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The VBI Community of Practitioners have collectively issued sectoral guidelines on palm oil, renewable energy and energy efficiency, that serve as an impact-based risk assessment toolkit to assist financial and investment decisions of banks. The takaful industry has followed suit with the issuance of the VBI for Takaful Framework that integrates the principles of VBI into products and business practices that promote financial resilience and climate risk management. Conclusion Before I end my remarks, I would like to touch on the importance of the right skill set that can future-proof our halal industry. As we navigate beyond the pandemic, leaders in halal business community have to be agile and forward looking. This includes keeping abreast of the latest technology and constant up skilling to embrace digitalisation. In recognising the potential of digitalisation as a key ingredient to assist halal businesses, the Bank provides an enabling environment for financial institutions to foster innovation such as through the fintech regulatory sandbox and facilitation of pilot projects. These avenues enable the Bank to identify potential adjustments or responses to the existing regulatory framework that commensurate with the risk and scale of activities. The Bank has also established the SME Automation and Digitalisation Facility (ADF) in March 2020, which aims to encourage SMEs to automate processes and digitalise operations to increase productivity and efficiency. In March 2021, an additional allocation of RM700 million has been provided for the ADF, bringing the facility’s total size to RM1 billion. | Misconduct costs by banks globally have exceeded USD320 billion since 2008, with USD42 billion incurred in 2016 alone. At the institutional level, there should be a ‘clear tone from the top’ that unethical behaviour will not be tolerated. This culture of ‘zero tolerance’ for unethical behaviour should permeate across all levels of the organisation, including in the process of recruitment, retention and remuneration. As a community, we cannot possibly expect ethical behaviour to be burnished if we persist in retaining, hiring or rewarding people who had acted otherwise. Our work environment should also evolve, making it conducive and safe for individuals to speak up on ethically questionable practices. Encouraging conversation about ethical behaviour in the workplace can go a long way in empowering all layers in the organisation to serve as an ethical beacon. This can significantly reduce the probability and occurrence of unethical conduct. The third is Calling. We should marvel at the deep sense of purpose and identity contained in the medical profession. One sentence in the modern version of the Hippocratic Oath is particularly resonating: “I will remember that there is art to medicine as well as science, and that warmth, sympathy, and understanding may outweigh the surgeon’s knife or the chemist’s drug.” Ultimately, to make sense of what we do in our profession, we cannot shy away from its purpose. | 0 |
The FPC made clear last year that to deliver that regulatory outcome “regulatory safeguards will be needed for a non-bank systemic stablecoin to ensure that the coin issuance is fully backed with high quality and liquid assets, alongside loss absorbing capital as necessary, to compensate coinholders in the event that the stablecoin fails”[9]. It also made clear that in the absence of deposit protection for coinholders, other elements of the regime would need to be strengthened to deliver the necessary level of assurance. The consultation will set out in more detail how the coinholders’ claims on the stablecoin issuer and wallets should be structured to deliver redemption at par in line with commercial bank money, how the backing assets should need to be managed to ensure they are always available to meet redemptions and, more generally the requirements for corporate structure, governance, accountability and transparency necessary to meet the standards we expect in other parts of the financial system that carry out the same functions. The FTX example underlines how important these aspects are. The legislation covers the use of crypto technologies for the payments function. The Treasury intends to consult in the near future on extending the investor protection, market integrity and other regulatory frameworks that cover the promotion and trading of financial products to activities and entities involving crypto assets. At present, in the UK, it is, to a large extent, only the anti-monetary laundering regulatory framework which applies to these activities and entities. | Untangling exactly what happened at FTX will no doubt take a great deal of time, effort and investigation by the relevant authorities. For anyone interested in the scale of the challenge, I can only recommend a quick read of last week’s bankruptcy filing. But while we will not know in full how it happened for some time, there do appear to be some general themes that are very familiar to those who regulate and supervise conventional financial firms and financial instruments. The first are fundamental issues around how financial institutions should be organised, by which I mean their corporate structure, governance, internal controls and record keeping. Regardless of the financial service activity – be it banking, insurance, exchanges, clearing houses – regulation in the conventional financial sector imposes stringent/substantive requirements. Supervision aims to ensure that these are implemented. These requirements reflect the risks inherent in financial services – risks to the users, risks to other financial firms and risks more broadly to the financial system. Technology in and of itself does not change the need for transparency in corporate structures, governance, audit and systems and controls – for example to protect customers’ funds. In a similar vein, and to prevent conflicts of interest, regulation imposes requirements and Page 3 constraints on the connections between a financial firm and its affiliates, while also requiring controllers to be fit and proper. In this respect, transparency in corporate structures and the relationships between them is the key foundation. | 1 |
SPEECH DATE: 7 December 2016 (Correction 12 Dec 2016, Figure 8 has been corrected in this version) SPEAKER: Deputy Governor Per Jansson VENUE: Swedbank, Stockholm SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergst org 11) Tel. +46 8 787 00 00 Fax +46 8 21 05 31 registratorn @ riks ban k.se www.riksb ank.s e Time to scrap the inflation target? * To avoid keeping you on tenterhooks, I shall begin by answering the question in the title of my speech. No, it is not time to scrap the inflation target, in case any of you thought I wanted to. The question is of course rhetorical. The reason I ask the question is that I think it has been the focal point of the recent debate in Sweden, although it is not usually expressed so directly. Following the financial crisis the foundations of monetary policy certainly have been discussed and questioned around the world. But my feeling is that the debate has been driven further in Sweden than in most other countries. Monetary policy in Sweden has often attracted interest from other countries. One reason is that we have often been among the first to implement changes in the monetary policy framework and thus become an interesting object of study. As is well-known, Sweden was one of the very first countries to introduce inflation targeting in the early 1990s, and we have in many respects remained at the front edge since then. | When setting up these transactions, firms should be prepared for questions from supervisors about the substance, as well as form, of their proposals. Treatment of liquid assets. Similarly, the letter of the regulation allows firms to account for the value of the liquid assets in their liquid assets buffer on a "hold to maturity" basis rather than on a trading basis, under which their reported value would be updated daily in line with market conditions. This is an important concession for firms who do not have a trading book but it means that market value gains and losses on the portfolio remain undeclared until the assets are sold. This practice raises the risk that – especially if gilt yields should rise – market price movements in liquid assets buffers could lead to unrealised losses. If this were to happen then the firm may be unwilling or unable to sell the assets. For which firm would want to sell liquid assets and declare unrealised losses at a time of liquidity stress? If the firm has access to the repo market, it may be able generate liquidity through repo. But there may be limited liquidity available in the repo market, so the liquidity of the liquid assets buffer would be impaired. Of course, if the assets in the liquid asset portfolio concerned carry very low risk, and their possible market value changes are small, "hold to maturity" accounting should not be of any concern to a well-run firm or a well-informed supervisor. | 0 |
This requires effective cooperation with foreign authorities in a crisis, for which, in turn, the global resolution plans are an important prerequisite. As regards emergency plans, both Swiss big banks have introduced significant measures by setting up Swiss subsidiaries which combine systemically important functions in one entity. The key point here is that the Swiss units must be sufficiently independent from the rest of the bank, both operationally and financially. Both big banks have to implement their emergency plans by end-2019 at the latest. FINMA is responsible for the definitive assessment on whether the plans allow systemically important functions to be maintained in practice. Domestically focused banks I would now like to turn to the domestically focused banks. For these banks, the mortgage and real estate markets still represent the greatest source of risk. Growth on these markets has remained fairly constant over the last six months, and at a relatively low level. At the same time, imbalances on the mortgage and real estate markets have fallen slightly overall, owing to developments in fundamentals. Despite this most recent development, the risks that have been building in the Swiss banking sector since the beginning of the low interest rate period in 2008 remain considerable. Thus, imbalances on the mortgage and real estate markets are still approximately as high as they were in 2014, when the sectoral countercyclical capital buffer was set at 2%. | In the context of long-term interest rate developments, there are some good arguments which say that, in the future, the average interest rate level could be lower than in the past. But that does not mean we should assume that the current level of interest rates represents the new equilibrium. Even assuming that the average interest rate level will decline, the prevailing level of interest rates in recent years has been exceptional. For example, long-term rates are currently just under 300 basis points lower than the average in the ten years before the onset of the financial crisis. Moreover, experience shows that, depending on economic developments, interest rates can increase very rapidly and unexpectedly, overshooting longterm equilibrium values. A broad-based reduction in the imputed rate or a further increase in interest rate risk exposures across the board could also lead to a renewed acceleration of momentum on the mortgage and real estate markets. The SNB will continue to monitor developments closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer. Announcement of issuance date for 20-franc note I would like to close with a few remarks about the new banknote series. On 12 April 2016, the SNB successfully released the new 50-franc note. The new note has since proved its worth and its reception among the public and experts alike has been broadly positive. | 1 |
Economists understood the broad problem, but somehow failed to draw or contemplate the correct conclusions, despite our knowledge of previous episodes of financial collapse. However, the charge against the economics profession also has merit in that ultimately these global imbalances gave rise to or produced perverse economic incentives in financial markets which existing models did not or could not contemplate. This was compounded by a lack of regulatory oversight of key sectors of the financial market. But let me return now to the question of Africa and the global financial and economic crisis. How does Africa respond to the real prospect of lower growth than is necessary to reduce poverty on a sustainable basis? I believe that Africa needs to retain open economies, expand regional markets and integration; and expand the reach and benefits of the market economy. Zambia has been an active and founder member of the Southern African Development Community (SADC) as well as the Common Market for Eastern and Southern Africa (COMESA). Through these bodies Zambia is looking to leverage its own potential through projects such as the North-South Corridor under COMESA, which seeks to open up efficient transport routes for the flow of goods, service, and people, from the south to the north of Africa. Further, under SADC Zambia is looking to develop its vast hydro-electric power potential, estimated at around 6,000MW, as well as transmission infrastructure to enable Zambia to supply countries in the East African Community which face severe power deficits. | Further, whilst real GDP growth is anticipated to recover to 4.1% in 2010, this is significantly below the minimum annual growth rate of 7% that is thought necessary to move SSA towards a significant achievement of its Millennium Development Goals (MDGs) by 2015. 2 There is thus a strong possibility that without an appropriate policy response, SSA may be caught in a period of much lower growth rates over the coming years than is necessary to reduce poverty on a sustainable basis – reversing the important gains that have been made this decade. Africa, with 30% of the global population, still contains a large proportion of the world’s poor. Africa’s share of global trade and investment inflows also remains small in absolute terms and relative to Africa’s vast potential. The second point I wish to make is that prior to the crisis, many Governments in SSA registered improvements in fiscal space which reflected not only the broad commodity price boom that began at the turn of the current decade, but also painful structural reforms aimed at expanding the market economy and implementation of greater fiscal discipline. In this regard, the impact of the crisis for many Governments in SSA is lower growth, the sharp contraction in imports as the external sector adjusted, and lower trade volumes in general, have led to a sharp reduction in Government revenues and a contraction in fiscal space. | 1 |
19.09.2022 Inflation and economic growth in the euro area: monetary policy and the role of other economic policies* Joly Andalucía Forum Pablo Hernández de Cos Governor * English translation from the original in Spanish * Ladies and gentlemen, please allow me, first, to thank the organisers of the Joly Andalucía Forum for inviting me to take part in this event. In my address today I will present an overview of the economic situation in the euro area, aiming to explain the latest ECB monetary policy decisions. I will also briefly refer to the role that other economic policies should play in such a complex and uncertain economic scenario as the present one. The negative effects of the war in Ukraine on the European economy are heightened by its impact on energy markets Europe is particularly exposed to the economic effects of the Russian invasion of Ukraine, given its geographic proximity, its close trade and financial ties with Russia and, especially, its high dependence on fossil fuel imports from Russia, with limited capacity to replace these imports in the short term. Since the start of the war, the flow of Russian gas to Europe has decreased significantly, and recently the supply has effectively been shut off completely. Concerns about winter gas shortages have increased in some European countries. At the same time, gas prices on the Dutch TTF market, the European benchmark, have soared. The price of natural gas remains extremely volatile. | Certainly I seriously underestimated the scale of the downside risks from a potential financial crisis, and that implied overrating the ability of monetary policy to offset this shock. I will return later to the question of how a more long-term perspective might sometimes alter the desirable approach to policy. Before that, I want to discuss some issues around the MPC’s inflation projections and how we assess uncertainty. The balance of demand and supply The MPC’s projections for inflation, absent external shocks, are determined to a significant extent by our judgements about inflation expectations and about the likely developments in the pressure of demand on supply (this phrase is a better description than the more usual “output gap” – however I will now use the latter as a convenient shorthand). During my stint 4 Large (2005). 5 Gieve (2009). 2 BIS Review 27/2010 on the MPC, the way in which we have chosen to assess the output gap, as reflected in the assumptions underlying our main macro-model, has changed on a number of occasions. Of course, one model has never been the sole guide to our projections – a number of other models are also drawn on as appropriate. And the final shape of the fan charts published in the Inflation Report is the product of the MPC’s judgement including on the insights from these models. | 0 |
Gazi Erçel: The role of the euro from the Turkish standpoint Speech by Mr Gazi Erçel, Governor of the Central Bank of the Republic of Turkey, made during the 6th International Financial and Economic Forum, held in Vienna on 9 November 2000. * * * Ladies and Gentlemen, I would like to thank the organizers of this conference for inviting me to share my thoughts on the euro’s role as seen from the Turkish point of view. Of course, the introduction of the euro is affecting not only the economies that are members of the European Union but also non-member economies that have close links with members. These include emerging market economies much of whose trade and financial transactions is with European Union members. Those whose external debt is largely denominated in European Union currencies will be affected the most. Even though Turkey is not yet a member of the European Union, it has close ties with countries that are. Not only does Turkey carry on a large volume of foreign trade with EU members, it is also the only candidate for membership that has entered into a customs union with the EU, signed at the end of 1995. Turkey’s close relationship with EU countries and the present role of the euro in the Turkish economy are illustrated by the following: • Europe is Turkey’s largest trading partner. | And no doubt the world economy will also have a share in these benefits. 3 BIS Review 109/2000 | 1 |
Although it had been tough, it is heartening to note that many developing countries have, since of late, been able to do so. But the challenge is becoming more and more intense by the day, and policymakers have to be constantly alert to developments on several fronts simultaneously, in order to continue with the same momentum. Investments have to be boosted; institutions need to be strengthened; infrastructure has to be improved; regulation has to be strengthened. In addition, all this has to happen at the same time. In the meantime, global challenges and risks loom large. Some of the downside risks are so intense and serious that those could even threaten the very foundation of the present growth momentum, and drag the developing nations as well as the entire world economy towards recession! There are many such dangers lurking. The current financial market turmoil could trigger a more pronounced global slowdown. The unbelievably high and volatile oil prices and the resulting inflationary pressures could lead to severe BOP problems, disrupt capital inflows and cause large global imbalances. The aging population, the intensification of resistance to globalization, the havoc that may be caused by global warming and the danger of terrorism could all lead to serious repercussions to the sustainable growth models that the economic planners are attempting to implement. But the good news is that there is sufficient evidence to indicate to us, that many developing countries are implementing a number of structural changes order to face upto these growing threats. | Secondly, Turkey had lived through the first stage of dollarization in which the foreign currency is used mainly as a store of value and partly as a unit of account, but not as a medium of exchange. In this context, the dollarization in Turkey can be called as financial dollarization. Distinguished Participants, After the 2001 crisis, the implementation of tight monetary and fiscal policies together with the structural reforms has enabled the country to bring the inflation down to single digit numbers and to reduce the ratio of public debt to GNP significantly. Also, financial markets have become deeper and less fragile. In this context, the banking sector reform that aimed to strengthen the regulation and supervision of the banking sector, restructure the public banks, improve the asset and loan quality and the capital adequacy ratio of the system has been of great importance. Additionally, the progress made towards economic stability, particularly the significant decrease in inflation, enabled us to drop six zeros from the Turkish currency. This currency reform has increased the credibility of the Turkish currency both in internal and external markets. The issuance of the New Turkish Lira debt instruments by foreign banks in the international markets is an important indicator of this increasing credibility. Consequently, the desire and the need to invest in foreign currency in order to hedge the value of wealth decreased significantly and investors have started to increase the share of Turkish currency assets in their portfolios. | 0 |
On behalf of the Hong Kong SAR Government, I extend a warm welcome to all of you who are visiting Hong Kong from overseas, particularly those who are here for the first time: I hope that this will be an enjoyable and memorable stay. The broad implications of China’s accession to the WTO What will China’s accession to the WTO mean for China and the rest of the world? For China - which is already the world’s ninth largest trading entity - it will mean more external trade, and external trade of a better quality. There will be substantial tariff reductions among China’s existing trading partners and there will be access to more trading partners for China. At the same time, China will be cutting its tariffs on a broad range of products, from agricultural to industrial. Tariff reductions allow comparative advantage greater play. They will help eliminate trade distortions and facilitate more efficient allocation of resources among the trading partners, thus further promoting economic growth globally. The World Bank’s estimates give an indication of the growth potential of China’s trade on its accession to the WTO. China’s share in world exports will double in the space of five years: from the present 3.7% to around 7.3% by 2005. China’s share in world imports is expected to rise marginally faster than its share in exports: from the present 3.4% to 7.2% in five years’ time. | The object depicted is linked to each note’s key motif. On the 20-franc note, the object is a butterfly, and on the 200-franc, a particle collision. The key motifs of the six notes are time, light, wind, water, matter and language. As I mentioned earlier, the security features are the same for all denominations. I hope you like the new banknote series as much as I do. Now that all the notes are here, people can choose their own favourite. Before I finish, I would like to take this opportunity to Page 2/3 Berne, 3 September 2019 Fritz Zurbrügg News conference on new banknotes express our heartfelt thanks to Manuela Pfrunder and her team, and to congratulate them on a tour de force in designing the series. And with that, I will hand you over to our Chairman, Thomas Jordan, who will look back over the project and the challenges it presented, both for the SNB and for our partners. Page 3/3 | 0 |
In the course of 2005, office rental prices began to pick up in the largest Norwegian cities, with considerable variation within the various quality and location segments. The rise in consumer prices has also edged up since the beginning of the cyclical upturn. The year-onyear rise in the consumer price index (CPI) was 2.6 per cent in September. Energy products such as electricity and oil have put upward pressure on inflation over the past year. Electricity prices, including grid rent and taxes, were 48 per cent higher in August than one year earlier, while petrol prices were 1 per cent higher. Since the beginning of 2001, the rise in energy prices has been over 7 per cent on average. Variations in energy prices may also lead to wide monthly variations in consumer price inflation. As a result of high electricity prices, the rise in CPI inflation will remain steady though 2006. Energy prices are expected to fall in the spring of 2007, dampening the rise in CPI inflation. The rise in prices for non-energy goods has been moderate in recent years. Price impulses from imported consumer goods have been particularly weak. Their contribution to inflation has been negative virtually every year since the mid-1990s, partly reflecting increased trade, a shift in imports towards low-cost countries and a substantial improvement in distribution efficiency in Norway. Price impulses from imported consumer goods are expected to continue to exert downward pressure on inflation for some time ahead, albeit to a lesser extent than in previous years. | There are prospects of strong growth in the Government Pension Fund - Global. Given our assumption for oil price developments ahead (oil futures), spending in line with the expected real return on the Fund implies that the structural, non-oil deficit may increase by close to NOK 15 billion at 2006 prices in both 2008 and 2009. With a period of strong expansion in the Norwegian economy, somewhat lower petroleum revenue spending may be in line with the fiscal rule. Strong growth in the Norwegian economy is boosting tax revenues and reducing spending on unemployment benefits. Over a three-year period, the economic turnaround has strengthened the budget by about NOK 30 billion. In the structural budget deficit, which is the basis for formulating fiscal 4 BIS Review 108/2006 policy, adjustments are made for such cyclical deviations. Fiscal policy that is expansionary during a downturn and contractionary when the economy is experiencing a boom has a stabilising effect. Our projections are based on the assumption that the central government budget will generate some stimulus to total demand and output in 2008 and 2009, but somewhat less than the expected return on the Fund would imply. The path for domestic and external interest rates does not imply considerable changes in the krone exchange rate. Neither the appreciation of the krone last spring, nor the depreciation this autumn can be explained to any appreciable extent by changes in interest rate expectations. Historically, the relationship between oil prices and the krone exchange rate has been unstable. | 1 |
What I now have to say about the economic situation in Sweden is largely taken from the latest inflation report, which was published about a fortnight ago. 2. The economic situation Activity is strengthening In the period since 1993, when economic activity in Sweden turned upwards after the profound crisis, growth in annual terms has averaged 2.7 per cent, which is higher than we were accustomed to in the inflationary period in the 1970s and 1980s. The growth has also had a favourable composition, coming primarily from exports and investment. This has contributed to a period of expansion without any appreciable capacity shortages. The good export performance has also led to sizable current account surpluses, making it possible to repay foreign debt. Private consumption has been restrained by the measures taken to consolidate government finance. This consolidation will continue on a substantial scale in the years ahead but its effects have probably peaked. Together with a pent-up consumer demand, this leads us to count on rising private consumption, though the labour market situation is a factor that we believe will tend to make the increase relatively cautious. GDP growth in 1996 was held back by destocking and a continued fall in public consumption and investment. We envisage that the stock adjustments are now coming to an end. Together with some increase in consumption and a continuation of strong exports, this means that the outlook for growth in the coming years is relatively bright. | This is especially the case in the most recent phase of the crisis, when sovereign debt concerns and their interaction with the strength of bank balance sheets have been central. In those euro area countries where government and banking sector balance sheets remain sound and access to external financing has been maintained, the transmission of monetary policy continues in line with historical regularities. But in those countries where the sovereign debt and bank funding markets have virtually seized up, its transmission is threatened. The interest rates on corporate loans and on mortgages, which ultimately affect real economic activity, will be higher in countries where banks are having funding problems. The increase in bond yield spreads experienced by the countries hardest hit by the sovereign debt crisis is likely to be passed through, in large part, to the cost of financing for the private sector. Indeed, the latest data on bank interest rates show that mortgages and corporate loans are significantly more expensive to service in those countries with sovereign debt tensions. For example, while lending rates on loans to non-financial corporations have tended to fall in all euro area countries since October 2008 – following the reduction of ECB policy rates – the fall has been less pronounced in Greece and Portugal. In December 2009, lending rates on loans to non-financial corporations in these two countries were approximately 1 percentage point higher than in Germany. | 0 |
11 [12] Svenska Dagbladet (2016), “Professor: Riksbanken agerar dumt och verktygslådan är tom” [Professor: The Riksbank is acting stupidly and the tool-box is empty], 1 February 2016. Sveriges Riksbank (2010), “What is a normal repo rate?” Article in Monetary Policy Report, February 2010. Sveriges Riksbank (2015a), “Why is it important that inflation rises towards the target?”, Article in Monetary Policy Report, July 2015. Sveriges Riksbank (2015b), “Minutes of the monetary policy meeting held on 11 February 2015”. 12 [12] | The role that microfinance institutions play in financial inclusion is therefore very crucial. Over the years, the microfinance institutions in Zambia have played a significant part in the provision of financial services, particularly for low-income households. Although access to finance remains low, microfinance institutions have had a somewhat positive impact on the economic activity of low income households, in both urban and rural areas. I am hopeful that the microfinance sector will continue to bridge the financing gap especially to the unserved population. However, the Bank of Zambia continues to receive a number of customer complaints on the high cost of micro loans in the country. It has been observed that the interest rates charged by some institutions exceeded 300% per annum in some cases. Furthermore, in most instances the effective rate of interest and other charges are not disclosed to the customers resulting in them paying much more that what was initially publicised to them. This has raised ethical questions regarding transparency and the role of microfinance institutions in poverty alleviation and economic development in Zambia. In addition, although, the interest rates of microfinance loans may vary significantly relative to the duration and size of the loan, it is incumbent upon all microfinance institutions to provide clear information on the cost of the loans and options available. It is also important for institutions to sensitise customers on what products may best suit their incomes and to educate them to borrow prudently. | 0 |
Lars Nyberg: The Riksbank and the property market Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at a lunch meeting, arranged by Connect Skåne, Kristianstad, 6 November 2006. * * * To begin with, I should like to thank you for the invitation to come here to Kristianstad to speak about developments in the property market. This is a subject that certainly engages people, not merely us economists but also people who are not usually interested in economics or what the Riksbank does. The main interest is probably due to a house purchase being the largest individual investment most of us make in our lives. The Riksbank’s interest in the property market is based on the two tasks we have been set by the Riksdag (the Swedish parliament). One is to ensure that inflation remains at two per cent a year, with a tolerated deviation interval of plus/minus one percentage point. The other task is to "promote a safe and efficient payment system”, as it says in the text of the law. We wish to avoid the type of catastrophe Sweden experienced during the bank crisis at the beginning of the 1990s and we usually call this safeguarding financial stability. As I shall discuss a little later, developments in the property market can be significant for both these tasks and this is the reason for our interest. | Those are absolute prerequisites for stability in banking. Active, and sometimes intrusive, supervision of banks, and particularly of global banks, has to be at the foundation for stable banking and finance. I don’t think any reconfiguration of the structure of banking and finance is going to get us to an intrinsically safer system, taken as a whole. And we have to remember that this last global crisis, which is still with us in many ways, started not with large universal banks or large global banks, but with narrow or specialised players. Countrywide (the mortgage provider) in the US, Northern Rock in the UK, investment banks like Bear Stearns and Lehman Brothers. It was accentuated through AIG’s Financial Products division, which played a prominent role on the derivative markets. But it was not global banks that sparked off the crisis, although they helped propagate it globally. It bears reminding ourselves of that. BIS central bankers’ speeches 1 No matter how we restructure the system, no matter how we cut down or dice the pieces, banking will involve risk. And without the right culture – whether it’s about an investment bank or commercial bank or a mono-line player – and without the active and intelligent supervision, we’d have the same problems over and over again. The problems that underpinned this global crisis were old-fashioned problems – property booms that were misjudged by banks, regulators and borrowers; and the problem of banks relying too heavily on borrowing short term to invest long-term. | 0 |
