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Should such barriers actually be introduced, there would be a negative impact on world trade that could affect an economy, like Spain's, whose recovery has been largely export-led. In the same vein, uncertainty about the implications of the United Kingdom leaving the EU remains high, in a setting in which the Spanish economy has significant exposure to this country in terms of services exports and financial ties. This uncertainty is also affected by the context of low returns in Europe's financial system and of the fragility of certain institutions. On the domestic front, several factors of vulnerability persist. One of them arises from the level of public indebtedness (which I will refer to later) and that of certain segments of the household and corporate sectors, which entails high reliance on foreign saving and represents a source of weakness in the face of possible increases in the cost of borrowing. Also, despite efficiency improvements, our economy remains highly sensitive to potential increases in commodities prices, particularly, oil prices. From a medium-term perspective, the high structural component of the unemployment rate, an ageing population and low productivity are the main factors limiting the sustained growth of our economy. I shall now review the main features of the budget. Budgetary policy in 2017 The macroeconomic forecasts accompanying the draft State and Social Security Budgets for 2017 involve the prolongation of the current expansionary phase. Specifically, they estimate real GDP growth of 2.5%, accompanied by a recovery in prices, so that nominal GDP growth is slightly above 4%. | Preference of traditional channels of service provision over e-banking In terms of service distribution channel, brick banks still have competitive edge over click banks as consumers still prefer to conduct banking transaction with human contact at bank branches or sub-branches. E-banking is not yet well-accepted by consumers on account of: • uncertainty surrounding accuracy of the services; • lack of transaction evidence that might be useful in case of dispute settlement; and • lack of knowledge among some retail customers. The use of automated teller machines is quite well-spread while the use of phone banking and Internet banking is still limited to a small fraction of customers. According to the survey, high-income retail customers tend to make use of phone banking and Internet banking more often than do low income customers. Usage of phone banking and Internet banking by corporate customers is still low, though 2 BIS Review 22/2004 large and medium corporate tend to use phone banking and Internet banking more often than do small corporate. Financial service needs expected in the next few years Due to the current low return on savings with commercial banks, both individual and corporate consumers revealed preference towards alternative saving instruments such as saving bonds and government bonds. As for financing, the needs expected by individual customers are those for the purposes of working capital, residential, education and business expansion, while those of corporate customers remain financing for long-term investment for business expansion and short-term working capital requirements. | 0 |
If now EMU leads to increased competition in the housing loan market, which should be an effect of monetary union, there will also be an expanded need to finance housing loans in way that is economical with capital. It is not unreasonable to believe that securitisation in this perspective will attract increasing interest. Increased competition can accordingly drive forward a growing market for securitisation. However, the causal connection can also be the opposite, namely that improved opportunities for securitisation will increase competition. This is the experience in Australia, where the housing loan market was deregulated in the 1990s. A legislation that facilitates securitisation reduced the previously high entry barriers which existed in the market, cleared the way for new players and reduced costs for the housing loan customers – in fact by as much as a couple of percentage points. Some conclusions Taken as a whole, we seem to be moving towards greater competition in the housing finance sector. New financing forms, new technology and possible EMU membership are driving factors that will together reduce entry barriers and thus increase competition. Since housing loans are standardised products, it is above all price which is the means of competition. The financing issues will thus be at the centre of interest. The traditional Swedish form for housing finance where the entire balance sheet constitutes one body of collateral has many advantages. It is possible that the investors’ demands for collateral in the form of equity may gradually make this form too expensive. | Miguel Fernández Ordóñez: Contribution of global banks to financial stability Opening speech by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the International Capital Markets and Emerging Markets Roundtable, Institute of International Finance (IIF), Washington DC, 17 April 2011. * * * Let me start by thanking the IIF for giving me this opportunity to present my views on global banks. I will speak from my perspective as Spanish banking supervisor. And I should say from the outset that in my country global banks have not given us the most problems. Indeed, the main message of my intervention today is that we should not fall into the trap of automatically equating “global banks” with “dangerous banks” in terms of financial stability. This may be an intuitive reaction to the crisis. But it would be a mistaken one, in my view. In fact, based on our experience, I would like to give you some examples of how global banks can make a positive contribution to financial stability. Naturally, these are only examples, and I would certainly not presume to have all of the answers on this complex issue. But I hope these examples will be illustrative of the point I am trying to make. First of all, it is true that some global banks have experienced severe problems. We have seen large, complex and interconnected banks and financial companies on the brink of bankruptcy, both here in the United States, and across Europe. | 0 |
Within text mining, dictionary techniques, vector space models and semantic analysis are rapidly gaining traction. 22 All of these methods offer different means of teasing out information, and making robust inferences, in situations where empirical relationships may be complex, non-linear and evolving and where data may be arriving at different frequencies and in different formats. These approaches differ significantly from classical econometric techniques for inference and testing often used in economics and finance. This revolution in data provision, and in techniques to understand it, offers analytical riches. Mining those riches requires, however, considerable care. For example, issues of data privacy loom much larger with granular, in some cases personalised, data. These issues have, rightly, risen in prominence recently. At the same time as putting it to use, safeguarding Big Data is a key preoccupation of the Bank in its research. The Promise of Big Data To the extent Big Data can be characterised, this is usually done using the “three V’s”: volume, velocity and variety. Using the three V as an organising framework, let me discuss some examples of how these data 15 Moore (1965) noted the annual doubling in the number of components per integrated circuit. SINTEF (2013). 17 Ericsson Mobility Report (2017) 18 See https://www.statista.com/chart/10913/number-of-photos-taken-worldwide/ 19 Using dataset in Turrell et al (forthcoming). 20 Dwoskin (2015). The true number of data scientists worldwide is highly uncertain. Many individuals work on data science without necessarily using that job title, but the opposite is also true. 21 Chakraborty and Joseph (2017). | To date, they have focussed on items such as groceries and clothing. Although early days, the potential benefits in terms of increased sample sizes and granularity seem to be considerable. For example, the ONS have so far collected 7,000 price quotes per day for a group of 27 grocery items, which is larger than the current monthly collection for those items in the CPI. For GDP measurement, new sources and methods are also gaining ground. One recent study used satellite imaging to measure the amount of non-natural light emitted from different regions of the world. This has 28 been found to have a statistically significant relationship with economic activity. This approach could potentially help in tracking activity in regions that are geographically remote, where statistical surveying techniques are poor or where mismeasurement problems are acute. A more down-to-earth example, used by the UK’s ONS and other statistical agencies, is so-called administrative data. This includes data collected by government agencies as part of their activities – for example, on tax revenue and benefit payments. In the UK, some of these data have recently become available for wider use through the government’s Open Data initiative, albeit subject to important checks. 23 Coyle (2014). Fouquet and Broadberry (2015). 25 Cavallo and Rigobon (2016). 26 Cœuré (2017). 27 See https://www.ons.gov.uk/economy/inflationandpriceindices/articles/researchindicesusingwebscrapedpricedata/august2017update 28 Henderson, Storeygard and Weil (2011). | 1 |
The CPIEFE will decline steadily until the second half of 2017 and will take longer to hit 3% (figure 2). This inflation path relies on two assumptions: first, a fairly stable real exchange rate around its current levels, which are estimated to be in line with fundamentals; second, that although the output gap will exceed the December estimate for some time, it is projected that, for the aforesaid reasons, it will begin to close towards the end of this year. Activity growth ended 2016 in line with the December forecast, although characterized by a steeper slowdown during the year, which is expected to continue well into 2017. On 20 March, the Bank published the first National Accounts figures based on the new benchmark compilation that uses the base year 2013. This change is intended to update the way the evolution of the national economy is gauged, incorporating new estimation methodologies, changes in international standards and new sources of information. The Bank makes these changes regularly every five years, according to the respective international standards set by the IMF and the OECD. The most salient changes are depicted in a box in this Report, and all the details can be seen in several documents uploaded on our website. The new data, which included a very small revision to 2014 and 2015 growth, confirmed the further weakening of the economy in the last quarter of the year, and at the same time modified the growth trajectories of the already published quarters of 2016. | Among emerging economies, the improvement in China’s outlook is worth noting. In the fourth quarter of last year, the Chinese GDP grew 6.8%, so growth for the full year was 6.7%. Conjunctural numbers and financial indicators have been calmer, according to manufacturing output and foreign trade figures. The renminbi is depreciating gradually and the large capital outflows and reserves depletion of 2016 have stopped. Meanwhile, the authorities set the growth objective at 6.5%. Thus, our baseline scenario has revised the Chinese growth forecast upward by 2 decimals. In Latin America, the main economies in the region are still adjusting. In Brazil, consumption and investment are weak, as is manufacturing production in Colombia. Argentina is also undergoing a difficult process and, although more lagging than in other countries, has shown signs of milder deterioration of activity, especially concerning manufacturing output. The Mexican economy could sustain good growth and performance in the labor market until the markets became aware of the potential effects of the US elections on trade and migration. This has resulted in weak investment. In this context, the Mexican authorities have taken steps to strengthen their macroeconomic fundamentals, through policies aimed at consolidating public finances, withdrawing the monetary stimulus to deal with inflationary pressures, and managing the exchange rate to counteract the sharp depreciation that the Mexican peso suffered towards the end of last year. In general, the inflation outlook has continued to improve in the region, opening room for further monetary stimulus. | 1 |
They come close to the two ideal forms that I mentioned earlier: in some areas there will be centralisation and discretion; in others decentralisation and no discretion. From November this year banking supervision will be centralised in the Single Supervisory Mechanism (SSM). Bank resolution will also be centralised in the Single Resolution Mechanism (SRM). The latter is particularly important as the legal framework it will BIS central bankers’ speeches 5 implement – the Bank Recovery and Resolution Directive (BRRD) – contains quite some discretionary exemptions, in particular from the new bail-in provisions. For deposit guarantee, there is no centralisation yet. But under the recently adopted directive national schemes will have to meet the same minimum standards for levels and funding, meaning that there is also little discretion. Implementation, therefore, will be key. Fiscal union Banking Union will certainly help reduce the impact of sovereign risk on the banking system. But still, there is little that can be done if sovereigns pursue manifestly unsound fiscal policies. Domestic banks remain heavily exposed to their sovereigns. And any regulatory initiatives to address this issue – e.g. large exposure limits or doing away with the risk-free treatment of sovereign debt – can only be introduced very gradually in order to avoid market turmoil, and most likely only in the context of other governance reforms. Thus, to be consistent, a single banking system and a single currency require a fiscal framework that guarantees budgetary solidity. | Second, what is causing some people to turn against the EU, in my view, is not a dislike of European governance per se; it is a lack of delivery on jobs and growth. If European policy-makers can find better ways to get the most out the European project, I strongly doubt the voters as a whole would be against that. 4. Conclusion Let me conclude. What I have tried to underline today is that a well-functioning market depends on getting the rules, institutions and instruments that govern it right. And the source of the euro area’s difficulties, in my view, is that policy-makers failed to do so. For this reason, it would be wrong to conclude that Europe, or the euro, has failed. It was policy that failed. But importantly, policy can also be fixed. What we need now, therefore, is to finish what we started in 1999 and make the euro area work. We have done much to stabilise the euro area with Banking Union and other reforms; but now we need to find ways to make the euro area sustainably grow. Voters in Europe have overall given policy-makers a mandate to do this; we have a pro-European majority in Parliament. If we do not seize this mandate, however, they may not provide another one. 7 For more details see Rahman, Jesmin and Tianli Zhao. “The Role of Vertical Supply Chains in Boosting Growth”, in Jobs and Growth: Supporting the European Recovery, IMF, April 2014. BIS central bankers’ speeches 7 | 1 |
MAS views seriously the responsibility of banks to safeguard the integrity and security of customer information held by the bank and its service providers. To enhance the protection of critical customer information, outsourcing arrangements involving certain customer information will be subject to a higher standard of care. • Third, a greater focus on FIs’ outsourcing risk management framework. FIs were previously expected to pre-notify MAS of any material outsourcing arrangements, and MAS would impose prudential requirements on the FI, where necessary. With the growing prevalence and complexity of outsourcing arrangements, such a caseby-case approach has become less tenable. Instead, MAS will continue to assess and monitor the robustness of FIs’ outsourcing risk management frameworks while FIs will continue to be responsible for ensuring the safety of all of their outsourcing 4 BIS central bankers’ speeches arrangements. The revised Guidelines will no longer require FIs to pre-notify MAS of any outsourcing arrangements. 24. The Guidelines are not intended to be exhaustive. MAS recognises that the diverse range of outsourcing arrangements and rapid pace of progress in digital technology preclude a prescriptive approach to risk management practices for outsourcing or a one-size-fits-all set of rules. MAS will adopt a risk-based approach in implementing the guidelines. Conclusion 25. Let me conclude. 26. A tougher macrcoeconomic environment and growing complexity of operational and technology risks will place greater demand on banks’ risk management and compliance systems. | The prolonged period of low interest rates presents particular challenges for the banking sector. • First, lower interest rates, a flattening of the yield curve, and lower corporate investment mean net interest income and profits are being squeezed. BIS central bankers’ speeches 1 • Second, low interest rates and investment returns are driving a search for yield among households, asset managers and institutional investors, which could lead to excessive risk-taking and growing financial vulnerabilities. 6. Periodic bouts of heightened volatility in financial markets over the past few years, triggered by events such as the taper tantrum, normalisation of interest rates in the US, transition to a more market-based exchange rate system for the Chinese currency, and just days ago, the UK’s decision to leave the EU, underscore the fragility of global financial markets. At the same time, tightening financial conditions in the emerging market economies (EMEs) as a result of a stronger US dollar have exposed financial vulnerabilities due to excessive corporate and household borrowings in some EMEs. 7. This means that banks have to continue to update their risk management capabilities to cope with a more uncertain environment. MAS as the financial regulator has also been strengthening our risk surveillance and updating aspects of our regulatory framework. This evening I would like to touch on the following: • stress test exercises to ensure resilience to emerging risks; • efforts to enhance cyber security; and • guidelines to strengthen risk management of outsourcing arrangements. | 1 |
Thus, while in the United States there seem to be no gaps and incoming data on prices and wages show more clear inflationary pressures, in the rest the gap is still to be closed and inflation seems bounded (Figure 5). 2 This has widened the differences regarding the expected evolution of monetary policy across economic blocs, triggering movements in interest rates and an appreciation of the dollar globally (Figure 6). This divergence was importantly confirmed at the Federal Reserve meeting yesterday, where along with the approval of the second increase in the federal funds rate for the year, it signaled it would speed up the normalization process foreseen for the next two years. One striking element in the way the external scenario has behaved in recent months is the stronger reaction to news of different sign. Part of it was observed in February, due to higher than expected figures for wage growth in the United States. A similar phenomenon happened more recently relating to the configuration of the government in Italy. Although this is an important economy within the European Union, it had not been common for interest rates, exchange rates and risk premiums to react in such a degree to similar events. This makes us think that changes in the markets’ appetite for risk have made them more reactive to incoming news and the possibility of observing episodes of high volatility seems greater than in the past. In this context, financial conditions facing the emerging world have taken a downward turn. | Figure 10 Oil price (*) Terms of trade (dollars per barrel) (annual change, percent) 80 80 12 70 70 60 50 10 8 8 17 Mar'18 MP Report6 Jun'18 MP Report 4 4 2 2 0 0 -2 -2 40 -4 -4 50 40 12 10 6 60 Dec'17 MP Report 18 13 (*) Simple average of the prices per barrel of Brent and WTI oil. Sources: Central Bank of Chile and Bloomberg. 12 14 15 16 17 18 19 20 Figure 11 Inflation indicators (*) (annual change, percent) 7 7 6 6 5 5 Services 4 4 3 CPI 2 1 CPIEFE 0 3 2 1 0 -1 Bienes -2 -3 -1 -2 -3 13 14 15 16 17 18 (*) As from January 2014 the new indexes with annual base 2013=100 are used, so they are not strictly comparable with earlier figures. Sources: Central Bank of Chile and National Statistics Institute (INE). | 1 |
To that end, several major reforms were implemented, including: Slide 5: Measures were taken • a tax reform which lowered tax rates and expanded the tax base, • abolition of selective support schemes to companies and industries, • an agreement between unions and employers to improve cost competitiveness, and • the establishment of the Goverment Petroleum Fund, Norway’s sovereign wealth fund. Slide 6: Two golden decades A long upturn followed. Norway has not experienced a pronounced economic downturn since the crisis around 1990. The reforms introduced during the 1990s have resulted in a fairly flexible labour market, which has allowed labour supply to adjust to changing conditions. In addition, we have been helped by good fortune in the form of favourable terms of trade. The economy was quite robust when the financial crisis hit in 2008, in sharp contrast to our situation 25 years ago. The policy climate in Norway in the early 1990s may have some characteristics in common with what we see in parts of Europe today. While short-term challenges need to be tackled urgently, a time of crisis may also provide an opportunity to implement structural reforms. In the case of Norway, the commitment and the capacity to implement reform was a critical condition for renewed and sustainable growth. The Fund and fiscal policy The Act relating to the Government Petroleum Fund was passed in 1990. | Our average ownership in listed European companies is almost three times our average holdings in Asia or the Americas. Slide 12: Changing regional allocation (starting point) At the start of this year, more than half of the Fund was invested in Europe. As the Fund has grown, we have come to realise that a more even distribution between regions will better enable the Fund to take part in global value creation. Slide 13: Changing regional allocation (target) Recently, a new principle for the regional allocation of the Fund’s assets has been approved. A consequence of this principle is that the relative allocation to Europe is reduced. The Fund’s relative holdings in the Americas, Asia and emerging economies will increase accordingly. For the Fund as a whole, a more even allocation across regions will improve the overall long-term trade-off between risk and expected return. In accordance with the new allocation of the Fund’s assets, new purchases will primarily be made outside of Europe, until the adjustment process is completed. As the Fund receives inflows of fresh capital on month-by-month basis, we are able to undertake the adjustment through new purchases. This will ensure a gradual process, and will not entail a large sell-off on our part. Instead, the effect will be merely a temporary drop in our purchases of European assets. Under the new principle, the Fund will still be overweight in European assets, compared to a market neutral position. | 1 |
Svein Gjedrem: The conduct of monetary policy Introductory statement by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at a hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 1 December 2003. Please note that the text below may differ slightly from the actual presentation. The statement is partly based on the assessments presented in “Report on monetary policy in 2003 - the first eight months” and Norges Bank’s Inflation Report 3/2003. The Charts in pdf can be found on the Norges Bank’s website. * * * I would like to thank the Storting for inviting Norges Bank to appear for the first time before this Committee to report and answer questions on monetary policy in connection with the Storting’s deliberations on the Government’s credit report. The mandate The operational target of monetary policy as defined by the Government is inflation of close to 2½ per cent over time. The target is symmetrical - it is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. The inflation target provides an anchor for economic agents’ expectations concerning future inflation. It provides an important basis for choices concerning saving, investment, budgets and wages. Households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in Norway will be 2½ per cent over time. We have a very open economy with free capital movements. | It may be useful to distinguish between three channels through which monetary policy operates: • The demand channel • The exchange rate channel • The expectations channel The effect on inflation of changes in interest rates occurs with a lag and may vary in intensity. In the time it takes for a change in interest rates to feed through, other factors will also have an impact resulting in changes in inflation and output. We cannot assume that the various relationships are entirely stable. As interest rates fall, household and municipal consumption and investment will tend to accelerate. This is because they have more money left over after servicing their debt and because borrowing is less expensive. Corporate finances are strengthened and investment may become more attractive. Higher demand leads to higher output and employment. Wage growth may pick up. Higher wage growth combined with higher profit margins will result in higher inflation. The effect of interest rate changes may be amplified because the interest rate also affects the krone exchange rate. When interest rates are lower, more people will borrow money and fewer will invest in NOK. Lower interest rates will thus normally lead to a depreciation of the krone. Imported goods will then become more expensive and inflation will accelerate. A weaker krone also boosts exports and improves 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. | 1 |
Neither the new technological solutions nor the financial products developed based on them can sell themselves. And again I would use the payments services as an illustration. In the recent two years our joint efforts ensured the connectivity to TARGET 2, the national system for euro-denominated payments, and its interface with major analogical systems in the European Union. This provides much greater possibilities for payment intermediation at low BIS central bankers’ speeches 1 cost. At the same time, these possibilities are almost in no way reflected in the banks’ marketing and product strategies. Other similar situations can be identified. Endeavors are made to create a new product, but the efforts needed for developing the necessary infrastructure for its use and marketing, in spite of the efforts and investments made for the latter, may turn to be much greater, as is the case with mobile payments. I made this small aside comment with the intention to be useful, and not edifying. I am very well aware that the participants in this event are primarily managers and experts in the information and communications technologies. At the same time, it is a well-known fact that maintaining and developing the technological level of financial intermediation is owing to your efforts, but if you are to enjoy the results, you need the efforts of all your other colleagues, to which you are immediately connected. By way of conclusion I would like to underscore the progress I see achieved in the information and communications technologies, which is not trifling. | Dimiter Kostov: The world of finance is becoming more IT Address by Mr Dimiter Kostov, Deputy Governor of the Bulgarian National Bank, Banking Department and Fiscal Services Department, before the participants in the 14th Financial IT Forum “The World of Finance is Becoming More IT”, Sofia, 19 April 2012. * * * Ladies and Gentlemen, On behalf of the Bulgarian National Bank, I have the honour to congratulate you with the opening of the 14th Financial IT Forum. This Forum has established itself as an annual opportunity to share experience and ideas, and to view the prospects opened to the financial sector by the information and communication technologies. These results are undoubtedly owing to the organizers of the event, but what is of no less importance is your interest to it. From the point of view of the business, times are still hard for financial intermediation. In the conditions of volatile international financial markets and an unstable economy, the Bulgarian banking system is coping well with the challenges and remains stable. The levels of capital adequacy and liquidity remain high. Irrespective of the increased impairment costs the banking system continues generating positive results. It is of no little importance, too, that in these conditions the banking system managed to preserve and even to slightly increase its loan portfolio. In the recent three years the economic activity in the country has contracted by about 3 percent, while the loan portfolio not only did not contract, but grew by about 8 percent. | 1 |
But, above all, it has been a key tool for ensuring the maintenance of affected employees’ income and for improving the prospects of recouping employment once the restrictions on activity imposed by the state of alert are lifted. The particular characteristics of this shock, which temporarily shut down many workplaces, and the incentives approved for the use of this instrument after the state of alert was declared have contributed to a much greater resort to ERTEs than in past crises. Hence, if we focus on the arrangements available for permanent employees, at end-April the number of workers affected by an ERTE totalled 3.4 million. Since then, this figure has fallen significantly. Moreover, on the information available, only a very small portion of wageearners who have emerged from this situation have gone into unemployment or become idle, whereas most of those affected have returned to their pre-crisis job. These developments are qualitatively consistent with the objective pursued; namely, that ERTEs would be a temporarily used tool while the transitory shutdown in activity lasted. In late June, coinciding with the end of lockdown-easing, 1.8 million workers continued to avail themselves of an ERTE. This figure is almost half the end-April peak and accounts for close to 10% of total wage-earners, confirming that one of the characteristics of this recovery is its incompleteness. From the standpoint of the labour market, what we have is also an uneven recovery. This is because the reduction in the number of workers on ERTEs has been very uneven across the productive sectors. | And clear as authorities with each other to confront the obstacles and difficult questions around firm failure upfront and find answers to them. Resolution planning will be a constant from here for firms and authorities. CMGs held annually or semi-annually have been central to this effort. Incrementally, resolution plans for G-SIBs have come into focus in CMGs. The resulting plans have then been endorsed by senior policymakers from the authorities around the table in CMGs in the Resolvability Assessment Process (RAP). In RAPs for each firm, the plans have been reviewed, barriers 1 Financial Stability Board (2015) ‘Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution: Total Loss-absorbing Capacity (TLAC) Term Sheet’. 2 Financial Stability Board (2014) ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’. BIS central bankers’ speeches 1 to resolvability identified and agreement reached on how, and on what timeframe, they will be removed. This way commitment has been secured from all the authorities in CMGs to the plan ex ante. But perhaps more importantly, there is a network of people who have worked through these questions together and have a degree of mutual trust and reliance that will enable us to get to a co-operative outcome cross-border in a way that has often failed us as authorities in the past. We will need to continue to ensure that these contacts are maintained and deepened. Ultimately they are what will make resolution work for international banks. | 0 |
Victoria Cleland: Global action to enhance cross-border payments Speech (virtual) by Ms Victoria Cleland, Executive Director for Banking, Payments and Innovation of the Bank of England, at the Silk Road Cash & Payments conference, Almaty, 29 March 2023. *** Cross-border payments are crucial to the smooth functioning of the global economy, and their importance is growing in our ever more interconnected, global digital economy. The value of cross-border payments is forecast to increase from almost $ trillion in 2017 to over $ trillion by 20271. Yet cross-border payments are typically, though I want to stress not always, slower, more costly, less transparent, and harder to access than domestic payments. And this impacts not just big wholesale players but consumer and remittance payments too. There are instances of payments taking up to 10 days2 and costing more than 10%3 of the payment value, and all too often with timing and cost unknown upfront. The G20 made enhancing cross-border payments a priority in 2020 and developed a roadmapOpens in a new window for delivering improvements. Since then, organisations from around the world have come together and made significant strides to lay the foundations for enhancing cross-border payments. | This can best be achieved when the largest possible number of the community’s members are involved. 4 Individuals are at the same time citizens and economic subjects, thereby creating a crucial interdependency. Proper integration into a balanced economic environment is an important prerequisite for developing a sense of common purpose - in other words, identifying with society and thus also displaying a willingness to actively help shape its progress. This ultimately means that economic and social development can only progress in a sustainable and balanced way if an appropriate equilibrium can be maintained between them. 5. Even at a time when global economic and social developments are becoming more and more closely intertwined, being an integral part of a national community still plays an important role. It is still essential that these national communities should strive first and foremost to keep their own house in order - a house, though, which should not just be stable but open as well. 6. Ensuring the stability of the financial system is one of the core tasks of the supervisory authorities and of the central bank in its capacity as lender of last resort. However, the market players’ sense of individual responsibility is also of key importance. If a third party is to offer assistance in a system run on free market principles, this can and should be seen as nothing more nor less - than helping the others to help themselves. BIS Review 26/1998 | 0 |
