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We generally recommend that banks take a particularly judicious approach to paying dividends as there is continued uncertainty linked to the pandemic and capital may be required in the future to absorb losses. Therefore, before paying dividends, it is vital to assess future capital needs based on conservative estimates. Now about the funding situation. It has also levelled out. In general, over the first seven months of 2020, the funds of legal entities increased by almost 3% (by 2.9%). Concurrently, there was a significant inflow (+27%) of funds of state organisations. Household contributions during this period demonstrated divergent dynamics. At the start of the pandemic, especially in March, there was an outflow of funds (people formed cash reserves at the outset of the lockdown period). However, as early as June—July, the situation had stabilised. On the one hand, this is due to the peak of the epidemic passing and the gradual recovery of people’s income, and, on the other hand, the substantial support provided by the Government’s welfare payments. The active growth of funds in escrow accounts (more than 330 billion rubles since the beginning of the year) lent additional support, and this is noticeable, to deposits, thanks to the development of project financing for housing construction. Therefore, this year deposits have already increased by 514 billion rubles 3/7 BIS central bankers' speeches in the banking system, or 1.6%. The overall level of liquidity in the system remains high. | Exchange rate movements are not to be considered as isolated events, neither should monetary policy’s reactions to them be mechanical. If a depreciation stems from an international slowdown, for example, the consequences for monetary policy will differ from a case where the roots lie in a lack of confidence in Sweden’s economic policy. The situation at the beginning of June can serve as an illustration. The problem was not simply that the krona was under-valued. That had been the case, though not so dramatically, for a long time. What led us to conclude that the situation was sufficiently serious to warrant action was a conjunction of several factors. The depreciation occurred very rapidly and we had not received any new information that justified such a marked movement. That meant that the future, relatively optimistic path for the krona on which monetary policy had been formulated now appeared less realistic. The depreciation was, moreover, particularly troublesome in that it coincided with a substantial price rise and accordingly heightened the risk of inflation expectations shifting to a rate of price increases that exceeded the Riksbank’s target. The increase in inflation stemmed both from transitory factors and from persistently high resource utilisation. BIS Review 75/2001 1 Forecasting exchange rates is difficult As I said, it is the exchange rate’s path in the coming two years that is important for monetary policy. So how can one arrive at a picture of the exchange rate several years ahead? | 0 |
However, it cannot be ruled out that the increase in political and trade uncertainty may ultimately constrain the growth of business investment plans. This is especially the case in certain economies, such as Italy, where some signs of a tightening in financial conditions are already discernible, in a setting in which Italian public debt yields have, since spring last year, held at relatively high levels. The lower rate of growth in the euro area has contributed to delaying the prospect of a pick-up in the core component of euro area inflation somewhat. And compounding this has been the effect of the recent decline in oil prices on overall inflation. In these circumstances, the ECB’s monetary policy maintains a markedly expansionary stance, BANCO DE ESPAÑA 2 TESTIMONY BY THE GOVERNOR OF THE BANCO DE ESPAÑA BEFORE PARLIAMENT IN RELATION TO THE DRAFT STATE AND SOCIAL SECURITY BUDGET FOR 2019 FORECASTS FOR THE SPANISH ECONOMY: OVERVIEW TABLE 2 Annual rate of change (%) December 2018 projections 2017 2018 2019 GDP 3.0 2.5 2.2 Employment 2.9 2.5 1.6 HICP (inflation) 2.0 1.8 1.6 SOURCES: INE and Banco de España. Projections cut-off date: 28 November 2018. aiming to prompt the convergence of inflation, in the medium term, towards rates of increase in prices that are below but close to 2%. | And the rest is history… I have dwelt on this story not so much for its intrinsic interest than to illustrate just how far we have come from those origins. For me, three key points stand out: - First, the early success of LIBOR led to its widespread adoption well beyond its original application. At first that posed few apparent problems, as bank funding costs moved in line with risk-free rates. But the financial crisis changed that. Market participants using capital instruments apparently unconnected to banks (for example, those issuing bonds, or seeking exposure to risk-free interest rates through derivatives) found themselves nonetheless heavily, and unexpectedly, exposed to variation in bank funding costs (Figure 1). 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Figure 1: Proportion of three-month £ accounted for by bank funding costs and other factors Note: risk-free rate component based on 3-month OIS rates where available, and on an adjusted Bank Rate prior to 2001. The red area of the chart is influenced by bank funding costs, as well as liquidity and supply/demand conditions. Source: Bloomberg data and Bank calculations - Second, LIBOR’s widespread use persisted long after the underlying market on which it was based – the short-term wholesale unsecured funding market – largely ceased to exist. The use of judgment to set term LIBOR rates – once simply a convenient tool to fill in for temporary gaps in an otherwise well-specified curve – became the norm. | 0 |
For example, while it may capture some important aspects of how asset purchases work it’s not really an accurate representation of how the conventional policy rate is set. That’s fine for today, as I’m focusing more on QE. But one should at least be aware that the monetary authority needn’t vary the supply of reserves in order to change its policy rate[7]. Second, the downward slope of the MD line was often justified, in the textbook account, by the assumption that reserves don’t pay interest. This would mean that any rise in bond yields is bound to make central bank money comparatively less attractive to hold. These days, however, reserves do pay interest (at the official central-bank rate). As a result, central bank money and government debt – the two sides of the QE transaction – are closer substitutes than they otherwise would be. This has the effect of making the downward slope of the MD line less pronounced. Third, the model – the way it was often taught in the textbooks, at least – glosses over the distinction between “narrow” and “broad” money. For the wider economy it’s clearly the second that matters. Firms and households don’t have deposits at the central bank – for them, “money” is Page 13 what they hold in their commercial bank accounts. But, as conveyed to students, IS-LM elides the two, assuming that the one is just a multiple of the other[8]. | This is available from 1997 and projected backwards using aggregate M4 growth before then. Chart 2: Broad money growth slowed significantly after the financial crisis, inflation still close to 2% Page 5 Sources: ONS, Bank of England and Bank calculations. None of this means that at the margin (holding everything else fixed) QE doesn’t add to broad money or ultimately to the level of prices. Nor does it imply that the quantity measures are never useful or important. It would be as wrong categorically to ignore monetary aggregates as it would to assume that they’re the only thing you need to consider. As far as the theory’s concerned, people can’t always borrow and lend freely. In the presence of these and other “financial frictions” the availability of liquid assets can matter for spending, independently of interest rates. Besides, interest rates themselves matter only relative to some “neutral” rate that cannot be observed directly. So, in practice, monetary policymakers should always pay attention to other – indeed any – indicators of incipient inflationary pressure. And although changes in banks’ deposits have often been driven by shifts in demand there are times when they look more supply-led. Arguably, the surge in broad money in 2020 looks like one such episode. Supported by the furlough scheme, and because their spending was held back by the lockdowns, households accumulated significant deposits during the pandemic (Chart 3). While not literally a “helicopter drop” this came quite close to an exogenous increase in the stock of household (and aggregate) money. | 1 |
Chart 16 illustrates this for one technology - computing. It shows the percentage of employees in a company using a computer on three dates (2002, 2008, 2015). The good news is that it shows a clear trend towards increased employee computer use over time. 35 European Commission (2018). 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 The distribution of computer use is, however, clearly twin-peaked. There is an upper tail of companies where more than 90% of staff use computers. By 2015, this had increased to a little under half of all companies. But there is also a large, if diminishing, tail of companies where employee use of computers is much more modest. For example, even by 2015 around 40% of companies had fewer than half of their employees using computers. And there were still 20% of companies where fewer than one in five employees used computers. This picture is patchier still for more advanced technologies. Chart 17 looks at the distribution of the proportion of employees in UK companies with access to a portable device with internet access on two dates (2011 and 2015). It, too, is twin-peaked. But the upper peak is now a very modest one, containing only around 10% of firms. And the lower peak, by contrast, is Himalayan. The fraction of companies where 50% or less of employees use portable devices is around 80%. Patterns of technological adoption and penetration among UK companies, then, tell a broadly consistent story. | One consequence is that the credibility of the institution will eventually suffer, and this will negatively affect its efficiency to the detriment of the membership as a whole. The second is that by granting too many resources under too uncertain conditions the financial soundness of the IMF will be jeopardized. The financial soundness of the Fund may well constitute in itself the topic of another speech. Let me just tell you that, although the IMF financial situation remains strong, recent developments in markets and in Fund lending have increased the risks for the institution. Shareholders of the Fund, through the Executive Board, have the responsibility that the Fund takes sensible decisions. They have an equally important responsibility to safeguard the credibility and soundness of the institution. This can best be done by ensuring that, to the extent possible, the game is played according to the rules. To best pursue its mandates, the Fund must not only be competent and financially sound, it must also be able to preserve its own independent judgment. With this caveat, I would have no problem sharing the very widespread belief that if the Fund did not exist, we would have to invent it. 4 BIS Review 69/2004 | 0 |
Chart 3 Changing inflation outlook for 2011 Bank of England mean forecasts for CPI inflation in Q1 2011 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 Outturn Source: ONS and Bank of England In my time on the Monetary Policy Committee I have earned myself a reputation as a “hawk” or even an “uber-hawk” because of my stance on interest rates. This reputation has been reinforced by my consistent minority votes since June last year to raise the UK Bank Rate. But I acquired my hawkish mantle much earlier, in my first year on the MPC, when I voted in 3 4 According to monitoring by TMF, an international tax consultancy, eight other European countries raised VAT rates at the beginning of 2011, including Switzerland, from 7.6% to 8%; Portugal, from 21% to 23%; Poland, from 22% to 23% and Slovakia, from 19% to 20%. Spain and Portugal also raised rates last year, along with Finland. In addition, the ONS estimate that UK CPI rose by 0.76% in January 2011 in response to the rise in VAT, whereas the difference between UK and euro area inflation in that month was 1.7%, and the gap with Swedish and Swiss inflation was 1.9% and 3.7% respectively. BIS central bankers’ speeches a minority on a number of occasions to raise interest rates in response to the relatively strong growth and rising inflation we were experiencing before the financial crisis. | The Bank of Zambia therefore welcomes this Workshop as it bodes well with our strategic objective of increasing access to financial services to 50% of the population by 2015 from the current level of 37.3%. As I conclude, I want to assure ATI that the proposal for the Bank of Zambia and all Central Banks in the COMESA Region to relax the capital reserve rules, by considering applying a lower risk weight on transactions that banks and financial institutions have insured with ATI is receiving active consideration within the organs of the COMESA Central Bank Governors. Let me commend ATI for coming up with this innovative initiative which seeks to deepen our financial markets. Finally, I challenge all of you this morning, especially participants from commercial banks to explore ways on how you can improve your products and services to better serve the entire Zambian population with the products that ATI will present to you this morning. Distinguished Guests, Ladies and Gentlemen, it is now my pleasure to declare the African Trade Insurance Agency’s workshop for bankers officially opened and I wish you fruitful deliberations. I thank you for your attention. 2 BIS central bankers’ speeches | 0 |
More fundamentally, the krone is influenced by the difference in activity at home and abroad and how fast the interest rate has to be increased in Norway to keep inflation low and stable. The economic geography of Norway will change over the next 10 to 15 years. The domestic cost level and the real economy crisis abroad will put pressure on jobs and businesses in manufacturing communities. And as mentioned, the most important, perhaps the only, instrument available to the authorities in addressing this challenge is to restrain petroleum revenue spending. Petroleum revenue investment Let me now turn to the Government Pension Fund Global. 2 6 See for example the National Budget for 2010, box 3.1, p. 53. BIS Review 44/2010 It took a generation from the time the first oil field was discovered in the North Sea until the government began to set aside economic rent. The Government Petroleum Fund was established in 1990 and the first transfer to the wealth fund was made in 1996. Each year since that time, as a savings plan, the government has set aside a portion of current income from petroleum activities as deposits in the Fund. Today, the value of the Fund is around NOK 2.6 trillion, or about 115 per cent of 2009 GDP in Norway. New transfers will likely be made to the Fund for perhaps a little more than another decade. The Fund will in that case continue to grow and may reach twice its current size. | The international order and Norway In recent years, increasingly assertive non-statutory bodies have emerged in the area of international economic and financial collaboration, most notably the G20.When the global financial crisis unfolded, the G20 4 rose to the task. Nevertheless, I believe that the role of non-statutory bodies and the statutory institutions, such as the International Monetary Fund (IMF) 5, must be reconsidered to promote the necessary multilateral approach to global governance. Norway has a long-held tradition of participating actively in multilateral cooperation and institutions has actively backed the multilateral responses to the financial crisis. As a global investor with an open market economy, Norway has a strong and vested interest in the wellbeing of global financial markets. This interest is shared with most market participants, large and small. We have a common interest in a market-based international order, supporting a level playing field and sound economic governance. Lessons from the crisis A key lesson from the global crisis is the need for multilateral cooperation and collective action. It relates to the framework for polices on prevention, resolution, reform and implementation. It also relates to the institutional set-up. The IMF has played a pivotal role in presenting the initial lessons from the crisis, in providing finance to countries with temporary balance of payments needs, and in preparing the overall framework for the international policy response. When the good times return, we must avoid memory failure and remind ourselves of these facts of life. | 1 |
To lend, to play their necessary role in enabling economic growth banks need to be healthy. So while it is right that we give banks time to transition to the end point of the new standards, that does not mean that we put off strengthening of capital and liquidity until the end of the process. We have needed in the UK to take action intended to restore banks’ capital positions to health. So that now they can move up to higher Basel III standards. On interconnectedness, we have agreed standards for the $ trillion of derivatives, including CDS, previously sold “over the counter”. This includes the requirements for trading to clear through “central counterparties”. So the risks in these contracts are transparent. So the risks are managed by ensuring that the parties to the contract back up their obligations to each other with collateral as the value of the contract changes. The US has implemented the new standards in law and is now implementing them in practice. In the EU, standards are expected to come into force in the next year or so. Between them, the US and EU account for 80% of this market. To be clear: Progress in this area has not been without setbacks. Although there has been now agreement on an international standard, implementation in the US and EU has differed in a number of key respects. At times these differences have threatened to balkanise what is now a global market. | Mario Draghi: IMFC Statement Statement by Mr Mario Draghi, President of the European Central Bank, at the thirty-sixth meeting of the International Monetary and Financial Committee, Washington DC, 13 October 2017. * * * The euro area’s economic expansion, supported by the ECB’s monetary policy measures, continues to be firm and broad-based across countries and sectors. The economy has now expanded for 17 consecutive quarters, and at a faster than expected pace in the first half of this year. Over this period, employment in the euro area has increased by almost seven million. Youth unemployment has declined from its peak above 24% in 2013 to just above 19% recently, but still remains above its pre-crisis level, and especially high in some member countries. The ongoing recovery is being largely driven by domestic forces, with both consumption and investment contributing to growth. Private consumption is fostered by employment gains and increasing household wealth. Investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Also, the broad-based global recovery is increasingly supporting euro area exports. The latest ECB staff projections foresee annual real GDP increasing by 2.2% in 2017, 1.8% in 2018 and 1.7% in 2019. Risks to the growth outlook are broadly balanced, with downside risks stemming predominantly from external sources. In this context, preserving openness underpinned by multilateral cooperation and effective financial regulation will decisively contribute to fostering a favourable external environment. While headline inflation has increased markedly over the past year, this is largely reflecting energy and food inflation. | 0 |
Before I continue, let me give the usual disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or anyone else in the Federal Reserve System. The Final Countdown I’ve spoken about the LIBOR transition many times before,1 but the message bears repeating, especially now that we’re only about six months away from moving off of LIBOR, once and for all. During this critical time, it’s important to focus on building a strong and robust foundation for the future so that we never have to go through a transition like this one again. That’s why when it comes to choosing a LIBOR replacement, you need to be confident that the rate you use is appropriate and will hold up even under stress. At the Financial Stability Oversight Committee (FSOC) meeting earlier this month, FSOC members highlighted risks around reference rates that share many of LIBOR’s shortcomings, such as being based on thinly-traded markets.2 The Alternative Reference Rates Committee (ARRC) studied this issue carefully and consulted thoroughly with the public, and recommended the Secured Overnight Financing Rate (SOFR) as the main U.S. dollar reference rate for the post-LIBOR world. | In addition, we have seen surges in demand for certain goods that have outstripped available supply. The clearest example is used cars, which are in very high demand, reflecting factors such as the needs of a remote workforce, stimulus payments, and demand from rental car companies. At the same time, the supply of vehicles has been held back by earlier production cutbacks and shortages of semiconductor chips. This imbalance in supply and demand has caused used car prices to soar. Looking forward, supply will slowly come back online, and I therefore expect car prices to stabilize and then decline over time to more normal levels. 2/3 BIS central bankers' speeches We have already seen this type of dynamic play out in some sectors. The latest data show growth in wholesale used car prices slowing in the first half of June.4 And lumber prices, which soared during the pandemic as housing demand surged and supply struggled to keep up, have declined sharply in recent weeks. I expect that as price reversals and short-run imbalances from the economy reopening play out, inflation will come down from around 3 percent this year to close to 2 percent next year and in 2023. It goes without saying that there is a great deal of uncertainty about the inflation outlook, and I will be watching the data closely. The Fed’s Policy Response It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good. | 1 |
They then resorted to a further type of measure, known as 8 See Billi and Vredin (2018) for a discussion. 9 [25] ‘quantitative easing’, which means pushing down long-term market rates on various markets through direct purchases of financial assets. A further measure introduced by both the Bank of England and the ECB was ‘funding-for-lending’ programmes. The idea behind these is that the banks can borrow money at a low cost for the explicit purpose of increasing lending to households and companies. These measures were introduced when a credit crunch threatened to hamper growth. Sweden, as a small open economy, was hit hard via trade with other countries, despite the financial problems in our country being much milder than in many other countries, although there was initial unease over the Swedish banks’ exposures in Estonia, Latvia and Lithuania. The repo rate was cut by more than four percentage points to alleviate the effects on the Swedish economy. In addition, several measures were implemented with the purpose of supporting the Swedish financial system. The Riksbank lent SEK 400 billion to Swedish banks and also lent the equivalent of almost SEK 200 billion in foreign currencies to help the Swedish banks with short-term liquidity problems. During 2010, the Swedish economy grew strongly and the Riksbank and many other analysts forecast a global economic upturn and a rapid recovery in the Swedish economy. | Such a communication would be reminiscent of the reverse situation, when the central bank is concerned about fiscal dominance – a situation where an unsustainable fiscal policy makes it impossible for the central bank to restrain inflation – and communicates this. 16 Personally, I do not think that an independent monetary policy presumes a total lack of dialogue between the Riksbank and the political system on such matters. The second question concerns the effectiveness of various measures and the risks they entail. For example, assume that the Riksbank can make monetary policy more expansionary by purchasing certain financial assets. This could increase the risks on the Riksbank’s balance sheet considerably and lead to future losses for taxpayers. Assume now that it had been possible to achieve an equivalent effect by means of mild fiscal policy stimulation measures. This would probably be possible in a situation where monetary policy is at its lower bound. The Riksbank would then not have to raise the interest rate as economic activity rises and fiscal policy would thereby become more effective than normal. 17 In this case, there should be conditions for holding a discussion over which policy mix would be most appropriate. In addition, Blanchard (2019) makes the point that, if the real interest rate is lower than the growth rate in the economy, the cost for debt-financed public investments will be very low. | 1 |
6 See, for example, the boxes on pages 18-20 of the February 2017 Inflation Report and page 29 of the May 2014 Inflation Report. The solutions to these puzzles are also likely to involve some factors unrelated to globalisation. For example, one explanation put forward for missing dis-inflation is that companies facing liquidity constraints maintained prices at higher levels than they would otherwise have done in order to preserve cash flows and remain in operation (see Gilchrist, S, Schoenle, R, Sim, J and Zakrajšek, E (2017), ibid). Consistent with this, analysis by Bank staff found that UK businesses with weaker balance sheets increased their margins by more at the height of the crisis than those with healthier balance sheets). 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 Chart 3b: Core inflation rates exhibited little co-movement post-crisis See notes and sources to Chart 3a. Central banks have (thus far) been able to maintain their monetary sovereignty, achieving their mandates by offsetting the secular disinflationary forces from global integration. None of this, however, is to downplay current challenges of maintaining price stability in the face of global forces. The combination of the growing contestability of markets and prolonged synchronised weak demand may be restraining wage expectations. Moreover, technological changes, particularly those which could globalise markets for many services, may extend and deepen trend global disinflation. And, the global financial cycle could exacerbate the challenges of returning domestic inflation to target, particularly given the proximity of interest rates to the effective lower bound. | In formal terms, the General Council may only severe a member of the Executive Board from his or her appointment if “…he no longer meets the requirements which are made on him to be able to carry out his duties or if he has been guilty of serious misconduct.” 2 The legislation strengthens the Riksbank’s independence and credibility for monetary policy. For example, it should not be possible for those in power to be able to groundlessly dismiss a member of the Executive Board for the purpose of appointing their “own” decision-makers. As the question of accountability is stated in law, it is not actually the Riksbank’s task to take a stand on how this should be achieved. However, what we can do – and also strive for – is to create the best possible conditions for accountability. We do this by being as open and clear as we can. This makes it easier for outsiders to critically examine how monetary policy is conducted and how well we live up to our principles. 1 Sveriges Riksbank Act (1983:1385), Chapter 8, Article 1. 2 The Instrument of Government, Chapter 9, Article 13. 4 BIS Review 62/2007 There are also certain formal requirements for providing information to our principal. Our tasks include, for instance, presenting a written report on monetary policy to the Riksdag Committee on Finance at least twice a year. In connection with this, the Committee also holds a hearing with the Riksbank Governor. | 0 |
The objective is to prevent severe damage to the Swiss economy from a very substantial and possibly longlasting overvaluation of the Swiss franc. Accordingly, the SNB has set the minimum exchange rate at a level where the value of the Swiss franc remains high. Impact and risks When evaluating the accommodative monetary policy and unconventional measures, we need to take account of effects as well as risks. What can we say about the effects? The way I read the available data, conventional and unconventional measures taken by central banks have made a decisive contribution to preventing the global economy from drifting into deflation and depression. However, the slow recovery reminds us that monetary policy is not omnipotent and is not in a position to solve all problems. Fiscal consolidation and the structural reforms required for the improvement of growth potential in many countries cannot be replaced by monetary policy measures. An evaluation of the impact of the individual unconventional measures is more difficult. The simplest to assess is the minimum exchange rate. This instrument has made a decisive contribution to stabilising the Swiss economy. The export industry is gaining ground again, and the deflationary expectations that were threatening to take hold were checked. It is more difficult to assess the impact of forward guidance and quantitative easing. Certainly, longterm interest rates have fallen to record lows this year in some areas. However, it is likely that the deterioration in the economic outlook and the flight to safe investments also played a role in this development. | With its long history and impressive membership, ACI has developed very much into an icon of professionalism in finance, contributing to "market development through education, market practices, technical advice and networking events for the financial practitioners of the world". The Association therefore has a very important role to play and faces in the coming years much greater challenge than before in promoting and upholding professional and ethical standards in finance. One interesting, perhaps even perplexing, aspect of the current financial turmoil is that emerging markets, particularly those in Asia, have only been lightly affected, so far. One reason is that financial innovation, in the form of credit risk transfer through securitisation by the "originate and distribute" model, has not caught on in Asia to the same extent as in the United States. Indeed, economies in different stages of financial sector development face different issues, notwithstanding the clear trend of globalisation in finance. Correspondingly, in promoting and upholding professionalism in finance, there may be a need for different emphases and approaches, having regard to the different development stages that individual regions and economies are undergoing. But it is also important that these different emphases and approaches should be developed within the framework of global standards. I therefore wholeheartedly support regional outreach initiatives of international standard setting bodies such as the ACI. Asia, of course, is region of rising importance in the global context, particularly in terms of finance. | 0 |
Mohd Razif bin Abd Kadir: Islamic finance and the collaboration between Malaysia and Bahrain Special remarks by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the Signing Ceremony of Memorandum of Understanding between Bursa Malaysia – Bahrain Financial Exchange, Manama, 24 January 2010. * * * It is my great pleasure to be here today on this occasion of the signing ceremony of the Memorandum of Understanding between Bursa Malaysia Berhad and the Bahrain Financial Exchange. The signing we are about to witness today will lay the foundation for the collaboration by the two exchanges on Bursa Suq Al-Sila’. I wish to thank the two exchanges for inviting me to give some remarks at this auspicious occasion. I also wish to applaud this commendable effort by the two exchanges which marks another important milestone in the development of the global Islamic financial services industry and in bridging further our two countries. Maintaining the stability of Islamic financial system This effort takes place at a time when the global economy is entering into a period of improved international economic and financial conditions. The global financial crisis has highlighted several structural weaknesses and drawbacks in the international financial system. While Islamic finance is not insulated from the effects of the current environment, the Shariah principles and values that are inherent in Islamic finance provide an important underlying foundation. The Islamic financial system has continued, during this period, to become increasingly integrated with the international financial system. | Leveraging on the experience of Bursa Malaysia in the area of exchange traded products, this platform is able to eliminate uncertainty in the transactions and could mitigate risks such as legal risk, market risk and counter-party risk. As Bursa Suq Al-Sila’ is designed to be a multi-currency platform, it can enhance liquidity and risk management capacity of the international Islamic banking community. Furthermore, it could be harnessed into a cost effective global platform to develop universally acceptable Islamic financial products for the financial and capital market. Overtime, in making it into a truly multi-commodity global exchange, the scope of the exchange-traded product offerings could be expanded to include other commodities and the level of participation should be expanded to include players from outside the financial services industry as well. The proposed collaboration between the Bahrain Financial Exchange and Bursa Malaysia is expected to strengthen cross border financial traffic between both our markets, as this platform has a vast potential to facilitate liquidity flows from one financial centre to another. It will also pave the way for optimisation of financial resources across borders as well as diversification of risks between our markets. Furthermore, this venture will also allow both our markets to explore various opportunities for further collaboration in the future, leveraging on each other’s strengths and achieve synergies for effective and efficient Islamic financial services industry. I urge the banks in Bahrain and Malaysia to work together and use Bursa Suq Al-Sila’ to enable the flows of funds that would enhance the liquidity management framework. | 1 |
