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And, I regularly visit different parts of our District so that I can meet with local businesses, community development professionals, and the people who live and work here. This on-the-ground intelligence is valuable to me and helps inform my view of the region and the economy, which, in turn, plays an important role in shaping my outlook on policy. Let me now talk a bit about job growth in our region. Job growth in the region Nationally, the labor market has added 2.4 million jobs over the past year. And, the strong jobs reports released over the past two months have helped allay concerns that arose earlier this year that job growth was beginning to stall. Indeed, these reports reinforce my view that labor market conditions continue to improve. Turning to conditions closer to home; job growth in our region has generally been somewhat below the national pace. One important exception is New York City, where job growth has been strong, despite the relatively sluggish performance of the financial services industry. In the past, the City has counted on job growth from Wall Street to fuel economic growth during recoveries and expansions. This time around, however, job gains in the securities industry have been meager. Instead, the City’s job growth has been quite widespread in sectors outside of finance. One that is especially noteworthy is the City’s burgeoning technology sector, which has been creating jobs in industries such as internet publishing, online shopping, and scientific research and development. | Jarle Bergo: Monetary policy, cyclical fluctuations and competitiveness Address by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), to the Norwegian Association of Economists, 5 September 2002. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 7 August and on previous speeches. * 1. * * Introduction Thank you for giving me this opportunity to discuss the relationships between monetary policy, cyclical developments and competitiveness. There has been some debate about monetary policy this summer. Part of this debate has focused on the role monetary policy can and should have in smoothing fluctuations in the real economy and safeguarding competitiveness in the Norwegian business sector. Some have maintained that we place too much weight on reaching the inflation target. Statements like this should be discussed in the light of what monetary policy can be used for and of the broad effects on the economy of various monetary policy objectives. Only when we have clarified our options, can we discuss whether the emphasis on the inflation target is “too great”, “too little” or “just right”. I hope to be able to offer some clarification today. I think it will also become clear that Norges Bank in its implementation of monetary policy consciously seeks to avoid unnecessary disturbances in the real economy. | 0 |
Another natural reason for the presence of low interest rates is our history of low and stable inflation rates, at least in comparison with other countries. As a result, international investors view Switzerland as a kind of safe haven, which gives rise to an interest rate advantage in nominal as well as in real terms. If Switzerland were to give up its monetary independence by pegging the franc to the euro or by joining the euro area, it would lose its privileged status and, consequently, Swiss interest rates would increase to European levels. Since higher interest rates mean lower asset prices and lower levels of investment, and also higher mortgage rates, the Swiss are understandably not keen on giving up their national currency. Since any major decision in Switzerland has to be approved in a public referendum, the prospect of euro membership in the near future is thus highly unlikely. The final point I would like to make is that going for a currency peg instead of adopting the euro outright is not an option for Switzerland either. It could even be a dangerous solution. Currency peg not an option It is no secret that the majority of Swiss are against EU membership, at least at the moment. But you may ask: Even if Switzerland isn't an EU member, couldn't it peg the Swiss franc unilaterally to the single currency? Wouldn't this help eliminate the exchange rate risk, without giving up monetary flexibility entirely? There is no such thing as a free lunch in monetary affairs! | In the field of blockchain technology, the world has also considerably changed over the past year, with the rise of decentralised finance, the success of non-fungible tokens (NFT), not to mention the first, sometimes spectacular, "clashes” between these new ecosystems and regulatory authorities, in countries as different as China and the United States. 1/4 BIS central bankers' speeches 2. Faced with this changing world, how should we, as central banks and financial sector supervisors, position ourselves? First of all, to be relevant in a changing world, we need to be able to distinguish what does not change. And fundamentally, what does not change in the financial sector is the need for confidence. Consumers of financial services need to have confidence: in the security of transactions, in the protection of their assets and in their freedom of choice. The players in the sector also need to have confidence: in each other, because they remain interdependent, in the rules of the game, i.e. in the regulatory conditions under which they can carry out their activity. Central banks and supervisors clearly have a role to play in maintaining this confidence, in all the forms I have just mentioned. In this respect, I would like to share with you three convictions: Firstly, the mechanisms of confidence cannot be replaced by “algorithmic” confidence, i.e. | 0 |
In principle, that should promote greater and more efficient sharing and spreading of risk across the financial system. In essence, the recession which followed the financial crisis demonstrated how much the real economy depends on an efficient, functioning financial system. Financial innovation is a continuous process, and there are many examples of either new products or rapid growth in fashionable markets during the past few years. For example during 2010, there were significant developments in bank funding instruments such as putable CDs and evergreen repos.11 These products offer higher returns to investors compared with more conventional instruments, and also improve banks’ ability to meet new regulatory rules. There has also been an increase in the prevalence of long-term collateral upgrade trades where, for example, a real money investor lends a bank gilts against less liquid but higher yielding assets. Those repo transactions help the real money investor achieve a higher return, while banks build up their liquid asset buffers and fund their less liquid collateral. In that regard, these repo transactions look quite similar to a private sector version of the SLS. Where appropriate, such transactions can both improve the returns to pension funds and support lending to the real economy. Of course, the authorities need to monitor the extent to which these transactions strengthen the links between the banking and insurance sectors. | The effects of the high demand for certain commodities from rapidly-growing economies are something that central banks around the world must manage in the future. Another example is the imbalances in the global economy. Access to credit was too high for a long time in many countries and contributed to an unsustainable development. The imbalances that were built up are being corrected, but it is still uncertain how long the adjustment will take. What we see now is a world less stable than we have been seeing in recent years. Sweden is a small open economy and the Riksbank conducts an independent monetary policy. We have an inflation target which we endeavour to attain. An inflation target becomes an even more important anchor for monetary policy in a situation like the present one. If financial imbalances and large fluctuations in commodity prices create global shocks over a long period of time, the inflation target can in itself have a calming effect on our own economy. It therefore feels particularly important to maintain our focus on the inflation target right now. The interest rate decision In connection with the Executive Board’s monetary policy meeting on 3 September, we saw signs that inflation is falling in various parts of the world. But this fall in inflation is from a very high level and as yet no clear decline is visible in the statistics. Swedish inflation is still at its highest level since the mid-1990s. At the same time, growth has been weaker than anticipated. | 0 |
The MPC sees a 50% chance of inflation exceeding its target two years hence. Outside professional forecasters put that probability at just over 40%. Only around a third of companies and a quarter of households expect inflation to be above the target at that point. 9 The balance of risks, as perceived by those setting and receiving wages, is skewed squarely to the downside. That leads naturally to questions of monetary policy strategy. There is clearly a tightrope to walk here: lean too much in an expansionary direction and the inflationary cat is let out of the bag (assuming it isn’t already stuck in the tree with that kite); lean too much in a contractionary direction and the recessionary gorilla is unleashed (ditto). The asymmetric risks posed by the effective lower bound have led some to suggest that the optimal strategy is to leave rates “lower for longer” (Evans et al (2014)). The argument here is that it is better to err on the side of over-stimulating, then course-correcting if need be, than 9 The professional forecasters’ probability is taken from the Bank’s Survey of External Forecasters for 2015 Q2. The company data are from the Deloitte CFO survey for 2015 Q1, and are based on an assumption that half of those companies that report that their two year ahead CPI inflation expectation is in the 1.5–2.5% bucket expect inflation to be above 2%. The household data are derived from the Bank/GfK inflation attitudes survey for 2015 Q2. | Prominent examples of “dread risks” with these characteristics are plane crashes and terrorist attacks, such as 9/11 in the US. This exaggerated sense of risk is stronger, the more recent the event. In other words, the over-estimation of risk is subject to time decay. This is known as disaster myopia (Guttentag and Herring (1986)). Rates of time decay from dread events are, however, typically slow. While the psychological scars from dread events fade, they do so only gradually and never fully disappear. Although the over-estimation of risk is, in one sense, “irrational”, its anthropological roots are deep. They are found in the hunter-gatherer communities that existed thousands of years ago, typically involving groups of 50–100 people. Simultaneous loss of 100 people would, in this setting, have threatened these communities’ very existence. And this “dread” appears to have hard-wired itself into our psyche to this day (Gigerenzer (2014)). The consequences of dread risk may not, however, be benign. It generates risk-averse behaviour which, while instinctive, may be counter-productive even from a risk perspective. The dread risk associated with 9/11 led to an exaggerated fear of flying and a sharp rise in car use. The loss of life from this increased car use may have been greater than the loss of life from 9/11 itself (Gigerenzer (2014)). This is the paradox of precaution. The self-same logic applies when moving from catastrophic losses of life to catastrophic losses of livelihood. Financial crises are the classic example of such catastrophic events. | 1 |
Second, our decisions are based on the inflation path over the medium run, not on the latest observed inflation. This requires projecting inflation via different approaches. Recent ECB staff forecasts see inflation averaging 2.3% in 2024. Given this, earlier this month we decided to front-load the normalisation path of our key interest rates, and to announce further rate hikes down the road, in order to ensure the return of medium-term inflation to our 2% target. Third, it is very difficult to know how much further our key rates will need to rise eventually in this hiking cycle, given the huge uncertainty that we face in the current context. But for this very reason, economic models are helpful in providing us central bankers with some guidance. I have provided in this speech some estimates based on models developed by Banco de España staff. Crucially, this is a data-dependent forecast which may change as time goes by and new information comes in. Also, it will depend on our future decisions regarding our asset purchase programmes. I hope that my words have reassured you about our determination to rein in inflation without causing unnecessary suffering to our fellow euro area citizens. We live in difficult times, but we expect to rise to the challenge. Thank you for your attention. 8 | Mr Heikensten speaks on the euro and European economic policy Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, the Swedish central bank, at Merita-Nordbanken in Malmö, Sweden on 16 June 1999. The single European currency, introduced at the beginning of this year, marks a major change for the economic policies of countries in the euro area. The clearest example is, of course, the transition to a single monetary policy. The proper functioning of the monetary union in the long term presupposes that the new European Central Bank succeeds in making its policy and the euro understood and credible. Important factors in this context are how the new central bank chooses to work, how monetary policy is continuously formed and how it is communicated to the general public and to markets. However, a well-constructed monetary policy and a central bank that acts wisely are not sufficient to ensure that the union functions in the longer run. If growth and employment in the euro area are to be as high as possible without jeopardising price stability, all the components of national economic policies will have to pull together. The fiscal, structural and labour market policies of the individual countries influence both the conditions under which the new central bank is operating and, to the highest degree, Europe’s future prosperity. A framework exists for this joint effort. | 0 |
This familiar fact, demonstrated in numerous studies, can be exemplified with the Riksbank’s alternative estimations of the output gap as presented continuously in the Inflation Report. A Taylor rule relies on a single measurement of resource utilisation. This contrasts with the Riksbank’s conception of the output gap or resource utilisation. We try to combine a number of different measurements and indicators into a weighted overall assessment. Alternative estimations of the output gap are presented in connection with the Inflation Report’s discussion of resource utilisation. Studies of different industries’ assessments of resource utilisation are considered in detail. Other indicators that can add to the picture of resource utilisation and its relationship with inflation are obtained by analysing current wage trends (both negotiated wage increases and wage drift) and data on the labour market situation. We usually also emphasise the need for a flexible approach to and a continuous reassessment of different indicators of resource utilisation. In recent years our views about the level of resource utilisation, the interval within which potential growth lies and the relationship between growth and inflation have been revised continuously. The point I want to make is thus that the analysis stands to gain from decision-makers using a perception of resource utilisation that is broader than a mechanical application of the Taylor rule provides. | We believe it is important that internal information systems are capable of capturing the full range of exposures to individual counterparties across the firm; that potential future credit exposure is measured realistically, including through stress tests at the counterparty level and across the firm’s portfolio, and managed to prudent limits relative to capital; that credit limits and terms reflect the quality of information provided by the counterparty about its risk profile and risk management systems and are not eroded by competitive pressures; and that the risk management process tries to capture the risk to the firm that could result from the rapid unwinding of positions by leveraged counterparties. A second challenge relates to the growth in volume and complexity of new instruments for risk transfer, which has advanced, as it typically does, ahead of improvements in the trade processing infrastructure and risk management and control practices. Although these innovations seem likely to reduce overall risk in the financial system, shortfalls in the infrastructure leave the market more vulnerable than it needs to be to adverse dynamics in conditions of stress. These gaps are evident in the degree of manual processing required for trade capture and settlement; the substantial backlog of undocumented or unconfirmed trades; the prevalence of assignments of trades without the consent of counterparties; and in the slow adoption of market services for automated processing. Shortfalls are also evident in the limits of models and other techniques for measuring potential exposures in conditions of stress. | 0 |
17 [23] in the same way as prior to the financial crisis or whether monetary policy should actually take explicit account of the risk of a financial crisis. My view is that financial stability and monetary policy are so closely interlinked that it is difficult to draw a clear boundary between them, which is one reason I think it would be good if the Riksbank were to have main responsibility for macroprudential policy.18 The importance of independent macroprudential policy The Riksdag has given the Riksbank an independent status. This is based on the insight that there may be reasons for economic policy makers to pursue a shortterm policy that is incompatible with long-term goals. This is usually referred to as the ‘time inconsistency problem’ and is commonly found in economic policy. In monetary policy, the fundamental problem is that decision-makers are happy to promise low and stable inflation, at the same time as they also wish – after households have formed expectations of low and stable inflation – to conduct a more expansionary monetary policy to increase employment. However, households realise this and incorporate this knowledge into their inflation expectations, which leads to inflation becoming excessively high. One solution to the time inconsistency problem is to delegate monetary policy to an independent central bank with an inflation target. My assessment is that this is a solution that has worked well in Sweden. Time inconsistency is also a problem in macroprudential policy. One example of this is capital requirements for banks. | In line with this thinking, we have come to the conclusion that we need to develop our financial infrastructure to facilitate the use of foreign currencies in international financial transactions in the Asian time zone. We have just started work on building a US dollar payment system and would have a keen interest in doing the same, in due course, for the euro, if demand for such facilities in the Asian time zone was evident. Hong Kong looks forward to and is ready to facilitate the greater use of the euro in Asia. For Hong Kong the emergence of the euro as a major currency alongside the US dollar is also welcomed from a reserve management standpoint, since the options for investment are broadened. There is now a clearer alternative to the US dollar than before monetary union. And it is a time when conservative, long-term investors are looking for such an alternative. As you are aware, there is in the US increasing concern about inflation being rekindled, notwithstanding rapid, IT induced productivity growth. Of course, prospects of tighter monetary policy tend to lend support to the dollar. But there is the possibility that at some point the extent of interest rate hike needed to preempt inflation and the associated fears for its consequences for the real economy are such as to scare investors away from US financial markets. Another reason would be the possibility that productivity gains arising from IT investments may experience diminishing returns. | 0 |
A respected, self-confident but restrained line supervisor, with the forensic skills to get to the heart of things, can do a very great deal for stability. It is terrific that Adair and Hector are renewing the emphasis on line supervision. (But, by the way, when supervisors do their job, their achievements are invisible and they get no thanks.) Second, it is important to remember that most bank failures have their roots in large or concentrated exposures. This crisis is in some respects no exception. It is, therefore, good news for the future that, ahead of this crisis, the EU was already planning to extend the bar on large credit exposures to interbank deposits. Line supervisors must additionally look for concentrated exposures to sectors or instruments; to give just one of many possible examples, large holdings of super-senior CDO tranches just might have been a pointer to the vulnerabilities at some large internationally active banks. And the possibility of fateful concentrations in bank funding structures should be given similar weight. If all that requires more reporting by banks, it would be worth it. Third, effective prudential supervision is seriously impeded by complex group structures. That was a headline lesson from the failure of BCCI nearly two decades ago; and EU Directives were amended to make unsupervisable structures a ground for withholding or withdrawing authorisation, and so for exercising regulatory powers. But complexity is not just a convenient shield for wickedness. | Second, resolution frameworks have to be established, to ensure that all banks, however complex or large, can be resolved in an efficient and safe manner. Such frameworks may involve the simplification of firm structures and the design of “bailin” mechanisms, where creditors are forced to absorb losses when a bank is close to failure2. Third, G-SIFIs will face more intensive supervisory oversight, guided by an enhanced set of core principles for effective banking supervision. Singapore’s regulatory approach Many jurisdictions are now considering their responses to the FSB and Basel Committee recommendations. MAS’ regulatory approach is guided by three principles: (i) First, we must maintain the high standards of financial regulation which have become associated with Singapore. Maintaining high regulatory standards is completely compatible with fostering a vibrant financial sector. Being a wellregulated, trusted and stable financial centre is a source of advantage for Singapore. It provides confidence for banks to operate in Singapore and for customers to transact with banks here. 2 “Bail-in” is the process where bank debt in failing firms is forcibly converted into equity. This is intended to make it possible to rapidly recapitalise a bank such that it can continue in business without an equity injection from taxpayers. 2 BIS central bankers’ speeches (ii) Second, our rules must be risk-appropriate. International standards must sometimes be enhanced to be appropriate for Singapore’s context. They must be targeted to address well-defined risks or concerns that could have systemic implications. | 0 |
Coupled with the ongoing slowdown in domestic demand, this led to a sustained fall in the annual rate of increase in core goods prices. Meanwhile, prices of services remained on a mild track (Chart 16). Against this backdrop, core inflation indicators maintained a downward trend (Chart 17). Chart 16. Chart 17. Prices of Core Goods and Services Core Inflation Indicators SCA-H and SCA-I (Annual Percent Change) ( Annual Percent Change) Source: TurkStat. Source: TurkStat. Now, I will touch upon the developments in economic activity on which the inflation forecasts are based besides the short term outlook. Third-quarter national income data point that domestic demand conditions remained weak due to private investment demand. Private consumption, which displayed an increase for the first time in a protracted period, limited the slowdown in final domestic demand. Nevertheless, demand conditions followed a slightly weaker course compared to the projections in the October Inflation Report (Chart 18). Last-quarter data indicate a mild pick-up in consumption and investment demand as envisaged. Accordingly, output gap forecasts regarding the second half of 2012 are slightly revised downwards compared to the previous report. Chart 18. 2012Q3 Final Domestic Demand: Forecast and Realizations (Seasonally Adjusted, 2008Q1=100) Source: TurkStat, CBRT. Meanwhile, we estimate that easing financial conditions due to the recent rise in capital inflows may result in a higher-than-expected growth in final domestic demand in the first half of 2013. Indicators for orders, loans and other leading indices also support this outlook. | Improved risk appetite and more effective use of the Reserve Options Mechanism (ROM) have allowed a gradual reduction in the upper bound of the interest corridor since September. Meanwhile, the liquidity provided for the market was further increased, driving overnight market rates close to lower bound of the corridor. Chart 7. Policy Rate and Liquidity Policies (Percent) Source: ISE, CBRT. Capital inflows accelerated at the year-end upon the surge in global risk appetite coupled with a relative improvement in risk perceptions regarding Turkey. This contributed to a fasterthan-expected credit growth and appreciation pressures on the Turkish lira. I suppose you remember that we stated this as a possible risk scenario in the previous Inflation Report and listed possible measures we could take. Upon the materialization of these risks to a large extent, we launched the strategy we envisaged. In order to contain the risks on financial stability, the appropriate policy response would be to keep interest rates at low levels while sustaining macroprudential measures. In this respect, the policy rate and the corridor have recently been shifted down and a measured tightening has been implemented through reserve requirement policy. Despite the cut in short term interest rates, the CBRT maintained its cautious and flexible stance, which is worth noting. Thus, I would like to reiterate that the impact of the measures taken on credit, domestic demand and inflation expectations will be closely monitored and the amount of the Turkish lira funding will be adjusted in either direction, as needed. Chart 8. Chart 9. | 1 |
My intention today is to concentrate on the central role played by the Riksbank in the management of liquidity in the financial system. The risks that are generally given prominence as being the greatest where the millennium period is concerned are the risks of technical malfunctions arising, primarily as a result of problems in adapting all computer systems to the year 2000. Such malfunctions have the potential to disrupt the financial infrastructure. Irrespective of how high a degree of probability is assigned to these risks, they have to be treated with the utmost seriousness. The very uncertainty about the possibility of problems arising is in itself enough to lead to disturbances; for this reason, preparations have to do not only with technical adaptations but also to a great extent with instilling confidence that the systems will function in practice. One way to build confidence is to use various types of agreements to attempt to limit the burden on systems around the millennium period, hence reducing the risks. One example of a measure of this kind is that the European Central Bank, the ECB, has decided that the European payment system, Target, is to be closed on 31 December. The reason for this decision is to enable all measures that need to be taken by the end of the day and the year to be carried out in good time before midnight. The closing of Target makes it possible to close down all financial trade within the EU on New Year’s Eve. | Already in April 1998, “The Joint Year 2000 Council” was established;3 its principal task is to ensure coordination between the various actors in the market and to provide a platform for an exchange of information and experience. Everybody is working for a common goal – to ensure that the turn of the year passes by in a smooth fashion. Up to now, the preparations for the millennium shift has, in all essentials, been working according to plans. However, it is of great importance that this issue continues to have top priority. My opinion is that the financial sector and all interested parties can look ahead to the new millennium with confidence. In conclusion, it is worth recalling that the introduction of the euro at the beginning of this year was able to take place without any serious hitches, even though many systems were being taken into use for the first time. 3 Basel Committee on Banking Supervision, the Committee on Payment and Settlement Systems, the International Organization of Securities Commissions and the International Association of Insurance Supervisors. BIS Review 97/1999 4 | 1 |
The first is that we are striving to attain high GDP, high employment and low unemployment, and resource utilisation is related to these targets. But we should only do this when it is compatible with the inflation target. The inflation target takes precedence. This differs from the United States, where the central bank has the double target of achieving price stability and maximum employment. In addition, the preparatory works for the Sveriges Riksbank Act only refer to “high” employment (as compared with the United States’ ”maximum” employment) and not to any particular level of unemployment.3 The other reason to care about resource utilisation is that it serves as an indicator of future inflation. The positive relationship between resource utilisation and inflation is illustrated in Figure 3, which shows the correlation between three different measures of resource utilisation and CPIF inflation 1–12 quarters ahead.4 The connection is fairly strong 3–8 quarters ahead. The connection is stronger and faster for the hours gap than for the GDP gap and the RU indicator. This may be because the development of the labour market usually follows behind output and because it is very important for the development of prices and wages. Of course, it is difficult to draw any conclusions from the covariation of two variables, but the same type of relationship also exists in more developed empiricallyestimated models. | Considering this, we wrote, in Monetary Policy in Sweden, that the Riksbank, in addition to achieving low and stable inflation, should also strive to stabilise output and employment around long-term sustainable paths.5 This means that we also strive to hold resource utilisation at a normal level. We usually say that the Riksbank is thereby conducting a flexible inflation-targeting policy. We have also chosen to take a broad approach when it comes to interpreting resource utilisation, instead for only looking at a single measure of resource utilisation. 2 Sveriges Riksbank, Monetary Policy in Sweden, June 2010. 3 My colleague Lars Svensson has a different interpretation of our task, namely that, during the forecast period, we should strive to hold inflation measured in terms of the CPIF (the CPI with a fixed interest rate) as close to two per cent as possible and resource utilisation measured in terms of unemployment as close to an estimate of the long-term sustainable level of unemployment as possible. See, for example Lars E.O. Svensson, “For a better monetary policy: Focus on inflation and unemployment”, 8 March 2011. 4 The figure is based on the ten-year period 1997–2006. This period is not extended further than 2006 so as not to be affected too much by the period after the outbreak of the financial crisis in the autumn of 2008. However, the differences do not become so great even if the years 2007 and 2008 are included. 5 Sveriges Riksbank, Monetary Policy in Sweden, June 2010. | 1 |
The poverty rate in Asia has markedly declined from 80% in 1981 to 16% of the total population in 2005. Beyond dramatically improving basic social conditions, significant strides have also been made in the provision and access to quality healthcare and education. Whilst Asia's urban population has increased by more than six fold, average life expectancy has risen by 25 years to 72 years and average literacy rate to above 90%. What makes these considerable improvements remarkable is that they were all achieved in a relatively short span of less than two generations. This paper consists of two parts. The first explores the development strategies that have contributed to Asia's successful economic transformation in the post-World War II period, with particular emphasis on the recent decade after the Asian financial crisis. The paper then discusses broadly how Asia's development strategies needs to be adapted going forward, especially in light of the current global crisis which has brought significant changes to the global economic and financial environment. Asia’s development strategy over the last 50 years Asia in the post-World War II period What is exceptional about the performance of Asia is the relatively high growth rates achieved by the best performing Asian economies when compared to the champions of earlier eras (Figure 1). The rapid transformation of Asia was led by three global growth leaders over the past 50 years, beginning with Japan in the 1950-70s, South Korea from the 1970s and currently, China. | Considerable efforts have also been placed in regional financial market development, especially for a deeper and more liquid secondary bond market. On the supply side, the Asian Bond Market Initiatives (ABMI) seeks to develop deeper and more liquid capital markets that facilitate the channelling of the large pool of savings in the region to fund productive investments, thereby enabling further regional economic development. Recently, the establishment of a Credit Guarantee and Investment Mechanism by ASEAN+3 to support the issuance of local currency-denominated corporate bonds, with an initial capital of USD500 million, was announced. Meanwhile, the Asian Bond Fund (ABF) Initiative focuses on addressing demand-side issues by broadening and deepening domestic and regional BIS Review 130/2009 7 bond markets through pooling reserves for investments into regional bond markets. Two funds, totalling USD3 billion, have been established to catalyse market development. Regional financial integration has accelerated in this decade. A more diversified financial system, together with strengthened financial infrastructure and capital account liberalisation, have seen the share of intra-regional portfolio investment, in both debt and equity, as a share of total portfolio investment has increased to 24% in 2007 from 15% in 2001. Mergers and acquisitions (M&A) have also been growing, with intra-regional M&A as a share of total M&A in the region rising to 47% in 2006 from 32% in 2004. Most of the investments were into the services sector, such as financial services and real estate. | 1 |
