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The combination of a strong exchange rate (still about 25% above its level of August 1996), a 20% fall in dollar oil prices over the past year, and an average fall of 9.5% in other commodity prices, is holding down retail price inflation. Domestically generated inflation is significantly higher than RPIX inflation. As the one-off effects of the rise in sterling wear off over the course of the next year or so - as indeed they will unless sterling appreciates further - inflation will start to rise above the target unless domestically generated inflation declines. In the long run, domestically generated inflation is likely to be close to the rate of increase of unit labour costs. At present unit labour costs are rising at about 3½% a year. The earnings figures released earlier this month - which showed that average earnings in the economy grew by 4.9% and in the private sector by no less than 5.6% - were undoubtedly disappointing. It is too soon to judge how far they reflect the impact of higher bonuses this year than last. In any event, to hit the inflation target those rates of earnings growth will have to fall back. These high levels of earnings growth are not the underlying cause of inflationary pressure; they are a symptom of a tight labour market. Equally, the prospects for earnings growth depend critically on the future path of output and on inflation expectations. | Mr. King looks at the UK economy and monetary policy Speech by Mr. Mervyn King, an Executive Director and Chief Economist of the Bank of England, at the Building Societies Association Annual Conference in Bournemouth on 27/5/98. Next Monday - 1 June - sees the start of the statutory basis for Britain’s new monetary policy regime. An independent Bank of England will, through its Monetary Policy Committee (or MPC), set interest rates to achieve an inflation target of 2½%. For over 30 years economic policy in Britain has been bedevilled by inflation and the resulting instability of output and employment. Stability - of both prices and macroeconomic performance more generally - requires a credible commitment to a monetary and fiscal framework embracing low inflation and sustainable public finances. That we now have. But stability of the economy is not the same as stability of interest rates. Short-term interest rates must go up and down according to the state of the economy if the inflation target is to be met. In contrast, if monetary policy is successful in achieving the inflation target then, precisely because short-term interest rates will have moved over the economic cycle, long-term interest rates will be relatively stable. And, from the perspective of your borrowers, whether on fixed or floating rate mortgages, what matters is the predictability of the cost of a loan over the life of the mortgage rather than fluctuations, within reason, of monthly payments. | 1 |
Typically, a bank that runs its operations in a normal course of business is already expected to generate returns on their business or normal profits. If the entire profit is taken as base to calculate bonus for their board members, would that seem fair to the institution? I understand that some banks are exploring ways to remunerate board members which are linked not only to the profits of the bank, but also to other factors, such as the reduction of NPL, appropriate provision of loan loss and other indicators of stability. There is still no consensus on the issue, but moving away from the model of basing remuneration solely on net profit is the move in the right direction and is to be encouraged. In fact, if we continue to explore the question with an open mind, we should be able to come up with a better and fairer model. I would like to leave you with a thought: 4 BIS Review 25/2006 the part that is linked to profits should more appropriately be linked to excess return rather than normal profits. Finally when the remuneration has been set, the Board of Directors should take care to reconsider that the amount is not unreasonably high, as the Board is in the position to be the “Role Model” of what should be appropriate practices for the bank. If the Board takes undue benefits from the institution, this would undermine its authority and set bad example for staff and management to follow. | This year should mark the historic new chapter for the nation’s payment system, where we would see the transfer of the BIS Review 25/2006 1 payments operation function from the Bank of Thailand to the private sector. This would provide greater flexibility for the system to adapt to the fast changing modern payments system development. Moreover, the recent announcement by the Thai Bankers Association of a major reform in the price structure of various payment media, including cheques, provides an important milestone towards a more efficient payment services. The move reflects a pricing based on the cost of various means of payments which would quickly eliminate inefficiency and costs to commercial banks. Another major achievement that calls for celebration is the significant reduction in the NPL last year. Thai banks have succeeded in bringing NPL down from 556,998 million baht, or 11.82 percent of total loans at the end of 2004, to 461,439 million baht, or 9.05 percent of total loans at the end of last year. In all, the NPL was brought down by a net amount of 95,559 million baht, the largest such decline since 2001, as a consequence of the recovery of the economy and improvement in business conditions. I am confident that this year will see an even more decline in NPL than last year. Moreover, the Financial Institution Development Fund has just completed the merging of Bangkok Asset Management Company, or BAM, with Asset Management Corporation or AMC. | 1 |
Another conclusion is that interest-rate policy is not enough to achieve financial stability. Other instruments like supervision and regulation, including appropriate bank resolution regimes, should be the first choice for financial stability. In many countries, the responsibility for these instruments rests on authorities other than the central bank. Generally, to the extent financial instability depends on specific distortions, good regulation should aim to attack these distortions as close to the source as possible. To counter the observed procyclicality of existing regulation, macro-prudential regulation that is contingent on the business cycle and financial indicators may need to be introduced to induce better financial stability. Possible macro-prudential regulation includes variable capital, margin, and equity/loan requirements. As expressed by Bean (2009), “the best approach is likely to involve a portfolio of instruments”. 14 More generally, what is the relation between financial stability and monetary policy? Financial stability is an important objective of economic policy. A possible definition of financial stability is a situation when the financial system can fulfil its main functions (of submitting payments, channelling saving into investment and providing risk sharing) without disturbances that have 12 Kohn (2008), after extensive discussion, concludes that there is insufficient evidence that low interest rates would have contributed much to the house-price boom and that higher interest rates would have had much dampening effect on it. 13 The relationship for the Euro area countries is less weak, but for reasons explained by Bernanke (2010) it is potentially overstated. | These include pre-emptive staging of loans to recognise higher credit risks among specific borrowers seeking repayment assistance, more conservative provisioning models, and increased application of management overlays to bolster model-determined provisions. 3. Finally, the ready presence of effective institutional arrangements has also helped us be prepared for managing an influx of distressed borrowers. Drawing on our experience from the Asian Financial Crisis, Malaysia has in place debt restructuring mechanisms for individuals and businesses alike. These include out-of-court platforms, namely the Corporate Debt Restructuring Committee (CDRC) for large corporates, Small Debt Resolution Scheme (SDRS) for SMEs, and Credit Counselling and Debt Management Agency (AKPK) for individuals. AKPK, in particular, has become a staple name in Malaysia due to its vast publicity campaign. Although we have not observed any spikes in the number of cases admitted into CDRC, SDRS and AKPK, in part due to banks’ enhanced capacity to carry out debt restructuring, we resolved not to leave anything to chance. Accordingly, the capacity of these out-of-court platforms was ramped up at the onset of crisis in anticipation of a potential deluge of distressed borrowers. To further enhance operational efficiency, the 2/3 BIS central bankers' speeches SDRS was absorbed into AKPK, making AKPK now the one-stop platform for both individuals and SMEs to restructure debt and obtain financial advice. | 0 |
I am very fortunate to have had the opportunity to chair the Committee during the period in which the PFMI were created. I recognize that this was just an initial step in the process, but it was an essential first step. Subsequent CPMI committees, under the leadership of Paul Tucker and Benoit Coeure, have been working with the other Basel Committees, the Financial Stability Board (FSB), IOSCO and individual country regulators to continue to take this effort forward. We have placed a lot of financial stability eggs in the FMI basket. It is important that we monitor and oversee that basket carefully. I would now like to turn the floor over to our first panelist, Claudio Borio. Claudio, the floor is yours, you have 10 minutes. Shari Bower, Caren Cox, Alex Merle-Huet, John Rutigliano, Johanna Schwab, Larry Sweet and Joseph Tracy assisted in preparing these remarks. 1 2 BIS central bankers’ speeches | This is one of the HKMA’s key policy objectives, but it is also an area in which HKAB has a keen and constructive interest. In particular, HKAB, together with the HKMA, is joint owner of Hong Kong Interbank Clearing Ltd, which operates one of the key features of Hong Kong’s financial infrastructure, the Real Time Gross Settlement System. One other project on which HKAB can work closely with the HKMA is in the development of a Commercial Credit Reference Agency. Some of your members are already participating in the Working Group that is now engaged in thrashing out the details of how the CCRA would work. An issue which has been raised in the deliberations of the Working Group is whether HKAB should participate in the ownership of the CCRA, as it does in HKICL. This was not an idea that found much favour when we consulted the industry on the CCRA 4 BIS Review 55/2001 scheme last year. But perhaps, now that it seems likely that such a scheme will go ahead, it is an idea which should be revisited at some stage in the future. That is a matter for HKAB and it is one that I leave you to think about. Even if you were to confirm the earlier view not to participate directly in this particular project, it would not undermine the general principle that the HKMA and HKAB should, wherever feasible, work hand in hand in developing important pieces of the financial infrastructure. | 0 |
There are a host of unanswered questions about the transition to the higher target, including the potential for it to destabilise inflation expectations. And it is necessary to consider whether the benefits from less frequent episodes at the ELB justify the costs of the additional inflation at the permanently higher target. As Ben Bernanke has recently argued, unconventional policy tools already achieve the equivalent of raising the inflation target in the US from 2% to 5%, without needing to incur any of these costs. Moreover, research by the Bank of Canada shows that it is those who are most vulnerable and on the lowest incomes who lose out the most from higher inflation.37 So even if the costs of a higher inflation target might be small in aggregate, the distributional consequences could be considerable. Such fundamentally political considerations are a reminder why it is best for governments to choose the definition of price stability and for central banks to work out how to achieve it with the tools are their disposal. Before closing I would like to acknowledge a set of broader political economy considerations that could arise in a low-for-long world. These could complicate the execution of current inflation targeting remits, and in the extreme overwhelm them. While all monetary policy tools have distributional effects, asset purchases have generated far greater attention than have changes in interest rates. For example, there is a perception that asset purchases increase inequality. | On 15 January, the Swiss Franc moved by more than 30 standard deviations. For rough scale, an 8 standard deviation move should happen once every three billion years or so for normally distributed data. You may at this point recall the saying popularised by Mark Twain, about “lies, damned lies and statistics”. I think I can be reasonably confident in saying that the fact of these events happening does not mean that we should expect low volatility in financial markets for at least the next three billion years. I am not going to spend time discussing the causes of these events; suffice to say that there was news of an unexpected sort, and the size of the resulting moves points to greater sensitivity in the response of markets. The ability of markets to trade without triggering major price moves was limited. That said, by the end of both days, volatility had reduced, prices had retraced a portion of their peak intra-day moves and liquidity returned. This quick stabilisation helped to limit contagion to other markets, and thus wider effects on the stability of the financial system. Should we therefore be concerned? My answer to that is we should certainly be keenly interested. I agree with the conclusion of the Federal Reserve Bank of New York that understanding the manner in which the evolving market structure is affecting market liquidity, efficiency and pricing is highly important (Potter (2015)). | 0 |
Provided that the flood situation starts to improve by early December, we should see Thailand staging a respectable comeback on the back of domestic demand revival. We expect private consumption to rebound as early as the first quarter next year, and investment to regain its firm footing by the second. This will be made possible by pushes from reconstruction spending and fiscal stimulus, both through the government’s direct spending and additional measures. And in particular, higher investment on developments of flood warning and prevention systems is also urgently needed, both to prepare Thailand for future flood incidents and to restore foreign investors’ confidence. I would like to stress again that Thailand’s fate will depend upon her success in reviving domestic demand, given that the problems in the U.S. and the Eurozone are still far from resolved and are expected to last well into the next year and beyond. Early resolution of the BIS central bankers’ speeches 1 U.S. and the Eurozone crises will rejuvenate the now-sluggish global growth momentum, and this will benefit Thailand by allowing her exports to work with domestic demand in driving growth. But if the opposite happens, then it is likely that another global economic slowdown, even a global recession, is coming underway. Ladies and Gentlemen, This leads us to our second focus today on developments in the U.S. and the Eurozone, along with their implications on Thailand’s outlook going forward. Serious structural concerns continue to threaten the health of the U.S. economy. | First, I would like to touch briefly on the Bank of Thailand’s latest view on domestic growth in short and medium term. Then I will delve more deeply into concerns in the U.S. and the Eurozone, along with the likely implications on Thailand’s recovery. Ladies and Gentlemen, I would like to first share with you the Bank of Thailand’s latest economic projection and our outlook for the Thai economy. Despite the fact that we have less than two months to go for 2011, the Bank has just revised down its growth projection for the Thai economy this year, from 4.1 percent in July’s assessment to only 2.6 percent in October’s. This significant downward revision reflects the severity and the broad-based impacts of the flood, which has brought about a halt in agricultural and manufacturing production in affected areas, and has also disrupted production chains in other areas as well. The automobile industry, which has just recovered from supply chain disruptions following natural disasters in Japan earlier this year, is once again terribly affected. And in the big picture, we have sharply lower consumption and investment spending that will require some time to resume their normal trend. But even in the face of this hardship, and amidst the external environment that is quite unpredictable given heightened risks and uncertainty from the U.S. and the Eurozone, we still expect Thailand’s growth outlook to be favorable next year. | 1 |
This is why the current focus on enhancing banking regulation is right and progress on key reforms to strengthen bank capital and liquidity standards remains a top priority. The recent reform package of the Basel Committee will lead to a much more robust and resilient banking system in the future, with both a stronger capital and liquidity base than before the crisis. The challenge, now, is to calibrate and phase in the new framework in a way that does not impede the recovery and does not contradict our macroeconomic objectives. The macroeconomic assessment of the reforms underway will help us strike the optimal balance. We must also reduce procyclicality. Some of the procyclicality can be trimmed through prudential regulation but I strongly believe that our first line of defense against procyclicality should be the accounting framework. I therefore support the current focus on reducing the scope of the mark-to-market approach and moving from an incurred loss model to a forward-looking model for provisioning. Conclusions To conclude, the main challenge ahead of us is to find the right balance between all these measures and the short-run effects of the rebalancing. If the rebalancing process happens too fast, it might weaken the recovery; but if reforms are delayed too much, the longer-run growth prospects will be affected negatively. One very important issue to focus on while analyzing this trade-off is that policy decisions need to be perfectly coordinated across countries. The crisis has demonstrated that it was necessary, and that it was possible. | Efforts aimed at integrating these markets into regulated and supervised market infrastructures are indeed an essential policy response to risks accumulated in these markets. However, the crisis has not just shown us that we should expand the scope of regulation and supervision. In fact, two clear trends have emerged and are greatly affecting the very nature of regulation. The first observable trend is that we must complement micro-supervision with macrofinancial supervision: this macroprudential approach has in fact developed in many countries. The second trend is that regulation needs to become more global in response to the globalization of finance. In that respect, the commitment by all G20 jurisdictions to implement Basel II by 2011 and to finalize this year a new package aimed at strengthening bank capital and liquidity standards is a great achievement. We are confident that making tangible progress on each of these fronts is an essential response from policy makers to the roots of the global financial crisis. To some extent, the ultimate aim of financial regulation has to do with financing the real economy. Sound regulation should enable the stable provision of financial services to economic agents as they strive to finance their productive investments and consumption, which constitute the fuel for growth. Banks are central to the financing of economic activity because they perform maturity and liquidity transformation as well as a credit risk screening function. This is BIS Review 93/2010 3 especially true in continental Europe, where they are responsible for more than 80% of financial intermediation. | 1 |
This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and 6/7 BIS central bankers' speeches by our enhanced forward guidance on the key ECB interest rates. Thank you. 1 In moving annual sums. Source: US Department of the Treasury. 2 See Cœuré, B. (2017), “The international dimension of the ECB’s asset purchase programme”, speech at the Foreign Exchange Contact Group meeting, 11 July. 3 See also Bergant, K., M. Fidora and M. Schmitz (2018), “International capital flows at the security level – evidence from the ECB’s asset purchase programme”, ECMI Working Paper No 7. 4 For quantitative evidence, see Cœuré, B. (2017), “Monetary policy, exchange rates and capital flows”, speech at the 18th Jacques Polak Annual Research Conference hosted by the International Monetary Fund, Washington, 3 November. 5 See Cœuré, B. (2018, op. cit.). 6 See Cœuré, B. (2018), “Forward guidance and policy normalisation”, speech at the Deutsches Institut für Wirtschaftsforschung, 17 September. 7 See, for example, Rey, H. (2015), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, NBER Working Paper No 21162. 8 See Cœuré, B. (2018, op. cit.). 7/7 BIS central bankers' speeches | • After the change in our legislation in 2016, which established the finality of payment irrevocability on a legal level, we felt it was timely to resume previous conversations with CLS. Our legislation now should fully meet all the high standards and requirements for the Peso to operate in CLS. • After demonstrating our interest to CLS, I met personally with the Vice-Governor of the Federal Reserve Board to express our interest. The Federal Reserve Board and the New York Fed are respectively in charge of the regulation and supervision of CLS, hence the importance of their opinion about the benefits and performance of the system. Besides, the Fed presides the oversight committee along with 23 central banks representing the 18 currencies that settle in CLS. Then, it was important for us to show our commitment with the process in order to be part of this committee once the Peso is incorporated. • We subsequently moved on to the due diligence stage last July 2019, when together with CLS we held the first workshop at the CBC for the private sector. III. Benefits of the CLS for Chile • Since the beginning of the process, the CBC has publicly stated on several occasions the benefits of CLS and its intention to incorporate the Peso to the system. • CLS mitigates the settlement risk, through a multicurrency Payment versus Payment (PvP) system with legal certainty, meaning the payments are final and irrevocable. | 0 |
In the last decade or so, the shocks have been larger and the variance of inflation in a number of countries has at times increased, but with a tendency to undershoot. This has been less marked for the UK, but here still we currently face a period of below target inflation. And, as discussed previously, we have moved into a period of inflation targeting in the face of much larger shocks. To be clear, this does not for a moment call into question the benefits of targeting inflation. Indeed, it is notable that over the same period inflation expectations in the UK have not become de-anchored or more volatile, despite the greater economic volatility. But this shift has required central banks to be somewhat more flexible in the way we go about seeking to hit the inflation target, and the tools we use to do this. This is apparent in a number of approaches used by central banks: the adoption of an averaging over time mechanism to calculate the relevant inflation target, thereby allowing some catch-up to account for past inflation shortfalls; allowing inflation to return to target over a longer period of time where there is a trade-off of weaker activity and above target inflation; or using forward guidance such as the MPC is at present in the face of very great uncertainty, so that we make clear that we will need strong evidence that inflation is likely to return sustainably to target before policy should be tightened. | Data needs could originate from the necessity to cover new areas of measurement and use new methodologies to improve data quality, use and availability. They could also stem from the requirement to come up with new subject measures and variables. Therefore, national data compiling agencies must be cognizant of such evolving data needs to remain relevant and useful. After all, it is the responsibility of the statistical community to make sure to address new data-related challenges which are driven by current and emerging user demands for official statistics. It is potentially in recognition of emerging data-related challenges that the IMF took several steps to enhance transparency and openness, and launched two key data dissemination standards in the 1990s. These included the Special Data Dissemination Standard (SDDS) and the General Data Dissemination System (GDDS). Let me briefly touch on these standards. The SDDS was established in 1996 to guide IMF member countries, interacting or set to interact with international capital markets, in the provision of their economic and financial data to the public. Countries that subscribe to the SDDS agree to follow good practices in four areas which include the coverage, periodicity, and timeliness of data, public access to those data, data integrity, and data quality. Earlier this year, the IMF Board expanded the scope of the SDDS to include seven financial soundness indicators in order to make all stakeholders better understand cross-border linkages, and made it mandatory for participating nations to report international investment positions on a quarterly basis over a transition period of four years. | 0 |
Firms in the US and the UK cut the size of their workforces at an early stage and adapted their operations to demand, whereas European firms waited until the last minute to carry out the necessary cutbacks. While profits and the future outlook have now turned around more and more clearly in the US corporate sector, the immediate future continues to appear gloomy for European firms, which have seen their competitiveness deteriorate during the slowdown. So in this respect labour market legislation can be a hindrance to high long-term growth. Furthermore, it is likely that legislation sometimes contributes to amplifying cyclical fluctuations rather than smoothing them, since productivity and profits in the corporate sector can easily become procyclical. There are indications that this has been the case during the most recent economic slowdown, as productivity has fallen sharply in the euro area at the same time as it, if anything, has tended to rise in the US. This also suggests that the US economy will normally emerge from slowdowns quicker than the euro area. Sweden among the first to have a sustainable pension system Another area in which Sweden has led the way is in pension reforms. The ATP reform in 1960 included buffers for the government finances. On the other hand, the reform was partly based on the assumption of continued robust growth and an average life expectancy of around 70 years. As we know, the 1970s and 1980s can be viewed as wasted years in growth terms. | It is in no way justifiable to allow bank customers or taxpayers to pay for either exorbitant profits or inefficient operations, which is happening in many countries in the euro area. There is no doubt that we in Sweden can also do more to promote competition in the financial market, not least when it comes to banking activities aimed at private customers and small firms. The largest market players continue to enjoy a high level of market concentration. However, the establishment of a number of new niche banks in the past few years and the recently raging price war on credit for tenant-owned apartments show that deregulation gradually leads to increased competition and consequently to lower prices for consumers. Continued reforms necessary To sum up, we have reason to be proud of the reforms introduced in Sweden over the last decade. They have resulted in Sweden today having a higher growth potential than several of the large economies on mainland Europe. At the same time, we cannot settle for what we have done so far. Sweden must continue to remain a step ahead on the reform agenda that the EU Member States BIS Review 45/2003 5 decided upon in Lisbon in 2000 and which aims to make the euro area “the most competitive and dynamic knowledge-based economy in the world by 2010”. Reforms are under way in a number of countries in the euro area and will in the long run make the euro area countries more attractive to international investors. | 1 |
I believe the SSM mechanism is going to have a positive impact on central bank (and regulatory authorities) in the region discharging their responsibilities with regard to supervision and macro-prudential policies. Regulators in the region will now talk to a single “home” supervisor, and this is expected to bring more attention to their supervisory concerns. This process could be strengthened further if the central banks in the region improve their own cooperation and are able to identify common position in their communication with the European Central Bank. This could address better the concern that the single supervisor could be more distant to worries of regulators coming from small countries in the region. Being able to cooperate with a single “home” supervisor, will be instrumental in achieving faster progress in the process of regulatory convergence, and establish a more level playing field for financial institutions in the region. This is something that is being closely guided by the Vienna II Initiative. In addition to preparing implementation of various regulatory standards related with countercyclical macro-prudential tools, with particular short term importance is the issue linked with recognition and the treatment of the NPL. In the recent past, some of the countries in the region have been affected by the deleveraging process started in the EU financial system. This was mostly felt during 2012, following the higher capital requirements associated with EBA stress test of November 2011 and relevant steps taken by national “home” authorities to comply with capital requirements. | 2 BIS Review 121/2007 inflation expectations from becoming entrenched below the operational target of 2.5 per cent was one of the main reasons the interest rate was lowered to a very low level in 2003 and 2004, when inflation receded and approached zero. Low interest rates have stimulated demand and output and gradually led to the prospect of higher inflation, which we are addressing by increasing the interest rate. Consumer price inflation is still fairly low, but capacity utilisation is now at such a high level that inflation is projected to move up gradually to 2.5 per cent. Higher interest rates will contribute to a gradual decline in capacity utilisation, thereby preventing inflation from becoming too high. In the long term, monetary policy cannot influence real economic variables such as output and employment; it can only influence nominal variables such as inflation, the nominal interest rate and the nominal exchange rate. When monetary policy serves as an anchor for inflation expectations, it allows the interplay between monetary policy and other components of the economy to function. A good result can be achieved if the social partners take the role of "leader" and the central bank the role of "follower". Wage growth can then be determined in the knowledge of the monetary policy response. Flexible inflation targeting provides a fixed framework for monetary policy and gives a clear indication of how the central bank is to respond in different situations. | 0 |
In fact, the high private debt of 236% in Cyprus relative to the euro area average of 4/5 BIS - Central bankers' speeches 140% and the European Commission's threshold of 133%, combined with the high percentage of loans in Cyprus with floating interest rate, makes them particularly sensitive to the higher interest rate era that we are entering. At the current juncture, the prudent CBC supervisory Debt-Service-to-Income ratio (DSTI) tool, defined as a household's total monthly debt payments divided by its monthly net disposable income that is in place in Cyprus, is expected to somewhat mitigate the negative impact of higher lending rates. Nevertheless, extra vigilance and concerted action is required at all levels to address these debt risks and minimise any crowding out effects. Let me conclude. Debt, both private and public, is essential for any economy as it is one of the main sources to finance vital growth components, such as investment and consumption. Excessively high debt however, both public and private, has a negative impact on a country's growth rate. In most cases, the impact becomes more pronounced as debt accumulates and may also lead to financial stability issues. Even though many efforts have been made in recent years by international and national regulatory bodies to implement a more sound financial architecture and to strengthen financial system regulation and oversight, new vulnerabilities, such as the pandemic crisis and the war in Ukraine, have increased the risks of rising private and public debt. | This is because structural reforms are the policy levers aimed at boosting the supply side of the economy and ameliorate the framework in which businesses and people operate. By tackling obstacles to the efficient production and provision of goods and services, structural reforms can contribute to higher productivity, investment and employment, thus contributing to higher incomes and helping to tackle rising levels of debt. Three specific examples of Government structural reforms include the following: First: The implementation of measures that improve business conditions, promote better allocation of resources, and strengthen market competition are essential policy actions to boost productivity and hence GDP growth. In the area of product markets, a more competitive and business-friendly environment increases incentives of firms to innovate, and invest, in human and physical capital. A relevant example includes the transposition of the EU Services Directive, aiming at lifting restrictions on cross-border providers and removing limits to competition. Unfortunately, the latest periodic assessment by the Commission of the legal and administrative barriers of the EU, which was conducted in April 2021, points to an overall slow speed of barrier removal over 2006 to 2017. Second: Labour market reforms, such as the implementation of Active Labour Market Policies, could minimise labour shortages and labour mismatches, potentially helping to contain both private and public debt. Wage rigidities in Europe have been identified in the past to be important impediments to market clearing and have been linked to high and persistent unemployment. Typically, high unemployment rates are related to bad debt, that is Non Performing Loans. | 1 |
