sentenceA
stringlengths 2
7.69k
| sentenceB
stringlengths 2
7.69k
| label
float64 0
1
|
|---|---|---|
With respect to the Federal Reserve’s current dollar swap lines, for example, when a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the New York Fed. When the foreign central bank lends to institutions in its jurisdiction the dollars it obtains by drawing on its swap line, the dollars are transferred from the foreign central bank’s account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. By using its account on the books of the Fed to receive swap proceeds and distribute them, rather than accounts at private-sector bank, the central bank avoids much of the risk of public identification of its borrowers and itself avoids the credit risk, and other risks (operational, reputational, etc.) of a private sector bank account. Moreover, the overall size and ramping up of potential liquidity operations can be virtually unlimited, subject only to the policy limitations set by the central bank counterparties themselves. | The risk may arise from differences in fiscal positions even though these are to be constrained through the Stability Pact. Or it may result from economic shocks of some sort that have a bigger impact on some countries than on others. The rise in oil prices in the early 1970s or German reunification are classic examples. BIS Review 23/1998 -2So the risk of divergent monetary policy needs within the euro area is real. And the damage it could cause if serious tensions between member countries were to emerge is substantial, because alternative adjustment mechanisms, such as labour migration or fiscal redistribution, that exist within individual countries, and which help to alleviate the similar regional tensions that arise at the national level, are not well-developed at the pan-European level. The Maastricht Treaty, of course, recognised this risk, and the famous convergence criteria were designed precisely as a means of reducing the risk to manageable proportions by requiring that, before they join the euro club, countries should have achieved at least a minimum degree of macro-economic convergence - demonstrating their commitment to macro-economic discipline through both fiscal consolidation and monetary policy directed at effective price, and exchange rate, stability. And there is no doubt that all European Union member states have made huge progress towards macro-economic stability over the past few years. The betting in financial markets is therefore that when, in early May, the Heads of State come to make their decision, a broadly based euro will indeed go ahead. | 0 |
These systems must be solid enough to cope with increased flows of trade and capital. Some countries are not sufficiently well prepared to handle the new conditions of the world economy. Sometimes, countries have deregulated their economies too quickly or in the wrong way. Industrialised countries have deficiencies too. Secondly, requirements increase on coordination of policy among countries. The countries of the world are increasingly dependent on one another. A financial crisis in South-East Asia has effects in Sweden as well. For this reason, we also benefit from other countries on the other side of the world acquiring better systems for, for instance, bank supervision and bankruptcies. This means that we have greater reason to become involved in global issues. We also have reasons to show lenience on issues that are important for Sweden sometimes, in order to create common rules of play and agreements that will benefit everyone. The old slogan “international solidarity” is national self-interest in a very concrete way. International collaboration is thus of great value. Therefore, we have reason to take a great interest in the multilateral organisations for collaboration that exists. The “Bretton Woods institutions” - the IMF, the World Bank and WTO/GATT - were established fifty years ago during a period when the countries in the world economy drew the lesson that the trade wars of the 1930s, payment obstacles and competitive devaluations contributed to unemployment, lower prosperity and war. | I hope that the trend towards increasing economic and cultural openness will continue. People continually seek new opportunities to trade and communicate with one another, and find new ways to benefit from one another’s knowledge and possibilities. It is fundamentally a very positive development which gives poor and rich people enormous opportunities for greater wealth and reduced suffering. In order to make use of this potential, intensive international collaboration is required, and energetic national efforts. Sweden and all other countries must adapt their national systems so that they can cope with the increased contacts with the outside world and so that other countries can benefit from increased contacts with us. Issues of financial stability and macroeconomics are intimately related to this. The IMF therefore has an increasingly important function to fill. Economic developments, not least in the financial sphere, take place quickly, however. In order to be able to make an active contribution, the IMF and other financial organisations must continually be reformed and keep in step with this development. The meetings in Prague are a part of this reform process. 7 BIS Review 78/2000 | 1 |
This industry process formally began in January 2011, issued its requirements document in May 2011 and recommended a consortium led by the Depository Trust and Clearing Corporation (DTCC) as its preferred provider in July 2011. DTCC is currently running a private sector entity identification pilot project, starting with over the counter derivatives. Although this market is fairly concentrated, building the database still 24 Dodd-Frank Wall Street Reform and Consumer Protection Act (2010). 25 European Commission (2010). 26 G20 (2009). 27 Financial Stability Board (2010). 28 CPSS-IOSCO (2011). 29 Office of Financial Research (2010). BIS central bankers’ speeches 9 poses challenges. DTCC anticipates the database could contain over 1 million entities. This pilot will provide valuable experience when moving to a broader range of products and market participants. The FSB is constructing an LEI roadmap, harnessing the efforts of both official and private sectors. Its destination is a single, global LEI standard. As announced last week, significant progress is being made across five fronts: governance, operational model, scope and access, funding and implementation and phasing.30 The FSB will present its LEI recommendations to the next G20 summit in June 2012. Creating a PI for finance is altogether more complex. Finance is in the pre-barcode era for retail products or the pre-web era of the internet. But enough work has already been done to demonstrate that PIs are feasible. | 1 Paper by Robleh D Ali, Andrew G Haldane and Paul Nahai-Williamson. 2 Oh et al (2011). 3 Oh et al (2011). 4 Ginsburgh and Weber (2011). 5 Counterparty Risk Management Policy Group (2008). BIS central bankers’ speeches 1 Compared with these industries, finance has been a laggard. But the tide is turning. Since the crisis, significant progress has been made by financial firms, regulators and trade associations in developing information systems and the common data standards necessary to underpin them. Conferences like this are evidence of that. At the same time, there is a distance to travel before banking harvests the benefits other industries have already reaped. A common financial language has the potential to transform risk management at both the individual-firm and system-wide level. It has the potential to break-down barriers to market entry, leading to a more decentralised, contestable financial sector. And it thereby has the potential to both boost financial sector productivity and tackle the too-big-to-fail problem at source. There is no technological barrier to this transformation. And private and social interests are closely aligned as improved information systems are a public as well as a private good. That public-private partnership is one reason why such good progress has been made over the past few years. So stand back for a good news story – a story of how finance could transform both itself and its contribution to wider society. | 1 |
2 But weak UK investment also reflected a necessary adjustment in the capital stock. That overhang – which peaked at close to 10% in the UK – is being gradually worked off through a combination of a recovery in output and a prolonged period of subdued net investment (Chart 5). And in part weak investment could reflect a misallocation of capital in the run-up to the crisis. In this regard, the situation in the UK was a bit different to that in countries such as Spain and the US where significant residential and commercial property construction booms subsequently turned to busts. Without a housing glut to work off, the weakness of UK investment is all the more striking. Another form of misallocation could be the ability of so-called zombie firms to live on in the very low interest rate environment. The BIS’s proxy for this has seen the share of the “living dead” more than double since 3 the crisis. In contrast, the Bank of England estimates that the proportion of zombie firms in the UK has fallen by a quarter since 2008 (Chart 6). 1 See, for example, Reinhart, C. and K. Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press, and Jorda, O., Schularick, M. and Taylor, A. (2013), ‘When Credit Bites Back’, Journal of Money, Credit and Banking, Vol. 45, Issue s2. | 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 Chart 1: G4 non-residential investment weak since the crisis Percentage changes since 2007 15 United Kingdom United States Euro area Japan 10 5 0 -5 -10 -15 2007 2008 2009 2010 2011 2012 2013 2014 2015 -20 2016 Sources: Eurostat, ONS, OECD and Bank of England calculations. Notes: The data for the UK, the US and Japan are for private non-residential investment; the data for the euro area include public nonresidential investment. Chart 2: Weakest UK business investment in half a century Indices, peak in GDP = 100 160 Range of previous recessions 150 140 2008 Average of previous recessions 130 120 110 100 90 80 70 60 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 Quarters relative to date when GDP peaked 28 32 36 Sources: ONS and Bank calculations. Notes: The chart plots real business investment. The range includes the recessions of 1973, 1979 and 1990. 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 Chart 3: UK real business investment to GDP ratio is falling Percent of GDP 12 10 8 6 4 2 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 0 2017 Source: ONS. | 1 |
It is also important for the takaful business, like other financial services providers, to select an efficient and cost-effective distribution channel that is strategically aligned to meet the participants’ reasonable expectation. Strategic alliance in the bancatakaful arrangement has become an important delivery channel with significant improvements in the takaful contributions during the past years, evident by its positive increasing trend for general takaful and by being the leading distribution channel for family takaful, accounting for 50.3 percent of contributions in September 2010. The bancatakaful arrangement between Alliance Bank Malaysia Berhad and American International Assurance Bhd. indeed offers attractive value proposition for both partners. It is our aspiration to see AIA AFG Takaful Bhd. emerge as an effective and progressive takaful operator with strong presence in the domestic financial landscape and be among the anchor players to expand takaful business at the global front. I am confident that AIA AFG Takaful Bhd. should be able to strategise itself by optimising and leveraging on its shareholders’ wide customer base and network, strength, expertise, experience and infrastructure in offering diversified products of high quality and enhanced customer service. Given the strong international network and experience of its foreign insurance partner, AIA AFG Takaful Bhd. is also certainly well positioned to establish its global Takaful centre of excellence for the region in Malaysia, therefore reinforcing Malaysia’s position as an international Islamic financial hub. On this note, I wish AIA AFG Takaful Bhd. | Such initiatives are laid down for industry players to capitalise on, to achieve sustainable success and to unleash their potential gains both locally and abroad. In light of this, allow me to share my thoughts on some key focus areas and developments which embed our aspirations on the future direction of the takaful industry. Against a backdrop of growing opportunities and challenges as the business environment becomes more intensified and challenging, capacity and capability building measures for industry players to compete effectively and efficiently will continue to be pursued. These complement our efforts to further strengthen the institutional infrastructure of our takaful industry by increasing the diversity and strength of players in the Islamic financial system. The emergence of AIA AFG Takaful Bhd. in the Islamic financial landscape is therefore timely to further inject the competitive element that would propel the growth of the takaful industry. This is particularly so, as part of Malaysia’s recent liberalisation measures aim to develop a resilient, diversified and efficient financial sector with financial institutions that are in greater state of readiness to compete in a more liberalised and challenging environment. The granting of four new family takaful licenses by Bank Negara in 2009 is also complementary of Bank Negara’s initiatives of promoting the establishment of a core of robust industry players that could heighten competition and spur innovation in the takaful industry. | 1 |
Lending growth rates remained high in all segments, which is the main indicator evidencing that monetary conditions remained accommodative, rather than neutral in the third quarter as well. 2/4 BIS central bankers' speeches Over the period from the September meeting to yesterday, yields on federal government bonds rose by 50–60 basis points. The increase in short-term yields suggests a revision of market expectations regarding the key rate, whereas growth in long-term yields is driven by the trends in global markets. Deposit rates continued to go up in September—October, although more slowly than in the previous months. Deposit terms are not yet sufficiently attractive to boost households’ demand for this form of savings. As regards lending, the corporate segment continues to expand steadily. Growth in consumer lending has slowed down somewhat. As regards the mortgage segment, after a slight deceleration in July—August due to the revision of the subsidised mortgage lending programmes, growth sped up again in autumn. In this context, we have revised our forecast range of retail lending growth for this year upwards by 3 percentage points to 21– 25%. The forecast for lending in the economy in general remained unchanged. Currently, the actual changes in the credit market are obviously not sufficient to form such monetary conditions that would help bring inflation back to 4% and stabilise it at this level. Our today’s decision will accelerate the adjustment in the credit and deposit market. As regards risks to the forecast, proinflationary ones currently prevail. | Jean-Pierre Roth: Fifteen months of financial crisis – a status report 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 Associazione Bancaria Ticinese, Centro di Studi Bancari, Vezia, 3 December 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The financial crisis broke out a little over fifteen months ago. The magnitude of the turmoil experienced by the financial industry has been greater than all the forecasts. So far, our entire attention has been focused on the problems of the financial industry, while the real economy appeared to be passing through this difficult period without too many problems. We now realise that this view was deceptive: the situation in the non-financial sector is deteriorating substantially. This could lead to new challenges in 2009. After having benefitted extensively from the international expansion of the past few years, we are currently experiencing the consequences of a widespread recession. This situation is difficult for our country, but we may be better placed than others for coping with it. BIS Review 150/2008 1 | 0 |
Ardian Fullani: Recent developments in the Albanian economy Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the press conference on monetary policy decision of the Supervisory Council of the Bank of Albania, Tirana, 30 September 2009. * * * The Supervisory Council of the Bank of Albania reviewed the Monthly Report of Monetary Policy, at its meeting of September 30, 2009. After getting acquainted with the latest economic – financial developments at home and at the conclusion of the discussions on their expected future performance, decided to keep the key interest rate unchanged, at 5.75 percent. This interest rate is in consistency with the maintaining of inflation close to the Bank of Albania target for a medium-term period. *** The analysis of the latest economic and monetary developments confirmed our expectations for an overall downturn of the economic activity at home and a reduction of the domestic inflationary pressures, for a relaxation of monetary markets and a slowing recovery of financial intermediation, and has also highlighted the still fragile equilibrium of the economic and monetary indicators. The conclusions of our discussions converged to a decision-taking to keep the key interest rate unchanged. The purpose of this position is to further maintain and consolidate the established balances, thus considering the macroeconomic stability as an indispensable precondition for a stable and long-term growth. | Imports performance incurred the same development declining by about 8 percent in annual terms. External economy developments are accompanied by the maintenance of high trade deficit rates, which affect the imbalance of the demand to supply ratios for foreign currency in the economy. Nevertheless, the maintaining of the exchange rate flexibility, the correcting tendency of trade deficit and the attraction of savings denominated in ALL, as higher interest rates and of low inflation, serve to relaxed and prudential volatilities of the exchange rate and to a strong position of ALL in the short-term and medium-term period. Monetary indicators of July have reflected the more relaxed dynamic of financial intermediation. External sector highlights of the economy have affected the negative paces of the foreign currency component of money stock. However, banking system carried out the intermediation to increase lending in ALL extended to private and public sector with positive paces. Thus, while monetary supply picked up at slower annual paces, about 4.4 percent, M2 aggregate maintained high paces of the annual growth at 9.7 percent as at July. The slowdown of lending pace to economy in foreign currency and the lower supply of foreign currency inflows from external sector have led to a negative annual pace of deposits growth denominated in foreign currency of the system. Lending to private sector increased by 15.8 percent in real annual terms, relative to 17.9 percent in June. Lending to business provided the main contribution on the monthly growth of credit, a constant phenomenon, which this month appeared particularly more emphasised. | 1 |
And second, the shocks had generally become less persistent across economies. That’s less obviously true for the UK in this version of the chart, but it appeared true in the data that was available at the time. Thirdly, the country whose resilience had increased the most between the two periods of all the G7 countries was the UK. Chart 2: typical response to an economic Chart 3: typical response to an economic shock, 1985-96 subsample shock, 1997-2007 subsample Per cent deviation from trend output 2.0 Per cent deviation from trend output 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -1 0 1 2 3 Years since shock 4 5 -1 0 1 2 3 Years since shock 4 Canada Germany France Canada Germany France Italy Japan UK Italy Japan UK USA 5 USA These charts replicate charts 2.4a and 2.4b in Gurney (2008), “Resilience in the UK and other OECD economies: Treasury Working Paper No. 2”, available online at https://webarchive.nationalarchives.gov.uk/20081112160625/http:/www.hmtreasury.gov.uk/d/bud08_workingpaper2_557_.pdf. The replication is only approximate as the OECD have discontinued their quarterly output gap series: we estimate a simpler AR(1) model using their annual estimates. See also the OECD work summarised in Duval, Elmeskov and Vogel (2007), “Structural Policies and Economic Resilience to shocks”, available online at https://www.oecdilibrary.org/economics/structural-policies-and-economic-resilience-to-shocks_140152385131, which reached similar conclusions. | My second lesson from the crisis was that we need to think about resilience much more broadly. Reflecting that, economic policy makers now think as much about stability over the financial cycle as we do over the business cycle – a broader definition of resilience. One major response to the financial crisis was the creation of a new Financial Policy Committee as part of the Bank of England, giving it an explicit mandate to identify, monitor and take action to remove risks to the financial system. The Committee’s goal is to ensure the financial system is resilient to shocks, so that it doesn’t again act as an amplifier, worsening the impact on households and businesses in the real economy, as it did in the crisis. My MPC colleague SIlvana Tenreyro sets out these arguments in detail in her spech “The fall in productivity growth: causes and implications”, available online at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-fall-in-productivity-growth-causesand-implications.pdf. 4 6 All speeches are available online at www.bankofengland.co.uk/news/speeches 6 The FPC has been active in pursuing this goal. We have a mandate to ensure the safety and soundness of the financial system as a whole. To do that, one of the things that we do is to regularly reassess and actively adjust the amount of loss-absorbing capital that banks, who are at the heart of the financial system, are required to hold as our assessment of the level of risks changes. (Our tool for doing this is called the counter-cyclical capital buffer rate, or CCyB.) | 1 |
2 BIS central bankers’ speeches Chicago Fed economists first did work on the prospects for a declining labor force participation trend back in 2001 – near the time the rate peaked at just over 67 percent. 3 Even after revisiting this topic numerous times and with multiple generations of research assistants working on the programs, our economists’ views about the trends that are consistent with the composition of the population and a labor market near equilibrium have not changed much since then. 4 Among the many robustness analyses they performed, their models produce nearly the same trend for labor force participation as they have since 2001. 5 Depending on the details of the specification, Chicago Fed economists estimate that at the end of the second quarter of 2014, the labor force participation rate was between 1/2 and 1-1/4 percentage points below trend. Furthermore, the participation rate was as much as 3/4 of a percentage point below predictions based on its historical relationship with the unemployment rate. This disparity suggests that there likely is an extra margin of slack in labor markets beyond that indicated by the unemployment rate alone. It is interesting to dig further into these “labor force participation gaps.” Virtually all the gap during this cycle has been due to withdrawal from the labor market of workers without a college degree. By contrast, a participation gap never materialized for college graduates, even during the depths of the recession. There is no simple explanation for this striking contrast. | Many economists, our Chicago Fed staff included, have been working long and hard on research related to this topic. In my remarks today, I will briefly talk about some of our results that touch on several of the most contested labor market issues on the table today. These involve labor force participation, job openings and wages. To give you the punch line, this research and work done by others in the field lead me to conclude that, although we have made great strides, a good deal of slack remains in the labor market. Labor force participation and employment As everyone in this room is aware, the labor force participation rate has fallen throughout the recession and recovery and is now at a 35-year low. 2 Much of that decline is due to trends that far predate the Great Recession. The movement of baby boomers into retirement age and the long-running declines in teenager and prime-age male participation would have significantly reduced labor force participation rates independently of the economic downturn. 1 See Yellen (2014). 2 The labor force participation rate is defined as the share of the population aged 16 and older who are either employed or unemployed. To be unemployed, a person has to not have a job but be actively looking for work in the prior four weeks and to be currently available to work. These data are collected by the U.S. Bureau of Labor Statistics as part of its monthly Current Population Survey. | 1 |
And I will group them under four headings in the terminology of the Phillips curve: we have under-measured slack in the labour market; the curve has shifted downwards; the curve has become flatter; and the curve is not there. 8 The premise of the Phillips curve – that the rate of change in prices is related to the gap between supply and demand – extends beyond the labour market. Indeed, although Phillips’ paper looked at wage growth the term Phillips curve is now often used to describe the relationship between general prices – inflation – and the unemployment gap (or other measures of supply/demand imbalance). In a stylised world, price and wage Phillips curves would tell us the same story – in a closed economy (where there is no impact from changes in import prices) in which the labour share is constant and productivity is growing in line with trend, there should be a steady relationship between wage inflation and price inflation. The labour share in the UK has been relatively flat since the turn of the century. 9 The natural rate of unemployment, sometimes referred to as U*, typically refers to equilibrium unemployment in the long-run. However, there may be temporary factors that affect the level of unemployment consistent with stable inflation, and therefore the medium-term equilibrium unemployment rate, sometimes called the NAIRU – the ‘non-accelerating inflation rate of unemployment’. | The missions were initiated after the Commission's General Secretariat had received the findings of the institutions' "internal validations". The purpose was to make sure that institutions were in compliance with the minimum regulatory requirements and, more generally, to check the quality of their information systems and the conditions in which these mechanisms are used and controlled. These inspections revealed that institutions had indeed already made extensive achievements, but also showed that some of them needed to make further progress on Pillar 1 of Basel II, especially with regard to: - the collection and estimation of the Basel parameters, particularly probabilities of default (PD) and loss given default (LGD): on this point, it is important that banks should steadily upgrade again their historical data so as to cover full business cycles; - permanent control and validation of information systems and/or models: implementing thorough benchmarking and back-testing processes is crucial in this context. With regard to Pillar 2, the Commission Bancaire urges banks to make certain that their Internal Capital Adequacy Assessment Processes capture risks which are covered incompletely or not at all by Pillar 1, especially concentration risk, liquidity risk and overall interest rate risk. In the months ahead, priority must be given to developing stress tests that are more comprehensive, i.e. that encompass the various risks (credit, market, etc.) and that aim for exhaustive coverage of risk exposure. Banks must also meet their transparency requirements under Pillar 3 (market discipline), for both the content and the frequency of their disclosures. | 0 |
Sustainable fiscal adjustment in the medium and long-term will depend on the enactment of structural reforms in the public sector rather than on provisional measures. Besides jeopardizing the attainability of budget targets, a delay in structural reforms will also cause the supposedly provisional measures to become permanent. Such implementation might affect the quality of expenditures and revenues unfavorably and cause inflationary impacts due to revenue-boosting methods. Therefore, increased control and effectiveness in public expenditures are critical factors for the quality of fiscal adjustment. A study comparing the fiscal adjustment policies implemented at different times in OECD countries2 revealed that a long-term improvement in public balance can be achieved through expenditure-curbing policies rather than revenue-boosting policies. Besides controlling public expenditures, incomes policy also plays an important role in increasing the quality of fiscal adjustment. For this reason, the implementation of incomes policy must be coherent with the inflation target. As I have mentioned before, important policies are pending in the upcoming period in the framework of the European Employment Strategy. These policies are aimed at ensuring that high growth performance affects employment in such a way to assure a sustainable increase in employment, to increase the additions to the labor force and to establish a more flexible labor market. Developing coordination in economic policies and a harmonization of the decision-making process is another outstanding factor. All these factors will not only establish macroeconomic stability and increase social welfare in Turkey, but also play a key role in the European Union integration process. | It is very well known that it is really hard to implement price stability-oriented monetary policies in an environment of fiscal dominance environment stemming from budget deficits and excessive domestic borrowing. In order to solve this problem, under the current economic program, giant leaps have been taken towards decreasing interest rates and achieving sustainable borrowing by employing tight fiscal policies. In addition, steps have been taken towards eliminating the public debt sustainability problem in the medium and long run by achieving primary surplus. At this point, I would like to underline that the stability, confidence and positive expectations, which have emerged in the markets as a result of the tight fiscal policies, have significantly contributed to the downward trend in inflation. Furthermore, continuous increases in productivity, the strong position of the Turkish lira and an income policy in line with inflation have to a large extent contributed to the favorable course of inflation in the recent period. Domestic demand has been kept under control as a result of the tight and prudent fiscal and monetary policies. The postponed consumption and investments, accompanied by advanced consumption, which was driven by worries stemming from old habits, have been instrumental in the rapid increase in domestic demand in the first two quarters of 2004. However, the increase in domestic demand slowed down evidently as of the second half of 2004, as expected. . Accordingly, the level of domestic demand did not exceed the production capacity, and thus no demand-side pressure was created on inflation. | 1 |
Eva Srejber: The euro in the euro area and in Sweden Speech by Ms Eva Srejber, Second Deputy Governor of the Sveriges Riksbank, to the EU Club of Sweden, Gothenburg, 16 October 2001. * * * I should like to begin by thanking you for giving me the opportunity to come here and speak about the euro and its usage. The euro is evidently hot news right now, which is probably not surprising when one considers that in just two and a half months' time the 300 million inhabitants in the euro area will be replacing the banknotes and coins in their wallets. On 1 January the euro, which so far has existed asmerely an electronic currency it will also finally exist in the form of banknotes and coins. A gigantic logistics project The newspapers have been full of stories about the introduction of the euro for some time now, including fears that the transition to the euro will be a field day for counterfeiters. However, most articles concern the pure logistics behind the transition from the old national banknotes and coins to the new euro ones. It is not surprising that this should be given so much attention. The transition to the euro is a project of gigantic proportions. Someone, probably a Frenchman, has tried to indicate the size of the operation by comparing the weight of the coins to be distributed with the weight of the Eiffel Tower. The coins are supposed to weigh the equivalent of 24 Eiffel Towers! | A normalisation of risk premia in relation to the particularly low risk premia prevailing in recent years has its advantages. But the adjustments seem to be marked by overshooting and considerable volatility. We do not know how long the turbulence will last or what consequences will be for the real economy. So far the turbulence has not led to any major reassessments of the global growth outlook among most observers, although it seems obvious that it will have a negative effect. The turbulence has increased the risk that the problems that were initially linked to one segment of the US residential mortgage market will have consequences for the real economy in the US and the rest of the world. This has led to a fall in short-term interest rate expectations, particularly in the US. Long-term interest rates have also declined, reducing funding costs for solid borrowers. Interest rate expectations have also fallen somewhat in Norway. Developments in the krone exchange rate In recent weeks, developments in foreign exchange markets have also been marked by the turbulence. For example, there has been a substantial reduction in carry trade, resulting in an appreciating tendency for low interest rate currencies and weakening tendency for high interest rate currencies. Let us take a closer look at developments in the krone exchange rate and the importance of the krone exchange rate for monetary policy. | 0 |