The reform of the financial legislation and its framework in line with that in other European states has facilitated the export of financial services by Icelandic financial institutions and the establishment of operations abroad. You will hear more about this process from the next speaker, Director Sigurdur Einarsson. Foreign direct investment regulations are now liberal with the most important exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industries, such as the production of aluminium, which is based on Iceland’s abundance of renewable energy resources. Recent changes in corporate taxation in Iceland, lowering them to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. Director Garðar Ingvarsson will probably give you more detail on this later this afternoon. Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and as mentioned earlier, financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends. During the 20th century, Iceland tried almost every type of exchange rate policy, from a monetary union with Denmark to a managed float. | The vast body of research conducted in the area of monetary policy has documented the real risk of high and persistent inflation and inflationary expectations. It also shows that without a strong and committed monetary policy response, inflation expectations become self-fulfilling, leading to increased uncertainty, disrupted price signals, inefficient distribution of resources, reduction of economic growth and increased long term volatility. Our experience, research and current analysis, show that under current conditions, the only responsible policy for the central bank is to respond by increasing the policy rate and reinforcing its commitment to price stability. This course of action will create the necessary monetary conditions to control inflation and inflation expectations, and will eventually help return inflation to the target within a reasonable time horizon. Our commitment to price stability aims to preserve the purchasing power of the family incomes and the value of household savings; preserve financial stability and create optimal credit conditions; as well as help the private sector to make reliable business and sustainable investment plans. Most importantly, our projections, which benefit from the same models and research analysis, suggest that the current round of policy rate hikes will not be recessionary. The Albanian economy will continue to grow in the medium-term horizon. In this respect, the recent increase of policy rate which aims to preserve price stability and anchor inflation expectations, is simultaneously a measure for protecting the economy; 2/4 BIS - Central bankers' speeches the private sector; and the households, from the negative effects of inflation. | 0 |
However, the Swedish Financial Supervisory Authority, Finansinspektionen, which has had the responsibility for macroprudential policy since 2014, has taken measures and as a result of this, and possible for other reasons, prices have slowed (see Figure 5). Although lending to households has continued to increase, this has dampened criticism against the effects of the expansionary policy on debt and housing prices. A gradual slowdown in the rate of increase in debt accumulation has probably also played a role. Recently, the discussion has instead focused on the development of the Swedish krona. The expansionary monetary policy has, via the normal exchange rate channel, contributed to a depreciation of the krona. But in countries with inflation targets, like Sweden, it is the inflation target that should anchor long-term expectations while the exchange rate will vary. In recent years, the krona has developed in a similar way as the currencies of other small open economies, although it has been relative weak very recently (see Figure 6). Neither is there reason to believe that Swedish inflation relative to abroad will cause a trend depreciation of the krona exchange rate, as virtually all countries in the world have an inflation target of more or less exactly 2 per cent, just like in Sweden. This is of course in itself no guarantee that we will not see trends in the krona exchange rate. | Re-establishing it may require a prolonged and costly process, which should also be taken into account. It is such fears that largely explain the policy conducted by the Riksbank in recent years. Does a policy that “leans against the wind” require there to be confidence in the inflation target? It is probably possible to construct theoretical and quantified examples in which the recession that is prevented or mitigated by “leaning against the wind” is sufficiently long and deep for it to be worth taking the cost of losing, and having to re-establish, confidence in the inflation target. But in practice, it is very difficult to imagine how a central bank, seeing that confidence in the inflation target is being eroded, could stick to a tighter policy and risk inflation expectations staying permanently low in order to perhaps prevent a financial crisis sometime in the future. I am not saying that this is a reason to never conduct a policy that “leans against the wind”. On the contrary, I am personally in favour of the idea as such, and can well imagine formally integrating such a policy into the monetary policy set-up, in the way it has been done in Norway. But one can argue a policy that “leans against the wind” is in practice a “fair-weather” policy – windy but sunny, in other words. Only as long as confidence in the inflation target is intact, there is scope to use monetary policy to counteract financial imbalances. | 1 |
Furthermore the pattern of economic growth has changed. Today, the main sources of growth are the improvement in productivity and increasing export performance. In addition to this, the role of the private sector in economic growth has increased considerably in the last few years. Recent Turkish experience showed that tight and prudent fiscal policy is not necessarily contractionary, especially if and when an economy is facing fiscal dominance. The economy is expected to keep its growing trend in 2006 and onward and the aim obviously is to achieve sustainable growth rates at high levels. 2 BIS Review 19/2006 Secondly, substantial progress in financial stability has been achieved with the help of the restructuring of the banking sector. Financial markets are now deeper and much less fragile. Parallel to these achievements, both nominal and real interest rates have declined significantly. The average maturity of the Treasury issues increased considerably and Turkish Eurobond spreads, used as a proxy for the country risk premium, have dropped significantly since 2001. Volatility in exchange rates has gradually decreased thanks to the transparent and consistent operation of the floating exchange rate regime. All these together triggered the reverse-dollarization process: Though the process has been interrupted from time to time and more progress is necessary, the weight of Turkish lira denominated investments in portfolio preferences is now on an upward path. And finally, integration of the Turkish economy with the world has increased, leading to a more competitive environment in the real sector. | There is at present a long list of reform agenda items being debated internationally: these include strengthening financial institutions by requiring them to hold more capital and liquidity; changing compensation practices to discourage excessive risk taking by bankers and reforming regulatory structures to ensure more effective supervision, especially of large and complex firms that have systemic implications. 5. It is therefore very timely today that we have five very distinguished speakers joining this Panel to share with us their insights into this complex and important question of how we should go about reforming the international financial architecture and regulatory regimes in different jurisdictions. They are, by order of their appearance in the programme: (i) Mr Rintaro Tamaki, Vice Minister of Finance for International Affairs of Japan; (ii) Dr Jong-Goo Yi, Standing Commissioner of the Financial Services Commission of Korea; (iii) The Honourable Chris Bowen, Minister for Financial Services of Australia; BIS Review 7/2010 1 (iv) The Honourable Mr Ahmad Husni Hanadzlah, Minister of Finance Two of Malaysia; and (v) Professor KC Chan, Secretary for Financial Services and the Treasury, HKSAR. I understand from the organiser that we will invite Professor Chan to speak first as he may need to leave earlier for the Legislative Council meeting. The order of other speakers will follow the programme. Professor Chan, please. 2 BIS Review 7/2010 | 0 |
Stability in the elemental sense I have described was profoundly threatened last autumn – when the universal crisis of confidence triggered by Lehmans’ failure tore the fabric of international commerce. That stability has been sustained owes everything to governments stepping in, effectively being prepared to borrow from the future in order to prop up the banking system now. In that sense, we are, of course, “beyond Financial Stability”, insofar as, ordinarily, we would regard instability as a state of affairs that requires such support. The Turner Report rehearses the analysis of how we got to that point. It rightly places weight on the baleful effects of persistent and cumulative global current and capital account imbalances. I dearly wish that the international authorities had taken on board the lessons from the 1990s EME crises about the vital importance of monitoring, and where necessary managing, national balance sheets – for large countries as well as EMEs. It is striking, however, that other analysts, including recently from the IMF, are starting to play down the part played by the international monetary system. I do not go along with that. There can BIS Review 39/2009 1 surely be no disputing that macroeconomic imbalances have mattered greatly to the crisis, as they contributed to the build up of debt and, through the compression of risk-free rates and risk premia, the appreciation of asset prices. But in acknowledging that, we do not have to claim that of themselves such imbalances lead inevitably to financial instability. | Investing even more government capital in Norway would reduce the return on investments in the Norwegian business sector and prompt other investors to invest elsewhere. Using even more capital in the Norwegian economy would probably also lead to a rapid relocation of jobs to other countries, as the krone would tend to appreciate. BIS Review 18/2002 3 | 0 |
As head of the Hong Kong Monetary Authority I have repeatedly been asking our community to stick it out. We have seen downward adjustments in asset markets of about 50% in less than twelve months. While not taking a view as to whether BIS Review 85/1998 -5- such adjustments are adequate in the circumstances, we can do without the excessive and destabilizing interest rate volatility brought about by market manipulation. We can do without what is now clearly proven to be the excessive interest rate premium brought about by the continuous presence of the market predators. We can do without the market overshooting that many of our neighbouring economies have been made to suffer. We can do without confidence being undermined by the greed of those that are intent only on making profits at the expense of our people. We have the wherewithal to tackle the situation and we did so decisively. The third accusation is that we have dangerously departed from the currency board discipline and ventured into discretionary monetary management. We have not. And without bothering you with too much technical detail, the measures introduced recently have the effect of strengthening the currency board arrangements of Hong Kong rather than eroding them. There has been much confusion about this matter, stemming from the somewhat academic debate as to whether a currency board should also be responsible for the provision of liquidity to the banking system that involves an increase in the monetary base. | On the securities side, we are in the process of introducing a series of reform measures to lessen the potential for market dislocation. I am happy to say that our actions have been successful. There has been no indication of further market manipulation since the end of August. We have seen substantial unwinding of the short positions in our currency by the hedge funds, with considerable losses. And with the stock market having recovered substantially from the level at which we entered the market in the middle of August, more considerable losses were incurred also in their short positions in the stock index futures. Much of the interest rate premium of the Hong Kong dollar over the US dollar has disappeared, clearly reflecting with hindsight the extent of the excessive pain that had been so mercilessly inflicted on the community by the manipulative plays. I hope you are now more sympathetic towards the controversial actions that we have taken. But in case you still have doubts, let me specifically address four accusations that have been hurled at us. The first accusation is that we were trying to jack up the market against trends dictated by fundamentals. Alan Greenspan used those words. But this is simply not true. We do not mind where the level of the market is, if that is what the adjustment process demands. No official view on the “right” market level has been taken and there never will be such a view. | 1 |
That is the limitation we face and will always face in the banking sector, and that’s why no perfect and once-and-for-all accepted way of achieving the “ideal state of affairs of banks” will probably ever be established. All the more so as the reality makes achieving any ideal less likely in the future than it is now. Look, for instance, at the issue of resolvability of banks. Yes, we in the EU have the BRRD BIS central bankers’ speeches 1 (Bank Recovery and Resolution Directive) as our European answer to the question of resolvability. Let’s put aside the fact that its practical implementation and the enforcement of its key principles have not always been convincing so far. And we are not sure that these principles (namely bail-in) will be applied in a dynamically consistent way across countries and banks in the future. But still many believe we have made banks more resolvable (and also resilient) since 2008. And I think there are underlying real-time processes that are actually making banks less resolvable now compared to the past. Why? What worries me is that over time many end-users (and also policy-makers) tend to look at standard commercial banks as utilities with all their typical features. One of those features is that the population is becoming more and more incrementally dependent on the services such utilities provide, quite often without the very same population even noticing it. A typical example is electricity. | An additional element threatening the stability of the global financial system was that virtually all of the leveraged Treasury bond investors had similar positions, including major financial institutions. Banks’ direct exposures may be an important aspect of financial instability in periods of financial market volatility. In addition, banks may hold significant exposures with non-bank financial institutions, which themselves suffer from direct market exposures. The Barings crisis in 1995 is an example of the first case, while the LTCM case is an example of the second. In my view, the eventual scale of a systemic crisis might depend on the magnitude of the deviation of asset prices from fundamentals. How, then, do asset price bubbles get created in the first place? They may be created or exacerbated by some form of herding and overly buoyant investor expectations, as groups of investors imitate leading institutions’ strategies. Bubbles may be further boosted by a lack of adequate disclosure, problems of conflicts of interest, and destabilising trading or investment strategies. Once bubbles burst, portfolio insurance strategies in the event of falling prices - or dynamic hedging might heighten the downward spiral. Particularly in earlier episodes of equity-driven financial instability, such as the 1987 stock exchange crash, the initial wave of the sale of equity futures appears to have resulted in an accelerated decline in stock prices. However, the jury is still out on the role of tools such as portfolio insurance or automatic trading rules in exacerbating aggregate financial risk. | 0 |
In his Report to Parliament in 2004 , Lord Penrose described how Equitable had increased the share of returns to ‘with profit’ policyholders paid as discretionary terminal bonuses. This had “the intended effect” of reducing future benefits required to be reserved for and recognised as liabilities in the statutory accounts and regulatory returns, which only captured contractual liabilities. In this way, Equitable over-allocated to policyholders from the late 1980s onwards, weakening its underlying - although not its reported - solvency position. The regulatory solvency position was also bolstered by consistent adoption of the weakest valuation basis for reserves and by use of valuation practices “of dubious actuarial merit”. Following Equitable, the FSA supplemented the existing regulatory reporting with ‘realistic’ reporting, defined as the present value of expected contractual and ‘fair’ discretionary bonus payments plus a realistic capital margin. That realistic capital margin was based on stress testing, taking account of all key risks – for example, in the case of life insurers, market, credit, longevity and lapse risks. The Equitable case, along with several failures in the London Market in the preceding 20 years, showed why robust prudential regulation is necessary. Firm failure or even near-failure can bring significant costs for policyholders, particularly when it disrupts the provision of core insurance services. It also showed the importance of effective, forward-looking supervision. Although the board and managers bear first responsibility for the safety and soundness of their firms, we cannot rely entirely on firms’ own judgements about risk, reserves and capital adequacy. | The amounts at stake vary, but as an illustration, the last Intergovernmental Panel on Climate Change (IPCC) report, published last October, estimates that until 2050, the energy-related mitigation investments to limit warming to 1.5°C amount to USD 900 billion per year whereas climate-aligned bonds issued in 2018 reached USD 149 billion. Green financing requires an innovation-friendly framework: green loans, green securitisation, green covered bonds, green derivatives, green crowdfunding platforms and green private equity should all be promoted, keeping in sight our heading, which is preserving financial stability. The work of the Technical Expert Group on Sustainable Finance of the European Commission on green bond labels and sustainable benchmarks should be well understood as a game changer by the financial system: green finance should definitely mature, upgrade its professional standards and be “greenwashing proof”. Green finance has actually the ability to be a powerful transformational force but there will be no transition to a low-carbon future without further engagement from corporates, from large companies to SMEs. Financial institutions can provide a trickle-down effect, thanks to comprehensive CO2 disclosures or divestment strategies. But the real economy must embrace the transition on its own. Once again, appropriate public policies, like a credible carbon price, will set the proper incentives. d. Further developing the climate agenda in an inclusive manner Climate change will trigger strong distributive effects: agriculture in Sweden might benefit from an increase in global mean surface temperature while 145 million people in China are threatened by sea rise in a +4°C scenario. | 0 |
I didn’t expect to say “those were the days” about 2007. It was natural that the first response to the financial crisis in terms of reforms was focused on the bedrock prudential issues of capital and liquidity in banks. This has been supplemented by the drive both internationally and domestically to solve the too big to fail problem through a combination of resolution measures at the centre of which is agreement on total loss absorbing capacity for those banks which require such a bulwark to ensure orderly resolution in the event of failure. This is crucial to break the dependence of failing banks on injections of public money and likewise to break the impact of solvency problems in banks on the public finances. This is an international as well as domestic agenda of reforms aimed at fixing the fault lines that caused the financial crisis, building a more resilient and open global financial system, and deepening and building trust across jurisdictions. I have said before, but I think it justifies repeating, that we are unwavering supporters of an open global financial system which finances the investment and trade necessary to support strong, sustainable and balanced growth. As we see and seek to deal with new risks to the world economy and to global financial stability it is always important to remember that free trade and free capital flows are the foundation of a successful world economy with all the benefits that brings for the welfare of people. | Andrew Bailey: Progress on prudential regulation and three areas to complete 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 City Banquet, Mansion House, London, 22 October 2015. * * * My Lord Mayor, Ladies and Gentlemen – it is a great pleasure to be here again at the regulators dinner, and it is very good of you to entice so many people here tonight with the prospect of an evening with regulators. I won’t speculate on how this ranks on the scale of evenings spent in our cosmopolitan capital city. It is also a great pleasure to be speaking here tonight with Tracey. This evening I want to describe the progress we have made on prudential regulation and then examine a number of topical issues for the PRA and the Financial Services industry: the Senior Managers and Certification Regime; structural reform and ring fencing; and what the PRA is doing to pursue its secondary objective on competition. A common theme here is getting the incentives right to support good outcomes in relation to both prudential and conduct objectives. Progress It is over eight years now since the financial crisis began in this country. And to continue Tracey’s theme for a moment, it is possibly salutary to recall that amidst the many bad events of Autumn 2007, England reached the Final of the Rugby World Cup. | 1 |
The balance between exports and imports of goods and services has been consistently negative over the past decade, averaging 8% of GDP. While in past these deficits have been made good through inflows of capital from abroad, there is no guarantee that external imbalances on this scale can persist without posing a serious threat to the country’s external reserves and, ultimately, to the Maltese lira. And may I at this point remind you that the low and predictable inflation we have experienced in recent years is largely attributable to the pegged exchange rate regime. This has also significantly reduced pricing risks for exporters and investors. It should, therefore, be clear that undue and sustained pressure on the reserves would evoke a monetary policy response which would have pervasive repercussions. There is no doubt that a primary factor behind these macroeconomic imbalances is the state of public finances. Malta’s fiscal performance over the past decade has not been rigorously consistent with its intended objectives. Fiscal consolidation efforts based mainly on increasing taxation brought the deficit down from around 11% of GDP in 1998 to between 6% and 7% of GDP in the past three years. It is, however, clear that further attempts at consolidation, particularly in a weak growth environment, will have to focus on expenditure cutting. The Irish experience during the 1980s is most telling. The first half of the decade was characterised by increasing taxation, which often had to be followed by higher expenditure to satisfy economic, political and social demands. | In any event, you need to be rather confident that the potential tensions are indeed likely to be minor, or at least short-lived, because, if they do turn out to be serious, then you could be stuck either with a weak Euro - and more rather than less inflation, higher rather than lower interest rates over the medium-term, and exchange rate instability against outside currencies - or, if the European central bank is allowed to do its job in accordance with its statutes, you could be stuck with persistent stagnation and unemployment across the economically weaker parts of the Euro-area. It’s not enough, it seems to me, to shrug one’s shoulders and say “well, that’s what happens now anyway within individual countries”; at least within individual countries there are alternative adjustment mechanisms, in the form of labour mobility and fiscal redistribution, to moderate the tensions, which will be much less effective within the Euro-area. The architects of the Maastricht Treaty clearly knew all about the Beast, and they evidently shared my scepticism about it turning naturally into Prince Charming. The famous convergence criteria are there precisely in order to reduce the risks of tensions emerging after the start of the Euro. One can argue about how far they do in fact reduce the risks. But it would be a reckless gamble to charge ahead if even those criteria were not met - sustainably, and in substance rather than just in form. So there needs to be a serious debate. | 0 |
· Second, the New Accord will recognise that some banks treat their smallest business credits as retail exposures. In these cases, banks group and administer their small business loans on a “pooled basis,” similar to the way they manage most small personal loans. The New Accord will permit aggregate exposures to a single business borrower of up to € million to be treated as retail exposures. Because retail exposures enjoy a preferential treatment under both the standardised (reduction of risk weights by 25 percentage points, from 100% to 75%) and IRB (a different risk-weight curve) approaches to credit risk, banks making such loans may face lower capital requirements than are currently applicable. Moreover, for those who have monitored our work closely, the Committee recently eliminated a controversial requirement governing the “granularity” of such loans. In plain language, the rules will no longer require that retail portfolios contain exposures to a minimum number of unrelated parties. Instead, national supervisors will determine whether such portfolios qualify for retail treatment. Although the media has not reported on this change widely, it is quite important because it will help more banks to enjoy the preferential retail treatment for their smallest business credits. 2 BIS Review 32/2003 · Finally, the New Accord will recognise a far wider range of collateral and guarantees than the current rules do. | From the very moment that a loan is granted, and before any impairment on this specific loan appears, there is a positive default probability (no matter how low it might be) following a statistical distribution with an expected loss. The expected loss is known in a statistical sense but not yet identified in a specific loan operation or borrower. As the risk appears at the beginning of the operation, so does the statistical provision requirement. With this system, provisions run in parallel to revenues and are therefore distributed through the cycle allowing for a better mapping between income and costs in the profit and loss account. The statistical provision that we have established works in practice as an addition to the “old” existing provisions: when “old” provisions are well below expected losses, the “new” dynamic provision is added. In good years the net “specific” provisions are very low (or even negative, if there are substantial recoveries), so the new provision accumulates. But in bad years the “specific” provisions increase sharply, eventually exceeding the gross burden of the statistical provision. The net result is that with this system provisions are distributed over the cycle, providing a better recognition of expected losses. More specifically, the amount of the statistical provision is the difference between the measure of latent risk (i.e. expected losses) and the specific provision (that covering impaired assets). In good times the specific provision is low and the statistical provision is positive. | 0 |
BIS Review 51/2010 5 If we take this new scenario as given, we then have to look at how, under those new conditions, entrepreneurs can get sufficient financing to see their projects through. This challenge is even more crucial in countries like Spain, where bank financing has much more weight than the alternative sources provided by the stock market, today only accessible to a small number of large companies. Our efforts are now concentrated on how to exit the crisis and on avoiding a repeat experience, but we should also be thinking of how to stimulate economic growth under the new regulatory framework. The global agenda of structural reform should include this challenge of how to encourage high-risk business financing by banks which will inevitably be much more risk-averse than in the past and will find it difficult to hold large sums of risky investments on their balance sheets. Hence the new financial system which emerges from the crisis should also offer alternative non-bank financing to new entrepreneurs and mediumsized firms. Such alternatives sources of financing scarcely exist today, so all of us (credit institutions, governments, regulators and non-financial corporations) will have to contribute our intellectual and other efforts to address a problem which is not significant today but will undoubtedly be so in the future. Thank you. 6 BIS Review 51/2010 | They have no connection at all to money. They may have extrinsic value – you may like to collect them for instance, and as such they are a highly risky investment opportunity. Their value can fluctuate quite wildly, unsurprisingly. They strike me as unsuited to the world of payments, where certainty of value matters. The next innovation is alternative payments such as e-money, which in Europe has grown under the auspices of the Second Electronic Money Directive (EMD2) and the Second Payment Services Directive (PSD2). To be clear, this has been translated into the UK as part of the on-shoring of EU law in the context of Brexit. This regime creates something which is more money-like in the sense of commercial bank money, but doesn’t have the same direct link to fiat money, and the safeguarding regime does not have all the features of deposit protection. It is therefore a hybrid. We must ensure that users fully understand the difference in protection, and I suspect at the moment that is not widely the case. The standards are less developed than those for banks, there is no depositor protection scheme, and firms are subject to only limited capital and liquidity requirements. Finally, there is no resolution or administration regime. This means that if firm failed, holders of its ‘money’ would be forced to pursue any recovery through a corporate insolvency procedure, which would neither be quick nor guarantee their funds back. The third innovation, and the one on which I will focus more, is so-called stablecoins. | 0 |
Christian Noyer: Is the euro a success story? Speech by Mr Christian Noyer, Governor of the Bank of France, at the First French-Indian Financial Forum, Paris EUROPLACE, Mumbai, 16 May 2007. * * * It is a great pleasure for me to be here today and to have the opportunity to address such a distinguished audience. I want to talk to you about a success story: the euro. As you well know, there have been difficult times for the European integration. The Treaty creating a Constitution for Europe was not ratified in 2005 and the future of political integration is still fraught with uncertainties. Also, much remains to be done, in terms of structural reform, if the European countries want to achieve the same level of long term growth as other developed economies. Nevertheless, I feel very optimistic. And the reason for this optimism is the euro. The single currency has demonstrated its potential to bring enormous benefits to European nations, which they can use to achieve a high degree of stability and prosperity. 1) What are those benefits? The first, and most obvious, is price stability. Over the last years, inflation has stayed broadly in line with the price stability objective set by the European Central Bank, i.e. inflation below but close to 2% over the medium-term. Gone are the days when European citizens had to worry about the purchasing power of their savings. This stability goes beyond the behaviour of prices. | But, as a French and European citizen, I cannot help and feel proud of having one the two main currencies in the world. In sum, benefits of the euro include a high degree of credibility of monetary policy reflected in the level of long-term interest rates; diminished exchange rate volatility; completion of the single market and encouragement to cross-border trade. None of this, of course, can be taken for granted. Benign conditions currently prevailing on financial markets can be reversed. Shocks may be coming, which would impact negatively European economies. Despite some signs of cooling, imbalances are still building up, especially in the housing sector, fuelled by a dynamic expansion of credit, although in no way comparable to those in some other developed economies. But I have the strong conviction that we are fully equipped to deal with any contingency, and, provided the necessary structural reforms are undertaken, keep the economy on a path of growth and stability. BIS Review 51/2007 1 2) How have those successes been achieved? A lot comes, in my view, from the institutional and operational framework in which monetary policy is developed and implemented. The independence of the ECB and of the 13 participating NCBs is enshrined in the Treaty. They are institutionally, operationally and financially independent from European Community institutions and national governments. We have a clear and transparent definition of price stability: inflation below but close to 2% over the medium-term. The monetary policy framework of the Eurosystem is “medium-term” oriented. | 1 |
For these assessments, we augment input from our research departments with critical information about local economic conditions supplied by our boards of directors, regional advisory councils and conversations with local stakeholders. You may know that one of my councils, the Upstate New York Regional Advisory Board, is designed specifically to provide me with timely information from this area. In this way, decisions by the FOMC are continually informed by views gathered from all parts of the country, including Upstate New York. One thing that makes my job even more interesting is that New York has some roles unique within the Fed. Let me tell you about some of them. We, alone, implement monetary policy. At the direction of the FOMC, we buy and sell Treasury securities. We are also the eyes and ears of the Fed on Wall Street, and we supervise many of the largest financial institutions in BIS Review 141/2010 1 the country. We operate Fedwire® – the conduit for large money transfers between banks. And, we provide banking services to the U.S. Treasury, and central banks and governments from around the world. Finally, I must mention that the New York Fed’s district could be the most diverse in the System: ranging from the urban density of Manhattan to the forested sparseness of the northern Adirondacks, to the Caribbean islands of Puerto Rico and the Virgin Islands. All in all, there is a lot to keep my colleagues and me quite busy – even in normal times. | Along with two other agencies, the Fed is reviewing the foreclosure practices at the major bank mortgage servicers. We are also keeping an eye on banks’ potential liabilities where they made representations about mortgages bought by investors that may not have been correct in all cases. We want to ensure that the housing finance business is supported by robust back-office operations – for processing of new mortgages as well as foreclosures – so that homebuyers and investors have full confidence in the process. We are monitoring developments closely in order to evaluate any potential impact on housing or financial markets and the overall economy. Economic conditions in Upstate New York Now let me turn to economic conditions in Upstate New York. It is no secret that this region has struggled with weak economic growth and population loss in recent decades. The region has experienced some very painful economic restructuring, particularly as it lost so many of its high-paying manufacturing jobs. Yet the process has yielded a productive and more diversified economy, with a larger service sector. For this and other reasons I will discuss, the Upstate New York economy has weathered the Great Recession relatively well. While the Upstate economy generally underperformed the nation during the 1980s and 1990s, its recent experience has been quite different. During the Great Recession, Upstate New York’s job losses began later than they did for the United States as a whole, and those losses were generally less severe. | 1 |
