Brief, no. | The RQDII scheme will allow qualified domestic institutional investors to purchase RMB-denominated securities abroad, which was recently approved. In Myanmar, one of the most under-banked countries with bank loans amounting to just one-fifth of GDP6, the issuance of nine licences to foreign banks (including two Singapore banks) will help to bring much-needed capital for economic development, financial services and technology transfer. These are but two examples of the blossoming of financial services in Asia – whether through cross-border channels, overseas expansion or domestic liberalisation – which will integrate the region financially. 9. Financial integration brings clear benefits to both users and providers of financial services. It leads to more effective mobilisation of savings from surplus countries to countries that need capital, and improve the efficiency of investment allocation. A well-developed and competitive financial sector can thus be a catalyst to spur and sustain economic growth. The opening up of the financial sector to foreign participation adds to the sector’s development as foreign financial institutions also promote competition and innovation, and create the urgency for local institutions to upgrade capabilities. This has been our experience in Singapore. 10. International regulatory reforms are adding impetus to market integration. Let me cite two examples. First, as new Basel 3 capital and liquidity rules come into force, banks are seeking ways to manage their capital and liquidity more efficiently. | 0 |
The FOMC has said that it will keep short term interest rates at exceptionally low levels for an extended period of time. The Fed also retains large amounts of mortgage-backed bonds acquired in order to support the housing market and help bring down mortgage and other long-term interest rates to the historically low rates in place today. The FOMC and the Chairman have stated their commitment to take further actions to bring interest rates down further should economic conditions warrant. In a recent speech, I said that both the current levels of unemployment and inflation and the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable. I said that I thought further Fed action was likely to be warranted unless the economic outlook were to evolve in a way that made me more confident we would see better outcomes for both employment and inflation before too long. Turning to regulatory policy, the biggest lesson of the financial crisis is that severe financial disruptions can inflict very large and persistent costs on people’s lives and jobs. Over the past year, with Fed leadership and support, important new regulatory initiatives have been advanced to create a global financial system where the players cannot slide back into the risky “business as usual” that created this crisis. These include the recent agreement with international bank regulators (sometimes called “Basel III”) to impose stricter standards for globally active banks and the considerable regulatory changes embodied in the Dodd-Frank Act. | For these assessments, we augment input from our research departments with critical information about local economic conditions supplied by our boards of directors, regional advisory councils and conversations with local stakeholders. You may know that one of my councils, the Upstate New York Regional Advisory Board, is designed specifically to provide me with timely information from this area. In this way, decisions by the FOMC are continually informed by views gathered from all parts of the country, including Upstate New York. One thing that makes my job even more interesting is that New York has some roles unique within the Fed. Let me tell you about some of them. We, alone, implement monetary policy. At the direction of the FOMC, we buy and sell Treasury securities. We are also the eyes and ears of the Fed on Wall Street, and we supervise many of the largest financial institutions in BIS Review 141/2010 1 the country. We operate Fedwire® – the conduit for large money transfers between banks. And, we provide banking services to the U.S. Treasury, and central banks and governments from around the world. Finally, I must mention that the New York Fed’s district could be the most diverse in the System: ranging from the urban density of Manhattan to the forested sparseness of the northern Adirondacks, to the Caribbean islands of Puerto Rico and the Virgin Islands. All in all, there is a lot to keep my colleagues and me quite busy – even in normal times. | 1 |
Global green bond issuance volume reached $ billion in 2018, a four-fold increase from $ billion in 2015. The Asia-Pacific region accounted for almost $ billion of issuance, or almost 30% of global volumes, of which $ billion was from China. Exchanges can support the listings of green, social, and sustainability bonds, as countries and corporates transition towards a low-carbon and climate resilient model. • To foster sustainable growth in ASEAN, the ASEAN Capital Markets Forum (ACMF) has developed the ASEAN Green Bonds Standards, in collaboration with the International Capital Market Association (ICMA).Đ The standards, based on ICMA’s globally recognised Green Bond Principles, seek to facilitate ASEAN capital markets in tapping green finance to support sustainable regional growth and meet investor demand for green investments. As of October 2019, 80 such bonds from Singapore, Malaysia, Thailand, and the Philippines have been issued for renewable energy, green buildings and low carbon transportation [6] . 14 Đ Đ Exchanges can also play an active role in supporting sustainable growth through sustainability reporting and integrating sustainability considerations in products that you launch. In particular, sustainability reporting is a key tool in encouraging enterprises to integrate ESG considerations in their performance and value proposition to both internal and external stakeholders.Đ • Sustainable reporting has become more important with growing concerns from consumers and investors that financial returns are achieved with integrity, backed by ESG considerations. | Moving Thailand Towards a New Business and Financial Landscape Speech by Dr. Veerathai Santiprabhob Governor of the Bank of Thailand European Association for Business and Commerce (EABC) Dinner Event 23 January 2017 Your Excellencies, EU Ambassador Jesus Miguel Sanz, Ambassadors of EU Member States, EABC President, Mr. Rolf-Dieter Daniel, Distinguished Guests, Ladies and Gentlemen, A very good evening. It is a great honor for me to be here this evening and I would like to thank the European Association for Business and Commerce (EABC) for the warm welcoming arrangement of this event. I am very delighted to address this prestigious group of audience including ambassadors and leading businesspersons, among which many are Thailand’s beloved and longtime friends. I would also like to acknowledge the EABC Board of Directors and the President, Mr. Rolf-Dieter Daniel, for ongoing efforts and hard work to improve ThailandEU economic relationship. I hope this dinner has provided opportunity for all of us to exchange ideas and share perspectives. For myself, there is much to learn from the business community and I am grateful for all the feedbacks I received. Business partnership with foreign investors has always been important to Thailand’s economy. In fact, not only has Thailand gained much benefits from international trades and investments, including ones with the European Union (EU), we also have benefited from the “needs” to meet standards and requirements set by the international community. | 0 |
In the economic sphere, these are the single market, the single currency, and our European social model - the soziale Marktwirtschaft. The world needs Europe, today. We must be decisive... and at the same time aware that economic rigour is a prerequisite for our political influence in this world of 2020 so fraught with danger. This brings me to what I want to say today. So far Europe has stood firm in the face of a shock of unprecedented severity: this will constitute the first part of my speech. And I will then address the following question: can reconstruction now strengthen Europe and the Franco-German alliance? ** I. So far Europe has stood firm in the face of a shock of unprecedented severity Over the past six months, we have experienced a crisis of unprecedented proportions: the most serious that the European economy has endured since 1945. The European project has been 1/4 BIS central bankers' speeches subjected to a veritable full-scale - almost existential - "stress test". But, to date, Europe has held firm. Europeans have an essential asset: their common social model based on social solidarity and organised public services. For instance, household purchasing power has been preserved overall, thanks in particular to short-time working measures. This is one major difference with the United States, where 22 million jobs were destroyed in a matter of weeks. | We are experiencing, I believe, one of those "Franco-German moments" that will mark history, and we can now rightly celebrate it: on 18 May, a Franco-German initiative on the European stimulus package; on 21 July, a historic agreement by the European Council in Brussels on a EUR 750 billion package, supported by a united Franco-German alliance; on 20 August, the Chancellor visited the President of the Republic in Brégançon. Despite any fears, faced with the threat of the Covid crisis, Germany has clearly and unequivocally opted for Europe and the euro. However, in its early stages, the crisis appeared to distance us, due to our different abilities to respond, and sometimes in different orders. Europe has once again demonstrated in this crisis that it is stronger than is commonly believed. I will concentrate here on economic matters, because that is where my competence lies. Naturally, there are broader issues in Europe, that are concrete and emotional: those of our borders, our institutions, our military and diplomatic power, and, in a wider sense, our common identity, which is apparent to our fellow citizens. The President of the French Republic speaks of the necessary "European sovereignty". I am aware that this expression gives rise to debate. In any case, it means that Europe must not passively put up with events, in the face of the growing rivalry between the United States and China. That we can and should be proud collectively of our achievements. | 1 |
The role of the reserves as an endowment from which to draw a steady stream of income to finance the government budget will become even more important in the years ahead. An ageing population will mean higher expenditures, especially for healthcare, and slower economic growth will mean lower tax revenues. The third purpose of the reserves is to serve as a stability fund. More specifically, the reserves help to maintain confidence in Singapore’s exchange rate-centred monetary policy framework. As Singapore is a small and highly open economy, inflation and aggregate demand are more significantly influenced by the exchange rate rather than interest rates. Singapore’s monetary policy is therefore centred on managing the exchange rate of the Singapore Dollar against a basket of currencies within a policy band. 2/7 BIS central bankers' speeches The reserves play an important role in enabling MAS to conduct monetary policy and to secure macroeconomic stability. How are the reserves accumulated and managed? So, how are the reserves accumulated and managed? As I mentioned earlier, Singapore’s reserves are held and managed in three distinct pots: the MAS, GIC, and Temasek. The government sets the overall investment objectives for the three entities and monitors the risk and return profile of the total reserves. But it plays no role in the investment decisions by the three entities, which are made on purely professional grounds. MAS, as Singapore’s central bank, manages the OFR. The process of accumulating or using OFR is intricately tied to MAS’ conduct of monetary policy. | Philipp M Hildebrand: Developing countries and international capital markets Summary of a speech by Mr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, to economiesuisse, Zurich, 14 June 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * After having plummeted on the back of the Asian crisis, capital flows to developing countries have risen considerably again in the last three years. In 2005, they are likely to reach the approximate level at which they stood shortly before the Asian crisis. Capital flows are channelled mostly to a few emerging markets, notably China. China’s monetary order is currently undergoing profound changes, with the country gradually liberalising capital movements. The concept of the “impossible trinity”, which was developed by the Nobel Prize winner Robert Mundell, asserts that this will inevitably lead either to a loss in monetary autonomy or to a flexibilisation of the exchange rate regime. Both trends can be clearly observed: the pressure on the fixed exchange rate on the one hand, and the rapid expansion of the monetary and credit aggregates on the other. In the longer term, China’s monetary order will probably move towards floating exchange rates. This transition will hopefully be successful. As China’s monetary policy of gradual change has so far proved its worth, it is likely to serve as an example to other developing countries. | 0 |
