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First, the financial crisis has shown that a large, highly developed and internationally integrated banking industry means risks as well as growth opportunities. In particular, the crisis clearly demonstrated that some individual banks are so important for the economy that they have to be rescued by the state in the event of a crisis. This is the “too big to fail” (TBTF) issue. Because of the de facto state guarantee associated with the TBTF issue, the borrowing costs of these kinds of bank are implicitly subsidised. As a result, competition is distorted in favour of these banks. In particular, however, the implicit state guarantee creates incentives to take on excessive risk. In Switzerland, this problem was particularly acute before the financial crisis. As is well known, the global expansion and exposure of the big banks in the area of investment banking meant that, in autumn 2008, UBS found itself in a precarious situation. Since UBS was an integral pillar of the domestic loan and deposit market, the Swiss economy would have suffered enormous damage if the bank had collapsed. With the transfer of illiquid assets amounting to almost USD 40 billion to the stabilisation fund of the Swiss National Bank (SNB) and the subscription to mandatory convertible notes by the Confederation, UBS was stabilised and this danger was averted. Luckily we are now able to say that the endeavour was ultimately brought to a successful conclusion – even earning a profit for the Confederation and the SNB. | This reflects lower international commodity and producer prices, a slower increase in global consumer prices and a stronger krone exchange rate. As these effects wane, and if global economic growth picks up in line with expectations, import price inflation may reach a more normal level. If growth in the global economy picks up again as we have assumed, we expect consumer price inflation to be about 2½ per cent in two years. Meanwhile, consumer price inflation may be somewhat lower due to the downturn abroad and the decline in prices for imported goods. Norges Bank presented its most recent Inflation Report in October 2001. In the light of international developments, and other factors, we considered the probability that inflation two years ahead would be lower than 2½ per cent to be greater than the probability that it would be higher. This was the basis for Norges Bank’s decision to reduce its key rate by 0.5 percentage point to 6.5 per cent in December. Norges Bank’s assessment of the outlook for inflation remained unchanged following the Executive Board’s monetary policy meeting on 23 January this year. BIS Review 8/2002 3 4 BIS Review 8/2002 BIS Review 8/2002 5 6 BIS Review 8/2002 BIS Review 8/2002 7 8 BIS Review 8/2002 BIS Review 8/2002 9 10 BIS Review 8/2002 BIS Review 8/2002 11 12 BIS Review 8/2002 | 0 |
So why is the growth of domestic demand also so high in Sweden, compared, for example, with the United States and the euro area? There are several explanations for this. To start with, Sweden’s public finances are in good shape in an international comparison, which means that there will be no need for fiscal policy tightening in the period ahead. In addition, household saving in Sweden was high before the crisis broke out. Saving increased further in conjunction with the crisis, presumably due to the general uncertainty prevailing. Moreover, household confidence has recovered strongly, as various types of survey have shown. Together with relatively sizable incomes, this has made it possible for consumption to recover. A further favourable factor is that, in the end, the Swedish financial system was never fully drawn into the financial crisis. Towards a normalisation of GDP and inflation – even for the repo rate Let me refer back to Slide 3, which shows the policy rates of Sweden, the euro area and the United States. The policy rates of both the United States and the euro area remain on extremely low levels. This emphasises that the situation in these countries is far from being “business as usual”. Part of this can be explained by the development of public finances. In the euro area, unease remains high over how countries such as Greece, Portugal and Ireland will cope with their long-term commitments. | There are many indications that the significance of the emerging economies for Swedish exports will continue to increase in the period ahead. This is an example of an important gradual change that has taken place independently of the financial crisis and which will affect developments in the future. It could perhaps be said that the crisis has contributed towards shedding light upon the increased significance of the emerging economies, as these are now driving the recovery of the global economy. Interestingly enough, the composition of products in Sweden’s exports, which was a disadvantage for Sweden when the crisis erupted, has now been turned into an advantage. There is a natural explanation for this: just as purchases of goods of this type (large amounts of which are exported by Sweden) were easy to postpone, so are they also easy to resume. However, over the last year or so, the krona has appreciated considerably, reducing the impetus previously provided by the weakened exchange rate (see Slide 5). At the same time, exports are far from being the only part of the Swedish economy that has grown. Domestic demand in the form of consumption and investments has developed very 3 This was entirely in line with the Riksbank’s forecast from February, which also predicted GDP growth of 5.5 per cent for 2010. 4 The slide shows percentages of goods exports, which constitute about two-thirds of Sweden’s total exports. BIS central bankers’ speeches 3 strongly. | 1 |
Il Sole 24 Ore: The EU plan to help Greece relies on bilateral aid from EMU countries and on the involvement of the International Monetary Fund. The ECB was clearly against the IMF participation. What do you make of the EU plan? Trichet: I was not against the IMF involvement in itself. I was against the involvement of the IMF alone. I have always been in favour of the maximum level of responsibility exerted by the governments of the euro area as is prescribed by the Stability and Growth Pact. The pact is at the very heart of EMU: it calls for member countries to assess and judge the fiscal policies of their peers; this peer’s surveillance can impose sanctions. In the days preceding the EU meetings, I called all governments to live up to their treaty responsibility and to the provisions of the Stability and Growth Pact which is essential for the EMU to function well. From this point of view, the declaration of the euro area Heads of State or Government is appropriate. It is also a good and workable solution. Il Sole 24 Ore: Do you expect it will be used? Trichet: At this moment in time I don’t expect this mechanism to be necessary. Greece should proceed with its recovery program in a very determined way as committed in front of the Eurogroup. Il Sole 24 Ore: Is a default of Greece a distinct possibility as some commentators seems to expect? | And I trust the Germans as well as the Italians, the French, the Spanish, the Dutch and all other fellow citizens were all aware of this aspect when they joined EMU. By the way Germany demonstrated how attached it is to the single currency when it argued in favour of the Stability and Growth Pact, which is precisely based on peer responsibility and peer pressure and is a vivid illustration of how our destinies are interconnected. Therefore, yes, I believe that Germany is fully aware of the fact that we are sharing a common destiny. Remember in the run up to the Maastricht treaty: both Helmut Schmidt and Helmut Kohl were at the forefront of European integration with their peers, following in the footsteps, in particular, of Robert Schuman and Alcide De Gasperi. Il Sole 24 Ore: Regarding Germany, the French finance minister did criticize its economic model based on exports rather than internal demand, pointing out that its partners cannot count sufficiently on German imports. Are you in agreement with Christine Lagarde? Trichet: No, and for a number of reasons. Firstly, had Germany not increase its competitiveness in the first 11 years of EMU by keeping its costs and inflation under control, the euro area as a whole would have had the threat of higher inflation and therefore a tougher monetary policy. Secondly, Germany, with a large current account surplus, is financing the current account deficit of other countries members of the euro area. | 1 |
In the area of strengthening the consumer protection infrastructure, the agenda covers a wide spectrum of initiatives involving infrastructure and institutional capacity development that includes financial education, advisory services, distress management, rehabilitation and putting in place avenues for redress. Recent initiatives include evolving a more effective Financial Mediation Bureau (FMB) to ensure that consumers of all financial service providers under the purview of the Central Bank have recourse to an independent, fair and impartial dispute resolution mechanism. Earlier this year a deposit insurance scheme was introduced to further strengthen incentives for financial institutions to adopt sound financial and business practices and enhance public confidence in the financial system by providing explicit protection on deposits. Bank Negara Malaysia is also currently finalising the details for the establishment of a credit counselling and debt management agency to be introduced early next year, with the aim of providing individuals with credit counselling and assistance in restructuring of their debts. To promote financial education at an early age, Bank Negara Malaysia embarked on an education programme in schools on basic financial knowledge in partnership with the Education Ministry since 1997. Further, in collaboration with the financial industry's associations, Bank Negara Malaysia launched a ten year Consumer Education Programme (CEP) for the banking and insurance sectors. We are now in the fifth year of this programme. Extensive information is being disseminated via the spectrum of distribution channels including newspapers, radio, websites, branches of financial institutions and outreach programmes. | Forums like this one provide a good opportunity for regulators to share information and insights, to discuss the issues and challenges at hand, explore potential areas for cooperation and lay the groundwork for future partnerships. Drawing on the experience and expertise of various countries, this forum provide a platform for participants to work together towards developing global best practice standards on consumer protection and education issues. I look forward to the outcome of your deliberations in fostering greater consumer protection and education. 4 BIS Review 86/2005 | 1 |
The projection also assumes that the investment projects postponed this year will be resumed, as derived from the Survey of the Capital Goods Corporation (CBC) of the second quarter of this year. The highly expansionary monetary policy, the increase in public investment and the reactivation measures announced by the government will also support the recovery. Non-mining investment will increase next year, but it will be less dynamic than was expected before the pandemic, given the higher corporate indebtedness that has been necessary to cover the cash deficits of recent quarters. Considering all of the above, this MP Report estimates that GFCF will contract 10.6% annually, and then grow 8% and 4.9% annually in 2021 and 2022, respectively. The projections in this MP Report consider that this and next year the Treasury will provide a significant boost to the economy, consistent with the various measures announced by the government. However, they assume that this boost will gradually fade out as the economy converges to its trend growth rates and the recently announced fiscal consolidation process begins. Regarding the Current Account balance, contradicting the June MP Report, it is projected to be negative this year and next. This assumes that liquidity constraints for households and businesses will be lower than expected, due to government measures to support household income and the withdrawal of part of pension savings. Plus, a slightly lower than expected deterioration in investment, as well as somewhat better prospects for recovery. | It includes the FBS of 27 August, the EES of August and the forward curve derived from the 10-day average of financial assets at the statistical cut-off date. Source: Central Bank of Chile. Figure 16 Central Bank of Chile’s balance sheet (*) (per cent of GDP) 40 40 30 30 Liabilities 20 20 Assets 10 10 Equity 0 -10 10 11 12 13 14 15 16 17 18 19 0 20(f) 21(f) -10 (*) Data effective until the second quarter of 2020. Diamonds correspond to the projections at the end of 2020 and 2021 for each series. Source: Central Bank of Chile. 20 Figure 17 Real GDP per capital (thousands of pesos) 9.000 8.000 8.000 7.000 7.000 6.000 6.000 5.000 5.000 4.000 4.000 3.000 3.000 2.000 2.000 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20(f) 22(f) 24(f) 9.000 (f) Forecast. Source: Central Bank of Chile. | 1 |
Asia does not have the equivalent of a London or New York. Tokyo is mainly domestic in orientation, while the smaller centres of Hong Kong and Singapore play more of a regional role. The economics of concentration This trend towards a mega financial centre complemented by smaller specialised centres in each time zone has persisted, even though technology has allowed market players to obtain information and transact on it, virtually anywhere. Why has this concentration in activity happened? Firstly, technology has itself created tremendous economies of scale. This is especially so in commoditised markets such as foreign exchange and electronic financial services, and in infrastructural facilities for payments and settlements, back-office processing and call centres. Secondly, critical mass of talent has become more important, with the growing complexity and multi-faceted nature of finance. Talented and enterprising investment bankers, fund managers and currency traders work best when they can interact with other equally bright and capable people, to strike deals, develop new products, exploit investment and business opportunities, and service clients. Executing financial deals requires a combination of top talent not only in finance and business, but also in law, accounting, project management, and information technology. Few centres have the full spread of necessary skills; fewer still have a critical mass of them. And for all the wonders of telecommunications and the internet, there is no substitute as yet for face to face interaction between two parties making a complex deal. Thirdly, issuers and investors in capital markets are placing a growing premium on liquidity. | However, we should focus our resources first on activities where we have a natural advantage, or can build up a capability. We must push in the same direction as market forces, and not against them. Our main approach to developing the financial centre should therefore be to establish a level playing field with transparent rules and the right environment, so that market forces can operate and innovation can flourish. Active promotion of specific activities complements this. Conclusion The major changes in the financial industry compel financial centres to adapt and evolve, or else be bypassed and rendered irrelevant. Singapore aspires to be one of the financial centres in Asia, and a node in the global network of financial markets. By implementing the right policies and strategies vigorously, we hope to develop and grow as a financial centre, serving Asia and contributing to its development and prosperity. 4 BIS Review 50/2001 | 1 |
This is expected to be a catalyst in the provision of end-to-end financial services, particularly in a ‘low touch’ environment. The financial industry is taking steps to ensure safe and secure introduction of e-KYC, with several banks planning to launch e-KYC solutions in the coming months with more to follow in 2021. We are also currently in the final stages of developing the licensing framework for digital banking, which we envision can enhance access to affordable and quality financial solutions, particularly for the underserved and hard-to-reach market segments. From our sandbox experience, we also observe similar digital alternatives and solutions being developed in the insurance and takaful sector. Our shift towards e-payments has also been sustained, with a 47% increase in the volume of transactions made through internet and mobile banking, and a 260% increase in active e-wallet users between August 2019 and 2020. Furthermore, good progress has been made in enabling the interoperability of e-wallet services offered by banks and non-bank e-money issuers. Looking ahead, Bank Negara Malaysia 1/3 BIS central bankers' speeches will continue to focus on fostering well-designed regulations to facilitate digitalisation and innovation in financial services. All these efforts are intended to support the financial services industry accelerate its transition to an age of digitalisation and innovation. We have high hopes for Islamic Finance to capitalise on this. In 2017, we launched the Value-Based Intermediation (VBI) initiative. | Thomas Jordan: Government debt and the independence of monetary policy Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, at the 21st Internationales Europa Forum Luzern, 8 November 2011. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Monetary policymakers are not responsible for fiscal policy, yet they still have to take an active interest in government finances. The current financial and debt crisis reminds us that unsound government budgets can compromise independent monetary policy in the long term. Excessive debt carries the risk that fiscal policy can no longer be effectively implemented. It is therefore no surprise that this responsibility gets passed to the central bank, which is thought to be able to solve all manner of problems by simply printing more money. Faced with this situation, the central bank must – either under political pressure or by having to weigh up all the relevant factors – contribute to state financing or take quasi-fiscal policy measures. This can lead to a gradual loss of its effective independence and – in an extreme case – to it losing its statutory independence. Only an independent central bank, however, can pursue its goal of ensuring price stability in a credible way. The debt situation in Switzerland is much better than that of other comparable countries. | 0 |
Lastly, I would like to emphasize that the level of the current account deficit is not so important in terms of ensuring that it does not follow a volatile course and is not perceived as a significant risk factor. However, in an environment where turbulences are observed in the markets and uncertainty perceptions are increasing, it is reasonable to expect a surge in the perceptions of fragility in the current account deficit, as well as the popularity of these perceptions. The current account deficit is a closely followed indicator. We are also aware of the risk potential of the current account deficit and have been carefully monitoring it in coordination with other agents responsible for the economy. Dear guests, I was most honored to be here in Malatya and to have the chance to share my views on the Bank’s policies and macroeconomic developments with you today. Thank you. 10 BIS Review 89/2006 | This support has taken various forms, including the following: Salary supplementation to fifteen (15) academic staff in the Department of Economics at UNZA and nineteen (19) academic staff in the School of Business at the Copperbelt University (CBU); Full sponsorship of five undergraduate students at third and fourth year level at CBU and five students at Masters Degree level at UNZA; Financial support in the acquisition of books and periodicals; Purchase of equipment such as computers and computer software. The Bank of Zambia acknowledges the various efforts being made by the University to improve its infrastructure and the delivery of quality university education and research. We are also mindful of the various funding constraints faced by the University as it expands its programmes to meet the ever increasing demand for its services. The Bank is therefore, proud to respond to the University’s call for partnership with industry and other stakeholders in order to realise its noble objectives that cannot presently be fully funded from public resources and students fees. In this regard, the Bank of Zambia has seen it fit to not only extend this support, but to also streamline and enhance it in order to better align this support with strategic objectives of both the Bank and the University. Ladies and Gentlemen; as you are aware, the Bank of Zambia has been providing financial support for the purpose of promoting scholarly and academic excellence in research and instruction at the University of Zambia. | 0 |
The long run containment in inflation necessarily relies on containment of monetary expansion and increase in production in the country, particularly by improving productivity. As the Central Bank, what we can do? Obviously we cannot produce goods or services for the consumption of the economy, but certainly we can create the right conducive environment enabling the country’s economic performance. Why should the Central Bank be interested in productivity? Our role is to maintain economic and price stability and financial system stability. We also provide necessary payments and settlement infrastructure. We advise the government in economic affairs and policy making, and we provide important agency services such as exchange control, public debt management, provident fund management and regional development activity. In all these functions, our Mission is to “contribute to Sri Lanka’s prosperity”. At the same time, the Central Bank widely pronounces the theme of “success through productivity”. 4 BIS Review 116/2008 But, obviously this cannot be done by ourselves… The success through productivity needs a consolidated national effort. That is why we all have to push ourselves to a greater productivity level. We have to, • work smarter, • combine better, • deliver results, • get it right. It should be noted that the private sector has continued to make commendable efforts in order to improve productivity in the country. What can the ICC Sri Lanka do? ICC Sri Lanka too can play a prominent and essential role. | I am pleased to see that the objective of a return to fiscal equilibrium within five years is one of the new government’s priorities. The President of the Republic has undertaken to achieve balanced public accounts by the end of his mandate. This is a necessary target. So far, the tax increases have allowed the financing of additional spending and the reduction of the deficit. I am waiting to see the 2013 budget proposal to measure exactly by how much the State’s spending will be reduced. In concrete terms, what exactly would you like to see? The Cour des comptes (court of auditors) has compiled a list of the different potential savings that the government should examine. I agree with its analysis. It is indeed a colossal and ambitious project. Alongside the reduction of public expenditure, we must also encourage investment, entrepreneurship and restore confidence for those who wish to start a business. We therefore need structural reforms and a reform of our labour laws to allow greater flexibility with the objective of restoring and improving the competitiveness of our economy. We must change our social model because it is no longer coherent with global competition. BIS central bankers’ speeches 3 | 0 |
However, there may be projects with a lifetime of days or certainly months and weeks, such that lowering the frequency of settlement points to, say, annually would clearly create an artificial and harmful annual economic cycle and affect price stability. Second, increasing the frequency of points in time when banks need to settle, say to hourly, would increase liquidity management costs of banks considerably. Because this is not needed from a monetary policy perspective, this would mean a waste of economic resources. Finally, central banks probably want to control the ability of banks over time to settle their accounts, and also banks are probably more comfortable to see that other banks settle their accounts with the central bank on a regular basis, as proof of their soundness. To sum up, the daily cut-off separating free central bank credit and credit against a monetary policy-related interest rate is a reasonable convention, reflecting monetary policy transmission mechanism issues, convenience of banks’ liquidity management, and credit risk management considerations. It allows central banks to safeguard price stability, while at the same time ensuring the smooth functioning of the payment system. Turning to collateralisation, it is important to note that in the past, central banks often set ceilings for intraday and overnight credit to banks. In contrast, today, many central banks, including the Eurosystem, tend to provide unlimited access to both types of credit, but with the need to provide eligible collateral. | Gertrude Tumpel-Gugerell: Payments and monetary and financial stability Opening remarks by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of the European Central Bank, at a joint European Central Bank/Bank of England conference on “Payments and Monetary and Financial Stability”, Frankfurt am Main, 12-13 November 2007. * * * Ladies and gentlemen, It is a pleasure to welcome you to this conference and I am grateful that I can do so also in the name of the Bank of England. The idea of the joint conference was born at one of our regular bilateral meetings and it is wonderful to see the idea come to fruition. You may wonder why we have put payments first, and monetary and financial stability second. This is not only because payments are at the root of a functioning (or not functioning) financial system; payments also require a thorough understanding of the economics of banking, money, financial markets, industrial organisation, and regulation. The diversity of theoretical and policy issues in this field is also reflected in the conference that I have the pleasure of opening this morning. Historical overview Considering the historical evolution of interbank settlement arrangements and central banking functions may help to understand why central banks evolved as the natural candidates for taking the responsibility for financial and monetary stability. 1 Indeed, I would argue that the reason lies in the key role central banks played in payment systems. | 1 |
Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted. As regards fiscal policy, there is growing confirmation that the favourable cyclical developments led to better than expected budgetary outcomes in 2006 in a number of countries and in the euro area as a whole. However, updated stability programmes foresee only moderate progress with fiscal consolidation in the coming years. In this respect, some countries’ consolidation targets appear not 2 BIS Review 23/2007 fully in line with the requirements of the revised Stability and Growth Pact. Risks stem in particular from a lack of well-specified and credible measures, notably on the expenditure side of budgets. Given the favourable economic environment, the Governing Council considers it essential that procyclical policies are avoided in all euro area countries and that sufficiently ambitious fiscal consolidation efforts are made in the countries with remaining budgetary imbalances and/or high public debt outstanding. The opportunity should be seized to attain sound public finances within the programme horizons and by 2010 at the latest in all euro area countries. Fiscal consolidation that is part of a medium-term-oriented, credible and expenditure-based reform strategy would support longerterm output and employment growth and help prepare for the fiscal impact of population ageing. As regards structural reforms, the European Council will discuss the current state of, and future progress in, the implementation of the Lisbon strategy at its meeting which starts today. | Turning first to the economic analysis, according to Eurostat’s first estimate, the quarter-on-quarter growth rate of real GDP in the euro area for the fourth quarter of 2006 was 0.9%, which was above previous expectations. Our current assessment is that the quarterly profile of real GDP growth is likely to be somewhat smoother in response to the impact of indirect tax changes in one large euro area country than had originally been anticipated. The strength of real GDP growth in the fourth quarter is thus indicative of ongoing robust growth in the euro area. Both domestic demand and exports made significant contributions to real GDP growth, confirming the sustained and broad-based nature of the current expansion. The information on economic activity from various confidence surveys and indicator-based estimates supports the assessment that robust economic growth has continued into 2007. Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices. External conditions thus provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency. | 1 |
They exist to manage and reduce the risks faced by their members – to ensure financial contracts are reliably and transparently margined and collateralised. The main prudential risks CCPs face is from the failure and consequently inability of clearing members to meet their obligations to the CCP. The steps that have been taken since the financial crisis to increase the resilience and resolvability of their bank clearing members are therefore a key protection for CCPs. But CCPs also need the backstop of a credible resolution regime. The principal challenge here is not solvency per se but rather the ability of a CCP to restore itself to a matched book if members default, and to do so in a way that does not undermine the stability of the system. CCP rule books provide for very substantial mutualised resources and a comprehensive series of recovery actions. These include, as a last resort, the cancellation or ‘tear up’ of contracts and the end of the clearing service. However, waiting until the mutualised resources of a CCP are exhausted and subjecting participants to the unpredictability of a full tear-up may well pose unacceptable risks to financial stability. Resolution allows the resolution authority to intervene, if necessary, to tear-up a subset of contracts earlier in the process than would be possible in CCP recovery, and before the mutualised resources in the CCP have run out. The losses can then be spread across the membership in the order set out in the rule-book. | Rather than constructive ambiguity, we need credible clarity that when a bank gets into trouble, the losses will be made to fall on shareholders and creditors and not the taxpayer. And if the bank provides critical services to the economy, that these can continue while the bank is resolved in an orderly way. The Purple Book It is in order to achieve such credible clarity, that next week the Bank will publish an update of its approach to resolution. This document – known by the colour of its cover as the Purple Book - was first published in October 2014. Its purpose is to set out very clearly the options that the Bank has to deal with a failure of a bank and the way in which we would use our powers. Explaining how resolution is designed to work in practice and what is needed to remove barriers to resolvability are necessary steps to ensure that resolution regimes are credible. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 The Purple Book illustrates the scale of progress that has been made in the UK towards putting in place a credible and effective way of dealing with bank failures. I would pick out three crucial areas of reform: First, there is now a comprehensive statutory framework to deal with failing banks, for which the Bank of England is formally responsible. We have statutory powers to match this responsibility and there are a wide range of options available to us. | 1 |
I would also like to share with you our commitment to taking a more active role in directly explaining to the public the rationale behind the main economic decisions, in addition to the associated operating rules, their main characteristics and all those aspects that shape the economic and financial environment. Accordingly, we intend to broaden the Bank’s participation in those academic, 16 https://www.bde.es/bde/es/secciones/sobreelbanco/Transparencia/ 11 professional and social fora where our presence may prove beneficial. This includes the use of new communication instruments, such as the recent opening of several social media accounts, and regular contact with the press to explain our activities and the content of our reports. We also aim to build on our long-standing initiatives in the fields of information, education and financial literacy. Here, I would also like to underline our commitment to further improving the institution’s transparency. For instance, in the Transparency Portal we are providing more detailed information on the calendars and appearances of the Governor and the Deputy Governor, and documents pertaining to the integrity expected of our high-level officials. In addition, both the Deputy Governor and I, as representatives of the ECB’s Supervisory Board and the Governing Council, respectively, have signed a new code of conduct.17 This increases our personal commitment to the highest ethical standards in order to ensure our independence from the public and private sector and avoid potential conflicts of interest. | As part of our policy of non-internationalization of ringgit, we prohibited the trading of ringgit assets and products outside of our jurisdiction. It undoubtedly the opaque pricing mechanism has adverse impact on the domestic financial market, price discovery process and the stability of the financial market. Accordingly, when there were reports of ringgit futures contracts being introduced on offshore exchanges, we issued reminders to onshore financial institutions and corporations against participating in them. The prohibition also encompassed engaging in any onshore FX transaction with non-residents that could be deemed as facilitating offshore ringgit transactions. These rules are not new but have been there all this while. We also instituted several measures this week as volatility also picked up sharply after the US Presidential election result. Because of adverse consequences on genuine investors and businesses, we should no longer tolerate the NDF market and its damaging influence over the onshore pricing of ringgit. Let me make it doubly clear on this. Onshore banks are reminded against quoting onshore ringgit opening price referencing to the offshore prices. Markets should not price ringgit excessively or out of sync with the underlying fundamentals. We have also reminded onshore banks to avoid dealing in FX with non-resident banks suspected of engaging in NDF speculative activities except for those that provide confirmation of their non-involvement in the offshore ringgit NDF market. This week has seen many noises surrounding these measures. There is no new policy on capital flows. There is no proxy capital control either. | 0 |