Given the heightened importance of remittances in national economies and the promotion of smooth remittance flows between countries by the international organizations, the formal financial sector has now begun to pay greater attention to the initial point of remittance collection (capturing). This means that the institutional mechanisms are focusing on both capturing as well as disbursing of remittances. The international cooperation and coordination is very important at the point of capturing because the banks and formal financial institutions in the country of origin should facilitate cross-border transfers of remittances without placing prohibitive rules and regulations and pricing on the remitter. Payment system and technological advances As you are aware, technological advances, partnerships and improvements in the payments infrastructure have significantly contributed to enhance remittances on a worldwide basis. In that sense, the payment system improvement is a key to the enhancement of remittance transfers. The BIS Review 3/2007 1 technology advances are intended to facilitate automation, reduce costs, provide additional delivery channels and mitigate risks involved in cross border transfers. However, the reduction of costs and the introduction of additional delivery channels are yet to be developed to a satisfactory level by the formal institutional network, not only by introducing enhancements to the payment infrastructure, but also by making a concerted effort to reduce cost on remittance transfers. Several international banks and money transfer systems such as Eurogiro, Western Union have taken the initiative to target both blue and white collar workers at reduced transfer prices. | And fiscal prudence has brought not just a proportional, but in some countries an absolute, decline in the amount of private savings absorbed by government debt. That has left room for a rapid expansion and diversification of the corporate debt market to accommodate increasing demand, as the role of the private sector has increased. And the sovereign debt market, too, has diversified to include those emerging markets and transition countries that have succeeded in accessing the increasingly free international flow of capital. These are big, long-run, changes which, are for the most part likely to continue. So your job - as investors and investment managers, won't get any easier! I have the impression that the investing public is still coming to terms with the lower nominal returns that they can expect if we really are in a world of sustained low inflation. So they may be demanding quite a lot from you. It's true that in an environment of sustained monetary stability you might not see the very large and unpredictable swings in interest rates that I grew up with. | 0 |
23 In an effort to control debt levels incurred during the war, the British government ran huge primary surpluses during the 1920s, averaging 7% of GDP, with all the social and industrial unrest that entailed. Yet ratios of government debt to GDP didn’t fall, remaining at over 160% of GDP throughout that decade. Just as rapid inflations can eat up debt so deflations can increase it. The short-lived reinstitution of the gold standard (it was then abandoned for good in 1931) was heavily criticised at the time by Keynes. 24 The question was only formally considered – and a return to the pre-war parity recommended – by the Cunliffe Committee in 1918. 18 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 18 Chart 13a: To the extent fiscal variables matter for inflation government demand more important than debt Chart 13b: Debt higher in wars than in 1970s but residual monetary credibility may have contained inflation, bond yields Average debt/GDP; changes in central government expenditure less interest payments over nominal GDP; and average inflation. Sources: Thomas and Dimsdale (2017), Mitchell (1988), Feinstein (1998), O'Donoghue et al (2004), ONS and Bank calculations. Average bond yields based on consols/ long-term bonds. Sources: Thomas and Dimsdale (2017), Capie and Webber (1985), Neal (1990), Klovland (1994), Feinstein (1998), O'Donoghue et al (2004), ONS, DMO, and Bank calculations. | In the meantime, the success of the SLGS has garnered a consensus to develop a sustainable, market-oriented platform to cater for the ongoing SME financing needs upon the phasing out of SLGS. Taking this opportunity, the Government-owned Hong Kong Mortgage Corporation launched a new SME Financing Guarantee Scheme (SFGS) on 1 January 2011 to facilitate a smooth transition from the temporary SLGS to a sustainable market-based mechanism. Operating based on prudent commercial principles, the SFGS does not require government subsidy and the scheme size can be flexibly adjusted to respond to changes in market demand. The SFGS also provides a broad range of options on the product features such as tenor, facility type, loan amount and guarantee coverage to fit the different needs of banks and SMEs. Initial market response to the SFGS has been positive, with a good participation BIS central bankers’ speeches 1 rate from banks and an encouraging number of applications received from a broad variety of SMEs. It is expected that the SFGS will over time play an important role in helping SMEs obtain stable and sustainable financing while assisting banks in managing their risks, in particular when market conditions become volatile and uncertain. I am happy to share this experience of Hong Kong, China of how the “exit” of an extraordinary government measure has facilitated the “entry” of a long-term market-based solution for sustainable SME financing. | 0 |
However, I believe there is a risk of now leaning back and assuming that all of the problems will be automatically resolved, or perhaps are already resolved. This is not a quick fix. Making decisions in the field of macroprudential policy is no easy task and Finansinspektionen has a difficult workload ahead. Many people have questioned the efficiency and expediency of the policy rate in this context. But, of course, there are a number of questions regarding macroprudential policy as well. An obvious complication is that macroprudential policy is a new field. There is rather limited practical experience of the effects of macroprudential policy measures and nor is academic research able to provide any clear guidance as yet. This means that, at least during a transitional period, there will be considerable uncertainty over the effects of the measures taken. The objective of macroprudential policy – to prevent risks to the financial system as a whole – is moreover clearer on paper than in practice. It is of course not easy to know when the system is sufficiently resilient or if some form of imbalance is building up, which the crisis clearly illustrated. There are no numerical targets here, and determining when a certain deviation has begun to be abnormal is rather difficult.10 Finansinspektionen will probably also need to struggle on occasion with the scepticism of general opinion towards the need for macroprudential measures. There are different reasons for this. | The European Commission estimated that if Member States achieve their targets, R&D activities will rise by 50% in 2025, generating an increase of between 2.6% and 4.4% in GDP on the basis of conservative assumptions (see report from European Commission “Implementing the renewed Lisbon strategy for growth and jobs: A year of delivery” (2007)). 6 BIS Review 18/2008 euro area, and are crucial to maintaining and ensuring the competitiveness of the individual European companies over the medium to long run. We should keep in mind that in a context of monetary union, not only fiscal policies, but also price competitiveness and unit labour cost developments across countries should be continuously and closely monitored. III. Conclusions Ladies and gentlemen, I would like to conclude by stressing a few points. Europe is in the process of reforming its economy so as to adapt to the challenges of globalisation, technological change and an ageing population. Significant progress has already been made as reflected by the notable rise in employment growth over the last decade. Monetary Union has been effective – and hugely successful – in supporting growth through a credible monetary policy that delivers price stability in the medium run, hence contributing to lower financing costs in the euro area through a reduction of risk premia. It has also given a further impetus to resolute European integration, particularly in financial markets. The challenges ahead are a reminder that European integration is a dynamic process and that it will bring about deeper structural transformations. | 0 |
That was very different a year ago. Financial conditions were actually tightening quite sharply a year ago. And it wasn’t really clear how far that was actually going to run. Maureen O’Hara: There we go, question? Audience Member: Can you talk a little bit about balance sheet normalization, how you think about that in the context of monetary policy? In the September FOMC, you guys talked about thinking about balance sheet normalization in terms of when your rate hikes are well under way. What does “well under way” mean, how are you thinking about that? President Dudley: I’m sure “well under way” means different things with different people. I think the — we made it pretty clear in terms of our statements that we sort of want the active tool of policy to be shortterm interest rates. And the balance sheet to be sort of in the background. We’ve also said that we wanted to get some room off the zero bound before we actually start to normalize the balance sheet, to end the reinvestment. Now I think my own personal view is, how soon you want that process to start depends not just about how much margin you have between the current federal funds rate and zero, but also how confident you are that you’re actually not going to need to reduce the federal funds rate in the near-term. | Since the vast majority of household debt is related to housing, it is not surprising that debtto-income ratios were highest and rose most in places that experienced rapid rises in home prices. So, for example, debt-to-income ratios are among the highest in the nation in those places most associated with the housing bubble, such as California, Florida, Nevada and Arizona. This relationship can also be seen within our region. For example, household debt grew more slowly than nationally and has remained relatively low in upstate New York, which was largely bypassed by the housing boom. The key exception is New York City, where a large share of residents rent their homes. Overall, city residents still have relatively low levels of mortgage debt, even though these debt levels rose during the run-up to the recession. Elsewhere in the region, debt levels tended to rise most in places where housing prices increased the most, such as Long Island and parts of New Jersey. During the crisis, in most parts of our region, households reduced their debts. But, because they had not accumulated as much during the run-up, the decline was well below the national average. In general, households in our region – with some exceptions that I will mention in a moment – have not been under as much pressure to deleverage. It’s particularly notable that in upstate New York, where debt levels are well below the national level, households have actually continued to very slowly add to their debt. | 0 |
In these rapidly changing times, innovation has to be far from static and to continuously keep ahead of time. Just as the needs of the economy and society change, Islamic finance also needs to evolve to keep pace in being part of the solutions. To achieve quality growth, innovation has to focus on amplifying the positive value and impact of Islamic finance to the economy and society. This necessitates Islamic finance moving beyond being perceived as mere imitations of conventional finance. A step up is to have distinct modifications made to the products, services, business practice and operations of Islamic finance. The desired level of innovation is however – to significantly improve the offerings of Islamic finance and to build a sustainable business model to meet the unfulfilled ‘real’ needs of the economy and customers. The delivery of products and services to SMEs for example, can be remodelled to reflect deep understanding of their needs and circumstances. This paves the way for tailor made financial services solutions that can better assist aspiring entrepreneurs. To illustrate, the financing model of Islamic banks for SMEs can be more holistic – to include provision of entrepreneurship training and consulting services, as well as infrastructure support. This model not only leads to greater sustainability, but also provides more 2/5 BIS central bankers' speeches meaningful customer experience. Within the Islamic capital market, we already see good examples of innovation in the form of green sukuk, an innovative financing vehicle to combat climate change. | The El Niño phenomenon for example, affected many developing countries that are dependent upon agriculture and fishing, particularly those bordering the Pacific Ocean. Last year, it left millions of people hungry and in need of food aid; water shortages across Southeast Asia; and higher food prices globally. Closer to home, thousands have been displaced after the northern state of Penang was hit by the worst flood in more than 20 years. These are indications that despite progress made in regulating global emissions of greenhouse gases over the past decades, we need to do more to mitigate the adverse effects of climate change. Moving on to the second challenge – growing inequality. Globally, the benefits of economic growth have been uneven. In reality, not all members of society have fully benefitted from the growth. While some have gained, many have been dislocated – feeling that they have been left behind. Today, global inequality is at its highest since the 19th century. Recent studies show that the richest 1% now owns half of the world’s wealth combined. In stark comparison, 70% of the 1/5 BIS central bankers' speeches world’s adult population holds only 3% of the global wealth. Globally, continued widening of the inequality gap would be detrimental to economic growth and social progress in the long-run. Inequality is a threat to growth if it leads to those in the low income segment suffering poor health and low productivity; and to struggle in obtaining quality education. | 1 |
It is not a risk that can be addressed by simply having a strong IT team in place. It is not a risk that just affects a firm’s technology – it affects the business itself, in every aspect – the bottom line, reputation, processes, and so much more. However, information technology and cybersecurity are intrinsically linked. I’d like to cover both of these issues in my remaining remarks and focus on several of the underlying issues that need to be addressed. Information technology and legacy issues The first dimension is legacy: there is still a great deal of “clean-up” to do to fix longstanding technology and data issues that have built up over the years. The investments necessary are long-term and the fixes, in many cases, will take multiple years to execute. The range of issues include: systems or processes that are manual or not fully automated; asset management tools that are drastically insufficient; and business processes and models built without security requirements, to name but a few. As firms address these challenges, they must also be flexible and agile enough to keep up with the changing environment and incorporate new developments as they arise. While a number of firms have sound programs in place to address these longstanding issues, strong 2 BIS central bankers’ speeches project management and tenacity will be crucial to see them through. In addition, continued prioritization and commitment of resources, as well as support from the firm’s senior management and board of directors, are critical. | Those with long memories know we have achieved low inflation and steady growth before - though never for so long - only to see them slip away. They ask: what’s to prevent that happening again? A lot has changed in the past fifteen years. We now have an approach to setting interest rates which provides much better incentives for policy makers to take the right decisions. This - and the strong track record built up over the past decade - has stabilised expectations, with the result that it takes more to throw inflation off course. This is crucial insurance against the risks of a more turbulent decade ahead. A trickier issue - and one on which I want to spend some time tonight - is the vexed question of information. Statisticians get an even worse press than economists. But they are indispensable. Just as well run businesses need good management information, so successful monetary policy depends on having good information about the economy. The statistical fog surrounding the true state of the economy has proved a particularly potent breeding ground for policy errors in the past. Are we yet in sight of a clearer view? The policy framework But let me start first with the policy framework: what grounds are there for being confident that it provides the right incentives for policy makers to take good decisions? | 0 |
But, from what I gather as an observer from afar, there are a number of other factors, less tangible, which also contribute to that scepticism. I shall go through some of them with you, noting once again that perception from many miles away may indeed be quite different from reality. The first factor concerns structural rigidities, which appear to observers from my side of the world to be more serious in Euroland than in many other economies, big and small. The severity of these structural rigidities is seen to be undermining the ability and the efficiency with which Euroland can respond to change. Of course, we recognise that some loss of adaptability may be the price that has to be paid for a relatively stable society and a comfortable social safety net, and that the trade-off has effectively been arrived at through a democratic process. But it is hard to believe, as an outsider, that the trade-off is an optimal one. I cannot imagine, for example, what goal of social stability could justify labour market and social security arrangements that deliver an unemployment rate of double digits; or contribute to delaying, if not preventing, the arrival of the “new economy” in Euroland. I understand that some still do not believe that there can be a new economy, in which the technological revolution enables productivity gains that are capable of sustaining a much higher rate of non-inflationary growth. Of course, we should always question and critically examine any unusual phenomena, rather than embrace them blindly. | But, meanwhile, investors are putting their money where this unusual phenomenon is allowed, by structural flexibility, to be manifested in full force, notably in the United States. This is seen to be a factor contributing to the strengthening of the dollar and the weakening of the euro, and reinforcing the scepticism about the euro. One thing that we have learned from the Asian financial turmoil is that global financial markets, made highly efficient by financial liberalisation and the advance of information technology, have become rather intolerant about policy mistakes. Strengths as well as weaknesses are magnified in financial market behaviour to a disproportionate degree as a result of the explosion of international finance. What until recently were considered to be small aberrations in policy can now be brutally punished by the market. Even those who have been particularly prudent can be tossed around rudely, as market sentiment sways and, occasionally, succumbs to manipulative forces. So far, the emerging markets have been the ones affected, overwhelmed by international finance, perhaps to an unjustifiable degree relative to their economic fundamentals. Although they found the situation difficult to cope with at the time, most of them pulled through and are now recovering strongly. The one common quality that they possess, which is responsible for this rapid turn-around, is structural flexibility. The explosion of international finance is poised to continue, after the current lull, and will be made even more potent by further advances in information technology. | 1 |
It provides a clearly defined framework for guiding monetary policy decisions and for explaining these decisions to the public. Let me briefly recall the principal features of our strategy. First of all, the ECB has given itself a forward-looking, medium term-oriented strategy aimed at fulfilling its primary objective: price stability. The first element of the strategy is the quantification of what the Governing Council understands by price stability. This is defined as an annual increase of below 2% in the Harmonised Index of Consumer Prices (HICP) for the euro area. This definition serves to anchor inflation expectations and provides a framework against which the Eurosystem can be held accountable. It clearly emphasises the euro area-wide focus of monetary policy. Short-term fluctuations in the inflation rate are not under the control of central banks. Therefore, it was also announced that price stability is to be maintained over the medium term, imparting a medium-term orientation to the strategy as a whole. In order to fulfil its primary objective, the ECB's monetary strategy relies on two pillars. The first pillar assigns a prominent role to money. A central bank has a natural interest, but also a comparative advantage in analysing monetary developments, because money is - if I may say so - the central bank's "output". There is broad empirical evidence of a long-term stable relationship between money and prices and good leading indicator properties of money in the euro area. | Hence the balance of financing sources will eventually have to shift. Policy makers have recognised the need for broader private sector participation. Long-term investors such as insurance companies, pension funds and sovereign wealth funds can be alternative sources of financing, as the life cycles of infrastructure assets match their long-term liabilities. However, these investors are not participating actively enough in the infrastructure space, especially in debt financing. I am sure we all recognise that there are many reasons including a lack of familiarity with the asset class and bespoke nature of infrastructure projects. Some see higher perceived political risks in Asia, and a limited range of investment instruments relating to infrastructure. To catalyse broader private sector participation to complement the traditional bank lending space, a few things could be considered. Firstly, we recognise that investors have varying risk appetites, and that the expertise to evaluate and undertake greenfield project risks still resides mainly with banks. Banks should therefore consider bringing in different types of capital at different stages as the risk profile of a project changes over time. For instance, transactions could be structured such that banks finance the construction stage of projects using their balance sheets, and the bank loan is then refinanced in the bond market post-construction. This way, institutional investors gain exposure to a steady stream of cash flows from operating projects, while banks can recycle capital to lend to new greenfield projects. There have been precedents in other parts of the world. | 0 |
Figure 13 90-day delinquency rate (percent of loans) 6 12 Clearing houses and family subsidies (right axis) 5 10 4 8 3 Banks 6 Retail 2 4 1 2 0 0 11 12 13 14 15 16 17 Source: Central Bank of Chile using SBIF, SUSESO and SVS data. 19 Figure 14 Capital adequacy ratio by country (*) (percent) 30 30 Ireland Sweden 2017 26 26 Luxembourg New Zealand Norway 22 22 Denmark Germany France Czech Rep. Brazil Colombia Belgium Hungary Japan Switzerland México Peru Turkey Israel Canada Chile 18 14 U.S. U.K. 18 14 10 10 10 15 2011 20 25 (*) Dotted line marks 45-degree angle. Green diamonds correspond to Latin American countries (red for Chile). Source: Central Bank of Chile using IMF (FSI) data. | On the other hand, neither can we rule out a strengthening of copper supply and demand factors that would allow prices to remain high for longer, according to some market analysts. Regarding domestic activity, we expect GDP to gradually regain faster growth. Several local factors pose risks to this projection. For now, the lack of synchrony between different expenditure components persists, with sectors (especially investment-related) that still lag behind in the recovery process. Lower than expected short-term dynamism could threaten the robustness and sustainability of the recovery of growth in the medium term. In particular, because the improvement in the consumer and business confidence indicators owes more to expectations of better conditions going forward than to the present situation, and because the financial market, within a generally favorable scenario, contains segments of greater vulnerability in consumer and commercial credit. In contrast, borrowing costs remain at record lows and international conditions have been better than we anticipated, which could add momentum to investment and speed up its recovery. In this context, the Board estimates that the risk balance for both activity and inflation is unbiased. However, it reiterates its intention to monitor any possible downward deviations of inflation in the short term that could jeopardize its convergence to the target within the forecast horizon. Accordingly, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon. | 1 |
We have received good feedback on these proposals and will issue a final set of guidelines shortly. A less prescriptive regulatory approach requires that consumers be empowered through enhanced disclosure and education to make better-informed decisions themselves. This is particularly relevant in the current context of financial innovation which has spawned a growing array of retail products and services with enhanced distribution networks. MAS will work closely with industry associations and other public sector agencies to develop consumer guides and educational programmes to raise the financial literacy of consumers. We have also facilitated the development of industry-based mechanisms to offer consumers faster and more cost-effective ways to settle disputes with banks and insurers. The banking industry has set up a Consumer Mediation Unit and the insurance industry the Insurance Disputes Resolution Organisation. Enhancing organisational effectiveness The year was also eventful for MAS as an organisation, as we continued to build on our structure, systems, and people to better meet the challenges posed by a changing and uncertain external environment. We restructured the organisation to better integrate our supervisory functions, align resources with our objectives, and build technical and managerial depth. We stepped up efforts to enhance the skills and expertise of our staff, sending more of our staff on external attachments to financial institutions and supranational organisations, and putting in place a more systematic approach in functional training. The integration with the previous Board of Commissioners of Currency, Singapore (BCCS) was carried out successfully following the merger on 1 October 2002. | MAS has therefore re-centred its exchange rate policy band at the current level of the nominal effective exchange rate of the $ while maintaining a zero percent appreciation path and no change in the width of the policy band. Promoting key growth areas in the financial sector The weaker domestic and regional economic environment in the last two years has dampened growth in Singapore’s financial sector. Financial sector value-added contracted by 4.8 per cent in 2002 compared with a rise of 2.2 per cent in 2001. The banking industry was affected by weak loan demand. The insurance industry experienced a sharp decline in activity following three years of rapid growth. The securities industry was dragged down by falling equity market volumes and bearish market sentiment. But the weakness in overall financial activity masks strong performance in key growth areas such as asset management and treasury business. Total assets managed by Singapore-based financial institutions grew a healthy 12 per cent in 2002, bucking the global trend of a decline in assets under management. In the debt market, 2002 saw continued healthy growth in structured debt and a record number of issues by foreign entities. Singapore has also benefited to some extent from the consolidation of financial sector companies worldwide. Various institutions have chosen to centralise their regional operations in Singapore. For instance, in treasury, several global players consolidated in Singapore their regional foreign exchange and derivatives business. | 1 |
The Riksbank being able to stand for strength and security is crucial if we are to successfully meet present and future challenges. The Riksbank has a statutory independence to be able to take decisive action in difficult monetary policy situations and to be able to act effectively in the event of a crisis. It is important to safeguard this independence. But being alone is not strong. And this constitutional independence does not prevent us from actively working together with other authorities in Sweden and with international organisations. Cooperation is necessary not least to tackle climate change. Emissions are local but the effects are global. Other policy areas have more effective tools than central banks to reduce carbon emissions and limit further global warming. I believe that the analysis performed indicates that a global price on carbon should be at the top of the list of priorities in global negotiations. However, this does not stop the Riksbank, and other central banks, from using the means within our mandate to help. Today, I have discussed what the Riksbank is doing and will do in the years ahead in this area: we will continue to research and analyse the effects of climate change 34 Green bonds can be government bonds, intergovernmental bonds, municipal bonds and corporate bonds. Globally speaking, the share of green bonds as a proportion of the total stock is negligible. However, Sweden has been a leading country in green bonds. | Policy rates are already low in many countries, and several central banks have already made substantial bond purchases to support economic development. I think it is important to tackle this unease. The Riksbank still has a very good level of preparedness and plenty of scope to take decisive action in the event of financial instability, for instance, by providing liquidity support to financial institutions. In addition, the Riksbank has four main monetary policy tools at its disposal in the event of a sharp decline in the Swedish economy: a lower policy rate, bond purchases, loans to companies via banks and currency interventions. In addition, communication on forward guidance can be used, potentially in combination with other measures. If we were to be affected by a serious economic crisis, an expansion of our balance sheet would, in my view, be closer to hand than the introduction of an even more negative policy rate than the one we have had in recent years. To cut the policy rate below zero again is entirely possible – it is important that zero is not regarded as a lower bound. That said, however, there is a functional lower limit as to how negative the policy rate can be before the transmission mechanism deteriorates.12 I therefore consider that we should exercise caution with regard to reintroducing a negative policy rate, and that the effects of this should be weighed against the advantages and disadvantages of extended bond purchases and other monetary policy tools. | 1 |
In this particular case, I think the open nature of the EU economy sets very serious limits on the proposal’s potential impact on the collection of tax, since the same scope for avoiding tax would continue to exist outside the EU as it does at present; and it seems unlikely that countries outside the EU area would voluntarily follow the same policy. So I think there is a very real danger that legitimate business would relocate, not just outside London, but outside the EU, thus further undermining any economic rationale for the proposal. This does not mean that work should not continue to see whether there are amendments to the scheme that could satisfy the interests of all the parties involved. But the Bank continues to believe that it is important to avoid any scheme that would damage EU financial markets. Turning to equities, I expect to see growing emphasis on analysis and investment according to European sectors, not countries. Thus you would expect to see investment banks’ research departments focusing more on pan-European sectors, rather than dividing their teams on national lines. In many firms this is happening already. More generally, I think we can expect to see greater “equification” in continental Europe. In the UK, the equity market’s capitalisation is around 165% of GDP. Among the “ins” it is generally much lower: in Germany and Spain it is perhaps 35%, in France 40% and in Italy 25%. Only the Netherlands really stands out, at around 130%. | But even if there is substantial disintermediation, it does not mean that banks will cease to be dominant players. My point is just that as euro securities markets develop and deepen, more of the finance banks arrange will be off balance sheet. I’m inclined to think also that we will see further consolidation within the European (and indeed global) banking sectors, though I think that will not primarily be a function of the euro, and is something I will touch on in a minute. Now, all these developments offer opportunities for financial services firms globally. This is not a zero sum game. I expect to see financial centres within the euro zone growing in size over the next few years. But London will grow too, and I think it is significant that many of these potential developments depend on market practices and techniques pioneered in London. BIS Review 43/1999 4 I see London as the engine for growth and innovation in the European capital markets. This is not a narrow parochial point. As I have already emphasised, UK financial services are highly internationalised and many of the UK–based beneficiaries of this process are owned elsewhere – in the US, Europe, Asia and elsewhere. Nor does it reflect complacency. | 1 |
Norges Bank will actively pursue profitable solutions in the best interest of all the parties concerned. Payments should become faster Norway’s efficient payment system is a competitive advantage for the Norwegian business sector. This is positive, but there is no room for complacency. Other countries are catching up and may be ahead of us in some areas, in particular in terms of real time payments and the infrastructure for mobile payments. We have a job to do here. The Norwegian banking industry has collectively developed a payment solution where money is immediately received by the payee, so-called instant payments. A common system offers several advantages: The solution is cost-efficient and ensures fast payment services for customers. All banks and their customers can use the solution and it is not owned by an individual private market participant. Yet, to date, few banks offer instant payment services. This may be due to technical factors, or because mobile apps need to be more user-friendly. It may also be that the competition among participants to promote their own solutions is ultimately an obstacle to an overall efficient infrastructure. Competition is best pursued in the area of customer interface. In our neighbouring countries Sweden, Denmark and the United Kingdom, the situation is different. There has been broad cooperation in the area of instant payments in those countries. Banks have been engaged in developing common solutions – not only in the development phase, but also in the application phase. In all these countries, instant payments are widely used. | Mr Bäckström discusses international financial stability Speech given by the Governor of the Sveriges Riksbank, Mr Urban Bäckström1, at a seminar at the South African Reserve Bank in Pretoria on 9 August 1999. * * * Introduction Financial stability is a topical subject in the light of events in the past decade – years that saw financial problems in a number of European countries as well as in Mexico and Asia, the devaluation of the rouble and suspended payments in Russia, considerable turbulence in western financial markets and financial unrest in Brazil. The crisis in the international financial system developed, to cite President Clinton, from being “just a few small glitches in the road” into “the worst financial crisis in fifty years”. The problem is that crises will always be intrinsically difficult to forecast. Recall that the scale of the Mexican crisis in 1994 was foreseen by very few. In South-East Asia the onset, duration and scope of the recession were all missed by the forecasting community. In the last spring, no one had anticipated the extent of the turmoil in financial markets that would be generated by the Russian devaluation and moratorium. The ways in which rising credit spreads led to losses by highly leveraged investors, liquidity shortages and the virtual drying-up of some markets were generally not foreseen. The track record shows that there are many things we do not understand and cannot predict. | 0 |