As a result, companies that can bypass the banks to access capital markets directly are doing so. Indeed, in the first four months of this year, more finance was raised in debt and equity markets than is normally the case in an entire year. Most companies, however, especially smaller and medium-sized enterprises, rely heavily on bank finance. And with current market sentiment it may take further additions to equity capital before the banking system will be able to supply credit at a price and on a scale to finance a sustained recovery. That is likely to take time. It is too soon to reverse the extraordinary policy stimulus that has been injected into the UK economy through monetary policy, the provision of liquidity support to banks, guarantees of bank funding, and fiscal policy. Nevertheless, it is not too early to prepare such “exit strategies” and to explain how they would work. The challenge facing the Monetary Policy Committee is straightforward in principle but difficult in practice. As activity returns to more normal levels, the outlook for inflation will pick up. And it is the outlook for inflation that will guide decisions on the pace and timing of a withdrawal of monetary stimulus. Reaching judgements on the outlook for inflation is never easy, and assessing their implications for policy will always be a matter of balancing risks. In contrast, the choice of instruments is simple. | Singapore has signed MOUs with Australia and Chile and has an arrangement with New Zealand to develop and deploy low-emissions solutions and technologies, which could potentially be adopted and scaled globally. Second, mobilising transition finance. According to McKinsey, achieving net zero in Asia by 2050 will require about $ trillion in capital annually. As a leading global financial centre in Asia, Singapore can play a key role in mobilising this capital. Let me highlight two areas. One, blended finance. Many sustainability projects in emerging markets pose risks that are not commensurate with their expected returns. We need catalytic capital to improve project bankability and crowd in private sector capital. We also need to recycle capital by taking loans off bank balance sheets and structuring them in a form that institutional investors can participate in. The Singapore Pavilion will feature innovative blended finance solutions and highlight our efforts to synergise public, private, and philanthropic capital. Two, credible disclosure and transition plans. We must give investors confidence to invest in the transition, especially given concerns around "greenwashing". Corporates and financial institutions must therefore develop and disclose credible transition plans that are in line with science-based sectoral pathways. Singapore has been contributing to international efforts towards comparable sustainability disclosures and sound climate data and metrics. Third, developing sound carbon markets. Carbon markets play a complementary role to channel funds to emission reduction and removal projects that would otherwise not have received funding. Singapore can play a useful role as a facilitator of carbon market services in Asia. | 0 |
Growth in average hourly earnings remains around 2½%, notably below the pre-recession norm of above 3%. A similar picture holds for other measures of pay, such as the employment cost index. This is despite the unemployment rate falling to its lowest level since late 2000. Constâncio (2017) surveys the possible causes of this “missing reflation” in advanced economies during the recovery from the 2008 recession. 3 As shown in Charts 3 and 4, both wage growth and unemployment have persistently surprised the MPC. See ‘Why has wage growth been subdued?’ in February 2017 Inflation Report for fuller discussion of the errors in our wage forecasts. 4 Monetary authorities can use their control over nominal quantities to either peg a nominal quantity or the rate of change in such a nominal quantity. They can, however, not peg a real quantity. (See Friedman (1968)). 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 That is why the Bank of England has a clear primary objective of price stability and a forward-looking inflation targeting remit. We have an objective to support the government’s economic policy but it is a secondary objective and subject to the first. However while neither unemployment nor pay is part of our target, the relationship between them is important to our understanding of domestically generated inflationary pressure in the economy and how it is likely to evolve over the 2-3 year period over which monetary policy can have influence. | Zeti Akhtar Aziz: Knowing Nusantara – money that made the region Opening speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the launch of “Knowing Nusantara: Money That Made the Region”, Bank Negara Malaysia Museum and Art Gallery, Sasana Kijang, Kuala Lumpur, 26 August 2014. * * * The Numismatic heritage of the Malay Archipelago is as rich as the region itself. There were few other regions that had such a level of trade that has existed in this part of Southeast Asia. Every type of seafarer had been here over the centuries, bringing with them a wide range of currencies. From Chinese copper cash to South American “pieces of eight”, Nusantara has been a magnet for money of all shapes, sizes and materials. When these are combined with the indigenous currency minted in the Archipelago, the legacy is immense. “Knowing Nusantara: Money that Made the Region” explores the coins and banknotes that have circulated in the Malay Archipelago, telling a story that goes back 2,000 years and that continues to evolve. By telling this story, the objective is to create a deeper understanding of the region. The history of the archipelago is largely about contact and the interconnectivity that existed in the region even during that period. Movement between islands and the mainland are mirrored by the encounters between the indigenous and foreign peoples. | 0 |
In order to avoid excessive regulation you should always ask yourself if the benefits from introducing a new regulation are greater than the costs of implementation. Here I include both financial and non-financial costs and benefits in a broad sense. Admittedly, this is often very difficult to measure with any degree of precision. Regulations should also conform to the way financial institutions and markets operate in practice. Hence, regulation should have a functional rather than an institutional approach. This implies that the same financial function should receive similar treatment, whether it is conducted in a bank or in another institution or market. Market-oriented regulations will cause the least interference to the regulatees and to the development of financial instruments and activities. As an example of modern regulation, the new framework for banks’ management of risks and capital from the Basel Committee, the so called Basel II, allows the banks to apply their own risk measurement methods and other internal bank processes. But the rules also grant strong powers to the supervisors to take remedial action if the banks step outside the boundaries of the allowed framework. BIS Review 111/2006 7 Obviously, regulations must be transparent. There are still many examples of legislation where the institutions and even the authorities themselves must frequently call on legal advice to interpret their meaning. This causes uncertainty and undermines efficiency. Speaking about transparency, there should also be consultations between the authorities and other involved parties when drafting the regulations. | News conference Berne, 15 June 2017 Fritz Zurbrügg Introductory remarks by Fritz Zurbrügg In my remarks today, I will present the key findings from this year’s Financial Stability Report, published by the Swiss National Bank this morning. In the first part of my speech, I will look at the situation of the big banks, focusing on the progress made in implementing the revised ‘too big to fail’ regulations (TBTF2) that came into effect almost a year ago. In the second part of my remarks, I will outline our current assessment of the situation at domestically focused banks. Big banks Let me start then with the big banks and the TBTF2 regulations. The revised regulations are designed to resolve the ‘too big to fail’ issue in Switzerland, so that systemically important banks no longer have to be bailed out with taxpayers’ money in the event of a crisis. The TBTF2 regulations rest on two complementary pillars. First, they are aimed at strengthening the resilience of systemically important banks in a going-concern perspective. They therefore specify higher requirements for going-concern capital in particular, thereby reducing the likelihood of a systemically important bank getting into financial distress. Second, if a systemically important bank nevertheless gets into financial distress – this is called the gone-concern perspective – the regulations provide a framework for orderly resolution, ensuring the continuation of systemically important functions without the use of public funds. | 0 |
It is sometimes claimed that we regulators are hell-bent on pursuing the stability of the graveyard by crushing all life out of the financial system – in other words, that we don’t really believe in the mixed economy system. I will leave you to judge whether our regulation, which allows a medium sized bank to run a balance sheet that is thirty three times bigger than its shareholders’ equity, is consistent with the idea that we are insisting on a risk-free system. This is plainly not a zero-failure regime. I also sometimes find individuals in institutions we supervise and regulate who think we take a wicked glee in constantly rewriting the rules. That is also wrong. Revolution is not of itself an objective, so like all self-respecting revolutionaries we are focused on defined goals: a strong and stable banking system with no taxpayers’ money spent on bailing out a PRA-regulated financial institution; and a resilient insurance sector which does not pass risks back to policyholders when they crystallise. I think those goals are in sight, and the remaining path to them is now largely set. Therefore, while I cannot speak for other countries, my assessment is that here in the UK we have reached the end of the revolutionary period in which major reforms to prudential standards were required in response to the 2008 financial crisis. | 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 6 happy to debate this and I expect there will be good grounds for some exemptions. We will seek views on this, and weigh the costs and benefits, before deciding how to move forward. Sharp edges So while the design of the reform programme is clear, we are still mid-step in implementing it. Of course things could go wrong, in transition or in the end-state. The world certainly gives us plenty to worry about. But I am absolutely unwilling to have things go wrong because we have retreated from the reforms agreed over the last eight years. For the avoidance of doubt: what was intended will be implemented. I hear many pleas for “tweaks”. Some of these are not quite as modest as is claimed. We are wise to the disguise. But we will of course work to identify and pursue opportunities to give a smoother finish to the reforms, addressing unintended consequences. Solvency II provides one example. It introduced a risk margin: the compensation that a third party would require to absorb the assets and liabilities of another firm that runs into trouble. This provides an extra degree of protection for policyholders, and therefore advances the PRA’s objectives. But because of its design under the current legislation, the risk margin is very sensitive indeed to risk-free rates. This level of volatility is not justified by the historical evidence and does not in my view serve a useful purpose. | 1 |
Spain has a significant productivity gap with the euro area and recent research has related this gap to an inefficient reallocation of resources towards less productive firms during the expansionary period. However, since 2008 there has been an improvement in the reallocation of resources, especially due to the disappearance of many unproductive firms. But business mark-ups stand at relatively high and rising levels. This could indicate a persistent lack of competition in some markets, with adverse implications in terms of competitiveness, for instance, those regulations that distort the cost of production among firms or affect incentives to grow, such as market barriers due to the heterogeneity of regulations across regions. More generally, the Spanish economy continues to exhibit a low productivity level in terms of the average firm, something that can be perhaps explained through different combinations of inadequate managerial skills and educational attainment of workers, as well as a relatively low a degree of technological capitalisation. Hence, it is important to pass reforms aiming at reducing the rate of early school dropouts and to foster the relationship between firms and both the vocational training and university systems. These, together with a new well-designed and effective system of incentives to suppport innovation 6/9 in the private sector are prerequisites for enhancing the Spanish economy’s stock of technological capital and its capacity to innovate. So far, I have addressed a number of issues mostly from a national point of view. But, indeed, solving Spain’s problems cannot be done in isolation from the euro area. | From those years we also saw: the Bank Recovery and Resolution Directive, which finally came into force in 2016, providing a comprehensive framework to deal with failing banks outside common mercantile insolvency proceedings; and the 2014 directive harmonising national deposit guarantee schemes. Despite these improvements in the euro area’s institutional framework, significant vulnerabilities still persist, both at the area level and in Member States. Additional steps would be required to ensure a more stable and stronger Monetary Union. In order to overcome the current complacency arising from the more favourable economic and financial environment, the European Commission has put forward a number of initiatives aimed at advancing towards further economic integration. Completing the Banking Union was, rightly, given top priority, and included the creation of a common backstop for the Single Resolution Fund and a common European Deposit Insurance Scheme (EDIS), although, in this latter case, in my opinion, to deactivate the perverse loop between sovereigns and banks a more ambitious approach than the one pursued by the Commission would perhaps be needed. Also, a consensus is needed to move, in parallel, towards increasing private and public risksharing and reducing risks in bank balance sheets, stepping up efforts to lower the still-high levels of NPLs and diversify sovereign risk exposures. Current proposals to create Sovereign Bond-Backed Securities, by structuring asset pools into tranches with different risk levels, could potentially contribute to such diversification. There are Commission´s proposals in other areas. | 1 |
