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It was only such an infusion that would allow us to maintain stability, as well as be able to have the much needed funds to keep the infrastructure development effort going. Some financially savvy members of the Opposition too, realized the significance of such a fund infusion into the economy, and tried their utmost to scuttle that effort. But, fortunately, we were able to defeat those endeavours, and raise the all important bond, and tide over the risky period. The infusion of the new funds immediately brought stability to the economy and also acted as an important stimulus for growth, with the new additional resources quickly filtering down into the economy. Hence, as a result of the move, the Fiscal framework was supported with the moderation of interest rates; the monetary framework was facilitated with the stabilization of prices; and exchange rate was supported by the buttressing of international reserves. Mr. Chairman, I believe that, some day when Sri Lanka’s economic history is being written, this 2007 infusion of $ 500 million through the international sovereign bond, would be marked as a major “turning point” in our economic landscape. I also believe that the benefits of this land mark move has been of an enduring and permanent nature, as evidenced by the fact that, over the next 5 ½ years, the Government has been able to raise a further $ ½ billion from international bonds, with the coupon rates tightening considerably each year. | That shared vision has been the platform that has helped the two institutions to achieve “goal congruence” in the recent past, and there is also no doubt that the resulting harmonization has been the powerful driving force behind our steady progress. 12 BIS central bankers’ speeches In the meantime, we must also appreciate that a large segment of our economic activities are carried out by the private sector, to which many of you belong. Your contribution then, has also been a vital factor in maintaining the momentum and thrust of our economy. Therefore, let me acknowledge today that, no amount of harmonization of Monetary and Fiscal policies could ever be a substitute for the commitment and dedication of a vast number of entrepreneurs who take risks, as well as burn the mid-night oil, to deliver value in our economy. A future role for the accountancy profession Where do we go from here? In my view, Sri Lanka has only just begun an exciting and adventurous journey, and we are steadily moving towards a $ 100 billion economy that would be more diversified and more stable. Needless to say, the success of our journey would depend to a great extent on harmonized policies, clarity of communication, quick implementation, and the maintenance of a vibrant momentum on a continuous basis. In that context, I see the accounting profession playing an increasingly significant role. | 1 |
But falls in oil and commodity prices can have a more lasting impact on inflation – and hence become relevant for monetary policy – if they feed into core inflation. That can happen under two circumstances. The first is if price falls are symptomatic of weakening global demand, rather than a boost to global supply. Then, lower oil prices might be accompanied by declining net exports, which could in turn cause firms to cut back on investment and drag down core inflation. This blunts the growth-bolstering effect of lower commodity prices. Imported inflation might also be depressed as foreign producers cut prices in reaction to weakening global growth. The second circumstance is if there is a succession of supply shocks that keep inflation low for a long period and cause firms and households to revise down their inflation expectations. In that situation, low oil and commodity prices can have “second round effects” as lower expectations feed into wage bargaining and price setting, thereby affecting core inflation. Then, the effect of supply shocks becomes more similar to demand shocks. In both cases, central banks end up facing a situation not of a benign supply shock, but rather of an adverse demand shock that, if left unaddressed, could derail price stability over the medium-term. That would call for a more forceful monetary policy response. Importantly, there were signs in the past that such circumstances were present in the euro area. | Inflation would likely have been negative this year were it not for our measures. And according to the staff assessment, in the absence of our measures, it would be at least half of a percentage point lower next year and between 1/4 and 1/3 of a percentage point lower in 2017. So in assessing how to respond to the risks to price stability, the question we faced was not whether our tools worked – indeed, they are probably the dominant force spurring the recovery we see today. It was whether, in light of the evolution of those risks, the calibration of our policy was still sufficient. This is the question that the Governing Council addressed yesterday. On the real side of the economy, our assessment was that the recovery is ongoing and the economy remains resilient to volatility in the global economy. Domestic demand is replacing foreign demand as the engine of growth, and our outlook for the coming years is broadly unchanged. On the nominal side, however, we perceived that the downside risks to the inflation outlook had increased, especially given continued declines in oil prices and a large output gap. Without further monetary policy action, the date when inflation returns to our objective would once more have been pushed back. The Governing Council therefore decided that, to secure the path of inflation back towards 2%, the calibration of our existing monetary policy measures needed to be adjusted. | 1 |
Jean-Claude Trichet: The ECB’s use of statistics and other information for monetary policy Keynote address delivered by Mr Jean-Claude Trichet, President of the ECB, on the occasion of the OECD’s World Forum on Key Indicators “Statistics, Knowledge and Policy”, Palermo, 11 November 2004. * * * Introduction Ladies and Gentlemen, It is a great honour and a pleasure to be invited to speak at the OECD World Forum on Key Indicators. The links between statistics, knowledge and policy are of crucial importance for policy-makers and for society as a whole. I can only congratulate the organisers for the impressive programme they have drawn up and I am sure that we shall all leave Palermo full of ideas on how statistical knowledge can be better used to face current and future economic and social challenges. Central bankers, like all other policy-makers, operate in an environment of high uncertainty regarding the functioning of the economy as well as its prevailing state and future development. In addition, the second half of the 1990s and the first years of this century have been characterised by structural changes, some of them on a global scale, others confined to Europe, all of which have added to the “normal” sources of uncertainty. | International Federation of Robotics. World Robotics 2018. 8/9 Promoting adoption of interoperable e-payment infrastructures within Thailand as well as among regional partners In summary, the ability to adapt to new environment along with having macroeconomic stability and diversified growth engines have enabled the Thai economy to have the resilience to endure adverse incidents and will safeguard us from impacts from future uncertainties and disruptions. Ladies and gentlemen, I have now come to the end of my talk. Let me give you a brief summary of what I have said today. The Thai economy is expected to continue to expand, though at a slightly slower pace, with domestic demand being the main drivers of growth. The risks and concerns going forward include prolonged trade disputes, slowdown of the Chinese economy, geopolitical risks, and transition of the Thai political landscape. Nevertheless, with the economy possessing three important qualities of resilience, namely macroeconomic stability, diversified growth engines, and ability to adapt, I am confident that the Thai economy can withstand various challenges in the years to come. Again, it is my great honor to be here this evening with our longtime friends who have supported Thailand’s economic and financial development. Let me assure you that the Bank of Thailand will continue to strengthen our economic resilience and stay firmly committed to our principal mandate to support sustainable economic growth while maintaining price and financial stability. Thank you. 9/9 | 0 |
On the other hand, there is the outstanding debt under the debt purchase programme established in 2010 (SMP), which amounts to close to € billion. Are we looking at a scenario entailing a potential loss of close to € billion if Greece leaves the euro? I do not want to speculate on that. Greece can remain in the euro area. What would be the consequences for the euro area of a “no” vote in the referendum, which would undoubtedly lead to “Grexit”? A distinction must be made between the short and long-term impact. The reaction of global financial markets on Monday demonstrated that they were surprised. Up until Friday evening, it was not envisaged that the negotiations would break down and a referendum would be 2 BIS central bankers’ speeches called. The markets have become risk-averse. But their reaction remains relatively calm. This shows the extent to which Greece’s current situation is a unique one – it is a special case. Other countries in the euro area have experienced great difficulties. They have been through adjustment programmes, and come out of them. For these countries, this has been a chapter with a successful conclusion. This is the case in Ireland and Portugal. The Cypriot programme is still ongoing and proceeding well, which should allow the ECB soon to begin purchasing Cypriot securities. I do not underestimate the efforts these programmes have required, or their social costs. The citizens of these countries have paid dearly. | In the past, the major part of the chain of manufacturing and services used to be located in a given country, which meant that, from the monetary policy perspective, the domestic demand was of great importance, and in particular — the size of output in relation to its potential level i.e. the so-called output gap. The impact of the global economy, on the other hand, was observed mainly due to changes in the terms-of-trade i.e. the ratio of export to import prices, which in turn was affected by, among others, commodity prices and changes in external demand. Nowadays, inter alia as a result of globalisation of production and services, the role of the domestic output gap in explaining inflation has decreased significantly, as shown by the BIS research 6 . As in the case of the model applied by the NBP in forecasting inflation, the role of the output gap as a factor that determines inflation is much smaller than it used to be. In old books on macroeconomics inflation is treated largely as a local development, i.e. dependent in a great measure on domestic factors (such as the domestic output gap and inflation expectations). Today, inflation is becoming increasingly less local, and in turn, becomes more and more dependent on global factors, i.e. the relationship between global demand to global supply. Research that analysed the course of inflation in 22 OECD countries between 1960 and 2003 has shown that 70% of inflation volatility may be explained by a common factor 7 . | 0 |
I strongly believe that Europe’s economic weight rests on a tripod with no equivalent elsewhere in the world: our single market, our single currency and our shared social and environmental model. These are three assets, constituting our common identity, that we should build on. First, we in Europe share, thanks to our founding fathers and to Jacques Delorsi, a large single market. It removes most internal borders and regulatory obstacles to the free movement of goods, capital, services, and people in the European Union. It was no coincidence that access to the single market lay at the heart of the Brexit debate. Second, thanks to Helmut Kohl, François Mitterrand and many others, we have built a new and solid currency: the euro is a unique success, which is recognised worldwide and supported by a clear majority of euro area citizens (75%ii). Third, our common social model combines a lower level of inequality with a higher level of public services – let’s call it soziale Marktwirtschaft in German, and pay tribute to social democracy as well as to Christian Democrats. This model is more and more environmental, Page 2 sur 14 and in this respect, Europe is clearly ahead. The world in this 21 st century, starting with its youth across the different continents, needs our European values. But do we have the power to project these values? Power is, in physics, the multiplication of weight by speed: we collectively have the former, but we lack the latter. | The ECB’s balance sheet is now double the size of the Fed’s as a percentage of GDP: Page 8 sur 14 Moreover, thanks to our social model and its higher automatic stabilizers, the overall 2020 fiscal stimulus in the euro area has been almost as strong as in the United States: Yes, President Biden’s American Rescue Plan is significantly bigger for 20212022. But according to many American economists, it could create a risk of the economy running above potential, “making monetary policy more difficult to use in the futureiv”, as expressed by Olivier Blanchard – who is not really known as a supporter of austerity. The new infrastructure bill, to be announced today, could have more positive long-lasting effects in two regards: it strengthens supply, including possibly in education; it could reverse the race to ever more tax cuts in advanced economies. With that in mind, for us Europeans, our main issue now is not the scale of our fiscal response but the speed of its execution. Speed, once more, is our collective handicap. Governments now need to implement the recovery plan to which they have agreed and they need to do so urgently. In other words, we in Europe need to walk our talk. On a structural level, three major crises in the past ten years – 2008-2009, 2011, 2020 – have shown the need to complete the Economic Union in addition to the successful Monetary Union, starting with a permanent fiscal capacity. | 1 |
Policy frames in the European Union Before discussing economic policy in Sweden in the event of a transition to the euro, something should be said about the European frames which this policy would have to comply with. These frames already affect the conditions for Sweden’s policy and will presumably do so even more in the future. Of the economic policy processes in the European Union, the most prominent are contingent on the Stability and Growth Pact from 1997. The primary purpose of the Pact is to ensure that budget policy in the member states is conducted so that no country encounters serious problems with debt because that could lead to costs for the Union as a whole and, in the worst case, to other countries being forced to bail out the ‘sinner’. The Pact contains binding rules and in well-defined extreme cases could even result in sanctions. In addition, there is a number of processes or rules whereby peer pressure and benchmarking are used to speed up the EU’s structural reforms. The central policy instrument is the general economic policy guidelines, which can be likened to a budget statement. Other instruments are, for example, the Luxembourg, Cardiff and Lisbon processes. All the above applies to Sweden, whether or not we adopt the euro, though the terms of the Growth and Stability Pact do differ in this respect; the rules for sanctions, for instance, do not apply as long as we are outside the euro area. | The central issue, however, is how more pronounced problems or crises for stabilisation policy are to be handled. One approach to this is to relate once again to our own experiences. As I see it, we have had to face problems of two types. One concerns a lack of knowledge about the direction in which the economy is moving. A dramatic example of this is the crisis in 1990, when neither the problem that was looming with the real interest rate nor the crisis in the financial system was identified in time by virtually any Swedish observer. The other problem is political and has to do with the difficulties in keeping policy sufficiently tight over the business cycle, particularly when demand exceeds long-term supply. A good illustration of this problem is the late 1980s. Perhaps one should mention a third problem, namely that automatic stabilisers affect demand regardless of the nature of the preceding shock. If demand in general has weakened on account of, say, a share price fall that has affected household wealth, all will be well; a part of the loss of demand will be compensated automatically. Things will be different if the shock comes from the supply side, for instance as an oil price rise or a change in productivity. There could then be grounds for a discretionary policy move to adjust demand to the change in production capacity; this could be more difficult in the absence of an independent monetary policy. | 1 |
The authorities are to devise a strategy in advance for managing the bank if it is danger of failing. If the bank is large and important, there is to be a plan to ensure continued operation. If the bank is so large and complex that it probably cannot be resolved without the use of public funds, it can be restructured. The resolution authority can demand that complex parts of the institution be transferred to separate subsidiaries. As a last resort, the authorities can demand that large banks be broken up into several smaller ones. There should also be a plan for how continued operations can be funded. All systemically important banks in Europe shall hold a minimum amount of liabilities that can quickly be bailed-in. This entails a limit on the share of short-term and secured debt banks may issue. The authorities must also ensure that large banks and systemically important investors do not invest too much in other banks’ risky debt. This is a new perspective on banks’ funding structure. In the future, banks will have to ensure that portions of their liabilities can quickly be written down and converted to equity. Bail-in as an instrument will be implemented in the EU on 1 January 2016, a year after the rest of the Directive. The Directive must be followed up in Norway under the EEA Agreement. Norway’s own bank resolution legislation must be updated. As regards the Norwegian framework, the new elements are in particular the requirements for resolution plans and bailin. | The bank’s critical functions were kept running. Shareholders and unsecured creditors were not bailed out. Over time, the creditors who were not covered by the deposit guarantee were paid back around 85 percent of the value of their original claims. The value of the bank’s assets was preserved to a larger extent than if the bank had been wound up. Danish banks’ funding costs rose following the resolution of Amagerbanken. However, it did not trigger a systemic crisis in the Danish banking sector, despite its occurrence in the middle of the European debt crisis. What the Danes got was a pricing of the true risk in their banks. Over time, this provides a basis for a less risky financial system. Bail-in may nevertheless be difficult to implement. Bail-in of a large bank, that is a bank with substantial liabilities, will inflict losses on a large number of creditors. That is the intention. But if these liabilities are owned by institutions that are critical to the functioning of the financial system, the problems in one bank can spread quickly. If the losses are substantial, the authorities run the risk of triggering a systemic crisis. Moreover, bail-in of creditors may make funding more expensive for other banks, particularly in turbulent times. For large, systemically important banks, the time-inconsistency problem remains. This weakens the credibility of the bail-in regime. Therefore, the Bank Recovery and Resolution Directive also provides for measures intended to bolster credibility. An important measure is that national authorities are to prepare resolution plans for individual banks. | 1 |
Mr. McDonough assesses the role of the central bank in ensuring a stable price and financial environment and fostering sustainable growth Remarks by the President of the Federal Reserve Bank of New York, Mr. William J. McDonough, at the Society of Investment Analysts in Dublin on 11/2/97. I am delighted to have the opportunity to address the Society of Investment Analysts here in Ireland, home of my forebears. In my remarks this evening, I want to say a few words on a topic of great importance to both our professions: the role of central banks in ensuring a stable price and financial environment, and fostering sustainable growth. I would also like to offer some thoughts on the importance of a safe and sound banking system for the wellbeing of the economy. As members of the financial community, we all recognize the importance of price stability to the successful long-run performance of the economy. Indeed, there now seems to be a worldwide convergence of views among central bankers and investors alike on the importance of price stability as the primary goal of monetary policy. For me personally, stable prices have always been the prism for making monetary policy decisions. As I see it, price stability must be viewed in a long-run context as an ongoing goal, not a one-time objective. That goal requires monetary policy to be oriented beyond the horizon of its immediate or near-term impact on inflation and the economy. | Because of the importance and the difficulties inherent in the balancing act, banking systems are generally subject to a higher degree of official oversight and regulation than are most other forms of private enterprise, and supported by some form of a broad safety net. While the specifics can differ appreciably across countries, these safety nets are usually constructed along similar lines. They generally include oversight of the affairs of banking institutions in the form of inspection and examination of the institutions for compliance with a broad set of safety and soundness standards; some type of protection against losses for BIS Review 17/1997 -5- small depositors and investors; and some form of emergency liquidity facility for banking institutions and, occasionally, for other financial institutions as well. Finally, the payments system, a crucial link in any financial system, generally includes some form of official regulation of or participation in its operations. These important aspects of the safety net often feed into one or more of the functions performed by central banks. For this reason, the central bank usually plays a major role in the operation of one or more of these facets of the safety net. For example, the emergency liquidity facility is almost always the discount window of the central bank. In many countries -including Ireland and the United States -- the central bank also plays an important role in the supervision of banking institutions and in the oversight of payments system operations. | 1 |
But by now most have realised how unlikely these problems are to disappear so quickly. There is every reason to believe that the coming months could prove difficult as a result, and there is correspondingly little reason to believe that the crisis is past. Uncertainty abounds. A huge investment bank like Merrill Lynch could not foresee that, in only two weeks’ time, it would have to write down billions of dollars’ worth of outstanding debt. The CEO of the company has had to pack his bags and leave, albeit with a generous going-away present. The largest bank in the world is also beset by the restlessness, and it isn’t yet fully clear what the effects will be, but that CEO has received his marching orders as well. And according to the latest reports, while there are reported write-downs of a mere 20 billion dollars on subprime mortgages, the actual amount could in the end be between 250 and 300 billion. BIS Review 131/2007 3 One cannot help but wonder whether market participants in Iceland and elsewhere preferred to suffer through a shaky third quarter in the hope of some redemption in the fourth quarter, and in the process, avoided recording some items that should have appeared in third-quarter accounts. | The clinic offered an opportunity for attendees to receive one-on-one advice from several non-profit organizations on a wide range of topics, including which types of financing are most appropriate for their needs, what lenders look for in potential borrowers, alternatives to traditional bank loans and tips on improving their chances for success. These are just a few examples of the activities that reflect the Bank’s commitment to the region. Let me turn now to the subject matter of today’s briefing: the economic outlook for the regional economy. There is a lot of good news to share. Many parts of the region have bounced back quite well from the Great Recession, and now have more jobs than before the downturn. New York City really stands out in this regard. While the Great Recession was the deepest and longest recession in modern history for the nation as a whole, New York City bucked that trend to a surprising degree, and did it with little help from Wall Street. As we will discuss later in the briefing, one of New York City’s strongest sectors has been technology. In this recovery, employment in the city’s tech sector has added nearly 50,000 jobs, many of which pay well. The growth of the so-called Silicon Alley has not only helped the city bounce back from the recession, but, I believe, is a key for the city moving forward. When I visited Brooklyn late last year, I saw firsthand how technology is spurring economic activity, directly and indirectly. | 0 |
However, the technology did not go away but rather re-emerged in a different form, focussed on the development of platforms which have now come to dominate internet commerce. So the interesting question for regulators is not what will happen next to the value of crypto assets, but what do we need to do to ensure that these developments, this prospective innovation about which I shall say a little more later, can happen without giving rise to increasing and potentially systemic risks. This brings me to my third lesson: the extension of the regulatory framework to encompass the use of crypto technologies must be grounded in the iron principle of ‘same risk, same regulatory outcome’. The starting point for regulators should be to apply the same regulation to the risks inherent in the provision of a financial service no matter how it is provided. But differences in technology may mean that existing regulation may not work in this new context or, indeed, may not effectively manage the risk. Implicit in our regulatory standards and frameworks are the levels of risk mitigation we have judged necessary. Where we cannot apply regulation in exactly the same way, we must ensure we achieve the same level of risk mitigation – in other words, the “same regulatory outcome”. | Christian Noyer: Evolution of the regulation in Europe and in the United States – convergence or divergence? Keynote address by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, to the Paris-Europlace Financial Forum, New York, 18 April 2011. * * * Strengthening financial regulation has been high on the agenda of the G20 since Pittsburgh in October 2008. Much has already been achieved both at the international level especially through the Basel Committee for Banking Supervision but also on national level with the Dodd-Frank Act in the US and the pending regulation for market infrastructures in the European Union. It is fair to say that the evolution of the regulation in Europe and in the United States has not always followed the same path in the past. At a time when our regulations are completely revisited and when many restructurations are taking place in the finance industry, rigorous consistency on both sides of the Atlantic is clearly needed if we want to avoid regulatory arbitrages and uneven level playing field which would be the seeds for inefficiencies and future disappointments. In my remarks today, I will briefly discuss the achievements on reforms of financial regulation. Then I will highlight some existing discrepancies between European and US regulatory frameworks that should be addressed. I. Regarding achievements in financial regulation: What has been completed so far? | 0 |
And so I see a number of challenges which underline the need for further work: To the extent that climate change makes the distribution of future shocks nastier, that could imply higher capital requirements, all else equal. So a key judgement will be: are current capital levels sufficiently high to guard against unexpected shocks during the transition? Even if capital levels are appropriate in aggregate, that does not mean that the capital is held in the right places. As we have seen, some of these risks are highly concentrated in particular Page 8 sectors. A second key judgement will therefore be: does the framework of capital requirements capture climate risk at a sufficiently granular level? We also need to ensure firms have the right incentives to continue to improve their capabilities, and meet our expectations. The CBES results show that while progress has been made, there is still much to do. From the point of view of capital, this suggests a third key judgement: are we satisfied that firms are building the capabilities they need – and if not, do we need to introduce more incentives? Most fundamentally, the CBES results are a snapshot – based on current data and modelling capabilities, and focused on a specific set of scenarios and risks. I have highlighted the significant uncertainty as well as the gaps that underlie these results. | Under both the LA and EA scenarios, climate change has broadly been brought under control by the end of the 30 year period. By contrast, with no additional action the impacts will persist well beyond the 30 years of our scenario – incurring substantial economic costs not captured in these estimates. [11] Even sticking within the 30 year bounds of the scenario – and focusing on financial sector impacts – the NAA scenario is pretty grim. Projected impairment rates for banks are up 50% compared with normal levels. And whereas the ‘transition’ scenarios offer clear opportunities for banks to increase their profits by investing the transition, the ‘no action’ scenario offered no such opportunities. Instead the world gets poorer and more uncertain for all sectors, particularly those directly exposed to physical risks. The ‘no action’ scenario is particularly unpleasant for life and general insurers – even sticking to the 30 year window, their losses in this scenario were worse than in the transition. For instance UK and international general insurers, respectively, projected a rise in average annualised losses of around 50% and 70% by the end of the NAA scenario. It’s worth emphasising that these costs would be mostly passed on to consumers through higher premiums. Ultimately, in a ‘no action’ scenario, we would see a reduction in access to lending and insurance for so-called ‘climate vulnerable’ sectors and households. To give an example of what this means, homes at risk of flooding would likely become prohibitively expensive to insure or borrow against. | 1 |
Better, sometimes, to try to address a bubble at its source. This could be unpopular, but such is the job of taking away the punchbowl. We will explain our decisions. I cannot emphasise enough that the FPC will not indulge in attempts to micromanage the banking system or the allocation of credit. Nor will we be excessively activist, trying to fine-tune credit policy. This is about stability, which is an absolute precondition for steady improvements in economic activity and employment. The goal is to make the financial system resilient, to contain destructive “busts”, and to do so without impairing the contribution that the financial sector makes to the economy’s medium-term growth. Can the FPC help right now? The benefits of the new regime for stability will take time to come through. That might leave you asking what the FPC could do to help right now. Indeed, with credit conditions so tight, it has been asked whether the FPC should be easing regulatory constraints on banks. The aim would be to encourage them to loosen lending conditions, helping recovery. And, it is suggested, that would be consistent with the FPC’s remit because it could reduce threats to stability from the risk of borrowers defaulting. At its September 2011 meeting, the FPC concluded that such a step would in fact be counterproductive – endangering stability and jeopardising recovery. Given the precarious starting position of UK banks when the crisis broke, their capital adequacy is still being rebuilt. And banks are still operating in an extraordinarily risky international environment. | As I have said before, easily the Committee’s biggest judgment in recent years has been that inflation will gradually fall back to the 2% target – initially as the effects of higher VAT, energy 4 BIS central bankers’ speeches and import prices diminish; and then as slack in the economy bears down on wages and prices. Though it has fallen significantly over the past six months, from over 5% to 3.5% on yesterday’s reading, it remains uncomfortably above target. The MPC will guide inflation back to target in the medium term, but in the near term there is considerable uncertainty about the path that it will follow. In its February forecasts on the outlook for growth and inflation, the MPC saw a gradual pickup in activity as the headwinds from weakness in the world economy and tight credit conditions receded and as the squeeze on household incomes is ameliorated through lower inflation. Big picture, that view on the growth outlook still looks broadly on track, but it is not always going to seem like that over the next few weeks and months as the ONS data for the first half of the year are published. Two temporary factors look likely to muddy the waters, leaving the headline ONS figures for GDP growth well short of what has been suggested by surveys. First, data for construction output over the turn of the year were extremely weak. | 1 |