MAS is involved in discussions at the Financial Stability Board, the Basel Committee on Banking Supervision and other fora to consider proposals to strengthen the regulatory framework. Let me highlight two key areas of focus: regulatory capital framework and liquidity risk management standards. The crisis occurred on the back of aggressive risk taking and leveraging. Risks had been under-estimated and in many cases, financial institutions were over-reliant on external credit ratings and on quantitative models. Risks were built up both on and off the balance sheets of banks. When these started to materialise, the de-leveraging effects and the steep fall in asset prices resulted in liquidity seizures in asset and funding markets. This caused major losses and writedowns of bank capital. In many cases, costly government intervention was needed to keep the financial institutions from failing. To improve the resilience of banks, global regulators have agreed to raise the levels and quality of bank capital. Additional capital for trading book and for securitisation risks will be needed. There are on-going discussions on establishing a framework for countercyclical capital buffers and raising the quality, consistency and transparency of the Tier 1 Capital base. Other supplementary tools to contain the riskiness of banks, such as a leverage ratio are also being developed. To address liquidity concerns, regulators are considering the introduction of a minimum global liquidity standard that includes a stressed liquidity coverage requirement underpinned by a longer term structural liquidity ratio. | Caleb M Fundanga: The effects of the crisis on Africa Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the African Economic Research Consortium Senior Policy Seminar (SPS XI), Lusaka, 6 April 2009. * * * The Executive Director, African Economic Research Consortium; Government and Central Bank Officials present; Distinguished Participants; Members of the Africa Economic Research Consortium; Ladies and Gentlemen. It is with great joy and gratitude that I welcome you all to Zambia and to this seminar. I wish to extend a warm welcome to all the international participants. I hope you will have a good stay in our beautiful and friendly city of Lusaka. I feel particularly honoured and grateful to officiate at this important seminar organized by the Institution I am proud to be associated with, the Africa Economic Research Consortium (AERC). Chairperson, let me begin by thanking you and AERC for choosing Zambia to host this important seminar. I am aware that since its establishment in 1988, the AERC has played a pivotal role in developing and harnessing resources in Africa both informational and human capital. Research, workshops and seminars such as this one have helped to strengthen the capacity of undertaking policy–relevant research into the problems facing the management of economies in sub-Saharan Africa. It has, through these interventions, undoubtedly contributed to the positive strides African economies have scored in the last decade with regard to economic governance and development. | 0 |
The fact that this would happen is something we have foreseen for a long time, although not that it would happen as soon and as quickly as it actually has. This has also led to the forecast for productivity for the whole of 2007 being lowered as early as June. But I did not see any reason to change the forecast for productivity for coming years; my assessment was still that productivity would recover. This was because I viewed the slowdown in productivity as temporary. But productivity is a factor that is difficult to assess – there is a risk that the slowdown will be prolonged and lead to stronger cost pressures. This was one of the risk factors we noted in the June Monetary Policy Report. The assessment in September was that food prices would contribute to higher inflationary pressures than we had previously anticipated. If we look at how inflation has developed in recent months, the forecasts from June have been relatively accurate. In August inflation was actually completely in line with the forecast, although it had been slightly higher earlier in the summer than we had forecast in June. The assessment we made in September was that economic activity in Sweden actually looked slightly stronger than we had anticipated in June and that cost pressures had risen. We therefore decided to raise the repo rate to 3.75 per cent. This could in itself also motivate a slightly higher interest rate path. | However, I should also underline the progress in institutional and legal framework, such as the introduction of the Public Fiscal Management and Control Law, the Public Procurement Law and the multi-year budgeting framework. Three year inflation targets that are compatible with the three-year budgeting practice are also one of the good examples of coordination between fiscal and monetary policies. Another pillar of better economic governance is financial stability. A stable and healthy financial system is the key to sustainable growth through allocating savings to the real sector BIS Review 38/2008 3 in a country. Law defines financial stability as the auxiliary objective of the Central Bank of Turkey. Establishment of the Banking Regulation and Supervision Agency, successful implementation of The Banking Sector Restructuring Program and the New Banking Law that brought the legal framework with best international practices were the milestones of legal and institutional reform in the financial sector. No need to say that the improved macroeconomic framework through successful monetary and fiscal policy implementations also contributed much to financial stability. Last but not least, I should say that there is also an effective cooperation among the Central Bank of Turkey, the Banking Regulation and Supervision Agency, the Undersecretariat of Treasury, the Capital Markets Board and other public authorities and also with private sector representatives. The fourth and the final set of actions that has been undertaken towards better economic governance is structural reforms. | 0 |
Hence MAS, as the statutory regulator, will be in a better position to aggregate and review different pools of information in the activities across exchanges and market sectors to anticipate possible risk and to investigate potential misconduct and market abuses. 33. Advancement in technology, particularly in the field of data analytics, has brought about enhanced surveillance techniques. In terms of capacity building, the MAS will enhance our analytics and thematic studies of big datasets to detect hitherto complex patterns, for potential market misconduct and abuses. 34. What all these mean, is that in each market, both the exchange and MAS will be looking out for potential risks, albeit based on different parameters. This will increase the robustness of the overall oversight of market activities. Robust enforcement and market discipline 35. These enhancements to our surveillance efforts will complement, in a significant way, our enforcement actions against market misconduct. The objective is on early detection as well as to support more expedient investigations and tough enforcement actions. This will also augment our toolkit to combat misdemeanors such as market manipulation and insider trading. 36. MAS has and will spare no effort to investigate any serious market misconduct and to take appropriate enforcement action. This is not always an easy task because investigations into market misconduct often involve complex and large scale relationships, which will necessitate considerable investigation resources. Market misconduct is often perpetrated by multiple parties, some of whom may be outside our jurisdiction. | As a statutory regulator, MAS will remain primarily responsible for the supervision of intermediaries who are our licensees in areas of capital and reserves, business conduct, antimoney laundering & counter terrorist financing (AML/CFT) and operational resilience. These are areas which have been stipulated in our regulations and notices, and are statutory obligations to be complied with. Starting from this year, MAS will no longer require exchanges to inspect their members in these areas as long as the entities are licensed by MAS. In other words, MAS will effectively be the “lead regulator” in these areas. 27. The need to form a separate SRO at this juncture for the purpose of member supervision is in our view, not compelling. It is unlikely to be an efficient model given the size of our market. In fact, it may require greater coordination since there will be more parties involved, namely MAS, the exchanges and yet another SRO. 28. The exchanges will remain responsible for areas affecting their respective market operations such as those relating to the priority of orders on a trading floor or risk management rules on margin requirements. In other words, these are business rules which members have to comply with, and may differ from exchange to exchange. Exchanges will need to supervise their members for compliance, in accordance with the risks these members pose to the markets or clearing houses, and undertake disciplinary proceedings for members who breach their rules. 29. | 1 |
My first speech as Governor – in 2003 – was also in the Midlands. In it, I talked about the non-inflationary consistently expansionary – or “nice” – decade from the early 1990s to the early 2000s. I argued that the next decade was unlikely to be as nice because, and I quote, “when shocks, as they will, hit our economy it is almost inevitable that there will be somewhat greater volatility of both output and inflation than the remarkable stability to which we have become used in recent years”. I certainly did not anticipate the scale of the downturn in the world economy that followed the collapse of the banking system in 2008. But I did point to the need for a rebalancing of demand in the UK economy because, as I said then, “the strategy which the MPC has pursued in recent years – stimulating domestic demand to compensate for weak external demand in the face of a strong exchange rate – carries the risk that there could be a sharp correction to the level of consumer spending at some point in the future”. BIS Review 136/2010 1 The counterpart to strong consumption in the past was low saving. Having averaged close to 20% in the 1960s and 70s, gross national savings fell to just 12% of income in 2009 – the lowest since the War. This was all the more remarkable because one might have expected saving to increase as life expectancy rose. | Recently, inflation has been high and volatile. It is currently above our 2% target. And the aim of the MPC is to bring it down. But as demand rebalances, we should expect some volatility in inflation as well as in the path of output. During 2008, CPI inflation rose to a peak of 5.2%, fell to a low of 1.1% in 2009, before increasing again to stand at 3.1% now. Those movements have mainly reflected changes in VAT, volatile energy prices and pass-through from the past exchange rate depreciation. Together they have pushed up on measured inflation. Though uncomfortable, it is not surprising that inflation has been more volatile than during the nice decade. In 1998, before he joined the Bank, Charlie Bean estimated that the normal variation in the economy would lead inflation to be more than 1 percentage point away from target for around 40% of the time. And in the past three years, inflation has been more than 1 percentage point away from target in 17 months, or 47% of the time. Yet that was a period BIS Review 136/2010 3 of extraordinary volatility in the economy and at the same time we managed to absorb a 25% fall in sterling’s effective exchange rate, something that historically would have created far more serious inflationary problems. The key question is whether the current inflation rate signals that inflation will persist above target. | 1 |
Svein Gjedrem: Globalisation and monetary policy in Norway Address by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at the Nordic CFO Seminar, Stockholm, 10 May 2006. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 26 April, Inflation Report 1/06 and on previous speeches. Please note that the text below may differ slightly from the actual presentation. The Charts in pdf-format can be found on the Norges Bank’s website. * * * Thank you Madame Chair, Let me first say that I am glad of this opportunity to address you on the issue of globalisation and monetary policy in Norway. Effects of increased globalisation The term globalisation can mean different things to different people, but today I refer to the growing interdependence of national economies as reflected in greater and freer flows of goods, services, capital and even labour across national borders. The globalisation process has accelerated over the last 15 years through increased trade liberalisation, political changes, technological advances, and a sharp reduction in transaction costs. As illustrated in this chart, cross-border flows of goods and capital are growing at a markedly faster pace than world production. These developments present challenges to monetary policy. Financial imbalances have been building up internationally as a result of a strong rise in cross-border capital flows and foreign asset ownership. In Norway, we are facing a significantly changed terms-of-trade pattern. | One important feature of the current globalisation wave is the integration of China, India and other emerging economies into the world trade system. This development has been strongest in China, whose share of world exports is growing rapidly. The countries within the Commonwealth of Independent States (CIS) have also increased their exports markedly since the early 1990s. India is at the starting-line. Many of these economies have large labour forces that offer their services at very low wages, and these labour resources are available to companies that compete on world markets. Low labour costs and more efficient transport and communication attract labour-intensive production. Production of goods and services is being transferred from high-cost countries to countries like Estonia, Latvia, Poland, China and India. This shift in the international division of labour is now influencing real wage growth in industrialised countries. The risk that a business will have to wind up operations or move abroad is dampening cost pressures, as bargaining power is being transferred from workers to employers. In a number of European countries, wage growth is also being influenced by increased labour inflows from the EU accession states. As Scandinavian consumers, we are benefiting from falling prices for many imported goods. Lower import prices are also ascribable to a shift in our imports towards a higher share of imports from lowcost countries. The change in clothing prices in Norway may serve as an illustration. | 1 |
I expect we’ll see the value of cognitive diversity as firms tackle complex problems like a digital transformation from multiple perspectives. I expect we’ll see the value of agility that facilitates product innovation, reprioritization, constructive partnerships, or the successful integration of financial market specialists and technologists. Finally, I expect we’ll see the value of well-crafted incentives where employees are rewarded based on both “what” they do and “how” they do it. More broadly, I think firms with high levels of “cultural capital” will be more likely to successfully implement a digital transformation in a sustainable, prudent and responsible manner. 6 This is a central question for risk managers and supervisors because the evidence suggests that most large-scale transformations fail.7 Just like firms, investors and supervisors consider execution risk when assessing bank mergers, I expect more attention will focus on culture and the change management risks associated with innovation and digital transformation. In my view, the official sector can facilitate this transition. The 2018 guidance on responsible innovation related to anti-money laundering and terrorist financing is a good example.8 Supervisors can also press on the governance and change management framework to promote effective internal oversight. From our perspective, supervisors also need to be nimble and develop the necessary skills to assess innovation as firms transform. While a firm’s culture is not directly observable, I believe this will prove to be a critical part of any change initiative. | Technological progress, innovation, and new models of competition are changing the financial industry and there will undoubtedly be winners and losers. Understanding all of the factors that drive successful transformations will be a critical insight for both risk managers and supervisors. Conclusions 3/4 BIS central bankers' speeches The financial sector is large, complex and constantly evolving due to a wide range of technological, business, and macro factors. Your job, and ours, is to be vigilant and open-minded in our thinking, constantly questioning our traditional assumptions and scanning the horizon to understand how the risk landscape is changing. The topics covered at today’s conference are some of the most important risks that the industry faces. Climate change and digital transformation are two powerful trends with the potential to fundamentally change financial services. We all need to be forward-looking and proactive in order to promote our ultimate goal of a safe and sound financial system that supports the sustainable provision of financial services and economic growth. Thank you for your attention. 1 NOAA National Centers for Environmental Information (NCEI), Billion-Dollar Weather and Climate Disasters (2019), National Oceanic and Atmospheric Administration. 2 The Impact of Higher Temperature on Economic Growth, Riccardo Colacito, Bridget Hoffmann, Toan Phan and Tim Sablik, Economic Brief, August 2018, No. 18–08; Climate Change and the Federal Reserve, Glenn Rudebusch, FRBSF Economic Letter, 2019–19, March 25 2019; Fourth National Climate Assessment, Volume II: Impacts, Risks and Adaptation in the United States, U.S. Global Change Research Program. | 1 |
With the improved access of consumers and businesses to financial products and services, consumer education on financial matters is an important priority for the Central Bank. Consistent with the belief of the importance of instilling financial awareness at an early age, Bank Negara Malaysia introduced a pocket money book to inculcate smart financial management habits 4 BIS Review 64/2004 among students in 1996. The programme also included Household Account Books to assist families in the management of household income, savings and investments. This was distributed to cover a wider group, including women, teachers and workers. Following this, in 1997 together with the Education Ministry, the Central Bank embarked on a School Adoption Programme. Through this programme, more than 7000 schools have been adopted by banking institutions to play a leading role in educating school children on basic financial knowledge. In October this year, an online interactive version of the Pocket Money Book to be used in the School Adoption Programme was launched. The Central Bank of Malaysia has also laid out a blueprint known as the Financial Sector Master Plan that charts the development of the Malaysian financial system over a ten year period commencing in 2001. A key component of that plan is the 10-year Consumer Education Programme for the banking and insurance sectors. This programme is known as BankingInfo and InsuranceInfo, and was launched in 2003. | The most outstanding development of the past several months has been the attenuation of some of the BIS central bankers’ speeches 1 inflationary risks then identified. International commodity prices ceased to increase and the propagation of specific price shocks has been limited. This and monetary policy decisions have collaborated to ease fears of a further inflationary acceleration that we felt in March. Accordingly, private inflation expectations show a decline in the last two months, although some remain above the target (figure 2). First-quarter data showed a fast expansion of domestic output and demand, exceeding March’s expectations. Partial indicators for the second quarter reflect an economy that continues to grow strongly but shows some recent moderation. Worth noting is the strong dynamism of private consumption and, to a lesser extent, the machinery and equipment component of investment. Consumption evolves in line with fundamentals, particularly the increase in household income, given that both employment and wages continue on the rise. Financial conditions are still favorable. The baseline scenario assumes that GDP will grow this year between 6 percent and 7 percent. This range is higher than foreseen in March, consistently with the upward bias then identified. This higher growth forecast is based on actual first-quarter figures that exceeded estimates. For the rest of the year, the pace of expansion of demand will moderate as forecast in March. In particular, the speed of growth in the GDP of sectors other than natural resources will quickly approach the trend rate, which is still estimated at five percent. | 0 |
We must not forget this, neither today nor at any time in the future, not only to valorize the past, but also to be able to make now our contribution to the future of our authentic story. What is more, we must never forget that we have an obligation to continue the story in this chapter, because as Stefanovski said, "identity is both work and responsibility." It is the work and the responsibility that have been the exact postulates of the National Bank over the past thirty years. A lot of work, with full commitment, independence and professionalism in overcoming challenges and achieving goals under various, not always easy circumstances, in historical turmoil and milestones. Not only as an occasion, but essentially we must keep reminding ourselves where we started off thirty years ago. At the beginning of this crucial monetary chapter of our story we started with almost zero foreign reserves, hyperinflation which in 1992 reached close to 1700%, recession, permanent depreciation of the domestic currency and general macroeconomic instability. The effect of all this was experienced by the citizens 1/4 BIS - Central bankers' speeches and all stakeholders in the economy, which was flagging until 1996. We must never forget it, because when the memory of historical events is lost, the potential for critical observation and making the right decisions in the present moment is lost as well. But we do remember! | In this respect, we should learn from the unsatisfactory outcomes that have emerged in some of the more developed markets where product disclosures can run into 60-page documents, which no one can reasonably expect an average consumer to read, let alone understand. Ultimately, the purpose of disclosures must be to help consumers understand the risks associated with different product options. In this context, more information is not necessarily better. The quality of information and financial capability of consumers must be enhanced in tandem with improved disclosures. Of course, increasing product innovations also need to be matched by strong risk and portfolio management capabilities critical to ensure the long-term sustainability and viability of the products offered in the market as well as the financial soundness of insurance companies. The operating landscape in which we operate has also changed significantly. Convergence in financial services has blurred the boundaries between insurance, banking and capital market activities. In this environment, financial sector regulation and supervision has become significantly more challenging. The increasing linkages between insurance and the banking systems as well as capital markets have increased the importance of achieving a harmonised regulatory approach and standard across sectors to minimise possibilities of regulatory arbitrage between different types of institutions. Under such environment, the approach towards regulatory and supervisory framework also has to evolve in tandem with the change in the environment. Recognising these dynamic changes, Bank Negara Malaysia took efforts to strengthen our regulatory and supervisory capabilities as well as sharpen our focus. | 0 |
Since July 2007 the ECB has estimated daily yield curves reflecting the implied market remuneration rates of euro area central government bonds for residual maturities ranging from 3 months to 30 years. These curves help to gauge market expectations regarding economic and financial activity, as well as being used for monetary policy purposes. The curves are presented in a very user-friendly way, using the latest web technologies. 4 4. The available monthly statistics on outstanding amounts of Short-Term European Paper have been supplemented with daily statistics on yields. This has enabled the ECB to ensure transparency while respecting the confidentiality of individual price or yield data. 5. The external statistics of the ECB now provide separate data for Brazil, Russia, India, mainland China and Hong Kong as counterparts. Moreover, they also show the quarterly changes in the overall external position of the euro area, broken down into transactions, exchange rate changes, asset price changes and other changes. 5 1 See http://www.ecb.europa.eu/stats/money/interest/interest/html/interest_rates_2007-12.en.html. 2 An updated overview of all available ECB statistics has recently been http://www.ecb.europa.eu/pub/pdf/other/ecbstatisticsqualityframework200804en.pdf. 3 See “The introduction of quarterly sectoral accounts statistics for the euro area” in the November 2007 issue of the ECB’s Monthly Bulletin; “Recent developments in the household and corporate sectors: information from new quarterly euro area sector accounts” in the June 2007 issue of the ECB’s Monthly Bulletin; and “New estimates on holdings by sector for euro area M3” in the December 2007 issue of the ECB’s Monthly Bulletin. 4 See http://www.ecb.europa.eu/stats/money/yc/html/index.en.html#data. | Given the concentration of growth and development in emerging economies, going forward, the extent of underinsurance is a concern. In many of these economies, efforts are being aggressively pursued to increase awareness of the importance of insurance protection in helping one manage risks, and to develop an effective insurance market to meet these needs. The insurance industry in Malaysia currently stands at crossroads of implementing important reforms being introduced by Bank Negara Malaysia both in the general and life insurance sectors. The objective of the reforms is to further enhance the competitiveness of the industry, ensure its continued resilience, and encourage greater innovation in solutions offered for households and businesses to better manage risks. To this end, two aspects of the reforms are significant. The first is the progressive strengthening of prudential standards that aim to improve underwriting and risk assessment capabilities within insurance companies, while substantially strengthening incentives for insurers to differentiate themselves in the market. The second is the structural changes that are being introduced to reduce market distortions and drive efficiency improvements. Beyond domestic borders, the Bank also continues to pursue further liberalisation in the cross border provision of insurance in certain sectors, such as the Marine, Aviation and Goods in International Transit (MAT) sector, both to enhance capacity and reduce costs for businesses. This is primarily being advanced under regional integration plans, focusing in particular on ASEAN. | 0 |
5 And in the next few years, these current account surpluses are likely to remain high and the build up of foreign assets by governments in oil exporting and Asian countries is likely to continue. According to the IMF’s forecasts, the combined current account surplus of China and oil-exporting countries will be around $ billion over the next 3 years. And the IMF estimates that sovereign wealth fund assets could grow to $ trillion within the next 5 years. The impact of SWFs on financial markets These are huge numbers and SWFs have become prominent and important players in many financial markets. But we should not exaggerate their impact on the global financial system. In aggregate, their assets under management are currently only less than one-twentieth of those held by private sector participants such as pension, insurance and mutual funds as well as hedge funds and private equity (Chart 4). And they account for about 2% of the total size of equity and bond markets globally. Even in five years time – and on some of the fastest growth projections – assets under management by sovereign wealth funds are projected to reach only about 6% of global financial assets. 6 Moreover, though they have more assets under management than hedge funds they have smaller investments since they are not leveraged. 7 It is not difficult to identify positive effects on the world’s capital markets. Sovereign wealth funds have long investment horizons and generally have no commercial liabilities. | Pension funds – reacting with moderation and flexibility Ladies and gentlemen, the pension funds have not been idle in the last few years with regard to the challenges mentioned. As pension fund managers, you have shown moderation and great flexibility in initiating various measures to bring your pension funds’ income and expenditure into equilibrium over the long term as well. On the investment side, the exposure to fixed-income instruments has been reduced – given the persistently low interest rates – in favour of equities and real estate (cf. chart 4). Furthermore, the pension funds have again become more active abroad, and are keeping their liquid assets to a minimum. Indeed, liquidity as a share of total investment assets is currently at a historic low (cf. chart 5). You have also had to take action on the benefits side in order to balance income and expenditure over the longer term. These cuts are painful and have been directly reflected in people’s insurance certificates. One example is the sharp reduction in the conversion rate for non-mandatory cover. 8 Moreover, the technical interest rate 9 has been lowered by 40% in the last ten years. This took account of the probability that income from the ‘third contributor’ would also be greatly limited in future. | 0 |
You will find our detailed explanatory evaluations regarding the base effect and its effects on 2010 inflation outlook in a box under the third chapter of the Inflation Report to be posted on our website shortly. I strongly recommend that you read these evaluations carefully. The fact that inflation is expected to stay at elevated levels for some time due to tax adjustments and strong base effects highlights the importance of expectations management. In this respect, with the awareness of these temporary factors, it is critical that economic agents focus on the medium-term inflation trend, and therefore, take inflation targets as a benchmark for their pricing plans and contracts. I would like to emphasize once more that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, assumptions regarding future policy rates underlying the inflation forecast should not be perceived as a commitment on behalf of the CBT. 4. Risks Distinguished Members of the Press, In the last part of my presentation, I would like to talk about the risks with respect to the inflation outlook in the upcoming period and provide some information pertaining to the probable monetary policy strategy should these risks materialize. The outlook for the domestic economy and the risks thereto has been largely shaped by global developments in line with the intensification of the global crisis as of the last quarter of 2008. | We have limited experience to indicate how the interest rate at the current low level will affect output and prices over time. If growth in household demand proves to be stronger than expected, the interest rate may be raised to a higher level and more rapidly than currently envisaged. BIS Review 139/2009 11 Fiscal policy is expansionary this year, and according to the National Budget for 2010, fiscal policy will provide further, albeit milder expansionary impulses to the economy next year. Under the fiscal rule, the government budget deficit should be reduced to about 4 per cent of the capital in the Government Pension Fund – Global when activity in the economy has resumed a normal level. Norges Bank’s projections are based on the technical assumption that the structural, non-oil budget deficit in 2011 and 2012 will remain unchanged from the level in 2010. If growth in the Government Pension Fund – Global is lower than in previous years, the deficit will still be more than 4 per cent of the Fund’s capital, even after capacity utilisation has risen to a normal level. If economic developments are broadly in line with projections, fiscal policy conducted in accordance with the fiscal rule could result in a lower interest rate and a weaker krone than projected. Unemployment is high in many countries. Unemployment in Norway has not risen as sharply as previously projected. The number of registered unemployed was 2.8 per cent of the labour force in October, unchanged from September. | 0 |
