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The last part of my speech today will focus on the consequences of these trends for our decisions in the management of the Government Pension Fund Global. Global imbalances Let me start with the change in the world’s economic geography and the resulting gains. Strong economic growth in China, India and several other emerging economies has lifted hundreds of millions of people out of poverty. African countries have also experienced a growth spurt and the number of people living in extreme poverty has fallen considerably over the past two decades2. This is a continuation of a long-term trend. According to figures from the World Bank, the share of people living on less than USD 1.25 a day decreased from close to 43 per cent in 1980 to just over 21 per cent in 2005. Chart: GDP index 2000 and 2010 The strong growth in the emerging economies can perhaps best be illustrated through a comparison with western economies. If GDP is set at 100 in the year 2000, GDP growth would have reached 112 for the euro area and 118 for the US up to last year. The figure for Brazil is 142 and 271 for China. If the trend continues, China will outgrow the US to become the largest economy in the world in the course of the next 10–20 years. 1 Here, the term emerging economies includes developing economies 2 Pinkovskiy, Maxim and Xavier Sala-i-Martin (2010), “African Poverty is Falling...Much Faster than You Think!”, NBER Working Paper 15775. | Changes in, for example, property prices are routinely taken into account in such a framework since the trajectory of the policy rate for the forecast horizon is set by the outlook for inflation and output, and these outlooks are affected by changes in property prices among other things. However, it is close to impossible to properly quantify, or capture the risks, of overly sharp corrections of property prices some time in the future. We therefore have to take risks of that kind into account in a different way than in the normal approach, where the forecasts for inflation and the real economy serve as the foundation. This is done by adjusting the timing of the policy rates changes, for example by raising the policy rate somewhat earlier than would be justified by the forecasts for inflation and the real economy. By doing so, we hope to minimize the probability of a hard landing scenario. Concluding remarks If I were to sum up my experiences from the last few years, I think three conclusions can be drawn. First of all, as long as asset price inflation only is deemed to be a macroeconomic risk, it can be addressed within the framework of a flexible inflation target. If it is deemed to be a threat to the stability of the financial system, the brunt of the policy response would not be on monetary policy, but rather on the regulatory side. | 0 |
BIS central bankers’ speeches 5 6 BIS central bankers’ speeches BIS central bankers’ speeches 7 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches | For households with debts, the scope for consumption is also affected by interest rate adjustments if the share of income used for interest payment changes. Accordingly, we take this into consideration when we make our inflation assessment. There has been a swift increase in household debt and house prices over a long period. One potential cause of concern, which we cannot disregard, is that if this trend continues at the same rapid rate, a situation could develop where, at a later date, there is a risk of a considerable slowdown in growth and employment as a result of households finding themselves compelled to increase savings owing to a heavy debt burden. The risks involved here are very difficult to quantify in forecasts or pinpoint in time, but could none the less be a threat to macroeconomic stability. Inflation could then also revert to a state that might prove difficult to deal with. However, it should be underlined that the likelihood of such a scenario arising is regarded as slight, in particular when we have identified it in good time. We have taken these factors into consideration even if they have not been crucial for our monetary policy decisions. The Riksbank does not have a target for the krona exchange rate. However, since the exchange rate is one of many factors affecting growth and inflation, we must naturally take the path of the krona into consideration in the inflation assessment. The exchange rate affects inflation directly and generally relatively quickly through prices of imported goods and services. | 0 |
Chart 1 plots the distribution of the ratio of UK bank assets to nominal GDP since 1880, broken down into sub-samples. Over this period, this ratio has risen roughly tenfold. It has increased particularly strongly over the past 30 years, peaking at well over 500% of GDP. Other developed countries have experienced a similar, if less dramatic, pattern. This is the “bigger bet” strategy in practice, as a route to higher equity returns. Historically, there is also evidence of the “riskier bet” strategy having been deployed to boost returns. Chart 2 plots the distribution of returns on banks’ assets, again broken down by sub- 11 4 Assuming the beta of its debt is zero – say, because of deposit insurance. BIS central bankers’ speeches sample. The mean return on bank assets lies in a range of 0.5–1% per year. But the variation in returns has risen dramatically. Asset returns were two and a half times more volatile at the end of the 20th century than at the beginning. This evidence is no more than circumstantial. But it does point clearly to banks having assumed greater risk in greater size as the disciplines of unlimited liability were progressively relaxed. In other words, the historical evolution of banking is entirely consistent with the predictions of Merton’s theoretical model. Debt and taxes There is a second, and simpler, route to boosting equity returns. That is by gearing-up the balance sheet. Increased leverage acts directly on a bank’s equity beta. | In Anglo-Continental Guano Works v Bell (Surveyor of Taxes), Mr Justice Cave summed up thus: “It seems to me... that the gains of the trade are quite independent of the question of how the capital money is found… [One] cannot take into BIS central bankers’ speeches 5 consideration the fact that the firm or trader has to borrow some portion of the money which is employed in the business... If you did that it would land you in very extraordinary results”.12 Indeed, it might land you in the guano. But banking was about to buck this trend. In Farmer (Surveyor of Taxes) v Scottish North American Trust, Limited, Lord Atkinson referring to the Anglo-Continental case concluded: “It does not appear to me that the reasoning on which this decision is based can apply to a bank whose business is the borrowing and lending of money”.13 From early in the 20th century, debt interest became a legitimate deductible from bank profits. Where banks led, non-financial firms followed. This debt bias has persisted in the century since.14 The scale of tax-induced debt bias is generally greater the higher the rate of corporation tax and the lower the rate of personal taxation of equity. The IMF (2009) has recently estimated the scale of debt bias in a selection of developed countries. For low or tax-exempt investors, such as pension funds and non-residents, debt is typically between 30–40% cheaper than (new or retained) equity.15 For high-tax investors, the biases are smaller but still significant. | 1 |
Much of the credit for this belongs to the European Central Bank (ECB), whose steadfast commitment to price stability has created an environment conducive to investment, reflected in the fact that interest rates are low across the yield curve. The ECB’s credibility in fighting inflation is now so well established, moreover, that long-term inflation expectations are well anchored at around 2%. Price stability clearly yields important welfare benefits. So there are both advantages and opportunities for policy makers and economic agents in the euro area. But in setting out on this new phase of Malta’s economic development, we must be aware that, while the ECB can, and indeed has, delivered low and stable inflation, it cannot use the interest rate to permanently increase growth. From Malta’s perspective, therefore, the adoption of the euro must be viewed as but one in a continuum of challenges to be faced. The purpose of this conference is precisely to focus attention on the policy choices that need to be made in the years ahead. Put simply, the task that Malta faces is to bridge the remaining income gap with the more advanced members of the euro area. The success of this endeavour will depend importantly on how effectively the public and private sectors work together, both in assimilating the lessons learned during these first years of EU membership and in implementing appropriate policies. | To use real time detailed communication and press conferences in this way was a logical decision, bearing in mind (i) the attention the ECB would receive as a major player in the world financial markets and the global economy, (ii) the necessity to “frontload” the public and the markets with information on the thinking of the new institution and (iii) the interest as regards communication at national level through many different languages of having timely public terms of reference. I do not hesitate to say that this new ECB concept of real time detailed communication has been an important element of the new paradigm in central banking communication. Second, there is the ECB’s Monthly Bulletin, which is always published one week after the press conference. It gives a more detailed explanation of the analysis behind the monetary policy decisions. It regularly reports on information collected by the ECB, such as the bank lending survey. Importantly, it now also includes the ECB staff projections four times a year. An advance copy is published immediately after the Press Conference following the Council meeting. This is another example where the ECB has gone very far in making its policy transparent and communicating its economic assessment in real time. The Monthly Bulletin also contains articles which provide insights into the principles governing our policy. Third, the members of the Governing Council members give interviews and speeches to many different audiences. In them they explain the decisions taken and the ECB’s view on current topics within our sphere of competence. | 0 |
• And sixthly, the institution must be prepared to take appropriate remedial action to deal with its liquidity problems. The policy applies to locally incorporated institutions whose failure might have systemic implications, and not to branches of foreign banks operating in Hong Kong, since the liquidity of a branch cannot readily be divorced from that of the bank as a whole. The expectation is that, in the event of difficulties, the head office of the branch, supported if necessary by the lender of last resort in the home country, would provide enough funding to enable the branch to meet its obligations. There are, however, two circumstances in which the HKMA might provide financial assistance to a branch of a foreign bank with funding problems. The first would be for the HKMA to swap Hong Kong dollars for US dollars held by the branch if no suitable counterparty could be found in the market. The second would be to provide urgently required bridging finance on a secured basis to a branch pending receipt by it of funds from head office. 5 BIS Review 77/1999 Instruments for Lender of Last Resort Support The policy statement that will shortly be issued to banks contains extensive details about the instruments that the HKMA would use for lender of last resort assistance. | The vast body of research conducted in the area of monetary policy has documented the real risk of high and persistent inflation and inflationary expectations. It also shows that without a strong and committed monetary policy response, inflation expectations become self-fulfilling, leading to increased uncertainty, disrupted price signals, inefficient distribution of resources, reduction of economic growth and increased long term volatility. Our experience, research and current analysis, show that under current conditions, the only responsible policy for the central bank is to respond by increasing the policy rate and reinforcing its commitment to price stability. This course of action will create the necessary monetary conditions to control inflation and inflation expectations, and will eventually help return inflation to the target within a reasonable time horizon. Our commitment to price stability aims to preserve the purchasing power of the family incomes and the value of household savings; preserve financial stability and create optimal credit conditions; as well as help the private sector to make reliable business and sustainable investment plans. Most importantly, our projections, which benefit from the same models and research analysis, suggest that the current round of policy rate hikes will not be recessionary. The Albanian economy will continue to grow in the medium-term horizon. In this respect, the recent increase of policy rate which aims to preserve price stability and anchor inflation expectations, is simultaneously a measure for protecting the economy; 2/4 BIS - Central bankers' speeches the private sector; and the households, from the negative effects of inflation. | 0 |
Second, saving banks may well need a sound corporate governance scheme precisely because of the special ownership and control structure. Third, corporate governance that reinforces transparency is always an important contribution to increased efficiency. Fourth, we supervisors see corporate governance as a way not just to safeguard minority shareholders, but also depositors, arguably the weakest part of the banking framework. As regards the efficiency of institutions, we all know that the application of appropriate corporate governance rules improves the quality of their management, their reputation, their stability and, by extension, their risk profile. This is why the Banco de España is and has always been in favour of strengthening corporate governance and transparency in savings banks and will assign more resources to analysing both corporate governance requirements and the practical application of these requirements at each institution. Conclusions To conclude, let me add that the process of improving efficiency levels should not be viewed as a solution for times when the revenue arising on ordinary activity is adversely affected. Rather, it should be tackled as a process to be pursued over the medium and long term, in parallel to the improvement in risk management systems. BIS Review 31/2003 5 | He urged writers to “throw away anything that is false, no matter how much he might love that page or paragraph”. In a similar vein, Malaysia’s microfinance journey has been one of trial and error, as we continuously strived to increase the social and economic impact of microfinance, sometimes working against the tide of popular thinking. This has led to a more nuanced approach to the development of microfinance over time, and an ongoing process of rethinking norms which we may take for granted today. Today, I would like to talk about three perspectives that have shaped the way we approach and implement microfinance in Malaysia. First, technology when used in a clever way, can be of great use. While technological advancements hold great promise for expanding access to financial services for the poor, we need to invest time and resources to understand the factors that affect the poor, and the suitable approach to generate income and create wealth. These insights are what will determine whether technology is central or peripheral to the inclusion agenda. Second, the tradeoffs between financial stability and inclusion requires smart management. A microfinance strategy that focuses largely or wholly on providing credit to the unserved is almost destined to fail, potentially leaving communities worse off from excessive debt burdens. Instead, implementation strategies should ensure that the provision of credit are complemented by the necessary safeguards and financial education. | 0 |
The risk-taking channel, which was analysed in an article in the Riksbank’s own journal, “Sveriges Riksbank Economic Review”, last year, is really a collective term for several different mechanisms which mean that monetary policy, by setting low policy rates, can encourage various players in the economy to take greater risks.5 The argument is that banks and other financial institutions take greater risks when the policy rate is low by increasing their level of debt or changing the maturity of their funding. This may be justified from the individual player’s point of view, but poses a risk to the economy as a whole. In the light of my experience of the financial market before and after the financial crisis, this theory seems intuitively correct. There is also empirical evidence to support the hypothesis that low interest rates lead to increased risk taking. It is not certain, however, that the change in the players’ risk taking is solely due to monetary policy, it may also stem from a generally low level of interest rates that has structural causes. This is a subject that I am sure we will continue to discuss, not least in terms of what it is reasonable to expect monetary policy can achieve. Monetary policy must take financial stability into account The risk-taking channel has been described as a possible link between monetary policy and the work to safeguard financial stability. My starting point is that it is reasonable for monetary policy to take into account factors that relate to financial stability. | In the slightly longer term, questions also remain about the outlook for global trade at large, a factor that has a substantial impact on an export-dependent country such as Sweden. According to some analysts, the development of global trade is now weaker than implied by historical links with global growth.10 If this is the case, is it because companies have less access to trade credits in the wake of the financial crisis or because there has been a structural shift in the growth curve for global trade? It is perhaps not reasonable to expect the high rates of growth that we saw in the early 2000s – and which were boosted by globalisation in the wake of technological development, lower transports costs, increased specialisation, China joining the WTO and so on – to continue. It is also important to monitor how Swedish exports develop in relation to global trade. These are complex questions that it is probably too soon to answer. However, there is every reason to return to these questions too, particularly with regard to the potential consequences for Sweden. All in all, the Riksbank’s assessment from the September Monetary Policy Update is nevertheless that 10 See, for example, the World Trade Organization (2013) BIS central bankers’ speeches 9 economic activity abroad will, if only gradually, make a positive contribution to Swedish growth. Figure 7 What can we expect of world trade? | 1 |
Now it’s hard to say how much weight to put on that because historically consumer confidence goes up and down, and it doesn’t just necessarily feed into consumer spending. But the increase in business confidence is quite striking, especially for smaller businesses. And so one of the big open questions that we’re going to be assessing over the next few months is: is that improvement in animal spirits, so to speak, going to actually feed through and lead to more spending? So, I think where a year or two ago, I think our anxieties were more about the risks to growth to the downside, so as that – well, a year ago, we were worried about events in China, we were worried about uncertainties about Europe. I think now the balance of risk is gradually shifting, where the possibility is that growth could actually be stronger than expected, rather than weaker than expected. The markets expect fiscal stimulus out of this Administration. That’s another factor that probably will over time tilt the equation more to the upside. But on fiscal policy, it’s really hard to factor into your forecast at this point because we don’t know what it is, how big it is, or when it will happen. Other than that, we have it completely nailed down. So, it’s really hard to sort of put that into your forecast. And so the way I think about the fiscal policy outlook is that we’re probably going to get some fiscal stimulus at some point. | Moreover, we should be aware that convergence is a continuous process, which will last even after the accession to the Eurozone; this is a lesson we should learn from the failed experience of other countries which considered that joining the euro is the end of the line. Second, while the nominal convergence criteria are deeply rooted in the minds of policymakers, the Maastricht Treaty explicitly stipulates that “a high degree of sustainable convergence” is needed. Yet, this requirement seems to have been overlooked sometimes. In this context, I want 1/2 BIS central bankers' speeches to highlight that there are four types of convergence that must be taken into account: nominal, real, institutional and structural. Nominal convergence is easily quantifiable, as the specific criteria are clearly defined in the Maastricht Treaty. But we also have to ensure the compatibility of our institutions with those in the euro area and this is the essence of institutional convergence, a process where the central bank and its independence are particularly important. While structural convergence focuses on adapting the structure of our economy to that of the euro area, real convergence, measured by GDP per capita (at PPS) as a percentage of euro area/EU average, is the best proxy for the development level of a nation. So, when talking about convergence towards euro area enlargement, it is important to keep in mind all these valences of convergence. Third, we are very interested in learning the experience of our Bulgarian colleagues, and I am looking forward to their presentations. | 0 |
• The second focuses on the effects of climate risks on the economy and the financial system as a whole. This workstream aims to promote the modelling of and economic research into specific climate issues and to draw up global stress scenarios that can be used as a basis for monetary policy and macroprudential supervision. The SNB is a member of this workstream. It is particularly interested in contributing to this group’s activities as it wishes to explore ways to refine and augment its own analyses and tools. • The third workstream, in which the SNB also participates, examines developments in sustainable finance and the role of central banks and supervisory authorities in promoting socially responsible investment within the scope of their mandates. The Climate change could also impact productivity, potential growth and, ultimately, the long-term natural rate of interest. For more on this subject, cf. Brainard, L. (2019), ‘Why climate change matters for monetary policy and financial stability’, remarks at conference on ‘The economics of climate change’, San Francisco, 8 November, as well as Weidmann, J. (2019), ‘Climate change and central banks’, introductory remarks at the Deutsche Bundesbank’s second ‘Financial Markets Conference’, Frankfurt am Main, 29 October. Page 6/12 SNB is well placed to contribute here by sharing its experience as a global investor, a subject that we will investigate in more detail in a moment. | 1 Furthermore, in 2018, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the equivalent of the Nobel Prize in economics, recognised William Nordhaus for his work on integrating climate change into long-run macroeconomic analysis. 1 Nordhaus, W.D. (1977), ‘Economic growth and climate: The carbon dioxide problem’, American Economic Review 67(1), pp. 341–346. Page 2/12 It may seem obvious, but it is worth reminding ourselves that our planet has undergone numerous climatic changes throughout history. However, in the past, these changes have essentially been the result of natural forces. Today, global warming is largely attributable to human activity – and the rate of warming is faster than it has been in the past. 2 Climate change is a negative side-effect of economic activity – what economists call a ‘negative externality’. The externality arises because the costs caused by the emission of CO2 and other greenhouse gases are not borne by the emitters. When economic agents emit CO2, they do not internalise the effect of these emissions on the planet or on future generations. This is a classic ‘tragedy of the commons’ scenario: 3 the atmosphere – a shared or ‘common’ resource that is available to us all but belongs to no one – is being overexploited and degraded. The mechanism underlying the ‘tragedy of the commons’ is well understood and documented by economic theorists. Yet, in the case of global warming, several factors are in play that make the phenomenon difficult to grasp and remedy. | 1 |
Observing the data, one can notice very strong growth of domestic demand before the crisis, on average of around 6%, while as of 2009 until 2013 domestic demand was contracting. In the last couple of years it was brought on a solid grounds, but yet the average growth is more modest at around 3.5%. 10 Chart 7 Domestic demand and fiscal balance 14.0 12.9 10.0 8.0 4.8 0.0 7.3 7.2 6.1 3.5 3.3 4.0 2.0 0.0 10.9 12.0 6.0 Current account and fiscal balance, as % of GDP (average for the selected countries) Real GDP and its components growth rates, in % (average for the selected countries) -1.9 -2.4 4.2 -5.0 -4.4 -2.0 -5.0 0.2 -2.0 GDP -10.0 Domestic Demand 2000- 2008 -8.0 -0.6 -1.8 -4.0 2009- 2013 Exports 2000- 2008 Imports 2014- 2018 Fiscal balance Source: Eurostat and NBRNM calculations. 2009- 2013 2014- 2018 Current account balance Source: IMF and NBRNM calculations. Financial flows to and from advanced economies have been much weaker since the global financial crisis. In particular, portfolio debt flows have weakened, reflecting a combination of factors: large government debt asset purchases by central banks, increased fragmentation in euro area debt markets, and much-reduced accumulation of reserves by emerging market and developing economies. | News conference 15 December 2022, 10.00 am Introductory remarks by Andréa M. Maechler In my remarks, I will talk in more detail about the implementation of today’s monetary policy decision, which Thomas Jordan has already touched on. I will start, however, by giving you an overview of how we have steered interest rates since the switch to a positive SNB policy rate in September. The switch from a negative to a positive SNB policy rate required us to make an adjustment to the implementation of our monetary policy in the money market. The new approach comprises two elements: reserve tiering – that is, tiered remuneration of the sight deposits that banks and other financial market participants hold at the SNB – and reserve absorption. This approach has proved successful. Following our monetary policy decision on 22 September, secured short-term Swiss franc money market rates moved quickly towards the new SNB policy rate (cf. chart 1). We are also continuing to see solid activity among participants in the money market, which ensures a robust basis for the calculation of SARON. From the outset, the market responded favourably to the deployment of our monetary policy instruments to absorb liquidity. On the very day of the monetary policy assessment in September, we started conducting repo transactions on a daily basis and issuing SNB bills on a weekly basis (cf. chart 2). In this way, we were able to reduce the liquidity supply in the money market sufficiently to allow us to steer interest rates effectively. | 0 |
I should like to highlight this latter aspect of price-setting policy at the level of products or services since, traditionally, services that are not explicitly charged and whose cost has been covered by the net interest margin have been provided to customers. I believe it is important to introduce transparency and rigour into price-setting. Without it, the reality of the business is distorted as is, consequently, the attendant analysis, and informed decision- 1 “SSM thematic review on profitability and business models. Report on the outcome of the assessment.”, September 2018. 3/8 making is hampered. Not in vain, in the aforementioned thematic review price-setting is included among the areas where the SSM recommends making improvements. I would further stress that, in this comprehensive analysis of the bank’s accounts, there should be some thought on the weight of operating expenses. Unquestionably, Spanish banks have made a great effort in terms of capacity adjustment in recent years. Numbers of staff and offices have fallen approximately by 32% and 40%, respectively, from their 2008 peaks. It is necessary to continue paying attention to these expenses, so as to ensure they are in step with developments in lending activity and in revenue. Against this background, progress in new technologies, and the alternatives these offer to the traditional means of providing bank services, may prove an opportunity to cut costs and come into line with the change under way in the customer-bank relationship. | How these decisions materialise, which in the literature is known as “risk culture”, is particular to each bank and the responsibility of each one. Supervisors observe and assess but, ultimately, this is one of the idiosyncratic aspects of banks’ DNA. In short, governance structures should be capable of measuring, heading off and analysing current risks and those that are arising. While there are no strong signs of any easing, for activity as a whole, in lending conditions and of aggressive pricing that might suggest that risk is not sufficiently reflected, banks must be careful to retain a suitable profitability/risk trade-off that is sustainable over the cycle in all business segments. An individualised reflection, adapted to the characteristics of each institution. I shall conclude with a brief but nevertheless important reference. In addition to being comprehensive and strategic, reflection on the business model should also be individualised, i.e. adapted to the idiosyncratic characteristics of each institution. Indeed, the findings of the SSM thematic review of profitability and business models show that there is no one single approach and that, even among those banks with better profitability results, there are differences in strategies. Some pursue strategies geared to obtaining high income, which counter relatively high costs. Others place an emphasis on low costs that are compatible with relatively low income. And others strike a balance between a medium income-generating capacity and medium or low-level costs. | 1 |
Cavallo, Alberto (2018) ‘More Amazon effects: online competition and pricing behaviors’, Harvard Business School & NBER, 7 September. 5 Swiss Federal Statistical Office data, for example, show that the share of goods and services subject to price adjustments rose from some 20% per month in 2011 to just over 25% in 2017. Page 3/9 As its responses both during and after the crisis have shown, the SNB has a monetary policy strategy that has proved its worth in highly volatile circumstances. Robust and appropriate, this framework offers the required room for manoeuvre, allowing the SNB to tolerate inflation temporarily moving outside the range it equates with price stability, provided inflation expectations remain well anchored. Innovations on the foreign exchange market As I have explained, the SNB must adapt its analysis continuously in order to understand and anticipate changes in the goods and services market. However, the latter is not the only market to have undergone profound changes. The foreign exchange market, too – a key market for the SNB – has also evolved considerably since the crisis. It is here that we conduct interventions, as required, and it is here that we actively manage our foreign exchange reserves. The SNB has had to adapt to ongoing changes taking place on this market as well to ensure that it is able to implement its monetary policy effectively at all times. | Speech Embargo 8 November 2018, 6.30 pm Ten years after the crisis: evolving markets and the challenges for the SNB Money Market Event Andréa M. Maechler and Thomas Moser Member of the Governing Board / Alternate Member of the Governing Board ∗ Swiss National Bank Geneva, 8 November 2018 © Swiss National Bank, Zurich, 2018 (speech given in French) ∗ The speakers would like to thank Dirk Faltin, Fabio Panzera and Nicolas Stoffels for their support in drafting this speech. They also thank Bernd Aumann and Alain Kouo as well as SNB Language Services. Page 1/9 Ladies and Gentlemen, I wish you a warm welcome to the Swiss National Bank’s Money Market Event in Geneva. Ten years ago, back in the autumn of 2008, none of us knew when or how the crisis would end. At the time, central banks adopted a raft of measures to tackle multiple challenges in quick succession. Having exhausted the conventional monetary policy toolkit, they turned to more innovative approaches, cutting their short-term interest rates to unprecedented levels and substantially expanding their balance sheets. Today, a decade later, the worst fears have evaporated, economic growth has returned to a robust level in many parts of the world, and some central banks have started to gradually tighten their monetary policy. For the SNB, though, it is still too early to contemplate taking such action. At our last monetary policy assessment in September, we decided to maintain our expansionary monetary policy stance. | 1 |
Page 10 of 18 15 16 6 3 Figure 3 Inflation indicators (*) (annual change, percent) 6 6 5 5 Services CPI 4 4 services EFE 3 3 CPI 2 2 1 CPIEFE Goods CPI 1 0 0 -1 -1 goods EFE 14 15 16 17 18 19 (*) As from January 2019, the new 2018=100 annual base indexes are used, so they are not strictly comparable with earlier figures. Sources: Central Bank of Chile and National Statistics Institute (INE). Figure 4 Non-mining GDP (real annual change, percent) 6 6 5 5 Trend 4 4 Potential 3 3 2 2 Actual (moving annual average) 1 1 0 0 13 14 15 16 17 Source: Central Bank of Chile. | Figure 11 Real exports and world GDP (1) (contributions, percentage points; annual change, percent) 6 World GDP 4.0 (2) (right axis) 4.5 4.5 Emerging Latin America 4 3.6 3.0 3.0 Other 2 3.2 1.5 1.5 0 2.8 0.0 0.0 Developed Emerging Europe Asia -2 2.4 -1.5 14 15 16 17 18 19 -1.5 14 15 (1) Moving three-month average. (2) IMF's quarterly data. Sources: CPB Netherlands Bureau for Economic Policy Analysis and IMF. Page 16 of 18 16 17 18 19 Figure 12 CPI inflation forecast (1) (2) (annual change, percent) CPIEFE inflation forecast (1) (2) (annual change, percent) 4 4 4 4 3 3 3 3 Jun. '19 Report 2 Jun. '19 Report 2 2 2 Mar. '19 Report Mar. '19 Report 1 1 1 0 1 0 0 18 19 20 21 0 18 19 20 21 (1) As from January2019 the new 2018=100 annual base indexes are used, so they are not strictly comparable with earlier figures. (2) Gray area, as from the second quarter of 2019, shows forecast. Sources: Central Bank of Chile and National Statistics Institute (INE)). | 1 |