This has unified the basis on which supervision is carried out. The largest and most significant banks are now supervised directly from Frankfurt, in close partnership with the national authorities. The euro area has also set up the Single Resolution Mechanism to ensure the orderly resolution of failing banks, while at the same time reducing the impact on the taxpayer. Conclusion This account of how policymakers and researchers have interacted in the past ten years shows 5/7 BIS central bankers' speeches how indebted the former are to the latter. From my point of view, one can draw five lessons for policymakers. First, sudden shocks often make visible the flaws in our policy frameworks and challenge the explanatory power of existing theories in ways that have been previously overlooked. But analysis conducted by researchers and embraced by policymakers remains essential in designing the policy response. Second, a policy response that has its foundation in rigorous research is less prone to being impaired by political compromise and easier to explain to the general public. Third, Keynes is often quoted as saying, “When the facts change, I change my mind. What do you do, sir?” Well, for policymakers, it is not that simple, and research helps us to decide whether a change in the facts deserves a policy response or, as we say, we should look through it. Fourth, when the world changes as it did ten years ago, policies, especially monetary policy, need to be adjusted. | to promise to keep interest rates low for longer in the future. Such commitments, if credible, lower longer-term interest rates and provide economic stimulus even if the current interest rate remains unchanged.9While forward guidance is a useful instrument, recent research has highlighted that its effectiveness can be improved if combined with other non-standard monetary policies.10 Research in both academia and in central banks has therefore re-examined alternative monetary policy tools, including so-called quantitative easing (QE) policies. And here the newly developed models with financial frictions have been useful.11 Earlier studies based on the assumption of frictionless financial markets had concluded that QE is completely ineffective. The renewed focus on financial frictions clarified that this conclusion is unwarranted, once it is recognised that financial intermediaries are subject to leverage constraints.12 Large-scale asset purchases can ease these constraints and increase investors’ risk-bearing capacity, leading to a portfolio rebalancing towards risky assets and to strengthened lending activity for banks. All in all, research has confirmed that central banks are not powerless at the effective lower bound. Provided they are willing to explore non-standard policy avenues, they can continue pursuing their price stability mandates even in the most adverse circumstances. The evolution of policymaking The policy response by central banks and governments has evolved along the two main lines suggested by research. | 1 |
Political uncertainties are on the rise, especially in the EU, which has to contend with Brexit negotiations and elections in France and Germany. Populist movements are on the rise in many parts of the world. They could precipitate a more radical shift in policies that could in turn dampen confidence and investment. Finally, I have not said anything about the Singapore economy. I will leave that to MTI’s Annual Economic Survey, the report of the Committee on the Future Economy, and the Budget Statement – all happening next month. Suffice to say: The Singapore economy is expected to continue on its modest pace of expansion this year. GDP growth is likely to come in the 1-3% range. Modern services – including finance, business, and ICT – will be supported by continued growth in the region and our growing status as a hub. Our trade-oriented industries should benefit from the mild upturn in global and regional electronics. In fact, the strong showing in the last quarter of 2016 indicates that the Singapore economy retains the capacity to ride on cyclical upswings in demand for our exports. That is not to say that all is well. Economic restructuring remains work-in-progress and we need to do more to raise productivity growth. Singapore will not be immune to the global tightening of financial conditions, volatility in capital flows, and potential stresses in the regional corporate sector. But our macro fundamentals are sound and we will weather these storms. | With low resource utilisation one can expect that inflation will be pushed down as the pressure on wage and price increases will be low. The weak international demand is of course one factor that is beyond the Riksbank’s control and in this sense monetary policy housing market. In the case of Australia, there are no clear signs that they have faced this kind of trade-off during the period following the financial crisis. This is clearer for the period 2002–2004, but then inflation stayed within the target interval of 2–3 per cent and was only close to the lower interval limit for one quarter. 6 See Sveriges Riksbank (2014a). 7 See Sveriges Riksbank (2014a). 8 See Nekarda and Ramey (2013). BIS central bankers’ speeches 3 cannot be blamed for the low inflationary pressure. At the same time, it is the role of monetary policy to counteract this type of downward pressure to stabilise inflation around the target. Monetary policy may have contributed in different ways Personally, I believe that the monetary policy conducted is an important contributory factor to the fall in inflation. The fact that household indebtedness is taken into account in the monetary policy decisions – and the repo rate is thus held somewhat higher than the prospects for inflation and resource utilisation have justified – has probably made the krona stronger than it would otherwise have been and also held back domestic demand. | 0 |
Let me now present in more detail the macroeconomic scenario we believe to be the most likely in the quarters to come and its associated risks. Macroeconomic scenario In July, annual inflation returned to the tolerance range. As I said, the behavior of the exchange rate has played a key role in this process, as it allowed us to leave behind the upward effects of the sharp depreciation the peso experienced in 2013–2015. Considering the average of the ten days prior to the statistical cutoff, the dollar was trading at somewhat less than 670 pesos, equivalent to a nominal appreciation of the peso of around 4% with respect to the close of the previous Report (figure 1). The evolution of the exchange rate has had visible effects on the goods component of core inflation (i.e., the CPIEFE, or CPI excluding foods and energy). In annual terms, it went from around 5% early the year, to 3.7% in its latest measurement. Inflation of the services component of the CPIEFE has made a smoother adjustment, from 5% to 4.5% annually in the same time span, reflecting its indexation to past inflation and output gaps that have not widened much. Accordingly, and as expected, the total CPIEFE has seen a reduction in its annual expansion rate. The more volatile items in the basket showed dissimilar movements in the past three months: while annual food inflation rose, energy inflation fell (figure 2). | In addition to the requirement for equal charges, the new Regulation envisages requirements with respect to currency conversion charges related to card payments and electronic credit transfers which are expected to increase transparency and to ensure comparability in cases where a payment service user is faced with a choice between currency conversion alternatives f. According to the requirements concerning currency conversion charges related to card payments, payment service providers and the parties providing currency conversion services at an automated teller machine (ATM) or at the point of sale shall provide information prior to the initiation of the payment transaction for the total currency conversion charges expressed as a percentage mark-up over the latest available euro foreign exchange reference rates issued by the European Central Bank. In addition, the payer must also be provided, prior to the initiation of the payment transaction, with information about the amount to be paid to the payee in both the currency used by the payee and in the currency of the payer’s account. With regard to the requirements for currency conversion charges related to electronic credit transfers, payment service providers will be obliged to inform the payer prior to the initiation of the payment transaction about the expected currency conversion charges applied to the credit transfer, the expected amount of the credit transfer in the currency of the payer’s account, as well as about the expected amount which will be transferred to the payee in the currency used by the payee. | 0 |
The supervisory activity, along with prevention of extreme cases of insured institutions’ bankruptcy, carries out also the administration of such institutions, in cases when they fail irrecoverably. In this stage, the role and contribution of the Deposit Insurance Agency, until that moment “invisible”, appears with the whole magnitude and importance. It is indispensable not only in terms of treating depositors that have had savings at the bankrupt institution, but also in the “calming down” effect for all the depositors of the banking system. In fact, the world experience has indicated that the deposit insurance function of the customers of the banking system is an important instrument in the framework of maintaining the banking system sustainability and keeping public confidence in it. The timely payment of the deposit value at the insured amount, in the case of a bank’s bankruptcy, allows responsible authorities to be focused on the procedures intending the isolation of the case and the recovery of the values of the bankrupt institution. The activity of responsible deposit insurance institutions has different characteristics in different countries. Their legal framework provides responsibilities that are limited only in the role of the payer of the available fund and other cases, when responsibilities are extended further, up to the recovery of the insured institutions’ values that have gone bankrupt. | Nevertheless, efforts are made constantly for fulfilling the necessary legal framework and procedures, covering all possible directions of its activity. Simultaneously, there is worked in terms of organizing the structure, increasing the institution’s staff number and training. Emphasis is laid on the DIA’s cooperation with the Bank of Albania, the supervisory authority, so that the DIA carries out its functions effectively. At the same time, the relation with the Ministry of Finance is taken into consideration in organizing the Deposit Insurance Agency’s structure, so as to have the solid presence of the state in it. The forms of this cooperation are numerous, but all of them should be first consolidated under normal conditions of the banking system activity. The main elements of this cooperation are: • Exchange of information on supervisory practices and observance of regulatory requirements by the insured entities; • Organization of joint trainings in getting acquainted with respective functions; • Acquaintance with and discussion on manuals and procedures requiring the commitment of both institutions in certain cases, and the testing of these procedures. The Bank of Albania and the Deposit Insurance Agency are working for enhancing this cooperation constantly. 2/3 A number of legal and regulatory alterations that are being prepared in parallel by both our institutions, and the exchange of information, as well as more frequent contacts between both institutions serve this purpose. | 1 |
As emerging Asia aspires towards achieving higher levels of income and living standards, a different path from that which led the way for many advanced economies will need to be considered. The global financial crisis and the Asian financial crisis have provided us with many important lessons that should form the underpinnings for the development of a sound economic and financial policy framework. Such a framework must effectively combine strong regulation and market discipline to reinforce financial stability. The recent crisis has shown that markets cannot be exclusively relied on to rein in excesses. A broader perspective of regulation that looks beyond individual institutions is also essential to identify the build-up of system-wide risks. Equally, financial institutions need to consider how to meaningfully include such system-wide perspectives in their approach to managing risks in their respective institutions. Public policy also has a crucial role in promoting economic development that benefits society at large, and that addresses the disproportionate social welfare effects of a financial crisis on the most vulnerable groups of society, including low-income households, retail consumers and small businesses. Specifically, policies that protect the core savings of these groups, promote financial inclusion and contain excessive leverage should also form an integral component of the resolution and reform agenda. Given the high costs of financial crises there is now a better appreciation of the need for such policies to co-exist with free markets, working to efficiently allocate economic capital to achieve more sustainable outcomes. | This can be seen from recent evidence of financial institutions in the region that have successfully adopted “double bottom line” strategies that combine enhanced financial access goals with profitability, thus enabling the financial inclusion agenda to be achieved in a responsible and sustainable manner. Institutions in several parts of Asia have been effective in utilising innovative means of outreach to overcome geographical and cost barriers in delivering essential financial services such as microcredit, affordable insurance, avenues for savings, and accessible payments and remittance services. Governments in the region continue with measures to bridge the gap with the necessary financial infrastructure, developing rules for orderly and responsible business conduct, and catalysing the volume of financial transactions by channelling social transfers, wages or pensions through the formal financial system. Such advancements by the region in financial inclusion contribute towards eradicating poverty and uplifting living standards. As growth in the region continues, it will become even more important to ensure that such growth does not further widen the social divide and disenfranchise those who remain excluded from its benefits. An inclusive growth process in the region, which draws marginalised segments into the formal financial system and that empowers small businesses and consumers already within the financial system to better utilise financial services, will enhance the contribution of this segment of the population to the economic growth process. Fourth, is the greater regional economic and financial integration in Asia which has been supported by strengthened institutional frameworks for safeguarding regional financial stability and a deepening of regional cooperation. | 1 |