Among state banks in the US during the 19th and early 20th centuries, double liability is believed to have helped constrain risk-taking. 17 This practice was ended at the time of the Great Depression in the US. Given the likely need to rebuild bank equity in the future, now may not be the time to return to unlimited liability. Fortunately, there are two alternative approaches to adapting capital structure which alter the balance of risk-taking incentives, without jeopardising the flow of risk capital. Both involve operating not on equity, but on debt. And both involve making debt, like equity, a more loss-absorbing instrument in stress events. First, contingent capital is a means of automatically converting debt instruments into equity in the event of a capital top-up being needed. The capital structure of banks 16 Caprio and Honohan (2008). 17 Grossman (2001). 8 BIS Review 139/2009 thereby becomes more malleable. There has been recent interest in contingent capital instruments as a means of providing banks with an extra degree of freedom in stress situations. 18 The benefits in principle seem clear. The difficulties in practice include whether there is likely to be sufficient investor demand for such hybrid instruments. Second, wholesale debt instruments at present rank equally with retail deposits in the UK in the event of a wind-up. In the US, depositor preference has operated nationally since 1993, with retail deposits ranking ahead of wholesale debt. | Chart 10: Bank and hedge fund concentration 35 T op 5 as % of sample assets T op 5 assets % of top 1000 30 18 16 Global banks (RHS) 14 25 12 20 10 8 15 Hedge funds (LHS) 6 10 4 5 2 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 0 1998 0 Source: TASS and The Banker 18 BIS Review 139/2009 Figure 1: Payoff profile for bank equity β=1 Return on Bank Equity Return on Market Portfolio Socialised losses Figure 2: Payoff profiles for bank equity β=2 Return on Bank Equity β=1 Return on Market Portfolio Leverage-induced social losses BIS Review 139/2009 19 Figure 3: Payoff profile for bank equity Return on Bank Equity β=1 Return on Market Portfolio Risky-bet induced social losses 20 BIS Review 139/2009 | 1 |
Our expectation is that after this forum, we shall see the emergence of an interactive and symbiotic alliance between International and Zambia financial institutions whose goal will be to provide financial services that will uplift the well-being of the Zambian populace at large. This sounds like a difficult task to achieve but it is my conviction that it is better to begin a step towards this direction rather than waiting for it happen in future. On a lighter note, Ladies and Gentlemen, let me remind you that the Soccer World Cup to be hosted by South Africa in 2010, has attracted increased demand in the construction and tourism sectors in the whole Southern African Region. Zambia needs to take advantage of this and invest heavily in the tourism industry to benefit from the event; particularly that it has a vast number of national parks and the Victoria Falls, one of the seven natural wonders of the world. Obviously this can only be done if there is long term partnerships between local financial institutions and International financial institutions like the ones invited here today. Mr. Chairman, Ladies and Gentlemen, I thank you for your attention. BIS Review 150/2007 3 | Such a process is undeniably messier, less predictable and possibly harder to explain in a consistent way. But it is also precisely these very characteristics that make it much more relevant in the world that we live in today. 3/5 BIS central bankers' speeches At the Bank, our work on proportionate regulation and risk culture aims to support this evolution. For example, the innovation sandbox allows financial institutions greater regulatory room to test innovations within a controlled environment and learn from emerging experience. We are also examining options to better tailor the regulatory framework to the size and complexity of financial institutions. And we are directing greater supervisory focus on an institution’s prevailing risk culture to determine the degree of supervisory intensity that we apply to individual institutions. We expect these developments to pave the way for more constructive dialogue with institutions to achieve regulatory frameworks that will deliver a sensible balance and greater synergies between risk and innovation. Building resilience The third important shift that I want to mention concerns a stronger focus of innovative risk management approaches on building resilience, in addition to simply averting or reducing risks. In the area of network security, organisations are increasingly adopting an “assume breach” paradigm where they operate on the assumption that a risk event has already occurred. In the financial world, reverse stress testing is being incorporated into risk management approaches to identify the scenarios that would break an institution. | 0 |
When you look at the level of savings as a proportion of household revenue in the various countries, you see to what extent some of them are already largely taking into account the expectation that tomorrow you’ll have to face up to additional taxation and additional financing needs for public funds. FT: In the US, what is really striking about Europeans is that some of them understand that this crisis is so exceptional that in a way you may have to put aside the rules. These are exceptional circumstances. But on the other hand there are other Europeans who just feel that we’ve used so much effort and political will to put together and agree on those rules that whatever we do, we mustn’t abandon them. Now, where do you come down on these two sides of the equation? Trichet: Incidentally, we had an exceptional relationship with the other side of the Atlantic in a large number of areas, including the supply of dollar liquidity. We have had a lot of “premiers” in terms of our own decisions, and “premiers” in terms of the close cooperation and very confident cooperation with other central banks. This is something which is important. But I’m cautious. I take the Stability and Growth Pact as it is, with its provision for exceptional circumstances. But it would be a mistake not to take into account fully the situation of the various economies. | A critical front in this battle is the leveraging of technology and data. Banks need to use available data to improve their predictive analysis, not just for operational efficiency and planning, but also for insights into customer behavior and preferences. What is particularly surprising to me is that banks, though custodians of vast quantities of customer and transactions data, are not utilizing it effectively. Banks will need to change the way they segment customers, not by their income levels or types of accounts, but potentially by their life cycle, growth potential, and behavior patterns. Data analysis can provide a bank with actionable insights into multiple factors that impact its business, allowing it to improve its strategic and operational decision-making. Moreover, banks will need to overhaul their operations, accelerate end-to-end digitization, modernize their technology infrastructure, and transition towards digital channels. McKinsey estimates that banks worldwide could save more than $ billion a year in direct costs by shifting traditional customers to digital platforms, reducing the service cost by 80 to 90%. By winning the battle for efficiency, banks will not only be able to better engage with customers and achieve higher satisfaction rates, but also curtail operational cost. Central Bank of Kuwait - Public عام- بنك الكويت المركزي - 12 - iv. Battle for Resilience Winning the battles for customer loyalty, value and efficiency will help banks to grow and remain relevant. But that growth should not compromise banks’ soundness or sustainability. This bring us to the fourth battle: the battle for resilience. | 0 |
This implies an expanded programme generally for young families, young specialists, as well as rural mortgage — these are the preferential programmes that may be implemented on an ongoing basis. Of course, we will be discussing all these issues with the Government and the banking community and we also encourage you to express your opinion. For many banks, mortgage lending is a key component of their business models. Now, I would like to speak on regulation. While the focus is mostly put on the regulatory easing, 3/7 BIS central bankers' speeches including temporary relaxations to be curtailed, the decisions we made in 2020 also covered systemic regulatory changes. These systemic regulatory changes have also largely helped banks to release capital. First and foremost, I am talking of the new approaches implemented that have enabled us to reduce the load on capital for low-risk loans, that is, for investment-grade borrowers when new standardised approaches are in place, mortgage loans with sufficiently large down payments, consumer loans to borrowers with low payment-to-income ratios, as well as in high-priority areas, such as lending to small and medium-sized businesses and project finance. According to our estimate, the overall capital released owing to these decisions last year amounted to one trillion rubles, which is actually equivalent to a potential lending expansion by ten trillion rubles. These systemic measures will not be terminated and will remain effective in the future as well. | Singapore’s strong ecosystem of buy-side and sell-side institutions, alongside professional services providers, makes us an excellent gateway to channel international capital to Asian borrowers. Today’s conference gives you a firsthand experience of being part of this ecosystem. 16. MAS is strengthening Singapore’s value proposition as Asia’s fixed income hub for bond issuers, and we would be glad for the opportunity to explore how we can serve your needs. 17. On this note, I wish you an enjoyable discussion ahead and many fruitful interactions. Thank you. 1 Standard & Poor’s 2 IMF WEO, April 2017, estimates for Emerging and Developing Asia (excluding Japan). 3 Advanced Economies are expected to grow at an average of 1.8% over 2017–2022. 4 The ASEAN-5 economies in the IMF’s forecast refers to Indonesian, Malaysia, Thailand, Vietnam and the Philippines. 5 HSBC Research, 2016. 6 SEB Research, 2017. 4/4 BIS central bankers' speeches | 0 |
Depending on its design, such a rule book would either be permanently outdated and incomplete, because legislators cannot keep up with the rapid pace of innovation within the financial sector with meticulous regulation, or would have to regulate so rigidly that it would impose excessive restrictions on the functioning of the financial system. As is often the case, the most sensible option is in the middle. We need regulation based on principles which adapts to changes in banking and we need a supervisory authority that is capable taking action. Allow me to elaborate. • Good regulations must be adaptable. They must be just as applicable to different business models as they are to different sizes of institution – they must fit large and small institutions alike. Good regulations must adapt to changing circumstances without legislators having continually to improve on them. Accordingly, the rules must provide room for discretion in individual cases. • Good regulations must, however, also ensure a minimum level of planning and legal certainty for banks; that is the only way in which banks operate properly and provide their financial services over the long term. This holds particularly true of Europe, where banks play a greater role in financing the real economy than the capital markets. | Without losing sight of the interest this seminar has in the challenge the new technologies pose, I would like to focus today on another major challenge that is not exclusive to the banking industry but applicable to everybody: financial education. Allow me first to set out, non-exhaustively, some of the results drawn from the Survey of Financial Competences presented by the Banco de España and the CNMV last month. I shall then refer to how important it is to continue dedicating efforts to financial education, especially in the current context of financial innovation. The Survey of Financial Competences The Survey of Financial Competences, which is included in the National Statistics Plan, adapts for Spain a questionnaire devised by the International Network for Financial Education, coordinated by the OECD. The aim is to measure, in an internationally comparable way, the financial competences of the population aged 18 to 79. The Survey measures these competences from different perspectives, and obtains information on: (i) financial literacy; and (ii) knowledge, holding, acquisition and use of financial products. To measure financial literacy, the Survey poses questions on three basic financial concepts: i) inflation; ii) compound interest rates; and iii) risk diversification. | 0 |
It will always be difficult to know when and to what extent monetary policy should respond to a sharp rise in asset prices and a strong increase in credit growth. Our knowledge of the driving forces is incomplete. Our history is short and our experience with deregulated loan and housing markets is limited. It is difficult to determine to what extent the rise in house prices and growth in household debt can be accounted for by structural and long-lasting adaptation, by “normal” cyclical effects and by a short-term trend extension and speculative behaviour that may amplify the cyclical fluctuations when the bubbles burst. We have leaned towards the notion that debt and asset price developments may be a potential source of subsequent instability, but it is neither our ambition nor our conviction that monetary policy can control developments in these variables. Combined with the favourable supply-side developments in the economy, this has prompted us to extend the horizon for reaching the inflation target. In our communications, we have also clearly articulated that the interest rate has been unusually low and BIS Review 49/2006 3 must gradually be increased to a more normal level. Since last autumn, this has been expressed in Norges Bank’s interest rate projections for the period ahead. From using technical assumptions or others’ assessments, we have now taken ownership of the interest rate path in our projections. This is also a means of seeking to influence household and business expectations. | Underlying inflation, like the output gap and the neutral interest rate, is an unobservable variable. An ideal indicator of underlying inflation should show the same average rise as the rise in the CPI over time. It should be less volatile than the CPI and should be indicative of future developments in inflation. BIS Review 49/2006 5 The consumer price index adjusted for taxes and excluding energy products, the CPI-ATE, has been widely used as an indicator of underlying inflation. However, the CPI-ATE not only excludes temporary effects of tax changes and fluctuations in energy prices, but also trend changes in these variables. This indicator is therefore not a perfect measure of underlying inflation. In the last 10 years, the CPIATE has underestimated underlying inflation because energy prices have increased more than other consumer prices and the level of excise duties has increased somewhat. In the past ten years, the difference has been roughly 0.3-0.4 percentage point on average per year. Traditionally, Norway has been a net exporter of energy, but at the end of the 1990s the situation reversed. The price of energy is largely determined by supply and demand in the Nordic energy market and to some degree by the energy balance in non-Nordic countries. Energy trading is important for Norway. It reduces the vulnerability to precipitation levels and inflows. However, the majority of Norway’s energy trading partners use coal, oil, gas and nuclear energy. Production costs for thermal power are higher than for hydropower, which is produced in Norway. | 1 |
Summing up, the significant expansion of the balance sheet, in a context of economic deterioration, reflects the counter-cyclical behavior of the Bank, which is necessary to secure the fulfillment of its mandate, and the existing confidence in our currency. This counter-cyclical operation, coupled with efficient asset and liability management and austerity in budget administration, will allow the Bank to regain positive net worth which, if sustained over time, would allow it to deliver profits to the Treasury for the first time in history. III.3. Technological development The fast-technological advances, marked by the digital revolution, has effects on our Central Bank as it does in any knowledge-based institution, but moreover by its impact on the specific area in which we operate. At the Bank level, we have been investing in the digitalization of its operations and in cyber security. The sanitary contingency has accelerated this process, namely by extending teleworking systems to almost all the staff, allowing them to keep performing most of their usual activities. The emergency of recent months sped up several plans, such as the use of cloud infrastructure capabilities, which has facilitated work from home, coordination among the workers and granted the necessary working flexibility to the teams that so require. Throughout 2020, efforts have continued to be devoted to make the Bank’s systems more resilient by providing a minimum infrastructure that is independent of the current processing centers and that allows the operation of the main business processes to be maintained even when both centers fail at the same time. | Pasricha (2017) shows that policymakers use capital inflows tightening for macroprudential concerns, while use capital outflows easing for competitive purposes. In Chile, the dynamic of outflows easing reflect mainly that Pension Funds’ limits on investing overseas have loosen. Nonetheless, Chile is among those EMEs that are less active when it comes to capital control actions over the past decades. The challenge, however, still remains in terms of addressing the actual level of capital account openness rather than it’s tighten/loosen evolution. Page 4 of 12 Central Bank of Chile September 2019 High-level Policy Seminar on Integration or Fragmentation? International Capital Flows in the Post-crisis World, September 2019 CENTRAL BANK OF CHILE Pasricha et al. (2015) Indices of capital controls policy for Chile and other EMEs Pasricha et al. | 0 |
Despite that, as we have seen only too clearly, it is next to impossible to stabilise activity in the face of a financial crisis, as indebted households, businesses and intermediaries all seek to de-leverage simultaneously. Moreover, the upswing of the credit cycle is frequently associated with an increase in lending to purchase assets, especially property; that was certainly true on this occasion. If the consequence is an investment or construction boom – as was the case in the United States, Ireland and Spain – the result is a capital overhang that needs to be worked off. There are welfare gains from avoiding such capital misallocation. That leads naturally to my fifth lesson: prevention is better than cure. 5 The marginal funding cost is the three-month Libor plus the average of the five-year CDS premia of the major banks. The corporate loan rate is the three-month Libor plus the average of the spread on sub-investment grade syndicated loans. 6 If no other policies were available, then one might be tempted to conclude that the inflation target should just be higher in normal times, as advocated by Olivier Blanchard, Giovanni Dell’Ariccia and Paolo Mauro (2010). By ignoring the other policies that are available to deal with, and prevent, financial crises, to my mind this is giving up too easily. 6 BIS central bankers’ speeches But how best to do that? Could a different choice of monetary policies have led to a better outcome? | Before delving into the details, I’d like to give you a preview of my main points: First, I would like to discuss capital and the financial crisis, and will suggest that many U.S. financial institutions did not have the quality or quantity of capital needed to withstand the shocks we recently experienced. The focus in Basel III on improving the quantity and quality of capital at financial institutions – particularly systemically important financial institutions – is critically important. Second, I will suggest that we should be particularly focused on narrow definitions of capital, which are what investors focused on during the financial crisis. Third, I will suggest that stress tests are an important supervisory tool that should be used for prudential and macroprudential3 supervision as well as for management’s own capital planning efforts. The rapid recapitalization of many financial institutions in the United States greatly benefitted from the attention during supervisory exercises (including stress tests) on the quantity and quality of capital. I will also discuss the evaluation of discretionary capital distributions (such as increasing dividends, and stock buybacks). Capital and the financial crisis I think it is instructive to look at the capital ratios of two of the very large banking organizations that encountered problems and were acquired during the financial crisis. Wachovia was one of the four largest banking organizations in the United States, with total assets in 2008 exceeding $ billion. | 0 |
Figure 6 CPI inflation (*) CPIEFE inflation (*) (annual change, percent) (annual change, percent) 6 6 6 5 5 5 5 4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 0 0 0 11 12 13 14 15 16 17 Dec.2015 MP Report 6 0 11 12 13 14 15 16 17 Sep.2015 MP Report (*) Gray area shows forecast, as from the fourth quarter of 2015. Sources: Central Bank of Chile and National Statistics Institute (INE). BIS central bankers’ speeches 11 Figure 7 MPR and expectations (percent) 6 6 5 Financial asset prices, December MP Report(*) MPR 4 5 4 9 3 EES, December 2015 3 FBS, first half December 2015 2 2 11 12 13 14 15 16 17 (*) Built using swap contract interest rates up to 10 years. Source: Central Bank of Chile. | We can do so adopting a culture of permanent assessment of the actions arising from our responsibilities; providing other economic policymakers with the best analyses and proposals for improving economic growth and citizens’ well-being; assisting and collaborating with the research community in the use of our information to contribute to that objective; and promoting – also in collaboration with the public and private sectors – the economic and financial education of the public at large, enabling them to sufficiently understand and appreciate public policies and take the best financial decisions for themselves. This is part and parcel of our commitment and service to Spanish society. 1 For a discussion of the role of the independence of economic regulators, see P. Hernández de Cos (2020), Testimony by the Governor of the Banco de España before the Audit Committee on Democratic Quality, the Fight against Corruption, and Institutional and Legal Reforms. 2 See S. Albrizio and J. F. Geli (2021), “ An empirical analysis of the determinants that can boost Next Generation EU’s effectiveness”, Analytical Articles, Economic Bulletin 4/2021, Banco de España. 3 For a discussion on the importance of the use of administrative data by researchers, see M. Arellano (2018), “El acceso a los microdatos administrativos públicos: la nueva frontera de la investigación económica y social”, XVIII Aula de Verano Ortega y Gasset, UIMP, Santander, 20–21 August. 4 See the Banco de España “Survey of Financial Competences”. | 0 |
Uncertainty rose, growth in other advanced economies slowed, financial conditions tightened, and both the public and 9 These annual stocktakes serve two purposes. First, they provide the MPC with a regular opportunity to step back from the month-tomonth flow of economic data and consider supply-side developments as a whole and over an appropriately lengthy time period. Second, by undertaking routine systematic annual assessments of the supply-side, rather than addressing the issues ad hoc from quarter to quarter, we hoped to provide clarity on our analytical processes to observers outside the Bank. 10 See the August 2014 Inflation Report. The equilibrium unemployment rate depends on the horizon being considered, as wage pressures can arise for many reasons and some factors will be more persistent than others. These figures are the MPC’s estimates of the medium-term equilibrium unemployment rate, the measure most relevant for gauging wage pressures over the MPC’s three-year forecast period. This is distinct from the MPC’s estimate of the long-term equilibrium unemployment rate – which depends on structural factors such as the extent to which potential employees are aligned with vacancies in terms of skills, location and occupation; the benefits regime; and the influence of trade unions on wage bargaining – and which remained at 5% during this period. 11 See ‘The spirit of the season’, speech by Mark Carney at the Economic Club of New York, 9 December 2013 and the box on page 40 of the February 2014 Inflation Report. | And could these developments merit either a substantial adjustment to inflation targeting or even the adoption of a different monetary policy framework in the years ahead? In what follows, I will not presume to give the answers but would suggest that a careful and deliberate research review of the UK’s monetary policy framework is warranted. That’s why my colleagues and I look forward to the contributions of the distinguished group assembled here today. And it’s why the Bank will conduct a dedicated research programme over the next year, joining many of our peers around the world in similar exercises.3 At a minimum, as I advocated in my parliamentary testimony prior to joining the Bank,4 open, periodic reviews reinforce the legitimacy and acceptance of this vital component of the UK’s macroeconomic landscape. Let me begin by reviewing how inflation targeting has performed in recent years. I. Monetary “Spring” – Securing the recovery When I joined the Bank, a long economic winter of discontent was finally beginning to thaw. Throughout most of 2011 and 2012, UK GDP growth (at around 1½%) had languished well below its pre-crisis trend (of close to 3%), and unemployment was about 8%. But by mid-2013, there were signs of a nascent recovery: four-quarter growth had picked up above 2%, and the unemployment rate fell to 7.7%, its joint lowest level since early 2009 (Charts 1a and 1b). The timing and pace of the recovery had caught most unawares. | 1 |
In its internal audit report published in March 2013, the FSA highlighted several issues pertaining to the breakdown of the internal audit function, which led to the manipulation of the rates. Despite the Group internal audit functions carrying out their routine audits in this area, deficiencies in the banks’ systems, controls and policies were not adequately highlighted. The lessons learnt from the above cases and others clearly reinforce the key roles played by both the internal audit function and the Audit Committee. My view is that the strength and effectiveness of the internal audit function will influence the risk and compliance culture in an organisation. The function has to continually be refreshed such that it remains robust and effective. 2 BIS central bankers’ speeches Clearly, the job is now more difficult and challenging than ever, given the increased expectations by stakeholders and heightened scrutiny when things go wrong, as well as increasing obligations under the statute that place additional fiduciary responsibilities on audit committee members. I would like to share my thoughts on four matters where efforts are necessary to raise the bar on audit standards and audit quality. Firstly, the audit coverage and scope should not be confined to compliance or risk-based parameters. The audit scope should be holistic, encompassing new risk areas and tail risk events that originate from the evolving operating environment and financial landscape. | The scope is relatively moderate, but appears nonetheless to have reduced bottleneck tendencies in some industries where demand has increased sharply. Traditionally, many workers from our neighbouring countries have contributed when the labour market in this country has been tight. In 2001, close to 30 000 persons resident in Sweden were employed in Norway for all or part of the year. Swedes who have registered as residents of Norway come in addition. An increased supply of labour from new EU member states to Norwegian enterprises may lead to a higher-than-normal increase in potential output for a period. Many of the foreign workers work for a shorter period in Norway without being employed in a Norwegian enterprise. Examples include foreign contractors and self-employed in the construction industry who carry out various building projects in Norway, as well as others who carry out other types of projects. Aker Kværner, for example, has contracted 300 consultants based in India to work on the Ormen Lange project in North-West Norway. An increase in the use of these short-term contracts will appear as an increase in Norway’s service imports, and contributes to increasing the supply of goods and services without drawing on domestic resources. Protectionist measures may dampen the impact on the Norwegian economy of an increased supply of labour from the new EU member states. The transitional rules from 1 May last year stipulate that foreign workers shall have Norwegian wages and working conditions. | 0 |
But, if the athlete cannot breathe for some reason, he will soon be dead notwithstanding his fitness. Your liquidity, or your cash inflows and cash outflows is also like breathing in and out. These cash flows have to be monitored very carefully. Liquidity management has to be practised diligently. The board members of finance companies must also learn and appreciate the principle of liquidity management. Don't think that it can only be left to the executives of the company. In the final analysis, the executives may not even be responsible in a legal sense. The legal responsibility will rest with you! BIS Review 55/2008 3 I am sure the other speakers will expand on all these aspects that I touched upon. So, I will now conclude with a few overall thoughts. My dear friends, take your responsibilities as Directors very seriously. Keep abreast of what is happening. Keep abreast of the markets. Keep abreast of the risks that are taking place, both globally and locally. Watch the world and environment carefully. Be alive to new techniques. Take the interest to do all that, because if you do, then we can all have a healthy market. That is what we at the Central Bank, are hoping you would discharge your responsibilities diligently. The last thing we would like to do is to call you up and to say that your business is not run properly. We don’t want to do that. | Nonetheless, I wish to state that efforts are underway to make IFRS a mandatory requirement for financial institutions. It is important for this provision to become a legal requirement in order to enhance the credibility of financial statements that are being produced by institutions governed by the various laws. I wish to state here that as much as it is important to follow international standards, these need to be reviewed for their relevance and practical application locally. It is also important to look at their relevance to small and medium enterprises where compliance may place additional burdens on operations. Ladies and Gentlemen, as we discuss the harmonization of various laws, I would like to bring up the issue of money laundering. The Prohibition and Prevention of the Money Laundering Act (PPMLA), enacted in 2001 requires all persons, whether corporate or unincorporated, to comply with its provisions. Although the Act does not impose specific obligations on accountants, they are expected to comply with its provisions. It has been noted from the recent court cases on abuse of office and corruption that professional entities such as law and accounting firms have been used as a channel to launder some of the proceeds of crime. As we are all aware, one of the duties of accountants is to know the sources and application of the resources in their organization. Therefore I don’t think it is unfair to say that in most organisations, where money is being laundered, an accountant is involved. | 0 |
If the economies of our most important trading partners recover, and if the financial markets begin to stabilise, it is likely that the Swiss economy will also pass through the cyclical trough during the course of the year 2010. Faint signs that the economy is gaining a little ground have recently become evident abroad. The SNB’s measures are aimed at reducing the danger of deflation in Switzerland. To maintain price stability in the future, pinpointing the optimal date for exiting from the current zero interest rate policy will be critical. Although the reduction in liquidity can be carried out swiftly and easily in technical terms, the practical details are extremely challenging. Correct assessments by decision-makers are very important in view of the particularly high level of model uncertainty at present. In addition, firmness will be required in the face of political pressure so that necessary, but unpopular corrective measures can be taken in good time. BIS Review 54/2009 1 | CPI inflation is judged in turn to be 1.1% after twelve months and 2.0% in twenty-four months’ time. Thus, CPI inflation will be moving closer to underlying inflation. One reason for this is that the downward effect on inflation from house mortgage interest expenditure is diminishing. In other words, just as the previous marked fall in interest rates held back CPI inflation so that it was well below the underlying trend, so house mortgage interest expenditure is now tending to bring them closer together. As I have pointed out before to this Committee, monetary policy ought to disregard these direct effects of interest rates because repo rate adjustments mean that they are accentuated. It is also for this reason that the Riksbank is currently focusing monetary policy on inflation’s underlying rate, measured as UNDIX. Transitory factors – changes in indirect taxes, subsidies and house mortgage interest expenditure – are judged to have a downward CPI effect of 0.5 percentage points in one year’s time. The contribution from interest expenditure is still negative because the process whereby house mortgage loans at high rates are renewed at the present lower level is still in progress. As the earlier house mortgage loans had a long duration, this process takes time. In two years’ time, however, the CPI contribution from transitory factors is judged to be an upward effect of 0.1 percentage point. | 0 |