Consequently, trading tends to occur infrequently and largely on a bilateral basis. Through the prism of these two asset classes, I hope to provide some preliminary answers to five key questions. First, what do we mean by liquidity and how can we measure it? Second, what does the available evidence show in terms of how liquidity has changed in recent years in the U.S. Treasury and corporate bond markets? Third, what factors could influence liquidity provision? Regulation might be one factor, but there also could be others. Fourth, what are the costs associated with shifts in liquidity and how do these costs compare to the benefits of a more resilient and robust financial system? Fifth, what future work is needed to better assess whether increased regulation has damaged liquidity provision and whether the resulting costs exceed the benefits of higher capital and liquidity standards in terms of financial stability? As always, what I have to say today represents my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. 1 What do we mean by liquidity and how can we measure it? I would define liquidity as the cost – both in expense and in time – of buying or selling an asset for cash. | William C Dudley: Regulation and liquidity provision Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the SIFMA Liquidity Forum, New York City, 30 September 2015. * * * The charts can be found at the website (Federal Reserve Bank of New York). The financial crisis and the ensuing recession exacted a high cost on the country. Real gross domestic product (GDP) declined by over a half of a trillion dollars. Total nonfarm payroll employment declined by 8.7 million jobs, and 5.8 million households lost their homes to foreclosure. Extraordinary fiscal and monetary policy efforts were required to prevent a collapse of the financial system and the onset of a world-wide economic depression. In the aftermath, new regulations, such as Basel III and the Dodd-Frank Act, were implemented to strengthen the financial system and to limit the risk of a future financial crisis. Some opponents of tougher bank regulation claim that the increased regulatory requirements, such as the higher capital requirements and new liquidity standards, that have been imposed on large financial institutions in the aftermath of the financial crisis have reduced these firms’ market-making capacity. As a result, so the argument goes, this is leading to less liquidity for trading securities, and to more illiquidity events in which the prices of financial assets move sharply and become temporarily unmoored from their fundamental valuations. | 1 |
If a household, firm, bank or government has become too heavily indebted, all experience to date indicates that, sooner or later, the debt will have to be restructured. Hayek would probably have reiterated the view he expressed in 1932: “ ..... the existence of public debt [on a large scale] imposes frictions and obstacles to readjustment very much greater than [the frictions and obstacles imposed by] the existence of private debt.” Perhaps Hayek, originally from Austria, had in mind Germany’s enormous reparations debt from the First World War, which probably contributed to the fall of the Weimar Republic. We should not exaggerate: after all, Europe is still a region of peace, prosperity and cooperation. This is perhaps the greatest difference between the current situation and the 1930s. Nonetheless, the 1930s taught us that deep economic crises can also have substantial social and political consequences. The European Central Bank – the ECB – is the only institution in Europe that can have a material influence on developments across the continent in the short term. The ECB is keeping government debt yields low by means of record-low policy rates and large government bond purchases. This is keeping the wheels in motion. It is also supporting 4 BIS central bankers’ speeches government finances in a number of European countries. | For the Spanish banking industry, the year 2013 marked the culmination of a major reform in the framework of the financial assistance programme agreed with the European authorities. This programme began in 2012 and, as you know, concluded last January. The reform has seen the clean-up, recapitalisation and restructuring of the sector. In a complex macroeconomic and financial environment, which required the adjustment of the imbalances that have built up in the previous expansionary phase, the Spanish banking sector has demonstrated notable adaptability. I will briefly review some of the basic parameters marking developments at our banks, in particular the changes in the structure of their balance sheets, non-performing loans and results. I will then underscore the importance of the capital conservation measures in the current setting. Changes in the structure of bank balance sheets Last year, the banking sector significantly reduced the size of its balance sheet, as well as changing its structure. On the asset side, the reduction in lending to the private sector persisted. This reduction was, however, compatible with an increase in the weight of assets relative to the total balance sheet, whereas other asset items – such as deposits at central banks and credit institutions, and derivatives operations – contracted at very high rates. In turn, on the liabilities side, there was a shift towards private-sector deposits, thereby furthering the reduction in funds borrowed from the Eurosystem. In addition, the sector also increased its own funds, the relative weight of which on the balance sheet has gained in significance. | 0 |
Gent Sejko: Future Balkans - towards a global inclusion Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Tirana Economic Forum "Future Balkans: Towards a global inclusion" Leadership, Institutions and Policies Convergence 2017-2020, Tirana, 24 January 2018. * * * Your Excellency Mr President, Your Excellency Deputy Prime Minister of Albania, Your Excellency Deputy Prime Minister of Kosovo, Honourable Minister of Finance and Economy, My fellow Colleagues and Honourable Participants, It is a pleasure for me to participate at this Conference, convened to discuss on the importance of regional integration, which should be promoted by a forward-looking leadership and supported by the policies convergence. I believe that the dialogue that focuses on sharing our vision for the future, the convergence of perspectives about the challenges ahead of us, and identifying the objectives and drafting agendas for joint action, will be a fruitful dialogue to all of us. Policy convergence, both within and between countries, promotes efficiency and minimizes negative spill-overs. The role of institutions in the growth and development Institutions are the backbone of any modern society, in as much as they generate and implement laws, regulations and policies of development, thus laying out the rules of the game in a market economy. From a broader perspective, these rules should provide for a stable and transparent environment, thus enabling a predictable and long-term decision-making process. They should promote fair competition and equality of opportunities, and they should engender fairness and social cohesion. | Fifth, in competing for the same pool of international investors, countries in the region often attempt to raise their individual profile through offering tax break or other subsidies. This race to the bottom does not prove to be productive. Resolving any of these issues requires foresight, strong institutions, determined policy action, and regional coordination. Institutions and integration Our region is actively involved in the EU integration process. This objective is the lighthouse for our institutional reform efforts and has produced notable benefits. The EU integration is aiding authorities in the region to anchor their institutional reforms and policies. On the other hand, the EU institutions provide oversight and lend credibility to the process. Additionally, since individual countries are working towards common objectives, regional policy is better coordinated. However, I also believe countries in the region could do more to share their experiences and learn from each other. Albania offers a positive example in terms of economic and financial stability. Macedonia has done exceptionally well in terms of attracting high-value-added FDIs. Serbia is on the regional vanguard of financial market development. All of us should learn from our individual success stories; all of us should avoid mistakes we have individually made in the past. Our countries share more commonalities than differences: what works for one is more likely than not to work for others, and vice versa. Furthermore, I believe we should look at regional integration as a goal in itself, rather than as an instrument to EU integration. | 1 |
I will aim to cover three topics: first, the progress of the economic recovery to date; second, the prospects for UK economic growth looking ahead over the next couple of years; and third, and most crucially, the role of monetary policy in supporting sustainable economic growth in the UK economy over the economic cycle. The current recovery – progress to date Economic recoveries are normally uneven – particularly in their early stages – and we should not be surprised to see significant fluctuations in the GDP growth rate from quarter to quarter. We have seen this in previous recoveries, with the quarterly rises in GDP fluctuating from zero to 1.5% in the first three years of the 1980s recovery and from –0.2% to 1.4% in the equivalent period when the UK economy was recovering in the early 1990s.2 In this context, the performance of the UK economy over the recovery so far does not look unusual. Before the snow arrived at the end of the year, we had four quarters of economic growth in which the rise in GDP fluctuated from 0.3% to 1.0%. In fact, until the snow-affected fourth quarter, the growth of the UK economy over the first year of this recovery was stronger than in the equivalent period of the early 1980s and early 1990s recoveries. | BIS central bankers’ speeches 7 In a speech last month, I set out the reasons why this might be the case.6 First, the relationship between spare capacity and inflationary pressures may be much more complex than the simple model suggests – particularly in the services sector which now dominates the UK economy. Second, the very accommodative policies we pursued in the depths of the recession allowed companies to pass through cost increases and may have encouraged companies to believe they have more pricing power than in the past. We have seen further evidence of this today in the very strong price expectations which are continuing to be registered by manufacturers in the CBI survey. And, third, the UK is a very open international economy. Global price pressures and the value of the pound appear to be having a greater impact on our inflation rate than the domestic margin of spare capacity. There are other criticisms which can be made of the “output gap” view of the world. Measures of the “output gap” are frequently revised, partly because of GDP data revisions and partly because of changes in our view of where the trend or capacity level of output truly lies. For both these reasons, the “output gap” is notoriously difficult to measure in real time.7 Indeed, there have been quite significant revisions to the GDP profile of the early 1990s recession from the initial estimates. | 1 |
The share employed in the public sector is also somewhat higher than in Norway as a whole. Unemployment has also been markedly lower in the inland region than in most other regions in recent years. 2 BIS Review 79/2005 According to the most recent reports, the economic situation in the region is favourable. Participating companies report rising employment and solid growth in all industries. In retail trade and in the construction sector, activity is brisk and increasing, with a somewhat wait-and-see approach to future developments. Growth in manufacturing has slowed slightly, but is likely to stabilise. Investment is rising in all sectors. Enterprises in the region envisage a slight rise in prices in the period ahead. Inflation has edged up since the beginning of 2004. In October, the year-on-year rise in consumer prices adjusted for tax changes and excluding energy products (CPI-ATE) was 1.2 per cent. Adjusted for the estimated direct effect of the interest rate fall on house rents, the rise in prices is estimated at 1.3 per cent in October. Total consumer prices (CPI) rose by 1.8 per cent in the same period. Prices for domestically produced goods and services rose by 2.0 per cent in the twelve months to October this year. The rise in prices for domestically produced consumer goods exposed to international competition has been very low this year. In October, prices for these goods were 0.2 per cent higher than in the same month one year earlier. | During my visits to the Middle East, I sensed their interest in investing in Asia. Many are keen to engage China and India but their businessmen told me that they were not so familiar with doing 2 BIS Review 83/2005 business in China. Singapore can serve as a bridge, given our knowledge and connections. Furthermore, Indian, Chinese and Singaporean financial institutions could tap into Islamic funds from the Middle East for infrastructural and other major projects in India and China. 21. As an international financial centre, Singapore is well placed to intermediate and facilitate investment flows between Asia and the Middle East. Already, funds managed in Singapore from the Middle East have increased by over 70% to $ billion in 2004. But this is still a small figure, given the trillions of dollars of wealth in the Middle East. We should work with credible partners to offer a wider suite of Islamic financial services and products. The role of MAS 22. MAS will continue to support and partner the financial industry to seize the opportunities. Last year, I highlighted three strategic priorities for MAS and our financial sector. They are first, strengthen our position as a leading financial centre in Asia; second, maintain excellence in a riskier environment; and third, leverage and build on our reputation. We have made good progress on all three fronts. Strengthening our position as a leading financial centre in Asia 23. As MAS Chairman, I regularly meet CEOs of global banks and big companies. | 0 |
The response so far includes an aggressive easing of monetary policy, ensuring adequate liquidity to the financial markets and the banking sector, helping banks to better manage the increased risk in lending by introducing a government-sponsored credit guarantee scheme for SMEs, and encouraging banks to act early in assisting customers with debt rescheduling or debt restructuring so as to ward off the pressure on asset quality and on the non-performing loans. These are the direction and the measures we have taken in our response to the crisis, and more will be done if needed to ensure a smooth adjustment in the economy and the financial sector. Judging from what we are seeing in terms of the recent broad global developments, I am confident that the combined effects of the fiscal stimulus by the Government and the financial measures that the Bank of Thailand has put in place, should provide the essential cushion for the economy to adjust to shock, and keep the impact of the global financial crisis on the economy manageable. As for the near-term outlook, latest monthly data still show signs of sharp corrections in the domestic economy. Exports and tourism fell by 11 percent and 23 percent, respectively, in February from a year earlier. Imports, on the other hand, fell by more than 40 percent, indicating a sharp deterioration in the domestic demand and supply conditions, and this is reflected by the continued declines in manufacturing production, capacity utilization, private consumption and investment. | Nevertheless, the latest forecasts provided by the ECB last Thursday continue to point to a gradual rise in inflation over the coming years: 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018. 2 BIS central bankers’ speeches II. This brings me to my second point: how effective are our non-standard measures? 1) Since the summer of 2014, we have implemented a series of monetary policy measures, dubbed “non-standard”, to complement cuts to key interest rates, which now stand at 0.00% for main refinancing operations and-0.40% for the deposit facility. These measures include: 2) Targeted longer-term refinancing operations, conditional on the provision of bank lending to the real economy. The new series of TLTROs that we decided to launch on 10 March - TLTRO 2 - will allow banks to borrow at highly favourable rates, depending on the amount of new credit they provide; 3) Purchases of private and public sector securities, to further ease monetary and financial conditions in the euro area. The Eurosystem buys asset-backed securities, covered bonds and investment grade bonds issued by euro area sovereigns, agencies and institutions. On 10 March we decided to expand this programme further by including corporate bonds among eligible assets, and increasing the amount of monthly purchases to EUR 80 billion from EUR 60 billion previously; 4) Indications on the future path of key interest rates – or “forward guidance” – in order to influence agents’ expectations. | 0 |
Luis M Linde: Monetary policy – current situation and challenges Closing remarks by Mr Luis M Linde, Governor of the Bank of Spain, at the launch of the yearbook “Anuario del euro 2014”/Fundación de Estudios Financieros-Fundación ICO, Madrid, 28 January 2015. * * * Firstly, I would like to thank Irene Garrido, chairwoman of ICO, Fernando Fernández and Juan Carlos Ureta for kindly inviting me to attend the launch of this new edition of the Anuario del Euro. I will begin by reviewing the current economic situation in the euro area and the measures adopted by the European Central Bank. Then I will go on to briefly comment on the leeway available to monetary policy in a context of very low inflation rates, and conclude by saying something about the different position in the monetary policy cycle of the main developed economies. The economic situation in the euro area and the ECB’s monetary policy The euro area’s economy is in a situation of weakness, with overall expected growth of 0.8% for 2014. After remaining fairly dynamic in first quarter of 2014, GDP grew only modestly in the following two quarters, and according to available forecasts, the path of recovery, both in the short and medium term, will be fragile, with disparities between countries. According to the European Central Bank’s projections, in line with the consensus, 2015 and 2016 will see growth of 1% and 1.5%, respectively. | The interest rate applicable to the long-term financing facility, which aims to stimulate lending, was reduced and an expanded asset purchase programme was announced. This programme includes, in addition to the purchases of asset-backed securities and covered bonds issued by the private sector, purchases of bonds issued by euro area central governments, agencies and European institutions. The size of this expanded programme is ambitious, with monthly purchases amounting to € billion. The purchases will commence in March and, in principle, it is intended that they will be carried out until September 2016, although the Governing Council of the ECB has given itself the option to continue to make purchases if the path of inflation is not consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term. The programme requires that, to be eligible for purchase, securities must be at least investment grade, or if not, that their issuers are under an EU-IMF financial assistance programme. These conditions are similar to those applied in the requirements for collateral to be eligible for monetary policy operations and those envisaged, in August 2012, in the announcement of the sovereign bond purchase programme known as Outright Monetary Transactions (OMTs). Of the additional asset purchases, 12% will be purchases of bonds issued by European institutions and the other 88% will be purchases of bonds issued by central governments and agencies of countries in proportion to their shares in the ECB’s capital key. | 1 |
As we have already discussed, the first component of the insurance aspect of the framework is the reserves averaging mechanism itself, which permits banks, within reason and without penalty, to vary their reserves account balances day-to-day in the face of small and/or short-lived liquidity shocks – provided they hit their reserves target on average over the maintenance period. The second component is the OSFs which allow banks to cope with larger, expected (frictional) payments shocks day-by-day. A third component comes through longer-term OMOs to which we now turn. Longer-term Open Market Operations The most routine method for ensuring there is the correct amount of sterling in the system, consistent with reserves targets, is via short-term OMOs. Prior to the start of QE, the Bank carried out weekly short-term reverse repo operations (STRs) against a pool of “narrow” collateral comprising highly liquid sovereign or near-sovereign bonds from a small selection of countries. At that frequency, the scale of the operations could be judged fairly precisely so as to offset any autonomous factors which affected the net supply of sterling to the market. But relying solely on short term OMOs could have meant carrying out very large repo operations every week. To avoid that degree of churn, some longer term reverse repos (LTRs) were also used precrisis – at maturities from 3 to 12 months. | Ladies and gentlemen, I would like to point out that although the credit quality has improved, the level of nonperforming loans is considered as still high, and it should be lowered at a faster pace. This is a complex process that puts to test the adequacy of the legal framework, as well as the coordination and consistent implementation of institutional policies. These challenges were identified in the Annual Forum organised in June. Some of them acknowledge the need for improving the legal framework. Others point to unifying, in a single law, important stipulations about the execution of executive title, which are currently envisaged across several laws. We should be aware that a part of the difficulties arise from the dimensions of this problem; also, until a while ago, the justice system lacked the experience and specialised expertise on these matters and is still facing inadequate capacities to handle such practices. However, inadequate legal provisions and their inconsistent implementation in practice render the collateral execution process tedious, uncertain and costly for the parties involved. The coordination of institutional policies is another key process to respond to various problems in a timely and appropriate fashion. For example, the recent Action Plan for the resolution of non-performing loans represents a new level of communication and commitment of public institutions and the Bank of Albania to find a sustainable solution. Many of the issues concerning the banking industry, which the Bank of Albania considers as crucial, have been incorporated in this Plan. | 0 |
Unemployment varied between 6 and 8 per cent around an average of 7 per cent during the ten years preceding the financial crisis.16 If the current rate of fall in unemployment continues, it will reach a normal level in the autumn of 2011. Although, the assessment in the Monetary Policy Report is that this will not take place so quickly, we should remember that both the Riksbank and others have underestimated the strengthening of the labour market in recent years (see Figure 20). Monetary policy must also take into account how the development of the economy affects wage formation. Monetary policy must resist the temptation to stimulate production and employment in the short term over and above the level that is compatible with a stable development of wages and inflation. A very rapid improvement of the labour market may lead to problems in the wage negotiations that will begin in the autumn. Wage formation has worked well in the last 15 years and this has helped to keep inflation at a low and stable level. It would be unfortunate if wage negotiations had to be conducted in a situation where there is overheating on the labour market. In the current situation, the shortage of labour is probably a better measure of how strained the labour market is than unemployment. The shortage of labour in the business sector was back to an almost normal level in the fourth quarter of 2010. | In today's environment, cultivating a lifelong learning experience is essential to personal and economic success. Lifelong learning involves more than just formal education and training. It encompasses learning throughout the life cycle, at different stages of life and in different learning environments. As individuals, attention to lifelong learning is essential to remain relevant in a highly competitive environment and to enhance our ability to function effectively and in a meaningful way as members of our community. With new knowledge comes innovation, agility and increased productivity that contributes to the overall performance and economic growth process. While it also enables us to adapt to the constantly changing environment, it also increases our capacity to cope with natural emergencies. The challenge then is to embrace the opportunities as they present themselves and to continuously develop new skills and competencies that will be needed to meet current and future demands. The opportunities for learning will be boundless. Technology has also significantly broadened the reach and means for learning, as well as increased learning efficiencies. As you step into this new and exciting world, these possibilities should be fully optimized. In concluding, allow me to offer my congratulations once again to the graduates of the class of 2006. You represent the promise of our nation's future. Indeed, nation building no longer belongs exclusively to the realm of the Government. As professionals, your advancements should not just be confined to those of immediate interest or relevance to you. | 0 |
16 Sep 2022 Keynote speech at the Treasury Markets Summit 2022 Eddie Yue, Chief Executive, Hong Kong Monetary Authority “New Impetus for Hong Kong” Distinguished guests, members, and friends of the Treasury Markets Association (TMA), ladies and gentlemen. Opening 1. It is an honour and a pleasure to be asked to give the keynote speech at this year’s Treasury Markets Summit. 2. As much as I wanted to be with you all in-person, I have to join this event virtually while travelling to international meetings. Travel has been rather difficult for the past two-anda-half years but now that most cities and countries have achieved high vaccination rates and COVID-related symptoms have generally become less severe, I am taking every opportunity to physically represent Hong Kong at key international meetings. There is really no substitute for face-to-face connection, and I do hope such gatherings are back to stay. This is a great time and a perfect opportunity for us to show the world that Hong Kong is back, stronger and better than ever. 3. In my remarks today, I wish to talk about Hong Kong’s progress as an international financial centre, and to highlight the rapid growth of Mainland China and the RMB. No appreciation of Hong Kong’s growth can be complete without acknowledging the rest of the nation’s progress: Looking at one without the other would be like admiring a sunrise without seeing the sky behind it. 4. | This is equivalent to over half of the global investment needed if global temperature increases are to be kept under 1.5 degree Celsius. 14. China alone will need over RMB100 trillion (or USD15 trillion equivalent) in green investment over the next three decades to achieve its declared goal of achieving carbon neutrality by 20602 . Hong Kong is well positioned to help achieve this important national objective as we have long been the gateway between Mainland China and the rest of the world. Last year, under the Hong Kong Government Green Bond Programme, we helped the Government issue its inaugural green bond denominated in RMB to an overwhelmingly positive market response. The Government plans to continue issuing green bonds regularly to build benchmark yield curves for the market to attract more issuers, including those from the Mainland, to use Hong Kong’s platform to meet their green financing needs. 15. The HKMA has been actively promoting green and sustainable finance, joining local and international regulators to ensure that the financial sector plays its part in contributing to global net-zero goals. We are working to strengthen the resilience of the banking system against climate risks and accelerate banks’ efforts to support the transition to a low-carbon economy. 16. We are also enhancing the ecosystem in other ways, including a particular focus on filling the capacity gaps in knowledge, talent and data. Closing 17. In closing, let me just note Hong Kong’s two biggest strengths as an international financial centre – its resilience and adaptability. | 1 |
From an economic perspective it was also hard to find other factors that could have contributed to such a sharp slowdown: the world economy had continued to grow, and financial conditions had remained accommodative. Chart 10: Snow effects on GDP revisions Preliminary estimate Latest estimate 2009 Q4 2010 Q1 2010 Q4 2013 Q1 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 Percentage changes on a quarter earlier At the same time, the labour market continued to perform robustly. Employment continued to rise, which – given its correlation with GDP, which if anything has become more contemporaneous in recent years – would 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 suggest all else equal that GDP was also growing. Underlying regular pay growth continued to pick up in line with our forecasts. Given all this, it seemed to me and to the MPC that the most likely explanation for the apparent weak data in the run up to our May meeting was that it was a temporary, weather-related softening. And we continued to see the trade-off between slack and inflation as much diminished. In fact last month as part of our continuing efforts to make our thinking more transparent, we published our estimate of excess supply (or slack) in the economy for the first time. | Whatever uses other economies might have for them, exchange controls are out of the question for Hong Kong: the Basic Law, which sets out our basic principles of government, expressly prohibits them, and, even if it did not, we know that, at least for Hong Kong, any attempt to introduce them, and to turn inwards on ourselves, would spell the end of our prosperity. But free market principles cannot mean markets that are left defenceless against manipulation. One troubling aspect of the Asian crisis, and a sign of larger problems in the world financial system, has been the extreme volatility in markets created by the rapid flows of highly leveraged funds around the world. As markets in the region became more vulnerable, these flows increasingly took on a predatory character and became more and more subtle in their planning and sophistication. This August, as you know, the Hong Kong financial markets became the target of a well planned attack by international hedge funds. We took unconventional actions to fend off that attack and to fortify our financial system against future attacks. Not unexpectedly, these actions have been the cause of extensive controversy, and of a great deal of misunderstanding. Let me attempt to present the issue from Hong Kong’s perspective by outlining what happened in August and explaining why we took action. Oddly enough, Hong Kong became a target because of the transparency of its financial system: we were singled out for our efficiency and predictability rather than for any fundamental flaws. | 0 |
BIS central bankers’ speeches 11 Chart 11: Chart 12: Household financial surplus(a) Illustrative estimates of debt held by vulnerable UK households(a)(b) UK USA Euro Area Per cent 8 6 4 Per cent of unsecured debt 40 Per cent of secured debt 40 NMG unsecured 35 (LHS) 35 BHPS unsecured (LHS) 30 30 25 25 2 + 0 2 00 02 04 06 08 20 15 15 10 4 5 6 0 10 20 NMG secured (RHS) 10 BHPS secured (RHS) 5 0 92 94 96 98 00 02 04 06 08 10 Source: Thomson Reuters Datastream, ECB and Bank calculations. Sources: British Household Panel Survey (BHPS), NMG Consulting survey and Bank calculations. (a) Per cent of GDP. (a) Vulnerable mortgagors are those with housing equity below 5%, or housing equity below 25% and at least one characteristic suggesting debt-repayment difficulties. Vulnerable unsecured debtors are those with less than 25% housing equity (including renters) and at least one characteristic suggesting debtrepayment difficulties. (b) Based on historical BHPS data and more timely information from the annual NMG survey. Differences in survey questions and sample size mean the estimates from the two surveys are not directly comparable. | Jean-Pierre Roth: The euro – a stabilising factor in the international currency system Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Fondation Jean Monnet pour l'Europe, Lausanne, 21 September 2007. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The euro is undoubtedly a success story. It has contributed to stabilising the international currency system. In Europe, the former monetary disorder has been replaced by a new monetary order. The European payment system has become more transparent and price stability is guaranteed. Switzerland, too, is benefiting from European currency stability. The Swiss franc is taking advantage of a monetary environment that is considerably calmer than previously. The euro and the franc are coexisting very successfully. Nevertheless, it would be wrong to claim that all the effects of European currency integration have already worked their way through to the real economy. In spurring on competition and promoting transparency, the euro is having an integrating effect. However, there are still considerable obstacles standing in the way of this integration process. BIS Review 103/2007 1 | 0 |