BIS central bankers’ speeches 1 7. Here, it is worth noting that the three prerequisites for sustainable and equitable growth should be properly addressed. They are (1) social inclusion, (2) ecology and, (3) the stability of financial system. Any kind of disruption in any of these fundamentals can jeopardize sustainable and equitable growth. Thus, today, lessons that will be drawn from the development experiences of Thailand shall be focused on these three fundamentals. 8. Firstly, with regard to social inclusion, one obvious consideration is how to create opportunities for everyone to contribute to and benefit from economic growth. Therefore, we need to take into account the principle of equality of opportunity when planning and implementing the process of economic development. 9. To follow the principle of equality of opportunity, we need to ensure unbiased governance and regulatory environment for businesses and people. This is to remove or reduce arbitrary restrictions and to create “competitive neutrality”. A level playing field is the first and foremost step for the prevention of income inequality. 10. Although a fair playing field is important, it is, in itself, not enough to uphold the principle of equality of opportunity. By realizing that everyone is endowed with different capacity as well as is in different social and economic contexts, supportive policy adapted for each social group is needed. For instance, as in the case of Thailand, researches indicate that broadening financial access and promoting financial literacy has significantly raised the country’s growth rate. | Paul Fisher: Developments in financial markets, monetary and macroprudential policy Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, at Richmond University, London, 25 September 2012. * * * When I gave a speech about the state of financial markets in June 2011, I talked about a process of healing as markets recovered from the Great Recession.1 But since then the patient has not regained anything like a full state of health. In this lecture today, I want to offer a second opinion on the condition of financial markets. But also, as a member of both the Monetary Policy Committee and the Financial Policy Committee, I want to talk about aspects of the monetary and macroprudential policies which are part of the medicine. In particular I want to give some background to a recent initiative by the Bank of England and HM Treasury to revive the economy, the Funding for Lending Scheme. Financial markets have continued to be buffeted by global events over the past year. In particular, the sovereign crisis in the euro area became more acute. It suffered a serious lurch in mid-July 2011 when confidence in Italian politics evaporated and Italian and Spanish sovereign yields rocketed to record euro-era highs (Chart 1). What followed was alarming – a growing fragmentation of euro zone markets as participants positioned themselves to minimise risk in the event of euro break-up. And the story has become more focussed on Spain than Italy. | 0 |
1 Daníel Svavarsson: International investment position: market valuation and the effects of external changes. Central Bank of Iceland: Monetary Bulletin 2008/1. BIS Review 52/2008 3 Focusing again on developments this year, the attention of the outside observer is easily arrested by the depreciation of the króna. I mentioned earlier that it was overvalued for a rather extended period to the extent that the Central Bank warned that it would at some stage have to depreciate. The depreciation came earlier and faster than we would have hoped, partly and perhaps most importantly because of the radical changes in global financial markets after the middle of last year and the associated reassessment of risk. These changes meant that the access of Icelandic banks to foreign financing was seriously curtailed. Additionally, questions were raised about the viability of the Icelandic economy in light of the large imbalances and all of this led to an erosion of confidence. Subsequently, the exchange rate depreciated significantly. By the end of March it had fallen to a historically low level in real terms, a level that was clearly below its long-term equilibrium value. The Central Bank responded to the developments in March by raising its policy rate by 125 basis points on Tuesday morning after Easter, followed by a further 50 basis points increase on April 10, bringing the policy rate to the 15.5% which I have already mentioned. | The liberalisation of the economy did not reduce its characteristic fluctuations. We are now coming to the end of a period of very rapid expansion. It started back in 2003 when construction commenced of a large aluminium smelter in the eastern part of the country and an associated power plant. The overall size of this investment was equivalent to over 30% of GDP in 2003, the year that construction started. It therefore gave a very large boost to the Icelandic economy. In the latter half of 2004, the Icelandic banks began to compete head on with the State Housing Finance Fund (HFF) which had traditionally been the main provider of mortgage loans to households. The banks’ entry into the market was no doubt the result of the HFF’s ambition to increase its market share in the provision of mortgage finance. The banks had normally provided only a limited share of mortgage finance. They were in that respect different from banks in many neighbouring countries which have traditionally provided mortgage loans and thus have a stable portfolio of such loans on their balance sheet. The entry of the banks into the market led to significant changes. Households could now borrow against collateral in their existing real estate, that is, they could take equity out of their investment. This they did with vigour. The overall result was that credit grew briskly, real estate prices rose rapidly and private consumption expanded sharply, leading to inflationary pressures and a widening current account deficit. | 1 |
[12] Ernst & Young, 2019, “The Impact of Wider Integration of Data Analytics and Automation on Manpower in the Singapore Financial Services Sector, commissioned by the Institute of Banking and Finance Singapore (IBF) and MAS” [13] Global Climate Risk Index 2020 (data from 1999 to 2018). [14] Median of 2.2% to 2.4% -2020 – Preqin Global Infrastructure Report 2020 [15] Swissre, 2010-2019, Protection Gap Tracker Map [16] Reuters, January 2020, “Green Bond Issuance Hit Record $ billion Last Year [17] OCED, April 2017, “Mobilising Bond Markets for a Low-Carbon Transition” [18] HSBC, November 2020, Asia’s Green Finance Booms Related News Media Releases https://www.mas.gov.sg/news/speeches/2021/riding-the-growth-momentum-in-asia 10/11 12/02/2021 "Riding the Growth Momentum in Asia" – Keynote Speech by Ms Jacqueline Loh, Deputy Managing Director (Markets & Development), … Published Date: 10 December 2020 MAS Announces Winners of the 2020 Global FinTech Innovation Challenge Under the theme of “Building Resilience, Seizing Opportunities, Emerging Stronger”, three winners for the Global FinTech Hackcelerator and twelve winners for the FinTech Awards have been selected for their solutions that address the challenges faced by the financial industry due to the COVID-19 pandemic and climate change. Media Releases Published Date: 09 December 2020 Singapore and Hungary Strengthen Cooperation in FinTech MAS and the Magyar Nemzeti Bank (MNB) have signed a Co-operation Agreement to strengthen cooperation in FinTech innovation between Singapore and Hungary. | First, in reporting my views to the committee, I noted my concern for the fragility of the U.S. economy and weak job creation. It might be noted by the press here today that although I am constantly preoccupied with price stability – in the aviary of central bankers, I am known as a “hawk” on inflation – I did not voice concern for the prospect of inflationary pressures in the foreseeable future. Indeed, the Dallas Fed’s trimmed mean analysis of the inflationary BIS central bankers’ speeches 5 developments in June indicated that the trimmed mean PCE turned in its softest reading of the year. The trimmed mean analysis we do at the Dallas Fed focuses on the price movements of personal consumption expenditures. It is an analysis that tracks the price movements of 178 items that people actually buy, such as beer, haircuts, shoe repair, food and energy prices. In June, the trimmed mean came in at an annualized rate of 1.3 percent, versus 2.1 percent for the first five months of the year. The 12-month rate was 1.5 percent. My concern is not with immediate inflationary pressures. Core producer prices are still increasing at a higher than desirable rate. | 0 |
The Bank has been conducting an industry-wide benchmarking exercise since 2001, in line with recommendations of the Financial Sector Master Plan to drive performance improvement. I believe the industry has benefitted from this initiative to improve the standard of services provided to its customers. Going forward however, it is timely and economically sensible for the industry to collaborate and assume this role to develop its own range of indicators. If we were to strive for quality, the benchmarking should be against the world’s best, and not confined to our domestic market alone. The benchmarking could cover a wider range of indicators including financial and operating statistics, distribution channels as well as customer service indices that will benefit every member company. In many countries, it is the industry associations that undertake this role. In this regard, I call upon the associations present here tonight to give this matter a serious thought. Collaborate and cooperate with others as synergy drives efficiency for the ultimate benefit of customers Synergy creates new value and has a multiplier effect on outcomes that would not be possible, individually. Studies have shown that even the best individual efforts cannot stack 4 BIS central bankers’ speeches up against today’s complex and interconnected problems. The challenges of market liberalisation will require players to achieve more despite limitations in individual resources. But having to do more with less, simply means having to do it together. The industry through pooling of capacity, expertise and resources can addressed, perennial issues faced by individual companies, collectively. | Muhammad bin Ibrahim: Building trust in the insurance industry Speech by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Malaysian Insurance & Takaful Industry Distinguished Partner Awards Dinner 2015 “Building Trust in the Insurance Industry”, Kuala Lumpur, 23 October 2015. * * * It brings me great pleasure to be here tonight at the inaugural Malaysian Insurance and Takaful Industry Distinguished Partner Awards Dinner. Since the Central Bank assumed regulatory role of the industry 27 years ago, the insurance and takaful landscape has transformed significantly. The insurance and takaful penetration rate, measured by the number of policies per population, has increased four-fold from 11% in 1988 to 56% today, and the total paid-up capital of direct insurers has grown twelve-fold from RM635 million to RM8 billion over the same period. Today, the industry has emerged much stronger than when we first started the journey together in 1988. We should take pride in our historical track record the various changes that we had made, the difficult but satisfying journey that we embarked on to realise the full potential of the industry. It is indeed a transformational change that enable the industry to be in the strong position they are now. But at the same time we should not believe that the same thinking and strategy that drove yesterday’s solutions will be as effective tomorrow. | 1 |
As long as the banking system was – or at least appeared to be – sound, as central bankers we did not need to worry too much about what happened elsewhere in the financial system or the condition of the corporate sector or the structure of household balance sheets. But this is no longer true, if it ever was. I have already mentioned the role of the corporate sector in the Asian financial crises of a decade ago. The fact that it was the corporate sector rather than the banking sector that had assumed foreign exchange risk ultimately didn’t matter from the point of financial system stability. The effects were the same – or possibly were greater as the corporate sector was less well able to handle the risks than the banking sector might have been. From a macro prudential policy perspective this means that we must pay attention to conditions in the corporate sector and the soundness of corporate balance sheets. And given that so many banks in Asia have followed those in the rest of the world in looking to develop their consumer credit business, the condition of household finances is also important to understand from a financial system stability perspective. In addition, the experience of the last decade has also taught us that non-bank financial intermediaries matter for the soundness of financial systems. For example, there is plenty of evidence that insurance companies have been major sellers of credit derivatives. This passes credit risk from the banking system to the insurance sector. | This type of crude stress test is quite helpful for a sense of how solid the system’s capital buffer might be, but it doesn’t allow you to take into account second and third round effects. If NPLs have risen to 20 percent of total assets, then there are likely to be a lot of other things happening in the economy at the same time, all of which could have additional implications for banks’ financial soundness. As a result, stress testing is moving increasingly in the direction of scenario analysis. This involves economists constructing scenarios for the outlook on GDP, interest rates etc. and tracing through these changes in terms of their impact on the key measures of banking system soundness including profitability and capital adequacy. This approach involves some quite advanced economic modelling techniques and is still in its early days. However, the recent revamp of the Bank of England’s financial stability report that I mentioned earlier was designed to give a larger role to this type of analysis. A final issue that I’d like to discuss is that macro prudential analysis cannot stop with the banking system or at the borders of a particular jurisdiction. In the past it might have been reasonable to think that systemic risk was something that began and ended with the banking system. | 1 |
To ensure a smooth transmission of monetary policy to the real economy, it is therefore crucial that money market rates are well-aligned with central banks’ policy intentions. [4] In the first part of my remarks today, I will briefly describe the major longer-term trends in euro area money markets. In the second part, I will focus on monetary policy transmission through money markets and its key determinants. I will devote particular attention to money market functioning during the coronavirus (COVID-19) pandemic. This will allow me to contrast recent developments in money market activity with previous crisis episodes, including the global financial crisis and the sovereign debt crisis. Longer-term trends in euro area money markets Let me start by illustrating several longer-term trends in euro area money markets and their underlying drivers. Three key factors have shaped the trends in money markets since the global financial crisis: a heightened awareness of counterparty risk, a sharp increase in excess liquidity and regulatory reforms. The shift towards secured and centrally cleared transactions Perhaps the most striking trend is the shift away from unsecured transactions towards transactions secured by collateral (left-hand side of Slide 1). The shift towards the secured (repo) market began with https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html 1/7 24/11/2020 Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic the financial and sovereign debt crises and was driven by heightened financial market stress and the significant counterparty risk it exposed for unsecured money market transactions. | Through this CDI project, we expect to enhance financial inclusion of SMEs in our 2/3 BIS central bankers' speeches banking system, and as a result, more efficient financial intermediation. Use of Innovative Technology to Support Supervision 14. Of course, wider adoption of new technologies by financial institutions is in itself presenting considerable challenges to central banks and regulators. The range of technologies deployed by incumbent banks and virtual banks spans different areas – from remote onboarding to funds transfer; and wealth management to regtech, robo-advisory and backend operations, and many more. Seeing early signs of payoff, banks have also invested more heavily in technologies, such as in blockchain and artificial intelligence, to enhance their digital capabilities. 15. As our regulatees become more sophisticated in their technology application, central banks and regulators are also enhancing our supervisory and surveillance capabilities, such as making better use of technology and data analytics; and implementing internal digital transformation to better equip ourselves in the digital era. If we are able to leverage technologies to enhance our vigilance in risk monitoring and management in real time, the resilience and stability of the broader financial system could be improved. 16. We in the HKMA are no different, and are now on a multi-year digitalization journey. This is a huge undertaking, as it involves not only substantial financial investment, but also human resources inputs at all levels. More importantly, if we were to fully reap the benefits of digitalization, many long established processes would have to be changed or even abolished. | 0 |
To help deal with capital inflows and their effects on the macro economy, we have the flexible exchange rate, macro-prudential measures, and various forms of capital account regulations as our tools, while the policy rate is preserved for its primary objective of domestic price stability. Each of the tools has its own advantages and disadvantages. To deal with this challenge, as you may already notice, a balanced use of tools is needed, and that balance could very well evolve over time. BIS central bankers’ speeches 3 Ladies and Gentlemen, To live successfully with capital flows will require not only the central bank to do its work properly. For all of us at this Forum, I believe that we can make it easier for Thailand to cope with capital flows, at least partly, through capital market development. An efficient capital market is like a good irrigation system that helps channel flows into productive uses. Such a market, with enough breadth, could also become a shock-absorber towards capital inflows, quantity-wise, and would be a complement to the flexible exchange rate that acts as a “pricewise” shock absorber. A market that has a wide variety of products and instruments, varied types of investors, as well as competitive services will likely be more stable by itself and benefit us all. An efficient capital market is thus one we should aim to strive for. | Exchange rate adjustments in the face of large capital inflows, however, are not without costs. An excessively rapid appreciation of the currency could be disruptive to the real economy, since there often are constraints in the adjustments of the real economy, from labor market frictions to pricing behaviors. Here we have a challenge and need to balance well. In general, we would allow the currency to appreciate to the extent that the movements are broadly consistent with the economic fundamentals and that they would not cause undue disruptions in the real sector. Let me note here that I think the Thai economy, over the years, has become more capable in coping with exchange rate movements. We see more risk protection via financial market instruments on the part of the private sector. Exporters, in particular, have been able to diversify in terms of product lines and market destinations. Nevertheless, from time to time there is still a need to dampen the pressures on the exchange rate, and central banks often resort to exchange rate intervention. While such intervention could help contain excess exchange rate volatility, its focus is at the end of the process. In other word, FX intervention is a “passive” mechanism in dealing with capital inflows. By the time of intervention, capital would have already flowed into the economy. Imbalances could have already built up. | 1 |
The score is in turn mapped onto a particular range of capital ratios. Among the factors that this process will consider are the Pillar 1 and Pillar 2 risks that I have already mentioned. In addition, the SRP will take into account a variety of other factors such as reputation risk, strategic risk, and the quality of corporate governance. The inputs into this process will be derived primarily from our existing supervisory arrangements, such as off-site and on-site examinations. We believe that the SRP is capable of replacing the current, relatively subjective, approach to setting AI-specific minimum capital ratios with something more rigorous and objective. Like all good credit scoring systems, there will still be scope for expert judgement and, in my experience, there is no substitute for the supervisory smell-test. On the whole, however, we intend to base each AI's capital ratio on the output of this process. Once we have derived a score, and thus a corresponding capital ratio, for an individual AI, we will discuss the results of the SRP with the AI. Again, as in the review of IRB systems, the concept of supervisory dialogue will be important. It will be our aim to understand how each AI approaches the range of risks that exist outside Pillar 1, and to understand the mechanisms they have in place for identifying, monitoring and controlling those risks. | In theory, Pillar 2 requires banks to have a formal process for allocating internal capital against the wide range of risks that are not explicitly part of Pillar 1. This formal process is sometimes referred to as the Capital Allocation Assessment Process or "CAAP". However, it has to be acknowledged that very few banks currently have such a process in place, and only the largest and most sophisticated institutions have been able to devote the resources necessary to building these types of formal capital allocation systems. Consequently, as a regulator, we do not plan to require all banks to develop internal capital allocation models, at least initially. The need for such models must be commensurate with each institution's scale and sophistication. In place of requiring all AIs to develop these models, the HKMA has developed its own internal Supervisory Review Process, or "SRP". As you may know, the HKMA has for a long time set capital ratios on a bank-by-bank basis. This has been with the aim of trying to ensure that the capital ratio reflects the risk profile of an individual AI, taking into account the full range of risks to which it is potentially exposed. We intend to use the SRP to bring greater rigour into the process of setting AI-specific minimum capital ratios. In effect, the SRP is our own credit scoring system. It takes a large number of variables, each carefully chosen to reflect a different aspect of risk, and combines them to produce a single overall "score" for each AI. | 1 |
Jean-Claude Trichet: Overview of recent euro area developments and the effects of globalisation on prices and real estate Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the meeting of the Management Board of the CDU, Wiesbaden, 5 January 2008. * * * It is a great pleasure for me to be invited as a guest speaker here today. Let me briefly sketch out the main topics I want to address. First, I will present to you our views on the current economic situation in the euro area. Then, I will explain the ECB’s liquidity operations following the tensions in the money markets since August last year as well as our views on the stability of the euro area financial system. To conclude, I will say a word upon the effects of globalisation on price developments and on developments in the real estate sector. Economic and monetary developments Let me first say that we are presently in the purdah period, namely within a week before the next decision meeting of the Governing Council. Nothing in what I will say should be interpreted in terms of our future decision next Thursday. I will stick to explaining what has been our diagnosis and judgment on the occasion of our last meeting. | The second area of improvement for the macroprudential framework in Europe involves keeping pace with developments in the financial system. That requires broadening the range of macroprudential instruments beyond those currently available, which focus almost exclusively on the banking sector. For the insurance sector, the contours of such instruments are taking shape. They include solvency instruments such as symmetric capital requirements for cyclical risks; liquidity instruments for insurers with a vulnerable liquidity profile; and instruments to target bank-like activities to ensure macroprudential policy is consistent across sectors.11 The third area for improvement in macroprudential policy involves establishing a clearer conceptual framework to govern policy discussions and interventions. Such a framework would facilitate communication with market participants and the general public, as well as help mitigate any risk of inaction bias. 2/4 BIS central bankers' speeches For monetary policy the framework is well known and the reaction function of central banks is normally well understood by markets. By contrast, the framework that governs macroprudential policy interventions is much less developed, due in no small part to our limited experience of using these tools. The objective of financial stability is broader than the objective of price stability, so is less easily defined by a single numerical measure. Developing the policy framework is challenging and will take time. | 0 |
Today I intend to give my views on these issues. I shall concentrate on the role played by elevated asset prices and indebtedness with regard to developments in demand and thereby price stability. Let me begin with a brief summary of my speech: • Many central banks are worried by rapidly growing house prices and lending over long periods of time. The historically very low interest rate levels could create unrealistically low expectations of interest rates in the future. However, it is difficult to determine whether this development actually increases the risks to demand and inflation and whether – and how – monetary policy can in this case take these factors into account. • These risks cannot be captured by the traditional models and forecasting methods normally used by central banks, which means that opinions differ as to how the central banks should act. Should we react in advance to subdue possible negative effects, or should we wait until a possible correction takes place? • My opinion is that we must make the best possible assessments and act in advance to try to prevent the risk of large corrections leading to significant falls in demand and to lower inflation further ahead. • There are both cyclical and structural factors which could motivate high growth figures for loans and house prices in Sweden over a period of time. | While dealing with short-term issues, we need to pay attention to long-term challenges that could restrain our competitiveness, productivity, and growth potential. The rising trend of disruptive technology will also come into play as it brings both opportunities and 3 threats. To tackle these long-term challenges, structural reforms are underway to upgrade and unlock our economic potential in the long term. The government has made structural reform a national agenda and has launched several important initiatives. One of our main focuses is to upgrade connectivity infrastructure within Thailand and within the region, including roadways, railways, waterways, power lines, air networks, and digital networks. This strategy will establish Thailand as a center for regional transportation and logistics, connecting the Indian Ocean with the Pacific Ocean, as well as connecting Thailand with South China and neighboring CLMV countries. Beyond building physical infrastructure, the government is pushing forward to restructure the Thai economy towards a high-value and innovation-driven economy under the ‘Thailand 4.0’ theme. This policy focuses on promoting targeted industries, including the ‘new S-curve’ industries. As many of you are well aware, the Board of Investment (BOI) revised the criteria for investment promotion privileges to be based on the value added content of the project rather than on its location as in the past. Thailand’s economic model will be geared towards sophisticated high-valued manufacturing, innovative manufacturing, and modern services. This can be done by focusing on promoting technology, creativity, research and innovation, especially with respect to IT-based services. | 0 |
The main responsibility for financial stability rests with the Government, while the Ministry of Finance, the Financial Supervisory Authority of Norway and Norges Bank are responsible for the use of the various instruments delegated to them. Norges Bank is among other things lender of last resort and operates the interbank settlement system. The overriding responsibility for macroprudential policy rests with the Ministry of Finance. Norges Bank holds the view that a clearer framework for setting and using macroprudential instruments is needed in Norway. Time-varying macroprudential instruments could to advantage be delegated to an independent authority. Delegating instruments to an independent authority could facilitate implementation and enhance predictability over time. It could also ensure that the decision is taken in the interests of financial stability. Today Norges Bank draws up the decision basis for the countercyclical capital buffer and advises the Ministry of Finance on the level of the buffer. The Commission proposes that decision-making responsibility for the level of the countercyclical capital buffer be delegated to Norges Bank. Norges Bank supports this proposal. The Commission also suggests that it may be appropriate for Norges Bank to assume responsibility for other instruments to mitigate systemic risk in the financial sector. The Commission refers in particular to the residential mortgage lending regulation. This regulation also serves other purposes in addition to the mitigation of systemic risk. | In the view of the President Van Rompuy’s Report, a stable EMU needs to be built on four pillars: financial union, fiscal union, economic union and political union. Member States have been able to decide a remarkable sequence of reforms in the past few years and there is now a much clearer vision of what rules and institutions are essential for monetary union to function more effectively. The single currency needs strong common institutions. Strong institutions to supervise and stabilise the financial market; to guide fiscal policies; to coordinate economic policy, guarantee competitiveness and encourage sustainable growth. This is the vision that should guide us in all our endeavours to definitely overcome the European crisis. Thank you for your attention. 6 BIS central bankers’ speeches | 0 |
Jaime Caruana: Overview of the Spanish economy in 2004 Address by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, to the Governing Council of the Bank of Spain on the occasion of the presentation of the Annual Report 2004, Madrid, 10 June 2005. * * * Ladies and gentlemen, The performance of the world economy in 2004 was exceptional: growth exceeded 5%, the highest rate for the last quarter of a century; inflation remained under control, with the exception of slight rises in some emerging countries; and the climate on international financial markets was relatively relaxed, allowing generous financing conditions in most countries. No headway was made, however, in correcting the world economy’s main disequilibria, which tended to worsen. Adding to these imbalances was the shock of higher oil prices, which look more permanent than in previous episodes. There are thus persistent risks and vulnerabilities which, if not corrected, might endanger the continuity of growth. Underpinning the buoyancy of the world economy was, above all, the contribution of US and, to a greater extent, Chinese demand, along with that from other emerging Asian economies. There was also a marked rise in activity in other emerging regions, such as Latin America and the central and eastern European countries. Conversely, the economic performance in the euro area and Japan was disappointing, with rates of expansion running below initial forecasts. | In the private sector or in civil society, institutions and fora engaging in thorough assessment of public policies in Spain are also thin on the ground compared with our European peers, and their opinions have little influence on the 2/6 BIS central bankers' speeches public debate. Accordingly, I consider that we, the independent public authorities, can and must play a pivotal role in assessing public policies thoroughly and impartially. At the Bank we are committed to this assessment culture, both in terms of our duty to advise the Government under the Law of Autonomy of the Banco de España and when evaluating our own actions. Aside from the Banco de España’s actions, the recent creation of a government spending assessment division at the Independent Authority for Fiscal Responsibility (AIReF by its Spanish initials), after the failure of the Public Policy Assessment Agency (AEVAL), is a step in the right direction. There is therefore ample room for improvement in decision-making on public policies in Spain, from which both the government (when it comes to designing and applying public policies) and the legislature (in its control of the government) could benefit. Equipping the legislative chambers with powerful bodies that provide independent, technical and evidence-based advice would thus markedly enrich the public debate in Spain. Setting this issue against the current background, the massive roll-out of European funds, for example, with the stated aim of transforming the economy and boosting its growth potential, is an ideal time to bolster the assessment of public policies. | 0 |