Ardian Fullani: The fight against money laundering Luncheon speech by Mr Ardian Fullani, Governor of the Bank of Albania, at an Anti Money Laundering workshop, Tirana, 22 June 2005. * * * Dear participants, The subject of today’s workshop is, as you well know, a matter of great concern worldwide. The way we fight money laundering (ML) and counter the financing of terrorism (FT), does not have an impact on us only, but also on our neighbours and any other country with which our citizens and companies perform trade and financial relations. In these last years, to this issue has been devoted considerable time and efforts by you, by Albanian authorities and by international organisations. Besides meeting each other again and exchanging opinions on general issues, I want to use this opportunity to share with you some thoughts about the importance of the existence of a culture against ML in the institutions we represent. I will refer in this case to banks, meaning non-bank financial institutions as well. Following that, any consideration about ML will be valid also for the FT, for which I am convinced that our awareness and that of the public, is complete. With the term “culture” on anti-money laundering (AML), I refer not only to the existence in the bank of structures responsible for AML and its related procedures. | Similarly European resolution authorities setting MREL in the EU will need to consider how to go from MREL in current liability structures to an MREL that ultimately meets the BRRD objectives. The RTS allows transitional MREL to be set until 2020. Work needs to be done to clean up existing liability structures to make them consistent with requirements. This is firm level work which will be addressed as part of the resolution planning process. Let me give you some examples of what I have in mind. • My first is structured notes. Some respondents to the FSB consultation suggested the blanket exclusion of structured notes from TLAC should be relaxed. We are reflecting on that. But the current situation is that in many cases structured notes have been issued to meet the needs of often quite small pockets of investors. The result is that some firms have many thousands or even tens of thousands of notes outstanding each with different structures and embedded derivatives. Trying to value all these instruments and bail them in would be a barrier to making resolution work. And as such will need to be addressed as part of the resolution planning process for a particular firm. • My second example is non-equity capital instruments issued out of operating companies. As I described earlier, SPE strategies are built around putting only the top company in a group into resolution and avoiding legal risk and the potential dislocation of systemic functions by keeping operating subsidiaries outside resolution. | 0 |
Neither of these models is likely to fit within the regulatory regime for payment stablecoins, though they may fit within other regulatory regimes. In the first case, to be acceptable as a means of payment at systemic scale, stablecoins will be required to meet redemption at par on demand which is inconsistent with an investment product. In the second case, the issue of liquid liabilities that can be used as money in return for illiquid debt obligations is the banking business model and issuers of tokenised money who wish to pursue credit creation will need to be regulated as banks. This brings me to the second area, the issuance by commercial banks of new forms of digital money to be used on new payment rails – in the form of ‘tokenised’ bank deposits. These might offer some or all of the functionality and efficiency claimed for stablecoins, allowing banks deposits to compete better with non-bank payment coins. Some banks in the UK and in other jurisdictions have been exploring and investing in the development of tokenised deposits as settlement assets on new forms of ledger (eg DLT). The majority of this effort appears to have centred on wholesale as opposed to retail financial transactions[16], though there are signs that attention is now being given to tokenisation of retail deposits[17]. In regulatory terms, the tokenisation of bank deposits is a much simpler proposition than nonbank stablecoins. | Spain is trading between –45 bps and –50 bps. Italy is now trading below –40 bps1. And for Austria, Belgium and The Netherlands, rates have been moving downwards as well. One could say that whereas in the past the repo market was largely characterised by “collateral chasing cash”, today the main dynamic in some markets appears to be “cash chasing collateral”. The evolution of repo rates for different collateral classes over reporting dates suggest that the old pattern still exists in parallel with the new. As I will argue below, this observation provides a key to understanding the roots of these developments. New dynamics in the short term funding markets unsurprisingly lead to debate in the financial industry. There are concerns about short-term borrowing costs swinging sharply at the end of reporting periods, creating volatility and potentially spilling over into government bond markets – an effect we have indeed seen for core general collateral (GC) collateral. And some observers fear collateral scarcity might herald more general disruptions to the “plumbing” of the financial system, which would be especially problematic given ongoing structural changes in financial intermediation. Activity is after all shifting increasingly from banks to non-banks, and marketbased finance is, by and large, organised around collateralised lending. Perhaps inevitably, some point the finger at monetary policy, and in particular at the side-effects of the ECB’s asset purchase programme. The substantial creation of liquidity by the APP is argued to have pushed unsecured lending rates to the deposit floor, causing secured lending rates to fall even lower. | 0 |
9 See Tucker P M W (2006), “Reflections on Operating Inflation Targeting”, a speech at the Graduate School of Business, University of Chicago, May 2006. 10 Tucker (2009e), op. cit. BIS Review 21/2010 7 carried away beyond anything warranted by fundamentals. Regulators need to be a bit less disposed to find fundamental explanations for any degree of financial appreciation, and a little more alert to market participants themselves saying, as many did, that risk is underpriced. That does not of itself mean that monetary policy should be more timid in trying to repair deficiencies in nominal demand. But it does underline the need, as I said a few years ago, to take care that the remedy for one set of imbalances does not lead to another. And this is especially important if, as would seem to be the case, monetary policy is capable of generating prolonged periods of stability at an aggregate level that lead financial market participants to believe mistakenly that the world is less risky than is actually the case. It is all very well saying that the cognitive biases of economists and the authorities should change slightly, and that our mindset should at times be a bit more lateral. But do we, in actual fact, have any instruments for doing anything about threats to stability from credit bubbles that are not associated with burgeoning nominal demand and inflationary pressures? That is precisely what the “macroprudential instruments” debate is about. There is increasing interest in these possibilities. | To achieve the 2% inflation target over the medium term but at the cost of an avoidable depletion of the economy’s supply capacity would not be congruent with the MPC’s Remit, which includes supporting growth and employment in so far as that is consistent with the overriding goal of price stability. I was glad that the “effective supply” way of thinking about this was reflected in our latest Inflation Report. But I would readily concede that we must not lose sight of the potential “speed limit” effects that featured in our November Report. Given the need for some rebalancing in the pattern of demand and activity, and the likely lags in firms bringing even suspended capacity back on-line, bottlenecks are a distinct possibility. We will need to be especially alert to messages from the Bank’s Agents, to survey evidence, and to data on productivity, wages and prices for any sign of inflationary pressures. Volatility of inflation, and inflation expectations The Committee’s strategy has warranted maintaining the very substantial monetary stimulus notwithstanding the marked pick-up in inflation over recent months. As the Governor explained at our press conference a fortnight ago, we think that the recent rise in inflation is accounted for mainly by the increase in petrol prices, the restoration of VAT to 17.5%, and lagged effects of sterling’s substantial depreciation. But we can’t be, and aren’t, comfortable about it. Not least because the country has to trust us that these will be temporary disturbances. | 1 |
This can lead to many unemployed people losing work-related competence, which can further limit their opportunities on the labour market. Figure 1. Labour force participation and matching efficiency, before and after the financial crisis (a) Labour force participation (b) Matching efficiency 74 74 0.3 0.3 73 73 0.15 0.15 72 72 0 0 71 71 -0.15 70 70 Average 2000-2007 and 2010-2018 -0.15 Average 2000-2007 and 2010-2018 00 04 08 12 16 -0.3 00 04 08 12 16 -0.3 Note: Annual percentage change and deviation from the mean value respectively, matching efficiency refers to deviation from a historical mean value. A negative value refers to a lower matching efficiency than the average. Sources: Statistics Sweden and own calculations Taxation and compensation systems determine to a large extent how the labour market functions. This affects the employees’ incentives to take part in the labour force and accept new job offers. One important factor in this context is the employees’ compensation rate – unemployment benefit in relation to wages. This determines how much of his or her income an individual can retain if he or she becomes unemployed. The compensation rate has declined steadily since the beginning of the 2000s, with the exception of the years 2015-2016, see Figure 2a. | 21 In other words, monetary policy decision-making is surrounded by various different types of uncertainty. At the Riksbank we grapple with issues such as: Which shocks are currently the driving force behind the business cycle? Which forecasting model gives the best forecasts? How large is the effect of a change in the interest rate on inflation? What characterises well-balanced monetary policy? How should the risk of low inflation be balanced against increased risks for financial instability? Is the data correct? Should special attention be given to really negative scenarios? Figure 13. The Riksbank's forecasts on labour force participation and GDP growth (a) Labour force participation (B) GDP growth Note. Thousands of persons, aged 15-74 and annual percentage change. The figure shows the Riksbank’s forecasts for labour force participation and GDP growth 2013–2019 (February). Sources: Statistics Sweden and the Riksbank There has been greater interest in how to take into account uncertainty in the monetary policy decision-making process since the financial crisis. This has often been about finding a structured way to take into account the uncertainty in the monetary policy decision. Unfortunately, I must say that the answer to this question is not exactly easy and that it can probably be best summarised as “it depends”. In practice, there are three approaches a policymaker can take with regard to uncertainty. He or she can act more forcefully, more cautiously or as if the uncertainty did not exist. | 1 |
If however action were needed on financial stability, this would be effected chiefly through temporary liquidity instruments, which would not conflict with the increase in interest rates needed to ensure price stability. II. A plea for more focused multilateral cooperation Be they energy price pressures or financial spill-overs, the challenges currently faced by central banks require more than individual actions – they call for strong and effective multilateral impetus. I say it here in Washington, during the IMF Spring Meetings. However, the tide has been turning the other way since the Russian invasion of Ukraine. As geopolitical rifts deepen and trust fades, it is becoming more and more difficult for the G20 to deliver on its mandate, despite remarkable efforts from the Indonesian and now the Indian presidency. We need to find pragmatic ways forward to overcome deadlocks in global action and adapt to the new realities. Alternatives to multilateral cooperation, such as regionalism, “minilateralism”, ii or “polylateralism” iii can usefully supplement it. Working on smaller scales, or relying on non-state actors could help achieve breakthroughs. Yet they cannot replace it. They lack the global reach of international state cooperation.iv Hence my call for a focused or pragmatic multilateralism. v The principle is simple: rather than pursuing an exaggerated ambition, focus at present multilateral efforts on a few selected global issues, where there are clear common interests. | In my view, without pretending to be exhaustive, these global issues on which Page 6 sur 7 interests and deliverables could converge encompass the following three “Cs”: climate, crypto-assets, cross-border payments. 1. Of course, addressing climate change comes to mind first. In the wake of the IPCC’s January Synthesis Report, it is estimated that if emissions continue at current levels, the carbon budget to have a 50% chance of limiting global warming to 1.5°C with limited overshoot would run out in around six years. The latest IPCC report is the final warning from the scientific climate community to all of us policy makers. From a financial standpoint, the collective priority is to make green finance more mature. The path is clear: better data and better standards will allow us to shift from voluntary to mandatory climate-related disclosures, and still more developed climate stress-tests and transition plans for all financial institutions. At the international level, we must ensure the convergence, or at least the interoperability of the various disclosure standards currently under development. ISSB should be the international standard, and be assured the European standard – EFRAG – will be somewhat more demanding but fully compatible. 2. Second, crypto-assets. In light of last year’s debacle, there is a broad consensus in international fora on the need to regulate them. But this consensus must now be leveraged and translated into concrete action. | 1 |
04 05 06 07 08 09 10 11 12 13 14 0 Source: Emerging Portfolio Fund Research Global and Bank calculations. (a) Changes in assets under management may partly reflect changes in sample coverage. BIS central bankers’ speeches 11 Chart 5 UK life insurance liabilities by type(a) Chart 6 Change in equity allocation of US and French life insurers over time(a) 40 £ billion Non-profit non-linked 1400 With-profit 1200 Unit-linked 91 94 97 00 03 06 09 12 6 4 800 10 2 600 0 200 88 30 8 20 1000 400 85 8Q cumulative change to equity allocation, percentage points Smoothed annual growth, per cent 0 96 99 02 05 -10 -20 -30 08 11 0 -2 US (right-hand scale) France (right-hand scale) S&P 500 (left-hand scale) -4 -6 (a) Technical reserves net of reinsurance Source: National flow of funds Source: S&P SynThesys (regulatory returns) and Bank calculations. (a) The 8Q cumulative change to equity allocation is calculated using an 8 quarter moving-sum. Reallocation into equities is calculated as the difference between the allocation in equities at time t and allocation into equities at time t-1, measured in percentage points. | The strongest pension funds reduced significantly their allocation, effectively cutting it in half, while weak funds maintained or increased their allocation. By the end of the period, the strongest funds had half the equity allocation of the weakest. At one level, these portfolio reallocations made sense – the strongest protecting their surpluses by de-risking, the weakest trying to close their deficits by re-risking. Yet, from a longer-term or societal perspective, these reallocations are troubling. To cushion the risk cycle, we would wish to see stronger long-term investors purchasing risk when it was cheap. That would benefit both investors and the economy. Capital that can afford to be patient should be patient. But those funds with the strongest shoulders appear instead to have ducked for cover, while the weakest appear to have engaged in a gamble for resurrection. In the longer-term, this type of behaviour is likely to worsen returns to investors. It will also amplify cycles in the financial system and economy by draining risk-taking when it is already weak. Patient capital ought to part of the solution to the long-term financing puzzle. In practice, it may have been part of the problem. Regulatory policy That naturally begs the question of what, if any, policy response might best deal with the risks and opportunities asset management poses. From a potentially long list, I will focus on three areas. First, Too-Big-to-Fail. Here, the jury is still sitting. | 1 |
Compare, for instance, the IT bubble at the beginning of the 2000s with the current crisis, where a bubble in the US housing market played a key role. Although the IT bubble resulted in heavy stock market falls and hit many investors hard, the crash did not have major effects on the real economy, which stands in sharp contrast to the effects of today’s crisis. The same applies in a comparison with the Swedish financial crisis at the beginning of the 1990s. A decisive difference between a stock market bubble and a property market bubble is that the latter is almost always linked to an untenable credit boom. When house prices rise, the value 2 BIS Review 70/2010 of the underlying assets increases, which gives scope to borrow even more with this asset as collateral. At the same time, increased lending provides more purchasing power, and this contributes to prices rising even more. It becomes a self-reinforcing spiral that can be very powerful – both in the upward phase and the downward phase. When the upward spiral is broken, there is a turnaround and a rapid downward spiral, which is probably much quicker than the upturn. Prices fall, the mood becomes increasingly negative and lenders and borrowers become increasingly unwilling to take on risk. The banks’ loan losses increase. The result may be a long period when households and companies hold onto their money more firmly to reinforce and balance their finances. Consumption and investment are weak and lending is restricted. | I usually mention an example from the 1990s crisis when talking about this phenomenon; in 1989 the requirement for direct return on the commercial property market was around 4 per cent. A risk-free five-year government bond provided up to 12 per cent interest. But the 4 BIS Review 70/2010 market preferred to invest in an unsecured property asset to a covered bond with a return of 8 per cent more! It takes a lot to defeat that kind of optimism. But the exact size of the increases in the policy rate that are necessary would probably vary from situation to situation. Under certain circumstances it may even be enough to make very small increases. In the world of theory, everyone tries to stay well-informed with regard to for example the most probable development of the interest rate. But this does not mean that things always work out this way in reality. Smaller interest rate increases combined with successful communication can function as a clear signal that the central bank regards the current situation to be untenable. It can contribute to correcting or at least dampening irrational behaviour. If a central bank were to judge that developments in property prices and lending were beginning to give cause for concern, it would also be rather strange, in my opinion, if the governor or governors were to just sit there and not do anything on the grounds that the policy rate would probably need to be raised a lot. | 1 |
The New York Fed has maintained a gold vault used to store the gold reserves of foreign central banks since 1924 when construction of its main building was completed. Prior to 1924, the New York Fed held gold in custody for foreign central banks in other nearby vaults, such as the one maintained by the New York Clearing House. 12 Defined in general terms as “an arrangement under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks.” See the glossary of terms used in payments and settlements, published by the Committee on Payments and Market Infrastructures of the Bank for International Settlements. 13 Perhaps the most vivid historical example of this involved large-scale flight-to-safety flows of European central bank gold reserves to the vaults of the New York Fed during the Second World War. In addition to safeguarding their gold reserves from the Axis powers, inflows of gold were used by Allied nations to finance their purchases of war supplies from the U.S. 14 The Federal Reserve’s Bretton Woods swap lines with foreign central banks were first established in 1962 and used extensively until the collapse of the Bretton Woods fixed exchange rate system in the early 1970s. 15 The mechanics of currency swap operations among central banks is a case in point. | President Wilson, having won reelection in 1916 on the claim of having kept the U.S. out of the Great War and observing strict neutrality, had directed the Federal Reserve Board in Washington to issue a clear-cut warning to U.S. banks not to invest in a pending large placement of British Treasury bills in the U.S. market. The immediate and worldwide effect of the statement was to give the impression that the U.S. had “broken with Britain,” an impression which officials were soon scrambling for ways to counteract.5 The result was the Federal Reserve Board’s decision, contrary to the terms of the account negotiations and to the consternation of the New York Fed, to unilaterally announce to the public the account agreement with the Bank of England. The whole episode spoke perhaps to the Fed’s inexperience in matters of delicate international financial diplomacy. In any event, the Bank of England magnanimously let the matter slide— noting that mistakes “may arise even in the best regulated families”—and the account agreement was executed on May 3, 1917 and operationalized on June 20, 1917.6,7 Andrew Hauser will provide more insight into this fascinating period in his remarks in a few minutes. As expedient as the accounts were for wartime needs, the historical records show they were also motivated by ambitions of the Fed’s first leaders to establish the dollar as a major international currency and, for Benjamin Strong, to establish New York as a great international financial center to rival London. They had their work cut out for them. | 1 |
Its average holding in European companies is today around three times as high as in the Americas and Asia. The chosen regional distribution is related to Norway’s import pattern and has been viewed as a form of currency hedging. But the result has been that a large proportion of the Fund is invested in a region that has experienced weak growth over the past decade. Analyses show that exchange rate risk in the Fund is relatively small and less than previously assumed. Based on these findings, the Norwegian Government has decided that the relative share of European investments should be reduced over time, so that the Fund’s geographical diversification is further improved. A more even distribution of the Fund’s ownership will provide us with the opportunity to take part in value creation in regions with strong growth. This implies a reduction in the allocation to European equities and an increase in the allocation to the Americas and emerging economies. High economic growth in Asia may provide sound returns on investments in that region, even though today’s equity prices already reflect expectations of higher growth in eastern than in western regions. A more even distribution will nonetheless improve the trade-off between risk and expected rewards. Petroleum revenue spending Norway as an oil nation stumbled at the start. The current account surplus at the end of the 1960s had reversed to a deficit of 12 percent of GDP by 1977. The deficit was three times as large as that recorded by Italy and Spain last year. | Caleb M Fundanga: Media relations and the Bank of Zambia – a healthy interaction Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Bank of Zambia 12th Media Seminar, Ndola, 5 October 2007. * * * • The Chairperson • Distinguished Journalists • Invited Participants • Ladies and Gentlemen On behalf of Bank of Zambia and indeed my own behalf, I am pleased to welcome you all, to this Bank of Zambia sponsored annual seminar, which is the 13th in the series. Further, it is also my great pleasure to welcome you to the City of Ndola. Ladies and gentlemen, as it is normally the case, some of you are participating for the first time. For those of you that are participating for the first time, let me inform you that this is your seminar and I urge you to participate freely and effectively. I know that your friends who have participated in the seminars before, will agree with me that, every year that we meet at such a forum, we meet as “partners” and it is certainly in the interest, of not only us gathered here but the nation at large that this spirit is exhibited through out this seminar, and beyond. In fact, let me thank the media for having embraced this partnership and worked towards maintaining it. The Bank of Zambia-Media relations have been quite healthy, partly due to annual interaction through Media Seminars. | 0 |
2/2003, Summer 2003. Tsatsaronis K., Systemic financial risk and macroprudential supervision, article presented at Bocconi University Centennial Conference on risk and stability of financial system: what roles for regulators, management and market discipline, 2003. 6 2 Rybiński K., Globalizacja w trzech odsłonach, Difin, Warszawa 2007. BIS Review 134/2007 market. The currently effective legislation may contribute both to aggravating the supplydemand imbalance which supports the divergence of stock prices from the fundamentally reasonable levels and also towards the growth in the scale and impetus of price adjustments, should a bubble burst. Open pension funds are one of the main sources of demand on the stock market. From their very beginning, they have recorded average monthly inflows of PLN 870 million, the value of equities in their portfolio have exceeded PLN 51.5 billion, whereas their share in free float has amounted to ca. 22%. The assets held by open pension funds are likely to continue their rising path. As estimated, their credit debit balance will stabilize to report a balanced position only in 2031 7 . In addition, the past quarters saw high demand of investment funds for equities. Meanwhile, despite a large number of debuts, the value of equities introduced to the Warsaw Stock Exchange is relatively low. By way of illustration, in 2004, the value of public offers amounted to PLN 13.2 billion (including PLN 7.9 billion of PKO BP's issue); in 2006 it was PLN 4.2 billion, whereas in the first nine months of 2007 it was PLN 6.4 billion. | I believe that joint actions must be undertaken in order to minimize the threats of asset bubbles resulting from effective regulations in the sector of open pension funds, to better diversify investment portfolios as well as to enhance the sector’s prospective levels of return. In order to achieve those goals, we have to commit ourselves to: • increase the limit on foreign investment and gradually modify some terms and conditions of using them from the current level of 5% to 30% of assets, • allow open pension funds to take recourse to derivatives with a view to hedging their investment portfolios, • in a longer perspective, gradually raise the open pension funds’ limit on investment in equities from 40% to 60%. Pension funds should invest a large part of their portfolios in equities because the return on equities should exceed that of debt instruments over a long horizon. CalPERS, the world’s 7 Rozwój systemu finansowego w Polsce w latach 2002-2003, Narodowy Bank Polski, December 2004, p. 120. 8 Regulation of 13 September 2005 concerning the deposits of a pension fund, Polish Journal of Laws – Dz. U., No. 186/2005, item 1549). 9 Regulation of 20 December 2005 repealing the regulation concerning the deposits of a pension fund, (Dz. U. No. 260/2005, item 2180). BIS Review 134/2007 3 largest pension fund, invests 45% of assets in equities on the US market and 20% in equities quoted on foreign markets. | 1 |
This is achieved through the intermediation process to facilitate trade, business and investment. This will facilitate the integration of the Islamic financial system as a viable component of the global financial system. It is the ability of the Islamic financial industry to build institutional capacity, intensify the collaborative efforts to strengthen the effectiveness of the Islamic financial infrastructure, and the acceleration of its global integration that will provide the synergies and opportunities for the Islamic financial industry to evolve into an important component of the international financial system that can contribute to greater global financial stability and enhance the prospects for a more balanced global growth. BIS Review 3/2004 7 | What is certainly true, as I’ve argued throughout this speech, is that such tradeoffs should not exist when the costs of emissions have been effectively internalised, and capital market structures have fully matured. That must be our ultimate goal. The choice of potential investment strategies is a live issue for the Bank of England too, as a market participant in our own right. Most of our asset holdings consist of UK government securities. But 2% of the Bank’s Asset Purchase Facility consists of sterling corporate bonds, acquired as part of the MPC’s quantitative easing programme. As we stated in our TCFD disclosure, the framework for the MPC’s asset purchases is determined by the Committee’s remit given to it by the Chancellor. But, subject to the Government indicating a willingness to update this remit, we will over the coming year be considering how to incorporate climate factors into decisions on the mix of financial assets, whilst still achieving our policy aims. We will have much to learn from the range of approaches already adopted in the private sector. Conclusions So where does this all leave us? One thing is clear: there is a lot to be positive about – capital markets are innovating, and rapidly, in response to the very real rise in demand from clients, businesses, investors and public authorities to take 20 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 20 climate risk and return seriously. And that innovation is beginning to drive some hard-edged price discrimination based on climate risks. | 0 |
Exchange rates are yet another financial price that should be stabilised to effectively contribute to the promotion of the growth of the real estate industry, particularly that a substantial amount of building materials, such as, steel are imported. An unpredictable behaviour of the exchange rate can make investment in real estate unattractive. However, following the introduction of the Broad-based Interbank Foreign Exchange System (IFES) in July 2003, the exchange rate of the Kwacha against major foreign currencies, particularly the US dollar, has been relatively stable. The Kwacha appreciated by 2.6% against the US dollar in 2004, after depreciating by 7.2% in 2003. Other factors contributing to the relative stability of the Kwacha include strong performance of the external sector, prudent fiscal management, and the broad weakness of the US dollar in the international market. From the behaviour of the exchange rate of the 2 BIS Review 46/2005 Kwacha against major currencies, it is clear that, supported by effective supervision, foreign exchange market participants are able to police themselves and instil discipline in the market. Ladies and Gentlemen Allow me, at this juncture, to turn to the other function of the Bank of Zambia – that of ensuring financial system stability. As you may be aware, financial system stability is very critical to the maintenance of macroeconomic stability. As a matter of fact, monetary policy would not be effective in pursuing the inflation objective if the financial system were not stable, for monetary policy actions are transmitted through financial institutions. | 5 In addition to New Zealand and Norway, the central banks in Sweden, the Czech Republic and Israel currently publish interest rate forecasts. In addition, the Federal Reserve publishes the individual interest rate forecasts of the members of the Federal Open Market Committee (FOMC). 6 Norway’s sovereign wealth fund (the “Government Pension Fund Global”) is managed by Norges Bank Investment Management (NBIM) and is invested in international capital markets. 7 For details on our institutional framework, see Qvigstad, J. with I. Fridriksson and N. Langbraaten (2013): “Monetary policy committees and communication,” Norges Bank Staff Memo 2/2013. BIS central bankers’ speeches 3 [Chart:Timeline: The first years of Norges Bank forward guidance] In 2004, we started to publish our first quantitative guidance in the form of a “strategy interval” for the key policy rate four months ahead. In November the following year, we published for the first time our own interest rate forecast for the next three years. Prior to that, we had established and published criteria for an appropriate interest rate path. 8 Up until November 2005, the analyses and forecasts in our reports had been based on either a constant interest rate path or an interest rate path as implied by the forward market. At this point however, our conclusion was that it would be easier to interpret, evaluate and communicate our view of the economy when it was based on a path for the interest rate that we considered to be appropriate. | 0 |