And if and when there were a serious co-ordination challenge – if, for example, one body became concerned about its ability to meet its primary objective, without enlisting the assistance of the other – then I think the current system in the UK would allow that to happen. Equally, there are also clear advantages in a degree of separation. One – something I haven’t gone into today but which still matters a great deal – concerns specialised skills. The two committees at the Bank profit greatly from having external members steeped in particular experience, whether that’s monetary experts on the MPC or financial experts on the FPC. Another, the topic of this talk, is a matter of accountability and focus. I think there would be risks in asking the central bank to meet a wide range of objectives with no distinctive accounting for the use of its various tools. Thank you. 14 All speeches are available online at www.bankofengland.co.uk/speeches 14 References Aikman, D., Giese, J., Kapadia, S., & McLeay, M. (forthcoming), “Targeting Financial Stability: Macroprudential or Monetary Policy?”. Baskaya, Y., di Giovanni, J., Kalemli-Özca, S. Peydro, J., Ulu, M. F. (2017), “Capital flows and the international credit channel”, Journal of International Economics, Vol. 108, Supplement 1. Bianchi, F. and Melosi L. (2018), “Constrained Discretion and Central Bank Transparency”, Review of Economics and Statistics, Vol. 100, No. 1, pp. 187-202. Bean, C. (2010), “Monetary policy after the fall”, Speech given at Federal Reserve Bank of Kansas City Annual Conference Jackson Hole, available at https://www.bankofengland.co.uk/speech/2010/monetarypolicy-after-the-fall-speech-by-charles-bean. | Our investment banks have suffered losses in their trading books and a wider group of banks have lost money on their treasury books because of the fall in the values of structured credit of all sorts. At the same time they have found that some of their major sources of finance, notably securitisation and medium term unsecured lending, have dried up and others, notably shorter term lending in money markets, have become much more expensive (Chart 4). What is more, all these effects have lasted longer than expected and seem set to continue for some time. Banks have responded by hoarding liquidity and trying to reduce their leverage by raising new capital (not without difficulty in some cases) and by constraining the growth of lending. One direct effect has been a marked tightening of credit conditions over the past year (Chart 5), which seems still to be underway. That in turn is pushing down asset prices and demand. Our forecasts and our policy decisions have reflected our best assessment of the likely impact of this feedback. We brought down interest rates earlier in the year to cushion the impact of the change in bank behaviour. In effect we have relied on the credit squeeze in large measure to produce the slowdown we consider necessary. But we are fully aware of the risk that the squeeze on banks and the feedback to the economy could prove more powerful than expected. That risk does not just arise from the drama of the last week or two. | 0 |
This helps to explain why all banks found it more difficult to raise funding when the deterioration in the performance of sub prime assets became apparent, even though it would later be revealed that some banks were more exposed than others. 35 A further challenge is that the markets for innovative financial instruments can grow very rapidly, outstripping the capacity of back offices to keep up with trading. Towards the end of 2005, CDS trading had run ahead of the processing of trades to the extent that the major CDS dealers on average had unconfirmed trades outstanding that were equivalent to a couple of weeks of trading volume. If the reference entities underlying these CDS trades had defaulted, it would not have been clear – at least for some time – who was owed money by whom. The international authorities then set the major CDS dealers targets to reduce volumes of unconfirmed trades, which subsequently fell significantly. But a backlog of unconfirmed trades did start to cumulate again during the early months of the recent financial turmoil, although this has also diminished over the past six months. Furthermore, the proportion of new CDS trades that are confirmed electronically and hence immediately has increased sharply from around 50% when concerns were raised in 2005 to over 90% at present. 36 It is also important that innovative financial products are documented sufficiently carefully and that their risks are accurately communicated to potential investors. The more complex the instrument, the greater the scope for misunderstanding. | What do you see as the main priorities for the post-programme period? What are the areas that Greece should focus on in the years ahead so as to achieve sustainable growth? And what are the main risks? In line with what I have just said, allow me to focus on the financial sector. Reducing NPLs is certainly top of the list from our point of view. On the one hand, only stronger and healthier banks can provide the necessary basis for an increase in the supply of credit that can support economic growth. On the other hand, the restructuring of private and tax debt that could 1/4 BIS central bankers' speeches accompany the reduction of NPLs is also expected to help healthy companies restart their activities and thus reinforce the demand for credit. A lot has been achieved under the programme. The legislative framework is in place, but continued implementation will be key. Improving the effectiveness of the judicial system is also essential to guarantee a well-functioning financial sector. We also still envisage improvements in banks’ governance frameworks, which will be essential to establish the conditions necessary to attract both domestic and foreign investors and allow the divestment of Hellenic Financial Stability Fund (HFSF) holdings over time. In any case, it will be very important that the authorities refrain from trying to influence banks’ credit decisions and focus instead on improving the framework within which they operate. Are Greek banks now safe in terms of their capital position? | 0 |
I am pleased to say that January’s report points to some firming in manufacturing and a pickup in hiring – a big improvement from late last year, when this survey consistently signaled little or no growth. Nonetheless, ongoing weakness in the housing market, coupled with a sluggish jobs recovery has increased financial pressures on families. Attendees at previous press briefings may recall that at the New York Fed we have a special consumer credit panel that allows us to track these trends closely.3 Since the beginning of 2008, many regional households have been reducing their per-person debt for mortgages, credit cards and auto loans quite consistently. However, the last three to four quarters show signs that households may have reached the end of this deleveraging process. Debt levels have been flat to slightly increasing in both New York and New Jersey – as they have also been for the United States as a whole. Only in Puerto Rico have debt levels continued to decline, suggesting that households on the island may not be finished with their deleveraging. The picture for debt delinquencies is similar. Although still quite high by historical standards, as of the third quarter of 2011, delinquencies were subsiding in New York and New Jersey, as they were for the nation as a whole. Unfortunately, Puerto Rican households stand out as now having a higher delinquency rate than the mainland, New York and New Jersey – and one that is continuing to rise. | Alongside the somewhat stronger near-term growth we have also seen some improvement in the labor market. Workers are filing fewer initial claims for unemployment insurance. New claims have fallen to levels not seen since mid-2008. Private-sector employees are working more hours. Aggregate hours worked rose at a 3 percent annual rate in the fourth quarter of 2011, up from essentially no growth in the third quarter. Combined with average hourly earnings rising at a 1.8 percent rate, the increase in hours worked suggests an annual rate of BIS central bankers’ speeches 1 increase in private wage and salary income of close to 5 percent. This is a respectable rate that might support more spending – if sustained. A firmer labor market has been accompanied by partial recovery in consumer confidence over the past few months. Confidence is rising up from levels that were often – in the third quarter of 2011 – lower than at the depths of the Great Recession. It should be noted that while workers’ hours grew at a healthy pace in the fourth quarter, employers added an average of just 140,000 payroll jobs per month, somewhat less than in the third quarter. Despite this rather tepid increase in jobs, the unemployment rate fell a cumulative 0.5 percentage points from September to December. This apparent discrepancy is due to two factors – faster job growth as measured by the household survey and an outright decline of the labor force. | 1 |
The budgetary cost of this reform will be relatively lower in 2015, although it will have a greater impact, naturally, once it has been set fully in place. The budgetary projection indicates that this forgone revenue will be offset by the greater buoyancy of revenue against a background of strengthening recovery, particularly in domestic demand. The uncertainty habitually clouding estimates of the impact of tax changes will require a continuous monitoring of revenue-raising in 2015 so as to head off potential slippage and, where appropriate, to react in time so as to prevent such slippage from adversely impacting budget deficit targets. 4 BIS central bankers’ speeches The public debt/GDP ratio will continue on an upward trend, until reaching 100.3% according to the official forecast. The scale of this figure highlights the challenge facing budgetary policy in Spain, which will have to continue prioritising the gradual reduction of this debt. Outlook and challenges The outlook for the Spanish economy is brighter than that which I outlined to this Committee a year back. The rebalancing of domestic expenditure and net external demand has continued, with greater vigour than was previously expected. The pick-up in employment is proving to be one of the main drivers of domestic demand, attesting to the role that the labour market reform and wage restraint are playing in entrenching the recovery, although unemployment remains unacceptably high. But this scenario of recovery is not free from risks. Some, particularly those stemming from the external environment, have increased in recent months. | Approximation with best EU central bank standards and practices is a crucial process for a central bank not only for the effective discharge of the duties, but also for the efficient and stable functioning of the financial system, and benefit of the economy, overall. I am confident that the implementation of this project will be characterised by the cooperative spirit between the Bank of Albania and central banks in the region, on the one hand, and the European Central Bank and Eurosystem, on the other. I would like to conclude with a heart-felt appreciation and gratitude for all the stakeholders having an active role in the launching of this project: • the European Central Bank for coordinating all the activities; • member central banks for providing a large number of experts to assist us with the project implementation; • Delegation of the European Union in Tirana for funding it. 2 BIS central bankers’ speeches We highly appreciate the Commission’s assistance with regard to adopting the implementation of the European Union legislation and are seriously committed to continuing with the successful cooperation, established with the Delegation in the last twinning project. In this context, I would like to reiterate my message that the road to European Union integration passes through regional integration. The financial system and central banks spearhead this process. We expect that public and private economic agents will determinedly follow this step we are taking. | 0 |
Each of us inside the 18-member Governing Council has to take into account the superior interests of the whole euro area. My colleagues and I are convinced that our present real time detailed communication is, in our case which is unique, superior to mentioning individual votes which could wrongly suggest in the eyes of some that the Governing Council is a place where we are confronting national interests which is not the case and should never be the case. BIS Review 5/2005 3 As the “porte parole” of the ECB and its Governing Council, I think it is remarkable that we act as a team with high team spirit as regards the handling of a complex communication network dealing with 306 million European fellow citizens speaking their languages. The “single voice” principle in monetary policy was introduced from the very beginning and has been efficiently applied in my judgement. As regards non-monetary policy decisions by the Governing Council we have adopted a new procedure in December by placing a communication on our website one day after the second meeting of the month. Previously we communicated these decisions in various ways, for example by press releases or by inserting information under other matters into the introductory statement. I hope that the new procedure will contribute to easier access to non-monetary policy decisions. The document refers to “Decisions” which means that, as a rule, it will cover those issues for which the Governing Council has concluded its deliberations, i.e. decisions have been taken. | It is ironic that only when problems in advanced economies led to contagion elsewhere and large number of central banks entered into such swap agreements with the Federal Reserve, did the IMF agree to such an instrument. This also reconfirms the need for greater voice and representation of emerging markets in important international financial institutions (IFIs) as highlighted in the recent G-20 Summit Declaration. While the reform is underway under the IMF, it is only with hope that other fora, including, the FSF will take the issue into consideration more seriously. Let me elaborate further on the importance of having emerging markets participated in the systemically important international fora. I think you all agree at this advanced economies or emerging markets are all prone to sectoral imbalances, which, if left unchecked, can lead to a full-blown crisis, anywhere, any time, when the bubbles burst. The impact of a crisis in an advanced, systemically important country can be much broader and deeper, creating a larger scale of world-wide externality. Emerging markets, unlike others, have had our share of coping with new challenges brought on by this phenomenon as well as those created by us one decade ago. It is, therefore, not only the responsibility of advanced countries to be in charge of global surveillance but also the responsibility of emerging markets to share our views and experiences of how to reform ourselves to be better prepared for greater uncertainty. | 0 |
Third, the extent of barriers - regulatory or otherwise - to adoption and what techniques and tools can enable safe use of this technology. Fourth, an assessment of firms’ perceptions of the risks, to both their own safety and soundness as well as to their conduct towards customers and clients, arising from AI/ML. And fifth, the extent to which the appreciation of these risks has given rise to changes in risk management, governance and compliance frameworks. The full results of the survey will be published by the Bank and FCA in Q3 2019, and are likely to prove insightful. Responses were returned to the Bank in late April, so some early indicative results are emerging. Overall, the mood around AI implementation amongst firms regulated by the Bank of England is strategic but cautious. Four fifths of the firms surveyed returned a response; many reported that they are currently in the process of building the infrastructure necessary for larger scale AI deployment, and 80 per cent reported using ML applications in some form. The median firm reported deploying six distinct such applications currently, and expected three further applications to go live over the next year, with ten more over the following three years. Consistent with the McKinsey survey, barriers to AI deployment currently seem to be mostly internal to firms, rather than stemming from regulation. Some of the main reasons include: (i) legacy systems and unsuitable IT infrastructure; (ii) lack of access to sufficient data; and (iii) challenges integrating ML into existing business processes. | The evidence suggests that investors in funds which offer short notice redemptions and that invest in less liquid assets tend to redeem more in response to a downturn in the funds’ performance than those in more liquid funds. And the redemption behaviour of investors in bond funds seems to have become more sensitive as these markets have become less liquid. 19, 20 Drawing these developments together, it’s possible that just as corporate bond markets have become less liquid, they may have become susceptible to greater selling pressure after a shock. We may have more of a mismatch of liquidity. That could amplify any price adjustment. None of this is conclusive and serious problems have not been caused by this in the past. But we have a duty to take the possibility seriously – to ask ‘could it happen?’ With markets having evolved so much in the past decade, the absence of problems in the past is no guarantee for the future. That’s why we’ve been developing simulations of the impact of this liquidity mismatch. The asset management industry has been a constructive partner in this work. I hope we and this Centre can collaborate as we take this work forward. There is much more to do, but our initial work suggests a case for exploring further, including by incorporating a range of other investors into the simulations and assessing the impact not just on bond markets but on the wider economy. You can expect to hear more from us as these efforts develop. | 0 |
Without going into detail at this stage, I will just mention: • the work on the regulatory framework applicable to systemic banks, which will be pursued with the idea of taking into account that, owing to their size relative to a domestic market, certain banks can generate major systemic risk in a given country; • the finalisation of liquidity regulation, which must revisit the stress test scenarios applied to banks’ assets and liabilities as well as the scope of assets deemed to be liquid; • the adaptation of the French regulatory framework for all of the institutions that are currently credit institutions according to our national definition but which will lose this status under the new European definition, which is much more restrictive; • the overhaul of the banking crisis resolution mechanism, with the French mechanism – in anticipation of the forthcoming European projects – not having been updated to integrate the more powerful crisis management instruments resulting from the G20 guidelines; BIS central bankers’ speeches 3 • the deliberations, in both the European and French frameworks, about better organisation of banking activities and of the relationships between investment banking and retail banking. The ACP will ensure that there is coherence between these different initiatives so as to avoid any unanticipated negative impacts. *** Before handing over to Jean-Philippe Thierry, I would like to stress that, although the difficult macroeconomic context persists, I remain confident about the robustness of the French financial sector. | Finally, one principle – that has gained much attention during the current crisis – is to keep the determination of the monetary policy stance distinguished from the management of liquidity in money markets. All these principles are captured in the ECB’s monetary policy strategy. And globalisation does not fundamentally alter these principles – which give guidance, in particular, in critical times. To weaken or even abandon these principles would undermine our commitment and credibility. And, in the end, we would risk losing orientation. Our strategy has provided a consistent and coherent framework not only for internal analysis and policy decision-making but also for external communication. Using the same framework for internal and external purposes has helped the ECB to ensure that its monetary policy remains consistent, credible and effective. One key element here is that the ECB, from the outset, has been transparent about its mandate, strategy, and decisions, as well as about what monetary policy can do and, even more importantly, what it cannot do. In this sense, expectations about transparency requirements should be in line with the actual strategy followed by the central bank. Without compromising on its mandate, the ECB has demonstrated a willingness and capacity to react rapidly to exceptional circumstances. It has taken a large number of extraordinary measures to support the functioning of the money market and interbank intermediation. | 0 |
The credibility of the ECB will crucially depend on its ability to 8 Speech by the President of the European Monetary Institute, Dr. W.F. Duisenberg, at the conference on “European Monetary Union : Prospects for European Financial Markets”, held in Paris, 22 October 1997. BIS Review 112/1997 -9- adamantly pursue its strategy aiming at price stability and on its fortitude in resisting any pressure to deviate from this strategy. BIS Review 112/1997 | It is therefore the expectation of the Bank of Zambia that this Conference will discuss this trend and its implications, particularly with regard to limited accessibility to technology and technicalknow how of consumers in SADC member countries. Other themes I am sure you will deliberate upon include confidentially of financial information, money laundering and terrorist financing. Effective payment system oversight needs to be promoted so that public confidence in the safety and soundness of the national payment systems is maintained. Understandably, this is a new area and in most member countries work is still exploratory. I therefore urge you all to double your efforts in this regard and deliver on this very important central bank responsibility. Ladies and Gentlemen, another new area is that of mobile phone enabled payment services. This development has a huge potential to help the SADC region leap frog a number of financial sector development challenges particularly those related to improving access and availability of financial services. This is because mobile phone based services, particularly those focused on low-value payments where swift and convenient service is the primary goal could be a practical solution for SADC member countries. The challenge therefore is how well we all respond without damaging this sprouting and potentially cost-effective delivery channel for financial services, which can be damaged with over regulation or lack of mitigation for the risks its poses. | 0 |
Let us assume that Finansinspektionen conducts a wise policy in the coming decades and succeeds in preventing one or more financial crises that would otherwise have occurred. It would be very difficult to actually prove that this was due to successful macroprudential policy – the only thing that can be observed is that no crisis has occurred. I can easily imagine that the general impression in retrospect would be that Finansinspektionen had been imagining things and tightened macroprudential policy unnecessarily. Ironically, it may be the case that the more successful macroprudential policy is, the less useful it is perceived to be. Over time, this could lead to fairly strong pressure on Finansinspektionen not to take any action. In addition, there will of course also be the common criticism that one, as in monetary policy, is “taking away the punch bowl just as the party gets going”. Moreover, it is possible that macroprudential policy measures will be perceived as more dramatic and as a larger intervention than raising the repo rate, and the pressure not to take action can thus be particularly great in this field. Macroprudential policy also needs support Just as monetary policy cannot be left alone to try to manage the risks linked to household debt and developments on the housing market, macroprudential policy cannot be left without support. I believe it is important that there is some degree of concordance between macroprudential policy and monetary policy – so that they, so to speak, do not pull in different directions, but help one another. | However, I believe there is a risk of now leaning back and assuming that all of the problems will be automatically resolved, or perhaps are already resolved. This is not a quick fix. Making decisions in the field of macroprudential policy is no easy task and Finansinspektionen has a difficult workload ahead. Many people have questioned the efficiency and expediency of the policy rate in this context. But, of course, there are a number of questions regarding macroprudential policy as well. An obvious complication is that macroprudential policy is a new field. There is rather limited practical experience of the effects of macroprudential policy measures and nor is academic research able to provide any clear guidance as yet. This means that, at least during a transitional period, there will be considerable uncertainty over the effects of the measures taken. The objective of macroprudential policy – to prevent risks to the financial system as a whole – is moreover clearer on paper than in practice. It is of course not easy to know when the system is sufficiently resilient or if some form of imbalance is building up, which the crisis clearly illustrated. There are no numerical targets here, and determining when a certain deviation has begun to be abnormal is rather difficult.10 Finansinspektionen will probably also need to struggle on occasion with the scepticism of general opinion towards the need for macroprudential measures. There are different reasons for this. | 1 |
In such a situation it was natural to study the form of the economic recovery following previous crises. The overriding conclusion that could then be drawn was that the recovery would be slower than normal.6 However, it is also the case that every crisis is unique in many respects and there were circumstances that pointed in the opposite direction. Among other things, the emerging economies in Asia, led by China, recovered relatively quickly and became something of a driving force for the recovery in the rest of the world. Another positive factor was that growth was rather good around the world when the crisis began.7 With hindsight, it can be noted that the recovery in many areas, and not least in Sweden (see Figure 1 above), has been much more rapid than we could have expected. As can be seen in Figure 2, the Riksbank began to increase the repo rate somewhat earlier than predicted during the most severe phase of the crisis and the repo-rate path was given a somewhat more “top heavy” profile. It is natural to try to learn from previous crises, but at the same time we must be careful not to draw too far-reaching historical parallels. In the midst of the crisis there was, for example, sometimes a slightly careless tendency to refer to the Swedish crisis of the 1990s, despite the fact that the circumstances at that time were entirely different. | G20 Leaders and Finance Minsters need to keep our We may not be able to abolish the occasional waves of optimism that grip humanity and the tendency to excess they set off. But we can and must dampen their effects on the financial system and economy. This must include changing the incentives that bankers face. It will include a simplification of the capital markets; and constraints on the effects of exuberance through policies on leverage, capital and liquidity – applied beyond banking where warranted. And it must include macroprudential regimes that help us to refresh the microregulatory regimes and enable the authorities to take away the punchbowl when the party threatens to get out of control. Markets will, in time, forget about the risks, but the system will be safer if we succeed in building official institutions that do not forget. Parliament can underpin that by holding us to account in this endeavour, as it does on monetary policy – incentives matter in the official sector too. That will make for a safer and sounder financial system that can meet the abiding needs of the economy as a whole. And, to those of you here today, I would say that the Bank believes what it always believed: that sound and honest finance is not only essential for the economy, it will be good for the City too. 8 BIS central bankers’ speeches | 0 |
This translates into a return on assets (ROA) of -0.21% (down 72 bp on the figure of 0.51% recorded in 2019), which rises to 0.33%8 if the negative extraordinary adjustments applied during the year in three of the system’s main banks are stripped out.9 Notable in these results is the increase in impairment losses, of over 50%, which entailed provisioning that was € billion higher in 2020 than in 2019.10 As to Spanish banks’ external business, the effects were also adverse given the global nature of the crisis. This was the case both for the total volume of lending and its contribution to the consolidated result, while the depreciation of emerging countries’ currencies also came into play.11 In any event, the weight of external business in the main Spanish banks’ ordinary net income has increased. Hence, without taking into account the 5 However, behaviour was uneven in firms (with an increase of 6.6%) and in households (where there was a decline of 5.6%). 6 See, for example, the October 2020 Bank Lending Survey in Spain. Menéndez-Pujadas and Mulino (2020) summarise the results of the survey for the participating Spanish banks. 7 See D. Rodríguez-Miera and R. Vegas (2021), “Impact of the dividend distribution restriction on the flow of credit to non-financial corporations in Spain", Analytical Articles, Economic Bulletin, 1/2021, Banco de España. 8 The return on equity (ROE) stood at -3.1% (10 pp down on the figure of 6.9% recorded a year earlier), and at 4.8% if extraordinary adjustments are stripped out. | “The Fault Lines in Cross-Border Banking: Lessons from the Icelandic Case”. SUERF Studies 05/2010, European Money and Finance Forum (2010). Baldursson and Portes give a recent assessment of the rise and fall of the Icelandic banks: Friðrik M Baldursson and Richard Portes (2013), “Gambling for resurrection in Iceland: the rise and fall of the banks”, CEPR Discussion Paper 9664, September. 5 Fleming and Klagge describe the Federal Reserve’s foreign exchange swap lines: Michael J. Fleming, and Nicholas J. Klagges. “The Federal Reserve’s Foreign Exchange Swap Lines. Federal Reserve Bank of New York: Current Issues in Economics and Finance”, 16, 4 (2010). Allen and Moessner analyse the important role of the US Dollar surplus in the policy response to the crisis and compare it to the policy response during the Great Depression: William A Allen and Richard Moessner (2010), “Options for meeting the demand for international liquidity during financial crises”, BIS Quarterly Review, September 2010, http://www.bis.org/. 2 BIS central bankers’ speeches of the safety net and the associated moral hazard-mitigating mechanism in cross-border banking applied across the board to regulation, supervision, LOLR, deposit insurance, and crisis management and resolution. The adjustment that needs to take place after the crisis in order to make cross-border banking safer is clear in principle: the market action and the public framework in the form of the safety net and other arrangements has to be better aligned. | 0 |
In addition, dollars would no longer be fungible, because each dollar would have a different amount of interest accrued on it. The difference in those two situations is the subject of money illusion – the behavioral tendency of people to think in nominal terms. 4 To the extent that money illusion is operative, then imposing negative nominal interest rates will be perceived as more costly to people than engineering an increase in inflation of the same amount – in both cases, the real wealth of the person’s money holdings is the same, but in the case of inflation, the person holds the same number of dollars at the end of the period, whereas with negative nominal interest rates, some of the person’s money holdings have been paid out as interest. Money illusion causes the payment of interest to be perceived as more costly, much as people resist nominal decreases in wages which manifests itself as downward wage rigidity. 3 Charles M. Kahn, James McAndrews, and William Roberds, “Money Is Privacy,” International Economic Review 46, no. 2 (May 2005): 377–99. 4 See Eldar Shafir, Peter Diamond, and Amos Tversky, “Money Illusion,” Quarterly Journal of Economics 112, no. 2 (1997): 341–74, for evidence on money illusion. BIS central bankers’ speeches 5 2. Legal and operational frictions Legal and operational challenges will also arise as money and capital markets adjust to negative rates. | For example, a million U.S. dollars, made up solely of $ bills, would form a stack measuring approximately 43 inches or 109 centimeters in height and weighing 22 pounds or about 10 kilos. Consequently, currency is inconvenient to use, especially for those who seek to make large investments or payments. Second, currency is subject to theft, requiring a big investment in security and insurance. Third, recounting currency every time it is moved or transferred between people entails time and expense. Finally, currency is subject to degradation, accident, fire, counterfeiting, and other mishaps. Because currency is costly to invest in, then we could refine the proposition we stated earlier to say that a person would invest a dollar in an account or bond that promises to pay back less than a dollar so long as the person could not preserve more of his or her initial wealth by investing in currency, net of its costs. So one might suggest that it is the negative net return on currency that establishes the lower bound to interest rates – zero is only a rough approximation. This formulation is sharper, certainly, but it may also be too blunt for the following reason. Notice that the costs of handling currency vary by the size of the investment one is considering. | 1 |
The MPC’s post-meeting statement made clear of the need to monitor the situation in the global market closely so that the stance of monetary policy can be appropriately and flexibly calibrated to ensure price stability and steady growth. Finally, the last point I want to stress is that the ability of the Thai economy to weather external shocks and global slowdown at this time are now much greater compared to the situations say ten years ago. 2 BIS Review 29/2008 First, the country’s economic fundamentals have improved from the crisis years, with solid external positions marked by current account surpluses, high level of international reserves, and much lower level of external debt. This stronger financial position will enhance the ability of the economy to cushion itself against external shocks. Second, our banking sector is in excellent shape, with good profitability, strong capital base, and improved asset quality. The corporate sector is also in good financial shape with strong earnings and low financial leverage. These qualities will make the private sector more resilient to the impact of economic volatilities from outside. And third, policy regime in Thailand has become more flexible, especially the exchange rate, with market force now playing a dominant role in allocating resources. Such attribute provides the private sector with a mechanism to efficiently adjust to the impact of external shocks. | Lessons from the Asian crisis Five years have passed since the Asian financial crisis began, prompting a major re-think of policies held to be obvious and valid before the crisis. In particular, the crisis has highlighted three major issues in Asian economic and financial systems. First, some analysts have questioned East Asia’s growth model, with its emphasis on high savings, reliance on foreign investment, and export growth. East Asian economies, it is argued, should instead lower savings rates, in order to stimulate domestic demand, develop indigenous enterprise, and insulate themselves from volatile external conditions. Second, the crisis highlighted the dangers of liberalising capital markets too rapidly and without adequate safeguards. Before the crisis, capital account liberalization was the vogue. Conventional wisdom emphasized benefits rather than costs of free capital flows. The crisis demolished this complacent confidence. Undoubtedly, structural flaws and policy errors, especially in the financial and corporate sectors, contributed to the crisis. However, the financial markets’ reaction to these weaknesses was out of proportion to the severity of the crime. Markets proved highly susceptible to contagion and herd behaviour. Crashes and panics shook seemingly sound economies to their roots. Third, the crisis demonstrated the dangers of over-reliance on bank-based financing. In many Asian countries prior to the crisis, capital markets were underdeveloped. Bond markets, in particular, were illiquid or nonexistent. So Asian firms relied on bank loans for working capital and to fund capital expenditure. When banks ran into trouble, firms were left without alternative sources of capital. | 0 |
