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There also seems to be agreement for the extension of regulatory tools to address pro-cyclicality in the financial system through the creation of counter-cyclical capital buffers, dynamic loan-loss provisioning and greater alignment of incentives with long-term goals. This consensus reflects the objective of avoiding having incentives that would encourage the material build-up of leverage and the excessive appetite for risk. Other measures under consideration include the implementation of non-risk-based leverage limits to contain the build-up of leverage in the banking sector and the strengthening of the supervisory framework and the arrangements for dealing with oversight on crossborder financial groups and for resolution. Implications for Islamic finance Islamic finance does not exist in isolation and as it becomes an increasingly important component of the global financial system, it will inevitably be impacted by the changing global landscape of financial regulation. This is particularly the case as its growth gains momentum both in terms of number of services providers and in terms of business volume and as its internationalisation process continues. The global call for improved regulation and increased oversight will thus intensify the efforts that have already been undertaken to strengthen the financial regulation for Islamic finance. | Ladies and gentlemen, A sustained process of excessive financial deregulation and over reliance on market discipline particularly in advanced economies which led to a prolonged cycle of optimism and BIS Review 64/2010 3 risk taking has been widely cited as part of the root cause of the recent global financial crisis. Indeed, the pre-crisis era was a period of exuberance in financial innovation and rapid development in the conventional financial landscape. Although it was argued that financial deregulation encourages innovation which in turn result in the more efficient allocation of resources, the recent crisis has shown that there is a need to balance between market discipline and regulatory oversight. Whilst there is general support for the reform measures, there is also concern on the dangers of over-reaction by policymakers that could undermine the role of financial intermediation, and adversely affect the ultimate objective of economic growth and development. The concern is specifically on the unintended consequences of the regulatory reform. Financial stability is not an end in itself; it is a means towards achieving the ultimate goal of sustainable growth and shared prosperity. This presents the challenge for policymakers in finding the appropriate balance between preserving the resilience of the financial system versus maintaining the ability of the system to perform their intended function of delivering effective, efficient and innovative financing solutions to customers in the wider economy. Hence, the concern is that that the regulatory reforms would increase the cost of financial intermediation. | 1 |
But there have also been increasing calls for a single trusted ‘golden source’ from which bespoke rates can be calculated, to complement or cross-check those quoted by commercial providers. Similar steps are being taken in other jurisdictions, including the US and Switzerland for dollar and Swiss Franc rates respectively.14 The Bank is therefore announcing today our intention to publish a SONIA-linked index from July this year. In addition to the overnight SONIA rate we already publish, this index will allow market participants to calculate a wide range of compounded SONIA rates for longer-than-overnight products by simply using the start and end-date of their product (Figure 3). This approach brings three main benefits for market participants; - Ease – the index will make it easier to calculate compounded SONIA interest rates, requiring only two data points; - Reduction of uncertainty – the index will use a consistent and standard set of conventions, reducing the scope for confusion over different calculation methodologies, and making reconciliation simpler; and - Flexibility – the index will be publicly available and allow firms and end-users to calculate the compounded rate for products of any combination of start and end dates and any maturity. We hope that, in time, this tool will complement others already available, helping to build further momentum for LIBOR transition in sterling cash markets – supporting both end-users and loan and infrastructure providers. But these firms should not wait for the index before undertaking their own broader preparations. | Turbo-charging sterling LIBOR transition: why 2020 is the year for action – and what the Bank of England is doing to help Speech given by Andrew Hauser, Executive Director, Markets International Swaps and Derivatives Association/SIFMA Asset Management Group Benchmark Strategies Forum, London Wednesday 26 February 2020 I am grateful to Sarah Hall for co-writing this speech – and to Amber Evans, Alastair Hughes, Wayne Leslie, Will Parry, Rhys Phillips, Edwin Schooling Latter, Dave Ramsden and Francesca Zwolinksy for their advice and comments. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches Introduction 2020 is a critical year for LIBOR transition. Great progress was made in 2019, particularly in sterling wholesale markets – and I want to give special thanks to the part that ISDA’s support and leadership has played in that. But, with the finish line for LIBOR now clearly in view, there is still a lot of ground to cover – particularly in the cash markets. We need to see another decisive acceleration in effort in 2020 to ensure risk-free rates are adopted across the full range of sterling business, and LIBOR is left behind for good. The motor racing analogy is apt, because LIBOR transition is complex, fast-paced and – above all – a team effort. The green lights came on some time ago, and the private sector has been decisively – and rightly – leading from the front. | 1 |
To sum up, the information and analyses that have become available since our meeting on 6 August 2009 confirms the view of the Governing Council that the current key ECB interest rates remain appropriate. In this respect, at today’s meeting we also decided that the rate for the twelve-month longer-term refinancing operation to be allotted on 30 September 2009 will be the prevailing rate on the main refinancing operations. Price developments are expected to remain subdued over the policy-relevant horizon. Annual HICP inflation was slightly negative in August. This reflects mainly the base effects of the strong rise in commodity prices in 2008. The return of HICP inflation to moderate positive rates is expected within the coming months. At the same time, the latest information supports our view that there are increasing signs of stabilisation in economic activity in the euro area and elsewhere. This is consistent with the expectation that the significant contraction in economic activity has come to an end and is now followed by a period of stabilisation and very gradual recovery . Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit expansion continues to decelerate. | Given today’s decision, the key rate is at the top of this range equalling from 6% to 7% in nominal terms, or from 2% to 3% in real terms, which is the same, with inflation expected to reach 4%. In this regard, it is of note that the neutral key rate estimate is not ‘a point’, but a range of values. It depends on various domestic and global drivers, as well as the monetary policy transmission mechanism, and may alter, being affected by them. It will therefore take time to ‘feel’ the thresholds of this ‘neutral range’ and make sure that they are in line with our current estimates. If necessary, we will adjust these estimates. A sustainable inflation rate close to the 4% target will be the key criterion suggesting that we are right in our estimates of this range. 3/3 BIS central bankers' speeches | 0 |
Insurance companies undertake an activity that matters, often critically – for the corporates that rely on protection of insurance for the day-to-day running of their businesses, and for individuals who invest a significant portion of their wealth in insurers over their lifetime, or who rely on insurers to protect them against financial disasters. It is for these very basic reasons that we are interested in insurance as a matter of public policy. However, we cannot justify regulation of an industry just because its activity is important. The aim of regulation is always to correct some sort of market failure. The insurance industry has many characteristics that could lead to the market producing a sub-optimal outcome, if left alone. First, the insurance business model is unusual in that it has an inverse production cycle – insurers typically receive premia upfront for a service that may or may not have to be BIS central bankers’ speeches 1 rendered in future (claims), the cost of which is difficult to calculate. Policyholders rely on the insurance company to set aside appropriate provisions to satisfy future claims, but the market may not always be a reliable mechanism for ensuring that insurance companies do not grow excessively by taking on too much risk. Insurance obligations are often long-term and so policyholders trust insurance companies with their money for considerable periods of time. | The role of the PRA is to make sure that the risks for which insurance companies provide protection do not revert to the customer when bad outcomes happen. It would be grossly unfair if you had paid somebody to take your risks away, only to find that you had unwittingly acquired a huge credit risk by giving your money to a financially unsound company. Our main job at the PRA is to ensure that firms are safe and sound, and contribute to policyholder protection. That way, the shareholder can reap the rewards if the risks pay off, but will bear the cost if the firm loses money. This public policy case is well established in many countries, such that the approach of different regulators is often founded in commonly agreed principles. For instance, in the 1970s, the introduction of Solvency I codified these principles into a set of requirements across the EU. The birthplace of insurance However, looked at across the sweep of insurance history, this public policy case is a newfangled set of ideas. I have tried to find out what, if anything, public authorities have thought about insurance through time. In my quest to find the answer to this question, I ended up going back further than anticipated – to around 3000 B.C. – and came across the curiouslynamed practice of “bottomry” in the era of Babylon. | 1 |
Alternatively, they can sell their house at a profit. In 2006, there was a turnaround in the US housing market and house prices began to fall. This pulled the carpet from under many investments and resulted after a period in rising BIS Review 115/2007 1 defaults on mortgages. These developments then triggered widespread turbulence in money and credit markets. The US mortgage market has gradually developed into a complex structure with a large number of participants. The distance between borrower and investor can be considerable. The chart shows possible interlinkages in the US subprime market. There is a long chain of intermediaries. On the one side is a borrower who wishes to take out a mortgage in order to buy a house. Between the borrower and the lender is an agent who functions as sales channel. The lender is a financial institution specialising in granting and following up these mortgages. The first special purpose vehicle buys the mortgage and packages it with other mortgages. The mortgages are financed by securities split into tranches. The mezzanine tranches are sold to another special purpose vehicle, which repackages them and issues CDOs split into tranches. A third special purpose investment vehicle invests in the senior tranches and obtains its financing by issuing asset-backed commercial paper. The commercial paper is bought by a money market fund, which in turn has received its capital from savers. Banks can be involved in all stages of the chain. | Lastly, I must add ignorance as another essential cause of improper financial behavior. Even with a well-designed financial education program with meaningful messages and effective delivery channels, financial literacy cannot be achieved if consumers neglect the necessity and benefits of appropriate personal financial management. All in all, desirable financial behavior is sometimes well known, but less likely to be implemented by consumers themselves. It is similar to living a healthy lifestyle. We know that healthy food and exercise are good for us, but we don’t do it. Hence, a solution to the improvement in financial behavior remains a challenging puzzle for many of the policy makers and practitioners to find the right solutions for various groups of people. Ladies and Gentlemen, I truly believe that this seminar would allow an invaluable opportunity for us to learn how to solve these puzzles from honorable speakers who have come a long way to share with us their enriching experiences and lessons-learnt. The achievement of effective financial education and behavioral change would eventually drive the global community towards a more financial- literate and disciplined population who would help ensure sustainable growth and equality in our society. Lastly, I wish the seminar a great success. I also wish to express my sincere appreciation for all of your endless efforts in promoting financial inclusion and financial literacy. Thank you. 2 BIS central bankers’ speeches | 0 |
In the consumer portfolio, NBLs include retailers, family compensation funds (CCAF), savings and loan associations (S&Ls), factoring and leasing companies (F&Ls), and car dealerships. The mortgage portfolio includes endorsable mortgage loans (“mutuos hipotecarios”) issued by banks and mutual societies included among the assets held by life insurance companies (LICs). Finally, factoring and leasing companies mainly provide trade credit to businesses. Therefore most, if not all, of the lending activities of this sector is done in local currency. Having said that, we monitor this sector carefully, since the household debt issued by NBLs has increased a share of total consumer debt. Nonbank loans had a real annual growth rate of 11.5% in the fourth quarter of 2018. The contribution of debt with retailers was 4.5%; car dealership, 3.9%; CCAFs and F&Ls,1.2%; and S&Ls, Page 5 of 12 Central Bank of Chile September 2019 0.8%. In the same period, bank consumer loans grew around 5.7%. Nonbank consumer loans together were equivalent to about 58% of total bank consumer loans. This rate has been stable since 2012, although the composition has changed. Specifically, the share of retailers has been steadily increasing since mid-2013, while the share of companies oriented toward car financing has expanded more recently. As of December 2018, retailers accounted for 24.3%; car dealership, 12.1%; CCAFs, 12.1%; S&Ls, 6.6%; and F&Ls, 2.8%. High-level Policy Seminar on Integration or Fragmentation? | In 1986, the General Banking Law introduced limitations on currency mismatch, constraints on related party lending, and restrictions for banks to receive goods instead of liquid resources; all of them, elements that were common practice before the 1982 crisis. Paradoxically, what could be considered harsher regulation did not hamper financial deepening. Instead, it fostered solvency and credibility of the banking system and allowed its healthy development in the ensuing decades. At the core of this development was the creation of a funded pension system, and subsequent capital market reforms, together with capital market openness, which dramatically changed the size, composition, depth, and strength of the financial sector in Chile. Now, during the transition toward fully implementing the current policy framework, Chile experienced a period of capital control that have been highly reviewed in the literature. The unremunerated reserve requirement (URR) implemented in Chile during the 1990s helped to change the composition of capital flows toward longer terms but was less effective in terms of reducing the aggregate level of capital flowing into the country. After removing the URR completely by the end of the 90s and allowing the exchange rate to fluctuate freely, the banking and corporate sector learned to operate in a completely different environment, characterized by an extensive used of the derivative market. In In particular, corporations have learned to operate in a flexible FX environment by using both, natural and market-based FX risk hedging instruments. | 1 |
However, the discussion that has arisen at least indicates that there may be reason not automatically to regard public deficits as a negative thing, as we have perhaps become too accustomed to doing.15 Trend towards lower policy rate and public debt For Sweden, the changed conditions for monetary policy and fiscal policy are clearly illustrated by the development of the repo rate and public finances over the last twenty-five years or so (Figure 2). As the real global interest rate has fallen, the repo rate has had to be lowered to ever-lower levels for each business cycle. Despite this, it has been difficult to keep inflation around 2 per cent on a more lasting basis. During the same period, the consolidated gross government debt, the so-called Maastricht debt, has fallen from just under 70 per cent of GDP to about 40 per cent. The downward trend has certainly slowed down from time to time, most recently in connection with the coronavirus pandemic, but is still very clear. At a more general level and seen over the period as a whole, one may argue that this development also reflects the fact that macroeconomic policy has not been conducted in such a way as to keep public debt as a share of GDP stable. This has, of course, been a deliberate strategy as Sweden has wanted to reduce its debt. At 14 It is worth noting, however, that, from time to time, this problem also arises when monetary policy is dis- cussed. | One source of concern for both the United States and the world as a whole is the large deficits in the US economy. In the third quarter last year the current account deficit totalled USD 165 billion, or around 6 per cent of GDP. Data for November show that the deficit has continued to grow, reaching a new record high of just over USD 60 billion. This may result in changes in interest rates and exchange rates that could have considerable consequences for world trade. A large share, or about 40 per cent, of Sweden’s exports go to the euro area, and as a result economic developments there are especially important for us. The recovery in the euro area economy is going slowly. Growth in the third quarter was lower than expected. Available indicators for the fourth quarter provide a mixed picture. Germany, which is an important market for Swedish products, is showing some signs of an improvement. After several years of extensive cutbacks there should be a pent-up need among firms to invest. At the same time exports are being dampened by the euro’s rise against mainly the dollar. BIS Review 10/2005 1 The economic situation in Sweden As regards Sweden the Riksbank has been positive in the past year in its outlook on economic developments. International demand has increased faster than anticipated, with above all exports of services proving unexpectedly robust. Economic policy is also contributing to the relatively bright growth prospects. | 0 |
Jacqueline Loh: opportunities Innovation in central banking – seizing Remarks by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at the BIS Innovation Summit, 25 March 2021. * * * Introduction 1. Good morning, good afternoon and good evening – depending on where you may be attending this global event from. I congratulate the BIS on the success of this inaugural BIS Innovation Summit; which demonstrates the central banking community’s strong commitment to innovation, so that we may better serve our stakeholders. 2. I would like to share some perspectives on central bank innovation to round off this event. Firstly, why central banks should embrace innovation; Secondly, how central banks can facilitate and lead innovation while managing the inherent risks; and Lastly, how central banks can channel innovation capabilities to address two key challenges – improving sustainability and enhancing cross-border payments. Embracing Innovation 3. Let me first start with why central banks should embrace innovation. Innovation is transforming the financial sector. Digitalisation of financial services has made it easier for financial institutions to expand their global footprint, opened the door to new players, and set the stage for increasing cross-border connectivity. The adoption of new technologies has become more prevalent, and is fundamentally changing how the financial system functions. Distributed ledger technologies for example, have seen use cases expand beyond digital payments and trade finance, to the security of data and personal identity, as well as anti-money laundering. | AI and machine learning, when applied to the myriad of data that supervisors have, offer the possibility of real-time customised risk assessments and early warning capabilities. This can inform policy interventions in times of heightened risk, and help to preserve financial stability. To this end, the BIS Innovation Hub Singapore Centre, is spearheading a RegTech and SupTech project to pilot the development of an integrated regulatory reporting platform and data analytics utility. This allows supervisors to assess microprudential and macroprudential risks by applying AI and machine learning tools to unstructured data as well as to big datasets. The application of such tools is enabled by transforming regulatory reporting to be based on the mapping of granular data to a common data model, moving away from fixed templates. This integrated solution, which has the potential to be scaled across supervisory authorities, will be a tangible example of a global public good that the BIS Innovation Hub can deliver for the benefit of the central banking and supervisory communities. Leading Innovation 6. Having touched on the ‘why’ of innovation, let me share some views on ‘how’ central banks can support and facilitate innovation by the industry. The central banking community has already been generally facilitative towards innovation while managing the inherent risks. In fact, some central banks including MAS have deliberately provided room for emerging technologies to be explored deeply, and their benefits and risks to be properly understood. We have avoided having regulation front-run innovation, so as not to stifle new ideas. | 1 |
In particular, low interest rates push up housing demand but also incentivise risk-taking behaviour by banks, by reducing the cost of leverage and weighing on bank margins and profitability. A global normalisation of monetary policy rates seems to be underway, most notably in the UK and in the US, against the background of a sharp rise in inflation. This could help slow down the increase in vulnerabilities, if the normalisation takes place gradually and does not trigger an excessive tightening of financial conditions. However, the global level of interest rates is likely to remain low in the medium term, dampened by structural factors such as demographics, inequality and a strong demand for safe assets internationally. Monetary policy has no influence over these factors. Even more importantly, the focus of monetary policy is price stability and economic developments, and not curbing financial system vulnerabilities. The most suitable way to address these vulnerabilities is therefore through macroprudential policy. Many authorities have in fact already responded to these developments by tightening macroprudential policy. Some countries have tightened borrower-based instruments in an attempt to curb rising vulnerabilities (e.g. Finland, France and Iceland). Others have opted to increase banking sector resilience to ensure that banks have enough capital to withstand a correction. Jurisdictions that released or reduced the CCyB in the acute phase of the pandemic to support bank lending are reactivating or increasing it again, in some cases to a higher level (e.g. Denmark, Germany, Iceland, Norway, Sweden, UK). | Gent Sejko: The importance of media in analysing Albania’s monetary policy Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media, Tirana, 20 December 2018. * * * Dear ladies and gentlemen, Welcome to our end-of-year meeting with the media. I would like to thank you for your readiness, objectivity, and seriousness in covering the activities of the Bank of Albania and informing the public about them, throughout 2018. Thanks to you, our analyses and decision-making have been communicated in a thorough manner, mindfully tailored and styled in accordance with the age and profession of the targeted audience. I must note that, in addition to broad geographic coverage, your comments and analyses on the economic and financial developments in Albania have been very professional. At the Bank of Albania, my colleagues and I maintain that the current media reality is an important part of our activity. Our decision-making could not be considered complete without your contribution. Communication is a vital and delicate process for a central bank. I must emphasize that, without your help and objectivity, realisation of Bank of Albania’s decision-making regarding monetary policy and financial stability would have been an impossible mission. Figuratively, I would point out that you are the ones that enable the translation of our analyses and conclusions into an adequate and easy-to-understand message for the general public. | 0 |
1.5 Draft Budget macroeconomic forecast The macroeconomic forecast underpinning the Draft Budget expects real GDP in Spain to fall by 11.2% in 2020, followed by growth of 9.8% in 2021. In the fiscal sphere, it envisages a correction of 3.6 pp in the general government budget deficit between 2020 and 2021, from 11.3% of GDP this year to 7.7% of GDP next year. In such an extraordinarily uncertain and changing environment as the present one, we need to be especially cautious when assessing these forecasts and comparing them with those made – mostly at different moments in time – by other analysts. In my view, three points should be highlighted. First, the starting point for this Draft Budget, which is none other than the forecasts made for the current year. In general, these are consistent with those published by the Banco de España in our latest projections report. In particular, the scale of the possible fall in GDP in Spain in 2020 – 11.2% according to the macroeconomic forecast underpinning the Draft Budget – is more or less mid-range between the two projection scenarios presented by the Banco de España in September, which envisaged a decline of 10.5% under scenario 1 and of 12.6% under scenario 2. This is also true for the budget deficit estimated for 2020 in the Draft Budget forecast, which is 11.3% of GDP, virtually mid-range between the deficit envisaged under scenario 1 (10.8%) and scenario 2 (12.1%). | In an environment of structurally low interest rates, like the one we are in at the moment, the adverse effects of very high levels of government debt are less visible in the short run. Indeed, the fact that interest rates are lower than nominal growth rates increases the possibilities of expanding government debt before it begins to rise exponentially, but there is a risk that the differential between nominal interest rates and the nominal GDP growth rate will at some point cease to be negative, in which case the unfavourable effect on the dynamics of the government debt ratio will be all the greater the higher the level of debt. In any event, the evidence regarding the adverse effects of running high levels of government debt is abundant. High government debt tends to lead to a decline in the financing available for private spending, as well as an increase in its cost, ultimately hampering the accumulation of private capital and hindering economic growth. High levels of debt, moreover, increase the likelihood of episodes of financial vulnerability, as in the global financial crisis and the sovereign debt crisis when rising funding costs and falling 27 volumes reached extreme levels. Finally, the greater the level of government debt, the less the scope for fiscal policy to respond to the downturns that may arise in the future. During the sovereign debt crisis, all these effects were apparent. | 1 |
This is after: Deducting $ billion of expenses from domestic money market and other operations; and Contributing $ billion to the Government’s Consolidated Fund, as payment in lieu of corporate income tax. This year, MAS will return half of its profits – $ billion – to the Government while the remainder will be added to MAS’ reserves. CONCLUSION Let me sum up. The economic situation remains dire. We are not at the beginning of the end, but rather at the end of the beginning. Growth rates will pick up – as you would expect coming from a very low base; but the level of activity will remain below pre-crisis levels for quite a while. The recovery is likely to be slow and uneven, weighed down by renewed outbreaks of infection here or abroad. Unemployment and corporate bankruptcies are likely to increase in the months ahead. We will enter 2021 with higher levels of debt, in both the corporate and household sectors, which will act as a further drag on growth and could become a source of vulnerability. MAS’ priorities will be to ensure monetary and financial stability. We will keep the exchange rate stable, to provide an anchor of confidence. We will keep the funding markets liquid, to ensure credit remains available to the economy. We will ensure the financial system remains sound and resilient. We will ensure that our systemically important financial institutions continue to have healthy buffers to absorb any unexpected losses. | With the world economy now beginning to catch a cold from the slowdown in the US economy, the quality and competitiveness of our exports means that our companies are better equipped than others to hold their own in the global marketplace. Foreign trade not only represents Switzerland's growth driver, but it is also our friend when economic times are hard. BIS Review 45/2008 1 | 0 |
The inflation target is symmetrical – it is just as important to avoid an inflation rate that is too low as an inflation rate that is too high. The inflation target provides economic agents with an anchor for inflation expectations. Decisions concerning saving and investment can be based on the assumption that inflation in Norway will be around 2½ per cent over time. Norges Bank’s instrument to meet the inflation target is the key policy rate, which is the interest rate on banks’ deposits in Norges Bank. This interest rate forms the basis for banks’ lending and deposit rates. 2 BIS central bankers’ speeches The Bank’ monetary policy assessments and decisions must be based on knowledge it can obtain on interactions within the Norwegian economy and how the interest rate interacts. But we need a methodical apparatus to structure this knowledge. Like other central banks, Norges Bank uses economic models as an aid in monetary policy analysis. Economic models can help us to interpret historical developments, make forecasts for the future and analyse the effect of the interest rate. For an economic model to be relevant, it must be fit for its intended purpose. A model that is to be used as an aid in making interest rate decisions requires different attributes and is based on different principles than models that for example seek to provide optimal near-term inflation and output forecasts. In this chart, the time axis has been divided into three: short term, medium term and long term. | This is important to ensure a sustained supply of human talent to support the long-term growth of Islamic finance. To meet this requirement, a complete training infrastructure has been established. Islamic Banking and Finance Institute Malaysia (IBFIM), which is an industry-owned training institute, will now focus on providing technical programmes in Islamic finance. The recently launched International Centre for Education in Islamic Finance (INCEIF) will provide professional certification as well as postgraduate programmes. The INCEIF flagship programme, the Certified Islamic Finance Professional certification programme, is scheduled to begin on 1 June 2006. For leadership development programmes, ICLIF will play its role in developing leaders to serve the industry, providing facilities for education in Islamic finance to not only support the development of the domestic Islamic financial system, but to also position Malaysia as an international centre for education in Islamic finance. And in so doing, this will contribute towards the global development of Islamic finance. Industry players therefore have the opportunity to assist their staff to acquire the necessary skills at these institutions. The Islamic financial institutions also require forward-looking leaders to steer the industry in the more demanding and challenging environment. Ladies and Gentlemen, The huge potential in Islamic finance can only be realised if sufficient resources and drive are accorded to it. In conclusion, let me take this opportunity to congratulate the AmBank Group on the initiative to establish its own Islamic banking subsidiary and provide the necessary resources and support to ensure its success. | 0 |
Page 7 The views expressed in this speech are not necessarily those of the Bank of England or the Monetary Policy Committee. I would particularly like to thank Saba Alam, Andrew Bailey, Harvey Daniell, Swati Dhingra, Jonathan Haskell, Catherine Mann and Martin Seneca for helpful comments on earlier drafts of these remarks. The responsibility for all remaining errors is my own. Endnotes 1. Friedman, M. (1961). ‘The lag in effect of monetary policy,’ Journal of Political Economy 69(5), pp. 447-466. ↑ 2. Goodfriend, M. (1998). ‘Using the term structure of interest rates for monetary policy,’ Federal Reserve Bank of Richmond Economic Quarterly 84(3), pp. 13-30. ↑ 3. In commenting on Capie et al. (1993) ‘The future of central banking: The tercentenary symposium of the Bank of England,’ former Federal Reserve Chairman Alan Greenspan remarked: ‘Implicit in any monetary policy action or inaction is an expectation of how the future will unfold, that is, a forecast. There is no way to avoid making a forecast, explicitly or implicitly.’ ↑ 4. King, M. (2010). ‘Uncertainty in macroeconomic policy making – Art or science?’ Lecture at the Royal Society conference on “Handling Uncertainty in Science”, London, 22 March. ↑ 5. Evans, C., J. Fisher, F. Gourio and S. Krane (2015). ‘Risk management for monetary policy near the zero lower bound,’ Brookings Papers on Economic Activity (Spring), pp. 141-196. ↑ 6. In December, on a seasonally adjusted, 3-month average on the same 3 months a year ago basis. ↑ 7. Churchman, C. (1967). ‘Wicked problems,’ Management Science 14(4), pp. | The lesson, therefore, is not to rely on either risk-based or non-risk-based measures alone, but to have each reinforcing the other. A combined approach, as Basel III introduces, is better than any single approach. I believe Basel III strikes a reasonable balance by strengthening overall bank-capital requirements while continuing to recognise that there are a wide range of risks within a bank’s business. Going forward, the Committee will look to further simplify the framework while ensuring that it appropriately measures and responds to the risks it is supposed to mitigate. 2 BIS central bankers’ speeches | 0 |