All in all, there is, at present, no reason to speak of a credit crunch. However, this favourable situation could soon worsen, as has been observed in other countries. I will now conclude this second section with a few brief remarks on movements in monetary aggregates. Having declined until recently, monetary aggregates are now rising slightly. Following the interest rate cuts, we expect that growth in monetary aggregates will gather pace over the coming months. Given the current heavy demand for liquidity, higher money growth does not, of itself, indicate an increase in inflation risks. Only if money growth were to become excessive over a longer period would this pose a threat to price stability in the medium term. Inflation outlook In addition to the rapid worsening of the global economy and the financial crisis, the third factor behind our policy of successive rate cuts since October is the radical change in the inflation outlook. Inflation risks have largely dissipated since our last quarterly assessment on 18 September, leaving considerable room for manoeuvre in monetary policy, which we have firmly exploited. As you know, last December inflation breached the 2% ceiling above which the SNB considers that the conditions for price stability are no longer met. The rapid rise in inflation – indeed, at the beginning of 2007, we still had zero inflation – was due to the combined effect of a virtually unbroken rise in oil prices and the healthy state of the economy. | For example, the leading global fund managers recently indicated that they consider sustainability to be a core criterion for investment selection, given that sustainable portfolios could offer higher risk-adjusted returns and that companies that follow sustainable criteria may have greater potential for success in the medium term. Let me finish my address by highlighting that there is still some considerable distance between expectations and the reality of the data at hand, but also that the pace of change is very brisk. Standards are and will always be imperfect, but this is no excuse for us not to try to move forward. Thank you. 4 | 0 |
It has proved difficult to show that attempts at short-run exchange rate stabilisation, using either the repo rate or interventions, have been particularly successful. Neither does experience from other countries with a flexible exchange rate provide all that much support for such a policy. At the same time, increased credibility has made the gradual modification of the Riksbank’s view easier. The Riksbank has accordingly chosen to be comparatively inactive in the currency market. At the same time, an exchange rate that is highly volatile and displays pronounced fluctuations clearly has drawbacks; the uncertainty it generates is liable to spread to other financial markets, besides complicating corporate and personal decisions about investment, production and consumption. In recent years the Riksbank has therefore occasionally chosen to intervene in the foreign exchange market in order to underscore its appraisal of the situation. It need hardly be said that if such interventions had been judged to conflict with the inflation target, they would never have been considered. As long as the Riksbank targets inflation directly, I see no reason to change the current principles for our behaviour in the currency market. But I also want to underscore that the approach to the exchange rate in an inflation targeting strategy is by no means self-evident. Some central banks that target inflation—the Bank of Canada is one example—seem to react to short-run exchange rate fluctuations more frequently, sometimes guided by a monetary index, partly with the aim of stabilising markets and expectations. | Such a difference would also be motivated if the market rate were to be affected by short-term shocks in financial markets. In the light of what we know today, however, the direction of the krona’s path seems to be clear: ERM2 membership, if it occurs, will be arranged at an exchange rate that is stronger than the recent level. 7 BIS Review 48/1999 | 1 |
Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence. Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the nonstandard measures taken during the period of strong financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to price stability over the medium to longer term, and the monetary policy stance and the overall provision of liquidity will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely. Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid2009. According to Eurostat’s first estimate, euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. While adverse weather conditions, in particular, dampened growth in the early part of the year, the latest economic indicators suggest that a rebound took place during the spring. | Peter Pang: Managing the next phase of growth in Asia Welcome remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the IMF’s Asia and Pacific Regional Economic Outlook, Hong Kong, 28 April 2011. * * * 1. Good morning. It is my great pleasure to welcome you all to the launch of the latest issue of the IMF’s Asia and Pacific Regional Economic Outlook (REO). We are honoured to have Mr. Anoop Singh, Director of the Asia and Pacific Department of the IMF, and his colleagues to share with us today their views on the region’s economic and financial developments, the outlook and the challenges, and what can be done to manage the risks and promote sustainable growth in the years ahead. 2. I like the theme of this issue of the REO – “Managing the Next Phase of Growth” – as this is what concerns us most in Asia at this juncture. We are now some two-and-a-half years after the outbreak of the global financial crisis, and Asia has been leading the global recovery – a recovery that is maturing as rightly pointed out by the IMF. The question is where and how we should move on from here. And looking ahead, managing the next phase of growth is very challenging as we are facing complications of unprecedented scale and dimensions. 3. | 0 |
Fiscal deficits in emerging Asia are 2–3% of GDP. The debt burden is low. Public sector debt ranges from about 25% to 55% of GDP. External debt is about 30% of GDP. Official foreign reserves are healthy. The banks are well-capitalised. The 25 largest Asian banks comfortably meet Basel III Tier 1 capital adequacy ratios. Governance is stronger. Stronger regulatory frameworks and corporate governance reforms following the Asian financial crisis in 1998 have improved the resilience of the financial and corporate sectors. There is policy flexibility on the fiscal, and to some extent, monetary fronts, in the event global growth slips more than expected. Notwithstanding emerging Asia’s strong fundamentals, there is no room for complacency. The region is not without significant challenges which, if unaddressed, will prevent it from realising its potential and render it more vulnerable to shocks from the advanced economies. Let me highlight three medium-term imperatives for emerging Asia. Increasing domestic demand First, Asia must increase domestic demand. As growth slows in the advanced economies, it is in the region’s interest to reduce reliance on external demand and develop indigenous sources of growth. This will help to strengthen and stabilise Asian economies over the longer term. If an increase in domestic demand in Asia is complemented by fiscal consolidation in the key industralised economies, a longer term rebalancing of global demand could be achieved. 2 BIS central bankers’ speeches Demographic factors will work to increase domestic demand in Asia. | The enhanced depth of the Islamic financial markets has also increased its attractiveness as an asset class for investment. These developments have resulted in an extensive range of Islamic financial products and services that is being offered to consumers and businesses. The third dimension in which there has been significant evolution is in the regulatory and legal framework for Islamic finance which has taken into account the distinct features of Islamic financial transactions. This has ensured that the growth and developments of Islamic BIS Review 23/2008 1 finance is accompanied by the corresponding development of the supporting legal, regulatory and supervisory framework to ensure its soundness and stability. The establishment of the Islamic Financial Services Board in 2002 also marked an important milestone in the development of the prudential regulatory standards and best practices for Islamic financial institutions. Its establishment has also contributed to the harmonisation in the development of Islamic finance across different jurisdictions. Fourthly, the international dimension of Islamic finance has rapidly gained significance as it evolves to become an increasingly important part of the international financial system, and as is becomes poised to contribute towards greater global financial integration. Islamic financial institutions have now ventured beyond their domestic borders and funds raised in Islamic financial markets in different jurisdictions have drawn investors from financial centres across the globe. As market players across continents participate in the expansion of interregional investment flows, it has enhanced financial linkages among the major regions. | 0 |
Assessing whether these developments are in fact delivering concrete gains requires cool heads and careful judgment. My own view is one of pragmatic optimism. There are promising portents, but relatively little concrete evidence as yet, of the UK achieving the improvements in productivity that have so benefited the US economy in recent years. That does not mean that it will not happen here. But it does mean that we need to be both vigilant to avoid the pitfall of anticipating the gains before they arrive, and alert to capitalising on them if and when they begin to come through. Overall, then, the prospect we face is an immensely encouraging one. We need to remain vigilant, but, provided we take no risks with the progress we have made in recent years in maintaining low inflation, the prospect is for continuing growth overall on a basis that can be sustained into the medium term. For the Bank of England, our first, and continuing priority, has to be to continue to deliver the stable monetary framework - of interest rates directed at maintaining low inflation - as a platform on which commerce and industry throughout the country can continue to build their business and generate the sustained growth in output and employment that will provide permanent improvements in living standards. BIS Review 62/2000 2 | Tuan-tuan dan Puan-puan, Kami amat berbesar hati dengan kesudian Yang Amat Berhormat Dato' Seri Abdullah Ahmad Badawi untuk melancarkan Laman Informasi Nasihat dan Khidmat Bank Negara Malaysia atau Bank Negara Malaysia LINK pada hari ini. Kami mengambil kesempatan dari kehadiran Yang Amat Berhormat Dato' Seri di taklimat ekonomi di Bank Negara Malaysia pada pagi ini untuk merasmikan Bank Negara Malaysia LINK. Penubuhan Bank Negara Malaysia LINK merupakan komitmen Bank Negara Malaysia untuk meningkatkan lagi perkhidmatan yang diberikan kepada orang ramai dan membantu meningkatkan akses pembiayaan kepada perusahaan kecil dan sederhana. Perasmian ini amat bermakna kerana Yang Amat Berhormat Perdana Menteri merupakan peneraju kepada peningkatan sistem penyampaian sektor awam. Yang Amat Berhormat Dato' Seri juga telah memainkan peranan penting dalam usaha meningkatkan potensi perusahaan kecil dan sederhana sebagai enjin pertumbuhan ekonomi negara kita. Ladies and Gentlemen, Bank Negara Malaysia has always been in direct contact with the public. The Central Bank receives walk-in members of the public seeking information in relation to our operations, policies and regulations as well as those who seek redress on financial issues. The SME Unit in Bank Negara Malaysia also has direct contact with the SMEs relating to issues of access to financing. The establishment of Bank Negara Malaysia LINK is to allow the interface with members of the public as well as the SMEs to be centralised and conducted in a more efficient and effective manner. The premises of the Bank Negara Malaysia LINK was previously the Kuala Lumpur branch of Bank Negara Malaysia. | 0 |
The uncertainty instead concerns how much and how quickly it will fall and whether this will be sufficient. The Swedish economy must not end up in a situation where inflation becomes entrenched above the target of 2 per cent. The danger of inflation becoming entrenched at a high level Let me elaborate on why this is so important, starting with an illustrative example from when I visited companies last month. One person I spoke to noted that there had been a clear shift in negotiations with other companies about future prices and deliveries. A few years ago, inflation was not discussed in these negotiations. But now it is, and this makes it difficult to enter into long-term business relationships, which in turn has a negative impact on economic developments. This highlights the problem that high inflation becomes a factor that makes financial decisions more difficult for companies and households. And this contributes to the entrenchment of high inflation. We must return to low and stable inflation because this is a long-term base for good economic development. In addition, we will then be able to have real wage increases again. Firms set their prices according to, for instance, the costs they incur, the behaviour of their competitors and expectations of future price and cost increases. When inflation is 4/10 BIS - Central bankers' speeches high and cost increases are large, firms are more eager to raise their prices often and to pass on the increased costs to customers. | *** Speaking hard truths is part of how central banks can reinforce the foundations of more inclusive growth. The paradox is that one of our jobs is to reduce uncertainty by identifying risks. This requires coming straight with the public as the Bank of England did around the EU referendum. And it requires being clear about what we cannot do. Long-run prosperity is not in the gift of central bankers. It depends on a much wider set of initiatives of our elected representatives, and ultimately, on the actions of the private sector. (b) Monetary Policy, Distribution and Equity The second way central banks can promote inclusive growth is as part of a balanced mix of monetary, fiscal and structural policies. Globally, this balance has been absent since the crisis, with disproportionate weight falling on monetary policy. What has that meant for growth and inequality? Before answering, it is important to recognise two facts. First, by law, monetary policy must target the national rate of consumer price inflation, while taking into account as a secondary consideration its impact on other important macroeconomic variables, such as growth, employment and financial stability. Monetary policy cannot target a particular region, industry or segment of the population. Second, all monetary policy has distributional effects, but it is rightly the role of elected governments to take measures to offset them if they so choose. In that context, has monetary policy worsened income distributions, made savers poorer, inflated asset prices, or exacerbated wealth inequalities? | 0 |
