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Although the interbank rates, that is, the rates banks pay when borrowing from one another, have fallen they are still much higher than the average rate in recent years. The TED spread in the United States and the euro area is for example three times higher than the average. The housing market in the United States has not yet bottomed out. If new large loan losses arise in the financial system again this may shake market confidence once again. Over the past few days a large amount of new information has been received regarding the situation in the US economy. Inflation in the United States remains high. This is largely due to the increasingly high food prices, as well as high energy prices. However, the rate of wage increase has slackened. Inflation in the euro area is also affected by the higher energy and food prices. However, growth appears to have been stronger than we had expected for the United States in the most recent quarter, as well as in the euro area, particularly Germany. At the same time, there are indicators for both the United States and the euro area pointing to a slowdown in the second quarter. International developments affect us all, both you as entrepreneurs and Sweden as a whole. We have assumed that foreign trade will slow down in the future, as world growth is expected to continue slackening. Orders from the export market have so far declined in 2008. | Commodities are priced in dollars, and this may mean that commodities exporters will try to gain compensation through higher prices if the dollar falls. In recent years, portfolio investment in commodities has become an increasingly common means of diversifying and spreading risks. The fact that interest has increased is due to the return on other investments deteriorating and this has probably contributed to reinforcing the upswing in commodity prices. If the expectations of the relative return on this type of investment were to decline, it could instead have a subduing effect on prices. How does one weigh together all of the factors I have mentioned? There is of course considerable uncertainty. The assessment we made at our last monetary policy meeting was that the world market prices would not continue to rise at the same rapid rate. This meant that the high inflationary impulses from the price rise on food commodities were assessed as 4 See Irma Rosenberg, “Rising commodity prices”, speech held on 9 May 2008. 5 IMF (2008) World Economic Outlook. 6 See the UN’s climate panel 2007: Impacts, Adaptation and Vulnerability. 4 BIS Review 68/2008 partly temporary. This is something that is so far supported by the tendencies towards a slowdown in food commodities prices in the world market which we have been able to see recently. Information received since the last meeting I now intend to move on to say a few words about the information received since the most recent interest rate decision. | 1 |
So far as foreign banks operating in Hong Kong are concerned, Hong Kong political risk largely seems to have disappeared as an issue. We have seen no exodus of banks from Hong Kong; rather, we have seen an increased appetite among the foreign banks to take on long-term HK dollar assets, including residential mortgage loans and syndicated credits. Although the margin on these have come down significantly over the last year, they are still attractive compared with the margins available to foreign banks in their home countries. The importance of international regulatory standards We do not anticipate any radical changes in Hong Kong’s system of banking supervision after 1997, nor in its attitude to the entry of foreign banks. No doubt, however, these will evolve in line with trends in global regulation. This reflects the guiding principle of our supervision in Hong Kong which is to follow international standards. There are a number of practical reasons for wanting to do so. First, it is in keeping with Hong Kong’s role as an international financial centre. Reputable foreign banks will only want to do business in a market where the rules of the game are familiar and credible. Their home supervisors will certainly feel the same way. There is thus absolutely no advantage for centres such as Hong Kong to compete on laxity or to market themselves as places where dubious transactions can be conducted and concealed. | Regulatory cooperation in Asia These initiatives are being supplemented in Asia by regional cooperation on both a bilateral and multilateral basis. There have been a number of factors driving this. The aftermath of the Mexican crisis in January 1995, which saw speculative attacks on a number of Asian currencies, encouraged the view that there was a need for countries in the region to strengthen their defences in this area. We have thus seen the arrangement of an interlocking series of bilateral repo agreements using US Treasuries between Asian central banks, including the Hong Kong Monetary Authority. These agreements are intended to provide additional liquidity for exchange rate stability purposes. More generally, there has also perhaps been a feeling among the Asian countries that the existing arrangements for central bank cooperation were somewhat “euro-centric” and did not take adequate account of the growing importance of the Asian region where over 40% of the world’s foreign currency reserves are now held. This feeling has to some extent been addressed by the more participative approach now being adopted by the Basle Committee and the BIS. But there is nonetheless a view that greater regional cooperation among Asian central banks is both necessary and desirable. This has been summed up in the concept of an “Asian BIS”, though this is somewhat misleading as there are no immediate plans to move towards the BIS Review 55/1997 -4- institutional structure which the name would imply. | 1 |
In addition, the damage from the sharp stock market decline was mitigated by the Federal Reserve’s commitment “to serve as a source of liquidity to support the economic and financial system.”5 A contrasting example is the sharp appreciation of the dollar that began in 1978 and reached a peak in March 1985. The persistent strength of the dollar had a significant negative consequence for U.S. trade performance. Our trade deficit widened sharply in 1985 and 1986, which contributed to the sharp slowdown in U.S. manufacturing production growth—and a milder slowdown in GDP growth—over this period. This leads to an important question: When should the FOMC take changes in financial conditions into consideration in its conduct of monetary policy? I don’t think there is a simple answer. Financial conditions matter in influencing the economic outlook, but so do many other factors. It is true that monitoring financial conditions can help improve the effectiveness of the policy decision-making process. However, as I hope is clear from my previous examples, there is no mechanical link between policy rates and financial conditions that monetary policymakers can systematically rely upon to set policy. Another key question is what one should focus on in assessing financial conditions. Again, I don’t think there is a simple answer, as the significance of any particular aspect of changes in financial conditions depends on the economic circumstances and environment. In the early- to mid-2000s, the combination of looser mortgage underwriting practices and home equity withdrawal were major financial factors contributing to that economic expansion. | My view is that reducing the Federal Reserve’s balance sheet and raising short-term interest rates are two different, yet related, ways of removing monetary policy accommodation. Therefore, I would expect that, when we begin to end reinvestment, we will have to consider the implications for the appropriate short-term interest rate trajectory. In conclusion, financial conditions are important. They matter enormously to monetary policy because their movements can often diverge from the trajectory of short-term rates, and because they affect economic activity and the economic outlook. While it is essential to account for financial conditions appropriately in conducting monetary policy, it is also important not to overreact to every short-term wiggle in financial markets. In addition, it is important to remember that the policy goal is not the level of financial conditions per se, but the achievement of the Federal Reserve’s dual mandate objectives. Sometimes, that will be consistent with easing financial conditions, and at other times, it will be consistent with tighter financial conditions. At all times, our focus will be on achieving our objectives of maximum sustainable employment and price stability, thereby supporting the livelihoods of households and businesses throughout the United States. Thank you for your kind attention. I would be happy to take a few questions. 1 Ozge Akinci, Nicola Cetorelli, Richard Crump, David Lucca, Jonathan McCarthy, Paolo Pesenti and Joseph Tracy assisted in preparing these remarks. | 1 |
In the decade that followed that honour, the UK has been through a searing financial crisis and a recovery that has been even slower than that following the Great Depression. Once the financial system was fixed, however, the UK became, until recently, the fastest growing economy in the G7. Unemployment nationwide has fallen from 8.5% to 4.3%, a 42-year low. In Liverpool, the unemployment rate has declined steadily to 4.7% today, around 2 percentage points below its pre-crisis rate. The recovery here is being aided by further regeneration, both economic and physical – building the infrastructure that will enable businesses and households to flourish. These efforts are building on past successes, with Liverpool now home to many award-winning museums including the Museum of Liverpool, the International Slavery Museum, and Tate Liverpool. Liverpool Council is working in partnership with businesses and other organisations to exploit the best of what each can bring. For example, Liverpool Council, Liverpool FC and Your Housing Group are working together to bring new vibrancy to the Anfield area. I personally heard last night about some of the great work that Everton in the Community are doing to tackle problems like homelessness and boost educational attainment. And the club of course has ambitious plans for a new stadium at Bramley Moore dock. Liverpool’s Science Park provides office space alongside commercial labs, right at the heart of the city’s Knowledge Quarter. | TLTRO’s and the tiering system we use today for refinancing the Eurozone banks are two good examples in this respect. On climate change, the emphasis put by Christine Lagardeix herself is welcome and totally warranted. In my view, the fight against global warming is already an imperative for us under our price stability mandate: not only will the effects of climate change have significant repercussions on future inflation and growth, but they are already having an impact now. We could implement our climate decisions in no more than 3 to 5 years, which would make us pioneers among major Central banks. Page 8 sur 10 4. How to improve communication with the general public? My final remarks concern communication. Central banks have come a long way in being transparent about their decisions and explaining their reasoning. However, our communication is too often addressed to a narrow group of people – the media, the markets and economists. We need to do a better job of reaching the general public. And this means two changes of paradigm: it is not only a question of democratic accountability – however essential this remains –, it is also key for our economic efficiency. Better-informed firms and households will also make better decisions and ones more aligned with our strategy, I will come back to it. Secondly, we should evolve from a narrow objective of “transparency” to a wider objective of “clarity”. | 0 |