Far from it: these profits are obtained at the expense of those who either have no opportunity to circumvent the controls or who belong to the majority of people who abide by the law. The cost emerges in an excessively weak króna, elevated inflation, and higher interest rates. This is why it is so important to close the loophole entailed in cross-border transfer of payments on amortised bonds. It is also why the surveillance and investigation of the Bank’s Capital Controls Surveillance Unit and the activities of the Special Prosecutor’s Office are so important. Whether or not the capital controls should exist is, of course, a subject for debate, but while they do exist, not enforcing them to the maximum extent possible would simply be discriminatory. In a broader context, I think it is useful to think of the capital controls as tools that provide short-term benefits related to economic and financial stability but have associated long-term costs due to trade restriction, and these costs grow over time. Untimely and poorly structured removal of the controls could jeopardise economic and financial stability and entail substantial short-term costs. Careful structuring of the liberalisation process will significantly reduce this risk, although it will not eliminate it. The problem is that we know the signs of these effects but not their magnitude. | Conduits and SIVs have no capital of their own, and they depend heavily on the liquidity support and credit enhancement from their sponsor banks, whose terms, and conditions, as I said, may 1 2 Market Liquidity and Short Term credit : The Financial Crisis of August 2007 ; 3 September 2007. BIS Review 128/2007 be variable and uncertain. And yet, they undertook maturity transformation on a significant scale. So those risks which materialized directly translated into liquidity shortage. Conversely, the reason why most hedge funds weathered the shock – at least until now – may be that they managed to strengthen their capital base by imposing strict redemption rules to their investors. Strong capital will not guarantee liquidity in all circumstances. There can be panics and sudden increases in the demand for liquidity. That's the job of Central Banks to help in those circumstances. But a strong capital base in the system – and in all its components – is likely to limit future liquidity shocks. In the period to come, Central Banks, regulators and market participants will debate on the ways and means to restore the securitized model on a robust and sound basis. The implementation of Basel II will bring significant improvements in the measure and management of risks. Had it been into place some years ago, we may have avoided some of the problems we currently face. Other evolutions in the regulatory environment and business practices may prove necessary. | 0 |
The fact that the bond in this case is linked to STIBOR 3 months is probably due to it being the same frequency as the coupon payments. It would, of course, be impractical to have settlement and coupon payments every day. In this context, backward-looking average rates have roughly the same practical and administrative advantages as forward-looking interbank rates. As the Riksbank is now starting to publish average interest rates and indices for SWESTR, market participants can therefore start using SWESTR instead of STIBOR also at longer maturities. This is, of course, an adjustment for both lenders and borrowers, but the obstacles are hardly insurmountable. In other countries, for example, various adjustments have been introduced which mean that interest payment is delayed for a couple of days. In this way, market participants can see what the final interest was and make the payment a few days later. Market participants need to work together for an orderly transition It is thus clear that there are issues that need to be addressed before a transition to SWESTR can be completed. Since reference rates are used by many participants and in a large number of contracts, it is important that this is done in an orderly manner. It will be a development project running over several years. The Riksbank would like to call on all those concerned to start the transition now. Sweden should not be left behind in the global effort to start using transactionbased reference rates. | 2 In the euro area, the old EONIA reference rate still formally exists, but was redefined a few years ago as the new reference rate of € plus a fixed premium. 3 The nine monetary policy counterparties that currently report their SWESTR-relevant transactions on a daily basis are Handelsbanken, Swedbank, SEB, Danske Bank, DnB, Skandiabanken, Länsförsäkringar Bank, SBAB and Nordea. 8 [8] | 1 |
Therefore, these are important risk factors that should seriously be taken into account. Dear Guests, I would like to draw your attention to credit cards regarding the household indebtedness issue. As it is known, in general, the credit card is a payment instrument that enables its owner to purchase goods and services at member businesses without using cash. Moreover, if credit card users wish to withdraw cash or to delay their credit card payments for a determined period, the relevant amounts spent turn into credit and thus the credit card becomes a credit instrument. Institutions issuing credit cards incur POS (Point of Sale) machine investment and membership to national and international payment systems expenditures, and they are exposed to liquidity risk due to unforeseen cash withdrawals. Consequently, banks tend to determine higher credit card interest rates than those of consumer credits due to their higher risk exposures, namely the higher credit risk because of weak collateral structure and liquidity risk because of unforeseen cash withdrawals. A survey of country practices also reveals that credit card interest rates are determined higher than interest rates set for consumer credits. Therefore, it is in the interest of credit card users to meet their short-term credit needs via consumer credits rather than their credit cards. Moreover, the interest rates applicable to credit card transactions differ significantly from bank to bank. | Jean-Pierre Roth: Prospects for the Swiss franc in the heart of the euro area Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Associazione Carlo Cattaneo, Lugano, 9 March 2005. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The launch of the euro in January 1999 fundamentally transformed the international monetary order. Switzerland, a small country that strongly depends on exports and capital transactions, suddenly found itself surrounded by a market with almost 300 million people sharing a single currency. What were the monetary consequences of this development, and what are the prospects for the Swiss franc, which is traditionally considered a "success product"? The role of the Swiss franc in commercial and financial transactions has certainly diminished. Although the euro is only rarely used as a means of payment in the Swiss market, billing within the euro area is increasingly taking place in the single currency only – a fact to which Swiss companies have to adjust. In the financial markets, the euro now acts as a counterweight to the dollar. The Swiss franc has thus lost some of its significance as a safe-haven currency and has performed more in line with its fundamentals. The introduction of the euro has, however, not affected our monetary autonomy or the Swiss interest rate advantage. The Swiss National Bank has been able to respond with flexibility and determination to the recent economic slowdown. | 0 |
The fiscal rule stabilises enterprises’ expectations concerning competitiveness and the krone exchange rate. This can prevent abrupt and pronounced swings in the structure of the economy. If the government authorities disregard the rule, enterprises will lose an important reference. A policy rule can make matters worse if economic agents have drawn up long-term plans on a faulty basis.3 Both short-term and long-term considerations imply that the use of petroleum revenues as a share of the Petroleum Fund should be curbed ahead. The Norwegian economy is growing at a brisk pace. The public sector has invested heavily in the care of the elderly, which should cover the needs of a generation that was born just after World War I. The need for growth in public expenditure will be more moderate in the coming years and marked by the small cohorts of the 1930s and war years, who are now joining the ranks of the elderly. Moreover, the National Insurance Scheme, introduced in 1967, is nearing maturity. In addition, a few years remain before the large post-war cohorts retire and add to the demand for health services. Hence, the conditions are now conducive to returning to the use of 4 per cent of the Petroleum Fund. The current cost level in the Norwegian business sector is adapted to an expansion of the petroleum sector and a steady phasing-in of petroleum revenues into the mainland economy. Costs rose sharply from the mid-1960s to the mid-1970s and reached a very high level. | Most recently, the Federal Reserve increased its key rate by 0.25 percentage point, and it has also announced further interest rate hikes. With the prospect of low inflation, Norway has lagged behind other countries in adjusting interest rates to a more normal level. Two years after we started to lower interest rates it would appear that inflation is moving up, albeit slowly. Inflation is low, but the indices are also influenced by temporary and erratic disturbances. It will still take time before we will have seen the full impact of low interest rates. It may appear that growth in the Norwegian economy has become more self-driven. Capacity utilisation is close to normal and rising. After a period, the interest rate can then gradually be raised to a more normal level. Economic policy tasks The various components of economic policy have varying effects. This is why they have different functions: • Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. BIS Review 10/2005 5 • The central government budget – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. • Wage formation, the structure of the economy and incentives determine how efficiently we utilise our labour resources and other economic resources. | 1 |
However, this type of forecast has a relatively good accuracy in the short term (up to one year ahead). 6 The forecast produced by the now-casting is then entered into the large DSGE model and forms a basis for the model’s longer-term forecasts. The international forecast for all quarters is then also made outside of Ramses and entered as input into the model. As all models are simplifications of reality, however, the final analysis must always contain elements of assessment that correct the results from the model. In addition, some markets, for instance, the financial markets, are not entirely reflected in these models. 7 The latter play an important role in the current stage, which is affected substantially by the financial turbulence. General equilibrium models are an important analysis tool as they provide a consistent picture of the economy. They can therefore also be used for policy analysis and to analyse alternative scenarios. 4 F. E. Kydland and E. C. Prescott “Time to build and aggregate fluctuations”, Econometrica 50, 1982, 13451370. 5 O. J. Blanchard, “The state of macro”, NBER working paper series, August 2008. 6 See M. K. Andersson and M. Löf. Sveriges Riksbank Economic Review 2007:1. 7 C. E. Tovar. “DSGE models and central banks”. BIS Working Papers No 258. 2008. 2 BIS Review 121/2008 Some facts about economic cycles According to economic theory, fluctuations in growth thus arise as a result of various external shocks affecting the economy. | There are, certainly, things that we can do to reduce the risks - to try to prevent the first climber falling off the rock face, or to avoid kicking the rock that starts the avalanche. A key condition, obviously, is maintaining macro-economic, monetary, stability. That goes without saying. It gives everyone on the mountainside much the best chance of coming down unscathed! We can also turn the new information technology to our advantage, using it to make the linkages between the climbers safer - by reducing the risks in payments and settlements systems. A good deal of our attention on the financial stability side of the Bank is focused in this direction. And we can satisfy ourselves - through micro-prudential supervision and regulation of individual financial businesses - that the climbers are properly trained and equipped, and fully conscious of the risks. This now, of course, becomes the responsibility of the FSA. Intervention But however much we try to prevent accidents, we need to be prepared for them to happen. The Bank’s concern then becomes to ensure that they do not spread to other parts of the financial system. This may involve providing liquidity on penal terms, outside the central bank’s normal money market operations, against high quality assets to a particular institution, that does not want to appear in the market because it is under a cloud. Or it may mean standing between an intermediary and the market place, to facilitate payments or settlements which might not otherwise be completed, which could then cause gridlock. | 0 |
Some information can in fact be downright misleading. For example, a firm may engage in internal testing and locate a number of Year 2000-related problems in its systems. Of course, it is the process of this testing that will enable the firm to locate and overcome these problems. Thus, disclosing its internal test results in isolation could give a false impression of its readiness. In general, comprehensive self-disclosure in written form, supplemented by a willingness to answer specific questions, is proving to be the most effective way of sharing information. Another issue that often comes up in this context is the question of certification. External parties, whether auditors or examiners, cannot realistically certify Year 2000 compliance. The best that they can do is focus on the effectiveness of the process that the organization has established. Oversight by these third parties should not be seen as a substitute for an organization’s own due diligence, an area in which internal audit departments have traditionally played a leading role. Internal auditors also could be useful in helping firms develop their Year 2000 disclosures. Another concern is the existence of possible legal obstacles that may stand in the way of Year 2000 information sharing. In the United States, several efforts have been made to limit or remove these obstacles, and such efforts may be needed in other countries as well. For example, a ruling was issued by our Justice Department limiting the extent to which Year 2000 information sharing could be viewed as a violation of antitrust laws. | Tharman Shanmugaratnam: The Gallery – promoting Singapore’s central bank role and mission Remarks by Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore, at the Opening of the MAS Gallery, Singapore, 16 February 2016. * * * ESM Goh Chok Tong Family members of Former Chairmen, Mr Hon Sui Sen and Dr Goh Keng Swee, and of former Managing Director Mr Lim Kim San Former Managing Directors, Mr Michael Wong Pak-Shong, Mr JY Pillay and Mr Lee Ek Tieng Current Board members Members of the MAS management and staff, and especially, MAS Pioneers Thank you to everyone for coming to the opening of our MAS Gallery. The Gallery is aimed at helping the public understand the mission of the MAS, and its role in promoting both growth and stability of the Singapore economy and financial system. The Gallery aims to help the public understand • how we keep inflation low over the long term through MAS’ policies in managing the exchange rate of the Singapore dollar, • how we supervise the financial sector – the banking, insurance and securities industries - to ensure confidence in our financial system, • how we promote the development of a vibrant financial centre that serves a good part of Asia and in some respects the rest of the world, • how we also seek to ensure that the financial system serves the interests of consumers, and how we try to help Singaporeans manage their finances well. | 0 |
Interestingly, the main reason cited is improved staff well-being. Among workers the picture is much the same, with surveys suggesting more than a quarter expect to spend more time home-working after the pandemic has abated. My own experience since March has mirrored trends in the wider economy. I am one of the lucky ones who has been able to work from home, as have virtually all other Bank of England staff. I have been back into the office only twice in the past six months. Full-time home-working has, for me, been a radical shift. For the past 30, my working week has been 5-0, office versus home. Nonetheless, like many others, if you asked me how my future working week might look, I think it unlikely I will revert back to the 5-0 model. 2 APSCo (2020). ONS (2020a). 4 Milasi et al (2020), Mongey et al (2020). 3 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 The Effects on Productivity and Output Given these shifts, some of which seem likely to prove durable, what impact might they have had on workers’ and businesses’ economic contribution – that is to say, their productivity (the amount done per hour worked) and their overall output (productivity multiplied by working hours)? In short, how has this shift in working practices affected working capacity of the economy? | The deficits are currently large in all of the vulnerable countries, but while Ireland and Spain have been able to show a balance or surplus during the years prior to the crisis, Italy and Portugal have shown a deficit throughout. (Slide: General government net lending in Portugal, Ireland, Italy and Spain). A common precondition for the ability of these countries to renew their loans at a manageable cost is the credibility of their fiscal policy consolidation plans. The example of Ireland points to a credible consolidation plan with concrete decisions on large cuts in public expenditure being able to reverse an upward trend in interest rates, while the greatest pressure is currently on Portugal, where the ten-year rate rose last week. (Slide: Government bond rates of Portugal, Ireland, Italy and Spain, compared with those of Germany). The more favourable the conditions for the development of domestic and foreign demand, the greater are the chances that good GDP growth will be able to reduce the problems in public finances. Those countries that have not had large falls in asset prices, including Italy, do not risk suppressed domestic demand in the same way as, for instance, Spain and Ireland, where property prices have fallen substantially. With regard to demand from abroad, the problems are made more severe by wages and prices having grown faster in these countries than in the euro area as a whole since the euro was introduced. | 0 |
Sixth, in the pursuit of this national agenda, an MIFC Executive Committee comprising heads of relevant Ministries, agencies and industry representatives has been set up as a single coordinating committee to efficiently and effectively act collectively in the implementation of the recommendations. The Committee is entrusted to provide direction as well as review existing policies for the comprehensive and coordinated promotion of MIFC, and to align the role and responsibilities of the respective parts of Government and the industry to the development of MIFC. The secretariat is Bank Negara Malaysia, which will act on behalf of this committee as a one-stop body to fulfil this task. We believe that these measures and initiatives will serve as a catalyst in our efforts for Malaysia to become a centre of origination, issuance and trading of Islamic capital market and treasury instruments, Islamic fund and wealth management, international currency Islamic financial services, and takaful and retakaful business. It is also aimed at positioning Malaysia as the gateway for tapping investment opportunities in this rapidly growing region. 4 BIS Review 74/2006 In this environment, financial players, particularly with investment banking and fund management expertise, would need to sharpen their strategies and intensify their efforts in structuring cutting-edge Islamic investment instruments and in attracting new funds. Investors, especially those from the Middle East have shown strong interest to invest in Malaysian assets and to become partners with our local business corporates. There are therefore significant opportunities to strengthen trade and investment ties with the Middle East region. | There is no withholding tax on the profit realised from investments in these ringgit denominated bonds. The International Finance Corporation and the International Bank for Reconstruction and Development have since issued their first ever Islamic bond issuances in Malaysia. The total issuance amounted to RM1.3 billion, all of which were over subscribed. A portion of these papers was purchased by non-resident investors, indicating foreign interest in the ringgit denominated instruments. On the availability of credible and timely information, the Malaysian regulatory framework, reinforced with the adoption of best practices, has created an environment of greater transparency and richness in financial market information. The financial regulators provide extensive information about the Malaysian economy and Malaysian financial system, including regulatory requirements. The Bank also has put in place several websites that provide market information on the issues that are available for the market participants. Finally, on the capacity for diversification and risk management in the Islamic financial system, while being relatively small compared to the conventional system, it is expected to expand as the financial system strengthens and as new products are introduced. In the context of this financial infrastructure, the Malaysian Islamic financial system is both robust and fast growing. The market has highly diversified players, with Islamic banks, investment banks, takaful companies, development financial institutions, savings institutions, fund management companies, stock brokers and unit trusts. The Malaysian Islamic financial market has already introduced a variety of Islamic financial hedging instruments, including the Islamic profit rate swap, Islamic cross-currency swap and Islamic forward rate agreement. | 1 |
Remarks given during the UN Secretary General’s Climate Action Summit 2019 Mark Carney Governor of the Bank of England Monday 23 September 2019 Climate Action Summit, UN General Assembly, New York Sunday 22 September 2019 Insurance, Risk Financing and Development: Driving Public Private Action for Climate Resilience, event hosted by UNDP, German Ministry for Economic Cooperation and Development, Insurance Development Forum and InsuResilience Global Partnership, New York . 1 All speeches are available online at www.bankofengland.co.uk/news/speeches UN Climate Summit, General Assembly, Monday 23 September Secretary General, your Excellencies, Ladies and Gentleman. A new, sustainable financial system is being built. It is funding the initiatives and innovations of the private sector, it has the potential to amplify the effectiveness of the climate policies of your governments and it could accelerate the transition to a low carbon economy. But the task is large, the window of opportunity is short, and the risks are existential. And like virtually everything else in the response to climate change, the development of this new sustainable finance is not moving fast enough for the world to reach net zero. To bring climate risks and resilience into the heart of financial decision making, climate disclosure must become comprehensive; climate risk management must be transformed, and sustainable investing must go mainstream. Here’s how. First, on disclosure. | When a faulty motorcycle is brought to a mechanic, he may simply jump to conclusions based on his 2 BIS Review 161/2008 previous knowledge. Instead of subjecting the motorcycle to a thorough scientific inquiry, he may conclude that the fault lies in a certain part or a certain mechanism. To reach this conclusion, he has not gathered the relevant information. The chances are that he may be correct or may not be correct. If he is correct, the repair performed on the basis of the diagnosis made with imperfect information will prove to be a success. But the mechanic in that case has behaved like a speculator and the outcome of speculation may have the chance of being a success or a failure. If it turns out to be a failure, the cost to the owner of the motorcycle would be enormous. In that case, since the correct repair has not been performed, the motorcycle will continue to remain faulty. Hence, a true scientist engaging himself in scientific inquiry should not be a speculator. Instead, he should be a person willing to follow the scientific method to arrive at conclusions. Decisions could be made by a mechanic attending to a faulty motorcycle by resorting to either inductivism or deductivism. The inductive approach requires the mechanic to look for evidence in the real world and come to conclusions. For instance, if we see crows that are black and if we continue to see black crows, we may conclude that all crows are black. | 0 |
Stripping out the effects of the two World Wars, this ratio has declined fairly steadily, from around 15% in 1830 to around 5% at the start of this century. Financial panics over this period did little to interrupt the downward trend. Events of the past two years have dramatically altered that picture. In relation to GDP, base money in the UK has risen by a factor of four – easily the highest financial crisis multiplier ever. 8 It has reached a peak last witnessed almost two centuries ago. Past liquidity crises are foothills by comparison with recent Himalayan heights. Measures of central bank balance sheet expansion under-estimate the scale of liquidity support provided during this crisis. As in Harman’s time, there has been a widening of the collateral taken by most central banks in their operations. 9 The taking of imaginative forms of collateral has a history which predates central banking: in the 12th century, King Baldwin II of Jerusalem secured a loan using his beard as collateral. Nonetheless, recent efforts are probably unprecedented in scope. Collateral swaps, typically not involving beards but often requiring haircuts, have also played a significant role during this crisis. They too do not expand base money, but do liquefy banks’ balance sheets. And guarantees of wholesale liabilities have similarly served as an important liquidity insurance device for a number of countries. Together, these two instruments have totalled between 10% and 40% of GDP across the UK, US and euro-area. | Research indicates that a fall on the stock market affects household confidence relatively quickly, that is already after two to four weeks.5 The indicator of Swedish consumer confidence in the economy published by the National Institute for Economic Research tends to fall when the Stockholm stock exchange falls (see Figure 6). There may therefore be good reasons for believing that the recent falls on the stock markets of the world are one of the reasons why the Swedish households have become more cautious and are expected to increasing their saving. Financial turbulence has also led the companies to lower their expectations regarding the period ahead and to begin to postpone investments. All in all this has a dampening effect on economic activity in Sweden. High sovereign debts abroad affect Sweden As we have noted, the level of debt is high in the euro area and the United States. Following many years of budget deficit, what were in many cases already weak public finances were further undermined in connection with the financial crisis of 2008–2009. In 2009, the average budget deficit in the euro area amounted to 6.4 per cent of GDP. This figure fell to 6 per cent 5 See for example Jansen and Nahuis, 2003; Kremer and Westerman, 2004; and Beckmann, Belke and Kuhl, 2011. BIS central bankers’ speeches 7 in 2010 and is expected to be 4.4 per cent in 2011. | 0 |
In an effort to further modernize our financial system, the Bank of Thailand, in cooperation with stakeholders and representatives from the SEC and the Department of Insurance, is in the process of drafting the country’s first Financial Sector Master Plan. Scheduled to be implemented in 2003-2012, the Master Plan is intended to increase competition within the Thai financial systems and at the same time to improve the soundness of the system as a whole. The preliminary vision for the future of commercial banking and financial services in Thailand given by a high-level steering committee comprises three pillars – accessibility and availability of financial services for all potential users nationwide; a competitive and efficient financial system; and finally fairness for all customers. This preliminary vision of the Master Plan reflects our changing perception of the country’s new financial architecture. As there are already two Asian financial centers in Hong Kong and Singapore, there is no point to try to be the third one. Instead, what Thailand needs is probably a more customeroriented financial sector with efficient operation and minimum systemic risk. The extent to which Thailand’s financial service landscape is going to change from today will depend on the results and recommendations of an ongoing study. What I can tell you now is that whatever the final outcome will be, for Thailand, this is a change to rectify past shortcomings for the better. As we are drafting our Financial Sector Master Plan, the SET is working tirelessly on its Capital Market Master Plan. | Moreover, no doubt that the available reserves serve as an insurance from the market point of view and make the access to debt financing somewhat easier. In conclusion I would like to say a few words about how to reach the path of strong economic growth amid tough monetary and fiscal policies and prudent build-up of government debt. The matter is the structure of budget expenditure, rather than its volume, and the use of structural reform potential. The external conditions push the economy towards structural changes and balanced structural reforms may accelerate this process and make it less painful. The emphasis should be put on those industries, which turned out to be competitive in the current situation without government support. Only they could become an efficient engine of development amid new reality. As it often happens, the best way to help businesses in the current conditions is not to interfere. The deficit resources of government support should be concentrated on assistance to the most vulnerable population groups, as well as on the development of infrastructure and human capital. BIS central bankers’ speeches 3 | 0 |
In fact, during those early days, some of those countries were able to freely utilize the labour and resources of the countries that were colonized by them, and benefit immensely by the fruits of the foreign lands and natural resources. They had to adhere to very few laws and regulations relating to education, training, health or labour practices, or standards on working conditions. There were no environmental laws or treaties, and the environment was often the first casualty in their quest of accumulating wealth. Capital accumulated by illegal means or criminal activity was used freely without any restriction. 2 BIS Review 29/2008 But, today the situation is completely different. Today, emerging countries are acting in a much more responsible manner in driving their economies forward. In fact, the present day emerging economies are achieving their attractive levels of growth, while adhering to, and respecting international conventions on copyright, anti-money laundering and terrorist financing, environmental, labour, human rights, safety, health, etc., etc. This situation is sometimes forgotten by some of the economic and political analysts, particularly from advanced nations and therefore it may not be too inappropriate to remind the world of this state of affairs, on and off. All in all, from the point of view of individual developing countries, the most important economic need at present is to maintain the high economic growth momentum that they are currently achieving, in a sustainable manner. | Ajith Nivard Cabraal: Harnessing sustainable growth in emerging markets Keynote address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the 2nd World Management Summit 2008, Karachi, Pakistan, 11 March 2008. * * * As salaam Aleikum, Ayubowan, Good Morning. Mr. Chairman, Distinguished Delegates, Ladies and Gentlemen, At the outset, I wish to thank the organizers of this World Management Summit for inviting me to deliver the keynote address. I am also greatly touched by the wonderful hospitality accorded to me in this very interesting and historic city of Karachi. Mr. Chairman, I consider it a privilege and honour to share my thoughts and views on a very timely topic, “Harnessing Sustainable Growth in Emerging Markets” at this important forum. I hope I would be able to plant a few seeds in your distinguished minds so that such seeds may be nurtured by you in your deliberations to follow. As a first step, let us examine the current global and regional trends in relation to World Economic Growth, so that we could deal with this topic in a wider perspective. As we know, over the past few years, the global economy has been experiencing one of its’ strongest sustained periods of growth, since the early 1970s. This expansion is projected to be very strong even after accounting for the impact of the recent financial market turbulence. Significantly, this growth has, as its foundation, the strong results of the emerging markets which have been leading the way. | 1 |
By easing market-based financial conditions, and by putting downward pressure on the real interest rate that banks charge to borrowers, central banks can stimulate aggregate demand, even when short-term interest rates approach the effective lower bound. The validity of this relationship is also crucial for assessing the price effects of monetary policyinduced movements of the exchange rate. With policy being effective in boosting growth, any disinflationary effect of a stronger currency arising from expectations of a tighter future monetary policy stance might be mitigated, or offset, by the ensuing improvement in the economic outlook. However, exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook. Thank you. References Ahmed, S., M. Appendino and M. Ruta (2015), “Global Value Chains and the Exchange Rate Elasticity of Exports”, IMF Working Paper WP/15/252. Al-Eyd, A. and S. Pelin Berkmen (2013), “Fragmentation and Monetary Policy in the Euro Area”, IMF Working Paper No 13/208. Altavilla, C., G. Carboni and R. Motto (2015), “Asset purchase programmes and financial markets: lessons from the euro area”, ECB Working Paper No 1864. Andrade, P., J. Breckenfelder, F. De Fiore, P. Karadi and O. Tristani (2016), “The ECB’s asset purchase programme: an early assessment”, ECB Working Paper No 1956. 11 / 14 BIS central bankers' speeches Ball, L., (1998), “Policy Rules for Open Economies”, NBER Working Paper No. 6760. Bernanke, B. and A. S. Blinder (1988), “Credit, Money, and Aggregate Demand”, American Economic Review, Vol. | This suggests that the Monetary Policy Committee did not explain well enough that sometimes it is better to raise rates now so as to avoid a much larger rate increase later on. In view of this criticism, I think it appropriate to explain this more fully. In general, Central Bank attempts to keep interest rates as low as possible — but as high as necessary — at any given time. What that optimum level is, however, depends on conditions, and it changes from one time to another. If Central Bank rates deviate from this optimum, the public will bear the expense. If they are higher than need be, inflation could fall below target and GDP growth would be weaker than it might be otherwise. If they are lower than need be, inflation could get out of hand and economic instability could take root. In that case, a much larger rate hike would be needed later on. So interest rates that are too high or too low do not come without costs to the general public. In this instance, it should not be forgotten that household mortgages tend to be long-term loans, and a majority of them are indexed to the CPI. If inflation is kept at target over the long term, these mortgage rates will be lower in the long run than they would be otherwise, even though an increase in short-term central bank rates might sometimes be required. | 0 |
