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Only in this way, they may find themselves able to sail into the international waters. Thank you. BIS Review 148/2008 3 | China 5 (a) China 4 3 2 1 + 0 -1 -2 -3 -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: IMF. (a) 2016 is a forecast. These shortcomings also explain much of the sharp fall in global nominal growth since the crisis. Since 2007, global nominal GDP growth (in dollars) has been cut in half from over 8% to 4% last year, thereby compounding the challenges of private and public deleveraging (Table 1). In an unforgiving global environment even those economies with resilient private demand, like the UK, must manage policy with vigilance and dexterity. Table 1 Global nominal growth halved since 2007 % China US Euro area UK Japan World 1998-2007 average 13.0 5.3 4.4 5.3 -0.2 6.5 2007 23.1 4.5 5.6 5.5 1.2 8.4 2013 10.1 3.1 1.0 4.2 0.8 4.9 2014 8.2 4.1 1.8 4.7 1.6 5.0 2015 (estimate) 6.5 3.4 2.8 2.6 2.5 4.0 Source: IMF and Bank calculations. Renewed appreciation of the weak global outlook appears to have been the underlying cause of recent market turbulence. | 0 |
The financial crisis in an international perspective Course of events – from increased spreads to bank failures Developments during the financial crisis can be illustrated in several ways, for example by using the so-called TED-spreads1, that is, the difference between three-month interbank rates and government security rates. 1 The TED spread is the difference between an interbank rate and a government bond rate. As the banks lend to one another without collateral (that is, with a credit risk) in the interbank market, while government BIS Review 7/2009 1 The first signs of problems emerged already at the beginning of 2007 when the interest rates of certain so-called structured products with links to the US housing market began to increase. They fell during the spring but rose again in mid-June 2007 when the US investment bank Bear Sterns was forced to liquidate one of its hedge funds due to major losses. But it was in August that the indications of an approaching financial crisis became clearer and the TED spreads increased significantly. One reason for this was that the French bank BNP Paribas announced that it had stopped withdrawals from three of its mutual funds. The lack of liquidity in certain market segments with financial instruments linked to the US housing market had made it impossible to value the underlying assets. The banks began to protect their own liquidity and were unwilling to lend to each other. The gap between the "uncertain" interbank rate and the safe government security rate increased. | Although the US foreign liabilities exceed the assets by over USD 2.5 trillion, the current account income balance of the US in 2005 was positive. This has led 1 As presented by A. Blinder and R. Reis in „Understanding the Greenspan Standard”, presented at the Fed conference in Kansas City in August 2005. (Economic Performance in the Greenspan Era: The Evolution of Events and Ideas). An example of such delays in the possibility of recognising a certain phenomenon is the rapid acceleration of the growth trend in labour productivity in the USA in mid-90s. The former Federal Reserve President Alan Greenspan formulated a thesis that such an acceleration took place in 1995, whereas econometric models where capable to show it only after five years from its occurrence. BIS Review 19/2006 1 to creation of a new hypothesis, according to which the USA exports “dark matter” 2 . It claims that, since the US revenues on foreign assets are higher than the costs of servicing of foreign liabilities, some “other assets” must exist which, being measured incorrectly in the statistics, affect the “real” international investment position of the USA, which is not negative. In such a case, the US current account deficits observed in the recent years would be a statistical illusion. The aforementioned concept has stirred a very lively debate and has been forcefully criticised by many economists, including Willem Buiter 3 , a former EBRD chief economist. | 0 |
Mark Carney: Fortune favours the bold Lecture by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, to honour the memory of The Honourable James Michael Flaherty, P C, Dublin, 28 January 2015. * 1. * * Introduction It is a pleasure to be in Dublin and an honour to give this Iveagh House lecture in memory of Jim Flaherty. Jim’s attitude and actions typified the Flaherty family motto: Fortune Favours the Bold. Born the sixth of eight children in La Chine, Quebec; Jim Flaherty worked odd jobs and won a hockey scholarship to put himself through Princeton. Successful in private and public sectors; he rose to become Attorney General and Minister of Finance of his province before becoming Canada’s 37th Minister of Finance. Once there, his accomplishments were legion, ranging from creating and enhancing support programs for the disabled and care givers to setting the country back on the path to fiscal balance after the crisis and ensuing recession. His tenure as Canadian finance minister was shaped by that crisis and its aftermath. It was my honour to work with him as Canada weathered the storm. And many of you worked closely with Jim as Ireland negotiated agreements with the Troika and devised policies to rebuild its battered economy. I am confident he would be proud of the progress Ireland has made. I suspect he would be more than a little frustrated with the euro area, however. | In contrast to the nominal exchange rate, which is the relative price of different currencies, the real exchange rate is the relative price of groups of goods. More specifically, the real exchange rate is defined as the amount of domestic goods that has to be provided in exchange for a given amount of goods from abroad. The value of the real exchange rate is calculated in practice as a quotient, the denominator being the product of the nominal exchange rate and an appropriate price index for foreign goods and the numerator the corresponding domestic price index. The real exchange rate is commonly regarded as a measure of a country's international competitiveness. The weaker the real exchange rate - the more domestic goods that are needed to balance a given amount of foreign goods - the cheaper it is for firms and consumers abroad to buy Swedish products: our competitiveness is stronger. It follows that the real exchange rate is a measure of purchasing power; the weaker the real exchange rate, the smaller the amount of foreign goods that can be bought for a given amount of domestic goods. This needs to be kept in mind when discussing what are appropriate central and conversion rates. A weak rate can admittedly confer competitive advantages but it also means that people in Sweden are poorer. Sweden's full participation in the monetary union locks only one of the components of the real exchange rate - the nominal exchange rate. | 0 |
This may be market discipline, but it does not operate in a way that makes the financial system more stable. The SEC is leading an effort to reform the money market mutual fund industry. Second, the Basel liquidity coverage ratio is under review to ensure that it accomplishes its goals without creating adverse unintended consequences. It will be implemented but in a somewhat altered form, since the proposal is not locked down to the same degree as the Basel III capital standards. Ensuring that financial market utilities (FMUs) are robust is another important workstream with a number of important elements. For example, the Dodd-Frank Act has provisions that enable the Financial Stability Oversight Council to designate particular FMUs as systemically important and, therefore subject to tougher prudential standards. Internationally, the Committee on Payments and Settlement Systems (CPSS), which I chair, and the International Organization of Security Commissions (IOSCO), have proposed a comprehensive set of operational standards for FMUs, which I expect will be finalized early next year. We expect that these principles will be endorsed and adopted by the G20 countries, establishing a minimum standard for important FMUs around the world. However, progress is slow and uneven. For example, it is unlikely that the G20 countries will meet the goal to clear all standardized over-the-counter derivative trades through central 1 In general, I think progress on liquidity is inherently more difficult than on capital because tougher liquidity standards conflict with one of the basic function of banks-maturity transformation. | Savers want to hold their funds in highly liquid, short-term assets. But borrowers want to lock up their funding over long time periods. Banks help bridge that gap. Pushing banks hard on the liquidity side runs up against this constraint. 6 BIS central bankers’ speeches clearing counterparties by the end of 2012. Similarly, I have my doubts whether the next set of industry recommendations to reduce risk in the triparty repo market will be sufficient to eliminate all the major potential sources of instability – including inadequate risk management practices and lack of resiliency to a dealer default. Experience suggests that it is not easy for market participants to agree on measures that enhance financial stability when this goal conflicts with the commercial and business interests. If the private sector falls short in this instance, public authorities may need to intervene and impose more forceful regulatory solutions. I also think that the scorecard is mixed with respect to making financial institutions, in their practices and structure, less prone to amplifying and propagating shocks. On one hand, the capital rules and the CCAR process should cause banks to husband their capital better during times of stress than was the case during the financial crisis. Also, compensation practices are improving in that more pay is deferred and over longer time periods. Similarly, risk management practices have improved. | 1 |
I think it would be good if we introduced a structure for macroprudential policy that does not differ too much from those being introduced in other EU countries, as the financial markets are strongly integrated and a similar structure for macroprudential policy within the EU would 13 Here I am giving my personal views on the Financial Crisis Committee’s proposal. The Riksbank will present a consultation response later in the spring containing more detailed views and comments. BIS central bankers’ speeches 7 facilitate international cooperation. The need for international cooperation is based on the fact that measures introduced, or not introduced, on one country can often have consequences for the financial stability of other countries. As I mentioned earlier, it is extremely important to create a clear mandate and efficient tools for macroprudential policy in Sweden. I would like to have seen the Financial Crisis Committee present a proposal that provided a more active structure, and which was closer to the ESRB’s recommendation.14 For instance, it will probably often be unclear who should react to a risk that has arisen, and it will therefore also be difficult to hold an authority accountable for what it has done or failed to do. However, I am glad that the Financial Crisis Committee has now presented its proposal, as it provides an important contribution to the discussion on how macroprudential policy should be developed and organised in Sweden. | And as we have seen in the current crisis, the impact from an externally-induced crisis through contagion can be as large as an internally-induced or home-grown crisis. Second, given the tendency that lessons from past crises will encourage policymakers to adopt more cautious policy and reform, this change in the policy conduct will help reduce the likelihood of an internally-induced crisis based on policy weakness, domestic misalignment, and moral hazard. Instead, the nature of future crises will relate more to the externallyinduced factors. Third, features of the externally-induced crises will mirror a fundamental shift from crises based on macro-misalignment in the individual economies to crises based on failures of key markets, system, and institutions, that are systemically important and have a global-wide impact because of the underlying interconnectedness. The issues of trust, robustness of markets and financial infrastructure, counterparty-risk, information gap, as well as, liquidity will become important possible triggers of the future market disruptions. In addition, geopolitical events or trade tension can also lead to disruptions in global liquidity and trigger a global-wide impact. The main message here is that, going forward, future crises will be different. They will relate less to misalignment in the individual economies because of better policy and regulation, but will relate more to the resiliency of the global system, market and institutions, as well as the ability of the policymakers to prevent or address the vulnerabilities beforehand. | 0 |
Both the economic literature and the experiences of the countries show that, it is impossible for central banks to keep both the interest rates and foreign exchange rates under control at the same time in the economies where international capital movements are free as in ours. Therefore, the Central Bank does not and will not have an implicit commitment regarding the level of the foreign exchange rate, or a policy towards rendering the Turkish Lira valuable. When we look at the period starting from 2001 in which the floating exchange rate regime was embarked on up to now, we see a number of fluctuations in the foreign exchange rates, the most recent of which was observed in the May-June period. Similar fluctuations may be experienced in the future. The course of conduct of the Central Bank regarding the foreign exchange markets is quite clear. The risk of foreign currency is borne by the market players. The fluctuations that are experienced clearly display that these types of risks may arise any time and that they should be managed effectively. Economic units should ensure the required protection against the risks regarding their balance sheets in the modern sense within the scope of the risk management principles. Remarkable attainments were obtained in the banking sector within this context. The private sector also should need to adopt a similar approach in this respect. | Inflation figure of 12.9 percent in transportation services is another important factor that determines the inflation rate in the services group. Distinguished Guests, Consumer prices increased by 0.23 percent on monthly basis and remained below the expectations in the last month of 2006 and the year 2006 ended with an annual inflation of single digit as 9.65 percent. This figure is well above our end-year target of 5 percent. Although divergence from the inflation targets is experienced in the countries implementing this regime, it is very upsetting for us to observe such a great divergence from this target in the first year that we embarked on full-fledged inflation targeting regime. As a requisite of the principle of accountability, the detailed “Open Letter” elaborating the reasons of this divergence together with the policy measures to be taken will be sent to the government as soon as possible and be made public. Dear Guests, Due to the rapid increase in inflation in the first seven months of 2006, its being quite higher than expectations especially in April and May, fluctuations experienced in the financial markets and the uncertainty perceptions created by political developments, inflation expectations diverged from the inflation target. Inflation expectations of 12-months increased to 8.1 percent in July from 5.5 percent in April; while that of 24 months increased to 6.1 percent in July from 4.7 percent in April. | 1 |
Manning, P (2005) “Migration in World History”, ISBN: 978-0415516792 McKinsey (2015), “Diversity Matters”, available here: http://www.mckinsey.com/businessfunctions/organization/our-insights/why-diversity-matters Mill, J S (1848), “Principles of Political Economy with some of their Applications to Social Philosophy”, Longmans, Green and Co O’Reilly, C and Williams, K (1998), “Demography and Diversity in Organisations: A review of 40 years of research”, Research in Organisation Behaviour, Volume 20 Pages 77–140 ONS (2016), “What is the gender pay gap?”, available at: http://visual.ons.gov.uk/what-is-thegender-pay-gap/ Ottaviano, G and Peri, G (2005), “The economic value of cultural diversity: evidence from US cities”, Journal of Economic Geography Vol 6 Issue 1 Page (2007), “The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies”, Princeton University Press Page (2010), “Diversity and Complexity”, Princeton University Press Resolution Foundation (2015), “26 percentage point gap between best and worst parts of the UK for BAME employment”, available at: http://www.resolutionfoundation.org/media/pressreleases/26-percentage-point-gap-between-best-and-worst-parts-of-the-uk-for-bameemployment/ Schaller, M and Neuberg, S (2008), “Danger, Disease, and the Nature of Prejudice(s)”, Advances in Experimental Social Psychology, Volume 46 Seuss (1953), “The Sneetches and Other Stories”, Harper Collins Childrens Books Tajfel, H, Billig, M, Bundy, R and Flament, C (1971), “Social categorization and intergroup Behaviour”, European Journal of Social Psychology, 1, 149–178. | To enhance their own self-image, members of the group often then systematically exaggerate differences with other groups, while emphasizing similarities within their own. 11 Perhaps most important of 7 Goldin et al (2011). 8 Further details available on the http://www.etymonline.com/index.php?term=diversity. 9 It uses Google’s Ngram Viewer. 10 For example, Tajfel et al (1971). 11 Karlan and List (2007). BIS central bankers’ speeches Online Etymology Dictionary at 3 all, people may discriminate or negatively stereotype the “out-group”, as a means of enhancing the image of the “in-group” and hence their own self-image. Behaviour consistent with social identity theory has since been detected in a wide range of social settings: in families, sports teams, schools, gangs, colleges and organisations. It generates important, but often subtle, biases in decision-making which may discriminate against members of the out-group. Despite laws against racial discrimination in most developed countries, there is evidence that racial stereotyping and discrimination in everyday decision-making has persisted, in everything from selling cars to making loans. 12 While deeply undesirable, these behaviours cannot be dismissed as entirely irrational. Indeed, economists and psychologists have developed models to show this behaviour may indeed be rational once the role of social identity and social norms are recognised. 13 And because a multicultural society gives rise to greater numbers of distinct groups and identities, this sociallydiscriminatory behaviour might even have become more, not less, powerful over time. | 1 |
It is necessary to reduce general government debt both to lessen the vulnerability of public finances to any potential tightening in financing conditions and to restore scope for a fiscal policy response to any future adverse shocks. However, even in the current favourable environment of economic growth and low interest rates, the probability of the level of Spanish general government debt standing below the euro area reference level of 60% of GDP in the next decade is low. Factors conducive to public sector deleveraging are higher economic growth in real terms, the prospect of higher inflation, limited interest rate movements and a reduction in the deficit. I shall focus on the last two factors: the interest burden and budgetary consolidation. Evidently, a high level of public debt involves a likewise-high interest burden. While general government interest expenditure has eased owing to the effects of monetary policy, its level, at close to 3% of GDP, is above the average recorded since the launch of the single currency, in 1999. Moreover, the opportunity cost of this expenditure is very high: we might recall, for instance, that the volume of resources assigned at present by overall general government to nursery, primary and secondary education is similar to the cost of covering debt service. Further, we should bear in mind that public debt financing conditions may become less favourable than at present. | As you will have so many other matters to discuss, apart from the economy and the euro, you must forgive me for dedicating so much time to my own specific subjects. To conclude, I am sure these present Tertulias will, as in all the previous meetings, be successful, that the participants will enjoy themselves, and that our British friends will have very good memories of this visit to Madrid. Thank you. 2 BIS central bankers’ speeches | 0 |
BIS Review 38/1997 -5- The level of unemployment to which an economy returns when inflation expectations have been adjusted to actual inflation is usually referred to as equilibrium unemployment. It is immune to monetary policy and determined primarily by structural factors such as demographic changes, technology and the institutional conditions in the labour market. What I have just described is the textbook model for the long-term Phillips curve. The message is that an economy has a path for long-term growth that is determined by underlying, structural factors. Under certain circumstances, fiscal and monetary policy are capable of influencing fluctuations in activity around this trend, though one should not expect to be able to fine-tune demand. A basic idea behind a monetary policy focused on price stability is that the economy is capable of sustained growth along this long-term path. If this path accommodates a rapid increase in production, growth will be high; but if potential output rises slowly, actual growth will be weak even if monetary policy were to be very expansionary and possibly affect the situation temporarily. A very important conclusion from this is that permanently low unemployment cannot be achieved by accepting permanently high inflation. In other words, sustained employment cannot be generated by implementing an expansionary monetary policy and disregarding unemployment’s equilibrium level or the potential level of output. | There was a lack of confidence that the expansionary trend could continue without generating higher inflation. Inflation expectations moved up--more and more people began to count on rising inflation. All this was manifested in, for example, rising long-term interest rates, a weak exchange rate, rising producer prices and accelerating wage increases. The Riksbank therefore tightened interest rate policy, beginning in August 1994. The restrictive turn was criticised in some quarters because inflation had not yet started to accelerate. But our intention was precisely that. If monetary policy measures are taken in time, the inflationary process can be checked before it has taken off. Once inflation has got going, more pronounced monetary policy measures are needed for a return to low inflation. Vigorous efforts have also been made over these years to tackle the central government financial deficit. With its six-monthly control stations, the convergence programme enables people to keep an eye on the political system’s determination to complete the consolidation of the budget and fulfil the goal of balance in 1998. Government representatives have also expressed an ambition to achieve a surplus after that. With the improvement in central government finance, confidence in economic policy grew appreciably and inflation expectations fell back notably in the autumn of 1995 and during 1996. This in turn is a fundamental prerequisite for lastingly stable growth. During 1996 the Riksbank was in a position to reduce the repo rate by degrees to the lowest level for more than thirty years. | 1 |
The simpler regime will, of course, only apply to firms which are not internationally active because internationally active firms will remain subject to Basel standards. We therefore also ask for views about how we should identify which firms are not internationally active. Decisions about scope will be important because, speaking generally, the more alike the firms in scope are, the simpler the regime can be. For example, 40% of the existing rules and technical standards for credit risk relate to the internal ratings based approach.3 If just those firms which only use the standardised approach were eligible for the simpler regime, these rules could be entirely removed. But, on the other hand, too restrictive a scope will mean fewer firms are able to benefit from the simpler regime. That is why we want to receive comments about where we should draw the line for a first step which delivers meaningful simplification for a worthwhile number of firms. These choices will determine which banks are affected by the simpler regime. As I say, these are likely to be smaller non-systemic banks as we focus on taking the first step towards building a strong and simple framework. But before moving on I would like to draw your attention to two other important reviews that the Bank aims to consult on this summer. | Research, including the PRA’s own analysis of survey responses from UK firms, suggests that the fixed costs of implementing new requirements can be proportionally higher for small firms than for large ones when measured as a fraction of a firm’s assets.7 What this tells us is that there are economies of scale when it comes to compliance costs and that some costs fall relatively heavier on small firms than on large firms. At the same time, separate research by Bank staff shows that prudential requirements that are well-matched with the risks that cause large banks to fail are not so well-matched with those that cause small banks to fail.8 Putting this evidence together, we can ask whether there are requirements which are relatively more costly for small firms to implement but which deliver fewer benefits than when they are applied to large firms. And that is what we do in this Discussion Paper. Having identified requirements which do not make a material 6 Amadxarif et al. | 1 |
In carrying out the regulatory and supervisory function, the Central Bank's focus is primarily to promote the development of sound and robust DFIs capable of performing their mandated roles effectively. Seven DFIs are currently placed under the purview of the Act. Recognising the unique characteristics of each DFI, regulations and policies have largely been tailored-made to suit the different roles and functions of each DFI with the view of facilitating and strengthening their operations. In general, the DFIs are required to ensure that their operations and activities are in line with their mandated roles, underpinned by good corporate governance and best practices. They are required t o operate with transparency, especially with regard to information disclosure on their corporate performance, in order to enhance credibility and to harness greater confidence from the public that they serve as well as from the Government. Strategies formulated have also been focussed on enhancing the clarity in the roles and functions of the DFIs, with a view of minimising the overlapping of functions and increasing DFIs' effectiveness in serving the targeted sectors. This has led to a number of initiatives to realign and enhance the strategic focus through the restructuring of selected DFIs. One is the merger of the EXIM Bank and MECIB to enhance their synergy in export promotion. The 4/5 other important initiative is the rationalisation of Bank Pembangunan and Bank Industri, which will result in the establishment of an SME Bank. | With hindsight, the “original sins” of Economic and Monetary Union, an otherwise carefully thought-through and consistent project, were weak fiscal institutions, tolerance of economic imbalances and the lack of an integrated mechanism to supervise and resolve banks. As a matter of fact, financial fragmentation has led to a “two-gear” monetary union, in which the marginal cost of borrowing for banks varies according to the jurisdiction. 4 BIS central bankers’ speeches 1. Banks belonging to jurisdictions considered by markets as financially sound can generally access the interbank money market and get overnight financing at the EONIA rate, which is currently as low as 0.10%. 2. Banks in jurisdictions where risks and uncertainty are elevated generally have limited access to the interbank money market and rely to a large extent on central bank liquidity, charged at the MRO rate, currently 0.75%. The distressed funding conditions faced by banks in some parts of the euro area, compounded by expectations of a worsening macroeconomic outlook, have in turn resulted in fragmented credit conditions for households and firms, again along national borders. For one thing, credit supply standards applied by banks in their lending to the real economy have diverged across euro area countries. A similar message comes from the cross-country comparison of bank lending rates. | 0 |
BIS Review 148/2010 1 Total domestic credit, comprehensively defined to include foreign currency loans, increased by 3.1% at end-September 2010 compared with 10.1% growth registered in the second quarter of 2010. This was mainly due to a 4.4% rise in net claims on central government. Similarly, lending to the private sector (including public enterprises) grew by 2.2%. On an annual basis, domestic credit growth at 13.5% in September 2010 was 10.1 percentage points lower than the 23.6% recorded in June 2010. This largely reflected a slowdown in credit to the private sector, including public enterprises to 0.7% compared with the 25.9% growth recorded in June 2010. However, lending to the government increased by 41.7% from 108.9% in June 2010. On a sectoral basis, households (personal loans category) continued to account for the largest share of outstanding credit, accounting for 26.3% (26.2%) 1 in September 2010. The agricultural sector was second at 17.1% (18.5%), followed by manufacturing 13.4% (13.0%), wholesale and retail trade, 12.0% (11.7%), transport, storage and communications, 5.3% (5.4%) and real estate, 5.4% (5.2%). Interest rates Demand for Government securities remained strong although it was relatively lower during the quarter under review. Therefore, yield rates trended higher across all tenors. In the Treasury bills market, the composite weighted average yield rate increased by 2.5 percentage points to an average of 7.4% from 4.9% recorded in the second quarter. | Preserving the credibility of our commitment to price stability is vitally important, not least because of the flexibility it affords us to confront future shocks that have the potential to cause damage to the financial system and the economy. Second, it is important that the United States work to build more confidence that it will act on the fiscal front to achieve a better balance between our commitments and our resources, both with respect to the medium term and the longer term. Given the inherent uncertainty surrounding long-term growth forecasts, the formidable rise in costs associated with providing for an aging population with longer life expectancy, and a potentially protracted elevation in national security costs, it makes sense to build a stronger financial position into our fiscal future. The present fiscal trajectory entails an uncomfortable scale of borrowing and little insurance against possible adverse outcomes in an uncertain world. Building a stronger fiscal cushion can help reduce the risk of adverse outcomes - those that might come in the form of a decline in the willingness of foreigners to acquire claims on the United States on the present scale, as well as those that might take the form of a reduction in private investment and lower future productivity gains. Strengthening confidence in our fiscal management and fiscal sustainability is critical to reducing the risk in the size of our external imbalance. Third, the U.S. and the major economies have an important role to play in encouraging further evolution in the international monetary system. | 0 |
But I firmly believe that if we had cooperated better, our countries would probably not have been as severely affected by the global repercussions of the credit crunch. To avoid this kind of cooperation failure, you need a clear division of roles and responsibilities. You need to share information and coordinate your actions. And to manage a crisis effectively, you need to be prepared. This requires planning ahead. By establishing, in normal times, what is usually referred to as a Domestic Standing Group – bringing together the supervisory authority, the central bank, the finance ministry and perhaps certain other relevant authorities – you can enhance preparedness by developing suitable crisis management tools and routines. Creating recovery and resolution plans together with the banks is another productive approach. By conducting crisis simulation exercises, you can also test these tools and plans on various possible crisis scenarios. However, as banking is becoming increasingly internationalised, merely cooperating within your own country will not be enough. Cooperation must also be extended across borders. This is particularly true for countries whose banking sectors have a high degree of crossborder activities. Spain and Sweden share this characteristic, despite the fact that banks in our countries run their cross-border activities in very different ways. But cooperating across borders is difficult. There are all sorts of reasons for this. To mention a few, legal barriers, political pressure or even language and habits may all prevent fruitful exchanges between countries from taking place. | Figure 3: Actual MPR versus Taylor rule (†) 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 2010 2011 Lag 2012 Inflation 2013 GDP 2014 2015 Shock 2016 D(MPR) 2017 2018 Taylor rule (†) Source: Central Bank of Chile. Figure 4: MPR Chile vs US (†) 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 2000 2002 2004 2006 2010 2008 2012 2014 2016 0 2018 CHL: Monetary Policy Rate US: Fed Fund Rate (†) Sources: FRED and Central Bank of Chile. Some key factors supporting the roles of ER as a shock absorber of financial and commodity price shocks A flexible ER regime is not a form of snake oil to alleviate any sort of global ailment. ER volatility can, of course, generate major wealth shifts, and even solvency problems to agents with large balance sheet mismatches—including government. They can induce major losses in competitiveness, which may harm overall activity if winners fail to capture benefits as fast as 6 losers realize costs. Constituencies around fixed prices—including the ER—are very concentrated and powerful. | 0 |
