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Recent experience around the world suggests that the potential of a financial centre cannot be maximized unless it possesses another essential attribute. That other ingredient is stability and it is this aspect that I propose to explore today. Ensuring financial stability is a statutory responsibility of the Central Bank of Malta. The Bank is thus obliged to participate actively in the maintenance of a stable and efficient financial system and to contribute towards its development. This applies not only to the payment and settlement system, of which the Bank is the regulator, but to the entire financial system. The Bank has an on-going role to play in assessing the robustness of the system. It must draw attention to any problems and ensure that these do not in any way impede the functioning of the financial markets as efficient providers of capital for companies and households. The Bank’s approach is therefore to consider the general risks to the system rather than the situation of individual credit and financial institutions. The latter is the task of the Malta Financial Services Authority (MFSA), which has successfully assumed, over the last ten years, full responsibility for the supervision of institutions providing financial services. Why central banks promote financial stability There are several reasons why the maintenance of a healthy financial sector is an essential function of central banks, and this irrespective of their involvement or otherwise in regulation and supervision. | In particular, the activities and institutions which the Bank and the Authority will be expected to monitor will become more complex as the number of financial intermediaries with a presence both in Malta and in other countries, either directly through the establishment of branches or subsidiaries, or indirectly through the provision of cross-border services via the internet or otherwise, continues to grow in the light of the incorporation of EU passporting rights in Maltese legislation. The coming into effect of Basle II and, at the EU level, CAD III will be significant factors in this regard. At the same time, the tendency of companies to seek multiple listings in different securities markets means that interest rates and stock market valuations in one country will increasingly mirror those in other countries, even though the underlying economic fundamentals of that country might warrant some divergence in such variables. Indeed, as has been the experience of other countries, the trend towards consolidation and merger activity in the various segments of the market, from banking and the selling of insurance and investment funds to the provision of payment services and trading facilities, will lead to a situation where the institutions to be supervised will vastly exceed the financial resources and technical expertise available to supervisors and central banks. | 1 |
Chart 13: Euro area inflation, output gap and employment growth in % Chart 14: Euro area headline inflation and core inflation (in percent) 2.5 3.00 2.50 2.0 2.00 1.50 1.5 1.00 0.50 1.0 0.00 -0.50 Output gap, as % of potential Inflation, average consumer prices -1.00 Employment, y/y growth 0.5 -1.50 0.0 -2.00 Inflation, average consumer Core inflation, average (change prices (change in %) in %) -2.50 2000-2008 2009-2014 2015-2019 Source: IMF WEO Database, October 2019. 12 2002-2008 Source: Eurostat. 2009-2014 2015-2019 The debate focused on several important issues related to the labour-costs pass-through, whether it has weakened in intensity in recent years and reasons behind these potential changes. In general, the findings reveal that the impact of wages on inflation might be less pronounced than in the past and relates to three important cyclical and structural factors. The first one relates to more subdued inflation and inflation expectations. The second one relates to the corporate profit margins that tend to be pro-cyclical, with their capacity for absorbing the rise in labour cost changing across the cycle. The third one is a factor of a more structural nature, linked to the rising competitive pressures and overall rising globalization. | These include the possibility of premium competition in the non-life sector, longevity risk in the life sector, and the possibility, albeit diminishing, of an influenza pandemic. The chart on the left on slide 12 portrays the performance of the insurance sub-sectors relative to the Dow Jones EURO STOXX. Whilst the impact on the reinsurance sub-sector of the damage caused by natural catastrophes is evident, other sub-sectors appear more resilient. The chart on the right on slide 12 shows the median expected default frequency and average subordinated debt spread for euro area insurance companies. Both measures of risk in the sector have reached new lows since 2001, indicating that market participants see an improving resilience in the sector. The current Review contains for the first time a specific section dedicated to assessing developments in the global hedge funds sector. The pace of growth of the capital under management of global hedge funds, which had moderated in the course of 2005, fluctuated rather sharply in the first months of 2006, partly due to the mixed performance of most strategies in the last quarter of 2005 and improved results in the first quarter of 2006. After several quarters of reduced inflows into the hedge fund sector, and an outflow in the last quarter of 2005, inflows re-bounded in the first quarter of 2006 as shown by the chart on the left on slide 13. | 0 |
Banks are in a special position. They transform short-term deposits into long-term loans. They are responsible for payment settlements, and bank deposits serve as a means of payment. The volume of amounts outstanding in the interbank market is sizeable. As a result, problems in one bank may rapidly spread to other banks. The financial strength of banks is thus important for financial stability, even more so in countries where banks are the main financial intermediaries. Long-term profitability has a decisive influence on financial strength. Obviously, there are many factors that can influence the future profitability of banks. The topics you will discuss during these two days are of great importance. Financial unrest spreads through payment and settlement systems. These systems can also be a source of risk. This occurs when banks credit customers before they have received settlement from the payer bank. Payment and settlement systems must thus be designed to reduce settlement risk. This is an issue high on the agenda of most central banks. Interdependence of monetary and financial stability The objectives of monetary stability and financial stability are interdependent. High - and thereby in practice varying - inflation and unstable exchange rates can threaten financial stability through several channels. First, it is more difficult to assess the risk of an investment project. Inflation makes it difficult to differentiate between a change in prices for goods or service and a change in the overall price level. It makes it more difficult to determine the discount rate to be applied. | There is no consensus on how to handle this dilemma. Central banks have avoided targeting specific asset price levels. Nevertheless, history provides some examples of when more emphasis might have been placed on asset price developments in the formulation of monetary policy.1 Structural changes in the financial sector have the strongest impact on monetary stability through the way it may alter the transmission mechanism of monetary policy. For example, if structural changes increase competition in the banking sector, banks may adjust their retail interest rates more rapidly in response to changes in central bank and money market rates. This means that monetary policy may influence savings and investment decisions more quickly. The four largest Nordic countries have chosen different monetary policy regimes: • Finland is part of the euro area; • Denmark is a member of ERM II; • Sveriges Riksbank targets inflation; • whereas Norges Bank focuses on long-term exchange rate stability. I want to emphasise that the objectives of monetary and financial stability can be achieved by different regimes, including the ones chosen by the Nordic countries. Denmark has for several years run a successful fixed exchange rate regime. Denmark’s success must be seen in the light of a combination of factors. First, ERM membership and Denmark’s long-term commitment to a stable exchange rate have enhanced confidence in the current regime. Second, fiscal policy has successfully supported the fixed exchange rate. | 1 |
It is fairly understandable that certain EU member states support the current, rather non-transparent way of modifying the institutional set-up: it is the only way for them to maintain or even strengthen the draconian mix I just described. 2 BIS Review 165/2009 Given that European integration is taking place in this “European” way (in the bad sense of the word), it is no wonder that standard democratic politics has not left the national level: all formally EU-wide ideas are always translated in each individual member state into the local political context; there are no true EU-wide political parties, no true EU-wide politicians, no true EU-wide media. The debate in EU institutions rarely follows the lines that we are used to in standard political debates, such as whether we want more freedom or more redistribution. Instead, most time is spent, as I said, on procedures and institutions. The official efforts at gradual political integration thus give the impression of squaring the circle. These awkward traits in politics at the EU level then lead to some perverse implications. On the one hand, measures which would help Europe to retain a strong economic position – and here I mean especially liberalisation of markets and trade – take years or even decades to implement: the single market for services still does not exist and even the single market for labour still has fundamental exemptions. | Since it takes time – we allow for a time horizon of one to two years before the transmission mechanism has worked through the economic system – we have to form an opinion of the state of the economy in the long run. Predicting the future is difficult for many reasons, not just due to statistical shortcomings but also because the economy is changing all the time. The economy can be hit by different kinds of shocks, e.g. the increased electricity prices when there was a shortage of water in Sweden’s reservoirs, and BIS Review 10/2005 3 the price of meat and other food when cows in Europe were affected by a number of diseases. It is difficult to determine early on what changes in the economy are temporary and what are permanent. Another factor complicating the picture is that inflation expectations in society greatly influence price and wage formation, and thereby inflation. In other words the car – to continue with the analogy – has a fogged windscreen, a speedometer that is very difficult to read and pedals that sometimes are sluggish and sometimes easy to push down. How can we make the economy go at an appropriate speed? | 0 |
We are also monitoring consumers' needs regarding access to funds, including stimulus payments, through traditional deposit accounts, as well as for individuals without a traditional banking relationship who utilize pre-paid cards. Conclusions Taken together, these steps demonstrate the Fed's strong commitment to help the U.S. banking system support the U.S. economy and protect consumers during the COVID-19 pandemic. We are aware, however, that many low- and moderate-income and minority communities remain severely impacted. The regional partnership between the New York Fed and socially responsible providers of capital continues to inform our understanding of the needs for access to credit for these critical small businesses. We will continue to work with you to ensure that the financial system acts as a source of strength to support all segments of the U.S. economy. Thank you. 1Agencies issue revised interagency statement on loan modifications by financial institutions working with customers affected by the coronavirus 2Federal Reserve provides additional information to financial institutions on how its supervisory approach is adjusting in light of the coronavirus 3Agencies announce changes to the community bank leverage ratio 4The Fed has also taken action to support the provision of credit by larger institutions. | Although the debt market has, over the past 15 years, become a significant channel of financial intermediation, sizing it against GDP it is still a lot smaller than the banking and equity markets, and by quite a wide margin. Furthermore, retail interest, increasing as it may have been, is still lacking by the standards of the developed markets in the US, Europe and Japan. And the further promotion of retail interest, specifically in Exchange Fund Notes, is the focus of attention of our gathering today. As you may be aware, over the past year or so, we made various experimental attempts to attract retail investors to the primary issues of Exchange Fund Notes. On the basis of the experience gained, and subject to three refinements to be introduced to the arrangements, we have decided to continue offering Exchange Fund Notes to retail investors. The first refinement is the introduction of greater flexibility in the selection of specific issues of Exchange Fund Notes to be offered to retail investors in the primary market. Instead of indiscriminately opening up all the 2-year and 3-year Exchange Fund paper for subscription by retail investors, we intend to take account of market conditions and consult our Distributors in deciding on the timing and tenor for issues with a retail feature. Initially, one issue will be selected for non-competitive bids from retail investors in each quarter. The number of issues per quarter may be increased subsequently, subject to market response. | 0 |
Around 300 000 persons shared a USD 400 million payout from the Russian government – a little over USD 1 000 3/7 BIS central bankers' speeches for each recipient. In the meantime, many years of high inflation had reduced the real value of the original debt to a fraction.3 History is replete with examples of sovereigns that have reduced the real value of their debt by printing money to inflate it away. Debt is ordinarily a fixed nominal amount. As long as debt is in the country’s own currency, sovereigns can reduce their real debt burden by inflating prices. Holders of that debt then find that its value is falling sharply in real terms, even if the nominal debt remains in the books. Inflation may thus be a de facto tax on creditors. Public debt becomes a bigger problem for countries with debt in a foreign currency. A classic example is Argentina’s US dollar debt, which domestic inflation could not reduce. Greece experienced similar problems when its nominal GDP fell following the financial crisis. Greece and Argentina had to undergo painful adjustments to be able to manage debt that had become excessive – to the detriment of their citizens. Debt incurred by firms can effectively be restructured, at least for those that are organised as limited liability companies. In a bankruptcy, the firm’s debts are settled by liquidating the company’s assets. If there are insufficient assets in the bankruptcy estate to satisfy the creditor’s claim, the creditor must absorb the loss. | We borrow today, because we are confident that the income will come tomorrow. How can debt be reduced? While the financial crisis in 2008 brought debt growth to a sudden halt in some countries, debt growth continues to outpace income growth for Norwegian households. This can hardly go on forever. If debt needs to be reduced, the question is how? Sovereign borrowers can levy taxes and thereby have a reliable source of revenue. Even so, being the creditor of a sovereign can be risky. In 1918, after the Russian Revolution, the Bolsheviks repudiated all debt issued by the previous regime. French investors, among them many small savers, held nearly half of the Russian national debt at the beginning of the First World War. They were among the first big losers of the Russian Revolution.2 In the inter-war period, these losses had consequences for French foreign policy. France became a fierce opponent of the Soviet regime. The losses on Tsarist bonds may have also contributed to France’s unwillingness to restructure German debt after the war. Germany’s debt burden contributed to the hyperinflation of the 1920s and the fall of the Weimar Republic. Now, on the evening of 9 April, 79 years after the German invasion of Norway, we can conclude that debt m have fateful consequences. After Boris Yeltsin raised the Russian flag in 1991, the French creditors returned. Old bond certificates were retrieved from drawers. A final settlement was agreed in 1996. | 1 |
Going forward, I view that there is a need for international institution that oversees all finance-related conducts to ensure strict compliance of rule, implementation of ethical codes and avoid double standard across nations. Lastly, continuous and collective reforms are vital. Crisis is a recurring phenomenon and no lessons from previous crisis will ever fully prevent the next one. But through the process of reform after each crisis, the market grows and becomes more efficient. Crises provide a window or “political feasibility” to undertake needed structural changes that 3 International Labor Organization (ILO). BIS central bankers’ speeches 3 may be hard to sell to the public in normal circumstances, so one should not waste a good crisis. I am pleased to see numerous improvements in key areas of finance and supervision such as the use of macroprudential measures to complement traditional monetary policy tools. It is also more acceptable to require banks to provision in good times against losses in bad times, for after all most bad loans are made in good times. In addition to structural reforms, change in “mindset” is probably the most important. In order to keep up with the dynamic global environment, we may need to challenge and correct some of our old beliefs. | Two differences stand out between Asia and Europe. The first is policy flexibility. The devaluation of the exchange rate helped restore export competitiveness of the Asian economies. However, this freedom of flexibility might not be practical for Europe given its single currency setting and political complexities. The second is the supportive global economy, which provided the necessary market for Asia and allowed Asia to export our way out of the crisis. Global GDP registered a 4.7% growth in 2000 with advanced economies, the world’s largest consumer, growing at 4.1%. In contrast, the global setting of the current European sovereign debt crisis is not 1 BOT’s staff computation from CEIC data. 2 Malaysia’s policy mix started out with an initial fiscal and monetary tightening, a conventional IMF-like measure, followed by a reversed loosening of macroeconomic policies. The insufficiency of these policies to restore confidence led the country to resort to exchange and capital control which yielded positive result. 2 BIS central bankers’ speeches as favorable. Global and advanced economies growth turned to a negative territory of 0.6% and 3.4% respectively in 2009. Emerging and developing economies, increasingly feeling the pinch of the global slowdown, witnessed the continued slowdown of their GDP growth from 8.7% in 2007 to just 2.8% in 2009. I believe that there may be other success factors for the European story. But, we have to bear in mind that some of the success factors are not without costs that remain to be addressed. | 1 |
See Andersson, M., Szörfi, B., Tóth M. and Zorell, N. (2018), “Potential output in the post-crisis period”, ECB Economic Bulletin, Issue 7. 2. Slack is a proxy of the economy’s capacity to grow without straining resources and leading to excessive cost and price rises. 3. The likelihood of hitting the lower bound in a crisis had increased with the fall in nominal and real rates, which mainly reflected the success of monetary policy in anchoring inflation expectations and a fall in the natural (real) rate of interest. The latter was driven by ageing, waning productivity growth, a rise in markups and a surge in risk aversion in the wake of the global financial crisis. See Brand, C., Bielecki, M. and Penalver, A. (eds.) (2018), “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, Occasional Paper Series, No 217, ECB, December. 4. Demand shortfalls may perpetuate themselves, resulting in persistent or even permanent impacts on output (hysteresis), by adversely affecting the supply potential of the economy and thereby lowering the level of potential output or even its longer-term growth rate. For instance, firms may refrain from undertaking investment decisions or cut their innovation budgets. See Andersson, M. et al. (2018), op. cit. and Yellen, J.L., “Macroeconomic Research After the Crisis”, speech at the 60th annual economic conference sponsored by the Federal Reserve Bank of Boston, Boston, October 2016. 5. As supply shocks create a temporary trade-off between inflation and real activity, a gradual policy response avoids creating unnecessary volatility in growth and employment. | I would like to single out three key aspects of this strategy. We will emphasise exploiting the Bank's characteristics as a large and long-term investor in order to achieve the objective of the highest possible return. Norges Bank is able to make investments whose underlying value may take a long time to realise. A long-term investment horizon also means that we can invest differently to many other investors, even in difficult and illiquid markets. The fund's size enables us to explore new ways of investing at little additional cost. As a large, active and long-term participant in capital markets, the Bank is an attractive investor and partner. In unlisted markets, this may open up opportunities unavailable to others. We will set great store by being a responsible investor. Responsible investment and active ownership support the objective of the highest possible return. Transparency about this work is important, and we expanded our reporting in this area in 2022. Managing climate-related risks and opportunities is an important priority. An orderly climate transition in line with the goals of the Paris Agreement is in the fund's economic interest. 1/2 BIS - Central bankers' speeches The Ministry of Finance updated its mandate for Norges Bank in 2022. The Bank's work on responsible investment is now to be based on the long-term goal that the companies we invest in align their activities with global net zero emissions in accordance with the Paris Agreement. We published an ambitious Climate Action Plan in the autumn for the period 2022-2025. | 0 |
A pre-programmed allocation of losses would be akin to the old “Down To The Last Drop” rule that used to be employed by a Chicago clearing house, under which surviving clearing members ultimately had collectively to absorb all losses: mutualisation. (It was dropped because, as banks became futures-exchange clearing members, bank supervisors didn’t like the unlimited exposure of CMs who were banks. An example of unjoined-up thinking.) That’s the option around propping up the clearing house to keep it going. The other option is some kind of wind down of the Clearing House’s book. That involves a combination of closing out part of the book in the market, and doing something with any residue that can’t be dealt in the market. One obvious thing to do with the residue is to put it back, pro rata, to the surviving (and fit) clearing members. But that is also a variant of the DTTLD rule, but “in kind” rather than cash. BIS central bankers’ speeches 3 Maybe I’ve got this wrong but, in summary, it seems to me that questions about orderly resolution of a failed CCP have to involve clarity around the extent to which surviving clearing members pick up the pieces. Summary The design, management and oversight of CCPs is something that we are going to come back to again and again in the years ahead. | I want, therefore, to conclude, if I may, with a quote from the post-‘87 crash Report of the Hong Kong Securities Review Committee, published in the summer of 1988, nearly a quarter of a century ago: “When everything else is stripped away, the most pressing issue is the management of risk. The focus of this is ......increasingly, the central clearing houses – indeed [their] prudent operation is perhaps the single most important objective for the market authorities and regulators.”2 It is time to catch up with that insight. Your new Post-Trade Fellowship will surely help us to do so. 2 Paragraph 3.21, Report of the Hong Kong Securities Review Committee, 1988. I should disclose that I was an Advisor to the SRC. 4 BIS central bankers’ speeches | 1 |
When the bonds matured, the Norwegian government wanted to make the repayment in banknotes that had lost much of their value. This implied a devaluation that could perhaps be compared to the devaluation under Henry VIII. The case finally came before the Supreme Court in 1962. In their voting, the Supreme Court gave weight to a law from 1923, which stated that the gold clause, i.e. repayment in gold money, did not apply when the obligation to redeem banknotes for gold had been suspended, which was permanently done in September 1931. In the explanation of their ruling, the Supreme Court also referred to “vital national interests”. It would cost Norwegian taxpayers far too much to repay the gold money that had been borrowed 60 years earlier. It would be far too pretentious of me to offer an opinion on the court ruling as such. What makes this case interesting in the light of today's topic is that in the Supreme Court's assessments of “vital national interests”, there is no discussion of what the nation's interests are in the short term versus the long term. However, it must be added that it is probably not easy for a court to review other government authorities’ assessments of this point. There is also the question of whether this falls within the court's purview. 5. Modern monetary policy – a promise both possible and right to keep The theoretical breakthrough by Kydland and Prescott and the era of high inflation eventually had implications for practical policy. | 14 Øksendal, Lars Fredrik (2008), “Monetary policy under the gold standard – examining the case of Norway, 1893-1914”, Working Paper 2008/14, Norges Bank. 15 See Bjerkholt, Olav and Jan F. Qvigstad (2007): “Introduction to Ragnar Frisch’s 1933 pamphlet Saving and Circulation Regulation”, in Revisita di Storia Economica, Banca d’Italia. 16 See Eitrheim Øyvind., Jan T. Klovland and Jan F. Qvigstad (Eds.) (2004), page 293: “Historical Monetary Statistics for Norway 1819-2003”, Occasional Papers No. 35, Norges Bank, Oslo. 17 However, they were more flexible in September 1931. It only took seven days for Norway to follow the UK’s lead in abandoning the gold standard. 18 There was a consensus on parity policy in the 1920s. See for example Hodne, Fritz and Ola Honningdal Grytten (2002), pages 111-112: Norsk økonomi i det 19. århundre (The Norwegian economy in the 19th century), Fagbokforlaget and Skånland, Hermod (1967) “Det norske kredittmarked siden 1900 (The Norwegian credit market since 1900) Samfunnsøkonomiske studier No. 19, Statistics Norway, Oslo. See also Mykland, Knut (ed.) Cappelens Norgeshistorie, Vol. 13 page 86. 19 For further discussion of parity policy and Norges Bank’s role, see Ecklund, Gunhild J. (2008), pages 46-51 and 67-71: “Creating a new role for an old Central Bank: The Bank of Norway 1945-1954”, Series of Dissertations 2/2008, BI Norwegian School of Management, Oslo. 20 This link to gold was not as strong as when the obligation to redeem in gold applied. | 1 |
One variant of these arbitrage strategies exploits pricing differences between common securities quoted on competing trading platforms. For that reason, HFT firms tend to have their tentacles spread across multiple trading venues, arbitraging tiny differences in price (Chart 7). These strategies have grown up as a direct response to the fragmentation of trading infrastructures. In other words, HFT is at least in part the (possibly unplanned) progeny of regulators pursuing competitive ends. The ascent of HFT goes a long way towards explaining the rise in equity market turnover in the major equity markets and in particular the rise in number, and fall in the average size, of trades executed. Put differently, the trading behaviour of HFT has contributed to the downward fall in the average duration of stock holdings. HFT holding periods lie in a narrow time range. The upper bound is perhaps around one day. The lower bound is a perpetual downward motion machine, as computing capacity compresses the timeline for trading. A decade ago, execution times on some electronic trading platforms dipped decisively below the one second barrier. As recently as a few years ago, trade execution times reached “blink speed” – as fast as the blink of an eye. At the time that seemed eye-watering, at around 300–400 milli-seconds or less than a third of a second. But more recently the speed limit has shifted from milli-seconds to micro-seconds – millionths of a second. Several trading platforms now offer trade execution measured in micro-seconds (Table 1). | 30 It is interesting to assess those proposals using the framework developed here. 29 European Commission (2010), CFTC-SEC (2011). 30 CFTC-SEC (2011). 12 BIS central bankers’ speeches (i) Market-making guidelines: In principle, a commitment by market-makers to provide liquidity, whatever the state of the market, would go to the heart of potential price discontinuity problems. Market-making commitments would not forestall the arms race. But they would lessen the chances of liquidity droughts and associated fat tails and persistence in prices. They would, in effect, lower the impact of H. Perhaps for that reason, there have been proposals in both the US and Europe for such a set of market-making commitments. 31 The difficulty appears, first, in specifying these commitments in a precise enough fashion; and, relatedly and just as importantly, enforcing them. In a sense, even the market-makers offering their stub quotes on 6 May were fulfilling a market-making commitment, albeit a paper-thin one. If hard law commitments are too difficult to define or enforce, an alternative may be a set of soft law guidelines. A number of electronic broking platforms, notably in foreign exchange markets, have codes or rules of conduct – for example, around pricemaking and price-taking which control the extent to which any one firm can steal a technological march on others. If these codes were extended across trading platforms and assets, perhaps in time market-making behaviour might adapt. (ii) Circuit-breakers: Circuit-breakers already exist on US and Europe exchanges. | 1 |
However, as mentioned, real GDP may behave more positively in the short term than in the Stability Programme. As regards the budget, the path projected for the overall general government deficit is in line with the requirements of the Stability and Growth Pact: declining from 3.1% of GDP in 2017, to 2.2% in 2018 and 1.3% of GDP in 2019. In 2020 a budget deficit of 0.5% of GDP is projected. This path of reduction of Spain’s budget deficit needs to be achieved if the excessive deficit situation (a deficit of more than 3% of GDP) is to end in 2018. Public debt, according to the Stability Programme, is expected to fall gradually, to reach 92.5% of GDP in 2020. In the current environment of high economic growth and low general government financing costs, the budget consolidation required to achieve the deficit targets for the period 20172020 (as measured by the change in the primary structural balance) is relatively small. The Stability Programme includes the stability objectives for 2017 – for each sub-heading of public expenditure – that were approved by Parliament in December last year and extends them to 2020; then, budget balance is projected for all levels of general government, except the Social Security system, which would still record a deficit of 0.5% of GDP. Central government, which currently has the largest deficit, will be responsible for making the bulk of the projected adjustment. | As a result, the performance of revenue and the impact on spending of the plans announced for public-sector employment will need to be monitored over the next few years, so that, in the event of any deviation from the projections, action can be taken in time to avoid the risk of failure to achieve deficit commitments. The importance of budgetary consolidation Finally, it seems to me necessary to stress the importance of completing the budgetary consolidation process. The current environment of high growth and low interest rates is a very favourable one in which to reduce the structural budget deficit and public debt to levels more in line with those in the main euro area economies, and this opportunity should not be wasted. The cost of financing public debt (which still stands at 100% of GDP) would be reduced and there would be some scope for fiscal policy to respond to possible adverse scenarios. Moreover, consolidation is essential to address the challenge that an ageing population will pose for spending on health, dependency and, above all, pensions. In this respect, the magnitude of the adjustment needed to achieve sound public finances in Spain is still significant. Hence the need to comply with all the domestic and European budgetary framework requirements. Following their strengthening in recent years, this means not only that the budget deficit (defined in total and structural terms) and public debt must be progressively reduced, but also that the so-called spending rule must be observed. | 1 |
In the current circumstances, economic policies have an important role to play by holding the euro area firmly on course to meet its macroeconomic stability objectives, which are those that make sustained growth possible and shore up the economy against shocks and outbreaks of insecurity and uncertainty. As mentioned above, the main task of monetary policy is to ensure euro area price stability in the medium term, and it is against this background that monetary conditions have gradually been normalised since December 2005. This process has been correcting the benign monetary conditions of the Spanish economy in recent years and promoting a more balanced growth pattern. The most valuable contribution fiscal policy can make is to ensure the commitment to budgetary stability. This commitment has been essential for establishing the conditions propitious to the recent long period of economic growth of the Spanish economy and it is particularly relevant to the macroeconomic setting I have described. 4 BIS Review 130/2007 The latest official forecasts for the general government account are for a surplus of 1.3% of GDP in 2007. This would amply meet the requirements of the Stability and Growth Pact and enable a further reduction of the public debt/GDP ratio. Moreover, it represents an improvement of 30 bp on the target set in the latest update of the Stability Programme. This improvement basically reflects a positive deviation of tax revenue with respect to budget, in a setting of higher-than-expected growth. | Therefore, a scenario of recovery in net exports such as that described requires Spanish firms to push ahead with the improvement in competitiveness made by them in response to the sharp ongoing adjustment in the structure of world trade due to the entry of new competitors. At the same time, the slower momentum of final demand should manifest itself in a certain slowdown in imports, curbing the leakage of spending out of Spain. However, as I indicated in September, it is precisely in the external economic environment where the main factors of risk to the macroeconomic scenario outlined above are to be found. If the recent bout of financial instability and of heightened international uncertainty were to significantly affect the buoyancy of Spain’s export markets, the capacity of external demand to contain the adverse impact of a slowdown in domestic spending would be diminished and, accordingly, the efforts required to improve competitiveness would be even greater. Domestically, the continued dynamism of employment and the gradual normalisation of the property market are fundamental for keeping income expectations and, consequently, agents’ spending plans on a mildly slowing course. In any event, the Spanish economy is witnessing a process in which construction investment is diminishing in importance as the engine of growth. Therefore, it is essential to have a sufficiently flexible mechanism of resource allocation to enable industrial activity and services to take over from construction, furthering the change in output composition that has been taking place in the last few quarters. | 1 |