Third, as regards the euro area and the sovereign debt crisis, of which the euro area is currently the epicentre, the euro area central banks, and the ECB in particular, have been permanently calling for sound economic policy management, in particular in the fiscal domain, for structural reforms and for reinforced economic governance. As independent institutions that are devoted to stability and that are medium- to long-term oriented, we are an anchor of stability and confidence. This is especially valuable in the turbulent market environment that we are witnessing and that is characterised by acute tensions of some sovereign signatures which are causing negative spillovers on others. Only a few weeks ago, the central bankers were all meeting in the BIS headquarters in Basel in our Global Economy Meeting. Reporting to the press afterwards, I stressed that we were all very closely “united in purpose”: each of us in our own economy, with its different features and challenges, striving to solidly anchor inflation expectations, preserve stability and consolidate confidence. Meeting here in Washington, authorities have the opportunity to display the same unity in purpose to address their economic challenges at home, prevent negative spillovers for the global economy and consolidate confidence in the world recovery. | Now, at the end of this exposition, it might be useful for me to tell you what is the assessment that the European Systemic Risk Board has expressed after its last meeting only two days ago: BIS central bankers’ speeches 3 Since its previous meeting on 22 June 2011, risks to the stability of the EU financial system have increased considerably. Key risks stem from potential further adverse feedback effects between sovereign risks, funding vulnerabilities with the EU banking sector, and a weakening growth outlook both at the global and the EU level. Over the past few months, sovereign stress had moved from smaller economies to some of the larger EU countries. Signs of stress are evident in many European government bond markets, while the high volatility in equity markets indicates that tensions have spread across capital markets around the world. The situation has been aggravated by the progressive drying-up of bank funding markets, and availability of US dollar funding to EU banks had also decreased significantly. In that context, central banks have decided on coordinated US dollar liquidity-providing operations with longer maturities. The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. This is threatening financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond. Looking ahead, decisive and swift action is required from all authorities. | 1 |
BIS central bankers’ speeches 11 Chart 7: Sterling corporate bond yields Per cent 9 Per cent 40 8 QE2 QE1 7 35 30 6 Investment grade, non-financial (left-hand scale) 25 5 20 4 15 3 10 2 High yield (right-hand scale) 1 5 0 0 2007 2008 2009 2010 2011 2012 Source: Bank of America/Merrill Lynch. Chart 8: International equity prices(a) Indices: 4 January 2007 = 100 120 QE1 QE2 100 80 60 40 Euro Stoxx S&P 500 20 FTSE All-Share 0 2007 2008 2009 2010 2011 2012 (a) In local currency terms. 12 BIS central bankers’ speeches Chart 9: Constraints on investment spending(a) Percentages of respondents 100 Recessions Uncertainty about demand Inability to raise external finance Cost of finance Internal finance shortage 90 80 70 60 50 40 30 20 10 0 2000 2002 2004 2006 2008 2010 2012 Sources: CBI, CBI/PwC and ONS. (a) Manufacturing, financial services and consumer/business services surveys weighted by shares in real business investment. Companies are asked for factors likely to limit capital expenditure authorisations over the next twelve months. Financial service companies are not asked to distinguish between a shortage of internal finance and an inability to raise external finance, so their single response is used for both questions. | 3 3 There are two differences compared with a Treasury Bill: first, only banks with reserve accounts can hold bank reserves, whereas a Treasury Bill is a marketable instrument; second, if a bank needs cash, say to meet withdrawals, it can convert its reserve holdings directly into cash, whereas it would need either to sell or repo its Treasury Bill holdings in the market. 6 BIS central bankers’ speeches The aim of quantitative easing is to drive down longer-term yields, when short-term interest rates are already at or near their floor. It does this by encouraging those who have sold assets to us to rebalance their portfolios into assets that are substitutes. That includes corporate bonds and equities, as well as a variety of other assets. There is a line of academic thinking that this mechanism will not be effective if private agents “pierce the public sector veil” and internalise the tax implications of the change in the composition of the consolidated public sector balance sheet (Eggertsson and Woodford, 2003). However, event studies of quantitative easing here (see Joyce et al., 2011) and in the United States (see Gagnon et al., 2011) do suggest that yields on a range of assets have fallen as a result of the purchases. That can be seen in the downward pressure on corporate bond yields (Chart 7) and the upward pressure on equity prices (Chart 8) during the two rounds of asset purchases (marked in grey). | 1 |
The second asked participants to play a simple monetary policy game, setting a short-term interest rate in order to minimise a loss function described by deviations of unemployment and inflation from desired target levels. The data generating outcomes for this hypothetical economy came from a two equation macroeconomic model of a fairly standard kind. Again a structural change - this time to the “natural” real rate of interest - would occur at some point during the game, and, by observing data generated by this economy, players would need to learn about the change in structure in order to set the appropriate interest rate. All the students who participated played both as individuals and in a group. In both experiments success could be measured on a quantitative scale, and both led to a common conclusion: that decisions made by committees were superior to those of individuals. How robust was this result? And what explained it? Last year, a team from the Bank of England attempted an exercise very much like Blinder and Morgan’s monetary policy experiments using a sample of just under 200 economics students from the 3 London School of Economics. Using a simple macroeconomic model that was broadly representative of the UK economy, the experiments examined how the performance of groups differed from that of individuals. And again they found striking evidence that committee decisions were superior. | In contrast, the debates among the MPC are published in the monthly minutes and are the subject of much commentary in the press. I want, this evening, to pose four questions about the role and record of the MPC. First, why give the power to decide interest rates to a committee rather than an individual? Second, does it matter that the MPC frequently disagrees about its decision? Third, has the Committee communicated clearly the reasons for its decisions? Fourth, does the MPC require reform? Let me try to answer those questions in turn. BIS Review 34/2002 1 1. Why give the power to decide interest rates to a committee? The academic argument for central bank independence is well established, but why delegate monetary policy to a committee rather than an individual? In many other situations where expertise is crucial, groups of experts are often regarded as superior to individuals. So one motive could be that committees make better decisions. The technical nature of the monthly interest rate decision gives a natural division of responsibilities between a democratically elected government that chooses the target and an appointed group of experts who set rates to meet that target. One dissenting voice comes from Sir Alec Issigonis - inventor of the Mini - who once said, ‘A camel is a horse designed by a committee’. Despite this view, there is a wide range of evidence to suggest that in many other real-world scenarios, a committee is often the preferred decision-making body. | 1 |
In my mind, a location policy is the most efficient tool: first, it would make it possible to maintain effective control over the activities denominated in EU currencies; and second, it would foster a better and more balanced clearing market structure, less dependent on “too big to fail entities”, which would enhance global – and not only EU – financial stability. In this regard, I would like to acknowledge the valuable proposals recently made by the European Commission, even if they could be strengthened and streamlined: those CCPs whose activities are "super-systemic" for the EU market should indeed establish themselves in the European Union. A location policy is the only viable mechanism to guarantee that European authorities, and the Eurosystem in particular, can control and manage the risks that CCPs are likely to pose to the financial stability of the European Union. In order to do so, the concept of “substantially systemically important CCPs” should however be clearly defined with objective, rule-based requirements; euro-denominated clearing activities should be located in the European Union when they exceed certain thresholds. 2. Speed up the creation of a “Financing Union for Investment and Innovation” The second imperative is to speed up the creation of a “Financing Union for Investment and Innovation” at the European level. The need for such a Financing Union stems both from a weakness and an opportunity. The weakness is that the euro area faces persistent financial fragmentation. | For us as emerging country, with foreign bank presence, the global financial regulatory reforms also pose challenges, as they can possibly stimulate deleveraging, reduce access to financing and financing flows to the private sector. At the end, let me also avail myself of this opportunity to emphasize yet again our continuous efforts to align with the EU requirements in all areas of operation, especially the banking regulation and statistics, notwithstanding the efforts and the progress done in all other fields. Thank you for your attention. BIS central bankers’ speeches 3 | 0 |
Svante Öberg: The economic situation Speech by Mr Svante Öberg, First Deputy Governor of the Sveriges Riksbank, to the Västerbotten Chamber of Commerce, Umeå, 25 August 2011. * * * My message today can be summarised in four points: Developments have been dramatic over the summer. However, statistics for the Swedish economy received during the summer have been in line with the forecasts made in July. The turbulence on the financial markets has nevertheless increased uncertainty over future developments. We will discuss how this may affect monetary policy in September. It is now the fourth year in a row that I have held a speech on the current economic situation in the month of August. Normally, I give an account of the most recent forecasts from the latest monetary policy decision in late June/early July and of the statistics received since then. This year it seems justified to give just a brief account of the forecasts made before the summer holidays and of the new statistics and to instead discuss events during the summer and what future consequences they might have. I shall therefore begin with a brief background, and then move on to discuss in more detail the turbulent developments in the financial markets during the summer, concluding with a few words about the problems I believe we will face at the next monetary policy meeting. | Unemployment Percentage of the labour force 10 10 8 8 6 6 4 4 2 2 0 0 04 05 06 07 08 09 10 11 12 13 14 Sources: Statistics Sweden and the Riksbank 10 BIS central bankers’ speeches 7. Inflation Annual percentage change 5 5 CPI CPIF CPIF excluding energy 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Note. The CPIF is the CPI with a fixed mortgage rate. The data are updated with new outcomes after the publication of the July Monetary Policy Report. Sources: Statistics Sweden and the Riksbank 8. Repo rate with uncertainty bands Per cent, quarterly average 8 8 90% 75% 50% Outcome Forecast 7 6 7 6 5 5 4 4 3 3 2 2 1 1 0 0 04 05 06 07 08 09 10 11 12 13 14 Source: The Riksbank BIS central bankers’ speeches 11 9. | 1 |
The proposed amendments drew reference from the revised FATF Recommendations and international best practices, so as to take into account latest global developments and incorporate emerging best practices. Some of these amendments relate to enhanced transparency on beneficial ownership information. MAS is currently reviewing the feedback from the private sector and will also be looking at updating the MAS Notice on AML/CFT for licensed trust companies. Continual review of our policies and guidelines, in consultation with industry stakeholders such as yourselves, remain the bedrock of our regulatory approach. It makes sure that Singapore’s regulatory regime is in line with international standards, while at the same time taking into account industry feedback to facilitate practical implementation. Increased momentum towards tax transparency 18. Turning now to tax transparency. 19. To combat cross border tax evasion, the G20 endorsed Article 26 of the OECD Model Tax Convention on Income and Capital to be the global standard for Exchange of Information (“EOI”) for tax transparency, in 2009. This provided for bilateral EOI-on-request, where a jurisdiction may request from another jurisdiction information on its tax payer that is foreseeably relevant to its determination of whether the tax payer has evaded taxes. 20. Following that, there has been strong progress towards enhanced tax transparency – most recently, the G20 and OECD advocated the adoption of AEOI as the new global standard for tax transparency (the “AEOI Standard”), and urged all jurisdictions, including all financial centres, to implement the AEOI Standard swiftly. | Compared to the Asian financial crisis twelve years ago, the dynamic of macroeconomic adjustment in this crisis also looks similar, although the trigger point this time is more bankled than currency-led. The real surprise, however, was in the timing, the scale, and the intensity of how the problem quickly deteriorated into a major global turbulence. According to the IMF, compared with the previous crises, the cost of the current crisis in terms of financial losses could be as high as 10 percent of US GDP. This implies a very substantial welfare loss. Is this the time of upheaval? My answer is both yes and no. The “No” part refers to the fact that, despite the magnitude of the current crisis, aggressive policy response and the willingness to do more by Governments have successfully contained the fallout to the extent that collapse of the global financial system has been avoided. Financial markets, to an appreciable extent, are stabilizing, risk appetite is returning, and signs of improvement in the real economy are beginning to emerge on a world-wide basis. Although it is still early days, they do point to the beginning of stabilization which is an important first step for economic recovery to take hold. The “Yes” part of my answer comes from what I see as a major challenge in the ideas and policies on how best to manage the global economy going forward in this era of globalized finance. | 0 |
This requires many steps, including systemic risk oversight and solving the so-called too-big-to-fail problem. In this respect, we need to think hard about what we can do to prevent the type of speculative bubbles that occurred from causing so much damage in the future. In particular, are there macro prudential tools that the Federal Reserve and other regulators can use to limit leverage and speculation and thus prevent the type of asset price booms and busts that have proved so troublesome? Second, we need viable exit strategies from this recent period of monetary and fiscal policy stimulus. On the monetary policy side, we have been working hard to ensure that we have the tools in place so that we can be effective in tightening monetary policy when the time is right, even with an enlarged balance sheet. Third, we need a rebalancing of global economic growth. That means a smaller share of consumption relative to GDP in the United States and offsetting shifts in Asia. Circumstances have improved considerably from what they were a year ago. But job creation is still much too slow and we have much to do on the regulatory side to make our financial system more resilient and robust. Thank you very much for your kind attention. I would be happy to take a few questions. 5 Financial Market Turmoil: The Federal Reserve and the Challenges Ahead, William C. Dudley. Federal Reserve Bank of New York, March 6, 2010. | This means that periods in which ex ante saving exceeds desired investment might lead to periods of persistent unemployment. In this respect, the financial system plays an important role. Financial intermediaries match borrowers and savers. If the financial system is under stress and lending standards are being tightened, ex ante investment is likely to decline relative to saving, all else being equal. The financial intermediation process and the creation of credit is the primary channel through which monetary policy affects the economy. By influencing the volume of credit creation, monetary policy strives to keep ex ante saving and investment – alternatively, aggregate demand and aggregate supply – in rough balance. Too rapid a pace of credit creation would overstimulate investment relative to saving, potentially increasing the rate of inflation and this, in turn, could damage the economy’s long-run performance. Too slow of a pace of credit creation would likely lead to an ex ante shortfall of investment relative to saving, causing unemployment to increase. This analytical framework also applies to the global economy, but with an added level of complexity. At the global level, income equals output and saving equals investment on an ex post basis. However, for an individual country, saving can exceed investment or, alternatively, production can exceed domestic demand to the extent that a country’s exports exceed its imports. This requires that, for some other economy or group of economies, investment must exceed saving, or alternatively, domestic demand must exceed production and imports must exceed exports. | 1 |
National banking communities will be requested to provide national migration plans for a SEPA in the course of this year. The EPC has the initiative and capability to define the pan-European schemes for credit transfers, direct debits and cards. However, since the EPC has no power to enforce, it would have to rely on the cooperation of the banking sector and infrastructures. The ECB, in cooperation with the Eurosystem NCBs, stands ready for facilitating the implementation of the SEPA objectives and for fostering the full adoption of the project which it considers key for achieving financial integration. Concluding remarks Ladies and gentlemen, I have explained why the ECB attaches utmost importance to progress in European financial integration and I have talked about the various channels we have at our disposal for fostering it. In describing the present state of affairs, I have also given the main examples where the ECB actively contributes to European financial integration. At the same time, I have made it clear that the ECB expects continued efforts from the private sector and I have mentioned the substantial opportunities of, but also the challenges to, the relevant public policy framework. The ECB has demonstrated since the first days of its existence that it is a credible and solid anchor for monetary stability. Financial institutions and market participants know also that they can count on the ECB to be in the domain of financial integration a very strong pillar to sustain their efforts and to facilitate the success of this important European endeavour. | The probability of realization of credit risk would grow particularly in an economic slowdown or a situation less favourable than the one observed in the recent years. Presently, we see growing indications of possible problems and increased uncertainty – globally and in the euro area – which could, through certain channels, bring negative effects domestically. From the perspective of the sector, 2019 will also be dominated by the asset review and stress test in several banks. We are at the stage of finalising the preparations for the practical implementation of these processes. They are under the lead of the European Central Bank, but with the active cooperation of the BNB. The asset review, stress test and synchronization of our supervisory practices with the European Central Bank are a very important, though not the only, element of the efforts associated with Bulgaria’s plans for entry of the Bulgarian Lev in the Exchange Rate Mechanism (ERM II) and Bulgaria’s accession to the Single Supervisory Mechanism. These strategic steps should be made simultaneously, according to the plan and the agreements reached with our European partners. In 2019 we expect the positive trends in the banking sector to continue altogether, however with possible increased challenges associated with the general economic environment banks operate in. Concurrently, in the coming months we will evidence processes of potentially long-term consequences directly impacting the sector, aimed at achieving a qualitatively higher degree of integration of Bulgaria into the European financial and institutional infrastructure. 1/1 BIS central bankers' speeches | 0 |
News conference Berne, 15 December 2016 Thomas Jordan Introductory remarks by Thomas Jordan Ladies and gentlemen It is a pleasure for me to welcome you to the Swiss National Bank’s news conference. I will begin by explaining our monetary policy decision and our assessment of the economic situation. I will then hand over to Fritz Zurbrügg, who will speak about current developments in the area of financial stability and announce the dates for the release of the new 20-franc banknote. After that, Andréa Maechler will review the situation on the financial markets and discuss the impact of negative interest on the money and capital markets. Finally, we will – as ever – be pleased to take your questions. Monetary policy decision Let me begin with our monetary policy decision and the inflation forecast. Our monetary policy remains expansionary and continues to be based on two elements: the negative interest rate and our willingness to intervene in the foreign exchange market. We are leaving interest on sight deposits at the SNB at –0.75% and the target range for the threemonth Libor will remain unchanged at between –1.25% and –0.25%. At the same time, we will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration. The SNB’s expansionary monetary policy is aimed at stabilising price developments and supporting economic activity. | *** To conclude, I would like to mention this year’s economic Nobel prize awarded to B. S. Bernanke, D. W. Diamond and P. H. Dybvig “for research on banks and financial crises”. The Diamond Dybvig model especially reminds us that what makes banks useful is also precisely what makes them vulnerable. The sustainability of this precarious equilibrium relies on one key condition: trust. And here, let me modestly draw a parallel with the words of another Nobel prize, one of the most famous Irish dramatists, Samuel Beckett, who also lived in Paris: “the creation of the world did not take place once and for all time, but takes place every day”.vii I think that this also applies to trust, and financial stability. We, supervisors, will play our part in safeguarding a safe and efficient financial system. We can benefit from macroprudential work done in fellow member states. In this regard, both Ireland and France provide instructive examples. Thank you for your attention. i ESRB Warning on vulnerabilities in the EU financial system, 22 September 2022 Financial Stability Board iii Lang, J.H., Behn, M., Jarmulska, B., Lo Duca, M., Real estate markets, financial stability and macroprudential policy, ECB Macroprudential Bulletin, October 2022 iv Central Bank of Ireland, Financial Stability Review, 2022 v Assessment of the French financial system, Banque de France, 30 June 2022 vi Macroprudential measures for the property fund sector, Central Bank of Ireland, November 2021 vii S. Beckett, Proust, 1930 ii | 0 |
The future of the Spanish economy hinges greatly on these policies, not only in the long run but also in the more immediate term. The priority of these reforms should be to generate a rapid and deep-seated change in the prevailing labour market trends. That requires altering a good number of the institutions that currently regulate this market. In particular, innovative hiring arrangements are needed to facilitate job creation and to overcome the marked segmentation currently in place which has adverse consequences for employee training, job stability and for efficiency and equality in the economy. In turn, collective bargaining should be reformed so that internal organisation and labour costs are better tailored to the specific situation of each company and to cyclical developments, but also so as to equip firms with the flexibility they need to increase productivity. But there are other measures we should not rule out, even though their effects may take longer to materialise. This is the case, firstly, with education. Undoubtedly, improving education is the most important issue pending for economic growth in Spain. True, we have made progress in some areas; but it is no less true that there are incipient signs that the increase in the level of educational attainment of the workforce observed in the second half of the 20th century is slowing. The reform of the education system, moreover, would complement that of the labour market. | While the Spanish financial system has shown notable resilience to the direct and indirect effects of the international financial crisis, the intensity of the adjustment the Spanish economy is undergoing against a background of protracted financial tension adds further factors of pressure in terms of asset impairment, an increase in bad debts and a narrowing of bank margins. Faced with these risk factors, not all banks are equally prepared, whereby the availability of appropriate mechanisms, such as those offered by the FROB (the Fund for the Orderly Restructuring of Banks), will help banks face the restructuring necessary with the best results for the functioning of the economy and the least cost to taxpayers. However, I must say that, if reforms are not adopted promptly, high unemployment might be prolonged, which would contribute to increasing financial institutions' difficulties and would prevent the soundness of the financial system from acting, as it has to date, as an essential pillar of economic growth in Spain. Allow me to conclude by stressing that the Spanish economy is at a decisive crossroads. If far-reaching reforms are not promptly adopted, we face the prospect of slow recovery with high levels of unemployment and public spending. Conversely, if the right – although not easy – decisions are promptly taken, we will be able to resume a path of high growth based on a more productive and sustainable pattern. To achieve this it is vital to apply medium-term stability strategies and ambitious structural reforms, which should be well co-ordinated and credible. | 1 |
The situation of a supply that is not adjusted to demand is reminiscent, in its way, of the situation with the gold standard that I mentioned earlier. However, there is nothing to prevent the supply of other crypto-currencies, which are close substitutes to Bitcoin, from increasing. At present, there are over 1500 different kinds of virtual currency and, if prices rise, there will probably be more. We have also seen how the value of Bitcoin, for example, varies heavily due to fluctuations in demand. This alone makes it difficult to use them as a means of payment. Even if Bitcoin is used for payments between certain private persons over the Internet and in a few on-line shops, it is likely that most owners of Bitcoins do not use them as a means of payment, but rather as an asset that is expected to increase in value. The situation remains that few shops accept them – for example, only three of the world’s largest on-line shops. 27 Even though they are called currencies, the crypto-currencies do not fulfil the criteria for what we usually call money that I mentioned earlier; at present they do 27 For more information on crypto-currencies, see Söderberg, G. (2018) “Are Bitcoin and other crypto-assets money?”. Economic Commentary No. 5, 2018. Sveriges Riksbank. 10 [15] not work well as units of value, stores of value or means of payment as few shops accept them and their value fluctuates heavily over time. | We have approached the market for consultation about this. As regards the instant settlement of payments in central bank money, this is a service which is now being demanded and the technology for which is available. For reasons of efficiency, the Riksbank should thus ensure that it is delivered. At the same time, settlement should be made in central bank money for security reasons. I am therefore of the opinion that we should decide, as soon as possible, to offer instant settlement of payments in central bank money. As I mentioned previously, we, at the Riksbank, are currently analysing whether the infrastructure for this needs to be located within Sweden’s borders. Economies of scale speak in favour of placing it with the ECB’s system TIPS. 32 Preliminary calculations indicate that this alternative would also be competitive from a cost perspective. It would also probably be advantageous to join the ECB's system from a security perspective as this has a high level of security. At the same time, emergency preparedness reasons suggest our own Swedish system or at least that a domestic backup alternative should be available. The drawback is that a completely domestic solution risks becoming very expensive. 33 Concluding comments Let me sum up and round off. Money has arisen in different ways in various cultures to make people's day-to-day lives easier. | 1 |
The process allows new products to be developed with a careful risk management which will improve customer satisfaction and reduce regulatory burden. At the moment, many new technology projects have been tested in the regulatory sandbox including blockchain, biometric and QR Code payment. - Enacting Payment Systems Act for governing payment businesses: The law is initiated by BOT and Ministry of Finance with the objective to effectively oversee the fastchanging payment systems in this advanced digital technology period. The BOT oversight function will be more flexible and modern, support innovations, in line with international standard as well as promote security and customer protection. The law has been recently approved by the National Legislative Assembly, and is in a process to enforce. The above projects will support financial inclusion of all sectors and enhance Thailand’s financial infrastructure to be more efficient and safe, reduce costs of stakeholders, and support further innovations. Today, I would like to talk about the development and implementation of the QR Code standard, which is an important collaboration between Thai and foreign service providers that can assist the previous developments. The QR Code standard has four major principles and benefits. The first one is being consistent with international standards. This is the first time that five global payment card network providers and Thai payment service providers have worked together to use standardized QR Code. | Let me close by going back to financial stability and say that the ABF initiative, whether it gets to ABF3 or ABF4 or ABFN, is not the full answer to financial stability in the region. Asia is particularly vulnerable to financial instability because of, principally, the size of the individual, fragmented markets, relative to international capital, and the openness of those markets, assuming that prudent macroeconomic policies are a pre-requisite that is always observed. To reduce vulnerability from those sources, without stepping back from maintaining open markets, we need greater financial integration or co-operation, and perhaps one day monetary integration. But these subjects should best be left for another day. 4 BIS Review 79/2005 | 0 |
Pablo Hernández de Cos: The value of the European project in today’s global landscape Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, at the Graduation ceremony, Barcelona Graduate School of Economics, 9 July 2021. * * * Dear all, I am sitting today in front of a young and multicultural audience, coming from all over the world. All studying in Europe. As such, I want to devote my remarks on this graduation ceremony of the Barcelona Graduate School of Economics to talk about how the European project fits into today’s global landscape. The European Union is one of the most ambitious and successful economic and social integration projects in history. The best illustration of this success and ambition being the fact that European citizens are able to express themselves, without losing their identities, under the common values of the Treaty: human dignity, freedom, democracy, equality, the rule of law and respect for human rights. Young people, in particular, are among the more confident groups in the positive effect of the European Union. According to the Eurobarometer, young people perceive the euro as something good for their country. In fact, the figure is 15 percentage points higher for the young than for the rest of the population. The same is true for the perception of the euro as something good for the Union as a whole. And young people’s greater trust in the EU is a consistent feature across countries. | GDP growth and GDP components contributions (p.p.) | 0 |