*** Returning to the present day, a little more than eight years after Europe’s leaders signed the Treaty of Maastricht and agreed on the necessary framework and timetable, we now have a functioning EMU with a single European currency. Nonetheless, I would not be surprised if, to some external observers, EMU might at first glance appear rather unusual and perhaps even somewhat confusing. This is no doubt a consequence of some of the specific features of EMU that I should take some time to explain. This also holds true of the European Union, which still does not fully correspond to the model of a union you may have in mind, namely the United States. Starting from basics, I should point out that some of these specific features relate to the fact that while the European Union is comprised of 15 Member States, only 11 of these have so far adopted the euro. We cannot therefore talk about the single monetary policy of the European Union, but rather, for this purpose, we must instead refer to the euro area, the euro zone or, as some people have chosen to call it, Euroland. A similar problem arises when we wish to refer to the authority responsible for the conduct of the euro area monetary policy. The Treaty establishing the European Community stipulates that this policy is to be conducted by an independent European System of Central Banks (ESCB), which comprises the European Central Bank (ECB) and the national central banks of the 15 EU Member States. | Strong growth in the world and in China and India are driving a very good terms of trade scenario, together with good access to our products in world markets. Thanks to its openness and to its macroeconomic policy framework, Chile has reaped the benefits of this good scenario both in the sense of reaching average growth close to the trend and in accumulating resources that may permit to prevent a real appreciation while ensuring funding for public spending, should the terms of trade deteriorate. This policy framework permits to prevent episodes of unsustainable expansion and crises that came with terms of trade cycles in the past. BIS Review 87/2007 5 | 0 |
Zeti Akhtar Aziz: ASEAN – a dynamic region with diverse strengths Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the International Symposium “Ten Years After the Asian Currency Crisis: Future Challenges for the Asian Economies and Financial Markets”, hosted by the Center for Monetary Cooperation in Asia (CeMCoA), Bank of Japan, Tokyo, 22 January 2007. * * * Ten years after the crisis, ASEAN stands out as a dynamic region with diverse strengths. With a growing population of over 550 million, ASEAN remains one of the fastest growing regions in the world (2005: 5.6%; world: 4.9%). The combined GDP of the ASEAN economies is expected to exceed USD 1 trillion in 2007. This growth has been extensive and includes all the developing economies in the group. The ASEAN economies have always been highly open economies, with total trade accounting for more than 130 percent of GDP and the value of trade flows now exceeding USD 1 trillion. In view of this high degree of openness, ASEAN has also always been vulnerable to external developments. The ASEAN economies have however demonstrated, time and again, their capacity to rebound from adverse shocks, and to do so within a short period of time. While the 1997 – 1998 crisis was devastating, most ASEAN economies were able to restore stability and resume growth just after a year. ASEAN has also continued to weather other both regional and international shocks that have since occurred. | Whereas it was once natural to put money into a normal savings account, this is no longer the case. Today, an increasingly large share of savings is being invested in various securities and the rapid expansion in the mutual fund market is an important part of this development. One only needs to look at the Swedish Mutual Fund Association's own report on mutual fund investment in Sweden to realise this. The statistics show that new mutual fund investment has increased gradually during the 1990s. In 1994 net investment in mutual funds totalled SEK 7.5 billion. Last year the corresponding figure was SEK 99.1 billion. This is an entirely natural development, as it has been possible to obtain a significantly higher yield from savings invested in various types of securities than from savings paid into a traditional savings account. Swedish investors have not only realised this, they have also understood how to use the financial market to spread their risk by investing money both in fixed income funds and in shares in different types of companies within different sectors and countries. Many people, including me, see this development as a positive thing; others are critical and express concern over what they call an insensitive fund capital, shovelling money around the world and quickly withdrawing from countries that show the slightest sign of problems. This criticism cannot be completely dismissed, but I do feel that it often does not fully take account of the importance of the financial sector for economic development. | 0 |
Perhaps more tellingly, the increased competitiveness of our goods exports has succeeded in arresting the persistent decline in our share of world export markets seen over the past 15 years or so. In contrast, exports of services – at least as measured – have fallen. These declines are concentrated in exports of financial and business services, areas in which the UK has particular expertise. It would not be surprising in the current environment if this weakness partly reflects reduced global demand for these types of services. If that is the case, our prospects for net trade will depend in part on the extent to which demand for financial and business services revives as the recovery in world demand continues and the functioning of the financial system gradually returns to normal. Where does all this leave us? Judging the net impact of these opposing forces on the growth outlook is very difficult. The pattern of growth from quarter to quarter is quite likely to be choppy. But smoothing through this, my central view is that over the next few years the economy is likely to grow at rates around or a little above its historical average, supported by monetary policy and the lower level of sterling. This is similar to the outlook in the November Inflation Report. But to repeat the point I made earlier: the depth of the recession means that output and employment are likely to remain below what would feel like normal levels for many companies and families for some considerable time. | Another aspect that takaful agents must recognise is that takaful products embody universal value propositions that would appeal to all market segments, whether Muslim or not. One of the more distinct features of takaful is the distribution of surplus to takaful participants, reflecting the principles of solidarity, risk-sharing and mutuality among takaful participants. The outcome of this are not just socially meaningful products, but also commercially competitive ones. Take a motor takaful product as an example: In addition to the ‘No Claim Bonus’ feature that is common in conventional motor insurance, takaful participants could receive additional financial benefits when the takaful fund performs well through the sharing of surplus. Often, the advantages of the takaful products are not sufficiently highlighted, potentially hampering the competitiveness of takaful products The key is to continuously espouse the value propositions of takaful products. This is an aspect that agents could certainly help to address. The market potential for takaful products is so much larger than what is realised today. Let me offer you two key information. As at end-2016, insurance and takaful penetration in the B40 segment of working age stood at 30.3%, compared with the overall penetration rate of 46.8%. Second, the global Halal industry is worth USD2 trillion annually and Malaysia has a large and growing Halal industry. The question is to what extent the takaful industry fulfills the insurance needs of the Halal businesses. | 0 |
Is this perhaps why there is less incentive to implement measures today? To mitigate greenhouse gas emissions, the most important measure is the work conducted in the political arena, together with the development of more environment-relatedly friendly technologies. At the same time, the authorities, private individuals and companies must address a new type of economic risk, climate risk. Climate risk includes physical climate risk and transition risk. Physical climate risk is associated with uncertainty about the economic consequences of higher temperatures and more extreme weather. There is a not insignificant probability of an outcome that is far more severe than the Paris Agreement is aiming for. Even if such an outcome does not materialise, and even if mitigation measures are able to limit the extent of the damage, the economic consequences could be considerable. Poor countries in the Global South will likely be hardest hit. Chart: Insurance payouts after natural disasters Norway is in a less vulnerable position, but we see that the weather is changing too. River and coastal flooding has increased and the damage caused is more severe, as reflected in insurance claims payouts. Over the past ten years, annual insurance payouts for climate-related flood and storm damage have been on average about five times higher than in the 1980s. Transition risk is associated with the economic consequences of the transition to a low-carbon economy. | The Norwegian banking sector and climate risks Norges Bank promotes stability in the Norwegian financial system. We have recently published our annual financial stability report. The report includes an analysis of adaptation to climate risk in the financial system. Economic losses resulting from changes in the regulation of greenhouse gas emissions, new climate-friendly technology or new consumption patterns must primarily be borne by the individual firm and its owners. In the event of very substantial losses, the firm's lenders will also be affected. In Norway, these lenders are largely banks. Climate risks, and transition risk in particular, may thus be a source of credit risk for banks. Norwegian banks' exposures reflect the Norwegian economy and industry structure. I have already touched upon the substantial importance of the oil and gas industry to Norway’s economy. Lending to this industry is a possible source of transition risk for banks. Chart: Oil-related exposures, DNB Although Norwegian banks have reduced their exposure to the oil industry in recent years, this industry remains important for banks. However, banks’ losses may not be substantial unless a structural decline in oil-related industries results in substantial spillovers to the wider economy. This applies not least if there is a sharp fall in prices in the commercial and residential property markets, where banks’ lending exposures are highest. Banks can make a number of adjustments to reduce their own climate risk, primarily by correctly pricing the risk associated with their own exposures. | 1 |
20.05.2019 The Need for Deepening Euro Area Integration City Week 2019: The International Financial Services Forum Pablo Hernández de Cos Governor Ladies and gentlemen, Let me start by thanking Maurice Button and the Board of Patrons of City Week 2019 for their invitation to participate in City Week 2019. It is a pleasure to be here together with leading participants from the financial sector. 2019 marks the year in which we are celebrating the 20th anniversary of the launch of the euro. However, this celebration is taking place at quite a challenging point in time. The legacies of the crisis in terms of unemployment and debt, the rise of populism, the threat posed by protectionism and uncertainties stemming from Brexit all make for a complex situation. But to the surprise of many, this background has not reduced European citizens’ support for the European integration process. Quite the opposite I would say. Euro area citizens have declared the highest level of support for the euro ever recorded. The latest Eurobarometer survey shows that 74% of citizens across the euro area countries favour the Economic and Monetary Union (EMU), with a single currency, the euro. The survey also reveals strong support for more coordination and economic reforms to improve the performance of national economies. These figures provide solid grounds for European governments and institutions to combine efforts aimed at making the euro area architecture more robust and resilient to shocks, and at increasing its ability to respond when shocks occur. | The banking sector still remains mainly national, and intertwined with the sovereign of its host jurisdiction. For bank depositors and national authorities, the current situation is such that the ultimate backstop for insuring deposits in a failed institution relies completely on a national government which has a limited say on the on-going supervision and resolution of the failed institution. This is so since decision-making processes on these responsibilities are now adopted by the European single mechanisms. 4/11 Notwithstanding cultural, legal or historical reasons, these inconsistencies and obstacles are broad-based, and stem from pure regulatory barriers, a lack of infrastructure or limited political resolve. The results are pervasive. Investment portfolios are not well diversified and investment opportunities are lost as these may not always be matched with savers’ funds. The financial system remains fragile and fragmented because of the doom-loop between sovereigns and banks. An important consequence of insufficient integration is the limited capacity of risk-sharing mechanisms in the Euro Area countries, compared with those of the United States. 5/11 As you know, risk-sharing is the ability of countries to diversify country-specific shocks among other member states through the cross-country savings and capital market channels (i.e. the private risk-sharing mechanisms), as well as through fiscal transfers (the public sector channel). With regard to the private channels, the degree of risk-sharing through capital markets is comparatively low in Europe. | 1 |
François Villeroy de Galhau: Economic Union, Financing Union, Banking Union Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Annual General Meeting of the Foreign Bankers’ Association, Amsterdam, 16 November 2017. * * * Ladies and Gentlemen, It is a pleasure to be in Amsterdam today and to give the keynote speech at your Annual General Meeting. I wish to warmly thank my friend Governor Klaas Knot and FBA Chairman Leonique van Houwelingen for their kind invitation. For a central banker, Amsterdam is a highly significant place, especially because the Bank of Amsterdam, in Dutch the “Amsterdamsche Wisselbank”, which was established as early as 1609, can be considered a precursor to central banks, before its role was taken over by the Nederlandsche Bank, which is also a venerable ainstitution since it was created by King William I in 1814. Furthermore, for a long time, Amsterdam has been an economic and financial capital and a major city at the heart of Europe. If I add your tradition of freedom and tolerance, your country is a paragon of many of the European virtues that we cherish. This afternoon, I would like to share with you some reflections as a central banker on a highly topical issue: the future of Europe. Your new Minister of Foreign Affairs, Halbe Zijlstra, gave a speech on this very theme last week and rightly called for “a Europe that is relevant to its people [and] which is again synonymous with prosperity and growth”. | Second, ensure that the IMF is adequately equipped to deal with the vulnerabilities of Low Income Countries, Emerging Market Economies and commodity exporters: GCC (Gulf Cooperation Countries), CEMAC (Central African Economic and Monetary Community) and Latin American countries have all been affected by the recent drop in commodity prices. Broad coverage requires making sure that the IMF is adequately resourced, both in terms of permanent resources, and through state contingent financing resources in case of common shocks or systemic crises. Third, there are also ways for the GFSN to operate better without the Fund extending more financing. There may be benefits in further use of “signaling” instruments, which share most of the features of regular programs but without financing. For example, countries like Sénégal or Nigeria have relied on the IMF Policy Support Instrument: this program enables low-income countries to benefit from Fund’s advice and support, which sends a clear signal to donors, creditors and markets. However, these instruments are only available for lowincome countries; there is to date no equivalent tool for emerging or advanced economies. Such instruments could help in certain situations (for instance during systemic crises) where it is essential to maintain market access and facilitate rollover of private financing. With this I would like to conclude my presentation. I very much look forward to our discussions today and to seeing the work of the IFA work stream in the coming months. 2 BIS central bankers’ speeches | 0 |
In Malta, it is important that we maintain our reputation, and the credibility that goes with it, as a sound and well-regulated financial services centre. To this end, the institutional links between the Bank, the MFSA and the Ministry of Finance could be strengthened further in the light of the experience provided by the global financial crisis. Malta, moreover, is one of two euro area member states where the central bank is least involved in the conduct of banking supervision. Although the means already exist for exchanging views and information, it could prove mutually beneficial for the Bank and the supervisory authority to seek to deepen the level of existing cooperation. As for our capacity to manage any eventual financial crisis, the Domestic Standing Group was set up in 2007, chaired by the Deputy Governor and comprising senior representatives from the Bank, the MFSA and the Ministry. As in other EU countries, a crisis simulation exercise was held soon after to test communications between the parties, co-ordinate decision making and manage potential conflicts of interest. Useful lessons have been learnt. Another important problem area highlighted by the crisis, and which is also relevant for Malta, relates to cross-border issues. Foremost among these is the co-operation between the home and host regulators. In this regard, the spirit underlying the Memorandum of Understanding on co-operation to safeguard cross-border financial stability signed last June by EU central banks, regulators and ministries of finance, now needs to be translated into clear modalities for effective cooperation. | On 8 October, six of the world’s major central banks, including the ECB, cut official interest rates by half a percentage point in a coordinated move. Later in the month, the Eurosystem shifted the conduct of its monetary operations toward the injection of liquidity at fixed rates, with full allotment at the minimum bid rate, to ease funding concerns and to drive money market rates closer to official ones. A further half-point interest rate cut by the ECB followed in November, and yesterday we reduced rates by a further 75 basis points amid growing evidence that inflationary pressures are diminishing further. The crisis has so far had a limited impact on the domestic financial system and on the Maltese economy. While the latest data point to continued, if slower economic expansion in the third quarter, Maltese banks continue to benefit from an approach based on traditional intermediation between retail depositors and borrowers. Their funding model, therefore, eschews reliance on wholesale markets; they have substantial liquidity, adequate capital and prudent lending policies. Exposures to asset-backed securities or failed institutions are small, while lending in foreign currency to residents is limited. It would be naïve, indeed dangerous, however, to expect that the turmoil abroad will leave the Maltese economy and its financial system unscathed. First, Malta has a small open economy, highly dependent on trade. As the recession grips our major markets, Maltese exporters will be increasingly affected. | 1 |
I wanted to speak to this, not to continue the debate about the rights and wrongs of this case, but instead to highlight some of the lessons that the Bank and industry might draw from it. In particular, I want to dispel the urban myth that has developed around these events. While the Prudential Regulation Authority (PRA) can impose financial penalties and suspension under the SMR, we do not run for our regulated entities a disproportionate “one strike and you are out” regime for an honest mistake. Neither explicitly nor implicitly. Not I as Governor, not the CEO of the PRA, not the head of the FCA. Not any of our supervisors in the PRA. The SMR is about clear responsibilities, proportionate consequences, and developing a culture of openness and accountability. Proportionate means taking into account the severity of the incident, the track record of the individual and their firm, as well as the firm’s wider response. An honest mistake that is freely admitted for which a firm takes prompt remedial action is not a firing offence. And here’s my point: we must not let recent events inadvertently tighten perceived standards for the industry because that could have Senior Managers running scared, drive compliance underground and undermine 12 For TSC report see: https://www.publications.parliament.uk/pa/cm201617/cmselect/cmtreasy/.../1092.pdf 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 our collective objectives. Another risk, flagged by some, is that it will also become harder to find candidates of sufficient calibre willing to take on senior roles. | It requires the consent of society in order to operate, innovate and grow. Repeated episodes of misconduct have called the social licence of finance into question. In a system where trust is fundamental it ought to be of grave concern that only 20% of UK citizens now think that banks are well-run, down from 90% in the late 1980s. 4 1 For example, their capital requirements have increased 10-fold. And in response these banks have raised over $ trillion of capital in recent years. 2 There are multiple root causes: (i) market structures presented opportunities for abuse and were vulnerable to conflicts of interest and collusion; (ii) systems of internal governance and controls were incapable of asserting the interests of firms – and society – over those of staff; (iii) compensation packages rewarded short-term returns and ignored long-term value creation and good conduct; (iv) and dearth of personal accountability. 3 For misconduct costs see BCG report, “Global Risk 2017: Staying the Course in Banking, March 2017 http://www.bcg.com/publications/2017/financial-institutions-growth-global-risk-2017-staying-course-banking.aspx. Estimates of the impact on lending capacity are Bank of England calculations. 4 British Social Attitudes Survey (2013). 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 From ethical drift to ethical lift The scale of these shortcomings is why the Bank of England has been pursuing a series of measures to convert ethical drift into ethical lift. Domestically we are working closely with the Financial Conduct Authority (FCA) and HM Treasury. | 1 |
And if this is true in general, I think it’s particularly likely to be the case in this instance. The additional uncertainty brought about by the referendum involves the UK’s Source: ONS trading relationships once it formally leaves the EU. That is likely to be some way off – two years after the relevant treaty article is triggered. And by that time, much of the economic value in high-depreciating items like cars and computers will already have been exhausted. So a lack of clarity about events beyond that date won’t be as relevant as it is for longer-lived capital. As formal exit approaches the higher-depreciating items, and a greater share of investment, will become affected as well. That said, the shape of the UK’s trading arrangements may also become clearer during that time. Third, I should re-iterate that what we’re talking about here is a pure increase in uncertainty, not a change in the central expectation firms have about investment returns. The range of outcomes doesn’t have to shift downwards for firms to delay some projects, it only has to widen. But if that range were to shift, this would obviously matter as well. One thing this implies is that the effect of resolving uncertainty depends on how, and in which direction, the resolution occurs. | 12 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 12 Chart 14: Surveys of business investment Chart 15: Housing market indicators have intentions have weakened recovered Source: Bank of England, BCC, CBI, CBI/PwC, Markit/CIPS and Source: RICS survey and ONS Bank calculations But if I had to pick out three possible candidates, one would be the underlying momentum in domestic demand, which now looks to have been stronger than we thought at the time. Another could be the speed with which sterling’s depreciation, and the more general easing in financial conditions, have supported the economy. The foreign exchange market attempts to price long-run risk and, to my mind, the currency fell after the referendum for fear of what the result might ultimately mean for the UK’s access to global markets. But if that is a risk for the longer term, once the UK’s new trading arrangements come into force, those arrangements are for the time being unchanged. Against that backdrop, the fall in the exchange rate will help to support activity, cushioning the impact of greater uncertainty. While that was expected, the effect could be coming through faster than we’d anticipated. Finally, the near-term impact on housing activity may be more moderate than we feared (Chart 15). Because it’s a highly durable asset, investment in housing should in principle be subject to the same swings in uncertainty that affect business spending. But housing activity is in general well correlated with consumption, which is holding up better. | 1 |
In addition to keeping inflation low and stable, monetary policy should help to keep the economy in balance by dampening fluctuations in economic activity. However, as I see it this should be done by means of what one might call coarse tuning, rather than by means of fine tuning. Our aim should be to not focus too much on trying to fine tune the real economy around uncertain numerical measures of long-term employment, potential GDP or equilibrium unemployment. It may appear “clear” to do so but it is an overly simplified representation of monetary policy and requires knowledge that we simply do not have today. In my opinion, coarse tuning also means that it may sometimes be necessary to react to risks, even if they cannot be quantified within a particular analytical framework. 12 BIS central bankers’ speeches | Since the beginning of this year, lower risk premiums have accompanied a stronger krone. Developments in the GRI were also an important factor during the Russian crisis in 1998-1999. When global risk premiums and interest rates are low, investors may turn to higher-yield currencies. There is also a tendency for more peripheral currencies to attract increased attention when volatility between the major global currencies is subdued and risk premiums are low. The interest rate differential has been an important explanation for the movements in the krone exchange rate, at least since the summer of 1999. A higher interest rate differential has accompanied a stronger krone. The krone has appreciated significantly since the beginning of this year, however, and apparently somewhat more than what can be explained by the interest rate differential alone. One explanation may be that market participants react to signs of pressure in the economy by adjusting their interest rate expectations in the longer term. This has an impact on longer-term interest rates. Thus, movements in the exchange rate may be a result of changes in forward rates, as well as current interest rates. Since early January, the 12-month money market differential appears to have followed the krone exchange rate more closely than the 3-month differential. The pressure on internal resources seems to have resulted in expectations of tight monetary conditions, which contributed to the recent appreciation of the krone. The nominal appreciation of the krone has been accompanied by a significant real appreciation of Norwegian labour. | 0 |
Based on my experience as a central banker for more than 30 years, it requires a deep understanding of the economy and the financial system to make the right policy decisions. Such policy formulations needs to be based on rigorous assessments that provides the insights that will guide the decision making process. This is aided by relevant statistics, and complemented by sound judgement. Central banks are therefore not only major consumers of statistics, but also producers and disseminators of monetary and financial data. More importantly, central banks, have placed much importance on providing sufficient analysis and assessment in conjunction with the release of statistics. This aims to provide context, avoid misinterpretation and reduce uncertainty for the economic agents. BIS central bankers’ speeches 1 Key global trends shaping the universe of statistics As the world evolves, two key trends have emerged and in turn, created new and diverse demands, challenges, and opportunities in the field of statistics. First, the steady liberalisation and deregulation of economies and financial markets have resulted in intricate interlinkages within domestic financial systems and spanning across borders. While financial markets have become more interconnected globally, capital and labour mobility across borders have also intensified while trade and investment barriers have been dismantled. This has resulted in closer proximity to growing markets and facilitated the creation of globalised supply chains by corporations. These developments have had wide ranging benefits, including better risk diversification, improved efficiency and greater economies of scale. | This is well exemplified by the recent emphasis on the need for regular stress testing to understand the effects of shocks on the solvency of individual banks, the stability of the entire financial system, the broader economy and, more importantly, the feedback effects. The roles of granular statistics and sound stress testing methodologies have become vital. While the recent global financial crisis has necessitated a substantial policy focus to address short-term challenges, policymakers also need to keep sight of the economy’s long-term vision. Continuous structural reforms are needed to strengthen fundamentals and improve economic resilience. This involves measures to remove structural bottlenecks, improve productivity and promote innovation and enhance competitiveness. Formulating such structural policies to improve growth prospects hinges on rigorous empirical research in these areas. For Malaysia, the economy is currently undergoing a transition towards becoming a higher value added economy. This has involved setting clear, time-bound and measurable targets, to allow for the policy approach to be focused. This has depended heavily on the availability of good data and statistics that capture developments across all sectors. It also enables us for the monitoring of the progress and the effectiveness of the policies. It is also now widely recognised that economic growth can only be sustainable if it is inclusive. Growth will only slow as income disparities widen. It is also recognised that financial inclusion is an important contributor towards achieving such a more inclusive economic development. | 1 |
Allow me to use the current situation in the UK to illustrate these points. UK output is now in sight of potential, and the capital overhang looks set to be eliminated over the next few years. In order to expand, companies will increasingly need to invest. A strengthening global economy should tempt UK companies to do so, particularly since UK companies are generally competitive given the recent fall in sterling. Indeed, the broad-based global recovery is creating the possibility of a self-reinforcing revival in investment. The Bank of England estimates that more than 80% of the world economy is now growing above potential. Global measures of industrial production and capital goods orders, as well as world trade, have strengthened markedly over the past year, suggesting some rotation in the composition of global demand towards investment. With that more favourable outlook, investment intentions are now rising around the world (Chart 11). If these intentions are realised, the global equilibrium interest rate could rise somewhat, making a given policy setting more accommodative. The extent to which it does will depend on other secular factors that have been holding it down, including demographics, debt overhangs and the capital intensity of production. 10 In this generally constructive environment, the main issues facing UK companies are uncertainties – about how consumers will adjust to a period of weaker real income growth; about market access post-Brexit; about the potential risks in the transition to new arrangements with the EU and the rest of the world. | Estimates from regression analysis by BIS show that the sensitivity of investment to investment opportunities (proxied by Tobin’s Q) is approximately three times more sensitive for physical investment than for intangible investment – a result that the BIS suggest could be explained by “the structural lumpiness of intangible investment”. In a similar vein, Ryan and Taylor (2017) also find that intangible capital responds more slowly to changes in investment opportunities. They conclude that, compared with physical capital, intangible capital’s convex adjustment costs are roughly twice as large. 9 See https://www.oecd.org/eco/growth/OECD-2015-The-future-of-productivity-book.pdf. 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 Although these secular forces may likely persist, many of the conditions for a revival in business investment are now in place. II. The Contribution of Central Banks to Investment Recognising that the most important contributions will be from structural policies, how can central banks support that belated investment recovery? First, we must acknowledge that, while the cost and availability of finance matters; internal cash flows, the profit outlook and uncertainty are far more important determinants of investment. Monetary policy affects companies’ profits and cash flows through its effects on domestic demand and, via the exchange rate, external demand. Given the importance of internal finance for investment, and the high hurdle rates investment projects must clear, such indirect effects are more important for investment than the direct effects on the cost of capital. The biggest contributions of central banks are therefore improving the demand and profit outlooks and reducing uncertainty. | 1 |
Long-term shocks related to climate change are potentially difficult to manage for central banks because of their stagflationary nature, as they may result in both upward pressure on prices and a slowdown in activity. But climate change also has short-term effects on prices. Part of the recent increase in energy prices in the euro area was linked to higher electricity prices in Spain due to unusually cold weather, and to a carbon surcharge on prices of liquid fuels and gas in Germany. More, as is stated in the NGFS report on monetary policy of last March, “central banks ought to be aware of climate risks that could threaten the integrity of their balance sheets”v. Let's face it: the ECB's balance sheet is "exposed" to climate risk through the securities it purchases and the assets pledged as collateral by banks, to an extent that is insufficiently taken into account. How, concretely, might we reduce this exposure? Next fall, we will decide with Christine Lagarde, whose strong commitment I want to praise, and the Governing Council on the conclusions of our "Strategy Review". To contribute to this debate, I strongly hope the ECB will be the first central bank to decide the three following steps: (1) forecast, and therefore model. | Nothing will replace an appropriate carbon price. Second, we are acting in the very name of our mandate: our consideration for climate change is neither an abuse of our mission, nor a mere militant conviction, and we will act with the same technical credibility and professionalism as we do in our traditional domains. I. Not “too much”: what it is our duty to do In a somewhat “proliferating” environment, let me suggest some clarification, with a two-dimensional quadrant. The vertical axis – the most obvious one – relates to our missions as supervisors and includes both climate-related risks for financial institutions and opportunities – linked to green finance. The horizontal axis relates to our missions as central bankers and includes responsible investment of our nonmonetary portfolio and monetary policy. For many central banks, implementing responsible investment strategies has numerous benefits: central banks can then practice what they preach as supervisors, protect their own balance sheets and contribute to financing the green economy. Since 2019, the Banque de France has been the first Eurosystem central bank to publish a yearly dedicated reportii on our responsible investment policy. And we turn our words into action: the Banque de France is completely exiting coal by 2024. As regards green finance, climate change creates opportunities for investors: the expected transition to a lower-carbon economy is estimated to require around $ trillion of investments a year. I will now focus on the top right of the quadrant: climate-related risks of financial institutions and the greening of monetary policy. | 1 |