I am confident that the FOMC’s plan will reduce the size of the portfolio in a gradual and predictable, “no surprises” manner; that the FOMC’s plan will promote good market functioning in the Treasury and agency mortgagebacked securities markets as the portfolio declines; and that it will not prove disruptive to the U.S. mortgage market or the U.S. Treasury’s debt management program. And I am also confident that the plan’s design, and the FOMC’s clear communication prior to the plan’s implementation, will mitigate the risk of sharp or outsized asset price reactions to the decline in the portfolio’s size over time. Of course, we cannot and should not prevent Treasury and agency MBS prices from reacting to relevant economic and financial developments, or indeed from gradually moving over time in response to the progressive decline in the size of the Federal Reserve’s holdings and consequent increase in the amount of securities held by the private sector. In fact, we very much want asset prices to respond appropriately and fully to economic and financial news. Over the coming years, such news could span a wide variety of topics, such as central bank policy in this country and abroad, the ongoing debate over fiscal policy, and the evolution of expectations for the longer-run neutral rate of interest. That said, we do seek to mitigate the risk that our operational actions contribute to unnecessary surprise, disruption, or volatility. There is of course always a risk that events could unfold differently from expectations. | In its role as the regulator, the Bank of Albania’s vision is to contribute to the future, aiming to establish a highly adequate environment for boosting financial innovations and modernising the financial structure. Our regulatory regime aims at fostering innovation, being a positive catalyser and not a barrier. We aim at being avant-garde for a modern financial infrastructure. But experience shows that technology always is a step ahead and rapidly spreading. Technology has no limits and we, as regulators, should adopt rules and laws that these technologies be used by the consumers, individuals or businesses. At the same time, we should be aware of the risks that accompany these new technologies. Finding a perfect balance between the promotion of new ideas and the regulatory prudence constitutes one of the major challenges in this regard. BIS central bankers’ speeches 1 Bank of Albania has designed a payments regulatory framework, which paved the way for the development and modernisation. This framework provides all banks or other suppliers of financial services with the possibility to access the payment system in an equal and transparent way, thus contributing to the development of a competitive payment industry, without any asymmetry. Bank of Albania welcomes the contribution of innovation and technology in financial services as a support for achieving its strategic objectives for financial inclusion and reduction of cash use in the economy. These objectives serve crucially to both the transmission of the monetary policy and the safeguarding of financial stability. | 0 |
Mr Tarullo added that “I would not apply the presumption in the case of certain de minimis acquisitions or in cases where asset dispositions were judged to offset any increase in systemic risk from the proposed new acquisiton”. 6 Earlier this year, the Board of Governors issued an order approving Capital One Financial Corporation’s acquisition of a federal savings bank, ING Bank. In that order, the Board set forth two principles that are relevant to this particular issue. First, the Board stated that it would generally find a significant adverse effect if the failure of the firm resulting from a merger or acquisition “would likely impair financial intermediation or financial market functioning so as to inflict material damage on the broader economy”. Second, the Board observed that there are some small acquisitions or mergers that would not raise a financial stability concern, such as “a proposal that involves an acquisition of less than $ billion in assets, [or] results in a firm with less than $ billion in total assets……” 6 BIS central bankers’ speeches banks submitted their “living wills” to the Federal Reserve and the FDIC this summer. We have reviewed the first iterations of their plans and are currently drafting feedback for the firms to incorporate in their next submissions. Through such “living wills”, regulators are gaining a better understanding of the impediments to an orderly bankruptcy. This is the necessary first phase in the process of determining how to ameliorate these impediments over time and then doing so. | Or would it be better to take the more direct, but less nuanced approach advocated by some and simply break up the most systemically important firms into smaller or simpler pieces in the hope that what emerges is no longer systemic and too big to fail?1 As I will explain tonight, I believe we should continue to press forward on the first path. But, if we fail to reach our destination by this route, then a blunter approach may yet prove necessary. As always, my views may not necessarily reflect those of the Federal Reserve System. What is the too-big-to-fail problem? The root cause of “too big to fail” is the fact that in our financial system as it exists today, the failure of large complex financial firms generate large, undesirable externalities. These include disruption of the stability of the financial system and its ability to provide credit and other essential financial services to households and businesses. When this happens, not only is the financial sector disrupted, but its troubles cascade over into the real economy. There are negative externalities associated with the failure of any financial firm, but these are disproportionately high in the case of large, complex and interconnected firms. Although the moniker is “too big to fail”, the magnitude of these externalities does not depend simply on size. The size of the externalities also depends on the particular mix of business activities and the degree of interconnectedness with the rest of the financial industry. | 1 |
Moreover, risk appetite at domestically focused banks is still high, as is reflected in the interest rate and affordability risk exposures in their mortgage business. Stress tests carried out by the Swiss National Bank suggest that these risks are currently sustainable, thanks to good capitalisation overall. Against the backdrop of persistently low interest rates, this is welcome. In the future, too, a decisive factor for financial system stability will be the banks’ ability to maintain risk exposures at a sustainable level. The current low interest rate environment creates strong incentives to increase interest rate or affordability risk exposures in lending business. For instance, there is a public debate about whether the imputed interest rate used to assess affordability should be reduced. The level of this imputed interest rate is not set by the Page 2/3 Berne, 15 December 2016 Fritz Zurbrügg News conference regulator and varies between banks. However, it does play a key role in affordability assessments. Banks typically use a rate of 5%. Let me go into this topic in further detail. While today’s period of low interest rates could well persist and the rise in interest rates might only be very gradual, mortgages generally influence borrowers’ financial situation and banks’ balance sheets over a period of decades. As such, when assessing affordability and calibrating risk exposure, long-term interest rate developments are also relevant. Despite the current pressure on interest rate margins, banks should therefore continue to take a long-term view in their risk policy. | This requires effective cooperation with foreign authorities in a crisis, for which, in turn, the global resolution plans are an important prerequisite. As regards emergency plans, both Swiss big banks have introduced significant measures by setting up Swiss subsidiaries which combine systemically important functions in one entity. The key point here is that the Swiss units must be sufficiently independent from the rest of the bank, both operationally and financially. Both big banks have to implement their emergency plans by end-2019 at the latest. FINMA is responsible for the definitive assessment on whether the plans allow systemically important functions to be maintained in practice. Domestically focused banks I would now like to turn to the domestically focused banks. For these banks, the mortgage and real estate markets still represent the greatest source of risk. Growth on these markets has remained fairly constant over the last six months, and at a relatively low level. At the same time, imbalances on the mortgage and real estate markets have fallen slightly overall, owing to developments in fundamentals. Despite this most recent development, the risks that have been building in the Swiss banking sector since the beginning of the low interest rate period in 2008 remain considerable. Thus, imbalances on the mortgage and real estate markets are still approximately as high as they were in 2014, when the sectoral countercyclical capital buffer was set at 2%. | 1 |
Peter Pang: Managing capital flows – the search for a framework Welcoming address by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Asian Development Bank Institute and Bank for International Settlements Joint Seminar for the book launch on “Managing Capital Flows: the Search for a Framework”, Hong Kong, 21 April 2011. * * * Good morning, Ladies and Gentlemen. 1. Let me thank Mr Kawai for inviting me to this event. It’s my honour to welcome you to this joint seminar by the Asian Development Bank Institute (ADBI) and the Bank for International Settlements (BIS) to mark the launch of the new book, “Managing Capital Flows: the Search for a Framework”. This is a topical issue right at the centre of attention of policymakers in this region. And as the title suggests, it is also a subject that we are still in search for an answer. 2. There is an old Chinese proverb saying that “water can keep a boat afloat but it can also capsize the vessel”. This suitably characterises the nature of international capital flows – it brings both benefits and risks to the development process in Asia. Capital inflows have been playing a key role in the economic development of the region – funding investments and bringing along technology and skill transfers. These were conducive to the emergence of the “four Asian Tigers” in the 1980s, and the rapid modernisation process of China, India and other Asian economies. | At the domestic level, there has been growing recognition that there is no one-sizefits-all approach to capital flows management. While conventional macroeconomic policies are useful in containing overheating in the overall economy, their deployment is often constrained by their broad-brush nature and the concern about attracting even more speculative inflows. Therefore, many developing economies have also adopted other prudential and capital account measures to manage capital inflows and to contain the buildup of excesses in specific sectors of the economy and the banking system. For example, some regional economies have recently tightened the mortgage underwriting standards of their banks, and limited banks’ foreign currency borrowing and derivatives positions. 12. To effectively manage capital flows, policymakers would need to improvise with the apparatuses in their policy toolkit and apply a policy mix tailored to their domestic circumstances. It is like the use of “Chinese herbal medicine” – we feel the pulse, carefully calibrate a combination of remedial herbs (i.e. policies), and follow through with continuous fine-tuning in the light of market reactions. The process is pragmatic and, to a large extent, interactive. 13. Given the need for customised solution at the national level, the sharing of experience is therefore very important. We welcome the timely publication of this book, which provides a good basis for studying the different approaches to managing capital inflows by different economies. Individual countries’ experiences would, collectively, help shed light on the formulation of an effective policy framework. 14. | 1 |
Medium-term forecasts Current stance, short-term outlook and the assumptions Current stance relating to real sector variables that constitute the basis for the forecasts presented in the previous Inflation Report have been preserved in this Report to a great extent. Despite rapid growth in domestic demand in the last quarter of 2005, the ongoing increase in the ratio of investment expenditures to GDP eased the pressures on inflation imposed by the increase in demand by pushing the production capacity upwards. Moreover, continuing productivity proceeds limited the increase in costs, thus limiting the pressure on inflation. While producing forecasts, the short-term outlook relating to domestic supply and demand conditions was developed in the light of these findings. Real interest and real exchange rate variables, which determine the relationship of supply-demand conditions to inflation and constitute the starting point of the monetary transmission mechanism, are also significant components of the assumption set that constitute the basis for medium-term forecasts. It is assumed that in the current situation, real interest rates are not at a level that can exert pressure on credit increases and demand conditions. Nevertheless, under a main scenario in which the current program will continue to be implemented, macro and political stability will not deteriorate, structural reforms and, accordingly, long-term capital inflows as well as productivity increases will continue, it is assumed that the New Turkish lira will retain its strong position and will continue to support the decline in inflation. | 4 BIS Review 67/2006 Considering the fact that seasonal price movements are determinant in consumer prices, it will be helpful to analyze the Special CPI Aggregates (SCA), excluding seasonal products, with respect to the course of inflation. The decline in the annual rate of increases in the SCA-E* index that has been continuing since the beginning of 2005, which is calculated by excluding seasonal products from the SCA-E index excluding energy, alcoholic beverages and tobacco products, had slowed down by the first quarter of 2006. On the other hand, it is observed that the downward trend in the seasonally adjusted SCA–D* index, which is calculated by excluding energy, unprocessed food, alcoholic beverages, tobacco products and gold, continued in the first quarter of the year as well and the main trend of inflation was downwards (Graph 6). Graph 6. CPI and Special CPI Aggregates (E* and D*) (Annual Percentage Change) 10 9 8 7 6 CPI E* 5 D* (Seasonally Adjusted) Mar-06 Feb-06 Jan-06 Dec-05 Nov-05 Oct-05 Sep-05 Aug-05 Jul-05 Jun-05 May-05 Apr-05 Mar-05 Feb-05 Jan-05 4 E*: CPI excluding energy, alcoholic beverages, tobacco products and seasonal products D*: CPI excluding energy, alcoholic beverages, tobacco products, unprocessed food and gold Source: TURKSTAT, CBRT. Producer prices rose by 2.48 percent in the first quarter of 2006. | 1 |
The weakening of the US currency resulted in a further decrease in the dollar’s share of foreign currency reserves. Recently, in an effort to prevent the dollar’s share from dropping too low and with a view to rebalancing, we bought dollars again on a number of occasions. Furthermore, as part of the 2004 strategy, the proportion of government bonds was also reduced in favour of other borrowers’ bonds. The required minimum rating for bond investments was lowered from A2 to BBB, thus covering the entire “investment grade” range. Corporate bonds have now also been added to the National Bank’s investment universe, albeit only those of foreign companies. Currently, roughly 4% of both foreign currency reserves and free assets are invested in corporate bonds. The credit quality of all our investments is still very high. Borrowers with the top rating AAA account for over 70% of the investments. Close to 20% bear the AA rating. The remaining investments have an A or a BBB. The average residual maturity (duration) of all bonds held by the National Bank was kept at 4-5 years. The first investments in equities issued exclusively by foreign companies will be made at the beginning of 2005. The addition of equities and corporate bonds is likely to improve the degree of diversification of the investments and will contribute to the achievement of slightly higher returns in the medium term. The main difference between the investment structures of foreign currency reserves and free assets is their currency profile. | The findings from the market, needs assessment and scope for intervention were materialised 1/2 BIS central bankers' speeches in a National Strategy on the Modernisation of Retail Payment 2018–2023) The Strategy aims for improvements in the retail payment market to provide Albanian citizens with more options to choose from for their daily transactions, more easily and more cost-effective, by supporting the objective for a broader-based financial inclusion. The strategy lays down concrete and measurable objectives, such as the doubling of the population having a bank account (from 38% in 2018 to 70% in 2022), the increase in the number of electronic payments per capita, from 4.3% in 2016, to 10 in 2022 (increase by 130%). The Strategy aims also legal and regulatory improvements, which lay the foundations for innovative initiatives, and a level playing field. In this regard, the Bank of Albania finalised the drafting of the law “On Payment Services in the Republic of Albania”. The approval and implementation of this law will provide a crucial contribution to establishing services at low cost and easily accessible by the public, and promoting competition and innovation also based on a prudential consumer protection regime. This will be the theme of the first session of the Conference. Also, the Strategy aims at infrastructural improvements. In this regard, a set of measures are envisaged to promote interaction among various actors from the infrastructural point of view, aiming at reducing costs, in particular, for end users. | 0 |
Given the famous Page 10 ‘long and variable lags’ in monetary policy transmission, it is the persistent component of inflation – that component of inflation that will still be there once the lags in monetary policy transmission unwind – that is the relevant object for the MPC’s attention. But judging inflation persistence in real time is difficult. By its nature, a persistent series does not change much from one MPC meeting to the next. Such relatively high frequency month-to-month fluctuations cannot be the main driver of a series whose evolution must be dominated by lower frequency dynamics, if it is indeed to be persistent. In coming to an assessment of inflation persistence, the MPC has emphasised the importance of domestic price and wage setting behaviour, since this has historically proved to be more persistent that external drivers such as commodity price shocks. This has naturally led to a focus on wage developments, on services price inflation and – as new data sources, such as the Bank’s Decision Maker Panel, have become available – on corporate pricing behaviour as key indicators of inflation persistence, and thus in turn of the prospects for monetary policy. This focus is evident in the analysis present in the MPC’s recent Monetary Policy Reports, and in the indicators highlighted in the MPC’s published minutes and policy summary. But there is no single indicator that can adequately summarise the ‘instantaneous persistence’ of inflation. | The text has also benefitted from helpful comments from Andrew Bailey, Ben Broadbent, Fabrizio Cadamagnani, Page 11 Jonathan Haskell, Josh Jones, Catherine Mann, Rhys Phillips, Dave Ramsden, Andrea Rosen, Martin Seneca, Fergal Shortall and Silvana Tenreyro for which I am most grateful. Opinions (and all remaining errors and omissions) are my own. 1. See Money Marketeers of New York University . 2. Another – and, in my view, largely equivalent – way to characterise this process of ‘normalisation’ is as an ‘exit’ from the exceptional and unconventional policy measures introduced in the face of the global financial crisis and its aftermath. From the introduction of those measures, it was recognised widely in the central bank community that such exit would pose challenges for the design, implementation and communication of monetary policy. 3. Moreover, the large portfolio of asset purchases accumulated as a result of QE has been run down in parallel with the rise in Bank Rate. Since March 2022, the Bank of England has ceased to reinvest the proceeds of maturing bonds held in its Asset Purchase Facility (APF) used to house the QE portfolio. As of November 2022, the Bank has sold gilts from the APF to the market. Corporate bond holdings in the APF have been reduced by similar means. 4. The concept of a ‘neutral’ balance sheet remains even more elusive than that of a ‘neutral’ interest rate at both empirical and conceptual levels, so I focus on the interest rate dimension here. 5. | 1 |
Banks must decide whether they aim to be central to their customers’ needs or they are content to be merely balance sheet providers, where someone else owns the relationship with the customer. In the second scenario, banks would have no brand affinity or loyalty from their customers and would be easily replaceable. As things stand, the banking industry is surely struggling on this front. Today, no bank is placed among the top twenty global brands in terms of value. Even banks which were there a decade ago have since slipped off the list. Banks must work hard to ensure that they remain the first choice for their customers, and that means taking a much broader view of their relationship with customers. Banks need to consider how they can help solve their customers’ problems and improve their lives, while being cognizant of their broader social purpose to promote inclusive, sustainable prosperity. After all, banks can no longer take customer loyalty as a given. A recent banking consumer study conducted by Accenture found that 40% of customers expressed decreased dependence on their bank as their primary financial services provider and 42% said they had used non-bank providers for financial services in the past year. A good example of non-banking providers displacing traditional banks is Kakao Bank in South Korea. Kakao Bank was launched in 2017 as a digital bank by Korean Internet company Kakao, which also owns the popular free mobile messaging service KakaoTalk. | 18.11.2020 Opening address of the conference “Consumers and the postCOVID mortgage market” ADICAE Margarita Delgado Deputy Governor Good afternoon. I would like to thank ADICAE for kindly inviting me to address you on the opening of this conference on the post-COVID mortgage market. Allow me a minor comment regarding the conference title: I fear it is still too soon to talk about the mortgage market situation after COVID, although there is evidently no lack of will to do so. The latest science news on the progress of the different vaccines gives us hope that we may shortly look to the future without seeing the pandemic on the horizon. Let us trust this will be so. In any event, beyond the effects this health crisis may be having in the short term, housing affordability has been a very relevant subject in Spanish society for decades. Worldwide, we are one of the countries with the highest homeownership percentages, and the mortgage market has unquestionably been a decisive factor in making such housing affordability possible. This conference is directed at consumers, although if you will allow me the technical detail, national accounts treats house purchases as “investment”, not as consumption. This is clearly the case and, almost always, this is the most important investment that we “consumers” make in our lives. Given the importance and scale of this purchase, the authorities should watch over individuals’ interests. | 0 |
All told, we spoke to firms accounting for about three-quarters of current reserves balances. What did we find? Unsurprisingly, different firms thought about their reserves holdings in quite different ways – and no-one used the term ‘demand curve’! Nevertheless, we can build up a picture of demand for reserves by understanding three core drivers of demand, common to all firms. First, at the most basic level, firms hold reserves to meet both expected and unexpected sterling payments during each day. The shape of this demand depends on firms’ business models. Calendar effects are important for retail banks, for example; whereas wholesale banks and gilt-edged market makers are more affected by the ebb and flow of capital markets activity. And access to (and efficiency of) payment and settlement systems can have important implications for the reserves that firms need to hold. So innovations such as the Bank’s RTGS renewal programme14 have the potential to transform demand levels. Second, reserves are an important form of insurance against liquidity outflows over short, but multi-day, horizons. Regulatory rules require firms to hold liquid assets to cover projected outflows over a 14 https://www.bankofengland.co.uk/payment-and-settlement/rtgs-renewal-programme 9 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 9 thirty day period. This doesn’t have to mean reserves – firms could instead hold liquid government bonds, mortgage backed securities or even equities. But, unlike reserves, such assets have to be liquidated in the market before they can be used to meet outflows. | An important question is whether this increased relative attractiveness of alternative liquid assets would also reduce the PMRR. Few of the firms we spoke to expected a big effect on their minimum holdings. That’s consistent with more detailed surveys carried out by the Federal Reserve, which suggested little response 15 In practice, of course, asset prices are jointly determined with reserves demand: they will have adjusted to ensure that the aggregate supply of reserves, determined by asset purchases, is willingly held. 10 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 10 even to quite large changes in the opportunity cost of holding US dollar reserves.16 But we should be cautious of these findings when alternative rates of return have been so low for so long. Bringing all this together, our conversations with firms suggest the current sterling PMRR is of the order of £ Table 1 breaks this down into a base estimate of firms’ ‘true minimum’ demand to meet payments and liquidity outflow needs, and an additional estimate of the buffers held above these minima.17 These estimates draw on firms’ descriptions of their preferred holdings and their management of fluctuations in reserves levels, cross-referenced with our own analysis of historic reserves account activity. | 1 |
High uncertainty persists over the intensity of the recovery in the closing months of the year, given how the pandemic has recently evolved in Europe. The across-the-board roll-out of new containment measures to counter the health crisis might lead to a significant slowdown in the rate of growth of activity, and even to a contraction, at least in some countries or sectors. For the year as a whole, the baseline scenario of the ECB’s latest forecasts points to an 8% reduction in euro area GDP in 2020, followed by a 5% increase in 2021. The estimated contraction for this year widens to 10% in the harshest scenario (based on a greater impact of the pandemic, with more severe restrictions and a delay in any possible health-related solution), which would moreover entail a very slight recovery, of 0.5%, in 2021. As to the inflation outlook for the area, the ECB augurs a very weak increase this year, of only 0.3%, rising in 2021 to 1%, a figure nevertheless some distance off the medium-term price stability objective. 2 1.2 Recent developments in the Spanish economy In Spain, the impact of the pandemic on economic activity has been particularly marked, and much more acute than in past recessions. GDP duly posted historical quarter-onquarter contractions in the first half of this year (5.2% in Q1 and 17.8% in Q2), essentially as a result of the rapid spread of the virus and of the measures of confinement and restriction of activity adopted to contain the pandemic. | These often stem from sensitivity to fast swings in capital flows, and break out when economic policy lacks credibility. They can also be caused by a combination of domestic problems and contagion from other countries that are considered to be in similar economic situations. At the same time as the free movement of capital increases the potential welfare effects of globalisation, it entails risks that can only be managed through disciplined economic policy. IMF financing for capital account crises should principally aim to quickly restore confidence in the affected countries’ economic policies. The intention should be that the loans be paid back to the IMF after a relatively short period of time. When a serious crisis is at hand, it is hard to say no to a loan request. At the same time, it is important to counter tendencies towards moral hazard, which in the longer term could result in both riskier economic policies and irresponsible lending from private creditors. This is a genuinely difficult issue. There are no easy solutions. The Nordic-Baltic constituency has argued that the use of the IMF's loan instrument must be based on unambiguous, predictable rules. And that the rules be applied. This has not always been the case, e.g. as regards certain decisions concerning exceptional access, i.e. where the IMF has granted substantial loans without requiring sufficient conditionality. In a number of instances the result has been a longer-term dependence on loans and in several cases recurrent crises as well. | 0 |
In most cases this was at a very respectable level; all figures fall in the range 22-38% of GDP on average for the period; by way of comparison, 1997 figures for USA, Japan and Germany were 18%, 26% and 19% respectively. Also shown is the level of total domestic savings; this is the sum of savings by the household, corporate and government sectors (and may of course include dissaving by one or more of those). For certain purposes I would have liked to show the household component of the total, but sufficient data are not available. The third column displays second minus the first - i.e. the excess of savings over investment on these measures. For all but two of the economies, domestic saving has outstripped fixed capital investment - in some cases by a substantial margin. But these figures tell us nothing about the intermediation process between saving and investment or about the role of financial institutions and markets. Much of the investment may take place within the same economic unit as where the savings arise, or be directed by government, without any requirement for third-party intermediation. Of course, if domestic saving is channelled into domestic investment mainly through government or other routes which are not subject to market discipline, allocative efficiency within the economy is likely to be impaired. | This market has progressed considerably in recent years, with the evolution of the markets for Exchange Fund bills and notes, borrowing programmes by public sector bodies, fundraising by multinational agencies and sizeable funding programmes - mainly at the short end - by Hong Kong financial institutions. But, except for Exchange Fund bills, the secondary markets are not greatly active and there has been little activity by local private sector corporate entities to raise longer-term funds directly from the debt market. Perhaps the difficulty is simply that market conditions are seldom regarded as propitious on all fronts simultaneously - at present, for instance, the general level of interest rates may tend to discourage issuance at term. And there is definitely a chicken-and-egg problem in that prospective investors would like prior evidence of a liquid market, but liquidity cannot be tested until there has been issuance. Dilemmas such as these are certainly not unique to Hong Kong. I acknowledge also that there are perceived obstacles concerning the tax regime, but it is worth noting that Hong Kong does have a low overall tax environment. It is hard to find solutions which fully satisfy all parties in such matters. It is also worth noting that, in normal market conditions, there is perhaps less incentive to exploit the potential of the local currency debt market than there might be in other centres, because of our pegged exchange rate: some borrowers may consider the US dollar 3 BIS Review 52/1999 market a satisfactory surrogate, especially given its established liquidity. | 1 |
It wants to explain better why it is aiming for an inflation rate of 3%. The communication strategy of the Bank of Albania is to explain the working of the monetary policy issues and its own tasks, to you all. The understanding of the public is needed for a good conduct of Inflation Targeting. Credibility has to be gained. As said before, a solid statistical framework is also indispensable. Reliable statistics can tell us about the past and the present. On the basis of this, the Bank of Albania can use its econometric models to forecast the future. The Bank of Albania can conduct monetary policy, and can target inflation better, in case of better forecasts. We can stress the preconditions. But the fulfillment of all preconditions for Inflation Targeting depends also on others in the Albanian economy. Under Inflation Targeting, the monetary policy aims at a precise inflation target in the medium term. The Bank of Albania can only reach this target in case the interest rate setting affects the deposits, credits, private consumption and business investment, GDP, like in a developed market economy. Only in this case can monetary policy be effective. Therefore, some preconditions for putting full fletched Inflation Targeting in place can not be met ONLY by the Bank of Albania. They depend upon the development of the Albanian economy, they depend upon the provision of statistics by INSTAT and others, they depend upon the understanding of the public. | These certifications will reduce costs and increase efficiency of our banking system operation. Complete re-scanning of our financial system – in collaboration with the World Bank and the IMF – (financial Sector Assessment Program) – to enable the identification and correction of its weak points in a timely manner. I consider that special attention will be paid on: the activity of non-bank financial institutions and convergence of their practices and regulations with those of the banking system. This will boost the effectiveness of financial system and fair competition within and among various segments of this system; fully efficient operation of the supervisory architecture of our financial system, starting from the Financial Stability Advisory Group (FSAG) and continuing with the practices on information share and collaboration amid its regulatory institutions; continuing the work for the reduction of foreign currency use in Albania, aiming at increasing awareness of both public and private actors on the risk it bears, thus by strengthening the response of the Albanian institutions. Third priority relates to encouraging formalisation, and increasing both financial education and inclusion. The relatively high level of informality in the Albanian economy stems serious negative consequences, through putting in threat competition, increasing uncertainty in commercial and financial relationships, and reducing public revenues. In this view, the Bank of Albania will continue to work to strengthen formalisation of the economy. | 0 |