Real per capita incomes in the previously crisis affected economies (Indonesia, Korea, Malaysia, Philippines and Thailand) have significantly exceeded pre-crisis levels.” – World Bank’s “East Asia & Pacific Update – Ten Years After the Crisis” (April 2007) Asia is resilient. I am confident about Asia’s future. I do not expect military conflicts as all countries are concentrating on economic growth and building cross-national and cross-regional ties. Tensions may arise in cross-strait relations due to forthcoming elections in Taiwan but so long as the US Administration maintains its clear stand that it will not support Taiwanese independence, the situation can be managed. Terrorism remains a long-term threat but will not topple governments or drag economies down. But an avian flu pandemic will be a different threat altogether. It will tank many economies. Barring this unpredictable risk, Asia will continue to surge over the next 20 years, powered by the twin engines of China and India. The story of China is well-known and that of India becoming increasingly so. So I shall not elaborate on them. Instead, I want to remind you not to overlook the region that is strategically-positioned between these two giants – the ten Southeast Asian countries which form ASEAN. Let me elaborate. A revitalised ASEAN ASEAN is being revitalised. In response to the Asian Financial Crisis, ASEAN countries took concrete steps to tackle weaknesses in their financial and corporate sectors and implemented structural reforms. These reforms have strengthened ASEAN’s economic fundamentals and financial stability. | With further harmonisation of rules and regulations and increasing capital market linkages, we look forward to the deepening of ASEAN market liquidity. As financial and capital markets in the region become more integrated, there will be seamless flows of investments and capital. ASEAN has also made a strategic decision to strengthen its organisation politically. ASEAN is finalising a Charter that will lay out a bold and visionary future for ASEAN. It will also provide an institutional framework for the grouping and transform it into a more effective and efficient rules-based organisation. The Charter will be signed at the Singapore Summit in November. Singapore – a global city As for developments in Singapore, we have used the last 10 years to remake ourselves, strengthen our competitiveness and expand our economic space. We have also continued with efforts to enhance Singapore’s position as a gateway to Asia by transforming Singapore into a global city. We have enlarged our economic space by aggressively pursuing FTAs. We have concluded 11, including with the US, India, Japan, South Korea and Australia. We are negotiating 11 more FTAs, including one with China. We have progressively restructured and diversified our economy. Manufacturing will continue to play a key role but we are also moving into more technology- and knowledge-intensive manufacturing. Fostering world-class scientific research and strengthening Singapore’s attractiveness as an R&D (Research and Development) hub is a key priority. More of Singapore’s growth will come from innovation and knowledge. | 1 |
It is therefore necessary for the payment system and credit markets to function so we can carry out our monetary policy tasks efficiently. Financial stability is thus a necessary condition for efficient monetary policy. As I have said on an earlier occasion, our task of safeguarding financial stability is in some ways like taking care of an electricity network. Most people give it very little thought until there is a power failure. But since last autumn one can say that there have been severe disruptions in the network and numerous measures have been required to keep the electricity flowing. Although there are some indications that the crisis is not as acute now as it was last autumn, many markets would probably not be functioning if the authorities in various countries were not regularly taking measures to promote financial stability. The effects of the crisis are also still affecting the situation for monetary policy and access to credit in the economy. Although the spread between Swedish mortgage rates and risk-free securities such as government bonds has declined since the most intensive phase of the crisis, households are for instance still facing slightly higher interest rates than normal if they want to fix their mortgage rates at longer periods. The financial crisis may also result in declining access to credit. Many companies in the Riksbank’s company survey state, for instance, that they are finding it difficult to borrow at longer maturities. The financial crisis has also contributed to a fall in equity and house prices. | Let me go back a little way to 18 September last year when the market for treasury bills was put on hold. I spoke that day with the Director General of the Swedish National Debt Office, Bo Lundgren, with whom I worked during my time at the Swedish Bank Support Authority in the 1990s. It was not without some feelings of déjà vu. But at the same time I felt then – and still feel – confident that a lot of things are different. That is, better! Of course we are an export-dependent economy and of course economic activity abroad looks worse than it did at the beginning of the 1990s. The effects of the global financial crisis contribute to considerable uncertainty and also make the situation very difficult to assess. One example of this is the economic downturn and adjustment the Baltic countries still have to work their way through, something that of course affects the Swedish banks with operations there. But there is on the other hand a lot in our favour. We do not have a "homemade” bank crisis now as we did at the beginning of the 1990s. Swedish banks have on the whole been much more responsible in granting credit, compared with the lending merry-go- 6 BIS Review 23/2009 round that followed the deregulation of the credit markets in the 1980s. We have not entered into an economic downturn with an economy that it out of balance, as we did then. | 1 |
Governments, perhaps governments everywhere, are probably behind the pace of integration that the market is driving in terms of further integration. This should provide a powerful incentive for greater speed and ambition in developing the institutional infrastructure that can accommodate the challenges that come with integration. Overall, however, the direction of change in the emerging world seems fundamentally reassuring. After a crisis that was in a sense the result of a failure to manage the early stage of financial integration, governments in emerging markets have established a record of credible fiscal and monetary policy management, built more substantial cushions of insurance against potential shocks in external reserves, restructured the currency denomination, maturity and composition of their debts to make them less vulnerable to volatility, and begun to build deeper and stronger domestic financial systems. These changes make it more likely that the progress now underway toward further financial integration - as they move to more open capital markets and more flexible exchange rate systems - will bring substantial benefits in terms of growth and fewer risks in terms of financial stress. The stronger foundation now in place will make the next wave of financial integration more successful. The policy achievements of the last decade are enormously consequential for the people who live in emerging markets. If the progress is sustained, the reduced vulnerability to financial crisis and the enhanced efficiency of resource allocation have the potential to dramatically increase long-run growth and living standards in these countries. | Despite this progress, the causes and implications of the crises remain the subject of contentious debate. In fact, if you'd fallen asleep in early or late 1998, and awakened in the IMF boardroom yesterday, you would find officials discussing many of the same questions. Were the crises the result of fundamental economic and financial weakness at the national level, or the result of forces largely beyond the control of governments in emerging market economies? Can small open economies grow and prosper with open capital markets and floating exchange rates? Did moral hazard induced by the success of the Mexican package earlier in the decade cause the buildup in lending that led to crises that followed? Did the initial response of the IMF and its creditors make the crises worse? What level of insurance, in the form of reserves or debt structure, is adequate to protect against crises? How should the IMF differentiate between conditions of illiquidity and insolvency, and decide when it should help a member country restructure its debt obligations? Even among people who probably agree on the most important issues in economics and finance, you can still find stark differences in their answers to these questions. The diversity in the circumstances of the countries involved, and in the policy responses adopted, makes it easier for people to find evidence to support fundamentally different views. | 1 |
The need for directors to possess this blend of technical knowledge plus independence is critical, given the increased complexity of most banking activities and the rapid pace of change in financial markets and practices. Getting the right balance of expertise and independence so that the board does not rubber-stamp the decisions of top management is a major challenge. Now, turning to Saudi Arabia, as the Central Bank and the Banking Supervisory Authority, SAMA has played a leadership role in strengthening corporate governance in the banking industry in Saudi Arabia since its establishment. You may be surprised to learn that as early as 1981, SAMA issued a document entitled "Powers and Responsibilities of the Board of Directors of Commercial Banks in Saudi Arabia". This document, in a comprehensive manner, guided the Board members on compliance to Banking Control and Company Laws, required the implementation of a system of accounting and internal controls and assigned the Board the responsibility for monitoring the assets and liabilities, investments and profitability of the bank. This was followed by a guidance document in 1996 on the role of the Audit Committee of the Board. This document in substantial detail provided guidance to the Banks on the composition, mandate, role and responsibilities of their Audit Committees. In 2004, SAMA issued another important circular affecting the Bank Directors and Senior Managers entitled: "Qualifications and Requirements for Appointments to Senior Positions in 2 BIS Review 83/2007 Banks licensed in Saudi Arabia". | When market participants obtain timely, accurate, realistic and latest information about the institution's performance, their investment and credit decisions can be a means of pressure and incentives for managers and boards of directors for managing their risks soundly. Equally important, the same market participants can penalize firms that fail to manage their risks soundly. Therefore, market discipline must be supported by adequate public disclosure and compliance with sound accounting standards. Knowing a company's risk appetite and its approach and methodologies for managing risk is essential to assessing the institution's future. Progress in the disclosure area, however, requires that accounting standards are enhanced to ensure proper valuation and to reflect innovations, in terms of both new products and modern risk management techniques. Accounting systems serve a variety of purposes, the most prominent of which is helping creditors and investors make rigorous and informed decisions as to which enterprises meet the market needs in terms of efficiency, competitiveness, and profitability. Sound accounting systems also enable investors in assessing the real financial value of enterprises. The systems also assist in attracting capital, both foreign and domestic. Looking ahead, I believe that a major challenge for directors and executive management is to find directors who are sufficiently independent but still knowledgeable about the business of the financial institution. Independence reflects qualities of objectivity, experience, insight, and force of character. | 1 |
Today I would like to talk a bit about what went wrong, where we are today, some new initiatives that are underway, what lessons we should take from the crisis and some steps we need to take so this doesn’t happen again. It is well-recognized that one important catalyst for this financial crisis was the easy credit and loose underwriting practices that fueled the boom in the U.S. housing sector. The ability of virtually anyone to get a loan to buy a house pushed up home prices significantly faster than incomes. To keep the boom going, underwriting standards were progressively relaxed, but even with that support to demand, inevitably the boom proved unsustainable. As the boom reversed and housing prices began to fall, the bad underwriting practices and the mispricing of risk became readily apparent. When prices are rising no one needs to default, they always have the option of refinancing or selling the house at the now higher price. But when prices are dropping, there is no easy way out. The result has been a sharp rise in delinquencies and foreclosures as the bust has played out. The fact that these poorly underwritten loans were used in the construction of very complex collateralized debt obligations or CDOs, with risks that were not well understood and grossly mispriced – made a bad situation even worse. | New forecasts have not been prepared for this monetary policy meeting, but we have assessed new information against the forecasts we presented in March. Chart 3: International inflation has slowed Inflation among trading partners is also high but has eased in many countries in recent months. Gas and power prices have come down from the very high levels seen last year. Problems at some US and Swiss banks led to large movements in financial markets in March. Global equity indexes have risen since the March Report, and bond risk premiums have fallen. US and European households and firms appear to be finding it more difficult to obtain loans. Chart 4: The krone has depreciated High inflation has prompted central banks in many countries to raise policy rates quickly and more than in Norway. The Norwegian krone has depreciated in recent months and 1/2 BIS - Central bankers' speeches is now at its weakest level since the onset of the pandemic in spring 2020. The krone is weaker than we projected in March. Activity in the Norwegian economy is high. Household consumption has continued to increase despite high inflation and higher interest rates. The employment rate is high and employment has risen further so far this year. The labour market is tight. Economic growth has nevertheless slowed recently. Unemployment moved a little higher in April, and the number of job postings has declined. Chart 5: Wage growth has risen The tight labour market has led to a pick-up in wage growth. | 0 |
Over the years, the risk areas and thus the scope of regulations to prevent the use of the financial system as a conduit for illegal and other undesirable activities that can pose threats to global security have also increased. From money laundering to terrorist financing, the regulations and standards are being extended to comprehensively address new and emerging threats. This is evident in the ongoing review of the Financial Action Task Force (FATF) 40+9 Recommendations, where among others, several policy goals and initiatives for combating corruption, and addressing proliferation financing more effectively, are being thoroughly discussed and deliberated. A major development in the review of the standards, that is relevant to the industry, is the higher emphasis that will be placed on assessing the effectiveness of measures implemented to counter the risks of money laundering and terrorist financing, rather than merely looking at technical compliance. This is indeed very relevant to the theme of this year’s conference “Raising the Bar in Compliance and Enforcement”. As Malaysia’s AML/CFT regime grows in maturity, the benchmark for compliance by financial institutions will be measured more in terms of its effectiveness in deterring and preventing financial crimes before they occur, and in effectively supporting the relevant law enforcement agencies to bring the perpetrators to justice when such crimes happen, despite our best efforts. | It is our hope this and other similar platforms will foster greater collaboration and sharing of ideas among the industry, compliance practitioners, regulators, law enforcement agencies and other relevant stakeholders and further contribute towards the enhancement of our framework and initiatives to combat financial crimes and preserve our financial and macro-economic stability. With that, I wish to thank you for your kind attention and wish you a productive conference. BIS central bankers’ speeches 3 | 1 |
But in reforming our pension system, it is important to separate two issues. First, how should we pay for the cost of present pension commitments? Second, what is the right structure for our pension system: which risks should be borne individually and which collectively? A debate is needed over whether present arrangements imply too much or too little sharing of risk. We should remember also that insurance is based on ignorance - ignorance of the outcomes facing each individual. But knowledge can turn risk into certainty. The advent of genetic testing could undermine a private market in insurance against longevity and illhealth. Even if insurance companies could not require testing as a condition of insurance, the fact that tests were available could increase even further the degree of adverse selection in such insurance markets. Pooling risks caused by unequal genetic inheritance might no longer be feasible. Insurance would become instead a question about redistribution, and hence a matter for public policy. 6. Conclusions In this lecture I have stressed that most public policy decisions are a matter of the balance of risks. There is no certainty. Indeed, it is the illusion of certainty that undermines much public debate. As Bertrand Russell said, “The whole problem of the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts”. Recognising and modelling risks means understanding the limits to our present knowledge. Communicating risk is about transparency. | The fact that few data on sexual behaviour were available was not a good reason for focusing on demographic variables - the researchers were looking for the key under the lamp-post rather than where it fell. Quantitative models are obviously essential to explain empirical evidence. But the idea of a single comprehensive model, whether of a population or an economy, which can capture all the relevant features to explain all phenomena is an illusion.10 There is no substitute for thinking about the underlying process which is generating the data. Robert May’s article “Uses and Abuses of Mathematics in Biology”, published earlier this year, should be compulsory reading for anyone involved in public policy. In pointing to the dangers of models so complex that intuition is impossible, he writes, “It makes no sense to convey a beguiling sense of ‘reality’ with irrelevant detail, when other equally important factors can only be guessed at. … Remember Einstein’s dictum: ‘models should be as simple as possible, but not more so’” (May, 2004). In many areas, successful public policy depends on a quantitative analysis of risks by experts and researchers. It is important that the general public understand that such assessments are only judgments. To enhance confidence in those judgments experts need to engage in a debate among themselves about what they know and what they do not know. | 1 |
Jean-Pierre Landau: Rebalancing the world economy – a common challenge Keynote address by Mr Jean-Pierre Landau, Second Deputy Governor of the Bank of France, at the Chinese Academy of Social Sciences Economic Forum, Beijing, 11 November 2010. * * * In preparing those remarks, I was very influenced by the works by Ricardo Caballero and Raghuram Rajan (see references) among others. All interpretations and errors are mine. Great changes are taking place in the world economy. The center of gravity is moving to Asia and the emerging world. This has been recognized in the landmark agreement on IMF reform reached at the last G20 Ministerial meeting. China has become the IMF’s third shareholder, India has moved up by five ranks and Brazil is now on par with Canada (a G7 country). Symmetrically, the European representation in the Board will be reduced by the equivalent of two chairs (out of nine currently held). At the same time, we are facing great challenges. Output is growing fast in emerging economies but this relative shift in production has not been fully matched by a rebalancing in demand. Overall, beyond the turbulences caused by “hot money”, net capital flows are going “uphill” from emerging to developed economies. That means that some of the poorest citizens of the world are lending money to some of the richest, allowing those to finance their consumption. And financial bubbles have tended to proliferate in an environment of permanently low inflation and ample liquidity. | The high degree of uncertainty militates against ambitious fine-tuning of the economy but favours focusing on the main task of monetary policy, which is maintaining price stability. Moreover, uncertainty necessitates broad-based and impartial analysis as well as judgment and flexibility in monetary policy decision-making. BIS Review 5/2008 1 | 0 |
This is part of the priorities of the members of the Joint Committee on Climate Change over the next 12 months to pave the way for the adoption of disclosure standards by the industry in the immediate future3. This will not only contribute towards lowering information asymmetry, but will also assist external stakeholders to hold financial institutions to account for their climate risk commitments. Leveraging Malaysia’s value offering – opportunities in sukuk 2/3 BIS central bankers' speeches The capital market can play a critical role to address the financing gaps not only in green, but social and sustainable sectors. The SRI Roadmap for the Malaysian Capital Market issued in November last year aims to create a facilitative SRI ecosystem and chart the role of the capital market in driving Malaysia’s sustainable development. The sukuk market, which is a high growth segment in Islamic finance, has an important role in supporting the growth of the green technology sector. Malaysia continues to be at the forefront of green sukuk, which is the preferred mode of investment for those that prefer investments with a positive environmental impact. We can certainly tap into the sukuk market to fund activities or technologies that support a low-carbon and climate resilient society. Conclusion I am not asking us to reinvent capitalism at this conference – there is simply not enough time for that if we are to meet our Paris Agreement commitment! | Goh Chok Tong: Staying ahead of the Asian curve Speech by Mr Goh Chok Tong, Senior Minister of the Republic of Singapore and Chairman of the Monetary Authority of Singapore, at Barclays Asia Forum, Singapore, 1 November 2007. * * * I extend a warm welcome to all of you, especially to those who have not come to Singapore in recent years. I would also like to thank Barclays for organising this Asia Forum as well as this weekend’s Singapore Open. I hope the Singapore Open will grow in prestige as you expand your presence in Singapore and Asia. Singapore’s economic growth rates in the past few years have surprised many, including ourselves. We did not expect to be able to consistently achieve growth rates of above 6% per annum as we are a mature economy. Yes, we have remade our economy but the good growth was also due to the buoyant world economy and a surging Asia. Singapore’s future growth will depend not only on our own efforts but also on our ability to anticipate trends in our external environment and stay ahead of the curve. This morning, I would like to share with you how we see developments in Asia and the challenges before us. Political outlook Let me start with the political outlook. I believe that Asia will remain stable and the regional environment conducive to growth. Post-9/11, the world had to adjust to new insecurities posed by terrorism. | 0 |
Inflation would likely have been negative this year were it not for our measures. And according to the staff assessment, in the absence of our measures, it would be at least half of a percentage point lower next year and between 1/4 and 1/3 of a percentage point lower in 2017. So in assessing how to respond to the risks to price stability, the question we faced was not whether our tools worked – indeed, they are probably the dominant force spurring the recovery we see today. It was whether, in light of the evolution of those risks, the calibration of our policy was still sufficient. This is the question that the Governing Council addressed yesterday. On the real side of the economy, our assessment was that the recovery is ongoing and the economy remains resilient to volatility in the global economy. Domestic demand is replacing foreign demand as the engine of growth, and our outlook for the coming years is broadly unchanged. On the nominal side, however, we perceived that the downside risks to the inflation outlook had increased, especially given continued declines in oil prices and a large output gap. Without further monetary policy action, the date when inflation returns to our objective would once more have been pushed back. The Governing Council therefore decided that, to secure the path of inflation back towards 2%, the calibration of our existing monetary policy measures needed to be adjusted. | Since the summer of last year we have cut our policy rates into negative territory, launched a credit easing package and begun purchasing private and public sector securities under the asset purchase programme (APP). A large body of evidence has accrued in that time that our instruments are powerful. And that evidence has allowed us to refine further our understanding of the amount of stimulus required to bring inflation back to 2% without undue delay. For example, since we launched our credit easing package in June 2014, composite lending rates for firms have declined by more than 80 basis points for the euro area as a whole, and by between 110-140 basis points in stressed economies. That is a formidable pass-through. ECB staff estimates suggest that we would have needed to reduce the standard policy rates by around 100 basis points in June 2014 to achieve a similar effect on bank lending rates. Improving financing conditions have also fed into improving macroeconomic conditions. According to Eurosystem staff assessments, our measures will add almost 1% to GDP between 2015 and 2017. And we are seeing an effect even on smaller firms that are typically harder for monetary policy to reach. In our most recent survey on smaller firms in the euro area, for instance, we saw for the first time since 2009 that the net percentage of small firms registering an improvement in business activity has turned positive, for all size sub-groups. Crucially, our measures are also gradually feeding through into inflation. | 1 |
Philipp Hildebrand: Current state of the financial system in Switzerland Introductory remarks by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Berne, 20 June 2009. * * * Introduction This time last year we reported that the overall market environment had calmed somewhat. However, we also stressed that it was too early to sound the all-clear, and that there was considerable uncertainty about the future development of the crisis. Our concerns at that time proved more than well-founded. Indeed, the actual events outstripped our expectations. If I may, I will start with my conclusion: the state of the Swiss and international financial system is – and remains – vulnerable overall. Consequently, we are still maintaining close contact with the big banks and with Swiss and foreign authorities, and are monitoring further developments with great attention. In addition we are continuing our intensive efforts at national and international level to improve the regulatory framework. Given the scale of the crisis, the Swiss National Bank (SNB) is convinced that although the measures taken so far in this area are heading in the right direction, some of them do not yet go far enough. I will therefore begin by briefly assessing the situation of the financial system, and then present the issues to which the SNB attaches medium to long-term priority with regard to reform of the banking sector operating environment. In the short term, however, the main focus is on overcoming the crisis. | Thomas C Baxter, Jr: Reflections on the new compliance landscape Remarks by Mr Thomas C Baxter, Jr, Executive Vice President and General Counsel of the Federal Reserve Bank of New York, at “The New Compliance Landscape: Increasing Roles – Increasing Risks” Conference, New York City, 23 July 2014. * * * The views expressed are the views of the author and do not necessarily reflect the views of the Federal Reserve Bank of New York, or any component of the Federal Reserve System. Let me begin by thanking the Risk Management Association, PWC, Debevoise & Plimpton, and my friend Paul Lee for inviting me to participate in this conference. Of course, I need to give what sometimes sounds like a Miranda warning – my remarks are personal, and do not represent an official position of the Federal Reserve Bank of New York, or any part of the Federal Reserve System. There is nothing I will say that can be used against them. I am going to address three specific compliance problems: economic sanctions, tax evasion, and foreign corrupt practices. I will use these three compliance problems to illustrate a larger point about organizational culture. If organizational values do not support the rules that organizations use to guide the behavior of employees, and worse, if organizational values actually conflict with those rules, the organization is headed for troubled territory. In my remaining time, I will elaborate on this fundamental point. Let me start with economic sanctions. | 0 |
One way of overcoming this is for the prudential regulator to make a firm raise the required equity capital once the deficit is identified. Another way might be for banks to issue so-called hightrigger contingent capital instruments (CoCos), ie bonds that convert into equity if a bank’s capital ratio falls below a prescribed but reasonably high level. In steady state, for a bank with a minimum equity ratio of 10%, that trigger might be, say, 8%: sufficiently below the required level for the insurance provided by these CoCos not to be prohibitively expensive, but sufficiently high that the bonds would convert to equity while the bank was still able to fund itself in the market.8 The second, and in some ways bigger, issue relates to the problem of a debt-overhang.9 Suppose, due to a marked deterioration in the macroeconomic environment, a bank’s equity base, even after the conversion of high-trigger CoCos, is revealed to be too thin to cover the risks in the business. Debt spreads rise and, in consequence, the value of bonds in issue falls. An injection of fresh equity would increase the value of the business, by reducing the probability of bankruptcy. But since bond-holders ultimately pay the bankruptcy costs, they and other creditors would be the main beneficiaries of recapitalisation: there would be a transfer of resources from equity holders to bond holders. Shareholders in a poorly capitalised firm have an incentive, therefore, to keep their hands in their pockets and gamble that the economy, and with it their bank, improves. | Overall, this underlines the importance of transparency – from banks and from the macroprudential policymaker. Conclusions: The implications of reform for the shape of finance Cyclical fluctuations in credit conditions and macroprudential interventions to influence them will not play out in an unchanged financial system. In fact, it would be surprising if the 8 BIS central bankers’ speeches market’s own response to the crisis and the regulatory reforms did not drive structural changes in the credit system. The shape of some can perhaps be discerned. Too-Big-To-Fail effectively subsidised longer-term bond finance for banks. Combined with lax liquidity regulation, this probably left the sector as a whole with larger and longer-maturity asset portfolios than otherwise. A few decades ago we used to talk about government crowding out the private sector from the capital markets. Well, the bloated balance sheets of TBTF firms essentially crowded out other long-term investors from parts of the credit markets. Unlevered sources of funds struggled to compete with the banks, but instead held lots of bank paper, thinking it risk free. Competitors to the banks had to lever up: fragile shadow banks were one result. Actions to remove the subsidy from banking will, amongst other things, create conditions in which the relative role of unlevered capital market investors can grow. Some of that might come through securitisation, although a mature and resilient market in ABS of loans to SMEs might well require initiatives to produce rich data sets on credit histories. | 1 |
Moreover, any such subordination would imply that the objective of the Internal Market is superior to the objective of Economic and Monetary Union. This is not the case; these are equal and complementary objectives of the European Union. Moreover, as the ECJ made clear in the Pringle case, “[…] each institution of the Union is to act within the limits of the powers conferred on it in the Treaties, and in conformity with the procedures, conditions and objectives set out in them.”5 And third, there is a limitation: Article 22 cannot confer general regulatory competences on the ECB – it can only adjust the ECB’s monetary policy toolkit by clarifying that the competence for clearing and payments covers derivatives. The Treaty drafters made the ECB’s objectives and tasks very clear. As the European Court of Justice said, a measure falls under the responsibility of the ECB when it is intended to pursue an objective such as the consistency of monetary policy or the proper transmission of monetary policy. This objective, in turn, contributes to the primary monetary policy objective of maintaining price stability6. The reason why monetary policy needs to cover CCPs’ liquidity is that derivatives clearing has become a cornerstone of the financial system. We must not forget that ECB measures must also comply with the principle of proportionality. This means that any ECB actions in the field of clearing will have to be appropriate for attaining monetary policy objectives and cannot go beyond what is necessary to achieve those objectives. | The size of the imbalances and the persistence of the forces supporting them probably mean that we will be living for a prolonged period of time with the tensions that could come with the need for adjustment. The risks associated with this adjustment process may be magnified by changes in the household balance sheet in the United States. The average household in the United States today has a higher level of debt to income and is somewhat more exposed to interest rate risk than in the past. The sustained rise in housing prices and the scale of borrowing against housing assets raises the possibility that a rise in risk premia could have a greater impact on household spending that would have been true in the past. The adjustment process is also complicated by the fact that the rest of the world does not appear likely, even over the medium term, to be in a position to provide a sufficiently strong offsetting source of demand growth to compensate for the necessary slowing in U.S. domestic demand. Policy actions to promote structural reform in the labor, product and financial markets could potentially change this, but the policy changes required are politically difficult, and their effects on net savings over time might be offset by demographic and other forces working the other direction. A number of observers have suggested that we can live comfortably with these imbalances for a long time, with very little risk to the U.S. and world economy. | 0 |