Similarly, the 2007–2009 financial crisis, followed by the euro area sovereign debt crisis in 2011– 2012, shed a stark light on the disadvantages of having an economic and monetary union without a banking and financial union. As the crisis unfurled, the gaps in our financial integration led to a fragmentation of financing 4/7 BIS central bankers' speeches conditions across the euro area, which in turn exacerbated the negative effects of the shock. Some countries experienced an abrupt deterioration in both government solvency and bank solvency, triggering a vicious circle linked to their domestic sovereign-bank nexus – that is the overexposure of domestic banks to their own national government’s debt. Today, progress has been made in resolving the institutional failings at the root of this fragmentation, with increased oversight and better coordination in fiscal policies and a more homogeneous system of financial supervision. However, financial integration remains a pressing challenge for the euro area, and one on which the future prosperity of the European Union and its citizens depends. Since the crisis, the allocation of savings and investment has remained firmly biased towards domestic markets and vehicles. It is vital that we make progress in this area if we are to channel our savings surplus more effectively towards investment, and in particular towards the financing of European firms, especially the most innovative and dynamic ones whose development will determine our future potential growth. | Denis Beau: Denis Beau: Monetary and financial challenges for the Euro area - what are our options? Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Faculty of Economics and Management, Strasbourg, 28 February 2019. * * * Ten years after the crisis, the ability of the global financial system, and especially the European financial sector, to withstand shocks appears to have been significantly reinforced. This reinforcement is the result of numerous changes which vary in nature: Banks now have more capital and its quality has been improved. Their transformation activities are better regulated and they have larger liquidity buffers. In Europe, the banking sector has also been made more resilient through major institutional reforms, especially the creation of the Single Supervisory Mechanism under the aegis of the ECB and the Single Resolution Mechanism. Outside the banking industry, the reforms steered by the G20 have enhanced the functioning of financial markets (particularly derivatives markets), improved the oversight and regulation of developments in non-bank financial intermediation (shadow banking), and put in place a framework for monitoring and safeguarding the stability of the financial system as a whole through the implementation of macroprudential policy. The crisis has also prompted changes in the way financial institutions operate. One of the most visible ones is that risk and compliance functions have now become an essential part of their organisations. | 1 |
Such manipulation is often well timed and co-ordinated with the advance or reversal of capital flows, since essentially the same market players, acting in the multiple roles of advisors, agents and principals, are involved. One inevitable consequence of this is market panic and overshooting, to the extent of risking a meltdown in the monetary and financial systems concerned. The authorities, obviously, have a responsibility to act to prevent this from happening. Some have been in a better position to do so than others, using market means, particularly those with deep pockets. Some have been forced into closing their markets, albeit temporarily. Others have been quietly happy that they had been a little more conservative in their move towards financial liberalisation. In Hong Kong, where our commitment to maintaining open markets is strong, in addition to our unconventional market operation, we had to introduce measures that have effectively built us a big cushion. The purpose of this cushion is to help us to absorb the spasmodic international financial shock waves of mammoth dimensions that can now be generated by the international financial system. Some others, regrettably, have had to suffer the debilitating consequences of financial meltdown, and to face the often unjust accusation that these were entirely of their own making. Domestic responses by economies in this region cannot on their own address the root of the crisis or lessen the chances of another international financial shock wave. | In view of the extent and risks of the current crisis, fiscal policy will need to consider and prepare the deployment of additional stabilisation measures alongside the automatic stabilisers. In addition to the increased focus on economic policy, business practitioners within the Swiss economy are also challenged. In the case of banks, it is essential that credit shortages for companies and private households be avoided. Moreover, interbank business needs to be strengthened in order to smooth out liquidity imbalances. Companies must enhance their innovativeness and use opportunities for opening up new markets. The Swiss economy has many structural strengths and this prompts confidence that Switzerland will overcome the crisis. BIS Review 5/2009 1 | 0 |
On credit markets, the financial position of banks can also be seriously jeopardised if they are tempted to reduce margins drastically in order to maintain or increase their market share, or if they make insufficient provisions during cyclical upturns. More generally, some of the most widespread management methods are not entirely without risk: • The accounting practice of marking-to-market most of the assets in credit institutions’ balance sheets renders them more vulnerable to price fluctuations. The spread of market valuation through the concept of “fair value” could make banks’ total assets and profits highly volatile. This is why French prudential authorities have reservations about this method. • In the same vein, the Asian crisis has highlighted the limits of systematically resorting to rating agencies, which can reinforce the herd behaviour of markets. These ratings, which can never be perfectly accurate and up-to-date, should be taken for what they are: just one of several instruments for risk management. • The turbulence surrounding the Asian crisis also clearly showed that the models used for managing complex derivatives do not adequately take into account abrupt gyrations in one or several markets. BIS Review 85/2000 4 And lastly, the public authorities must meet new challenges. • In general, the default of the LTCM fund in September 1998 underscored the risk of contagion between financial systems. | Central banks thus find themselves at the intersection of the various aspects of financial systems, and accordingly appear particularly well-suited to maintaining financial stability. 7 BIS Review 85/2000 Thirdly, in my opinion, the correct answer to the changes underway in financial systems is not to set up vast centralized supervisory bodies at a global or a European level. In this domaine to be close to the credit and financial institutions concerned is decisive for efficiency. I am convinced that establishing a new generation of prudential standards and reinforcing active and close cooperation between decentralised supervisors will be for us the best means to reconcile efficiency with financial stability. To deal with these challenges, given their specific features, central banks are obviously at the heart of the process. BIS Review 85/2000 8 | 1 |
Although the structural balance policy was launched in this decade, fiscal efforts to smooth the copper price fluctuations began in the 1980s, with the copper stabilization fund. In fact, throughout most of the 1990s, the structural balance was near 1%. This countercyclical fiscal policy makes the effective fiscal balance highly correlated with the price of copper. Thus, our fiscal policy has been contributing for more than 20 years to stabilizing the Chilean economic cycle. As a result of the application of the rule, a large amount of resources has been saved in sovereign funds when the price of copper has been high. 4 In the period 2007-2008, 22 billion US dollars were placed in these funds, of which 20 billion – the equivalent to 12% of GDP – came from the accumulation of new funds, and the difference was the funds’ net financial gain. This has had significant implications in the current economic scenario. Since last year, particularly as from September, the world has been enduring the worst recession in the last 60 years and our country, despite being in an excellent position to address these shocks, has not been spared its consequences. But today, our fiscal policy has been able to make an important reactivation effort, thanks to the prudence with which the years of high copper prices were managed. The other critical elements in our macroeconomic policies that favor stabilization are monetary and foreign exchange policies. Although they play a somewhat more subtle role than fiscal policy, they are no less important. | If we manage this, we can also try to influence cyclical fluctuations in, for instance, production and employment. As I said, this sounds simple but we now have to manage the fact that the commodity price rises are on the one hand pushing up inflation and on the other hand dampening growth. A tight monetary policy could contribute to dampening inflation. At the same time, it would restrain real activity in the economy in a situation when economic activity is slowing down. The decision is not made easier by the fact that it is difficult to capture and predict all of the effects of an increase in commodity prices on the economy and – not least – how persistent the price impulses will be. If it is a question of temporary effects on inflation, these need not be counteracted by monetary policy. Sometimes one hears the argument that the Riksbank should not try to counteract price increases that are impossible to stop. One such example is the rising world market price for oil. But even prices we have little possibility to affect, other than to the extent that the exchange rate is affected by monetary policy, are included in the basket of goods that measures consumer prices. This is of course because they affect households’ purchasing power. A price impulse can gain a foothold and have long-lasting effects on inflation regardless of where it originates. And the central bank must parry long-lasting effects, whether the impulses come from wages, food prices, oil or something else. | 0 |
Over the years, delegates from central banks of 30 different countries have attended the Conference. This growing international attendance makes particular strength of the Conference showcasing diverse experiences from very different areas of the world driven by the common interest in payments and market infrastructures. Equally appreciated is our domestic audience that continues to valuably contribute to the Conference each year. Focusing on current issues in the payment systems, the Conference agenda is each year carefully designed to cover the latest trends and feature the main challenges in the area. Variety of interesting topics has been on the menu so far including the European payment landscape and legislation with a special focus on PSD and PSD2; topics related to payment systems and payments oversight; the EU payment integration initiative known as Single European Payment Area (SEPA); then, innovations; security and efficiency of retail payments. We have elaborated 1/3 BIS central bankers' speeches on instant payments, financial inclusion and accessibility of payment services, financial structures resilience and many more. This year’s agenda covers themes related to digital banking, cryptocurrencies and their regulation, the new technologies such as DLT and blockchain – all of them being topics of considerable relevance at the moment, and will only become more important over time. Bracketing this jubilee edition we had the pleasure of hosting many distinguished speakers from various affiliations starting from central banks, through relevant international institutions, commercial banks, clearing houses and custodians etc. | I would also like to express my appreciation to our distinguished panelists for today – Governors and other honorable guests and to thank all esteemed guests, delegates and speakers for contributing to another successful event. Finally, jubilees like this don’t come together over night. Allow me to express my recognition and appreciation to the whole team that each year coordinates the Conference. It is your strong commitment and dedication that we owe our achievements to. I wish you many more years of 2/3 BIS central bankers' speeches continued success! Thank you! 3/3 BIS central bankers' speeches | 1 |