This reversal in the growth of M3 was to a very great extent the result of a large-scale reallocation of investment flows stemming from the fall in short-term interest rates since autumn 1995, which has been of unprecedented magnitude and rapidity. The M3-M2 aggregate, which includes assets paying money market rates of interest, posted a twelve-month fall of 10.1 % at the end of October 1996. In response to the fall in short-term interest rates and also a heavier tax burden on money market mutual funds, economic agents reallocated their portfolios towards assets covered by the investment aggregates, and particularly the Pl aggregate covering contractual savings products, including housing saving plans. Year-on-year growth in P1 accelerated from 12.3% in December l995 to 18.5% in October 1996. The rate of interest paid on housing savings plans has remained unchanged at 5.25% since February 1994, whereas comparable market rates have fallen sharply. This gave a strong boost to the reallocation of investment flows. Year-on-year growth in housing savings plans accelerated significantly, rising from 14.1% at the end of 1995 to almost 26% in October 1996. In addition, twelve-month growth in the P2 aggregate covering investment in bonds and life insurance products remained buoyant. It stood at 12.3% in June 1996, with new investment accounting for 9%. At the same time, formation of liquidity was dynamic. The narrow money aggregates M1 and M2, which cover transaction balances and liquid savings, showed annual growth trends in October 1996 of around 5.8% and 7.5%, respectively. | From a cyclical perspective, a proposal to ensure that banks implement countercyclical capital buffers was part of the recent consultations and is also pending approval by the Federal Council. The proposal foresees that the ultimate decision to activate or modify the capital buffer requirement will lie with the Federal Council. This decision will be made on the basis of the SNB’s proposal and the FINMA’s response to it. Finally, in order to enhance the SNB’s capacity to assess the stability of the financial system and to take appropriate measures, the Bank has also called for improved access to information on financial institutions. VI. Conclusion The preceding discussion has, I hope, clarified some of the complex interactions between price and financial stability. Within the Swiss legal framework, I am convinced that the central bank has been given an appropriate mandate. In order of priority, the SNB must ensure price stability, while taking due account of the developments of the economy. It must also contribute to the stability of the financial system. One important lesson to emerge from the analysis of the recent crisis is that an interest rate policy cannot be the sole, or even the main instrument, used to promote financial stability. It is imperative that central banks be endowed 20 6 Borio (2011). BIS central bankers’ speeches with alternative “macro-prudential” instruments. This assessment is not only the product of careful application of the “Tinbergen principle”, according to which one needs as many instruments as one has objectives. | 0 |
But we are considering other options in pursuit of our secondary competition objective too. We are considering, in particular, whether there might be scope to introduce a new regime for smaller banks following the UK’s departure from the European Union (EU) – a totally different mountain to climb (a Munro rather than an Alp perhaps). As Sam Woods noted in his Mansion House speech last October,10 complexity is a real challenge for smaller firms and a simpler but still prudentially robust regime could benefit the PRA’s primary and secondary objectives. We do of course already have different mountains in the range: we have a separate Source Book for building societies and a different regulatory regime for credit unions. So this is not unprecedented. Any new regime will of course have to be compatible with any international agreements the UK government makes as part of leaving the EU. And even once that is clear it will take us some time to work up the proposals. We need to get this right and make sure we properly understand the aspects of the current regime that are most problematic – whether from a complexity or barriers to growth perspective. Please do engage with us on that topic. Conclusion We recognise that the winding path up the mountain to become a large player can seem arduous, and strewn with rock faces that appear difficult if not impossible to scale. | Barriers to growth are in many ways the inevitable corollary of our lowering the barriers to getting onto the mountain in the first place and of us introducing proportionality into the regime. So ironically our actions to support competition risk creating the very barriers that firms then find it hard to overcome. 10 ‘Credit Union meets robot’: https://www.bankofengland.co.uk/speech/2019/sam-woods-speech-at-mansion-house-london 9 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 9 Over the past few years, our focus has been on getting more banks onto the mountain at base camp. But as our next step, our focus has turned to ascending the mountain. And I hope the draft Supervisory Statement we have issued today goes some way to making the path up the mountain easier for you all to navigate. Our focus is also on the gradient of the climb and doing our best to ensure those rock-faces are traversable. And, where they prove not to be, to ensure there is a safe way down. In parallel, we will continue to work hard on the design of our prudential regime, including thinking about whether we can introduce a simpler mountain for smaller firms. But in doing so, we will not compromise safety and soundness nor create insurmountable barriers between mountains in the range. 10 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 10 | 1 |
But what I think this discussion leads to the broader conclusion, given that the euro is to go ahead, that structural reform - in labour markets and welfare systems and in broadening and deepening the single market for goods and services, but also capital markets - in order to improve supply-side flexibility - becomes more crucially important than ever. The need for greater supply-side flexibility was the subject of much of the discussion at the informal meeting of European Finance Ministers and Central Bank Governors in York last weekend, and I was greatly encouraged by the degree of consensus around the table on this point. The United Kingdom of course will not participate in the first wave of monetary union. That decision, taken last October, was - as I noted earlier - a disappointment to some of our EU partners; but it was a considerable relief to others because UK participation from the outset would certainly have complicated the project - not least because of the substantial cyclical divergence between ourselves and the major countries on the Continent. But in making its announcement the British Government made it clear that it is not opposed to euro membership as a matter of principle. When the time comes - and that will almost certainly not be during the lifetime of the present Parliament - it will make its decision - and submit it to Parliament, and the people in a referendum - on pragmatic, economic, grounds. | The crucial and unique advantage of monetary union is the exchange rate certainty it will bring throughout the euro area - not just the reasonable de facto stability that can result from each EU member state individually pursuing disciplined macro-economic policies in parallel, and which has in practice been achieved within much of Europe for quite long periods within the framework of the Exchange Rate Mechanism - but actual, and in principle permanent, exchange rate certainty. There is no doubt that this is a very real advantage. One can argue that exchange rate certainty is not an essential complement to the European single market - any more than exchange rate fixity is essential to achieving the benefits of free trade more generally. But there is no doubt that intra-European exchange rate certainty will - through the intensified competition resulting from greater transparency of prices and lower transaction costs, through broader and deeper capital markets, and through the associated improvement in economic resource allocation - substantially enhance the macro-economic benefits to be derived from the single market. Whether or not it is essential, therefore, exchange rate certainty is very desirable from this perspective. The potential drawback of monetary union can also be simply stated, though it is more difficult to assess. | 1 |
Climate change – Plotting our course to Net Zero Speech given by Sarah Breeden, Executive Sponsor Climate Change and Executive Director, UK Deposit Takers Supervision University of Edinburgh and Environmental Association for Universities and Colleges – Webinar 18 May 2021 I am hugely grateful to Ryan Barrett for his assistance in preparing these remarks; to Chris Faint, Zane Jamal, Theresa Löber and Edo Schets for their comments; and to all those involved in the NGFS work on climate scenarios. Introduction Good afternoon everybody. Thank you for the kind introduction Peter and to the University of Edinburgh and the Environmental Association for Universities and Colleges for hosting this event. Making sustainability a core part of education is essential for inspiring the leaders of tomorrow and initiating the research and innovation that is needed for the momentous task ahead of us. I am honoured to be here today. Over the past year, we have seen scientists and academics, universities, pharmaceutical companies and governments work together at unprecedented speed in a race to develop Covid-19 vaccines. A task that was seen as nigh on impossible back in March 2020 has been achieved through urgency, innovation, and collective action. We must bring that same urgency to tackling climate change. | The views and conclusions expressed in the presentations are of the authors and not necessarily of the respective institutions or the Bank of Albania. Wishing success to the conference, I hope that all the participants will benefit from the interesting presentations that will be shared with the audience today. I have now the pleasure to invite our keynote speaker, Prof. Olivier Picard, former Director of the French Archaeological School in Athens, Professor at the Sorbonne University, Member of the “Académie des Inscriptions et Belles – Lettre” (Institute of France), who will hold a presentation on “Minting of coins in Illyria in wartime”. Thank you! 2/2 BIS central bankers' speeches | 0 |
From a longer term perspective, greater financial integration with the rest of the world is probably inevitable, with China now becoming the fourth largest economy and the third largest trading nation. Indeed, large financial crises in the past such as the Mexican crisis of 1994 and Asian crisis in 1997-8 have not prevented global financial integration. An open capital account has been generally considered as an ultimate policy objective in the Mainland, as its many benefits are well recognised. However, there have been lots of debates mostly with regard to the pace of the reforms. Although the stable macroeconomic conditions, the improvement of the financial institutions' balance sheets, and the enhanced supervisory framework in recent years have increased the economy's resilience, there are vulnerabilities. Most notably, financial market development and the price discovery mechanisms are still at their early stage, and the risk management capacity of the financial institutions and the corporate sector remains limited. It is therefore understandable that Mainland policymakers would prefer a gradual, controllable process in capital account liberalisation, in order to reduce the shock on the domestic financial system from capital flows. Hong Kong fits well into this prudent strategy. It is well positioned to help the Mainland to manage the process of liberalisation, while ensuring important reforms move forward steadily. This unique role derives from Hong Kong's proximity with the Mainland and shared culture and language, the close cooperation of the financial authorities of the two sides, and importantly, Hong Kong's status as a well-established international financial centre. | But I will also assert that, when major disruptions occur, central banks cannot always keep inflation and growth stable within a targeted range. This, in turn, is not a new insight per se, in that it adheres to the central banking consensus that monetary policy should be geared to the medium term, and that, depending on the environment, certain short-term fluctuations in output and inflation are unavoidable. Allow me to begin by providing a definition of what is meant by an independent monetary policy. A country with free movement of capital has two means of achieving monetary policy goals like price stability. First, it can peg the exchange rate of its currency to a foreign currency, thereby adopting the other country’s monetary policy. If the two economies move in parallel and the monetary policy of the other country is sufficiently stability-oriented, price stability can be imported by this means. Or, second, a central bank can pursue a monetary policy that is BIS central bankers’ speeches 1 explicitly tailored to suit the specific needs of that country. The monetary policy trilemma is that, given free capital movement, such a tailored, independent monetary policy is only possible with a floating exchange rate. Of course, as a small open economy pursuing an independent monetary policy, Switzerland is also exposed to global influences, and particularly to those from within Europe. First, trade relations are of central importance; fluctuations in consumer demand within the euro area are reflected in the exports of neighbouring countries, and influence their economies. | 0 |
On this front, Thailand has done remarkably well, registering a substantial increase in net inflow of foreign direct investment in the four years following the crisis despite the overall net capital outflow due to debt repayment within the banking sector. Foreign direct investment (to the non-bank sector) increased from an average around 1.4 billion US dollars during 1992-1996 to 3.4 billion US dollars during 1997-2000. Though much work is required on the corporate sector in the march toward modernization of the Thai economy, the government and the central bank also have vital roles in maintaining stable economic environment and providing the required infrastructures to allow the private sector to drive forward to create wealth and prosperity. Several long-term plans have been made in the past couple years. On the macroeconomic front, the Bank of Thailand has adopted Inflation Targeting as a framework of our monetary policy since May 2000. It may be a little too early to claim our success, but the results thus far have been encouraging. Long-term interest rates of the interpolated 14-year government bonds were reduced from 8.3 percent at the beginning of 2000 to currently at 6.1 percent. Inflation remained subdued and will stay within the target range during the next two years. The maturity of state enterprise debentures offered in the market increased from a maximum of 7-year in 1998 up to 20 years in 2000, reflecting greater confidence on the long-term economic stability. | Prosperity of our nations rests on the hard work of the corporations, for what really matters in the long run is your productivity. Corporates must strive to improve their competitiveness, increase their economic value added, move up the technological ladders, and stay innovative. All of these cannot be achieved without true corporate reform. For those of you who love to play soccer, good government policies are like good players in the backfield. We can help defend the goalie – the stability of the country; send the ball up to you who are in the front field. But, if you do not try hard to score on the behalf of our countries, then who will? So, I wish to congratulate those who win the award today. They have set the examples of what the Netherlands and Thailand need in order to prosper in the new millennium. Thank you for your attention.. BIS Review 41/2001 3 | 1 |
The question is why we didn’t see the problems in the Stability and Growth Pact from the beginning? Perhaps because we were fortunate to have something that could work as a temporary replacement for rules: clear objectives, strong leadership and the market as a quickly reacting judge. Most countries wanted to meet the convergence criteria and thereby join the euro area. Germany led the way, both in terms of its economic size and its example of fiscal discipline. Now the objective of joining the euro has been achieved for many countries, and, in addition, Germany has lost its leading role and the markets react less to fiscal laxity. Instead of national leadership towards clear objectives we have seen the opposite – the political exploitation of the gap between the national and European level. The requirements of the Pact are blamed on heartless “accountants in Brussels”, and when a majority within the countries puts narrow national political interests first the agreed rules become moot – “peer pressure” becomes ”peer protection”. Incorrect facts have been more or less deliberately sent to the Commission ahead of sensitive elections. A study by Barclays Capital shows that during the years 2000-2003 growth projections were overestimated by 1.5 percentage points on average each year by the euro area countries, leading to fiscal balances turning out worse than expected on average by about 1% of GDP per year. | There are two aspects to this: we recognise that life insurers can be an important source of long-term, stable financing for corporates, infrastructure and mortgages – this is an important function that we want to see maintained; but we also must consider the wider financial stability angles, avoiding undue influence on the asset allocation behaviour of insurers. Solvency II should not materially drive investment decision making except in so far as it helps to make certain that insurers fully understand the risks that they take. The Prudent Person Principle will seek to ensure that the industry understands and is capable of managing its investment risks. Specifically, insurers must be able to demonstrate that they can properly identify, measure, monitor, manage, control and report on their investment risks and not place reliance upon information provided by third parties. Investment choices should be made in the best interest of policy holders and beneficiaries. Those running a business are best placed to make business decisions. That being said, the PRA does have the benefit of perspective. The PRA has the ability to look across the industry and can also draw upon the expertise of specialists working across the different areas of the Bank of England. Whilst on the subject of the role of management, we understand that there has been some uncertainty around our expectations of the non-executive director role for firms that have internal risk models. Non-executive board members need not be technical experts in risk modelling. | 0 |
In Britain the creation of the Financial Services Authority led the Bank of England to build up its resources in financial stability analysis. This was a result of the Bank’s efforts to ensure that oversight of the financial system did not fall between the gaps in the new institutional structure of supervision. Since then other central banks have followed the Bank of England’s lead. Financial stability units – small teams with backgrounds in economics and banking supervision whose job it is to monitor wider trends in the financial system – are now increasingly a feature of the organisational charts of many central banks. These factors have led to a redefinition in the way in which central banks have begun to approach their traditional macro prudential remit. I would like to mention four of these in particular: • The formalisation of payments and settlement system oversight; • The publication of financial stability reports; • Stress testing and scenario analysis; and • Concern with financial condition of non-bank financial intermediaries and health of corporate and household balance sheets. Let me now briefly talk about each of these in turn. Payment system oversight has been part of the core functions of central banks almost from the very beginning. However, once the formal responsibility for banking supervision was split away from central banks like the Bank of England and the Reserve Bank of Australia, these central banks began to formalise their role in payment system oversight. | In many parts of the world banking laws were passed for the first time and the central bank often became the bank supervisor. In this process the distinction between the micro- and macro- perspectives became blurred. What has changed in the past ten to fifteen years is that central banks have started to give much more explicit emphasis than in the past on their macro prudential responsibilities and have distinguished it more clearly from the micro-supervision perspective. This renewed emphasis has several different sources. One of them was undoubtedly the financial crises that hit Asia in 1997. This experience showed that even if the individual banks in a financial system appear to be sound, the system itself can still be overwhelmed by financial shocks. For example, the system can be exposed to a common risk that isn’t obvious from looking at each bank individually. In the Asian crisis countries the exposures of banks to foreign exchange risks didn’t show up on bank balance sheets. The risks were instead in the balance sheets of their major borrowers, who had borrowed heavily in foreign currencies even though they had domestic currency cash-flows. And this also points to another feature of macro prudential concern – it cannot stop at the traditional boundary of the banking system, but must look at the risks in the nonbank financial sector and at the structure of household and corporate balance sheets. There are also two other factors worth mentioning. | 1 |
The deeper point is that, if the very existence of money is accounted for by the presence of various financial frictions (i.e. departures from Hahn’s Arrow-Debreu world) then supplying more of it might plausibly ease these constraints. Conceivably this could boost spending even without any change in bond yields or the prices of other assets. If for no other, this is one reason why policymakers should always pay attention to the behaviour of the monetary aggregates. One should not presume that an IS relationship (based on something like [1]) always captures fully the degree of inflationary pressure in the economy or the transmission of monetary policy. Stronger claims about quantities not borne out by the evidence Equally, one cannot conclude either that these aggregates are the only thing you need to consider. Nor should one imagine –this was an approximation that that both “Keynesians” and “monetarists” often seemed to make – that the one (broad money) is uniquely determined by the other (narrow money). Using recent experience in the UK I want to discuss some of the challenges in interpreting these data. Some, highlighted in the introduction, are evident in a simple split of the data over the inflation targeting period (for convenience, I’ve reproduced the relevant Charts here). | History demonstrates that shifts in the quantity of money have often been driven – or at least accompanied – by shifts in the demand for deposits (i.e. what the private sector would like to hold for a given level of spending). Following the financial liberalisation earlier that decade, banks began during the 1980s to pay interest on standard deposit accounts. This increased their attractiveness, relative to other “stores of wealth” – they were not the precursor to higher spending and inflation – and broad growth remained stubbornly high even as inflation declined sharply (at least until the boom at the end of the decade). For similar reasons broad money growth was extremely strong throughout the first fifteen years of inflation targeting (1992-2007). Nor is there a tight correspondence between “narrow” and “broad” money. QE involves the creation of central bank reserves to buy financial assets (usually government debt). So in the decade or so that passed between the first use of the policy in 2009 and the onset of the pandemic, reserves grew extremely rapidly. Yet broad money growth was significantly slower than it had been before the crisis (Chart 1). And, in both periods, average inflation was close to 2% (Chart 2). Page 4 Chart 1: Reserve creation neither necessary nor sufficient for strong growth of broad money Sources: ONS, Bank of England and Bank calculations. Unless stated otherwise “broad money” refers to M4 excluding intermediate other financial corporations (M4ex). | 1 |
The National Mediation Office also received increased powers of authority to take action in connection with wage bargaining rounds. The National Institute of Economic Research was given the task of annually producing reports on the economic conditions for wage formation. The results of these changes are clear and positive. Since the crisis at the beginning of the 1990s, wage formation has functioned much better than before. The agreements no longer contain flexibility clauses and wage drift is much more limited. The number of labour market conflicts has been lower than before. Real wage increases, which reflect what we can buy for our wages, have been better than before, while the nominal increases have been markedly lower than before (see Figure 6). The social partners have contributed in a constructive manner to this positive development. The positive institutional changes in several areas – e.g. new regulations for fiscal policy, monetary policy and wage formation - are strongly contributing factors to the favourable developments since the crisis in the early 1990s. Conditions for wage bargaining rounds The inflation process has changed in nature in recent years, not only in Sweden but also in many other countries. As the inflation-targeting policy has gained credibility, inflation is increasingly determined by inflation expectations. Inflation has become lower and also appears to be less dependent on variations in capacity utilisation (the short-term Phillips curve has shifted downwards and become flatter). Capacity utilisation mainly affects inflation through wage formation. However, wage costs still play an important role in the inflation process. | Can non-interest rate policies stabilize housing markets?. Evidence from a panel of 57 countries. BIS Working Paper no 433. Lim, C.H., F. Columba, A. Costa, P. Kongsamut, A. Otani, M. Saiyid, T. Wezel and X. Wu (2011). Macroprudential policy: what instruments and how to use them? Lessons from country experiences. Working paper 11/238, International Monetary Fund. Peek, J., E. Rosengren and G.M.B. Tootell (2015). Should U.S. Monetary Policy have a Ternary Mandate?, Federal Reserve Bank of Boston, mimeo. Tovar Mora, C.E., M. Garcia-Escribano and M. Vera Martin (2012). Credit growth and the effectiveness of reserve requirements and other macroprudential instruments in Latin America. Zhang, L. and E. Zoli (2014). Leaning Against the Wind: Macroprudential Policy in Asia. Working paper 14/22, International Monetary Fund. BIS central bankers’ speeches 7 | 0 |
In this regard, the emergence of Islamic finance into the mainstream of the financial system is an opportunity for the Nusantara financial intermediaries, in particular, for Malaysia and Indonesia and other neighbouring countries, to open new frontiers and in so doing strengthen further the economic and financial linkages. The building of a Nusantara financial platform would not only facilitate and mobilise the pool of investable funds from the respective economies but also allow for the more efficient allocation of the funds into the productive investments in other parts of the region. This would not only contribute towards lowering the cost of funds but it would also allow for greater diversifications of risks. More recently there has been growing interest in cross border participation in investment activities in our respective economies. Malaysia's capital inflows into Indonesia has increased by three-fold totalling USD2.2 billion in 2006 compared to the previous year. It is estimated that Indonesia requires BIS Review 73/2007 1 approximately an annual investment of USD22 billion for the next several years for the development of its infrastructure, with a large part of the funding to be provided by the private sector. In the same way, the Ninth Malaysia Plan for the period of 2006 to 2010 has a financing requirement of RM107.6 billion. The development of our regional financial intermediaries and markets will facilitate the mobilisation of resources towards financing these potential activities and thus contribute to sustaining development in the Nusantara economies. | Zeti Akhtar Aziz: Enhancing financial integration in the new Nusantara Luncheon address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Malaysia-Indonesia Investment & Finance Summit, Jakarta, 18 June 2007. * * * Ladies and Gentlemen: There has been a long history that transcends several centuries in which international trade flourished in the Malay archipelago . The South East Asia region contained the important maritime routes for the trade between the East and West. This had brought with it, robust economic growth and regional prosperity. Today, the South East Asian region – the Nusantara region continues to be one of the world's most dynamic regions. Since the turn of this century, our economies have re-emerged to be amongst the fastest growing in the global economy, amidst new challenges and fundamental economic and financial developments. Our steadfast reform and restructuring efforts have rewarded us with strengthened macroeconomic fundamentals and sound and stable financial systems. These efforts continue to be augmented by the strong the foundations that the region possesses, namely abundant natural and human resources, high savings rates and the ingrained aptitude to persevere and rise to the challenge. The ASEAN 5 group of economies that includes Indonesia, Malaysia, the Philippines, Thailand and Singapore have now for an extended period of time been on a steady growth path. A more recent phenomenon in this decade, has been the increased economic and financial linkages within the region spurring further regional economic and regional financial integration. | 1 |
Financial institutions must be convinced that there is a long term gain by hiring cyber risk specialists, including in-house specialists that can develop timely and customised solutions based on a deep understanding of the institution’s operating systems, business needs and organisational culture. There is also substantial scope for the financial 2 BIS central bankers’ speeches industry to work more closely with telecommunications firms, internet service providers and other vendors to ensure that cyber criminals do not take advantage of external vulnerabilities to penetrate the security perimeter. In most countries, such initiatives lacked the coordination necessary to provide an effective system-wide defence against cyber crimes. Part of this change will be influenced by the attention and importance that supervisors place on the management of security risks. The role of supervisors and the public sector In the face of further digitisation of the financial sector, the responsibility of financial supervisors in ensuring the stability and integrity of the financial system will become increasingly challenging. Regulatory and supervisory frameworks need to be updated to acknowledge the significance of cyber security threats. It is necessary for us to establish a clear expectation on the management of such risks by financial institutions. We should outlined clearly in key areas that could cause threats such as outsourcing arrangements with third party service providers, stress testing, anti-money laundering requirements and business continuity plans. | To carry out our oversight responsibilities effectively, supervisors will also need to develop the capacity to assess and identify key vulnerabilities in the increasingly sophisticated web of information networks and systems upon which the financial sector depends. For one, supervisors need to arm themselves with the skills and knowledge to make assertive and rigorous assessments of a financial institution’s IT risks and be able to form judgments about the adequacy of control systems. Training and development programmes for supervisors should therefore give the same emphasis as other critical risks such as credit and market risk. The establishment of specialist supervisory teams or units dedicated to IT risks also plays an important role in building a strong knowledge base within supervisory authorities to support effective supervision of IT risks. Just like industry practitioners, it is imperative that any knowledge and skills acquired by supervisors are in tandem with the latest developments in both cyber security and cyber threats. Beyond efforts to build technical capabilities, supervisors and other law enforcement agencies also need to be equipped with the legal powers to investigate and prosecute cyber criminals. Given the borderless nature of cyber risk, this is a significant challenge. Cyber crimes can be launched from anywhere in the world, with targets in many countries. This underscores the need for a more coordinated global response that should involve criminal law enforcement agencies and financial regulatory authorities. In this regard, cross border collaboration must be intensified to establish information sharing arrangements on cyber risks and trends. | 1 |
As a result of the Maastricht convergence criteria, the central banks of these countries were increasingly aligning themselves with the Bundesbank. Exchange rates between the affected currencies, as well as exchange rates to the Swiss franc, consequently stabilised. This phase of low exchange rate volatility continued in the years immediately following the launch of the euro. The most recent period of exchange rate volatility against the euro has its roots in the international financial and debt crisis, which rapidly evolved into a euro crisis. Doubts about the viability of some euro area member states’ sovereign debts caused markets to lose confidence in the euro. As in past crises, the mounting uncertainty triggered substantial upward pressure on the Swiss franc. Why Switzerland doesn’t have the euro Considering its close economic ties to the euro area, why didn’t Switzerland ever seriously contemplate joining the single currency? Politically and legally speaking, the answer is simple: a country can only join the Eurosystem if it is already an EU member state. Swiss voters and cantons rejected accession to the European Economic Area in a referendum in 1992, and in 2001 followed this up by voting against a popular initiative favouring a “Yes to Europe”. These decisions settled the question of whether Switzerland should join the EU for the foreseeable future. Quite apart from these political and legal factors, the economic case for joining the euro had always been weaker for Switzerland than for many other European countries. | Floating exchange rates allow a country to pursue its own, independent monetary policy; however, the disadvantage of such an approach is that it can result in major (nominal and 2 BIS central bankers’ speeches real) exchange rate fluctuations. A country’s currency may thus be substantially under or overvalued – sometimes for considerable periods of time. The problems associated with both fixed and floating exchange rates mean that, time and again, central banks have been on the lookout for compromises. Since the end of the Bretton Woods system, the SNB has twice introduced a temporary exchange rate floor in order to cap Swiss franc appreciation: first in October 1978 against the German mark, and latterly in September 2011 as a minimum exchange rate against the euro. The minimum exchange rate as a monetary policy instrument When a central bank announces a minimum exchange rate, it commits to enforcing a floor, if necessary by means of foreign currency purchases. Such a policy is designed to cap a currency’s appreciation. The minimum exchange rate is not conceived as an instrument for fine-tuning the exchange rate. Rather, it is intended to give guidance to the markets in a period of extreme uncertainty and to reduce excessive appreciation. However, a minimum exchange rate is not a long-term instrument. This is especially true in a country like Switzerland which has lower long-term average inflation rates than most countries and a currency that has appreciated consistently over the decades – both in real and nominal terms. | 1 |