The letter also expressed that further monetary accommodation would depend on the factors affecting the medium term inflation outlook. Food and energy prices and global uncertainties have continued to rise since then, feeding into inflation expectations and core prices and thus increasing the risks regarding price setting behavior and the degree of inflation persistence. Consequently, the MPC decided to suspend the rate cuts in the March meeting and announced in the April meeting a clear tightening bias to be exercised when deemed necessary. 3. Inflation outlook Distinguished Guests and Members of the Press, Now that I have summarized inflation and monetary policy developments, I would like to share with you our evaluations of the inflation and monetary policy outlook. Current supply and demand conditions support the downward trend in inflation. Data on consumer credits suggest that monetary conditions continue to be non-accommodative. Annual growth rates in automobile and housing loans are at lower levels compared to the periods of vigorous domestic demand (Figure 8). Although consumer credits displayed signs of recovery in 2007, the cautious monetary policy stance and the tightening in global credit conditions are likely to restrain credit expansion in the forthcoming period. | At this point, global perceptions regarding the persistency of the increases in agricultural commodity prices in the medium term have become stronger. In this conjuncture, the analysis of the forecasts for world food prices and their impacts on domestic food prices bears great importance. In this respect, we included the summary of a particular study in the Inflation Report. The said study analyzes in detail the price developments observed in food products, determines their relative impacts by excluding the determinants of domestic food prices and accordingly makes assessments for the future. As stated in the study, the reinforcement of global perceptions regarding the persistency of the increases in agricultural commodity prices in the medium term indicates that upward risks on domestic food prices and especially on processed food prices will continue in the foreseeable future. In this framework, we revised our forecasts for medium term inflation to incorporate more conservative assumptions on food prices and we have raised our assumptions for food inflation to 13 percent for the year 2008 and 8 percent for the year 2009. These changes have led to upward revisions in our inflation forecasts, by about 1.2 points for 2008 and 1.1 points for 2009. The assumption on oil prices in the January Inflation Report stood at USD 85 per barrel. However, oil prices averaged about USD 100 in the first quarter of 2008. Considering the most recent developments, we have revised our assumption for oil prices to USD 105 per barrel. | 1 |
We believe that our approach of setting the targets and forecasts rather than forecasts alone on a declining path involves a firmer commitment on behalf of the central bank; therefore it is more transparent and more effective in anchoring inflation expectations. 2 BIS central bankers’ speeches Dear guests, Being a central banker, I have mostly focused on inflation and monetary policy dimension of commodity price movements. Needless to say, the course of commodity prices has implications on many other key macro variables. For example, as a net energy-commodity importer, Turkey’s dependence on energy imports makes the current account balance more sensitive to volatility in commodity prices. Recent uncertainty surrounding the energy market is not comparable to any other period in the near history. Moreover, there is a significant risk that commodity prices stay volatile due to uncertainties regarding global economy and the exceptionally loose monetary policies across the globe. Therefore, medium-term outlook for commodity prices is unusually hard to predict. In the long term, supply conditions and structural policies should adjust to stabilize the energy and other commodity prices. The recent concrete steps as part of the medium term programs in Turkey, aiming at curtailing the dependence on energy imports by switching towards domestically produced and renewable energy sources, have important implications also for decreasing the sensitivity of current account balances to international price movements. | There are nominal and real factors that affect commodity price developments. The most important real factor is due to the low price elasticity of not only supply of but also demand for these items. Because of low elasticity, a minor change in supply has the potential to affect market prices significantly. Likewise, a minor change in future real growth prospects has the effect of shifting the demand with a potential of large market price changes. This explains the real sources of commodity price volatility which is recently observed. Regarding nominal sources of volatility, most commonly cited explanations are related to monetary policies of major central banks and the structure of financial markets in commodities. I will elaborate more on real factors that is the lack of sufficient real supply increase in order to meet booming real demand from the developing world. The high growth potential in developing countries suggests that demand pressures are likely to stay with us over the years to come. Combined with the massive financial flows fueled by the exceptionally loose monetary policies, commodity price volatility will probably remain as a major challenge in the years ahead. I believe the key solution here lies in productivity increases in agriculture and energy in the medium term. Regarding agriculture, this necessity is much more evident in emerging markets – in order to keep up with the demand growth, considering the higher share of food in the consumption basket. | 1 |
Weighted using shares in 2012 nominal GDP. Chart 8: Euro area core/periphery output growth Periphery Core Percentage changes on a year earlier 6 4 2 0 -2 -4 -6 1998 2000 2002 2004 2006 2008 2010 2012 -8 Sources: Eurostat and Bank calculations. Notes: Based on data for Vulnerable Euro Area Periphery economies (VEAPS) (Ireland, Portugal, Spain, Greece, Italy) and core (all other EA countries excluding Malta). Data up to 2013Q3. 16 BIS central bankers’ speeches Chart 9: Scottish mortgage loans as a share of the UK total 12% 10% 8% 6% 4% 2% 2005 2007 2009 2011 2013 0% Source CML. Note: Number of Scottish regulated mortgage loans as a share of the UK total. Table 4: Banking sector size as multiple of GDP(a) 2012 Scotland 12.5 rUK 4.3 2007 Ireland 7.1 (b) Iceland 7.4 Cyprus 6.6 Spain 3.2 UK(c) 5.1 (d) 1.2 US Sources: Bank of England, ECB, Central Bank of Iceland, Datastream, Federal Reserve and Bank of England calculations. (a) Banking assets of euro area countries are recorded in the country where the parent entity is domiciled and includes all EU assets. Assets reflect gross derivative positions. (b) Iceland data reflects net derivative positions and includes resident banks’ domestic and foreign assets. (c) 2012 UK data taken from the HMT’s 'Scotland analysis: Financial services and banking', for methodology see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/206166/banking_assets_vs_gdp_explanatio n.pdf. | The financial inclusion mandate of the Bank is further reinforced by The Financial Sector Blueprint 2011–2020, which charts the future development of the Malaysian financial system. It details the Bank’s holistic approach toward achieving greater financial inclusion. An important evolution in the advancement of our financial inclusion strategies is the increasing focus on data and measurement. Success can only be celebrated if it is proven by visible developments that is felt on the ground. Hence, one of the cornerstone recommendations under the Financial Sector Blueprint is the development of a Financial Inclusion Index, a framework to measure accessibility to financial services as well as its BIS central bankers’ speeches 1 usage and quality. Our performance on this agenda has therefore been measured, consistent with our drive for accountability and excellence. Further policy initiatives have included the introduction of agent banking which has enabled 99% of Malaysians today to enjoy convenient access to safe, reliable and affordable financial services. International efforts to enhance financial inclusion measurement Internationally, there is an emerging common understanding that measurement is an essential policy tool for implementation. In this regard, the Alliance for Financial Inclusion, a network of central banks and financial regulators from 96 countries, has provided an important platform in advancing the global agenda of financial inclusion measurement. With the Sasana Accord, which was agreed upon in 2013 during the Global Policy Forum held here in Sasana Kijang, AFI members underscored the importance of measuring the progress of financial inclusion using a common set of measurable indicators. | 0 |
EMU also has implications for policy fields beyond those explicitly related to the management of the single currency. The interdependencies generated and reinforced by the introduction of the euro entail a shared responsibility for the common currency on the part of all euro area Member States. Inappropriate policy choices in one country can have an immediate impact on the common currency, for example, via the exchange rate. For the euro to be a lasting success – and to win the support of all citizens – national policymakers, businesses and trade unions will have to adapt to the conditions of a single currency. Even though this will be a gradual process, facing up to the challenges of the single currency will demand a steep learning curve for all involved. Allow me to elaborate: the European Central Bank as the single monetary authority within the euro area will have to build up and maintain a “stability culture” among the politicians and peoples of Europe. This is no easy task, despite all our efforts to explain monetary policy decisions to the public. 1 BIS Review 93/1999 Most importantly, the ECB must communicate the fundamental nature of, and justification for, its Treaty mandate to maintain price stability, not least since certain misperceptions of the goals and effects of monetary policy continue to exist. It will only be possible to fully gain the crucial support of the public for the new and so far untested currency if the ECB manages to retain its value over time. | To sum up, this isn’t likely to be a case of black (only total unemployment matters) or white (only short-term unemployment matters) with respect to compensation cost trends. I suspect that the degree of attachment falls on average as one is unemployed for longer periods of time. But, I don’t believe that this pattern of attachment is stable. It is affected by the nature of the business cycle and how and why people have become long-term unemployed. Before I turn to the implications of the economic outlook for monetary policy, let me leave you with a final thought on inflation and our inflation objective. I think there is some confusion as to whether the FOMC’s 2 percent inflation objective is a ceiling or not. My own view is that BIS central bankers’ speeches 3 2 percent is definitely not a ceiling. Once we reach 2 percent, I would expect that we would spend as much time slightly above 2 percent as below it, recognizing that we will hardly ever be exactly at 2 percent because of the inherent volatility in prices. If inflation were to drift above 2 percent, all else equal, then we would tend to resist such a rise. But, if inflation were slightly above 2 percent even as unemployment remained far above levels consistent with maximum employment, then the unemployment consideration would dominate because we would be further from the unemployment objective than we are from the inflation objective. This should not surprise anyone. | 0 |
There is also a risk that large imbalances in world trade and low employment in Europe will trigger protectionism, which could reduce growth capacity even further. A pronounced slowdown in growth in the entire OECD area is also likely to lead to markedly slower growth in China and emerging economies in Asia because exports are an important driving force behind growth in the region. This could lead to an appreciable fall in prices for oil and other commodities and weak developments in the shipping industry. Just as Norway has benefited strongly from the sharp international upswing in recent years, the Norwegian economy could be affected by such a downturn. The recent change in China’s exchange rate regime and the revaluation of the Chinese currency by 2 per cent will probably not cause substantial changes in the imbalances in world trade. At the same time, daily fluctuations of 0.3 percentage point between the yuan and the dollar are now possible. This allows for considerable variation and it cannot be ruled out that more pronounced changes in the same direction will gradually occur. So far, the Chinese authorities have maintained a stable course. It will probably be appropriate for both China and other Asian countries to shift more of their production towards domestic markets, which will reduce the large current account surpluses as well as curb the build-up of the official foreign exchange reserves. As part of this adjustment, the relative cost level will gradually increase. | Statistics Norway’s business tendency survey indicates continued favourable prospects for Norwegian manufacturing. Activity is expected to increase in service industries and the construction sector in the near term. Capacity utilisation in the Norwegian economy now appears to be close to a normal level. In manufacturing, capacity utilisation is close to its historical average. According to Norges Bank’s regional network, about 40 per cent of companies will have some or considerable difficulty in increasing production. Even though growth in the Norwegian economy has been high for a long period, substantial pressures have not yet emerged in the labour market. The rise in the number of employed in the first half of the year was fairly modest in relation to output growth. This may be due to lagged effects of the sharp fall in sickness absence through 2004. In many companies, the large increase in available person-hours was probably not fully utilised immediately. A considerable share of output growth may be the result of improved utilisation of company workforces. According to the quarterly national accounts, employment rose by 0.5 per cent from the first half of last year to the same period this year. Measured by the 1/7 Labour Force Survey (LFS), the number of employed rose by 12 000 from May to June and by a further 2 000 from June to July. The use of foreign labour has increased in the year that has passed since the enlargement of the EU. | 1 |
(a) Shading is based on a score that reflects gross issuance (relative to nominal GDP) and spreads in primary markets, and spreads in secondary markets, expressed as a number of standard deviations from its historical averages, using as much data as available data from January 1998. Primary market indicators reflect the past three months, so smooth volatility. Where spreads are not available, indicators are based solely on issuance. (b) 2 Latest data point is August 2013. BIS central bankers’ speeches Given such benign conditions it seemed natural to ask whether firms were prepared for the risk of a sudden change in conditions – in particular the possibility of a snap back in interest rates at some point. In early April, such questions to contacts usually evoked a blank response! Those who had been betting on rates rising had consistently lost money and such positions generally had been cut. There were few visible signs of any increase in hedging activity other than reports that some investors preferred floating rate rather than fixed rate products at the margin. A lot of faith seemed to be enshrined in the ability to anticipate the FOMC: that it would signal clearly and early what its strategy would be, leading to a smooth exit from its policy stance. Altogether the market was ripe for some volatility consequent to a change in the policy outlook. That volatility duly arrived. The initial catalyst was the strong US non-farm payrolls data on May 3rd after which longer term yields started to rise. | I will pick out a few of the highlights for discussion. First let me note that the “stress” so far has not involved any actual exit from accommodative policies in the advanced economies. The change in the outlook was initiated by speculation about the possibility that the FOMC might start to slightly reduce the rate at which it is adding stimulus! It would have been a more severe stress if policy rates had actually been changed. Many firms for whom maturity transformation is a major part of their business model will actually be better off if the short-term rates at which they fund themselves are relatively unchanged while longer-term rates rise. Have markets got it wrong? If so then in my view that was not obviously in the price reactions since May (although the extent of the fixed-income sell-off may turn out to have been overdone, especially for the UK) – rather it was the expectations that had become embedded prior to May which had become overly certain even if, at that time, it supported the intent of monetary policy in both the US and Europe. It is important to remember that monetary policy is about decision making under uncertainty. Considerable uncertainty. Policy makers get surprised by economic developments just like everyone else, and that news is often visible to the market before the authorities can even think about the right responses, let alone respond to them. | 1 |
The ESCB Banking Supervision Committee has long been working as the interface between the EU central banks and banking supervisory authorities. It combines the macro-level perspective of central banks, which are best placed to monitor ongoing developments in the financial system, with the equally important micro-level approach of the supervisory authorities to provide a joint and comprehensive assessment of the stability of the EU banking sector. Let me also note the importance of having appropriate arrangements at EU level for financial crisis management. Good progress has been made as a result of the recommendations of the Brouwer report. Notably, the Banking Supervision Committee has concluded a Memorandum of Understanding on cooperation and information-sharing in crisis management situations between all central banks and banking supervisors of the EU. Global issues At international level, examples of how effective crisis management and resolution is hindered by the absence of a common legal framework are well documented. However, a common legal framework is only one important element required for the orderly pursuit of international finance. Another would be a BIS Review 53/2003 5 concrete enforcement mechanism, but this is possibly inconceivable in the context of sovereign states. Indeed, contractual arrangements are increasingly aimed at compensating for the lack of a common regulatory and enforcement framework. The response of the international community to coordination problems includes efforts in crisis prevention and crisis resolution. In the context of crisis prevention, the promotion of international standards and codes is a promising avenue. | Since then, we have made significant progress in moving the unemployment rate back to a more normal number. Yet, at 6.1 percent, it remains too high. And, as we have heard all morning, other measures of labor market activity remain suppressed. We have underperformed on the inflation front as well. Since 2008, year-over-year total inflation as measured by the Personal Consumption Expenditures Price Index (PCE) has averaged just 1.4 percent, well below its 2 percent target. Today, PCE inflation stands at 1–1/2 percent and is expected to move up only slowly toward the FOMC’s target. Nonetheless, we have come a long way in healing the injuries the financial crisis inflicted. Certainly monetary policy has been doing some heavy lifting. The Federal Reserve responded quickly to the unfolding recession by cutting the fed funds rate to near zero by December 2008. At the zero lower bound (ZLB), we then turned to unconventional measures, such as large-scale asset purchases and forward guidance about the federal funds rate to provide further accommodation. In the fall of 2012, with the unemployment rate hovering stubbornly at around 8 percent and core inflation steadily drifting lower than our 2 percent target, the Fed introduced open-ended asset purchases and, later, forward guidance that related federal funds rate actions to thresholds explicitly expressed in terms of our policy goals. Together, these efforts have helped the economy make impressive progress toward our employment mandate and appear to be moving us closer to our 2 percent inflation target as well. | 0 |
However, the effects of the crisis in terms of unemployment and indebtedness of the resident sectors have been sizeable and their absorption will require time. The improvements in competitiveness and the reduction of private-sector debt must continue. And this in an environment of low inflation in the euro area and of high euro exchange rates, which poses an additional difficulty. In the area of national policies, the leeway for applying demand-side policies is scant. In this respect, let me discuss in more detail the challenges ahead for fiscal policy. Fiscal policy challenges As I have already indicated, progress in the correction of European fiscal imbalances has been significant. The data for 2013 show, however, that six years after the economic crisis began, ten countries in the European Union countries had budget deficits of over 3% of GDP and public debt levels stand at record highs in many member countries. Having now emerged from the phase of financial and banking instability, the need for fiscal consolidation will continue to condition economic policy in Europe over the coming years, although the adjustments planned are on a lesser scale than those already implemented. In the case of Spain, the consolidation drive still ahead remains substantial. According to the latest Stability Programme Update, the planned reduction in the budget deficit between 2014 and 2017 is 5.5 pp of GDP, and rises to 6.4 pp of GDP in terms of decreasing the primary deficit. | Non-performing assets Private-sector non-performing assets continued to rise in 2013. This increase and the aforementioned decrease in credit explain the growth in the non-performing assets ratio. Also playing a role in this increase was the reclassification of refinanced loan portfolios required by the Banco de España in 2012. In any event, banks’ non-performing loans have a clearly cyclical component. In this respect, in line with the onset of the recovery of the economy, the latest data, which relate to early 2014, show a slight fall in non-performing assets in month-on-month terms. This trend can be expected to firm as the recovery of economic activity gathers steam. Results The banking sector in 2013 reported consolidated profit of € billion in 2013, following heavy losses in 2012, basically due to the sizeable provisions made by banks. Although provisions continued to eat up a considerable portion of profit, their relative significance in 2013 was appreciably less than in 2012. Margins and efficiency The more moderate provisions noted above helped to offset the lower margins in the 2013 income statement compared with 2012. Thus, against the background of a smaller volume of 4 BIS central bankers’ speeches activity and of lower interest rates, net interest income (the difference between accrued interest revenue and costs) dropped by nearly 10% year-on-year in 2013. | 1 |
DXY=99.6 Avg. copper=261 2018 growth (EES)=2.5 610 600 590 580 01 17 03 Mar. 610 AUG-NOV 2017 Avg. DXY=93.3 Avg. copper=303 2018 growth (EES)=2.9 05 May 07 Jul. 600 590 580 Nov.11 Sep.09 18 01 Mar.03 (*) Red line shows average of the period. Sources: Bloomberg and Central Bank of Chile. Figure 8 Actual and forecast inflation (*) (annual change, percent) 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 I II III 2017 IV I II III 2018 IV I II III 2019 (*) Forecast as of the first quarter of 2018. Sources: Central Bank of Chile and National Statistics Institute (INE). 10 IV I 2020 Figure 9 Monetary policy rate (percent) 4.5 4.5 4.0 4.0 MPR 3.5 3.5 3.0 EES FBSFinancial 2.5 Business Survey 2.0 3.0 2.5 2.0 14 15 Source: Central Bank of Chile. | This risk is tempered in part because the stagnant creation of private salaried jobs and weaker growth in nominal wages continue to be causes for concern. In any case, different surveys show that the companies have improved their prospects for employment and investment in recent months, reflecting their better growth expectations (figure 10). About inflation, the Board estimates that risks are unbiased. The threats to its convergence to 3% are milder, primarily due to the way the improved economic outlook affects the closure of capacity gaps. However, the evolution of the exchange rate over the coming months will pull inflation down below the December expectations, a situation that the Board will continue to monitor with special care, given that it could have negative implications on the convergence of inflation to the target in the policy horizon. In short, as I noted at the beginning, this Report clearly shows a turning point in the business cycle that translates into an upward revision of the growth projections for 2018, giving way to lower risks for both activity and inflation. Anyway, in the baseline scenario that we have just presented, we consider that the risks for inflation and an economy that has yet to consolidate its greater dynamism make it necessary for the monetary stimulus to persist further. Therefore, we will only begin to raise the MPR when we are certain that the process of inflation converging to 3% is consolidating. | 1 |
Jean-Claude Trichet: Preserving financial stability in an increasingly globalised world Keynote speech by Mr Jean-Claude Trichet, Governor of the Banque de France, at the European Financial Markets Convention (EFMC 2001), Paris, 15 June 2001. * * * Ladies and Gentlemen, It is a great pleasure for me to participate in this European Financial Markets Convention. The impressively dense program of the Convention illustrates that the integration of financial markets in Europe is a major and multi-dimensional challenge. The Banque de France and the Eurosystem have a strong interest in all these issues. In particular, a safe and efficient functioning of the clearing and settlement systems of the euro area is crucial for the stability and efficiency of the financial system and for the good implementation of monetary policy. The consolidation of the market infrastructure, currently underway, will contribute to reaching these objectives through the fostering of market liquidity and the reduction of transaction costs. There is however no single path for such a consolidation: it will be up to the market to select the way which best fits its needs, while it will be up to regulators and to the Eurosystem to make sure that the resulting infrastructure is adequately safe, efficient and reliable. I would like now to share with you some views from the broader perspective of financial globalisation. | To preserve, and even restore, their specific investment approach, these investors might be more shielded from excessive short-term pressures. This objective raises considerable difficulties, because it touches on the way in which the performances of medium and long-term funds (including pension BIS Review 54/2001 3 funds) and life insurance companies are assessed. In other words, this objective concerns the accounting standards and practices they use. It implies that some rules and standards would be adapted to the medium and long-term horizon used by these entities. I have no answer at this stage. I am only asking the question. Diversify the risk management tools of financial institutions As I mentioned earlier, even the best techniques can have adverse effects when used by too many participants. To some degree, this is perhaps what has happened to value-at-risk based techniques, which have been massively adopted by the financial industry. Because they use more or less similar parameters and suffer from the same weaknesses – for example, they took inadequate account of market liquidity at the time of the 1998 crisis –, such tools tend to give converging signals to those that use them. They thus encourage the mimetic behaviour that I discussed previously. The fact that some market participants are more sophisticated than the average is a guarantee that standardisation will remain limited, since they will develop techniques that are little used by others. | 1 |
In other words, in the absence of further disturbances to the economy or the emergence of new and unanticipated threats to price stability, this level of interest rate is considered to be consistent with the primary objective of maintaining price stability over the medium term. Our announcement helped to resolve some uncertainty at a time when the practical, technical and logistical tasks required by the changeover weekend were uppermost in our minds and in those of market participants. The first main refinancing operations of the Eurosystem were successfully settled. While paying due attention to the uncertainties related to the phasing-in of the new system, the decisions were taken on the basis of the liquidity conditions prevailing in the euro area money market as a whole. In addition to the refinancing operations, the Eurosystem offers standing facilities, which can be accessed by credit institutions via the NCBs. The deposit and marginal lending facilities constitute, in normal circumstances, the upper and lower bound for the overnight market interest rate. As a transitional measure, the Governing Council of the ECB had narrowed the corridor established by the interest rates on the Eurosystem’s standing facilities from 4 January until 21 January 1999. The intention was to facilitate the necessary adjustments to the new institutional environment resulting from the transition to Stage Three. BIS Review 9/1999 –6– At its last meeting, the Governing Council of the ECB confirmed its earlier assessment of the outlook for price stability. | Recent research highlights that episodes of financial stress are more likely to be associated with deeper and longer downturns. This is particularly true for banking-related financial stress, and helps explain the severity of the recent crisis. Another factor that exacerbated the fallout from the recent crisis was the aggressive use of certain financial instruments. While derivatives can be effectively used for hedging purposes, use of these instruments for speculative gains with high leverage also allows for potentially unlimited losses. BIS Review 123/2009 1 The global recession was another distinctive feature of the recent crisis. The downturn in economic activity was virtually synchronized across both advanced and emerging economies. Increasing interdependence owing to the rapid pace of globalization, as well as the rising contribution of emerging economies to global growth is among the main factors behind the synchronous behavior of global economic activity. Taken together, this implies that there may be less of a role for exports during the recovery. Also the unprecedented fiscal and monetary policy initiatives implemented across major economies makes this crisis truly unique. The awareness regarding the threat to financial and economic stability has emerged across both advanced and emerging economies. To this end, policy dialogues – particularly those fostered during international forums – served to catalyze simultaneous fiscal stimulus packages across some of the largest advanced and emerging economies. On the monetary policy side, at first, many economies cut interest rates sharply with waning inflationary pressures. | 0 |
The geographical distribution of remittance inflows to Sri Lanka during 2005 has been as follows: • 57% from Middle Eastern region • 18.5% from European Union • 6.5% from other European countries • 6.5% from North America BIS Review 3/2007 3 • 4.5% from Far East-Asian countries Government policy Successive governments in Sri Lanka have encouraged and promoted Sri Lankans to work abroad, both in skilled and un-skilled categories. The workers are permitted to open tax-free Non-Resident Foreign Currency (NRFC) Accounts which facilitate the receipt and retention of remittances in foreign currencies. Expatriates and workers are also allowed to have Resident Foreign Currency (RFC) accounts after their return to Sri Lanka. Taking the deposits in these accounts as collateral, low interest housing loans have been provided to the remitters and their families. The government has introduced “Sri Lanka Nation Building Bonds” to enable Sri Lankan migrant workers and other expatriates to participate in the Nation Building programme. In addition to government, the Sri Lanka Foreign Employment Bureau, Association of Licensed Foreign Employment Agencies, the Commercial Banks, Specialised Banks, money changers and money transfer systems are key players in the remittance industry in Sri Lanka. The Sri Lanka Foreign Employment Bureau continues to hold awareness programmes to educate remitters to channel funds through formal institutions and also look into the welfare aspects of migrant workers. The banks have now taken the initiative to establish links with migrant workers prior to their departure. | The Central Bank of Sri Lanka has permitted banks and financial institutions to establish exchange houses in several countries to enhance accessibility by remitters. More recently, the Central Bank has taken a keen interest to enhance remittance flows into the country. From a payment system improvement point of view, it is essential for Sri Lanka to consider using wireless ATMs and E-Banking systems in rural areas to facilitate speedy disbursement of funds. As has been the case in the Philippines, Mobile Commerce (MCom) through SMART Padala (Philippines) and global G-Cash services should be introduced in Sri Lanka. In the meantime, internet-based transfer services such as wire transfers, automated clearing house transfers and cheque transfers should be further facilitated. Sri Lanka should take steps to reduce high remittance fees from remitting countries, such as Japan, Italy and the US by building up partnerships with banks in these countries as well as money transfer companies. In Sri Lanka too, Telecom services and Dialogue GSM are planning to introduce SMART Cards to connect remittance receivers and their bankers. As the SMART card system may require the use of agents in outstations, the banks involved should register these agents and provide on-line banking facilities to them. While the telephone company ensures the security of money transfers, the agents and banks should attempt to reduce cost of money transfers as well as mitigating risks involved in this activity. In addition to the banking sector, Sri Lanka should speed up the linking of Sri Lanka's postal system with the global postal network. | 1 |