It would be dangerous to financial stability if we gave so large a capital carrot to banks to use the internal ratings based approach that many of the world's most important financial institutions, which account for the vast bulk of global and G10 domestic banking activity, saw a significant reduction of their regulatory capital requirement. It is the need to balance incentives with the maintenance of overall capital levels which makes this issue a difficult one. This, along with a large number of other questions about the impact of the proposals, will be further examined by the Committee in the course of a quantitative impact study to be carried out before finalising the proposals. The Bank of England has been asked to co-ordinate this work calibrating the impact of the new Accord on individual institutions and on the system as a whole. I recognise that the time allowed for this exercise is short, but I hope very much that we can count on the contribution and co-operation of the banking community. 2 BIS Review 29/2001 Turning to the second possible consequence of maintaining a risk insensitive alternative approach, we may find that the combination of having some banks on the IRB approach and some on the standard approach will, perversely, introduce a financial stability risk that is not present with all banks on the standard approach. This is that the more sophisticated institutions would have to hold more regulatory capital against weak loans than banks that remain on the standard approach. | The Committee's statement that ratings should not be 'point in time' but 'must represent a conservative view of a long run average probability of default for the borrower grades' attempts to introduce such a balance. Such ratings ought to be reasonably robust to the normal ups and downs of economic activity. The Committee has backed this up with requirements for minimum lengths of data histories to underlie the internal ratings, so helping to ensure that they incorporate some experience of economic low points. Over-optimism by banks in allocating ratings could also induce procyclicality. The Committee proposes several checks on this. In particular, supervisors will look at the ratings allocated to some individual loans, and also compare the distribution of loans across rating bands with those of different banks. Ultimately, of course, we will have to rely on those charged with daily supervision of banks, backed up by the Pillar 3 disclosure requirements, to ensure that ratings are not set in a way which risks undue procyclicality. Impact of the Basel Accord on SMEs Leaving aside the issue of how the risk sensitive capital requirements will behave over an economic cycle, I would also like to touch on the question of how they may affect the supply and pricing of finance to certain types of borrower. If risk sensitivity means a greater distinction between different types of borrower, we need to consider carefully whether the right outcome has been achieved. | 1 |
Elvira Nabiullina: Competition as the key driver for growth Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the meeting of the Association of Russian Banks, Moscow, 28 March 2017. * * * Good afternoon, distinguished colleagues! The Association has chosen the right title for today’s discussion - Competition as the Key Driver for Growth. A comprehensive look at what the Bank of Russia does in the banking sectors - both as a regulator and a supervisor - suggests that it is engaged in shaping a healthy competitive environment and fair competition. The competitive environment is key to the sustainable development of the banking industry. Supervision objectives are often contrasted with market development goals. However, this is a serious mistake. I believe there is no need to remind you that removing fraudulent, unstable and unfortunately - often criminal actors from the banking sector is the Bank of Russia’s top priority. We resort to licence revocation when we see that the bank’s management and owners act against the interests of its depositors and creditors, that the bank is unable to regain stability because it is facing capital shortages. If we fail to revoke the licence from such a bank, it will continue to produce falsified statements and take money from depositors – openly stealing from them and diverting their assets – or lend to inefficient projects of parties affiliated with the bank, etc. In short, such a bank will continue to mismanage and misuse other people’s money. | We run the risk of ending up with international banking groups in which the advanced approaches tend to be used almost exclusively by the parent company. I think that this outcome is neither optimal nor desirable, and falls short of the goals of improving the stability and efficiency of the international financial system, to which Basel II can make a much more effective contribution if it is applied appropriately. Problems also arise over how to consolidate the capital of these subsidiaries. Take, for example, a bank applying an advanced approach at group level with subsidiaries outside the home country that use a standard approach. This bank will have to perform a double calculation: first, using the method applicable under the approaches adopted by its subsidiaries; then, it must recalculate those same subsidiaries’ requirements using the approach for the group as a whole, ie that of the parent company in the home country, for consolidation purposes in order to calculate the overall capital requirement. This double calculation can impose a heavy burden - although a necessary one in some instances and will in any case require close collaboration between home and host supervisors to ensure that the entity’s overall system adequately takes account of the characteristics and sensitivity of the local market. The AIG is attempting to pinpoint which criteria would be acceptable at the consolidated level, assuming the - fairly frequent - scenario of a bank with subsidiaries governed by local requirements that differ from those of Basel II. | 0 |
How much it does so is, however, a matter of degree. If regulatory constraints act as control bounds on structurally defective business models, that strengthens the financial system, even if (indeed, precisely because) it constrains diversity. Empirical evidence suggests this latter effect dominated during the recent crisis. (ii) Discretion versus Rules The new architecture has introduced measures which are likely to make for a greater degree of supervisory or policymaker discretion in the setting of regulatory standards. This arises, most obviously, in the application of supervisory judgement to certain risks that banks face, to stress-testing and to macroprudential policy. Multiple regulatory rules have been augmented with considerable supervisory discretion. Viewed in the round, this new regulatory regime could reasonably be described as “constrained discretion”. Regulatory rules provide the constraint within which policymakers exercise discretion. In its broad contours, this new regulatory framework has some similarities with the prevailing monetary policy framework in a number of countries (Bernanke and Mishkin (1997)). These regimes have been found to be an effective way of balancing the pre-commitment necessary to avoid policy time-consistency problems with the flexibility necessary to respond to unforeseen circumstances (Arestis and Mihailov (2009), Borio (2010)). Equally, as in the monetary policy sphere, there is a question about whether this new regulatory regime strikes the right balance between regulatory rules and the degree of discretion with which they are operated. | In December last year, the People’s Bank of China and the Bank of Thailand concluded the bilateral local currency swap arrangements during the visit of Vice President Xi Jinping to Thailand. The Agreement provides for the exchange of respective local currency upto 70 billion yuan or 320 billion baht, to facilitate bilateral trade and investment. I believe this is a crucial role that the public sector can provide to give assurance to the private sector on the availability of their access to the yuan and the baht for their trade and investment needs. In addition, the Bank of Thailand received approval from the People’s Bank of China and China Securities Regulatory Commission to participate in the interbank bond market and securities market here in China. Our investment would allow our asset allocation and diversification to better reflect the increasingly important role of the yuan in international monetary system. Last but not least, I hope that the inauguration of our Beijing representative office will be more than just another success story. I truly hope that the spirit and friendship behind this long-standing relations and successes, nurtured earnestly over centuries, will continue to serve as solid foundations that will lead to even greater and closer future cooperation between our two nations. Let me end by thanking everyone for being an important part of this success. And, with Your Royal Highness’ permission, may I propose a toast to future success and cooperation as well as to your Royal Highness’s good health and prosperity. Thank you. | 0 |
I also implore management to provide support to various sectors of the economy, especially the priority sectors of agriculture, tourism, manufacturing and small-scale mining to effectively contribute to the development of the country. Ladies and Gentlemen, the introduction of the fourteenth bank in the banking sector will obviously come with its own challenges. For us at Bank of Zambia, this entails further strengthening of our supervisory capacity. We welcome this challenge and hope to rise to the BIS Review 117/2008 1 occasion by providing adequate supervisory infrastructure and an environment conducive to conducting good business. In the past few years, the Bank has embarked on a process of strengthening its supervisory framework through various initiatives. One such initiative is the adoption of an enhanced riskbased approach to supervision (RBS). The enhanced RBS approach will entail more regular interaction with the banks than previously in order to understand and monitor activities and risks on a continuous basis. As part of the adoption of the enhanced RBS, the BoZ has formulated Risk Management Guidelines to banks which will serve as a minimum standard in their design and implementation of risk management frameworks, relative to their size and complexity. Further, in 2006, the Bank issued Corporate Governance Guidelines to all Financial Service Providers. The guidelines set forth a broad framework of fundamental governance principles to guide the actions of directors and managers. This will strengthen governance in institutions and minimize the risk of bank failures as a result of bad governance. | The key to realising the higher return is to adhere to the strategy also in times of heightened uncertainty, as we did through the financial crisis in 2008 and 2009. An official framework for rebalancing back to a set allocation to equities has now been established. This will help ensure that this strategy is carried out during the next period of high volatility in financial markets. Chart: Lower costs Management costs for equities are higher than for fixed-income securities. The cost of managing many small shareholdings is higher than managing a few large ones, as is the cost of managing investments in emerging markets in relation to developed markets. Overall management costs as a percentage of the GPFG have nonetheless fallen over time. We have exploited its size to realise economies of scale. In the past few years, costs have been reduced also in krone terms. This is partly due to reduced use of external managers. Costs for external services, such as IT, custodian and settlement services, have also been lowered. Relative to the size of the GPFG, management costs are modest. Norges Bank continuously seeks to achieve efficiency gains without impairing the quality of investment management. In 2012, management costs came to 0.05 percent of the GPFG. Chart: Transparent and professional management Norges Bank meets international and national transparency standards relating to investment management. We have high ambitions with regard to transparency. Yet, we must weigh different considerations. | 0 |
While explicit coordination looks neither feasible nor desirable, there is more that central banks in general, and the Fed in particular, could do to be better global stewards. As an example, recent events demonstrate the importance of effective Fed communication. It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants. In particular, markets seemed to conflate tapering with monetary policy tightening and raised their expected paths for policy rates. Lately, we seem to have done better: markets now seem to understand that policy rates will likely remain exceptionally low for a considerable period of time even now that the asset purchase program has been completed. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences following Federal Open Market Committee (FOMC) meetings by the Fed chair; the publishing of growth and inflation forecasts of FOMC participants; and a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate. We are, though, still learning how to more effectively communicate, especially given our new and expanded set of policy instruments. A second area in which we can and must do better is safeguarding financial stability. Simply put, we failed to act both early enough and decisively enough to stem the credit excesses that spawned the financial crisis and the Great Recession. | As always, the thoughts I offer today are my own, and should not be interpreted as representing the position of the FOMC or the Federal Reserve System. First, what we may see in terms of market strains and macroeconomic adjustment during this normalization process will not be new. Changes in Fed policy, and especially the tightening of monetary policy, have often created challenges for countries abroad, especially in EMEs. Second, these countries, as a group, are better equipped today to handle those challenges than at perhaps any time in the past. This reflects the fundamental improvements and stronger policy frameworks that many EMEs have put in place over the past 15 years. Third, given the dollar’s role as the global reserve currency, the Federal Reserve has a special responsibility to manage U.S. monetary policy in a way that helps promote global financial stability. Like other central banks, our monetary policy mandate has a domestic focus. But, our actions often have global implications that feed back into the U.S. economy and financial markets, and we need to always keep this in mind. For most of us, the market volatility that we saw during the so-called “taper tantrum” in the spring and summer of 2013 still remains fresh in our minds. EME financial markets were hit hardest, with declines in equity prices, a widening in sovereign debt spreads and a sharp increase in foreign exchange rate volatility. | 1 |
Central banks in the advanced economies increasingly began to resort to unconventional instruments. At the SNB, these included long-term repos, purchases of Swiss franc-denominated bonds issued by domestic, private-sector borrowers and interventions in the foreign exchange market. It is worth noting that the SNB had intervened only very rarely in the foreign exchange markets between the early 1980s and 2009. And on the occasions when it had, the SNB’s interventions had typically been small-scale and had been coordinated with the Group of Ten central banks. BIS central bankers’ speeches 1 This changed in March 2009, when, having reduced the short-term interest rate to near zero, the SNB began purchasing foreign exchange in an effort to counter upward pressure on the Swiss franc and prevent an undesirable tightening of monetary conditions. The first escalation in the euro area debt crisis in the spring of 2010 required the SNB to make extensive foreign currency purchases; these were provisionally halted in June 2010 once the economic recovery had gained a foothold. In the first half of 2011, the situation in the euro area took another turn for the worse. Other euro area countries were being dragged into the crisis. The global economic outlook deteriorated and uncertainty on the financial markets was compounded by the US budget dispute. Upward pressure on the Swiss franc was immense at this time. In August 2011, the real export-weighted Swiss franc exchange rate was 40% above its long-term average (cf. chart 2). | BIS central bankers’ speeches 3 But there are exceptions, and the discontinuation of the minimum exchange rate – a measure that was directly linked to the foreign exchange market – is one such exception. An announcement, or even the slightest hint of an imminent decision to dispense with the minimum exchange rate, would have triggered massive speculation against the SNB. We would then have been forced to, as it was, subsidise this speculation via foreign currency purchases. Incidentally, these same arguments also explain why a gradual exit from the minimum exchange rate or a “gentle” transition to a policy involving some other form of explicit exchange rate linkage (e.g. pegging the Swiss franc to a basket of currencies) was impractical. Such a policy would likewise have opened the floodgates to speculators. There was thus no reasonable alternative to exiting the minimum exchange rate suddenly and completely. We discussed when would be the best time to communicate the decision. Our choice of the morning of 15 January was designed to allow market participants to start from a level playing field when adapting to this undoubtedly challenging new situation. By discontinuing the minimum exchange rate on a weekday when market participation was high, we minimised the risk of some banks and their customers being put at a disadvantage, or of individual participants gaining an advantage. | 1 |
Such people were until then regarded by many as possessing the best qualifications to become dealers or floor traders in the City of London. 1 BIS Review 15/2000 The IT revolution has not of course been a static one. Since the introduction of the first computers into financial product development and trading, computing power has grown exponentially. New vistas and previously unimaginable complexities for trading strategies have thus continually opened up; and the ever-increasing speed of processing and communication has progressively rewritten the definition of “time critical”. The stream of innovation requires us not only to master the mathematics but also to assimilate a whole new vocabulary of jargon - designed, no doubt, to make the underlying mathematics more easily digestible. For example, I received a document from a leading international bank the other day explaining to me that the butterfly involved three tenors where the middle was the bullet and the wing was the barbell; moreover I could long a two-five-ten by being long the two and the ten, each for a PV01 of half the sum for which I should short the five; in so doing I could profit from a bow at five but would be indifferent to any directional move provided it was parallel. Meanwhile, our universities today probably devote more teaching time to gamma trades than to gamma rays; I’m not sure whether we, as citizens of the world at large, should be elated or depressed by this. | Second, I would welcome the efforts of the supervisory community, namely through the Basel Committee on Banking Supervision and the Committee of European Banking Supervisors, in keeping each other abreast of developments and in considering jointly possible measures to contain the potential effects of the turmoil. Third, I would underline the importance in stress situations, like the current one, of effective and smooth cooperation and exchange of information between the supervisory authorities and central banks. As to the policy lessons to be learned in order to avoid the recurrence of similar disruptions in the future, I would say that, while it is still too early to draw definitive conclusions, there is a common understanding on the key issues requiring further analysis. In this respect, let me recall a few topics. First, the need for the financial industry to provide significantly more public information about securitisation, credit risk transfer and complex structured products. Transparency appears to be of the essence in order to restore trust and confidence. Second, the need for rating agencies to review their methodologies for complex structured products and to address very seriously potential conflicts of interest. Third, the need for investors to review their investment behaviour excessively reliant on ratings. Fourth, the need for supervisors to implement the new capital framework under Basel II as rapidly and effectively as possible and to reflect on possible improvements of the framework, including the enhancements of the supervisory regime for liquidity risk. | 0 |
2.2 Banks are adapting to the digital and green transition [SLIDE 7] Beyond the regulatory response, banks themselves will be in charge of another course of action: far from being merely a source of risk, the digital and green transition offers growth opportunities for the banking sector, which has already found ways to adapt. Efforts to adapt to the digital challenge are already under way, as illustrated by three examples. First, the ACPR study on the digital transformation of the banking sector published in January, shows the wide array of initiatives taken. Strategies aimed at acquiring fintechs or developing partnerships with them point to the emergence of a new rationale of “coopetition”. This kind of cooperation by competitors is proof that banks and fintechs can grow together and that the digital transition can be a boon for all participants. Next, banks are increasingly harnessing new technologies. Artificial intelligence, as I mentioned earlier, is being built into new operational systems, where it is helping to improve aspects ranging from customer relations to risk management. Banks are also experimenting with blockchain technologies. And they are collaborating on an initiative that has our strong backing: the European Payment Initiative, more widely referred to as EPI, seeks to provide Europeans with an everyday payment solution that combines card and mobile components and addresses all use cases. Banks are also adapting to ensure the transition to a sustainable economy. | May I conclude by extending my warmest congratulations to all of those involved in taking forward this important project. I hope that this project will prove to be a success and I look forward to further cooperation in the future with all who have an interest in developing the debt market in Hong Kong and in the region as a whole. BIS Review 84/1999 2 | 0 |
However, these general responses are tinted by the intense uncertainty—observed both in Chile and around the world—regarding the shock’s persistence, its actual consequences and the magnitude of its indirect or second round effects. (6) Optimal response to foreign exchange shocks The above considerations can apply to the optimal response of monetary policy to parity shocks. In general, in its conduct of monetary policy, the Central Bank does not react to exchange rate movements beyond their effects on inflation and output. This because of the favorable response of the Chilean economy to increased exchange rate volatility that has been present since the late nineties. First, the pass-through coefficient from exchange rate depreciation to inflation has dropped substantially in Chile, to very low figures in the range of 20% to 30%, in the policy horizon. Second, the currency mismatch has been reduced in non-financial firms which, in turn, are being insured against residual parity risks generated by short-term exchange rate volatility in an increasingly deep market. Finally, the Central Bank reserves the option to intervene directly in the foreign exchange market with sterilized operations and in publicly announced conditions, if it evaluates that a temporary exchange rate volatility or misalignment so warrants. | The target range and the length of the policy horizon reflects that the Bank will tolerate deviations away from the target range, particularly if caused by temporary supply shocks that raise headline inflation and recognizes that a tradeoff exists between the length of the policy horizon and the volatility of output and employment. This raises several questions, such as: Is the present combination of a 2-4 target range for annual inflation and a 12-24 month policy horizon optimal? How flexible should the extent of the policy horizon to the type of shocks—temporary vs persistent—of supply vs demand? Is it advisable to review the length of the policy horizon as a way to consider asset prices or, in general, financial stability concerns in the conduct of monetary policy? (4) Measurement and implications of inflation expectations Of all monetary schemes, the one based on inflation targeting is the most sensitive to private expectations regarding future inflation, because this is the main anchor of inflation and, together with output gaps, is also the main determinant of medium-term inflation. In addition, central banks have no direct control on such expectations. Inflation is the result of pricing decisions of a large number of decentralized agents, whose actions are significantly influenced by their views of what the future aggregate inflation rate will be. Recognizing this, in our Central Bank we assign great weight to direct measures of expected inflation and to inflation compensation derived from the differentials between nominal and inflation-indexed interest rates. | 1 |
And, above all, it significantly improves individuals' perception of this relationship, which may lead to incentives systems and their impact on agents' decisions in the labour market working more appropriately, reducing individuals' uncertainty over future income. In my address I have referred to the projections of various organisations on the sustainability of the system and to the reforms being applied in other European countries, summarising the content of the Research Department document that I shall send you this week. But let me conclude by highlighting the importance of the work entrusted to this Committee, especially at this current juncture where, for other reasons, economic agents are under a cloud of uncertainty. The agreement reached in Toledo whereby pension sustainability may not be used as a political battering ram is an achievement of which you should all be proud. This agreement, moreover, does not mean you should not react to the problems that may emerge in the pension system as a result of future demographic changes. On the contrary, the agreement obliges us all to examine the problems and seek solutions. I am sure you will be able to convey to the general public that these problems can be resolved if the appropriate 4 BIS Review 51/2009 measures are taken and that, moreover, if they are taken without delay, they need not be traumatic. | The closer these cushions are to levels that reflect potential future exposure across a more adverse set of market conditions, the more resilient markets and institutions will be under conditions of stress, and the less likely the prospect that the behavior by institutions will amplify financial shocks. Stress testing and scenario analysis is an important part of the process of calibrating this relationship between risk and capital and margin. The test of a sufficiently strong process is not simply the realism of the process used to measure potential losses, but the impact that it has on the decisions made by the institution on the size and type of exposures relative to earnings, capital and collateral or margin and the terms on which it extends credit. Let me conclude by noting again that we are in a period of perceived strength in economic fundamentals in the United States and many countries around the world. This strength has helped to induce significant reductions in a range of market-based perceptions of risk. Much of this confidence may prove warranted and durable, but the extent to which it endures will depend in part on the degree to which those running the major financial institutions in the United States use the opportunity presented by this period of relatively high profitability to strengthen their capacity to withstand a less favorable overall macroeconomic and financial environment. | 0 |
For example, the Committee’s call for better measures of potential future exposure may apply to the way such exposures are measured for capital purposes in the Accord. Other Regulatory Efforts Introduction One of the Basle Committee’s hopes is that its sound practice recommendations will be widely implemented by supervisors both here and overseas. Governor Meyer and Deputy Comptroller Brosnan will be discussing in detail the guidance issued by the Federal Reserve and the OCC. I should also note that the New York State Banking Department recently released a report on banks’ hedge fund activities that supports the observations and supervisory priorities set forth in the Basle Committee Report. In addition, international supervisory bodies and supervisors from countries outside the U.S. are in the process of acting on many of the proposals discussed here today. Actions Regarding Hedge Funds by International Groups and Individual Countries In February, IOSCO, the International Organization of Securities Commissions, established a task force on HLIs. I understand that IOSCO is focusing on securities firms’ dealing with hedge funds and the ways in which risk management and market transparency can be improved, which complements the Basle Committee’s work concerning banks. Because banks and securities firms are the primary counterparties of HLIs, it is crucial that there be a coordinated supervisory response at the international level among securities and bank regulators. At their meeting last month, the Group of Seven (G-7) countries issued a statement endorsing both the Basle Committee and IOSCO efforts. | Mr McDonough’s statement on the work done at international level by the Basle Committee on Banking Supervision on banks’ dealings with highly leveraged institutions Statement by the President of the Federal Reserve Bank of New York, William J McDonough, before the Subcommittee on Financial Institutions and Consumer Credit of the Committee on Banking and Financial Services, US House of Representatives, on 24 March 1999. Good morning Chairman Roukema and members of the Subcommittee. I appreciate the continued attention that you and your colleagues on the Subcommittee and on the Banking Committee as a whole have brought to bear on the complex and important issues under discussion today. The near-failure of Long-Term Capital Management last fall raised a number of issues regarding the activities of highly leveraged institutions. Since then, banking supervisors have been hard at work to assess where banks have been deficient in their dealings with hedge funds and other highly leveraged institutions, which I will refer to as “HLIs”. This work has resulted in the issuance of supervisory guidance, both internationally and in the United States, with the aim of improving banks’ policies and practices regarding HLIs. I am happy to be appearing before you with my colleague Governor Meyer – who I understand will concentrate on discussing the Federal Reserve’s policy guidance to banks regarding hedge funds – and Deputy Comptroller of the Currency Brosnan. | 1 |
So banks increasingly looked to the Bank of England to help settle the mutual obligations, using Bank of England bank notes as the settlement asset. Later, clearing began to take place directly across accounts held at the Bank. The Bank’s Archive still holds copies of the ledgers recording the balances on those accounts – Figure 1 shows example pages from the late 1870s. 2 A lot has changed in the past 250 years. Pubs, thankfully, no longer form the hub of the clearing system! Paper – whether in the form of elegantly-scribed ledgers, or IOUs – is also almost wholly extinct in interbank clearing, with 98% of payments by value now made electronically, and only 2% using notes, coins and cheques. The pace of development of alternative methods of payment for households and companies has also accelerated dramatically, driven by new and innovative technology. It is hard to imagine what one of those Walk Clerks from the 1770s would make of the range of cashless, real-time, mobile payments options available in the shops, restaurants and stations in and around Lombard Street today. Yet, amidst all this change, some things remain the same. The Bank of England still lies at the heart of the sterling interbank payment system and banks still value the finality provided by settlement in risk-free central bank money. The role of the Bank of England as settlement agent originally arose from its unique ability to create sterling. | In so far as financial markets are concerned, these recent times have seen us avoid major and abrupt market movements or disruptions. Besides the 2016 measures that stabilised our markets, this growth is also the result of the many initiatives implemented since then. One key fundamental strategy has been our steps to enhance market transparency and visibility, which provides us with information and data for targeted development efforts. The operationalisation of the RENTAS Segregated Securities Account which enables us to observe the activity in the Malaysian bond market has also provided investors with improved efficiency and a reduced reporting burden, lowering the cost of investing in this area. On this topic, I am pleased to share that on Monday this week, Clearstream launched their revamped solution which will provide an internal settlement link to facilitate greater access to the Malaysian market. They now rejoin a host of International Central Securities Depositories and Global Custodians that provide such access. This is yet another positive development for our financial markets. With greater oversight capabilities, we were able to introduce the dynamic hedging programme in 2016, which successfully enabled institutional investors’ active management of their foreign 1/4 BIS central bankers' speeches exchange exposures in the onshore market. The programme currently records participation of 104 registered institutional investors managing USD37 billion total asset under management, and has led to the migration of these investors’ former offshore strategies to the onshore market which has increased the level of transparency and orderliness of the ringgit market. | 0 |