Nina Stoyanova: Forthcoming new developments in the area of payment services and digitalisation Publication by Ms Nina Stoyanova, Deputy Governor and Head of the Banking Department of the Bulgarian National Bank, in the Quarterly Bulletin of the Association of Banks in Bulgaria, issue 65, January 2021. Digital technologies have changed the financial services provision business, and the payment sector is the leader in this trend. The speed of development of innovations and the scale of technological changes in it require concrete and targeted effort. The pending strategic projects and directions of development of the European payment infrastructure in the short term, as presented in the digital finance package of the European Commission of November 20201, are related to the development of instant payments, digitalisation of financial services and support of secure, profitable and interoperable payment solutions within the single market. 1. Forthcoming review of the Second Payment Services Directive In 2021, there will be a review of the Second Payment Services Directive2 (PSD2) adopted in 2015 and transposed in the national legislation at the beginning of 2018 with the new Law on Payment Services and Payment Systems. An analysis of the results of the directive’s implementation is expected to cover the following areas: - Updating the requirements to technical solutions used by payment services providers for strong customer authentication, which are to ensure high level of security to customers, while being convenient and user-friendly. Emphasis will be placed on the so-called ‘nontransmittable’ elements, such as biometrics. | Opening up the market to competition and authorizing a second credit bureau in 2016 was a further step towards improving the quality of services provided to credit institutions and consumers. The range of products offered has expanded to include new decision-aiding tools, such as “behavior scoring”, “portfolio monitoring” and “alerting”. In close coordination with the Ministry of Economy and Finance, Bank Al-Maghrib is currently working to rapidly develop the legal and regulatory framework of “credit bureaus” in order to expand its scope to other nonfinancial data providers, including telecom operators and water/electricity suppliers. This will help the unbanked population to have access to financing, as demonstrated by the experience of pioneering countries in this area. 2 As regards the implementation of the second pillar, the Bank has undertaken since 2016, in collaboration with the IFC, an appraisal of the existing system and has identified the characteristics of the future credit registry. In this connection, today’s seminar is a real opportunity for us to learn about the experiences of forerunners in this field, with a view to finalizing our own roadmap. Ladies and gentlemen, Six regulators, well known for their optimal use of credit registries, will present to us today how they use credit reporting data to achieve their core missions, particularly micro and macro prudential regulation, systemic risk control and monetary policy, and strengthen off-site supervision. | 0 |
As a result, the Bank of Albania supports the scientific research and the activity of Albanian students, studying at university and other academic institutions, in Albania and abroad. In this framework, I would like to continue a cherished tradition of the Bank of Albania, the ceremony of Governor's Award for the Best Diploma Thesis. For 16 years, the Bank of Albania selects and awards research studies conducted by Albanian students, graduating in Albania or abroad. Over the years, the focus of the presented research materials is on recent economic issues. The research follows how the needs and the economic, financial and social events affect the authorities, businesses and the society. Simultaneously, the process of setting the hypothesis, selecting and implementing the applied methodologies, is conducted in congruence with the best up-to-date research practices. This renders analysis and research investigation valid and professional. During this year's competition, there were a series of applications received, mainly focusing on topics that deal with recent phenomena taking place in the fields of economics and finance. The studies are directly or indirectly connected with the activities of the central bank. Some of the most interesting topics of these studies were the following: the impact of policies on the central bank's balance sheet in the corporate bond markets; 2/4 BIS - Central bankers' speeches the impact of credit and the expansion of banking products; the effect of prices on the real estate market; the multiplier of government expenses and consumption, and their effect on the economy. | Undoubtedly, the Bank of Albania has also paid attention to its research analysis and materials, emphasizing the role of balance sheet policies on supporting the economy with liquidity, particularly during the 3/4 BIS - Central bankers' speeches pandemic, without ignoring the risks that these policies may pose, not least, to the emerging economies. On the other hand, Pegi has meticulously analysed the theoretical and empirical literature and the methodological approach, laying out a discussion and presenting results that deserve the first prize in this competition. I congratulate her for being part of this competition, and I take the opportunity to wish all participants and winners' great successes in their professional career endeavours! 4/4 BIS - Central bankers' speeches | 1 |
It was for similar reasons that we already had to turn down a request from your industry association in 2015 to operate non-interest-bearing sight deposit accounts for the pension funds. 7 Quite fundamentally, the introduction of a ‘fourth contributor’ in the form of the SNB would seem to depart from the rationale on which the occupational pension system is founded. So how can the SNB make any contribution to the health of the pension system? By consistently and credibly pursuing a policy geared to price stability, the SNB is contributing significantly to a solid foundation. In the long term this will facilitate economic growth and prosperity in Switzerland and, in particular, also safeguard purchasing power. Ultimately, this 7 cf. Moser, Dewet (2015), Herausforderungen der aktuellen Geldpolitik [‘Monetary policy challenges currently facing the SNB’], speech at the general meeting of the Association of Swiss Pension Funds (ASIP), Zurich, 8 May. Page 6/8 is one of the decisive factors in ensuring that our country can afford a social security network that is resilient and remains fundable. Stable prices are thus very important for pension fund members. However, price stability is also of utmost importance for the socially disadvantaged and pensioners, as they are scarcely able to protect themselves against an inflation-related loss of purchasing power. Like the pension system, price stability plays a key role in the Swiss success story. It is an accomplishment that is greatly valued – and today almost taken for granted – by the general public. | Longer life expectancy – success story and challenge Ladies and gentlemen, the low interest rate environment is a challenging situation for pension funds. And I cannot even give you an idea of when Switzerland will be able to return to positive interest rates. All I can say is that the timing will greatly depend on developments in the global economy and the performance of the international financial markets. Another challenge that is sure to preoccupy you as pension fund managers is that of rising life expectancy – on the face of it a very gratifying development and, indeed, one of humanity’s success stories. Rising life expectancy is not only influencing the propensity to save but is also having a direct impact on the pension funds. Given an unchanged retirement age, it steadily lengthens the average duration of pension payments. This in turn results in higher payments and extra strain on the pension funds. The consequences of these developments are clear. Lower inflation and reduced real rates of interest are resulting in lower nominal interest rates and are thus diminishing the pension funds’ earnings prospects. On the benefits side, increased life expectancy means that pensions are being drawn for longer, thus increasing the volume of savings capital needed to finance these benefits. As a result, the system becomes unbalanced. Price stability – the SNB’s contribution to a healthy pension system What could be done to find a workable solution? Which measures would make sense and which would not? | 1 |
14 Model estimates of the short-term relation between the repo rate and household indebtedness indicate that the average effects may be relatively small: a 1 per cent lower repo rate over a period of one year, and which gradually reverts, will give rise to an approximately 4 percentage points higher level of indebtedness as a percentage of disposable income. Similar estimates of the relation between housing prices and the repo rate also show small effects – see Sveriges Riksbank (2011) Chapter 2.1.However, estimates of short-term relations might underestimate the total effects of the repo rate on household indebtedness. 6 BIS central bankers’ speeches and having a potentially better target attainment in the long run is thus very unclear. On the other hand, the costs in terms of poorer target attainment a couple of years ahead are very clear. Other tools than the repo rate could moreover influence household debt more effectively. Various types of tax tools are probably particularly potent, such as tax deduction regulations and property taxation, but at the same time these are the most politically sensitive. So-called macroprudential policy tools are probably more effective than monetary policy in influencing debt in the household sector. Finansinspektionen, which has been given the main responsibility for these tools, has already used several of them and has signalled that it will remain vigilant with regard to risks linked to household indebtedness. This should reasonably have an effect on the monetary policy trade-offs. | But we have done a lot to lean against this – most importantly our holistic approach to Pillar 2A, our success in getting Basel to lower very significantly the standardised risk-weight for lower-LTV mortgages, our introduction of the modular approach for IRB applications and the introduction of a leverage ratio into our regime. 1 Besides these 17 new UK banks, the PRA also authorised new banks to meet ring-fencing requirements and overseas banks. The total of all banks authorised by the PRA since its formation in 2013 is 39. 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 Third, related moves that we have made on the insurance side including a New Insurers Unit, our proportionate Non-Directive Firms regime for small insurers outside the scope of Solvency II, our active use of what flexibility there is in Solvency II to lower the administrative burden for smaller firms, and our new regime for insurance-linked securities. My aim in mentioning these things is not to bore you, though I can see I may have succeeded in doing that, but to illustrate the simple point that the PRA has been very active in advancing its competition objective over the first five years of its existence. The objective has had a significant impact already: I would argue that, with the exception of the leverage ratio, we simply would not have done any of the things I’ve just mentioned if we did not have a competition objective. | 0 |
Paul Tucker: Central counterparties – the agenda Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at the European Commission Conference on “European Post Trading Landscape: The Road Ahead”, Brussels, 24 October 2011. * * * Thank you very much for inviting me today. The map for post-trade infrastructure is being redrawn, here in the EU, in the US, and in Asia, under the policies of the G20 and Financial Stability Board. This renewed focus on the plumbing of the financial system is welcome to central bankers. I should like to make just four points1. All starting from the proposition that the safety and soundness of central counterparties (CCPs) is absolutely vital to preserving stability in global capital markets. 1. Organisational structure Some years ago, there was a debate about whether the authorities should favour “horizontal integration” or “vertical integration” of trading, clearing and settlement infrastructure. Events have taken their course, and vertically integrated groups – concretely, of exchanges owning clearing houses – have become commonplace. The authorities need policies to address this. One dimension is competition. The Commission are focussed on that. | But, looking ahead, we must surely establish a system that can extend beyond that “first base”. First, we need policies that extend across markets. If we apply them only to OTC contracts, exchange-traded contracts might be subject to different requirements. And if we applied such minima only to, say, futures, we could see the economic substance of futures synthesized via cash repo markets on looser terms. The same applies to other products and markets. Generally, we should take care to avoid regimes that give market participants incentives to chose between economically equivalent transactions and post-trade processing on the basis of different margin or haircut requirements. Secondly, we have to recognise that economic and financial conditions change – sometimes beyond our wildest dreams – so any minima set for one period may not be at all suitable for 2 2 See Tucker, P M W, “Clearing houses as system risk managers”, June 2011. BIS central bankers’ speeches another. We need, therefore, to be able to vary any such minima as threats to stability evolve (crudely, cyclically). You will recognise in this an echo of the plans for varying bank capital requirements. This is all part of an evolving macroprudential toolkit. As a contribution to that, EMIR should make explicit provision for macroprudential tools. The initial text did not do so, I think mainly because macroprudential thinking has been advancing as the crisis has evolved, but I understand that the Parliament’s text does take a step in this direction. | 1 |
Second, before the Fund can commit its support, the country must develop, in consultation with its advisors, and outline to the Fund and its creditors, a credible and monitorable framework for cooperatively achieving a viable debt restructuring, one that leaves the country with a sustainable debt burden. The issues of appropriate adjustment and appropriate broad terms of proposed restructuring are closely intertwined and need to be assessed in tandem. For the Fund, it should be an essential prerequisite that the country demonstrate at the outset that its approach has credible prospects for enlisting broad creditor concurrence, and for being consistent with the country’s macroeconomic framework and payment prospects. Reaffirming these conditions as the foundation for Fund support in restructuring or arrears cases would be a useful contribution to the system, and would leave the Fund better positioned to contribute to the favorable resolution of future crises that involve restructurings. BIS Review 37/2004 5 Strengthening the Fund’s financial instruments The Fund has taken a number of important steps to make its financial instruments more effective for dealing with the challenges inherent in a world with ever more integrated national financial systems. The reforms of late 90’s - the increase in the size of the Fund and its supplemental borrowing arrangements, the launch of new facilities that offered the means for large-scale lending at penalty rates in carefully circumscribed cases, the introduction of greater flexibility in the phasing of resources, and in how those resources could be used to reestablish confidence - were extremely important. | Zeti Akhtar Aziz: Advancing financial inclusion to its next level Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Alliance for Financial Inclusion (AFI) 2014 Global Policy Forum – “Advancing financial inclusion to its next level”, Port of Spain, Trinidad and Tobago, 10 September 2014. * * * It is my very great honour to be invited to speak at this year’s AFI Global Policy Forum in beautiful Trinidad and Tobago. First of all, on behalf of Malaysia, let me express how greatly honoured we are to be given this opportunity to host the headquarters of AFI. Malaysia is strongly committed to the financial inclusion cause and will strive to the fullest and best of our ability to provide the necessary support to AFI towards achieving its objectives. This is an exciting time for advancing the global financial inclusion agenda, as the world economic recovery gains further progress and as there is increasing world attention and priority being accorded to achieving financial inclusion and to an economic progress that is more inclusive. While stability and growth has been restored in many parts of the world, all of us recognise that economic growth, no matter how stellar, will begin to fade when inequality sets in, and as income disparities widen. Additionally, experience has shown that financial crisis and economic recession entrenches the cycle of poverty. | 0 |
A final word on central counterparties (CCP): I would like to acknowledge the valuable proposals recently made by the European Commission to insist that those CCPs whose activities are “super-systemic” for the EU market establish themselves in the European Union. They are a step in the right direction and represent the only viable mechanism to guarantee that European authorities and national central banks in particular, can control and manage the risks that CCPs are likely to pose to the financial stability of the European Union. Once the provisions on the resolution of CCPs have been finalised, the compensation framework within the EU will have been improved considerably. 2/3 BIS central bankers' speeches * * * Let me conclude with a general remark that concerns the economy: we need a system to assess, ex post, the economic effects of the reforms. France fully supports the work of the FSB to develop a structured analytical framework, which Germany has rightly included in its priorities for its G20 presidency. Europe, and Germany and France in particular, now has a special duty to protect financial regulation – a regulation that is sensitive to risk, balanced in its treatment of banks and nonbanks and binds the entire international community. Generally, that is what we’ve been doing well since 2009, and it is what continues to inspire us. Thank you for your attention and I wish you an excellent conference. 3/3 BIS central bankers' speeches | Together with the mutually reinforcing pillars II and III, of regulatory review and market discipline, Basle II represents a formidable tool to insulate banks against inherent risks in the highly leveraged business of banking. In this process, we must be mindful of the fact that Basle II has been built on the experiences and risk parameters of developed, sophisticated economies. Through customization to suit conditions and markets in emerging economies, which have fundamentally different characteristics, the principles of Basel II should be appropriately adapted to suit such conditions. The “one size fits all” solution of Basle I will not suit the complexities of Basle II. The markets in which we operate have their own peculiarities and their own cultures. Promoting international best practice in such a culture is, indeed, a challenge which demands a fundamental change in credit cultures, attitudes, and policies. The will to change is important and in the case of banking institutions, has to be mandated, if it is to be in the best interests of the major stakeholders, the depositors. Full implementation of Basel II is, indeed, demanding for banking institutions and regulators alike. Capacity building is an imperative on both sides, as is the framework for good risk management built on risk models. The supervisory capacity to assess and validate these models must be enhanced and developed. The magnitude of the investment in technology by the banks must be justified in a business sense. We must ensure that the cost of compliance does not outweigh the benefits from Basle II. | 0 |
There Ought to Be a Law Another uncertainty is the possibility of legislation in United States, the United Kingdom, or the European Union to ease the transition. In the U.S., the ARRC has proposed that New York State should, by the force of law, substitute a rate based on the Secured Overnight Financing Rate for LIBOR in contracts that would otherwise have no workable fallback when LIBOR ceases.8But again, this solution is aimed at contracts that don’t specify another fallback and can’t be amended to do so—primarily floating-rate bonds. We can hope that the New York legislature will take up this proposal in its next session, but obviously it has a lot of other pressing business these days, and no one can guarantee that there will be a legislative Hail Mary. And even if there is, it would not displace non-LIBOR fallbacks that are written into existing contracts, which may not be the alternative you’d prefer. The lesson here is that for every exposure you have to LIBOR, do everything you can right now to make sure it provides for the end of LIBOR in clear terms. Do not wait for the state cavalry to ride to your rescue. In the UK, the government has said it will give the FCA new powers to smooth the transition,9 and there has been speculation about what the FCA will do with those powers. The UK legislation takes a very different approach from the proposed New York law. | On the international level, the FSB and the Basel Committee have urged the authorities in each jurisdiction to identify the remaining transition issues and increase the intensity of their supervisory actions when the preparations of individual banks are unsatisfactory.24 The Basel Committee has also put out FAQs on benchmark reform under the Basel Framework.25 In the United States, the Federal Financial Institutions Examination Council (FFIEC) has emphasized the financial, legal, operational, and consumer protection risks of the upcoming transition and announced that the supervisory focus on evaluating institutions’ preparedness will increase in the rest of 2020 and 2021.26 And the SEC has identified registrant preparedness for the transition away from LIBOR as an examination program priority for the coming fiscal year.27 So be prepared to answer questions about how you’re planning for the end of LIBOR across your business. Conclusion Given how deeply embedded LIBOR is in products and systems across the commercial landscape, the transition away from LIBOR is a huge undertaking that presents a whole array of risks. There remain a host of uncertainties about the end of LIBOR, but very little uncertainty about what firms should do to prepare for it. A year and a half ago, I talked about ongoing consultations and said that the way forward for the vast majority of LIBOR-based instruments was rapidly becoming clear. Well, those consultations have concluded, and the way forward, for all types of LIBOR instruments, is now clear indeed. 1 Raymond Check assisted in preparing these remarks. | 1 |
Interestingly, interest rates were not included in the commission's report as a means of influencing economic activity and inflation. The view at this time too, especially from a political point of view, was that the interest rate was to mainly be regarded as a cost factor.17 Nevertheless, the policy during the Second World War was much more successful than that during the First World War. There was no post-war recession, and the inflation peak were short-lived and was not followed by any appreciable deflation.18 Developments during the Korean War in 1950-53 followed the same pattern, with a high but short-lived peak in inflation. The upturn was preceded by a devaluation against the dollar in 1949, which Sweden and a number of European countries carried out to meet the competition from American industry. After the outbreak of the war, international inflation rose sharply. The price increases on commodities were particularly high. Profits in the Swedish manufacturing industry rose 13 Wetterberg (2009), p. 270. 14 Boianovsky (1998). 15 Jonung (2000). 16 See, for example, Jonung (2017). 17 Wetterberg (2009), p. 314. The Social Democratic Government’s post-war policies were focused on full em- ployment and keeping interest rates down, known as low interest-rate policy. Instead, fiscal policy would steer economic activity. The Riksbank opposed the low interest-rate policy and Riksbank Governor Ivar Rooth tendered his resignation in 1948. 18 According to Statistics Sweden's annual statistics, inflation was −0.4 per cent in 1944 and 1945. | West Bengal has been ruled by the Indian communists for almost 30 years. The Chief Minister wanted to promote foreign investments into West Bengal. His aim was to capture 25 percent of India's IT outsourcing market by 2010. He said that the Indian communists had drawn lessons from the collapse of the former Soviet Union and China's economic reforms. The choice was stark and simple: either perform or perish. 25. The recent bomb attacks in New Delhi have not affected India's growth trajectory. The Indian Government has responded swiftly and with determination. I have full confidence that it will be on top of the security situation. As India grows, the International Monetary Fund (IMF) expects that by 2010, India's exports will more than double, while imports will nearly triple. The consumer market could then be worth $ billion, making it one of the top five globally. To sustain an annual growth rate of 8 percent would require a huge injection of investments, both foreign and domestic, over the next decade. It is this immense demand for infrastructure, education, healthcare and consumer goods that will continue to draw foreign investors and businesses to India. A reinvigorated ASEAN 26. Let me now move on to ASEAN. 27. Prospects for Southeast Asia have brightened considerably. Regional economies have remained stable, despite the recent Bali bombings. 28. With China and India becoming big players in the international market, Southeast Asia has no choice but to respond strategically. | 0 |
Svein Gjedrem: The central bank’s instruments Lecture by Mr Svein Gjedrem, Governor of the Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME)/BI Norwegian School of Management, Oslo, 6 September 2010. Please note that the text below may differ slightly from the actual presentation. The lecture is based on the assessments presented at the Executive Board’s monetary policy meeting on 11 August and Monetary Policy Report 2/10. * * * The international financial crisis revealed weaknesses in the financial system and put economic policy to the test. In order to mitigate the effects of the financial crisis, central banks reduced key rates to low levels and increased liquidity supply sharply. In addition, a number of extraordinary measures were implemented. The economic situation The financial crisis had its origins in an abundant supply of credit, market participants who took increasingly higher risk and a lack of oversight on the part of banks, companies and the authorities. The crisis resulted in a sharp downturn in the world economy. Since the crisis, growth has been vigorous in emerging economies while the recovery in western economies has been moderate. Global economic growth at market prices is now expected to be about 3½ this year, and 4½ per cent in purchasing power parity terms. There have been pressure tendencies in some emerging economies, with higher inflation in India and Brazil and rising asset prices in China. | The question is whether continued high growth in parts of Asia can sustain activity in the world economy. Four conditions are limiting growth in the western world: 1. Debt among households and banks is high. 2. Interest rates cannot be lowered further. 3. Many countries have high public debt levels and several governments are facing a financial crisis. 4. Real exchange rates are strong. The combination of high household debt and expectations of weak growth is pushing up saving. Low interest rates are not sufficient to boost investment and consumption in an environment of sharply reduced confidence in growth ahead, while both lenders and borrowers are seeking to reduce their debt. Central bank interest rates cannot be lowered further, but it has been communicated that interest rates will be kept low for a long period. Central banks have purchased government securities and private bonds in order to keep long-term interest rates low and are of the view that these quantitative easing measures have been effective. BIS Review 113/2010 1 Sovereign debt to GDP in the G7 As a result of the fiscal policy measures, government debt in major advanced economies is now as high, measured as a percentage of GDP, as in the wake of World War II after a period of debt-financed military spending. The high level of public debt limits the scope for further fiscal impetus to boost economic activity. | 1 |
As Figure 3 shows, in the current recovery, growth in consumption has been much slower than in the 1982 recovery and has, unfortunately, tracked the anemic initial recovery from the 2001 recession. While the 2001 recession damaged many a household’s finances, through an abrupt decline in stock-market wealth, the current recovery has been hampered by households trying to rebuild their finances given sharply diminished housing wealth in addition to declines in the value of their other investments. While there have been concerns about business fixed investment, Figure 4 shows that this component of GDP has grown quite well relative to the last two recoveries – although somewhat slower than the 1982 recovery. Despite the concern over economic uncertainty voiced by many businesses, investment has been growing. The real laggard in this recovery has been housing. While housing is a relatively small component of GDP, it can be quite volatile – and often grows rapidly during an economic recovery. In addition, purchases of appliances, home furnishings, and housing-related services are impacted by slowed housing activity. Given the problems that flow from the bursting of the housing bubble, Figure 5 shows that residential fixed investment is roughly where it was at the trough of the recession – and thus not providing its more usual contribution to growth in the early stages of a recovery. Just how moribund the housing market has been is shown in Figure 6. Both housing starts and building permits have leveled off, but are showing no signs of a significant recovery yet. | We can, of course, replicate this financial infrastructure for other currencies, and indeed we are currently exploring the possibility of doing so for the other major international currency not domiciled in this time zone the euro. And if this is appropriate, we can also transfer our technology to others through our advisory services. I am, in particular, thinking of the RMB financial infrastructure, which in my opinion requires urgent strengthening, not just for facilitating the development of the RMB bond market, but also for facilitating the many further measures in financial liberalisation following WTO accession. Meanwhile, our US dollar financial infrastructure in Hong Kong, coupled with the market making arrangements that have been well tried for over a decade, and the critical mass of financial institutions, is ideal for the launching of a US dollar bond programme for the Mainland. I understand, of course, that with foreign reserves well exceeding $ 200 billion, there is arguably little need for the Mainland to raise additional foreign debt. But part of the outstanding foreign debt could be refinanced in Hong Kong through such a programme. Perhaps with a liquid market and a reliable benchmark yield curve established, similar to those of Exchange Fund paper in Hong Kong dollars, the overall borrowing costs could be lowered. | 0 |
This is the case when a Monetary Policy Report is going to be published; otherwise the process is slightly shorter. In total, around 30 4 BIS Review 77/2008 economists are involved in some phase of the forecasting work, together with the Executive Board members. The material for the monetary policy meetings is mainly produced in the Monetary Policy Department in close cooperation with the Executive Board. The process begins with a risk meeting. The participants at this meeting are the Executive Board, employees of the Monetary Policy Department, some employees from other departments and some advisers to the Executive Board. The purpose of the meeting is to capture at an early stage various types of risk and alternative sequences of events for the economy that we envisage in the future. The discussions at this meeting are relatively unbiased and take a broad perspective. It is at this meeting that the alternative scenarios begin to take shape, those that are later described in Chapter 2 of the Monetary Policy Report and that show how the economy might develop if particular events occur. The scenarios can be used as a kind of counter-example to explain why the Executive Board considers that the main scenario is the one that at present gives the most well-balanced monetary policy. It can also illustrate different risks that an individual member wishes to illustrate or perhaps even a scenario that one person prefers instead of the main scenario. | The agents in the model also have rational expectations, that is, they use the information available in the best possible way when they make their decisions. This type of model is usually referred to in the research literature under the generic term of New Keynesian DSGE models. 7 The methods have been developed in close cooperation between academic researchers and economists at central banks who have exchanged ideas and experiences. The Riksbank has developed its own macro model for the Swedish economy At the Riksbank we have developed a dynamic macro model for the Swedish economy which is known as Ramses. 8 This is a so-called general equilibrium model and belongs to the group of New Keynesian DSGE models. General here means that it tries to explain the whole economy and not merely a particular section of it, such as private consumption or the labour market. The fact that it is an equilibrium model means that it assumes that market mechanisms create a balance between supply and demand in the different markets of the economy. Ramses is currently used to make forecasts, to interpret economic developments and to calculate the effects of monetary policy, for example. Some areas are not yet very well developed in Ramses. This includes, for example, fiscal policy and the credit market. We therefore use partial models that focus on certain individual variables as a complement to Ramses. We also use so-called Bayesian VAR models. | 1 |