This is how we can build “Hong Kong” as a world class brand for financial services. Thank you very much. BIS central bankers’ speeches 5 | In the forecast of inflation that we will be presenting in the Inflation Report to be published next week, we will no longer be basing our forecast on the assumption of an unchanged repo rate. The point of departure instead is the policy rate expected by the market in the period ahead, as reflected in implied forward interest rates. With this point of departure - and taking into account the different risks that we envisage - it is reasonable to believe that inflation one to two years ahead will approach our inflation target of two per cent. When the Executive Board convenes to discuss monetary policy on Wednesday next week, future inflation prospects will of course will the decisive factor for our decision. It is likely that we also will have a discussion regarding how we should view the continued rise in house prices. Personally, I do not think that there is any immediate hurry to raise the repo rate, something that the Executive Board also communicated in August. But it is clear nonetheless that this is the next natural step if the current outlook remains unchanged. When it may become appropriate to modify the currently very expansionary monetary policy depends, of course, as usual primarily on economic developments in the period ahead and on the assessment of future inflation. 4/4 | 0 |
François Villeroy de Galhau: Twenty years after the introduction of the euro, what are the economic prospects for Europe? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at The Bridge Forum Dialogue conference, Luxembourg, 10 January 2019. * * * Accompanying slides of the speech. I would particularly like to thank Olivier de Bandt, Chahinez Benmissi, Laurent Ferrara, Rémy Lecat, Bérengère Rudelle, Giulia Sestieri and Édouard Vidon for their help in preparing this speech. Ladies and gentlemen, I am delighted to speak before you this evening here in Luxembourg, one of the founding capitals of Europe and a bridge between France and Germany for 180 years. I would like to extend my warmest thanks to my friend and colleague Gaston Reinesch for his invitation to the Bridge Forum Dialogue. I stand before you as a committed European: this month – January 2019 – we celebrate 20 years of the euro, the common currency of 340 million Europeans. The three principles on which we have built this success (I) must guide us in addressing Europe’s challenges in the face of 2019’s uncertainties and in working towards the progress that we still need to make (II). ** I. The euro’s success was built on three principles that are now more vital than ever As to whether the euro has been a success; there are few among us this evening who would have any doubts. | And third, how to compensate for the democratic deficit of technocratic monetary policy decision-making. Concerning the first issue, empirical research has found out that greater central bank independence is on average associated with lower inflation, but not with higher volatility. This “free lunch” was a bit surprising in the light of the “conservative central banker theory”. It reflects the fact that the actual institutional and policy design has evolved over time to guarantee that the mandate to achieve low inflation is not interpreted rigidly. In fact, most central bankers pay attention to real economic developments in their policies. In the last decade, this fact has been formally and institutionally reflected in the “flexible” inflation-targeting regime. This regime is often described as “constrained discretion”, meaning that it aims at making the monetary policy-making constrained by understandable procedures and at the same time flexible in responding to unforeseen shocks. As far as the democratic deficit is concerned, this issue has been addressed by moving to greater transparency and accountability of central banks. The burden of proof in central banks’ communication has shifted over the last two decades. At present, it is necessary to give convincing arguments if one thinks that the central bank should not give out some information, rather than to argue why something should be revealed. This has been a significant shift in the central banks’ mentality. Regarding the issue of communication and co-operation between the central bank and government, no universal solution has been found so far. | 0 |
Due to unlimited liability, control rights were exercised by investors whose personal wealth was literally on the line. That generated potent incentives to be prudent with depositors’ money. Nowhere was this better illustrated than in the asset and liability make-up of the balance sheet. The market, amorphously but effectively, exercised discipline. It was given a helping hand by market-based prudential safeguards. Directors of a bank had the capacity to vet share transfers, excluding owners without sufficiently deep pockets to bear the risk. Shareholders also maintained their liability after the transfer of their shares. This put shareholders firmly on the hook, a hook they then used to hold in check managers. Managers monitored shareholders and shareholders managers. In this way, the 19th century banking model aligned risk-taking incentives. But the global environment was changing. During the first half of the 19th century, rich countries were becoming hungry for capital to finance investment in infrastructure, including railways. As long as capital in banks was restricted to a small number of unlimited liability partners, credit was constricted. In 1826, the 6-partner restriction on UK banks was lifted, allowing banks to operate as joint-stock companies. No longer was ownership and control vested in a single agent. But pressures were building to liberalise further. Unlimited liability became the next target. In the words of British parliamentarian William Clay, “unlimited liability has a tendency to deter persons of fortune, intelligence and respectability from becoming partners or managers”.3 Shareholder discipline was proving rather too effective as a brake on risk-taking. | They are no longer confined to cards, as we are seeing with the rise of mobile payments. A broader range of participants: I am thinking here about how the payments market has expanded to include competition from big techs and major retailers, which are following a wide range of strategies in this respect. The flipside of this trend is the increasingly global nature of the market, which is raising sovereignty and independence issues, including the question of control of data with respect to the American and Chinese tech giants. Payment is becoming less prominent: nowadays the actual act of paying is becoming less visible, as it is combined seamlessly within the overall transaction process to minimise the impact on the payer. We are seeing this shift in online payments, for example, which are designed to be increasingly fluid through solutions such as one-click buying. Availability of payment services: payment services are becoming more available, ignoring physical borders and time constraints to satisfy customer demand for instant, continuous and uniform payment services, as economic agents become ever more mobile. 2. The development of crypto-assets naturally forms part of these underlying trends affecting payment instruments, combining the search for anonymity, management of non-intermediated peer-to-peer payments and the use of entirely web-based technologies. But crypto-assets are also different because of their financial, monetary and technological features that I mentioned in my introduction. | 0 |
- • These new areas will allow Islamic banks to reduce their exposure to the real estate sector, and to take advantage of the stronger growth potential of the emerging market economies. There are gaps to be filled in structured trade finance and in funding for infrastructural projects as the emerging markets grow, and as global finance consolidates. Third, Islamic finance can also seek to meet the increased demand for simpler and more transparent products and ‘back-to-basics’ finance. Investors are now much more circumspect about complex products and their risks. The crisis taught investors worldwide not only about the damage they can face from the risks that are known and unsurprising, but of the risks of ‘what we do not know’. Islamic finance, with its focus on transparency, price certainty and risk-sharing, can ride this wave of demand for simpler and more basic investments. However, Islamic finance will have to overcome a few important challenges in order to grow its share in global finance and contribute to cross-border finance. These include the need to reduce fragmentation in Islamic finance markets due to differences in accepted standards of Shariah compliance between regions, jurisdictions, and in some cases even domestically within jurisdictions. This has hampered the flow of liquidity between jurisdictions, and is in part why there is yet no Islamic equivalents to the international money and bond markets. There is considerable progress being made to address these challenges. | 3 AAOIFI is Accounting & Auditing Organisation for Islamic Financial Institutions 4 International Organisation of Securities Commissions 5 International Association of Insurance Supervisors 2 BIS central bankers’ speeches • Between our two countries, we are seeing Malaysian banks collaborating with Singapore corporates and financial players to structure $ denominated corporate sukuk programmes. And Singapore-listed companies are venturing out to tap the Ringgit sukuk market in Malaysia. These are trends that we are keen to encourage. To repeat therefore, I am optimistic that we can realise the significant growth potential for Islamic finance in the next 10–15 years. Managing the challenge of capital flows in the post-crisis era Let me move on now to say a few things about the challenges that many in the emerging world face in managing capital flows, particularly in the face of the extremely low interest rates being set in the advanced economies (AEs). We are in an unprecedented situation. Interest rates are expected to stay extremely low in the US and much of the advanced world for a few years, reflecting decisions by their central banks to keep monetary conditions highly accommodative until their economies resume normal growth. There is debate among economists on how effective these activist monetary policies, such as the US Fed’s QE3 strategy, will be in reviving entrepreneurial spirits and private investments. If the strategy succeeds and the US economy recovers, it will be a plus for Asia as well. | 1 |
The current reforms in the motor insurance sector will introduce far-reaching changes in a key segment of the industry, with significant implications for the business strategies of insurers and their approaches to risk management. With the introduction of a new scheme for basic motor insurance cover, pricing for non-statutory motor insurance will be gradually liberalised, thus removing price distortions. This will allow rates to adjust to underlying risk factors. This will also be accompanied by a holistic review of motor insurance practices and the supporting infrastructure to enable more scientific underwriting and improve claims management. Industry groups have been formed to study these issues and make recommendations for the smooth transition to this new and more competitive environment, while at the same time improving practices across the entire value chain of the motor insurance sector. The groups have made good progress and the recommendations are expected to be finalised for implementation in the second half of 2010. A new blueprint for the financial sector Beyond this international financial crisis and economic recovery, a global shift is taking place that is resulting in an increasingly multi-polar world. In this new phase of globalisation, the concentration of economic power in the global economy will become more dispersed. Asia will be very much part of this new future that is emerging. As Asia’s importance as a growth centre in the world economy increases, three major trends can be expected to intensify going forward. | [5] Helene Rey and Silvia Miranda-Agrippino find that US monetary policy moves can induce changes in risk premiums across countries, move the global financial cycle, and challenge the monetary policy autonomy of emerging market economies. [6] Three, there appears to be a short-term trade-off between price stability and financial stability. Macroeconomic theory and empirical evidence tell us that although there is no long-run trade-off between price stability and employment, there is a short-term trade-off. This is expressed as a “sacrifice ratio”, or the increase in the unemployment rate necessary to achieve a given reduction in the inflation rate. Likewise, could it be that while there is no long-term trade-off between price stability and financial stability, there is a short-term trade-off? In the current conjuncture, for example, there are concerns that monetary policy tightening to bring down inflation could trigger contagious financial failures. Is there an analogous “sacrifice ratio” between price stability and financial stability? These short-term trade-offs call for a mix of monetary and macro-financial policies to meet the twin goals of financial stability and price stability. Combining the use of monetary policy and macro-financial policies can mitigate tradeoffs between objectives. Studies by both the BIS and IMF have found that policy combinations can be more effective than using a single instrument. Claudio Borio and colleagues at the BIS find that when low inflation in advanced economies required loose monetary policies, tightening macroprudential measures through strengthening capital buffers helped mitigate risks to financial stability from increased risk taking and indebtedness. | 0 |
2 For an outline, see Asplund, M. & Friberg, R. (1998), “Links between competition and inflation”, Sveriges Riksbank Quarterly Review 3, Sveriges Riksbank. 3 See, for instance, Dutz, M. & Hayri, A., (1999), "Does more intense competition lead to higher growth? ", Discussion paper No. 2249, Centre for Economic Policy Research. Nickell, S, (1996), "Competition and Corporate Performance", Journal of Political Economy, No. 4. 2 BIS Review 25/2002 The relative price level in Sweden The price level in Sweden is approximately 28 percentage points higher than the EU average and 4 Sweden is thus, along with the other Nordic countries, one of the most expensive countries in the EU. There is a considerable spread of price levels within the EU, as illustrated in diagram 1. The price level in the most expensive country (Sweden) is twice as high as that in the cheapest country (Portugal). Sweden in general has higher prices on goods and services not traded across borders, while the price level for trade goods such as clothes and furniture is below or in line with the EU average. Diagram 1: Differences in price levels for private consumption in relation to the EU average 2000. | 10 Government Bill 01/02:167, "Changes in the Competition Act for more efficient combating of cartels, etc.". BIS Review 25/2002 5 registered in a special product register containing information on the exact contents also hampers import competition as most other countries do not have such registers. The fact that the Swedish market is small means that it is not economically viable for foreign manufacturers to make the adaptation required by Swedish rules or legislation. The existence of recycling systems for cans and bottles also makes import competition more difficult in the soft drinks market (soft drinks are approximately 40 per cent more expensive in Sweden than the rest of the EU). The fact that requirements motivated by concern for the environment could impede competition does not, of course, mean that they should be abolished. On the other hand, this is a good argument for coordinating the various regulatory systems in Europe. The bank sector As I am today speaking to people who work in the bank sector, I thought I would take the opportunity to say a few words on competitive conditions in this sector. The bank sector was characterised by extensive regulations right up until the mid-1980s, which acted as an impediment to dynamic development in this sector. Few new operators could enter and competitive pressure was fairly low. However, the deregulation that has occurred since then has radically changed this picture. | 1 |
It has also shown a striking positive relationship with growth in GDP per head: for 19 For example, the models of Solow-Swann model (Solow (1956) and Swann (1956)) and Ramsey-CassKoopmans (Ramsey (1929), Cass (1965), Koopmans (1965)). 20 See, for example, Eichengreen (2014). 21 These are taken from Clark (2009) for the period up until 1750 and based on Bank estimates in the subsequent period. 4 BIS central bankers’ speeches every £ rise in the capital stock per head since 1850, GDP per head has risen by £ per head. This, too, is just as Neo-Classical growth theory would predict. That same pattern is replicated across countries. Chart 6 plots the relationship between the capital stock and GDP per head since 1980 in a cross-section of countries. Clearly, countries are on different steps on the growth escalator. But in each case this escalator has moved relentlessly upward, with sustained rises in the capital stock associated with secular rises in per capita incomes. Yesterday’s investment has been today’s growth. Sociological roots of industrial revolution If this were the whole story of three industrial revolutions, the growth recipe would be simple. Growth, like surfing, would mean simply waiting for the next big innovation wave to break. Rising living standards would be not so much natural as preternatural, “suspended between the mundane and the miraculous”. 22 Because policymakers cannot part the waves or perform other miracles, public policy would have a minimal role. | Brian P Sack: Preparing for a smooth (eventual) exit Remarks by Mr Brian P Sack, Executive Vice President of Markets Group of the Federal Reserve Bank of New York, at the National Association for Business Economics Policy Conference, Arlington, Virginia, 8 March 2010. * * * Thank you for inviting me to speak today. In my remarks, I will provide an update on the progress that the Federal Reserve is making toward preparing for a smooth exit from the extraordinary policy actions that were taken in response to the financial crisis. 1 I should note up front that I will not be providing any information about the likely timing of policy tightening; those decisions will be made and communicated by the Federal Open Market Committee (FOMC). Instead, I will focus my comments on the policy tools and strategy that are likely to be used whenever that exit becomes appropriate. I will also discuss the preparedness of financial markets for the Fed’s exit, in order to assess how financial conditions may evolve as the exit approaches and gets under way. When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history. First, this tightening cycle will have two policy dimensions, in that the FOMC will have to decide on the path of its asset holdings in addition to the path of the short-term interest rate. | 0 |
16 The curve has flattened A lowering of the curve does not change the sensitivity of pay growth to unemployment, and changes in unemployment, will put pressure on pay growth in the same way. It will all just happen at a lower level. A flattening of the curve, however, reduces the sensitivity of pay growth to unemployment at all levels and to all rates of change of unemployment. This appears to have happened in some estimations of the post crisis estimations of the curve. 15 17 See Broadbent (2014) 16 This could result in a ‘double whammy’: pay growth would be accelerated higher demand for labour while at the same time the inflation adjusted curve would shift up, accelerating pay growth further. This can be seen in Chart 8: a fall in unemployment would result in moving from point A to point B (at higher inflation expectations) or point C to point D (at lower expectations). If those inflation expectations were to change at the same time that unemployment falls, the move would be from C to point B. See also Mishkin (2007). 17 See for example BIS (2017) and IMF (2013). Blanchard et. al. (2015) argue that since 1990 there is no statistically significant slope to a price Phillips curve in many countries, including the UK. | Conclusion In conclusion, although the Federal Reserve will be removing its policy accommodation in a much-changed money market environment, the Desk is ready to implement policy firming when the FOMC determines that economic and financial conditions warrant it. The minutes of the March FOMC meeting outline the Federal Reserve’s intended operational approach, and our testing program gives us confidence that we have the necessary tools to enable a smooth liftoff. The minutes highlight that policymakers will be particularly careful at the start because demonstrating appropriate control over the federal funds rate and other short-term rates is a priority. This may entail elevated aggregate capacity in an ON RRP facility at liftoff because we don’t know how much support we are currently getting from the zero lower bound, which creates some uncertainty about the demand for ON RRPs. However, the ON RRP will be used only to the extent necessary for monetary policy control because it has some potential financial stability and footprint costs associated with it. Moreover, the Federal Reserve has a number of backup tools should things work differently than expected, and policymakers will make changes as necessary as normalization proceeds. BIS central bankers’ speeches 11 12 BIS central bankers’ speeches BIS central bankers’ speeches 13 14 BIS central bankers’ speeches BIS central bankers’ speeches 15 | 0 |
24 The IPCC gives a range of budgets for future emissions which depends on assumptions about other climate drivers and the level of risk of temperatures going >2 degrees that society is willing to accept. It sets these in the context of existing fossil fuel reserves. See table 2.2 in IPCC (2014). BIS central bankers’ speeches 7 If that estimate is even approximately correct it would render the vast majority of reserves “stranded” – oil, gas and coal that will be literally unburnable without expensive carbon capture technology, which itself alters fossil fuel economics. 25 The exposure of UK investors, including insurance companies, to these shifts is potentially huge. 19% of FTSE 100 companies are in natural resource and extraction sectors; and a further 11% by value are in power utilities, chemicals, construction and industrial goods sectors. Globally, these two tiers of companies between them account for around one third of equity and fixed income assets. On the other hand, financing the de-carbonisation of our economy is a major opportunity for insurers as long-term investors. It implies a sweeping reallocation of resources and a technological revolution, with investment in long-term infrastructure assets at roughly quadruple the present rate. 26 For this to happen, “green” finance cannot conceivably remain a niche interest over the medium term. There are a number of factors which could influence the speed of transition to a low carbon economy including public policy, technology, investor preferences and physical events. | The Special Liquidity Scheme was designed to provide that support on a one-off basis, in large size and for a long maturity. The form of the Scheme was an asset swap (effectively a collateral upgrade). For a fee, the commercial banks were lent nine-month Treasury bills against a broad set of eligible collateral. In practice the collateral received in the Scheme was dominated by own-name residential mortgage backed securities (RMBS and covered bonds). The banks could use the Treasury bills to raise liquidity in the market, at a time when the primary, secondary and repo markets for RMBS were all closed. These bills were also eligible in the Bank’s repo operations. The Scheme was limited to lending against collateral that was held on balance sheet at the end of 2007. The principle was that the Bank shouldn’t support the banks in issuing new securities for which there might not be a private market or to subsidise new lending. 12 The fact that the Special Liquidity Scheme was a form of asset swap meant that it had no impact on the supply of central bank money and thus no direct implications for monetary policy. Following standard accounting practice, it was not on the Bank’s balance sheet. 13 The Scheme will expire at the end of January 2012. It will not be extended or replaced. After three years of large-scale liquidity support the Bank expects each institution to be in a position to fund itself through normal market mechanisms. | 0 |
Thus, the Banco de España’s latest macroeconomic projections described a scenario of weaker momentum in activity and greater inflationary pressure than in the previous December 2021 projections. Specifically, the projections envisage that GDP will grow by 4.5% in 2022, 2.9% in 2023 and 2.5% in 2024. In the area of prices, the April projections pointed to an average rate of change of 7.5% in the HICP in 2022. Inflation is expected to then drop sharply to 2% and 1.6% in 2023 and 2024, respectively. It should be stressed that this sharp slowdown is based on two assumptions. The first is that there will be a slowdown in the growth of energy prices, in line with those on the futures markets. The second is that a moderate wage growth response and a squeezing of trade margins will prevent the emergence of the price-wage feedback loop. The economic outlook is, in any event, subject to a very high level of uncertainty. In fact, the information that has become available since these projections were published would, in the absence of further shocks, point to a new downward revision to GDP growth in 2022, due to developments in Q1 being more unfavourable than expected. As regards inflation, the new data suggest higher growth in the non-energy component, along with strong growth in the energy component, albeit somewhat more modest than expected in April. | Another important example of delegation to experts has been the creation of independent central banks to decide on monetary policy to deliver an inflation target set by government. Frustration with high inflation in the 1970s made many countries move towards de-politicizing decisions about monetary policy and interest rates. Research suggested that political pressure led to an ‘inflation bias’ in policymaking, which could be 8 solved by delegating responsibility for price stability to independent central banks. The following decades 1 Source: Ourworldindata.org Source: World Health Organisation 3 Source: The World Bank 4 Where poverty is defined as living on less than $ a day at 2011 prices. Source: World Bank (http://data.worldbank.org/topic/poverty) 5 Source: World Bank 6 Source The Food and Agriculture Organisation (FAO) of the United Nations 7 Until 46 BC, the calendar used in the Roman Empire consisted of 12 months of a total of 355 days, with the intention that an additional month would be added in some years so as to keep the calendar in line with the solar year (of 365¼ days). The pontifices had some discretion over the calendar, meaning they could use it for political advantage by lengthening or shortening the terms of Roman magistrates who were supposed to serve for a calendar year. This led to considerable confusion for ordinary citizens as to what date it was. Moreover, by the 40s BC the Roman calendar was three months ahead of the solar calendar. | 0 |
The Bank of Albania is responsible for the formulation and implementation of the monetary policy, regulation and supervision of the banking system, regulation and development of the payment system, and promotion of financial stability. In the framework of the cooperation with SECO, it benefits not only in academic but also in concrete terms. The developed forecasting and analysis models enable the monetary policy to play a more proactive role, as testified in the successful management of appreciation pressures on the exchange rate in the previous year. Thanks to SECO-funded cooperation projects, the Bank of Albania has adopted contemporary models and methodologies for evaluating the adequate level of the foreign currency reserve – currently 1/3 BIS central bankers' speeches standing at EUR 3.3-3.4 billion, managing liquidity in the banking sector, and withstanding adverse scenarios. Also, the study of various phenomena related to the functioning of the financial system has prepared the ground for the drafting and approval of a series of regulations, which – among others – have accelerated the process for the reduction of non-performing loans and will create a safer and more efficient regulatory environment with regard to managing financial shocks. Lastly, the cooperation with SECO has generated a number of projects, which are being currently implemented in the field of payment systems. One particular example is the national strategy for promoting the use of retail payments, which serves, among others, to lowering their costs, promoting remittances and boosting financial inclusion. | This agreement between the Bank of Albania and SECO, the centre of expertise for all core issues relating to economic policy, in Switzerland and not only, helps the Bank of Albania to fulfil the objectives, to carry out its duties and to withstand future challenges. 2/3 BIS central bankers' speeches I would like to thank once again Mr Maître and the State Secretariat for Economic Affairs for the contribution to the Bank of Albania. I look forward to the fruitful and successful cooperation under the new agreement Thank you! 3/3 BIS central bankers' speeches | 1 |
Greece’s problems Greece is the country that has lately been the main subject of speculation and discussion with regard to the sustainability of its public finances. Decades of substantial public-finance deficits have meant that Greece entered this recession with a gross public debt of over 100 per cent of GDP. The growth of the Greek economy has so far been less affected by the global economic downturn than the OECD average. This is partly explained by Greece’s relatively limited exposure to the world market but also by a considerable increase in public expenditure. This increase in expenditure, together with a slight fall in revenues, means that public sector indebtedness in Greece has increased to 115 per cent of GDP, and according to OECD forecasts from November it is expected to reach 130 per cent of GDP in 2011. (Slide: Gross public debt in Greece). The development of the central government debt in Greece, together with uncertainty about the country’s ability to actually carry out the far-reaching consolidation of its public finances, has caused Greek government bond rates to rocket. The market participants have seen an imminent risk that Greece will not be able to overcome its debt crisis without outside assistance. (Slide: Difference between Greece’s and Germany’s government bond rates). A couple of weeks ago, the euro countries reached an agreement, together with the IMF, on the design of a financial support package for Greece in order to safeguard financial stability in the euro area. | This condition is currently difficult to comply with, since banks are still in the process of setting up their MREL and, for some, it will not be easy to attain these thresholds as their access to the capital markets is limited, or there may be an adverse impact on their income statement. 4 BIS central bankers’ speeches To date, the Single Resolution Board (SRB), the European resolution authority, has not taken a final, firm decision on the MREL, but everything suggests it will be demanding. At the Banco de España we advocate that the requirements should take into account the resolution strategy and should be prudent and adapted to banks’ economic and financial reality. In any event, cooperatives should build the concept of resolution into their planning and management, and continue working on the formation of voluntary and private mutual support mechanisms. Conclusion In sum, let me say that all the banking supervisors and regulators participating in this process are mindful of how important it is to finalise the Basel III review as soon as possible and of the significance of providing banks and market participants with certainty. I would not wish to conclude without reiterating the importance of a healthy and efficient cooperative sector, as it faces today’s challenges: the pressure exerted by the low interest rate environment on results, as is the case for other banks; the new regulatory demands; enhanced governance; the management and commercialisation of resources; and deeper association initiatives. Thank you for your attention. | 0 |
So, as yet, we do not seem to be in a liquidity trap in which yields can be pushed down no further. What to my mind is a more open question, though, is the degree of traction these lower yields have on demand at the present juncture. Looser monetary policy works in large part by encouraging households and businesses to bring forward future spending to the present. It is plausible, however, that such intertemporal substitution will be weaker when uncertainty is elevated and when banks and some households are concentrating on repairing their balance sheets. For instance, a modest fall in the cost of capital may do little to boost investment spending when the environment is so dominated by uncertainty about the outlook for demand. To illustrate this, Chart 9 shows the results from CBI business surveys of the factors holding back investment spending at the current juncture. Uncertainty about the outlook for demand is far and away the dominant factor. That does not mean that quantitative easing is impotent, as demand will still be affected by the wealth effect from the higher asset prices, as well as by any related exchange rate depreciation. But I think there are reasons to believe the effect of lower yields may be weaker than usual at the current juncture (in old speak, the IS curve may be quite steep, even though the LM curve may not be absolutely flat). | During the crisis we and other central banks have been forced to undertake a much wider range of actions than we would normally contemplate, lending against a broader range of collateral and for longer tenors than usual, and intervening in markets where we do not usually operate. While many of the new facilities were invented on the hoof as the crisis unfolded and should become redundant once normality returns, they will nevertheless remain in the emergency toolkit in case of future need. 2 This uses Basel I risk weights, though it seems unlikely that measures of risk-weighted assets calculated under the Basel II or III rules would have performed that much better. 4 BIS central bankers’ speeches But once the immediate crisis has past, how can central banks foster the recovery? There is now ample evidence (IMF, 2009; Reinhart and Rogoff, 2009) suggesting recoveries after recessions associated with financial crises are typically much more drawn out than those after “normal” recessions. For instance, a study by the IMF of 122 post-war recessions across 21 countries finds that, on average, output surpasses its pre-crisis peak around a year after the start of a “normal” recession. But that average period rises to 2½ years following financial crises. And the mean level of output across the 15 recessions associated with financial crises is still some 6% below a continuation of the pre-crisis trend some seven years after the onset of the crisis (though there is considerable heterogeneity in individual country experience, as Chart 3 shows). | 1 |
