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There is a term for it – mutualism, describing a mutually beneficial relationship between living things. And let me explain why I am talking about biology in a financial forum to begin with. 3. I have always longed to find an appropriate way to describe the financial relationship between Hong Kong and the Mainland. In my view, Hong Kong’s dynamic with the Mainland is truly unique in that it is a dynamic which no other pair in the world shares. In the financial world, our win is their win and their win is ours. As financial competition amongst the world’s hubs continues, Hong Kong and the Mainland have long enjoyed a mutually beneficial relationship. Sounds familiar? Yes, perhaps neither of us are exactly the same as a bee or a flower, but Hong Kong and the Mainland share a very similar dynamic as them in the financial world – one of mutual benefit. RMB internationalisation: Hong Kong stands out 4. And that brings me to the topic that I want to discuss in more detail today, which is the internationalisation of the RMB. With the continuing growth of the Mainland economy and its increasing financial integration with global markets, it is natural that RMB will be increasingly used in international transactions. The 14th Five-Year Plan has made clear that promoting RMB internationalisation should be conducted in a prudent manner, based on a marketdriven approach. 5. | However, given that vulnerabilities on these markets are still high, the resilience of the banking system remains crucial. In January 2022, the Federal Council approved the SNB’s proposal to reactivate the countercyclical capital buffer. This buffer will come into effect at the end of September and will contribute to maintaining banking system resilience. Page 1/1 | 0 |
The Riksbank is therefore less able to handle losses than other central banks (see Figure 12).40 38 Archer and Moser-Boehm (2013) also mention the central banks in Chile, Israel and Mexico. The position of the Central Bank of the Czech Republic is shown in Figure 12. 39 Stella and Lönnberg (2008) call this ‘policy insolvency’. In a formal model, Del Negro and Sims (2015) show how a central bank can lose control of monetary policy if its financial position becomes too weak. 40 I have discussed this earlier in Flodén (2016, 2018). 21 [30] Figure 12. The Riksbank's non-remunerated capital is small Per cent of GDP Note. Refers to data as of December 2021 for the Bundesbank, Czech National Bank, Federal Reserve, Norges Bank, the Riksbank, Swiss National Bank; February 2022 for the Bank of England and June 2022 for the Reserve Bank of Australia and the Reserve Bank of New Zealand. Sources: National sources, national central banks and the Riksbank Not straightforward to ask for capital injections To avoid scenarios where monetary policy is affected by the weak financial position of the central bank, financial support from the principal may be needed. The Riksbank would in that case have to apply for a capital injection from the Riksdag. | However, Figure 4 shows that the difference between these rates and the Riksbank's policy rate does not appear to have been affected by the asset purchases.14 Government bond purchases thus appear to have pushed down the interest rate on government bonds to a certain limit. However, there are no signs that this caused households and companies to encounter lower interest rates. It is therefore very unclear whether the result was that the economy was stimulated via the interest rate channel.15 13 The market is dominated by so-called FRN-bonds, where the coupon follows STIBOR 3 months. 14 Erikson and Vestin (2021) show a similar figure. Some larger companies also finance themselves through the bond market. However, when the Riksbank began purchasing government bonds, this form of financing was fairly unusual and accounted for only 22 per cent of the companies' total borrowing (see the Riksbank, 2014). Moreover, it is common for companies' bond loans to have variable interest rates. As turnover in the market is small, it is difficult to follow price developments. Nevertheless, the statistics indicate that rates on corporate bonds fell less than those on government bonds in 2015 and 2016. 15 However, the lower interest rates could reasonably contribute to a lower central government borrowing cost, something I will return to in a moment. However, this was not the purpose of the Riksbank's purchases. 7 [30] Figure 4. Lending rates have followed the policy rate Per cent Note. | 1 |
Let me now say a few words about Iceland’s financial crisis, as it puts the issues raised so far into sharp focus, but then lead us into the crisis in EU banking. Iceland was already on its way into a recession when its three cross-border banks failed in the first week of October 2008. This was partly unrelated to the banking collapse and followed the turn of the domestic economic cycle, after an unsustainable boom and serious overheating during 2005–2007 and a currency crisis in the first half of 2008. . The proximate cause of the demise of the banks was the post-Lehman run on foreign exchange liabilities, which amounted to 7.5 times Iceland’s GDP, while their total balance sheets were 10 times GDP. The banking collapse and the associated wealth loss and further depreciation of the currency deepened the recession. Two separate but interrelated sub-stories of the large Icelandic saga were converging in a tragic grand finale that autumn. These were: 1. Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. (Net capital flow problem and fundamentally nothing new). 2 BIS central bankers’ speeches 2. The rise and fall of three cross-border banks operating on the basis of EU legislation (the European “passport”). (Gross capital problem and unique in Icelandic history – and, at the time, in EU history). | Már Guðmundsson: Capital flows and fragmentation of the international financial system Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, in Session I in the conference “Fragmentation in the international financial system – can the global economy become one again?”, organised by the Central Bank of the Republic of Turkey and the Reinventing Bretton Woods Committee, Cappadocia, Turkey, 14 July 2012. * * * For the most part, I will discuss some flaws in the international monetary and financial system(s) (IMFS) and in the European Union (EU) framework for cross-border banking and financial stability as they relate to both net capital flows and vulnerabilities in gross capital positions. My perspective on these issues is that of a policy-maker from a very small, open, and what used to be financially integrated economy, but it is also informed by the work I was involved in during my tenure at the Bank for International Settlements. The current international and monetary and financial system is in some sense a non-system, a hybrid of miscellaneous exchange rate regimes and diverse rules on cross-border capital flows and activities of financial institutions. This opens the door to country choices that, in the aggregate, cause and perpetuate global current account imbalances. This problem and its solution have been discussed extensively, and I will not dwell on that topic here. | 1 |
The Bank of Albania has been emphasising constantly that their concentration in the last quarter of the year tends to reduce the effectiveness and increase the volatility of financial markets. In this context, we deem that further efforts should be made to improve the distribution of expenses and borrowing throughout the year. The anchoring of the budget implementation and monitoring in quarterly plans could be a valuable instrument in this regard. Thank you for your attention! 5/5 BIS central bankers' speeches | Cases in point, to name a few, are the defence of competition and the regulation of specific industries, such as energy and telecommunications (under the responsibility of the National Markets and Competition Commission – CNMC – in Spain), the auditing of public sector accounts and economic management (carried out by the Spanish Court of Auditors) and, a more recent development, effective compliance by the general government sector with the principle of budgetary stability (the preserve of the Independent Authority for Fiscal Responsibility, AIRef). As I stated, the ultimate aim of assigning these functions to independent agencies is to obtain an institutional design that ensures a greater level of collective well-being. In this respect, allow me to begin by recalling the main reason why the control of inflation was assigned to independent monetary authorities in a large number of economies. The argument is what the economic literature calls “time inconsistency”, which highlights the role of expectations in agents’ behaviour. I believe price stability unquestionably enhances economic growth and improves well-being in the long run. However, if the monetary authority is not independent and, having regard to other more short-term goals, uses monetary policy to stimulate demand repeatedly and above what would be consistent with its inflation objective, an inflationary bias is generated. In the short run higher levels of economic activity and employment can be attained, but the costs emerge later. The inflationary bias is ultimately anticipated and incorporated into agents’ expectations and, therefore, into price-setting and wage bargaining. | 0 |
Looking ahead, one can see potential risk factors. One of them is production clustering. If the recently observed trend for country specialization (e.g. Slovakia specializes in producing cars, India in business process outsourcing) holds on, it may increase the risk of asymmetric shocks in the future (De Grauwe 2003). Another example of a possibly distant future asymmetric “shock” is global warming. A recent report cited by Financial Times (FT, 6 January 2007) shows that the Northern members of the eurozone are likely to profit and the Southern members to suffer from the climate change. Nevertheless, whatever the likelihood of shocks, it remains of crucial importance to maintain a balanced fiscal perspective and flexible labor market which can absorb shocks, should they arise. Now let me move to the possibility of rising micro- and macroeconomic imbalances. They can take the form of lending booms, current account deficits or increasing inflation pressure. Such a set of symptoms in a monetary union member country reveals in most cases one common cause – too low a level of real interest rates. Economists have for a long time argued that each economy has an appropriate, long-run level of the real interest rate called the natural rate of interest (Wicksell 1898). Keeping interest rates at this (unfortunately unobserved) level should guarantee that the economy will remain in equilibrium – output will not exceed production capacity and inflation will remain stable (Woodford 2003). This is what implicitly or explicitly most inflation targeting central banks are trying to achieve. | Notwithstanding the fact that people might derive utility from the pure fact of having in their wallets banknotes with Polish kings instead of European bridges, I have no idea how to measure this utility and how to compare it to the utility derived from more standard arguments of preference functions like consumption. For this reason I will speak in terms of standard macroeconomic variables, bearing in mind that this is certainly not the whole story. If economists speak about the advantages and disadvantages of joining a common currency area, they ultimately end up comparing the costs and benefits of accession. This is also the way I would like to proceed. However, bearing in mind that many issues have already been described in several voluminous reports (NBP 2004 for Poland, Csajbok, Csemerly 2002 for Hungary, HM Treasury 2003 for the UK), I will try to focus on issues which are less familiar to the general public or which are potential risk factors. The nature of these issues is that they are mainly concentrated on the cost side of the analysis. Thus, it might seem from my lecture, that I mainly care about the costs or that costs outweigh benefits. Let me, in the very beginning, stress that this is by no means the case. | 1 |
Since the outbreak of the financial tensions, this Group has solidly worked to gather and share information on developments in the euro area money market and has also provided us with useful feedback on the effect of the ECB’s money market operations. Statistical information. The ECB has also benefited from the wealth of harmonised area-wide financial, banking and monetary statistics that the Eurosystem has developed over the last decade as well as from the recently released quarterly integrated accounts. In addition, very useful information has been collected through surveys (notably, the Bank Lending Survey). Information exchanges with other central banks. During the current turmoil information has been extensively shared and discussed within the central banking community on a wide range of issues, from very technical and operational to more policy-relevant considerations. Especially at the onset of the tensions, the consultations among the relevant central banks were very intense and particularly useful to assess the extent of the turmoil accurately and rapidly. Information exchanges among European authorities. During a market turbulence like the one we have recently witnessed, it is crucial to assess in a timely and comprehensive fashion the implications of the turmoil for the banking and financial industry and, ultimately, for the economy as a whole. In this context, it is important to ensure that the responsible public authorities, notably central banks and supervisors, have the adequate procedures and infrastructure in place to share the relevant information among them. | Thus, in order to satisfy the banking sector’s demand for liquidity buffers on particular days and for fulfilling reserve requirements earlier in the maintenance period, the ECB has (1) occasionally provided liquidity to the market through exceptional operations, 2 and (2) it has changed the time patterns of liquidity provision within the reserve maintenance period. In addition, from the start of the market turmoil the ECB has intensified its communications with market participants so as to indicate its alertness and readiness to act in order to reduce the volatility of the very short term interest rates around the target rate and to contribute to the smooth functioning of the money market. For instance, last Friday we published a press release pointing out that the ECB’s Governing Council has noted that market participants are concerned about conditions in the euro money market in connection with the upcoming end of the year; and announcing the decision to lengthen the maturity of the main refinancing operation settling on 19 December 2007 to two weeks so that it matures on 4 January 2008. In this refinancing operation, we will aim to satisfy the banking sector’s liquidity needs for the entire two week period, covering both the Christmas holidays and the end of the year. This example provides a good illustration of the importance that the ECB has attached in recent months to intervene in money markets through a combination of flexible liquidity management operations and regular communications. | 1 |
With the new Executive Board, it is also a matter of combining six individuals’ personal perceptions of this picture and of policy’s formulation into a joint picture and a joint interest rate decision. There is no reason for me to anticipate matters. The result of our deliberations and joint assessment will be present on Friday next week. 5 BIS Review 6/2000 | Krzysztof Rybiński: Global imbalances and implications for emerging markets Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the Panel Discussion on Scenarios for Emerging Markets at the OKB Roundtable, Vienna, 14-15 December 2006. Views presented here are my own and they do not represent the official position of the National Bank of Poland. Here I only sketch the key arguments, extensive discussion of issues related to global imbalances is presented on my blog www.rybinski.eu. * * * ‘Hard’ and ‘soft’ landing are aeronautical terms. Many decades ago plane crashes were so alarmingly frequent, that some believed that every flying plane was an accident waiting to happen. Today, the advance of technology makes the past concerns look ridiculous; plane crashes are rare and require exceptionally adverse weather conditions, human failure or a terrorist attack. Likewise, large current account deficit in the United States and large current account surpluses in China and oil-exporting countries, jointly labeled as global imbalances are considered as unstable just as planes used to be several decades ago. Similar aeronautical vocabulary – hard landing, soft landing, crash etc. – is also used to describe the range of possible outcomes for the global economy, which embarked on a global imbalances journey about ten years ago 1 . | 0 |
Properly managed and analysed, taking financial imbalances into account in monetary policy decisions – under certain conditions – means that target fulfilment should be better in the long run. Interaction between monetary and fiscal policy As mentioned above, monetary policy and financial stability are interdependent, but so are monetary policy and fiscal policy. The interaction between these two policy areas plays a central role in the Riksbank's ability to attain low and stable inflation. Some simple reasoning can illustrate the interaction.34 For example, if the central bank cuts the policy rate, the government's interest payments decrease and there is greater scope for a more expansionary fiscal policy. Another example is when the central bank buys government bonds. Among other things, this can mean that the government has lower costs for new borrowing at longer maturities. Conversely, fiscal policy also affects monetary policy. A more expansionary fiscal policy increases demand and ultimately also inflation and thus affects monetary policy. There are also many historical examples where fiscal policy has led to disruptions in the financial system with consequences for monetary policy. Episodes of hyperinflation are extreme examples, but there are also examples of milder crises from, for example, the euro area. Stable public finances are a prerequisite for price stability. If the government's future capacity to obtain tax revenue were to be less than future expenditure, the credibility of the inflation target would be undermined.35 This implies fiscal dominance and can lead to rapid price increases. | 14 [30] One lesson to be learned from the post-financial crisis period is that an expansionary monetary policy over a long period of time can entail a conflict between price stability and financial stability. The conflict was exacerbated by the signs that new problems could manifest themselves in the financial markets if the large asset purchases were concluded prematurely. This was called “taper tantrum”.23 There was also a risk that the private sector had become so dependent on central bank liquidity that the effect of reducing the balance sheets could be greater than the stimulus provided by the asset purchases.24 Risk of new conflict between price stability and financial stability after the pandemic When the pandemic broke out at the beginning of 2020, central banks introduced further expansionary monetary policy measures to facilitate access to credit and liquidity, thereby reducing the risk of interest rates rising so strongly that the economic situation worsened. This time, too, there was no conflict between price stability and financial stability. The expansionary monetary policy increased demand – which helped to sustain inflation – while supporting financial markets. A central task for central banks in acute phases of economic crisis is to be the lender of last resort. Recently, the central banks’ task of ensuring that the markets function (market maker of last resort) has also come into focus. If viable and systemically important banks in distress experience temporary liquidity problems, they can apply to the central bank for emergency loans. | 1 |
Looking ahead: the longer term financial stability policy agenda Perhaps I can turn now to some observations for the longer term. These go beyond Basel II and what its architects had in mind for it. But they nonetheless require us to think in terms of the same combination of evolving best practice within the financial services industry on the one hand and public policy needs on the other. I The challenges of an increasingly integrated financial sector Firstly, the new Accord is mainly designed for credit risks and hence essentially for banks. Yet we are all becoming clearer that the process of intermediation of risks is itself changing mightily. The silos that were securities, lending, and insurance, are no longer silos. Instead we are seeing the increasing development of a single financial network embracing not only these areas, but also many organisations which fall outside today's definitions of what is a bank, what is a securities house, or what is an insurance company. This process has gathered pace in recent years, and has accelerated since the Basel II process itself began. A couple of examples can illustrate what I mean. First is the growth of the credit risk transfer market. Alan Greenspan has recently noted that this may have benign effects, recently arguing that: 'If risk is properly dispersed, shocks to the overall economic system will be better absorbed and less likely to create cascading failures that could threaten financial stability'. But new forms of contract tend to bring uncertainty. | And any review mechanism must take careful account of the implementation costs incurred by banks when the rules change. But it is costly, too, to persist with regulatory standards where they are clearly out of line with market practice. Real effort has been made to tie the Accord to best market practice and thus to changes that banks will need to introduce anyway. Going forward, the guiding principle, difficult I know to achieve in practice, should be to keep to a minimum the difference between expenditure that banks would be incurring in any event and that required by regulators. Part of the trick is to ensure sufficient continuity of core aspects of the standards, so that changes to basic IT systems etc are minimised or at any rate can take place over time. Time is, after all, a major help in this respect. Implementing systems changed as part of the software obsolescence cycle may involve only modest marginal cost. More immediate and discrete changes are always going to be more costly. These issues will clearly need further discussion. In the EU context, however, it is particularly important that the arrangements for revising any Directive reflect, if not the letter, at least the spirit of Lamfalussy. It would be wholly inappropriate to try to hard code all the detail of the pillar one rules in an EU Directive, as if these can necessarily stand for a long period of time. | 1 |
At the same time, we have to be mindful that the countries within this group are at various stages of economic development, ranging from poor developing nations with annual per capita incomes of about US Dollars 160 to very wealthy industrialized nations with per capita incomes of about US Dollars 36,000. Hence, although we may, in general, say that we derive our strength through diversity, we still have to take serious note that the great disparity in living standards is an issue that needs to be uppermost in our minds if we are to move forward in harmony and brotherhood. In that context, I think it is very appropriate that, this year, the Commonwealth Finance Ministers have decided to focus on several dimensions and options that impact on this issue, which is borne out of the fact that they have selected “Agenda for growth and livelihood”, as this year’s theme for the meeting. Your Excellencies, Distinguished Delegates, In order to critically examine the issue of wealth disparity in perspective, let us take our minds back to the Commonwealth Heads of Government meeting in Singapore in the year 1971. At that meeting, the declaration of Commonwealth Principles was adopted. These Principles acknowledged that wide disparities in wealth existed between different sections of mankind. The Heads of Government also acknowledged that such disparities were too great to be tolerated and that such disparities would create world tension. Accordingly, the Commonwealth resolved to work towards the progressive reduction of these disparities. | The same declaration undertook to steer the group’s efforts to overcome poverty, ignorance and disease, as well as to raise standards of life and achieve a more equitable international society. 20 years later, in 1991, the Harare Declaration was issued. This declaration conceded that many Commonwealth countries were still poor and that they faced acute problems, including excessive population growth, continuation of poverty, debt burdens and environmental degradation. At the same time, it was acknowledged that while disparities among members appeared to have worsened, some favourable results were also being achieved. For example, despite the widening economic gap, many nations had been able to establish better democratic processes, good administrative frameworks, more independent judiciaries, keener respect for human, fundamental and labour rights, and several other social successes. Those were of course significant achievements, and we should all be proud that we have been able to create such conditions in our countries. Notwithstanding those gains as noted in 1991, and the many subsequent successes, we may still have to admit that our collective efforts to address one of the fundamental Principles of the Singapore Declaration, namely, that of addressing the issue of income disparity, has been, by and large, unsuccessful. Today, 35 years after the Singapore Declaration, it is actually becoming even more acute, and consequently, we need to respond to that widening gap appropriately, urgently. Your Excellencies, Distinguished Guests, As we all know, countries that are affluent today were not affluent at some point in time in their history. | 1 |
Figure 26: Contribution to GDP Growth Figure 27: Consumption of Resident and from Spending by Periods Non-resident Households (Percentage Point) (Seasonally Adjusted, at 1998 Prices, Billion TL) 8 7 6 5 4 3 2 1 0 -1 -2 19 7.1 14 5.9 13.5 18 13 3.8 12.5 17 12 16 11.5 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 -0.1 GDP -0.4 -1.0 -1.1 P riv. Stoc k Expo rts Public Privat e Imports Cons . Change Spending Inv. Source: TURKSTAT, CBRT. BIS Review 143/2009 2005 2006 2007 2008 2009 Co nsumption Co nsumption excl. Furniture, Housing Goods and Services, Trans portatio n, Communicat ion Source: TURKSTAT, CBRT. 11 Recently issued data indicate that this trend continued in the third quarter as well and consumption demand has adopted a weaker course following its marked increase during the second quarter. Although private investment is expected to increase slightly in the third quarter, the low capacity utilization rate and the high uncertainty in demand is expected to hold back the recovery in investments. Accordingly, total aggregate domestic demand is expected to stay flat in the third quarter, after increasing significantly in the second quarter (Figure 28). | Figure 15: Interest Rate Developments (Percent) 26 21 16 BondTahvil yieldsve Bono Piyasası Faiz Oranı IMKB (gösterge niteliğinde, bileşik) 11 CBT Policy Rate (compound) 0909 0709 0509 0309 0109 1108 0908 0708 0508 0308 6 0108 TCMB Gecelik Faiz Oranı (bileşik) Source: ISE, CBRT. 6 BIS Review 143/2009 Market interest rates in all maturities are declining. It is noteworthy that long-term yields declined more than shorter-term yields and displayed a flatter yield curve (Figure 16 and 17). Figure 16: Yield Curves* Figure 17: Difference Between LongTerm and Short-Term Interest Rates* (Percent) 15 28.July.2009 10 01.October.2009 9 Release of the July Inf lation Report 13 7 Yield 8 6 11 5 4 9 3 0.5 1 1.5 2 2.5 Term 3 3.5 1009 0909 0809 0709 0609 0509 0409 0309 7 0209 0109 2 4 * Estimated by using the compound yields on the bonds in the ISE Bonds and Bills Market, based on the Extended Nelson-Siegel (ENS) method. *Difference between interest rates with 4-year and 6month maturities of the yield curve estimated by ENS method, 5-day moving average. Source: CBRT. Source: CBRT. | 1 |
With only one tool, the repo rate, we are trying to attain the inflation target and at the same time attain a balanced development in economic activity. In practice, the repo rate is often adequate as a tool to BIS central bankers’ speeches 3 give both inflation and economic activity a push in the right direction.1 But in recent years, we have also needed to manage the problem of economic activity being at different levels in different parts of the economy. We cannot use the repo rate to stimulate the corporate sector and limit the build-up of household debt all at the same time. In this situation, it is not evident how monetary policy should manage the balance between inflation, economic activity and the risk of an overly rapid increase in housing prices and household credit. Let me elaborate on my thoughts a little further here. Monetary policy must take financial risks into account The concern over lending to households increasing too rapidly has led to a majority of the members of the Riksbank’s Executive Board voting to hold the repo rate at a higher level than would otherwise have been justified. I have entered reservations against these decisions and advocated a lower repo rate, for reasons I will return to later. Despite my reservations, I share the majority’s concern over the rapid increase in household debt. | Identifying and analysing factors that can give rise to financial imbalances is and will remain an important part of the Riksbank’s work. The Riksbank needs this analysis for several reasons. As I mentioned earlier, the Riksbank has responsibility for promoting a safe and efficient payment system. We must also understand if monetary policy risks contributing to financial imbalances arising. Moreover, a development of the economy that proves to be unsustainable will affect the way in which inflation develops and what type of monetary policy it is appropriate to conduct. The financial stability council will give us a forum where we can and shall openly present our analyses of financial risks and recommendations for supervisory measures. In the recent Monetary Policy Update our forecasts was based on no new macroprudential policy measures being introduced. But how will my view of a suitable monetary policy be affected if such measures are implemented? The answer depends entirely on the measures implemented and their effects. 10 The scenarios shown in Figure 7 should primarily be regarded as an illustration of the different alternatives. The repo-rate path there does not coincide with the one I have advocated at the monetary policy meetings. 11 The Riksbank (2013c). 12 A central element of uncertainty is how the repo rate affects the degree of household indebtedness. The Riksbank’s estimates imply that the debt ratio will increase when the repo rate is cut, but that the increase will be small. | 1 |
The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. Households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in Norway will be 2½ per cent over time. The responsibility for implementing monetary policy has been delegated to the central bank. This is also the case in comparable countries. The central bank shall exercise professional judgement within the framework of its mandate. Assessments of economic developments and the basis for interest rate decisions are presented to the public. This makes it possible for others to gain insight into the assumptions and analyses underlying interest rate decisions. The operational target is well defined. The Bank’s judgement can therefore be evaluated retrospectively. Norges Bank explains the reasoning behind its judgement in its annual report. The Bank’s reporting requirement is set out in § 75, litra c of the Constitution, which stipulates that the Storting shall supervise Norway’s monetary system. Up to 1950, the annual report was submitted directly to the Storting. Today, in keeping with the Norges Bank Act, it is sent to the Ministry of Finance for submission to the King in Council and communication to the Storting in the Government’s credit report. The law thereby provides a framework that allows the government authorities to follow up the performance of the delegated responsibility for monetary policy. | Chart 6. NOK bonds issued outside Norway Total outstanding. In billions of NOK 100 100 80 80 60 60 40 40 20 20 0 0 2000 2001 2002 2003 Source: Norges Bank This is reflected in the international market for bonds issued in NOK. Last year, such bond issues amounted to more than NOK 50 billion. Both foreign and Norwegian companies were issuers and a number of small and large foreign investors and Norwegian companies - primarily life insurance companies - were buyers. The relationships in the foreign exchange market are unstable. New shifts in the world economy may reduce interest in the krone. Chart 7. Relative labour costs Deviation from historical average. Per cent 20 20 31 January 2003 15 15 10 10 5 5 0 0 -5 -5 Common currency -10 -10 -15 -15 1970 1975 1980 1985 1990 1995 2000 Sources: TRCIS/IMF, Ministry of Finance and Norges Bank As a result of the strong krone and a high wage level, competitiveness in business and industry is close to 15 per cent weaker than the average for the past 30 years. Historically, following such substantial deviations, competitiveness has always returned to the average fairly rapidly. | 1 |