Minister, this Loan Scheme being launched today provides a real opportunity for human capital development, which is necessary for national development. It enables children who would otherwise be excluded from the educational system have decent opportunities to receive education, as their parents can now access loans specifically targeted at meeting their educational expenses. Ladies and Gentlemen, a nation’s development depends on the levels of skills among its people and it is our expectation that the launch of this Scheme will contribute towards this noble cause. To this end, I would like to encourage parents and guardians to use the Student Loan Scheme in order to realise the vision of educating their children. Chairperson, what we are witnessing today represents an initiative by banks to respond to the needs of the community. As the Central Bank, we commend your bank for this initiative, which was borne out of the identified need to develop financial products that address problems in our society. Chairperson, Ladies and Gentlemen, let me end by reminding players in the banking sector that as new products and services emerge, different or heightened levels of risk also emerge. The challenges that financial innovation poses for public policy and the regulatory framework in ensuring financial stability are enormous and cannot be over looked. In this regard, let me call upon the management of Indo-Zambia Bank to not only look at the benefits, but more also on the risks that accompany financial innovation. | From the Bank of BIS Review 50/2009 1 Zambia’s point of view, the objective of financial stability remains key in all our activities. Financial stability depends to a large extent on the existence of robust risk management systems of financial institutions. It is therefore, important that risk management systems should keep pace with financial innovation. I have no doubt that the banking sector will rise to this challenge. Once again, thank you for the opportunity to witness this important event. 2 BIS Review 50/2009 | 1 |
The second source of resilience comes from the strength of our prudential and supervision of financial institutions. In this regard, the Bank of Thailand’s capacity and performance in supervising financial institutions has been assessed against international best practices in the context of the joint IMF/World Bank Financial Sector Assessment Program or FSAP. 2 BIS Review 63/2008 Indeed, the outcome of the FSAP assessment was very satisfactory, validating our observance of international best practices. Moreover, the assessment results also strongly endorse the policy-making frameworks and transparency. As you may be aware, the new Financial Institutions Business Act (FIBA), which governs the framework and conduct of financial institution supervision, is designed to capture the international best practices of financial institution supervision according to Basel Core Principles (BCP). With this law, the BOT can undertake consolidated supervision of financial conglomerates, together with prompt preventive and corrective actions, macro-prudential measures, and measures to improve consumer protection. Overall, our goal is to ensure that our regulatory and supervisory responses keep pace with the financial intermediaries and the products they offer. In this endeavor, the Bank of Thailand has put emphasis on robust stress testing, enhanced counterparty risk management, and safe and efficient market infrastructures. This leads me to the third source of resiliency. This is the continuous improvement in our financial infrastructure, legal as well as information, and the intermediary functions of financial institutions within the economy. | Andres Sutt: Emerging energy markets – key issues Introductory remarks by Mr Andres Sutt, Deputy Governor of Eesti Pank (Bank of Estonia), at the GIC/MKM/Eesti Bank Conference on emerging energy markets, Tallinn, 21 August 2008. * * * Mister Minister, Excellencies, Ladies and Gentlemen, Dear Guests, It is a great honor to welcome you here in Tallinn. The issues of our conference on emerging energy markets are of great importance in today's world. We are very lucky to have an excellent lineup of highly distinctive speakers from both the public and the private sector, so our discussions will no doubt be interesting and useful. I also have to admit that that interest in the conference exceeded the organizers' most optimistic expectations. Energy issues and related policy choices have come forward forcefully and en masse for policy makers and public at large. Indeed, there is hardly any other area where choices that are made today will have a direct impact on the way of life of the generations to come. In this regard, I would like to briefly outline the key issues that will be discussed also today. First and foremost, human activity and energy consumption are, in all likelihood, having a direct impact on climate and, ultimately, on living conditions on the Planet Earth. While the direct effects of climate change on growth and prosperity vary, it is beyond any doubt that the challenges ahead are formidable. | 0 |
The Boskin Report (1996) discovered that the US CPI overestimated the actual cost of living increase by 0.8-1.6 percentage points annually. Statistics Norway has assessed the measurement error in the 4 Norwegian consumer price index. The conclusion is that the Norwegian index also overestimates developments in the cost of living but that the deviation is probably well below one percentage point annually. National consumer price indices are constructed in various ways. For example, there are differences in the goods and services included, the relative weights assigned to the goods and services included and the frequency with which the weights are adjusted. In addition, the method of weighting the various sub-indices – ie whether the arithmetic or geometric average is used – may also affect the growth rate. Eurostat’s Harmonised Index of Consumer Prices (HICP) represents a standard that facilitates the comparison of countries. 4 B. Koth and L. Sandberg: "Kilder til målefeil i konsumprisindeksen" (Sources of measurement errors in the consumer price index) Økonomiske analyser 5/97. Statistics Norway Oslo 1997 4 BIS Review 51/2001 The national index in the UK is calculated by using arithmetic averages, whereas geometric averages are used in the harmonised index. Several items in the national index are not included in the harmonised index, for example costs related to housing (house depreciation, council tax and building insurance). | In exceptional circumstances, like Brexit, when the economy is facing profound structural change, the MPC can extend the horizon over which it returns inflation to target from above in order to balance the effects on jobs and activity. After all, even though monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU, it can influence how this hit to incomes is distributed between job losses and price rises. This flexibility cannot be used without limit of course, and the MPC has set out its framework for managing the trade-off including guidance for its tolerance of the overshoot of inflation.3 Developments in monetary policy In response to the challenging post-crisis environment, the conduct of monetary policy has made important advances that have helped to shape the expectations of both market participants and the public we serve. 2 The ECB also has flexibility to pursue its inflation target, but given the absence of trade-off inducing shocks has not yet had cause to use it. The ECB General Council adopted a quantitative definition of price stability in 1998 as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%; and from 2003, they clarified that this objective was to maintain inflation rates below, but close to, 2% over the medium term. 3 See Carney M (2017), Lambda, speech given at the London School of Economics, 16 January 2017. | 0 |
Moreover, we have seen a common theme running through incidents that have occurred – the dash for cash in 2020, the Archegos Collapse, the LDI pension fund issue, the nickel metals case – namely that for firms to understand and respond to the 4/6 BIS - Central bankers' speeches full risk implications they would have had to observe and respond to a much larger picture of risks than they did observe, and from that came potentially larger risks. There is a challenge of breadth and depth in the NBFI world. It is a very large and disparate landscape with many activities and entities. As a result, we have to survey a lot of ground to look out for risks. But in order to understand these risks, we need to get into the detail, hence the depth issue. LDI was a good case study of this. The LDI fund world comprised 85% of the larger so-called segregated funds, and 15% of the smaller pooled funds. Our stress testing work focussed on the 85%, but the problem arose in the 15%. In some ways the issues around NBFI bear a striking resemblance to ages old challenges in finance, such as leverage, and inter connectivity with other parts of the financial system, creating the scope for spill-overs and systemic consequences. But the heterogeneity of the landscape means that there is no single magic number for leverage as we have with banks, and the inter connectivity can be hard to map, reflecting the recent incidents. | Will the next 25 years see as large a metamorphosis, from sleepy caterpillar to winged butterfly, as the last? It is impossible to know for sure. But it is interesting to attempt a bit of futurology and sketch some hypothetical evolutionary central BIS central bankers’ speeches 3 bank paths. For the sake of illustration, let me consider two – one descending the stairs from whence central banks came, another ascending them to a whole new level. One possible future path is that central banks simply retrace their steps, going back to basics. Extra-ordinary times – from great moderation to great recession – necessitated extraordinary measures. But extra-ordinary should not become the new ordinary. What might the new ordinary look like? For monetary policy, it would probably mean a return to plain-vanilla inflation-targeting using conventional short-term interest rate tools – the one instrument, one target world. Direct use of central banks’ balance sheets, to affect quantitative or credit easing, would return to being an emergency room measure, for use only when the zero lower-bound on interest rates bit tightly. Active monetary policy would mean small, infrequent touches on the tiller, perhaps accompanied by small, infrequent explanations. Former BoE governor Mervyn King aspired to make monetary policy “boring”. In this scenario, his wish would be granted. Regulation would follow a similar path. While not returning to their pre-crisis norms, regulatory rules would move to a more settled pattern. The very definition of a resilient financial system is one that does not require active intervention. | 0 |
To put this into perspective, consider the case of a large US automobile manufacturer. Often cited in the fields of organisational ethics and industrial psychology, this case was seen as a prime example of how conformity and group-think led to costly outcomes. In 2014, the motor company was forced to recall nearly 30 million cars worldwide as faulty ignition switches were found to have led to a loss of electrical power and sudden engine shutdown. 1/7 BIS central bankers' speeches This malfunction also caused the airbags, power steering and power brakes to become dysfunctional, risking the safety of drivers. As the scandal was uncovered, it was found to have caused an estimated 124 deaths. What is particularly harrowing, was the fact that this faulty ignition switch was known by the company’s employees for at least a decade before the recall. An independent probe subsequently pointed to a corporate culture, which the then new CEO, described as “a pattern of incompetence and neglect". Various case studies on the crisis highlighted that the tight financial position in the early 2000s festered a corporate culture that was heavily focused on cost-cutting, shaping employees’ mindsets, conduct and ultimately values. Internal email transcripts revealed that it would have cost an extra 90 cents per unit to modify the ignition switches. An internal probe reported that the problem was misdiagnosed and dismissed as a “customer-satisfaction” issue, rather than a safety problem. | Within a short span of time, the popularity of this new framework spread widely in both the advanced and emerging economies. It is quite understandable. The framework is theoretically attractive, easily understood and simple to communicate. Deviating from the norm: Malaysia’s approach The theoretical elegance of inflation targeting appealed to many central banks to tread on the same path. In Malaysia we had considered this approach but decided to forge our own route. While the broad framework was appealing, we concluded that adopting an explicit inflation target would have the unintended effect of ‘straitjacketing’ our policy flexibility. We believed that the inflation targeting framework was not ideal for an open and small economy with a sizeable financial market like Malaysia. An economy such as ours is susceptible to real external shocks and could also face problems such as large and volatile capital flows and exchange rates. Therefore, we did not adopt the inflation targeting framework. We adopted what we characterised as ‘inflation anchoring'. The policy outcome is similar, stable inflation. But the process and focus are different. There are several reasons for this approach. First, we did not believe in confining ourselves to a single overarching target for price stability, especially not when the economy is complex and consists of many moving parts. We wanted to 2/7 BIS central bankers' speeches avoid a situation where too much focus on achieving a single target could lead to potential blind spots. | 1 |
History suggests that there are periods in which credit in the economy builds up and periods in which it declines – often after an explosive turning point. But these are not I suspect something a physicist would be prepared to accept as proven to be cyclical. And though they are associated with the economic cycle (which also, I suspect, would be thought of as unproven in the world of physics), the relationship between the two is unclear and much disputed. The build-up of credit in the economy is not always associated with higher growth nor does it always match the economic cycle. The long build-up of credit in the UK economy between 2000–2007 – from 125% to 170% of GDP – does not seem to have much affected economic growth which was little more than its long-run average. We do know, however, that a build-up of credit that ends explosively can trigger a rapid reversal – a spiral of “deleveraging” – that drives the real economy into a very deep decline, more severe and more persistent than the usual business cycle. Not only is this a lesson from the empirical literature. GDP in the UK fell around 6% in the crisis and the recovery since has been slower than our recovery from the 1930s recession. Policy makers in the UK have spent much of last 8 years trying to halt and reverse headwinds to the recovery, including from disorderly deleveraging. | Allow me to take this opportunity to invite you to join this exchange of experiences in one of the aspects that is increasingly relevant to our institutions. The theme of this Conference, Economic Policies, Trade Integration and Sustainable Job Creation, is particularly timely at this current juncture of the world economy. The world remains in an expansionary phase although there are some signs pointing to a gradual change in the global economic landscape. Some of the risks that had been the focus of our attention are beginning to materialise. In particular, we are witnessing a re-emergence of protectionist measures with pernicious effects on international trade. Beyond the impact that this can have on growth in the short term, its potential impact on the diffusion of technological advances and on improving the welfare of individuals is more worrisome. In 3/4 order to preserve the benefits derived from globalisation and technological innovation, it is now more important than ever to work towards a fairer and stronger global trade system. To this end, it is necessary to work on the reform of the rules governing international trade to ensure that all countries compete on a level playing field. But also, and not least, domestic policy-makers have a responsibility to design the right policies for stimulating innovation and job creation, and creating opportunities for all. | 0 |
In many parts of the world banking laws were passed for the first time and the central bank often became the bank supervisor. In this process the distinction between the micro- and macro- perspectives became blurred. What has changed in the past ten to fifteen years is that central banks have started to give much more explicit emphasis than in the past on their macro prudential responsibilities and have distinguished it more clearly from the micro-supervision perspective. This renewed emphasis has several different sources. One of them was undoubtedly the financial crises that hit Asia in 1997. This experience showed that even if the individual banks in a financial system appear to be sound, the system itself can still be overwhelmed by financial shocks. For example, the system can be exposed to a common risk that isn’t obvious from looking at each bank individually. In the Asian crisis countries the exposures of banks to foreign exchange risks didn’t show up on bank balance sheets. The risks were instead in the balance sheets of their major borrowers, who had borrowed heavily in foreign currencies even though they had domestic currency cash-flows. And this also points to another feature of macro prudential concern – it cannot stop at the traditional boundary of the banking system, but must look at the risks in the nonbank financial sector and at the structure of household and corporate balance sheets. There are also two other factors worth mentioning. | 16 As Rogerson (1997) points out, there are different definitions of “the natural rate of unemployment”, but he convincingly claims that the only definition of equilibrium unemployment that is well-specified and unambiguous is the one corresponding to unemployment in steady state. Academic literature contains different definitions of short-run and time-varying equilibrium unemployment, such as short-run NAIRU (shortrun Non-Acceleration Inflation Rate of Unemployment – the rate of unemployment that will lead to a constant rate of inflation in the short run) and flexi-price unemployment (the rate of unemployment that would arise if prices and wages were flexible). These definitions are very dependent on models and not very robust, as they rely on such a large number of assumptions. Blanchard and Gali (2010) give some theoretical support for why monetary policy should be aimed at stabilising unemployment around a steady-state level, in addition to stabilising inflation around the inflation target. 6 BIS central bankers’ speeches composition of the population. If these structural conditions change over time, the long-run sustainable rate of unemployment will also change. There is evidence that the labour market reforms, tax deductions for those who work and changes in the sick pay and unemployment insurance in recent years have contributed to reducing the long-run sustainable rate of unemployment (Swedish Ministry of Finance 2011, Sveriges Riksbank 2012a). As the long-run sustainable rate of unemployment is determined by the functioning of the economy and structural conditions, but is not directly observable, it must be estimated using various econometric and statistical methods. | 0 |
Progress has been made in several areas, but the problems’ complexities and the political difficulties to deal with them are huge. This, coupled with the delicate position of consumers and firms, has translated in deteriorating economic expectations in the region, anticipating a recession during this year. The situation in the United States, while less severe than that in Europe, is also complex, especially because of the slow recovery and little room for fiscal and monetary policies to stimulate the economy. The emerging world, Chile included, will undergo a period of slower growth than in the past few years. Market consensus forecasts, last week’s IMF projections, and also those in our December 2011’s Monetary Policy Report point in the same direction (table 1). Most recently, the information coming from the U.S. shows a somewhat better performance than was forecast some weeks back, but does not modify medium-term problems and risks affecting its economy. In fact, last week the Federal Reserve extended from mid-2013 to end-2014 the period during which it would hold the fed funds rate at the minimum level where it is today, which reflects the magnitude of the problem. Meanwhile, information from China reveals its economy is growing strongly. It also shows a relief of inflationary pressures in that country, providing more space for policy-making. The prices of commodities, especially copper, have recovered significantly in the past few weeks. Actually, today’s price of this metal is substantially higher than we had forecast for the year. | Are the 16 million unemployed people in the European Union merely an equilibrium, on the one hand, and a statistic, on the other? But for most people the labour market is the market where – for better or worse, in sickness or in health – they sell their time and their skills at a market price. That price determines, in large part, their opportunities and economic welfare. Wage rates have a much greater significance in influencing the distribution of real incomes than do the prices of almost anything else. As a result, the labour market cannot be divorced from broader social and political considerations. If their terminology and language are sometimes insensitive, what do economists have to offer by way of ideas about unemployment? The prize for the most important idea and most insensitive terminology surely goes to Milton Friedman for the concept of the natural rate of unemployment. I shall discuss shortly the significance of this idea for monetary policy. But for a more elegant advocacy of a similar position it is necessary to delve further back in history. This month sees the 75th anniversary of the publication of what Milton Friedman described as John Maynard Keynes’ best book: A Tract on Monetary Reform. It is undoubtedly one of the most persuasive polemics ever written on the subject of monetary policy. To coincide with publication in December 1923, Keynes gave a lecture to the National Liberal Club in which he talked about “the triple evils of modern society”. | 0 |
The second risk unfortunately follows from the first, namely that increasing pressure on interest margins can tempt lenders to seek higher returns on assets through riskier loans, and to concentrate more on short-term funding thereby increasing the mismatch. We saw this before the financial crisis broke in 2007 as lenders ventured into higher LTV, sub-prime and commercial property lending without having adequate risk management in place. We also saw this in the late 1980s and early 1990s. This diversification was generally not successful, and in some cases fatal. Since the height of the crisis societies have generally reduced their commercial property loans, and non-prime has declined too. The main area of growth has been buy-to-let lending, which is true not just for societies but for lenders in general. Now, I don’t want to demonise buy-to-let lending. We are watching carefully, and for the societies we see no evidence today that BTL loans are of poorer quality than prime owner-occupier, and we see a fair amount of stability over time in maximum LTV and minimum rental cover. But, we are watching carefully, and of course applying stress testing across all loans. Looked at more broadly, we are not seeing an upward surge in high LTV lending of the sort that was so damaging in the past, but there is an upward direction to the – admittedly small – share of lending at high LTV and high loan-to-income (ie the two together). | Indeed, since we announced a combination of unconventional measures to provide additional monetary policy accommodation in June 2014, financial conditions have eased considerably. Risk-free interest rates have shifted downward at all maturities (Chart 1), reducing the basis 1 / 12 BIS central bankers' speeches used by banks and financial markets in determining financing conditions. Chart 1: EONIA forward curves estimated from OIS (percentages per annum) This has been reflected in the sizeable reduction in bank lending rates for euro area non-financial corporations (NFCs) and households since June 2014 – which have declined by around 130 basis points and 110 basis points, respectively – as well as in the decline of NFCs’ cost of market-based debt financing (Chart 2). Chart 2: Nominal cost of debt financing for euro area NFCs by component (percentages per annum) 2 / 12 BIS central bankers' speeches NFCs have also benefited from an increasingly diversified financing structure, with debt securities issuance and other forms of market-based financing substituting for bank-based sources of financing (Chart 3 and Chart 4). | 0 |
Source: National Satistics Institute (INE), 15 Table 1 Domestic scenario (annual change, percent) 2015 2016 Dec.16 Report GDP Domestic demand Domestic demand (w/o inventory change) Gross fixed capital formation Total consumption Goods and services exports Goods and services imports Current account (% of GDP) Gross national savings (% of GDP) Nominal gross fixed capital formation (% of GDP) 2.3 2.0 1.7 -0.8 2.4 -1.8 -2.7 -2.0 21.4 23.6 1.5 1.1 2.0 -0.6 2.8 0.1 -1.4 -1.7 19.3 22.2 2017 (f) Mar.17 Report 1.6 1.1 2.0 -0.8 2.8 -0.1 -1.6 -1.4 20.2 23.2 Dec.16 Report 1.5-2.5 2.6 2.0 0.7 2.4 2.0 4.1 -1.9 19.2 21.7 2018 (f) Mar.17 Report 1.0-2.0 2.3 1.9 0.2 2.5 1.6 4.3 -0.9 20.3 22.5 Mar.17 Report 2.25-3.25 4.1 2.8 3.0 2.8 2.7 7.2 -2.1 20.5 22.6 (f) Forecast. Source: Central Bank of Chile. Figure 7 Real lending by type of credit (*) (annual change, percent) 25 25 Consumer 20 20 Housing 15 Commercial 15 10 10 5 5 0 0 -5 -5 02 05 08 11 14 17 (*) Horizontal dashed lines show last 15-year average for each series. Source: Central Bank of Chile using SBIF data. | Gent Sejko: Launch of the EBRD Transition Report 2017-18 Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2017-18, Tirana, 11 April 2018. * * * Dear Mr Colangeli, Dear Mr Sanfey, Dear participants, It is a special pleasure for us to host again the presentation of the Transition Report 2017–18 by the European Bank for Reconstruction and Development. The Transition Report 2017–18 addresses some very important issues for transition economies, such as convergence of firm dynamics and productivity, the importance of road infrastructure to economic growth, and the new opportunities from the green economy. It is a pleasure to note that the Report presents a positive assessment of the developments in the region. After some years of anaemic growth, the economic activity in the region shows recovery and the prospects remain positive, notwithstanding the geopolitical concerns and the internal and external challenges we face. Some regional countries grew faster than other countries around the world, of similar development level and market size. The capital inflows have been relatively considerable, driving to the narrowing of the interest rates spread in the region compared with those in large economies. More importantly, it seems that inflation is gradually returning to target levels and the accelerated economic growth in the Western Balkans is supported by bank lending and some major infrastructure projects. | 0 |
We value highly human and civil rights ranging from gender equality, data protection, to the condemnation of torture, including the rejection of capital punishment. The protection of these values and rights relies on the vigilance of the legal professionals here in this room and elsewhere. This is even more important vis-à-vis a reality of extreme and obsessive forms of nationalism. The EU has also increased personal choices. The ability to travel, work and live across borders has been enhanced. The European Health Insurance Card permits European citizens to obtain healthcare wherever they are. 1.5 million people, perhaps including some of you here today, BIS central bankers’ speeches 1 have completed part of their studies in another member state as part of the Erasmus programme. More than 15 million EU citizens have moved to other EU countries to work or to enjoy their retirement. This wider range of options increases people’s wellbeing. These reasons, and the other positive aspects of membership, have been drowned out in debate by concerns over migration and the large wave of refugees from troubles in the Middle East and elsewhere, the impact of the crisis, disaffection with high levels of unemployment – especially youth unemployment, and a perceived lack of accountability and legitimacy of the EU institutions. I fully recognise that Europe in its current state is not perfect. The crisis has shown that Economic and Monetary Union is incomplete, and further work is required, particularly in the areas of banking and credit markets. | In order to function democracy requires that citizens can hold decision-making accountable at the level at which these are taken. But today we can only elect and sanction at the national level, while decision making is widely done at the European level. Therefore, we have to enhance the decision-making process at the European level through appropriate democratic control measures and more direct election and sanctioning features. The solutions to these issues are not simple, and reasonable people may well disagree on their form. This forum is an ideal place to debate what laws, rules and institutions we need to put in place to strengthen the integrity of the Union. I promised earlier that I would give you something to argue about tonight! I believe the vision of a united Europe is worth striving for. To make this vision come true, we also need to understand the forces behind the populist dissatisfaction with the Union, and not dismiss them. The referendum debate in the United Kingdom has been acrimonious. In striving to deliver a united Europe, we need to be united in ourselves and build a shared EU-wide identity that delivers the necessary democratic legitimacy to the institutions. Strive mightily, but eat and drink as friends. 2 BIS central bankers’ speeches | 1 |
Andrew Bailey: Defining the objectives and goals of supervision Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at the New York Fed conference “Defining the objectives and goals of supervision”, Federal Reserve Bank of New York, New York City, 18 March 2016. * * * First of all, many thanks to the New York Fed for organising a conference on supervision of banks. This sounds a strange thing to say in one sense – not in another because the gratitude is genuine – but strange in the sense that surely supervision is such an important part of what we do that we shouldn’t be particularly surprised at the idea of having a conference on it. But in my experience, it is surprising how little time we spend being more reflective about supervision. I want to start with some important definitions. Frequently, and mistakenly, “supervision” and “regulation” as terms are used interchangeably. That’s wrong. Regulation is to do with the framework of rules and guidance that put the structure around the objectives that as authorities we are usually given in statute. In the UK, the PRA has a primary objective in terms of the safety and soundness of firms we authorise to do business, and safety and soundness are expressed in terms of the stability of the financial system. There is then a rulebook that tells us what safety and soundness means. That’s the framework of regulations. | In the UK, I don’t think we saw a major prudential failure of capital and liquidity which did not have a governance and management story at is root, and we had a system which was very poor at creating the right incentives for good outcomes. Here I want to put the emphasis on creating the right incentives. In my experience supervision is in part about creating and overseeing those incentives. The critical distinction here is that supervision is not just about doing things to firms, it is also about creating the conditions for firms to do this right thing in the first place. Let me give three examples of what we are doing. 2 BIS central bankers’ speeches First, we have been much more active in remuneration policy and practice. I have no interest in regulating the level of pay, but we are interested to ensure that remuneration is compatible with meeting capital requirements (so it can be varied to do so) and that variable remuneration is deferred and can be withdrawn, and is thus compatible with creating the right incentives by putting that remuneration at risk if the firm fails to conform with the objectives of safety, soundness and good conduct of business. I am not in favour of limiting variable pay in the way European legislation has done through the so-called bonus cap because it reduces the opportunity to create the right incentives. We then supervise firms to ensure those incentives remain in place. | 1 |
Yet, despite highly expansionary monetary policies around the world, many large advanced economies have not recovered as strongly as hoped. In Switzerland, the recovery has been relatively robust by international standards. Yet inflation in our country, as in many other countries, is still lower than we would like. So the past few years have shown clearly that an expansionary monetary policy is not a panacea for catalysing growth in the major advanced economies. Expansionary monetary policy is no substitute for necessary structural measures and it must not delay them. Monetary policy influences the economy’s growth potential only insofar as price stability reduces uncertainty. Beyond this, it has no effect on economic growth in the longer term. For this reason, longer-term growth prospects can only be improved through structural measures. For instance, the promotion of education, research and development can increase productivity growth. Good economic conditions support growth: if entrenched labour market structures are dismantled, competition is encouraged, and contracts are reliably enforced, the economy Page 8/16 becomes more efficient. A pension system that is sustainable in the long term can allay people’s fears about an uncertain income in their old age, and thereby avoid an excessive propensity to save. If such reforms in the major world economies are successful in positively influencing expectations about future income and returns, then global demand for consumption and investment could rise today. | Together with the SNB’s willingness to intervene on the foreign exchange market as necessary, the negative interest rate policy has prevented further Swiss franc appreciation and has generally helped to reduce pressure on the currency. Third, in an environment of low interest rates worldwide, the negative interest rate is necessary and appropriate for Switzerland. As a small open economy, Switzerland cannot decouple itself from the global low interest rate situation. What would have happened if the SNB had not introduced negative interest? The Swiss franc would have appreciated even more strongly, there would have been a slowdown in growth accompanied by even lower inflation, and unemployment would have risen. Fourth, a phase of low interest rates, especially a prolonged one, can have undesirable sideeffects, including the possibility of cash hoarding, which limits the scope for monetary policy action. There can also be undesirable consequences for financial stability, which should not be Page 9/16 underestimated. These challenges and side-effects will amplify, the longer interest rates remain low. Fifth, against this backdrop I would like to emphasise that negative interest, or expansionary monetary policy in general, is no panacea. For a sustained economic recovery, adjustments in the real economy are necessary. Structural measures in the major economies can create the conditions for equilibrium interest rates worldwide to rise once more. This would also allow central banks to embark on a gradual process of normalisation, and the potential adverse effects of persistently low interest rates would be contained. Thank you for your attention. | 1 |