This assurance is accentuated in many studies of the enlargement and said to be the most important individual factor for continued strong growth in the 1 eastern European countries. It is also at the point of actual membership that the final trade barriers will be abolished and the investment channels will be fully opened. We can make a comparison with the countries that entered the EU earlier with income levels way below the average, i.e. Spain, Portugal and Ireland. For these countries membership meant a large inflow of capital and technology as well as a further increase in trade. The economic policy of the new member countries became more stable. Rapid growth and a convergence in the standard of living followed. This led to major gains for both the richer, existing member countries and for the newcomers. It would therefore be regrettable if the candidate countries' membership were allowed to delay or be diluted. Fortunately, there is now a clearer timetable and a strong probability that 8 of the 10 countries will become members in the coming years. However, after the enormous efforts made by the candidate countries in recent years, their actual membership must not be blocked by internal power games and ultimatums between the existing EU members. However, the attempts in recent years to create transition periods before candidate countries can enjoy the EU's free mobility for labour are worrying. | Eva Srejber: A reunited Europe – the roles played by Sweden and the Riksbank Speech by Ms Eva Srejber, Second Deputy Governor of Sveriges Riksbank, to the Baltik Financial Network, Stockholm, 13 February 2002. * * * Thank you for inviting me here to speak of and discuss this important subject with such a knowledgeable public. The enlargement will change Europe and Sweden and will also affect the Riksbank. For those of us in western Europe, this is an important opportunity to regain the right geographical, economic and historical perspectives. We talk about "eastern Europe", despite the fact that Prague and Ljubljana lie west of Stockholm, we forget that Riga and Tallinn are actually closer to Stockholm than Gothenburg. We often still have a mental curtain where the iron curtain once prevailed. Now this division will soon be at an end. A hundred million Europeans, who lived under a totalitarian Communist dictatorship for half a century, can now finally return to a single European community. The political dimension is undoubtedly the most important. The new community confirms democracy and thereby guarantees peace and stability throughout Europe, which will in turn provide a good foundation for growth and development. Today I intend to say a few words about an important facet of the EU enlargement, namely the economic consequences, which will affect the work of the Riksbank more directly. | 1 |
Myopia risks coming at the expense of higher inflation tomorrow. It imparts an inflation bias. 49 What is true of monetary policy is equally true of regulatory policy. A desire to bring forward income may result in regulatory policy also becoming too loose. As one former British Prime Minster put it, pre-crisis regulation was “hugely inhibiting of efficient business by perfectly reasonable companies”. 50 Myopia then risks coming at the expense of a higher incidence of crises tomorrow. It imparts a crisis bias. 51 Luckily, these temporal biases also have a potentially straightforward solution. This is to delegate decision-making over monetary and regulatory policy to an agency less prone to myopia bias – an agent whose time horizon stretches beyond the political business cycle. This is where central bank independence comes into the picture. The inflationary experience of the 1970s and early 1980s was taken by many as evidence of myopia-induced inflation biases. Politicians had flunked the marshmallow test. In response, 48 The Bank of England GfK / NOP FPC Survey. Further details available at: http://www.bankofengland. co.uk/publications/Documents/speeches/2013/fpcsurvey.xlsx. 49 Barro and Gordon (1983). 50 Blair (2005). 51 Haldane (2013). 8 BIS central bankers’ speeches countries began granting central banks greater degrees of monetary policy independence, as an institutional response to a behavioural bias. 52 This international trend was followed by the UK in 1997, when the Bank of England was granted operational independence. Has this curbed the inflation bias? | Andrew G Haldane: Central bank psychology Speech by Mr Andrew G Haldane, Executive Director and Chief Economist of the Bank of England, at the “Leadership: stress and hubris conference”, hosted by the Royal Society of Medicine, London, 17 November 2014. * * * The views are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like in particular to thank Rashmi Harimohan, Jeremy Franklin, Michael McMahon and Nick Mclaren for assistance in preparing the text. I would also like to thank John Barrdear, Rob Elder, Bob Gilhooly, Chris Hackworth, Jeremy Harrison and Gareth Ramsay for their comments and contributions. 13 September 2007 will be seen as a red letter day in financial history. It was the date news broke of Northern Rock seeking emergency liquidity from the Bank of England, prompting the first run on a UK bank in over a century. It also fired the starting gun on what subsequently became known as “The Great Recession”. That very day, the Bank hosted a conference. In a painful irony, its theme was “The Great Moderation”. The Great Moderation described the long-period of pre-crisis macro-economic calm, with stable growth, stable inflation and stable banks. 1 This view held that central banks, while not eliminating boom and bust, had moderated macro-economic undulations. It also held that financial innovation, while not eliminating risk, had scattered it to the four winds. As Great Recession abruptly replaced Great Moderation, it was clear a grave analytical and policy error had been made. | 1 |
The bringing together of financial institutions and market players across continents to participate in this expansion of inter-regional investment flows has fostered financial linkages among the major regions. This will not only provide great synergies and opportunities but will contribute towards facilitating international financial stability. Just as the old Silk Road in the 14th century offered a route that facilitated the spice trade from the East to the West, we can now envisage the new Silk Road which financial flows across borders between the East and West, thereby promoting international financial integration. In this context, the Islamic capital market, in particular, the sukuk market has a major role in strengthening this interlinkage. The essence of the New Silk Road is to provide a route for such flows and promote greater financial integration for the benefit of a wider community. The New Silk Road should not be envisaged as just a link between Asia and the Middle East but that which extend to Europe and the rest of the world. Indeed, we are already seeing the participation of global investors and the international financial community. The participation of a financial centre like London will foster the global growth and international integration of this market. The involvement of regulators and government agencies is also contributing to accelerating this process. Malaysia is one of the key intermediary destinations along this New Silk Road that offers a platform for the origination, distribution and trading of Islamic capital market and treasury instruments, including sukuks. | The latest numbers for wage growth, in 2020 and 2020 1 0 3 2021, have been adjusted for the various distortions affecting the official data, and are below the headline figure. But this year’s number is still 4 5 6 7 8 Unemployment, per cent Regular-pay average weekly earnings (AWE) in the private sector. The chart uses a Bank staff estimate of underlying AWE that strips out Covid-related compositional effects. Sources: ONS, Bank of England, and Bank calculations. noticeably higher than would normally be the case at the current rate of unemployment. (And arguably, if you think that some of those on furlough have actually been looking for other jobs while on the scheme, and therefore helping to depress wage growth to some degree, perhaps a better estimate would have both the red dots somewhat to the right, making the latest figure for wage growth look that much stronger, compared with the pre-pandemic relationship8.) However long it lasts, and whatever the long-run equilibrium rate of unemployment, there looks to have been rise in the shorter-term equilibrium (the so-called “NAIRU”). Conclusion This is an extremely challenging period for monetary policy. Despite relatively weak growth over the past two years as a whole, domestically and globally, inflation has risen very significantly. In this country it was over 4% in October. | 0 |
In maintaining the soundness of the financial system in Singapore, MAS’ approach is centred on establishing sensible rules appropriate to our circumstances, strengthening prudential and market conduct supervision, and working in partnership with the industry to develop a shared ownership of supervisory outcomes. 9. This approach has served us well. As global reforms reshape the financial landscape, we will continue to strengthen our supervisory and regulatory regimes and market infrastructure, consistent with new international standards and best practices. As we have done in the past, we will calibrate these changes to take into account our environment and regulatory objectives. 10. MAS is supportive of global reform efforts to strengthen capital and liquidity frameworks. We have always considered capital adequacy and effectiveness of a bank’s risk management and capital planning processes as important parts of overall prudential management of banks. As a member of the Basel Committee on Banking Supervision, we participated actively in international discussions that helped shape the broad agreement reached earlier this week on the main design elements of the new capital and liquidity reform package. Other design details such as calibration, and phase-in arrangements as well as the framework for regulatory buffers will be determined later in the year. We would like to see a set of final proposals that can be implemented globally in a meaningful manner to promote the long term stability of the banking system. | In part, domestic wage growth and other business costs could be temporarily tempered by the initial cyclical productivity uptick in some capital intensive sectors of the economy. For the year as a whole, headline CPI inflation is projected to average between 2.5% and 3.5%. MAS underlying inflation, which excludes the cost of accommodation and private road transport, will come in at around 2%. BIS Review 103/2010 1 6. When Singapore entered the recession in 2008, monetary policy, followed by fiscal policy, was eased to provide support to the domestic economy. As economic activity recovered swiftly in 2009, macroeconomic policy settings were recalibrated to levels which were conducive to sustainable growth and medium-term price stability. In a pre-emptive move, MAS tightened monetary policy in April 2010 by re-centring the $ policy band upwards and restoring its modest and gradual appreciation path. 7. Looking ahead, the outlook of the industrialised economies remains uncertain. However, there is sufficient momentum from the Asian economies and domestic industries that will continue to support Singapore’s economic activity at a high level for the rest of the year. While CPI inflation is expected to pick up towards the latter part of the year, it has evolved broadly as anticipated during the April review. At this stage, we assess that the current monetary policy stance of a modest and gradual appreciation of the $ policy band remains appropriate. Strengthening the financial system 8. Singapore’s financial system remained resilient during the global crisis. | 1 |
Hence, effective and sustainable longterm policy measures have to be implemented for accessing foreign markets through exploiting trade and investment opportunities. We also observe that frequent natural calamities hamper economic activity resulting in a moderation of economic expansion. This highlights the need for diversification of growth drivers in the economy as well as putting the necessary measures in place to strengthen the economy’s resilience through mainstreaming sustainability into the planning and budgeting processes and improving disaster preparedness. In the global context, after having a series of economic distortions and negative shocks after the Global Financial Crisis, now the global economy is gradually recovering. Investment conditions have improved and global trade also rebounded in 2017. So, we need to exploit opportunities created by the revival of global growth supported by synchronized economic expansion in Europe, Japan and the US for the first time since the Global Financial Crisis. Better prospects in Europe and the US, which are our two largest markets, are clearly tailwinds. This is growth positive for Sri Lanka. However, we should also be mindful that gradual normalisation of monetary policies in the advanced countries could pose some challenges to the economy on both external and fiscal fronts. Sri Lanka is gradually transforming to upper middle income economy status. Sustained progress will inevitably involve greater integration with the world economy. While creating opportunities, this will also expose the economy to greater uncertainties and risks. | It would be dangerous to financial stability if we gave so large a capital carrot to banks to use the internal ratings based approach that many of the world's most important financial institutions, which account for the vast bulk of global and G10 domestic banking activity, saw a significant reduction of their regulatory capital requirement. It is the need to balance incentives with the maintenance of overall capital levels which makes this issue a difficult one. This, along with a large number of other questions about the impact of the proposals, will be further examined by the Committee in the course of a quantitative impact study to be carried out before finalising the proposals. The Bank of England has been asked to co-ordinate this work calibrating the impact of the new Accord on individual institutions and on the system as a whole. I recognise that the time allowed for this exercise is short, but I hope very much that we can count on the contribution and co-operation of the banking community. 2 BIS Review 29/2001 Turning to the second possible consequence of maintaining a risk insensitive alternative approach, we may find that the combination of having some banks on the IRB approach and some on the standard approach will, perversely, introduce a financial stability risk that is not present with all banks on the standard approach. This is that the more sophisticated institutions would have to hold more regulatory capital against weak loans than banks that remain on the standard approach. | 0 |
It has the potential to spur the generation of new economic strengths through the promotion of entrepreneurship and job creation while also promoting greater financial inclusion and thus enhanced prospects for balanced growth. The IAP enables investors to directly finance a broad range of economic activity of their choice, therefore diversifying their investment portfolio with exposures to various types of projects and industries that yield potential returns that are based on the performance of the underlying chosen ventures. For businesses, the IAP provides a new source of funding for activities, with more competitive financing terms in a range of financing structures. Ventures and entities of varying types, size and industries, including SMEs, listed firms and multinational companies can raise funds on this platform. Given its greater visibility, the IAP will also provide access to a broader range of individuals and institutional investors. For Islamic banks, the IAP creates a differentiated product that presents a new source of income and funding profile. There is also the potential for institutions with specific mandates including Government agencies to strategically collaborate with the IAP and Islamic banks to form public-private partnerships to facilitate the efficient channelling of grants or funding and to facilitate financing opportunities for identified strategic ventures. The role of the IAP that is launched today is envisaged to transcend beyond our domestic borders to become an effective channel to further enhance financial interlinkages in the regional and global economy. | We definitely have a lot to learn from Malaysia in respect of product development and market operation. As I see it, Hong Kong and Malaysia each has different edges in the financial services industry, and the potential synergy between the two places in developing the Islamic financial markets is tremendous. 10. Malaysia is undoubtedly an important leading centre in the global Islamic finance industry that has accumulated vast experiences and invaluable expertise over the past three decades. It has developed a well-diversified Islamic financial market, offering a full suite of products covering sukuk, Islamic equities, Islamic funds, Islamic ETFs, etc. Its sukuk market is by far the largest in the world, accounting for more than 70% of global sukuk issuances last year.4 It has also put in place well-developed financial infrastructure which can facilitate local and overseas market players alike in conducting Islamic financial transactions. 11. On the other hand, Hong Kong as an international financial centre has developed a deep and highly liquid capital market with a diverse base of investors coming from all around the world. More importantly, with Hong Kong’s unique role as a gateway to Mainland China and a leading hub for offshore RMB business, Hong Kong can offer an ideal platform to link Islamic and RMB financing together by developing financial products that are Shariah- 4 2 Zawya. BIS central bankers’ speeches compliant and, at the same time, denominated in RMB. | 0 |
The Bank of Albania - in its recent analyses - has been underlining the fact that its monetary policy has been a careful, financial, budgetary policy, where special emphasis has been given to the budget expenditures control versus the realized revenues ratio. Consequently, the government’s liquidity needs, up to the present moment, have been completely covered by the banking system, and therefore, the Bank of Albania financing was unnecessary. Under these circumstances the fiscal pressures on the monetary policy are weak. Following this reasoning, it could be concluded that the move of both policies (monetary and fiscal) has been in harmony and in conformity with the general economic-financial development program of the country. Domestic budget deficit financing from the banking system during 2003 is estimated to be almost at the same level as the one of 2002, being about 2.2 percent of the GDP. The stable level of the internal government borrowing, facing the rapid increase of Lek deposits, was another factor, which influenced the immediate reduction of treasury bills interest rates. The monetary policy of 2003 has continued to be careful, characterized by smoothing tendencies. This is reflected in the reduction of interest rates three times throughout the year. Watching attentively the inflation performance and the liquidity indicators in the banking system, the Bank of Albania reduced, all in all, the Repos rate by 1.5 percentage points during 2003, bring it by the end of October at the pre-crisis liquidity level of the previous year. | Our per capita income was then at RM17,600 (2004) per annum compared to RM37,800 in 2016. And yet, our rating remains the 3/6 BIS central bankers' speeches same at ‘A-‘. Rating agencies assess sovereign credit risks based on a long term outlook and at most times are reactionary to certain events. This may result in the credit ratings falling behind the curve and not incorporating the latest market developments. For example, Indonesia was only recently upgraded to investment grade by S&P, more than 5 years after Moody’s and Fitch’s gave a similar rating. Market-implied ratings may be a better gauge of a country’s latest credit profile and is already widely used by the market. In the past 3 years, based on bond market yields, Malaysia’s marketimplied rating has at times reached levels that indicate a better rating than that assigned by the rating agencies. Throughout the first half of this year alone, yields for the 10-year Malaysian government securities have swiftly recovered to 3.9% from a peak of 4.5% last November, post-US elections, reflecting higher confidence in the Malaysian bond market. We are currently the largest bond market in ASEAN in terms of percentage over GDP. The Malaysian bond market continues to be resilient and well-functioning. Non-resident holdings of Malaysian bonds have settled at a lower level of 26% compared to its peak of 34.7%. | 0 |
Over the past few years, the Norwegian real exchange rate, whether measured by relative labour costs or by relative consumer prices, has been stronger than the average since 1970, largely due to a stronger nominal exchange rate. The corollary to these developments is the pronounced improvement in Norway’s terms of trade. The strong rise in prices for oil and other Norwegian export products has contributed to the krone appreciation 6 BIS Review 97/2007 over the past few years. The strong real krone exchange rate is therefore a result of Norway’s position as one of the nations that has benefited most from freer global trade and increased cross-border flows of capital, technology and labour. In this respect, the strong krone is a sign that the Norwegian economy is faring well. Thank you for your attention. BIS Review 97/2007 7 8 BIS Review 97/2007 BIS Review 97/2007 9 10 BIS Review 97/2007 BIS Review 97/2007 11 12 BIS Review 97/2007 BIS Review 97/2007 13 14 BIS Review 97/2007 BIS Review 97/2007 15 | We are also particularly pleased to have with us, His Lordship the Chief Justice who has graced this occasion and by doing so has unambiguously displayed the commitment of Sri Lanka’s judiciary to this massive effort. Our effort against money laundering and terrorist financing cannot be made by one or two persons only, or by one or two agencies only. It has to be a co-ordinated and concentrated effort that needs the support of a wide range of people, both nationally and internationally. In that context, Sri Lanka’s commitment is clear to everyone, and we are particularly pleased to have you with us, the Honourable Chief Justice. My dear friends, the fight against terrorism cannot only be on the military field or battle ground. In my view, the fight has to be on four different fronts simultaneously. Although it is vitally important, one cannot defeat terrorism by a military effort only. To successfully deal with terrorism, we need a diplomatic offensive also. Diplomatically, we need to ensure that cohesive steps are taken so that, together, countries can meet this challenge. At the same time, the fight has to be on the international media front as well. Therefore, a media campaign in all parts of the world against terrorism is also very important. That is something that the world has clearly recognized today, and internationally, we see a greater coordination in the media in dealing with terrorism. The other important front in this war against terror is the stopping of financing for terrorism. | 0 |
See for instance the Bank of Canada’s Project Jasper (http://www.bankofcanada.ca/research/digital-currencies-and-fintech/fintechexperiments-and-projects/), the Monetary Authority of Singapore’s Project Ubin (http://www.mas.gov.sg/Singapore-FinancialCentre/Smart-Financial-Centre/Project-Ubin.aspx) and the European Central Bank and Bank of Japan’s Project Stella (http://www.boj.or.jp/en/announcements/release_2017/rel170906a.htm/). 10 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 DLT-based systems may well reach critical mass in the private sector rather sooner however – and many firms and consortia have projects underway in this field. We want to ensure that the next generation of RTGS is able to support such systems, as and when they achieve sufficient market reach. With that in mind, our second DLT PoC explored the potential to use a DLT system, developed by Ripple using the open source Interledger protocol, to link two simulated but otherwise standard RTGS systems, built in the cloud, to enable cross-border payments to settle in central bank money simultaneously: a long-standing policy goal of central banks. This PoC was particularly helpful in identifying some of the operational and technical challenges of such synchronisation. Our most recent DLT PoC, which we are announcing today will be done with Chain, is designed to examine a key tradeoff in DLT design. The highly desirable resilience characteristics of DLT require sharing data on the ledger across a number, or all, network participants. But a fully replicated ledger poses clear privacy issues, and may be vulnerable to a cyber attack on whichever is the weakest link. | Let me discuss each in 9 turn . Distributed ledger technology (DLT) (3 PoCs) DLT has in many respects been the poster-child for FinTech. Thrown into prominence by the advent of bitcoin and other cryptocurrencies, the attraction of DLT to central banks really lies in the potentially highly attractive resilience characteristics of the underlying technology. In its purest form, a DLT network operates with no centre, and every node in the network holds a full copy of the ledger. So the failure of a node has no impact on the overall resilience of the system, with transactions simply rerouting elsewhere. A single ledger could also eliminate the need for costly reconciliations between market participants, increasing efficiency and reducing operational risk. For central banks currently operating centralised payments and settlements systems with only limited redundancy and facing growing cyber and operational threats, such a model has obvious attractions. Our first DLT PoC, undertaken with PwC, proved it was possible to build a multi-node scalable DLT environment enabling the transfer of ownership of a fictitious asset. But it also demonstrated that the technology was some way from being sufficiently robust or scaleable to form the core of live central bank infrastructure such as the Bank’s Real-Time Gross Settlement (RTGS) service – a conclusion that helped inform the Bank’s plans for its RTGS renewal programme. PoCs by other central banks have reached 10 broadly similar conclusions . 9 More detailed write-ups of completed PoCs can be found at: http://www.bankofengland.co.uk/Pages/fintech/default.aspx. | 1 |
HOW MIGHT CLIMATE RISKS AFFECT INVESTOR PORTFOLIOS? Perhaps the most challenging, pervasive, and enduring of all the risks that the global economy is confronting is climate change. Climate change poses two key risks to investors’ portfolios: First, physical risks arise from the impact of climate hazards on a company’s operations, supply chains and consumer markets. Companies can mitigate this by putting in place adaptation measures through de-risking, re-shoring, and diversification. Second, transition risks arise from the impact of higher carbon prices, stricter environmental standards, shifts in consumer preferences, and advances in lowemissions technologies. This will require transforming carbon-intensive business activities and processes — before regulation bites, competitiveness suffers, and assets become stranded. Assessing portfolio companies’ vulnerabilities to climate change is becoming an integral part of business planning and shareholder engagement. Climate change is already happening. It is no longer a question of ‘whether it will happen’ but ‘how much’ and ‘how fast’. The trajectory of both physical and transition risks is highly uncertain. Global carbon emissions have not peaked. At the same time, commitments towards achieving netzero have never been stronger, foreshadowing stronger policy actions and growing clean energy investments. It is within this wide spectrum of possible outcomes that investors will need to make portfolio allocation decisions. INVESTMENT PIVOTS FOR PORTFOLIO RESILIENCE Against the backdrop of these four short-term to long-term uncertainties, the overall investment environment has deteriorated. Return prospects are lower, and risks are higher. | Speeches Published Date: 20 September 2022 "Critical Economic Uncertainties" - Keynote Speech by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at the SuperReturn Asia Conference on 20 September 2022 Ladies and gentlemen, good morning. I am happy to join you at the SuperReturn Asia Conference — the first time the conference is being held fully in person since the start of COVID-19, and the first time here in Singapore. Uncertainty has become the dominant theme in investment today. Let me touch on four key uncertainties around the global economy: first, how severe will the economic downturn be next year? second, where is inflation headed in the medium term? third, how will geopolitical tensions impact the global economy? fourth, how might climate risks affect investor portfolios? HOW SEVERE WILL THE ECONOMIC DOWNTURN BE NEXT YEAR? The global economy is facing a severe bout of inflation with two positive stimuli to demand coming up against two negative supply shocks. On the demand side, the lagged effects of the massive fiscal and monetary stimulus in response to the pandemic coupled with the unleashing of pent-up demand following the re-opening of economies have substantially added to general inflationary pressures. Supply disruptions stemming from the lingering effects of the pandemic and the Russia-Ukraine war have sharply driven up global food, energy, and commodity prices. The surge in inflation has necessitated monetary policy tightening by central banks, at a pace not seen in the last four decades. | 1 |
Indeed, the current gloomy mood about the US economy does not seem to be borne out by the most recent economic data – with the value of retail sales up by 7.3% on a year ago in October and manufacturing output up by 6.1% over the same period. Within Europe, a strong performance from the “core” European economies is outweighing the drag from the fiscal and banking problems of some countries on the periphery. The German economy has been particularly resilient, with GDP up nearly 4% on a year ago in the third quarter and unemployment down to its lowest level since 1992. 2 In the year to 1982Q1, GDP in the United Kingdom grew by 2% and in the year to 1993Q2, it grew by 2.1%. In this and subsequent reference to the latest GDP growth data, the figures quoted in the text do not take account of any revisions published in the second GDP release on Wednesday 24th November. 2 BIS Review 158/2010 This strong performance in overseas markets, coupled with a competitive exchange rate, has lifted the volumes of UK non-oil goods exports by close to 15% over the past year and is supporting the rebound we are seeing in the manufacturing industry. Chart 1 shows that overseas markets account for nearly a quarter of the demand for the output of UK businesses, with domestic demand from the private sector – consumer spending and investment – accounting for a further two-thirds. | Ardian Fullani: Overview of Albania’s latest economic and financial developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the joint press conference of the IMF mission, Albanian Ministry of Finance and Bank of Albania, Tirana, 2 October 2012. * * * Dear journalists, During the last two weeks, intensive discussions have taken place between the IMF mission and Albanian authorities. As a key player in drafting and implementing macroeconomic policies, the Bank of Albania has been active in these discussions, sharing its vision on current and expected developments in the Albanian economy and concerns surrounding it, as well as optimum measures to address them. The Albanian economy is increasingly facing the economic growth challenge. While the Albanian economy enjoys consolidated macroeconomic stability and sound financial foundations, aggregate demand has been weak during the first nine months of 2012. Both domestic demand and foreign one suffer from high uncertainty, relatively tight lending standards, and limited space for discretionary and stimulating policies. In the global context, the Albanian economy encountered a difficult setting, characterised by economic growth problems, high risk premiums in financial markets and decreased appetite of these markets to invest in emerging economies. In the domestic context, the economy continues to face relatively low consumption and private investments, as well as an absent stimulus by the public sector as a result of the increasing orientation of the fiscal policy towards maintaining long-term stability of the public debt. | 0 |
This process together with macroeconomic stability has made it possible to sustain large current account deficits. Moreover, the quality of the financing has improved considerably as the composition of the capital account is now changing in favor of long term capital inflows and foreign direct investment. At this point, I would like to reemphasize the support of the fiscal policy as an important factor contributing to this achievement. The involvement of the government in the process first came from the fact that inflation targets have been set jointly by the Government and the Central Bank. The government’s pricing, tax and income policies have been carried out in tandem with inflation targets. Another crucial factor has been the fiscal discipline: Very high levels of primary surplus have been maintained all over the years. Thus concerns over the sustainability of the public debt stock have faded away, helping inflation expectations to be consistent with the targets, maintaining confidence in the economy and thus reducing the risk premium. The continuity of fiscal discipline and tight fiscal policies consistent with targets are critical for the credibility of the inflation-targeting regime. Thus, the support from the fiscal side is still an indispensable part of the economic program. Dear Guests, Central bank independence generally implies the ability to act free of direct political pressures when taking and implementing decisions concerning monetary policy. | In this context, the floating exchange rate regime was introduced; the Central Bank Law has been amended and the primary objective of the Central Bank has been, for the first time in its history, defined as achieving and maintaining price stability. Together with these changes, a new economic program entitled “Strengthening the Turkish Economy-Turkey’s Transition Program” was launched in May 2001. This new program addressed the two main issues of chronic inflation and high public debt with tight monetary and fiscal policies backed up by structural reforms. In this environment, the Central Bank needed to introduce a transparent monetary policy regime with a clear nominal anchor to shape inflation expectations, as inflation inertia was the biggest problem and authorities lacked credibility. The choice of the exchange rate as a nominal anchor again was out of question: The exchange rate based stabilization program had been abandoned in total loss of confidence. The other option then could be to use monetary aggregates as a nominal anchor. However, they too were not good candidates for a couple of reasons: One, monetary targeting implicitly incorporates the inflation target as the ultimate objective of monetary policy and relies on a forward looking assessment when responding to shocks; the pure form of this regime considers only money and ignores the potential information contained in non-monetary variables. Two, the success of the monetary targeting regime relies on the two assumptions that the velocity of money is entirely predictable and inflation is solely determined by money growth. | 1 |