Despite fair growth prospects and subdued vulnerabilities, medium-term growth potential in the region seems insufficient to ensure pre-crisis pace of real convergence. The most recent data shows that the convergence is still there, but it has markedly slowed down. At the current pace, many countries in the region would need decades to reach German, Austrian or Swedish levels of income, countries that we like to use as benchmarks. The last crisis also showed that there can be events that will hold back growth and convergence for a protracted period of time and even work in an opposite direction, leading to divergence. We know that when it comes to living standards, in the long-run it is all about labour productivity, which can be decomposed into growth of capital per worker and growth of total factor productivity (TFP). While we can expect an investments to continue growing, it is not likely that the rates that we have witnessed in 2000s, with strong inflow of FDIs and related transfers of technology and know-how, will be seen again in the near future. That is why the TFP will ultimately prove to be the major determinant of longterm convergence. For us as policy makers, understanding the determinants of technology adoption, the TFP growth, is the key, as this gives us the channel to act through. There is an increasing number of theories and empirical papers linking development and the adoption of technologies to the role of institutions defined in a very broad way. | Promoting an environment that is more conducive to both the creation and closure of companies would be a very effective means of modernising the Spanish economy, since it could provide the measures of flexibility and adaptability that are needed to compete amid the pressures generated by globalisation and to boost the incorporation of technological and managerial innovations. But of all the structural policies, the most important is undoubtedly education. As I have said, the educational and training drives of the past decades are largely responsible for the results achieved by the Spanish economy, and improving education and training today is, once again, pivotal to our future growth. When assessing the functioning of the economy, we often refer to differentials with other peer economies in terms of inflation, productivity and many other variables. And it is right to do so since, against a backdrop of international openness and integration, relative behaviour and, in short, competitiveness are essential for the continuous improvement of well-being. However, the most serious gap between Spain and the other major industrialised countries is in the field of education. True, we have improved in this area in recent years. The proportion of the population aged 25-64 with a secondary education has risen from 24% in 1992 to 48% in 2005. But we have yet to reach 50% when the figure is 83% in Germany, 72% in the United Kingdom, 66% in France and over 80% in the Nordic countries. | 0 |
We have already published a preliminary report last year. We are now in the process of updating this report and most likely during the summer or at the end of the year we will be ready to publish more definitive results. But there are findings that are already in the paper that was published last year that are interesting. First, we know, and it was explicitly evidenced in the paper, that the reforms at least provided for a financial system that was more resilient than at the beginning of the financial crisis. Banks were better capitalised, better funded, and this was done globally. It was not only done by some jurisdictions rather than others but banks were more resilient globally. It is also true that banks have continued to lend to households and businesses during the COVID-19 crisis, which is a very important difference as compared to what happened in the previous crisis. Even today, if you look at the solvency and liquidity ratios of banks, they are still very high, much higher than before the global financial crisis. Of course, disentangling whether the effects of this increase in resilience were basically the consequence of our reforms or the consequence of the fact that in this crisis, as Athanasios was emphasising, monetary and fiscal policy were very active, is very difficult. There has been extraordinary support for households and firms. | This is central banks should, in parallel, incorporate this evaluation into their own decision making, investing in research, which is something that we have done traditionally. There is an additional element that I think is important. We know that citizens very often do not understand what we are doing. It will also be very difficult for them to understand the results of our evaluation. This is why we should also invest in financial literacy and financial education. This is something that we are doing more and more. 1 So let me focus just for a few minutes on what the Basel Committee is doing. As you know, the Basel Committee is the global standard setter for the prudential regulation of banks and our main objective is to enhance global financial stability. When I was appointed chair of the Basel Committee three years ago, I was very positively surprised to find that the Basel Committee has a permanent evaluation programme of its own activities. In fact, now, we have two branches of this evaluation that are running in parallel. The first one is on whether the whole of the regulatory reform agenda that was approved after the global financial crisis is working as intended. The second, a decision that we took in 2020, is basically to see whether the COVID-19 crisis has also taught us anything in terms of whether the standards that we had approved are working as intended. So, let me share with you some of the results of this evaluation. | 1 |
While there is a risk that the effects of the crisis may in some cases be asymmetric, we will not allow adverse market dynamics to lead to unwarranted interest rate hikes in some countries, and a fragmentation that would compromise the effective transmission of our monetary policy. Therefore, for the PEPP, clinging to the capital keys to determine each country’s purchase amounts would be an uncalled-for constraint that would undermine the very effectiveness of our intervention efforts. It is not a question of targeting spreads or pre-determined interest rate levels: a “yield curve control” or a “spread control” would be complicated and even counter-productive in the euro area. However, depending on market dynamics and liquidity conditions – and where these exhibit unwarranted gaps or there are risks of excessive volatility – certain national central banks must be able to purchase significantly more, and others significantly less, while ensuring the risks remain unshared. Allow me to say a final word on another development under discussion: the possibility of “going direct” to finance businesses without going through the bank channel. The truth is that we do this already, and have done since 2016, by being among the first central banks to buy corporate bonds. Last March, we extended our purchases to include short-term commercial paper. | I warmly welcome the proposal: in the absence of the “quantum leap” towards an EU budget, which could finally be financed by borrowing, this is the best political response that Germany’s leaders could have given to those who doubted their commitment to the euro. And it raises the prospect of a European policy mix that is finally better balanced and that does not place excessive strain on monetary policy alone: the Nordic countries, which are often the most sensitive to this balance, should therefore support this principle. Act II, which is currently unfolding, is one of a gradual but uneven exit from lockdown depending on the sectors or the countries involved. We will only provide our first estimates for 2020 and 2021 on 9 June but we already know that act I – general lockdown – cost the French economy almost 6 percentage points of lost annual GDP and that act II could lead to further losses of at least half this. Over the longer term, it is difficult to foresee the time needed to return to normal – or to a “new normal” – and some lasting potential growth losses are to be feared. In short, we have to face up to an unprecedented shock to both supply and demand, that is temporary and in part long-lasting, and symmetrical but also asymmetrical in terms of some of its national impacts. Intermediate objectives In terms of monetary policy, the context and its uncertainties have increased the need to meet several intermediate objectives at the same time. | 1 |
The FPC reviews its housing actions regularly and will publish the results of its 2019 review, including, as I have said, an updated cost-benefit analysis. The Bank of England work published today is, in the same way, intended to contribute to that necessary transparency and accountability. I began this talk today by recollecting how the Bank had learned, slowly, from the crisis of 1846 about the need to support credit to the economy in a crisis rather than restrict it. I hope likewise, we have learned one of the lessons of the 2008 crisis that higher household indebtedness increases macroeconomic and macrofinancial vulnerability in a crisis and needs to be considered within macroprudential policies. The Committee has discretion to decide which types of debt to include – the 2014 measures only acted on owner-occupier mortgage debt. 23 13 All speeches are available online at www.bankofengland.co.uk/news/speeches 13 References Andersen, Asger Lau, Charlotte Duus, and Thais Lærkholm Jensen (2016), Household debt and spending during the financial crisis: Evidence from Danish micro data, European Economic Review, 89, pp. 96-115. Anson, Mike, David Bholat, Miao Kang and Ryland Thomas (2017), The Bank of England as lender of last resort: new historical evidence from daily transactional data, Staff Working Paper No. 691, Bank of England. Anson, Mike, David Bholat, Miao Kang, Kilian Rieder and Ryland Thomas (2019), The Bank of England and central bank credit rationing during the crisis of 1847: frosted glass or raised eyebrows? Staff Working Paper No.794, Bank of England. | And central banks do not regulate casino visits. As you can see, I could easily spend all of my time today talking about the problems of cryptocurrencies, and of bitcoin in particular. I could talk about how much energy it consumes – at some points last year, the bitcoin ecosystem consumed twice as much energy as Nigeria, an oil giant with 190 million people. By the way, the energy consumed on a single bitcoin transaction until 2017 could power a typical American household for more than three weeks. I could talk about how a seven-fold increase in the value of bitcoin some time ago was driven by the manipulation of a single trader. I could talk about the volatility of bitcoin, which surpasses that of any other commonly traded commodity and which renders bitcoin useless for the vast majority of people. I could talk about the funny thing that bitcoin as a quasi-currency was created to make payments cheap and fast, while in reality it is more often than not expensive and slow. 1/3 BIS central bankers' speeches But instead, I will stress – and this is my point today – the positive philosophical influence of bitcoin on the conservative world of central banking. | 0 |
I will also announce the steps MAS intends to take, as part of a comprehensive review of the financial advisory industry that we are launching. We call this new effort, “FAIR”, or the Financial Advisory Industry Review. FAIR will essentially build on the foundations laid by CEDLI and the FA Act ten years ago. It has two main objectives: first, to enhance the professional standing and competence of financial advisers; and second, to create a more competitive and efficient system for the distribution of life insurance and investment products. The overriding aim of FAIR is to protect and benefit the consumer. Putting the customer first – that must be at the heart of all our efforts. Raising the competence of FA representatives Let me begin with the competence of financial advisory representatives. MAS has been working with the FA industry to raise the skills, knowledge and expertise of representatives to serve customers better. The two aspects of this effort are: improving the product knowledge of FA representatives; and raising the entry requirements for FA representatives 2 BIS central bankers’ speeches Product knowledge of FA representatives We have introduced new examination modules to ensure that FA representatives have sufficient knowledge of the wide and complex range of investment and insurance products currently available in the market. Most firms and FA representatives understand and support the need to raise knowledge and skill levels through a set of common examinations. | These companies are quickly internalising new economic realities which call for a fundamental re-orientation of business and operating models. A clearly defined and wellexecuted strategy for capturing new growth opportunities in the region is more than likely at this critical juncture to reap significant payoffs over the next few decades. A third reason that this period is significant for the insurance broking sector is the intensity of focus that is now being directed at the effects of climate change. Globally, catastrophes are increasing in frequency and intensity. The cost of catastrophes is estimated to have risen by USD870 billion in real terms between 1980 and 2011. In 2013 alone, global economic losses due to natural catastrophes amounted to USD131 billion. Only about a quarter of this was insured. According to a report released last week by the United Nation Economic and Social Commission for Asia and Pacific, more than half of the world’s 226 natural catastrophes last year occurred in the Asia and Pacific region. Floods account for about 40% of the natural hazards affecting the region. Some 80 million people were affected by natural disasters, with economic losses tallying up to nearly USD60 billion. The region was found to be largely unprepared in its response to widespread floods and landslides. Despite the recurring nature of these events, only a fraction of properties and assets are fully protected against risks. | 0 |
Pablo Hernández de Cos: How to assess corporate sector developments in real (pandemic) time Closing remarks by Mr Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, at the Bank of Spain and European Investment Bank Conference "Recovering swiftly to limit COVID-19 scarring of Spanish corporates", 29 April 2021. * * * Good afternoon. It is a great pleasure for me to close this conference we have jointly organised with the European Investment Bank. This is the third conference our two institutions have co-hosted on issues related to the Spanish corporate sector, and I greatly appreciate the collaboration between our institutions. A collaboration that it´s now well established. The topic of this conference is most timely and relevant. This morning the European Systemic Risk Board (ESRB) organized a virtual event on which I had the opportunity to participate as chairman of its Advisory Technical Committee, whose focus was precisely on “Corporate insolvencies and public support measures” and where we have presented an ESRB report on “Prevention and management of a large number of corporate insolvencies”. The motivation of this report is indeed very similar to the discussions you have had in this seminar. Economic policies have played an important role in mitigating the impact of the COVID19 shock on our economies. And precisely thanks to these policies, and despite the significant fall in economic activity, we have not so far observed a significant increase in business mortality rates for existing firms. | The savings ratio increased in the United States at the same time as domestic demand increased more rapidly in China as a result of a fiscal policy stimulation package. The substantial fall in oil prices also played a role. The question is, however, whether the underlying causes of the imbalances have been corrected. The IMF believes that the imbalances will remain in place in the period ahead (see Figure 2). The oil price has also increased considerably during the last six months, which also indicates that the imbalances will remain. This is because this boosts net exports in oil-exporting countries, which tend to have current account surpluses, but increases costs for oil importers, who tend to have current account deficits. The G20 has pointed to the global imbalances as being an important factor for development in the global economy. One aspect that has been discussed is whether to adjust the nominal exchange rates in order to reduce the imbalances. If China, for example, maintains a fixed exchange rate against the dollar, this will make it possible to adjust the real exchange rate if China has a higher rate of inflation than the United States. However, this entails either a high rate of inflation in China, which the Chinese authorities are not likely to want, or to deflation in the United States, which the US authorities definitely do not want. | 0 |
Albania owns around 24% of its territory as agriculture land, and offers still fully unexploited possibilities in the fields of agritourism and agribusiness. This potential should be considered a joint growth possibility to both agriculture and banking industry, as well as a possibility to diversify credit risk sources in your balance sheets. The continuous structural improvements, modernisation of agriculture and productivity growth, the enhanced support with funds and public attention, provide a new reality in agriculture sector. In this framework, the convergence process with the European Union provides for additional opportunities. In this light, without affecting its soundness’ indicators, I am confident that banking system will know to position itself as a supporting-development agent. This sector ought to increase its attention and the financing, analysing and advisory capacities, by fulfilling its mission for the sustainable growth of the country. Thank You! 2/2 BIS central bankers' speeches | Christian Noyer: World financial crisis – public and private strategies to overcome the crisis Speech by Mr Christian Noyer, Governor of the Bank of France, at Paris-Europlace, Dubai, 22 January 2009. * * * Ladies and Gentlemen, It is a great pleasure for me to be here and share some thoughts on the financial crisis and on solutions that may be found to overcome the situation. It is too early to draw definitive lessons from recent events in financial markets. It is however vital to start reflecting on the experience of the last few months. Even more in periods of tension than in normal times, action and reflection should reinforce one another. It is at the very moment of managing the crisis that we lay the foundations for the future financial system. Having said that, I propose to discuss with you two main topics: • The nature of the financial crisis • The policies implemented to address it both from a public and a private sector perspective. The nature of the crisis The crisis first emerged as a liquidity crisis. The first symptoms appeared at the beginning of August 2007 when serious disruptions surfaced on the inter-bank market in the Western world. More than a year later, tensions on money markets are still with us. Recent months have witnessed abnormal levels of spreads, a shortening of maturities, and the contraction, or even closure, of some market segments. | 0 |
Furthermore, as my fellow panelist Prof. Baumeister has highlighted, it is important to identify the original source behind the energy price movements in real time. This may become more challenging as the green transition involves a wide range of sectors and products. To help us navigate we might need new analytical tools and new models. Second: Central banks are not unfamiliar with fluctuations in energy prices, but should the frequency and persistence of supply shocks increase ahead we may more often be faced with the challenging short-term trade-off between stabilising inflation and promoting high and stable employment. Deciding on the right timing and dosage of monetary policy will be crucial. The appropriate response of monetary policy to energy prices depends on the source and nature of the disturbances and their expected persistence. It also depends on whether energy price shocks fuel inflation via second-round effects on other prices and wages, for instance through inflation expectations. Failing to respond to secondround effects, we may risk persistent overshoots of our inflation target and ultimately, a deanchoring of inflation expectations. On the other hand, wrongly interpreting temporary movements in energy prices as persistent, we could have larger output losses in the short term and may even increase inflation volatility. Moreover, changes in relative prices, for instance due to higher carbon prices, are effective signals that push the transition in the right direction. An appropriately flexible and forward-looking monetary policy would help those necessary changes in relative prices to feed through. | However, it is still premature to assess the effect of these shocks on world economic growth. Significant data are not yet available on how economies have performed after the shock. In any event, the size of the possible effect will depend closely on how much the US economy is affected by the turbulence that has arisen there. The information available so far shows that the United States is more resilient to the residential investment crisis than originally envisaged, so the foreseeable effects seem limited. This diagnosis is consistent with the forecasts of international organisations which, while acknowledging a considerable heightening of uncertainty and downside risk, continue pointing to a scenario of ongoing world buoyancy. Realistically, however, if the United States went into recession, a significant BIS Review 134/2007 1 change in the world economic scenario could take place, although the impact would in any event be cushioned by the continued buoyancy of the emerging economies, which have generally been little affected by the financial turbulence. The extent of the impact on global growth will also depend fundamentally on the force and duration of the shocks generated. In the past, in episodes such as that of 1998 sparked by the collapse of the Long Term Capital Management fund and by the Russian debt crisis, the financial turbulence barely influenced world economic buoyancy despite the dark predictions that accompanied it. | 0 |
Chart 3 looks at a set of four complexity proxies for each of the designated SIFIs in 2006, the year before the financial crisis broke: total balance sheet size; the notional value of their derivatives portfolio; the number of legal entities in the group; and their trading assets. They are shown by their country of incorporation. In 2006, the average SIFI had a balance sheet of $ trillion – roughly the same as the annual GDP of a small G7 country. The largest SIFI had a balance sheet totalling $ trillion. This is many multiplies of the largest non-financial firm. It also only covers onbalance sheet positions. Turning to off balance sheet positions, the derivatives portfolio of an average SIFI totalled $ trillion in notional terms in 2006. 8 For the largest SIFI, it was $ trillion. This, too, is many multiples of the largest non-financial firm’s position. These massive SIFI balance sheets were, in turn, spread across a very large array of distinct legal entities within each group. In 2006, the average SIFI had around 328 legal entities within the group. The largest had almost 900 distinct legal entities. Most of the largest global SIFIs had numbers of legal entities running to four figures. By comparison, the world’s largest non-financial firms had less than half this number of legal affiliates (Carmassi and Herring (2014)). A final complexity metric is the proportion of so-called trading assets. | Some progress has also been made in using these models to help design and calibrate postcrisis regulatory policy. As one example, epidemiological models have been used to understand and calibrate regulatory capital standards for the largest, most interconnected banks – the so-called “super-spreaders” (Craig et al (2014)). They have also been used to understand the impact of central clearing of derivatives contracts, instabilities in payments systems and policies which set minimum collateral haircuts on securities financing transactions (Haldane (2009)). Rather less attention so far, however, has been placed on using complexity theory to understand the overall architecture of public policy – how the various pieces of the policy jigsaw fit together as a whole. This is a potentially promising avenue. The financial crisis has led to a fundamental reshaping of the macro-financial policy architecture. In some areas, regulatory foundations have been fortified – for example, in the micro-prudential regulation of individual financial firms. In others, a whole new layer of policy has been added – for example, in macro-prudential regulation to safeguard the financial system as a whole (Hanson, Kashyap and Stein (2010)). This new policy architecture is largely untried, untested and unmodelled. This has spawned a whole raft of new, largely untouched, public policy questions. Why do we need both the micro- and macro-prudential policy layers? How do these regulatory layers interact with each other and with monetary policy? And how do these policies interact at a global level? Answering these questions is a research agenda in its own right. | 1 |
But even if we can – and the financial markets’ response to the latest developments in Brazil, as well as the beginnings of a recovery in capital flows to some countries in Asia, are reasonably encouraging in this respect – we are now having to cope with the economic aftereffects of these earlier financial disturbances. The IMF has cut its most recent forecasts for world growth to close to 2%. And the risks almost certainly remain on the downside. That’s still not global slump or recession. But large parts of the world economy are in fact in recession and the prospect for the world as a whole turns very much on what happens in the major industrial countries. In essence, what we have seen is a brutally sharp cutback in capital flows to much of the emerging world and to some of the transition economies, creating a corresponding need for 5 BIS Review 19/1999 urgent improvement in their current accounts. This has caused massive currency depreciations and forced the emerging countries to make equally sharp cutbacks in domestic demand. The counterpart is a sharp decline in net external demand in the industrial countries, which, if it were not to be offset by action to stimulate domestic demand in those countries, could indeed lead to weakening global activity and price deflation. | The response to Brexit should be the economic and financial strengthening of the euro area: if we remained mired in technical nit-picking with self-satisfaction from some, disparagement from others, and distrust on all sides, we would not only have missed an opportunity, we would, collectively, have failed in our duty. ** I would like to conclude on that note. The unity demonstrated by the EU27 in their Brexit position, behind their negotiator, Michel Barnier, who has done a remarkable job, has been impressive. And everyone now better appreciates – at least in the sense of what they would miss – all the advantages offered by our Europe and our common market. This political desire to “protect” must now unfold into an ambition to “construct”, to build a more effective Europe. Thank you for your attention. 1 European Central Bank press conference, 25 October 2018. 2 Four-quarter cumulative flows. 3/3 BIS central bankers' speeches | 0 |
Admittedly, prior to the presentation of the State Budget, Parliament and the Senate have approved the budget targets, both for overall general government and for each of its sub-sectors, on the proposal of the Government and following a report by the Fiscal and Financial Policy Council and the Local Government National Board. Yet clearly the budgets of each regional government and each municipality are approved separately, there being no document containing information on all of them, together with that on the State and Social Security Budget. Hence, although we do have ex-post information that enables the public spending outcomes and outturn for the four major spending groups – central, regional and local government, and the Social Security system – to be analysed, we do not have an ex-ante or prior document that provides a detailed analysis of budgetary projections for overall general government and its compatibility with the objectives set. It should be recalled, however, that the new Budgetary Stability Law introduced substantial improvements in this respect. Specifically, it stipulates that, before 1 October each year, regional and local government shall submit information on the essential items contained in their forthcoming budgets to the Ministry of Finance and General Government. Then, before 15 October, the Ministry of Finance and General Government will release a report on the alignment of this budgetary information with the stability objectives, in such a way that the Ministry may make recommendations should it perceive slippage. | Looking at all these events, there is a recurrent pattern: innovation in the real or financial economy and deregulation measures are followed by accelerated growth, which is accompanied by a very expansive lending policy on the part of banks. Sooner or later, the boom comes to an end and price corrections take place that often end in a recession. As a rule, the stronger the boom is at the start of the cycle, the larger is the subsequent harm to the economy and to society. BIS central bankers’ speeches 1 This pattern is often complemented by another factor. Particularly, but not exclusively, in the financial sector – a sector with fierce competition between regulated and non-regulated financial market participants – regulatory loopholes are actively exploited in order to gain competitive or other advantages. This is particularly well illustrated by the example of assetbacked securities (ABSs). From the middle of the 1990s, the originate-to-distribute model, i.e. the securitisation and resale of loans, was seen by many as the financing model of the future, not just in the United States, but also in Europe and Germany. Many saw it as a solution to economic and socio-political problems and took measures in favour of ABS financing in terms of regulatory requirements. Accordingly, banks were able, for example, to finance their ABS-based special-purpose vehicles solely through short-term credit lines, credit lines that are in place “until further notice”. | 0 |
8 BIS Review 149/2007 It cannot be ruled out that, for a while, the M4L growth rate may deceive as to the underlying pace of credit expansion in the economy. That is important because, in a nutshell, the turmoil in financial markets is not just a “City” event. How potent it will be macroeconomically will depend on how long current conditions persist, and the feedback loop between the financial economy and the real economy. As to its persistence, necessary conditions for an alleviation of the current strains in credit markets are probably at least twofold. First, that the US housing and household debt markets stabilise. Second, that banks and other financial intermediaries recognise impairments to asset values, so that uncertainties about counterparty credit risks begin to reduce. On the financial-real economy interaction, we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other. A variety of policy responses are possible. The announcement yesterday by central banks of co-ordinated action via term auctions to alleviate pressure in financing markets is directed at that. Second, regulatory authorities around the world are monitoring banks’ liquidity and capital positions, including in the context of Basel II. And, thirdly, monetary policy also can in principle play a role, through what is effectively a “financial accelerator” working through bank balance sheets, where that is consistent with maintaining stable inflation in the medium term. | Despite the rise in oil prices, the Norwegian krone has been fairly weak since 2014. A weak krone has a positive influence on exporting companies. At the same time, prices for imported goods and services increase. A weaker krone therefore leads to higher inflation. Measured by the import-weighted exchange rate index (I-44), the krone appreciated somewhat in the period to autumn 2018, but depreciated again towards year-end. The depreciation coincided with a fall in oil prices and heightened uncertainty in global financial markets. Chart: Growth mainland Norway Growth in the Norwegian economy has been solid since autumn 2016. At the same time, labour market conditions have improved considerably. The number of employed has increased by more than 100 000, and unemployment has declined. Solid global growth, higher oil prices and low interest rates have contributed to lifting growth. The enterprises in Norges Bank’s Regional Network reported rising output growth through 2018, particularly for oil service providers thanks to the rebound in petroleum investment on the Norwegian shelf following several years of decline. There was also a pick-up in exports from oil service companies. Chart: Employment as a share of the population After some years of solid growth, spare capacity has gradually diminished. At the end of 2018, capacity utilisation appeared to be close to what we regard as a normal level. Employment also appears to have returned to a more normal level. | 0 |