The Centre provides an invaluable forum for this to happen. Through our academic workshops, technical assistance, seminars, courses, training, and visits, we can help other Central Banks to keep their economies and financial systems on an even keel, from which everyone benefits – and also to compare notes on the challenges they face and how best to respond to them.” I know I speak for Peter’s many friends and colleagues at the Bank in saying I wish Peter was still with us to help us to deal with the many challenges we face and how best to respond to them in these unprecedented times. 17 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 17 | Opening up the market to competition and authorizing a second credit bureau in 2016 was a further step towards improving the quality of services provided to credit institutions and consumers. The range of products offered has expanded to include new decision-aiding tools, such as “behavior scoring”, “portfolio monitoring” and “alerting”. In close coordination with the Ministry of Economy and Finance, Bank Al-Maghrib is currently working to rapidly develop the legal and regulatory framework of “credit bureaus” in order to expand its scope to other nonfinancial data providers, including telecom operators and water/electricity suppliers. This will help the unbanked population to have access to financing, as demonstrated by the experience of pioneering countries in this area. 2 As regards the implementation of the second pillar, the Bank has undertaken since 2016, in collaboration with the IFC, an appraisal of the existing system and has identified the characteristics of the future credit registry. In this connection, today’s seminar is a real opportunity for us to learn about the experiences of forerunners in this field, with a view to finalizing our own roadmap. Ladies and gentlemen, Six regulators, well known for their optimal use of credit registries, will present to us today how they use credit reporting data to achieve their core missions, particularly micro and macro prudential regulation, systemic risk control and monetary policy, and strengthen off-site supervision. | 0 |
Ravi Menon: Reforms in banking regulation – effects and outcomes Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Symposium on Asian Banking and Finance, San Francisco, 11 July 2016. * * * Mr John Williams, President of the Federal Reserve Distinguished guests, ladies and gentlemen, good morning. Bank of San Francisco Let me, on behalf of the Monetary Authority of Singapore, express our appreciation to John and his colleagues at the San Francisco Fed. • It has been a fruitful collaboration on this Symposium. • We had a good meeting in Singapore last year, and my colleagues and I are very pleased to be here in San Francisco for this year’s Symposium. There has been no lack of excitement for global financial markets over the past year: • the US Federal Reserve Bank’s deliberations whether to raise interest rates; • China’s transition to a more market-based exchange rate amidst a slowdown in economic growth; and more recently • the decision by UK voters to leave the European Union. But even as banking stocks have taken a pounding – forgive the pun – the global banking system has generally held up well. There are no doubt fragilities in some European banks, but as yet no disorderly failure or contagion. I think this has at least something to do with the regulatory reforms put in place since the financial crisis. | If we do this right, we would have made more progress than ever before – towards a banking system that: • is safe yet purposeful, resilient yet dynamic; • is robust in the face of business cycles and market volatilities, and supports economic growth and creates opportunities for individuals and enterprises. Thank you. 6 BIS central bankers’ speeches | 1 |
Based on the Implementation Group’s work to date, the Committee published a paper last August on the “high level principles for the cross-border implementation of the New Accord”. In this paper, we reiterate our view that the traditional allocation of responsibilities to home and host supervisors will continue. Cooperation will be critical for effective supervision under the New Accord, especially considering the need for an internationally active bank to receive the approval to adopt, and then validate, advanced approaches to credit and operational risk at home and in host jurisdictions. Similarly, supervisors will need to find practical ways to cooperate in the evaluations of capital adequacy under the second pillar and ongoing reviews of compliance with the minimum operational requirements of the New Accord. 4 BIS Review 52/2003 The Implementation Group and the Core Principles Working Group, which is made up of senior regulators from a variety of countries plus representatives of the World Bank and the International Monetary Fund will meet for a second time in December to continue the discussions on issues related especially to the responsibilities and cooperation of home and host supervisors and issues that significant or systemically important foreign subsidiaries may pose for different jurisdictions. Based on the progress that leading banks worldwide have made in adopting more sophisticated approaches to risk management, many countries have indicated that they are planning to implement the New Accord, whether in the short or long run. | This leads to the final topic I’d like to discuss, namely the issues related with the transition to the New Accord across the world. Broad application of the New Accord around the world, transition to Basel II In drafting a replacement for the 1988 Accord, the members of the Committee sought to ensure that the capital guidelines could be applied around the world to many kinds of banks. This means that our rules must build on the best practices, yet remain relevant to conventional banks in more traditional markets. The New Accord provides a “menu” of options for measuring risk, thereby offering the degree of flexibility necessary for banks of various sizes and strategic orientiations to adopt the new framework. Now that the New Basel Accord is moving away from a “one-size-fits-all” approach to capital, supervisors in every jurisdictions have the opportunity to evaluate what would be most appropriate for banks that are not large, complex, or internationally active. At the same time, we could say that Basel has moved away from a “one-schedule-fits-all” approach to implementing the new rules worldwide. Or, if you prefer, the Committee is saying to each country, “pick flowers when flowers bloom”. This suggestion is particularly crucial for supervisors who have adopted the 1988 Accord only recently. Some supervisors believe that their banks may still be strengthening their credit risk management functions and consequently would not benefit substantially from the New Accord at the moment. | 1 |
Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 stood at 8.0% in the period from November 2001 to January 2002, compared with 7.8% in the period from October to December 2001. The high level of the annual growth rates of M3 is very much related to portfolio shifts to liquid positions, most of which occurred in the autumn of 2001 in an economic and financial environment characterised by high uncertainty. While many investors still seemed to be "parking" some of their assets in M3 in early 2002, some moderation in the short-term dynamics of M3 could be observed around the turn of the year. The Governing Council continues to hold the view that the information from the first pillar thus far does not indicate risks to price stability, as the portfolio reallocations which drove M3 growth in 2001 should remain temporary. In addition, the slowdown in the rate of growth of loans to the private sector has been continuing over the past few months. However, we will need to analyse monetary developments closely in the coming months. As regards the second pillar, there are further signs that the trough in economic activity may have been reached at the end of last year. Coincident and forward-looking indicators increasingly point to improvements in economic conditions. A similar picture is reflected in financial market expectations, especially those embedded in bond yields. | The Albanian economy is estimated to have grown below its potential in 2012. Recent economic and monetary data confirm, overall, our earlier assessment for the presence of a negative output gap. On the demand side, economic growth was driven mainly by net exports growth, whereas domestic demand is estimated to have provided low contribution. Data on trade in goods during the fourth quarter show that exports increased 12% and imports fell 9.5%, year on year. Subsequently, the nominal trade deficit narrowed 20.1%, in annual terms, boosting aggregate demand in this quarter. On its side, domestic demand remains weak, due to consumers and businesses hesitation to consume and invest. Lending standards continue to be tight as banks are more prudent about lending. Budget expenditure fell about 0.3%, year on year, owing mainly to contracting capital expenditure. Collected revenue was also downward, eventually reducing the budget deficit by 1.2% compared to 2011. However, the fiscal policy was stimulating during the fourth quarter, materialising in 35% expansion of the budget deficit for this period. Though at low rates, public expenditure is expected to have positive contribution to economic activity in 2013. The monetary policy eased further in January, through the key interest rate cut to the record low of 3.75%. The easing was transmitted into the interbank market interest rates during February, while it is expected to be transmitted into other segments of the financial market. Low government demand for borrowing has exercised downward pressures on government securities yield. | 0 |
Ladies and Gentlemen, you will also note that this investment is being made at a time when the Zambian economy is facing some major challenges arising from the spill-over effects of the ongoing global economic crisis. It is therefore our expectations that it will have a positive impact on the economy due to the evident backward and forward linkages that infrastructure development of this nature have on various sectors of the economy. This investment has also come at a time when new banks are entering the Zambian market. It is our expectation that the repositioning by the bank is one way of ensuring that there is healthy competition in the banking industry. It has always been the view of the Bank of BIS Review 88/2009 1 Zambia that competition is the major way by which the quality of products and customer services for the banking public as well as competitive pricing of banking products can be achieved. Chairperson, let me also take this opportunity to reiterate my concern regarding the general cost of banking services in Zambia. It is my hope that as your bank continues with these well meaning initiatives, it will also be looking into ways and means of making the cost of banking services to the general public more affordable. I wish to therefore reiterate our appeal to banking service providers that include Stanbic Bank Zambia Limited, to make some meaningful efforts in addressing the high cost of banking services. | At that time, the par value of money had been restored over a period of 20 years, but now the authorities achieved the same in a quarter of the time at considerable real economic costs. 16 We usually refer to this as “parity policy”. The ambition to keep their promise was admirable, but the follow-through lacked flexibility. 17 We might say that in the 1920s, the central bank adhered rigidly to “the letter of the law”. 18 After the Second World War, unemployment in the 1920s and 1930s was often associated with the rigidity of “parity policy”, which led to considerable changes in views on economic policy. 19 The objective of a fixed exchange rate and a gold standard nevertheless remained intact and was achieved. Norway and a number of other countries pegged their currencies to the dollar under the Bretton Woods Agreement. In reality, they also linked the value of their money to gold, since the dollar was linked to gold. 20 13 In Norway, the silver standard was replaced by the gold standard on 1 January 1874. See annex by Ragna Alstadheim in Qvigstad, J.F. and A. Skjæveland (1994) “Valutakursregimer – historiske erfaringer og fremtidige utfordringer (Exchange rate regimes – historical experience and future challenges)”, in Berg, S. A., J. F. Qvigstad and K. Storvik (Eds.) Stabilitet og langsiktighet: Festskrift til Hermod Skånland (Stability and a long-term perspective: Festschrift for Hermod Skånland), 1994, Aschehoug. | 0 |
I should also mention that Hong Kong is not alone in this culture campaign. In October last year, I was invited by President Bill Dudley of the New York Federal Reserve Bank to join him in a panel to discuss corporate culture. This was in fact the third annual conference on culture organised by the New York Fed. The key takeaway from the New York conference was that there is a growing momentum amongst key supervisors as well as large international financial 3/4 BIS central bankers' speeches firms to encourage and nurture good corporate culture and ethical values in the industry. I should also add that, since my appointment to chair the Standing Committee on Supervisory and Regulatory Cooperation of the Financial Stability Board in April this year, I have been pushing for closer international collaboration in promoting good corporate culture. The priority of this Committee in the next year or two is to place greater emphasis on three aspects of governance, namely, (i) addressing information gaps and due diligence in employment of individuals with a history of misconduct, or the so called “rolling bad apples” problem, (ii) responsibility mapping for senior managers of financial firms, and (iii) the use of governance framework and appropriate compensation system to address culture risk factors that drive misconduct. These priorities, when implemented, will go a long way in promoting the right kind of culture in the financial industry and in helping restore public confidence and trust in the financial firms. | Simply put, a CTC could not claim tax deduction for interest paid to fund providers within the group as expenses, but all its interest income was subject to profits tax. This tax asymmetry greatly diminished the attractiveness of Hong Kong as a CTC hub, especially as our main competitors in the region and elsewhere do not seem to have this problem. 4. When faced with this possible deal breaker in our effort to promote Hong Kong as the CTC hub, what did we do? Rule number two in marketing: you cannot do good marketing if the product is not a good one. You can only fool some people some of the time but not for long. So one has to make good a product if it is found defective or inferior. Thanks to the help from the TMA, we formed a working group to study the problem and make recommendations to remove the obstacles undermining Hong Kong’s development as a CTC hub. We made a report to the Financial Secretary and obtained his support to change this tax anomaly. With the support of the Financial Services and the Treasury Bureau (FSTB) and the Inland Revenue Department (IRD), and in consultation with the industry, we managed to pass the legislative amendments to remove the tax asymmetry in May 2016. In addition, the Government has gone one step further by providing additional tax incentive by halving the profits tax rate payable on specified CTC activities in Hong Kong from 16.5% to 8.25%. | 1 |
As of 2016, it is the yield of a 20-year zero coupon bond. For Germany, the series is the rate on a government bond or similar government debt instrument with 5-15 year maturity, derived from a variety of historical sources by Jordà et al. (2019). As of 1972, it is the ten-year German Bund rate. For the US, the series is the rate on government bonds with around ten-year maturity, provided by Jordà et al. (2019). As of 1960, it is the ten-year government bond rate. The euro area OIS rate is for ten-year maturity. Latest observation: 11 November 2019. Chart 2 Yield curve slope and recessions in the euro area (percentage points) Sources: CEPR, OECD, ECRI, Bundesbank, Thomson Reuters and ECB calculations. Notes: The slope of the yield curve shown is the spread between ten-year and one-year OIS yields since 1999. Before 1999, the spread is based on German bond data. German data back to 1972 are computed by the Bundesbank using the method of Svensson. German data prior to 1972 are extrapolated backwards based on historical series of short and longterm yields provided by the OECD. Long-term OECD yields refer to yields on outstanding listed federal securities with residual maturities of over nine to ten years traded on the secondary market. Short-term OECD yields are usually either the three-month interbank offered rates applicable to loans between banks, or the rates associated with Treasury bills, certificates of deposit or comparable instruments of three-month maturity in each case. | Notes: Surprise impact normalised to 10 basis points for the six-month maturity. Why do we see a stronger effect on longer maturities when the rate cut takes place in negative territory? One factor here is that cuts in negative territory were often accompanied by communication or at least market perceptions that the ECB was willing to lower the negative rate even further, if warranted by subsequent economic conditions. As a case in point, for the final two of the last five rate cuts, the introductory statement at the press conference clarified that the ECB’s Governing Council “expects the key ECB interest rates to remain at present or lower levels”. This type of communication about the scope of negative rates can provide accommodation even in the absence of actual rate cuts. This mechanism adds another dimension to the standard channels of rate forward guidance. Let me elaborate on this point. Consider the situation in which the central bank is perceived to be constrained by the zero lower bound. Guided by an understanding of the central bank’s reaction function and a depressed macroeconomic outlook, markets may think that in one year’s time, the central bank would like to set negative rates with positive probability but that, if constrained by the zero lower bound, the best the central bank can do in those states of the world is to keep rates at zero. In technical terms: the presence of the lower bound induces a censored distribution for future short rates. | 1 |
Another is the growing integration of domestic and international payment flows, and efforts made to develop efficient cross-border clearing mechanisms. The emergence of non-banks in the payments system, playing a prominent role in introducing significant new developments, is a further by-product of this transformation. Banks still remain at the forefront of change, but the speed at which nonbanks advance in these new areas of activity, is a significant threat to banks. This trend is now emerging in Sri Lanka too where non-bank card issuing agencies have begun to compete with the banks in providing payment services. These changes have prompted central banks, in pursuit of their mission to ensure the smooth functioning of payment systems, to establish structured oversight functions to foster the stable, orderly and efficient development of this area in the financial system. 6. The public’s preferences and public policy 6.1 In assessing what might drive change and influence outcomes for payment systems, we must start by understanding the public goals. Regardless of the mechanism involved, people expect the payments system to possess at least three fundamental characteristics. First, it must have integrity, i.e. transactions must be safe, reliable, and secure. Second, it must be accessible and available to all. Finally, it must be competitive and efficient, i.e. the cost of making payments should be affordable. | The NPCs or payments committees will coordinate and liaise with all stakeholders in the payments area, in particular, banks and financial institutions, stock exchanges, securities traders, stock brokers, service providers, regulators and legal professionals. 8.3 The SPC will be reporting to the SAARCFINANCE Governors at their annual general meetings and will obtain general approval for implementation of the road map which will be discussed during the rest of today. The SPC will be assisted by a Secretariat for operational matters. For the time being, Mrs Siriwardena, Director/ Payments & Settlements of the Central Bank of Sri Lanka, has kindly agreed to be the Secretary to the SPC. The Secretariat will take the lead to prepare a road map by establishing working/study groups in the key areas, in particular, policy and communication, infrastructure, research and statistical analysis and legal and regulatory framework. BIS Review 35/2008 3 8.4 The advisory role played by the international standard setters and other agencies on regional payment initiatives has been important. In this regard, the Committee on Payment and Settlement Systems (CPSS) in the Bank for International Settlements (BIS), which is the standard setter for payment system development on a global basis, has intimated its willingness to provide technical assistance and guidance to the SAARC Payments Initiative. Similarly, we are informed that the World Bank is also willing to provide technical assistance and advice to enable the SAARC Payments Initiative to start off on a sound footing. | 1 |
Austin Mwape: Improving financial transactions in Zambia Speech by Dr Austin Mwape, Deputy Governor-Operations of the Bank of Zambia, at the Official Launch of “Airtel Money”, Lusaka, 14 September 2011. * * * The Managing Director of Airtel – Mr Fayaz King The Former First Lady, Mrs. Maureen Mwanawasa Management and Staff of Airtel Chief Executive Officers and Representatives of various institutions present Distinguished invited guests Members of the press Ladies and Gentlemen Let me begin by thanking the management of Airtel for inviting me to this occasion, which marks the official launch of “Airtel Money” and may I also thank the Managing Director of Airtel, Mr. Fayaz King, for inviting me to speak at this important occasion. As has already been stated, Airtel Money will provide an electronic wallet that will enable customers to make different types of commercial transactions conveniently, quickly and safely. Customers will be able to make person to person payments, make purchases and pay various utility bills using this product. Airtel Money will certainly contribute to improving the way in which we transact and will also provide an efficient tool that will give Airtel customers the ability to carry out financial transactions from the comfort of their own homes. As you may be aware, the Bank of Zambia in consultation with key stakeholders has put in place an enabling environment to promote the development of modern payment systems in Zambia. | To this end, I wish to mention that the Bank of Zambia with other stakeholders is in the process of putting in place a National Switch that will further enhance initiatives such as this one whose launch we are witnessing today. Ladies and Gentlemen, the Bank of Zambia will continue to support any efforts and innovations by the private sector that extend the provision of financial services to the majority of our citizens. I look forward to seeing the product being launched today live up to the expectations of providing a safe, efficient, secure and reliable service to the Zambian people. I hope that all customers will enjoy using the Airtel Money service. With these few remarks, I wish to declare Airtel Money officially launched and wish it all the success. Thank you. 2 BIS central bankers’ speeches | 1 |
In the course of the last 20 years, a revolution has taken place in global financial markets. Capital restrictions have been removed. Companies around the world are experiencing a wave of mergers, acquisitions and demergers. These transactions reflect a higher required rate of return among all companies and all areas of a business. At the same time, there is an increased willingness to take risk, with a soaring number of start-up companies. This trend has been particularly evident in the US, but European countries are also part of this process. Increased possibilities for using information improves financial markets’ ability to act as a catalyst for profitable restructuring and growth. Companies financed through equities, bonds and commercial paper are continuously monitored through a transparent process. Owners and potential investors follow company performance closely. There are ever-stricter requirements concerning information. A poorly performing enterprise can be acquired by others who feel they can either run it more profitably or use its resources more effectively elsewhere. One may be sceptical with regard to these developments, which seem to have created a situation where a few keyboard operations can lead to wealth and losses. Financial markets are driven by forces and psychological mechanisms that may result in extreme volatility. Financial bubbles fuelled by unrealistic optimism may lead to the darkest pessimism and fears. The so-called new economy may be a bubble. The concept “new economy” was first introduced prior to the stock market crash in 1929. | There then remains only 1 per cent of the debt of 170 per cent, that is, the net debt service required in the long run to keep the debt ratio constant is only 1.7 per cent of disposable income.16 With this reasoning, a debt ratio of 170 per cent is sustainable with a considerable margin. Figure 3 Capital over assets for households, some large listed companies and Swedish banks Per cent 80 70 60 50 40 30 20 10 0 Sources: Dagens Industri (capital/assets 2011 for listed companies and Swedish banks) and the Riksbank (household net wealth/assets). surplus of disposable income in a “left-to-live-on” analysis – which is described in footnote 17 – is around 58 per cent. The current value of this surplus is then around 1 000 per cent of disposable income. When these figures are compared with a debt of 170 per cent and added to real and financial assets of 510 per cent, households’ leverage ratio and debt-servicing ability undoubtedly appear to be pretty good. 15 Isaksen, Lassenius Kramp, Funch Sørensen and Vester Sørensen (2011). 16 A high mortgage rate after tax could be 5 per cent. A long-run level for the repo rate of 4 per cent plus an historically-high spread of 3 percentage points gives a mortgage rate before tax of 7 per cent and after tax of approximately 5 per cent ((1-0.3)x7=4.9). | 0 |
The way forward We have made some progress on the TBTF problem, particularly in reducing the likelihood that a large complex firm will reach the point of distress at which society faces serious costs. But we have a considerable ways to go to finish the job and reduce to tolerable levels the social costs associated with such failures. Further international coordination is almost certainly going to be necessary to ensure that bankruptcy regimes interact in ways that minimize negative externalities. At home we also need to ensure that different authorities and resolution regimes operate in a mutually consistent manner. In particular, we may need to revisit the SIPC regime that governs securities firms in bankruptcy. At present, the bankruptcy of a securities firm is very disruptive because the claims of all counterparties are typically frozen for a considerable period and the value of these claims is not easy to ascertain or monetize quickly. As I have argued above, we shouldn’t focus on solving TBTF exclusively at the level of the individual firm. We need significant changes in market structures and practices as well in order to have a financial system in which the key players can fail without big social costs. We also must continue to ask ourselves the question of whether the steps in train go far enough. For example, one could make a good case that the capital surcharge for systemically important firms should be higher than that contemplated by the Basel Committee. | The Government has committed itself to improving socio-economic conditions of the entire Island with a mix of infrastructure development, human capital development, and enterprise development while providing a safety net to the needy segments. To do so, the Government 6 BIS Review 88/2007 is attempting to direct investments beyond the centre, focusing on public-private partnerships and promoting the utilization of resources in the provinces. In that way, both the private sector and the public sector will have to become engines of growth and development! In all these endeavours, our ultimate goal has to be the provision of better living conditions for our people. That is one reason why the Statistics Department of the Central Bank is in the process of constructing a Prosperity Index to ascertain national, provincial and district-wise economic prosperity Once in place, the new index will be able to track regional performance, and we are hopeful that it would serve as a measure and a catalyst to encourage poverty reduction and to induce a faster trickle down effect. At the same time, we believe that there is great role for academics and professionals in the development of our country. In fact, the Central Bank has consciously recognized the importance of professionals’ contribution and has made efforts to gain from their expertise and knowledge as well. For example, in January 2007, a Monetary Policy Consultative Committee was established in the Bank, comprising of professionals, experts and representatives from other stakeholders in order to obtain their views on monetary policy implementation. | 0 |
7 All speeches are available online at www.bankofengland.co.uk/speeches 7 My colleague Ben Broadbent has suggested that one effect of the crisis and perhaps of other changes in the world of work and in workers’ perceived pricing power has been to lower or remove that ‘norm’. 15 I suspect changes in workers’ perceived pricing power and perhaps their appetite for risk have been responsible for some of the behaviour of pay and employment post crisis. If this has happened, and I will come onto why it might have done in a moment, the effect could indeed have been to lower the Phillips curve. With one caveat, the policy implications of a lower Phillips curve are the same whether the driver is a lower natural rate, lower/more anchored inflation expectations, or some change in real pay increase norms net of changes in productivity growth. The evolution of unemployment and pay growth will trace the same shape of curve, but pay growth, and hence domestic inflation pressure, will be lower for any given level of unemployment. All else equal the policy maker can therefore tolerate a lower level of unemployment before worrying about domestic inflation pressure in the pipeline. The caveat, and it is a very important one, is that if the Phillips curve has been lowered by the anchoring effect of central bank credibility on inflation expectations, attempting to exploit that change might damage the central bank’s credibility and increase expected inflation, shifting the curve back up again. | 1-17 Haldane, Andrew G. (2017) ‘Work, Wages and Monetary Policy’ speech given at the National Science and Media Museum, Bradford IMF (2013) ‘The dog that didn’t bark: has inflation been muzzled or was it just sleeping?’ April World Economic Outlook, Chapter 3 Mishkin, Frederic (2007) ‘Inflation Dynamics’ NBER working paper 13147 Nagel, S and Malmendier, U (2011) 'Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?’ Quarterly Journal of Economics, Vol126(1), pp373-416 Phillips, A W (1958) ‘The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–1957’ Economica, Vol. 25, No. 100, p. 283–99 Pizzinelli, Carlo and Bradley Speigner (2017) ‘Matching Efficiency and Labour Market Heterogeneity in the United Kingdom’ Bank of England Working Paper No. 667 Saunders, Michael (2017) ‘The Labour Market’ speech given at the Resolution Foundation, London Stiglitz, Joseph (1997) 'Reflections on the natural rate hypothesis' Journal of Economic Perspectives, 11, 3–10 Yellen, Janet (2017) ‘Inflation, Uncertainty and Monetary Policy’ Speech at the "Prospects for Growth: Reassessing the Fundamentals" 59th Annual Meeting of the National Association for Business Economics, Cleveland, Ohio 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 | 1 |
Page 7/7 Currencies, money and digital tokens Thomas J. Jordan Chairman of the Governing Board Swiss National Bank 30th anniversary of the WWZ and VBÖ University of Basel, 5 September 2019 Types of money in Switzerland Currency Issuer Type Cash state Banknotes and coins state private private Book money Digital token money Sight deposits held at the SNB for financial market participants Swiss franc tokens for financial market participants Sight deposits held at the SNB for all households and companies Swiss franc tokens for all households and companies Bank deposits Stable coins (value stable against Swiss franc) Stable coins (minimal fluctuations in value against official currencies, e.g. Libra) private Crypto tokens (e.g. Bitcoin) Existing types of money 05.09.2019 Potential types of money Currencies, money and digital tokens | Thomas J. Jordan | © Swiss National Bank | These include: The Paycheck Protection Program Liquidity Facility will bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program by supplying liquidity to participating financial institutions through two-year loans backed by PPP loans as collateral. The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by purchasing up to $ billion in fouryear loans to small and mid-size businesses. The Term Asset-Backed Securities Loan Facility (TALF) will support issuance of securities backed by student loans, auto loans, credit card loans, small business loans, and other debt. Moving with Maximum Care Considering the speed and scale of damage caused by the virus outbreak, we are making all efforts to implement these facilities at maximum speed. At the same time, though, we are moving with maximum care, drawing upon all of the lessons learned since 2008. First and foremost, we know that transparency will be key to sustaining public confidence in our efforts. What does this mean in practice? It means that when we work with outside vendors, we explain why we’re doing so, who we’re working with, and how much we’re paying for their services. It requires if we accelerate the vendor selection process to minimize time to market, we operate under a short-term contract and then open up the process to a competitive range of bidders, looking beyond the largest and most established players and providing broad access to a diverse range of smaller players. | 0 |