(c) A Distributed Architecture Central banks historically have tended to be, well, centralised. But in a world where understanding of the economy is often localised and trust is built on a distributed basis, a centralised infrastructure may be far from ideal. What is needed instead is a distributed architecture for engagement. In response, central banks have over time changed their structures and further change seems likely. The Bank of England has had a network of Agents around the UK for around 90 years. Today, the Bank’s twelve regional agencies cover all corners of the UK, with an extensive network that generates around 9,000 meetings with company contacts each year. This is a valuable source of intelligence on the economy and financial system. Indeed, I would say it is increasingly valuable. It provides colour and context to accompany our data and models. It offers folk wisdom, the wisdom of the company crowd. But companies are only one crowd among many. Companies are an important lens on the economy, but far from being the only one. Reflecting that, the Bank has recently sought stronger connections with some other crowds, crowds with a different lens on the economy with which it has perhaps had less contact historically – trades unions, charities, community organisations and the like. For more than a year, I have augmented those Agents’ efforts with my own “Townhall” meetings across the UK. | I am confident that the Zambian business community shall appreciate the benefits that accrue to both the company and its stakeholders in this vein, and hope I shall one day have the honour of being present at the first event to award deserving entities in this noble sphere. I thank you all. BIS Review 28/2006 3 | 0 |
In other words, ensuring that the banking industry caters fully to the needs of the wider economy and community, rather than focussing purely on the most profitable activities and market segments. 31. Hong Kong is a capitalist, free-market place. But the regulatory authority works not only for the industry but also for the public. And our population has a keen sense of community and fairness. 32. In the last 10 years, anyone concerned with public policy, corporate governance and business regulation has noticed rising expectations of good corporate citizenship. I took over as Chief Executive of the HKMA just a few months after the SFC and HKMA pushed through a solution to the Lehman minibonds episode. I think everyone learned some valuable lessons from that. 33. One market segment we need to consider is the elderly and low-income retail customer. 34. Some of these retail clients obviously have limited savings to deposit and limited banking 3/5 BIS central bankers' speeches needs, and the reality is that they will not provide banks with much fee or interest income. However, the community expects banks to provide them with basic services, essentially on a pro-bono basis. 35. Some of them have difficulties using technology, and cost-saving service-delivery channels such as ATMs, online banking or mobile device. We could try harder to persuade – or even compel – the elderly to adopt modern technology, in the name of efficiency or modernity. | As I said in that meeting, there are challenges ahead that, together, we must address in a cooperative manner, namely creating sustainable financial inclusion and ensuring the linkage between greater financial access and improvement in wellbeing. Please allow me to offer my initial thoughts on the subject. With wellbeing as the ultimate goal of policy makers, many policy building blocks need to be woven together. Examples include policies on career development, education, macroeconomic stability and so on. While these policies do not necessarily fall under the mandates of financial regulators, efforts should be made to ensure that policy directions of all relevant institutions, government and private, are aligned. Closer to our hearts though, are policies that aim to improve the poor’s capacity to be financially included. In this regard, I believe that there must be at least three key policy ingredients, namely financial access, financial literacy and consumer protection. First, for access, there is a need to ensure that the range of basic financial services provided can address financial needs of the poor in all important aspects of their lives. For instance, we need to consider an “inclusive package” of credits, savings, transfers, and insurance that fit their livelihood. Secondly, to ensure quality of usage, we need to enhance financial literacy. With higher financial literacy, the poor could utilize the services more efficiently and productively, for example, having the ability to turn received credits into income and savings and so on. | 0 |
6 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 6 losses on the swings of increased working hours more than made up for on the roundabouts of reduced time spent commuting. The second potentially potent effect, brought out in today’s study, is improved worker empowerment. This could arise in part from the increased flex home-working gives us, with our working days now tailored more to our personal needs and less to organisational requirements. It might also reflect on increased ability to “be ourselves” at work, when work is at home – the pyjamas, the unkempt hair, the Bermuda shorts - none of which, I hasten to add, I am sporting today. Well-being studies suggest these agency and empowerment effects are important for well-being. For example, studies have found that working from home is positively associated with perceived autonomy and this, in turn, has positive spillover effects to our job satisfaction and levels of stress.19 Both boost workplace productivity over the medium term. If home-working is broadly neutral in its impact on our economic contribution, but positive for our welfare, this suggests it is win-win, or at worst draw-win. The Covid crisis may inadvertently have fast-forwarded us to a better-way-of-working, perhaps even back-to-a-future where most work takes place in and around the house rather than in an office or factory, as was the case prior to the Industrial Revolution. I would hesitate before jumping to that conclusion. | As arid as these concepts can sometimes sound, they are crucial for shaping how this crisis will affect incomes and living standards over the medium-term. Equally important are issues of well-being, not least given understandable concerns about how the virus and lockdown are affecting our mental health. The background report for this event is timely in providing some early answers to these questions.1 Taken at face value, its conclusions are encouraging. Workplace happiness is, in general, higher and many are feeling a greater sense of workplace empowerment. At the same time, it is too early to be reaching definitive conclusions on what the long-term effects of these seismic shifts in how we work will be. It is also crucial to recognise that these changes have affected individuals in very different ways. For many frontline workers - from health and social care, to public transport and police – home-working has simply not been an option. Those jobs, and many others like them, have become both harder and more hazardous as a result of the Covid crisis. The report captures some of those important distributional differences, with happiness lowest among young people, black people, females and those in the worst-affected sectors whose jobs and incomes are most at risk. Even for those who are currently content home-working, there is a question about whether the benefits will persist. | 1 |
Some near term sources of uncertainty have eased but others remain. Because of the Government’s Energy Price Guarantee there is more certainty about the outlook for energy prices and Government policy more broadly is on a more stable and predictable footing. This has been reflected in pricing in financial markets. The labour market remains tight and services inflation has hit 30-year highs and is contributing more to overall inflation. I am not yet confident that domestically generated inflationary pressures from increased costs and firms’ pricing are starting to ease. Encouragingly survey and market based medium term inflation expectations have fallen back from their peak, though they remain elevated. Assuming that in the near term the economy evolves broadly in line with the latest MPR projections and given my assessment of the balance of risks, then I expect that further increases in Bank rate are going to be required to ensure a sustainable return of inflation to target. Considerable uncertainties remain around the outlook and if the outlook suggests more persistent inflationary pressures then I will continue to vote to respond forcefully. At the same time I am mindful that there are other uncertainties that I haven’t covered today, for example relating to the transmission mechanism for policy. We have increased Bank Rate very rapidly over the last year and on past experience a change in interest rates has its peak impact on inflation only after around 18-24 months. | Spanish banks, for their part, are in a relatively good position compared with their European counterparts, with a relatively high and growing degree of efficiency. In any event, it is also true that office density, despite falling in recent years, remains high, especially when compared with that of other European countries (see Chart 7). In this area, new technological developments should allow further gains in efficiency by providing for proximity to customers and for the marketing of products via means other than face-to-face contact. Chart 6 3.2 Chart 7 New products and services The second foreseeable response by the industry to the narrowing of financial margins is the search for income supplementing that from the traditional commercial banking business. Net fee income relating to services (management or transactional), as a proportion of total operating income, has been on a slightly rising trend in most countries. In the current setting, it appears this trend is reflecting a lesser propensity of banks to subsidise certain transactional services with a charge to net interest income. That said, fee-generating business is subject to growing competition owing to the emergence of new unlicensed bank competitors, which have demonstrated ample ability to harness the new technologies (the so-called fintech companies). These new competitors specialise in specific segments of the services value chain, services that in the past were exclusively provided by banks, without being subject to banking regulation requirements. | 0 |
Adopting this culture of assessment in economic policy design should be one of its pillars. Allow me now to give you a brief overview of the impact of the pandemic on economic activity. Subsequently, I shall briefly address the content of the economic policy strategy I have just outlined. Details of this content are, in any event, in a document I forwarded to the Chair of this Committee to be distributed among its members. 2. The economic crisis caused by the coronavirus pandemic The pandemic has had an extraordinarily acute impact. In Q1, China saw the biggest decline in its GDP in history. In the United States, the unemployment rate rose to record highs. And euro area GDP fell by 3.6% in the same period. In Spain, despite the fact the lockdown measures only affected the last fortnight of Q1, GDP slumped by 5.2%, also the biggest quarter-on-quarter decline in our recent history. The fact that virtually all of the restrictions linked to the state of alert have been in force for more than half of Q2 will necessarily mean a significantly sharper decline in activity in this 2 period. On Banco de España estimates, this contraction in GDP might stand at between 16% and 22% relative to its Q1 level. The severity of the crisis has been particularly visible in employment. The adjustment from mid-March to end-May affected more than 26% of total employment. In parallel, the number of firms registered in Social Security records has undergone the biggest fall in its history. | The less good news is that the worrying international imbalances within and between the industrial countries persisted through most of the past year - though just between you and me, my Lord Mayor, and so long as you don’t breath a word to the Chancellor, there is a glimmer of a suggestion - no more than that - that those imbalances may now be becoming somewhat less worrying. In the United States evidence of a sustained improvement in the rate of productivity growth has persisted. We, in this country, must fervently hope that the seeds of this technological modification are blown in our direction and find a receptive environment here. There is no obvious reason why we should be immune from this highly desirable infection - though sadly the symptoms of contamination are still hard to detect. In the meantime its supply-side effects in the United States imply that the US economy can sustain faster growth than seemed possible before, without necessarily overheating - at least for a time and up to a point. But the same developments have also helped to raise the temperature on the demand side of the US economy, and the Federal Reserve has been administering monetary sedatives at intervals throughout the past year. But finding exactly the right dosage, and the right timing, to keep the body temperature near normal in present circumstances really does demand the wisdom of Solomon - or at least the wisdom of Greenspan. | 0 |
Understanding of risks is key in ensuring that our AML/CFT measures are commensurate with the risks, in order for us to protect the financial institutions and the integrity of our financial system; iii. Non-compliances will be viewed very seriously and strong regulatory and supervisory actions are to be expected; iv. Cooperation and collaboration between financial institutions and LEAs are vital for an effective AML/CFT regime; and v. Legal, regulatory and operational frameworks alone are not sufficient without effective execution and overall implementation. Results would need to be measured based on the outcome and impact. BIS central bankers’ speeches 3 In relations to the Mutual Evaluation that will be undertaken from 13 to 25 November this year, I wish inform that some financial institutions will be called to meet the assessors during the on-site assessment in November. The purpose of the meeting is for the assessors to assess how effective AML/CFT measures are being implemented by the reporting institutions. We have identified several potential institutions as per the criteria given by the assessors. If your institution is being selected, you will receive formal notification from us in due course. Nevertheless, there are also high possibilities that the assessors may request to meet institutions of their choice during the on-site assessment. | The first panel will be moderated by Mr. Liviu Voinea, Deputy Governor and will approach the theme of investments and investment finance in 2018. The second panel will be moderated by Ms. Lara Tassan Zanin, Head of The European Investment Bank Office in Romania and will focus on the support of sustainable growth in Romania, shifting from consumption to investments. Ladies and gentlemen, Romania and the European Investment Bank share a long and fruitful cooperation that started in 1990. It got closer in 2007 when Romania became a member of European Union and implicitly of European Investment Bank. This joint partnership has boosted investments in Romania in areas of significant importance for the national economy, such as the infrastructure, small and medium enterprises, environment and innovation. These coordinates are totaling more than 13 billion EUR allocated to around 130 projects financed by the European Investment Bank, besides other 70 projects financed by the European Fund for Strategic Investments. These figures alone speak about the priorities, however I would like to point out that the financial impact transcends beyond the sum of total loans. There is significant potential for development and improvement. Romania is a net beneficiary of EU funds, the latest data showing a positive aggregate balance with more than 32 billion EUR as net received funds. | 0 |
3 In other words the massive increase in the stock of lending – an increase of £ trillion in absolute terms – did not lead to very much of an increase in productive investment at all. Of course there are benefits in enabling people to buy their homes. And much of the financing of financial markets almost certainly came back to productive investment in the form of market investments in business. But as we discovered in the crisis much of the lending appears to have financed the increase in house prices and a large part of the market investment was simply misallocated and lost. 4 Nor did this increase in lending drive a commensurate increase in economic growth in this particular credit cycle. Over the period 2000–2007 GDP growth averaged little more than its long-run average of around 2.8%. In fact, business investment over the period averaged just 1.3% a year and it appears that most of this was related to commercial real estate. Conclusion The financial system can be a powerful engine for growth and prosperity. But its ability to generate systemic crises means it can also be a powerful destroyer of those as well. This has been true throughout history but never more so than for today’s highly complex, globalised and digitalised financial system. We should not therefore see economic growth, or productivity as somehow opposed to effective financial regulation. | In addition, the crypto ecosystem inherits and may amplify the vulnerabilities of the mainstream financial system, as it grows and tries to replicate the functions of that system, and it introduces new points of vulnerability like bridges between blockchains or so called oracles that feed data to blockchains. Third, the investigations undertaken by many central banks, for the issuance of a retail and/or a wholesale CBDC, should be seen in my view as part of a broader response by central banks, in line with their monetary and financial stability mandate, to help bring the financial landscape, which will result from those transformations, within a confidence prone regulatory and operational framework, to help reap their benefits and master their risks. At the Banque de France, our response is based on three convictions: First, the traditional pillars to ensure confidence cannot be replaced by any "algorithmic" confidence, namely by rules of the game that would be coded once and for all and for which respect would be entrusted to algorithms. Second, confidence requires a regulatory framework that is clear, fair ("same business, same risk, same rule"), balanced and consistent at international level, if we want to simultaneously encourage innovation, protect adequately customers and investors, and maintain the stability of our financial system. Europe has led the way in this field, with the adoption of MiCA. | 0 |
Since the various elements of economic policy differ in their effects, they have different tasks: Monetary policy now steers inflation in the medium and long term and can in addition contribute to smoothing fluctuations in output and employment. The central government budget – growth in public expenditure, which must be sustainable in the long term – influences the krone and the size of the internationally exposed sector in the medium term. Wage formation and economic structures and incentives provide the basis for efficient use of our labour resources and other economic resources, and for economic growth. There is also an interaction: In their budget resolutions, the government authorities will attach importance to the effects of the budget on the Norwegian economy and will therefore take account of the effect on the interest rate. In this way, they avoid a situation where growth in public expenditure and the interest rate push the economy in different directions. With a known monetary policy response pattern, the parties to the centralised income settlements can take into account interest rate effects when wage increases are agreed. Moreover, the parties to public sector negotiations can take into account that the higher the pay increases are, the fewer there are who can be remunerated over government budgets. Norges Bank Act of 1985 – a framework for today’s monetary policy The Norges Bank Act, passed in 1985, governs monetary policy. | Another feature of central bank legislation in other countries is legal independence, in the sense that the central bank’s use of instruments, primarily the key interest rate, cannot be overruled, whether by instruction or reversal. If the Norges Bank Act were being written today, it would probably include an objects section. As mentioned, much of the preparatory works is out of date so that the provisions of the Act of 1985 must be interpreted in the light of the current economic system. Moreover, Section 1 reads “[t]he bank may implement any measures customarily or ordinarily taken by a central bank”, and this is something that changes, as we know. The Act is thus flexible enough to provide a suitable framework also for the conduct of monetary policy today. It specifies, moreover, that Norges Banks sets the interest rates on its loans and deposits. Norges Bank’s responsibilities are also now well established through practice. The central bank is accountable Norges Bank has two parallel governing bodies. In addition to an Executive Board, appointed by the Council of State, it has a Supervisory Council appointed by the Storting. This is also shows the peculiar position of the Bank in the government administration. The direct link to the country’s national assembly reflects that the Storting under Article 75 (c) of the Norwegian Constitution “shall supervise the monetary affairs of the Realm”. | 1 |
Furthermore, central banks should seriously consider the question of whether they need to intervene when risks in the financial system increase as a result of strong credit growth and an easing of lending conditions. Credit aggregates are part of the SNB’s monetary policy strategy, and the National Bank monitors their development closely. However, the SNB’s main aim is and will continue to be the maintenance of price stability. BIS Review 35/2010 1 | 16 It becomes difficult to attract labour to the major cities when it is impossible to find a home for a reasonable price. 17 I am concerned about this social development, as it is creating problems for economic growth and economic distribution, and is increasing the likelihood of financial crises. It is of great importance that reforms are carried out to slow this development down. Measures affecting all mortgage borrowers are absent Like the Riksbank, Finansinspektionen has drawn attention to households’ high indebtedness and has taken measures to reduce the risks and increase resilience among households. This has also contributed towards slowing down price growth for housing, although this was not the primary purpose of the measures. 18 However, these macroprudential policy measures, such as a loan-to-value limit and amortisation requirements, are only aimed at new borrowers. Consequently, they mainly affect the conditions for the people I refer to as outsiders and, to some extent, could make it more difficult for them to enter the housing market. 19 On the other hand, there are few measures affecting the stock of already existing loans, which means that the new rules affect insiders and outsiders differently. In a study, the Riksbank has demonstrated that an amortisation requirement aimed at all borrowers could reduce household debt over the long run and that this would also mean a redistribution of resources from lenders to borrowers. | 0 |
We need to actually look at how the market reacts to the measures introduced. It can only be done if we have an effective surveillance framework. Fifth, effective communication is crucial 4Cs – clarity, concise, consistent and credible – core features of effective communication: i. Clarity – market, investors and public typically fear the worst in absence of clear information. ii. Concise – “more” is not always effective; we allow for some “constructive ambiguity”. iii. Consistent way of communication across time and different stakeholders would strengthen credibility. 2 BIS central bankers’ speeches iv. Credible – reducing misinformation helps shape and influence expectations. It may not always be possible to engage with affected parties prior to the implementation of some macroprudential policies. For example, there was a spike in the growth of average house prices in the few months leading up to the announcement of the first LTV ratio limit. This could be due to a rush to lock in financing at a higher LTV ratio prior to rumoured timing of implementation of the limit. Some developers and banks also used aggressive marketing campaigns (e.g. “buy before the LTV ratio limit kicks in!”) before the effective date of the measure. In this case, we opted to impose the measures with immediate effect on the date of announcement to minimise circumvention. Let me delve on another key policy priority, which is financial inclusion. I will raise five points that I hope will provide some perspectives on financial inclusion based on our experiences back home. | Therefore, in the previous years, we have organized numerous work-shops on many current topics, international conferences, and our employees lecture in several faculties in the country. Also, four years ago, we introduced the Annual Reward for Young Researchers, which has proved to be a very successful example, followed by other institutions, as well. Today’s opening of the Joint Public Information Centre is another contribution to the upgrade of the scientific and research profile of the Central Bank, which has been established and developed very hard all these years, in parallel with the operational portfolio of the basic functions of NBRM: determining and implementation of the monetary policy, the banking sector supervision, the financial stability support, ensuring smooth functioning of the payment system, and above all, realization of the ultimate objective of the NBRM’s monetary policy – the price stability. I believe that with the opening of this Center, we open another channel for knowledge dissemination, which will be additional stimulus for the scientific and research activity. I believe that the Center will also serve for further deepening of the NBRM and World Bank cooperation, inter alia, also in the domain of organization of forums and debates on various current topics, as well as in the providing of foreign expertise, comparing the domestic with the international experience. Dear friends, We are glad that this library will join the libraries the American journalist Carl T. Rowan calls “knowledge food”, saying also that “the knowledge has liberated much more people than any war made in the entire history”. | 0 |
The performance of the Albanian financial system was affected by the wavering of confidence in our financial system during the first half of the year and the withdrawal of a portion of deposits. This performance, coupled with another group of factors, yielded less support, and at higher cost, to the Albanian economy with banking loans. BIS Review 78/2010 1 Among the factors worth noting are: Higher economic agents’ uncertainty and liquidity premiums; The correction of the business model in particular financial market segments; Increased exchange rate volatility; and Contracted demand for loans in the second half of 2009. The wavering of public confidence underscored the prime importance of financial stability in Albania’s economic life. Within its area of responsibility, the Bank of Albania undertook a number of comprehensive and co-ordinated measures, which aimed at maintaining financial stability at a systemic and institutional level. These measures, inter alia, consisted in: Reviewing the regulatory base in terms of increasing the supervisory prudence; Strengthening on-site supervision; Increasing the analysis of banks’ balance sheets at an individual and systemic level; and Enhancing the co-operation with the national and foreign counterpart institutions. Our endeavours to preserve financial stability were also coordinated with other public, executive and legislative authorities. Worth noting is the improvement of the public deposit insurance scheme and the increase of the deposit insurance level by the Deposit Insurance Agency. | We will continue to carefully monitor – as we always have done – the possible side effects of accommodative monetary conditions. It is crucial to remain vigilant and to use the available micro- and macroprudential policy tools as necessary. I will say more on this during the hearing in my capacity as Chair of the European Systemic Risk Board. The low yield environment needs to be understood in the context of the protracted decline in real yields we have witnessed since the 1980s. And this trend is not unique to the euro area. It largely reflects more structural factors such as a slowdown in productivity growth, which can be reversed through an ambitious structural reforms agenda. In other words, we need a coherent economic strategy in the euro area that complements and enhances the effectiveness of monetary policy. This is why there was unanimous consensus in the Governing Council that fiscal policy must make a more decisive contribution. In view of the weakening economic outlook and the continued prominence of downside risks, governments with fiscal space that are facing a slowdown should act in an effective and timely manner. Where fiscal sustainability is ensured, the potential effectiveness of countercyclical fiscal policy is reinforced in the current environment, given that 4/5 BIS central bankers' speeches fiscal multipliers are higher in a low interest rate environment. At the same time, governments in countries with high public debt should pursue prudent policies and deliver on structural balance targets. | 0 |
Third, the foundation of growth must be based on good governance and provides economic opportunity for people across all segments of the society. Social stability cannot be sustained with only selected few enjoying the 2 benefits. Having said all this, one necessary foundation in support of achieving these goals is to have a wellfunctioning legal framework that promotes governance, productivity, sustainability and equal opportunity. For Thailand, there is much room to improve on our legal framework. In a fast changing world, specifically with technology and liberalization, laws can quickly become outdated, stalling business progress and creating high costs of compliance, especially for SMEs. At the same time, new risks may not be properly regulated as dynamic technological and social progress has created the needs for regulation in areas once not deemed necessary. Therefore, it is the responsibility of the policymakers to continue to improve the legal framework to support their policies and goals. For these reasons, I want to highlight a set of laws – mainly laws relevant to businesses that will support and shape Thailand’s future business landscape. Some of the laws that I will discuss are already in effect; some are being reviewed at the National Legislative Assembly; and some are being considered at the Council of the State after having been endorsed by the cabinet. | So far, 17 companies have obtained TC licenses, most of which are multinational corporations. Second, ASEAN banks and their branches are expected to gain broader access within the AEC region. Under the ASEAN Banking Integration Framework (ABIF), ASEAN countries may enter into bilateral agreements to allow Qualified ASEAN Banks (QABs) to establish branches in the partnering country. To attain QAB status, banks must meet governance and several operating standards as well as other criteria agreed on a bilateral basis. For Thailand, this is an ongoing process, and we are now under QAB negotiations with Indonesia, Malaysia and Myanmar. 7 Third, we promote the use of local currencies for cross-border transactions. This helps reduce transaction costs and mitigates the exchange rate risks amidst the backdrop of high foreign exchange volatility in advanced economies. For liquidity support of regional currencies, Thailand has established several Bilateral Swap Arrangements with neighboring countries including China, Malaysia, Cambodia, and Laos. Further arrangement is expected, especially with Indonesia and other CLMV partners. These aforementioned developments are initial steps that could lead countries in the region into a new regional financial landscape that further integrates trade and financial services. Ladies and gentlemen, I hope my talk today is not overloaded with too many details, but I think it is a good opportunity to share some of the reform efforts in Thailand that may be less frequently discussed. Let me end my talk by providing you a quick summary. | 1 |
[15] To meet redemptions or margin calls, funds sold large amounts of US Treasuries beyond the capacity of dealers to accommodate the demand for liquidity, contributing to the highly unusual decline in Treasury prices in this period of stress. Similar developments may have played a role in euro area sovereign bond markets. The crisis also exposed the strong interconnections between banks and non-banks through direct exposures and overlapping portfolios, and demonstrated how these can increase the risk of contagion. [16] For example, MMFs play a particularly important role in the short-term funding of banks. They hold around 10% of outstanding debt securities issued by euro area banks. During the crisis, many of these funds, in particular low-volatility net asset value (LVNAV) funds, which account for almost half of the euro area MMF sector in terms of total assets, came under severe liquidation pressure as investors redeemed large amounts of shares (see left chart slide 10). [17] Large outflows, in turn, led to a freeze in the demand for commercial paper and a measurable rise in their issuance rate for both banks and non-financial corporates, draining liquidity from the system at a time when it was most needed (see right chart slide 10). [18] While some investment funds and MMFs took exceptional measures to cope with their liquidity stress, these were not sufficient to prevent systemic stress. Some investment funds used quantity-based measures, such as the suspension of redemptions and redemption gates to address liquidity issues. | (2020), “Volatility-targeting strategies and the market sell-off”, Financial Stability Review, ECB, May. [11] According to ECB simulations, assets worth nearly 225% of the portfolio’s capital had to be sold in order to meet the volatility target. The simulation assumes a leveraged investor with a diversified portfolio including equities, corporate and government bonds. In this stylised model, relative portfolio weights are adjusted on a daily basis to equalise the risk contributions of the constituent assets of the portfolio considering the daily estimates of portfolio variances and covariances. The level of leverage is set in a way to bring the expected portfolio volatility in line with the volatility target. For more details, see Vassallo, D. et al., op.cit. [12] The liquidity effects of initial margins are likely to increase further in the future. Today, around two-thirds of non-banks’ derivative exposures are not centrally cleared. Initial margin requirements remained fairly stable for these contracts during the turmoil. However, as the implementation and application of the over-the-counter derivatives reform progresses, an increasing number of contracts will be moved to central clearing and an increasing number of non-centrally cleared contracts will become subject to initial margin payments. See also Fache Rousová, L. et al. (2020), “Derivatives-related liquidity risk facing investment funds”, Financial Stability Review, ECB, May. [13] Surveys confirm that variation margin calls led to strained liquidity situations for some non-banks. See the results of the June 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD). [14] ECB (2020), Financial Stability Review, November, forthcoming. | 1 |