2 Quoting Joseph Brook, a prominent Huddersfield banker, at a meeting of the Huddersfield Banking Corporation in January 1828. 3 Hartley (op.cit.). A “Simpson” was a note offered by local bank Simpson, Chapman and Co of Whitby. Through a sequence of mergers, this subsequently became part of what is today Barclays Bank. BIS Review 108/2009 1 It is easy to imagine, though probably impossible to print, what she might have made of Quantitative Easing. In the period since, banking and finance in Yorkshire have grown steadily and successfully. Among the success stories would be the Yorkshire Penny Bank. This was founded in 1859 in Halifax as a means of saving for the working classes. In 1874, its first School Transfer Department was opened to encourage saving by school children. “Take care of the Pence and the Pounds will take care of themselves” intoned the bank’s posters. Such was the success of the school scheme that, by the end of the nineteenth century, the majority of schoolchildren in Yorkshire had a savings account. The scheme aimed to educate children from an early age on the benefits of thrift and financial planning. And having been nurtured early, the relationship between bank and customer often lasted a lifetime. In 1959, the Yorkshire Penny Bank became Yorkshire Bank which today remains one of the UK’s most successful medium-sized banks. | In this pursuit, greater collaboration among the law enforcement agencies (LEAs) as well as between LEAs and the private sector is essential for us to efficiently and effectively connect and assess all relevant information, which will no doubt further strengthen our efforts to fight ML/TF/PF threats. In this respect, it is observed that the Public-Private Partnership (PPP) is gaining momentum and is fast becoming known as a key success factor for effective information sharing in the 1 the Joint Money Laundering Intelligence AML/CFT/CPF ecosystem. To quote some examples, Taskforce (JMLIT) established by the United Kingdom in 2016 has prompted a key shift in 1/3 BIS central bankers' speeches addressing ML/TF threats. As of June 2020, JMLIT has completed over 750 cases and detected more than 5,000 suspected accounts linked to financial crimes. Similar achievement was also experienced by the Fintel Alliance in Australia where within the span of one year between 2018 to 2019, over 300 cases were successfully completed through the partnership. Other countries within the region have also followed suit – Hong Kong’s Fraud and Money Laundering Intelligence Taskforce (FMLIT) and Singapore’s Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP). In Malaysia, the PPP is undertaken through the Financial Intelligence Network (MyFINet), which involves collaboration and information sharing between LEAs such as the Central Bank, Royal Malaysia Police and Malaysian Anti-Corruption Commission, and private sectors such as financial institutions. | 0 |
BIS central bankers’ speeches 17 Chart 12 – Social welfare by Regional GDP* 100.5 2007 = 100 2007 = 100 Real GDP per head (RHS) Social welfare (LHS) 100 99.5 99 98.5 2007 2008 2009 2010 2011 2012 2013 2014* 103 102 101 100 99 98 97 96 95 94 93 92 91 2015** Sources: ONS and Bank calculations. * Social welfare is calculated as a sum of the natural logs of GVA by region (see for example, Sen A (1970)). Chart 13 – Median regional net wealth North East Yorkshire & the Humber West Midlands London South West Scotland 2006-2008 Median Household Wealth by region, indexed to 2006-2008 160 150 140 130 120 110 100 90 80 70 2010-2012 2012-2014 North West East Midlands East of England South East Wales 2008-2010 Sources: Wealth and Asset Survey, ONS, and Bank calculations. | And the impact of so-called Quantitative Easing (QE) is also likely to be different across cohorts of society. 3 Understanding the differential impact of monetary policy across these sectors is important in general, as well as for gauging whether policy is working through its intended channels. Fourth, and perhaps most important of all, the distribution of outcomes across different groups can matter greatly for the well-being even of the economy as a whole. To see that, consider a simple example. Imagine the economy comprises two regions, one with income of 10, the other with income of 90. Now imagine income falls by 5 in region one but rises by 10 in region two. At least as measured by GDP, the economy and society as a whole is 5% better off. But is it? The income of the already-rich has risen by just over 10%, while the income of the already-poor has fallen by 50%. Does the former really swamp the latter when it comes to the well-being of society? There are grounds for doubt. Empirical studies show that every extra pound of income or wealth yields less satisfaction than the last. A millionaire values a £ lottery win less than someone on the living wage. For economists, this goes by the name “diminishing marginal utility”. Yes, I know we should get out more. If they are sufficiently unevenly distributed, income losses by the poor may more than offset gains by the rich in a social welfare sense, even if not in a GDP sense. | 1 |
Reliability of a central bank, in turn, can be assessed based on the accuracy of its projections, its ability to identify financial risks, the quality of its statistics and the safety of the domestic currency and payment systems. For adaptability, a central bank must develop its analytical skills to identify structural changes in the economy and emerging sources of risk, telling them apart from necessary innovation. To this end, it may need to deepen its knowledge of markets and agents, and to be on top of technological developments. Adaptability also depends on the preparedness to react to unforeseen events. Central bank integrity requires appropriate access to information, control of conflicts of interest, strong middle office arrangements in market operations, and effective auditing across different areas and processes. For accessibility, communication of monetary policy is essential, as well as analysis and communication of financial risk, consultation in the issuing of new regulations, and well-structured accountability. The fairness dimension of trust can be enhanced through prevention of crises and risk management, financial education and inclusion, and securing equal opportunities in staffing and promotion decisions. Assessing public trust in a central bank across these dimensions does not need to start from scratch. Instead, it provides a framework to organize existing data in a more meaningful way. It can also shed a new light on how to read and use data coming from different streams of the literature. The substantial work on central bank transparency led by some of our participants in this conference is a good case in point. | This certainly underlies the growing popularity of inflation targeting and the forward guidance that comes with it. But even this may be challenging in a changing environment, where the business cycle overlaps with structural changes, and more so in areas, like financial stability, where policy targets may be hard to design and explain. From credibility to trust So, a broader approach to credibility-building may be needed. To this end, it may be useful to acknowledge that credibility is an attribute of a certain individual or institution: that of being believed or trusted. So surely, credibility does not depend exclusively on your own actions but on how far others trust you. Trust, in turn, is defined as a person’s belief or expectation that another person or institution will act in favor of one’s well-being (OECD, 2017). So we could think of credibility as an institutional asset that depends on the factors that influence trust from stakeholders and the public. Credibility in a central bank refers to public’s belief that future actions of monetary policy that are optimal today will be carried out even if they no longer seem optimal in the future. This is related to public trust, but the two concepts are not quite the same. One can imagine the public having trust in the central bank and at the same time the latter adopting a discretionary monetary policy strategy to retain full flexibility regardless of past promises. | 1 |
Before the EU/IMF programme was agreed, the total Eurosystem loan support for Ireland (combining monetary policy operations to all eligible banks and emergency liquidity assistance from the Central Bank of Ireland) amounted to about 100% of Irish GDP. Our total loan provision now stands at above EUR 125 billion. There are however statutory limits to what the Eurosystem can do, and a clear dividing line between the tasks of a State and the tasks of a central bank. There can also be no doubt that the current amount of liquidity support extended by the ECB and the Central Bank of Ireland 4 BIS central bankers’ speeches to Ireland’s banks needs to be substantially reduced over time, and we expect that the Irish authorities and the banks are working hard to achieve this. For Ireland’s economy to recover, its banking system must be sound and fully functioning. A virtuous cycle must blossom. That will be difficult to instil with banks that remain dependent on Eurosystem support. With measures in place to break this dependency, the conditions will be in place for recovery. The foundation for this recovery has already been laid. In late 2010, the ECB played a key role in mitigating the challenges facing the banking system, and in designing programme measures to reverse the situation. I hope you share my view that these measures achieved their initial aims: the stabilisation of the banking system. | Measured against these milestones, I must admit that I am truly impressed by the way Ireland has handled its tough challenges, especially since the beginning of last year: the economy is well on the way to restoring competitiveness, reducing the fiscal deficit (–10.6 in 2011; –8.6 goal for 2012), overhauling the institutional framework and restructuring the banking sector. It is the only programme country that has managed to close its trade deficit and to return to growth last year, even if at modest rates (0.7% in 2011; projections: 0.5% in 2012; 2.0% in 2013). This turnaround would not have been possible without Ireland’s biggest asset: a talented, well-educated workforce. This strength is maybe most clearly reflected in the fact that the export sector has continued to attract foreign investment in the midst of one of the worst crises to hit the world economy in the last century. Structural reforms True, structural reforms are helping to restore competitiveness and flexibility, and Ireland, allin-all, benefited from a much more flexible labour market than, for example, Greece or Spain. It is true that some of the structural reforms will take time to show full effect, but their capacity to improve the situation for ordinary citizens should not be underestimated. Just to give you some examples: the market for legal and medical services is currently being deregulated and made more competitive. This is something that will lower prices for Irish consumers, expand activity and increase employment. In the labour market, an important overhaul of employment contracts has been announced. | 1 |
See Anne Case and Angus Deaton, Mortality and Morbidity in the 21st Century, Brookings Papers on Economic Activity, Spring 2017, in which they document declining life expectancy for middle-aged, less-educated non-Hispanic whites in the United States since the year 2000. 2 United Nations, World Populations Prospects: Key Findings and Advance Tables, 2015 Revision. 3 Antonin Bergeaud, Gilbert Cette, and Rémy Lecat, Productivity Trends in Advanced Countries between 1890 and 2012, Review of Income and Wealth, Volume 62, Issue 3, pp. 420–44 (September 2016). 4 Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, Princeton University Press, Princeton, New Jersey, 2016. 5 Carlos Carvalho, Andrea Ferrero, and Fernanda Nechio. Demographics and Real Interest Rates: Inspecting the Mechanism, European Economic Review, Volume 88, pp. 208–26, 2016; Etienne Gagnon, Benjamin K. Johannsen, and David Lopez-Salido. Understanding the New Normal: The Role of Demographics. Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System, 2016; and Gauti B. Eggertsson, Neil R. Mehrotra, and Jacon A. Robbins, A Model of Secular Stagnation: Theory and Quantitative Evaluation, National Bureau of Economic Research, Working Paper 23093, 2017. 6 Shigeaki Fujiwara, Yuto Iwasaki, Ichiro Muto, Kenji Nishizaki, and Nao Sudo Fujiwara, Developments in the Natural Rate of Interest in Japan, Bank of Japan Review, October 2016; Kathryn Holston, Thomas Laubach, and John C. Williams, Measure the Natural Rate of Interest: International Trends and Determinants, Journal of International Economics, Volume 108, Supp. 1, pp. S59-S75. (2016). | The combination of low short-term rates and asset purchase programs has driven yields on long-term sovereign debt to historically low levels (Figure 2). In large parts of Europe and Japan, short- and long-term yields remain near zero, a full decade after the onset of the financial crisis. Economic developments since this unprecedented monetary stimulus provide valuable insights into the efficacy and limitations of monetary policy. On the positive side of the ledger, advanced economies have seen steady growth and significant declines in unemployment, with rates today near, or in many cases well below, those seen before the crisis (Figure 3). Bold monetary policy actions surely played an important role in averting far greater catastrophes and aided economic recovery. However, this success was achieved only after a disappointingly slow recovery and many years of economic hardship. And, despite the improvement in the real side of economies, inflation rates have persistently been below central banks’ goals (Figure 4). The fact that inflation has been running below target in most advanced countries—the United Kingdom being the most prominent outlier—suggests that this challenge is not due to factors specific to a single country. Instead, there are more systemic factors at play. Investors view these low inflation readings not as an aberration, but rather a new normal. This is evidenced by a broad-based decline in market-based measures of longer-run inflation expectations since the mid-2000s, with the UK again providing the exception (Figure 5). | 1 |
The rest of this paper goes through the new auction structure in more detail. The ILTR demand curve During the auction, counterparties submit their bids for reserves.13 Some bid against the narrow collateral set, others against the wider set and some against both (using a so-called “paired bid”).14 One could think of bids against each collateral set as separate. The auctions are uniform price so that all counterparties pay the lowest accepted rate (on each collateral set) regardless of their bids.15 In theory, this should mean that there is no incentive for banks to try to “game” the auctions, nor is there a need to speculate on other bidders’ behaviour. Instead, bids should reflect the true demand for reserves since, if their bids are accepted, they will either pay the rate they bid, or a lower one. 12 See Bank of England, Annual Report, 2009. This issue doesn’t arise in the short-term OMOs, as the term of the repo runs from one MPC decision to the next, so the difference between the rate we received in the OMO and that which we pay on reserves is fixed. 13 The Bank places no restriction on the number of bids submitted but places restrictions on the total value of bids received from a single participant. Participants may choose to submit multiple bids against either collateral set. | The fruits of that labour were revealed in the summer of 2010, when the Bank replaced the extended LTRs with its new permanent Indexed Long-Term Repo (ILTR) operations. In the ILTR auctions, counterparties can submit bids against narrow collateral, wider collateral or both. The Bank then allocates a proportion of the funds on offer to the bids against wider collateral, where that proportion depends on the spreads offered. These new auctions solve the problems of the old LTRs. For example, expressing the bids as spreads to Bank Rate (with a minimum spread of zero) eliminates the interest rate risk arising from unexpected movements in the spread of market rates to Bank Rate. Moreover, the price of liquidity against wider collateral is determined within the auction – as the market becomes more stressed, counterparties are willing to pay more to borrow against wider collateral. So the Bank no longer has to make a judgment about the appropriate spread to charge counterparties. The most innovative aspect of ILTRs is that is that, as the degree of market stress increases (as the clearing spread on wider collateral rises relative to that on narrow collateral) the Bank automatically, within the auction, lends a greater proportion against wider collateral. And it gets a signal about the need to expand the overall size or frequency of the operations in future. As far as we know, the new format represents a global first for a public auction in any field. | 1 |
However, it should be noted that the slowdown in inflation was aided significantly by one-off factors such as the strengthening of the ruble thanks to higher oil prices and last year’s good harvests. Through the concerted efforts of OPEC and other oil producers, the oil market has become more stable in recent months and oil prices have increased. Oil prices have gained a firm foothold over a relatively broad range. This provides more stability in understanding long-term trends. Nevertheless, the range of scenarios that could evolve in the near future remains quite wide. As you will doubtless be aware, the baseline scenario adopted by the Bank of Russia assumes that oil prices will adjust to a level of $ per barrel in the short or medium term. However, the alternative scenario we have forecasted assumes a gradual increase in the price of oil, and this too seems entirely possible. Under highly volatile conditions in the terms of trade it is very important to have a budget that is not susceptible to external fluctuations, including those arising from the commodity supercycle. Last year we adopted a programme of fiscal consolidation to aid in the stabilisation of budget 1/6 BIS central bankers' speeches expenditures. Beginning this year an interim fiscal rule has taken effect, under which oil and gas revenues resulting from the higher than expected cost of base-level oil are directed to the Reserve Fund. | The ratio of job vacancies to the unemployed is near its all-time high, workers are quitting jobs at a record rate, and employers are bidding up wages. This sizzling hot labor market is also related to the imbalance between demand and supply for goods and housing, as businesses seek to hire more workers to help meet the high demand. And labor supply shortages and rising labor costs are contributing to price pressures across a wide range of goods and services. Finally, global imbalances in supply and demand have also contributed to supply-chain problems that have affected the availability and costs of shipping, as well as a variety of inputs into production-including semiconductor chips used in making cars. The war in Ukraine and recent lockdowns in China have further constrained the global supply of goods and commodities, including food and energy. Turning Down the Heat With clear signs of demand exceeding supply and an economy running too hot, the primary focus of monetary policy is to turn down the heat and restore price stability. Although we are facing highly unusual and challenging circumstances, I am confident we have the right tools to achieve our goals. In fact, we have an advantage over previous inflationary episodes: Our monetary policy tools are especially powerful in the very sectors where we see the greatest imbalances and signs of overheating-such as durable goods and housing. Higher interest rates will cool demand in these ratesensitive sectors to levels better aligned with supply. | 0 |
4 BIS Review 48/2002 Domestic debt securities markets Outstanding as a percentage of GDP, 2001 180 160 Public sector Private sector Total outstanding 140 120 100 80 60 40 20 0 Denmark Finland Norway Sweden Germany France UK US Source: OECD SG Kommunalbanken, 30.august 2002 The Norwegian bond market is very small on an international scale, whether it is the government bond market or the private bond market. Corporate debt issues in Norway are more limited than in most comparable countries. The chart shows that this market is also small in a Nordic context. Foreign investors have recently shown a growing interest in NOK-denominated bonds as a result of strong growth in the Euro-krone market. This is the result of the relatively high level of interest rates in Norway. International operators are issuing NOK-denominated bonds on a large scale. At the same time, this provides life insurance companies and investment funds with an investment alternative in NOK. Issuers in the Norwegian bond market 31.12.2001. In billions of NOK 200 180 160 140 120 100 80 60 40 20 0 s ent ment rance prise vernm overn enter d insu al go ocal g ivate ks an r L n p Centr a r b e st., Oth Fin. | Thanks to your hard work, and thanks to the cooperation and support from many supervisory agencies and central banks, we are confident that the New Accord will represent the best possible framework. In last summer’s consultations, the industry acknowledged the many improvements in the proposals that we have achieved to date. At the same time, public comments identified a number of technical concerns related to the treatment of credit-related losses and of some of the most sophisticated financial instruments and activities. We took these comments to heart and spent the next several months developing solutions. In October 2003, the Committee agreed in Madrid on a breakthrough plan to resolve these issues by the middle of this year. I must say that I have been pleasantly surprised by the progress the Committee has made in the extremely short period of time since then. Just three weeks ago, for example, we published three detailed technical notes outlining changes to the proposals. These covered revisions to the treatment of expected and unexpected credit-related losses and of securitisation exposures, as well as principles on the recognition of operational risk capital across home and host jurisdictions. I’d like to share with you the latest information on each of the areas addressed in the technical papers and in the press releases. EL/UL First, let’s turn to the New Accord’s treatment of expected and unexpected losses, or “EL” and “UL” as we say in Basel. | 0 |
The projections will be published in the June and December issues of the ECB Monthly Bulletin, commencing in December 2000. Projections will be published for the growth rate of real GDP and its components and for HICP inflation. They will have a two-year horizon, so that the projections for both 2001 and 2002 will be published in December this year. In order to accurately reflect the degree of uncertainty attached to such exercises, the projections will be published in the form of ranges, based upon the average absolute errors made in previous national central bank and Eurosystem projections. The projections will be accompanied by a text describing their main features. I should emphasise that we use the word “projection” in order to signal that the published projections are the results of a scenario based on a set of underlying technical assumptions, including the assumption of unchanged monetary policy. This is the way forecasts are produced in many central banks in order to best inform monetary policy decision-makers. As the Eurosystem’s staff economic projections are the products of a technical exercise, which assumes, inter alia, that short-term interest rates and the exchange rate will not change over the forecast horizon, it should be clear that the staff projection will not, in general, be the best predictor of future outcomes, in particular for somewhat longer horizons. Rather, it represents a scenario which is likely to be falsified in practice, since monetary policy will always act to address any threats to price stability. | The Governing Council’s own guidepost for the future was published at the outset in the form of its quantitative definition of the ECB’s primary objective. This definition serves a different purpose, namely to anchor inflation expectations. Against this background, the published macroeconomic projections should not, under any circumstances, be seen as calling into question the commitment of the Governing Council to maintaining price stability over the medium term. The public, wage and price-setters, and all firms and households should continue to rely on the ECB’s quantitative definition of price stability as the “best prediction” of medium-term price developments, since the Governing Council is committed to changing monetary policy whenever this is necessary to maintain price stability. The publication of staff macroeconomic projections thus informs the public about an important input into the Governing Council’s decision process, which has already been used in the past. The publication of projections has to be considered in the context of the ECB’s monetary policy strategy. Publication thus changes neither the ECB’s monetary policy strategy nor the role of these projections within it. I am convinced that publication of these staff projections can help to improve the ECB’s presentation and explanation of monetary policy decisions. However, if this is to be the case, the public - and the European Parliament and your Committee - must recognise the limitations of forecasts and projections that I have just described, and the implications these limitations have for the role of staff projections in the ECB’s strategy. 3. | 1 |
The unrest in the international financial markets in the wake of the US subprime crisis has also led to an increase in the price of risk, which means for instance that it has become more expensive to borrow. In this way the effects can be compared to the effects of tighter monetary policy. But apart from the changed pricing, the uncertainty has also led to greater caution in general. This also has a certain dampening effect on economic activity. In Sweden, the effects of the unrest in the financial markets have been more limited than in, for instance, the United Kingdom, the United States and Germany. Over the past weeks there appears to have been some stabilisation. But the US mortgage market may present further surprises. If, for instance, house prices were to fall more than expected, this could once again increase the unrest in the markets and lead to rising interest rates and falling stock prices, not only in the United States. In a slightly longer perspective, this can also slow down growth in the US economy and even have contagion effects in Europe and the rest of the world. BIS Review 112/2007 5 …but strong developments here at home If one looks at developments in the Swedish economy, our assessment in September was that it was actually stronger than in June. Here the labour market and productivity deserve special attention. These are two of the most important factors, which determine how cost pressures and thereby inflation will develop. | This was one of the reasons why we changed over 1 At present the central banks in Iceland, Norway, New Zealand and Sweden publish their own paths for the policy rate. BIS Review 112/2007 1 in autumn 2005 to basing our assessments on the assumption that the repo rate would develop in line with market expectations. But although this was a more realistic assumption, it was still the case that the forecasts did not necessarily reflect the Riksbank’s assessment of the most probable economic development. This is because market expectations do not necessarily agree with the interest rate path the Riksbank considers to be most appropriate. Now that our analyses are based on our own path for the repo rate, they describe the course of events we are actually expecting to see. This has several advantages. For one thing, it is possible to say something about how accurate our forecasts have been and how well the Riksbank has done its job. And for another thing it will also be easier to internally evaluate and improve the models and methods of working used as a basis for our forecasts. Finally, it makes it more worthwhile to compare our picture of the economy with the picture painted by other forecasters. Reasoning and considerations made clearer The second advantage of an own interest rate forecast is that it becomes easier to show why we believe in a particular policy and how we reason when we make our decisions. | 1 |
By moving the banking industry collectively back to Figure 1 from Figure 2, the “bad state of the world” becomes less likely. In the SCAP, we had to make a number of important decisions. These included: The appropriate capital target. We focused on the Tier I common ratio because we believed that this was the most credible form of capital. This put much greater emphasis on common equity than previously. The severity of the stress test. We assumed a stress scenario with an unemployment rate 1.5 percentage points higher than the baseline scenario, and further home price declines of about 29 percent compared with 18 percent in the base case. We were aiming for a stress test scenario that had about a 5 percent to 10 percent probability of being realized. The capital target at the end of 2010 and the stress test severity were both important in terms of the credibility of the SCAP. Going in, we were worried that with our capital goal, the BHCs’ needs might turn out to be higher than the available BIS central bankers’ speeches 3 resources from the private sector and the U.S. Treasury. We decided not to compromise the credibility of the stress test to save on needed capital resources. | So what are the implications of the U.S. experience? The context and purpose of any stress test should dictate the form it takes. Both the SCAP and CCAR models likely have some lessons for other such exercises, but in circumstances of market stress, the SCAP model is more relevant than the CCAR model. In such episodes, our experience suggests: First, the stress scenario needs to be severe to be credible. Second, disclosure of the results is needed at a sufficiently granular level so that private analysts can make their own independent assessment. Third, the results need to be credible in terms of expected losses. Fourth, there needs to be a credible capital backstop so that market participants can be sure banks will be able to raise the capital that they need under a stress environment, one way or another. One tricky issue is how to treat sovereign debt exposures. This was not an issue in the U.S. SCAP exercise. This is difficult because there is a complex interaction between fiscal soundness and bank soundness, which is very hard to model. This illustrates a wider point – that all situations are importantly distinct and that while we can all learn from each others’ experiences in this field, there is no one-size-fits-all approach. BIS central bankers’ speeches 5 6 BIS central bankers’ speeches | 1 |
Financial systems are instrumental in mobilizing savings and helping smooth consumption patterns. They are also key in transforming risk and allocating capital to its more productive uses. Many of these functions are directly linked to some of the problems that Asian countries have been trying to solve over the past decade. To name but a few: very high saving ratios, possible investment overcapacity and slow takeoff of private consumption. Although the investment-consumption patterns may already be changing in parts of Asia, there is still a large scope for improvement and more efficient and competitive financial systems can provide a fundamental support. Ten years after the Asian crises, financial systems in the region have come a long way: asset quality has improved, profitability has been on the rise and so have capital ratios. Regulation and supervision have been upgraded as a result of the crisis. Financial depth is considerably higher in Asia than in Latin America and Eastern Europe, when measured by basic indicators such as the ratio of credit to the private sector as a share of GDP. Nevertheless, it is also true that credit is heavily biased towards the corporate sector in Asia. In the last years, consumer loans have been on the rise – along with home mortgage credit – in emerging market regions, such as Latin America or Eastern Europe; in Asia consumer loans have also taken off, and this is a positive development. | Fundanga: Islamic banking – building partnerships for development Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the Islamic Banking Conference “Building partnerships for development”, Lusaka, 20 October 2008. * * * The Guest Speaker, Mr. Ahmad Zaini Bin Othman Chief Executive Officers of Banks and Non bank financial institutions; Distinguished invited guests; Colleagues; Ladies and gentlemen; On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important conference on Islamic Banking. To our Guest Speaker, Mr Ahmed Zaini Othman, I wish to extend a special welcome to you to Zambia and in particular to Lusaka, the capital city. Like the rest of Zambia, Lusaka is a city of tranquility with an easygoing African charm. The city is not short of interesting sites and places to visit. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Lusaka offers. I also wish to extend my sincere thanks to Standard Chartered Bank Zambia Plc, the Islamic Council of Zambia and the Eastern Province Chamber of Commerce and Industry for graciously accepting to make presentations at this conference. Ladies and Gentlemen, the Bank of Zambia is honoured and delighted to host the first Islamic Banking Conference in Zambia that begins today, the 20th and ends on 21st October, 2008. | 0 |
But gauging the scale of that borrowing, and whether it is hedged either with derivatives or dollar income receipts, is a real data challenge. This is a significant gap because unhedged dollar borrowing is one potential fault-line in the international financial system at present (BIS (2014)). (b) Modelling Once the necessary data is in place, a natural next question is how best to use this to understand the dynamics of the macro-financial system of systems. There are a number of potentially fruitful, if fledgling, avenues of research currently being pursued on that front. In making sense of the macro-financial system, it would be desirable to have a quantitative framework for understanding and evaluating interactions both within the financial system and between it and the wider economy. Pre-crisis, such models were close to non-existent. Indeed, many mainstream macro-economic models did not even contain a well-defined financial sector, much less interactions within it (Roger and Vleck (2011)). The Bank of England was an early pioneer of an approach which placed the financial sector centre-stage, with its so-called RAMSI (Risk Assessment Model of Systemic Institutions) model (Burrows et al (2012)). A stylised overview of RAMSI is given in Chart 16. RAMSI embodies interactions between the elements of individual banks’ balance sheets (the microprudential layer), between individual banks (the macro-prudential layer) and between the financial system and the economy (the macro-economic layer). As an example, RAMSI embodies an interbank network which allows counterparty network contagion to propagate. | For example, the CRISIS (Complexity Research Initiative for Systemic Instabilities) project is a consortium of EU universities, private firms and policymaking institutions which is building large-scale calibrated models to capture sectoral behaviour, including between the economy and the financial system. 12 At national level, promising progress has also been made in developing ABM models of the housing market. For example, Geanakoplos et al (2012) develop a regional model of the US housing market, which does a much better job than aggregate macro-economic models in matching housing market patterns, both in in the run-up to, and following, the financial crisis. As part of its new research agenda, the Bank of England is working currently with the Institute for New Economic Thinking (INET) at Oxford to try and develop an ABM model of the UK housing market. 13 As with Geanakoplos et al (2012), the aim is to provide a calibrated, granular model which better captures the dynamics of the housing market. It could also, potentially, be used to help evaluate the efficacy of macro-prudential interventions in that market – for example, policies which alter mortgage loan-to-income or loan-to-value limits. A third promising area of research concerns the interaction the macro-prudential and macroeconomic layers of the system – that is, the interplay between macro-prudential and monetary policy tools. This is another priority area for the Bank’s new research agenda. Although these policies have distinct primary objectives, their transmission channels are likely to be closely interwoven, with both affecting risk-taking and economic activity. | 1 |