This evening I have tried to present a general account of my preliminary view of some aspects of assessments of the future path of inflation. I look forward to the continued discussion of these matters with my Riksbank colleagues. Our decision about interest rate policy is due at the meeting next Tuesday, 4 December. The result of our discussions will be published the following day, 5 December, as will the fourth Inflation Report of 2001. 4 BIS Review 98/2001 | However, the report and the subsequent analysis are restricted in the definition of structural features, in particular on the demand-side. 1 Financial stability is seen in the narrow sense of households being able to repay loans, and banks being exposed to the risk of non-performing loans, mainly because of sharp changes in the house prices. Much emphasis is put on the flow and on trends, and little attention is being paid to the stock. I would like to focus on these structural features at households’ level, which eventually influence not only the RRE markets but also pose risks to financial stability in a broader sense. The discussion is particularly timely, as residential real estate prices have resumed an upward cycle in the last three years in all EU countries except Greece and Cyprus. Ex-communist countries in CEE have high ownership rates (mostly as a result of a policy in the early 90’s to sell the state’s houses at affordable prices in the urban areas, as well as due to their large share of rural population). (Figure 1). They also have low households debt to GDP ratios and low household mortgage debt to income ratio (Figure 2 and 3). However, these countries started from a very low debt level (practically zero), and they witnessed only one major boom and bust cycle of RRE prices in recent history. These combined features seem to spare them of RRE vulnerabilities. But the devil is in details...meaning the structural features of households in CEE. | 0 |
The first is that in the long run, monetary policy primarily affects nominal variables such as the price level and the exchange rate. However, this statement is not, strictly speaking, true, and it probably applies primarily to that which we can call “good” monetary policy. Bad monetary policy can probably have a lasting negative effect on GDP growth and living standards and other real variables that we consider important in connection with economic well-being and stability. An example of this is persistently high and volatile inflation or deflation of the type occurring around the world during the Great Depression of the 1930s. The second important point is that in the short term, monetary policy can affect real variables such as GDP growth, employment, the real exchange rate, and the current account balance. This is partly because monetary policy measures affect different prices at differing speeds, and BIS central bankers’ speeches 1 until full adjustment has taken place, relative prices and the real variables affected by them will change. An example of this is the impact of interest rate changes on the nominal exchange rate, which emerges quickly and changes the real exchange rate. To the degree that this change is in excess of what is compatible with underlying economic conditions, it will then gradually reverse with an adjustment in prices and wages. A similar story can be told about real wages. | The equilibrium real rate (typically labelled r*) is the rate required to match the desired levels of saving and investment. The combination of slower population growth, rising life expectancy and an ageing population acts through multiple channels to push up desired savings and reduce desired investment. A reduction in desired investment also reflects slower productivity growth and, possibly, shifts in the structure of the aggregate production function. In the wake of the global financial crisis, risk appetite may also have diminished, which provides a disincentive to invest, reinforces the precautionary saving motive and encourages a portfolio shift to less risky assets, such as sovereign bonds. Finally, the scars of the crisis have also affected desired savings and desired investment levels: many banks, firms, governments and households have focused on repairing their balance sheets or have been constrained by legacy effects when making investment decisions. Some of these forces may go into reverse over time, especially if we see a more complete recovery from the crisis and if there were improved public policies to cope with demographic trends and better productivity developments (such as the successful, widespread adoption of artificial intelligence, innovations in automation and enhanced infrastructure investment). However, for now the downward pressure on the equilibrium real rate is a significant environmental constraint on the options available to central banks. The low equilibrium real rate has been compounded by weak nominal developments over the last decade. | 0 |
So, I invite you to come to Hong Kong, experience the vibrant ecosystem firsthand, put your most innovative ideas and best technology here, and take advantage of the many business opportunities. I promise the journey will be rewarding in many ways. 33. Thank you. Last revision date : 31 October 2022 | During the period of rapid digital transformations, there is no denying that digital divide can worsen, especially in emerging economies. There will be those with access, are able to take advantage of technological advancement, and prosper; and those who lack access or capability to leverage on modern technology, fall behind, and perish. Finding that right balancing will certainly be a challenge for us, central bankers, but it can be an area where international collaboration and networking platforms, like the SEACEN Centre, can play a role. Refining the knowns, looking ahead for the unknowns, and balancing our actions. These are how we should approach our policy questions. I am glad the SEACEN and its organizers have selected a number of topics that will allow us to think deeply about digital transformations and implications for central banks and encourage that future SEACEN activities put even greater emphasis on how we can balance our policy actions and enhance collaboration among members in this new area. I would also like to thank the group of scholars and practitioners here with us today, who will share their thoughts on many important topics, help broaden our perceptions of the knowns, and shed some lights on the unknowns. 3/4 And on this note, allow me to introduce Governor Duvvuri Subbarao, Former Governor of the Reserve Bank of India and currently a Distinguished Visiting Fellow at the Institute of South Asian Studies of the National University of Singapore. | 0 |
José De Gregorio: Chile’s latest Monetary Policy Report Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, of the Monetary Policy Report before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 4 April 2011. The Monetary Policy Report of March 2011 can be found at http://www.bcentral.cl. * * * Introduction Mr. President of the Senate’s Finance Commission, senator Eduardo Frei, senators. I am grateful for the Commission’s invitation to the Board of the Central Bank of Chile to share with you our vision of recent macroeconomic developments, their prospects and implications on monetary policy, as detailed in our Monetary Policy Report of March 2011. The data at hand on the last few months show that our country continues to walk a path of sustained economic recovery. The year 2010 closed with a y-o-y growth rate of 5.2 percent, with very strong consumption and investment. To a large extent, the devastation inflicted on our economy by the world recession of 2008–2009 and the earthquake and tsunami of 27 February 2010 has been left behind. Employment is growing strongly and trend inflation has returned to above zero annual variation rates. The strong impulse of macroeconomic policies has been at the center of these results, and the recovery of the Chilean economy attests to the efficacy of our economic policy framework. However, although the challenges posed by the aforesaid events have been largely overcome, today we face new ones. | From the beginning of this year, business surveys have improved, broad money growth has stabilised at around 5% a year, and the housing market is picking up. Despite this encouraging picture, growth is not yet strong enough to reduce the considerable margin of spare capacity in the economy. Nor is recovery at an adequate rate fully assured. The weakness of the euro area and the problems of the UK banking system continue to act as a drag on growth. So the need to support the recovery remains. Of course we must be mindful of the risks from injecting more money into the economy. We cannot afford to return to the inflationary episodes of the past. In the two decades before inflation targeting was introduced in 1992, inflation averaged almost 10% a year. The purpose of inflation targeting was to change the way in which interest rate decisions were made and to build credibility in the UK’s commitment to price stability. Over the following two decades, CPI inflation averaged only a fraction above 2%. Today, inflation is above the 2% target – as it has been for most of the past five years. But our economy has had to absorb an BIS central bankers’ speeches 1 oil price shock on a par with that of the 1970s, as well as a sharp depreciation of sterling. | 0 |
4 BIS Review 65/2009 Macro considerations relate to the pro-cyclical nature of the current accounting framework. The micro dimension relates to absence of depth in some financial markets, particularly in times of stress when liquidity problems arising from valuation adjustments are quickly transmitted to an institution’s capital base. The presumption in the current valuation rules that a market value for a financial instrument exists does not necessarily hold during a crisis. The reclassification of assets in such circumstances would help financial institutions mitigate the problems arising from the inability to discover prices. Another concept that is gathering support internationally is that of dynamic provisioning, which seeks to avoid the pro-cyclical impact of current accounting rules by recognising portfolio losses over the cycle. As a result, loss provisions are measured against the expected losses over the life of an asset rather than when losses are actually incurred. The losses made during a downturn can then be met from the accumulated buffer built up during the economic upswing. Risk management practices and stress testing Let me now turn to some risk management issues. Another lesson that has been learned from the financial turmoil is that proper liquidity management is of paramount importance to satisfy the banks’ funding needs, and heightens their resilience against idiosyncratic or systemic risks. Although existing EU legislation on liquidity risk is highly fragmented, in part reflecting the various national approaches, adherence to a set of common principles such as those provided by the Basel Committee on Banking Supervision should prove fruitful. | Jean-Claude Trichet: Conclusions of the G20 in Seoul – Interview in Le Progrès Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in Le Progrès, France, conducted by Mr Vincent Rocken and published on 13 November 2010. * * * Are you satisfied with the conclusions of the G20 in Seoul? Let me first of all say how delighted I am to be here in Lyon, breathing my native air and soaking up the beauty of the city and its way of life. With regard to the G20, I took note of the communiqué stating that risks remain for the global economy and that there is a need for extreme vigilance. I share this view entirely with the Heads of State and Government. Four further conclusions are particularly important to my mind. First, a commitment to pursue macroeconomic policies aimed at ensuring sustainable growth, including rigorous fiscal measures in countries where these are necessary. Second, the need to implement ambitious structural reforms to foster growth and employment. Third, the approval of the banking supervision reforms prepared by the Basel Committee. And fourth, a commitment to enhance the flexibility of the exchange rates of certain currencies which are not sufficiently flexible. When France takes over the presidency of the G20 for a year, what guidelines and actions should it focus on at the financial level? The global governance of the G20 is a long-term undertaking. | 0 |
The aforementioned movements in the policy rate and reserve ratios led to a significant reduction in the debt service of borrowers with loans in domestic currency, an increase in leu-denominated loans and a contraction in foreign currency-denominated loans, confirming the stronger preference for loans in domestic currency. Consequently, the currency risk has receded. Prudential indicators show that the banking sector is stable and sound. The loan-to-deposit ratio (LTD), a relevant financial stability indicator, has fallen below 100%, coming in at 91.3% in December 2014. The solvency ratio stood at 17.1% in September 2014 against 15.5% in December 2013, significantly above the international prudential requirements, and liquidity is at an adequate level. The removal of non-performing loans from the balance sheets has led to negative profitability of the banking system, with credit institutions incurring net losses worth around EUR 1 billion in 2014. Out of the total stock of loans to households amounting to lei 101 billion, foreign currencydenominated loans account for the equivalent of lei 62 billion (or 61% of total). Mention should be made that out of foreign currency-denominated loans worth 62 billion when expressed in domestic currency, EUR-denominated loans held 83.8%, CHF-denominated loans accounted for 15.7%, and USD-denominated loans took 0.5%, as of November 2014. | It is also pertinent that teachers obtain quality and professional training to harness and effectively utilise computers. I therefore urge you to consider enhancing computer literacy amongst your staff. In an information age, knowledge and effective use of computers along with sound education will be the cornerstone of a vibrant, modern society. This is why our teachers are absolutely critical to the future of our economy. I have no doubt that supporting our schools in the manner that the Bank of Zambia is doing today will lead to stronger motivation and morale amongst our students and teachers alike. I am certain that we all desire a country where our BIS Review 14/2010 1 teachers and students are proficient in using computers and extract immense value from them. This should be the vision that we should all aspire. Ladies and Gentlemen, In conclusion, I would like to urge all students present here today take an interest in using computers. Computers will assist you in your studies and make your lessons more effective, easier and enjoyable but they will not automatically make you a genius. The computer will open doors to communication, research and opportunities. Remember that the goal of computer literacy is for the user to become an explorer, and an active seeker of information which I hope you will be, with this donation. Seize what you have been bestowed with today. Guard against vandalism and use the computer facilities to ensure a brighter future for yourselves. | 0 |
As a result, smaller firms have had to close and construction labour has moved abroad or gone to other domestic sectors. There are now many indications that construction activity is picking up again, though the rate of the recovery is difficult to assess. But housing demand has grown and there is a large need for new housing as well as for renovation. The Riksbank does not produce independent estimates; the available figures suggest, however, that in the coming decade between 20,000 and 45,000 new dwelling units need to be built each year and between 30,000 and 40,000 units a year need to be renovated. Activity may then grow rapidly in certain regions. Now that construction is recovering, the increased concentration among construction companies and producers of construction materials, as well as the shortages in certain categories of skilled labour, are liable to push costs and wages up. Certain problems with bottlenecks are already discernible; in the business tendency surveys from the National Institute of Economic Research, labour shortages are reported by 7 per cent of construction firms as against 2 per cent in March 1998. These shortages are accompanied by a high overall level of unemployment among construction workers; part of the explanation is that unemployment is high in certain regions and those who are unemployed there are reluctant to move a long way to regions where labour demand is stronger. Bottleneck problems in the construction industry are being studied on behalf of the Government by industry representatives. | But that is not the end of the matter, as investors need to do something with the proceeds from their asset sales. They could just sit on the proceeds, but it is more likely that in due course they will buy other assets, including those that offer a higher return. So, in the course of time, the whole range of equity and bond prices are driven up, lowering the cost of finance to companies and increasing its availability. Our purchases of corporate assets are intended to have the additional effect of improving the functioning of those markets. By standing ready to buy commercial paper and corporate bonds, we hope to improve their liquidity, lowering the spread above safe assets of equivalent maturity, and with it the cost of finance to business. 2 BIS Review 62/2009 There are signs that these measures are having a beneficial impact too. Spreads on commercial paper eligible for purchase have fallen by around ½ percentage point and the size of the market has increased by around 10%. Similarly, average spreads on sterling investment grade corporate bonds for industrial companies have declined by some 60 basis points and gross issuance of bonds by UK companies has been strong. These developments may reflect a range of influences, but feedback from market participants suggests that our purchases have indeed played a helpful role. In addition to these channels, the banks, finding themselves flush with extra reserves, may choose to lend them on, providing a further kick by boosting the supply of credit. | 0 |
Averaged over that period average inflation has been only a fraction lower than it was before the pandemic, despite a cumulative decline of around 4% in the level of output. If that amounts to a simple matter of “overheating” – if the economy really can’t cope with aggregate demand growth any stronger than minus 2½-3% a year – then one can only conclude that the UK economy’s supply performance has been chilly at best. The reality is more nuanced. I’ve highlighted three contributing factors. By protecting individual jobs the furlough scheme has had the effect of matching lower labour demand with lower supply. In the second quarter of this year this was worth around 2-3% in terms of aggregate output. Prices of many tradable goods have risen sharply. In some cases this reflects specific supply-side problems. Also important has been the general shift in demand, away from services and towards goods, caused by the pandemic. Within the UK, those shifts – regional as well as sectoral – have caused a degree of “mismatch” in the labour market. At least during the early part of the recovery, available jobs haven’t perfectly matched available workers (including those on furlough). There’s a good case that all three of these things will prove temporary. We know the furlough scheme is being wound down, restoring a significant degree of supply to the labour market. As far as tradable goods are concerned, it’s unlikely the pandemic-related shifts in demand will continue if the threat of the illness itself recedes. | Countries have different geopolitical situations, different historical backgrounds, different levels of development and different functions for their official reserves. These differences give rise to different priorities with regard to the role of gold reserves. 4 BIS Review 61/2006 Graph 3: Evolution of World Official Reserves in USD billion Gold Reserves Currency Reserves 4000 3500 3000 2500 2000 1500 1000 500 0 Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Sixth argument: increasing living standards will boost private gold demand in emerging Asia My comments on this last argument will be brief. As often when looking at economic issues, there are substitution and income effects at work. On the one hand, prosperous Asian workers will be able to save and consume more, which should be reflected by an increased demand for gold. On the other hand, as financial markets and banking systems become more developed and more secure in today’s emerging economies, the palette of alternative saving vehicles will increase and we should expect the relative proportion of wealth invested in gold to decrease. In other words, we might expect the income effect to be strong at the beginning before receding and giving way to the substitution effect. Conclusions Despite the demonetisation of gold, the yellow metal continues to have a special significance for central banks. | 0 |
The downturn has 10 See press release by the Council of the European Union’s Extraordinary Council meeting, Economic and Financial Affairs, Brussels, 9/10 May 2010. 4 BIS central bankers’ speeches been less severe in Switzerland and Swiss output has been the first to reach its pre-crisis level. Overall, GDP rose by 2.6% in 2010, after having fallen by 1.9% in 2009. Chart 9 shows the evolution of inflation together with our most recent conditional forecast. The inflation rate recovered to 0.7% in 2010 after hitting a low of –0.5% in 2009. Why are the SNB interventions often perceived as unsuccessful? For outside observers studying the performance of the Swiss economy going in and out of the crisis and looking at Charts 8 and 9, this must be a puzzle. All the more so when they realise that this performance was not the result of an amply expansionary fiscal policy; on the contrary, the Swiss policy mix, a very expansionary monetary policy combined with a more contained fiscal policy, was appropriate given the circumstances. With the crisis originating almost entirely in foreign markets and hitting the export sector very strongly, a large domestic fiscal stimulus would have missed the target. | Banks with better measures of their economic risks will be able to allocate capital more efficiently and more closely in line with their actual sensitivity to the underlying risks. By doing so, the Basel II framework encourages developments in the management of a wide range of risks on a firm-wide basis and developing a more comprehensive approach to managing those risks together. Second, to achieve those capital benefits, the more advanced approaches to credit and operational risk require banks to meet strong process control requirements. Again, the increasing focus on a bank’s control environment gives greater weight to the management disciplines of measuring, monitoring and controlling risk. As an example, by relying on banks’ own internal credit assessments, the IRB approach builds on the risk management practices that most internationally active banks are already in the process of adopting for their internal purposes. To qualify for the IRB approaches, banks will need to adhere to various specific parameters and standards that may not be fully in place as yet. Our pilot reviews of U.S. bank readiness do indicate that there are a number of areas that both banks and supervisors will need to work on to be ready for full IRB implementation. These include addressing concerns about independence of the rating process, and accumulating necessary internal default and loss data to be able to produce more reliable quantitative estimates. Enhancements in these areas will be important, not just to ensure readiness for IRB, but for further improvement in credit risk management more generally. | 0 |
However, we recognise that there are prudential risks and complexity within the matching adjustment that could be reduced. Some of these arise from the mechanics of the MA. When the MA – which is designed and calibrated with liquid, traded assets with fixed cash-flows in mind – is applied to assets that are illiquid or have some risks to fixity of cash-flows, then assessing its suitability becomes a much greater challenge. 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 The size of the MA benefit that a firm can take on its liabilities is driven by the credit rating assigned to its assets. This rating may be assessed by an external rating agency or the insurer itself – and the difficulty in modelling the behaviour of long-dated, illiquid assets creates some prudential risk. If an asset is too highly rated, a firm may be holding insufficient reserves to meet the risk of default or downgrade. Other risks arise from the type of investment that the MA’s strict eligibility criteria incentivise – such as securitised credit which can lack transparency. While the MA is a valuable part of the solvency framework, we are looking to reduce the complexity and operational burden on firms – and ourselves. Third, reporting requirements. The PRA is ready to consider certain short-term suspensions in some aspects of reporting, including the expansion of quarterly reporting waivers and some group reporting. Short-term suspensions could include removing quarterly reporting requirements for more firms or extending the use of annual reporting waivers. | We look forward to ADB’s continued engagement with its members to provide support that will cater for their changing needs as the region continues to progress and transform. 2 BIS central bankers’ speeches | 0 |
The RQFII investment quota for Hong Kong has also been significantly increased to RMB500 billion July this year. In short, Hong Kong offers unparalleled access to Mainland markets and will continue to be the centre of action for market participants seeking to capitalise on the Mainland China story. Another exciting development is the Guangdong-Hong Kong-Macao Bay Area. It is an 1/3 BIS central bankers' speeches ambitious plan to build a cosmopolitan cluster covering Hong Kong, Macao, and nine other coastal cities in the Pearl River Delta. With a combined GDP of some $ trillion, it will be the fifth largest economy in Asia, just after South Korea. It will also be one of the wealthiest regions in Mainland China. I am sure this Greater Bay Area will provide a bigger stage for financial institutions to launch and expand their business. The planning is still at an early stage and we expect more details will be available soon. Belt & Road Initiative On infrastructure financing, the high-level Belt & Road Forum for International Cooperation in Beijing last May has added considerable momentum to infrastructure developments. Hong Kong has been positioning itself as the infrastructure hub to facilitate the related financial activities. A lot has been done through the Infrastructure Financing Facilitation Office, or IFFO in short, set up under the HKMA in 2016. A key mission of IFFO is to build and work with a cluster of stakeholders in the infrastructure financing and investment space. | Most of all, they must – by word and deed – make clear to their staff that meeting revenue targets must never be at the expense of treating their customers with fairness and honesty. Enhance transparency of products A key aspect of fair dealing is to make insurance and investment products more transparent. MAS has enhanced safeguards for consumers who buy investment and insurance products that are complex. For example, for consumers investing into unit trusts via their investment-linked life insurance policies, we now require insurers to provide a Product Highlights Sheet or “PHS” on the underlying funds. The PHS should be written in plain language, in a “Question & Answer” format prescribed by the MAS. It describes the profile of customers the fund is suitable for, what the fund invests in, and what the risk areas are that could cause a customer to incur a loss. We also require FA representatives to conduct a Customer Knowledge Assessment to assess whether a customer has the relevant knowledge or experience to understand the risks of products which are more complex or have innovative features which customers might not understand. FAIR – the next steps MAS recognises that FAIR will have a significant impact on the industry and on the public. We will take a consultative approach and engage all stakeholders. A review panel will be formed, with representation from industry associations, the investment community, academia, media and consumer bodies, to review and propose recommendations on the five areas I have outlined. | 0 |
In this regard, high inflation and subdued wage growth (like we have observed so far in the euro area) imply a substantial decline in real incomes, which could translate into lower consumption and investment, and, therefore, into weaker underlying inflation dynamics beyond the immediate short term. Even though part of these negative effects have been mitigated so far by fiscal policy in many countries − where measures have concentrated on compensating, at least partially, low income households for the higher energy prices − looking ahead it is unclear how persistent this policy support may be. 11 3.2 Implications for monetary policy Now that I have characterised recent inflation dynamics and the risks surrounding future price developments, let me draw some conclusions on how monetary policy in the euro area should respond, which are fully embedded in the ECB’s new monetary policy strategy. First, in this setting of heightened uncertainty, we have underlined the need to maintain optionality and flexibility and to remain attentive to the incoming data and forecasts in order to correctly adjust our monetary policy stance. As we have stated on numerous occasions, the ECB stands ready to act at any time and to adjust all of its instruments as deemed appropriate. But, I insist, the near term is plagued with uncertainty, in terms of pure inflation dynamics but also in relation to several geopolitical risks which could potentially be highly disruptive. That is why, now more than ever, we must maintain optionality and flexibility. | Against this background, the fact that inflation in the euro area remained persistently below the ECB’s target level during the period that ran between the global financial crisis and 2020 made clear that a comprehensive review of our monetary policy strategy (which was last revised in 2003) was appropriate. 2 To understand why inflation in the euro area remained below target for more than a decade, despite the fact that the ECB maintained a rather accommodative monetary policy stance, one must necessarily take into account the secular decline in the natural interest rate and the limitations that such a decline imposes, through the interest rate lower bound, on the conduct of monetary policy. The equilibrium or natural interest rate (r*) is defined as the real interest rate that simultaneously maintains output at its potential level and inflation stable at its target level. This rate, which cannot be observed directly, can only be estimated, with some degree of uncertainty, using econometric techniques. According to available estimates, the natural interest rate appears to have progressively declined in recent decades in advanced economies and, in the case of the euro area, estimates even place it at negative levels.1 This secular drop in r* is attributed, among other factors, to the decline in trend productivity growth, certain demographic developments and widening inequality. All of these are factors that will have changed the balance between the supply of savings and the demand for investment. And, why is this important for monetary policy? Well, the answer is clear. | 1 |
In this context, 2011 will remain a difficult year for almost all economic agents, especially for Spanish banks, which must strive to defend their bottom line. Their net interest income will come under pressure from the stagnation of business volumes and the increase in financing costs, although, to qualify this, the pass-through of higher marginal rates to average margins is relatively slow. Furthermore, despite the substantial efforts made, the Banco de España’s provisioning rules will continue to compel banks to carry on recording provisions to restructure their assets. Against this backdrop, banks must counter the negative pressure on 6 BIS central bankers’ speeches profitability through cost containment, especially in those banks involved in restructuring processes. Banks will continue to suffer from the flatness of their main line of business, namely lending. Solvent demand will remain low and, if credit usually only recovers at the end of an adjustment phase, in the Spanish case, since households and corporations have to reduce their debt, solvent demand for credit can be expected all the more to take longer to grow. Given this outlook, it is most important that the banking sector is ready to provide credit when the related solvent demand recovers in parallel with the improvement in the situation of corporations and households. Accordingly, the restructuring measures adopted to date have prevented the survival of zombie banks which, were it not for their integration into the best banks, would have ultimately proven useless for providing credit. | Combined with high productivity growth, this has resulted in high corporate earnings and solid growth in employment. At the same time, wage-earners share of corporate value added has been reduced, from around 75 per cent at the end of the 1980s to 70 per cent at the end of the 1990s, and now BIS Review 121/2007 1 stands at below 65 per cent. Solid productivity growth and high prices for export goods and deliveries to the petroleum sector have contributed to the reduction in the wage share over the past few years. The ample supply of labour has probably had a dampening effect on wage growth. Increased globalisation may have provided greater opportunities for Norwegian enterprises to relocate production to other countries if labour costs become too high. This probably places some restraint on wage demands among workers in sectors where enterprises have such opportunities. Historically, a high wage share has tended to be accompanied by low unemployment. Developments in recent years have provided the basis for strong growth in employment while the wage share has fallen. Is it possible to sustain the combination of low unemployment and a low wage share? First, it partly depends on whether the positive supply-side conditions are sustained. There is probably symmetry here. Should the terms of trade deteriorate, productivity growth slacken and foreign workers return to their home country, the wage share will increase, profits fall and unemployment increase. There is now a prospect of slower global growth. | 0 |