115 11 110 10 105 9 100 8 95 7 90 6 85 5 80 4 75 3 2000 70 2003 2006 2009 2012 2015 2018 1) Figures for 2019 are based on the projections in Monetary Policy Report 4/19. Sources: Norwegian Technical Calculation Committee for Wage Settlements (TBU), Statistics Norway and Norges Bank Despite a more than 15 percent reduction in labour costs in a common currency since 2014, the tradable sector has shown fairly weak growth, as reflected in recent trade balance developments. The non-oil trade deficit has continued to widen, which must be seen in the light of the decline in oil service exports owing to the sharp fall in global offshore oil investment. Seafood exports have recently set new records in krone terms, but exports have remained flat for several years in volume terms, partly because of salmon lice problems. Capacity constraints have also hampered exports of metals and other capital-intensive manufactured goods. Profitability has clearly improved, but a considerable increase in production requires substantial investment, and it is only in the past few years that manufacturing investment has shown a pronounced pick-up. The large foreign assets that we have accumulated mean that we can run a trade deficit when oil and gas revenues eventually decline. | 1) Percent 10 9 10 Equities Fixed income 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 1999-2009 2010-2019 1) At 30 September 2019. Source: Norges Bank The rise in equity prices has largely been driven by a fairly small number of companies. US corporate profit margins have increased markedly. The big earners have been the tech giants, which typically operate in markets where there are substantial profits to be gained as the dominant company. Their profits have drawn growing attention from competition authorities and higher taxation is under discussion internationally. Current valuations are based on expectations of sustained profit growth. This entails a downward potential. 6 Developments in the fund’s value over the past decade must also be seen in the context of the decline in global interest rates over time. The interest rate decline reflects the expansionary monetary stance prevailing since the financial crisis. Central bank policy rates were reduced to very low levels in many countries in order to stimulate economic activity. Several central banks have also engaged in substantial asset purchases, which has pushed down long-term interest rates further. NORGES BANK ECONOMIC PERSPECTIVES 13 FEBRUARY 2020 But low interest rates also reflect other driving forces such as population ageing, high saving in emerging economies, growing inequality and a general decline in productivity growth. | 1 |
Lim, C H, Krznar, I, Lipinsky, F, Otani, A and Wu, X (2013), “The macroprudential framework: policy responsiveness and institutional arrangements”, IMF Working Paper, WP/13/166. Maddison, A (1995), “Monitoring the world economy, 1820 – 1992”, OECD Publishing. 12 BIS central bankers’ speeches Newman, M E J (2005), “Power laws, Pareto distributions and Zipf’s law”, Contemporary Physics, Vol. 46, No. 5, pp. 323–351. Nier, E, Osinki, J, Jacome, L and Madrid, P (2011), “Institutional models for macroprudential policy”, IMF Staff Discussion Note, SDN/11/18. North, D (1981), “Structure and change in economic history”, W.W. Norton & Company. North, D (1991), “Institutions”, The Journal of Economic Perspective, Vol. 5, No.1, pp 97–112. Olson, M (1982), “The rise and decline of nations: economic growth, stagflation and social rigidities”, Yale University Press. Olson, M (1991), “Autocracy, democracy, and prosperity”. In Strategy and choice, edited by Zeckhauser, R J. Cambridge: MIT Press, pp. 131–57. Reinhart, C and Rogoff, K, (2009), “This time is different: eight centuries of financial crises” Princeton University Press. Sachs, J (2005), “The end of poverty: How we can make it happen in our lifetime”, Penguin. Simon, H A (1971), “Designing organizations for an information-rich world” in: Martin Greenberger, “Computers, Communication, and the Public Interest”, pp 38–52, John Hopkins Press. Smith, A (1759), “The theory of moral sentiments”, London: A. Millar. Veblen, T (1899), “The theory of the leisure class: an economic study of institutions”, Macmillan and Company, New York. | As with monetary policy, both operate subject to statutory objectives and remits set by Parliament. And as with monetary policy, each is subject to rigorous accountability mechanisms enforced by Parliament. Both FPC and MPC have instrument, but not goal, independence. These institutional features have attractions as a response to the time-consistency dilemma which faces financial policymakers. The Bank of England is an institution with around 320 years of history. Financial crises have pock-marked its history. This ought to provide the Bank with the institutional memory necessary to make sense of dots on distant horizons, to diagnose emerging obesity in the financial system’s tails, to conscientiously object to next time appearing different. The primary objective of the FPC is to preserve the resilience of the financial system and, subject to that, to support the government’s objectives including for employment and growth. That ordering of the FPC’s objectives helps lean against short-term pressures to go for growth today at the cost of instability tomorrow. In effect, the FPC provides the longsightedness necessary to preserve future stability at a time when private risk horizons may be shortening. And it provides necessary insurance against future tail risks at a time when these tails may be fattening. This macro-prudential regime, with the FPC at its centrepiece, is an explicitly institutional solution to the financial policy dilemma. It is regulation of the system for the system: of the system because the FPC’s focus is system-wide; for the system because the FPC’s aim is stability in the wider economy. | 1 |
The overheating changed into a severe setback at the beginning of the 1990s. Between 1990 and 1994 the Swedish GDP fell by a total of 4.7 per cent. In Finland the fall experienced during the same period amounted to 10.4 per cent. Finland was hard hit by the large decline in export brought about by the collapse of the then Soviet Union. Open unemployment in Sweden rapidly soared from a level of around 3 per cent in 1991 to 8.2 per cent in 1993. In Finland, the number of unemployed increased from just over 6 per cent to 16 per cent. Some of this difference can, however, be due to the slightly different form taken by labour market policy in the two countries and to how unemployment is defined. The deficit in public finances increased considerably; in Sweden it was at worst 12 per cent of GDP in 1993 and the borrowing requirement amounted to almost 17 per cent. The deficit in Finland in the same year was 7.3 per cent of GDP. The crisis in the banking system at the beginning of the 1990s hit both Swedish and Finnish banks hard. Sveriges Riksbank, like the Bank of Finland, found itself in a difficult situation at the end of 1992, following the currency crisis. The decision on a new monetary policy strategy was taken in an environment where confidence in monetary and foreign exchange policy was low. | In the context of these fundamental and far reaching changes, less attention has however been accorded to the necessary changes to the human capital development that is required for the effective participation and performance in this new financial landscape. Indeed, the talent required also needs to be transformed. These changes have also precipitated a revisit and review of education systems around the world over to address the current discontent that the education has not kept up with the changing human capital requirements of the financial services industry. The World Economic Forum has projected that “staggering” talent gaps will arise in large parts of the world by 2020, and this will have a bearing on national competitiveness while organisations compete for talent on an unprecedented scale. Managing talent has consequently become significantly more challenging and needs to be addressed with talent development. The objective is to harness the full potential of the workforce. This is particularly urgent for Asia as it emerges as an important growth centre in the global economy. With Asia’s financial services industry poised to grow rapidly, this growth must be supported by the development of capabilities among the financial industry professionals. Going forward, the investment in this core pillar will be a defining factor in the performance and the capacity of the industry to reinvent and transform and thus enhance its resilience and sustainability. The path forward needs to be guided by a strategic response to the forces that are shaping the new talent landscape. | 0 |
Page 1 Inflation persistence and monetary policy − speech by Huw Pill ICMB Lecture, Graduate Institute, Geneva Page 2 Published on 04 April 2023 In this speech Huw Pill discusses the outlook for the economy, including how lower energy prices might push down on inflation in the short term, but could also boost demand and therefore impact inflation in the medium term. He stresses that the MPC must continue to monitor how these external shocks to inflation might become embedded in the economy, and therefore risk persistently high domestically driven inflation. He goes into detail about the Monetary Policy Committee’s role in controlling inflation, and the potential impact of its recent significant increases to interest rates. He outlines how the Monetary Policy Committee carefully assesses the impact of interest rate rises that have yet to feed through, with the need to address current inflationary pressures. Speech Good evening everyone. It is a great pleasure to talk under the auspices of the International Centre for Monetary and Banking Studies (ICMB) this evening. Thanks in particular to Professor Panizza for extending the invitation. I look forward to a stimulating debate. Let me start with some stark and uncomfortable facts. Annual UK CPI inflation was 10.4% in February. That is unacceptably high. The Bank of England’s Monetary Policy Committee (MPC) is committed to returning inflation to its 2% target on a sustainable basis. | Its significant similarities to the principles in ethical finance and socially responsible investment has been a further factor that has drawn BIS Review 136/2008 1 interest in Islamic Finance. Islamic finance does not only involve the avoidance of riba (usury) but also extends to issues relating to ethical values, such as fair trade and environmental protection. This has prompted participation from conventional global players in Islamic financial activities and in the acquisition of strategic stakes in Islamic financial institutions. There is also a growing number of established international financial centres such as London, Tokyo, Hong Kong and Singapore that have initiated plans for the integration of Islamic finance into their financial systems. Islamic finance has now become one of the fastest growing segments in the global financial system. The total Islamic assets under management by Islamic banks and conventional banks offering Islamic banking services is reported to exceed USD500 billion. This growth has also been in the other major components of the Islamic financial system. Islamic mutual funds are estimated to be about USD300 billion, while global takaful or Shariah-compliant insurance contributions are estimated to be about USD5 billion. Strengthening the international infrastructure Integral to the efforts in the development of Islamic finance has been the development of the supporting international Islamic financial architecture. | 0 |
C) new (non-bank) market entrants • the digitalisation of financial services opened the doors for a wave of new market entrants; • there are two categories of new market entrants; • first, there are start-ups making use of new information technology applied to financial services (“FinTech” companies); • second, there are established internet companies (large US social media or ecommerce platforms); • In most cases, they do not offer banking services other than the initiation of payments or access to account information; • these new product and service providers might present a challenge to the traditional market incumbents’ revenue streams; • their impact on the underlying financial market infrastructure will be more limited as the clearing and settlement of payments and securities transactions still take place between the account-holding entities. | To this end, it is prepared to purchase foreign exchange in unlimited quantities and to take further measures immediately if required. Once monetary policy requirements have been met, our foreign exchange investments are guided by three criteria: security, liquidity and return. In order to ensure that we meet the first two criteria – security and liquidity – we hold a substantial portion of our foreign exchange reserves in liquid government bonds, in the most important global currencies; almost threequarters of our foreign exchange reserves are currently invested in such instruments. When it comes to our third criterion – return – equities play an important role as they generally have a higher return potential than the government bonds of the major advanced economies. Currently, 16% of our foreign exchange reserves are invested in equities. BIS central bankers’ speeches 1 Given how substantial our foreign exchange reserves are, doing justice to all three of these criteria simultaneously is no simple matter. On the one hand, the considerable growth of our foreign exchange reserves has increased the concentration risk associated with conventional government bonds; on the other hand, there is the risk that we may overuse certain markets, thereby potentially triggering undesired price fluctuations. We therefore evaluate investment possibilities on a continual basis. As part of our search for diversification, Asia-Pacific markets in particular have become increasingly important for the SNB’s investment policy in recent years. | 0 |
See Söderberg (2018) for a description of the development of means of payment. 2 [25] rates, where a small number of central banks in practice conducted monetary policy for the entire world and thus ‘lent’ their credibility. 2 In Sweden, this system of fixed exchange rates did not function so well and this led to several major devaluations. The larger central banks also lost credibility for various reasons and the global economy underwent a period of high inflation in the 1970s and 1980s. Independent central bank with inflation target replaces gold The global developments over the past 30 years have entailed major changes to the monetary policy landscape, not least in Sweden. During the 1980s, work began in the leading countries of the world economy on rebuilding the confidence in monetary policy that had been lost in the 1970s. 3 At the beginning of the 1990s, Sweden experienced a severe financial crisis following the rapid winding up of several decades of hard regulation of the financial markets. During the crisis, there was strong pressure to devaluate and the defence of the fixed exchange rate finally became untenable. When the Riksbank abandoned the fixed exchange rate, monetary policy sought a new way to promote price stability, and Sweden joined the global trend of reinforcing the credibility of monetary policy. The answer became a more independent Riksbank with an explicit inflation target, and Sweden became one of the first countries in the world to try this new path. | (2020), “Bank of Japan’s policies have been a success”, Nikkei Asian Review, March 6. Rogoff, K. (1985), “The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics 100, pp. 1169-1189. Rogoff, K. (2017), “The curse of cash”. Princeton University Press. Sims, C. (2016), “Fiscal policy, monetary policy and central bank independence”, Jackson Hole Symposium. 24 [25] SOU 2007:51, “Riksbankens finansiella oberoende” (The Riksbank’s financial independence). SOU 2013:9, “Riksbankens finansiella oberoende och balansräkning” (The Riksbank’s financial independence and balance sheet). SOU 2019:46, “A new Sveriges Riksbank Act”. Sveriges Riksbank (2020a), “Monetary Policy Report”, April. Sveriges Riksbank (2020b), “Consultation response, SOU 2019:46”. Söderberg, G. (2018), “What is money and what type of money would an e-krona be?”, Sveriges Riksbank Economic Review 2018:2, Sveriges Riksbank. Ubide A. (2020), “Euro yearbook”. Vredin, A. (2019), “Särskilt yttrande av kommitténs sakkunnige Anders Vredin” (Special comment by the committee's expert adviser Anders Vredin), SOU 2019:46, pp. 1898-1908. 25 [25] | 1 |
And yet policy plays an important role in determining the dimensions of financial booms, and policy helps determine the ability of the financial system and the economy to adjust to its aftermath. We need to undertake a broad set of changes to address the vulnerabilities in our financial system revealed by this crisis. Just as a long list of factors contributed to the trauma, there is no single reform that offers the promise of sufficient change. The Presidents Working Group on Financial Markets and the Financial Stability Forum, which bring together policymakers and regulators from the major financial centers around the world, are in the process of outlining a comprehensive framework of reforms. Many of these recommendations will focus on changes to the mortgage finance market, the ratings process for ABS and structured credit products more broadly, regulatory and accounting treatment of these instruments and special purpose financing vehicles, the disclosure requirements on instruments and institutions, and other dimensions of the securitization process. I want to conclude with a few comments on some of the broader policy questions we face in designing these reforms. Regulatory reform and simplification The regulations that affect incentives in the U.S. financial system have evolved into a very complex and uneven framework, with substantial opportunities for arbitrage, large gaps in coverage, significant inefficiencies, and large differences in the degree of oversight and restraint upon institutions that engage in very similar economic activities. | The rational actions taken by even the strongest financial institutions to reduce exposure to future losses have caused significant collateral damage to market functioning. This, in turn, has intensified the liquidity problems for a wide range of bank and nonbank financial institutions. In this environment, banks have faced several different types of liquidity and funding challenges. They have been called on to fund a range of different contingent liquidity and credit commitments, as is typically the case in crises. The substantial impairment of securitization and syndication markets has been an additional challenge because it has reduced banks’ access to liquidity and their capacity to move assets off balance sheets. As the market value of many securities has declined, and investors have reduced their willingness to finance more risky assets, liquidity conditions have eroded further. In response, even the strongest institutions have become much more cautious, building up large cushions of liquidity, bringing down leverage and reducing financing for their leveraged counterparties. Policy measures The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. | 1 |
Mr President, no company can sustainably grow if it does not provide mechanisms by which employees can influence their working lives. Labour is more than a commodity. Unlike non-living factors of production, such as, machinery and raw materials, the work of human beings raises questions about the impact of work and work relations. As you review your collective agreement frameworks, I wish to remind you that there are a lot of common interests and important interdependencies between employers and employees despite the apparent conflicting interests. For instance firms need workers and workers need jobs. Ladies and gentlemen, there can be no true bargaining without prudent and effective leadership on either side of the table. This kind of leadership is required for us to achieve our collective objectives. We are desirous of seeing a Union leadership, which is well-informed and constantly upgrading their leadership skills for the attainment of organisational goals and workers welfare. In conclusion, I wish to once again implore you to actively participate and take a keen interest in the deliberations of this Forum. It is my expectation that you will have an opportunity to carry out an appraisal of your individual and collective skills and how they impact upon the job market and workers welfare in the financial sector. With these remarks, Ladies and Gentleman, I declare this Forum officially open. I Thank You 2 BIS central bankers’ speeches | Tarisa Watanagase: Banking supervision and external audits Speech by Dr Tarisa Watanagase, Deputy Governor of the Bank of Thailand, at the Regional Meeting of SEANZA Forum of Banking Supervisors, Madrid, 21 September 2004. * * * Distinguished guest speakers, Ladies and Gentlemen, Good morning, let me begin by thanking the SEANZA forum and especially Mr. Reyes, the Chairman of SEANZA and Deputy Governor of Bangko Sentral ng Pillipinas for inviting me to share my thoughts on banking supervision and external audits. I would like to spend the next fifteen minutes discussing three main issues. First, I will outline why the relationship between banking supervisors and external auditors matters; second, I will cover our experience with external auditors from both the regulatory and supervisory perspectives; and I will close by offering a few remarks on the challenges ahead for supervisors and external auditors of Thai banks. While the auditors’ duties are to report on the reliability of banks’ financial statements to the board of directors and shareholders, the supervisors’ main concerns are to maintain the stability of the banking system. Despite these differences in our respective goals, the day-to-day work of external auditors can complement that of bank supervisors. First, many countries are moving towards a risk-based approach to banking supervision, an approach which emphasizes a thorough assessment of an institution’s internal control environment and risk management systems. | 0 |
Management will now enjoy greatly enhanced freedom and flexibility in determining how to best deliver products and services to the marketplace, and the market will judge the correctness of those choices. Some have perceived the newly authorized powers to benefit only large bank holding companies. This is not correct. The strategic freedom the Act provides is available to all banking organizations, regardless of size. Indeed, more than two-thirds of initial institutions seeking to become financial holding companies have assets of less than $ billion. Institutions will have to decide for themselves how, or even whether, they should take advantage of the newly authorized activities to build value for their customers and shareholders. Many franchises will succeed by focusing on traditional, face-to-face banking, which continues to have real economic value. Newer technological capacities and techniques are awe-inspiring, to be sure, but effective and profitable banking is ultimately about trust, and human nature hasn’t changed we still appreciate a face across the desk. In addition, as some large organizations have become even larger through mergers, many community banks have been able to attract customers whose needs have not been met by larger institutions. How institutions pursue new opportunities will be just as important as their decision whether to pursue. It is one thing to gain FHC status and begin to prudently experiment with new powers, and quite another to dive head-long into the deep end of the pool with full-scale acquisitions or rapid expansion into new businesses. | And finally, market discipline ensures that the market provides another set of eyes on the soundness of institutions. In the broader sense, we could conclude that strengthening market discipline within a clear prudential framework can help achieve a better balance between financial system stability and economic efficiency. In that sense, as the Central Bank, we are very well aware of our responsibility in implementing sound and coherent policies and delivering these policies and policy related messages to the markets within the context of maximum transparency and timeliness. All these components contribute to financial security and in turn enhance the financial stability in the system, accommodating policy makers’ further decisions. Actually, financial security and stability are so much interrelated that one could easily argue that the stability is also a prerequisite for the security in the system or vice-versa. Lastly, financial security and thus, stability contributes to the health of the financial systems, efficient allocation of resources and effective management and distribution of risks in the economy. Maintaining and safeguarding financial stability is a must for the authorities of every country not only to have a sound national financial system but also to contribute to the overall soundness of the world financial markets. Policy coordination between institutions on international and national levels will certainly be the most important aspect of this dynamic process. Thank you for your attention. BIS Review 76/2007 3 | 0 |
So, establishing and maintaining financial stability should be high up everyone’s agenda, and we should embed financial stability as the objective of public policy towards regulating the financial system. You can reasonably ask, why is this difficult to achieve? Financial stability is difficult to define quantitatively and precisely. Some people say that you know it when you have it, but it might be better to say that you know when you don’t have it. What is being done to tackle the issue? A month ago, the Government issued a consultation paper which seeks to define the financial stability objective that will be given to the new Financial Policy Committee of the Bank of England under its plans. The objective is defined at the high level as protecting and enhancing the stability of the financial system of the UK. More precisely, the Bank’s objective “relates primary to the identification of, monitoring of, and taking of action to remove or reduce” risk to the stability of the UK financial system as a whole or to a significant part of the system, “with a view to protecting and enhancing the resilience of the UK financial system”. But the paper goes on to include in the objective the statement that: this does not require or authorise the Bank “to exercise its function in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”. | Their response to the cry of this time is different is to assert that “it almost never is.” Why, then, is it so hard to understand the true picture of financial crises? I think that the issue here lies clearly in the characteristics of banks. One of the conclusions of work on the history of financial crises is that they have worse outcomes when they involve banks. As an example, if you remember the stock market crash of 1987, which seemed very bad at the time, it did not threaten the banking system, and its effects were contained. It was not a major financial crisis in its own right. The reasons for this difference when banks are involved have to do with the nature of banks. At the heart of banking is a technical term called maturity transformation, or more simply, banks borrow at a shorter term and lend at a longer term in respect of the duration of their deposits and loans. This is the essence of banking. Banks transform savings that may be required by their owners at short notice into longer-term loans. This is a benefit to the economy and society because it allows longer-term borrowing by companies and by all of us to buy houses. But it makes banks inherently illiquid. If all depositors decided to ask for their money back at the same time the bank would struggle to pay-out and survive. This is because the bank will generally find it difficult to realise its assets in time. | 1 |
The impact of interest rate changes is transmitted with a lag, but monetary policy gradually delivers results, now as ever. Reducing imbalances and restoring stability is in everyone’s interest. Some strain is inevitable during an adjustment from heavy imbalances, so complaints come as no surprise. But this does not mean that the wrong monetary policy measures are being applied – it could even mean quite the opposite. The Central Bank’s policy rate is high. The press release announcing the Board of Governors’ decision on February 8, which I quoted earlier, stated that the current interest rate may suffice to bring inflation to target within an acceptable period of time. It is impossible to state this categorically now, because it depends on the inflation outlook. What is certain is that the policy rate will be lowered as soon as the Central Bank deems this compatible with the inflation target. It is wrong to claim that this is ruled out because the interest rate differential with abroad must be maintained to prevent turbulence when glacier bonds mature. However, an untimely reduction in the policy rate will benefit no one. It has been claimed that the Central Bank is undermining the króna with its interest policy, which will cause businesses and households to abandon the currency. In this context it must be remembered that without a tight monetary stance and high interest rates, the króna would probably have depreciated by more than it actually did, demand would have grown faster and inflation moved much higher. | 58 729 22723 1 1 7 23 4 3 7 72 8 72 3 72 8 23 7 23 6921 3234 8 31 727263 8 127263 9 9 3 76 8 8 7 8 3 4 1 3 9 3 31 3 % 1 8723 729 87 8723 66272 9 88 & 1 88 231 39263 88 372 31 2 1 87 & 4263 3829 73 B 3 ' 23 3 3 72 87 7263 877 7 37 6 3 386 8 9 26237 8 0367 3 8 92 9 87 28234 7231 8 87 3 23 728 3234 % 78 23 3 88 8 3 729 127263 3 3 729 9 1 729 729 4 32 31 8 9 23 3 729 3 38 3 3 28 4 37 3 31 347 8223 11 92 3 127263 1 4 8 9 73 3 1 23 3 2728 7 33 c6L?589 63 343 9 98 1 5 141 611 8 7 48945 4861 633 8 633 1 1 41 3 '(''12n3 +9 861 ,3 4 48 48 1 8 48 # 561 763 63 4 4 8 4S61S5 8 63 83 83 18 7896 86 ! | 0 |
Percent 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 –1 1985 –1 1989 1993 1997 2001 2005 2009 2013 2017 1) Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, the UK and the US. Unweighted average. Sources: Thomson Reuters and Norges Bank 9 When the financial crisis engulfed the global economy in 2008, central banks responded forcefully. During the crisis, the European Central Bank, the Bank of England and the Federal Reserve cut their policy rates by 4 to 5 percentage points. Many central banks still found it difficult to provide a sufficiently accommodative monetary stance, and the room for further interest rate cuts was gradually exhausted. Norges Bank Economic perspectives 15 february 2018 Central banks were led into unknown territory and implemented unconventional measures. They have purchased securities on a large scale. In addition, a barrier has been breached. In the euro area, Denmark, Sweden, Switzerland and Japan, policy rates have been cut to below zero. Monetary policy has been stretched far. The purpose of the large-scale asset purchases by central banks has been to bring down long-term interest rates even further. This policy has had a broad impact. The average real yield on ten-year government bonds is now negative in the OECD area. Portfolios were rebalanced, which also pushed down yields on bank and corporate bonds. | The potent medicine has worked. Growth in all the major advanced economies has gained a firm footing. Unemployment in major economies is lower than before the financial crisis. Price and wage inflation is rising from low levels. The need for monetary accommodation is thus diminishing. Global interest rates have bottomed out. Policy rates in the US, UK and Canada were raised in the course of 2017, with more central banks likely to follow suit in 2018. The Federal Reserve has begun to unwind its bond holdings. Other central banks have tapered their asset purchases. The global interest rate rise will probably be gradual (Chart 11). After a long period of very low rates, the effect of higher interest rates on the economy is uncertain. It is also uncertain how quickly wage and price inflation will rise as activity gains momentum. 1) Chart 11 Policy rates. Percent 8 8 Current policy rate 2) Expected policy rate 2021 6 Historical average 1990 – 2007 6 4 4 2 2 0 0 –2 –2 US Euro area UK 1) In the chart, the policy rate for the US refers to the mid−point of the target range for the federal funds rate. For the euro area, historical policy rates are calculated using the interest rate on the ECB’s main refinancing operations from 1999 to 2007. Before 1999, the Bundesbank’s discount rate is used. | 1 |
We therefore instituted an additional regular survey of just the major lenders; some of the resulting data appears in our publication Trends in Lending, together with a commentary on credit developments informed by the associated discussions with the lenders. We would, however, have liked access to more information on the evolution of credit by industry and firm size so as to get a better handle on where credit constraints were biting hardest. Gaining access to micro-prudential supervisory data relating to individual institutions collected by the FSA has proved invaluable in assessing the resilience of the banking system and thus its ability to supply the credit to support the recovery. One area where more information would be useful is on the activities of the shadow banking sector. Almost inevitably, one has less knowledge of these institutions than of regulated entities. But we have seen that serious problems can arise in such hidden corners of the financial sector. High-quality flow of funds data, similar to that available in the United States, would also be valuable. That would facilitate a better understanding of the factors influencing BIS Review 142/2010 5 changes in agents’ balance sheets, and thus be valuable in the pursuit of both monetary and financial stability. Cross-sectional information on balance sheets within the household and business sectors could also be useful in evaluating the seriousness of financial strains. | With this in mind, a further strengthening of the capital situation and – in conjunction with this – a further realignment of the business model in order to achieve sustainable profitability, are still central challenges facing the big banks. The profitability and the capital situation of the banks with a domestic business focus – the cantonal, regional and Raiffeisen banks – were significantly higher in 2009 than the longterm average. The dip in GDP from mid-2008 to mid-2009 has so far barely had any effect on these banks, with the result that the provisioning requirement for credit risk continued at a low level in 2009. Nevertheless, in our estimation, the position of these bank categories is less comfortable than may appear at first glance. First of all, the capital situation of the Raiffeisen banks and the state-guaranteed cantonal banks needs to be put into perspective: the Raiffeisen banks can count the additional funding obligation required of members in the BIS Review 85/2010 1 cooperative as capital until the end of 2011, and the cantonal banks are entitled to a reduction in required capital due to the state guarantee. In the absence of these concessions, the capital ratios – particularly for the Raiffeisen banks – would be markedly lower. Second, according to our assessment, the risk exposure of the domestically focused banks is higher now than it was in 2009. For one thing, the interest rate risk of cantonal and Raiffeisen banks is at historically high levels. | 0 |