In addition, the expansion of the euro’s international role would be a useful means of consolidating our economic sovereignty. The euro is 20 years old and it is our success: it ranks second in the international monetary system, but it still needs to increase its importance at the global level. The dollar remains a key pillar of America’s global power, and China is taking a greater interest in the internationalisation of the renminbi. The other major threat to Europe’s sovereignty is technological. Of the large digital corporations – the GAFA and other bigtechs – whose power equals that of sovereign states, none is European. And Europe is seriously lagging behind in investment: in 2015, the euro area’s stock of information and communication technology (ICT) capital amounted to 7.6% of GDP compared with 10.9% in the United States. v Yet Europe has the advantage of having a single market: you can see what happens without it with Brexit and the cost of a “no deal” for the British economy. But we need to be more bold. By taking full advantage of the size effect: there are still too many implicit borders and too much Page 4 of 10 fragmentation. By using the power of standardisation, notably to direct innovation, as illustrated by the GDPR and data where Europe is taking the lead. By daring to implement an industrial policy with public-private partnerships, as in artificial intelligence and batteries. | And lastly, by mobilising our financial resources: Europe has the largest pool of private savings in the world, with more than EUR 300 billion of excess savings invested outside the region each year, but our venture capital market, and more broadly our equity financing market, are underdeveloped compared with the United States. In the financial sector, the bigtechs have the potential to cause a genuine “Big Bang”: they have a strong brand image, a global client base and privileged access to new technologies. Of course, financial regulation needs to remain neutral vis-à-vis technology: the principle of “same activity, same rules” needs to be applied to maintain a level playing field for all players. But we need to increase international cooperation in four key areas of the regulation of digital finance: (i) cyber-security; (ii) data protection; (iii) preserving competition in the face of the risk of ultra-dominant networks and private monopolies; and (iv) fair cross-border taxation. Facebook’s Libra is a prime example of a case where cooperation is imperative. The G7 under the French presidency underlined the challenge this poses for sovereignty, and wants to address some “serious regulatory and systemic concerns” vi before such projects can be implemented. II. Boldly seizing the opportunity of a social, environmental and multilateral model. I now come to my provocation, or rather what should be our boldness. To this uncertain, troubled, disruptive, and uncooperative world, does Europe have nothing to offer? | 1 |
Thus, price stability is the main objective of monetary policy in all of these countries and has in fact become the recognized single target for monetary policy in numerous countries. The reason for this emphasis on price stability is that it creates the best conditions for balanced growth and increased welfare. The Icelandic financial market has developed very rapidly over the last ten to fifteen years. It is a small market by definition, but has nevertheless the same institutional set-up as larger industrial countries. Aside from the Central Bank, these include commercial banks, savings banks, securities companies, various investment funds, insurance companies, large and important pension funds and last but not least a stock exchange - linked with the other Nordic exchanges - where the shares of 60 to 70 Icelandic companies are listed and traded on regular basis. Supervision of the activities of all of these institutions is in the hands of a unified financial supervisory authority that has broadly the same legal powers and follows the same methods and standards as supervisory agencies in other European countries. Important rationalisation has taken place in the Icelandic financial system. Until a few years ago, two of the main commercial banks were fully government owned and so were a host of so-called investment credit funds. The funds were unified in a single institution, which was subsequently privatised. | In that respect, I might mention, since we are in Stockholm and since I have drawn some parallel with the other Nordic Countries, that the Swedish krona fell in broadly similar proportions over a period of time after the exchange rate was floated in late 1992. The depreciation of the Icelandic króna fed into domestic prices and inflation picked up significantly. Late last year, the exchange rate had clearly overshot sharply on the downside. Then expectations turned around again. It was clear, among other things, that the economy was cooling down and that the current account deficit was shrinking fast. Optimism also arose once prospects improved that the inflation spike, which followed the exchange rate depreciation, would subside quickly again. The króna began to appreciate and has by now regained an important part of its earlier value. Inflation has subsided sharply again this year and expectations are that the inflation target of 2½ percent will be achieved before the end of the year. The large current account deficit recorded in the year 2000 also began to shrink rapidly, it fell by more than half in the year 2001 and the outlook is for approximate balance this year. These developments demonstrate the resilience and adaptability of the Icelandic economy; moving from a very large current account deficit to virtual balance in the course of two years and reducing inflation from bordering on a two-digit rate to 2½ percent within one year. | 1 |
The development of a single global code for the FX market is a significant effort, but developing a code is not enough. Codes of conduct and associated best practices are an important complement to regulation. They can support the integrity and function of the market by underpinning the smooth operation of the market and instill confidence that participants will treat each other fairly. But this is not possible, or sufficient, if best practices do not evolve as the market evolves, if they are not implemented effectively, or if they are not adhered to by market participants actively engaged in the market. Development of dynamic best practices is critical, as is the market’s adherence. Recent headlines and events paint a picture of an FX market that does not always serve the public well. But you all have an opportunity to change this picture – to support the work to strengthen the market. I encourage you all to make the most of this opportunity. As Guy Debelle noted in his speech in February, the failure to act on the FXBG recommendations may prompt authorities to conclude that further regulation is the only way to strengthen the integrity of the market. 15 Similarly, the Governor of the Bank of England, Mark Carney, emphasized in his recent Mansion House speech that a failure to establish effective common standards that are adhered to would likely result in more restrictive regulation. 16 Consider this message reiterated here today as well. | BIS central bankers’ speeches 3 interdealer and dealer-to-client – into a market with much broader access. Moreover, as new trading platforms have come online, the profile of FX market participants, and thus the way FX is traded, has changed. New participants, such as retail and smaller institutions – that are often engaged in high-frequency or high-speed trading – could begin executing on their home or office computers, or could connect their trading algorithms directly to the platforms. The expansion of both the universe of market participants and the infrastructure to support execution has brought many positive benefits to the market and global economy, but we should also be mindful of potential costs that might arise. In particular, it is important to consider the implications for the overall integrity of the market, which, as I noted earlier, relies on the ability of market participants to confidently and effectively transact at prices that reflect available market information. Technology has helped ease entry to the market, but the capital investments needed to keep up have also increased. Indeed, operating in fractions of milliseconds has become an important component toward achieving faster execution. Will this hinder the entrance of new participants in the future, particularly those who may not have the extensive resources required to keep up? In addition, while many market participants note the positive influence that technological changes have had on market functioning, including narrower bid-ask spreads. 7 it is unclear how these changes may affect the broader price discovery process or liquidity of markets overall. | 1 |
• Solvency II will raise requirements on capital adequacy and risk management for European insurance companies, and shape the development of risk-based capital frameworks for insurers in other jurisdictions. • New capital markets regulation will transform the over-the-counter (OTC) derivatives trading business, with mandatory reporting, central clearing, and margin requirements for non-centrally-cleared contracts. • Additional capital charges and closer supervisory intensity will be applied on the so-called G-SIBs, or global systemically important banks, as part of efforts to address the “too-big-to-fail” problem. Some regulatory initiatives will impinge directly on the structure of financial institutions. Many jurisdictions are pushing for local incorporation of institutions, especially if they are systemically important. In America and Europe, regulators are reviewing various proposals for separating or insulating retail banking from riskier activities. Third, the centre of gravity of financial activity is shifting towards Asia. • The IMF forecasts that, in the next five years, emerging Asia will grow by about 7% per annum, nearly three times faster than the 2.5% forecast for the advanced economies. BIS central bankers’ speeches 1 The financing needs of companies and individuals in Asia will grow in tandem. Infrastructure investment needs alone will amount to a staggering 8 trillion US Dollars over the next decade. There is opportunity to mobilise Asia’s large pool of savings to meet these financing needs. But this transmission is not working as well as it should, because financial markets in Asia are still under-developed and fragmented. | • Final details of the regulatory capital framework will be announced by June this year. Diverse ecosystem The second pillar: Singapore has a diverse financial ecosystem. The various parts of the financial sector not only serve important functions in their own right, but are mutually reinforcing. • The World Economic Forum has ranked Singapore 2nd worldwide for financial market development – a testament to the depth and breadth of Singapore’s financial sector. A full-fledged financial centre Singapore provides a broad and integrated suite of financial services. We are an important regional funding centre. • The Asian Dollar Market, with its total asset size of more than 1 trillion US dollars, has played a key role in serving the financing and treasury needs of individuals, corporates, and institutions in Singapore and the region. We are the premier asset management centre in Asia, acting as gateway to the world for Asian investors and for the world to tap Asian investments. • Assets under management by Singapore-based managers have more than quadrupled over the last decade to reach 1 trillion US dollars in 2011. We are the leading insurance centre in Asia. • Singapore plays host to about 190 insurance institutions meeting the protection needs of the economy and society across the region. • The industry has built up expertise in complex and specialist risks – including marine, energy, aviation and credit and political risks. We have one of the most developed bond markets in Asia. | 1 |
The real exchange rate measured in terms of developments in relative prices is an expression of the Norwegian krone’s purchasing power. The real exchange rate has fluctuated considerably over time and has deviated substantially from the average level since 1970 over longer periods. Nevertheless, there has been a tendency for the real exchange rate to revert to this level. Relative prices in a common currency are now approximately 2 per cent lower than the average since 1970.4 Relative labour costs in a common currency are approximately 3.5 per cent higher than the historical average. As mentioned, high wage growth over a period of several years starting in 1998 eroded the competitiveness of the Norwegian business sector. Even though the krone has depreciated since 2002, the competitiveness of Norwegian companies is still fairly weak due to the high cost level. The nominal krone exchange rate has now reverted to around the level prevailing in the mid-1990s, while labour costs in manufacturing have risen considerably more than among our trading partners in the same period. Asymmetric cyclical developments Cyclical developments in Norway and other countries have been divergent. This was most pronounced in the 1980s when we had a strong upturn while Europe was in a recession. Even though business cycles have gradually become somewhat more synchronised, there is still a time lag. While the global turnaround took place in 2000, with a subsequent reduction in interest rates abroad, the Norwegian economy continued to show a high level of activity. | Following the monetary policy meeting on 11 August, the Executive Board stated that with the prospect of continued low inflation for a period ahead, wide deviations from projected economic developments would be required before the interest rate should be increased. The Executive Board also stated that uncertainty concerning the effects of previous monetary policy easing and the unusually low interest rate imply, on the other hand, that we should exercise caution with regard to further interest rate reductions. 6 BIS Review 47/2004 | 1 |
Domestically, the SNB will work hand in hand with the Federal Banking Commission (FBC). The SNB will focus on systemic issues, while the FBC - our bank supervisor - will deal with institutional aspects. This job-sharing is based on the premise that each authority will be able to make use of its comparative advantage. Internationally, market developments foster cross-border cooperation between oversight authorities. For instance, institutions such as Sega Intersettle (SIS) through “The Settlement Network” are heavily involved in the current reshaping of Europe’s financial market infrastructure. However, as the legal reform is not yet in place, there are many open questions as to what exactly the modus vivendi of the oversight function should look like. We will address them step by step in a pragmatic way. Many issues such as the set-up of mechanisms for information sharing, the need for on-site examinations, or the disclosure of oversight proceedings have still to be discussed and clarified. We are in the process of defining basic principles and implementation tools pertaining to our new oversight responsibilities. 8 The Payments Risk Committee was established by the Fed New York in 1993 as a means to integrate the input of leading US commercial banks in discussing and implementing recommendations for improving the quality of risk management in payment and securities settlement systems. 6 BIS Review 37/2002 Conclusion I would like to conclude my speech with a fundamental remark. | In particular, governments need to foster innovation by providing the right framework to encourage experimentation and risk-taking in new and growing sectors, and to support the transition to new jobs for people working in “sunset” sectors. In parallel, they need to ensure that the conditions are in place to direct investment towards the technologies and sectors of the future. 2/4 BIS central bankers' speeches This requires sufficient financing. The European Commission estimates that the investment needs for delivering the digital transformation as well as the green transition will be at least € trillion over the next two years.2 But in a number of countries – Italy among them – mobilising investment requires above all a business-friendly economic environment, with efficient and agile public and private services, adequate physical and digital infrastructures, a well-functioning judicial system and a strong financial sector. If such actions are taken, this crisis can engender a period of positive transformation. It offers an opportunity to policymakers to take a decisive step forward towards more inclusive, greener and more digital growth. | 0 |
In particular, the cooling in the housing market points towards weaker growth than expected next year. The picture of the euro area and other parts of the world is that developments have rather been slightly stronger than we assessed in June. Back in June, we envisaged fairly high growth in Sweden over the coming years. The statistics received since then confirm that the economy is growing at a good rate. Household consumption and housing investment have grown more rapidly than expected. However, both the number of persons employed and the number of hours worked have been lower than expected. This reflects the fact that productivity growth has been surprisingly high again. Companies have thus been able to increase production without needing to take on so many new employees. Most indications are nevertheless that the labour market will continue to improve. Generally high lending and the fact that household indebtedness and house prices are continuing to rise rapidly support the picture of strong demand. Rapid increases in energy prices have contributed to inflation being higher than the Riksbank’s forecast over the summer. However, the oil price has fallen during the autumn, although it is as usual difficult to know whether this trend will continue. The oil price, like other energy prices, has a tendency to fluctuate considerably. There has been a recent downward adjustment in expectations of future energy prices. BIS Review 96/2006 1 The strong productivity growth will contribute to unit labour costs being low this year. | The current situation in the Swedish economy In the June Inflation Report we envisaged continuing good international economic activity. We assessed that growth would remain high in Asia, which has developed strongly in recent years. The strong growth in China is one explanation for the upswing in Asia. The expansion in China has contributed, for instance, to the recovery we now see in Japan. At the same time, the US economy has remained an important driving force behind the world economy as a result of its size. In the euro area, however, developments have been weaker, but we saw clear signs of an improvement in the forecast we published in June. At the same time as growth in demand in the world economy has been strong, price pressures have been held back. Although oil and other commodities have become significantly more expensive for consumers, the general price increases have been relatively small on the whole. One explanation for this is probably the stiffer international competition. Another is that monetary policy in many countries is now aimed at low inflation. The strong global economic activity has been beneficial for developments in Sweden. The Swedish economy has shown high growth rates in recent years. Despite this, inflation has also been low here in Sweden. This is mainly because import prices excluding oil have not risen and strong productivity growth has held down cost pressures. New data received since June shows that the international economic prospects still appear favourable. However, the signals from the US economy are slightly mixed. | 1 |
Some are also calling for a government of national unity… I am simply suggesting that joint action by consensus would be the best approach to take for the Spanish economy. It is up to the elected representatives to decide on whether or not the best approach, within a framework of understanding, is to make an explicit pact or establish a certain type of government. What conditions are required to reach an understanding of this nature? I think the important thing is to establish a framework of mutual trust and loyalty between the government and the opposition; and that is a two-way street. Banks are in a difficult position: at a time when they still have not restored their business models after years of low interest rates, the current scenario has again been prolonged indefinitely. How do you think this will affect the sector? 3/4 BIS central bankers' speeches The banking sector is facing this situation from a much more robust position than ten years ago. It is true that it has profitability issues and the deep recession will affect its bottom line. But there are no solvency problems. The financial markets experienced some problems during the initial days of this crisis, but they were not caused by the banking sector. The situation has to a certain extent returned to normal, although not completely, while prices have partially recovered and volatility has eased. | Minister Calviño has now stated that Spain should not resort to using it and that, in any case, she only believes it is an option if conditionality is extremely low… Before this crisis, Spain was growing, it was competitive, its debt-to-GDP ratio was below 100%, its government deficit was 2.6% and its unemployment rate stood at 14%. Currently it has been able to obtain the funding it requires on the markets, it is not experiencing any difficulties, and the spread against the German bund is 110 basis points. Let’s hope that Spain can maintain this relatively comfortable position. Italy is not in the same position; could that be why it is adopting a more combative stance? I don’t want to start making those kinds of comparisons. Let’s come back to Spain then. There is talk of making a political pact, like the Moncloa Pacts of 1977. What’s your opinion? Are you in favour of pacts? I think we must always be in favour of political pacts during extraordinary times such as these. Although a comparison with the 1977 Moncloa Pacts is perhaps not possible. At that time, Spain was not a member of the EU and the euro did not exist. The main goal was to reduce inflation and change the income policy. Today, there is a deep recession that will have a very severe impact on the public finances and which will require a huge effort to get the economy back to normal. This is the most serious economic situation since the Civil War. | 1 |
After just over four years of existence, the SSM today constitutes a unique and efficient model, based on the application of the EU Single Rulebook (under the direction of the European Banking Authority – EBA), close cooperation between the ECB and national authorities on all levels (ECB Supervisory Board, Joint Supervisory Teams, on-site inspections teams), and the principles of subsidiarity and proportionality (the ECB directly supervises 119 of the largest banking groups while all other institutions are supervised through national authorities). The SSM represents a major institutional step forward and the initial results are real. Banking supervision practices have been harmonised upwards and are now aligned with the highest international standards (for example, the methodology for the supervisory review and evaluation process or SREP). Europe’s banking industry is today significantly more robust than before the crisis: the biggest banks’ CET1 ratio has increased by more than 3 percentage points since 2014 (from 11.3% to 14.6% at end-2017) and their balance sheets have largely been cleaned up (through a reduction in the NPL ratio from 7.6% to 4.9% over the same period). The industry’s resilience was confirmed in the stress tests organised by the ECB and EBA in 2018, which simulated the impact of financial shocks on the solvency of the largest banks: in an 5/7 BIS central bankers' speeches adverse scenario, the average CET1 ratio for the sample would come out at 9.9% – or 1 percentage point higher than in the previous exercise in 2016. | Like the SSM, the SRM is based on a common regulatory framework (the BRRD Directive and the SRM regulation), and is structured around a Single Resolution Board and joint resolution teams. Although the SSM and the SRM have both been successful in managing the first bank liquidations or resolutions (i.e. those concerning the Veneto banks and Banco Popular), the second pillar still has to be finalised. Achieving this goal is essential, both to prevent the contagion of banking crises and to ensure the continuity of critical banking functions. In this regard, France has worked hard for the creation of a common backstop, the main features of which were decided just a few months ago. Three issues still need to be addressed however: the duration of the credit lines provided by the backstop; the creation of a rapid decision-making process in the event of an emergency; and the provision of liquidity to banks in resolution. Once these matters have been resolved, we can hope, and at the Banque de France it is our firm belief, that a pragmatic compromise can be found on the third pillar – the deposit guarantee scheme. c. … and building a Capital Markets Union to create a true Financing Union Evidently, financial integration is not just about achieving banking union. Ensuring the balanced and sustainable financing of the economy also implies deeper integration of capital markets, which fosters greater geographical diversification in savings and meets corporate firms’ financing needs – notably equity financing. | 1 |
As you know, he was born in Europe but passed away in America – and it’s probably no coincidence. Accordingly, I would like to elaborate on three potential “candidates” as explanations for Europe’s lag: the first two – our social model and our macroeconomic policies – would be Keynesian failures and the third one – our lack of innovation – is on the Schumpeterian side. To put it in a nutshell, I don’t believe in the first two explanations, but I believe in the third one. Hence, Europe ultimately needs to gather together its two sons, to reconcile Keynes and Schumpeter. Page 5 sur 14 A. Our social model? A frequent explanation for Europe’s lag seeks to lay the blame with our common social model. In my view, this is not convincing. On the contrary. Look at the Nordic economies. They have a high ratio of social spending as a percentage of GDP (28% in Denmark, 25% in Sweden, 29% in Finland, well above the OECD average of 20%), and nevertheless their economic performances is better : for instance, the unemployment rate was 5.1% in Denmark, 6.8% in Sweden and 6.7% in Finland in 2019 (before the outbreak of the Covid crisis), which is well below the euro area average (7.6%). Sweden and the Netherlands successfully gave birth to “decacorns” such as Spotify and Adyen, etc. | In particular, the takeover of innovative start-ups should give rise to a revamping of the concepts used by the Commission. Money: To bridge the innovation gap and help our start-ups grow, we need to better mobilise our financial resources thanks to a genuine “Financing Union Page 13 sur 14 for Investment and Innovation”. Europe is facing an unacceptable paradox : we have the world's largest pool of domestic savings – with the household saving rate hitting an all-time high in 2020 – but since the 2008 financial crisis, investment has been declining, especially in southern and eastern Europe xiv: And the equity financing of non-financial firm’s is underdeveloped compared to the United States: it only represents 76% of euro area GDP, versus 176% in the United States: Page 14 sur 14 In the current context of the Covid crisis, consolidating the Capital Markets Union is even more essential to complement public measures and support the economy. There is still too much fragmentation. Tangible solutions are in the pipeline such as new regulatory measures to help companies raise funds rapidly on markets in the context of Covid-19. Further efforts should also be made in the areas of pan-European venture capital, market supervision or companies’ data transparencyxv. *** In conclusion, I would like to mention a more “cultural” cause of our European lag: let us call it a confidence gap. | 1 |
For example, I have said on behalf of the Bank of England7 that in principle the Bank, as the UK’s resolution authority, would be prepared to step aside and allow UK subsidiaries of the big US financial groups to be resolved as part of a group-wide resolution led by the US authorities. To take this further, the Bank of England needs to set out the conditions that would need to be met in practice for it to deliver on its “in principle policy”. Second, the UK needs the US authorities to make a reciprocal “in principle statement” about their being prepared to step back to facilitate a UK-led top-down whole-group resolution of UK groups with a presence in the US. That cannot, in my view, wait very long after the EU’s Resolution Directive is passed. And, third, similar commitments need to be made between other pairs of countries – particularly the major jurisdictions in which the headquarters of global systemically important financial institutions are domiciled. On that, I can tell you that progress in this field is not limited to the US and UK. Separately, some technical impediments need to be removed. Perhaps most obviously for this audience, the standard market agreements for derivatives and repos need to be amended so that putting a firm into resolution or the exercise of a resolution power is not an event of default. If necessary, there will have to be regulatory changes to induce or require this. That too is on the FSB’s agenda for the next year. | I don’t mean it would be completely smooth right now; it would be smoother in a year or so as more progress is made. But in extremis, it could be done now. That surely is a massive signal to bankers and markets. Europe has not yet reached the same point, but contrary to some commentary is not far behind. The necessary legislative regime is close to completion. In contrast to the US, however, many of the largest European – including UK – banking groups will need to reorganise in order to make themselves susceptible to either Single Point of Entry or Multiple Point of Entry resolution. That brings me to my second point. (2) The Single Point of Entry versus Multiple Point of Entry resolution strategy distinction may be the most important innovation in banking policy in decades We will learn to speak of banks and dealers as either “SPE groups” or “MPE groups”. Some technical developments don’t matter hugely. This one does. A lot will follow from it, as I will sketch in a moment. But first I should recap the difference between SPE and MPE resolution strategies. A single-point-of-entry or SPE resolution works downwards from the group’s top company – most simply, a pure holding company (Holdco). Losses in subsidiaries are first transferred up to Holdco. If Holdco is bankrupt as a result, the group needs resolving. The “bailin” tool is applied to Holdco, with the equity being written off and bonds converted as necessary into equity to recapitalise the group. | 1 |
Yet at the same time, the Bank was poorly placed in the early stages of the crisis to launch well-structured liquidity assistance rapidly, either to the market as a whole or to individual firms. It lacked the information to evaluate firms’ solvency. And, where LOLR was required, it lacked well-defined pricing or maturity schedules, pre-arranged legal documentation or – most importantly of all – a clear ex ante understanding of the amount and quality of suitable collateral on banks’ balance sheets against which it could lend. Prudential supervision has now returned to the Bank, facilitating a more coordinated approach to financial crisis management, horizon scanning and proactive contingency planning, and improving the Bank’s ability to evaluate solvency ahead of any LOLR. And the bulk of the Bank’s liquidity insurance toolkit has progressively been made public since the height of the crisis. The Sterling Monetary Framework (SMF) now contains a range of facilities with documented price, maturity and quantity schedules, including a regular auction-based marketwide Indexed Long-Term Repo facility, a bilateral on-demand Discount Window Facility and a discretionary Contingent Term Repo Facility. All of these facilities can be used against a wide range of eligible collateral, including securities and raw loans. But this collateral must normally be “pre-positioned” with the Bank so that it can be credit assessed, priced and haircut well before any need to use it arises, rather than in the heat of a crisis. | So the risk of central banks having “too little” scope to carry out LOLR is real. At the same time, the public has a legitimate interest in avoiding “too much” LOLR. We cannot afford for financial institutions to view liquidity support as a substitute for prudent financial management: central banks must not be “lenders of first resort”. And lending to institutions that are in need of capital rather than liquidity is the wrong solution. Given the uncertainties involved, neither outcome can be avoided with certainty. But it is right to seek robust safeguards against them. BIS central bankers’ speeches 1 A well-designed LOLR framework must therefore get the balance right between lending “too little” and “too much”: – To help avoid “too little” LOLR, central banks must be given clear responsibilities and the tools and powers needed to carry them out, including the ability to lend to individual institutions, covertly if necessary to maintain financial stability. – To help avoid “too much” LOLR, central banks must have strong risk management, be ring-fenced from special interests (in public or private sectors), have a clear public mandate specifying their scope for action, and be subject to strong transparency and accountability requirements. There are powerful parallels between these design challenges, and those for monetary policy. Like monetary policy, LOLR is vitally important to an economy’s health, but involves intrinsically complex, technical judgments – including the solvency or otherwise of potential borrowers, the pricing, scale and maturity of loans, and the appropriate collateral. | 1 |
Zeti Akhtar Aziz: Strengthening relations between Indonesia and Malaysia Remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of PT. Bank Muamalat Indonesia, The Malaysian Branch and First Islamic Investment Bank Ltd, Kuala Lumpur, 5 March 2009. * * * It is my pleasure to be here this morning on this occasion of the launch of the Malaysian branch of PT. Bank Muamalat Indonesia, and its subsidiary, First Islamic Investment Bank Ltd., established under the Malaysia International Islamic Financial Centre (MIFC) initiative to operate foreign currency Islamic financial business in Malaysia. This is a significant development as it represents the first Indonesian financial institution in the Malaysian financial system. Indeed, this occasion signifies a further step forward towards strengthening the bilateral, financial and economic relations between Indonesia and Malaysia. The settingup of these two institutions in Kuala Lumpur would contribute towards accelerating the financial linkages that will underpin the expanding trade and investment ties between Indonesia and Malaysia. As the largest Islamic bank in Indonesia, we will also have the opportunity to leverage on our respective strengths and expertise and to mutually reinforce the benefits to be gained from this development. Potential of Islamic finance amid slower economic growth in the region Cumulatively, the total output of the ASEAN economies amounts to USD1.3 trillion while total trade of the ASEAN region now amounts to USD1.4 trillion. | There has been a growing number of MIFC players with diverse business activities that range from international Islamic banking business in foreign currency to Islamic fund and wealth management, takaful and sukuk origination. The global sukuk market has expanded by an annual growth rate of 40%. Despite a slowdown in the sukuk issuance in 2008, there was still an estimated USD20 billion issuance taking place, with Malaysia remaining as the main issuer in the global market. The prospect of Islamic finance continues to remain positive despite the more challenging international environment. The global financial crisis has resulted in heightened calls for more transparent forms of banking that are subject to stricter governance and risk management practices. There are also greater demands for increased regulation. Following the financial reform that may take place, the world may see a banking system that is significantly different from before to the crisis. Many of the features currently being discussed are in fact explicitly embedded in the Shariah requirements. The in-built check and balances in Islamic banking avoids the excesses and over leveraging, a feature precipitating the current financial crisis. Ensuring that the Shariah requirements are embraced in its entirety is vital to ensuring the robustness and resilience of Islamic finance. Islamic finance must also draw upon the lessons derived from the current crises. It is vital that the regulatory regime based on the prudential standards issued by the Islamic Financial Services Board be implemented. This will further ensure the stability and soundness of the system. | 1 |