A strong monetary policy response was therefore essential. In pursuit of our mandate, we decided on a comprehensive package of measures to ensure that inflation moves towards our aim in a sustained manner. We lowered the interest rate on the deposit facility from –0.40% to –0.50%. This rate provides an anchor for short-term market interest rates, which serve as the reference for many types of loans and financial instruments. Lowering the deposit facility rate helps to further improve the borrowing conditions of households and businesses. Negative rates also encourage banks to lend to the real economy instead of holding onto liquidity, thus supporting the portfolio rebalancing 2/5 BIS central bankers' speeches channel of the asset purchase programme (APP). The impact of the cut in the deposit facility rate is reinforced by our strengthened forward guidance on the likely direction of our monetary policy in the future. Specifically, we clarified that we expect our policy rates to stay “at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics”. This enhanced guidance provides a clear signpost for rate expectations by linking our policy to more stringent conditions for the inflation outlook. | We will continue to carefully monitor – as we always have done – the possible side effects of accommodative monetary conditions. It is crucial to remain vigilant and to use the available micro- and macroprudential policy tools as necessary. I will say more on this during the hearing in my capacity as Chair of the European Systemic Risk Board. The low yield environment needs to be understood in the context of the protracted decline in real yields we have witnessed since the 1980s. And this trend is not unique to the euro area. It largely reflects more structural factors such as a slowdown in productivity growth, which can be reversed through an ambitious structural reforms agenda. In other words, we need a coherent economic strategy in the euro area that complements and enhances the effectiveness of monetary policy. This is why there was unanimous consensus in the Governing Council that fiscal policy must make a more decisive contribution. In view of the weakening economic outlook and the continued prominence of downside risks, governments with fiscal space that are facing a slowdown should act in an effective and timely manner. Where fiscal sustainability is ensured, the potential effectiveness of countercyclical fiscal policy is reinforced in the current environment, given that 4/5 BIS central bankers' speeches fiscal multipliers are higher in a low interest rate environment. At the same time, governments in countries with high public debt should pursue prudent policies and deliver on structural balance targets. | 1 |
I feel the need at this ceremony to pay tribute to all deserving persons of history, who left inerasable trace in the development and building of the institution and in the establishment of the monetary system of the country. Here I would mention Dr. Todor Mirovski, as the first director of the Regional Office of the National Bank of FNRY of the then National Republic of Macedonia. Then, Mr. Aleksandar Bogoev who succeeded him in office shortly afterwards, and his successor, Mr. Trajan Ivanovski. I would also pay tribute to Mr. Bozidar Dare-Dzambaz who served as a finance minister at the time of establishing the central banking in the Republic of Macedonia. To Mr. Vladimir Polezhinoski – Polezhina as a Macedonian representative of the body that adopted the Decision that made the dinar a Yugoslav currency. To academician Ksente Bogoev, who also served as a governor of the National Bank of Yugoslavia. To the Governors of the National Bank in the Socialist Republic of Macedonia, Mr. Stojan Kjosev, Andon Makraduli and Risto Filipovski. I would pay special tribute to the first prime minister of independent Macedonia, academician Nikola Kljusev, who was one of the main protagonists not only of the monetary independence, but also as a maker of other decisions of that time, which meant completion of statehood. There is also the academician Petar Hristo Ilievski, known as the man who gave the name of the Macedonian denar. | Dimitar Bogov: Seventy years of central banking activities in the Republic of Macedonia Speech by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the ceremony of marking 70 years of central banking activities in the Republic of Macedonia and order award by his excellency Dr Gjorge Ivanov, President of the Republic of Macedonia, Skopje, 19 October 2016. * * * Honorable President of the Republic of Macedonia, Your Excellency, Dr. Gjorge Ivanov, Distinguished Members of Parliament and representatives of the Government, Honored Excellencies, Esteemed guests, ladies and gentlemen, It is my pleasure and honor, on behalf of the National Bank of the Republic of Macedonia and on my own behalf, to express my sincere gratitude to His Excellency, the President Dr. Gjorge Ivanov for the high recognition he has awarded to the National Bank tonight. I would also like to thank all of you for being present at the celebration that marks this great anniversary. It is a great honor to be awarded the “Order of Merits for Macedonia” by the head of state, in the year when the National Bank celebrates 70 years of central banking activities in the Republic of Macedonia. This award is a great recognition for the overall work of the National Bank. It is strong confirmation of the enormous contribution of the Bank to the state all these decades – as a central institution of the monetary system and a key pillar of macroeconomic stability. | 1 |
This year, CHF 885 million have been reserved for this purpose, and similar sums will have to be set aside in the future. The closing of our accounts for 2004 thus brings with it an extraordinary allocation of profit to the Confederation and the cantons. It is important to emphasise that – paradoxically – the distribution of the CHF 21.1 billion accruing from the gold sales does not actually make them any richer. Up to now, the public sector received the income earned on this capital: a sum of CHF 400 million will also be allocated to them from this source this year. As of the beginning of next year, this income will no longer be distributed. As a result, the Confederation and the cantons will gain in terms of capital, but will lose in terms of transfers of interest income. If they use the proceeds of the gold sales to repay their debts, the reduction in financing charges will correspond approximately to the reduction in the profits paid to them by the SNB. In net terms, there will be few – if any – additional funds available for new expenditures. It is therefore important that decision-makers at all levels maintain a rational approach. The COSA initiative The distribution of the gold sale proceeds will not put an end to the political debate about the distribution of the National Bank's profits. | See Facilitating increased adoption of payment versus payment (PvP ) 5. See Harmonisation of ISO 20022: partnering with industry for faster, cheaper and more transparent cross-border payments 6. See Press release on SWIFT website 7. See Dealroom Fintech Q1 2023 report 8. See Payments modernization and technology in 2023 9. See PAPSS and ASEA forge strategic partnership to revolutionize cross-border payment of Stock Exchanges in Africa 10. See Rowing in unison to enhance cross-border payments − speech by Victoria Cleland Page 9 11. See CPMI press release 12. Recent BIS figures and FSB press release show that the number of active correspondents has gone down by 30% in the last decade. 13. See Improving access to payment systems for cross-border payments: best practices for self-assessments 14. See Extending and aligning payment system operating hours for cross-border payments 15. See ISO 20022 harmonisation requirements for enhancing cross-border payments 16. See Interlinking payment systems and the role of application programming interfaces: a framework for crossborder payments 17. See Press release on the BIS website 18. See FATF Recommendations Victoria Cleland Executive Director for Banking, Payments and Innovation ©2023 Bank of England | 0 |
Paper presented at the Columbia University Center on Capitalism and Society Annual Conference “Microfoundations for Macroeconomics”, New York. Bank for International Settlements (2011), Central Bank Governance and Financial Stability. A Report by a Study Group. May 2011. Bernanke, Ben S. (2004), The Great Moderation. Speech at the Eastern Economic Association, Washington, 20 February. Blanchard, Olivier, Dell’Ariccia, Giovanni and Mauro, Paolo (2013), Rethinking Macro Policy II: Getting Granular. IMF Staff Discussion Note 13/03, International Monetary Fund. Borio, Claudio (2012), The Financial Cycle and Macroeconomics: What Have We Learnt? BIS Working Papers No. 395. Bryant, Ralph C., Henderson, Dale W. and Becker, Torbjörn (2012), Maintaining Financial Stability in an Open Economy. Sweden in the Global Crisis and Beyond. SNS Förlag. Cagliarini, Adam, Kent, Christopher and Stevens, Glenn (2010), Fifty Years of Monetary Policy: What Have We Learned? In Kent, Christopher and Robson, Michael (ed) Reserve Bank of Australia 50th Anniversary Symposium. Proceedings of a conference held in Sydney on 9 February 2010. Reserve Bank of Australia. Carney, Mark (2013), Monetary Policy After the Fall. Speech at the University of Alberta 1 May 2013. Bank of Canada. Financial Crisis Committee (2013), Att förebygga och hantera finansiella kriser [Preventing and managing financial crises] (only in Swedish). Interim report of the financial crisis committee, SOU 2013:6. Geanakoplos, John (2009), The Leverage Cycle. Cowles Foundation Discussion Paper No. 1715. Goodhart, Charles och Rochet, Jean-Charles (2011), Evaluation of the Riksbank’s Monetary Policy and Work with Financial Stability 2005–2010. Reports from the Riksdag 2010/11:RFR5. | I see at least two reasons for not going down that road. The first is that the technologies that allow these changes in scale carry progress. Technological revolutions, from the early stages of the internet to the boom in blockchain protocols to artificial intelligence, have given rise to, and can still continue to do so, new services, many daily improvements for consumers, in particular financial services including, and we are extremely attentive to that, better financial inclusion. Second, there is no reason to assume that the current framework for regulating financial services is intangible and cannot be adjusted to respond to changes, including in scale, brought about by technological innovation to ensure that potential risks are properly managed. A simple example: the customer experience for opening a remote account in France, compared to other European countries, wasn’t sufficiently fluid. The players that we have met often mentioned as a potential impediment the French transposition of the 4th European antimoney laundering directive, which would not make it possible to fully capitalise on the advantages of technology. We have taken note of the problem and set up a working group, led by the ACPR Fintech – Innovation unit within the framework of the ACPR-AMF Fintech Forum, bringing together technology providers, financial institutions and public authorities. The aim was to co-construct proposals based on an objective assessment of regulations and technological state of the art, while ensuring the efficiency of AML/CFT frameworks. | 0 |
But rules can be too simple.19 They must be used only as points of reference, not as excuses for doing nothing. Economic policy rules should be common knowledge. An independent body should be established to tell us when we are “speeding”, and procedures must be in place to implement measures to solve the problem.20 The new "Fiscal Compact" in the euro 17 See Berg, Qvigstad and Vonen (2011) Two essays on the magic number 4 , Staff Memo 2/2011, Norges Bank, and Llewellyn and Qvigstad (2012) The “Rule of Four”, The Business Economist, Vol 43, No. 1. 18 The financial sector faces risk involving probabilities of various outcomes that we can forecast fairly accurately. But it also faces genuine uncertainty, where probabilities are also unknown. We do not know all the possible outcomes of bank behavior or the real probabilities. Such uncertainty is more effectively managed using simple and robust rules, rather than rules that are as complex as the systems they are meant to regulate. 19 The psychologist and Economics Nobel laureate Daniel Kahneman touches on this theme in his book, Thinking, Fast and Slow (Allen Lane, 2011) (see e.g. page 98). Kahneman points out that the application of heuristics – simple decision-making rules often used to find answers to difficult questions – may produce answers that are imprecise or wrong. The use of heuristics may be regarded as a way of substituting complex questions with simple ones. | Maximum stability in output could, on the other hand, result in sharp fluctuations in the rate of inflation and erode the credibility of the monetary regime. A point somewhere midway between the two extremes must therefore be found. Consequently we cannot be called "inflation nutters" as Mervyn King, deputy governor of the Bank of England, once said. Let me also stress the importance of central bank independence. In order to be successful with the implementation of an inflation target approach, the central bank needs to be able to act independently of day-to-day party politics and to set interest rates continuously according to the specified inflation target. Otherwise a credibility problem may arise because it would be hard for policymakers to convince the general public of monetary policy's long-term nature. Following the changeover to a flexible exchange rate in 1992, monetary policy in Sweden was directed towards an explicit and quantified inflation target. The decision rule by which our monetary policy is usually guided is in fact quite simple. It states that if the forecast rate of inflation 1-2 years ahead is above 2 per cent, then normally the repo rate should be raised and vice versa. The reason why we chose this target horizon is that an adjustment of the monetary stance takes time to exert its full impact on inflation and the macro economy in general. | 0 |
The new service will be materially stronger and more resilient in an increasingly complex and sophisticated environment. It will be flexible to protect against the threats we understand today and the ones we will need to adapt to in the future. RTGS Renewal will promote greater access to payment systems. We have already made policy changes to allow non-bank payment service providers direct access to payment systems and RTGS Renewal will reduce 3 All speeches are available online at www.bankofengland.co.uk/news/speeches 3 some of the barriers that we know exist today. It will speed up on-boarding times to the system and reduce the operational overheads of membership. These changes will further accelerate the number and range of firms that can gain direct access to payment systems. Since 2018 five non-bank payment service providers have opened accounts in RTGS and around twenty further firms are exploring the possibility of joining. These firms can benefit from faster transaction times and reduced individual transaction costs. Consequently, the Bank hopes to encourage a greater diversity of players in the payments market, thereby encouraging innovation and competition through development of new business models and ultimately creating a more diverse payments landscape. This will increase efficiency and reduce concentration risk thus supporting financial stability. RTGS Renewal will also promote resilience and efficiency through greater interoperability across payment systems. An important step to achieving this is the introduction of a new payment messaging standard for UK payments: ISO20022, the emerging global standard for payments messaging. | It means we are better able to reflect the requirements of the firms that use the services we provide and ultimately the people of the UK. And we can balance the potentially competing needs of different stakeholders on an informed basis rather than relying only on the views of longstanding contacts. A key piece of engagement took place in summer 2018 when we ran a joint consultation10 with Pay.UK and the Payments Systems Regulator on the implementation of ISO 20022. Over 70 organisations replied and their responses11 helped refine our approach, for example on Legal Entity Identifiers (LEIs). Responses showed widespread support for making LEIs mandatory for transactions between financial institutions in CHAPS. Many respondents also saw the benefits of mandating LEIs for a wider range of payments but flagged the need for wider adoption of LEIs before these benefits could be fully reaped. The Bank has committed to working with key stakeholders including HM Government and the Global LEI Foundation (GLEIF), as well as providing further education about the wider economic value of the LEI. This will lay the foundations to make LEIs mandatory for a much wider set of CHAPS payments in the future. We are also seeking industry views on whether the renewed RTGS service could facilitate synchronised settlement and importantly what the demand might be. Synchronisation, or atomic settlement, is the concept that two or more transactions (payments or movements of assets) are linked in such a way as to ensure that each transaction completes if, and only if, they complete together. | 1 |
It is balanced and reasonable: the risk sensitivity of the prudential framework has been preserved thanks to a large-scale retention of the internal model approach, which was one of our main concerns. Moreover, trust in the internal models will be strengthened by greater oversight, while the increase in capital requirements will remain moderate and spread out until 2027. Banks were rightly calling for long-term strategic visibility for their regulatory framework: they now have it. The agreement that we have negotiated relies on a strong commitment to implementation by the main jurisdictions, including the United States. The European Union must of course keep its word with regard to implementation and the timetable. Additionally, we are confident about the rapid completion of the current discussions on the standardised approach to market risk. The first version of Page 2 of 6 the text, published in 2016, would have entailed ex post an unjustified and excessive increase in the capital requirements for market activities. The ACPR has since then actively participated in the work of the technical Market Risk Group of the Basel Committee. The new rules proposed in the document currently submitted for consultation should permit a return to the impacts initially sought ex ante, i.e. an average increase of 20% to 30% in the minimum capital requirement for market risks. Beside regulation – thus clarified – and microprudential supervision, macroprudential policies now round off in many countries the financial stability trifecta. | Central Bank of Chile March 2019 CBC-IADB Joint Workshop on “Basel III in the Context of the Macroprudential Approach” Opening Remarks by Mario Marcel, Governor of the Central Bank of Chile Ritz-Carlton Hotel, Santiago, Chile – March 29, 2019 Good morning and welcome to the “Basel III in the Context of the Macroprudential Approach” workshop which is co-organized by the Central Bank of Chile and the Inter-American Development Bank. It is a pleasure to host this event in Santiago, at a very appropriate timing. After a year and a half of legislative discussion, on January 12th of this year, the new General Banking Law was enacted. This is the most significant change to solvency regulations since 1986, setting the basis for the implementation of the Basel III framework in Chile. A second reason goes back 35 years. In a few more days, the Central Bank will receive the last repayment of the subordinated debt originated in the rescue of the Chilean financial system of the early 1980s. It has been a long way since this episode, and the fact that only now can we finally put it behind us, highlights the importance of doing everything in our reach to prevent the occurrence of major financial disruptions. Allow me to go briefly over the history of the Chilean financial system over the last five decades, and how regulation has reacted and evolved over time. Some 50 years ago, banks where almost the only source of financing for companies and households. | 0 |
This is another reason to make these interventions only in exceptional circumstances. Controls on capital inflows If capital inflows are believed to cause trouble, one solution is to limit them by applying controls. This can be done in economies whose financial systems are not well-developed. As the economy and its financial systems develop, limiting capitals becomes more complex and ineffective, in particular due to difficulties in discriminating which types of flows should be curtailed. Also, in economies with high levels of international assets such as Chile, it is difficult to control capital inflows because of the need to distinguish between inflows by nonresidents and repatriation of capital by residents. In the 1990s, before adopting the current monetary and exchange rate regimes, the Central Bank of Chile imposed controls on capital inflows together with a gradual liberalization of capital outflows. The main instrument used to limit inflows was the reserve requirement, whereby a fraction (initially, 20%) of capital inflows had to be deposited in a Central Bank account bearing no interest. The stated purpose of this policy was to reduce net inflows by increasing related costs, and stop the appreciation of the peso, as a competitive exchange rate was thought to be a key factor in the successful economic recovery since the mid-1980s. The reserve requirement would also favor the independence of monetary policy in the context of an exchange rate managed within a band. Finally, the reserve requirement was also intended to reduce short-term capital inflows and thus limit financial vulnerability. | Increased consumer power and greater competition slow down prices and thereby margins for the companies. The changes are necessary to increase our welfare, even if they create problems for some people in the short term. To manage these challenges, we should jointly strengthen the opportunities for education and skills development, even out some of the gaps arising during the upheavals and safeguard the interests of the general public by strengthening competition on the new markets. In a changing world we need to have clear game rules to ensure the economy functions smoothly. Reliable price stability, in terms of purchasing power, is one such game rule. It makes it easier for individuals and companies to plan for the future, it improves price setting and wage formation and thus contributes to more stable economic activity. So, attaining our inflation target of two per cent will help to accomplish the changeover following on from digitalisation. 10 [12] References Apel, Mikael, Frohm, Eric, Hokkanen, Jyry, Nyman, Christina and Palmqvist, Stefan (2014), Why haven't companies raised their prices? Results from a survey on company pricing”, Economic Commentaries No. 4, 2014, Sveriges Riksbank. Baumol, J William, Panzar, C John, and Willig, D Robert (1982) “Contestable Markets and the Theory of Industry Structure”, New York: Harcourt Brace Jovanovich, Inc. Brynjolfsson, Erik and McAfee, Andrew (2011) “Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy”, New York: W. W. Norton & Company. Cavallo, F Alberto (2017), “Are Online and Offline Prices Similar? | 0 |
7 [23] emerging economies, as well as in the major oil-producing countries, contributed to the downward pressure on interest rates. This is because the large current account surpluses in these regions have been invested on the global capital markets, resulting in low real interest rates. The falling trend in real interest rates may also be due to a reduced willingness to invest. In an article that has attracted much attention, the famous American economist Robert Gordon claimed that the pace of innovation has declined sharply since the 1970s. 6 In his opinion, growth between 1870 and 1970 was abnormally high thanks to relatively simple and growth-promoting innovations, such as electricity and the combustion engine. According to Gordon, it will not be possible to repeat this growth as today’s innovations, such as the Internet and mobile technology, he says, do not provide any major productivity gains in the long term. A reduction in global willingness to invest may thus be due to a slower pace of innovation. This means there are fewer profitable projects in which to invest. ...but there may also be other reasons According to the theory of secular stagnation, the falling real interest rates may be a sign of a shortage of investment opportunities for companies. But has this actually been the case? One way of investigating this is to study the return on companies’ capital stock. Figure 4(a) shows the real return on capital in the US between 2000 and 2016. | Jean-Pierre Roth: International monetary policy 2005 Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the 19. Internationales Zins-Forum - Zinsen 2005, Frankfurt am Main, 6 December 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The major central banks reacted to the lacklustre global economy in 2002 by relaxing the monetary policy. The low money market rates in 2002 and 2003 were appropriate for a recession. They are not, however, indicated for a sustained and global upswing. This is why several central banks began to steer their monetary policy back to a normal course in 2003 and 2004. The tempo of monetary policy normalisation obviously depends on the progress of economic recovery, which leads to different reactions in each country. In this rather favourable climate, oil prices began to soar in 2003. However, there is no reason to fear a repeat of the dire consequences witnessed during past oil crises. On the one hand, the rise in oil prices comes at a time when the economic environment is much more stable than it was back then. On the other hand, strong global economic growth drives up oil prices. In order to ensure price stability, a normalisation of economic activity must be accompanied by a normalisation in the interest rate policy. The latest oil price hike has no bearing on this basic premise. | 0 |
Andres Lipstok: Estonia’s economic environment and central bank activities Speech by Mr Andres Lipstok, Governor of the Bank of Estonia (Eesti Pank), at the the presentation of Bank of Estonia’s 2008 Annual Report to the Riigikogu, Tallinn, 11 June 2009. * * * Dear Riigikogu, Thank you for the possibility to present you Eesti Pank's 2008 Annual Report. I am going to start with a brief retrospect of the Estonian economic environment and then address issues concerning the activities of Eesti Pank. The Estonian economic environment in 2008 and 2009 2008 was an exceptional year in the world economy. Developed economies have not faced the risk that banking and financial markets could collapse and the global financial system stop functioning since the beginning 1930s. But the financial crisis, which was caused by previous years' incorrect decisions, made this a very likely scenario. In the final months of the past year major banks were too afraid to lend money to each other and trading with privatesector bonds nearly ceased. Loss of confidence in financial markets, loan losses amounting to 3-4 billion dollars and a sharp decline in crediting the private sector had an immediate impact on global trade, investment and economic growth. Global trade contracted 17% in the fourth quarter of 2008 and at the beginning of this year. Major central banks and governments have taken unprecedented steps to alleviate the economic situation. | It is clear the events that took place at the end of the last and at the beginning of this year were real challenges for the Estonian monetary and financial system, testing their resilience and ability to adjust to the changing external environment. Today I dare to look at the situation with moderate optimism and repeat what has already been said in March: Estonia has all the possibilities of successfully passing through the crisis. BIS Review 91/2009 1 Estonia's monetary policy and financial stability in 2008 Turning to the tasks of Eesti Pank, I would like to start with an overview of the functioning of the monetary policy framework. The objective of Eesti Pank, member of the European System of Central Banks, is to ensure price stability in Estonia. To this end, we rest on the currency peg to the euro, the currency board arrangement and the EU exchange rate mechanism ERM II. The success of this system is confirmed by the slowdown in the price rise which started in 2008, and the halt in the growth rate of consumer prices in recent months. Looking ahead, Eesti Pank forecasts the price level to decline somewhat in both this and next year. It is clear the Estonian monetary policy or the monetary policy framework will not and must not be changed. The exchange rate of the Estonian kroon will remain as it is and we will accede to the euro area at the current exchange rate. | 1 |
Instead, the decision whether to act depends on whether appropriate tools can be deployed to limit the size of a bubble and whether the benefits of acting and deploying such tools are likely to exceed the costs.”12 On the other hand, there is a financial stability case for doing more purchases in the current context. To the extent that risky behaviors and incipient asset price bubbles are fueled by an expectation that interest rates will be “low for long,” asset purchases that strengthen the economic recovery and bring forward the date of liftoff should promote financial stability. Also, to the extent that asset purchases increase the likelihood of a sustainable recovery, this reduces the financial stability risks associated with a Japanese-style outcome of chronic deflation. Although the costs specific to the asset purchase program appear well-contained, it is also true that the costs increase as the program gets larger. In part, this is due to fact that as the balance sheet increases in size, the risk of a period of low or zero remittances to Treasury also increases. As we acquire more longer-dated assets funded with reserves, the Fed takes on more interest rate risk. This is how the policy works. A byproduct is that our net income and remittances will be unusually elevated for a while, then are likely to fall substantially for a period, before returning to more normal levels. This is because our interest expense will increase substantially when we begin normalizing rates. | Instead, the industry must continuously evolve to meet the needs and preferences of its consumers which are rapidly changing. It must proactively and strategically position itself to offer products via diverse and innovative delivery channels to reach out to different segments of the population with varying levels of financial knowledge. In this regard, under the LIFE Framework, the Bank envisions the market share of regular premiums/ contribution products sold/ marketed via non-agency channels to exceed 30%. Currently the ratio is 14%, and this statistic provides compelling evidence that the industry must double its effort to reach the target of 30%. Similarly, for us to expand the penetration rate to reach 75% by 2020, the industry must add and expand the reach of its non-agency channels. Throughout the world today, financial inclusion has been identified as an important area of focus to achieve a more balanced and sustainable economic growth. Societies that are adequately empowered and supported by suitable financial tools can assist in helping them cope during temporary period of emergencies. Empirical evidence showed that microinsurance customers can be as valuable as a company’s any other customers. This is where the industry can play a major role to develop suitable microinsurance/ takaful products that would enhance the social safety net of this underserved segment enabling them to get back on their feet and become financially independent even after experiencing an adverse event. Yet many in the industry appears uninterested in microinsurance/ takaful for reason that it is a loss making venture and uneconomical to pursue. | 0 |
Muhammad bin Ibrahim: Insurance supervision - looking beyond Keynote address by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 24th International Association of Insurance Supervisors (IAIS) Annual Conference 2017 "Insurance Supervision: Looking Beyond", Kuala Lumpur, 2 November 2017. * * * Welcome to Kuala Lumpur. We are delighted to host the 24th IAIS Annual Conference. The last time this conference was held in Southeast Asia was 14 years ago. Bank Negara Malaysia has a very long and productive association with the IAIS. Not long after the IAIS was established in 1994, a new insurance legislation was enacted in Malaysia. This was a watershed event, changing the course for development of the industry. A deep and comprehensive reform was instituted and the course was set to modernise the insurance sector in Malaysia. I recall how useful the Insurance Core Principles and other IAIS standards were in helping to shape our regulatory approach and supervisory practices. As a market with a long history of global insurers operating within our borders, we also benefited from arrangements that enabled us to better supervise cross-border activities. These arrangements have continued to strengthen over time, culminating most recently, in the IAIS Multilateral Memorandum of Understanding. We are therefore delighted to host this event in Southeast Asia, where the deepening of insurance markets remains key to support economic risk management and broader development goals for this region. Looking beyond… This brings me to the theme of this conference, “Looking beyond”. | Yiu-kwan Choi: The debt market of Hong Kong - what can we offer to investors? Keynote address by Mr Yiu-kwan Choi, Deputy Chief Executive of the Hong Kong Monetary Authority, at the third Annual Asia Pacific Bond Congress, Hong Kong, 13 June 2006. * * * Mr. Shale, distinguished guest, ladies and gentlemen, It gives me great pleasure to speak at this year’s Asia Pacific Bond Congress. On behalf of the Hong Kong Monetary Authority, I would like to extend my warmest welcome to everyone here today, especially those of you who have traveled from afar to visit us. I would like also to thank Euromoney for organizing this excellent event, and for organizing it in Hong Kong for the third time. It is a clear recognition of the important role of Hong Kong - Asia's World City, in the bond markets of the Asia Pacific region. Like many other financial markets, the bond markets in the Asia Pacific region have recently seen plenty of new developments, challenges as well as opportunities. I am glad to see that the Congress has rightly covered many of these latest issues, and I am sure that for those who were here yesterday would have learnt from my colleague, Ms Julia Leung, about the Hong Kong Monetary Authority’s efforts in enhancing regional cooperation. | 0 |