Chart 6: Annual growth rate of total debt and post tax Income Percent 20 18 16 14 12 Total Debt 10 8 6 4 Income 2 0 2001 2002 2003 2004 2005 Chart 10: www.Statistics.gov.uk It is interesting to reflect on whether this increase has been a factor in the recent turndown in consumption. We cannot prove it, but I have been struck by two things. Firstly, has the stabilisation in house prices led homeowners to become more conservative or precautionary in their borrowing habits, realising that they can no longer assume that their debt will be offset by significant increases in house prices? Secondly, could the attitude of lenders have contributed to the downturn, through the withdrawal of credit? To my mind the jury is out as to whether their attitudes have yet had any impact. But I do believe that they could do so over time, as they change their behaviour in response to changes in their perception of risks: and recent press coverage suggests that lenders are looking seriously at their lending policies. Given my interest in leverage, I also spend time thinking about what could happen to consumption in the event of a set of shocks to the economy. In this respect the Minutes of the February 2002 Monetary a Policy Committee meeting - seven months or so before I joined the Bank - are to my mind revealing. | And due to under-investment there is evidence of bottlenecks in the refinery arena which will take time to be rectified. So supply constraints too are for the time being a real possibility. The November 2005 Inflation Report explained that the oil futures curve indicated in early November that the oil spot price would remain around current levels for the next few years. However, there was considerable uncertainty around this. The Report cited illustrative estimates that market participants thought there was a one in four chance that oil prices would be $ per barrel higher or lower in six months time. This is a significant increase from February 2004, when the probability of such a change was thought to be less than one in fifty [Chart 2]. Chart 2: Market beliefs about oil prices six months ahead (a) Source: Bank of England, November 2005 Inflation Report This shows that although the central case has oil prices essentially flat over the forecast horizon there is still a possibility we will see prices above those of today at some date, with corresponding significance for monetary policy. In the UK it is difficult to say with certainty what proportion of the last year’s rise in CPI inflation (that is from 1.1% in September 2004 to 2.5% in September 2005) was due to oil. But estimates suggest that up to around half the pick up can be explained by oil. The key issue for me is the possible impact of oil prices on inflation expectations. | 1 |
Thomas Jordan: SNB monetary and investment policy and the impact of the strong Swiss franc Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Volkswirtschaftliche Gesellschaft des Kantons Bern, Berne, 28 November 2012. * * * The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). As part of measures to combat the financial and economic crisis, balance sheets of central banks around the world have expanded substantially. In 2009 and 2010, the Swiss National Bank (SNB) intervened in the foreign exchange market in order to combat an excessive appreciation of the Swiss franc. On 6 September 2011, it set a minimum exchange rate of CHF 1.20 per euro, in order to avert major damage to the Swiss economy. Since then, the SNB has enforced this minimum rate with determination and is prepared to buy foreign currency in unlimited quantities. This monetary policy is reflected in a very substantial expansion in its balance sheet. It has also altered the importance of the currency reserves and had an impact on the SNB’s investment policy. In view of its mandate, monetary policy has priority at the SNB. Investment policy must be subordinated to the requirements of monetary policy. It is at the service of monetary policy and may not limit its room for manoeuvre. At present, enforcement of the minimum exchange rate has the greatest influence in the management of the currency reserves. | Ladies and Gentlemen: At this point, kindly allow me to call upon our Guest of Honour, Honourable Ms Chileshe Kapwepwe, MP, the Deputy Minister of Finance and National Planning to deliver the key note address and to officially open this Conference. Honorable Minister Sir! BIS Review 46/2009 3 | 0 |
Breach, Tomas, Stefania D’Amico, and Athanasios Orphanides, “The term structure and inflation uncertainty,” Journal of Financial Economics, Volume 138, Issue 2, November 2020, 388-414. Coibion, Olivier, Francesco D’Acunto, Yuriy Gorodnichenko, and Michael Weber, “The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications,” Journal of Economic Perspectives, Volume 36, Number 3, Summer 2022, 157–184. Evans, George, and Seppo Honkapohja. 2001. Learning and Expectations in Macroeconomics. Princeton, NJ: Princeton University Press. Levin, Andrew, and John B. Taylor, “Falling Behind the Curve: A Positive Analysis of Stop-Start Monetary Policies and the Great Inflation,” in Michael D. Bordo and Athanasios Orphanides (ed. ), The Great Inflation: The Rebirth of Modern Central Banking, Chicago: University of Chicago Press, 2013, 217-244. Malmendier, Ulrike, and Stefan Nagel, “Learning from Inflation Experiences,” The Quarterly Journal of Economics, Volume 131, Issue 1, February 2016, 53–87. Mankiw, N. Gregory, Ricardo Reis, and Justin Wolfers, “Disagreement about Inflation Expectations,” NBER Macroeconomics Annual 2003, Volume 18, NBER, Mark Gertler and Kenneth Rogoff, editors, 2004, 209-270. Mertens, Thomas M., and John C. Williams, “What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices,” American Economic Review, 111 (8), August 2021, 2473-2505. Orphanides, Athanasios, and John C. Williams, “Imperfect Knowledge, Inflation Expectations, and Monetary Policy,”, in Ben S. Bernanke and Michael Woodford (ed. ), The Inflation-Targeting Debate, Chicago: University of Chicago Press, 2004, 201-234. Orphanides, Athanasios, and John C. Williams, “Inflation Scares and Monetary Policy,” Review of Economic Dynamics, 8, April 2005, 498-527. | Christian Noyer – The main issue being discussed in the G20 – raised moreover by Nicolas Sarkozy – is how to reduce the large global current account imbalances, which weigh on world growth and generate dangerous capital flows. Monetary policy alone will not provide the solution. Each economic area should move towards a better balance between savings, consumption and investment. And, we would all benefit from reforming the international monetary system, but in a structural, orderly and calm manner, and certainly not in a hurry. It BIS Review 152/2010 1 is a long process to move from a system in which only the currencies of major industrialised countries counted to the multipolar world in which we now live. Le Figaro – This G20 should also provide the opportunity to validate the new prudential framework (Basel III). Do you find it adequate? Christian Noyer – We have reached a balanced agreement. It is out of the question to be confronted with a situation where States fly back to the aid of banks. That is why we are enhancing both the quantity and quality of banks’ capital requirements. But we have also provided for a very long adjustment period to avoid an artificial reduction in funding. This agreement is universal and is intended to extend to the United States and to all developing countries. This too is a balancing factor. Le Figaro – Has the project been completed? Christian Noyer – We have factored in a long observation period for some aspects. | 0 |
Zdenek Tuma: Present and future challenges for the Czech National Bank Introductory remarks by Mr Zdenek Tuma, Governor of the Czech National Bank, at the CNB Conference: ”Challenges of EU Accession”, Prague, 1 April 2003. * * * Ladies and gentlemen, dear colleagues, It is my pleasure and honour to welcome you here to the Czech National Bank for what I believe will be a very interesting policy-oriented conference. The Czech National Bank is this year celebrating a decade of its existence as the central bank of the Czech Republic. When we look back at that period, we can see many difficult challenges that we had to face in order to facilitate the economic transition and later on to bring our operations into line with best international practices. This experience is similar for all other central banks in the post-communist EU-accession countries. But I do not want to speak about those past challenges today. They are mostly behind us, and our situation is now very different. Therefore, I would like to be forward-looking as any modern central banker should - and to speak about the challenges that we all share at present and, most importantly, about those that lie ahead. As you all know, the accession treaties will be signed in two weeks. This will be a symbolic milestone in the EU integration process, which has been going on in the economic and political sphere for many years. | A payments strategy for the 21st century Remarks made by Andrew Hauser, Executive Director, Banking, Payments and Financial Resilience Payment Strategy Forum “Launch of the Final Strategy”, London 29 November 2016 1 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx Thank you very much for the opportunity to speak to you today at the launch of the PSF’s Payments Strategy st for the 21 century. I want to start by emphasising that this is not the Bank of England’s strategy – or the UK authorities’ as a whole. And that in fact is its great merit: because it has been drawn up by a genuine partnership of those who actually provide and use retail payments services, with the interests of those users uppermost in their minds. But that doesn’t mean the Bank has been ‘hands off’, or lukewarm over the direction of travel. Quite the reverse. We have a deep interest in, and responsibility for, maintaining the stability of sterling payments. First, through our statutory responsibility for the supervision of the major payments schemes. Second, by ensuring that all material payments either settle in, or are backed by, central bank money – the safest form of settlement asset. And, third, through our role as member of some schemes as a bank in our own right. It is sometimes said that a focus on stability impedes innovation. But there is no reason why that has to be true. | 0 |
For instance, it is very pleasing that the evaluation gives such high marks to the efforts we have made to improve the analytical base for our forecasts and for monetary policy. Our ambition has been to use the latest and best scientific methods in our analyses and we have therefore continuously updated our working methods. It is therefore particularly satisfactory that the authors observe in their conclusion that "the Riksbank compares favourably with the best central banks in the world". However, we must not rest on our laurels. Conducting monetary policy is associated with great uncertainty, not least because developments in the economy often follow different paths than anticipated. We must therefore always take heed of constructive criticism, continue to hone our analyses and test new approaches with an open mind. However, after this evaluation I feel fortified in my opinion that we are on the right track. Recommendations in the evaluation As I do not have much time at my disposal, I shall concentrate my comments on the recommendations in the report as to how monetary policy and its framework could be improved. Three of the recommendations are aimed at the Riksdag and the Government and concern the forms for the monetary policy debate and the appointment of the members of the Executive Board. As these recommendations are not directed at the Riksbank, I will refrain from commenting on them. With regard to the recommendations aimed at the Riksbank, I shall first comment on some suggestions on which I agree with the authors. | As was observed in the evaluation, this was something that most forecasters missed. The authors put forward two arguments in favour of monetary policy compensating for persistent deviations from the inflation target. The first is based on the assumption that deviations from target may be a sign that the analysis and forecasting models used by the Riksbank tend to over-estimate inflation. Of course, we are constantly working on ways of improving our assessments and trying to learn from forecasting errors we have made. If our analysis and forecasting models do not function satisfactorily, we must attempt to correct the deficiencies. In my opinion, this would be a more natural measure than compensating for forecasting errors by means of an extra expansionary policy. The second argument is based on the idea that it might be beneficial to express the target in terms of a path for price levels instead of in the form of a target for the inflation rate. The difference from an inflation target, which may be considered rather subtle, is that if the inflation target is not met, it is regarded as a “bygone” under the current strategy. This is to say, if inflation is for instance below the target for a long period of time, one does not need to compensate for this by then allowing inflation to be above the target for a period of time. Instead, one looks ahead and aims to bring inflation back in line with the target of 2 per cent. | 1 |