We also developed carbon intensity metrics for the equities portfolio, which we extended to cover corporate bonds last year. We then set out the portfolio actions we will take to reduce the carbon intensity of our equities portfolio by up to 50% by FY2030. These included: defining the stewardship principles for our external fund managers to engage their portfolio companies on climate-related risk issues; launching a climate transition programme to mitigate the impact of climate transition risk; and excluding investments in companies that derive more than 10% of their revenues from thermal coal mining and oil sands activities. Let me provide an update on our climate scenario analysis, climate portfolio actions, and stewardship efforts. We have examined the possible impact of climate change on our long-term investment returns under four scenarios. The best-case scenario is a Paris-aligned orderly transition where global warming is capped at 1.5-degrees Celsius. Early and ambitious policy measures drive the adoption of low carbon technologies and result in quick reduction in global greenhouse gas emissions. The worst-case scenario is a failed transition with temperatures rising to 4-degrees Emissions continue to rise and the world is faced with catastrophic and irreversible climate change. A first middle scenario is a delayed disorderly transition that keeps temperature rise within 2-degrees. But this is at the cost of disruptive policy actions in response to an alarming spike in extreme weather events around the globe happening at the same time. A second middle scenario is a too-little-too-late transition that results in a temperature rise close to 2.6-degrees. | Jean-Pierre Roth: As the financial crisis recedes, what are the lessons for central bank efforts in the future? Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Centre International d’Etudes Monétaires et Bancaires, Geneva, 24 November 2009. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The financial crisis of the last two years has caused people to re-examine a number of generally accepted ideas. Corrective measures are being undertaken, particularly in the area of banking regulation. For central banks, the most delicate issue will be how to contribute to macrofinancial stability without jeopardising their objective of price stability and, in turn, compromising their own credibility. As regards banking supervision, close cooperation between central banks and banking supervisory authorities is essential. The temptation to concentrate forces is strong. In Switzerland, placing centralised oversight responsibility with the Swiss National Bank would risk weakening the SNB’s independence from the political sphere. With respect to systemically important financial institutions, everything possible must be done to limit the likelihood and the risks of further problems. Major efforts are underway in this regard at the Financial Stability Board. To ensure that central banks have the necessary means to act in a crisis, a liberal legal framework and a safety cushion in the form of equity are needed. The SNB is in a favourable position in this respect. BIS Review 152/2009 1 | 0 |
4 Provisions had already increased by € billion between June 2019 and June 2020. 5 As a result of its merger with Bankia, in March 2021 CaixaBank recorded positive extraordinary results of € million € million in negative goodwill less € million in extraordinary expenses). 5 increase in profit in the first quarter was essentially explained by a significant reduction in provisioning, which stood at pre-pandemic levels. Fourth, the unfavourable profitability performance in 2020 did not translate into a worsening of the sector’s solvency. Quite the contrary: capital ratios increased. The reasons for this are: i) the aforementioned negative extraordinary factors on profitability affected balance sheet items that have no bearing on prudential solvency (for instance, goodwill); and ii) the authorities implemented various measures to shore up institutions’ CET1 ratio, most notably the European Union’s regulatory reform (“quick fix”) and, again, the public guarantee programme and the recommendation against paying dividends. Despite their heterogeneous initial solvency positions, banks performed favourably across the board in 2020. Moreover, as at December 2020, accounting capital and reserves constituted the main components of Spanish banks’ prudential capital, while deductions for goodwill lost relevance as compared with previous years owing to a significant share of this having been amortised. More recently, in 2021 Q1, Spanish banks’ solvency ratios held stable relative to December 2020. Short and medium-term risks In my view, this positive sector performance must not obscure some of the short, medium and long-term risks that still exist. | In 2009, i.e., during the height of the global financial crisis, Bank Negara continued to focus on developing and consolidating a comprehensive set of standards on corporate governance and risk management practices. These standards encompass overarching principles on risk governance with more specific guidance on the management of market, credit, liquidity, operational and insurance risks. Further efforts of Bank Negara include organizing the Financial Industry Conference on risk management. This Conference has encouraged further dialogue on key risk challenges facing the financial institutions and how financial institutions can further enhance their resilience to these challenges. A major milestone was the enactment of the new Central Bank of Malaysia Act 2009. This Act, which came into force on 25 November 2009, has further strengthened the ability of Bank Negara to undertake surveillance and prompt resolution to avert risks to financial stability. The existing Financial Sector Master Plan is currently in the final phase of its implementation. The measures under the Plan, which were undertaken during the past decade, have contributed towards achieving a more efficient, effective, stable and resilient financial sector. This has in turn resulted in more developed financial markets, broader and better product offerings, as well as higher levels of insurance and Takaful penetration. This trend of liberalization is expected to continue, whilst the banking and insurance sectors could possibly see further consolidation, convergence, and competition within the region. | 0 |
Second, the temporary improvement in the terms of trade that followed the rise in sterling in 1996 reduced the wedge between the real consumption wage – which is of relevance to employees and which reflects a mix of both domestic and imported inflation components – and the real product wage – which is of relevance to employers and which reflects the prices only of domestically produced goods. That reduction in the wedge is likely to have reduced the pressure on nominal wage growth for any given level of unemployment. So it is quite possible to believe that the NAIRU has fallen even if the natural rate has not. But this is likely to be temporary. As the impact of sterling’s appreciation on wages and prices wears off, the NAIRU will, other things being equal, rise towards the natural rate. But other more BIS Review 103/1998 –5– lasting changes may reduce the natural rate (and hence the NAIRU). For example, a range of government policies, including changes to the Jobseekers Allowance, the New Deal and the new Working Families Tax Credit, have increased incentives to work. The National Minimum Wage works in the opposite direction. Assessing the impact of these structural factors on the natural rate is no easier than calculating the effect of macroeconomic shocks on the NAIRU. But it is useful to distinguish the two concepts, not least because they can move quite differently in the short run. Enough of this theory, some of which may appear largely semantic. | In its meeting in April, the Monetary Policy Committee noted that “labour market data on quantities were signalling a tighter position than the price [earnings] data”. At that time, the Labour Force Survey and claimant count BIS Review 103/1998 –7– measures of unemployment had both fallen below their previous troughs recorded in the spring of 1990, and were still declining. This position was evident across all categories of unemployment, as can be seen from chart 2 which shows the various measures of joblessness reported in the EPI’s Employment Audit. In addition, employment and total hours worked were rising quite strongly; recruitment intentions were at their highest level for nine years, with the level of vacancies at Jobcentres, and the average duration of these vacancies, both well above their 1988/89 peaks; and survey measures of recruitment difficulties were also at high levels. The underlying rise of the Average Earnings Index had increased to 42% by the beginning of 1997, but was little changed by the end of the year. If I had been asked to deliver the third Annual EPI lecture, rather than the fourth, the main question you might have expected me to grapple with would have been why earnings growth had not at that point risen by more, given the 1.0 million fall in unemployment and the 1.4 million rise in LFS employment since the end of 1992. | 1 |
1 A detailed progress report is contained in the FSB Chair’s letter to G20 Leaders ahead of the Brisbane Summit. See FSB (2014b). 2 Table 1 shows that the tightening in definitions of risk-weighted assets and capital under Basel III itself doubled effective capital requirements. The numerical requirements themselves have also more than tripled. Caruana (2012) describes these changes in some detail. 2 BIS central bankers’ speeches Now, for the first time, global standards have been agreed to place requirements on the liquid asset buffers banks must hold and on the extent of maturity transformation in which they can engage. The rapid contagion during the crisis showed how the system magnified shocks. Two particular fault lines made the system procyclical. First, banks were heavily exposed to movements in market prices and volatility around them, creating a cycle in which falls in prices caused banks to retrench and reduce their positions, leading to further falls in asset prices. That issue has been addressed through strengthening regulatory requirements on trading books – a move that has contributed to the share of banks’ assets accounted for by trading assets almost halving.3 Second, banks and shadow banks were entwined in a dangerous funding spiral. Incredibly low initial margins on repo transactions facilitated the build-up of excessive leverage and maturity mismatches in shadow banks. | Bill Dudley’s recent proposal for certain staff to be paid partly in “performance bonds” is worthy of investigation as a potentially elegant solution.21 Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions. In a diverse financial system, trust must also be rebuilt in markets. That is why in the UK in June, Chancellor George Osborne and I launched the Fair and Effective Markets Review.22 Far from seeking to constrain markets, the Review is seeking to restore true and competitive markets with open access to all and competitive prices. Behaviours that aim to undercut market mechanisms, such as collusion, the misuse of confidential information, or the manipulation of market prices and benchmarks, must be stamped out. The Review has already recommended that further market benchmarks be brought within the scope of UK regulation, alongside a criminal charge for manipulation of such benchmarks. In that respect it complements the FSB work to reform and strengthen benchmarks internationally.23 The Review is now consulting widely before reporting next June. It is asking questions about deficiencies in two major areas: market structure and conduct. The Review is examining where structures exist that encourage excessive concentration, raise potential conflicts of interest or expose benchmarks to the potential for manipulation. And it is considering where voluntary codes of conduct seem inadequate, poorly understood or simply provide individuals with justification to judge their actions by the exact letter of the code rather than by more generally accepted norms. | 1 |
When wage formation is decentralised, monetary policy will instead influence wage growth via market mechanisms, by stabilising aggregate demand. The existing monetary policy guidelines will function effectively whether wage bargaining is at a centralised, local or individual level. There is a fine balance in the division of roles between fiscal policy, wage formation and monetary policy. This balance will be disturbed if the objective of monetary policy is changed or broadened. Should monetary policy give particular weight to asset prices? House prices in Norway have risen sharply and probably excessively. The level of house prices in Trondheim in central Norway was an eye-opener for the American Nobel Laureate Georg Akerlof, who happens to be of Swedish ancestry. At a family gathering, he was told that a distant relative had bought a house in Trondheim at a price equivalent to more than USD 1 million, providing a source of inspiration for his and Robert Schiller’s book “Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism”. 5 4 OECD Interim Economic Outlook, (March) 2009. 5 Georg Akerlof and Robert Shiller (2009): “Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism”, Princeton University Press. BIS Review 119/2009 5 Self-reinforcing mechanisms in financial markets, which lead to slower credit flows and falling asset prices in downturns and the inverse in upturns, pose a challenge to monetary policy. | Norges Bank, like other central banks in Europe, provided dollar liquidity to banks in periods. Banks’ access to funding at all but the shortest horizons has been very limited during the crisis. A key problem was that banks were heavily reliant on international market funding. When that source of funding seized up the Norwegian authorities had to intervene. Several instruments have been deployed. Loans have been offered at longer maturities than earlier, in some cases up to 2 and 3 years. The arrangement where banks and bank-owned mortgage companies can swap covered bonds (OMF) for government securities was introduced to facilitate banks’ access to medium-term and long-term funding, but also to ease money market conditions so that money market premiums could be reduced. In the mid-1980s Norwegian banks also relied heavily on foreign funding. In spring 1986 – following a sharp fall in oil prices – confidence in the Norwegian economy weakened and liquidity flowed out of the country, as was the case last autumn. Norges Bank had to purchase NOK and sell foreign exchange to maintain a fixed krone exchange rate. The krone liquidity that flowed into the foreign exchange market flowed back into Norges Bank as loans to the banks to avoid a liquidity crisis and a surge in money market rates. Bank lending continued to grow in 1986 and 1987, and in retrospect it might almost seem as though the central bank through its lending operations had played an active part in financing the credit boom. | 1 |
3 With the commencement of the policy normalization process in December 2015, the Federal Reserve began issuing an implementation note that provides the operational settings of the Federal Reserve's policy tools. This note serves to separate communications about the policy stance from those about policy implementation. It also promotes greater cohesion and transparency in communications about policy implementation by consolidating information that was previously provided in FOMC statements, FOMC minutes, Desk statements, and elsewhere. 4 An estimated historical series for an effective federal funds rate, produced using the new data source and calculation methodology, is available on the New York Fed’s website. This series will be updated at the end of February. 5 Demand for loans of reserves was driven, for example, by reserve requirements imposed on depository institutions. 6 I emphasize “all else equal.” There were many subtleties to the pre-crisis relationship between the operations and money market rates. In particular, money market rates would often move to a new target rate even before operations were conducted, because of the Federal Reserve’s credibility. Of course, that credibility was underpinned by the Federal Reserve’s actual operational capability. For a detailed exposition on pre-crisis monetary policy implementation, see Bernanke, “Implementing Monetary Policy,” March 30, 2005. 7 Of course, the Desk also controlled the level of reserves through permanent open market operations. | One tentative indication that high capacity may be playing an important role is that unsecured rates appear to have settled in about the same position relative to IOR as before liftoff, even though one might have expected the widening in the IORON RRP spread and the lower support from the ZLB to result in some downward shift. The ON RRP also has a per-counterparty cap, which was, and is, $ billion. It seems that the current level of the per-counterparty cap was also adequately large for perceived individual “headroom,” thereby supporting lender bargaining power. Figure 14 shows summary data on how frequently we receive large bids in our operations at the ON RRP and term RRP facilities. As you can see, we rarely see bids of more than $ billion, and combined individual counterparty usage across overnight and term operations has never exceeded $ billion. Recently, we learned a bit about the term RRP operations. We have been conducting these over quarter-ends as a way of providing additional RRP capacity. Additional capacity is available because term RRP operations are subject to a separate overall size limit, and because there is no per-counterparty cap in those operations. Counterparties appear to regard these as close substitutes for ON RRPs, and as shown in Figure 15, we’ve typically seen that overall RRP take-up, across overnight and term RRP, has been fairly stable across quarterends. At this past year-end, there was essentially no take-up at the term RRP operations. | 1 |
Tightening of monetary policy is on the agenda for most central banks around the world, and, as you know, for the Riksbank as well (see Figure 4). There is also a consensus among central banks that policy rate increases are the most appropriate tool for dealing with unexpectedly high inflation. However, it is far from clear how assets are to be managed. In the international discussion about the holdings of securities, there are a lot of concepts that may appear mysterious and which I would therefore like to try to explain and put into context before I begin to discuss how we at the Riksbank have thought about the management of our assets in the future. From “QE” to “tapering”, reinvestments and “QT” Figure 5 shows a simple outline of how central banks' monetary policy has looked in recent years. As I mentioned earlier, the crisis has affected many countries in the same way. And, as you are probably aware, many central banks are currently struggling with inflation far above the targets. In this way, the illustration can be said to be quite general. We can imagine that the figure starts at the outbreak of the coronavirus pandemic. At that time, many central banks bought assets so that their holdings grew – this is usually referred to as quantitative easing or QE. Purchases were made at a predetermined pace, usually with the aim of achieving a certain level of holding. | Bank of Canada (2022), “Economic progress report: Controlling inflation”, available at Economic progress report: Controlling inflation - Bank of Canada. Bank of England (2021), “Box A: The MPC’s strategy for the mix of monetary policy instruments to deliver tighter policy”, article in the Monetary Policy Report, September, available at the Bank of England Monetary Policy Report August 2021. Bank of England (2022), “Monetary Policy Summary and minutes of the Monetary Policy Committee meeting, published 5 May, available at Bank Rate increased to 1% - May 2022 | Bank of England. Breman, A. (2021), “Monetary policy after corona – we need to think in new ways”, digital speech at Swedbank, available at Breman:Monetary policy after corona – we need to think along new lines | Sveriges Riksbank. Brookings (2021), ”What does the Federal Reserve mean when it talks about tapering?”, available at What does the Federal Reserve mean when it talks about tapering? (brookings.edu). Cunliffe, Sir J. (2022), ”Learning from the Dash for Cash – findings and next steps for margining practices”, speech at FIA & SIFMA Asset Management Derivatives Forum 2022, published on 9 February, available at Learning from the Dash for Cash – findings and next steps for margining practices - speech by Sir Jon Cunliffe | Bank of England. Di Casola (2021), 'What does research say about the effects of central banks' balance sheet measures? ', Economic Commentaries No 2, Sveriges Riksbank, available at What does research say about the effects of central banks' balance sheet measures?(riksbank.se). | 1 |
BIS central bankers’ speeches 7 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches | The marketplace has now been liberalised to allow for multilateral financial institutions, multinational and national corporations from other jurisdictions to issue both ringgit and nonringgit denominated sukuk in our sukuk market with increasing foreign investor participation in such issuances The sukuk market in Malaysia has seen wide ranging innovative structures and a greater diversity in the type and maturity of the sukuk. A landmark issuance is the $ million exchangeable sukuk Musyarakah in 2006 by Khazanah, the government’s investment corporation for the purpose of selling a stake in Telekom Malaysia. It marked the first issuance of its kind, incorporating full convertibility features common to conventional equitylinked transactions. A further notable issuance was the pioneering retail exchange-traded sukuk to raise funds for a transportation project that allowed retail investors the opportunity to have direct access to the sukuk and thus a stake in a massive infrastructure development in the country, therefore broadening the range of low-risk investment products available to such investors. In terms of maturity, the ringgit sukuk market has seen issuances of maturities to 30 years which were well received by the financial market. Regular sukuk issuances with different maturities by the Malaysian government has also created a benchmark yield curve for market reference, of which is complimented by the establishment of a number of indices for non-ringgit and ringgit denominated sukuk that serve as benchmarks to track the performance of sukuk. These initiatives have progressively contributed towards creating a vibrant secondary sukuk market in Malaysia, with increased depth and liquidity. | 0 |
For example, when the telegraph appeared in the first half of the nineteenth century, traders without immediate access cried foul when early users began leveraging the technology to minimize the time between trade decisions and execution. Electronic and algorithmic trading also has the potential to facilitate trading practices that are not helpful to market liquidity. For example, submitting a quote with the intent to cancel it before any reasonable probability of execution is detrimental to the quality of market liquidity 9 It is worth noting that the practice of trading with the intention of holding a position for a brief period of time is not new. For example, pit trading in the futures exchange featured traders who would look to earn spreads by holding positions for short periods of time and rarely overnight – similar in many ways to the practices of modern automated trading firms. 10 This raises the question of whether such firms are systematically capturing intraday exposures in their risk management systems. To the extent this remains a vulnerability, firms might consider near-term fixes they could put in place to insulate themselves from potential intraday losses. BIS central bankers’ speeches 5 and to the integrity of the market. Even if such acts are not intentionally misleading, they can still result in a false sense of market liquidity. Finally, firms employing high volume automated trading strategies could harm market liquidity if they do not manage those strategies carefully, particularly given the significant share of market activity they represent. | The framework we are developing with the Bank of Thailand contains key features which include the appointment of selected financial institutions in Malaysia and Thailand to facilitate local currency settlement. These financial institutions will be accorded certain foreign exchange administration flexibilities. If the initiative proves successful, we plan to expand the framework to other ASEAN trade partners as well. Conclusion As we keep our eyes firmly on the future, a humble reflection on the past and honestly looking at our short comings would certainly lead us to a brighter future. Financial markets should continue to play its intermediary role for the purpose of funding to the real economy, efficiently allocate capital where it is needed and assist economic agents to manage financial risks associated with investments, production and trade. These should always remain our core objectives. I also wish to congratulate PPKM on your achievements this year and the successful organisation of this event. May tonight’s dinner, themed “Friday Night Fever”, be a night of joy for all of us today. Thank you. 4 BIS central bankers’ speeches | 0 |
Under this working group, policies have been developed to improve the business environment for SMEs, build SME management capabilities, enhance access to markets, promote innovation, enhance access to financing and encourage sustainable business practices. Successful projects implemented in 2009 include the replication of business counselor training programmes across the region and the development of strategies for enhancing the competitiveness of small trading houses and exporters. Under the Memorandum of Understanding entered into by various APEC financial institutions dealing with SMEs in 2003, many more financial institutions have benefitted from increased trade facilitation, transfer of knowledge, expanded cross-border growth opportunities and information sharing. Conclusion Let me conclude my remarks. The importance of SMEs in APEC economies is clear. However, while their large numbers make them important to the economy, it is their potential that places them at the centre of the economic transformation agenda. Support for SME development requires cohesive and cross-cutting strategies which encompasses the collective efforts of the financial sector, the Governments and SMEs themselves. In the global economy, common strategies that are well coordinated across borders would facilitate the participation of SMEs in the globalisation process. The ultimate goal is to promote entrepreneurship and develop an environment favourable to SMEs that will allow them to become more competitive in both the domestic and international markets. In closing, I would like to congratulate the Association of Banks Malaysia for hosting this event and encouraging wider international dialogue on important developments affecting SMEs. I wish you a productive and successful Conference. 4 BIS Review 98/2010 | Whether it is the volume of foreign exchange reserves or the growth of foreign exchange turnover or the amount of savings that needs to be mobilised for promoting economic growth and development, Asia is likely to occupy top position in the world, if it is not already there. The prospects of a strong relative shift of financial market liquidity into Asia are clear, so is the need for upgrading professionalism in finance, hopefully at a pace that is commensurate with its increasing importance in global finance. It is therefore absolutely right for the first regional office of ACI to be established in Asia and, if I may add, for it to be established in Hong Kong, as the truly international financial centre in the region. On the choice of Hong Kong, we are of course grateful and feel honoured, and I as Chief Executive of the Hong Kong Monetary Authority and as Honorary President of the Treasury Markets Association offer the full support of the two organisations to the activities of ACI and ACI Asia. Thank you. BIS Review 90/2008 1 | 0 |
Defaults increase when, as now, the deterioration in activity weakens the financial position of bank customers, particularly in the case of households whose members lose their job. Thus, following a long economic boom that brought doubtful assets ratios to historically low levels, the year 2008 saw a sharp rise in such ratios, and the persistence of difficulties in the real sector of our economy suggests that pressures have not yet dissipated. This is a risk that banks must be mindful of and manage appropriately. The diminished pace of activity and the increase in bad debts, which are general trends across Spanish banks and savings banks, exerted pressure on their income statements already in 2008. The recurring income inherent in a traditional banking model, which is therefore less reliant on financial market developments, explains why, despite the difficult economic circumstances, bank results were positive, in clear contrast to those reported by many of the institutions in other developed countries’ banking systems. But Spanish banks’ results will come under considerable pressure in the future. In the short term, as a result of the foreseeable increase in bad debts. In the medium term, because competition for funds will squeeze operating margins and this pressure will not be readily offset as it was in the past by the generation of higher volumes of business. And I do not believe that the ongoing deleveraging of the financial sector, and of the economy in general, taking place both in Spain and globally, should be viewed as transitory. | Economic recovery in Spain requires structural changes that will encourage technologically dynamic productive sectors with high growth potential to take up the baton from construction. For this to occur, the labour market must function so as reallocate resources, increase and adapt workers’ skills to new demands, and make productive processes within companies more efficient. Reform should focus on ensuring that labour conditions adjust to the economy’s different cyclical junctures and, in particular, to the specific circumstances companies or productive sectors face. That should prevent the adjustment coming about through pushing large numbers of workers out of the market. Changes are also needed in hiring arrangements. These must allow workers who have lost their jobs to return promptly to active working life, so they do not spend long periods unemployed, the consequences of which were so adverse in the past. Improvements in labour market intermediation systems and in mobility and training for the unemployed are also very important. Resolute action here would help check business closures and lessen the risk of decapitalisation, which is admittedly very high at present. If, moreover, significant progress were made in eliminating administrative formalities, the Spanish economy would be better placed to resume a high growth rate once the world recovery began. To bring about a new productive pattern enabling high rates of potential growth to be regained, structural measures must span a wide range of fields. Improving the level of educational attainment of the labour force is vital for raising the quality and productivity of human capital. | 1 |
The Kijang Emas Scholarship is distinct from the Kijang Scholarship in that the recipients are given the freedom to pursue any field of study at top universities in any country of their choice. The Bank also does not impose any bond on the recipients except that they return, contribute and partake in the development of our nation. To date, 44 high potential talent have been awarded the Kijang Emas Scholarship. The recipients have graduated or are currently pursuing their studies in diverse fields of study including Medicine, Engineering, Law, Economics, Dietetics, Actuarial Science, Accounting, Dentistry, Biochemistry, Genetics, Architecture, Psychology and Geophysics in top universities around the world such as MIT, University of Pennsylvania and the University of Cambridge. Thus far, 11 Kijang Emas scholars have completed their undergraduate studies and have returned to serve the nation, while another seven scholars are expected to complete their studies in the next six months. For the 2015 Kijang Emas Scholarship, we received a total of 212 applications from top SPM students scoring straight A+ for their 2014 SPM. From this, the Bank shortlisted the top 24 students based on their SPM results and also on their level of involvement in co-curricular and sports activities. The students then underwent a rigorous evaluation process under the Bank’s “Kijang Academy” which assessed their technical and leadership competencies, as well as their values. We are pleased to award four outstanding students the Kijang Emas Scholarship this year. Having just completed their SPM, they will be enrolled into the respective pre-university programmes. | In all cases, and to ensure adequate liquidity, instruments designed last year will continue to be in force throughout this year and, if necessary, they will be extended in order to ensure the proper operation of the financial system, so that it may be able to play its role of channeling credit to the non-financial private sector. 6 BIS Review 41/2009 It is important to highlight that, for mechanisms of monetary policy transmission to work correctly, the money market must be aligned with the MPR. There is no gain in reducing the interest rate if such reduction is not transmitted to the rest of the market. Therefore, when the crisis worsened, the first task was to ease liquidity pressures. The unfolding of the crisis and its consequent effects on inflation forecasts brought the possibility for a monetary easing. Said monetary easing has had a significant extent when compared to our past experiences and to what has been done by other central banks. During the first quarter, the MPR was reduced by 600 base points – from 8.25% to 2.25%. It is important to note once again that our economy has not suffered any of the problems undergone by other economies in their financial systems. Therefore, monetary easing in Chile does not seek to re-establish the operation of credit, as it may happen elsewhere; rather, it has been totally consistent with the inflationary outlook. | 0 |
Since its inception, the Board has issued three public recommendations.8 One of these addresses how macroprudential policy should be organised at the national level. The ESRB proposes that national legislation should be passed to appoint a body with responsibility for macroprudential policy and that this body could in turn consist of one or several institutions. At the same time, the ESRB stresses that the central banks should play a leading role in macroprudential policy. I think that there is a lot to be said for this, even from the point of view of the situation in Sweden. A lot of the analysis of macroprudential policy issues is already conducted at the Riksbank, and there are also clear links between monetary policy and macroprudential policy. While awaiting further guidance on how the work with macroprudential policy should be organised in Sweden, the Riksbank and Finansinspektionen have formed a temporary collaboration council. The idea is that this council should act as a forum for discussion and the exchange of information with regard to preventive work in the field of financial stability. The council should be seen a first step towards creating robust macroprudential policy. But talk alone is not enough; we must also show that we can take action. I am really looking forward to playing my part in this work together with my colleagues at the Riksbank. | On 5 November, the Monetary Policy Committee (MPC) announced its decision to lower the Bank’s interest rates by 0.25 percentage points. This was done in view of the rise in the Bank’s real rate caused by the past few months’ decline in inflation and inflation expectations, which has been more pronounced than previously anticipated. The rise in the real rate was greater than is warranted by the business cycle position and the near-term outlook. In other respects, for the rationale behind the decision, I refer you to the MPC statement and the speech I gave at the Iceland Chamber of Commerce’s monetary policy meeting the following day. Naturally, we are also ready and willing to answer your questions about both this decision and the interest rate outlook. BIS central bankers’ speeches 1 Finally, I would like to mention that the MPC has been examining its monetary policy instruments in the recent term and, although certain changes have been made, this review is still underway. According to the statement from its March meeting, the aim of this review is primarily to ensure that monetary policy instruments are optimally suited to the achievement of monetary policy objectives, given that it is also desirable that monetary policy implementation be as effective, comprehensible, and economical as possible in terms of the Central Bank’s balance sheet. We are ready and willing to answer any questions that you have on this topic. 2 BIS central bankers’ speeches | 0 |