During the period when the objective of monetary policy was a stable exchange rate against the euro, the difference between Norwegian and German long-term interest rates was about ½ percentage point less than it is today. The difference between Norwegian and Germany 10-year forward rates widened by about ½ percentage point after the introduction of the inflation target. This indicates that the market previously assumed that in the long term price inflation in Norway would be on a par with that in the euro area, i.e. around the ECB’s objective of less than 2 per cent rate of increase in prices. The members of Norges Bank’s Executive Board are collectively responsible for the Bank’s decisions. The Executive Board meets every three weeks. At every second meeting, the Executive Board discusses monetary policy in depth. Decisions regarding changes in the interest rate will normally be made at these monetary policy meetings. The Executive Board discusses the economic outlook at a separate meeting three weeks before the Inflation Report is presented. On the basis of preliminary projections for the report, the Executive Board assesses the outlook for inflation two years ahead and the uncertainty surrounding these projections. The following day, the Executive Board summarises its discussions and assesses the consequences for monetary policy for the next four months. This assessment constitutes an important internal reference when the Executive Board later makes a decision regarding the interest rate. It will also provide the basis for our external communication through speeches and the media. | It is rather a time when we should be having some fun, watching both our ladies’ football teams from the Ndola and Lusaka offices battling it out on the battle field. Thereafter, it will be the turn of the gentlemen to break a sweat in friendly combat. We naturally expect that when the opportune moment is presented, commercial banks and other invited entities will also produce teams comprising ladies and gentlemen – after all the Central Bank of the Republic of Zambia will soon be showing you precisely how it is done. It is now my honour and privilege to officially launch the commencement of 50th anniversary celebrations of central banking in Zambia. Please enjoy yourselves. I THANK YOU. 2 BIS central bankers’ speeches | 0 |
Without those prerequisites, there is a significant risk that innovative and valuable datasets would be underutilized because their availability is not widely known, their reliability is inadequately evaluated and documented, and their use proves too costly, requiring large time investments by each user. In my view, effective data utilization therefore cannot be achieved without adequate recognition, funding, and support of a data steward role. Subject matter experts serving as data stewards have a number of important data management responsibilities. A primary one is the production of detailed documentation of the data sources and content. Such documentation is vital for preserving institutional memory, which can be lost when key personnel leave, and it needs to be updated regularly. This documentation also includes the creation of higher-level metadata that can help potential users determine the applicability of the dataset to their specific needs. Data stewards play an important role not only in documenting the provenance of the data but also 4 BIS central bankers’ speeches in evaluating the quality of the data, to determine whether it can be trusted for different purposes. The availability of rich documentation on data lineage and usage, combined with high-quality user support, will reduce learning costs for users, lighten the question-and-answer workload for data providers, and promote the efficient allocation of resources. | Survey of Consumer Expectations So a second important example of data innovation at the New York Fed is the Survey of Consumer Expectations, which we introduced to the public just last month. Consumer expectations of future economic outcomes are crucial inputs to the policy process, but we felt that our standard measures of these expectations were quite limited. The primary goal of this new national survey is to collect timely, rich, and high-quality information on consumer expectations about a wide range of household-level and aggregate economic and financial conditions. The survey covers expectations about inflation, price changes for specific goods, home price changes, future wage growth, future quits and layoffs, and residential mobility, as well as expectations of household income, spending, taxes, and credit access. The SCE has two advantages over existing surveys of expectations: It collects information about consumers’ expectations and decisions on a broader range of economic and financial topics, and it does so in a way that captures respondents’ beliefs more fully. The objective is to measure an individual’s beliefs about the likelihood of future outcomes, thereby capturing how certain or uncertain the person is about future events. In some cases, we do this by eliciting a “density forecast,” where respondents are asked to assign a percent chance to BIS central bankers’ speeches 3 different values (or intervals) for the outcome of interest. | 1 |
Despite the fact that the card industry has developed new, secure ways of making card payments over the web, the survey we have conducted shows that the majority of people still reveal sensitive card information in connection with purchases. According to the survey, only 18 per cent of web purchases were made using the safe solutions for card payments that are available. In as many as 71 per cent of the transactions over the Internet, the customers revealed their card numbers without using any additional safety measures. This is a major source of the card fraud that occurs over the Internet. The Ministry of Justice is currently considering a new proposal on the regulation of unauthorised transactions. This aims to clarify how responsibility for a loss should be divided between the customer and the bank in the event of fraud. New limits for the customers’ deductibles and right to compensation are also proposed. In order to determine how large a part of the loss the customer should be responsible for, it will be necessary to assess how negligent the customer has been. The customers must therefore be informed of the definitions of the different degrees of negligence. If the customers are unclear about the 6 4 Speech by Lars Nyberg (2008): “Paying is expensive – are we using too much cash?”. BIS Review 7/2010 rights and obligations they have, this will probably lead to fewer of them wanting to use cards in the future. The new regulation will increase the cardholders’ responsibility. | Reflecting the predominance of private-to-private flows since 1990, today sovereign foreign debt often represents only a relatively small part of maturing debt in crisis cases. Most maturing debt is owed by private borrowers and/or is locally issued. G Third, the context has been fundamentally altered by broad institutional change. Accounting, regulatory, technological, communications, and structural market changes have fostered an environment characterized by mark-to-market accounting and much more liquid and actively managed balance sheets. Investors are focused on financial performance, and on their fiduciary responsibilities to their largely private clients and shareholders, rather than on long-term strategic relationships with sovereigns. Today this is as true for banks, which remain important providers of credit, as it is for other providers of capital. G Last, the new environment entails new and complex linkages - - between domestic and international markets, and within and across countries - - reflecting the internationalization of local banking, equity, debt, and currency markets, and the greater complexity of funding structures. G This new environment has important implications for policymakers and market participants alike. Let me comment on just a few: G On the negative side, crises are more complex and unfold much more quickly and with surprising dimensions. Variable and often highly interdependent cross-market developments are often critical in the evolution of a given case and its implications for others. Indeed, many of the more recent crises were triggered by problems in domestic banking, currency, and debt markets that then spread to the capital account. | 0 |
The inflation target for monetary policy, the fact that the Riksbank now has statutory independence and the fact that we now have sound public finances, a budget ceiling and balance targets for fiscal policy – all of this has contributed to much greater stability in the economy than we had in the 1970s and 1980s. The current regulations mean that economic policy as a whole can never seriously clash with the monetary policy target in the way it actually sometimes did during the period with a fixed exchange rate regime. Both public authorities and banks also learned a lot about financial stability during the crisis in the 1990s. The Riksbank now has an organisation that continuously analyses the stability of the financial system and maintains a preparedness to act in a potential crisis situation. This gives us the opportunity to detect and counteract at any early stage any changes and vulnerabilities that could lead to a serious crisis. It also makes it easier to manage the problems if a crisis were to occur. The experiences of both the Riksbank and others have definitely given us better resilience to the current global financial crisis than we would otherwise have had. There are several reasons why we now have greater credibility and better conditions to do our job efficiently. One is most probably that openness and clarity have long been, and still are, of central importance. | Pål Longva: Report from Norges Bank Watch Remarks by Mr Pål Longva, Deputy Governor of Norges Bank (Central Bank of Norway), on the Centre for Monetary Economics' (CME) assessment of the Norges Bank's conduct of monetary policy, published in its Norges Bank Watch Report Series, Oslo, 1 March 2023. *** In February/March each year, the Centre for Monetary Economics (CME) presents a report commissioned by the Ministry of Finance on Norges Bank's activities. A committee of independent economists assesses Norges Bank's conduct of monetary policy. The reports are published by the CME in its Norges Bank Watch Report Series. First, I would like to thank this year's committee for an excellent report. Such an annual assessment is highly useful. I would also like to thank the Centre for Monetary Economics for hosting the event and for the opportunity to comment on the report. The committee supports the monetary policy decisions taken in the course of 2022. Our communication is described as open and clear. At the same time, they would like for us to be clearer in communicating our views on the fiscal policy stance. In Norway, there is a clear division of roles in economic policy. The people's elected representatives are responsible for fiscal policy. Norges Bank sets monetary policy in order to best fulfil the mandate the people's elected representatives have assigned to it. Norges Bank Watch notes that in certain situations, fiscal policy could be more effective than monetary policy in lowering inflation. | 0 |
The policy rate hikes already implemented are being transmitted forcefully to the euro area financing and monetary conditions. However, the lags and strength of transmission to the real economy remain more uncertain. I would draw from this three policy conclusions: a. In the usual alleged time lag of one to two years for monetary transmission, our economic situation makes it likely that we are presently closer to the upper range. And hence the commitment I reaffirm today to bring inflation back towards 2% by 2025, is consistent with the full transmission of the monetary tightening that will have been put in place by summer 2023. Page 13 sur 14 b. Against this backdrop of significant transmission “in the pipe“ and still to come, a deceleration in the size of the policy steps (from 50bp to 25 bp) was wise and cautious. We obviously keep our hands free, but we add the capacity of observing and monitoring the pass-through of our substantial and exceptionally rapid past hikes. Persistence is now more important than speed; the duration for which we will maintain rates is now more important than the precise terminal level we will reach. Or in other words, for interest rates as with ballistics, “longer” is becoming more significant than “higher”. c. Hence, our next rate decisions should not monopolise attention; we already have completed most of our rate-hiking journey, and we are clearly in restrictive territory. | I will let Mr. Rajeev Peshawaria give you a bit more flavour about the book later. You will find it both practical and inspiring. We are also pleased to have with us today Datuk Seri Tony Fernandes, the Group CEO and Director of AirAsia Berhad who is also the founder of Tune Group Sdn. Bhd. He is a corporate leader and a personality that needs no further introduction. He will today share his leadership experience in our inaugural LEADING VOICES session. And now, ladies and gentlemen, I am very pleased to officially release “Too Many Bosses, too Few Leaders”. 2 BIS central bankers’ speeches | 0 |
Stefan Ingves: Financial crises in an international perspective Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Danish Financial Supervisory Authority, Copenhagen, 12 September 2006. * * * Thank you for inviting me here today. It is easy to forget what a financial crisis entails, now that a number of years have passed since we last experienced one and it is therefore important that we remind ourselves. Although we cannot yet see any immediate threats, we must look ahead to prevent potential crises. During my twenty minutes or so today I intend to talk about the following: • the fact that most of the various crises in different countries during the 1980s and 1990s have had a number of common causes, • the fact that it is important to invest in preventing and managing crises, • the fact that risks and potential vulnerabilities in the financial system are now changing rapidly as the differences between banks and other financial institutions decline and crossborder integration intensifies, • the fact that the cooperation between authorities within and between countries must be developed further, both with regard to regular monitoring and crisis management. In particular, it is necessary to discuss how the responsibilities and costs should be divided up in the event of a crisis. Many of the experiences I describe refer to crises and countries outside of Scandinavia, even outside of Europe, which does not prevent them from being relevant to our discussion. | Managing a crisis also requires laws and regulations that enable a problem institution to be closed down quickly or managed in some other way. Sometimes it is necessary to take measures very quickly, perhaps even the same day. It is not possible to wait for the usual court process to be completed. To avoid this leading to any form of malpractice, the injured party should have the opportunity to obtain redress and damages afterwards. We had this kind of a law in Sweden during our financial crisis. Another question is when a court should be allowed to stop important authority decisions intended to deal with acute bank problems, such as closing a problem bank. When a bank needs to be closed, a difficult balance arises, between the owners' interests and the savers' interest, which are both safeguarded in law. One very current example of this dilemma in Sweden is the case of Custodia. Both the country administrative court and Finansinspektionen (the Swedish financial supervisory 2 BIS Review 83/2006 authority) have made their assessments on the basis of what they should take into account, that is to say the customers' interests and the company and owners' interests respectively. However, I feel that it is very unsatisfactory that we in Sweden do not have a clear legal framework that can manage this type of situation and I assume that these difficulties will quickly be repaired. Crisis prevention also includes creating sufficiently strong public authorities. | 1 |
That could potentially create some turmoil for international markets including ours and in the process we could see some potential for dislocation which is why Sri Lanka has decided to reach out to multilateral agencies like the IMF and the World Bank to assist us in terms of sheltering or protecting the economy against any adverse developments that may occur in the near future as a consequence of any turmoil in international capital markets if and when US policy makers decide to raise interest rates. That is one hurdle we have to look at. The second hurdle I would say is the lack of a structural change the way international, particularly developed countries of the world, are managing their economic affairs. A lot of the changes that we have seen in the last 5 years has had to do with monetary policy and the aggressive easing of the monetary policy. But on the fiscal side, you haven’t seen any structural changes in countries like the United States and most European countries that took the world into the great recession in 2008 as a consequence of their housing 2 BIS central bankers’ speeches bubbles. That structural change in terms of improving productivity, reducing the size of social security programs and retooling their economies to become more productive has still not started and until that happens we don’t have a sustainable basis for global growth to grow apace. | As Professor Lin said we had the great recession of 2008 and its immediate aftermath what you found was that three strands of relatively new economic activism manifested themselves. In the first instance you saw a huge pump-priming effort by the People’s Republic of China, which in its wake created perhaps the strongest commodity price boom that we have seen in recent history. That I think was a key take away from that period and China to some extent prevented the world from falling into a depression by stimulating its economy, and as Professor Lin has now elaborated to us, it falls in line with his perception that in times of recession developing countries are well-advised to go ahead and really stimulate domestic infrastructure construction etc. to take on the slack caused by international events. Secondly we saw the major central banks of the world, that includes the United States, the Europe, the United Kingdom, Japan and Switzerland, creating money on an unparallel basis which for my calculations to date add up to about 8 trillion dollars worth of new money created in the last 5 to 6 years. That is significant. That’s the second strand that emanated from this crisis period. And thirdly what we have seen is that the so called developing economies in a curious twist of their economy fate, actually became the biggest creditors in the world and the so called rich countries, the developed countries, were actually the biggest debtors. | 1 |
1) Considered theoretically as risk-free securities, government bonds are usually considered as floor rates and constitute the benchmark for pricing almost all other securities. Thus, rising sovereign yields mechanically shift funding costs upwards for all private agents. Interest rates on government bonds usually include small premia to compensate for liquidity and credit risk. For a proper monetary policy transmission, these risk premia should not reach such level and volatility that the signal from the key policy rates is no longer perceivable and no longer reaches the real economy. In recent months, the tensions rapidly spread to other markets to a point that jeopardized the transmission of monetary policy, as European government bond markets became largely dysfunctional. 2) The second contagion mechanism goes through the banking system. On the liability side, banks are already suffering from increasing government debt issuance which has a crowding out effect and contribute to steepen the yield curve; it is a real issue as banks debts maturing in the next three years are significant while government support and central banks facilities are expected to be gradually removed. In that tense context, the sovereign debt crisis trigger increasing funding tensions for European banks owing to the contagion of sovereign to banks spreads. It reflects the traditional belief that domestic financial institutions cannot be less risky than the sovereign which are supposed to back them in case of need. | Christian Noyer: Sovereign crisis, risk contagion and the response of the central bank Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Global Interdependence Centre (GIC) Conferences, Paris, 17 June 2010. * * * Ladies and gentlemen, I am very much honored to open this second session of conferences in Paris and I would like to thank the Global Interdependence Centre for having Banque de France as a partner of this full week conference. I will give the point of view of a central banker on the recent events on sovereign markets, the major implied risks and challenges for financial stability and the recovery process. Finally, I will briefly touch on the latest actions of central banks and public authorities to contain those renewed tensions. I am confident that this opening address will give rise to valuable discussions in the panels where distinguished speakers will express views from different perspectives: central banks, rating agencies, investors and academia. Sovereign crisis: origins and dynamics The sovereign debt turmoil is the most recent episode of a crisis that started more than two years ago yet. Some European States are the latest actors of a protracted debt crisis after i) US subprime mortgage borrowers, ii) financial institutions with weak funding situation and iii) non financial companies and households unable to finance their capital needs. | 1 |
The latest ECB staff projections foresee annual real GDP growth at –8.0% in 2020, 5.0% in 2021 and 3.2% in 2022. Euro area real GDP is only expected to recover to pre-crisis levels in late 2022.2 The strength of the recovery remains, however, highly dependent on the evolution of the COVID-19 pandemic and the success of containment policies. The public health crisis will continue to weigh on economic activity and poses downside risks to the economic outlook. The sharp drop in economic activity earlier this year has weakened price pressures. Annual headline inflation in the euro area stood at –0.2% in August and is expected to remain negative over the coming months, reflecting the effects of earlier declines in energy prices, a stronger euro, and a temporary reduction in the value-added tax rate in Germany. ECB staff project annual inflation to gradually increase, from an average of 0.3% in 2020, to an average of 1.0% in 2021 and 1.3% in 2022. The ECB’s monetary policy The monetary policy measures that we have taken since early March are providing crucial support to the economic recovery and are helping to safeguard medium-term price stability. Without our measures, we would be facing a deeper economic contraction and more severe 1/4 BIS central bankers' speeches disinflation. Our policy support during the crisis has been structured along two main axes: liquidity operations and asset purchases. | The ECB’s Governing Council has now decided that, from 2021, the Eurosystem will accept bonds with coupons linked to certain sustainable performance targets as collateral for credit operations and outright purchases for monetary policy purposes, provided that they comply with all other eligibility criteria. Building on these three criteria, we should continue to do what we have been doing all along: ensuring that our accountability practices remain commensurate by letting them evolve in a flexible manner and by adapting them in line with the demands for scrutiny from European citizens. And because we can only make improvements if we are aware of people’s expectations and concerns in relation to the ECB and its policies, we are inviting everyone in the euro area to share their ideas and comments through the ECB Listens portal on our website. Conclusion Let me conclude. Our regular exchanges are crucial in explaining the ECB’s actions to people across Europe and to you as their representatives. This is even truer in testing times when the people of Europe expect the EU to rise to the challenge. A recent survey commissioned by this Parliament shows that more than two-thirds of Europeans would like to see the EU have more competences to deal with crises such as the COVID-19 pandemic. Citizens clearly look to the EU for answers and you play a central role in ensuring that such answers are forthcoming. The measures adopted thus far by national governments and the European institutions are reinforcing our policies. | 1 |
Indeed, the need to guard against this risk is one of the reasons for the faster monetary normalisation that our latest decisions entail. Another risk relates to possible second-round effects, i.e. when high inflation passes through to wage increases and these, in turn, push up consumer prices to the extent that firms seek to maintain (or widen) their margins. Again, this would make inflation far more persistent and increase the likelihood of the feared de-anchoring of inflation expectations. As I said, while there is no evidence of such effects occurring at present, at least on a widespread basis, the current high inflation does make this more likely. Naturally, the extent of the economic downturn – over which, as I indicated earlier, there is significant uncertainty –, and its effects on wages and profit margins, will be a key determinant of the medium-term inflation outlook and, therefore, of our monetary policy decisions. Ultimately, our next decisions will be based on the incoming data and their implications for achieving our medium-term inflation target, in line with the “meeting-to-meeting” approach that we have adopted. 9 In any event, interest rates will have to reach a level that allows us to ensure a gradual convergence of inflation to our medium-term target, and how quickly we reach that level will be conditioned by the same target. Whether this means reaching interest rates at levels close to neutral or higher will therefore depend on that target. The normalisation of monetary policy is prompting a tightening of financial conditions. | The other scant quantitative indicators that are still available for the quarter, such as new car registrations or the retail trade index, on the demand side, and the industrial production index, on the supply side, tend to confirm the loss of momentum in activity. Among the confidence indicators, the August PMIs show signs of moderation in both services and manufacturing. Manufacturing, in particular, evidences the decline in new (both internal and external) orders. Industrial activity has continued to be weighed down by global supply problems (which are affecting the automotive sector above all) and by the escalation of input prices since 2021 H2 (which have affected a very high number of products). Economic projections have been revised down notably for growth and up for inflation The latest ECB projections for the euro area, in contrast to those published in June, include, in particular, new developments in the gas market. First, gas prices were revised up in accordance with developments in the gas futures markets. Second, and for the first time, a degree of gas supply rationing, albeit moderate, is assumed. This would be more significant in the countries that are more heavily dependent on Russian imports, which could even see some production cuts in the winter. By contrast, demand for gas is expected to decline. Euro area economic activity is expected to slow in the coming quarters, as a result of the loss of purchasing power stemming from higher-than-expected inflation, the decline in confidence and, in general, greater uncertainty. | 1 |
In emerging Asia, domestic demand is holding up, but growth is vulnerable to developments in America and Europe. The full extent of weakness in exports, and its effects through regional production and trade linkages, has probably not filtered through completely. I must add that our forecast is based on three assumptions: no recession in US, no significant escalation of the Eurozone crisis, and no “hard landing” in China. If one or more of these assumptions do not pan out, Singapore’s GDP growth could dip below 1% for 2012. But growth of 1–3% should be seen in perspective. The economy is operating at full employment and capacity utilisation is high. The Singapore economy has expanded by an average of 5.8% over the past five years, faster than economy’s underlying potential. The moderation in growth thus brings the economy closer to its sustainable level of output, and will help relieve cost pressures. Let me touch on inflation now. CPI-All Items inflation for 2012 is expected to come in at 4.0– 4.5%, but Core Inflation will continue to come down and approach 2% by end of the year MAS is narrowing forecast range for CPI-All Items inflation in 2012 to 4.0–4.5%, but the forecast for Core Inflation remains unchanged at 2.5–3.0%. 1 Refers to average growth on a quarter-on-quarter seasonally-adjusted annualised basis. Growth for Q2 is based on Advance Estimates of –1.1%. BIS central bankers’ speeches 1 Bringing down inflation remains one of MAS’ top priorities. | This has started to feed through to domestic food inflation, which came down from 3.8% y-o-y in January to 2.3% in June. Recently, there has been spike in global corn and soya bean prices due to a drought in US. But we do not expect a broad-based surge in global food prices in coming months, and so domestic food inflation should remain relatively contained for rest of year. Third, domestic wages. The 6% increase in domestic wages last year passed through quite strongly into a variety of services costs earlier this year. We can expect some continued pass-through of wage costs for the rest of this year, but at a more restrained pace compared to early this year. Like Core Inflation, Headline Inflation – or inflation in CPI-All Items – is also expected to be lower on average in the second half of the year compared to the first half. But, unlike Core Inflation, CPI-All Items inflation will remain elevated at well above the historical average. As mentioned, MAS is narrowing its forecast for CPI-All Items inflation in 2012 from 3.5–4.5% to 4.0–4.5%. This largely reflects two factors. First, imputed rentals on owner-occupied homes are expected to remain high compared to a year ago. This essentially does not involve an actual increase in spending by households. Imputed rentals on owner-occupied homes are based on actual rentals but, as you know, only a small segment of the population rents their homes. We expect continued tightness in the housing rental market, especially in the HDB segment. | 1 |
As I have said from the start, public debt may not be able to play that role to the same extent as before. The ultimate safe asset, therefore, will be the currency itself. Markets and lenders will trust those currencies that, whatever the circumstances, are managed with one overriding priority: preserving price stability and the intrinsic value of the currency unit. On this fundamental basis, we can look at the future of the euro with strong and realistic optimism. I see the BIS central bankers’ speeches 3 recent decision by the Swiss central bank to peg the CHF to the euro as a confirmation of this statement. A few words on the banking sector, and, of course, French banks. I would remark, first, that banks have been hit in all advanced economies by the downward revision of growth prospects. Since August, CDS premia on major banks and BOR-OIS spreads have risen in all regions, although to a larger extent in Europe, displaying everywhere a sharp rise of counterparty risk. By the same token, banks’ share prices fell in all major economies, with French banks being particularly hit. This overreaction of share prices can be explained by a simple amplification mechanism: slower growth means lower profits, thus lower projected dividends. At the same time, banks are required to build additional capital buffers, which further constrain their pay-out ratio. So dividend prospects are doubly affected and that explains why, in the current period, share prices are reacting so strongly to negative news on growth. | Such recovery plans should: • Identify actionable options that the firm can take in response to financial weakness that will restore the confidence of the firm’s counterparties in the firm without the need for extraordinary official sector support; • Incorporate processes that analyze the root causes of their problems and identify longer-term strategies that will need to be employed as other recovery options to restore capital and liquidity are being executed; and, • Be regularly tested and updated to ensure they remain reasonable. For some types of firms – like financial market utilities, recovery planning is actually an even more important issue. Because FMUs provide critical services to the industry, experiencing a major disruption that could lead to resolution – or dissolution – is unacceptable. It is important, then, that a CCP be structured in a way, and develop and have tools available, to enable it to recover from losses and continue operations under extreme scenarios. Simply put, the debate on ‘less complex’ for financial market utilities is much more about recovery than it is about resolution. Steadfast resiliency may include casting a more critical eye on the resources needed for a single CCP to withstand a plausible, severe shock. Conclusion While there is still work that needs to be done to make financial institutions more resilient, better managed and less complex, we have also made a great deal of progress. | 0 |
Our country posted a very successful and strong economic activity performance during the pandemic compared to other countries. As you know, economic activity in many countries declined in that period, and growth in many economies remained close to zero. However, the Turkish economy, which normalized rapidly in the succeeding period, ranked among the top economies in terms of high growth rates. Accordingly, our economy grew by 11% in 2021, posting a very strong growth performance compared to other countries. The conflict between Russia and Ukraine that started in the first quarter of 2022 aggravated the effects of ongoing negative supply shocks and increased the uncertainties. Nevertheless, domestic economic activity remained strong in a sustainable and uninterrupted framework despite negative supply shocks. Accordingly, the annual growth rate stood at 7.3% in the first quarter of 2022. We expect that growth will also be close to this rate in the second quarter. Net exports and machinery-equipment investments have a very remarkable share in this strong growth. On the expenditures side, net exports have contributed positively to growth for the last five consecutive quarters. Machinery-equipment investments have 1/5 BIS - Central bankers' speeches also made an uninterrupted positive contribution to growth in the post-pandemic period. On the production side, the services and industrial sectors continued to contribute to growth. We see that machinery-equipment investments continue in a sound and sustainable framework. Investments that support productive capacity, particularly machineryequipment investments that drive industrial output, point to a stable and strong growth. | We, as the Central Bank, will continue to stand by you with our industry-friendly targeted policies aiming to create the financial conditions that will support continuity of supply as well as our current account surplus capacity. I will be pleased to answer your questions. 5/5 BIS - Central bankers' speeches | 1 |