40 The invention of the printing press by Guttenberg in around 1450 led to an explosion in book production. It is estimated that there were more books produced in the 50 years after Guttenberg than in the preceding 1000 years. What followed was much more than a technological transformation. Books contributed to a great leap forward in literacy levels, boosting human capital. More speculatively, they may also have re-wired our brains. Nicholas Carr argues that the changes brought about by the printing press, and other information media, may have re-shaped our minds. 41 Books laid the foundations for “deep reading” and, through that, deeper and wider thinking. Technology was, quite literally, mind-bending. It has been argued that this re-wiring stimulated the slow-thinking, reflective, patient part of the brain identified by psychologists such as Daniel Kahneman. If so, it will have supported the accumulation of intellectual capital – creativity, ideas, innovation. Technology will have first shaped neurology and then neurology technology, in a virtuous loop. Slow thought will have made for fast growth. 36 For example, Clark (2009). 37 Wang et al (2011). 38 Mullainathan and Shafir (2014). 39 Bannerjee and Duflo (2012). 40 Carr (2011). 41 Carr (2011). 8 BIS central bankers’ speeches It is possible to construct a quasi-neurological explanation of much-earlier shifts in growth. The world’s growth journey appears to have commenced, in earnest, around the time modern homo sapiens replaced Neanderthal man. Maybe that was no accident. | Notes: Data for the United Kingdom and the United States are derived from nominal bond yields deflated using inflation swaps. The Germany/EA figures are based on nominal Bund yield deflated using euro-area inflation swaps (as a proxy for the euro-area risk free rate). The measure of inflation used is RPI for the United Kingdom and CPI for the United States and the euro area. Data are to close of business 9 February 2015. BIS central bankers’ speeches 25 Chart 15: Population growth Annual percentage change 3 2 2050 2040 2030 2020 2010 2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900 1890 1880 1870 1860 1850 1840 1830 1 0 Source: United Nations population projections (http://esa.un.org/wpp/) for 1950 onwards; The Maddison-Project (http://www.ggdc.net/maddison/maddison-project/home.htm) prior to 1950. Chart 16: Business expenditure on Research & Development South Korea Japan China United States United Kingdom France R&D Expenditure as a % of GDP 3.5 3.0 Germany 2.5 2.0 1.5 1.0 1981 1985 1989 1993 1997 2001 2005 2009 2013 0.5 Source: OECD. | 1 |
Global rebalancing of the world economy needs countries in a strong cyclical position to direct domestic demand to imports, while countries with insufficient domestic demand to increase exports. Exchange rate adjustment should facilitate this process. Therefore, a faster appreciation of the yuan would relieve some appreciatory pressures in other EMEs, making the adjustment more balanced. But, for this to be achieved on a sustained basis, it is not enough to let the exchange rate adjust. Structural reforms will also be required to achieve a sustainable and efficient reduction of China’s savings rate. On the other hand, a rise in advanced economies’ interest rates, in particular in the U.S., would also alleviate currency tensions. However, the main responsibility for policymakers is to secure sustainable growth in their home economies that favors their citizens, and we all have to deal with the repercussions of those actions. The response in emerging market economies Emerging market economies have been facing two challenges as a consequence of this global environment. First, exchange rate appreciation and a resumption of capital inflows, and second, inflationary pressures. Sometimes, these two challenges may lead to inconsistencies in macroeconomic management. However, it is important to highlight that in small open economies any attempt to persistently manage an exchange rate away from its fundamentals, in particular at an overvalued level, may end up leading to inflation. If the adjustment does not come from a change in the value of the currency, it will happen through inflation. | Since December 2009, the yuan has appreciated almost four percent, while this figure is much closer to ten percent for most EMEs. The comparison is even more dramatic when looking at a longer period of time. This has been achieved through massive reserve accumulation and limited financial integration. However, for measures in the foreign exchange market to have real effects – that is, on the real exchange rate, which is the relevant variable from the point of view of competitiveness – these measures need to have some support from the real side of the economy. In the case of China, this is a very high savings rate. China saves about half of its GDP and the resulting current account surplus sustains a depreciated real exchange rate. Otherwise, attempts to maintain a depreciated nominal exchange rate sooner or later lead to inflation, which is the way to achieve relative price adjustment when the nominal exchange rate is not allowed to adjust. The U.S., in turn, is undertaking an extraordinary monetary expansion. Beyond having reached the zero lower bound for the federal funds rate, unconventional measures are adding additional monetary stimulus. In particular, the massive purchase of securities implemented in the so-called QE2 program. This explains why the dollar has reached its lowest level in several decades (Figure 3), but this is not only the result of expansionary monetary policy, but also of the lack of domestic demand and of the external imbalances. | 1 |
[...] Moreover, the analyses were based on projections of productivity growth that proved to be too high.” As I pointed out in my introduction, there was strong growth until 1973, and it took time before it became apparent that there had been a negative shift in potential output. The red dotted line in the chart shows what GDP would have been if the growth rate had been the same after 1973 as in the previous 10 years. Because the negative shift in the level of potential output was not discovered in time, a counter-cyclical policy was employed in an attempt to sustain the output level. Whereas the output gap was believed to be negative, it subsequently proved to be positive, as illustrated by the chart. Similarly, in a study of previous US monetary policy, Ophanides11 finds that central banks overestimated the level of output that was consistent with stable inflation in the 1970s because they were not aware of falling productivity growth in time. As a result, the output gap was underestimated and policy was too expansionary. Also in the 1990s, we saw an increase in productivity growth, and even though the mistake from the 1970s was not repeated, there was a vigorous debate concerning different targets for trend growth and the output gap. In addition to the difficulty of capturing changes in potential output fast enough, there is also considerable uncertainty about the level of actual GDP. As an example, Norway’s GDP figures were extensively revised in June 2002. | In addition, we monitor various cyclical indicators and acquire information from our regional network.6 There is uncertainty associated with the estimation of both trend growth and the output gap, but the correspondence that seems to exist between the different methods of indicating pressures in the economy makes us confidant that the output gap, as we calculate it, provides useful information. The output gap provides an overview of the overall pressures in the real economy. If there are no substantial economic disturbances - or shocks - there will be no conflict between stabilising inflation and stabilising output and employment. A positive output gap will over time result in inflation that is above target, while a negative output gap will result in inflation that is too low. Nor will demand shocks in a closed economy result in a conflict in the short term between price stability and stability in the real economy. A positive demand shock will result in higher inflation, and an appropriate monetary policy response would be to increase the interest rate as much as is necessary for output to return rapidly to its potential level. In an open economy, however, a conflict of objectives could arise in the short term following a demand shock. Although a higher interest rate would contribute to stabilising both output and inflation, there might be a conflict with regard to the “dosage”. | 1 |
Lastly, there are various measures available in current trade agreements, such as antidumping measures and countervailing duties for dealing with “unfair” trade, as well as escape clauses that provide safeguards for industries that face a sudden surge of imports. Again, the challenge is to ensure that such measures are effective, that they help facilitate rather than retard adjustment, and that they are not abused so as to avoid foreign competition. But, both sanctions and temporary relief have been provided for in global trade rules. We should be willing to use them when their use would lead to more equitable outcomes and would help sustain political support for a more open trade regime. Conclusion Free trade is a concept that remains compelling but periodically will be tested by economic change. That is an inescapable fact of life and is a good thing because it requires the economics profession to articulate anew the value of a liberalized world trade regime. While the value from trade is very high, the associated adjustment costs can be significant and will require greater attention if globalization is to work for all of us. Thank you for your time. I would be happy to take some questions. 1 Mary Amiti, John Clark, Gerard Dages, Matthew Higgins, Tom Klitgaard and Joseph Tracy assisted in preparing these remarks. 2 Figures from UN World Investment Report, IMF World Economic Outlook Database, World Bank World Development Indicators. 3 IMF World Economic Outlook, April 2017, in market exchange rate terms. | Instead, we need to provide greater support to displaced workers so they can obtain the skills needed to find new well-paying jobs. We need to do better in preparing workers to deal with the challenges of globalization and technological change. These issues are important to me as a central banker, as they affect the long-term health and productivity of the economy, and the economic opportunities available to our people. The debate around globalization, particularly in advanced economies, reflects a range of factors. Undoubtedly, the global financial crisis and subsequent slow recovery have been significant. But, just as important have been longer-term trends, such as growing income inequality, the loss of middle-income jobs, and the rise of large emerging market economies such as China and India. Although the debate about globalization is not new, I believe we are at a particularly important juncture. If support for liberalized trade and an integrated global economy were to suffer a significant setback, the consequence could be slower economic growth and lower living standards around the world. While considerable effort has gone into liberalizing trade and developing the existing set of trade agreements, that does not mean they cannot be improved upon. I have no doubt some trade agreements could be enhanced or updated. Some may not adequately address recent changes in the global economy—such as the rise of digital trade—and may need to be refreshed. And, important trade barriers still remain and should be addressed. | 1 |
BIS Review 32/2004 3 Facing this reality, we decided to act independently and lowered interest rates initially in March 2001, a few months before the European Central Bank. Then, facing a clear economic slowdown and a strengthening of the Swiss franc, we lowered interest rates repeatedly and aggressively. So far, the magnitude of our policy loosening has exceeded that of the European Central Bank. We thus kept our monetary autonomy intact, and the interest rate differential between the euro and the Swiss franc has even slightly increased. 4. Swiss monetary policy in the new monetary order What have we learned about the effects of the new monetary order on the international monetary system and on the effectiveness of monetary policy? (a) The stabilizing role of the euro Developments in currency markets over the past 5 years have taught us that the introduction of the euro has fundamentally modified and stabilized the international monetary system. In the past, this system was dominated by the dollar. Dollar crises were violently affecting economies dependent on international trade and capital mobility. The Swiss franc was particularly vulnerable as Switzerland is a small open economy with a currency playing the role of safe haven. Today, the euro has become the counter-weight of the American currency. When the dollar tumbles, the euro absorbs funds in quest for stability. Third party currencies are thus better shielded from speculative flows. Indeed, the Swiss franc is not the only currency to benefit from this new monetary order. | If use of the franc were to be crowded out by the euro, the Swiss National Bank would have had little 2 BIS Review 32/2004 leverage left to influence monetary conditions in our own country. It would become a paper tiger! (c) Third, even short of a “euroization” of the Swiss economy, we feared the loss of our monetary autonomy. Given the importance of the common currency for the Swiss economy, what else could the Swiss National Bank do other than follow the European Central Bank’s monetary policy and de facto integrate the franc into the euro zone? A gradually shrinking interest-rate differential between euro and Swiss franc investments as well as a loss in monetary autonomy would have resulted. How does our recent experience relate to these concerns? 3. Our experience as an independent monetary entity (a) The euro/Swiss franc relationship Our fears of a euro destabilizing the Swiss franc did not materialize. Relative to the euro, and since its introduction, the franc has been fluctuating in a relatively narrow band of plus or minus 5 percent, about four times less than against the dollar during the same period. The Swiss franc appears now to be less affected by exchange rate shocks and more shielded from speculative movements. | 1 |
(a) Do we need an IMF? The apparent success of central banks has led some economists to argue that the widespread adoption of inflation targets and floating exchange rates is sufficient to ensure the smooth running of the international monetary system – a regime which Professor Andrew Rose calls the ‘reverse Bretton Woods system’. There is no need for an international institution such as the IMF to watch over the system. It is certainly true that the most important thing any nation state can do to minimise the spillover effects it has on others is to maintain domestic economic stability. And that is exactly what Australia, Britain, and other countries have done during the recent period of economic success, known as the “Great Stability”. But domestic stability is not sufficient to eliminate spillover effects. The impact of national macroeconomic policy decisions is transmitted to other countries through important prices in the world economy: real exchange rates; real interest rates, and prices of important commodities like oil. Changes in spending by US households affect export demand in the rest of the world, both directly and indirectly through movements in the dollar. Changes in saving by governments in Asia affect spending in the rest of the world through movements in real interest rates. Changes in the supply of oil from the Middle East affect incomes and spending elsewhere through movements in oil prices. | Voting rights are an area where hard work and many hours of persuasion will be needed if countries are to be convinced to see the bigger picture and relinquish some degree of direct control over the IMF in return for the creation of a more effective institution. Hard work, perseverance and dogged determination have been characteristics of this year’s Australian presidency of the G20 under Peter Costello, Ian MacFarlane and Glenn Stevens. Their efforts have been crucial to the progress that has been made towards quota reform over the past year. It is important that the Australian legacy be carried forward if the process of quota reform is to be completed. (e) Are there overlaps with other institutions? Unnecessary duplication is a waste of both time and money. I have already spoken about the respective comparative advantages of the IMF and OECD. There has also been some discussion about the roles of the IMF and the G7 in respect of exchange rate issues. Over the past three years – especially since the Boca Raton G7 summit of February 2004 – the inability of the G7 to deal with the major spillover effects in the world economy has become more and more evident. Adding new members, even if they were willing to join, is not the answer. More productive would be to use the IMF as flexible forum to bring the relevant group of countries together to handle issues as and when they arise. 5. | 1 |
This adjustment also involved the creation of the strategic- and technological-risk Department. Technology. A technological observatory was created intended to act as catalyst for enhancing knowledge and adopting important innovations for the CBC’s fulfillment of its functions. The main objectives of the observatory are: (i) to agree on common principles and contribute, inside the CBC, to the coordination of the treatment of disruptive technologies, (ii) create networks with the external community to enhance know-how and identify opportunities and threats, and (iii) agree on the pillars of innovation to promote and contribute to knowledge in those areas. The pillars of interest that have been defined include: digital currencies of central banks, cryptoassets and financial stability, development of digital payments and technology of distributed records and their applications, technology and data management, cybersecurity and risks for the financial system, among other issues. Employer of excellence. We have been working on strengthening the organizational culture and improving the value proposition for our staff in order to achieve effectiveness in attracting and retaining employees and developing their careers. To strengthen the internal career, we are developing an exercise to improve job description and assessment. Hand in hand with the strategic initiatives just defined, the CBC has continued with its projects linked to the fulfillment of its permanent functions. | Some of you may know that FAA had its beginnings as a division within the Asian Institute of Finance, to review the quality of programmes being offered by AIF’s affiliated institutes. As the components of a quality assurance framework and process started to come together under the AIF, it became clear that in order to realize the vision of a highly competent and high performing workforce in the financial sector, assuring the quality of the learning programs that serve the industry was vital. This led the Board of AIF to take the decision to establish an independent entity which would spearhead and develop this important role to its full potential. That decision was motivated by two objectives. The first was to ensure that the quality assurance function would be fully independent of any interests in program development or delivery. This is necessary to provide a high level of confidence to the industry which should be able to rely on quality assurance assessments as a basis for decisions on training and development priorities. As a separate agency with a transparent governance structure in BIS central bankers’ speeches 1 place, FAA has been able to build a high level of credibility in providing an independent, objective assessment of the quality of training and development programs in meeting defined learning objectives. The second objective was the desire to contribute towards raising standards on education and development in the area of financial services. | 0 |
We should stress here that, of the larger euro area countries, France has the highest proportion of market-based financing, at 40%. Non-bank financing in France totals EUR 1.748 trillion, and the leading asset manager in Europe is a French firm, Amundi. France also has an internationally recognised regulator, in the form of the AMF, while Paris is home to the European Securities and Markets Authority, ESMA. After Brexit, I also have every reason to believe that a significant share of the market activities of the largest global banks will be based in Paris. First of all, I want to put an end to the non-debate over whether market-based financeis better than bank-based finance and vice versa, and the misconception that the US system should be 1/3 BIS central bankers' speeches replicated in Europe: working towards a balanced development of non-bank finance simply means giving companies the option of diversifying their debt financing. Fun damentally, the real debate lies elsewhere: it is about switching from debt to equity.This is crucial in advanced economies, where growth is dependent on innovation. Equity financing is better suited to the uncertainty and often long-term returns associated with innovative projects. The euro area is seriously lagging behind in this respect: equity only accounts for 74% of GDP, compared with 125% in the United States. Moreover, it only makes up half of the total external financing of euro area corporations (equity + debt), compared with three quarters in the United States. | As I have said on previous occasions, the greatest cause for concern at present should not be predicting exactly when positive quarter-on-quarter growth will resume, but rather determining to what extent the Spanish economy is ready – or not – to move into a long phase of robust growth. During the last upturn, the Spanish economy built up some significant imbalances, such as the excessive weight of real estate activities, a swollen external deficit, a relative loss of competitiveness, and high corporate and household debt. Over the course of the crisis, some of these imbalances have begun to be corrected, but others are still significantly holding back a pickup in growth. With the crisis, these pre-existing structural problems have been compounded by an increase in unemployment to levels far higher than those of any other developed countries and by the sharp deterioration in public finances. These are now undoubtedly the two main problems affecting our economy. To embark on a sustainable economic recovery, the imbalances built up by the Spanish economy before and during the crisis must be reversed. Job destruction must be halted and unemployment absorbed. And, further, an ambitious plan must be devised and set in place to cut the budget deficit, to redress the financial position of the private sector and, in sum, to mitigate all those structural shortcomings that are currently weighing on the recovery and contributing to reducing the growth potential with which our economy will face the new expansionary cycle. | 0 |
BIS central bankers’ speeches 7 Figure 2 Stock market indicators (1) (2) (index, 01/03/2011=100) Sovereign risk premiums (1) (3) (basis points) 120 120 500 500 110 110 400 400 100 100 90 90 300 300 80 80 200 200 70 70 100 100 60 60 0 0 ene.11 jul.11 ene.12 jul.12 ene.13 11 Jun. 12 Jun. 13 11 11 Latin America Emerging Asia Emerging Europe Developed 11 Jun. 12 12 12 Jun. 13 13 Latin America (4) Emerging Asia (5) Chile Emerging Europe (6) (1) Dotted vertical line marks statistical closing of March 2013 Report. (2) Stock market indexes by region from dollar-denominated Morgan Stanley Capital International. (3) Measured by 5-year Credit Default Swap (CDS). Simple average of countries in each region. (4) Includes Chile, Brazil, Peru, Mexico, Panama and Colombia. (5) Includes China, the Philippines, Indonesia, Thailand and Malaysia. (6) Includes Czech Rep., Hungary, Croatia, Bulgaria and Turkey. Source: Bloomberg. Figure 3 Inflation indicators (annual change, percent) 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 06 07 08 CPI 09 10 11 12 13 CPIEFE Source: National Statistics Institute (INE). | At the very beginning of this conference, Jürgen Stark mentioned three issues: First, to what extent is analysis of monetary developments relevant for the conduct of a monetary policy aimed at the maintenance of price stability? Second, how should the analysis of money be organised in the policy process leading to interest rate decisions about the policy rates? And third, how should the monetary analysis and its implications for monetary policy be presented to the financial markets and public? With the benefit of hindsight, let me take stock of what I have learned over the past couple of days. With regard to the first question, Prof. Flandreau has demonstrated that, in assessing the success of central bank policy, the historical context always needs to be taken into account. Political, institutional, and economic circumstances need to be adequately considered. During the run-up to Monetary Union, money and monetary analysis played a crucial role in the experiences of most central banks in Europe. Viewed in this context, the ECB’s choice of strategy was a natural continuation of previous best practice, while at the same time incorporating insights from economic theory and the experience of other central bank. I think it is fair to say that the strategy has served us well. The clearest evidence of this is the high credibility which the ECB has enjoyed since its inception. | 0 |
Finally, it is my view that, over and above the formal standards and protocols, the really important thing is cooperation and communication in good faith between supervisory colleagues. Cooperation is, therefore, a two-way street, and I believe that we all understand that we need to accept a minimum level of flexibility, based on mutual trust and reciprocity, if we want cooperation between supervisors to be effective. Basel II implementation: other aspects Turning now to the other topics currently being discussed, I would like to mention Pillar 2 of the revised Framework as an aspect which is receiving increasing attention. Concretely: the Group is currently exchanging views on how this pillar can and should be applied consistently within an international banking group. As we can see, the question of cooperation among supervisors is not limited to the use of advanced models under Pillar 1, and it is thus necessary to be able to exercise this degree of flexibility as regards the nature and scope of such cooperation. There are also certain topics on which it would be desirable that both banks and supervisors move forward more decisively. | Yet during this entire period the Committee has been devoting considerable efforts to drawing up recommendations that we consider to be key from a supervisory perspective, but which have not received as much attention as Basel II. The Core Principles revision is a case in point. Perhaps the fact that they are recommendations aimed specifically at supervisors, centred around the effectiveness of supervision without imposing direct requirements on the banking industry - although they obviously affect that sector’s activities indirectly explains why this has not generated the same glut of headlines as other initiatives. However, I believe that we would all agree on the important place that the Principles have occupied and continue to occupy, and we know that compliance with them is a priority for virtually all supervisors. The aim of the Core Principles is to establish a set of minimum requirements to be met in order for banking supervision to be considered adequate. This permits the identification of areas in need of improvement and facilitates planning to achieve these improvements. The passage of time has shown that the Core Principles have satisfactorily met these objectives since they were first issued in 1997. Moreover, they have permitted the establishment of an internationally accepted benchmark with which to evaluate the supervisory approaches of different countries. In so doing, they have helped to BIS Review 45/2006 1 improve and encourage the convergence of banking supervisory standards, thereby contributing to global financial stability. So why revise them, even if the changes are only minor? | 1 |
I am also delighted to welcome to our shores and the conference the Secretary General of ASBA, Mr. Rudy Araujo, the Chief Representative of the BIS Office of the Americas, Mr. Gregor Heinrick, the Senior International Adviser of the Comptroller of the Currency, Mr. Lester Miller and Advisor on Economic Crimes in the US Treasury Department, Mr. Thomas Noller. I have no doubt that your considerable experiences will add value to this conference. It is also fitting that I welcome the Hon. Minister of Finance, Dr. Ashni Singh and the Hon. Minister within the Ministry of Finance, Bishop Juan Edghill. The importance of this Conference is underscored by the fact that both Ministers enthusiastically agreed to adjust their work schedules to be present at this opening ceremony with Dr. Singh consenting to deliver the feature address. Delegates and invitees can expect a very insightful presentation by the Minister. Ladies and gentlemen, the theme of the Conference refers to the evolving financial landscape which is quite evident in many tangible forms though not always easily manageable. As a matter of fact, the changing financial landscape has brought challenges almost every step of the way. It is a testimony to the quality of our regional banking supervisors and the support and nurturing provided by the Caribbean Group of Banking Supervisors over the years that our region met the challenges posed by the changing landscape and has remained safe and sound. | Wage costs have great significance As total wage costs comprise almost 70 per cent of the total value added in the economy, developments in wage costs have decisive significance for the development of costs and prices. Making an assessment of future developments in wage costs is therefore a natural and central element in the Riksbank's analysis of inflation prospects. If there is an overly rapid increase in wage costs, companies may be forced to raise their prices significantly and this would result in inflation exceeding the target level. This would require tightening monetary policy, i.e. raising the repo rate. Although this would bring inflation back to the target level, it would be at the cost of an increase in unemployment. In the long term, however, developments in unemployment are essentially dependent on how well the labour market and wage formation function. Monetary policy has affected the wage formation process; the uncertainty over future price developments has declined thanks to inflation targeting. Wage-earners no longer need worry that their pay rises will be eaten up by overly rapid price increases. At the same time, employers find it easier to determine the size of the scope for wage increases. It also appears as though what is usually termed "monetary illusion" may have disappeared. The labour market organisations appear today to focus to a greater extent on real wage cost increases. The strong confidence in the inflation target has meant that these organisations' inflation expectations have been at a level of around 2 per cent since 1996. | 0 |
We Central banks should investigate the many questions it raises – and we have started this work at the Banque de France –, and then decide on its own merits. III. Green finance, “a new frontier for the 21st Century” Let me now turn to green finance. For me, it is “a new frontier for the 21st Century”. First and foremost, I would like to pay tribute to the Governor of the Bank of England, my colleague and friend Mark Carney, who was a pioneer when he pointed out “the tragedy of the horizon”2 in 2015. Much has already been undertaken since then. We are currently witnessing a growing awareness from central banks, supervisors and 2/4 BIS central bankers' speeches financial institutions about climate-related risks. Clearly, green finance and climate risks management have gone from the “nice to have” to the “must have”, from emotion to reason. In financial institutions, climate change is no longer confined to Corporate Social responsibility (CSR) policy. Concerning central banks and supervisors, the creation of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in Paris in December 2017 has been a decisive step forward. In 18 months, this coalition of the willing has increased from 8 founding members to almost 50 members and observers from all 5 continents, with the Banque de France acting as its permanent Secretariat and the active involvement of the Bank of England. | This momentum has an important meaning: supervisors and central bankers have collectively acknowledged that climate change-related risks are a source of long-term financial risk. In April 2019, the NGFS published its first comprehensive report issuing four recommendations for central banks and supervisors, and two additional recommendations for policy makers. Looking down the road, I see three priorities for the near future. First, we will require enhanced disclosures that need to be built on sound taxonomies. The taxonomy framework published by the Technical Expert Group (TEG) on Sustainable Finance of the European Commission on 18 June is a welcome step. Second, we have to better anticipate long-term climate-related risks, through what I call “the video of the risks”. We must push for the development of comprehensive climate stress tests in order to build a forward-looking approach of the impacts of climate risks. Third, green finance needs to mature and upgrade its professional standards. The financing needs for the energy transition are huge; in Europe alone, it is estimated that an additional EUR 177 billion per year will be necessary over the period 2021-2030 to reach the EU’s energy and climate objectives for 2030.3 The European Green Bond Standard proposed by the TEG should ultimately help to further develop the green bond market and channel more investments towards green projects. Furthermore, many proposals have been made to allow monetary policy to play a direct and sector-focused role in financing the transition to a low-carbon economy. | 1 |