Sweden is in a better position than many other countries, but there is work to be done to put an effective structure for macroprudential policy in place. Once this structure is in place, we will be more able to manage the risks associated with the high level of household debt. Monetary policy could of course be somewhat more expansionary in the short term but we must remember that monetary policy is not perfectly precise and we must have realistic expectations of what it can achieve in relation to the risks that exist. As I see it we are already at full stretch as far as household indebtedness is concerned. A continued low repo rate offers the possibility of good economic development in the short term and sustainable development in the long term. References Apel, M. and C.A. Claussen (2012), “Monetary policy, interest rates and risk taking” Economic Review, 2012:2, Sveriges Riksbank. Blanchard, O., G. Dell’Ariccia and P. Mauro (2013), “Rethinking Macro Policy II: Getting Granular” IMF Staff Discussion Note 13/03, International Monetary Fund. Brainard, W.C. (1967), “Uncertainty and the Effectiveness of Policy” American Economic Review 57:2, 1967, pp. 411–425. IMF (2013), “Sweden Staff Report for the 2013 Article IV Consultation” Country Report No. 13/276, September 2013, International Monetary Fund. BIS central bankers’ speeches 11 Kilian, L. and S. Manganelli (2003), “The Central Bank as a Risk Manager: Quantifying and Forecasting Inflation Risks” ECB Working Paper no. 226, April 2003, European Central Bank. | Sveriges Riksbank (2012), “Long-run developments in the Swedish labour market” article in Monetary Policy Report, July 2012. Sveriges Riksbank (2013),”Financial imbalances in the monetary policy assessment” article in Monetary Policy Report, July 2013. The World Trade Organization (2013) “World Trade 2012, Prospects for 2013” Press release April 10, 2013. Williams, J.C. (2013), “A Defense of Moderation in Monetary Policy” Working Paper 2013:15, Federal Reserve Bank of San Francisco. Woodford, M. (2012), “Inflation Targeting and Financial Stability” Economic Review, 2012:1, Sveriges Riksbank. 12 BIS central bankers’ speeches | 1 |
So they decided instead to employ two much more junior and less well trained people. One worked for them already; the other, from outside the UK, they found in relatively short order after advertising on an EU-wide basis. The firm would end up being less productive than it might have been (two people are now doing the work of one). But there’d be a compensating fall in its average wage and, given the relative availability of less experienced employees, it made sense for them to go down this route. What I’m suggesting has more to do with relative quantities, not relative wages, and more to do with the short than the longer run: at a time when the UK has been outgrowing its neighbours, you’d expect easier immigration to amplify the rise in the relative supply of lowskilled employment. Some concluding remarks Let me sum up and, in doing so, say something about the implications for monetary policy. As macroeconomists, monetary policymakers like to deal in simple aggregates and averages. Output is doing this, employment that and wages the other. We know that the 8 More recently, economists have argued that computer technology substitutes most directly for the low-tomedium skill tasks. This would help to explain why the changes in the distribution of pay have had a “U” shape, with positive effects not just on high-skill pay but that at the low end as well (Goos and Manning (2003), Autor et al. (2006)). | Chart 7, summarising the results, is a version of a graph we published in the last two Inflation Reports. Note that, over time, the effects have tended to be positive. The average age and experience of the workforce has grown; more people have gone into higher education and higher-paid occupations. But on top of that underlying trend, we’ve seen sharp movements, in both directions, during the recent cycle. Both the drop in job creation during the Great Recession, and the corresponding pick-up during the recovery, were skewed towards the less skilled, less well paid end of the jobs market. Chart 8, which plots the differences in job creation across three classes of occupational characteristics, depicts one aspect of that pattern5. You can see similar differences in rates of job creation between young and old, less and more educated. And as I outlined in the introduction, the effect of these swings was to add materially to the growth of average earnings during the downturn and to subtract from it in 2013 and 2014. Unskilled employment generally more cyclical Before asking why this has happened let me make a few points about the estimates. First, there are some approximations involved. One involves the mix of surveys: we’re estimating the impact of compositional changes on LFS pay data and assuming the effect simply carries over to the AWE. That’s the most reasonable assumption, but it’s an assumption nonetheless. | 1 |
Hence, labour mobility can eliminate bottlenecks in the labour market. Employment is also strengthened by local wage negotiations. Some of the newer industries apply performance-related pay to a greater extent. This allows firms to reduce costs more easily while retaining employees when earnings decline. More traditional industries also seem to be making use of wage flexibility. Differences in productivity growth and wage growth across Norwegian manufacturing enterprises show that workers tend to accept lower pay increases in enterprises with low productivity growth.3 This can provide companies with more time to adapt and curb the impact on unemployment. Even though Norway fares favourably in relation to many other countries, the Norwegian labour market also has its weaknesses. Wage growth now probably accelerates at a higher level of unemployment than it would have ten or twenty years ago. Many unemployed are also channelled from unemployment to social security benefits, and benefits may be an obstacle to returning to the labour force. Sickness absence also rose for a long period, but has declined markedly over the past six months, partly reflecting tighter requirements concerning individual follow-up. The Petroleum Fund The Government Petroleum Fund was established in 1990 with a view to promoting an even distribution of wealth across generations. The idea behind the Petroleum Fund is to channel cash flows from petroleum production to the Fund, with the capital being invested abroad. Consequently, changes in oil prices have little effect on the mainland economy. | And we also need to identify the needs in the areas of monetary and prudential policies, where the CEF’s member countries have urged it to continue expanding its activities. This is a full agenda, and I am sure it will not be the last time we get together to exchange views on these issues. I believe strongly that we stand to gain immeasurably from considering these challenges on a regional basis. We can learn from each other’s experience; we can engage at times in a joint dialogue with the external actors in the region; and perhaps our political leaders can find some opportunities to launch reform initiatives in parallel – for example, in developing structural reforms to help promote a flow of new capital to, and within, this region. In this spirit, I look forward to very fruitful discussions – now in Tirana and in the future! 2 BIS Review 162/2009 | 0 |
For policymakers this has created enormous challenges, as it has for firms, which have had to adjust almost overnight. Technology – the internet in particular – has proved indispensable for remote working, commerce and education. Digital laggards have had to invest in appropriate technologies, such as video conferencing, and accelerate the digitalisation of their customer interfaces and supply chains. Because of this significant investment, remote work and e-commerce will probably remain more common after the COVID-19 crisis ends. The pandemic is thus likely to have accelerated the trend towards a digital economy. One obvious example, which is relevant for central banks, is payments. Although cash payments are still very common in Switzerland, online payments and contactless payments have significantly increased because of the pandemic. We can see similar trends in other areas of interest for central banks. For example, the rise of ‘big data’ and digitalisation is affecting the financial system and financial markets. Before turning to these developments and how they affect the work of the SNB, we would like to reflect on just how extraordinary the COVID-19 pandemic shock has been and how unconventional the policy responses have had to be. COVID-19: new shock, new crisis The COVID-19 pandemic triggered an unprecedented economic shock and extreme uncertainty. The need for social distancing and the strict lockdown measures required to contain infections resulted in a sharp drop in consumption and production around the globe. | And I would also like to urge you to take a little time off to visit some places of interest, while you are in this beautiful country, Sri Lanka. Thank you. BIS Review 50/2004 1 | 0 |
The real exchange rate is the one that is most important to the real economy; the nominal exchange rate should primarily be regarded as an asset price that affects the real exchange rate over the relatively short term. As Figure 5 shows, the nominal and real exchange rates have co-varied closely during the inflation-targeting regime. The explanation for this is that, as I mentioned, exchange rates that are determined freely by the market tend to be volatile. At the same time, most of Sweden’s trading partners have monetary policy frameworks resembling our own, so inflation rate differences are generally fairly minor. The nominal exchange rate can change rapidly, but prices generally move more slowly. All in all, this means that short-term fluctuations in the real exchange rate, to a large extent, are driven by variations in the nominal exchange rate. Movements in the nominal exchange rate were smaller before 1992, when Sweden had a fixed exchange-rate regime, even if the devaluations carried out during the 1970s and 1980s led to relatively large fluctuations. However, even during periods with fixed nominal exchange rates, large fluctuations took place in the real exchange rate. These were driven by BIS central bankers’ speeches 7 differences in inflation rates between Sweden and the rest of the world. Between 1982 and 1992, the real exchange rate strengthened markedly, with Swedish competitiveness being undermined considerably as a result. | It is not the Banque de France’s role to take the place of the relevant authorities by issuing a list of recommendations for reforms in the fields of education and training, the functioning of the labour market or social welfare. However, as far as methods are concerned, the Monetary Policy Council believes that a benchmarking principle for structural issues could be adopted in the euro area, namely convergence towards best practices, as we did in monetary and fiscal matters with the Maastricht criteria. Why not reverse the burden of proof in the field of structural reform by asking euro area countries why they do not introduce, in their own countries, reforms that have been successfully BIS Review 115/2000 4 implemented in another euro area country? The choice of such reforms should depend on three criteria: first that they have been decided on the basis of a political consensus, second, that they have been implemented on the basis of a social consensus and third, that they have been successful in combating unemployment. A large number of reforms pursued within the euro area meet these criteria. Thirdly, maintaining economic competitiveness: making France an attractive business location in an equally attractive euro area In the new environment created by Monetary Union and the single currency, cost and price competitiveness is, more than ever a key indicator of the conduct of national economic policies. European policies must place the emphasis upon this aspect of competitiveness. | 0 |
Furthermore, the issue of the liquidity of the newly resolved entities – mainly the “good banks” – is not sufficiently clearly addressed: liquidity support by public sources beyond what can legitimately be expected from the Eurosystem should be clarified. Second, consistency in the legal framework and requirements: faced with the accumulation of new and “separate” requirements, we need to adopt a holistic and consistent approach in order to avoid a prudential overload. In particular, the TLAC requirement resulting from the new international framework requires a consistent adaptation of the European minimum requirement for own funds and eligible liabilities (MREL). In the same vein, the consequences of an internationally agreed Basel III package – if and when it comes – should be carefully taken into account, as it would lead to increased risk-weighted assets, which will in turn impact the MREL. All this, combined with pillar II capital requirements, could lead to over-calibration: each individual decision may be warranted; but their somewhat disorderly accumulation is not. And obviously, we must not jeopardise the level playing field between euro area banks and their international competitors. Third, in the interaction between authorities, which should be improved: the case of Banco Popular, although it was a success, has also demonstrated the importance of swift and close cooperation between supervisory and resolution authorities, both at European and national levels. | The fourth is not an accelerator in substance, but rather a “facilitator” for the first three: in terms of institutions, we would need a euro area Finance Minister and Parliament. These four accelerators are needed, but this does not mean they all have to be implemented at the same time. With the existing Treaty, we can take steps straight away on the first two accelerators, macro and micro, on which I will elaborate. The macro accelerator is a collective economic strategy in the euro area. It is premised on one simple fact: economic growth and employment would be stronger in the euro area if we combined more reforms in countries where they are needed, like France or Italy, and more stimulus in countries with leeway for it, like Germany or the Netherlands. To achieve this, euro area Member States have to seal a deal, which could be prepared and adopted as early as 2018. National reforms are obviously a prerequisite to any enhancement of the Economic Union. I take this opportunity to welcome the successful reforms carried out in the Netherlands in recent years, especially in the labour market. Real GDP is expected to grow here by 3.2% in 2017 and the unemployment rate is likely to reach 4.8% in 2017, close to full employment. | 1 |
Both the risk-averse moneyseeking investors and the leveraged risk-seeking investors on either side of the dealers’ balance sheets questioned the liquidity and solvency of many of those dealers. Maturities shortened dramatically until most transactions were at overnight maturities, rolling daily (Gorton et al, 2014). Some dealers experienced “runs”. Financing terms for leveraged investors tightened sharply, causing some to fire sale assets and adding to market instability. In the US, the market infrastructure was flawed, with the daily unwind of tri-party repo transactions relying on massive intra-day financing from private sector clearing banks. 3 8.5% is the sum of the 6% minimum Tier 1 to risk-weighted assets ratio plus the 2.5% capital conservation buffer under Basel III. BIS central bankers’ speeches 3 Since the crisis, regulators have addressed many of the underlying problems of excessive leverage and maturity transformation: a. Securities financing transactions are included in the internationally-agreed leverage exposure measure adopted by the Basel Committee 4. Leverage ratio requirements will put prudent limits on the size of dealers’ matched books. b. They are also included in the Basel Committee’s measures to address liquidity risks. The recently-announced Net Stable Funding Ratio 5 will require short-term secured loans to financial and non-financial borrowers to be backed by at least 10% stable funding. And supervisors can use the Liquidity Coverage Ratio 6, as we have been doing for some time in the UK, to require dealers to hold liquid assets against prime brokerage risks such as withdrawal of cash margin by hedge fund clients. | Regulators will need to be alert for pure regulatory arbitrage – seeking to change the form but not the economic substance of transactions in order to lower regulatory requirements. We have already seen, for example, transactions seeking to take credit risk in the form of derivatives rather than loans in order to lower the leverage exposure measure. More legitimately, banks might switch from activities for which risk weights have increased to activities which carry lower risk weights (Chart 2). The leverage ratio will, however, set an effective floor on the ability of banks to improve their capital position by shifting into low riskweighted assets, providing a safeguard against uncertainties around our estimates of risk. Conversely, banks for which the leverage ratio is a binding requirement may have incentives to move into higher risk-weighted activities (Chart 3) but the risk-weighted ratio should limit the extent of any such risk shifting. In this way, the risk-weighted and leverage ratios should complement one another. It will be interesting to see how banks allocate capital in a world 2 2 http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech765.pdf. BIS central bankers’ speeches where they are subject to multiple capital constraints – risk-weighted, leverage and stresstest-based. | 1 |
Annual variations in inflation are now substantially smaller than they were in the 1970s and 1980s. Over the past ten years, average inflation has been somewhat lower than, although fairly close to, the target of 2.5 per cent. BIS Review 65/1008 1 Inflation measured by the CPI varies from month to month, primarily as a result of wide fluctuations in electricity prices, but also due to other temporary disturbances. The rise in the CPI-ATE shows inflation adjusted for one-time effects of tax changes and excluding energy products. Inflation, measured this way, has risen since summer 2006. One disadvantage of this indicator is that it does not only exclude the temporary effects on electricity prices of, for example, changes in the weather; it also excludes more persistent developments in energy prices. Energy prices have risen more than other prices for a fairly long period, leading to an average year-on-year rise in the CPI over the past 5-10 years that has been close to ½ per cent higher than the rise in the CPI-ATE. Other available measures of underlying inflation also suggest that inflation has moved up. While the year-on-year rise in the CPI-ATE is now 2.4 per cent, other measures of underlying inflation are above 3 per cent. 2 BIS Review 65/2008 Recently, inflation has been somewhat higher than our projections from last year. Inflation was broadly in line with expectations through 2007. In 2006, inflation was considerably lower than projected at the beginning of the year. | Norges Bank’s bank lending survey indicates a gradual tightening of banks’ credit standards, but so far the effects of tighter credit have not come into evidence. Developments abroad may also influence the Norwegian economy through reduced trade. It may be more difficult to sell our export goods when growth is declining in other countries, and prices for our products may fall. Oil prices and other commodity prices have increased appreciably since 2002. The rise in commodity prices has primarily been fuelled by rapid economic growth, particularly in China and other emerging market economies. Conditions are still favourable for shipping and oil and gas, engineering industry, aluminium, ferroalloys and salmon. In the event of a persistent setback in world economic growth, the Norwegian economy will eventually feel the effects through lower exports. 12 BIS Review 65/2008 The interest rate differential between Norway and our trading partners has increased. Coupled with solid growth in the Norwegian economy and very high oil prices, this has resulted in an appreciation of the krone. In krone terms, this reduces prices for imported goods and services. A strong krone may also result in lower activity in the business sector and gradually translate into lower wage growth. The krone exchange rate shows monthly, quarterly and yearly variations. The long-term value of the krone is determined by changes in the terms of trade and permanent differences between domestic and external inflation and productivity. In recent years, the krone has appreciated. | 1 |
So, as you can see, designing a simpler framework is not a simple task! Our discussion paper elaborates on all these choices, and I hope to have whetted your appetite to get involved in the discussion by responding to our paper. Leverage Ratio and MREL reviews Next, I want to move on to something a bit more relevant in the shorter-term to some of the larger BSA members with us today – the links between the leverage ratio and MREL reviews. I am conscious that at the moment this may be relevant to only a handful of you, so in case you are still listening to my speech I will aim to be brief. The Prudential Regulation Committee and the Financial Policy Committee are conducting a review of the UK leverage ratio framework in light of the now-finalised international standards.3 At the same time, the Bank, as Resolution Authority, is conducting a review of its MREL framework and how it applies to mid-tier firms.4 As many of you know, this alignment of timings is not coincidental as the two are closely linked. How so? At first look, one link is through the calibration of MREL. For firms subject to bail-in resolution strategies, MREL is calibrated as twice the applicable minimum requirements set by the PRA. So if a firm is subject to a minimum leverage ratio requirement, this will typically be doubled-up in their MREL. But the two are linked in another way, which gives this doubling-up an additional significance. | On the one extreme, the PRC and FPC might now decide that the current scope of the framework has served us well, and that it is enough for PRC to continue with its leverage ratio supervisory expectations that currently apply to all firms. On the other extreme, the PRC and FPC might decide that there is benefit in extending the leverage ratio framework to all PRA firms, whether from a micro-prudential or a system-wide perspective. Similarly, the Bank’s MREL review is considering the thresholds for being subject to a resolution strategy requiring use of the Bank’s stabilisation powers, and in connection to that the resulting MREL calibration for mid-tier firms. These links and their implications for the different reviews are being closely coordinated across the three authorities – the PRC, the FPC and the Resolution Authority. No decisions have been made on either, but I expect all three authorities to be saying more on these reviews over the summer – so watch this space. Mortgage risk-weights Finally, I want to close with something that I hope is of interest to both the larger and smaller firms in our audience. Last time I was here, I spoke about the significant decline in UK mortgage risk-weights for firms using internal models – from an average of around 15% in 2009 to around 10% today. This has led to increased prudential risks, and an increasing divergence between firms that use these models and firms that do not. | 1 |
Since that time, North Sea oil revenues have been substantial, and today the Norwegian government invests its large surpluses in equities and bonds in other countries. Sovereign debt differs from private debt. Private debt is protected by the law in the country where the loan is contracted. The creditor can recover debt by legal means in the event of default. Similar mechanisms do not in principle exist for sovereign debt. There is no supranational body that can recover government debt when a government defaults. 3 If a government does not consider itself to be legally obliged to repay its creditor, it might be tempting to default. In the economic literature the question has therefore been raised: Why should a government repay debt? This question begs another: If governments can turn their backs on commitments, why do investors lend them money? We observe that most countries choose to repay debt. This must mean that there are costs associated with default. Even if the creditor has no legal recourse for collecting debt, there are forms of costs that can be imposed on the debtor. First, creditors can refrain from providing new loans to a government in default. When a government is in debt negotiations, it is naturally difficult to raise new capital. But recent history shows that it does not take long before creditors are again willing to provide loans. Second, borrowing costs may increase. Funding rates rise when fears of sovereign default spread through the markets. | Over the next few years, the return on the Pension Fund is expected to rise roughly in line with government expenditure on retirement pensions through the national insurance scheme. Revenues from petroleum activities will nonetheless gradually decline, pulling down growth in the Fund. Over time, therefore, the national insurance scheme’s retirement pensions will grow considerably faster than the expected real return on the Fund. (See Chart: Generational account.) However, it is wrong simply to compare the Pension Fund and obligations under the national insurance scheme. The government has the option of taxing households and businesses, and this naturally also has a considerable net present value. Generational accounts allow for this. These accounts show whether there is a need to raise taxes or lower expenditure for the government budget to balance in the long term, based on forecasts for benefit and pension payments and oil revenues. The generational accounts reveal that there is currently a need for fiscal tightening equivalent to 10 per cent of GDP or of the order of NOK 200 billion. Longterm forecasts from the Ministry of Finance, that also take the pension reform into account, show a shortfall of around 6 per cent of mainland GDP. Calculations by professors Alf Erling Risa and Erling Vårdal here in Bergen paint a similar picture. The need for fiscal tightening roughly corresponds to current spending of oil revenues. Estimates of this kind are highly 16 Revised National Budget 2010. | 1 |
In other words, the accountability is the price that institution pays for its independence. In democracies, every independent institution or 3 organization is accountable to the public and to its institutional stakeholders . Third, the participation principle ensures that every person in the system, in one way or the other, has 4 a voice in the decision-making process . 1 AusAID, (April, 2003). “Economic Governance and the Asian Crisis”. Quality Assurance Series. 2 United Nations, Economic and Social Commission for Asia and the Pacific. “What is Good Governance” 3 Ibid. 4 AusAID, (April, 2003). “Economic Governance and the Asian Crisis”. Quality Assurance Series. BIS Review 35/2007 1 And last but not least, good governance requires a fair legal framework and impartial enforcement of this legal system that protects property and individual rights and constitutes a strong base for prudent 5 policy-making . This legal structure assigns the principle of the rule of law. Distinguished guests, The analysis of good governance brings me directly to the question of why good governance is important. The good governance provides key institutions and policies for the equitable and efficient allocation of 6 resources, both labour and capital . To put it differently, it allows an economy to yield higher growth rates by using the same amount of factors of production. The strengthened economic governance across a broad spectrum of policy, administrative and institutional issues, is now widely accepted as a key factor in rebuilding domestic and international 7 confidence in an economy . | There are also other challenges, technical in nature, against the importance of economic governance, 9 such as causality problems and what is called the missing variable threats . However, in the view of our experience in the Turkish economy during the last couple of years, these counter arguments do not provide evidences strong enough to challenge the importance of good governance for economic and social prosperity. Distinguished guests, Until recently, Turkey had displayed disappointing performance in good governance principles compared to other emerging economies. In 2000, according to the World Bank’s calculations, Turkey ranked 134 among 193 countries in governance indicators. The thirty-years of high and chronic inflation, the macroeconomic instability and the subsequent crises, the delays in structural reforms, and the poor capability of institutions to deliver prudent policies and to initiate structural breakdown have all been the main determinants of this poor governance structure. 5 United Nations, Economic and Social Commission for Asia and the Pacific. “What is Good Governance” 6 Brouwer, G. (December 2003). “Macroeconomics and Governance”, Treasury Working Paper. 2003-4. 7 Australian Economic and Financial Management Initiative. “Economic Governance”. 8 AusAID, (April, 2003). “Economic Governance and the Asian Crisis”. Quality Assurance Series. 9 Avellaneda, S. D. (May 2006). “Good Governance, Institutions and Economic Development” 2 BIS Review 35/2007 However, after 2001, Turkey has launched one of the largest structural changes in its economy and put significant efforts into implementing good governance principles and searching for a new institutional matrix. | 1 |
Benoît Cœuré: Ensuring the smooth functioning of money markets Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the 17th Global Securities Financing Summit, Luxembourg, 16 January 2013. * * * Ladies and Gentlemen, 1 It is a pleasure to speak to you today at this annual Global Securities Financing Summit organised by Clearstream / Deutsche Börse Group. In my remarks today, I will talk about the smooth functioning of money markets and the role of market infrastructures in this respect. The speech is composed of two parts. I will start with some comments on developments in the euro area (interbank) money markets. As you are well aware, the financial crisis and the subsequent sovereign debt crisis have led to a gradual shift from the unsecured to the secured segment of the money markets. Moreover, the crises have exposed the weaknesses of certain financial institutions, causing the European interbank money market to fragment. Fragmentation has occurred between cash-rich and cash-strapped banks and also between different jurisdictions, leading to a “renationalisation” of money markets. Since money markets can be a source and a propagation channel of financial instability, it is important to ensure their proper functioning and mitigate the potential risks they pose. In the second part of my speech I will consider the role of market infrastructures in ensuring well-functioning money markets. | Let me set out the key dimensions of the financial sector jobs and skills agenda that we will cover over the next few months under the Growing Timber series: Job opportunities – what are the new jobs being created and how to access these jobs; Job readiness – how can we prepare our tertiary students so that they are job-ready when they embark on a career in the financial sector; Job retention – keeping our mid-career workers employed through upskilling amid new skills demands; Job redeployment – reskilling mid-career workers in jobs that are being transformed by technology and pivoting them to new careers; Job specialisation – deepening skills and capabilities in highly specialised areas in strong demand; and Job leadership – grooming promising Singaporeans for leadership roles at different levels. Today, I will cover the first three dimensions of the jobs and skills agenda – namely, job opportunities, job readiness, and job retention. JOB OPPORTUNITIES https://www.mas.gov.sg/news/speeches/2020/gearing-up-for-new-and-evolving-jobs-in-financial-services 4/18 04/12/2020 "Gearing up for New and Evolving Jobs in Financial Services" - Remarks by Mr Ravi Menon, Managing Director, Monetary Authorit… The financial sector provides good job opportunities. Financial services employs a workforce of 170,000. It is the most productive workforce in the economy, accounting for 4.5% of Singapore’s total workforce but 13.3% of our GDP. During 2015-2019, the financial sector created 22,000 net jobs. 70% of these jobs went to Singapore Citizens, in line with the overall proportion of Singaporeans in the financial sector workforce, also at 70%. | 0 |