We – the central banks of the region – should represent an example in this direction. As pioneer institutions of progress, the central banks of the region should cooperate with each other in order to expand the road for a further political, social and economic integration. I believe that the chances for a rapid and secure process of European integration could be accelerated if we will have – among others – a healthy and safe financial and banking system, which should be able to advance the economic development of the country. Nevertheless, in order to materialise the objective for the approximation of their model with that of the EU member states, we hold the opinion that the central banks of the transition countries have more difficult “homeworks” than the classical responsibilities carried out by a central bank. Speaking in more concrete terms, this has to do mainly with the challenges related to the development of markets, with the unification of different norms and standards and with enhancing credibility in the country, thus aiming at the creation of an atmosphere that inspires confidence to foreign investors. Even though they have passed into the consolidation stage, our banking systems still remain fragile, and as such, they require greater commitment and care. Regardless statistical developments, the scale of financial intermediation is relatively low, whereas time after time the shadow of shocks on the economic equilibra shows up itself in different countries. | Ardian Fullani: Experiences of the Bulgarian National Bank in its road towards the ESCB Opening speech by Mr Ardian Fullani, Governor and Chairman of the Bank of Albania, at the workshop Experiences of the Bulgarian National Bank in its road towards the ESCB, organised in cooperation with the Bulgarian National Bank and the GTZ Office, Tirana, 5 September 2005. * * * Dear participants, First of all, I would like to say good morning to all of you. Today’s meeting with our Bulgarian friends takes place in the context of several activities that we have recently organised with a clear focus on the future challenges related to the integration process. I am pleased that the fall season of this year starts with this activity and first of all, I avail myself of this opportunity to extend my gratitude to the representatives of the Bulgarian National Bank, the GTZ and to my friend, Professor Bolle. Since the very first days of my appointment to this position, I have publicly declared that Bank of Albania’s institutional preparation in its road towards the ESCB remains our main challenge. Meanwhile, in all the meetings that I have had with the representatives of the regional central banks, as well as with high officials from Brussels and the ECB, I have underlined the idea that the future of the EU will be both more prosperous and unproblematic if the countries on its periphery look not only towards Brussels, but also if they start looking to each other. | 1 |
The development of a highly integrated euro area financial market and the ultimate establishment of a pan-European banking industry will raise the issue of the optimal organisation of supervision of the European financial sector. Today supervision is organised on a national level; financial markets are not yet fully integrated and we do not as yet have a genuinely pan-European banking industry. However, the situation is clearly dynamic. While it remains to be seen how quickly the situation will change, this example highlights the fact that the euro area is not yet an entity itself and not yet perceived as such in some respects. Looking back on the first few months of the existence of the euro, we have witnessed that singular and isolated news and data releases from individual economies within the euro area have sometimes inappropriately been interpreted as indicators for the entire currency zone. Such inadequate analysis can produce real difficulties, especially when the markets magnify and exaggerate the effects of these misconceptions. This phenomenon may possibly be explained by insufficient information about the new European framework. However, another reason might lie in the conduct and presentation of Member States’ economic policies. It appears that Member States are still learning to communicate adequately that, in economic terms, they also consider themselves constituent parts of a larger entity and thus also regard their domestic economic policy decisions “as a matter of common concern”. | Aggregate cumulative UK impairment charges over the five years of the (a) stress Impairments in the stress (left-hand scale) Impairment rates in the stress (right-hand scale) Per cent 25 £ billions 20 20 15 15 10 10 5 5 0 0 UK mortgages Sources: PRA regulatory returns, published accounts and Bank calculations. (a) Major UK banks’ core Tier 1 capital as a percentage of their risk-weighted assets. Major UK banks are Banco Santander, Bank of Ireland, Barclays, Co-operative Banking Group, HSBC, Lloyds Banking Group, National Australia Bank, Nationwide, RBS and Virgin Money. Data exclude Northern Rock/Virgin Money from 2008. (b) Between 2008 and 2011, the chart shows core Tier 1 ratios as published by banks, excluding hybrid capital instruments and making deductions from capital based on FSA definitions. Prior to 2008 that measure was not typically disclosed; the chart shows Bank calculations approximating it as previously published in the Report. (c) Weighted by risk-weighted assets. (d) From 2012, the ‘Basel III common equity Tier 1 capital ratio’ is calculated as common equity Tier 1 capital over riskweighted assets, according to the CRD IV definition as implemented in the United Kingdom. The Basel III peer group includes Barclays, Co-operative Banking Group, HSBC, Lloyds Banking Group, Nationwide, RBS and Santander UK. (e) CET1 ratio less the aggregate percentage point fall projected under the Bank of England’s 2016 annual cyclical stress scenario for the six largest UK banks. | 0 |
In times of trouble, sovereigns, like financial institutions can be either illiquid, or insolvent, or both. In many cases, the distinction is blurred. When uncertainty is high, sovereigns face liquidity shortages, and they can only issue new debt at constantly higher interest rates. This, in turn, creates doubts about their ultimate solvency, triggering a negative spiral. This process is clearly at work in peripheral Europe, especially Spain and Italy, since the beginning of August. 2 BIS central bankers’ speeches In short, sovereign solvency is partly endogenous. Good fundamentals are an absolute necessity, but not always a sufficient condition. Liquidity spirals, when allowed to develop, can lock a country, just like a financial institution, into a bad equilibrium. What is therefore the appropriate policy reaction? We had a continuing debate on that question in 2009–2010 when dealing with financial institutions. We are faced with the same question now regarding sovereign risk. The standard answer is twofold. First, get the fundamentals right. For European countries, it means reverting to a sustainable fiscal position which, in most cases, necessitates a significant primary surplus. Necessary efforts are greater now since doubts have been created about sovereigns’ ability to meet their obligations. And second, when solvency is achieved, there is a need for a liquidity backstop to ensure that bad equilibria will not be allowed to develop. Where that backstop is coming from is a key question in the current debate. | As I have said from the start, public debt may not be able to play that role to the same extent as before. The ultimate safe asset, therefore, will be the currency itself. Markets and lenders will trust those currencies that, whatever the circumstances, are managed with one overriding priority: preserving price stability and the intrinsic value of the currency unit. On this fundamental basis, we can look at the future of the euro with strong and realistic optimism. I see the BIS central bankers’ speeches 3 recent decision by the Swiss central bank to peg the CHF to the euro as a confirmation of this statement. A few words on the banking sector, and, of course, French banks. I would remark, first, that banks have been hit in all advanced economies by the downward revision of growth prospects. Since August, CDS premia on major banks and BOR-OIS spreads have risen in all regions, although to a larger extent in Europe, displaying everywhere a sharp rise of counterparty risk. By the same token, banks’ share prices fell in all major economies, with French banks being particularly hit. This overreaction of share prices can be explained by a simple amplification mechanism: slower growth means lower profits, thus lower projected dividends. At the same time, banks are required to build additional capital buffers, which further constrain their pay-out ratio. So dividend prospects are doubly affected and that explains why, in the current period, share prices are reacting so strongly to negative news on growth. | 1 |
The other approach would have us starting with a blank page and identifying the minimum number of requirements needed to maintain small firms’ resilience. In this case, the result would be a completely different rulebook with different chapters. I will call this the ‘focused’ approach because it would be solely focused on the risks faced by eligible small firms. What are the implications of choosing one or other of these approaches? You may have noticed that I have spoken so far about the complexity of requirements, but not their calibration. That is because questions about the level at which requirements are set can only be properly addressed once an approach has been chosen. This is a natural consequence of our commitment to maintaining current levels of resilience. As I said earlier, this means that when we simplify some aspects of the regime we may need to tighten others. That tightening might take the form of increasing the calibration of remaining requirements. One might for example imagine, as an extreme example of a focused approach, a regime based on a single risk-insensitive capital requirement. That would be very simple, but the requirement would probably have to be set very high to satisfy us that it provided the same level of resilience as the current regime. A streamlined approach, on the other hand, might include simpler versions of current Pillar 1 and Pillar 2A risk weighted capital requirements with broadly the same calibrations as are applied today. | And, as my colleague Sarah Breeden explained last July, the PRA attaches great importance to making sure that the way we regulate and supervise these firms isn’t an unnecessary barrier to them realising their ambitions.10 That is why the PRA consulted last year on how we should regulate new and growing banks and has this month published a Supervisory Statement outlining our approach.11 What we need to make sure of now is that growing banks don’t face unnecessary costs from having to move from a simpler regime to more complex requirements once they reach a certain size. If simpler requirements are very different from the requirements for larger banks and building societies, a growing firm would have to make a substantial investment to adjust to the more complex rules it was growing into. If this was prohibitively expensive, it would become difficult for small firms to grow. That would work against what the PRA is doing to support effective competition in the banking system. That is what we want to avoid. We don’t want to trap small firms within a walled garden. Now, to some extent this could be achieved by giving small firms the option to stick to the full set of requirements if they know they 9 See https://www.bis.org/publ/bcbs129.htm. ‘Climbing mountains safely’, speech by Sarah Breeden, Executive Director, UK Deposit Takers Supervisions, building on marks given at the PRA Annual Conference for Chairs of the Non-Systemic UK Banks and Building Societies on 6 July 2020. | 1 |