A clear lesson from events last spring is, in any event, the value for market observers of constructing independent forecasts of inflation as a foundation for their repo rate predictions. For the Riksbank, what happened has prompted us to work even more on continuously monitoring market opinions so as to be able to react in good time if the assessments of market players seem to be deviating from our own. Main scenario and balanced risks BIS Review 81/1998 -5- Now for a look ahead in the context of our current assessment of inflation. In the latest Inflation Report, published at the end of September, the Riksbank emphasised that inflation prospects contained a large element of uncertainty. The cyclical picture had changed somewhat since June in that growth was judged to be strongest this year and then slacken somewhat. But we still counted on reasonably good activity, with annual growth in the coming years averaging almost 3 per cent. Inflation, measured as the 12-month change in the CPI, was assumed to be below 2 per cent in 1998 and 1998 but to reach approximately 2 per cent at the end of the period. The composition of demand had also undergone a shift. The international crisis was expected to render net exports weaker than assumed earlier, while domestic demand was likely to be somewhat stronger than foreseen in June. | Consequently, Switzerland – unlike other countries – was able to avoid introducing state-guaranteed bonds. With the drastic reduction in key rates and the subsequent decline in mortgage rates, the burden on households and companies was eased. In this way, the severity of the recession was somewhat alleviated and the risks of deflation reduced. However, the interest rate is now at a historic low and this means medium-term risks for the Swiss real estate market and financial stability. Experience shows that periods of low interest rates provide scope for excesses on the mortgage and real estate market. Consequently, in the current environment in particular, attention should be given to ensuring that past mistakes are not repeated. Caution must remain the watchword when granting loans. BIS Review 140/2009 1 | 0 |
Lee Hsien Loong: Capital markets in the new economy Speech by Mr Lee Hsien Loong, Chairman of the Board of Directors of The Monetary Authority of Singapore and Deputy Prime Minister, at the 25th Anniversary Celebration Dinner of the Singapore Investment Banking Association, held in Singapore, on 6 September 2000. * * * Chairman, SIBA, Mr Koh Kah Yeok, distinguished guests, ladies and gentlemen, Introduction I am happy to celebrate with the Singapore Investment Banking Association (SIBA) your 25th anniversary. For many years, SIBA has actively provided industry feedback on government policies, especially on capital market regulations and developments. These inputs have helped MAS to create a conducive environment for all financial players. Last November, your association broadened its charter, reconstituted itself to include a wider spectrum of activities and financial institutions, and changed its name to SIBA. This was a timely move. I am pleased to note that you have formed the SIBA Debt Capital Market Committee. As an MAS survey1 shows, corporate debt issuance more than doubled last year to $ 19.5 billion. In the first half of this year, corporate debt issuance is already $ 21.2 billion, exceeding the volume for the whole of last year. More diverse issuers are tapping the debt market, and interest from local investors has grown. An industry body to champion the development of the debt market, and institutionalise a feedback channel to MAS, will therefore play a useful role. Global trends in capital markets In the financial industry, globalisation is proceeding apace. | This prediction did not materialise in full. During the second half of the year it seemed clear that there would be some lag between the depreciation and its effect on the price level. This prompts questions about the correlation between prices and exchange rate developments. The short-term relationship of these factors appears to have weakened, which is undoubtedly explained in part by market competition. A more flexible exchange rate policy is also unquestionably at work. In earlier times, when devaluations were made amid extensive announcements, the change was in general rapidly reflected in the price level, since it was fairly certain that it would be permanent. After the exchange rate was made more flexible, it can be assumed that uncertainty about the permanence of changes has led buyers and sellers of goods to take more short-term exchange rate risk than before, 2 BIS Review 27/2001 since high costs are involved in making frequent alterations to prices. However, it is imprudent to ignore the eventual impact of a depreciation on prices, since research offers no support for such a view. This is one of the assumptions on which the Bank bases its forecast from this February, where inflation is expected to run at 4.3% between 2000 and 2001 and 4.6% from the beginning to the end of the year. Next year it is forecast to slow down to 2.7% from the beginning to the end of the year. | 0 |
The stability and credibility of the banking groups operating here, supported by close cooperation between Baltic and Nordic countries also help Estonia overcome the crisis. Banks in Estonia have sufficient funds to support restructuring in both the business sector and the entire economy. Eesti Pank's analyses confirm that the current capitalisation is sufficient to cover possible larger loan losses without banks having to include additional capital. The resources of banks allow their lending decisions to be based on favourable medium-term and longer-term economic outlooks, since Estonia's economic convergence, i.e., the movement of our income level towards that of EU richer countries, will continue also in the future. Thus, the goal of banking and financial sector policy is cooperation with the home countries of the banks operating in the EU and Estonia to ensure the functioning of the common banking market and group-level stability. The steps taken by the home countries of the banks operating in Estonia have considered the interests of the entire group and thus supported financial stability in Estonia. In this light it has to be emphasised that the measures to support the economy approved in Estonia allow state aid also in a situation where financial markets no longer function normally. But the main aim of the state support measures is to organise the financing of starting and exporting enterprises. The total debt burden of Estonia's enterprises is relatively big and a decline in the total volume of debt in 2009 is a natural reaction to previous years' rapid increase. | This process, which many analysts considered in the beginning to be a temporary correction, escalated rapidly and turned into a crisis. But the solvency problems of US lower-income residents and their inability to repay their mortgages were naturally not the main causes of the current situation. Every economic crisis is in its nature overproduction, when new services and goods find no buyers. Therefore, enterprises squeeze their production, lay off employees and refrain from new investments. The current situation is no exception to this rule. It also lies in overproduction and insufficient demand, which are caused by two main reasons. One reason is excessive optimism which prevailed in many parts of the advanced economies and in financial markets, encouraging people to consume more and save less. The demand based on over-optimism was driven by overly large fiscal deficits in major economies and probably also by unduly low interest rates in many parts of the world. Another factor contributing to exorbitant demand was the regulation of the financial system, which practically rewarded risk-taking. The other, just as significant reason is economic policy pursued by several Asian countries which was based on relatively cheap exports and low currency exchange rates. Broad-based and sustainable domestic demand was and is too little valued in economies based on cheap labour force, goods exports and related investment. Therefore, it can be assumed that private consumption and domestic demand were below par in Eastern Asia. The result was large current account surpluses and accumulating foreign reserves that were lent to the rich USA. | 1 |
In the wake of the controversy surrounding the intelligence community's assessment of the existence of weapons of mass destruction in Iraq, IARPA set out to enhance the accuracy, precision, and timeliness of intelligence forecasts.3 The Federal Reserve and the broader economics and financial community have, of course, had to face similarly humbling shortcomings in our failure to forecast the Great Recession, despite the numerous signals that were available to forecasters and policymakers prior to 2008. On this issue, it is useful to recall a quote from an unusual source on economic forecasting, the Queen of the United Kingdom, who in November 2008 asked, "Why did nobody notice it?" We should not treat this as a rhetorical question. What are some of the underlying reasons individuals and organizations fail to predict? What should we change about our mindsets and practices to improve the chances that we "notice it" next time, whenever that may be? At the New York Fed, we've made investments in response to these critical questions. We've created a team that is raising awareness of the challenges that make it so difficult to "notice," innovating on how we approach analysis and decision-making, and making these approaches an essential part of what it means to work at the Bank. This is much in the spirit of what IARPA sought to do by sponsoring their tournament. To compete in the IARPA tournament, Tetlock recruited participants online from outside the intelligence community. | At the same time, the monetary policy stance of the ECB, while fully oriented towards the price stability objective, does influence the exchange rate. From a theoretical viewpoint, one can argue that the member countries of the euro area have chosen to go beyond a fixed exchange rate by adopting a single currency. The adoption of the euro implies the irreversible abolition of national currencies and, hence, of national exchange rates themselves. This choice involves a trade-off. On one hand, a single currency, as we have seen, eliminates the volatility of exchange rates within the monetary union. The euro, as a freely-floating currency, helps protect the economies of its member countries from external shocks. The single currency also facilitates trade between them, deepening economic integration. However, the elimination of national currencies implies that market signals regarding domestic economic imbalances are lost, allowing such imbalances to build up. More importantly, the absence of national currencies also implies that a valuable tool for stabilising the economy in the short term in the face of asymmetric shocks is no longer available. The sovereign debt crisis in the euro area has brought home the implications, both positive and negative, of membership of a single currency area. It remains my firm opinion, however, that the gains outweigh the losses. It is also my firm opinion that greater efforts need to be made to reduce and eventually eliminate internal imbalances within the monetary union in order to protect its sustainability. | 0 |
Future wage formation is yet another risk factor that the Riksbank has to consider. There are some encouraging signs that wage formation is moving in the right direction, even though the parties have gone in for a certain amount of bidding. This tends to be a process that conveys a varying degree of realism. It is important to bear in mind that wage formation is not just a matter of the level of wage agreements. The outcome for wages is also conditioned by the wage drift that mirrors labour supply and demand. The less efficiently the labour market works, the sooner bottlenecks arise that generate increased wage drift. Tendencies to labour shortages in certain sectors are already discernible, despite the high unemployment. Conclusion: monetary stance well balanced; changes in the spectrum of risks A monetary policy that aims for sustained price stability is not at odds with good economic growth. This presupposes that the supply side functions so well that growth does not give rise to inflationary impulses. But if the structure of the economy is such that only moderate growth is feasible, demand and accordingly the monetary stance must be adjusted accordingly. The alternative is demand growth that exceeds what the economy is capable of producing without inflationary bottlenecks. Accelerating inflation is a threat to sustainable growth and may even result in serious economic setbacks, as history has taught us. | I am therefore delighted that the Institute of Directors has chosen this topic for discussion today. Perhaps it would be useful to begin by defining what corporate governance means. There is no single, accepted definition of what “corporate governance” means. The majority of the definitions employed by corporate practitioners relate corporate governance to “control” of the company. In this regard, corporate governance is defined as a set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimised. Ladies and Gentlemen, corporate governance is of key importance to any financial system. In Zambia the financial sector is dominated by banks and these remain the main source of finance in the economy. The failure of corporate governance in banks may therefore pose serious consequences for the banking sector and the economy as a whole. It is also important to note that the health of the financial system largely depends on their capacity to identify measure, monitor and control their risks. Banks face a wide range of complex risks in their day to day operations, including risks relating to credit, liquidity, exposure concentration, market risks, settlement, and internal operations. The nature of banks’ business particularly the maturity mismatch between their assets and liabilities, their relatively high gearing and their reliance on creditor confidence creates particular vulnerabilities. | 0 |
By then the Central Bank had repeatedly stated that the exchange rate of the króna had become much weaker than warranted by economic fundamentals. The impact of the tight monetary stance was increasingly felt as the year 2001 wore on. The sharp turnaround in the exchange rate at the end of November that year and the agreement between the Federation of Icelandic Labour and Confederation of Employees in December 2001, postponing an inflation-triggered review of wage agreements, eased the uncertainty and changed expectations. Both these events led to a rapid drop in inflation in 2002, and by last November the Central Bank’s inflation target was attained, one year before this was envisaged in the joint declaration by the government and the Central Bank from March 2001. When it became clear that inflation was on a significant downward path, the Central Bank gradually began to lower its interest rates. It also announced that it aimed to cut them in more and smaller steps rather than fewer and larger ones, not least with the idea of maintaining calm in the forex market. Since April last year the Central Bank has lowered its interest rates eleven times by a total of 4.8 percentage points, including the cut announced on February 10. The Central Bank’s rate for its repo agreements with credit institutions is now lower than it has ever been since the current arrangements for such transactions were introduced early in 1998, when it was 7.2%, and in fact is at its lowest level since 1994. | Besides inflation forecasting, the Central Bank publishes a quarterly assessment of the economic and monetary situation and prospects, including a national economic forecast, and their probable impact BIS Review 8/2003 1 on price developments. If inflation is heading beyond the Bank’s target on a longer-term scenario, the Bank raises its policy interest rate, but cuts it if inflation is heading below the target. In preparing its inflation forecasts and regular assessments of the economic situation and prospects, the Central Bank examines a wide range of indicators. These are both statistical data and information obtained from interviews with representatives of industry, organisations with vested interests, credit institutions and others. The Bank publishes the bulk of its statistical indicators and data on its website. Central Bank decisions are made after in-depth examinations of indicators about economic developments, its assessment of the situation and outlook, the assumptions behind the inflation forecast and the inflation forecast itself. Under the Central Bank Act, the Bank’s Board of Governors have set internal rules on the preparations of, arguments for and presentation of its monetary policy decisions. These rules were formally set in the beginning of 2002 and published in the quarterly Monetary Bulletin. Having said this, it is tempting to try to assess the success of monetary policy implementation after the framework was changed and the new Central Bank Act went into effect in spring 2001. | 1 |
The Island has been suffering from a vicious cycle. As employment declines, people move to the mainland to find jobs. Accordingly, economic activity and tax revenues decline, forcing the government to raise taxes and cut spending, which further reduces employment and prompts still more residents to move. At this point, the outlook for anyone who has been living here must be bleak, and it may be hard to imagine this situation turning around anytime soon. And yet, history tells us that a turnaround, though not inevitable, is indeed achievable. Lessons from past crises New York City is probably the most famous example of a municipality that experienced a major fiscal crisis, recovered and is now thriving. New York City’s experience is viewed, in retrospect, as a major success, and some, including myself, have pointed to it as a hopeful example of what 1/4 BIS central bankers' speeches could come to pass in Puerto Rico. But, there are important caveats to the New York City story and its applicability to the Commonwealth. Like Puerto Rico, New York City experienced a number of years of both political and economic pain as a result of its fiscal crisis in the 1970s. On the political side, New York City residents lost a large measure of their ability to chart their own fiscal direction for several years. Decisions about tax and spending policies were removed from elected city officials. | It is also important to think hard about the supply of labor—the willingness of people to work, and the education and skills that they have to bring to the market. Labor supply is equally important, but less widely discussed than the demand side of the market. Labor force participation is lower at all ages in Puerto Rico than on the mainland. This is a crucial impediment to growth, and addressing it 3/4 BIS central bankers' speeches requires innovative policy options. One idea to address this problem would be to extend the Earned Income Tax Credit to Puerto Rico. In addition, the structure of the Commonwealth’s tax system creates disincentives to work in the formal sector, and suggests that tax reform could produce a growth dividend as well as a more reliable source of revenue. On top of the low labor force participation is the well known and deeply concerning high level of out-migration. In addition to the lack of labor demand, it seems likely that quality-of-life concerns such as high crime rates are playing a role in these decisions. This underscores the importance of basic public service delivery and is another example of the interplay between fiscal and economic outcomes. Another important dimension of labor supply involves the skills that workers bring to the market. Many of these skills are acquired while in school. Our research indicates that test scores for school-age children on the Island are low, suggesting that there is an opportunity for improvement in the quality of public education. | 1 |
French banks do not have so called “toxic assets” in their balance sheets but sovereign exposures on countries which are part of a monetary union. Some of these exposures need to be provisioned. These provisions will be increased for Greece. And all these risks are fully disclosed according to the European Banking Authority (EBA) templates. Despite the deleveraging taking place, their profitability remain strong and will enable them to face, in due time, the increase of capital requested by the new regulatory environment. I would therefore emphasize that these so-called “vulnerabilities” are mainly the consequence of the internationalization of banking activities. And there is a certain paradox in a situation where these globalized banks, with diversified activities and balanced business models, are perceived riskier than more specialized institutions. **** To conclude: in these turbulent times, Europe has a special responsibility. Currently, at the epicenter of the crisis we are fully aware of the necessity to take and implement vigorous decisions. However the interaction between markets and governments has become more complex. We live in democracies and have to accept that political decisions follow their own process and obey their own constraints. In all our countries, rising public debt and the unstable state of public finances is creating enormous anxiety, which, in turn, makes it more difficult to reach the necessary decisions. There are, however, some reasons for optimism. On the supply side, our economies remain robust and dynamic. Corporate balance sheets are strong. | The same holds true for public debt, which amounts to 85% in the euro area while it will soon cross the 100% mark in the US. Many Countries are improving their fundamentals. The primary deficit of Spain for 2011 will be around 4.7%, half that of the US and the UK. Italy will be one of the very few advanced economies to have a primary surplus, around 0.5%. The IMF has recently acknowledged, and even praized, these efforts and commitments. In short, if good fundamentals are an absolute necessity, it is not a sufficient condition. Now can we let liquidity spirals lock a country, just like a financial institution, into a bad equilibrium? We faced that question in 2009 when dealing with financial institutions. We are now facing the same question regarding sovereign risk. Our answer is twofold. First, get the fundamentals right. For European countries, it means reverting to a sustainable fiscal position which requires a significant primary surplus. And second, there is a need for a liquidity backstop to ensure that bad equilibria will not develop. Where that backstop is coming from is a key question. Unconventional monetary policies have led many central banks to purchase significant amounts of Government debt: those purchases amount to 51% of the total debt issued since 2009 in the UK, 21% in the US versus 7.5% in the euro area – where they were fully sterilized. These policy stances have contributed to giving markets an insurance against a potential dry-up in liquidity. | 1 |
This has led to growing concern about conduct risk in the social, political and supervisory domains, and naturally in the industry itself. This concern is also shared internationally, as reflected in the recent work of the Financial Stability Board to strengthen the governance and remuneration frameworks in order to mitigate the risk of misconduct. The Banco de España strengthened its supervisory activity in relation to conduct four years ago. This greater supervisory presence, along with regulatory requirements, the need to adapt to new and more demanding customers and judicial rulings in defence of consumers, is prompting banks to react, and they are making efforts to implement the measures needed to correct these practices. However, much remains to be done. Banks must be more proactive in developing a strong culture that is not only oriented towards complying with customer transparency regulations, but also fundamentally towards identifying and satisfying customer interests. This requires the involvement and commitment of governing bodies and the spread of these values throughout the institution; especially to the sales network, which must have an incentive mechanism that does not give rise to perverse or counter-productive incentives. In short, banks must incorporate the customer protection perspective into their risk appetite framework, making it a cornerstone of their governance and decision-making processes. For this process to be successful, the control of regulatory compliance in the marketing and management of banking products and services needs to be strengthened. | The total capital ratio, meanwhile, has increased by 1.7 percentage points over the last four years, and the leverage and liquidity ratios are above the European averages. Indeed, the recent stress tests carried out by the European Banking Authority (EBA) and the Banco de España show the considerable resilience of Spanish banks’ solvency under adverse scenarios. However, while recognising the significant progress made in recent years, the Spanish banking industry continues to face significant challenges, which are largely shared by other euro area banking systems. Notable among them are: i) the need for further progress in reducing unproductive assets which remain at high levels; ii) raising profitability; iii) strengthening the industry’s reputation by preventing misconduct; iv) adapting to the new regulatory framework and strengthening the highest-quality capital ratios; and v) competing in a new financial environment arising from technological progress and the emergence of new players (see Chart 2). Reducing unproductive assets As I have already said, the reduction in non-performing loans and foreclosed assets from the peak levels they reached during the crisis has been significant. Private-sector nonperforming loans, which have fallen by 60% from their peak in 2013, currently stand at the same level as in 2009. Foreclosed assets have followed a similar pattern, falling by 40% from their peak in 2012. The economic recovery has certainly contributed to this process, but it has also been driven by credit institutions’ management of troubled assets and by supervisory pressure. | 1 |
However, it is often the case that a rapid fall in a credit and debt cycle entails a corresponding fall in the normal economic cycle – and not uncommonly a balance-sheet recession.6 Monitoring the credit and debt cycle thus becomes a way of stabilising the normal economic cycle. With this view, it is less obvious that financial stability policy and monetary policy should be conducted separately. But, once again, it is probably quite rare that there will be reasons to coordinate them. The policy rate will probably need to support financial stability policy With regard to the question of the role of the policy rate in financial stability policy, it is my personal opinion that one must always be prepared to use it to slow down an excessive expansion in credit, or to “lean against the wind” as it is usually called. Hopefully, it will be possible to find a set of macroprudential tools that are efficient enough so we do not need to use the policy rate for this purpose. Hopefully it will also be possible to find appropriate forms as to when they shall be used and by whom. But my feeling is that even when we have a proper framework for macroprudential supervision, situations may arise where support is needed from monetary policy “leaning against the wind”. One reason is that experience shows that it is difficult to construct regulations that can never be circumvented. The policy rate is a blunt instrument, as it has a broad impact on the economy. | Soifua ma ia manuia. 2 BIS central bankers’ speeches | 0 |
I must hasten to mention, however, that in striving to meet these demands, banks must always comply with the regulations as stipulated in the Banking & Financial Services Act of 1994 as amended in 2000, to ensure the safety of customers’ deposits and stability in the financial sector. Any activities by banks, which do not meet the minimum standards provided for in the law, will invite close scrutiny and possible sanctions from the Bank of Zambia to bring the banks in line with the legal framework. Mr Chairman, following implementation of sound macroeconomic policies, the economy is relatively stable as shown by various indicators: • Inflation is under control; • The Kwacha is stable; and • Interest rates are going down, although not yet as low as we would like them to be. The cost of borrowing has remained high in spite of the progress that has been made in the monetary and fiscal management of our economy. This high cost has, in turn, stifled the growth of the productive private sector, in particular the Small and Medium Enterprises (SME) sector, which should be the engine of economic growth of our country. | Data on developments in foreign trade of economy reveal a contracted trade exchange in the first five months of 2012. Value of exports marked a low annual growth of 1.3% in this period, reflecting the moderation of foreign demand and price developments in global markets. In this period, imports shrank by 2.0% in annual terms. These developments resulted to a decreased trade deficit in the first five months of the year by the annualised rate of 4.2%. Developments in foreign trade were determined mostly by electrical energy trade exchanges in this period. Excluding this effect, the growth in exports would be higher and the contraction in imports deeper, resulting in a contracted trade deficit, at 18.1%. The performance of monetary indicators was in line with the developments in the real economy and our analysis show contained monetary pressures on inflation. The annual growth of M3 was 8.7% in May, maintaining the average rates of the previous month of the current year. The growth paces of money supply slowed down compared to a year earlier, reflecting the lower demand of economic agents for money. The consolidated fiscal position 2 BIS central bankers’ speeches was coupled with a decrease of public sector borrowing, whereas private agents of economy reflected a low demand for financing. Lending to the private sector rose by 7.5% in May, pursuing the slowing trend, which has started since the end of previous year. | 0 |
‘Resolution’ does not mean ‘resurrection’ of a fallen bank. Rather, it means stabilising the bank so that, over time as far as is necessary, it can be either split up, restructured or parts of it put into insolvency in an orderly way. These new responsibilities and powers, crucially, do not only cover what happens when a bank can no longer carry on operating; they also cover how a bank organises and finances itself when it is operating normally. A key lesson of the crisis is that the structure and financing of a bank when it is operating normally can make it impossible to deal with its failure in an orderly way. If banks are not structured and financed in a way that supports orderly resolution before they run into trouble, the authorities’ options can be very constrained when the bank fails. (iii) Bank structures This brings me to the third plank of ending too big to fail. Banks before the crisis were not organised to be resolvable. The third plank is to ensure that banks are structured in a way that supports resolution and that barriers to resolvability are removed. This can be a daunting challenge – the average number of separate legal entities at G-SIBs is around 1,000 and in some cases is much higher.9 This may seem a rather gruesome business. It is not usual for a firm to spend a huge amount of time planning for its demise. It is certainly an onerous business for all concerned. | For instance, Norwegians could only purchase foreign equities through a fixed pool established in the 1960s (by using the so-called “security dollar” market), and foreigners’ investments in Norwegian equities were strictly regulated and actually limited to NOK 50 000 per person until 1979. That ceiling was raised to NOK 1 million in 1979. Experiences over the past year may cast doubt on the effectiveness and benefits of international capital markets. Nevertheless, history has seen a number of deep financial crises, and it is my belief that market conditions will also return to normal this time. I am confident that private entrepreneurship and public limited companies will continue to exist as the primary organisational bodies for commercial activities. Owners and investors will also be needed in the years to come. But capitalism will have to adapt. After all, the willingness to trust the free play of market forces in finance has been seriously impaired. International stock exchanges lost more of their value in 2008 than in any other single year in recent history. Absolute results, especially with regard to equities, were highly unusual. Many investors have suffered losses. As a result of this experience, required returns will be higher in the future. An investor such as the Government Pension Fund – Global will earn more in the long term because of wide fluctuations in equity values. 1 2 National Transport Plan 2010–2019 (St.meld.nr.16 (2008-2009). BIS Review 68/2009 The Fund has a longer investment horizon than the vast majority of other market participants. | 0 |
A robust and stable financial system, that we have managed to ensure so far, is a necessary, but not sufficient condition for achieving sustainable growth. Financial system efficiency needs to be upgraded, so that it serves to lift economic efficiency, not least by harnessing the hitherto untapped strength of the grass-root economies, where the emerging organic social-economic network has increasingly highlighted the potential contribution to growth and welfare improvement. For the banking system, the strategy to harness this potential is set out in the Financial Sector Master Plan Phase 2, which is a continuation from Phase 1. BIS Review 20/2010 1 Ladies and gentlemen, The challenges I have raised, together, pose a tall order. So in today’s talk, let me set out our strategy and policy priority in three parts. First, the SWOT analysis of the banking system and the challenges we face; Second, the key strategies in the Financial Sector Master Plan Phase 2; and Third, the key measures in risk-based supervision to ensure stability. First, the strength of our banking system is evident in its continuous solid performance. During the toughest times, our banks remained strong and resilient against the backdrop of economic slowdown. Loan decelerated, partly due to contraction in corporate portfolio and deceleration in household portfolio, as a result of more cautious business undertaking and household spending, and partly due to tightened loan underwriting standard. The good news is the figures are already starting to pick up again. | So far, I have mainly spoken about domestic payments, but innovation is also transforming payment systems across borders and currencies. For example, the SW IFT Global Payment Initiative has contributed to faster and more transparent cross-border payments. However, a large proportion of cross-border payments do not go through SW IFT. Cross-border payments are generally expensive, slow and opaque. The services offered are not of the same standard as for domestic payments. The challenges have long been highlighted by international organisations, but implementing changes has proved demanding. The G20 and the Financial Stability Board (FSB) are behind a new and forceful initiative. The FSB has identified measures and recently published a roadmap for their implementation. I hope that this can be a breakthrough in the work to improve crossborder payments. Furthermore, I would like to mention that the Bank for International Settlements (BIS) is in the process of establishing BIS Innovation Hub Centres in many parts of the world. Their primary purpose is to promote insight into financial technology that can strengthen the financial system. One such hub centre is being established in Stockholm, with the central banks of Sweden and Denmark, Sveriges Riksbank and Danmarks Nationalbank, the Central Bank of Iceland and Norges Bank as participating banks, in addition to the BIS. New technology provides new opportunities for innovation, but also presents new risks that must be addressed. Vulnerability to technology-enabled disruption is increasing – whether the disruption is the result of malicious attacks or other factors. | 0 |