The different surveys and asset prices can be read in more than a way in regards the true pace of normalization. Actually, the same as in June, the MPR implicit in swap contracts is lower than the one that can be inferred from the forward curve, mainly reflecting significant differences between the rates on non-indexed Central Bank bonds and swap contract as equivalent maturities. It is possible that these differences originate in the type of institutions operating in each market, which are not fully integrated, reflecting different preferences for instruments in pesos and in UF by resident and non-resident institutions. Similarly, this partial integration may mean that swap contract rates reflected more quickly and more intensely the movements of risk-free interest rates abroad. The baseline scenario of this Report uses as a working assumption an MPR trend that is comparable to the one observed in various expectations surveys (figure 11). Certainly, if actual conditions differ from those assumed in this baseline scenario, alternative policy measures will be required. Specifically, the Board believes that the scenario outlined here is subject to a number of risks. Considering that in June domestic demand – and output – already was showing faster than foreseen velocity, we cannot rule out gaps closing faster than assumed in the baseline scenario. Nor can we rule out that some part of that strength responded to merely temporary factors, such as the earthquake, and output will slow down before we think. In the global context, several risks are still latent. | The CPI figure published today is a little below the expectations of market agents and our own, but as we have said time and again we do not react to the news of the day, although we do take them into account to detect the trends. In any case this figure does not change the direction of monetary policy. Nor does it modify our forecasts of strong growth with limited inflation we include in this Report. Our monetary policy strategy is a preventive one, headed to normalization, and does not respond – luckily – to an inflationary spurt or to some unsustainable expansion process. In this Report’s baseline scenario, gradual progress toward MPR normalization is assumed, but its level will continue to be expansionary still for several quarters. As always, the pace of normalization will depend on how domestic and foreign macroeconomic conditions unfold, and will be consistent with the inflation target. Accordingly, it is essential that we do not lose sight of the external scenario. The latest developments have increased uncertainty about the pace of global growth while financial markets are still highly volatile. Also, the nominal appreciation of the peso over the past few months has been substantial. Although the current levels of the real exchange rate do not reflect an obvious misalignment with its long-term fundamentals, exchange rate movements do affect the conduct of monetary policy significantly, as they play a stabilizing role. | 1 |
The number has declined from 29 institutions per million inhabitants in 1997 to 21 in 2004. The high level of concentration in small countries may be an indication that there are economies of scale in the financial industry. In large countries, even banks with small market shares can achieve economies of scale. Large credit institutions offering a range of services can also achieve economies of scope by selling several types of product to the same customer. Norway has more banks per capita than the euro area, and the number of banks has remained fairly stable over the past few years. One reason may be that bank alliances have allowed smaller banks to benefit from economies of scale and scope. This occurs in part through integrated technology and product development solutions, and the sharing of knowledge and expertise. In addition, the number of foreign operators in Norway has increased. Concentration in the banking industry also results in a concentration of risk. At the same time, larger entities may manage risk better than smaller entities. Cross-border activity In countries with a high level of concentration, more consolidation may weaken competition. Particularly in small countries, it has been necessary for banks to establish activities in other countries in order to achieve economies of scale. In the Nordic countries, Nordic financial conglomerates have emerged in recent years, and the largest banks now define the entire Nordic region as their domestic market. The Nordic region is very advanced in the development of cross-border solutions. | Andres Lipstok: Opportunities of the Estonian economy in global competition Opening address by Mr Andres Lipstok, Governor of the Bank of Estonia (Eesti Pank), at the Conference "Opportunities of the Estonian Economy in Global Competition", Tallinn, 23 May 2007. * * * Excellencies, Ladies and Gentlemen! Introduction It is a great honour to welcome you here in Tallinn. Fifteen years ago Estonia regained its currency, the Estonian kroon. As we know, money has three key functions – it serves as a unit of account, store of value, and medium of exchange. The rise and fall of an economy depends on how well these three functions are fulfilled. In smaller countries, such as Estonia, the meaning of money goes beyond that. Stable and credible currency becomes a national symbol of success. That is why the introduction of the Estonian kroon is the most important event for our people from the early nineties. The new constitution, the declaration of independence, free elections – all these political events were perhaps more significant. But our own currency was and still is very special for most people. Our historical background might partly explain the “euro” scepticism of Estonians. The unfortunate truth is that joining the euro area is not very popular right now among Estonians. People understand the importance of it but hesitations still persist, price rise fears being the most common. | 0 |
To address the risk factors mentioned above appropriately, it is necessary to embrace a gradual change towards a growth pattern that is better balanced and more squarely based on those expenditure items that most contribute to building the economy’s productive potential and competitiveness. The economic authorities can contribute to this by focusing the available economic policy instruments on sustained macroeconomic stability, market flexibility and higher potential growth. In the case of fiscal policy, a primary role must continue to be played by budgetary stability to prevent demand-side pressures from exacerbating the existing risks, particularly in the present circumstances of monetary conditions that are overly generous given the degree of firmness prevailing in domestic spending. Consequently, the restrictive fiscal policy stance should be maintained and the budget balance further improved, in step with the foreseeable firming of the recovery. This stance is also needed to meet the medium- and long-term challenges to public finances. Here, the possibility that the current pace of revenue growth may not be sustainable in the future, the probable rise in financial expenditure (which has so far assisted consolidation), the foreseeable cutback in European funds from 2007 onwards and, in the longer term, the uncertainties over the sustainability of the pension system, are factors that strengthen the case for surpluses in public finances in good times to stave off the reappearance of major imbalances in the future. | We may not be entirely comfortable with the thought that every purchase we make is recorded. It may be too reminiscent of the society described in George Orwell’s 70-year-old novel 1984. Fourth, Ola no longer has access to money directly backed by Norwegian authorities. We no longer have functional legal tender. The monetary system has been turned over to private entities. Alternatively, Ola has to use another country’s currency – in our hypothetical case, the euro. We have to ask ourselves: should we allow private solutions to compete freely in developing means of payment, or must the authorities play a role? The crucial factor is whether solutions based on private money deliver the characteristics the payment system should have. The system must be able to channel payments swiftly, safely, at low cost and in a user-friendly manner. The means of payment itself – our money – must be universal, because money is only useful if it is widely used. This requires trust. Deposit guarantee schemes and banking regulation promote trust. The objective of monetary policy is to maintain stability in the value of the currency. Norges Bank assists private operators in implementing faster and safer payments. We cooperate with other authorities to oversee and supervise the payment infrastructure to ensure robustness and efficiency. Privacy rules prevent unauthorised access to payment information. But there are some characteristics deposit money lacks. It cannot offer anonymous payments. The system is vulnerable to advanced attacks. Having more money on deposit than is covered by the deposit guarantee scheme involves risk. | 0 |
Then consumers would have nowhere to hide from negative rates, if they do not want to leave their local currency entirely If the central bank guaranteed the anonymity of transactions conducted in the new digital currency (Nobody knows if this is possible), it would behave much like cash – with the significant possibility of a non-zero interest rate charged on balances deposited in it. By the way, I do not think it is a good idea to push forward the concept of central bank digital currency just as a response to the fall in the use of cash in society. As I noted earlier, households already have access to a digital currency: they can deposit their cash on accounts at commercial banks. If a central bank starts to compete with commercial banks in this arena, it may stop the fall in seigniorage revenues, but of course at the expense of the profitability or even the very stability of the banking sector. Even worse, such “safe haven” digital currency accounts at the central bank available to all citizens would probably guarantee a “digital bank run” in any crisis – although deposits at commercial banks are fully insured, accounts at central banks, if no cap is set, will always be seen as safer. | Jean-Pierre Roth: The euro – a stabilising factor in the international currency system Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Fondation Jean Monnet pour l'Europe, Lausanne, 21 September 2007. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The euro is undoubtedly a success story. It has contributed to stabilising the international currency system. In Europe, the former monetary disorder has been replaced by a new monetary order. The European payment system has become more transparent and price stability is guaranteed. Switzerland, too, is benefiting from European currency stability. The Swiss franc is taking advantage of a monetary environment that is considerably calmer than previously. The euro and the franc are coexisting very successfully. Nevertheless, it would be wrong to claim that all the effects of European currency integration have already worked their way through to the real economy. In spurring on competition and promoting transparency, the euro is having an integrating effect. However, there are still considerable obstacles standing in the way of this integration process. BIS Review 103/2007 1 | 0 |
As regards the scope of supervision by the ECB, there were no doubts that all banks had to be covered. The problems often stem from small- or mediumsized banks, as we saw in Ireland and Spain. To ensure credibly vis-à-vis the markets, across-the-board coverage is necessary. BIS central bankers’ speeches 1 In practice, how will the tasks be divided between national supervisors and the ECB? The legal responsibility for supervision would be transferred to the ECB, but in concrete terms, national supervisors would continue to supervise banks on a day-to-day basis. In fact, it is a mechanism similar that of the Eurosystem: under the authority of the Governing Council, the supervision committee, bringing together the ECB and the heads of national supervisory authorities, will coordinate supervisory actions and the allocation of tasks with the national supervisors. In practice, the ECB would be responsible for major decisions regarding prudential supervision: assessing capital adequacy in relation to risk, compliance with regulations, etc. I would also like the ECB to have decision-making powers in dealing with cases of distressed banks. Questions remain as to division of powers between the ECB and the European Banking Authority (EBA) The distribution of tasks seems clear to me: the EBA is the European body responsible for banking supervision. It sets prudential rules and standards and ensures that they are applied; the ECB will be the euro area bank supervisor. The EBA’s governance arrangements will have to be changed slightly, as the Commission proposes, to take account of the banking union. | For all of these reasons, I do not fully understand the concept of separation, whereas I do understand that of stopping speculation. At the same time as bank failures are continuing, banks have obtained an easing of their liquidity constraints under Basel III. Isn’t this a paradox? That's not what it’s about. We have always believed that a liquidity ratio was necessary – and, incidentally, we have applied our national rules for many years, which is not the case everywhere. But the draft agreement was finalised too quickly and we had to rework it. We need to strike the right balance between strict regulation and supporting the financing of the economy. But will the timetable be put back? Yes, I am in favour of putting it back a bit, if necessary, in order to make these major tradeoffs and to give banks more time for the implementation phase so that they can adapt to the new standards. Should banks carry less sovereign debt? Banks should facilitate the financing of the economy; from this point of view, they should not hold huge quantities of sovereign bonds, even if these constitute liquid assets that are precious in assets and liabilities management. But the excessive concentration of liquid assets on sovereign debt in the calculation of the liquidity ratio can run into difficulties – either when the sovereign has its rating substantially downgraded or, on the contrary, when the country has low levels of debt, such as Australia or Switzerland. | 1 |
The FPC will shortly be consulting on the scope and form of its application, and that will be a welcome debate. Getting the incentives right for banks in terms of the capital adequacy regime is hugely important. The leverage ratio is simple and that is its appeal, but on its own it could encourage banks to take more risk per unit of assets. In contrast, internal models and stress tests are complicated, and therefore carry the risk of opacity and model error. There is now a growing debate on the use of models and stress tests. In many respects, the debate has common ground, since models are intrinsic to stress tests. My view is that this is not a debate about whether or not supervisors should use models. That question was answered a long time ago in the reasoning for the switch away from Basel I. The design and implementation of Basel II was not done well, and a substantial charge has been required. A major lesson is that to use models and stress tests effectively requires intensive development and maintenance by firms and a highly skilled body of supervisors and a regime where judgement can be used. It also requires the supervisor to have a credible capacity to withdraw the permission given to a firm to use a particular model if the model is considered to be inadequate or the firm has not demonstrated the capacity to use it safely. | Mention should be made that banks showed caution in managing CHF-denominated assets and liabilities. III. The current economic environment The analysis of the current economic environment reveals two significant characteristics. First, Romania has maintained sustainable macroeconomic balances over the last years, also as a result of the counter-cyclical monetary and prudential policies implemented by the National Bank of Romania. Romania further enjoys robust economic growth and solid growth prospects, of 2.7% in 2015 and 2.9% in 2016. The annual inflation rate has remained on a 4 BIS central bankers’ speeches downward path, while the general government balance and the current account balance stand at sustainable levels. These arguments show that the movements in the CHF/RON exchange rate should not be seen as a depreciation of the domestic currency (which is supported by strong economic fundamentals), but as CHF appreciation following the Swiss National Bank’s decision. Second, the downtrend in interest rates on leu-denominated loans, also as a result of the NBR’s decisions to gradually cut the monetary policy rate and to pursue adequate liquidity management, is supportive of the solution of converting foreign currency-denominated loans into the domestic currency in the case of currently unhedged borrowers. | 0 |
Micro-economic data such as these are essential for understanding the impact of regulatory policies – for example, macro-prudential policies which affect the housing market. For example, the Bank has been making use of the FCA’s Product Sales Database to get a more granular picture of the mortgage position of households. This is a very detailed database, covering over 13 million financial transactions by UK 29 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 29 households since 2005. By combining these data with land registry data, it is also possible to build up a regional picture of pockets of indebtedness. Chart 8 documents the evolution of high (more than 4.5 times income) Chart 8: Proposition of mortgages with a loan-to-income ratio greater than 4.5 leverage mortgages since 2008, on a regional basis. Warmer colours suggest a higher fraction of loans at or above that multiple. What you will see is a gradual heating-up of the mortgage market over the past few years, with a clear epicentre of London and the South-East in the run up to the macro-prudential intervention made by the Bank of England’s Financial Policy Source: FCA Product Sales Database; Land Registry; Bank calculations. Please see Committee (FPC) in June 2014. the speech website for the animation. One of the key features of an agent-based model is that it is able to generate complex housing market dynamics, without the need for exogenous shocks. | And, most striking of all, flows of information across agents and borders are occurring on an altogether different scale than at any time in the past. All of these trends increase the importance of taking seriously interactions between agents when modelling an economy’s dynamics. These benefits can perhaps best be illustrated by drawing out some of the key behavioural differences between ABM and mainstream macro-models. These differences should not be exaggerated: in practice, ABMs lie along a spectrum with micro-founded DSGE models at one end and statistical models at the other. But nor should they be overlooked. (a) Emergent Behaviour In standard macro-models, system dynamics are fully defined by the distribution of shocks to the economy and the behavioural parameters determining how they ripple through the system. There is a classic Frisch/Slutsky impulse-propagation mechanism determining the economy’s fortunes. If the distribution of shocks and the parameters of the model are known and fixed, the dynamics of this system are well-defined and predictable. Complex systems, of which ABM are one example, do not in general have these properties. The Frisch/Slutsky decomposition is very unlikely to be stable, if it exists at all. The reason is that a complex system’s dynamics do not derive principally from disturbances arising outside the system but from interactions within the system. Dynamics are endogenously, not exogenously, driven. These feedback effects within the system may either amplify or dampen cycles. | 1 |
However, as the structural changes take effect, they are likely to affect the balance between supply and demand, and monetary policy will need to respond accordingly. In the long run, the Fourth Industrial Revolution should substantially boost productivity and supply. Based on past experience, the productivity of roles experiencing high levels of automation could expand at rates in excess of 5% per year, and aggregate productivity growth could increase by as much as ½ to 1½ percentage 33 points per year. The increases in supply from automation and the Fourth Industrial Revolution should, in time, lead to higher demand as they flow through into higher incomes. With job destruction running ahead of the productivity and creation effects in the shorter term, however, demand is likely to be weaker for a period. 32 For more details, see ‘New Economy, New Finance, New Bank’, speech by Mark Carney at the Mansion House, June 2018. The lower estimate is based on the productivity gains realised from the introduction of steam power, while the upper estimate is based on the improvements harnessed from the ICT revolution. See Crafts, N (2015), ‘Economic Growth: Onwards and Upwards?’, Oxford Review of Economic Policy, Vol. 31, pp. 217-241 33 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 As Chair Powell recently reminded us, the challenge for monetary policy during periods of structural change is to take into account its potential impact on the underlying dynamics of the economy. | Monetary policy has been designed and implemented in line with midterm country’s macroeconomic program: with specific focus on price and financial stability Let me now briefly summarize what I believe are the latest most important developments, and outline our economic outlook. Economic growth After the significant electricity shortages at the end of 2005, it appears that traditional growth promoting industries like services (tourism) and construction are growing at a stable pace, contributing at a sustainable economic growth. Building upon these developments as well as other positive indicators, we expect the economy will grow at a solid rate of 5-5.5 percent. The main challenge remains ensuring sustainability of these growth rates, even higher in the long run. I believe that respective Albanian authorities have already identified the major priorities of these challenges which fully converge with Bank of Albania views. Just to remind you I would briefly summaries some of these priorities. Building new, preferably alternative, energy sources and improving the efficiency is top priority. In our view, sufficient and reliable energy supply remains a main concern to achieving economic growth. Providing a solution to this problem is a priority in the verge of increasing global demand and energy prices. Speeding up the privatization process of the remaining state assets is another important step forward. Special attention should be paid to structural reforms, particularly property rights and legal framework. In our opinion services, construction and in particular agriculture will remain driving forces of the GDP growth in the coming years. | 0 |
And they can be sure that their business partners are as well supervised as they themselves are. So, the playing field has become more even, which is essential if we are to achieve a truly European banking market. And that is our vision: a banking market that seamlessly covers the entire banking union; a market in which banks can offer their services to customers from all over Europe; a market in which they can compete on even ground. The benefits of such an integrated market are well known: it is more efficient, it is more innovative, and it is better able to support growth. This is true for the entire union as well as each country. Are we there yet? As I said, this is the vision. But are we there yet? No, not quite, but we are getting closer. The banking union has brought its members closer together; it has lowered some of the barriers that were standing in the way of a potentially seamless market. But it has not entirely removed them. While supervision has been harmonised, the regulatory framework in Europe remains somewhat fragmented. And this applies not just to minor details but also to big things. It runs counter to the idea of a single market and fosters regulatory arbitrage; and it violates the principle of same business, same risks, same rules. | So we have got rid of the politically unpleasant adjustment mechanism and have very little instead. Yes, the enlightened founding fathers (such as Otmar Issing) knew many of these things in advance and tried to minimize the free-riding by setting certain safeguards against it. Despite that, I believe many must be bitterly disappointed or shocked that many of these good rules proved to be so time-inconsistent, or dynamically inconsistent. Yes, many good rules have already been breached or are close to being breached (some of the Golden Rules of European law, one should add): • the no bail-out clause • flirting with monetary financing of sovereign debts • consideration of something like potentially permanent public support for financial institutions operating on the single market I believe that these rules are especially dear to this audience. So one has to ask: What are the prospects of the project when to keep it going you need first to breach some fundamental rules that should have created a solid and long-lasting basis for it? It is by definition hard to enforce rules among sovereigns, even when those rules are more important than fiscal or monetary ones – look at the United Nations, for instance. | 0 |
• The MPC’s objective is to deliver price stability – defined by the Government’s inflation target of 2% – and, subject to that, to support the Government’s economic objectives including those for growth and employment. • The FPC’s objective is to protect and enhance the stability of the financial system of the UK – and, subject to that, to support the Government’s economic objectives including those for growth and employment. 1 See for example, R Bryant (1995) International Coordination of National Stabilization Policies. Brookings, Washington, and the many references therein. 2 See for example some of the material in N Acocella, G Di Bartolomeo and A J Hughes Hallett (2013), The Theory of Economic Policy in a Strategic Context, Cambridge University Press, Cambridge. BIS central bankers’ speeches 1 • The PRA has two statutory objectives: to promote the safety and soundness of deposit takers, insurers and major investment firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders. It also has a secondary objective, to facilitate effective competition in the markets for services provided by PRA-authorised firms. The PRA Board The PRA Board is the least well known of the 3 committees and so I want to say a few words about how it operates. I have been attending as an observer since I moved to the PRA on 1 June. | The key to solving this policy dilemma is to make sure that firms hold enough liquidity (and capital) in the good times so that, when a downturn hits, supervisors can take a relaxed view about firms using those holdings as buffers to absorb the macro shock. That was not the position post 2008/09 when banks had not been holding enough liquidity or capital in the good times. It is an aim of the new regulatory frameworks put in place post-crisis, that banks should hold bigger liquidity buffers in normal times. The Bank of England’s balance sheet can also be used actively to backstop liquidity for the system as a whole, via the banking system, and the new operating frameworks put in place over the past 5 years will allow that to happen more quickly and easily. How will this all co-ordinate in practice? When the Bank, HMT and FSA took joint action in 2012 to reignite the recovery via the Funding for Lending Scheme – reviewed in my two previous talks to you – the FSA, as predecessor to the PRA and having two members on the interim FPC, contributed by relaxing liquidity requirements and making it clear that liquidity buffers were there to be used. This was a crucial element of the package. | 1 |
At the close of 2015, recorded total net funds assigned to supporting the Spanish financial system were € million, € million of which relate to public funds provided by the FROB and € million to private funds provided by the DGS. Naturally, these figures will vary depending on the recoverable value of the assets currently owned by the FROB and the DGS. In terms of the comparison with other developed countries, there are various metrics to evaluate the fiscal cost of public aid. The most general one is the outstanding balance of accumulated public debt. In gross terms, Spain’s public debt as a consequence of assistance to the financial sector was 4.7% of GDP in 2015 and 4.6% in 2016, in line with the average for the euro area. However, in terms of net debt assumed by the public sector (accumulated liabilities minus the value of publicly owned assets), the euro area average stood at end-2015 at 1.8% of GDP and at 1.9% in 2016. Greece and Ireland are the countries that have assumed most net public debt (around 20% of GDP), followed by Slovenia and Portugal (7-8% of GDP). In Spain’s case, this figure in 2015 was 3.7% of GDP, and it had risen to 3.8% in 2016. Conclusions I should like to conclude by summarising the reflections contained in the Report on the conduct of the Banco de España. | In and of itself, this shift seems likely to have made money markets more segmented, and more prone to the “turbulence” in response to shocks I mentioned earlier. Longer term, this regulatory shift has catalyzed a deep and complex impact on the structure of money markets, which is still unfolding nearly two years later. These effects have included an ongoing increase in the role of FHLB advances as means of intermediation between government money funds and financial firms, as well as ongoing efforts by a wide variety of borrowers and lenders to broaden their counterparty lists and consider new operating frameworks so as to best accomplish their business objectives in the new money market environment. For example, although the FHLBs for years focused their liquidity management on the federal funds market because it provides a high degree of intraday liquidity, they are now beginning to explore greater use of bilateral repo, as that market has similar characteristics and can at times provide them with a higher return. It is likely that these ongoing shifts in money market structure have contributed to fluctuations in rates and spreads, and that they will continue to do so. 11 I view fluctuations in term money market rates of the magnitudes seen recently as normal parts of market functioning during a period of structural change. Wholesale dollar funding, though more expensive, has remained readily available both in the United States and abroad. | 0 |
The current move through SEPA is to establish an integrated non-cash payments system throughout the Union. This means that individuals, banks and financial institutions, corporations and all other entities in the Euro region will be able to make cashless payments throughout the Euro area from a single payment account anywhere, from any country, using a single set of payment instruments, easily, efficiently and safely on the same way that they make payments at the national level. 4. Lessons learned It is worth mentioning some of the challenges and problems encountered in the SEPA process in order to avoid similar problems that may come up in establishing a SAARC payment initiative, or to remember them if and when SAARC countries wish to move towards a single payment area at a future date. It also highlights the need for a committed leadership when undertaking sophisticated region-wide projects like SEPA. From the beginning, when the SEPA policy framework was set by the authorities in the EU area, it was shared with the market led by banks and financial institutions which were entrusted to implement it. However, due to lack of high-level commitment, the difficulties encountered in the coordination of the diverse interests of the banking and financial service industry and the severe competition among service providers have caused delays in implementing this project. | Nigel Jenkinson: Promoting financial system resilience in modern global capital markets – some issues Speech by Mr Nigel Jenkinson, Executive Director, Financial Stability, Bank of England, at the conference, Law and Economics of Systemic Risk in Finance, University of St. Gallen, St. Gallen, 29 June 2007. This speech has been prepared with my colleague Mark Manning. I am very grateful to Mark and to Joanna Perkins for her input on legal risks, and to Ben Norman, Victoria Cleland and Andrew Bailey for their comments. * * * The changing nature of risks Spurred by rapid innovation, we are currently witnessing a period of major structural change in financial intermediation and the global financial system. Financial market activity is growing at a tremendous pace. For example, over the past five years, the credit derivatives market has grown spectacularly from around $ trillion notional amount outstanding in 2001 to around $ trillion in 2006 (Chart 1) and the issuance of leveraged loans has increased almost three-fold (Chart 2). The balance sheets of the major global financial institutions (the so-called large complex financial institutions or LCFIs) have more than doubled since 2000, fuelled by an increase in trading assets (Chart 3). Turnover in the UK and US foreign-exchange markets has risen by around 50% in only the last couple of years. And capital market integration is rising rapidly as barriers to cross border flows have come down. | 0 |