This will require the approach to be comprehensive, meeting the highest standards and in close collaboration with the industry so that the learning solutions will continue to remain relevant. The breadth of talent development solution Human capital development needs to be comprehensive and holistic in meeting the requirements for all levels. The horizon of talent development solutions has to be widened towards attracting, developing and retaining talents with required skills and expertise for the industry. It must also meet the specific requirements of the workforce career progression, from the pre-employment stage, during employment and up to the leadership positions. Talent development solutions must also be for beyond the circle of the financial services community, to include other business communities, such as legal fraternity, Government officials and IT solution providers. The advancement of the industry is also dependent on these parts of the private and public sector. Their training needs must also be met through structured training programmes to facilitate their understanding of the specificities of Islamic finance and its value propositions. Raising standards of training and education programmes The education and training programmes in Islamic finance also needs to achieve the highest quality, be credible and globally recognised. The qualifications developed need to fulfill the expectations of the industry. To ensure the standards, the required infrastructure for standard setting and accreditation for Islamic finance training and education has now been put in place. | The market share of Islamic banking assets of total banking industry has grown from only 6.9 percent in 2000 to 22 percent in 2011. The contribution of Islamic finance to the Malaysian economy has also been growing significantly, accounting for 2.1 percent share to the country’s GDP in 2009, as compared to only 0.3 percent in 2000. This has led to greater job creation where employment in Islamic financial industry accounts for 11 percent of total employment in the financial sector. On the international front, greater liberalisation of the Islamic financial system has seen greater foreign presence and participation in our Islamic financial system. There has also been an increasing trend in foreign participation in the domestic Islamic banking and takaful industry, as well as the Islamic capital market. Moving forward, it is envisaged that Islamic financial institutions in Malaysia will also expand beyond national boundaries to increase economic and financial linkages with other parts of the world. This rapid internationalisation of the financial system and technology advancement will demand a corresponding increase in quality skills and expertise of the industry. Talent upscaling will be even more important in the next decade, to steer the industry’s advancement in the increasingly complex and competitive financial ecosystem. A strong and dynamic workforce will be one of the important pillars for the industry to remain stable and competitive. It will also serve as a catalyst to spur innovation. | 1 |
Eventually, they raised the credit rating of the Kingdom to advanced grades. This environment promoted the interest of foreign investors to participate in and benefit from the various investment opportunities available in the Saudi economy. The Saudi banking system has played a vital role in the enhancement of the national economy. Thanks to its use of the latest technologies and various banking products, the banking system has witnessed good development under a supervisory system which is very keen to meet domestic requirements and legislation and to comply with international standards, including Basel Capital Adequacy Standard. The banks operating in the Kingdom are very serious in the application of this standard. As a result, the Kingdom's banking system has become one of the advanced systems, not only at the regional level but also at the international one. Dear Audience, Basel II Standards are the most important supervisory initiatives of this decade, and they will have a considerable impact on changing the conduct of risk management at all banks regardless of their size and location. The Standards aim at achieving a number of objectives, including ensuring the capital adequacy of the banking sector to encounter any latent risks and the assessment of banks' risk management systems so that the supervisory authorities could ensure that they are appropriate, in line with the risks that banks might encounter, and up to the best banking practices in the area of effective banking supervision. | Hamad Al-Sayari: Challenges posed to investment in Saudi banks Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, to the Symposium on Challenges Posed to Investment and Saudi Banks, Riyadh, 2 December 2006. * * * Dear Audience, At the beginning, I would like to welcome all honorable attendance. It gives me a great pleasure today to address you at the outset of the deliberations of this symposium on "Challenges Posed to Investment and Saudi Banks in an Environment of Global Economic Openness" which is convened at a time the Kingdom is witnessing a period of economic growth accompanied with and enhanced by steps of economic reforms in the fields of streamlining of regulations, restructuring of the national economy, and approval of a number of mega development projects as well as the accession to the World Trade Organization which is an important step towards enhancing integration into the world economy, coping with economic developments, and attraction of foreign investments apart from accession to global markets which will be reflected on the competitive capacity of the national economy. Dear Audience, The current Symposium is being held in a promising economic environment in this country. The Kingdom has recorded outstanding economic results. The real gross domestic product rose by 6.5 percent in 2005. This growth rate was reflected on almost all sectors of the economy which is characterized by strong investment. International rating agencies recorded their appreciation and certified the efficiency and strength of the national economy. | 1 |
First, the question is being raised as to whether price stability should not be interpreted more broadly and should include asset prices in addition to consumer prices, in order to prevent future financial crises. In my view, this would be the wrong conclusion. Although it is correct that central banks cannot and may not neglect the movements of asset prices, and, in particular, those of real estate prices, they should not attempt to stabilise asset prices with the aid of the interest rate tool, if this would lead to a conflict of goals with respect to price stability. Macroprudential tools are therefore needed in such a case, in order to counter imbalances on the real estate markets. I will return to this point in my comments on the role of central banks in financial stability. 2 BIS central bankers’ speeches Second, the question is raised as to whether the inflation targets set by most central banks might not be too low. The argument is that, in normal times, higher inflation targets would lead to higher nominal interest rates. This would open up the freedom of action for conventional monetary policy because the zero bound for interest rate policy would not be reached so quickly. This reasoning does not seem conclusive to me either. For instance, given the history of the struggle against inflation, it is rather bold to assume that wellanchored inflation expectations can simply be released and then immediately locked in at a desired higher level. | The Eurosystem cyber strategy for financial market infrastructures Following the increase in both the frequency and severity of cyberattacks over the last few years, legislators, regulators and standard setters have issued legislation and guidance on cyber security at national and international level and at cross-sectoral as well as sector-specific level. Let me briefly mention three initiatives. First, in 2016, the EC adopted the Directive on security of network and information systems (the NIS Directive). Its aim is to bring the cybersecurity capabilities of operators of essential services to the same level of development in all the EU Member States and to ensure an efficient exchange of information and good cooperation on the topic throughout the EU. Second, at international level, the G7 countries have drawn up a set of fundamental elements of cybersecurity for the financial sector, as well as three further recommendations on the effectiveness of cybersecurity assessments, third-party risks, and coordination with other critical sectors. Third, with a key focus on financial stability, the CPMI-IOSCO published a principles-based “Guidance on cyber resilience for financial market infrastructures” in June 2016. Supplementing the “Principles for Financial Market Infrastructures”, it provides additional detail related to the preparations and measures that financial market infrastructures should undertake to enhance their cyber resilience. In recognition of the escalating cyber threats, the legislative and regulatory guidance and the required paradigm shift, the Eurosystem’s overseers have launched a strategy for cyber resilience in relation to financial market infrastructures. | 0 |
Since Norges Bank will be providing the Ministry of Finance with concrete advice regarding a countercyclical capital buffer, I would like to devote some time to stating the reasons why such a buffer is necessary, and why, more generally, regulation of the banking sector is necessary. Then I shall touch upon the interaction with monetary policy and will also add some brief comments about some of the challenges facing monetary policy in the wake of the financial crisis. Why capital regulation? A well functioning financial market is essential for virtually all other economic activity in a market economy. Banks are a key component of the financial system. Banks channel money from savers to investors. Banks determine who should be given credit and closely monitor borrowers and their projects. This is a task that would be difficult for small savers to undertake. Resilient banks and prudent banking are important for a solid and stable economy. If banks end up with insufficient equity capital following substantial losses in bad times, they will have to tighten lending. This may serve to amplify the downturn, as is currently the case in a number of European countries. Compared with other enterprises, banks have limited equity capital. It is often more costly for banks to fund lending with equity capital than with deposits and borrowing from the market. As deposits are readily available to depositors and many deposits are covered by a deposit guarantee, depositors accept a relatively low interest rate. | Banks can reduce lending volumes. Banks can also change the composition of their lending portfolio by shifting into lower risk-weighted assets, by, for example, tightening lending to enterprises and increasing lending to households. Norwegian banks are well on the way to adjusting to new and higher capital requirements, including a countercyclical capital buffer. Developments in banks’ earnings indicate that banks can increase their CET1 ratios by around 1 percentage point a year without reducing lending growth. 5 3 Basel Committee on Banking Supervision, An assessment of the long-term economic impact of stronger capital and liquidity requirements, August 2010. For an updated collection of references to studies of the costs and benefits of macroprudential regulation, see Annex 1 in IMF Working Paper WP/13/167, by Arregui et al. “Evaluating the Net Benefits of Macroprudential Policy: A cookbook”, July 2013. 4 See Norges Bank Memo No. 1 2013 for further discussion and references. 5 In the calculation there is an assumption of an annual increase in banks’ risk-weighted assets of around 4%, earnings in line with 2012 and all profits are used to increase equity capital. It is also assumed that the transitional arrangement is retained and is binding. 4 BIS central bankers’ speeches Capital requirements and monetary policy The countercyclical capital buffer and the key policy rate are two instruments serving different objectives. The objective of the countercyclical capital buffer is to increase banks’ resilience to losses in a downturn. The primary objective of monetary policy is low and stable inflation. | 1 |
4 Special Drawing Rights. 6 BIS Review 42/2009 exploitation of petroleum resources. Global capital markets give us an opportunity to distribute the spending of these revenues across current and future generations. There are no other options for investing this wealth that could have shielded the Fund from the global economic downturn. Other government assets, such as shareholdings in domestic industries and subsea resources in the North Sea have also fallen sharply in value, at market prices. Real household housing wealth has also declined since summer of 2007 to the end of 2008. The return on the Government Pension Fund – Global generated in 2008 was 3.4 per cent lower than that on the benchmark portfolio. This is considerably lower than expected in the light of our investment strategy, which features a large number of small and independent positions. This performance was due primarily to the investments in the fixed income portfolio, which proved to be less well-diversified than expected, and to investments that exposed us to changes in liquidity premiums. The Fund currently has extensive holdings of bonds, that despite high ratings, are difficult to trade in today’s market. Realised losses have been limited. The flipside of large book losses is that this portfolio has a high yield, reflecting not only the increase in credit risk but also high liquidity premiums and fears and uncertainty in the market. History has seen a number of deep financial crises, and market conditions will return to normal in time. | The Pension Fund was formally established in 1990, but it was not until 1996 that the first allocation – NOK 2 billion – was made. The Fund is fully integrated with the government budget, and the same priorities are imposed on spending from the Fund as on any other government spending. This means that all Norway’s petroleum revenues, as well as the return, go into the Fund. Then, as part of the budget resolution, the Storting decides on an annual transfer from the Fund to cover the government budget deficit. This procedure effectively prohibits use of the capital in the Fund for purposes not considered sufficiently important to be prioritised in the regular budget process. High oil prices led to record-high inflows of capital into the Fund of NOK 384 billion in 2008. The Fund’s market value was NOK 2 276 billion at the end of the year. The Ministry of Finance has decided to increase the allocation to equities in the Fund from 40 to 60 per cent. The financial crisis has dealt a blow to our investments in global equity and fixed income markets. The annual real return since Norges Bank commenced the operational management of the Fund is now just 1 per cent, which is well below the assumed long-term return of 4 per cent. The Fund has not reaped a risk premium in the equity market as we had expected. During the same period, considerable revenues have been generated from the 3 New Arrangements to Borrow. | 1 |
The banks play a central role in financial stability as the majority of payments go through the bank system. The Swedish banks fund half of their borrowing through deposits from the general public and half of it through loans from one another and on the financial markets. If problems arise that prevent the banks from obtaining funding by borrowing from one another or on the financial markets, they can borrow from the Riksbank. The Riksbank is what is usually known as the lender of last resort. Figure 6 TED spread Difference between 3-month interbank rates and government security rates Basis points 500 450 400 500 Sweden Euro area USA 450 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Sources: Reuters EcoWin och Riksbanken. 6 BIS Review 160/2009 During the financial crisis several financial markets ceased functioning. The banks’ confidence in one another declined and they became unwilling to lend to one another. Developments during the crisis can be illustrated by, for instance, the so-called TED spread, the difference between the interest on three-month interbank loans and three-month treasury bills. As confidence between the banks declined, the TED spread increased during the crisis and peaked when Lehman Brothers fell (Figure 6). | Second, transparency must be improved in the financial system and for CRT in particular. Indeed, for stress tests to be fully relevant, we need reliable data at the aggregate level. Without good reporting of exposures, mitigation actions are not efficient. Increased transparency can take various forms. One means is to increase the transparency of institutions such as hedge funds or private equity funds. Another possibility is to increase the transparency of market operations, with trades recorded in a central depository, for example. Such infrastructure improvements can also produce transparency in a “seamless” way, avoiding an excessive reporting burden. 2 BIS Review 33/2007 Third, there is a need to work to better understand and assess risk at a system-wide level, including the linkages that bind together the various elements of the financial system. Like in physics, there are resonance frequencies, propagating tensions from one knot of the network to another. Stress testing plays a key role here. To complement individual stress tests, policymakers are developing global and cross-country stress tests. These impact studies consist in measuring the impact of linkages between business cycle fluctuations and a range of key observable variables that best characterise the banking sector. These exercises should also incorporate potential market contagion through different channels: banks' interlinkages (domino effects) and bank portfolios’ exposures to shocks. **** To sum up, we should not forget that the current financial system is multidimensional and closely interlinked. It remains essentially an untested world in stress situations. | 0 |
While there have been periods of financial distress in individual banking systems in the region in past years, such incidents have generally been fewer and less severe than in other emerging markets. Asian banks were able to meet the Basle Committee’s recommended 8% minimum capital adequacy ratio with comparative ease. Moreover, despite the fact that barriers to entry in some economies have protected the Asian banks from the full forces of competition, they have managed to survive on lower interest margins and achieve a higher level of operating efficiency than their counterparts in other regions. 11. The Asian banks have of course benefited from operating in the fastest growing region in the world, and one where the macroeconomic environment in terms of GDP growth, inflation and exchange rates has been much less volatile than in, say, Latin America3. More recently, however, growth in some economies in the region has slowed. I hope that this will turn out to be a cyclical, rather than a structural, phenomenon. At any rate, the economic environment is currently somewhat less benign, and this has brought into sharper focus some of the challenges which banks in the region are now facing. 1 2 3 The Emerging Asian Bond Market, World Bank 1995. The East Asian Miracle, World Bank 1993. BIS Annual Report 1996. BIS Review 55/1997 -3- The challenges faced by Asian banks 12. Let me attempt to describe what these challenges are. | But turning back to banking in the region, even if this scenario is realized, and there must of course be much uncertainty on this, the amount that banks would be called upon to finance would remain very substantial in absolute terms. For the foreseeable future, therefore, the banks will still be playing a key role in mobilizing savings in the region and channeling this into investment. And this makes it even more important that banking systems in the region remain healthy. Of course, foreign banks will play an important financing role, in particular those based in Hong Kong which is the major centre in the region for the arranging of syndicated loans. But within most of the banking systems of the region it is the local banks which predominate in terms of share of assets. The position of Asian banks 10. So let us take a look at the current position of the Asian banks. It is in fact very difficult to generalize because the banking systems in the region are not homogeneous. But certainly if we look at what the World Bank has called the eight “high performing Asian countries”, the Asian banks have been at the heart of the Asian success story2. This is partly due to the emphasis laid by governments on trying to ensure the stability of banks, through prudential supervision and other means, to encourage confidence among savers. | 1 |
Nina Stoyanova: The future of money Speech by Ms Nina Stoyanova, Deputy Governor and Head of the Banking Department of the Bulgarian National Bank, at the Manager Magazine Fourth Banking and Finance Forum “The Future of Money”, Sofia, 20 October 2021. * * * Thank you for inviting me to open today’s fourth Banking and Finance Forum on the topic ofThe Future of Money. New technologies are changing the financial sector today and leading to the offering of increasingly diverse and convenient payment products in a highly competitive environment. The policies of the European Commission, the European Central Bank and national regulators are aimed at catalysing this process, to exploit more fully the potential offered by technology and to achieve cheaper, safer and more accessible payment solutions. The dynamics of the processes in Europe is also fully valid for our country. Data on payments processed by payment systems in our country show a significant growth. For the first six months of 2021, the value of payments made through the BNB-operated Real-time Gross Settlement System in BGN (RINGS) increased by 30% compared to the first half of 2020, while for the same period the value of payments in euro through the national component system of the large-value payment system in euro – TARGET2-BNB increased by 65.7%. I would like to touch briefly on some of the recent technological developments in the field of payment services in the European Union and in our country. | Insofar as the legal provisions of Delegated Regulation (EU) 2018/3893 are more general, its practical application raises many issues that require additional clarification. To this end, in 2019 4. the European Banking Authority (EBA) established a Working Group on APIs under PSD2 Within this group, representatives of the EBA, the national competent authorities, the European Commission, and the European Central Bank consult the market participants (banks, third party providers and industry organisations) and identify potential practical implementation problems and possible solutions thereof. Based on the consultations, by 31 July 2021 the EBA has published clarifications on 31 issues relating to the practical application of the requirements for APIs. With the aim of converging the supervisory practices among the Member States of the European Union, in June 2020 the EBA published its Opinion on obstacles under Article 32(3) of the regulatory technical standards on strong customer authentication and common and secure open standards of communication (EBA/OP/2020/10)5. The work on the raised issues is still going on via the Q&As published by the EBA6. The Bulgarian National Bank, in its capacity as a regulator, has active communications with the market participants with the aim of improving the functionality of the dedicated interfaces already 2/3 BIS central bankers' speeches built by the banks in the country. The process is developing in line with the European progress and in compliance with the legal framework, the opinions and clarifications published by the EBA. | 1 |
As they differ greatly in terms of economic structure, exchange rate and monetary regimes, and in the degree of nominal and real convergence already achieved, no single path towards the euro can be identified or recommended to all of them. Various strategies may be feasible, provided they are based on sound economic reasoning, conform to the existing institutional framework and contribute to the high level of sustainable convergence, which is essential when joining the euro area. Progress towards the adoption of the euro will thus need to be assessed on a case-by-case basis. At the same time, the principle of equal treatment will continue to apply throughout the entire process of monetary integration. Adopting the euro is an irrevocable decision and it is of the utmost importance that countries fulfil the convergence criteria not only nominally but also in a sustainable manner before they enter the euro area, as required by the Maastricht Treaty. There will be no additional criteria, neither will there be a relaxation of the criteria. The need for structural reforms Let me now discuss the need for structural reforms in Europe which applies to both “new” and present Member States. On March 2000 the European Council held a special meeting in Lisbon dedicated to employment, economic reform and social cohesion. | You should have first set up a political federation, with a federal government and a federal budget. Then you could have introduced a single currency.” Two main arguments were put forward. First, without a federal budget of some significance the policy mix would have been very erratic, depending on the random behaviour of the different national fiscal policies of the member countries of the Monetary Union. And second, without such a federal budget it would be impossible to weather, with the help of the fiscal channel, asymmetric shocks hitting one particular member economy of the Monetary Union. These two economic arguments are perfectly valid and would have been sufficient to discourage the creation of the Euro had we not set up a profoundly original concept of national fiscal policy surveillance. It is this concept, the Stability and Growth Pact which guarantees the coherence and the consistency of the European Economic and Monetary Union (EMU), namely a single currency area without a political federation. On top of these fundamental economic underpinnings a number of other considerations are worth mentioning. In particular, a fiscal policy that is set according to rules, and is lived up to, adds to macroeconomic stability by providing economic agents with expectations of a predictable economic environment. This reduces uncertainty and promotes longer-term decision-making, notably investment decisions, and economic growth. In addition, sound fiscal policies can contribute to lower risk premia on long-term interest rates and thus support more favourable financing conditions for the entire economy. | 1 |
BIS Review 52/2008 In their expansion, the banks exploited the particularly favourable opportunities offered in the global financial markets in the form of abundant liquidity at historically very low prices. Thus, they relied on capital markets funding for their operations, raising the share of borrowed funds on the liability side of the balance sheet. The rapid expansion of the banks did not go unnoticed. It drew the attention of many observers at the end of 2005 and the early part of 2006, resulting in considerable headwind for the banks in that period. Questions were raised about their business model, their reliance on wholesale funding in international markets and low level of deposits, lack of transparency and cross ownership among other things. The banks responded effectively to the criticism levelled at them. They increased transparency, reduced cross ownership, and placed emphasis on raising the share of deposit on their funding side. They also significantly strengthened their capital base and last but not least greatly improved their liquidity position. As a result they were much better prepared for the sudden change in global financial conditions after the middle of last year. Most importantly, they had a strong liquidity cushion. The Icelandic banks have been the focus of considerable international attention in recent months. Questions have been raised about their viability and those have been reflected in their extraordinarily high CDS spreads since late last year. | The third important factor that contributed to the overheating of the Icelandic economy was the reduction in both direct and indirect taxes which, in addition to relatively large increases in general pay, led to a rapid increase in real disposable incomes. All of this happened during a period of an international liquidity glut and historically low interest rates which further facilitated domestic demand growth. The expansion of private consumption and the investment in the aluminium production capacity and the related power sector led to a widening of the current account deficit. It BIS Review 52/2008 1 reached the equivalent of more than a quarter of GDP in 2006, a phenomenally large deficit both in Icelandic economic history and by international comparison. The part of the deficit that resulted from the investment in aluminium and power evaporates as construction is completed and exports of aluminium picked up as of late last year. However, the larger share of the deficit, which resulted from other domestic demand, will only subside as restrictive economic policies have their intended effects. The current account deficit fell towards 15% of GDP in 2007, it will remain more or less unchanged this year but fall further in 2009, aided by the depreciation of the króna which I will touch on later. Needless to say, inflationary pressures emerged early in the expansion phase. The Central Bank began to tighten policy in the spring of 2004. | 1 |
I am the vice-chairman of the Federal Open Market Committee, the Fed committee that sets monetary policy to promote its statutory goals of full employment and price stability. Last week, the committee reaffirmed that it currently anticipates that the Federal Reserve’s federal funds rate target will remain exceptionally low – which I understand to mean at its current level – at least through late 2014. The FOMC also voted to provide additional support for economic activity by extending its maturity extension program – popularly referred to as Operation Twist – through the end of the year. This extension means that we will be buying an additional $ billion of longer term Treasury securities, paid for by selling or redeeming the same amount of shorter term Treasuries. This action reduces the supply of longer dated Treasury securities on the market and lowers longer term interest rates relative to where they would otherwise be in the absence of such a program. That puts downward pressure on corporate borrowing costs and mortgage rates, and supports asset prices such as housing and equities – all of which promotes growth. In addition, the FOMC adopted new language to describe its policy outlook, stating that it is “prepared to take further action as appropriate to promote a stronger economic recovery and BIS central bankers’ speeches 3 sustained improvement in labor market conditions in a context of price stability.” I will let those words speak for themselves. Local economic conditions Now let me turn to economic conditions in Puerto Rico. | More generally, there are several reasons to think that inflation will remain moderate. First, the economy continues to operate with significant slack. Second, measures of underlying inflation show little upward pressure, and the growth rate of nominal labor compensation is low and stable. Moreover, inflation expectations remain well-anchored. Taking into account all these factors along with our current stance of monetary policy, I anticipate that inflation will be slightly below our 2 percent long-run objective over the next few years. One of the challenges I face as a policymaker is how much to adjust my medium term economic forecast in response to near-term developments, particularly when there is elevated uncertainty. Although I have made some adjustments of late, they have been relatively modest to date. That is because there are important issues – such as the outlook in Europe and the degree to which we have lost underlying momentum at home – where more information is needed before making an informed judgment. Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further. I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further. | 1 |
In particular that will mean: - Ensuring that prices, rates and collateral haircuts are well aligned to the Bagehot principle to ensure any facilities remain strictly backstops that are used when conditions become materially dysfunctional, but leave the burden of ensuring safe operation during a wide range of normal and less-normal market conditions with market participants, and the regulatory regimes they are subject to; and - Ensuring facilities are naturally self-liquidating, in that they build up exposures when markets are dysfunctional, but run them down when functioning returns to normal – delivering sufficient risk 23 Investment funds, for example, outnumber banks by several orders of magnitude. 12 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 12 transfer to kick start private sector activity during periods of dysfunction, while limiting the scale and persistence of risks to public funds. These are not straightforward tradeoffs, and different jurisdictions may choose different points along them, depending on the relative importance of banks and financial markets in their local economies, their central bank mandates, and their risk preferences. But given the multiple institutional, technological and crossborder linkages that characterise our core markets, we have a strong common interest in setting out the choices. A recent Brookings paper by Nellie Liang and Pat Parkinson touches on a number of these issues as they relate to the US Treasury market.24 Conclusion It is sometimes said that hard cases make bad law. | 10 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 10 Table 1: Lessons from the dash for cash for future market dysfunction tool design Standing liquidity facilities for banks Special market wide operations using large scale asset purchases and other preexisting tools Positives Challenges Future design questions Regular, well understood Banks did not meet all nonbank liquidity needs – so not a fully effective conduit for central bank liquidity Whether central banks need the ability to reach a wider range of market participants directly (and, if so, who) Operations typically one way (‘buyer of last resort’) and much longer duration than the dysfunction Whether there should be more targeted two-way or selfliquidating tools better aligned with term of dysfunction Operations conducted using tools also aimed at easing monetary policy How to deal with market dysfunction in periods when the optimal policy response differs from that required for monetary policy purposes Operations were ad hoc or discretionary Whether more permanent standing facilities might better shape expectations Effectiveness – ‘got in all the cracks’ No explicit ‘insurance premium’ in facility pricing – risks fuelling moral hazard if expected to prevail in future Whether to adopt Bagehot pricing/terms: eg buying at below pre-stress prices but above stress prices and/or pricing / haircuts Took risk off private sector balance sheets Added risk to public sector balance sheets How to judge appropriate risk sharing, and set bounds on public sector exposure Ability to ‘go big and go fast’ necessary in the face of the Covid pandemic The first is that central banks are likely to face increasing calls to provide public liquidity insurance for instances of severe financial market dysfunction in the years ahead, as the reliance on those markets grows, vulnerabilities to liquidity shocks persist, and intermediation capacity remains constrained. | 1 |