Climbing the Jobs Ladder Speech given by Andrew G Haldane Chief Economist Bank of England Glanford Park Stadium Scunthorpe 23 July 2019 The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Lena Anayi, Shiv Chowla and Doug Rendle for their help in preparing the text. I would like to thank Shaheen Bhikhu, Delma Essel, Rebecca Freeman, Tomas Key, Clare Macallan, Steve Machin, India Rimmer, Michael Saunders, Ali Schomberg, Joann Spadigam, Silvana Tenreyro, Anina Thiel, Jan Vlieghe and David Young for their comments and contributions. This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. 1 All speeches are available online at www.bankofengland.co.uk/speeches It is fantastic to be here at Glanford Park Stadium, home of Scunthorpe United Football Club. I remember as a boy learning about how Liverpool legends Kevin Keegan and Ray Clemence started their careers here. Cricketing legend Sir Ian Botham started (and ended) his professional football career here too. A couple of weeks ago, my home town Guiseley entertained Scunthorpe in a pre-season friendly. Scunthorpe won 2–0. Off the football pitch, it has not been all wins for Scunthorpe recently. | 19 All speeches are available online at www.bankofengland.co.uk/speeches 19 Chart 22: Occupation job ladder 100% 90% 8 7 80% 6 5 70% 4 3 60% 2 1 50% 0 -1 40% -2 -3 30% -4 20% -5 -6 10% -7 -8 0% 1990 1995 2000 2005 2010 2015 Sources: ONS and Bank of England calculations. Notes: Chart shows percentage of jobs moves based on extent of upward or downward movement along the occupational job ladder. During the crisis, we would expect a larger number of moves down the industry and occupational ladder. There is some evidence of that, with the lower tail (grey zone) fattening and the upper tail (red zone) thinning a little. Thereafter, as the jobs market recovered, we would expect a fattening of the upper tail (red zone) and a thinning of the lower (grey and blue) zones. There is no real evidence of that. The zone of small rung movements has remained fairly static. We get a similar story if we look at the company destination for jobs moves, ranked by productivity. We would expect to see workers move down the productivity ladder during downturns and to rescale that ladder during upturns. The first part of that story is borne out in the data. Rates of productivity gain from a job switch fell from around 8% pre-crisis to around 3% afterwards. | 1 |
I think this criticism is also undeserved, because the alternative of lending indiscriminately to unknown clients (into which many banks have indulged) has proved to be even worse. Turning to the behavior of foreign-owned banks during the recent crisis, the evidence is also mixed. On one hand, it is true that international banking groups are the ones which easily spread the contagion (Goldberg, 2009). Even in the absence of abrupt deleverage, foreign-owned banks had to cope with much diminished foreign financing and shifted from financing the private sectors to financing the public sectors of their host countries. Despite the reductions in monetary policy rates, credit in domestic currency remains sluggish at best. For the time being, however, it is fair to say that foreign parent banks have maintained their support for the branches and subsidiaries in Central and Eastern Europe. Most of them had not been engaged into trading sophisticated instruments such as derivatives, so that this type of losses has been relatively contained. It has also helped that the banks present in the region are not major global players, so that contagion is often limited. On the other hand, many of the banks had been involved into financing the real estate boom, and the ensuing losses are only gradually being recognized. As a conclusion to this paradigm, the dominance of foreign-owned banks proved to be both an asset and a liability and it is too early to draw a final balance before the international financial crisis is over. | These CoCos can be converted into CET1 equity or written off in order to absorb losses in current operations. When accumulating the necessary bail-in instruments and high-trigger CoCos, banks have the opportunity to replace existing instruments with the required higher-quality instruments. The further strengthening of resilience through the accumulation of high-trigger CoCos, as foreseen by the regulations, is important and necessary. One reason for this is the big banks’ loss potential, which continues to be substantial relative to their capitalisation. Given their Page 1/3 Berne, 15 December 2016 Fritz Zurbrügg News conference significance to the Swiss economy, it is important that the big banks remain adequately capitalised, even in the event of such losses occurring. A second reason is the critical assessment by the markets as regards the resilience of banks, both in Switzerland and worldwide. By strengthening their resilience, banks can convince the markets of their soundness. The likelihood of share price collapses and sharply increased premia for credit default swaps, such as those observed at some banks this year, would thus be reduced. In addition to a strengthening of resilience, it is also essential that the big banks further improve their resolvability. This requires both sufficient holdings of bail-in instruments and the formulation of credible emergency and resolution plans. Emergency plans are aimed at ensuring that, in the event of imminent insolvency, functions that are important for Switzerland can be maintained. | 0 |
In the past, as we all know, reversals of capital have trigged serious debt defaults, banking distress, and currency crises. So, with the nature of risk becoming more external, the abilities of central banks to respond effectively to the new challenge based on domestic measures will be limited. This calls for a reconsideration of policy coordination, both in the context of within-country coordination, and cross-country coordination. The third implication from the global crisis is the heightened expectation and trust that the public now has on central banks, as guardian of stability, to do its utmost to avoid financial crisis, and to do it professionally and independently. In the west, the current crisis has diminished public trust on the roles of government and financial institutions in safeguarding and upholding public interest. To this end, central bank independence is seen as an BIS Review 138/2010 1 important pre-condition for ensuring safety, continuity, and stability. This is a challenge that central banks will need to recognize in performing their duties. So, given this backdrop, challenges facing central banks going forward will be more demanding. And to meet these challenges, central banks will need to be thinking clearly on at least two issues. The first is the right policy framework to respond to the challenge. | As I noted earlier, effectiveness of the domestic policy response tends to weaken when the challenge is of a global nature. A case in point is the current cycle of capital flows which, in essence, is a global phenomenon driven by exceptionally low interest rates in the major economies. Hence, policy response calibrated with domestic orientation may be of limited use if the problems at the source remain. This means that the thinking on policy needs to broaden to explore possible benefits of a closer coordination of policies between countries, especially when central banks face similar challenges of a global nature like capital flows. Such coordination will elevate central banks’ policy-making to a new level, commensurate with the new challenge posed by the post-crisis globalisation. 2 BIS Review 138/2010 | 1 |
We should be able to withstand the shocks from a reversal of the capital flows and economic adjustments as long as we remain level-headed. We are endowed with a strategic position with the “Hinterland of Mainland China and Interface with the World” under the “One Country, Two Systems” principle. It is true the Chinese economy is experiencing a slowdown, but this reflects a structural shift from unbalanced growth at a breakneck speed to a high-to-moderate growth rate on a more sustainable basis. Indeed, sustainable and healthy development will become the “new normal” in China if it can reap the “reform dividends” by remaining committed to reform and liberalisation, and moving towards a modern and market-based economy. 20. Against such a backdrop, there is vast potential for Hong Kong’s intermediary role for trade and commerce as well as fund flows between China and the world. To fortify our role, we must, with support from the central government, foster more links with the Mainland. In the financial sector, we should strengthen our soft power by attracting, nurturing and retaining professionals. We should also encourage financial innovation while keeping a firm grip on risk management. In short, we must trump other financial centres in every way to continue our position as the most vibrant and competitive international financial centre in Asia. Thank you. 4 BIS central bankers’ speeches Chart 1: Comparison of US economic recovery strength * Excluding the 2001, 1970, 1974 and 1980 double-dip recessions. Chart 2. | Decline in US potential GDP BIS central bankers’ speeches 5 | 1 |
It is to set short-term interest rates with the consistent aim of hitting the Government's symmetrical 2½% inflation target (on a precisely defined measure of retail price inflation - RPIX). Now the reason we've been set that task is not - as some people imagine - because either we or the Government think that consistently low inflation is the be all and end all of economic life. It is because we've learned from long experience that consistently low inflation is a necessary BIS Review 19/2002 1 (though not in itself sufficient) condition for the sustained growth of output of the economy as a whole, for high levels of employment, and for rising living standards, which are, of course, more fundamentally the things that we are all seeking to achieve. Carrying out our task is not as straightforward as it sounds because there is no simple, direct, link between short-term interest rates - the only instrument we have - and the rate of inflation. Interest rates essentially affect the demand side of the economy. They don't directly influence the supply side, which depends upon a whole host of structural characteristics which are largely beyond the direct reach of monetary policy. What we have to do in managing short-term interest rates is to keep overall demand growing broadly in line with the underlying - sustainable - supply-side capacity of the economy as a whole to meet that demand. | The wealth management connect will enable Mainland residents to directly invest in offshore wealth management products for the first time. For fund companies, there will be opportunities in product origination by developing products in Hong Kong to tap into the Mainland investor base. Banks can base their sale and distribution operations in Hong Kong to reach out to your Mainland customers. Asset management and treasury operations will also benefit. We are working out the implementation details with the Mainland authorities and I hope to be able to share more details with you soon. Closing 18. To summarise my message today, we see before us the beginning of a huge wave of inflows going into Mainland China’s capital markets, propelled by index inclusion and increasing openness of the markets. And the best and safest spot to hitch a ride of the wave is via Hong Kong and the Connect schemes. 19. Hong Kong’s fundamental strengths as one of the best places to do financial transactions and manage assets are well in place. Capital flows freely into and out of the territory as guaranteed by Article 112 of the Basic Law. The Linked Exchange Rate System, 3/4 BIS central bankers' speeches underpinned by $ billion foreign exchange reserve, continues to anchor our monetary and financial stability, as it has for the past 36 years. The resource and expertise of the biggest global and Mainland banks in the region are concentrated in Hong Kong. | 0 |
While the rapid emergence of the "new economy" bubble in 1999 and early 2000, followed by a series of sharp corrections, illustrated once again the potential of modern financial markets, e.g. to finance technological innovation, it also demonstrated their tendency to over-react, moving from excessive optimism to disproportionate pessimism, with the ensuing negative consequences for the behaviour of firms and households. We should be very attentive to these boom-bust episodes on financial asset markets, since they can affect the monetary and financial stability of the world economy. I would like to discuss two issues here: - First, some factors encouraging excessively homogeneous market behaviour may hinder a smooth and efficient functioning of the markets, and - Second, ways of fostering more diverse behaviour on the markets should be considered. 4 BIS Review 49/2001 2.1 Some factors encouraging excessively homogeneous market behaviour may hinder a smooth and efficient functioning of the markets Financial asset prices fluctuate widely and sometimes deviate from economic fundamentals for long periods of time. Several factors are in play when this happens. I shall give a few examples. - Some market participants have become more inclined to engage in "short-termism", that is, they are too preoccupied with their short-term results. This trend might result, in particular, from growing pressure to yield immediate financial results that are not necessarily sustainable. - Mimetic behaviour is by no means a new phenomenon on financial markets. | Muhammad bin Ibrahim: Towards proportionality in practice – financial inclusion and implementation of global standards Opening remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Global Symposium on Proportionality in Practice, Kuala Lumpur, 28 May 2015. * * * Ladies and gentlemen, thank you for the opportunity to speak today at the opening of the Global Symposium, with the theme “Towards Proportionality in Practice: Financial Inclusion & Implementation of Global Standards”. Financial inclusion has captured the attention of many decision makers around the globe. We can confidently say that we have been successful in educating the world on the importance of ensuring access and usage of quality financial services by all segments of society. I think it has dawn to the power that be that financial inclusion empowers low income households and SMEs to improve their livelihood and because financial inclusion provides equal opportunities (and hopefully, it appropriately designed, equal outcomes), it also enables the under served to save in a secure manner, invest in productive activities and protect against unforeseen shocks. Financial inclusion, based on empirical evidence also reduces inequality 1, which in turn supports inclusive and sustainable growth, by allowing the poor to stay healthy, stay out of poverty, pay for education and accumulate human capital 2. It is, a very worthwhile agenda to pursue. | 0 |
Fifth, I would like to encourage the Albanian and international media to uphold the good tradition of accurate and real-time transmission of economic and financial developments in Albania, including the activity of the Bank of Albania and the financial sector, which occupy a significant place. Last but not least, I would like the Albanian public to continue to be discreet and have full confidence in the financial architecture we have built. We commend its added prudence, which is reflected in its propensity to increase savings. Therefore, household balance sheets remain positive, an indicator that sends positive signals for a potentially growing consumption in the near and distant future. I take this opportunity to reiterate that optimism shapes our present and our future. The time has come for the consumers’ sentiment to start its take off. This would create the desired chain reaction for accelerating money velocity and circulation of goods in the economy, making the economy recover to its pre-crisis parameters. On my behalf and on behalf of the Bank of Albania, I would like to thank the Bank of Italy and the Bank of France for the assistance and partnership during the twinning project. At the completion of this project, the Bank of Albania has upgraded the organisational and operational framework of its main departments and has approached to its European counterparties. 6 BIS central bankers’ speeches | 5 In the UK, the Financial Services Compensation Scheme guarantees retail bank deposits up to £ 6 On the eve of the financial crisis HBOS, Lloyds and RBS held over £ billion of sight deposits from UK households, and provided close to half of the UK’s personal current accounts. 7 As the then-Governor Mervyn King said at the time “The actions that were taken were not designed to save the banks as such, but to protect the rest of the economy from the banks.” 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 60% of payments were made in cash, by 2018 this had fallen to 28%, and has been predicted to drop to 9% of payments by 2028.8 [See chart 2]. Technology, alongside changes to domestic and European regulations designed to foster competition and innovation, is also enabling a new set of players, in addition to banks and card companies, to provide transaction related services. Some of these seek to replace banks or card companies in performing operations in existing payment systems while others seek to add new services to those operations. These developments are about improving the efficiency and functionality of transacting electronically in commercial bank money. But there is also a new wave of technological development that enables the transactional use not of central or commercial bank money but rather a new form of asset, so called ‘crypto-assets’ - cryptographic digital tokens, recorded in distributed ledgers and held in electronic safety deposit boxes called ‘wallets’. | 0 |
There will now be a 4 BIS central bankers’ speeches period of opportunity for the politicians of Europe to get on with making the changes that would really make a long-term difference, such as improving competitiveness in the countries of southern Europe. To summarise my assessment of markets at this point I would no longer say that they are healing. Rather, markets are scarring over – adapting and evolving to the new environment. No one is quite sure where the process will end, but the industry has a job to do, including investing large sums of money here and now. And in some fashion, reflecting the enhanced perceptions of risk, that will continue. Given what happened in financial markets, it is no surprise that there are policy initiatives on financial market regulation everywhere one chooses to look: Dodd-Frank in the US; EMIR, Solvency II and the Crisis Management Directive in the EU; the Independent Commission on Banking (ICB) proposals in the UK; the new Basel 3 rules on capital and liquidity globally (CRD IV in Europe), and numerous initiatives under the auspices of the Financial Stability Board including defining the key attributes for effective resolution regimes. The full list of new rules is much, much longer of course. Despite the variety of authorities involved, I believe there is a common thread behind the policy reactions. Many of the changes have been prompted by perceived excesses in much of the financial sector. | A resilient and innovative banking system will support the efficient allocation of capital and therefore technical progress and growth. Financial markets are fundamentally about risk-taking: credit risk, liquidity risk and market risk are basic components of even the safest and soundest banking systems. As a society, we need risk taking as part of the process of allocating capital to competing ends. And people who take risks – at least with their own money or their own careers – need to be rewarded (appropriately!) for that risk or they won’t take it. So we are not in a world where, as a matter of policy, we want to eliminate financial risk. The key is for financial risks to be properly appraised, priced, managed and provisioned. And we should discourage some of the cross-subsidisation of different types of risk taking if we want risk capital to be appropriately allocated. That includes any perceived public subsidy, which is what the ICB recommendations are about. We also want to avoid profits being made 2 The Forum, City AM, page 20, September 14 2012 (http://www.cityam.com/forum/why-britain-s-banking-rulesaren-t-restricting-our-economic-recovery) BIS central bankers’ speeches 5 out of dishonest practices such as insufficient provision of information, the deliberate mis-pricing of risk or other market abuses. The new Financial Conduct Authority will have an important role to play in that. The regulatory reform process will inevitably take time. And while the process is developing there are risks arising from the uncertainty that it brings. We need banks to raise more equity capital. | 1 |
As a result, the Committee has engaged in an exhaustive – and sometimes exhausting – public dialogue with bankers, supervisors, and other observers on Basel II’s structure and merits. That dialogue was critical to improving the quality of the new framework, and I would like to express my gratitude to all who took great pains to share their views and concerns. You provided us with the perspective of other markets and countries. You shared detailed comments on the proposals. You encouraged your banks to participate in our consultations. The improvements that the Committee made to Basel II would have been impossible without your contributions. Indeed, it was during those public discussions that policymakers in emerging market countries raised three sensitive questions. I would like to turn now to address those questions and help explain my belief that Basel II represents an opportunity for banks and supervisors in many countries. 1. Will Basel II harm the international flow of capital? The first key question in the discussion about the new framework and emerging markets is whether Basel II will harm the flow of capital across borders and especially to emerging markets. In this context, some observers suggest that the new capital framework’s heightened sensitivity to risk may reduce the flow of foreign investment in developing economies, since exposures to those economies might typically be considered of higher risk. As I will explain, I believe that Basel II will not have a material effect on the flow of capital. | Nevertheless, the main reason that we have not fully recognised diversification effects at this stage is because first we need to see clear evidence from many banks that they have robust systems in place themselves to assess and quantify such effects and that they rely on their measures of diversification in their daily risk management. Of course, as systems improve in the future, we would be happy to discuss them, and once there is a “best practice” in this field we will be better able to recognise it in the capital framework. In the meantime experience with internal credit models will provide us with highly valuable information. In addition, since loan pricing is not predominantly driven by regulatory requirements, banks are free to recognise diversification benefits in their own pricing calculations. Consequently, they can indeed capture their sense of the benefit of diversification in their credit decisions and loan pricing for every borrower, whether in an emerging market country or not. From a different perspective, I think that what should be of concern to emerging market is not just the level of capital flowing into a country, but also the volatility of the level of capital that is flowing inwards. Abrupt changes in capital flows can be just as harmful as contractions in flows. Volatility erodes the confidence that businesses and governments have in the future supply of credit, rendering long-term planning meaningless. | 1 |
For example, the firm might notice that the yield on corporate bonds relative to Treasury yields was higher than the range observed in recent years. If Long-Term Capital believed the former relationship would reassert itself, it would buy corporate bonds and sell short Treasury bonds. If the spread narrowed as expected, the firm would profit. If, however, the spread continued to widen, the firm would incur losses. This basic strategy and many complex variations was followed across many interest rate products in the US and many overseas markets as well. The firm was active both in traditional securities markets, and perhaps more importantly, in derivative product markets such as futures, swaps, and options. Anticipating that some positions would move in their favor and some would move against them, the firm relied on diversification across a large number of product and geographic markets. Long-Term Capital proved quite successful at this strategy, generating returns in excess of 40 percent in 1995 and 1996, though somewhat less in 1997. Perhaps their success went to their heads. Long-Term Capital took on larger and larger positions. They also leveraged their investments at higher levels, returning capital to their investors but not, apparently, reducing risks. We now also know that they took on significant positions in equity markets, through both swap and options contracts. The reputations of the Long-Term Capital partners, as traders and economists, and their initial success, appear to have contributed to so many counterparties’ willingness to deal with them. | This was evident in several periods, the early nineties, the mid-nineties, and the outflows during 1997-1998, and in the current period following the de-leveraging by financial institutions in the advanced economies. In the early days of the Bank, policy actions were focused on the management of liquidity in the financial system through the imposition of statutory and liquidity reserve requirements, BIS Review 12/2009 1 and through prescription of interest rates and portfolio restrictions, including ceilings on lending. Further progress and sophistication in the financial sector, the deepening of the financial markets and the growing influence of capital flows, resulted in the reliance on interest rate and other market-based instruments for monetary policy. Further, with the increased role of expectations, greater clarity in policy signals became desirable. Thus in 2004, the New Interest Rate Framework was implemented, in which the Overnight Policy Rate became the new policy rate, thereby enhancing the efficiency of the monetary transmission mechanism. The new framework has also served as a catalyst for efficient pricing of financial products and services by banking institutions. A key issue for monetary policy in an open economy like Malaysia has been in maintaining a flexible exchange rate and monetary independence in the face of increasingly large capital flows. To better manage surges in capital flows which have become more prevalent, the range of market-based instruments for monetary policy operations has been widened. | 0 |
The big swing from inventory liquidation during the recession back to accumulation will soon end as inventory levels come back into better balance with sales. And fiscal stimulus from the federal government is subsiding and will soon reverse. Coupled with the benign outlook for inflation, these headwinds to growth and employment explain why the Federal Reserve is keeping short-term interest rates unusually low. We want to do all we can to support more rapid economic and employment growth, subject to keeping inflation low and stable, and inflation expectations well anchored. The situation has improved and total employment is now growing – for example, U.S. payrolls rose by 290,000 last month. But we are still far from where we want to be. In this environment, finding a job will be tough, but when you hit the pavement remember that the job market is improving. Don’t get discouraged. Get your foot in the door by doing something productive, even if it may not be exactly what you want to do for the rest of your life. Gaining knowledge and experience is what is important at this point. The first job out of college is a foot on the ladder – the job doesn’t have to be perfect to be valuable to you. A bit of advice In terms of your career, my first bit of advice is: don’t rush. There is plenty of time for your careers to unfold. It’s not a sprint, it’s a marathon. | Lars Nyberg: Is it dangerous to borrow dollars? Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at Svenska Handelsbanken, Stockholm, 17 May 2011. * * * The lessons of the financial crisis are many. The world’s banks – and a number of institutions that were not banks – had far too little and far too low-quality capital. They also had too little liquidity. The conviction that the markets would always be at hand with more or less unlimited liquidity turned out to be wrong. Across the world, central banks were forced to intervene and to provide the funding that the banks were unable to obtain elsewhere. Now the new regulations known as Basel III are almost in place, even if it will take a few years to introduce them. The banks will need to hold both more and better capital and their buffers for managing liquidity shortfalls will need to increase. Of course, nobody is claiming that this will save us from all future financial crises, but it can reasonably be expected to strengthen the resilience of the financial system to shocks. The most apparent shortcomings brought to light during the crisis can be said to have been remedied. Even so, there is naturally still much work to be done. One issue that must be addressed is how to take care of banks that nevertheless become insolvent and must be wound down, as this is an area where the crisis revealed major shortcomings in a number of countries’ legislation. | 0 |
At the same time, the Centre is putting together a world-class Global Leadership Development Program (GLDP) with leading consultants and drawing faculty from the best schools in the world. The Global Leadership Development Program represents ground-breaking design in terms of an executive education program. By drawing faculty from not just one or two, but up to five leading institutions, the Centre will be able to combine the best ideas and thoughts in the world on the various key leadership issues and concerns. The Centre’s role will not be to replicate the roles of institutions of higher learning, but rather to facilitate and provide specific, directed and targeted learning based on the requirements of our industry. In addition to its Board of Directors, the Centre will also be governed by an International Advisory Panel comprising eminent personalties. In the process, participants will benefit from the best of all worlds in terms of the latest thinking on leadership issues. It is envisaged that the Centre will also serve to complement and supplement the existing capacity building facilities in the financial and corporate sector to become a regional centre of excellence for leadership training in finance. The Centre aims to reinforce the notion that investments in human capital, including the pursuit of leadership excellence, is a continuing process in this ever-changing environment so as to enhance the calibre of our human capital in the financial and corporate sector in meeting the challenges ahead as we advance forward in this new millennium. 2 BIS Review 46/2003 | As such, continuous investment in human intellectual capital must be made to ensure the availability of best talents at all levels of the institution. Most importantly, strategic leadership at top management level is required to chart the strategic course and drive the banking institution towards attaining the highest standards of performance. The business environment remains dynamic, as such human resource management must adjust to support business strategies and realise improvements in business processes and systems by ensuring employees are equipped with the appropriate skills at all times. Such adjustment requires greater integration of personnel policies and practices with the corporate mission and goals, improvement in recruitment practices to attract the best talents and greater focus on human resource development. While qualification and skills of staff are critical elements, of greater importance is the ability to translate knowledge into enhancing the capabilities and excellence of the institution. Banking institutions will have to enhance the level of competencies and motivation on an ongoing basis, cultivate professionalism and the right attitude, and create and maintain a learning environment. For Islamic finance, the banking industry needs to continually promote human capital development and expertise to create a larger pool of experts and high calibre professionals in Islamic banking and finance. In particular, adequate resources should be allocated in building distinctive capabilities in the newly emerging areas such as private equity investments, real estate investments, private wealth and asset management. | 0 |
But to acknowledge these complexities does not weaken the case for the importance of trying to make sensible judgments about how monetary policy should respond to asset price developments. Here are some considerations for how central banks should navigate through these challenges. 2 BIS Review 2/2006 First, in circumstances where the central bank observes a large realized movement in asset prices and is confident in its knowledge of the impact of those moves on the path of aggregate demand, monetary policy may need to follow a different path than might have seemed appropriate in the absence of those developments. In other words, when policymakers have already witnessed a significant move in asset values, and are confident in what that move means for the outlook, it should be prepared to adjust policy accordingly. Note that in order for this seemingly straightforward proposition to apply the central bank must be responding to its assessment of what an already observed movement in asset prices will mean for output and inflation. Of course central banks must always be prepared to respond when factors threaten to push aggregate demand away from aggregate supply and impact the inflation outlook. Movements in asset prices certainly have the potential to be one of those factors, and the implications of this approach apply in both directions. | In other words, asset values should be neither a target nor a goal of monetary policy. The rate of increase in asset values alone seems to tell us very little about underlying and future inflation. Because we know so little about how to assess the appropriateness of asset values against fundamentals, because we have so little capacity to both forecast and predictably affect the future path of asset prices, and because we know relatively little about how changes in wealth affect the real economy and inflation, we cannot use monetary policy responsibly or effectively to achieve specific objectives for asset values. Monetary policy does not today and is unlikely in the future to offer us an effective tool for directly reducing the incidence of large or sustained deviations of asset values from what might turn out to be their fundamental values, what some call bubbles. That said, monetary policy still has to take into account the impact of significant movements in asset values on output and inflation. Financial asset prices, by their nature, allocate resources between the present and the future and thereby affect consumption, investment and future growth. History provides us with numerous examples in which significant movements in asset prices have had sizable effects on the path of output relative to potential and on price stability. And experience suggests that asset values can be very sensitive to movements in monetary policy or to the perceptions of future policy moves. | 1 |