Financial reporting and accounting issues It is equally important for banks to take care of the financial reporting framework, be it international accounting standards or local accounting standards given that Basel II requires financial reporting on international accounting standards. Most banks in Sri Lanka will have to apply local accounting standards and make necessary adjustments in their financial accounts to comply with Basel II principles. The Institute of Chartered Accountants is proposing to adopt the International Financial Reporting Standards (IFRS), in particular IAS 39 and 40. CBSL will monitor the impact this will have on the regulatory capital of banks and formulate policies in this regard taking into consideration the international developments and practices of other regulators. IV. Single borrower limits and other sub-limits Should the regulators and supervisors continue with the regulations imposed on single borrower limits, group borrower limits and aggregate limits that are in operation under Basel I, when they proceed to Basel II from 2008 onwards? and when will the supervisors lift sub-limits such as the single borrower limits that are currently in place and give more flexibility to the financial intermediaries? There is no clear answer to this, but we hope that some of the commercial banks which are conscious of the fullscale risk mitigation would be able to put in place appropriate processes and convince the supervisors of their ability to move to advanced approaches of risk mitigation. At that point we need to adopt more flexible attitudes towards limits and sub-limits in lending. | They are plagued with issues such as options and national discretions, different interpretations and practices, reporting requirements across the EU system and the difference between legal and operational structures in banking groups, basically, issues under pillar II. As a country within the EU-system, Sweden will have to comply with common reporting frameworks for capital requirements and have consolidated financial data. They have to deal with common recognition processes for external credit assessment institutions and comply with home/host country guidelines. Sweden is attempting to deal with these issues in a systematic manner during 2007, following the regulations to be passed by its Parliament. Fortunately, Sri Lanka does not have to deal with such cross-border issues as in many other countries. South Africa is well ahead in terms of handling implementation issues on time targets. During 19992003, they have complied with core principles for banking supervision issued by BIS. In 2004, Basel II regulations were issued and economic impact studies were completed in 2005. In 2006, consultations have begun and in 2007 parallel runs will be conducted to implement Basel II in 2008. In fact, South Africa has begun data capturing and mandatory requirements way back in 2004 and had discussed appropriate models with banks opting to use internal rating based models. Informal field tests were also conducted in 2006. In order to avoid supervisors performing redundant and uncoordinated approval and validations of models and risk assessment by banks, South Africa has established supervisory colleges to share information and coordinate supervisory actions. | 1 |
Speeches Published Date: 19 July 2022 Remarks by Mr Ravi Menon, Managing Director, MAS at the MAS Annual Report 2021/2022 Media Conference on 19 July 2022 Good morning and thank you for joining us in person for the release of the MAS Annual Report. This year, I will focus my remarks on inflation. It is the key macroeconomic challenge facing the global economy, affecting countries ranging from the United States to Sri Lanka, as well as Singapore. The IMF’s latest projection for global inflation in 2022 is 7.4%. This would be the fastest rate of inflation in the last 25 years. Inflation is a pervasive economic ill – it affects everyone. The lower-income groups are particularly vulnerable. Inflation is uppermost in the minds of many Singaporeans. I will cover four themes on inflation, both globally and in Singapore. Inflation is being driven by both supply and demand factors Taming inflation will mean a slowdown in economic growth A multi-pronged approach to deal with inflation Managing debt amid inflation and rising interest rates I will then briefly touch on three issues which MAS will cover in depth in the coming weeks and months: Developments in the crypto ecosystem Singapore’s financial sector performance and strategies Positioning the financial sector for sustainability Before I close, I will briefly report MAS’ financial performance. Let me begin with inflation. It is important to understand the nature of the inflation problem the world is dealing with. | A forecast rate of inflation above the target normally leads to interest rate increases, just as an expected rate below the target prompts the Riksbank to lower the repo rate. Inflation is assessed on a continuous basis. New information—fresh economic statistics, for instance, or signs of a change in some economic relationships—leads the Riksbank to review its current forecast and make the necessary changes. If a new forecast indicates that future inflation will deviate from the target, then the Riksbank has to adjust the repo rate in accordance with the new assessment. However, assessments of future inflation—like any other forecast—are bound to include an element of uncertainty. Moreover, observers are liable to differ on which future path is most probable. So it is hardly surprising—rather a healthy sign—that our inflation assessments and monetary policy are sometimes a subject of lively debate. But while inflation assessments may vary, in Swedish society today there is broad support for focusing monetary policy on price stability. BIS Review 66/1998 -22. Recent years The Swedish economy, as we all know, went through a profound crisis in the early 1990s. This is not an occasion for discussing the causes of the crisis in depth. It will suffice to note that the origins lay in structural weaknesses in Sweden’s economy. But the crisis also had to do with shortcomings in stabilisation policy in the late 1980s and early 1990s. Since production stopped falling and growth restarted in the course of 1993, economic developments in Sweden have exceeded expectations in several respects. | 0 |
We routinely run the general equilibrium model and the inflation targeting model as well as Market Implied Models or MIME, a technical word that is used for trying to find things out from people’s normal actions that could be captured in a data system. We also, of course, do single equation estimates as well as pure intuition from graphs and tables and such things. Our staff is generally of the opinion that increased expenditure and tax reduction of moderate amounts will not destabilise the economy. This is predominantly because the economy is still very docile with a capacity utilisation stable for quite a while now at 58%. Cost push inflation from the exchange rate and the oil prices are now substantially absorbed or have been passed on, so cost push also is not presently much of a factor. The important thing though is how to make expenditure useful and constructive in the long run without too much leakage. The important thing is how to make tax cuts reasonable and directed towards the areas where people benefiting from the cuts could utilise it for a spate of new investment. If this were to happen the debt to GDP ratio might not increase significantly due to the resulting increase in GDP over the long term. With abundant liquidity and low interest rates, this is not just a time for a general tax cut for its own sake, but a program must be designed for it to be directed to where investment could best be made. | Page 1 Competitiveness and productive investment: What parts do they play in the reform of insurance regulation? – speech by Charlotte Gerken Given at JP Morgan European Insurance Conference Page 2 Published on 14 June 2022 Charlotte Gerken talks about the goals of competitiveness and productive investment, and the impact these are having on the Review of Solvency II. She says that changes to regulations for UK insurers could help to achieve these goals. Then she focuses on: investment flexibility the valuation of liabilities process improvements Speech Thank you for your introduction and for inviting me to this conference. Since the Government announced the Solvency II review, there has been much emphasis on the desirability of reform to enhance the insurance sector’s competitiveness and its capacity to make productive investment. Today I would like to outline how competitiveness and productive investment relate to the Prudential Regulation Authority’s (PRA) approach to the review by focussing on three areas: 1. Investment flexibility 2. The valuation of liabilities 3. Process improvements To put the review in context, though: the core framework underlying the Solvency II regime and its principles are broadly fit for purpose, and are in line with existing and emerging international standards. The review does not involve tearing it up and starting again – not least because of the substantial sums invested by industry in the last decade in adopting it. Industry responses to HM Treasury’s Call for Evidence[1] were largely in agreement with this approach. | 0 |
Paul Tucker: Monetary policy and the financial system Remarks by Mr Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, at the Institutional Money Market Funds Association Annual Dinner, London, 2 April 2008. * * * Alongside many others, the money market fund industry has for months now been grappling with turmoil and fragility across financial markets. It continues to pose serious challenges for all of us, and so I shall use this evening to summarise briefly a few of the strands in my own thinking about monetary policy and the financial system. Monetary policy First, monetary policy. The tightening of credit conditions domestically and internationally makes it likely that aggregate demand will slow, with a risk that it will slow considerably. There is, in consequence, a meaningful downwards threat to inflation over the medium term. Usually, the MPC would respond by cutting Bank Rate sufficiently to offset more or less entirely what we judged, over time, to be the impact of the tighter financial conditions on the path of spending, so as to ensure that aggregate demand remained broadly in line with the economy’s productive capacity. But conditions do not favour such a “business as usual” approach to demand management. That is because, alongside those downside risks to inflation, there are also upside risks to inflation over the medium term – and I am stressing “medium term” – stemming from the rise in commodity prices and the decline in sterling’s exchange rate. | If we want our children to have peace, I am calling on all of you to act too. | 0 |
Last but not least, in July the Governing Council updated its forward guidance on interest rates to bring it into line with the new definition of price stability. We agreed to reflect later – that is to say in December - on whether to adjust our forward guidance on the APP. 3. The lessons of TLTRO III and the two-tier system My last point concerns the articulation of long-term liquidity provision and negative interest rates. The third round of targeted long-term refinancing operations (TLTRO III) has proved to be a powerful tool during the Covid crisis to avoid a credit crunch to the private sector. As the euro area financial system is mainly bank-based, our future actions must continue to support bank lending to businesses and households as the recovery evolves. I am therefore in favour of keeping this funding instrument as a liquidity backstop in some form in the future, also to avoid possible cliff effects related to future repayments. However, I think that a careful recalibration of its pricing is required. Now that the recovery is well underway, the generous pricing of TLTRO - lending rates can be up to 50 basis points below the average deposit facility rate since April 2020 - is no longer justified. The present calibration of TLTRO pricing clearly provides riskless arbitrage opportunities for banks. | In particular, the supervisor should have the real capacity to influence bank managers’ decisions through moral suasion and to formulate non-legally binding recommendations, in the sure knowledge that they will in practice be very widely followed. Supervisory actions would otherwise be excessively hampered by a regulatory framework which, despite having been honed in recent years, can hardly envisage all situations of supervisory significance or include the full range of instruments needed to tackle such situations with the speed required in each instance. Finally, it is difficult for supervision to be effective if it does not include a thoroughgoing review of banks’ financial statements. Allow me to elaborate on this point. Evidently, an essential aim of supervision is to oversee banks’ solvency through the monitoring of capital ratios. Insofar as these ratios are calculated on the basis of accounting information, it is essential to ensure that such information properly reflects the value of the bank’s assets and liabilities. It is true that auditors and securities supervisors also perform this task. However, the specific nature and complexity of bank business, the evident relationship between published financial information and financial stability, and the occasional lack of specificity of prevailing accounting principles all make it advisable that the prudential supervisor should contribute to encouraging supervised banks to follow the best practices, in full conformity with current regulations and the distribution of competencies among institutions thereunder. | 0 |
Today, we are near the juncture of achieving a key milestone, where formal setting is no longer required to mobilise intra-region fund flows such as in the case of ABF1 and ABF2. Instead the intra-regional investments are becoming more self-reinforcing. As a proof of this, we now have more anecdotal evidence on the rising proportion of the regional central banks’ reserves invested in Asian local currency debt. iii) Credit risk assessment approach As we tread into uncharted territories of new asset classes, there is a growing need to enhance analytical capabilities, resources and risk controls. For example, many central banks and institutional investors have gradually moved away from over-reliance on credit rating agencies to an internally-based credit rating assessment practice in portfolio management. In the wake of the US financial crisis and recent European sovereign issue, one would question the credibility of credit rating agencies in flagging the risks built up in banks and sovereigns, ahead of the crisis. Most credit rating agencies also tend to apply ordinal ranking of credit, rather than specific risk metrics that can be mapped to default probabilities or expected losses. In my view, one of the major weaknesses of credit rating agencies is their objective to establish rating stability by applying smoothing methodology that can potentially delay minor downgrades, but trigger cliff-like and abrupt downgrades in the event of sharp credit deterioration. The abrupt regrading of credits tend to spook markets and is certainly not good for investors with a heart condition. | 4 Jerome H. Powell, New Economic Challenges and the Fed’s Monetary Policy Review, Speech at “Navigating the Decade Ahead: Implications for Monetary Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming (via webcast) (August 27, 2020). 5 Richard H. Clarida, The Federal Reserve’s New Monetary Policy Framework: A Robust Evolution, Speech at the Peterson Institute for International Economics, Washington, D.C. (via webcast) (August 31, 2020). 2/2 BIS central bankers' speeches | 0 |
On the methodological side, it is quite obvious that imposing caps in ratings based on the sovereign is equivalent to constraining the results of whatever quantitative models rating agencies use. This is arbitrary and reduces the information conveyed by the ratings while leading to severe pricing distortions in assets across countries. Investors in capped securities will require a premium over similar but higher-rated securities while other investors are limited by regulation in their incentives to buy poorly rated securities. Additionally, it should be mentioned that ABS originated in countries under stress have performed considerably well even during the crisis. Indeed, ABS default rates have remained low in these countries and at levels comparable to non‐stressed jurisdictions (including the US). Thus, unless clients and regulators have (also) access to ratings without the cap, there should be minimal regulatory reliance on the ratings. In any case, additional transparency on loans, the existence of reliable credit registers or credit score systems should be mentioned as instruments to help market participants understanding better the BIS central bankers’ speeches 3 European ABS risk profile. Additionally, such information could even support entrants into the business of assessing credit risk, which currently lacks competition. Whereas the policy conclusions are often hard to come about, one thing seems clear: Europe must avoid ending up with zombie banks as well as with zombie firms. Zombie banks and zombie firms have never been a characterization of a well-functioning financial system and economy. | It is part of the increasingly daunting and uncertain macroeconomic environment that I have just outlined – an environment that differs from previous downturns in the last two decades in that it is largely characterised by an economy running into constraints. In such an environment, it would not be appropriate to expect fiscal and monetary policy to support the economy by sustaining demand. This combination of factors is one of the many good reasons why the Chair of the ECB's Supervisory Board, Andrea Enria, has recently insisted that, even if balance sheets are sound and profitability is favourable, it is still better to be safe than to be sorry in banking supervision, especially in the current uncertain macroeconomic circumstances.3 -and underlying currents are firming Moreover – while the macroeconomic tides may have changed, many of the structural challenges facing banks have not. Indeed, the underlying currents which banks were already affected by last year, are still very much present. In fact, important currents have even firmed with the change in tides. This becomes very clear if we look at the consequences of the ongoing climate and environmental crises. Another year has passed, and we have further confirmation – not that any was needed – that heatwaves, floods, droughts and environmental degradation are on the rise. | 0 |
The general wisdom was that the inevitable direction of the Hong Kong dollar under a freer exchange rate would be to depreciate. The result would be an end to deflation, a boost to economic growth, a reduction in unemployment, and the elimination of the budget deficit. In fact, all of our problems would be cured - and rapidly - by this single panacea. BIS Review 44/2003 1 If only things could be so simple! But, of course, they are not. I have spoken and written at length on other occasions about the huge risks to financial and social stability that we would expose ourselves to in following such a course. Financial markets have a habit of overshooting and precipitating financial crises that are very costly to the community. And it seems, from recent events, that the very premise on which this panacea of exchange rate depreciation is based may be seriously flawed. For the market exchange rate of the Hong Kong dollar has strengthened over the past two or three weeks to the extent that it has been necessary for the HKMA to inject liquidity into the system in order to dampen excessive volatility. The market has, all of a sudden, chosen to ignore the continuing problems of deflation, unemployment and budget deficit, and the possible implications of these for the exchange rate. The clear message from the market now is that, were the Hong Kong dollar to be allowed to float, its exchange rate would rise rather than fall. | Today’s conference touches on a range of interesting questions concerning both regions: • Are there policy strategies that can ensure that the global economy will escape from this very long period of very low inflation and very low real interest rates? • Is there scope for fiscal policy to take on some of the burden of ending this period of persistently low inflation and low interest rates? • Are we now in a period of secular stagnation or are we in the midst of a deleveraging process that will gradually dissipate? • Why has investment spending failed to respond to the low level of interest rates? • What do we believe are the factors underlying the recent slowdown in productivity growth globally? • Is a banking union with a common deposit guarantee scheme achievable in Europe? • Are there opportunities for further regulatory and supervisory convergence between the United States and Europe? I would like to thank the participants for addressing these and other questions during today’s three panels, and I look forward to insightful discussion over the course of the day. It is now my pleasure to introduce the European Union Ambassador to the United States, His Excellency David O’Sullivan. The ambassador is extraordinarily well-versed to speak on the issues of interdependence and the policy challenges we face. Welcome, Ambassador O’Sullivan. 2 BIS central bankers’ speeches | 0 |
Many other central banks have since followed the Bank of England’s lead, and in the HKMA we have published our own Monetary and Financial Stability Report for several years now. More recently we began an internal Banking Stability Report which aims to provide a macro prudential perspective on trends in the banking system that we can then use to target our on-site bank examinations more effectively. The eventual goal is to try to draw these two reports more closely together and to bring a more forward-looking perspective to our banking supervision work. When central banks make their financial stability analysis public it provides financial system participants with an insight into the central bank’s perception of the vulnerabilities of the system. It enables policymakers to be transparent in their views of where they perceive the risks and vulnerabilities to be. Hopefully, by raising warning flags at a sufficiently early stage – for example if we BIS Review 106/2006 9 perceive risks in a build up of credit to a particular sector – we can encourage banks to review the risks that they are running and, if necessary, to take action to mitigate those risks. But it is important to be careful how the risks and vulnerabilities are presented. The last thing we want to happen is for the predicted problems to surface because everyone has rushed for the exit at the same time. | Third, in terms of economic policy, an explanation for “the resource curse” has been that such “unearned” wealth leads to an extreme focus from various groups on acquiring as much of this extra wealth as possible. It is therefore important that the decision-making processes in the political sphere guard against this kind of “rent-seeking” behaviour. Finally, petroleum revenue spending will have a serious impact on the competitiveness of Norwegian industry if spending is too rapid and variable. It is therefore important that we succeed in maintaining an industry structure that promotes learning, innovation and development, which can give us other sources of revenue than oil. What we are trying to achieve is to transform petroleum wealth into financial wealth, to the benefit of future generations as well. Nonetheless, the discounted value of our own labour force is our main asset. Our livelihood essentially depends, and will continue to depend, on our ability to efficiently produce goods and services and to use our creativity and innovation to become ever more efficient. Economic policy guidelines During the first thirty years of the oil age, economic fluctuations, often linked to oil revenue spending, were strong. Against this backdrop and increasing demands for spending more, new economic policy guidelines were adopted in 2001. A fiscal rule was drawn up for petroleum revenue spending over the central government budget. Government petroleum revenues are transferred to the Petroleum Fund, now renamed the Government Pension Fund - Global. | 1 |
7 It now appears that capacity utilisation in the Norwegian economy may return to a normal level in one and a half to two years – and with a somewhat lower unemployment rate than today. A different path can be met with an interest rate response. Our understanding of the fiscal rule is that the government budget for 2012 or at the latest for 2013 should be planned with a view to bringing down petroleum revenue spending to 4 per cent of the size of the wealth fund. This does not seem demanding compared with the situation in the years between 1994 and 1996. The tightening at that time started directly after the economy had turned and while unemployment was still high. Should policy now be tightened to the same extent that history in retrospect indicates was the case at that time, 4 per cent would be reached in the course of one year. 7 See for example the National Budget for 2010, box 3.1, p. 53. BIS Review 15/2010 15 It must, however, be added that in real time the tightening was not planned to be that strong. After the tax reform, government revenues from the corporate sector were higher than expected. 8 But even measures on a par with those planned at that time would now rapidly bring down petroleum revenue spending. | Only the public can measure the degree of success and our goal is to provide the public with elements and emotions related to our national identity, through a worthy banknote series, created by renowned brands in the banknote production industry such as G&D, De La Rue and Oberthur, whose logos have been present on our currency since it was first issued. 2/2 BIS central bankers' speeches | 0 |
However, due to the increase in household net debt, net interest expenses will fall considerably less than this. The impact of the interest rate decline also depends on how long interest rates are expected to remain low. When the sight deposit rate was reduced last autumn, longer interest rates showed relatively little change. The interest rate reductions in December and January, combined with the decline in inflation, have had a stronger impact on long-term interest rates. This indicates that financial market participants expect interest rates to remain low for a longer period. The rise in inflation from February to March, however, gave rise to somewhat higher interest rate expectations and a stronger krone exchange rate. The outlook for the business sector is brighter now. The fall in the value of the krone over the past year has strengthened Norwegian business and industry. The business sector is, however, still feeling the effects of the sharp rise in labour costs over a period of several years. Relative labour costs measured in a common currency are in line with the level prevailing in 1990, but approximately 10 per cent higher than in the mid-1990s. The internationally exposed sector has been scaled back. Companies that are still in operation may be in a better position to cope with the high wage level. In 2003, employment and investment both fell, although investment picked up somewhat towards the end of the year. Efficiency-enhancing measures are expected to continue to characterise the business sector in 2004. | By conducting large-scale repo operations and purchasing sizable quantities of U.S. Treasury securities and agency mortgage-backed securities, we are providing funding and stability at a time of extraordinary volatility in markets.3 These actions averted a potential shutdown in the availability of credit, which would have made the current economic crisis even more severe. In addition to stabilizing financial markets, the Federal Reserve is standing up programs to support the flow of credit to households, businesses, and state and local governments. These actions will enable them to continue to do their work, both now and when normal life resumes.4 2/3 BIS central bankers' speeches Our efforts supporting the provision of credit include a number of programs aimed at different parts of the economy and work through different channels. One set of programs supports the availability of credit to households and businesses—importantly, including small and mediumsized businesses. A second set of programs targets the availability of credit to states and municipalities. Fiscal policy is also playing a critically important role. In particular, it can do what monetary policy cannot: provide for the public health response and transfer income to those most affected by the outbreak. Fiscal policy is also a vital partner in the delivery of our own programs, supplying the financial support necessary for the extraordinary scale of the credit facilities we’re operating. Conclusion I’ll conclude with this: These are extraordinary times, and the Fed is taking extraordinary actions to ease the economic pain. | 0 |
Fourth, I think we should bear in mind that banking sector crises often are not just short-term aberrations, but usually are manifestations of longer-term structural problems. Therefore, it is crucial that policymakers address not only the immediate stock of problem assets through “bad bank/good bank” vehicles, but also structural problems, or weaknesses in core profitability stemming from high overhead, low margins, and excessive regulatory costs. To the extent that underlying problems are not addressed, the banking sector will remain vulnerable to future instability. Thus, at the same time as authorities seek to battle a crisis, they also may be compelled to undertake a range of longer-term reforms to banking sector infrastructure, most notably in areas of accounting, disclosure, capital, and supervision and regulation. These changes often involve bringing domestic standards in line with international standards, and can involve difficult trade-offs, in that, for example, fuller disclosure of problem loans may undermine depositor confidence. Finally, the scale of banking sector problems in a number of countries has necessitated opening up the sector to significant foreign investment. Clearly, such a course brings political tensions and possible domestic backlash. Notwithstanding these concerns, foreign ownership is both inevitable and positive as foreign capital brings not only additional financial strength to a domestic banking sector, but also frequently needed technology and skills transfer. Overall summary of initiatives What has been the success of responses to recent banking crises? | Policymakers face difficult choices in managing problem bank restructurings, and there is a great need for creativity in devising solutions. Third, crisis situations cry out for solutions to be adopted quickly to stem further deterioration. At the same time, however, solutions adopted in the short term need to account for the long-term consequences for market efficiency, particularly with respect to moral hazard. The highest priority at the outset of a crisis is usually to restore confidence in the banking system. To this end, authorities in a number of countries have implemented guarantees of bank deposits or broader bank liabilities, in some cases both domestic and foreign, followed by concrete actions to make deposit insurance schemes more explicit and bolster the insurance fund. To minimize the moral hazard implications of such arrangements, however, it is critical that guarantees be established for a defined transitional period, and that supervision of financial institutions simultaneously be stepped up. Issues of moral hazard also need to be considered in authorities’ actions in cases of financial institution insolvency. Supervisors have adopted varying approaches to insolvent institutions, including mergers, purchases and assumptions, nationalization, and liquidation. While the authorities should have a general bias toward writing-off existing shareholders and removing management and directors of troubled institutions, such actions may need to be balanced against arguments that current owners and management may be best positioned to achieve an effective work-out. | 1 |
It is now clear to everyone that low inflation must be good for people because price growth does not accelerate, food prices do not grow. However, perhaps not everybody has realised the benefits of sustainably low inflation for businesses, because we are yet to assure them that inflation will indeed remain low and stable, and companies may rely on this assurance in making plans and raising investment. I hope we will be able to achieve this in the forthcoming years. As for the development of the financial and banking sector, I would like to complete the so-called resolution policy and invest more in favourable conditions for banking and finance at large, in order to improve financial inclusion and expand the availability of financial services to customers so that they have more trust in the financial system. The confidence in the banking system is already relatively high, but I would like to support and strengthen it. A separate task is the development of the non-bank financial sector. We have quite a small share of pension funds and insurance companies, though they are a source of long money necessary to economic development. These are the key objectives in this field. QUESTION from Reuters: 11 / 14 BIS central bankers' speeches The seasonal nature of the balance of payments makes analysts expect purchases of foreign currency conducted by the Ministry of Finance to have larger impact on the ruble exchange rate in April. Do you support this view? And a question about methodology. | 3 The Riksbank’s long-run target fulfilment is discussed by Andersson, Björn, Stefan Palmqvist and Pär Österholm (2012), “The Riksbank’s attainment of its inflation target over a longer period of time”, Economic Commentary no. 4, 2012, Sveriges Riksbank. 4 See, for instance, Heikensten, Lars, (1999), “The Riksbank’s inflation target – clarifications and evaluation”, Sveriges Riksbank Quarterly Review, 1999:1, pp. 5–17. 5 The reason why the inflation target did not begin to apply from January 1993 was that it was realised that the large depreciation in connection with letting the krona float would result in a one-off increase in the price of imported products and thus a relatively large, but temporary, increase in the inflation rate. BIS central bankers’ speeches 3 Favourable developments have held inflation back Of course, it is also important to analyse why inflation has undershot the target, even after these direct effects of interest rate changes have been excluded. My view is that growth in the economy has often been surprisingly high during the periods when inflation has been unexpectedly low. The combination of low inflation and high growth indicates that the economy was affected by positive changes on the supply side. The Riksbank and other forecasters have, for instance, often been surprised by the high productivity growth in the Swedish economy. As I see it, it is thus largely unforeseen, but beneficial developments that have kept inflation down. | 0 |