Through stress testing of major banks, it has boosted the resilience of the banking system. It has used those tests to deal with specific threats from pockets of credit growth in consumer credit and leveraged loans to companies. It has introduced measures to cap high loan-to-income mortgage lending. It has, through new tests, built greater resilience in the financial system to cyber attacks. And it has examined risks in the growing non-bank financial system so that they can be addressed if they become material, if necessary by changing the scope of regulation. 3 The post-crisis regulatory infrastructure also included a new Prudential Regulator for banks, insurance companies and designated investment companies (the Prudential Regulatory Authority of the Bank of England) and a resolution regime for failing banks, overseen by the Bank of England. For a full description of these functions, see the Bank of England’s Financial Stability Strategy. 4 The committee comprises the Bank’s Governor, 4 deputy Governors, the Executive Director for Financial Stability, the Chief Executive of the FCA, 5 external members appointed by the Chancellor and a representative of HM Treasury. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 Legitimacy & accountability It will be important that those in Parliament continue to recall the misery that prompted their predecessors to grant us our powers and the independence to use them. To abandon their predecessors’ good intent could inflict the same misery on some future generation. | But of course, the handing of such powers to an unelected group of people raises serious issues and challenges. How can such a group be trusted to implement what our society wants when it cannot be sent packing through the ballot box? How can it be legitimate that unelected technocrats take decisions that affect people’s lives? These are understandable, real concerns. And they must be addressed. Those of us to whom a degree of independence has been granted must remember that we have no natural right to it. We are citizens in service, not people in power. Two important features of the way power has been delegated to us make that so. First, Parliament delegates to us a clear mandate. We cannot pursue whatever our own preferences may be. That’s why we have, as it’s known in the trade, instrument independence, but not goal independence. We do not have the independence to decide what the instruments are used to achieve. 5 Second, our performance against Parliament’s mandate must be able to be assessed. This means we can be held to account for delivering what we’ve been told to deliver. These two features were central to the creation of the Monetary Policy Committee in 1997. It has a clear remit from Parliament: a target of 2% consumer price inflation. There is no danger of the committee being able to impose any other standard. 5 Guy Debelle and Stanley Fischer. "How independent should a central bank be?". Federal Reserve Bank of Boston, 1994. | 1 |
The current economic situation Before the war, the world economy was on a path of gradual recovery, following the most acute phase of the pandemic, although the recovery was already flagging from the second half of 2021 owing to global bottlenecks and the increase in inflationary pressures. The gradual path of recovery in activity prior to the Russian invasion of Ukraine was, in any case, highly uneven across geographical areas and sectors of activity. Thus, while some economies had already regained or even surpassed their pre-crisis levels of activity, others had not. Spain, despite having one of the highest levels of vaccination in the world, was among the latter. At the end of 2021, Spain’s output was still 3.8 percentage points (pp) below its pre-pandemic levels, while in the euro area as a whole this gap had already closed. One factor that would explain the difference in progress is the sectoral composition of activity. In particular, the recovery tends to be more delayed in those countries, like Spain, in which services that are highly dependent on personal interaction, such as those linked to tourism, account for a large share of the economy. Economic developments in Spain, and in the rest of the world, have been affected by upward inflation surprises since the second half of 2021, driven in particular by energy and food, although there has also been a slight rise in underlying inflation. Between December 2020 and March 2022, the annual increase in consumer prices rose from -0.6% to 9.8%. | But I will say that the speech of the President, if one reads it completely, it’s totally in line with the statement we had in Tallinn in our monetary policy meeting there; the speech that he also made at the European Parliament; and here it was along the same lines. He recalled that domestic drivers of inflation, measured by the underlying inflation, are still subdued, and that we need to be sure that when we get to inflation close to 2% it’s a durable situation and a self-sustained situation that can go on without the high degree of accommodation that we have now: so all these conditions, he reaffirmed them, and then talked precisely about the need to persist and about the need to be prudent in talking about premature withdrawal of stimulus. So in other words we are not closer to an exit, not even a baby step closer, with the forum here in Sintra? Constâncio: Well, we are not predicting what the Governing Council will do. We are not trying to do that. This is the assessment that we have been producing also as a result of monetary policy meetings of the Governing Council itself, like the more recent one we had. So it’s going along the same lines. Personally, I don’t see anything in the speech that would be different from, say, the previous two main interventions about monetary policy done by the President. Let us talk about one area of optimism, and that’s the political tailwind. | 0 |
It was an exercise designed to assess the level and depth of banks strategic thinking about responses to future challenges, including the challenges to core business models from changes underway in the technologies around money. The exercise provided the Financial Stability and the Prudential Regulation Committees of the Bank of England with a number of important insights. We will be following up with banks on the results of the exploratory exercise. Conclusion Thinking about the future in this way is a key part of our responsibility for the money of the UK. The way we use the social technology of money has a long and very varied history. Money has manifested itself in very different forms over the centuries. The confidence that lies at the heart of the technology that is money has been supported in very different ways. The technology has, on occasion, been abused and misused: to borrow Mill’s analogy, the ‘machine’ has gotten ‘out of order’ and done serious damage. The Bank of England has a very long association with the development of money. As I noted at the outset, it has been argued that the creation of the Bank, over three hundred years ago, was the institutional invention that brought public and private money together, providing the liquidity, efficiency and security in the money supply upon which the development of modern economies depended. The way we exercise our responsibility for the ‘machine’ that is the nation’s money has of course changed over time. | So the technologies that support money in the UK are central to our purpose and we need to assess how changes in those technologies – physical, legal, institutional (public and private) will affect that purpose. Against that background, I want to pick up two changes in the technologies supporting our money. I am not referring here to Bitcoin or crypto-currencies, on which so much ink (physical and virtual) has been expended recently. I want rather to talk about two related developments that are actually happening or about to happen. The first is the growing use of non-cash technologies for small value payments. And the second is the change to the way we manage and use our payment accounts at banks, the form in which most of us hold our money. As I noted, some £ 20%, of the money in the UK is issued by the public sector. A very small amount of this, by value, comprises the coins issued by the Royal Mint. The rest is Bank of England money. Bank of England money is used at the extreme ends of the payments hierarchy – for the very largest and for the very smallest transactions. At the top end, the very large payments that private banks make to settle their claims on each other must be made in ‘Bank of England’ money by transfers between the banks’ reserve accounts at the Bank of England. This happens over an electronic payment system, the Real Time Gross Settlement (RTGS) system operated by the Bank of England. | 1 |
Sweden is one of the world’s best examples of the forces for growth that are generated by innovations, experimentation and creative processes. Companies like Ericsson, AGA, SKF, Atlas Copco and Electrolux are just a number of the instances of inventions that have contributed to our country’s long-term growth. The old Austrian school of economics, with its roots in the period before World War I, had an analytical focus on growth and the business cycle that is relevant for an understanding of the present situation. One insight is the crucial part innovations play for the path of long-term growth. This has been elucidated not least by Joseph Schumpeter and Erik Dahmén. However, the significance of innovations and technology for growth is not a straightforward matter. They often raise productivity and generate windfall profits. The new products that result from innovations give some firms a monopoly, while other firms that are relying on older technology are pushed to the wall. In such a process there is, of course, a large risk of making the wrong decisions. The Austrian school also regarded investment as the linchpin of the business cycle. In the event of a technological breakthrough, firms are liable to overestimate the size and duration of the resultant improvement in productivity. That is why an upward phase not infrequently culminates with excessive optimism and faulty investment. When profit expectations then fall back to more realistic levels, share prices fall and corporate investment takes time out until capital stocks have adjusted to a more reasonable view of long-term yields. | With a clear view of the important role that insurers have in serving and supporting the economy, there is every potential for this to be realised. 4 BIS central bankers’ speeches | 0 |
On the other hand, the second pattern is consisted of huge trade deficits, which are covered much more by remittances from abroad than by foreign investments (e.g. Macedonia, Albania). However, the dilemma appears whether these high current account deficits are sustainable. Regarding the economic history, despite the fact that in certain areas Macedonia was a pioneer in the implementation of reforms in South Eastern Europe, under the influence of negative external and domestic shocks it had relatively low rate of economic growth of averagely 2.7% in the 1997-2007 period. This resulted in a relatively low level of real convergence of 25.7% of GDP per capita in the euro-zone (23.6% in 1996). The use of the exchange rate as an anchor for inflation expectations has been effective until now, producing low and stable inflation rates. In circumstances of high import dependence and relatively slow implementation of structural reforms aimed at increasing the export potential, contributed to the maintenance of high trade deficit, which was mainly financed by high private transfers. However, the transition process in Macedonia is specific because of the relatively slower process of real convergence and the continuous real depreciation of the Macedonian Denar. Namely, according to some research, 14 there has been an absence of the BalassaSamuelson effect in Macedonia, that is the productivity in the tradable sector compared to foreign partners rises with relatively lower rates. This was a result of the absence of big foreign companies and the loss of important foreign markets, particularly after the independence. | This is particularly troubling for the countries on a fixed exchange rate regime or currency board, which do not have the exchange rate flexibility as an instrument for handling inflation. Another part where there might be trouble is the exchange rate criterion. Now it is the floaters that could have bigger difficulties, particularly if the current developments continue and capital keeps to flow in these countries, thus making pressures for nominal appreciation. As far as the budget deficit criterion and the interest rate criterion are concerned, it appears that in these areas there will be less difficulties in fulfilling the Maastricht criteria, under the assumption there will be maintenance and strengthening of fiscal discipline. Of course, not all is bad and unreachable as far as Maastricht criteria are concerned. These countries are not giving up and they stand ready to increase their efforts in order to achieve their goals. While it appears that most transition countries have postponed their euro-zone entry a little bit due to the abovementioned difficulties, there are also two remarkable success stories from the transition countries. We already have Slovenia which has been in the eurozone since last year. In addition, we have Slovakia which got a positive opinion by the European Commission on fulfillment of criteria and is getting ready to adopt the euro in the beginning of next year. | 1 |
Source: Central Bank of Chile. Figure 4 Cost pressures a) Transportation costs and bottlenecks (1) (standard deviations) b) IMCE: Cost expectations (1) (2) (diffusion index) Manufacturing 100 Freight/amount imported Supply Chain Pressure Index (2) 5 Construction Trade 4 3 80 2 1 60 0 -1 -2 10 12 14 16 18 20 40 22 17 (1) Standard deviations from average. (2) Global Supply Chain Pressure Index. Sources: Central Bank of Chile based on microdata of Chile's National Customs Service and New York Federal Reserve. 18 19 20 21 22 (1) Value above (below) 50 indicates expected expansion (contraction). (2) Dashed horizontal sines show historical averages between January 2004 and November 2022. Source: Icare/Universidad Adolfo Ibañez. 11 Figure 5 Activity indicators (index, 2019Q3 = 100, deseasonalized series) GDP 110 Non-mining GDP 100 90 80 70 15 16 17 18 19 20 21 22 Source: Central Bank of Chile. | 6 “Accredited investor” refers to an individual with net personal assets exceeding $ million or a corporation with total net assets of more than $ million. 7 “Qualified investor” means an individual with net personal assets exceeding $ million, a corporation with total net assets of more than $ million, a collective investment scheme that is marketed only to accredited investors, or a collective investment scheme that is not marketed in Singapore. 8 Brooks, C. and H.M. Kat, 2001, “The Statistical Properties of Hedge Fund Index Returns and Their Implications for Investors”. BIS Review 52/2002 3 To enhance disclosure in prospectuses for offers of investments (including hedge funds), Part XIII of the SFA which came into effect in July this year introduced new prospectus checklists, prospectus registration procedures and advertising regulations. A prospectus must contain all material information that a reasonable investor would require to make an informed investment decision, such as the investment objective and specific investment risks of a fund, the fees and charges, and the track record of the fund manager. For the market to exercise discipline on prospectus disclosure, prospectuses that are lodged with MAS are posted on the MAS web-site for public comment for a minimum two weeks. We view this as an advance in speed and efficiency. As a safeguard, MAS may refuse to register a prospectus if it does not satisfy the disclosure requirements or if its registration is not in the public interest. | 0 |
Activity in the Swedish economy slowed in the closing months of last year. The tendency was most evident in export sectors but it looks as though consumption also became more subdued. This is to some extent desirable. Earlier last year, growth in Sweden was so high that a continuation would presumably have pushed inflation up and thereby threatened economic stability. The signals received during January and February also point to domestic activity being somewhat weaker than calculated earlier. The change is not dramatic, however. The growth rate seems to falling back towards the level — between 2 and 2.5 per cent — that the Riksbank identified earlier as being what the economy can achieve in the longer run without generating higher inflation. Turning to price tendencies, some increase has been noted in the rate of underlying domestic inflation (UNDINHX). This indicator excludes changes in interest expenditure, taxes and subsidies, and prices BIS Review 20/2001 3 of imported goods. The increase is not alarming and it should be borne in mind that in recent years underlying domestic inflation has been exceptionally low. The downward price effects from deregulations, for example, have been greater than we expected initially — and presumably than we can count on in the future. So how will domestic inflationary pressure develop in the future? Will it continue to creep up? Wage agreements that have been concluded to date are admittedly in line with what we allowed for but in an international perspective they are on the high side. | Instead of the slowdown turning upwards after one or, at most, two quarters in the V scenario, this would take another two quarters or a total of about a year. The pessimistic scenario — the L Then there are one or perhaps several pessimistic scenarios in which the imbalances in the U.S. economy undergo a painful correction that paralyses the economy or delays the recovery for a very long time. This path can be described as a capital L; the economy loses speed and then fails to get going again, proceeding instead at a snail’s pace. One assumption behind scenarios of this kind is that measures of economic policy are not capable of reversing the trend. In the L scenario, the higher productivity growth is checked, corporate investment is cut back and consumer confidence is muted by falling share prices, thereby accentuating the downward path. In a negative spiral, share prices, investment and consumption all decline at the same time as worried investors abroad become averse to placing their funds in the U.S. economy. The problems are accentuated by the saving imbalances. When money ceases to flow into the United States, the dollar falls. The relatively limited size of foreign trade means that a correction of the massive current-account deficit takes time. The United States has to invest less and save more. Moreover, the debt position of households and firms now seems to be more tangible and perhaps more troublesome. | 1 |
Jean-Claude Trichet: Financial stability Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Forum Financier Belge, Brussels, 26 November 2003. * A. * * Introductory remarks It gives me great pleasure to be here in Brussels and to address you in this very well-known forum at the kind invitation of Governor Quaden. The topic I shall be talking about today, namely “financial stability”, is obviously very broad and challenging. My main topic of discussion will be the probable consequences the profound changes currently taking place in the financial sector will have on financial stability and on the policies of the Eurosystem in this regard. The main reason why I am talking about this topic - and why we at the ECB are following the issue - is that the stability of the banking sector and the financial system at large is of the utmost importance for the Eurosystem, as it is for any central bank. It is the precondition for a successful conduct of monetary policy and the maintenance of smoothly functioning payment systems, which are major responsibilities of a central bank. I would like to focus on three specific developments: the increasing importance of financial markets in general and market volatility more specifically, financial innovation, and the process in hand to increase the integration of financial systems across countries. | Materialization of such risks will not only disrupt vital financial services but will also undermine the security and confidence in the financial system. In fact, the scale and sophistication of cyber-attacks is already on the rise. Examples include data breach at Target of 70 million credit card users, a cyber-attack on Equifax compromising data of 143 million customers, and the hacking of over 100 million customers’ data at Capital One Bank. No wonder, cyber risk features as a key concern in different industry surveys. For instance, respondents to the Bank of England’s Systemic Risk Survey of 2H-2018 quoted the risk of a ‘cyber attack’ as the second major threat to the system, only behind the Brexit induced political risk. The growing threats of cyber risk need to be reflected in banks’ operational risk capital charge. Incidentally, the Basel Committee has revised its operational risk methodology by replacing the existing three techniques with a simplified Standardized Measurement Approach and expects that its implementation, due by January 2022, will increase capital risk charge for operational risk by 18% for a group of banks currently using Standardized Approach of the old regime. While it is not clear how much of the increase in operational risk charge is driven by the recognition of growing cyber threats, greater capital allocation for operational risk is a step in the right direction, given the increasing significance of such low probability but high impact risks. However, reliance on capital alone will not suffice. | 0 |
Moreover, longer-term measures of volatility have generally increased alongside shorter-term measures, as this chart which plots 2-year implied volatilities alongside 3-month volatilities suggests (Chart 2). We have also witnessed some very large moves in financial markets over the past six-months. Here I am going to draw on two examples – the 15 October increase in US Treasury yields following the publication of unexpectedly weak US retail sales data, and the 15 January appreciation of the Swiss franc following the SNB’s decision to remove its peg to the euro. The events had different drivers, but there are some common themes I would like to draw out. What unites the 15 October and 15 January episodes is that the immediate intra-day reaction to the news was unprecedented. The intra-day change in 10-year US bond yields was 37 bps, with most of this move happening within just an hour of the data release. The intraday range represented nearly eight standard deviations, exceeding the price moves that BIS central bankers’ speeches 1 happened immediately following the collapse of Lehman Brothers. On 15 January, the Swiss franc appreciated by 14%. The intraday range was several times that number, and market participants continue to debate the highest traded value of the franc on the day. Such events could imply that a number of major asset markets may have become more sensitive to news, so that a given shock causes greater volatility. | The argument would be that the apparent change in ability of markets to digest news is a mirage: the statistical analysis would prove to have captured a transient trend, and that intermediaries were never prepared to stand in the way of large market moves, during good times or bad. On this view, the reduction in balance sheet and the move towards electronic structures have been correlated with, but are not a cause of, the events we have seen. And the fact that the spikes in volatility have been visible in equity as well as bond markets, where market structure has not undergone as profound change as FICC markets, would be taken as supporting evidence. This view would caution against over-interpreting a few isolated case studies, where excessive market conviction – that the next move in US rates would BIS central bankers’ speeches 3 definitely be up; and the Swiss peg was immutable – led to highly crowded trades accentuating the price moves and the impact on volatility. But this is not the interpretation I lean towards. Not least because we hear from market participants that, far from biting in extreme circumstances, these are issues that FICC businesses are grappling with on a daily basis. An eight standard deviation move in US Treasuries, on weaker-than expected US retail data, lies outside the bounds of what could be considered a transient trend. Consolidation and electronification have plausibly combined to accentuate the sharp moves seen last autumn and this January. | 1 |
The strain caused by developments in recent years appears to be comparatively limited. When inventions with a broad potential for application are introduced, it generally takes a long time before we learn the best way to use them. We tend to be fixed on the current system solutions and find it difficult to see new opportunities. The sobering process that has occurred since the exorbitant expectations at the end of the 1990s with regard to telecommunications and IT therefore does not rule out the possibility that this technology will stimulate future productivity growth. Following the electricity euphoria at the beginning of the 20th century, various applications gradually changed everyday life for industry and households. Sweden was not fully electric until a few decades later. Essentially, therefore, I am optimistic with regard to what future applications in telecommunications and IT can achieve for economic growth. The financial sector - the lubricant of the economy The financial sector has played a very central role in the development of the economy over the past 150 years. It still does, although the general public is sometimes critical of the financial sector - often without considering the services the sector has to offer and how daily life would look without this sector. The fundamental functions of the financial sector - financing, risk management and intermediation of payments - are indispensable to society. Financing entails bringing together the different wishes of savers and investors. Savers want their money to be available directly, while investors often require long-term loans. | Given the monetary policy pursued, inflation will return to the target at the end of 2021 and stay close to 4% further on. I will now speak on possible risks to the forecast. Disinflationary risks do not prevail any longer in 2021. Moreover, this is generally a balance between proinflationary and disinflationary risks over the forecast horizon. Proinflationary risks include, first and foremost, a possible rise in prices in global commodity markets. Second, the epidemic situation remains one of the least predictable factors. Its potential worsening will be the reason why companies’ costs will stay high, with goods transportation problems and production chain disruptions persisting. Third, inflation expectations may remain elevated for a long period of time. Fourth, it is worth emphasising that economic rebound may be uneven and involve local price spikes in individual segments. For instance, as restrictions are lifted in the service sector hardest hit by the pandemic, an increase in demand amid an insufficient rise in supply may become a temporary proinflationary factor. The scale and duration of its impact will depend on a new balance between demand and supply, households’ behaviour, changes in consumer preferences, and the pace of the cancellation of restrictions on foreign travels. Fifth, we still take into account persistent geopolitical risks as they may affect yield trends and inflation and exchange rate expectations. The second group of risks include disinflationary factors. First of all, the fiscal policy normalisation may have a more significant influence on final demand and, accordingly, price movements. | 0 |
It also calls for the consideration that such policy responses may have implications that extend beyond the domestic borders, Benefits may also be derived from cross border coordination of policy responses to increase the prospects of achieving the desired outcomes. Our conference today focuses on the impact of economic and financial globalisation on the role of central banks, as well as to assess how central banks can effectively contribute to promote stability in this environment. In particular, the conference will be looking at the implications and challenges that globalisation brings to the mandate of the central banks in preserving monetary and financial stability. The pace and nature of globalisation has also BIS Review 20/2009 1 brought significant stress to the international financial architecture. The current financial crisis has highlighted the vulnerabilities in the international financial architecture, leading to renewed thinking about the reform of the global financial system. Tonight, Joseph Stiglitz will be speaking on "Strong Institutions for Growth and Crisis Management". Tomorrow, we will address some of the specific management challenges central banks face in a globalised environment. We will discuss some recent developments of central banks' cooperation and the areas for reform of the international financial architecture. Ladies and gentlemen, The crisis presents an opportunity for us to re-evaluate, promote and embrace sustainable long terms solutions. Our focus is for the discussion to contribute to the means through which central banks can contribute more effectively in promoting stability and economic growth. | Speaking from Thailand's own experiences and limitations, we realize that both planned and unforeseen challenges will mark our path towards eventual compliance. As such, we have taken some initial steps to check the readiness of financial institutions to conform to the credit risk guidelines under the New Capital Accord. A full impact analysis will be conducted next year. Going some way to prepare for the more sophisticated methodology embodied in the New Capital Accord's treatment of credit and operational risk, we are requiring, as a first step in the same spirit, that financial institutions calculate market risk capital charge in 2002. Actual capital requirement will be made, tentatively, in 2003. Although the complexity of credit risk and internal rating approach will add new difficulties even after market risk is mastered, we believe this step will serve to focus the attention of top management of financial institutions and supervisors, ensuring they will stay alert to other complexities that follow. In this connection, we would like to take this opportunity to thank Mr. Roland Raskopf and Mr. Jason George, who last October were kind enough to give Thailand's banking community excellent, and much appreciated, presentations on market risk, after which we received many calls from awakened private bankers for advice on how to plan the adoption in their banks. I should also like to take this opportunity to express our appreciation to Mr. George, who spent three years at the Bank of Thailand as consultant to help us build up our supervisory capacity. | 0 |
We therefore explicitly look at many 2 BIS Review 40/2002 other indicators and analyses in the context of our two-pillar strategy, and we do not try to hide the complexity of monetary policy-making behind the production of a single Governing Council forecast. The projections reflect the expert judgement of Eurosystem staff and we prefer to keep this distinct from the judgement of the Governing Council regarding the overall assessment of the risks to price stability. Therefore, our decision to clearly separate the production of the projections from the analysis of the Governing Council is fully transparent as it honestly reflects the decision-making process within the ECB. As regards communication, we have always taken an approach that ensures a high level of transparency and clarity of our message. Our monthly press conferences are key in this respect. The timeliness and detail of our communication is without comparison. At the same time, we have not changed our view regarding the publication of minutes. We fear that, given the multi-country context in which the Governing Council works, published minutes - or a procedure in which dissenting views of Council members are published (even without mentioning names) - could lead to undue pressure on national central bank governors to deviate from a euro area perspective. This cannot be in the interest of the euro area, no more than if the Governing Council were to end its approach of speaking with one voice. | Wage moderation is a key factor in favouring the expansion of employment and in helping to create the conditions for a sustainable increase in the potential growth rate of the euro area economy. Current estimates for trend potential growth in the euro area are in the order of 2-2½%. There is much scope for raising potential growth in the euro area. The ECB will make its contribution by focusing on maintaining price stability in the medium term. But other policy actors also have to take up their responsibilities. The Broad Economic Policy Guidelines for 2002, which have just been approved in Seville, place the emphasis quite rightly on the need for further structural reforms in the euro area. I understand that this view is also shared in the draft resolution. The future welfare of euro area citizens will also depend to a large extent on the prudent conduct of fiscal policies. The solidarity pact of our monetary union requires all participants to maintain a mediumterm perspective in compliance with the framework of the Stability and Growth Pact. This implies that budgetary positions in all countries should be close to balance or in surplus over the business cycle as a whole in order to allow sufficient room for a smooth functioning of automatic stabilisers. We have seen some worrying developments in fiscal policy in some countries over the last few months. | 1 |
Reflecting the strength of the US dollar, the Sing dollar, along with most other major currencies, depreciated against the US dollar in the first half of this year. However, the Sing dollar appreciated against the euro, the Australian dollar, pound sterling and some of the regional currencies over the same period. The external environment has since strengthened. The industrial countries except Japan are enjoying strong economic growth. The regional economies have shown more vigour and resilience than was expected. Against these positive developments, Singapore’s GDP rose by 5.4% in 1999. The economy grew further by a robust 8.4% in H1 2000. Both external and domestic demand have expanded strongly. Real non-oil domestic exports grew by about 12% in the first six months of 2000, boosted by the continued strength of global electronics demand. The turnaround in the regional economies has underpinned strong service exports and boosted the commerce and transport and communications sectors. Domestic consumption has grown steadily in tandem with labour market conditions and overall sentiment, while investment spending has recovered strongly on the back of a surge in investment in machinery and equipment. Despite the robust economic recovery, inflationary pressures remain subdued. CPI inflation was 0% in 1999, rising moderately to average just 1% in the first six months of 2000. (Based on the old CPI basket before the revision introduced early this year, measured CPI inflation in 1999 would have been slightly higher at 0.4%.) | As one of four non-G7 financial centres represented on the Forum, we play a useful role in providing insights and perspectives from the region on financial market developments. We participated in the FSF’s work on Offshore Financial Centres. We also hosted a meeting of the FSF earlier this year during which the three FSF reports were adopted. Singapore also participates actively in IMF initiatives to enhance transparency as a means to minimising risks to the global financial system. In particular, we are in general compliance with SDDS (Special Data Dissemination Standards), including the new requirements for more detailed breakdown of data on official foreign reserves of member countries. We also release regularly the IMF’s assessment of our Singapore economy and policies; the latest report was based on the annual consultation that ended in June of this year. MAS annual accounts Assets & liabilities On MAS’ annual accounts, total assets increased by $ billion to $ billion as at 31 March 2000, of which $ billion was in the form of foreign assets and $ billion in our holdings of Singapore Government Securities (SGS). The increase in SGS holdings reflects a conscious effort to build up our portfolio of SGS to engage in more repo transactions for our money market operations, thereby broadening the range of money market instruments that we use. On the liabilities side, there was a reduction in deposits of banks by about $ billion, reflecting the repayment of deposits previously placed by POSB with MAS prior to its merger with DBS. | 1 |