It is intuitively easy to understand that the amount of money in the economy is a decisive factor for the price of the goods produced in the country. In modern economies, where payments are largely made electronically, the monopoly on issuing banknotes is no longer an equally evident condition for enabling monetary policy to determine price trends. Today, it is instead the right to determine the terms in the systems for large electronic payments between banks and the opportunity to influence how much the banks shall borrow or deposit in the Riksbank that enable us to steer interest rates. For electronic payments to be able to function as money, it is necessary for the central bank to be perceived as guarantor for these means of payment in the same ways as with banknotes. This role can only be fulfilled by a central bank and in this way one can say that the possibility to determine price trends in the economy still lies with the monopoly on issuing money. The Riksbank governs the shortest interest rate in the interbank market, so that it normally remains close to the monetary policy-steered repo rate. The fact that the Riksbank can steer the interbank rate is primarily due to the fact that each individual bank participating in the system handling large interbank payments - known as the RIX system - always has an opportunity to borrow and deposit money in the Riksbank overnight at the lending and deposit rates set by the Riksbank. | Since its establishment in 2002, the Islamic Financial Services Board (IFSB) has introduced prudential standards for the Islamic financial services industry in the areas of capital adequacy, risk management, corporate governance and Shariah governance. Nine countries have implemented these standards and 19 more are expected to implement them within the next few years. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has also contributed to the issuance of more than 80 standards in the areas of accounting, auditing, governance, ethics and Shariah for the international Islamic financial industry. Further progress on two fronts remains important. The first is to continue to evolve a more refined distinction within prudential and financial reporting frameworks to reflect the different nature and profile of risks under risk-sharing contract arrangements. The second is the need to accelerate efforts to further strengthen the infrastructural underpinnings for the development of the overall Islamic financial system. While the broad regulatory principles and standards developed in the aftermath of the global financial crisis can be applied to most Islamic finance transactions, a broad-brush application of these rules would limit the ability of Islamic financial institutions to implement the more unique risk-sharing contract arrangements. The stage of development of the overall financial system in which Islamic finance operates must also be considered to ensure that the effective application of global standards can be achieved without unintended consequences, given the prevailing associated constraints. | 0 |
The changes that the Central Bank implemented at the beginning of March concerning repurchase agreements had two components. On the one hand, the definition of the collateral that qualified for repurchase agreements was widened to include again, after an intermission, all market listed government guaranteed securities and central bank certificates of deposit. The purpose of this change is to level the positions of the various government securities, as varying positions in regard to liquidity transactions with the Central Bank can influence their relative market yields. It is clear that such limitations do not exist among Iceland’s neighbours. In addition, the stock of outstanding Treasury bills has shrunk in the recent period, which has caused a shortage of these bills for deposit banks to use in their repurchase agreements with the Central Bank. The other change is, as mentioned before, that the practice of offering repurchase agreements on tap has been abolished and replaced by a weekly auction of the agreements, as is done in many industrial countries. The Central Bank can at its discretion choose to auction reverse repurchase agreements instead of straightforward repurchase agreements. Neither of these changes alters the course of monetary policy. However, they did have the effect of reversing the rise in money market rates that had occurred in January and February, when the interbank rate rose to 8.3 percent because of the shortage of Treasury bills on the market. | Let me pay a warm tribute to the Captain of our vessel, Mario Draghi, as his term soon comes to an end. Thanks to Mario Draghi’s leadership, we protected our most valuable asset, the euro, and kept our monetary union together. Thanks to his unswerving determination and readiness to do “whatever it takes”, we are still all on board. Thanks to him, the Eurosystem has deployed a supportive and innovative monetary policy strategy. Over the past five years, the ECB has experimented with a variety of unconventional policy instruments, and it has arguably gone later but further into the toolbox than the Fed or the BoE. And the different instruments can influence different parts of the yield curve. 1/3 BIS central bankers' speeches This policy has been effective in supporting the recovery in the euro area since 2013. As a recent memorandum of the “old guard” apparently missed some positive outcomes of the last years, let me remind them: estimates of the effectiveness of the unconventional monetary policies implemented since 2013 have a broad range but are in the order of 2½ percentage points on growth and 1-1½ percentage points on inflation over the period 2015–2018. In times of heightened uncertainty, the recent strengthening of our forward guidance – which is now strongly “state based” – demonstrates our determination to reach our inflation target. | 0 |
So our focus is on non-banks; on insurance companies, pension funds and investment funds of all sorts. The jury is out here too. I do not start from the presumption that there is an iceberg here. Our duty is to assess whether they could be one. 16 Carney, M. (2013), ‘The UK at the heart of a renewed globalisation’, available here. Even a user of derivatives to hedge another exposure – and thus having limited ‘VaR’ – could find themselves with significant ‘CaR’. It is the potential mismatch in liquidity, between the collateral called for and the assets held that is a source of firesale risk. In addition, as the IMF reports for a sample of funds, the majority of derivative exposures are entered into in order to boost returns rather than hedge existing risks. This would boost both VaR and CaR. 17 9 All speeches are available online at www.bankofengland.co.uk/speeches 9 But in order to assess properly the risks in this area we need much better diagnostic tools. So we are developing them. We are fortunate in being able to draw on data from Trade Repositories which now record all new derivative trades between counterparties and report each day on the outstanding positions between them. We are fortunate that these issues are the topic of international collaboration, with the International Organisation of Securities Commissions leading work to develop consistent measures of leverage – that incorporate derivatives usage – for investment funds. | Moonwalking bears and underwater icebergs: Hidden risks in markets Speech given by Alex Brazier, Executive Director for Financial Stability Strategy and Risk, Bank of England London Business School Asset Management Conference 2018 Thursday 26 April 2018 I am grateful to Yuliya Baranova, Johnny Elliot, Dan Gray, Sonal Patel, James Smith and Nick Vause for their assistance with preparing the speech and accompanying slides. This speech draws heavily on: Brazier, A. (2018), ‘Market finance and financial stability: will the stretch cause a strain’, Brevan Howard Centre for Financial Analysis, Imperial College Business School, London, February, available here; Cunliffe, J. (2018), ‘Market-based finance: a macroprudential view’, Asset Management Derivatives Forum, Dana Point, California, February, available here. 1 All speeches are available online at www.bankofengland.co.uk/speeches Moonwalking bears and underwater icebergs: Hidden risks in markets The theme of today’s session is hidden risks. Since this is the Investment Management Club, I want to focus on hidden risks in markets. In my view there are generally two types of such hidden risk. Let’s call them bears and bergs (slide 2). The bears are the risks that hide in plain sight. These are risks that, after the event, are obvious. Some people are able to see them in real time. Others, because of very human traits, don’t. They are the moonwalking bear in the viral Transport for London Cyclist Awareness video. For those who haven’t seen it, amidst a frenetic basketball game, a person dressed as a bear moonwalks across the screen. | 1 |
And to protect the system from risks we think are low but prove not, banks are subject to a simple, minimum leverage ratio, which is robust to model risk. Regulation has made banks less complex and more focused. Business strategies that relied on high leverage, risky trading activities and wholesale funding are disappearing, as intended. Trading assets have been cut in half, and interbank lending is down by one-third.38 Not least due to new global liquidity standards, banks have changed their funding models and now hold substantially more liquid assets relative to the liabilities that can readily run. In the UK, such contingent liquidity has increased tenfold since the crisis. An anti-fragile system requires ending Too Big to Fail. But higher capital and liquidity requirements are necessary but not sufficient. Banks must also be able to fail without systemic consequences. A decade ago, large complex banks operated in a “heads I win tails you lose” bubble. They privatised profits in the run-up to the crisis before socialising the losses when the music stopped. The complete loss of confidence in private finance that crystallised in the autumn of 2008 could only be arrested by public support over the following year that totalled $ trillion in bail-outs, government guarantees of bank liabilities and special central bank liquidity schemes. | In this environment, product innovation needs to be escalated accordingly in particular, to respond to the growing need for managing risks to realign the risk-return profile of assets and liabilities for financial institutions and investors in reaction to fast changing economic variables. This is made more pronounced by the fact that increasingly, with the unprecedented economic integration, financial markets across the globe are not immune to financial volatilities. Therefore, it is crucial that market participants have the necessary tools to manage financial risks prudently and this is where derivatives can be applied. Application of derivatives will yield benefits to the general public as spread of risk among economic agents will mitigate risk of financial shocks to the financial markets at the macro level and individual institutions at the micro level. As a result, the financial system becomes more robust, stable and resilient to extreme volatilities in the financial markets. The introduction of derivatives in the Islamic finance with adequate legal, regulatory and corporate governance framework will enhance the development of the functioning of the Islamic financial system. Developing the relevant indicators The pricing mechanism for the Islamic financial instruments has so far been based on the prevailing interest rate framework. There appears to be no real difference in both the conventional and Islamic instrument. In order for the Islamic financial instrument to be efficiently priced, it needs to have its own indicator. | 0 |
You must recognize that the era of keeping monies in mattresses is long gone. We recognize that Barclays has obviously seen a window of opportunity in opening its branches in such localities. However, it is important to note that the level of incomes in such areas is not at the same levels as for those that obtain their services from high street locations. In this regard, we urge Barclays and other banks opening their branches in these communities to design suitable products. The banks should structure the related costs such that they take into account the lower income status of their clients. I have in mind the withdrawal of small sums of money without necessarily charging for the withdrawals. The challenge of extending access to financial services to the remaining adult population still remains, and for this unbanked population cost is a major consideration. BIS Review 5/2008 1 Ladies and Gentlemen, I am aware that the demand for banking services is high in Chilenje and therefore Barclays Bank should consider moving to bigger premises. There are a number of longstanding neighbourhood businesses in this location. I can point at Sir Jack, Janu Plaza, Karibu Bakery and Robert’s Fish and Vegies. There are also business entities which were formally parastatals located here. I also know that private entities that have a national presence such as Zambeef Plc and Pama Meats have established branches here. This is a reflection of the economic viability of Chilenje Township and Barclays has done well to come here. | Caleb M Fundanga: Improved financial services in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of The Barclays Bank Zambia Plc, Chilenje Branch, Chilenje, 9 January 2008. * * * • Mr Fritz Seegers – Barclays Global Retail and Commercial Banking ChiefExecutive • Mr J J Sikazwe – Barclays Bank Zambia Plc Chairman • Mr Ahmed Khan – Barclays GRCB Emerging Markets Chief Executive Officer • Mr Michael Miebach – Barclays Sub-Sahara Africa Managing Director • Mr Zafar Masud – incoming Barclays Bank Zambia Managing Director • Mr Danie Nel – outgoing Barclays Bank Zambia Managing Director • Invited Guests • Ladies and Gentlemen I am delighted to be the Guest of Honour at the official opening of the Barclays Bank Zambia Plc Chilenje branch. My appreciation of this opening is because it reflects a fundamental change in strategy by Barclays Bank Zambia over the last few years. I recall that only a few years ago, Barclays Bank Zambia closed a number of its branches in several towns and locations. We were greatly concerned because it meant that even the few that were serviced by commercial banks would have greater problems in accessing financial services. Barclays Bank Zambia obviously had its reasons for taking such an action and we cannot fault them for attempting to curb their costs. However, it is now evident that there is a turnaround in the situation. | 1 |
There are factors which exist outside the financial system and beyond SMEs which nonetheless affect resource flows. These might include poor infrastructure, bureaucracy which makes it difficult to carry out business, an unattractive tax regime and unclear or unfavourable government policies. Acquiring an appreciation of these factors and appropriately dealing with them can help to foster the efficient use of available financial resources by SMEs, increase their success in the application of credit and therefore give positive feedback to financing institutions which itself encourages them to lend more to the sector. Let me conclude by wishing you all a fruitful three days of deliberations and to reiterate my challenge to you to attempt narrowing that undesirable gap between the identification of problems and the delivering of practical solutions that will enable the flow of appropriate and sustainable financial resources to SMEs to enable them to play their wealth creation and development role in Africa. For me, the SME sector can be a great engine for economic development in Africa. Meetings like this can help in making them become just that. But we must also go beyond just paying lip service to the sector and show true and real commitment to making the sector strong on our continent. I suspect that to go beyond lip service might, in some instances require a paradigm shift on the part of financiers, governments and the players in the SME sector itself. I thank you for your attention!!! BIS central bankers’ speeches 3 | Marzunisham Omar: Globalisation - contents and discontents Welcoming remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the World Bank International Conference "Globalisation: Contents and Discontents", Kuala Lumpur, 15 January 2019. * * * Globalisation has contributed to the world’s unprecedented economic growth and prosperity. Global output has increased more than six-fold in the past 50 years. A billion people have been lifted from abject poverty in just one generation. Although the gains from globalisation are vast and widely-acknowledged, its fruits have not been equitably shared by all. The growing sense of discontent and injustice among the marginalised have led to a retreat from globalisation in the recent period. This reminds me of what the late Kofi Annan once said: “Globalisation is a fact of life. But I believe we have underestimated its fragility”. Globalisation has, and will always, exist in a tension. The challenge is finding the right balance between various, and often contrary, objectives. The retreat from global integration and multilateralism today serves as a wake-up call for us to reflect on the realities of globalisation, to re-examine our policy choices and to recalibrate our way forward. With rapid technological advancements becoming an increasingly polarising force, the sociopolitical and economic issues at hand are more pressing than ever. It is my great pleasure to welcome you today to the World Bank International Conference on ‘Globalisation: Contents and Discontents’. Thank you to the World Bank for giving me the opportunity to say a few words. | 0 |
We – central banks and statistical institutes – have been doing this with remarkable results in the Committee for Monetary, Financial and Balance of Payments Statistics since 1991. And since 2013, we also meet in the European Statistical Forum to discuss topics of strategic cooperation with the heads of national statistical institutes. Keeping pace It’s clear that cooperation is key to getting our job done. But these days, a job well done requires much more than it used to. Central banks need to keep pace with a world that is changing at an ever-faster pace. How do we do that? How do we keep pace? Well, for one thing, we need to be open to new ways of doing things. On this front, I am sure the two words on everyone’s minds are “big” and “data”. It’s true that we central bankers have not exactly been at the forefront of the big data revolution. After all, we are a bit cautious by nature. And we know that big data means different things to different people; and we know that we cannot yet say with certainty which big data applications will be truly useful Big data are quite different from traditional, structured data. So we have much to learn and many challenges to tackle. Collecting the data is only where the challenges start. We also need to adapt verification processes to ensure that the data are of high quality. And this is where big data already pay off, indirectly at least. | Aggregate data provided us with the big picture of the euro area economy and its financial markets. But the big picture was too blurry. And, at times, it was downright misleading. Money markets were a good example. After all, money markets are where the transmission of monetary policy starts. Prior to the crisis, the ECB collected microdata on these markets through the Euro Money Market Survey, the EMMS for short. This survey shed light on what was happening in the money markets during the crisis. For example, in unsecured markets, we could see that euro area banks were taking fewer counterparty risks with banks from other euro area countries. But our vision was limited. First, we didn’t collect direct information on market rates, so we didn’t know how much each market participant was paying for liquidity. If we had had a full picture of the dispersion of rates, we would have had less need to read between the lines. Second, we only published the EMMS annually, which seriously limited the potential for research and analysis. Research on a crisis that was developing by the hour could not be based on data published once a year. But we understood the shortcomings of the data and got to work. In 2016, we started to collect money market statistical reporting, or MMSR, data. The MMSR data include trade-by-trade granular data on four market segments. This means we receive full information on each trade – the maturity date, the rate, the counterparty, the collateral and more. | 1 |
Heng Swee Keat: The sale of structured products to retail investors Opening remarks by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Monetary Authority of Singapore’s Press Conference on the Sale of Structured Products to Retail Investors, Singapore, 17 October 2008. * * * Many individuals who purchased structured products linked to Lehman Brothers are worried about their investments. MAS has been actively working to ensure a fair resolution for these investors. We have also been communicating our actions to the public since the issue first came to light in the middle of September. Our first priority has always been to help affected investors. Let me touch on what we have done and how we have put in place a serious and impartial resolution process to deal with investors’ legitimate concerns. First, we are making sure that HSBC Institutional Trust Services (Singapore) Ltd, the trustee for the Lehman Minibond Programme, carefully considers all options and acts in the interests of investors. If a new swap counterparty is available, investors would have the opportunity to vote on this option. In order to assist investors make an informed decision, MAS will appoint an independent financial adviser. We expect the trustee to know whether options will be available to noteholders by the end of next week. | Second, each FI now has an independent person to oversee the complaints handling process relating to the sale of the Lehman Minibond Programme, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 Linkearner Notes. These persons are Gerard Ee, Hwang Soo Jin and Law Song Keng. We recognise that the complaints handling process has not been easy, particularly for customers of some FIs. But as circumstances for each case may be different, this is the best way to deal with all the complaints. The independent parties will ensure that customers get a fair hearing. We have set a very clear timeline for complaints to be resolved. All the FIs have also set up internal review panels which are chaired by their CEOs. The panel is expected to conduct a thorough review of each complaint and decide on a course of action within four weeks. The decision will then be communicated to the customer. Third, for affected investors who are not satisfied with the FIs decision on the matter, we have established a fast-track process to refer the case to the Financial Industry Disputes Resolution Centre (FIDReC). The FIDReC mediation process is free for consumers. If a case goes to arbitration, it will cost the consumer $ FIDReC will consider all relevant evidence whether written or oral. Statements can be prepared by consumers themselves and need not be made under oath. All FIDReC’s adjudicators are well respected professionals. The chairman of FIDReC is Mr Goh Joon Seng, a retired High Court judge. | 1 |
The reason is that it has proved difficult in practice to lower nominal wages. If inflation is low and nominal wages cannot be lowered, then it becomes difficult to adjust real wages between different professions, companies and sectors. This can ultimately lead to both higher unemployment and poorer productivity growth in the economy. A moderate level of inflation mitigates these problems. It functions as grease in the wheels of the economic machinery. Another advantage with an inflation target of 2 per cent, which has come to the fore in recent years, is that it creates at least some scope for lowering the policy rate before it reaches its lower bound. If the inflation target, and hence average 4 [17] inflation, were to be lower, then the nominal rate would also on average be lower. This would be particularly problematic in a world where real interest rates are very low, as is currently the case. The scope for lowering the rate before it reaches its lower bound would then be more limited than it is today, which would make it more difficult to counteract future recessions. Therefore, if one does not like negative interest rates, one should not advocate a lower inflation target, as that would imply that the policy rate would have to be negative for longer periods. In the international debate, moreover, there are several economists who think that not even an inflation target of 2 per cent provides sufficient scope to conduct as expansive a monetary policy as is sometimes necessary. | 3 See Alan S. Blinder, Economic Policy and the Great Stagflation, Academic Press, 1979 4 See Tim Mahedy and Adam Shapiro, What’s Down with Inflation? FRBSF Economic Letter 2017–35, November 27, 2017, and Andrea Tambalotti, Stefano Eusepi, and Bart Hobijn, CONDI: A Cost-of-Nominal-Distortions Index, American Economic Journal: Macroeconomics, 3(3): 53–91, July 2011. 5 See James H. Stock and Mark W. Watson, Slack and Cyclically Sensitive Inflation, Working Paper. 6 See Ulrike Malmendier and Stefan Nagel, Learning from Inflation Experiences, The Quarterly Journal of Economics, Volume 131, Issue 1, 1 February 2016, Pages 53–87. 7 See John C. Williams, Monetary Policy in a Low R-star World, Federal Reserve Bank of San Francisco Economic Letter 2016–23, August 15, 2016. 8 See John C. Williams, Preparing for the Next Storm: Reassessing Frameworks and Strategies in a Low R-star World, Federal Reserve Bank of San Francisco Economic Letter 2017–13, May 8, 2017. 9 See Thomas Mertens and John C. Williams, Monetary Policy Frameworks and the Effective Lower Bound on Interest Rates, Federal Reserve Bank of New York Staff Reports 877, Revised January 2019. 4/4 BIS central bankers' speeches | 0 |
It is hard to see how this fixed buffer, supposed to be on top of the minimum requirement, would not be perceived as a new regulatory minimum. Also, it is very hard to see how this mechanism may not have adverse impact on banks’ share ownership. Another avenue to address procyclicality through prudential rules is by putting in place a countercyclical capital buffer. The logic is simple and, in principle, appealing: the mechanism, indexed on a macroeconomic variable, would force banks to build capital reserves when they can do so and allow them to consume such reserves in a downturn. This would be expected to ensure that banks accumulate and use self-insurance in synchronization with the financial cycle. In practice, we still need to clarify the conditions and the set up for triggering the release of surplus capital accumulated through the mechanism. Such a mechanism may not necessarily be cumulative with others and we may have to choose. Systemic risk and moral hazard As techniques for managing and allocating risk became more sophisticated, the network of counterparties expanded in scale and in complexity. This was, truly, a systemic change that was properly understood but not fully captured by regulators at the time. Credit and market risk was supposedly more broadly spread. But counterparty risk increased. Overall, the overall impact on financial stability may well have been negative. There might be a temptation to assess systemic risk through a crude “size” criterion. “Too big to fail” certainly warrants special treatment. | Anita Angelovska Bezoska: Let's get digital Speech by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of Macedonia, at the NBRM’s 11th Conference on Payments and Market Infrastructures “Let's Get Digital”, Ohrid, 6-8 June 2018. * * * Distinguished guests, Ladies and gentlemen, It is my great pleasure to welcome you to the 11th edition of the Conference on Payments and Market Infrastructures hosted by the National Bank of the Republic of Macedonia. The organization of this Conference has been traditionally supported by De Nederlandsche Bank for which we are very thankful and over time, this initial bilateral cooperation attracted involvement of other central banks and IFIs. In this context, I would like to extend our appreciation to Banco de Portugal for its contribution in the past editions, as well as to the Bank of Italy, the National Bank of Belgium and the National Bank of Serbia for their contribution to this Conference. Also, particularly valuable is the continued participation of the European Central Bank, the Bank for International Settlement and the European Commission given the prominent role these institutions play in the payments area. This year’s conference focuses on digital transformation, a process that is heavily penetrating across all segments of our business and private lives and will take even greater significance in the years to come. The digital transformation in finance has been rapidly evolving with the emergence of Fintech sector. | 0 |
All in all, as of today, Codes of Best Practice on Corporate Governance set out principles within which values and governance rules should be set by the management of the institution, and in the final analysis, good Corporate Governance is looked to as being a key tool to be used in the overall risk management of institutions, irrespective of the nature of the business carried out by the institution. Why is good governance in the banking and financial system more important than any other sector? The Banking and financial sector is easily distinguishable from the others. A few distinguishing features stand out: • Unlike normal business entities which are funded mainly through shareholders’ funds, banks’ business involves funds raised mainly through deposits. The business of raising public deposits places greater fiduciary responsibilities on the institution and its managers, since depositors’ funds need to be safeguarded in a special way. 2 BIS Review 24/2007 • Banks perform as financial intermediaries by lending and investing the funds mobilized and funding economic activities of others. • Banks are the agents of the payments system where they facilitate payments domestically and internationally, through various instruments such as bank accounts, fund transfers, credit cards, etc. • Banks are able to undertake all such business operations as a result of public trust and faith in the stability and soundness of the banks in particular and the system in general. | This would directly conflict with our monetary policy, since any hedging would be equivalent to a purchase of Swiss francs against foreign currencies, which would intensify the upward pressure on the Swiss franc. Therefore the broadest possible diversification of our foreign currency investments is our sole means of reducing exchange rate risk. At the end of September, 48% of foreign currency holdings were invested in euros, compared with 60% at mid-year, with 28% invested in US dollars, and 24% in other currencies. We are continuously evaluating new asset classes and currencies in both advanced and emerging economies; this year, the SNB began investing in the South Korean won. Our goal is to further diversify our foreign currency investments and thereby reduce risk concentration. To avoid undesirable third-market effects, our entire investment activity is invariably undertaken with a high degree of prudence and caution in respect of potentially adverse effects on markets. This applies equally to inflows and reallocations of investments, as well as to the establishment of new positions. If, for example, we see ourselves confronted with very high foreign currency inflows, we might place these in sight deposit accounts at other central banks, before investing them in securities. The SNB has absolutely no interest in causing market distortions or influencing currency movements in other countries. Issues surrounding the Libor and reference interest rates I would like to conclude by exploring some of the issues in connection with the Libor rate, and the global discussion on reference interest rates in money markets generally. | 0 |
Just let me give you an example: security is not something that people can actually address only at national level. Unfortunately, we have seen this very frequently through various terrorist actions. Everything in economics now is basically global. So it’s even beyond being only European. It’s actually all over the place. The more we integrate, the better we’ll be placed to address economic issues of this nature. Think about defence. Does it make sense today saying that countries are able to defend themselves against global challenges? Well, less and less. Think about another challenge: migration. Migration is not a problem of one country. It’s a problem, a challenge and an opportunity for a group of countries. In this case, the European and eurozone countries are certainly called to respond to this challenge. All this means that having a European perspective has become essential to understand today’s problems and the possible solutions. The key 1/2 BIS central bankers' speeches question that you will be asked more and more in the future is “What can we achieve together?” We count on you to embark on this long journey: we invite you to be our ambassadors, to continue the conversation on Europe in your schools and cities, with your relatives and friends. You will have an important role to play in tomorrow’s Europe, but that role, that responsibility, starts today. You give us not only hope for a better future, but you also inspire us to continue our work. | I trust that in taking part in the competition you have been able to find out more about what we do at the ECB, why we do it, and how our monetary policy works. It seems obvious that you should know what we do at the ECB or what people do in their national central banks. But as a matter of fact, if you do polls, you would be surprised by the amount of confusion that people have. For example, lots of people, about one-third, think that central banks are like other banks, that they are by and large not very different from what other banks do. Now, you will be the selected category that will know that the ECB is a central bank and that central banks are different from banks. And even more importantly, through this exercise, you actually got to have, at a very young age, a European perspective. You understood what is still really missing from lots of people, who still think in terms of national borders. It is very important, of course, but it is not the only reality that we are living through. In fact, the European perspective becomes much more important as time passes. Why is that? Well, because there are many challenges that are in fact supranational by their very nature. That is to say, you can’t really respond to these challenges, and you can’t really address the problems at national level if they are supranational. | 1 |