The hallmarks of such a high communication level are curiosity about the other person’s views and the ability to broaden one’s views or change one’s mind as a result of discussion with others. This type of communication normally requires a high level of professional 18 This outcome assumes that each member of the group singly is more likely to arrive at the correct conclusion than the wrong one. 19 See James Surowiecki (2004): The wisdom of crowds. Little, Brown, London, pp. 3–4. This example was also cited in the speech “Uncertainty in macroeconomic policy making: art or science?”, which Mervyn King, Governor of the Bank of England, gave on 22 March 2010, and is available at: https://www.bankofengland.co.uk/publications/news/2010/034.htm . That we both use this example may not be a coincidence. I received my copy of The Wisdom of Crowds from Dr. John Llewellyn. Llewellyn and King were fellow students at Cambridge. 20 See Alan S. Blinder and John Morgan (2005): “Are two heads better than one: An experimental analysis of group versus individual decision making”, Journal of Money, Credit and Banking, 37, no 5, pp. 789–811 and Alan S. Blinder og John Morgan (2007): “Leadership in groups: a monetary policy experiment”, CEPS Working Paper No. 151. 21 Alan S. Blinder (2008): “On the design of monetary policy committees”, Norges Bank Working Paper, 2008/6. BIS Review 147/2010 5 competence, mutual sympathy and trust and a large degree of openness. The potential reward is better decisions by the group. | 25 It has also been shown that when people are in groups of like-minded persons, and especially when they are socially isolated, they are prone to taking more extreme positions than they would on their own. The psychologist Irving L. Janis is particularly known for his research into groupthink. His analyses concerned US foreign policy, where groupthink might deserve much of the blame for competent persons making poor decisions. See Irving L. Janis (1972): Victims of groupthink; a psychological study of foreign-policy decisions and fiascoes, Houghton Mifflin Company, Boston. 26 The psychologist Salomon Asch conducted a number of similar experiments in the 1950s. He found that “the tendency to conformity in our society is so strong that reasonably intelligent and well meaning young people are willing to call black white.” See Salomon E. Asch (1995): “Opinions and social pressure”, Scientific American, vol. 193, no. 5, pp. 31–35. 6 BIS Review 147/2010 exaggerated self-confidence is found in many occupations. 27 There is no reason to believe that we economists are so different from others in that regard. Norges Bank’s Executive Board consists of five external members with varied backgrounds, in addition to the governor and deputy governor of the Bank. The external members have influence over decisions on a par with the internal members. The Bank is in a peculiar situation in that the central bank governor is both administrative head of the Bank and chairman of the Executive Board. | 1 |
The second defining element over the past decades has been the increase in financial innovation, notably in securitisation and market funding. Securitisation can have many positive effects, e.g. by increasing the supply of bank credit to the private sector thanks to greater bank liquidity. Some crucial segments of the economy, such as small and medium-sized firms, may also significantly benefit from the development of securitisation. At the same time, recent research has shown that securitisation may lead to a lowering of banking standards and ultimately weaken financial stability.5 Once a bank is no longer responsible for a loan that it has made, it has fewer incentives to monitor that loan. Besides, in periods of extensive securitisation, when the bank knows that new loans can be securitised – which in some countries can imply that the risk will be totally borne by investors outside the bank – the ex ante incentives for screening are notably reduced. All these important changes in the banking industry have taken place against an ostensibly benign but potential dangerous macroeconomic backdrop: the so-called Great Moderation. Indeed, the protracted period of high economic growth and low short and long-term interest rates contributed to giving the banking sector some very good years. However, that is precisely when risk builds up – and it can be excessive.6 Moreover, we should not overlook that macro fragilities emerged during the benign macroeconomic context: for example, both the current account deficit and the share of the real estate sector activity were around 10% of GDP in 2006. | in improving the education system at all levels – it is critical to raising productivity over the medium term and, therefore, to improving welfare. I truly hope that when another book like this one is written in, say 50 or 100 years’ time, the authors will conclude that the steps taken in response to the crisis in the banking and in other key sectors of the Spanish economy were the right ones and, in particular, that they played a part in overcoming the crisis and increasing in a sustainable way the well-being of the citizens of this country. References Acharya and Richardson (eds.) (2009) Restoring Financial Stability: How to Repair a Failed System, John Wiley & Sons. Adrian, T. and H.S. Shin (2009), Money, liquidity and monetary policy, American Economic Review. Allen, F. and D. Gale (2000), Financial Contagion, Journal of Political Economy. Allen, F. and K. Rogoff (2011), Asset Prices, Financial Stability and Monetary Policy, Wharton Financial Institutions Centre WP #11–39. Altunbas, Y., Marqués, G. and L. Gambacorta (2010), Securitisation and the bank lending channel, European Economic Review. Brunnermeier, M. and L.H. Petersen (2009), Market liquidity and funding liquidity, Review of Financial Studies. Cuñat, V. and L. Garicano (2010), Did Good Cajas Extend Bad Loans? Governance, Human Capital and Loan Portfolios, LSE mimeo. Freixas, X. and J.C. Rochet (1997), Microeconomics of Banking, MIT Press. Hellmann, T., Murdock, K. and J. Stiglitz (2000), Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?, American Economic Review. | 1 |
Several years ago, most major investors were investing in Asia but based thousands of miles away. Today, many investors are realising that a ground presence in this time zone is necessary. The rapid structural changes of economies in Asia, the differences in the stages of economic development, in political systems, regulatory regimes and corporate governance standards mean that investors must not only understand the differences within Asia, but they have to be able to respond to swift changes in outlook, and to take into account ongoing structural changes in their assessments. In short, the ability to distinguish noise from trend is essential. Having the right risk mindset 14. Apart from responding to policy reforms and initiatives, investors and financial institutions will do well to continuously rethink and challenge the fundamental tenets of their investment and risk management tools and methodologies. To do so, it is imperative for investors to have the right risk mindset. 15. We should put once-neglected risks, such as counterparty credit risk, model risk, liquidity risk and technology risks, at the forefront of risk considerations. We have to be BIS central bankers’ speeches 3 mindful that falling back on historical experience may not necessarily provide the guidance especially when developments are unprecedented. In this regard, boards of financial institutions play a vital role in driving the level of risk consciousness in their institutions and exercising effective risk management oversight. | I would like to single out three key aspects of this strategy. We will emphasise exploiting the Bank's characteristics as a large and long-term investor in order to achieve the objective of the highest possible return. Norges Bank is able to make investments whose underlying value may take a long time to realise. A long-term investment horizon also means that we can invest differently to many other investors, even in difficult and illiquid markets. The fund's size enables us to explore new ways of investing at little additional cost. As a large, active and long-term participant in capital markets, the Bank is an attractive investor and partner. In unlisted markets, this may open up opportunities unavailable to others. We will set great store by being a responsible investor. Responsible investment and active ownership support the objective of the highest possible return. Transparency about this work is important, and we expanded our reporting in this area in 2022. Managing climate-related risks and opportunities is an important priority. An orderly climate transition in line with the goals of the Paris Agreement is in the fund's economic interest. 1/2 BIS - Central bankers' speeches The Ministry of Finance updated its mandate for Norges Bank in 2022. The Bank's work on responsible investment is now to be based on the long-term goal that the companies we invest in align their activities with global net zero emissions in accordance with the Paris Agreement. We published an ambitious Climate Action Plan in the autumn for the period 2022-2025. | 0 |
4 Such a growth rate has some historical precedent, as shown on the right side of the chart, but it is much faster than the growth rate in the past two recoveries. And to reach 5 per cent unemployment by 2015 would still take growth averaging 4.2 per cent per year – considerably faster than the average rate of growth after the 1991 and 2001 recessions. Given the need for very rapid growth to get unemployment back to 5 per cent, let me pose an oversimplified question – why would policymakers not keep monetary policy very accommodative, and fiscal policy very stimulative, until we had a sustained growth rate that brought the economy much closer to full employment? At least on the monetary side, one reason might be concern among policymakers that rapid growth would be inflationary. To explore that, let’s turn to Figure 7, which shows the total and core inflation rates, measured by changes in the CPI, with recession shading. What the chart shows is that inflation has declined in each recession, including this so-called Great Recession. It also highlights that inflation tends to continue falling in the early stages of a recovery. Figure 8 shows the change in the inflation rate from the business cycle peak. From the peak (shown at zero on the horizontal axis) the inflation rate is very restrained, and generally negative, for many months. | Information about future demand and supply levels ought to be reflected in the current price and in the prices of commodity futures. But the increases from Autumn 2010 onwards were largely unexpected, and have been a genuine surprise for our forecasts. For example, spot oil and gas prices have risen very substantially since their low points in 2009.2 Spot oil prices are well above the levels implied by futures prices at the time of the February Inflation Report (Chart 2). Gas futures prices have also moved markedly higher since then (Chart 3). Chart 2 Chart 3 Sterling oil prices(a) Sterling gas prices(a) Sources: Bloomberg, Thomson Reuters Datastream and Bank calculations. Sources: Bloomberg, Thomson Reuters Datastream and Bank calculations. (a) Futures prices for February and May are averages during the fifteen working days to 9 February and 4 May respectively. Each futures curve assumes that the sterling-dollar exchange rate remains constant at its average during those periods. (a) Futures prices for February and May are averages during the fifteen working days to 9 February and 4 May respectively. (b) One-day forward price of UK natural gas. (b) Brent forward prices for delivery in 10–21 days’ time converted into sterling. Third, we have been experiencing the ongoing effects of sterling’s fall during 2007 and 2008, when the nominal effective exchange rate fell by around 25% (Chart 4). | 0 |
However, we differ from other countries in two areas in a somewhat disadvantageous way: first of all, we let a portion of the large-value transfers go through multilateral netting before being settled in Norges Bank. This is not common, but obviously contributes to less stringent liquidity requirements (this occurs in Germany and the US, among others). Second, in Norway we still make use of so-called “T-copying”, in which the payee receives information on payments before the settlement has taken place.9 This creates the risk of the payee bank crediting the customer before the bank has received the money. The payee bank may thus be exposed to a non-controlled risk relative to the payer bank. On the whole, however, we may conclude that we have come a long way relative to the systems some of us recall from 10-15 years ago. 3.2.2 Risk can be further reduced In spite of the progress which has been made, I still think that risk in the Norwegian clearing and settlement system can and should be reduced. Allow me to point out three areas where I believe risk is still too high: Retail netting in NICS Turnover in this area has been high and on the rise. Average daily turnover is now NOK 28bn compared with about NOK 18.5bn in 1998. Turnover has reached up to NOK 76bn on certain days. 8 9 NBO: Norges Bank’s settlement system. | Its supervision focuses on issues such as the financial strength of the whole firm, including the adequacy of its liquidity and the resolution plan for the firm (collaborating with the Special Resolution Unit and home authorities to develop such plans in colleges or Crisis Management Groups as applicable), taking into account the importance of the firm to the PRA’s objective.” “For UK branches of non-EEA firms where the PRA is satisfied that the home regulatory regime is equivalent, and where the PRA has assured itself over resolution plans and the home regulator’s supervisory approach, the PRA relies where possible on the home regulator’s prudential supervision. In these cases, the PRA focuses on collaboration with home regulators (including via supervisory colleges) and on resolution plans. In addition, the PRA takes a close interest in liquidity and ensures that there are senior individuals in the United Kingdom that are clearly responsible for management of both the UK operations and business booked in the United Kingdom. The PRA discusses and agrees with the home regulator the areas in which it will seek to rely on the home regulator’s supervision”. This Approach document concluded that the PRA would in due course publish a fuller statement on our approach to the supervision of overseas firms operating in the UK. To take that forward, over the summer the PRA Board, acting in its new statutory capacity considered our policy further. | 0 |
Due to the expected significant number of applications for exemption from the contingency mechanism, a simplified procedure for consulting EBA is envisaged until the end of 2019. The Bulgarian National Bank has established a procedure for prompt handling and examination of applications for exemption. This will enable the account servicing payment service providers, which comply with the requirements of the Regulation, to be exempted from obligation prior to the 1/3 BIS central bankers' speeches entry into force of the requirement for providing a fallback mechanism on 14 September, 2019. Strong Customer Authentication According to the provisions of Commission Delegation Regulation (EU) 2018/389 – by 14 September, 2019 the payment service providers in the country must fully implement the requirements for strong customer authentication in respect of all electronic payment transactions. The focus is on the use of at least two independent authentication elements from different categories. The two elements should refer to one of the categories of knowledge (e.g. static password), possession (SMS OTP or generated by token device) or inherence (e.g. fingerprint scanning). Commission Delegated Regulation (EU) 2018/389 exhaustedly stipulates the cases for which payment service providers are allowed not to supply strong customer authentication. Where a payment service provider wishes to benefit from any of the exemptions, it will have to notify BNB in advance, indicating the particular payment service to be exempted. | As was the case before the crisis and indicated in the June 2011 principles, the Committee intends to adjust the policy stance during normalization primarily through actions that directly influence the level of the fed funds rate and other short-term interest rates rather than through active management of the size or composition of the Fed’s securities holdings. Specifically, when economic conditions and the economic outlook warrant a less accommodative stance of monetary policy, the Committee will raise its target range for the fed funds rate. During normalization, the Committee intends to move the fed funds rate into the target range primarily by adjusting the rate of interest on excess reserve balances (IOER) that it pays. We expect changes in the IOER rate to have a significant influence on the fed BIS central bankers’ speeches 1 funds rate and other short-term interest rates. However, to help control the fed funds rate, the Committee also intends to use an ON RRP facility and other supplementary tools, as needed. The Committee will use an ON RRP facility only to the extent necessary, and will phase it out when it is no longer needed to help control the funds rate. With regard to the Fed’s balance sheet, the Committee intends to reduce securities holdings in a gradual and predictable manner, primarily by ceasing to reinvest repayments of principal on securities held in the SOMA. | 0 |
B The introduction of the euro has increased the homogeneity of European economies and limited the risks of macroeconomic disequilibrium inside the euro area The convergence process, the homogeneity of European economies and the synchronization of business cycles have increased since the introduction of the euro • Regarding business cycles, some recent work presented by a working group joining the CEPR (Centre for Economic Policy Research) and the Eurosystem shows that the correlation between business cycles as a whole and also consumption and investment in most euro area countries has increased since 1999. A common European component seems to play a more important role in these economies than the national components do. The degree of correlation between national cycles and the euro area aggregated cycle varies between 0.70 and 0.92. • Concerning inflation, the research conducted by the Eurosystem shows that the degree of dispersion of inflation rates inside the euro area is not significantly superior to that observed in the USA, where the federal budget and the much more unified market of goods and services constitute additional room for manoeuvre. The standard error of the annual growth of prices in the 12 euro area countries is in the vicinity of 1.1, compared with 0.8 in the 14 regions of the USA. • Finally, the updating of the vast work on monetary transmission mechanisms led by the Eurosystem shows that Member States’ economies are more homogeneous as regards the transmission of monetary impulses since the introduction of the euro. | The EMU has limited the risks of exchange rate crises and catalyzed the financial integration of the euro area economy • The euro has put an end to the potential effects of exchange rate crises and favoured the emergence of a stable environment characterized by historically low interest rates. Thanks to these developments, the euro area countries have not been confronted with difficulties stemming from the uncertainties due to recent geopolitical troubles. • The introduction of the euro has catalyzed the financial integration of the European economy, which is totally complete as regards the money market. In the first weeks following the introduction of the euro, price differences on national interbank money markets decreased very quickly to stand at less than 5 bp. This level corresponds to the spread bid-ask currently observed on the market. • A comparable movement has occurred on European bond markets, where returns on government yields have converged. • The euro area, and more broadly the European Union, now have a consistent financial architecture. The implementation of the Financial Services Action Plan defined at the Lisbon European Council is on the way to completion. Subsequently, the Lamfalussy process should provide a new institutional architecture in the fields of financial supervision and regulation and develop flexible and uniform technical rules. Part 2: The euro plays the role of an international currency and a nominal anchor The available data bear out the increase in the international role of the euro. | 1 |
For example, firms’ entry and exit rates have been stable in the United Kingdom since the early 2000s, in contrast to the declining rates observed in the United States. [27] Taking stock and looking ahead My remarks today have purposefully abstracted from short-run influences on the macroeconomy in order to focus on the longer-term structural trends that have driven the secular decline in Global R* and the puzzling weakness of investment in the United Kingdom and other advanced economies. Why do these secular developments matter for central banks? The level of the trend real rate has important implications for the conduct of both monetary and financial policies. In a low interest rate environment, other things equal, monetary policy may find itself more often constrained by the effective lower bound on nominal interest rates (Bernanke et al., 2019). But prolonged periods of low interest rates may also pose financial stability risks via greater risk taking (Cunliffe, 2019). Understanding the trends in investment is also key given the importance of investment in driving long-run growth and productivity. In turn, productivity growth is an important determinant of potential output. Estimates of potential output are used to assess the size of the output gap, or level of spare capacity, which influences the degree of inflationary pressure in the economy. Such estimates can therefore have an important influence on the judgements that inform monetary policy decisions. The analysis I have discussed so far has looked at a number of secular trends over the past few decades. | In pursuing our policy responsibilities, we seek to conduct policy transparently and based on clear principles. We are mindful of the global effects of Fed policy. Promoting growth and stability in the U.S., I believe, is the most important contribution we can make to growth and stability worldwide. 2 BIS central bankers’ speeches There is, of course, the argument that Fed policy has been too accommodative for too long, creating risks for financial stability worldwide. Here, I think it’s important to consider carefully the counterfactual. Would countries beyond our borders really have been better off with a weaker U.S. economy? The fundamental issue is whether U.S. monetary policy has helped support our dual objectives of stable prices and maximum sustainable growth, and whether this support is consistent with a healthy global economy. Moreover, it is far from clear that explicitly coordinated policy would produce better outcomes for the global economy generally, or the EMEs specifically. Central banks have challenges enough in tailoring policies to their own domestic circumstances. I believe that it would be taking on too much to attempt to collectively fashion policy in reference to global conditions. Monetary policy meant to suit everybody is likely in the end to suit nobody. Similar considerations underlie the widespread move in the emerging world away from fixed exchange rate regimes. Policymakers worldwide have learned that a framework capable of responding in a disciplined but flexible manner to changing domestic conditions works best over the long run. | 0 |
In this regard, we see potential value for the use of the SDR in enhancing the provision of global liquidity and asset diversification. We are also open to reflect in its basket the rising role of major emerging market economies. 2 BIS central bankers’ speeches Low-income countries 10. We welcome the work underway to develop an analytical framework for a Vulnerability Exercise for Low-Income Countries (LICs) as they are particularly vulnerable to sharp swings in commodity prices, natural disasters, and volatile external financing conditions. Due to LICs’ greater vulnerabilities and the limited available counter-balancing analysis, the outcomes of this exercise should be treated with a higher level of care and confidentiality. Ongoing work on improving the debt sustainability analysis framework, to more accurately assess available fiscal space for growth-enhancing public investments, is also welcome. Governance 11. Since we last met in October 2010, the Board of Governors has approved farreaching reforms on quotas and governance and the 2008 Quota and Voice reforms have entered into force. These meaningful steps will undoubtedly strengthen the credibility, legitimacy and effectiveness of the Fund. However, we are still a long way from the desired outcomes and need to proceed further to transform the Fund into a truly representative institution aligned with global economic realities. Further, we reiterate our call to reform the selection process of the IMF Managing Director and Deputy Managing Directors. The new selection process should be transparent and take into account the Fund’s move towards diversity. Conclusion 12. | Nevertheless, it should be stressed that the need for such a consensus is as great as before, since the reliance on accommodative policies of advanced countries has reduced their urgency for structural reforms and complicated the conduct of policies in emerging market economies. If the current stalemate were allowed to continue, there is a risk that the global recovery would not be sustained and the functioning of the IMS could become disorderly. In this context, the theme for this year’s IMFC Plenary, “Global Challenges, Global Solutions” holds special significance. Fund surveillance 3. We look forward to the upcoming 2011 Triennial Surveillance Review (TSR). To avoid duplication, an independent opinion of the gaps in the Fund’s surveillance framework can already be found in the IEO report on the Fund’s performance in the run-up to the crisis. The IEO has identified several weaknesses in the Fund’s culture that impedes effective oversight, such as a silo mentality amongst departments, fear of reprisals that inhibit candid views, and a lack of evenhandedness in the treatment of members. Instead of searching for a new legal framework for surveillance, the Fund should concentrate its efforts on how best to implement the IEO recommendations. While the IEO report focuses on dealing with risks in the financial sector, we wish to highlight that surveillance should also focus on fiscal and/or debt sustainability problems, from which the next crisis could emanate. | 1 |
It is obvious that many households are heavily burdened when mortgage rates rise and this is not something the Riksbank takes lightly. At the same time, it is important to broaden the perspective. Interest rate increases did indeed reduce households' spending money in 2022, but so did the large price increases on electricity, food, other goods and services. Of course, the conditions vary for different households, but looking at an average household, inflation eroded purchasing power more than interest costs did. Higher interest rates are costly for households. But it would cost even more if inflation stays at a high level. Partly because of the high inflation itself, and partly because it would then probably require even larger interest rate increases to bring inflation down again. Broadly favourable real economic development in 2022 But doesn't a higher interest rate mean that the Riksbank is "breaking the economy", as it is sometimes claimed? Our assessment in February was that economic activity is 7/10 BIS - Central bankers' speeches certainly slowing down and that there will be a cooler development in the labour market until the economy has cooled down and inflation has fallen. But once we get through that, the economic situation will improve and activity will gradually increase again. Statistics published after our decision show that GDP at the end of last year was slightly higher than we estimated – the Swedish economy was relatively strong in 2022, as in the previous year. | The Riksbank may buy and sell such securities if there are exceptional reasons, as stated in the act. In principle, this means that we must make the assessment that other measures would not have the desired effect on the economy. The new act now also gives the Riksbank an explicit mandate to trade in securities within the framework of our task of contributing to the stability and efficiency of the financial system. For instance, the Riksbank may buy and sell securities to temporarily support financial markets for the purpose of counteracting a serious disturbance in the financial system, if there are exceptional reasons. The Riksbank's mandate remains strong 3/10 BIS - Central bankers' speeches I will not go through all the details of the new act that have a bearing on monetary policy. The overall picture is that some things have changed. But the important thing is that we can do what we need to do to fulfil our tasks, in normal times and in times of crisis. The Riksbank has a strong and clear mandate to conduct flexible inflation targeting, where the overriding objective is for inflation to be lastingly low and stable. This is important now that the inflation target is being seriousl put to the test in a situation where inflation significantly overshoots the target for the first time since its introduction in 1995. | 1 |
Zeti Akhtar Aziz: Financial education for meaningful inclusion Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Citi-FT Financial Education Summit 2014 “Financial Education for Meaningful Inclusion”, Kuala Lumpur, 5 November 2014. * * * It is my great pleasure to be here this morning at the Citi-FT Financial Education Summit 2014. First of all, allow me to welcome the Citi-FT Summit back to Kuala Lumpur. It is my honour to once again address this Summit that has now become an important forum for advancing the financial literacy agenda. It was in 2004, at the inaugural Citi-INSEAD Financial Education Summit in Hong Kong that I spoke on financial education in the context of the demographic forces in Asia and their consequent implications for financial consumers, in particular for women in Asia. Today, another demographic shift – the “rapid urbanisation” – provides a new context to our discussion on the challenges in pursuing meaningful financial education strategies to achieve effective and responsible financial management in our communities. My remarks today will focus on the changing demographics and the role of financial education in enhancing the ability to cope with the realities of this new environment. Asia has probably experienced the most rapid demographic change in the world. In these recent two decades, several Asian economies have had to deal with a number of new challenges including slower population growth, rapid aging, the intensification of urbanisation and the consequences of increasing life expectancy. | The way in which financial services are delivered to consumers is also moving towards more cost-efficient channels that reduce the need for face-to-face contact. Enquiries and complaints are largely handled by phone or e-mail, and usually in a highly fragmented manner by different parts of a financial institution. This can mean less effective advisory support for the vulnerable groups of financial consumers. More recently, the wider adoption of electronic channels to make and receive payments has had enormous potential for greater financial inclusion. Key to this progress is the access to the relevant technology and safeguarding its security and thus gain the willingness to trust it. This will also involve the awareness of its benefits. These developments can be overwhelming to consumers and businesses who are illequipped to make informed financial decisions due to their inadequate knowledge on financial matters, thus diminishing their effective participation in the financial system. Symptomatic of this has been the rapid growth in household debt and leverage in a number of countries. This has been particularly prevalent in an environment of ample liquidity and low interest rates. This is also being reinforced by changing social norms, such as social pressures to spend, which has further eroded financial discipline among households. Such pressures are further compounded by the rising cost of living in the urban areas. Financial capability levels have however generally lagged the socio-economic changes that are taking place, resulting in poor financial management. | 1 |
This is the basis for central bank independence. If price stability, by contrast, were regarded as just one out of a long list of political and economic objectives - rather than as a common goal and a precondition for the successful pursuit of other objectives - then there would be no legitimacy for entrusting this task (and only this task) to independent central banks. Making value judgements when trading-off different objectives and balancing conflicting interests is the legitimate job of elected politicians with a popular mandate and not of appointed technocrats. An independent central bank thus pre-supposes a broad consensus on the “quasi-constitutional” nature of the common good of price stability. Assigning the central bank a clear overriding objective also imposes limits on its discretionary exercise of power and makes it easier for the public to hold the central bank accountable for its mandate. This is important to keep in mind if we entertain the possibility that while, yes, “money is too important to be left to the politicians” one could similarly concur with Poincaré that “money is too important to be left to central bankers” (as quoted by Milton Friedman in his 1962 essay on “Should there be an independent monetary authority?”). In other words, why should one trust central bankers more than politicians? | Yves Mersch: Challenges for completing Europe’s economic and monetary union Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the MNI Connect event, Singapore, 13 October 2015. * * * Over the past few months, Europe has faced two exceptional challenges. First, there was the new adjustment programme for Greece. And second, there has been the large influx of refugees, a challenge that is very far from the competences of the European Central Bank (ECB). Though very different in nature, these two events offer a common lesson for future challenges that we will collectively face: that Europe is strong only when it acts on the basis of solidarity and cooperation. I would like to talk about two further topics of importance today: first, the ECB’s assessment of recent economic developments and their implications for our monetary policy stance; and second, the necessity for completing Europe’s economic and monetary union. Over the summer, industrial production and other indicators of economic activity in the euro area have shown signs of resilience. Yet at the same time, the macroeconomic environment has become more challenging. The ECB’s latest macroeconomic projections indicate a weaker economic recovery and a slower increase in inflation rates than was expected earlier in the year. Inflation will remain close to zero in the very near term, before rising again towards the end of the year. | 0 |
I am not claiming that the current framework is perfect, or that it is necessarily better than the old framework augmented with the new tools used to directly absorb excess reserves, but it is useful to have flexibility in how to implement monetary policy. We have now seen in practice that changes in administered rates can effectively move market rates – both because effective competition helps bring administered and market rates closer together and because the mere existence of administered-rate facilities, like the RRPs I mentioned earlier, can affect competition between private borrowers and investors even when these facilities see little usage. As we learn more about the practical aspects of using these mechanisms to influence money market rates in the United States, a much wider range of potential operating frameworks becomes viable. It will now be important to make sure that all the costs and benefits of different approaches are considered carefully to get the most effective framework for monetary policy implementation. In particular, there are important trade-offs that may need to be considered in a framework that can flexibly provide liquidity for monetary policy implementation and broader transmission. It is possible, for example, that financial market participants may anticipate that the central bank will make liquidity plentiful during times of stress and that this could reduce their incentives to manage their liquidity conservatively. For banks, new Basel III liquidity regulation, such as the liquidity coverage ratio and the net stable funding ratio, partially mitigates this concern. | 2 Walker, David (July 2009), "A Review of Corporate Governance in UK Banks and Other Financial Industry Entities", Her Majesty's Treasury; G20 Working Group 1 (March 2009), "Enhancing Sound Regulation and Strengthening Transparency", G20; OECD Steering Group on Corporate Governance (May 2009), "Corporate Governance and the Financial Crisis - Key Findings and Main Messages", OECD. 2 BIS Review 147/2009 complacent. We must not let up in our efforts to improve our regulations and codes, as well as in the actual practices and governance culture. As part of this effort, I am pleased to announce that we will be establishing a Corporate Governance Council, comprising members from the private and public sectors. The objective of the Council will be to promote a high standard of corporate governance in companies listed in Singapore so as to maintain and enhance investors' confidence. In turn, this will enhance Singapore's reputation as a leading and trusted financial centre, and benefit all players involved. In conceptualising the Corporate Governance Council, the CCDG serves as a useful reference. Unlike the CCDG, which also had responsibility for promulgating accounting standards and improving disclosure practices, the Corporate Governance Council's focus will be squarely on corporate governance matters. Among the Council's roles will be the identification of opportunities for continuing professional development of directors and the development of practical guidance for Board committees. By taking into account perspectives of relevant stakeholders, the Council can develop initiatives that are robust and balanced, and achieve broad support and alignment of all parties. | 0 |