Looking at these multiple sources of capital, in turn, provides an account of the Industrial Revolution whose genesis differs significantly from the Neo-Classical one. 25 Take human capital accumulation. One measure of that is literacy and numeracy in the population at large. Chart 7 plots the level of adult literacy in a selection of Western Europe countries from the late 15th century. At that time, less than 10% of the population were literate. Measured levels of human capital were miserably low, consistent with subsistence living standards. But in the following three 22 Douglas Allchin describes preternatural phenomena as being “suspended between the mundane and the miraculous”. 23 For example, Romer (1986), Aghion and Howitt (1998) and Acemoglu (2009). 24 Sachs (2014). Sachs also discusses environmental capital. Also see Solow (1956), Becker (1965), Rebelo (1991), Putnam (2000), Romer (1986). 25 For example, Acemoglu and Robinson (2013), Clark (2009). BIS central bankers’ speeches 5 centuries, a transformation took place. Literacy rates in the adult population shot up to around 50% in Western Europe, in some countries higher. In other words, human capital accumulated at real pace prior to the Industrial Revolution. This skills-deepening provided one foundation on which other sources of growth-enriching capital were built – for example intellectual capital, the generation of ideas and innovation. On this interpretation, sociological transformation supported, perhaps preceded, technological transformation. Innovation was an earthly creation, not manna from heaven. Since the Industrial Revolution, levels of educational attainment have continued to rise. | 63 Carr (2008). 64 See http://www.economist.com/node/15557443 65 Simon (1971). 66 See http://footballperspectives.org/end-season-football-manager-statistics-2013–14. 12 Assessment (PISA) 2012 results BIS central bankers’ speeches The rising incidence of attention deficit disorders, and the rising prominence of Twitter, may be further evidence of shortening attention spans. If so, that would tend to make for shorter-term decision-making. Using Daniel Kahneman’s classification, it may cause the fast-thinking, reflexive, impatient part of the brain to expand its influence. If so, that would tend to raise societal levels of impatience and slow the accumulation of all types of capital. This could harm medium-term growth. Fast thought could make for slow growth. Psychological studies have shown that impatience in children can significantly impair educational attainment and thus future income prospects. 67 Impatience has also been found to reduce creativity among individuals, thereby putting a brake on intellectual capital accumulation. 68 Innovation and research are potential casualties from short-termism. There is evidence suggesting just that. Investment by public companies is often found to be deferred or ignored to meet the short-term needs of shareholders. 69 Research and development spending by UK companies has been falling for a decade. They are towards the bottom of the international research and development league table (Chart 16). If shorttermism is on the rise, this puts at risk skills-building, innovation and future growth. 70 A final ingredient is infrastructure capital. Here again, investment trends are not encouraging. | 1 |
1 4 Speech by Adair Tuner on 29 September 2011, Credit Creation and Social Optimality. BIS central bankers’ speeches One key answer to the spiral described by Minsky has been to introduce macroprudential regulation. Instruments such as the countercyclical capital buffer are meant to provide a cushion when the credit cycle turns down. There is also a commonly held view that we need instruments to dampen credit growth during an expansion. We should probably look broadly at how the Minsky style spirals could be contained. Discretionary policy can be a useful tool, but due weight must be given to building strong automatic stabilisers into the financial system to reduce the risk of future bubbles. The topic of this conference is financial innovation. Both Adair Turner2 and Paul Tucker3 have raised doubts about the social value of some of these new instruments. I quite agree: Restrictive regulation of some of these instruments could contribute to stabilising financial markets. One could imagine that the regulator should evaluate the pros and cons of allowing any new instrument. At the very least, the regulator should make sure that any instrument traded in significant quantities is sufficiently transparent to be a useful risk shifter. In short, I agree with Frank that the positive relationship between financial markets and economic growth has its limits. The difficult question is naturally where these limits are. It will be hard for a regulator to draw the line. But there are few other candidates for doing it. | This was not the first time! We were again reminded how responsibilities should be shared between the fiscal authorities and the central bank. It is the responsibility of the parliament and the government to spend taxpayers’ money. It is not up to an independent central bank to spend their money! We still remembered this principle in late 2008 and early 2009 when the funding of Norwegian banks also dried up. Then we made sure that the Ministry of Finance became the banks’ counterparty in the bond swap I mentioned earlier. We thus avoided the discussion we have seen elsewhere about the central bank intruding into the arena of the fiscal authorities. The financial crisis also hit some very small Norwegian municipalities – far up North close to the coldness of the Barents Sea and others deep into the fjords warmed by the Gulf Stream – that had in fact invested in instruments exposed to the US subprime market. They were told that they could earn a risk-free excess return of 50 basis points. The instruments were in most cases sold to them by their very small local savings banks, which had taken them on from large US investment banks. The savings banks did not understand the risks either! Ignorance combined with greed – a dangerous combination. In 2008 and 2009 the municipalities suffered very large losses; from risks they had not understood. | 1 |
With the accelerating pace of regional integration, financial institutions are presented the opportunities to broaden beyond domestic borders to capture opportunities for the regional markets. It has been more than 5 years since the Financial Sector Master Pan was launched. The strategic focus has allowed us to promptly emerge from the crisis management mode and moved full steam ahead towards developing the financial system, The initiatives undertaken have now laid a strong foundation for the development of a strong and diversified financial system. Significant progress has been achieved in building the capacity and capability of the financial sector and in putting in place the necessary financial infrastructure including the supporting legislation and the domestic financial markets. 2 BIS Review 55/2006 The financial landscape and operating environment that is envisaged in Phase 2, where domestic banking institutions would have built greater capacity and capability to compete, is also progressing as planned. The level of competition in the financial system has increased significantly, fuelled by greater expectations from customers and facilitated by a more flexible regulatory framework and increased deregulation and liberalisation. This has resulted in improvements in the delivery of financial services and more efficient pricing and risk management, all of which contribute towards raising the level of economic performance. The wide range of measures to improve efficiency and effectiveness of the financial institutions, include initiatives on improving risk management practices, further developing the human capital and building talents for the financial sector, as well as measures to elevate the level of consumer awareness. | Today we help promote financial literacy through a video competition in partnership with the Puerto Rican Bankers Association. Our banking supervisors work to strengthen the financial system so it can readily supply credit to families and businesses, while our research economists monitor and analyze local economic conditions. This analysis – along with similar analyses from other regions across our nation – feeds into the decisions the Federal Reserve makes on monetary policy. In support of this work, I and other senior officials have traveled to Puerto Rico a number of times in recent years and met with a wide range of stakeholders, including university officials, students, business leaders, entrepreneurs, bankers and government officials. What we learn during these engagements helps to shape our understanding of the Puerto Rican economy and our efforts to support it. I have seen numerous examples of expansion and growth. This gives me confidence that Puerto Rico has the capability to be an economic success story. Nevertheless, these local engagements have also confirmed to me that conditions are not what we want them to be – in particular, growth and expansion are not happening broadly enough. The task of putting the Island on a path of robust, sustainable and inclusive growth remains a work in progress. During my visit here in March 2011, a number of business and community leaders expressed their concern that the economy had loss competitiveness. These local leaders asked if we would look at what might be holding back growth on the Island. | 0 |
And unemployment has fallen from a peak of 10½% on a claimant count basis at the beginning of 1993 to the present rate of 4%. That is the lowest for 20 years in the UK as a whole, and just about the lowest in nearly every region. In Yorkshire and Humberside unemployment is 4.7%, the lowest rate since June 1980. Our problem - and it is a real problem, as we have recognised for some time - is the imbalance, within the overall economy, between the domestically-oriented businesses and sectors, and those that are most internationally exposed. In part that imbalance is a hangover from the slowdown in global activity from the end of 1997 through to the start of 1999 - though the welcome recovery in global demand means that this influence is now diminishing. The more important factor now is the persistent weakness of the euro - not exclusively against sterling but equally against the dollar and the yen. The impact is particularly severe on the UK because of the closer ties between our economy and that of the Eurozone. I’ve not heard a wholly convincing explanation for the euro’s persistent weakness. Many analysts relate it to market concerns about structural rigidities in some parts of the Eurozone, which are encouraging direct capital outflows attracted elsewhere by higher prospective earnings growth. Whatever the cause, few of those I talk to expect the weakness of the euro to persist. | This is the first time we intervened in the foreign exchange market since 1999. Relatively quickly after the interventions, the market began to function more normally. 1/4 BIS central bankers' speeches Later in spring, the krone appreciated on the back of a rise in oil prices and reduced uncertainty in global financial markets. Recently, oil prices have been broadly at the same level as at the beginning of 2020, and the krone is somewhat stronger than prior to the Covid-19 outbreak. In spring 2020, risk premiums in the Norwegian money market rose considerably. Norges Bank took a range of measures to improve market liquidity and ensure pass-through of a lower policy rate to money market rates and bank lending rates. Among other things, Norges Bank offered banks extraordinary liquidity in both NOK and USD. In advance of the monetary policy meeting in May, financial market stress subsided and premiums in both the money and bond markets fell. The normalisation of liquidity policy is well underway. By the end of August 2021, all extraordinary loans from Norges Bank to banks will have been repaid, and the relaxation of collateral requirements for loans from Norges Bank will be reversed. Downturn in the Norwegian economy Activity in the Norwegian economy fell abruptly in 2020 Q2. The Covid-19 outbreak and extensive containment measures led to production halts and lower activity across a range of businesses. Mainland GDP was around 11 percent lower in April 2020 than in February the same year. Many employees were furloughed or made redundant. | 0 |
It is not hard to understand the obstacles to developing a mutually beneficial relationship between the two financial systems. Naturally, with financial restrictions much more prevalent on the Mainland than in Hong Kong, relationship-building between the two financial systems, to the extent that it involves relaxation of financial restrictions, invariably requires policy decisions on the Mainland. In making such decisions, the Mainland authorities have to weigh carefully the benefits of financial liberalisation with the over-riding need to avoid doing anything that will destabilize such a large and complex economy. This need for balance and careful sequencing of the reforms that are introduced is, I believe, well understood by the Mainland authorities. It is something that we in Hong Kong, in our desire for rapid change, need to approach with understanding and patience. One thing remains clear: the utility of the financial system of Hong Kong to the country as a whole. The mutual benefits of financial co-operation are also clear – on the one hand greater efficiency of financial intermediation and therefore greater sustainability of economic growth and development on the BIS Review 98/2006 3 Mainland and on the other hand the successful maintenance of Hong Kong as an international financial centre in accordance with the requirement laid down in Article 109 of the Basic Law. Both are very desirable objectives that are clearly in the national interest. | A study of his speeches suggested that the concept germinated at the beginning of the eighties, before Margaret Thatcher paid him a visit in 1982 at the Great Hall of the People and raised with him the question of the political future of Hong Kong. The phrase was then used, for the first time in public, by Deng Xiaoping when he received industry and business leaders from Hong Kong in June 1984 1 . Since that occasion, it has become by far the most common formula for summarising the governance arrangements for Hong Kong after the resumption of the exercise of sovereignty. It has, indeed, turned out to be a most effective political expression, capturing succinctly China’s policy towards Hong Kong, emphasising that Hong Kong is to be ruled by Hong Kong people (港人治港) and that there is to be a high degree of autonomy in the governance of Hong Kong (高度自治). The policy has also been most successfully implemented, contributing further to the credibility of the formula and the unique political concept that it encapsulates. Indeed, whenever one hears the phrase "one country, two systems", the immediate context will almost invariably be the political arrangements for the governance for Hong Kong. | 1 |
As part of Singapore's efforts to forge bilateral free trade agreements with strategic partners, MAS has engaged in talks on financial services liberalisation and cooperation, including with Australia, Canada, the European Free Trade Association, Japan, Mexico and the US. 5 MAS annual accounts Assets & liabilities On MAS' annual accounts, total assets increased by $ billion to $ billion as at 31 March 2001. The main components of the increase were due to a $ billion increase in foreign assets and a $ BIS Review 63/2001 3 billion increase in our holdings of Singapore Government Securities (SGS). As in the last financial year, the increase in SGS holdings reflected MAS' strategy of building up SGS to engage in more repurchase agreement (repo) transactions for our money market operations. On the liabilities side, there was an increase of $ billion in Government deposits with MAS, reflecting mainly increased issuance of SGS through the Authority. Income & expenditure statement For the financial year ended 31 March 2001, MAS registered profits of $ billion compared to $ billion in the previous year. The decrease resulted from translation effects arising from the strength of the Singapore Dollar against major currencies other than US Dollar over the financial year as a whole. 6 The organisation MAS has strengthened its corporate planning process. We formed several cross-specialisation teams comprising more than 60 staff to evaluate developments and challenges both in the external environment and within the organisation. | Through the themes and art embodied in its design, the national currency remains a faithful herald of the development, culture and history of a country. Thanks to these attributes, the currency is in itself a significant element of the national identity. The theme of the current series of Albanian banknotes, created more than 20 years ago, features important historical periods of the Albanian nation, and prominent personalities of Albania. These themes, embodied in each banknote through the portraits of some of the most illustrious national figures, evoke notable episodes in the history of Albania in its endeavours for freedom and prosperity. The themes lead us on a journey through historical eras, starting from Antiquity, moving through the Middle Ages, the National Awakening, the Independence of Albania, and concluding with the symbols of the national flag and anthem on the latest and largest denomination, the 10.000 lek banknote. These symbols have been chosen as representative and unifying elements for every Albanian. While the new series that we are presenting today retains the same themes of the already existing series, its design is reconfigured and restyled, through the application of modern technologies in banknote production. Thanks to cutting-edge technology, the Albanian banknote is now more secure. Its security features – a key priority of the Bank of Albania – are enhanced. In addition, innovative printing techniques and materials have been used to increase durability and the banknotes’ dimensions have been optimised. The design now boasts a fresher look. | 0 |
To give you and example, according to the estimates of PricewaterhouseCoopers 5 , by the buying power parity, in 2050 the Chinese economy will be over 40% larger than that of the US, India will catch up with the US, the economies of Mexico and Indonesia will outgrow that of Germany, and the Brazilian economy will exceed Japan. We must ask the question whether the present economic policy in Poland takes these facts into consideration. 5 See the study by Hawksworth J. (2006), “The World In 2050. How big will the major emerging market economies get and how can the OECD compete?”, PricewaterhouseCoopers, March 2006. | Shkëlqim Cani: Review of the Albanian economy Statement by Dr Shkëlqim Cani, Governor of the Bank of Albania, for Euromoney Yearbooks, Global banking and financial policy review, Tirana, 9 August 2004. * * * The Albanian economy experienced a recovered pulse of economic growth over the year 2003. Positive developments are marked in respect of consolidating the country’s macroeconomic stability, economic growth and a sound development of the financial system. A recovery in economic activity and 6% growth of Gross Domestic Product in real terms was proved by all sectors of the economy, but was particularly evident in the construction, transport and services sectors, which are the most dynamic sectors of Albanian economy. The year 2003 was characterised by a low inflation rate, within 2%-4% of the targeted range. The inflation rate as of December was 3.3%, meeting the Bank of Albania (BoA) target. Despite the various factors this low rate emerged from a diligent management of the domestic demand as an outcome of appropriate fiscal and monetary policies. BoA’s monetary policy has been a moderate one throughout 2003. Such a trend will continue during 2004 and was recently reflected by the reduction of the core interest rate in the economy. Since April 2003 the REPO rate has been lowered by 2.5%. The 6% REPO rate, decided on May 12, 2004, is the lowest ever in the Albanian economy. The policy aims to reduce borrowing costs in the economy and maintain price and financial stability. | 0 |
The short-term real interest rate, that is the short-term nominal interest rate minus inflation, is commonly used to describe how expansionary monetary policy is. This can be assumed to average approximately 2 per cent in the longer term. In the United States, the real interest rate was negative in the period 2003–2005, while in the euro area it was approximately 0 per cent in the same period (see Figure 1). At the same time, China and other countries had their currencies tied to the US dollar, which resulted in expansionary monetary conditions in these countries too. Large current account surpluses in China and in oil-producing countries led to capital flows to the United States and the euro area and this also kept down long-term interest rates. The consequences of the expansionary monetary policy became apparent in the development of the economy. Inflation in the United States was over 2 per cent measured using various measures of core inflation, Resource utilisation was higher than normal and there was a rapid expansion of credit. From the mid-1990s to 2006, real housing prices increased unusually rapidly, by approximately 80 per cent, after having been relatively stable from the early 1950s to the mid-1990s (see Figure 2). Housing prices increased dramatically in some parts of Europe too, for example in Ireland and Spain, while they remained largely stable in other countries, for example Germany. However, for the euro area as a whole the increase in prices was not as large as in the United States. | Of course, not many other observers saw the crisis coming either. However, we did draw attention to the problems on the housing and mortgage markets in the United States, and in our Financial Stability Reports we did mention the problems relating to the Swedish banks’ credit expansion in the Baltic countries. But the new feature of this financial crisis was that the banks were unable to fund their operations on the market and this was something we were not prepared for.14 Second, the Riksbank reacted quickly and forcefully once the crisis hit Sweden. The Riksbank’s extensive lending to the banks and the rapid reduction of the repo rate to an exceptionally low level softened the impact of the crisis on the Swedish economy. Together with an expansionary fiscal policy this kept up the level of domestic demand and meant that employment decreased less and unemployment increased less than could have been expected, and that inflation was kept at a reasonable level. Underlying inflation was kept close to 2 per cent and inflation expectations five years ahead, which had increased before the crisis, fell back again and stabilised at around 2 per cent. Monetary policy needs to become less expansionary in the period ahead My third thesis is that the repo rate needs to be raised at every meeting this year, and perhaps next year too. I will now explain why I make this assessment. | 1 |
Financial market statistics show that lending to households via banks and credit institutions is increasing, but at a slower rate than before (Figure 8). Lending to companies is declining, but not by very much considering that we are in a recession. Figure 8. Households’ and non-financial companies’ total borrowing from credit institutions, annual percentage change 20 20 Households Companies 15 15 10 10 5 5 0 0 -5 -5 -10 -10 00 01 02 03 04 05 06 07 08 09 10 Sources: Statistics Sweden and the Riksbank BIS Review 138/2009 9 If we look at the conditions in the financial markets from an interest rate perspective – in terms of price instead of volume – they have become less strained during 2009. This can be seen, for instance, if one looks at what are usually known as TED spreads – the difference between the interbank rate, where the banks lend to one another, and the government bond rate, both with a maturity of three months (Figure 9). The TED spread can be regarded as an indicator of confidence between the banks. One can say that this is a premium that reflects liquidity risk, credit risk and the demand for safer assets. The demand for government securities tends to increase during times of financial market turmoil. Figure 9. | 4 BIS Review 7/2002 The uncertainty associated with the analyses is one of the reasons that we normally proceed gradually 5 in adjusting the interest rate to the inflation target. In this way, we have the possibility of utilising new information that becomes available along the way. Most central banks have chosen such a model in their use of instruments. In exceptional cases, situations may arise that demand strong and immediate reactions. An example of this is the situation in Norway in the autumn of 1998, when there was unrest in the financial markets and a rupture of confidence in the Norwegian krone. Another is the Federal Reserve’s interest rate cuts in 2001. Even in these cases, however, the entire interest rate adjustment was not made immediately. In an uncertain world, central banks cannot guarantee that a process of increasing or decreasing the interest rate will necessarily continue. New information may require an adjustment of the projections. Nor can ”gradual” be construed to mean that an adjustment to a new interest rate level will be achieved by changing the interest rate at every monetary policy meeting. ”Gradual” may also imply that we want some time to evaluate new information or are awaiting further information before making a move. Transparency about intensions, strategies and implementation of monetary policy makes it easier for economic agents to assess monetary policy. A monetary policy that is understood and predictable may contribute to improving the efficiency and impact of monetary policy. | 0 |
So let me present what is perhaps a simplified background to some of the ideas and theories that explain the behaviour of financial markets. What governs share yields? Much of the time-honoured advice that is now disseminated to optimise share investment is based on what Harry Markowitz arrived at half a century ago as a 25-year-old graduate student at Chicago 2 BIS Review 5/2001 1 University. Share investment involves risks that can be reduced by not putting all the eggs in one basket. Buying one particular share entails risks of two types; one to do with conditions pertaining to the company in question, the other with the economy in general, that is, factors affecting the stock market as a whole. Markowitz showed that with a portfolio made up of shares in a sufficient variety of companies and industries, the company-specific risks virtually cancel out. The risk inherent in the stock market’s overall fluctuations remains but the aggregate risk is reduced. This insight was soon followed by the efficient-market hypothesis, which became a central tenet in the 2 literature and has far-reaching implications. It implies, for example, that consistently beating the market, so that the return exceeds the average for all shares, is out of the question. As the market always knows best, active management or even individual analysis by the ordinary share investor is pointless. The optimum is invariably a passive portfolio that mirrors the market. In this way, the amateur can achieve just as good a return as the professional. | Given a well-established measure of this kind (with a status equivalent to that of the consumer price index, for instance), financial products ranging from forward traded instruments to loan agreements with terms based on a real-estate index, would enable households, for a reasonable sum, to reduce exposure to the risk of a large fall in property prices. This process is already under way. Banks have made varying progress in their customer orientation. Independent financial consultants have also begun to some extent. Increasingly composite financial products are being constructed and distributed. The range of mutual funds offered by banks includes funds owned by others. So perhaps one can say that the development towards more consumer orientation has already begun but the decisive steps still lie ahead. Re-regulations of the financial system, perhaps accompanied by amended tax regulations, may be needed, of course, to produce the course Merton points out but there is also a need for new structures in the financial system. Another requirement is appreciably more knowledge about how, for example, the systems’ productive components can identify and spread the risks that may have to be taken. Still, I am sure you will agree that this opens up new and truly interesting perspectives for the future in many fields of the life cycle as well as for the development of the financial system. Such a development might also lead to some savings finding their way back to the financial institutions and to markets being dominated by more professional players. | 1 |
Over 145 million euros are earmarked in 2012 for this so-called direct contribution by Government by way of a grant to the private sector in terms of the Social Security Act of 1987. The total top up for both public and private sector employees comes to just over 191 million euros. This amount is in addition to the national insurance contribution by the government in its capacity as an employer. To put these numbers into perspective, one must keep in mind that the deficit in the consolidated fund for the same year is projected at roughly 145 million euros. The size of these outlays should be of concern for two reasons. The shortfall is certainly not arising from pension benefits that are too generous. Secondly the amount of the welfare gap as identified in the Estimates is going to rise rapidly as people live longer and the population ages. One suggestion for alternative financing would involve a multi-year programme that would reduce the government’s matching contribution gradually over an extended period of time, ideally through a tripartite consensus at the MCESD. This programme would be financed from productivity growth. During times of economic growth, when the growth rate exceeds a particular threshold, the revenue from a marginal increase in income tax or national insurance rates would be earmarked to reduce the subvention. The increase in rates would automatically be suspended during times of slower growth. | My point is that the analysis would benefit from having a broader perspective. We should look beyond the household stretch to household strain, which encompasses more structural factors. I would refer to two dimensions of the household strain: quality of living and inequality of income, savings, and access to credit. 1. Quality of living: - overcrowding – CEE countries have the highest concentration of dependent children, and the lowest number of rooms per person (Figure 4 and 5); - poor living conditions – CEE countries have the largest share of population living in poor conditions (Figure 6); - high risk of poverty or social exclusion (Figure 7) – despite having high ownership rates, CEE countries have high shares of people at risk of poverty or social exclusion (slightly declining after EU integration); 2 - To partially compensate for the low quality of living, and given the social pressure of a high ownership rate, property taxes are relatively low in CEE countries (Figure 8); - Low quality of living creates pressure for new housing, despite financial difficulties to service new loans. It also creates pressure for migration, with longterm implications for financial stability. 2. Inequality: - Income inequality: Romania, Bulgaria and Czech Republic have the highest Gini coefficient in the EU (Figure 9); - Housing cost overburden: If we adjust for rent-related costs (as CEE countries have high ownership), many CEE countries are on top. | 0 |
He is supposed to explain both what is happening and what would happen if such and such an action were taken.” 10 However, as he also points out: “The purpose is not that he should reach a conclusion of the type: this is how you should act now! … Any economically important decision must also be based on a number of human, ultimately political, assessments that the expert, the economic scientist, is by no means more qualified to decide on than other good citizens.”10 It can often be difficult to distinguish the object, ie exercise objectivity, from the perception of that object, ie subjectivity. Ragnar Frisch discusses this too. In an article written in 1936, he draws a line from the natural sciences through to the social sciences, where “… the difficulties of arriving at such unconditionally valid results become greater and greater. The reason for this is first and foremost that the whole system of ideas on which the natural sciences are based becomes increasingly more diffuse as one approaches the social sciences.”10 When I was a student here at the University of Oslo at the beginning of the 1970s, there was a fairly broad consensus that the problem of unemployment had been solved once and for all. The belief was that the economy could be fine-tuned through government management, control and regulation. A similar optimism prevailed with respect to economics in the years prior to the financial crisis. | But we can likely manage these risks by designing the retail CBDC with sensible safeguards, such as stock and flow caps on the amount of digital Singapore dollars that anyone is allowed to place with MAS. On balance, the case for a retail CBDC in Singapore is not urgent. • For a subject that has attracted much attention, there are neither strong reasons for or against a retail CBDC in Singapore. Why do I say that? • Physical cash is likely to be with us for quite some time more and so the need for a digital version of cash is moot at this point. • The financial inclusion benefits of a digital Singapore dollar are not compelling. A high proportion of Singaporeans have bank accounts and electronic payments in Singapore are pervasive, highly efficient, and competitive. • Possible currency substitution by foreign digital currencies is a remote tail risk at this point. The issuance of a retail CBDC is ultimately a socio-economic rather than a monetary consideration. Moving to a fully cashless society with all money in the form of bank deposits will not make a significant difference to the conduct of monetary policy. The question is whether the public is comfortable with holding only bank deposits and whether there is public demand for a state-issued currency that is as safe as cash but in digital form. So for now, there is no strong case for a retail CBDC. | 0 |