The interest rate is also the price of money – the price we pay in order to have liquid holdings and the compensation we receive for storing our savings in less liquid forms. The interest rate is also used as an instrument in economic policy. Setting the interest rate to achieve a monetary policy objective, often price stability or low and stable inflation, is usually the responsibility of the central bank. This is also the case in Norway. Low and stable inflation provides the economy with a nominal anchor, and is the most important contribution monetary policy can make to sound economic developments in the long term. This contributes to increased predictability for those who take decisions about saving and investment today, although the result of those decisions also depends on how the economy develops in the future. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment. Flexible inflation targeting builds a bridge between the long-term objective of monetary policy, which is to keep inflation on target and provide an anchor for inflation expectations, and the more short-term objective of stability in the real economy. Monetary policy influences the economy with long and variable lags. Norges Bank sets the interest rate with a view to stabilising inflation at the target within a reasonable time horizon, normally 1–3 years. | A stronger krone also dampens exports and reduces profitability in Norwegian business and industry. The effect on the exchange rate of a change in interest rates will vary as themes and sentiments shift in the foreign exchange market. The expectations channel: We believe that expectations play an important role when prices and wages are set. Expectations concerning future inflation and economic stability have considerable impact, not least in the foreign exchange market. Inflation expectations also influence wage demands and have an effect when companies adjust their prices. It is difficult to be precise about how expectations are formed. Confidence in the inflation target may provide an anchor. Past inflation rates may also influence what we think inflation will be in the future. There is thus an interaction between inflation expectations and inflation. If there is confidence in monetary policy, expected inflation in the medium term will be close to the inflation target. This contributes to stabilising inflation around the target. It is thus important for the central bank to ensure that households, companies, the social partners and financial market participants are confident that inflation will remain low and stable. Let me introduce the concepts of the “neutral rate” and the “long-term equilibrium rate”. Both should be seen as real rates, that is nominal interest rates adjusted for expected inflation. The neutral real interest rate is defined as the rate that does not in itself result in an increase or a reduction in price and cost inflation in the economy in the course of a business cycle. | 1 |
Improved profitability is, furthermore, one of the requirements for banks to be able to generate capital organically and raise their solvency. 10/17 In recent years the legal risk of Spanish banks associated with litigation has increased significantly. Banks have been involved in a large number of legal proceedings questioning certain contractual conditions of their mortgage exposures. In many cases they have already paid the cost of these proceedings (for example, in relation to floor clauses more than € million was refunded to customers up to January 2019), but there are still many major legal proceedings yet to be resolved. Above and beyond the cost that litigation may entail for banks, a more general implication is the loss of reputation for the banking sector. Banks must make an effort to reverse this perception by providing their customers with necessary information in a clear and transparent manner and affording them access to financial products suited to their needs and financial knowledge. 11/17 All this must not distract banks from persevering in their efforts to improve their efficiency ratios and pursue investments, particularly in new technologies, to enable them to reduce costs in the medium term. It should be kept in mind that in the coming years banks will have to issue considerable volumes of debt with various levels of subordination to meet minimum requirements for own funds and eligible liabilities. | The average debt ratio is then higher than 200 per cent in all of the income groups, and in fact highest in the lower income groups (see Chart 3). If we look at households instead, which may be reasonable considering that many borrowers in fact live in a household with more than one income earner and thus share responsibility for servicing the loan, the picture is till one of high debts in relation to incomes in all of the income groups. And here too it is clear that the highest debt ratios are mainly to be found among low and middle-income earners. Our results thus contradict the picture that it is only those with high incomes that have the highest debt ratios, that is those who are traditionally regarded as having a higher level of BIS central bankers’ speeches 5 eduction, a stronger position on the labour market and wealth that they can draw from in difficult situations. Chart 3. Debt ratios in different income groups Per cent 800 700 600 500 400 300 200 100 0 1 2 3 All households (SOU) 4 5 6 7 Income deciles Indebted individuals 8 9 10 Indebted households Sources: SOU 2013:78 and the Riksbank High debt ratios are not only a metropolitan phenomenon It may also be of interest to look at the geographical distribution. It has often been claimed in the debate in recent years that debts are mostly a “Stockholm problem”. | 0 |
Last but not least, I will share my views on good policy preparations and highlight the importance of policy collaborations, so that we, collectively, could better withstand the impact of the crisis going forward. Part I: Major developments that have contributed to the past global financial crisis Ladies and Gentlemen, looking back on what we have experienced in the past decade, the recent crisis has caused tremendous impacts with repercussions at the global level. On a more positive side, however, the crisis has revealed three major developments in the financial system, which have shaded some light on the inadequacy of existing policy framework for our future preparations. First is innovation, in response to the shift in the global financial system landscape. The sophisticated financial instruments have been developed to serve rising demands from all types of investors with different risk-return appetites. However, such a creation has resulted in products that disguised the genuine financial risks. Moreover, systemic risk stemming from complex nature of such products have led to increasing contagious consequences in global economic and financial system. Second is the institutional shift represented by an increasing role of non-banks and shadow banks, especially in some Advanced Economies. This has long been a trade-off for policymaking between economic and social considerations. On one hand, the shadow banking sectors undoubtedly provide financial opportunity to those with limited access. This institutional development also has encouraged higher competition in the financial system, leading to greater efficiency. | I do see the enhancement of international cooperation as a seed towards success in policy preparation for our region. I believe that, in the middle of a dark tunnel, with each of us holding a torch focusing in the same direction, we could see better along the way and can be sure that it is the right way out. Thank you. 4 BIS central bankers’ speeches | 1 |
In the Baltic countries, which have not yet adopted 4 BIS Review 56/2010 the euro, but have retained fixed exchange rates throughout the crisis, one can even see falling wages. The situation of the United Kingdom has certain similarities to that of the group of countries I have just described. Following several years of a deficit in the region of 3 per cent of GDP, the crisis entailed a rapid deterioration to a deficit of 13 per cent in 2009. According to the OECD’s forecast, gross public debt in the United Kingdom will double between 2007 and 2011. Here, too, we can see an increase in unit labour costs compared to the euro area, but the crucial difference is that the weaker pound has made it possible to strengthen competitiveness. (Slide: General government net lending in the United Kingdom). Things look better in Sweden Public finances in Sweden are in a much better state than in many other countries. However, our experience of the severe Swedish crisis in the early 1990s is reminiscent of the situation I have just outlined for some of the euro countries today. At that time, our public finances deteriorated from a surplus of 3 per cent of GDP in 1990 to a deficit of 11 per cent of GDP in 1993. (Slide: General government net lending in Sweden). | This deterioration in competitiveness can be illustrated by the fact that unit labour costs have increased by between 10 to 20 per cent more than in the euro area as a whole since 2000, and even more in relation to unit labour costs in Germany. The deterioration in competitiveness entails less chance of a boost from exports and thus poorer opportunities for a rapid recovery as international demand increases. (Slide: Unit labour costs compared to the euro area). The strong growth in domestic demand in recent years and the weaker competitiveness have resulted in a current account deficit and thus rising foreign debts. (Slide: Current account deficits). In the case of countries with their own currencies one would expect a depreciation of the currency to restore competitiveness. This opportunity is not available to the countries in the euro area. Here, it is instead necessary for wages and prices to fall in relation to other countries. One difficulty in this context is that both public and private debts and the interest payable grow in real terms – that is, a larger part of production goes to meeting the costs of the debts. Developments in Germany show that such internal cost-cutting in relation to other countries is fully possible. The combination of a muted growth in nominal wages and productivity improvements has led to unit labour costs in Germany falling by 15 per cent since 2000, compared with the euro area as a whole. | 1 |
Second, it would also be advisable to avoid arrangements that automatically link wages to past inflation or indexation clauses, with the aim of reducing the risk of a wage-price feedback loop. In addition, the incomes agreement should include multi-year commitments relating both to wage increases – where the nominal benchmarks for wage bargaining should exclude components associated with energy products and be based on the projected trend in underlying inflation – and to job protection. Lastly, the agreement needs to be complemented by explicit and verifiable profit margin moderation commitments. Monetary policy The third economic policy element I would like to refer to is monetary policy. In the inflationary context I have already described, the ECB has embarked on the process of monetary policy normalisation, starting from an extraordinarily accommodative position. Before the onset of the pandemic, the ECB maintained highly accommodative financial conditions through the asset purchase programme (APP) and negative interest rates. The aim was to drive inflation, which had remained persistently below 2%, to levels close to our target. During the pandemic, in an effort to combat the risk of financial fragmentation and 11 the deflationary trends, the ECB rolled out, among other measures, the pandemic emergency purchase programme (PEPP). The measures taken by the ECB are part of the new strategy approved by the Governing Council in 2021, which established a symmetric medium-term inflation target of 2%. Medium-term guidance means that decisions are conditioned by the inflation projected over a two or three-year horizon. | In this way, experimentation allows us to send the right signals for the ecosystem to realise the potential of new technologies without fearing a delayed and unexpected “backlash” from the Supervisory Authority. The experiments underway at the Banque de France on a central bank digital currency (CBDC) are an illustration of the same experimental approach in the field of work specific to central banks. They present with issues directly related to the need for the Eurosystem, should circumstances require it, to be ready to issue a CBDC in order to ensure that central bank money is accessible to the general public and to preserve their freedom of choice of means of payment and their confidence in our currency. By testing the possible uses of a CBDC, we investigate not only the potential of blockchain technologies but we also question the players in the ecosystem on what tomorrow’s landscape could look like, on subjects as fundamental as the methods of exchanging financial instruments for CBDCs, the improvement of the conditions for executing cross-border payments or new ways of making CBDCs available to financial sector players. 2/4 BIS central bankers' speeches * * The second thrust of our work is to promote a regulatory framework and appropriate supervisory practices. In this respect, our immersion, as a player, in the innovative FinTech ecosystem is a valuable asset that we intend to build on in order to contribute to the impending and necessary changes in regulations and supervision. | 0 |
This could be classed as a failure by global standard setters. To some extent, the criticism can be justified – not enough has been done in the past to ensure global agreements have been truly implemented by national authorities. However, just as the Committee has been determined to revise the Basel framework to fix the problems that emerged from the lessons of the crisis, the RCAP should be seen as demonstrating the Committee’s determination to also find implementation problems and fix them. 4 BIS central bankers’ speeches It would be easy to continue to ignore any problems. A fascinating1 history of the Basel Committee published recently by Professor Charles Goodhart2 notes that the Committee has on more than one occasion over the past 35 years considered undertaking more detailed analysis of domestic implementation of global standards, but shied away from this as being “too intrusive”. However, we have now taken that step, since if we are serious about fixing the problems of the past, then we need to not just look at the policy settings, but also their application. Our efforts on implementation should therefore be seen as an integral part of the reform agenda – not just an adjunct to it. When it comes to our country-by-country assessments, thus far the Committee has conducted detailed assessments of the final regulations adopted in Japan, and the draft regulations in the European Union and the United States.3 Follow-up assessments in the European Union and United States will be conducted once final regulations are available. | In summary, we decided that it was necessary to: • require banks to maintain substantially higher levels of capital, with the minimum common equity requirement increasing from 2% to 7% of risk weighted assets; • require banks to hold higher quality forms of capital, with common equity at the core of the requirements, and standards to ensure other types of capital instruments are truly loss-absorbing. It is worthwhile emphasising that these reforms also go a long way to simplifying banks’ capital structures, as well as making them more transparent and comparable; BIS central bankers’ speeches 1 • introduce an additional capital buffer (the capital conservation buffer) designed to enforce corrective action when a bank’s capital ratio deteriorates. | 1 |
The Malaysian insurance sector is also fortunate that the global insurance sector has also, to a certain extent, been insulated from the worst aspects of the global crisis. The above not withstanding, we must always bear in mind that as institutions grow bigger and become more complex, they are more vulnerable to contagion risks and spill-over effects. A pertinent example is that of the American International Group (AIG). AIG suffered a liquidity crisis when its credit ratings were downgraded due to the mounting losses arising from its Financial Products division during the sub-prime crisis beginning in 2008. More recently, the European Union faced one of its gravest crisis as Greece’s ballooning sovereign debts spiraled and threatened to unravel both the European Union and the Euro currency. What are the lessons from these examples? A fundamental point is to realize that the financial world is now a web of risks, with complex inter-linkages between different financial markets and sectors. The highly contagious effects of a failure of a single entity in one part of the world on all other connected parties illustrate the tremendous importance of sound and effective risk management in today’s financial world. Due to the inter-connected economies around the world, Asia has not been isolated from the spill-over effects of the global financial crisis. The Western economies continued to be bogged down by slow and hesitant recovery with weak economic growth and high unemployment rates. Emerging economies, particularly in Asia, however, have been resilient through these financial challenges. | Together with IOSCO and the IAIS, we should work to strengthen internal financial firm management, supervision and market discipline, no matter what the nature of the financial firm or market. As a final point, let me stress that while we continue to elaborate the roadmap of the Core Principles, we must also press on in understanding the frontiers of financial developments. This makes for a difficult and ambitious agenda, but we must be and we are up to the challenge. The most important example of this broad effort is the work the Committee has begun on the future of capital. We know the value the Basle Accord has had in strengthening capital standards around the world. At the same time, we have recognized that advances in risk management and financial practices are beginning to erode the relevance of the Accord for the most technically sophisticated banks. That means that we must identify ways to ensure that the Accord will provide meaningful guidance for the maintenance of strong capital levels at those banks, while still providing the fundamental protection to the financial system that is needed in all countries. To that end, the Committee has formed a Steering Group on the Future of Capital, chaired by Claes Norgren of the Swedish Financial Supervisory Authority. It is my hope that the review conducted by the Steering Group will bring together new thinking on a minimum capital rule, a comprehensive look at the supervisory evaluation of capital adequacy, which I described earlier, and enhancements to market discipline. | 0 |
A few days prior to the monetary policy meeting we have another formal Executive Board meeting where we go through the text of the report in detail and where the report is tabled. However, the forecast can be changed as late as during the monetary policy meeting. It is not until the monetary policy meeting that the text and forecasts of the Monetary Policy Report are finally determined. The Executive Board makes interest rate decisions through a majority vote The Executive Board holds six monetary policy meetings a year. If necessary we can meet more often. The number of meetings is not stipulated by law, but is determined by us Executive Board members. We make decisions on the current level of the repo rate at the monetary policy meetings. We also agree on which interest rate path is most appropriate at the present time. The decisions are made through a majority vote, where the Chairman of the Executive board has a casting vote, and they are announced in a press release. In addition to the Executive Board members, a number of employees from the Monetary Policy Department and the Communications Secretariat take part in the meeting, as well as some advisers and legal advisers. In addition, the Chairman and Vice Chairman of the General Council regularly take part in the meetings and thus obtain a good insight into the work of the Executive Board. They both have the right to express opinions, but not to put forward proposals or take part in any decisions. | In a recent study by the Managed Funds Association, BNY Mellon and Hedgemark, 4 it was found that 79% of global hedge funds now separate the roles of the risk manager and fund manager, with 60% of the larger hedge funds having a dedicated risk management function. This augurs well for the hedge fund industry, as it allows the industry to grow in a more sustainable manner with strong internal control systems and risk management oversight. Asia is well placed to provide capital and investment opportunities As global institutions and investors seek to address challenges resulting from structural shifts in the global economy, many are turning to Asia to harness opportunities and to generate higher returns. This is due to a few reasons. Firstly, Asia has been leading the global recovery with growth expectations in developing Asia projected to exceed global growth at 6.7% in 2012 and 7.2% in 2013. 5 Secondly, both demand and supply side factors in Asia are relatively positive. Corporate and government balance sheets are generally healthy. Households are not overly levered, savings rates are high and unemployment is comparatively low. The rising middle class, highly educated workforce and favourable demographics are also plus points for Asia. These factors, coupled with Asia’s strong commitment to economic openness and free trade, are important in creating a business friendly and conducive environment for its financial sector to continue to thrive and grow. | 0 |
Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators. Turning to the monetary analysis, the annual growth rate of M3 was unchanged at –0.1% in April 2010. The annual growth rate of loans to the private sector increased somewhat further and turned positive, but remained weak at 0.1%. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained. Shorter-term developments in M3 and loans have remained volatile and, given the renewed tensions in some financial market segments, volatility in M3 and its components may well continue. The actual growth in M3 continues to understate the underlying pace of monetary expansion, but the downward impact of the rather steep yield curve and the associated allocation of funds to longer-term deposits and securities outside M3 appear to be gradually waning. The same holds for the shifts within M3 that have been observed as a response to the narrow spreads between the interest rates paid on different M3 instruments. At 10.7%, annual M1 growth is still very strong. | This concern was at the forefront of UK and international prudential regulators’ minds and motivated the various interventions they made at the time to make clear that regulatory buffers could and should be used.6 So today and in the spirit of John Dewey, I want to reflect on the lessons from the Covid stress so far for the prudential framework for banks and in particular for the regulatory buffers within it. What we worried about during the early Covid stress With hindsight, this banking system resilience is evident. But during the stress of March and April 2020, we were concerned that it was, to use the words of the Chair of Financial Stability Board, Randal Quarles, “a close run thing”.7 One concern was a potential decline in capital ratios at the time. There were two effects in play. First, banks were increasing provisions as their expectations about the state of economy and credit quality declined. This affected capital resources. Second, capital requirements were increasing. This was because risk weights in some parts of the capital framework are sensitive to current market conditions, which had worsened; and total assets were increasing, as firms drew down pre-existing credit facilities. Third, liquidity requirements and resources were sensitive to market conditions too. Mechanisms designed to capture potential liquidity needs related to derivatives activity produced estimates that were too low going into the shock and then increased rapidly after the shock had crystallised. | 0 |
If we compare with the high-inflation period – the 20 years from the mid-1970s, we can, however, see that we have had a faster increase in productivity in the past five years. We should not therefore rule out the possibility that we are on threshold of a faster growth in productivity when IT investments spread on a broad basis to the “old economy” in the same way as has happened in the United States. The strong increase in productivity in recent years has taken place without inflation accelerating. This has surprised many people – for even though the previously high unemployment, indicated that there were a lot of unused resources in the economy, there were many who doubted whether it would be possible for so many to return to the labour market so quickly. Month after month, we have seen increases in employment of 80-90 000 persons on an annual basis, 70 per cent of which have taken place by an increased supply of labour. Flexibility in the labour market has thus exceeded expectations. Open unemployment is now down to around 4 per cent, which, while it is higher than that considered normal in the 1980s, is lower than what many people in the early 1990s feared would be normal. Stable inflation expectations The stabilisation of inflation expectations at a low level shows that the Riksbank’s inflation target has attained high credibility. A number of factors have contributed to confirming confidence in the price stability objective. | High real wage increases despite moderate nominal pay increases are one factor that has undoubtedly increased the support of wage earners for the price stability objective. The fact that the price stability objective has been confirmed by law has also probably contributed to confirming confidence in the inflation target. However, the Riksbank has a pedagogical and practical problem. Monetary policy decisions are based on assessments of inflation a couple of years ahead and are focused on achieving the inflation target during that period. This means that we can often be compelled to increase the interest rate despite the actual rate of inflation at the time being under the target. In December last year, for instance, the Riksbank increased interest by 25 points despite inflation then being at 1.4 per cent. Decisions are then made on the basis of forecasts over a two-year horizon. The most important reason for not waiting until inflation actually exceeds the target is that inflation expectations would then risk accelerating since it takes up to two years before monetary policy has its full effect. And then we may – to rein in inflationary expectations again – be compelled to tighten up the economy more than we would have to have done if we had reacted earlier. The Riksbank’s way of conducting monetary policy obviously plays an important role with regard to maintaining confidence in price stability. However, we should not forget that fiscal policy also has to be conducted in a way compatible with the price stability target. | 1 |
As is well known, the long lags of policy creates a need for central banks to “take the punch bowl away when the party gets going”. Given the longer duration of financial cycles, the need to act well before the risks become obvious may mean that central banks will have to “take the punch bowl away even before the party gets started”. But that is a political economy challenge that needs to be resolved and managed through careful redesign of central bank mandates. Heed must be paid also to institutional arrangements, especially for central banks where the financial supervision authority lies with another body as coordination will be harder. This will take time. But the risks to financial stability is immediate. In the interim, central banks may need to interpret their mandates more flexibly and avoid overly narrow and zealous interpretations of price stability. Inflation targets need to be implemented flexibly and over longer horizons. All the while explaining clearly and consistently the logic of policy. In doing so, it should be stressed that fundamentally, macroeconomic and financial stability are two sides of the same coin. Macroeconomic trajectories cannot be sustainable 9 if the financial sphere is out of equilibrium. And the avoidance of financial boom-bust cycles leads to better economic outcomes over the long run. The perceived trade-off between growth, inflation, and financial stability, therefore, is to a large extent an artifact of the short horizon focus of policy. | More broadly, the underlying institutional and legal frameworks that govern financial markets must be taken into account. These include financial product regulations, deposit guarantee systems, as well as the resolution framework for troubled financial institutions. A national financial stability framework that brings together and assesses the whole spectrum of financial regulation serves this important function. The second response to the more complex monetary trade-off is greater policy coordination. The underlying rationale for coordination is that in certain situations, the collective outcome of central banks acting individually according to their mandates may be inferior because cross-country spillovers are not internalized. The current aggressive monetary easing of advanced economies are a case in point. Whether intended or simply a by-product, the outcome has the semblance of competitive devaluations. 7 As a starting point, it is important that advanced economies acknowledge the potential spillovers of their policy. The Federal Reserve, in particular, wields outsized influence given the dominance of the US dollar in global trade and finance. Emerging market countries need to coordinate in voicing their concerns and engage in dialogue. At a minimum, consultation minimizes surprises and the exchange of views helps to narrow differences in perceptions. But there is a more implicit form of coordination that I believe holds much potential. That is the coordination of monetary policy frameworks. This brings me to the third and perhaps most profound avenue for dealing with the new monetary policy trade-off. And that is the adoption of a monetary policy framework that systematically takes financial stability into account. | 1 |
It goes without saying that Hong Kong, as a major financial centre, will comply with international regulatory standards. Implementing Basel III has been complex, and it has involved extensive consultation exercises. As with much of our work, your feedback and cooperation have been invaluable in this process. 19. Despite all our precautions, we can never totally rule out the possibility that an institution might have a crisis. I think it is true to say that Hong Kong is as well-prepared, if not better, than any centre in Asia. One reason is the Financial Institutions (Resolution) Ordinance, which came into effect in 2017. This is not something most of the community thinks about. But I am confident that we have the tools to handle a bank failure in a way that best serves the overall interests of stakeholders, including the taxpayer. 20. Our regulatory work has not hindered banks from exploring new opportunities and adapting to change. During the last 10 years, we have seen the volume and complexity of offshore Renminbi business increase significantly. We have also embraced – as a regulator and as an organization – the need to address climate and environmental risk through green and sustainable banking, responsible investment and capacity building in green finance. And then there is the fast-changing use of technology – which I will mention later. 21. So overall, I am pleased to say that our banking sector today is safe and resilient – probably more so than at any time in Hong Kong’s history. | It is a fundamental priority of the HKMA to ensure that the community can have full confidence in the system. 15. Confidence in our banks is also key to the functioning of our economy and society. And our work in this area in the last 10 years has affected all of you here today. 16. I think the most high-profile example is the loan-to-value ratio and debt-serving ratio limits on property mortgage loans. The last 10 years have seen strongly rising property prices, and competition between banks has been fierce. To some observers, including home-buyers, mortgage caps seem like a nuisance and make it harder to buy a property. But to the HKMA, it is an important matter of credit risk management and the stability of the banking system. We call these measures “counter-cyclical macroprudential”. And it would be highly irresponsible of us if we did not impose these limits. 17. This is also the case with Mainland-related lending. You all know the ways we have stepped up our supervisory efforts in this area, to ensure credit underwriting standards and risk management. As with property lending, the basic principle is “prevention is better than cure”. To take one example, we are collecting granular data from banks more frequently, to help identify emerging risks. As with mortgage caps, this might not please everyone – but it serves the wider public interest. 18. More generally, we have been implementing Basel III. | 1 |
Ida Wolden Bache: The conduct of monetary policy Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the hearing of the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament) in connection with the Storting's deliberations on the Financial Market Report, 9 May 2023. *** Accompanying charts of the speech Thank you for this opportunity to report on the conduct of monetary policy. When I was here in April last year, Norges Bank had started a gradual normalisation of the policy rate following the coronavirus pandemic. Chart 1: In March 2022, a gradual rise in the policy rate was envisaged The Norwegian economy had recovered after the sharp downturn during the pandemic. High energy prices and a sharp rise in international goods prices had driven up consumer price inflation to a level markedly above the inflation target. Economic activity was strong, and job vacancies were high. Norges Bank expected rising wage growth and higher imported goods inflation to push up inflation through the year, and overall price inflation was projected to be 3.4 percent in 2022. The policy rate was projected to rise towards 2 percent over spring 2023. Chart 2: The policy rate has been raised more than projected a year ago These forecasts were less than accurate. The policy rate has been raised faster and more than projected in March 2022. | Inflation may then become ingrained and difficult to bring down again. When inflation took off in spring 2022, it became clear that the policy rate level was no longer appropriate for the economic situation in Norway. The policy rate was raised quickly, and in autumn 2022, the rate reached a level where it likely began to have a tightening effect on the economy. At its meeting last week, the Monetary Policy and Financial Stability Committee raised the policy rate to 3.25 percent and will most likely raise the rate further in June. Let me say a little more about economic developments over the past year and our assessments. The pandemic led to higher prices for energy, metals and other globally traded goods. The price increases were amplified by Russia's invasion of Ukraine. The rise in these prices is an important source of the high level of consumer price inflation. High energy prices and other input costs have generated higher costs for businesses, who have in turn raised their selling prices. Chart 4: A year ago the economy was in high gear When the cost shock hit Norway in spring last year, the economy was in high gear, with strong demand and higher-than-potential output in the economy. Many businesses were facing labour shortages. Economic activity remained strong through 2022. Excess savings accumulated during the pandemic have enabled many people to sustain consumption despite high inflation and higher interest rates. At the same time, mainland business investment has risen substantially. | 1 |