Cash and nominal government bonds facilitate regular operational needs and can be quickly deployed to fulfil urgent liquidity needs under stressed conditions. Advanced economy inflation-linked bonds are less liquid than nominal bonds but provide inflation protection. Equities provide exposure to long-term growth assets with higher return potential but also with higher risk. MAS’ investment horizon is longer than that of many central banks. This has given MAS the flexibility to invest in more volatile (and longer ‘duration’) asset classes beyond fixed income, including equities. Both the risk management framework and strategic asset allocation are approved by the MAS Board of Directors and reviewed regularly. Efficient investment process MAS strives to achieve an efficient investment process, underpinned by two elements: one, judicious benchmark selection and customisation; and two, tapping on specialised external investment expertise First, benchmark selection. MAS uses asset class benchmarks to represent the investment universe and risk profile of each asset class that can be easily replicated, to evaluate its investment performance. These benchmarks could be market-capitalisation weighted or customised. For some asset classes, we have chosen to apply certain customisations to marketcapitalisation weighted benchmarks, guided by considerations of liquidity, stability, and concentration risk. 5/7 BIS central bankers' speeches One area we have applied customisation is in the fixed income asset class, where it is relatively more important to guard against concentration risk. This is because the response to credit risk is more asymmetric for fixed income than for equities. | In this framework, it is worthy to note that during the five years of its existence, crucial results have been achieved, most noteworthy the approval of the National Retail Payments Strategy (2018–2023). The insofar findings clearly evidence the low financial inclusion of the Albanian population, not only compared with the European Union, but also with regional countries. All these are reflected in a high use of cash in the Albanian economy. Empirical studies by the Bank of Albania in collaboration with the World Bank Group show that the use of cash in economy, beyond the diminishing effects on the mechanisms of the Bank of Albania used for maintaining price stability and safeguarding financial stability, and supporting economic development, has a real cost from its use as a means of payment, amounting to more than 1% of GDP. Furthermore, the use of cash may be seen as a promoter of informality in economy. Hence, this strategy aims to establish a contemporary and comprehensive retail payments market, supported by safe and efficient infrastructures, as well as by a wide range of payments instruments and services that fulfil the needs of financially capable users across the country. This strategy, compiled with the valuable support of the World Bank Group, is the outcome of a long and analytical study and aims to best address the needs of the domestic market. The realisation of this vision is assessed to be materialised through a set of legal, regulatory and infrastructural developments, which promote technological developments and innovation in the payments market. | 0 |
Furthermore, in order to familiarise the public and to facilitate the giving of change as of 1 January 2002, individuals will be able to obtain, as of mid-December, packs of euro coins known as ‘euro starter kits’; these coins cannot be used for payments before 1st January 2002. As of 1 January 2002, banks will only deliver euros, retailers will give change in euro and ATMs will supply euro banknotes only. A few days after this date, almost all transactions will be carried out in euro. 6 BIS Review 96/2001 Beyond technical aspects, the Eurosystem –and also public authorities- have an important responsibility in informing the general public on the challenges ahead, the deadlines and the practical aspects of the euro cash changeover. The success of the global process depends heavily on the confidence of the general public and cash handlers as well. Preparing people to be well informed and to feel confident in using the euro banknotes and coins is the overall objective of the Euro 2002 Information Campaign conducted by the Eurosystem. This campaign aims to reach the general public through the mass media. It is closely supported by a Europe-wide Partnership Programme with more than 2 600 national and international organisations. It has now entered into an intensive information phase, since the unveiling of the euro banknotes and their security features by our President, W. th Duisenberg, on 30 of August. | Let us, in this challenging crisis, stand as pioneers too. (i) Support to mitigate Unemployment Risks in an Emergency (ii) Autumn 2022 Economic Forecast: the EU economy to a turning point, European Commission, 11 November 2022 (iii) Source: Bloomberg, Banque de France calculations (iv) European Commission, Next Generation EU Green Bonds (v) Network for Greening the Financial System (vi) International Sustainability Standards Board (vii) Securities and Exchange Commission (viii) Villeroy de Galhau, F., Past progress induces new challenges : raising the stakes for standard disclosure, supervisory requirements and collective governance, speech, Climate Finance Day, 27 October 2022 4/4 BIS - Central bankers' speeches | 0 |
Durmuş Yılmaz: Global challenges and local response – monetary policy in Turkey Address by Mr Durmuş Yılmaz, Governor of the Central Bank of the Republic of Turkey, at a congress organised by the Turkish Economic Association and the International Economic Association, Istanbul, 25 June 2008. * * * Dear Guests, First of all, I would like to welcome you all to Turkey. I am delighted to be here to address such a distinguished audience in Istanbul. I would like to thank the Turkish Economic Association and the International Economic Association for organizing this Congress. Let me start my talk with the words of Josiah Charles Stamp, one of the former governors of the Bank of England in 1920s: “It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.” This quote will also be the theme of my speech today. Distinguished Guests, Although globalization had started in the second half of 1980’s, it has not yet reached its peak and we are still witnessing its evolution. As Thomas Friedman’s once said, globalization is making the world flatter. We witnessed record high growth rates around the world in that period; although there was also notable variation in the growth performances across countries. It will not be wrong to argue that globalization could be a powerful tool that may contribute to sustained development if it is combined with compatible policies. | This is our response to the question of to what extent the Central Bank of Turkey may allow for supply side shocks. Monetary tightening consistent with the target constitutes the second pillar of this policy. If we foresee any deviation of inflation outlook from the target, the necessary policy action will be taken without any hesitation or delay. As you remember, I started my speech with the words of Charles Stamp, former Governor of the Bank of England: “It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.” The Central Bank of the Republic of Turkey will not dodge its responsibilities. In this environment of massive global challenges, we perceive the new inflation targets as attainable. All the existing monetary policy tools in hand will be utilized decisively and without any hesitation in order to attain these targets. While concluding my speech, I would like to extend my thanks to the Turkish Economic Association and the International Economic Association, and all other institutions and individuals who contributed to the organization of this significant event. Thank you. BIS Review 82/2008 7 | 1 |
But clearly getting people the resources so that they can become homeowners in a prudent way is a good thing. And what we saw in the financial crisis, in the run-up to the financial crisis, is that we were giving credit to people in an imprudent way. I think as long as it can be done in a prudent way, where people understand the responsibilities, have the income to pay on their mortgages, I think it’s something that we definitely want to encourage. 12 / 15 BIS central bankers' speeches So, what I would suggest is give me your card, and I’ll give it to the right people in the Federal Reserve Bank of New York, and we’ll have a conversation and see what we can do. This is not something that we could probably be involved in directly, as a funding provider. Legally, we don’t have the authority. The Federal Reserve is pretty powerful in terms of monetary policy. But our mandate is also pretty narrow in terms of what we’re allowed to do. I remember during the financial crisis, people were coming in and saying, “you should do this, you should do that, you should do that.” And most of the things that they were suggesting that we do were some things that were not actually allowed by the Federal Reserve Act that was passed back in 1913. Come talk to us and we will see what we can do. | I wanted to ask you, do you think the removal of the Dodd-Frank Act would be productive for the economy? And if so, why? President Dudley: So removal of the Dodd-Frank Act be productive for the economy? I’m going to give you a little bit more nuanced answer. I don’t think it’s a question of either the Dodd-Frank Act or no Dodd-Frank Act. I certainly wouldn’t want to go back to the world we were in 2006, 2007, because that financial system led to the worst financial crisis that we’ve had since the Great Depression, and as you know the economy suffered greatly. The unemployment rate climbed over 10%. So clearly, we don’t want to go back to that. But at the same time, is the Dodd-Frank Act as it exists today perfect? I doubt it. What I tell people is we really want to be careful not to throw the baby out with the bathwater. What we want is a system where we have banks with adequate capital, adequate liquidity – number one – so the probability of a large bank failing is a lot lower today than it was back in 2006 and 2007. Number two, we want a system where if a large bank were to get into difficulty, we have the ability to resolve it in a way that it doesn’t threaten to take down the rest of the financial system. | 1 |
We do that through the minutes of our monthly meetings and the quarterly Inflation Report; and, in terms of our individual analyses, through speeches, etc. But, like anybody else, we cannot predict with certainty what will happen in the economy. There are always material risks around the central outlook. We have to weigh those risks in our policy decisions in much the same way as you do in your business and financing decisions. In the midst of all this unavoidable uncertainty, however, a few things are not in doubt. The MPC’s official interest rate is certain. So there should be no uncertainty about the general level of overnight rates in the money markets. In fact, though, overnight rates in the UK have historically been highly volatile. Various steps taken over the past decade or so moderated that volatility – with some success; it has for some while been much lower than in the mid-1990s (Chart 1). But it has remained greater – from day to day, and during the day – than overnight rates in dollars, euros etc (Charts 2 and 3). That has created uncertainty for users of the sterling money markets – banks, asset managers and, of course, corporate treasurers. Avoidable uncertainty. BIS Review 47/2006 1 It is the Bank of England’s responsibility to remove that uncertainty as much as we possibly can. And yesterday, after more than three years’ preparation and extensive collaboration with market participants, we introduced a completely modernised system to do just that. | It provides a new framework for the Bank’s implementation of monetary policy; our operational engagement with the banking system; and for the sterling money markets. I shall spare you the details, but I do want to sketch the main features of the system, by way of underlining that it is directly relevant to you as corporate treasurers. I am keen that you should hear this directly from the Bank. For as long as anyone can remember, a small group of clearing banks – which these days we call ‘settlement banks’ – have had to balance their books with the Bank at the close of business each evening. Volatility resulted if the Bank had not provided pretty well exactly the amount of liquidity the banking system as a whole needed each day; or if our money was not distributed in the money markets to those banks that were short. And traders would speculate on that volatility – perhaps a rare instance of financial market activity with little social utility. The new system relaxes the overnight constraint and liberalises access to the Bank. A broader group of banks – initially just over 40, accounting for around 90% of the UK banking system’s sterling liabilities – will maintain a target balance with the Bank on average over each month. (In the first maintenance period, which started yesterday, the target is just under £ These reserve-scheme banks, and other banks who so choose, also have access to a standing deposit facility and a standing (secured) lending facility. | 1 |
Hungary is now competing with Ireland to attract computer assembly, and Slovakia is on the way to becoming one of Europe’s major car manufacturers, while Estonia is a subcontractor of both Swedish clothing firms and Ericsson. Perhaps the most interesting consequence of EU membership is mobility for people, or, as its known, labour. A common premise in that discussion is that labour from the new member states threatens to invade the labour markets of the old EU countries and that this will be a problem for the old countries even if it benefits the new member states’ inhabitants. I would argue instead that it is quite the reverse: Unfortunately not enough people from the new member states will work in the old countries, which is a disadvantage for us, but which possibly benefits them. Allow me to begin with what the studies say about the potential migration from the new member states. According to a number of studies by independent academics, the flow of people to the old countries if no country had introduced transition rules would not have been larger than after Spain’s and Portugal’s entry to the EU, amounting to 40 000-670 000, in other words less than 2 per thousand of the population in the old countries. | Øystein Olsen: Management of the Government Pension Fund Global Introductory statement by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), before the Standing Committee on Finance and Economic Affairs of the Storting, Oslo, 2 May 2017. * * * In 2016, it was 20 years since the Ministry of Finance made the first capital transfer to the Government Petroleum Fund, as the Government Pension Fund Global (GPFG) was aptly named at the time. This transfer marked the start of a transformation of petroleum wealth in the form of oil and gas in the ground into financial assets invested outside Norway. Since the first capital transfer was made, the GPFG has grown considerably, to more than 2.5 times the size of GDP. The year 2016 also saw the first net withdrawal from the GPFG. Ahead, the value of the GPFG will therefore, to a greater extent than previously, depend on the return on the fund’s investments. The period of steady growth in the GPFG as a share of the economy is now probably over. The key variables determining the GPFG’s long-term performance have been specified by the Ministry of Finance and approved by the Storting. For its part, Norges Bank has developed its management assignment in accordance with the fund’s growth and in line with the owner’s mandate. At the same time, Norges Bank has focused on its role as advisor in the further development of the fund’s investment strategy. | 0 |
Value-at-risk calculations have become a crucial element of the standard approach used by market participants to evaluate the risk inherent in their market activities and to set up exposure limits. Of course, central banks and financial institutions should continue to encourage the use of these instruments. But, in times of financial turmoil, the growing use of sophisticated risk management techniques by financial intermediaries might have the paradoxical effect of amplifying the initial shock, exhausting liquidity and contributing to contagion phenomena. Regardless of the intrinsic qualities of these risk management tools, we see that their growing use in the same fashion by all market participants may have produced pernicious effects. When market players rely on converging risk evaluations, they tend to take the same decisions at the same time, thus amplifying initial shock to prices and trading volumes. Financial techniques can also reinforce the links between the various market segments. A striking feature of recent developments on financial markets is the quick spreading of disryptions from one market segment to another, especially between equity and credit markets. For example, the short selling of equities is sometimes used to hedge credit risk. The underlying reasoning is that if there is a credit default, the value of the equity will decrease symmetrically, and an equity gain will compensate the lender for the credit loss. As a result, the fall in the equity value, which is triggered by the credit default, is amplified by the short selling operation. | Indeed, the EU Treaty calls, as a prerequisite for adopting the euro, for a high degree of sustainable convergence in the fields of price stability, government fiscal position, stability of the exchange rate, and long-term interest-rate levels. The sustainability of nominal convergence itself presumes that sufficient preliminary progress has been made towards real and structural convergence (and namely having set a fully-fledged market economy, catching-up in income and productivity levels, as well as economic and social infrastructures, upgrading of the legal system…). Conversely, a sustainable catching-up process requires macroeconomic stability. Therefore, nominal and real convergence should be pursued in parallel, and are not antagonistic. • Secondly, I noted that several accession countries have already expressed their intention to join ERM II rapidly after EU entry. This intention is to be welcomed, although it should be clear that ERM II membership needs neither to happen immediately after EU accession in all cases, nor to be limited to only two years, which is the minimum before adopting the euro. It would be totally misleading to consider ERM II as a mere “waiting room” before the euro. On the very contrary, ERM II membership allows countries to retain some limited exchange rate flexibility during the catching-up process and offers a meaningful, flexible and credible framework for increasing nominal and real convergence with the euro area, and for helping determine the appropriate level for the eventual irrevocable fixation of parities, in the best interest of candidate countries themselves. | 1 |
On its own, the Icelandic Government was in no position to provide Icelandic banks with the FX liquidity facilities that their foreign counterparts were receiving at the time, and it would have placed itself in real peril had it tried to provide them with enough assistance to prevent them from defaulting on their FX liabilities. In addition, there were a number of other weaknesses in their balance sheets – weaknesses that would probably have posed serious problems for them in any case, albeit later on. But even though the situation developed as it did in Iceland, it is important for us to remember that it was this coordinated international response that prevented the financial crisis on both sides of the Atlantic from mushrooming into a tidal wave of national and international bank failures. And it was this response that kept the economic recession from developing into a full-blown depression like that in the 1930s. Central banks played a key role initially, providing massive liquidity facilities and coordinated monetary easing on the home front and, not least, negotiating FX swaps that actually entailed a global extension of the US Federal Reserve’s role as lender of last resort. In addition to mitigating the imminent contraction, these measures were an attempt to interrupt the vicious cycle of fire sales of illiquid assets, falling asset prices, and evaporating liquidity, thus reducing the risk that banks’ equity would plunge below regulatory minimums and banks around the world would start falling like dominoes. | The overall risk, including climate risk, has been reduced. The Norwegian economy is also exposed to abrupt changes in operating parameters for oil and gas production through spillovers from offshore activities to the wider economy. We have long known that Norway’s offshore petroleum activities would be gradually reduced. If global climate policy proves to be stricter than currently expected, the decline in offshore activity may occur sooner and more rapidly than previously assumed. This will have consequences for Norway’s industry structure. Even though it is likely that the biggest changes in oil-related industries lie some years ahead, climate risk may also have an effect on the oil sector in the short term. There are perhaps signs of this effect in recent years’ oil stock prices. Chart: Valuation of oil stocks The price-to-book (P/B) ratio is lower for international oil companies than the average P/B ratio in the stock market, and this gap has widened in recent years. There may be several reasons for this, but we know that investors’ climate risk awareness has increased in the same period. Measures to influence industry structure are not within Norges Bank’s remit. However, if the decline in the oil-related sector were to occur abruptly, the spillovers to the wider economy could be considerable. Monetary policy is adjusted to changes in output, employment and inflation and can therefore support overall activity and employment in a period of restructuring. The responsibility for the restructuring itself lies elsewhere, not least with the business sector. | 0 |
Today, almost seven years after the so called De Larosière Report, we have reached a stage where the European Commission is assessing the current macroprudential framework in the Union, including the role of the ESRB. There are a number of areas where the Commission wants to shed some light before drawing final conclusions about possible improvements. One such area is what would be the best composition of the ESRB’s decision making body, the General Board, and also most of its substructures. In this context suggestions to reduce the size of the General Board have been mentioned. This would in my view not only reduce the number of people around the meeting table, but also take away one of the ESRB’s main strengths. As somebody who has seen the ESRB at work from the inside pretty much since it saw the light of day, I wanted to take this opportunity to talk about the experiences so far and how we can use them as we move ahead. The ESRB brings together “all sorts” within its remit, and voting modalities pave the way for efficient decision making The ESRB is unique in that it brings together representatives from central banks and financial supervisory authorities from all 28 Member States, representatives from the three European Supervisory Authorities, the ECB, the European Commission and the Economic and Financial Committee as well as the “independent voice” of the ESRB Advisory Scientific Committee, the ASC. | Thomas Jordan: Does the Swiss National Bank need equity? Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, to the Statistisch-Volkswirtschaftliche Gesellschaft, Basel, 28 September 2011. * * * The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). The Swiss National Bank (SNB) had to report heavy losses for 2010 and the first half of 2011 due to the strength of the Swiss franc – or, more precisely, due to valuation changes on its foreign currency reserves. Consequently, it suffered a substantial reduction in its equity. Understandably in such a situation, concerns began to be voiced in public. Questions often posed in this context include: Might the SNB lose its capacity to act as a result of a negative equity level? And, if its equity were negative, would the SNB have to be recapitalised, or might it even have to go into administration? The short answer to these questions is “No”, because the SNB cannot be compared with commercial banks or other private enterprises. For one thing, a central bank cannot become illiquid. This means that a central bank’s capacity to act is not constrained if its equity turns negative. Moreover, unlike other enterprises, it is not forced to implement recovery measures or go into administration. For another, central banks enjoy a funding advantage over private companies, owing to their banknote-issuing privilege. Moreover, they generate surplus income over the long term. | 0 |
From a practical perspective, for the BNB this means reorganising the management, administrative, IT, and budget processes in these two areas, as well as an increase in the number of employees involved in these activities. So far the banking supervision and bank resolution activities have been funded by the BNB’s monetary income. From 2021 the BNB will move on to the principle of the ECB and SRB to fund the relevant activities by collecting fees from credit institutions. 4/4 BIS central bankers' speeches | “Irreducible uncertainty” and “multiple equilibria” are occupational hazards; so if you must predict the future, you are tempted to hedge heavily and must modify constantly. But in two areas I’m confident: the Three Lies of John Harvard will continue to be revealed for years to come, and with time, the Three Lies of Finance will come to enjoy widespread credulity again. To resist their siren calls, policymakers and market participants must bind ourselves to the mast. That means building institutional structures that make it harder to act on the lies. Over the past seven years great strides have been made. Take “this time is different”. To guard against future complacency, policy frameworks have been substantially overhauled. The Bank of England has been given formal responsibility to maintain financial stability and has considerable powers to promote it. In anticipation of problems, we have increased bank capital and tightened mortgage standards. We are using our monetary policy and macroprudential policy tools in concert, so that a low for long interest rate environment can promote both price and financial stability. Moreover, when next time proves no different, the financial intermediaries at the core of the system will be on a substantially stronger footing. Their capital requirements have already increased ten-fold and their liquid assets are up fourfold. Their trading assets are down by a third and intra-bank exposures by two-thirds. Though we cannot hope to eliminate systemic risk altogether, reform is ending Too Big To Fail for individual institutions. | 0 |
Particularly noteworthy are their investments in green bonds issued by the public sector, such as sub-sovereign, supranational and agency holdings, followed by corporate green bonds and covered bonds.9 At the Banco de España we began incorporating sustainable and responsible investment principles into our own portfolio management in 2019, bringing it into line with NGFS Recommendation no 2.10 Since then, the application of these principles has been fine-tuned, and they are now one more pillar underpinning the core portfolio management principles, alongside the principles of neutrality, prudence, professionalism and efficiency. These principles are applied by constructing a thematic portfolio in the form of direct investment 8 Based on the results of a survey conducted with 40 NGFS-member central banks, as detailed in NGFS (2020). 9 See NGFS (2020). Progress report on the implementation of SRI practices in central banks’ portfolio management. 10 See NGFS (2019). A call for action. Climate change as a source of financial risk. First comprehensive report, April. in green bonds and participation in the green bond investment fund created and managed by the Bank for International Settlements in Basel.11 Moreover, in March the Banco de España will begin disclosing climate-related aspects of its own portfolios. Thus, we will follow through on the commitment undertaken in February 2021 by the Eurosystem central banks and the ECB to apply sustainable and responsible investment principles to their euro-denominated non-monetary policy portfolios. | That solution could take many forms, and these would affect the subsequent approach to lifting the controls. A revised liberalisation strategy would therefore look quite different depending on what route is chosen for the settlement of the failed banks’ estates. A solution to this problem must therefore come first. I won’t discuss these possibilities at greater length here, as a great deal of work lies ahead, and it would be unwise to show our hand at this point. Furthermore, it is necessary to have more than one option at hand, in case the one that seems best at the outset proves infeasible later on. It is possible, however, to make a few comments that will enhance the general understanding of what needs to happen. If a portion of the estates are settled through composition agreements, it is of key importance that the ISK asset recoveries add as little as possible (or nothing at all) to the stock of volatile ISK assets owned by non-residents. It is important to bear in mind that selling the banks at a relatively low price to foreign investors interested more in the short term and in handsome dividend payments does not solve the problem and could even exacerbate it. BIS central bankers’ speeches 5 It is the role of the estates to divest the assets and make payments to creditors. The question is, however, what is a realistic price for the assets, and at what exchange rate will they be converted into foreign currency. | 0 |
In order to prevent deflation and recession, the central banks of major advanced countries have implemented extraordinary measures to keep both short- and long-term interest rates low. The medicine has worked. The US economy in particular is on the road to recovery, and there are signs of some revival in manufacturing. Financial market participants see opportunities, not just problems. However, there are also signs of renewed turbulence in a number of emerging economies. Volatile capital flows are creating problems. High debt growth and rising house prices may constitute a risk. The recovery abroad is fragile. The key policy rate is also low in Norway. Our inflation target is slightly higher than that of other European countries. As a result, inflation and nominal interest rates in Norway will also be slightly higher. But prospects for a persistently low interest rate level internationally will inevitably also have consequences for Norway. The real interest rate in a small open economy such as ours cannot in the long run differ substantially from that of our closest trading partners. Given the prevailing long-term interest rates abroad, it will likely take a number of years for interest rates in Norway to move up towards a level that was previously considered to be normal. Banking regulation When the drafters of the Constitution gathered at Eidsvoll, there were no private banks in Norway. Norwegian businessmen who needed credit had to borrow from friends or acquaintances or travel to Copenhagen or Hamburg to raise loans. This was expensive and cumbersome. | Over 26 million people are unemployed in the EU today, almost 10 million more than in 2007. Low growth, high unemployment and high debt levels are not a good combination. Even though there are signs of a moderate revival of activity abroad, growth may remain low for a protracted period. Real wage growth in Norway has diverged substantially from that observed in Germany and the US. This is attributable to the sharp price rise for Norwegian goods in recent years. Norway’s terms of trade have improved and the gains shared between owners and workers. The wage share has remained fairly stable. Chart 5: Real wages and productivity for mainland Norway Strong growth in activity in the petroleum sector has for many years been an engine of growth also for the mainland economy, generating high growth in output and employment. Since a share of the terms of trade gains has benefitted wage-earners in the form of wage increases, real wage growth in Norway has been considerably higher than productivity growth. But the economic picture for Norway may be changing. We cannot assume that Norway’s terms of trade will continue to improve. Investment in the petroleum sector is levelling off. Output growth in the mainland economy has slackened. When activity in the petroleum sector eventually declines, there will also be a need for economic restructuring in Norway. The business sector will have to seek new markets where competition may be intense. Restructuring may prove particularly demanding given Norway’s high cost level. | 1 |