As a small, open economy, Sweden must in principle accept the international real interest rate as a given. Monetary policy is not able to affect the real interest rate to any great extent in the longer run, but it affects inflation and inflation expectations. In recent years, the IMF and other forecasters have revised down their forecasts for GDP on several occasions. If one looks at real interest rates, these began to fall even before the financial crisis and real interest rates have also fallen during periods of higher growth. Opinions differ with regard to the causes of this slowdown. The more pessimistic line talk about secular stagnation, where savings have increased and willingness to invest has declined as a result, for instance, of the composition of the population, of growing income gaps and weak technological innovations. This has in turn pushed down the interest rate level compatible with normal resource utilisation. The other more optimistic line say that remaining effects from the global financial crisis, such as deleveraging and increased political uncertainty, explain the slowdown but that these effects are transitory. 1 1 See Deputy Governor Henry Ohlsson’s speech on 18 March 2016 “Decision today, consequences far into the future”, for a longer review. BIS central bankers’ speeches 1 Lower real interest rates and inflation But it is not merely real interest rates that have fallen. In recent years, inflation has also shown a downward trend. | This trend began later than the decline in real interest rates, but Swedish inflation began to fall slightly before that in other western countries such as the United States and the euro area. The most recent downturn in inflation in the euro area can to some extent be explained by the fall in energy prices. However, underlying inflation has also fallen in the wake of both the banking crisis and the euro crisis. It is necessary to take into account the decline in both real interest rates and inflation in the monetary policy deliberations. The fundamental reasoning regarding the stabilisation ability of monetary policy with a floating exchange rate is based on the assessment of a normal nominal interest rate, simply described as an interval for a nominal interest rate that neither speeds up nor slows down the economy. To estimate how high the normal nominal interest rate should be, we look at the real interest rate and add to this the inflation target. If the real interest rate is 2 per cent and the inflation target is 2 per cent, then the nominal interest rate should be around 4 per cent. If the real interest rate rises to 3 per cent, and the inflation target remains unchanged at 2 per cent, the nominal interest rate will be 5 per cent, and so on. But as I have just shown, developments are instead showing a downward trend. Lower real interest rates and lower inflation and inflation expectations are pushing the nominal interest rate downwards. | 1 |
On the positive side, net financial wealth of households has increased by 15 per cent since 2003 – it was estimated at € billion in June. On average, households have considerably more assets than liabilities, which suggests that household debt is within sustainable levels. So do you disagree with claims that we've started living beyond our means? As long as people can manage their finances, if they do not keep accumulating debt and repay their debts to banks, there does not seem to be a problem at the level of households. BIS Review 152/2008 3 At a national level, the picture is different – we still have a tendency to spend more than we earn as evidenced by the current account of the balance of payments and the fiscal position, which both show a deficit year after year. The prospects for changing this behaviour, at least at this point in time, do not seem very encouraging. These days we are seeing a growing chorus of people calling on the government to run an even larger deficit and to increase the public debt further. During a seminar last June, you said that automatic compensation for inflation, especially at the national level, was counterproductive. The government has calculated its COLA at over € a week. What do you make of it? When you have countries with wage indexation schemes that link wages to past inflation, there is always a danger of the two feeding on themselves and the creation of a wage-price spiral. | The figures for the third quarter are unlikely to be dramatically different from what we have seen so far. Unemployment is still rather stable at a relatively low level. We have, of course, started to see the first signs of a slowdown in our major markets with some companies reducing the number of work days and letting go of some employees. We are a very open economy, we depend on external demand and it is only natural that we will be affected. Has personal debt in Malta increased in the last years? As you would expect in a growing economy, household debt has been rising. It is currently estimated at € billion or 48 per cent of Malta's GDP. It was 31 per cent in 2002, but the ratio remains below the euro average of 60 per cent. The interest burden on Maltese households arising from this debt as a proportion of disposable income is comparable to the euro area average at three per cent. Are we saving more? It is unlikely. There has been a declining trend because habits and cultures change. The existence of a very extensive social safety net has acted as a disincentive to save for one's old age. It is appropriate for households to borrow funds to smooth their consumption patterns as long as this is backed by reasonable income expectations. The number of non-performing loans has been coming down for some years in the household sector though it has risen slightly recently to 2.5 per cent. | 1 |
The problems we encountered in communicating monetary policy, which arose in conjunction with the substantial rate cuts during the second half of the 1990s, were also a significant reason for the Riksbank's decision in 1999 to publish a clarification of the formulation of policy and the application of the inflation target.1 Among other things the clarification specified the situations in which there may be reason to deviate from the simple rule of aiming policy at meeting the target of 2 per cent CPI inflation one to two years ahead. My discussion today is based on exactly the same line of reasoning as in that clarification. The second example is taken from spring 2001. Higher food and energy prices due to foot and mouth disease and mad cow disease, as well as supply shocks in energy production, caused a sharp rise in CPI inflation. The price increases were judged to be temporary, and the Riksbank decided therefore not to raise the repo rate. As the prices rises were estimated to disappear from CPI inflation relatively quickly, there was no need in this case to depart from the Bank's simple rule of monetary policy. However there was a need in our external communication to illustrate clearly the assessment that it was mainly transitory price increases that had caused CPI inflation to be so high above target. | Indeed, high global liquidity is also the consequence of strong productivity growth, low inflation and improved government savings, especially in the United States, which has resulted in the strongest growth in world trade in decades. 6. With well-behaved inflation, the ample international liquidity has resulted in a global stock market boom in the 1990s, in both Europe and the US, as well as emerging markets in Latin America and Eastern Europe. But this has also caused a global compression of interest rate spreads and record levels of new issuance in both domestic and international bond markets. Such narrowing of spreads did not reflect the potential credit and market risks associated with the emerging markets. So when investors finally realize that the emerging markets are carrying more risks than they have assumed, the risk premium as measured by the yield spreads will widen sharply to reflect this. BIS Review 109/1997 -2- 7. This scenario was complicated by the fact that the flood of global liquidity has been largely channelled to the bond, equity and property markets of East Asia. Buoyed by optimism about the Asian miracle growth of the last decade, both domestic and foreign investors committed the classic “fallacy of composition”. Initially, each individual may perceive a high return and increase their investments in assets, leading in aggregate to excess demand and a market overshoot. A reversal of perception leads to a sharp market correction, which is exactly what is happening not only in Asia, but globally. | 0 |
Rather monetary policy actions need to be calibrated to impart the Page 8 appropriate impulse to inflation at the 18-24 month horizon when the lags in policy transmission unwind. Fourth, emphasis of the need for a nominal framework within which to analyse and communicate monetary policy. And fifth, adherence to the view that monetary quantities (i.e. specific safe and liquid liabilities on the balance sheets of the central bank and/or commercial banks) play an important and distinct role in the transmission mechanism of monetary policy actions to the price level. The key assertion here is not that the central bank should use a quantity measure of money as its policy instrument rather than a short-term interest rate – that is something resolved pragmatically through the Poole considerations discussed above. Instead it is the contention that failure to incorporate monetary quantities in models of monetary transmission excludes important channels through which monetary policy works: policy analysis without money is subject to specification bias. Viewed from today’s perspective, the striking thing about this list – in particular, given the doctrinal tensions between monetarist and Keynesian camps of monetary and macro economists in the 1970s – is how many of the monetarist tenets have become mainstream. Any reputable modern monetary policy framework or strategy purports to embrace the first four of these elements, albeit with some of the flexibility needed to turn an academic argument into a policy programme. For sure, how these elements are presented and communicated varies across jurisdictions, reflecting different histories, experiences and contexts. | The impact of deregulation cannot be predicted with certainty but the likely impact will be to increase funding costs and thus squeeze the net interest margin. The banks will therefore have to find ways to generate income through new products and through new charging policies. You can expect fees for the 1 BIS Review 24/2000 various banking services to rise in the deregulated environment. The banks will also be under greater pressure to reduce costs through exploiting new delivery systems, re-engineering their processes and better managing their risks. Technology is at the heart of these issues. It is one of the main forces which is driving increased competition and one of the main weapons that the banks are using to respond to competition. How to harness the power of technology, and how to finance the necessary investment, constitute the main strategic challenge facing banks in the world today. This brings me to the main theme of the importance of corporate governance in banks. It will be the responsibility of the board of directors and senior managers of banks to navigate the way through the strategic challenges that I have described, and they must ensure that they have the capacity to do so. Corporate governance is of course not just important for banks. It is something that needs to be addressed in relation to all companies. | 0 |
4 BIS central bankers’ speeches purposes a co-partner in the business transacted by it. True, he is only one partner amongst a thousand others in your Bank; but that does not release him from the obligation of doing what he can for the common good” (Rae (1885)). Walter Leaf, chairman of Westminster Bank Ltd, writing in the 1920s remarked: “The confidence in British banking which has been acquired by long experience is mainly due to the sense that Directors have conducted the business of their banks with constant attention to public interests in the first place” (Leaf (1937)). The public good remained centre-stage in companies’, and in particular banks’, objectives. Yet even as Rae and Leaf were writing, shareholders’ focus on returns was sharpening. Rae comments: “There are shareholders to be found here and there, to whom their own Bank would appear to be a hostile institution, which it is their business to attack on the slightest pretext… He is disappointed with the dividend, and objects to the balance carried forward to next year as excessive” (Rae (1885)). The legal framework underpinning companies was also starting to fray. It had failed to keep pace with the boom in the number of shareholders and their quest for dividends. Cases of company fraud began to proliferate (Ireland (2010)). In 1848, Arthur Smith published a pamphlet where he uncovered that most railway companies – the poster child for the modern corporation – were in fact profitless and paying dividends to shareholders out of capital (Smith (1848)). | But under the current shareholder-centric model, these wider stakeholders are not given any control rights over management. This constrains their ability to rein in managerial excesses, even though their incentives to do so may be sharpest. In other words, the standard corporate governance model may be predicated on a misclassification of risk and, as a result, a misalignment between these risks and control rights, with potentially adverse implications for corporate risk-taking. Companies and society (a) Externalities and systemic risk At least for some types of firms, their actions can have an impact beyond internal stakeholders – shareholders, creditors, employees, customers and clients. They impose social externalities on the economy and wider society. If companies’ objectives are shareholder-centric, these externalities are unlikely to be internalised fully within firms’ decision-making. In other words, there is a potential disconnect between company and societal incentives. These externalities can be both good and bad. For example, many companies are in the business of creating public or quasi-public goods – for example, health, education, transport and utilities. And that is why, historically, their corporate governance structures have typically tended to weigh broader stakeholder and societal interests. In other cases, these social externalities may be negative – the creation of public “bads”. The classic example is environmental pollution. But these social externalities can also arise in more subtle ways – the mistreatment of customers and clients through delayed payment or mis-selling, exploitation of employees through inadequate working practices, or attempts to avoid paying sufficient tax to government. | 1 |
The remaining risk is due primarily to foreign banks’ króna deposits and the old banks’ deposits. However, before the controls on these deposits can be lifted in full, it is necessary to channel as much of this capital as possible into long-term investments and structure the winding-up of the old banks so as not to jeopardise exchange rate stability. Although conditions in the global financial markets are still difficult, they are better overall than they were a year ago, not to mention two years ago. But the fiscal problems faced by Greece, Ireland, Portugal, and Spain have contributed to investor flight to the relative safety of low-yielding markets. The Icelandic Government is faced with the intricate task of demonstrating that Iceland is a better target for investment than other indebted European countries. The progress made under the IMF programme is gradually laying the foundation for enhanced confidence, but the programme will only be successful if we adhere to its objectives. Funds lying in wait in the shelter of low-yielding markets will eventually seek more bountiful shores. When the flight to safety begins to subside and investors begin to seek out better returns, the Icelandic authorities must be ready to direct their attention to Iceland. BIS Review 138/2010 3 The existence of capital controls and their proposed removal represents a problem for both the Monetary Policy Committee and those who trade in the bond market. | That's the way it goes: Times of crisis permit dramatic and rapid changes that would not be implementable, or even thinkable, under normal circumstances. But when the dust settles, it is very difficult to reverse them. All thinking people in the financial sector should want to ensure that the rash solutions adopted in the present bad times, many of which will do little or no good anyway, do not in the long run generate much worse times for the industry, and hence its clients. Putting out a fire is one thing. But improving the fire regulations is quite another. Certainly a large fire can provide inspiration for future fire prevention. But it is by no means wise to fight the fire while simultaneously changing in haste all the fire regulations. The risks of such an approach are considerable, especially if the public – as well as part of the industry itself – increasingly accepts the dogma that the financial sector provides quasipublic or even purely public goods and services. I'm sure that a thoughtful discussion about the causes of the crisis and ways how to prevent them in the future would require much more time, cool-headedness and, above all, more input from academics and trained professionals and less from politicians and European bureaucrats. Maybe I'm a bit skeptical. But I have a very vivid imagination influenced also by the tragic excommunist and state interventionist experience of the Czech Republic. And my imagination allows me to foresee some extreme scenarios. | 0 |
The need for improved cross-border cooperation On the other hand, it is a matter of some concern that whereas modalities for crisis management have been, or are in the process of being formalised effectively in most jurisdictions, including Malta, the way forward for the resolution of crises of a cross-border nature, and requiring the prompt intervention of central banks and supervisors that operate in different time zones and with different day-to-day practices, is not yet clearly defined. Some progress in this respect has been made at the EU level through the formalisation of the Memoranda of Understanding of the ESCB on high-level principles of co-operation in crisis management situations and between payment systems overseers and banking supervisors. However, these agreements, to which the Central Bank of Malta and the MFSA are also a party, do not go far enough. The implications of systemic crises whose resolution would, for example, require some form of fiscal input and possibly also the contribution of other entities spanning different jurisdictions are not yet articulated. This issue will hopefully be addressed during the forthcoming review of the EU Banking Codified Directive of March 2000. As the two key institutions with financial stability responsibilities, the Bank and the Authority have a direct interest in the future evolution of international co-operative arrangements. Such arrangements, moreover, will also impact on the way in which the two institutions seek to co-operate with each other and with similar authorities based abroad. | First, by virtue of their role as providers of liquidity to the banking system and their involvement in payment systems, central banks have a vested interest in the quality of their counterparties. Any developments that could affect the financial health of their counterparties are of direct interest to a central bank, not least because the inability of the former to honour their commitments would have negative financial implications for the central bank. Furthermore, instability in the financial system could hinder central banks from successfully pursuing their other objectives, particularly the achievement of price stability through monetary policy measures. Indeed, monetary policy can only be implemented effectively if the financial system is stable, for only then can financial intermediaries respond to changes in interest rates and in liquidity conditions engineered by the central bank, and thus transmit these impulses on to non-financial intermediaries. At the same time, by pursuing price stability central banks contribute directly to financial stability, since a stable price environment reduces volatility in financial variables and ensures the smooth functioning of markets. From a central bank perspective, it is also evident that a healthy financial system contributes to stability in the exchange rate particularly where, in countries like Malta, a fixed exchange regime coexists with the absence of capital controls. Thus, in a situation where there are concerns about the robustness of the financial infrastructure, the regulatory framework or the integrity of financial intermediaries, the external account may be undermined through sizeable outflows of capital. | 1 |
Ladies and Gentlemen, The adoption of a principle-based regulatory approach will provide banking institutions with greater flexibility in deciding on strategic options in a more competitive environment. As the banking industry grows at an accelerating pace, there are common areas where collective efforts by the industry will not only bring benefits to the financial sector but also to the overall economy. In this regard, there is an increasing trend among developed countries such as the United Kingdom, Canada, and Australia, where the bankers associations have an important role in spearheading initiatives to promote high standards of ethical code of market conduct to meet consumers' rising expectations and demands. The bankers associations have increasingly assumed the role as a focal point for consultation with not only the regulatory authorities, but also by the other stakeholders on policies affecting the financial sector. In this respect, such associations have played an important complementary role to the regulatory authorities' efforts in promoting a more progressive, dynamic and resilient banking system. In addition, banking associations in these countries have also acted as the voice for the industry in articulating the position of their members to promote the interests of the industry. In Malaysia, there are several areas of common interest to the industry which the associations can spearhead. It is, therefore, to the benefit of the industry to reassess the role of the associations with respect to taking forward common initiatives and interests of the industry. | The appreciation of regional currencies is not likely to eliminate these imbalances. In fact, excessive focus on the exchange rates as corrective mechanisms for these imbalances has led to speculative capital inflows into Asian economies. This has required policy makers to intervene to avoid a sharp appreciation of their currencies, thus accumulating large reserve holdings. Clearly, at best, exchange rates offer only a partial solution and excessive focus on this area could in fact be counter productive. It risks sharp movements in exchange rates which at the extreme would be highly destabilising to the global currency, capital and commodity markets. The long-term solution would be for the US to increase its savings and moderate its import demand and for the rest of the world to increase its demand and imports. Such a transformation will eventually occur but it is unlikely to occur overnight. In the transition there could be some economic dislocation. However, with its young workforce and with the growing productivity, competitive and dynamic economies, there is great potential for the Asian economies to become the growth dynamo for the region and the world. With rising income levels in regional economies, particularly among the growing middle income group in China, India and the ASEAN economies, there is potential for an intrinsic source of demand within the region. This rebalancing of demand across the world will eventually reduce the prevailing imbalances. In 2004, the Malaysian economy experienced strong growth. Going forward, the economy will continue to be well supported by both domestic and external demand. | 1 |
It has also affected banks’ income and cost structures, as they have been able to make profits as a result of advances in technology. That is, banks have been able to specialise in the provision of information and the monitoring of credit exposures, for example in the context of loan securitisation, thus raising the share of non-interest income. On the other hand, banks’ profits have come under pressure in some areas, such as lending to large firms. This resulted from the fact that technological progress has opened these areas to competition from inside the domestic banking sector, from international banks and also from other financial intermediaries such as institutional investors. In point of fact, the development of institutional investors has been facilitated by technological changes reducing the costs of collecting savings, gathering and disseminating public information, and assessing risks. Technological development has also facilitated the rapid development of new financial products. While a large proportion of innovations would not have been possible without the breakthroughs achieved in financial theory, it has been predominantly technological progress that has made the widespread use of these innovations possible. The second factor underlying the structural changes in the financial system and banking sector is the process of financial liberalisation which has been ongoing for some time already. It has allowed an increase in the overall level of competition in financial systems. In the EU, financial liberalisation gained momentum with the Single Market programme. | Christian Noyer: The euro and the banking sector Speech by Mr Christian Noyer, Vice-President of the European Central Bank, at the Duisburger Banking Symposium, organised by the European Center for Financial Services, on 27 September 2000. * * * Ladies and gentlemen, It is a pleasure for me to speak here at the Duisburger Banking Symposium. The famous American comedian, Bob Hope, once typified a bank as “a place that will lend you money if you can prove that you don’t need it”. As we all know, this description does not give credit to the extremely important role that banks play in a modern economy. Nowadays, economic life simply would not be possible without the wide range of services and products that banks offer to various groups of society. The issue that I shall address today - the euro and the banking sector - cannot be fully comprehended without considering the particular, and to a large extent unprecedented, nature of the introduction of the euro. The single currency does away once and for all with internal exchange rate fluctuations, completes the structure of the Single Market and, by virtue of its availability to almost 300 million people, increases the efficiency of currency use in an unprecedented manner. The introduction of the euro was a regime shift that will undoubtedly have a major impact on the euro area economy and its financial structure in the years to come. | 1 |
See also Northern Rock’s 2008 Annual Report and accounts P25/6. BIS central bankers’ speeches 7 large. Introducing a break clause allowing either counterparty to terminate the contract effectively shortens the maturity of the swap, since the bank (or the company, in case it is owed money and the bank’s credit appears more shaky) can demand payment at that time. In reality, most corporates do not expect such a break clause ever to be exercised. The concern would be that, if the corporate expects the bank to ignore the break clause regardless of the circumstances, exercising the clause would be a surprise for which the firm may not have put appropriate contingencies in place – perhaps even making default more likely. Or that the market may start to interpret the enforcement of “break clauses” as a sign of weakness on the bank’s part. In other words, such behaviour could be seen as so antagonizing to customers that a bank would only do it if it is absolutely desperate. Yet if the bank cannot in fact enforce the break clause, its credit pricing and risk management has been faulty. Another example, comprising elements of the break clause and the SIV problem, is the behaviour of managers of money market funds when faced with the prospect of “breaking the buck”. A money market fund calculates its net asset value (NAV) on a daily basis. The NAV is its price per share, which reflects the total value of the fund’s investment holdings. | In essence, the CDS protection is not really being used to insure against default but to reduce market price volatility. Let us now turn to a second example of a bank hedging its corporate lending. Banks lend to a broad range of companies. In many cases they would be expected to hold these loans on their books until maturity (as opposed to selling them off to other investors). In order to reduce its measured outstanding credit risk, a bank may choose to purchase off-setting CDS protection, probably on a portfolio of loans. By so doing, the bank can make greater use of its internal credit risk limits and may get regulatory capital relief. In most cases, another leveraged market participant (bank or hedge fund) would write the CDS. (In some cases the insurance provider may be an unlevered institution, for which most of the concerns below would be reduced.) In the first example, the pension fund was concerned about short-term price swings. In this second example, the bank should be concerned to protect itself against clusters of defaults. But if the risk management of the ensuing portfolio of loans and CDS is not done with serious attention paid to the joint risk profile of the corporate borrowers and the providers of the CDS protection, the true net risk position might be worse than it appears. That could fool regulators as well as the bank’s own risk management function. | 1 |
Also, insufficient financial sector policy reaction on the side of governments exacerbated the detrimental dynamics and represented itself as a source of risk and uncertainty during the crisis, ultimately fostering dynamics of self-fulfilling prophecies. The ECB’s non-standard measures In this environment the ECB took bold and decisive action. The disruptions in banks’ short-term funding led to a strong tightening of credit standards to both businesses and households. This threatened to undermine bank lending to the real economy with risks of a severe credit crunch. In turn, the transmission of monetary policy became seriously impaired. And, central banks were less effective in steering term money market rates via the setting of their policy rates. Ultimately, the interest rate set by the central bank did no longer reach the real economy across the euro area in the same way. The size of the shocks and the extent of global and intra euro area adjustments required exploiting the ECB’s full toolkit to implement a wide range of non-standard measures. Here, we always had to keep in mind the importance of the banking system for the financing of the economy. In the euro area, two-thirds of external financing – and even a larger share for small- and medium-sized enterprises – originates from banks. Our measures included the provision of unlimited funding support to banks at maturities up to three years, the extension 6 The Japanese experience since the 1990s was widely seen as an exception. | These and many more questions need to be addressed in the months to come. Let me only mention the most obvious: • A European banking supervisor only for the euro area or for the EU 27? A well-functioning financial market union is primarily in the interest of the monetary union. Nevertheless, non-euro area member states should be welcomed to put their institutions under the control of the European banking supervisor. • A European banking supervisor for all banks or for the systemically important banks only? From my personal perspective, the European banking supervisor should only be entrusted with the supervision of the systemically important institutions on European or domestic level, at least at the beginning. Anything more is neither feasible nor desirable at the beginning of 2013. • What shall be the division of labour between the ECB and the European Banking Authority (EBA)? From my perspective, EBA could be tasked with any future work on the Single Rulebook in the single market, ie for the EU 27. • And finally, what shall be the division of labour between the ECB and the national supervisory authorities? It will be key to strike the right balance between relying on local know-how and expertise while safeguarding a single standard of supervision and a level playing field. The implementation of a European banking supervision is closely linked to the possibility of direct banking recapitalisation via the ESM in the future and should not least therefore be advanced without undue delay. | 1 |
And I believe it is particularly worth noting that investment in equipment ended the year at a rate of increase of close to 9%, highlighting the robustness of business activity in the closing months of 2007 against a backdrop of sound corporate earnings and a favourable demand outlook. The demand for housing, which had moved onto a mildly slowing path in mid-2006 in response to higher borrowing costs and lower real estate appreciation expectations, appears to be showing greater sensitivity to the deterioration in agents' confidence, according to the latest available information. Recent figures reveal a loss of momentum in activity and employment in the construction and related sectors, as they do more generally, but on a lesser scale, in the rest of the economy. In any event, when considering the ongoing adjustment in the residential sector, which was largely inevitable following a prolonged phase of growth in supply, we should not overlook the considerable forces underpinning the demand for housing in the medium term in Spain, which should help temper the scale and intensity of the adjustment. The performance of trade in goods and services with the rest of the world has been relatively favourable in recent quarters, and has helped net external demand to make a positive contribution to GDP growth and, therefore, to alleviate the loss of momentum in domestic demand. I would highlight the resilience of exports in the past year, despite the significant appreciation of the euro and the somewhat diminished dynamism of export markets. | Nevertheless, when you take up a position as a board member, you also have a responsibility to discharge your responsibility in a very professional and systematic manner. My dear friends, it is necessary for everyone to exercise a certain financial discipline within the organization. If the top people are lax, or if the board members do not ask the questions that need to be asked, then the tendency is for financial discipline to erode within the company. My dear Chairmen and CEOs, don't be frightened of, or upset with, the people who ask tough questions at Board Meetings. My dear Directors, don't feel over-awed or shy to ask the tough questions at Board meetings. You must do that. We want you, as Directors, to do that because it is not possible for the Department of Supervision of Non-Bank Financial Institutions to be doing all the questioning from the Chairmen & CEOs. We are performing a regulatory function. We will see whether the overall framework is in place. We will want to see whether your overall risk assessment positioning is acceptable. But, the actual running of the business is your responsibility. You have to ask the tough questions. You have to ensure that sound internal controls are in place. You have to look at the future plans to ascertain whether you are on the right track. Often, I have seen eminent and respectable people accepting board positions, but not getting involved in the governance of the company. That is not good enough, especially in finance companies. | 0 |