Svein Gjedrem: The conduct of monetary policy Introductory statement by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 14 May 2009. Please note that the text below may differ slightly from the actual presentation. The statement is based on Norges Bank’s Annual Report for 2008, Monetary Policy Report 1/2009 and the Executive Board’s assessments in the period to the monetary policy meeting on 6 May. * * * I would like to thank the Chairman of the Committee for this opportunity to report on monetary policy in connection with the Storting’s deliberations on the Government’s Credit Report. My statement is based on Norges Bank’s Annual Report, but is also updated based on the Executive Board’s assessments in the period to the previous monetary policy meeting and new information received to date. I also refer to this year’s report from Norges Bank Watch, a group of experts that evaluates Norges Bank’s conduct of monetary policy. Monetary policy in Norway is oriented towards maintaining low and stable inflation. The operational target is annual consumer price inflation of close to 2.5 per cent over time. The inflation target is an anchor for inflation expectations in the foreign exchange market, for the social partners in connection with wage settlements and for those setting prices for goods and services. | Last year, the joint meeting between the Monetary Policy Committee and the Financial Institutions Policy Committee was first held with the purpose of sharing ideas from different perspectives. It set a stage for both committees to regularly monitor and exchange views on any systemic risk that might occur from the interconnectedness of economic and financial sectors and to form policy response, should further measures be necessary. For this year, the Bank of Thailand will continue to make sure that overall economic conditions stay safe and sound. Yet, balancing among different policy objectives to reach the ultimate goal of macroeconomic stability is even more challenging this year, given the possible risk on financial stability while the global environment is still surrounded with uncertainties. In closing, I would like to outline the key challenges faced by the Bank of Thailand this year: First, on monetary policy. Since the main goal of conducting monetary policy is to ensure sustainable economic growth, the MPC’s decision-making has always based on the risk to economic growth, inflation, as well as financial stability. This year, the challenge would be striking the right balance between economic growth and financial stability as inflationary pressure is well contained in the short run. Given buoyant domestic spending, keeping the policy interest rate too low for too long could give incentive to private sectors to borrow more. Furthermore, low interest rate will encourage depositors to switch to invest in riskier asset which could lead to the problem of asset price bubble in the future. | 0 |
A key channel is obviously through the interest rates faced by households and businesses when they want to borrow, for example to buy houses or to invest. Fixed-rate mortgages have become increasingly popular in recent years and now represent 95 per cent of the flow of new lending and 80 per cent of the stock. Two-year fixedrate products are particularly popular and their cost to the lenders who provide them is derived from two-year interest rate swaps. A year ago the two-year swap rate was 0.5%, a month ago it was 4%, after the 22 September MPC meeting it was close to 4.5% and at yesterday’s market close it was around 5.4% having peaked at nearly 6% in the intervening fortnight. (Chart 6). Chart 6: UK 2-year swap rate Sources: Bloomberg Finance L.P. and Bank calculators The Bank’s latest figures for quoted mortgage rates in September were published this morning. Because these are averages for the month they lag somewhat market measures, but the increases are still marked. Quoted mortgages rates on two-year fixed rate mortgages increased by around 50bps between August and September and were up by nearly 300bps compared to last September and have been rising further into the start of October. Recently lenders have also withdrawn a large number of mortgage products from the market because of the turbulent market conditions. | Ex ante assessments, based on the introduction of compulsory impact studies in 2009, have remained under used as a management tool, "too often appearing as a self-serving justification for the laws they accompany". iii Ex-post assessments have also been developed in France either by public bodies or academic research, but contribute more to methodological debates than to any real objectification conducive to action. Dwindling academic research Meanwhile, what can we say about academic and economic research in this area? In the 1980s and 1990s, this was mainly influenced by the New Public Management (NPM) school of thought, which adopted management methods from the private sector, with a focus on incentives for public servants and more variable pay. The Virginia School’s Public Choice theory (Downs, Buchanan, Tullock) even proposed to turn the concept of public action on its head: individualistic officials and policies could pursue private interests rather than spontaneously acting in the general interest. I personally remember the shock that I and the whole generation of civil servants around me experienced when Jean-Jacques Laffont questioned the principle of the "benevolent state" in a presentation he made to the Economic Advisory Council (CAE) in 1999. Fortunately, Jean Tirole has since clarified and qualified the analysis in "Économie du bien commun, iv where he called for the creation of "real public service bosses", and for them to be afforded "considerable managerial freedom accompanied by strict ex-post evaluation". NPM gave rise to performance incentives based on indicators and assessments. | 0 |
Other things being equal, bank balance sheets – and so broad money – would expand, but it might be hard to judge the extent of any inflationary impulse coming through a “shock” to the supply of broad money over and above that stemming from a relaxation in credit constraints and higher asset prices. Also, although a “counterparts” approach to the monetary aggregates would incline one to think that shocks to the supply of credit would flow into broad money, changes in the “technology” of banking and financial intermediation might in some conditions make the connection tenuous. After all, the intermediation of credit occurs via capital markets and not just across bank balance sheets. That could matter, for example, if an increase in the supply of credit happened to occur at much the same time as an increase in incentives or the means for banks to securitise – ie sell – the loans they originate. In the limiting case, a big positive shock to the supply of credit could coincide with shrinking bank balance sheets and so negative broad money growth. That is, of course, not at all what we have 33 seen recently. But the thought experiment underlines two things. First, we need to attend carefully to the underlying drivers. As part of that effort, the Bank has recently launched a new Credit Conditions Survey, which should enrich our grasp of what is going on. | For example, in Germany, the institution that became the highly independent Bundesbank was established as part of the country’s reconstruction after WWII and so before its new democracy was embedded. It had “goal independence”. And in the US, while there is hesitation over giving the Federal Reserve an inflation target, as great weight is placed by Congress on the “dual mandate”, there is not concern about the scope or mechanics of the FOMC’s accountability to Congress. Every member of the executive arm of the government is unelected except the President. The central bank is no outlier. 18 But in the UK it really was a novelty – in a way, a constitutional departure, foreshadowed perhaps only by the judiciary 19 – to give such a politically sensitive lever to a body of unelected technicians. The institutional obstacles to Bank of England “independence” therefore needed institutional solutions. Responsibility for bank regulation was transferred from the Bank in 1997. The pathway to resolution of the “democratic deficit” problem had potentially been opened up in the 1980s by the St John Stevas reforms of Parliamentary Committees which led, over time, to a Treasury Committee with a high reputation and standing, supported by access to expert advice. In the 1997 reforms, the sphere of politics was carefully delineated. The goal of price stability is set by Parliament in legislation; and, within that framework, the Chancellor of the day sets the Bank its target for inflation. | 1 |
So this situation hardly constitutes a macroeconomic problem at present. In actual fact, one of the aims of the low interest rates has been exactly to create conditions for households to reduce their saving and maintain their consumption in the weaker economic climate. In spite of this, there is reason for the Riksbank to monitor developments carefully. There is also good reason for individual households to reflect on their debt situation. Interest rates are unusually low at present and will most probably change in the future. On the whole, there is no reason to make any marked adjustment to the overall outlook for demand in the Swedish economy in the coming years compared with in December or February. Most factors still indicate that growth in household consumption will continue to be stable around 2.5 per cent in the 2 BIS Review 16/2004 years ahead. The contribution to growth from exports will probably be somewhat higher than previously expected, but a large part of the effect on demand will be offset by the fact that this could also be the case for imports. Local government consumption appears to be somewhat weaker than we thought in December. Investment is a source of uncertainty and could probably pick up somewhat later than forecast. On the whole, therefore, GDP growth may be roughly as we expected in the December Inflation Report and when we took our decision in February, reaching around 2.5 per cent per year in the years ahead. | However, there was a marked change over the course of 2003; between the first and second halves of the year growth rose from 1.4 to 1.8 per cent. The situation at present is that the upswing in industry has progressed somewhat. Export demand has gathered pace, and firms are fairly optimistic about the future. It also appears that capacity utilisation in industry is continuing to rise. Exports were unexpectedly strong during the final two quarters last year, and business tendency data point to continued optimism in the period ahead. Households’ expectations regarding both their own finances and the Swedish economy have also begun to rise again after having fallen somewhat at the end of last year. Retail sales figures indicate a continuation of robust consumption. Low interest rates, rising equity prices and low inflation will boost consumption in the period ahead as well. While on the subject of household consumption allow me to say something about the recent discussion on household indebtedness. Debt as a proportion of households’ disposable income continued to grow last year, and the debt ratio is now approaching the levels seen during the sharp expansion in credit at the end of the 1980s. At the same time, low interest rates mean that households’ interest costs as a percentage of income is at a historically low level. The latter means that it is not a great problem today for the household sector to bear its debt even if this debt of course limits households’ scope for consumption in the near future. | 1 |
So allow me to briefly pause here and explain clearly my own intentions with regard to the next halfhour. The theme of my speech here today is how the Riksbank’s independent position, together with a high degree of transparency and efficient communication, contributes to long-term target fulfilment and credibility for monetary policy. Key words in this context are evaluation and accountability. It is these different pieces of the puzzle that I now wish to discuss in more detail. The Riksbank’s position – from bank crisis in the 17th century to independent central bank The fact that we are in this room today is actually rather appropriate. I can tell you an interesting fact here – that the Riksbank and the Riksdag had a fairly intimate relationship, in geographical terms, for over 70 years, from the early 20th century up until 1976. The Riksbank was then located in the building across the street, where the Riksdag now has its assembly hall. Riksbank officials thus sat almost side by side with the people’s elected representatives. Now I do not believe one should draw any far-reaching conclusions on the degree of independence for monetary policy on the basis of geographical location – other factors decide this. But for those who have any doubts, I can point out that the Riksbank is now at a more “suitable” walking distance from the Riksdag, a few blocks away. BIS Review 62/2007 1 The Riksbank is formally an authority under the Riksdag. | The 2022 Corruption Perception Index published by Transparency International report showed that Malaysia is ranked 61, compared to 51 in 2019. While Malaysia has placed priority on addressing corruption and strengthening governance and integrity in recent times, for example through the National Anti-Corruption plan, it is imperative for all stakeholders to actively play their role in this very important endeavour. Ladies and gentlemen, Integrity holds an even more foundational place within Islamic finance. Upholding high standards of ethical behaviour and personal integrity at all times are not simply actions that guarantee good governance or financial stability. In our shared faith, they are virtuous ends within themselves. Many verses of the Quran and hadiths emphasise the importance of integrity. One such example is in Sahih Al-Bukhari 7138, where the Nabi Muhammad s.a.w. said: "Surely! Every one of you is a guardian and is accountable for his charges". In today's speech, I would like to touch upon two aspects of banking where the integrity of an institution truly comes to the fore. One, corporate governance and workplace culture. Every individual is responsible for their actions, but what parameters has the institution put in place to make it easier to do the right thing? 1/4 BIS - Central bankers' speeches Two, the institutional role in preserving national integrity through effective and strict measures against money laundering and terrorism financing – more commonly referred to as ML/TF risks. Firstly, governance and culture. | 0 |
“Fiscal consolidations and spillovers in the Euro area periphery and core.” Economic Papers 506, European Commission. 4 BIS central bankers’ speeches been urging a faster pace of structural reforms for many years now and I wish more governments would listen. But monetary policy and domestic structural reforms should not be the only game in town. We need a better overall policy mix. Against a background of accommodative monetary policy and faster economic reform, we need looser and better targeted fiscal policy at a European level. For example, more could be done to increase investment in public infrastructure, education and apprenticeship in Southern Europe. Fiscal expenditure could be shifted towards retraining programmes or other measures to help shift resources between sectors. One way of thinking about our current predicament is that the natural short-term real rate of interest is too low, due to insufficient ex ante investment relative to savings. The ECB has been providing substantial monetary accommodation using unconventional tools to try to push down the effective nominal rate. A better way in the long-term would be to raise the natural real rate of interest through stronger economic growth and investment. Conclusion As for many other economic policies and concepts, the Great Recession led us to reconsider the role of central banks with regard to medium and long-term growth. Beyond their normaltime contribution to long-term growth as price stability guardians, central banks in deep depression have to act against the hysteresis effects of the crisis and the damages from financial sector disruptions. | This has not only created, regardless of existing differences at the state level, a common legal environment, but also led to harmonised or similar policies in most other areas and not least fostered the development of a common ground of behaviour in economic life. By contrast, the history of the 11 Member States of the euro area was different. Notwithstanding my earlier reference to the integration process over the last decades and the EU institutional set-up for the coordination of economic policies, Europe is still a more heterogeneous area than the United States. The Treaty establishing the European Community does not state how price stability is to be maintained. In other words, it does not define what is called a monetary policy strategy. Therefore, the Eurosystem has designed its own stability-oriented strategy. Apart from the quantitative definition of price stability, it consists of two pillars. The first pillar is a prominent role for a broad monetary aggregate, M3. This is based on the view that inflation is ultimately a monetary phenomenon. A reference value of 4½% for annual M3 growth has been defined. Deviations of actual monetary growth from the reference value will not be corrected mechanically, but will always be analysed with regard to the signals they provide with regard to future price developments. The reason for being cautious is that the introduction of the euro may have changed the behaviour of economic subjects, also their demand for money. | 0 |
The important point, however, is that in the euro area today structural reforms are not about creating minor efficiencies or marginal gains. They are about unleashing an untapped potential for substantially higher output, employment and welfare. And in the current environment, this would play a crucial role in ensuring that the ongoing cyclical recovery becomes a stronger, structural recovery. Structural reform in a fragile demand environment This discussion on the importance of structural reforms leads in principle to only one conclusion: the earlier they take place, the better. However, while most of us might agree with this statement in normal times, the fact that interest rates have reached the effective lower bound, coupled with the still fragile cyclical situation, makes the situation less straightforward. In particular, the question has been raised as to whether implementing structural reforms when the economy is still weak would be counterproductive, in the sense that it would make it harder to achieve our mandate by further reducing short-term demand. One argument that has been put forward in this context is that, if reforms lead to a credible increase in aggregate supply, they will exert downward pressure on inflation expectations. And if nominal interest rates cannot fall because monetary policy is at the lower bound, real interest rates will then rise, creating contractionary short-term effects. 12 A parallel argument in favour of postponing structural reforms relates to their short-term effects on employment. | And this is why, as I have said many times, I believe there is a strong case for governance of structural reforms to be exercised jointly at the euro area level: to help each country to achieve the necessary level of resilience; and to ensure that they maintain that resilience permanently. 4 Since structural reforms in any euro area country are a legitimate interest of the whole union, there needs to be stronger ownership of reforms not just at the national level, but at the European level as well. Several countries have however made significant progress with structural reforms during the crisis, and we can already see how this has altered the relationship between inflation and unemployment. Various estimates of the euro area Phillips curve show that, while the slope has varied over time, it has steepened in recent years. In particular, there is evidence that inflation has become increasingly responsive to cyclical conditions in countries that have reformed their product and labour markets, such as Spain 5 and Italy 6. Raising potential growth Besides this issue of resilience, as the central bank of the euro area we also have another, equally direct interest in structural reforms. This is related to their effect on growth – or more specifically, the challenges posed by a period of low potential growth. International institutions currently estimate potential growth to be below 1% in the euro area, compared with above 2% in the US (Chart 3). | 1 |
A central bank can appropriately be assigned the task of promoting sustainable economic growth, while maintaining long-term price stability and ensuring the health of the financial system. This way of articulating policy goals has the advantage of meeting the public’s need to understand the basis for monetary policy decisions, and may help, therefore, to enhance the democratic accountability of monetary policy. Once monetary policy is firmly committed to price stability, how can a central bank best reach that goal? Clearly, at an operational level, no single formula or implementation strategy can be expected to succeed in all countries and under all circumstances; possible approaches can take many different forms. The choices depend on a country’s history, economic conditions, traditions and institutions. But all successful approaches share two important features: first, they focus on a long-term time horizon and, second, they provide a clear and public standard for the assessment of policy. What is most significant is not the specific way a central bank chooses to seek price stability, but rather the underlying commitment to that goal. While monetary policy aimed at long-run price stability is critical to fostering sustainable economic growth, central banks’ role in promoting growth and, more generally, a healthy economy goes beyond the conduct of monetary policy. Through involvement in financial regulation and supervision, as well as in the oversight of payments system operations, central banks play a key role in preserving and enhancing the safety and soundness of the banking and financial system. | Because of the importance and the difficulties inherent in the balancing act, banking systems are generally subject to a higher degree of official oversight and regulation than are most other forms of private enterprise, and supported by some form of a broad safety net. While the specifics can differ appreciably across countries, these safety nets are usually constructed along similar lines. They generally include oversight of the affairs of banking institutions in the form of inspection and examination of the institutions for compliance with a broad set of safety and soundness standards; some type of protection against losses for BIS Review 17/1997 -5- small depositors and investors; and some form of emergency liquidity facility for banking institutions and, occasionally, for other financial institutions as well. Finally, the payments system, a crucial link in any financial system, generally includes some form of official regulation of or participation in its operations. These important aspects of the safety net often feed into one or more of the functions performed by central banks. For this reason, the central bank usually plays a major role in the operation of one or more of these facets of the safety net. For example, the emergency liquidity facility is almost always the discount window of the central bank. In many countries -including Ireland and the United States -- the central bank also plays an important role in the supervision of banking institutions and in the oversight of payments system operations. | 1 |
There is no such a thing as a “Fed put.” What we care about is the country’s growth and inflation prospects, and we take financial market developments into consideration only to the extent that they affect the economic outlook. Our focus on the global implications of our policies also has a broader dimension. Given the central place of U.S. markets in the global financial system and the dollar’s status as the leading global reserve currency, we in the United States have a special responsibility to be good stewards of the global economic commons. This makes it all the more important that we conduct policy transparently and according to clear principles. This highlights the importance of effective Fed communication. I noted earlier our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering may have served to confuse market participants. Market participants seemed to conflate the prospective tapering of asset purchases with monetary policy tightening, and pulled forward their expectations about the likely timing of liftoff, thus raising their expected path for the federal funds rate. Since then, we have adjusted our approach with improved results. The actual tapering of the Fed’s asset purchase program went smoothly and liftoff of our policy rate from the zero lower bound was in line with widely held market expectations. | Under certain circumstances stock adjustments may trigger a more marked economic slowdown. This may happen, for instance, if effects of the adjustments either spread to private consumption or have a negative impact on the labour market and household confidence. The Riksbank was therefore alert to the risk of private consumption being weaker last spring and summer, which would have pointed to a further curb on inflation. In practice, however, private consumption went on rising in the summer and its growth became somewhat stronger in the autumn. Low inflation and interest rate reductions The rate of inflation decreased during 1996 and the rates that different economic agents expected in the future also moved down markedly (Diagram 2). This enabled the Riksbank to lower the repo rate from 8.91 to 4.10 per cent. As a result, the initial position for the ongoing growth phase in Sweden’s economy is more favourable than for many years. The drop in the rate of consumer price increases was appreciably accentuated by the Riksbank’s repo rate cuts in that these contributed to the reduction of mortgage interest costs. Under normal circumstances the tolerance interval around the price stability target should suffice BIS Review 56/1997 -4- to absorb transitory effects on the price level. Last year, however, the fall in interest rates was very marked because many factors had a concerted effect that rapidly altered the picture of inflation. The magnitude of that interest rate fall is also largely responsible for the weak price trend to date in 1997. | 0 |
1-17 Haldane, Andrew G. (2017) ‘Work, Wages and Monetary Policy’ speech given at the National Science and Media Museum, Bradford IMF (2013) ‘The dog that didn’t bark: has inflation been muzzled or was it just sleeping?’ April World Economic Outlook, Chapter 3 Mishkin, Frederic (2007) ‘Inflation Dynamics’ NBER working paper 13147 Nagel, S and Malmendier, U (2011) 'Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?’ Quarterly Journal of Economics, Vol126(1), pp373-416 Phillips, A W (1958) ‘The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–1957’ Economica, Vol. 25, No. 100, p. 283–99 Pizzinelli, Carlo and Bradley Speigner (2017) ‘Matching Efficiency and Labour Market Heterogeneity in the United Kingdom’ Bank of England Working Paper No. 667 Saunders, Michael (2017) ‘The Labour Market’ speech given at the Resolution Foundation, London Stiglitz, Joseph (1997) 'Reflections on the natural rate hypothesis' Journal of Economic Perspectives, 11, 3–10 Yellen, Janet (2017) ‘Inflation, Uncertainty and Monetary Policy’ Speech at the "Prospects for Growth: Reassessing the Fundamentals" 59th Annual Meeting of the National Association for Business Economics, Cleveland, Ohio 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 | Dear participants The productivity and the quality of work are major determinants of life quality, affecting nutrition, health and education, social protection, and fair treatment. Jobs are particularly important for the poor, whose labour is often their only asset and a primary route to poverty eradication. It is for this reason, that we at the central bank recognise skills development as an economic imperative. This is because it increases productivity of economic agents. Chairperson In the aftermath of the recent global financial crisis of 2008, employment has re-emerged as a top priority area across the world. A large and growing young population can be a driver for economic growth and social progress provided they access quality education and health, and are engaged in decent employment, without which, many young people will not be able to escape negative social vices and poverty. In recognition, of the foregoing, the National Budget for 2013 whose theme is; “Delivering Inclusive Development and Social Justice” has for the first time put job creation at the centre of its development agenda by explicitly targeting the creation of 200,000 jobs in 2013. BIS central bankers’ speeches 1 Sectors targeted for these jobs are agriculture, tourism, manufacturing and construction (including infrastructure). Ladies and gentlemen Sustained efforts to bring in private investment coupled with supportive public policies and investment, would contribute to enhancing productive capacities and generating the much needed jobs in our country. | 0 |
Both the central bank and the government may harbour a false view in them that allowing the exchange rate to depreciate is equivalent to publicly accepting the failure of their actions, it would further raise the cost of living and it would worsen the budgetary outcome by raising the interest cost on the government’s external debt. This false view may force the government to defend the exchange rate at the expense of the loss of foreign reserves of the central bank. At this stage, the auditors should notice a change in the composition of the assets of a central bank: a decline in the foreign assets and an increase in the domestic assets mainly in the form of lending to the government. The change in the asset structure of a central bank leads to a series of unfavourable outcomes that raises the risk of insolvency of a central bank. First, there will be a change in the composition of the income of a central bank. The foreign income will fall and the domestic interest income will rise. Second, the decline in the foreign assets will force a central bank to borrow abroad on a short term basis, raising its foreign liabilities and interest out-payments. Third, if the government is still bent on keeping the fixed exchange rate, even the borrowed funds would be used to defend the exchange rate, converting the net foreign assets of a central bank to a net foreign liability position. | Accordingly, in order to raise its expenditure levels (or alternatively, to provide more funding to the government), it may go back on its tight monetary policy and reflate the economy so as to extract real resources from the public. It, therefore, tries to fool the people by generating inflation without their knowledge. However, the public are also smart and aware that the central bank would reverse the course of its policy by inflating the economy after it has made small gains. This mistrust of the public about the policy actions of a central bank is well revealed by the exceedingly high inflation expectations they normally form about the future trends in inflation. Consequently, they also try to fool the central bank by asking for higher wages, if they are employees, or higher future contract prices, if they are producers, than the normal wage or contract price levels permissible under the now low inflation rate. This battle between the central bank and the people will trap the economy in a high inflation-high wage spiral making it a self-defeating enterprise for both the central bank and the public. The high inflation in the economy now exerts pressure on the exchange rate to depreciate. | 1 |
The changing structural pattern of trade in the region reflects the growing intra-regional trade which now accounts for almost half of Asia's total trade from just a fifth a decade ago. Intra-regional trade has also been enhanced by the opening up of large regional markets such as China. The share of East Asian exports to China has doubled in the past decade to about 10%. While there has been significant attention on the 2 BIS Review 62/2002 competition that China will create for other countries in the region, the focus should also be on the complementarities that are already feeding the regional growth process. A third discernable trend in the region is the growing importance of domestic demand in the regional economies, supported by domestic-oriented policies in recent years, which would ensure that the gains in intra-regional trade could be sustained. In terms of financial flows, the development of regional markets is contributing towards strengthening the prospects for a deepening of Asian financial markets and promoting greater regional financial integration. The region is also studying the feasibility of establishing an Asian Bond Market to recycle part of the region's high level of savings to finance productive activity within the regional countries. To encourage the regional flows to be recycled into investments in the region, efforts have been taken to develop the capital market particularly in the area of securitisation, credit guarantee and market infrastructure. | The big questions now are about the extent of the slowdown and how long it will last. On an optimistic view we may be largely through the sharp downward stock adjustment, and with consumption so far holding up better than generally expected, and with the possibility that investment will recover as the spread of ICT through the economy resumes, US activity may pick up as we move, say, into next year. But the pessimist can point to the weakness of private sector saving, which could induce more cautious consumer behaviour; he can point to a possible overhang of past investment excesses; and he can point to the US external deficit which will need to be corrected at some point. BIS Review 56/2001 1 These adjustments might take place gradually over time, implying a more protracted period of relatively slow growth in the US Or, if you are really pessimistic, you might anticipate more abrupt adjustment, implying a period of negative US growth and global financial instability. The recent somewhat erratic recovery of US financial markets from their earlier gloom suggests that they may have begun to side somewhat tentatively with the optimists; but some of the survey evidence of consumer and business confidence, on the other hand, supports a more pessimistic view. The truth is that none of us knows with any great confidence just how the US situation will evolve. For what it is worth I remain modestly optimistic, but I am very conscious of the downside risks. | 0 |