One of the potential costs of additional purchases is that they could disrupt functioning in Treasury and MBS markets – a cost that the Desk carefully assesses when it implements the FOMC’s policy directive. As you know, there is a finite supply of Treasury and agency securities available to purchase, in terms of both total amount and amounts available in the market at any given time. If the Federal Reserve were to become too dominant a buyer or holder, it could reduce the tradable supply of these securities and discourage trading among market participants, leading to diminished liquidity and price discovery. A significant deterioration in liquidity could lead investors to demand a premium for transacting in these markets, ultimately raising borrowing costs and undermining the program’s policy goal.4 However, as discussed later, the purchases have gone smoothly so far, and market liquidity seems to be holding up well. Although the current program is different in some respects from prior balance sheet programs, its intended purpose and the ways the Committee anticipates it will impact the economy are similar. The purchases are conducted to achieve the FOMC’s dual mandate of maximum employment and price stability. Asset purchases help achieve this mandate by putting downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The current purchases reduce interest rates and ease financial conditions through the same transmission channels as previous balance sheet programs. | 14 Selling dollar rolls when concerns arise about the availability of certain TBA contracts is conceptually similar to making SOMA Treasury holdings available to the market through our securities lending program. One key difference is that the Desk offers settled Treasury holdings to the market through its securities lending program, whereas the Desk only rolls unsettled MBS holdings. BIS central bankers’ speeches 5 directive, with the goal of supporting a stronger economic recovery in the context of price stability. References Fleming, Michael (2000). “The Benchmark U.S. Treasury Market: Recent Performance and Possible Alternatives.” Federal Reserve Bank of New York Economic Policy Review, Vol. 6, no. 1 (April): 129–45. Fleming, Michael (2002). “Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings.” Journal of Money, Credit, and Banking, Vol. 34, no. 3 (August): 707–35. Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack (2010). “Large-Scale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York Staff Reports, no. 441, March. Hancock, Diana, and Wayne Passmore (2011). “Did the Federal Reserve's MBS Purchase Program Lower Mortgage Rates?” Journal of Monetary Economics, Vol. 58 (July): 498–514. Krishnamurthy, Arvind, and Annette Vissing-Jorgensen (2011). “The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy.” Brookings Papers on Economic Activity, no. 2: 215–65. Li, Canlin, and Min Wei (2012). “Term Structure Modelling with Supply Factors and the Federal Reserve’s Large Scale Asset Purchase Programs.” Finance and Economics Discussion Series 2012–37. Washington: Board of Governors of the Federal Reserve System, May. | 1 |
At the very least, during the crisis, we have seen deleveraging proceeding at an accelerated pace, although interest rates have been brought down – and this is the reason why there has been a zero lower bound problem. I suspect that, symmetrically, interest rate hikes would have been powerless to stop the incredible build up in leverage prior to the crisis. This is the very reason why we need additional – macro prudential – tools to deal with financial instability. But this analysis also shows that macro prudential and monetary tools are not independent. So we have to give up the ideal vision of a world where two objectives – price and financial stability – would be pursued with two independent set of instruments. The BIS central bankers’ speeches 1 reality is somehow messier and this has important consequences. Operating two different policies with two sets of interacting instruments is definitely a challenge. Once we move away from the pure “Tinbergen” world, preserving the operational independence of monetary policy may require particular attention. Add to this that mandates and accountability regimes are very different for price and financial stability. Central Banks are independent, but macro prudential authorities are not. In all major jurisdictions, Governments, and Parliaments, are deeply involved in the organization and management of macro prudential supervision. Likewise, while price stability mandates are precisely defined and often quantified, financial stability mandates are specified in very broad terms. There are good reasons for this situation. | Those dynamics obviously have a direct impact on financial stability. Financial fragility comes out of excessive leverage and maturity transformation, fueling asset price increases. And, conversely, liquidity shocks and deleveraging are the symptoms and channels behind financial crises. As importantly, and less recognized until recently, those dynamics also have a major impact on the transmission mechanism of monetary policy. The functioning of the credit channel, but also the interest rate channel depend on financial intermediaries being able to fund themselves and arbitrage across different market segments, instruments and maturities. Dysfunctional credit markets were a major reason why Central Banks embarked into exceptional liquidity provision, credit easing and asset purchases. One important point, here, is that the same dynamics affect both financial stability, on the one hand, and monetary transmission channels, on the other. Now, presumably, any macro prudential policy would try and influence the evolution of maturity transformation and leverage. By doing so, however, it would also have a monetary impact. And, conversely, changing the monetary stance, by moving policy rates, also may have an influence on financial stability. The relative strength of those influences is not empirically known. Those of us who would use monetary policy with a financial stability objective implicitly assume that leverage and maturity transformation are very sensitive to interest rates. I am not sure this is true. | 1 |
Table 1 breaks down the growth rates of finance and whole economy output into three sub-samples – pre-First World War, from the First World War to the early 1970s, and thence to date. The historical trends in GVA for the financial sector are striking. Over the past 160 years, growth in financial intermediation has outstripped whole economy growth by over 2 percentage points per year. Or put differently, growth in financial sector value added has been more than double that of the economy as a whole since 1850. This is unsurprising in some respects. It reflects a trend towards financial deepening which is evident across most developed and developing economies over the past century. This structural trend in finance has been shown to have contributed positively to growth in the whole-economy (Wadhwani (2010)). The sub-sample evidence suggests, however, that this has not been a straight line trend. The pre-First World War period marked a period of very rapid financial deepening, with the emergence of joint stock banks to service the needs of a rapidly growing non-financial economy. Finance grew at almost four times the pace of the real economy during this rapidgrowth period (Table 1). The period which followed, from the First World War right through until the start of the 1970s, reversed this trend. The growth in finance fell somewhat short of that in the rest of the economy. This in part reflected the effects of tight quantitative constraints on, and government regulation of, the financial sector. | If anything, the labour and capital shares of the financial sector have been on a gently declining path over this period. Growth in both labour and capital employed in the financial sector has been modest and has been lower than in the economy as a whole. Since this fall in factor input shares coincides with a period when measured value-added of the financial sector was rising sharply, this suggests something dramatic must have been happening to productivity in finance – the Solow residual. The measured residual, in a growth accounting sense, reflects improvements in the total factor productivity (TFP) of the inputs. A growth accounting decomposition suggests that measured TFP growth in the financial sector averaged about 2.2% per year between 1995 and 2007 (Chart 10). This comfortably exceeds TFP growth at the whole-economy level, estimated at an average of about 0.5–1.0% over the same period. In other words, on the face of it at least, there is evidence of the financial sector having undergone something of a “productivity miracle” during this century. This pattern has not been specific to the UK. Measured TFP growth in the financial sector exceeded that of the whole economy across many developed countries between 1995–2007, a trend that accelerated in the “bubble” years of 2003–2007 (Chart 11). (b) Returns to factors of production TFP in a growth framework is no more than an accounting residual. It provides no explanation of the measured productivity “miracle” in finance. | 1 |
This strategy aims to make the European Union the world’s most dynamic knowledge economy by 2010. It has since been amended so as to include social issues (at the Council of Nice in late 2000) and environmental issues (at the Council of Gothenburg in mid 2001). What has been achieved to date in the field of structural reforms is quite encouraging. Noticeable successes have already been registered with regard to policies, such as new rules in telecommunications, electricity and gas markets. The current 2002 Broad Economic Policy Guidelines evaluation exercise is an opportunity to check on the progress accomplished in reforms that were agreed in Lisbon and recently reasserted in Barcelona. Before reviewing the priority areas where fresh impetus is required, I wish to briefly make two remarks: First, the responsibility for structural reforms in the European Union rests with the individual Member States. Consequently, there is a wide variety of institutional solutions and regulatory arrangements across countries and sectors. I nevertheless consider that such a decentralised approach should be considered as an opportunity, rather than a disadvantage. It encourages “cross fertilisation” of best practices through increased co-ordination of Member States’ structural policies. My second remark relates to the changeover to the euro. This event has been a major structural reform in itself, i.e. a powerful drive towards restructuring the European economy. | We consider that independance as defined above contributes to the clarity and the credibility of the single monetary policy. Transparency and accountability: elected authorities, key economic players, as well as all European citizens must be fully informed on the conduct of the single monetary policy. At the European level, the ECB maintains a permanent dialogue with the European Council and the European Parliament, as do national central banks with national institutions. The ECB is the only central bank in the world to enforce the concept of regular, frequent, real-time communication in the domain of monetary policy. Indeed, once a month, immediately after the meeting of the Governing Council, the President of the ECB holds a press conference. The independence of a central bank and its democratic accountability are two sides of the same coin. In this respect, both public speeches and testimonies by the President of the European Central Bank and by the Governors of national central banks, to the attention of institutions as well as public opinion, are crucial. An important part of our collective duty consists of tirelessly explaining the rationale that underpins the Governing Council’s decisions. Lastly, decentralisation: as the subsidiarity principle underlies the whole European construction, decentralisation is a major principle of the architecture of the Eurosystem. The Eurosystem is a team whose members work in close co-operation, and the team spirit is really strong and fruitful. Monetary policy decisions are taken, at the centre, by the Governing Council, and are implemented by the national central banks in a closely co-ordinated way. | 1 |
Second, as I have already discussed, we have developed a toolkit for analysing how far different levels of financial resource can support the Bank’s operations under a range of severe but plausible shocks. And, third, we are in the process of designing a tiered, enterprise-wide framework of limits and thresholds, consistent with the resources available to the Bank, which (i) imposes macro-level limits that protect our capital base and (ii) sets a series of early-warning thresholds. These thresholds will not immediately constrain live non-discretionary operations, but they will flag buildups of risk concentrations and trigger internal discussion and review on whether the increase in risk is warranted by policy objectives. That could lead to adjustment of policy parameters, changes to the Bank’s financial resources or use of alternative Bank policy levers to mitigate the underlying risks. At a more granular level, nested within these balance sheet wide thresholds, the first line has discretion to impose hard limits on particular discretionary operations where it is feasible to do so (eg. on the Bank’s limited own-funds foreign exchange reserves operations). 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 (v) Challenging new policy initiatives One of the most profound changes to private sector risk management practice since the financial crisis has been the near-universal introduction of processes to ensure that the business and risk implications of new and sometimes complex products are fully understood before they can be launched. | 20 Bank of England (a) 15 15 10 10 5 5 5 0 0 1830 0 1860 1890 1920 1950 1980 2010 Sources: Bank of England, Federal Reserve, U.S. Bureau of Labour Statistics, ONS and Samuel H. Williamson (2017), 'What Was the U.S. GDP Then?'. (a) Data as at February. Final data point shows the latest published balance sheet data, at 29 February 2016, plus the increase in the loan to the Asset Purchase Facility since this time. Excludes TARGET balances held at the Bank by European central banks in 1999-2001. (b) Consolidated assets of all Federal Reserve banks. Data as at end December. Three key developments disturbed that calm, and led to the introduction of our new financial risk framework. The first was the huge increase in the size of the Bank’s balance sheet following the start of the financial crisis. Today the Bank of England holds assets worth about a quarter of UK annual GDP: a five-fold increase on a decade earlier (Chart 2). In the early part of the financial crisis, much of that increase reflected large scale liquidity assistance to the banking sector. For example the Bank lent £ to RBS 3 4 and HBOS in 2008-9 , and its market-wide Special Liquidity Scheme peaked at £ in 2009 . | 1 |
The pre-announced monthly cycle of meetings, regular quarterly Inflation Report forecasts, and set briefing routines, were very much part of the package. The goal of these new arrangements was to make the system understandable and predictable to outsiders. After a sharp burst of activity in the late 1990s, the processes and procedures surrounding monetary policy have now settled down. We still use much the same internal processes and means of communicating with the outside world as we did a decade ago. But the outside world has not stood still, in at least two respects. First, over time the MPC has established a track record of actions and communications which people have, as intended, learnt to parse with great precision. There is a cottage industry in interpreting its every utterance, in the light of its past behaviour, in order to predict its next actions. Any deviation from past behaviour is assumed to be deliberate and considered. A topical example is the market reaction to the latest interest rate rise. The formal position has always been that the MPC may change rates at any one of its policy meetings. And in the early days of the Committee that’s pretty close to what happened. But since 2001, as a matter of fact, rates have been much more likely to change in the months when we publish a new quarterly Inflation Report. That was why the January rate rise caused such surprise even though commentators were fully expecting a rate rise to accompany the February Inflation Report. | Our policy was guided by monetary targets until the end of the 1990s, and only recently, like most central banks, have we shifted our focus to price stability more directly. I would like to share with you some of the lessons we have learned from that period with flexible exchange rates and, in particular, review our recent experience of living on the edge of the euro area. Living on the edge of the euro area As you can imagine, the introduction of the euro in January 1999 constituted a sort of revolution in our monetary environment. For the first time in our history, we are now surrounded by a single currency area, which also happens to be the destination of 60% of our exports. In fact, our situation, in terms of economic power, can be compared to that of the State of Massachusetts in the United States. Can you imagine the State of Massachusetts having its own currency? The natural question is: How do we come to the conclusion that monetary independence is still desirable? Indeed, given our geographical position, we, Swiss, frequently have to explain why we decided not to adopt the euro or not to peg our currency to the euro, as Denmark has done. The first question I would like to address today is therefore: What are the advantages for Switzerland of retaining its national currency, as opposed to adopting the euro? I will then look at the conditions that are necessary for successful monetary autonomy. | 0 |
The shocks hitting Iceland in 2008 were mitigated by the policy response, which had two focal points. First, immediate crisis management was based on several key goals: keeping domestic payment systems up and running, preserving common citizens’ access to their deposits, and ring-fencing the sovereign against the failing private banks. The tools used were to declare all deposits in Iceland safe and to carve domestic banks (1.7 times GDP) out of the failing banks. Second, Iceland went on a programme with the IMF, which had three main goals: stabilising the exchange rate, achieving fiscal sustainability, and rebuilding a sound, domestically oriented financial sector. Comprehensive capital controls were a key element in the programme. The recession that followed was the deepest in post-war history, with GDP falling by 12% from peak to trough and unemployment soaring from around 2% pre-crisis to a peak of 8–9%. The exchange rate fell by over 50% in 2008, taking the real rate to around 30% below its long-term historical average. That helped turn the huge current account deficit around to an underlying surplus but wreaked havoc on domestic demand and balance sheets, as ⅔ of corporate debt and 20% of household debt was in foreign currency, and an additional ¾ of household debt was indexed to the price level. | When the Executive Board met for the first time, it clarified the approach to be adopted in monetary policy. It was already the case that inflation measured by CPI was to amount to 2% with a tolerance interval of plus/minus 1 percentage point. The Riksbank had also previously announced that the target horizon would be 1-2 years in normal cases. We clarified that we can decide to disregard certain factors affecting prices which are not related to resource use in the economy and which only have a temporary effect on inflation. However, the prerequisite is that the effect on prices is temporary and should thus not affect inflation expectations. Subsequently, we have also said that there may be reasons for taking into account developments before and after the target horizon. When 3 BIS Review 98/2000 we depart from the main rule, we have undertaken to say that we are doing so and give reasons for why we are departing from the rule. The monetary policy decisions are based on forward-looking assessments of inflation measured as CPI. This assessment is based on the interest rate being unchanged during the forecast period. An important factor for determining inflation is the degree of resource use in the economy, the output gap. The thinking underlying this is that inflation will be stabilised if the increase in output is in accord with the long-term growth track. | 0 |
This included a new program to purchase an additional $ billion a month of agency mortgage-backed securities (MBS). The FOMC reiterated in October that it will continue its purchases of agency MBS, undertake additional asset purchases, and employ its other tools as appropriate until there is a substantial improvement in the outlook for the labor market in a context of price stability. Monetary policy works in large part through its effect on financial markets and financial conditions. The impact on economic activity depends on the extent to which policy actions are effectively transmitted to key sectors of the economy. While actions such as MBS purchases help ease financial conditions more broadly, a key channel through which monetary policy affects the economy is through the housing and mortgage markets. An easing of policy lowers the secondary market rate at which mortgage-backed securities trade, which puts downward pressure on the primary mortgage interest rate. A lower primary mortgage rate enables borrowers to refinance their existing loans at lower rates, and increases demand for home purchases, supporting house prices and household wealth, which in turn may increase household access to credit. We have seen this channel in operation since the September FOMC meeting. Yields on newly issued agency MBS have declined about 45 basis points and the Freddie Mac survey 30-year primary rate has declined 23 basis points to 3.32 percent. | It finds a potentially material role for the decline in the value of mortgage servicing rights in particular, but concludes that the increase in the aggregate measure of profits and unmeasured costs is “not likely to be driven exclusively or even mostly by increase in costs”. This suggests that originator profits may have increased. The study examines a number of potential explanations. These include capacity constraints, market concentration, pricing 1 The Rising Gap Between Primary and Secondary Mortgage Rates. 2 We interpret originator to include all actors involved in originating and servicing mortgages. 2 BIS central bankers’ speeches power over Home Affordable Refinance Program (HARP) refinance loans and pricing power on other loans. It finds that capacity constraints play a role and that there is evidence to suggest that originators enjoy pricing power and elevated profits on HARP and other refinancings. I encourage everyone to take a look at this paper. It represents a good starting point for today’s discussion. However, as the authors are the first to acknowledge, the increase in the primary-secondary spread and the underlying changes in originator costs and profits remain something of a puzzle. I hope today’s discussion will further deepen our collective understanding of this important issue. To sum up, for monetary policy to be as effective as possible in supporting economic recovery in a context of price stability it is imperative that the key channels of the monetary policy transmission mechanism are operating as effectively as possible. | 1 |
Benoît Cœuré: The case for cooperation - cross-border CCP supervision and the role of central banks Introductory remarks by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at a conference on CCP risk management, organised by the Deutsche Bundesbank, the European Central Bank and the Federal Reserve Bank of Chicago, Frankfurt am Main, 27 February 2019. * * * It is with great pleasure that I welcome you to Frankfurt. I thank you all for coming, especially those who have travelled from far away. I am delighted to open this conference, which has been organised jointly with our colleagues from the Deutsche Bundesbank and the Federal Reserve Bank of Chicago. The idea behind today’s event is to establish a regular forum to exchange views on pressing issues around central clearing and its challenges in terms of risk management. Before briefly outlining what we hope to learn from this conference, I would like to say a few words in memory of our colleague and friend, Robert T. Cox, who passed away in December. Bob was not only a driving presence in all matters surrounding central counterparties (CCPs) – in his words: a CCP is a CCP is a CCP1 – he was also one of the pioneers behind this event. We will think of him, his family and his colleagues at the Chicago Fed as we discuss issues close to his heart today. This conference is a monument to his memory. | The smooth functioning of our payment systems, in turn, depends on the safe operation of clearing infrastructure and the mitigation of liquidity risk. Finally, central banks can act as a liquidity backstop or a lender of last resort. Such action could be needed if a banking default were coupled with severe market stress. In such a scenario, a CCP would certainly hold high-quality collateral, but it may be unable to generate cash in the market in the very short time it has to manage a default. Given the systemic importance of CCPs and the scale of potential funding needs, it is essential that CCPs have sound liquidity self-insurance so that a liquidity shortage remains an extreme tail risk and the associated moral hazard is mitigated. In light of these considerations, which apply across all locations, the ECB has a clear interest in ensuring the safety and soundness of euro clearing. To this end, we need to have a clear legal competence that, importantly, should cover both EU and third-country CCPs. Proposals to differentiate between EU and third-country CCPs would not only leave considerable pockets of euro clearing without appropriate ECB oversight, they would also raise concerns about market distortions or an unlevel playing field. For example, a responsible central bank cannot extend liquidity to any entity without having a minimum level of information and control over it. | 1 |
But they are likely to remain part of our policy toolkit, at least for the foreseeable future, given the real risks to macro-economic stability that an environment of very low global interest rates poses. A third and more fundamental strategy has to focus on building greater depth in Asia’s capital markets, while ensuring that our banking systems remain sound. A good example of this strategy is in fact in Malaysia. Bank Negara’s Financial Sector Blueprint II (2012–2020), released as part of the government’s Economic Transformation Programme (ETP), will build on the solid foundations of Malaysia’s financial system, including developing a deep and vibrant bond market. The banks in several leading Asian countries, including Malaysia and Singapore, are generally well-managed and well-capitalised. They were a source of strength for us during the global financial crisis. However, Asia’s capital markets, and especially the corporate bond markets, need much more depth. Broader and deeper capital markets will allow investors to invest for the long term while hedging against risks. They will help us meet the growing infrastructural and other long term investment needs of the region. This is therefore a very important priority in the region, and there is in fact significant scope for future development of Asian capital markets. Regulators are working to harmonise rules and market practices across the region, such as issuance procedures and settlement standards. We also need to develop the securitisation markets, with appropriate safeguards, so that banks can recycle their capital. | Indeed, the bank can gainfully advance to venture abroad to explore new business opportunities in the regional markets. The growth prospects will also be further strengthened by the overall performance of the industry and the sound and mutually reinforcing inter-linkages of the various market components in the Islamic financial system. In closing, I would like to take this opportunity to congratulate BIMB Holdings Berhad, Bank Islam Malaysia Berhad, Dubai Financial LLC and Lembaga Tabung Haji for their contributions in the successful completion of the share subscription agreement for Bank Islam. I wish Bank Islam and its shareholders every success in taking the Bank to greater heights in its future endeavours. Thank you. 2 BIS Review 99/2006 | 0 |
First and foremost, shocks to the economy could easily adjust the timing and magnitude of interest rate increases….There is, in fact, a wide distribution of possible outcomes around any expected path for Bank Rate, reflecting the inevitability that the economy will be buffeted by shocks and that monetary policy will have to adjust accordingly.” Yet when – thanks precisely to such shocks – interest rates did not subsequently rise “around the turn of the year”, he was criticised for having misled people. Such criticisms, whether justified or not, are par for the course, and may not be that consequential in the grand scheme of things. But there could be a more material cost if, in mistaking conditional for unconditional statements, people come to rely on them at the expense of thinking about the economy, and its implications for interest rates, for themselves. As I said earlier, it’s an important part of the transmission of policy, and of the stability of demand more generally, that prices in financial markets respond to economic news as it comes in, without the need for any prompting by the central bank. That is precisely the purpose of the “Delphic” sort of guidance that, in the main, central banks have employed. But as Chart 3 demonstrates, the sensitivity of market interest rates to releases of economic data seems to have declined somewhat in recent years. | I’m glad to note the warm market response to our new grant scheme. Since its inception in May, nearly 30 applications from green and sustainable debt issuers have been approved and more than 40 are in the pipeline. 18. To further strengthen our green and sustainable finance ecosystem, the HKMA and the Securities and Futures Commission (SFC) co-established the Green and Sustainable Finance Cross-Agency Steering Group last year, with an aim to coordinating cross-agency 3/4 BIS central bankers' speeches market development efforts on this front. In July this year, the Steering Group launched the Centre for Green and Sustainable Finance, which coordinates the efforts of financial regulators, Government agencies, industry stakeholders and academia in capacity building; and at the same time, helps improve data availability for the financial industry. 19. With these ongoing efforts and our strong commitment to green finance, Hong Kong’s role as a regional green and sustainable finance hub has been taking shape. But we should not stop there. I encourage all of you to continue to build on our strength as the leading financial centre in Asia to capture the enormous opportunities in this growing space. With our natural advantage to be the “green” gateway for China, we believe that Hong Kong can continue to contribute to this important transition in the region. Closing 20. I began my speech by highlighting the complex and far-reaching nature of the challenges arising from LIBOR cessation. Meeting these challenges would require tremendous efforts from all of us across the financial markets. | 0 |
To optimize the business potential, Islamic financial institutions need to develop their niche strengths and leverage on Malaysia's resources to extend the operations to both the regional and global market. As a foreign Islamic banking subsidiary, the potential to provide greater market access in the domestic economy and improve the overall financial inclusion is also important. This includes the offering of new financial products to the different domestic economic segments. Concluding remarks On this occasion of the official launch of HSBC Amanah Malaysia Berhad, let me take this opportunity to congratulate HSBC Bank Malaysia Berhad on the initiative to establish its own of the Islamic banking subsidiary and for its commitment to contribute to the success of Islamic finance. By allocating dedicated resources in the Islamic subsidiary in Malaysia, HSBC Bank will enhance its potential to contribute to the advancement of Islamic banking business going forward. I wish HSBC Amanah Malaysia Berhad every success in its endeavours. BIS Review 146/2008 3 | Likewise, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past this first interest rate hike and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance. As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future rolloff of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. As was to be expected, the monetary policy normalisation that began in December has translated into higher short and long-term interest rates in the euro area. Specifically, the 10-year OIS rate, which proxies the euro area risk-free interest rate, has risen by 143 bp since the beginning of the year, while the 12-month EURIBOR has increased by 170 bp. Over the same period, the risk premium on Spanish 10-year government bonds has increased by 44 bp. 4 The new Transmission Protection Instrument (TPI) The TPI is necessary to support the effective transmission of monetary policy. While we continue normalising monetary policy, the TPI will ensure that it is transmitted smoothly across all euro area countries. The creation of this new instrument stems from the conviction that the singleness of our monetary policy is a precondition for the ECB to be able to deliver on its price stability mandate. | 0 |