In the local financial market, the exchange rate, interest rates, and the risk premium have shown greater volatility than is observed in other economies. Worth noting is the peso/dollar parity, which by mid-July experienced unusually high swings, with a marked divergence from its external determinants, causing distortions in the functioning of the markets and leading the Central Bank to announce an intervention program (box I.2). Upon said announcement tensions in the price formation process in the foreign exchange market eased, with a decrease in volatility and in the exchange rate. Compared to the statistical close of the June Report, the peso depreciated in both nominal and real terms (figure 10). Projections The central scenario does not consider a specific effect of the plebiscite outcome on the economy. It does assume that uncertainty will gradually subside in the coming quarters, in the midst of a process where institutional changes continue, allowing institutions and the economy to function properly. 4 In the central scenario, headline inflation is estimated to be near its peak for this cycle, which it is still expected to occur in the third quarter of this year. In the coming months, prices will begin to slow down the pace of increases compared to previous months, so that annual inflation will begin to gradually decline. Inflation projection for the end of 2022 and all throughout 2023 is revised upwards with respect to our last Report, due to the additional depreciation of the peso and more persistent inflation. | Figure 3 Imacec (index, September 2019 = 100, seasonally-adjusted series) 135 Total Manufacturing Trade Services 125 115 105 95 85 75 Jan.19 Jul.19 Jan.20 Jul.20 Jan.21 Jul.21 Jan.22 Jul.22 Source: Central Bank of Chile. 11 Figure 4 Private consumption (index, 2019Q3 = 100, seasonally-adjusted series) 160 Private consumption Durable goods Non-durable goods Services 140 120 100 80 60 15 16 17 18 19 20 21 22 Source: Central Bank of Chile. Figure 5 Employment by occupational category Online job postings and applications (difference w/ respect to January 2020, thousands) (index, base 100= 3/March/2020, moving 15-day average) No. vacancies Salaried, formal Salaried, informal 260 140 500 Self-employed No. applications (right axis) Other (*) 0 220 120 -500 180 100 -1.000 140 80 -1.500 100 60 -2.000 60 40 -2.500 20 20 21 22 20 19 20 21 22 (*) Includes household help, employers, and unpaid family work. Source: Central Bank of Chile based on National Statistics Institute and Project SABE of Labor Observatory SENCE and ISCI-WIC, Universidad de Chile, taken from websites trabajando.com and laborum.com. | 1 |
In this situation the forecasts, including the interest rate forecasts, may be regarded as a wellfounded guess as to which main scenario will receive the support of a majority of the Executive Board members a few weeks later. But there is still a possibility for the Executive board to make changes to the forecasts. The Executive Board can also ask the civil servants to provide further in-depth reports or follow up certain issues. These are then presented 1-2 days later at a follow-up meeting with the Executive Board. Here I would like to take the opportunity to refer to the current round of forecasts. On Monday we will be discussing the Swedish macroeconomic outlook at the second large monetary policy group meeting. This means that we Executive Board members are entering an intense phase of the monetary policy process. The decision-making situation we have had during the spring has on the one hand concerned rising inflation and on the other hand signs of a slowdown in economic activity. In both respects the outcome for Sweden has been slightly worse than we had anticipated in the April Monetary Policy Update. The inflation figure for May was 0.4 percentage points higher than we had forecast in April. A large part of this deviation is due to energy prices having increased more than we had expected. At the same time, growth was lower. | In the case of investments in individual companies, extensive BIS central bankers’ speeches 1 transparency can come into conflict with confidentiality requirements. In order to ensure confidential communication with the governing bodies of the companies in which we have a stake, both parties must be certain that the dialogue is indeed confidential. In 2012, we expanded our collaboration with Norwegian academia. NBIM participated by giving lectures on investment management at several universities and other academic institutions. Our programme, the Norwegian Finance Initiative, has helped support research in financial economics at different levels. This initiative contributes to enhancing the quality of research in financial economics among Norwegian academic institutions and to stimulating public debate on the management of the GPFG. This framework for cooperation is also used within Norges Bank, both in investment management and the development of strategy. Thank you for your attention. I now give the floor to the Chief Executive Officer of NBIM, Yngve Slyngstad. 2 BIS central bankers’ speeches BIS central bankers’ speeches 3 4 BIS central bankers’ speeches | 0 |
At the same time, it is still too early to comprehensively assess the effectiveness of all bank support schemes in improving the longer-term funding of banks and in fostering bank lending to the private sector. The implementation of the bank support schemes has been gradual over the past few months and the evidence is relatively limited. But on one aspect, the facts already speak a clear language: namely that the use of guaranteed debt has been indispensable in providing banks with access to medium and longer-term financing: most –and in some countries even the totality – of the new bank debt issued since October last year has been government guaranteed. Banks should take advantage of the available government support and strengthen their capital buffers, not least with a view to the prospect that the current extraordinary liquidity provision by the ECB will not remain in place indefinitely. This issue relates to the exit strategy to which I will return shortly. The governments’ actions aimed at dealing with the crisis have not been limited to the support of the financial sector. Fiscal stimulus packages across the euro area amount to € billion (1.1% of euro area GDP) this year and a further € billion (0.8%) is planned for 6 BIS Review 65/2009 next year. | It is vital for the sustainability of our economies’ growth performance that this risk should be prevented from materialising. V. Prospects and exit strategies What are the prospects for the euro area economy? The latest data show that economic activity contracted sharply by 2.5% in the first quarter of 2009, following a 1.6% decline in the fourth quarter of 2008, and confirm that the pace of economic activity in the first half of 2009 will be much weaker than projected by the ECB staff in March. For the second quarter of this year, however, we expect that the contraction in GDP growth will be less pronounced than in the first quarter. Over the past few weeks, survey data, including indicators of consumer and business confidence, in the euro area and other parts of the world suggest that the pace of decline in economic activity is moderating and that the euro area economy is stabilising. Although economic activity is likely to remain very weak for the remainder of this year – and this is consistent with the level of survey indicators – overall the available information confirms our expectation that the euro area economy will gradually recover in the course of 2010. Needless to say, the emerging encouraging signs leave no room for complacency in view of several risks that lie ahead and the continued high uncertainty surrounding the economic outlook. As central bankers, our core concern is, of course, inflation. | 1 |
The lessons we learnt imply that leaders must recognise and align their priorities to steer their respective institutions to contribute more broadly and strategically to economic development. This will include playing a more active role in technical assistance, and serving as key repositories of specialist knowledge, resource aggregators for strategic development projects and credible advisers to the Government. These ‘additionalities’ are important ingredients in ensuring the effectiveness of development financial institutions. Strengthen accountability frameworks through performance standards that emphasise development additionalities While the notion of additionalities is not new, their link to how the development institutions are managed and governed remains generally weak. As a result, their important contributions are often not translated into tangible outcomes that are seen and felt by the stakeholders and the public at large. This leads me to my second point. Traditionally the achievements of development institutions have always been measured predominantly by the volume of financing provided to the targeted sectors. There are several reasons for this. Non-financial development additionalities are harder to quantify the cause and effects are also not always clear. As such, more effort and investments are required to collect the data for measuring socio-economic and development outcomes that are associated with such programmes. However, this must not hold back efforts for us to do better. They are a major channel for directing development, both at an international and domestic level. It is therefore, imperative that there is confidence in the effective and efficient use of funding aid to achieve the intended development goals. | Cultivate a strong culture of innovation within to increase value-add and catalyse private investment Development institutions should be leading innovators in providing solutions to stimulate investment and entrepreneurship especially in uncharted sectors. In my view, a key part of their contribution to development has to be in evolving non-traditional approaches to encourage investments in targeted sectors, precisely because conventional approaches have not responded adequately. Indeed, they should be providing the richest environment for adaptive learning, creativity and innovation to effectively serve their mandates. Innovation is also being supported through a “test and learn” approach which allows for experimentation by financial institutions in close coordination with regulators. This approach promotes a deeper understanding of risks inherent in new solutions and products, and the appropriate ways to control them. The introduction of the regulatory sandbox in several countries, including Malaysia, to support regulatory flexibilities for the deployment of FinTech reflects such a “test and learn” approach. Development financial institutions should use technology to advance the cause of their mandate. To be innovative, development financial institutions must be able to attract and retain good leadership and talent. KfW in Germany and Business Development Bank of Canada (BDC), two global development financial institutions, were recognised as being among the top 100 employers in their respective countries in 2017. Well-designed talent strategies, and an environment that nurtures experimentation and adaptive learning with appropriate oversight and controls are key. These require bold and visionary leadership. | 1 |
Figure 12 Bank credit to non-financial companies (index, January 2020=100) 120 120 Brazil U.S. 115 115 Colombia France 110 110 Chile Germany 105 105 Canada Australia 100 100 01 20 03 Mar. 05 May. Souces: Central Bank of Chile and Bloomberg. Page 15 of 19 07 Jul. 09Sep. Figure 13 Growth in 2020-2021, selected economies (annual change, percent) 15 2020 2021 15 2020-2021 average (*) -15 -15 Argentina Norway -10 S. Africa -10 Canada -5 N. Zealand -5 Australia 0 Peru 0 Colombia 5 Mexico 5 Brazil 10 Chile 10 (*) Chile statistic calculated as the average between the mid point of the growth range forecast for 2020 and 2021. Sources: Central Bank of Chile and Consensus Forecasts. Figure 14 Real GDP (billions of CLP, volumes at spliced chained year-before prices) 180 180 Sep.19 Report 170 160 170 160 Effective 150 150 Dec.20 Report 140 140 130 13 14 15 16 17 18 19 20(f) 21(f) 130 22(f) (f) Forecast. Considers the mid point of growth forecast ranges contained in respective MP Report. Source: Central Bank of Chile. | Source: Central Bank of Chile. Page 11 of 19 Jul.20 Figure 5 Households' consumption (annual change, percent) 30 30 20 10 Durable goods Services 0 20 10 0 Non-durable goods -10 -10 -20 -20 -30 -30 -40 -40 17 18 19 20 Source: Central Bank of Chile. Figure 6 Inflation indicators (annual change, percent) 6 6 Goods w/o volatile items 6 5 5 4 4 4 3 3 3 2 2 2 1 1 0 0 5 Services w/o volatile items 1 0 19 Jul. 20 Jul. 6 Last MP Report 5 4 CPI 3 2 CPI w/o volatile items 1 0 16 17 Sources: Central Bank of Chile and National Statistics Institute (INE). | 1 |
There are now no more “Banking” or “Note Issuing” departments as first so clearly expounded in Bagehot’s “Lombard Street” written in 1873. It is sad when one has to move away from what has become an institution of central banking, but we have to move with the time, as so many central banks have had to do in the past decade. Work on reorganising the management side is now fully complete and we are working on reorganising the departments and its work system which will take about another two years. We have of course over the last two years been developing control over the money market. Developing the debt market and improving our supervision examination capabilities. We can truly say that we have very good information in the form of database daily on the money markets in the country and have developed the instrument to fairly effectively control offshore activities. In terms of the debt market, we have developed a government bond market and a yield curve, and our next move is in the area of the private sector debt instruments which we have formally formulated into project, using A T Kearney’s methodology to execute our plan. In the area of examination and supervision, we have now finalised a system where we train and with the assistance of outside authorities certify our supervisors to be of high and uniform-standard apart from changing the method of supervision from individual-based to one of approval-by-peer-groups comprising a supervision and examination committee inside the central bank. | Are we now in such a state that by helping the rich, the people who have money to invest, and the people who have businesses to manage makes sense - can the trickle down effect be the best way to get the poor richer. We are on the verge where free competition would mean that everybody would do better. Give everybody equal chance in business and clear and known rules. Ensure the poor would be able to compete by giving them a good education such as the new 12-year compulsory free education under the new Constitution. Making sure that the poor have a reasonable chance to compete rather than stopping the rich from competing might well be the best strategy in the country where economy has taken off and will not look back and go back into the feudal age. That is a major question facing all of us who wish well for Thailand and weigh heavily as a consideration on every action that we take. Let me end my statement by talking about something much nearer to the immediate pace of the recovery. The amorphous leadership is dragging us, but every moment we are climbing resolutely out of the morass, and soon I could see the day when NPLs, although still there, would form only a small portion of the total economy, and Thailand could raise its head once more as a leading country and hopefully not repeat its mistake of overconfidence, caprice and greed. | 1 |
Clarity of responsibility is I hope unobjectionable. But this is not clarity in the sense of facilitating witch hunts. Rather, I see clarity as an appropriate allocation of responsibility, as important to creating the right incentives for behaviour and leadership, and of course in areas like remuneration. In the Senior Managers Regime, responsibility at the highest level covers both executives and non-executives. But, of course, they are different and always will be. There is much commentary, that the response to the crisis has muddied the responsibilities of executives and non-executives, with the burden on the latter increasing. I think there is no doubt that a greater formality is emerging around roles and responsibilities, and I’m afraid the burden of work for non-executives has risen, we can’t hide from that. An effective board is at the heart of good governance, ensuring that the appropriate policies are in place in respect of safety and soundness and good conduct. We at the PRA have a strong interest in supporting good governance and the work of board members to deliver it. An effective board is one which understands the business, establishes a clear strategy, articulates a clear risk appetite to support that strategy, oversees an effective risk control framework, and collectively has the skills, the experience and the confidence to hold executive management rigorously to account for delivering that strategy and managing within that risk appetite. | In this regard and despite recent criticism, inflation targeting continues to be the most appropriate monetary regime to coordinate inflation expectations in both mature and emerging economies, not only providing transparency but also taking due consideration of time lags and uncertainties in the process of monetary policy implementation. In fact, the combination of short-term flexibility with the permanent commitment to price stability embedded in the framework makes it particularly suitable to the current environment. While disinflation will possibly be fast in mature economies, creating adequate conditions for monetary counter-cyclical actions in different countries, in emerging economies disinflation will probably be slower, particularly where the authorities have not prevented inflation from escalating recently, or where they did not retain a vigilant attitude. In any case, inflation targeting is the most suited framework to coordinate the public’s inflation expectations, particularly in an environment marked by growing uncertainty. BIS Review 147/2008 3 | 0 |
The only exception is that the steady state three-year growth rate of real credit is set to 15% (𝜙0 = 0.15) in order to reflect the fact that global credit growth has been slower and less volatile than that of the UK in the data. For simplicity, 𝜁 is set to 0. The two country model also has additional variables capturing the effect of foreign banks’ lending in the domestic economy, and the effect of global credit growth on the domestic crisis probability. The effect of global credit growth on the domestic crisis probability is set equal to that of home credit growth ℎ𝐵∗ =ℎ𝐵 , broadly consistent with the result in appendix 1 that a 1 standard deviation change in either has a similar effect. The constant term is also adjusted so that, at steady state rates of credit growth, it is equal to the same value as in appendix 2. In the model variant with full reciprocity, 𝜙𝑠𝐹 = 𝜙𝑠𝐻 = −6, implying that there is no leakage of credit growth when the CCyB is tightened, so that it is equally effective at tempering credit extended domestically by home or foreign banks. In addition, 𝑘1 = 𝑘1𝐻 = 𝑘1𝐹 , so that the effective setting of the CCyB is equal to the setting that the national policymaker chooses (𝑘1𝐻 ). In this case the value of 𝑓 has no bearing on financial stability. | Chart 7: Mutual fund flows to emerging economies seem particularly prone to abrupt stops Gross mutual fund flows (per cent of GDP) during surges and stops in capital flows Advanced Economies Emerging Economies Sources: Hoggarth et al (forthcoming), EPFR, IMF World Economic Outlook and Bank of England calculations. Notes: EPFR Global defines institutional investor funds as funds targeting institutional investors only or those with the minimum amount of $ per account. All other funds are labelled ‘retail’. Chart 8 Market-based finance can worsen the trade-off between higher output growth and lower probability of a crisis Source: Aikman et al (forthcoming). Chart shows the menu of choices available to the policymaker in the market-based finance model described in the appendix in response to a 15pp increase in 3-year real credit growth. The y-axis shows the period 1 welfare cost in the model from higher inflation and lower GDP, converted into the equivalent average loss in 3-year GDP that would leave the policymaker indifferent, were inflation to remain unchanged. Thing Global, Act Local Speech given by Minouche Shafik, Deputy Governor for Markets and Banking On the 24th October 2016 At the joint Bank of England, IMF & Hong Kong Monetary Authority conference on Monetary, Financial and Prudential Policy Interactions in the Post-Crisis World, Hong Kong | 1 |
Weaker growth implies a diminishing risk of inflationary impulses from demand, which normally warrants a less restrictive monetary stance. Conversely, demand that is excessively strong in relation to potential output implies a risk of rising inflation and a need to raise the repo rate. The current discussion seems to be about whether the Riksbank acts symmetrically. In other words, is the Riksbank as concerned about under-shooting the inflation target as it is about preventing inflation from exceeding the target? My answer to that question is definitely “Yes”. The Riksbank aims to keep the rate of inflation at 2 per cent, neither more nor less. The issue of monetary policy asymmetry seems to be linked mainly to two matters. One is the question of monetary policy’s central concern. Is this inflation’s prevailing rate or the rate that assessments point to one to two years ahead? The answer is that the Riksbank is guided by the assessment of future inflation. If inflation is currently running at 2 per cent and the predicted rate (based on an unchanged instrumental rate) one to two years ahead is, say, 1 per cent, then the instrumental rate should be lowered. The reason for this is quite simply that monetary policy acts with a time lag of one to two years. Using the prevailing rate of inflation as a guide would involve adjusting the instrumental rate more frequently and markedly, thereby entailing undesirable economic instability. But how can we be sure that the assessments are always correct? Of course we cannot. | To me, Raeburn’s work provides a fitting visual metaphor for the ideal countenance of a central banker: The Reverend Walker skating forward confidently and with grace upon a notably uneven, rocky surface on an icy, dark, blustery day. An alternative depiction is Edvard Munch’s The Scream from Norway’s Gunderson Collection, now on temporary exhibit at the National Gallery. (There are four versions of this pastel, one of which recently sold for $ million at auction at Sotheby’s. If you haven’t been into Edinburgh to see the Gunderson version, I am sure you read about Sotheby’s record-setting auction.) 6 BIS central bankers’ speeches In sharp contrast to Raeburn’s painting of composure, The Scream depicts a panicked form. In an autobiographical epigraph, Munch wrote that he conceived of the painting after a period of exhaustion and despair: “I stopped and leaned against the balustrade, almost dead with fatigue. Above the blue-black fjord hung the clouds, red as blood and tongues of fire. My friends had left me, and alone, trembling with anguish, I became aware of the vast, infinite cry of nature”.1 I am going to conclude by suggesting that the image that best behooves central bankers as guardians of financial stability and agents of economic potential is that of Henry Raeburn’s Reverend Walker. To be sure, central bankers everywhere are fatigued and exhausted and increasingly friendless. | 0 |
In December last year, the SNB decided for the first time to charge negative interest (–0.25%) on banks’ and other financial market participants’ sight deposits at the SNB. On 15 January – concurrently with the discontinuation of the minimum exchange rate – we lowered the interest rate again, this time to –0.75%. This marked interest rate reduction was intended to cushion the blow of Swiss franc appreciation and to counter a tightening of monetary conditions, by making it significantly more expensive to hold Swiss francs compared to other currencies. Negative interest rates have stimulated a lively public debate. This is hardly surprising given that, in this form, such an instrument is something of a novelty that only a few central banks have deployed. 2 Apart from the SNB, the National Bank of Denmark, Sweden’s Riksbank 2 Switzerland has seen negative interest rates before: in the 1970s, negative interest was briefly charged in the form of commission on foreign funds held at commercial banks. In contrast to that period, today’s negative interest rate affects all sight deposits held at the SNB by banks and other financial market participants. 4 BIS central bankers’ speeches and the European Central Bank have made use of negative interest rates to date. Experience with this instrument is thus relatively limited. Today, two months after negative interest rates were introduced, we can see that the measure is working and having the desired effect on the money and capital markets. | Negative interest is intended to make it less attractive to hold large amounts of liquidity in Swiss francs. It is thus logical from a monetary policy perspective that banks which hold large quantities of Swiss franc liquidity relative to the size of their balance sheets should shoulder a heavier burden. As already mentioned, the introduction of negative interest rates on sight deposits at the SNB has also caused longer-term interest rates to fall. And yet, we have been living through a period of exceptionally low interest rates for around six years already, with even long-term investments bearing virtually no interest. The Swiss are a nation of savers and many people are concerned about low interest rates. I understand this, however we should not forget that what really counts for savers is not the nominal but the real (i.e. inflation-adjusted) interest rate. For some time now, inflation has been very low and now it is even negative. If inflation is negative, the real interest rate is higher than the nominal interest rate. As chart 5 shows, there have often been periods in the past when real interest rates were even lower than they are today. During this challenging phase for the Swiss economy, it is important that the negative interest rate be allowed to take effect and help to bring about a weakening of the Swiss franc. Efforts to circumvent negative interest rates by obtaining exemptions or shifting to cash are not in the interests of Switzerland as a whole in the current climate. | 1 |
Rose’s (2009) more recent meta-analysis also finds a significant effect of trade on the synchronisation of business cycles. De Grauwe (2000) provides a discussion of how closer integration may affect the likelihood that countries experience asymmetric shocks. On the one hand closer trade links could result in greater specialisation, leaving currency union members more prone to asymmetric shocks. On the other, it could result in more intra-industry trade, increasing the likelihood that countries will experience similar shocks, and thereby helping to align business cycles. 17 4 A high degree of openness also means that the adjustment required to boost net exports is somewhat lower. A much weaker adjustment in prices and wages is necessary to raise net exports by a given share of GDP if both exports and imports are a large share of GDP than if they are a small share, Krugman (1992). However Adrian and Gros (2004) observe that open economies are correspondingly more vulnerable to external shocks. BIS central bankers’ speeches Scotland and the rest of the UK are highly integrated. 70% of Scottish exports are destined for, and 74% of imports into Scotland come from, the rest of the UK (table 3). A word of caution applies here. There is a body of evidence that national borders can influence trade flows, even between otherwise highly integrated economies.18 The high degree of integration between Scotland and the rest of the UK may in part depend on their being part of the same sovereign nation. | There are several key benefits of issuing the Islamic Monetary Notes under this structure. It provides Islamic financial institutions an additional instrument to manage liquidity risk on a short-term basis. It is also a financial instrument whose structure has been widely used for retail banking and syndication products in the Middle East. Finally, it provides an opportunity for new investors to invest in Islamic financial papers in the Malaysian market, thus diversifying the investor base. As part of the initiative to be linked to the global Islamic financial markets, this instrument will be promoted to the international financial market. Islamic Derivative Master Agreement (IDMA) Recognising the importance to develop Islamic hedging products for Islamic financial market to mitigate investment risks, Malaysia has introduced the first global Islamic Derivative master agreement to document Islamic derivative transactions. The effort is initiated by Bank Negara Malaysia and driven by the financial industry via the Persatuan Pasaran Kewangan Malaysia. The implementation of the agreement is expected to improve the risk management practices, balance sheet management, increase fund mobilisation efficiency and enhance their investment banking capability of the Islamic banking institutions. With the introduction of IDMA, the rights and obligations of contracting parties are clearly stated, thus creating an environment that is more transparent. As IDMA also incorporates best practices in market conduct, this document serves as an important catalyst for the future linkages between financial markets that offer Islamic financial market instruments. | 0 |
These economies show signs of a slowdown that can be traced to decreased exports to Asia but there are also indications that their domestic demand is slackening. In the euro area, however, growth prospects seem to be more favourable. The recovery appears to be firm—to a growing extent as a result of stronger domestic demand—and it looks as though inflation will remain low. The overall picture of international activity is somewhat weaker than the Riksbank forecast in June. International inflationary pressure is low. The extensive economic problems in Japan and the unrest in global stock exchanges are contributing to this. BIS Review 66/1998 -4- Swedish economy strong Economic growth in Sweden seems to be good, however. As expected, the statistics show an accelerating growth of domestic demand, accompanied by a slowdown in foreign trade. Private consumption is rising strongly and a continuation of this trend is indicated by a number of factors: households’ personal economic expectations are still rising, employment is expanding and disposable income is growing as a result of low inflation and a less restrictive fiscal policy. Uncertainty about share prices could have a contrary effect but the downward movements that have been observed constitute no more than a correction after a relatively strong increase. Since the beginning of 1998 the Stockholm Exchange has risen 20 per cent. The statistics also show strong growth for public consumption as well as gross capital formation. But foreign trade is weakening; export growth is slowing and imports are rising. | In recent years monetary policy has been assisted in the first place in that the consolidation of government finances has restored a stable foundation for economic policy; in addition, there has been the more direct restraint—in a cyclical perspective—on demand and price impulses. In recent decades that was by no means invariably the case. On the contrary, there were periods when fiscal policy accentuated the cyclical movements. I find it important to issue a warning about repeating mistakes of this type. In the middle of an economic upswing we are now hearing calls for expansionary fiscal policies in the form of increased public spending as well as unfinanced tax cuts. There are strong long-term grounds for using the upswing in activity to build up government surpluses as a buffer for harder times. That will increase our future freedom of action in economic policy. It will be easier to cope both with future economic downturns and with structural challenges such as an ageing population. A tighter fiscal policy also eases the burden on monetary policy and increases the probability in the years ahead of being able to continue to have low interest rates and a stable economic development, with good growth of production and employment. BIS Review 66/1998 | 1 |
The size of the gap, combined recently with a rather limited growth differential between the two groups of countries, suggests that the process of real convergence will be very gradual and will have to continue much beyond the tentative dates for EU accession. Although differences in income levels are not incompatible with EU and even EMU membership, it is extremely important for accession countries to increase real convergence. Indeed, real convergence is essential to create economic cohesion within EMU and promote integration between Members States, thereby helping to minimize the risk and the effects of asymmetric shocks, in the best interest of accession countries themselves. Let me stress seven points of particular relevance for the Eurosystem, and for accession countries themselves on the road towards achieving catching-up and convergence with the EU. – Firstly, we should never forget that nominal convergence must be sustainable and therefore not only constitutes an objective that must be met at a given point of time but rather a goal that must be achieved continuously. Strict compliance with the Maastricht criteria will be key for joining the euro area. Indeed, the EU Treaty calls, as a prerequisite for adopting the euro, for a high degree of sustainable convergence in the fields of price stability, government fiscal position, stability of the exchange rate, and long-term interest-rate levels. | Thomas Jordan: Discussions on the topic of the euro/Swiss franc minimum exchange rate Speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, held at the Swiss National Bank, Zurich, 10 April 2012. * * * Ladies and Gentlemen I would like to welcome you to this discussion on the topic of the euro/Swiss franc minimum exchange rate and thank you for attending at such short notice. As you are aware, on Thursday of last week a few of the transactions in the foreign exchange market for the euro were concluded at a rate below the minimum exchange rate set by the Swiss National Bank (SNB). I consider it important that you are aware of the sequence of events, and also that I reaffirm the SNB’s current policy. Since this is a specifically market-related topic, we have chosen this rather special approach involving a discussion with news agencies. The fact that a few individual transactions at less than CHF 1.20 per euro were observed last Thursday has led to some isolated doubts being raised about the SNB’s resolve to enforce its minimum exchange rate. Right from the start I want to make it quite clear that such doubts are misplaced. The Swiss National Bank is enforcing the minimum exchange rate with all the means at its disposal. We are prepared to buy foreign currency in unlimited quantities for this purpose. In this respect, our policies are totally unchanged. What precisely occurred last Thursday? | 0 |