The existence of “social partnerships” in several EMU countries, for instance, the Netherlands and Ireland, where the social partners and sometimes even the government have worked out guidelines for wage formation, could indicate a development towards more co-ordinated wage formation in Europe. It would be interesting to hear your views on this issue whether the experiences of the social partnerships have been positive or not. However, a potential Swedish membership of the Eurosystem could also weaken the incentives for restraint in wage formation, which could lead to deterioration in competitiveness and eventually higher 4 levels of unemployment. Wage formation can be seen as a “game” between the social partners and the central bank. If the wage negotiations are relatively centralised, negotiators must take into account how the agreements will affect monetary policy. It is clear that excessively high wage increases can have negative effects on growth and employment. If a central bank outside of the EMU has an inflation target, the social partners may also estimate that excessively high wage increases will entail interest rate rises, which will reinforce the negative effects. This might not be the case in the event of membership of the single currency. Particularly if the individual Member State is small, it is not likely, that the ECB will react to high wage increases in this country alone. The negative consequences of excessively high wage increases may thus appear much greater to the social partners in an individual country outside of the EMU than to a member country. | I would like to recall again that, in the euro area, banks are the main channel for mobilizing domestic savings and financing investment. This explains why ECB’s non-standard measures have primarily aimed at enhancing access of the banking sector to liquidity and at facilitating the functioning of the euro-area money market. Given the topic of the current conference, I would like to take the opportunity to elaborate on one of these non-standard measures, namely the Securities Market Programme, or SMP. Sovereign yields are central in the transmission of monetary policy, in particular because government bonds provide a floor to the private-sector funding costs. This is the reason why we launched the SMP. 2 BIS central bankers’ speeches I insist that, through the implementation of all its non-conventional measures – including the SMP – the Eurosystem has fully played its expected role as a lender of last resort (LLR), by which I mean that we have and we will intervene to stem liquidity crises that threaten the stability of the banking system. Having said that, it is clear that engaging in large-scale asset purchases of sovereign bonds is well beyond what should be expected of a central bank’s role as a LLR. Moreover, largescale asset purchases are not without risks. While they may help to alleviate upward pressures on long-term interest rates in the short run, they could also affect price and financial stability in the medium-run, by endangering the value of the central-bank money. | 0 |
But I do say that it would be unwise - as some have implied - to set monetary policy on the basis of the worst possible outcome, even if one knew what that would actually mean in policy terms. At the time of our last Inflation Report published in November the MPC's collective view of the most likely outcome for the UK, looking over the next two years, was for growth at around trend with inflation close to target. But we were - and we remain - acutely conscious of the uncertainties and risks around that prospect. And we review the position intensively both at our regular monthly policy meetings and in the context of our quarterly forecasting round. And in that context, I give you my assurance that, despite the fact that we have not changed interest rates now for over a year, we stand ready to do so at any time if and when we see the risks to our central expectation beginning to crystallise in either direction. Mr President, let me conclude by suggesting once again this year that yes, we can keep the UK economy moving forward, but I don't pretend that it will be easy. Sadly I am attending this dinner for the last time as Governor this evening, so I will not be accountable to you for how we get on. | And the real pessimists argue that the longer the fall is delayed the more dramatic it will be. Now it is certainly true that if these risks were to materialise then we would indeed be hard pressed to keep the economy moving forward. But such risks need to be kept in proper perspective. The question is - are these possible developments a necessary - or even the most likely - outcome? I don't think that they are. It's entirely understandable - in the light of the global industrial slowdown and generally weak export markets, and after a third year in a row of sharply falling equity prices, that business and financial market confidence should remain subdued. And people seem sometimes surprised to be told that, on the macro-economic data, we passed the trough a year or more ago. The US economy, in particular, on which so much of the rest of the world depends actually expanded by just over 3% in the year to the third quarter of last year - which is well above its long-term annual average rate until the surge in the later 1990s. The Eurozone also grew - though only by around 1% over the same period, and there was even positive growth in Japan. Now that's not exactly a strong recovery after the slowdown, but it follows only a relatively mild recession. More recent data certainly have been somewhat mixed - perhaps reflecting Alan Greenspan's predicted "soft-patch" through the winter; and we're in the shadow of uncertainty over Iraq. | 1 |
Assessment of Risks to the Outlook The forecast that I have just described is my best assessment of how the U.S. economy will evolve over 2016. But there is uncertainty and risk relative to this baseline forecast, which also needs to be taken into consideration in assessing the implications of the outlook for monetary policy. There are two key considerations to this risk assessment. First, are the perceived uncertainties about the forecast higher, lower or about average as compared to the past? Second, are the risks symmetric around the baseline forecast or skewed upward or downward? The level of uncertainty is important in that it relates to the expected magnitude of forecast errors. The balance of risks is important in that it relates to the expected sign of those forecast errors. At the New York Fed, we use surveys, internal models and judgment in forming our risk assessment. Some surveys, such as the U.S. Survey of Professional Forecasters (SPF), ask respondents for both point and density forecasts. The density forecasts take the form of respondents filling out a histogram of their probability assessments that the forecasted outcome will fall into given intervals. These histograms can be aggregated and the resulting aggregate distribution can be used to assess both the level of uncertainty as well as the balance of risks. Recent U.S. SPF surveys have not indicated any significant changes in the overall degree of uncertainty around growth or inflation. The balance of risks have been roughly symmetric for inflation and tilted to the downside for growth. | 3 See, for example, Joseph Gagnon, Matthew Raskin, Julie Remache, and Brian Sack, “Large-Scale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York Staff Report no. 441, March 2010. Several private-sector firms have estimated yield effects of similar magnitude. In addition, a working paper by James Hamilton and Jing Wu, “The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment,” finds that changes in the Federal Reserve’s asset holdings produce considerable yield effects. 2 BIS Review 128/2010 Under this view, the FOMC’s influence on financial conditions is associated with the size and composition of its securities portfolio. This perspective provides a clear rationale for the reinvestment decision made at the August FOMC meeting. The decline in the size of the Federal Reserve’s portfolio that would have occurred in the absence of the reinvestment program would have amounted to a passive tightening in the stance of monetary policy, as the portfolio balance effect would have gradually reversed. Moreover, the extent of this tightening was increasing in response to the weakening of the economy, as lower longerterm yields were leading to more rapid repayment of MBS. This perverse effect was seen by the FOMC as working against its efforts to reach its dual mandate. In effect, the policy approach that was implemented before the August meeting acted to mute the amplitude of movements in longer-term interest rates. | 0 |
Cesa-Bianchi, A., R. Harrison, and R. Sajedi (2022). “Decomposing the Drivers of Global R*,” Bank of England Staff Working Papers 990, Bank of England. Cunliffe, J. (2019). “Financial Stability and Low for Long," Speech by Jon Cunliffe at the Society of Professional Economists Annual Conference, London. De Loecker, J., J. Eeckhout, and G. Unger (2020). “The Rise of Market Power and the Macroeconomic Implications ,” The Quarterly Journal of Economics, 135, 561–644. Del Negro, M., D. Giannone, M. P. Giannoni, and A. Tambalotti (2019). “Global trends in interest rates, " Journal of International Economics, 118, 248-262. De Ridder, M. (2016). “Investment in Productivity and the Long-Run Effect of Financial Crises on Output ,” Cambridge Working Papers in Economics 1659, Faculty of Economics, University of Cambridge. De Ridder, M., (2019). "Market Power and Innovation in the Intangible Economy ," Cambridge Working Papers in Economics 1931, Faculty of Economics, University of Cambridge. Döttling, R., G. Gutierrez, and T. Philippon (2017). “Is there an investment gap in advanced economies? If so, why? ,” In Investment and Growth in Advanced Economies, ECB: Frankfurt am Main. Eggertsson, G. B., N. R. Mehrotra, and J. A. Robbins (2019). "A model of secular stagnation: Theory and quantitative evaluation 48. ," American Economic Journal: Macroeconomics, 11, 1- Page 19 Fernald, J. and R. Inklaar (2022). "The UK Productivity "Puzzle" in an International Comparative Perspective ," CEPR Discussion Papers 17321, C.E.P.R. Discussion Papers. Goodhart, C. and M. Pradhan (2020). | So there is clearly still lots of work to do, and I hope to see more research dedicated to this subject in the future. Intangibles and Productivity I can now come full circle and consider the implications of the findings so far for another important equilibrium concept: potential output. As intangibles seem to be important for the puzzling weakness of investment, can they also help us rationalise recent developments in productivity and hence the implications for potential output? Page 14 Since the global financial crisis we have observed a substantial productivity puzzle. Average labour productivity growth in the United Kingdom has been around 1.3 percentage points lower since the crisis. While intangibles help to explain the missing investment puzzle, their effect on productivity is mixed as, if anything, there is evidence that they might be driving this productivity slowdown. Chart 9 shows that intangible-intensive industries have experienced the strongest slowdowns in labour productivity growth since the global financial crisis, consistent with a recent study by my colleague Jonathan Haskel. [23] Chart 9: Productivity slowdown is stronger in intangible-intensive industries Note: The y-axis shows the change in average labour productivity growth over 2008-2018 with respect to the 2000-2007 period. The x-axis covers the average share of intangible assets in total capital. Each ‘bubble’ represents an industry, with the area of the bubbles reflecting its share in total employment within each country, thereby measuring the industry’s contribution to aggregate labour productivity growth. EU4 consists of Germany, Spain, France and Italy. Source: Source. | 1 |
Creating the right conditions for this is a difficult but important task. It involves the work on both financial stability and monetary policy. It involves extensive reforms and cooperation between central banks and other authorities around the world. We must tackle this task not only at a national level, but also from a global perspective. The work has already begun, and we are in a phase of the crisis where there are good prospects for achieving change. It is now that we have the chance to really create something that will last and will work better. We must not miss this opportunity! 12 BIS Review 138/2009 | Among the foreign institutions, I would like to highlight the successful cooperation with the Bank for International Settlement, the International Monetary Fund, the World Bank, EUROSTAT, etc. in the area of exchange of statistical information. I would particularly like to note that this year, the National Bank officially became a member of the Irving Fisher Committee on central bank statistics that operates within the International Statistical Institute, and represents a forum of central bank economists and statisticians. This is a good opportunity to improve the statistics of the National Bank, since the primary objective of the Committee is to promote an exchange of viewpoints between the economists, statisticians and central bank policy makers, on all relevant statistical issues of interest for the central banks. The State Statistical Office, as an institution responsible for the official state statistics, that produces data covering various sectors in the economy, is an indispensable source of data for the needs of our analyses. So far, we have a successful cooperation with the State Statistical Office, underpinned by the Agreement on Mutual Cooperation and Exchange of Data. Our macroeconomic analysis mainly make use of the data covering the real sector of the economy, such as data on prices, economic activity, employment, wages, etc., as well as data on the foreign trade sector. | 0 |
The way we at the Riksbank conduct our monetary policy is described in the brochure “Monetary policy in Sweden”, which was published in May this year and is available on our website. I shall here reproduce the main features of the brochure and provide some comments of my own. The target for monetary policy is to maintain a low and stable level of inflation. The assignment we have been given by Parliament is to “maintain price stability”. The Riksbank has specified an inflation target whereby the annual change in the consumer price index (CPI) is to be 2 per cent with a tolerance interval of plus/minus 1 percentage point. The target for monetary policy is thus formulated in terms of CPI. However, when we analyse the development of inflation, we look at several different measures. Underlying inflation measured as UND1X is one such measure. This excludes household mortgage interest expenditure and the direct effects of taxes and subsidies. The former is particularly important, as an increase in the policy rate pushes up the CPI. It then looks as though inflation increases when we raise the policy rate, despite the fact that this measure will in the long-term dampen inflation. There is no such problem with UND1X. However, we also look at other measures. For the purpose of more clearly explaining the analysis, it may sometimes be necessary to disregard energy prices, or to divide inflation up into price developments on imported and domestically-produced goods. The effect of monetary policy on inflation has a considerable time lag. | Corporate governance regulations and best practices We have seen considerable reform in the regulations and codes of corporate governance, as well as the actual practice of corporate governance in the Asian Roundtable economies. For instance, Pakistan, Chinese Taipei and Thailand all adopted new codes in 2002, while new or updated codes have been adopted in Bangladesh, Hong Kong, Indonesia and Korea since 2003. This has yielded visible benefits. There is greater clarity in many Asian economies regarding the fiduciary duties of the directors of listed companies. There has also been progress made in terms of more independent directors being introduced to the boards of listed companies in the Asian region . Accounting rules have also been beefed up across the region. Some of the Asian Roundtable countries have made significant moves towards convergence with international standards and best practices on accounting. China, India, Indonesia and Philippines, have for example revised their accounting standards to bring them more in line with international standards. Corporate governance in Singapore Corporate governance in Singapore has similarly undergone evolution. I shall leave it to the speakers from the Singapore Institute of Directors and the Singapore Exchange to share on these more fully. I will talk briefly instead about our overall approach to corporate governance. Regulatory framework – balance of mandatory rules and best practices First, let me touch on the regulatory framework for corporate governance. In recent years, we have moved away from a merit-based approach towards a disclosure-based approach. | 0 |
Working closely with the Commercial Affairs Department and the Attorney-General’s Chambers, MAS undertook a rigorous probe of these transactions which were part of a large, complex, cross-border money laundering scheme. Last year, I said that the findings on the 1MDB-related transactions that flowed through here had made a dent in our reputation as a clean and trusted financial centre. I believe we have begun the process of restoring that reputation. We have taken tough and unprecedented enforcement actions and sent an unequivocal message that MAS will not tolerate the criminal abuse of Singapore’s financial system. Just last month, we announced the completion of an intensive two-year long review of banks connected to 1MDB-related transactions known to-date. All in, we have closed 2 merchant banks and fined 8 banks nearly $ million – the heaviest aggregate financial penalties to-date. We have also issued prohibition orders (POs) against 4 individuals and served notices of intention to issue POs against 3 others for various regulatory breaches. MAS also issued lifetime bans, for the first time, against 2 of these individuals. MAS’ regulatory actions so far are based on what we know to-date. Thanks to excellent co-operation we have had with overseas jurisdictions, Singapore authorities were able to obtain good intelligence and piece together most of the significant flows from end to end. We have found nothing new in the latest filing by the US Department of Justice that warrants further action by us. | With more risk traded in and through markets, the potential knock-on effects from an erosion of liquidity in some segments or for some institutions have multiplied, and we are currently experiencing how unexpected this process can be. Risks have become “mobile”, if I may put it like that, so mobile that we lose sight of their true location. The third and final set of issues relates to global imbalances. The facilitation of crossborder capital flows may have relaxed financing constraints for borrowers, making it possible to finance ever larger current account deficits. In one sense, the contribution of financial globalisation to disconnecting national savings and national investment is a welcome development, to the extent that it allows for a more efficient global allocation of savings. However the differences in the development of financial markets around the world may also have created, or at least facilitated, global imbalances. The ability of countries to produce sound and liquid financial assets is largely disconnected from their level of economic growth : rising revenues in the emerging world need to “find a home” in sound and liquid financial markets. Finally, in any case, the question of sustainability – the resilience of capital flows to the accumulation of imbalances – remains a pressing one. While capital flows tend to move freely across borders, exchange rate regimes remain very diverse in their degrees of flexibility. This leads to asymmetric adjustments depending on the exchange rate regime, not only between currency areas, but also inside the same region, such as in Asia. | 0 |
by opposing techno‐utopians and techno‐pessimists, or proponents of “degrowth” to proponents of “green growth”) is not constructive Lastly, given the well‐known limitations of GDP as a measure of well‐being, it is also important to bear in mind that the definition of growth itself is bound to evolve in the future. For instance, as recently stressed by Professor Nicholas Stern and co‐authors in an IMF working paper,17 we should move from a “flow‐ 16 See Keyßer, L.T., Lenzen, M. (2021). 1.5 °C degrowth scenarios suggest the need for new mitigation pathways. Nature Communications 12, 2676. https://doi.org/10.1038/s41467‐021‐22884‐9 17 Bhattacharya, A., Ivanyna, M., Oman, W., Stern, N. (2021). Climate Action to Unlock the Inclusive Growth Story of the 21st Century. IMF Working Paper 21/147. 7 centred focus on GDP” to a “stock‐centred focus on a broad definition of capital”; “the conceptual framework used by policymakers must treat planetary boundaries – notably climate overshoot – as a hard constraint”. They also propose to establish an annual carbon budget at the national level which would be binding. In short, if we are to hold a serious discussion about what an ecological transition means for central banks, including the impact it will have on output and other key macroeconomic variables, we need to be able to engage in a responsible and scientific manner on these difficult questions, rather than sweeping them under the rug. | The flow of corporate euro bond and equity issuance has grown significantly, though it is important to keep this in proportion: the stock of issuance outstanding in both cases is still - by some margin - lower than the US. (Domestic debt securities in the euro area, taking governments and corporates together, amount to the equivalent of around $ trillion, compared with some $ trillion in the US. And the equity market capitalisation of companies in the euro area amounts to the equivalent of around $ trillion, compared with some $ trillion in the US.) Since the launch of the euro, the focus of risk assessment in the corporate debt market has shifted from currency risk towards credit and liquidity risk. A growing number of companies in the euro area have been seeking external credit ratings. And an equity culture is beginning to take root in the euro area, despite the volatility in TMT stocks over the past two years. In Europe as a whole, for example, there were over 17,000 M&A transactions with a combined value equivalent to $ trillion last year. The second change concerns the integration of euro trading and settlement. Trading has increased in most euro markets, and dealing spreads have narrowed. Electronic trading and communication 2 BIS Review 11/2001 networks have greatly increased the reach of traditional financial markets, while allowing new providers to enter at relatively low cost. | 0 |
When an AI tool finds an empirical basis for discriminating by a combination of variables such as gender, ethnicity, religion, and nationality, say for a loan or insurance decision, how much of that empiricism is grounded in reality and how much of it is due to unobserved biases in society that the AI is learning from? And even if such discrimination is backed by empirical unbiased data, is that a socially acceptable outcome? Regulators in many jurisdictions have been engaging the industry as well as the broader society on developing guidance on the responsible and ethical use of AI and data analytics by financial institutions. Defending Against Systemic Cyber Risk The third theme that stands out in the history of financial regulation over the last two decades is cyber security. But it was only after the Global Cyber Crisis of 2023 that cyber risk management has moved to front and centre of the international regulatory agenda. The Global Cyber Crisis laid bare our cyber vulnerabilities. A highly skilled and well-resourced group of hackers used AI-enabled malware to infiltrate banks across the world, subvert detection, and siphon monies. Over a span of just 6 weeks, a total of $ billion was stolen from over 500 banks, leading to loss of public confidence and bank runs in several jurisdictions. Only 8% of the stolen funds has ever been recovered. The failure of Algor Bank at the height of the Global Cyber Crisis demonstrated both the high points and low points in financial regulation. | Few would disagree with the following: The bad behavior that contributed to the Financial Crisis was evidence of a culture that was not strongly ethical. Let me also pose a challenge to those who are skeptical about the benefits of a strong ethical culture: If this is not a suitable method to prevent bad behavior by bankers, what alternative proposal do you advocate? The status quo is not acceptable. As a wise man once said, “Plan beats no plan.” The components of a strong ethical culture So what are the key components of a strong ethical culture? It is said that lawyers love a metaphor, and this lawyer is no exception. I like to think about ethical culture as if it were a package. The culture that we will have is derivative of what we put into the package, and there are clear choices to be made. The contents depend upon the type of organization, the kinds of people, and the nature of the skills needed to conduct the organization’s activities. Time will not permit me to cover this thoroughly, so let me cover a few items with a very broad brush. What goes in For starters, the conduct of the people in any organization will be strongly influenced by incentives. Let me mention the “big three.” Bankers, like lawyers, want to do [1] quality work, [2] with people they like and respect, and [3] receive fair recognition in return. | 0 |
The Maastricht Treaty impressively illustrates this changed approach with respect to the European area. This new political focus was also a reaction to the disillusionment with regard to the central banks’ ability to generate permanent growth effects. There was fairly widespread agreement that price stability should be the prime monetary policy objective. Second, it was of decisive importance that the currencies of the two leading countries, the US and Germany, achieved a high degree of price stability. Numerous countries gained credibility by pegging their exchange rates to the US dollar and the DM, thus seizing the opportunity to successfully import the stability policies of the Federal Reserve and the Deutsche Bundesbank. Third, the deregulation and globalisation of financial flows have increasingly disciplined the national authorities. These days, an excessively relaxed monetary policy is sanctioned much more severely and much more quickly than in the past by growing inflationary expectations, rising long-term interest rates and a persistent devaluation pressure. Correspondingly smaller are the incentives to run the higher risk of a long-term inflationary problem for reasons of short-term opportunism. On looking ahead, most of these factors promise to remain relevant. Such confidence, however, should not detract from the dangers and risks involved. Fiscal discipline is facing a difficult test phase in a number of countries. It is foreseeable that the combination of demographic trends and non-funded statutory pension claims will lead to intensive discussions on distribution in many places which, in turn, might easily trigger a rise in public indebtedness. | To be realistic, a simple recommendation is all that is in order: those who buy equities bear the price risk themselves. People who, out of greed and carelessness, buy and sell in such a way that they cannot survive a brutal crash have only themselves to blame. They must bear the consequences alone, even if it means their economic ruin. Second, there is also an argument that price stability as the relevant goal of monetary policy should be defined more broadly and measured in such a way as to include the development of important asset 7 BIS Review 35/2000 prices.4 The demand that monetary policy, in its use of the concept of monetary conditions, should not only take account of interest rates and foreign exchange rates but also of equity prices does not go quite as far. On a technical level, such an expansion of the price index would not be a trivial undertaking, but certainly doable. There are some serious economic concerns, however, which are mainly due to the ambivalent nature of equity price fluctuations. Equity prices may rise in anticipation of a pick-up in total demand, which - if anything - would indicate some restrictive monetary policy correction. If the stock market expects business activity to pick up, the central bank will, in assessing the situation, hopefully realise this as well. It is for that purpose not necessary to expand the price index or the monetary conditions index as has been suggested. | 1 |
In view of this delicate situation and since the problem is a pressing one, the Banco de España, with the Government’s agreement, decided it was necessary to provide additional financing to CCM to preserve its stability. To this end, the Government granted backing to the loan, for a maximum amount of € billion, extended by the Banco de España. I would like to underscore this point. As reiterated by the Second Deputy Prime Minister at the press conference following the meeting of the Council of Ministers last Sunday, I should stress that we forecast that approximately € billion of this amount will be used. Nevertheless, our room for manoeuvre will make managing the payments more flexible, without any constraints in respect of the amounts involved. Developments in CCM’s liquidity in the three days it has been under the control of the Banco de España nominees have proven more positive than expected. Given the response by all the government authorities involved, management cooperation, the reaction of the trade unions and understanding on the part of the general public, there have been no queues or panic at branches and there have clearly been fewer withdrawals of deposits than foreseen. Having briefly outlined CCM’s current position, let me move on to the ultimate aim of the Banco de España’s supervisory decisions. While seemingly obvious, the Supervisor’s aims are to protect depositors’ savings and creditors, to avoid market turmoil and to preserve the stability of the financial system as a whole. | Øystein Olsen: The monetary policy toolkit Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME) / BI Norwegian Business School, Oslo, 8 October 2019. * * * Accompanying charts of the speech. Introduction In the wake of the financial crisis, central banks in many countries have stretched the limits of monetary policy. New, alternative policy instruments were introduced. Interest rates are still negative in many countries. Apart from in the initial hectic months after the collapse of Lehman Brothers in 2008, resorting to alternative monetary policy tools has not been necessary in Norway. Nor is there anything, in our assessment of the outlook, to suggest it would be appropriate to do so in the future. But there are no guarantees that the economy will not experience pronounced downturns in the future. Were that to occur, it would be wise to have thought through which instruments could function in Norway. Norges Bank has therefore assessed the tools that might be useful in the monetary policy toolkit. To some extent, our assessments can build on the post-crisis experiences of other countries. In some areas that are important for the impact of monetary policy, however, Norway is different from other countries. This could mean that some of the most widely used alternative tools in other countries are not a suitable option for us. I would like to share with you some of our thinking on this subject in my speech today. | 0 |
Therefore investors may still prefer to avoid being heavily weighted in a country with structural rigidities, or high public debt levels, and will on the contrary overweight their asset allocation in countries with well-designed fiscal and structural policies. In the same vein, this should suggest that the level of connection between stock exchanges in Europe and the US could be time varying, considering that the underlying factors are also driven by policies that are implemented independently. As a matter of fact, and not surprinsingly, correlations of yields between European stock indexes appear to be higher than those between European and US indexes, and these correlations have increased since 1999. These results seem valid even taking into account the increase in correlations due to the increase in absolute 9 volatility levels . 6 RAJAN and ZINGALES – 2002 – Second ECB international banking conference . 7 MORANA, BELTRATTI – 2002 – The effects of the introduction of the euro on the volatility of European stock markets – Journal of Banking and Finance. 8 Source: FEFSI – Fédération Européenne des Fonds et Sociétés d’Investissement – in THE EURO EQUITY MARKET – ECB 2001. 9 Banque de France Research department calculations – . Correlations calculated as monthly averages. The impact of market shocks is neutralized by taking into account changes in long term interest rates. | No matter how good the financial regulations are or how hard the supervisors try, external surveillance can only supplement, but not replace, good internal controls. This means that a suitably designed control system endorsed by the Board of Directors must be put in place to ensure that there are effective checks and balances within the firm to monitor and detect breaches of the approved risk taking parameters and code of conduct in dealing with clients. “Culture” The last “C” is “Culture”. This is a more difficult concept to explain than the first two “Cs”. But I’ll try. Competence basically means having the technical expertise to conduct financial businesses. It can be learned through different channels, such as formal education, in-house programmes or on-the-job training. Control means having a system within a firm that monitors and manages risk-taking or the conduct of its staff. People within the firm are required to behave in a way that is prescribed by their rules. To put it in another way, people behave properly because they have to or else they would face unpleasant consequences if and when they are caught. In contrast, culture refers to a set of internal values shared by a group of people that influence and shape their mindset and behaviour. Culture and values normally define what is proper and what is not. Culture makes people behave in a certain way because they want to behave in that way and not because they have to. Let me use a day-to-day example to illustrate this point. | 0 |
It is my pleasure to welcome you to Malaysia for this 13th Annual Conference that is being organised by the Fixed Income, Money Market and Derivatives Association of India and the Primary Dealers Association of India. We are most pleased to host this conference here in Kuala Lumpur. The theme of this conference, “Asian Money, Bonds and Derivatives in the New Global Economy”, is a relevant topic to be discussed in this period of transition to an increasingly multipolar world, in which Asia together with other emerging regions will have an increasingly more important role. Asia’s potential and regional integration While this recent global financial crisis has provided us with challenges, it has also seen the resilience of Asia in weathering a number of major shocks in the international financial markets. Asian financial systems have demonstrated the capacity to continue to function and to meet the demands of its significant investment requirements. Moreover, the trend towards greater regional financial integration will provide for a more effective and efficient channeling of the sizeable surplus funds to such activities within the region. This increased intra-regional economic and financial activities is already taking place. The economic integration is supported by the strong demand from the growing middle class Asian population, which is projected to reach 3.3 billion by 2030. The intra-regional trade in Asia now represents more than 50 percent of total trade in the region, increasing from 32 percent in 1995. Intra-regional investment activities have also been on a rising trend. | We have the foundations to take our financial sector to a new level of development that will focus on new areas that will further strengthen the competitiveness and efficiency of the financial sector and its potential role in facilitating Malaysia’s ongoing economic transformation and in strengthening our linkages in the region. As Malaysia evolves and the new financial landscape emerges, one prominent area of focus is the development of deep, liquid and efficient financial markets in particular, the development of our domestic bond market. Malaysia’s bond market has already grown to MYR867 billion or 105 percent of GDP in 2011, and has become one of the largest debt securities market in South East Asia which has now been liberalized to allow issuance by foreign corporation and in multiple currency. Our Islamic capital markets have also thrived, with a growing presence of international issuers and investors operating in both the ringgit and foreign currency sukuk markets in Malaysia. We have seen new innovative structures for sukuk issuances including a world’s first issuance in Renminbi from Malaysia’s own sovereign wealth fund, Khazanah Holdings. The money and foreign exchange markets also continue to grow in depth and liquidity. The volumes transacted in the domestic money market and the foreign exchange market have now reached RM23.5 trillion and RM9.21 trillion trades respectively. Participation in these markets have also broadened significantly with the growing presence of new issuers, banks, institutions and investors in general, including a growing presence of regional players. | 1 |