6 Other societies espouse comparable principles, “It cannot be acceptable in a democratic society that a group of unelected individuals are vested with important responsibilities without being open to full scrutiny and accountability.” Cf. speech given by Alan Greenspan on 5 December 1996 on “'The Challenge of Central Banking in a Democratic Society,” Washington D.C. Also, “Democratic principles demand that, as an agent of the government, a central bank must be accountable in the pursuit of its mandated goals, responsive to the public and its elected representatives and transparent in its policies.” Cf. speech given by Ben Bernanke on 26 May 2010, on “Central Bank Independence, Transparency and Accountability,” Tokyo. BIS central bankers’ speeches 3 responsibility for its own area.7 Each year we submit an Accountability Report to the Federal Assembly, in which we outline how we have fulfilled our mandate. Also, on frequent occasions we are called upon to provide a full account of our actions to the relevant parliamentary commissions. In addition, we provide the general public with regular information about our assessment of the economic situation and monetary policy – in press releases or half-yearly media conferences immediately after our quarterly monetary policy assessments, in speeches and in interviews. In this way we ensure transparency. Through our legal status as a joint-stock company, we also have duties towards our shareholders which we fulfil each year, at the General Meeting, within the framework set out by the National Bank Act. | The cantons – our majority shareholders – are well represented in our supervisory body for operating matters, the Bank Council. As you see, the special characteristics of the Swiss system are taken into account. Federalism is mirrored in the composition of the Bank Council and in the distribution of our shareholdings and – not least – in the distribution of profit. The Swiss constitution and the National Bank Act provide for the SNB’s profit to be paid to the Confederation and the cantons. Two-thirds accrue to the cantons and one-third to the Confederation. However, a distribution can only be carried out if the balance sheet and the SNB’s result allow for this to be done. The robustness of our balance sheet, in other words, setting aside provisions for currency reserves, takes first priority over a distribution. This can be derived directly from the legislation. The appreciation of the Swiss franc against most other currencies weakened our balance sheet last year. In addition, very volatile results may be expected in the next few years because of the current size of the balance sheet and the uncertain situation in the capital markets. Consequently, the possibility that distributions to the Confederation and the cantons will have to be suspended in certain years cannot be excluded. Fiscal interests must take a back seat when it comes to ensuring our long-term monetary policy freedom of action and independence. The Governing Board is also genuinely Swiss. | 1 |
Where these have been general concerns - often reflecting the rapid evolution of the market place or rising public expectations - they have mostly been addressed by reinforcing the rules of the game. Or where they have reflected the behaviour of individual firms or their employees they have been pursued - not least to encourage others. Of course we need to remain constantly vigilant in all these areas to retain confidence in our market place. But all the evidence suggests that such confidence remains strong by any international standards. There are three characteristics of the City’s market ethos that I would point to in particular. Quite early on in my career at the Bank - more years ago than I care to remember - I was profoundly influenced by the man then responsible for administering Exchange Control - Brian Bennett. He had, framed on his desk, a wartime poster which read “Freedom is in peril - defend it with all your might.” And he explained to me that this was to remind him that his job was not simply to apply the 4 Exchange Control regulations - though that certainly was his job; it was also to help people to do what they were seeking to do consistently with both the spirit and the letter of the law. I like to think that that philosophy has informed - and continues to inform - the approach to applying the rules of the game more generally in the City. | And, at the retail level, too, we will all eventually need to learn to live with totally new, and more efficient, ways of doing things - though that will no doubt come harder to people of my generation! I don’t think anyone at this stage can see at all clearly the end-point of all this or even necessarily the appropriate next steps. And that is why we are seeing a continuous, and often bewildering, stream of new individual and collective initiatives, many of them involving the same participants, both in this country and abroad. Some of these initiatives will inevitably fall by the wayside - that’s part of the process by which the market as a whole discovers the way ahead. But those that do succeed will succeed because they add value by meeting more effectively the needs of the consumers of the products and services they provide. As an intensely interested - but non-commercial - observer of it 3 BIS Review 134/1999 all, I find the whole process hugely stimulating and encouraging. I recognise that I might feel differently if I were a commercial rather than a central banker, but I’m impressed by the fact that most of the commercial bankers I talk to see it in terms of opportunities rather than threats. | 1 |
However, we cannot rule out that more serious events can occur with more severe and longer-lasting effects on global markets, in light of their renewed political difficulties to implement fundamental structural reforms, and where the banking sectors are still dealing with deteriorating portfolios due to slow economic activity. Another risk coming from abroad has to do with how the conventional and unconventional measures of monetary stimulus will ultimately be withdrawn in the United States. Having no history in this creates uncertainty in the markets, mainly about the financial effects it might have. There may be an overreaction of the markets, with increased stress and sharp rises in long-term interest rates. The rising cost of financing this would entail for emerging markets and some Eurozone economies more dependent on external financing, would pose important policy challenges for them. In Chile, this could lead to increases in both the cost of external financing of companies and banks and higher long-term interest rates domestically. As emphasized in our Financial Stability Report, it is important for banks in this context to keep the exposure of their balance sheets at bay. In any case, the U.S. monetary authorities have argued that if confronted with an unwanted reaction the process could be delayed or even reversed to some extent, so it is possible for the effects of the withdrawal to be fairly limited. | Paul Tucker: Inflation, growth and stability – balancing the Bank of England’s economic priorities Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at The Institute of Economic Affairs’ 27th Annual Conference ”The State of the Economy”, London, 23 February 2010. * * * Many thanks for input to Peter Andrews, Roger Clews, Iain de Weymarn, James Proudman, Gareth Ramsay and Victoria Saporta. For background work to Michael Grady and for secretarial support to Sandra Bannister and Cheryl Feeney. It is an understatement that the current macroeconomic conjuncture poses major challenges for policy. There are also major lessons for the overall framework for preserving stability in our economy. I shall talk about both. Both the challenges and the lessons stem from the source of the crisis: a crash in the credit system affecting a domestic and global economy which had become severely imbalanced. Broadly, from the autumn of 2008 onwards, the sharp falls in economic activity were most pronounced in areas heavily dependent on credit and optimism (Chart 1). There was a vicious spiral down in world trade, where supply chains had become longer, with more counterparty risk and so more dependence on credit. Likewise in industrial production (Chart 2). Business investment collapsed (Chart 3). There was sharp destocking, helping to alleviate firms’ financial pressures. Things are better than they were. Capital markets have mostly reopened, but spreads are still higher than before funding markets deteriorated during 2007 and bank lending has been very weak. | 0 |
In addition, household net worth has recovered sharply, boosted primarily by higher financial asset valuations, but also by some recovery in home prices. Third, the fiscal restraint that has held back growth in recent years has ended, with the federal budget deficit now at a level consistent with a stable to slowly declining federal debtto-GDP ratio. In the aggregate, state and local governments have also ended their retrenchment. One important piece of evidence in this regard is the fact that state and local 1 See, for example, the latest Blue Chip consensus survey (volume 39, no. 11, November 10, 2014). The median real GDP forecast for 2015 (fourth quarter over fourth quarter) is 2.9 percent. BIS central bankers’ speeches 1 government employment is now rising at between 5,000 and 10,000 per month, after generally contracting during the 2009 to 2012 period. Now that these headwinds have subsided, buoyant financial market conditions spurred, in part, by a very accommodative monetary policy should do more to support economic activity. In particular, compared to historical patterns, the current household net worth-to-income ratio is high relative to the personal saving rate. This suggests some scope for a decline in the household saving rate. If this were to occur, consumption growth would outstrip income growth. Similarly, financial market conditions are conducive to sustained gains in business fixed investment. Equity prices are high, borrowing costs are low, cash flows are strong and corporate balance sheets are healthy. | BIS central bankers’ speeches 7 Conclusion In my remarks today, I have provided my current thinking about the U.S. growth and the inflation outlook, and the implications for monetary policy. To sum up, the U.S. economic outlook looks brighter, with growth likely to be somewhat above the trend of the past five years. The risks to growth appear generally balanced, without unusually high risks that growth will either be much stronger or weaker than my forecast. On inflation, I remain confident, despite the recent softening, that inflation will begin to move up towards our 2 percent objective next year. This move will not likely happen immediately, however, given the recent weakness in energy prices and the fact that non-energy import price trends are also likely to soften a bit over the near-term. With respect to monetary policy, I believe that market expectations as captured by the most recent New York Fed’s surveys of primary dealers and market participants are reasonable – with lift-off expected to take place sometime around the middle of next year. But, life is uncertain and my judgment of the appropriate timing could change in response to incoming data and other factors that change the economic outlook. When we do begin to tighten monetary policy, the pace of tightening will depend not only on the outlook but also on how financial market conditions respond as we begin to remove monetary policy accommodation. Financial market conditions are an important transmission mechanism of monetary policy. | 1 |
Survey of Consumer Expectations So a second important example of data innovation at the New York Fed is the Survey of Consumer Expectations, which we introduced to the public just last month. Consumer expectations of future economic outcomes are crucial inputs to the policy process, but we felt that our standard measures of these expectations were quite limited. The primary goal of this new national survey is to collect timely, rich, and high-quality information on consumer expectations about a wide range of household-level and aggregate economic and financial conditions. The survey covers expectations about inflation, price changes for specific goods, home price changes, future wage growth, future quits and layoffs, and residential mobility, as well as expectations of household income, spending, taxes, and credit access. The SCE has two advantages over existing surveys of expectations: It collects information about consumers’ expectations and decisions on a broader range of economic and financial topics, and it does so in a way that captures respondents’ beliefs more fully. The objective is to measure an individual’s beliefs about the likelihood of future outcomes, thereby capturing how certain or uncertain the person is about future events. In some cases, we do this by eliciting a “density forecast,” where respondents are asked to assign a percent chance to BIS central bankers’ speeches 3 different values (or intervals) for the outcome of interest. | To receive an LOLR credit, a bank must on the one hand be systemically relevant and, on the other hand, be solvent and able to furnish sufficient collateral. Without collateral, the National Bank cannot grant any credit. This fundamental principle is enshrined in the National Bank Act. By disclosing our terms to the banks in advance, we are eliminating any possible misinterpretation of the liquidity risks and helping to ensure that preparations are in place for a liquidity crisis which can never be ruled out altogether. This is what we refer to as “constructive clarity”. Conclusion To sum up, I would like to reiterate that the situation of the Swiss financial system is stable. However, this gratifying conclusion should not allow us to rest on our laurels. Maintaining a stable financial system in the long term calls for constant efforts to prevent and cope with crises. While this challenge must primarily be met by the private sector, the authorities can, should and must support its efforts. Financial Stability Report 2004 (424 kb) BIS Review 39/2004 3 | 0 |
Thailand needs to modernise its industrial base and requires government initiatives to introduce improvements in areas of management and production technology. Education and labour skill developments also need to be given top priority, along with research and development of Thai products. These will enable Thailand’s productive sector to serve as the main engine for economic growth in the future. 2. The prevailing social and economic problems at present partly reflect the lack of integrity in public and private sector management. The Bank of Thailand urges the introduction into the national agenda the specification for implementation of good governance at all levels. In the long run, this will serve to reduce risks to future social and economic developments. 3. The authorities must develop a financial infrastructure that can support a balanced development benefiting capital formation, liquidity management and risk protection on business and income in all business sectors namely agricultural, industrial and service sectors. We need to develop markets for financial products that are necessary to complete the structure of Thailand’s financial market. We also need to promote the use of financial instruments, such as derivatives. The Bank of Thailand will have an important role to play in overseeing the provision of such financial services. Ladies and gentlemen, At the end of the Second-stage expressway at the Rama IX exit there is a large billboard. In it there is a Chinese saying. It reads in Chinese "bu dan xin jin bu huan man zhi dan xin mei yan jin bu." | Moreover in the European Union, where the ECB lacks a formal bank regulatory role, Caruana said he sees no need for changes in the system. “We are talking about national supervision with very good contact with national central banks, which are part of the euro system. This is a structure that is working now, and I don't think the Basel II will affect this structure. Certainly it makes it extremely necessary that supervisors and banks have a good relationship and risk-focused supervision, but this is already there.” * * * New Basel Committee head opens door to rules delay A top global regulator thrashing out new banking rules left the door open on Monday to delay the “Basel II” accord, which will force sweeping changes in how banks set aside capital for unforeseen hazards. In an interview with Reuters, Jaime Caruana, the new chairman of the Basel Committee on Banking Supervision, defended the controversial accord, saying he was more concerned with getting it right than with meeting the committee's self-imposed deadline of end-2003 for a final draft. The committee would decide at its next meeting in mid-October whether it would be possible to meet the original timetable, he said. “There are some concerns that the tight timing that we have may jeopardise the quality we have in the accord,” he said in his first major interview since taking over the committee in May. “The first consideration is going to be the quality of the accord. | 0 |
Overly stringent regulation normally leads to more expensive financial services, which affects resource utilisation. The stringent regulation of financial markets in the 1960s and 1970s gave us a relatively stable financial system, but at the expense of efficiency. On the other hand, deregulation brought about developments on financial markets which created a “seemingly efficient” system, but which gave rise to major risks to stability. The development over recent years has shown just how closely interlinked the tasks of the central banks are. For example, the emergence of a situation of financial instability also has BIS central bankers’ speeches 1 repercussions for both inflation and resource utilisation. This illustrates that it is not possible to conduct monetary policy and financial stability policy completely separately. Differences in time horizons give rise to trade-offs We can also describe the central banks’ conflicting objectives in terms of different time horizons. For monetary policy, the time horizon is usually two to three years, which is reasonable in light of how the business cycle usually varies. However, we know from experience that financial imbalances and risks in the financial system are built up over a much longer period of time, which can include several business cycles. These longer periods are usually described in terms of so-called financial cycles. There is no established method of measuring the financial cycle, but lending rates, credit terms and asset prices are common indicators.1 So, the financial cycle has its up- and downturns just like the regular business cycle, but is often more protracted. | After a spectacular period of sustained growth during the 1980s, the Japanese economy has stagnated over the past six years, as Japan has struggled to overcome the fragility of its financial system in the aftermath of the infamous Japanese financial bubble. A constraining factor for much of this time has been a widespread resistance to the use of public funds to strengthen the financial system which has, in turn, constrained the financial system in its extension of domestic credit. Japan has been reluctant, too, given the size of its public debt, to use fiscal policy to stimulate the domestic economy. There is now evidence of a change of heart on both these fronts. Japan - which has an extraordinarily strong external position - was never at the eye of the storm which struck Asia around the middle of last year. But if, as I expect, these policy changes now lead to somewhat stronger domestic demand growth, and greater confidence BIS Review 5/1998 -2- in Japanese financial institutions, that will make a crucial contribution to the stabilisation of the region as a whole. The storm struck essentially the ASEAN Four - Thailand, the Philippines, Malaysia and Indonesia - spreading subsequently to South Korea and intermittently battering Hong Kong and elsewhere. It is still not wholly clear - to me at least - quite why the storm suddenly struck. Most crises of this sort have their origins in some evident macro-economic policy failure. | 0 |
And, second, when ranking firms’ contributions to the achievement of net zero, look forward as well as back – giving weight to the calibre of their emissions-reduction plans, and their performance over time against those plans. Divestment is a powerful tool, and should remain squarely in the toolkit. But it should be used as a credible threat to reinforce incentives, not an indiscriminate ‘quick fix’. A strategy of engagement works best when the message is big, unavoidable and credible. Here we face a slightly different challenge. The Bank of England’s voice has influence. But the CBPS is not a huge facility. £ may sound like a lot. But it’s small in the world of global capital markets – accounting for just 6.5% of the sterling corporate bond market, 0.5% of total sterling traded assets and a vanishingly small share of global holdings (Table 1). Table 1: The CBPS in context 16 A worked example is given in Section 3 of the Discussion Paper. 8 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 8 What’s more, we are not currently making active purchases, because the MPC’s target stock for the CBPS was reached last year. That means the only scheduled purchases are reinvestments, averaging around a billion pounds a year in the near term. So it’s clear we can’t rely on buying power alone. Table 2: Selected investor frameworks17 But we can still use our position to take a lead, working closely with other like-minded central banks and investors. | Foreign money instead of our own money The final proposal is considerably less challenging in theoretical terms, but is highly explosive politically. Is there any reason why Switzerland should maintain an independent currency for its relatively small territory and conduct its own monetary policy? Since Switzerland has close economic ties with other currency areas, and the central banks in question also pursue stability policies, the idea of importing monetary policy from abroad would not be so far-fetched at first glance. After all, there are examples such as Denmark and Hong Kong which voluntarily and unilaterally peg their money to foreign currencies, even though they still mint their own coins and print their own banknotes. They hand over their monetary policy de facto to a foreign central bank and have often had quite good experiences with this approach. However, as soon as we look at the situation a little more carefully, surrendering monetary policy autonomy appears considerably less favourable from a Swiss point of view. First, our country has had good experience with its independent monetary policy, and this differentiates us from countries where the adoption of foreign monetary policy has brought a real gain in terms of stability. Second, structural and economic differences continue between the currency areas, irrespective of all the interrelationships, and these are decisive for the effectiveness and apportionment of monetary policy. Equally, the preferences of the general public as to how the central bank should react to given challenges vary from one country to 6 BIS central bankers’ speeches another. | 0 |
Hopefully, by focussing on the key risk areas, it should reduce some of your regulatory burden. We recognise that this process has to be transparent, in that we need to explain to the banks what the new supervisory framework involves and what standards are expected of the banks. The examination checklists issued by the Japanese FSA are a good example of this approach. I know that some of the Japanese banks feel that the HKMA could do more along these lines in the area of transparency, and this is something that we have very much in mind. We will be publishing soon a framework document that explains the risk-based approach, and we are currently engaged in the major rewrite of all our supervisory guidelines. The aim is to put them into a common format and to make the text more user friendly and easier to read. This is a big task that will take about a year to complete in full. In the meantime, all our existing guidelines are available on our website, and individual guidelines in the new format will be added as they are produced. I hope that you have found useful this assessment of the state of the Hong Kong banking sector, and the current position of the Japanese banks within it. Let me stress again that we greatly value the presence of the Japanese banks in Hong Kong. | While financial transparency among Mainland companies is by no means perfect, lenders are now at least better equipped to identify those companies that have sound underlying businesses and good management. The long saga of GDE is now drawing to a close. The banks have, I believe, managed to negotiate the best deal possible, and the last remaining step is for the banks to review and sign the detailed documentation to put the restructuring into effect. I understand that when the documentation is sent to the banks, they will have plenty to read. But I hope that they will try to do this as quickly as possible and that we can avoid any last minute problems and delays. There is unlikely to be any opportunity for renegotiation of the deal, and if it were to collapse at the final stage, the banks would certainly be worse off. So far I have been concentrating on the position of the Japanese banks. Let me now review the more general state of banking in Hong Kong after the Asian crisis. The first point to make is that the local Hong Kong banks have survived the crisis in good shape. Although one or two banks lost money, most banks remained profitable and actually managed to improve their capital ratios during the period as their risk assets declined and their capital base expanded. | 1 |
Chart 6: UK external position % GDP 700 Gross Net % GDP 30 600 20 500 10 400 0 300 -10 200 -20 100 -30 0 -40 L A L A 2000 2007 Other Loans Currency and deposits BIS central bankers’ speeches -50 2000 2007 Equity Debt Securities This period of net borrowing increased the country’s net external liabilities to 25% of GDP from around 10% at the turn of the century (Chart 6). Much of this was accounted for by higher borrowing by the government, with HMG’s external liabilities trebling to reach around 9% of GDP. The country’s gross external balance sheet doubled in size, reaching 6 times national output by the time the crisis struck. And there was an important mismatch in the maturity of those external assets and liabilities. Net, the UK borrowed short term, through deposits with and short-term loans to the banking sector, with the counterpart assets being long-term and equity-like. 17 Annex 2: Monetary policy and long-term forward rates This Annex summarises recent work in the Bank for Paul Tucker’s speech to the Society of Business Economists on National Balance Sheets and Macro Policy: lessons from the past. | To counteract the risks to our price stability objective, we first recalibrated our policy stance last December and then unveiled another comprehensive set of measures at our last monetary policy meeting in March 2016. In discussing our recent monetary policy measures, it is essential to consider the global environment in which they were taken. This environment was characterised by subdued growth, historically weak trade developments and low inflationary pressures reflecting sharp falls in energy prices. The more recent developments have been affected in particular by the outlook for emerging markets contributing to global financial market volatility in the second half of 2015 and again in February this year. In this respect, these developments are analysed in the box in the Annual Report entitled “Financial stress in emerging market economies” in order to understand their impact on the euro area economy. This is against the background of the discussions carried out in international fora, most recently at the meeting of G20 ministers and central bank governors, as well as at the BIS meetings in February in Shanghai. Risks to the global outlook and global financial stability will feature prominently on the agendas of the various meetings in the context of the IMF and World Bank spring meetings next week. | 0 |
Examples of this include the introduction of the steam engine and the telegraph at the beginning of the 19th century, the building of the railways somewhat later and the internal-combustion engine and electric motor in the 20th century. These changes usually follow a similar pattern of growth and structural transformation. The transitional phase initially involves a period of crisis, which is expressed in company closures and rising unemployment. After this, productivity and growth increase. Some industries expand rapidly and are met by expectations of large profits. The demand for labour is unevenly distributed and matching problems arise. Wage differentials increase. In many ways the “new” economy can be regarded as one in a row of structural changes taking place in society. It is thus more appropriate, in many respects, to talk of a blend of new and old, rather than a new economy. In comparison with the steam engine, the railways and electricity, today’s IT developments may be perceived as marginal. But, while there is considerable exaggeration in the discussion of the importance of IT, I would still say that today’s change process could be compared to these events. Computers and the Internet allow us to gather information easily, cheaply and rapidly, as well as facilitating contacts between buyers and sellers at almost all levels. IT affects a number of areas, such as financing, stock management and procurement. This often involves a dramatic reduction in costs. | we can buy too few imported goods for what we export. This could be corrected by strengthening the krona through a stronger nominal exchange rate or by price increases on goods subject to competition being kept lower than those in other countries. It is sometimes claimed in the economic debate that non-recurring effects of deregulation and increased competition could be utilised by the Riksbank altering its price stability target from 2% to a lower figure. However, this would involve temporary effects influencing the target formulation, which would erase the stability in the target formulation that has an intrinsic value. It is still possible to strengthen purchasing power with an unchanged operational target formulation by a nominal appreciation of the krona. It has sometimes been claimed that the “new economy” could lead to completely new economic relations. I see no reasons for such a change. It is more likely that technological developments lead to reality approaching the simplified assumptions that form the basis of many economic models, such as a large measure of competition and low transaction costs. Thus, most of the models the Riksbank uses today would function equally well or better if structural changes were to occur more rapidly in the future. Nor do I see any reasons why the Riksbank’s intellectual framework on monetary policy would need to be fundamentally changed if we were to have a period of strong growth in productivity. | 1 |
This justifies the need for effective regulation and supervision of the operations of banks and non-bank financial institutions compared to other business operations. Further, with the increase in non-bank financial institutions, their level of risk has also risen. Accordingly, the sheer size of the sector is of systemic importance, hence, effective and efficient regulation and supervision is required to stem any systemic risks. Ladies and Gentlemen I am happy to note that this workshop is addressing, in greater details, issues relating to the regulation and supervision of the non-bank financial sector, so as to ensure that the financial sector is safe, secure and efficient. As I conclude therefore, I wish to urge the workshop participants to participate actively in the deliberations and use this opportunity to tap from the vast experience of the resource persons. I have every reason to believe that this workshop will provide you with the opportunity to share experiences and enhance your knowledge of issues pertaining to regulation and supervision of the non-bank financial sector. With these remarks, Ladies and Gentlemen, it is now my honour and privilege to declare this regional workshop officially open. I thank you. 2 BIS Review 12/2005 | This has always been one of the guiding principles for calibrating the stance of the National Bank of Romania’s monetary policy, as well as for developing and employing our policy tools. We must continue on the road ahead keeping in mind that past achievements in terms of convergence, however large, do not guarantee future success (the middle-income trap is a real danger). For a sustainable economic convergence, we have to maintain a long-term perspective and implement coherent policies and reforms. Moreover, having ambitious but, at the same time, realistic anchors (such as the EU accession was for Romania before 2007) does help, as it gives purpose and direction to policymakers and society as a whole. What we need in order to move forward on the convergence path towards euro adoption is, first of all, to understand there is no substitute for a coherent economic policy mix, which should remain so even in electoral years. Secondly, it is important that Europe remains united. As I recently stated in a speech held in Bucharest, whenever things seem to look bad, I remember the words of Jean Monnet, one of the EU founding fathers: “Europe will be forged in crises and will be the sum of the solutions adopted for those crises”. 5/5 BIS central bankers' speeches | 0 |