Central banks have an operational independence but they do not decide their own mandate. The mandate given to the Eurosystem is clear: our primary objective is price stability. However, our mandate states that we “shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system” x. Careful attention to the dynamics of the indebtedness of households, firms, and financial intermediaries would also be in line with the intellectual tradition of the Eurosystem. Since its inception, the ECB has always given special attention to broad financial aggregates in setting the course of monetary policy. It was emphasised by its monetary pillar and is now emphasised by its monetary analysis. Restricting attention to measures of liquid liabilities such as M3 has probably little justification today in view of the little direct relevance of monetary aggregates for price developments. But the relevance of broader and more varied credit aggregates is beyond question for both price and financial stability concerns. Together with asset prices, they could constitute the base of a revised credit and financial pillar. xi 2.2 The Separation Principle becomes less relevant with a multifaceted monetary policy The link between monetary policy and financial stability raises two questions. First, what are the quantitative effects of monetary policy instruments on financial stability? | We have enough evidence by now that interest rate policies can have effects on indebtedness, risk-taking (through maturity transformation, Page 7 sur 11 search for yield, or other channels) and the profitability of financial actors. It would therefore be short-sighted to ignore the side effects of monetary policy on financial stability. Second, are these effects large enough to make it possible to preserve financial stability without compromising price stability? At this point, the precise terms of a possible trade-off are still being debated. xii The issues are complex: as Nuno Coimbra here at PSE emphasises in a paper with Hélène Rey, a decrease in interest rates can encourage risk-taking when interest rates are low, but discourage it when interest rates are high.xiii We need more work on this important issue. Let me just suggest two thoughts on this open issue. a/ Incorporating Financial Stability Concerns with an Extended Monetary Toolkit First, the binary opposition between the traditional separation principle and “leaning against the wind’’ makes less sense when monetary policy has itself several instruments at its disposal. A median way, which we could call “coordinated” or “integrated” is possible. Indeed, that several instruments can allow to pursue several objectives is just what the old Tinbergen rule asserts. This is particularly relevant within monetary policy in our current context. Over the past years we have brought innovations to our operational framework, and we have considerably extended our toolkit with balance-sheet policies such as quantitative easing and (T)LTROs. | 1 |
Swedish enterprises have quickly gained a leading position in the new fields. Sweden can be said to act as something of a European centre for the new information technology. Even the older companies, such as large state-owned enterprises, are adapting to the new technology. The ability to transform a small, open economy is again proving feasible. The key to growth has been the capacity to introduce innovations and get the whole economy to expand on a wide front in connection with the historical ‘revolutions’. But as I have shown, growth is not just a matter of the innovations as such; it also involves their spread. In other words, an invention by itself is not enough. 5 4 Greenwood, J. & Yorukoglu, M. (1997), 1974, Carnegie-Rochester Conference Series on Public Policy, June, pp. 49–95. BIS Review 10/2001 A country must also possess or create the appropriate structures that can enable growth to really get going. Perhaps one of the principal driving forces is knowledge, as Alfred Marshall, the father of modern political economy, already pointed out in the late 19th century. Remember that a long time usually elapses before these changes occur in earnest. Railways existed as a technical innovation well before the construction of railroads took off. The automobile saw the light of day long before the era of motoring. So the development of new systems and new infrastructure takes time — in some cases a long time. Basically it is a matter of societal changes and they do not happen overnight. | However, the industry must lose no time in tackling the restructuring that is needed, particularly in the traditional segments. In the area of alternative products, Switzerland has admittedly been successful in the fund of funds business. It is to be hoped that its financial industry will build on this success and become even more of a centre of excellence for alternative investments too. BIS Review 24/2006 1 | 0 |
Savings capital is attracted to this and these industries can thereby grow and provide jobs to replace those lost in industries that are declining. This means that equity prices on average and across a business cycle should increase at the same rate as potential GDP-growth plus the risk premium required by investors. However, we know from experience that periods when households and companies have increased their borrowing at a rapid rate and asset prices have risen substantially have often preceded large falls in growth and capacity utilisation in the economy and even led to financial crises. It is only with hindsight that we have been able to note that imbalances had built up. Regulation, fixed exchange rate policy, insufficient supervision and deficiencies in accounting systems have often contributed substantially to imbalances being able to accumulate over a long period of time. However, asset price and credit cycles also appear in many cases to have been exacerbated by exaggerated optimism and speculation, what is known as bubbles. This over-optimism often begins because equity prices in a sector, perhaps as a result of a technological advantage, have risen over a period of time and the optimism then spreads. The problem for those of us responsible for monetary policy is that inflation – measured as consumer prices – has often remained relatively unaffected during these periods. It is difficult to distinguish bubbles from economically-motivated fluctuations in advance, which partly is because we have insufficient experience of credit and asset price cycles in deregulated financial markets. | Many of the countries that were hit by depression and banking crises during the 1930s had beforehand witnessed steep rises in asset prices and a sharp credit expansion without any appreciable increase in inflation. We have seen a similar development in Japan in the late 1980’s. Also during the latter part of the 1990s we have seen examples of crises with a similar course of events, for example in Thailand and other parts of Asia. Countries can suffer considerably from adjustments made in asset prices and debts - even if they do not suffer a crisis in the entire banking system. This is shown by what happened in the United States, Spain and England at the beginning of the 1990s. Corrections after long periods of credit booms and increases in asset prices there led to private savings rising substantially, investment declining and it took a long time for demand to recover. A tighter monetary policy than was motivated by the inflation rate or by the exchange rate when this was the guiding factor could perhaps have reduced the fluctuations in the real economy. Structural reforms reduce the risks but provide no guarantee against financial imbalances. Several of the measures taken in recent decades have probably reduced the risks of seeing a similar development recur: • 2 The aim of the policy towards price stability, stable public finances and deregulated markets BIS Review 62/2006 • Extensive international efforts to develop standards and regulations regarding supervision, accounting and auditing. So far, so good. | 1 |
3/ How can we give further impetus to Europe? Getting back to the European level, I would like to point out that many improvements have also been made in the field of crisis prevention and management. Prevention is based on much more 2/3 BIS central bankers' speeches efficient financial regulation and on a European governance framework that is better organised now with well-designed monitoring mechanisms on fiscal performance as well as on macroeconomic imbalances and structural reforms. Banking Union contributes to strengthening financial stability in the euro area and the EU as a whole and to ensuring that the banking sector is safe and reliable. The global European picture is of substantially enhanced resilience since the crisis. The Common Equity Tier 1 ratios of significant banking groups in the euro area have risen from 7% in 2008 to 14% today. Crisis management – including for Greece – has also evolved considerably with the creation of the ESM. So you can be fully confident about the resilience of the euro and of the euro area. It is not only an economic asset, it is also a political one, supported by each of the 19 governments and – which is still more important – by 68% of euro area citizens (and even by 70% of French citizens and 73% of German citizens). Moreover, monetary policy played its full part to maintain euro area cohesion. Europe has clearly succeeded with monetary union, but monetary policy should not remain the only game in town. | Growth and employment will be stronger in Europe if we combine more reforms where they are needed, such as in France and Italy, and more fiscal support in those countries with room for manoeuvre, such as Germany. In practice, for such a collective economic strategy to exist, the euro area needs an institution that fosters confidence: it could consist of a euro area “Finance Minister”. The third step, in the longer term, would be a European fiscal capacity. It comes at the end as it requires more convergence and more confidence. A genuine euro budget would be a stabilisation tool and could include, for example, a euro area-wide unemployment insurance scheme. It could also be used to finance certain “European public goods” such as digital technology, the energy transition or the integration of refugees. And in the long term, it could directly issue common debt and even raise taxes. Let me sum up. Since the beginning of the crisis, Europe has been able to strengthen itself and to build a set of instruments and mechanisms that have significantly increased its resilience (Banking Union, the ESM, the enhanced SGP, etc.). It is now a matter of continuing this progress and not seeing Brexit as a shock to the euro area but rather as an opportunity to pursue, in a structured way, the setting-up of a better Economic Union. And at the core of Europe, France has made progress, which needs to be accelerated. | 1 |
I’ve spent this morning talking about measures to tackle the root cause of the stress last autumn, poorly managed leverage. But LDI funds aren’t the only non-bank to use leverage. [20] And leverage is also not the only vulnerability in the non-bank system. Forced selling that can follow from leverage can also arise from liquidity mismatches[21] or from a lack of preparedness for margin calls. [22] Identifying vulnerabilities is only half the battle. We also need to understand how market participants will behave when a stress hits. To this end, the Bank is very shortly launching its exploratory exercise to enhance understanding of the risks to and from non-banks, their behaviours, and how these behaviours can amplify shocks. As part of this exercise the Bank may reach out to some of you attending this conference. Shining a light on how market participants may behave collectively in a stress will help both the Bank and yourselves better prepare for such events. You’ll hear plenty from us once the exercise is launched. In particular, my colleague Lee Foulger will be giving a speech next week outlining how this exercise will helps us to better understand system-wide resilience. But what should we do about these vulnerabilities? We should seek to contain them and to mitigate their financial stability impact. This is what I’ve laid out today with respect to LDI funds’ leverage. Further frameworks may need to be built up. | Philipp Hildebrand: Lessons from the financial market turbulence Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Jefferies prize-giving ceremony, Zurich, 27 August 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The current financial crisis is probably the most complex since the 1930s. The extent of international cooperation in overcoming it is greater than ever before. An important part in these activities is being played by the Financial Stability Forum (FSF), which was founded in 1998 and to which Switzerland has belonged since 2007. Six months after the start of the crisis, in April 2008, the FSF published a series of recommendations for enhancing the resilience of the international financial system. There are three main advantages to cooperating internationally in this way. First, it is easier to focus more clearly on identifying solutions. Second, it ensures that particular attention is paid to maintaining a level playing field when establishing regulatory measures. Third, it creates considerable pressure for any recommendations issued to be implemented in practice. The current crisis has shown that the Swiss banking system remains vulnerable to major shocks. As part of its statutory mandate to contribute to financial stability, the SNB has been monitoring developments since the start of the crisis very carefully. The lessons learned by the SNB from the crisis tie in with the recommendations of the FSF. | 0 |
The reforms in recent years have been appropriate and have contributed to shoring up the system’s financial sustainability; but adverse demographic developments require measures whose application should not be delayed. Population ageing gives rise to a reduction in the proportion of the total population making up the workforce, which negatively affects productivity and our economy’s ability to innovate and incorporate new technologies. Given that it is impossible or very difficult to change demographic trends, even in the medium term, it will be important to persevere in enhancing the education system and pursuing the institutional and regulatory reforms that contribute to improving productivity, promoting or enabling greater competition and innovation. Thank you very much for your attention. 6/6 | We are quite far from the creation of a global private currency. But stable coin projects reveal gaps in existing cross-border payment systems. Hence, at the European level, we should aim at promoting a genuine European strategy for retail payments. Payments are no longer a mere boring back-office technicality. They are innovative, and they provide two strategic assets: data, and daily customer relations. The raw truth however is that the European payments market is already dominated by non-European stakeholders. Furthermore, the growing role of non-European digital firms – be they American or Chinese – offering payments solutions should be taken seriously. Despite the creativity of the European ecosystem of payments, our Page 4 sur 5 market remains too fragmented. Against this background, I call for the creation of pan-European payment solutions, building on a common brand and on the technical success of the Target Instant Payment Settlement infrastructure (TIPS) managed by the Eurosystem. We don’t have much time left, but regulators – starting with the Banque de France – and market players should work hand in hand to create a momentum. III. Green finance, “a new frontier for the 21st Century” Let me now conclude with some words on green finance. As I once said, it is “a new frontier for the 21st Century”. Much has already been undertaken over the past few months. We are currently witnessing a growing awareness from central banks, supervisors and financial institutions about climate-related risks. | 0 |
For tail risks in particular, the dark corner where we shine the light may not necessarily be the place where those risks reside. Many of the risks inherent in Islamic Finance are similar to those of conventional finance, including credit risks, market risks, market conduct risks, operational and reputational risks. However, the exposure to those risks could differ between conventional and Islamic finance. For instance, Islamic banks are generally exposed to substantially more liquidity risk than their conventional counterparts, as the range of liquid instruments and hedging instruments are more limited. Islamic banks tend also to be more exposed to the property and infrastructure sectors, in part because these are the prevalent asset classes in the Gulf and also in part because Islamic finance has to be based on physical assets. Given the “large and lumpy” nature of such transactions and the tendency for asset bubbles to build up quickly, it is a risk that merits special attention. In addition, there are also risks unique to Islamic Finance such as Shariah-compliance risk. If products are later found to be non-Shariah compliant, the institutions not only face reputational damage, but also costly unwinding of such structures, with possible losses to investors. The third point is that to achieve a good outcome, an effective regulatory approach needs to embrace a tripartite approach. Regulators, financial institutions and investors all have a role to play. Allow me to share briefly the approach that MAS takes. | Many of the assessments were based on complex modeling and did not give sufficient regard to the tail risks in these financial products including the illiquidity risk. In some instances, there may not have been sufficient diversity of views of the risks and pricing of structured credit, with a heavy reliance on rating agencies. Against these key causes, we must include the backdrop of unsustainable macro-economic imbalances that were building up in the global economy, and policy responses which effectively allowed yields to fall to very low levels. The aggressive search for returns also led to severe compression of yields which distorted investor behaviour and long-term valuations. The interaction of high leverage, excessive complexity and compression of yields meant that when sentiments turned, the magnitude of price falls across asset classes have been sharp, and the dynamics of the deleveraging process unpredictable. Financial institutions and markets have also become so highly interconnected that an event in one area sets off a chain of events that magnify and exacerbate the initial shocks. The shocks in the financial markets have now been transmitted to the real economy in the developed countries. Through both the financial as well as the trade and investment channels, these shocks are also propagated to emerging economies. The negative feedback loop between the deterioration in the real economy and sell-offs in financial assets have added to the uncertainty. It will take some time before the crisis runs its course. | 1 |
Not only would this more effectively capture the risks that banks are taking, but it also would create incentives to move the trading and settlement of such instruments more rapidly to central clearing parties (CCPs) and to exchanges. The greater use of CCPs and exchanges should have several benefits, including reduction of risk through the multilateral netting of exposures and improved transparency with respect to the structure and pricing for such instruments. 4 BIS Review 125/2009 Capital conservation More explicit supervisory standards regarding capital conservation would also be an important element of an efficient capital regime. During the crisis, some banks continued to pay out dividends even though their condition and market valuation metrics had sharply deteriorated. Banks did this to try to convince investors that their bank was “sound.” But by depleting capital, these actions made banks and the financial system weaker. To mitigate these dynamics, regulators could require the reduction and possibly the cessation of dividend payments and share buybacks during adverse market environments when particular triggers were breached. For example, limits on dividend payments and share repurchases as a share of earnings could be mandated to occur when common equity ratios fell below certain levels (recognizing that credit and mark-to-market losses deplete the capital structure from below) or when market-based measures hit certain trigger values. Taking away the discretion of banks to deplete capital would strengthen the banks’ ability to withstand adverse environments. In principle, such constraints could conceivably be extended to compensation and bonus payments. | Muhammad bin Ibrahim: Mobile payment – the next wave Keynote address by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Payment System Forum & Exhibition 2017 "Mobile Payment: The Next Wave", Kuala Lumpur, 8 December 2017. * * * Welcome to the Payment System Forum & Exhibition 2017. This year’s theme ‘Mobile Payment: The Next Wave’ is the continuation of our country’s e-payment transformation that started seven years ago. In 2011, we launched the 10-year e-payment roadmap in the Financial Sector Blueprint 2011–2020. Various reform measures were instituted to remove pricing distortions, instill market incentives and induce competition to reduce costs in our effort to create a conducive environment to accelerate migration to e-payments. These measures have been effective in reducing Malaysia’s usage of cheques and fostering the adoption of e-payments. The total cheque volume has declined by 42% from 205 million cheques in 2011 to an estimated 120 million cheques in 2017. Electronic fund transfers have increased from 66 million transactions in 2011 to an estimated 329 million transactions in 2017, surpassing the number of cheques issued by almost three times. At the current rate of decline, we are likely to achieve the Financial Sector Blueprint target of reducing cheque usage to 100 million in the year 2019, one year ahead of schedule. Encouraging progress has also been made in the expansion of the point-of-sale (POS) terminal network. | 0 |
What are the fiscal implications of large central bank balance sheets? 23 More research on these topics seems highly desirable. Conclusion To conclude, I want to congratulate Ulrich for an excellent paper that should be required reading in central banks that are thinking about their monetary policy implementation frameworks. Ulrich provides a unique blend of academic and practitioner insight from which I learned a lot. I do believe that there remain some important unanswered questions when it comes to evaluating monetary policy implementation frameworks. Ulrich’s paper starts us on the right path and hopefully the broader research community can start to work on some of these important issues. References Bank of England (2013). “Liquidity Insurance at the Bank of England: Developments in the Sterling Monetary Framework.” Carlson, Mark, Burcu Duygan-Bump, and William Nelson (2015). “Why Do We Need Both Liquidity Regulations and a Lender of Last Resort? A Perspective from Federal Reserve Lending during the 2007–09 U.S. Financial Crisis.” Finance and Economics Discussion Series 2015–011. Washington: Board of Governors of the Federal Reserve System. Eisenbach, Thomas, Andrew Haughwout, Beverly Hirtle, Anna Kovner, David Lucca, and Matthew Plosser (2015). “Supervising Large, Complex Financial Institutions: What Do Supervisors Do?,” Federal Reserve Bank of New York Staff Reports, no. 729, May. Federal Reserve (2007). Press Release August 17, 2007. Goodfriend, Marvin and Jeffrey M. Lacker (1999).“Limited Commitment and Central Bank Lending.” Federal Reserve Bank of Richmond Economic Quarterly,Volume 85/4, Fall. Keister, Todd (2016). “Bailouts and Financial Fragility.” Review of Economic Studies, Vol. 83: 704–736. Tarullo, Daniel K. (2014). | To be clear, this is not going against the wish of Parliament in establishing these structures; rather, it is designed to reinforce that wish by making the pieces work closely together. And, it also emphasises that the Bank of England is a public policy institution with the overarching objective and responsibility of serving the public good. Interestingly, the language that we found to describe this public good comes from the Bank’s original Charter of 1694, though I should recognise that the detail of the description of what constituted the public good in 1694 is rather different from the one we have today. The key thing about a public good is that no individual or group of individuals can be excluded from using or consuming it, and use by one individual does not reduce the availability to others. Fresh air is a public good, and so is the stability of the economy. In our world, history shows that it takes a crisis to provide a decisive impetus to create and maintain the emphasis on the public good. Thus, stable low inflation – monetary stability – received its decisive impetus in many countries, including the UK from the painful experience of high inflation, most notably in the 1970’s. Out of that came a broad consensus on a central idea – low inflation is a necessary condition for stable economic growth and its resulting benefits for well-being. | 0 |
It is almost impossible for those who are not undertaking full-time studies on the subject to keep pace with these developments. Yet, all of us who are interested in systems that stimulate business and keep the wheels of economies moving at a rapid space, would continue to have a strong interest in the subject. I am also hopeful that, the banking and financial community will continue to promote and foster these studies and practices since these provide the lubrication for the smooth functioning of our complicated financial systems in our ever-changing corporate regimes. We also know that a large portion of global business is in the banking sector. In addition, all business entities, maintain direct relationships with banks and financial institutions. In that context, the preeminent position that is applicable to the banks and enjoyed by them cannot be over-emphasized or under-estimated. Therefore, our efforts to enhance the governance capabilities and capacities within banks and financial institutions have to be at the forefront of our agendas. The trend in the world of targeting governance practices in the banking and financial sector to be at the cutting edge of prevailing practices worldwide is a significant step in the right direction and should continue to be so in the future as well. Let us therefore together and collectively dedicate ourselves to promote and apply good Corporate Governance principles and practices in our respective banking and financial sectors. | Thomas Jordan: No end to the debt society without a culture of stability Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, held at an “NZZ Podium” event, Zurich, 28 February 2012. * * * The complete speech can be found in German on the Swiss National Bank’s website. The most recent financial and economic crisis has resulted in an unprecedented rise in public debt. However, a chronic tendency towards deficits and higher indebtedness has already been observed in a number of countries for the past few decades. Excessive public debt has a negative impact on long-term economic growth, and deprives a country of its freedom of action during a crisis. Sound state finances are thus essential for ensuring an economy's competitiveness and maintaining its social security system, and hence also for social solidarity. Last but not least, excessive public debt also poses a serious threat to price stability and monetary policy independence. Yet how can state budgets be consolidated over the long term? There are limitations on how far fiscal policy powers can be delegated to independent groups of experts. Because fundamental decisions on taxation or expenditure – unlike monetary policy – are aimed at redistribution, they have to be taken at the political level. Even fiscal rules such as a deficit cap or debt ceiling can only achieve a lasting improvement of budgetary discipline if they are supported by a broad political consensus on the advantages of sound finances. | 0 |
We are six different individuals on the Executive Board. We have different backgrounds and different perspectives. Sometimes this leads to our assessments differing, even if we work towards the same objective. It applies in particular to very uncertain situations like the present one. But the whole idea of having an Executive Board is that disagreement is permitted. Different approaches and opinions enrich the discussions and hopefully lead to better decisions. BIS Review 115/2008 5 My own assessment So how did I reason at the most recent meeting, when I voted for another increase of a quarter percentage point? Well, to begin with it is important to put an individual decision in the right perspective. Monetary policy acts with a time lag and what affects inflation a couple of years ahead is a series of interest rate decisions rather than an individual interest rate increase, or cut, for that matter. My decision in September was therefore closely connected to both the interest rate policy we have conducted over the past few years and the interest rate path I expected to see in the future. A new phase We have experienced a long period of low inflation and high growth from a global perspective, but we have now entered a new phase. In developed economies like the United States and the euro area growth is falling, while it remains high in emerging economies such as China, India and Brazil. | Measures that raise trade barriers typically would protect lower-wage, import-competing jobs, but would also weigh on the prospects for jobs in the more efficient export sector, which tend to be higher-paying. The outcome would be countries producing more where they have a competitive disadvantage, and less where they have a competitive advantage—the exact opposite of what we should be aiming for. For example, in the United States, one of our largest manufacturing exports is aerospace parts (which requires skilled labor) and one of our largest imports is apparel (which requires less skilled labor). These second-round effects would also likely hurt productivity growth. Scarce resources would be used less efficiently and trade protection would likely lessen the level of competitive pressure that helps drive innovation. Moreover, lower productivity growth would likely lead to a slower improvement in a nation’s living standards over time.7 Better Approaches to Deal with Globalization Rather than protectionism, a better policy would be to help domestic workers and companies compete more effectively, rather than compete less. We need additional mechanisms that allow us to more fully capture the benefits from liberalized trade and to more proactively mitigate its costs. Ideally, policy should also better address job losses and income inequality from automation and other technological advances. How we respond should depend on regional and industry circumstances. These include the nature of trade impacts, the skill sets and location of the workers that have been affected, and the amount of resources that can be mobilized to facilitate adjustment. | 0 |
Export companies are also facing a decline in demand, while the picture for companies producing for the domestic market is more mixed. In many companies, concern has been expressed about the sharp wage growth of recent years and attention is being increasingly focused on cost reductions. Companies are making less use of temporary labour, with man-hours being reduced more than the number of permanent employees. Some think than downsizing may be more in focus in the period ahead. In general, companies are uncertain about the next three-month period, but a majority expects conditions to stabilise. In my address here last year, one of the themes was the outlook for manufacturing industry. This year, I would like to look more closely at developments in private service industries. From 1991 to 2001, total employment increased by about 280 000. In the same period, employment rose by about 120 000 in the public sector and by 145 000 in private service industries.1 In manufacturing, employment increased by 40 000 up to 1998, then fell by 25 000. A total of about 900 000 were employed in private service industries in 2001, about three times as many as in manufacturing. The decline in manufacturing over the past four or five years is more than offset by the rise in employment in service industries and the public sector. In the years ahead, the planned use of petroleum revenues will increase demand for public and private services, at the cost of manufacturing employment. | The common thread of geopolitical tensions is that while they’re difficult to predict, they’re also impossible to ignore. On a backdrop of low r-star and slowing global growth, they drive businesses to be more cautious, more vigilant, and more conservative in their approach. Data Dependent, Not Data-Point Dependent The long-term factors driving low r-star and slowing global growth, as well as the more near-term geopolitical tensions, are afflictions from which we all suffer. So what’s the solution? Where do we as policymakers, researchers, and regulators go from here? At press conferences I’m often asked: if growth slows by X percent, or unemployment increases by Y percent, will that mean that the FOMC is going to do Z at its next meeting? If the Fed had a motto, it would probably be “data dependent.” When asked about this, it’s important to clarify that while I’m data dependent, I’m not data-point dependent. It’s not about being guided by one single data point—GDP or job growth—but by all of the data and information that tell us where the economy is, and where the economy is heading. Importantly, it’s not about looking at things merely as they are—it’s about trying to read how the economy is likely to evolve over the next couple of years, and what risks lie ahead, based on a broad range of evidence. Monetary policy is a long game. The policy decisions we’ve made this year will continue to have a ripple effect years into the future. | 0 |