Moreover, Thailand’s corporate sector has relatively low external debt financing. External corporate debt amounts to around 13 percent of total corporate debt, with a majority belonging to large corporations for financing overseas investment, and these firms tend to manage exchange rate risks well. On top of these external buffers is the fact that our growth engines in 2017 are firmer and more balanced than last year. Most importantly, both exports and to a lesser extent private investment have shown signs of a more broad-based and sustained pickup in recent 1 Including Bank of Thailand bonds 2 months. Given that the export recovery is now a regional phenomenon, we expect the trend to continue. On exports of services, the tourism sector, which was temporarily affected by the crackdown of illegal tour operators in the fourth quarter of last year, has recovered faster than expected. At the same time, fiscal stimulus remains an important growth driver with the additional mid-year budget and the implementation of the medium-term public infrastructure investment program. Apart from improved government disbursement, the government has proposed the supplementary budget for fiscal year 2017 amounting to 190 billion baht, which is over 1% of GDP on top of the originally planned budget deficit of 2.6% of GDP. In addition, fiscal policy will continue to be expansionary with a budget deficit of 2.9% of GDP proposed for the fiscal year 2018. Despite the continued sizable budget deficit, there are fiscal buffers to cushion against unexpected difficulties ahead. | 4 BIS central bankers’ speeches The tensions eased through various channels, among which the activity of CESCE, which bolstered the extension of guarantees and bonds to Spanish companies to participate in international tender procedures and projects. Regulation by the Banco de España The Banco de España, in the performance of its functions, lays down a series of accounting and prudential rules that determine the requirements made of banks in the pursuit of their activity. These rules comprise the regulatory implementation of Spanish legislation which, in turn, is determined by European regulations and by the agreements reached on the Basel Banking Supervision Committee. Let me begin with accounting regulations and, in particular, with the rules on country risk provisions, which are particularly significant in international trade transactions. In these financing operations there is, alongside the risk of commercial insolvency, so-called country risk, which includes, by way of sovereign risk, transfer risk (i.e. that it is not possible to meet debts abroad owing to a lack of currency or the legal impossibility of transferring currency) and other risks arising from international financial activity, such as expropriation and natural disasters. As what is involved is a risk other than habitual commercial risk, it requires a differentiated treatment under default provisioning rules. | 0 |
Specific codes for professionals in markets will complement broader efforts to raise standards in banking by the new Banking Standards Review Council. For those in markets we need a simple approach that recognises a fundamental principle of the City: namely that true markets are the source of dynamism, prosperity and progress. Seeking to manipulate, game or profit from unfair access transgresses that principle. It weakens the effectiveness of markets for all. It holds back prosperity. It should thus have clear consequences, including professional ostracism. We must work together to ensure that everyone on every trading floor understands that dealing in a market means serving the needs of clients, investors and customers fairly and effectively. I am delighted that one of the City’s most experienced professionals and proven leaders, Elizabeth Corley, has agreed to chair a panel of market practitioners that will inform the Review. Now, recognising the centrality of markets doesn’t mean the Bank has a naïve faith that all markets always function smoothly. The City’s markets are not those of a textbook. We all know that real markets can seize up in crises of confidence, threatening financial stability and the wider economy. Just as there will be times when central banks must backstop the banking system, there are also times when they should backstop core markets in a way that supports their contribution to the real economy but doesn’t encourage excessive risk taking. | (2) How to ensure the necessary coherence of the efforts undertaken by stakeholders of different importance, submitted to different types of regulations, across the different financial centres that compose the financial system of the euro? 2. What roles for the Eurosystem The Eurosystem has been quite active in the field of payment systems and is likely to develop further its involvement under its three roles of: (1) service provider, (2) facilitator of market and regulatory evolution, and (3) overseer. 2.1. Providing payment services As a service provider, the Eurosystem has put priority on enhancing the efficiency and safety of its TARGET system, with the launch of the TARGET2 project. TARGET2 will provide harmonised services and prices, efficient liquidity management and settlement mechanisms, while setting a new benchmark in terms of business continuity. The Eurosystems objective is to promote the use of real-time settlement services in central bank money, given their expected social benefits in terms of risk reduction in the payment process. In the field of retail payments, the degree of the Eurosystem’s central banks’ operational involvement varies across countries. Most central banks provide payment services to public institutions. Some central banks also offer processing facilities to commercial banks by participating in private retail payment systems and/or operating an own retail payment system. The completion of the SEPA project calls for a specific effort of those central banks that are significantly involved in retail payment operations. | 0 |
In spite of this, lessons should be learnt from the effects of the crisis in other regions and, going forward as a single monetary zone, policies are being designed and implemented to prepare us to cope better with any threats to our financial systems. We must also recognize that there are peculiar risks to our zonal financial sector which are being addressed through new initiatives. Since the signing of a joint memorandum on cross border supervision, as I informed you in my speech last year, Governors’ of the West African Monetary Zone have signed an additional memorandum for the establishment of a College of Banking Supervisors in July 2010. In 2010, Liberia attained full membership of the West African Monetary Zone (WAMZ), increasing the membership from five countries to six, and has now been integrated into a number of projects including the Payments System, Financial Sector Integration, and Trade Policies. Developments on the domestic front Economic developments in 2010 Your Excellency, distinguished guests, on the domestic economic front, projected real GDP growth in 2010 was higher at 4.5 percent, compared to 3.2 percent in 2009, a reflection of government’s effort to stimulate economic activities through investments in agriculture, energy and infrastructure. There was also an increased global demand for agricultural commodities and mineral exports which also improved the country’s balance of payments position. Furthermore, new mining lease agreements have been signed with foreign companies which would increase returns in this sector in the medium term. | Finally, an important aspect of responsible finance requires strong and effective governance. John Locke, one of the most prominent 17th century theorists, refers to the concept of a "social contract" in describing the origin of society and its inherent need for governance. The erosion of this social contract and of governance would drastically weaken the foundations of society, setting the stage for its eventual decline in the future. This was evident during the global financial crisis. The experience serves as a strong indication that the own version of the "social contract" in finance should not be overlooked. This extends not only to governance but also to trust, which has traditionally been the social bond between finance and humanity. Central to this is the realisation that financial markets cannot operate in the absence of trust, which in turn necessitates minimum standards for governance, ethics and integrity. This involves not only heightened expectations on the fiduciary duty of boards, but the alignment of compensation packages from short-term personal gains towards long-term value creation. In addition, corporate culture also have an important role in entrenching financial goals with ethical values, through the promotion of sound risk taking cultures and ethical codes of conduct. Conclusion Allow me to conclude my remarks. Often at its most defining moments in history, the rise of society has been intricately marked by the strength of its leadership and its people. | 0 |
Several antecedents point to investment significantly outperforming our September estimate, including important upward revisions in the Corporation of Capital Goods’ (CBC) Project Survey, the behavior of capital goods imports, the evolution of more expansionary conditions of credit supply and demand (Bank Credit Survey) and qualitative information from our Business Perceptions Report (IPN). Thus, for 2019, our gross fixed capital formation (GFCF) growth forecast rises to 6% (4.5% in September), and for 2020 the near 4% figures are maintained. The case of mining investment is analyzed in detail in Box III.2 of the Report. According to the latest survey of the CBC—released in mid-October—for the period 2018-2021 investment expenditure of the mining projects it covers went from about 5.40 billion dollars to 10.60 billion. The greatest differences are concentrated in the years 2019 and 2020, when the surveyed investment is about 3.5 billion dollars higher than previously expected. This leap is the result of including a small number of projects that have advanced in their realization, but whose scope causes ripple effects in the baseline scenario. For 2018, where the incremental effect of the new survey is more limited, it is expected that Mining GFCF will increase 18% annually (just over 3 percentage points more than projected in September). For 2019, its annual expansion rate is revised from 7% in the September Report to 16% in our current estimate. | In fact, this is a central axis in the conceptual framework modern monetary policy is based on, from the different notions of the Phillips curve to the Neo Keynesian models of general equilibrium that today sustain our forecasting and analysis. With this in mind, we have attached to our December Monetary Policy Report a special study on the functioning of the labor market. It is based on the analysis of new databases that allow us to understand some of the clues to how this market operates, that were beyond our reach in the recent past. The analysis of the labor market, even if done with the intention of drawing macroeconomic implications, must pay attention to its structure and to the way in which the individual decisions of millions of workers and employers—that differ from each other in more ways than one—determine how the aggregates behave. However, studying this diversity empirically is no easy task, and is often absent from the macroeconomic debate. Most labor market indicators that are regularly reported and discussed in the public scene, including wage indexes, unemployment rates or job creation, are not only highly aggregated, but also represent net movements. This implies that much relevant information, such as differences in the behavior of different groups or changes in the composition of the flows, is not present in the analysis or public debate. | 1 |
Lastly, it introduces a requirement for regulatory capital to be tailored for certain off-balance sheet exposures, particularly liquidity facilities associated with these transactions, which under Basel I were generally exempted of any capital charge. Second, by reinforcing the link between the capital base and the risks actually incurred, Basel II encourages banks to improve their systems for managing these risks as well as their due diligence procedures. Beyond reminding banks of the basic caution required when extending credit, this encouragement is all the more useful in that banks now often play a role in securitisation transactions for which the underlying assets, for example housing loans, may be initiated by unregulated entities, that are not always BIS Review 11/2008 3 accountable for their risk analysis and pricing. In other words, the weaker the discipline surrounding the granting of a loan the stronger banks’ diligence procedures needs to be. Thirdly, Basel II gives banks and supervisors a vital tool, Pillar 2, with which to assess the risk profile of institutions and in particular to take account of certain risks that are sometimes difficult to quantify but whose impact can be great. By way of example, I shall merely mention refinancing risk and reputational risk. Pillar 2 thus enables banks, through the determination of the level of economic capital and supervisors, via for example an increase in capital requirements, to ensure that all of the risks incurred are appropriately covered. | As the scope for differentiation between institutions increases under the risk-based regime, it will become more critical for insurers to attract, develop and retain the right human capital resources. With the liberalisation of financial markets and the rapid pace of financial convergence, the investment management function within insurers needs to be flexible, risk-focused, and equipped with professionals who are able to respond to the exigencies of the marketplace. An important component of the new risk-based capital and supervisory framework is the notion of supervisory target capital levels which insurers will be required to maintain under the risk-based framework. This is new to our environment, and has been a matter of some concern to insurers which may view it as an additional capital burden. Although the risk-based capital regime will more closely align economic capital with regulatory capital, it is important to recognize that it necessarily derives its application from industry-wide tests which cannot fully address risks that are specific to an individual institution. The supervisory capital target therefore serves to provide an early signal of emerging difficulties so that appropriate intervention measures can be taken to prevent a further deterioration of conditions which would warrant more drastic and costly actions. For insurers that already adopt robust internal approaches to capital management, the introduction of the supervisory target level in itself should not significantly alter existing capital management strategies. Insurers that do not yet have such systems in place, will be encouraged to develop them, and thereby enhance their own resilience to adverse changes in business conditions. | 0 |