Over the past 20 years, long-run inflation expectations in Japan have averaged a little over 1 percent. Yet during that period, the only time inflation was palpably above zero – let alone not in outright deflation – was when consumption taxes increased or oil prices spiked. So inflation expectations may remain stable while inflation itself lags for a prolonged period. 17 Conclusion As I think about the process of normalizing policy, I conclude that today’s risk-management calculus says we should err on the side of patience in removing highly accommodative policy. We need to solidify our confidence that our ultimate exit from the ZLB will occur smoothly – and in a way that sustains our escape from it. A corollary to this is we should not shy away from policy prescriptions that generate forecasts of inflation that moderately overshoot our 2 percent target for a limited time. Such a policy strategy more properly balances expected costs and benefits. And it would leave me with much more confidence that inflation will not stall out below target once we start raising rates. I agree with Atlanta Fed President Lockhart in thinking that we ought to be “whites of their eyes” inflation fighters. 18 The last thing we want to do is regress back into the ZLB. Indeed, such a relapse would be a sign there was something else going on that was preventing the economy from being as vibrant as we thought possible. 17 Consensus Economics, Inc. (1994–2014). 18 Lockhart (2014). | These efforts have helped the economy make impressive progress toward our employment mandate and appear to be moving us closer to our 2 percent inflation target as well. Given this progress, it is natural to ask if it is time to return to business as usual. Are we close enough to our policy goals – and do we have enough confidence in our ability to achieve those goals within the foreseeable future – that policy can return to operating according to more traditional guidelines? BIS central bankers’ speeches 1 As I will discuss in more detail, I think the answer is no. First, inflation remains stubbornly low. Second, I believe that substantial slack persists in labor markets and that some remaining and slowly dissipating headwinds could weigh on our progress toward full employment for some time. Chair Yellen pointed to a few of these headwinds in her press conference after the September FOMC meeting: tight mortgage credit for some borrowers; depressed household expectations for their income prospects; and modest productivity growth. 1 And, third, there is my weighing of risk-management considerations. To me, the risks imposed on an economy forced to operate at the zero lower bound on policy rates are paramount. In an economy mired at the ZLB, interest rates cannot fall low enough to equate the supply of saving with the demand for investment – a constraint that then significantly impedes consumer spending, capital formation, and employment expansion. | 1 |
And the Bank intends to consult the market shortly on what the requirements should be in respect of loan-by-loan information for such assets to be eligible in the future. Along with other monetary authorities taking similar actions, 8 standardisation of information provision may help improve investor confidence in the underlying securities. Non-bank lending Also during 2009, the Bank used its market and corporate contacts to identify why bank lending dominated the supply of credit and what the obstacles were to lending from nonbanks. There appeared to be no easy wins but a recent HMT consultation paper which draws 8 6 See the ECB announcement: http://www.ecb.europa.eu/press/pr/date/2009/html/pr091223.en.html. BIS Review 23/2010 heavily on the Bank’s investigation, explores options to facilitate the supply of credit from non-bank lenders. 9 Interactions with other monetary policy actions The commercial paper and corporate bond schemes seem to have been reasonably successful in helping to improve key markets and hence facilitating access to credit, at least for larger corporates. Smaller firms who supply those larger firms, may also have seen some “trickle down” benefits. One indicator of this is that the rise in the level of company insolvencies during the recession has been surprisingly small so far, given the fall in output (Chart 7). But the major supportive factor has probably come from the very low level of Bank Rate and the programme of quantitative easing. | The second measure relates to responsible investment by the Exchange Fund. The Exchange Fund now adopts a guiding principle that priority will be given to Green and ESG investments, if the long term return is comparable with other investments on a risk-adjusted basis. 11. Our third measure is the launch of the Centre for Green Finance under the HKMA’s Infrastructure Financing Facilitation Office, focusing on capacity building to facilitate the equipping of financial institutions with the knowledge, skills, tools and other resources in green finance. 1/2 BIS central bankers' speeches 12. In fact, we’re now in our developmental plan to prepare banks for the upcoming changes. A working group on the assessment framework has been in place since August, and today’s seminar marks the beginning of the capacity building programme for the Centre for Green Finance. On the other hand, the assessment framework will help banks understand their readiness for change, while the capacity building events will equip practitioners with the necessary knowledge for the changes. 13. For today’s seminar, we will first invite the IFC to provide an overview of the opportunities and challenges to green banking, and introduce some case studies on their approach to assisting banks in “greening” their operations. This afternoon, several banks will share their initiatives and practical experience on their green journey, including governance, risk management, disclosure and green products and business policy. 14. And here I would like to extend our special thanks to the IFC for their dedicated support for this workshop. | 0 |
Our fourth and final PoC in this category, also announced today with Digital Reasoning will examine the extent to which analysis of the large quantities of weakly-structured textual data on regulated firms available from multiple public data sources can yield insights on intent and sentiment. The PoC will look at whether those insights are capable of complementing analysis of more formal data reporting. Cyber security (2 PoCs) The Bank, in common with other major financial institutions, spends a lot of time on cyber security – both for its own systems, and in terms of its requirements and expectations of regulated firms. Much of this takes place as part of the Bank’s core work programme, but a number of more exploratory exercises have taken place through the Accelerator. In particular, we undertook a PoC with BitSight aimed at assessing the extent to which a firm’s cyber resilience can be evaluated using publically available data. And we worked with Anomali and ThreatConnect to explore ways of consolidating threat intelligence into a format that can be used to optimise information collation, enrichment and sharing. 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 Non-PoC work of the FinTech Accelerator In addition to enabling PoCs, the Accelerator team has also been able to leverage off the contacts and relationships made with firms and public authorities in the UK and overseas to provide a wider intelligence-gathering and horizon scanning function on FinTech to inform the Bank’s policy and operational work. | RegTech: machine learning (4 PoCs) Machine learning (and its close bed-fellow artificial intelligence) builds on the basic tools I have just summarised, but takes them a stage further, using algorithms to learn iteratively from data and drawing out potential patterns. In the near term, this could be used to complement and strengthen central bank analysis and supervisory activity. In the more distant future, it could do people like me out of a job! This is perhaps the most challenging and experimental area of FinTech in the Accelerator programme, and the results are therefore necessarily more speculative than in the other categories. Our first PoC, conducted with BMLL, examined algorithms designed to analyse high resolution limit order book data from trading exchanges. The second used tools provided by Mindbridge Analytics to detect anomalies in anonymised regulatory data from credit unions. The PoC combined conventional data science techniques (including clustering and classification algorithms) with a feature allowing users to flag items as suspicious or safe, permitting the program to ‘learn’ from the user which items could be of potentially more interest and adjusting its risk scores accordingly. And a third PoC with the same firm, announced today, will look to expand these findings to larger and more diverse data sets, including transaction data, and a broader range of classification and machine learning algorithms. | 1 |
And they could become more positive as a result of two possible changes: downward move in inflation expectations, and further upward adjustments in expected nominal interest rates. 9 Page 10 sur 14 2.3 Some initial thoughts on the balance sheet Another issue that we will need to confront is the normalization of our balance sheet. It has expanded in recent years through numerous programmes (APP, PEPP, TLTROs,..) and is now just short of 9 trillion euros. It would not be consistent to keep a very large balance-sheet for too long in order to compress the term premium, whilst at the same time contemplating tightening policy rates above neutral. In addition, rising remuneration on very large excess reserves may alter the transmission of the desired tightening through the bank channel. But obviously, this question is less pressing than the rise of interest rates to neutral, and should come only at a later stage. Let me simply put forward at this stage a few preliminary principles that could in my personal view guide the normalisation of our balance sheet, in due time: First, our key interest rate should remain our primary instrument to adjust our monetary policy stance. The size of our balance sheet should be used as a complementary policy tool, whose effects are more difficult to calibrate or finetune. | 10 Page 11 sur 14 Second, we should follow a clear sequencing regarding the various programmes: (i) the reimbursement of TLTROs comes first, and we should avoid any unintended incentives to delay repayments by banks (ii) at the other end, PEPP should be reinvested until the end of 2024, as stated (iii) this leaves inbetween APP for which the Governing Council has said that reinvestment will continue in full until “well past the date when it started raising the key ECB interest rates”. Here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace. Third, the phasing out of the asset portfolio should be orderly, announced cautiously and well in advance. The ‘stock effect’ of asset holdings, which is the key transmission channel, primarily depends upon the expected end-point of the balance sheet normalisation, in terms of both the terminal date and size. Fluctuations in the pace of the run-off during the travel to destination do matter less. Fourth, as taught by US experience in 2017-2019, the pace of the balance sheet reduction should not be left completely on “automatic pilot”. Starting slowly, assessing markets reaction, and gradually accelerating seems like a sound approach. Some flexibility should be kept, in case of sudden liquidity shocks. Indeed, the ‘flow effect’ may temporarily play a role when market liquidity abruptly dries up. III. A sensitive co-ordination issue This is the way we should run our domestic monetary policy. | 1 |