In Germany, structural reforms are being implemented, particularly in the labour market, which could promote growth. It is possible that low long-term interest rates will boost investment. Nevertheless, there is uncertainty as to future economic developments, which is not fully reflected in prices, interest rates and premiums. There is also a risk that large imbalances in world trade and low employment in Europe will trigger protectionism, which could reduce growth capacity even further. Low interest rates in Norway Norges Bank’s key rate, the sight deposit rate, is at a historically low level. Real interest rates are also low. Between December 2002 and March 2004, the key rate was reduced by a total of 5.25 percentage points. The interest rate decline can be ascribed to a number of factors. In late autumn 2002, inflation started to fall. The inflation projections were also revised down. Gradually new information about the outlook for other countries and the Norwegian economy indicated that inflation might be very low. Short-term interest rates fell by close to 4 percentage points. It would seem that it is not only changes in the real interest rate that have an influence, but also the level of real interest rates. Between December 2002 and March 2004, the interest rate has moved from a high to a low level. The real interest rate is now lower than a neutral interest rate. A real interest rate that is lower than the neutral rate will stimulate activity even after the effects of the interest rate fall itself have been exhausted. | Other requirements on maximum LTV ratio and debt-servicing ratio applicable to commercial and industrial property mortgage loans also apply to standalone carpark space mortgage loans. The above measures take effect immediately. However, loan applications in respect of property transactions with provisional sale and purchase agreements signed today or earlier will not be affected. The HKMA is also aware that the risk weight allocated by Hong Kong banks adopting the Internal Ratings-Based (IRB) Approach under the Basel Capital Accord to residential property exposures is at a relatively low level. This may not fully reflect the existing and future risks of property market volatility. To further enhance the risk management of banks in Hong Kong, the HKMA has decided to introduce a risk weight floor of 15% for residential mortgages approved by banks on or after 23 February 2013 under the IRB Approach. Mr Arthur Yuen, Deputy Chief Executive of the HKMA, will explain the above-mentioned measures in more details later. BIS central bankers’ speeches 1 Meanwhile, the Hong Kong Mortgage Corporation will introduce revisions to its Mortgage Insurance Programme in line with the latest developments in the property market and will announce the details later. I hope the public would understand that Hong Kong is facing an extremely unusual macromonetary environment. The ongoing quantitative easing by advanced economies is unprecedented in both scale and duration. Interest rates have been artificially maintained at extremely low levels, and we see huge volumes of liquidity flow into emerging markets like Hong Kong. | 0 |
It will not only reinforce the need for constant vigilance from all parties, but also help create an environment where everyone is risk conscious and responsible in protecting the interests of each other. These initiatives would not achieve the desired outcomes without effective BIS central bankers’ speeches 1 communication, and the media has a critical role to play in conveying the message from the banks. We have always acknowledged the importance of the media and I would like to record Bank Negara Malaysia’s appreciation for the assistance rendered by the media in creating awareness of this issue in the past. We hope that with the support of the media on this occasion too, this campaign will be a success, and the public will have heightened levels of understanding and vigilance over this issue. On behalf of Bank Negara Malaysia, I would like to thank all the banks for taking this initiative to undertake this joint e-banking awareness campaign. Our thanks also to Cyber Security and the Police Force for your ongoing efforts to collaborate with the banking industry. I wish all of you the best and assure you that Bank Negara Malaysia will continuously support you in this noble effort. 2 BIS central bankers’ speeches | Human resource development functions is integral to the talent management process and in supporting the human capital management strategy. Of equal importance is that this should occur at all levels in the organisation. In essence, the accountability for talent development requires concerted efforts throughout the organization and needs to be embedded as part of the working culture that is communicated, shared and understood at all levels. While the need for human capital development is apparent, what is less apparent are the appropriate methods and policies that should be adopted to advance human capital development. The financial services industry needs to identify the appropriate strategic direction for human capital development. Attention need to be given to the entry level, to the specialists and to the senior management levels. This would benefit from greater industryuniversity linkages which is a major channel through which the talent requirement and talent gap can be narrowed. The industry involvement in the curriculum design and delivery will ensure graduates are equipped with the relevant knowledge and skills that meet the requirements of the industry. Participation by the industry players may be in the reform of the academic curriculum and methodologies and in providing other forms of practical support to the institutions of higher learning. This will contribute directly towards meeting the human capital needs for the future. The quality of human capital is the cutting edge of competitiveness. | 0 |
To maintain the IMF’s effectiveness, it is essential for our membership to resolve the difficult issues that have been raised about our own governance – notably, the voice and participation of emerging market economies and developing countries in our institution. All members countries should have adequate voice and participation in the IMF’s decision-making, and the distribution of our quotas should reflect developments in the global economy. In this connection, the ongoing 13th general review of IMF quotas provides an opportunity to make progress on this front. 4 BIS Review 43/2005 Further, given the demands placed on the IMF by its members, it is clear that the institution’s resources must be commensurate with the tasks it is asked to perform. This ongoing strategic review will help us to identify needs, define priorities, and consider possibilities to redeploy resources from lower-priority areas. Regardless of the outcome, IMF management, and our Executive Board, are committed to making the most effective use of resources entrusted to them by our membership. Efforts must therefore continue in the search for greater efficiency gains. One important aspect of this concerns the cooperation and division of labor between the IMF, the World Bank, and other international organizations. This is an issue which may bear revisiting, and I am very much looking forward to working with President Wolfowitz, and to learning his views and vision for the Bank. | By helping to build institutional and human capacity for the making of sound economic policies, IMF technical assistance contributes to the building of strong economies and stable growth. The IMF’s purposes, and its operational activities, were therefore designed with a key objective in mind – that is, the fostering of healthy national economies, linked by finance and trade, as the foundation for a robust global economic system. I think it correct to say that this vision for international peace and stability has produced remarkable results, for the past fifty years have been a period of growing economic prosperity and freedom. Global per capita income has more than tripled, and most of the world has experienced major improvements in literacy and life expectancy. Among the biggest gainers have been the developing nations, home to half of the world’s population. Many of them have been quick to take advantage of the opportunities afforded by the global economy, especially during the last two decades. These countries – whose ranks include Brazil, Chile, China, India, Korea, and Mexico – were able to double their share in world trade, raise per capita incomes, and lift millions out of poverty. Their experience demonstrates that integration into the global economy can bring major benefits. The IMF’s evolution The world has witnessed many changes and developments – in technology, politics, culture, as well as economics – over the years, and the IMF has adapted itself accordingly. | 1 |
The second obstacle is the still-low appetite of banks to expand lending. This behaviour continues to reflect the effect of two factors: (i) deleveraging policies for reducing exposure in the countries of the region, including Albania, implemented by parent banks from the euro area; and, (ii) perception of credit risk at home. While banks’ balance sheets have improved and the credit risk has diminished, the policies for reducing their exposure in countries outside the EU remain conservative. Such policies reflect also EBA’s new supervisory rules on reducing the exposure of European-based banking groups in South East Europe. In the context of addressing this issue, the Bank of Albania has signed a memorandum of cooperation with the European Banking Authority College in 2015, on exchanging information and harmonising supervisory policies. Regarding non-performing loans, the Bank of Albania continues to be committed to implementing the measures set out in the national plan for reducing them. The reduction of the credit risk, in parallel with the improvement of the banks’ balance sheets and economic growth, should be accompanied by more realistic lending policies by the banking system. This is a recurring appeal I have made in my public appearances. The implementation of such policies would create the conditions for fulfilling the needs of the economy for financing, which are expected to be upward in the future. The third obstacle is the development level of financial markets and the narrow range of financial instruments. | As regards price developments, annual HICP inflation averaged 3.3% in 2008, which is much higher than in the previous two years and significantly above the ECB’s definition of price stability. However, headline inflation rates fluctuated sharply in the course of the year, peaking at 4.0% in June and July, mainly as a result of developments in international commodity prices. During the second half of 2008, annual inflation declined steadily and rapidly. In March 2009, it stood at 0.6%. By contrast, HICP inflation excluding energy and food posted a much smaller decline in 2008 and early 2009. Looking ahead, HICP inflation is likely to remain well below 2% in 2009 and may reach negative levels around mid-year. Such a phenomenon is expected to be temporary, driven mainly by base effects from past energy price developments, and would not constitute an episode of deflation, that is, a protracted BIS Review 49/2009 1 period of decline in the price level that can adversely affect inflation expectations and aggregate demand. Looking at the policy-relevant medium-term horizon, HICP inflation is in 2010 expected to rise again but remain below 2%, reflecting mainly ongoing sluggish economic activity in the euro area and beyond. Monetary policy has been conducted in an extraordinary and rapidly changing economic and financial environment over the past year. | 0 |
We adopted prudent fiscal policies, and directed monetary policy to achieve medium-term price stability. Our MNC-led growth strategy has worked well but others are pursuing the same strategy. So for the next phase of our development, we are also building a second platform based on entrepreneurship, innovation and knowledge. New areas of focus include Research and Development, biomedical sciences and the creative industry. As the competition intensifies, we break old moulds of thinking and reinvent the way we do things. For example, we overturned our longstanding policy of disallowing casinos in Singapore. To remake Singapore into a city with buzz, we are developing Integrated Resorts, with convention facilities, world-class entertainment and casinos. And Crazy Horse, the famed Paris cabaret, is performing in strait-laced Singapore. Implementation is key The third critical aspect of growth is implementation. Right policies are no guarantee of success, if the capacity to implement is missing. Good implementation is founded on three key pillars: effective leadership, sound institutions and social cohesion. First, leaders are responsible for devising and implementing pro-growth policies. They must have the unifying vision to foster economic growth, the political will to overcome resistance and implement reforms, and the ability to mobilise people and engender social consensus. Leaders must also have character, compassion, conviction, commitment and persuasive power. Above all, they must enjoy the trust of the people. The second pillar of effective implementation is sound institutions. Effective leadership must be supported by sound institutions like the legislature, judiciary, civil service, central bank and a responsible media. | 9 The average consumer was defined was a 41-year old man with upper secondary school education and an annual income of SEK 350,000-400,000 and who lives in a two-person household. 4 BIS Review 68/2008 they charge the retail trade. 10 In the long term this would benefit us consumers in the form of lower goods and services prices. Perhaps the retail trade could also discuss charging a fee of those of us who insist on using the most expensive credit cards – that is where the hidden cost of the payment is highest. Charges on ATM withdrawals have been a hot political topic in Sweden. Should we have to pay to take out our own money from our own accounts? But isn't it time to defuse the question of ATM charges? It costs money to manage cash. And isn’t it better that we can see the costs than that we pay a hidden price in some other way at the bank or the supermarket? 10 According to an earlier study made by the Riksbank, the loss made by an average major bank in 2002 in connection with cash management was approximately equal to the profit it made on the card market. There is evidently some subsidising between the card and cash markets. See Guibourg and Segendorf (2007). BIS Review 68/2008 5 | 0 |
So far, there is no indication that the US has problems in financing its deficit. If creditors begin to fear a fall in prices and withdraw from the market, substantial corrections may nevertheless be triggered. This may lead to higher interest rates and perhaps also a fall in US equity markets that spills over to other countries’ financial markets. In that case, the dollar will also depreciate. The household debt burden in the US may be another source of instability if households abruptly reduce both housing demand and consumption. Strong demand in the US has sustained growth in the world economy. We assume that growth will slow somewhat in the US in the period ahead. A more pronounced downturn cannot be ruled out, however. An abrupt and pronounced downturn might fairly rapidly lead to declining growth in the entire OECD area. The US is not the only source of trade imbalances. They also reflect very low growth in continental Europe and largely export-based growth in Asian countries. Therefore, countries other than the US must also contribute in order to prevent a decline in world economic growth. With limited domestic growth capacity and high unemployment, many industrial countries are poorly equipped to cope with a weaker dollar and lower demand from the US. The challenges are perhaps 3/7 particularly demanding in some large European countries, whereas it appears that the Japanese economy is becoming more self-driven. | Given that the recent financial turmoil has highlighted the importance of strong liquidity risk management, an important recent development to assist in the liquidity management of Islamic financial institutions is the establishment of the International Islamic Liquidity Management Corporation (IILM). The IILM has begun its operations in Kuala Lumpur from early February this year, following its official launch in October 2010. The IILM is tasked to issue short-term multi-currency liquidity instruments that would facilitate the cross-border liquidity management between financial centres, and by doing so, would enhance financial inter-linkages. The first issuance of liquidity instruments is expected to take place later during the year and is very much anticipated as it would contribute to more efficient management of financial flows across borders, thereby leading towards more efficient internationalisation of Islamic finance. The Islamic finance industry is at a stage of growth in terms of products and services, which requires innovation to remain as the driving force behind the progress of the industry. In the pursuit of innovation, it is paramount that the Islamic banking and takaful industry achieve full Shariah compliance in the development and application of their products and services. A robust Shariah governance framework is therefore an important foundation for the Islamic financial institutions to ensure that its objectives and operations are in accordance with Shariah principles. In Malaysia, there have been recent enhancements to the Shariah governance that aim to further strengthen the existing Shariah governance process, decision making, accountability and independence of Shariah advisories. | 0 |
The price boom has continued in spite of the generally weak economic activity of the last two years. This is a new experience which differs from previous business cycles, when prices have tended to recede during periods of economic decline. Similar developments have occurred in other countries, for example in the US, England and Holland. The situation could appear worrying, particularly given that the rise in housing prices has been accompanied by an increase in household indebtedness. The upsurge in prices has raised questions about the healthiness of this trend. Are the price rises in the Swedish housing market the result of a bubble? Are the higher levels of household indebtedness sustainable? The Riksbank's view is that the current price developments in the housing market do not reflect any speculative expectations of future price rises which would warrant the term “bubble”. Nor is household indebtedness a bigger problem than usual for this stage of the business cycle. I will explain this in a moment. The other segment is the market for commercial property. Here, it is primarily prices for office premises which have displayed a different trend to that seen in the housing market. Commercial property prices have adjusted to the economic slowdown. In Sweden, both prices and rents have fallen since 2000 at the same time as vacancy rates have risen. I myself do not believe that these price declines are a concern from an economic perspective, as was very much the case with the property crisis at the beginning of the 1990s. | Chiarotti, Mathur, and Rajan (forthcoming), ‘Assessing Basel III: Impact of automatic distribution restrictions on regulatory capital and bank lending’, Bank of England Staff Working Paper. The authors apply a difference-in-difference approach to aggregate bank balance sheet data and granular loan-level data on syndicated lending to corporates. The latter allows the authors to control for important unobservable features in the aggregate data such as changes in credit demand and in borrowers’ risk. 12. To ensure that banks which have different concerns about MDAs nevertheless have similar probabilities of triggering the restrictions, the analysis considers also the banks’ capital surpluses to regulatory buffers. 13. During the Covid-19 pandemic, several jurisdictions including ECB/SSM Fed and BoE recommended banks to restrict or suspend dividends and share buybacks, but not AT1 coupons (see Svoronos and Vrbaski (2020) (2021) and BCBC ). 14. During the pandemic AT1 coupons were excluded from the scope of the blanket distributions restrictions that many jurisdictions imposed, so unlike for dividends banks’ ability to pay AT1 coupons was still linked to automatic distribution restrictions thresholds. 15. A somewhat extreme version of broad-based capital conservation – reflecting the unusual and extreme level of economic and market uncertainty at the time - was implemented during Covid-19 when PRA recommended the major UK deposit takers to cancel dividend payments, share buybacks and cash bonuses. 16. | 0 |
In addition, there has been an important shift from the traditional high net worth clients investing in individual hedge funds to funds being invested in hedge funds via diversified pools and formal fund of funds structures. These pooled assets, coupled with liberalizing regulatory developments have opened up hedge funds to a more diverse universe of investors, including a wide range of institutional and retail investors. Currently, the total size of funds invested in hedge funds via pooled structures is estimated to be approximately USD 300 billion or nearly a third of the underlying hedge fund industry. Remarkably, annual growth rate estimates of the pooled funds suggest that their expansion has proceeded at a more rapid pace than the underlying hedge fund industry. This implies that a significant portion of new assets flowing into hedge funds does so via collective asset management pools. In a competitive environment, the Swiss financial sector has succeeded in leveraging its position as one of the world’s leading asset manager to secure an dominant position amongst collective asset management pool operators in the hedge fund industry. Though many of the early formal funds of funds were registered under Luxembourg, Cayman Island or Bermuda law, Swiss financial firms today manage a significant part of the world’s alternative asset management pools. | Particularly in the area of wealth management which comprises over half of the total added value of the banks, Switzerland is clearly one of the world’s leading provider of services. The value of total assets managed in customer accounts in domestic banks as of the end of the year 2003 amounts to CHF 3’300 billion, of which nearly 60% is held by foreigners. According to various estimates, this corresponds to approximately one third of the world’s total private wealth managed abroad. Much has been said and written about the various strengths of the Swiss financial center which account for the dominant global position in wealth management. Political, economic and monetary stability, know-how, traditional high quality of services provided, guaranteed protection of privacy and strict conditions ensuring the prevention of abuse are all key ingredients to Switzerland’s past and future success. In the current global market place, some of these strengths represent structural competitive advantages. The Swiss authorities and the Swiss financial sector representatives rightly 1 Charles P Kindleberger (1974): “The Formation of Financial Centers: a Study in Comparative Economic History”, Princeton Studies in International Finance, No 36, Princeton: Princeton University, November. BIS Review 34/2004 1 make great efforts to defend these structural competitive advantages as much as other sovereign countries defend theirs. Nonetheless, in a fierce global competitive environment, defense is a necessary but not a sufficient condition for sustained success. | 1 |
Nonetheless, it is difficult to argue with the basic direction of these forecasts. The fundamental dynamic behind the recent rise of SWFs will not disappear over night. As I mentioned, estimated excess reserves are very large. 12 In all likelihood, at least some of these excess reserves will be transferred to SWFs in coming years. Moreover, even if global imbalances were to unwind quickly, for instance in association with a sharp and protracted recession in the United States, the power of compound return will continue to be a substantial source of growth for SWFs that already exist. Fourth, SWFs have so far been initiated predominantly in the Middle East and in Asia. Slide 8 shows that these two regions account for 77 percent of the assets of the largest SWFs. Nonetheless, we should not lose sight of the fact that 16 percent of the assets of the 14 largest SWFs are held in developed countries. 13 Fifth, SWFs will increasingly attempt to diversify their holdings. They will do so gradually, given the prevailing size and liquidity constraints. Like central banks, SWFs have traditionally been investors in highly rated fixed income assets. Going forward, SWFs will increasingly look for investments in equity markets, both public and private ones. Several of these investments have recently produced headlines in the global financial press. Slide 9 depicts some of them. 3. | References Bernanke, Benjamin S. 2006, "Global Economic Integration: What's New and What's Not? ", Speech held at the Federal Reserve Bank of Kansas City's Thirtieth Annual Economic Symposium, Jackson Hole, Wyoming, August. Coeuré, Benoit, 2007, "Faut-il Avoir Peur Des Fonds Souverains? ", forthcoming, Les Cahiers, Le Cercle des économistes. Cox, Christopher, 2007, "The Role of Governments in Markets". Speech at Harvard on 24th October 2007 (http://www.sec.gov/news/speech/2007/spch102407cc.htm). Genberg, H., McCauley, R., Park, Y. and Persaud, A. 2005, Official Reserves and Currency Management in Asia: Myth, Reality and the Future. London, Centre for Economic Policy Research. Gourinchas, Pierre-Olivier and Olivier Jeanne, 2007, Capital Flows to Developing Countries: The Allocation Puzzle, CEPR Discussion Paper No. 6561. Hildebrand, Philipp M., 2007, Hedge Funds and Prime Broker Dealers: Steps towards a best practice proposal, in: Banque de France, Financial Stability Review – Special issue on Hedge Funds,” No. 10, April. International Monetary Fund, 2007, Global Financial Stability Report. Washington D.C. September. Johnson, Simon, 2007, "The Rise of Sovereign Wealth Funds, Finance and Development, September 2007, Volume 44, Number 3, International Monetary Fund. Jones, Matthew T. and Maurice Obstfeld, 2000, "Saving, Investment, and Gold: A Reassessment of Historical Current Account Data", in Calvo, Guillermo A., Rudiger Dornbusch, and Maurice Obstfeld, eds., Money, Capital Mobility, and Trade: Essays in Honor of Robert A. Mundell, Cambridge: MIT Press, 2000. 8 BIS Review 150/2007 Lowery, Clay, 2007, "Remarks by Acting Under Secretary for International Affairs Clay Lowery on Sovereign Wealth Funds and the International Financial System", June 21st, San Francisco. | 1 |
Firms may, therefore, have been reviewing their preferences between risk-taking in their core business and risk-taking via pension provision, and for a while may have been unusually uncertain about how equity markets value those different sources of uncertainty. If so, that may conceivably offer part of the explanation for the measured recovery in UK business investment having been weak, relative to the economy’s total output, compared with past cycles (Charts 11 and 12). Some have suggested that the need to close deficits may have been a factor, via the call on cash flows. The possibility I am airing is that another factor may be the size of a scheme’s discounted liabilities and the prospective volatility of the associated fund’s net value relative to the sponsor’s underlying business and capitalisation. I do not want to push that too far. There have, of course, been other possible explanations for weak fixed-capital expenditure. These include competition from China, India and elsewhere; the rise in oil and commodity prices; and the uncertainty about how both will play out, and thus about prospective demand for UK output. All of this might have been thought to make the external environment unusually risky and so to warrant deferral of investment decisions. Another possible explanation is, simply, that the level of investment has been under-recorded, and that the data will be revised up, as they have been frequently in the past (Chart 13). | Just as governments collaborate on economic integration to advance prosperity, the time has come for them to do so with digital integration to seize new economic opportunities. This requires establishing foundational digital infrastructures and connecting them, to create truly global digital public goods. Upon these platforms, enterprises can build innovative digital services and solutions to seamlessly serve global markets, helping to empower and uplift millions of people. 3/3 BIS central bankers' speeches | 0 |
Your input has been valuable in designing the strategies and approach to advance VBI as a key thrust in propelling the Islamic finance industry further forward. Today, I would like to share some of my thoughts on the concept of value-based intermediation. I will begin by giving an account of the achievements of our industry within the past decades. I will then touch on the role of VBI as a catalyst for growth with positive impact and the call for Islamic finance to lead the way in realising the visions and objectives of VBI. Islamic finance in Malaysia has evolved and grown by leaps and bounds over the last 30 years. Today, we have a well-developed and regulated Islamic finance industry. There are diverse industry players, both local and foreign. Prior to 2000, there were only two Islamic banks and two takaful operators in the country with total market share and takaful penetration rate of less than 5%. Islamic banking assets have now grown to capture more than a quarter of the total banking system while the takaful sector has increased its penetration rate to 14.6% of the population. This is indeed very good progress. In the sukuk segment, Malaysia is also the market leader with market share of more than 50% in sukuk outstanding since year 2000. On the Bank’s part, the Islamic Financial Services Act 2013 was introduced to modernise our regulatory and legal framework in adapting to changing needs of the industry. | For VBI to work, the desired collaboration has to bring in not just our market players, but also other non-financial stakeholders, to pool critical skills and infrastructure that reside beyond our terrain. By expanding our network, we will be better able to deliver far greater values that otherwise could not be achieved if we were to depend on limited capabilities within the financial industry alone. With stronger collaboration, I believe there will be much more that each individual can learn from one another. In this context, the Community of Practitioners comprising committed Islamic banks, will be instrumental in pioneering advancements in VBI. The Community of Practitioners will serve as the nucleus for other collaborative efforts. Networks to be formed will comprise a diverse group, from ventures and corporates to knowledge and advocacy institutions. Through the exchange of knowledge and experiences, as well as coordinated actions to address implementation issues, the Community of Practitioners can help accelerate the execution and amplify the benefits of VBI. I would also like to thank the panel members that will take part in the Panel Discussion today, which also includes representatives from the Community of Practitioners. We can certainly gain greater insights from the panel members who will elaborate further on the VBI approach and provide interesting perspectives on its implementation. In conclusion, while the Malaysian Islamic financial sector has made great strides since its inception over 30 years ago, the next growth frontier in Islamic finance is in realising its potential to create greater socio-economic impact. | 1 |
Accordingly, I strongly encourage all financial intermediaries to actively participate in the dialogue the Eurosystem has established, both at the European level through the Euro Retail Payments Board and at the national level. We just decided to set up a CBDC working group within our French payments committee (the CNPS). Concerns have emerged that the issuance of a CBDC would threaten the role of banking intermediaries in client relationships, while draining banks’ deposits through a massive conversion into risk-free CBDC accounts, especially in times of stress. These outcomes are not foregone conclusions, to say the least. The Eurosystem is currently looking at the possible scope and design of a digital euro. Let me just share my personal thoughts about the general framework that Page 4 sur 7 should see light: in my opinion, similarly to the current intermediation model, as many functions as possible should be delegated to intermediaries. Obviously, some functions should remain the exclusive privilege of the Eurosystem because they are at the core of its mandate and cannot, by definition, be outsourced. This is the case specifically for the issuance of a potential digital euro. The Eurosystem should entrust banks with the distribution of digital euros to final users, while setting technical, functional and commercial rules like for example the branding, logo, and fee structure. We would thus build on their experience as intermediaries to offer means of payment to end users and develop value-added services. | The Eurosystem could also outsource parts of the settlement, such as recording or validation, to intermediaries. Moreover, it is clear that some functions should remain under the sole responsibility of intermediaries. In particular, I believe that the Eurosystem should not have the role of managing digital euro holdings: the Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any. Customer relationship management is best handled by financial intermediaries, as they have the experience in this field. They would also ensure compliance with the related regulatory requirements, including KYC and AML/CFT. Such a design would allow them to preserve the role of financial intermediaries in the retail payment system, and would ensure the high level of privacy required by the public. Finally, regarding the possible risks of banks’ deposit conversions, we must and will ensure that a digital euro remains a means of payment rather than a saving/investment asset. This could be achieved by capping the maximum amount of digital euro in circulation, at a low enough level. In a completely other field, regulated savings, ceilings for the Livret A have proven an efficient tool, without requiring the intervention of a Big Brother to check on them. Page 5 sur 7 II. | 1 |