This may indicate that there is a relationship between the degree of openness and deviations from target, although Canada is an exception. It should also be noted that the figures for the twelve-month rise in consumer prices are considerably more volatile here than in other countries. We see from the figures that consumer prices in Norway, even when tax changes and energy products are excluded, are more volatile than indices in other countries where these products are included. Developments in recent years have also been influenced by the pronounced favourable disturbances to which the Norwegian economy has been exposed. Developments in Norway’s terms of trade provide an illustration. As consumers, we enjoy the benefits of falling prices for many imported goods. As a nation, we benefit from a fall in prices for the goods we import relative to prices for the goods we export. Norway’s terms of trade have improved. The impact of the rise in oil and gas prices is particularly strong. However, there have also been terms-of-trade gains in the mainland economy. The situation in Norway differs from that of our Nordic neighbours. Although the domestic economy is partly insulated from oil price fluctuations through the oil fund mechanism, terms-of-trade gains have been a challenge to monetary policy in Norway. Low imported inflation has put downward pressure on our rate of inflation. At the same time, our currency has remained strong, partly reflecting an improvement in Norway’s terms of trade. | To be able to evaluate our policy – not only the political authorities – but also financial markets and the general public need to know how we interpret our mandate, our view on how the economy works and trade-offs. Therefore, monetary policy must be transparent. Transparency and communication are also important for monetary policy effectiveness. Monetary policy works mainly through expectations and is only effective if the central bank is able to influence interest rate expectations. Professor Michael Woodford has expressed this very clearly in stating that monetary policy is “management of expectations”. “For not only do expectations about policy matter, but (…) very little else matters”. The central bank determines the shortest money market rates through the key rate. The shortest rates, however, are of limited importance. Economic agents’ spending depends more on their interest rate expectations. In recent years, Norges Bank has strived to achieve greater transparency with regard to its monetary policy strategy. As from the beginning of 2003, the Board has published its monetary policy strategy document for the next four months. The strategy was initially published at the end of the period to which it applied. Since June 2004 it has been published ahead of the period. While the document was initially an appendix to our Inflation Report, it is now the first section of the Inflation Report with monetary policy assessments. The strategy includes a recommended interval (red bars) for the policy rate over the following four months, conditional on economic developments that are broadly in line with our projections. | 1 |
It is therefore important for the Islamic financial institutions personnel to enhance their own knowledge on the products and services offered, as well as customer service orientation. Ladies and Gentlemen, While the level of public awareness on Islamic banking and finance has significantly improved, more efforts can be done to reach out to the wider population, in particular the sub-urban and rural areas. Existing infrastructure must be utilized in an efficient manner to effectively disseminate information on Islamic financial products and services including by leveraging on the information and communication technology. Information can be in various forms, with the objective of enhancing financial literacy in Islamic finance in our community. The advancement in ICT has also had significant impact on the operations of Islamic financial institutions with respect to information management systems, product development, risk management and distribution capabilities. Significant application of IT would enhance efficiency by bringing down costs for consumers and businesses. As part of our initiative for the extensive dissemination of information effectively and efficiently, Bank Negara Malaysia has developed a website on the Islamic money market. More specifically, the website aims to serve as a source of information on domestic Islamic financial instruments. It would provide greater transparency of the Central Bank’s Islamic money market operations, thus facilitating investment decisions and enhancing public confidence in their investments. The website also provides an analysis facility to chart historical data, in addition to reference to the rules and regulations in the conduct of the Islamic money market transactions. | Industri kewangan Islam di Malaysia telah muncul sebagai satu komponen sistem kewangan yang berdaya maju dan berdaya saing, seiring dengan sistem kewangan konvensional dalam menyumbang kepada pembangunan dan pertumbuhan ekonomi negara. Kini kita telah memiliki lanskap kewangan Islam yang komprehensif, dan kejayaan kita dalam mengintegrasikannya telah menyumbang kepada proses pengantaraan kewangan domestik yang lebih progresif. Sehingga kini, perbankan Islam telah berjaya menjana aset sekitar RM90 bilion atau 10 peratus daripada juzuk pasaran. Industri takaful pula telah mencatat aset sejumlah hampir RM5.0 bilion. To further strengthen the Islamic financial system and sustain its growth, it is vital to enhance the effectiveness and efficiency of the Islamic financial institutions in meeting the changing requirements of our economy. The Islamic financial infrastructure needs to be continually enhanced to meet the new, more complex and differentiated demands of the various economic activities of the respective sectors of our economy. Of importance is the need to provide a mechanism to ensure accessibility to information by the public on Islamic financial services and products. An extensive and structured education programme is thus key to enhance consumer and business awareness and knowledge on the products and services. It also represents part of the efforts to promote market integrity over the activities in the market. Of equal importance is also the need to strengthen the consumer protection infrastructure in Islamic finance. Effective dissemination of information will provide consumers and businesses with the necessary information to undertake the financial transactions with awareness of their rights and accountabilities. | 1 |
Outstanding export performance, strong domestic fundamentals, and continued GDP growth will unavoidably attract foreign capital into the country and, as in the recent months, exert upward pressure on the currency. While the economy now enjoys a more flexible adjustment mechanism compared with the past, a huge influx of foreign capital relative to the size of domestic financial and capital markets can nevertheless cause substantial market volatility and, if persists, can even lead to the emergence of asset price bubbles. 4 BIS Review 46/2003 Regarding the upward pressure on the baht, the Bank of Thailand has been monitoring the currency movements closely and has introduced a number of measures to ensure that the adjustment is orderly, in particularly that the exchange rate volatility is kept at a manageable level for the corporate sector. Let me emphasize here that the Bank of Thailand regards the current appreciation of the baht as a natural occurrence for an economy on the recovery and is not concerned with a trend movement that is in line with improved economic fundamentals. However, with realization that Thailand has always been more open on the inward than the outward direction, we have taken this opportunity to liberalize the outflow side of the capital account to make things a bit more balanced. With this intention, institutional investors have been permitted to invest in overseas securities, and the establishment of mutual funds to invest on behalf of local individuals in Asian Bonds issued by sovereign and quasi-sovereign entities has also been encouraged. | On this, the contribution from the organization and people like yourself has played no small part, and I would like very much to use this opportunity to acknowledge this. Going forward, the challenge is to translate the current momentum into a sustainable growth well into the medium term. This, as I noted earlier, would require a continued fostering of the export and consumption expansion so that capacity utilization could increase to the point that private sector capital investment would gain an even firmer footing. During this period, monetary policy must remain supportive of the growth process. At the same time, we will continue to keep watchful eyes on certain areas of the economy that may expand too fast and impose risks to economic and financial stability. Should some of these excesses occur, however, the Bank of Thailand will make sure that appropriate measures will be employed to prevent and mitigate such risks. Ladies and gentlemen, Thank you for your attention. I think I would just stop now to give time for questions. I’ll do my best to answer any questions you may have. Thank you. BIS Review 46/2003 5 | 1 |
One needs to go back to the Bretton Woods era to get volatility levels as low as at present. 2 BIS Review 124/2006 BIS Review 124/2006 3 Of course the reduction in the volatility of returns – and the lower compensation for future volatility embedded in risk premia – is responding to some real changes in the world. You might break down sources of uncertainty about future returns into three components: macroeconomic risks, financial risks and risks in the broader environment. Macroeconomic volatility has fallen considerably over the last decade in many economies [Chart 5]. In the real economy, greater flexibility in labour and product markets, especially openness to foreign competition through trade and immigration, has enabled smoother adjustment to shocks. On the price side, central bank independence and inflation targeting have contributed to greater price stability. There is also greater depth and sophistication and fewer rigidities in financial markets. Innovation has created a variety of products enabling more and better risk transfer by financial market players and greater choice for end-investors. Greater financial market flexibility can support macroeconomic stability by keeping credit and liquidity available during periods of stress. But risks in the broader environment haven’t gone away. Threats from ecological or biological disasters, fraud, political conflict and terrorism seem as high as ever. And these are risks we have identified. As ever there may be some significant “unknown unknowns”. | Both are bound to be tempted to take on greater risk to generate absolute returns. Of course this syndrome is widely recognised. Investment mandates and management remuneration are often measured against a risk-adjusted benchmark to avoid rewarding such activity. But it can take considerable efforts to spot such behaviour. The proliferation of new and highly complex financial instruments is making it harder to assess the incidence of underlying risk. The assumptions underlying the valuation of positions in such instruments are often unclear. Many of these products have the effect of selling insurance against unlikely financial market events. In so far as there has been a genuine increase in the stability of the economy and financial markets, selling volatility is less risky than it used to be. But it can be more risky than it appears. Our market contacts often cite the example of selling ‘out-of-the-money’ options as a popular strategy recently. Here the seller receives a steady stream of small payments today in return for paying up in the unlikely event that the price of an underlying instrument moves significantly from its current value. With sufficient leverage, a small payment stream can be turned into a tidy return. But as all insurers know, the key to long term return is to spread your risks widely or to avoid correlated risks. In assessing risk in financial markets, a common metric is correlation of positions with the market return. But this is quite inappropriate in this case. | 1 |
However, in more recent weeks, the more positive data in the US has resulted in some flow-back to the US markets. This more variegated and dynamic landscape means financial markets are likely to remain volatile in the months ahead. We need to be prepared to manage this volatility. 9. Second, policymakers not only have to grapple with the aftermath of the financial crisis, but also the medium term structural challenges facing their countries. There are significant differences in the pattern of saving and investment across economies. Many of these reflect structural factors such as demographics, as well as the particular path of growth and development. To sustain global growth, some changes in the global saving-investment pattern will be necessary. This cannot happen overnight. Instead, we need sustained and coordinated policy action across all the major economies. The IMF and global bodies like the G20 will have to continue to focus and provide direction on these structural issues. 10. Third, the financial crisis shows how critical the nexus is between the health of the financial system and the health of the economy. Global regulatory reforms are necessary to address many of the weaknesses uncovered during the crisis. Yet, we have to tread a fine balance to build not just have a resilient global financial system, but also one that can support sustainable economic growth. Given the varying pace of economic recovery and the different phases of economic transition, regulations need to be appropriate to local circumstances, while preventing regulatory arbitrage. | In particular, job growth has picked up in Buffalo, and the Capital Region continues to see sturdy growth coupled with significant manufacturing job gains. However, not all parts of upstate New York are seeing the same degree of economic progress. There has been little to no growth in the center of the state, and Utica and Binghamton continue to see employment declines. Binghamton stands out as being particularly challenged, as its economy has yet to see any meaningful recovery from the Great Recession. Steep manufacturing job losses have weighed heavily on the area, though these losses appear to be nearing an end. I had the opportunity to visit Binghamton earlier this summer, and I was encouraged by what I saw. The region is making serious efforts to boost economic growth, with Binghamton University playing a key role in fostering local business activity. And, like many places dealing with steep manufacturing job losses, there is a large swath of displaced workers that need assistance returning to the labor market. This has proved challenging and remains a priority. Update on Puerto Rico On balance, I think it’s fair to say that the economic news from much of the Second District has been quite positive. An important exception, though, has been the fiscal crisis faced by the Commonwealth of Puerto Rico, home to 3.5 million U.S. citizens. Unfortunately, Puerto Rico continues to struggle under the weight of economic stagnation, employment declines and outmigration. | 0 |
The most likely situation is therefore that although the high level of indebtedness, the large deficit in savings in both the household and corporate sectors, combined with over-investment in certain sectors, will subdue growth for a time, there will be no dramatic or prolonged economic recession. However, in order to increase saving in the economy and thus correct the constant deficit on the current account, it is necessary that growth is not primarily driven by increases in consumption. Net export and investment should instead be the motors behind growth to a larger extent than before. Bringing about this state of affairs requires a weaker dollar exchange rate. One can therefore look with scepticism on the idea that tax cuts will bring the American economy out of its decline. How will Sweden be affected? The American economy affects developments in the rest of the world through many different channels, with exports to the USA as the most direct channel and the one where the effects are easiest measured. However, exports to the USA are only responsible for a couple of per cent of GDP in Sweden and have a similar significance for the euro area. Spread effects via the expectations that largely govern consumption, investments and the stock market are probably much greater, although more difficult to measure. Nevertheless, there are numerous indications that the Swedish economy is more sensitive to developments in the USA than the economies in the euro area. | Distinguished ladies and gentlemen, another major finding from the survey is that the stock of private sector foreign assets rose by 16 percent to $ billion in 2020 mainly due to the increase in currency and deposits by the mining and deposit-taking corporations. The surge in the holdings of currency and deposits contributed significantly to the increase in foreign asset flows by 60 percent to $ million. However, FDI asset acquisitions slumped to $ million in 2020 from $ million in 2019 owing to the reduction in the mining sector’s debt flows to fellow enterprises. The United Kingdom was the major recipient of foreign asset flows and most of the private sector assets are domiciled there. Ladies and gentlemen, with regard to investor perceptions, political stability, ease of doing business, availability of resources, and market potential continued to feature as the main factors that influenced re-investment in Zambia. Despite the unprecedented effects of the covid-19 pandemic in constraining the business investment, the promotion of the use of digital financial services and the reduction in the monetary policy rate were seen as positive measures that supported business activity. However, the temporary closure of some commercial bank branches and the revision of banking operating hours due to the Covid-19 pandemic were perceived as having had a negative impact on investment. Esteemed invited guests, as I conclude, let me share with you some key measures recommended by the majority of the respondents to enhance investment. | 0 |
Effective communication will enable all economic agents to better understand the reasons and the goal, and thus encourage their proper behavior for achieving the goals. Unclear or poor communication, in turn, may jeopardize the achievement of the underlying goals, since central banks do not directly influence the goals, but should influence the behavior of economic agents to achieve the goal. For example, the central bank cannot directly influence inflation, but through its measures – reducing the interest rate, or increasing liquidity in the economy – can stimulate banks to improve the financing terms, but also borrowers to increase demand, which will move the demand for goods and services in the desired direction and achieve the inflation target. Empirical research in the central banking community does confirm that, globally, the central bank communication is key to maintaining a low level or reducing inflation and in many cases even reducing instability in the real economy. Communication is an ongoing challenge for central banks. It is undisputed that effective central bank communication will always be marked by certain flexibility and adaptability, depending not only on the economic environment, but also on the public interest and trends in the communication and information networks and media, which, due to the development of technology and digitization, are changing, advancing and improving on a daily basis. The constant strengthening of transparency, that is, the promotion and development of communication with the public, including media, is a challenge for the National Bank of the Republic of Macedonia. | Namely, high inflation in the 1970s, feed by the inflationary bias of the discretionary fiscal policy, drew a clear distinction between monetary and fiscal policy objectives and instruments by granting a high level of central bank independence, on the one hand, and setting fiscal rules, on the other. The aim was to eliminate any monetary financing of governments and their excessive borrowing, which, as witnessed in the past, could lead to high price volatility. Alongside the concept of enhanced independence, greater central bank responsibility was required, which is also achieved with greater transparency. This required introduction of different communication and information on the policy conduct, and on central bank data and positions, assessments and expectations for the economic variables. At the end of the last century, the central bank community realized that besides performing its function effectively, it can also fully achieve its independence, only if it applies higher level of transparency and developed communication within its mandate. Yet another factor that emphasizes the need for greater central bank transparency is the financial market liberalization in the 1990s. The perception and theory that the monetary policy is more effective if the central bank systematically surprises the markets has long been left to oblivion, as it became clear that bringing policies through surprises and isolated steps cannot have a lasting effect on the economy. | 1 |
After all, we have seen our hopes for a more rapid improvement in the economy dashed several times in this recovery. For instance, early last year most forecasters thought that the recovery was gaining traction and that economic activity would increase at a solid – though not spectacular – pace through 2012. Then, as now, the labor market was beginning to show some long-awaited improvement, and households and businesses seemed to be making good progress in repairing their balance sheets following the huge losses in wealth sustained during the recession. Analysts thought that higher prices for energy and other commodities would weigh on output growth, as would the supply-chain disruptions from the disaster in Japan. But these factors were expected to be transitory, and most forecasters thought growth would improve significantly once these influences had passed. Unfortunately, this forecast proved to be too optimistic. Revised data indicate that annualized real GDP growth was only 1 percent in the first half of 2011 and improved only modestly to 2 percent in the third quarter. Consumer spending was particularly sluggish, weighed down by slow growth in employment, income, and household wealth, as well as some continued limits in access to credit. Furthermore, the weakness in GDP growth began before the bulk of the effects of higher energy prices hit the economy and before the disaster in Japan happened. This timing, along with the continued softness of most economic indicators into the early summer, indicates that the slowing in output growth was not all due to temporary factors. | BIS Review 64/2002 1 Beyond the very short term, we consider that both the euro exchange rate, which has strengthened since early this year, and the overall economic environment are still contributing towards reducing inflationary pressure. Moreover, there should also be a further unwinding of the indirect effects of previous increases in oil prices and other factors that have added to the stickiness of the annual rate of HICP inflation excluding unprocessed food and energy prices. However, for inflation rates to fall below 2% in the course of 2003 and to remain in line with price stability thereafter, as indicated by recent forecasts, it is crucial that oil prices do not increase sharply again and that the upward trend in labour cost indicators observed in recent years does not continue. With regard to the latter, there seems to be notable inertia, despite the subdued economic expansion; therefore, vigilance is warranted. Regarding fiscal policies in the euro area, may I expressly refer you to the Governing Council's statement of Thursday, 24 October on the Stability and Growth Pact. There is a strong consensus within the Governing Council that the principle of budgetary discipline enshrined in the Treaty and the Stability and Growth Pact are indispensable for Economic and Monetary Union and that the Stability and Growth Pact has been successful in promoting sound public finances and fiscal convergence, as well as in supporting the return to price stability. Moreover, the Pact is in the interest of the Member States. | 0 |
First, was the low interest rate reasonable given the information available at the time? Second, could a different monetary policy with higher interest rates have prevented the crisis? The first question, whether the low interest rate was reasonable given the available information, is the relevant one when evaluating monetary policy. It is more relevant to evaluate policy taking into account the information available ex ante to the policymaker rather than information ex post that was unknown to the policymaker at the time (see Svensson, 2009a, on evaluating monetary policy ex ante and ex post). 7 During the period in question, given the information available, there was a genuine and well-motivated fear of the U.S. falling into a Japanese-style deflationary liquidity trap, and the optimal policy in such a situation is a very expansionary monetary policy. 8 It may be that, in retrospect, the risk of deflation was exaggerated, but there was no way to know this ex ante. Hence, I consider the expansionary policy very appropriate. Adding some ex post evaluation, one can note that it did not lead ex post to very high inflation or an overheated economy. 9 The second question, whether a different monetary policy could have prevented the crisis, is relevant when assessing to what extent monetary policy can be blamed for causing the crisis, notwithstanding if it was reasonable from an ex ante perspective. The credit growth and the housing boom in the U.S. and elsewhere were very powerful. | 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. 14 Nyberg (2010) provides more discussion of macroprudential regulation and regulation reform. 4 BIS Review 16/2010 significant social costs. I find it helpful to conceptually distinguish financial-stability policy from monetary policy. | 1 |
4/9 BIS central bankers' speeches The hub of the payment system in Norway is Norges Bank’s settlement system, and it is our responsibility to make sure the system is efficient and reliable. Turnover is substantial, and transactions totalling close to NOK 240 billion were settled by Norges Bank in 2016 – every day. As a society, we are completely dependent on the smooth functioning of the payment system. Without a stable settlement system, it would not be possible to use customer deposits in bank accounts as a means of payment, and substantial resources are allocated, both by banks and by Norges Bank, to make the system as robust and efficient as possible. Technological innovation continues to bring us new methods of payment. Using smartphone apps such as Vipps and MobilePay, we can now make payments using our mobile phones. Technology giants such as Apple, Samsung and Google are also entering the payment market. Suppliers of goods and services are making their own apps and linking them to bonus and loyalty programmes. Although this may be a positive trend for many people, it comes at a price. It is difficult for us as consumers to keep track of the information we disclose and how it is used. This poses a challenge to data privacy and the security of the payment system. The apps are only a customer interface. Behind them lie international card schemes such as Visa and Mastercard. | Fortunately, inflation expectations remain relatively stable at levels somewhat above the current inflation rate. This stability should help prevent an undesirable further drop in inflation relative to our 2 percent objective. That said, there are some nascent signs that the economy may be doing better. For example, based on the first estimate, which is subject to revision, real (gross domestic product) GDP increased at a 2.8 percent annual rate in the third quarter of 2013, above the trend of the past four years. And the most recent payroll employment report showed a pickup in the monthly pace of job gains. The 3-month moving average rose back above a 200,000 pace after slowing to about 150,000 as of July of this year. I hope that this marks a turning point for the economy. But before we rush to this conclusion a few more cautionary comments are appropriate. With respect to GDP growth, it turns out that inventory investment contributed ¾ of a percentage point to that overall growth rate. Thus, because this impetus from inventories will likely reverse this quarter, the real GDP growth rate is likely to slow to around a 2 percent annual rate or a bit less in the fourth quarter. With respect to payroll employment, we have seen such bursts in payroll growth before over the past few years and have been disappointed when the pickups proved temporary and did not lead to a rise in the overall growth rate. But, I have to admit that I am getting more hopeful. | 0 |
It should not be forgotten that extensive capital regulations entail a mispricing of risks. Deregulation then leads to desirable price adjustments. But it is during these transitional corrections that financial problems are liable to occur. Changes have often outstripped the ability of the system, including the institutional infrastructure, to keep pace. In most cases, neither the banks nor the public authorities had the necessary prerequisites for adapting to the new conditions that a freer capital market created. The expansion of lending had too free a rein in many countries and the authorities did not adequately monitor what was happening at either micro or macro level. 1 BIS Review 65/2000 Due to a rapid expansion of credit, the deregulation and opening up of the domestic financial system was often followed by economic overheating. Asset prices rose sharply and imbalances developed. Furthermore, in countries with a fixed exchange rate system, extensive short-term borrowing abroad was stimulated. A large proportion of these funds was often channelled through the domestic banking system and rendered this rather vulnerable. When capital flows subsequently reversed, the adjustment was often dramatic. Production fell, unemployment rose and both the currency and the banking system faced an acute crisis. Although several factors may have played some part in the run-up to recent financial crises, it is important to bear in mind that a deregulated financial system with free capital movements is not the basic problem. | Regulatory gaps were another important factor in causing the crisis. American International Group, Inc. (AIG) is a case in point. AIG Financial Products, a subsidiary of the AIG parent company, provided guarantees against default on complex collateralized debt obligations, leveraging the AAA rating of the AIG parent company in the process. This activity was conducted with inadequate regulatory oversight, poor risk management and insufficient capital. Finally, many of the incentives built into the system ultimately undermined its stability. The problems with incentives were evident in a number of areas, including faulty compensation BIS Review 14/2010 1 schemes and risk management that was too narrowly focused on one business area without regard for the broader entity. These incentives created important externalities in which participants did not bear the full costs of their actions. Turning to where we are now, the U.S. financial system is in much better shape today than it was a year ago. The capital markets are generally open for business – with the important exception of some securitization markets – and the major securities dealers that survived the crisis have seen a sharp recovery in profitability. The largest U.S. bank holding companies, which went through the Supervisory Capital Assessment Program exercise, have more and better quality capital, having raised more than $ billion of common equity over the past year in the capital markets and generated nearly as much common equity via preferred stock conversions and from gains on asset sales. However, many smaller and medium-sized banks remain under significant pressure. | 0 |
In 2014, the FPC introduced limits on the flow of mortgages with a high loan to income (LTI) in order to guard against the buildup of highly indebted households. 12 All speeches are available online at www.bankofengland.co.uk/speeches 12 But the current low real interest rate environment at the medium and longer terms that are of interest to households and businesses are not, to my mind, primarily the product of central bank policy. Persistent longer term trends have been pushing down with increasing force on real long term interest rates for two to three decades now. 24 Low productivity assumptions are an important more recent part of this story alongside demographic and income distribution trends. Chart 9: Yields on UK government bonds Per cent 2.5 2 1.5 Nominal 1 0.5 0 2018 2022 2026 2030 2034 2038 2042 -0.5 -1 -1.5 Real -2 -2.5 -3 That pressure has been amplified in recent years by headwinds from the crisis. It may also have been amplified by the very structural uncertainties about the macro-economic ‘model’ in advanced economies and fears about secular stagnation that have been much of my subject today. I expect that if the slow healing continues, and some of the more extreme concerns about secular stagnation of our economies fade, we will see larger term premia and some increase in medium and long term returns. | In particular, the ECB expanded scope for central bank intermediation of transactions between banks, thereby offering an alternative to the malfunctioning private inter-bank money market. At the same time, the measures supported financial stability objectives by containing and mitigating the systemic consequences of liquidity tensions in the money market. To conclude, let me say a few words on the recent decisions of the Governing Council taken on 9 May and announced on 10 May. As I already said publicly, I will sum up in five points the Governing Council’s position. 1. The ECB is fiercely independent and takes all its decisions independently of governments, social partners and pressure groups of any nature. BIS Review 70/2010 3 2. We are inflexibly attached to price stability, our primary mandate. Our successful track record since the inception of the euro is remarkable. 3. Our present monetary policy stance is appropriate. Our decisions taken on 9 May have confirmed it. We are not engaging in any form of “quantitative easing”. 4. The “Securities Markets Programme” is designed to ensure an effective functioning of the monetary policy transmission mechanism by helping to resolve a malfunctioning of some segments of the euro area debt securities markets. 5. The liquidity provided through this programme is withdrawn in its entirety through tenders of term deposits. | 0 |
These and other propagation channels in turn, led to virtual stoppage of lending and borrowing activity in the money markets and, ultimately, a credit crunch that reverberated throughout the global financial system. For example, the crisis led to a sharp constraint on the availability of trade credit in the fall of 2008 that had a devastating impact on economic activity in emerging markets in Asia and Latin America, as well as Japan. This region felt the full economic consequences of the crisis even though banks in the region were generally healthy and far from the U.S. housing boom and bust and the subprime mortgage debacle that could be viewed as the initial spark that ignited the crisis. The crisis also underscored another area for further cross-border work: Our international approach to liquidity provision and lender-of-last-resort services to globally active institutions. Cooperation among liquidity providers, for example, through some central bank dollar swap arrangements, played an important role in stabilizing global money markets. However, the division of lender-of-last-resort responsibilities between home and host countries remained ambiguous through the crisis. This needs further attention. So what steps have been taken to address some of these sources of vulnerability? There are literally dozens of initiatives underway nationally and globally, not only in traditional bodies for such cooperation such as the Basel Committee on Bank Supervision, but also among newer international groups such as the Financial Stability Board. | There is a strong sense at Norges Bank that we are being put to effective use today. Thank you for your attention. BIS Review 154/2010 17 | 0 |
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