Finally, in China, while the policy cycle has turned and the economy appears to have reaccelerated, the authorities there will need to continue to deal with new challenges, including rapid growth in non-bank finance, increased leverage across the economy, and maintaining equilibrium in the midst of rapid structural change and increasing complexity. BIS central bankers’ speeches 1 So, while global growth appears to be picking up (after a lackluster 2012 which saw Europe and Japan contracting in the second half of the year, and a second consecutive year of slowing growth in the emerging market economies) the pick-up is likely to be only moderate; and significant economic slack in the mature economies (high unemployment, large output gaps, etc.) seems likely to be with us for some time to come. Against this backdrop, developed economy central banks are continuing to take extraordinary measures to support growth. Policy interest rates are close to zero, and central bank balance sheets have grown to unprecedented proportions via asset purchases and lending. As you know, the Fed is in its third round of large scale asset purchases. The Bank of England and Bank of Japan (BoJ) have been expanding their balance sheets as well, and markets expect the BoJ to engage in stepped-up asset purchases in the months ahead. | The reform effort has many moving parts, and further efforts are clearly needed to ensure that those parts fit together, and that the various parties work together. And these reforms are yet to be fully implemented, let alone tested over a full credit cycle. Of course, building a stronger system is not just about regulatory reform. Changes in institutional governance and culture are also needed. Many of the problems that surfaced during the crisis and more recently reflect a culture that emphasizes short-term gain over institutional sustainability – a culture in which regulation is viewed as an obstacle to be arbitraged or circumvented, rather than as an additional check on broadly shared objectives. That needs to change if progress is to take root. Making sure that happens will require a realignment of incentives, and strong leadership from the top. All of this will take time. The question is, how much time do we have? While risk-taking has been somewhat constrained in the aftermath of the crisis and the resulting uncertainties in the macro environment, we are beginning to see signs of things heating up in some areas of the markets: e.g., record issuance of junk bonds and emerging market debt, including enthusiastic take-up for issuers from “frontier markets” with little to no prior presence in the capital markets; increased leveraged buyouts; weakening covenants; and a rebirth of the collateralized loan obligation market. Complacency at this point would not be a good thing. | 1 |
Technological enhancements bring new opportunities to businesses but the pace of innovation must be met by the pace of corresponding safeguards to deal with the risks. In particular, the risk of cyberattack is a great concern. The pace here is really changing very rapidly. As with the other risks, insurers are affected for both good and ill: with ever more frequent and increasingly sophisticated cyber-attacks on businesses and individuals, insurers are being relied upon more and more for protection. A new business opportunity for sure. But, unlike most other insured risks, insurance firms could themselves be significant victims. It is difficult to predict how cyber-crime – or even cyber accidents – will evolve, and it is very challenging to obtain data for losses that arise out of cyber-events. This makes it all the more difficult to quantify reserves, models and prices as well as develop operational safeguards internally. An Insurer wishing to expand into any new business area needs to demonstrate to the PRA that new risk exposures are well understood and that the required capital for an altered risk profile has been fully considered. As stated previously, business model analysis forms an important part of the PRA’s supervisory approach and a focus for its supervisory activity. Insurers will need to deal with the PRA in an open, co-operative and constructive manner to allow us to understand whether the business model is sustainable and to identify key vulnerabilities. This will ensure a more informed, focussed and proportionate supervisory approach. | The withdrawal of pandemic-related relief measures in major economies and the economic slowdown in China also weakened external demand and, together with the lingering supply chain constraints, contributed to the slowdown in global trade. The recent geopolitical developments have also caused major trade disruptions, tilting policies towards greater self-reliance or “friend-shoring” among the advanced economies (AEs) in order to protect their supply chains. The mediumterm scarring effects of the pandemic on the products and labor markets and productivity, yet to be fully assessed, also weigh on growth. The October 2022 WEO has pared down growth projections for the fourth consecutive time since last year with a clear possibility of further downgrades if the geopolitical risks are not diminished quickly and materially. We are increasingly concerned that the current geopolitical risks will turn into lasting geopolitical fragmentation, posing serious threats to global trade, capital flows, technology transfer and climate policy cooperation. It is still early to declare victory in our fight against the pandemic, a once-in-acentury health crisis that paralyzed the world with untold loss of lives and livelihoods. It is important that we do not lose sight of resurgence risks of new and more virulent COVID-19 variants in the context of a still-low vaccination coverage in the low-income countries (LICs), particularly in Sub-Saharan Africa, and vaccine hesitancy in parts of the AEs. The cooperation that brought us together in the global fight against the pandemic should continue with full force towards equitable and affordable global accessibility of vaccines, tests, and treatments. | 0 |
In this case, we can expect that in the third and fourth quarters economic activity will be recovering quarter-on-quarter. The economic situation will be returning to normal step-by-step. The direct adverse impact of the restrictions primarily falls on this quarter, while their secondary effects will continue to manifest in the future. According to our surveys, over 80% of the businesses across various industries have been experiencing the influence of the coronavirus pandemic and current 1/3 BIS central bankers' speeches restrictions. Companies’ business sentiment has materially declined. It will take time to restore business processes, logistics and production chains, offset the reduction in profit and revenue, build up reserves and savings that have been used to a greater or lesser extent over the second quarter. Combined with uncertainty regarding potential changes in the external environment, this will limit production, investment and consumer activity. In these conditions, GDP will shrink yearon-year in the third and fourth quarters, that is the annual rate of economic growth will be negative. According to the Bank of Russia’s forecast, GDP will overall decrease by 4–6% in 2020. The major contributor to this reduction will be a decline in exports that may reach from 10% to 15%. Moreover, fixed capital investment will also substantially decrease (by 6– 10%) compared to the previous year. Companies will be primarily using their financial resources to restore their daily operations. Uncertainty about the prospects of domestic and external demand will be confining investment plans. | While additional study of the effects of large-scale asset purchase (LSAP) programs should be encouraged—as it furthers our understanding of the use of these unconventional monetary policy tools—the paper’s findings do not, in my mind, invalidate the use of LSAPs when the Federal Reserve is operating at or close to the zero lower bound for shortterm interest rates. That is the key issue—not the magnitude of the effects of LSAPs or whether short-term interest rates should be the primary tool of monetary policy. On the latter point, which is consistent with the FOMC’s statements about policy normalization, I see broad agreement. Concluding that LSAPs are less powerful than suggested by some of the estimates from the event study literature does not imply that there is no role for LSAPs at the zero lower bound. In such circumstances, LSAPs can be used to provide additional monetary accommodation by depressing bond term premia and the spread between agency mortgage-backed securities (MBS) and Treasury securities, as well as by strengthening the credibility of forward guidance on the path of short-term interest rates. This can provide support to asset values more generally and make financial conditions more accommodative. Thus, discarding such a tool or ruling out its use seems counterproductive for two reasons. First, to the extent that such a tool can provide accommodation, ruling out its use would raise the risks of insufficient monetary policy accommodation when interest rates are pinned at the zero lower bound. Second, expectations matter. | 0 |
Addressing these challenges, G-20 Summit held in Brazil on 8-9 November 2008, issued a communiqué that included the following statement: “We affirmed our determination to take all necessary steps to foster non-inflationary growth in a stable and sustainable manner according to the needs and available instruments in our respective countries, including through monetary and fiscal policy.” Distinguished Guests, As concerns over inflationary pressures have subsided all over the world, maintaining the smooth functioning of financial system and efficiency of credit markets has become the main priority of policy makers. It will be proper to evaluate the recent developments in Turkish economy in this perspective. BIS Review 144/2008 1 In Turkey, the banking system has been relatively prepared for the current crisis in terms of foreign exchange liquidity. Its foreign exchange short position is also well contained. Foreign exchange position of the public sector is almost negligible. The household sector is net creditor in terms of foreign exchange, while real sector is net debtor. Since securitized products are rarely used in the Turkish banking sector, the ongoing financial turmoil has not put a marked pressure on local banks through that channel. Current account deficit, historically a source of vulnerability for the Turkish economy, is likely to experience a sharp drop in the upcoming period due to correction in commodity prices, slow down in economic activity and depreciation in New Turkish Lira. Still, extraordinary fluctuations in global liquidity conditions have adversely affected Turkey like other countries, which are sensitive to international financial developments. | In other words, just as new apps are constantly being developed for smartphones, so too will we be able to add new functionalities to the platform to meet emerging market needs and requirements. These functionalities will benefit from being designed for a single, harmonised platform. As we consolidate the financial market infrastructure in Europe, another area requiring further attention is that of collateralisation. With increased regulation following the financial crisis, collateral requirements are higher than ever. This is why it is so important that banks and BIS central bankers’ speeches 1 financial institutions are able to manage their collateral in an efficient way and why the optimisation of liquidity-saving measures presents such a benefit to market participants. With T2S, it is now possible to have a single, centralised, pool of collateral, making it much simpler and faster to move collateral from where it is to where it needs to be. This then brings to the fore the issue of harmonising our own collateralisation techniques and procedures. As we look to the future, the Eurosystem will seek to drive harmonisation forwards, particularly as regards Eurosystem operations for the mobilisation of marketable assets, as well as the handling procedures for non-marketable assets. We live in a fast-paced world, and customers have come to expect instant services in all aspects of life, including from their banks. | 0 |
And the withdrawal of these measures will push consumer prices upwards in the coming years, especially in 2024.3 In this regard, it is important to stress that, in the current high inflation setting, an appropriate policy mix requires a fiscal stance that, at the aggregate euro area level, is not at odds with the tightening of our monetary policy. This means that government support measures should be temporary, targeted and tailored to preserving incentives to consume less energy, and they should be gradually rolled back as energy prices fall. Otherwise, we are at risk of driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. 2 The ten-year risk-free rate yield on April 7th was 15 bps below the level reached at the cut-off date for the projection exercise on February 15th. However, risk premia have risen, reflecting the increased uncertainty, and so did the average cost of financing in the capital markets for banks and low credit quality non-financial corporations in the euro area. Thus, the average cost of long-term capital market financing for banks has increased by 6 bps, while in the case of low credit quality non-financial corporations the cost has increased by 45 bps.. For investment grade companies, the cost of financing has decreased by 14 pb. On equity markets, the Euro Stoxx 50 index barely changed in the same period, while the banking sector index fell by 8.8%. | Turning to the data, indeed a sluggishness in households’ time deposit rates has been observed in some countries.22 This can be explained by banks’ specific characteristics, by the structure of the banking sector and the competitive environment. Specifically, banks with larger liquidity buffers react to a lesser extent to increases in market interest rates.23 And we have seen a significant shift of funds from overnight deposits to other less liquid but better remunerated instruments (mainly time deposits), thus reducing the liquidity available for economic transactions. In fact, M1 annual growth turned negative in January 2023 for the first time since the creation of the monetary union. In addition, the increase in bank lending rates in the euro area has been very significant, mainly reflecting the faster pace of policy rate hikes, and has been accompanied by a tightening of credit supply standards. In particular, in the ECB’s latest euro area bank lending survey (BLS), banks reported a substantial further tightening of credit standards 20 Total debt is defined as the sum of the outstanding amount of credit from euro area banks and fixed income securities. 21 See the ESRB report "Vulnerabilities in the residential real estate sectors of the EEA countries”. 22 The smallest increases in households’ time deposit rates are observed in Spain, Ireland and Portugal, while Germany, Italy and France have recorded the largest increases. | 1 |
There is a growing momentum in scaling up the green agenda on a global basis, with countries such as Denmark, South Korea, Finland and Germany already embarking on green technology movements in their respective countries. Since 2007, the worldwide market for green technology has grown on an average of 12% annually, and is now worth over EUR2 trillion. By 2025, it is forecasted to double to EUR4.4 trillion. The global market for renewable energy namely wind, solar photovoltaic (PV) and biofuels has grown by more than 30% in the recent few years and is estimated to reach nearly $ billion by 2021 . Economies that have BIS central bankers’ speeches 1 strategically invested in the green technology sector are already reaping the benefits of the transition to green initiatives. Germany, for example, has a green industry growing at an annual average of 12% since 2007 and a global market share of 15%. Green technology companies contributed 11% of its GDP and employing 1.4 million workers. In the case of the solar energy sector, Malaysia is now one of the top producers in PV manufacturing and this industry has generated direct foreign investment of over RM12 billion and created over 10,000 skilled and well paid jobs . Green technology offers specific solutions for pressing ecological and social challenges, and for this reason it is expected to continue to gain global importance. | Against the grain of established thinking, and now famously, Raghu Rajan argued at Jackson Hole in 2005 that the Federal Reserve’s commitment at the beginning of last decade to keep policy rates low for a prolonged period had fuelled financial risk taking.9 While this is now 6 See Borio and Disyatat (2011), “Global imbalance and the financial crisis: Link or no link”; and Cecchetti (2011), “Global imbalances: current accounts and financial flows”. 7 The gross foreign assets of each country’s residents, summed across all the countries in the world. 8 See Cabellero (2009), “Global Imbalances and Financial Fragility”, American Economic Review Papers and Proceedings, Vol 99, No. 2, May 2009, pp. 584–588. 9 See Rajan (2005) “The Greenspan Era: Lessons for the future”. Speech given at a Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. August 27, 2005 He warned “persistent low interest rate can be a source of significant distortions for the financial sector, and thence for asset prices. Not only does this mean staying further away from deflation so that extremely low policy rates don't have to be used as a tool, it also implies exercising greater supervisory vigilance when those rates are in place to contain asset price bubbles”. 4 BIS central bankers’ speeches posited as the “risk channel” of monetary policy,10 there has until recently been relatively little empirical work bearing on whether it actually exists. That may be changing. | 0 |
There has been a lot of discussion among economists about the current slowdown in productivity and the threat, as some see it, of a “secular stagnation”. Personally, I think that expression is going too far, and you here stand in proof. But for an economy to be competitive and to grow, it needs to increase innovation and its diffusion, not slow it down. The digitalisation of the financial sector can accelerate this positive process: it helps to disseminate technological advances such as electronic signatures, solutions to defend against cyber-attacks or distributed ledger technologies. Innovative and secure payment solutions, such as tomorrow’s blockchains, are also helping to speed up the development of e-commerce and modernise physical trade. Achieving this will require greater harmonisation at European level: in the precise application of the texts governing the financial industry (definition and security of payment services), in more recent fields (crowd-funding) or in the search for greater interoperability of technologies and standards. But, above all, it is vital that we define an overall strategy for European innovation in financial services. This strategy must cover all the issues raised by digital finance: from data protection to the fight against money laundering; from IT security to consumer protection; from financial stability to the social challenges of banking inclusion; from financial literacy to changes in jobs in the financial sector. It is a project currently being conducted by the European Commission. And the Banque de France and ACPR are both playing a part. | The artificial intelligence and chatbots you are developing will help us respond more effectively to the public’s needs; big data, machine learning and biometrics will help us to better prevent fraud; blockchain technology and smart contracts will help to optimise transactions; and your APIs (Application Programming Interfaces) and open source technologies will help to make financial technologies more interoperable. When I think, in turn, of what the Banque de France and ACPR can contribute, I’d say this: stable, reliable and agile regulation. Stable because we have a strong anchoring in European regulation: this means that FinTechs established in France can offer their services in all countries in the European Union – it’s what we call “the European passport”. Reliable, because we strive to limit potential risks, so that innovation is always synonymous with customer protection, payment security, IT security and financial stability. But also agile, because innovation must not be stifled by administrative red tape; that’s why we are developing regulations that are based on objectives and principles rather than on rules, and that are proportionate to the scale of the risks. New FinTech players also help to stimulate competition with digital incumbents, and in particular with the initiatives launched by the US web giants. The industrial stakes are high: we need to foster this active competition, which is by far preferable to monopolies, even technological ones. Stable, reliable and agile regulation is a basis for confidence. And confidence is a basis for success in innovation. We want to build this regulation with your active participation. | 1 |
It is a question of monetary policy, as I said earlier, being first and foremost aimed at ensuring there is a credible nominal anchor in the economy. As long as this nominal anchor does not risk coming loose, monetary policy can be aimed at stabilising the real economy. I shall return to this shortly and for now merely emphasise that the key word here is stabilise the real economy and nothing else. It may be interesting to note in this context that the experiences from the period of low, stable inflation have meant that price stability is now increasingly perceived as both an objective in itself and as a means of achieving other macroeconomic objectives. 5 There are many indications that price stability has beneficial effects on efficiency and growth in the economy. The reasons can be those I just mentioned, i.e. that the price system functions better as a signalling mechanism in a low inflation environment and that households and companies can spend more time on productive activities instead of trying to protect themselves against inflation. Essentially it is a question of price stability being a necessary condition for an efficient payment system, as I said earlier. In addition, the period of low and stable inflation has also been characterised in many countries by less fluctuations in growth in the real economy than was previously the case. | BIS Review 23/2006 1 | 0 |
Therefore, there is cause for some optimism concerning the possibility of shielding the mainland economy from the effects of swings in oil prices. In the long run, however, petroleum revenues and their use will affect the level of costs in Norway. An increase in oil prices may generate expectations of higher use of petroleum revenues in the future, particularly if high oil prices are expected to persist. Such expectations may exert appreciation pressures on the krone. It may also generate expectations of higher returns in the Norwegian stock market than in foreign markets, which also can and has contributed to an appreciation of the krone. Our assessment is that developments in oil prices and an increased cash flow have been responsible for the appreciation of the krone since the spring of 2004. We are approaching a peak in petroleum production in Norway and must expect a substantial reduction in the next decades. In addition, there is considerable uncertainty associated with future petroleum production. In recent years, there has been a tendency to overestimate projections for production a couple of years ahead. It is especially demanding to estimate production for the many large fields that have reached maximum capacity. The fiscal rule provides a long-term anchor for fiscal policy. It provides a stable framework that contributes to curbing some of the fluctuations in the Norwegian economy. Nonetheless, the use of petroleum revenues in the Norwegian economy has been increasing over the past few years. Petroleum investment has increased significantly. | The scope is relatively moderate, but appears nonetheless to have reduced bottleneck tendencies in some industries where demand has increased sharply. Traditionally, many workers from our neighbouring countries have contributed when the labour market in this country has been tight. In 2001, close to 30, 000 persons resident in Sweden were employed in Norway for all or part of the year. Swedes who have registered as residents in Norway come in addition. An increased supply of labour from new EU member states to Norwegian enterprises may lead to a higher-than-normal increase in potential output for a period. Many of the foreign workers work for a shorter period in Norway without being employed in a Norwegian enterprise. Examples include foreign contractors and self-employed in the construction industry who carry out various building projects in Norway, as well as others who carry out other types of projects. Aker Kværner, for example, has contracted 300 consultants in India who are working from India on the Ormen Lange project in the western part of Norway. An increase in the use of these short-term contracts will appear as an increase in Norway’s service imports, which contributes to increasing the supply of goods and services without drawing on domestic resources. Protectionist measures may dampen the impact on the Norwegian economy of an increased supply of labour from the new EU member states. The transitional rules from 1 May last year stipulate that foreign workers shall have Norwegian wages and working conditions. | 1 |
Andrew Bailey: Financial markets – identifying risks and appropriate responses Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at Cambridge University, Cambridge, 15 May 2015. * * * Accompanying chart can be found at the end of the speech. The views expressed in this lecture are my own and not those of the Bank of England, the Financial Policy Committee or the Prudential Regulation Authority. I would like to thank Chris Salmon, Geoff Coppins, Rhys Phillips, Jeremy Harrison, Sarah Bailey, David Learmonth, Alina Barnett, Andrew Hauser, Lewis Webber, Sam Knott, David Biegel, Simon Stockwell, Joseph Noss and Nicholas Vause for their comments. As the summer of 2015 approaches, it is sobering to think that we will be nearing the eighth anniversary of the start of the Global Financial Crisis. Incidentally, the end of this month will mark my 30th anniversary of working at the Bank of England. So it is even more sobering to realise that I have now spent a quarter of my career dealing with the Global Financial Crisis. Reflecting on this fact as I started writing this speech, I must admit I thought about suggesting we all go for a drink now, but I decided I should press on. There is a commonly-held narrative about the financial crisis that the banks caused it, and the solution is more regulation of both an economy-wide (macro-prudential in the jargon) and firm specific (micro-prudential) type. | This means positions that are less liquid under stress conditions will receive larger shocks. And, we have developed a new approach to stressing counterparty credit risk, which focusses on capturing losses from exposures that would become large under the stress scenario and for counterparties that would be most vulnerable in the stress scenario. Second, the Bank of England, working with the FCA and HM Treasury has set up the Fair and Effective Markets Review to restore trust and confidence in the fixed income, currency and commodity (FICC) markets in the wake of the serious wave of misconduct seen since the height of the financial crisis. The Review is taking a fundamental look at the root causes of these abuses, the steps that have already been taken by firms and regulators to put things right, and what more is needed to deliver less vulnerable market structures and raise standards of behaviour in future. The Review will publish its recommendations in June 2015. Out of this assessment, and based on consultations to date, will I believe come priorities on market structure “standards” and transparency, effective competition, professional culture within firms and effective, pre-emptive supervision which reduces the drama of ex-post enforcement. The third area of action concerns initiatives to improve the functioning of markets to support activity in real economies. Resilient market-based financing will help to support sustainable economic growth. | 1 |
In view of the requirement for growth of Islamic financial transactions to be linked to real economic sectors, salient issues on stronger corporate governance and more efficient human resource management are discussed in a pre-concluding chapter of the book. Renowned industry practitioners and academicians have contributed to the book, providing deep insights, perspectives and views that are supported by practical experiences which will be invaluable to those who wish to understand the critical regulatory issues in Islamic finance. Contributions by the two respected co-editors who have extensive knowledge on the subject and are internationally recognised for their academic publications on Islamic finance, completes the book as an indispensable reference for all. It is hoped that in addressing the implications of the recent global financial crisis on the regulation of Islamic financial services, this book will provide further clarity and understanding on the multi-dimensional goals of policymakers and regulators in ensuring that the resilience of the Islamic financial system and its core tennets are aligned with the evolving global regulatory developments. Let me take this opportunity to congratulate the two co-editors for their invaluable contribution in enriching the body of authoritative information on the regulation of Islamic finance. Thank you. 2 BIS central bankers’ speeches | Market-based measures include a time-varying risk premium that may explain the modest movements in that measure.6 In contrast to longer-run expectations, short-run and, to a lesser extent, medium-run inflation expectations responded to the sharp rise in inflation. The lower portion of Table 1 reports summary statistics for one-year-ahead inflation expectations from the Michigan survey and one- and three-year-ahead expectations from the New York Fed’s Survey of Consumer Expectations (SCE). Consistent with past experience, one-year-ahead inflation expectations have been highly sensitive to incoming inflation during the recent period. The sensitivity of three-year-ahead inflation expectations is far less than that for one-year-ahead expectations. And they have been significantly less sensitive to incoming information during this period of high inflation than during the period before the pandemic. This suggests households view the run-up in inflation in 2021 as likely being less persistent than in prior episodes.7 Although the SPF includes a longer-run forecast of PCE price inflation, most other measures of inflation expectations do not exactly correspond to the PCE price index that the FOMC has stipulated for its long-run goal. This complicates a direct comparison of these measures to the FOMC’s stated goal. For example, the SCE refers to the “rate of inflation,” and the Michigan survey refers to “prices in general,” rather than referring to a specific price index. | 0 |
Given the fact that we started from a position in which inflation was below target (and expected to remain so for some period ahead); and given only modest upward pressure – at least so far – on wages and earnings growth, despite the continuing tightness in the labour market; we have judged, on the information so far available to us, that we needed to reduce interest rates by ¾% in order to cushion the impact of the global slowdown and meet the inflation target further ahead. Of course I am well aware that a stable overall macro-economy does not – and cannot – mean equally stable economic conditions for every individual sector or individual business. A particular complication over the past few years has been the surprisingly persistent strength of sterling's exchange rate against the euro, itself a reflection of the puzzling more general weakness of the European currency. This has contributed to an uncomfortable imbalance within the UK economy primarily between the BIS Review 47/2001 3 euro-exposed sectors, which have been under consistent pressure, and the domestically-oriented sectors, which have by and large been doing relatively well. Understandably the suffering sectors and businesses – and I know that they include some Japanese companies operating in this country – tend to complain that monetary policy takes too little account of their position, often pointing out that inflation has for the past two years fallen somewhat below the target. | The outcome is obviously the major uncertainty surrounding the global economic prospect, and policymakers elsewhere can only monitor, continuously and very closely, the emerging evidence and react to that in the light of its likely impact on their own situation. The US slowdown comes at a particularly bad time for Japan which is already suffering from a combination of weak domestic demand – particularly consumer demand – and supply-side constraints reflecting pressures on the banking system, heavily burdened with non-performing loans, and an acknowledged need for restructuring parts of the non-financial sector. Japan has pretty well exhausted the scope for macro-economic stimulus. Successive fiscal packages focussed on public works, and a sustained period of attempted monetary expansion, at near-zero interest rates in the face of deflation, have failed to overcome a high rate of precautionary saving by an ageing population facing an uncertain economic future. The policy emphasis of the new Japanese administration appears to be shifting towards firmer action to bring about supply-side reform in the belief that this will help to engender greater confidence. The danger is that, to the extent that more aggressive restructuring 2 BIS Review 47/2001 results in bank ruptcies and higher unemployment in the short term, that in itself might tend to weaken consumer demand for a time before the benefits of the restructuring come through. I make no judgement about the prospects in Japan. You certainly are better placed to do that than I am! | 1 |
It is difficult to know exactly how much spare capacity there is in the economy and what its precise impact is on inflation. But that there remains some slack in the economy and this is likely to be pushing down on costs and prices seems clear. That impact should become more apparent as the temporary effects associated with the shocks to input prices and VAT wane. It is perhaps noteworthy that in the US and euro area, which have not experienced falls in their exchange rates or large movements in indirect taxes, core inflation has weakened substantially. The downside risks to the growth outlook, stemming in particular from the substantial fiscal consolidation now in train and the continuing constraints on the supply of bank lending, add materially to the downside risks to inflation. And even if the economic recovery does continue, it is possible that some of the factors that may have contributed to the surprising strength in inflation in the past may start to fade. As demand increases, companies may begin to bring mothballed capacity back on stream. And as firms build up their cash balances and credit becomes more available, margins may start to fall as companies seek to enter new markets and gain new customers. The risks to the inflation target are real and substantial. The job of monetary policy is to try to balance these upside and downside risks to inflation. In essence this is no different to normal, monetary policy is always faced with a balancing act. | In the meantime, the Bank of Thailand has been keeping a close eye on the economy as well as any sign of excessive turbulence in the financial markets, and stands ready to take appropriate actions as warranted. In response to the weakening economic conditions, the MPC has cut the policy rate by 25 basis points at its November meeting to shore up sentiments and mitigate downside risks. The rate was further maintained in the last MPC meeting to retain the accommodative stance without compromising financial stability. 8. With that said, preparation on the side of the private sector is equally important. In this regard, I would like to encourage commercial banks to help raise the private sector’s awareness and encourage the use of the available financial instruments to manage their FX risks. I wish to point out that in these uncertain times where outcomes are driven as much by expectations as by the underlying fundamentals, protection against the FX risks should be viewed as the dominant strategy. That is, protection should be recommended irrespective of whether there is any observable trend of the currency and irrespective of whether one is on the importing or exporting side of the trade. Also, if your clients are engaged in intra-regional trade, recommending using a regional currency to reduce overreliance on the major currencies may be worth considerations. 9. Ladies and gentlemen, I would like to touch upon two more important developments in the Thai financial markets before concluding. | 0 |