12 See the Bank of England’s Policy Statement 3/18, ‘International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision’. 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 The pillars underpin the government’s new Global Financial Partnerships Strategy. The Bank of England will be particularly engaged in deepening our supervisory cooperation with major emerging economies and will continue to develop the infrastructure to support cross-border capital flows in their currencies. With respect to the European Union, the Bank remains of the view that an ambitious future financial services relationship, founded on commitments to achieving equivalent outcomes and supervisory cooperation, remains both feasible and in the interests of the UK, Europe and the world. The future economic and security partnership with the EU is for the government to negotiate and Parliament to approve. The Bank’s role is to manage risks associated with the Brexit process and to provide technical support to the government as needed. In this context, HM Treasury and the Bank are aligned on the importance of maintaining the high regulatory standards required by the world’s most important and complex international financial centre. And we are both committed to responsible openness because it allows capital to move freely, efficiently and sustainably between jurisdictions and that supports trade, investment and jobs in the UK, Europe and the rest of the world. More broadly, building on the progress already made, financial services could serve as a template for broader services trade liberalisation. | Checkout can be eliminated. The customer, not cash, will reign supreme. 8 In the UK, intangible investment rose above tangible investment in the early 2000s, and stood at 11% as a share of output in 2014 compared with 10% for tangible investment. Investment in intangibles also exceeded that in tangibles in the US, Sweden and Finland [on average over 1999-2003], but not in other European countries including German, Italy and Spain. See Haskel, J and Westlake, W (2017), ‘Capitalism Without Capital: The Rise of the Intangible Economy’, Princeton University Press; and Goodridge, P R, Haskel, J and Wallis, G (2016), ‘Accounting for the UK Productivity Puzzle: A Decomposition and Predictions’, Economica, Vol. 85, Issue 339. 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 Second, RTGS is being re-configured to lower the excessive costs of cross-border payments. To this end, 9 two private PSPs joined earlier this year. In parallel, the Bank is working to connect RTGS and the systems run by other central banks. And we have just begun collaborating with the Bank of Canada, the Monetary Authority of Singapore and several private-sector firms to improve inter-bank cross-border payments, including initiatives based on distributed ledger. The potential returns are large. At present, cross-border payments can cost ten times more than domestic ones. 10 We estimate that in the UK alone there is scope to realise annual savings of over £ million. | 1 |
If shareholders know that they have to absorb potential 2 Barry Eichengreen and Michael D. Bordo: “Crises now and then: What lessons from the last era of financial globalization?”, NBER working paper 8715, January 2002. 3 “Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience”, April 2008, and the recommendations and principles to strengthen financial systems that the FSB published on 2 April 2009. 2 BIS Review 115/2009 future losses rather than passing them on to taxpayers, they will likely become less willing to let management engage in excessively risky activities. Ultimately, this incentive effect can help make future crises less likely. Strengthening capital requirements The crisis has nakedly exposed the dangers of excessive leverage. It also revealed a number of fundamental weaknesses of existing capital requirements. While model-driven risk-weighted capital requirements are sensible and should be maintained, they are not perfect and very likely never will be. Most of us have had to learn the hard way that the modeling of risk involves substantial risks itself. Despite risk-weighted capital ratios that in most cases exceeded the regulatory minima, leverage was a key source of vulnerability going into the crisis. Excessive leverage not only intensified the impact of mistakes on the financial situation of individual banks. It also amplified the crisis as ongoing deleveraging in the industry inevitably put downward pressure on financial markets and on the real economy. It is now also clear that banks were undercapitalized at the start of the crisis. | Joseph Yam: Exchange fund notes Opening remarks by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the signing ceremony for the appointment of retail exchange fund notes distributors, Hong Kong, 3 May 2005. * * * I have often emphasised the need for diversification in the financial intermediation channels to maximise the contribution of the financial system to economic growth and development. Diversification can also promote financial stability through reducing the over-dependence of financial intermediation upon one particular channel. Such diversification is therefore clearly in the public interest, to the extent, I think, of requiring the involvement of the public sector in its promotion, if the free market does not produce the desired results. Indeed, Hong Kong’s non-interventionist Government finally got around to this view back in 1989 and on 14 March 1990 the first weekly issue of 91-day Exchange Fund Bills, amounting to $ million, was launched. Since then the Exchange Fund Bills and Notes Programme has become a central feature of Hong Kong’s debt market. The total amount of Exchange Fund paper now outstanding is $ billion. And it was not just a matter of bringing supply to the market to meet demand. We developed a benchmark yield curve, a market-making system and a sophisticated market infrastructure, including a paperless clearing and custodian system. But more needs to be done. | 0 |
The war and international rearmament caused the demand for Swedish products to rise dramatically, and the increased exports gave a considerable boost to the economy. Swedish inflation toward the end of, and shortly after, the war has been described as a classic price, wage and profit spiral in an environment with growing access to money and bank credits, speculation and a shortage of fuel, commodities and labour.9 As I noted earlier, the Riksbank was uncertain as to how it should act. At this time, it was mostly academic economists who believed that raising the discount rate, the period’s equivalent to the repo rate, could slow down inflation, while the Riksbank was more hesitant.10 The fact that economic policy-makers did not share the view that the interest rate can be used to influence inflation was not, of course, a 8 Wetterberg (2009), p. 256. 9 Lundberg (1983). The introduction of the eight-hour day in July 1920 contributed to the shortage of labour. 10 Lundberg (1983), p. 56. 5 [14] good starting point and in itself a partial explanation for the fact that inflation could rise so sharply. An interesting, but perhaps not so well-known, event during this period was that Eli Heckscher, professor at the Stockholm School of Economics and internationally renowned economist, actually caused a bank run at the Riksbank in 1920.11 Although the inflation peak had passed, inflation at the beginning of 1920 was still so high that Heckscher thought that the Riksbank should raise the discount rate significantly. | Jonung, Lars (1999), ”Med backspegeln som kompass – om stabiliseringspolitiken som läroprocess”, [With the rear-view mirror as a compass - on stabilisation policy as a learning process] report to the Expert Group for Public Economics (ESO). Jonung, Lars (2000), “Från guldmyntfot till svenskt inflationsmål – svensk stabiliseringspolitik under det 20:e seklet” [From gold standard to inflation target – Swedish stabilisation policy in the 20th Century], Ekonomisk Debatt No. 1. Jonung, Lars (2017), ”Jakten på den stabila stabiliseringspolitiken” [The hunt for stable stabilisation policy], Ekonomisk Debatt, nr. 4. Lundberg, Erik (1983), Ekonomiska kriser förr och nu [Economic crises before and now], Studieförbundet Näringsliv och Samhälle. Rockoff, Hugh (2015), “War and inflation in the United States from the revolution to the first Iraq war”, NBER Working paper 21221. Vaitilingam, Romesh (2022), “Economic consequences of Russia’s invasion of Ukraine: Views of leading economists”, column on VoxEU, 10 March, Economic consequences of war in Ukraine: IGM Forum survey | VOX, CEPR Policy Portal (voxeu.org) Vernon, J.R. (1994), “World War II Fiscal Policies and the End of the Great Depression”, Journal of Economic History 54, pp. 850-868. Wetterberg, Gunnar (2009), Money and power – the history of Sveriges Riksbank, Sveriges Riksbank and Atlantis. Åsbrink, Erik (2019), Gunnar Sträng, Albert Bonniers Förlag. 14 [14] | 1 |
The global picture is even more unsettling – the roughly 3 4 $ billion in legal costs for global banks since 2008 translates into more than $ trillion of reduced lending capacity to the real economy. Never before has misconduct occurred so systematically, in such a scale and across multiple jurisdictions. Clearly it was not the case of a few bad apples, but something was rotten in the entire barrel. A combination of factors caused “ethical drift” across the industry where bad behaviour went unchecked, and became progressively more widespread and accepted as the norm. Market structures (such as poorly designed benchmarks, unmanaged conflicts of interest, and possibilities for collusion) presented opportunities for abuse. Systems of governance and control focused on second and third lines of defence that were weaker than highly profitable and powerful trading desks. Weak market discipline, particularly from the buy side, meant that poor market practices were allowed to continue. Remuneration and incentive schemes stressed short term returns over longer term value enhancement. And finally; a culture of impunity was prevalent because of a perception that the likelihood of being caught was low. Just as multiple forces caused the deterioration of conduct, multiple actions will be required to achieve the kind of “ethical lift” we want to see in the financial markets of the future. | (1997), “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets”, European Economic Review 41, pp. 1111–1146 introduced this type of loss function to analyse so-called flexible inflation targeting. However, the behavioural assumption that the loss function (or very similar variations of it) implies, has a long tradition in analyses of monetary policy (for example, Kydland, Finn E. and Edward C. Prescott (1977), “Rules Rather than Discretion: The Inconsistency of Optimal Plans”, Journal of Political Economy 85, 473–491.) 15 One can also calculate the mean value of these deviations, what is known as the mean squared gap. The mean squared gap for inflation and resource utilisation can then be drawn in as points in a figure; see, for instance, the article “A method for assessing different monetary policy alternatives” in the Material for assessing monetary policy 2011, Sveriges Riksbank. 16 See, for example, Apel, Mikael, Per Jansson and Lars Heikensten (2007), “The role of academics in monetary policy: a study of Swedish inflation targeting”, Sveriges Riksbank Economic Review 2007:1, pp. 21–58. 17 The document “Monetary policy in Sweden 2010”, Sveriges Riksbank, summarises the Riksbank’s monetary policy strategy. It is stated there (p. 5) that monetary policy “in addition to stabilising inflation around the inflation target, also strives to stabilise output and employment around long-term sustainable paths”. However, this does not mean that policy needs to be pegged to specific numerical estimates of these paths; see the continued discussion in this speech. | 0 |
Ravi Menon: China at an inflection point – what does it mean for Asia? Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Official Monetary and Financial Institutions Forum (OMFIF) City Lecture, London, 5 May 2016. * * * Mr David Marsh, Managing Director and Co-founder of OMFIF Ms Foo Chi Hsia, Singapore’s High Commissioner to the UK Distinguished guests, ladies and gentlemen The China syndrome China’s size and promise have long enthralled the world. • The dream of penetrating China’s market was colourfully captured in the words of a British commentator in the 1840s: “If we could only persuade every person in China to lengthen his shirt-tail by a foot, we could keep the mills of Lancashire working around the clock” • Well, war, revolution, and central planning quickly laid to rest that fantasy. Since the closing decades of the last century, the gravity-defying growth and transformation of the Chinese economy have once again stirred global imagination. • GDP growth averaged 10% per annum during 1980–2010, ahead of virtually all other economies. China’s size, growth, and rapid integration with the rest of the world mean that no evaluation of the global economy can be complete without looking at China. • In 2000, just 5 countries ranked China as their top export market, compared to 53 countries that ranked the US similarly. | • Demand for final consumption goods will increase as China’s middle-class grows, stimulating imports of consumption goods even as trade in intermediate goods slows. • Indeed, at a rate of nearly 10% per annum, China’s import of consumption goods has grown by more than twice that of intermediate goods over the past ten years. Second, direct investment will increasingly be an area where China’s impact on the region is felt. Since late last year, China has emerged as a net exporter of direct investment. • Outward direct investment from China has grown by 28% per annum over the nine years to 2014. Third, a new regional production network could emerge in Asia. • Indonesia and the economies in Indo-China, with favourable population dynamics, are well-placed to absorb the labour-intensive and lower value-added jobs that China is shedding as wage costs rise. • The Chinese push to finance infrastructure construction in less developed Asian countries, as part of its One Belt One Road plan, will greatly enhance these countries’ attractiveness as nodes in the Chinese manufacturing network. Conclusion Let me conclude. China is in the midst of an unparalleled economic transition. It is grappling with the challenge of managing a growth slowdown, addressing vulnerabilities in its financial system, and implementing structural reforms – all at the same time. It is not an easy task, juggling these three balls at the same time. | 1 |
Under these assumptions, and using the same discount rate of 2.5%, the present value of reducing BIS Review 100/2010 9 the likelihood of a systematic crisis in any one year by one percentage point is around 55% of current annual GDP. If we instead assumed that there are no permanent effects on GDP from financial crises the benefits of reducing the chance of a crisis happening in a year are lower at around 20% of GDP (Table 1, column 2). The third column in the table shows by how much the chances of a banking crisis would need to fall given a rise in capital of 1% of bank assets so that the benefits of that would match the estimated cost. (Whereas before both benefit and cost are expressed as the present value of lost or gained GDP.) This is the reduction in the probability of a banking crisis required to justify a 1% increase in banks’ risk-weighted capital – given the assumptions made on tax, Modigliani Miller offsets and so on corresponding to that row in the Table. Chart 7 illustrates this calculation for multiples of a 1% increase in banks’ capital. For example, on the least favourable assumptions about the cost of extra bank capital (corresponding to row 1 in the table) the Chart shows that a 10% increase in banks’ capital ratios would require a minimum reduction in the probability of financial crises of 0.8 (the red line) for it to pass a cost-benefit test. | Clearly more stringent capital requirements on banks will be part of any new regulatory framework. I believe that moving capital requirements on banks is a very useful tool to work alongside monetary policy in achieving a stable economic environment. But there are other tools such as time-varying liquidity standards or limits on loan-to-value ratios on secured lending that could be used to limit the growth of credit over the cycle. However, it is not my role as a member of the MPC to comment on the exact design of macro-prudential instruments. But I do believe there is a strong case for having monetary policy tools – which for most of the time means the level of interest rates – set to achieve stability in nominal conditions; which means that they are focused on inflation. Using the interest rate as a tool to maintain the stability of the banking system strikes me as a strange assignment of policy tools to targets. Changes in interest rates have an uncertain impact on financial stability; often it would be unclear in which direction to move interest rates to help make the banking sector more robust. But in the UK changes in interest rates have a powerful – and relatively predictable – impact on the wider economy. In contrast capital requirements may have a powerful and relatively clear impact on bank robustness and an uncertain – but quite likely relatively small – impact on the wider 12 BIS Review 100/2010 economy. | 1 |
Lowering the policy rate into negative territory can also be useful in reducing the pressure on an appreciating currency. If a country’s currency is facing such appreciation pressures at a time when “substitute” currencies have policy rates at or near zero, then the country’s central bank may choose to move its policy rates into negative territory to reduce the yields available to market participants who are holding the currency in anticipation of a gain on sale. Complications I’ll now outline seven categories of complications associated with negative nominal policy rates. While some of these complications are already relevant in an environment of low real rates of interest, most arise only when nominal rates turn negative. 1. Avoidance Why do people say there is a lower bound on interest rates at zero? Our simple proposition is that people would not invest a dollar in an account or bond from which they could expect to recoup only an amount less than a dollar so long as they could alternatively and costlessly put their money in currency – an investment in which a dollar remains a dollar. If everyone could costlessly invest in currency rather than in activities bearing negative rates, then there wouldn’t be any negative rate activity in which people would invest. Consequently, the negative interest rates in many European countries indicate that it is costly to invest in currency to earn a zero nominal rate of interest. Why is this the case? First, currency is bulky and weighty. | As I pointed out earlier, the costs of avoiding negative interest rates by substituting currency for deposits is probably lower for retail depositors than for larger, business and institutional, depositors. Because retail depositors can avoid negative rates on deposits relatively easily, it makes sense not to impose negative rates on their deposits. In addition, many retail depositors may have a visceral negative reaction to being charged negative rates, and may lack a clear understanding of whether their bank is minimizing the costs of storing their deposits. Recognizing these difficulties, the central banks that have negative policy rates offer zero rates on many of their deposits from banks, imposing negative rates on the “marginal” deposits. In this way, commercial banks can, in general, charge their retail depositors deposit rates of zero and earn zero at the central bank on at least a large portion of their reserve holdings. Observers report that retail depositors in Switzerland, Denmark, and Sweden do not face negative deposit rates. At the same time, many large business and institutional depositors do earn negative rates on their bank deposits. This state of affairs opens up new avenues, at least in theory, by which some can avoid negative rates: large business depositors could attempt to impersonate a host of retail depositors. While generally unrealistic, the possibility of such a ploy requires that some effort be expended to prevent that avoidance activity. | 1 |
Downside risks also relate to further increases in commodity prices. Euro area annual HICP inflation was 2.6% in March 2012, according to Eurostat’s flash estimate, after 2.7% in the previous three months. Inflation is likely to stay above 2% in 2012, mainly owing to recent increases in energy prices, as well as recently announced rises in indirect taxes. On the basis of current futures prices for commodities, annual inflation rates should fall below 2% again in early 2013. In this context, we will pay particular attention to any signs of pass-through from higher energy prices to wages, profits and general pricesetting. However, looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain limited. BIS central bankers’ speeches 1 Risks to the outlook for HICP inflation rates in the coming years are still seen to be broadly balanced, with upside risks in the near term mainly stemming from higher than expected oil prices and indirect tax increases. Downside risks continue to exist owing to weaker than expected developments in economic activity. The monetary analysis indicates that the underlying pace of monetary expansion has remained subdued. The annual growth rate of M3 was 2.8% in February 2012, compared with 2.5% in January. In both January and February we observed a strengthening in the deposit base of banks. | From the perspective of the National Bank, this means that the Government is trying to anticipate the policies that we implement to maintain the level of the exchange rate and it takes them into consideration when adopting the budget. It is clear that the National Bank and the Government may adopt essentially good decisions in their respective spheres of action if they cooperate even during the discussions which precede the decisions. The cooperation with the Government would also be in terms of creating conditions for the social dialogue to take into account the challenge we face in conducting the monetary policy. This actually means that the inflationary pressures which in themselves would result in faster development of the domestic economy, as well as more positive output gap compared with the countries of the Eurozone, would also lead to more pronounced interaction with the increase in unit labor costs. The perception of close coordination between the Central Bank and the Government in dealing with this challenge would mean that both public institutions are aware of the need to adjust to the conditions that the maintenance of price stability through the exchange rate brings. This adjustment would prompt the Government, through dialogue with social partners, to advocate a moderate growth of wages, i.e. wage growth which will take into account productivity in both the tradable and non-tradable sectors. This would lead to increased employment, while simultaneously improving the competitive position of enterprises, which would alleviate the emergence of imbalances in the economy as a whole. | 0 |
Economic policy reaction came promptly. In Chile, and other Latin American countries, we implemented a combination of fiscal and monetary policies to stimulate the economy. More important was the fact that probably for the first time, a crisis of the magnitude that affected – and still affects – developed countries, did not cause Latin American economies to enter into a balance of payments crisis or a profound recession. Suffice it to remember what happened in the early 1980s, when our own weaknesses and the shortcomings of economic policies, coupled with a significant rise in interest rates worldwide, dragged us into a deep recession. This is of utmost importance as it shows that we have matured in economic policy framework and that we face the challenge not only of maintaining but also of improving it. After some quarters, the world economy began to recover gradually. This process took place at two speeds. Emerging economies recovered at a fast pace, while developed countries experienced a slower rebound. The causes and consequences of the Great Recession continue to affect economic performance of the developed world. This is so because the fundamental problem, high indebtedness of households, companies and governments, is still present. The fact that the higher the level of debt the more costly the solutions and greater the side-effects, poses a problem. We have been seeing this clearly during recent quarters. | The European Central Bank (ECB) has provided long-term liquidity to the financial sector, European leaders have placed conditions on this financing, governments have agreed on adjustment plans that seem to go in the right direction, and it seems as time has been bought to address the more structural problems that are still present in the Eurozone. Financial markets have understood this, and risk indicators and monetary conditions have improved. Consensus forecasts on world growth point to a performance of the global economy below that of 2011. Nonetheless, the degree of downward correction has diminished noticeably in the latest data. Does this mean that circumstances in developed countries have reached a point beyond which we must not expect other significant setbacks? This is not so in my opinion. Allow me to give you some background. As mentioned, the solution to the Eurozone’s problems is still far ahead. Its economy is in recession and the necessary adjustments are expensive and highly unpopular among the population. Some economies have very high unemployment and a very fragile fiscal situation. If anything, measures adopted up to now have put a firewall to isolate systemically relevant economies from greater disaster. Also, financial conditions have improved these last weeks, mainly due to the ECB’s LTRO initiative. With it, the concern over the region’s banking sector financing needs has been dealt with. However, serious fiscal and financial problems and macroeconomic imbalances continue to exist in the Eurozone. In response to high unemployment and low growth, banks’ portfolios deteriorated. | 1 |
Benoît Cœuré: A budgetary capacity for the euro area Introductory remarks by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at a public hearing at the European Parliament, Brussels, 2 March 2016. * * * Madam Chair, Mr Chair, Honourable Members of the European Parliament, Ladies and gentlemen, I am grateful to the two rapporteurs and to the two committee chairs for holding this hearing today to advance the public debate on a fiscal capacity for the euro area. We are all well aware that political attention is largely focused elsewhere, but we should not lose sight of the objective of completing Economic and Monetary Union (EMU), securing its capacity to absorb economic shocks and creating confidence today in its future economic performance. As I have said elsewhere, if downside risks to the recovery were to materialise, this would not make it easier to respond to the refugee crisis or to counter terrorism. 1 A quick glance at fiscal policies today should further convince us of the importance of this discussion: • The recovery in the euro area is proceeding at a sedate pace; it is mainly supported by our monetary policy measures and by the low price of energy. At the same time, the global economy is overshadowed by renewed uncertainty and broader geopolitical risks. • Public finances in many euro area countries are still in a fragile condition. | The large majority of citizens, who had nothing to do with the errors leading up to the crisis, were made destitute because their small incomes and savings declined in value. Large parts of the growing middle class in the worst hit countries in South East Asia were wiped out. Conditional support was often provided with tough requirements of economic policy restraint. A tight fiscal policy would create scope for financing restructuring in the banking sector. Stringent monetary policy would counteract an overly severe depreciation of the currency. This can be criticised with hindsight, as in South East Asia the countries often did not have problematic deficits in public finances or high inflation rates. The IMF has admitted since that the restraint was too great, as they did not realise the extent of the financial crisis. The task for the BIS, the IMF, the World Bank and other international organisations should be to continue the work on finding rules and methods, both to protect innocent people from ruination and to put the risk for bad investments on those making the investments. Work on this is underway in the organisations I mentioned earlier. It involves capital adequacy rules for banks, but also reporting, 4 BIS Review 9/2002 auditing, financial supervision, bankruptcy legislation and transparency in conducting monetary and fiscal policy. | 0 |
Innovations indeed move the world with financial technology, transforming the financial services industry as we know it – moving it towards the digital arena. In such an environment, building and maintaining close cooperation becomes essential for sustaining financial stability and protecting consumers from security threats. The Conference will cover various topics related to the latest developments at global, European and national level. The emergence of FinTech – financial technology marked the global developments in recent years by attracting financial institutions attention to its implementation for improving the present financial products and new products development. On the other hand, FinTech companies started offering their own financial services, thus entering into competition against banks. Moreover, digital technologies pose challenges to financial institutions, including the central banks, in the context of digital banking and digital transformations. Implementation of Distributed Ledger Technology, particularly Blockchain, could cause disruption to financial market infrastructures and furthermore, to worldwide financial system. Theoretically, it could facilitate cross-border payments, improve the efficiency of back-office operations, eliminate the need of data reconciliation, facilitate financial inclusion and information sharing, but also, it could reduce the need or completely replace some financial market intermediaries. DLT strongly emphasizes the questions about effective regulation, prudential supervision, oversight and cyber security issues, but it could also catalyze the issuance of digital currencies backed by the central banks and facilitate the implementation of monetary policy. In the European context, the Second Payment Services Directive (PSD2) is fundamental part of the European payments regulation and significant step towards single digital market in Europe. | I am particularly pleased that on the last day of the Conference the honored governors, board members and experts from the European Central Bank, De Nederlandsche Bank, Banco de Portugal, Croatian National Bank, Bulgarian National Bank, National Bank of Belgium, Global Sovereign Advisors and the National Bank of the Republic of Macedonia will reflect on innovations and cooperation as the main drivers of the European payment integration as well as on how consumers, firms and government users will pay in the future. Without further ado, I now declare the 10th jubilee Conference on Payments and Market Infrastructures open. I wish you pleasant days here in Ohrid and many fruitful discussions. Thank you! 2/2 BIS central bankers' speeches | 1 |
Any central banker’s ears will prick up at this, given the importance of an earlier literature – associated with Kydland & Prescott, Barro, Fischer 24 – in helping to explain the inflation problems of the past and to make the case for central bank independence. The ‘old’ problem was about the incentive of a monetary authority to cheat, or renege on promises, by generating surprise inflationary booms in order to secure an increase in output and jobs. This was, indeed, pretty tempting for politicians when they had their hands on the interest rate lever. In a rational world, the result was no permanent increase in jobs but a higher-than-desired steady-state rate of inflation. And the solutions variously offered by the academy included appointing a ‘conservative central banker’ more averse to inflation than society at large, or writing a ‘contract’ that incentivises the monetary authority to do the right thing 25 . In practice, the solution has amounted to a combination of central bank independence, clear goals, and transparency. These real-world central bankers care about ensuring that nominal magnitudes do not distort economic decision taking, and they care about their reputations. But they are not ‘conservative’ in the sense of being ‘inflation nutters’. Rather they are ‘dutiful’ in the sense of sticking to a clear, symmetric mandate. That, many would argue, has been a necessary condition for achieving credibility. But now it is argued that a monetary authority does, after all, still have an incentive to cheat. | On the basis of this rationale, it is my view that regional financial cooperation should move progressively forward, with the process being further strengthened and the work becoming more focused, aimed at producing more tangible results. Let me now spare with you my thoughts on the way forward. On this issue, I should say at the outset that the points I am going to make here are not new, and some of them are probably already familiar to you. The first is the Chiang Mai Initiative or CMI. CMI was created conceptually as a short-term financing facility to help participating members manage their balance of payments shortfalls at a time of financial distress. Although the economies of East Asia are now much stronger than five years ago, CMI should continue to remain a key pillar of regional financial cooperation. This is because it is important for the region to have its own liquidity arrangement that can be called upon when the need arises. With the crisis now behind us, we do have time to think on how best to improve the existing facility. And, one way we can approach this is to look for ways we can credibly turn the existing arrangement into a facility that emphasizes a greater level of resource commitment by participating members. This is to say that requesting members should be in a position to count on this facility when the need arises. Looking at the improvement from this angle, I think there are three ways we can reflect upon. | 0 |