However, after deducting the effect of certain defence-related payments outstanding from previous years, as well as the possible spending arising from liability associated with legal proceedings relating to the insolvency of the toll motorways, this item is projected to grow only very moderately this year and over the next few years. Under these plans, therefore, the downward trend in public investment as a proportion of GDP, which has already lasted more than a decade, would continue. Interest payments are expected to continue to decline as a result of the expected favourable developments in financing conditions, although at a more moderate rate than over the last two years. The increase in revenues included in the Stability Programme is based mainly on the measures approved in December last year in Royal Decree-Law 3/2016. Notable among these is the amendment to corporate income tax to broaden the tax base, the increase in duties on alcoholic drinks and tobacco products, the increase of 3% in the maximum social contribution base and the 8% increase in the minimum wage. Notwithstanding the positive impact of these measures, achievement of the government’s medium-term revenue target is subject to some uncertainty, as revenue will need to perform more favourably relative to activity than it would if the historical relationship between these two variables were to remain unchanged. | The prolongation of the Spanish economy’s current growth phase over the coming months will essentially be based on the strong pace of expansion of national demand, although the external sector will continue – as seen since 2016 – to maintain its positive contribution. In particular, buoyant employment and the favourable conditions of access to credit are boosting household consumption and the pick-up in spending on residential investment and on equipment. 3/8 In the medium term, there will foreseeably be a gradual convergence towards more moderate growth rates, as a result of the disappearance of certain factors that have contributed to boosting activity. Such factors have been the declines in oil prices, the moderation of financing costs, supported by the ECB’s monetary policy, and the expansionary fiscal policy stance over the two-year period 2015-2016. As in the euro area as a whole, since late last year the year-on-year rate of change of the CPI has been highly volatile; it stood in May at 1.9%, the outcome – as earlier stated – of energy price fluctuations and, also, of the effect of the Easter holiday week in April, given that in 2016 Easter fell in March. These temporary factors will progressively peter out in the coming months, although the average rate for the year is expected to stand at around 2%. In 2018 and 2019, in the absence of further shocks, the rate of increase of the CPI might settle below this reference. | 1 |
For example, while ML models could alter banks’ trading and retail businesses – enabling them to make better decisions more quickly – the opacity, however, of these models may also make them more difficult for humans to understand. Boards, senior management and staff in firms may consequently need different skills to operate an effective oversight, risk and control environment. 2 Breslow, S., Hagstroem, M., Mikkelsen, D., Robu, K (2017) Arnold, M (2018) Sirignano, J., Sadwhani, A., and Giesecke, K (2018) 5 Institute of International Finance (2018) 3 4 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 III. CHANGING THE METHODS BY WHICH WE SUPERVISE Advanced analytics are also likely over time to lead to changes to the way we do our jobs as supervisors. To see how, it is perhaps easiest to go back to the basics of what prudential supervision actually is. Our approach to promoting safety and soundness is based upon forward-looking judgement-based supervision, in which we identify the key risks facing firms and set supervisory strategies to mitigate them. Described as a business process, it can be broken down into a number of simple steps: 1) rulesetting and reporting; 2) analysis and monitoring; and 3) setting and communicating a supervisory strategy to mitigate identified risks. Each of these aspects of supervision is amenable to automation, machine learning or AI to some extent. | With respect to rule setting, for example, a project is underway to use advanced analytics to understand the complexity of the PRA rulebook.6 We hope to use the results to identify ways to simplify our rules to make them easier to comply with. The PRA Rulebook contains 638,000 words –77,000 words longer than War and Peace in English translation. The complexity of the language used can make the text difficult to read. Another layer of complexity is added because of cross-references and links between different parts of the Rulebook, requiring the reader to refer backwards and forwards, disrupting reader flow. Figure 2 is a visualisation of the Rulebook. Each node is a part the PRA Rulebook. Each line between the nodes is a cross-reference in the text. When parts of the rulebook are linked together, tweaking one part can have unintended consequences for others. We can quantify the interconnectedness of different parts of the rulebook using the PageRank algorithm, the same algorithm used by Google’s search engine. A higher score implies greater connectivity of a particular part to other parts. Happily, most parts of the rulebook are self-contained and ‘‘structurally simple’. ‘Looking further into the future, a bigger win might be to automate the rulebook entirely. Regulated banks are required to submit large quantities of data to regulators. The cost of collecting and reporting data to meet regulatory requirements is a significant burden to both regulators and regulated firms. Regulatory data collections also have significant time lag s, normally 4 to 6 weeks. | 1 |
For instance, if there existed a global financial market, capital should flow from the developed countries to the developing ones. This is, however, not the case, as noted by Robert Lucas 19 , and the “Lucas puzzle” named after the author was formulated. There have been numerous works that attempted to resolve this puzzle. One of the most recent works, which presents a panel analysis of nearly a hundred countries in the period 1970-2000, has shown that the prevailing reason for the lack of capital flow from wealthy to poor countries are institutional factors. 20 or instance, improving the quality of operation of institutions in Peru to catch up with Australia would mean a four-fold increase in foreign investment, and improving the quality of operation of institutions in Turkey to catch up with the UK would increase foreign investment by 60%. Another puzzle, which over some time made challenging the fact that globalization of financial markets was actually taking place possible, was the “Feldstein-Horioka puzzle.” 21 Both authors in their famous 17 Too big to fail, too complex to fail. 18 “Rozwój systemu finansowego w Polsce w 2004 r.”,NBP Warsaw 2005, pp. 275- 286, 303-314. 19 Lucas R. “Why doesn’t Capital Flow from Rich to Poor Countries”, American Economic Review 80, 1990. 20 Alfaro L., Kalemni-Ozcan S., Volosovych V. “Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation”, University of Houston Working Paper, November 2005. | Page 1/3 • In addition, the development of crypto-asset and DeFi comes with significant policy challenges for public authorities, that were highlighted in our discussions today: o First, they raise the question of how to regulate market players, which are not easily captured by existing regulation as they either lack central authority or may require close coordination between several regulatory and supervisory agencies due to the variety of their activities. o Second, the rise of these new assets has led central banks to reflect on the appropriate balance between public money and private assets and the way in which access to public money could be ensured in the digital era through the issuance of Central Bank Digital Currency. The second takeaway is that private players identify substantial benefits associated with distributed ledger technologies and consider that an appropriate regulatory framework would help make the most of these technologies. • But we know from experience that public authorities need to act quickly, while this ecosystem is still nascent, to guide its development in a way that suits our public policy objectives. We are now at a tipping point. If we do fail to act, there is a risk that inefficient, fragmented, monopolistic solutions could develop in a silo mode, harming financial stability. But if we act early, we can foster the development of an innovative ecosystem, which will improve the efficiency of post-trading processes and infrastructures. | 0 |
The fiscal rule is a binding commitment policymakers have imposed on themselves and is intended to foster long-termism and predictability in fiscal policy. Norway’s floating currency, which normally appreciates in good times and depreciates in bad times, also has a stabilising effect. The advantage of this effect is most evident when economic developments are weak. For example, many southern European countries that have adopted the euro are currently facing considerable challenges. To improve competitiveness, wages in these countries must fall or at least rise much more slowly than in other European countries. This only occurs when unemployment is high. With a flexible exchange rate, competitiveness can also improve when the domestic currency falls in value. A flexible exchange rate can thereby reduce fluctuations in employment and output. On the other hand, the foreign exchange market can be mistaken, driving the exchange rate away from the path indicated by fundamental conditions. Herd behaviour and market psychology can contribute to fluctuations and instability. In spring 2001, the Norwegian government and parliament defined a formal inflation target for monetary policy. The task of achieving the target was delegated to Norges Bank. Norges Bank sets the interest rate on banks’ deposits and loans from the central bank. This interest rate determines banks’ lending and deposit rates and the level of interest rates in general, as well as the price of the loans you take out as students. The interest rate is set with the objective of ensuring low and stable inflation. | In the preceding 15–20 years, the global economy was characterised by solid growth, greater economic stability than earlier and by low and stable inflation. The period is often referred to as “the great moderation”. A consensus was forming that wide fluctuations in the economy, as had been the norm, were a thing of the past. The US economist and Nobel Prize winner in economics Robert E. Lucas expressed a commonly held view in a speech he gave in 2003: “[...] macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.” 11 Autumn 2008 was to become a reminder that we should be on our guard against established truths and consensus. If history has taught us anything, it is how little we actually know. So, if I were to offer some advice to those of you about to embark on your economics studies, I would first and foremost say this: be inquisitive and ask questions. Learn enough to be able to doubt. And since I have the chance for a word with you “in private” I would like to seize the opportunity to put in a good word for mathematics. A wealth of information and complex problems often make it difficult to see the essence of an issue and to distinguish what is important from what is not. And this is where mathematics can be helpful. Mathematical models and formulas simplify complex relationships into manageable quantities. | 1 |
Therefore, the Basle Committee has quite rightly advised that regulators and banks should approach it with caution even with regard to the simplest approach to Basel II. We commenced our journey one year ago, together with the industry, and we will move slowly, but steadily, towards full implementation of the basic approach, hopefully in 2008. We will, however commence our test runs in parallel with Basle I in 2006, fine tuning our systems for full compliance as we go along. This would be in line with the widely accepted policy that countries should adopt the options and approaches that are most appropriate for the state of their markets, their banking systems, and their supervisory structures. In Sri Lanka, as in most countries, the banking sector enjoys predominance in our financial system. As is to be expected, the financial environment, domestically, is becoming more innovative and competitive to meet the sophistication of peer foreign banks and the needs of investors and consumers. This naturally increases their risk profile. Increasingly, therefore, our remit as regulators is to ensure an efficient risk management framework and the adequacy of resources to mitigate risk. Against this background, therefore, Basle II is synonymous with good risk management, not only of the core risk of credit default, but of a wider range of risks such as market risk and operational risk in Pillar I . | If the fixed-income market is to perform its important function, more is needed than participants who set prices for the various assets. There must also be participants who trade actively at those prices. Neither must the counterparty risks be perceived as unduly high because that may deter participants from trading. Moreover, the market must be capable of handling large volumes without this by itself having an appreciable effect on prices. In other words, the market should be adequately liquid. Why is liquidity important for monetary policy? The answer is that in a liquid market, relevant news shows up quickly in interest rates. An adjustment of the Riksbank’s repo rate, for example, has a rapid pass-through to the short market rates, as well as to somewhat longer rates. This applies, of course, in so far as the repo rate adjustment takes the market by surprise. If market participants instead understand how the Riksbank interprets new information in the form of macroeconomic outcomes, they can draw conclusions about the Riksbank’s future actions. News is then reflected in the formation of interest rates at the time when the macroeconomic outcomes are known. The relevant interest rates also react quickly to various forms of information from the Riksbank. Somewhat longer interest rates may be affected, for instance, when we publish a repo rate forecast, a so-called interest-rate path that presents the Riksbank’s assessment of the future development of the policy rate. The conditions for good market liquidity include low transaction costs, management of counterparty risks and market transparency. | 0 |
But it explains the bold and decisive steps taken by European governments, together with the International Monetary Fund (IMF), to begin to address market concerns. It also explains why after a rapid deterioration of public finances in Europe, collective monitoring of fiscal discipline and peer pressure experience a revival. Arguably, more importantly, several countries have embarked on a path that entails much needed structural reforms. This public debt crisis is multi-layered. It is clearly a crisis of market confidence and as such a liquidity crisis. The trigger was a classic fiscal crisis combined with severe competitiveness problems in the periphery of the EU. However, it is also an institutional crisis. The institutional mechanism to ensure fiscal discipline inside the Eurosystem was clearly insufficient. Obviously, part of the fiscal imbalances and the resulting build-up in public debt were directly related to the financial crisis and its aftermath. One part of the fiscal expansion can be explained by the direct fiscal effects of the measures taken to stabilize the financial system. Another part is explained by the drop in revenues and increases in social benefit payments in response to the post-crisis recession. According to recent IMF calculations, this accounts for about fifty percent of the increase in debt levels globally since the outbreak of the crisis. The other roughly fifty percent are unrelated to the financial crisis and its effects on the broader economy. 3 To put it differently, some countries had simply lived beyond their means well before the financial crisis erupted in 2007. | 8 See Monnet, Jean (1976): “Memoires”. BIS Review 87/2010 5 | 1 |
The decision-making process now evolves around decision-making by a committee rather than relying on individuals as in the past. In some of the committees, well-qualified individuals from outside the Bank of Thailand have been invited to be members. Between each committee, emphasis has been put on the ability to communicate and exchange information. The change in this decision making process has resulted in the implementation of policies based on collective decision-making, accuracy and up to date information, most importantly, the co-ordination between the committees has helped reduce policy inconsistency. On monetary policy, following the change to a floating exchange rate system, there was a need for a new monetary policy framework. On this issue, the Bank of Thailand believes that the Inflation Targeting framework, which is being used today, is very appropriate to the present conditions and is well suited for Thai economic and monetary structures. Keeping inflation at a low level is an important pre-condition in maintaining economic stability of the country in the long run. Most importantly, under this framework, the Bank of Thailand must set clear monetary policy targets, be transparent in its decision-making, and accountable for its policies. The Bank of Thailand Monetary Policy Board announces its decision every six weeks, and so far has published two Inflation Reports. At present, the new monetary policy framework has been accepted at a certain level. More importantly, for it to be highly successful and efficient, the Bank of Thailand must be independent in implementing its policies. | Ladies and gentlemen, The economic crisis, which occurred in 1997, caused the Bank of Thailand to review its role and task as the central bank of the country. This review pointed to a number of weaknesses in the Bank of Thailand's work in the past. As a result, the Bank has embarked on a comprehensive restructuring and modernisation programme aimed at improving the works of the Bank of Thailand to best serve the roles and responsibilities as a central bank. The strategy focused on 4 aspects, namely organisational structure and work process, human resource management, decision marking process, and database and information technology. The Bank of Thailand started the restructuring programme at the beginning of 1999 with the revamping of the management levels. Emphasis was placed on shorter lines of command, which facilitate fast and effective problem solving. The organisation is divided into five main business groups; namely, monetary stability, financial institution stability, corporate support services, financial institution rehabilitation and strategic capabilities. Objectives, roles, and responsibilities of each group are clearly stipulated. In 1999, the modernisation programme put the main emphasis on improving the work process. | 1 |
Households that save in banks or invest in other forms of financial assets make funds available to others. Banks convert some households’ savings into loans for other households wishing to finance house purchases, for instance. If we look at the household sector as a whole, savings accounted for about five per cent of household disposable income in 2004,1 which has been the level of saving for the past few years. These are funds that are channelled to the business sector in Norway or abroad to finance investment there. There may be various reasons behind a decision to save. In many cases, the objective is to spread consumption evenly through the course of a lifetime. Another reason may be the desire to leave behind an inheritance. For most people, the level of income will fluctuate through life. Most of our income is earned while we are economically active. Once our working career is over, we will have little to live on if we have not set aside capital as we earn or have secured our retirement by some other means. A hundred years ago, a common way of “saving” for old age was to have a large number of children. A large family increased the probability of some of the children growing up and being able to support their parents when they were old. By looking after family property, and perhaps expanding it, subsequent generations could also be provided for. | Variables are selected according to the number of Bloomberg alert subscriptions, but data on consumer prices, producer prices and wages are excluded. BIS central bankers’ speeches 9 Chart 7: Interest rate reaction to FOMC meeting 18/9/2013(a) UK Change since 12pm (bps) US 15 Bernanke's conference ends 10 FOMC 5 0 -5 -10 -15 -20 -25 -30 12:00 15:00 18 Sep 2013 18:00 21:00 08:00 19 Sep 11:00 14:00 -35 17:00 Source: Bloomberg. (a) 1-year OIS rates, 2-years forward. Chart 8: Sensitivity of UK interest rates to economic news(a) Sensitivity of UK 2y1y government yields to UK economic surprises Basis points per one standard deviation surprise Sensitivity of UK 2y1y government yields to US economic surprises 10 8 6 4 2 0 -2 -4 -6 -8 2006 - 08 2009 - Apr 2013 May 2013 - latest Aug 2013 IR 14 Oct 2013 -10 Sources: Bloomberg and Bank of England calculations. (a) Based on bi-variate regressions of daily yield changes on the daily average surprise in the variables within the Economic Surprise Indicators. The diamond shows the regression coefficient and the bars indicate plus or minus two standard deviations. | 0 |
The issue, amidst the challenging global financial markets, was highly successful, attracting significant interest from a wide investor base with Asia accounting for 60 percent of the issue. The combined size of the Petronas global sukuk and conventional bond issuances amounting to 4.5 billion US dollars is the largest global issuance in Asia (excluding Japan) for the year. The brief time-to-market for the issuance of the US dollar Petronas sukuk and bond took approximately one month, from structuring the instrument and date of submission to the authorities, to book building and the issuance date – reflecting the efficiency of the Malaysian market. Prior to this, Malaysia has also seen wide ranging ringgit-denominated issuances by nonresident issuers. Multi-nationals, foreign corporations and Multilateral agencies such as the International Finance Corporation, International Bank for Reconstruction and Development, and the Islamic Development Bank have successfully issued sukuk in Malaysia. All these issuances garnered overwhelming response from resident and non-resident investors as reflected by the oversubscription of these sukuk issuances. The liquidity and tradability of these ringgit issuances have been supported by the diverse range of players in the domestic Islamic financial system and the increasing demand from foreign investors. The establishment of CMH marks a further milestone in the development of the Islamic financial system under the MIFC initiative, sustaining the continued evolution and the development of Islamic finance. | Zeti Akhtar Aziz: Enhancing global interlinkages in the international Islamic financial system Opening speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the launch of Commodity Murabahah House, Kuala Lumpur, 17 August 2009. * * * It is my great pleasure to be here, this afternoon, on this occasion of the launch of the Commodity Murabahah House. The establishment of the Commodity Murabahah House is, indeed timely, as the international financial crisis is gradually stabilising and the global economy is entering into a period of recovery. This decade has seen Islamic finance enter into a new phase of development, as its international dimension gains significance. Of significance, is that the international financial crisis has not discouraged this trend. The Islamic financial system has continued, during this period, to become increasingly integrated with the international financial system. However, as this inter-connectivity intensifies, the exposure to risks arising from financial and economic developments from other jurisdictions will increase. Essentially, international Islamic financial transactions will require the development of the supporting financial infrastructure, in particular, the systems and structures for the management of liquidity. Malaysia has taken several initiatives to strengthening the international dimension of our Islamic financial system during this decade, to increase our inter-linkages with other parts of the world. In 2002, the Malaysian Government became the first to issue a global sukuk. In the same year Malaysia was in the pioneer group that established the Islamic Financial Services Board that sets international prudential standards for Islamic finance. | 1 |
Furthermore, several European reforms currently under discussion have the same end goal of increasing transparency and data disclosure in order to improve market discipline and ensure that capital is allocated more efficiently. Thus, the Corporate Sustainability Reporting Directive (CSRD) will require large companies to publicly report on the alignment of their activities with the taxonomy from 2024 onwards. Likewise, we hope that a European regulation establishing a label for green bonds (EuGB) will be adopted by next summer. This voluntary label is expected to have stringent requirements, which will help to build confidence: proceeds from the bonds will go towards funding activities designed to achieve six environmental goals; ex ante and ex post transparency requirements will make it possible to assess the environmental impact of the funds raised; and most importantly of all, an external reviewer must 4/6 BIS central bankers' speeches check that bond issues are compliant with environmental requirements. This reviewer must be a legal person that is registered with the European Securities and Markets Authority and, as such, subject to supervision modelled on that of credit rating agencies. In addition, the proposed CRD6 Directive provides supervisors with new means to integrate environmental, social and governance (ESG) risks in supervision, through the harmonised development of stress testing methodologies. The European Banking Authority (EBA) has also been tasked with exploring the question of including ESG risks in regulatory requirements, although persistent conceptual difficulties make calibrating these tools a tricky business. | Central banks are playing an active role in digital innovation. To support innovation while safeguarding the vital anchoring role of central bank money, the Banque de France is exploring the question of issuing a central bank digital currency, or CBDC. We carried out nine trials 5/6 BIS central bankers' speeches between September 2020 and December 2021 on the issuance of a “wholesale” or interbank CBDC, acting in partnership with a diverse line-up of participants, including commercial banks. These trials showed that a CBDC could significantly improve cross-border payments and interbank processes, such as securities settlement, more generally. On the question of a retail digital euro, the Banque de France is making a full contribution to efforts by the Eurosystem, which, following preliminary work, began an investigation phase on 14 July 2021 aimed at analysing the pros and cons of such a currency. A final decision on whether to launch a digital euro will be taken in the final quarter of 2023 [SLIDE 8]. To preserve the strong complementarity between central bank money and commercial bank money that lies at the heart of our monetary system, the intermediation role of banks must be maintained and banks must be fully involved in this project. A CBDC will be created with banks, not in opposition to or in spite of them. On the climate front, the ECB has adopted an ambitious actionplan [SLIDE 8] to which the Banque de France made a decisive contribution. | 1 |
It has come to symbolize our commitment to collaboration and consultation within the SADC Committee of Central Bank Governors (CCBG) and annually marks our contribution to the process of regional economic co-operation and integration. It is in this light that the Bank of Zambia applauds the favourable response from all central banks, individuals and other institutions represented here for allowing their members of staff to attend this event. As Bank of Zambia, we believe this event provides an excellent opportunity for exchanging views and sharing ideas in improving our national payment arrangements to foster economic growth and integration. Ladies and Gentlemen, lessons from the development of payment systems in the European Union and the United States of America provide a useful guide for emerging market economies such as ours. That be as it may, recent technological advancements and developments in China and India are also instructive as they glaringly indicate that it is possible to leap frog some of the historical development experiences of these major industrialized economies. However, it is without a doubt that this will require the concerted efforts and commitment of all those involved in the transformation of national payment systems to stay the course as challenges are abound. For instance, it is quite clear that consumer demand for payment services largely outstrip supply and more work needs to go into improving the outreach, efficiency and pricing of existing payment arrangements. | We all are aware from our own history that some kind of instrument and mechanism has always existed to BIS Review 36/2007 1 facilitate trade and other endeavours. What is abundantly clear, however, is that given the increased mobility of the citizens within the respective SADC member countries between cities and rural areas and at times between member countries, the need for payment instruments and the attendant mechanisms to facilitate safe and efficient remittances is arguably the relatively newer phenomenon. It is therefore the expectation of the Bank of Zambia that the 2007 SADC Payment Systems Regional Conference will discuss some of the most important trends and other strategic priorities confronting banks, payment system businesses, merchants and other service providers involved in the delivery channel for payment and other financial services. This is imperative as it would facilitate the drawing up of a development agenda of future priorities and contextualise the future of payment system oversight. Ladies and Gentlemen, since the establishment of the CCBG a decade ago, methods of effecting payments and other financial transactions have quickly become sophisticated with a trend towards execution in real time electronic media. All this is taking place because consumer confidence is growing in these instruments and mechanisms, which have been supported by growing confidence in SADC member countries’ economies in general and stability of the national financial systems in particular. | 1 |
Apart from being more comprehensive, such approach will help ensure that the economic cost of policy or regulation is spreaded out, thereby avoiding an undue burden falling on a particular sector of the economy or measure. Table 1. summarizes the policy framework along the line I have just described. The framework encompasses a three-pronged approach to address procyclicality, focusing on taming the business cycle, the financial cycle, and the risk-taking behaviour cycle through a combined use of macroeconomic policy, financial regulation, and other education and disclosure measures. On macroeconomic policy, especially monetary policy, the role of policy is to achieve longterm economic growth with stability. This means avoiding too-eased monetary conditions for too long by tightening policy when there are signs that risk is being underestimated and imbalance is developing. For financial regulation, its role is to reduce the procyclical behaviour in the financial institutions by limiting excessive risk-taking. And the role of education and disclosure is to promote greater awareness of risk by making available information to improve risk assessment by market, so that extreme shifts in sentiment and confidence are avoided. Important in this context for emerging markets is the abrupt shift in BIS Review 160/2009 3 investors’ confidence that drives sudden reversals of capital flows and liquidity. But amongst all these measures, financial regulation remains the core approach to addressing procyclicality. This is because large and sustained booms on credit and asset prices, once they occur, are typically a reflection of the failure of financial institutions to manage risk. | It has long been a feature of the financial system in the market economies and always has a role to play in a financial crisis. The current crisis is no exception. The difference this time is that efforts are being made at the global level to systemically address the issue through the revision of international regulatory standards. The hope is that we can make progress on the issue by taking the right and balanced approach so that the issue can be tackled without unsettling the level playing field, without repressing financial developments and liberalization which is important for emerging markets, and without undermining the spirit of innovation which is the hall-mark of market economies. 4 BIS Review 160/2009 | 1 |
My impression is that economic agents and analysts are generally fairly close to the mark in their analyses when they attempt to predict the interest rate level. Chart: Summary BIS central bankers’ speeches 7 When the inflation target was introduced, Norges Bank stated that it would place particular emphasis on stabilising inflation in the initial years. As inflation became more firmly anchored, there was broader scope for giving more weight to stabilising output and employment. In addition, we now have ten years of experience and insight. Compared with the first years, inflation targeting is now more flexible. When Haavelmo received the Nobel Prize, he reminded us that economic policy can be demanding. A failure to react to the build-up of imbalances undermines confidence in economic policy. If we tighten policy to rein in imbalances – and succeed – we are viewed in retrospect as having been unduly pessimistic. There is, though, reason for a certain degree of optimism. Theoretically anchored models and improved methods for quantifying them empirically provide a better basis for conducting an effective economic policy. Moreover, we use professional judgement, which we take on board when we apply and further develop models and the analytical apparatus in Norges Bank. Knowledge about relationships in the Norwegian economy, in conjunction with professional judgement, provides a good platform. Thank you for your attention. | Chart: Interest rate forecast with fan chart in the June 2011 Monetary Policy Report The interest rate forecast is shown in a fan chart. Our forecasts provide an expression of what we consider to be the baseline path. But the forecasts are uncertain, as illustrated by the fan chart. Our interest rate forecast is not an unconditional promise, but signals how we will set the interest rate if developments in the Norwegian economy are in line with our projections. The interest rate path presented in June indicated that the interest rate would gradually be raised towards a normal level in the next years. It followed that the interest rate would, with some degree of probability, be increased in August. This was conditional on the economic outlook we presented at that time. Chart: Interest rate forecast with fan chart and alternative scenarios in the June 2011 Monetary Policy Report The Bank’s Monetary Policy Report also presents alternative scenarios for the Norwegian economy. If developments are broadly in line with expectations, economic agents can expect that the interest rate will be set in line with that projected by Norges Bank. If conditions change, as was the case in August, Norges Bank will naturally adapt the monetary policy stance in the light of new economic prospects. Through our communication and the reports we publish, it is possible for an external observer to anticipate this reaction with a fair degree of accuracy. | 1 |