Miguel Fernández Ordóñez: Presentation of the 2011 Annual Report Address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, to the Governing Council of the Bank of Spain on the presentation of the 2011 Annual Report, Madrid, 8 June 2012. * * * Ladies and gentlemen, The presentation of the Annual Report for 2011 is taking place in an extremely difficult setting for Europe in general, and for Spain in particular, marked by the acute euro area sovereign debt crisis and the double-dip recession in the Spanish economy. The year 2011 was characterised by the worsening of the euro area sovereign debt crisis. Initially affecting a small number of countries in a situation of relative vulnerability, it spread to others with sounder economic fundamentals, duly turning systemic. The fresh downturn in the euro zone not only detracted from the area’s recovery but was also one of the main determinants of the halt in the ongoing pick-up in world growth begun a year earlier. Two main factors lay behind the crisis. First, the insufficient adaptation of domestic economic policies to the demands of monetary union membership, which translated into a build-up of major imbalances that placed some economies in a position of vulnerability. And second, the lack of political consensus at the European level to tackle the weaknesses of the euro’s institutional design, which largely explains the spread of the tensions to countries whose misalignments were on a lesser scale. | Ivan Iskrov: Reflections on the past year Speech by Mr Ivan Iskrov, Governor of the Bulgarian National Bank, to the Association of Banks in Bulgaria on the occasion of the Banker’s Day, Sofia, 6 December 2010. * * * Ladies and Gentlemen, It’s a great pleasure to be here this evening with you all, on 6th December, Saint Nicholas Day, and celebrate our professional holiday. Over the last eight years I and my colleagues from the BNB Governing Council, regardless of our numerous engagements, have not missed a single occasion to be with you and celebrate this great day. By this gesture we show our respect for and acknowledgement of the job well done by you in favour of the national economy. Commercial banks are not merely some of the many capitalist businesses focused on profit making for their shareholders. The banking system is a major part of the infrastructure of any market economy; it is its circulatory system. Without our daily committed work, our state would not be able to function properly. By tradition today we have the chance to pause and reflect on the past year and to share our hopes that in the year to come we would again successfully meet the new challenges. I have no doubts about that because we all have proved that we are capable of turning trials into useful experience, and experience into a means of completing the mission that society has assigned to us. | 0 |
The reason I have brought up this problem is that it, in my opinion, has at least some bearing on the monetary policy considerations we face today. I will come back to that in a moment. The current monetary policy situation Let me now proceed to the current economic and monetary policy situation. The outlook presented in the latest Inflation Report can briefly be summarised as follows. On the whole, the situation looks bright for the Swedish economy. The recent months’ data releases have reduced the uncertainty over economic developments, both in Sweden and internationally. Growth is expected to be firm in the next few years, partly on account of expansionary economic policy and firm export market growth. Much also suggests that demand for labour is now finally beginning to pick up more markedly. As regards price developments, we can note that inflation is still low, largely because various supply factors are contributing to low cost pressures. However, inflation is expected to rise in the period ahead when resource utilisation increases in Sweden and abroad, albeit at a relatively slow rate. The forecast in the Inflation Report’s main scenario means that inflation a couple of years ahead is estimated to be roughly in line with the target of two per cent. The risks of a higher inflation rate, though, which mainly stem from uncertainty over the oil price and developments in the krona, are currently deemed to be larger than the risks of a lower inflation rate. | As you know, we in the Executive Board decided to leave the repo rate unchanged at our latest monetary policy meeting. At the same time, however, we were in agreement that the Swedish business cycle is fairly close to the point at which it is reasonable to give monetary policy a less expansionary stance. Although we all endorsed the outlook for inflation and the economy in the Inflation Report a number of us were of the opinion that it provided scope for somewhat different interpretations of exactly when the interest rate needs to be raised. I myself and two other members 2 4 For a more detailed overview of the debate; see Bean, C. (2003), "Asset Prices, Financial Imbalances and Monetary Policy: Are Inflation Targets Enough? ", speech at a BIS conference on "Monetary Stability, Financial Stability and the Business Cycle", 28-29 March 2003, Basel, Switzerland. (http://www.bankofengland.co.uk/publications/speeches/2003/speech200.pdf) BIS Review 88/2005 interpreted the analysis in such a way that we deemed an increase of 0.25 percentage points to be warranted already at the time of the monetary policy meeting. Allow me to say something about the reasons that, in my opinion, suggest that it would have been appropriate to take a first step towards less expansionary monetary policy at the beginning of December. One is that there hardly can be any doubt now that we are in the midst of a strong, stable cyclical upswing. | 1 |
SPEECH DATE: 04/12/2018 SPEAKER: Deputy Governor Per Jansson VENUE: Insurance Sweden, Stockholm SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se Monetary policy in less favourable times – what are the options?∗ To say the past decade has been transformative for monetary policy is scarcely an exaggeration. Many central banks have cut their policy rates to exceptionally low levels and found other ways of conducting monetary policy than adjusting interest rates. In some countries, including Sweden, the policy rate has also passed the zero bound that was considered to be the absolute minimum level not very long ago, and has entered negative territory. Despite this policy, the recovery has on the whole been slow and, above all, inflation has been low for a long time. This has led to the policy rate in many countries remaining at record low levels for several years. The need to keep policy rates so low is not only due to the financial crisis 2007– 2008 and the ensuing euro crisis requiring very expansionary monetary policy. An equally important explanation is that real interest rate levels around the world have trended down for several decades, largely independent of the financial crisis. Real interest rates are currently at record low levels (see Figure 1). The downturn in the real interest rate is a sign of the global, so-called “neutral”, rate of interest having fallen. | This also has the potential of reducing delivery cost for the banks; hence the potential to increase profit maximization for both banks and their clients. Finally, let me thank the Board of Directors and Management of ProCredit Bank for inviting me to this occasion. I wish you every success in your operations as you compete to make your presence felt in the industry. I would also like to covey appreciation from the Governor, who is unavoidable absent on this occasion. I thank you all for your attention. 2 BIS Review 33/2008 | 0 |
Mugur Isărescu: Central bank communication as a policy tool - an ongoing challenge Speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at "The 41th Meeting of the Central Banks Governors’ Club of the Central Asia, Black Sea region and Balkan countries", Istanbul, 25 March 2019. * * * As prepared for delivery Distinguished audience, Dear colleagues, It is a great pleasure for me to address this distinguished panel on a topic that is both important and challenging for central banking. The session’s title includes three key issues: effectiveness, knowledge and trust, all in relation to the manner in which central banks communicate their policies and actions. I would like to share with you some general thoughts regarding these issues, as well as the National Bank of Romania’s experience in this area over the recent years. More transparency, commitments too Views and practices concerning transparency and communication have evolved dramatically in the last decade. Not long ago, the conventional wisdom was that monetary policymakers should say as little as possible, take markets by surprise and be rather cryptic. Things have changed, as the more independent central banks also became accountable for the ‘public goods’ they were called to provide for: a credible and convertible currency, price stability, employment and growth in other cases, banking sector supervision and financial stability. People tend to take these ‘public goods’ for granted, appreciating their importance only when lost. | The capitalist system depends on owners of capital to promote sustainable value creation through market discipline. Is it simply short-term profits that matter? Are there other social or environmental purposes that must be safeguarded? To this end, the Securities Commission’s Malaysian Code for Institutional Investors articulates the stewardship 3/5 BIS central bankers' speeches role that shareholders ought to play. Ultimately, shareholders need to clarify that – we need more than just the bottom line – immediate profit is not everything. (b) Situation Let us move on to the second element – the “situation”. The system of values creates and maintains various situations. The situation represents the environment or immediate setting in which financial industry professionals operate. This is a broad subject. Today, I wish to focus on two types of situational incentives. Firstly, remuneration structures. And secondly, the attitudes toward speaking up. Remuneration plays a significant role in influencing behaviour, including ethical choices. Admittedly, the task of designing and implementing a remuneration system to encourage professionalism and integrity is not straightforward. However, the intuition is simple and attainable: financial institutions should avoid the folly of rewarding A, while hoping for B. In other words, we cannot hope for or expect ethical behaviour so long as we continue rewarding people for acting otherwise. In this regard, the Bank is currently phasing in requirements consistent with international standards to align remuneration with prudent risk-taking – with a focus on material risk takers. | 0 |
Mr Duisenberg gives some views from the European Central Bank on EU enlargement Text of the Zolotas Lecture given by Dr Willem F Duisenberg, President of the European Central Bank, held at the Bank of Greece, Athens on 15 October 1999. * * * Introduction Ladies and gentlemen, Let me begin by saying that it is a great honour to be invited here to speak to you on such a prestigious occasion. This is particularly so given Governor Zolotas’ – or should I say Professor Zolotas’ – stature as perhaps the most significant contributor to Greek monetary history over the past few decades. Indeed, during Professor Zolotas’ time as Governor of the Bank of Greece, a period which, as we are all aware, extended well beyond two decades, the achievements of monetary policy were certainly quite impressive. The Greece of the early 1950s was certainly not the same as it is today. At that time the Greek economy, suffering from large fiscal deficits and high inflation, was in urgent need of a stable currency. It is thus a great tribute to Governor Zolotas that, for many years following his arrival at the Bank of Greece, the monetary stability that had only just been achieved was both maintained and combined with a particularly rapid rate of economic growth. It is therefore not surprising that this period in Greece’s economic history has so often been referred to as the “golden era of the drachma”. | BIS Review 113/1999 2 Until a decade ago, one might have been fooled into thinking that there were in fact two separate European identities supported by two distinct economic systems. However, this would be to deny the close ties which still existed, even under the difficult circumstances of the time, between countries both east and west of the Iron Curtain. Events since the fall of the Berlin Wall have now shown that this difficult period did not destroy but merely delayed a process of further European integration – including both East and West – which is a natural consequence of our shared political and economic interests and our common cultural heritage. Ever since the velvet revolutions which swept across central and eastern Europe a decade ago, it has been apparent that, as part of their difficult transition to properly functioning market economies, these countries would become increasingly integrated with the economies of western Europe. Moreover, it was clear that this process, with its ultimate objective of accession to the European Union, could not be achieved instantaneously, but would have to be extended over a period of time, in some cases a considerable period of time. No other scenario could be foreseen, given the largely uncharted path which these countries had to tread in dismantling the old system of central planning and replacing it with the structures necessary to support a properly functioning market economy. | 1 |
According to the Police, the number of financial scams reported in Malaysia has risen to an alarming 1,883 cases between 2015 up to the 1st quarter of 2017, accumulating a total loss of RM379 million. This suggests that greed and ignorance can give way to rational financial decisions for many victims. Based on these observations, a lot more is left to be desired on the state of financial literacy to realise financial well-being for Malaysians. It is acknowledged that improving financial literacy is an intricate and long term journey. Through continuous and effective financial education, consumers would be able to improve their understanding of financial products and services, and develop skills and confidence to make informed financial decisions in their daily life. Financial education would encourage consumers to better manage their finances, plan for the future and manage risks associated to financial matters. While we agree that financial education plays an important role in elevating financial literacy, engaging in financial education alone is insufficient. It is equally important that the acquired knowledge and skills are put into practice and lead to a positive change in behaviour towards a healthy financial lifestyle. To this effect, initiatives to improve financial literacy must be implemented holistically. The ultimate aim is to promote sustainable behavioural changes at all life stages. | Exports are growing, and stock markets are up. As a regional grouping, we have continued to integrate our economies while individually pursuing restructuring. ASEAN is now back on its feet, up and running again. The necessity of deeper integration The need to broaden and deepen economic co-operation is a necessity recognised by ASEAN more than ten years ago. In 1992, ASEAN started the ASEAN Free Trade Area (AFTA) to boost intra-ASEAN trade and establish the region as a common area for manufacturing operations. At that time, the catalyst for greater integration was globalisation. Competition was getting tougher. Europe was consolidating and integrating itself to form the Single European Market. In North America, the US, Canada and Mexico were preparing to form the North America Free Trade Area (NAFTA). NAFTA provided US manufacturers an attractive, low cost manufacturing base in Mexico. Mexico too expected to benefit from new investments from the US, which would create jobs and bring growth and prosperity to the country. Both the Single European Market and NAFTA strengthened the competitiveness of the continents, and threatened to divert investments away from Asia. Determined not to lose out, ASEAN responded with AFTA. In retrospect, AFTA is perhaps the most important decision on economic cooperation that ASEAN members have taken together. Today, the world is even more globalised than compared to 1992. Competition is once again at our door step. This time however, the competition comes not from Europe or Mexico, but from much closer to home. China and India are growing very rapidly. | 0 |
These include the issuance of several guidance documents such as VBI implementation guide, VBI Scorecard and Value-based Impact Assessment Framework (VBIAF). More recently, the Bank and the VBI community of practitioners (COP) have embarked on efforts to develop sector-specific guide on value-based impact assessment alongside sectoral experts. As a start, the focus is on renewable energy, efficient energy and primary commodity (palm oil). As the industry began to operationalise the VBI, the market has observed efforts to infuse key elements of VBI in the offerings and practices. These include the launch of the first working capital financing for women entrepreneurs this year. This collateral-free facility embeds financial literacy sessions and focus group discussions to help entrepreneurs in managing and growing their businesses more efficiently. Other examples include the launch of an Islamic Index-based investment scheme embedding with environmental, social and governance (ESG) principles, as well as a financing programme via matching fund platform between financial institution and public contributions, which aims to empower communities through entrepreneurship. The takaful industry is also taking steps to implement VBI. The industry has formed a VBI Takaful Task Force to formulate the strategic roadmap for the takaful industry. Several takaful operators, on their own, have also undertaken a comprehensive review of business strategies. This review has begun to shape changes in the corporate value intent and strategic direction of these takaful operators to be more aligned with VBI. Additionally, some of these takaful operators are beginning to formulate more value-based protection solutions. | It serves as a networking effort while creating opportunities to exchange views, explore mutually beneficial opportunities, and most importantly, implement positive changes in the financial systems. It is not too far-fetched to envisage the generation of breakthrough thinking for future collaboration that is solution-driven; practical; and innovative. Collective effort is also key to success and the industry should aim to work closely with other key stakeholders. These include government agencies, civil societies and the public to increase awareness and encourage more active participation in supporting further development and offerings of sustainable financial solutions in the market. Strong technical know-how in dealing with the changing dynamics of the financial landscape and the arising risks is also essential for industry players to navigate itself in this journey. To end, I wish to reiterate that “sustainability is indeed a journey, and one that is best navigated collectively”. Sustainable development can be best served by re-connecting finance and element of value creation that is reinforced by bringing benefit to society, environment and prosperity. On that note, I wish all of you a beneficial and productive session today. 1 Around 30 least developed and other vulnerable countries are exposed to debt distress – limiting their ability to invest in the sustainable development goals (SDGs). 2 Countries home to most people in the world and global growth in real wages is only 1.8% – the lowest since 2008 (Source: United Nation (2019). | 1 |
The requirement is intended to ensure that banks build up an extra capital buffer when systemic risk increases. Loan-to-value ceilings on mortgage loans may also be imposed. On this point, the Spanish model of statistical provisions, introduced by Banco de España as early as 2000, has proved valuable. At the end of 2007, Spanish banks held as much as 1.3 per cent of total assets in these provisions, nearly a fourth of total regulatory capital. Third, the authorities must acquire tools that enable banks to be wound up in an orderly manner. In this context, it is important that the structure of banking groups is transparent. Banks must also draw up plans for their own liquidation in the event of difficulties. Owners and creditors – not taxpayers – must bear the losses. The interest rate on banks’ funding will then reflect the risk they take rather than an implicit government guarantee. This will in itself have a preventive effect. The Basel Committee has decided on important measures. If countries are able to enforce new rules faster than the minimum standard of 2018, this should be welcomed. Let me now turn to the mitigating policies; provisions to help societies through the crisis with as little human cost as possible. The crisis has been eased by active economic policy. Monetary policy has been expansionary. | Twenty years of low and stable inflation had provided confidence in central banks’ ability to control inflation, which in turn had paved the way for a sharp reduction in real interest rates without compromising the overall monetary policy target. This contrasts with the downturn in the late 80s, as illustrated in the case of Norway, as well as during the Depression, when real interest rates were kept high due to faltering credibility. Fiscal policy has also been used everywhere, and has prevented an even sharper fall in output. After two years of extensive fiscal measures, many governments are facing the wall. They are unable to finance further deficit spending and have to cut spending and increase taxes now. The graph shows the increasing government deficit in the UK. The government has no choice but to tighten policy. The Swedish government, on the other hand, in spite of expansionary policies in the aftermath of the crisis, had maintained a surplus in the years before, and the Swedish economy has thus fared well. Although countries were hit by the crisis in a fairly similar way, they emerged from it very differently. Some countries have experienced good growth rates and falling unemployment. Others are struggling to keep their head above water. Production is still far below the precrisis level, with unemployment hovering at record levels. Are these differences predictable? As a participant in OECD meetings for many years, I have sometimes been among the backbenchers, trying to check the pulse of the economy in various countries. | 1 |
What matters most is for Board and management members to embrace not just the letter of the rules but the spirit of the rules, to take ownership of outcomes, and to internalise the essence of these rules in the ethos and practices of the organisation. Corporate governance in our financial institutions BIS Review 51/2010 3 have improved over the years. We must continue this partnership between the authorities and the corporate sector to seek continual improvements in corporate governance which will underpin Singapore’s reputation as a trusted financial and business hub. Capability building 23. The other area for collaborative partnership is in building up the capabilities of financial industry professionals. Asia’s financial services industry is likely to grow rapidly. If this is not underpinned by an equally rapid growth of capabilities, whether it is in the front office or the mid-back office, we risk a major disruption ahead. It is essential that we act premptively to address this. 24. MAS has been working closely with the industry and with organisations such as the Institute of Banking and Finance (IBF) and the Workforce Development Agency (WDA) to increase the supply of skilled talent and to build professional capacity. It is heartening to see that the industry-led initiative in developing the Financial Industry Competency Standards or FICS for short is gaining traction, and despite the financial crisis, investment in training has not become an easy target for cost-cutting measures. 25. Such efforts should continue apace. | John Galbraith, for instance, has carefully documented the role of debt and leverage in crises going back to the 17th century. 6 More recently, the President’s Working Group on Financial Markets concluded in 1999 that, “The principal policy issue arising out of the events surrounding the near collapse of Long-Term Capital Management is how to constrain excessive leverage.” 7 3. Is there a need for better regulation? Assuming there is agreement that excessive leverage has been a major factor in past crises, what ought to be done about it? An obvious response is to limit leverage. But is it really that obvious? After all, some people would argue that regulation is at least partly to blame for past crises. Before I go any further, I want to clarify where I stand in the debate on regulation vs. free markets – my ideological baggage, so to speak. I believe that free markets are the best available mechanism to allocate resources and that they are ultimately the best way to promote welfare and economic growth. Fundamentally, I am therefore wary of elaborate efforts to interfere with the functioning of free, competitive markets. At the same time, it is obvious to me that, under certain conditions, free markets produce inefficient outcomes. If these market failures are apparent and important enough, they justify and indeed require interference in the market mechanism. | 0 |
For example, my staff produces monthly indexes of economic activity – essentially local measures of output – for the city, New Jersey and New York. We have also started a consumer panel to track local household credit conditions. In addition, we have a new survey about credit and financing for small businesses. Almost 900 regional businesses responded to our May 2011 poll – nearly 10 percent from the Bronx. If you, as part of a small business, would like to participate in our January poll, please pass your card to my colleagues in the audience. This December we will host a workshop for the New York City metro area’s small businesses – to provide information about credit enhancements and loans from the Small Business BIS central bankers’ speeches 1 Administration. I will send your president, Mr. Caro, details about how to register. I hope to see you in at the New York Fed in lower Manhattan in December. As you know, even states as wealthy as New York have large pockets of poverty. So, we target some key initiatives specifically to low- and moderate-income groups. We have worked hard to help neighborhoods, including some in the Bronx, that face high foreclosure rates. Later today, I’ll tour some hard-hit areas with the city’s commissioner of Housing Preservation and Development. To share what we learn about our diverse District, we have a rich website. I invite you to visit newyorkfed.org to explore our detailed maps and information on small business, credit and housing conditions. | Based on this analysis, in the third part of my speech I will describe the wide-ranging regulatory measures taken at international and national level to resolve ‘too big to fail’. Let me just present our own conclusion up front: In Switzerland, the response was quick, targeted and, at the same time, cost-effective. On the one hand, the regulatory amendments strengthened banks’ resilience, reducing the likelihood of a bank getting into financial distress. On the other hand, they introduced measures aimed at ensuring that even a systemically important bank can exit the market in an orderly way in the event of a crisis. We are convinced that the Swiss big banks and the Swiss banking system are much more weatherproof today than they were ten years ago. Many of the planned measures have already been implemented. Page 2/14 However, we have still not quite achieved our objective. Only once the agreed measures have been fully implemented will the conditions for resolving ‘too big to fail’ in Switzerland be in place. The ‘too big to fail’ issue So what is behind ‘too big to fail’, and what concrete form does it take in Switzerland? a) ‘Too big to fail’ institutions must be bailed out in a crisis ... As I mentioned at the start, ‘too big to fail’ means that an individual institution is so important that the state is under a de facto obligation to bail it out in a crisis. This state obligation arises under two conditions. | 0 |
Meanwhile, considering that the problems in the global economy have not been completely eliminated despite recent improvements, I would like to remind you that as we have already pointed out, policy rates may need to be kept at current levels for a while and may need to follow a low course for an extended period. In the first quarter of 2010, central banks mostly implemented exit strategies from expansionary monetary policies and therefore the global monetary policy outlook became partially tighter. In the said quarter, a limited number of central banks tightened their monetary policy stance by increasing policy rates, while most of them kept their rates unchanged at low levels. In the meantime, these central banks started to terminate the expansionary monetary policy implementations, which are conducted with the use of unconventional policy tools. Accordingly, while drawing attention to the risks regarding pricing behaviors and taking account of the normalization in both money and credit markets; we decided to gradually withdraw some of the measures taken in the foreign exchange and Turkish lira markets during the crisis. Owing to the importance that we attach to transparency and predictability, I would like to remind you that we informed the public about the general framework of our exit strategy in our Press Release of 14 April 2010, before putting the strategy into practice. 3. Inflation and monetary policy outlook Now, I would like to share with you the monetary and financial conditions, as well as the economic outlook underlying our forecasts. | BIS central bankers’ speeches Charts and Tables Chart 1: Evolution of the global financial Chart 2: Composition of IMF resources safety net as a percentage of external liabilities (1980–2014) Per cent of global external Per cent of global external liabilities liabilities 14 3.5 Regional Financing Arrangments Swap Lines 12 3.0 IMF Temporary 10 2.5 IMF Permanent Self Insurance: FX Reserves (LHS) 8 2.0 6 1.5 4 1.0 2 0.5 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 0.0 Sources: IMF, central bank websites, RFAs, Lane and MilessiFeretti (2012) and Bank calculations. GAB – General Arrangements to Borrow NAB – New Arrangements to Borrow Source: IMF and Bank calculations. Chart 3: Regional FX over- and underinsurance (2014)(a) Sum overinsurance Sub-saharan Africa Middle East and North Africa Latin America Central and Eastern Europe Sum underinsurance Asia $ billion 1000 900 800 700 600 500 400 300 200 100 0 Sources: IMF and Bank calculations. BIS central bankers’ speeches 9 (a) Degree of insurance is measured against the standard IMF metric. Chart 4: Access to regional financial arrangements bigger than 0.5% of regional GDP (2014) Sources: National Sources, IMF and Bank calculations. 10 BIS central bankers’ speeches References Brooke, M et al (2013) Sovereign default and state-contingent debt, Financial Stability Paper No. 27. | 0 |
Turning to direct investments, let me be clear that the PRA supports sensible diversification of portfolios backing annuities into assets such as infrastructure finance, commercial real estate lending and equity release. However, we expect insurers to do this properly. That includes: 6 https://www.bankofengland.co.uk/prudential-regulation/letter/2018/solvency-2-risk-margin 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 6 1. Having a strategy and risk appetite. Insurers need a disciplined approach. To put it flippantly, they should not be buying whatever is on the market this week or simply because they see their competitors buying those assets. The risks from direct investments are different to bonds. This is especially true if insurers originate their own Matching Adjustment assets: for example, by financing property development. Boards need to set clear risk appetites that capture all material risks at a suitable level of granularity, translating into a set of limits. 2. Building the right capabilities. Some insurers do investment in-house and others outsource. All insurers need people with sufficient market knowledge in all three lines of defence. That includes underwriting, risk management and potentially work out. 3. Developing appropriate management information, including for the board. 4. Appropriate valuations, internal ratings, and Matching Adjustment and Solvency Capital Requirement calculations. On this final point, we have provided considerable guidance on our expectations in Supervisory Statement 3/17 (SS3/17), particularly in relation to restructured equity release mortgage portfolios. One thing that has become clear to me is the importance of internal ratings. | We expect to finalise these proposals by the end of September so that firms can start applying the Test on their base balance sheets from the end of this year. Firms will need longer to review their internal model methodologies and make any necessary changes. We have proposed that this should take place by the end of 2021 at the latest. A key point to draw out is that lenders of equity release mortgages are exposed to the risk of individual property prices. This is because insurers provide a no-negative-equity guarantee to every borrower. Modelling approaches focused on house price indices do not capture all the risks – a portfolio of options is a very different thing to an option on a diversified index. Indeed UK insurers have experienced a number of these guarantees crystallising in recent years despite the rapid rise in UK house price indices over the past decades. One reason is that different localities of the United Kingdom have seen widely varying house price inflation – a national index masks the range of outcomes (Chart 7). Another is that some properties may become dilapidated if elderly borrowers are unable to maintain the property. Willingness to maintain may be lower where borrowers have limited or no equity remaining in their properties. Equity release contracts generally require properties to be maintained. But, in practice, losses do occur and cannot necessarily be recovered. | 1 |