The greater use of RMB in international transactions will be closely related to China’s financial reforms and liberalisation, with new fund flow channels being opened up in RMB. For example, the RMB QFII scheme allows offshore institutions to use RMB funds to invest in Chinese capital markets, and it is a new channel in addition to the US dollar-based QFII scheme. And further to a recent relaxation, outflows under the QDII scheme can also be made in RMB. Such developments, in turn, will bolster the use of the RMB in trade, foreign direct investment and international transactions, thereby supporting the further development of the offshore RMB market. 13. While recent developments in RMB have been exciting, given the possible scope of future expansion, we are probably still only at the early stage of what could be more significant changes in the years to come. After all, RMB deposits and bonds outstanding in the offshore market only account for about one percent of onshore deposits and outstanding debt respectively. The possibility for expansion remains substantial. 14. One of the aims of the Hong Kong-London Forum is to assess what all this means to the financial institutions and to corporates — many of whose representatives are gathered here today. 15. For corporates, especially those already having business links with China, it is important to get prepared for the increasing use of RMB as a currency for transaction, financing and investments. | Until now, the channels for cross-border flows are only open to current account items such as trade, and to direct investments under the capital account. Portfolio investments under the capital account into and out of China are mainly confined to designated channels and are subject to quotas, for example, the Qualified Foreign Institutional Investor (QFII) scheme with quotas totalling $ billion, and the Qualified Domestic Institutional Investor (QDII) scheme with quotas of $ billion. It can be reasonably expected that a further opening of the capital account would entail liberalisation of these channels and the addition of new avenues. These would result in an increase in cross-border capital flows. BIS central bankers’ speeches 1 7. Although it may not be easy to provide a precise estimate of the magnitude of the flows, given that China’s economy is the second largest in the world, and taking into account the size of both its domestic savings and its capital markets, one can probably say that the size of capital flows resulting from China’s capital account liberalisation would likely be felt in the global financial system. 8. From the perspective of Chinese savers, given their high level of savings and the fact that their investment options are mostly limited to domestic markets at present, there would be a desire on their part for investment diversification into international markets. The resulting investment flows, as they are liberalised, could be substantial for individual markets where these funds flow into. 9. | 1 |
15 All speeches are available online at www.bankofengland.co.uk/speeches 15 Chart 10: With no monetary policy tightening, excess demand builds significantly and inflation remains above target May 2018 Inflation Report projections for inflation and growth Per cent / Per cent of potential GDP 4.0 3.5 Inflation projection market conditioning path Inflation projection constant rate path 3.0 2.5 2.0 2% inflation target Excess supply / demand projection - constant rate path 1.5 1.0 0.5 0.0 Excess supply / demand projection - market conditioning path 2012 2013 2014 2015 2016 2017 -0.5 -1.0 2018 2019 2020 2021 Of course, as the Committee has made clear before, its guidance about the likely gentle path of rate increases depends on the economy evolving broadly as expected – in particular, whether growth in demand exceeds that of supply. That might not happen. For example, the weakness in demand at the start of the year could reflect a worsening of the underlying economic climate, not the temporary effects of adverse weather as the Committee currently assesses. In particular, there is somewhat greater uncertainty about the near-term momentum in consumer spending at present, given recent weakness in consumer credit and the housing market across a range of indicators. Growth in consumer credit, particularly credit cards, slowed sharply in March. Retail sales volumes have been falling and profit warnings in the retail sector rising. | To resolve this, fair-burden sharing will be necessary among leading economies and different regions. Structural Reforms Economic recovery will continue to be restrained unless countries speed up structural reforms. An effective way to improve long-term economic prospects is to address structural rigidities that weigh down the efficiency of labor markets. It must be recognized that demographic challenges such as the aging of the population add pressure on the labor market and public finances. Increased labor market participation and restructuring of benefit schemes are therefore needed. Authorities and labor market participants have to work together in this effort. Other structural rigidities in financial and product markets are of no less importance, and removing such obstacles is conducive to growth. Many economies are burdened with government deficits in the midst of the global economic slowdown. Automatic stabilizers have been allowed to operate in order to support growth. This may be prudent and appropriate; however, care should be taken that public finances do not become unsustainable. Policy makers are responsible for planning both for the short and the longer term and we encourage governments to consolidate their fiscal positions in order to enhance their nations’ competitiveness. The Fund should continue to monitor closely structural deficiencies and advise accordingly. Good Governance Economic integration has brought increased prosperity to those who have been part of the globalization process. Increased globalization also implies intensified competition in most areas. Good governance is, therefore, more important now than ever because it fosters confidence and growth, without entailing much additional economic cost. | 0 |
This combination – a more robust and resilient LIBOR for transactions that require a reference rate with a bank credit risk component and the development of an alternative reference rate for transactions like interest rate derivatives that don’t – will strengthen our financial system and help undo some of the damage caused by earlier transgressions. But this is only a necessary and not a sufficient set of conditions. To achieve the outcome desired, financial institutions also need to have in place the appropriate incentives and controls. Thank you for your attention. I would be happy to take a few questions. BIS central bankers’ speeches 7 | These include the summer school, which brings in leading academics to teach courses in relevant areas to participants, a large number of whom are central bankers. It also organises a highly-demanded summer internship programme for top undergraduate students. And it collaborates with the Banco de España in the training of bank supervisors, and in the organisation of research workshops and conferences. In terms of broader service to Spanish society, three faculty members participate in the Council on Economic Advisors that advises the Spanish Ministry of Economic Affairs; one is a member of the Multidisciplinary Group that advises the Ministry of Science and Innovation; another is a member of the Advisory Board of the Spanish Independent Agency for Fiscal Responsibility, and another is chair of the Scientific Committee of the Spanish State Research Agency. All in all, and from the perspective of the Banco de España, CEMFI is indeed very good value for money. Finally, I would like to take this opportunity to congratulate Mónica Martínez-Bravo for the recent award of the Banco Sabadell Prize for Economic Research, given to a Spanish researcher under the age of 40 for outstanding contributions to economics and social sciences. Congratulations, Mónica! To conclude, let me address the students of the class of 2021. You are now entering a very exciting period of your lives. | 0 |
Ladies and Gentlemen, The economic prospects for 2005 will continue to be favourable. Despite some signs of slower global growth, this has not become a cause for concern as the underlying conditions in the global environment continue to remain supportive of growth. Positive developments are that income growth and job creation in the world's largest economy, the United States, has improved while growth in the Asian region also continues to be strong and mutually reinforcing. Despite higher commodity prices, inflationary pressures in the major economies remain moderate. While some countries have begun to raise interest rates, the environment has allowed the upward adjustments to be gradual and supportive of growth. Therefore, although the pace of world growth may moderate, global growth in 2005 will remain strong. The current global environment is however, affected by uncertainty arising from the global imbalances. The United States continues to record large deficits in the current and fiscal accounts. There has been extensive discussion by the global community on the nature of the adjustment that should take place. Currently, the discussion on the measures to address the existing imbalances appears to be skewed toward pressures for a realignment of exchange rates. Ultimately, these structural imbalances would have to be addressed by the countries where these imbalances exist. Exchange rates may be part of the solution but even so, they are only a small part of the solution. The issue of competitiveness however, requires more than just adjustments in exchange rates. It requires fundamental structural changes in the countries concerned. | Unlike inflation, where falling behind the curve would entail a degree of pain down the road when policy eventually needs to catch up, there is no catching up if we fall behind the curve on climate change. It is a one-shot game. And the consequences of getting it wrong would be catastrophic. Responding to climate change is not simply about taking into consideration the effects of the green transition on inflation, nor the possible repercussions of physical and transition risks on financial stability. But it is also about actively taking steps that helps influence the incentives and willingness of society to alter their behaviours in such a way that mitigates adverse climate change. The most impactful channel for central banks in this respect is through the financial system. Incentives, mindsets, and expertise in the financial sector must be geared so as to ensure that sufficient resources become available to finance the green transition. This requires a collaborative approach, both among agencies within a country, as well as internationally. Initiatives being pursued by bodies such as the Network of Central Banks and Supervisors for Greening the Financial System are therefore critical. Forging ahead amidst shifting grounds Mervyn King once said that central banking should be boring. There was a time when that was true. There may come a day when it is true again. But that is not today. The task at hand is far from straightforward. Maintaining economic and financial stability amidst the shifting fault lines will require a steady hand. | 0 |
Last year, another report13 analysed how climate risk shocks could spread throughout the financial system, harming companies and banks alike. Transition risks stemming from, for instance, a surge in carbon prices may be magnified because of economic and financial linkages between and across financial institutions and companies. Interdependent natural hazards, such as water stress, heat stress and wildfires – which are painfully familiar to us in Spain – can amplify physical climate risk, as they can cluster together and exacerbate each other. Market dynamics can also magnify the financial impact of physical risks. Given the identification of potential systemic financial risk associated with climate change, it is necessary to study the development of appropriate macroprudential policy tools to tackle it in a manner consistent with prudential mandates to preserve financial stability. For the near term, the ESRB-ECB report suggests the adaptation of existing regulatory instruments, such as the systemic risk buffer or concentration thresholds, as a possible avenue to tackle climate risk in the banking sector. In any case, this is a task that demands joining efforts between macroprudential policy and microprudential supervision, and taking adequate stock of developments in other policy realms, such as fiscal and monetary initiatives. 12 Advancing macroprudential tools for cyber resilience, ESRB Report, February 2023. 13 The macroprudential challenge of climate change, July 2022, by ECB/ESRB Project Team on climate risk monitoring. Conclusion The ESRB’s general Warning that I referred to in the first part of my intervention called for heightened awareness of risks to financial stability. | 9 See Letter to Members of the European Parliament on the AIFMD review, ESRB, 23 March 2022; Letter to the Council Working Party on the AIFMD review, ESRB, 23 March 2022; Letter to Members of the European Parliament on the Review of Solvency II, ESRB, 2 February 2022; Letter to the Council Working Party on the Review of Solvency II, ESRB, 2 February 2022; Letter to Members of the European Parliament on the Solvency II Review and Liquidity Risk Management, ESRB, 16 November 2022; Letter to the Council Working Party on the Solvency II Review and Liquidity Risk Management, ESRB, 16 November 2022; Letter to Members of the European Parliament on EMIR review, ESRB, 20 March 2023; Letter to the Council Working Party on EMIR review, ESRB, 20 March 2023. 10 See Making macroprudential policy fit for the next decade, Keynote speech by Pablo Hernández de Cos, Governor of the Banco de España and Chair of the Advisory Technical Committee of the European Systemic Risk Board, at the 6th DNB-Riksbank-Bundesbank Macroprudential Conference, June 2022. 11 Recommendation of the European Systemic Risk Board of 2 December 2021 on a pan-European systemic cyber incident coordination framework for relevant authorities (ESRB/2021/17). strengthen coordination between financial authorities in the EU as well as coordination between other authorities in the EU and at international level, including the Bank of England. | 1 |
Foreign currency deposits are expected to have a considerable annual increase, of about 18.2 percent, or Lek 17.7 billion, by the end of 2004. Table 4. Money supply growth as to trimesters (in Lek billion) T1 T2 T3 T4 2004 Money supply 10.9 11.0 11.5 14.0 47.4 Money outside banks 1.7 3.1 3.2 6.9 14.9 Lek deposits 4.1 3.6 3.7 3.4 14.8 Foreign currency deposits 5.1 4.3 4.5 3.7 17.7 Generally, the M2 aggregate growth will follow the performance of the economy demand for monetary assets. This demand is expected to higher in the first trimester of the next year. BIS Review 8/2004 5 Table 5. M2 and monetary assets demand growth (in Lek billion). | The Bank of Albania - in its recent analyses - has been underlining the fact that its monetary policy has been a careful, financial, budgetary policy, where special emphasis has been given to the budget expenditures control versus the realized revenues ratio. Consequently, the government’s liquidity needs, up to the present moment, have been completely covered by the banking system, and therefore, the Bank of Albania financing was unnecessary. Under these circumstances the fiscal pressures on the monetary policy are weak. Following this reasoning, it could be concluded that the move of both policies (monetary and fiscal) has been in harmony and in conformity with the general economic-financial development program of the country. Domestic budget deficit financing from the banking system during 2003 is estimated to be almost at the same level as the one of 2002, being about 2.2 percent of the GDP. The stable level of the internal government borrowing, facing the rapid increase of Lek deposits, was another factor, which influenced the immediate reduction of treasury bills interest rates. The monetary policy of 2003 has continued to be careful, characterized by smoothing tendencies. This is reflected in the reduction of interest rates three times throughout the year. Watching attentively the inflation performance and the liquidity indicators in the banking system, the Bank of Albania reduced, all in all, the Repos rate by 1.5 percentage points during 2003, bring it by the end of October at the pre-crisis liquidity level of the previous year. | 1 |
cit.. 11 In 1992, Governor Leigh-Pemberton gave a lecture entitled: “The case for price stability”. As well as reviewing the costs of inflation, the lecture reprised the early-1980s debate on the rate of inflation the authorities should settle for (see Note 9), in a section entitled “Why not settle for 5%?”. These issues were also the centrepiece of the Bank’s tercentenary conference in 1994 on the future of central banking. See Fischer, S, “Modern Central Banking”, in Capie F., C. Goodhart, S. Fischer and N. Schnadt (eds. ), 1994, The Future of Central Banking: The Tercentenary Symposium of the Bank of England, Cambridge University Press. See also Briault, C., 1995, “The costs of inflation”, Bank of England Quarterly Bulletin, February. And Haldane, A. (ed. ), 1995, Targeting Inflation: a conference of central banks on the use of inflation targets organised by the Bank of England, March. 2 BIS Review 66/2007 just an end in itself but a precondition for macroeconomic stability more generally: for sustainable growth in output and employment and, thus, for the “good things in life”. A precondition, but not a sufficient condition. The Bank took care to stress that, however effective, monetary policy could not deliver economic prosperity on its own. It was a necessary condition. And it could avoid the costs of inflation, including random and unacceptable redistributions of wealth between savers and borrowers resulting from unexpected surges in inflation caused by the authorities choosing to loosen monetary conditions. | Despite the facilities offered by these money transfer systems, there still remains a significant portion of remittances of un-skilled workers that are not captured by the formal money transfer systems. Enabling regulatory environment An enabling regulatory environment is necessary to enhance cross-border remittance transfers. While recognizing the need to deter money laundering and terrorist financing through cross-border transfers, laws relating to this type of activities should not discourage genuine remittance flows through the banking system. Nor should they be discriminatory or prohibitive to remitters or receivers. Most countries with fully open current and capital accounts have facilitated cross-border transfers than the countries with capital controls. The situation is expected to be improved with the relaxation of exchange controls in both the remittance originating country and the recipient country. There is also a need to monitor and regulate the agencies and other service providers which recruit migrant workers. It is reported that, in some instances, the agencies tend to persuade migrant workers to go for lower wages and salaries or employ them under harsh working conditions. There have also been instances where the agencies or agents take money upfront from workers and have left them in the lurch. Remittances through informal channels According to estimates, still 30–40 percent of remittances are transferred through the informal institutional networks and private channels. In some instances, informal systems do not transfer foreign currency from the origin/host country to the recipient/home country. Arrangements are made to provide funds in local currency at the recipient's end. | 0 |
In this tribute to his memory, I would like to dedicate this opening address to sharing with you some reflections on the difficult and complex situation the euro area is now facing, on the economic policy lessons we should draw and on some of the measures adopted and those yet to be taken, all of which show that we are, I believe, learning something. We are all mindful of the critical times European integration is facing; times so different from the first 10 years of the euro, in which the single currency provided all Member States with extra stability and defences against all types of shocks. Today we face a large-scale crisis, a situation in which we could well use the analytical quality and rigour of figures like Ángel Rojo to correctly gauge the economic policy measures needed to exit the crisis. Various causes have led to this situation. But, if you will excuse my simplification, these may be grouped in two main blocks. On one hand, a lack of understanding by the Member States of the consequences of belonging to a monetary union, which translated into the adoption of national economic policies inconsistent with the framework adopted in 1999. On the other, a series of weaknesses in the European governance structure which have been progressively highlighted as the crisis has widened and deepened. BIS central bankers’ speeches 1 The diagnosis of the relative role played by national economic policies in the unfolding of the euro crisis is still subject to some controversy. | As to other economic policies, these were subject to even laxer oversight procedures, and proved worthless in redressing other imbalances. The list of structural weaknesses in the area’s governance framework would not be complete without mentioning the failure to design any crisis-management mechanism capable of making a rapid and forceful response in the initial stages of tensions, preventing the problems from becoming protracted and untreatable. These shortcomings in the original design of Monetary Union have played an increasingly greater role as the crisis has advanced. Currently, investors have become fully aware of the particular fragility of the euro area countries’ sovereign debt markets, which differentiates them substantially from the debt markets of other developed countries with their own currency and central bank. I refer, naturally, to the fact that the euro area combines a single central bank and single currency with 17 independent States and, therefore, 17 different sovereign risks. Under these conditions, the well-known mechanisms that countries with monetary sovereignty have to counter potential liquidity problems on their national sovereign debt markets are blocked by the fact that the action needed would entail some transfer of income between States, action that the institutional arrangements of the euro area not only do not envisage, but which, it is assumed, must be avoided. | 1 |
In short, there are two arguments for this: (i) engaging in such behaviour – let’s call it “leaning against the wind” – in situations when an asset price is changing due to non-fundamentals can dampen the effects of the unmotivated price change on the real economy and thereby prevent an inefficient allocation of resources; (ii) if the market knows that the central bank engages in “leaning against the wind” activities the probability will fall of non-fundamental price changes arising in the first place. The key issue here is, of course, identifying price changes that are driven by nonfundamentals. This problem cannot be overly emphasized. But difficult or not, it is an issue that central banks cannot ignore. If prices of houses or other assets are partly driven by factors that are hard to explain and that are believed to give rise to inefficient allocations and risks of large fluctuations in real economic activity and inflation, such events will, in one way or another, find their way into our thinking about monetary policy. Extending the forecasting horizon In practice, most inflation targeting central banks have chosen to adopt forecast horizons of two to three years, at least in external communication and official documents. In this environment, the idea that a central bank can need to extend the horizon over which it constructs inflation and output forecasts is one that has been heard from many central banks. | Much progress has been made, but there is still much to do. The ARRC transition plan is well underway, but we need to see certain developments in the U.S. financial industry for a smooth transition. Milestones for the future include deeper liquidity in SOFR derivatives markets, greater issuance of SOFR-linked cash products, a reduction in the issuance of LIBOR-linked cash products, and the closing out of legacy positions on cash products, to name a few. These all require the partnership and perseverance of the market. 2022 Is Just Around the Corner 2022 feels like it’s a long way away, but believe it or not 901 days can disappear, almost in an instant. And I don’t always sense urgency among market participants on this issue. Tellingly, contracts referencing U.S. dollar LIBOR, without robust fallback language, continue to be written. My message: don’t wait for term rates to get your house in order. Engage with this issue now and understand what it means for your operations. Recognize where your exposure lies and deal with the contracts that mature after 2021 that lack robust fallback language. This is a problem you have the opportunity to get ahead of now. Don’t wait until January 1, 2022 to manage your business’ transition away from LIBOR, because it’s going to be too late. Conclusion I’ll conclude with this: Reference rates are a complex issue, with numerous countries, a wide range of public and private entities, and trillions of dollars involved. Progress has been made, and the way forward is clear. | 0 |
Tax neutrality is important – a recent McKinsey report 2 indicates that investors are more likely to invest in Shariah-compliant products if returns are comparable to that of conventional products. In facilitating the growth of Islamic finance in Singapore, MAS works with financial institutions to ensure a level playing field between Islamic and conventional financing deals. This includes the waiver of additional stamp duties incurred by qualifying Islamic financing arrangements involving immovable property. In developing the Islamic financial services market during its nascent stage, we also provide tax incentives to help offset the initial additional costs. In February this year, our Finance Minister announced a 5% concessionary tax rate on the income derived from qualifying Shariah compliant financial activities. In addition, all investors will enjoy tax exemption on income derived from qualifying Sukuks. This is to create a seamless framework for the industry in Singapore, although I understand that in the GCC and Malaysia the tax framework is even more favourable. The various changes in our regulatory and tax framework are done in partnership with the industry. Based on our latest consultation, to promote the further growth of Islamic Finance and to meet the needs of financial institutions conducting Shariah-compliant activities in Singapore, I am pleased to announce that Singapore will develop a facility to make available sovereign-rated sukuks. Our facility is likely to be different from traditional issuances in two respects. | When they do so, it is also inevitable for them to base their conclusions on personal biases, fears and prejudices they have been harbouring in their minds. Such conclusions are tainted by biased or prejudiced views held by the person making the conclusions. Hence, such findings are simply an imposition of personal views on the society and, therefore, fail to explain reality and Nature. Therefore, discoveries made in that manner do not enhance the human knowledge. In this background, it is necessary to build the knowledge base of mankind free from biases, fears and prejudices. This could be attained by pursuing scientific inquiry which bases itself on a set of principles, guidelines and an ethical and moral code that discipline the BIS Review 161/2008 1 researchers. It should, however, be noted that the conclusions derived through scientific inquiry are not static and permanent. The very nature of scientific inquiry is that conclusions derived from a given research study, as Karl Popper pointed out, should be capable of being refuted by a new inquiry. Hence, results produced by scientific research carry with them the property of refutability and are valid only until a new research study would replace them with new results. In this sense, the knowledge base developed through scientific inquiry could be equated to a reservoir from which water would flow out and fresh water would flow in continuously. But the core knowledge, just like the permanently stored water in the reservoir, would remain intact. | 0 |
Nor is this a complete assessment, focusing as it does on the prudential angle as opposed to market liquidity considerations. I make them to illustrate the point that it is sensible for us to maintain a spirit of active enquiry about these sorts of issues, and to track developments so that we can intervene if we are concerned that the regulatory system is being arbitraged or simply encouraging the wrong behaviour at firms. Conclusion We, together with many others, have done a huge amount to make the financial system safer over the last 10 years. But the lesson of financial history is that unless we are absolutely vigilant, and keep questioning both firms and ourselves about evolving and emerging developments in the markets we oversee, then this safety can easily slip through our hands. So our horizon-scanning will be an important part of our effort in the coming period. And as the PRA is holding itself to a flat nominal budget this year I would like to finish by asking any birdspotters present here today to lend us their binoculars, in the national interest. | if house price had their national in 2018) mortgages in that year stayed constant since 2013) Source: EBA transparency exercise 2016, EBA benchmarking exercise 2018 (article 78 of the CRD), and Bank of England’s calcula tions. Chart 8: Capital held against a recent margin loan exposure shows wide dispersion across firms Source: Bank of England Note: Box and whisker plot of margin loan RWA data. Whiskers denote 0% (the minimum) and 100% (maximum) value. Edges of box d enote 25th percentile (RWAs 11% of exposure) and 75th percentile (RWAs 91% of exposure). Horizontal line denotes 50th percentile (RWAs 26% of exposure) 11 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 11 Chart 9: Leverage ratios in 2018 could be lower if we measured activity such as collateral swaps differently Impact of measuring activity differently on aggregate leverage ratio of sample banks 6% 5% 5.34% 0.53% 0.68% 0.11% 4% 4.02% 3% 2% 1% 0% Current leverage ratio (reported) Collateral swaps Netted Repo Synthetic PB Leverage ratio (incl. all potential 'missing' leverage) Impact using worst case assumptions Source: Bank of England Note: Banks in sample include large UK banks and large overseas investment firms 12 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 12 | 1 |
Their degree of vulnerability or resilience depends, amongst other things, on the leverage and the liquidity mismatch in the system as a whole. That entails thinking of the system in aggregate (effectively netting out intra-system exposures), in terms of its position vis a vis borrowers and savers in the rest of the economy. And it means thinking of the system distributionally (ie gross), meaning the network of exposures amongst firms and taking into account the weakest links in the chain. Pulling those various strands together, a definition of financial stability that has informed my own contributions to the reform debate is the following: “financial stability prevails where the financial system is sufficiently resilient that worries about bad states of the world do not affect confidence in the ability of the system to deliver its core services to the rest of the economy.” The key words are “confidence” and “resilience”. “Bad states of the world” obviously include recessions; and other jolts from the real economy, due to the accumulation of too much debt within or between countries. Macro imbalances do not invariably lead to instability in the financial system, but they do often extend the chain of intermediation between savers and investors, can unravel in ways that reduce asset values and increase volatility, and are often sustained by accumulating indebtedness. In the face of ultimately unsustainable macroeconomic imbalances, whether domestically or internationally, the financial system therefore needs to be more resilient than otherwise. | Otherwise disruptions could materially impair the supply of credit (and equity) to the economy, with macroeconomic and other welfare costs. When the securitisation markets closed in the USA, it was not realistic for that part of the credit system to be reintermediated by the banking system in short order. The essential ingredients of a resilient market include a robust post-trade infrastructure for clearing and settlement. But trading platforms matter too, as do disclosure standards, and even the pattern of demand. In my book, a market is unlikely to be resiliently liquid if demand is almost entirely from leveraged investors and traders: not only do they vanish when prices stop rising, but prices are then subject to the sudden force of gravity. Much of the 3 Anil Kashyap, Raghuram Rajan and Jeremy Stein, “Banks as liquidity providers: an explanation for the coexistence of lending and deposit-taking”, Journal of Finance, February 2002. 4 See “Shadow Banking, Financing Markets and Financial Stability”, Tucker, January 2010. The Financial Stability Board released a first paper on Shadow Banking earlier this week. 4 BIS central bankers’ speeches securitisation markets would have failed those tests from around the middle of the past decade. That is a lesson we and our successors will need to recall when contemplating future innovations. Over time the Financial Policy Committee will need to consider whether, as a matter of fact, core capital markets in the UK are sufficiently resilient for stability to be preserved in stressed conditions. | 1 |