Heng Swee Keat: Developments in Asia and Singapore’s insurance industry Keynote address by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the GE/FICS Award Ceremony, Singapore, 24 July 2008. * * * Mrs Fang Ai Lian, Chairman, Great Eastern Life, Mr Tan Hak Leh, Managing Director, Ladies and Gentlemen, It is my pleasure to be here on this happy occasion, made all the more significant as Great Eastern Life (GE Life) celebrates its centennial this year. For a corporation to achieve success for 100 years is a significant achievement. It attests to the agility and business acumen of its leaders, as well as the commitment of several generations of staff. Today, we celebrate GE Life’s achievement as the first insurer in Singapore to acquire accreditation as a FICS assessment service provider. This reflects well on GE Life’s commitment towards staff development. Developments in Asia and Singapore’s insurance industry Despite the recent financial turmoil, the life insurance industry has held up relatively well in this region. While regional economies would not be insulated from the global economic slowdown, the medium-term outlook for the region remains good. The pace of economic growth and wealth creation in the region will drive demand for a range of insurance products. Indeed, estimates from Swiss Re show that life and general insurance premiums have been growing at a faster pace than GDP in most emerging Asian economies. | This can be achieved if companies, agency managers and life agents take a collective long-term view and seek to build sustainable win-win relationships with their clients. Integrity pays off in a long-term relationship. Take care of clients’ interest, and the companies’ and agents’ interest will take care of itself. Management and supervisors play a critical role in ensuring that agents on the ground who interact with and advise consumers adhere to regulatory requirements, and to the fullest extent possible, industry guidelines on professional best practices. This is especially so for the more vulnerable segments of the population – the elderly and the illiterate, or the cashstrapped, who may fall easy prey to get-rich-quick schemes. I believe that with the collective partnership of all industry participants, individuals and regulators, we can preserve the credibility and reputation of Singapore as an insurance hub. Initiative The second value is initiative. As part of a national effort to raise the level of skills and competencies of Singapore’s financial sector workforce, the FICS was established to benchmark competency standards of financial professionals to international best practices. I congratulate GE Life for taking the initiative to become the first insurer to be successfully accredited for its assessment capabilities in underwriting, relationship management and claims handling under the FICS. GE Life’s agency force also forms the first batch of candidates who have successfully attained FICS certification in the insurance industry. Involvement The third value is involvement. The FICS awards reflect a whole-of-company involvement. | 1 |
The role of supervisors – in-house initiatives As well as these initiatives, which may be considered external, we are also working in the Banco de España to adapt to this new reality. Firstly, we have created an internal function entrusted with assessing the impact we as an institution have on the environment. The aim is to articulate and coordinate the necessary measures to reduce that impact. Secondly, as a macroprudential supervisor, we clearly need to be able to assess and quantify the risks that the transition towards a more sustainable economy poses, both for individual banks and the financial sector as a whole. Among other functions, we need to be able to assess the level of financial institutions’ exposure to high-carbon emission activities, perform stress tests for the financial system overall and define scenarios and methodologies to be applied by banks individually. In consequence, we are designing internal governance structures and methodologies, actively participating in the cultural shift in the SSM supervisory model. Naturally, we are also evaluating the information and data requirements needed to address this challenge. Nor should we forget that central banks are also important investors in the debt markets, both in the area of monetary policy and reserve management. Although we have not yet included environmental risk assessment in our credit analysis, we are working to remedy this. 5 ESG - Environmental, Social and Governance. | Key among them are the interaction between sovereign debt and banking fragility and the problem of big banks in small countries – of which my country, Iceland, was a prime example and Cyprus is the latest. I will expand on this shortly. The financial crisis and the policy responses to it, especially some of the drastic decisions taken in the heat of intense crisis management, have changed the structure of the financial sector and will do so more profoundly going forward. There are several reasons for this, such as the plain collapse and disappearance of financial institutions, the non-viability of certain business models and practices in the new environment, the need for the financial sector to shrink and deleverage after the real risks in this world had been revealed, the intended and unintended consequences of new prudential regulation, the coming effects of structural regulations that at least partly ring-fence insured deposits and payment systems from the “casino”. Then there is the shrinking of cross-border banking through the retreat of banks 1 See http://www.bis.org/speeches/sp081119.htm BIS central bankers’ speeches 1 behind their national borders and the weakening and, in some cases, collapse of international financial centres in smaller countries. We can see where this is heading: towards a financial sector that is smaller, less leveraged, less complex, more fragmented, more regulated, and more national. | 0 |
In December-January, we reduced rates on these instruments, introduced new types of operations, and increased the frequency and allotment amount of foreign currency provision. In late 2014, the allotment amount of foreign exchange liquidity provision was about 20 billion US dollars and currently exceeds 30 billion US dollars. In January 2015, despite persistently low oil prices, complicated geopolitical situation, and Russia’s downgraded sovereign rating, the exchange rate volatility decreased and inflation expectations showed the first signs of stabilisation. This means that the result we expected when raising the key rate has been largely achieved. At the same time, the leading indicators started to show the beginning of considerable fall in aggregated demand and cyclical economic slowdown. Therefore, as opposed to 2014, the economic situation in 2015 started to exercise additional anti-inflationary pressure. This enabled the Bank of Russia to reduce the interest rates from 17% to 15 %. The consequently published data for January 2015 confirmed out estimates. In January 2015, the economic activity started to slow down. Temporary surge in consumer demand in December 2014 changed into a drop. Decline in investments intensified. Both consumer and producer sentiments deteriorated. Inflation accelerated sharply, but this dynamics is largely explained by the accelerated pass-through effect of the exchange rate on prices. Therefore, monthly inflation started to decline in February. We base our monetary policy decisions not only on the information about existing economic trends, but primarily on the forecasts of economic situation. Detailed and revised forecast will be published tonight as part of the Monetary Policy Report. | William C Dudley: What does interconnectedness imply for macroeconomic and financial cooperation? Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Swiss National Bank-International Monetary Fund Conference, Zurich, 8 May 2012. * * * It is a pleasure to have the opportunity to speak here today. As I see it, the complex interconnections that exist between the real and financial sectors of the economy, both within and between countries, have important implications for both macroeconomic and regulatory policy. In particular, cross-border coordination in both realms is warranted. Often, macroeconomic and regulatory policies are too narrow in their focus. At times, policies are designed with the goal of being “best” at the national level. Yet the resulting mix of national policies is distinctly inferior to what a well-coordinated global regime could have produced. Today I will discuss two important challenges that go along with living in an interconnected world. The first is how to define what aspects of macroeconomic policy or regulation require greater international coordination and harmonization. Some issues can be handled effectively at a national level, but the crisis has demonstrated clearly that many can not. The second challenge is how to make international coordination workable so that progress can be made in a timely manner while still preserving sufficient autonomy for countries to fashion policies to suit their particular idiosyncratic structures. | 0 |
Heightened volatility in global financial markets can be associated with the presence of very low and even negative rates rather than the underlying macroeconomic and external imbalances. In these circumstances, any change in interest rate differential across countries is likely to create greater impacts than otherwise. If this interest rate change takes place in the largest and the most significant economy in the world, then the impact will expectedly be further magnified. The Fed’s start of interest rate normalization has demonstrated that its impact on the global economy and financial markets indeed has been large, giving rise to significant capital outflows from emerging market (EM) economies, large adjustments and volatility in exchange rates as well as widened EM spreads and interest rates. The adverse effects of the Fed’s interest rate normalization has been on average larger than those occurred in previous two financial turmoil episodes, namely the Eurozone sovereign debt crisis and the US tapering tantrum. However, the disparity between the effected countries has been large too. The plummeted commodity prices as well as other factors led to this outcome as commodity exporters suffered from both the lower commodity revenues and the tightening global financial conditions. Financial markets also differentiated EM countries by policy frameworks and prudent policies. Those having rich and better policy frameworks and prudent policies have withstood the recent global financial turmoil better than the others. | Looking ahead, the uncertainty about the potential rise in the NPL ratio is notable since this crisis is on an unprecedented scale and is deeper than that envisaged in the adverse macroeconomic scenarios applied in the stress testing of the financial system in recent 10 years. The timing is also very different since in this episode, if current macroeconomic forecasts are confirmed, the adjustment to GDP would be concentrated in the first year of the shock (2020), to be followed by a recovery whose strength is still uncertain. In addition, the impact will hinge on the size and duration of the measures adopted, which will influence their effectiveness. In any event, the increase in NPLs is expected to be higher among smaller firms operating in sectors involving greater social interaction; and, in the case of households, in exposures not secured by mortgages. Accordingly, banks are already recording earlier part of the provisions that they might have to set aside in the future. Furthermore, my previous remarks about the aggregate situation of the system mask considerable diversity. This is mainly because the starting positions of the various institutions, in terms of own funds and credit quality, are already different. Likewise, some segments of households and non-financial corporations are also still in highly fragile financial situations. For example, smaller firms are more vulnerable to a scenario of falling revenues. | 0 |
It has to be a national effort. The potential for accelerated development is clearly evident. The government’s plans, programmes and projects, as set out in the Honourable Prime Minister’s Statement and the Budget Speech have sign-posted the way ahead. However, the task now is to continue to turn the good intentions into reality. This journey ahead also We need to ask why this is. In what is requires a rebalancing of economics and often termed the Asian century, Sri politics in economic decision-making, if Lanka is the only country, other than we are to stay on course. Afghanistan, in the Asia/Pacific region with an IMF programme – having an IMF programme is the economic equivalent to being in hospital. We are not in the The government has commenced a strong revenue-based fiscal consolidation programme. ICU but clearly in hospital. The remedial treatment is known and it is Central Bank of Sri Lanka – ROAD MAP 2017 6 Trade and investment policies are also Section 2: Review of the being changed to harness our untapped developments in the economy along potential. with the progress in the real, fiscal, We at the Central Bank, are changing and upgrading many of our processes and policies. Frameworks are being developed for proactive monetary and exchange rate policymaking on a data driven basis. | In developing a regime tailored to insurance we will also have to consider the particular skills and roles that matter. This includes the central role of actuaries, which is one of the important 4 BIS central bankers’ speeches functions specifically recognised by Solvency II. In 18th century London, the title “actuary” was often interchangeable with that of Chief Executive. It’s your role in backing entrepreneurship with science; in ensuring premiums, reserves and capital are prudent; and in scanning the horizon for new risks and opportunities, that means we are minded to include both life and general insurance actuaries within the scope of our updated fit and proper regime for individuals in insurance. By including your profession in the new regime, we recognise the importance of your skills, the range of your contributions, and your personal propriety. Later this year we will consult on a regime that includes the most senior actuaries – alongside CEOs, Chairmen and Chief Financial and Risk Officers – in our senior managers regime, making them directly accountable for how a firm is run, for their decisions, and for their actions. These senior persons will be expected to prove their fitness to regulators before they take up a role, and the onus will be on them to ensure risks are understood, measured and properly considered. | 0 |
Simon Topping: Improving the management of risk through implementation of Basel II Speech by Mr Simon Topping, Executive Director, Banking Policy, Hong Kong Monetary Authority, at the ACIHK The Financial Markets Association Basel II Seminar, Hong Kong, 27 September 2005. * * * Only a few years ago it might have seemed a bit strange to invite a regulator to speak on the subject of risk management. After all, a regulator was supposed to have the same relationship to risk as the preacher did to sin: he was against it. Historically, regulation and risk management were opposites. Regulation was supposed to be all about stopping banks from taking risks. Risk management, by contrast, was concerned with how you take on risk and how you manage it. Regulation has been criticised, rightly in my view, for taking insufficient account of modern risk management techniques such as credit risk and operational risk modelling, stress-testing, and portfolio management. Thankfully we are beginning to move away from the days when regulators were perceived as regarding taking any sort of risk as "a bad thing." Regulators care, above all, that the banking system should be sound and stable. One of the most important factors in a sound banking system is that banks should be profitable; and regulators recognise that without risks there is no chance of banks making money. What matters are not the risks that banks take, but how good they are at identifying, monitoring and controlling them. | Policy actions may turn out to be ill-timed or miscalibrated in the face of these uncertainties. There is thus an inevitable short-term volatility in UK inflation, which monetary policy makers have Page 6 to live with. And when the shocks driving that short-term volatility are large, then the amplitude of this short-term volatility in inflation can be large. This story remains an important part of what the UK has experienced of late. Recognising the impossibility of fine tuning inflation developments on a month-to-month basis, the MPC has long emphasised its focus on achieving the inflation target over the medium term. This medium-term orientation of monetary policy is crucial if the inflation target is to be met in a sustainable manner and monetary policy is not to become a source of inflation volatility itself. At present, the desirability of adopting this medium-term orientation is bolstered by the nature of the underlying drivers of UK inflation. The large rises in the prices of international goods and energy not only directly raise UK inflation, but will also weigh on domestic incomes and demand through the terms of trade channel. [10] As a result, in taking monetary policy decisions today, the MPC needs to take account not just of the immediate inflationary impact of higher energy prices in the coming months, but also the potential disinflationary impact of higher energy prices through weaker incomes and demand at longer horizons. This distinguishes the situation we face from that in other jurisdictions – notably from the US. | 0 |
The proposed reduction in the corporate tax rate for companies seeking listing in the stock market as well as those already listed, and the postponement of the restoration of the VAT rate until September 2002 will further set the stage for more support in the revival of domestic demand. Additional stimulus will come from the 71.3 billion baht village fund designed to boost investment and facilitate job creation in rural areas. It is important to emphasize that the planed increase in fiscal spending does not compromise the Government’s commitment to fiscal discipline. Total public debt will remain below 60 percent of GDP while debt service (principle and interest) will account for less than 16 percent of the budget. In regards to monetary policy, the inflation targeting framework gives the Bank of Thailand sufficient flexibility to respond quickly to fast changing domestic and external developments. With inflation remaining subdued and likely to remain contained in the range of 1.5-2.5 percent for 2002, the emphasis in the near future will be to strike a proper balance between domestic growth and external stability. While the current stance of monetary policy under the inflation targeting framework with emphasis on external stability is accommodative and appropriate given current conditions, the Bank of Thailand is constantly monitoring developments and will move decisively should circumstances change. | Specifically, in the first half of 2020, the consolidated net result of the Spanish banking system as a whole was negative (around € billion), a decline of almost € billion compared with the profit recorded in June 2019, and making for a return on assets (ROA) of -0.5% (1.1 pp less than in June 2019) and a return on equity (ROE) of -7.3% (15 pp down on a year earlier). This negative performance is due, particularly in the case of the two biggest banks, to the deterioration of the goodwill of their subsidiaries abroad. This illustrates how, in a global crisis such as the current one, the international diversification of Spanish banks’ business will foreseeably be less useful than in past crises for containing and mitigating the attendant effects. Indeed, the net profit of the Spanish banking system as a whole would have been positive had this downturn in goodwill and other extraordinary adjustments not been taken into account. In any event, the fall in profitability was also due to greater provisioning in anticipation of future asset impairment, whereby impairment losses doubled compared with 6 2019. That explains why, for the other banks without an international presence, the reduction in profits averaged 60%. The sector’s profitability is thus far below what investors demand. As a result, the price-tobook ratio (which compares listed banks’ market capitalisation to their book value) contracted markedly in March in Spain, as it did in the other European countries, falling to around 0.4. Subsequently, however, it picked up to some extent. | 0 |
A large-scale downgrading of this debt, to below investment-grade status, would entail considerable potential losses for the financial system of the European Union (EU) as a whole, a significant part of which would correspond to indirect losses attributable to the forced selling mentioned above. The role of rating agencies in this process is fundamental. When making their assessments, these institutions need to take into account the long-term outlook for the corporation concerned and avoid excessively pro-cyclical behaviour. Indeed, this time round, rating agencies appear to have been more cautious than in the global financial crisis and, to date, phenomena comparable to those seen in the past have not occurred. In any event, the results of this exercise serve to show the systemic importance of this vulnerability and the need to be prepared to provide a sufficient, internationally coordinated response, depending on how the pandemic develops at international level. The impact on general government A system-wide scenario analysis of large-scale corporate bond downgrades, ESRB Technical Note, 23 July 2020. 10 15 During the current crisis, the activation of automatic fiscal stabilisers associated with lower tax receipts and increased cyclical expenditure (for instance, on unemployment benefit), along with the effect of the discretionary measures adopted by the authorities to mitigate the impact of the crisis, is leading to very significant increases in budget deficits and public debt in all countries. Initially, there were also tensions in European public debt markets, which led to a sharp rise in sovereign spreads. | This is the pathology I worry most about. So I ask: Can my colleagues and I at the Fed cure this with monetary policy? Obviously, businesses cannot create jobs without the means for investing in job-creating expansion, so, yes, monetary policy is necessary to propel job creation. But as I have shown you tonight, the store of bank reserves awaiting discharge into the economy through our banking system is vast, yet it lies fallow. Take a look at this chart of total reserves of depository institutions: They have ballooned from a precrisis level of $ billion to $ trillion. 2 BIS central bankers’ speeches There is plenty of money available for businesses to work with. Consider this: In fourth quarter 2007 the nation’s gross domestic product (GDP) was $ trillion; at year-end 2013 it was estimated to be $ trillion. Had we continued on the path we were on before the crisis, real GDP would currently be roughly $ trillion in size. That’s a third larger than it was in 2007. Yet the amount of money lying fallow in the banking system is 60 times greater now than it was at year-end 2007. One is hard pressed to argue that there is insufficient money available for businesses to put people back to work. Now, bear in mind that we at the Fed only control the monetary base (cash plus bank reserves), not the velocity with which money is used. | 0 |
Central banks should be, and need to be, well placed to undertake that analysis, which has rarely been more important than now. 22 I argued this in Tucker, P. M. W. (2006), “Reflections on operating inflation targeting”, speech at the Chicago Graduate School of Business, Bank of England Quarterly Bulletin, Summer 2006, p. 220. | Spreads between Bank Rate and the interest rates charged to many borrowers remain at unprecedentedly high levels, if indeed borrowers are able to access credit at all. When conditions in the banking sector return to something closer to normal, those spreads will contract and the rate at which that takes place will have an important influence on the speed at which Bank Rate will rise. Uncertainty inevitably surrounds both the speed of the rebalancing and the impact of today’s consumer price inflation on tomorrow’s domestically generated inflation. So it is simply impossible to know now at what point monetary tightening will begin. Let me turn now to the Bank’s new Financial Policy Committee (FPC). Its creation is a response to the lesson that monetary policy cannot target stability of both prices and the financial system. Before 2007, the massive build-up of leverage in the banking system, accompanied by a rapid growth of broad money, led to an expansion of bank balance sheets and a rise in financial fragility, but not inflation. In most industrialised countries, central banks successfully set short-term interest rates to combine steady growth of output with low and stable inflation. But this did not prevent the emergence of unsustainable patterns of demand and unstable financial systems. The FPC aims to deal with that problem by expanding the range of instruments available to the authorities. The FPC has been hard at work preparing for our first policy meeting tomorrow and our first report will be published on 24 June. | 0 |
I’d like to mention one other area of preparations that will affect banks directly: the recalibration exercise. In order to establish a common data set on which to base this review, the Committee has decided to begin the recalibration exercise in autumn this year. We recognise that the recalibration exercise will demand resources from both banks and supervisors. The IIF expressed clearly to us this concern. In this regard I would like to make two comments. First, we discussed this issue yesterday in our meeting and decided to publish a newsletter clarifying some elements of the proposed work that I hope will address these concerns. In this newsletter, available on the BIS website, we underline several ideas. The Committee thinks that this early recalibration, in the spring of 2006, will give banks and supervisors more time to reflect and will facilitate implementation. In order to ensure that the envisaged review is based on recent and high-quality data, the Committee will undertake a so-called fifth impact study between October and December 2005, three months earlier than previously envisaged. The calibration of the revised Framework will be discussed in spring 2006 on the basis of QIS 5 data. As we are conscious of the workload of this exercise, the Committee does not intend to set data requirements or timeframes for the parallel calculation that will be conducted in 2006. So there is no duplication of work. | I think, in time, the EU BRRD will come to be seen as one of the most significant pieces of banking legislation to emerge from the financial crisis. 6 BIS central bankers’ speeches But we must finish the job. For effective resolution to be feasible (i.e. technically practicable) and credible (i.e. widely understood and believable), firms need to be resolvable. MREL is central to this. And for the world’s largest banks, for almost all of whom the EU is either home or host, it is crucial that the FSB develops an internationally-agreed standard that establishes a common framework, like MREL, outside Europe and ensures that G-SIBs have sufficient appropriately loss absorbing capacity should they fail in order to be able to implement an orderly, effective resolution of any firm and therefore end “Too Big to Fail”. BIS central bankers’ speeches 7 | 0 |
But I do think there are some lessons that can be learned from the overhaul of central bank liquidity facilities that could be applied to the provision of liquidity insurance to sovereigns. What would the equivalent enablers be for sovereigns? (i) Better surveillance, particularly of the vulnerabilities to sudden stops; (ii) Stress testing countries’ balance sheets through better debt sustainability assessments; and (iii) Better mechanisms for reducing disorderly spillovers. Surveillance The Bank of England’s Sterling Monetary Framework 11 is available to banks and building societies on a presumptive basis – banks with a genuine short-term liquidity can rely on it when a shock hits. A key part of that access is the agreement of supervisors that firms meet micro prudential standards. By contrast, there is no system of pre-qualification for the IMF’s precautionary liquidity facilities, at the margin discouraging sovereigns from relying on the IMF 9 Although I note the governance implications of capital market borrowing need further thought. 10 See Winters (2012). 11 Further information on the Bank of England’s Sterling Monetary Framework can be found here: http://www.bankofengland.co.uk/markets/pages/money/default.aspx. BIS central bankers’ speeches 5 as a form of insurance. One potential means of giving countries greater incentives to rely less on self-insurance could be to offer pre-qualification on the basis of strong economic fundamentals and policy track records as part of the Article IV process of surveillance, on a confidential basis. | Krzysztof Rybiński: A day in the life of Homo Sapiens Globalus Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the 11th Teleinformatics Forum, Legionowo, 21 September 2006. * * * Ladies and Gentlemen, Today, I would like to present a vision of the citizen of the world in the year 2026. Homo sapiens globalus will be found almost everywhere on the globe, and his traits will be identified by his ability to capture the benefits brought by the global financial market, global labour market, and global knowledge market. He will work, obtain information, establish and foster his professional relations as well as arrange his leisure activities primarily with the aid of the Internet. Homo sapiens globalus has mastered the fine art of capturing the benefits of the (continuously improved) functions available on the Internet. He is able to absorb frequent changes, and he turns them to his advantage. This makes him increasingly effective, knowledgeable, and capable of pursuing activities he finds interesting. Let us now consider a typical example of homo sapiens globalus, namely John Global. I would like to introduce him to you, but in order to do so, I have to take you on a short journey. This will be time and space travel. Just imagine that by the time I will have finished the previous sentence, twenty years have passed. This means that we are now in the year 2026. | 0 |
Despite the increase of light vehicle sales, overall consumer spending has been sluggish. While growth of retail sales in February was reasonably strong in nominal terms, it was considerably less impressive when the large increase of gasoline prices that occurred that month is taken into account. Based on data for the first half of March, gasoline prices are continuing to move higher which will further sap consumers’ real purchasing power. And growth of business investment spending, which was quite strong in the second and third quarters of 2011, entered the new year with little forward momentum. To put the recent pace of growth into perspective, we believe that the economy’s long-run sustainable growth rate (what economists call the potential growth rate) is around a 2 ¼ percent annual rate. We need sustained growth above that rate to absorb the substantial amount of unused productive capacity. Thus, our recent growth rates are barely keeping up with our potential. Although the sharp decline in the unemployment from 9 percent last September to 8.3 percent in February suggests we are doing better than that, it is important to recognize that about half of that decline was due to a declining labor force participation rate. In fact, had the labor force participation rate not declined from around 66 percent in mid-2008 to under 64 percent in February, the unemployment rate would still be over 10 percent. Also, it appears that productivity growth has slumped recently. | Moreover, Brookhaven Labs and Cold Spring Harbor Laboratory, as well as a fine array of academic institutions, provide a strong foundation for the island’s tech sector and business sector more broadly. The recent move to create stronger ties between the business community, research labs and SUNY (State University of New York) is a welcome development. It has the potential to help leverage the island’s existing assets to enhance the prospects for economic development. Conclusion To sum up, the incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established. But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery. On the inflation front, the yearover-year rate of consumer price inflation has slowed in recent months, and despite the recent rise of gasoline prices, we expect inflation to moderate further in 2012. Looking ahead, the key challenge for the Long Island economy will be to continue to prepare its residents for the best jobs being created here. Expanding educational access and opportunity and the skills that go along with it will go a long way to broadening participation in the economy to all residents and bolstering Long Island in the future. Thank you for your kind attention. I would be happy to take a few questions. 4 For more information, see the New York Fed’s consumer credit panel. BIS central bankers’ speeches 5 | 1 |