In central clearing, in settlement, in payments if we wish to maintain the infrastructure to sustain an open and integrated global capital market, we will need to build upon the arrangements we have developed for supervisory cooperation and co-ordination. These are not insignificant challenges. But the history of the development of this infrastructure is one of both private and public sector co-operation to provide international plumbing that is both efficient and safe. Conclusion And these challenges may be older than we think. th Less than a mile from here stands the Temple church, built by the Knights Templar in the 12 century. Originally established to protect pilgrims en route to Jerusalem, the Knights Templar soon developed complex international financial operations to store assets and move money across borders. 16 All speeches are available online at www.bankofengland.co.uk/speeches 16 In London, pilgrims depositing assets in the Temple church received a note that could be redeemed for money when they arrived in the Holy City. The Templar’s wealth and infrastructure grew enormously – aided by the fact that the Pope exempted them from all regulation, supervision and taxes. One historian has categorised them as the first multinational corporation. In the end, however, they grew too powerful and the ‘authorities’ of the day in Rome, Paris and London withdrew their ‘authorisation’ and disbanded the order. Today’s infrastructure, developed to support financial globalisation, exceeds by far anything the Templars – or the first Deputy Governor of the Bank – might have imagined. | Securitisation is not the silver bullet but it can thus be seen as a seed instrument to reshape the European economy funding, whereby long‐term investors such as insurance companies, pension funds among other real money investors are given a more important role in the funding of the economy, while preserving the clients/banks relationship. These real money investors are natural investors in securitization also because they have long-term liabilities that ought to be matched by long-term investments. However, it seems now clear that the changes in the regulatory treatment of ABS in the aftermath of the crisis, which were to a great extent a response to events in the US, may arguably have hindered the development of the European ABS market. These postcrises regulatory proposed reforms (CRD IV and Solvency II) lead to a substantial increase of the capital charges for investments in securitisations. It is worth mentioning that risk weighted assets calculated on ABS tranches can be several times the risk weighted assets of the constituting pool. Further, the due diligence process that must be put in place to invest in ABS represents a considerable burden. The common practice in the US of full derecognition of assets also led to regulatory changes with impact on the supply side, and may have been a main cause of depression in the European ABS market, which in many cases already had provisions against lack of “skin in the game”. | 0 |
But one thing is clear to me: unless the degree of diversity in the Euro area is smaller, unless economic divergence (that is illustrated by dynamics after the introduction of the euro) is reduced, further troubles will arise. Jacques de Larosiere, one of our doyens and a former president of EUROFI, never tires of pointing out this fact. Economic convergence is badly needed in the monetary union, where policy space for undertaking the correction of large external imbalances (deficits) is much diminished. I think that proposals made by the EC, by various governments, offer hope that better policies will be articulated in the not too distant future. Romania and other New Member States are bound (by the treaties of accession) to join the Euro area. And we care enormously that the Euro area, through its policy arrangements and tools, will enable economic convergence. 1/4 BIS central bankers' speeches Coming from Romania, speaking today in Bulgaria, let me take this opportunity to share with you some of the challenges faced by non-euro Member States, in particular the ones in Central and Eastern Europe. Much has been said about growth and inflation in the euro-area, as well as about stage of the banking union. Less attention has been paid to Member States which want to join the banking union and the euro-area in the foreseeable future, but still need to implement structural reforms to get there. | That would be a change with profound economic consequences. Central Bank Digital Currencies The rapid decline of cash, the rapidly changing nature of payments and, potentially, of the assets used to make payments, raise the question of whether central banks should leverage new technologies to provide new electronic forms of central bank money – the creation of Central Bank-issued Digital Currencies (CBDC) – as a complement to existing physical banknotes? A CBDC could ensure that the public has continued access to a risk-free form of money issued by the central bank. It could also potentially be designed in a way that contributes to a more resilient, innovative and competitive payments system for UK households and businesses. But, while CBDC poses a number of opportunities, it also raises challenges for the way in which we maintain monetary and financial stability. The potential benefits to financial stability could include more access to and utility of central bank money, including greater public access to a risk free asset enhancing a resilient payments infrastructure. There could also be positive benefits to monetary policy, such as more direct control of the monetary transmission mechanism. But for all the opportunities, there are also some significant potential implications. | 0 |
In terms of composition of banking retail credit, housing credit represents almost two-thirds, reflecting the household’s holding of assets mainly in the form of housing real estate - a common feature prevalent in Asia. Credit cards and commercial credits take up 7.2 and 6 percent of total retail credit, respectively, while the remaining 21 percent are credit for other consumption purposes such as electrical appliance, education and so on. Among all types of retail credit, there are three fast growing segments in the past few years that deserve our attention. First, housing credits with accelerating growth. Second, credit card advance with tapering growths close to 40 percent. And third, automobile hire purchase with record growths of well above 50 percent. The booms in these segments commonly rest on the strong economic recovery, coupled with solid performance of the stock exchange - after all the Stock Exchange of Thailand recorded one of the best performing bourse in 2003. The government spending programs such as the village fund has fuelled further consumption, especially at the grass-root level, to ensure firm recovery. Moreover, against the backdrop of persistently low interest rate environment, consumers find it easier to part with their money acquired from liability assumption. This is particularly relevant for the build-up of debt in housing and automobile segments by households that simply mirrors an accumulation of assets on the other side of their balance sheet. | Mark Carney: Jane Austen to feature on Bank of England banknotes Remarks by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at Jane Austen’s House Museum, Chawton, 24 July 2013. * * * Good afternoon, and welcome to Chawton, home in her final eight years to Jane Austen and her family. This cottage occupied a special place in Jane Austen’s life, as a return to the countryside brought contentment after an unhappy spell in Bath. All six of Jane Austen’s best known novels were published after she moved to Chawton, and three of them were written in their entirety here. It therefore gives me great pleasure to be here today to announce that Jane Austen will be the next character to appear on the Bank of England’s £ note, replacing Charles Darwin. Jane Austen will become the 17th historical figure to feature on our banknotes. She merits her place in this select group as one of the greatest writers in English literature. Her novels have an enduring, timeless and universal appeal – they have never been out of print since first being published, have inspired numerous modern adaptations and are loved by people around the world. Austen’s combination of sharp wit, engaging narrative, knowing satire and social commentary has ensured her place among the country’s favourite authors. I am delighted now to unveil the image for the new Jane Austen note. | 0 |
I hope they will absorb the lesson that specialisation in production and trade across the world are the way to improve living standards in all countries – rich and poor alike. And perhaps when they return home they will press their own politicians to support the opening up of trade which has been at the heart of the British Government’s efforts to reform the world economy. So you should be proud of your famous son who, despite being “an absent-minded professor” who led a “quiet, uneventful life”, influenced the way the whole world thinks about the route to economic prosperity. 20 Let me conclude by returning to the words of Jacob Viner: “In these days of contending schools, each of them with the deep, if momentary, conviction that it, and it alone, knows the one and only path to economic truth, how refreshing it is to return to the Wealth of Nations with its eclecticism, its good temper, its common sense, and its willingness to grant that those who saw things differently from itself were only partly wrong”. 21 Truly, Adam Smith was a man of the Scottish Enlightenment, and I am delighted that from next year his face will look out at us from our banknotes. References Blinder, A and Morgan, R (2000), 'Are two heads better than one? An experimental analysis of group vs individual decision making', NBER working paper no 7909, September. Buchan, J (2006) Adam Smith and the pursuit of perfect liberty, London: Profile Books. | We can choose to store our savings in the form of cash or in a current account. The price we pay is the return other alternatives would have provided. Bank deposits and bonds are examples of investments that provide a reliable return – interest income. If we choose to store money, we lose this income. But in contrast to bonds, money can be used directly to purchase goods and services. Interest is therefore also the price we pay in order to have liquid holdings. The interest rate is also used as an instrument in economic policy. Setting the interest rate to achieve a monetary policy objective, often price stability or low and stable inflation, is usually the responsibility of the central bank. The central bank sets a very short-term nominal interest rate. In Norway, this is the interest rate on banks’ overnight deposits in Norges Bank, the sight deposit rate. This rate determines the very short interest rates in the money market with maturities from one day upwards, normally up to Norges Bank’s next monetary policy meeting. Longer-term rates are determined by expectations concerning Norges Bank’s use of instruments in the future and by the degree of confidence in monetary policy. The real interest rate, that is the nominal interest rate minus expected inflation, is the rate that influences decisions concerning saving and investment. BIS Review 46/2003 1 The interest rate influences inflation indirectly via domestic demand for goods and services and via its effect on the exchange rate. | 0 |
Eddie Yue: Opening remarks on regtech Opening remarks by Mr Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, at the HKMA's "Unlocking the Power of Regtech" event, 30 June 2021. * * * Introduction 1. Good morning, good afternoon and good evening everyone. A very warm welcome to all the participants of today’s event, “Unlocking the Power of Regtech”. 2. Just a few years ago, a virtual conference like this would have been a near impossibility. I am sure you would also remember the days of expensive international travel, but today, advances in technology have transformed our ability to communicate and share with others in every part of the world. Similarly, technology has also fundamentally revolutionised the way banking business is undertaken. HKMA’s banking technology goals 3. One of the HKMA’s key policy goals is to encourage the application of innovative technology in the banking industry. Our recently announced "Hong Kong Fintech 2025" strategy, which goes far beyond our Smart Banking Initiatives which were announced a few years back, is an ambitious plan for getting Hong Kong’s banking sector to embrace and adopt new technology and rise to a high level of sophistication. 4. And within that Fintech journey that we are promoting, Regtech constitutes an integral and important driver within our strategy. On that, we have developed a vision that by 2025, Hong Kong will become a leading hub for developing Regtech solutions and cultivating Regtech talents. | The SNB therefore backs up the VaR calculations with stress and scenario analyses. These simulate extreme market fluctuations and examine the impact of such fluctuations on the assets. Scenarios that have an especially severe impact on the SNB’s assets include a fall in the gold price and a depreciation of the dollar and euro. Such scenarios show that serious losses could potentially be sustained. The volatility of the SNB’s earnings therefore remains high despite the new investment universe. Experience has shown, however, that major losses tend to even themselves out in the medium term, i.e. over a period of three to five years. 2 BIS Review 46/2005 BIS Review 46/2005 3 | 0 |
The relevant risk for the SOMA portfolio instead has to do with movements in interest rates at different maturities. BIS central bankers’ speeches 5 controls. The interest paid on reserves can be thought of as the “funding cost” of the portfolio. Today, because short-term interest rates are low relative to longer-term interest rates, this mismatch produces a very elevated stream of net income. In particular, the SOMA portfolio has a weighted average coupon yield of about 3.5 percent, which, if applied to a $ trillion portfolio, produces about $ billion of income at an annualized rate. 14 In contrast, the annualized funding cost of the portfolio at this time is only around $ billion. This cost is relatively low because of the near-zero level of the interest rate paid on reserves. In addition, the private sector holds nearly $ trillion of currency, which are liabilities of the Federal Reserve that bear no interest. 15 Thus, the SOMA portfolio should produce a considerable amount of net income over the near term. 16 Beyond the near term, though, the income that will be produced by the SOMA portfolio is uncertain. If short-term interest rates were to rise, the funding cost of the portfolio would increase relative to the fairly steady yield earned on the assets held, reducing the amount of net income from the portfolio. In addition, if longer-term yields were to shift higher, the Federal Reserve could realize capital losses if it were to begin selling assets. | They could, for instance, pay rent for children studying abroad, pay for a holiday home, or pay for services provided by European companies, e.g. mobile telephone services, insurance companies, utilities, etc. People who live, work or study outside their home country will no longer need one bank account at home and another one abroad. The use of payment cards will be more efficient, as consumers will be able to use the same card for all euro payments. This will reduce the necessity for people to carry cash. Innovative services can be offered to consumers irrespective of national borders. The long-term goal of the banking industry is that the SEPA payment instruments will only be used in electronic form. Payments can then be easily combined with other e-services in the case of both individual and corporate clients. These include e-invoicing, mobile or internet payment initiation, airline e-tickets, credit advice or e-reconciliation. As a consequence, consumers will spend less time handling payments. Everything will be easier, faster and cheaper ... in the long term. Payment cards are becoming a favourite payment instrument with consumers, and are increasingly replacing cheques and cash payments. The use of cards is thus expected to grow in the future. Thanks to the creation of a single euro payments area, acquirers will be able to process all SEPAcompliant card payments, even across borders. In the SEPA environment, merchants will be able to choose any card payment processing entity in the euro; this will increase competition and reduce costs. | 0 |
These figures show not only that the absolute level of the euro area’s deficit is half what it is elsewhere, but also that the pace of fiscal consolidation is actually faster. While these efforts are absolutely crucial, there are concerns that too abrupt an adjustment in public finances will be detrimental to growth and, ultimately, to fiscal consolidation itself. In the current circumstances facing Europe, I believe these concerns are misplaced. We have to look at the counterfactuals: delaying consolidation would expose our economies to even greater risks. At current debt levels, economic agents are very “Ricardian” and would react to fiscal permissiveness by delaying their own private expenditure. Financial markets would continue to impose very punitive interest rates on our countries to compensate for the uncertainty in the fiscal outlook. Overall, the confidence and financial benefits of fiscal consolidation far outweigh its negative effects on effective demand in the short run. In addition, everyone knows that there are ways to boost growth strongly and durably even in times of fiscal consolidation: through structural reforms. Here as well, the progress already made in many countries is impressive. In recent history, European economies have never reformed so extensively in such a brief period of time. I could cite many examples: the labour market reform in Spain and now in Italy, the pension reforms in Italy and France, privatisations, public wage decreases in Ireland, etc. Some positive effects from these measures are immediate, but naturally, most of the impact on competitiveness and growth will take time to materialize. | It is high time therefore that we made progress on reinforcing the regulatory framework for NBFIs, both on a micro and macroprudential level. As an example, in the case of money market funds, in times of extreme liquidity stress, the competent authorities should be able to release liquidity buffers for funds that are in difficulty, but should also be able to activate appropriate liquidity management tools. I would also like to draw your attention to three other non-bank risks: cyber risk, the frequency and cost of which are very likely to rise with the war in Ukraine. In the EU, the DORA regulation will come into force in 2025 and will at last provide a solid and common framework for making the financial sector more resilient to cyber attacks and for monitoring critical third parties such as cloud platforms. real estate markets, where housing prices had risen by close to 9% (year-on-year) in June 2022 in the euro area, much faster than household income. At this stage, the risks linked to a turn in the cycle are limited in France, thanks, among other things, to our macroprudential measures to make housing loan production sounder. We remain very vigilant, however, including with regard to the other segments of the market such as commercial real estate. crypto currencies, with the successive collapses, the most recent being FTX, that have triggered sharp market corrections and a "crypto winter" that has lasted for nearly a year: their recurrence shines a stark light on the need for stronger supervision. | 0 |
This is important for ensuring that resources would be allocated efficiently and that the direction of development would be in line with the needs of markets, which reflect private sector’s priority and expectations. At the initial stage of development, as is the case now for the Asian Bond Market, government policies and efforts will be important to spearhead the process of growth and development. But once the momentum takes off, market mechanism should take over to ensure that the pace and focus of development are consistent with market expectations. And, at this level, the role of policy should be to support and facilitate market development by streamlining rules and regulations, by facilitating cross-border trade and investment flows, and by providing the necessary financial infrastructure. This approach will help ensure that the region’s financial environment remains conducive to private sector activities and participation. Let me take the opportunity here to stress that, at this juncture of financial markets development in Asia, I think that support from the authorities is still important and remains a crucial factor. But in order to leverage the impact of government’s support and involvement to the fullest, it is important for the authorities to be clear and firm on their commitments to develop the markets. Government involvement should also be focused and concentrate on issues that cannot be tackled by private market participants. | Such an institute will also play an important role in 2/3 supporting the development of financial markets in Asia, as well as producing the next generation of Asian Financiers. The second area that should also be considered is the harmonization and streamlining of the existing rules and regulations. This is especially important for cross--border capital movements so that the region’s financial resources can flow more smoothly between economies in the region. Streamlining rules and regulations will help reduce unnecessary barriers, and through lower transaction costs, will allow a more efficient allocation of resources. For example, measures to protect domestic markets from outside competition may need to be relaxed. Along the same line, there is room to harmonize taxes on capital market transactions so that tax implications are neutral and do not act as a constraint to efficient resource allocation. Ladies and Gentlemen, My last thought for today is on ways we should proceed to expedite the pace of regional financial cooperation. At this juncture, there is no disagreement that we all would like to see more and faster progress on regional financial cooperation. And, to ensure its progress, we have seen policy makers in Asia ready and prepared to take bold and important policy actions. My view is also the same. I also want to see a faster pace of development rather than a slow one. But one also needs to underscore that, to achieve long term sustainability and continuity, the process of development needs to be market driven rather than policy driven. | 1 |
BIS central bankers’ speeches 1 Most of the aforementioned features were shared with other economies, such as US and Japan. The balance sheet recession they describe remains tractable, at least in theory, with a combination of short term economic stimulus, long term commitment to macroeconomic stability, structural reforms, and patience. However, there have been several idiosyncratic issues which set the European experience apart from the other economies. They were manifested into severe public sector problems in several Eurozone countries, widespread lack of trust in institutions and authorities, and the strengthening of centrifugal forces which risked breaking the euro apart. What were the factors that exacerbated the crisis in the Eurozone? While an exhaustive list would be long, I would like to highlight three of them. - First, the inter-dependence between sovereign credit rating, financial sector risk premia and the real economy was exacerbated by incomplete financial market integration. While the region as a whole suffered from capital outflows, financial integration within EU went in reverse during the past four years. The repatriation of cross-border financial flows created further problems in the Eurozone economies and neighboring region. In fact, the subsequent cross-border deleveraging and derisking has been one of the main crisis propagation channels that has affected eastern European countries, Albania included. - Second, the divergence in intra-regional economic policies resulted in a divergence of competitiveness within the EU and Eurozone. This accentuated existing intraregional balance of payments issues during the crisis, highlighting the need for long overdue economic and fiscal reforms. | At this point, the Bank would practically act as an interface between those parties eligible to participate in the euro area’s open-market operations and foreign exchange transactions and the ECB. This function has implications for both the Bank’s institutional set-up and its operational framework. First, the Bank must have the necessary legal power to carry out these tasks. In this regard, the Central Bank of Malta Act already permits the Bank to hold and exchange virtually any financial instrument and foreign asset. Additionally, however, it requires a good understanding of the operational framework governing such transactions, including the financial instruments and legal documentation that apply to transactions with eligible counterparties, the criteria which determine a counterparty’s eligibility to participate in these transactions and those that determine whether a particular asset can be used as collateral. Whereas most of the instruments currently used by the Central Bank are already in line with those of the European System of Central Banks (ESCB), further adjustments are necessary to achieve full compliance. To this end, the Bank has set up a Monetary Operations Committee and a Foreign Reserves Operations Committee to identify the appropriate additional adjustments to the Bank’s operational framework. The ability to interface with the ECB also requires that the systems which each Member State uses for the settlement of cross-border payments and the transfer of assets – in other words, the payment system and the securities settlement system – are somehow linked with those of the other members. | 0 |
The impact that changes in Fed policy can have beyond our borders has led to calls for us to do more to internalize those impacts, or even further, to internationally coordinate policymaking. As I’ve already noted, we are mindful of the global effects of Fed policy, given the central place of U.S. markets in the global financial system and the dollar’s status as the global reserve currency. Accordingly, we seek to conduct monetary policy transparently and based on clear principles. Promoting growth and stability in the U.S., I believe, is the most important contribution we can make to growth and stability worldwide. There is, of course, the argument that Fed policy has been too accommodative for too long, creating risks for financial stability worldwide. Here, I think it’s important to consider carefully the counterfactual. Would countries beyond our borders really have been better off with a weaker U.S. economy – an economy that might have required exceptional monetary policy accommodation for a much longer period of time? The fundamental issue is whether U.S. monetary policy has helped support our dual objectives of maximum employment in the context of price stability, and whether this support is consistent with a healthy global economy. 2 BIS central bankers’ speeches While explicit coordination looks neither feasible nor desirable, there may be more that central banks in general, and the Fed in particular, could do to be better global stewards. As an example, I would emphasize the importance of effective Fed communication. | The Riksbank's losses do not reflect the overall result The Riksbank's task is not to generate profits. Our mandate is to maintain permanently low and stable inflation and also to contribute to a balanced development of production and employment. The bond purchases made prior to the pandemic were part of the expansionary monetary policy that would safeguard the credibility of the inflation target. In addition, during the pandemic, the intention was to support the real economy by ensuring that credit provision continued to function. An evaluation of our asset purchases cannot therefore be based solely on the financial gains or losses that have arisen on the Riksbank's balance sheet. One needs to examine, among other things, how government finances were affected. 32 Until the end of last year, the government bonds we purchased in phase 1 had increased in value. Unrealised value increases of SEK 9 billion were therefore recorded in revaluation accounts, see Table 4. 33 These calculations are based on the cash flows that have so far been generated for each bond purchased, combined with a market valuation at current prices of the bonds that have not yet matured. The calculation can therefore be seen as the final result of the purchases, assuming that the remaining holding is sold today. 18 [30] Two examples of questions that need to be answered are: Did the government's borrowing costs fall? Did growth and employment in the economy rise, so that state tax revenues increased? | 0 |
To-day some kind of herd behaviour drives a lot of observers and actors in the opposite direction: overwhelming pessimism as regards the present situation and the economic future. Both attitudes are equally totally inappropriate. It is up to the Central Banks to remain moderate in their judgments, pragmatic and lucid in the various circumstances and to offer an anchor not only for monetary and financial stability but also for stability of judgment. -third, fostering confidence is a major contribution of the Eurosystem to the prosperity of the European economy. Confidence is a very precious ingredient in the present European conjuncture, as recently emphasized by the European Council in Ghent : confidence in the euro, in price stability, in its ability to be a highly reliable instrument for savings, in its medium and long term solidity. Confidence of the consumers in price stability underpins growth through dynamic household consumption – which is today a major motor of economic growth. Confidence of the savers underpins growth through a favourable financial environment. Thank you very much for your attention. BIS Review 96/2001 7 | In Dubai, the efforts by the authorities to create the Islamic economy initiative to further enhance the inter-linkages with other Islamic financial centres is also a step towards strengthening the international economic connectivity especially between our regions. The efforts will not only enhance Islamic finance as an effective financial intermediary but also as a binding force for the other segments of the Islamic economy, including with other parts of the world. Our collective efforts in developing Islamic finance will provide an important platform to unlock the potential opportunities that lie therein to benefit every segment of the society and the business community that now extends beyond our domestic borders. In this highly dynamic and rapidly changing world environment, efforts will need to be unrelenting on BIS central bankers’ speeches 1 developing further the enabling infrastructure, the foundations for stability and enhancing the internal capability. And with the greater international linkages, the greater will be the importance of working collectively for the common goals we aspire and for which the benefits will be mutually reinforcing. 2 BIS central bankers’ speeches | 0 |
On this view, the slowdown in prospect would have relatively benign effects in terms of the longer term sustainability of the global economic expansion; and developments so far have already had positive effects both in terms of their impact on the world oil price, and in terms of their impact on the pattern of exchange rates, notably by reducing the exaggerated weakness of the euro. On that basis the global economic environment should provide a reasonable background for our own economy. We – and our partners in the European Union – would be relatively little affected by the US economic slowdown. The world economy as a whole would certainly be helped by the somewhat softer oil price. And the recovery of the euro – including its recovery against sterling – will help to ease the severe imbalance within our own economy between the domestically-orientated sectors which have typically been doing relatively well and those businesses and sectors that are most exposed to competition from the Eurozone and which have been having a rough time. That imbalance is, I know, a real concern to many up here in Yorkshire, including many of you here in Sheffield. It has, for some time, been one of the most difficult issues confronting us in conducting monetary policy. What then are the major domestic uncertainties? | In the worst case, this may even lead to a situation with a more fragmented and nationally-oriented regulatory and supervisory system. To paraphrase the quote from Mervin King: global banks would still be national in death, but less international in life. That would, in my view, be a step backwards. I do of course realise that it is unrealistic to ask for the creation of an international institution with supranational powers to deal with distressed cross-border banks. So, in the absence of a common global regime the best we can do is to try to develop a common international approach to crisis management and resolution. If we cannot do it as one, at least we need to make sure that we can do it similarly and in a coordinated fashion. So we need to embark on an even bolder agenda than the present supervisory reforms. Here, we may draw some inspiration from the last century. After the war we created the IMF to provide some basic rules for the monetary system, recognising that the system is interlinked and that problems in one country may also create problems in others. In the 1980s we agreed on the Basle Accord with joint supervisory rules for the internationallyactive banks. Recognising now that supervisory convergence hinges on agreement on crisis management and resolution, I think that it is time to address this issue in a serious way. I see BIS Review 134/2009 3 this as a necessary step for Europe, given our single market. | 0 |