3 According to Eurostat business statistics data, (SBS_SC_OVW) in 2021 Spanish firms’ productivity (measured as sales over employment) in industry, construction and services, as compared with the average for French, German and Italian firms in the same size group, was 62% for firms with between zero and nine workers, 77% for those with between 10 and 19 workers, 75% for those with between 20 and 49 workers, 87% for those with between 50 and 249 workers, and 79% for those with more than 250 workers. 4 A persistent negative gap can also be seen when looking at investment in intangibles (Banco de España, 2018). A similar diagnosis can be drawn from certain international innovation indicators, such as the European Commission's European Innovation Scoreboard (2022) or the Global Innovation Index (WIPO, 2022). 5 Community Innovation Survey, 2018 6 See the White Paper on Tax Reform (Committee of Experts, 2022) and Almunia and López-Rodríguez (2023), forthcoming. 7 See, for example the assessments of the effectiveness of R&D tax incentives in: the United Kingdom, Guceri and Liu (2019) and Dechezleprêtre, Einiö, Martin, Nguyen and Van Reenen (in press); Canada, Agrawal, Rosell and Simcoe (2020); and the United States, Rao (2016). | Likewise, the Employment Law and the changes in unemployment benefits seek to ensure compatibility between protecting the most vulnerable and providing appropriate incentives for job seekers. Looking ahead, public employment services need to play a more prominent role in job mediation (currently very minor) and their training and vocational integration activities need to be more effective. This requires appropriate professional profiling of the unemployed, rigorous assessment of training and vocational integration programmes and, on the basis of this assessment, sufficient funding for these programmes. Squaring protection for the more vulnerable groups with appropriate incentives on the labour supply-side calls for greater coordination between active and passive policies. The capacity of migration policies to effectively smooth any mismatches arising in the Spanish labour market also needs to be continuously monitored. The fifth factor I wish to refer to is confidence in institutions and their management capacity. Both these types of confidence are currently low in comparison with other European countries.24 The efficiency of public administration may have a key role to play in overturning this perception. For example, efficiency indices for the Spanish judicial system stand below those in comparable countries. In this respect, one of the priorities of the Spanish Recovery, Transformation and Resilience Plan (RTRP) is public administration modernisation. Specifically, the aim is to improve the efficiency of public administration through, among other measures, a digitalisation drive, strengthening the public policy assessment framework and reducing the proportion of public employment that is temporary. | 1 |
22 Of course, it is crucial to evaluate policy and require it to be effective, whether the policy is state contingent or time contingent. 23 My impression is that the issue of whether fiscal policy should play a more active role and whether the fiscal frameworks should be reviewed is starting to be raised more and more in the economic policy debate: see, for example, Calmfors (2021) for Sweden and Ubide (2021) and Lane (2021) for the euro area. This is also underlined by the fact that the ESO, the Expert Group for Public Economics, is planning a study in this field; see https://eso.expertgrupp.se/pagaende-projekt/. However, it should be pointed out that this study will only refer to the interaction between monetary policy and fiscal policy in times of crisis, which I do not think is sufficient. A month ago, representatives of the government parties also argued, in a newspaper article, that the review of the fiscal policy framework planned for 2025 should be brought forward (Svenska Dagbladet, 2021). In the Statement of Government Policy on 30 November, Prime Minister Magdalena Andersson argued that Swedish public finances are so strong that shifting from a surplus target to a balance target is justified. There are also, of course, 12 [17] To be even more concrete, one idea could be to give the Swedish Fiscal Policy Council, or some other body, the task of continuously evaluating whether fiscal policy is keeping to the announced plan and delivering the expected results. | Innovations indeed move the world with financial technology, transforming the financial services industry as we know it – moving it towards the digital arena. In such an environment, building and maintaining close cooperation becomes essential for sustaining financial stability and protecting consumers from security threats. The Conference will cover various topics related to the latest developments at global, European and national level. The emergence of FinTech – financial technology marked the global developments in recent years by attracting financial institutions attention to its implementation for improving the present financial products and new products development. On the other hand, FinTech companies started offering their own financial services, thus entering into competition against banks. Moreover, digital technologies pose challenges to financial institutions, including the central banks, in the context of digital banking and digital transformations. Implementation of Distributed Ledger Technology, particularly Blockchain, could cause disruption to financial market infrastructures and furthermore, to worldwide financial system. Theoretically, it could facilitate cross-border payments, improve the efficiency of back-office operations, eliminate the need of data reconciliation, facilitate financial inclusion and information sharing, but also, it could reduce the need or completely replace some financial market intermediaries. DLT strongly emphasizes the questions about effective regulation, prudential supervision, oversight and cyber security issues, but it could also catalyze the issuance of digital currencies backed by the central banks and facilitate the implementation of monetary policy. In the European context, the Second Payment Services Directive (PSD2) is fundamental part of the European payments regulation and significant step towards single digital market in Europe. | 0 |
Kerstin af Jochnick: Current monetary policy and the economic situation Speech by Ms Kerstin af Jochnick, First Deputy Governor of the Sveriges Riksbank, at the Centre for Business and Policy Studies, Stockholm, 21 August 2015. * * * Accompanying figures can be found at the end of the speech. Economic developments in Sweden look positive and the Riksbank’s expansionary monetary policy is continuing to support the upturn in inflation. I am pleased to note this as I hold an August speech for the fourth year in a row based on the monetary policy decision in July and discuss what has happened during the summer. Although I expect most people here follow events on stock exchanges and other markets around the world even during the summer, I hope that a summary of the most important events may be useful prior to assessing the prospects for the autumn. One can say that Greece has not entirely unexpectedly been in focus during the summer, too. The forecasts in our July Monetary Policy Report were based on the sequence of events not preventing a recovery in the euro area. While some work remains to be done before the new 3-year loan programme is formally in place, my assessment is nevertheless that developments so far are in line with the assumptions we made in July. | BIS central bankers’ speeches 5 The National Institute of Economic Research’s Economic Tendency Surveys, which summarise companies’ and households’ views of the Swedish economy, rose in July, see Figure 11. This is the third month in a row that the indicator exceeds the historical average and thus points to a somewhat stronger growth than normal in the Swedish economy. Households’ confidence in the economy as a whole slowed down further in July, although the view of their own economy is still more positive than normal. Inflation expectations according to money market participants in Prospera’s survey 1, 2, and 5 years ahead have remained broadly unchanged during the summer. Long-run inflation expectations 5 years ahead remain at around 1.8 per cent. CPIF inflation was measured at 0.6 per cent in June and at 0.9 per cent in July, see Figure 12. The outcome in June was lower than our forecast. It is difficult to point to any individual component that contributed to the forecasting error – goods prices services prices and food prices all increased somewhat slower than expected. The outcome in July, on the other hand, was higher than our forecast. It was in particular the volatile air travel and package holidays that were higher than anticipated, although food and clothing prices were higher than expected. All in all, the outcomes over the summer have been in line with our forecasts. | 1 |
Handling the political problems to do with a consistent, long-term approach to stabilisation policy is considerably more complicated. In practice it seems to be mainly a matter of ensuring that budget policy sticks to the rules in upward phases, both in order to secure reserves for down-turns and to avoid overheating, with its negative effects on wage formation, costs and so on. One possibility that has featured in the public discussion would be to extend the function of the Economic Council, for instance by formulating opinions about the formation of policy on behalf of the Riksdag (Sweden’s parliament). At a general level I can see no crucial objection to this; one more voice in the public discussion can do no harm. But as soon as one goes further than that, difficult issues arise. Time does not permit a long discussion of this question, which is not all that central. I just want to say that it touches on aspects of democracy that are likely to become even more tangible in that, if Sweden adopts the euro, monetary policy will be conducted well beyond our borders. The difficulties are compounded in that in questions such as these – taxes, cyclical activity, the direction of fiscal policy – the distinction between knowledge and values tends to be indistinct. To exemplify this I can cite a discussion I had two years ago with representatives of the Ministry of Finance. | The announcements following the recent G20 Summit and the associated announcements of the Financial Stability Board reflect the international economic regulatory cooperation that will set the agenda for the conventional standard setting bodies to put in place a framework to strengthen the international regulatory standards. It will also form the basis by which assessments will be made by multilateral agencies such as the IMF. It is therefore important for there to be engagement with the prudential standard setting entities for Islamic finance, not only to raise awareness of whether the new standards being introduced can be applied to Islamic finance and whether modifications need to be made but there could also be possible consequences that are unintended. Equally important is for there to be recognition of the standards that have been issued for Islamic finance specifically by the Islamic Financial Services Board. As a growing component of the international financial system, it becomes important for the interface and engagement with the international standard setting entities to take place given the common interest of global financial stability. Let me conclude my remarks. While the inherent strengths of Islamic finance have contributed to its viability and resilience, going forward into the future, the foundations for its sustainability as a competitive form of financial intermediation will continue to be strengthened. | 0 |
Már Guðmundsson: Recent economic and financial developments in Iceland Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the 52nd Annual General Meeting of the Central Bank of Iceland, Reykjavík 21 March 2013. * * * Madame Prime Minister; Ministers; Madame Chairman; Directors and Ambassadors; Ladies and Gentlemen: As we convene for the 52nd Annual General Meeting of the Central Bank of Iceland, the domestic economic recovery that began in mid-2010 continues, although it has slowed down in recent months. At least to a degree, the slowdown is due to developments internationally. The margin of spare capacity in the economy continues to narrow. Inflation has proven more persistent than previously hoped, however. Early on, wage increases far in excess of productivity growth played a leading role in raising inflation well above the inflation target, but since last autumn the weakening of the króna, triggered by deteriorating terms of trade and a heavy foreign debt service burden, has played a greater part. Monetary policy responded to these developments with interest rate increases beginning in August 2011. The Bank’s interest rates have been unchanged since November, however, and intervention in the foreign exchange market has supported the exchange rate in the recent term, thereby supporting the monetary policy goal of bringing inflation back to target. Global output growth lost pace in 2012, but to differing degrees in various regions. There was a contraction in the euro area and marginal growth in the UK and elsewhere in Europe. | But none of this changes the fact that we must lift the controls as soon as it is safe to do so, both because of the economic cost of retaining them and because of Iceland’s international obligations. In my speech a year ago, I said that this was one of the most complex tasks facing the Icelandic authorities at the time. That has not changed. A prerequisite for success is that we base our efforts on the best possible analysis of the problem and the potential solutions to it. Until now, the controls have been viewed as providing shelter during the BIS central bankers’ speeches 3 resolution of the balance of payments problems caused by the collapse of the financial system. If all non-residents’ potentially volatile claims on residents were paid in a short period of time, Iceland would pay down foreign debt much more rapidly than is desirable. If worse comes to worst, the deleveraging could amount to roughly half Iceland’s GDP in relatively few years. Under such circumstances, the króna would depreciate significantly, at least over a considerable period of time, the banks’ liquidity would be weakened, and public sector finances would do likewise. Domestic and foreign Treasury financing would be much more difficult and expensive to come by. But is this analysis correct? Is Iceland faced with a balance of payments and refinancing problem rather than a debt sustainability problem? | 1 |
Finally, if you look at the structure of financial markets on both sides of the Atlantic, you may note the difference between the “bank-based” system of finance on the European continent and the “market-based” system in the United States. Although there seems to be a trend away from banks towards non-bank financing in the euro area, reinforced by the introduction of the euro, banks still play a dominant role in providing financial services in the euro area. Domestic credit as a share of domestic output accounts for 130% in the euro area, compared with 80% in the United States. Correspondingly, stock and debt markets are much smaller in the euro area than in the United States. While the shares of euro area debt securities and stock market capitalisation relative to GDP remain clearly below 100% (91% and 63% respectively), the figures for the United States are in both cases well above 150% (155% and 172% respectively). This brings me to the use of the euro as an international currency in the global financial system. The role of the euro as an international currency Given the weight of the euro area in the world economy and the legacy of the former national currencies, which have been replaced by the euro, it is no surprise that the euro is the second most widely used currency behind the US dollar. A number of observers have argued that one of the main motivations behind Economic and Monetary Union (EMU) was the development of the euro as a major international currency. | I believe structural reforms together with macroeconomic stability, fiscal discipline and prudent monetary policies will create the necessary economic environment to achieve and maintain sustainable growth rates and price stability in the future. Thank you. BIS Review 79/2008 3 | 0 |
Given a marked increase in credit rationing in capital markets and bank lending, the conventionally measured short-term riskfree real rate may not be the same summary statistic of monetary conditions as before the turmoil. It is currently necessary to undertake a richer analysis of monetary and credit conditions, which had been the broad theme of my earlier paper. But those remarks about money and credit were nested within a broadly common approach to the transmission mechanism and policy. To recap, the MPC’s more collective statements make us free to do our duty in revealing our individual thoughts without creating a misleading perception of cacophony when it is not really there. The challenge for central banks with different decision-taking structures would seem to be the opposite: (i) how to allow a range of views to be explored seriously so as to avoid intellectual or analytical inertia – or how to let in fresh air; and (ii) in terms of communications, how to demonstrate that there is true debate without individual pronouncements being confused with the collective pronouncements on policy made typically by the Chair. I think forecasts are central to this. And I would encourage Alan Blinder and his collaborators to extend their work on the production and role of forecasts in the decision-making of different central banks; and how the communication of forecasts interacts with the communication of other elements of the policy process. | This means that, in addition to clarifying our own thoughts, we are up to a point in the business of persuasion. Ours is not a system of postal voting. It is a system of listening to and learning from each other. Second, with qualifications, some of the MPC’s communications are relatively more collective. In particular, our communications on a broadly shared ‘model’ of how the economy works, and our forecasts of the outlook for growth and inflation. In 1998, the (then) Committee published a paper on the Monetary Transmission Mechanism; and, in a 2007 paper to the Treasury Select Committee of Parliament, we described our view of material changes in the workings of the economy during the Committee’s first ten years. Both were agreed, collegiate-like documents, while not committing every member to every proposition. Much the same can be said of our quarterly forecasts and Inflation Reports, which play a central role in the MPC’s system. Our forecasts are the projections of the policymakers not the supporting analytical staff. It is striking that the ‘individualistic’ MPC publishes a common forecast, whereas the somewhat more-collegial FOMC has long published information (the central tendency and range) about the forecasts of its individual members (without the names). The FOMC’s approach allows the range of central projections to be transparent. It is 3 See Tucker, P M W, ‘Reflections on operating inflation targeting’, speech at the Graduate School of Business, University of Chicago, July 2006, Bank of England Quarterly Bulletin Q2 2006, pp 212-224. | 1 |
I wouldn’t want to meet the eyes of the European citizens and tell them that we knew this could happen, but we were too busy to do anything about it. Some different avenues have been outlined in the ongoing international discussion. So far, the focus for discussions in the EU has primarily been on crisis prevention in the form of regulatory reform and different organisational structures of supervision. However, similar options do exist both in the context of crisis management and in the subsequent resolution of the crisis. One of the solutions suggested is to let the home country take a leading position more firmly. In this case, the home country supervisor is responsible for the supervision of the overall group and in a crisis the home country authorities has the responsibility for managing and solving the crisis for the bank as a whole. With increasing emphasis on consolidated supervision, this seems to be where Europe is heading presently. It addresses the problem primarily from the cross-border bank’s perspective of minimising the regulatory burden. This is, of course, valuable but does not solve all problems. With the new Capital Requirements Directive, the consolidating supervisor of a banking group will have, for example, the principal responsibility for validating and approving the credit risk models in the entire bank, including its subsidiaries. But in most cases, the rules to be used are expected to be settled in negotiations between the supervisors. | In order to avoid having crisis management being held up by conflicts of interests more than necessary, I am personally inclined to believe that a general key that is fixed once and for all is the preferred choice. Possible ways forward The title of this speech is a question: “Are we ready to deal with a cross-border banking crisis in Europe?” Regrettably, the answer is no! Before we can say we are anywhere near “ready”, we must deal with some serious challenges. In particular, we need to solve the problem of how to organise supervision, crisis management and crisis resolution for cross-border banks. Given the great complexity of the issue, achieving a practical solution will not be an easy task, and there is no altogether ideal solution. The amount of work that has already been set up for us on the European regulatory agenda is already quite staggering, which suggests that everything may not be achieved in the next few years. But we must not use this as an excuse for not starting to deal with these important issues. We can at least start the analytical process, take stock of the problems and examine the pros and cons of different solutions. The longer we wait to get this process started, the greater the risk that we’ll end up in a very serious mess. I, for one, certainly hope that we manage to have some solution in place before the next major financial disaster in Europe occurs. | 1 |
They took advantage of a liberal regulatory environment, good credit ratings, and the unusually advantageous conditions on the global markets and expanded their operations at a rapid pace. The European regulatory framework made this possible. In many ways their activities resembled those of banks in other countries. Under normal market conditions, this posed no immediate problem. The banks could have funded their operations even under sub-optimal market conditions. Many were of the opinion that the Central Bank should build up very large foreign exchange reserves, even up to a multiple of GDP, in order to back up the financial system. Given the current account deficit on the balance of payments, this would only have been possible with massive foreign borrowing. It would never have transpired, for the simple reason that the Icelandic government would have been unable to borrow such a large amount. Its credit ratings would not have tolerated it, and lenders would have been difficult to find. As I have touched on, the banks responded to mounting difficulties in various ways. Kaupthing, for example, abandoned its plans to acquire the Dutch bank NIBC. All of the 6 BIS Review 22/2009 banks sold assets and discontinued various non-core operations; however, as the IMF mentioned in the previously cited Staff Report, it was not a seller’s market. In addition, the banks all reduced their lending and laid off staff. | Early in October, two Icelandic banks received sizeable margin calls from the ECB. The ECB demanded that they be met immediately, which would have driven the banks to collapse. The news of these margin calls spread widely. For reasons that were not explained, the ECB withdrew the margin calls at the last moment, in spite of the fact that the Central Bank of Iceland had been informed that such decisions by the ECB were irrevocable. In retrospect, perhaps the safest way to prevent the collapse of the Icelandic banks would have been, at the outset, to place more stringent limits on their operations than were placed on financial institutions in other EEA states; in other words, to deny them the rights conferred by the EEA Agreement. Had this been done, Iceland would not have been a full participant in the internal market of the European Union. I will leave it to others to answer the question of whether political support would have been forthcoming for the imposition of such restrictions on the banks at that time. On the other hand, in view of recent developments, it is obvious that the banks took advantage of extremely favourable conditions to expand more rapidly than was sustainable for the long term as things developed. Because of their relative size, BIS Review 22/2009 7 the Icelandic banks were more vulnerable than many other businesses even to moderately adverse developments, not to mention the catastrophic events that have shaken the global financial environment in the past year. | 1 |
His works have over the years touched on many aspects of money management as seen from the context of ordinary Malaysians, leaving us with memorable and lasting impressions not only on prudent financial behaviour, but on Malaysian life and society. Important lessons about savings, conserving and avoiding wastage are powerfully conveyed through the remarkably creative and entertaining visuals that we have all come to know and love. True to form, Datuk Lat’s creations are unparalleled in their ability to capture the hearts of Malaysians and through them, we are both educated and entertained. It is our honour to commemorate his works for such an important cause. Since 1999, 15 million copies of Buku Wang Saku have been circulated to more than 10,000 schools nationwide to be used in promoting good financial management habits which can make a profound difference in their future financial well-being. Indeed, being equipped with the knowledge, skills and tools to make sound financial decisions has never been more important in a generation where our young people have more money to spend, are presented with a wider spectrum of financial offerings and are exposed to greater temptations to take on debt. Financial education is therefore a vital life skill; one that must be developed from an early age. It was with this motivation that the Bank initiated a number of efforts to enhance the financial competence of Malaysians through a nationwide savings campaign that was launched in 1996. | Consequently, the current overall situation of the Swiss economy remains difficult despite the many rays of hope with regard to the economic cycle. Also, the danger of deflation does not yet seem to have been entirely averted. We have not yet reached the moment for a change of direction in monetary policy in Switzerland. After analysing the available economic data and forecasts and taking various risk considerations into account, there is no need for the SNB to take monetary policy action at present. The SNB can afford to adopt a holding stance. However, this holding stance should not be mistaken for inactivity. The SNB continues its firm implementation of an extremely expansionary monetary policy and the unconventional measures launched on 12 March 2009. The Swiss franc money market is still being provided with a generous and flexible supply of liquidity, interest rates remain low, Swiss franc bonds are still being purchased to dampen the level of risk premiums on the Swiss franc bond market as and when needed and the appreciation of the Swiss franc will continue to be prevented. BIS Review 27/2009 1 | 0 |
In the economic literature of recent years most of the references to the problem of global imbalances concern the phenomena described above. Therefore, for the purposes of this speech, I shall assume that whenever global imbalances are mentioned, the term will mean a joint occurrence of the following factors: 2 Ricardo Husmann, Federico Sturzenegger “Global imbalances or bad accounting? The missing dark matter in the wealth of nations”, Harvard University working paper, January 2006. 3 W. Buiter “Dark Matter or Cold Fusion”, Goldman Sachs Global Economics Paper, January 2006. 4 K.Lansing “Spendthrift Nation”, Federal Reserve Bank San Francisco Economic Letter, November 2005. 5 According to World Economic Outlook published by the IMF in September 2005, the forecasted US current account deficit will amount to USD 759 billion in 2005 and will increase to USD 805 billion in 2006. Both values correspond to 6.1% of the forecasted GDP. Some forecasts by investments banks, however, indicate an increase in the forecasted current account deficit to 6.5% of the GDP in 2005 and to 7-8% of the GDP in 2006 and 2007. 6 An extensive discussion of the real property market can be found in A. Ahearne et al. „House Prices and Monetary Policy: A Cross Country Study”, Fed Board of Governors, International Finance Discussion Papers, September 2005. | They make threats, even though Member States have taken strong and positive decisions. Rating agencies behave as if nothing had happened. It may seem that agencies are no longer a useful guide for investors. Would you say that their judgments are based on political criteria? Indeed, in the arguments they develop, there are more political arguments than economic ones. Credit agencies have downgraded the ratings of three large French banks. Are our banks undercapitalised? No, they are very well capitalised, in particular compared to their European and US counterparts. The importance of this downgrade should not be overstated especially since rating agencies have recently downgraded most large banks in developed countries. There is no doubt that the capital buffers of our banks are largely adequate in relation to levels in the global banking system. It is true that we are asking them to enhance their soundness in order to meet the new regulatory requirements that have been agreed at the European and global level. Banks are doing this through their own resources and needless to say without State aid. That is why I have no concerns about the French banking system. Should banks’ customers, companies and individuals, fear a credit crunch? No, and the figures bear it out. French banks’ lending activities remain very robust: up 8% for mortgage lending, up 5.6% for corporate lending and up 5.1% for lending to SMEs. It is precisely their retail banking business that makes them sound and profitable. | 0 |
Thankfully, Marvin, along with others, helped lay the intellectual groundwork and created the vocabulary for us to work through some of the most significant issues facing central banks. His work is a true emblem of how researchers play a vital role in informing and shaping the policy discussion. I look forward to the upcoming conversation. Thank you. 1 Jeffrey C. Fuhrer and Mark S. Sniderman, Conference Summary, Journal of Money, Credit and Banking, Volume 32, Number 4, Part 2, pp. 845–69, November 2000. 2 Marvin Goodfriend, Overcoming the Zero Bound on Interest Rate Policy, Journal of Money, Credit and Banking, Volume 32, Number 4, Part 2, pp. 1007–35, November 2000. 3 Board of Governors of the Federal Reserve System, Transcript of the Federal Open Market Committee Meeting and presentation materials, January 29–30, 2002. 2/2 BIS central bankers' speeches | They have reduced their budget deficits, pushed down their inflation rates to less than 2%, and brought their growth rates close to 3%. Favourable global economic conditions made it possible to create an environment suitable for the proper functioning of the system. Meanwhile, the European Monetary Institute completed the necessary preparations for launching the ECB, and transferred its responsibilities to that Bank at the beginning of July 1998. At its founding, there was a broad consensus that the ECB should be independent. There were continuing discussions about its main target, however, and even though this question seems to be resolved, sometimes it still appears on the agenda. The main point being discussed is that while price stability is specifically mentioned in the constitutional agreement as an objective of the ECB, the role of the growth and economic stability objectives is less clear. It is generally agreed that the primary task of central banks should be price stability, but some still argue that the price stability objective should not conflict but should cooperate with the growth and stability objectives. Others insist that since the existence of price stability brings about high employment and sustainable growth in the medium and long term, there is no conflict between the growth and price stability objectives. I believe that the ECB’s present policies, based on all these discussions, aim at price stability as its primary task, with sustainable growth and low unemployment as major objectives. | 0 |
PMI suppliers' delivery times show that supply bottlenecks are having a greater impact in Europe and the United States. Germany has been the most vulnerable euro area country, given that: (i) it is more integrated into, and occupies a central position in, value chains; (ii) manufacturing – particularly the automotive industry – accounts for a high share of its economy; and (iii) its productive processes are heavily reliant on imports of commodities and inputs. In this regard, since summer 2021 more than 50% of German industrial firms have reported the shortage of material and/or equipment as a factor limiting production, as compared with 25% in Spain. Higher energy prices are having a more acute impact on inflation in the advanced economies and, especially, in the euro area. The greater contribution of the energy component to euro area inflation is largely a result of this component accounting for a higher relative share of the consumption basket in the euro area (10.9% of the total versus, for example, 7% in the United States). Moreover, the euro area’s high dependence on external energy sources has been compounded by the depreciation of the euro in 2021 and the outbreak of the war in Ukraine, which has also driven up the cost of the energy component of consumption. The contribution of energy to the rise in inflation in the euro area is particularly important in Spain and, to a lesser degree, Italy, given the larger contribution of the electricity component. | We have digital-driven lifestyles, and so we must strive to preserve shared values that promote societal well-being.” I think we would do well to keep these goals in mind in our efforts to strengthen governance, risk and controls in the era of disruption. On that note, let me welcome you once again to the Conference and wish you productive discussions ahead. Thank you very much. 4/4 BIS central bankers' speeches | 0 |