I shall explain why. The reason is that the foreign currency reserve needs to be much larger than before, as the banks’ funding in foreign currency has expanded so much over the past ten years. And this means that the traditional funding sources, equity and banknotes and coins, are not enough. How should the Riksbank fund its assets? As I have already described, the Riksbank chose to borrow foreign currency on the international capital market through the Swedish National Debt Office when the foreign currency reserve was strengthened. We assessed that this was the most suitable procedure at the time and it functioned well and is still doing so. Although the Riksbank is able to borrow euros and dollars at a low cost on the capital market through the National Debt Office, the interest expenditure for the currency loans is higher than the return the Riksbank receives on the money when it is invested in safe assets with very low risk. The difference is around 0.2 per cent. This means that the strengthening of the foreign currency reserve of SEK 200 billion costs the Riksbank around SEK 400 million a year. One can regard this cost as a form of insurance premium that the Riksbank considers is worth paying to ensure a good level of preparedness for a crisis. As the Swedish banking 4 See Peter Sellin and Virginia Queijo von Heideken: “The banking system’s liquidity surplus and interest rate formation” in Sveriges Riksbank Economic Review 2014:3. | The Central Bank of Turkey aims to match the expectations by being a good institution through its independent, transparent and accountable status, policy implementations focused on its sole mandate of price stability and by practices to increase efficiency in institutional design. Distinguished guests, Turkey has decidedly taken a significant step in improving governance indicators since 2000. In 2005, it advanced to rank 103 among 216 countries in the governance indicators reported by the World Bank. However, the continuation of this performance is as important as the recorded performance so far. Hence, we still have a significant way to go and every institution or organization in the economy has its own responsibility. 10 Ahrens, J. and Meurers, M. “How Governance Affects the Quality of Policy Reform and Economic Performance: New Evidence for Economies in Transition” BIS Review 35/2007 3 That is why it is essential that there should be a good level of cooperation of the policy makers and of the economic management units in the leading role of the public sector and the current national program. Calls for policy coordination are based on the idea that individual policies, which affect one another, should take each others’ objectives and actions into account in order to yield the best 11 possible outcome . In this respect, for example, banks should play a special role in corporate governance in monitoring investments and leading corporate reorganizations. | 0 |
For this, a necessary, but not sufficient condition is that standards are comprehensive in coverage and consistent across jurisdictions. I am not sure, for instance, that the leverage ratio, if it was to be implemented as a compulsory instrument, would meet this double test. At the current level of accounting divergences, consistency will be very difficult to achieve. Furthermore, there is a risk that it would encourage migration of credit activities towards other – less regulated – parts of the financial system. It is therefore important that consistency apply across standards and countries. Convergence between accounting standards is a precondition for a consistent implementation of some of the prudential reforms discussed by the Basel Committee. It is also essential that new prudential standards for banks become truly universal. Procyclicality Strictly speaking, procyclicality is a tendency of financial systems to fluctuate around a trend with the economic cycle. By extension, procyclicality can encompass all “amplification mechanisms” through which an initial shock results in wider movements in asset prices, credit flows, market liquidity, and, possibly, the real economy. Our accounting and prudential regimes have increased procyclicality in recent years. In a mark to market environment, asset prices movements quickly translate into changes in the capital base of financial institutions. This, in turn, triggers additional demand for assets and a further increase in their prices. This kind of “inverted demand curve”; where demand increases with prices, may create the conditions for deep and lasting financial instability. Addressing procyclicality caused by the regulation itself is therefore a priority. | It is hard to see how this fixed buffer, supposed to be on top of the minimum requirement, would not be perceived as a new regulatory minimum. Also, it is very hard to see how this mechanism may not have adverse impact on banks’ share ownership. Another avenue to address procyclicality through prudential rules is by putting in place a countercyclical capital buffer. The logic is simple and, in principle, appealing: the mechanism, indexed on a macroeconomic variable, would force banks to build capital reserves when they can do so and allow them to consume such reserves in a downturn. This would be expected to ensure that banks accumulate and use self-insurance in synchronization with the financial cycle. In practice, we still need to clarify the conditions and the set up for triggering the release of surplus capital accumulated through the mechanism. Such a mechanism may not necessarily be cumulative with others and we may have to choose. Systemic risk and moral hazard As techniques for managing and allocating risk became more sophisticated, the network of counterparties expanded in scale and in complexity. This was, truly, a systemic change that was properly understood but not fully captured by regulators at the time. Credit and market risk was supposedly more broadly spread. But counterparty risk increased. Overall, the overall impact on financial stability may well have been negative. There might be a temptation to assess systemic risk through a crude “size” criterion. “Too big to fail” certainly warrants special treatment. | 1 |
Both companies and employees can take as a given that inflation will be 2½ per cent over time. This reduces uncertainty and makes it possible for the social partners to disregard brief spells of somewhat lower or somewhat higher inflation. Inflation does not have to be higher than 2½ per cent in Norway to achieve growth and high employment. The experience of the 1990s demonstrates this. During that period unemployment fell and growth was strong. Even with major restructuring and changes in industry structure, inflation was close to 2½ per cent. Growth in real wages is now markedly higher than the underlying growth in productivity. This is why unemployment is rising. Businesses must adjust their workforces to sustain profitability. This leads to a fall in employment, but also continued operations in Norway. The alternative is that companies are not able to adjust their workforces quickly enough. If higher costs cannot be passed on to customers, earnings will fall and the wage share rise. This may lead to closures or relocation of production. Chart 12. Wage shares Labour costs as a percentage of factor income 100 100 90 90 80 Manufacturing 70 70 60 80 Other mainland industries 60 50 50 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Sources: TRCIS and Statistics Norway The wage share in Norwegian manufacturing has increased. The situation in service industries is more mixed. Import firms have wider margins. | Payments and clearing arrangements are increasingly transnational in scope. But, the legal and supervisory frameworks for financial activity are still national, and are likely to remain so for the foreseeable future. And despite the development of a much more intensive and extensive network of cooperation among supervisory and regulatory and enforcement authorities, and movement toward an ever-higher standard of convergence in key elements of the regulatory structure across jurisdictions, the regime is inevitably uneven, with different standards across jurisdictions and therefore continuing opportunities for regulatory arbitrage. Implications These broad developments alter the hierarchy of systemic concerns for the U.S. authorities. The greater systemic importance of a smaller number of large bank-centered financial institutions, the greater role played by non-bank financial institutions, the growth in the GSEs, the greater operational demands on the more concentrated core of the clearance and settlement infrastructure, the dramatic increase in the complexity of the risk management and compliance challenge, and the extent of global financial integration - these developments change the nature of the potential sources of stress to the financial system. They change how stress is transmitted. And they change the impact of tools we use to mitigate risk ex ante and to contain the broader financial and macroeconomic fall-out of financial distress. These developments can have both positive and negative impacts. In many respects, they help to reduce risk. In some ways, they increase risk. On balance the positive aspects dominate the less positive. Shocks may act more quickly, but they can be more easily diffused and absorbed. | 0 |
No single key figure, taken alone, is capable of providing a comprehensive picture of the risks involved. Therefore, our risk assessment is based on a range of key figures developed to measure risk, each of which has its own justification along with certain limitations. In order to evaluate the overall risk of our investments, we use the value at risk method (VaR). Additional risk analyses are also necessary because of the method-related limitations of VaR (it provides no information about possible extreme losses; moreover it tends to underestimate the risk of large losses, particularly in times of low volatilities). We therefore conduct a number of additional stress and scenario analyses. For all of these risk calculations we take account of the SNB's tendency towards a long-term investment horizon. The methods used to assess and limit the risks linked to our active management of investments include the 'tracking error' method. This shows us the extent to which our actual investments deviate from the given benchmarks. Our Risk Management unit has a complete and up-to-date picture of all investment positions. This is based on a dedicated IT solution which aggregates all positions from different supplier systems on a daily basis and evaluates them according to different criteria. This permits any critical developments to be identified in good time. Within the bounds set by monetary policy, we work to achieve the greatest possible diversification of financial risks and to attain adequate compensation for the risks we enter into. | In other words, we always assess the risks in conjunction with the expected benefit. One example of a poorly compensated risk, from the point of view of a Swiss franc investor, is the USD currency risk on bonds. Our experience has been that expected earnings on bonds in other currencies, such as euros or sterling, are comparable, while currency risks are significantly lower. Consequently, and also because another important reserve currency was available in the form of the euro, we have substantially reduced our share of USD investments over the past few years. Along with the expansion in the range of permissible bond classes and the addition of shares, the risk/return profile of our foreign exchange reserves has improved substantially. This has helped to ensure that results on foreign exchange reserves have remained positive for the past ten years. Naturally, part of the background to this development has been the favourable interest rate environment that has prevailed since the mid1990s. Our analysis of the overall risk for all investments shows that the traditional risk factors such as the gold price and the dollar exchange rate continue to dominate. Gold poses the most substantial contribution to risk. By way of illustration: The gold price in terms of Swiss francs has fluctuated by over 10% in about half of the years that have elapsed since 1980. In terms of the SNB's annual result, this means that gold can be expected to contribute more than +/- CHF 3 billion to the result every second year. | 1 |
The impact of asset purchases and sales on the economy is state contingent, with the smooth functioning of financial markets being a key determinant of the likely impact. Back in its August 2021 Monetary Policy Report, the MPC judged ‘that the impact on monetary conditions of a reduction in the stock of purchased assets, when conducted in a gradual and predictable manner and when markets are functioning normally, is likely to be smaller than that of asset purchases on average over the past’. [17] The analytical results discussed today support these conclusions, and thereby the approach to unwinding the QE asset portfolio based upon them. That is not to deny that asset sales have the potential to tighten monetary and financial conditions – indeed, the monetarist framework would suggest that some tightening is likely. I would certainly expect them to do so. But as long as we undertake any gilt sales programme in a gradual, predictable and well-communicated manner in a reasonably benign market environment, we can still use Bank Rate as the marginal instrument to achieve the inflation target over the medium term, conditional on how QT has influenced asset prices and the wider economic situation. Concluding remarks The analysis I have presented explores whether monetary quantities play an additional role in the transmission of monetary policy to aggregate spending (and thus pricing) decisions, beyond that already captured by the impact of changes in the official policy interest rate. | Page 6 Where analysis of monetary transmission matters is in calibrating any policy response. The MPC needs to ensure that the monetary impulse transmitted through asset prices helps navigate the narrow course between, on the one hand, preventing above target inflation from becoming embedded in expectations and, on the other, introducing unnecessary volatility into activity and employment, and adding to any undershoot of the inflation target at longer horizons. Crucial to this is ensuring monetary developments do not accommodate price, wage and cost setting behaviour inconsistent with achieving the 2% inflation target. And one aspect of that assessment is how the evolution of the stock of assets held by the central bank as a result of QE plays out. At the Bank of England, we stopped buying assets through the creation of central bank reserves last December. The process of shrinking the QE asset portfolio – so-called quantitative tightening (QT) – commenced in February, as we ceased reinvestment of maturing bonds from that portfolio. And we are currently considering whether – and, if so, how – to begin sales of gilts held in that portfolio. (The MPC has promised to report further on its prospective approach to sales at its August meeting.) Thinking through the implications of QT for the overall stance of monetary policy is therefore key to our current policy analysis. I hope to shed some light on my considerations in that regard. Future: What implications can we draw for the future? | 1 |
In view of the favourable economic climate, the Executive Board judged that a further increase of the repo rate was justified. In my opinion, the information that has subsequently become available does not warrant any change to this conclusion pending our next meeting. 2 BIS Review 11/2006 | Prasarn Trairatvorakul: Growth, sustainability and inclusiveness – Thailand’s key success factors Dinner talk by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Japanese Chamber of Commerce (JCC), Bangkok, 23 March 2011. * * * Ladies and Gentlemen, Let me begin by extending my deepest condolence to the Japanese business community in Thailand on the immense losses caused by the unprecedented earthquake and tsunami in Japan. Despite the tragic incidents, I am confident that the strength and determination of Japanese people, together with supports from all around the world, will enable Japan to recover swiftly. For today, I would like to thank the Japanese Chamber of Commerce for inviting me to share with the distinguished audience my assessment of the Thai economy. I also look forward to hearing your views and concerns regarding the economic prospects. Needless to say that Japan and Thailand have a long history of close economic relationship, with Japan being the top foreign investor in Thailand. As such, Thailand has become a production hub for several Japanese industries, including vehicles, electronics and electrical appliances. I therefore hope that our discussion today will help align understanding and further strengthen the partnership between our two economies. For my presentation this evening, I would like to offer my assessment of the economy based on what I see as the three most important attributes that determine the economic progress for Thailand – the “key success factors”, if you will. First is that growth must be sustainable. | 0 |
It took the British over four decades to lift the capital controls that were imposed partly for this reason. The most usual way to describe the problem is to consider the capital that is likely to seek an exit as soon as the controls are lifted. This includes the failed banks’ estates, the potentially volatile ISK assets held by non-residents – usually called offshore krónur – and possible outflows from Icelandic residents as well. In this context, we are best equipped to predict what would happen if the controls were lifted from the estates without any mitigating measures, as we have mapped out the estates in infinitesimal detail. There is greater uncertainty about the offshore krónur. Following the Bank’s foreign currency auctions in the past few years, some of the remaining capital could be held by patient investors, as some of the parties behind it swear faithfully that it is. But it is safer to verify and secure this before we open the exit doors wide, and there are ways to do it. The greatest uncertainty centres on potential outflows from residents. To a degree, it is possible to estimate resident investors’ need to increase the share of foreign assets in their portfolios, but naturally, they may undertake such foreign investments at varying tempos. The most important factor either way is the level of confidence in Iceland and its financial system at the time the controls are lifted, which is obviously an unknown at this point. | Therefore, it is extremely important that the parties involved – particularly the social partners and the Government – make every effort to push matters in that direction. It is important that the decisions taken in wage negotiations over the next several months be based on correct information. The report published jointly by the social partners last month, entitled In the Prelude to Wage Negotiations, contains cogent information on wage developments in recent years. According to the report, the emphasis placed on the lowest wages in recent years has borne fruit, at least in part. For example, office workers’ and general labourers’ wages rose most during the period from 2006 through 2014, and they rose in excess of the general wage index. The report also confirms what has previously been reported, that wages and productivity per hour worked are relatively low in comparison with trading partner countries and that Icelandic workers compensate somewhat for this with longer working hours. This highlights the fact that, in the long run, increased productivity is the premise for higher real wages. In this context, the weak productivity growth in recent years could give some cause for concern. On the other hand, it also reflects the growth of labour-intensive sectors such as tourism, which have been supported by the low real exchange rate and have facilitated a more rapid decline in unemployment than would otherwise have been possible. | 1 |
Therefore, while formal schooling is an important source of skill and quality development, experience in the workplace is equally essential for human resource development. As members of the business communities, your role as investors and employers will help make Thailand’s real sector more competitive by investing in the best technology and capacity to use that technology efficiently. This will in turn increase the attractiveness of Thailand for international trade and investment, especially as Thai exporters have benefited from new market penetration and the growth of intra-regional trade. We recognize that the US is the largest single trade partner for Thai exports, though its market share has been declining. As for US direct investment in Thailand, the US ranks fourth in terms of the size of FDI, accounting for about 12 percent of total FDI inflows annually since 2000. Ladies and Gentlemen, I turn now to the last part of my talk which focuses on the roles and directions of the Bank of Thailand in fostering economic growth, investment, and financial stability. Let me touch on two topics here, namely 1) the three new financial legislations that will enhance the transparency and efficiency of central bank responsibilities in safeguarding monetary and financial system stability, and 2) the second-phased financial sector master plan. The three new financial legislations, which were passed at the end of 2007, are the new Bank of Thailand Act, the Financial Institution Business Act (FIBA), and the Deposit Protection Agency Act. | Tarisa Watanagase: Thailand’s economy in 2008 and preparations for the future Keynote address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the luncheon gathering of US and Thai business representatives to celebrate the 175th anniversary of Thai-US relations, at the Ministry of Foreign Affairs, Bangkok, 29 April 2008. * * * Excellencies, Distinguished US and Thai business representatives, Ladies and Gentlemen, It is my honour and pleasure to accept the Ministry of Foreign Affairs’ invitation to speak at this gathering of distinguished members of the US and Thai business corporations and to join you in celebrating the 175th anniversary of Thai-US relations. My goal today is to contribute to your understanding of the prospects of the Thai economy and investment environment in 2008 and beyond. My talk will comprise three parts. First, I would like to draw your attention to Thailand’s economic prospects and risks in the near term. Second, I will focus on some key challenges in enhancing the economy’s resiliency and competitiveness while managing those risks. Finally, I would like to highlight to you the roles of the Bank of Thailand in fostering economic and financial stability going forward. Ladies and Gentlemen, Since my last meeting with the American Chamber of Commerce in Bangkok last September, the economic tide has already turned in Thailand’s favour. In 2007, the Thai economy managed to grow by 4.8 percent for the whole year, given boost by GDP growth rate of 5.7 percent in the fourth quarter of the year. | 1 |
The rates charged/paid on the OSF lending/deposit facility are less attractive than Bank Rate, so as to discourage regular usage. But they are more attractive than the penalty associated with missing a reserves target outright. As a result, the OSF deposit and lending rates should impose a corridor around Bank Rate. By providing a floor and cap, this corridor should ensure that reserve account holders never need to transact in the market at a rate very different from Bank Rate. Chart 3 illustrates a stylised demand curve for reserves, and shows how the OSFs provide a corridor around Bank Rate. The demand curve is dictated by the scarcity value of reserves – if a bank is short reserves, it will bid in the money market to attract them. But it should not bid higher than the lending facility rate, which provides a cap on the market rate. As it gets closer to being within its tolerance range, a bank will be less willing to bid up to attract reserves. If a bank has excess reserves, it should be willing to lend in the interbank market at less than Bank Rate in order to shed them. But it will not lend below the deposit facility rate, which provides an effective market rate floor. | 10 BIS central bankers’ speeches In the case of supply curve C, there is no intersection between the RSS and the demand curve. We then face a decision about where to allocate. To date, we have chosen to allocate at the bid closest to the RSS, rather than allocating at the intersection of the RSS and the discontinuity in the demand schedule. There are pros and cons to that approach. For example, the current practice lacks transparency in that counterparties can observe significant variance in the auction clearing spreads, and might take false signals about the RSS as a result. Set against that, allocating at the RSS could mean providing liquidity to counterparties at a rate lower than any of the bids in the auction. Review to date Following their launch in June 2010, the Bank is reviewing how the ILTRs have functioned (Table 3 provides the key auction statistics to date). That work is still going on, but so far the operations have worked well. A few key points of interest are: Participation levels have been lower than in the extended-collateral LTRs at the peak of the crisis, but broadly in line with the long-run/pre-crisis average. Although the sample is small, the 6 month auctions appear to have generated greater demand relative to the amount on offer (higher cover) than the 3 month operations. Anecdote from counterparties suggests that reflects the attractiveness of securing longer-term liquidity and the relative scarcity of market sources of 6-month funding. | 1 |
Indeed, the history of innovation in financial markets provides many examples of periods of rapid change accompanied by fraud and abuse, by challenges in assessing value and risk, by concerns about the adequacy of investor and consumer protection, and by unexpected behavior of prices, defaults and correlations. To some degree, these types of problems are the inevitable consequence of change and innovation. Although recent experience as well as theory provide some reassurance against the concern that credit market innovation would make markets more volatile and the financial system more vulnerable, these judgments require qualification. Some aspects of this latest wave of innovation are different in substance – therefore potentially in their implications – from their predecessors. And these differences require attention. There are three aspects of the latest set of changes which I think deserve more reflection. The first is about the role of market liquidity and liquidity risk in how credit markets work. Credit market innovations have transformed the financial system from one in which most credit risk is in the form of loans, held to maturity on the balance sheets of banks, to a system in which most credit risk now takes an incredibly diverse array of different forms, much of it held by nonbank financial institutions that mark to market and can take on substantial leverage. U.S. financial institutions now hold only around 15 percent of total credit outstanding by the nonfarm nonfinancial sector: that is less than half the level of two decades ago. | The stronger these shock absorbers, the more resilient markets will be in the face of future shocks, and the more confident we can be that banks will be a source of strength and of liquidity to markets in periods of stress and that the financial system will contribute to improved economic performance over time. Thank you. 4 BIS Review 29/2007 | 1 |
In contrast, a stronger impulse from public expenditure is expected, particularly from investment. On the private consumption side, we expect it to keep growing for the rest of the year at a slower pace than was forecast in June (table 2). Annual CPI inflation, still affected by high monthly variations early in the year and the direct effects of the recent depreciation of the peso will remain above 4 percent throughout the remainder of 2014. By 2015, in line with the lower inflationary pressures that are inferred from the cyclic evolution of the economy and the high basis of comparison, annual inflation of both the CPI and the CPIEFE will have a quick descent to 3 percent. Then it will hover around 3 percent until the end of the forecast horizon, this time the third quarter of 2016 (figure 9). This inflation trajectory is based on the assumption that the indirect effects of the nominal and real depreciation of our currency will be more than offset by the state of the capacity gaps over the projection horizon. The Board’s assessment yields that the current level of the real exchange rate (RER) is consistent with the cyclical state of the economy and the internal and external financial conditions, although it is slightly above the range of its estimated longterm values. As a methodological assumption, it considers that the exchange rate will have a slight appreciation in real terms over the long run, as the cyclical conditions of our economy normalize. | Rodrigo Vergara: Chile’s September 2014 Monetary Policy Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, of the Monetary Policy Report before the Honorable Senate of the Republic, Santiago de Chile, 3 September 2014. * * * The Monetary Policy Report of September 2014 can be found at http://www.bcentral.cl. Introduction Mr. Vice-president of the Senate, Senator Eugenio Tuma, honorable senators, ladies, gentlemen, Thank you for your invitation to the Board of the Central Bank of Chile to present our Monetary Policy Report. As is the norm each September, this Report coincides with the annual report from the Central Bank Board to the Senate, where we share our vision on the recent macroeconomic and financial developments in Chile and abroad, as well as their prospects and implications for monetary policy conduct. Chile’s economic outlook has seen important changes over the past few months. In particular, the slowdown in output has been more pronounced than anticipated and is expected to be also more persistent. A year ago, when we came to the Senate to present our vision of what would be the economy in 2014, we projected that it would expand in the 4 to 5 percent range. Today, as I will detail in a moment, we estimate that growth will be between 1.75 and 2.25 percent this year and between 3 and 4 percent in 2015, that is, less than our estimate for medium-term growth in our economy. | 1 |
I will explain why in this era of globalisation, it makes sense to strengthen the linkages between Southeast Asia and India, and how Singapore, a small and open country whose survival is totally dependent on globalisation, can play a role in deepening these linkages. ASEAN since the early 90’s For more than a decade until 1997, Southeast Asia enjoyed remarkable growth. As governments opened up economies, investments flowed in, exports grew, and prosperity was everywhere. People talked about the Asian Miracle and the Pacific Century. Then we met the darker face of globalisation. Euphoria turned to gloom when the Asian Financial Crisis struck. A seemingly minor problem in Thailand rapidly developed into a widespread panic in the region. One country after another succumbed as investors stampeded out, stock markets and currencies crashed, and economies nearly collapsed. In Indonesia, the Crisis triggered deep political and social changes, resulting in a very difficult transition. A new and very different dispensation is only now recrystallising. Even though the Crisis has passed, we have not returned to the status quo ante. The world has changed permanently. Globalisation has advanced even further, and competition is now fiercer. India and China are major new players which totally alter the landscape. From the point of view of other BIS Review 3/2004 1 Asian countries, they are formidable competitors for investments, but also offer immense new opportunities. | However, similar legislation has been introduced in several European countries, and mortgage bonds regulated according to this legislation on secured bonds have come in various ways to be viewed as more creditworthy than mortgage bonds that are not. It can therefore be claimed that Swedish mortgage institutions should be given the same opportunities to issue secured bonds as mortgage institutions in other countries, which is also the view held by the Riksbank. Swedish mortgage institutions today already observe such strict legislation that they can be viewed as a kind of special company in a securitisation. The potential effects of introducing particular legislation for secured bonds are therefore possibly less in Sweden than in other countries, and it is difficult to see that the legislation regarding secured bonds would entail any dramatic change in the activities of Swedish mortgage institutions. However, there are advantages involved in introducing such legislation. Having legislation that is in line with that of other European countries will contribute to reducing any uncertainty, particularly from foreign investors, regarding the terms connected with owning securities issued by Swedish mortgage institutions. This should reasonably result in a broader circle of investors that are willing to invest in securities issued by Swedish mortgage institutions, and hopefully also BIS Review 35/2004 1 reduce their borrowing costs. In addition, European central banks currently regard this type of mortgage bond as more creditworthy than mortgage bonds not covered by legislation on secured bonds, when market participants pledge collateral with them. | 0 |
Department for Business, Energy & Industrial Strategy (2017), ‘Industrial Strategy: building a Britain fit of the future’, BEIS Policy Paper. Espinosa-Vega, M and Russell, S (1997), ‘History and Theory of the NAIRU: A Critical Review’, Federal Reserve Bank of Atlanta Economic Review, 1997 Q2. Gardiner, L (2016), ‘A-typical year?’, article for the Resolution Foundation. Gordon, R (2013), ‘The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery’, NBER Working Paper, No. 19390. Gregg, P, Machin, S and Fernandez-Salgado, M (2014), ‘Real Wages and Unemployment in the Big Squeeze’, The Economic Journal, Vol. 123, pp. 403-432. IMF (2017), ‘Understanding the Downward Trend in Labor Income Shares’, IMF World Economic Outlook, Chapter 3. Krueger, A (2018), ‘Reflections on Dwindling Worker Bargaining Power and Monetary Policy’, Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole. Manning, A (2003), Monopsony in Motion: Imperfect Competition in Labor Markets, Princeton University Press. Moscarini, G and Postel-Vinay, F (2017), ‘The Cyclical Job Ladder’, Annual Review of Economics, Vol. 10, pp 166-188. Mueller, H, Ouimet, P and Simintzi, E (2017), ‘Wage Inequality and Firm Growth’, American Economic Review, Vol. 107, No. 5, pp. 379-383. Phillips, AW (1958), ‘The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957’, Economica, Vol. 25, pp. 283-99. | While it may still be too early to understand the long-term impact of a fully-remote staffing model on trust, it is interesting to note that over the last few years, a number of large firms that had favored a highly remote workforce, including Yahoo and IBM, had begun to reverse course, asking employees to return to the office to increase personal interaction and collaboration.9 We can perhaps learn by comparing firms that intentionally transitioned to a virtual work environment with limited personal interactions, to those that relied heavily on personal interactions and were forced into a fully remote posture. Indeed, we will explore how proximity impacts trust as part of a panel on trust and decision-making that I’m moderating on December 2 for the New York Fed. 3/5 BIS central bankers' speeches Severed networks. The second dynamic is severed personal networks. Beyond formal networks and hierarchy within an organization, the value of informal networks should not be underestimated. As I mentioned, the financial sector has been quite effective in maintaining core services and operations during the pandemic so far. One hypothesis is that this success reflects, in part, the development of personal relationships, teams, and networks over years, and possibly decades. As people came together during the initial months on the pandemic, it is likely that they relied on their existing networks and leveraged the strength of existing relationships. | 0 |