For example, regulatory requirements on banks could be raised to lean against a credit boom and lowered in the teeth of a credit downturn. In the public houses for credit, intake would be monitored, opening hours restricted and the Happy Hour abolished. This approach has become known in policy circles as macro-prudential policy. 17 Although the name is new, it is in the time-honoured policy tradition of “removing the punchbowl” from the party as it is getting started – a fitting analogy if the aim is to prevent a debt hangover. Had such a party-pooper been in place over the past decade, today’s debt headache would plausibly have been less acute. 14 Krugman (op.cit). 15 For example, Zingales, L (2008), “Plan B”, Economists’ Voice. 16 See, for example, http://scotland.shelter.org.uk/getadvice/advice_topics/paying_for_a_home/mortgage _arrears/mortgage_to_shared_equity. Bank of England (2009), “The Role of Macro-Prudential Policy”, available at www.bankofengland.co.uk. 17 BIS Review 10/2010 7 Regulation might also be used to lean against the collective tendency of banks to payout high even when profits are low. Among regulators internationally, there are proposals to introduce capital conservation rules, requiring banks to distribute less of their profits in adverse states of the world. By ensuring prudent profit retention on a collective basis, these rules ought to be in the long-term interests of banks and their shareholders, as well as the authorities. | The resulting near-term refinancing schedule is estimated by Moody’s at $ trillion over the next three years. Among UK banks, it is in excess of £ trillion between now and 2014. As hangovers go, this one is large and will linger. Dealing with today’s debt hangover The road to balance sheet repair is likely to be long and winding for both the real economy and financial system. Adjustment needs to be neither too fast nor too slow. Too fast and lending and spending fall, jeopardising today’s recovery. Too slow and balance sheet fragilities persist, jeopardising tomorrow’s stability. So what principles should guide the transition? Let me highlight two drawn from the past. The first comes from monetary policy. Over the past 30 years, many economies have sought to bring down inflation – so-called disinflation. The optimal rate of disinflation is usually felt to be gradual to limit damage to short-run growth. But there is an important exception to this gradualist rule. If a downward inflation surprise comes along, it is optimal to pocket this windfall as this accelerates the path to low inflation without harming growth. Disinflation is “opportunistic”. 9 The same general principles apply to the repair of indebted balance sheets. Take banks. Over the medium-term, their capital ratios are likely to need to rise. If this is achieved too fast, by constraining lending, it poses a risk to growth. As with disinflation, there is a strong case for gradualism. | 1 |
Although a sharp fall in sterling has been the fervent wish of many manufacturers over the past four years, I recall the words of the person who told me: "think very carefully before you make a wish – it might come true". The only problems worse than those of an excessively strong currency are those of an excessively weak currency. The existing imbalances pose risks also to the inflation outlook. Prices of services have tended to rise faster than those of goods – about 2% a year faster since 1990. But over the last twelve months the gap between the two inflation rates has exceeded three percentage points. Services inflation has been in the 3-4% range for some time, but goods inflation declined steadily from over 3% in late 1995 to close to zero in the spring. The strength of sterling was the main factor that lay behind this fall in goods inflation. But there are now tentative signs of a pick up in goods prices and the retail sales deflator. RPIY inflation has also risen during the course of this year from 1.5% to 2.8%. The MPC will monitor the price data extremely carefully. But there is likely to be significant short-run volatility in the inflation figures over the coming months, and it would be unwise to read too much into the latest inflation figure because the rise from 2.0% to 2.4%, although the lar gest one-month increase since October 1996, was largely accounted for by jumps in the prices of seasonal food and petrol. | For that part of the economy producing internationally tradable, not just traded, goods and services, output is falling while consumer spending is buoyant. As a result, there is a "tale of two cities" in which some industries are experiencing the worst of times, with declining manufacturing output, and others the best of times, with the latest retail sales figures showing an increase in the volume of sales over the past twelve months of 6.4%. Such imbalances are not uncommon. Indeed, I first used the phrase "tale of two cities" in early 1995 to describe the contrast between strong demand for manufacturing output and weak retail sales, the opposite of the position today. Since then the economic see-saw has lurched from external to domestic demand, partly as a result of the continuing weakness of the euro which has led to a large and persistent rise in the sterling effective exchange rate. The scale of the imbalances at home can be seen in figures for domestic and external demand. Whereas aggregate demand and output have risen at a fairly steady rate of around 2¾% over the past five years, domestic demand, supported by rapid money and credit growth, has risen much more rapidly than net external demand. Indeed, private final domestic demand grew at an average rate of nearly 5% over this period, and its growth was in excess of 4% a year in four of the last five years. This imbalance between domestic demand and output has resulted in a rising trade deficit. | 1 |
I would thus like to share with you now some thoughts on the nature of these challenges and the contribution that central banks can make to address them effectively. 1.The digitisation of the economy and its challenges for sovereignty A- The digitisation of the economy has led to a profound change in financial ecosystems. The development of an Internet-based network economy has provided businesses with more direct access to consumers, while reducing the fixed costs of launching and operating services This change has gone hand in hand with changing lifestyles and increased expectations in terms of simplicity, availability, immediacy and even personalisation of services. This is commonly referred to as the “customer experience". The emergence of digital banks, where interaction with the customer is mainly carried out via a mobile application, is an example of a response to this new standard in terms of practices. Changing patterns in practices have also prompted some companies to position themselves between customers and traditional service providers in very specific segments in order to offer value-added services. This “re-intermediation” has given rise in Europe to a continuous adaptation of regulations in order to regulate and secure data sharing, which is the driving force behind open banking. This trend benefits both relatively small players (FinTechs) and technology giants whose business model is based on the monetisation of data (Gafams and BATX, whose entry into the European market is more recent). These changes are the natural result of a process of creative iteration, and promise to simplify practices by diversifying them. | 2/4 BIS central bankers' speeches In the exercise of their supervisory mandate, central banks can contribute to this by reconciling the need for openness and support for innovation, which is inherent to an economy integrated into world trade for the benefit of consumers, with their fundamental mission as guarantors and promoters of sound risk management. But they can also contribute through their two other traditional channels, namely as a catalyst and a provider of settlement services in central bank money. A- I believe that this catalyst role is important in the field of retail payments. Commercial bank money is the predominant settlement asset in France, even though the use of banknotes and coins remains significant in this country, as in most of the European Union. This variety of means of payment, based on settlement assets that can be exchanged at any time at par, is an advantage that I believe should be preserved for several reasons: on the one hand, because of the financial inclusion responsibility, since the most vulnerable populations are also the least banked; but also with a view to diversifying risks, in the event of a widespread failure of electronic payment systems. However, it is commonly believed that in Europe there is a risk of a fragmentation of cashless means of payment and a dependence on dominant foreign players that benefit from the effects of global networks. | 1 |
It is a particular coincidence that TARGET2, the next generation of the Eurosystem’s large value payment system, will be launched today. TARGET2 is an important milestone. It will offer Europe a more uniform wholesale payment infrastructure, with a harmonised service level and a single price structure. Thus, TARGET2 is another good example of progress in the creation of a common payments area. Let’s now turn to this year’s SEPA Summit, which is called “Ready for SEPA?”, and rightly so. In my view, this question is not limited to the mere operational readiness of the industry to offer SEPA payments. I consider the topic of this conference to be broader. The question BIS Review 134/2007 1 should perhaps be understood as, is the industry ready to create a “truly integrated” Single Euro Payments Area? The ECB sees SEPA as a major catalyst for more financial integration in Europe. SEPA will influence the payment landscape in Europe for many years to come and this will involve a rethink by all the parties involved. Indeed, it is not enough to defend current market positions or current practices. Rather, the point is that SEPA will benefit those who bring innovative services to their customers. SEPA will benefit those who are future oriented. Today I would like to focus in particular on two issues, both of which are much discussed by banks and which are needed to create a truly integrated SEPA. The two main questions are, first, what about the readiness of customers? | And second, what about the readiness of other payment instruments, in particular payment cards? Let me first give you my views on the readiness of the customer. Readiness of customers? A parallel can be drawn with another major project, namely the changeover to the euro notes and coins in 2002. Indeed, as with SEPA, many of the preparations for the euro changeover were not visible to the citizens, as they were carried out by technical experts. Furthermore, the banknotes’ security features were disclosed only four months before the launch. As with SEPA, it was difficult to predict how the customer would react. On the other hand, well before the euro changeover took place, the central banking community discussed customer readiness in depth with the aim to ensure acceptance of the euro notes and coins. Well in advance of 2002, the Eurosystem started organising a “partnership programme” that involved the main bodies in the various sectors. This partnership programme emerged from the “megaphone idea” and the understanding that communication on the changeover to the euro had to be at national level by the national public authorities, banking communities and end-user associations. Each sector was encouraged to inform their target groups. Indeed, as if with a “megaphone”, the Eurosystem passed on a common set of key messages to target groups, and they in turn passed on the information to others. Applying the principle of subsidiarity in this context proved itself as the correct way to deal with differences in culture, language and institutional setting. | 1 |
The increased focus on financial stability has several implications for the new financial landscape. The most significant will be the fundamental changes in the regulatory environment. These include changes to institutional arrangements for oversight of the financial system – both at the international level and within national borders in a number of countries, significantly strengthened prudential standards with a focus on building stronger capital and liquidity buffers, increased transparency in financial transactions and exposures, and enhanced options to resolve failed financial institutions. Much progress has already been made by the Islamic Financial Services Board in promulgating an extensive set of prudential standards for the Islamic financial services industry since its establishment in 2002. The IFSB has already introduced standards for capital adequacy, risk management, corporate governance and Shariah governance. This important work has been significant in promoting international uniformity of the regulatory BIS central bankers’ speeches 3 framework and international best practices for the Islamic financial system in different jurisdictions. The IFSB has also established a facilitative platform to promote overall financial stability through the Islamic Financial Stability Forum (IFSF) that serves as an avenue for cross-border engagement amongst regulators. The important goal of strengthening the foundation of the global Islamic financial system has also been reinforced further following the recent global financial crisis, through the work of the IFSB-IDB Task Force of Islamic Finance and Global Financial Stability. In its report that was released in 2010, eight building blocks were identified to manage potential risks and vulnerabilities to the Islamic system. | Prophet Muhammad (S.A.W), in a hadith in Musnad Ahmad mentioned that mankind would be rewarded for efforts in improving greenery; making it incumbent on every Muslim to contribute towards such efforts. In terms of the relationship between mankind and the environment, the teachings of Islam basically promote preservation of natural resources and the need to respect all living things. Failure to do so would be detrimental, as stated in verse 41 of Al-Rum where severe destruction of the land and sea would come upon those who mistreat the environment. It is therefore crucial for everyone, including Islamic banks to consciously play their role towards ensuring environmental sustainability. Achieving environmental sustainability is the responsibility of everyone and the banking industry must do its part. The role of Islamic banks extends beyond being a component of a financial system, but as part of a total value-based social system that is driven by the principle of public interest or maslahah. This system seeks to enhance the general welfare of society. Environmental protection and sustainability should be part of the Islamic finance agenda to ensure the fulfillment and establishments of the spirit of Islamic tenets. As the global economy is transitioning towards a low-carbon and more sustainable model, the industry can contribute immensely towards the greening of the world. Islamic financing facility for green technology is another growth area worth engaging and with the necessary incentives and infrastructure in place, our Islamic banks are capable of becoming a significant player. | 0 |
Ida Wolden Bache: A somewhat faster rise in the policy rate Speech by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), during "Arendalsuka", on the outlook for the Norwegian economy and the policy rate decision, Arendal, 18 August 2022. * * * Accompanying slides of the speech. Good afternoon everyone and let me first of all thank Sparebanken Sør for allowing us to use this lovely building. This was once the Arendal branch of Norges Bank. The branch was closed in 1989, and at that time inflation in Norway was on its way down from a high level. Today, after a long period of low and stable inflation, inflation is again high. The central bank’s role is to ensure price stability and promote economic stability. The decisions we take affect people’s finances. I was acutely aware of this responsibility, as were the other members of the Monetary Policy and Financial Stability Committee, when we convened yesterday to set the policy rate. Chart: A somewhat faster rise in the policy rate After thorough discussions, we decided to raise the policy rate by 0.5 percentage point to 1.75 percent. The decision was unanimous. This means that we are raising the policy rate somewhat faster than indicated by the policy rate forecast published in June. The policy rate will most likely be raised further in September. | In just under a year, we have raised the policy rate five times. This means higher interest expenses for two out of three households. Both in terms of hard cash and as a percentage of disposable income, interest expenses will increase most for households with the highest incomes, which is also the group with the highest debt to income ratios. As things stand now, the rise in prices will be notably higher than wage growth this year. Indebted households will face both higher interest expenses and higher electricity and food prices. Many households will be facing a tighter financial situation, and I am fully aware that some of them will also be facing a financial struggle. Most households will be able to cope with higher interest rates on their loans. Unemployment is very low. Many will be able to cut down on other expenses or draw on their savings. Chart: Monetary policy meeting on 17 August We could have decided to raise the policy rate more gradually. But then we would have run the risk of inflation becoming entrenched at a high level. That would have made it more difficult to bring inflation down and could have required a sharper tightening of monetary policy somewhat further out, increasing the risk of an economic downturn. Inflation has surprised to the upside in recent months. This is why the policy rate has been raised somewhat more rapidly than signalled earlier. And the economy might evolve differently from what we have envisaged. The level of uncertainty is high. | 1 |
A normalisation of long-term interest rates would increase UK companies’ debt servicing costs from 17% of profits currently to around 33%. 6 Reinhart, C M and K Rogoff (2009), This Time is Different – Eight Centuries of Financial Folly, Princeton University Press. 7 Data are not available for all ten countries, so period averages are based on slightly different samples. 8 Bank of England Financial Stability Report, December 2009. 4 BIS Review 10/2010 That is significantly below the levels reached in the early 1990s, when debt servicing peaked at 58% of profits. But the distribution of debt across companies again paints a less promising picture. In 2007, around 25% of UK firms made insufficient profits to cover their interest payments (Chart 11). This is a long tail. For sovereigns, debt servicing costs among the G7 economies are currently low, at around 3% of GDP. But were medium-term interest rates to normalise, against a backdrop of rising debt ratios, the combined effect would be significant. Over the medium term, debt servicing relative to GDP in the G7 economies would double. Finally, banks’ refinancing burden in the next few years has grown as a result of a shortening of debt maturities during the crisis. The average maturity of US banks’ rated debt is estimated by Moody’s to have fallen from 6.7 years to 3.2 years since 2005. Among UK banks, it has fallen from 6.8 years to 4.3 years. | Almost all NPLs of government banks have been transferred to AMCs, and all multi-creditor NPLs of private commercial banks have been transferred to the TAMC. And we will speed up our effort to clear them out. However, please be informed that when similar financial crises occurred in the US in 1982, the US economy was not in as bad a shape as Thailand has experienced in the past four years. At that time, Japan, Europe and the Middle-Eastern economies were strong and contributed certain capital flows into the US economy. But now, under current world economic conditions, where every country has its own problems to solve, we know well that we cannot expect foreign investors to help us clear this NPL mess, so we have to help ourselves. I do not see why we cannot do it. And we will do it. Back to the economic forecast for next year. One important source of growth in 2002 will be fiscal spending, and the projected central government deficit of 224 billion baht or 4.4 percent of GDP strikes a good balance between improving the economic infrastructure, raising external competitiveness, and fostering economic recovery. It is very important, however, that the fiscal stimulus program meets its spending target. 2 BIS Review 99/2001 Safeguarding the recovery would require timely as well as effective disbursements of the 58 billion baht emergency spending plan. | 0 |
Anne Le Lorier: Bailouts, bail-in and financial stability Welcome address by Ms Anne Le Lorier, First Deputy Governor of the Bank of France, at the conference “Bailouts, bail-in and financial stability”, jointly organized by the Bank of France and the Toulouse School of Economics, Paris 28 November 2014. * * * It is a great pleasure to welcome you here today at the Banque de France for this joint conference organized with the Toulouse School of Economics. It is the seventh conference jointly organized with TSE since the beginning of our partnership on financial stability issues. In the previous events, we tackled “Extreme events” in 2008, and then “Liquidity” in 2009, “the Future of Financial regulation” in 2010, “Debt crisis in the euro area” in 2011, “Banking models and banking structures” in 2012, and “Bank liquidity, transparency and regulation” last year. Today’s topic is “Bailouts, bail-in and financial stability.” In the follow up to the last financial crisis, almost all regulatory initiatives have been motivated by the objective of ensuring no future public bailouts of banks or, in the language of economists and banking regulators, ending the Too-Big-Too-Fail problem. This objective is to be reached for all systemically important financial institutions, be they banks, insurance companies, market infrastructures or entities belonging to the so called “shadow banking system” (asset managers, hedge funds and so on). | Second, one would also like to ascertain whether the presence of an implicit subsidy does lead to higher risk taking, and the quantitative importance of this effect. The third question has to do with regulation, i.e. : “what can be done to address this issue?” It seems that there are three main approaches: • Some regulatory measures try to eliminate possible symptoms of the implicit subsidy. For instance, proposals on restrictions on bank market activities have been justified by the objective of limiting the implicit subsidy to non-traditional banking activities. • Another approach is to directly target the underlying cause of the problem, for instance by making easier the resolution of problems at large banks without resorting to taxpayer money. Some progress has been achieved in the US (through the Orderly Liquidation Authority), and in Europe (through the Recovery and Resolution Directive). • A third approach, illustrated by the G-SIBs framework, is to offset the implicit subsidy with additional capital and bailinable debt requirements the so called TLAC or other regulatory measures. Concluding remarks To conclude, I would offer two remarks which you may want to keep in mind. The first remark has to do with the comparative advantage of too-systemic-to-fail institutions, and in particular of global systemically important banks. In reaction to the crisis, many regulatory reforms have been put in place on capital and liquidity, credit exposure to counterparties, supervision, and trading activities. | 1 |
Recent decades have brought notable achievements in this area. They were possible thanks to the institutional strengthening of central banks, including statutes of autonomy and advances in the design, implementation and communication of monetary policy. It is important to persevere on these lines whilst also bearing in mind possible adjustments or improvements. Central banks, however, also have an important responsibility for financial stability. Although this responsibility had lost prominence over time, the experience of recent years has clearly underlined its importance. Moreover, because of their monetary policy tasks, they are in direct contact with the markets and, therefore, have access to first-hand information about 4 BIS Review 142/2010 the functioning of the financial system. This puts them in a privileged position to undertake tasks related to financial stability. Central banks must, however, be realistic in setting their objectives. It is critical to ensure that they do not result in a more than reasonable level of protection for the financial system since this would encourage banks and other financial institutions to take excessive risks. The responsibility of central banks as regards financial stability must be geared principally to strengthening the reaction capacity of the system as a whole. If problems occur in specific institutions – which cannot be ruled out – the aim must be to minimize their systemic impact. Central banks must have a set of instruments that allow them to contribute effectively to financial stability. | Between 2000 and 2008, Greece and Ireland posted cumulative labor productivity growth rates, as measured by the output per employee, of 14.7% and 10.2% respectively. Both significantly outpaced that of Germany (6.1%). This is exactly what you would expect in an integrated economic and monetary area and this process should continue in the future, provided that appropriate policies are implemented. Economic convergence will therefore boost growth and support the return to debt sustainability. It is true that, looking at nominal developments, a different picture emerges. During the same period, nominal wages grew by a total of 42% in Ireland and 52% in Greece, compared with only 7.4% in Germany. There has to be a regime change in the way in which nominal wages and prices are set in some parts of the euro area. As central bankers, we have been putting forward this argument for years. Strong reforms are now being pushed in labor market legislation as well as in wage determination in the public sector in many countries. What about banks? I would like to end with a few words about the banking sector. Revenues for the twelve biggest European banks grew, in aggregate terms, by 8.6% in 2010 (as compared to 2.5% for the main US banks). As a result, European banks’ Core Tier 1 ratios stood at between 8.5% and 15.3% at the end of 2010 (corresponding numbers for US 4 BIS central bankers’ speeches banks were between 8.4% and 13.3%). | 0 |
The massive surge of inflation in the 1970s and 1980s and the reluctance of some finance ministries (and their associated central banks) to combat it made economists and the public aware that politicians may not have the appropriate incentives to bring or to keep inflation down. Why are independent central banks more successful when it comes to bringing down inflation rates? The reason is that politicians and central bankers tend to have somewhat different objectives and largely different time horizons. Technocrats at central banks mandated to ensure monetary stability can easily afford to take a long-term view, while politicians feel much more constrained by the pressure to produce short-term results. This seems relevant since an inflation-preventing or inflation-combating policy is usually associated with real costs in the short run, while the benefits appear only over time. A government might be seduced into conducting an inflationary policy in order to reap benefits in the short term, while the costs will only become evident years later. Therefore, there is a strong probability (but, of course, no guarantee) that independent central banks will do a better job than governments with regard to the issue of inflation. This insight - and perhaps the relative success of most independent monetary authorities with the disinflation process in the 1970s - has paved the way for granting more independence to monetary authorities. Essential preconditions for the independence of a central bank include a solidly based consensus concerning its mandate and a commitment to transparency and accountability. | On the one hand, deregulation and the opening of markets for products and factors and, on the other hand, the phenomenal progress in information and communications technology.3 On a macroeconomic level, the explanations lead to three possible conclusions. First, to the conclusion that the economy has lost some of its cyclical dynamic, a change which is explained by the increased transparency and more efficient steering of entrepreneurial processes as well as the fact that inventories have been cut or completely eliminated. Second, that there has been a permanent reduction in the natural rate of unemployment which results in an upward shift of the potential output curve and thus to significantly higher growth rates in the transition phase. Third, that there is a gain in long-term productivity growth, ie a steeper potential output curve in future. Academic economists usually react with scepticism to these basically supply-side hypotheses. In fact, they are assumptions which, plausible as they may be, have not been empirically tested. Monetary policymakers cannot simply ignore them because they relate to interconnections which are important for the formulation of policies. It would be just as foolish, however, to accept such theories uncritically and to include them in the decision-making process simply because they sound plausible. In any case, the assertions put forward under the label “new economy” create additional uncertainties. In this particular state of uncertainty, there is growing interest in an ongoing analysis and interpretation of indicators. In this way, one searches for early evidence for the pros and cons of these hypothetical changes. | 1 |
Banks are of course already used to dealing with at least some of the issues that crop up in an electronic banking environment, and so have built up experience and expertise to deal with these. However, I do believe that the internet, because of its low cost, global reach and versatility raises the stakes for the banks – both in terms of the opportunities it presents as well as the risks. Strategic risk In talking about these risks, let me start at the top – with the issue of strategic risk. In other words, will the bank get it right? Will it make the right choices when it comes to investing in e-banking or will it waste money by going down a technological blind alley? Should it attempt to take the lead in new technology ahead of its competitors, or should it be a follower and adopt a “wait and see” approach? The latter may be the safer course of action for smaller banks, though it does create the risk of being left behind. The advantages of e-banking, and internet banking in particular, are quite clear – the ability, for example, to disseminate information widely and instantaneously at low cost and to cross-sell products in a much more effective way. But there are also strategic threats. The cheapness and global reach of the internet opens up the threat of increased competition from new entrants who will no longer need a branch network to operate effectively in any given market. | This competition can be launched across national frontiers. In the meantime, existing players are faced with the problem of what they do with the branch networks they have so painstakingly built up over the years. Unless they can give the right incentives to existing customers to migrate to the new electronic delivery channels, and scale back their branch networks accordingly, the promised cost-savings from the internet may not be realised. Moreover, one of the key distinguishing characteristics of the internet is the ability which it gives customers to access and compare the offers of many different retailers, including banks. This greatly increases the power to “shop around”. This will increasingly be done with the help of automatic shopping agents that will travel the net looking for the best deal on behalf of customers or through the use of intermediaries who will offer consolidated product information and price quotes. This will drive down margins, particularly on commodity-type products, and erode customer loyalty. As has often been said, the Internet Age is all about customer empowerment. What in this situation is a traditional bank to do? Is it simply a matter of waiting to be overtaken by a trendy new virtual bank with a catchy name? Luckily, for the existing players it is not as simple as that. Banking is not simply about cheap delivery, although that will become more and more important. | 1 |
Above and beyond this, in taking on the market maker of last resort function, a central bank assumes significant financial and reputation risks. To summarise, the direct and indirect costs of this kind of market intervention need to be weighed up against the overall economic costs of a system-wide implosion of liquidity. At a time of significant stress in the system, we must probably retain a second line of defence of this kind for use when needed, if we are to carry out our task of ensuring sustainable welfare growth in the spirit of our mandate. However, liquidity or market assistance of this kind needs to be examined carefully, case by case. It must be planned as a distinct supplement to the first line of defence and clear principles laid down in connection with its provision. Last but not least, it must only be used to “kick-start” a market that is fundamentally capable of survival. Taking on a permanent market replacement function is something that should, fundamentally, be avoided. 11 Conclusion Ladies and gentlemen, I now come to the conclusion of my remarks today. The accumulation of systemic risk represents a serious threat to the stability of financial systems. It is therefore important, on the one hand, to recognise this risk at an early stage and, on the other, to develop measures capable of containing it. I have spoken about four fundamental criteria for evaluating measures of this kind. | In particular, it is important that the measures are first and foremost designed to correct false incentives and to guide them in the right direction so that, first, unprofitable financial institutions leave the market of their own accord and, second, potential losses are borne by these institutions themselves, and not by the state. Consequently, in my opinion, measures such as a ban on proprietary trading or the introduction of a narrow banking system, that intervene too strongly in banks’ business models, are not very suitable. Such measures neither target the objective nor are they in line with the basic principles of the market economy. With regard to the TBTF issue, this principle has prompted the committee of experts appointed by the Swiss Government to draw up proposals including the creation of incentives for banks to become less systemically important overall, thereby reducing potential costs for the economy. At the same time, the committee of experts’ proposal will allow for improved resolution in the event that insolvency appears imminent, and this will significantly alleviate the TBTF problem. Are the measures “structural”? A second criterion is that the measures should not just address the specific circumstances of the most recent crisis. In other words, fighting the last war will not win the next one. At the same time, the lessons of history show us that certain basic mechanisms repeat themselves in every crisis. Consequently, it is very important that we recognise these general patterns and include them in regulatory considerations in order to improve our crisis prevention. | 1 |