At this point, I would like to highlight that the measures that we adopted in 2010 to contain the negative effects of the rapid credit growth created by ample global liquidity are critical for maintaining financial stability and enhancing resilience to external shocks; yet, their impacts on loans are expected to be observed with a lag. This matter deserves close attention, which is why I will be returning to this issue in the upcoming parts of my speech. BIS central bankers’ speeches 9 Distinguished Guests, 28. The decline in public revenues due to global crisis driven economic contraction and the comprehensive fiscal stimulus packages to alleviate the effects of the crisis led to large fiscal deficits and rising debt stocks across the globe, especially in advanced economies. Many emerging economies, including Turkey, are on a more stable fiscal footing, as they entered the crisis with relatively low budget deficits and debt stock, adopted relatively less comprehensive fiscal stimulus measures and recovered more swiftly. 29. The October 2010 MTP for the 2011–2013 period envisages a gradual decline in non-interest expenditures to GDP ratio by 2010. In addition, interest expenditures are expected to decrease amid falling domestic borrowing rates. Tax revenues are planned to be raised by legal and administrative measures aiming to enhance tax audits and expand the tax base. It is notable that the ratio of public debt to GDP has reverted to a downward track amid the gradual reduction in the budget deficit. 30. | Less short termism: the promise of significant returns in the short term was often linked to a misjudgement of underlying risk. At the level of individual institutions, compensation schemes must be adjusted to avoid encouraging excessive risktaking on the basis of relatively small amounts of capital. Instead, the incentive structure should encourage profitability over the medium to longer term. At the same time, on Wednesday, the European Parliament approved significant curbs on bank bonuses as part of wider efforts to reform the financial sector. EU finance ministers are set to endorse the law next Tuesday with the curbs taking effect from the start of next year. At the level of the financial system as a whole, we need to improve decisively the prevention of build-up of risks, including systemic risk. Macroprudential oversight will help to prevent the building up of imbalances. The third area of work concerns fiscal consolidation. This affects all industrial economies. Governments must send a clear message to markets – a message of determination and commitment to sound macroeconomic policies. There is no doubt that 2 BIS Review 97/2010 bold government actions including large capital injections in support of the financial sector helped to cushion the impact of the financial crisis. These measures were courageous and important in avoiding an even worse economic downturn. But many countries in the industrial world have reached the limits of fiscal expansion. Rising debt levels and large fiscal deficits have raised concerns among financial market participants about the longer-term sustainability of public finances. | 0 |
Mr Bergo focuses on Norges Bank’s responsibility for promoting an efficient payment system Address by Mr Jarle Bergo, Deputy Governor of Norges Bank, to the Banks’ Payment Systems Conference, held in Oslo on 11 November 1999. * 1. * * Background Risk in the payment system is closely linked to the use of deposits. Payment transactions - via banks take time, and this time-lag (between payment and settlement) is an important source of settlement risk. Cash payment allows immediate settlement without any such risk. Therefore, the transition from cash settlement to the use of deposits involves greater risk, but also greater efficiency. Thus, the public’s choice of means of payment and payment instruments directly affects the degree of risk and efficiency in the payment system. The public’s choice of different means of payment and payment instruments varies over time. This is, of course, nothing new. Already in 1924, the Banking Commission - which drafted a new law on commercial banks at the time - stated the following: The concept of means of payment is not beyond change; it has taken different forms throughout time. The law states what should be considered legal tender..., but common practice also allows certain secure assets to be used as payment... These bank-issued means of payment have - in the more developed countries - reduced the use of legal tender to minor daily disbursements (cash payments in its narrowest sense). Today, the payment system continues to undergo rapid change. | This is also emphasised in the preparations to the law, where it states that ... the processing of licence applications does not mean that the authorities are responsible for the properties of the system’s operation, etc. It terms of the licensing process itself, Norges Bank has initiated preparations and we will be ready to receive licence applications when the law enters into force. At the same time, we are aware that the formulation of these applications will take some time, not to mention that any changes in agreements or routines (which become necessary based on legal requirements) may take even more time. However, we will endeavour to facilitate this process. We have already had informal contact with the banking associations concerning this matter and we are prepared to provide counsel and guidance in the further progress of this process. 4.3. The responsibility of the banks The primary responsibility for the development of the payment system must, as mentioned, lie with the banks. This is in line with the approach of self-regulation. Further development of the common infrastructure, agreements and new payment services must come from the industry itself. In this process, it is important that banks provide more information on risk in the systems, so that an explicit division of responsibilities can be established - both for the individual systems operator and for the participants in the payment systems. However, the banks’ ability to develop efficient and stable payment services is influenced by the regulatory framework established by the authorities. | 1 |
The most difficult of these challenges have been in the financial market, where problems from outside can rapidly escalate into crises that threaten the integrity of our whole system. Capital flows, particularly those that are boosted by high leverage, have become large, fast, volatile and sometimes quite destabilising. Large economies with deep markets may have been able to withstand the volatility without their stability being seriously undermined. Yet, even then, government intervention in one form or another has been necessary: witness the LTCM episode in 1998, or the more recent interventions in support of the euro. For small and open economies, such as our own, the challenge is even harder to meet, and the measures necessary to prevent market failure have been even more dramatic. We faced our own episode here in Hong Kong in 1998, when the shock waves from highly mobile and volatile international capital flows threatened our markets with collapse. Our intervention in the stock market in August 1998 to keep our markets working earned us a great deal of vilification at the time, and – for the wrong reason perhaps since we did not go in to make a profit – a great deal of praise since. But let’s leave the last word on this – at least for the time being – to Alan Greenspan. He said, in his post mortem earlier this year on the Asian financial crisis, the following words: Official safety nets and interventions cannot be eliminated entirely. | It is now possible to trade globally over the telephone or over the net from anywhere in this world – and no doubt, with the right equipment, from out of this world as well. But those who trade have to come down to earth to effect settlement and, very simply, Hong Kong is where we would like them to be when they land. To serve as a financial centre in a world connected in this way means primarily having the capability and infrastructure to capture these deals and provide safe, efficient and inexpensive settlement and clearing services. This is why we in the HKMA have, since our establishment in 1993, been paying particular attention to building financial infrastructure as the foundation of our strategy in developing Hong Kong as the financial hub of Asia. 25. We built over ten years ago a fully computerised and paperless debt clearing system as part of our efforts to develop the domestic debt market. We have since linked that system with similar debt clearing systems in a number of other jurisdictions to facilitate cross border and cross currency investments in debt markets. We are about to develop our debt clearing system further into what we call an ICSD or an international central securities depository in an attempt to pull debt issues in the region into our system. | 1 |
The second factor driving market volatility stems from the plunge in prices of oil and commodities. Depressed prices put pressures on commodity-exporting countries and related industries. For oil producers, the prolonged low prices would also result in losses in BIS central bankers’ speeches 1 revenue and profitability, and increase risks of default on their debt payments. These could trigger another rout of credit events and liquidity tightening in financial markets. The third factor is the monetary policy divergence between the US and other major advanced economies. While the US Federal Reserve is poised to gradually tighten its policy stance, the Bank of Japan recently joined the club of many European central banks to adopt a negative interest rate policy, and is likely to ease the policy even further. Amid the fragile global recovery, the divergence in the monetary policy stance as well as in the recovery paths among the major economies cause a great deal of global uncertainty, and prompt capital flows to be overly sensitive to news and even slight changes in market expectations. In this highly interconnected world, these global risks surely have widespread spillovers to all countries not least emerging markets, Thailand included. But, the impact on the Thai financial markets, as you might have seen, has so far been relatively limited, compared to other emerging markets, thanks to Thailand’s strong external position which serves as a great buffer against global volatility. | These could weigh on the pace of the already fragile global recovery and create more bumps in the road for the Thai economy than we have anticipated. Moreover, the impact could be more pronounced in the rural areas, where drought and low commodity prices worsened the already weak farm income. Nevertheless, I believe there are grounds for optimism for the Thai economic growth. The Thai economy this year will continue to be driven largely by domestic demand and tourism. Exports will likely remain flat or decline further, not only due to subdued global demand but also price effects as export prices have tumbled following the low commodity prices. But, so far the impact on the labor market, even those in export-oriented sectors, has appeared well-contained. Notwithstanding the threatening uncertainty around us, tourism continued to be a main growth driver for the Thai economy, with expected tourist arrivals of around 31 millions in 2016. The CLMV market is another bright spot. The Thai exports to CLMV market are expanding in accordance with their growing middle class and vibrant economic activities. The CLMV market is now accounting for 10.4 percent of Thai total exports, which is already larger than our exports to Japan, the third largest export destination. In terms of the domestic economy, we have learned from the latest GDP release that the construction sector has picked up with a strong growth of more than 20 percent in the fourth quarter of last year, thanks to government infrastructure projects. | 1 |
Not all industries and companies will benefit equally from the upturn in demand. Furthermore, our companies are faced with technological, institutional and market-led changes, irrespective of the economic situation. Examples include the digitalisation of the economy, structural adjustments to domestic trade due to new consumer habits and distribution channels, new business models in the financial sector and shifting tourism flows. To overcome these challenges, companies must continue to position their products successfully through innovation and new business ideas. This capacity has proved to be a key strength of the Swiss economy in recent years. Equally, Switzerland must continue to do everything it can to offer conditions which allow companies to compete globally. 2 BIS central bankers’ speeches Inflation expectations, interest rates and exchange rates I will now review changes in inflation expectations and monetary conditions since the beginning of the year. Due to the appreciation of the Swiss franc and the decline in commodity prices, Swiss inflation once again moved well into negative territory at the beginning of 2015. Despite persistently low inflation rates, medium and long-term inflation expectations have nevertheless remained stable. According to the Consensus Economics forecast published in April, expected inflation for a horizon of six to ten years stands at 1.2%. In the current environment, a relaxed monetary policy is still needed to ensure price stability and support the economy. Consequently, interest on sight deposits at the SNB stands at −0.75%. | ASEAN has undertaken gradual and sequenced liberalisation of identified financial services sub-sectors through the ASEAN Framework Agreement on Services (AFAS). Five rounds of negotiations have been concluded, with the sixth round of negotiations expected to be concluded by next year. In the area of financial markets, an Implementation Plan for an Integrated Capital Market has been developed to enhance market access, linkages and liquidity. ASEAN has also made 2 BIS central bankers’ speeches significant advancements in the areas of supporting financing for infrastructure development, as reflected by the establishment of the ASEAN Infrastructure Fund in 2011. Notwithstanding these developments, a crucial driver for greater financial integration within the core of ASEAN financial systems is the banking sector. ASEAN banks have a significant role in supporting the financial integration process. Over the recent decade, we have witnessed the rising prominence of ASEAN financial institutions within the region, driven by the growing business fundamentals in the region and the strengthened capacity of the financial institutions. ASEAN commercial banks are predominant mobilisers of financial funds, as our experience shows, the banking sector is the most matured component in the financial sector of most jurisdictions. The banking sector therefore serves as an important conduit to increase connectivity among all ASEAN nations and in fostering financial integration. Towards this end, the ASEAN central banks have endorsed the ASEAN Financial Integration Framework in 2011 and are in the final stages to launch the framework for banking sector integration. | 0 |
On the contrary, support should focus on 16 Indexation clauses already cover 24.4% of wage-earners with an agreement in force for 2022, compared with 16.1% at end-2021. By 2023, they will cover 45% of wage-earners with an agreement in force for that year, although as yet this only includes a limited number of workers. 11 lower-income households, who bear the brunt of inflation, and the firms most vulnerable to this new shock. Moreover, any measures should be temporary, so as not to further increase the structural budget deficit, which was already very high even before the pandemic. They should also be designed to avoid significant distortions to price signals. But offsetting the adverse effects of the current supply-side shock also calls for ambitious policies to boost productivity growth and potential GDP. In other words, the optimal economic policy response to an adverse supply shock, such as the present one, entails structural reforms (including, naturally, of the energy market) to ease the supply-side tensions. The common European instrument to realise this ambition is the European Union’s NGEU recovery plan. Under NGEU, investment projects must be carefully selected in order to optimally complement, and act as a catalyst for, private investment. But they must also be accompanied by, or even help fund, structural reforms to support, for example, the reallocation of resources across firms and sectors. At the same time, the sustainability of national public finances must be ensured; this is essential for the smooth functioning of the monetary union. | 8 See Menéndez and Mulino (2022). “Results of non-financial corporations to 2022 Q2”, Analytical Articles, Economic Bulletin 3/2022, Banco de España. 3 recipients of liquefied gas, including Spain, are unable to transport it to the Central European countries that have been cut off by Russia from its gas supply. Third, the surge in gas prices observed in the Dutch TTF market, Europe’s benchmark, has intensified the reduction in consumption. Between March and June, it had declined by 10% in Europe as whole and, therefore, must accelerate to reach the goal set. As a result, 84% of European storage capacity was in use in September, meaning that it is above the 80% target set for early October. Despite the headway made, how much time will Europe need to wean itself off Russian gas? As I mentioned earlier, this will depend on many factors, including increasing the amount of liquefied gas that can be shipped to Europe, its regasification and subsequent distribution to where it will be consumed, the pace at which technical advances leading to energy efficiency gains occur (and are subsequently adopted), and the possibility of expanding the use of other energy sources, particularly renewables. It is also true that the economic consequences of the war affect countries unevenly, depending on their different levels of dependence on Russian gas.9 However, given the surge in energy prices and European economic integration, economies such as Spain, that depend relatively little on Russian supplies, will also be affected. | 1 |
And even what we know and can identify today, our perceptions may be obscured by our perceived understanding based on past world views. There is a fine line between the knowns and the unknowns. Navigating through these will require striking the right balance between having an open mindset to allow innovations to prosper while ensuring that key risks can be contained. For the “known territory,” essentially developments that we have begun to identify use cases, can control the risks, and believe that the benefits will outweigh the costs, we must continue to refine our understanding, expand our knowledge, and find ways to streamline them into our policymaking process. This is so that the perception or the extent of what we know becomes clearer. For instance, growing popularity of internet-of-things—from usage of smartphones to various data-transmitting devices—has created massive amount of individual-level and transaction-level data. These “big data” can help unlock our understanding of the behavioral patterns, perhaps, not even realized by individual data owners. At the Bank of Thailand, we have begun employing big data analysis in macroeconomic, banking sector, and financial market assessments to complement our policymaking process. This has helped ensure that our policy actions are evidence-based and timely. At the same time, necessary steps are taken to validate the integrity and quality of data used as well as to safeguard data privacy. We are just scratching the surface of the potential usage of big data and much more work will be done in this area in the years to come. | By April of last year, it had fallen nearly 10 percentage points, which translates to 25 million fewer people working—an astounding drop. Fortunately, EPOP has risen considerably since then, but it’s still more than three percentage points below pre-pandemic levels. That difference translates to about eight and a half million fewer people working, close to the statistic I cited on the number of lost jobs that is based on a survey of employers. These are aggregate numbers and only tell part of the story. It’s also important to understand that the downturn has disproportionately affected certain sectors of the economy and segments of society. Service-sector jobs, especially those in hospitality and leisure, fell dramatically with last spring’s shutdown of the economy. And a large share of the job losses fell on Black and Hispanic households. Now I’ll turn to inflation, the other half of our dual mandate. With recent rises in energy prices and the reversals of last spring’s large price declines, the inflation rate has increased from the very low levels seen during the earlier stages of the pandemic. As the economy further reopens, these dynamics will continue to play out, and I expect inflation to run somewhat above our 2 percent longer-run goal for the remainder of this year. It’s important not to overreact to this volatility in prices resulting from the unique circumstances of the pandemic and instead stay focused on the underlying trends in inflation. | 0 |
For example, if banks do not have sufficient solvency levels, they may not be capable of passing changes in money market interest rates through to their customers, or may pass them through excessively. In this respect, financial stability may be said to be a de facto pre-requisite for ensuring price stability. 11 Macroprudential policy can also increase an expansionary monetary policy’s room for manoeuvre if the latter is beginning to induce excessive risk-taking by certain agents or markets. In this case, the activation of macroprudential instruments, which are more selective and can affect certain agents alone, may enable the expansionary monetary policy stance to be maintained, by smothering the increases in risks in specific sectors. This is particularly important in the euro area, where monetary policy is determined at the supranational level by the ECB taking into consideration the area as a whole, whereas macroprudential policy remains under the national remit. But nor must we exclude situations in which the objectives of the two policies may clash. For example, in the expansion prior to the international financial crisis, the relatively expansionary monetary policy stance contributed to the accumulation of macrofinancial disequilibria. Had these macroprudential tools then been in place, they could have been activated to counter some of the monetary policy effects on the risks to the financial system’s stability. In short, we cannot ignore the interaction between these two policies. | If Singapore did not have political stability, good infrastructure, and a conducive business environment, MAS’ strategies to grow the financial centre also would not have worked as well. In a world where central banks typically keep a distance from the rest of government, it is amazing how closely MAS works with other government agencies in Singapore – macroeconomic surveillance and national economic policies and strategies combating money laundering risks and investigating financial crimes promoting jobs, skills development, and labour market policies advancing technology initiatives ranging from e-payments to digital identity These partnerships have made a decisive difference to the outcomes for MAS, the financial industry and the Singapore economy. MAS has achieved what it has also because of the close partnership it has enjoyed with the financial industry. In a world, where many regulators are aloof at best and hostile at worst when dealing with the industry, the relationship MAS has with the industry is special. To be sure, we are a no-nonsense supervisor, not averse to setting high prudential standards, imposing tough remedial measures, and occasionally shutting down a bank or two. But MAS has always believed that working with the industry, rather than against it, is the best way to achieve our shared objectives: keeping the system safe and growing the business. In this, MAS has been fortunate to have an industry – banking, insurance, asset management, and capital markets – that has actively supported us through thick and thin. | 0 |
We need to identify and account for such temporary “special factors” or “distortions” that may affect monetary developments and blur their information content. Second, and more permanently, it is necessary to disentangle, in monetary and credit developments, those which reflect structural and permanent changes from those which simply result from movements in the level of interest rates and the position in the economic cycle. Finally, we must be able to assess whether these developments result from money supply shocks, in which case they clearly entail some risks to price stability, or whether they are caused by money demand shocks that may raise the desired level of money balances without necessarily impacting aggregate demand. Such demand shocks can be triggered by structural changes in the behaviour of economic agents or result from portfolio shifts or financial innovations in the context of financial globalisation. There are indeed some signs that a money demand shock occurred at the beginning of the 2000s in the euro area, as illustrated by a structural shift in the trend velocity of money, which summarises the relationship between money, output and the price level. 5 One possible consequence of current events in credit markets may be to trigger a re-intermediation process, i.e. an expansion of banks' balance sheets which may further complicate our reading and interpretation of monetary and credit dynamics in the months to come. Conclusion There is no doubt that globalisation has impacted in various and non-trivial ways the functioning of our economies. | In a nutshell: “few, well, till the end”, or in Spanish if I may, “poco, bién, hasta el final”. There are of course non-economic areas: to name a few, defence and border protection; climate change; or youth education and training – an Erasmus Pro programme should be a priority for the unskilled and unemployed youth, which is our common tragedy in France, Spain and Italy. But in the economic field, much remains to be done as well. Although we have succeeded with monetary union, we must make progress towards economic union – so that monetary policy does not remain the only game in town. Page 5 sur 8 1. The first economic priority is to address the root causes of Europe’s continuing subdued growth; and a major one is what I call the “investment crunch”. (Slide 4) Many, following Ben Bernanke’s speech of March 2005, have rightly talked about the “global saving glut” that was putting pressure on the world’s economies. At present, saving remains high, due to the combination of emerging market economies’ surplus and advanced countries’ aging populations. However, (slide 5) what has dramatically changed since the 200708 crisis is investment, which has dropped sharply as a share of GDP in advanced economies. In the euro area, the total investment to GDP ratio has dropped by around 3 points since the 2007 peak and has only slightly recovered since. | 0 |
Page 5 As ever, I will come to my own conclusions about Bank Rate on those occasions on the basis of my assessment of the data flow, with my decision focused on meeting the MPC’s price stability mandate through achieving the 2% inflation target on a sustained and lasting basis. Before opening up to questions, I wanted to conclude with a few comments on the title of my remarks this evening: ‘Inflation is a wicked problem’. The challenges posed by the cost-of-living squeeze are all too real for many households and businesses. This is especially true for those households towards the lower end of the income distribution, which spend a greater share of their income on food and energy – items for which prices have risen the most. Addressing these challenges – and containing the difficult implications of the cost-of-living squeeze – motivates the MPC’s actions to return inflation to target. But in talking about ‘wickedness’ this evening, I am referring to a different dimension of the inflation problem. This draws on the social science literature, where a ‘wicked problem’ is defined as one that – because of the complex web of interdependencies within which it is embedded – is resistant to resolution. [7] In particular, the effort to solve one aspect of a ‘wicked problem’ may reveal or create other related problems across other aspects. This literature describes a tendency to address ‘wicked problems’ by converting them into socalled ‘tame problems’ or ‘puzzles’. | I am pleased to see that the recent euro barometer showed a steady progression in the satisfaction of the Maltese with the adoption of the euro (from 40% in September 2005 to 64% in June 2007). Let me hand over the euro star to Governor Bonello to symbolically flag that the Central Bank of Malta will join the Eurosystem on 1 January 2008. We look forward to welcoming you wholeheartedly into the euro area. Thank you very much for your attention. BIS Review 110/2007 1 | 0 |
12 See James, H. (2012): “Making European Monetary Union”, The Belknap Press of Harvard University Press. BIS central bankers’ speeches 3 Some will remember the IMF Annual Meetings in 1997 in Hong Kong, when calls to create an “Asian Monetary Fund” were judged incompatible with the IMF’s universal mandate.13 Contrary to Asia in the late 1990s, Europe had the political infrastructure in place to sustain the sharing of sovereignty that makes mutual insurance mechanisms possible. This is not to say that all the discussions were easy, far from it, as might be expected in times of crisis. Europe’s sense of commonality was, and still is, under severe strain. But the political framework was there to produce decisions, and most importantly, a legal framework was also there to implement them. The lesson from this is that regional integration, regional rule of law, and the sense of a common project are sources of stability.14 In East Asia, things have moved on since the late 1990s, with the Chiang Mai Initiative multilateralisation. The G20 has taken stock of the Asian and European experiences and acknowledged the relevance of regional financial arrangements. The road ahead for the euro area Based on the lessons learnt from the Asian crisis, what are the main challenges we face in the euro area? Let me consider them one by one. Restructuring Europe’s financial sector To begin with, we need to reform Europe’s financial sector. We have, so to speak, come to a crossroads in Europe. | This is precisely one of the objectives of the Institute of Bankers, and with its newly launched Representative Office in Beijing, the Institute will extend its existing good work to the Mainland. It will help promote the training of bank employees on the Mainland, thereby contributing to the effective financial intermediation and smooth functioning of this crucial part of modern economy. The economies of the Mainland and Hong Kong are now highly interdependent. The Institute’s Beijing Representative Office will not only serve to enhance professionalism of the Mainland’s banking sector as a whole, but also contribute to the financial stability and development of both the Mainland and Hong Kong. Let me end this address by wishing the Institute’s Beijing Representative Office every success in its future endeavours. BIS Review 45/2005 1 | 0 |
The evidence presented is largely based on ongoing research within the Bank and it naturally supplements some of the main topics discussed in our 2017 Trend Growth Report. It also attests to the generosity of multiple institutions that, through covenants, have cooperated by sharing this information, including the INE, the Internal Revenue Service, the Civil Registry, the Labor Directorate and the Ministry of Education. Final remarks Before I conclude this presentation, I would like to mention the materialization of an initiative that we anticipated when we presented the September Monetary Policy Report before the Senate’s plenary. On that occasion we announced that the Bank will seek an external evaluation of its performance in complying with its Organic Law’s double mandate, that is, to safeguard price stability and financial stability. For this purpose, a panel of renowned world experts in central banking will be convened. I want to take this opportunity to inform you that we have appointed the five foreign economists that will make up the aforesaid panel of experts: Dr Karnit Flug (Chair), former governor of the Central Bank of Israel, and professors Dr Petra Geraats, from the University of Cambridge, UK; Guillermo Calvo, from Columbia University, US; Enrique Mendoza, from the University of Pennsylvania, US; and Donald Kohn, Senior Researcher at the Brookings Institution and who formerly served as ViceGovernor of the US Federal Reserve Board. We selected the panel on the basis of these experts’ vast professional experience and knowledge of central banking, all renowned economists at the world level. | Given that the relative magnitudes and rates obtained from the surveys, including the unemployment rate, should not change much, this means that in the last three years the Chilean labor market has been able to accommodate between 120 and 190 thousand migrants per year more than what the surveys indicate, without a significant increase in unemployment. Both the revised remunerations figures and the estimated revisions for employment are in line with recent administrative files and clearly above what would be obtained if adjustments to employment growth, remunerations and hours actually worked were not considered. This does not mean that labor market gaps are closed or nonexistent. Full absorption of the increase in labor supply can take longer, so this increase in employment growth does not imply that more unemployment does not exist. In fact, wage indicators—both the revised INE figures and administrative records—show low growth rates, consistent with a labor supply increase, a vision that coincides with the contents of our IPN. This special study on the labor market, however, goes beyond the review of current indicators, as it seeks to understand the characteristics that shape its behavior over the course of the business cycle and at longer terms. In particular, it presents a characterization of the labor market in Chile from an empirical perspective, using diverse sources of information to provide the broadest view possible. | 1 |