This was the case with the Swedish krona and several other European currencies at the beginning of the 1990s. With regard to inflation targeting, I am of course somewhat biased and for obvious reasons find it easier to point to advantages than disadvantages. One advantage is that a central bank which conducts inflation targeting is not tied to maintaining a particular exchange rate relationship, but can be more directly aimed at focussing on what is happening in the domestic economy. Another, partly related advantage – which I believe has been very important in Sweden’s case – is that inflation targeting means that one specific authority is given a clear responsibility for maintaining price stability. During the 1970s and 1980s it was not entirely clear where the responsibility for this lay in Sweden. One could say that the responsibility in practice had been delegated to the social partners, but that the total economic policy tended at the same time to be so expansionary that it became difficult to maintain wage and price increases at reasonable levels. A further advantage of inflation targeting is that the task of monetary policy, in the same way as with a fixed exchange rate regime, is easy for the general public to understand. If I am to try to find a disadvantage with inflation targeting, it could be that it is more difficult from a purely operational point of view for a central bank to steer inflation towards a particular level than to maintain a particular exchange rate relationship. | The bank therefore contributes to ensuring that the mediation of capital in the economy functions efficiently; it is sufficient that borrowers can convince the bank of their creditworthiness, they do not need to convince each individual saver. Similarly, savers do not have to assess the creditworthiness of every borrower; it is enough to be satisfied of the bank's solvency. The banks can also supply payment services for households and companies by using the existing financial infrastructure, such as accounts and various routines for transferring funds between financial institutions. As these functions are central to an efficient economy, it is evident that major problems can arise if financial stability is upset. This is aptly illustrated by, for instance, the crises in South East Asia at the BIS Review 21/2006 3 end of the 1990s and by the bank crisis that Sweden and other countries suffered at the beginning of that same decade. While the target of maintaining price stability is relatively straightforward and intuitive, it is more difficult to specify the task of promoting financial stability. This task has also been formulated in slightly different ways in different central banks’ regulations. For instance, the Bank of England’s charter says that it is ”responsible for the overall stability of the financial system as a whole”, while the corresponding task in the regulations for Sweden’s Riksbank has been expressed in a more indirect manner: ”to promote the efficiency and safety of the payment system” 4 . | 1 |
Work by Bank colleagues finds that intense hurricanes, of the type most likely to cause large insurance losses, seem to be getting more frequent and the chance of two or more intense hurricanes occurring close together 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 6 may be higher than previously thought. So improvements in insurers’ risk modelling must be unrelenting. While the ability to re-price annually or to withdraw cover can mitigate risks to general insurers in the short-term, as climate change progresses, they will need to consider the longer-term impacts on their business models. And as the PRA found a few years ago in its review of the sector, insurers need to be wary of cognitive dissonance within their organisations whereby risks that are managed prudently by their underwriters are ignored by the firm’s asset managers, such as in their real estate exposures. 7 Consistent with the tragedy of the horizon, the risks posed to banks from climate change have tended to be beyond their planning horizons. A recent survey by the PRA of banks accounting for around 90% of the UK banking system, found that these horizons averaged four years – before physical and litigation risks would be expected to manifest, and prior to stringent climate policies likely taking effect. There are signs, however, that banks are beginning to treat climate-related risks like other financial risks. | The most frequently acquired product in Spain is the credit card, followed by personal loans. Here, too, there are significant differences in the acquisition of savings products based on educational level and on the level of income, which are less marked in the case of debt products. Thus, in the case of interviewees with a university education, 32% acquire savings products, while in the case of those with primary schooling, only 8% acquire them. By level of income, 43% of those who live in a household with income of over € acquire savings vehicles while only 8% do so in households with income of up to € Finally, the Survey also enables information to be had on the use of financial products: in particular, on one hand, on whether interviewees have saved over the past 12 months and, if so, using which savings vehicle; and, on the other, whether the household’s spending has exceeded its income over this period and, if so, how they financed it the last time this happened. This information shows that, as regards saving, 61% of interviewees have been saving in the past 12 months. The percentage increases in terms of educational level and level of income. One noteworthy feature is that the second most common method of saving, behind the current account, is cash, even in the highest educational and income segments. In particular, 38% of interviewees who save do so in cash. Only 14% do so via a savings account and 11% via a pension scheme. | 0 |
The popular media sometimes calls Singapore the “Switzerland of Asia”. We have always taken the comparison as a great compliment. Switzerland is known the world over for its stability, prudence, efficiency, and diligence – all attributes that we in Singapore also aspire to. Both Switzerland and Singapore are small trading nations with a shared interest in promoting free trade and maintaining an open, rulesbased global economy. Switzerland is an important economic partner to Singapore. Many Swiss multinationals have a strong presence in Singapore and they are a source of high value-added investments. Similarly, Singapore companies are actively making direct investments in Switzerland. Today, Switzerland is our 5th largest trading partner in Europe while Singapore is Switzerland’s 4th largest trading partner in Asia. As central banks, SNB and MAS share some common challenges. Since the financial crisis, the openness, financial soundness, and strong fundamentals of our two countries have made us highly attractive to global capital, with implications for monetary and exchange rate policies, on which we exchange views. Our two institutions also have to manage a growing pool of official foreign reserves in a global market that is increasingly uncertain. The opening of SNB’s Singapore branch is an important milestone in the strong friendship and good relations between Singapore and Switzerland, and between MAS and SNB. Through this branch, our two institutions will come even closer together and I look forward to new areas of cooperation. BIS central bankers’ speeches 1 We value highly our relationship with SNB. | One key driver is the rapid development of Fintech. While the HKMA has done a great deal in the past few years in promoting Fintech, there is still room to further apply new technology in finance in the coming years. This includes, for example, fostering a better ecosystem for Regulatory Technology (or RegTech) and Supervisory Technology (or SupTech). We are also aware that any new risks associated with the increasing use of technology have to be managed. These include for example cyber and data security. We will work with the industry to address these risks. 6. We are also committed to promoting market development opportunities, especially in strengthening the role of Hong Kong as the gateway to the Mainland’s capital markets, in the Greater Bay Area development, and also in green finance. 7. These are rough times. But my colleagues and I will continue to discharge our duties in a professional manner and do our best to serve the people of Hong Kong. 1/1 BIS central bankers' speeches | 0 |
We even managed to do so, in certain issues, ahead of time rather than catching up in a crisis induced situation. Yes, there were still business failures - indeed this is an inevitable feature of free markets - but there is little moral hazard for the public sector. Yes, there were still cracks showing up in unregulated areas that require mending, for example recently in equity margin financing, but nothing of a systemic nature or of any threat to the stability of our currency. 10. These strong economic fundamentals of Hong Kong also do not require Hong Kong to get involved in the process of competitive devaluation of currencies recently seen in the Asian region. In the second half of 1997, the Thai baht depreciated by 49%, the Indonesian rupiah by 56%, the Korean won by 48%, the Malaysian ringgit and the Philippine peso both by 35%. Even the relatively strong economies of Taiwan and Singapore had allowed their currencies both to depreciate by 15%. Notwithstanding this, the Hong Kong economy is still expected to grow in 1998 by 3.5% in real terms. Although this is somewhat below the growth rate of 5.2% recorded in 1997, it is a highly respectable growth rate in the light of the circumstances that we face in the Asian region and is higher than most of the economies in the region that have devalued their currencies. Most developed economies would be delighted to achieve such a growth rate in 1998. | If interest rates are kept at a low level over a longer period, price and cost inflation will eventually pick up and longterm interest rates will rise. Rising wage and price inflation reduces the real value of assets and debt. In isolation, this will naturally benefit individuals and enterprises that have a high debt, while others will see a decline in the value of their savings. At the same time, low interest rates could lead to a rise in property prices and other asset prices. A sharp rise in house prices and advances in stock markets imply a substantial shift in favour of those who are already well positioned in these markets. Many young people will find that the price of entering the housing market is too high. 5 Income less net interest expenditure. 9 BIS Review 92/2000 Cyclical fluctuations, income developments and asset prices will show greater volatility in an economy without a nominal anchor. The policy of devaluation and low interest rates in the 1970s and the beginning of the 1980s contributed to pronounced cyclical fluctuations and sharp variations in property prices. The winners and losers as a result of such instability are to some extent arbitrary. Some will always manage to come out ahead; those who take their profits in boom periods will also be able to secure and withdraw from exposed positions in time. Others - who do not use resources for these activities to the same extent - are often the losers. | 0 |
In the past few years it has been customary that every regular quarterly economic survey of Eesti Pank includes a reference to the economic standstill in Europe. But today I would like to stress that even as such, at a standstill, Europe's economic power and extensive market suffices for it to remain one of the most important engines of the global economy. It is difficult to overestimate the role of the European Union in the world trade. One can, of course, be ironic about some fruit standards but, meanwhile, the same EU standards and product safety requirements affect the rest of the world. It is worth mentioning once again that 80% of Estonia's 4 BIS Review 26/2004 exports go to the EU member states while 85% of the direct investments made into Estonia are related to the European Union. I think that this calls for no further commentary. Europe's core economic policy goals are embodied in the Economic and Monetary Union. Such goals are stable economic growth and price stability. And this is what we all want. The EMU signifies the common monetary policy and coordinated economic policy. • Why a common monetary policy and a single currency? The aim of the common monetary policy is to guarantee a low level of inflation (below but close to 2% a year) through a common currency, a common central bank system, and common interest rates. | I would like to stress that being among the first is not an aim in itself but arises from the acknowledgement that Estonian economic fundamentals have stood firm and that our economy will be ready for joining the mechanism in a few years. • Joining the Economic and Monetary Union is a crucial step for the Estonian economy, which will secure the sustainability of a favourable investment climate and strengthen the prerequisites for a continued long-term and balanced economic growth; • The estimates by foreign investors and rating agencies on the reliability of Estonian economy have already taken into account the imminent membership of the EMU, which is evidenced by the interest margins and credit ratings that are already on the levels comparable to the old member states; • A prerequisite for sustaining the outstanding reliability achieved to date is as fast as possible changeover to the euro, i.e. becoming a full member of the Economic and Monetary Union. An important argument in favour of a comparatively swift changeover to the euro is Estonia’s current economic situation. What are the grounds for such a claim? In order to evaluate the broader economic impact of joining the euro system and choose the right accession moment, the UK has adopted five 'euro tests'. These are the following: 1. Have the economic structures and cycles of the accession country and the euro zone converged sufficiently for a successful application of the common monetary policy? 2. | 1 |
2 BIS Review 20/2004 The stronger productivity growth is probably connected with economic activity; at the beginning of a recovery the available production resources are used to a greater degree and it is only when the recovery is secure that investment and new recruitment accelerate in earnest. However, there are numerous indications that productivity has risen more than is usual for the economic situation, a pattern that has been even more evident in the United States. It is conceivable that this development is linked to the factors I mentioned earlier; globalisation, deregulation and increased competition. However, more lasting changes in productivity may also be linked to the large investments in IT and telecommunications at the end of the 1990s. It is possible that the full impact from the investments made and technological advances is first achieved in connection with cost-cutting and rationalisation. We have a special boxed article on this subject in the report, which I can recommend reading. It is not possible to determine with any certainty what has caused the improvement in productivity. However, given this more favourable picture, we have nevertheless anticipated a rather higher level of productivity growth in the near future. The new inflation figures received also indicate a slightly more subdued inflationary pressure than we had estimated. The outcome shows not only that electricity prices have fallen back as expected, but also that prices have increased at a slower rate in general. | Then we will conclude with a panel on the recent global financial turmoil and its policy implications. Once again I extend my warm welcome to all participants. I also want to thank the distinguished participants for their valuable contributions. I hope you enjoy both the conference and your stay in Istanbul. Thank you. BIS Review 144/2008 3 | 0 |
This Exchange Rate Mechanism (ERM) functioned well for a decade or so but it ultimately fell apart due to the divergences in the economic and fiscal policies of the participating countries. Speculative attacks ensued and ultimately triggered a crisis that forced two large countries – the United Kingdom and Italy – to leave the ERM in 1992. 2 BIS central bankers’ speeches Parliament), and judiciary (the EU Court of Justice). The creation of the single currency is an act of further political integration. Under the Maastricht Treaty the European Economic Community became the European Union, a proper reflection of the fact that the ultimate aim – the finalité, as we say in French – of the European project is more than just economic. The EU is a real, albeit limited, political union. 2. The Maastricht framework and its shortcomings Let me now review briefly what I consider to be the three most important shortcomings of the Maastricht framework – the ones on which we need to achieve progress urgently: i) stronger fiscal institutions; ii) real convergence across the euro area; and iii) the establishment of a financial market union. The Maastricht Treaty created the European Central Bank (ECB), which took up its monetary operations on 1 January 1999. The monetary dimension of the Maastricht Treaty has worked very well. Since the start of EMU, the ECB has kept annual inflation rates on average very close to 2%. As regards economic policies however, no new institutions or competences were created. | Part of the consensus is that Basel III should be seen as a set of minimum requirements. Hence, countries are free to impose more stringent rules if they wish. But we should not underestimate how Basel III strengthens bank-capital adequacy rules. A fundamental feature of the new framework is the significant increase in required minimum capital levels. All banks must hold common-equity capital of at least 7% of their risk-based assets, compared with only 2% previously. In the event of a credit boom, banks under Basel III would potentially need to hold a further 2.5% in common equity, bringing the total to 9.5%. Finally, the most systemically important banks must hold up to 2.5% in additional common equity. That is a total of 12%, a sixfold increase from pre-crisis levels for these institutions. The Basel Committee supports a regulatory framework that is both prudent and as simple as possible. Hence the Basel III agreement introduces several simplifying changes to the regulatory framework. For instance, the definition of capital now focuses on tangible common equity, the truest form of loss-absorbing capital. Moreover, all components of the capital base and associated deductions such as goodwill or deferred tax assets must be disclosed in a fully comparable manner. By standardising and simplifying the measure of capital, Basel III makes the regulatory framework easier to understand, and will enable market discipline to work better. Another important step has been the introduction of a non-risk based leverage ratio as a supplement to the risk-based requirement. | 0 |
Moderate price and wage inflation is also a necessary condition for a stable exchange rate over time.” A prerequisite for the conduct of monetary policy is that fiscal policy generally contributes to stable economic developments. Fiscal policy influences the total level of domestic activity, and thereby the rise in the prices and costs of goods and services produced in Norway. In a situation with a high level of economic activity, an expansionary fiscal policy will tend to push up price and wage inflation. This in turn will influence expectations in the foreign exchange market concerning future movements in the exchange rate, fuelling depreciation pressures and therefore impeding the implementation of monetary policy. A fiscal policy adapted to the economic situation, on the other hand, will contribute to facilitating the implementation of monetary policy. In the current economic situation, the pressure in the economy should be dampened. The tightening in the National Budget for 1999 of 3/4 per cent of GDP will help to curb price and wage inflation and alleviate the pressure on monetary policy. 10) Conclusion We are thus facing a period of slower growth. Given the pressure that has built up in the economy, particularly in the labour market, such a correction is inevitable as a result of production constraints. However, the prospects are much brighter than after the fall in oil prices and the wage settlement in 1986. The Norwegian economy – including both households and the business sector – is now in a stronger position to cope with a cyclical turnaround. | Encik Adnan Zaylani Mohamad Zahid: Distribution in a digital economy - Customer @ Core Keynote address by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the General Insurance Agents Convention "Distribution in a Digital Economy - Customer @ Core", Bangsar South City, 18 October 2018. * * * Let me first begin by thanking Persatuan Insurans Am Malaysia (PIAM) for hosting this convention and inviting me to deliver the keynote address. This is my first ever engagement with the general insurance agency force but also the insurance industry as a whole and I am very pleased to be here at this fittingly themed convention, “Distribution in a Digital Economy – Customer @ Core”. There is no question that we are now in an era of the Digital Economy. According to the World Bank there has been an accelerated growth of internet access of more than 170% in global accessibility in the past ten years. In 2006, only 17% of the world’s population was estimated to have an Internet connection – but now that number is 46% in 2016. During the same period, Malaysians with Internet access has increased from 52% to 79%, which is a very high number amongst many countries. With such widespread accessibility, a market presence on the Internet has never been more important. | 0 |
In this regard, banks have to embrace and employ technologies not only to improve their organisation’s own competitiveness, but also to be able to provide more efficient and lowercost financial services to Asian businesses and households. Regulators also need to establish an ecosystem that encourages financial innovation, competition, and efficiency improvement. In my view, there are at least two areas that banks and financial institutions could help improve productivity. First, digitization will certainly enhance productivity in financial services. In Thailand, electronic payment and digital banking are becoming increasingly widespread. Under the national e-payment program, businesses, households, and the government will significantly benefit from the cost reduction of financial services both in terms of money and time saved. Many initiatives under the national e-payment program, for instance, the new faster payment system or “PromptPay” and electronic government payments will provide foundation for many new add-on applications that will improve productivity across different segments of the Thai society. Thai banks have definitely played significant roles in hatching out these initiatives, starting from ideas and all the way through to implementation. Second, financial connectivity, particularly within our region, will also play a key role in enhancing productivity. Regional cooperation amongst Asian countries, not only in trade and investment, but also in finance has a potential to expand much further. I strongly believe that improved financial connectivity in Asia will be mutually beneficial to all. | There are already many ongoing initiatives, for instance, promoting the usage of local currency in the region, the ASEAN Banking Integration Framework, the Asian Payment Network, and the Asian bond and capital market initiatives. Despite progress made thus far, financial institutions and policymakers in the region could step up our joint efforts in various ways. Let me now turn to immunity, which is equally important under the increasingly volatile, uncertain, complex, and ambiguous world in order to keep the financial system resilient throughout and thus be able to continue to support their clients and the real economy. 4 As the financial system is the blood vessel of the economy, immunity needs to start from safeguarding against blood infection. We will need to ensure that banks have adequate capital and provisioning cushion to be able to withstand swings of economic cycle and financial volatility. The Bank of Thailand welcomed the post GFC’s regulatory reform addressing concerns on systemic risks including the conservation buffer, the countercyclical buffer, G-SIBs and D-SIBs, as well as the recovery and resolution plan to further strengthen financial safety net. To complement these rules, and build a better immune system that is strong and resilient through any cyclical or structural shocks, I believe we need to target the underlying factor contributing to immunity, namely, the culture and behaviour of banks. Fundamentally, an organisation is predominantly defined by its behaviour and culture. | 1 |
M R Pridiyathorn Devakula: India and Asia - trade linkages and alliances Remarks by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Wharton Global Alumni Forum, Mumbai, 6 January 2006. * * * Dean Harker, Mr. Ambani, Ladies and Gentlemen, I am honored to be here today among friends and associates of the Wharton Global Alumni. Given that it is the first time that the School is organizing the Forum in India, it seems only fitting that we should be talking about the rise to prominence of India as an engine of growth, both in the region and globally. More importantly, I would like to highlight the potential for India’s trade and investment linkages with East Asia, and how the two regions of South and East Asia can leverage on one another and become a global force to be reckoned with. China and India, Asia’s two largest economies, are often hailed as potential growth areas and the new engines of growth for the world. China’s rising economic prominence has been particularly evident in the past decade and a half, with its gross domestic product (GDP) in purchasing power parity (PPP) terms, measured as a share of total world GDP, rising from 5.7% in 1990 to 13.6% in 2005. India, although coming later into the scene, has quickly caught the attention of the world as a potential global economic powerhouse. | Stefan Ingves: Financial crises in an international perspective Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Danish Financial Supervisory Authority, Copenhagen, 12 September 2006. * * * Thank you for inviting me here today. It is easy to forget what a financial crisis entails, now that a number of years have passed since we last experienced one and it is therefore important that we remind ourselves. Although we cannot yet see any immediate threats, we must look ahead to prevent potential crises. During my twenty minutes or so today I intend to talk about the following: • the fact that most of the various crises in different countries during the 1980s and 1990s have had a number of common causes, • the fact that it is important to invest in preventing and managing crises, • the fact that risks and potential vulnerabilities in the financial system are now changing rapidly as the differences between banks and other financial institutions decline and crossborder integration intensifies, • the fact that the cooperation between authorities within and between countries must be developed further, both with regard to regular monitoring and crisis management. In particular, it is necessary to discuss how the responsibilities and costs should be divided up in the event of a crisis. Many of the experiences I describe refer to crises and countries outside of Scandinavia, even outside of Europe, which does not prevent them from being relevant to our discussion. | 0 |
This outturn was attributed to the decline in both annual food and non-food inflation. BIS Review 57/2010 1 In the external sector, Zambia’s external position showed remarkable improvement as reflected in the build-up of gross international reserves to 5.1 months of import cover in 2009 from 2.1 months of import cover in 2008. Zambia’s overall balance of payment position is expected to remain favourable in 2010 due to the rebound of copper prices on the international market as well as the expected increase in copper production as some mines increase production to full capacity and the resumption of production at some mines. The rebound in the international price of copper in the second half of 2009 and the return of foreign portfolio flows resulted in an appreciation of the exchange rate of the Kwacha by 4% at the end of the year. However, fiscal performance in 2009 was weak, mainly due to the global economic crisis, which reduced domestic revenues. Despite this, Government remained within the programmed domestic financing for the year. Ladies and Gentlemen, the financial sector has remained resilient despite the adverse effects of the recent global financial crisis. Currently, the Zambian financial sector is characterised by high liquidity levels, reflecting tighter lending standards in the wake of the lessons from the global financial crisis leading to marked decline in private sector lending. As a result, the demand for the relatively risk free Government securities has increased causing a decline in yield rates on Government securities. | The decline in Government securities yield rates and relatively low inflation experienced since the beginning of the year should contribute to a decline in banks lending rates and thus stimulate borrowing by the private sector. Ladies and Gentlemen, the critical role the accounting profession plays in enhancing economic development cannot be over-emphasized. One of the most important role the profession plays in any organization is to provide accurate, reliable and high quality financial information which communicates an organization’s operating results, its overall health, as well as raise the transparency of its various operating activities. The other role is the audit function, both internal and external, which provides independent assurance of the information produced by accountants and also reviews the control environment in which this information is produced. In a growing economy like ours, the need for high quality financial information is very critical. Financial information provides the basis for all financial decision making at all levels of economic activity, from households to large international organizations. Remember, there is no high quality information without the work of accountants and that is one reason why accountants play such a critical role in today’s global financial system and the global economy. You provide financial information that helps businesses and governments run properly. You provide investors and creditors with reliable information for decision making. You also provide assurance services founded on integrity and independence. Distinguished Members, the vision of this country is to become a prosperous middle income country by the year 2030. | 1 |
First question would be, what do you think of this type of proposal? And second, if this were implemented, what do you forecast the impact to be? 11 / 13 BIS central bankers' speeches President Dudley: Well, there’s been a lot of discussion in Washington about this border tax adjustment. If you were starting with a corporate tax code from scratch, it would be, I think, quite attractive in a lot of ways because it basically eliminates a lot of the incentives to engage in games of transfer pricing. It reduces a lot of the incentives to book your intellectual property abroad. So, it actually has a lot of attractive features. I think the challenge is that it’s very different than the current tax regime, and so there really would be some pretty significant adjustment costs and frictions of moving from the current regime to that new regime. And so, I think the question is really going to be: do people think those adjustment costs are a price worth paying for what I would agree is probably a better corporate tax regime. Certainly, a much better tax regime than the one we have today. But you know, there’s going to be a lot of people that are going to be worried about how that adjustment is going to affect their particular industry. If you’re an importer, you’re going to be worried that your price of imports is going to go up. | Now it’s hard to say how much weight to put on that because historically consumer confidence goes up and down, and it doesn’t just necessarily feed into consumer spending. But the increase in business confidence is quite striking, especially for smaller businesses. And so one of the big open questions that we’re going to be assessing over the next few months is: is that improvement in animal spirits, so to speak, going to actually feed through and lead to more spending? So, I think where a year or two ago, I think our anxieties were more about the risks to growth to the downside, so as that – well, a year ago, we were worried about events in China, we were worried about uncertainties about Europe. I think now the balance of risk is gradually shifting, where the possibility is that growth could actually be stronger than expected, rather than weaker than expected. The markets expect fiscal stimulus out of this Administration. That’s another factor that probably will over time tilt the equation more to the upside. But on fiscal policy, it’s really hard to factor into your forecast at this point because we don’t know what it is, how big it is, or when it will happen. Other than that, we have it completely nailed down. So, it’s really hard to sort of put that into your forecast. And so the way I think about the fiscal policy outlook is that we’re probably going to get some fiscal stimulus at some point. | 1 |