Indeed the repercussions from their impending exit from these measures may be even more significant. Therein lies the importance for emerging and developing economies to strengthen our economic and financial foundations, reduce our risks and vulnerabilities and spur a balanced and inclusive growth. The events since the eruption of the global financial crisis have also altered our view of the world in a number of other fundamental ways. Global reforms in the financial system are re-shaping the regulatory landscape. The lines that define financial intermediation activities, and which connect the financial system to other parts of the economy and other parts of the world, are also being re-drawn. In this environment, emerging and developing economies need to be engaged to ensure that unintended consequences on our financial systems and consequently on our economies are minimised. A key concern in this environment is thus the strengthening of the protection of segments of society, in particular, small businesses and households, from being marginalised by market forces, and from the disproportionate impact of instability, crises and reforms. Related to this is the need to reinforce socially responsible finance, and to ensure that financial systems serves the real economy and to address the new and growing risks of financial exclusion which can result in part of our community to be disenfranchised, particularly, but certainly not only, during periods of financial crises. In this environment, financial inclusion has gained greater prominence as a key priority for the reform and development agenda. | In current conditions of uncertainty, investors – reading our rate guidance – tend to anticipate a more extended period of time to the date of a rate hike. By the chained structure of our forward indications of all instruments, this automatic adjustment mechanism extends the horizons for full reinvestments too, and thus reinforces the impact of rate guidance on longer-term interest rates. Moreover, our new series of long-term refinancing operations (TLTRO-III), which started in September 2019 and will end in March 2021, help to ensure favourable bank funding conditions in support of an efficient bank-based transmission of monetary policy in the euro area. The combination of our monetary policy measures continues to prove effective in stabilising the economy and in ensuring very favourable financing conditions. This is evident in the successful pass-through of our policy measures to financing conditions that matter for the real economy. In fact, bank lending rates for both firms and households have continued to decline in the recent months and remain close to historical lows. Loan growth to non-financial corporations, while moderating in tandem with the slowdown in the economy, is still supporting capital creation and the mortgage market. Our recent Bank Lending Survey confirms that credit supply conditions are favourable. 2/3 BIS central bankers' speeches Overall, the present monetary policy stimulus lends substantial support to growth and inflation developments, buffering to a large degree the negative impulse from global factors. | 0 |
The rise in the consumer price index adjusted for taxes and excluding energy products (CPI-ATE) is projected to moderate, approaching 1¾ per cent next summer. At the end of 2004, inflation is projected at 2½ per cent. The projections for inflation have been revised downwards from the June Inflation Report, as a result of a higher interest rate and a stronger krone. The projections for growth among trading partners have been revised down. We have assumed higher oil prices in light of recent developments. Against this background, the uncertainty surrounding oil prices and global growth is considered to be balanced. Production and demand growth in Norway are projected to be lower and unemployment higher than in the June Inflation Report. We consider the uncertainty surrounding the projections for the Norwegian economy to be balanced. Interest rates were left unchanged at Norges Bank's Executive Board meeting on 30 October. The sight deposit rate therefore remains at 7 per cent. According to Norges Bank's assessment, with an unchanged interest rate, the probability that inflation two years ahead would be higher than 2½ per cent was the same as the probability that it would be lower. BIS Review 65/2002 3 A time horizon of two years when setting interest rates allows monetary policy to contribute to stabilising production. This horizon prevents monetary policy in itself from causing unnecessary fluctuations in the economy. Alternatively, we could have sought to sustain the level of inflation at 2½ per cent six months to a year ahead. | The table shows the economic outlook as assessed by the Executive Board prior to the interest rate decision 15 days ago. The figures and conclusions are from the Inflation Report that was presented on the same day as the interest rate decision. Norges Bank projects strong growth in private consumption, while real growth in general government consumption will probably decline. This partly reflects high wage growth in the public sector, which swallows up a large share of government budget allocations. Mainland investment is exhibiting sluggish growth, while petroleum investment is expected to be high next year. Mainland GDP growth will pick up through the projection period, averaging 2¼ per cent in 2004. It appears that this year's wage settlement will result in the highest real wage growth in this generation. The results of this year's wage settlement suggest that the social partners considered the labour market to be very tight this spring. Wage growth will remain high for the next two years and contribute to robust growth in household real income. The inflation outlook for the next two years is marked by two opposing forces. High wage and cost inflation will on the one hand sustain high prices for Norwegian produced goods and services. On the other hand, the pass-through from the appreciation of the krone will result in a temporary fall in prices for imported goods. If the krone remains at the level of the past few months, the effect of the appreciation of the krone will be greatest towards the middle of 2003. | 1 |
13 All speeches are available online at www.bankofengland.co.uk/news/speeches 13 The weakness in investment has weighed on growth in the potential supply capacity of the UK economy, through lower growth in the capital stock and reduced process innovation. Brexit-related uncertainties may have dissuaded companies from expanding supply capacity or entering new markets. And companies have spent considerable time and resources planning and preparing for various contingencies, limiting their ability to produce output and take strategic decisions that would boost innovation and productivity. 15 The MPC has repeatedly emphasised that monetary policy cannot prevent either the necessary real adjustment as the UK moves to its new trading arrangements or the weaker real income growth likely to accompany that adjustment. Monetary policy does, however, have a role to play in supporting the economy during the adjustment process. The balance of Brexit’s effects on demand, supply and the exchange rate meant the MPC faced a trade-off between the degree of support it provided to jobs and activity on the one hand and how fast it would return inflation sustainably to the target on the other. Once again it was in a unique position relative to other major central banks, which were in positions of “divine coincidence” in which both output gap and inflation rate pointed the policy stance in the same direction (Charts 9a and 9b). | Much hinges on the speed with which domestic confidence returns. As is entirely appropriate, there is a debate at the MPC over the relative merits of near term stimulus to reinforce the expected recovery in UK growth and inflation. 19 All speeches are available online at www.bankofengland.co.uk/news/speeches 19 On the one hand, there is a modest but rising degree of spare capacity in the UK and core inflation remains subdued. There are downside risks from global growth and the possibility that uncertainties over future trading relationships could remain entrenched. With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response. On the other hand, global growth is showing tentative signs of stabilising. The global manufacturing PMI has returned to expansionary territory, helping push the composite to a six month high in December. Past global monetary policy stimulus is gaining traction and global financial conditions are supportive. Early indicators, from financial market prices and the limited number of business surveys since the election, suggest that there has been some reduction in Brexit-related and domestic policy uncertainties. The labour market remains tight and domestically generated inflation remains generally firm. And total monetary policy space is larger than conventional measures would suggest. In the coming weeks, the MPC will watch closely surveys of business and consumer confidence (including intelligence from our Agents) as well as global developments. We will also undertake our annual supply stocktake. | 1 |
Swedish economy is continuing to perform strongly According to the preliminary version of the National Accounts, GDP grew by 3.0 per cent during the second quarter compared with the same quarter last year, see Figure 7, which was more than both the market and we had expected. Despite GDP growth being a little stronger than expected, both consumption and investment were slightly weaker, which was counteracted by unexpectedly weak imports. The number of hours worked developed roughly as expected, which means that labour productivity was stronger than we assumed in the July Monetary Policy Report. During the summer (June and July) unemployment has become lower than we predicted, at the same time as the labour force and employment showed weaker development than expected. However, the labour market surveys statistics are particularly uncertain during the summer months, which makes it difficult to draw any definite conclusions. Further outcomes are needed to be able to determine whether the earlier positive development in employment and the labour force has really been subdued. Our forward-looking indicators regarding demand for labour on the whole point to the labour market continuing to improve in the coming period. The number of redundancies is still low and newly-registered vacancies at the Swedish employment service are at a high level. Employment plans in the National Institute of Economic Research’s Business Tendency Survey rose somewhat in July, after having fallen earlier in the year, and indicate rising employment in the business sector. | Low interest rates entail risks Increasing debt levels and rising housing prices The low interest rates contribute to household debt as a percentage of disposable income continuing to increase and to housing prices continuing to rise. This creates risks that can threaten future economic developments. If there were to be an economic slowdown for any reason, this could be significantly strengthened when indebted households are forced to cut back on consumption and other expenditure, particularly if housing prices were also to fall in connection with this. It is therefore important that household debts do not continue to increase. Their debts have increased more than their disposable incomes since the middle of the 1990s and the debt ratio is now at just over 170 per cent, which is a record-high level, see Figure 13. As can be seen in Figure 14, housing prices, and especially prices of tenant-owned apartments, have risen sharply in the past ten years. Prices of tenant-owned apartments have more than doubled since 2005. We can also see that prices of tenant-owned apartments have increased substantially in relation to the consumer price index in the past ten years, but even in relation to disposable income the increase is significant. This development indicates that there are structural problems in the Swedish housing market. The fact that the rental market functions poorly is a problem. Another problem is that too little housing is being built. | 1 |
Greater substitutability between money and bonds – something which might be seen as symptomatic of ‘well-functioning markets’ where financial frictions are modest – will reduce the overall impact of QT since less capital gain is required to sustain the higher holdings of bonds after implementation, but implies that a larger proportion of QT’s overall impact on asset prices occurs upon announcement rather than implementation. I appreciate that this description of the model’s intuition is a little hard to digest. So let me simply draw out three positive implications of the modelling exercise. First, the exercise is consistent with the view – already embodied in the Bank survey paper that I mentioned – that the impact of QT (or QE) works via its impact on asset prices. Crucially, asset price developments – at least for core assets such as gilts – are observable in real time on open markets. Although the mechanisms at play in this interpretation of QT are fundamentally derived from monetary quantities and portfolio behaviour, they find practical expression in the market yields and spreads on which monetary policy decisions are normally conditioned. Second, the exercise sheds light on the issue of whether QT (or QE) works mainly through its impact on the stock of assets held at the central bank or via the flow of purchases made by the central bank. | For each wage adjustment episode in a country, the data sample starts at year T0 (the peak year) and it ends when a new peak is detected (at year T0 new – 1). We apply this only if the cumulative real wage gap has been closed before reaching the new peak. If the cumulative wage gap has not been closed, then we continue to consider the new peak as part of the same adjustment episode. A wage adjustment episode within a larger wage adjustment episode is not considered. This approach prevents data overlapping and it secures research consistency and integrity. In the analysed period, there were three historical episodes of wage adjustments. Data shows that the cumulative real wage gap was closed in all countries which experienced the first wage adjustment episode, with the exception of two countries (Japan and Korea). In the case of the second wage adjustment episode, the cumulative real wage gap has not yet been closed, with the exception of other two countries (Mexico and Latvia). These latter two countries entered a new wage adjustment episode, the third one. For simplicity reasons, the wage adjustment episodes are numbered with reference to the time periods and not to the country-specific episodes. We considered as the first wage adjustment 5 episode any episode which started in the last decade of last century (1990-1999) and the second wage adjustment episode any episode which started after the year 2000. | 0 |
Financial education has had a critical role in equipping consumers with knowledge to utilise e-payments responsibly, and to help consumers protect themselves from risks of financial scams that exploit specific vulnerabilities associated with online payment platforms. Financial education has also been a lynchpin in our efforts to encourage retirement planning. As life expectancy increases, consumers are expected to effectively plan and manage their finances for their retirement. Specific financial education are being introduced, particularly for individuals at the early stages of entering the workforce to provide the relevant information and skills to save and manage funds for their retirement. A further objective of financial education is to reinforce the consumer protection agenda including to be adequately protected against market failures and misaligned incentives. This has become more relevant in the recent period with increasing global pressures being exerted to significantly strengthen prudential and market conduct regulation following the global financial crisis. Emerging economies in particular continue to face practical challenges in embracing global standards in a manner that is also aligned with enhancing opportunities for inclusive finance. Financial education is an important link in the efforts to build a financial system that is resilient against crises and abuse, while limiting the adverse socio-economic implications that can arise. While the government has a key role in driving the financial education agenda, the private sector also needs to be actively engaged in the education of financial consumers. | Since the unprecedented sell-offs in May, there have been some recent corrections to the initial overreactions. Nevertheless, capital movements and asset prices continue to be volatile and pose headwinds to growth and financial stability. The summer period provided a brief respite and provided investors with more time to be selective, not treating all EMEs as one single asset class. Economic fundamentals became a primary consideration for assessing in which market to remain invested. We trust that Thailand will continue to receive the attention of foreign investors because of our sound fundamentals and attractive prospects. These, notwithstanding the current soft patches as the economy consolidates and work on its long term competitiveness agenda. Role of monetary and financial policies in safeguarding stability Long before the Subprime and the Eurozone crises, Thailand had our own economic crisis of 1997. We experienced a setback that took us more than half a decade to recover. Since then we learnt the virtue of moderation and prudence. Firms had to deleverage, banks recapitalized, regulatory standards, governance reforms and bank lending practices have improved markedly. The government’s fiscal framework was also strengthened following the fiscalization of the costs of financial sector restructuring. Years of hard work and reform efforts paid off and laid the foundation for a more diversified and competitive economy. The availability of policy space both in the fiscal, monetary and financial policies, helped ensure a much needed domestic source of growth when global trade collapsed in 2008. Timely government stimulus helped shore up domestic demand. | 0 |
There was a time back in history when it could have been claimed with some justification that HSBC, as it is now known, which then served as clearing bank to the banking system, wielded considerable influence over monetary conditions, but that capability was dismantled progressively, by the requirement introduced in 1988 for HSBC to hold a countervailing balance with the Exchange Fund, by the creation of the Hong Kong Monetary Authority in 1993, and by HKMA's subsequent assumption, in 1996, via the Exchange Fund, of the role of settlement institution for the local payments system. Government and Monetary Authority So, having dismissed the possible involvement of a number of other players, we are left with the clear conclusion that it is in essence the Hong Kong government which determines monetary policy. More specifically, the authority rests in the first instance with the Financial Secretary, since the Exchange Fund Ordinance places him in control of the Exchange Fund, which in effect provides the resources for 1 For a discussion, in lighter vein, of the relationship between HKMA and other central banks, including PBoC, see the Viewpoint article "Central Bank Cooperation", 8 November 2001, at www.info.gov.hk/hkma/eng/viewpt. BIS Review 31/2002 1 the conduct of monetary policy. He is, however, obliged to consult the Exchange Fund Advisory Committee in the exercise of his control of the Exchange Fund. | I am also pleased that Stanbic fulfilled the new capital requirements well ahead of the time set for the exercise. Before the end of May 2012 Stanbic had fully met the capital increase requirement well ahead of the deadline of 31st December 2012. We are confident that the measures taken collectively by the Bank of Zambia and commercial banks will provide enhanced scope for more financing at lower cost thereby facilitating further growth of the economy and the SME sector in particular. Ladies and Gentlemen, Let me take this opportunity to appeal to all SMEs and individuals that obtain financing from financial institutions to be responsible borrowers by ensuring that these loans are paid back as the failure to settle obligations destabilises the banking sector and leads to increased cost of borrowing. As you all are aware, banks play a crucial role in financial intermediation and this is enhanced by branch network expansion programs. Thus, there is need for all financial sector players including MSMEs to play their role in augmenting savings mobilization which will in-turn provide the necessary financing to the productive sectors in the economy. In concluding, I would like to encourage banks to seek various ways of supporting the SMEs not only in Soweto Market but in other underserved places throughout the country. For instance Buseko Market in Lusaka and Chisokone Market in Kitwe would offer huge opportunities for banks and other financial players. | 0 |
10 / 10 BIS central bankers' speeches | The Swiss export industry is understandably especially keen to see that the franc is not exposed to any further revaluations against the euro. Sudden and precipitous adjustments to the exchange rates are also undesirable from a monetary policy perspective. The unrelenting rise in oil prices surprised many market analysts. Since the beginning of 2004, the dollar price of West Texas Intermediate crude oil has climbed by more than 50%. In real terms, however, the ascent was not nearly as sharp as in earlier oil price shocks. In Europe, the hike was further cushioned by the erosion of the dollar. The reasons behind the bullish oil prices are manifold. The main trigger, however, is likely to have been the structural increase in demand coming from the emerging economies, particularly from China and India. In addition, supply flexibility is currently quite weak, as investment spending in the drilling, transportation and storage of oil was somewhat neglected in the years when oil prices were low. Potential geopolitical risks also push up the prices. Last but not least, raw materials - such as gold traditionally - are playing an ever greater role in international investors’ asset allocation, which also tends to generate an increase in demand. That notwithstanding, the influence of financial players on the price of oil should not be overestimated. The development of the long-term futures prices of crude oil indicates that the price spike was primarily triggered by a sustained increase in consumer demand. | 0 |
At the international level, the IAIS work on systemic insurers and the international capital standard (or ICS) has recently made significant strides. As you know, as part of its post-crisis action plan, the IAIS developed in 2013 an identification method for systemic risks, reviewed in 2016. This led to the identification of nine global systemically important insurers, to which specific measures are applied (increased supervision, specific management plans, chiefly for liquidity, recovery and resolution, and a capital add-on measure, currently postponed to 2022). Given the recognised shortcomings of the methodology, including weak factual basis, the FSB asked the IAIS to review it with three key focuses: developing an activities-based approach supplementing the entitybased approach, which itself will be reviewed in order to correct deficiencies. A new framework is hence being developed which will make it possible to reconcile an activitiesbased and an entities-based approach, to better capture relevant risks and systemic undertakings. In the meantime, the list of global systemic insurers will remain frozen for 2019 and could be suspended beyond and until 2022, so that enough experience is gained with the new approach. | This would imply that the taking into account of CSR in management models would result in a certain form of self-regulation, for example with recognised codes of conduct. Different incentives are contributing to this, such as pressure from direct stakeholders and NGOs and regulatory incentives, in particular in terms of reporting. Lastly, I would like to say a few words about the Banque de France. I wish to stress that, as a company, CSR is of great importance. Its current sustainable development strategy combines a two-pronged approach: an Environmental Footprint Reduction Programme and a review of its tasks in the light of sustainable development. In this respect, the Banque de France will, for example, seek to develop the financial culture of the public, spread best practice in the fight against money laundering, encourage economic and financial research in new fields, such as the development of “carbon finance”. I attach great importance to these subjects, and my wish is to see the Banque de France adopt its own sustainable development charter, which formalises its commitments. This should be achieved by the end of this year and will no doubt further enhance the actions of the Banque de France. In the light of this collective awareness of the environmental (finitude and fragility of natural resources), economic and societal implications, central banks perform their task of preserving financial stability while taking into account and anticipating events. This approach, as recent developments have shown, has to be increasingly systemic and co-operative, involving companies, banks, governments and central banks. | 0 |
Along with the downturn that followed in the wake of the financial crisis, the Irish bank bailout quadrupled Ireland’s sovereign debt. 3 The interest on the debt is borne by all, rich and poor alike, regardless of who had benefited from the pre-crisis economic boom. The banking crisis and the government debt led to a deep economic downturn in Ireland. It is only now that Ireland has returned to its pre-crisis level of prosperity. But the economic and social consequences would probably have been even more serious if the banks had not been kept afloat. The Irish bank bailout illustrates a number of classic questions: Was it right for the government to risk its citizens’ money to rescue the banks? Did the Irish authorities actually have a choice? When things went wrong, was it right to protect creditors as the Irish authorities ultimately did? How has this affected the future risk taking of the banks’ owners and creditors? The answer to the question of whether banks should be rescued is about economics and incentives. But the problems banks create and how these problems are solved are also a matter of morals and ethics – law and justice. Norway has also been faced with these problems. Why are banks bailed out? In 1923, a little more than 90 years ago, there was a banking crisis in Norway. One of the banks in serious difficulty was Andresens og Bergens Kreditbank, or Foreningsbanken, as it 1 IMF Country Report No. 15/20. | Jon Nicolaisen: Should banks be bailed out? Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the Norwegian Academy of Science and Letters, Oslo, 14 April 2015. * * * Please note that the text below may differ slightly from the actual presentation. On Sunday, 29 September 2008, two weeks after the bankruptcy of the US investment bank Lehman Brothers, the Irish government faced a dilemma: On the following morning, Monday, 30 September, the debt of a number of Irish banks was falling due, and many of these banks could not meet their obligations. Unable to issue new debt in the market, they were in danger of failing. If the banks were to close, economic activity in Ireland would be crippled. The authorities had to act. It was not a matter of a trifling amount. At the time, the debt of Irish-owned banks was over two times Ireland’s GDP. 1 Over half of the banks’ debt had been funded in the market. That evening, the Irish government decided to guarantee most of the debt of Irish-owned banks for two years. The government and the Irish people thereby assumed a considerable risk. Eventually, the losses at Irish banks also proved to be enormous. Since then, the Irish authorities have made capital injections into banks equivalent to around 40 percent of GDP to keep the banks running. 2 This is money the Irish government has had to borrow. | 1 |
Since the summer of last year we have cut our policy rates into negative territory, launched a credit easing package and begun purchasing private and public sector securities under the asset purchase programme (APP). A large body of evidence has accrued in that time that our instruments are powerful. And that evidence has allowed us to refine further our understanding of the amount of stimulus required to bring inflation back to 2% without undue delay. For example, since we launched our credit easing package in June 2014, composite lending rates for firms have declined by more than 80 basis points for the euro area as a whole, and by between 110-140 basis points in stressed economies. That is a formidable pass-through. ECB staff estimates suggest that we would have needed to reduce the standard policy rates by around 100 basis points in June 2014 to achieve a similar effect on bank lending rates. Improving financing conditions have also fed into improving macroeconomic conditions. According to Eurosystem staff assessments, our measures will add almost 1% to GDP between 2015 and 2017. And we are seeing an effect even on smaller firms that are typically harder for monetary policy to reach. In our most recent survey on smaller firms in the euro area, for instance, we saw for the first time since 2009 that the net percentage of small firms registering an improvement in business activity has turned positive, for all size sub-groups. Crucially, our measures are also gradually feeding through into inflation. | In this connection, we also believe that it is crucial that banks should review and revamp their incentive systems so as to avoid rewarding staff on the basis of sales volume and commission earned, which would 4 BIS central bankers’ speeches nurture a tendency to push financial products to customers to meet business targets without giving sufficient regard to the interests of the customers. This change in the incentive system to reduce mis-selling is taking place in the more advanced markets, and Hong Kong must not lag behind if we wish to continue to pride ourselves as one of the leading international financial centres. In terms of helping the customers to become smarter and more responsible, we need to enhance the financial literacy of our citizens. Surely there is plenty of scope to include financial literacy education in our school and university curriculum. In addition, the HKMA, in collaboration with key stakeholders such as the Consumer Council as well as the Investor Education Centre set up by the SFC, is going to launch a new public education programme that seeks to help bank customers become “Smart and Responsible”. The first of a series of programmes will be rolled out in the next few months. Ladies and gentlemen, I am sure all of you are frequent users of banking services. | 0 |
Instead, the proper way to act is to strengthen the financial system and macroeconomic policies, in order to minimize their probability of occurrence and their consequences, and to set up a proper crisis-management strategy once they hit. As in the case of natural disasters, or accidents, the fact that crises will continue to happen does not mean that we must allow no regulation of economic activities (such as building codes, or driving standards). Countries with better building codes are better at facing earthquakes. In the case of financial crises, it is reasonable to improve regulatory mechanisms, particularly to allow financial innovation while keeping vulnerability at bay. Meanwhile, it is necessary to continue devoting efforts to the detection of early alerts, although unambiguous indicators are impossible to find. But there are symptoms of fragility, very common in emerging economies. High and persistent current-account deficits, misaligned exchange rates, currency mismatches in the financial and corporate sectors, excessive increases in the prices of assets and credit, all signal a potential problem, although they do not necessarily result in a crisis. Therefore, a look at the indicators is not enough; it is important to put them together to detect fragilities. This is precisely what we try to do in our financial stability reports, which allow us to gain an overall vision of vulnerabilities, although, once again, it does not provide a final verdict. Final remarks The world has gone through the worst crisis since the Great Depression. | The initial shock on the global economy did not differ much from the one that hit in the 1930s. There were many similarities between the Great Depression and the Great Recession. Worth noting are the initial fall in manufacturing output and trade, the collapse of stock prices and credit, and the increase in bond spreads (see Eichengreen and O’Rourke, 2010). These remarkable similarities in the first months of the crisis were alarming. The questioning of the profession was also worrisome. However, the subsequent evolution of the global economy was quite different from that of the Great Depression, and it was certainly the result of good macroeconomic management. There was a failure in crisis prevention, but the policy response has been good so far. More remarkable has been the response of emerging market economies. In particular, Latin America, a region that historically magnified the global cycle, this time will perform better than the world economy’s average. The world has still many macroeconomic problems to solve before we can declare victory. Indeed the same policies that averted a collapse require careful review to avoid planting the seeds for the next crisis. 3 On this issue, Rancière et al. (2008) find that “countries that have experienced occasional financial crises have on average grown faster than countries with stable financial systems”. 4 BIS Review 84/2010 First, there is a need to think seriously about moral hazard. It is true that during the crisis this was a second order problem. | 1 |