It is obvious that there will be need to rebalance fiscal and monetary policies in these economies once growth becomes more broad-based and entrenched to avoid a build up of inflationary pressures. As the crisis was mainly a result of weak regulatory framework and poor supervisory oversight in advanced economies, there is also need to continue undertaking measures to reform the financial systems and enhance global standards for the supervision of the financial sector. Zambia weathered the crisis relatively well, with growth in 2009 actually increasing to 6.3% from 5.7% in 2008. This growth was largely driven by increased output in the mining and quarrying, construction, agriculture, and energy sectors. Although the Zambia’s financial sector was not directly exposed to toxic assets, the financial crisis and the global recession that it triggered did impact Zambia’s macroeconomic environment. The Zambian economy suffered reversal of short term capital flows and a slowing down of foreign direct investment, which had an adverse impact on the exchange rate of the Kwacha against the major currencies. The collapse in commodity prices as global demand contracted also impacted on Zambia’s mining sector and its related support industries, leading to losses in output and employment that fed back into the deterioration in the loan book of commercial banks. Nonperforming loans in the banking sector, for example, rose from around 6% in June 2008 to 12.6% at the end of 2009. | Atchana Waiquamdee: Brief look at financial market indicators Opening remarks by Dr Atchana Waiquamdee, Deputy Governor for Monetary Stability, Bank of Thailand, at the Workshop on Financial Market Indicators, Bangkok, 7 June 2007. * * * Good morning, and allow me to welcome you to Bangkok, and to this morning’s Workshop on Financial Market Indicators. The issue we are about to discuss today, namely the use financial indicators, itself is not a new topic. Especially in more developed financial markets, the use of financial indicators has been integral to the well-functioning of markets. In those cases, utilizing financial market indicators in the policy-making process is nothing new. In many of the emerging markets of Asia, however, this has not been the case. Financial indicators in the emerging markets have been more difficult to come by, and even much more difficult to interpret – due largely to gaps in market development. Yet, as the financial markets of Asian economies began to gather both depth and breadth, more and more financial market indicators are becoming readily available for policy use. Since the availability of the indicators in emerging markets is rather recent and the fundamental conditions in these markets are still very dissimilar to those of the more matured ones, the use of financial market indicators in emerging markets for policy purposes merits much thought and attention. So what exactly are we talking about when referring to financial market indicators? | 0 |
The belief that nonbank FinTech companies will play a significant role in the future financial landscape is well established if we look at investments in fintech industry. The cumulative investments globally have more than ten-doubled the last five years and are estimated to exceed $ the next 3-5 years. This, in addition to changed customer expectation and increased digitalisation, may be the reason why today we are witnessing a trend of stronger cooperation between banks and fintechs, including in the area of innovation labs. The new technologies, such as blockchain and distributed ledger technology, though young and still-evolving, show the potential of restructuring financial industry, even encouraging discussions for cashless society with central bank digital currencies replacing the fiat money and underpinning the proliferation of cryptocurrencies. The cryptocurrencies have registered a spectacular rise – in 2017 their market valuation increased from USD 30 billion to USD 400 billion, and widened, with the rapid increase of “initial coin offerings” – fundraising facility for startup investors. So, are the cryptocurrencies, although unregulated becoming a substitute for fiat money? Are they incorporating the basic features of the fiat money such as being a medium of exchange, store of value and unit of account? Despite the rising trend, they play a marginal role globally as a medium of exchange in comparison with standard payment options; as they are not backed by legal authority and are marked by high value volatility and rather illiquid non-regulated markets, they obviously cannot be treated as unit of account and store of value. | What I have started to describe is the first objective that the new legislation gives to the PRA, namely the safety and soundness of the firms we will supervise. But there is another important leg to the definition of the objective, namely that the underlying objective of our pursuit of safety and soundness is the stability of the financial system. For banks, this had led us to emphasise that we will be a proportionate supervisor, putting more emphasis on the large firms that have more scope to damage the stability of the system. We think we can do this for banks because the depositor is protected by the deposit insurance arrangements on the first £ of deposits provided by the FSCS for all banks except branches from other EU countries (where the insurance comes from the home country), and because as a consequence of the crisis the resolution regime is now set down in statute, though we clearly have work to do to make the larger banks resolvable using those resolution powers, supplemented we expect by future EU legislation. For insurers, the legislation gives the PRA a second objective, namely the protection of policyholders. We do not have a comparable objective for depositors. Policyholder protection means in effect that our approach of proportionality in supervision cannot be the same for insurers. Why? This is a good question because the FSCS is set up to cover insurance. | 0 |
In the event 5 BIS Review 126/1999 that a bank’s internal capital adequacy process is lacking, supervisors must have the knowledge and authority to take corrective action. There can be no doubt that implementing the supervisory review of capital will require considerable insight and flexibility on the part of supervisors because they will have to tailor their efforts to the unique risk profiles of particular institutions. At the same time, this approach should allow supervisors to draw on their cross-institutional knowledge as they assess the strengths and weaknesses of a bank’s risk management and capital allocation processes relative to those of its peers. The G10 supervisors recognize the obvious implications that this approach will have for supervisory resources. In order to keep pace with industry innovation, it is clear that we will have to step up our training and consider effective ways for making the most use of our limited resources. The Basel Committee also recognizes the importance of these issues for the non-G10 countries and is working toward providing the training and other types of support needed to allow these countries and their supervisors to move in this direction. The third element in the proposed new capital adequacy framework has to do with market discipline - another critical component of a safer and more stable financial system. More extensive disclosure and greater dependence on market forces complement improvements in risk management, banking supervision, and minimum capital standards. | The fact that a number of other international groups have in recent years also developed “core principles” in their respective areas of expertise confirms to me the value of the Basel Committee’s approach. Today, approximately 120 countries endorse the Core Principles. Just last month, I am pleased to report, the Basel Committee, in cooperation with the IMF and the World Bank, produced a follow-up report called the Core Principles Methodology. This follow-up report was initiated in response to requests from a number of countries for additional guidance on how to interpret and implement the Core Principles. What the methodology report does is to develop specific criteria to evaluate how the Core Principles are being implemented in individual countries. The new methodology provides two sets of criteria for each Core Principle. One set of criteria focuses on issues deemed essential for the minimum implementation of the Core Principles; the other focuses on those issues deemed to represent “best practice.” 1 BIS Review 126/1999 The IMF and the World Bank currently use this new methodology to assess the banking sectors in individual countries. Looking ahead, the Basel Committee plans to bring together some time next year supervisors from emerging market countries and representatives from the IMF and World Bank to discuss the lessons learned from this initiative. The projected meeting is part of the Basel Committee’s ongoing commitment to ensure that the Core Principles remain on point and relevant to banking supervisors worldwide. | 1 |
Among them, an increase in private employment under contract and a decrease in involuntary part-time work are worth singling out. Self-employment, although growing at a higher rate than its salaried counterpart, has slowed down and the unemployment rate is now near its levels of a year ago, slightly higher than at the end of the first quarter (figure 4). Nominal wages' annual growth rate stopped falling. In June they expanded between 4.4% and 5.0%, compared with rates of 5.5% and 6.0% in June of 2016. Real wages increased 2 their annual variation, mainly due to low inflation. All this contributed to real incomes, measured by the real wage bill, slightly increasing their annual growth rate, to 3%. Add to this that consumer expectations have improved systematically in the last five months, although they are still in pessimistic territory. Moreover, the cost of credit is at record lows, consistent with the expansionary instance of monetary policy (figure 5). Unlike consumption, investment remains weak, especially its construction and works component, which has steepened its annual fall from mid-2016, hand in hand with a drop in housing investment and reduced public investment. Investment in machinery and equipment, despite some annual deceleration from the previous quarter, continues to outperform recent years, especially after discounting the non-regular transportation item, thus accumulating a nine-month string of positive growth rates (figure 6). On the external side, a more favorable scenario for the emerging world and Chile has been strengthening. | Villy Bergström: The labour market and wage formation Speech by Mr Villy Bergström, Deputy Governor of Sveriges Riksbank, at the Association of Swedish Engineering Industries' HR director conference, Rimbo, 22 November 2005. * * * Introduction Thank you for your invitation to come and speak here. Today, I will not be touching upon current economic policy in Sweden or the weakening of the krona exchange rate. I will return to those issues in a couple of days in a different speech. The shift in economic policy at the start of the 1990s has entailed better conditions for wage formation in Sweden. Among other things, the adoption of the inflation target has reduced uncertainty over future price developments. Wage-earners do not have to worry that their wage increases will be eroded by excessively fast price rises, while it is easier for employers to determine their scope for wage costs. The lower uncertainty over inflation is reflected in the fact that inflation expectations since the mid1990s have been firmly anchored around 2 per cent. It is important to remember that the current conditions for wage formation in Sweden – a floating exchange rate and inflation target – are considerably different from our previous regime with a fixed exchange rate. A fixed exchange rate was the norm in Sweden for some 130 years, even though the systems for maintaining it changed. | 0 |
International support of the New Partnership for Africa’s Development (NEPAD) had led to some increase in aid in 2002; the trend was expected to continue in 2003 (OECD, ADB). The future outlook in the performance of the real sector is set to improve due to: • low production costs (labour, electricity, and water, among other inputs); • comparative advantage in areas such as specialised agricultural production; • Numerous investment opportunities are available in the mining sector, which remains largely untapped, despite the richness and variety of minerals in Africa. The scope for improvement of environmental sustainability in Africa, hence economic growth is extremely vast; • Expansion of markets through regional integration within Africa with necessary networks will facilitate for increased capacity utilisation among existing and potential productive businesses; and • Additional areas of improvement include the expansion of hydroelectric power facilities along the major rivers such as the Nile, Congo and Zambezi to provide a viable source of clean energy to the majority of the population, which presently primarily relies on biomass fuel.3 For the African continent to embrace the potential benefits of globalisation, it is vital for African countries to implement supportive fiscal and monetary frameworks that promote investment. Prudent policies in these areas provide an important contribution to macroeconomic stability, a key prerequisite for economic growth. In addition, African countries must now commence the process of adding value to their export products as they compete and interact with a global market. 5. | In this regard, measures need to be developed to quickly put Africa’s high potential economic growth on a path that is environmentally sustainable. Deliberate actions need to be taken in successfully transferring environmentally friendly technologies to Africa. A case in point is the use of solar technology, for which achievements thus far are promising. Most of Africa is endowed with solar energy, and transforming it into usable energy would substitute the widespread use of wood fire energy by the majority of the continent’s population. In addition, because this is proven technology no more resources need to be devoted to Research and Development. Further, solar energy circumvents the costs related to the generation and distribution of yet another clean source of energy, hydroenergy. In addition to generation, distribution of hydroelectricity presents Africa with a unique challenge of supply network or grids due to the vast landscapes that constitute the rural setting where majority of the population resides. This is part of the wider infrastructural constraint that the continent is yet to overcome. 4. Africa and the world economy In the real sector, a number of African exports experienced an overall increase in prices in 2003. International gold prices increased, much to the benefit of the continents top producers, South Africa and Ghana. Likewise, oil prices increased during the same period leading to higher revenues for countries such as Nigeria, Equatorial Guinea, and Chad (ADB, 2003). | 1 |
You have the opportunity to shape these disclosures as they become market standards. We encourage the private sector to: 1. Contribute to the review of the current TCFD framework that Mary Schapiro is leading. Tell her what’s important, what’s less so, what should be refined to ensure disclosures are decision-useful, comparable, consistent and efficient before they become mandatory. 2. Commit to reporting a full set of TCFD disclosures in the 2021/22 reporting round: The selfhelp community for TCFD is considerable. Through multi-sector TCFD summits and more focused TCFD industry preparer forums, companies can continue to share knowledge to improve disclosure practices.8 Full disclosure encompasses scope 1, 2 and 3 emissions and includes a strategy for managing these down, embedded through appropriate board-level governance structures and linking outcomes to compensation.9 3. Demand TCFD-consistent disclosures from your borrowers and the portfolio companies. In the process, you will unleash tremendous value and be better able to manage embedded risks. For COP 26 we will work to develop pathways, in consultation with international standard setters - such as the FSB, IFRS and IOSCO – and national authorities to determine the best approaches to making climate disclosure mandatory. Risk management: ensuring firms and investors can measure and manage the risks in the transition to a net zero world. The second step on the path to a sustainable financial system is better climate risk management. Managing climate-related financial risks requires disclosure to go beyond the static (a company’s carbon footprint today) to the strategic (their plans to manage down their emissions). | But risk managers know that having adequate levels of capital does not ensure success - or even longterm survival. In calm seas, everyone is a pilot. Only rough waters prove the skill of a ship’s crew. Supervisors and risk managers know that a bank’s management and controls make up its first line of defence. The New Basel Accord seeks to capture the relationship between capital adequacy and risk management, a relationship that is quite apparent in its approach to operational risk. I’d like to take this opportunity to discuss the latest news on the New Accord and some of my thoughts on the framework for operational risk. I’ll begin with the Committee’s announcement from two weeks ago about plans for finishing the New Accord. I’ll then share some thoughts on the treatment of operational risk and the Committee’s motivation for adopting an explicit charge for it. Given the interest that this proposal attracted, I’ll address three important themes raised in public comments that the Committee is currently considering. During that discussion, I’ll offer some thoughts on what lies ahead, not just for bankers, but also for supervisors in conducting and coordinating supervision under the New Basel Accord. BIS Review 45/2003 1 Recent developments: the October press release First, to the most current news. By now you’ve no doubt read that the Basel Committee agreed two weeks ago on a plan to address the final issues raised in public consultations over the summer and to complete the new rules. | 0 |
Peter Praet: Japan and the EU in the global economy – challenges and opportunities Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the conference “Japan and the EU in the global economy – challenges and opportunities”, organised by Bruegel, the Graduate School of Economics, Kobe University, and Fondation France-Japon de l’EHESS, Brussels, 7 October 2013. * * * I would like to thank Stephan Fahr, Georgi Krustev and Ana Lima for their contributions to this speech; all views expressed remain mine. Ladies and gentlemen, It is a pleasure to be able to share some thoughts on the challenges and opportunities Japan and Europe are facing in the global economy. Since the beginning of the financial crisis, there has been no shortage of challenges along the road back to what I would call the “normal functioning” of our economies. One of the biggest challenges I see is still to be addressed: that of how to grow in an era of deleveraging. Deleveraging can occur in an orderly fashion or it can be chaotic. It may drag our economies down or it can place them on a stronger footing. Which of these will be the case depends to a large extent on how we manage the process. Today, I will focus my comments on the policy challenges faced by our two economies, especially as regards how to manage the deleveraging process in the euro area, keeping in mind the Japanese experience during the 1990s. | Economic research can contribute significantly to this, and in this context, some fundamental questions need to be addressed. – First, what is the macroeconomic impact of financial regulations? A greater understanding of how financial regulations act at the aggregate level is needed, both in containing systemic risk and in affecting the growth potential of economies. This would enable us to make more informed policy recommendations. – Second, how should systemic risk for banks, non-bank financial institutions and markets be identified and measured? Economists have proposed several methods of measuring systemic risk. But more research is needed in order to understand systemic risk arising from banks and non-bank financial institutions and their interaction. – Third, how should monetary policy be conducted in the context of macroprudential policy? And there are many more questions, some of which will be discussed during this workshop. We are eager to learn from the expertise and the experience of other countries. Norges Bank is committed to investing in research and supporting cooperation with other central bankers and foreign academics. This workshop is one product of this commitment. We are fortunate to have such prominent speakers contributing to the program. I wish you fruitful and stimulating discussions, and I hope you enjoy your stay in Oslo. Fortunately, the weather is on our side, motivating us to stay focused on our work. It would have been more difficult on a sunny day in June. 2 BIS central bankers’ speeches | 0 |
Øystein Olsen: Financial economics and the challenges in managing Norway’s Government Pension Fund Introductory remarks by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the NBIM (Norges Bank Investment Management) Financial Research Conference, Oslo, 30 August 2011. * * * It is a great pleasure for me to welcome each of you to the first NBIM Financial Research Conference. The objective of today’s conference is to present and discuss a set of papers at the forefront of academic research on financial economics. This event is also part of Norges Bank’s efforts to strengthen ties with the academic community. In addition to some of the best researchers in financial economics, we have in this room some of the top investment professionals in Norway. The opportunities for interesting discussions should be good. At the outset, the intention of this conference was to present leading academic research, without placing weight on its direct relevance to NBIM. However, as this conference will show, there is considerable common ground between the research frontier of financial economics and our challenges in managing the Government Pension Fund. Over the last three decades, researchers have moved a long way from the Capital Asset Pricing Model. One important result of empirical financial research is that expected returns on traded assets vary much more over time and across assets, than was previously thought and implicitly assumed by the CAPM. | In 2016, Shariah-compliant trade finance accounted for 24.1% of total trade finance provided by the Malaysian banking sector. However, our Islamic finance industry only financed about 5% of total exports in Malaysia, again, signifying an untapped growth area with large potential. Increasing bank financing for SMEs would also encourage more market based solutions to meet the funding needs of the halal sector participants, which are now largely reliant on government initiatives. There are however a number of challenges that may impede trade finance facilitation by Islamic finance players. I would like to highlight two. First is – “process inefficiencies” – that can contribute to higher operational risks such as fraud. This can be mitigated through use of technology that reduces reliance on traditionally document-intensive and multi-tiered manual processes. In Malaysia, I am happy to note that six Islamic banks have embarked on digitalisation of trade finance processes – through an integrated web-based platform that offers trade finance and working capital management solutions. The second challenge is, – the need to improve connectivity between the Islamic finance industry and the international trade community – to facilitate effective intermediation of trade finance needs. Again, the use of technology can ease the application and submission of trade-related information and documents which can expedite the whole process. If these challenges are not addressed, industry players are at risk of becoming irrelevant in the trade finance space. | 0 |
Fintech is transforming the relation with customers, the means of payment, as well as the modes of financing and transfers. On this particular last point, the potential gains are enormous for developing countries receiving large flows of their nationals abroad. In 2018, according to the World Bank, these transfers may have totaled 689 billion dollars, more than three-quarters of which were intended to developing countries. Traditional business models of banks are now challenged by the new financing methods, thus putting more pressure on their profitability and pushing them, in some cases, to greater risk-taking, which would eventually impact financial stability. 5 In emerging and developing countries, with internet and mobile telecommunications penetration, Fintech now offers tremendous opportunities to strengthen financial inclusion and economic and social development. According to a statement issued last November by the United Nations Secretary General, within a period of six years, 1.2 billion people have accessed financial services through technology. In a report issued in 2016, the Mckinsey Institute estimated the potential of Fintech in emerging economies by 2025 to an additional 6 percent of GDP, i.e. 3.7 trillion Dollars, and 95 million new jobs. The same report also revealed that two billion people and 200 million of very small, small and medium enterprises in emerging countries do not have access to credit, while those who have are still facing high costs. | Our target is not only to adapt our business lines and redesign our processes, but also to play a role in the development and support of our ecosystem, through a participatory approach. Ladies and gentlemen, To conclude, I would say that we may have taken some time to grasp the scale of the digital revolution, but the numerous initiatives and interactions, such as this meeting, leave us with the hope that the backlog will be quickly cleared and that this revolution will effectively contribute to sustainable and inclusive development in our countries. In this respect, we are pleased to note the willingness of international organizations, including the IMF, main interlocutor of central banks, to upgrade their means and human resources with a view to providing support to their member countries. As such, I suggest, if you deem it suitable, that we request the Fund to institutionalize such a meeting in our region, at the frequency most appropriate to us. Hence, we would be able to continue the debates and exchanges, assess the progress made, ultimately unite our efforts, and capitalize on our mutual experiences in order to better address the current and future challenges of digital transformation. Thank you. 10 | 1 |
This asymmetry contributed to the sharp increase in market volatility, the dramatic reduction in market liquidity, and the impairment in market function following the Lehman failure. Fear that this could happen again if another firm failed, encouraged flight from other dealers perceived by market participants to be relatively weak that might have large potential exposures. Of course, as if this were not bad enough, the opaqueness of the OTC derivatives market made the situation much worse. No one had a clear insight into the financial health of their counterparties. Although each market participant could calculate its bilateral exposures to a particular dealer and the particular dealer could understand its own exposure to each of its own counterparties, this didn’t answer the broader question: how exposed were the clients and dealers to others in the financial system through their derivatives trades and other open positions? Because there was no easy way to know who was in difficulty or not, the incentives were all on the side of assuming the worse – closing out open trades, hoarding liquidity, and retreating to the sidelines. The crisis had made it crystal clear that the regulatory regime had not kept pace with the rapid growth of the global OTC derivatives market. In assessing the shortcomings of the OTC derivatives market after the crisis, a global consensus has been reached. Although I will be over-simplifying in the interest of time, I view the following aspects of reform as the most important. | Transparency into counterparty risk should be greatly improved via disclosure requirements and the ability to aggregate trade information in trade repositories, and end user trading positions should be much better protected by segregation and portability requirements and a more robust financial market infrastructure. Although there is still much to do as part of this process, I’m optimistic that we are on the right road. We just need to continue to push ahead and not forget the lessons learned from the financial crisis. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches 7 | 1 |
For the unemployment gap to be a practicable measure in monetary policy requires that the cyclical part of unemployment (which can be influenced by monetary policy) can be distinguished, with a reasonable degree of certainty, from equilibrium unemployment (which depends on how the labour market functions). As will be seen, this is not a trivial problem. In my speech today, I will discuss resource utilisation: specifically what is known as the unemployment gap and its role in monetary policy decision-making. Recently, there has been 1 This is usually called a flexible inflation-targeting policy. The term flexible inflation-targeting policy was introduced by Svensson (1999). The definition of the term entails the central bank minimising a squared loss function consisting of both inflation’s deviation from target and output’s deviation from potential output. A central bank that only considers inflation’s deviation from target is said to be conducting a strict inflationtargeting policy. BIS central bankers’ speeches 1 frequent discussion of the unemployment gap in monetary policy contexts, but this is not a new discussion.2 For my part, I’m extremely doubtful about placing too much importance on the unemployment gap when taking monetary policy decisions in the here and now. It may look easy in theory; but in practice, it is not. My view is that we should continue to use several different measures of resource utilisation instead. Taken together, these can serve as guidance for monetary policy. | Placing an excessive focus on monetary policy in this context could easily lead to the underlying problems on the labour market – and the solutions to them – not receiving the discussion they deserve. The target of monetary policy is to stabilise inflation at around two per cent. Without prejudicing this target, monetary policy should also strive to stabilise production and employment around long-term sustainable development paths.1 Put very simply, this is a matter of trying to steer demand so that resource utilisation is balanced but inflation does not deviate too far from two per cent. It’s easy to describe, but it’s a difficult balancing act in practice. Unlike inflation, resource utilisation is not observable; instead, its level must be estimated. The Riksbank has put a lot of work into estimating various so-called gap measures that show how strained resource utilisation is, compared with a normal situation (examples of these include the GDP gap, the hours gap and the unemployment gap). Using these various measures as a basis, we make an overall assessment of resource utilisation. What these gap measures have in common is the comparison of the various quantities actually measured to unobservable quantities. For example, the unemployment gap is calculated by comparing actual unemployment to estimated equilibrium unemployment. So all of these calculations are uncertain. | 1 |
The ease with which the U.S. financial system absorbed the substantial scale of corporate defaults that peaked in recent years in 2002 provides some support for the argument that broader and deeper capital markets make the system more resilient. In general, there does not seem to be strong empirical support for the proposition that derivatives increase volatility in financial markets. Volatility is not higher where derivatives are most prevalent. Credit market innovation does not appear to have resulted in a large increase in leverage in the corporate sector, as some had feared. Indeed, nonfinancial corporate leverage in the United States is currently low by recent historical standards. The overall degree of balance sheet leverage by corporations, for example, is higher in some more traditional financial systems than it is in systems where credit market innovations are more advanced. Default rates do not appear to have risen, nor recovery rates fallen as these credit innovations have spread, despite concerns they might lead to excess lending, the mis-pricing of credit risk and more messy and more complicated workouts, resulting from the greater diffusion of the investor base. And although the sources of the broad moderation in GDP volatility observed in the United States over the past two decades are still the subject of debate, the fact that this moderation occurred during a period of extensive innovation in credit and other financial markets should provide some comfort for those who expected the opposite. Innovations in credit markets are inevitably accompanied by challenges. | The stronger these shock absorbers, the more resilient markets will be in the face of future shocks, and the more confident we can be that banks will be a source of strength and of liquidity to markets in periods of stress and that the financial system will contribute to improved economic performance over time. Thank you. 4 BIS Review 29/2007 | 1 |
In the United States, for example, the 2010 deficit ratio stood at more than 10% of GDP and the latest IMF projections suggest only a relatively limited decline to around 8% of GDP in 2012. US debt reached around 95% of GDP in 2010 and would further increase to around 105% of GDP in 2012. Japan and the UK ran similarly high deficits. In the case of Japan, the deficit ratio amounted to around 9% of GDP in 2010 and, after an increase in 2011, would return to around this level in 2012. In the UK, according to the latest European Commission forecast the deficit ratio would decline from 10.3% in 2010 to around 8 % in 2012. Against this background, what are the reasons for the particularly severe disruptions in some euro area sovereign debt markets and the related contagion effects, which are undermining financial stability in the euro area as a whole? To approach this question it is helpful to take a closer look at the specificities of the euro area institutional setup. The combination of a single monetary policy and strongly decentralised fiscal policies constitutes a specific feature of the euro area. The weak European governance has not been able to remove incentives for national fiscal policymakers to allow the emergence of fiscal imbalances in the form of running excessive deficits at the cost of other participating Member States. The Stability and Growth Pact (SGP) was established to address such coordination problems. | For this reason, both when the SMP was first announced in May 2010 and when its active implementation was confirmed in August 2011, the ECB took special note of the commitments of euro area governments to ensure the sustainability of their public finances and address the shortcomings of economic governance in the euro area. Fiscal imbalances, governance in a Monetary Union and sovereign contagion It is clear that a lasting solution to the current sovereign debt crisis requires making swift progress in the consolidation of public finances, the boosting of sustainable economic growth and the strengthening of the governance framework at the euro area level – to which I will now turn. The fiscal situation in euro area countries deteriorated significantly following the financial crisis.10 In 2010, the aggregate fiscal balance of the euro area stood at more than 6% of GDP, up from an almost balanced budget in 2000. The latest projections by the European Commission suggest that the euro area deficit ratio would gradually decline to around 3½% of GDP in 2012. Euro area debt amounted to more than 85% of GDP in 2010 and would increase to around 90% of GDP in 2012. Moreover, 14 out of 17 euro area countries are currently facing an excessive deficit procedure related to a budgetary deficit above the 3% of GDP reference value. To be sure, the fiscal situation in the aftermath of the crisis is even worse in other major economies. | 1 |
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