At this Conference, where I had the honour and pleasure to address, I underlined the valuable contribution of the banking industry to Albania’s development over the past two decades and identified some challenges and opportunities that may lie ahead for all of us, together, in the future. In our vision, these challenges and opportunities are related to the degree and quality of intermediation of funds in the economy – in other words, the volume and structure of credit, and the expansion of the range of financial products – to boost financial inclusion of the population and innovative technological development in the economy. The premises of this meeting remain consistent with what I said earlier. The Albanian banking sector has developed rapidly over the past two decades. Now, this sector administers around 2.4 million bank accounts of individuals, and provides credit to around 327,000 economic units, of which around 307,000 are households and around 19,000 are small or large enterprises; the rest are other public or private entities. In macroeconomic terms, the volume of financial savings administered by the banking sector accounts for around 70% of the GDP, whereas the volume of credit accounts for around 35% of the GDP. Moreover, in the past two decades, the banking sector has expanded its operational network across the territory of the country and has introduced bank products and payment instruments in line with global developments in this sector. In brief, the banking industry has contributed to the development of the Albanian economy by encouraging savings and generating credit. | BIS Review 149/2010 3 Role of financial systems Distinguished Ladies and Gentlemen, in development finance it is recognised that economic development is partially dependent on the financial system to help mediate the transfer of money to areas of the economy that need it most. The financial system has a number of key functions, which help facilitate these shifts in money that are important for sustainable economic growth. The most important of these are: Savings; Loans; Investments; Business Growth and Government Expenditure Responding to international capital flows Distinguished Ladies and Gentlemen, I would like to discuss, though briefly, the role international capital flows and their effects on our economies. Many of the same principles that apply in domestic capital markets also apply in international capital markets. The probability of default is essential to understanding international capital flows and exchange rate movements. Asymmetric information, for instance between foreign and domestic investors, can have important consequences. And, as in domestic markets, there is no presumption that the market, left to itself, is efficient. Today, developing countries are more vulnerable to international capital flows than ever before. What would have been a mistake with minor consequences in a closed economy can become magnified into a major crisis in an open economy. This is the lesson many people draw from the recent crisis which struck a number of economies in the world. | 0 |
They reflect diminished uncertainty about the expected path of monetary policy in the United States. And they imply that the imbalances in the global economy will be diffused smoothly. Of course, not much is certain in economics and finance. One cannot know with confidence whether future economic policies and outcomes will justify the confidence in the benign outlook now reflected in risk premia. What are the broader challenges and forces that will dominate the policy agenda and affect economic outcomes? I want to touch on four, though this is a selective list. First, all of the major economies face difficult fiscal sustainability issues, and these will be exacerbated by the approaching demographic cliff. Fiscal policy in most of the major economies is on a path that will lead to increasing, rather than stable or falling debt-to-GDP ratios. In virtually all the major economies, the cost of committed benefits substantially exceeds the stream of tax resources available under current policies. If one were to produce a ten year forecast of the U.S. fiscal position using the fan charts to illustrate uncertainty that are a feature of the inflation reports of many central banks, the size of the fan would be very wide, indicating a substantial probability of deficits significantly worse than the already troubling central path for the deficit predicted given current policies. | But that is rarely possible in practice, other than perhaps a very short distance ahead. 8 See Woodford (2012). 9 See Carney (2012). 4 BIS central bankers’ speeches The difficulty of utilising this particular policy channel is probably not a great issue in normal times. But it looms larger when policy is constrained by the zero lower bound on interest rates. In such circumstances – and assuming that alternative policies, such as quantitative easing, are unavailable or ineffective – an ability to exploit this policy-expectations channel becomes much more valuable, as the commitment to hold policy loose in the future feeds back onto aggregate demand today by reducing expected future real interest rates. This comes about both through a low future nominal interest rate and a higher future rate of inflation because policy is held “loose for long”. The intent of such a loose-for-long strategy is in some ways similar to quantitative easing, as both reduce interest rates further down the yield curve. But the former does so by changing the path of risk-free rates at the near end of the yield curve, while the latter operates mainly through variations in the term premium further out along the yield curve brought about by changes in relative asset supplies. Moreover, the loose-for-long approach partly works by raising future inflation, which is not an objective of quantitative easing. | 0 |
On 26 October, the Governing Council of the ECB, dividing in half the volume of our monthly net asset purchases, took a decisive step towards possibly ending them, while maintaining with all our other instruments an ample degree of monetary accommodation. Second, we in Europe share a large single market. It removes all internal borders and regulatory obstacles to the free movement of goods, capital, services, and persons in the European Union. It is a tremendous asset which belongs to us all – the 27 – and it is no coincidence that access to the single market lies at the heart of the Brexit debate. We cannot foresee the outcome of the future negotiations and we don’t want to “punish” the United Kingdom in any measure. But we must respect one consistency principle: access to the single market must continue to go hand-in-hand with strict acceptance of all its rules. There can be no cherry-picking or free-riding. For the financial services industry, this means that you can hardly expect to obtain a European passport if you do not accept the single market's rules. Third, we share a common social model which combines high standards of public service, relatively low levels of inequality – much lower than in American society – and a good intensity of social dialogue. And this has been achieved in a market economy. | i “The Global Economy and the Global Financial System: In an Era of Revival and Metamorphosis”, Speech at the Institute of International Finance (IIF) Spring Membership Meeting, Haruhiko Kuroda, Governor of the Bank of Japan, 9 May 2017. ii European Commission, Standard Eurobarometer 87, Spring 2017. iii Musgrave (R.) and Musgrave (P.), Public Finance in Theory and Practice, McGraw Hill, 1989. iv Kazuo Ishiguro, The Remains of the Day, 1989. | 1 |
Inflation, on the other hand, continues its downtrend in May, and although we see inflation numbers turning negative, the current uptick in commodities and asset prices, together with signs of greater stabilization in the real sector, help lessen the concern regarding deflation risk. Against this background, the Monetary Policy Committee in its meeting on May 20th held the view that monetary policy has been substantially eased and the current policy rate at 1.25 percent remains supportive of the economy. Two implications must be drawn from this decision. First, given the low policy rate and the ample availability of liquidity, more gains could be made by ensuring that, at the current policy rate, the benefits of past rate reductions are passed on more fully to consumers and the private sector through corresponding adjustments in the banking system’s interest rates. The second implication is that, while the BIS Review 76/2009 1 emerging signs of stabilization are positive and are consistent with the developments on a worldwide basis, they must be treated with caution given that the current state of the global economy and financial markets are still far from normal. Hence, the MPC will continue to monitor closely the uncertainty surrounding both domestic and external economic conditions, and stand ready to implement appropriate monetary policy to support economic recovery in the period ahead. Turning now to the banking sector. The Thai banking sector was able to weather the impact of the global financial crisis with a relatively strong initial position. | I will not have time today to dwell on the details of the plan, let me just say that the plan is now complete and is currently being considered by the finance ministry, and is scheduled to come into effect this year. It is our hope that this continuing momentum of reform will help expand the competitiveness and the growth of the Thai financial sector and the economy in the years to come. I probably have used up my allotted time. Again, I want to thank Euromoney for the invitation. It has been a pleasure and thank you for your attention. BIS Review 76/2009 3 | 1 |
This can include credentials, jargon, control over journals and control over training the new experts. 20 But this boundary work can also reduce their effectiveness, especially in a world where there are many alternative sources of views. A recent blog post by Bank of England staff compares the linguistic complexity of our publications to other sources of information and finds they require a level of reading comprehension which makes them accessible to only one in five people (Chart 2). 21 For example, at the Bank of England we have learned that talking about “prices and jobs” is far more effective than economists’ jargon of inflation and employment. And in preparing this speech I was pleased to discover that linguistic analysis found it was at an “intermediate” level of linguistic complexity – equivalent to a political speech or a tabloid newspaper. 19 Papacharissi, Z. (2002) The Virtual Sphere: The Internet as a Public Sphere, New media & society, 4(1), 9-27 Rifkin and Merton (1997), Negotiating Expert Status. | Philipp M Hildebrand: Policy implications of the financial crisis Speech by Mr Philipp M Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Conference, “From Fragility to Stability”, University of Geneva, 18 November 2009. I would like to thank Jürg Blum and Rita Kobel for their valuable support in drafting this speech. I also want to thank Nicole Allenspach, Philipp Haene, and Signe Krogstrup for helpful comments and discussions. * * * Introduction It is an honour to speak at the University of Geneva this evening. I want to thank Rajna Gibson for her kind invitation. A year ago, we were in the midst of a perfect financial storm. Following the bankruptcy of Lehman Brothers in mid-September, the imminent collapse of the global financial system became a distinct possibility. Since those dark days, the situation has manifestly improved. A bold and unprecedented global policy response has had its intended short-term effect. While important questions remain as to the sustainability of the global recovery, we are no longer staring into the abyss of financial and – potentially – economic chaos. The worst financial crisis for at least 70 years has not resulted in a new Great Depression. On the other side of the ledger, the tangible and intangible costs of this crisis are enormous. | 0 |
To the extent that this situation continues, it is possible that domestic output and expenditure will fail to show the greater dynamism that is expected in the baseline scenario. Conversely, a scenario where expectations improve significantly would allow for a faster recovery of the economy, particularly in 2016. Regarding inflation, pressures are somewhat milder than expected in March, due to lower activity and the fact that, although with volatility, the peso has not continued to depreciate. However, in a context of persistently high inflation, with bounded margins, strong wage growth, higher fuel prices and external risk scenarios that can drive a significant further depreciation of the peso, inflationary risks remain important. As we are permanently aware of our legal mandate, this is one risk we analyze and monitor with special care. After evaluating these risks, the Board estimates that the risk balance is unbiased for both output and inflation. Summing up, inflation remains high, despite some decline in recent months. Domestic activity picked up in the first quarter, but the outlook for the second half of the year has moderated. As has been mentioned before, macroeconomic policies have played a countercyclical role. In particular, the stronger monetary impulse translated into a reduction of 200 basis points off the monetary policy rate, which helped to drive the long-term rates close to their historic lows. | Rodrigo Vergara: The Monetary Policy Report and the Financial Stability Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 3 June 2015. * * * Accompanying charts can be found on the Central Bank of Chile's website. The Monetary Policy Report of June 2015 and the Financial Stability Report of the first half of 2015 can be found at http://www.bcentral.cl. Introduction Mr. President of the Finance Committee of the Senate, Senator Andrés Zaldívar, senators members of this Committee, ladies and gentlemen. Thank you for inviting me to share the vision of the Board of the Central Bank of Chile on recent macroeconomic and financial developments, their prospects and implications for monetary and financial policy making. This vision is contained in detail in the Monetary Policy Report of June 2015 and the Financial Stability Report of the first half of 2015. The macroeconomic scenario shows minor changes with respect to forecasts in March. Annual inflation declined between February and April, but it remains above 4%. Output and demand continue to grow at a moderate pace, and the first quarter was better than expected, but incoming data suggest that the remainder of the year will be somewhat less dynamic than previously estimated. In the global economy, the growth outlook showed no major changes either. The weaker US figures early in the year and the consolidation of better prospects in Europe are worth mentioning. | 1 |
Since early 2010, due to anemic growth in external demand, current account balance has been deteriorating rapidly, whereas core inflation remains subdued and output gap persists. Recent surge in capital flows toward emerging markets, including Turkey, has the potential to exacerbate the divergence between the pace of recovery in the domestic and external demand. If this pattern of growth coexists with rapid credit expansion and deterioration in the current account balance, it may lead to financial stability concerns. These developments make it essential to effectively utilize policy instruments other than policy rates. Consequently, in today’s challenging financial environment, which is likely to persist in the foreseeable future, the Central Bank of Turkey underscored four basic principles upon which the monetary policies would be built to maintain financial stability. The first one is to discourage excessive leverage and keeping the debt ratios of banks and the corporate sector at modest levels. The second principle is extending the duration of borrowing for private and public sector, as well as household deposits. The third principle is strengthening the FX position of both the public and private sector, which is usually the Achilles’ heel for emerging economies with sizable current account deficit. The fourth principle is better management of foreign currency risk by the corporate sector through instruments like the Turkish Derivative Exchange. In November 2010, we have started quantitative tightening to deal with rapidly increasing macro imbalances driven by short term capital inflows and acceleration in credit growth. | Over the first quarter century, from 1960 through to the mid-1980s, average pairwise correlations between bond yields were around 0.1. Over the subsequent quarter-century, these correlations have risen steadily, averaging 0.7 over the latter part of the sample (Chart 7). Second, and more striking still, is the level reached by these correlation coefficients towards the end of the sample. Whether it is safe government assets or risky corporate bonds and equities, correlations typically lie in the range 0.7 to 0.9. Other things equal, a common global factor potentially accounts for perhaps 70–90% of the movements in advanced country asset prices. 4 BIS central bankers’ speeches These correlation patterns are stronger, and even more striking, when we look at their evolution over time. As one example of that, Charts 10 and 11 plot “heatmaps” of the strength of a common factor in the variation of spot and forward rates respectively for government bonds at different maturities in the UK, US and Germany over the period since 1995. In general, they show the same pattern of high and rising correlations over time. But these correlations also show distinctive flare-ups, associated with spasms in global financial markets such as the global financial crisis and last year’s ‘taper tantrum’. By the end of the sample almost the whole of the yield curve, bar the very short end, is moving synchronously across countries. To a first approximation, global yield curves appear these days to be dancing to a common tune. | 0 |
The responsible authority or authorities vary across countries. In some countries it is the central bank, in other countries there is a separate financial supervisory authority, sometimes the responsibility is shared between different institutions. In Sweden, the Financial Supervisory Authority is responsible for supervision and regulation, the Riksbank is responsible for lending of last resort to solvent banks and for promoting a safe and efficient payment system, while the National Debt Office is responsible for the resolution of failed banks. During times of crisis, these authorities cooperate closely with the Ministry of Finance. My point here is that financial-stability policy and monetary policy are quite different, with different objectives, instruments and responsible authorities, the latter with considerable differences across countries. This does not mean that there is no inter-action between them. Financial stability directly affects the financial markets, and financial conditions affect the transmission mechanism of monetary policy. Problems in financial markets may have a drastic effect on the real economy, as the current financial crisis has shown. Monetary policy affects asset prices and balance sheets and can thereby affect financial stability. But the fact that financial-stability policy and monetary policy are conceptually distinct, with distinct objectives and distinct suitable instruments, has to be taken into account when considering the lessons of the financial crisis for monetary policy. In particular, it makes little sense to extend the mandate of monetary policy to include financial stability. 15 What are the specific conclusions for flexible inflation targeting? | This is not only the case for economies like ours here in Hong Kong where financial services constitute a substantial proportion of GDP, but equally for economies that rely on other sectors, be they manufacturing, mining, or agriculture, for the bulk of economic activity. There are many reasons for this. First, a well-functioning financial system helps allocate capital to the most productive individuals, firms, and sectors through the process of intermediation between households that engage in savings and entrepreneurs who require funds to carry out investment projects. Second, broad financial markets permit risk sharing and diversification, thereby reducing the exposure of investors to idiosyncratic risks. Third, structured financial products allow the transfer of risk to entities that are most capable of bearing it. This makes it possible for economic agents to offload risks that they are not well equipped to deal with and specialize in activities which constitute their comparative advantage. Last but not least, a financial system makes it possible to shift purchasing power across time as individuals build up financial assets while they are working to sustain a comfortable living standard in retirement. Considerable progress has been made by many regional economies in revamping and strengthening the financial markets since the Asian financial crisis. However, there is still a general lack of diversity in the channels of financial intermediation, with a significant over-reliance on the banking system. | 0 |
In such a scenario the Swedish economy could experience a more pronounced slow-down. Focus on the U.S. economy… During the 1990s the United States experienced its longest economic upswing ever without any serious signs of accelerating price inflation. A more productive economy, with strong competition and more efficient product and labour markets, accompanied by advances in computer and telecom technology, are said to have contributed to a higher rate of potential growth. Even so – or perhaps as a consequence of this – the euphoria led to growing imbalances. The rapidly rising stock markets in the late 1990s seem to have stemmed from unduly high expectations of future profits and incomes. Partly in view of the booming stock market, households stepped up their expenditure on consumption in excess of current income. Corporate investment expanded rapidly to meet the growing demand. High share prices stimulated the procurement of venture capital and generated a plentiful supply. The growth of demand in relation to the expansion of the U.S. economy's supply side was proceeding at a rate that was based on expectations that simply could not be fulfilled. American households pledged future incomes for current consumption to such an extent that their savings no longer sufficed to finance corporate investment. The saving deficit in the private sector grew, as could be seen from the rising deficits on the current account, and large amounts of capital had to be imported. | Urban Bäckström: Monetary policy in a small open technology-oriented economy outside the major currency blocs Speech by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, at the Conference on New Challenges for Credit Markets and Monetary Policy, hosted by Handelsbanken and held in Stockholm, 18 May 2001. * * * Thank you for inviting me to this conference and to discuss the Swedish economy and monetary policy with such a distinguished group of people. Today I intend to begin by looking back at economic developments in recent years in Sweden. That should help to put the current discussion about the Swedish economy in perspective. After that I shall be saying something about the economy's recent cyclical path and how I assess the future in the light of the information that is presently available. Economic policy realignment in the early 1990s The direction of Sweden's economic performance during the 1990s contrasts sharply with the unstable, inflationary path we experienced in the 1970s and '80s. That stop-go policy contributed to the recession in the early '90s, which was the worst for over sixty years. The 1970s and '80s illustrate how a long period of high and variable inflation creates an atmosphere of uncertainty and instability. Slowly but surely, long-term conditions for production deteriorate. It was partly in the light of these experiences that Swedish economic policy was realigned in the early 1990s. | 1 |
As you can all see, a lot has happened over the past ten years. For instance, we can observe that: The foreign currency reserve is SEK 325 billion larger. This increase is mainly because we have borrowed the equivalent of SEK 200 billion in foreign currency through the Swedish National Debt Office to strengthen the foreign currency reserve. The Riksbank’s balance sheet 2004 and 2014 SEK billion Source: The Riksbanken 2 The formal term in the balance sheet is “lending to credit institutions in Sweden related to monetary policy operations denominated in Swedish kronor”. BIS central bankers’ speeches 3 We have once again acquired a securities portfolio in Swedish krona. The Riksbank previously had a portfolio of Swedish securities but then this was phased out more than ten years ago. The stock of notes and coins has declined, partly due to card payments and electronic payments becoming more common. As a consequence of this, we now have monetary policy liabilities instead of a monetary policy claim. This means that we are now borrowing excess liquidity from the banking system instead of lending money to cover a liquidity deficit. I will return to this issue later on. | EU legislation prescribes that it is the highest decision-making body in the central bank that shall decide on the size of the bank’s equity. It is of course important that the decision is made after a preparatory process that is transparent and predictable, with a healthy balance between promoting on the one side the need of the Riksbank to have sufficient equity on each occasion and on the other side the interest of the Swedish government to minimise the Riksbank’s costs for tying up capital. To summarise, we can note that the Riksbank currently only has one source of funding that it determines itself, namely monetary policy liabilities. In other words, the Riksbank can always make payments by increasing liquidity in the banking system. But all other forms of funding are affected in one way or another by things beyond the bank’s control. At present, the repo rate is at zero and this means that the Riksbank does not have any interest expenditure for the monetary policy liabilities. But this is temporary, and as the repo rate is raised, the bank’s interest expenditure will increase. This will also mean that profits decline. The coming years – profits declining, no dividends I have now spent some time on describing the Riksbank’s balance sheet and discussing some of the challenges the bank is facing. But I have not yet said anything about the largest challenge for the bank in the short term. By this I mean the extremely low interest rates, both here in Sweden and abroad. | 1 |
The financial services industry - globally and not just regionally within Europe or nationally - has been going through a prolonged and continuing period of unprecedented change. There are to my mind two main drivers of that change - first, the progressive shift - within the industrial world but increasingly also over the past decade or so in emerging markets and transition economies away from varying degrees of centralised economic administration towards an increasingly open, market-based approach; - and, secondly, the revolution in information and communications technology. The potential economic advantages of free market competition nationally, and its logical counterpart in free trade and the free movement of capital internationally are now pretty well taken for granted just about everywhere. While no-one would pretend it's a perfect guide, profitability is the best guide we have to allocating limited real and financial resources to wherever they can be most productively used. So it is - potentially - the most effective means we have of generating the wealth, and employment and rising living standards we all want to see. And liberalisation or deregulation - including liberalisation in the financial sector - needs to be seen in this context. Of course it cannot mean simply a free-for-all. Markets need to be fair as well as free if they are to function efficiently in practice - they need rules which minimise artificial or non-commercial distortions and the related resource misallocation that would otherwise arise. | The Rt Hon Sir Edward George: Changes in the financial services industry Speech by The Rt Hon Sir Edward George, Governor of the Bank of England, at the 16th European Finance Convention, London, 6 December 2002. * * * Mr Chairman, Ladies and Gentlemen. May I begin by congratulating you, Claudio - and your colleagues - on organising such a remarkable 16th European Finance Convention here in London, spread over the past five days. I don't think I've ever seen such a distinguished and comprehensive list of speakers - ranging from politicians, central bankers and financial regulators and representatives of the international financial institutions, as well as representatives of private sectoral and specialist financial services trade associations and experts from commercial companies - all assembled on one program. I gather that the attendance has not been all that it might have been during the week. But perhaps that's not surprising: anyone with the stamina to attend even half of your proceedings is certainly a chronic insomniac. But those who have been here will have been rewarded by knowing everything there is to know about the recent development and current state of the financial services industry and how it might evolve. And they still have to listen to me! But don't despair - it's the last lap - and I'll try to keep it short! You have certainly had a great deal to discuss. | 1 |
First, domestic demand, supported by the large and fast-growing middle income and young population in the region, will increasingly have a greater role in driving economic growth in Asia. This would contribute towards a greater balance between domestic and external sources of growth. Second, the diversification of external markets will accelerate, towards greater economic inter-linkages with emerging economies in other parts of the world. Part of this trend includes the creation of the ASEAN Economic Community by 2015 in which ASEAN will transform into a single market with free movement of goods and services. This will include the lifting of restrictions to the flow of capital in the region. And third, is the greater financial integration within Asia that will result in an increased part of the savings in Asia being reinvested in Asia. The new spending patterns as incomes rise in the region will drive the modernisation of the retail sector across the region. Financial services to the household sector will become increasingly important in this new environment. Reforms to pensions and retirement benefit systems will be key to providing a more comprehensive social safety net, thus reducing the need for high precautionary savings and encouraging consumption. In addition, the large trade sector in Asia and large capital investments required to move towards higher valueadded activity will also provide an expanding market for financial services. The more regionally integrated financial system will allow firms and investors increased options in the regional financial markets for financing and investment. | Despite all the European convergence and integration, financial systems in different EU member states still look and work very differently. Trying to administer them from a single centre according to a single set of rules might be like trying, say, to feed all the animals in a zoo with a single type of food. As an illustration: the recent ECFIN Retail Banking Survey says: in Austria almost 100% of house purchasing loans feature variable interest rates, while in France the share is only about 10%. countries differ substantially in the share of owner-occupied housing and therefore in the importance of the mortgage market; they differ in how intensively they use electronic means of payment; in the significance of building societies and credit unions; in tax and other incentives that the government provides for certain types of financial transactions; in the extent to which local banks trade in various non-plain vanilla products such as derivatives; in the share of subsidiaries and branches of foreign financial institutions and, more generally, in ownership structure in the loan-to-deposit ratio, which varies from roughly 70% in some countries to more than 200% in others; in the degree of local market concentration; etc. There are many more examples, some of them influenced by long-term developments, some by entrenched behavioural differences and habits. | 0 |
The degree of intrusiveness in regulatory requirements will swing from one end of the pendulum to the other, before settling somewhere in the between. This process can often be disruptive and unproductive, not only to financial institutions, but also to the wider economy. This leads me to my next point on the broader social and economic consequences of weak compliance. In most banks, the compliance function has mainly served to ensure that a bank is operating within permitted legal and regulatory boundaries. In such cases, the compliance function effectively does little more than constrain a bank from activities that increase compliance risks. So rather than work with business units and customers to close gaps that contribute to heightened risks, compliance officers are seen as gatekeepers rather than partners. This is an important distinction with potentially significant consequences for a bank’s risk-taking activities. I can give you at least three examples of this. When we issued revised standards on loan provisioning, one of the requirements was for banks to classify loans as “impaired” if the loans were restructured or rescheduled following an increase in credit risk. Rather than focus on how banks might strengthen internal assessments to better identify and measure changes in credit risk, many banks simply withdrew altogether 2/5 BIS central bankers' speeches from entertaining requests from borrowers to restructure and reschedule their loans. SMEs were hit the hardest, requiring Bank Negara Malaysia to intervene. | Muhammad bin Ibrahim: A broader view of compliance in banking and financial sectors Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at Bank Negara Malaysia's Compliance Conference 2017, Kuala Lumpur, 18 May 2017. * * * The topic of compliance has become a widely discussed topic in recent times, often headlined by massive regulatory fines slapped on financial institutions for compliance failures. Banks globally are estimated to have paid over USD320 billion in regulatory penalties since the global financial crisis for multiple failures ranging from market manipulation to money laundering and conduct failures. On the bright side, these fines signal a continued, if not increased, priority given by authorities to strong enforcement. But the fact that such failures occurred at all, and were allowed to reach such extensive proportions to the detriment of the public, should worry us. There is no doubt that the compliance burden has increased significantly. And for good reason. Even though the debate will continue to rage on over the relative benefits and costs of compliance, it is unlikely this question will be settled in the foreseeable future. Given our experiences from the various discoveries that institutions continue to push the boundaries of what constitutes a fair and ethical practice, there is clear evidence that we need to do more to improve compliance. The industry has made some important strides. | 1 |
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