Similarly, the insurance and risk management markets will have to be developed further to meet corporate and individual needs. There is already a momentum, with capital markets in China, India and ASEAN economies developing well. In bigger economies, micro-finance, mobile finance and rural finance are also being developed. Cross-border financial activities within Asia are also showing signs of increase. These are positive changes, as the development of a deep and integrated financial system provides a vital support for structural adjustments in the region. Economic and financial linkages between France and Singapore Let me now say a few words on how Singapore is responding to these challenges, and how the French business and financial community can collaborate with those in Singapore to promote growth in Asia. The Singapore government has set up an Economic Strategies Committee to identify policy changes to strengthen Singapore’s value as a vibrant global economic node in the heart of Asia. Singapore’s connectivity enables it to facilitate the flow of goods, services, capital and ideas. The value of Singapore as a stable, trusted hub that respects the rule of law, and its value as a consistent regulatory regime are our core strengths. But these will need to be enhanced with new capabilities in knowledge creation and innovation, as well as the development of deeper talent pool, in order for the business community to seize new opportunities. The connectivity and ease of doing business is well acknowledged by global businesses. Today, over 26,000 international companies use Singapore as a base for their operations. | The impact of a financial crisis emanating from the largest economy in the world that also serves as the world’s economic locomotive and provides the global reserve currency is likely to be pervasive and longer-lasting. There are no easy precedents, and we have to remain alert to new surprises. Moreover, the key pillars of economic theories that underpin much of our policy thinking are now being vigorously questioned. We need much more thinking and empirical work on how economies and people behave to draw out the critical lessons from this crisis. But based on what we know, we need to undertake policy changes to build a more stable, sustainable and resilient global economic and financial system. Much of this has to be globally coordinated, given the extensive linkages among economies and the financial system. In Asia, we face many policy challenges, and I will touch on three of these: managing the recovery, economic restructuring, and the regulation and development of the financial services sector. My main theme is that we must be cognizant that many Asian economies enter this crisis with different starting conditions, and going forward, face different challenges from those in advanced economies. Understanding these differences, and avoiding a onesize-fits-all approach, will be critical to the design of policies appropriate to each country and region. Managing the economic recovery First, the economy. The financial crisis hit Asia with unexpected speed and force. | 1 |
The poor credit performance, particularly as regards lending in foreign currency and credit to businesses was translated into an annual shrinkage of 2% in the loan portfolio in February. Looking ahead, our baseline projections suggest that, after a weak performance in 2013, the trajectory of the Albanian economy will be upward in the medium-term horizon. Economic growth is expected to be more balanced during 2014, driven by both the domestic and external demand. The improvement of confidence climate will enable the real sector to benefit from the monetary stimulus, hence stimulating consumption and investments at home. Also, sustainable recovery of the world economy will sustain Albanian exports, particularly during the second half of the year. Economic growth will be supported by maintaining the current stimulating direction of economic policies, and will benefit from continuing structural reforms. This trajectory will bring the Albanian economy close to its potential and will establish the conditions for complying with the inflation target in the medium term. In the short term, the cyclical weakness of aggregate demand is expected to keep the economy below its potential and will be accompanied with weak inflationary pressures. With 90% probability of occurrence, four quarters ahead, inflation is expected to range between 0.5% – 3.9%. At the end of discussions, the Supervisory Council decided to keep the key interest rate unchanged, at 2.75%. | In the long term, increase in competitiveness of the Albanian economy, diversification of growth sources, and integration in the regional and global markets will be prerequisites for sustainable economic growth. The Bank of Albania, therefore, supports pressing ahead with priority structural reforms in the export and import-competing sectors. Fiscal behaviour in the first quarter was characterised by shrinking budget deficit and public spending. During this period, budget deficit decreased by about 57%, in annual terms, reflecting an increase of about 8.2% in budget revenues and a shrinking of about 2.4% in public spending. Albeit showing a higher intensity than our expectations, it is in line with the corrective fiscal policy to be pursued during 2014. Fiscal consolidation is expected to be more rapid on the revenue side, supported by a new fiscal package and a commitment for reducing fiscal evasion. Meanwhile, the clearance of arrears to businesses is expected to improve their financial situation and support economic activity in Albania. Consistent with our previous messages, we support the corrective direction of fiscal policy, and consider this correction as an indispensable step toward improving macroeconomic balances in Albania. The implementation of a corrective fiscal policy has provided more room and opportunities for implementing a stimulating monetary policy to sustain aggregate demand and maintain our inflation target. The Bank of Albania has confidently moved in this direction. | 1 |
Bank of England (2008), The Development of the Bank of England’s Market Operations: a Consultative Paper by the Bank of England, available at http://www.bankofengland.co.uk/markets/money/publications/condococt08.pdf. Barro, R. J. (1979), “On the Determination of the Public Debt”, Journal of Political Economy Vol 87(5), University of Chicago Press. Beale, N., Rand, D., Arinaminpathy, N. and May, R. M (2009), Conflicts between Individual and Systemic Risk in Banking and other Systems, forthcoming. 23 Kashyap and Stein (2008), NYU Stern School of Business (2008). 24 Tucker (2009). BIS Review 139/2009 11 Berger, A., Herring, R., and Szegö, G. (1995), The Role of Capital in Financial Institutions, Journal of Banking and Finance 19. Capie, F., and Billings, M. (2004), Evidence on competition in English commercial banking, 1920-1970, Financial History Review, Vol.11. Caprio, G. Jr. and Honohan, P. (2008), “Banking Crises”, CDE Working Paper Series. Committee on the Global Financial System (2008), “Central Bank Operations in Response to the Financial Turmoil”, CGFS Papers No. 31. Demirguc-Kunt, A., Kane, E., and Laeven, L (2008), Deposit Insurance around the World: Issues of Design and Implementation, MIT Press. Dudley, W. C (2009), “Some Lessons from the Crisis”, Remarks at the Institute of International Bankers Membership Luncheon, New York City. FSA (2009), “Strengthening Liquidity Standards – Including Feedback on CP08/22, CP09/13, CP09/14”, Policy Statement 09/16, available at http://www.fsa.gov.uk/pubs/policy/ps09_16.pdf Grossman R. S (2001), “Double Liability and Bank Risk Taking”, Journal of Money, Credit and Banking Vol. 33 No. 2. | If a robust financial and regulatory system is one which is parsimonious and transparent, the answer might be that they are not. It may be time to take Occam’s razor to regulatory rulebooks. • Rethinking capital structure: Asymmetry of payoffs risks excessive risk-taking. The source of this asymmetry is limited liability. It is revealing that limited liability was first introduced into banking in the UK in the mid-19th century. That was roughly the time state support for banks took shape. This is unlikely to have been serendipity. So could the distortions from limited liability be tackled at source? In the early days of banking, liability was not just unlimited; it was often as much personal as financial. In 1360, a Barcelona banker was executed in front of his failed bank, presumably as a way of discouraging generations of future bankers from excessive risk-taking. 16 It has not been conspicuously successful. From the Middle Ages, debtor prisons replaced the gallows. They were a common feature of many developed countries, including the US and UK, right up until the 19th century. The switch to limited liability at that time was a conscious attempt to encourage risk capital into the banking system to help finance growth. In essence, this meant trading off financial risk against future productivity. At first, equity in banks often carried “double liability”, with shareholders liable for losses on the purchase price of their shares plus their par value at issuance. | 1 |
Far too many instruments that were held in the trading book were subject to low capital requirements but actually could not be traded, leaving values exposed to big swings in liquidity premia. This was a fatal design flaw in the existing regime, and it is one which I hope should be fixed over the next year or so though the Basel Committee’s “fundamental review of the trading book”. 4. Too big to fail At the centre of the reform effort in the FSB work is “Too Big To Fail.” If one of the largest firms in the world got into trouble right now, in almost every country in the world we would not be able to cope with its demise other than through fiscal support. This is completely unacceptable. If there is one thing that I think unites the members of the G20 – at the political level and at the official level – it is that this will be consigned to the past. We will re-introduce market discipline back into the financial system, which really means re-introducing capitalism back 2 BIS Review 148/2010 into the heart of capitalism. The acid test has to be whether, for every financial institution in the world, it could be resolved if it faces distress in a way that does not disrupt the flow of essential financial services to the economy and without state solvency support. That is the single goal in this area. | Retail sales in November and December posted a slight decline compared with the corresponding period of 1995. Activity in the construction sector fell back in the fourth quarter and posted a sharp twelve-month drop. Employment levels varied little in industry, with the exception of the automobile sector, where they posted a further substantial decline. They remained stable in the market services and retail sectors, but fell sharply in the building industry. BIS Review 4/1997 | 0 |
It seems to me 8 BIS Review 133/2010 the natural way to do that is to make sure they can withstand falls in asset values by having sufficient loss-absorbing capital rather than to expect monetary policy – moves in interest rates – to substantially reduce asset price variability, much of which might be warranted. The short-term nominal interest rate is a very blunt instrument to use to try to limit gearing of financial institutions. Capital requirements, and explicit limits on gearing, are more direct means to control leverage. This is why I think the direction of the policy emerging from the Basel III process – which will put in place higher capital requirements on banks – is right. It is also why time-varying limits on gearing of financial firms – limits that might vary with asset prices and with the economic cycle – are likely to be useful in helping maintain financial stability. I believe that is a much more fruitful way forward than abandoning inflation targeting. But while I think this is plausible, the case is not proved. Simply because they are a more direct means to control leverage does not prove that capital requirements or limits to gearing are a far more effective tool to preserve financial stability than changing interest rates. | Indeed it is possible that the attractiveness to those seeking funds of debt relative to equity is greater at higher interest rates. This is because interest payments are tax deductible whereas dividends are not. The scale of that subsidy to debt gets bigger as debt payments rise, which will happen as interest rates rise. A more formal version of this story goes like this: Suppose that nominal interest payments by issuers of debt, paying an interest rate r, are deductible against corporation tax (levied at rate tc) but that returns on equity paid by issuers have to come from post-tax income. Assume that all nominal returns received by holders of debt and equity are taxed at a common rate – a single rate that is charged on interest received, dividends and nominal capital gains. Because all receipts of income from financial claims are taxed at the same rate then the payments that need to be made by companies on debt and equity would, on average, need to be the same (because we ignore risk considerations). But companies can deduct interest payments against tax which means that the cost advantage of debt over equity to the company is measured by the nominal interest rate multiplied by the corporate tax rate – r x tc. This is increasing in the nominal interest rate. In this case, all else equal, the tax consideration is likely to lead to an increase in leverage when the nominal interest rate is higher. | 1 |
The result could have been a vicious cycle involving low economic activity, increased funding stress for banks and a further reduction in lending, eventually leading to significant downside risks to price stability. The actions of the ECB have helped to break this cycle and to bring confidence back into the euro area financial system. The large amount of liquidity now present in the system is a consequence of these actions. It represents the symptoms of a malfunctioning interbank market, which, if left untreated, could have led to a credit squeeze. The ECB’s ability to maintain price stability remains intact: we will have the possibility to adjust the interest rates and, if necessary, we have at our disposal a range of tools to actively absorb the excess liquidity. 8 BIS central bankers’ speeches The ECB has addressed the immediate symptoms, but monetary policy cannot cure the underlying causes. The situation in financial markets has reached a turning point but recent market developments have highlighted that it remains fragile. All the relevant players must act responsibly by taking the necessary steps. Banks need to meet capital adequacy objectives, improve their funding profile, and start lending again. Governments must build on the steps already taken to restore sound fiscal positions and support long term growth. At the ECB we will continue to closely monitor further developments. We will do whatever it takes to fulfil our mandate of delivering price stability over the medium term for the 330 million people of the euro area. | In addition, we might choose to include effects on the payment system and on general economic performance if, for instance, we saw a significant risk of a future financial crisis. The clarification of our monetary policy that we published in 1999 states that we would explain clearly the reasoning behind our decision if this situation were to arise. Naturally, this question - of whether the risks are sufficiently large to require special consideration in the monetary policy decision - is not a simple one. It concerns weighing up difficult issues about which opinions may differ from time to time. So far, however, considerations with regard to the effects of house prices and household indebtedness on factors other than the inflation rate have only played a marginal role in interest rate policy. Inflation and monetary policy Let me conclude with a summary of my current views on inflation and monetary policy. Since the early summer, inflation in Sweden has developed roughly in line with the Riksbank’s assessment in May. Inflation is low both by Swedish and international standards, at around 1 per cent. At the same time, it is important to emphasise that the decisive factor for monetary policy is not the present inflation rate, but our views regarding future inflationary pressures. At our monetary policy meeting in May, the Riksbank judged that inflation would remain relatively stable over the coming year and then increase gradually as a result of rising international and domestic resource utilisation. | 0 |
• The first characteristic, which has set us apart from other supervisors, has been our strong role in accounting rule-making for the banking sector in Spain. This has meant that the accounting rules for the banking sector take into account supervisory sensitivities, whilst being also consistent with IFRS. One example of this is the socalled “dynamic provision”, which we introduced in 2000. This allowed Spanish banks to build up a significant provisioning buffer in a transparent manner, to be used in bad times, when problem loans increase. In 2005, the Bank of Spain reformed the dynamic provision when adopting International Financial Reporting Standards. Despite the reform, banks kept the strong provisioning level set by the former rules, and today they face the current situation with a sound buffer of loan loss provisions (1.3% of total assets at the end of 2007, and this despite bad loans being at historically low levels). • The second characteristic that has proved useful is the Bank of Spain’s prudent approach to bank regulation. One example has been our stance on off-balance sheet investment vehicles. We have not prohibited the development of investment vehicles, but we told banks that if they set up Special Investment Vehicles, these should be consolidated with the group, and therefore be subject to capital requirements and provisions. Under these conditions, no such vehicles were set up. As a consequence, the Spanish banking system has not been so seriously hit by the de-leveraging process as other systems that have a freer attitude towards these vehicles. | It is a great honour to have this opportunity to contribute to the lecture series he created. Professor Beesley’s expertise lay in industrial and regulatory economics, whereas at the Bank of England my focus is – naturally enough – on monetary and macro economics. I had originally hoped to bridge this gap by discussing how the Bank’s Monetary Policy Committee (MPC) seeks to ‘regulate’ price developments by steering CPI inflation back to it 2% target. But, in an earlier lecture in this year’s series, Professor Sir John Vickers has already taken that route. While unfortunately I could not attend his presentation, I understand he spoke on the Bank’s largely successful experience of inflation targeting over the past twenty-five years, concluding with some remarks on the challenges for UK monetary policy posed by the current difficult environment.1 Even though that topic has already been covered, it would be remiss not to say a few words about the monetary policy outlook. The outlook for monetary policy Since I re-joined the Bank’s staff just over a year ago (and became a member of the MPC), we have been in the process of tightening monetary policy. Bank Rate has been raised at each of the past eight meetings, and now stands at 3%. | 0 |
The COVID-19 pandemic and recent developments in Ukraine, events that successively hit sharply the equilibrium state in each field of life worldwide, including economy and finances, trigger challenges to: managers of public finances; families and personal finances; as well, to everybody. This “New reality” for the 21st century has shocked financial markets and the increasing geopolitical tensions are continuing to generate consequences that may vary from relatively contained to very serious ones. Nowadays, almost the entire global economy is facing unexpected shocks, which have driven to hard and complex crisis. After a two-year pandemic period and the extraordinary measures undertaken by governments and financial authorities, the war in Ukraine has caused a new shock. These events, coupled with the implemented sanctions, have hit the global production, supply chain and public confidence, driving to an immediate effect in the upsurge of commodities 1/3 BIS central bankers' speeches prices, like oil, petrol and food. It caused a chain of consequences, leading to an immediate and strong increase of inflation in worldwide economies, including the Albanian economy as well. To this end, they will impact the direct and indirect economic and financial equilibriums which demand for time and crucial interventions from authorities. In response, policy makers, governments and central banks across the world have already activated a set of measures for mitigating the impact of these successive and robust shocks on the economy. | It is an international initiative organised by the OECD International Network on Financial Education (OECD/INFE) which aims at awareness-raising of the young generation, becoming responsible and financially capable citizens in the future. In this framework, central banks, public agencies, financial institutions and civil society organisations across the world held each year their own GMW events in the last week of March. Since its start, with an ever increasing participation, the Global Money Week is held in 176 countries across the world, and has involved over 53 million children and young people in various activities. The international theme for this year, selected by the organisers is: “Build your future, be smart about money.” The theme highlights the importance of a prudential and pro-active thinking about money, as a premise for a safe and prosperous future, empowering children and youth with the adequate know-how and skills for an evolving digitalised and innovative financial market. The Bank of Albania, through its commitment in the field of financial education, over this decade, has shown to consider financial education of public, an integral part of its duties. Financial education enables the resilient welfare and safeguards the financial soundness of everyone, even in critical situations. The unprecedented events in recent years have driven to the need for cultivating financial literacy, as part of the overall formation of everyone. | 1 |
10 BIS Review 76/2009 Figure 7 Distribution of growth projection for 2009 (*) United States -2.0 -1.5 -1.0 -0.5 Jan. 08 Jan. 09 0.0 Chile 0.5 -1.3 1.0 -0.8 -0.3 May 07/Aug.08 Jan./May 09 Sep. 08 May. 09 0.2 0.7 Sep./Dic.08 (*) For the United States, minimum (maximum) point of each curve shows the difference between the lowest (highest) projection and the median. For Chile, the difference between decile 1(9) and the median. Sources: Consensus Forecasts and Economic Expectations Survey of the Central Bank of Chile. Figure 8 Consumers' and entrepreneurs' perception indexes 90 140 70 70 70 120 60 60 50 100 50 50 30 80 40 40 10 60 30 30 86 92 IPEC (1) 98 02 04 06 08 U. de Chile (2) 04 05 06 Total IMCE(3) 07 08 09 Excl. mining (4) (1) Values above (below) 50 points indicate optimism (pessimism). Before January 2003, the index was published quarterly. From then on, its publication is monthly. (2) Index, March 2001 = 100. (3) Values above (below) 50 points indicate positive (negative) expectations. (4) Weighted average of three sector confidence indicators: manufacturing Industry, retail and construction. Sources: Adimark, Universidad de Chile and ICARE/Universidad Adolfo Ibáñez. | 5 Bloom (2009) presents evidence where the use of this indicator helps to understand the US economic cycle, precisely because firms temporarily put their decisions on hold regarding investment and new hirings. BIS Review 76/2009 5 At the world level, the situation wasn’t so different. Expectations of both individuals and firms suffered a severe decline (Figure 10). Stock prices around the world dropped dramatically, reflecting the worsened expectations (Figure 11). The prices of commodities also fell because of the reduction in demand expected for the future. The exception was gold, commonly used as a store of value at times when perceived risks increase (Figure 12). The drop in demand was particularly steep in the manufacturing sector. This explains the severity of the corrections to growth forecasts in countries that export manufactured products such as Japan and Germany and the recently industrialized Asian economies, among others. These countries are expected to experience an average fall in GDP of around 5 percent during this year. The main effect of the reduction in world demand on the Chilean economy has been the drop in the prices of our exports, and those of many other countries. This pulled down the terms of trade and debilitated the national income prospects. However, as I have said a number of times before, the impact of reduced demand is milder in countries that export natural resource related goods, like Chile. | 1 |
The absorption of higher capital for the country’s development is another opportunity the global crisis provides us. It is a well-known fact now that technology and financial capital tend to move towards sectors, branches and countries that offer higher return on investment. In my personal opinion, but also based on a thorough analysis of the Albanian economy, Albania is a great destination in this respect. There is undoubtedly a high perceived risk in the global markets, not only for Albania but also for all the countries in the region. We should, however, make our competitive advantages clear to the global markets and continue to work on the structural reform in order to release more development potentials and energy. Another lesson drawn from the crisis is that consumption should be re-oriented from imported goods to domestic production. I have addressed it before too that the list of imports should get shorter through their substitution with domestic products, which has to be the priority of the new economic growth model in Albania. To this purpose, time is ripe perhaps to give priority to the organization of financing schemes to support the traded sector. In more concrete terms, I refer to development financial institutions that support the agriculture sector, agro-business industry, extracting and processing industry, where the Albanian economy offers competitive advantages. The BIS central bankers’ speeches 3 economic benefits provided by these financial institutions to domestic production go beyond the low financing cost. | ** 1 – A year of stabilisation Last year, I had talked about the three challenges for growth: uncertainty, isolationism – particularly the United States – and impatience, which is hampering sustainable reform efforts. None of these has disappeared. But French growth is holding up at 1.3% in 2019 despite a slowdown at the end of the year, and we are expecting 1.1% in 2020. And we can practically rule out a US or European recession in 2020, which was often feared last year. These initial signs of economic stabilisation, highlighted in our latest December Eurosystem Staff projections, reflect a relative decline in trade uncertainties. If this stabilisation materialises, it should result in a stabilisation of monetary policy. This means two things: Seen from today’s perspective, like the markets do, it is [therefore] reasonable to expect that over the coming months our policies and interest rates will remain stable. The year 2020 will be all the more conducive to conducting the strategic review of our monetary policy under Christine Lagarde, focusing particularly on the key issue of our inflation target. Stabilisation of regulations too, for banks and insurers. This is important for you, as it is for me, even though we do not always understand it in exactly the same way. We mustn’t get carried away – there will not be a Basel IV –, or backtrack: we must transpose in Europe the Basel III international agreement concluded in December 2017. | 0 |
First, they do not have to hold capital against the full risk that credit spreads will move against them in the market; Second, they are allowed to discount their annuity liabilities at higher than risk-free rates, reducing their liabilities and therefore boosting their current available capital. For UK insurers, the Matching Adjustment currently amounts to a capital benefit of some £ billion, split roughly evenly between lower capital requirements and higher capital resources. The Bank of England supports the Matching Adjustment framework. Properly implemented, it does appropriately reflect the risks to which annuity writers are exposed. As the Financial Policy Committee 7 concluded , it also has important financial stability benefits. It allows insurers to ‘look through’ short-term volatility in credit spreads, avoiding any undesirable incentives to act procyclically by selling risky assets as market prices fall. Under Solvency II, Matching Adjustment assets have to meet strict criteria. For example, they must match the liabilities and have fixed cashflows. Insurers are seeking illiquid assets that both offer attractive yields and qualify for the Matching Adjustment. The PRA has allowed insurers some scope to restructure assets in order to meet the requirements. For example, equity release mortgage portfolios may be a good maturity match for an annuity book as part of a diversified portfolio. But they do not have fixed cashflows. So 4 Housing Affordability in England and Wales: 2016, Office for National Statistics, 17 March 2017 Miles, D and J Sefton (2017), “Houses Across Time and Space”, CEPR Discussion Paper No. | These changes, and others, seem likely to have made the financial system both more effective in moving capital to its most productive use and more stable and resilient over time. But they do not, of course, mean the end of systemic risk in financial markets. They could in some circumstances work to magnify rather than mitigate stress. Central banks, supervisors and those running the major private financial institutions need to continue to work to ensure that what Jerry Corrigan calls the “shock absorbers” in the financial system - capital and liquidity and the operational infrastructure - are sufficiently strong and robust to withstand economic and financial conditions more adverse than we have seen in the recent past. Thank you. BIS Review 2/2007 3 | 0 |
that monetary union was a political endeavour, and that the final goal was political union, albeit a different union from those we are used to studying in textbooks. Creating the euro, adopting it or not adopting it, are not mere technical decisions but key political choices, and have profound political implications, which are quite different from being a member of the European Union. This might not have been fully realised by all. Let me give an example. No opt-out clause was offered to the Member States which joined in 2004, even though some of them might have been less enthusiastic about joining the euro area than joining the EU itself. A formalistic reading of the Treaty reveals that all countries except the UK and Denmark are committed to converging as soon as possible to the single currency, even in those countries where popular support for it seems to be still limited. A strict interpretation of the Treaty indicates that Sweden should not have had a referendum on the euro in 2003. Indeed, by ratifying the Maastricht Treaty, Sweden committed itself to joining the euro as soon as possible. In practice, nobody complains that the letter of the Treaty is being ignored, because a country cannot be forced into the euro if it is politically unready to join. Being part of a monetary union binds its members at different political levels, not all of which are easily visible. Take fiscal policy. | The first, main objective of the euro was to create an area of monetary stability in Europe. This has been achieved. The average inflation rate between 1999 and 2008 was 2.2%, about 1 percentage point less than in the 1990s. It is also lower than the best performing countries, like Germany, before the euro. Monetary stability has been reflected also in the low level of interest rates, which is also an improvement compared with the previous decade. This suggests that monetary stability is now well entrenched in expectations. A second objective was to ensure that this monetary stability was not attained at the expense of economic growth and stability. This too has been achieved. The GDP growth rate of the euro area over the last decade has been similar, by and large, to that of the previous decade, BIS Review 20/2009 1 both in absolute and in per capita terms. Unemployment has been lower on average and employment growth stronger. All this has been achieved in spite of the more rigorous budgetary policies of the Member States, at least compared with the previous decade. This suggests that the Stability and Growth Pact has not imposed a straightjacket on our economies. You could argue that other countries, in particular EU countries which do not have the euro, have performed even better than the euro area. The UK has had a higher average inflation rate than the euro area but also a higher growth rate; Sweden has a comparable inflation rate and higher growth. | 1 |
Indeed, last week we approved a reform whereby, under our Directorate General Operations, Markets and Payment Systems, a new Associate Directorate General Financial Innovation and Market Infrastructures was created to assume the competencies in these areas, centralising in this new structure the functions previously assigned to different units in the Bank. This Associate Directorate General will have to face two families of problems. First, the questions that arise with the emergence of new agents and new operators in the financial markets, providing services that already existed (but in a different way), or services that did not exist, namely new types of financial services. As regards these new market players, two groups of problems are posed: on one hand, those referring to matters of competencies, i.e. all agents and operators should be subject to the same demands or regulations; on the other, investors and consumers should be protected and alerted as to the new risks, just as they are in respect of the former operators and their products. The second family of matters which the new Associate Directorate General of the Banco de España must face concerns new technology and its application in financial markets, something which, in these times of continuous innovation, is obviously of great importance. Thank you for your attention. 7/7 | The situation in Sweden’s financial markets then improved as the measures for consolidating government finances began to bite, prospects for Sweden’s economy brightened and international developments became more stable. During 1995 the Swedish krona became markedly stronger and long-term interest rates declined. This trend continued during 1996, when the Riksbank rapidly lowered the repo rate. At the end of 1996 the level of the TCW exchange rate index was 114, which was inside the Riksbank’s estimated interval for long-term equilibrium. For about two years, from the summer of 1996 to the summer of 1998, the krona stayed inside a relatively narrow interval in relation to the German mark, about 3 per cent around a mean level of 4,40. In effective TCW terms, however, the krona weakened. There are good reasons for supposing that this was due to other factors than problems with credibility. The link between exchange rate movements and the long-term interest rate differential was no longer discernible, which indicates that the krona’s path now had less to do with aspects of credibility. The main explanation for the weaker exchange rate in this period lay rather in cyclical differences. Stronger economic growth in the UK and the United States caused the dollar and sterling to appreciate against the krona. Turbulent autumn In the autumn of 1998 the krona weakened again, mainly, in the Riksbank’s opinion, on account of international turbulence. | 0 |