There are also many indications that the covariance between Sweden and the euro area will increase further if we join the Eurosystem, as trade and integration with the euro countries would be strengthened. Increased trade and greater openness to the outside world have positive effects on the development of growth and incomes. In my opinion, the European integration of which EMU forms a part should not stop at the borders of the EU, but be the first step towards greater global openness. Conclusion I have today accounted for the current monetary policy situation in Sweden and the assessments that formed the basis for our decision last week to leave the repo rate unchanged. A low inflation rate (2%), which is the target for monetary policy, does not in itself create good growth and welfare; it should rather be seen as a fundamental condition to ensure that other parties - trade and industry, organisations, government and parliament - are successful in working to improve Sweden’s economy by various different means. In other words, it is an extensive and complicated interplay that will determine how well a country’s economic potential is realised. The Riksbank does its best to ensure that monetary policy provides a contribution here. Thank you for listening! 1 EMU commission of enquiry report SOU 1996:158. BIS Review 37/2002 7 1. | Last year Sweden had one of the largest surpluses in public savings in the EU, which enabled an expansionary fiscal policy. The slowdown in 2001 also differs from the problem periods during the 1970s and 1980s in that the manufacturing industry’s competitive situation was very strong from the start. The weakening of the krona began as soon as one year before industrial activity slowed down and contributed to a strong development in net exports during 2001. Nor was it lack of competitiveness or a decline in productivity that lay behind the depreciation of the krona - it was financial flows resulting from the decline on the BIS Review 37/2002 5 stock market and portfolio investments connected with the AP pension funds being given the opportunity to invest some assets abroad. A recovery in the Swedish economy has now begun and the Swedish economy has a good foundation to stand on, with a surplus in both the central government finances and in Sweden’s trade abroad. Inflation is on the way down. At the same time, wage formation and pricing behaviour in general will comprise an uncertainty factor when economic activity gradually picks up speed. It may therefore be necessary to implement further interest rate hikes in future. However, the next monetary policy stage depends, as always, on what happens with regard to economic activity, inflation and in the world around us. | 1 |
For large international groups, typically the most complex, the most important decision is whether resolution is going to be addressed at the group level, by the home resolution authority (Single Point of Entry – SPE) or whether each part of the group is looked at separately, usually by the host resolution authority (Multiple Point of Entry – MPE). The choice between SPE and MPE will have implications for resolution planning, including steps that the firm may need to take to be resolved under that strategy – for example in which entities the capital will be held. The BRRD requires that all banking firms should have recovery plans, and that resolution authorities should develop resolution plans for all firms, based on assessments of their resolvability. The resolution planning that the UK has already carried out has identified some 8 BIS central bankers’ speeches common barriers to resolvability, such as a lack of loss-absorbing capacity in the right legal entities, that need to be addressed. The BRRD also establishes that resolution authorities should determine a minimum requirement for own funds and eligible liabilities (MREL) that will be available to absorb losses and form new capital, if the authorities need to carry out a bail-in. The BRRD demands that the MREL requirement will have to be met at all times. It is being introduced from January 2016, but will be phased in over four years (i.e. until 2020). The precise rules for setting MREL in the UK firm by firm are currently being formulated. | I should note that insurance represents a very large part of the PRA’s activities – at the end of the financial year 2014/15 the PRA had around 550 front-line supervisors and risk specialists working on various deposit taking firms compared with over 300 on insurance firms. Most of the regulatory reforms that the PRA are implementing have not actually originated in the PRA itself. Rather, they have arisen from a variety of external sources. Some are UK initiatives: for example, the new Senior Managers Regime and Senior Insurance Managers Regime implement the recommendations of the Parliamentary Commission on Banking Standards (PCBS) and the structural reform of the major banks (ring-fencing) emerged from the Independent Commission on Banking (ICB, also known as the “Vickers Commission”). A number of key reforms are European initiatives such as the Solvency II regime for insurers. The banking capital regime, CRDIV, is a European implementation of agreements made in the global Basel Committee on Banking Supervision (BCBS). The development of international insurance standards is being driven by the Financial Stability Board (FSB) via the International Association of Insurance Supervisors (IAIS). The UK authorities, including the Bank of England and PRA, play a full part in negotiating these reforms, so I wouldn’t claim that they are entirely external, even though there are usually aspects of the final agreements which represent the middle ground in negotiations. | 1 |
Compared with the assumption of an unchanged repo rate, market expectations normally provide a much more realistic forecast. But the assumption that the policy rate will develop in accordance with market expectations also entails some difficulties. Examples of problems include how one should measure market expectations and the communication of the interest rate path. It feels natural to move on from this now and go on to publish our own view of what would be a reasonable development for the repo rate. Basing the forecasts on the policy rate development expected according to the pricing in the financial markets was a major step towards greater openness and clarity. Now we are taking a further, but slightly smaller, step. There are several good reasons why we are now choosing to publish our own forecast for the development of the repo rate. The main one may be that we will have an even better tool for anchoring expectations. It will be easier to explain to the general public and the financial markets how we reason when making monetary policy decisions and how we see future interest rate developments. We will also avoid the communication problems that may arise if the central bank’s and the financial markets’ expectations of interest rate developments differ. But of course there are also potential problems. The forecast for the policy rate that we will present in connection with the inflation forecasts, is one we Executive Board members will make an assessment of together. | To create greater clarity, monetary policy is guided by a principle that the Riksbank’s ambition is normally to bring inflation back on target within two years. One might say that this two-year horizon is a restriction that the Riksbank has placed upon itself to maintain confidence in the inflation target. 1 A description of the Riksbank’s objective and strategy for monetary policy can be found in the document “Monetary policy in Sweden”, which can be downloaded from the Riksbank’s website, www.riksbank.se, or ordered in printed form. 2 See Lars Heikensten’s speech at the Swedish Economics Association on 22 February 2005, “Thoughts on how to develop the Riksbank’s monetary policy work”. BIS Review8/2007 3 We have chosen a two-year horizon for monetary policy because this is considered to give sufficient scope in most cases to ensure acceptable developments in the real economy. However, the exact pace at which inflation should be brought back on target within this horizon will of course depend on what kind of shocks have affected the economy. 3 Sometimes the deviations from target can be so large that there is reason to allow inflation to return to target beyond the normal two-year horizon. In these cases, we shall explain this clearly in connection with our decisions. These thoughts on how to take into account developments in the real economy are not, of course, unique to the Riksbank. | 1 |
Obeying this same imperative of serving together peace and development, I would also suggest that the G-7/G-8 warmly endorse Mr. Koffi Annan’s recommendation to the African governments to reduce purchases of arms and munitions to 1½ percent of GDP and maintain zero growth on defense budgets for the next decade. Industrial countries must play their full part in these efforts, and, here, I must share with you my anxiety. Today’s silence on the crisis in official development assistance is profound and distressing. It means that Africa, in particular, must rely chiefly for its economic progress on humanitarian compassion or the benefits of trade. This cannot suffice if human development is to be intensified and accelerated. Yet, at the present juncture, the macroeconomic and structural successes of recent years, precisely in the context of IMF-World Bank supported programs, are creating an opportunity that is too good to miss. Africa has found a way to advance from two decades of negative per capita growth to positive growth in more than forty of its countries. In 3 I hope I am not revealing a state secret in telling you that she inscribed this on her Christmas card! BIS Review 43/1998 -7- many African countries, a new generation of leaders is seriously concerned about the need for democratization, protection of human rights, promotion of “good governance”, and human development. | We will now work with other relevant institutions that could be responsible for developing similar standards in areas such as accounting, auditing, disclosure, asset valuation, bankruptcy, and corporate governance. We will also consider how to disseminate such standards to member countries through our surveillance and encourage their adoption. Working with so many institutions, public and private, in addition to our 182 member countries, will be an ambitious undertaking, but we are ready - and enthusiastic - to play our full part in this new chapter in international cooperation. In the meantime, the IMF has been applying this standards approach to one of its traditional domains of expertise: fiscal policy. Last winter, following the suggestion of the Chancellor of Exchequer, the IMF developed a code of good practices on fiscal transparency to which members will be encouraged to adhere. Looking ahead, we plan to develop a similar code with respect to financial and monetary policies in cooperation with the appropriate institutions. this regard and suggested delaying the Fund’s reviews of member economies when deficiencies in disclosing relevant information to the IMF seriously impede our surveillance. Indeed, the G-7 countries have the opportunity this week to establish leadership by pledging to convey to the IMF and to publish comprehensive and timely data on both gross and net reserves, including reserve-related liabilities and central bank derivative transactions and positions, as well as external debt and data on banking and financial sector health. | 1 |
Most of money in the economy is currently made of deposits that result from the maturity transformation—from short-term deposits into medium term loans—that banks perform. Banks meet their liquidity needs for disbursement and reserve requirements by borrowing from the central bank. Monetary policy is then operationalized by setting the rate at which commercial banks can store or withdraw money from the central bank. 2 Central Bank of Chile 29 June, 2017 Slide 2 Central bank functions and tools ▪ Monetary policy and macro regulations operate through the financial system, particularly banks ▪ Most of money in the economy is currently made of bank deposits ▪ Banks resolve their liquidity needs—emerging from disbursement and reserve requirements—by borrowing from the central bank ▪ Monetary policy is then operationalized by setting the rate at which commercial banks can store or withdraw money from the central bank [SLIDE 3] Today money and financial operations are overwhelmingly composed of balance sheet records. For this reason, banks need to be strictly regulated and the central bank must manage monetary policy to ensure stability in the purchasing power of money. The transmission of monetary policy to the economy and, in the end, to inflation, depends on the smooth operation of commercial banks. At the same time, banks operate as a network and provide liquidity to all sorts of activities. Any disruption in the operation of a bank or in the transmission or provision of funds can have serious economic consequences. | However, a large part of these outflows have been official and they have not been in RMB. This in fact touches at the heart of what is known as the Triffin Dilemma. China has been sending USDs abroad because that is what it has been receiving through its current account surpluses and FDI inflows. Sometime in the future, China may develop a structural current account deficit, but I do not see that happening in the foreseeable future. Opening up the capital account and domestic financial system to non-resident investors could lead to even more foreign currency capital inflows. On both accounts, China will not only continue to export USD capital but could find itself confronted by persistent appreciating pressure on its exchange rate due to the high demand for RMB. Promoting RMB for trade settlement will only go so far in resolving this. If more of China’s trade is settled in RMB, less USD will flow in, and China would need to intervene less and would have less USD to send abroad. But the question remains, with more RMB flowing in through the current and capital account, how do you get more RMB out of China in the first place? There are in fact numerous possibilities for China to create a significant pool of RMB liquidity abroad without necessarily running a current account deficit. | 0 |
In addition, lower long-term rates would reduce the cost of capital for businesses, thereby fostering higher levels of capital spending for any given economic outlook. In considering the limits to balance sheet expansion, there are two constraints – one major and one more minor. The first constraint is the risk that the balance sheet expansion might cause inflation expectations to become unanchored, leading to higher risk premia. This risk is presumably greater in a period in which budget deficits are high, as they are today. 6 BIS Review 127/2010 If exit concerns were to rise as purchases increased, then a rise in inflation risk premia would offset at least some of the expected fall in interest rates. In contrast, the more credible the ultimate exit strategy, the less likely it is that inflation risk premia would go up and the more effective purchases would be in lowering long-term rates. Also, the more credible the ultimate exit plan, the more confident investors would be about the Fed’s willingness to do what is needed to accomplish its objectives. This is important because it would help stabilize longerrun inflation expectations at levels consistent with the dual mandate. The FOMC should be able to assure investors that it has both the means and the will to exit when – but not before – the time is right. That is because the Federal Reserve has the tools to control financial conditions and credit creation even with an expanded balance sheet. | The bigger the balance sheet becomes, the more a future rise in interest rates will squeeze the Federal Reserve’s net interest margin. Some worry that this exposure to higher short-term rates could conceivably affect the Federal Reserve’s monetary policy credibility in the future. Some market participants might worry that the Federal Reserve could become reluctant to raise short-term rates in a timely way because this would constrain the amount of revenue that it would earn and remit to the Treasury. I am confident there is nothing to worry about on this score. Even if the Federal Reserve was not obliged to act in keeping with its dual mandate – which it is – with its assets skewed toward longer-duration securities, the Federal Reserve would have every incentive to ensure price stability over the long term. It is true that the larger the size of the balance sheet, the more likely it is that the Fed would ultimately sell assets back into the market, potentially at prices that could result in losses. Although some fear that such losses could compromise the Federal Reserve’s independence, there is no reason why this should be the case, providing we stick closely to our mandate at all times. To date, the Fed’s actions in responding to the crisis have resulted in abnormally large profits that might reasonably be set against any subsequent losses. | 1 |
The risk-reducing benefits of these innovations, for individual institutions and for the system as a whole, are substantial, but these benefits are to some extent qualified by the limits of our knowledge of how they will perform in conditions of stress. The uncertainty and challenge posed by these developments are complicated by the confidence engendered by the stability and resilience of the U.S. economy over the past decade. Until very recently, we have seen an unusual dynamic in financial markets, in which low realized volatility in macroeconomic outcomes, low realized credit losses and low uncertainty about future inflation and interest rates have worked together to bring risk premia down across many asset prices. There is a self-reinforcing character to this pattern, with past stability seemingly increasing confidence in future stability, and this dynamic itself can magnify the risk of a more damaging reversal. These are all good reasons to pay careful attention to the strength of the financial system today. We have a strong interest in ensuring that the largest institutions in our financial system, and the system as a whole, are able to function reasonably effectively, even in the face of a more turbulent economic and financial environment. Capital is critical to this objective, and our current Basel I regulatory framework for capital is not up to the challenge. We have a very important global effort underway to improve the regulatory regime for capital, by tying it more closely to the actual risk profile of financial institutions. | Basel II provides a much better way of determining the appropriate level of capital to hold against risk. It does a better job of capturing default risk and the true extent of risk transfer in securitization, guarantees and credit derivatives. It provides explicit recognition of operational risk, which can be larger than exposure to market risk for some complex financial institutions, not just for processing or clearing banks. But Basel II is not the end of the process of designing a better regulatory framework for capital in financial institutions. As we move to refine and implement the Basel II framework for credit and operational risk, we need to strengthen the framework for market risk and encourage further improvements in how firms capture the possibility of extreme events. The current regulatory treatment of market risk does a good job of capturing directional risk from movements in interest rates, exchange rates and equity and commodity prices. It is less effective, however, in capturing the full range of risks associated with some newer products and trading strategies, where values can react sharply and discontinuously. In particular, the risks of trading strategies based on changes in the correlation between asset returns are not always captured under the current regulatory capital regime, nor are some of the risks associated with traded credit products. And given the relatively short history of some of these products, the current regulatory treatment of market risk may not capture the risks of these products going forward. | 1 |
Headline CPI went from 1.5 percent annually in BIS central bankers’ speeches 1 October 2013 to 4.7 percent in May 2014 (figure 1). We expected this rise in inflation to some degree, because it came from a low level and the peso depreciation we have been observing since mid-last year also had an impact. A look into inflation rates over the past six months shows that the biggest increase has concentrated in those components of core inflation of goods and services whose prices are connected – directly or indirectly – to the exchange rate (figure 2). We have also seen an acceleration of nominal wages in recent months. Inflation has behaved thus in a context of sharply decelerating output and demand. In the first quarter this year, output grew 2.6 percent annually, confirming the slowdown that began in the third quarter of 2013. Overall, this outcome was in line with forecasts, but composition shifted towards higher growth in those areas more closely linked to the external sector – like some branches of manufacturing and agriculture – and slower growth in those areas tied to domestic demand, especially services. Leaving out inventories, y-o-y growth in domestic demand picked up from end-of 2013, basically due to a milder drop in investment – especially its machinery & equipment component – and increased dynamism of public expenditure. Domestic spending is still weak, however. Investment has posted negative variation rates for three quarters in a row, while private consumption, mainly of durables, is slowing down (figure 3). | 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, 16 June 2014. * * * The Monetary Policy Report of June 2014 and the Financial Stability Report of the first half of 2014 can be found at http://www.bcentral.cl/eng/index.asp. Introduction Mr. President of the Senate’s Finance Commission, Senator Ricardo Lagos, senators members of this Commission, ladies, gentlemen. Thank you for inviting me to present the vision of the Board of the Central Bank of Chile on recent financial and macroeconomic developments, their prospects and implications for monetary and financial policy. This vision is detailed in our Monetary Policy Report (IPoM) of June 2014 and in our Financial Stability Report (IEF) of the first half of 2014. Domestic output and demand have been slowing down for some months now. The drop in investment that began a few quarters ago has been compounded with weaker private consumption. As a matter of fact, in the forecast scenario I will be describing briefly we have revised downward our growth estimate for 2014, as a result from this behavior of private consumption and the larger than expected fall in investment. Abroad, the trends we have depicted in our latest Monetary Policy Reports have not varied much. The developed world is showing sustained recovery while at the same time the emerging world is decelerating. | 1 |
U.S. residents do in fact earn more on their assets than they pay on their liabilities, and U.S. firms operating abroad earn a higher rate of return than do foreign firms operating in the United States. Also, the fact that U.S. gross assets are denominated in foreign currencies but U.S. liabilities are mainly denominated in dollars implies that even a modest rise in the value of other currencies relative to the dollar can significantly reduce our net liability position by increasing the value of U.S. gross foreign assets relative to foreign liabilities. Nevertheless, going forward, the scope for positive net factor payments from abroad and sizable valuation effects is limited. The U.S. trade deficit is now roughly the size of the current account deficit, and U.S. net interest earnings have fallen to quite low levels. The continuing buildup in liabilities should soon push U.S. net investment income balances into deficit, with progressively larger net transfers of income to the rest of the world. In that event, net income flows will begin to boost the BIS Review 3/2006 3 nation's current account deficit instead of reducing it, reinforcing the deterioration in net liability position of the United States. The arguments I have just described highlight factors that may improve the odds of a more protracted, gradual and benign scenario, but they do not really alter the general conclusion that these imbalances are unsustainable and that they will need to unwind at some point. Time does not necessarily help. | While the key motif ensures coherence within a given denomination, core design elements which appear in all denominations – a hand, a globe, a location and the security features – create continuity across all the notes and lend the series a sense of overall cohesion. The design thus sets new standards when it comes to combining security, functionality and aesthetics. Issuance successfully concluded Thanks to the close cooperation of all those involved, we were able to clear the numerous hurdles we encountered. We would like to take this opportunity to thank all of our partners sincerely for their contribution. Special thanks go to Manuela Pfrunder and her team for their designs. Their work has been consistently impressive – from the earliest drafts right through to the issuance of the final denomination. I would also like to thank our suppliers: Orell Füssli, Landqart, Sicpa and Kurz. Furthermore, allow me to thank our cash distribution partners, the banks and Swiss Post for their valuable cooperation and support in enabling a smooth issuance process. And finally, let me thank the many SNB staff who have managed this project so diligently over the years and have seen it through to a successful conclusion. In issuing modern and secure banknotes, the SNB is fulfilling its statutory task of ensuring the supply and distribution of cash in Switzerland. | 0 |
Grossman, R (2001), “Contingent capital and bank risk-taking among British Banks before World War 1”, Journal of Money, Credit and Banking, 33(2), pages 143–59. Grossman, R and Imai, M (2011), “Contingent capital and bank risk-taking among British banks before World War 1”, Wesleyan Economics Working Papers, 2011–003. Haldane, A G (2011), “Capital Discipline”, remarks given at the American Economic Association, Denver on 9 January 2011, available at http://www.bankofengland.co.uk/ publications/speeches/2011/speech484.pdf Haldane, A G (2010), “The $ Billion Question” speech given at the Institute of Regulation & Risk, North Asia (IRRNA), available at http://www.bankofengland.co.uk/publications/ speeches/2010/speech433.pdf Hellwig, M (2010), “Capital Regulation after the Crisis: Business as Usual?” Ifo Institute for Economic Research, University of Munich, vol. 8(2), pages 40–46. International Monetary Fund (2009), “Debt Bias and Other Distortions: Crisis-Related Issues in Tax Policy”, available at www.imf.org/external/np/pp/eng/2009/061209.pdf Kou, S G (2002), “A jump diffusion model for option pricing”, Management Science, 48:8, pages 1086–01. Macey and Miller (1992), “Double liability of bank shareholders, history and implications”, Wake Forest Law Review, page 36. Merton, R C (1974), “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates”, Journal of Finance, Vol. 29, No. 2, (May), pages 449–470. Miles, D, Yang, J and Marcheggiano, G (2011), “Optimal bank capital”, Bank of England External MPC Unit Discussion Paper No. 31, April. Mirrlees, J (2011), “Reforming the tax system for the 21st century”, Institute for Fiscal Studies. Modigliani, F and Miller, M (1963), “The Cost of Capital, Corporate Finance and the Theory of Investment”, American Economic Review, Vol. 48, No. | Equity prices called the crisis early and differentiated the sick from the sound. Market discipline worked. Had CoCos with market-based triggers been in place, the crisis may just have played out differently. Pre-emptive recapitalisation of failing institutions would have occurred, either due to automatic CoCo conversion or remedial action by managers under pressure from (potentially converting) debt- and (potentially diluting) shareholders. CoCos could have operated as a contractual prompt corrective action mechanism. This market-based contractual approach has the advantage of turning poacher into gamekeeper. It uses the risk-taking incentives embedded in equities to sharpen market discipline. A market problem is turned into a market solution. With less discretion and bankruptcy, these contracts would stand a greater chance of proving time-consistent in a crisis. Historically, that has been the hardest nut to crack. (c) Control rights A third set of potential structural solutions would be to address governance and control problems at source. Post-crisis, a number of proposals have already been put forward to strengthen bank governance. These include increasing board expertise and performance and upping the power of bank risk committees (Walker (2009), Basel (2010b), OECD (2010)). These are steps in the right direction. But looking down the star-studded cast of nonexecutive directors on the boards of failed financial institutions during the crisis, to wish for better is to wish upon a star. So what else might be done? In banking, the two prevailing ownership and control models are the public limited company and the mutually-owned co-operative. | 1 |
Third potential impact: the launch of a CBDC could also raise questions related to modalities of access to central bank balance sheet. - Depending on its attractiveness and detailed specifications, a CBDC could trigger a demand from financial actors which usually do not have access to central bank money (money market funds, investment funds, insurance companies …) to be able to settle in CBDC. It would in particular be the case in a broader wholesale CBDC access scenario. The remuneration of the CBDC held by these financial actors – in case access were to be granted – would also matter for monetary policy implementation, as it would play the role of a ceiling for these institutions on the money market. - Beyond these settlement and detention aspects, expanding the counterparty framework (i.e. for central bank refinancing or asset purchases operations) as a response to the implementation of CBDC does not strike me at this stage as being particularly useful nor necessary. In any case the usual requirements related to counterparty eligibility criteria, including financial soundness assessment and supervision, would need to be taken into account. To conclude these introductory remarks, let me stress three points: - Digitalization is a major supply/technology shock, whose implications are multifaceted, and which have been intensified and accelerated by the Covid crisis - As central banks, in the context of our monetary and financial stability mandate, we have a role to play to make sure that digitalization becomes a blessing and not a curse. | - A successful CBDC should be attractive enough to be used by households and firms in their everyday payments. However, it should avoid the above-mentioned risk of excessive shifts from bank deposits to CBDC accounts, which would involve unwanted bank disintermediation and a possible destabilization of the financial system. A balance must be found to meet both goals. - This could imply for example both a zero remuneration of CBDC (i.e. similar to cash) and a 3/4 BIS central bankers' speeches limit to CBDC accounts holdings. Under such a scheme, the CBDC is likely to be used for daily payments, while households and firms would not be able to hoard large amounts of CBDC for investment or risk-aversion motives. A second model would involve no limit on CBDC holdings amount, but a differentiated remuneration rate beyond a certain threshold (a so-called “tiered CBDC remuneration”), which would disincentivize large CBDC holdings. - Whatever the model chosen, with its own benefits and drawbacks, it may have impacts on monetary policy implementation. I already mentioned the potential effect on the liquidity position of the banking system. Another question relates to how a new remuneration rate should be articulated with the current key policy interest rates and whether there could be a case for changing some CBDC parameters together with central bank key policy rates. In any case, CBDCs should be designed so as to not constrain nor influence in any way central bank monetary policy decisions and desired stance. 3. | 1 |
This is the best way for them to win back their creditworthiness. Have the right lessons been learned from the financial crisis? We are on the road to far-reaching changes in the international financial system, and it is important that these changes are made. Together with the international community we are working hard to ensure that banking rules are changed. Much has already been done, but a great deal also remains to be done. Will the euro still exist in 20 years’ time? Of course, there is no doubt about that. Will more than the current 17 countries then have the currency? Today, 331 million people in 17 countries use the euro. The rules for joining the euro area must be applied strictly. That is the main thing: provided strict application of the rules, the euro area is open, as the entry of Estonia demonstrates. Mr Trichet, your term of office ends in October. Do you already have your eye on a suitable successor? That is not up to me. Rather, it is the responsibility of the Heads of State or Government. A German at the head of the ECB would surely not be a bad thing for the euro. This decision is a very important responsibility of the Heads of State and Government! What are you particularly proud of in the seven years you have been in office so far? The ECB has a clear primary mandate, which is to ensure price stability in the euro area. | So, exporters to the euro area are now able to recoup part of the margins they compressed during the downturn. The extent to which they are able to do so also depends on the degree of competition, a point made by Rudi Dornbusch back in 1987. The more concentrated market power is, and the less substitutable products are, the more likely firms are to increase their margins following exchange rate appreciations. This also means that the pass-through may well differ across industries.9 These examples demonstrate that it is by and large the state of the economy that will determine the strength of the pass-through. Monetary policy, for its part, is likely to influence the passthrough predominantly through its impact on the economy itself. And at the moment this support from monetary policy may be even more powerful than in the past. The reason is that, in the class of models used here, positive demand shocks are normally identified by assuming that short-term interest rates rise in response to higher growth and inflation. At the current juncture, however, the policy-relevant horizon – the “medium term” concept in our monetary policy strategy – is likely to be longer given the persistence of subdued inflationary pressures. Our forward guidance on both policy rates and the APP, as reiterated by the 6 / 14 BIS central bankers' speeches Governing Council last Thursday, reflects this assessment. | 0 |
How has the Riksbank formulated monetary policy during the autumn to counteract the negative events? On 8 October the Riksbank took part in a joint action with other central banks to alleviate the consequences of the financial crisis. The Riksbank, together with the Bank of England, the ECB and the Federal Reserve, announced cuts in their monetary policy rates. The advantage with this type of coordinated action is that it reinforces confidence and increases the chances of the rate cut having positive effects. The Riksbank cut the repo rate by 0.50 percentage points in this action. At our most recent ordinary monetary policy meeting on 22 October the decision was to cut the repo rate by a further 0.50 percentage points, to 3.75 per cent. The Riksbank adjusted its forecast for the repo rate path downwards, compared with that presented at the beginning of September. The members of the Executive Board were unanimous regarding both the repo rate cut and the new interest rate path. Together with the joint central bank action on 8 October, the Riksbank thus cut the repo rate by a total of one percentage point in the space of two weeks. Other central banks have also substantially cut their policy rates. For example, the Bank of England has cut its bank rate from 5 per cent to 3 per cent since the beginning of September. | It would take too long in this context to analyse what conclusions should be drawn for the future, and it is probably too early to do so yet, but I shall nevertheless share my impressions this far. In conclusion, I shall discuss how monetary policy can complement the more acute financial measures taken, and alleviate the effects of the financial crisis on the real economy. Acute financial crisis… The turn for the worse can be clearly dated to the middle of September when US investment bank Lehman Brothers was forced to file for bankruptcy protection. Money market participants had not expected such a prominent bank to default. When the bank nevertheless defaulted, fears grew that more participants risked the same fate. This was when the confidence crisis broke out in earnest. No one dared to lend money to anyone else because of fears that the other party could become insolvent and the money that had been lent would disappear. Investors preferred to put their money in government securities. One result was that interbank lending around the world more or less ceased. The difficulties the banks had experienced earlier with financing at longer maturities were intensified. The banks’ borrowing costs increased further and companies outside of the financial sector also experienced financing difficulties. At the same time, the large US commercial paper market suffered substantial disruptions. This market is an important source of financing, both for financial companies and ordinary industrial companies. | 1 |