With high growth in employment and falling unemployment, consumption growth is expected to be high in the period to the end of the year and into next year. As the interest rate level gradually normalises, household interest expenses will increase. Household interest-bearing debt is approximately NOK 1300 billion. According to our interest rate forecast, which I will return to later, the interest rate in 2008 will be more than 2 percentage points higher than in 2006. Such an interest rate increase will have a pre-tax effect on household income of roughly NOK 25 billion. Combined with projected lower employment growth and higher inflation, this might reduce growth in household purchasing power in the years ahead. Higher wage growth would have the opposite effect. Overall, moderate growth in household purchasing power is expected to result in lower consumption growth in the period ahead. A continued rise in house prices may contribute to sustaining consumption growth. House prices have increased further this autumn, and the twelve-month rise moved up to 18.2 per cent in October. Residential construction is still high. In 2005, the number of housing starts was the highest since the beginning of the 1980s. It appears that growth will be high again this year, but somewhat lower than in recent years. A number of contacts in Norges Bank’s regional network report high demand for new dwellings, and order backlogs for residential construction are still exhibiting solid growth. A gradual increase in the interest rate will probably curb activity in the housing market. | Petar Goshev: Promotion of the European Fund for Southeast Europe – EFSE in the Republic of Macedonia Welcoming speech by Mr Petar Goshev, Governor of the National Bank of the Republic of Macedonia, at the first official presentation of the European Fund for Southeast Europe in the Republic of Macedonia, Skopje, 1 March 2007. * * * Distinguished ladies and gentlemen! Allow me to express my pleasure, more precisely the pleasure of all employees of the National Bank of the Republic of Macedonia for being hosts of the first official presentation of the European Fund for Southeast Europe in the Republic of Macedonia. Therefore, I greet the representatives of the European Fund for Southeast Europe, wishing them a warm welcome to our country, where, I sincerely assure them, they could fully, equally, safely and more ambitiously offer their financial services to the market of the highly open Macedonian economy, also encouraged, of course, from their previous positive experience they acquired through their cooperation with the Export and Credit Bank, AD Skopje. I would also like to especially welcome all of you that responded to the invitation by attending this presentation, thus de facto showing respect and interest in yet another new financial initiative in the Republic of Macedonia. Certainly, there is a deep reason for such respect and interests. | 0 |
Before a monetary policy decision the Bank makes clear whether it expects inflation to deviate from the target or not, given the current interest rate level. If the forecast is above or below target it shows clearly that there is reason to consider whether the repo rate needs to be changed. The framework applied by the Riksbank has been the established practice in inflation-targeting countries. But as early as the mid-1990s the Reserve Bank of New Zealand, for example, opted for a 2 The volatility, measured as the standard deviation of GDP growth, was 1.9 percentage points during the period 1970-1992. Since 1995 the corresponding standard deviation has been 1.3 percentage points. 3 See Andersson, M., Dillén, H. and Sellin, P., ”The yield curve and the Riksbank’s signalling”, Sveriges Riksbank Economic Review 3, 2002, 5-19. BIS Review 11/2005 3 different method, publishing forecasts based on the interest rate path that they thought gave the best target fulfilment. Our academic advisers have also repeatedly said that we should prepare forecasts based either on how the market expects interest rates to evolve or that we, as in New Zealand, should work out what interest rate path is consistent with reaching the inflation target.4 Against this background we at the Riksbank have of course discussed over the years the question of what importance we should attach to different interest rate assumptions in our internal work and when we publish forecasts. | Figure 2 shows our interest rate adjustments on the vertical axis and our inflation forecasts’ deviation from the target two years ahead on the horizontal axis. As we can see there is a clear relationship between forecast deviations from target and our decisions, but there are also points in Figure 2 that deviate from the average behaviour. These points chiefly relate to the forecasts we produced when we chose not to counter the effects of energy prices on inflation. So it seems that we have essentially acted in line with how we have said we will normally act. Yet another way to evaluate the result of our policy is to investigate whether it is credible. The most important factor here is that inflation expectations 2 years ahead and beyond have been firmly anchored to our target since the regime was stabilised in 1997-1998. That conclusion holds up fairly well regardless of the method used (see Figure 3). Our ambition to be transparent derives, among other things, from a desire to avoid unnecessary movements or unease in the financial markets. To illustrate our performance in this regard the Riksbank has conducted a number of studies over the years, of which some have been published.3 The picture we’ve received is that our policy has essentially been intelligible and that it hasn’t resulted in any sharp fluctuations in financial prices that could have been avoided. | 1 |
Big banks of this kind therefore possess an implicit state guarantee and benefit from artificially low borrowing costs. From an economic point of view, this equates to a state subsidy. This is not in line with the basic principles of a free market economy. (cf. chart 1) 1 The commission of experts was composed of members of the Federal Department of Finance, the SNB, FINMA, representatives of the private sector and academics. BIS central bankers’ speeches 1 This problem is particularly acute in our country, with its two very big banks. Although they have reduced their balance sheets significantly since 2008, the balance sheet totals of both big banks still amount to around four times the gross domestic product. Even though this is only a rough yardstick, it nevertheless gives an indication of the risk to an economy. As the crisis has demonstrated to us, this risk can have dramatic consequences if it turns into reality. The cost to the state of rescuing a TBTF bank may be enormous. In extreme cases, the state may even need to ask for international help, which can would greatly jeopardise a country’s independence. (cf. charts 2 and 3) In order to massively reduce the likelihood of this nightmare scenario suddenly coming true, we must put our financial system back on a more stable footing. There is no doubt that this is in the interest of Switzerland as a whole. | *** The last few years have already been littered with outstanding achievements. It was not so long ago that most people doubted that the single currency would ever see the light of day. Then, when they saw that it would, they speculated that only a few countries would be able to join. But they underestimated the resolve of European governments to be part of this great step forward in Europe’s history. Since then, we have witnessed the two changeovers; the introduction of the euro in book-entry form and then in the form of banknotes and coins. Both went smoothly, not because they were easy, but because of the hard work of all involved. And of course, for nearly five years now, we have had a single monetary policy conducted by the European Central Bank for the euro area. During this time, the Bank has not been without its critics. I have not been without my critics. The nature of that criticism depended on which newspapers you read. If you read the Anglo-Saxon press, then we paid too much attention to monetary growth. It seems that money shouldn’t matter for monetary policy. If you read the German press, well the story was different. Some said we communicated too little. Others said we communicated too much. When you are flanked on both sides, then you must be somewhere in the middle of the park. I conclude from this that we must have positioned ourselves more or less right. | 0 |
The Committee cautioned that many banks underestimate their principal risk by not taking into account the duration of exposure between trade execution and final settlement, which may create significant concerns during times of market stress. A key recommendation of the Committee is that banks should reduce its principal risk as much as practicable by settling FX transactions through the use of financial market infrastructures that provide PvP arrangements. Banking supervisors worldwide are incorporating the updated guidance into their supervisory requirements. For example, banking supervisors in Hong Kong are now bringing their supervisory manuals in line with the guidance, and have reminded banks to take actions to address any gaps and deficiencies. The decision of the Bank of Thailand to implement the PvP link will certainly facilitate banks in Thailand to meet the Basel Committee’s recommended standards in good time. The new PvP link will be the third cross-border PvP link for Hong Kong’s USD RTGS system. The successful experience of the established links with Malaysia and Indonesia clearly indicates that the arrangement can be fully integrated into the operation of the partner RTGS systems, tailored to meet local requirements and made easily accessible by local users. Since 2010 when both links have been in operation, the combined average daily turnover has almost doubled, equivalent to an annual growth rate of close to 20%. Last month, the daily turnover generated by the two existing PvP links reached a new record of $ billion. | It is thus due to the instruments available on the market that the largest part of our foreign currency investments is in euros (55%) and in US dollars (25%). The remainder of our investments is composed of yen (10%), Canadian dollars (4%), pounds sterling (3%) and other currencies (3%). Finally, taking a general and somewhat longer-term view, the following point should be noted. The SNB’s currency reserves are made up of foreign currency investments and gold. In a risk-averse environment, losses tend to occur on foreign currency investments and profits on gold, while in a risk-friendly environment the opposite is true. Consequently, diversification of a portfolio to include gold and foreign currency helps to stabilise earnings over an entire risk cycle. BIS central bankers’ speeches 3 | 0 |
companies or legal entities that are established either in Malaysia or in Labuan). Based on the assessment, legal entities are rated as “medium risk”. Taking into consideration experiences from the investigations conducted by the LEAs, there are various instances where legal entities have in the past being used to facilitate laundering activities by the criminals. Similar assessment was also conducted for the Non-Profit Organisation (or the NPO), especially from the perspective whether these NPOs are being used to facilitate financing of terrorism. Although, based on the LEAs investigations there are no known NPO involve in the terrorist financing activities, minimum supervision on the NPOs makes the sector vulnerable to be used by criminals or terrorist. The NRA on its own has no meaning unless the results are used to facilitate greater understanding among all stakeholders involved, including the financial institutions to better understand the money laundering and terrorist financing risks in their own sectors, as well as other sectors that they have dealings with. This will allow financial institutions to better assess the adequacy of their internal AML/CFT controls in mitigating the risks identified and to strengthen these controls where necessary. As the country gathers its understanding of money laundering and terrorist financing risks through the NRA, similar expectations are also incumbent upon the financial institutions. | Some of the targeted mitigation measures undertaken by the authorities include: • Intensified joint investigation efforts by the LEAs to effectively combat money laundering and terrorist financing. This is reflected in the increased number of raids, arrests and prosecutions related to money laundering and terrorist financing and predicate offences; BIS central bankers’ speeches 5 • Another effort is the enhancement of the structure of the individual LEAs, which includes the formation of dedicated AML/CFT unit within the LEAs and increase in manpower focusing on money laundering and terrorist financing investigations; • Another response by the government is the amendment to the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) which is aimed at strengthening Malaysia’s AML/CFT framework against criminal activities. The amendments would provide clarity on reporting obligations so that preventive measures can be implemented more effectively, such as requirements to submit STRs related to terrorism financing, tipping off provision and CDD requirement; • The intensity of enforcement actions against financial institutions that failed to comply and implement AML/CFT programs is also increased. In 2013 and 2014, BNM has compounded banks for various failures to implement effective compliance programs. With the coming into force of the amendments to the AMLATFA on 1 September 2014, the maximum penalty for various provisions was increased. For instance, maximum penalties under general offence have been increased from RM250,000 to RM1 million. | 1 |
2 BIS central bankers’ speeches implemented various restrictions to the use of wholesale funding and foreign exchange derivatives. Despite their prevalence, it must be said that the effectiveness of many of these policies, as well as their unintended costs, are still to be determined. Further research is needed here to eventually establish best practices in their conduct.4 Today we will see two examples of such research. The first is a paper by Guido Lorenzoni that looks at capital controls from a different perspective and studies the role they have in the dynamic manipulation of terms of trade. The second is a paper by Marcos Chamon that studies the desirability of sterilized interventions under inflation targeting. The worries about potential reversals in capital flows have been partially borne out by the events of this year. After the Federal Reserve hinted earlier this year the possibility of starting tapering the purchases of long‐term bonds and MBS, financial markets quickly reacted with declines in the prices of US government bonds and increases in mortgage interest rates. At the same time, the spreads of emerging market debt increased importantly, their currencies depreciated against the dollar, and capital flows into these countries declined, albeit with some heterogeneity across countries that seems related to fundamentals. While more moderate than in previous occasions, this pattern is still reminiscent of the sudden stop episodes I previously mentioned. The simultaneous increase in the yields of sovereign bonds of many countries, issued in different currencies, has captured the attention of researchers and policymakers alike. | But even if we believe these factors to be important some key questions remain open. For instance, why did this time emerging markets recover relatively quickly from the global shock, while advanced economies stagnated? Was it due to better policies, or to the new relevance of China for their external demand, or to another factor? We need to know more of the ultimate causes of this two‐ speed recovery, and more research on this front would be helpful. 1 IMF, Regional Economic Outlook, May 2013. BIS central bankers’ speeches 1 Despite the likely role of pull factors, the fact that these phenomena coincided with the timing of the monetary expansion in advanced countries suggests there is a link between them. In fact, many believe that this “push factor” played a major role, and recent research lends some support to this view.2 This afternoon we will be discussing one avenue through which low interest rates in advanced countries may channel capital toward emerging markets: carry trade flows, whose relevance will be addressed in a presentation by Craig Burnside. The likely role of push factors is not a total surprise, since the recovery of advanced economies in the context of a deleveraging process requires a rebalancing of global demand toward emerging economies. This rebalancing needs the right price signals and quantity responses. Two presentations this morning by Philippe Bacchetta and Gian Maria Milesi‐ Ferretti will touch on the topic of global rebalancing and external adjustment to the crisis. | 1 |
In other words, the situation around six or seven years ago was such that we were more or less prepared to believe we had found the final solution as to how monetary policy should be conducted, and that financial crises no longer offered a severe threat. An illustration The international financial and debt crisis made it painfully clear that things were not that simple. There are several lessons that can be learned from the crisis. But if one were to choose the most important, for me there is no doubt that it is that a substantial increase in indebtedness in society can entail major problems, particularly if it is linked to price increases on an important asset market, in particular the housing market. This danger was definitely underestimated prior to the crisis. The underlying problems can be illustrated using a stylised figure (see Figure 1). The red line represents the usual cyclical fluctuations in the economy – the business cycle. Figure 1 Business and credit cycles Business cycle Credit cycle 2 2 This so-called Jackson Hole Consensus is described by, for instance, Issing (2009). BIS central bankers’ speeches Let us, for the sake of simplicity, assume that inflation follows the business cycle, so that the curve can also represent developments in inflation. Of course, the business cycle and inflation do not normally coincide so well in reality, but this has no significance for the points I will make here. | This assessment is also reflected in the September 2010 ECB staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 1.4% and 1.8% in 2010 and between 0.5% and 2.3% in 2011. Compared with the June 2010 Eurosystem staff macroeconomic projections, the range for real GDP growth this year has been revised upwards, owing to the stronger than expected rebound in economic growth in the second quarter as well as better than expected developments over the summer months. For 2011 the range has also been revised upwards, reflecting mainly carry-over effects from the projected stronger growth towards the end of 2010. In the Governing Council’s assessment, the risks to this improved economic outlook are slightly tilted to the downside, with uncertainty still prevailing. On the one hand, global trade may continue to perform more strongly than expected, thereby supporting euro area exports. On the other hand, concerns remain relating to the emergence of renewed tensions in financial markets and to some uncertainty about growth prospects in other advanced economies and at the global level. In addition, downside risks relate to renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances. With regard to price developments, euro area annual HICP inflation was 1.6% in August, according to Eurostat’s flash estimate, compared with 1.7% in July. The small decline in inflation is likely to reflect base effects in the energy component. | 0 |
It is possible that a policy-rate path with a higher policyrate in the near future will be deemed to dampen asset-price increases in the near future and also reduce the risk or size of a collapse in the more distant future, thus undershooting the inflation target in the near term but providing a more stable development of inflation and resource utilization in the medium and longer term. These are examples of situations when the central bank may choose to respond to asset-price developments. However, the reason for these responses is that the central bank is concerned with the repercussions for inflation and resource utilization, not with the asset prices as such. That is, asset prices are not target variables; they do not enter the loss function. It goes without saying that in most realistic situations it will be very difficult to judge whether a particular asset-price movement is a bubble or is grounded in expectations about reasonable 5 See the box “Monetary Policy at Low Interest Rates” in the February 2009 Inflation Report (Bank of England 2009, p. 44). My own view is that the “zero interest-rate mystique” may have been somewhat exaggerated, see the discussion in the Riksbank’s minutes of its September 2009 policy meeting (Sveriges Riksbank 2009). BIS Review 112/2009 3 fundamentals, and whether there are repercussions on inflation and resource utilization that motivate adjustment of the policy-rate path. 6 This is obviously an area where good judgment is crucial. | 205, www.bis.org.Woodford, Michael (2007a), “The Case for Forecast Targeting as a Monetary Policy Strategy”, Journal of Economic Perspectives, Fall 2007. Woodford, Michael (2007a), “The Case for Forecast Targeting as a Monetary Policy Strategy”, Journal of Economic Perspectives, Fall 2007. Woodford, Michael (2007b), “Forecast Targeting as a Monetary Policy Strategy: Policy Rules in Practice”, in Koenig, Evan, and Robert Leeson, eds., From the Great Moderation to the Great Deviation: A Round-Trip Journey Based on the Work of John B. Taylor, forthcoming. BIS Review 112/2009 9 | 1 |
We talk often about credit risk, market risk, liquidity risk, conduct risk in it’s several forms. You can add to that, hubris risk, the risk of blinding over-confidence. If I may say so, it is a risk that can be magnified by broader social attitudes. Ten years ago there was considerable reverence towards, and little questioning of, the ability of banks and bankers to make money or of whether boards demonstrated a sufficient diversity of view and outlook to sustain challenge. How things have changed. Healthy scepticism channelled into intelligent and forceful questioning of the self-confident can be a good thing. In turn, culture matters to us as financial regulators because it can, left alone, tend to shape and encourage bad outcomes, but it doesn’t have to do that. What can we do therefore as regulators to shape and influence better outcomes on a more consistent basis? Let me start with one thing that we cannot do. As regulators, we are not able, and should not try, to determine the culture of firms. We cannot write a regulatory rule that settles culture. Rather, it is the product of many things, which regulators can influence, but much more directly which firms themselves can shape. We seek to ensure that firms have robust governance, which includes appropriate challenge from all levels of the organisation; and promote the acceptance that not all news can be good and the willingness to act on and respond promptly to bad news. | The Fund has invested considerable efforts in promoting transparency and developing standards and codes in cooperation with the World Bank, the Bank for International Settlements and other organizations. Remarkable progress has been made in this area but we realize that broad implementation of these standards will take time, although this is time well spent as improved practices and comparability will increase the stability of the international financial system. We believe that the next steps should be to harmonize accounting standards at world level. The Nordic-Baltic Constituency encourages all member countries to support the efforts of the International Accounting Standards Board to reach a consensus on accounting standards and principles. Furthermore, we welcome the new steps taken to increase the Fund’s transparency, especially the policy of moving to presumptive publication of all Article IV reports and the required publication of documents in exceptional access cases. Promoting Economic Progress among Low-Income Countries One of the greatest challenges of our time is to win ground in the battle against poverty. All parties must be fully engaged in this campaign. Many initiatives in recent years have borne fruit but there is still a long way to go and the international community must do better in order to achieve the Millennium Development Goals (MDGs). Here, I would like to focus on trade and its importance for development. | 0 |
But what should not be in doubt is that the MPC will take whatever steps are necessary in order to keep inflation on track to meet the 2.5% target. The challenge for monetary and fiscal policy is to restore domestic demand growth to sustainable levels. This would permit the stabilisation and eventual reduction of the trade deficit, while maintaining 2 BIS Review 26/2002 low and stable inflation, and high and stable employment, at the same time as resources move from private consumption to the provision of better public services. It is possible, perhaps likely, that the transition to lower growth rates of consumption will occur smoothly. And lower inflation now than in the past may ease the adjustment - the future is not what it was. For the Monetary Policy Committee the challenge is to keep inflation close to the target during a period in which a significant re-balancing of the British economy will take place. That will be a challenge, not just for the MPC, but for all of us. BIS Review 26/2002 3 | John C Williams: Attaining and maintaining price stability Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Money Marketeers of New York University, New York City, 19 April 2023. *** As prepared for delivery Thank you for that kind introduction. Good evening, everyone. It's great to be here with the Money Marketeers. One of the big issues facing the economy is inflation. Inflation is far too high, and high inflation is hardest on those who can least afford essentials like food, shelter, and transportation. So today, I'm going to talk about the actions the Federal Reserve is taking to restore price stability. I'll also give my views on the economic outlook. But before I go any further, I need to give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System. The Dual Mandate For a group like the Money Marketeers, the economic and financial events of the past few months-and even years-have provided a lot to talk about. In fact, the high inflation we see today stems from imbalances between demand and supply that started with the pandemic. A more recent issue has been the stresses that emerged last month in parts of the banking system. Conditions in the banking sector have stabilized, and the banking system is sound and resilient. | 0 |
Manufacturing output rose around 1922 and annual growth in the following years up to 1929 averaged as much as 4 per cent. So what was the attitude to economic policy in those days? On the whole, the depression, with falling prices and rising unemployment, was seen as a necessary evil, a purgatory that would result in a spontaneous recovery to economic balance. As regards stabilisation policy in one form or another, the primary responsibility rested with the Riksbank. In practice, however, policy was passive and tardy. A look at the wholesale price index from 1913 to 1920 shows that the increase in Sweden was almost twice that in the United States, for example. In time, the interest rate was raised and the supply of credit was restricted. However, the tighter monetary stance was then retained even after activity had turned downwards. The reason was that the Riksbank tried to bring the Swedish krona back to its par value in 1913 in order to rejoin the gold standard. As a result, at the beginning of 1921 the interest rate was around 6 per cent at a time when prices were falling about 20 per cent. 1 Schön, L (2000), En modern svensk ekonomisk historia (A modern Swedish economic history), SNS Förlag, Stockholm. BIS Review 81/2001 1 Fiscal policy was based on other criteria than those of stabilisation policy. | Unfortunately, there are individuals who try to take advantage of owners of new businesses by providing them with poor advice or overcharging them for credit. Researching the backgrounds of these service providers and lenders is difficult and time intensive, leaving small business owners too often uncertain as to who to deal with. In some cases, this uncertainty can discourage a business owner from seeking assistance. I believe that we need a better system of certification for organizations that work with small businesses. The certification will assure a business owner that the organization has been properly vetted and has the requisite skills to assist the owner. This not only provides assurances to business owners, but saves them the time and resources required to do this due diligence on their own. Finally, in addition to certification, it would be helpful to have consistent standards and transparency requirements for organizations that lend to small businesses. Such standards and requirements exist for lending to households, and I believe the same justification exists to extend these requirements to small businesses. As a result, small business owners would have greater confidence that they fully understand the terms and conditions of their loan. This, in conjunction with the access to more financial information and education, will help small business owners make better decisions about their use of credit. Conclusion In summary, economic conditions in the Bronx are improving but more progress is necessary. | 0 |
First, Asian financial markets are transforming in significant ways and we need to equip our workforce with the relevant skills to adapt and transform in tandem. Firstly, the markets will continue to grow in breadth, depth and connectivity, to support the growing needs in this region; The use of technology will be increasingly pervasive, and will transform how financial institutions and markets professionals access and deliver financial services; Jobs will need to be redesigned and transformed to harness the potential of technology and financial institutions would need to support employees to adapt to new work requirements; These winds of change also open up significant opportunities for individuals to acquire new skills and convert to new careers in a wide range of roles. 14. There are immense opportunities as markets expand, and as the potential of technology is harnessed. Last August, a Singapore-based fintech company BondEvalue partnered Northern Trust to complete the world’s first blockchain-based bond transaction on its exchange. This innovation was enabled through MAS Sandbox Express. It allowed investors access to secondary market and purchase bonds at fractions of $ instead of typical bond trades of at least $ making bonds more accessible to a wider investor pool. In September, the Singapore Exchange completed Project Hash, Asia’s first digital syndicated public corporate bond using smart contracts to capture the rights and obligations of parties involved in the issuance and asset servicing, such as the arrangers, depository agents, legal counsel and custodians. | The big banks’ published plans on strategy and capital-building envisage a further improvement in their capital situation. According to these plans, and measured in terms of loss-absorbing capital, by the end of 2014, Credit Suisse and UBS are likely to have already met the risk-weighted capital requirement of 13% which will apply from 2019. Moreover, these plans will lead to a substantial increase in their leverage ratios by the end of 2014. The SNB acknowledges the big banks’ progress to date and recommends that they consistently and fully implement their plans, in order to further strengthen their resilience and, in particular, to improve their leverage ratios. Improving the leverage ratio is all the more crucial given the growing importance of this indicator as a measure of banks’ resilience. Credibility of model-based risk-weighted assets The risk weighting of assets plays a key role in determining the capital requirement for a bank. All of the bank’s on and off-balance-sheet positions are multiplied by a risk weight. The riskier the position, the higher the weight. The figure for risk-weighted assets (RWA) represents the sum of these risk-weighted positions. Required capital, in turn, is defined as a percentage of RWA. There are two different approaches for setting risk weights. Under the standardised approach, risk weights are prescribed for broad asset classes. Under the model-based approach, by contrast, banks can use their own internal models to determine the risk weights for different assets. | 0 |
Charlotte Gerken: Adaptability and resilience in the mutuals sector Speech by Ms Charlotte Gerken, Executive Director of Insurance Supervision of the Bank of England, at the Association of Financial Mutuals Conference, London, 4 October 2021 * * * Good afternoon and thank you very much for the invitation to speak today. Colleagues who have attended the AFM conference previously have valued this opportunity to meet AFM members face to face and I have already enjoyed that privilege today. I can’t say how pleased I am now, not to be speaking to a camera dot on a laptop screen. Over the last 18 months, supervisory colleagues at the Prudential Regulation Authority (PRA) have been working closely with insurers as they addressed the financial, economic and operational aspects of the pandemic, and the human impact it has had on their own people, the staff they rely on in other organisations and their customers and members. We have seen the mutual sector demonstrating its adaptability and resilience, through moving many of its in-person processes online and by providing financial support to members, such as premium rebates and payment holidays, where appropriate. Through the challenges of Covid-19, the PRA has taken a proportionate approach to supervision of mutual and other firms, by delaying thematic reviews, scaling back reporting requirements and extending regulatory deadlines all in the interest of ensuring a greater degree of flexibility, and where possible support for firms, during challenging times. | In this Discussion Paper, we make clear that when we think about diversity, we focus on ‘diversity of thought’, also known as ‘cognitive diversity’. We are now reflecting on responses received with the intention to communicate these in due course. Our aim with DP 21/2 was to gather views on how we can most helpfully accelerate the pace of meaningful change across the sector. We see a clear link to our objectives: diversity helps bring a mix of views and experiences to the table; inclusion helps create an environment where these views and concerns can be aired and listened to. Research 2/6 BIS central bankers' speeches shows evidence of correlations between diversity and inclusion and positive outcomes in risk management, good conduct, healthy working cultures, and innovation. These outcomes directly contribute to the stability, fairness, and effectiveness of the firms making up the financial sector, including mutuals. In the same way, poor diversity and inclusion can lead to poor outcomes. The 2008 crisis, as well as other scandals, including the misconduct issues the London market faced more recently, highlights the risks of unhealthy cultures and groupthink, where views, actions, and decisions go unchallenged. This is not just a case of do as we say: the PRA and the Bank of England have plenty of room for improvement on diversity and inclusion, and have committed to make changes to achieve the same positive aims for ourselves that we seek in the wider financial sector. | 1 |