Similarly, the domestic postal systems can be connected to the global postal network and the Giro payment mechanism used for cross-border remittance transfers. 4. Framework for retail payment development 4.1 How do we seize the existing or emerging opportunities or create new ones? I hope many suggestions and initiatives may come up during the rest of the day. Let me mention a few of the major steps. The framework suggested here is by no means a well-designed blueprint for retail payment development in the region. It is only an effort made to put together a few thoughts. The key elements are not in any particular order either, but for convenience, I have categorised the key elements into policy and operational aspects. 4.2 In order to enable retail payments to play a critical role in financial inclusion, it is necessary to develop a comprehensive, medium-term framework that facilitates the reform process. Once a framework is prepared, all stakeholders need to operate within the framework designed to achieve common goals. Although the culture and patterns vary from country to country, it is clear that retail payment system reforms require the involvement of both the public and the private sector. In the public sector, the central bank’s or monetary authority’s involvement is essential, because they are responsible for monetary policy and for the preservation of public confidence in money. The private sector is equally important, as it has the most relevant information on the payment preferences of the people and is directly involved in providing payments services. | We need to avoid this lacuna by getting the policy authorities to announce the public policy objectives, such as providing safe and efficient retail payment services, enhancing access to finance and financial inclusion, offering payment services at affordable prices, preserving customer and user rights, providing a legal and regulatory framework and supporting the development of effective standards and infrastructure arrangements. BIS Review 61/2008 5 4.3.4 Customer-centric strategy and fair treatment to customers: Retail payment reforms should go beyond the current requirements and be able to cater to future requirements, given the rapidly expanding trade and financial transactions in the region – primarily in India and some other countries. The strategy should include guidelines to move towards open and standardized customer-centric systems. The retail payment system operators and service providers should attempt to achieve the following outcomes to ensure that the customer is treated fairly: i. To begin with, relevant initiatives should be embedded in the corporate culture of the organization. This requires leadership at senior management level; ii. Products and services marketed and sold in the retail payments market should be designed to meet the needs of identified customer groups and targeted accordingly. Customers in different groups should be advised appropriately. This would help to reduce misleading advertisements, which often use various gimmicks to attract customers; iii. Customers should be provided with clear information and kept appropriately informed before, during and after the point of sale. Products should maintain acceptable standards and meet customer expectations. | 1 |
The bill includes henceforth provisions on blockchains, tokens, ICOs and providers of crypto-asset services. However, adaptation of local national regimes should fit into a larger regulatory framework to be adopted at global level. There is indeed a need for overall consistency to prevent regulatory arbitrage under the “same activities, same risks, same rules” principle, and also to address risks that fall outside existing frameworks, including risks for fair competition and for transmission of monetary policy. Indeed, in July 2019, G7 Finance Ministers and Central Bank Governors agreed that possible stablecoins initiatives must meet the highest regulatory standards, be subject to prudent supervision and oversight and that possible regulatory gaps should, as a matter of priority, be assessed and addressed. Accordingly, at global level, several groups are working on a global regulatory and supervisory approach towards crypto-assets and a G7 working group is finalizing a report investigating specifically the impact of global stable coins, which should be published shortly. 3- But adapting the regulatory framework might not be enough. To preserve the advantages of multiple issuers of settlement assets in providing innovative, efficient and safe means of payment, central banks as issuers of the reference settlement asset may contribute further in revisiting and improving the conditions under which they make available that settlement asset. In that perspective, a possibility regularly mentioned is that central banks issue their money in digital form, the so-called concept of Central Bank Digital Currency (CBDC). | Kate Barker, ‘Monetary Policy in the UK – The Framework and current issues’ delivered at the National Association of Business Economics Policy Conference, Washington DC, March 2005, Bank of England Quarterly Bulletin Q2 2005, pp 276-282. Rachel Lomax ‘The MPC comes of age’, a speech delivered at De Montford University, February 2007, Bank of England Quarterly Bulletin Q1 2007, pp 106-111. Charlie Bean ‘Inflation Targeting: the UK experience’, speech at the Annual Congress of the German Economic Association, October 2003, Bank of England Quarterly Bulletin Q4 2003, pp 479-494. BIS Review 96/2008 3 quite different in kind from the fan charts we publish in the UK, showing the band of uncertainty around central projections for output growth and inflation. Our ‘fans’ are not, as is sometimes suggested, a way of encompassing the central view of each of the nine individual members; they reflect collective discussion and agreement. Mutual engagement would not be needed if we were in the business of publishing nine individual fan charts. Frequently, we do indicate in the Inflation Report that different members assign different weights to the various risks around the central projection. And to be clear, individual members are not constrained to be part of the collective forecast; if our differences were sufficiently material, we could make that clear quantitatively in the Inflation Report. But, if at any point, all nine members did so, the centrifugal elements of our individualistic system could, it seems to me, lead to genuine cacophony. | 0 |
Caleb M Fundanga: Catering for the un-banked population in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of Stanbic Bank Limited’s Mazabuka branch, Mazabuka Town, 10 October 2006. * * * • The incoming Member of Parliament for Mazabuka, Honourable Gary Nkombo, • The Regional Managing Director of Stanbic Africa, Mr. Clive Tasker • The Town Clerk, Mr. Chingangu • The District Commissioner, Mr. Chinda • Traditional leaders here present; Chief Mwanachingwala, Chief Mwenda, Chief Hanjalika, Chief Nalwama, Chief Monze • The Chairman of Stanbic Bank (Zambia) and all Board members present • The Managing Director of Zambia Sugar Plc, and Managing Director of Stanbic Bank (Zambia) Ltd • Stanbic Bank Management and staff present • Distinguished invited guests, ladies and gentlemen It is an honour and privilege to be invited to officiate at this important occasion. Today I join the Bank’s Board Chairman in thanking the people of Mazabuka for the effort and support that has been extended in establishing this Stanbic Branch, which I believe is the first in Southern Province. Distinguished Ladies and gentlemen, I have keenly followed the progress and growth of Stanbic Bank in the last few years and I must say that as Governor of the Central Bank, it has been very gratifying to witness the progressive strategies of a privately owned commercial bank. | Let me expand a little on these vulnerabilities: Repeated downward revisions to the economic outlook and accommodative monetary policy actions on both sides of the Atlantic have put downward pressure on global bond yields across the whole maturity spectrum. For the first time in history, large parts of the yield curve for many euro area sovereign bonds, in particular those issued by governments with high credit ratings, have entered negative territory. It is often said that low or negative interest rates inflate asset prices as investors search for yield and take on more credit and duration risk. Equity and corporate bond prices, for instance, have appreciated across the globe over the past decade as yields have followed a path of long-term decline. Abrupt corrections, especially in equity markets and markets for lower-rated bonds remain a risk, particularly in the face of high economic and political uncertainty. Low funding costs can encourage firms to increase their leverage, which might intensify vulnerabilities in the event of an economic downturn. This risk has increased as the economic outlook has worsened and the share of triple-B ratings has grown. Concerning the second vulnerability, in several countries debt in the public and/or nonfinancial private sectors is lingering at levels that are high by historical and international standards. This leaves public and private finances exposed to the risk of a sudden change in market sentiment or deteriorating macroeconomic conditions. Third, parts of the banking sector continue to exhibit weak performance. | 0 |
Prasarn Trairatvorakul: Financial inclusion and financial literacy in Asia Opening remarks by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the OECD/Thailand Seminar on “Financial Inclusion and Financial Literacy in Asia”, Bangkok, 16 December 2014. * * * Mr. André Laboul, Chair of the OECD International Network on Financial Education, Distinguished Guests, Honorable Speakers, Ladies and Gentlemen, Good morning, I would like to start by welcoming you all to Bangkok. It is a great honor for the Bank of Thailand to co-host the OECD Seminar on Financial Inclusion and Financial Literacy in Asia with our partner, the Securities and Exchange Commission of Thailand. And, it is my great pleasure to deliver the keynote speech at this very important event. Many of you might question why the Central Bank Governor is here at this forum on financial inclusion and financial literacy, as the Governor should be more worried about the slowdown of growth in major economic sectors or macro-economic policies aimed at stimulating Thailand’s GDP at this very challenging period in our country. The reason I am here today is that financial inclusion and financial literacy are the pre-requisites for solid development of the national economy and a sound financial system. Ladies and Gentlemen, the ultimate goal of the Bank of Thailand, as well as of other central banks, is to ensure sustainable economic growth which will enhance the well-being of our people. | Broader access: The Bank wishes to promote membership of RTGS and has made steps towards this by extending direct access to RTGS accounts for non-bank Payment Service Providers (PSPs). We will also continue to focus on streamlining the onboarding and testing regimes for direct members. Wider interoperability: We will promote ways in which users can reroute payments especially if outages occur. This will reduce the risk of downtime and help to keep the economy moving. Implementation of the ISO 20022 Common Credit Message (CCM) across CHAPS, Bacs and FPS will aide in this. Improved user functionality: The new system will be designed to better support the needs of users, for example enhanced liquidity management. And we will also look to extend opening hours. Strengthened end-to-end risk management: A more robust system with greater oversight and governance from the Bank of England has been introduced since the operation of CHAPS was brought in-house in November 2017. The Bank now has responsibility for system-wide risk management, including relationships with participants, and clearer lines of responsibility and integrated governance will help to reduce further the risks in the High-Value Payment System (HVPS). | 0 |
11 13 All speeches are available online at www.bankofengland.co.uk/news/speeches 13 Global developments, Brexit and UK monetary policy Now consider the implications of global developments for the outlook for UK inflation and growth Unlike many other jurisdictions, inflation in the UK is currently at the MPC’s 2% target, the labour market remains tight with wages and unit labour costs growing at target-consistent rates, and inflation expectations of UK households and businesses remain well-anchored. The UK outlook also continues to be shaped by Brexit. Until the turn of the year, the UK economy had been growing around its trend rate. As the MPC had anticipated, this year increased Brexit uncertainty is causing volatility in the UK data. Output increased by 0.5% in the first quarter of this year, boosted by an important contribution from companies bringing forward production to build stocks ahead of the potential 29th March cliff edge. Growth in the second quarter will be considerably weaker, in part due to the absence of that stock building effect and Brexit-related, temporary shutdowns by several major car manufacturers. 12 Recent data also raise the possibility that the negative spillovers to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying. The latest surveys point to no growth in UK output. Looking across the first half of the year, in my view, underlying growth in the UK is currently running below its potential, and is heavily reliant on the resilience of household spending. | 14 All speeches are available online at www.bankofengland.co.uk/news/speeches 14 Over the past two months, markets have placed a growing weight on the possibility of No Deal, with the betting odds doubling to almost one in three (Chart 11).13 Financial market participants have marked down UK-focused equity prices, sterling and their expectations for MPC policy accordingly.14 Chart 11: Perceived probability of No Deal Brexit up again Meaningful Vote 2 Cross-party talks collapse PM requests extension of Art. 50 7 Labour MPs resign 3 Tory MPs resign Withdrawal Agreement voted down Per cent 40 Theresa May announces resignation 35 30 Further extension of Art. 50 requested EC confirm flexible extension 25 20 15 10 5 0 18 Jan. 19 15 Feb. 19 15 Mar. 19 12 Apr. 19 10 May. 19 07 Jun. 19 Sources: Betfair odds that the UK leaves the EU in 2019 without a Withdrawal Agreement in place and Bank calculations. While the MPC would do what it could to support the economy in the event of No Deal, I would underscore the MPC’s caution that the response of monetary policy to Brexit will not be automatic. As the MPC has repeatedly emphasised, the appropriate monetary response to Brexit will depend on the balance of its effects on demand, supply and the exchange rate. | 1 |
I wanted to ask you, do you think the removal of the Dodd-Frank Act would be productive for the economy? And if so, why? President Dudley: So removal of the Dodd-Frank Act be productive for the economy? I’m going to give you a little bit more nuanced answer. I don’t think it’s a question of either the Dodd-Frank Act or no Dodd-Frank Act. I certainly wouldn’t want to go back to the world we were in 2006, 2007, because that financial system led to the worst financial crisis that we’ve had since the Great Depression, and as you know the economy suffered greatly. The unemployment rate climbed over 10%. So clearly, we don’t want to go back to that. But at the same time, is the Dodd-Frank Act as it exists today perfect? I doubt it. What I tell people is we really want to be careful not to throw the baby out with the bathwater. What we want is a system where we have banks with adequate capital, adequate liquidity – number one – so the probability of a large bank failing is a lot lower today than it was back in 2006 and 2007. Number two, we want a system where if a large bank were to get into difficulty, we have the ability to resolve it in a way that it doesn’t threaten to take down the rest of the financial system. | I said, “Tim, that’s a great job. I really like you, I’d love to work with you, but what do I do the 39 other hours of the week besides advise you?” And then a couple of weeks or months later, I can’t remember exactly how long it was, he called up again and said, “Well, how would you like to come to the New York Fed and run the Markets Group?” Markets Group at the time had about 230 employees. They executed monetary policy for the 14 / 15 BIS central bankers' speeches Federal Reserve Bank of New York. I wasn’t sure I was going to have any time to talk to Tim Geithner in that role. And so I said yes immediately. Dr. Olajide Oladipo: You have a question? Are you a student? Audience Member: Yes, I am. Dr. Olajide Oladipo: Thank you. Audience Member: I am a student. Thank you so much for taking the time and speaking to us. My question was, being from a younger generation, I’m definitely interested in investing, but what would be your biggest piece of advice. Especially for us, the younger generation, with a limited budget, what would you – how should we go about it? President Dudley: Well, I don’t think I’ve ever been asked for investing advice before now. It’s probably not appropriate for the Federal Reserve to give out investing advice. I think the first thing is you want to get knowledgeable. | 1 |
Before the 11th of September the chances were that the US economy - which is of course key to the whole global outlook - was close to the bottom of its cyclical slowdown, and that we would see a gradual pick up into next year. The Eurozone, which is a particularly important trading partner for the UK, was also expected to recover lost momentum. That prospect may well have been set back by the terrorist attacks. These clearly had a direct impact on some sectors, including for example, air travel and the aerospace industry. And they had an effect on consumer and business confidence more generally. But the degree and duration of the set-back is very far from clear. We need to be careful not to exaggerate the likely consequences. The effects on confidence, particularly consumer confidence, are already showing signs of abating; and global equity markets, although they remain volatile, quite quickly recovered much of their initial losses. Nor should we underestimate the swift and strong policy response both in the US and elsewhere. Looking further ahead it is difficult to see that the supply side of our economies has been materially affected: in particular the potential for modern technology to spread across different sectors, with the promise of improving productivity, remains intact, even if this is delayed by earlier excesses and by the more recent damage to business confidence. | The question is how well the last 20–30 years of history reflect the risks we may face in the future. History warns us of low resilience in the financial sector Even before the last crisis, we in Sweden had already seen warnings of insufficient capital levels. The credit deregulation of the mid-1980s coincided with the highest leverage ratios in Swedish banking history. As some of us remember, lending increased almost explosively during the second half of the 1980s. The low solvency of the 1980s created strong financial leverage that facilitated the excessively rapid growth of credit. As most of us remember, this ended in disaster. The low level of solvency also made the banks far too vulnerable when growth slowed down. The crash at the start of the 1990s led to a banking crisis with three years of negative growth and steeply rising unemployment and public debt. As we all know, leverage can work both ways. Resilience is needed in uncertain times Only a few years ago, we came close to seeing history repeat itself. In late 2008 and early 2009, Sweden stood on the brink of a new banking crisis. The low level of confidence on the financial market and great uncertainty over developments in the Baltic countries made it difficult or impossible for Swedish banks to obtain funding on the market. The measures adopted by the Riksbank, the Ministry of Finance, Finansinspektionen and the Swedish National Debt Office were decisive for saving the situation. | 0 |
During the 1980s inflation averaged 7% a year, and it is only since the inflation target regime was adopted in late 1992 that inflation has returned to both low and stable levels. Britain tried most types of monetary regime: targeting monetary aggregates both narrow and broad; shadowing an exchange rate target, and an explicit exchange rate target through membership of the Exchange Rate Mechanism. None was pursued for long, and none carried real credibility. It was following our exit from the Exchange Rate Mechanism in 1992 that the opportunity arose to put in place a new monetary framework based on an explicit target for inflation and a floating exchange rate. The aim of the MPC is to keep both inflation and inflation expectations at the target level of 2½%. It is no small part of a central bank’s role to create confidence and credibility in the belief that it will respond to any change in economic circumstances in order to maintain a broad degree of economic stability. In the economists’ jargon, the public must believe that the central banks “policy reaction function” is consistent with stability, and if it is predictable, then announcements on interest rates should not come as news. The economic data will have led to expectations about the likely course of interest rates which, in most instances will prove a reasonable guide to the course of policy. A clear sign of the success of the MPC will be when we are no longer news. | As a famous economist once said, monetary policy seems to operate with “long and variable” lags. More significantly, the MPC isn’t concerned solely with inflation. It is also asked to avoid “undesirable volatility in output”. And occasionally – in particular following shocks to costs or supply – there are trade-offs between the two. These can lengthen the optimal time over which to bring inflation back to target. I think this had real relevance at the time I joined the MPC, in mid-2011. At that time, the economy looked a bit like the starting point of these simulations. After a tepid recovery there was still plenty of spare capacity in the economy. Companies said they were operating well below capacity; unemployment was still high. But thanks to a series of cost shocks, including the big depreciation of sterling’s exchange rate 2-3 years earlier, inflation was nonetheless well above target. BIS central bankers’ speeches 3 In response, the MPC might have behaved like Committee A, ramming up interest rates to get inflation back to 2% as quickly as possible. But that would almost certainly have pushed the economy back into recession. Instead it took a more balanced approach. As I tried to explain in a speech I gave later that year, the MPC had arguably tolerated the (then) high rate of inflation for longer than it might have done because the real side of the economy was so weak. It signalled this choice more explicitly in early 2013. | 0 |
Zeti Akhtar Aziz: Policy and regulation of financial inclusion Welcoming remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the UNAG Asia Regional Forum on Policy and Regulation of Financial Inclusion, Kuala Lumpur, 6 May 2009. * * * Introduction It is my pleasure to welcome you to the United Nations Advisers Group Asia Regional Forum on Policy and Regulation of Financial Inclusion. This conference takes place at a time when the world is confronted with addressing many issues that have emerged from the current global financial and economic crisis. Whilst significant attention and efforts are being channelled to resolving the financial crisis and creating an enabling environment for the resumption of growth and job creation, we must not lose sight of the financial inclusion agenda. Financial inclusion is vital for creating balanced sustainable economic growth. It provides the opportunity for all members of society to benefit from economic progress. It allows for a shared prosperity, an aspiration that is encapsulated in the United Nations Millennium Development Goals. The Central Bank of Malaysia is most honoured to be given the opportunity to host this forum which is being held in Asia for the first time. We are most honoured to have Governor Nout Wellink, President, of the Central Bank of Netherlands. We are also pleased to have present Mr. Jacques Toureille, UNAG Advisor, who will be delivering the keynote address by Her Royal Highness Princess Maxima on her behalf. | Although it is certain that the, at that time actual, forecast did not match the data perfectly, with no doubt it identified the break point and by that served very well its purpose. Naturally, the forecast accuracy, i.e. the ability to identify breaking points reasonably well, has not come out of the blue sky. The actual way in which forecasts are produced and used in central banks has changed substantially over the past two decades. These changes have reflected developments both in the economic (and econometric) theory and in monetary policy regimes. Bearing in mind the failure of large-scale models in 1970s, the profession has started to prefer smaller-scale models with a sounder microeconomic background, built in recent decades usually along the lines of New Keynesian Economics. Well, maybe we are still not able to match all the statistical numbers perfectly, but I hope that we are more skilled in recognising important breaks in the development of our economies than we were 10 years ago. Indeed, the use of general equilibrium models forces us to think about the economy in a consistent way and the use of multivariate filters has improved our BIS Review 17/2010 1 knowledge about the current position of the economy in the business cycle. You probably all remember that inflation targeting was in our case introduced in a challenging situation, after a period of currency turmoil in May 1997, which ended the fixed exchange rate period and resulted in higher inflation and rising inflation expectations. | 0 |
We believe that our approach has proved its worth and do not see any need for radical change. It is clear, though, that the separation of responsibilities and powers can only function on a basis of close cooperation and trust. I should like to touch upon two areas in which fundamental changes are needed. First, the financial systems have obviously been becoming more complex with regard to the roles played by their major participants. The traditional approach of focusing supervisory activities on the banks thus seems less and less appropriate. A more comprehensive supervisory system, covering the financial markets as a whole, would be preferable, with particular attention being paid to the transparency of market activities. Moreover, bank supervision should take account of the increasingly international nature of the financial markets. There would appear to be good reason to call for a globalisation of the supervisory system. But globalisation is one of those “in” words that has to be treated with caution. As a matter of fact, individual financial markets are still embedded in a national economic and social environment. What we need is for cooperation between the national supervisory bodies to be gradually intensified - which is in fact happening. True supranational supervision is still a long way off, as the necessary economic and social framework is lacking. For this reason, I should now like to focus on the role that an individual central bank has to play in helping to safeguard the stability of the financial system. | The last BIS Review 26/1998 -2of these factors - the general welfare of the population - is dependent precisely on the creation of the appropriate economic framework I mentioned earlier. I should add that this task can only be accomplished if a sufficient number of citizens actively help in shaping developments. This is especially the case in the sphere of fiscal policy. In the wake of extremely dynamic growth, public budgets have grown considerably in all developed countries over the past few decades. While the original purpose of this spending was to meet a pressing and legitimate need such as in the area of social security - there has been a growing disparity between the claims made on the public purse and the willingness to generate the necessary resources. Today, we have reached a point where this trend needs to be reversed. However, neither rules and regulations nor government ordinances can achieve this alone. Instead, we have to take small but persistent steps to rectify the situation both from the spending and the revenues side, and - not least of all - to improve productivity. Because such ongoing measures need the backing of the community, the chances of success tend to be greater in smaller communities than in larger ones. Our experience suggests that a federally structured society based on direct democracy is well suited to achieving the interaction between economic and political stability I have just outlined. | 1 |
To a degree, this residential segregation has been perpetuated by our system of school financing that relies heavily on local property tax funding. Local financing of public schools leads to a bundling of two distinct choices – residential choice and school choice – and increases the degree of socioeconomic segregation across school districts. We can promote greater income mobility by unbundling the residential and school choices. This can be done in one of two ways. The first is to work to equalize school quality across location, while the second is to allow parents more choice of schools from a given location. Along the lines of the first approach, New York Fed research has shown that school finance reforms that seek to equalize funding across school districts by reducing the role of local property taxes can go a long way in decreasing residential segregation and equalizing quality of education.6 The key mechanism is that such reforms make underperforming neighborhoods more attractive, thus reducing socioeconomic segregation and leading to consequent gains in peer quality in previously-challenged enclaves. This in turn reduces disparities in school quality stemming from reduced socioeconomic segregation. On the second approach, there exists research indicating that school vouchers that enable students to move to private schools or better-quality public schools can lead to improvements in public school quality and student performance by increasing competition among schools.7 It is important to note, though, that not all voucher programs are created equally, and the design of the program matters in how vouchers impact school quality. | Cross-border liquidity risk management in the Islamic financial system still remains a significant challenge, with the lack of short-term Shariah compliant instruments in international currencies. The global efforts to strengthen the liquidity arrangements for the international Islamic financial system will be an important breakthrough in facilitating more efficient cross-border liquidity management by Islamic financial institutions, thereby meeting the challenges of the trend of greater internationalisation. Conclusion Let me now conclude. The growing role of the emerging economies as an anchor to global growth in particular, in Asia, represents a major shift in the global economic landscape. In this environment, Islamic finance is well-positioned to assume a much larger role as a competitive form of financial intermediation for supporting economic activity, and as a channel for enhancing greater global connectivity. Efforts to strengthen the foundations for Islamic finance to ensure its continued resilience amid the more challenging environment must remain a priority going forward into the future. Indeed, our commitment to act guided by this foresight will strengthen the prospect for Islamic finance to realize its potential in the region and beyond. 4 BIS central bankers’ speeches | 0 |
These flows are particularly flighty (Chart 13), reflecting the fact that more than $ trillion of global assets are held in investment funds that promise daily liquidity to investors despite investing in potentially illiquid underlying assets, such as EME debt.17 We have recently seen analogous situations in the UK within some niche managers and smaller markets, such as open-ended property funds investing in commercial real estate.18 The complications would be much greater if a major asset class like EME debt were to freeze up. This structural mismatch means that these funds can behave particularly pro-cyclically. Bank of England work finds that redemptions by EME bond funds (those with larger structural mismatches) in response to price falls are five times those for EME equity funds (those with less structural mismatch). In turn, EME equity funds are twice as responsive as AE equity funds. While the shift to market-based finance has increased global capital flows to EMEs, it also amplifies spikes in Capital Flows-at-Risk. Moreover, market-based finance flows are particularly sensitive to push shocks, especially in extreme scenarios (Chart 13). The recent global growth in assets under management has not yet been fully tested in an extreme scenario, such as a global downturn. Chart 13: The sensitivity of Capital Flow-at-Risk to push factors, by source of capital flow FDI Banking Market-based finance of which: investment funds 0 -1 -2 -3 -4 Median 5th percentile -5 Capital Flows-at-Risk as a % of GDP Sources: IMF, EPFR, Bank calculations. | The significant improvements in the institutional frameworks of EMEs are being offset by the deepening fundamental asymmetry in the international monetary financial system, the continued shrinking of the GFSN, and the rapid rise of market-based finance. Now there can be innocent bystanders: but there should be no disinterested observers. We are all responsible for addressing the fault lines in the global financial system and its safety net. The IIF with its diverse and global membership can make a major contribution. In doing so we will reduce the volatility of capital flows, increase the sustainability of cross-border investment, and meet the great challenges of our age. 31 Since 1980 a maximum of 30% of EMs have concurrently been in an IMF programme, and since 1970 a maximum of 38% of EMs have experienced a crisis concurrently. 32 This is based on projections of emerging market economies’ external balance sheets – see footnote 21. 33 To date three countries, Colombia, Mexico, and Poland, have used the IMFs Flexible Credit Line. While none of the three countries have so far drawn down on these lines, the FCL has provided a valuable backstop for these countries and helped boost market confidence during the period of heightened risks. 22 All speeches are available online at www.bankofengland.co.uk/speeches 22 Annex: Capital flows-at-risk The Bank’s capital flows-at-risk (KF@R) framework is based on the use of quantile regression methodology. | 1 |
Given these evaluations, I would like to remind that in its first monthly meeting of 2013, the Committee highlighted the faster-than-expected credit growth and signaled that macroprudential measures might be continued should this trend persist. Chart 14. Financial Conditions Index * For further details on financial conditions index, see CBRT Economic Notes No. 12/31 and Report 2012-IV, Box 5.2. Source: CBRT. 2. Macroeconomic developments and assumptions Now, I will talk about the macroeconomic outlook and our assumptions which constitute the basis for our forecasts. First, I will summarize the recent inflation developments, and then compare the short term forecasts in the October Inflation Report with the actual year-end inflation data in 2012. Then, I will continue with the domestic and foreign demand outlook. Consumer inflation undershot the forecasts in the last quarter of 2012 and stood within the uncertainty band (3–7 percent) with 6.2 percent at the year-end (Chart 15). This lower-thanenvisaged inflation rate was mainly driven by the developments in unprocessed food prices, which were stated to pose downside risk on inflation in the October Inflation Report. Meanwhile, core inflation indicators were broadly consistent with expectations. Chart 15. October 2012 Inflation Forecasts and Realizations (Percent) * Shaded region indicates the 70 percent confidence interval for the forecast. Source: TurkStat, CBRT. BIS central bankers’ speeches 5 Cumulative effects of the previous year’s exchange rate and import price movements gradually waned. | Improved risk appetite and more effective use of the Reserve Options Mechanism (ROM) have allowed a gradual reduction in the upper bound of the interest corridor since September. Meanwhile, the liquidity provided for the market was further increased, driving overnight market rates close to lower bound of the corridor. Chart 7. Policy Rate and Liquidity Policies (Percent) Source: ISE, CBRT. Capital inflows accelerated at the year-end upon the surge in global risk appetite coupled with a relative improvement in risk perceptions regarding Turkey. This contributed to a fasterthan-expected credit growth and appreciation pressures on the Turkish lira. I suppose you remember that we stated this as a possible risk scenario in the previous Inflation Report and listed possible measures we could take. Upon the materialization of these risks to a large extent, we launched the strategy we envisaged. In order to contain the risks on financial stability, the appropriate policy response would be to keep interest rates at low levels while sustaining macroprudential measures. In this respect, the policy rate and the corridor have recently been shifted down and a measured tightening has been implemented through reserve requirement policy. Despite the cut in short term interest rates, the CBRT maintained its cautious and flexible stance, which is worth noting. Thus, I would like to reiterate that the impact of the measures taken on credit, domestic demand and inflation expectations will be closely monitored and the amount of the Turkish lira funding will be adjusted in either direction, as needed. Chart 8. Chart 9. | 1 |