Should we conclude that we can live without pollinators and without food? That would be foolish and dangerous of course. We therefore need to understand how shocks in one sector can (and will, in the case of biodiversity loss) greatly affect the output of other sectors. And the current gas crisis in Europe is an example of the fact that we have not sufficiently thought about this. Hence, what we need to understand as central bankers is that the best risk mitigation strategy is to do everything in our power, early enough, to ensure that we remain within planetary boundaries. The Dasgupta Review indicates (in chapter 17, dedicated exclusively to the financial sector) that failing to do so will lead to systemic environmental risks known as “green swans”xxvi. Elsewhere in the Review, he also reminds us that the loss of nature (of natural capital) is only very partially substitutable with labor or manufactured capital. Beyond monetary valuations of ecosystem services what we truly need to understand is that as living creatures, we are “embedded in nature”, to quote Professor Dasgupta again. However, it is pretty clear that our socioeconomic system is currently disembedded from nature: it takes much more from it than what nature can provide us. In 1823, French economist Jean-Baptiste Say famously said that natural resources are infinite because if they were not, we would not be able to obtain freely. He deducted from this that the still emerging economic discipline did not need to be concerned with the value of natural resources. | Therefore, it is in the interest of all stakeholders to migrate quickly to the SEPA instruments. So what will make industry and/or customers stop using the old products and switch to SEPA? A SEPA migration end-date for credit transfers and for direct debits would make clear that migration cannot take forever. The European Commission in collaboration with the 6 4 ECB, SCT Indicators (see http://www.ecb.europa.eu/paym/sepa/timeline/use/html/index.en.html). BIS Review 151/2009 Eurosystem is, therefore, investigating the possibility of a Regulation to facilitate the migration to SEPA. The Eurosystem considers a legally binding instrument necessary for a successful migration to SEPA and hence fully supports such regulation. I also see a lot of support for this way forward in the market. Therefore, we should continue our efforts in setting a realistic but ambitious end-date for migration to SCT and SDD to reap the full benefits of SEPA. Conclusion Let me conclude. SEPA is not just about making life easier for European citizens and companies by removing obstacles to cross-border payments. SEPA is also about removing barriers to the single market, making payments more efficient, introducing more competition to the payments industry and speeding up innovation. Hence, rapid SEPA migration would bring tremendous benefits to the European economy as a whole. The single market for goods and services – created with the Maastricht Treaty 16 years ago – now needs a single market for financial services. | 0 |
William C Dudley: Puerto Rico and the US Virgin Islands after hurricanes Irma and Maria Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Economic Press Briefing on Puerto Rico and the US Virgin Islands after Hurricanes Irma and Maria, New York City, 22 February 2018. * * * Good morning, and welcome to the New York Fed’s Regional Economic Press Briefing. Today, we will provide an update on the economies of Puerto Rico and the U.S. Virgin Islands, with particular focus on the impacts of Hurricanes Irma and Maria. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.1 Initial fallout from the storms Hurricanes Irma and Maria did immense damage to Puerto Rico and the U.S. Virgin Islands, severely exacerbating what were already very difficult economic conditions. My heart goes out to our fellow citizens who have suffered so much and who face a long and difficult recovery ahead. Maria was the most devastating hurricane to hit Puerto Rico in nearly a century. Many lives were lost, homes and businesses suffered immense damage, and large parts of the Island’s infrastructure and agriculture were destroyed. | Moreover, Puerto Rico’s power outage was, by far, the most severe in U.S. history, in terms of total customer-hours lost, and it will still likely take many more months to fully restore electricity and other critical infrastructure to all of the Island’s residents. As a result, a sizable number of residents went to the U.S. mainland in the weeks following Maria, and it still is unclear how many will return once circumstances improve. Even before the storms hit, Puerto Rico was struggling with severe fiscal difficulties and a long period of poor economic performance. For over a decade, the Island has been experiencing a shrinking economy, contracting employment, low and declining labor force participation, and persistent out-migration of residents to the mainland. Furthermore, public debt reached a problematic level, and the Commonwealth and its instrumentalities—including the power and water authorities—lost their ability to borrow in the public markets. Defaults and ongoing debt restructuring efforts followed. In the U.S. Virgin Islands, the situation is similar in many ways. St. Thomas and St. John were ravaged by Irma, and St. Croix was devastated by Maria just two weeks later. Their economy, which is much more dependent on tourism than that of Puerto Rico, has also been contracting for the better part of a decade. However, the population of the U.S. Virgin Islands has not fallen nearly as sharply as Puerto Rico’s, and its economy had stabilized in the past two years following the closure of a major refinery in 2012. | 1 |
It was as if the engagement was held in Bucharest and now, the official marriage is being celebrated here, in Tokyo. It was not an easy journey. The National Bank of Romania has shown its support and loyalty from the very beginning. Many of you, present here, played an essential role in making it happen: Minister Jan Kees de Jager, Governor Knot, Executive Directors Menno Snel and Ruud Treffers. I want to extend my thanks to them and to each and every one of you. Now we are a big family where trust is vital. I wish we have the opportunity to meet again in the future, look back on this day and be proud of our accomplishments. Thank you. 2 BIS central bankers’ speeches | 4 Patrick Bolton, Morgan Despress, Luiz Awazu Pereira da Silva, Frederic Samama, and Romain Svartzman, “The Green Swan – Central Banking and Financial Stability in the Age of Climate Change,” Bank for International Settlements, 2020. 5 TCFD site and review of annual reports, integrated reports, non-financial reports, sustainability reports and standalone climate-related disclosure reports of individual GSIBs. 6 In the international context, see Enhancing Banks’ and Insurers’ Approaches to Managing the Financial Risks from Climate Change, Bank of England Supervisory Statement 3/19, April 15, 2019; ECB Banking Supervision: Risk Assessment for 2020, European Central Bank; and Bolton et al. (2020). 7 Kevin J. Stiroh, New York Fed, Emerging Issues for Risk Managers, Nov, 2019. 8 Governor Lael Brainard, Federal Reserve Board of Governors, Why Climate Change Matters for Monetary Policy and Financial Stability, Nov. 2019. 9 “Demystifying Climate Scenario Analysis for Financial Stakeholders,” Four Twenty Seven, 2019. “Climate risk and response,” McKinsey Global Institute, 2020. “Fifth Assessment Report (AR5), the Synthesis Report (SYR),” Intergovernmental Panel on Climate Change (2015). 10 Fink, Larry, A Fundamental Reshaping of Finance, Letter to CEOs, 2020. 11 See The 2021 Biennial Exploratory Scenario on the Financial Risks from Climate Change, Bank of England Discussion Paper, December 2019 for a discussion of relevant issues. 12 Carney (2015). 4/4 BIS central bankers' speeches | 0 |
Yet this week the Governor’s open letter to the Chancellor to explain why inflation last month had deviated by more than a percentage point from the target was only the second written in over 10 years. And taking the past decade as a whole, this stability of inflation has not come at a cost to growth – quite the opposite in fact. Output growth has been high both relative to the rates 1 Indeed work done at the Bank suggests that in terms of inflation, it has been the most stable decade in many lifetimes – that is, since the Restoration at least (Benati (2006)). BIS Review 80/2008 1 achieved on average over the preceding 30 years and in comparison with our European neighbours. It also has been remarkably stable. 2 Of course that stability at the macro level disguises some big changes in the structure of the economy. Indeed it has provided a platform for change. The North East for example is now much more diverse than it was and less reliant on a few large industries. And, overall more people are employed in the region: the number employed in the North East has risen by more than 100,000 in the past ten years. And export growth remains relatively buoyant. In contrast to this picture of stability, the preceding 3 decades were scarred by painful recessions where unemployment rose sharply, and inflation fluctuated wildly. | This is an important area which will provide all those of us involved in financial sector oversight with major challenges for years to come. Increasingly active players are the hedge funds, employing alternative investment techniques and attracting a multitude of investors searching for higher yields. They often operate globally on the strength of the derivatised and securitised world. There has been a dramatic growth in hedge funds: data suggest that the past eight years alone have seen the value of assets rise by nearly 450%. Many of them are unregulated in a prudential sense, and are typically characterised by large proprietary positions, sometimes with an emphasis on unconventional assets and arbitrage positions. The complex and diverse operations of hedge funds can help to arbitrage away pricing mistakes, and to integrate financial markets. But they also raise new questions for financial stability oversight. The areas we need to look at are quite wide. There is of course the opacity aspect - what are the underlying concentrations hedge funds hold? But there are also other questions. How leveraged are they? Do lenders to them understand the risks that they are taking? And what is the potential impact of confidence and liquidity if they don’t? And what would happen if the new investors in hedge funds became disillusioned by their performance. Would it trigger an exodus and cause markets to go “one way”? | 0 |
Similar to what we have observed at the euro area level, the economic expansion in the Netherlands has also strengthened. GDP grew at 2.2% in 2016, driven by strong domestic demand on account of improving business and consumer confidence and positive wealth and real-income effects. In addition, unemployment has steadily decreased, registering at 5.1% in March 2017, and the Netherlands has more jobs than before the crisis. Supported by low interest rates and a strengthening recovery, the Dutch government ran a 2.9 billion euro surplus last year, its first surplus since 2008. And, as an export-oriented country, the Netherlands is currently benefiting from the recovery in other euro area countries, especially as growth in global trade remains tepid. The side effects of our policies I am aware that these very accommodative financing conditions have raised various concerns, also in this House. Monetary policy measures always have side effects. So far, the potential negative side effects have been limited. We are monitoring these various effects carefully, taking into account our price stability mandate. 2/5 BIS central bankers' speeches To ascertain the overall impact of our measures on citizens, it is important to differentiate between the various ways in which they affect economic actors, such as households, pension funds and banks. Let me start with households. An accommodative monetary policy means households accrue fewer nominal returns on their savings. However, an accommodative policy supports the economic recovery, which in turn bolsters employment, income, returns on investment and tax revenues. | Finally, let me also address the risks of overheating in some parts of the financial markets. We do not currently see compelling evidence of overstretched asset valuations at the euro area level, but we do see that real estate dynamics or high household debt levels in some countries signal the risk of increasing imbalances. Such risks also exist in the Netherlands: they relate to the continued very high level of household indebtedness and the low level of mortgage collateralisation. For this reason, we share the concerns expressed in the warning issued by the European Systemic Risk Board in November 2016 and recognise that there is a case for mitigating measures. That being said, monetary policy is not the appropriate tool for addressing local and sectoral financial risks. Rather, targeted macroprudential policies, which can be tailored to local and sectoral conditions, are the right answer.1 The way forward Against the backdrop of a recovery that is becoming increasingly solid, the benefits of our policy clearly outweigh potential side effects. Also due to the pass-through of our monetary policy, there is now more and more evidence that economic growth is firming and broadening. Incoming data confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished. Nevertheless, it is too early to declare success. Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend. | 1 |
Such initiatives will have to weigh the objective of improved disclosure of pertinent information versus convenience and effectiveness considerations. 31 We are also working to improve the Product Highlights Sheet, or PHS. As background, MAS requires issuers to set out clearly in their offering documents information pertaining to their business, operating environment, financial position and prospects, key risks as well as salient terms of the instruments offered. A full prospectus can run into hundreds of pages. We know many retail investors are likely to find it hard to digest all the information in a prospectus, especially since some of these are written in a technical and legalistic manner. 32 MAS has therefore required issuers to furnish a PHS, which is a summary of the key information presented in a clear and concise manner. It started well. But over the years, we noticed a creep where the form and content of the PHSes put out by issuers have become increasingly technical and legalistic. This picture is a sample PHS that we typically see today. Despite our efforts to encourage issuers to simplify the language and use more visual aids, we have found that most PHSes are still very cluttered and difficult to read. We are reviewing how to improve the way useful information is presented in the PHS. What you see is a prototype of an improved PHS that we are considering. We have incorporated consumer-friendly message design, clear and simple language and the use of effective diagrams and infographics. | The time needed to complete an investigation varies according to the complexity of each case. In complex cases, issues often cut across the domain of several agencies. Take for instance, a case of alleged corporate irregularities. These could range from issues of mis-selling to inadequate or false disclosures, or improper application of accounting rules, or there may also be breaches of fiduciary duties. A single case could span potential breaches of different regulations and laws, such as financial advisory regulations, securities law, company law, listing rules, accounting rules, and the Penal Code. Often, our investigators have to retrieve and review a lot of data. Where a case has a cross-border dimension, the relevant agencies will also have to seek the assistance and support from our foreign counterparts. Our investigations must be thorough and rigorous to be fair to all parties concerned. 26 MAS will strengthen our co-ordination with ACRA and CAD in the surveillance of our capital markets and in investigations. We have set up a joint forum between MAS and ACRA to review accounting-related and disclosure issues. As mentioned earlier, MAS’ enforcement team already has a joint investigation arrangement with CAD where our investigators collaborate closely. Our agencies will, in addition, work closely with SGX RegCo as they are the frontline marketplace regulator. 27 Industry groups also have a role as advocates of good governance and practices. SIAS, ABS and the Singapore Institute of Directors (SID) are good examples. | 1 |
Peter Praet: Long-run saving and monetary policy Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the Parliamentary evening on "Challenges for long term savings products in the context of the zerointerest rate policy", Brussels, 14 November 2016. * * * Accompanying slides The European Central Bank (ECB) has carried out a number of unconventional monetary policy measures since the crisis to bring about a return of inflation to our objective. These measures include targeted long-term repos, negative deposit facility rates since 2014 and large-scale asset purchases. We have received criticism of these unconventional policies from some quarters surrounding their potential negative consequences. In the light of that criticism, I wanted to answer three crucial questions tonight relating to our unconventional measures: Why have we implemented them? Have they been successful in their aims? And, finally, have they had unduly large negative side effects on the distribution of wealth and income? The determination of long-run interest rates First of all, I would like to spend a few moments discussing the determination of interest rates and what has happened to long-run interest rates over the past three decades. These two things have significant bearing on the rest of my remarks. Put most simply, saving is the decision to forgo consumption today, in return for higher consumption in the future. Since people are by nature impatient, they require compensation for delaying consumption, compensation usually in the form of interest payments. | Its basic functioning is as follows: if a given State suffers unwarranted tensions on its debt, we could decide to intervene as far as is necessary, provided that State commits to an agreed recovery programme. Undoubtedly, the announcement of the creation of the OMTs had a very strong impact: banks and firms regained access to capital markets; the spreads between the yields on Spanish and German 10-year bonds fell from more than 6pp in July 2012 to just under 3pp in May 2013, while the premium on Italian 10-year bond halved. This new monetary policy instrument has therefore fostered a considerable improvement in financial conditions in the euro area and represents a solid shield against further speculative attacks. The ECB’s Governing Council has stressed that monetary policy will remain accommodative for as long as necessary. In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and stand ready to act if necessary. ********* The euro area is getting stronger: it is undergoing major reforms, building new institutions and setting up powerful crisis management instruments. These major and in many respects historical advances will lay the foundations for the future of our monetary union. The effects on financial markets are already very visible: tensions have abated and signs of defragmentation are starting to appear (TARGET balances for instance have declined by almost 300 billion euros or 25% from their peak). | 0 |
The Riksbank’s tasks M aintain price stability Promote a safe and efficient payment system Presently requires continuous measures to counteract the effects of the international financial crisis We are prepared to act quickly and forcefully when necessary 8 BIS Review 138/2008 M onetary policy and financial stability Tasks that are closely connected… ”Physical” and ”financial” infrastructure M anaging risk, saving and borrowing Investments that can create employment and growth M onetary policy works via the financial system M onetary policy is also important for financial stability It is important for economic growth that the financial system is stable The financial system The payment system Bank groups Lenders and borrowers Macroeconomic developments and financial markets BIS Review 138/2008 9 Hiccup in the machinery Interbank rate and the repo rate Per cent 7 7 6 6 Repo rate Three month interbank rate 5 5 4 4 3 3 2 2 1 1 0 0 06 07 08 09 Sources: Reuters EcoWin and the Riksbank M ortgage rates have risen more than the repo rate Per cent 7 7 6 6 5 5 4 4 3 3 2 2 1 0 Jan-08 Repo rate Interbank rate M ortgages - SBAB M ortgages - averages 1 0 Apr-08 Jul-08 Oct-08 Refers to three-month mortgage rate from SBAB, three-month interbank rate Sources: Reuters EcoWin, SBAB, Statistics Sweden and the Riks and monthly average for three-month mortgage rate for institutions’ new lending. | Besides, credit deceleration, as long as it takes place in an orderly manner, is justified, after the recent rise in private debt ratios (households and non-financial corporations). In this respect, I would like to point out that France's debt ratio is the highest of the major European countries at 147% of GDP in Q3 2022, compared to 119% on average in the euro area. This leaves the third major economic agent: general government as a whole. France's public debt ratio is not only 20 percentage points higher than that of the euro area as a whole (113% of GDP compared with 93% in Q3 2022),1 but it is not decreasing, unlike that of the other major countries of the euro area. Since energy prices are declining, we must now begin to rapidly reduce support measures, while targeting them at those who need them most. Tariff shields may have been useful in the short term to cushion the energy shock, but they cannot alleviate it altogether. Indeed, a lasting victory against inflation cannot be achieved by fiscal measures, but by monetary policy and by strengthening our productive supply. More broadly, the response to this crisis, to this new world, lies above all in a major effort to adapt. | 0 |
Trade restrictions address the symptoms and not the underlying problems, and they introduce other costs and distortions. While such measures might generate temporary boosts to growth from greater domestic production and consumption, these would likely be offset by a range of other costs. Over time, such measures would retard productivity growth and thereby shrink the economic pie. As an illustration, import substitution models that were pursued by many emerging market economies following the Second World War eventually led to lower long4/6 BIS central bankers' speeches term growth outcomes. This was the experience in India, which helped trigger the reforms of the early 1990s. In assessing the benefits and costs of trade, it is important to understand that a nation’s trade balance reflects much more than its trade policy. Just as important are the country’s saving and investment spending proclivities, which are affected by many factors, including tax and fiscal policies. For example, in the United States, we have a chronic trade deficit because domestic investment spending exceeds our domestic saving. Foreign capital inflows make up the gap. In this process, the foreign exchange value of the dollar plays an important equilibrating mechanism. If the domestic saving/investment imbalance is unchanged, then any reduction in the trade balance from higher trade barriers will be offset by lower exports. The domestic currency will appreciate to cause the trade deficit to widen to accommodate the desired capital inflows. | In today's environment, cultivating a lifelong learning experience is essential to personal and economic success. Lifelong learning involves more than just formal education and training. It encompasses learning throughout the life cycle, at different stages of life and in different learning environments. As individuals, attention to lifelong learning is essential to remain relevant in a highly competitive environment and to enhance our ability to function effectively and in a meaningful way as members of our community. With new knowledge comes innovation, agility and increased productivity that contributes to the overall performance and economic growth process. While it also enables us to adapt to the constantly changing environment, it also increases our capacity to cope with natural emergencies. The challenge then is to embrace the opportunities as they present themselves and to continuously develop new skills and competencies that will be needed to meet current and future demands. The opportunities for learning will be boundless. Technology has also significantly broadened the reach and means for learning, as well as increased learning efficiencies. As you step into this new and exciting world, these possibilities should be fully optimized. In concluding, allow me to offer my congratulations once again to the graduates of the class of 2006. You represent the promise of our nation's future. Indeed, nation building no longer belongs exclusively to the realm of the Government. As professionals, your advancements should not just be confined to those of immediate interest or relevance to you. | 0 |
The political complexion of Northern Iraq led to the assumption that the currency used there would have value once regime change had occurred. In other words, the value of the Swiss dinar had everything to do with politics and nothing to do with the economic policies of the government issuing the Swiss dinar because no such government existed. As someone might have said, “it’s the political economy, stupid!” Another illustration of this is shown in Chart 5 which plots the Swiss dinar/dollar exchange rate against the values of futures contracts showing how expectations about the political order in Iraq were evolving. | They only move the time-consistency issue one step back - the policy rule may be abandoned, the central banker fired, the contract reinterpreted or rewritten.3 The other approach says that real central bankers do not and need not worry about time-inconsistency; they “just do it”, (Bennett McCallum, 1995). Central bankers should simply resist the temptation to deviate from the time-inconsistent policy, and private agents will eventually come to accept that resolve. Attractive as such a solution may appear to central bankers, it fails to answer the challenge posed by the game-theoretic result of Kydland and Prescott. And it fails to explain why it is that some countries in some periods just do it and others do not. Central bankers who have the determination and strength of purpose to “take the punch bowl away just when the party is getting going”, in McChesney Martin’s memorable phrase, clearly have the “right stuff” - so why don’t they “just do it”? 4 A deeper explanation of how this problem can be overcome requires an analysis of what might be called the “technology of collective decisions”. Individual agents can make contracts because they believe that the legal system is external to both parties to the contract. But it is difficult to write contracts that commit future collective behaviour. Collectively, we can either meet our previous commitments or we can ignore them. | 1 |
If, for example, country-specific shocks tended to die out pretty quickly, but common, global shocks were more persistent, you might expect to find this pattern. But that difference would have to be pretty stark to generate results of this sort. And there is evidence (much more careful and thorough than I’ve presented here 5) that forward yields in different countries are, in fact, more volatile and more tightly correlated than the simple expectations hypothesis would suggest. Chart 5 UK forward rates sensitive to US payrolls release Chart 6 Market yields more sensitive than actual rate forecasts to shifts in risk premia Source: Bloomberg and Bank calculations; sample 2003- Source: Bank of England and Datastream. 13. 5 Sutton (1997) BIS central bankers’ speeches 7 Table 1: UK-US forward yields better correlated than spot rates Changes in yields: UK on US Coefficient* 3-months 0.37 1 year 0.41 1 year 3 year forward 0.54 R- squared 0.12 0.13 0.35 Source: Bank of England and Bank calculations; Note: All coefficients are significant at 1%. Second, swings in measures of risk aversion are more closely correlated with market yields than with actual forecasts of future interest rates. There are, of course, good reasons why changes in perceived risks should affect both. Greater risk aversion can raise the cost of capital, reduce domestic investment and activity, and lower any reasonable expectation of the policy rate. | Following a further depreciation in the currency, rises in administered prices and the prospect of continued weak growth in productivity, inflation was thought “likely to remain above target for much of the forecast period”. But “attempting to bring inflation back to target sooner…would risk derailing the recovery” and it was therefore “judged appropriate to look through the temporary, albeit protracted, period of above-target inflation”. I don’t think this was so exceptional. There is no inflation-targeting monetary authority that behaves so rigidly as to attempt to offset all shorter-term shocks to inflation, no matter the effects on the variability of interest rates and output. As the economist Lars Svensson puts it, “in practice, inflation targeting is always ‘flexible’, because all inflation-targeting central banks not only aim at stabilizing inflation but also put some weight on stabilizing the real economy”. In the UK, this regard for the occasional trade-offs faced by monetary policy, and their implication for the planning horizon, was formally enshrined in the MPC’s remit in March 2013. The Committee is now required to “promote understanding of the trade-offs inherent in setting policy and… [to communicate] the horizon over which it is appropriate to return inflation to the target”. This description of the appropriate horizon is now a regular part of our communication, notably in the newly introduced Monetary Policy Summary that introduces both the Inflation Report and the Minutes of our meetings. What of the current situation? | 1 |
14 Report, Sept. 14 2016 (f) Report, Sept. 14 (annual change, percent) 3.4 3.9 3.9 3.8 3.9 2.4 1.0 1.6 7.3 5.4 4.1 2.0 2.1 0.8 1.0 7.3 5.4 4.0 1.7 2.9 1.5 1.1 7.2 6.3 4.5 3.4 3.1 1.7 1.0 7.2 6.2 4.4 3.0 3.0 1.7 1.5 7.2 6.2 4.5 2.6 3.2 1.8 1.2 7.0 6.5 4.8 3.3 300 106 310 108 315 106 (levels) 285 101 290 103 305 104 300 101 -0.9 -0.5 -0.8 -0.5 3.5 3.3 3.2 3.8 3.7 3.7 4.4 (annual change, percent) -0.2 -1.1 -1.5 (f) Forecast. Sources: Central Bank of Chile based on a sample of investment banks, Bloomberg, Consensus Forecasts, the IMF and statistics bureaus of respective countries. | The change in the macroeconomic scenario has also reflected in exchange rate movements, in both nominal and real terms. The CLP posted a 5.8 percent depreciation between the close of this Report and last, mostly during the past few weeks. Although part of this depreciation responded to the global strengthening of the dollar, the rise in the CLP/USD parity exceeded that of other emerging market currencies. This obeyed to less favorable cyclical conditions and a more expansionary monetary policy in the country. It must be noted that Chile’s macroeconomic policy framework includes, among other features, a monetary policy based on inflation targeting and exchange rate flexibility. Thus, during slowdown periods, when the pressure on prices diminishes, policy becomes more expansionary in order to achieve the inflation target, that is, for the inflation rate not to fall below the target range. This boost to monetary policy results in a higher exchange rate, which permits the economy to have a faster, optimal adjustment via the expansion of tradable sectors. In other words, the exchange rate increases are a natural, desired response to the business cycle, lending a helping hand in the economic adjustment. We have been faithful to this predicament, as reflected in the significant depreciation of our currency in recent times. We do not view this as a problem, because despite some unwanted effects in the short term – including higher inflation – it is part of the solution to have the economy reactivate more rapidly and efficiently. | 1 |
In case the issue of liquidity bills is deemed necessary, the method of issue of the said bills and other related information will be announced to the public in advance by a press release. As always pointed out, the Central Bank deems the stability and development of financial markets as a supporting objective for the effective implementation of policies pertaining to price stability. As a matter of fact, compatible with the floating exchange rate regime, the Central Bank has taken measures towards maintaining financial stability several times in the last four years. Within this context, the Central Bank, the primary goal of which, entrusted to it by law, is to establish price stability, will continue its practices to enhance the effectiveness of the monetary policy and liquidity management, also in 2007. Accordingly, the Central Bank may change not only its liquidity management strategy, but also the borrowing and lending interest rate margins in cases of unpredictable changes in market conditions and according to the new needs. Obviously, under the floating exchange rate regime, the Central Bank is able to implement the YTL liquidity policy in a more flexible manner than it can under a fixed currency peg regime and can act more promptly and flexibly to meet the YTL liquidity needs of the banking system. The Central Bank can prevent excessive fluctuations in money market interest rates as long as they are consistent with the inflation target. | The answers to this question as provided in the Inflation Reports published in 2006 were as follows: • JANUARY 2006: “... a short-term interest rate path remaining constant for the first couple of months in 2006 and displaying a gradual decline thereafter...” • APRIL 2006: “...where the Central Bank continues to cut policy rates gradually...” • JULY 2006: “... in addition to the measures of June, the Central Bank will implement measured monetary tightening in the rest of 2006 and cut policy rates gradually in 2007...” • OCTOBER 2006: “under the scenario that the Central Bank maintains its tight stance until the last quarter of 2007 and cuts policy interest rates afterwards...” As it is clearly seen above, as long as there was not a significant shock in the economy, the Central Bank acted in parallel to its earlier statements. However it had to revise its monetary policy stance after important shocks such as the market volatilities of May and June. It is more evident in light of these this example that, as it is frequently emphasized in our announcements, the interest rate path, which is used by the Central Bank in producing forecasts, should not be perceived as a commitment to be followed in every case. Hence, the interest rate risk should be assessed by considering the fact that the outlook presented in the Inflation Report is subject to change depending on the data flow, and thus, the policy perspective can be updated whenever necessary. | 1 |
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