Just as when we travel on a journey, we need not only reliable vehicles, but also skilled drivers and passengers that are cautious explorers, and enforceable driving laws to ensure that we arrive at our next destination safely. The fact that the Thai banking system has been able to withstand many incidents in the past years, including the great flood, the subprime crisis, and the economic slowdown, testifies to the fact that we have been on the right path on sustainability. But again, complacency must be avoided. In this context, our banking system needs experienced bankers with good governance, excellent risk management practices and banking regulations to ensure safety and soundness, as well as financially literate customers. In my opinion, banks, as the first touchpoint to the customers, play a central role in promoting financial literacy and usage of new channels such as digital banking. More convenience does not mean a compromise on security and reliability of financial services, critical for customer’s confidence in the usage of digital channels. As QABs are increasingly interlinked with more cross-border transactions, it also calls for closer cooperation on the part of home and host supervisors in line with the global regulatory reforms to ensure stability of the financial system, similar to enforceable international driving laws. Last but not least, human resources are another key aspect that needs to be continually improved as without sufficient talent pool, the above milestones may not be achieved. | It is expected that by 2025, the number of older people in Thailand will account for 20% of the population and exceed the number of children under 15 years old. In an ageing society, banks that are able to cater to the needs of older population and tailor their products to accommodate changing demands would be successful. The next trend, urbanization, happening in many East Asian countries, brings both challenges and opportunities. According to the World Bank Research that just came out early this year, almost twelve million people in Thailand now live in urban areas; about ten million live in Bangkok alone. The number seems low for the area outside Bangkok because of the strict definition of urban areas employed by the World Bank. The same research also says that, cities outside Bangkok are growing at a much faster rate, and some cities such as Surat Thani have more than doubled its population in ten years. Urbanization results in increased purchasing power and fuels domestic demand. More infrastructure investments such as housing, electricity and transportation will be required. This is where the financial sector can contribute and benefit from the development. The trend towards regionalization poses a fourth challenge as well as an opportunity for the banking sector. With the commencement of the AEC in 2015, competition will intensify, benefiting those prepared to pursue opportunities across borders. | 1 |
These impacts are also difficult to disentangle from the effects of the change in trading arrangements between the United Kingdom and the European Union that may already be weighting on productivity (Bank of England, 2021). However, it is worth bearing in mind that, while the pandemic was a large and unprecedented economic shock, with profound changes to labour markets and the way we work, it is possible that its long-run effects on productivity will be small. For example, the latest ONS estimates of UK labour productivity appear to be in line with pre-pandemic trends. This headline figure, of course, masks several factors at play. There are compositional effects, which appear to have raised productivity measures during the pandemic, because the worst-hit sectors were also the ones with lowest labour productivity. There were also unprecedented challenges to measuring productivity, including the measurement of hours worked during lockdowns. Overall, the long-run impact of the pandemic on trend productivity growth, and hence trend R*, is highly uncertain, though plausibly small. Perhaps a more salient emerging risk for Global R* is the impact of climate change and the transition to net zero. Neither the size nor direction of this effect are clear. For instance, increased investment by firms looking to adopt the latest green technologies could raise equilibrium interest rates, at least during the transition. On the other hand, Global R* could be pushed down due to higher volatility and uncertainty, including uncertainty about the transition path towards carbon neutrality. | This pattern is suggestive of a structural trend in the underlying global trend real interest rate, in other words Global R*. This concept can be estimated, using a variety of statistical methods, all of which extract an underlying slow-moving trend from the more volatile data. Some of these estimates, from a range of different academic papers, are shown in Chart 3. The teal line shows a new estimate by Bank staff, based on data for 31 high-income countries. Though there are relatively wide error bands around this central estimate, and alternative estimates from the literature exhibit different patterns, the direction of travel has been clear. In other words, a decline in Global R* over recent decades is common across estimates. Page 6 Chart 3: Empirical measures of Global R* have fallen in recent decades Source: Consumer prices indices, short-term interest rates and government bond yields for the calculation of Cesa-Bianchi et al. (2022)’s global measure of R* from the Jordà et al. (2017) Macrohistory Database and Eikon Refinitiv. Other estimates from Del Negro et al. (2019), Hamilton et al. (2016), Holston et al. (2017). While these statistical estimates help us to understand the dynamics of the trend real rate, they do not tell us why it has been falling. The dynamics of the trend real rate are determined by slowmoving structural factors that affect the balance between the demand for capital for production and the stock of wealth available to finance it. | 1 |
The GFANZ initiative will help to address the challenges involved in responsibly decommissioning these plants, including the fiduciary and reputation risks 3/4 BIS - Central bankers' speeches that financial institutions may face from the initial spike in financed emissions as a result of investing in such early phase-out projects. Singapore has been doing its part to complement these global and regional efforts to promote transition and blended finance. Infrastructure Asia, launched by MAS and Enterprise Singapore, provides technical assistance to enhance project bankability, thereby helping to attract financing. It provides expertise in project scoping, shares best practices in project development, and facilitates infrastructure financing deals in the region. Infrastructure Asia is facilitating a number of sustainable infrastructure projects, including in waste management and waste-to-energy. Clifford Capital, whose borrowings are guaranteed by the Singapore Government, provides debt financing to crowd in equity participation for infrastructure projects. Bayfront Infrastructure Management, established by Clifford Capital, mobilises institutional capital for project and infrastructure finance through the issuance of infrastructure asset-backed securities. To-date, it has catalysed a total of $ for sustainable infrastructure from institutional investors. MAS will inject seed capital into an Asia Climate Solutions Design Grant hosted by Convergence. The scheme will provide funding for feasibility studies and proof of concept work on innovative blended finance solutions in target sectors that are significantly under-capitalised in Asia, such as early-stage climate adaptation and mitigation technology, clean energy access, sustainable transport, and nature-based solutions. This will help to build a pipeline of investible projects for investment. | If the offices cannot be let, this income does not materialise and the company that made the investment may be forced into bankruptcy. A household, instead, pays its interest with income from other sources. Moreover, in the early 1990s the prices of commercial properties had been pushed up over a long period without any corresponding increase in rental income. The price rises were obviously driven by expectations of a continued strong upswing in prices in the future. When it eventually became clear that these expectations were not going to materialise and it became more difficult to let the premises as economic conditions weakened, the prices fell dramatically. Today, though, the situation in the commercial property market is significantly different. There has not been a prolonged price upswing of the kind seen in the housing market. In connection with the equity market decline in 2000, demand for office premises weakened again and rents and prices in the market for office properties began to drop. The price fall appears today to have moderated and in some regions prices of office premises have risen. Vacancy levels are still high, though, which has contributed to restraining a more general upswing in rents and prices. At the same time, property companies’ earnings and ability to pay are good. Our assessment therefore is that the commercial property market does not either pose a threat to the stability of the financial system. | 0 |
In addition, the Fed has been conducting large-scale repo operations and purchasing sizable quantities of U.S. Treasury securities and agency mortgage-backed securities to support market functioning at a time of extraordinary volatility in markets.8 These actions averted a potential shutdown in the availability of credit, which would have made the current economic crisis even more severe. Although functioning in financial markets has improved since March, the Federal Reserve has indicated that it will continue to increase asset holdings to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.9 In addition to stabilizing financial markets, the Federal Reserve has instituted a number of programs to support the flow of credit to households, businesses, and state and local governments. These actions will enable them to continue to do their work, both now and when normal life resumes.10 Taken together, these programs have helped restore the functioning of financial markets, foster favorable financial conditions, and support the continued flow of credit to businesses and households. Conclusion I'll conclude with this: This pandemic and this recession form a pivotal moment for the Federal Reserve. We are seeing signs that the economy has started to recover. Still, the economic outlook remains highly uncertain and it's going to take considerable time to restore the economy to its full potential. But rest assured, we are committed to using our full range of tools to support the economy and bring about a full and robust recovery. | 1 COVID-19 Dashboard by the Center for Systems Science and Engineering at Johns Hopkins University, accessed June 29, 2020. 2 The impact on lower-wage workers is analyzed in Cajner, Tomaz, L.D. Crane, R. A. Decker, J. Grigsby, A. Hamins-Puertolas, E. Hurst, C. Kurz, and A Yildirmaz., 2020. “The U.S. Labor Market During the Beginning of the Pandemic Recession.” Becker Friedman Institute, University of Chicago, Working Paper, No. 2020–58 (June). 3 U.S. Census Bureau and Department of Housing and Urban Development, Monthly New Residential Construction, May 2020, June 17, 2020. 4 An example at the New York Fed is the bi-weekly publication of the Weekly Economic Index. 5 Empire State Manufacturing Survey, Federal Reserve Bank of New York, June 2020; Business Leaders Survey, Federal Reserve Bank of New York, June 2020. The data on small business revenue come from Womply, a software-as-a-service provider focused on customer relationship management. 6 See Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, March 3, 2020; and Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, March 15, 2020. 7 See Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, April 29, 2020; See Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, June 10, 2020. 8 See Board of Governors of the Federal Reserve System, Federal Reserve Announces Extensive New Measures to Support the Economy, March 23, 2020. | 1 |
Thus it is not only the regional authorities who must avoid any action which may deflect banks from their essential objective of serving households and firms; also, those who are now at the helm of savings banks must hasten the reform of their corporate governance because very likely the market will not lend again to anyone unable to give it an assurance of professionalism and corporate governance on a par with that of commercial banks. Going back to the economy, we must be patient. Immediately ahead of us, the adjustment phase will continue. True, there has been a notable correction in some of the main imbalances in recent years. But it is still too early to say that the Spanish economy is at a stage where it can once again resume robust growth. Further effort will be needed to digest the excesses of the housing boom, and it will be some time before net job creation gains momentum, unless ambitious reforms are implemented. The structural reforms launched in the past year represent positive progress. At present it is essential to persevere with these measures – such as the fiscal consolidation process – and maintain the pace of reform, tackling the reforms needed in areas which are essential for competitiveness and for boosting the Spanish economy’s potential growth. The key issue now is not to stop, but to push ahead with the reforms, with all of them, including of course the restructuring of the savings banks, which has been the subject of my speech. | I shall now describe these tools distinguishing, for the purpose of my address, between those that affect the capital requirements on credit institutions and those that fall on borrowers. Macroprudential tools that affect the capital requirements on credit institutions The banking regulations in force require banks to have sufficient capital set aside to cover unexpected losses and to maintain their solvency in the event of a crisis. The amount of capital required depends on the risk linked to a specific bank’s assets and, in fact, is expressed as a percentage of risk-weighted assets. The concept of risk-weighted assets basically means that a lower capital allocation is attributed to the safest assets, while the riskiest assets are assigned a greater risk weighting. In other words, the riskier assets are, the more capital the bank will have to hold in reserve. In parallel, specific grades are assigned to capital, depending on its quality and on risk.4 First among the macroprudential tools made available to the authorities is the possibility of directly influencing credit institutions’ capital by means of requirements additional to the traditional microprudential capital requirements. This greater requirement of capital increases banks’ loss-absorption capacity and, moreover, influences their appetite for risk, given that the losses that shareholders must bear in the event of difficulty (“skin in the game”) increase as a result. If they are to function correctly, these additional capital requirements must be activated when banks begin to build up risks, and they must be drawn down when risks abate or when they materialise. | 0 |
But income diversification has become more important, with banks increasingly having to develop their fee-generating businesses to be more profitable. We are seeing this particularly in the move by a number of banks into wealth management, such as securities, unit trusts, insurance, pensions and private banking. A further opportunity for business diversification for the medium-size banks will come from the ability to branch into Mainland following the relaxation of the asset size criterion under CEPA. The eight banks that will benefit from this would, according to our calculations, have the scope to open a total of as many as 20 branches in the Mainland over the next three years. This would be a significant addition to the 40 or so branches that banks from Hong Kong already have on the Mainland. We should certainly not regard Mainland access as a panacea, and the benefits will take time to come through. But the important point is that the medium-size banks now have an alternative avenue to grow their business outside the Hong Kong market. Indeed, more generally, banks in Hong Kong will benefit from the increasing financial and economic integration with the Mainland. In the syndicated loan market, we can see this in the growing trend towards Mainland-linked borrowers. One development of this trend is likely to be the growth of the syndicated loan market in RMB. This should create opportunities for foreign as well as domestic banks within the Mainland. Let me summarise the argument I have been making. | Impact of the global economic crisis on Zambia The Zambian financial sector did not immediately or directly become adversely affected by the credit crunch as was reflected in the continued stability of the banking sector, with most banks being adequately capitalised and the inter-bank market operating normally. This was mainly due to the sector’s limited integration into the international financial markets. Further, our financial sector had no exposure to toxic assets, which led to the credit crunch in most developed markets. However, the ensuing global financial crisis, with the global economic BIS Review 161/2009 1 recession that followed, adversely affected Zambia, like most global economies, mainly through: reduced revenue earnings from mineral resources; job losses, particularly in the extractive industry; lower foreign capital inflow (both foreign portfolio investment (FPI) and foreign direct investment (FDI)); loss of foreign exchange reserves; rising domestic inflation driven by pass-through effects of the depreciation in the exchange rate of the Kwacha against major currencies; and declining number of foreign tourists. Reduced revenue earnings from mineral resources As you may already know, Zambia, like many African countries, relies heavily on commodity exports. This made the country more vulnerable to the global downturn. The global financial crisis and the plummeting commodity prices on the international market negatively affected Government revenue. The global economic recession resulted in a reduction in world demand for copper, which in turn, led to the precipitous fall in copper prices. | 0 |
In addition, the government uses more of the petroleum revenues than before. Growth in public expenditure started to accelerate in 1997 after having been low in the mid-1990s. Spending growth has also been fairly strong in recent years, but perhaps somewhat slower than earlier. 6/7 The fiscal rule for the budget implies that the government can use 4 per cent of the Fund over time. This year, around 6 per cent is being used. The deviation partly reflects an unexpected shortfall in tax revenues in recent years. The government budget deficit is the difference between total revenues and total expenditure. They each account for about half of total GDP in Norway. Even small deviations from expenditure and revenue projections can have a major impact on the deficit. Exchange rate changes will also lead to fluctuations in the value of the Petroleum Fund. For these reasons alone, the use of petroleum revenues may in periods deviate from the 4 per cent rule. Spending was also increased in response to the economic downturn. We can, therefore, safely affirm that the fiscal rule has been normative for fiscal policy. Together with the fiscal rule, the monetary policy guidelines provide the framework for economic policy in Norway. The various components of economic policy have varying effects. This is why they have different functions: • Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. | It is reasonable to distribute our petroleum wealth equitably among generations. The size of the cash flow from petroleum activities also varies considerably. If petroleum revenues were to be used as they accrue, this would lead to wide fluctuations in demand in the Norwegian economy. Cyclical fluctuations would be much more pronounced. Third, the use of petroleum revenues will have an impact on competitiveness in Norwegian business and industry. The level of and fluctuations in the use of petroleum revenues will have a considerable impact on the exchange rate and thus on growth in regions with extensive export activities. The Government Petroleum Fund was established in 1990 with a view to safeguarding long-term considerations in the use of petroleum revenues. In March 2001, the fiscal rule and new guidelines for monetary policy were introduced. The fiscal rule implies that the central government budget deficit shall be equivalent over time to the expected real return on the Government Petroleum Fund. The new guidelines for economic policy received broad support in the Storting. The rule specifying that only the real return on the Petroleum Fund is to be used means that the capital in the Fund shall not be depleted. The capital in the Petroleum Fund will increase as long as there is a positive cash flow (to the central government) from petroleum activities. | 1 |
BIS central bankers’ speeches 1 Long term prospects for the hedge fund industry remains positive Nonetheless, if we look beyond the immediate economic challenges, the long term prospects for the alternative investment industry remain positive. A number of studies have identified a growing interest from institutional investors for yields in the alternative space. In the 2012 Towers Watson Global Pension Asset Study, asset allocation to alternatives in the seven largest pension fund markets has increased from 5% in 1995 to 20% in 2011. In another recent study, McKinsey estimates that global alternative investments across the retail and institutional segments doubled in assets under management between 2005 and 2011, to reach $ trillion. This represents a compound annual growth rate of 14% over this period, exceeding the growth of the traditional asset classes. Specifically in the hedge fund space, institutional investors have increased allocations to hedge funds significantly over the last decade, from only $ billion in 2002 to approximately $ trillion as of end 2011. Looking forward, institutional investors in the major markets have indicated their intent to increase allocations to almost all alternative classes, including hedge funds. Increased institutional participation will drive growth as hedge funds become an important part of the investment landscape. To meet the demands of institutional investors and global regulatory standards, hedge funds have taken steps to beef up their risk management and compliance functions. | Conclusion As a source as well as a destination for investments, Asia presents compelling prospects for the hedge fund industry. Singapore’s strategic location makes us well-placed to serve as a hub with strong physical connectivity, trade and financial linkages to the rest of Asia. Together with our strong commitment to growing a well-regulated fund management industry, this makes Singapore an ideal vantage point for asset managers to understand Asia and to manage pan-Asian investments. So it leaves me now to congratulate SALT on its inaugural Asian leg of the SALT Conference. I wish all of you a fruitful conference ahead. Thank you. 7 Preqin/Global ARC Study of Asian Institutional Hedge Fund Investments 2012 BIS central bankers’ speeches 3 | 1 |
The punch line, of course, was that if you didn’t believe a man could fend off a croc with his bare hands, then you yourself were in “de-Nile.” We are no longer in denial about our national economic plight. Our great country now finds itself in a very difficult predicament. It is true that the situation here in Texas is relatively better than that of the nation; Texas is an oasis in a national economic desert devoid of lifegiving job creation. We went into the Great Recession last and were one of the first to come out. As we have for the past 20 years, we continue to outpace the rest of the United States in employment growth by a significant margin. Since the Great Recession officially ended in June 2009, only North Dakota (a plucky state whose hearty population totals less than that of Collin or Denton counties) has seen faster job growth than Texas.1 As I speak, Texas has almost as many people employed as we did before the recession began. Our banks are in better shape than those in the rest of the country; we are benefiting from the blessings of nature, with copious amounts of oil and gas and abundant agricultural production; our fellow citizens have seen to it that our Legislature continues to hew to a tax, regulatory and legal environment that attracts job-creating investment and encourages business formation and growth. | As an example of this, the EU itself is looking to amend MiFID2 to iron out areas that need further work. Second, as the world moves on, so the rules need to adapt. If they do not, we will be heading for trouble. The key point here is that good practice means that authorities should be transparent at the time in explaining rule changes, and those changes should be consistent with international standards where appropriate. Let me give three examples of areas of rule changes we in the UK are looking at, two involving banks and one life insurance. First, the Basel regime for banks has, from the outset in the 1980s, applied to so-called “internationally active banks”. The EU has chosen to apply it to all banks and relevant deposit takers. That was a matter of choice. But the Basel regime is heavy duty and complicated when applied to small banks (I know many big banks will say the same, but sorry that’s life). So, we want to see if we can apply a strong but simple framework of rules for small banks that are not internationally active. This is a sensible step in my view and not out of line with the principles and practice of equivalence. Indeed, there are other countries, such as the US and Switzerland that have regimes for small banks and have been determined equivalent to the EU in many areas. Second, the EU changes its rules in December to allow software assets to count as bank capital. | 0 |
Most would have been saved, however, and the simulated path of aggregate wages in the sector would now be materially higher, by around 1¼% of household consumption. 3 Details of this “no-globalisation” simulation are available on request. With a sufficiently simple production set-up it turns out that, if productivity in one sector grows sufficiently fast to produce a relative price decline of 1% a year, then in a closed economy its share of employment will fall by (1-σ) a year, where σ is the demand elasticity of substitution between the two goods. This makes sense: the greater the elasticity the bigger the response to demand to the drop in price for the good experiencing more rapid productivity growth; if, in particular, σ>1, employment would actually rise. As it is, the UK data suggest the σ for clothes is 0.44, plus or minus. We have fixed the rate of real price deflation in clothes at 1¼%, matching the observed rate before 1975 and after 2008, so the simulated “ no-globalisation” change in the share of clothing employment is -1.25 x (1-0.44) =-0.7% per year, relative to aggregate employment. The simulation also assumes the same skill-mix and therefore the same relative wage (compared with the national average) as in 1975 . 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 Chart 7: Aggregate gains to consumers much That’s a sizeable number – around £ But bear larger than income losses, even assuming lost in mind two things. | 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 Month May Feb Nov Aug May Feb Year 1996 1997 1997 1998 1999 2000 Lending by mortgage institutions to the household sector amounted to about SEK600 billion by the end of September 2000, compared to SEK581,6 billion at the beginning of the year. About 35% of the households’ total borrowing raised in mortgage institutions are loans with floating interest rates, ie about SEK210 billion. Another reason why cross-border activities have been limited so far is that the mortgage markets are governed by national regulations. A third reason is that cross-border activities are exposed to foreign exchange risk. As long as Sweden is not a member of EMU, foreign players wishing to establish operations on the Swedish mortgage market will have to offer loans in Swedish kronor, since Swedish borrowers are unlikely to want to expose themselves to foreign exchange risks. However, if Sweden joins EMU, interest rates offered to borrowers in EMU-affiliated countries will be directly comparable. A common currency would make it easier for borrowers to assess which credit institution in the common currency area offers the best conditions. Swedish borrowers will be able to raise loans in euro without being exposed to foreign exchange risk, and access to potential lenders will increase. BIS Review 99/2000 4 The Swedish mortgage sector is currently dominated by five companies, one of which - SBAB - is state-owned (Figures 7 and 8). These five companies cover around 97% of the market. | 0 |
Niklaus Blattner: The financial system and the regulatory challenges in securities clearing and settlement systems Speech by Prof Dr Niklaus Blattner, Member of the Governing Board of the Swiss National Bank. at the Seventh Conference of Central Securities Depositories, Lucerne, 12 June 2003. The references for the speech can be found on the Swiss National Bank's website. * * * Ladies and Gentlemen I would like to talk to you about some basic issues and some regulatory and oversight challenges in securities clearing and settlement systems. Judging by the growing number of reports, the way your industry performs has been closely scrutinised over the last few years. Considering, for example, the G-30 Report on Global Clearing and Settlement or the second Giovannini Report, it strikes me that the emphasis has not only been put on the identification of potential difficulties and issues. In addition, responsibilities to resolve these difficulties are assigned and timetables are established. The debate has thus gained a new dimension. I shall start from a rather academic perspective, but nevertheless please count on my devotion to a number of very practical issues. I shall first discuss one of the basic functions of a financial system, which is the provision of clearing and settlement services, and its contribution to welfare. However, as we live in a less than perfect world, I shall focus on a number of important imperfections that tend to affect the smooth functioning of a financial system. | Behavioral risk refers to behaviors within an organization that could potentially lead to negative business outcomes.3 In such organizations, behavioral risk is not effectively mitigated or even considered, and the stated values of the firm are not reflected in the actions and norms of the organization’s members. Group think is prevalent and employees do not speak freely, or are ignored, when they have concerns about the way their group is doing business. The letter of the law may be followed but not the spirit, with illegal activities only coming to light when discovered by authorities. “Conduct” is viewed as something that is only the responsibility of the compliance department through a set of rules and controls. The outcomes stemming from high behavioral 1/5 BIS central bankers' speeches risk reduce cultural capital, damage the firm and the trustworthiness of the industry over time. In an organization with a high level of cultural capital, on the other hand, behavioral risk is low. Employees refrain from taking excessive risks and they are unafraid of – and rewarded for – raising issues up the management chain. When they speak up, they believe the organization will take them seriously with meaningful responses. The organization recognizes and rewards employees who understand and internalize the expectations of laws and regulations, and do not view compliance as a checklist. In organizations with a high level of cultural capital, an important factor in advancing to senior leadership is role-modeling behavior consistent with a firm’s values, assumptions and behavioral norms. | 0 |
We also focus on topics that influence the development and regulation of companies’ input factors – both regarding human resources such as labour, in particular children’s rights, and natural resources such as access to clean water and clean air. Norges Bank’s Executive Board has established a set of principles and a strategy for the exercise of ownership rights. Openness and transparency are key principles in the management of the Government Pension Fund – Global, and we aim to be as open as possible about our active ownership work. Our active ownership is practised in a number of different ways: through the exercise of voting rights, through dialogue and engagement with individual companies, through collaboration with other investors, through submissions to the regulatory authorities, and through research and public communication. We aim to vote at all general meetings of the companies in which the Fund has shares. We voted on 68 724 items at 7 871 general meetings in 2008. 4 BIS Review 58/2009 The impact of the crisis on the Norwegian Fund The Norwegian Fund has been hard hit by the crisis. In 2008, the total return on the Fund was a negative 23 per cent, the weakest in the Fund’s history. There was a negative return of 41 per cent on the equity portfolio, while the return on the fixed income portfolio was close to zero. The real rate of return after costs has been 1 per cent since 1998. This is well below the assumed long-term return of 4 per cent. | This also enhances the expected return on government wealth and contributes to diversification of risk. The Fund is by law fully integrated with the government budget, and the same priorities are imposed on spending from the Fund as on any other government spending. This means that the entire petroleum revenues are transferred to the Fund. Then, as part of the budget resolution, the Norwegian parliament decides on an annual transfer from the Fund to cover the government budget deficit. This procedure effectively prohibits use of the capital in the Fund for purposes not considered sufficiently important to be prioritised in the regular budget process. In 2001, the Norwegian parliament approved new fiscal policy guidelines stipulating that the annual transfer from the Fund to the fiscal budget – that is annual spending of oil money – should correspond to the expected real return on the Fund. The expected real return is estimated at 4 per cent. The point of reference for the spending rule is a normal cyclical situation. In the event of particularly high capacity utilisation, spending should be lower than 4 per cent, whereas in a cyclical downturn, somewhat higher spending may be appropriate. The governance structure is based on a clear division of responsibilities between the political authorities and the operational management. • The Ministry of Finance is the owner of the Fund. The Ministry defines the mandate and monitors and evaluates performance. Key changes to investment guidelines are presented to the Norwegian parliament before implementation. | 1 |