By setting up the Pension Fund, we have separated the extraction of oil and gas from the actual spending of the petroleum revenues. This has probably resulted in higher production of oil and gas over the past two decades. 14 BIS Review 37/2008 The Pension Fund was formally established in 1990, but it was not until 1996 that the first allocation – NOK 2 billion – was made to the Fund. Since then, it has grown to around NOK 2 trillion (well above USD 350 billion). 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 the entire 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. BIS Review 37/2008 15 The fiscal rule states that the Government is to spend – as an annual average through the business cycle – the expected real return on the Fund, estimated at 4 per cent. This cyclically adjusted transfer is estimated at a good NOK 80 billion this year – that is around 10 per cent of public expenditure. It is estimated that the transfer will increase in the years ahead. | These purchases were funded primarily by increasing the stock of reserve balances in the banking system, which compelled changes in the operating framework the Fed uses to achieve interest rate control.4 With an abundant supply of reserve balances, variations in their supply— the mechanism through which the Fed implemented monetary policy before the crisis—would no longer cause meaningful changes in federal funds rates or other money market rates. Implementation of monetary policy therefore required a new operational approach. The Fed’s current policy implementation framework uses a system of rates that it directly administers to influence the level of short-term interest rates, without needing to actively adjust the supply of reserves. Specifically, the Fed uses the rate of interest paid on excess reserves (IOER) held by depository institutions as its primary tool for keeping the federal funds rate in its target range. It supplements this tool by offering overnight reverse repos (ON RRPs) at a specified offering rate to a broad set of counterparties, including eligible money market funds, government-sponsored enterprises, primary dealers, and banks.5 Together, IOER and ON RRPs set a floor on rates, beneath which bank and nonbank financial institutions with access to these facilities should be unwilling to lend funds.6 This framework has been working very well. Since December 16, 2015, when the FOMC began the process of normalizing the stance of monetary policy, it has raised its federal funds target range four times to a current range of 1 to 1¼ percent. | 0 |
In addition to such macroprudential buffers, we would like to have an opportunity to restrict highrisk lending not by raising the requirements for banks’ capital, as banks need capital for lending and, moreover, it is distributed unevenly across the system. These buffers are very efficient and might become a problem for some banks, whereas they are wholly useless for other banks and do not influence lending growth paces. We have prepared proposals for the Bank of Russia to be entitled, just as regulators in many other countries, to set direct quantitative limits for consumer loans. The relevant draft law has been submitted to the State Duma. We also hope for your support in this regard. In our opinion, this measure is absolutely essential and beneficial in all respects. Considering the current state of the banking system and our policy aimed at preventing the accumulation of systemic risks (this is an area we are closely monitoring to avoid a build-up of systemic risks in the financial area, and the financial area is an infrastructure, the circulatory system of the entire economy, as it is often called), the banking sector will maintain its stability further on and continue to provide lending to the economy. This makes it possible for us to start discussing the next step in the protection of depositors’ rights: jointly with the Deposit Insurance Agency, we are studying opportunities for expanding insurance for not only individuals and small businesses, but possibly medium-sized enterprises as well, and also social, educational and healthcare organisations. | Signing a bank deposit agreement or a loan agreement or buying an insurance product, individuals should have comprehensive information on the conditions, expected returns, the full cost of all services, their rights and obligations. The issue of hard selling of services has also been discussed at the State Duma for many years. We are developing an instrument whereby key information documents on financial products disclose compact and clear data to consumers regarding all the conditions. We are also addressing the topic of hard selling of extra services and various fees when individuals sign 5/6 BIS central bankers' speeches a consumer loan agreement. At the end of last year, we issued an information letter obliging banks to include such additional ‘services’ (only so-called services because they generally provide no benefits to people) into the calculation of the total cost of credit. I have said ‘an information letter obliging’, but there is a contradiction here since these are only recommendations and, accordingly, they cannot oblige anybody. We propose that organisations should specify the total cost of credit from the very start so that people understand the actual costs for loan servicing. This will enable people to select more advantageous offers. However, we certainly need legislative changes. Such amendments have been drafted with the engagement of the Central Bank. They propose the introduction of a so-called open-ended cooling-off period, which will enable consumers to fully abandon any services foisted on them together with a loan (with the refund of all related payments). | 1 |
As governor of the Banco de España, allow me to point out how, in its economic significance, this countercyclical buffer is close to the so-called “dynamic provisions” the Banco de España established more than 10 years ago — with, I should say, less success than, we now know, 2 BIS central bankers’ speeches would have been optimal. We believe this countercyclical buffer is a good instrument and we advocate its use as a new macroprudential instrument. The fact that many ailing banks have been systemic banks has been another consideration influencing supervisors’ stance as to what the response to the crisis should be. Consequently, another significant change in banking regulation arrangements is to set in place a capital surcharge for global systemic important banks (GSIBs). A global important bank is not only a large bank. It is a major bank with significant cross-border activity, a complex bank in terms of its structure, and an interconnected bank that is not liable to be replaced in certain markets. Regarding global systemic important banks, I should also mention the so-called “recovery and resolution plans”. It is important to highlight the value of this instrument in reducing systemic risk and also a formula for taking into account differences between business models in regulation and supervision. One of the final components of Basel III is the leverage ratio, which should be seen as a complement to the risk-based regulatory framework. | Basel III is a complex set of measures that attempts to respond to the regulatory failings that the crisis highlighted. First, many banks found themselves at the start of the crisis with low levels of capital. Second, this same capital had an excessive proportion of hybrid instruments, with a limited or, at least, uncertain loss-absorption capacity. Third, and finally, the procyclicality of Basel II meant there was a trade-off between capital requirements and growth, which could push banks to lessen the risk they assume, with the subsequent adverse impact on credit and the economy. Basel III has increased the minimum level of core capital, the highest-quality capital, to 4.5% from 2% under Basel II. On top of this minimum, Basel III has added a capital conservation buffer of 2.5% and established a connection between banks’ dividend policy and compliance with this minimum capital level. Accordingly, to avoid any interference by the supervisor in their dividend policy, banks must at all times hold a minimum level of top-quality capital of 7%. For the first time, too, Basel III has added a macroprudential component to capital levels. The countercyclical capital buffer could entail an additional capital requirement of up to 2.5%. Building up a capital buffer in good times, with the aim of depleting it in not so prosperous times, is a macroprudential mechanism that will help reduce the contraction of credit when there is a recession, and temper the growth of credit in upturns. However, calibrating the buffer is no easy task. | 1 |
Uniform and commonly applicable standards lower the cost of acquisition and analysis of information and reinforce the financial system stability. The most significant standards include, inter alia, the following: • the principles of effective banking supervision, drawn up by the Basel Committee on Banking Supervision (BCBS), • international accounting standards, over 100 countries have adopted or based their own accounting standards on the International Accounting Standards (IAS) or the International Financial Reporting Standards (IFRS), • master agreements on executing transactions on the interbank market ― ISDA, ISMA, • statistical methodologies elaborated by, inter alia, the IMF, the BIS, and the WB that ensure compliance of the data gathered with the statistical guidelines and their international comparability, • the principles of best practice, elaborated by professional associations of financiers. The development of the modern financial market infrastructure has also covered regulatory changes (e.g. the bankruptcy law) and the establishment of modern transactional systems, payment systems, settlement systems, risk management systems, and information services – such as Reuters or Bloomberg. Stock exchanges and brokers have created modern trading platforms which enable 3 Hannoun H. “Internalisation of financial services: implications and challenges for central banks”, speech at the 41 Conference of the South East Asian Central Banks (SEACEN), Brunei Darussalam, 4 March, 2006. BIS Review 60/2006 st 7 prompt offer-matching, executing transactions and straight through processing. Development of the infrastructure has removed barriers to further market globalization. | Developments in recent years, with strong production growth and falling or only slightly rising employment are examples of how contradictory the signals can be. One weakness in this context is that production data is revised regularly. This makes it particularly difficult to estimate the amount of spare capacity there is in the economy at present. The picture of how high capacity utilisation was at a particular point in time can look different when new data are received and earlier outcomes are revised. One example worth mentioning is that the first data regarding GDP growth in Sweden during the first quarter of 2005 was 1.4 per cent, while the most recent calculations indicate that the figure was actually 2.1 per cent. The fact that there is considerable uncertainty regarding such a central variable as capacity utilisation is, of course, a problem. Everything would be much simpler if it were possible to quantify capacity utilisation in the same way as inflation can be measured. However, as it is not possible, I believe it is wise not to pretend to have this knowledge. For similar reasons, precise money supply measures have also been abandoned. Our forecasts of growth and inflation must nevertheless essentially be based on a view of the position of the economy with regard to a situation with normal capacity utilisation. In practice, a large amount of information from different sources must be weighed together to make an overall assessment. | 0 |
In 1999 the GDP growth rate is expected to be rather more than 3 per cent. This implies that in 1998 and 1999 growth will be stronger than the increase in potential output, for which the annual trend is estimated to be just over 2 per cent. That means that today’s surplus capacity will be activated by degrees. It is difficult to tell how quickly this will happen. The Riksbank considers that the output gap -- a way of attempting to gauge unutilised capacity in the economy as a whole -- is currently about 2 per cent of GDP. With the growth rates envisaged above, the gap would then close some time in 1999. Other information with a bearing on when inflation might be likely to accelerate was also included in the inflation report. Estimates of structural unemployment and thereby, indirectly, of the level of unemployment that can be combined with stable, low inflation, suggest that risks of inflation also exist less than two years ahead. The rate at which capacity utilisation rises may likewise play a part. A rapid reduction of unutilised resources might generate inflationary impulses even though there is still a capacity surplus at total level. Risks in the wage negotiations Wage formation is particularly relevant at present because the settlements that are due in the coming six months will cover a large part of the labour market. Labour shortages are not yet being reported from more than a few sectors, but experience shows that the domino effects can be substantial. | I want to try and illustrate some of that promise of Big Data, as well as the potential pitfalls, by drawing on examples from recent Bank of England research on the economic and financial system. I will conclude with some, more speculative, thoughts on future Big Data research. 1 The Path Less Followed The first thing to say is that Big Data and data analytic techniques are not new. Nonetheless, over recent years they have become one of the most rapidly rising growth areas in academic and commercial circles. Over that period, data has become the new oil; data analytic techniques have become the oil extraction and 2 refining plants of their time; and data companies have become the new oil giants. Yet economics and finance has, to date, been rather reticent about fully embracing this oil-rush. For economics and finance, the use of data analytic techniques has been the path less followed, at least relative to other disciplines. One simple diagnostic on that comes from looking at the very different interpretations put on the expression “data mining” by those inside and outside of economics and finance. For economists, few sins are more heinous than data-mining. It is the last resort of a scoundrel to engage in “regression-hunting” – reporting only those regression results which best fit the hypothesis the researcher 3 first set out to test. It is what puts the “con” into econometrics. | 0 |
To do this, on the banking side, it is important to eliminate national barriers to European banking integration. 5/9 Despite the challenges faced in recent years, with the emergence of new competitors and low levels of profitability, many European countries’ banking systems remain oversized and still have surplus capacity. In addition, international consolidation processes have been few and far between, and this pattern has not changed since the launch of Banking Union. This situation contrasts, once again, with the consolidation process in the United States following the removal of certain regulatory hurdles that restricted mergers and acquisitions between banks from different US States. In comparison, here in Europe barriers preventing a truly pan-European bank persist, especially in the retail business segment. These barriers are both explicit – different national regulations – and implicit. Thus, the use of directives that provide for national exceptions and specificities have not been sufficient to harmonise and standardise European banking regulations. Moreover, these regulations do not fully acknowledge the advantages of geographical diversification of banking activity. Also, in some European countries, there are still broad segments of the banking industry that are either fully State-owned or are sheltered from competition by means of specific regulatory treatment. They thus have fewer incentives to search for more profitable business options. Removing all these obstacles is essential to achieve greater risk diversification through the creation of cross-border banks. | 22.02.2019 Banking Union: the challenge of going digital and being regulated Presentation of the PwC report Pablo Hernandez de Cos Governor Let me begin by thanking PwC for their kind invitation to participate in this presentation of the Sixth Report on Banking Union. In recent years these reports have provided us with a detailed analysis of the challenges facing the Spanish financial sector as a result of having to adapt to regulatory changes and to the new institutional arrangements of Banking Union. And this against a background of far-reaching technological change, which has seen the emergence of new players (such as the fintech and the technological giants, the so-called bigtech). These agents are altering the competitive framework in some of the traditional business segments of banks. As on previous occasions, this year’s report is very complete and analyses key questions on new issues relating to regulation, to banking activity and to the environment banks face. Allow me to focus on two specific issues: the tasks outstanding regarding Banking Union and the technological challenge from a regulatory standpoint. These two issues are, moreover, interrelated. To successfully address the transformation imposed by the new competitive environment resulting from technological changes will probably require harnessing the opportunities of scale and specialisation that the integration of European financial markets offers. But to enable this process of integration it will be necessary first to remove the obstacles that continue today to block the way to the creation of Banking Union and the full Capital Markets Union. | 1 |
In relation to this macroprudential policy, the Banco de España is responsible for setting quarterly the so-called Countercyclical Capital Buffer (CCyB). The CCyB is a macroprudential instrument that leads to credit institutions building up a capital buffer during expansionary periods so that this buffer may be released during a subsequent contractionary phase. In this way, the CCyB strengthens the banking system’s solvency 1 See the opening address at the Second Financial Stability Conference (Banco de España/CEMFI) delivered by by the Governor of the Banco de España, “A framework for the CCyB”, June 2019. * 8/10 during growth phases, which is when risks usually build up, and helps mitigate the decline in the flow of new lending to the economy when these risks materialise. Consequently, the CCyB contributes to smoothing credit cycle fluctuations, and to increasing credit institutions’ capacity to withstand potential future losses. During 2019 Q3 and Q4, the Banco de España has kept the CCyB percentage at 0%. This decision is underpinned by a technical analysis of quantitative indicators mixed with qualitative information. The set of quantitative indicators shaping decisions on the CCyB include indicators that seek to capture developments in the credit cycle of the non-financial private sector and its excessive growth, the potential overvaluation of house prices, the effort entailed for households and firms in paying interest and repaying the principal of loans (debt service), the external deficit and the macroeconomic environment. | Indeed, in recent months the markets have lowered their expectations in terms of the growth of European banks’ profits. Low or negative interest rates restrict the unit interest margin banks can obtain. However, from a general equilibrium perspective, they also increase credit, reduce bad debts and raise the value of the financial and real assets banks hold on their balance sheets. As a result, the net aggregate effect on bank profitability in general has so far been positive overall. That said, this effect will foreseeably diminish insofar as the situation of negative interest rates is prolonged over time. Indeed, a positive note regarding the most recent developments in profitability is that net interest income has increased following years of stagnation at low levels. In any event, the decisions adopted by the ECB Governing Council at its meeting on 12 September, including the 10 bp reduction in the deposit facility rate to -0.5%, the resumption of net purchases under its asset purchase programme and the strengthening of forward guidance, have been accompanied by mitigating measures. These include the application of a two-tier system for reserve remuneration, designed precisely to ensure the effectiveness of monetary policy transmission through the bank channel. There is also theoretical and empirical evidence that low interest rates transmit the monetary impulse by encouraging banks and other financial intermediaries to take risks. Fortunately, we currently have various macroprudential policy instruments, which I shall refer to later, designed to mitigate the potential build-up of risks that may affect financial stability through this channel. | 1 |
An ideal scenario would be if decisions on the asset portfolio could be converted into policy rate changes and added to the existing repo-rate path. However, while we are still learning more about the effects of changes in the asset holding on interest ratesetting, my aim is to ensure that the public continues to have confidence in our monetary policy. One of the main elements of our monetary policy throughout the period of inflation targeting has been our desire for transparency and clarity: What we are doing and what we achieve with our measures. By continuing along this path, the public should be able to rely on us at the Riksbank doing our job and maintaining price stability, that is, keeping inflation so stable that you do not really have to think about it. Thank you for listening! 27 See, for example, Di Casola (2021), Melander (2021) and Gustafsson (2022). 28 At that time, a few countries had introduced an inflation target: New Zealand was the first in 1990, followed by Canada in 1991 and the United Kingdom in 1992. See also Jonung (2003). 29 See Skingsley (2021). 10 [19] References Bailey, Andrew (2020), “The central bank balance sheet as a policy tool: past, present and future”, speech at Jackson Hole, published on 28 August, available at The central bank balance sheet as a policy tool: past, present and future - speech by Andrew Bailey | Bank of England. | It is clear, for instance, that the maturity of the covered bonds is considerably shorter than that of the government bonds, which means that most of the holding will have declined within five years through maturities, should the Executive Board decide not to make any reinvestments after 2022. Thoughts regarding the future In conclusion, I would like to talk about the lessons we can learn for the future. During the coronavirus crisis we made extensive purchases that we are now planning to phase out in a predictable manner. We believe that the purchases have worked well. But as you know, no two crises are the same. What strategies are available in the future? Go big and fast, buy a little at a time or take a middle way? One alternative is what Andy Bailey and others at the Bank of England have discussed, namely to 'go big and fast' and then fairly quickly dismantle the holding as soon as the situation improves, to have your ammunition ready for the next crisis or economic downturn.24 I think that the holding should be phased out when it is politically motivated and I am not keen on dismantling it to increase our purchasing scope. This is a variation on the theme of raising the policy rate just to be able to lower it later. Another option is to buy a limited amount of assets when the need arises, combined with a commitment to buy more if the situation deteriorates. | 1 |
The Federal Reserve has undertaken to keep an ultraexpansionary monetary policy in place for as long as this situation persists and does not jeopardize inflation, which has important implications for the global financial scenario that the Chilean economy will continue to face in the coming years. Plus, the U.S. has a high fiscal deficit that reflects in an excessive increase of its public debt. If a political agreement is not achieved, early next year a number of automatic adjustments of taxes and expenses (the socalled fiscal cliff) will be forced into the economy. Given the sluggish growth in this country, if they have to apply such major adjustments, the economy will relapse into a new recession. Unfortunately, when the deadline is only days away, there are no signs of agreement in sight. BIS central bankers’ speeches 1 The emerging world continues to outperform the developed economies, although with greater diversity within the group. In China, indicators suggest that growth is picking up after the deceleration of most of 2012. Latin America, meanwhile, has shown reduced growth during the year and the outlook for the next two years has also been revised downward. The slowdown has been sharper in Brazil and it is not clear what the velocity of its recovery will be. Mexico and Colombia have also begun giving signs of a slowdown. Peru continues to grow strongly, while Argentina is dealing with major adjustments. The Chilean economy has remained on an upward slope, driven by strong domestic demand and, particularly, fixed investment. | There are clear risks in sight: in particular, heightened geopolitical tensions could dampen business and consumer confidence. Furthermore, the risk of insufficient structural reforms could weigh on the business environment. How can this uncomfortable cocktail of high unemployment (11.5% this July) and ultra-low inflation in the euro area (0.3% in August, i.e. far below the ECB’s target of below, but close to, 2%) be overcome? How, if at all, can Europe avoid a stagnation scenario such as that faced by the Japanese economy for decades? We do not see Japanese-style deflation in the euro area, as a number of factors differ distinctly from Japan in the 1990s. Firstly, we, the ECB, took decisive action at a very early stage in the crisis, and have continued to do so. Most recently, against the backdrop of a persistently weak inflation outlook, slowing growth momentum and subdued monetary and credit dynamics, we decided in early September to adopt a number of additional monetary policy initiatives which will complete and complement the measures already announced in June. On the basis of our current information, we expect inflation to remain at low levels, before gradually increasing during 2015 and 2016. Furthermore, while inflation expectations have declined, particularly at shorter maturities, our measures will underpin the firm anchoring of inflation expectations in line with our aim of maintaining inflation rates below, but close to, 2%. | 0 |
Given the likely circumstances in which it would be occurring the tearing up of derivative contracts and winding down of a major clearing service could be a significant shock to the system. In those circumstances, I see a number of reasons why a resolution regime is necessary to provide public sector authorities with the option to step in – if necessary before the CCP has come to the end of its preagreed recovery and wind down actions. In such circumstances, where the actions or inaction by the CCP run the risk of amplifying a systemic problem, it is appropriate that a public authority be capable of intervening to manage that systemic risk and to thereby protect public funds from needing to be used. In contrast to CCP management who will owe fiduciary duties first and foremost to their shareholders, a resolution authority will have powers and duties that require and enable it to act in the interests of financial stability. The benefits of stepping in to stabilise the situation could take a number of forms. 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 For example, if ‘voluntary’ measures such as auctions were failing and there was a serious risk of financial contagion from margin gains haircutting, the resolution authority could decide it was better to intervene quickly to tear-up a subset of contracts earlier than would otherwise be permitted under the rulebook. Doing so would return the CCP to a matched book before losses escalated further and before the damage became irreparable. | Over the past few years the NBR has used all its available instruments to fulfil its tasks in the area of achieving price stability, seeking to ensure a low volatility of the exchange rate – an exchange rate which is set by the market. In short, all our steps have focused on maintaining stability and rebuilding confidence. In conclusion, over the past 10–15 years most economists have discovered good governance – with its four pillars: transparency, accountability, predictability and participation – as a major determinant of economic growth. Thus, economic governance implies the need to ensure stable, transparent and predictable rules that encourage competition and fair access to public services. It is achieved through a country’s public and private sector institutions and the civil society. Moreover, the recent crisis, which today wreaks havoc given the structural interdependencies worldwide, has underscored the need for an in-depth reform of economic governance at global levels. As Mr. Jean-Claude Trichet, the former ECB President, said, in light of the global crisis, “International interdependencies are too large for purely national or regional rules to be optimal and there is a clear need to strengthen global governance, in particular in the financial field.” I would also like to share with you a few thoughts about corporate governance. I’m sure the debates on this topic will be comprehensive during all these days and you, as specialists, will be able to unveil its very generous facets. | 0 |
The Monetary Authority of Singapore (MAS) and the People’s Bank of China (PBC) are looking to enable designated banks in Singapore to offer custody and trading services for global investors in China’s bond market. Third, providing opportunities for our financial institutions to grow in each other’s markets. The Bank of China and ICBC are among the select group of nine Qualifying Full Banks in Singapore; five Chinese banks are licensed as Wholesale Banks. All three Singapore-headquartered local banks are incorporated in China. The Shanghai-Singapore Connection Within this broader canvass of financial co-operation, the ties between Shanghai and Singapore have been intensifying. Singapore banks are deepening their partnerships in Shanghai – DBS and Shanghai Pudong Development Bank in loan syndication and joint bond underwriting; OCBC and Bank of Shanghai in digital banking and supply chain financing; 1/3 BIS central bankers' speeches UOB and Shenergy Group in establishing a consumer finance corporation. Our exchanges are working closer together. The Asia Pacific Exchange (APEX), a commodities derivatives exchange in Singapore, is collaborating with the Shanghai International Energy Exchange (INE) to attract more international institutional investors to China’s commodity derivatives markets. The co-operation between the regulators has been growing stronger. The Monetary Authority of Singapore (MAS) and the Shanghai Municipal Financial Regulatory Bureau have been organising since 2017 a joint training and exchange programme for financial agencies and institutions from both cities. MAS and the Shanghai Municipal Financial Regulatory Bureau have also organised since 2015 four editions of the Singapore-Shanghai Financial Forum (SSFF). | Maja Kadievska-Vojnovik: Foreign investment’s importance to the Republic of Macedonia’s economy Speech by Ms Maja Kadievska-Vojnovik, Vice-Governor of the National Bank of the Republic of Macedonia, at the presentation of the Business Climate Survey in Macedonia, Macedonian-German Economic Association, Skopje, 10 April 2014. * * * Dear Mr. Martin Knapp, Dear guests, It is an honor and pleasure to have this opportunity today to attend the presentation of the Business Climate Survey in the Republic of Macedonia, which is part of a regional survey of the representative offices of German Chambers of Industry and Commerce in Central and Southeast European countries. Namely, the Survey provides significant information on the companies’ perceptions about the Macedonian economy, and I would like to keep to some of its important aspects. It is more than clear that there are tight connections between Macedonian and German economy, which are being realized through several channels, such as: • trade channels • capital flows and • through the remittance channel. First, Germany is and it raises its importance as the largest trade partner of the Republic of Macedonia. The share of the trade of goods with the EU member states in the total trade of RM of 52% before the crisis, in 2008, reached 67% in 2013. | 0 |