The success of the principle-based approach to regulation will depend on the ability of banking institutions, individually and collectively as an industry, to make use of the flexibilities given without giving rise to excessive risk taking, overpricing, credit rationing and other actions that could threaten stability in the financial system and overall economic well-being of the nation. The key is for banking institutions to act responsibly, as the actions of banking institutions would have implications on all segments of the economy. Due attention must be given to ensure that all segments of the society have access to banking services at reasonable cost and no groups should be marginalised in this process. In this respect, while we advocate a principle-based regulatory framework, Bank Negara Malaysia will closely monitor the performance and actions of banking institutions, and would intervene and prescribe specific regulations in the event that actions by banking institutions could jeopardise financial stability and public confidence in the financial system. As a custodian of public funds, and as a service-oriented industry, the banking sector must continuously strive to maintain public confidence in the system and deliver high standards of services. Maintaining public confidence entails efforts beyond maintaining strong financial results and having a wide range of products and services for customers. As customers become more financially savvy and better informed of their rights, the conduct and practices of banking institutions will increasingly be scrutinised by the public. | 3/4 BIS central bankers' speeches As Stefan Ingves once told me, ultimately, it is not even a monetary question but a political one. For whatever we decide, it must have the “consent of the people”. The future of money is too important a matter to be left entirely to central bankers. 4/4 BIS central bankers' speeches | 0 |
I refer here to the lag before the ‘peak effect’ as a shorthand for estimate of transmission lags. Transmission comes via distributed lags over a period of time. 6. A research programme is currently underway at the Bank to assess the length of transmission lags. Given that Bank Rate has been at or near its effective lower bound for most of the past 15 years (and has changed little through time as a result), a re-exploration of transmission from Bank Rate innovations to CPI inflation is both now possible and overdue. 7. For an analysis of this form on US inflation, see Cogley T. and T.J. Sargent (2001). ‘Evolving post-World War II US inflation dynamics,’ NBER Macroeconomics Annual 16, MIT Press. 8. For a deeper discussion of these definitional issues, see the analysis presented in Altissimo, F., M. Ehrmann and F. Smets (2006). ‘Inflation persistence and price-setting behaviour in the euro area,’ ECB occasional paper no. 46, which draws on the analytical framework underlying the substantial body of research undertaken as part of the ESCB’s Inflation Persistence Network in the early 2000s. 9. For example, see the discussion in chapter 3 of the MPC’s Monetary Policy Report - November 2022, entitled ‘The key factor’s affecting the MPC’s inflation projection.’ 10. The recent rise in food prices may also follow in part from the consequences of the Russian invasion of Ukraine and its implications for agricultural commodity markets in cereal and vegetable oils. 11. | 3/4 BIS central bankers' speeches After all, as moving forward requires the economy to consider not just cutting edge, but also bleeding edge ideas and technologies, we need to start thinking about novel and unconventional approaches. Several questions spring to mind. First, how should the government take calculated policy risks, while managing policy failures? In building pathways to high income, ambitious industrial policies, or “moonshot strategies”, will play a key role. With any policy however, there would be uncertainty and possibility of failure. Development economist, Dani Rodrick, called for effective industrial policy to be less on the ability to pick winners, but on knowing when to cut losses. Too low a failure rate could also mean that we are playing it too safe. The objective, hence, should not be to avoid mistakes, but to minimise the cost of mistakes. This will require the Government to build its capacity to account for and quantify the associated risk within the decision framework. Only then can we make smarter, more intelligent bets to get the most bang for the buck. Second, how can the Government learn and execute better? Focus should be as much on process and governance, as it is on the outcomes. While we have achieved leaps and bounds in economic development since our Independence, past reforms also provide important lessons in areas where we must strive to do better. We have had roughly 60-70 blueprints and masterplans over the years; not all have been executed to their maximum potential. | 0 |
In retrospect, I can also state that this important move enabled the economy to face the emerging challenging times confidently, with the new inflows assisting the Government to maintain the growth momentum, while also allowing the Central Bank to maintain stability. One of the important lessons that we would take away from this case study is that the initiative was implemented as a result of the close harmonization between the MoF and the Central Bank. Had any one of the two agencies not fully supported this bold and imaginative move, the initiative would have failed, or worse still, been still-born. BIS central bankers’ speeches 7 Case Study 2: Debut International Sovereign Bond The second case study that I would describe this evening is the debut international sovereign bond of Sri Lanka, in 2007. Mr. Chairman, as you may recollect, by the second half of 2007, the country was fully engaged in the major humanitarian operation, while the global environment was becoming more and more unstable. The local environment was also tense, notwithstanding all efforts. Inflation was high; interest rates were high; the exchange rate was under threat; and the fiscal deficit was expanding rapidly, because of the ever increasing need for finances to fund the massive infrastructure development programme and to meet the costs of the humanitarian operation. To deal with this challenging situation, the MoF and the CB decided that it was vital that a further sizeable injection of long term foreign funds was given to the economy. | It is of course obvious that this paradox is not unintentional, and has, in fact, been carefully thought through and deliberately introduced, and has obviously been done in order to establish an extremely vital and far reaching principle. That is, the need for the Central Bank to retain intellectual and operational independence, but to temper it with the pragmatism of the national deliverables of the economic agenda that has been decided by a democratically elected government. Going further, Exter’s comment that “the effectiveness of this cooperation and coordination between the Board and the Government will depend more upon the men occupying the key positions at particular times, than upon any legal formula”, emphasizes the complexity and the delicateness of the relationship, which he has described in lucid and clever language. Mr. Chairman, All these positions that I described to you now highlight another very important fundamental principle that was set out in Exter’s Central Bank Report of 1949. That is, Exter’s wise words that “good central banking is less good law than good practice”. After 7 years as the Governor, I can tell you that that is one of the wisest comments in the Exter Report, and an appreciation of that principle must be understood by all stakeholders, especially at the current turbulent times, when Sri Lanka is on a fast track to economic development. In fact, over the past several decades, monetary policy objectives, instruments and operating mechanisms have changed significantly. | 1 |
The FSB has identified a similar menu of tools under its Misconduct Action Plan, which its members can draw from. Thus far, however, action to promote good conduct has varied widely across the G20.25 The FSB’s compensation standards have been written into G20 regulatory rules, but not yet fully deployed.26 Although adjusting in-year pay is common, clawing back bonuses later on is not, even though it typically takes several years for evidence of misconduct to emerge. And few jurisdictions have put in place either formal mechanisms to ensure that boards and senior managers are explicitly responsible and accountable for what happens at their regulated firms or regulatory references to stop those with poor conduct records moving from firm to firm. 20 Fair and Effective Markets Review Final Report, HM Treasury, Bank of England and FCA (June 2015). PRA Supervisory Statement | SS28/15 Strengthening individual accountability in banking, May 2017. 22 FX Global Code (2018). 23 FMSB stands for Fixed Income, Currencies and Commodities Markets Standards Board. See Carney (2017), Turning back the tide. 24 Allen, T., (Q3 2018), Strengthening the link between seniority and accountability: the Senior Managers and Certification Regime, Bank of England Quarterly Bulletin 25 FSB (April 2018), Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors. 26 FSB, (2017), Implementing the Principles for Sound Compensation Practices and their Implementation Standards, Fifth Progress Report. | Not that I want to defend the past economic regime in any way, of course, but let’s not forget that it had elements which can be traced back at least implicitly to the pre-war period. An explicit return to the three traditions I mentioned is the central feature of our post-1989 economic history. Many of us clearly remember that the liberalisation of prices and foreign trade in 1991 was accompanied by effective stabilisation measures. These included an appropriate devaluation of the koruna against a basket of currencies and the maintenance of balanced budgets or even slight surpluses. It is therefore no accident that in 1991 inflation was “only” 56% here, as compared to triple figures in Poland and often quadruple figures in other transforming 1/2 BIS central bankers' speeches economies. The Czech National Bank embraced the legacy of price stability right from its establishment in 1993. The maintenance of a fixed exchange rate until 1997 was a condition for attaining singledigit inflation and provided a fixed point in the unstable transformation environment. The switch to inflation targeting in 1998 marked the start of a roughly ten-year transition to price stability according to the definition long applied in advanced market economies. Maintaining price stability is not just our constitutional duty, but a long-standing legacy that we proudly embrace. The second feature of our economic history that I mentioned at the start is an ability to cope with the consequences of the struggle for economic independence. | 0 |
In time, several aspects of transition differed from one country to another: smaller countries, such as the Baltic states or Slovenia and Slovakia, opted for a fast track towards Eurozone entry, inter alia because of geopolitical and security reasons, while states with larger and more complex economies, such as Poland, Hungary, Czechia or Romania, focused their efforts more on internal development. For instance, in Poland there is talk of “Polish-ization” and “nationalisation” of development, the spotlight being on the requirement to increase the country’s power resources: “if you cannot stand on your own feet, no one will listen to you”. In Romania, we had a very difficult transition in the first post-communist decade, with half-hearted, gradual reform, yet after 2000 our economy has evolved more coherently, having two important anchors: the EU and NATO. Events that were hard to foresee in the early ’90s took place as well. For instance, who would have thought that Slovakia, the less developed part of Czechoslovakia, would join the euro area and Czechia would not? Under the circumstances, does euro adoption testify to a high development level? | But at the same time, the model of ecosystem creation that currently dominates can lead to the monopolisation of the market, and in the end (like any monopoly, no matter how effectively it started out), it can lead to stagnation in the technology market in the long term, and a slowdown in the introduction of innovations, which threatens consumer interests. And, of course, straight away there is a collateral risk that we have to learn to manage: that large amounts of sensitive data (payment, medical and other data) from all spheres of our citizens’ lives are gathered by one system. That is why we as the Central Bank would like to see healthy competition between a number of players. The conditions of access to emerging ecosystems should be completely open, nondiscriminatory to all suppliers, and consumers should be able to choose the most appropriate products and services for them. Meanwhile, “external” ecosystem participants will also have to comply with certain rules and ecosystem requirements — both in line with rules pertaining to sales and high requirements for cyber resilience. Regulating emerging ecosystems is, of course, a very difficult task. But we need this regulation to avoid the risks I mentioned and to develop the benefits that ecosystems offer, which includes safeguarding the potential for small players to develop. Therefore, we propose working with the market to develop approaches to ecosystem regulation. We have established a working group at the Bank of Russia and will soon publish the first consultation paper on this topic. | 0 |
This is particularly the case for prices for domestically produced goods influenced by world market prices. The fall in prices for imported consumer goods is not solely attributable to exchange rate developments. Clothing prices have exhibited a falling trend over the past few years. In October 2003, clothing prices were 13.7 per cent lower than in the same month one year earlier, and almost 30 per cent lower than in 1995. In addition to low external price inflation for these goods, lower tariffs for clothing have translated into lower consumer prices. The removal of quota regulations has also led to a shift in clothing imports away from high-cost countries to countries with considerably lower production costs. The same trend has been observed for the audiovisual industry. Since the mid-1990s, prices for audiovisual equipment have fallen markedly. In October, prices for these goods were 8.5 per cent lower than one year earlier. International producers have moved production to low-cost countries, allowing them to reduce prices charged to Norwegian importers. In addition, new technology and intensified international competition have exerted downward pressure on prices. Global economic growth has been considerably weaker than expected. Changes in the economic outlook are clearly reflected in interest rate expectations. In the US, these expectations have been adjusted downwards considerably since summer 2002. At that time, market participants expected the key rate in the US to be increased to about 4 per cent towards the end of 2003. | BIS central bankers’ speeches 7 Table 1 International baseline scenario assumptions 2014 2015 (e) Dec.15 Report 2016 (f) Dec.15 Report Mar.16 Report 2017 (f) Dec.15 Report Mar.16 Report Mar.16 Report Terms of trade Trading partners' GDP World GDP at PPP World GDP at market exchange rates Developed ec's GDP at PPP Emerging markets' GDP at PPP External prices (in $ -1.8 3.4 3.4 2.7 1.7 4.8 -0.9 -4.2 3.0 3.1 2.5 1.9 4.0 -9.3 -4.5 2.9 3.1 2.4 1.9 4.0 -9.7 -3.8 3.2 3.4 2.8 2.1 4.4 -2.8 -4.2 2.9 3.1 2.4 1.8 4.0 -5.8 1.7 3.3 3.5 2.9 2.2 4.6 1.5 0.7 3.1 3.3 2.7 1.9 4.5 1.0 LME copper price $ WTI oil price $ Brent oil price $ Gasoline parity price $ Libor $ (nominal, 90 days) 311 93 99 731 0.2 249 49 53 466 0.3 249 49 52 467 0.3 220 43 45 373 1.0 220 40 41 398 0.7 230 49 52 384 1.6 230 45 46 420 1.5 (e) Estimate. (f) Forecast. Source: Central Bank of Chile. | 0 |