The age of informal responsibilities, nods, winks, secrecy and instinct is long past.20 In no small part due to the Mais Lectures of my predecessors, particularly Mervyn King, we have today a regime for monetary policy that is both democratically legitimate and highly effective. It rests on clear ultimate objectives delegated by Parliament, on sound governance arrangements to support independence, and on transparency of policymaking. We are extending this sound framework with our strategic plan. We will reinforce these foundations in monetary policy. And we will broaden them to financial stability. The case for the independent operation of monetary policy is firmly established around the time-inconsistency of governments with horizons dictated by the electoral cycle. That timeinconsistency argument applies even more strongly to both microprudential and macroprudential policy given the large potential size and long duration of credit cycles. The 20 That approach is perhaps best captured by Montagu Norman’s remark in 1930 when pressed by the Macmillan Committee to explain the Bank’s actions: “Reasons, Mr Chairman? I don’t have reasons, I have instincts”. 8 BIS central bankers’ speeches avoidance of potentially unpopular measures to boost the resilience of the financial system today can have disastrous consequences many years later. Moreover, being tough and avoiding crises has no obvious reward. It is hard to be given credit for a counterfactual. The Bank’s independence must be supported by good governance arrangements. Now that Parliament has developed them, we must make them work. | More generally we are conscious that everything we do affects the trust and confidence in the Bank and by extension the financial system. Monetary and macroprudential policy The interaction between macroprudential and monetary policy is central to the Bank’s success in achieving its dual objectives of monetary and financial stability. The case for discharging these responsibilities in a coordinated way is very strong. I am delighted that Ben Broadbent has today been appointed as the next Deputy Governor for Monetary Policy. In that role, he will be central to co-ordinating these functions and his experience in academia, financial markets, and as an external Monetary Policy Committee (MPC) member, makes him extremely well qualified to do so. The transmission channels of monetary and prudential policy overlap, particularly in their impact on banks’ balance sheets and credit supply and demand – and hence the wider economy.8 Monetary policy affects the resilience of the financial system, and macroprudential policy tools that affect leverage influence credit growth and the wider economy. In turn, financial stability is a pre-requisite for monetary stability – for example systemic banking crises are likely to be deflationary. In reducing the frequency and severity of financial crises, macroprudential policy therefore helps to preserve the role of money as a store of value.9 While price and financial stability are clearly connected, achieving both can be difficult. | 1 |
... “that the bubble has reached such a size partly due to the fact that the dot-com bubble burst with very little footprint on global GDP”...that as late as April, 2007 the IMF noted that “global economic risks have declined, the overall U.S. economy is holding up well”; that “many quantitative firms whose number crunching sought to expose profitable market trading principles were successful so long as risk aversion moved incrementally (which it did much of the time)”; that “the risk management paradigm nonetheless, harbored a fatal flaw” i.e. that “in the growing state of high euphoria, risk managers, the Federal Reserve, and other regulators failed to fully comprehend the underlying size, length, and impact of the negative tail of the distribution of risk outcomes that was about to be revealed as the post-Lehman” that “for decades, with little, to no data, most analysts, in my experience, had conjectured a far more limited tail risk” and that “this is arguably the major source of the critical risk management system failures”. “In despair, says Greenspan, an inordinately large part of investment management subcontracted to the ‘safe harbor’ risk designations of the credit rating agencies.” But the 2 BIS Review 90/2010 analysts of the credit rating agencies proved no more adept and no more proficient at anticipating the onset of crisis than the investment community at large. | To incorporate fiscal stability through the highest act in the country, the constitution. V. As usual, the establishment of a new action framework is one thing, while whether this framework will become operational, functional, and to what extent, is another thing. It is obvious that the bunch of new ideas, new tools we talk about forced by the crisis, are focused on establishing a concept for managing systemic risk. Therefore, the questions whether it will function, on what the result depends most, are logical. 1) First, the systemic risk is not too hard to define. It is harder to provide operative contents, because of its different dimensions: procyclicality; contagion risk; the spillover effects of a single institution’s distress to the rest of the financial system; correlation risk; concentration risk; then, due to the fact that the risk can originate from several sources, etc. 2) Even when the source is identified, the history shows that there is no action at all, or the action is delayed, or the seriousness of the threat is underestimated. For example, the false reports of the Greek government for the real fiscal deficits were not unknown. And not only for theirs. It is not untrue that the Federal Reserve and the Treasury have proposed to the Congress a gradual reduction or possible extinction of the GSEs portfolio (Fannie Mac и Freddy Mac), quite before 2004 when their assets were several times smaller than US Dollar 3.2 trillion at the end of 2007. | 1 |
Charles Kindleberger’s seminal work on financial crises documents a number of credit-fuelled investment manias and bubbles in which the trigger was simply a change in sentiment about the value of the asset leading to the drying up of credit or greater fools prepared to finance further speculation.7 3 This may well have been because debt with compound interest grew much faster than the productive capacity of agrarian economies. See Hudson (2018). 4 A similar debt reset mechanism for the ancient Israelites, was provided by the Jubilee set out in the Old Testament. And when debt and credit technologies subsequently transferred to ancient Greek societies, similar problems emerged. See Graeber (2011) and Hudson (2018). 5 See Frank (1935) 6 See Cipolla (1982) 7 These are documented in the appendix of Aliber and Kindleberger (2005). 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 Whatever the trigger, the point is that widespread correction of debt and asset prices and consequent loss of wealth may not happen often but it does seem to happen periodically. In other words, it is not what today we would call a ‘bug’ in the system that subsequent improvements will correct. Rather, however unwelcome, it is a feature of the system. The question for those of us concerned with financial stability is not so much whether we can prevent such adjustments happening. | Lenders were reducing interest rates, that is, their compensation for risk, and at the same time lending to higher risk segments of the market. They appeared to be basing this higher risk appetite on a marked fall in the rate of defaults on consumer loans over the past five years that they attributed to a structural improvement in the underlying creditworthiness of consumers since the crisis. However, the improvement in default rates also reflected the macroeconomic environment over the period of sustained employment growth and low interest rates and lenders appeared to be underestimating the losses they would incur in an economic downturn.27 The growth rate of consumer lending has fallen back, very possibly as a result of FPC and PRC action to correct this underestimation of risk. 26 27 Broadbent (2019) and Cunliffe (2016) These findings were set out in full in Bank of England (2017) 11 All speeches are available online at www.bankofengland.co.uk/speeches 11 We have in recent years seen other signs of growing risk appetite. Spreads on UK mortgages have come down noticeably over the past few years while loan to value and loan to income multiples have gone up.28 The increased risk appetite of mortgage lenders has not been matched by increased demand by house buyers. The number of mortgage transactions has remained pretty static over the past few years, one of the reasons why overall credit to households is not growing rapidly. Demand may currently be constrained by Brexit uncertainty. | 1 |
It is hugely important for the future strength of the world economy that as domestic demand growth in the US moderates – as it almost certainly will, one way or another – domestic demand growth in the other industrial countries accelerates to take up the slack. Here in the UK both business and consumer confidence have improved since the autumn and overall output growth seems set to recover, on the back of accelerating domestic demand growth, to around its long term trend by about the middle of next year. But we, too, are having to continue to cope with the imbalance between the domestic and internationally exposed sectors of the economy as a result of continuing relative demand weakness in some key overseas markets and of relative price effects resulting from a renewed rise in the exchange rate, which, despite the sharp reduction in interest rates, has strengthened against the euro since the beginning of this year. These external factors will have a continuing dampening impact on our domestic inflation rate – which is likely to remain close either side of the inflation target. Overall then, although the prospect is for renewed growth with continuing low inflation over the next couple of years, the tension between the different sectors of our economy has not for the time being disappeared. Against the background of that brief description of recent and prospective developments in the economy, let me now try to draw out what we can, and what we cannot, hope to achieve through monetary policy. | Regulators and supervisors should try to make the playing field as level as possible and certainly be on the look out for regulatory distortions which unduly favour the creation of particular products or limit the creation of other welfare-improving innovative instruments. But the market place should decide which products match issuer and investor desires once all risks are correctly priced. 44 Looking into a crystal ball what are some of our expectations for future financial market developments? We will put forward 7 suggestions: • First, there will be additional focus on simpler, more standardised products. For example, it would be a surprise and probably undesirable if mezzanine resecuritisations were to reappear. Simpler products should be easier to understand and therefore less prone to radical changes in expectations of their likely performance. Improved stability of expectations should help sustain market liquidity during periods of stress. Standardised products also economise on information requirements and therefore also improve liquidity in secondary markets. • Second, products will be more transparent in design and content, to improve the ease of monitoring and hence lower information costs. Increased transparency should not be confused with reams of data. The issuance documentation for many securitisations often contained a barrage of statistics. For CDOs of ABS, these documents could run to thousands of pages given that the documentation for each underlying ABS could already comprise of hundreds of pages. Any investor with the appetite to conduct due diligence would have found this volume of information completely indigestible. | 0 |
According to this Act, the objective of monetary policy is to maintain price stability. The Riksbank has specified this as an inflation target, which states that the annual rate of change in CPI should be 2 per cent, with a permitted deviation of ± 1 percentage point. The Riksbank shall also promote a safe and efficient payment system. The preliminary work to the Sveriges Riksbank Act also makes clear that the Riksbank as a public authority under the Riksdag, without neglecting the price stability target, should support the general economic policy objectives of sustainable growth and high employment. The Sveriges Riksbank Act also established increased independence for the Riksbank. Since 1999, decisions on the repo rate have been made by the Executive Board of the Riksbank and the members of the Board are expressly forbidden from seeking or receiving instructions when carrying out their monetary policy tasks. Price stability is thus the objective of Swedish monetary policy, but like Norges Bank and most other inflation-targeting central banks we conduct monetary policy that also to some extent takes into account activity in the real economy. The fact that the interest rate is often adjusted in relatively small and predictable steps can partly be regarded as an expression of this. If the aim had instead been to bring back inflation to the target as quickly as possible, without any other considerations, it is probable that larger and more frequent adjustments would have been warranted. | Although we fully appreciated the benefits that Switzerland would draw from the creation of the euro in terms of increased transparency and lower transaction costs, we were also quite concerned about the possible risks. Three of these came to mind. First, we feared that the Swiss franc might be in for a bumpy ride. In the past, whenever the dollar was under attack, international investors turned their attention to the German mark and the Swiss franc. Their status as safe-haven currencies meant that at times of turbulences on foreign exchange markets they would move well beyond what economic fundamentals could justify. In fact, the Swiss franc often revealed a tendency to appreciate even more than the German mark, a phenomenon that was generally attributed to the relative narrowness of the Swiss financial markets. Now with the German mark gone, wouldn’t all attention focus almost exclusively on our currency? Would it not mean that in a dollar crisis the franc would have to bear even more of the adjustment than in the past? Even more frightful, what would happen if the euro itself were under attack? The last thing we needed was for the franc to become the first currency in the line of fire, or something like the lightening rod of the international monetary system. A second apprehension that we had was that it might become very difficult in the future to conduct an autonomous monetary policy. Switzerland, together with Liechtenstein, would now be totally surrounded by a single monetary zone. | 0 |
When interest rates are low or negative, it is relatively attractive to hold cash (as opposed to bank deposits, for example) as a store of value. The increase in interest rates since June has meant that there is once again less of an incentive to hold cash. Against this backdrop, the value of banknotes in circulation fell by around CHF 10 billion to CHF 81 billion between June and October. Returns of the 1000-franc notes in particular were substantial, totalling CHF 7.7 billion. We expect this decline to continue. Nevertheless, demand for cash as a store of value is likely to persist. Companies and households consider such a safety net to be important. Page 1/2 Berne, 15 December 2022 Martin Schlegel News conference Of course, cash is not only used to store value, but also to make payments. Small denominations in particular play an important role here. The decline in banknotes in circulation observed since June is not related to the use of cash for payment purposes. The rise in interest rates has had no impact on the small denominations (cf. chart 2). While the growth rate for the small denominations dipped during the pandemic, demand has rebounded since early 2022 and has stabilised. Despite the general increase in the demand for cash, the use of cash for payments has declined in recent years. We are currently investigating changes in the use of cash as a payment method in our 2022 ‘Survey on payment methods’. | However, as I shall set out later, the launch of the Next Generation EU (NGEU) European recovery fund, which was not taken into account in the aforementioned scenarios, given the still-high lack of specifics for key tenets of the programme, is a factor operating in the opposite direction. The NGEU fund is a significant reaffirmation of the European construction process. Spain, moreover, would be one of the Member States with potentially most to gain, given the comparatively more serious impact of COVID-19 on our economy to date and the high likelihood that its consequences will be more persistent. 2 The risks to financial stability The unprecedented impact of the pandemic on economic activity has entailed a very significant increase in the risks to global financial stability. The forceful economic policy response (by the monetary, fiscal and supervisory authorities) and the effect of the farreaching international financial reform implemented in the past decade are helping mitigate and manage these risks. Indeed, the financial system has been acting to date as a mitigating rather than an amplifying factor of the impact of this crisis. But we should not be complacent. As I have stressed, the scale of this shock is very great, and its duration uncertain. I shall now review how the main risks in this area have evolved recently, drawing on the analysis of the effect of the crisis on various agents in the economy: non-financial corporations, households, the real estate and financial sectors, and general government. | 0 |
We believe that our approach has proved its worth and do not see any need for radical change. It is clear, though, that the separation of responsibilities and powers can only function on a basis of close cooperation and trust. I should like to touch upon two areas in which fundamental changes are needed. First, the financial systems have obviously been becoming more complex with regard to the roles played by their major participants. The traditional approach of focusing supervisory activities on the banks thus seems less and less appropriate. A more comprehensive supervisory system, covering the financial markets as a whole, would be preferable, with particular attention being paid to the transparency of market activities. Moreover, bank supervision should take account of the increasingly international nature of the financial markets. There would appear to be good reason to call for a globalisation of the supervisory system. But globalisation is one of those “in” words that has to be treated with caution. As a matter of fact, individual financial markets are still embedded in a national economic and social environment. What we need is for cooperation between the national supervisory bodies to be gradually intensified - which is in fact happening. True supranational supervision is still a long way off, as the necessary economic and social framework is lacking. For this reason, I should now like to focus on the role that an individual central bank has to play in helping to safeguard the stability of the financial system. | James D Rogers: Inauguration of the Sierra Leone Stock Exchange – a significant milestone Welcome address by Dr James D Rogers, Governor of the Bank of Sierra Leone, at the inauguration of the Sierra Leone Stock Exchange, Freetown, 27 July 2007. * * * Mr Chairman Your Excellency The President Honourable Vice President Honourable Minister of Finance Honourable Ministers Honourable Members of Parliament Distinguished Ladies and Gentlemen I am extremely delighted to welcome all of you, and in particular His Excellency The President and the Honourable Vice President to this inauguration ceremony the Sierra Leone Stock Exchange, a project pioneered by His Excellency The President and into which much time and resources have been invested by the Bank of Sierra Leone over the past several years. In 2002 the first step was taken with the establishment of the Stock Exchange Technical Committee (SETC) under the Chairmanship of the Deputy Governor of the Bank. I wish to note that the present Deputy Governor is the second Chairman of the Committee, and has professionally steered us to this point. I want to particularly thank His Excellency The President for accepting our invitation to launch this project. During his administration, His Excellency has given support, encouragement and advice to the Bank in every sphere of its activities, and I wish on behalf of the Board and Management to express my thanks and appreciation to him. | 0 |
It’s the rate expected to prevail when interest rates are neither giving the economy a boost, nor slowing it down. That’s why it’s called the “neutral” rate. The evidence of a sizable decline in r-star across economies is compelling. The weighted average of estimates for five major economic areas—Canada, the euro area, Japan, the United Kingdom, and the United States—has declined to half a percent.3 That’s about 2 percentage points below the average natural rate that prevailed in the two decades before the financial crisis. A striking aspect of these estimates is that they show no signs of moving back to previously normal levels, even though many advanced economies have fully recovered from the crisis. This poses significant challenges for monetary policy. When interest rates are low, central banks don’t have much room to maneuver to deal with a crisis. They will only be able to cut interest rates by a small amount before they hit zero—or as economists call it, the “zero lower bound.” Of course, central banks can, and have, used negative rates to stimulate growth, but they bring with them a separate set of challenges. The result is that future recoveries will be slow, and slow growth is usually characterized by low inflation. Persistently low inflation creates a vicious circle, where expectations of low inflation drag down current inflation. | The quantitative measurement of these risks over time represents a major challenge. Whereas standards of supervision have traditionally been based on statistical analyses of historical, backward-looking data, there are few, if any, past climate risk events that resemble what scientists are predicting for the 21st century. This is why, to borrow an image from Banque de France Governor François Villeroy de Galhau, the snapshot of risks that I just provided is being supplemented by a video, as it were, of the long-term risks, created through forward-looking climate stress tests. In 2020, France’s Prudential Supervision and Resolution Authority, the ACPR, conducted a pilot climate exercise to measure losses by 2050 connected with the climate transition to net zero by that date. The assessment found that French banks are “moderately” exposed to climate risk. However, our analysis points to a greater probability of default for business loans in the event of a disorderly transition, albeit with variations across sectors, calling for us to work together to organise the financial system’s climate transition [SLIDE 3]. The ECB, meanwhile, is assessing banks’ resilience to climate-related risk at the level of the euro area for the first time through a climate stress test that kicked off in late January. The findings are to be published in July. The ECB also recently conducted supplementary work. After assessing reporting requirements, it found that, overall, European banks have significant room for improvement if they are to meet in full its expectations on climate and environmental risk disclosures. | 0 |
We cannot – as in the 1970s – allow the interest rate to remain low over a long period of time in an attempt to achieve permanently higher output. This would lead to wide fluctuations and high inflation. Seldom are the considerations underlying interest rate setting pulling in such different directions as today. In many quarters, it is now argued that the interest rate should be raised rapidly to restrain house price inflation. This is understandable in the light of the severe effects that house price inflation and high debt have had on many countries. In other quarters, it is argued that the interest rate should be lowered to keep down the krone exchange rate. This also seems well founded in view of the substantial challenges facing Norwegian enterprises. However, we cannot raise the interest rate and lower it at the same time. The interest rate is set to secure low and stable inflation. With strong growth in spending on goods and services or with falling demand, the interest rate can at the same time stabilise developments in output and employment. In this case, there are no conflicting objectives. BIS Review 15/2010 13 When inflation expectations are firmly anchored, we can give weight to the path for output and employment when we set the interest rate. In the assessment of the outlook for inflation and output, we also look at house prices, total credit and the krone exchange rate. In this respect, these variables are taken into account when we set the interest rate. | A businessman who owes more than he owns should be honest about it, she says. “… But what do you want [the businessman] to do?” asks Tjælde. “ To lay all his cards on the table, and so ruin both himself and the others? … In that case we should see a thousand failures every year, and fortunes lost one after the other everywhere! No, you have a level head, Valborg, but your ideas are narrow.” And this play by Bjørnson was written in 1875. Three imbalances in the world economy The financial crisis triggered the largest decline in output in advanced economies since the Second World War. The financial crisis erupted after a period of substantial debt accumulation among households and banks, combined with a real estate boom in the US and in some European countries. There were numerous examples of creative accounting as practised by Bjørnson’s businessman, Tjælde. The bubble burst, but extensive government measures helped put banking systems more or less back on their feet. Interest rates are close to zero in advanced economies, and governments have increased purchases of goods and services and reduced taxes. Many emerging market economies are exhibiting vigorous growth. But imbalances are building up, making the recovery fragile. 1 Bjørnstjerne Bjørnson, Three Dramas. The Editor – The Bankrupt – The King. 2009. This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever. | 1 |
Complex language is these days more likely to breed mistrust than mystique. Expert opinion has become a source of scepticism rather than reassurance. The well-directed Tweet has displaced the well-argued speech, the Facebook “like” the approving newspaper review, the smiley-faced emoji the hand-written thank-you note. 58 That change in the nature of public language – shorter, simpler, shriller - puts an even greater premium on institutions making themselves understood, despite (indeed, because) of the technocratic task with which they are charged. That means speaking in words and sentences that land rather than levitate with the public, that connect rather than divide public opinion, that illuminate rather than darken public debate. So how well do central banks fare on that front? Earlier this year, the Campaign for Plain English, a militant band of grammarians, turned its attention to the Bank of England MPC’s Monetary Policy Statement. This statement is intended to be a simplified and sanitised account of the MPC’s judgements. The Campaign for Plain English described it as “worthless, impenetrable waffle” and “gobbledygook”. Reading between the lines, I am not sure they liked it. These views are instructive, but subjective. More objective measures have been developed, however, that enable us to measure the linguistic complexity of written and spoken material. For example, some of the more widely-used of these metrics are based on word and sentence length, the use of different word types etc. 57 58 59 59 These metrics can be applied to central bank publications. | But its potential has not escaped the notice of central banks or the financial services industry. Both are exploring DLT as a means of reconfiguring financial infrastructures. And some believe this new technology of distributed trust could bring about a genuine transformation of money and finance. One reason to think this possible is because a similar model of distributed trust has already fundamentally reshaped a number of other products, services and businesses. We have seen the rapid emergence of businesses built on peer-to-peer interactions and transactions. These business models are underpinned by trust between buyer and seller, producer and consumer, trust which is distributed and personalised. Take the market for accommodation. This has been transformed by the emergence of AirBnB. This peer-to-peer or distributed model of accommodation among strangers is underpinned by feedback ratings which endow participants with personalised trust. AirBnB is only 9 years old but already has over three million listings. Its estimated valuation is well above the market capitalisation of established, centralised, hotel chains such as the Hilton and Hyatt. Or consider travel. Everyone has heard of Uber – itself a distributed trust model. Fewer people have heard of BlaBlaCar. This is a distributed model of riding-sharing among strangers, also underpinned by feedback ratings and personalised trust. BlaBlaCar is only 11 years old but already transports more than four million people per month, well above Eurostar or JetBlue airlines. | 1 |
In the medium-term, our overall aim is to ensure the stability in the financial sector through identifying emerging vulnerabilities in this sector; adopting Financial system stability is founded on early corrective actions; and the confidence of the public in the implementing a series of measures to financial system and depends on the further strengthen financial institutions, soundness and resilience of principal markets, infrastructure and safety nets. components of the financial system to collectively withstand risks emanating Our medium-term plan is to have a financial system, which offers the full range of financial products and services Central Bank of Sri Lanka – ROAD MAP 2017 18 to all economic sectors, including change, both nationally and agriculture, infrastructure, internationally. Considering the need for manufacturing, particularly small and upgrading of statutes in line with these medium enterprises (SMEs), and trade developments, we expect to initiate to achieve broader economic objectives amendments to the existing Banking of our country. We need to have a well- Act. Accordingly, steps will be initiated planned and an ambitious agenda for to streamline and strengthen the financial sector development and regulatory and supervisory framework reforms ranging across financial sector through the proposed Banking Act policies with a vision of innovative, amendments. We will consider robust and competitive financial provisions for reinforcing the Central systems. | 2/2 BIS central bankers' speeches | 0 |
Before I address the benefits of EMU and the stability-oriented policies that have to be implemented to ensure that these benefits are achieved, let me briefly mention the main institutional bodies involved in the formulation and implementation of the single monetary policy. Monetary policy is determined by the Governing Council of the European Central Bank (ECB), which consists of the eleven governors of the national central banks (NCBs) of the participating Member States and the six members of the Executive Board of the ECB. The implementation of the single monetary policy is the responsibility of the Eurosystem, which is comprised of the ECB and the eleven NCBs of the participating Member States. The Executive Board of the ECB is a separate decision-making body. Its role is to ensure that the tasks conferred upon the European System of Central Banks (ESCB) are implemented, either through its own activities or through the NCBs. Economic growth - the benefits of EMU I should now like to address the benefits of EMU and why I believe that the introduction of the euro and the single monetary policy can result in higher economic growth in the euro area and thereby contribute positively to the development of the world economy. Of course, the degree to which these benefits are achieved depends not only on the monetary policy of the Eurosystem but even more so on accompanying stability-oriented fiscal policies and appropriate labour market policies. | In particular, downside risks to the achievement of our employment and inflation goals amid very low interest rates were compelling arguments for a relatively cautious and predictable approach to policy. This proved its worth: The U.S. economy continued to expand at a healthy pace even as the Fed raised rates numerous times. For those who follow the Fed closely, you’ve noticed that the FOMC has been slimming down its statements of late and using less forward guidance about the future path of policy. In this vein, the FOMC in its recent statement removed language indicating that monetary policy remains accommodative.3 Let me make clear, these more concise statements do not signify a shift in our monetary policy approach. Instead, they represent the natural evolution of the language describing the factors influencing our policy decisions in the context of the strength of the economic outlook and inflation being near our 2 percent longer-run goal. These changes in our communication of policy views are a sign that we are nearing the end of the process of normalizing monetary policy and are inching closer to conducting normal monetary policy. Arguably, it’s been a long time since monetary policy was normal, so it’s worth describing what “normal” looks like in some detail. At its most basic level, monetary policy-making will remain the same: The path of interest rates will continue to be guided strategically by our dual mandate objectives and shaped tactically by the data and their implications for the economic outlook. | 0 |