Regulation of SGX as a self-listed entity When the SGX was listed on itself (on its Securities Trading subsidiary), MAS assumed the role of frontline regulator for the listing and trading of SGX's shares. MAS was the approving authority for SGX's listing, and was directly responsible for vetting SGX's prospectus. We are also conducting surveillance of trading in SGX's shares, and monitoring the continuous disclosure of material information by SGX. MAS has powers under the Exchanges (Demutualisation and Merger) Act to issue directives to SGX to resolve any conflicts of interest arising from its self-listing. Such conflicts are also addressed in a Deed of Undertaking to the MAS. In keeping with the Deed, SGX has appointed a Conflicts Committee to deal with such issues, and MAS is the approving authority for the composition of the Committee. Revisiting the regulatory structure will be necessary The relationship between the regulator and the exchange is evolving internationally. Regulators are monitoring the effectiveness of self-regulation by the exchanges, and the division of responsibilities between regulators and exchanges. No single model has gained universal acceptance, and no model is regarded as good for all time in any jurisdiction. The present MAS-SGX regulatory arrangement has major elements in common with that in the major jurisdictions which have seen the exchanges demutualised, and in particular with arrangements in Australia. The UK approach is also similar, except that the Financial Services Authority (FSA) has taken over the listing authority from the London Stock Exchange (LSE). | The SSM is the fruit of all these lessons… and, under your responsibility, the best guarantee for the future. Thank you for your attention. 3/3 BIS central bankers' speeches | 0 |
Quoting from his paper: “the future policy that one wishes for people to anticipate is one that the central bank will not have a motive to implement later, if it makes its decisions then in a purely forward-looking way, on the basis of its usual stabilization objectives.” (end BIS central bankers’ speeches 1 quote) This does seem like a hard conundrum to get away from, and probably limits the traction of this type of tool as a strong driver of longer-term rates. Partly due to these limitations, Central banks have also directly tackled the term premium by purchasing large quantities of long-term assets. The idea is that by removing some duration from the fixed income markets, private investors’ aggregate exposure to interest rate risk is diminished, leading to a lower required compensation for bearing such risk. Of course, this logic relies on some form of imperfections and/or market segmentation, but there is by now significant evidence, including some excellent papers to be presented in this conference, that QE has had a measurable impact on long-term rates through this channel. A similar logic applies to the default risk-premium: to the extent that returns on safer debt are compressed by central bank purchases, investors are tempted to reach for yield into other fixed-income markets, such as mortgages, corporate bonds, and emerging market instruments. | If confidence in economic policy deteriorates, for example because Norges Bank sets interest rates so low that inflation and unstable exchange rates are expected, long-term interest rates will rise. The cost of low confidence is thus high risk 5 http://www.statistics.gov.uk/pdfdir/cpi0501.pdf BIS Review51/2001 5 premiums and unnecessarily high long-term interest rates. Transparency in our intentions, strategies and implementation of monetary policy may contribute to reducing uncertainty among economic agents. If monetary policy is predictable, an important source of risk is diminished. Thus, all else being equal, the interest rate that is necessary to achieve the inflation target will be lower. There will then be a better chance of achieving the inflation target without frequent and abrupt changes in the key rate. Predictability may contribute to ensuring more stable developments in demand and output. Thus, a predictable monetary policy may contribute to improving the efficiency and impact of monetary policy. Predictability and transparency are often equated. However, increased transparency does not necessarily imply a higher degree of predictability. Many cite the Bank of England as a very transparent central bank, because it presents its assessments of the economic outlook in its inflation 6 reports and publishes the minutes of the Monetary Policy Committee meetings. | 0 |
And the sheer scale of the balance sheet interventions necessary in recent months pose important longer term questions. About the extent to which the non-bank financial system may still be capable of amplifying instability – for example through sudden non-bank deleveraging, runs on money market funds, or rigidities in dealer intermediation. And about the appropriate balance of responsibilities between the public and private sector for dealing with such vulnerabilities. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches 2 I cannot give comprehensive answers to these questions today. But, in what follows, I have tried to provide some raw material for that exercise, illustrated using seven of the most vivid ‘moments’ from my own experience of the past few weeks. Moment 1: the first rumbles of thunder In the first week of March – the week before that fateful Friday 13th – we at the Bank had decided to move all of our market operations to full split site working, to reduce the risk of Covid-19 transmission. On Friday 6 March, as I was walking across the trading floor saying goodbye, my attention was drawn to a group of our foreign exchange reserves managers staring intently at their screens and talking animatedly. A big adjustment in financial markets had already been underway for some time, as expectations of slower demand caused by the global spread of the virus pulled down on equity and oil prices, and investors moved into safer assets, reducing yields (Chart 1). Market functioning had however mostly held up well. | Seven Moments in Spring: Covid-19, financial markets and the Bank of England’s balance sheet operations Speech given by Andrew Hauser, Executive Director, Markets Bloomberg, London 4 June 2020 I am grateful to Gregory Kidd for his help in writing this speech, and to Andrew Bailey, James Benford, Christine Boykiw, Ben Broadbent, Nicholas Butt, Rohan Churm, Victoria Cleland, Amber Evans, Michael Foster, Richard Gordon, Sarah Hall, Andrew Harley, Ronan Hodge, Al Hughes, Lance Jones, Adam Newell, Will Parry, Rhys Phillips, Jo Place, Eugenia Planas, Dave Ramsden and Tim Taylor for their advice, comments and guidance. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches Introduction I have always had a funny feeling about Friday the 13th – and 13 March 2020, Mark Carney’s last day in the office as Governor of the Bank of England, was no exception. Two days earlier, on Wednesday 11 March, the Bank and HM Treasury had launched an unprecedentedly comprehensive package of measures to respond to the rapidly growing economic consequences of the spread of Covid-19. Hailed globally as a shining example of how monetary, fiscal and regulatory policies could work together to reinforce one another, the combination of interest rate cuts, government spending, cheap funding and capital easing measures seemed sure to stabilise markets and restore some muchneeded confidence to households and businesses. So it cannot have been hugely welcome when, on Friday morning, with the removal vans waiting outside, I suggested the Bank’s Governors needed to meet again before the weekend. | 1 |
The measures implemented by central banks and governments have had a stabilising effect on financial markets. Credit and money market premiums have decreased and activity has picked up. Daily fluctuations have become less pronounced. With the improvement in financial markets over the past six months and the increase in the credit supply, global trade is now picking up slightly, albeit only gradually and from a low level. Manufacturing output has recently risen in the US, Japan and many emerging economies, while it continues to fall – albeit at a slower pace – in many euro area countries. Manufacturing output in Japan and the US is still at a very low level. Despite the pickup in growth, capacity utilisation in advanced economies will remain very low for the next two-three years. 2 BIS Review 139/2009 Uncertainty in equity markets has eased and risk premiums are lower, reflected in a rise in leading US stock indices of more than 50 per cent since equity markets bottomed out at the beginning of March 2009. Oslo Børs has risen by about 70 per cent since the beginning of March. The price of oil has risen somewhat since the June Report, and has doubled since the trough in December 2008. Metals prices have also risen. The increase in oil prices reflects low growth in oil production, more positive expectations as to the world economy and a weaker US dollar. | Machinery and equipment posted negative y-o-y growth in the third and fourth quarters of 2013, while construction and other works decelerated significantly during the same period (figure 6). BIS central bankers’ speeches 3 This correction to investment growth owes to various factors. For one, there is the aforementioned investment cycle of mining and related sectors, plus the postponement of some investment plans. Although this was an expected development, its magnitude was unclear. Another factor is the low basis for comparison of the same months of 2012, which were swollen by unusual imports of transportation material, which affects the y-o-y variation of capital goods imports. There is also the downturn of expectations reflected in business confidence surveys and our business perception report Informe de Percepciones de Negocios. Lastly, there is the drop of public investment in real terms during the last quarter of the year, and the depreciation of the real exchange rate, which raises the costs of foreign capital goods. Accordingly, private growth forecasts for this year have been revised downward. Our March Economic Expectations Survey lowered GDP growth in 2014 from 4.1 percent in November to 3.7 percent in March. Thus, the baseline scenario of this Report has lowered the GDP growth estimate for 2014. The Board estimates that this year our economy will grow between 3 and 4 percent (3.75 to 4.75 percent in December), that is, less than last year and below trend. | 0 |
I’m glad to note the warm market response to our new grant scheme. Since its inception in May, nearly 30 applications from green and sustainable debt issuers have been approved and more than 40 are in the pipeline. 18. To further strengthen our green and sustainable finance ecosystem, the HKMA and the Securities and Futures Commission (SFC) co-established the Green and Sustainable Finance Cross-Agency Steering Group last year, with an aim to coordinating cross-agency 3/4 BIS central bankers' speeches market development efforts on this front. In July this year, the Steering Group launched the Centre for Green and Sustainable Finance, which coordinates the efforts of financial regulators, Government agencies, industry stakeholders and academia in capacity building; and at the same time, helps improve data availability for the financial industry. 19. With these ongoing efforts and our strong commitment to green finance, Hong Kong’s role as a regional green and sustainable finance hub has been taking shape. But we should not stop there. I encourage all of you to continue to build on our strength as the leading financial centre in Asia to capture the enormous opportunities in this growing space. With our natural advantage to be the “green” gateway for China, we believe that Hong Kong can continue to contribute to this important transition in the region. Closing 20. I began my speech by highlighting the complex and far-reaching nature of the challenges arising from LIBOR cessation. Meeting these challenges would require tremendous efforts from all of us across the financial markets. | Asides from these efforts, the HKSAR Government has issued two rounds of institutional green bonds since 2019, with the 30-year green bond to be the longest tenor green bond issued by a government in Asia. As part of our continued commitment in promoting sustainable development, Hong Kong has also set up the world’s first government Global Medium Term Note Programme dedicated to green bond issuances. We believe this could not only create a strong demonstrative effect, but also help establish a benchmark yield curve, which is critical in supporting the further development of the green bond market in Hong Kong. Other Initiatives 16. Indeed, Hong Kong is already one of the major green finance hubs globally, with a strong presence of finance and legal professionals, global institutional investors and asset managers committed to green and sustainability. As the manager of the Exchange Fund (EF), the HKMA is also integrating sustainability into our investment strategy. We are not only supportive of responsible investment at the EF level, but also seek to collaborate with like-minded investors and international organisations to promote ESG standards in investment process. 17. Looking ahead, we believe that green and sustainable bonds will continue to be the key growth driver. In May, Hong Kong launched the Green and Sustainable Finance Grant Scheme to support green and sustainable bond issuance and lending. The scheme, which will last for three years, provides subsidy for eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services. | 1 |
Attempting to achieve this is important to ensure the inflation target continues to function as a benchmark for expectations in the economy, as it has done for twenty years now. However, this does not mean that the inflation targeting framework will be exactly the same as it is today forever. We are learning from previous experiences, and the global economy is constantly changing. We therefore welcome a discussion of ideas about the content and direction of the monetary policy. Naturally, we at the Riksbank listen to the arguments and analyses presented to us, and we try to contribute to this discussion with our own analysis. 16 I hope that my speech today has conveyed that I am not convinced by the arguments recently put forward which say that the Riksbank should abandon or lower the inflation target, or show even greater patience with low inflation. 16 10 The Riksdag is also contributing to this process by carrying out both its own and external assessments of the monetary policy. An external assessment is currently being conducted under the management of Marvin Goodfriend and Mervyn King (The Riksdag, 2014). Their conclusions will be presented at the beginning of next year. BIS central bankers’ speeches References Andersson, Rune (2015), Det är därför minusräntan är så farligt. [Why the negative rate is so dangerous.] (In Swedish), Debate article, Dagens Industri, 12 August. Armelius, Hanna, Paolo Bonomolo, Magnus Lindskog, Julia Rådahl, Ingvar Strid and Karl Walentin, (2014), “Lower neutral interest in Sweden”, Economic Commentaries, no. | Jean-Pierre Roth: Monetary policy and credit markets Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 22 January 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The economic slump of the past two years has affected the credit markets. Corporate loans declined, and on the capital market redemptions of shares and bonds of private borrowers exceeded new issues. In this speech, a few general points concerning credit financing and monetary policy will be discussed. The financing opportunities and, concomitantly, a borrower’s expenditure behaviour depend on the value of capital assets eligible as collateral or, more generally, on the borrower’s balance sheet structure. Due to the major significance of real estate as security, the situation on the real estate market in turn has a considerable bearing on credit conditions. The Swiss National Bank thus keeps a careful eye on price development in the real estate market. Monetary policy influences the prices of investments and thus impacts on the economy via the borrowers’ balance sheets. This is not the only channel - and certainly not the most important one through which monetary policy exerts an influence; it may, however, be relevant under certain circumstances. Since corporate balance sheets differ considerably from one enterprise to another, monetary policy has distributive effects. | 0 |
Øystein Olsen: Macroprudential regulation and monetary policy 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, 7 October 2013. Please note that the text below may differ slightly from the actual presentation. * * * Accompanying charts can be found at the end of the speech. Original presentation is on Norges Bank (Central Bank of Norway) website. Charts in pdf International economic developments in recent years have presented a challenge to the economic policy framework. An important lesson from the financial crisis is that regulation of the financial system must be improved and that the macroprudential perspective in particular needs to be strengthened. Development of macroprudential regulatory frameworks is therefore underway in a number of countries, including Norway. Experience shows, however, that financial crises are very difficult to predict and prevent. The aim of macroprudential regulation is to reduce the probability of a crisis and counteract harmful effects in the financial system when a crisis occurs. A related issue is how monetary policy should respond to financial imbalances, and more specifically, what the implications of the new macroprudential policy tools will be for monetary policy. How monetary policy is conducted and communicated is also evolving, both abroad and in Norway. Norges Bank has decided to launch a major research project with a view to further developing the framework for flexible inflation targeting. I will return to this topic towards the end of this address. | Regionally, the establishment of the Chiang Mai Initiative Multilateralisation (CMIM) further enhances the regional capacity to cope with capital flows and safeguard financial stability of the region. The HKMA fully supports this important regional initiative, and indeed we have played an active role in its development and participated directly in the arrangement. 10. The third area is enhancing the capacity of regional capital markets to absorb capital inflows and channel them to productive uses. In this regard, the HKMA took the lead in developing the Asian Bond Funds (ABF) under the aegis of the Executives’ Meeting of East Asia Pacific Central Banks (EMEAP). The ABF, as a pioneer product, aimed to provide a convenient low-cost local-currency instrument for investment, and at the same time help identify and remove the impediments to bond market development. In parallel, with the strong support from the ADB, ASEAN+3 members have undertaken a range of projects under the Asian Bond Markets Initiative to promote the development of the local currency bond markets. Notwithstanding these regional efforts, we still have a long way to go in developing a regional bond market that is broad and deep enough to channel the region’s abundant savings to meet its huge investment needs. Continued national and regional efforts in this regard are much needed. 1 Emerging Asia includes China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand. 2 BIS central bankers’ speeches 11. | 0 |
100, pp. 1169-1189. Rotemberg, J (1982), ‘Sticky Prices in the United States’, Journal of Political Economy, Vol. 90, No. 6, pp. 1187-1211. Schnabel, C (2013), ‘Union membership and density: Some (not so) stylized facts and challenges’, European Journal of Industrial Relations, Vol. 19, pp. 255-272. Smets, F and Wouters, R (2007), ‘Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach’, American Economic Review, Vol. 97, No. 3, pp. 586-606. Svensson, L (1997), ‘Inflation Forecast Targeting: Implementing and monitoring inflation targets’, European Economic Review, Vol. 41, No. 6, pp. 1111-1146. Taylor, J (1979), ‘Estimation and Control of a Macroeconomic Model with Rational Expectations’, Econometrica, Vol. 49, No. 5, pp. 1267-1286. Taylor, J (1993), ‘Discretion versus policy rules in practice’, Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp. 195-214. Taylor, M (2017), ‘Good work: the Taylor review of modern working practices’, Department for Business, Energy & Industrial Strategy. Tirole, J (1988), The Theory of Industrial Organization, MIT Press. Traina, J (2018), ‘Is Aggregate Market Power Increasing? Production Trends Using Financial Statements’, Stigler Centre New Working Paper Series, No. 17. Van Reenen, J (2018), ‘Increasing Differences between Firms: Market Power and the Macro-Economy’, Federal Reserve Bank of Kansas City Economic Policy Symposium, Jackson Hole. Woodford, M (2003), Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton University Press. Yellen, J (2014), ‘Labor Market Dynamics and Monetary Policy’, speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming. | So we would not expect the relationships embedded in those models necessarily to be invariant to a rise in market power and mark-ups. Nor do these models typically take into account any of the potentially macro-economic side-effects of a shift in market power – for example, on productivity. Market Power and the Macro-Economy – A Theoretical Approach To explore those questions, we draw on the textbook New Keynesian model of the macro-economy, the type of which is often used to justify and assess the effects of flexible inflation targeting (Clarida et al (1999), Woodford (2003)). Specifically, we use the well-known textbook New Keynesian model in Galí (2008) to consider how changes in market power might affect the setting of monetary policy. We analyse the case where higher mark-ups are effectively the result of reduced competitive pressures, rather than the rise of highly productive ‘superstar’ firms. The model takes the following generic form: 𝜋𝑡 = 𝛽𝐸𝑡 𝜋𝑡+1 + 𝜅𝑥𝑡 + 𝑢𝑡 (1) 𝑥𝑡 = 𝐸𝑡 𝑥𝑡+1 − 𝜎(𝑖𝑡 − 𝐸𝑡 𝜋𝑡+1 − 𝑟𝑡∗ ) (2) where 𝜋 is inflation, 𝑥 is the output gap, 𝑖 is the policy rate, while 𝑢 is a cost-push shock. The first equation is a New Keynesian Phillips curve, the second a forward-looking IS curve. This twoequation system contains three key structural parameters: the slope of the Phillips curve, 𝜅; the interest elasticity of demand, 𝜎; and the long-run neutral rate of interest, 𝑟 ∗ . | 1 |
The efficient-market hypothesis presupposes that investors are rational and base share valuations on fundamental factors. If their market behaviour is not rational, it is assumed to be random, which means that individual actions have no impact on financial prices. If irrational players nevertheless act in a similar way, any influence on financial prices is eliminated by other, more professional agents via 3 arbitrage, which is assumed to be quick and effective. The irrational players accordingly suffer losses and therefore ultimately leave the market. In this way, the competition between rational and irrational investors, together with the existence of arbitrage, results in financial markets remaining efficient. 4 In the past two decades, however, the notion of financial market efficiency has been challenged, which will hardly surprise those with practical experience. This is mainly because the possibility of arbitrage has proved to be much more limited than assumed earlier. Studies in recent years have demonstrated the occurrence of periods when prices deviate appreciably from more fundamental levels. A new line in financial science, Behavioural Finance, has emerged, aimed at explaining why price deviations occur and developing tools for predicting them. Academics in this field have turned to 5 experimental psychology and other disciplines to explain the mind-set of financial market players. In a notable paper by a Princeton professor, Robert Shiller, it had already been shown in the early 1980s that share prices are considerably more volatile than would be expected if they were 6 determined by the current value of expected future dividends. | This is the fourth edition of this Conference organised by the European Institute of the Mediterranean, with the support of the Banco de España, to discuss economic and financial matters in the Mediterranean region. The three previous editions were in Barcelona, in 2014 and 2017, and in Rabat in 2015, on that occasion with the support and hospitality of Bank Al-Maghrib. This conference is therefore beginning to take root as a successful meeting point between different actors with interests in the economic and financial developments in these countries. The exchange of ideas among a wide and diverse range of participants – including central bankers, public officials, academics, and representatives from the private sector and international organisations– in a friendly environment proved enormously fruitful in previous editions, as, I am sure, will be also the case this time. Let me also add that forums like this are particularly relevant for central banks, which in recent years have had to face deep-seated transformations in economic and financial relations globally. This new environment forces us to re-think the design and implementation of economic policies in order to better contribute to the progress of our society. I would also like to inform you that the Banco de España is preparing a seminar on central bank communication, the first of which is aimed at Mediterranean and Latin American countries, to be held in the spring of 2019. | 0 |
Nevertheless, the strong demand in the ecosystem to provide innovative solutions convinced us of the interest of an experimental approach in this field. The way we experiment with CBDCs for wholesale transactions perfectly illustrates our choice to move from conceptual and academic considerations, to experiments in the field, hand in hand with market players, using a pragmatic, trial and error way of working. The goal is to determine i) how digital central bank money may improve the efficiency and fluidity of payment and settlement systems, ii) what are the most promising technologies and iii) whether it makes sense to make central bank money available to beneficiaries that do not have access to it yet. In May this year, we conducted a first successful and very promising experiment with Société Générale Forge, that enabled us to test the three steps of a digital transaction: the tokenisation of a security, the digital representation of central bank money on a private blockchain, and the settlement of a transaction on the security on the private blockchain. This led us to interface successfully a public with a private blockchain. Upcoming CBDC experiments – there will be eight of them – will help us to investigate not only the potential of technology but also to question the players in the ecosystem on what tomorrow’s landscape could look like, on subjects as fundamental as the methods of exchanging financial instruments for CBDCs, the improvement of the conditions for executing cross-border payments or new ways of making CBDCs available to financial sector players. | In turn, these experiments will lead us to assess whether the regulatory framework currently in force needs to be adapted since we are carrying out these experiments within the current legal framework. Besides, this autumn, the Eurosystem has adopted a similar hands-on approach for its experiments on a digital euro for the general public, in which we are participating, alongside with the ECB and other Eurosystem central banks. The experiments underway directly relate to the need for the Eurosystem, should circumstances so require, to be ready to issue a CBDC in order to ensure that central bank money is accessible to the general public and to preserve their freedom of choice of means of payment and their confidence in our currency. 4/5 BIS central bankers' speeches *** To conclude, let me say that a thriving, creative and efficient innovation ecosystem is a key element in the transformation of the financial system towards greater efficiency and stability. This is why at the Banque de France and the ACPR, we feel it is important to support it and contribute to it. 5/5 BIS central bankers' speeches | 1 |
Muhammad bin Ibrahim: Readying the financial sector amid the evolving war on terrorism financing Welcoming remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Third Counter-Terrorism Financing Summit 2017 "Powering Regional Solutions Through Strengthened Alliances and Innovations", Kuala Lumpur, 22 November 2017. * * * “Readying the financial sector amid the evolving war on terrorism financing” Welcome to Sasana Kijang, Bank Negara Malaysia. We are pleased to host the 3rd Joint Regional Counter-Terrorism Financing Summit 2017 with our partners, the Australian Transaction Reports and Analysis Centre (AUSTRAC) and Pusat Pelaporan dan Analisis Transaksi Keuangan (PPATK) Indonesia. The Summit, which was first held in 2015 in Sydney, has now become a hallmark event for many across the region; policy makers, law enforcement personnel, the financial intelligence community and financial industry players. The Summit is a cumulation of the year’s work in producing impactful outcomes for counter terrorism financing. With over 400 participants from over 30 countries and international organisations, this Summit is a testament to our commitment and determination to strengthen our cooperation in combating undesirable financial activities across the globe. The nature of terror and terrorism financing is much more complex, say, compared to ten years ago. Numerous new methods to raise, move and store funds, were conducted through smallscaled transfers via banks or money services businesses. And in some cases, via physical transportation of cash. Recent advancements in financial technology provide new opportunities for anonymity. | This is consistent with the Terrorism Financing Regional Risk Assessment findings at the 2nd CTF Summit in 2016 in Bali, where one of the priority actions identified was for FIUs to improve the visibility and insights into the nature of terrorism financing in the region. The idea is intended to help FIUs gain better insights into the role of financial and transit hubs in regional and international terrorism financing networks. Closer international cooperation Another area to ensure an effective mitigating strategy requires closer regional and global cooperation, particularly in the sharing of intelligence and technical know-how. Terrorism and terrorism financing are global issues that demand global solutions. Sharing of intelligence and expertise across borders will go a long way towards enhancing the effectiveness of our risk management framework. In this regard, the various working groups under the CTF Summits, the Financial Intelligence Consultative Group and International Community of Experts have done commendable efforts and initiatives in building capacity and sharing operational experiences in the region. This must continue to be strengthened given the challenges that we will face. Conclusion The fight against terrorism financing is an on-going battle that will continue to evolve in line with the ever-changing landscape of the financial industry. In the era of rapid technological advancements, it is essential that the financial sector’s risk management strategy remains agile in order to mitigate emerging risks. | 1 |
Muhammad bin Ibrahim: Role of the Islamic financial system in supporting green technology Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at The Green Financing: Discover Green Technology Industry in Malaysia “Role of the Islamic financial system in supporting green technology”, Kuala Lumpur, 8 October 2013. * * * The recent haze that caused unhealthy air quality is the direct result of acute deforestation and irresponsible practices, a grim reminder of the unfolding environmental catastrophes confronting us and our future generation. Globally, extreme climate change, resource depletion and environment degradation have increasingly become looming threats to livelihoods. Greenhouse gas emissions are on the rise and atmospheric carbon dioxide concentrations are at its highest in three million years. It is reported that the global average temperature has risen by 0.74oC over the past century and is forecasted to rise by 1.8oC to 4oC by year 2100. Severe deforestation issues across the continents and over dependence on non-renewable energy resources pose further challenges to the finite carrying capacity of the earth. Sustainable development has become an imperative. It is a global imperative given the interconnected world we live in. It affects everyone. No one is isolated. A united action is therefore required to solve these major ecological problems before solutions become impossible. I am pleased to be here today to speak at The Green Financing: Discover Green Technology Industry in Malaysia (GF 2013). | It is important that these matters are discussed, particularly as one cannot expect the economy to transform itself automatically. We have made good progress in recent years by establishing macroeconomic stability, with sound government finances and stable prices. Efficient wage formation and a financial system that functions properly are other important pieces. The fact that I have concentrated on these two factors this evening should obviously not be taken to imply that they are all that is needed to complete the puzzle. BIS Review 129/1999 4 | 0 |