On Islamic finance, institutions such as Islamic Banking & Finance Institute Malaysia (IBFIM), Association of Shariah Advisors in Islamic Finance (ASAS), International Centre for Education in Islamic Finance (INCEIF) and International Shari’ah Research Academy for Islamic Finance (ISRA) were amongst the key affiliates that were given specific mandates for education and training. Similarly, the Chartered Institute of Islamic Finance Professionals (CIIF), then known as the Association of Chartered Islamic Finance Professionals (ACIFP), was identified as the key institution to develop professional standards and set the professional qualifications for the industry. The Institute, now entering its 5th year of establishment, is recognised as the industry’s own professional body through the Islamic Finance Profession Charter, and as such is strategically positioned as the platform for the development of ethically driven talent imbued with professional integrity. With the industry leadership on board as CIIF’s members, the professional body is expected to continue its momentum towards becoming an influential organisation that embodies the very best of Islamic finance professionals. On this note, we commend the industry’s effort to put the professionalisation agenda of the Islamic finance work force as utmost priority, through the signing of Joint Commitments between Association of Islamic Banking Institutions Malaysia (AIBIM), Malaysian Takaful Association (MTA), Association of Development Finance Institutions of Malaysia (ADFIM) with CIIF in 2018. | In particular, they act out of self-interest or greed often at the expense of others. It is time to put this to rest. One can just take Islamic ethics as they are, and act as one say and as one mean. However, we should build on this, infuse it with a creed of professionalism that will provide its practitioners with not only a clear set of principles, but a sense of vocation to do what is right and to strive for the greater good and the betterment of the society to truly achieve the aspirations of maqasid al-Shariah. Let me share some further thoughts on this. In building such an ethos, we should always have in mind the basic or fundamental Islamic ethics that are also shared across many religions and societies. Such prescriptions lay out the fundamental basis of decency and behaviour. We cannot steal, cheat, lie, and act dishonourably. Principles that essentially guide us to be decent and in fact socially acceptable and responsible members of society. A natural component of this is ‘amanah’ or trust. As professionals, we should act as it is entrusted upon us, protecting the interests that we serve; our customers, shareholders, institutions, and sometimes this comes at personal expense. Trust is often called a valuable commodity. Indeed, it is even larger than that. Trust is a foundation or pillar of many relationships, including that of business and finance. | 1 |
Competition both on and between platforms has generated an extraordinary array of FX execution choices for market participants to choose between. Whether to seek opportunities to net offsetting trades with others before transacting in the market. Whether to trade by voice or electronically. Whether to prioritise speed or diversity of execution. Whether to use algorithmic or trade-by-trade price selection – on firm or indicative prices; with wider or narrower groups of counterparties; in full view (‘lit’) or anonymously (‘dark’); or with more or less sophisticated ‘Transaction Cost Analysis’ (TCA) tools. Shifting patterns of demand for different bundles of these services, coupled with aggressive price and non-price incentives, have driven dramatic swings in market share between platforms (Chart 4). 4 Electronic Broking Systems line measures trades executed via automated matching systems for dealers. Electronic Trading Systems lines measure trades executed (predominantly by or for customers) via single-dealer proprietary platforms or a multi-dealer systems. 6 All speeches are available online at www.bankofengland.co.uk/news/speeches 6 Chart 4: Multi-dealer FX platforms – buyside market share Source: Euromoney FX surveys. Some implications of fragmentation: the good, the bad and the ugly Is fragmentation here for good? Some suspect it will eventually hit the buffers, as the declining marginal benefits of ever-greater product diversity, and the growing cost of navigating it, become more evident. | For insurance, our main challenge is to ensure that all Singaporeans have access to the right products, at an affordable rate. That is our main priority for insurance. We must help consumers to meet their insurance needs for themselves and their families without paying for something they do not need. 10. That’s why we have the Financial Advisory Industry Review or FAIR over the last year. Two of the initiatives of FAIR will help consumers by making insurance products more affordable and their pricing more transparent. First, consumers will be able to buy basic life insurance products directly from the insurer, without paying commission. Second, consumers will be able to use the internet to use a web aggregator to compare prices and coverage of similar insurance products offered by different insurance companies. So they can choose what is suitable to their needs, and at the most affordable rate. The competition that comes about because of this transparency will also help keep costs low for consumers. Financial education 11. The second approach is reaching out to Singaporeans through MoneySENSE. This is the work of our partners, not just the MAS – including the community, the media, financial industry associations, advocacy groups like CASE and SIAS, our educational institutions which will play a larger role in the future, and a whole set of government agencies, all working with MAS to propagate financial education to as many Singaporeans as possible. | 0 |
It has addressed the risk that those households and firms which consume more energy as a proportion of their income and/or lack the savings or access to external finance that might help them deal with the cash-flow implications of sharply higher energy bills – in other words, less well-off households and small businesses – could not manage the dramatic energy-driven cost-of-living squeeze that threatened over the summer. The UK Government's Energy Price Guarantee (EPG) is the main vehicle here. Decisions such as these are, rightly, in the domain of the government and not for independent central banks to make. However, I will discuss the implications for our economic forecasts in a moment. But I want to flag that the MPC's most recent baseline projection published in the August Monetary Policy Report incorporated the significant increases in European wholesale gas prices we experienced over the summer, but – owing to the pause implied by changes in political leadership– did not incorporate a fiscal policy response to those increases. This reflected the MPC's usual conventions and assumptions underlying the production of its forecasts, but – in the specific circumstances faced at the time – resulted in a baseline projection with debateable internal consistency. The Committee took the unusual step of distancing itself from that baseline in August, and relied more heavily on complementary analysis in scenarios and variants in motivating its decision. | In this regard, of course, this lending was also facilitated by special preferential programs issued by the government. The government adopted large-scale programs to support small- and medium-sized businesses, and we introduced our own mechanism: a special mechanism for preferential loans, which was in high demand. And we can see that banks, within the framework of such special instruments, issued about 18% of all loans to small- and medium-sized businesses. But the remaining increase in loans to small- and medium-sized businesses was carried out under normal market conditions, which is also a good factor. Moreover, in the first quarter of this year, we can see that the portfolio of loans to small- and medium-sized businesses 1/5 BIS central bankers' speeches has also continued to grow adding another 5%. Mortgages grew at a high rate — as in the segment of small- and medium-sized businesses, there was and still is incentive offered by preferential programs. The mortgage portfolio also grew significantly, by more than 20%. Moreover, it already reached almost half of the total retail portfolio, and in the first quarter, it also continued to grow, also by 5%. As you can see, the figures are quite similar for both mortgages and small- and medium-sized businesses. That is to say that there are positive trends in both. However, when it comes to mortgages (we have talked about this repeatedly), we are worried about the accompanying rise in housing prices in the primary market. | 0 |
At the same time, it might also fuel the growth rate of credit to economy, which has already experienced very rapid growth during the last two years, raising concerns for macroeconomic and financial stability. The results of reforms were not limited only to the openness and development of domestic financial market. They generated price and financial stability, sustained economic growth, assisted institutional building and increased confidence. These developments attracted interest of, and brought big financial groups in the region in general and Albania in particular. As I mentioned above entry of big financial groups, and the consolidation process that has followed since will continue to grow. What we are observing right now in the market is that the big fish is eating the small fish; the very big fish is eating the big fish in the European market with implications for the host countries. However, the process is far from over, gigantic fish (global player) might enter the region by eating the very big fish. Last but not the least, there will be mergers among domestic banks as well. Despite the increase in the concentration ratio that comes with these mergers and acquisitions, we have started to observe increased competition in our market. This competition increases efficiency, introduces new services and products, lowers spreads and generates positive spillovers for economic activity. While this makes a good precondition to foster financial stability, it is not a sufficient condition to increase financial discipline. | More generally, I am happy to report that the Committee on the Global Financial System – one of the Bank for International Settlements’ central bank groups – is engaged in a project to determine what lender-of-last-resort gaps currently exist, focusing, in particular, on those that may create vulnerability in terms of financial stability. One area that I anticipate will receive considerable attention is whether there are any gaps with respect to the activities of globally systemic firms that operate on a cross-border basis. Another issue that still needs greater attention is the appropriate role for the home- versus host-country supervisor. The regulatory and supervisory responses for large, systemicallyimportant firms that operate on a cross-border basis need to be closely coordinated, especially during times of stress. In particular, expectations about who will be the lender-oflast-resort need to be well understood in both the home and host countries. We have made considerable progress in recent years in enhancing the safety and soundness of the U.S. financial system. But there is more that we need to do. In particular, we need to study and understand how market liquidity and funding liquidity conditions are changing and what factors are driving that evolution. Conferences like this one go a long way in that regard. They serve as an important forum for discussing ideas and improving our knowledge and understanding. This will provide a solid foundation for any policy actions. Thank you for your kind attention. I would be happy to take a few questions. 6 BIS central bankers’ speeches | 0 |