2 Some of the factors that might have reduced productivity growth might also have affected the skill mix of employment, so it’s not clear whether this can legitimately be seen as independent effect: in the limit, saying productivity growth is weak “because” the economy has created more low productivity jobs has a slightly circular flavour to it. Note too that, at least in the short run, a given compositional effect on wages should not be translated one-for-one into productivity space – you’d expect the latter to be smaller (I explain this point in footnote 10). So the 3% figure should be viewed as a ceiling for the estimated impact of these shifts on productivity over the 2008–14 period. 3 Real wages can diverge from productivity either because average profit margins are changing or because the relative price of what firms produce diverges from the price of what consumers buy. In an open economy, for example, an improvement in the terms of trade will raise real incomes relative to productivity; the upward trend in profit margins in the US has depressed wages relative to national income. There has been no such trend in 2 BIS central bankers’ speeches shocks to real take-home pay – whether from lower productivity, higher taxes or rises in import prices – without the unfortunate devices of higher inflation and/or higher unemployment. | This fact, highlighted many years ago by Steve Davis and John Haltiwanger in the US, was no less apparent during the great recession in the UK. Employment fell by over half a million between 2008 and 2010. But even over that period there were over nine million new jobs created, over ten million if you include job-to-job flows. On average, over the past 10 years, gross inflows and outflows into and out of employment have run at an annualised rate of around one sixth of the stock (Chart 1). As I say, this has been long understood. Nor should it be forgotten that, whatever the complicated texture underneath, the aggregate economic data still exhibit significant empirical regularities over the business cycle. Chart 2 is one example. Using annual data during the inflation targeting period, the black line plots annual growth in average earnings, less inflation expectations, against the rate of unemployment. At least until the past couple of years, when AWE growth appeared unusually weak, the fit was pretty good. Higher unemployment has gone hand-in-hand with lower real wage growth. Uncannily, the regression line was pretty much exactly the same as that identified by A.W. Phillips, using data from the classical gold standard period (1870–1913), in the 1958 paper that gave the relationship its name (that regression line is in blue). Yet, from time to time, what happens under the surface has material effects and can distort these aggregate relationships. Today I want to describe one such example, involving compositional shifts in the labour market. | 1 |
The experience of the financial crisis has taught us that this is important. In closing, I would like to thank the Supervisory Board and the Monetary Policy Committee for their collaboration, and I wish to thank the Central Bank’s many colleagues and collaborators for their cooperation – not least the Prime Minister’s Office, the Ministry of Finance and Economic Affairs, and the Financial Supervisory Authority. I would also like to thank the financial institutions with which the Bank interacts for their cooperation. Furthermore, I would like to thank the Parliament of Iceland, particularly the Economics and Commerce Committee, for their collaboration. And last but certainly not least, I want to thank the staff of the Central Bank for their tirelessness, dedication, and outstanding work in the past ten years. And at this turning point, I would like to extend my sincerest thanks to all of you who have come here today and have attended the Bank’s annual meetings in the past. Central banks can be a force for change, but history and tradition are also strong, and they contribute to strength and steadfastness in the work they do at any given time. It means a great deal to me that here today are two former Governors and other former Central Bank employees have attended the Annual Meeting every year during my term as Governor. Thank you for that. 8 | The slow pace of financial integration relative to trade, in my view, is a reflection of three specific factors. BIS Review 95/2006 1 First, trade integration has a much longer history in East Asia, of which the key turning point was the introduction of the ASEAN Free Trade Area in 1992. Therefore, trade integration benefits from an established policy structure and a more simplified policy framework of tariff reductions, compared to that of financial integration. Second, financial integration has essentially been a market-driven process, with the policy supports focusing on removing market impediments and developing financial infrastructure. Therefore, there has been less of a deliberate policy push while the different levels of financial market developments in the region also act as a constraint to rapid integration. And the third factor is that, compared to trade integration, financial integration is complicated by a wider set of rules and regulatory framework, especially on cross-border capital flows, that tends to be more difficult to dismantle quickly. At the same time, the policy approach on capital flows liberalization in East Asia has been more cautious following the Asian financial crisis because of the risk of capital outflows and the weakened external financial positions. This, in my view, is one reason that led to a more cautious approach in liberalizing cross-border capital outflows. Let me now come to the second part of my talk, that is, the prospect for financial integration in the region going forward, and what should be the role of policy. | 0 |
However, this is not a convincing argument. Swedish conditions also affect the prices of the goods we import. The world market price of a product is not the price that Swedish households see in the shops. The value of the krona in relation to other currencies for example plays a part. Demand and factors such as transport, mark-ups in the wholesale and retail channels are also significant. What the Riksbank can do is to conduct well-balanced monetary policy so that consumer prices on average rise by 2 per cent a year. When the Riksbank raises the repo rate, demand is dampened, which reduces the scope for price increases in all areas, including energy and food. It is important that monetary policy is aimed at keeping down the general price increases and that the inflation target is not redefined merely because some prices are rising more than others. Households’ total purchasing power is affected when prices of imported goods change, and this would be the case even if we had an inflation target that excluded these prices. When, for instance, the price of oil rises over a longer period of time there is a risk that price increases will spread to other areas of the economy. This risk would hardly decline if the inflation target was formulated differently. Of course one must be open to change that could improve the current monetary policy regime. But it is important to think things over very carefully. And we shouldn't fix something that isn't broken. | This applies for amounts of up to SEK 250,000 per customer and institution. It is only if the deposit has been made by another financial institution or in some cases if the amount is frozen that the deposit guarantee does not apply. This reasoning concerned what we could do in a situation where financial stability is threatened. Some central banks have recently been forced to take this type of measure. But none of the Swedish banks has had problems with its liquidity in the way I described in my example. So how do we view the current situation? Recent developments As I mentioned earlier, the financial turbulence has been included in our analyses for some time now, both with regard to monetary policy and financial stability. The Riksbank has regularly emphasised many of the risks in the financial system and what could happen if the financial turbulence should grow worse. The Riksbank bases its assessment on an analysis that focuses on the four major Swedish banks, as they account for around 80 per cent of the market. The Swedish banks have considerable equity, good profitability and limited loan losses. Our assessment is that there is a high degree of resilience to the international turmoil BIS Review 119/2008 3 that has prevailed for some time now. But this is not the same as saying that the Swedish financial markets and banks are not affected by the situation. Of course they are. | 0 |
Ranee Jayamaha: SAARC Payments Initiative and policy responses Speech by Dr Ranee Jayamaha, Deputy Governor of the Central Bank of Sri Lanka, at the inauguration of "SAARC Payments Initiative", Central Bank of Sri Lanka, Colombo, 28 March 2008. * * * 1. It is with great pleasure that I thank all of you for attending the inaugural session of the SAARC Payments Initiative. It is indeed a historic event and a landmark in the development of payment systems in the SAARC region, because this is the first time the member central banks, as a group, have decided to pay focused attention to this area of activity. It is also an important achievement for the Central Bank of Sri Lanka to be able to pioneer the efforts in establishing the SAARC Payments Initiative. 2. The SAARC Payments Initiative, which is launched today, intends to • assist individual SAARC countries to prepare a domestic payment strategy and a forward looking development plan; • design a coordinated regional approach to cross-border payments, taking into consideration the implications for trade, investment, central bank policy, foreign exchange positions and their management; and • clear any impediments experienced by the members in the areas of policy, operations and communications, legal and regulatory aspects, technical and institutional infrastructure, and engage in research and statistical analysis. 3. | If I may quote from John Exter’s Report of 1949 on the establishment of the Central Bank of Ceylon, (the former name of the present Central Bank of Sri Lanka), it states “It is the monetary, financial and payment systems that facilitate the flow of money in the economy and as such, the Central Bank of Ceylon undertakes a great responsibility in promoting the economic well-being of the country”. Although modern central banks concentrate primarily on price stability and financial system stability, these objectives cannot be satisfactorily achieved without simultaneous development in the payment systems. Therefore, at some stage, all central banks have to BIS Review 35/2008 1 pay attention to payment system development, although it was taken for granted by many until recent times. 5. Advances and transformation in payment systems development 5.1 Payment systems have undergone profound changes in recent years, primarily in terms of the increased complexity of the production and differentiation of payment services offered to customers nationally, regionally and internationally. Payment systems are evolving towards an evermore universal and sophisticated level of operation. In both wholesale and retail areas, new technologies, new participants and new alliances are beginning to transform the payments system landscape. This transformation is largely due to developments in information and communication technology, and integration and globalization of financial markets at the regional and international level. 5.2 One by-product of this transformation is the blurring of the distinction between wholesale and retail activities. | 1 |
[Chart: December 2008: Market rates shifted down markedly after policy announcement] As shown by the black line in this chart, we cut the key policy rate substantially at the monetary policy meeting in December 2008. The dashed blue line, which shows the market path the day before we announced the rate cut, indicates that a significant cut was anticipated by the market. However, in addition to cutting the policy rate, we also published a new interest rate forecast, shown by the solid purple line, which was considerably lower than our previous forecast, shown by the dashed purple line. The market had not fully anticipated this, and forward rates shifted down markedly after the meeting, as indicated by the solid blue line. The interpretation could be that we provided news to the market about the strength of the action deemed necessary by Norges Bank as a response to the financial crisis. On this special occasion, when uncertainty was larger than usual, we believe that publishing the interest rate forecast was particularly helpful in making monetary policy more effective. This example suggests that we can indeed guide the market and affect expectations. [Chart: Interest rate expectations one year ahead] Further evidence supporting our ability to affect expectations comes from household survey data. In this chart, the purple line shows a diffusion index of households’ bank rate expectations one year ahead. | The illustration is from our third Monetary Policy Report in 2012. If monetary policy at that time had given weight only to the low level of inflation, the key policy rate should have been lowered sharply and kept close to zero for some time, as indicated by the red dotted line in the upper left panel. Inflation would then have been predicted to pick up relatively fast, partly owing to a weaker exchange rate. Taking into account our second criterion for an appropriate interest rate path, the key policy rate would have been somewhat higher in the short term, as indicated by the blue dotted line. Inflation would have been predicted to take somewhat longer to rise towards the target, but developments in output and employment would have been more stable. Finally, taking into account considerations of robustness (criterion 3), we reached the interest rate forecast indicated by the black dotted line. [Chart: Decomposition of change in the interest rate path] Our communication of interest rate decisions is aided by a decomposition of changes in the interest rate path. This is a model-based illustration of how the change in the interest rate forecast from one report to the next can be decomposed into contributions from exogenous disturbances. The intention is to communicate the driving forces behind any changes in the interest rate path. The chart illustrates the different forces behind the change in the interest rate path from the last report in 2012 to the last report in 2013. | 1 |
The aim of the plan is to provide clarity of the vision and objectives that are to be achieved in the context of a more challenging environment that is driven by rapid change in a world that is becoming increasingly more integrated and more technology and knowledge-based. In the development of our Islamic financial system, a comprehensive approach has been adopted. Malaysia has given emphasis to the development of a comprehensive financial infrastructure that includes the Islamic financial markets, Islamic financial instruments, contract law and law enforcement procedures, Shariah governance framework, Islamic accounting practices and valuation standards, appropriate disclosure requirements as well as an efficient and secure payment and settlement system. Attention has also been directed to develop the prudential regulatory and supervisory framework that underpins the stability of the Islamic financial industry. Today, my remarks will focus on three key areas in which greater attention is needed in order to secure a promising future for the Islamic financial services industry. These areas include accelerating the pace of financial innovation, strengthening risk management capabilities and leveraging on information technology. Accelerating the pace of financial innovation As we advance forward in the development of Islamic finance, innovation will be key in securing the competitive advantage. It will be vital to the future of Islamic finance. | News conference Berne, 25 March 2020 Thomas Jordan Introductory remarks by Thomas Jordan Ladies and Gentlemen First, on behalf of the entire Swiss National Bank, I would like to express our sympathy to all those directly affected by coronavirus. Swiss society and our country’s economy face enormous challenges. The SNB is working closely with the Federal Council, the authorities and the business community to overcome this crisis. The measures adopted by the SNB complement those of the Confederation and are intended to cushion the economic impact of the coronavirus pandemic. Monetary policy supplements the various fiscal measures taken by the public authorities. The Swiss National Bank has set up the SNB COVID-19 refinancing facility (CRF). This instrument is designed to strengthen the supply of credit to the Swiss economy by providing the banking system with additional liquidity. There is no upper limit on the amounts available under the CRF, and drawdowns can be made at any time. The CRF will be available from 26 March 2020. The CRF operates in conjunction with the federal government’s guarantees for corporate loans. The facility allows banks to obtain liquidity from the SNB, which is secured by these federally guaranteed loans. In taking this action, we are enabling banks to access the required liquidity that will allow them to expand their lending rapidly and on a large scale. The interest rate for these refinancing transactions corresponds to the SNB policy rate, currently −0.75%. | 0 |
By locating the duties related to the execution of monetary policy at the New York Fed, the System gains a number of benefits. These include the New York Fed’s ability to develop expertise in and understanding of the broad spectrum of financial markets and institutions, and its access to a deep pool of specialized financial talent in the place where it is most concentrated. The New York Fed’s institutional knowledge and experience in financial markets and its related disciplines are a critical input at all times, but never more so than during periods of duress. This was evidenced during the financial crisis, when the New York Fed’s unique insights and expertise helped the Federal Reserve respond quickly and effectively to unfolding events. The authors who crafted the Federal Reserve Act such as Carter Glass – assisted by H. Parker Willis – deliberately created a central bank structure that fits the U.S. political system, with a series of important checks and balances – between Washington and the rest of the country, between Washington and New York, and with respect to the role of the federal government versus the private sector. These checks and balances exist to ensure that the central bank acts in the broadest interests of the nation, and is appropriately insulated from short-term political pressures and considerations. In this construction, New York does have a special role, but one that stems from where it sits, in New York City, the nation’s most important financial center. | These activities have taken many forms ranging from equity and non-equity business collaboration, regulatory cooperation in setting the global development blueprint, information exchange and building consensus on issues for international prudential standards development, to intergovernmental memorandums of understanding for collaborative developmental initiatives in Islamic finance, and many others. BIS Review 30/2007 1 Ladies and Gentlemen, As Islamic finance continues to make significant inroads in the international financial markets with expanding scale, growing magnitude and greater sophistication, a critical need emerges for an expanded discourse on the developments and emerging issues with its global relevance and impact, of interest to all its major stakeholders. This is the first time that Bank Negara Malaysia has organized a full-scale, multi-disciplinary, international event of this nature on Islamic finance. These sessions include the annual Investors & Issuers Forum, and Financial Regulators Forum and the biannual Banking and Financial Law School. It is our hope that participants will benefit from any of the parallel sessions of their interests and have increased opportunities for network building among the widening groups of stakeholders participation in the Forum. These forums have been designed to provide dynamic and interactive formats to encouraging open and inclusive dialogues that foster a greater collective understanding in Islamic finance. Let me record our appreciation to the many distinguished speakers from various international institutions, financial practitioners, legal fraternity, regulatory bodies and other prominent thought leaders in Islamic finance. | 0 |
Irma Rosenberg: Monetary policy in Sweden Speech by Ms Irma Rosenberg, Deputy Governor of the Sveriges Riksbank, at the Swedbank, Stockholm, 18 September 2006. * * * Thank you for the invitation to come here and speak. The topic of the conference is economic prospects and I will of course provide my views on these. However, I will speak in fairly general terms – a more detailed analysis will be presented in the Riksbank’s Inflation Report, which is published at the end of October. Before I move onto economic developments, however, I would like to take this opportunity to say a few words about how monetary policy is conducted in Sweden in general, or the monetary policy strategy, as it is usually called. More specifically, I intend to take up some questions that have arisen in the discussions in the media and elsewhere as there still seems to be some confusion. This applies in particular to the objective of monetary policy. Do we attach less importance to the inflation target now, or have we even introduced other objectives in addition to the inflation target? Let me emphasise right now that no such changes have been made. Our focus is on the inflation target and the central aim is to anchor inflation expectations in the economy around this target. However, when we formulate our monetary policy we also give consideration to the way the rest of the economy is developing. It is our reasoning on this that I intend to begin with. | If, for instance, there is a shock that leads to inflation being pushed upwards despite weak demand, a very rapid return to the inflation target would entail large negative effects for the real economy – an even greater slowdown in the already weak demand – than if the recovery was allowed to occur at a slower pace. If inflation is instead held back despite good BIS Review 87/2006 1 growth in demand, attempts to quickly return it to target through very expansionary monetary policy could lead to the economy overheating. Over time a policy that quickly subdues inflationary impulses would perhaps result in more stable inflation, but there would be substantial fluctuations in the real economy. We have chosen a two-year horizon for monetary policy because this is considered to give sufficient scope in most cases to ensure acceptable developments in the real economy. However, the rate at which it is desirable to bring inflation back on target depends on what shocks the economy has suffered and how substantial they are. Sometimes deviations from the target may be so substantial that there is reason to allow inflation to return to target beyond the normal two-year horizon and in this case we explain the reasons when we announce our decision. However, the ambition remains the same; that is, a desire to ensure that inflation is low and stable a few years ahead, while giving some consideration to the stability of the real economy. What significance do house prices and household indebtedness have? | 1 |
During 2010 the Banco de España also pursued a series of initiatives to help generate muchneeded confidence. Firstly, in July it took transparency to a new level with the publication of the results of the stress tests, both because of the high proportion of institutions analysed (representing 95% of the system, compared with the figure of 50% required in Europe) and the degree of detail of the information provided. Secondly, it reformed the provisioning system that same month, to ensure appropriate balance-sheet write-downs. And thirdly, it urged institutions to provide the market with highly accurate information on their exposures to the real estate development and construction sector and on their financial structure and liquidity position. Likewise in July 2010, Parliament approved the savings banks reform, included in Royal Decree-Law 11/2010. This paved the way for a new legal structure for savings banks, under which the pursuit of their banking activity may be through a bank, to which the bulk of assets and liabilities are transferred. This corporate model, conceived for adoption on a voluntary basis, although it has become obligatory for savings banks that receive further aid as I shall mention later, is imposing itself extensively on the sector owing to its advantages in terms of the ability to tap the markets for capital, to promote best management practices and to generate the necessary confidence on the part of customers and investors. | Experience suggests that financial markets react only with a substantial lag to a deterioration in the fiscal situation, but the reaction can then be quite drastic, coming too late for a timely correction, making the crisis more severe and placing a large burden on all participants. In view of this, the Governing Council has expressed its regrets that, last November, the ECOFIN Council decided not to act on the basis of the European Commission's recommendations in the excessive deficit procedure. We also respect the Commission's decision to seek legal clarity with respect to the excessive deficit procedure. It would surely be wrong to declare the Stability and Growth Pact as dead. In fact, it is very much alive. We do not believe that it is advisable to amend the text of the SGP. We think however that, without actually changing the wording of the Pact, it would be possible to improve its implementation, in particular by better analysing the structural imbalances as well as by strengthening the incentives for sound fiscal policies during periods of strong economic growth. The introduction of such policies will also strengthen economic confidence and support demand in the short run. Indeed, confidence among European citizens is vital for a stronger economic recovery and sustained growth. The ECB’s Governing Council recognises that the still low level of consumer confidence is related in part to the debate about the appropriate path for fiscal policy and structural reform in many countries in the euro area. | 0 |
Resilience: three lessons from the financial crisis1 Speech given by Dave Ramsden, Deputy Governor for Markets & Banking Inverness Chamber of Commerce 30 May 2019 1 With thanks to Tom Smith for his assistance in preparing these remarks and to staff across Bank, including Alex Baiden from the Bank’s Advanced Analytics division and Nick Bate and Liam Crowley-Reidy from the Bank’s Monetary Analysis directorate, for their many contributions, as well as my colleagues on the MPC for their helpful comments and suggestions. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches 1 Introduction It’s great to be here in Inverness, and to be speaking here this morning. My talk today is going to focus on resilience. The first definition of resilience thrown up by Google is “the capacity to recover quickly from difficulties; toughness”. It seems apt that I should be focusing on this here in Inverness as Scotland itself is a famously resilient nation. Robert the Bruce was taught resilience by a spider. Scotland’s mountains epitomise geological resilience and tests the physical resilience of walkers and climbers. The Scottish economy has been through some tough times, but proved relatively resilient during the financial crisis, with Scottish onshore GDP falling much less than overall UK GDP. Even the existence of the Loch Ness monster has proved resilient to continued scientific investigation. And resilience is a word that you hear a lot these days (Chart 1). Psychological resilience is lauded as a virtue as life becomes more complex and challenging. | It has picked up a little in the recent data as US-China trade tensions intensified, but has also fallen back to below historical averages. This apparent disconnect does not necessarily mean that markets are complacent – the policy uncertainty index might be more sensitive to short-term political developments, while market indices could also be factoring in a belief that monetary policy might be able to offset the impact of shocks. But if market participants are underestimating the extent of political risks materialising, that suggests the potential for sharp price corrections if those shocks do come about. The second risk I want to highlight today, and unarguably biggest risk to the UK economy and UK financial stability, remains that of a Brexit outcome of no deal and no transition. That would have large negative economic effects, both in the Bank’s view and in the views of the businesses we talk to up and down the country (Chart 11). This has been a key focus for the FPC in particular since the Brexit referendum, and we have taken many actions to prepare for and respond to it. | 1 |
22, No. 3, pp 265–290. Bank of England (2012), “Record of the interim Financial Policy Committee, 16 March 2012”, available at http://www.bankofengland.co.uk/publications/Documents/records/ fpc/pdf/2012/record1203.pdf. Bank of England (2011), “UK banks’ assets and the allocation of regulatory capital”, Financial Stability Report, December, pp 26–27, available at http://www.bankofengland.co.uk /publications/Documents/fsr/2011/fsrfull1112.pdf. Bank of England and Financial Services Authority (2011), “Our approach to banking supervision”, available at http://www.bankofengland.co.uk/publications/other/financialstability/ uk_reg_framework/pra_approach.pdf. Barclays Capital (2012), “Bye Bye Basel”, May. Basel Committee on Banking Supervision (2012), “Consultative document: Fundamental review of the trading book”, available at http://www.bis.org/publ/bcbs219.pdf. Basel Committee on Banking Supervision (2011), “Global systemically important banks: Assessment methodology and the additional loss absorbency requirement”, available at http://www.bis.org/publ/bcbs207.pdf. Basel Committee on Banking Supervision (2010), “Basel III: A global regulatory framework for more resilient banks and banking systems”, available at http://www.bis.org/publ/bcbs189_dec2010.htm. Basel Committee on Banking Supervision (2004), “International Convergence of Capital Measurement and Capital Standards: a Revised Framework”, available at http://www.bis.org/publ/bcbs107.pdf. Basel Committee on Banking Supervision (1996), “Overview of the amendment to the capital accord to incorporate market risks”, available at http://www.bis.org/publ/bcbs23.pdf. Basel Committee on Banking Supervision (1988), “International convergence of capital measurement and capital standards”, available at http://www.bis.org/publ/bcbs04a.pdf. Berlin, I (1953), “The Hedgehog and the Fox”, Simon and Schuster, New York. Bollerslev, T (1987), “A conditionally heteroscedastic time series model for speculative prices and rates of return”, The Review of Economics and Statistics, 69(3), pp 542–547. Calomiris, C W and Herring, R J (2011), “Why and How To Design a Contingent Convertible Debt Requirement”, Columbia Business School Working Paper, February. | That complexity externality is currently largely unrecognised and un-priced by regulatory rules. Indeed, under the current Basel rules intra-financial system exposures carry a much lower capital charge than exposures outside the financial sector. 26 From a system-wide complexity perspective, this may be the wrong relative risk-ranking. (e) Structural change Over the past 30 years or so, the regulatory direction of travel has been towards pricing risk in the financial system, rather than prohibiting or restricting it. In the language of Weitzman, regulators have pursued price over quantity-based regulation (Weitzman (1974)). That makes sense when optimising in a risky world. It may make less sense when optimising in an uncertain world. Quantity-based restrictions may be more robust to mis-calibration. Simple, quantity-based restrictions are the equivalent of a regulatory commandment: “Thou shalt not”. These are likely to be less fallible than: “Thou shalt provided the internal model is correct”. That is one reason why Glass-Steagall lasted for 60 years longer than Basel II. Quantity-based regulatory solutions have gained currency during the course of the crisis. In the US, the Volcker rule is a quantity-based regulatory commandment: “Thou shalt not engage in proprietary trading”. In the UK, the Independent (“Vickers”) Commission on Banking has also proposed structural, quantity-based reforms: “Thou shalt not co-mingle retail deposit-taking and investment banking”. Yet even these notionally simple, structural proposals run some risk of backdoor complexity. For example, the consultation document accompanying Volcker already runs to 298 pages. | 1 |
The Islamic financial system continues to grow – at a pace faster than the conventional system. As at end-June 2019, financing outstanding of Islamic banks expanded at 8.6 percent compared to 2.1 percent for the conventional. Meanwhile, new general takaful contributions grew at 16.4 percent compared to 6.2 percent for the insurance premium. However, new family takaful contributions grew at 10 percent, slightly lower to life insurance premium of 15.4 percent. This brings me to the point on impact. Financial institutions, through its intermediary actions, can be an effective agent of change for businesses and economy. In 2018, a number of Islamic financial institutions began adopting a change in their business philosophy. By embracing valuebased intermediation or VBI, more comprehensive financial solutions, beyond just financing, are provided. These may include assistance and advisory as well as capacity building opportunities to businesses in their journey to transition to a more efficient, environmentally friendly and sustainable business as part of financing. To illustrate, Islamic financial institutions will play greater nurturing role in advocating sustainable practices among their client. They will drive programme with other strategic partners who share similar aspirations to provide services beyond financing. Clients will be advised to adopt sustainable practices for example Malaysian Sustainable Palm Oil Certification and necessary funding and technical advises will be provided to the clients accordingly. Traditional credit standards are also being reformed – taking into consideration prospects of a proposed project to create positive impact on wider stakeholders and community. | Jörg Asmussen: Stability guardians and crisis managers – central banking in times of crisis and beyond Distinguished lecture by Mr Jörg Asmussen, Member of the Executive Board of the European Central Bank, at the House of Finance, Goethe University, Frankfurt am Main, 11 September 2012. * * * Ladies and Gentlemen, It is a great pleasure to be here today at the Institute for Monetary and Financial Stability and I would like to thank Prof. Siekmann and Prof. Wieland for their invitation. I know that the Institute was founded in November 2007, only three months after the outbreak of what would become the worst financial and economic crisis of the post-war period. Truly timely, I would say. The Institute’s objective to highlight the significance of monetary and financial stability impressively reflects the practise and the challenges of monetary policy over the last five years. Let me in today’s remarks take the opportunity to reflect on the double role of central banks as stability guardians and crisis managers. Had I been here before August 2007, this title would have mainly implied discussing the central banks’ role as guardian of price stability. But there cannot be stability without adequately managing the crisis. So, why have central banks assumed such an important role in crisis management? Well, responding to the sudden financial tensions, central banks crisis measures have contributed to calming and avoiding highly detrimental feedback loops between financial markets and the real economy. | 0 |