Perhaps the most pertinent question, however, is whether these historical “forecasting errors” would have had any decisive consequences for monetary policy if they had been anticipated well in advance. The answer in my opinion is: probably not. Even if we had allowed for the interest expenditure item’s downward effect on CPI inflation in 1996–97, we would still have lowered the repo rate. Neither would it be realistic to suppose that the Riksbank would have, as it were, chased its own tail and lowered the interest rate appreciably more on the grounds that CPI inflation was below the target. In the period in the late 1990s, resource utilisation was already rising rapidly and an even more expansionary monetary policy would hardly have been justified. The instrumental rate in Sweden was a good bit lower than in the United States in these years and also lower at times than in the euro area, at the same time as the Swedish krona was comparatively weak. Concerning the past year’s increase in inflation, it was not the supply shocks that prompted the decision in March to raise the repo rate but the picture that was beginning to emerge of the Swedish economy being rather close to or even somewhat above full resource utilisation. This may be a major problem, not for current inflation but rather for future inflation as activity continues to strengthen. | Your personal commitment Nick to support these causes in times of great financial difficulty is a tribute to you and also to the charitable instincts of the City of London. We thank you for that work, and I am sure that everyone here tonight thanks both you and the Lady Mayoress for the splendid hospitality which you have extended to us all this evening. So I invite you all to rise and join me in the traditional toast of good health and prosperity to “The Lord Mayor and the Lady Mayoress”, Nick and Claire Anstee. 4 BIS Review 84/2010 | 0 |
Employees shall usually work in the best interests of the company, but can in some contexts have interests of their own that are in conflict with the company’s best. Divisional managers within a corporate group may have an interest in promoting their own division rather than the group as a whole. Company management does not always have the same aims as the shareholders. Many of these conflicts of interest are common and quite natural elements of real life, and rarely cause problems. It is important to bear this in mind when discussing methods of dealing with them. This does not mean that conflicts of interest in financial operations are irrelevant, quite the reverse. The relevant question here, however, is which conflicts of interest are real problems and which are not. The conflicts without problems are those where there is little incentive to improperly favour one interest over another. For instance, most employees are usually loyal to their employer - otherwise they risk losing their jobs. A company that does not take into account the interests of its employees and its customers risks gaining a bad reputation and losing its competitiveness. Other conflicts of interest are more problematic. When an agent has a considerable incentive to favour one party at the cost of another, there could be scope for some form of regulations. Many companies also have ethical guidelines and rules for dealing with the cases where there is most incentive to take other interests into account. | For inflation, the reference point is not in the past – but it is rather a normative value, commonly agreed to be desirable for a given society at a given point in time. Please bear with me for a short presentation of the cumulative wage gap model (please see the attached slides). We start by defining the wage gap: 𝑊𝑔𝑎𝑝 𝑇𝑛 = 𝑊𝑇𝑛 − 𝑊𝑇0 3 where 𝑊𝑔𝑎𝑝 𝑇𝑛 is the real wage gap at time Tn, 𝑊𝑇𝑛 is the real wage at time Tn, and 𝑊𝑇0 is the real wage at time T0, the peak value of real wage in the reference period. The cumulative real wage gap at time Tn is defined as: 𝑁 𝑐𝑊𝑔𝑎𝑝 𝑇𝑁 = ∑𝑁 𝑛=1 𝑊𝑔𝑎𝑝 𝑇𝑛 = ∑𝑛=1(𝑊𝑇𝑛 − 𝑊𝑇0 ) A theoretical graphical representation of the real wage and the cumulative real wage gap for a six-period model can be observed in the attached figures. At time T0 real wage is at peak. Of course, wage earners are not aware of this peak until the next year, when real wage drops. Area A is the cumulative real wage gap between T1 and T0, area B is the cumulative real wage gap between T2 and T1, area C is the cumulative real wage gap between T3 and T2, area D is the cumulative real wage gap between T4 and T3, area E is the cumulative real wage gap between T5 and T4 and area F is the cumulative real wage gap between T6 and T5. | 0 |
The central banks became independent during a period that one might be able to call the “golden age” of inflation targeting, when everything looked relatively straightforward – when the policy rate was in principle set to attain price stability and when one took financial stability more or less for granted. The world that now appears to be emerging is more complicated. It is necessary to reconsider where the boundary lines should be drawn between what should be delegated to independent central banks and what should be managed by the political system. Finding the best way of doing this is one of the major challenges ahead of us. 17 See Gerlach (2013). Results from a study by Bech, Gambacorta and Kharroubi (2012) indicate that monetary policy is less efficient when it comes to counteracting a recession and contributing to a recovery after a financial crisis. Posen (2013) says that more powerful quantitative easing would have facilitated the recovery in the United Kingdom, but that the fact that this was not implemented has nothing to do with inflation targeting and it would not have been easier with a different type of monetary policy. 18 See, for example, Banerjee, Cecchetti and Hofmann (2013). Whelan (2013) says that inflation targeting should actually be abandoned in favour of a solution where the central banks are given a broader mandate and more instruments at their disposal. | Public authorities and industry professionals need to combine forces and continue looking for ways to redirect French savings. Without necessarily making it an issue in the upcoming electoral debate, the solution could aim to be compatible on three levels: with the low interest rate environment, with the need to better channel resources towards productive investment – and therefore corporate equity – and with the expectations of savers. Prompted by the increase in life expectancies and the need to prepare for retirement, savers are adopting increasingly long-term investment horizons: they are more 2 ACPR, 2015 Annual Report, October 2016. Page 4 sur 7 concerned with the security of their investments than with liquidity. Taking inspiration from the new Euro-croissance policies, it makes sense to offer savers new, complementary forms of saving products that are less liquid and include some form of long-term capital guarantee, and that allow them to take advantage of the higher returns offered by equities over the long run. We also need, at the very least, to avoid any tax distortions that might penalise these products more than liquid and risk-free investments. Given the current low rate environment, the ACPR is taking care to ensure that insurers remain alert to the risks of adverse developments and take appropriate measures to counter them. | 0 |
Last year, the Shenzhen Municipal People's Government issued offshore RMB municipal government bonds in Hong Kong for the first time, testifying to our strength as a platform for issuing RMB bonds, including green bonds, enriching the product range of the local dim sum market and paving the way for other municipal or provincial governments to follow. We will actively promote Hong Kong’s bond market to markets that are looking to strengthen their ties with China, and attract sovereigns and other issuers from these regions to arrange and issue bonds in Hong Kong. The third way we can expand our offshore RMB market is by enhancing our own financial infrastructure. At the core of this effort is the HKMA’s programme to develop the Central Moneymarkets Unit (CMU) into a major international central securities depository (ICSD) in Asia, to better support the connectivity between the Mainland and international financial markets in cross-border clearing, settlement and custodian operations. | The Bank more than welcomes a more competitive payment landscape. We desire new entrees. We are not in the business of protecting the incumbents. We also do not pick winners and losers. The market will decide those who will prosper. Existing players were given this notice long time ago. Banks especially, will have to reinvent themselves or risk being disrupted. What matters most, from the public policy perspective, is that Malaysian businesses and consumers will benefit from a more vibrant, competitive and efficient ecosystem. We should expect 3/5 BIS central bankers' speeches enhanced competition to spur innovation in the products and services that are being offered. Globally, we have seen collaborative strategies emerging as a response to the changing market dynamics. From Scandinavia to Asia, banks in some countries are increasingly competing on a united front. This includes industry partnerships with the payment system operator and fintech firms. In these markets, collaboration on common mobile applications seeks to enable banks to develop more innovative use cases by leveraging on pooled R&D resources, and facilitate mass adoption through common awareness and promotion campaigns. Collaborative efforts enable greater economies of scale through the pooling of resources. Establishing a common platform among banks defrays the cost of testing out new technologies and new ways of doing business. This can go a long way in fostering a culture of experimentation. Collaborative strategies will enhance the probability of success. This is the essence of the merger between MEPS and MyClear. Maintaining the status quo is simply not an option. | 0 |
We do know that as of now many people expect working from home to remain more common after the Covid pandemic is over. Half of new remote workers say they would like to continue to work from home all or most of the time even when lifting restrictions permits a return to normal working patterns (Felstead and Reuschke, 2020). Employers in some sectors also expect the proportion of staff that regularly work from home to more than double (Chartered Institute of Personnel and Development, 2020 and DMP, 2021)1, and many contacts of the Bank’s Agents expect a hybrid model of two to three days a week spent in the workplace to become the “new normal” for office workers. What is the evidence so far for the impact of Covid on productivity and investment? Here we can turn to the information that comes from the regular surveys of the Bank’s Decision Maker Panel (DMP) (Bloom et al., 2020). Labour productivity in the UK tends to be pro-cyclical. This does not appear to be the case in the Covid shock. So far during the pandemic labour productivity per hour appears to have risen, but with a tendency to reduce over time (Chart 2). There is, however, a lot more going on under the surface. There The February 2021 Decision Maker Panel survey asked businesses for the first time about what proportion of their employees’ time was spent working remotely, both pre- and during Covid, as well as their long-term expectations. | Employment, total hours worked and unemployment all tend to be highly persistent, so a rise in unemployment means – based on history – that it will be higher a year from now. That said, the UK labour market has adjusted relatively quickly to large shocks in the past (Broadbent, 2012). In normal times, around 9% of workers change jobs every year, but the tendency to persistence provides evidence from the past of the effects of a mismatch between the skills of job seekers and those required by hiring firms. As I noted earlier, some of the sectors hardest hit by the pandemic employ more young and low-skilled workers, who may find it hard to move between sectors (Haldane, 2020). That difficulty will be amplified if the jobs involve different tasks. Bank staff have analysed the task content of different jobs to quantify the extent of task reallocation required in various scenarios. In a relatively extreme scenario where the pattern of consumer spending is unchanged from 2020 Q3, staff estimate that the extent of the task reallocation over coming years would be higher than in the recent past, but much less than occurred during the 1980s and early 1990s. That was a period of 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 significant structural change during which the share of employees working in the manufacturing sector fell from 26% to 16%. There are two important points I would emphasise here. | 1 |
Central clearing: reaping the benefits, controlling the risks. Banque de France Financial Stability Review No. 21, April 2017 - The impact of financial reforms 97. Cole, S., Kanz, M., & Klapper, L. (2015). Incentivizing calculated risk‐taking: evidence from an experiment with commercial bank loan officers. The Journal of Finance, 70(2), 537-575. Cont, R., & Schaanning, E. (2017). Fire sales, indirect contagion and systemic stress testing. Norges Bank Working Paper. Cornett, M. M., McNutt, J. J., Strahan, P. E., & Tehranian, H. (2011). Liquidity risk management and credit supply in the financial crisis. Journal of Financial Economics, 101(2), 297-312. Crockett, A. (1996). The theory and practice of financial stability. De Economist, 144(4), 531-568. Crowe, C., Dell’Ariccia, G., Igan, D., & Rabanal, P. (2013). How to deal with real estate booms: Lessons from country experiences. Journal of Financial Stability, 9(3), 300-319. Cunliffe, J. (2017). Ten years on: Lessons from Northern Rock. Speech at the Single Resolution Board Annual Conference, Brussels. Dagher, J., Dell’Ariccia, G., Laeven, L., Ratnovski, L., & Tong, H. (2016). Benefits and Costs of Bank Capital. Staff discussion Note 16/04, International Monetary Fund: Washington, DC. Dal Bó, E. (2006). Regulatory capture: a review. Oxford Review of Economic Policy, 22(2), 203-225. Demekas, M. D. G. (2015). Designing effective macroprudential stress tests: progress so far and the way forward (No. 15-146). International Monetary Fund. DeMiguel, V., Garlappi, L., & Uppal, R. (2007). Optimal versus naive diversification: How inefficient is the 1/N portfolio strategy? The Review of Financial Studies, 22(5), 1915-1953. Demirguc-Kunt, A., Detragiache E. & Merrouche O. (2010). | Table 4: Target hit rate, calibration of individual and combined regulatory tools and resulting false alarm rate Target Hit Rate (%) LR Calibration RWCR NSFR False Alarm Rate for Calibration Calibration Combined Regulation (%) 70 3.82 5.52 0.63 29.3 75 3.80 5.52 0.72 36.6 80 4.15 5.52 0.63 39.0 85 3.71 5.52 0.83 51.2 90 4.07 5.53 0.83 53.7 24 All speeches are available online at www.bankofengland.co.uk/speeches 24 At a target hit rate of 70%, a portfolio of regulatory measures does little better than the leverage ratio on its own in signalling bank stress. At targeted hit rates of over 80%, however, that picture changes. The ROC curve for the regulatory portfolio lies to the left of all those corresponding to individual metrics. In other words, it is possible to achieve lower false alarm rates, for the same hit rate, when multiple regulatory metrics are used. The calibration of each metric in the portfolio is also less stringent than the calibration for each metric individually. These results hold when comparing any pair of regulatory metrics with individual metrics – a higher hit rate per false alarm rate, with less stringent calibrations. It also holds even more strongly in the wider 96-bank sample when the LTD ratio is considered instead of the NSFR (Chart 19). | 1 |
But it also means we have a long way yet to go in reducing debts and returning to sustainable growth. 5. We are also seeing important shifts in the structure of global finance, besides the gradual contraction in global liquidity. It is too early to say where we will be five years from now, but some of the broad brush-strokes in this new landscape of global finance are already with us and likely to stay: • The return on equity in global banking has fallen, and will not return to pre-crisis levels, given stricter capital and liquidity rules. • Deposits have become more important as a source of bank funding. • Banks in certain major jurisdictions have retreated from global markets, and worryingly, and may stay in retreat for some time. • The securitised debt markets should recover, but with less leverage underpinning them, and hopefully greater risk transparency. • In the derivative markets, there will be greater standardisation of products, and much greater reliance on common market infrastructure – for trading, clearing and reporting of trades. High volume, low-margin platforms will likely gain in competitiveness. • Wealth management will remain a growth industry, especially in Asia, where the pool of wealth is growing most rapidly and the need for diversification remains great. • And outside of intermediated finance, companies will seek new ways of raising funds, including through private placements. 6. Will this mean a safer financial world? Maybe. | Secondly, at the regional level, we have to inject greater momentum into improving crossborder market access and harmonising rules and standards. Key themes in the development of Asia’s financial markets 13. Let me now touch on three themes that will influence the development of Asia’s financial markets in the decade ahead: i. Firstly, the changes in the OTC derivatives markets as a result of global reforms; ii. Secondly, the harnessing of technology to transform Asia’s financial infrastructure; and iii. Thirdly, the increasing international role of the RMB. 1 For example, South Korea, Indonesia, Thailand and the Philippines. 2 Namely the US, Japan, France, peripheral Europe. 2 BIS central bankers’ speeches I. Structural shifts in the OTC derivatives markets as a result of global reforms 14. First, the structural shift in the global OTC derivatives markets. Most of you will be familiar with the changes that are coming into place, in steps, as a result of global reforms – more standardised products, and more robust market infrastructure: central counterparties for clearing, trade repositories for reporting, swap execution facilities for trading where appropriate. The global reform process is now shifting from rulemaking to implementation. 15. We are already seeing the shift in Asia’s OTC derivative markets. The new market infrastructures are expected to provide greater transparency and allow risks to be managed more effectively among market participants. Market practices will be redefined, with the need to report and clear selected OTC derivative trades within more than one jurisdictions. 16. | 1 |
You may remember that in the quarters that followed the invasion of Ukraine, growth prospects were regularly revised downwards, as our European economy suffered in particular from high energy prices, fear of a shortage in energy sources, and hence general uncertainty - and even worries about how we would get through the winter. Europe reacted swiftly, diversifying its sources of energy supply, and global market prices decreased sharply, especially from the fourth quarter of 2022. In the end, the euro area economy expanded by 3.6% in 2022, still higher than in the US, despite a slowdown in the second half. The likelihood of a recession in 2023 is now very remote, and growth prospects have even been revised upwards, to 1.0% in 20231 (up by 0.5 percentage point compared with December forecasts), before rebounding to 1.6% in 2024 and 2025. Faced with a historic geopolitical and economic shock, Europe has shown remarkable resilience, and greater unity. Euro area inflation further accelerated after the invasion of Ukraine, but the outlook for 2023 and beyond has also recently improved – although with mixed news. On the one hand, the earlier-than-expected easing in energy prices has led to a decrease in headline inflation since October 2022, from 10.6% to 6.9% in March2 – though this level is obviously still far too high. We also expect tensions on food prices, which have soared since 2022, to start fading from the third quarter of 2023, in the wake of the recent sharp decrease on international markets. | You can already refer to our report published in November 2021 for the key findings from our first nine experiments. 3/3 BIS - Central bankers' speeches | 1 |
However, without a well-designed infrastructure of useful and timely data and improved analytical tools – which would be expected to continue to evolve over time – these tasks will only be more difficult. We look forward to continued discussion of these issues and to a development of a shared agenda for improving our information sources. I would be happy to answer any questions you might have. This BIS Review is available on the BIS website at www.bis.org. 20 BIS Review 16/2010 | Barbro Wickman-Parak: The Riksbank and the property market Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at Fastighetsdagen 2008, Stockholm, 14 May 2008. * * * Subprime loans in the United States were the origins of the deep-seated tensions in the international financial markets, which have not yet relinquished their grip after almost a year. The problems in the subprime market are an important reason behind the collapse in housing construction and the falling house prices, which have made a profound impression on the real economy in the United States. In some other countries, too, the earlier sharp rises in property prices have slowed down and been replaced by falling prices. Here in Sweden we have so far been spared these events. How does the Riksbank view future developments in the property market and what stance does the Bank's monetary policy take in relation to asset prices? Today I will address these questions. I will also briefly comment on the recent developments in the financial markets. Several countries have experienced rapidly rising house prices, for instance the United States and the United Kingdom, as well as Denmark, Ireland and Spain. Recently there has been a slowdown in the rate of increase and in some of these countries house prices are now falling. In the United States house prices have fallen by around 10 per cent since the peak in 2006 (see figure 1). In Sweden, too, house prices have risen rapidly, even more so than in the United States. | 0 |
4 This is what I mean when I say that we need more advanced methods than studying pairwise plots, in order to try to come to grips with what the correlation actual looks like. In this context, it can be interesting to mention that a few fresh contributions to the debate originate from the School of Business here at Örebro University, where Sune Karlsson and Pär Österholm have estimated Phillips curves for the US and Sweden respectively in terms of inflation and unemployment. For Sweden during the period 1995–2017, the Phillips curve has, perhaps not so surprisingly, been found not to have been stable over time. It is also found that the Phillips curve, 3 See, for example, Kinnwall and Rune (2018). 4 See for example Blanchard (2016), Cunliffe (2017) and Murphy (2018). 8 [16] specified in this way, has not become flatter in recent years. The Phillips curve has also been found to have been unstable for the US. It appears to have been flatter in 2005–2013 but thereafter to have had a clearer negative slope. It should be understood that economic research helps to improve our knowledge in that findings from many different quarters are thrashed out and hopefully eventually all point in a particular direction. Findings have so far varied a great deal. Off and on, the Phillips curve has been said to be dead, still alive but flatter than before or about the same as usual. | The activities and practices at large, complex financial organizations are simply too intricate and evolve too quickly to be fully described ex ante in regulation. Banking supervision works in concert with regulation as the more flexible element of banking policy. Supervisory policy and standards can, and do, evolve over time to reflect the evolution in practice in the banking industry and in financial markets. Overall, supervisors are guided by the mandate to identify any practices or conditions at supervised firms that are a threat to the safety and soundness of those firms – and, of course, to ensure that the firms take all necessary steps to promptly remediate any such conditions. Critically, the definition of what constitutes “safe and sound” is not hard-coded into regulation, but is guided by the information and analysis done by supervisors and other Federal Reserve staff, such as economists, attorneys and market analysts. Supervisory expectations and standards are expressed through public guidance such as Supervision and Regulation Letters (SR Letters), publicly-posted examination manuals and other guidance. On a day-to-day basis, banking supervisors collect information on financial institutions through examinations and analysis. Examiners look at key aspects of a supervised firm’s businesses and risk management functions. They use this information to assess the adequacy of the firm’s systems and processes for identifying, measuring, monitoring and controlling risks at the firm and in the financial sector more generally. That said, the ultimate responsibility for risk identification and risk management remains with the supervised institution. | 0 |
Either the banking system needs to run with inefficiently large positive cycleneutral CCyBs or we need to make the buffer placed just below the CCyB in the capital stack – that is, the Capital Conservation Buffer (CCoB) – releasable. Therefore the flexibility to release the CCoB would supplement shortfalls in the CCyB if the shock occurs at a time when the CCyB has not been sufficiently built up, without forcing jurisdictions to run with inefficiently high levels of CCyB that might be rarely necessary. This would also reflect jurisdictions’ preferences revealed during the pandemic for a larger portion of releasable buffers. In response to the Covid-19 shock, multiple jurisdictions – some of them after having released the CCyB – took additional actions to release more capital, such as lowering systemic buffers or some elements of Pillar 2 requirements. [9] Releasing a great portion of capital buffers naturally means that firms are allowed to get closer to minimum requirements. But if firms perceive that buffers are not usable in an economic downturn and that they need to stay well above minima they will do so by cutting lending or fire selling assets. Those behaviours typically lead to an amplification of losses that firms need to absorb during the stress and, therefore, will ultimately hurt the banking system itself. With appropriate controls, making the CCoB releasable will enhance also the resilience of the banking system. | Usually you would expect faster growth to be accompanied by stronger employment growth, and vice versa (Chart 1) – an empirical fact so robust that 1 economists know it as Okun’s Law. Since the financial crisis, however, this law has, if not broken down, at least started working rather differently than before. Unemployment has fallen far more, and employment growth has been far stronger, than might have been expected given the subdued pace of GDP growth (Chart 2). Chart 1: GDP and employment growth 12 Per cent Four quarter employment growth Four quarter GDP growth 10 8 6 4 2 0 -2 -4 -6 -8 1972 1 1977 1982 1987 1992 1997 2002 2007 2012 2017 Okun, Arthur M. "Potential GNP, its measurement and significance". Cowles Foundation, Yale University, 1962 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 Chart 2: Okun’s Law and the financial crisis 4 Change in unemployment 1971-2010 2011-2018 3 2 1 0 -6 -4 -2 0 2 4 6 8 10 -1 -2 -3 -4 Arithmetically this is accounted for by a fall in the rate of labour productivity growth. Having grown steadily for a number of decades, the level of productivity fell sharply following the financial crisis. That was in line with 2 historical experience. | 0 |
BIS central bankers’ speeches 1 Regional economic conditions Starting with the area’s economy, one of the greatest challenges in the City over the past year has been the massive disruption and destruction caused by Superstorm Sandy. While areas of the New York City metropolitan region were hard hit by the storm, the devastation was particularly severe along the waterfronts of Queens – and in particular in Far Rockaway. We saw and heard about the devastation of the storm first-hand from many of those affected, through a series of support clinics that we held in the storm’s immediate aftermath, as well as from many of our own employees who lived in some of the hardest hit areas. The good news is that a little more than one-year later there has been a significant rebound in employment and economic activity across the five boroughs. New York City has continued to see pretty solid job creation through this past summer, and, in stark contrast with past economic expansions, this is happening without any direct contribution from the securities industry – or, more colloquially, Wall Street. So far this year, the city’s job gains have been broad-based, led by strong growth in industries such as education and health, advertising, computer services, leisure and hospitality, wholesale and retail trade, and, especially, construction. | Concluding remarks In closing, I would like to return to our decision of 15 January. Discontinuing the minimum exchange rate and reducing interest rates further are monetary policy measures for which there are no better alternatives. As I outlined previously, since the introduction of the minimum exchange rate in September 2011, the international currency relationships have changed fundamentally. In view of this development, a minimum exchange rate of CHF 1.20 per euro was no longer sustainable. Over the long term, adhering to the minimum exchange rate would have jeopardised the SNB’s ability to conduct monetary policy and fulfil its mandate in future. This would have saddled the Swiss economy with longer-term costs that would have been out of all proportion to the benefits of continuing to enforce the minimum exchange rate of CHF 1.20 per euro. With the international low interest rate environment, monetary policy faces big challenges. Overall, the Swiss franc is significantly overvalued. Negative interest helps to make investments in Swiss francs less attractive and thereby correct this overvaluation over time. The SNB will continue to take account of the exchange rate situation, and its impact on inflation and economic developments, in formulating its monetary policy. It will therefore remain active in the foreign exchange market, as necessary, in order to influence monetary conditions. Ladies and gentlemen, thank you for your attention. 4 BIS central bankers’ speeches | 0 |
A predictable monetary policy, focused on a clearly defined inflation target, provides good guidance for wage negotiations. One of the main reasons why wage formation did not function satisfactorily during most of the 1980s was probably that stabilisation policy did not work. Inflation exceeded the official target on several occasions in that period and the labour market organisations had difficulty in discerning the rules of the game. One example of this is the government ambition of bringing inflation down in the mid-1980s: a crisis package was presented in 1983, aimed at inflation rates of 4% in 1994 and 3% in 1995; when inflation exceeded these targets, the employee organisations considered that a 5% ceiling on wage increases was no longer acceptable. Today’s confidence in the Riksbank’s current inflation target facilitates wage negotiations. The 1997 wage round, for instance, took the 2% inflation target as a starting point. The development of wages is always a central factor in inflation assessments, but the difficulties involved in forecasting wages are considerable. The indicators used by the Riksbank include data on wages and unit labour costs, shortage figures (bottlenecks) at industry level, wage drift and unemployment relative to unfilled job vacancies. Another factor of importance for monetary policy is the equilibrium level of unemployment, that is, the level of unemployment that is compatible with stable inflation. Attempts to push unemployment down below the equilibrium level with the aid of monetary stimuli are liable to just boost inflation. Maintaining an expansionary monetary stance cannot therefore generate permanently higher employment. | The Fund did encourage longer term investment into unit trusts and kick started the ETF market on the HKEx and elsewhere in Asia, where we now have a variety of ETFs covering a wide range of asset classes. The result has been the provision of more choice to investors, both retail and institutional, at lower cost than traditional unit trusts. As we enjoy our 10th anniversary celebration, I cannot help but wonder if the exit strategies currently on drawing boards around the world will be as successful as we were? Only time will tell. I wish you all a very pleasant day and once again many thanks to State Street for organizing this celebration. 2 BIS Review 142/2009 | 0 |
Supply and demand for funds, in turn, are determined by fundamental economic factors such as the time preference of households to consume today relative to consuming tomorrow, as well as the productivity of capital and demographic factors which determine future growth prospects. To arrive at market-quoted nominal interest rates, one must add to the real rate an inflation premium, which compensates the investor for the potential loss in the purchasing power of money over the term of the security. BIS central bankers’ speeches 1 So, to shed light on the movement towards lower nominal interest rates since the 1980s, let us examine how these two components – the real interest rate and the inflation premium – have changed over that period. A secular downward shift A considerable part of the secular decline in nominal rates is the result of lower and more stable inflation rates in advanced economies, translating into reduced inflation expectations and a lower inflation premium (chart 2). Reduced volatility of inflation rates since the mid1980s – a development associated with the “Great Moderation” – has probably contributed to this.1 This reduction in the inflation premium and in volatility can, at least partly, be attributed to the success of central banks’ policies and their credible commitment to low and stable inflation, a commitment which has become the hallmark of modern central banking. | A lot of our exports are in sectors which have a large carbon footprint and will be susceptible to policy measures like the Carbon Border Adjustment Mechanism currently being put in place by the European Union (EU), as part of the EU green deal. So, what role can sustainable banking play in taking Thailand from where it is today to where it needs to be in terms of reducing its vulnerability to climate change? Banks in Thailand can play an important role in getting us to where we need to go. Banks play the predominant role in channeling credit to the private sector. Over 90 percent of private credit comes from the banking sector. So, banks will need to increasingly incorporate sustainability considerations into their lending decisions and increasingly need to improve disclosure on climate-related information. They will also need to improve their risk assessment tools. For all these to work, there needs to be a very clear tone from the top from these institutions. There has been progress to date. The Thai banking sector, including the Thai Bankers’ Association and the Association of International Banks in Thailand, have developed and adopted Sustainable Banking Guidelines in 2019. We have seen concrete steps taken by Thai Banks to incorporate sustainability into their business strategy. We have seen them setting up clear governance structure on sustainability issues such as dedicated sustainability committees, developing risk assessment tools, and disclosing ESG-related information. | 0 |