We will then be in a better position to evaluate what steps if any might be taken by the relevant authorities to contribute to greater pass-through. Regional economic conditions Our region’s economy was on a moderate upward trajectory before Sandy struck, and while the storm had many severe effects – more on that in a few minutes – I do not expect it to derail the region’s ongoing economic expansion. New York City’s economy has been performing quite well. Employment in the city reached an all-time high at the beginning of this year and it has continued to grow briskly since then, even without help from its key finance sector. While job growth has been considerably more 2 BIS central bankers’ speeches subdued in the surrounding areas, such as Long Island, northern New Jersey, Fairfield County and the lower Hudson Valley, many workers in these areas commute to New York City for their jobs, so the strength here in the city is helpful to the region as a whole. Still, the unemployment rate in the city remains high, above 9 percent, and this is something that needs to improve. Upstate New York’s economy is also on a generally positive trajectory, although some areas have fared better than others. Albany, Buffalo, and especially, Rochester and Ithaca have recouped many of the jobs lost during the recession, whereas Syracuse and Binghamton have lagged. Looking beyond the employment statistics, I see other encouraging signs across the region. Housing markets here have improved. | The effect is smaller, although significant, by around 0.13-0.16% for Tier 2 instruments or for senior debt. The findings are, in my opinion, perfectly logical and rational. Evidently, a higher capital ratio is a guarantee for those debt-holders situated lower in the hierarchy of credit tranches. As a result, investors are prepared to buy debt at lower rates than those that are demanded of institutions showing lower CET1 levels. As I pointed out, showing a high level of capital is not a disadvantage. In addition to MREL eligibility, a high level of capital evidently enables the bank to reduce its funding costs, likewise improving its external rating and its access to markets. Improving profitability Apart from improved solvency, there are other levers that can help improve profitability. First, headway in reducing non-earning assets is important. Spanish banks have managed to significantly reduce their portfolios of NPLs and foreclosures, although we remain above the figures posted by other European Union banks and the level continues to be clearly above what it was pre-crisis. As their name suggests, these assets are “unproductive“. But, moreover, maintaining them entails high costs in terms of human, financial and – in the case of property – tax and upkeep resources. Evidently, their disposal allows costs to be cut and resources to be freed up and used for other productive activities. In this setting of low margins and high competition, bank mergers are an alternative for gaining competitiveness. | 0 |
International trade and FDI Let me now turn to international trade and Foreign Direct Investment (FDI). Over time, trade and FDI integration have contributed to productivity growth and prosperity. But important distortions in the international trade system remain, as shown by large global imbalances. These are linked, for example, to the export-led growth model in Asia and managed exchange rate regimes in most emerging countries, as trade issues have become intertwined with other concerns: growing inequality, environmental damage, security, etc. The issues are real, and partly explain the resurgence of protectionism; but protectionism doesn’t solve any of these problems. Bilateralism cannot solve bilateral imbalances and even less global imbalances. A renewed multilateralism needs to be more effective, in at least three ways. First, on trade, the G20 has agreed – in principle – that action is necessary to improve the functioning of the WTO. Concrete progress is now needed on a package of reforms, in particular regarding the 2/3 BIS central bankers' speeches dispute settlement mechanism. The WTO needs to strengthen and broaden the Most-favourednation principle, and it should continue to strongly support trade liberalisation, including in the services sector where it is lagging. Secondly, we need to better understand and address global imbalances. At 40 percent of world GDP, global external imbalances – measured by the sum of the absolute values of net creditor and net debtor international investment positions – are now at a historical peak and four times larger than in the early 1990s. | François Villeroy de Galhau: 75 years later – thinking about the next 75 Welcome address by Mr François Villeroy de Galhau, Governor of the Bank of France, at the G7 high-level conference, Paris, 16 July 2019. * * * Ladies and Gentlemen, It is a great pleasure to welcome you to this G7 high-level conference dedicated to the next 75 years of the Bretton Woods system… which is a sign of confidence. 75 years ago, John M. Keynes for Britain, Harry Dexter White for the US, Pierre Mendès-France for France inaugurated what we now see as the “golden age” of multilateralism and cooperation. Quite remarkably, the Bretton Woods Conference preceded peace: economic cooperation was seen as a prerequisite for peace. Today, we are unfortunately far away from this spirit: multilateralism is facing a major crisis. Yet the Bretton Woods institutions (BWI) are remarkably resilient, thanks to the commitment of their successive leaders – many of them are here – and to the strength of their history. They are priceless assets – we are probably all convinced of this. But we also know that the current situation is not stable. So, where do we go from here? The worst-case scenario would be an implosion of the system, implying a real step backward, with a rise of protectionism and bilateralism. A more promising scenario – and this is what we should fight for – would be to come out of this crisis stronger by re-building common solutions. | 1 |
This, if applied to ‘real world’ assets, like equities, could offer a substantial improvement in the efficiency of financial market infrastructure and reduce risks by enabling instant settlement – T plus now[5]. There are of course risks in such integration as I mentioned earlier, whether it happens organisationally or technologically. The Bank of England is working with the FCA and the Treasury to set up a regulatory ‘sand box’ for developers to explore whether and how those risks can be managed to the level of assurance we expect from the current system[6] So my third reason for bringing the activities of the crypto world within the relevant regulatory frameworks is to foster innovation. This may appear counter intuitive to those who see regulation as opposed to innovation. But, as I have said before, ‘people do not fly in unsafe aeroplanes’. Innovation may start in unregulated spaces. But it will only be developed and adopted at scale within a framework that manages risks to existing standards. And by holding innovative approaches, using technological advance, to the same standards as existing approaches we can ensure that the benefits of new technology and new business models actually flow form innovation rather than from regulatory arbitrage. This in turn, determines the answer to the second question of ‘how’ regulation should be extended to these areas. The guiding principle should be ‘same risk, same regulatory outcome’. | It is not easy, therefore, to reconcile the revised earnings data with other information on the labour market. And these data really matter for the MPC’s assessment of the UK economy. I can promise you that the Bank, the Treasury and the Office for National Statistics will, as a matter of urgency, be working together to try to understand what is happening to earnings. Decisions on interest rates must take into account not only those factors which I have highlighted this morning - the international economy, the possibility of a credit crunch and uncertainty about the trend in earnings growth - but also a wide range of other information relevant to the outlook for inflation, including the behaviour of the monetary aggregates, which are still growing quite rapidly, and the fall in sterling’s effective exchange rate. Over the next two weeks more important data will become available, including the first estimate of GDP growth in the third quarter, a CBI Industrial Trends Survey and the monthly report from our regional Agents. At our next meeting on 4 and 5 November, the MPC will take into account all of this information, and occasions like today are part of the process by which we obtain more information and exchange views with those most directly affected by our decisions. BIS Review 86/1998 | 0 |
At the very least, the SGP has served well in bringing the political attention to the need for sustainable public finances. A final observation concerns the dichotomy of before and after entry into the union. The general view among euro area accession countries seems to be that a lot would be gained from membership of the monetary union and the convergence criteria are viewed as a goal, while a widespread view among the old member countries seems to be that once a member, the SGP is a cumbersome constraint. 5 For a recent study of the SGP’s effects on fiscal policy, see, for instance, Annett (2006). BIS Review 73/2006 5 Characterising the two cases – wanting to join and being a member – I believe it is clear that the carrot outperforms the stick. Contrasting the willingness to undertake reforms in the new accession countries with the state of affairs among the old members, the difference is rather striking. It is equally evident when comparing today’s situation among the old members, with that before membership. Given the importance of equal treatment of countries, it is far from certain that it is possible, or perhaps even desirable, to align the economic and legalistic view, but I believe that it is worth trying when establishing such a framework. With Rwanda and Burundi having applied to join, these types of considerations are currently a matter for the EAC as well. | Although I believe that low inflation fosters financial stability, it would be wrong to disregard the possibility that changes in the inflationary process can have unintended consequences for the stability of the financial system. The success in bringing down inflation has lowered both nominal and real interest rates. Moreover, factors such as the integration of emerging markets into the world trading system, and high productivity growth, has put downward pressure on prices of manufactured goods. This may have induced key interest rates to be lower, than what otherwise would have been justified in this cyclical position of the economy. Given the fact that the low inflation regime has yielded high and stable growth, in conjunction with low interest rates, it is no wonder that asset prices have surged. While much of this price movement is fundamentally based, there is a risk that households and firms might become too optimistic about future earnings and interest rates. Put differently, there is a risk that 1 2 See e.g. Schinasi, G. (2004): ”Defining Financial Stability”, IMF Working Paper, WP/04/187. BIS Review 101/2007 asset prices rise to unsustainable levels during the transition from a regime with high inflation to a regime with low inflation. Another, but not unrelated issue, concerns how risk is priced in the credit markets. The last few years saw risk premiums in credit markets falling to record low levels. | 0 |
The key themes and lessons from this play remain as relevant 400 years ago as it does today. Firstly, it reminds us to just say “no” when friends come knocking at your door to borrow money you don’t actually have. It also reminds us that one should never count one’s eggs before they are hatched. But most relevant, it drums home the importance of sound financial planning and knowing one’s rights as a financial consumer. If Bassanio had the foresight to save for a rainy day, he would never have needed Antonio’s help to secure a loan from the unscrupulous Shylock. If Antonio was a more astute financial consumer, he would never have agreed to such unsavoury lending conditions. If Bassanio and Antonio had a friend who was a fully certified financial planner, they would have been strongly advised against putting their lives on the line just to secure a loan. While no modern-day financier will ask for a pound of flesh as collateral as Shylock did from Antonio, there remains many unscrupulous lenders who take advantage of those facing financial distress by offering loans at astronomical rates, as well as financial scammers that offer unbelievable schemes which they do not intend to honour. The tragedy being that there are still many desperate and unsuspecting financial consumers who succumb to these, at the expense of their own financial futures and that of their families and dependents. The role of financial planners and advisers in this age of disinformation becomes even more relevant. | It is my pleasure and honour to be invited to deliver today’s keynote address, to share my views on the importance of ethical conduct in upholding the trust of financial consumers in the quality of financial services and advice offered by financial practitioners. Alleviating the Impact of COVID-19 The wide-reaching impact from efforts to contain COVID-19 has exposed long-standing fault lines and gaps in financial management among households and businesses. While essential for the protection of lives, the impact of global and national containment strategies in the form of mass or targeted lock-downs have inadvertently impacted the livelihoods of many segments of society. These lock-downs have been gradually uplifted and are temporary in nature, but for consumers who lack adequate financial safety nets, the after-effects are real and significant. In line with our intent of providing financial reprieve to those adversely affected by this pandemic, 1/3 BIS central bankers' speeches Bank Negara Malaysia has worked tirelessly with the banking industry to provide loan moratoriums and targeted repayment assistance to individuals and entrepreneurs who have lost their jobs or whose earnings have been adversely impacted. Similarly, we have also worked with the insurance and takaful operators to implement premium and contribution deferments from 1 April 2020 until the end of this year, to ensure policyholders and takaful participants who face temporary financial constraints can preserve essential coverage during these unprecedented times. | 1 |
Foreign bank branches, especially European banks, are better prepared to implement the IAS 39 and IFRS as they 2 BIS Review 114/2007 are more familiar with the new accounting principles. This is because they get the supporting systems, as well as knowledge, from their head offices. Thai commercial banks, on the other hand, are studying the implications and the context of the new accounting standards, and are preparing their IT systems with the help of external consultants. In terms of regulation, as I already noted, the Bank of Thailand has begun implementing IAS 39 for the impairment of assets or NPL since December last year. By June this year, commercial banks have set an additional provision of about 90 billion Baht, with their BIS ratios remaining comfortably well above the minimum requirement at 14 percent. We at the BOT are studying the remaining issues of IAS 39 pertaining to supervisory policies and financial impacts on the banking sector. And our policies on components of capital and related reports are scheduled to be prescribed by the end of next year. Ladies and Gentlemen, Implementing Basel II and IFRS has been a challenging experience. For Basel II, the most difficult issue is arguably going to be the application of the principles embedded in Pillar 2 where supervisors have the ability to require banks to hold capital in excess of the minimum. | 8), which will be published in May. Discussion of the timetable for a potential Swedish EMU membership The timetable for a potential full Swedish membership of EMU will be determined by the political process. The Government Bill "Sweden and the Economic and Monetary Union" from 1997 states that if the government later finds that Sweden should participate in the monetary union, the matter should be put before the Swedish people. Pronouncements by, for instance, Prime Minister Göran Persson indicate that a referendum will be held next year. Other political leaders have expressed similar opinions. If the result is a "yes", then Sweden would put forward an application to the European Commission and the ECB for an examination of whether we fulfil the legal and economic convergence criteria. The economic criteria assessed are the inflation rate, long-term interest rates, exchange rate stability and the public sector's budget and central government debt. Following this scrutiny, the European Parliament and the European Council shall present their views on the reports made by the Commission and the ECB and after this the ECOFIN Council will decide on the Commission's proposal to allow Sweden to participate in the union. If Sweden is accepted, there will be negotiations on when entry will occur and at what exchange rate the krona will be fixed against the euro, which is decided by the ECOFIN Council. After this a national changeover plan will need to be drawn up. | 0 |
All direct life and composite insurers had participated in QIS1. I would like to thank the LIA and its members for the active participation and feedback. Indeed, many of you have expressed understanding and support for many of the proposed enhancements in the RBC2 framework. 21. Let me share a couple of high level observations from the QIS1 results with you. 22. First, there is an increase in risk requirements compared to the existing RBC framework. This is to be expected, given the more comprehensive risk coverage and higher target confidence level under RBC2. RBC2 targets a 99.5% confidence level over a one-year period, which is increasingly seen as the benchmark for insurers globally. From the results that I have seen, most of our insurers are able to maintain capital adequacy ratio or CAR of well above 100% under the preliminary set of RBC2 proposals. 23. Some industry players are naturally anxious if they will still have to maintain the same high buffers of way above 100% CAR or FSR under RBC2, as they do currently for RBC. This is not our expectation, given that the risk requirements under RBC2 are designed to be more risk sensitive, comprehensive and calibrated to a higher target confidence level. 24. A second observation is the greater differentiation in CAR between firms with different risk profiles. | Si les investisseurs et les emprunteurs internationaux considèrent que l’euro deviendra une monnaie stable, ils détiendront des actifs libellés en euros pour réduire au minimum les risques dans le cadre de la diversification BIS Review 22/1999 8 internationale de leurs portefeuilles. En outre, un marché financier de l’euro large et liquide peut conduire à un usage étendu de l’euro, usage qui, en retour, pourrait faciliter son développement en tant que monnaie de facturation ou de dénomination sur les marchés des produits de base . L’euro va progressivement accroître son rôle comme monnaie internationale utilisée par le secteur privé, même si le rythme de son internationalisation peut être variable selon la fonction considérée. b) Les relations de change de la zone euro vis-à-vis des principales devises mondiales En ce qui concerne les relations de change entre l’euro et les principales devises mondiales, à savoir le dollar et le yen, je pense qu’il ne faudrait jamais oublier ceci : dans un régime de changes flottants, la stabilité du taux de change dépend des données fondamentales de l’économie. C’est pourquoi des politiques saines et avisées dans les domaines monétaire et budgétaire sont les meilleurs garants d’un fonctionnement approprié du système monétaire international. Il est encourageant, à cet égard, de noter que des deux côtés de l’Atlantique, nous partageons la même optique globale au sujet d’une monnaie qui conserve sa valeur et d’un budget tendant à être proche de l’équilibre ou en excédent. | 0 |
• Significant progress in reforming labour market policies – especially in the areas of pension schemes, early retirement and part-time work – has been achieved over the last ten years in some European countries, contributing to the significant rise in the euro area employment rate, accompanied by a decline in the aggregate unemployment rate from 10.6% in 1996 to 7.2% most recently. The latest number is the lowest on record since the early 1980s, but should not give rise to complacency. • These encouraging developments show that past labour market reforms, immigration and wage moderation have helped to overcome some of the constraints on growth stemming from rigid and over-regulated labour markets. Despite this progress, we are still a long way from having exhausted the potential for further increases in participation rates and employment. The unemployment rate is still unacceptably high and the employment rates, especially among young, female and older workers, remain low by international standards. These features appear to be consistent with an “insider-outsider” characterisation of the European labour market, where structural impediments, triggered by the legal and regulatory environment, high taxes on labour and rigidities associated with wage regulations may prevent those groups “at the margins” from actively participating in the labour market. • In addition, in those European countries and regions where competitiveness has been lost in the past or the unemployment rate remains too high, it is essential that wage increases do not fully exhaust productivity gains in order to provide incentives for firms to create additional jobs. | • More specifically: o structural policies in the Member States are supposed to seek to create flexible and efficient structures in product and labour markets with a view to fostering the growth potential of euro area economies and improving the adjustment mechanisms in EMU; o fiscal policies are supposed to ensure the sustainability of public finances, effectively limiting government deficit and debt ratios, thereby also ensuring that automatic fiscal stabilisers work effectively as an adjustment mechanism in the currency union; and BIS Review 31/2008 1 o wage policies should be compatible with trend developments in productivity in order to foster full employment and should take into account the overriding importance of wage flexibility as an equilibrating adjustment mechanism in the EMU. • Within the Lisbon strategy, as refocused and reaffirmed by the European Council in 2005, Member States aim to gear national policies towards micro-economic flexibility and macro-economic stability. This would strengthen the capability of the euro area economy to swiftly re-allocate economic resources in view of exogenous economic shocks and improve its long-term growth prospects. The Lisbon Strategy and the peer surveillance of its implementation at the national level have raised the awareness among governments in European countries that structural reforms are decisive for remaining competitive in an increasingly global economic environment and to fully realising the economic potential of the EMU. | 1 |
And judging from their persistent low profitability and price-to-book ratios, developing sustainable business models remains a major challenge for many banks. One important element of this is misconduct, where the peak of the crisis for banks has arisen more slowly than the prudential crunch in 2008. It casts a very long shadow – most importantly, on the lives and livelihoods affected by unacceptable behaviour, but as a secondary effect on banks’ ability to generate sustainable returns and build capital internally. For example, in their 2015 results UK banks disclosed a further £ billion of provisions relating to past misconduct, which reduced their pre-tax profits by around one half. But this is only part of the picture – even leaving aside misconduct, many banks have simply not yet adapted to the new prudential constraints or the lower-rate environment. This is now a first-order issue for us as the PRA and FPC. A recent paper by Natasha Sarin and Larry Summers provides a useful reminder that on many market metrics the banking system still looks fragile, which they argue may be largely due to 6 weakened business franchises . While we have done a huge amount to repair the financial system in recent years, as supervisors we would be unwise to ignore these signals – we need to complete the implementation and give firms a proper chance to adapt to the new world. That’s what our forward-looking, judgement-based approach now requires. | At the same time, I intend that we will bring forward proposals under our Pillar 2 regime which should also reduce the risk that our capital standards are overly prudent for smaller firms using the standardised approach to credit risk to calculate their requirements – essentially by looking at capital requirements in the round rather than assuming that a simple “sum of the parts” approach will necessarily deliver the right answer. In the same vein, we will deliver what we promised in our Annual Competition Report this summer, improving the process by which small firms can transition to internal models. All this demonstrates how we can address unintended consequences while remaining true to the revolution’s goals. Too early to say In 1972, Chinese Premier Zhou Enlai was asked about the impact of the French Revolution. His answer: “too early to say”. While it emerged forty years later that Zhou was probably not referring to the 1789 storming of the Bastille – 5 but instead thinking of the 1968 student riots in Paris – his remark is apt at the current juncture . It is too early to say how business models will shape up in the future. 5 Zhou’s cryptic caution lost in translation: By Richard McGregor, Financial Times, June 2011, available here: https://www.ft.com/content/74916db6-938d-11e0-922e-00144feab49a 8 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 8 For insurers, the low rate environment and persistent soft conditions in many segments of general insurance are creating real pressures. | 1 |
However, there was no safety net of the type that we have in a national setting to back it up. This turned out to be the fatal flaw in the whole setup, although we now know that these banks were also undercapitalised, which might have done them in at a later stage. But so were also several European banks that were considered solid at the time! In the panic that gripped global financial markets after the collapse of Lehman Brothers, Iceland’s big banks were faced with a wholesale run on their foreign currency liabilities and were therefore heading towards a default on those liabilities in the absence of LOLR assistance in foreign currency. However, given their size, it was impossible for the Icelandic authorities to provide such assistance on their own. Liquidity risk was generally underestimated in the build-up to the crisis, both by the financial industry and by supervisors. This applied even more to FX liquidity risk, which can be more lethal due the lack of backstops and safety nets. For example, before the crisis, European banks had built up huge USD-denominated balance sheets that were balanced to a large extent – except, of course, in terms of maturity. This became a major problem when there was a run on such dollar-denominated bank liabilities post-Lehman, and many big European banking names might not be with us today had it not been for the USD swap lines granted to the European Central Bank, the Bank of England, and the Swiss National Bank. | But to set the stage, let me say very briefly that all the usual suspects were present: very strong capital inflows fuelling a credit and asset price boom that subsequently turned into a bubble at the same time as the economy overheated and an unsustainable external position developed, as could be seen in a double-digit current account deficit. And macroeconomic and prudential policies were not up to the task. Quite the contrary: there was a policy conflict between monetary policy and the demand levers pulled by the Government, and the risks inherent in capital flows, FX balance sheets, and credit and asset price booms were left under-regulated and insufficiently supervised. But as so often before in this country, we dealt more effectively with the crisis than the buildup. There were two key elements to this. The first was crisis management vis-à-vis the failing banks, as embodied in the Emergency Act submitted by Prime Minister Geir Haarde to Parliament shortly before the banks failed. The second was the economic programme developed by the Icelandic authorities in co-operation with the IMF. The programme had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector. | 1 |
One argument in the debate has been that the relationship between debt and interest rates is actually the opposite of what the Riksbank believes – in actual fact, both real debt and the debt ratio should decline, not increase, if the policy rate is cut.20 Earlier this year, the Riksbank presented the results from an empirical study, which estimated the relationship between interest rates and indebtedness during the period 1995–2013 with the aid of a commonly-used empirical method.21 The estimates show the reverse, that there is clear support that both the debt ratio and real debt increase when the policy rate is cut, even if the effect is not so great.22 But it is also important to emphasise that these estimates are not the final word and that the effects of monetary policy may very well be greater. For instance, the effects have been calculated for a temporary change in the policy rate. A lasting change would have quite different and much greater effects.23 One risk with holding the policy rate low over a long time is that it can distort households’ expectations of future interest rates, so that they act as though it were a lasting change in interest rates. Also, the empirical method used does not capture specific circumstances, such as the fact that the Riksbank has conducted extensive communication to make households aware of the risks linked to high and growing 19 Of course, the best thing is always to remedy the direct causes of the imbalances. | From an investment perspective, the volatility in the Asian markets in recent years has allowed long-short and other strategic plays to outperform regional indices. The relative inefficiency of the regional markets also presents arbitrage opportunities. From a demand standpoint, US and European investors are expected to turn to alternatives in Asia as capacity (and quality) in their home markets diminish. Further, the improving economic climate in South East Asia should help foreign fund managers and investors to refocus their attention on the region. Hedge funds look set to play a larger role in Asia. The role of hedge funds in Singapore In Singapore, hedge funds form part of the expanding menu of products offered by the asset management industry. This industry grew rapidly over the last ten years: assets under management increased eightfold from just over $ billion in 1992 to more than $ billion last year. For the reasons mentioned earlier, asset managers and investors alike are finding a place in their overall strategies for alternative investments including hedge funds, commodities and real estate. (Of course, judging by concerns about Singaporeans over-investing in property, one wonders whether real estate can indeed count as an alternative investment here.) That aside, hedge funds can contribute to the development of Singapore as an international financial centre in a number of ways. First, as evidenced in other major financial centres, hedge funds can attract a mix of supporting professionals such as fund administrators, prime brokers and product specialists skilled at structuring new instruments. | 0 |
There is mounting evidence that the effectiveness of macroprudential policies may be affected by leakages across borders. For example, Cerutti et al (2015) and Reinhardt and Sowerbutts (2015) provide evidence that cross-border borrowing may increase after domestic macroprudential policy is tightened. And Berrospide et al (2016) similarly find that domestic prudential policy may be less effective when banks operate globally. All of which points to the benefits of reciprocity, which I would like to illustrate using some results that 10 develop another strand of Bank research . Consider a stylised two-country model in which each of the two countries’ domestic credit is provided partly by banks from the other. Each country has a macroprudential tool – a countercyclical capital buffer – at its disposal, which can reduce the probability of a crisis, albeit at the cost of lower output in the short run. The presence of leakages worsens this tradeoff between short term output and stability. 7 Based on data from 38 advanced and emerging economies over the period 1970 to 2011, as set out in Cesa-Bianchi et al (forthcoming). 8 The 2016 stress test scenario, results of which will be published in 2016Q4, embodies a synchronised severe downturn in global output, which sees global growth trough at -1.9% as it did in 2008. | The only exception is that the steady state three-year growth rate of real credit is set to 15% (𝜙0 = 0.15) in order to reflect the fact that global credit growth has been slower and less volatile than that of the UK in the data. For simplicity, 𝜁 is set to 0. The two country model also has additional variables capturing the effect of foreign banks’ lending in the domestic economy, and the effect of global credit growth on the domestic crisis probability. The effect of global credit growth on the domestic crisis probability is set equal to that of home credit growth ℎ𝐵∗ =ℎ𝐵 , broadly consistent with the result in appendix 1 that a 1 standard deviation change in either has a similar effect. The constant term is also adjusted so that, at steady state rates of credit growth, it is equal to the same value as in appendix 2. In the model variant with full reciprocity, 𝜙𝑠𝐹 = 𝜙𝑠𝐻 = −6, implying that there is no leakage of credit growth when the CCyB is tightened, so that it is equally effective at tempering credit extended domestically by home or foreign banks. In addition, 𝑘1 = 𝑘1𝐻 = 𝑘1𝐹 , so that the effective setting of the CCyB is equal to the setting that the national policymaker chooses (𝑘1𝐻 ). In this case the value of 𝑓 has no bearing on financial stability. | 1 |
(2001), “Independent Review of the Operation of Monetary Policy in New Zealand: Report to the Minister of Finance”. Sveriges Riksbank (2001), Inflation Report 2001:3. Sveriges Riksbank (2004), Inflation Report 2004:2. 12 BIS central bankers’ speeches | These include buffers for banks with global or domestic systemic importance; and buffers in the discretionary component of capital requirements, Pillar 2, such as the PRA’s firm-specific buffer. In the liquidity framework, the liquid asset buffer (LAB) is a reserve of high quality liquid assets which banks hold in normal times to manage a 30-day period of liquidity stress. Using its LAB in a stress can thus give a bank breathing space to meet extraordinary demands for cash without taking actions that may be damaging to the wider financial system and real economy. 5 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 5 Chart 2 Illustration of different capital requirements and buffers Releasability and usability It is important that all of the buffers outlined above play their role, if necessary, in allowing banks to maintain lending whilst absorbing losses. Whether and how that is enabled rests on two key concepts: releasability and usability. A regulatory buffer is releasable when the authorities can reduce it – including down to zero if need be – freeing up additional resources. The CCyB is a good example of this. In the UK, the FPC released it during the early Covid period, increasing the size of firms’ management buffers. | 0 |