The benchmark reflecting the neutral position has been constructed in line with the objectives, the asset-liability structure and the liquidity needs of the bank for a one-year period. And it is going to be reconsidered periodically. The Risk Management Division in the Central Bank of Turkey is in the process of establishing a system to carry out risk analysis and to feed the results to the appropriate units. For the last year or so, duration and Value at Risk (VaR) figures reflecting interest rate and currency risks of the FX reserves, and liquidity indicators such as current ratio (percentage of liquid assets in total of liabilities) are being observed. However, these reports are not yet part of a comprehensive risk measurement and control system. Although they give an idea of the general level of market and liquidity risk levels, the actual risk exposure will be clearly seen only after the reserves portfolio is restructured and the benchmarks are included in these reports. The risk management process related to market risk that we plan includes daily marking to market of benchmark portfolios; monitoring risk limits determined in terms of currency and duration limits; daily measurement of actual portfolio’s VaR figures for currency and interest rate exposure; monitoring liquidity ratios and reporting these figures to the top management weekly including stress testing report. There is no specified global risk tolerance limit but our institutional objectives and constraints are reflected in portfolio benchmarks. | The reason for that partly stems from the lack of statistical knowledge about the interaction between variables. Therefore, the models mostly tend to rest on simplified assumptions based on subjective judgments. I do not want to go into details about the technical aspects of the risk measurement methods, but I would like to emphasize that it is necessary to combine them with sound judgment and common sense. Since these models are no more than simplified and limited images of the real world, they are better to be used having this fact in mind and the decisions must be taken not solely relying on the results of these models. The results should be supported with scenario analysis, stress testing and most importantly with the sound judgment of the decision makers. Another important aspect of risk analysis is that it should be integrated, meaning that the analysis results for different risk types should be comparable with each other to facilitate decision making. It necessitates that the assumptions, data, valuation models used in analyzing different types of risks be the same or at least consistent with each other. Organizationally, the integration of risk analysis requires that there be a single, common risk management authority for the whole organization. At the beginning, it might not be easy to look at risk on an institution wide basis. Since it requires a considerable amount of capital to be invested either in terms of technology, or in terms of staff. | 1 |
The fact that no central bank knows exactly how the economy functions and the effects of monetary policy also means that one normally proceeds cautiously in changing interest rates. Finally, a desirable interest rate path should also be determined with consideration to an assessment of different types of risks and the consequences for inflation and the real economy if they are realised. Some risks may be difficult to quantify and capture in our normal forecasts. In my opinion, they should nevertheless be included in the balance when shaping monetary policy. One recent example is the risks linked to a rapid increase in property prices and household indebtedness as a result of a longer period of expansionary monetary policy; a problem many central banks around the world have faced. Let me also, for the sake of clarity, point out that when we publish our own forecast for the repo rate it will indicate a smoother development in the repo rate than the policy that will be conducted. This is because interest rate decisions must in practice be taken in stages and at particular points in time. It is difficult to build this into the forecasting work. Changes to the Inflation Report Let me mention another new item, before I round off. Our inflation report will involve a change of name, to "Monetary Policy Report”. One reason for the name change and the most important change is that the reports will from now on contain not merely inflation forecasts, but also a monetary policy message. | During the seventies the French labour market was characterized by a high degree of wage indexation on consumer prices, and the burden of the external oil tax was full born by the business sector. Firms then experienced a sharp fall in their profit margins, undoubtedly to the detriment of employment and investment in the following years. What’s happening at the current juncture? The distribution seems to be more balanced between firms and households than after the shocks of the 70’s. The distribution of primary income between firms and households is shown in the bottom left charts of these two last slides. Corporate profits are today a bit higher than their pre Covid level although this masks a lot of heterogeneity across sectors, with the energy sector being the only one recording currently an improvement. Page 12 of 14 The bottom right charts shows household and corporate gross disposable income that includes tax and transfer measures to overcome the two crisis episodes. Overall the income distribution between firms and households has so far remained much more balanced today than it was in the aftermath of the two oil crisis. In our current macroeconomic projections, household purchasing power, starting from a current level in 22q3 about 1.5% higher than its pre-Covid crisis level, should decline moderately in 2022 and 2023 while remaining above its pre-Covid level, before significantly rebounding in 2024 and 2025. | 0 |
Currently, it crops up 10 times more often than the word “customer” and almost 7 times more often than the word “staff” in proximity to uncertainty. 24 Chart 2 plots a time-series of the incidence of the words “uncertainty” and “Brexit/referendum” in Agents’ company write-ups. The two, unsurprisingly, are positively correlated after the referendum. Indeed, mentions of Brexit have outnumbered mentions of uncertainty by a factor of around 3 since the referendum. While mentions of Brexit have fallen from their referendum peak, it is notable that they have picked up sharply over the past few months, with measures of uncertainty following suit. This new research strengthens the case for improving public understanding of the economy. An improved understanding could result in better-informed popular narratives, and more stable expectations, among the general. And that, ultimately, would make for a more stable economy and financial system. In practice, there may be structural factors which could be acting in the opposite direction. The great trust shift may mean people are less willing than in the past to trust expert opinion (such as through mainstream media) and more willing to trust non-expert opinion (such as some parts of social media). Around half of those in the EU use social media as a news source and, among those aged 18-24 in the UK, around a quarter use it as their main news source. 25 Yet we know that information from social media sources is typically filtered and personalised. 26 That fits people’s (personalised, localised) preferences. | 6 Climate Bonds Initiative and UNEP Inquiry into the Design of a Sustainable Financial System (2015) “Scaling up green bond markets for sustainable development”. 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 such a shift is in its infancy and is an area where further research and collaboration is needed to support progress. Experts and financiers in the City and China have a role to play here. The work being done by the Taskforce in its pilot is to be commended. Mobilising private capital today is essential. Almost two thirds of required financing will need to be directed at sustainable projects in developing countries. Governments alone will not be able to meet this challenge. Yet it is not obvious that private investors will naturally fill that gap. For instance, debt instruments issued by emerging market firms often do not fall within the mandate of advanced market investors due to a missing, or too low, credit rating. It is in this context that bilateral partnerships such as the UK-China Taskforce are so important in accelerating progress. | 0 |
To address this situation, the ECB has taken a number of non-standard measures, and two weeks ago it announced the modalities for undertaking Outright Monetary Transactions in secondary markets for sovereign bonds in the euro area. I will describe the rationale for this decision and argue that it is a key element to ensure a lasting “monetary dominance” in the euro area, compliant with the Treaties. Channels of monetary policy in normal times and crisis times In normal times, monetary policy works primarily through inter-temporal financial arbitrage. In the Eurosystem, this arbitrage covers two different time dimensions. There is the weekly arbitrage cycle, through which the volume of central bank liquidity is reallocated across 1 I would like to thank Roberto Motto, Stefano Nardelli, and Massimo Rostagno for their contributions to the speech. I remain solely responsible for the opinions expressed herein. BIS central bankers’ speeches 1 banks trading in the money market in the period between two consecutive weekly Eurosystem main refinancing operations (MROs). The reason for this reallocation is that – as a matter of routine, at least – the Eurosystem provides reserves at weekly intervals. While the banking sector’s need for reserves in the aggregate may not change significantly within a week, the cash needs of individual banks do fluctuate at higher frequencies, probably daily. 2 So banks with liquidity deficits in the infra-weekly period need to borrow from banks with liquidity surpluses. The price at which these trades of liquid reserves between banks occur, i.e. | the overnight interest rate (of which a euro area average, the EONIA, is computed and published every day by the ECB), is influenced by expectations of the cost of Eurosystem credit – the so-called MRO rate – at the next weekly monetary policy operation. A short-term inter-temporal arbitrage calculus anchors the overnight interest rate applied on the credit transaction between banks that need liquidity and banks that have a liquidity surplus. 3 The second dimension of the inter-temporal calculus has a longer horizon and a wider scope of application across asset classes. Banks can borrow short in the money market or from the Eurosystem and decide to engage in term lending to other banks or to their customers. Bank customers, in turn, can use bank liquidity to finance consumption or the acquisition of capital. It is important to note that all of these money transactions in the broader economy involve traders weighing the costs of their borrowing against the return opportunities on their asset acquisition at different points in time, where the horizon is typically longer than a week. But, again, as banks borrowing from the Eurosystem are the source of this liquidity propagation pattern, and banks’ financial calculus is based on their anticipations of the interest rate settings by the Eurosystem in the future, such anticipations anchor the pricing of credit in the broader economy. We call this “the interest rate channel” of monetary policy decisions. | 1 |
oil and gas M anufacturing Retail trade, hotels and restaurants F inancial ente rprises, real estate and business activities Other 7% 1% 13% 12% 67% Source: Norges Bank SG 240802 US companies have been pioneers in developing the Norwegian petroleum sector, which is crucial for us. Last year, Norway was the world’s third largest exporter of oil. Even today, two thirds of US direct investments in Norway are linked to our petroleum sector. The Government Petroleum Fund Market value in billions of USD1). End of June 2002 50 45 40 35 30 25 20 15 10 5 0 Stocks Bonds Europe US Asia and Oceania America ex US 1)Bond figure for US incl. USD 3 bn dollar-denominated issued by non-US entities Source: National Central Banks, IMF SG 240802 Total capital in the Government Petroleum Fund. End of year. Per cent of GDP 100 100 80 80 60 60 40 40 20 20 0 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Ministry of Finance. National Budget 2003 SG 240802 BIS Review 70/2002 5 Revenues from the petroleum sector have generated an annual fiscal surplus of some 10-15 per cent over the last few years. Since 1995, the fiscal surplus has been invested in the Government Petroleum Fund. The Fund invests only in foreign markets. | This global resolve is in congruence with the role and relevance of Islamic finance on the global economic environment in this post-crisis era. While the amount of funds managed in the Islamic financial system is still only a fraction of the total assets of the international financial system, it represents that portion of financial activities that is truly supported by underlying productive capacity that connects with the real economy. Despite the unprecedented disruptions in the international financial system, studies show that the Islamic financial industry has weathered the global financial crisis relatively well. The financial crisis has thus brought about a greater appreciation amongst the international financial community on the distinct nature and in-built strengths of Islamic finance. Based on the Shariah requirement that Islamic financial transactions needs to be supported by an underlying economic activity, its expansion contributes to income and wealth creation. In addition, the profit sharing and risk sharing characteristics in Islamic finance strengthen the incentives for the financial institutions to ensure the profits are commensurate with the risks being assumed. It is this form of finance that we would want to encourage. With this underlying foundations, efforts are being directed to build the domestic financial infrastructure. A challenge that is being specifically addressed is the development of an active secondary global sukuk market. In this regard, there has been a lack of trading in the secondary market especially in the USD sukuk market as the investors tend to buy-and-hold the instruments until maturity. | 0 |
Notwithstanding the above, the French lessons programme is a very challenging one to our staff in that students are not only required to attend, at least, 90 per cent of class work conducted twice a week for two hours, but are also required to take examinations every ten (10) weeks; implying that only those employees who succeed in the examinations are allowed to proceed to the next advanced level. Your Excellency Following the commencement of the French lessons, I am pleased to inform you that this programme has already started showing encouraging results, as evidenced by the fact that at the end of the first segment of the beginners’ course, all those who took the examinations passed and are progressing to the next stage. The results could have been even better had all the 78 enrolled students attended tuition and taken the examination as scheduled. Let me also clarify here that some employees missed the examinations due to the call of duty and not out of lack of commitment. In this regard, I wish to assure Your Excellency that as a sign of commitment on the part of individual employees and the bank, a crush programme has been put in place to enable those who missed the first examination to sit for it and catch up with the rest of the class by April this year. | Although these numbers might ring some bells, the performance of the Chilean index does not differ significantly from other regional stock markets and its recent behavior might just be a catch up from very low levels. Measured in real terms, its current value does not seem to be an outlier either (figure 7). Figure 7 120 MSCI: Latin America Real IPSA (fixed-base index: January 2013=100) (fixed-base index: January 2001=100) 120 Mexico Latin Chile America Colombia Peru 30 13 14 15 350 Brazil 90 60 350 16 17 90 250 250 60 150 150 30 50 50 01 03 05 07 09 11 13 15 17 Sources: Central Bank of Chile and Bloomberg. 12. The prolonged strike at the Escondida, the open-pit copper mine with the world’s largest production, will have a very important effect on our first quarter GDP figures. It already did in the Imacec of February, which showed a yoy contraction of 1.3%, with a fall of 17.1% of its mining component. Since the strike ended in late March and resuming normal production levels is not instantaneously, the figures of that month will also be affected. If you add the continued weakness in construction, the economy could experience an expansion close to 0% in the first quarter of the year. | 0 |
I was struck by a trivial example of where a bad equilibrium path can lead on a recent visit to the US. I opened the mini bar in my hotel room to find it empty save for a small slip of paper. Here is what it said: “A personal note to you.... We have made a renewing change to our heavenly guest rooms. Our refreshment centers will no longer be pre-stocked. Please be aware the refreshment center cooler is not intended as a refrigeration device” The empty-mini-bar equilibrium is not a good one. How do you get there? I think the story is this: mini-bar prices are high; they are high because some people conveniently tend to forget how much they may have used their mini-bar when they come to pay the bill and that forgetfulness gets worse the higher are prices; but then the mini bar prices need to be even higher as the forgetfulness seems to get worse. This vicious cycle ends up with mini bars that are empty save for a “personal note to you”. Good economic policies can help prevent bad equilibria and reduce the chances of vicious circles. For banks, I believe the most direct way to do this is to prevent an initial (limited) fall in the value of assets triggering sharply higher concerns about their solvency. | This is not meant to be a realistic model – in fact it isn’t even a model, it is simply a set of stark assumptions. But it illustrates why using interest rates to try to control leverage – at least for companies – may not be at all effective. And I believe that high leverage has been at the centre of the financial problems of recent years. Bean et al (2010) provide some evidence on the impact of monetary policy – that is interest rates – on credit and asset prices. They find that monetary policy has some effect on asset price inflation, but little on bank lending. For example, in a counter-factual experiment using vector auto-regressions, they estimate that for the US if policy rates had started rising in 2003 and peaked at around 7.5% in late 2006, then the peak of the real house prices would have been around 7.5% lower; real credit growth would have been just 3% lower by the end of 2006. For the United Kingdom, if Bank Rate would have been around 7% from the end of 2004 to mid-2007, real house prices would have been around a fifth lower at the end of 2006, while the stock of real credit would have been only 4% lower, trivial compared to the almost 50% increase in the stock of credit seen over the period. | 1 |
Some years ago we published estimates of the exchange rate in this equilibrium; we also indicated an interval for the real TCW exchange rate index that has subsequently been cited by many journalists and market players. Estimates of that type are not, however, a direct guide to the krona exchange rate that would be appropriate for ERM2 membership. Other factors that have to be considered include the economic situation in Sweden and the rest of the world. Moreover, the estimates are expressed in terms of the TCW index, which covers all the rates for Sweden’s foreign trade, not just the euro area. The assessment must also allow for the fact that, at least in the coming years, the Swedish economy will not be in long-term equilibrium, which implies both internal and external balance. It should also be borne in mind that however sophisticated, calculations of this type do not yield precise results. In recent months the TCW index has fluctuated between 124 and 125. This is some way from the estimated long-term equilibrium range. The main conclusion from our earlier studies—that in the longer run it is reasonable to expect the krona to strengthen—still holds. But it does seem reasonable to count on this being a gradual process that emerges as the economy approaches a situation with both internal and external balance. On various occasions in recent years it has turned out that we were over-optimistic about the adjustment’s future rate. | The depreciation of the euro has also contributed to easing financing conditions. At its meeting on 3 September 2015, the Governing Council of the ECB expressed its readiness and ability, if required, to allow for more accommodation in its monetary policy stance. To this end, it could – if considered necessary – use the flexibility already embedded in the purchase programme to increase its size and extend its duration or modify its composition. The Spanish economy To conclude, I would like to briefly discuss the Spanish economy and its outlook. During 2015 the Spanish economy has been in what we could call a “virtuous triangle”, by simultaneously meeting three conditions: robust inflation-free growth, job creation and an external surplus. In 2015 we are going to achieve GDP growth of more than 3%, a negative average annual inflation rate, a current account surplus of more than 1 pp of GDP, and growth in employment and social security registrations, prompting expectations of an unemployment rate of less than 20% of the labour force by end-2016. However, the degree of uncertainty in economic projections has widened notably in recent months and the risks of slippage have risen owing to the downturn in the outlook for global growth. However, the Spanish economy is in a position to meet these challenges. The reforms implemented to date promote economic recovery and contribute to increasing Spain’s resilience in the face of exogenous shocks. | 0 |
To promote economic research of the highest quality, it is essential that the research activities of the HKIMR are, and are seen to be, carried out freely, without interference from interested parties, including the HKMA. It is therefore not desirable for the HKMA to exercise control of the BIS Review 38/2003 1 HKIMR's day-to-day activities. But, of course, the professional quality and academic integrity of its activities need to be monitored and ensured. For this reason, a Council of Advisors, whose members are all distinguished economists working in and outside of Hong Kong, has been established. Many of them are in fact here today. The role of the Council is to ensure the quality of the HKIMR's activities and to alert the Board of Directors if shortcomings become apparent. While the relationship between the HKIMR and the HKMA remains close, the HKIMR does enjoy independence in research matters. One consequence of this is that the views expressed in its different publications do not necessarily reflect those of the HKMA. One of the distinguished members of the HKIMR's Council of Advisors is our first speaker today, Charles Goodhart, and it is my great pleasure to introduce him. It was very much his visit to Hong Kong that gave the HKIMR the idea of organising this workshop. As you all know, Charles is one of the world's foremost monetary economists and an expert on central banking issues. | I am not sure if this is a dimension covered in Professor Genberg's paper on Endogenous Dollarisation, but it is of particular relevance to Hong Kong. The third paper, to be presented by Professor Kumhof, deals with issues regarding price dynamics. Professor Kumhof's paper focuses on pricing policies and inflation inertia, at a time when we are experiencing deflation in Hong Kong: I am sure, however, that there are insights that we can derive from the paper and the discussion. Research on price formation is high on the agenda of the HKIMR and the HKMA, and possibly in academic and other organisations active in economic research in Hong Kong. We have had deflation for some five years now and we are still debating the relative importance of cyclical and structural factors behind that deflation. There is also debate on whether measures could and should be taken to limit the damaging effects of deflation, notwithstanding the fact that Hong Kong is a highly externally oriented economy. Views on price dynamics will contribute to these debates. As you know, the HKIMR was established by the HKMA. This reflects the importance we attach to thorough analysis of monetary and financial issues that Hong Kong is facing. Developments in the local, regional and global economies provide many opportunities for Hong Kong, but also serve as potential sources of risks. It is therefore critical that we actively seek to understand these developments. | 1 |
For centuries, this question has been the “bridge of donkeys” (pons asinorum) for philosophers’ apprentices. Supporters of the synonym theory highlight a common etymology between the two words – morality is the Latin translation of Greek ethos. Despite their initially identical meanings, the two words nevertheless have followed different paths over time: “morality” can be described as a “hard concept”, similar to the fundamental rules engraved on Moses’ stone tablets or in the code of Hammurabi. In contrast, “ethics” refer to a softer and less binding concept, a kind of existential version of morality with a more personal dimension. I will use the word ethics in that way in this speech. The question of interest rates is a noteworthy example of the way a moral prohibition can evolve into a more flexible and ethical approach. From a moral overall ban, ethically “fair” interest rates have been progressively distinguished from usury rate, with the latter still being forbidden. Page 2 sur 10 “Homo economicus” invented currency very early in human history, and it is striking that almost as soon as currency was born, countless abuses were seen as well: manipulation of gold or silver weight in coins, skewing of scales, and so forth. Men therefore quickly summoned ethics to define how to govern its use. However, human kind has also shown a tendency to exempt itself from the rules it had previously established, before setting new rules again in order to respond to the problems caused by deregulation. | Therefore, a scenario of recovery in net exports such as that described requires Spanish firms to push ahead with the improvement in competitiveness made by them in response to the sharp ongoing adjustment in the structure of world trade due to the entry of new competitors. At the same time, the slower momentum of final demand should manifest itself in a certain slowdown in imports, curbing the leakage of spending out of Spain. However, as I indicated in September, it is precisely in the external economic environment where the main factors of risk to the macroeconomic scenario outlined above are to be found. If the recent bout of financial instability and of heightened international uncertainty were to significantly affect the buoyancy of Spain’s export markets, the capacity of external demand to contain the adverse impact of a slowdown in domestic spending would be diminished and, accordingly, the efforts required to improve competitiveness would be even greater. Domestically, the continued dynamism of employment and the gradual normalisation of the property market are fundamental for keeping income expectations and, consequently, agents’ spending plans on a mildly slowing course. In any event, the Spanish economy is witnessing a process in which construction investment is diminishing in importance as the engine of growth. Therefore, it is essential to have a sufficiently flexible mechanism of resource allocation to enable industrial activity and services to take over from construction, furthering the change in output composition that has been taking place in the last few quarters. | 0 |
• MAS is working with several other banks and insurers on their plans to establish and expand their analytics and innovation teams in Singapore. At the heart of a Smart Financial Centre must be a progressive information technology architecture. Two key characteristics of such an architecture are: • common standards; and • seamless data sharing. Common standards Let me begin with common standards. They are key to making systems interoperable and harnessing fully the benefits of new payments technologies. Lack of standardisation leads to fragmentation, inefficiency, and inconvenience. • Take for example electronic funds transfer. • Without a common standard, an application written to effect funds transfer for one group of financial service providers may need to be rewritten to work with another group of financial service providers that operate on different interface standards. Common standards allow systems and applications to operate efficiently and seamlessly when different financial service operators and solution providers come together. • The EMV chip is one of the most impactful examples of a common standard. It is all the more impressive as it was an industry initiative without any government involvement. • NFC, or near-field communications, represents the next big thing in common standards. It is enabling contactless payments on mobile devices like smart phones. Yet another good example of a common standard is ISO 20022. This is the international standard for electronic data exchange among financial institutions. • Its growing adoption has helped to make payments platforms interoperable and reduce inefficiency. | This will allow their tech-savvy customers’ systems to process payments without human intervention. • BNY Mellon has built an internal online API catalogue for services such as pricing, calendars, market and reference data, etc. This has helped its developers to significantly reduce steps to build new innovative apps. More efficient data submission Another potential benefit from APIs will be a reduction in the cost of regulatory data submission. Currently, data submission to MAS is still partly manual. We will improve this process. Our vision is for data to flow seamlessly in both directions between systems in the financial institutions and MAS. This will reduce the ongoing cost of regulatory submissions. This is not a trivial exercise, given the volume and diversity of financial data. Well-crafted APIs are essential for this vision to work. MAS will closely engage the industry to ensure that these APIs are clear, simple to implement, and extensible. Conclusion I spoke earlier about the telegraph. Despite the breakthrough in world travel and communication enabled by the telegraph and other technologies, the globalisation of the late 19th century soon faltered and reversed. There is a lesson here. Technology alone does not make connections or create better understanding: it merely gives us the means to make those connections. • What is more important is the spirit of openness and collaboration. • Common standards and seamless data sharing are in this spirit. | 1 |
Then, I will outline the Central Bank’s inflation forecasts presented in the Inflation Report that will be posted on our website shortly. In the first quarter of 2010, as perceptions regarding recovery in the global economy became more pronounced, the trend of increase in risk appetite in global financial markets continued. Accordingly, as had been the case since the second half of 2009, emerging markets attracted more capital through increased portfolio movements. On the other hand, risk premium indicators in most developing countries remained below those of pre-crisis levels. In this period, Turkey’s risk premium indicators continued their positive trend and did not differentiate from the general trend except for short periods when developments specific to our country were pronounced (Figure 21). The improvement in global risk perceptions in the first quarter led the currency of many developing countries to appreciate. In terms of changes in currency values, the Turkish lira did not significantly differ from currencies of other emerging markets in this period and the relatively stable course of the Turkish lira in the crisis period continued throughout the postcrisis process as well (Figure 22). National income data of the last quarter of 2009 were consistent with the outlook we presented in the January Inflation Report. In this period, while the mild recovery in private sector demand continued, public sector consumption expenditures increased more than envisaged due to temporary factors. Meanwhile, persisting problems in the global economy restricted foreign demand, whereas stock accumulation started, albeit slowly, along with the improvement in domestic demand. | The economic upturn is broad-based. At the beginning of the recovery, activity was primarily fuelled by private consumption, traditional exports and petroleum investment. In addition, growth in mainland fixed investment has gradually gained considerable momentum. Monetary policy easing and low inflation have resulted in strong growth in household real disposable income. Private consumption and housing investment have risen sharply. House prices have continued to rise. Debt growth remains high. The economic upturn has continued this year. High petroleum investment, the international upturn and higher commodity prices have boosted production and earnings in the manufacturing sector. Statistics Norway’s business tendency survey points to continued favourable prospects for Norwegian manufacturing. In service industries and the construction sector, continued low interest rates and strong growth in household demand are expected to result in a further increase in activity in the near term. Capacity utilisation in the Norwegian economy now appears to be close to a normal level. In manufacturing, capacity utilisation has been close to its historical average. According to Norges Bank’s regional network, about 40 per cent of enterprises will have some or considerable difficulty in increasing production. The situation in the labour market does not indicate that substantial pressures are building up in the Norwegian economy as a whole, even though growth has been high for a fairly long period. So far, the rise in the number of employed has been fairly modest in relation to output growth. This may be due to lagged effects of the sharp fall in sickness absence through 2004. | 0 |