In November, the Leaders will, at their Summit in Singapore, issue a legally-binding blueprint to implement the ASEAN Economic Community. ASEAN will eventually evolve into a single market with free flow of goods, services, investment and talent. For investors, an integrated market of half a billion people will be an attractive investment proposition. For financial institutions, it will mean more projects to finance and more wealth to manage. ASEAN’s combined GDP of $ is larger than most economies. It is, in fact, bigger than India’s $ and more that a third of China’s $ In addition, the ASEAN Economic Community will boost the region’s GDP by 10%. To benefit from the growth of China and India, ASEAN is negotiating FTAs with these two giants. They are targeted for completion by 2010 and 2011 respectively. Besides China and India, ASEAN is also enhancing links with other economic centres. ASEAN signed a regional Trade and Investment Framework Arrangement (TIFA) with the US last August. It is negotiating FTAs with Japan, South Korea and Australia and New Zealand. And in May, ASEAN and the European Union decided to launch FTA talks. Political coalescence At the political level, Asia is also coalescing. However, political coalescence is progressing more slowly than economic integration. And it will be far less defined and institutionalised than what we see in the EU. Compared to Europe, Asia is more diverse politically and culturally. There are complexities and practical difficulties. However, the basic direction has been set. | Birgir Ísl Gunnarsson: The policy and objectives of the Central Bank of Iceland Article by Mr Birgir Ísl Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, published in the Morgunbladid Newspaper, in Reykjavík, 28 February 2003. * * * When the Central Bank of Iceland became an independent institution in 1961 it was generally believed, both here in Iceland and abroad, that several different simultaneous objectives could be set for central banks. Low inflation, full employment and strong economic growth were among the objectives that people felt central banks should be able to achieve. Gradually it became clear that this would not work. In the work of a central bank, these objectives can come into conflict with one another, resulting in an economic fiasco. As a result, in recent years legislation on central banks has been altered in many countries and the banks assigned one principal objective: ensuring price stability. Inflation is primarily a monetary phenomenon, persistent inflation being the result of insufficient restraint in monetary policy. In the long term, monetary policy thus has an impact on price levels but less on economic growth and employment. With free movement of capital between countries, the principal instrument of a Central Bank is interest rates; in the long run this instrument can only achieve one macroeconomic objective, i.e. to ensure price stability. | 0 |
2 BIS central bankers’ speeches Also the influence and discipline from the IMF program or FSAP may have been somewhat countered by growing importance of regional financial assistance mechanism with their own governance. Each country or region would be more likely to adopt these new standards if they buy-in to the rationale of the reform. Inclusiveness and coordination are therefore keys for commitment, and the pillars of the new governance for bodies such as the Basel Committee and Financial Stability Board; this is perhaps the new Bretton Woods. Turning to longer-term challenges and strategy, Asia’s increased economic importance will rise as a consequence of its development efforts in liberalizing the economy and the financial system, allowing market forces to enhance efficiency and productivity. These forces will accelerate with increased integration of the ASEAN Economic Community, ASEAN plus 3, and plus 6. For intra-Asia’s financial flows, Asia is not “homogenous” – the “North Asia” and financial center economies are developed, and some are mature economies facing their own challenges. The rest of Asia is emerging economies, some facing middle income trap, and some facing the transition challenges from centrally planned to market economy. “North Asia” will tend to have savings surplus, and need growth potential and to export of FDI. “South Asia” will need savings to finance investments. There is a natural synergy in resource allocation, industrial and logistic linkage. Thus, regional financing and growing role of regional-centric financial services would naturally follow. | So is this the new paradigm of known-unknown? That is, we know what the major drivers of change are, but we cannot forecast outcome. So the key strategic challenge is how to deal with Known-Unknown. For the short-term, the key priority is dealing with the fragile and volatile global economy. Stability is the priority for banks and regulators. The strategic policy question is how to get the right balance between risk and return, stability and growth. Weaker banks will retrench, leaving rooms for the few stronger banks to take up market share. In Asia, we have seen banks from the Asia-Pacific, notably Japanese, Chinese, and Australian banks moved into market space where European and U.S. banks have retracted. ASEAN banks are also shifting strategy to play a greater role to support their conglomerates in the regional expansion. If this regional banking trend continues, what are the implications for banks, regulators, and central banks? While the region has so far remained relatively resilient to the first round impact of European bank deleveraging, there is significant concern about the second round impact through the slowdown in global trade and economy that will impact growth. Another known-unknown in the short-term is the impact of interaction of various traditional and non-traditional policy measures, such as monetary policy, prudential policy including macroprudential. As a result of this crisis, the acceptable policy space has been significantly widened, for example, macroprudential policy now includes sectoral measures such as those to prevent property bubbles or to control adverse impact of capital flows. | 1 |
Doubtless the Framework will continue to evolve in future, but the provision of such published facilities should help to make the system more resilient in the years to come. BIS central bankers’ speeches 7 | The financial crisis, and the associated expansion of the balance sheet to provide liquidity insurance to the banking system, was a true “game changer” for the Bank of England: the Sterling Monetary Framework has been almost completely redesigned over the past few years. The increased demand for liquidity insurance necessitated a large and rapid expansion in the scale of lending and the range of collateral the Bank took in its operations. 3 Further details are available in the Bank’s 2010 Q2 Quarterly Bulletin http://www.bankofengland.co.uk/publications/quarterlybulletin/qb100201.pdf 4 These operations were suspended when large-scale asset purchases commenced in March 2009. 2 BIS central bankers’ speeches In the Autumn of 2007, the Bank extended the range of collateral acceptable in its LTRs (henceforth eLTRs) and increased their size somewhat. In April 2008, in the wake of Bear Stearns’ failure, the Bank introduced the SLS. Through that scheme, the Bank eventually lent £ of 9-month T-bills against a wide range of private-sector collateral – mostly UK RMBS backed by legacy mortgages – for up to 3 years. Following the failure of Lehman Brothers in September 2008, the Bank further extended the collateral allowed in eLTRs and initiated a massive expansion in its lending at the 3 month maturity, eventually peaking at £ in early 2009. In October 2008, the Bank also introduced a permanent Discount Window Facility (DWF), which can provide liquidity to counterparties on a bilateral basis against a wide range of collateral, ranging from US treasuries and German bunds to self-originated ABS. | 0 |
Maintaining financial stability and trust are central to MAS’ mission. The annual report summarises our many regulatory and supervisory initiatives – to make derivatives markets safer, to enhance cyber security, to promote a good risk culture in our financial institutions. The annual report also devotes two pages of infographics to the enforcement actions MAS has taken against those who breach our regulations or fail to meet our standards. MAS does not tolerate: abuse of our financial system for money laundering or tax evasion; misconduct or manipulation in our securities markets; or mis-selling to consumers who place their trust and money in our financial institutions and their representatives. But being a no-nonsense regulator does not stand in the way of being also businessfriendly. For financial institutions who want to grow their business in Singapore, build up the skills of their employees, or want to innovate or experiment with new technologies, MAS is a happy partner and collaborator. 1 “The Goldilocks Economy – Will the Three Bears Return?”, Speech by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at UBS Wealth Insights Conference, 15 January 2018. 11 / 11 BIS central bankers' speeches | In the past, it has been very difficult for the Federal Reserve to engineer a soft landing for the economy when it had to tighten policy aggressively in order to keep inflation in check. Historically, once the unemployment rate rises above a small threshold of 0.3 to 0.4 percentage points, the next stop has always been a full-blown recession. I very much would want to avoid such an outcome. A long-lived economic expansion is always desirable, but especially so in the aftermath of the financial crisis and Great Recession. The second risk of delaying lift-off and normalizing more slowly is that the low level of the federal funds rate may be distorting financial markets and increasing financial stability risks. I don’t think this has yet occurred to any significant degree, but it is a real risk that we should continue to monitor closely. I see the risks right now of moving too quickly versus moving too slowly as nearly balanced. The weight that one puts on each undoubtedly influences one’s views on when the time will BIS central bankers’ speeches 5 be right to begin to normalize monetary policy and the appropriate short-term rate trajectory thereafter. Finally, in conclusion, a few words about the importance of financial conditions in thinking about the future path of short-term interest rates. Monetary policy does not work directly on the economy, but instead works through its effect on financial conditions. By financial conditions, I mean all those financial factors that weigh on spending, saving and borrowing decisions. | 0 |
Accordingly, the Central Bank is obliged to aim towards an annual rate of inflation which, measured in terms of the increase in the Consumer Price Index over a twelve-month period, should generally be as close as possible to 2½%. Inflation targeting was introduced in a climate where the economy was severely overheating. For this reason an adjustment period was set for the Central Bank, whereby it should aim to attain the inflation target by no later than the end of 2003. We have reason to celebrate the fact that inflation had already reached the set target by November 2002. In 1996 a period of robust economic growth began in Iceland which did not come to an end until 2002. GDP growth in 2001 is estimated at 2.9%, which is more than in most industrialised countries that year. This growth phase ended with severe overheating of the economy. Among the forms this took was a current account deficit in excess of 10% of GDP in 2000 and twelve-month inflation which peaked in the beginning of 2002 at 9.4%. In 2002, a sharp turnaround took place in the Icelandic economy, under the strong influence of the Central Bank’s tight monetary stance. A small surplus was shown on the trade account and better external balance put the exchange rate of the króna on a surer footing. The króna appreciated substantially during the year after sharp depreciation in 2001, when it most likely dropped considerably below the equilibrium exchange rate. | In 2002, the Central Bank put forward proposals for the development of the securities settlement system which is operated on the basis of an agreement between the Central Bank, Central Securities Depository and Iceland Stock Exchange. Proposals included clarification of rules for the system’s operations, introduction of risk management, and expediting of payment orders from the Depository to the Central Bank and netting of them, so that credit institutions can be notified of their securities trading positions in order to prepare settlements which are made the following morning. Following amendments made to the Public Limited Companies Act in 2002, requests were made for securities settlements to be allowed in foreign currencies. The Central Bank has participated in examining the possibilities of developing a settlement system for securities in foreign currencies, in collaboration with the Central Securities Depository, Iceland Stock Exchange and the commercial banks. Such a system would clearly pose new settlement risks. It would presumably be an option in this respect to establish a system which would be entirely operated by Icelandic commercial banks. In all the work described here, the Central Bank has had a very good collaboration with financial institutions and other parties involved, and I would like to express my thanks for the close cooperation and good understanding that has been achieved among all the parties to this work. A number of important changes have occurred since the Central Bank published its last macroeconomic forecast in February. | 1 |
Such is the case, for instance, with leveraged buy-outs (LBOs) and the socalled monolines, which specialise, as you know, in insuring the payment of numerous bonds, including those linked to the securitisation of US subprime mortgages. In these circumstances it is easy to understand why the profits reported by Spanish banks in 2007 have scarcely been affected by the financial turbulence and have continued to increase at a rate of around 19%, firmly underpinned by their improved efficiency ratios. Their profitability, both in terms of assets and in relation to capital, also grew compared with 2006. Indeed, the ROE stood at almost 20%. Profitability is obviously the first line of defence for Spanish banks against any adverse shock. But their resilience is also based on two other pillars: a significant volume of provisions, accumulated by the system during the period of strong credit growth thanks to the prudential mechanisms set in place by the Banco de España in the past; and a comfortable solvency position. To quantify these two aspects, loan loss provisions widely exceed doubtful assets, while the system’s solvency ratio, measured in accordance with the Basel regulatory standards, is 11.4%, 3.4 percentage points higher than required. These factors mean that Spanish credit institutions face the current situation from a position of soundness which, in the international context, is fairly unique. Soundness however is not a synonym for immunity and it would be imprudent, and not befitting a supervisor, to fail to consider thoroughly the potential risks. | But, the stress tests we have performed at the Banco de España to calibrate the potential scale of this risk for banks show, broadly speaking, that the policy followed in recent years of accumulating 4 BIS Review 44/2008 provisions and capital has given rise to a buffer that would enable shocks of an order of magnitude comparable to those experienced at the height of the crisis in the 90s to be absorbed. I now come to what I consider to be the main source of uncertainty at the present moment. This is none other than future developments on the international wholesale financing markets, where the possibilities of raising funds have been at extraordinarily restricted levels that are not in keeping with a developed international financial system. Spanish banks have so far largely managed to evade the consequences of this sudden financial market squeeze. Firstly, because their liabilities were issued at relatively long maturities, so that the need to refinance the loans granted is arising much more smoothly than in other systems in which the relative weight of short-term securities is greater. The low level of dependence on funds raised in the interbank deposit markets has been another mitigating factor. I should point out here that once the subsidiaries and branches of foreign banks have been excluded, whose liquidity management is strongly governed by the geographical diversification strategies decided by their parents, the rest of the Spanish credit system does not borrow in these markets but instead maintains a net credit position in them. | 1 |
Public debt is of a somewhat different nature: we do not know if nor when the tragedy – a major confidence shock, for instance – may happen. But we know for sure that rising public debt is a growing risk hanging over us, and still more over our children and grandchildren. Let us therefore call it a “tragedy on the horizon”: a moving horizon – indeed nobody knows precisely where geographically the horizon lies –, but it will not be any less threatening. So what would our best response to this possible tragedy on the horizon be ? And what can we do to avoid it? Let me elaborate somewhat on a simple triptych (i) Monetary Policy (ii) Fiscal Policy and (iii) their renewed interactions. I. Monetary policy and the ECB mandate In order to address this unprecedented Covid crisis, the ECB acted boldly and rapidly, using all the tools at our disposal and inventing new ones such as the PEPP. By doing so, we successfully avoided both fragmentation and deflation. We rightly decided to keep a steady hand in the last Governing Council meeting, and I still think today that our present very accommodative monetary stance is appropriate. But steady hands are not tied hands: we have free hands for the future, and will be ready to act further if needed. Let me now turn to the ECB’s strategic review, on which work has restarted. | Thomas Jordan: Review of the Swiss economy and global economic outlook Introductory remarks by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Berne, 13 December 2012. * * * The Swiss National Bank (SNB) is leaving the minimum exchange rate of CHF 1.20 per euro unchanged. The Swiss franc is still high. An appreciation of the Swiss franc would compromise price stability and would have serious consequences for the Swiss economy. Consequently, the SNB will continue to enforce the minimum exchange rate with the utmost determination. It is prepared to buy foreign currency in unlimited quantities for this purpose. In addition, the SNB is leaving the target range for the three-month Libor at 0.0–0.25%. If necessary, it stands ready to take further measures at any time. Essentially, the SNB’s conditional inflation forecast is unchanged from its September forecast. In the short term, price movements will again be subdued by a somewhat weaker economy in the euro area. In addition, the impact which past appreciation of the Swiss franc is having on the price level is rather stronger than had originally been expected. From mid-2013 onwards, the path of the new conditional inflation forecast is almost identical to that of September. The forecast is based on an unchanged three-month Libor of 0.0% over the next three years. Given this assumption, the Swiss franc weakens over the forecast period. Nevertheless, forecast inflation remains low for the next few years. | 0 |
In general terms, the CCyB would be activated and increased by authorities whenever aggregate credit growth was judged to be excessive and associated with a build-up of system-wide risk. The buffer can be reduced during a downturn to help ensure that banks maintain the flow of credit in the economy. Considering that this is a new macroprudential tool, the evidence of implementations is still limited. Notwithstanding that, the number of countries that have developed a policy framework is increasing and the number of jurisdictions that have set a positive buffer level increased significantly over recent years. Until now, around forty countries have been using the CCyB, with heterogeneous effects depending on their local conditions and vulnerabilities. Furthermore, during the Covid-19 crisis, many countries released their countercyclical capital buffers, marking the first time that the CCyB was used widely in a downturn. Among them we can mention France, Germany, Sweden, Switzerland and United Kingdom (BIS, October 2022). These countries lowered the CCyB either completely or partially. Recent reports from the Basel Committee are also focused on providing empirical evidence regarding buffer usability and cyclicality of the framework. So far, the evidence gathered suggests that although the countercyclical capital buffer may be less effective to contain the build- up phase of the credit cycle. However, it may help to strengthen 1/3 BIS - Central bankers' speeches banks' solvency and mitigate the risk that banks' lending standards amplify an economic downturn as well as all the spillovers implied. | In this sense, it reduces the impact of risk materialization on the banking sector and, therefore, on financial stability, avoiding restricting essential services, such as the supply of credit, and protecting the overall economy. The Countercyclical Capital Requirement should be activated or increased before an episode of financial stress materializes, i.e., during periods in which it is assessed that vulnerabilities are incubating in the banking sector that generate systemic impact. This also prevents and mitigates abrupt reductions in credit in the future, thus mitigating the potential amplification of shocks to the rest of the economy. The activation of the Countercyclical Capital Requirement depends on an overall assessment of the outlook for financial stability and not on a specific indicator. All in all, it is a macroprudential instrument that must consider its impact on the financial system, recognizing differentiated spaces for other micro prudential actions and measures. The standardized background set defined by the Central Bank to decide the activation of the Countercyclical Capital Requirement is divided into four steps that feed into each other. First, the regulatory context which is a summary of new regulation or international standards that need to be taken into consideration in the setting of the CCyB. Second, an exhaustive analysis of the current stage of the credit and its drivers. Third, a heatmap reviewing multiple variables that includes indicators for vulnerabilities, risks, and financial and macroeconomic conditions. | 1 |
Employment has been under-estimated in both cases, that is, the outcomes have on average been higher than in the forecasts. Productivity has also been under-estimated both one and two years ahead. Productivity has a bias of around one tenth one year ahead and just under seven tenths two years ahead. We have thus made a relatively large under-estimation of productivity growth two years ahead.8 With regard to the annual change in inflation measured as the CPIX, the forecasts have on average been almost three tenths lower than the outcomes one year ahead. However, the forecasts two years ahead have on average been two tenths higher than the outcomes, which can be regarded as a minor deviation. What conclusions can we draw from this? The bias is relatively small for most of the variables. There are no clear signs of any systematic errors in the forecasts, with the possible exception of productivity. The rate of increase in productivity has been systematically under-estimated during the period. However, it should be added that none of the variables has any statistically significant bias. Comparison with other forecasters The study has also compared the Riksbank’s forecasting errors with the National Institute of Economic Research (NIER) and Consensus Forecasts panel, a compilation of forecasts from a number of different forecasters. It is clear from the study that the Riksbank’s forecasts for GDP growth have been among the best compared with other participants in the Consensus panel (Figure 11). | The uncertainty bands are constructed so they are symmetrical around our main scenario and for GDP growth and the inflation rate the breadth of the bands is calculated with the aid of our earlier forecasting errors. This gives an incentive to make good forecasts, as large forecasting errors bear the penalty of broad uncertainty bands and the risk of reduced credibility in the forecasts. The uncertainty band for the repo rate cannot be calculated in the same way, as we have only begun to make our own forecasts for the repo rate this year. There are quite simply insufficient historical forecasts to use as a base. The uncertainty band for the repo rate has instead been constructed with the aid of forecasting errors among the so-called implied forward rates (Figure 14). The implied forward rates reflect market expectations of the repo rate. One problem with this method is that the implied forward rates have systematically over-estimated the future repo rate path for a number of years. However, the over-estimation has been removed from the forecasting errors, with reference to the fact that the forward rates also consist of a risk premium that should not be included when using them for forecasts. Different central banks have chosen different methods of illustrating the uncertainty in the forecasts and we regularly compare notes with one another. We are continuing to develop our forecasts The conclusion from this review is that the Riksbank’s forecasts on the whole are rather good, particularly one year ahead. | 1 |
Therefore, we must make use of all the tools available to us to bring it back to 3%, without adding unnecessary costs, of course. I want to be particularly emphatic in saying it: there are no easy solutions to this problem. Bringing inflation back to levels that do not affect the population severely, especially the most vulnerable, necessarily involves restoring the macroeconomic balances and, in this case, what is required is a reduction in the level of activity and demand. Monetary policy will continue to contribute to this necessary adjustment in an efficient and orderly manner. The coordination of macroeconomic policies is essential for this purpose, and in this sense the contribution of fiscal policy has been paramount. With yesterday's monetary policy meeting decision to raise the MPR we have brought it to a level that is near the maximum considered in this Report's central scenario. It is very high, but it is in line with the levels that inflation has reached and with the challenges we face in solving the problem. During the last few months, not only has inflation been high, but its expectations two-years ahead continue to be above the 3% target. This misalignment is a cause for concern because, as the inflationary phenomenon becomes more persistent, it makes stabilizing the price level more difficult and costly. Hence the need to move forward resolutely in order to prevent this problem from intensifying because, as we well know, it imposes great costs on the population. | Jessica Chew Cheng Lian: The insurance broking sector – threshold of an exciting but challenging future? Keynote address by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 3rd Asia Insurance Brokers’ Summit, Kuala Lumpur, 3 March 2015. * * * It is my great pleasure to be a part of this 3rd Asia Insurance Brokers’ Summit which is being held for the first time in Malaysia. I would also like to take this opportunity to congratulate MITBA as they celebrate 40 years in service of insurance and takaful brokers in Malaysia. In that time, the domestic insurance industry has seen significant change – beginning with an overhaul of the legal and regulatory framework when the industry was brought under the regulatory oversight of Bank Negara Malaysia, followed by a series of successive reforms that have served to strengthen the industry and promote its healthy development to first and foremost meet the needs of individuals and businesses. This continues to be a journey that the Bank and industry are committed to taking forward, mindful that as the Malaysian economy is progressively transformed, so too will demands of the industry evolve. Throughout this journey, associations like MITBA have played an important role in helping members adjust to the changing environment, by providing a platform to examine issues, make representations, communicate with stakeholders, and implement collective responses. | 0 |
In such cases, we could not avoid reacting by surprising markets rather than being behind the curve. This is what a sound risk-management approach calls for: weighting seriously the long-term risks to price stability in the case of persistently higher inflation. xi We rightly had to give priority to risk management on inflation, over expectations management on interest rates. It is paramount, nevertheless, that financial markets and economic actors understand our reaction function in order to avoid unwarranted volatility: if inflation—and especially core inflation—is higher than what we expected, we are likely to raise rates more quickly, although never following a mechanical rule. And we should preserve some short-term signaling—or guidance—in our new “meeting-by- meeting” approach: this is somewhat new territory for us, where as much as possible (i) guidance if any should come from explicit statements from the top rather than from unsourced leaks, (ii) multiple and somewhat disorderly expressions of personal wishes should be more restrained, and the silent period should obviously be respected. II.D. R* remains useful to delineate normalization and tightening To be sure, R* is unobservable and its estimation remains surrounded by uncertainty. But I believe it remains a helpful concept in the current normalization. Page 7 sur 8 According to me, for the euro area, until we are around R*, the neutral rate— which possibly lies between 1 and 2% in nominal terms—the road ahead is clear and we can go in a sustained and determined way, including through some guidance. | Against this background, the Riksbank has contacted the CPI Enquiry, set up by the Government, to obtain assistance in specifying an indicator of underlying inflation that is likely to be widely accepted and can be published regularly by Statistics Sweden. In the future, such an indicator might be able to have a more direct function in monetary policy, either by replacing the CPI as the target variable or by serving as an operational target or aid in the continuous work of constructing policy. The Riksbank has also asked Statistics Sweden to publish, for the time being, one or more indicators of underlying inflation together with the CPI. Perhaps I should emphasise that in no way do these initiatives alter monetary policy’s fundamental commitment to price stability. The current situation for monetary policy The question of transitory effects leads me on to current monetary policy. Transitory effects are playing a major part in the CPI’s present development. As a result of tax changes, lower interest rates and a lower oil price, since December the Riksbank has had to revise the 1998 CPI prediction downwards by about 1.2 percentage points. In 1999, too, transitory effects mean that CPI inflation will be lower than we envisaged earlier. Thus far, however, the altered picture of inflation need not have any sizeable consequences for monetary policy. It is now too late to influence this year’s path for inflation more than marginally. | 0 |
And the Federal Reserve has begun to reduce its sizable holdings of securities, built up through large-scale asset purchase programs (LSAPs) over the past decade. My comments today will focus on the role that asset purchases may play in a central bank’s toolkit for implementing monetary policy. I will briefly review how the Federal Reserve successfully adapted its operating framework to be able to achieve interest rate control with a large balance sheet and began its gradual and predictable balance sheet normalization program. Then, in thinking about the prospective use of asset purchases in providing additional monetary policy accommodation at the zero lower bound in the future, I will reflect on some lessons from the Fed’s experience. Among other lessons, we have learned that asset purchases have clear benefits at the zero lower bound, perhaps with more limited costs than initially raised; that we had greater-than-expected capacity to conduct large purchases without harming market functioning; and that credible communications about use of the balance sheet and expectations for short-term interest rates support adjustments in market pricing and smooth monetary policy transmission. As always, the views presented here are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. The Federal Reserve’s asset purchases and operating regime The severity of the global financial crisis that began in 2007 challenged central banks to use both conventional and unconventional measures to address the economic effects of the crisis and the sluggish recovery that followed. | The effective federal funds rate (EFFR) has been within the FOMC’s prevailing target range on all but one day, and changes in the federal funds rate continue to transmit in a predictable and effective way to other money market rates.7 Balance sheet normalization commences… With normalization of the level of the federal funds rate well underway and interest rate control effectively established, the FOMC has now begun the process of normalizing the Fed’s balance sheet, using a program described this past June in an addendum to its Policy Normalization Principles and Plans.8 Specifically, as of last month, the FOMC is gradually reducing the Fed’s securities holdings by decreasing its reinvestment of principal payments received from those securities, with payments being reinvested only to the extent that they exceed gradually rising caps.9 This process for reducing the balance sheet will run in the background, while changes in the target range for the federal funds rate are the FOMC’s primary means of adjusting the stance of monetary policy. | 1 |
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