Furthermore, over the first two years of Monetary Union, there has come to be greater understanding that this is indeed a sensible approach. 2 BIS Review 10/2001 Monetary policy in an environment of structural change Central banking entails, by definition, acting under uncertainty. While this statement holds true in general, it is particularly the case for the ECB. The introduction of the euro had the potential to trigger structural changes in financial, goods and labour markets, which are in part already visible today and may evolve further in the near future. With regard to financial markets, the integration of national money markets into one area-wide money market has been almost without friction since the very start of Stage Three, which has allowed for an efficient implementation of monetary policy decisions. In the other segments of the financial markets, considerable progress has been made, although the integration process is far from complete. The removal of barriers to exchange rate risk between the countries of the euro area helped to facilitate the standardisation of debt instruments and widen the range of investment opportunities. Portfolio allocation strategies within the euro area are now mainly oriented towards a sectoral selection and, to a lesser extent, a national selection of assets. That is an impressive indication of the ongoing integration of financial markets in the euro area. This trend, in turn, enhances the liquidity of markets and affects the financing decisions taken by companies. | The staff of the ECB and the national central banks have already been providing twice-yearly projections to the Governing Council since the start of Monetary Union. Starting with the December 2000 issue of the ECB Monthly Bulletin, these projections are now regularly made available to the public alongside other indicators and other forms of analysis underlying the ECB's monetary policy decisions. Let me emphasise that the publication of projections reflects the ECB's commitment to openness and transparency in sharing the information and analyses underlying its monetary policy decisions. Furthermore, it does not in any way change the ECB's monetary policy strategy. The projections are only one element of the second pillar considered by the Governing Council. Economic projections can only provide a partial summary of the state of the economy. They cannot possibly contain all the information needed to take appropriate policy decisions. In particular, the results do not in themselves reveal the nature of a shock hitting the economy. The appropriate monetary policy to maintain price stability should always depend on the specific circumstances and the nature and magnitude of a threat. For example, the appropriate response to a one-off increase in oil prices may differ from that given to a wage-price spiral, even if both have the same impact on inflation projections. Therefore, projections must always be supplemented by economic assessments and a detailed analysis of individual indicators. The ECB's strategy has sometimes been criticised for being rather complex. However, we are convinced that a simple approach would not have been appropriate. | 1 |
The new framework will feature two objectives – price and financial stability – which, based on standard economic analysis, means that we will need two separate set of instruments to achieve them. Further, based again on standard analysis, the assignment of instruments to objectives ought to be based on the principle of comparative efficiency: monetary policy is the natural instrument for pursuing price stability, whereas macroprudential policies – defined as a set of policies aimed at limiting both excessive credit growth and the build-up of systemic risk within the financial system – will have to take care of preserving financial stability. II.2. Monetary policy and financial stability During the years leading up to the crisis, the dominant doctrine was that monetary policy should not attempt to lean against bubbles as they inflate by raising interest rates, and it should rather only “mop up” the consequences of their eventual bursting by cutting rates aggressively. There were three main rationales behind such a position. First, it was argued, it is impossible for central banks to identify a bubble in real time: if it were possible, markets would have identified it too, and the bubble would not have developed in the first place since central banks have access to the very same information as market participants. To be sure, this argument did not go unchallenged. | With the strong economic fundamentals and the positive growth prospects of Asia, international and regional financial institutions are also now shifting their focus into the region. With the high savings rate in Asia, and of its massive requirement for infrastructure development, the region would benefit significantly from more effective and efficient intermediation of Asia’s surplus funds. Indeed, intra-regional cross-border portfolio investments have already increased to 28 percent of total assets holdings in 2011 compared with 21 percent in 2001. The gains from greater regional financial integration will be farreaching as it will not only bring about a more efficient allocation of resources in the region but it will act as a catalyst for greater regional economic growth. Over the coming years, as BIS central bankers’ speeches 1 growth experienced in the developed economies is expected to remain slow in the aftermath of the financial and debt crisis, the growth performance of Asia is expected to continue resulting in the region becoming a more important component of the global economy. Asian funding markets have also remained highly accessible during this period with Asian names enjoying strong demand and attractive funding costs at a time when the developed countries funding markets have tightened. During this more challenging time, Asian sovereigns such as Indonesia, Philippines, Thailand, Sri Lanka, Vietnam and Malaysia continue to successfully tap the market and to issue bonds with tenure up to 30-years. | 0 |
A broadly common statutory framework will help home and host authorities work together on resolution planning. To that end, Crisis Management Groups (CMGs) are now in place for nearly all global systemically important firms (or G-SIFIs as they are now commonly called), with the goal of reviewing firms’ proposed recovery plans and developing resolution strategies for them. Firm-specific cross-border cooperation agreements (or CoAgs) are also 2 BIS central bankers’ speeches being developed, setting out roles and responsibilities of the home and host authorities, clarifying how they will share information, and how they will cooperate to implement their preferred resolution strategy. If home and host authorities are not going to cooperate, we need to flush that out ahead of time, rather than stumble into it in the moment of desperation. There’s a good deal of cultural change entailed here. In the past, supervisors have sometimes seemed during peacetime to be more committed to cooperating than they have been prepared to live up to when it most mattered. A forthcoming FSB consultation paper on developing resolution strategies But we – the FSB – realise that more guidance is needed. Although not of central interest to this audience, resolution isn’t just about banks, and so we are planning to elaborate on how the Key Attributes should be applied to, for example, central counterparties, insurers, and the client assets held by prime brokers, custodians and others. | The distinguishing characteristic of bail-in, as a resolution tool, is that it applies losses upfront based upon a valuation rather than at the end of a liquidation of assets. As such, it prospectively avoids an unnecessary destruction of value. For those groups that issue debt from the holding company and downstream the proceeds to operating subsidiaries, it should be possible to bail in debt at the holding company and recapitalise distressed parts of the group. Where necessary, those distressed subsidiaries could be recapitalised by bailing-in – ie writing down and/or converting into equity – intergroup debt owed to the parent. The host authorities of those operating companies should in principle be prepared to go along with that kind of operation provided that the home country engenders the necessary trust and takes account of the need to maintain stability around the world not just in its immediate neighbourhood. Deposit insurance schemes and bail-in: multiple point of entry resolution We should not, however, assume a monolithic approach to resolution. It is not a case of one size fits all. What I have described could work for banking groups that issue plenty of debt out of a top company. It would not work so easily for groups operating commercial banks around the world that are funded to a very large extent from insured deposits. In a hypothetical extreme case, if they haven’t issued bonds, then there would be no bond holders to bail in. | 1 |
There is an evident risk that the crisis management can be prolonged by political negotiating games. When the stakes are high, there is a risk that many countries will choose to play their cards close to their chest as long as possible. In the worst case scenario, this could lead to crisis measures not being taken in time, which could have devastating results for all those involved. In September 2007 a Nordic-Baltic crisis exercise was organised around a financial crisis scenario. Taking part in this exercise were the central banks, financial supervisory authorities and finance ministries of all of the five Nordic countries and the central banks of the Baltic states. Without going into any details, I can reveal that the exercise brought to light many deficiencies in coordination – both between authorities within individual countries and across national boundaries. In particular, it showed that measures taken unilaterally by the authorities in one country can easily have disastrous consequences for financial stability in other countries. It also further emphasises the importance of continuing to develop the cooperation and ensuring that national regulations do not form an obstacle to cross-border crisis management. In a crisis it is essential that the authorities in different countries understand one another’s assessments of the situation and preferable that they can reach a common view. This makes demands for common criteria and joint terminology. It must also be possible to coordinate various measures across borders, such as emergency liquidity assistance and payments of deposit guarantee funds. | Let me briefly outline some of the biases we need to take into account in the context of our economic and financial assessment. For the sake of simplicity, I will distinguish two main categories of biases: technical biases and institutional biases, leaving aside the treatment of risk aversion considerations, which tends to introduce an upward bias in the break-even inflation rate. Technical biases The compound and the convexity biases: the definition of the break-even rate as the difference of the conventional nominal bond yield and the inflation - indexed bond yield is a first order approximation which does not take into account interest rate compounding. Consequently, the break-even rate is an upward biased estimator of expected inflation - provided that inflation expectations are positive4. Interest rate compounding has also another implication as it implies that bond prices will respond in an asymmetric manner to changes in the yield: indeed, bond prices are more sensitive to a fall in yields than to an increase in yield, and therefore, will also rise when the volatility of the yield increases, therefore pushing down the forward rates5. The net convexity adjustment will therefore bias the breakeven inflation rate either upward (the most likely) or downward. The inflation lag: by construction, bond cash flows can not be adjusted instantaneously for actual inflation. This implies that the break-even inflation rate includes another bias reflecting the discrepancy between the lagged and the contemporaneous inflation rate. | 0 |