11 As a result of this arrangement and by pledging its foreign currency reserve, the Riksbank could lend a total of approximately SEK 200 billion in US dollars. Conversely, swap agreements were also established between the Riksbank and two of the Baltic central banks. 12 These experiences indicate that, in the future, even tougher requirements will be placed on international cooperation between central banks. How should we organise this in the best way? Can we expect other countries’ central banks to always be able to assist with currency in a crisis situation or must special agreements be drawn up? The development also raises the issue of whether an international ‘lender of last resort’ is needed. 13 These questions are particularly important for Sweden, which has its own small currency. And they will become even more relevant if the major Swedish bank Nordea carries out its plan to change from a subsidiary to a branch structure. With the current subsidiary structure, the central banks in the countries where Nordea has subsidiaries are responsible for providing ELA to them. After the transformation into a branch structure, the Riksbank will take on the main responsibility for providing ELA, should it be needed. This means that the Riksbank will have a greater need of being able to obtain foreign currency in a crisis situation. | With a higher inflation target, say 3 per cent, the nominal interest rate would be higher, which in turn would create greater scope for stimulating the economy in the event of future recessions and prevent the policy rate’s effective lower bound becoming binding. This is very much an ongoing discussion and it remains to be seen how it will end. The target level is not set in stone but a change should not be made lightly. There may be reason to wait until a reasonable degree of consensus has been reached among central banks and in the research community. This would probably increase confidence in a change to the target level. This is an example of how the scope for an individual central bank to take action entirely on its own is restricted. I will return to this issue anon. But there are parameters in our framework other than the target level that are perhaps more in need of adjustment. Which target variable is best? Ever since the Riksbank introduced inflation targeting, the inflation target has been expressed in terms of the CPI. The reason for choosing the CPI as the target index is not only because it is a broad price index that represents normal purchases, but also because CPI statistics are of good quality, not normally revised and published shortly after the end of the month. | 1 |
According to an IPCC study, everyday behavioural changes by people which reduce demand for energy – such as adjusting temperature settings in buildings and reducing air travel – can cumulatively lead to substantial reductions in carbon emissions. People across the world are increasingly concerned about climate change and want to do something about it. Climate change is inspiring people to step up to a higher cause, to take collective action for the common good of our planet. Singaporeans too are becoming more environmentally conscious. According to a 2020 study by the Institute of Policy Studies, 61% of Singaporeans surveyed felt that protecting the environment should be prioritised even if it results in slower economic growth and some loss of jobs. More individuals are taking climate-friendly actions, motivated by a desire to preserve a liveable world for future generations. There are many things we can do as individuals to minimise our impact on the climate. We can do energy audits of our homes to identify ways to be more energy efficient. We can reduce food and plastic waste. We can become a zero-waste nation and a circular economy, where we use less resources and re-cycle resources. We can eat lower in the food chain and shift towards more plant-based protein. University of Oxford researchers have found that reducing meat and dairy products from our diet can help to shrink our carbon footprint from food by up to 73%. We can drive less and take public transport more. | Second, a green economy will need to be much more energy efficient. Energy intensity — the energy needed to produce a dollar of GDP — will have to improve substantially. The IEA has estimated that, to reach net zero, the rate of improvement in energy intensity would have to go up to more than 4% a year, which is more than double the average rate of the previous decade. Current plans and commitments made by countries will yield an improvement of only 2.8% a year. Third, a green economy will need to find ways to decarbonise so-called ‘hard-to-abate’ sectors and activities. There are currently not very good transition pathways for aviation and maritime. There are also some critical materials whose production is hard to decarbonise. Some 17% of the world’s primary energy supply is used just to make four materials – steel, cement, plastic, and ammonia (which is used in fertilisers). These four materials have been described as “pillars of modern civilization”. Not only are there no readily available substitutes for these materials, but also no practical low-carbon ways to produce enough to meet current demand. And the world must actually expand their production as Africa and Asia modernise. Fourth, the sectoral composition of economies will change. The sectors with the highest greenhouse gas emissions – such as coal, oil and gas power and petroleum products – will be most impacted. They account for about 20% of global GDP. | 1 |
Because it is more economical for business transactions and liabilities to be denominated as far as possible in the same currency, a fundamental change in the position of the króna is unlikely, except directly by an act of government, or indirectly in the highly improbable event that economic policies were to collapse and erode all confidence in the króna, with accompanying hyperinflation, as has happened in some Latin American countries that have adopted the dollar or others that have been forced to adopt another currency. It has sometimes been claimed that the heavy level of external debt means that interest rate decisions by the European Central Bank possibly have even more impact in Iceland than domestic monetary policy. There is nothing new about the impact of foreign interest rate developments being felt in Iceland - and the same applies to other countries as well - although the scale of Iceland’s foreign debt leaves its economy more susceptible to foreign interest rate movements. It is worth remembering that while foreign interest rate developments mostly affect Iceland’s national income, economic cycle and current account balance, they can never have a crucial impact on the domestic rate of inflation. A heavy weight of foreign currency-denominated borrowing in domestic debt may complicate the transmission mechanism of monetary policy. In the long run, however, only domestic monetary policy measures can determine a deteriorating value of the domestic currency vis-à-vis goods and services or to put it plainly, inflation. Prospects Finally, I shall turn to economic and monetary prospects. | I would like to express my special thanks for the good cooperation with all parties involved on these important issues. Even though important milestones have been attained, sound operation of payment systems will remain an important and extensive task. A multicurrency country? Every so often the question has cropped up of whether Iceland is destined to become what has sometimes been called a multicurrency country. This apparently refers to when a large share of business transactions are conducted in more than one currency and liabilities of various kinds are mostly denominated in foreign currencies. Indications that have been cited include performance-related wages in the fisheries sector, which represent indirect indexation of wages to the exchange rate; an increasing trend for corporate accounting to be conducted in foreign currencies; 4 BIS Review 18/2004 and the fact that recently even households have been offered foreign currency-denominated loans. Other factors mentioned have been greater globalisation, the growing importance of external trade, and of foreign investment. There is a tendency to paint a rather exaggerated picture of Iceland’s dependence on global trade. Admittedly, foreign trade has been on the increase, but is still quite small relative to the size of the economy. Direct foreign investment is proportionally much lower than in most advanced economies, while the scope of foreign indirect investment is similar to that in neighbouring countries. Foreign currency deposits are an established feature of the banking system in Iceland. | 1 |
Through the transfer of the risk, the insurer reduces its longevity capital and risk margin[1], but takes on an exposure to the failure of its reinsurance counterparty. Chart 1 [see Annex] illustrates the impact of the transfer on the insurer’s capital position. The combination of adequate collateral, a high credit rating, and sufficient capital resources from the reinsurer means that the resulting counterparty risk capital charge for the insurer is typically low – an attractive arrangement. Reinsurance is an important component of well-functioning insurance markets, where reinsurers themselves have the financial strength to absorb the risks they are taking on. From a risk management perspective, it allows insurers to achieve the balance of underwriting and credit risk in line with their risk appetite while continuing to deliver for their clients. It allows reinsurers to gain indirect access to diversification or natural hedges that might not arise on their own balance sheet. For example, a reinsurer with large books of protection business featuring mortality or morbidity risk might welcome longevity risk as a natural (albeit not perfect) hedge[2]. Diversification of different[3] sources of callable capital also enhances the efficiency of insurance markets. All of these factors could help to improve the pricing that insurers can offer. However, in recent years, the UK life market has become reliant on this method of freeing up capital to improve pricing. We estimate that over 80% of new business since 2016 has been reinsured at industry-level. | This has partially been driven by the introduction of the risk margin under Solvency II but also by an increasingly competitive marketplace. Indeed, in feedback to the Discussion Paper (DP2/22)[4] we issued in April, firms generally told us they see the continued use of high levels of longevity reinsurance over the long-term as an inherent part of their new business strategy, even after substantial cuts to the risk margin. The PRA is therefore considering how well the resulting risks are managed and mitigated, including risks on recapture. A recapture event requires the insurer to reassume the transferred risk on reinsurer default or if Page 4 legal conditions are breached[5]. Recapture thus necessitates taking control of any collateral assets and separately, putting aside sufficient capital to back the reassumed risk. Firms may argue that they could reinsure the risk to a different reinsurer but with a market dominated by a small number of counterparties whose financial position may be positively correlated, this assumption may be unrealistic. Beyond the risk to individual firms, there is the potential for systemic risk to arise where a large proportion of the UK insurance and pension[6] industry’s exposure to longevity risk is ceded to a small number of reinsurers. Funded reinsurance The second development in the annuities market is an emerging appetite for funded reinsurance. In its most extreme form, this is a fully funded transaction that involves the insurer paying a single, upfront premium which will be invested by the reinsurer to make the annuity payments. | 1 |
Provide the public with tools to assess trustworthiness It is hard to imagine a return to an age when large media companies controlled the flow of information, a small number of political parties dominated the political discourse and professionals of all sorts were trusted almost unquestioningly. Therefore it is even more important for citizens to be able to assess the quality of the flood of information and opinions they receive and to differentiate facts from falsehood. The online commerce world has developed many tools to inform judgments about who to trust such as ratings provided by other consumers, feedback on the reliability of other users, and data on performance measures such as timeliness of delivery. What tools might be relevant for the world of ideas? In some instances, traditional institutions have evolved to meet this need. NHS Direct and the National Institute of Heath Information for the Public websites are good responses to the phenomenon of patients coming to surgeries armed with reams of data and views from the internet. These authoritative websites provide a reliable source of information to discerning patients who would otherwise have to sift through sometimes contradictory information from multiple sources. In other instances, non-traditional sources of judging the quality of information have emerged. Fact checking websites (who appraise the veracity of claims made by public figures) are one example and have some similarities to peer review in academia which lends credibility (or not) to news and statements made by individuals. | In experts we trust? Speech given by Minouche Shafik, Deputy Governor for Markets and Banking Oxford Union 22 February 2017 I am grateful for discussions with or comments received from Kristin Forbes, Anil Kashyap, Sujit Kapadia, William Moy, Onora O’Neil, Nick Stern, Martin Taylor and Sharon White. I would also like to thank Grellan McGrath, Dami Ayeko, Ankita Mehta and colleagues within the Bank for help in preparing this speech, though all views are my own. I would also like to thank Michelle Madden, Vicky Purkiss, Cheryl Gibb and Julie Welland for their excellent support during my time at the Bank of England. 1 All speeches are available online at www.bankofengland.co.uk/speeches Introduction Experts have come in for a great deal of criticism of late. The turning point was probably the 2008 financial crisis which was seen as a failure of mainstream economists as well as of the “establishment” more generally who had previously touted the benefits of a system that came crashing down on the heads of ordinary people. Another wave of expert skepticism followed the Eurozone crisis, perceived by some as an elite project that had painful consequences for the public at large, especially for countries in the southern periphery. This was compounded by a conduct crisis as scandals broke out over mis-selling, currency manipulation and LIBOR rigging in the financial sector which only strengthened the suspicion that the system is rigged in favour of the rich and powerful. | 1 |
The broad spread of fairly complicated constructions of financial instruments that has contributed to the current confidence crisis in the financial markets is a clear example that risk awareness has been low. There is currently a process under way where various authorities around the world are reviewing their regulations, supervision and general frameworks for crisis management. This applies not only on a national basis, but also at an international level. If, for instance, one does not harmonise the regulations for crisis management, one country’s measures may create problems for another country. These are not merely challenges for the "external” systems. There are also challenges for our analysis framework. It is difficult to take credit markets and asset prices into account in a really good way in our forecasts. Some work still remains in this field, for instance, with regard to finding good ways to include asset prices and other financial variables in models of the whole economy. There is a lot of work going on in this field in many parts of the world, not least at the Riksbank. I also believe that there will be many developments in this area, too, over the coming years. Concluding remarks It has been incredibly interesting and stimulating to work at the Riksbank. And it is possibly even more stimulating today than when I first began here. I must confess that it feels a little strange to know that I will no longer be ”on the inside” and involved in managing the challenges we face. | In late summer the international financial crisis escalated and the krone depreciated. High wage growth cannot be attributed to flaws in wage and income determination. On the contrary, the flexible wage and income system can probably be cited as the main factor behind the high level of employment and low unemployment in Norway. In periods of strong labour market pressures, particularly in 1974–1976, 1986–1987 and last year, wage growth accelerates sharply. Such periods are normally followed by a slacker labour market and higher unemployment. The positive feature of income determination in Norway has been that wage growth returns to normal relatively quickly, BIS Review 20/1999 10 which has allowed Norway to avoid the persistently high levels of unemployment experienced by most West European countries. Even though some increase in unemployment must be expected, we should be able to avoid a rise in unemployment to European levels or to the level prevailing in the period 1989–1992 if wage and cost inflation is rapidly reduced also during this business cycle. Fiscal policy failed in 1996, 1997 and 1998. Developments illustrate that budget discipline must be exercised down to the last billion. The economy overheated because fiscal policy was not sufficiently tight when the economy was faring well. This brought the krone under pressure and external conditions intensified this pressure, making it impossible to keep the krone on track. It is only this year that fiscal policy is again well adapted to the economic situation. | 0 |
So far, the bond purchases have generated a profit but our interest rate forecasts indicate future losses and thereby lower or zero dividend payments to the 18 Sveriges Riksbank (2010). 19 See, for instance, my own reasoning in the minutes of the monetary policy meeting in February 2015 (Sveriges Riksbank, 2015b) and Annika Alexius in Svenska Dagbladet (2016). 10 [12] government. Despite the increased risks, my assessment is that the Riksbank’s financial position remains healthy. The Riksbank’s equity has increased from just over SEK 70 billion before the financial crisis to its current level of just over SEK 120 billion. Even though it is likely that equity will shrink substantially in the coming years, it is my opinion that profit fluctuations are unlikely to be large enough to cause equity to fall to worryingly low levels. Finally, I would like once again to remind you that the aim of the Riksbank’s operations is not to make a profit and deliver dividends to the government. Our task is to maintain price stability, and we do that by safeguarding the credibility of the inflation target. In this way, we promote efficient price-setting and wage formation in the economy, which forms the basis of sustainable economic development with high employment. References af Jochnick, Kerstin (2015), “Does the Riksbank have to make a profit? Challenges for the funding of the Riksbank", speech, 23 January 2015, Sveriges Riksbank. | Thanks to deregulation, more Swedes have been able to borrow at a reasonable rate of interest, making it possible for a larger number of people to own their own homes and to better distribute their consumption over their lives. In this respect developments in Sweden have largely followed those in the US and the UK. Of course such deregulation - or rather reregulation - is not problem-free. The fact that a greater number have the opportunity to borrow also implies increased risks in the financial system. But in the absence of risks, growth opportunities also decrease. The important thing therefore is that the risks can be managed in the event of a crisis, which, for instance, requires strong consumer protection. Here Sweden has also been at the fore by being the first to publish regular stability reports for the financial sector, with a view to avoiding any reoccurrence of a systemic collapse similar to that at the beginning of the 1990s. There are now signs on the Continent that the pace of financial market reform has increased. This is partly because the EU Member States, as a part of the Lisbon strategy, have agreed to implement the Financial Services Action Plan. Only last week new steps were taken to harmonise securities trading between the EU Member States through the signing of the Investment Services Directive. This affords both private investors and institutions greater opportunities to trade on exchanges other than those in their own country. | 0 |
And this takes considerably more time than addressing or doing away immediately with problems by injecting public funds. Yet this requirement to promote private solutions does not fully explain the enormous workload that has fallen on the supervisor over recent years. Insofar as it was decided at first to retain without major changes the singular legal arrangements for savings banks, and particularly their governance, this made it necessary to pursue most complex negotiations with the parties involved, namely trade unions, managers, regional governments, etc., each with very different interests from those that prevail in any mercantile company, where market discipline leads owners to worry about minimising losses and increasing shareholder value, and not about maintaining power, or the total amount devoted to early retirements, or about where headquarters should be established. In merger operations, processes such as determining shares of interest are reasonably easy to agree upon, since it suffices to make a proper valuation and to assign to each party what corresponds to it. But those who have followed the news in recent years will have witnessed the long drawn-out discussions, on a flimsy economic basis, that have been necessary to determine the power apportioned to each player in savings bank integrations. Before their transformation into banks, observance of the legal structure of savings banks meant that their restructuring could only move forward very gradually, step by step and with great prudence. | More encouraging is the principle of better late than never, and the important thing is that Spain initiated the process of bank restructuring, now nearing completion, in 2009, that significant measures to reduce the budget deficit began to be adopted in May 2010 and that an ambitious labour-market reform was introduced in February this year. Spain has proven itself capable of making adjustments and reforms and this is essential to restore long-lasting upswings and sustainable growth. But this reassurance must not lead to complacency. What we have done so far, despite its huge importance, is not sufficient. And some of us have the thankless task of pointing this out. For example, when each financial reform has been approved it has always been argued that the result will be more credit, but although bank restructuring is certainly an absolutely necessary condition, we have always seen that it is not sufficient by itself to make credit flow again. We have to restructure the financial system so that, as in any process of industrial adjustment, the resulting banks can generate a healthy profit and be sufficiently solid to meet demand when the adjustment process is complete. However, credit will not improve until solvent demand increases. Hence the importance of other economic reforms to boost consumer and investor confidence, such as reducing the budget deficit and reforms, such as the labour-market one, to increase the economy’s growth potential. | 1 |
It is almost self-evident that monetary policy could have been better if the decision-makers had been aware that these shocks would happen when they made their decision. It is often equally self-evident that it was not possible to foresee the shocks at the time the decision was made. The relevant question is therefore primarily whether monetary policy could have been better given the information on the state of the economy and other factors that the central bank had access to when the decisions were made. How then should an ex ante evaluation of monetary policy be carried out? I believe that we must take flexible inflation targeting seriously. For a central bank that conducts flexible inflation targeting it is important, as I mentioned earlier, to choose a policy rate path so that the forecasts for inflation and resource utilisation "look good" in terms of stabilising both inflation and the real economy and, in the event of conflicting objectives, entail a reasonable 2 The loss function should be minimised under commitment in a timeless perspective in order to be consistent over time. The former Deputy Governor of Norges Bank, Jarle Bergo, has discussed this in a pedagogical manner in the speech ”Interest rate projections in theory and practice”, 26 January 2007, www.norgesbank.no. For a more technical approach see, for example, Malin Adolfson, Stefan Laséen, Jesper Lindé and Lars E.O. Svensson (2008), "Optimal Monetary Policy in an Operational Medium-Sized DSGE Model", www.larseosvensson.net. | Muhammad bin Ibrahim: Some thoughts on the new economy Speech by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Malaysian Institute of Economic Research’s (MIER) 30th Anniversary Dinner, Kuala Lumpur, 26 September 2016. * * * Distinguished Guests, Ladies and Gentlemen, I am honoured to speak here at the Malaysian Institute of Economic Research’s (MIER) 30th Anniversary Dinner. I would like to commend MIER on the institute’s continuous efforts in expanding economic knowledge, and the commitment to research over the past 30 years. Today, we meet at a time where the global economy is becoming increasingly dynamic and challenging, underpinned by complex global interlinkages and shifting trends. The challenges posed to policymakers are immense. The rapidly evolving world also necessitates swift, yet pragmatic policies in order for us to remain ahead of the competition. Against this backdrop, a deep understanding of the core issues is absolutely critical in supporting evidence-based policy responses; not only to manage risks but also to better leverage on opportunities. Tonight, I will be sharing some thoughts about this “new world economy” that we are in, and along the way, share some policy insights and research ideas for the many economists and policy thinkers in this room. Global macroeconomic environment is becoming increasingly challenging The periods of strong global growth have become something of a distant memory to us. Global growth for the past 5 years has averaged 3.5%, well below the pre-crisis average of 5.1%. | 0 |
This will be further accentuated by the current trends whereby financial intermediaries outsource activities both on a domestic and cross-border level, while the introduction of the European Union Directive on the European Single Company Statute, the so called Societas Europea, will present new regulatory and financial stability challenges on a regional level. The implications of international developments for Malta These observations are particularly relevant for Malta. First, whereas the size and complexity of financial intermediaries, and that of corporate entities to which they are exposed, has grown disproportionately relative to the resources available to regulators and liquidity providers across the globe, this divergence is magnified further in a small jurisdiction such as ours. Second, because the characteristics of the Maltese economy make it vulnerable to developments abroad, the financial sector is especially exposed to changes in the perceptions of foreign investors about the sustainability of prevailing economic policies and the capacity of the financial sector to absorb external shocks. 4 BIS Review 50/2004 Given the ease with which funds can now move in and out of the country, moreover, and the scope for disparity between the size of the economy and that of foreign institutional investors, the need to maintain confidence in the domestic financial sector assumes particular importance. This risk is further accentuated by the fact that while most sectors of the economy operate in a competitive environment, in many sectors business remains concentrated among a small set of market players. The financial sector is no exception in this regard. | In some other areas, we have found that practices of institutions have fallen substantially short of our expectations as enumerated in existing corporate governance principles that institutions must observe. An example relates to the effectiveness of nomination committees and attention to remuneration practices. In such areas, we find merit in providing more specific guidance to institutions in order to achieve greater progress towards the desired state. I alluded earlier to the particular importance of effective governance as we move towards the adoption of more principle-based regulations for the insurance industry. A common misperception that we find in the industry has been the notion that principles-based 2 BIS central bankers’ speeches regulation equals deregulation or less regulation. It is in fact neither. The move is mainly motivated by two key considerations: first, a recognition that in an environment of fast-paced innovations, attempts to regulate prudent behaviour through detailed and prescriptive rules is just not sustainable as they risk becoming outdated almost as soon as they are written. Second, common rules often do not adequately capture the risks of larger and more complex institutions, or when they do, they are disproportionately onerous for smaller institutions and this can choke off innovation. The adoption of more principles-based regulation is therefore about re-regulating the industry in a manner that better reflects the risks which an insurer faces. There is a third consideration. With greater focus on principles of sound practice, it is left to insurers to design appropriate internal rules that will govern their activities. | 0 |
19 Đ Đ To support technological adoption and innovation in the financial sector, MAS introduced the FinTech Regulatory Sandbox.Đ The sandbox is also a regulatory innovation for MAS, where we support financial institutions and fintech players to experiment with innovative financial products or services in a live environment, within well-defined boundaries.Đ Upon successful experimentation and exit of the sandbox, entities will then have to comply fully with the relevant regulatory requirements. 20 Đ Đ The sandbox has been well received.Đ Since its launch three years ago, MAS has provided guidance to more than 250 firms, and received more than 60 applications to experiment in the sandbox. iSTOX, a private market platform leveraging on DLT and owering the trading of tokenised private securities, is the first market operator to enter MAS’ sandbox. 21 Đ Đ The approach that we have adopted requires an extensive review of each application. This is necessary as each sandbox is customised to facilitate meaningful experiments, with appropriate safeguards to contain the consequences of failure. We have learnt along the way that for certain types of activities regulated by MAS, risks can be well managed within certain specific boundaries. Hence, we launched an enhanced version of the regulatory sandbox, Sandbox Express, to complement the current sandbox approach, in August this year. For a start, we have owered three activities under Sandbox Express, including the activity of establishing or operating an organised market, which may be of interest to WFE members. | 8 Đ Đ These factors underpin the promising economic prospects in ASEAN, with the corresponding need for regional enterprises to raise capital to support their growth. 9 Đ Đ Looking ahead, these are opportunities to be harnessed both within ASEAN and globally, and exchanges as well as clearing houses need to innovate and remain relevant to all stakeholders.Đ I will now speak about three key trends, the opportunities they present, and what MAS is doing to support the Singapore financial services industry in these areas. Trend 1: Catalysing Sustainable Finance for Growth 10 Đ Đ The first trend is growth in sustainable finance. This is increasingly an area of both concern as well as interest to financial players, especially millennial investors. 11 Đ Đ The estimated financing needs to support the greening of Asian economies are high. China has estimated that it will require $ billion of investments annually to achieve its green policy goals under its 13th Five Year Plan while ASEAN will need an estimated $ billion in green investments annually through 2030 [5] . 12 Đ Đ Sustainable finance is still at a nascent stage but we are seeing increasing focus from financial institutions to develop new environmental, social and governance (“ESG”)-related products. Similarly, with increased investor demand and awareness for sustainable financial products, exchanges like yourselves can look to expand and support product owerings that will meet the needs of socially and environmentally conscious enterprises and investors.Đ 13 Đ Đ One such area of growth is in green bonds. | 1 |
This analysis concludes that the risks of refinancing and exchange rate volatility for companies are limited, either because of the type of creditor (matrices of foreign investors), loan maturities or the absence of significant currency mismatches. Additionally, it should be kept in mind that an important part of the group of companies that report to the Financial Market Commission have investments abroad that are financed with debt taken in Chile. Therefore, analyzing Chile’s external debt as a proportion of GDP can be distorting, because part of the added value is produced outside the country. Using of financial indicators such as assets and net worth is more recommended for a financially more integrated economy such as Chile and a modern productive sector (Figure 11). 8 And, the flexible exchange rate plays a role in cushioning external shocks in Chile, unlike other emerging countries, precisely because both the corporate and the financial sectors have adequate hedging—and are monitored by their respective regulators on a permanent basis. In fact, since the adoption of exchange rate flexibility in 1999, the Chilean economy has lived through several periods of significant peso depreciation, like in 2008, 2013 and 2015, without causing any problems of mismatching in the corporate sector with dollar-denominated debt. In this way, our inflation-targeting monetary policy framework, floating exchange rate and deep financial markets are the key pillars of our country's macroeconomic design. | In fact, those that surrender most of their monetary autonomy or maintain restrictions on cross-border capital flows need not feel immediate pressure to appreciate. But those that have come further along the liberalization road have to face a different kind of challenge. In our case, the Bank of Thailand has sought a balanced approach to managing capital flows under flexible exchange rate. We also undertake concomitant reforms in the area of financial system and market development. These initiatives are closely related and progress in one requires progress in the others. In building a resilient economy, prudent fiscal and monetary policy does help. As an automatic stabilizer, flexible exchange rate also helps. BIS Review 104/2007 3 Ladies and Gentlemen, Hot money, or indeed large inflows in general, can fuel asset prices and encourage excessive risk-taking behavior. Central banks may wish to counter that excess in the interest of financial stability. If the central bank chooses to maintain a high interest rate stance, the pressure on the currency to appreciate will likely mount. Since these challenges require significant ability for the domestic economy to adjust flexibly, the solution package we seek must help reduce the distortions in our economies. Allowing the competitive pressure and incentive to operate is undoubtedly the best way to foster investment in physical and human capital, as well as innovation and risk-taking, all of which are crucial to long-term productivity growth. They are also crucial for a flexible and resilient economy. But policy and regulations still have a role to play. | 0 |