Countries in Asia in turn import intermediate goods from, for example, Sweden. Sweden is thus exposed not only to the direct effect but also to indirect so-called third country effects because the downturn in the United States affects Asia and other parts of the world. When we at the Riksbank produces forecasts for Swedish exports we take into account both direct and indirect effects. The forecasts are based on growth on the Swedish export market and take into account the growth in imports in the recipient countries as well as how much Sweden exports to the respective countries. The latest forecast for Swedish exports and the growth of the Swedish export market is shown in Figure 2. Swedish exports grew rapidly in 2010 and during the early part of this year, but already in the July Monetary Policy Report it was stated that growth was expected to enter a calmer phase. Since then, demand abroad has weakened which, in combination with the recent international financial turbulence, led us in September to believe that exports would grow even more slowly than previously calculated. This is because Swedish exports consist to a large extent of investment goods and in times of unrest companies in Sweden as well as abroad often choose to postpone their investments, which has a negative impact on Swedish exports. | For Swedish companies, falling share prices in Sweden and abroad thus 4 6 This relates to an increase from over SEK 100 billion to over SEK 577 billion (Statistics Sweden, 2011). BIS central bankers’ speeches have negative effects on both domestic and foreign sales. Falling share prices also make it more difficult to fund investments by issuing new shares, which reduces capacity utilisation. Figure 6 Share indexes and Swedish consumer confidence in the economy The stock market index January 2006=100 180 40 Sweden (OMXS) Euro Area (EuroStoxx) 160 30 USA (S& P 500) Emerging Markets (MSCI) Consumer Confidence 140 20 120 10 100 0 80 -10 60 -20 -30 40 04 05 06 07 08 09 10 11 Note. The left axis is the stock market index and the right axis the value of the households’ confidence indicator. Sources: Reuters Ecowin and the National Institute of Economic Research Households’ and companies’ expectations of the future It is assumed that movements on the stock markets reflect the market participants’ expectations regarding profits in the future. The development of the stock exchange is therefore related to the prevailing economic climate and to the households’ and companies’ expectations regarding the development of the economy. | 1 |
It could possibly be helpful in such situations to also show expected CPI inflation in a time perspective that is long enough to allow all temporary effects to have dissipated fully. It would then be clearer that the analysis of inflationary developments in terms of different adjusted measures was being done for instructive reasons. In that way it should be possible to avoid the risk of interpretations that we had “changed target variable.” Such an approach would also be consistent with the clarification from 1999, which says that the Riksbank should explain in advance how large a deviation from the inflation target defined in terms of the CPI that can be justified one to two years ahead. It would be possible to illustrate clearly both the size of the target deviation during the normal forecast horizon and the fact that inflation was expected to be back on target in the not too distant future. Allow me to elucidate my train of thought with an example. Suppose that as a result of some shock the inflation rate after 1.5 years is forecast to rise from 2 to 3 per cent. The shock is assumed to be such that it, after its occurrence, affects inflation for only one year. One example of a shock with such a time profile is an expected rise in VAT, which raises the price level permanently but only affects the 12-month change in the CPI one year ahead. Another example is an increase in an excise duty, for example tobacco tax. | Mandated with this role, the Bank of Albania has approved several regulations focusing on microfinance institutions and development. This regulatory framework, comprises the supervisory requirements to start and operate a Saving and Loan association, the indicators that enable their reporting and their financial analysis, and the principles based on which the on-site examination of such institutions occurs. The regulation of the Bank of Albania “On licensing the Savings and Loans Associations and their Unions”, is the first document issued by the Bank of Albania in this area, representing a big step forward into the formalization of these institutions. It defines the documentation requirements for the license application, the deadlines and the authority that should grant the license. These requirements are directed to the single associations, to the Union, and to the Union member association. It has been recognized the role of representing Union proposed member associations in the licensing process, meant also as an important tool to induce single SLA to become Union members. The number of the Unions is certainly not limited. The other important regulation is that of “The Supervision of Savings and Loan Associations and their Unions”. In this regulation, the Bank of Albania has defined supervisory indicators for certain typologies of risk that are characteristic of current stage of development of the microfinance institutions in Albania. Counterparty risk is assessed through the requirements for a consistent process of loan portfolio analysis. | 0 |
Of course, there are alternative measures of inflation, such as the widely reported Consumer Price Index (CPI). The FOMC has set its inflation target in terms of the PCE Price index because relative to the CPI it covers a wider range of items that households consume and because it better adjusts for changes in the spending patterns of households. CPI inflation is currently around 2 percent. But CPI inflation generally runs three to five tenths of a percentage point higher than PCE inflation, and so the CPI’s performance should be measured against a higher inflation objective, such as 2-1/2 percent. So, an inflation gap remains for the CPI as well. Looking ahead, I am concerned about the possibility that inflation will not return to our 2 percent target within a reasonable period of time. First, recent monthly inflation numbers have been low, so there is not much upward momentum. Second, as I mentioned earlier, wage growth has been relatively low for some time. While wages don’t predict future inflation, the two often move together. So the subpar growth in wages we see today is consistent with continued subdued inflation. And, third, it does not appear as if inflationary expectations are exerting much of an upward pull on actual inflation at the moment. That said, I expect inflation to rise slowly over the next three years toward the FOMC’s 2 percent target. | And as I mentioned earlier, I am expecting further improvements in economic activity, with real GDP growing at around 3 percent over the next 18 months and the unemployment rate declining further to a little over 5 percent by the end of 2016 – in line with what I think is its long-run neutral level. So I do see us getting back close to our policy goals over the next two to three years. A balanced approach to monetary policy It is important for me to say that this forecast is predicated on the assumption that the FOMC takes a very patient approach to reducing policy accommodation. Let me elaborate on why I think this is appropriate. I see two important and divergent ways my forecast could go wrong. One is that I may be overestimating the underlying strength in the real economy, so that a successful and sustained exit from the ZLB may be more difficult than I currently believe. Guarding against this risk calls for a more patient removal of accommodation. The second is that I may be BIS central bankers’ speeches 3 wrong about the inflation outlook, and we could be poised for a much larger rise in inflation than I am forecasting. This risk calls for more aggressive rate hikes. How do I think policy should balance these divergent risks? How should they affect the FOMC’s strategy of pursuing a balanced approach to achieving our policy goals? | 1 |
But the growth of financial firms active across different business lines and national boundaries does make designing policies to address systemic risks more challenging. Let me conclude by highlighting some actions we can take to guard against such risk. First, there is scope for more private and public sector cooperation on stress-testing. There is room to develop further our analysis of the combined effects of market and credit risk on the balance sheets of financial firms and at a system-wide level. And it is important that macroeconomic stress scenarios do not blindly extrapolate from the robust economic performance of recent years. The FSA is reviewing stress-testing practices of UK firms as part of a campaign to identify and encourage best practices. Of course each firm needs to tailor its tests to its own business, but I believe that there may also be merit in looking at a common set of plausible scenarios. This would help compare risk profiles and publishing these results could potentially strengthen market discipline. Second, efforts are underway to improve further liquidity risk management. The fundamental reforms to the sterling money market introduced in May should make for greater flexibility in the day-to-day management of sterling liquidity, and help ease potential liquidity bottlenecks in times of stress. 7 These changes build on the lessons of the Federal Reserve’s discount window in US dollars and the ECB’s marginal lending facility in euros. Handling potential liquidity pressures faced by LCFIs operating in multiple countries and currencies continues to be a focus of policy attention. | What about the funds earmarked under the second plan to support the Greek banks? That money, € billion, disappears with the stopping of the programme, on Tuesday evening, as does all assistance for Greece which was still available but conditional on the implementation of the programme. The ECB has maintained its emergency liquidity assistance (ELA) to the banks. Did the question of its withdrawal come up last weekend? The ECB acts within its regulatory framework. We can offer emergency liquidity assistance to the banks provided that they are solvent, the collateral submitted is of good quality, and that the ELA doesn’t interfere with the ECB’s monetary policy. Until Sunday these conditions were met. It was found at the same time that the creditworthiness of the Greek government was seriously degraded, particularly after the Eurogroup’s decision to withdraw the safety net granted to Greece. That led to us not authorising new drawdowns from the central bank, while maintaining the current level of liquidity. I regard this as a measured decision as it does not create an irreversible situation. Are you going to continue providing support to the banks until Sunday evening? We are going to continue the support until further notice. The situation is being constantly monitored by the Governing Council. What is the ECB’s exposure to Greece? On the one hand, there are the loans extended to Greek banks by the Eurosystem, with a total value of more than € billion. | 0 |
The second risk is that the United States will not rise to its fiscal policy challenges, which could hamper the continued strengthening of the global economy. Let me discuss these risks in more detail. A third risk that is often discussed concerns the slowdown on the Chinese property market. I shall not go into this in any great depth here; I shall merely note that if property prices were to fall uncontrollably, China has the scope to implement fiscal and monetary policy stimulation, in that they have a low national debt of around 25 per cent of GDP and a high policy rate of almost 7 per cent. 1 The debate on the Chinese economy is otherwise often fairly categorical. It concerns either overheating or an imminent crash. If we look back at earlier developments, we can see that they have successfully managed to avoid both of these extremes. My assessment is that there is good scope for them to do so this time, too. The euro area – prolonged deleveraging In the euro area, it is mainly the Greek debt that has received attention. But, as well all know, other euro area countries have also suffered debt problems; for instance, Ireland, Portugal and Spain. Italy also has a high national debt, but this is a problem it has had for a long time. The following figure shows how public debt as a percentage of GDP has developed in these countries and the IMF’s forecast until the end of 2017. | The relatively low participation of takaful operators in international business, is however set to change with the recently announced MIFC initiatives, to allow qualified local and foreign financial institutions to conduct the full range of Islamic banking and takaful businesses in foreign currencies. It was also announced in the recent budget that attractive tax packages in terms of 10 year tax holiday are given to all takaful operators on their international currencies takaful business. In addition, MIFC accords greater operational flexibility for the Islamic financial institutions to conduct Islamic financial services in foreign currencies from anywhere in Malaysia. To ensure effective delivery system under MIFC initiatives, the MIFC Executive Committee, with Bank Negara Malaysia as secretariat, has been set up to provide directions and drive implementation of policies and strategies to foster effectiveness and efficiency of the MIFC. Well capitalised and reputable financial institutions that possess sound track record are encouraged to set up international takaful operation in Malaysia to conduct out-out takaful and retakaful businesses. The Malaysian takaful operators should seize the opportunity to venture into out-out takaful business establishing an international currency business unit to offer takaful business in international currencies. Ladies and gentlemen, In tandem with the rapid changes and expansion of the Islamic financial sector, it is vital for us to have a strong, continuous support in talent management and development. Towards this end, several initiatives in regards to sustaining and improving the level of expertise in the industry have been put in place. | 0 |
But if they are not adequately addressed - whether within the system as a whole or at the level of the individual market or individual firm - they could - like purely financial failures - weaken public confidence or attract public responses, which would have a damaging effect on overall activity. Mr Chairman, I can’t imagine that anyone working in the City will become bored as we move into the new millennium in the face of these challenges. How successful we are in confronting them will depend, as in the past, upon the interaction of the technical and professional skills and self-discipline of the market and the structure, substance and application of the rules of the game as they are reflected in public policy. We have unique experience within the City on which to build. The market has repeatedly demonstrated its capacity to respond successfully to new challenges and currently attracts representatives of the strongest participants from all parts of the world. It is supported by very highly qualified professionals and professional bodies which play an important role in setting and maintaining standards. It is supported, too, by an extraordinary range of specialist professional and technical organisations, which help to ensure that the rules of the game are sensibly formulated and clearly understood. | And, whatever the periodic outcry whenever something goes wrong - as it will from time to time - the demand for these services does not of course exist in a vacuum; it exists because of the very positive contribution that the business services sectors, including financial services, make to growth and employment and rising living standards in the wider economy. That is true nationally, but it is equally true in a global context. Indeed the unique characteristic of the City is its role as the predominant international financial centre. It accounts for a fifth of all international cross-border lending, for example; for a third of global turnover in foreign exchange and OTC derivatives, and as much as two-thirds of issuance and secondary trading in eurobonds, or of global turnover in international equities, with more foreign firms listed on the LSE than on any other exchange. And London has a near-monopoly in exchange-traded short-term euro interest rate derivatives. I will not labour the point further, Mr Chairman. Despite - or perhaps driven by - a continuous stream of shocks and competitive challenges, the City has in fact gone from strength to strength, most recently coming through the global financial turbulence of the last couple of years as well as the advent of the euro at least as strong as before. It is perhaps worth asking why the City is as strong as it is. Certainly it does have to do partly with history. | 1 |
That, of course, is why the respective supervisors need to take an interest in all parts of a financial group and in intra-group exposures. But none of this, it seems to me, means that long-term savings institutions have taken on the distinctive special characteristics of banks. So far, I would hope, so good in the sense that perhaps most of you would agree that this particular distinction remains. But have I chosen this extreme example as an Aunt Sally? Well perhaps to a degree I have. So let me take some less obvious cases. What about money-market mutual funds, for example? Surely they at least have some of the characteristics of banks? They, too, act as a repository for liquidity and it is possible to make payments from some of them, which looks very like a banking arrangement? And so it does. | Therefore, we envisage no significant pressure on unit labor costs in the upcoming period. In light of these assessments, our revised inflation forecasts are based on a framework in which domestic demand is stronger compared to the previous period, external demand continues to restrain domestic economic activity, and thus aggregate demand conditions continue to support disinflation, albeit to a lesser degree. 10 BIS Review 159/2010 As for fiscal policy, MTP (Medium-Term Program) projections revised in October constitute the basis of our forecasts. In this respect, we envisage a temporary acceleration in public expenditures for the rest of the year, to be followed by a gradual decline in the ratio of primary expenditures to national income starting from 2011. We also assume that any fiscal space that may arise due to stronger-than-expected economic activity would partially be used to reduce government debt stock, congruent to the counter-cyclical fiscal policy approach. It was envisaged that the ratio of debt stock to GDP would continue to decline and no significant change would be observed in the risk premium throughout the forecast horizon. Moreover, our forecasts are based on the assumption that tax adjustments would be consistent with the inflation targets and automatic pricing mechanisms. Distinguished members of the press, Important developments since the July Inflation Report warranted a revision of the assumptions, which our forecasts are based on. I would like to provide some detailed information on these factors to ensure that our forecasts are better understood. | 0 |
Indsutry Construction Services Net Tax GDP Private Consumption Private Public Public Stock Investment Consumption Investment Change Net Export Source: TURKSTAT. Turkey’s export performance has become more vulnerable to global cyclical changes in recent years as the share of durables and capital goods in our exports has increased over time. In fact, the significant slowdown in our major trading partners and the consequent contraction in exports were among the determinants of the sharp downturn in aggregate demand. Therefore, the assumptions on the global economy with respect to the inflation and monetary policy outlook presented in the Inflation Report that will be posted on our Website shortly are very important. The impact of the global financial turmoil in the corporate sector has become more evident and global growth has significantly contracted. The credit crunch in international credit markets still persists and there is yet to be a notable improvement in global economic indicators. Our baseline scenario in the January Inflation Report envisaged a gradual recovery in the global economy as of early 2010. On the back of the deepening global financial turmoil in the past period, many international institutions revised their growth forecasts for 2009 and 2010 downwards by a significant margin (Table 3). The forecasts for global economic activity, which were revised in the last three months, indicate a sharper contraction for 2009 compared to our forecasts presented in the January Inflation Report and a slower and more gradual recovery throughout 2010. | In spite of a limited rebound in credits recently, we believe there is little chance for this move to become a permanent recovery as long as the global economy is not stabilized (Figure 19). Figure 19: Commercial and Consumer Loans (4 Week Moving Average, Percent) 1.5 1 0.5 0 -0.5 -1 Commercial Credits -1.5 01 08 02 08 03 08 04 08 05 08 06 08 07 08 Consumer Credits 08 08 09 08 10 08 11 08 12 08 01 09 02 09 03 09 Source: CBT. Distinguished Members of the Press, In the first quarter of 2009, the sharp contraction in global economic activity and its larger than anticipated impact on domestic activity called for a downward revision of the outlook for aggregate demand developments from the previous reporting period. In the January Inflation Report, economic activity was expected to display a significant decline in the last quarter of 2008, while it was anticipated that the speed of contraction would start to lose pace during the first quarter of 2009. In line with expectations, the Gross Domestic Product (GDP) displayed a sizeable drop in the last quarter of 2008 on a quarterly and on an annual basis (Figures 20 and 21). Recent readings suggest that economic activity will display a sharperthan-envisaged slowdown and that the contraction in the economy in the first quarter of the year will register double-digit figures. | 1 |
François Villeroy de Galhau: Franco-German experiences and challenges in the euro era relations - Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Europadialog, organized by the Investitions- und Strukturbank Rheinland-Pfalz (ISB), Mainz, 21 March 2017. * * * Madam Minister-President [Ms Dreyer], Madam Finance Minister [Ms Ahnen], Mr Spokesperson [M. Dexheimer], Ladies and Gentlemen, I am delighted to be here with you today in Mainz, and I sincerely thank you for inviting me. On a more personal note, I am here as a committed European and a friend of Germany. I am particularly attached to the Franco-German friendship: I am French and live in Paris, but my family’s roots are in a neighbouring Land, Saarland, where my family has lived since the end of the 18th century and where its porcelain manufacturing company Villeroy & Boch forms part of the German “Mittelstand”. When I spend my holidays in Saarland and I go north, I admire Trier; or east, Neustadt an der Weinstraße. And when I come fortnightly to participate in the ECB Governing Council, I am very close to your beautiful town of Mainz. There is no doubt in my mind that “we, the citizens of the European Union, have united for the better”, as stated in the Berlin declaration of 25 March 2007. This was for the 50th anniversary of the Treaty of Rome, and this is still just as true four days before we celebrate its 60th anniversary. | Encik Abdul Rasheed Ghaffour: Revolutionising Microfinance Welcoming remarks by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Global Symposium on Microfinance, Kuala Lumpur, 22 May 2017. * * * In biology, the transformation of a species is said to happen in rapid bursts. Imagine an ecosystem of marine life along a shoreline. For millions of years, it can remain relatively unchanged. But an extraordinary event – such as a sudden move in sea levels – can alter everything quickly. Within decades, fishes, mollusks and plants alike can dramatically change in size and shape. Ultimately, those that adapt emerge as the stronger species in the ecosystem. We are gathered here today in the very different context of microfinance. Nonetheless, parallels can be drawn with the theme of this event, ”Revolutionising Microfinance”. Think of the incredible pace of technological change in recent years. In 2016 alone, machine prevailed over man in the world’s hardest board game. Reusable rockets became a reality. Twitter helped a nation elect their president. For microfinance, that rapid burst of change is already upon us. It is therefore a great honour for Bank Negara Malaysia to partner with the World Bank in hosting this Global Symposium on Microfinance. We are privileged to have so many learned speakers here with us to share their invaluable insights. | 0 |
For large banks, we are making progress on resolution planning, and this world is different to five years ago, but we are not there yet by any means. I have a background in resolving banks, and I regard having the capacity to resolve failed large banks – including the largest – as the holy grail of resolution. Unlike the legendary Holy Grail, I think there is a good reason to believe that the objective of being able to resolve large banks that fail can be within our grasp. I am very clear that when firms mess up, they should be allowed to fail, and by doing so they are putting at risk the money of their shareholders and if necessary after that those who provide debt funding according to levels of seniority. But I am also very clear that really achieving the objective of avoiding a no failure regime requires a fundamental change of mindset both inside firms, the authorities and in society more broadly. Fear of failure is an important conditioner of behaviour in a financial regulator, and achieving a change on this front depends on establishing a wide acceptance of our approach that orderly failure which does not compromise our public policy objectives is an acceptable outcome. BIS central bankers’ speeches 3 To be clear, we should be criticised where failure compromises those objectives and we could have taken steps to avoid it. | But, challenges remain as we have learnt that the key pressure points that can lead to difficulties for small-open economies can be externally-induced, particularly when we do BIS Review 163/2008 1 not know if we are still caught in the eye of the financial storm or whether the turbulence has ceased. Let me now turn the focus of my discussion to the need for closer cooperation as we all face challenges on how to combat the global financial crisis. The ongoing global financial crisis is not dissimilar to other crises as it is and will be followed by intensive reforms at international level. It also highlights that international cooperation remains important and necessary in maintaining global financial stability. In fact, it has become more and more important given globalization process, which makes us better interconnected. However, we might have taken it for granted that international cooperation is the first best solution and could solve global crisis. We have all learnt that in a number of occasions, when a solution is needed, good implementation comes too little too late. Taking the International Monetary Fund’s or the (IMF) Short-term Liquidity Facility as an example, this new facility is somewhat similar to the swap lines extended among central banks to fellow members that do not call for typical IMF-supported adjustment programs. Emerging markets have been proponents of this facility for several years, but the IMF has previously been reluctant to endorse it due to fear of moral hazard. | 0 |
The implication is that in order to reap the full benefits of the policy reforms currently under way, Malta does not only need to integrate further internationally, but has to do so through a structured approach that seeks to exploit potential synergies with other economies. The question then arises, “What kind of regional arrangement and with whom?”. Malta’s potential partners for regional integration Traditionally, partners to regional integration arrangements exhibit strong trade ties based on complementarity in terms of resource endowments and geographical proximity, as well as a common historical and cultural background. These criteria limit the scope for integration between Malta and a number of outlying European countries such as the transition economies of Eastern Europe and the EFTA countries. In fact, Malta’s commercial links with these countries are weak, with only a few economic sectors that could be of potential interest to both parties. In 2001 Malta’s exports to EFTA countries represented less than 0.5% of its exports to the European Union (EU). It follows that the EU and the countries of North Africa, many of which are participating in the Euro-Mediterranean Partnership known as the Barcelona process, are more likely to be potentially viable regional partners for Malta. As far as the latter countries are concerned, there is no doubt that they have made considerable progress in recent years. Most of them, however, require more time to be able to take full advantage of their potential. | As investment activity is becoming increasingly complex, so are the demands of corporate governance. In conformity with the private financial sector, central banks - the SNB counts itself among them - have professionalised their investment and risk control processes and improved their accountability toward the public. With increased professionalism, particularly as a result of applying the mark-to-market principle, the SNB’s profits are more volatile than in the past, however. In order to safeguard the independence of monetary policy and so as not to restrict investment policy, the SNB’s annual profit distribution - as already spelled out in the message of the Federal Council on the new National Bank Law - must remain a variable residual amount in the long term and must not be tied to any specific purpose. BIS Review 55/2003 1 | 0 |
These two anchors, which are enshrined in the Treaty, form the legal basis for our action, but, more than that, they are the basis for the confidence that 76% of euro area citizens have in our currency: this is our essential asset. Paradoxically, at a time when the ECB and the Banque de France are doing more than ever before, criticisms are being raised over their mandate, and whether it should be extended beyond price stability to include debt sustainability or the fight against the health crisis, and over their independence, and whether they should be placed “under political control”. With regard to independence, there are sometimes even strange resonances between Karlsruhe and certain debates in Italy or France. I would therefore like to clarify the reasons behind these two anchors and set out precisely what they contain. What does the future hold for price stability? Our price stability mandate is defined as inflation below, but close to, 2% over the medium term. This 2% figure has been the subject of frequent debate, but it represents the equilibrium point in discussions by economists – who all recommend a target of above zero – and is the target currently pursued by all major central banks. Naturally, there is a huge amount of uncertainty over how the economic environment will evolve, but this is probably less true for inflation. Nonetheless, it is important to share a few insights into its possible trajectory. | There can be a strong temptation in this case to give in to fiscal dominance. This can take different forms, including two that are frequently cited, and seductive precisely because they are illusory: the cancellation of the public debt held by the central bank, or the similar idea of converting it into perpetual debt. The cancellation of this debt would be tantamount to the monetary financing of public deficits, the prohibition of which is one of the founding pillars of the agreement creating the euro. More importantly, we need to do away with this myth of “magic money”. There is no such thing as a free lunch. If the central bank cancelled the debt it holds, it would book an equivalent loss on its balance sheet and collective wealth would be reduced by the same amount. Moreover, the bank deposits linked to this monetary creation will have to be remunerated by the central bank when interest rates return to positive territory, and will therefore cost as much as a short term debt. And if, as some people are suggesting, the central bank committed to never raising interest rates, that would trigger a potentially uncontrollable inflationary spiral. As for perpetual debt, with no prospect of repayment, investors would demand high risk premiums and therefore interest rates, which would be much more expensive than on the current debt. | 1 |
Mr Bäckström discusses the monetary policy situation in Sweden Speech by the Governor of the Bank of Sweden, Mr Urban Bäckström, at Stockholm Chamber of Commerce and Veckans Affärer on 2/2/99. Thank you for the invitation to attend this conference and talk about “The krona and the interest rate”. I shall be speaking mainly about the current monetary policy situation and the factors that may be crucial for the policy’s future formulation. However, now that the Riksbank is directed by the six members of the new Executive Board, which also makes the monetary policy decisions, the decision-making process has changed. So I shall begin by briefly describing how monetary policy will be decided and presented in this new environment. The new process for monetary policy decisions At 1pm on Thursday 11 February, the new Executive Board of the Riksbank will be convening for its first meeting specifically devoted to monetary policy. Compared with the Board’s ordinary sessions, the discussion at what are called monetary policy meetings is to cover monetary policy more comprehensively and conclude with a decision on the policy’s future stance. The discussion will be minuted and published in this form on 6April, around eight weeks after the event. Moreover, a brief account of the grounds for the decision will be presented in a communiqué on the day after the meeting, in this case at 9.30am on Friday 12 February. | Figure 5 Real annual contribution to GFCF (*) (percentage points) 16 16 12 12 Other 8 8 Non-mining 4 0 4 0 -4 -4 Housing -8 -8 Mining -12 -12 -16 -16 09 10 11 12 13 14 15 16 17 18 (*) For sectoral GFCF, variations of the 2008 Benchmark Compilation are used. Since total GFCF is expressed using the 2013 Benchmark Compilation, annual variation of other GFCF is adjusted for consistency purposes. Estimations for 2015 and 2016 based on available information from listed companies (FECU), Capital Goods corporation surveys, Chilean Chamber of Construction and National Accounts by institutional sector. For 2017 and 2018, Central Bank projection models and sectoral sources are used, including investment plans and Capital Goods Corporation surveys. Source: Central Bank of Chile. 9. The labor market continues to gradually adjust and could become a drag on consumption. Wage employment declined by 2% annually in the moving quarter that ended in February, and annual wage growth moderated. In addition, the number of hours worked declined, at a time when an increasing number of workers suggest their workdays are shorter than desired. In any case, this has not translated into an increase in open unemployment, due to flexibility in the Chilean labor market: the unemployment rate is still low from an historic perspective. | 0 |