Users typically describe money as ‘good’ if it has a stable value over time, is broadly accepted, and enables efficient payments. Given these parameters, it seems unlikely that crypto tokens will be widely used as money in Switzerland. The picture may be different for stable coins, however. These are designed in such a way that they can potentially assume the characteristics of good money – for instance if they are pegged to stable, official currencies. In the simplest case, such an anchor would consist of a single currency. Let’s take an example: An issuer of stable coins in Swiss francs would typically pledge that his tokens are equal in value to Swiss franc cash. When it comes to classifying these kinds of stable coins, two important factors need to be taken into Page 3/7 consideration. The first concerns the strength of such a pledge. Does the issuer explicitly commit to instantly and unconditionally converting the stable coins into Swiss franc cash at nominal value? Or is the pledge merely a statement of the issuer’s intention to keep the exchange value of his tokens stable against the Swiss franc? The second key point concerns the credibility of the pledge. In the case of a Swiss franc stable coin, the more extensively the issued tokens are backed by Swiss franc-denominated assets – and the more liquid and intrinsically valuable these assets are – the more credible the pledge will be. | Central banks' governors in Islamic countries, members of the Islamic Development Bank realized the importance of such consolidation 25 years ago when a technical committee was formed, including a number of governors and specialists, of which I was honored to be the chairman, to consider the needs of Shari'a compliant banking services. The most important recommendation was that Islamic banks must be subject to the same supervisory rules and requirements as those that govern conventional banks, with the necessary flexibility, taking into account their specific work methods and products so as not to isolate these banks from global financial markets. Encouraging Islamic banking institutions to integrate into global markets will push them forward to compete with all other financial institutions, stimulating them to innovate to meet the needs of corporate and individual customers, expand their scope and base of work, and not to be tied to a specified category of customers or specific markets. This will help them adapt with the requirements of the global financial system, provide them with necessary instruments, helping them develop and reinforce their structures, and facilitate their spread. BIS Review 14/2007 1 Dear Brothers Banking business, in all its types and forms, is not free from risks that pose a challenge to banks and supervisory authorities. In this context, Islamic banks, like their conventional counterparts, are financial institutions providing services to depositors and investors, on the one hand, and offer financing to companies, public sector and individuals, on the other. | 0 |
Sustainable investing must go mainstream. In short, every financial decision must take climate change into account. Achieving that requires improvements on three Rs: reporting, risk management and return. On reporting, TCFD standards must be enhanced to be as comparable, efficient and decision-useful as possible. And we need to develop pathways to mandatory climate disclosures. To manage risks, disclosures need to go beyond the static to the strategic. We must assess the resilience of the core of the financial system to transition risks, including through stress testing. The Bank will publish a discussion paper on our planned climate stress test tomorrow and we look forward to taking this forward internationally through the Network for Greening the Financial System (NGFS). On returns, asset managers and asset owners will increasingly have to assess the transition paths of their investments and report their impact to their clients. Our citizens need to be able to see whether their investments are consistent with the path to net zero. Central banks cannot stand on the side lines of this revolution. And with Benoit’s research and Christine’s leadership, I am confident that the ECB will be at the vanguard. Conclusion 8 All speeches are available online at www.bankofengland.co.uk/news/speeches 8 Benoît, on behalf of everyone here tonight, I’d like to thank you for your tremendous work at the ECB and as Chair of the CPMI. The flood of acclaim you’ve received is rightly bestowed. | Fortunately, the financial guillotine is not preordained, for Benoît did not spend his days in power as did Louis XV. Where the king grew idle, Benoît remained frenetic (189 public speeches during his eight years). Where the king was conservative, Benoît was radical. Where the king became nostalgic, Benoît always looked forward. If central banks are to rise to their challenges and serve our citizens, we will need to build on Benoît’s legacy. I. Improving market functioning Let me start with market functioning. Before the crisis, financial alchemy appeared to have sliced, diced and distributed risk to those who wanted it most. The revolutions in securitised and derivative finance were cheered on by policymakers who saw more markets as the solution to any market failures and who believed the lie that markets always clear. But of course markets always clear only in textbooks. In reality, people are irrational, economies are imperfect, and nature itself is unknowable. The pre-crisis system had merely spread risk, contingently and opaquely, in ways that often increased it. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches 2 Once the crisis began, risk quickly concentrated on the balance sheets of intermediaries that were themselves capital constrained. And with the fates of borrowers and lenders tied together via hyper-globalised banks and markets, problems at the core spread violently to the periphery. The post-crisis response included major reforms to simplify markets and make them more robust. | 1 |
The black line is the difference between the current interest rate path and the path in the previous Report. The “interest rate account” is a technical model-based illustration of how the change in the interest rate forecast from the previous Report can be decomposed by different exogenous shocks to the model. The illustration shows how changes in the assessment of international and domestic economic variables as well as changes in shock processes have affected the interest rate path, and is based on our core forecasting model. Since the “interest rate account” follows from a specific model, the exact decomposition is model-dependent and should thus be interpreted as a model-based illustration rather than a precise description of the Executive Board’s reaction pattern. Notwithstanding this reservation, the “interest rate account” serves several purposes. First, it gives information about the reaction function. Second, it provides a compact summary of the Monetary Policy Report. Third, it is a tool of communicating commitment. Norges Bank aims at influencing expectations in order to stabilize inflation. In this respect, our policy has elements of commitment. The interest rate forecast should reflect economic news and not re-optimisation of monetary policy. With an “interest rate account”, the public is better able to check whether the central bank honours past commitments. Let me turn to the criteria underlying the interest rate forecast and reaction function. Among the few central banks that publish interest rate forecasts, it is common to communicate these in quite general terms. | To a large extent, such competition has been the outgrowth of a fundamental change in the general approach to mortgage lending. Traditionally, mortgage financing was approached as a credit rationing process. In contrast, today banks compete aggressively for borrowers by packaging highly competitive spread of home loan products to meet different needs of borrowers. In the more developed markets, this has manifested in more prevalent sales of non-traditional mortgage products to sub-prime borrowers as competition for borrowers has intensified. The rise of investment property has also been striking, with significant growth in this loan class observed in Malaysia relative to owner occupiers. In this environment, it is important that banks develop a more complete understanding of the full spectrum of risks presented in this business. The dangers of complacency have been BIS Review 3/2010 1 clearly demonstrated in the devastating consequences of this global financial crisis. Basic failures in risk management and oversight have been cited as a key characteristic of financial institutions that suffered large losses during the crisis. In many instances, boards and senior management of these institutions neglected to understand and control their institutions’ balance sheet growth and the risks that they were exposed to. Some institutions in fact made deliberate strategic decisions to retain large exposures to financial instruments linked to subprime assets but failed to take appropriate measures to control or mitigate those risks. | 0 |
The unease on the financial markets has also contributed to falling long-term interest rates in Sweden, the euro area and the United States (see Figure 2). How does this fit together? Well, in turbulent times investors flee high-risk investments such as shares and turn instead to safe assets like government bonds from countries with a low credit risk. As a result, the price of bonds increases and interest rates fall. Basically, the financial unease is due to the problems with public finances, above all in southern Europe, and in these countries government bond rates have instead increased substantially (see Figure 3). This is because investors, as in the case of shares, believe that it is increasingly risky to invest in these assets, so prices fall and interest rates increase. There has also been a significant fall in commodity prices recently, which is partly because the emerging economies have also been affected by the international turbulence (see Figure 4). Strong demand from the emerging economies has been an important driving force behind the upturn in commodity prices in recent years. In parallel with the unease on the financial markets, there has also been a considerable decline in confidence in the world economy (see Figure 5). So what is it that is causing so much unease? Let’s begin by looking more closely at the situation in Europe. | I would briefly like to develop these two points. The past two decades have been characterised, on the one hand, by an increasing integration at the global level of goods, services and capital markets and, on the other, by a reduction in inflation that has stabilised at low levels. Given the coexistence of these two phenomena, a number of observers have concluded that there appears to be a causal link. Where exactly do we stand today? BIS Review 28/2008 1 For over ten years, with the growing integration of our economies in the past few decades, powerful forces, throughout the world, have been acting to enhance price stability. Each year, the arrival of tens of millions of people on the world market increases global production capacity, in particular for tradable goods. For monetary policy in developed countries, this process is equivalent to a sequence of positive supply shocks that take the form of a spontaneous decline in the import prices of manufactured goods. All other things being equal, this terms-of-trade gain allows for a lower inflation rate for a given capacity utilisation rate. More fundamentally, and although things seem to be less straightforward in this area, it is possible that the increasing openness of our economies may have structurally changed the wage and cost formation process in a manner that favours price stability. Heightened competition triggered by imports reduces the market power of firms at the national level. However, other more indirect effects are also detectable. | 0 |
One of the main reasons for reduced demand pressures in the economy is that GDP growth has subsided after peaking in 2016 and is now approaching its longterm trend rate. The slowdown in GDP growth reflects weaker export growth, as the tourism boom cannot be expected to continue at the pace seen in the recent past. Furthermore, the improvement in terms of trade has slowed down considerably. This means that the effects of the positive shocks that enabled us to grow rapidly and simultaneously keep inflation low are tapering off. The appreciation of the króna played a major role in the economy’s adjustment to these shocks. However, the Bank intervened in the foreign exchange market and imposed a special reserve requirement (SRR) on capital inflows to prevent the Thórarinn G. Pétursson (2018), „Disinflation and improved anchoring of long-term inflation expectations: The Icelandic experience“, Central Bank of Iceland Working Paper no. 77. This improved performance of monetary policy is also discussed in detail in Central Bank Special Publication no. 11, entitled “Monetary policy based on inflation targeting: experience since 2001 and post-crisis changes”. See: www.sedlabanki.is 1 1 króna from overshooting. Now, however, a significant additional rise in the real exchange rate would be risky. Interest rates in Iceland are currently low in historical context, particularly in view of the business cycle position. With one short-lived exception, indexed Treasury bond rates have never been lower, and indexed mortgage lending rates are also at a historical low. | 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 |
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