The changing geopolitical landscape In conducting monetary policy, in supervising financial institutions and in developing Singapore as a financial centre, MAS must be keenly aware of the larger geopolitical picture. International events and politics play a big part in the economic prospects of our region, including Singapore. Let me first sketch for you the geopolitical situation. Though there are many uncertainties and serious challenges, international relations are essentially stable. The US is unrivalled as the pre-eminent global power. As terrorism is a serious threat to the American homeland, the global fight against terror will remain President Bush’s overriding priority. He will have to find a way to stabilise the situation in Iraq, hold elections and hand over the task of rebuilding Iraq to the Iraqis. He will want to rebuild ties with Europe. On the economic front, President Bush will try to keep the US economy humming, while managing the growing trade and fiscal deficits and weakening dollar. In Asia, both China and India are on the rise. They will exert an increasing influence on global economic developments and trade and capital flows. China is now the location of choice for a wide range of manufacturing activities. It produces goods so cheaply that even Bangladesh complained about it. When I was in Bangladesh recently, they complained that Chinese textiles were edging out their own textiles in Bangladesh. But China is not a sweatshop for cheap, shoddy consumer goods. MNCs and Chinese companies produce high-quality goods there for the international market. | On the government level, borrowings would really be handy when it wants to keep up public expenditure and to enhance welfare payments, healthcare and the military. This would not only improve the standard of living and employment, but also help boost national power and speed up economic growth. The list of wonders that borrowed money can bring goes on, but we almost forget there is a catch, that is, debts must be repaid somehow some day; and the higher the interest rates, the more we will have to pay back over time. For individual borrowers, except for those with a handsome pay rise, they can only hope to pay off earlier debts by reducing consumption in the days ahead. Well-run enterprises should have no problem servicing their debt if their business expansion financed by loans does indeed enhance their productivity and competitiveness. Likewise, heavily indebted governments will be able to service their debts only when they have sustained economic growth and rising tax revenues. In other words, the ability to repay debt hinges on increased productivity and improved income, or otherwise, reduced future spending and increased savings. But despite the substantial GDP growth in major industrialised countries in the past 30 years, debts in these countries have piled up concurrently at an even more alarming rate. Advanced economies from across Europe and the US to Japan have all sought to boost economic prosperity, standard of living and employment with ever more borrowings and increased consumption and public spending. | 0 |
Eva Srejber: New economy - or blend of new and old? Speech by Eva Srejber, Second Deputy Governor of the Sveriges Riksbank, at a meeting arranged by WM-Data ub Tylösand on 23 October 2000. * * * Major technological changes have occurred before. Then as now, many people talked about a new age that would involve better communications, new economic relations and a very promising future. It is therefore important to keep a level head amidst the technological enthusiasm over future opportunities. The fact that I am today emphasising the risks more than the advantages, is not because I consider the risks to be more important than the advantages, but because the risks appear to have been largely forgotten in the general debate on the economy. Let us make a sober analysis of what is happening, and maybe we can avoid repeating the mistakes made during previous technological leaps. Moreover, I will touch on the uncertainty and lack of information regarding the structural changes currently taking place in the economy. In conclusion, I will also indicate to what extent these phenomena have already affected and can be expected to affect monetary policy. It has happened before A nation’s economy is constantly subject to changes that lead to reappraisals or to the development of old economic relations and theories. This is nothing new. | We saw a much calmer development in Sweden in the 1950s and 1960s when electrification became widespread. This contributed to a rapid technical transformation, which largely followed a calm course, although it involved a very extensive migration and in its later stages involved entire industries being wiped out. However, this was a period that was in many respects quite different from our current day and different from the period at the turn of the previous century. Sweden had the advantage of having remained neutral in the Second World War and we were able to benefit from a relatively stable demand from the countries building up their economies from the ruins. We had capital market regulations and the international scene was dominated by the Cold War, which led to a clear bipolar world. The USA dominated our part of the world and provided support for clear international financial structures, partly based on the need for solidarity. What has happened so far in Sweden? To return to today’s situation, we can conclude that the Swedish economy is doing better than it has for a long time. Price stability has been established. Production and employment have increased at a rapid rate and would appear to continue to do so. Looking at the past six years, the economy has grown by an average of 3% per year and at the moment we appear to be in an annual rate of between 3 and 4%. | 1 |
As investors realised there was a risk they may not receive their original investment in full, or that their holdings in MMFs may be suspended, a run on other funds followed, contributing to the extreme volatility in money markets and broader financial markets observed at the time. Following the financial crisis, considerable work was undertaken to build the resilience of MMFs. In 2012 the International Organization of Securities Commissions (IOSCO) published policy recommendations for the regulation and management of MMFs. Many of the reforms that were subsequently implemented have helped improve the resilience of MMFs, however it is clear they 1/6 BIS central bankers' speeches did not go far enough in solving the underlying problems. And in some cases they may have had unintended consequences, such as the introduction of a link between the level of illiquid assets held by a fund and the potential use of tools (such as fees or gates) to manage redemptions during periods of stress. While introduced to manage potentially disruptive outflows, these changes have made funds more sensitive to so-called cliff edge effects – thus increasing an incentive to exit before the gate closes. One of the important, broader changes in the financial system post financial crisis has been the shift in the importance of bank and non-bank finance, with the latter growing relative to the former. This is not accidental: the post crisis reforms meant that there were asset classes which were no longer suitable to hold in large scale on the balance sheet of banks. | Given the cross-border nature of MMFs, it is important we work together internationally to ensure that we are aligned in our objectives, and adhering to common principles, even if the precise implementation varies a little to reflect the specific nature of each jurisdiction’s markets. The dash for cash provided an unwelcome reminder that the post financial crisis did not finish the job and left a dangerous gap in our exposure to the risk of financial instability. We must finish the task this time. Thank you. I am grateful to Imane Bakkar, Adam Brinley-Codd, Alice Carr, Geoff Coppins, Edward Denbee, Steven Dodkins, Lee Foulger, Karen Jude, Clare Macallan, Nick McLaren, Jon Relleen and Konstantin Wiemer for their assistance in helping me prepare these remarks. 1 The International Accounting Standard 7Opens in a new window defines cash equivalents as “short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value”. 6/6 BIS central bankers' speeches | 1 |
Number of card payments per capita and year 100 100 80 80 60 60 40 40 20 20 0 0 1990 1991 1992 1993 Sweden 1994 1995 Finland 1996 Norway 1997 1998 1999 2000 Denmark 1 Shares of number of transactions with debit, credit and charge cards 100% 90% 80% Charge cards Charge cards Credit cards Credit cards 70% 60% 50% 40% Debit cards Debit cards 30% 20% 10% 0% 1997 2001 2 Shares of payment instruments of total number of non-cash payments 2000 1990 direct debits 4% direct debits 8% checks 0,2% checks 15% card payments 29% card payments 7% credit transfers 63% credit transfers 75% 3 M0/GDP Percent 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% 1990 1991 1992 1993 Denmark 1994 1995 Finland 1996 Norway 1997 1998 1999 2000 Sweden 4 Long term M0/GDP trend in Sweden Percent 12% 10% 8% 6% 4% 2% 0% 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 5 Number and value of transactions with Cash card per SEK billions millions year 0,3 4,5 4,2 4,0 0,2 3,5 0,2 3,0 0,2 2,9 0,2 2,5 2,0 0,1 2,0 0,1 1,5 0,1 1,5 1,0 0,1 0,5 0,0 0,0 1998 1999 2000 number of transactions (millions) 2001 value of transactions (SEK billions) 6 Card payments per capita and year and MO/GDP, average 1995-2000 70 numbercard payments per capita Denmark 60 Finland 50 Norway 40 30 Sweden 20 10 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 M0/GDP, percent 7 Number of terminals and number of transactions per capita and year, average 1995-2000 Number of transactions per capita 70 Denmark 60 Finland 50 Norway 40 30 Sweden 20 10 0 0 2 4 6 8 10 12 14 16 18 Terminals per 1000 inhabitants 8 Central Bank involvement Legal and regulatory barriers? | Lars Nyberg: The Swedish card payment market - current challenges and future developments Speech by Mr Lars Nyberg, Deputy Governor of Sveriges Riksbank, at Scandinavian Card Markets, Stockholm, on 3 February 2003. * * * To begin with, I would like to thank you for the invitation to participate in this conference. Given the short time at my disposal, I will confine myself to discussing a few of the salient features of the evolution of the card payment market in Sweden, identifying also the forces that appear to have driven this evolution. Judging from the latest innovations in this area, I will touch upon possible future developments. Lastly, in my capacity as central banker, I will talk about some relevant policy issues. The evolution of the card payment market in Sweden Let me start by making a few observations concerning the market development in Sweden. 1. Card payments have grown rapidly, but the use of cards is still far behind that of the other Nordic countries (fig.1). Between 1990 and 1997, the number of card payments per capita in Sweden grew at a steady pace, picking up speed quickly at the end of the decade. Still, when the new millennium started, the number was no more than half of what can be observed in the other Nordic countries. This is somewhat surprising, considering that payments systems and payment patterns are otherwise quite similar in these countries. | 1 |
As the financial system froze up and demand contracted, central banks around the world had to respond. They did so by slashing interest rates and later launching massive bond buying programmes (QE). Along with large-scale government support to the banking system, these actions helped to shore up the global economy, avoiding a rerun of the Great Depression. And while central bank actions were taken for monetary policy reasons, they supported financial stability. Initially expected to be temporary, low interest rates stayed with us. Between March 2009 and December 2021 Bank Rate averaged less than 0.5%, a tenth of the 1998-2008 average, and the Page 6 10 year government bond yield fell from 3.7% in 2011 to 0.1% in July 2020. Low interest rates did not just happen in the UK – interest rates across much of the developed world were very low over this period. And while policy rates moved sharply in response to the GFC, long-term trends – a fall in what is known as ‘equilibrium interest rates’ driven by structural factors such as ageing populations and low productivity growth[19] – helped to keep rates low for a long period. While low short-term interest rates were necessary to support the economy and meet monetary objectives, they also created conditions that could affect financial stability. This is where the FPC comes in. Having learned lessons from the GFC, we knew that price stability wasn’t a sufficient condition for financial stability. | The MPC’s remit is broadly the same today – it aims to return inflation to the 2% target while avoiding unnecessary economic costs. Another critical event was the Global Financial Crisis (GFC), which had similarly fundamental implications for the Bank. One lasting image of that crisis is of queues outside branches of a high street bank – Northern Rock. I worked on the Bank’s response – providing liquidity support to Northern Rock as depositors withdrew their cash. In the event that was just the beginning of the crisis. One year later, the US investment bank Lehman Brothers had defaulted and confidence in the financial system had collapsed. As a consequence we saw a credit crunch and economic costs on a huge scale. There were many lessons learned from the GFC. One was that monetary stability is not a sufficient condition for financial stability – more was needed. We needed macroeconomic policymakers to take account of ‘systemic risks’ in the financial system. That means understanding that total risks in the system might be larger than the sum of their parts. Why? Because these risks can amplify each other, particularly in times of stress, and as they do so can harm economic growth. In the UK, Page 3 this realisation led to the creation of a new committee with clear responsibility for the stability of the financial system as a whole – the Financial Policy Committee (FPC) on which I sit today. The FPC’s primary objective is to pursue financial stability. | 1 |
François Villeroy de Galhau: The future of the finance industry between austerity and innovation Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Süddeutsche Zeitung Finance Day 2017, Frankfurt am Main, 22 March 2017. * * * I am grateful to Marine Dujardin and Banque de France and ACPR staff for their assistance in preparing these remarks. It is a great pleasure to be with you today and I’d like to thank you sincerely for inviting me. I am here in Frankfurt as a committed European and as a friend of Germany; and not just because I travel here at least once a fortnight for the meetings of the ECB Governing Council! On a more personal level, I am French but my roots are in Saarland. My family has lived there since the end of the 18th century and its porcelain manufacturing company Villeroy & Boch is part of the German “Mittelstand”. But today, to discuss the future of the finance industry, I’m going to be talking in my capacity as a member of the Governing Council and President of the French supervisory authority (the ACPR, which I’m sure some of you know). First I would first to say a few words on the Eurosystem’s monetary policy and our latest decisions. Then I’ll share with you my thoughts on how to respond to the current challenges facing the finance industry. | But if this is the case, then there can be no cherry-picking, no “Europe a la carte”, no “Rosinenpickerei”. It has been nearly ten years since the global financial and economic crisis. We have come sa long way, but there are still challenges ahead of us for the ten years to come. Yet the challenges for the financial industry are gradually changing in nature: they could shift from adapting to the regulatory or monetary policy environment to reflecting on new business model strategies. In this regard, the expected strengthening of the economic recovery will hopefully make the path smoother. Austerity – or rigour – will remain necessary, but innovation will be the game changer. Thank you for your attention. 4/9 BIS central bankers' speeches Slide 2 5/9 BIS central bankers' speeches Slide 3 6/9 BIS central bankers' speeches Slide 4 7/9 BIS central bankers' speeches Slide 5 8/9 BIS central bankers' speeches Slide 6 9/9 BIS central bankers' speeches | 1 |
We’ve done a lot, and our commitment to drive through the changes we’ve brought in is undimmed. But that’s not enough, and as we enter the second five years I’d like to stir up a vigorous debate about the next set of questions, some of which are really very awkward. I’m sure I can rely on the small bank lobby to do some vigorous stirring as well, and between us we will make further progress. 5 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 5 | Inflation developments in Malaysia this year reflect the pass-through of some of these costs, as well as the strengthening of domestic demand. Consequently, although headline inflation is still projected to remain low and stable and range within 2.2% to 3.2% in 2022, core inflation increased to an average of 2.2% in the first six months of 2022 compared to 0.7% in 2021. With the economy now on a firmer growth trajectory and no longer in a state of crisis, Bank Negara Malaysia (BNM) through the MPC in May and July this year judged that it was the right time to begin withdrawing the excess monetary support, raising the OPR from its historical low of 1.75%. What’s important is that by acting pre-emptively, we will be in a position to undertake adjustments to the monetary policy settings in Malaysia in a measured and gradual way to avoid hindering economic recovery. Importantly, this is also to restore conditions that will support sustainable growth over the medium and longer term. To this end, the timing, pace, and extent of rate increases will be guided by assessments of how the evolving economic and financial conditions domestically and globally would affect our inflation and growth outlook. Let me emphasise that monetary policy in Malaysia continues to be accommodative to support a sustainable economic growth in an environment of price stability. | 0 |
In order to avoid excessive regulation you should always ask yourself if the benefits from introducing a new regulation are greater than the costs of implementation. Here I include both financial and non-financial costs and benefits in a broad sense. Admittedly, this is often very difficult to measure with any degree of precision. Regulations should also conform to the way financial institutions and markets operate in practice. Hence, regulation should have a functional rather than an institutional approach. This implies that the same financial function should receive similar treatment, whether it is conducted in a bank or in another institution or market. Market-oriented regulations will cause the least interference to the regulatees and to the development of financial instruments and activities. As an example of modern regulation, the new framework for banks’ management of risks and capital from the Basel Committee, the so called Basel II, allows the banks to apply their own risk measurement methods and other internal bank processes. But the rules also grant strong powers to the supervisors to take remedial action if the banks step outside the boundaries of the allowed framework. BIS Review 111/2006 7 Obviously, regulations must be transparent. There are still many examples of legislation where the institutions and even the authorities themselves must frequently call on legal advice to interpret their meaning. This causes uncertainty and undermines efficiency. Speaking about transparency, there should also be consultations between the authorities and other involved parties when drafting the regulations. | The risks to the banks, particularly credit risk, will diminish. But on the other hand, the risks will instead be assumed by the institutions and the general public which invests in these funds. In the event that the value of the funds decreases the investors will suffer. This may in turn affect their behaviour in the economy, for instance it may reduce their consumption and also the value of property. We have not yet seen any such situation so the outcome is unclear, but we should not neglect the risks. Another form of transferral of risks is taking place in the financial sector. Through the use of new instruments and structures it has become easier to transfer and redistribute risks. For instance, a bank may deem that it has too much exposure to one customer or to a sector. It could then divest itself of this risk through credit risk derivatives or by securitisation. The advantage from a financial stability view is that the risks become more widely dispersed between the various holders and that the individual bank can build a well-balanced portfolio. But at the same time a new risk has emanated – the risk that the new holder of the risk cannot fulfil his obligations. In the event that there is a credit default, the seller of the derivative to the bank may not have the necessary financial means. Or, there could be an unclear legal position about the risk transfer agreement. | 1 |
The first is that deeper fiscal integration between members can play an important role in smoothing shocks that affect only part of the currency area.23 It is no coincidence that effective currency unions tend to have centralised fiscal authorities whose spending is a sizeable share of GDP – averaging over a quarter of GDP for advanced countries outside the euro area (table 5). That offers scope for a significant degree of stabilisation, much of it happening automatically as slowing growth in one part of the union causes tax revenues there to fall and welfare spending to increase. Those automatic fiscal stabilisers are important within the UK – it is estimated that for every £ that output falls the reduction in taxes and increases in transfers are together worth about 50 pence.24 What matters for individuals is the extent to which this risk sharing insulates their disposable income from shocks. In the UK there is evidence that around a fifth of variation in regional personal income relative to the national average is stabilised by central government transfers. That is probably an important factor in accounting for the close harmonisation of economic performance within the UK. The degree of stabilisation in France and the US is similar, with a slightly lower figure for Canada.25 Fiscal stabilisation is particularly important in a currency union because it helps mitigate the loss of exchange rate flexibility. | Third, a currency union requires a common fiscal backstop for its central bank. Central banks must be able to act as Lender of Last Resort, both to financial institutions that are solvent but experiencing an unwarranted loss of confidence and to provide bridging finance to institutions that are being recapitalised using new resolution regimes. Under the current governance arrangements in the UK, these operations require an indemnity from, and the approval of, the Chancellor, because they would put substantial public funds at risk. The existing banking union between Scotland and the rest of the United Kingdom has proved durable and efficient. Its foundations include a single prudential supervisor maintaining consistent standards of resilience, a single deposit guarantee scheme backed by the central government, and a common central bank, able to act as Lender of Last Resort across the union, and also backed by the central government. These arrangements help ensure that Scotland can sustain a banking system whose collective balance sheet is substantially larger than its GDP. The euro area has shown the dangers of not having such arrangements, as well as the difficulties of the necessary pooling of sovereignty to build them. An independent Scotland would need to consider carefully how to develop arrangements with the continuing United Kingdom that are both consistent with its sovereignty and sufficient to maintain financial stability. 20 That in turn contributed to the divergence in output growth between core and periphery (chart 8). | 1 |
It is probably also to the euro’s existence that we owe the Swiss franc’s reduced volatility and its rather controlled weakening, whereas the dollar experienced difficulties. This is a reaction to which we were not accustomed; moreover, it is good news for our economy. While it may be justified by the United States’ huge external deficit, the slide of the greenback has nevertheless exerted an asymmetrical impact: it has hit European exporters hard, but has not affected Asian currencies that have been kept artificially low by massive intervention. The Swiss franc's fall against the single currency has sheltered us somewhat from these upheavals. Guarded optimism for 2004 Our economic forecasts for the current year are marked by cautious optimism. The recovery that began in the third quarter of 2003 is set to continue. The production gap, which measures the difference between actual production and its potential level, is expected first to stabilise and then to gradually narrow. However, this will take time. As usual, the first signs of an economic recovery appeared in the industries geared to exports. Next, capital goods investment began to pick up, driven by the high rate of depreciation in new technologies; there is therefore significant pent-up demand. To a large extent, these investments feed on imports, so BIS Review 25/2004 1 that the immediate impact on our economy is limited. Moreover, as investment is also gaining steam among our neighbours, our own capital goods industry, with its strong export bias, has improved. | Today, while SMEs are growing in significance in most emerging economies, SMEs remain under-represented in international trade, accounting for only one quarter to one third of manufactured exports and a very small share of foreign direct investment. By comparison, SMEs in the developed economies contribute about 50% of total value added. For SMEs that become increasingly knowledge based and technologically advanced, the opportunities exist to participate in international strategic alliances, to connect into global and regional supply chains, and to be part of a production network. These arrangements will require a transformation of existing business models, management and technological capability, and the innovative capacity of the SMEs. It will need to involve increased access to financial resources, collective research efforts, accelerated product development and wider distribution channels. The ability of SMEs to realise this potential depends critically on providing the necessary infrastructure and enabling environment for SMEs to enhance their capacity and capability to effectively participate and expand in the domestic economy and to venture into the international markets. The financial sector and Government support are an essential part of this enabling environment for SME development. Repositioning of the financial industry to meet the new demands of SMEs Banks are the dominant providers of financial services to SMEs. In the recent period, considerable advances have been made among APEC economies towards strengthening the scope and access to financial services to the SMEs. | 0 |
In emerging Asia, the acceleration of spending and increased inflationary pressures appreciate the real exchange rate. Eventually, the foreign exchange regime affects the real exchange rate’s behavior only temporarily, and the adjustment arrives sooner or later by other ways, some times at a greater cost. Improved terms of trade Another factor influencing the exchange rate’s behavior has been the improvement of our terms of trade. Along the past ten years, the ratio between the price of our exports and imports, i.e., the terms of trade, has almost doubled. As of the third quarter of 2010, the terms of trade exceeded the average for the last two decades by more than 60%. Underlying this increment are the higher prices of copper, iron, wood pulp and other commodities relative to manufactured goods, partly attenuated by the oil price increases (figure 3). Improved of trade lead to an increase in the real national income – the sum of wages, profits and taxes – faster than the expansion of our productive capacity. To the extent that this higher national income is perceived as permanent by policy-makers and private agents, it stimulates expenditure and puts pressure on the installed capacity, the domestic interest rate and, ultimately, the real exchange rate. 2 In the case of fiscal earnings, for over twenty years our country has implemented a responsible, prudential fiscal policy, generating fiscal surpluses for most of the period. | A decade of inflation targeting The Norwegian economy emerged quickly and fairly painlessly from the recent global economic downturn. Since 2001, economic policy in Norway has been guided by a fiscal rule and a flexible inflation target. With solid government finances based partly on petroleum revenues and firmly anchored inflation expectations, there was room for manoeuvre both in monetary and fiscal policy when the financial crises hit. Inflation in Norway is currently low, but it has been close to target over the past decade. During this period, monetary policy has faced demanding trade-offs, and the application of judgment has been put to a test. We have gradually learned more about the functioning of our economy under an inflation targeting regime. Let me touch upon some of these insights. Fairly soon after we had adopted inflation targeting, we learned how demanding it may be to strike a balance between different monetary policy considerations in a small open economy. When the key policy rate is raised to restrain a pronounced rise in domestic inflation, it may strongly impact the exchange rate, as we experienced in the period 2002–2003. Both the real economy and inflation were affected. Midway through the decade, global inflation rapidly declined. China’s entry into the WTO, and increased imports from Asia to the west led to a persistent fall in import prices. The combination of very low inflation and strong economic growth posed new challenges for monetary policy. Interest rates – both in Norway and abroad – were set at low levels. | 0 |
In order to deal with this problem, it is important that the new exchanges establish clear rules regarding participation and price quotation as soon as possible in the process of starting their operations. Finally, I would like to say a few words about electronic money. E-money is still very much in its infancy but has the potential to develop. In the euro area, various e-money schemes exist. Although the volume of e-money in circulation currently remains very low in the euro area, the number of devices already in circulation suggests that usage could expand rapidly ("Issues arising from the emergence of electronic money", November 2000 edition of the Monthly Bulletin of the ECB, p.49-60.) In this context, it was important that the regulatory framework was clearly set up at an early stage so as to reduce uncertainty. In my view, this will encourage innovation. I am glad to say that the framework adopted in the European Union has the advantage of ensuring a high measure of security for customers, in particular through providing protection against counterfeiting and money laundering. For monetary policy, there are three main issues arising from the emergence of electronic money. First, it is important that electronic money does not jeopardise the unit of account function of money. In other words, electronic euros stored on a payment card must have the same value irrespective of when and by whom the card was issued. This important principle has been safeguarded in European legislation through the imposition of a redeemability requirement for e-money. | For example, on-line brokers often provide clients with detailed information regarding market conditions and the execution of orders. Greater transparency on the part of brokers reduces the information asymmetry between brokers and customers. As a result, customers may be able to obtain better execution prices, not least because they can more easily see the prices quoted by various brokers. 2 BIS Review 27/2001 Although the electronification of financial markets can bring benefits to customers, some risks are also associated with it. The first type of risk is by nature operational. Advances in information and telecommunications technologies have made it easier than ever before to set up exchanges for financial products, for example on the internet. In the early stages of their development, the new trading systems need to be thoroughly tested so as to ensure maximum security. In particular, it is important for them to be able to withstand turbulent market conditions, including periods of exceptionally high trading activity and market volatility. The second kind of risk arises from the possibility of a disorderly segmentation of financial markets. As new trading systems are developed, the possibility exists that trading activity becomes spread over a number of exchanges. Competition between exchanges is generally beneficial. However, customers may, at least over a transitory period, be faced with some difficulties in accessing the new exchanges. Until the changeover is complete, customers may thus be unable to always obtain the best execution prices. | 1 |
This was not a given as we were heavily reliant on foreign capital and expertise in the first years of oil activities. But decisions were taken early on in favour of substantial government ownership, high taxation of production profits and skills transfer requirements, which were in many ways in keeping with Norwegian traditions. The roots can be traced back to concession policy and hydropower management, and to the post-war focus on collective solutions. It was also broadly recognised that economic gains from the use of natural resources, economic rent, should be returned to society. The value of the fund is now more than three times annual mainland GDP. The fund has grown bigger than total net household wealth, including housing wealth (Chart 9). This means the fund has an interesting distributional aspect. While the richest decile controls half of household wealth, we all benefit from the fund. 8 NORGES BANK Chart 9 ... and larger than household wealth. Share of mainland GDP. 350 300 1) Percent 350 Net household wealth ECONOMIC PERSPECTIVES 13 FEBRUARY 2020 300 GPFG value 250 250 200 200 150 150 100 100 50 50 0 1998 2001 2004 2007 2010 2013 2016 0 2019 1) At 30 September 2019. Net household wealth is the sum of net value of household assets from the financial accounts and an estimate of the value of their dwellings. | A core motivation, for the quick actions taken by central banks during this crisis, has been to restore an orderly functioning of money markets. High volatility, high risk premia, impaired interbank and funding markets hurt the normal transmission of monetary impulses. Starting in the summer of 2007, Central Banks were confronted with major and unprecedented tensions. Increasing uncertainty led to liquidity hoarding by financial institutions. Banks severely limited the maturity, the scale and the number of their counterparties, severely affecting the functioning of the interbank market. These interventions were adjusted to the specific structures of the financial system in which central banks operate. In the US, where financial intermediation is heavily dependent on securitized credit markets, this involved significant asset purchases by the Central Bank. By contrast, in the Euro area, where financial intermediation occurs mainly through the banking system, ECB actions were aimed at providing banks with sufficient liquidity through repo operations to secure the flow of credit to the economy. 6. In the Eurosystem, we have entered the crisis with a large set of tools. From the outset, our operational framework was based on a broad list of eligible counterparties and collateral. So, we could adjust rapidly to the shocks in money and credit markets even if the environment in which we had to operate has changed profoundly. 7. | 0 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.