However, taking into account the stronger-than-expected effects of the monetary tightening implemented in the first quarter, the output gap is expected to close at a slower pace compared to the previous period. In sum, due to developments beyond the monetary policy control such as the significant surge in oil and other imports prices as well as the renewed tariffs, we have revised our inflation expectations upwards (Chart 17). In addition, I would like to remind you that we will not respond to first round effects of rising oil and other commodity prices, but second round effects will be closely monitored and deterioration in the pricing behavior will not be tolerated. It should be emphasized that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, assumptions regarding the monetary policy outlook underlying our inflation forecasts should not be perceived as a commitment on behalf of the CBRT. 3. Risks and monetary policy In the last part of my speech, I would like to mention risks regarding inflation outlook in the upcoming period and prospective monetary policy strategies to be implemented should these risks materialize. BIS central bankers’ speeches 9 We envision that the impact of the ongoing monetary tightening on loans and domestic demand will be more apparent starting from the second quarter. However, the extent and the timing of the impact may vary depending on developments beyond the control of monetary policy. | This is because either the desired policy rate is sufficiently below the ELB or the central bank has committed to keep 3/5 BIS central bankers' speeches interest rates unchanged through forward guidance. However, conflicts of objectives between fiscal and monetary policies may arise in the future. The ongoing accumulation of public debt and the large expansion of central banks’ balance sheets increase the likelihood of such conflicts. On the one hand, large fiscal stimuli for too long may lead to concerns about debt sustainability and, via the expectation of future fiscal tightening, offsetting the favorable effects on output and inflation. On the other hand, central banks should keep the risks taken in their balance sheets under control to avoid threatening their own independence. Indeed, low inflation today is not a guarantee that it will remain low forever. They must keep a sound balance sheet with adequate capital in order to keep full control of their monetary stance all along the road. The key question is then how to reconcile the benefits of a mutual reinforcement of monetary policy and fiscal policy in the short-term with the challenges of keeping inflation under control and public debt to sustainable levels in the long-term. There is no magic answer to this question but I will try to sketch here some basic principles that are in my opinion ingredients of a sound policymix recipe: 1. Each authority should be guided by and stick to its mandate. | 0 |
At the same time, the resolution authority in the home country, working with the home country lead supervisor, could begin taking the necessary steps to prepare for a possible resolution as a contingency. If the supervisory intervention does not produce a successful private restructuring and recovery, the home country resolution authority leads a coordinated resolution process. Let me elaborate on a couple points. First, I believe that economists can be invaluable in helping financial supervisory and resolution authorities understand more fully where coordinated actions and cooperative solutions improve outcomes and where they do not, something I don't believe we now really know. The potential gains from cooperation will reflect the distribution of asset and liabilities (or net worth) across legal entities, assumptions about the rate of decay in the values of assets and business lines pre-entry and post-entry into insolvency, the length of time spent in each state and any one-time markdown on entering insolvency. With analysis or simulation, various decision rules can be explored about how a lead resolution authority could foster a cooperative, coordinated resolution using BIS Review 140/2010 5 tools such as bridge banks, transfers of assets and liabilities, sequencing of sales or liquidations and other techniques. An analysis can also explore how sensitive the decision rules are to timing, distribution of net worth across entities and decay or markdown factors. | I have talked about early, coordinated supervisory intervention to activate a recovery plan for a systemically important firm and of a coordinated resolution process. Is there an opportunity between those two stages to intervene more forcefully, but not incur the potential asset markdowns and administrative costs of resolution? Considerable interest has been expressed in developing a “bail-in” mechanism to provide that intermediate step. Let me comment by stressing that what I am expressing is strictly my own view. And let me start by saying that a bail-in mechanism cannot substitute for the national resolution tools and resolution planning called for by the CBRG. There must be a last stop where systemically firms can be resolved, because we will inevitably need it and we must work to make cross-border resolution possible at acceptable cost. Where can bail-in fit? I’ve described a process in which supervisors deal first with a troubled financial firm by encouraging its board of directors and management to activate its recovery plan and develop a private restructuring. In my personal view, the possibility of a restructuring prior to insolvency with potentially more forceful outside supervisory or contractual intervention is interesting and deserves more study. Given the number and range of stakeholders in a large financial company, such a mechanism could help solve a coordination problem that can be costly in terms of time and sub-optimal in terms of ensuring the equitable treatment of stakeholders for a financial company on the threshold of, or in, distress. | 1 |
However, this should not stop an action started by the supervisor to deal with a presumed problem in the bank. The supervisory management and staff must also have reasonable protection should they be sued for their bona fide decisions taken as supervisors. In some countries the supervisors are harassed by frivolous lawsuits by bank owners, managers or other parties. Even if the supervisor is in the end acquitted from any guilt, the process may take years. During this time the supervisor will be severely hampered in performing her job having to concentrate on her defence. Such lawsuits will also reduce the willingness of other supervisors to take necessary supervisory decisions, since they are themselves afraid of being sued. A first line of defence is to take all major supervisory decisions in a collegiate fashion at the top level. Thus only the agency such can be sued as an institution. Nevertheless, should individual supervisors be sued, they must be provided assistance in the court proceedings, such as legal counsel and protection against any costs. Of course, if the supervisor is finally found guilty and have not acted in good faith, the supervisory agency could reclaim any outlays. The second issue is that the supervisors must have a sufficiently large and skilled staff with satisfactory resources. With too few, or not adequately skilled supervisors, bank problems may not be detected early enough which may lead to major crises. With too many supervisors interventions in the banks might become excessive, thus interfering in banks’ daily business. | There is sometimes a tendency by the authorities to try to solve all problems by more regulation. It is BIS Review 104/2006 5 true that we could regulate away all the risks in the banking sector – but such regulation would hamper economic development. There must be a balance. Thus for each regulation we introduce we must also conduct a fair analysis of its costs, also non-financial, as well as its benefits, also non-financial. I agree that this is not easy, partly since in most cases you will not find any clearly measurable indicators, but the process of conducting the cost/benefit analysis will in itself help you in your decision. Supervision Good regulation is closely linked to good supervision. Supervisors must be able to build their work on a broad and relevant regulatory framework. Supervisors must also possess the necessary powers and other prerequisites to conduct efficient work. There are at least four important aspects: First, the supervisory authority must have operational independence from industry as well as from politicians. These must not interfere in the operational decisions of the supervisors, e.g. to take remedial measures or to close banks. Such decisions must be taken on purely prudential grounds. Of course, the supervisors are still responsible for their actions and could be criticized afterwards, e.g. in Parliament hearings, but they must be able to perform their operational duties independently. Also the bank, its owners and management should be able to sue the supervisors for malpractice and they may receive compensatory payments. | 1 |
In the normal case, a well-balanced monetary policy means that inflation is close to the inflation target two years ahead without there being excessive fluctuations in inflation and the real economy.” (See p.2 in the Riksbank’s Monetary Policy Report). BIS Review 132/2008 3 In the assessment, potential effects of asset prices, such as property prices, equity prices and the krone exchange rate on the prospects for output, employment and inflation are also taken into account. Assuming the criteria above have been satisfied, the following additional criteria are useful: 3. Robustness Interest rate developments should result in acceptable developments in inflation and output also under alternative, albeit not unrealistic, assumptions concerning the economic situation and the functioning of the economy. 4. Gradualism and consistency Interest rate adjustments should normally be gradual and consistent with the Bank’s previous response pattern. 5. Cross-checking It is important to cross-check the Board’s judgments concerning the interest rate path against other information. One natural cross-check is market expectations about the future interest rate, as represented by implied forward interest rates (adjusted for risk and term premia). In addition, simple interest rate rules like the Taylor rule and other variants suggested in the literature provide potentially useful cross-checks. Experiences What are our experiences of our communication approach? The ultimate objective of our communication is to achieve better outcomes in terms of improved stability in inflation and the real economy. | The criteria used by Norges Bank to assess the interest rate reflect policymakers’ general views and assessments. They are therefore not “carved in stone”, but can be changed and modified due to new insights. Currently, the Bank uses five criteria, which can be summarized as follows: 1. Achievement of the inflation target The interest rate should be set with a view to stabilising inflation close to the target in the medium term. The horizon will depend on disturbances to which the economy is exposed and the effects on the prospects for the path for inflation and the real economy. 2. Reasonable balance between the inflation gap and the output gap Norges Bank conducts flexible inflation targeting, which implies that stabilising inflation around the target should be weighted against stability in the real economy. The chosen interest rate path should therefore imply a reasonable balance between the objectives if there is a conflict in the short term between stabilizing inflation around the target and stabilizing the real economy. What is meant by a “reasonable” balance is obviously a matter of judgment and is an important element in Board discussions. 3 For example, the Swedish Riksbank communicates the criteria behind the forecasts as follows: “The Riksbank’s forecasts are based on the assumption that the repo rate will develop in such a way that monetary policy can be regarded as well-balanced. | 1 |
Stefan Ingves: Basel III – regulations for safer banking Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, to the the Swedish Bankers’ Association, Stockholm, 10 November 2011. * * * I would like to begin by expressing my gratitude for the invitation to speak at this bank meeting on the theme of “Basel III – regulations for safer banking”. In this presentation, I will briefly describe the Basel III regulations and the underlying reasons for them. Following that, I shall discuss the characteristics of the Swedish bank market that are significant for how we in Sweden shall implement Basel III. Before I finish, I would also like to illustrate how the authorities of a few other countries with large banking industries see the need for regulation. Briefly, however, I intend to start by describing the background of bank regulation – why advanced economies need a financial system, and the risks this entails. Banks are important to the economy The banks are of fundamental importance to the national economy. The banks are the single most important participants in the financial system, and their basic functions are often considered to be three. The system converts savers’ money into productive investments, ensures that we can pay each other when we exchange goods and services, and allocates risk among those who are willing to take risks and those who are not. | As we enter into a gradual stabilisation and recovery period, policymakers are now faced with the challenge to find an enduring solution to ensure the stability of financial systems. Islamic finance has a role in shaping the future of the global financial system and reinforcing ethical and moral values that are inherent in Islamic finance principles and fundamental towards promoting the stability of the global financial system. Ongoing efforts to further strengthen the resilience of Islamic financial industry would enhance the prospects for global growth and the potential of Islamic finance to contribute towards global financial stability. 4 BIS Review 129/2010 | 0 |
I am personally committed to enhancing our co-operation with non-member countries and with organisations that have related interests. In this respect, I am confident that the fruitful dialogue that has already begun between the Basel Committee and the IFSB will continue to be successful and mutually rewarding in the future. My talk this evening will address several issues. First, I will talk about why I believe sound corporate governance plays such an important role in bank safety and soundness and financial system stability. Second, I will share some thoughts on how the Basel II capital framework will contribute to better corporate governance. Finally, I will share some of the work that the Basel Committee has underway with regard to bank corporate governance. Why does corporate governance matter for banks and bank supervisors? Before I talk specifically about the corporate governance of banks, I would like to discuss more generally some of the weaknesses in corporate governance that have led to high-profile failures such as Enron and Parmalat over the past few years. | The Riksbank's forecast, like that of other analysts, was that the international recovery would be slower and more prolonged. There were several reasons for this, including geopolitical unease and increased caution among households and firms in the wake of the stock market fall. The conditions for a clear recovery in the euro area were perceived as poorer than we had earlier believed, which made a recovery in other countries, including Sweden, more difficult. The more negative economic outlook, with inflation prospects below the target of 2 per cent, meant that we decided to cut the repo rate during the summer by a total of 0.75 percentage points. The rate is currently at 2.75 per cent. Minor changes in outlook for economic activity So far, international developments have been largely in line with our assessments from the summer. The expansionary policy now appears to be taking effect in certain areas, particularly the United States, where signs of a recovery are becoming more apparent and the risks of a setback appear more slight. The Asian economies are also developing relatively strongly. On the other hand, the prospects for the euro area still appear to be gloomy. In time, the expected upturn in the United States is expected to support a gradual upturn in Europe. All in all, the Riksbank's assessment is that GDP growth in the OECD area will be 1.9 per cent this year, 2.8 per cent in 2004 and 2.6 per cent in 2005. | 0 |
See Barry Eichengreen and Marc Flandreau, “The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914– 1939,” Open Economies Review 23, no. 1 (2012): 57–87. 9 In his report on the discount system in Europe, Paul Warburg wrote that the “annual tribute to Europe resulting from our primitive financial system is not merely a waste of money, but reflects upon the dignity of a nation and economic importance of the United States.” See Paul Warburg, The Discount System in Europe (Washington: Government Printing Office, 61st Congress, 2nd Session, Senate Doc 402, 1910), 9. 10 For the guarantee, from 1921 until 1974 when the New York Fed discontinued the guarantee option on banker’s acceptances, the New York Fed charged 1/8th of 1% on the face amount of banker’s acceptances purchased on behalf of foreign central bank accountholders. Dollar banker’s acceptances became a favored investment instrument by foreign central banks in the days before the introduction of the first regularly issued U.S. Treasury bill in 1929. 11 The maintenance of gold vaults and reciprocal gold custody accounts among major central banks provided significant operational advantages for the functioning of the international gold standard. In addition to the safety of storing gold with another central bank, through the practice of earmarking central banks could settle accounts with one another without the need to physically deliver gold bullion. This was especially useful in periods, such as wartime, when navigation of sea lanes could be impeded. | when it moves the whole yield curve, or when it affects the exchange rate and other assets prices. There might be several channels through which the policy rate can affect asset prices or asset valuations: · first, changes in interest rate modify people’s expectations about future economic growth, and thus their profit expectations; · second, monetary policy decisions may change the set of discount factors economic agents apply to their profit expectations or to the future stream of services or revenues from the asset they hold (housing for instance); · finally, interest rate changes may induce portfolios’ shifts amongst assets that may in turn affect their relative prices. BIS Review 28/2002 1 Besides this, and for the sake of simplicity, I will call it the “interest rate channel”, changes in asset prices also generate wealth effects that may have a significant impact on several components of aggregate demand, namely consumption and investment. These wealth effects feed through to the economy via various channels, such as a direct increase in net wealth, which may lead to a rise in consumption because of households’ inter-temporal smoothing behaviour; via Tobin’s Q, which activates firms’ investment; or via an increase in the value of collaterals, which may reduce agents external financing constraints and enhance final spending, in accordance with the “broad credit channel”. Although the evidence is mixed about the effectiveness of the wealth channel, even in the 1 United States , it is likely to have increased over recent years. | 0 |
One should not attach too much importance to surveys of inflation expectations. They have their limitations. But they are nevertheless interesting as a part of the base for monetary policy. I believe that the following conclusions can be drawn from Prospera’s most recent survey, published in January: • Firstly, inflation expectations five years ahead have fallen from 2.6 per cent in October to 2.3 per cent in January. This is good as they were a little too high in October. • Secondly, inflation expectations in the longer term have not been pushed up by our rapid and large repo rate cuts. As I said, they have instead declined. • Thirdly, there are no widespread expectations of deflation in the longer term. Inflation expectations five years ahead are close to 2 per cent. The normal correlation between actual inflation and inflation expectations five years ahead also 8 BIS Review 25/2009 indicates that inflation expectations will remain close to 2 per cent even if the CPI falls in 2009 in line with our forecast. • Fourthly, inflation expectations two years ahead have fallen from 2.8 per cent in October to 1.5 per cent in January. This is slightly more worrying. It is a larger fall than the normal correlation between actual inflation and inflation expectations two years ahead would indicate. The fact that they are far below 2 per cent also indicates that the interest rate should remain low for a longer period of time. | Chart: A countercyclical investor The long-term horizon puts the fund in a position to be a countercyclical investor on a systematic basis. This is done through rebalancing the share of the portfolio allocated to equities. According to the rebalancing rule, when the equity share increases to more than 64 percent of the fund, we sell equities and buy bonds. Conversely, when the equity share falls below 56 percent, we sell bonds and buy equities. This strategy has proved to be profitable for the fund, and has increased the average annual return by about 0.5 percentage point. 2 Chart: International real interest rates So far, the fund has earned an overall annual real return – after inflation and management costs – of 3.8 percent. The cumulative return on the fund in money terms is equivalent to 1 John H. Cochrane (2011): “Discount rates”, The Journal of Finance 66 (4), 1047–1108. 2 For an analysis of the impact of rebalancing, please see Norges Bank (2012): The history of the rebalancing of the fund, Discussion Note 4. BIS central bankers’ speeches 3 more than a third of the fund’s total capital at the end of 2014. Going forward, the returns are likely to be lower. The starting point for calculating the expected rate of return on the portfolio is the real interest rate on high-grade government bonds. In recent years, bond yields in real terms have been close to zero. | 0 |
And I for one will continue to treat with caution generalised claims of ‘unintended consequences’, comparisons of conditions with the pre-crisis years and dire threats that regulation is preventing the financial sector from doing its job of providing credit and liquidity. My second point about regulation is that the past is not a perfect guide to the future. Financial centres innovate and change at speed. New products and ways of working can become significant very quickly. And sectors that have not generated risk in the past can change their profile quickly. In this respect I would mention the explosive growth since the crisis in the size and importance of asset managers and in the funds they manage, especially open-ended investment funds. Market-based finance has grown very strongly in recent years. Since the crisis it has accounted for virtually all of the growth in net lending to businesses in Europe and the US. 9 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 9 The assets under management of the top 500 asset managers grew by nearly $ trillion over the last 10 years or so. It now stands at $ trillion, broadly equal to annual global GDP. Over half of this is accounted for by open-ended funds, most of which promise daily liquidity to their investors. Such funds have generally been stable in times of stress – during the crisis they experienced relatively modest outflows. Unlike the banking sector they are not in the main highly leveraged. | I therefore should perhaps say a few words on the challenges for Europe’s financial markets that may be posed by the exit of the UK from the European Union. We do not yet know what arrangements will govern the trade of financial services and the integration of financial markets between the UK and the EU once the UK has completed its exit. That will be one of many issues to be determined by governments in negotiations over the coming years. Nor do we know how the financial sector in the UK and elsewhere in Europe will respond to the process and outcome of those negotiations. There are many possible answers to both questions. What I think is clearer is that this is not a zero sum game. 10 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 10 It is certainly possible – indeed some would say likely – that some wholesale financial market activities currently carried out in London and elsewhere in the UK are in future carried out elsewhere in Europe. But as I have discussed earlier this evening, the re-emergence of London as the world’s leading financial centre over the past 50 years, despite the decline in importance of the UK in the world economy, is the product of many factors. It may in part be due to London’s role as Europe’s financial centre. | 1 |
This progress has been driven by a combination of factors, but the most important has been the Asian financial crisis itself, which prompted policy makers in the region to recognize the potential benefits of financial cooperation as a mechanism that can allow the region to prevent or to better manage the risks of financial crisis. Since the 1997-98 crisis, regional financial cooperation has been strengthened in three main ways: The first is the strengthening of liquidity arrangements, the second is the introduction of regular policy dialogue and surveillance, and the third is the coordination of efforts to develop the region’s bond market. So far, progress which has been made includes an expanding network of Bilateral Swap Agreements between ASEAN and Plus Three countries under the Chiang Mai Initiatives to provide short-term liquidity. There is also the Formal and Informal ASEAN+3 Finance and Central Banks Meetings to exchange information and discuss policy issues, as well as the discussion under the APEC platform. Also, new developments from the Asian Bond Market Initiative and the APEC Forum have also been launched to develop the region’s bond market. My point is that these achievements are important and their realization would not have been possible without the awareness and the determination of the authorities concerned to make them happen. But notwithstanding the progress made, more can definitely be done to bring regional financial cooperation to a level that is on par with the region’s economic and financial potentials. | This is important for ensuring that resources would be allocated efficiently and that the direction of development would be in line with the needs of markets, which reflect private sector’s priority and expectations. At the initial stage of development, as is the case now for the Asian Bond Market, government policies and efforts will be important to spearhead the process of growth and development. But once the momentum takes off, market mechanism should take over to ensure that the pace and focus of development are consistent with market expectations. And, at this level, the role of policy should be to support and facilitate market development by streamlining rules and regulations, by facilitating cross-border trade and investment flows, and by providing the necessary financial infrastructure. This approach will help ensure that the region’s financial environment remains conducive to private sector activities and participation. Let me take the opportunity here to stress that, at this juncture of financial markets development in Asia, I think that support from the authorities is still important and remains a crucial factor. But in order to leverage the impact of government’s support and involvement to the fullest, it is important for the authorities to be clear and firm on their commitments to develop the markets. Government involvement should also be focused and concentrate on issues that cannot be tackled by private market participants. | 1 |
Throughout their history central banks have aimed to ensure the overall soundness of the financial system and this followed naturally from their basic functions. Three historical developments were the key to this. In the beginning central banks were first and foremost banks – and like any bank they needed to consider the soundness and creditworthiness of their clients as well as factors in the general trading environment that might cause them losses. Second, over time, central banks developed a monopoly over ultimate liquidity, the means of final settlement, and they facilitated the settlement of inter bank payments through the rediscounting of commercial bank assets and the collection of reserves in the form of bank deposits. Third, as commercial bank money progressively developed into a larger share of the money stock, the value of money became dependent on the soundness of commercial banks. In this environment the concern of the central bank for the orderly functioning and stability of the banking system arose from the need to maintain the public goods of a stable means of payment, a unit of account and a store of value. This included last resort lending when commercial banks suffered from liquidity strains. This historical development meant that by the end of the nineteenth century, or by the early years of the twentieth at the latest, central banks’ concern for financial stability was an already well-established part of their function. However, the second half of the twentieth century saw many central banks also taking on the responsibility for statute-based micro prudential supervision. | Let me begin my discussion on how to achieve that by looking at the current trend towards bank downsizing in the euro area. The trend towards downsizing banks Financing of the real economy in the euro area has historically taken place through banks. The euro area therefore requires and has a large banking sector. The aggregate balance sheet of euro area banks is around 270% of GDP, whereas in the US, where capital markets are deeper, it is only around 70% of GDP. The euro area banking sector, however, expanded rapidly in the years before the crisis from already high levels. From the start of the expansion in 2005 to its peak in 2012, banks assets increased by more than 60 percentage points of GDP. This was associated with the development of unsustainable bank business models. Banks relied too much on debt to finance their lending, and that debt depended too much on wholesale market funding and too little on deposits. The crisis has brought those business models to an end and triggered a process of structural change in the banking sector. European banks have entered a period of secular deleveraging and restructuring. Bank balance sheets declined by around 20 percentage points of GDP in 2013 alone. Loan-to-deposit ratios fell from 142% in the first quarter of 2008 to 117% at the end of last year, and I expect these ratios to continue to fall. Credit growth has consequently been very weak. | 0 |
The Board estimates that the disaster had a negative effect of about 3 percentage points on first-quarter GDP growth. In the second quarter, assuming a gradual normalization of productive processes, the effect is reduced to around 2 percentage points. These assumptions are based on a scenario in which the reduction in output is concentrated in Regions VI, VII and VIII, and primarily affects the manufacturing sector. It is important to consider that the difficulties caused by the catastrophe in the making of spending decisions may hold down demand, and it is likely that some short-term effects will be seen in consumption and inventories. With respect to inflation, problems in production or distribution will probably increase the price level immediately, an effect that should be temporary for the most part. The usual economic statistics for March could give a better approximation of the immediate effects of the earthquake and tsunami. Overall, the complexity of an accurate reading of the data must be taken into account, partly due to difficulties and delays in the collection of information used in the construction of official statistics. Actually, the task of gathering February’s information – carried out in March – has already proven problematic. In the medium term, the dynamics of demand, economic activity and output gaps will depend not only on usual concerns about the world economy, but also on the size and specific characteristics of reconstruction efforts. | Considering the issues described above, the Board believes that the balance of risks for inflation and growth is unbiased. However, on this occasion, the earthquake and tsunami introduce unusual uncertainty, particularly regarding economic activity data for March and April. Thus, the Board considers that the balance of risks for growth is biased downwards in the very short term. Accordingly, the Board will continue to use its policies with flexibility so that projected inflation stands at 3% over the policy horizon. Conclusions I would like to wrap up this presentation with some brief reflections. Fifty years ago, in May 1960, our country was also hurt by a big catastrophe. The earthquake in Valdivia caused the destruction of a large area in central-southern Chile, comparable only to the recent disaster. Human and material losses were aggravated by a severe macroeconomic maladjustment following the disaster. Weak fiscal accounts and monetary management led to neglect control of inflation, which soared in the following years. Our current situation is certainly different. Fiscal accounts are in order, and our monetary policy scheme, as I have already mentioned, has the virtue of allowing us to accommodate shocks without compromising the inflation objective. Although so far we have no statistics and preliminary data will be known in the coming days, it is possible that the immediate reaction to this tragedy will include a temporary increase in inflation and a sharp deceleration of economic activity, both as consequences of the major disruptions in productive processes and commercialization channels. | 1 |
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