The Swedish economy is less open to competition than the American. For example, even adjusted for differences in value added taxes, the level of prices in Sweden is on average 15-20% higher than in the USA. Many deregulations that were carried out long ago in the USA, such as the deregulation of the transport sector, for example, have been carried through more recently in Sweden and there are many indications that we have not yet seen their full impact. However, competition in many markets is expected to increase in Sweden in the future, in part as a result of increased globalisation and European integration. One area in which very little has been done is the labour market, which is very rigid and regulated compared with the American. BIS Review 132/1999 4 – Where the introduction of new technology is concerned, Sweden has gone further in this than many other OECD countries. For example, we have the highest number of Internet users per capita in the whole world. – Like the American economy, the Swedish economy is very open to the world around it and Sweden has a long tradition of free trade. To some extent this counteracts the tendencies towards limited competition on the Swedish market. – But on the other hand, as yet we have seen no clear indications in the statistics of the impact of the new economy. | This is remarkable considering the fact that the new jobs have principally been created in the service sector, where productivity generally increases at a lesser rate than in manufacturing. Three principal groups of reasons for the positive trend in America can be distinguished. One important reason behind the upswing appears to be good economic policies. Since the beginning of the 1990s, fiscal policy has been directed towards achieving a balanced budget, and for a year or so now the budget has been balanced. In order to achieve this, taxes have been raised, expenditure 3 BIS Review 132/1999 diminished and budgetary procedures made more stringent. Monetary policy has been directed towards keeping inflation low and stable and has succeeded in warding off both destabilising inflationary and deflationary pressures at an early stage. The policy mix of monetary and fiscal policy therefore appears to have been favourable. A number of structural factors seem to have been important. Deregulations in many sectors and increased globalisation have intensified already tough competition and increased the pressure on the partners on the labour market, leading to greater flexibility in the labour market and enhancing labour mobility. The increased and more effective use of new technology (IT) has raised productivity, and the use of JIT (Just-In-Time Inventory Management) has meant that the match between supply and demand in the economy has improved. | 1 |
In other words, there have been grounds for counting in the Inflation Report on a somewhat stronger krona even in the period one to two years ahead that guides monetary policy. But when the krona began falling almost 5 per cent in the course of only a fortnight early this summer, it ultimately became difficult to count on the exchange rate becoming as strong as the forecast envisaged in the coming two years. The weaker the initial position, the larger the requisite appreciation. To quote the press release from 15 June, the Executive Board considered that “The krona’s depreciation since the latest Inflation Report is the most important single factor that may lead to the inflation target being threatened 1-2 years from now”. The Riksbank had then initiated currency market interventions with a view to strengthening the krona. When the Executive Board met on 5 July the krona was still weak. In the light of the current forecasts of resource utilisation, the exchange rate and demand, a majority of the Board members concluded that the repo rate should be raised 0.25 percentage points, to 4.25 per cent, in order to avoid the risk of inflation exceeding the target 1-2 years ahead. The picture also included considerable price increases during the spring which, although mainly transient, were liable to influence inflation expectations. The decision was not an easy one for the Executive Board. As the minutes show, it was preceded by an intensive discussion. Three members had a different view. | However, we are also seeing a proliferation of Central Counterparties (CCPs) and trade repositories being set up in Asia. While this will provide choice to Asian market participants, it may also increase risk and lead to higher costs. 17. Regulators will need a comprehensive view of risks in the cross-border, interconnected market. Having multiple CCPs and trade repositories in the region may risk fragmentation, and may hamper monitoring of systemic risks as regulators may see only their own segments of the market. Market participants will also face additional costs if CCPs and trade repositories lack economies of scale. 18. Asian regulators will therefore need to work closely together to enable infrastructural entities to offer their services across different jurisdictions. For example, the infrastructure of a DTCC global trade repository and AsiaClear CCP in Singapore offers the prospect of effective surveillance by regional regulators and economies of scale. We will continue to ensure that our market infrastructure operates in a transparent and accessible way so that the needs of regional regulators and the industry can be met under clear and robust guidelines. 19. At the global level too, there are real benefits for regulators to ensure interoperability in market infrastructure to allow for more effective risk monitoring. However, interoperability will require time and effort, as risk management practices such as margin eligibility standards have to be harmonised across CCPs in different jurisdictions. 20. | 0 |
If we are to prevent another crisis, action is required on both of the fundamental causes. First, we need to resolve the problems caused by massive capital flows from poor to rich countries. Yet the imbalances are growing again. This problem can be tackled only by international cooperation – most obviously through the G20 – and I hope that the trade union movement will continue to engage with that process. Second, our financial system needs radical reform. Slowly but surely, we must move towards a banking system that does not put both the economy and your members’ livelihoods at risk. In the long run, banks will have to hold much more capital and be much less highly leveraged. Part of the answer is improving the way we regulate banks, and devising policy tools to control the risks taken by the financial system as a whole. The aim should not be to prevent all bank failures. Just as with every other company in the economy, banks that get it wrong must be allowed to fail, without risk to ordinary depositors or taxpayers. In 2008, banks were bailed out not to protect them but to protect the rest of the economy from the banks. That may not seem fair – and it isn’t – when other companies, such as Jaguar, had to stand on their own feet or go to the wall. So banks too must face market discipline. But we need to do more than reform our banking system. | To say that was risky is an understatement: at such levels, a 2% fall in the value of a bank’s assets is sufficient to wipe out its capital and render it insolvent. Remuneration, especially the structure of financial sector bonuses, encouraged excessive risk-taking, and distorted the aspirations and career choices of too many talented young people. Investors, banks and regulators had been swept up by the apparent success of modern finance. When investors realised that many of the assets that banks held on their balance sheets were opaque and hard to value, there was immediate and justifiable concern about the solvency of many of those banks. At the end of 2008, these two fundamental factors culminated in the worst financial crisis in history. In the six months after Lehman Brothers collapsed world trade fell by nearly 20% – a faster decline than in the Great Depression. Around the world, the same telling phrase was repeated: economic activity was “falling off a cliff”. In its statement to the London G20 summit in April 2009, the international trade union movement argued that “The first priority for G20 leaders must be to restore confidence by halting the freefall in world growth”. That has been achieved. World output grew by 4% over the past year. And in the United Kingdom, growth has been somewhat faster than anticipated a year ago. Nevertheless, total UK output remains around 10% below where it would have been had the crisis not occurred. So how do we prevent this happening again? | 1 |
· Going forward, we must improve our financial architecture to raise efficiency and ensure nationwide access to financial services. · In term of market competition, the opening up of our banking system has accelerated the transfer of technical knowledge and ensured competition for our domestic financial institutions. · In term of market structure, the new Financial Institutions Bill – currently at the Senate and is expected to be passed in the course of this year – will provide a legal and formal framework that accommodates the establishment of financial conglomerates. Financial institutions will be allowed to offer varieties of financial services such as insurance or securities through their subsidiaries. Though this is still a step away from universal banking model where all financial services will be offered under one entity but the draft law is flexible enough to make room for such eventuality, and in the meantime boost competition. · Among the major milestone in the law are: consolidated supervision of financial conglomerates, unified legal framework for both banks and finance companies, and prompt corrective actions for weak financial institutions. · As for the availability of our financial services and product qualities, our recent survey of financial product availability within Thailand indicated that market participants are keen to expand product range, thus structural impediments obstructing them need to be dealt with. | In the present context this means that a succession of good news items about a company’s profits may lead investors to project the trend well into the future and accordingly generate an over-reaction; if the share price then rises, this is seen as confirming the analysis. A period of good returns also boosts the investor’s self-confidence, making her/him bolder and more prone to take risks. Bit by bit the over-reaction takes shape and, if the worst 3 comes to the worst, leads to a bubble. A phenomenon - also studied in experimental psychology - that works against taking an independent stance is group thinking. It is not easy to stick to an opinion that differs from what a majority of the group seems to hold; “surely all the others cannot be wrong” is a common thought. An example with which you may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer one that has many guests - they simply rely on the judgement of others. Even if you hold a different opinion from others, it could be profitable to act as you think the majority will. An investor who considers a stock to be valued above its fundamental level could still decide to buy or hold on to the stock if he or she believes that others might still be interested in buying the stock at an even higher price, for instance due to the factors mentioned earlier. In a paper the authors draw 1 Hagstrom, R.G. | 0 |
Because market participants will not know for certain which path U.S. authorities will ultimately take – allowing resolution under ordinary insolvency law, as contemplated under Title I, or instead initiating a Title II resolution – this uncertainty in and of itself could cause investors in short-term obligations that are likely to be protected under Title II to run. Several other issues are also worthy of note. First, for the Title II single point of entry strategy to work properly, there needs to be a sufficient amount of debt outstanding at the parent 2 BIS central bankers’ speeches company that can be converted by the FDIC into equity to ensure that the bridge company will be demonstrably well-capitalized. We don’t yet have a long term debt requirement – this is an area where we are still working out the details. My own view is that a holding company needs a substantial amount of long term-debt to ensure that the newly created bridge company is viewed as fully viable by its counterparties. We also need to ensure that the holding company is structured so that the bridge bank formed upon resolution can easily downstream capital to its operating subsidiaries. The ability to do this will help reduce the risks of preemptive ring-fencing by foreign regulators and runs by counterparties of the foreign operations of U.S. firms. | Our economies and our societies have suffered heavily – indeed, on all available forecasts, this year will see the biggest declines in GDP recorded in peacetime – and we will have to endure a period of painful reconstruction for which sound knowledge and also good judgment will be essential. 1/1 BIS central bankers' speeches | 0 |
A Study of Wage Differentials among the Highly Educated', The Review of Economics and Statistics, Vol. 88, No. 2, pp. 300-313. Blau, F D and Kahn, L M (2017), 'The Gender Wage Gap: Extent, Trends, and Explanations', Journal of Economic Literature, Vol. 55, No. 3, pp. 789-865. Brynin, M (2017), 'The gender pay gap', Equality and Human Rights Commission, Research Report, No. 109. Brynin, M and Guveli, A (2012), 'Understanding the ethnic pay gap in Britain', Work, Employment and Society, Vol. 26, No. 4, pp. 574-587. Business in the Community (2019), 'Race at work charter Survey Report: One year on 2019', Business in the Community, October 2019. Carneiro, P, Heckman, J and Masterov, D V (2005), 'Labor Market Discrimination and Racial Differences in Premarket Factors', Journal of Law and Economic, Vol. 48, No. 1, pp. 1-39. Carney, M (2019a), ‘Investing in Ethnicity & Race’, speech available at: https://www.bankofengland.co.uk/speech/2019/mark-carney-investing-in-ethnicity-and-race-conference2019-held-the-bank-of-england Carney, M (2019b), ‘Finance by all, for all’, speech available at https://www.bankofengland.co.uk/speech/2019/mark-carney-women-in-banking-and-finance-22nd-annualawards EHRC (2018), 'Closing the gender pay gap', Equality and Human Rights Commission, December 2018. Goldin, C (2014), 'A Grand Gender Convergence: Its Last Chapter', American Economic Review, Vol. 104, No. 4, pp. 1091-1119. Halvorsen, R and Palmquist, R (1980), 'The Interpretation of Dummy Variables In Semilogarithmic Equations', American Economic Review, Vol. 70, No. 3, pp. 474-475. Heckman, J J (1979), 'Sample Selection Bias as a Specification Error', Econometrica, Vol. 47, No. 1, pp. 153-161. | The Central Bank will continue to base its interest rate decisions on its mandatory role of contributing towards price stability and on the joint declaration of the government and the Bank from March 2001 which specifies the inflation target. Through steadfast monetary policy which ensures price stability, monetary measures will contribute towards promoting a stable economic environment which is the foundation for the economy’s growth capacity in the long run. On the basis of the new inflation forecast and national economic forecast, the Central Bank announced a cut of 0.5 percentage points in the policy interest rate on February 10. The Consumer Price Index for the beginning of February was published this morning and the change in it turned out to be fully consistent with the Bank’s latest inflation forecast. Developments in the next few weeks and the prospects ahead will determine the next step as regards interest rates. Opposing trends are at work there and at present it is impossible to state in which direction or when the next step will be taken. It also needs to be underlined that if the current outlook turns out to be correct, the proposed construction programme in east Iceland will gradually begin to influence the formulation of monetary policy. To conclude, I would like to reiterate that monetary decisions by the Governors of the Central Bank of Iceland are made after extremely careful consideration of a large number of indicators. | 0 |
We have moved away from the forward guidance that signalled Bank Rate would remain floored at its effective lower bound that met me when joining the MPC last year. In its place, the MPC has emphasised that its policy decisions are driven by the evolution of the data, while signalling a willingness to respond more forcefully to signs of greater persistence in inflation, should that prove necessary. At every juncture, the MPC has remained committed to a medium-term view that stabilises inflation around the 2% target. In that spirit, a couple of weeks ago I argued at a talk in London that the significant market reaction and economic implications of recent macro news – including recent fiscal policy news – was likely to prompt a significant monetary policy response at the MPC's next meeting on 3 November. Of course, that rendezvous is still some time away. And, of course, much can happen in the intervening period, with markets exhibiting volatility and the geo-political and economic environment uncertain. Anyway I can only speak for myself today, not for the nine-member committee as a whole. But as things stand, I stand by my London statement. Given where we are, I continue to expect a significant monetary policy action at the MPC's next scheduled meeting. So in the body of my remarks this afternoon, I don't want to dwell further on what we are trying to achieve or whether we are working towards it. I hope I have made my views on those two questions very clear. | In taking this action, the Bank has sought to prevent the emergence of a self-sustaining vicious spiral of collateral calls, forced sales and disappearing liquidity from emerging in a core segment of the financial markets. Restoring market functioning helps reduce any risks from contagion to credit conditions for UK households and businesses. Such actions preserve the effective transmission of monetary policy. But crucially they are not monetary policy actions in themselves. Were monetary policy to be re-oriented towards serving financial stability ends, not only would it be less effective in addressing dysfunction than more temporary and targeted interventions in specific dis-orderly market segments, but it would also be distracted from its central task of maintaining price stability and returning inflation to the 2% target. At the time of writing, this distinction between monetary policy actions and actions taken by the Bank to support financial stability has been recognised and priced by market participants. 4/8 BIS - Central bankers' speeches In the face of a substantial re-pricing of financial assets a few weeks ago, markets originally anticipated that Bank Rate – the active instrument of monetary policy in the eyes of the MPC – might be changed at an ad hoc meeting outside the regular schedule of MPC decisions. | 1 |
Underlying this stable rate of price increases have been offsetting developments at the level of services and goods prices. In February, services price increases moderated further slightly, mainly owing to downward adjustments in prices 1 BIS Review 39/1999 in the telecommunication area. At the same time, goods prices contributed slightly more to overall HICP increases than before, due both to price developments for unprocessed food and a deceleration in the fall in energy prices. It may be worth noting that goods prices may continue to move upwards temporarily, in particular as oil prices increased strongly from mid-February onwards. Such movements reflect the higher volatility of price changes of some categories of goods, in particular imported oil and other commodities. The interest rate decision has been taken in a forward-looking perspective, focusing on the mediumterm trends in inflation and the compatibility of these trends with the Eurosystem’s definition of price stability. In the view of the Governing Council, monetary growth is - at the current juncture - not a risk for future price stability. The decision taken today keeps monetary policy on a longer-term stability-oriented course and, by doing so, contributes to creating an economic environment in which the considerable growth potential of the euro area could be exploited. | Those responsible for other policy areas are urged now even more to take the necessary steps to improve longer-term growth prospects for the euro area through strictly and decisively adhering to the aims of the Stability and Growth Pact and through convincing structural reforms in the economy. I should now like to inform you about some of the other matters considered today. The Governing Council examined the outcome of a test run of the production of euro banknotes. This so-called zero production run involved the printing works of the participating countries. The main purposes of this test were, first, to check the compliance of the test banknotes against the technical specifications and, second, to prove that all printing works are in a position to produce the euro banknotes to the same high quality standards. The result of this test was positive, as only some minor technical specifications need to be modified slightly. The printing works will now start their final preparations for the commencement of the mass production of the euro banknotes. The Governing Council also decided to establish an Analysis Centre for Counterfeit Euro Banknotes. As is already indicated by its name, the main purpose of this Analysis Centre will be to technically analyse and classify new types of printed counterfeits, and to store the related technical data in a database. The Analysis Centre will be located at the ECB in Frankfurt. We are now at your disposal should you have any questions. | 1 |
8 Even those in a job, secure or otherwise, may not be working as much as they wish. Around three and a half million people, or almost 10% of the working population, say they would like to work longer hours (Chart 7). In 2007, that number was two and a half million. The number of extra hours these people would like to work – around 12 hours per week or 35% of the average working week – is also material. Even if these survey numbers overstate the actual number of extra hours people might wish to work, they leave a sizable fraction of the working population not unemployed, but under-employed. When it comes to the pay of those in work, the picture is also a subdued one. Chart 8 plots mean and median weekly earnings growth for full-time UK employees, in nominal and real terms. Nominal earnings today are around 7% higher than in 2009. But in real terms earnings are still around 5% below this peak. This is the longest period of flat or falling real wages since at least the middle of the 19th century. Although the recovery of the past few years has been jobs-rich, it has been notably pay-poor. Finally, let’s look at household wealth. As with employment, the headline gains here have been impressive, with aggregate net wealth increasing by almost £ trillion since 2009. Chart 9 breaks down these wealth gains by asset type – pensions, property, financial, physical. | ECONOMIC PERSPECTIVES Address by Governor Øystein Olsen to the Supervisory Council of Norges Bank and invited guests on Thursday 14 February 2019 Analyses and charts are based on information up to and including 12 February 2019. THURSDAY 14 FEBRUARY 2019 Economic perspectives 2019 NORGES BANK ECONOMIC PERSPECTIVES 14 FEBRUARY 2019 Good morning, Kristoffer! It is now 6:00 am on Friday, 15 February 2030. The temperature is 7 degrees and it’s raining. You have been through four sleep cycles and can get up without violating the terms and conditions of your health insurance. The health module recommends cereal with oat milk for breakfast. I have bought oat milk, which was delivered at 4:00 am. News of relevance to you: The new government quarter opens today – your space is finally ready. Your investments in Green Equities have risen by 20 percent, on news of the major trade and environmental technology agreement concluded between the United States and China. The trading platform Nett sustained a hacker attack last night. Customer data were stolen, and customers are leaving the platform. I managed to withdraw 8 000 of the 67 000 kroner you had uploaded to the platform before all accounts were frozen. The rest of your money may be lost. In yesterday’s Annual Address, the Governor of Norges Bank announced that the next generation of central bank digital currency will be managed by artificial intelligence for a trial period. Have a nice day. | 0 |
I once told a friend of mine that small open economies, as is the case with the Balkan economies, are net importer of goods, services and crises. The crisis did not originate in the region. It was gradually transmitted as a result of the integration of the region with the global markets and economy and a consequence of the presence of large international banking groups. Our countries are all as similar as they are different. Consequently, the form, outburst and consequences of the crisis were as similar as they were different. The economic and social structure, the level of convergence and integration with the global markets, the legal and institutional norms and the nature of exchange rate regimes in particular, have established the features of the crisis for each country. The experience of the distinguished governors present in this conference will throw light on the above aspects. As regards the Albanian case, the last 12 months have been challenging for the banking industry. Despite the turbulent times, the banking system has in no case shown any signs of panic or confusion. The Bank of Albania considers that the rationale behind is the prudence shown in the recent years with respect to the banking system’s financial stability. The high level of resilience and the quick recovery were a consequence of a number of important decisions. | Banks have more capital, they have more liquidity and are more resilient. The bigger concern is profitability, which was already low. European banks are solvent but I am aware that this crisis will have further impact on their profitability. In the medium term, banks will need to continue to take steps to eliminate excess capacity and consolidation could be a sensible way of dealing with profitability. From a solvency angle, this is 2/3 BIS central bankers' speeches not a banking crisis. This time banks can be part of the solution, rather than the problem. If the recession is worse than expected, is there a risk that some banks will lose money on loans which they are currently granting? All governments, Portugal included, have approved State guarantees. When there is this level of uncertainty and a drop in GDP, these guarantees are very important and useful if a credit crunch is to be avoided. A number of economists have expressed the view that the euro area’s response to the crisis has been weak compared to the United States or the United Kingdom, where central banks will even finance the State directly. How would you respond to these criticisms? Looking at the whole package of ECB measures, it is impressive. Then we have fiscal policy, involving the various programmes of the national governments, and lastly there is the decision of the Eurogroup. Europe’s response is comparable to that of other world economies. | 0 |
But funding these investments by lifting the cap on petroleum revenue spending is a certain recipe for lean times. Many of us have perhaps driven along lightly trafficked roads of a strikingly high standard. Norway is already among the countries that invests most in education, without achieving particularly impressive results. 21 Norwegian companies that want to invest in profitable projects have access to a well functioning capital market, both at home and abroad. An absolute precondition for ensuring the sound management of our oil wealth is that investments in areas such as roads, education, cultural centres, hospitals and sports centres are prioritised within the NOK 1 trillion allocated through the central government budget each year. 22 In order to maximise the return on the substantial financial wealth owned by the government today, the oil fund must be invested abroad. But this gives rise to new trade-offs between risk, return and ethical considerations. Moderate risk First, let me look at the trade-off between risk and return. How should we invest our wealth without taking on excessive risk? When the oil fund is invested in other countries that are not as commodity-dependent as Norway, our overall national wealth will become more robust to oil price fluctuations. Diversifying wealth does not of course insulate us from upturns and downturns. In autumn 2008, stock markets plummeted worldwide. There was nowhere to hide and the value of the fund fell by close to 25 per cent. | Sachs established an 30 For more on ownership strategies, see the NBIM website: http://www.nbim.no/en/Investments/ownershipstrategies/ 31 For more about the UN guidelines, see “Global Compact”: http://www.unglobalcompact.org/. For more on the OECD guidelines, see: http://www.oecd.org/topic/0,3699,en_2649_37439_1_1_1_1_37439,00.html 32 South Africa received NOK 149.5 million in development assistance from Norway in 2010. See Norad website http://www.norad.no/en/tools-and-publications/norwegian-aid-statistics BIS central bankers’ speeches 9 institute where advanced mathematical methods were applied to study the relationship between the position of the stars and the fates of human beings. 33 Collett was more down-toearth. He studied new methods of crop cultivation and was a keen supporter of the cultivation of potatoes here in South-Eastern Norway. 34 As a contributor to sustainable growth, we would have to say that Collett was closer to the mark than Sachs. Norway’s proximity to valuable natural resources has created substantial opportunities. New technology and new oil finds are still increasing the value of our oil wealth. Two North Sea fields where oil and gas were recently discovered, Galtvort (Hogwarts) and Gygrid (Hagrid), have been given names from the Norwegian version of Harry Potter. One of the books features the lucky potion Felix Felicis. This magical potion is difficult to make. The consequences can be catastrophic if the ingredients are mixed incorrectly. But if mixed correctly, the drinker will succeed in all that he undertakes. The potion also has some highly detrimental side-effects. If taken in excess, it may cause giddiness, recklessness and dangerous overconfidence. | 1 |
The Bank of Canada and the Reserve Bank of New Zealand have also used similar measures. 4 However, MCI has also been called into question on a number of other bases and is currently considered by many not to be a reliable variable for use in monetary policy analysis. See, for example, Stevens (1998), Svensson (2001) and the European Central Bank (2002). 5 So-called menu costs. 6 This means that a firm has contracted to buy or sell a certain amount of a currency at a future date at a given exchange rate. This allows the firm to eliminate exchange rate risk in its overseas transactions. BIS central bankers’ speeches 5 50 per cent over the short term.7 The pass-through on consumer prices will be lesser, as the price in Sweden for imported goods is also determined by domestic components such as wages, taxes and transportation costs. A pass-through of about 15 per cent over one year would seem to be a reasonable assessment.8 Figure 4 illustrates the pass-through of the exchange rate on import prices and consumer prices. It shows a clear connection between the exchange rate and import prices. The connection between the exchange rate and consumer prices is weaker. However, the pass-through of the exchange rate may be non-linear, so that minor or no adjustments are made in the event of small changes in the exchange rate, and relatively major adjustments are made in the event of large changes in the exchange rate. | But it may also be the case that relatively large changes in the exchange rate have minor or no effects on consumer prices, depending on what are known as composition effects. Firms can choose to import other products or to import from other countries.9 7 See, for example, Campa and Goldberg (2005) and Sveriges Riksbank (2001, 2004). In the long term, the pass-through will be higher – estimates vary between 80 and 100 per cent (Sveriges Riksbank, 2001, 2004). Full pass-through is a reasonable assumption over the very long term, when permanent exchange rate changes are considered. 8 See, for example, Ekholm (2010). 9 See Marazzi et al. (2005) for a more detailed discussion. 6 BIS central bankers’ speeches The effects on the economy of the real exchange rate When the general public discusses exchange rates, this usually means the nominal exchange rate. However, economists are more focused on the real exchange rate, which shows the price of foreign goods expressed in Swedish kronor against the price of Swedish goods in kronor. In other words, the real exchange rate reflects Sweden’s purchasing power and competitiveness. The stronger the real exchange rate becomes, the greater purchasing power a Swedish krona will have abroad. At the same time, a stronger real exchange rate means that Swedish-produced goods will be more expensive compared with foreign goods, and competitiveness will thus decrease. | 1 |
For us to elevate our fundamentals as an innovation economy, we need to press on with reforms to strengthen the foundations of ideas, quality investments, talent, and market dynamism to ensure efficient allocation of resources. 28. As we face new and emerging challenges, we must embrace new opportunities that are available. One such opportunity is the move to a low carbon and greener economy. Besides producing green products such as solar panels, our own rich biodiversity plays a critical role in the global shift towards sustainability. The key however is not to monetise our natural assets quickly, either as commodities or as green-assets or credits to other countries. Instead, we must look to develop and cultivate our own green industries and services so that we can secure Malaysia’s economic future in the long run. A strong financial sector Ladies and gentlemen, 29. Speaking of reforms to secure our future, it is also fitting for me to talk about the financial sector, and its role in supporting the economic aspirations that I have just highlighted. Indeed, this was at the top of our minds when we developed the Financial Sector Blueprint, which we published in January this year. 30. The Blueprint set out five key priorities for the financial sector. Briefly, they are: a. First, to foster a vibrant funding ecosystem that supports Malaysia’s economic transformation. b. Second, to elevate the financial well-being of households and businesses. c. Third, to advance digitalisation of the financial sector while managing associated risks. | As banks expand their risk taking activities, both on balance sheet and off balance sheet, some banks have become much larger and more complex, thereby rendering themselves “too big to fail”. 10. On the other hand, the proponents of universal banking note that diversification can be beneficial for banks and banking stability. If one area of business underperforms, others can make up for it – making the “whole” more resilient. It can also be argued that banks that are diversified in terms of businesses or geographical operations are better positioned to offer customers the depth and breadth of services these customers require, particularly as 2 BIS central bankers’ speeches economic activities become ever more specialised and global. Broadening customer access to financial products enables increased flows of savings through the system, facilitating efficient investment and economic growth. These advantages are not to be dismissed lightly. 11. The HKMA takes a balanced and pragmatic view on this issue. Rather than mandating the dismantling of banks’ business structure to deal with the potential problems arising from proprietary trading and overly aggressive risk taking by banks, our preferred response is to ensure the proper risk capture and management of those parts of the operations that benefit from low cost funding and yet cause a disproportionate amount of risk. As part of our on-going supervision we need to critically assess whether banks really understand what sort of risks they are taking on and seek to ensure that such risks are managed properly in order to safeguard depositors’ interests. | 0 |
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