2 BIS central bankers’ speeches The accountant’s report showed a solvent but illiquid Barings. Back from the Zoo, Lidderdale began to construct a financial “lifeboat” for Barings, with a contribution from the Bank but also from the commercial banks. This was the system acting in support of the system. The lifeboat was launched and Barings was saved, in what has become known as the “crisis that never became a drama”.4 The Bank’s lifeboat has since been re-launched on more than one occasion. A second financial lifeboat – different in detail, but identical in principle – was launched by the Bank of England in the early 1970s. Then, it was intended to save the small banks rather than the large. It, too, steadied some sinking ships. Third time, however, was not so lucky. On 24 February 1995, it was Barings Bank who were again knocking on the Bank of England’s door for help. Bank Directors were again summoned on a Saturday. I myself was caught by a TV crew entering the Bank on that Saturday morning, arousing suspicion something was amiss. In fact, I had not been recalled to save the day. (I believe I was filmed wearing a tracksuit.) And I was as blissfully unaware of Barings’ problems as most of the rest of the world. (I was at the Bank completing a research paper on “A Structural Vector Autoregressive Model of the Monetary Transmission Mechanism”.) Life was easier then. | Back then, press interviews were rare and scripted to within an inch of their life. In the past year, Bank officials gave around 65 speeches and over 200 press interviews. In Montagu Norman’s day, the combined total was one. The days of “keeping the Bank out of the press and the press out of the Bank”14 are well and truly gone. Earlier this year, the Governor gave the Bank’s first live peacetime radio address to the nation for 73 years. The Bank Tweets, fortunately with rather less vigour than your average Premiership footballer. Soon we will have, for the first time in history, published minutes of the Bank’s Court of Directors. The Governor has appeared before the Treasury Committee on no less than 47 occasions since he took office. In 2011, a word search of “Mervyn King” in the press revealed more hits than “Kylie Minogue”. To my knowledge, this is the first time a sitting Bank of England Governor has toppled the Aussie pop princess in the media opinion polls. Given its new responsibilities, the Bank cannot fail to remain in the public’s eye in the period ahead. Transparency and accountability will remain the watchwords – and rightly so. Conclusion When pressed by the Macmillan Committee in 1930 to explain the Bank’s actions, Montagu Norman replied: “Reasons, Mr Chairman? I don’t have reasons, I have instincts”.15 I suspect such an answer would work less well with today’s Treasury Committee, to say nothing of today’s media. All public policymakers have an obligation to explain. | 1 |
A cross-check with the information from our monetary analysis confirms that the underlying pace of monetary expansion continues to be moderate, while monetary liquidity remains ample. As expected, the pace of economic growth in the euro area decelerated in the second quarter, following strong growth in the first quarter. Looking ahead, we expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates are low. While our monetary policy stance remains accommodative, some financing conditions have tightened. It remains essential for monetary 2 BIS central bankers’ speeches policy to focus on its mandate of maintaining price stability over the medium term, thereby ensuring that recent price developments do not give rise to broad-based inflationary pressures. A very thorough analysis of all incoming data and developments over the period ahead is warranted. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. We will continue to monitor very closely all developments. Turning to fiscal policies, a number of governments have announced additional measures to ensure the achievement of their consolidation targets and to strengthen the legal basis for national fiscal rules. To ensure credibility, it is now crucial that the announced measures be frontloaded and implemented in full. | From that time, daily and monthly variations in the krone exchange rate show that the krone is floating. Our analyses suggest that oil price fluctuations are just one of several contributory factors behind the variation in the krone exchange rate in recent years.4 In the short term the krone exchange rate is also affected by uncertainty in the global economy and turbulence in international financial markets. The Exchange Rate Regulation - which is the mandate assigned to Norges Bank by the political authorities - states that monetary policy shall be aimed at maintaining a stable krone exchange rate 4 See Bernhardsen and Røisland (2000). 7 BIS Review 105/2000 against European currencies. Since 1 January 1999, Norges Bank has defined European currencies as the euro. The Exchange Rate Regulation takes into account that the krone exchange rate may remain outside its normal range. In the event of significant changes in the exchange rate, Norges Bank shall orient instruments with a view to returning the exchange rate over time to its initial range. The concept “significant changes” is not quantified. The term must be given an economic content. Norges Bank considers an exchange rate change to be significant if it influences expectations concerning price and cost inflation to the extent that the change in the exchange rate may become self-reinforcing. | 0 |
Not too long ago, the advent of the Internet heralded a new era for payments by enabling transactions to be conducted remotely using online banking services and payment cards. Today, payment technologies have evolved rapidly to include an alphabet soup of different modes of payment – for example RFID, NFC and QR just to name a few. At the same time, new use cases leveraging on biometrics, open API, artificial intelligence and blockchain are also being developed. While such technological innovations demonstrate great potential, the full impact and resultant risk may yet to be fully understood. Cyber security is also a fast-growing area of concern, given the sophistication of cyber threat actors and as more consumers and businesses are plugged into digital payments. This is further 1/6 BIS central bankers' speeches compounded by the interconnectedness of payment systems which heightens contagion risk. While sources of risks are borderless, the non extra-territorial nature of most payment regulation and supervision presents a key challenge to effective regulatory oversight. Concentration risks also require close attention, given the largely centralised model of prevalent payment systems. Network effects are a double-edged sword. As a payment system becomes more widely used, the implications of operational disruption would also be more far-reaching. In 2018, we have seen two global card networks face service disruptions, affecting at least five million transactions in Europe and the US. If the frequency and magnitude of such disruptions increase, there is a real risk that public confidence in digital payments would be undermined. | This discussion highlights that current account surplus countries can forego, at least temporarily, the required adjustment by accumulating international reserves instead. The sustainability of these imbalances, and the extent to which they have contributed to the recent global financial crisis, is still under discussion. BIS Review 65/2010 1 The question of the reserve asset has often been at the center of the debate. But as Mark Carney has recently argued, the adjustment mechanism may be more important than the choice of reserve assets. If adjustment were rapid, symmetric, and global, and if adjustment costs were fairly distributed amongst countries, we probably would not need to gather here today. Unfortunately, this is not the world we live in now. Historically, exchange rate flexibility has often been the answer. While it is not a silver bullet, it remains true that adjustment through the exchange rate is usually faster, and in the end less costly than adjustment through prices and wages. At the same time, of course, discontent with what is often perceived as excessive exchange rate volatility has been an important source of dissatisfaction with the present international monetary system. What constitutes excessive exchange rate volatility, and whether domestic policies or the international monetary system are at the root of it, is a matter of legitimate debate. III. | 0 |
But not only that. The banks should also hold buffers over and above the minimum requirements. One such buffer is what is known as the capital conservation buffer. The further a bank is from meeting the capital conservation buffer requirement, the more limited its capacity to pay dividends to shareholders. The reason is that one wants to prevent the banks from showering its owners with riches in the good times, and then being caught unprepared when the economic climate changes. If one adds this buffer, the requirements for common equity Tier 1 capital is 7 per cent. Moreover, national authorities will have the opportunity to force the banks to build up extra buffers during economic upturns, so that they can more easily weather difficulties when there are downturns. The Swedish banks already comply with the capital requirements stipulated in the new Basel regulations. And this is an important condition for them to be able to fund themselves on the markets. 4 BIS Review 159/2010 Liquidity regulations increase resilience when funding is difficult But even if a bank is well-equipped in terms of capital, it can nevertheless come unstuck if it does not have sufficient liquidity buffers. And this is what happened to many banks during the crisis. To ensure the banks are better-equipped, the Basel Committee has agreed on introducing requirements regarding the banks’ liquidity management. These are entirely new regulations – there have previously not been any regulations in this field at all. | And the tougher the regulations, the greater the reason for the banks to try to circumvent them. If they succeed, no one has won. Instead, there is a risk we will be lulled into a deceptive security, despite the risks merely being moved or hidden in other forms. I might also add that regardless of which regulations are introduced, one still needs effective oversight and supervision of the financial system as a whole and of individual institutions. If we take all of these aspects into account, I believe the Basel Committee’s proposals are a successful balancing act. They entail a substantial upgrading of the bank system in terms of resilience. And the costs to the banks and society are small. BIS Review 159/2010 7 Long phase-in period The Swedish banks are well-capitalised and the costs of the new capital requirements are therefore small or non-existent. But we must remember that the situation is more difficult for many banks around the world. If we force the banks to observe the new teachings immediately, their ability to offer loans to companies and households may be impaired. This could jeopardise the economic recovery. Because although the world economy appears to be slowly recovering, the situation is still fragile. To avoid this, the Basel Committee has agreed on a long phase-in period. Some of the new regulations will begin to apply in 2013. Most of them will be phased in gradually. It will take a further ten years or so before all of the regulations apply in full. | 1 |
Financial sector weakness was at the heart of the problems in Asia, a crucial element in Argentina and Mexico earlier in the decade, and a contributing force in Russia. Just as strong financial systems act as stabilizers when a domestic economy is battered, weak financial systems amplify the scope and reach of the problems, making bad situations worse. While important progress has been made in rehabilitating Asia’s financial systems, a great deal remains to be done to continue the strengthening of weakened financial and corporate sectors, and improve the region’s resistance to future problems. I am well aware that universal policy prescriptions are difficult to draw, given the wide range of experience and initial conditions. Indeed, individual countries in Asia have followed differing reform strategies, and the results of these efforts will help to inform the ongoing debate. Nonetheless, international experience with financial sector reform suggests a number of cautionary lessons. Let me cite a few: • Restructuring and reform must adequately address both the current “stock” of problem assets as well as the potential “flow” of new problems attributable to deficiencies in the broader financial system infrastructure. Lack of adequate action on either front can lead to a continuation of the substantial costs of weak banking sectors, sometimes well beyond the immediate crisis itself. • Clean-up efforts must be sufficient to the task. Half-done measures that leave financial institutions with significant levels of impaired assets at best postpone the reckoning and potentially create incentives for excessive risk-taking. | In my view, the role is quite straightforward: it is to sustain a monetary and banking environment that is conducive to resolving the economic and fiscal problems that face our community - not just in the public sector, but also in businesses and households. This is not the passive, static role that it may seem, as the maintenance of a rule-based monetary system in the form of the Link misleadingly suggests. Indeed, there is the scope - and often the need - for an active and imaginative use of financial, supervisory, communication and other skills. The degree of openness and the relatively small size of Hong Kong's financial system, against the background of globalisation, mean that the maintenance of monetary and banking stability is a particularly difficult task. There is also the requirement, implicit in the Basic Law, to look ahead, and in particular, to develop the financial infrastructure that will secure Hong Kong's position as an international financial centre and provide it with the means to build on that position. And there are other important tasks, such as seeking to help the Government in its efforts to contain the fiscal deficit by achieving a favourable return on the fiscal reserves deposited with the Exchange Fund - subject always to meeting the other investment objectives of the Fund. All of these tasks present challenges to keep me and my colleagues busy enough. But there have also been suggestions that the HKMA should take further steps to help stimulate growth. | 0 |
Second, our OMT programme is limited to the short end of the yield curve – i.e. to maturities of between one and three years – as the Eurosystem’s other monetary policy instruments have also traditionally been aimed at this period. The third distinction between the OMTs and the SMP is the transparency of our actions, through the publication of relevant information on OMT interventions. A fourth way in which the programmes differ from one another is that, under the OMT programme, we are not only able to buy government bonds, but also to sell them again, and their valuation is based on market prices rather than on final maturity. Fifth, we announced that our OMT interventions would be ex ante “unlimited”. We have no doubt that this strong signal was required in order to convince market participants of our seriousness and decisiveness in pursuing the objective of price stability. At the same time, however, the design of OMTs makes it clear to everyone that the programme is effectively 2 BIS central bankers’ speeches limited, for one by the restriction to the shorter part of the yield curve and the resulting limited pool of bonds which may actually be purchased. OMTs – in the event that they are conducted – will not give rise to any inflationary risks. For every euro that the Eurosystem spends on government bonds, one euro will be withdrawn from the money supply in the euro area. | Scope of monetary policy and acting within the ECB’s mandate I will now come to the first of two points to which the rapporteur has requested we pay particular attention: the “scope of monetary policy”. This includes the question of whether we are acting within our mandate. Our mandate is clearly formulated in Article 127 of the Treaty on the Functioning of the European Union: to maintain price stability. According to primary EU law, the ECB and the national central banks of the Eurosystem are already permitted to purchase government bonds in the financial markets in the context of their monetary policy tasks (Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank). While the Treaty clearly states the objective the ECB has to pursue, it describes just as clearly what the ECB is not allowed to do. Article 123 of the Treaty prohibits monetary financing. In particular, we are not allowed to buy any government bonds directly, i.e. on the primary market. Government bonds can only be purchased if they are already on the market and traded freely. The market mechanism – the basic principle Member States have to follow to finance themselves independently – should apply. We therefore also interpret the prohibition of monetary financing as being comprehensive insofar as ways to circumvent it are addressed. It is not possible to purchase newly issued government bonds at certain times. | 1 |
I think it’ll be awhile before it gets to Fed presidents. But I know… President Dudley: Well, there are some people in Washington that would like to make us conduct monetary policy by a rule. Maureen O’Hara: And there you go, a robot can do it. President Dudley: We don’t think that’s such a good idea, by the way. Maureen O’Hara It’s an interesting challenging, and particularly here I saw some numbers the other day that the high school graduation rate in New York state is somewhere in the 70 percentage points. And again, as you think about the technology creating winners and losers, you know, obviously we’re in education, all of us are committed to education, you know. Is that kind of crucial to the technology solution? What do we do with the people who don’t? President Dudley: Well, I think – I mean look, I think education is absolutely essential. Giving people the skills they need to sort of navigate in the 21st century economy. And the second thing we need to do a better job is actually retraining people so that the only education you get shouldn’t just be when you’re 18 to 22 years old or 25 years old. We need to have a better system where people can sort of retool themselves. I think a third thing we can do is a better job of matching the skills that people get in universities to the business needs. | Having said this, I do not mean that there is no hierarchy between the two objectives. I call for strong complementarity, not for a merging of objectives. To be more explicit, I consider that a monetary policy strategy that targeted asset prices would be a mistake. As central bankers, we need to avoid confusing economic agents; our role is to anchor expectations and ensure business continuity. 4. – There are still challenges to be addressed to provide authorities with the necessary policy toolbox for financial stability For it to be more effective, we still face a number of challenges in order to achieve an optimal macroprudential regulatory framework. First, we have to complete the regulatory framework for banks, by finalising the Basel III reform: I strongly wish and hope that we can reach a fair and 3/4 BIS central bankers' speeches reasonable agreement soon. A revision of the European Macroprudential Framework is currently underway at the European Commission level. Moreover, decisive progress should be made to better provide macroprudential authorities with policy tools properly designed to address financial risks beyond banking. Market financing, shadow banking, Fintechs, pension funds, financial innovations are all part of the scope of macroprudential policy, insofar as they have the potential to pose a financial risk to our economies. Our next issue is less the solvency of banks than the liquidity of non-banks. | 0 |
Joseph Yam: Financial market developments in Hong Kong Remarks by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the Euromoney 40th Anniversary Gala Dinner, Hong Kong, 16 July 2009. * * * It is a great pleasure to be able to share the honour at this evening's Euromoney awards dinner with so many excellent recipients. And it is a particular honour to receive the award for "Outstanding Contribution to Financial Markets". This is a threefold honour. First, because it is awarded by Euromoney, a publication – or rather an institution – with a particularly strong relationship with central banks and markets in this region. Secondly, because the award is presented to the HKMA as a whole, as a recognition of the hard work of staff from all parts of the organisation who have helped develop financial markets. And thirdly, because the award highlights an area of our work that usually receives less acknowledgement than it should: the development of financial markets not just through encouraging product innovation, but also through laying down the infrastructure to enable markets to function and grow. It is, I think, entirely appropriate that this evening's event is being held in a restaurant on top of the Star Ferry Pier – as we are from time to time reminded by the swaying of the structure and the occasional battering from the ferries themselves. Transport links are a good analogy for financial infrastructural links. They involve both local and international networks. | At a meeting of the Association of African Central Banks held in Dakar, Senegal, in August 2010, it was generally recognized that African central banks should adopt policies which should ensure a move towards macro prudential surveillance of the whole financial system and ensure that there are early warning signals and adequate remedial measures to deal with any crisis. Sub regional financial developments Your Excellency, distinguished ladies and gentlemen, as you are aware, the West African Monetary Institute (WAMI) is spearheading efforts to establish the Eco as the single currency, with a West African Central Bank and common monetary and financial policies for the Zone. However, as a result of the recent financial crisis, member states could not meet the macroeconomic convergence criteria which are part of the requirements, and a decision was taken by Heads of State and Government to postpone the launch of the single currency and the establishment of a West African Central Bank to not later than 1st January 2015. In spite of these difficult conditions, the West African Sub region has shown remarkable resilience to the onslaught of the crisis mainly due to the region’s low integration with global financial markets. However, in the post crisis period, indications are that economic growth would continue to remain robust, averaging around 7 percent for countries of the West 2 BIS central bankers’ speeches African Monetary Zone. | 0 |
In some ways it is a good thing if the stress-testing part of our regime 3 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 3 (Pillar 2) takes more of the strain, because it results in buffer requirements which should be more useable in a stress than Pillar 1 minima. And our Pillar 2A regime should capture concentration risk and any other aspects not captured by Pillar 1. But we should test ourselves on this, not least given that firms’ published CET1 ratios derive from Pillar 1 requirements. One way to do this is to compare the risk-weight level to some other crude benchmarks – such comparisons do not raise major worries, but nor do they suggest that risk-weights should be any lower (see Chart 7). Another way is to explore more sensitivities in our stress-testing, and in particular to examine where non-linearities arise for higher levels of house price falls than those we assume in our main scenarios. A number of safeguards exist in this area: our moving of firms away from ‘Point in Time’ modelling approaches; the leverage ratio; and (further down the track) the Basel 3.1 output floor. But despite this, we should be very cautious about any significant further moves down in Pillar 1 risk-weights for UK mortgages – in part because this exacerbates level-playing field issues given standardised risk-weights do not move in the same way, a point which will not be lost on the vast majority of the BSA’s members. | For the path of the Swedish economy in the coming years, no other single factor is therefore anything like as important as the total wage trend. The picture of the negotiations that are now beginning is mixed and tensions do exist. Since the previous survey in September, all the interviewed groups’ expectations of the annual wage rise have been revised upwards for all time horizons. Wage expectations are highest among the employee organisations. Moreover, the wage demands that have been presented are higher than before the previous round of negotiations. It is evidently becoming more difficult to find people with the appropriate competence for the jobs that are advertised. This presumably makes the risk of future wage drift greater than in previous years. All this could be a sign that we are approaching a situation where, bit by bit, aggregate wage costs in the Swedish economy start to accelerate, albeit from moderate levels. • When it comes to judging inflationary pressure in the coming years, a central concept is total resource utilisation. The available amount of unutilised resources is crucial for the domestic generation of inflationary pressure, at least as long as inflation expectations are parked around our 2% target. In the coming years it is highly probable that, for the first time in a long while, our estimates of total resource utilisation - the output gap - will show that the gap has closed and the economy has reached or even moved above the capacity ceiling. | 0 |
It is not the case that I personally believe that the risks associated with household borrowing constitute an immediate threat to the economy, or that housing prices are dramatically overvalued and that a rapid downward adjustment is on the cards. But I do believe that there are risks further ahead if household borrowing continues to increase at a much higher rate than incomes for an additional extended period. And if monetary policy continues to be too expansionary for too long, these risks will increase even further. I also believe that this is roughly the view of the majority of the members of the Executive Board. It is not possible to exactly determine at what level household borrowing will reach the “critical point”. As long as economic activity is favourable, the labour market is improving, incomes and wealth are increasing and the households have confidence in the future everything is hunky-dory. But in a different economic situation with increasing uncertainty on the labour market the behaviour of the households may change; they may begin to consolidate their balance sheets. This would reduce their consumption and reinforce the downward tendencies in the economy. The higher the debt burden the greater the risk of significant consequences. If housing prices fall in such a situation, households’ assets will be undermined while their debts will still remain. Households would therefore want to amortise rather than borrow, which would dampen demand. | The conclusion is that however good the decisionmaking material is, it can never be comprehensive or unequivocally interpreted. I have mentioned previously that developments in the financial sector and the effects on the real economy cannot be easily captured. I have also, in connection with the discussion on household borrowing, mentioned how we can assess effects in the longer term. Since we cannot make meaningful forecasts for an unlimited period of time, we must restrict the forecast horizon. But this is not set in stone in the sense that it should prevent us from considering problems that may arise in a few years’ time. Moreover, there are risk scenarios that are difficult to capture in terms of forecasts. Even if your ambition is to base the monetary policy decision on what are termed unbiased forecasts, in which upside and downside risks are balanced, you should be aware of the 10 For a description of how decision-making data for monetary policy decisions are prepared, see the speech “The monetary policy decision-making process” by Irma Rosenberg held on 13 June 2008. BIS central bankers’ speeches 9 difficulties involved. In practice, however, such forecasts have difficulties in capturing everything perfectly. In practice, you may wish to guard against some outcomes that you consider to be particularly harmful and that should therefore be avoided at all costs. | 1 |
We must also take care with the resilience of “shadow banking” firms and structures characterised by liquidity transformation and leverage.4 And we must take account of the network of exposures and behavioural influences of funds, long-term institutions, brokers etc. They are all connected by markets. I find it is helpful to distinguish between those markets whose role is to provide essential support to banking and insurance, and those markets that directly deliver the financial system’s core functions to the rest of the economy. For example, the overnight wholesale money markets are vitally important, because banking could not operate without them. They are effectively part of the payments system infrastructure, and have long been of concern to central banks. The financing markets, notably repo, fall into the same broad category, although the authorities could have been closer to the securities lending markets over the past decade. There is a lesson in that. Some other markets, typically in the past more distant from the attention of the financial stability authorities, may matter in their own right to end users. That is especially relevant where a significant proportion of the intermediation of savings/investment occurs via capital markets rather than via bank balance sheets. In the USA at least, some securitisation markets probably pass that test. In the UK, I would guess that the equity and corporate bond markets do so. The integrity of those core capital markets is vital. Such markets must be resilient to shocks. | Its first order challenge would be to reach a judgment on whether the financial system was undermining its own resilience by getting carried away in extending credit in an environment of rising asset prices and optimism about future output levels. The FPC would need neither to obstruct an improvement in the underlying performance of the economy, nor let the party get out of control. But that is what Taking Away the Punchbowl is about. The same difficult judgments would face a combined monetary-and-macroprudential decision maker. And a separate monetary policymaker would have a shared interest in the downside risks to inflation not being exacerbated by the prospect of a credit bust following an unchecked boom. In those kind of circumstances, we should be helped by the tempo of the two endeavours differing. The FPC is less likely to make frequent course changes. That is reflected in its meeting routinely on a quarterly basis, contrasting with the MPC’s monthly meetings. So, as in the relationship between monetary policy and fiscal policy, the MPC will be able to take into account perturbations to aggregate demand from the FPCs interventions. Both committees are part of the Bank of England, so the executive of the Bank will ensure that there is a common information base. FPC members are invited to the monthly briefing for MPC members. And vice versa, consistent with MPC members already being free to attend the internal financial stability briefings established over the past year or so. | 1 |
Four years ago in the run-up to the Paris Climate accord, the Bank called for improved financial disclosure of climate-related financial risks in order to break the Tragedy of the Horizon.29 Just two years ago, the TCFD led by Michael Bloomberg made its final recommendations to the G20 Leaders Summit in Hamburg.30 Since then there has been a step change in climate reporting by the private sector. On the demand side, current supporters of the TCFD control balance sheets totalling $ trillion and include the world’s top banks, asset managers, pension funds, insurers, credit rating agencies, accounting firms and shareholder advisory services.31 On the supply side, the TCFD report published last week showed that four fifths of the 1100 G20 companies surveyed were now disclosing climate-related financial risks and three quarters of users of the information had seen a marked improvement in the quality of disclosures.32 In the future, to achieve a carbon-neutral economy, disclosure must become mandatory. Before it does, we need to get it right. Over the next few years, the current iterative process of disclosure, reaction and adjustment will be critical to ensure that these market standards are as comparable, efficient and decisionuseful as possible. Disclosure is just the start. Analysis needs to go beyond the static to the strategic. The nature of climate risks mean that the biggest challenge is in assessing the resilience of firms’ strategies to transition risks. Transition risks result from the huge adjustments required to create a low-carbon economy. | Over the past decade, the proportion of total payments made in cash has declined from two thirds to one quarter.4 The digital economy is more inclusive, offering easier and more cost effective routes to market for firms both large and small, and greater access for consumers both near and far. This new economy is placing new demands on finance. Consumers and businesses increasingly expect transactions to be settled in real time, checkout to become an historical anomaly, and payments across borders to be indistinguishable from those across the street. While there have been some notable successes, the UK system has a way to go before it meets these expectations. Thus far, most innovation has happened around payment initiation – the method used to instruct a payment – such as credit or debit card, banking app or mobile wallet. There have also been some advances in the networks – or rails – that underpin some of these apps. For example, the Faster Payment System (FPS) launched a decade ago has made payments quicker (within two hours) and more cost effective by encouraging direct bank-to-bank transfers. While mobile app PayM uses FPS to facilitate direct bank-to-bank payments between individuals via text, it requires both the sender and recipient to be signed up to the third party service. | 1 |
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