[3] The evolution of nominal interest rates is covered in my speech entitled “The yield curve and monetary policy” at the Centre for Finance and the Department of Economics at University College London, 25 November 2019. [4] See the speech by Isabel Schnabel on “The ECB’s response to the COVID-19 pandemic” (16 April 2020), the blog post by Luis de Guindos and Isabel Schnabel on “The ECB’s commercial paper purchases: A targeted response to the economic disturbances caused by COVID-19” (3 April 2020) as well as my own blog post on “The monetary policy response to the pandemic emergency” (1 May 2020). https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html 13/14 5/19/2020 Disclaimer Please note that related topic tags are currently available for selected content only. Copyright 2020, European Central Bank https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html 14/14 | 1 Testimony of Ben S. Bernanke, Nomination hearing before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, November 15, 2005. 2 Remarks by Governor Edward M. Gramlich, Federal Reserve Board, “The Politics of Inflation Targeting”, Paris, France, May 26, 2005. BIS Review 80/2006 3 Norges Bank’s practice in this respect is in line with the recommendations of leading academics in the field of monetary policy, such as Professor Lars Svensson 3 : “… announcing the optimal projection – including the instrument-rate projection – and the analysis behind it would have the largest impact on private-sector expectations and be the most effective way to implement monetary policy.” Norges Bank’s interest rate projection is based on seeking to achieve an interest rate path that provides a reasonable balance between the objective of stabilising inflation at target and the objective of stabilising developments in output and employment within a reasonable time horizon, normally 1 – 3 years. Interest-rate setting is also assessed in the light of developments in property prices and credit. Norges Bank forecasts inflation, output and the interest rate simultaneously. There is considerable uncertainty associated with the estimates of capacity utilisation in the economy (the output gap), and there is no simple relationship between developments in capacity utilisation and developments in inflation. It cannot therefore be argued with great conviction that it is possible to identify one particular interest rate forecast that provides the indisputably “best” trade-off in monetary policy. | 0 |
Ravi Menon: FinTech in its element - water, metal, fire, wood, earth Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Singapore FinTech Festival 2022, Singapore, 3 November 2022. *** Good morning, and welcome to Day 2 of the Singapore FinTech Festival. It's great to be able to meet in person after three long years. Pandemic and lockdowns notwithstanding, FinTech innovation has marched on briskly. If anything, digitalisation has gathered pace and become more pervasive. Yes, in the realm of a crypto assets, a harsh winter has set in, even fears of an Ice Age. But I believe it is an overdue cleansing of unsustainable business models, highly risky practices, and unviable use cases. The digital asset industry will emerge leaner and stronger. But more of that later. FinTech in Singapore has continued to push new frontiers. There has been a surge in collaborations across businesses, financial institutions, FinTech start-ups, and even central banks. In 2021, FinTech investments in Singapore hit a high of $ billion, compared to $ billion in 2019. I will focus my remarks today on five key problems that FinTech collaboration in Singapore is trying to solve. These problems will resonate with many industry players as among the biggest pain points crying for a solution. But before we get into the problems, some wisdom from ancient China. According to the Chinese philosophy of Wu Xing, there are five fundamental elements that function as cosmic agents of change: Water, Metal, Fire, Wood, Earth. | Senders will have upfront certainty of fees due and an immediate update on transaction status. High security. The central platform leverages on the strong security and risk mitigation protocols built into national faster payment systems. The ten members of the Association of Southeast Asian Nations, or ASEAN, have a shared vision of a multilateral network of payment linkages across ASEAN by 2025. MAS believes that Project Nexus can be a key enabler towards realising this vision. ASEAN is well placed to be a first-mover on this multilateral solution. In fact, as this network expands, we hope to see more countries coming onboard as we build connectivity from ASEAN to the rest of the world. STRONG LIKE METAL - ATOMIC SETTLEMENT (PROJECT UBIN PLUS) The second desired outcome is atomic settlement. Real-time cross-border payments does not mean real-time settlement. Let me explain. Project Nexus solves the clearing problem. The sender's bank account is debited and the recipient's bank account is credited instantaneously, based on the payment instruction sent through the network; and the recipient can spend the money. But it does not solve the settlement problem. The actual movement of funds between the banks is not instantaneous. It involves many intermediaries, goes through different ledgers, and takes two to three days to complete. This potentially creates multiple points of failure and higher costs. We want a real-time settlement system that is strong and secure like Metal. We want atomic settlement. Atomic settlement is the simultaneous exchange of two linked assets in real-time. | 1 |
Now I too share the privilege of speaking in the Kirk where Gordon Brown’s father used to preach to the people of Kirkcaldy. Double trouble, you might think. I am particularly mindful of the controversy which Greenspan’s lecture stirred in the world of Smith scholars: “an unseemly battle is being fought over the soul of Adam Smith”, as one remarked. It is a sign of the resurgence of interest in Adam Smith that at almost every point on the political spectrum one can find people who claim Smith as their own. But, in a lecture in 1926 to commemorate the 150th anniversary of the publication of The Wealth of Nations, the economist Jacob Viner wrote, “Traces of every conceivable sort of doctrine are to be found in that most catholic book, and an economist must have peculiar theories indeed who cannot quote from the Wealth of Nations to support his special purposes”. 2 My intention today is certainly not to propose “peculiar theories”, but to examine the importance of social institutions in a market economy. Self-interest explains many economic decisions. But a market economy also requires social institutions. 3 They represent collective agreements about how to constrain our actions. Some social institutions constrain our individual actions. For example, a market economy cannot flourish in a world of anarchy in which we suspect that everyone else will cheat. If I lend you money it is in both our interests that there be some mechanism by which repayment can be enforced. | Smith explained that “when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations.” 13 He was referring to the absence of what economists call a ‘double coincidence of wants’: the hunter wants arrows and the arrowmaker wants meat. Without that double coincidence exchange cannot take place through barter. Promissory notes, or ‘IOUs’, can act as promises to deliver in the future. And they could, in principle, circulate – we could then exchange with people whose own produce we don’t actually want. Imagine Smith’s primitive arrow-maker doesn’t want meat. He can still exchange his arrows for a promise of meat from the hunter. But he will do so only if he is sure that others, whose output he does want, will accept the hunter’s IOU. And that depends on whether the arrow-maker believes that others will trust the hunter’s promise to pay. Once future delivery is part of the exchange, trust is essential. So we need to be able to trust in the promises of others to pay. In large commercial societies, where the ‘I’ is remote from the ‘U’, relying on our own human “sympathy” is unreliable – debtors would be tempted to default with those they have never met. We recognise that we need a social institution. One such is a legal system that can be used to enforce IOUs. But enforcement is costly. These problems encouraged us to build another institution – money. | 1 |
That be as it may, like in many other developing countries the financial sector in Zambia still faces a number of challenges. The Financial Sector Assessment Programme (FSAP) Report of 2002 highlighted a number of these including limited access to financial services by the rural and peri-urban population and doubtful sustainability of financial services in Zambia. In light of these findings, and in recognition of the strategic importance of the development of the financial sector in contributing to sustainable economic growth and poverty reduction, the Government of the republic of Zambia developed and launched the Financial Sector Development Plan (FSDP) in 2004. The FSDP is a comprehensive five year strategy to build and strengthen the financial sector infrastructure to enable it to support economic diversification and sustainable growth. In addition, and in furtherance of the objectives of the FSDP, the BoZ Strategic Plan for 2008 – 2011 has made financial inclusion as one of its key strategic objectives. Under the FSDP two important studies, the FinScope™ Surveys of 2005 and 2007, on the demand for and supply of financial services in Zambia have been completed. These studies have augmented the earlier findings of the FSAP with respect to the key developmental challenges for the financial sector in Zambia. | The Board of directors shall consist of not less than 5 members (Section 30(2); iii. Every financial service provider must have a Chief Executive Officer and Chief Financial Officer who shall not qualify to hold office unless it is shown that they are fit and proper persons, above 21 years old, have not been convicted of a felony or offence involving dishonesty, are not mentally incompetent, have never been removed from office under the BFSA, have not managed a company that has gone into liquidation or entered into a composition with creditors (Section 31); iv. The majority of directors must be from outside the bank (Section 32(1); v. Directors, Chief Executive Officers and Chief Financial Officers are expected to act honestly, in good faith and in the interest of the company whilst exercising due care, diligence and skill (Section 33); vi. A director is required to declare in writing to the board annually, the names and addresses of the director’s associates and full particulars of every material interest (Section 35); vii. | 1 |
The literature has identified three broad sources of systemic risk: (i) macroeconomic shocks that are significant enough to cause distress in the financial system, (ii) the unwinding of imbalances in the financial system generated by excessive leverage, and (iii) contagion risk, created by increasing interconnectedness and herd behaviour. Whatever the origin, the primary role of macroprudential authorities is to identify, measure and reduce systemic risk. Identification of risks clearly needs to be probabilistic, attempting to predict the level of overall risk of the system in different scenarios. Many indicators to measure systemic risk have been proposed since 2008. Many of them though, have a “micro-level” dimension dedicated to calculate the contribution of significant institutions to systemic risk. The Marginal Expected Shortfall (MES), CoVar, CoRisk or Conditional Tail Risk (CRT), for example, fall under this category. 3 Taken in isolation, they are not useful to predict future levels of systemic risk, as they tend to use contemporaneous market prices and do not consider the system as a whole. The ECB has developed a Composite Indicator of Systemic Stress (CISS) 4 that comprises five aggregate market segments accounted for by a range of variables and time-varying rank correlations between them. More recently, the CISS indicator has been used by Hartmann et al. (2015), jointly with credit to the private sector and cycle variables (industrial production, inflation and a 1 Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions. | However, regarding loans for housing, policy tools such as Loanto-Value or Debt-Service-to-Income (LTV or DSTI) ratios, need to be part of the macroprudential toolkit in order to effectively reign on or, at least, influence real estate asset prices, as these are among the most important drivers of the financial cycle. The announced revision of the CRDIV/CRR should provide an opportunity for the extension of the available instruments, as LTVs and DSTIs are not included in the current EU regulation. Clearly, measures addressing the credit supply side by banks – such as increased capital requirements, counter-cyclical capital buffers or dynamic provisioning – can be easy to activate but have proven to be of modest effectiveness. Furthermore, as non-banks play an increasingly important role in the provision of credit, measures targeting only the banks could just result in shadow-banks taking a considerable size of the mortgage business and fuelling a boom in house-prices. Fourth, stress tests of the banking and financial system must have a macroprudential dimension. Such comprehensive assessments need to be embedded in a macro-financial environment. They entail an assessment of the position of a specific economy in the financial cycle since, for example, the adequate level of capital requirements cannot be dissociated from a country’s position on the cycle. Fifth, macroprudential policy is complementary to monetary policy and should share the same status as a policy area. Central banks must have responsibilities in both policy areas even if they are not involved in microprudential supervision. Several reasons justify this set-up. | 1 |
Consistent with that, a further 25bp hike – smaller than the 50bp increases seen at previous meetings – was announced in March. Given the lags in monetary policy transmission, there is a lot of policy-in-the-pipeline still to come through. Nevertheless, on balance the onus remains on ensuring enough monetary tightening is delivered to ‘see the job through’ and sustainably return inflation to target. Although headline inflation is set to fall significantly in the course of this year owing to a combination of base effects and falls in energy prices, caution is still needed in assessing inflation prospects on account of the potential persistence of domestically generated inflation. I hope my remarks today have given some insight into how I am thinking – and will think – about the role inflation persistence will play in coming to monetary policy choices: focusing on intrinsic persistence through the lens of an interpretation of the incoming data using a structural story about Page 12 price and wage setting behaviour. Of course, the evolution of inflation persistence against the background of the terms of trade shock stemming from Russia’s invasion of Ukraine is only one of many challenges facing monetary policy makers at present. It needs to be seen in the context of other economic disturbances, not least the recent turmoil in the financial sector. We have been told by our colleagues in the Financial Policy Committee that the UK financial system remains robust and resilient. | After the crisis occurs, the policy has to be conducted according to the separation principle that allows a central bank to separate the decision on the appropriate monetary policy stance and the decision on the support of the financial system. We clearly demonstrated this in April when we decided to leave the non-standard measures unchanged, but at the same time decided to increase our key policy interest rates. In the future we will continue to live up to our mandate. We will do whatever is necessary to deliver price stability in the medium term, 6 BIS central bankers’ speeches using our policy interest rates, and continue to contribute to the stability of the financial system, using our non-standard measures. Conclusions To sum up, significant progress is being made in Europe to produce a more comprehensive and encompassing concept of economic governance. Looking forward, I believe however that it is crucial that the euro area dimension of economic governance is further reinforced in order to be commensurate with the wide range of sources and channels of financial instability, which has been made evident by the financial crisis. This reinforcement should involve two main institutional moves: Closing the gap between the economic and financial aspects of euro area governance by fully integrating financial supervision within the concept of economic governance; and, consequently Significantly strengthening the arrangements for financial supervision within the euro area, which could be supported by the establishment of a pan-euro area resolution fund. | 0 |
On the then profile of market interest rates, the Committee as a whole 1 judged that, most likely, output growth would slow quite sharply during the current year and would be anaemic for a period thereafter. Crucially, the balance of risks to that most likely (or modal) outlook was judged to be on the downside. In other words, the mean forecast for output was somewhat weaker still. For inflation, meanwhile, the most likely outlook was that, after an uncomfortably high and protracted spike, it would fall back to a little below the 2% target by the end of two years, and would continue to drift down thereafter. In other words, the crucial judgment was that the accumulation and persistence of slack in the economy would most likely be enough to avoid inflation getting out of control. That was the part of the August projections that captured the attention of the markets and commentators. But, collectively, we also concluded that the balance of risks to the inflation outlook was to the upside, so that the mean for inflation was actually above the 2% target at around two years or so. That’s not without significance given that most analytical models suggest that policymakers should set policy in the light of the mean, not the mode – although a better description of the MPC’s approach would be to say that we take account of the nature of the entire distribution of risks. | Arrangements like these, with trusted protocols and agreed measures, will build confidence in managing the risks of importation of the Covid-19 virus, and allow countries to re-open to trade and travel. Strengthening Digital Connectivity The second area countries must co-operate on is relatively new but is growing rapidly in importance – digital connectivity. We all know how the Covid-19 pandemic has accelerated the use of digital services. Amid safe distancing measures and movement controls, many firms have shifted to digital channels to conduct business. 2/4 BIS central bankers' speeches E-commerce, online education, tele-medicine, remote working, internet banking – have all taken off spectacularly. The ability to conduct business on digital platforms, especially across borders, has become a competitive advantage – for it allows people and businesses to tap onto a global market for sales or supplies or solutions. We need to deepen digital connectivity across countries, to expand opportunities for our people and businesses. An area that could clearly benefit from digital and data connectivity is cross-border trade. There is a large number and variety of parties involved in an international trade transaction. The trade process is highly fragmented, paper-based, slow, and cumbersome. Harmonising and digitising trade documents and putting them through a seamless digital platform will help to make trade more efficient and secure. Food safety will be an area of high priority as we emerge from the Covid-19 pandemic. This often requires traceability in supply chains that span multiple countries. Being able to do this well requires data sharing and digital connectivity. | 0 |
Some of the factors holding down inflation – such as the cut in Medicare reimbursement rates last April – were one-offs and are now dropping out of the year-over-year figures. In some other areas, such as owners’ equivalent rent, price pressures look likely to firm somewhat. That said, I see little prospect of inflation climbing sharply over the next year or two. There still are considerable margins of excess capacity available in the economy – especially in the labor market – that should moderate price pressures. Most notably, the trend of labor compensation is running at only about a 2 percent annualized pace. This is far below the roughly 3½ percent pace that would be consistent with trend productivity growth of 1 to 1½ percent and the FOMC’s 2 percent inflation objective. Recently, some economists have argued that the amount of slack in the labor market may be smaller than suggested by the official unemployment rate of 6.3 percent. They focus on the level of short-term unemployment – those workers unemployed for less than 27 weeks – which has returned close to its average long-term level – and argue that it is the short-term unemployed that are critical in driving compensation trends. My own reading of this research suggests that one should not jump to such a conclusion. Instead, I conclude: • The relative impact of each type of unemployment on wages depends on whether long-term unemployment reflects primarily structural or cyclical forces. | Our levers are the hard and soft infrastructure we control: Hard infrastructure, such as the Real-Time Gross Settlement (RTGS) system, which lies at the heart of the UK payment system. And soft infrastructure, such as our rules, regulations and standards. To illustrate what this means in practice, consider three examples of how the new Bank can provide a platform for private innovation to serve the digital economy, to finance major transitions, and to increase the resilience of the financial system. Serving the Digital Economy First, at the heart of the new economy, the very nature of commerce is changing. Last year, one fifth of all sales in the UK were online. Next year, it will be one quarter. The new economy is more inclusive, offering easier routes to market for firms both large and small, and greater access for consumers both near and far. We are entering an age when anyone can produce anything, anywhere and sell everywhere through platforms such as Tmall, Amazon, Shopify and YouTube. This new digital economy is placing new demands on finance. Consumers and businesses increasingly expect transactions to be settled in real time, checkout to become an historical anomaly, and payments across borders to be indistinguishable from those across the street. In parallel, big data is opening up new opportunities for more competitive, platform-based finance of SMEs. Search and social media data are supplementing traditional metrics to unlock finance for smaller enterprises whose assets are increasingly intangible. | 0 |
Therefore, in order to make sure that central bank independence is understood, internalized and safeguarded by the public, it is necessary for them to fully comprehend the rationale of independence, understand why it is important and become convinced that central bank independence does not imply independence from society. For this reason, I firmly believe that it is vital to talk about independence frequently. 20 BIS Review 36/2005 As I have reiterated before, it is a globally accepted phenomenon that achieving price stability is the prerequisite of establishing a sound market economy and attaining sustainable growth and employment rates in the long run. Another globally accepted phenomenon is that price stability can only be achieved by employing lasting, sound and stable policies. For this reason, the public provides central banks with freedom from political authorities in order to enable them to implement the necessary long-term targets to control inflation and attain price stability, to achieve full employment and to sustain growth. This structure gives central banks the opportunity to reject the implementation of policies that pose risks to attaining price stability and creates an environment in which they can give warnings when required. These are the reasons why central bank independence is essential. Monetary policy implemented by a central bank that is able to effectively exercise its independence, is accepted by all sections of the public and the political authority. | It is very difficult to increase the income level and change the saving tendency in the short term. For this reason, the domestic savings deficit should preferably be met by direct foreign capital investments. Graph 10: The Shares of Public and Private Investments in GNP 30 Public 25 Private (%) 20 15 10 5 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 0 Source: SIS. Due to the current economic program and the structural reforms in the scope of the program, a transition from a public sector-supported capital accumulation model to a private sector-supported accumulation model occurs, where market conditions are taken as indicators and criteria. The share of the private sector in the national income increases, whereas the share of the public sector declines. It is clear that the private sector-oriented growth plays a major role in achieving sustainable growth by boosting both exports and total industrial production. However, it should be noted that the private sector could not meet the expectations because it could not exploit sufficient resources. This was due to the dominance of the public sector borrowing requirement in the finance sector. Furthermore, the factors that slow down the capital accumulation process include the incomplete tax reform and the 12 BIS Review 36/2005 poor relationship between banking sector and real sector. | 1 |
2 The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system. As a consequence, the financial industry has largely lost the public trust. To illustrate, a 2012 Harris poll found that 42 percent of people responded either “somewhat” or “a lot” to the statement that Wall Street “harms the country”; furthermore, 68 percent disagreed with the statement: “In general, people on Wall Street are as honest and moral as other people.” I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms. As James O’Toole and Warren Bennis observed in their Harvard Business Review article about corporate culture: “Ethical problems in organizations originate not with ‘a few bad apples’ but with the ‘barrel makers’.” 3 That is, the problems originate from the culture of the firms, and this culture is largely shaped by the firms’ leadership. This means that the solution needs to originate from within the firms, from their leaders. What do I mean by the culture within a firm? Culture relates to the implicit norms that guide behavior in the absence of regulations or compliance rules – and sometimes despite those explicit restraints. Culture exists within every firm whether it is recognized or ignored, whether it is nurtured or neglected, and whether it is embraced or disavowed. Culture reflects the prevailing attitudes and behaviors within a firm. | This would facilitate more active trading of SGS and $ bonds and deepen bond market liquidity. Repo transactions with non-residents are presently subject to a $ million consultation limit. Banks have told us that this requirement to consult is a psychological hurdle, even though MAS has assured them that the decisions will be liberal and quick. A non-resident borrowing $ through a repo must first obtain the equivalent amount in SGS, which is a $ asset. Given that MAS Notice 757 already limits a non-resident to no more than $ million of Singapore dollar credit for such investments, allowing banks to transact $ repos freely with non-residents will not lead to a significant net increase in $ credit facilities to non-residents. MAS has therefore decided to lift the $ million consultation limit. Banks in Singapore may now, without prior consultation with MAS, enter into repo transactions in Singapore government securities BIS Review 130/1999 3 and $ denominated bonds listed on SES with any party, and for any amount, on condition that there is full delivery of collateral. OTC interest rate derivatives OTC interest rate products would open more avenues for non-resident investors to manage their $ interest rate risks arising from investing in the $ debt market. But hitherto MAS has restricted OTC interest rate derivatives, because they could facilitate speculative volatility in the $ In September this year, SIMEX introduced the $ three-month interest rate futures contract. | 0 |
Why not persevere with the minimum exchange rate, instead of exposing the Swiss economy to the downsides of negative interest rates and the challenge of a stronger currency? With this question in mind, let me turn straight to a second fiction regarding Swiss monetary policy, namely, that an unlimited lengthening of the SNB balance sheet would be riskless. This fiction flies against common sense and is mostly prevalent in academic circles. I will try and clarify some misunderstandings with respect to central bank balance sheets by stressing three important facts that apply both generally and to the current Swiss monetary policy situation in particular. First, a central bank balance sheet is never a target per se, but rather, its size and composition simply mirror monetary policy decisions. Second, massive balance sheet expansions carry financial and economic risks. 3 This is clearly the case when the policies underlying the balance sheet expansion comprise outright purchases of foreign exchange. This puts foreign exchange risk on the central bank’s balance sheet. Third, policy measures involving a significant balance sheet expansion should be taken only as long as the benefits in terms of the broader policy objective clearly justify the risks and cover the costs associated with the balance sheet expansion. It is important to note that the costs and benefits of a given policy measure may change over time, and must therefore be reassessed repeatedly. | In addition, global interest rates have fallen to near zero levels, virtually eliminating any interest rate differential, and thus further reducing the incentives for Swiss investors to re-export their excess savings abroad. Together, these developments largely explain the observed net inflows of private capital to Switzerland since the crisis, and, despite them being compensated by public sector capital exports through foreign exchange interventions by the SNB, the persistent strength of the Swiss franc. These developments also highlight a first key fact of Swiss monetary policy: At any point in time, the attractiveness of the Swiss franc for both domestic and foreign investors is predominantly determined by the size of the interest rate differential and the safe haven status, with the latter being particularly important in times of heightened uncertainty. In the current global environment of low interest rates, imposing negative rates is therefore a monetary policy necessity in order to re-establish a material interest rate differential vis-à-vis the major economies. The negative rate thus contributes to restoring the relative attractiveness of foreign currency investments for Swiss investors and corporates. At the same time, it reduces the incentive for foreign investors to invest in Swiss franc-denominated assets. Over time, this fundamental mechanism will contribute to reducing the current overvaluation of the Swiss franc. The SNB is fully aware that, despite its established necessity, a negative interest rate policy does not come without detrimental side effects, notably for financial stability and the efficient use of capital, to name just two areas of concern. | 1 |
Despite almost 10 years of ultra-easy monetary policy, and despite stronger growth and better labour market conditions, some countries are still devoid of inflation. This latest enigma of “missing inflation” has further spurred the search for the next best thing after inflation targeting. It has become increasingly clear that the nature of problems facing policymakers and the underlying heuristics are becoming very complex. What we thought we knew about inflation dynamics has been inadequate and has not factored in many other relevant factors. Inflation dynamics have evolved with structural factors such as the global value chain, demographics, technological advancements and the digitalisation of the economy. In such a dynamic environment, it is only logical to think that one must be pragmatic, flexible and agile. This is why we focused on inflation anchoring without being tied to a single numerical target. To effectively do this, our monetary policy framework will take into account a broader consideration of factors that could affect the domestic economy and financial system. It also allowed us some flexibility to monitor how our monetary policy actions could interact with key issues facing the public, such as distributional implications, cost of living, access to financing and financial inclusion. As we understand these interactions better, our responses, including monetary policy decisions, can be more nuanced and effective. Malaysia’s policy approach has remained relevant Inflation anchoring was not the only thing we did differently. In fact, Malaysia has never shied 4/7 BIS central bankers' speeches away from taking the path less travelled. | Muhammad bin Ibrahim: Public policy perspective - some thoughts and contemplations from a central banker Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 40th Harvard Business School Alumni Club Malaysia Anniversary Dinner, Kuala Lumpur, 9 February 2018. * * * Thank you for the invitation to speak tonight, among such impressive luminaries. I would like to take this opportunity to share, reflect and learn from past experiences. Since my line of work relates to public policy, I would like to approach it from this perspective. The remarkable paradox of public policy Public policy has never been easy. It is deceivingly simple if we just think about the outcomes. For example, the country needs more public healthcare; or prices of goods need to be lower; or people should have more access to credit. In practice, the policymaker makes difficult decisions involving complicated trade-offs, competing objectives and priorities. Resources are limited and invariably, any allocation made will affect many persons in different ways. Public policy can never ever meet the needs of everyone all at the same time. Given these challenges, it stands to reason that there can be no set template or rules when it comes to executing public policies. From this perspective, it is therefore a remarkable paradox that policymaking at the international level is steeped in conventions, rules and norms that set out expectations on how policymakers should behave and conduct policies. | 1 |
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