Could otherwise hit inflation and growth hard M onetary policy can alleviate the effects 12 Other measures required to solve the problems entirely BIS Review 138/2008 Financial turmoil and the inflation target Situation changes rapidly in mid-September Repo rate has been cut to 3.75 per cent Further cuts over the coming six months To: …alleviate the effects of the financial crisis on economic activity and… …manage the inflation target of two per cent Behind the interest rate decision Financial turmoil important BIS Review 138/2008 Impact of interest rate cuts (initially) Credit crunch Falling wealth Deeper economic downturn Uncertainty and falling exchange rate Falling commmodity prices Lower inflationary pressures 13 Pessimism among households… Net figures 80 80 60 60 40 40 20 20 0 0 -20 -20 -40 -40 The Swedish economy -60 -60 Own finances Labour market -80 -80 98 99 00 01 02 03 04 05 06 07 08 09 Source: National Institute of Economic Research … and in the business sector Seasonally-adjusted index and net figures, manufacturing industry 65 15 60 10 55 5 50 0 45 -5 40 -10 35 -15 30 Purchasing managers’ index (left scale) -20 Confidence indicator (right scale) 25 -25 01 02 03 04 05 Note. | When goods are transported to consumers via our physical infrastructure, such as the road network or by air, the payment for the product is sent to the end recipient by means of the “financial infrastructure”. If the financial infrastructure did not function, the economy would more or less grind to a halt. The financial system also makes it possible to manage various risks that can arise in the financial markets. This is important to both households and companies. Another important function is to be able to save and borrow money via the financial system. This gives households and companies the possibility to distribute incomes and consumption over time. The funds that are saved can be borrowed by companies and households to finance various investments which can then create employment and growth. When there is distrust and disturbances in the financial system, this function may be impaired, which can BIS Review 138/2008 1 lead to a credit crunch. First the financial sector is affected, but then it gradually becomes more difficult for households and companies to borrow, too. Consumption and investment then decline, which can lead to a substantial economic downturn. A credit market that functions well is thus an important condition for good growth. To summarise, one can say that the financial system’s functions are very important for economic development. It is important that the system is stable for our society to function properly on the whole. But financial stability is something that most people probably often take for granted. | 1 |
The players in the Islamic financial industry must therefore, have in place robust risk management practices and system. In this regard, the establishment of the Islamic Financial Services Board has been timely. The IFSB has the important mandate of developing the prudential standards in accordance with the unique features of the Islamic financial institutions. Given that the IFSB and the existing standard setting body embraced common objectives, l do not see any difficulty in integrating the international standards with the Islamic prudential standards. This will contribute towards the development of a robust and resilient Islamic financial system that can effectively preserve financial stability and contribute to balanced growth and development. This will also facilitate the integration of the Islamic financial system as a viable component of the global financial system. Over the years, the Islamic financial industry has adopted the adaptation approach in the formulation of Islamic financial products and services. Although there are Islamic financial instruments that are distinct from the conventional financial instruments, the numbers are still few. In most instances, the Islamic financial products are repackaged along the features of the conventional financial products, while eliminating the elements that are not in-compliance with the Shariah. While this adaptation can continue, the downside risk is that Islamic financial instruments will always have to “catch-up” with the pace of product development in the conventional system. Efforts should therefore be intensified to develop new financial products that embodied the virtues of Islamic banking. This would evolve Islamic financial instruments into distinct, innovative and cutting-edge products. | Zeti Akhtar Aziz: Legal issues in the Islamic financial services industry Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 4th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry, Kuala Lumpur, 28 September 2009. * * * It is my great pleasure to speak at this 4th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry that has brought together so many international experts and industry practitioners to discuss legal issues in Islamic Finance. Such dialogue is important to achieving a common understanding and solutions to issues in Islamic finance, thus contributing to its overall development. Islamic finance has continued to expand and demonstrate its resilience in the current more challenging international financial environment. This advancement has been in terms of the increased range of Islamic financial products and services, the development of the Islamic financial infrastructure and institutions, the greater maturity of the Islamic financial markets and the more comprehensive supporting legal and regulatory framework. More recently, the international dimension of Islamic finance has gained significance with the move to further liberalise domestic Islamic financial system and the strengthening of the international Islamic financial architecture. In Malaysia, Islamic banking assets at the end of the second quarter of this year, now constitutes close to 19% of total banking assets. Total financing now amounts to RM118 billion and accounts for 20.1% of the total financing portfolio of the banking industry. Net nonperforming financing remains low at 2.4%. | 0 |
Indeed the way finance sector output is measured meant that the rate of bank balance sheet expansion translated directly into the measured contribution of the finance sector to productivity growth. Strong pre-crisis growth in manufacturing productivity, meanwhile, was largely caused by structural changes in the sector catalysed by globalisation. Increased competition from abroad, especially from China, created a more challenging climate for UK manufacturers, incentivising them to raise productivity (often supported by significant foreign direct investment) or scale back production. The UK manufacturing sector is now much more productive as a result – but is also smaller. Looking ahead, the risks to productivity from this channel also appear to be to the downside. The tensions between the US and China have led to increased tariffs which have contributed to a slowdown in world growth and a sharp slowing in goods trade. And in the UK, Brexit, on our forecast assumptions, is likely to lead to a reduction in the UK’s integration with the EU in goods and services trade, which appears unlikely, at least in the near term, to be offset by an equivalent increase in integration with the rest of the world. Putting all this together leaves me a little more pessimistic on productivity growth than the MPC’s central forecast. Since productivity growth is a key determinant of how fast the economy can sustainably grow – what I just described as the economy’s “speed limit” – that also means that, all else equal, I am a little more pessimistic about future GDP growth. | We have supported the European integration process of Albania through the continuous dialogue process with our European partners and by continuing the alignment of the banking legislation with Acquis Communautaire; the Bank of Albania has supplied the Albanian economy with qualitative coins and banknotes; we have intensified the efforts for the financial education of public and expansion of financial inclusion; we have managed the international reserves in compliance with the best principles of the field; the Bank of Albania has contributed in the economic dialogue through advises, publications and scientific conferences; and we have further developed and expanded the gamma of the financial statistics. Last, further progress has been achieved for the improvement of the institution governance, through the update of risk management systems and for ensuring the business continuity. In view of the organised cyber-attacks the country faced with in 2022, the Bank of Albania has paid special attention to enhancing the sustainability of banking system, financial markets and payment systems operated by the Bank of Albania, by collaborating with specialised national agencies and international partners. Honourable Members of Parliament, Meeting our mission and legal duties, realising the commitments in view of the mediumterm development strategy, and complying with the recommendations left by the Parliament of Albania for 2022, have been important objectives guiding the activity of the Bank of Albania throughout 2022. This philosophy will continue to lead our work in 2023 onwards. Concluding, allow me to re-emphasise that price stability has been and remains the main mission of the Bank of Albania. | 0 |
Just as important as the level of income is: how we produced it, and what resources did we use? • Output per hour worked has increased considerably. BIS central bankers’ speeches 1 o In 2015, Singaporeans worked 2,300 hours. o But we are now generating nearly three times as much income as 50 years ago. o • This year Singaporeans are expected to work only 1,400 hours. The carbon intensity of our economy has fallen sharply. o o In 2015, we emitted 0.2 kilograms of carbon to produce a dollar of output. Today, we emit just 0.05 kilograms. Third, the distribution of income. • • Income distribution has become more equal, thanks to heavy investments in building human capital and skills as well as a tax and transfers system that has become more progressive over the years. o In 2015, the Gini coefficient after taking account of taxes and transfers was 0.41. o Today, it is 0.36. Wealth inequality has remained more stubborn though. o Today, the top 1% and 10% of wealth holders in Singapore own around 20% and 60% of total wealth respectively. o This is little changed from 30 years ago, when we first started to collect this data. 1965–1984: Export-led industrialisation through multinationals In 1965, when Singapore left the Federation of Malaysia, few expected it to survive let alone prosper. | 4 BIS central bankers’ speeches • Foreign labour, which had driven Singapore’s labour force growth since the late 1970s, was already one-third of the total workforce. • It was neither economically efficient nor socially desirable to allow the foreign workforce to expand much faster than the local workforce. By 2020, average total labour force growth was down to 1% per annum. The central thrust of economic strategies in the 2010s and early 2020s was therefore to shift to a productivity-driven growth model. The aim was to increase productivity growth to at least 2% per annum, from the 1.4% averaged during the 2000s. • The growth of lower-skilled foreign labour was curbed through increases in the foreign worker levy and reductions in the foreign worker dependency ratio ceilings. • Financial incentives were given to firms to undertake capital deepening and adopt technology solutions to raise productivity. • Programmes were put in place to help Singaporeans develop and master skills in new growth clusters. While the manufacturing sector had continually undergone restructuring and moved up the value chain in the preceding five decades, this was the first time the entire economy was undergoing such a transition. • It proved particularly challenging for many traditional domestically-oriented services like retail, hospitality, construction, real estate, and social services, which had come to be heavily dependent on cheap labour over the decades. | 1 |