Also, rules tend to be reactive rather than proactive. Rulemakers—whether they be members of Congress, regulators or judges—are almost always responding to events. And, even if rules could cover every situation, having a rule does not mean that people will always follow it. In many recent examples, the behaviors we observed violated rules already on the books. Thus, more rules and penalties alone will not cure the industry’s underlying problems. They are necessary, but not sufficient. What’s more, establishment of too many brightline rules may prove counterproductive in encouraging a good culture. For one thing, intricate and detailed rules can be construed as implying that the responsibility for good conduct rests with supervisors and regulators. For another, rules may create opportunities or incentives for legal or regulatory arbitrage—finding creative ways around rules. And this activity may, in itself, have insidious effects on culture. As I see it, the problem occurs when an organization’s culture equates “what is right” with what is legally permissible, and when “what is wrong” becomes equivalent to what is legally impermissible. The technical legality of the rule, not the propriety of our conduct, becomes the arbiter of our actions. A proliferation of rules may prompt us to ask first what we can do, not what we should do. Legal arbitrage is intellectually energetic, but ethically lazy. | Second, banking does not have its own ethics—nor should it have its own ethics. The qualities that you value in other aspects of your life should be the same qualities you apply at work and encourage in your colleagues. Third, candid assessment is critical to improving culture. I invite you to think in particular about the incentives and norms of behavior within your organizations. Do they support or impair the qualities and principles that guide you and that your firm espouses? Before expanding on those points, let me explain why I believe that reforming culture is important, 1/6 BIS central bankers' speeches and justifies the time and effort of not only of today’s program, but of the ongoing work at your institutions and collectively across the industry. The manipulations of LIBOR and foreign exchange rates prompted the New York Fed’s work on culture. Of course, widespread misconduct did not originate with either episode. The timing, however, was significant. Despite the near-death experience of the financial crisis, new rules and regulations, and―in some cases―large fines and penalties, the LIBOR and FX events made clear that serious ethical and behavioral problems had persisted in the industry. I was particularly struck by how the manipulation of foreign exchange rates occurred even after the LIBOR fixing was widely known. The appropriate lessons from the LIBOR scandal did not seem to have been learned. That was both surprising and profoundly disappointing to me. The LIBOR and FX collusions were not occasional atonalities in an otherwise harmonious financial system. | 1 |
This saved the Government significant expense in recapitalising the banks. The new banking system amounted to 1.7 times GDP. As a result, the domestic payment system functioned more or less seamlessly throughout, and customers had continuous access to their deposits. The run on the domestic banks stopped, but at its peak, demand for cash tripled and the Central Bank almost ran out of banknotes. Nonetheless, international payment flows were seriously affected by the freezing order imposed by the UK, and the British authorities’ suspicion that Iceland would not honour deposit insurance in UK branches of the failed Landsbanki and by general distrust among foreign counterparties. With heavy Central Bank involvement, international payment flows were gradually restored in the months that followed. I have expanded at some length on the measures taken when the banks failed, as there are still a number of misconceptions about the process. Some have claimed that the banks were BIS central bankers’ speeches 3 nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time. This is why the sovereign was able to tap international capital markets last summer, and why its CDS spread is currently around 300 points. | What where the options facing the authorities? At that time, the official view was that the banks were solvent but faced a foreign currency liquidity problem. Their published CAD ratios were well above the 8% limit, and as late as August 2 My former colleagues at the BIS have been doing important research in this area, see, for example, McGuire, Patrick and Goetz von Peter (2009). “The US dollar shortage in global banking and the international policy response”, BIS Working Papers, No. 291; Baba, Naohiki, Frank Packer and Teppei Nagano (2008). “The spillover of money market turbulence to foreign exchange swap and cross-currency swap markets”, BIS Quarterly Review, March, 73–86; and Baba, Naohiki and Frank Packer (2008). “Interpreting deviations from covered interest parity during the financial market turmoil of 2007–08”, BIS Working Papers, No. 267. 2 BIS central bankers’ speeches 2008, the Icelandic Financial Supervisory Authority had deemed them able to withstand severe capital shocks. Now, however, we know that this was probably not truly the case. Even if they had been solvent in the sense that equity was positive, in the aggregate they were below the 8% threshold when corrected for “weak” capital in the form of equity financed by lending from themselves. Furthermore, we know that, over time, an unchecked liquidity problem will turn into a solvency problem. | 1 |
In this regard, entrant countries should pay specific attention to their current account deficits, which are referred to in the Protocol on the convergence criteria, because they have to be sustainable in order to ensure a smooth stay in ERM II and a good competitive position later in the monetary union. The economic rationale of the criteria is clear: membership of a monetary union entails abandoning monetary policy as a country specific adjustment tool. Diverging inflation rates become quickly unsustainable both because they create strong real exchange rates movements within the area and different real interest rates at the national level. In this context more inflation-prone countries would have too low real interest rates leading eventually to credit booms, domestic demand overheating, and loss in competitiveness and external deficits. Furthermore, in the absence of an independent monetary policy at the national level, fiscal policy becomes the main adjustment tool. In this context, fiscal criteria were designed in order to assess the ability of the government to conduct sound fiscal policies. Achieving strict and sustainable fulfilment of the Maastricht criteria involves in my view three elements. Sound fiscal and monetary policies are the minimum requirement in order to meet the nominal criteria. However, meeting the nominal criteria is not sufficient to assess that the economy of the candidate country is ready for monetary integration. The second element, a sufficient advancement in the process of real convergence, is related to the assessment of sustainability. | At the same time, households and firms could remain confident that the expansionary monetary stance would not contribute to price and wage spirals in the longer term. In Norway, various measures of underlying inflation have been close to 2.5 per cent in recent months. Lower wage growth, reduced capacity utilisation and low global inflation have counterbalanced the effects of higher energy prices and the krone depreciation in autumn 2008. Consumer price inflation is expected to fall to somewhat below 2 per cent in 2010 following the krone appreciation over the past year. The interest rate is set with a view to stabilising inflation close to 2.5 per cent over time and bringing capacity utilisation gradually back to a normal level. Growth in the Norwegian economy is expected to gradually pick up through the remainder of this year and next. Capacity utilisation is expected to be close to a normal level in 2011 and to reach this level in the course of 2012. In our projections, inflation gradually moves up towards 2.5 per cent around the end of the projection period as capacity utilisation reaches a normal level and the effects of the krone appreciation unwind. Wage growth shows a gradual increase. The projections are based on a gradual rise in productivity. Improved productivity will ease cost pressures for firms. The projections are also based on increased scope for firms to strengthen profitability by raising prices. Activity in the Norwegian economy picked up towards the end of 2009. | 0 |
No data for Greece, Slovakia, Estonia or Lithuania. a. The ratio has been calculated dividing NPL by the sum of provisions and capital (including equity instruments eligible as CET1 and reserves). In any event, ensuring a suitable level of provisioning for problem assets is key to properly identifying impairments and correctly measuring the bank’s solvency. Moreover, a rigorous provisioning review policy provides banks with the right incentives for the management of their non-productive assets, since it reduces the book losses that the disposal of such assets may generate. This is only achieved with stringent accounting regulations and strict supervision of asset valuation on the bank’s balance sheet which, as you are aware, has been a key element in the Banco de España’s supervisory strategy. Indeed, we have recently amended the accounting Circular to which banks must conform in order, among other purposes, to fine-tune the accounting criteria in respect of provisioning credit risk losses. Further, for some time we have been actively contributing within the SSM to developing a common methodology in this field encompassing best practices and ensuring their uniform application across all countries. 2.3 Regulatory reform The ongoing and still incomplete reform of the regulatory framework is another factor of uncertainty that has affected banks’ share prices. With regard to the Basel Committee’s agenda, major headway has been made in reforming prudential standards and, in particular, in the treatment of credit, market and operational risks. | We are thus in an environment in which the return demanded by investors is, in general, lower than that obtained by banks at present. And this despite the fact that the risk that the acquisition of bank shares entails should have lessened as a consequence of the reduction in banks’ leverage. 1 Average of SSM institutions according to Banco de España calculations. BIS central bankers’ speeches 1 Naturally, the disappointing performance of bank profits is one of the factors behind the decline in banks’ share prices in recent months which, across the board, stand significantly below their book value, as can be seen in Chart 1. This decline has been somewhat greater in the case of Spanish banks, although these continue to evidence a higher ratio than that of the main euro area banking systems. Chart 1 PRICE TO BOOK VALUE RATIO OF THE BANKING SECTOR 1.2 1.0 0.8 0.6 0.4 0.2 0.0 June 2015 May 2016 SPAIN ITALY FRANCE GERMANY EURO AREA EUROPE SOURCE: Datastream. 2. Challenges for the banking sector Several factors account for the low profitability of the banking business in Europe. 2.1 Low interest rates One of the main factors is the maintenance of interest rates at low levels which, along with the low level of economic activity, exerts downward pressure on banks’ net interest income. | 1 |
19.07.2018 Address on taking up office as a member of the Council of State Pablo Hernández de Cos Governor Madame Chair of the Council, Council Members, Lawyers, ladies and gentlemen, First I would like to thank Mr. Alberto Aza and Mr. Juan Velarde for having agreed to be my sponsors in the ceremony today. It is a real honour for me to take up office as an ex officio member of the Council of State, the highest-ranking advisory body of the Government and a time-honoured institution in Spain. According to the Spanish Royal Academy dictionary, an “adviser” is someone who gives an opinion on what they consider beneficial or necessary for the advisee. It is indeed an important aspect of the functions of the Banco de España, in accordance with its law on autonomy, to advise the Government on economic and financial matters. From this dual status as a member of the Council of State and as governor of the Banco de España, allow me to take the opportunity here to briefly reflect on what are the main challenges facing the Spanish economy. In the past five years our economy has seen sharp growth in activity and a marked reduction in the unemployment rate, enabling a gradual correction of the imbalances built up before and during the economic crisis. | The high level of public debt is harmful to the economy’s financing conditions, it restricts the countercyclical leeway of budgetary policy and it means a high volume of resources must be set aside to pay the interest burden. There is room, moreover, for the fiscal consolidation process to be compatible with a revision of the structure of public revenue and spending, making it more efficient and 3/5 enhancing its contribution to growth. And, at the same time, a greater degree of fiscal coresponsibility should be promoted across the different tiers of general government. It is likewise a priority to pursue further reductions in unemployment and its persistence among specific groups, especially the lesser-skilled. The high level of joblessness is also closely related to the notable increase in inequality that came about during the crisis. Achieving this will require not only labour market measures but also, more broadly, actions targeting employee skills and training, to encourage their greater adaptability to a new environment marked by technological progress, the automation of productive processes and the knowledge economy. In parallel, despite the significant progress in recent years, the financial sector continues to face deep-seated challenges. These include the need to tackle the effects of the farreaching changes in regulation, technology and competition, to improve low profitability levels and to complete the ongoing reduction of problem assets. Looking ahead to the medium and long term, population ageing is probably the main challenge the developed societies face. | 1 |
4 David Marquand, “The End of the West – The Once and Future Europe”, Princeton University Press, 2011. BIS central bankers’ speeches 5 | As the Nobel Prize-winning economist Paul Krugman once remarked, “productivity isn’t everything, but in the long run it is almost everything”. Turning lastly to the external position, the United Kingdom has run a persistent trade deficit of the order of 2–3% of GDP since the beginning of the century (Chart 5). In spite of that deficit, our net external asset position has remained stable and roughly in balance. We managed to achieve this feat by earning more on our holdings of foreign assets than we paid out to foreigners on their holdings of assets here. In part this is because much of our assets are equity-like, while foreigners’ holdings here are more debt-like. Over the past two years, however, our net asset income from abroad has deteriorated sharply, so that our current account deficit – which comprises not only the trade deficit but also net asset income – averaged almost 4% of GDP last year. That deterioration appears to be primarily down to a fall in earnings on European assets, reflecting in particular the cyclical weakness of the euro-area economy. In that case it might be expected to unwind as the euro area recovers. Even so, it would be unwise to expect that we will again be able to run the sort of investment income surplus we saw in the years before the crisis. So the trade deficit in due course needs to decline too. | 0 |
And they have interacted with the forces unleashed by the Great Recession to challenge the durability of the expansion. The Great Recession led to enormous dislocations in advanced economy labour markets. In many economies unemployment unemployment reached perilous levels. and underemployment skyrocketed. Youth Central banks responded with unprecedented monetary stimulus. That was consistent with their price stability mandates. And it recognised the threat that the recession might permanently scar the workforce. As the recovery in many advanced economies has evolved, central banks are assessing the extent of structural changes in labour markets and are grappling with what they mean for monetary policy. The answer is not uniform across major economies. This is one reason why monetary policy in the US, euro area and the UK can be expected to be less synchronised than in recent years. 1. A tale of three labour markets Indeed, despite common underlying influences, differences in how the labour markets of major economies responded to the Great Recession have been striking (Chart 1). The US Take the world’s largest economy – the United States – as a benchmark. Unemployment there more than doubled during the recession. While that rate has recently fallen back, that headline is much better than the details. The number of Americans in work has only just returned to where it was before Lehman failed, even though there are now 14 million more people of working age. | But as the Bank’s Monetary Policy Committee (MPC) has seen wages, employment and productivity evolve, we are increasingly of the view that there has been a material labour supply shock for the reasons that I have discussed. So we have been paying increasingly close attention to developments in the labour market. Our forecasts for the next three years, and hence our interest rate decisions, are based on key judgements that: • the number of people participating in the labour force will continue to rise, reaching 64% of the population later in the year and continuing its upward trend of the past decade; • the unemployment rate that the economy can sustain without generating accelerating inflation will return to where it was before the Great Recession (around 5%), and, at around 5½% now, is currently only a little above that; and • there is scope for the average hours people work to increase further, reducing by about half the current gap between actual and reported desired hours. In short, and unlike the US and euro area, the economy is likely to be able to sustain a higher level of employment than in the past. The uncertainty is less the direction of that development and more its magnitude. To assess that magnitude and its implications for inflation, we are tracking a range of indicators, including those of the prospective paths for wages and unit labour costs. Actual wage growth, at just 0.6% since a year ago excluding bonuses, is currently very weak. | 1 |
This requires that the central bank is independent and has clarity and openness with regard to the conditions on which interest rate decisions are based. Can we judge when asset prices and debts are exaggerated? In order to be clear and open, it is important that there is an overall framework for how monetary policy shall be conducted, based on accepted economic theories. Central banks have long used models based on empirical estimates to make forecasts of economic development. More powerful computers and more developed econometric methods have made it easier to use models in the regular work. In general, the use of models contributes to consistency in the assessments over time. This should create good conditions for clarity in communication with financial agents and the general public. Forecasts and simulations based on models also provide a common point of departure for discussions between central banks and academics and make it easier for us to benefit from previous experiences. Many central banks, including the Riksbank, are now developing dynamic, stochastic, general equilibrium models, DSGEs, as an aid for monetary policy. The Riksbank normally aims to attain the inflation target within two years, as monetary policy’s impact has a time lag. The two-year time horizon provides some scope for taking fluctuations in the real economy into consideration. However, under certain circumstances, deviations from the inflation target can be so large that it is reasonable to allow inflation to return to target beyond the normal two-year horizon. The Riksbank makes forecasts of GDP and inflation three years ahead. | This growth in intra-regional trade has been spurred, in part, by the integration of production network and supply chain in the region, especially the emergence of China and its integration into the regional economy. Also, government policies to support freer trade through bilateral and multilateral trade agreements have also had a strong supporting influence. Accompanying the growth in intra-regional trade is a deepening process of financial integration in the region, defined as cross-border investment flows within East Asia. Evidence of this can be seen from the data on cross-border flows in FDI, portfolio investment, and bank lending that point to a rising trend. Also, financial prices in the region’s financial markets show greater tendency to converge. For example, cross-border interest rate and bond yield differentials have narrowed while the volatility in money market interest rates across the region has declined. To me, a key stimulus to the current process of financial integration has to be East Asia’s rapid economic growth and the accompanying growths in intra-regional trade and cross-border investment. Government policies to develop financial markets in the region have also been important in so far as helping to provide a clear direction of policy preference towards greater regional integration. As a result, cooperative government efforts to develop regional financial markets, especially the bond and equity markets, are being carried out in many regional fora. | 0 |
It is true that the past, global financial centres emerged in jurisdictions with huge trade surpluses: Amsterdam in the 16th century, London in the 19th century New York in the early 20th. But London’s re-emergence 60 years ago was long after the global economic dominance of the UK – and long before the single market in financial services developed in the EU. Openness, time zone, language, law, developed domestic financial markets and, crucially, the concentration of skills and expertise and talent, seem better explanations of the agglomerations of economic activity that are today’s global financial centres.3 The EU has the ambition to build a more integrated and more market based financial system – the Capital Markets Union. I certainly believe this is the right ambition; a greater role for risk capital and for market based rather than bank-based finance will help to diversify risk across borders, reduce costs to the real economy and avoid too great a reliance on the banking channel of credit intermediation. BIS (2019): UK’s share of global 2019 (April) turnover in OTC interest rate derivatives and foreign exchange UK’s FinTech adoption rate was 71% in 2019, global average is 64 3 Roberts, R. (2005). London as an international financial centre, 1980-2000: global powerhouse or Wimbledon EC2?. In: Cassis, Youssef and Bussière, Eric (eds.) London and Paris as International Financial Centres in the Twentieth Century. Oxford University Press, Oxford, pp. 287-312. ISBN 9780199269495. Wójcik, D., Knight, E., & Pažitka, V. (2018). What turns cities into international financial centres? | 9 All speeches are available online at www.bankofengland.co.uk/news/speeches 9 Rather, and in line with the way in which global governance has developed, it requires a relationship built on the assessment of similar outcomes, in a non-discriminatory way, paying due respect to home country regimes in line with FSB norms. Both the EU and UK have I think recognised principle. Second, future regulatory and supervisory arrangements between the EU and the UK need to be stable and built on good faith. This is not primarily because cross border activity beneficial to both sides will not be maintained in an unstable environment – true though that is. It is because abrupt disruption of cross border activity in the financial sector is in itself a source of risk. Of course, even in a relationship grounded on similar outcomes and deference, it must be possible for supervisory and regulatory arrangements to change over time – for one side or the other to conclude that due to changes in the regulatory framework or new challenges handled in different ways, financial stability risk cannot no longer be managed in the current framework. In such a case, additional controls and restrictions on cross border activity may be needed. But these need to be clear and transparent regulatory and supervisory decisions, grounded in evidence and applied within agreed procedures to ensure that their implementation itself does not become a source of risk. | 1 |
24 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 24 References Aikman, D, Haldane, A, Hinterschweiger, M and Kapadia, S (2018), ‘Rethinking financial stability’, Bank of England working papers 712, Bank of England. Bailey, A (2020), ‘The central bank balance sheet as a policy tool: past, present and future’, speech available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/the-central-bank-balancesheetas-a-policy-tool-past-present-and-future-speech-by-andrew-bailey.pdf Bank of England (2021), ‘Responses to the Bank of England’s March 2020 Discussion Paper on CBDC’ available at https://www.bankofengland.co.uk/paper/2021/responses-to-the-bank-of-englands-march-2020discussion-paper-on-cbdc Bernanke, B (2004), ‘The Great Moderation’, Speech given at the meetings of the Eastern Economic Association, Washington, DC, February 20, 2004. Bholat, D, Broughton, N, Ter Meer, J and Walczak, E (2019), ‘Enhancing central bank communications using simple and relatable information’ Journal of Monetary Economics, Elsevier, vol. 108(C), pages 1-15. Botsman, R (2017), ‘Who Can You Trust? How Technology Brought Us Together – and Why It Could Drive Us Apart’, Portfolio Penguin. Briault, C, Haldane, A and King, M (1997), ‘Independence and Accountability’, Towards More Effective Monetary Policy, Palgrave Macmillan UK, p. 299-340. Coenen, G, Montes-Galdon, C and Smets, F (2020), ‘Effects of state-dependent forward guidance, largescale asset purchases and fiscal stimulus in a low interest rate environment’, CFS Working Paper No. 639. Evanoff, D D, Haldane, A and Kaufman, G C (ed) (2015), ‘The New International Financial System: Analyzing the Cumulative Impact of Regulatory Reform’ World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9604, June Fischer, S. (1999), ‘On the Need for an International Lender of Last Resort’ The Journal of Economic Perspectives, 13(4), 85-104. | While the essentials of inflation-targeting are as strong as ever, the regime is being tested as never before. The Covid crisis has seen interest rates fall to their effective lower bound (ELB) and Quantitative Easing (QE) restarted on a scale that may yet match the decade-long period after the Global Financial Crisis. By the end of this year, the Bank will hold close to £ trillion of nominal Government assets, around half of their total and 40% of GDP. Other central banks find themselves in a similar spot. Truth be told, this is for me an uncomfortable spot. It is uncomfortable for two distinct but related reasons. The first, nearer-term, is discomfort at whether continuing monetary stimulus is consistent with central banks hitting their inflation targets on a sustainable basis. A second, more medium-term, discomfort is whether the monetary policy strategies being pursued by central banks are at risk of time-inconsistency, fiscal dominance and an erosion of central bank independence. The restrictions imposed as a result of the Covid crisis caused an extra-ordinarily large and sharp contraction in activity, almost without precedent. As these restrictions are lifted, we would expect an equally large and sharp recovery. That bounce-back is now well underway in the UK. Indeed, current data suggest it is occurring faster and sooner than expected, with the economy already within statistical spitting distance of its pre-Covid level. This rapid bounce-back has been quasi-automatic, as restrictions have eased, businesses have reopened and people have returned to working, shopping and socialising. | 1 |
It is obvious that no country, not even Estonia, when planning its economic policies should assume, for example, a 8-8% current account deficit spanning several years. Even if the latter is in the initial years financed through foreign direct investments, the adaptation of the economy is inevitable. The slower the economic growth is during the adaptation period, the more painful it is for the society. The goal of the economic policy should be the prevention of the internal demand-driven boom immediately prior and after the EU accession which will be followed by a significantly slower growth phase. Pre-accession economic programme and macroeconomic risks All these important issues are, to a certain extent, reflected in Estonia’s pre-accession economic programme which was recently approved by the government of the republic. I stress that the projections which form the basis of the national pre-accession programme and the premise that in Estonian economy the real total output is going to increase at the rate of about 6% per year are attainable only if the current economic policy continues. Keeping of the macrobalance is of critical importance for sustaining the economic growth and credibility of the monetary policy. The kroon’s fixed exchange rate and the forthcoming entry into the euro zone are by no means “free lunches”. | Estonia abandoned all possible barriers to import and export of goods and services, created equal opportunities to all investors and privatised state-owned banks. These steps laid the foundation for our current success. To date, 10 years later, Estonia like the European Union discusses widely how to create a truly free market of infrastructure services which until now have been either directly or indirectly protected by the state. And principal solutions to this problem shall not differ from the decisions made in the first half of 1990s. It is true that, for example, opening up of the electricity market to free competition is definitely more time-consuming than privatisation of many industrial enterprises. But, surely, restructuring of the electricity sector does not differ in principle from the reform in the banking sector. In both cases the state must ensure the availability of the critical infrastructure in Estonia and communication with the external markets - in one case, it means payment systems, in the other case interconnections with the European and Scandinavian grids. In both cases the government has to ensure supervision over the market actors’ behaviour and establish clear rules. In both cases the government must have action plans or guidelines for crisis management. And when these guidelines and relevant national policies are in place, there will be no impediments to the complete opening of the market. The task of the government is not to delay the opening of the market but rather to speed it up. | 1 |
The latest Banque de France survey shows that the capacity utilisation rate has reached a record high. This state of affairs makes the recommendation issued by the Council over the past four years more appropriate than ever: “Now is the time to invest”. • lastly, actively seek improvements in productivity, which lie at the very heart of economic growth by embracing technical progress, the digital revolution, the new information and communication technologies, biotechnology and material sciences and by promoting a high level of research and development in the productive sector in France as well as Europe. This openness to technical progress and rapid productivity enhancement is one of the keys to maintaining low inflation and a long-lasting growth, which is vibrant, sustainable and creates jobs. * * * This, Ladies and Gentlemen, is what I wished to say about monetary policy and the French and European economies as we stand on the verge of the year 2001. May I draw your attention to the press kit that will be handed out to you. It contains documents that should prove very useful to a sound understanding of the economic and monetary situation, in particular the charts on production bottlenecks and recruitment difficulties. I would also like to point out the one hundred questions-andanswers on the changeover to the euro. These should provide individuals, professionals and the specialised press with clear and accurate information on any questions that may arise regarding the challenging events that await us in the years 2001 and 2002. | To this end, the Bank, together with Securities Commission Malaysia and various Government ministries and agencies, collaborate through the Financial Education Network to increase the level of financial literacy and access to information and resources on financial matters. The Financial Education Network also serves as a focal point to drive the implementation of Malaysia’s National Strategy for Financial Literacy. I know that over the course of these webinars, we will learn much more about the priorities, approaches and strategies to advance sustainable finance development across the region. As we absorb the many valuable lessons and experiences shared towards this common goal, I am reminded of Winston Churchill who said, ‘It is no use saying we are doing our best. We have got to succeed in doing what is necessary”. In the end this is what counts. Policymakers and the financial industry have a responsibility to do what it takes to succeed in making sure that finance works for sustainable development. Let me end here and thank you very much for this opportunity to offer some remarks today. 3/3 BIS central bankers' speeches | 0 |
In support of this, we are currently working through the JC3 to develop Guidance Documents on Climate Risk Management and Scenario Analysis. An Application Guide is also being developed to encourage and improve TCFD-aligned disclosures by financial intermediaries. Third, we are ramping up our engagement and capacity building efforts to support climate action and risk management in the financial sector. The JC3 actively engages with various stakeholders on climate and transition initiatives. As part of its advocacy role, JC3 also contributes to the formulation of national climate policies to promote alignment with the financial sector’s response to climate risks. In addition, the JC3, working with selected knowledge partners, will continue to deepen its stack of technical programmes to strengthen the knowledge and competencies of financial professionals in this area. Fourth, we are collaborating with the industry to promote an enabling environment for green financing and investments. Building on work undertaken to identify market gaps and barriers, JC3 members are working to develop concrete measures to enhance the demand and supply of green finance. This includes solutions to support and accelerate climate risk mitigation and adaption by firms along the supply value chain. Fifth, we are working to identify and address critical data gaps in climate and environmental 2/5 BIS central bankers' speeches risks-related information. Without adequate and good quality data, we will not be able to make informed assessments and judgments. This is especially important for climate risk management, disclosure and scenario analysis. | The chart shows the net investment result since the first quarter of 2010 for the foreign exchange reserves, as well as for the individual components. The dominant role of exchange rate movements is clearly evident. In the past, too, exchange rate movements have posed by far the greatest risk to our portfolio. Taking a long-term view, exchange rates have been responsible for about 80% of the total risk on the foreign currency reserves. Reform of interest rate benchmarks Following last year’s revelations that Libor interest rates had been manipulated, various activities to reform the Libor and other interest rate benchmarks are under way. The SNB is involved in these reform activities at both international and national level. The objective is to improve the credibility and acceptance of the existing interest rate benchmarks or, where appropriate, to take steps to ensure the provision of robust alternative interest rate benchmarks. International efforts are being coordinated by the Financial Stability Board on behalf of the G20 countries. They involve not only central banks and supervisory authorities but also an international group of private sector financial market participants. They are examining, first, the extent to which the existing Libor interest rates fulfil the requirements laid down by securities supervisors last July (the IOSCO standards). Second, they are investigating whether there are alternative interest rate benchmarks which would better meet the needs of the market and the requirements of supervisory authorities in the longer term. | 0 |
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