For the property market, it is obvious that if there is a bottleneck or an imbalance in the supply of land, we have to deal with it. But the factors affecting demand, supply and prices of properties are very complex. Sometimes property prices rise not because there is a shortage of residential flats to satisfy housing demand, but because people expect that the market will continue to rise making it better to buy now to reap short-term profit or hold on for bigger gains in the long run. Currently in Hong Kong, the rapid surge in luxury-property prices may not necessarily be caused by insufficient supply of high-end residential flats, since rentals have not moved up in proportion with the prices. Actually, the increases were caused by the fact that many investors, including those from Mainland China, were optimistic about the outlook for future prices. 9. Apart from regulating the supply of land, another method that has long been used in Hong Kong to reduce the risk of bubbles in the property market is for banks to act as gatekeepers in preventing sharp increases in mortgage lending. The regulatory measures implemented by HKMA on 23 October that tightened the loan-to-value ratio for luxury 2 BIS Review 167/2009 properties priced at $ million or more to 60% serve this purpose. Some may argue that since many buyers of luxury properties are wealthy, they may not need to apply for mortgages and therefore the HKMA’s measures may not have the expected effect. | For instance, I mentioned before that Banking Union will tend with time to consolidate the banking sector and open the possibility for an increased role of capital markets in diversifying the financing of the European economy. However to fully reap the benefits of capital markets integration we need legislative changes that complete the programme of financial services integration, particularly in relation to the capital markets. That would include changes to company law, bankruptcy rules and procedures, and higher harmonisation in the taxation of financial products. I would urge the Commission to promote these issues. Other necessary institutional developments have also been well identified in the President Van Rompuy’s Report “Towards a genuine Economic and Monetary Union”.14 They include the reference to progress towards fiscal union, economic union and political union. First, a more complete Fiscal Union along the lines described in that Report seems necessary for the euro area, which goes beyond mere disciplinary rules. Specifically, it calls for the euro area “….the establishment of a fiscal capacity to facilitate adjustment to 13 Dirk Schoenmaker and Daniel Gros “A European Deposit Insurance and Resolution Fund: An Update” DSF Policy Paper Series September 2012. 14 See “Towards a genuine Economic and Monetary Union” a Report by the President of the European Council in close collaboration with the Presidents of the European Commission, the Eurogroup and the ECB, (http://www.european-council.europa.eu/the-president/eurozone-governance). BIS central bankers’ speeches 9 economic shocks. | 0 |
Banks are increasingly providing technology services, such as account reconciliation software and “web-enabling” assistance, while technology firms are making inroads into services once the domain of banks and brokerage firms, such as financial planning and bill payment. Indeed, many banks are beginning to think of technology firms as competitors – or are contemplating ways to partner with them. I’d guess that most of us, perhaps even all of us, consider the advancement of computing and information technologies, and their role in the development of ever-more sophisticated financial instruments and techniques, to be decidedly positive developments. Such technologies, and the innovation they enable, have reduced the costs of financial transactions, improved the allocation of financial resources, increased the competitiveness and efficiency of financial institutions and markets, and opened new avenues through which individuals and institutions can better diversify and hedge their risks. But with this progress has also come new and difficult challenges. The rapid pace of technological advancement and financial innovation has introduced new, highly complex elements of risk, increased the speed and volatility of the markets, and blurred the barriers between previously distinct sectors of the financial marketplace. Even as supervisors confront change, the fundamental questions remain the same. Where is the risk in banks’ activities, and how effectively are they managing it? Where are banks extending credit and in what form? Who are banks’ customers, and how are those customers changing? To what extent are credit risks being transformed into liquidity and operational risks? | First, a bank would assign each of its loans or exposures to an internal grade, which reflects the risk associated to lending to each borrower. A bank would do so by using the expert judgment of senior lenders and its own well-defined internal rating scale and criteria. The bank would then assess the likelihood of default of borrowers in each internal grade, based on its own analysis. Many larger banks are doing this now. It is this assessment of the probability of default that is the core of the internal ratings-based approach. The second step is for the bank to assess the severity of loss should a loan default – most often referred to as the Loss Given Default. The Committee currently envisions two internal ratings-based approaches, a foundation approach and an advanced approach with even higher minimum standards. A key distinction is that under the foundation approach, banks would use supervisory estimates of lossgiven-default based on loan characteristics, while under the advanced approach, they could make use of their own analysis. The third step is to derive the bank’s capital requirement. The Committee will set out the risk weights that correspond to different estimated probabilities of default and loss-given-default. These risk weights are being developed by the Committee as a measure of unexpected loss, reflecting the amount of potential credit loss for each loan. A key aspect of the internal ratings-based approach is the development of rigorous supervisory standards for the assignment and quantification of internal ratings. | 1 |
Bank of England Page 4 As a result, real income for the non-North Sea economy as a whole – how much our collective output is actually worth, in consumption terms – has fallen by over 5% since the end of 2019 (Chart 3). Chart 3: Real income has therefore fallen steeply relative to output Real national income excluding North Sea relative to GVA; 2019 = 100 102 102 101 101 100 100 99 99 98 98 97 97 96 96 95 95 1997 2000 2003 2006 2009 2013 2016 2019 94 2022 Real national income excluding North Sea calculated as (Nominal GVA – North Sea profits) / Consumption deflator. Sources: ONS and Bank calculations. This may not be completely unprecedented but it’s pretty unusual. As you can see from the earlier bars in Chart 2, the post-war trend has been the opposite: compared with that of aggregate output, the average price of goods – and therefore of UK imports in aggregate – has tended to decline1. At times this has added significantly to real income growth. During the “noughties”, for example, the integration of China into the global trading system depressed global goods prices markedly. This wasn’t such a great thing if you were a manufacturer in the west, competing with this new source of production. Net buyers of goods, on the other hand, were made better off. | The important aspect of this, as with other areas of environmental management, is to try to set measurable objectives for green initiatives, to assign management responsibility for monitoring performance and to offer staff guidance and training on how to achieve the desired results. As noted earlier, the progress should be communicated to the outside world in the bank’s environmental report. I would like to close by expressing my appreciation for being allowed the opportunity to speak to you today on this important topic. Doing the research for my speech has certainly helped to raise my own awareness of the importance of environmental issues in general and the implications of these for financial institutions in particular. I hope that you will find this conference to be useful and 3 BIS Review 108/2000 informative, and that you will pick up lessons and advice on environmental issues that you can take back with you to build into your business operations and decisions. The need to do this is the keynote of my speech and the main theme of this conference. BIS Review 108/2000 4 5 BIS Review 108/2000 BIS Review 108/2000 6 | 0 |
However, no market participant wanted to be the first to begin charging margin out of 10 Several examples in the FX and fixed income markets illustrate that best practices would not be successful without the undeniable support of market participants. For instance, reduction is settlement risk due to the adoption of payment-versus-payment mechanisms, drop in settlement fails in U.S. Treasury markets after the implementation of the fails charge, and improvements in the derivatives markets infrastructure are just a few examples. 11 The BIS effort to develop an FX Global Code and the Bank of England’s leadership of the Fair and Effective Markets Review are two examples of this public-private partnership. 12 Automated trading has also been the focus of significant regulatory attention in the United States and elsewhere over the last several years. See, for example, the Commodities Futures Trading Commission’s proposed rules on “Regulation Automated Trading,” the recent Financial Industry Regulatory Authority (FINRA) amendment to the National Association of Securities Dealers Rule 1032, and the proposed amendments to the U.S. Securities and Exchange Commission’s Rule 15b9-1. 4 BIS central bankers’ speeches fear that their counterparties would stop trading with them and move their business to a counterparty that did not require margin. The TMPG addressed this problem with a recommended practice that all market participants exchange two-way variation margin on a regular basis. 13, 14 Best practices can also encourage market participants to question long-established trading practices and advocate for change. | Estimated effect on GDP after three years.1) Percent 0.2 Approved measures Discussed measures 0.2 Gradual global tariff increases 0 0 –0.2 –0.2 –0.4 –0.4 –0.6 –0.6 –0.8 –0.8 –1 –1 –1.2 –1.2 –1.4 –1.4 US China Euro area Globally 1) The effects are based on model estimates from the IMF and Norges Bank. Approved measures are described in the box “Trade conflicts create uncertainty” in Monetary Policy Report 3/18. Discussed measures include a 25 percent tariff on all US imports from China and a 25 percent tariff on US imports of cars and car parts, in addition to retaliatory measures by countries affected. Gradual global tariff increases imply a 1 percentage point annual increase in tariffs on all imported goods in all countries over the coming years. Sources: IMF and Norges Bank Protectionism means reduced growth capacity, putting at risk the gains brought about by open borders. If the world enters a new period of rising trade barriers, a prime engine of growth and development may lose its momentum. The most serious consequences of new tariff barriers will be faced by developing countries. The WTO has more than 160 member countries. Many of the new countries have experienced rapid growth. Living standards have improved for large population groups. But not everyone has reaped the gains associated with globalisation and trade. Some have lost. Income gaps have widened. | 0 |
• Thailand is therefore poised to assume the role of a connector – by acting as a link or point of reference for the entry of global banks into the subregion. This is underpinned by our established financial platform, familiarity with the local business practices, as well as close cultural ties among our people. • Of equal importance is our own inherent understanding of the challenges of developments faced by GMS, through our own experience. This is particularly important in two aspects. • First, Thai financial institutions are still focused on core financial intermediary functions such as payments services, deposit, and loans which serve the basic needs of the real sector. Thai banks are inclined to serve the needs of the real economy rather than in speculative types of businesses such as proprietary trading. For these reasons, Thai banks are also less complex, with good risk management 2 BIS central bankers’ speeches and strong capital base. Regulators in Thailand and GMS neighbours can understand fairly well the business model of our banks and their risk. We believe that given the lesson of the current global crisis, this type of bank model makes good sense for home and host regulators. • Secondly, both regulator and the banks in Thailand could well remember the bitter experience of our own economic and financial crisis in 1997. We understand that financial liberalization needs to be properly sequenced. | In principle, this can be seen as a “one-off shift” upwards in the interest rate margin. Adjustment to this higher level may be more or less protracted, depending on the rate at which the regulations are implemented and the degree towards which they are expected by the market. During this period of adjustment, the transmission mechanism will be affected. One criticism of the regulatory framework and supervision of the financial area was that, prior to the crisis, these focused excessively upon individual institutions. The assumption was that the system would remain stable as long as the individual institutions were stable. Consequently, processes creating risks on the system level were ignored – processes such as a general underpricing of risk, the increased element of short-term market funding and the increasingly intimate connections between various market participants. One of the components in macroprudential policy, the package of more explicit systemic crisis preventative regulations being discussed internationally, is the more active application of regulations to dampen risk-building tendencies and build buffers when times are good. One specific proposal is to allow the capital requirement for the banks to vary over time. This would entail a division of the total capital requirement into two components. The first of these would be a constant minimum requirement to establish the amount of capital a bank is always to hold. To this can be added a further capital requirement that varies over time by being linked to a suitable indicator of, for example, credit growth or cyclical position of the economy (Figure 7). | 0 |
To the contrary, during the current liberalization period, which commenced with vigor in 1992, the Bank, in conformity with market reforms, has steadily moved towards the use of market-based structures and systems as opposed to direct instruments in the conduct of its monetary policy. In this BIS Review 48/2004 1 regard, and beginning 1993, deregulation of interest rates, removal of capital controls and freeing of the foreign exchange market were implemented as part of the broader financial sector reforms. As a result, through the use of mainly market-based instruments of monetary policy, the Bank has made several notable achievements. Amongst these, has been its contribution to the reduction of annual inflation to 17.2% in December 2003 from 197.0% at the end of December 1992. Further, inflation has remained just under 20% in the first half of 2004 and it is the Bank’s desire to see single digit inflation within the foreseeable future. The benefits of lower inflation in single digits can not be over-emphasized, especially with regard to the fight against poverty. Madam Chairperson, last October the Bank took a bold stand of effecting a down-ward adjustment in the statutory reserve ratio to 14.0% from 17.5 % on both Kwacha and foreign currency deposit liabilities. This was intended to release funds to commercial banks. The outcome of this policy action has been increased loanable funds being available to commercial banks. This in turn has greatly contributed to the downward trend in lending rates in the economy. | But the regeneration of urban communities, and the efforts of British Waterways, have reversed this decline. The number of miles is now increasing. Last year, 13 million people visited our canals and the number of boats is actually higher now than during the Industrial Revolution. Such examples are important because our economy faces the prospect of change again. After an unprecedented financial crisis and deep recession, the UK economy needs to rebalance. Tonight I want to talk about what those changes will entail and the role which the Bank of England can play in supporting them. The Bank of England’s key role has always been to ensure that the economy is supplied with the right quantity of money – neither too much nor too little. For fifty years, my predecessors struggled to prevent there being too much, so leading to inflation. I find myself in the opposite situation having to explain that there is too little money in the economy. But, in the wake of the financial crisis, and the sharp downturn that followed, the amount of money in the economy as a whole – broad money – is now barely growing at all. That is restraining activity and pushing down the outlook for inflation. So the Bank of England has taken extraordinary monetary policy measures – through our so-called “quantitative easing” programme of asset purchases – to ensure that the amount of money starts growing again in order to support a recovery and keep inflation on track to meet our target in the medium term. | 0 |
Prominent among the measures that have been announced or that are pending approval or final design include occupational pension schemes, a review of maximum social security contribution bases and maximum pensions, a new contribution system for self-employed workers, and a review of the reference period for calculating the regulatory base. In recent years, the Banco de España has, in various documents and reports, set out certain principles that should govern the pension reform. First, once the level of benefits the system should provide has been established at the political level, it is crucial that the strategy be rounded off by setting revenue levels and other system parameters (e.g. the retirement age) to ensure the system’s funding. As part of this strategy, it would also be desirable to strengthen the link between contributions made and benefits received – ensuring a sufficient level for the most vulnerable households –, and to analyse the consequences of the reforms envisaged in terms of redistribution and intergenerational equity, to ensure that any adjustments to the system do not fall disproportionately on specific population groups, such as the retired population or future cohorts of workers. The system should also be made more transparent and easier to plan for, to offer greater certainty to the population and facilitate decision-making as regards saving, work and retirement. In this respect, automatic adjustment mechanisms could possibly be introduced, to adapt certain system parameters to changes in demographic and economic dynamics. | Naturally, the financial system and central banks – within the scope of their mandates – must also contribute to the green transition. In this respect, from the standpoint of the Eurosystem in general, and of the Banco de España in particular, one priority at present and in the more immediate future is to make headway, in conjunction with the financial system, in incorporating climate considerations into the operating frameworks of monetary policy, financial stability, supervision and regulation. Banking sector challenges Complementary to this Annual Report, our Financial Stability Report (FSR) published in May analyses the situation of the Spanish banking sector in depth. The sector is facing the shock caused by the Russian invasion of Ukraine, in a setting in which its resilience remains generally high, returns have recovered their pre-pandemic levels and lending has normalised. Yet the war in Ukraine entails new risks to financial stability. Although Spanish banks have very little direct financial exposure to Russia and Ukraine, the indirect effects of the war may be significant. In particular, the macroeconomic deterioration could impact households’ and firms’ ability to pay, above all those experiencing a slower or tardier recovery from the pandemic and whose solvency may now have worsened. Against this backdrop, lending in Spain fell slightly in 2021. Firms’ demand for credit was lower, as they faced lower liquidity needs than in 2020, but this was largely offset by stronger lending to households, especially in the loans for house purchase segment. | 1 |
In order to successfully maintain price stability, we constantly have to make all the reasons underlying our decisions transparent to the public. 1 2 Source: http://www.ecb.int/stats/payments/payments/html/04_table2.en.html BIS Review 59/2004 The announcement of the monetary policy strategy in October 1998, before the introduction of the euro, was a milestone in this regard. It clearly stated the ECB's understanding of its objective and the framework used to guide policy decisions. In addition, the Governing Council's assessment of the economic situation and the risks to price stability are regularly published and monetary policy decisions are explained in a press conference that I and the Vice President give immediately after each monthly meeting in which monetary policy is discussed ; in this respect, the ECB has been very bold in its communication policy, as the usual practice of central banks in 1999 was to release their diagnosis about 6 to 8 weeks after the meeting of their decision making body; by providing a comprehensive explanation of its decisions almost in real time, the ECB has certainly set new standards of transparency in the world of central banking. We are convinced that transparency is a prerequisite for accountability and enhances the understanding among the markets of how the central bank conducts its monetary policy, thereby promoting predictability and supporting substantially policy effectiveness. | What is appropriate for all economies is all the more necessary at the euro area-wide level, where, in the absence of a federal budget, a credible framework ensuring fiscal discipline is a key component for the consistency and the cohesion of our monetary union. Sound fiscal policies implying safe budgetary positions in good times are necessary to ensure that fiscal policy has room to cope with asymmetric shocks, which can no longer be addressed by monetary policy. Not least for these reasons, it is a matter of concern to the ECB that in a number of Member States abnormally large fiscal deficits have persisted over years. The Commission has tabled some proposals and a discussion has been launched to consider how to strengthen and clarify the implementation of the Stability and Growth Pact. We can find common ground between some of the Commission’s proposals and our own thinking, namely, as regards the preventive arm of the Pact. We agree that the implementation of the Stability and Growth Pact should be improved. We agree that ownership and incentives for compliance need to be enhanced. And we agree that implementing the Pact in a way that best reflects its economic rationale should help to achieve this end. At the same time, making the rules exceedingly complex and contingent on too many circumstances would complicate the implementation of the framework to the point where rules would be de facto relaxed. | 1 |
It ensures the robust collateralisation of the remaining net exposures through the margin taken from participants. And in the event of a default, any losses that exceed the defaulter’s collateral margin held by the CCP are mutualised between the members. As the Lehman experience illustrated, the centralised, rules-based management of a clearing member’s default by a CCP, combined with the incentives created by mutualisation enhance the system’s resilience and continuity during a stress and brings greater certainty to the default management process for market participants. Central clearing also brings greater transparency – in the run up to the crisis and during the crisis itself, authorities had very poor visibility over the network of derivatives transactions. That made it much harder to identify risks and the connections between institutions. 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 2 Not all derivative contracts are suitable for central clearing. Where clearing is not possible, the post crisis reforms include similar requirements to margin and report bilateral derivative contracts. But the additional mutualisation and central default management benefits of central clearing, justify in my view, the authorities efforts since the crisis to move derivatives that are suitable for clearing onto CCPs. These efforts have been successful. Reforms since the crisis have led to a very substantial increase in the use of clearing services for both exchange traded and over the counter derivatives. | This concept of “no creditor worse off’’ (NCWO) is a central tenet of resolution regimes for banks. Resolution powers can interfere with property rights and the NCWO protection is needed to constrain use of these powers by the authorities. In the case of a bank, the test is that no creditor should be worse off than if the bank had gone into insolvency. For the reasons set out above, the insolvency counterfactual needs to be modified for CCPs; to assume that in insolvency the pre-agreed order of losses in the rule book would be followed. 9 All speeches are available online at www.bankofengland.co.uk/speeches 9 Non default losses Finally, it is important to emphasise that I have been talking throughout about losses at a CCP following default of a clearing member. This, as I said at the outset, is the main vector of risk for a CCP. But it is not the only one. Non-default losses can arise for a number of reasons, particularly operational failures, including following cyber attack, or losses arising from the investment of the collateral held by CCPs. In such cases, CCPs do not generally have recourse to the resources of their members. Losses need to be absorbed by the capital of the firm and if that is insufficient the CCP faces insolvency like any other firm. | 1 |
Mervyn King: A tale of two cities Speech by Mr Mervyn King, Deputy Governor of the Bank of England, at Cardiff Business School, Cardiff University, 18 June 2001. * * * Vice-chancellor, ladies and gentlemen, It was once said that economic forecasters are the unfathomable in pursuit of the unpredictable. As a student I found this odd. Whenever England played Wales at rugby the result was wholly predictable. The reason was simple. My fellow-student, Gerald Davies, ran faster than Englishmen, even when he carried the ball and they didn't. Economics is, unfortunately, less straightforward. Yet any decision that involves an elapse of time between its implementation and its effects requires a forecast. Time lags are the essence of the transmission mechanism of monetary policy. And that is why the Monetary Policy Committee spends much time thinking about the likely future path of the economy. The severe limits on our ability to anticipate future events means that forecasts can be no more than a description of the relative likelihood of a range of possible outcomes. Anyone who presents you with a point forecast for the future path of the economy is either concealing the most interesting part of their analysis, or suffering from self-deception. So the Monetary Policy Committee presents forecasts in terms of probabilities. And it is the balance of risks to the economy which determines monetary policy. So what are the balance of risks to the British economy at present? | There is, I believe, broad-based support for the objective of setting interest rates to meet the inflation target. Quarterly opinion polls since November 1999, commissioned by the Bank of England and published in our Quarterly Bulletin, provide support for this proposition. But it is clear that the MPC still has much work to do to explain how interest rates affect the economy. Building a constituency for low inflation is a primary objective of the Bank, and one to which we attach great importance. Support for low inflation, and stability more generally, cannot be taken for granted, nor based solely on fading recollections of boom and bust. There is a new generation with little memory of the high and unstable inflation rates of the past. The Bank has, therefore, started an annual competition for schools in which students play the role of the Monetary Policy Committee. The first year's competition attracted over 200 entries, and culminated in the national final at the Bank of England in March. Next year's competition has just been announced, and I would encourage as many schools as possible to enter the competition and pit their wits against the MPC. I am delighted to report that Bassaleg BIS Review 58/2001 3 Comprehensive School in Newport, who won last year's South Wales regional heat, were the first team in the UK to enter this year's competition. | 1 |
Tarisa Watanagase: Financial policy and strategy in ASEAN countries Address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the 4th National Conference of Economists, Chiang Mai, 24 October 2008. * * * Distinguished Speakers and Guests, Ladies and Gentlemen, It is a great pleasure to be present at this year’s National Conference of Economists on the theme of “ASEAN Economic Development”. Today, my brief remark on this important topic will focus on two parts. First, I would like to highlight the economic strengths of ASEAN, and how financial policy and strategy have a role in enhancing such strengths. Second, I would like to share my view on the preparations that ASEAN together should make to weather the global financial storm. First, on the strengths of ASEAN, I would like underscore that ASEAN has always been an important economic and political force. In fact, the region is becoming an important source of growth for the global economy as several ASEAN members are the world’s fastest growing economies. ASEAN has always been active trading nations. Its external trade accounts for almost 5 percent of the world’s exports and imports in 2006. This ratio is a big jump from less than 1 percent two decades ago. It also represents a rate of growth over that period of average 34 percent per annum, compared to less than 20 percent growth rate of world trade. ASEAN exports are not just raw materials and prime commodities. | Without a proper legal system, it becomes harder to trade in almost any financial instrument. Two distinct effects may be considered. On the one hand, yields may rise and consequently asset prices fall. In other words, asset yields may incorporate a “legal risk premium”. It is interesting to note that under the Basel II system legal risk is a part of operational risk, which implies that it is taken seriously by the regulators. On the other hand, an inefficient legal system may simply lead business to move elsewhere, namely influence the quantities rather than prices. The importance of the legal environment was recognised most notably in the January 2007 Bloomberg-Schumer report, “Sustaining New York’s and the US’s global financial leadership”, which reported that “a firm and predictable legal environment was the second most important criterion determining a financial center’s competiveness.” An efficient legal system does not, of course, always imply more (and more restrictive) rules. A balance needs to be struck between restrictive rules and a lighter approach, which may be important for the overall competitiveness of financial centres. The current debate about the competitiveness of the US marketplace (in particular in relation to its British competitor) emphasises that this balance is not always easy to find. 3. Financial globalisation and innovation Let me now turn to some issues related to the impact of financial globalisation and innovation on legal systems. | 0 |
Forecasts for the repo rate Monetary Policy Report 1/2009 Source: The Riksbank Personal judgements are also necessary in normal situations; and the forecasts in the main scenario published by the Riksbank in the Monetary Policy Reports and Updates are produced in this way – with support from models but with the addition of considerable personal judgements. The forecasts gradually emerge during a rather long and labourintensive process that spans several weeks. 6 BIS central bankers’ speeches The forecasts in the alternative repo rate scenarios, on the other hand, are produced in a different manner. Here we use the main scenario as a starting point and then make a purely model-based adjustment using RAMSES. No personal judgement over and above that in the main scenario has been made. The forecasts in the alternative repo rate scenarios are thus less thoroughly analysed than those in the main scenario. If the alternative repo rate scenarios were supplemented with personal judgements, the forecasts and mean squared gaps would probably look different. The main reason for this simplified approach is that it would require too many resources to produce complete, detailed forecasts for several different repo rate paths. Of course, it is not written in stone how main forecasts and alternative scenarios should be produced, and the Riksbank is currently reviewing the decision-making process to see how it could be improved. But this is the way we have worked until now. | It has a complex system of retirement security, with multiple pension schemes in different provinces and for different groups. But China is in the process of reforms, integrating its systems and seeking to provide adequate coverage for all workers, and I think they will be getting there. 19. Even in ASEAN, Thailand is going to begin ageing before long. And the Asian countries that grew quickly a few decades ago are also entering the ageing phase – societies like Japan, Singapore, Korea, Taiwan and Hong Kong. We don’t face quite the same problems as the rest of the world in Singapore – we have a defined contribution pension scheme which doesn’t have 2 BIS central bankers’ speeches the same problems of sustainability. But this is a global challenge. Low interest rates and societies that are ageing and fortunately living longer will pose challenges to retirement security everywhere. 20. Globally, therefore, we need fundamental reforms. We can’t fix the problem through investment strategies, certainly can’t fix it by monetary policies. It needs fundamental reforms. 21. First, we have to enable people to work for long than they used to, in virtually every society that’s getting older, and make it attractive for older people to work. Fortunately, each new generation of people entering their senior years is also healthier. | 0 |
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