To see why, imagine a bank whose expected future profits, and hence market capitalisation, have slumped. If this erosion of profits is sufficiently material, conversion at the highest trigger occurs. Upon triggering, a chunk of that bank’s debt converts into equity, automatically recapitalising the bank and providing it with an extra equity cushion. This equity infusion ought to help restore market confidence in the bank’s soundness. If the first conversion does not do the trick, or if the profits shock is sufficiently large, there are other rungs in the ladder. Lower triggers provide a graduated safety net. As these triggers are pulled, converting CoCos offer progressively greater stuffing for the cushion. This is a double boon. It confers the benefits of (contractually pre-agreed contingent) equity. But knowledge of the graduated safety net ought also to help stabilise investors’ confidence in the bank. Under this capital structure, banks’ insurance contract would be fundamentally different than at present. Instead of equity being provided at haste under stress, the safety net would extend automatically in advance. And instead of being provided by the state ex post, insurance would come from private creditors ex ante. Timely self-insurance would replace laggardly public insurance. There would be prompt corrective action. But it would operate on autopilot, using a contractual, market-based navigation system. 12 For example, Flannery (2010), Flannery and Perotti (2011), Duffie (2011), Calomiris and Herring (2011). 13 Alternatively, there could be graduated tranches of CoCos operating with a single trigger. | On the economic side, uncertainties heightened because of both external and internal factors. The impending threat of global imbalance became even more pronounced. The dwindling confidence in the US dollar continued, which brought about massive capital inflows into the region, resulting in an across-the-board currency appreciation. At the same time, rising oil prices continued to put pressure on inflation during the first half of 2006. Consumer and investor confidence, meanwhile, was clouded by lingering political uncertainties that brought about delays in consumption and investment decisions, as well as in government spending. As domestic demand weakened, export became the main driver of the Thai economic growth. Despite the negative environment, the overall economic performance was quite satisfactory. The economy proved to be resilient, as the growth momentum continued while overall economic stability improved. Regarding internal stability, headline inflation came down from a peak of 6 percent in the second quarter of 2006 to 3.3 percent in the last quarter and to 2.3 percent in February this year. Core inflation fell from its peak of 2.9 percent in April 2006 to 1.4 percent in February – well within our target range. Overall external stability remained sound. The current account turned into surplus since August and registered a surplus of 1.2 billion US dollars in December 2006, or an overall surplus of 1.5 percent of GDP for the year 2006. Meanwhile, reserves to short-term debt also rose further. | 0 |
Tommaso Padoa-Schioppa and Romano Prodi were among those who, in the early 2000s, highlighted the inefficiencies and potential issues that the introduction of a monetary union without common supervision could entail. Despite their prescient analysis, their original calls for greater coordination among national authorities fell short of the kind of arrangement that was needed to address this structural flaw. As the crisis later demonstrated, the much greater degree of integration brought about by the BU proved to be the most effective response to the crisis, as well as to the preservation of the euro. Ultimately, as many viewed it when it was launched 20 years ago, the Euro project has been the catalyst for further reform and integration. As far as the banking sector is concerned, the BU has contributed to loosening the bank-sovereign nexus and it should give rise to a more integrated banking system. However, so far, the greater level of institutional integration of the BU has not been accompanied by greater cross-border activity in the banking sector. The absence of crossborder mergers is seen by many as evidence that we still have a long way to go in terms of market integration and diversification. In my view, the lack of cross-border mergers can be partially explained by the over-capacity of the financial sector in Europe. Indeed, the benefits from synergies, potential cost-cutting and efficiency gains are mainly observed in mergers between same-country institutions, due to the greater redundancies in branches and central services. | Likewise, as supervisors we should strive to avoid financial crises, by applying supervisory tools to mitigate risk accumulations as well as reinforcing banks’ management capabilities; but, at the same time, we should work with a longer-term perspective to complete the institutional framework, in case a crisis still occurs. Thank you. 5/5 | 1 |
This would involve “territorial” countries deciding to resolve financial institutions headquartered in their own jurisdictions on a universal basis. (A possible example of this approach in the recent crisis was the FDIC’s resolution of United Commercial Bank, which involved a “purchase and assumption” 5 that extended to the Chinese subsidiary and the Hong Kong branch following coordination amongst the authorities in the US, China and Hong Kong.) A “modified” form of universalism would involve host authorities choosing to defer to and cooperate with a resolution brought by the home country authorities, provided that certain conditions held. Separate insolvency proceedings might be employed by host countries, but allowing the proceeds to be remitted to the home country, “lead” resolution. Variations might be needed for subsidiaries and branches. Subsidiaries are distinct legal entities, but they too can have worldwide creditors and claims. So it would all need to be within some kind of joined-up whole. At a high level, the preconditions for something like this might include: (1) equitable treatment of all creditors regardless of their jurisdiction, because if creditors in host countries were likely to be penalised in a resolution brought by the home country authorities, host authorities would have a strong incentive to ring-fence; (2) broad harmonisation of resolution regimes across the major jurisdictions. | To accomplish this, we have a team dedicated to going out into the region to gather economic intelligence and to help our communities develop programs to support local economic development. Let me speak a little further about our work analyzing local economic conditions and how we use this work to help our stakeholders. We have developed a number of analytical tools to track the regional economy. To get the most up-to-date read on economic conditions in our District as possible, we conduct two monthly business surveys. Our Empire State Manufacturing Survey gives a real-time read on manufacturing conditions in New York State, while our Business Leaders Survey allows us to track economic activity across the tri-state region in the broader services sector. We also conduct regular polls of small businesses in our area to better understand their evolving situation and needs. In addition, we publish monthly indexes of economic activity for New York State, New York City and New Jersey. We also monitor the financial health of households through our quarterly Household Debt and Credit Report and track the state of school finances in our region. But economic data can only tell you so much. It is also imperative that we engage with people in our region to see the broader picture behind the facts and figures. To this end, I regularly travel to various parts of our District to hear firsthand about local economic conditions and to get a sense of the issues and concerns facing businesses and residents. | 0 |
Financial systems are opened up, for the participation of domestic and foreign financial intermediaries, with a view to obtaining efficiency gains through greater competition and importing financial expertise. This has generally been a success, although specific problems have been encountered. A feature of these problems has been that, at times, the profit motive and the enthusiasm of financial intermediaries, not necessarily just the foreign ones, might prevail to such an extent as to undermine the public interest of ensuring effective financial intermediation. The problems might also have been the result of ineffective regulation of financial markets and supervision of financial intermediaries, and inadequate regard to the basic purpose of the financial system. One example, and it is only appropriate that I should use an example from Hong Kong, is the closure of the Hong Kong stock market in 1987. This was done in the interest of the financial intermediaries who were about to be hit badly by the world-wide crash that occurred overnight because they had taken large and concentrated positions in stock futures. The closure of a secondary market, which provides the liquidity for attracting primary market activity that channels additional savings into investments, was blatantly wrong and seriously damaged the credibility of the stock market as a channel for financial intermediation. The damage was temporary, as it turned out, and confidence was eventually re-established, but not without much soul-searching and many market reform measures. Such problems notwithstanding, it is clear that emerging markets in Asia are enthusiastic in embracing financial openness. | To be sure, such willingness has not been entirely voluntary. Neither has the pace with which openness is being pursued. For relatively small domestic markets, there is understandably a lack of attraction for the large and sophisticated international financial intermediaries. And so there may be special privileges or incentives offered, at the risk of creating structural distortions in the financial system, as enticement for the esteemed presence of the household names of international finance. More important, individual jurisdictions have been, whether of their own free will or under pressure, pursuing financial openness, not just in respect of the financial system, but also in respect of the international mobility of capital. This they do so, in some cases, perhaps prematurely, by reference to their ability to manage the associated risks to monetary and financial stability on a continuous basis, in keeping with the demands arising from the changing scene, and changing risks, of international finance. As a result, the path towards financial openness has not been a smooth one, and diversions, although of a defensive nature, have been rather frequent lately. This is an aspect to which I shall return later. Let me turn first to how financial openness has been manifested in the dynamics of financial intermediation in Asia: this is the fourth characteristic of Asian finance that I wish to talk about. High public-sector and private-sector savings, less developed financial systems and financial openness have affected financial intermediation in two ways. | 1 |
Page 10 of 18 15 16 6 3 Figure 3 Inflation indicators (*) (annual change, percent) 6 6 5 5 Services CPI 4 4 services EFE 3 3 CPI 2 2 1 CPIEFE Goods CPI 1 0 0 -1 -1 goods EFE 14 15 16 17 18 19 (*) As from January 2019, the new 2018=100 annual base indexes are used, so they are not strictly comparable with earlier figures. Sources: Central Bank of Chile and National Statistics Institute (INE). Figure 4 Non-mining GDP (real annual change, percent) 6 6 5 5 Trend 4 4 Potential 3 3 2 2 Actual (moving annual average) 1 1 0 0 13 14 15 16 17 Source: Central Bank of Chile. | An issue that has been widely discussed in the last two years is whether other parts of the world would be able to avoid a recession despite the weak development of the US economy, that is if so-called decoupling could arise. We can now note that the rest of the world is following in the wake of the United States into an economic downturn and the debate on decoupling has faded. Measures to counter the crisis Sweden has so far been able to manage the problems caused in the financial system by the global financial crisis. The Swedish banks are profitable and have substantial buffers following a number of good years. They have not granted loans as hastily as the banks in the United States and they have not been exposed to any great extent to the type of financial products that have been part of the problem. The TED spreads have not been as large as in the United States and the euro area. The interbank market for overnight loans has functioned well in Sweden throughout the crisis, unlike in many other countries. But the Swedish banks have nevertheless experienced problems with funding and this has required that a number of measures be taken by Swedish authorities. The Riksbank has implemented a large number of measures to safeguard financial stability and mitigate the negative effects of the financial crisis. These measures have largely related to the provision of liquidity. | 0 |
Transition towards lower-carbon economy, through transformation of the current modes of production and consumption may come at a cost. Some have argued that on a macro level, this could lead to a positive ‘green growth’ effect. Climate policies associated with structural reforms, including mandatory climate-related financial disclosure could increase investment and benefit the global economy in the medium term. Investment in research and energy efficiency could have a positive impact on innovation and knowledge spillovers, while creating opportunities for economic growth, job creation, and financial innovation. An example of a new business opportunity that could arise is the upcycle of waste materials into new products. Nevertheless, as in many policy shifts of this nature, there will be winners and losers and public policy must strive to strike an acceptable balance to all the communities and sectors that have been adversely impacted. Ladies and gentlemen, To conclude, the journey towards sustainability requires careful and well-informed assessments, policy planning, coordination, execution and communication. Long-term planning is crucial to remain focused on the end goal. With a long lag between present actions and the impacts, as well as the prominence and visibility of the short-term outcomes, perseverance is key. We may have to overcome “sustainability fatigue” that may arise in the the efforts and resources that must be invested in pursuing sustainability. Failing to do so would lead us to fall into a pattern of disregard and laissez-faire, thus derailing us from achieving sustainability. | For example, reduction in fossil fuel use may lead to significant trade-offs with growth and poverty reduction objectives, particularly in the short to medium-term. Targetting sustainable growth and development amidst capacity and funding constraints can thus present significant challenges for political leadership, economic priorities and social outcomes. In this context, given the higher cost of transition, the country may need a longer time to transition towards more sustainable growth policies. This may however result in delayed actions which would heighten physical risks. For the Bank, given the importance of financial inclusion, this could also involve placing different priorities on the impact of climate change in different community segments and to tailor interventions that are appropriate and relevant to provide effective financial protection, particularly to vulnerable segments. A corollary of our pursuit towards a more sustainable, greener economy, would also be that some segments of the economy may face declining demand, big shifts in asset values or higher costs of doing business. “Brown assets” or non-sustainable assets such as fossil fuel reserves for example would potentially become “stranded assets”, which has implications on the value of investments in energy companies, particularly those dealing with oil, gas and coal. Globally, it is 4/5 BIS central bankers' speeches estimated that more than 80% of the known coal deposits, 50% of gas, and one third of the oil reserves cannot be used for energy production if global warming is to be kept below 2°C . | 1 |
Such limits need to be fundamentally re-evaluated. We have sleepwalked into a world in which leverage of 20 or 30 times capital is the rule rather than the exception. Now is a good time to wake up. Evidence from the not-too-distant past suggests there may be less to fear BIS Review 139/2009 7 from materially higher capital ratios – say, a multiple of current ratios – than some would suggest (Chart 2). • Recalibrating risk weights: With hindsight, the capital assigned to certain categories of high-risk and off balance sheet transactions by Basel rules was far too low. Those mis-calibrations were then arbitraged by the banks in ways which included inflated trading books and an over-expansion into high-risk loans and securitised assets. The Basel Committee has already set about trying to correct some of the more obvious of these defects. For example, materially higher risk weights are set to be introduced for trading book assets from the end of 2010. This will include, importantly, securitised and re-securitised products, whose payoffs profiles too closely resembled deep out-of-the-money options (Figure 3). New risk weights should better reflect the tail risk these products embody. These reforms will close a regulatory loophole and thereby lower the beta of, and hence systematic risk in, the banking system. They leave open some rather more fundamental questions, which the Basel Committee are also considering. These include whether the distinction between banking and trading books, and the resecuritisation of assets, are necessary in the first place. | While affected by the crisis, the effects on the domestic economies and financial systems have been relatively contained. Importantly, financial 2 BIS central bankers’ speeches intermediation has not been disrupted, and the financial systems have continued the supply of credit to support the real economy. Following the Asian financial crisis, wide-ranging financial reforms were undertaken to strengthen the financial systems of the region. The building of sufficient capital and liquidity buffers during good times provided the ability to support the continued credit intermediation process. Improved regulatory and supervisory approaches, underpinned by enhanced governance and risk management practices, have enhanced financial stability in the region. Enhanced surveillance arrangements and a wider range of policy tools have placed policymakers in better state of readiness to deal with problems in the financial system pre-emptively. Macroprudential policies have also been extensively relied upon to mitigate the risks from excesses and imbalances in the financial system. Continued efforts were also made to further advance financial sector development in the region. In particular, the development of the domestic bond market has served to reinforce the foundations for financial stability in Asia. Financial activities have also remained generally anchored by productive real economic activities. In addition to the region’s strong external position, high international reserves and more flexible exchange rates have also enabled Asia to absorb and adjust to changing external conditions. The increasing cohesiveness of Asia is also a core strength and source of stability for the region. | 0 |
20 To limit the impact of FX reserve accumulation on the domestic money supply, most central banks sterilise their intervention through the issuance of bonds. The fiscal cost of FX reserve accumulation can be calculated as the difference between the interest paid on the sterilisation instrument and the interest received on FX reserve assets, which are typically low-yielding, low-risk foreign government bonds. The IMF estimated this wedge to be around 200 bps on average. It can crowd out domestic investment as central bank sterilisation bonds compete for domestic savings. 21 The increased demand for safe assets driven by this desire for safety – which Ben Bernanke christened a ‘savings glut’ – helped drive down the equilibrium interest rate, the interest rate central banks must deliver in order to balance demand with supply and so achieve stable inflation. 15 All speeches are available online at www.bankofengland.co.uk/speeches 15 Augmenting the Bank of England’s Capital Flows-at-Risk framework with the major structural changes in the global financial system materially changes the Bank’s assessment of the quantum of Capital Flows-at-Risk when there are push shocks. | 23 Kose, M, Prasad, E and Taylor, A (2010), Thresholds in the process of international financial integration, Journal of International Money and Finance. 24 The G20 has previously discussed these issues, for example see Report of the G20 Eminent Persons Group on Global Financial Governance (October 2018) and G20 Action Plan on the Development of Local Currency Bond Markets (July 2013) 25 Coman, A, Lloyd, S (forthcoming) In the Face of Spillovers: Prudential Policies in Emerging Economies. 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 Chart 17: The impact of macroprudential policy on Capital Flows-at-Risk Probability density 0.10 Average macro-prudential stance 0.08 0.06 0.04 Tighter macro-prudential stance 0.02 0.00 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 Capital flows as a % of GDP Sources: IMF, Cerutti et al (2015) and Bank staff calculations Notes: Chart shows conditional distributions of capital flows to EMEs under an average macro-prudential stance and a one standard deviation tighter macro-prudential stance, as measured by Cerutti et al. (2014). The unconditional distribution differs from others in the speech given data on macro-prudential actions only starts in 2001 rather than in 1996 as the rest of our data. See chart 5 and annex for further details. | 1 |
The proportion of new owner occupier mortgage loans at loan-to-income ratios just below 4.5 has almost doubled in the past 5 years. Almost a fifth of new mortgages now fall into this bucket (see chart 4). In part because of our guards, households’ mortgage debt servicing burdens remain very low. Only 1.4% of households spend 40% or more of their income servicing their mortgage debts. And even if interest rates were to be at 2%, that share - at 1.9% - would be no more than it has been on average in the past. 7 For example, Bunn and Rostom (2015) find evidence that more highly indebted groups of households made larger cuts in spending following the financial crisis. See www.bankofengland.co.uk/working-paper/2015/household-debt-and-spending-in-the-uk 8 A loan to income limit, setting out that no more than 15% of new mortgages can be issued at loan to income ratios of 4.5 or higher; and an affordability test, under which lenders consider whether new mortgagors could still afford their mortgage if they switched to the mortgage reversion rate and interest rates were 3 percentage points higher. 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 So there is no flashing warning light here telling us to pull over urgently. There is, perhaps, the light that reminds us the car is due for a service. Developments in corporate credit, consumer credit and in the mortgage market could be signs of a more generalised pick-up in risk taking. | With default rates in downturns on credit card and personal loans some seventeen times higher than on mortgages, this can be risky for the lenders. 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 What lies beneath is of greater note. Because underneath that calm surface, a sharp slowing in credit demand from buy-to-let investors after a set of tax changes, and subdued credit demand from new buyers as incomes have been squeezed, has masked the effect of looser credit supply to owner occupiers. Mortgage rates have fallen materially relative to Bank Rate, especially at the riskier end of the lending spectrum (see chart 2). And lenders are now prepared to take a bit more risk. Mortgage loan to income ratios are rising. Households with high mortgage debt make cutbacks in downturns to keep paying the mortgage. More of 7 these households in an economy typically means deeper recessions (see chart 3). That’s why, when it comes to mortgages, the interests of the real economy can be served by guarding against excessive risk taking by lenders. We put in such guards, as insurance, back in 2014. They’re centred on a limit on new mortgage lending at more than 4.5 times the borrower’s income and on testing of the affordability of a mortgage to a borrower even if mortgage rates were in the region of 7%. 8 With lenders now prepared to take more risks, those guards are now working. Loan-to-income ratios have increased and are now hitting up against them. | 1 |
The euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, and the ongoing – albeit somewhat slower – expansion in global activity. This assessment is broadly reflected in the March 2019 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.1% in 2019, 1.6% in 2020 and 1.5% in 2021. Compared with the December 2018 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down substantially in 2019 and slightly in 2020. The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.5% in February 2019, after 1.4% in January, reflecting somewhat higher energy and food price inflation. On the basis of current futures prices for oil, headline inflation is likely to remain at around current levels before declining towards the end of year. Measures of underlying inflation remain generally muted, but labour cost pressures have strengthened and broadened amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth. | To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. 2/3 BIS central bankers' speeches In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. This is particularly important in view of the overall limited implementation of the 2018 country-specific recommendations, as recently communicated by the European Commission. Regarding fiscal policies, the mildly expansionary euro area fiscal stance and the operation of automatic stabilisers are providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. All countries should continue to increase efforts to achieve a more growth-friendly composition of public finances. Likewise, the transparent and consistent implementation of the European Union’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. | 1 |
In the previous years, the view had become established that monetary policy served financial stability best by focusing on price stability. This was linked to the widespread opinion that monetary policy should not “lean” against a growing bubble on the equity or real estate markets. It should wait until the bubble had burst before intervening and cleaning up. The “lean or clean” question was reassessed as a result of the financial crisis. It became evident that financial stability was not necessarily guaranteed, even where monetary policy – as measured by the criterion of price stability – was very successful. Moreover, the damage caused when a bubble bursts can be so enormous that it is not easily remedied using monetary policy instruments. To simplify things somewhat, we can distinguish two ways in which central banks can attempt to make a more substantial contribution to financial stability. The first is to steer monetary policy decisions more strongly in the direction of financial stability. The argument against this is the danger of overburdening monetary policy. One lesson from the years of the Great Inflation was that the overall result is not improved when monetary policy tries to achieve too many goals simultaneously. The credibility and success of monetary policy will inevitably suffer as a result. For this reason, the second option has much in its favour. | Secondly, I would encourage supervisors to consider how the three pillars of Basel II could already be enhanced in their jurisdiction. Supervisors do not need to await their formal adoption of Basel II to start introducing or using the principles of the three pillars. On the contrary, incorporating those principles is excellent preparation for adopting Basel II in the future. For example, supervisors might be encouraged to move towards a system of risk-based supervision, developing skills in assessing the quality of a bank’s risk management and its ability to assess risk exposures. At the same time, banks could be reminded of their responsibility to develop their own processes for evaluating their capital needs and a strategy for maintaining their capital levels, in line with the principles of Pillar 2. With regard to the principles of market discipline in Pillar 3, supervisors in some countries may wish to focus initially on ensuring a baseline level of disclosures across all banks. This might include discussing with banks, investors and other users of financial information their information needs and the tools available so that supervisors can tailor requirements accordingly. In my view, these two preliminary stages will provide an excellent preparation for the “final” stage to move to Basel II. The Basel Committee welcomes the efforts that so many countries have already undertaken to enhance the quality of bank supervision and to encourage prudent management in the banking sector. We support your work and would like to contribute to your efforts. | 0 |
We also give emphasis to predictability and transparency. Normally, the interest rate is set with a view to achieving inflation of 2½ per cent at the two-year horizon. This time horizon usually provides a reasonable balance between stabilising inflation on the one hand and smoothing fluctuations in output and employment on the other. 1 See Akram, Farooq Q. (2003): “Reell likevektsvalutakurs for Norge” (Real equilibrium exchange rate for Norway), in Norsk Økonomisk Tidsskrift 118, pp. 89-112. 2 BIS Review 25/2004 If demand for goods and services is high and there is a shortage of labour, there will normally be prospects of higher inflation. When the interest rate is raised, demand is dampened and inflation is kept in check. If demand is low and unemployment rises, there will be prospects of lower inflation. The interest rate will then be lowered. The inflation target thus represents a framework, not an obstacle, for monetary policy to contribute to stability in output and employment. Section 1 of the Regulation on Monetary Policy states that in addition to sustaining the level of inflation at approximately 2½ per cent over time, monetary policy shall also contribute to stable developments in output and employment. The mandate therefore establishes a flexible inflation target for monetary policy where variations in output and employment are also given emphasis. | In relative prices, the real exchange rate is now about 3.5 per cent weaker than the average since 1970, whereas it is approximately 2.5 per cent stronger than its historical average measured in terms of relative labour costs. The exchange rate in the long term There has been divergence between cyclical developments in Norway and other countries. This was most pronounced in the 1980s when we had a strong upturn while Europe was in a recession. Although the economic cycles have been somewhat more similar over the years, there is still a time divergence. While the global turnaround took place in 2000, with a subsequent reduction in interest rates abroad, the Norwegian economy continued to show a high level of activity. Towards the end of the upturn, the economy was facing labour shortages, accelerating wage growth and a sharp increase in household consumption and debt. Interest rates in Norway remained high and the interest rate differential gradually widened. There have also been other differences between cyclical developments in Norway and other countries. The expansionary period in Norway led to strong wage growth from 1998 to 2002. The upturn in the global economy at the end of the 1990s was largely driven by business investment and wage growth was moderate. Wage growth in the Norwegian business sector from 1998 to 2002 was higher than the level that over time is consistent with the inflation target and with normal productivity growth. | 1 |
Moreover, Puerto Rico’s power outage was, by far, the most severe in U.S. history, in terms of total customer-hours lost, and it will still likely take many more months to fully restore electricity and other critical infrastructure to all of the Island’s residents. As a result, a sizable number of residents went to the U.S. mainland in the weeks following Maria, and it still is unclear how many will return once circumstances improve. Even before the storms hit, Puerto Rico was struggling with severe fiscal difficulties and a long period of poor economic performance. For over a decade, the Island has been experiencing a shrinking economy, contracting employment, low and declining labor force participation, and persistent out-migration of residents to the mainland. Furthermore, public debt reached a problematic level, and the Commonwealth and its instrumentalities—including the power and water authorities—lost their ability to borrow in the public markets. Defaults and ongoing debt restructuring efforts followed. In the U.S. Virgin Islands, the situation is similar in many ways. St. Thomas and St. John were ravaged by Irma, and St. Croix was devastated by Maria just two weeks later. Their economy, which is much more dependent on tourism than that of Puerto Rico, has also been contracting for the better part of a decade. However, the population of the U.S. Virgin Islands has not fallen nearly as sharply as Puerto Rico’s, and its economy had stabilized in the past two years following the closure of a major refinery in 2012. | Bank of France reports industrial output continued to grow in most sectors in France in January 1997 BANK OF FRANCE, MONTHLY BUSINESS SURVEY, 17/2/97. In January, according to the business leaders surveyed by the Banque de France, industrial output continued to grow in most sectors. Activity was especially buoyant in the intermediate goods and consumer goods sectors. The food processing sector was alone in recording a contraction in activity. The capacity utilization rate improved. Overall demand strengthened further. French products were very competitive on foreign markets and this led to an increase in export orders. Export sales increased in the United Kingdom, Italy and Germany, while demand remained firm in the United States and Asia. On the domestic market, inter-industry demand was strong, even though the orders received came with very short delivery times in most cases. Order books are now near to normal levels. They are still considered to be low in the food-processing and automobile industries, but are deemed to be satisfactory in the capital goods and consumer goods sectors. Inventories of finished products are gradually returning to normal overall, but they still exceed the desired levels in the consumer goods, food-processing and intermediate goods sectors. The outlook for the coming months is distinctly brighter. Activity should increase in all sectors, with marked improvements in the intermediate goods and food-processing sectors. Commodity prices were stable overall, while finished product prices declined slightly. This fall stemmed mainly from substantial price cuts in the automobile industry, while prices generally held up in the other sectors. | 0 |
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