With limited exposure to international financial markets, Algeria has not been directly affected by the global financial turmoil. However, the sharp decline in oil prices over the second half of 2008 significantly impacted export and budget revenues. Despite this external shock, macroeconomic performance remained robust in 2009 with: – strong external financial position with comfortable international reserves $ billion146, end September 2009 ) equivalent to 3 years imports of goods and services, and low external debt; – the real effective exchange rate around its equilibrium level; – continued high growth in the non-oil sector, expected to exceed 9% in 2009 against 6.1% in 2008; – sizeable savings in the stabilization fund despite the expected first budget deficit for several years; – contained inflation, notably on account of continued absorption by the Bank of Algeria of the excess liquidity. The strong economic performance in 2009, in line with the performance of the past several years, reflects continued prudent financial policies, sustained efforts to anchor monetary stability, and progress in strengthening the resilience of the banking sector, which have supported macroeconomic stability since 2000. 2. Savings and investment financing structure Following a period of external financial imbalances and related adjustment programs during the nineties, Algeria has entered, since 2000, a period of sustained increase in savings, leading to a situation of excess savings over investment. | Furthermore, the general liberalisation of capital controls on domestic residents will take place once the largest obstacles have been successfully removed or neutralised and when certain economic criteria have been fulfilled, such as adequate FX reserves, market access for the sovereign and the banks, a wellbalanced and growing economy, etc. The aim is to minimise the risk of capital flight. 2 BIS central bankers’ speeches The Icelandic authorities have emphasised public disclosure and transparency of relevant information about the liberalisation strategy. Last year, the solution to the failed banks’ estates, as well as the economic analysis on which it was based, was presented in a comprehensive manner. A few days ago, a bill of legislation on the treatment of offshore krónur was passed by Parliament. An English translation of the bill was posted on the website of the Ministry of Finance and Economic Affairs, along with the Explanatory Notes and a Q&A (with links on the Central Bank website). Yesterday the Central Bank published terms of a foreign currency auction directed at offshore krónur, to be held on 16 June. This speech is, of course, part of the process of disclosure and explanation. Furthermore, in a week or two, the Central Bank will issue a special publication on the economic analysis of capital account liberalisation in Iceland. | 0 |
All this will make the next meeting of the MPC interesting, particularly since the February meeting will include our quarterly review of the two year MPC Inflation Forecast, in which we will try to calibrate the effects of the various changes I have mentioned. Proposed Revisions to the Basel Accord Compared to the last US recession in the early 1990s, a source of strength to the global financial system as the US economy slows is the much stronger capital position of most major international banks. The 1988 Basel Accord and its market risk amendment were intended both to set a floor to the capitalisation of the world's major banks, and to smooth out competitive inequalities between banks from different countries. Bank capital ratios have increased significantly in the last decade. Between 1988 and the end of the 1990s, the ratio of capital to risk-adjusted assets of major banks in the G-10 rose on average by around 3 percentage points. Of course, introduction of the Accord was not the only factor involved but studies agree it played a significant role in rising bank capital. However, by the second half of the 1990s, it became apparent that the Accord required a radical overhaul to take account of changes in the nature of banking business and risk management since 1988. | A fundamental change within the first Pillar - capital levels - compared to the original Accord is that improved risk management in banks has allowed the proposed new Accord to incorporate greater sensitivity of credit risk capital charges. There will be a menu of approaches, depending on the sophistication of the bank. A 'standard' approach differentiates between credit exposures on the basis of external ratings. A 'foundation' internal ratings based approach will allow banks to differentiate between credit exposures on the basis of their internal estimates of borrower default probabilities; and an 'advanced' approach allows other inputs required to assess credit risk also to be provided by the bank, rather than the regulator. In addition to all this, there will be for the first time an explicit capital charge for operational risk. Systemic Implications of the Revised Accord What I have described so far is how the Accord is intended to be applied to individual banks. But given the Bank of England's responsibilities for the stability of the financial system as a whole, our principal concern is with the overall impact on the system. The Basel Committee has said that the new Accord is intended broadly to deliver the same level of bank capital on average across banks as at present. How should we assess the adequacy of this from the viewpoint of overall financial stability? As I suggested earlier, the role of bank capital is to provide a buffer sufficient to cover unexpected losses. | 1 |
Christian Noyer – The main issue being discussed in the G20 – raised moreover by Nicolas Sarkozy – is how to reduce the large global current account imbalances, which weigh on world growth and generate dangerous capital flows. Monetary policy alone will not provide the solution. Each economic area should move towards a better balance between savings, consumption and investment. And, we would all benefit from reforming the international monetary system, but in a structural, orderly and calm manner, and certainly not in a hurry. It BIS Review 152/2010 1 is a long process to move from a system in which only the currencies of major industrialised countries counted to the multipolar world in which we now live. Le Figaro – This G20 should also provide the opportunity to validate the new prudential framework (Basel III). Do you find it adequate? Christian Noyer – We have reached a balanced agreement. It is out of the question to be confronted with a situation where States fly back to the aid of banks. That is why we are enhancing both the quantity and quality of banks’ capital requirements. But we have also provided for a very long adjustment period to avoid an artificial reduction in funding. This agreement is universal and is intended to extend to the United States and to all developing countries. This too is a balancing factor. Le Figaro – Has the project been completed? Christian Noyer – We have factored in a long observation period for some aspects. | Christian Noyer: No one should, nor can, manipulate their currency – interview in Le Figaro Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Le Figaro, Paris, conducted by Ms Isabelle Chaperon, Ms Bertille Bayart and Mr Jean-Pierre Robin on 9 November 2010 and published on 11 November 2010. * * * Interview – On the eve of the G20 in Seoul, the Governor of the Banque de France advocates an “orderly and calm” discussion on the international monetary system. Le Figaro – Last week, the US Federal Reserve pumped USD 600 billion into the economy. This decision has been harshly criticised. How do you view it? Christian Noyer – We raised this issue last weekend at the Bank for International Settlements in Basel. Fed officials explained this action in the light of their mandate, their goal of reviving the US economy and the risk of deflation. They assured us that they had no deliberate intention to devalue the dollar. And I have no reason not to believe them. Le Figaro – The Fed seems much more accommodating than the ECB ... Are the economic situations so different? Christian Noyer – Saying that the Fed is very accommodating and the ECB very stringent does not reflect reality. In Europe, our monetary policy is still marked by the non-standard measures tailored to the structure of our economy. | 1 |
More recent monetary policy theory is frequently based on a loss function, or a preference function, which includes explicit targets for both inflation and output. Stabilising output is taken into account, thus recognising that monetary policy has an impact on the real economy in the short to medium term. It is the central bank’s task to choose an interest rate path that strikes the best possible balance between low and stable inflation and stable developments in the real economy over time. Ragnar Frisch was pursuing a similar line of thinking. Frisch wanted to construct a quantitative form of a preference function that could be applied in practical policy. Frisch delved into the matter. For example, he devoted considerable time to interviewing politicians to identify the “true” welfare function. His approach involved three phases. As to the first phase, Frisch stated:13 “...the econometrician uses his general knowledge of the political atmosphere in the country ... He will then be able to form a temporary perception of the quantitative form of the preference function”. In the next phase, the preferences are identified by means of a system for interviewing politicians: “This interview system must be designed so that the results, without the politicians necessarily having to understand this, can draw certain conclusions as to the numerical nature of the preference function.” In the third and last phase, the information derived from the interviews is combined with the data on the structure of the economy and the formulated preference function. | BIS Review 100/2007 3 Due to uncertainty as to which financial institutions were exposed to the subprime market, many operators became very cautious about extending loans, and this eventually also led to liquidity problems in the interbank market. On 9 August and in the days ensuing, many central banks offered extra liquidity to safeguard liquidity in the banking system. Norges Bank supplied liquidity to the Norwegian banking system through ordinary market operations on 9 August. In many countries, the money market is still dependent on injections of extra liquidity from the central bank. The banking system’s capacity and willingness to redistribute funds is still moderate. This increases banks’ financing costs. The turbulence in the financial markets has also led to a sharp rise in prices for transferring credit risk, i.e. credit default swaps (CDS), for both banks and other companies. CDS prices for US banks rose for the first time in March and began to rise again at end-June. Developments in CDS prices for European banks lagged behind somewhat, but in the last half of July CDS prices rose sharply for both US and European banks. This also affects Norwegian banks and enterprises, but the increase in CDS prices for DnB NOR was considerably lower than for European banks on average. Kredittilsynet (Financial Supervisory Authority of Norway) announced at the end of August that financial market turbulence seems to have had little impact on Norwegian banks. | 0 |
Wellfunctioning money markets provide the basis for determining reference rates, which perform a key informational function for the economy as whole. The pricing of a broad array of financial products – particularly in the capital and derivatives markets – is based on reference rates. They are also used in credit and mortgage transactions and many other types of contracts. Reference rates can only be credible and robust in the long run if the underlying market functions well. The crucial importance of sound reference rates for an orderly functioning of financial markets cannot be over-stated. We now turn to a discussion of some of the changes in the landscape of reference rates in Switzerland. The role of SARON – the reference rate for Swiss franc financial markets The Global Financial Crisis greatly accelerated the shift in the interbank money market from the unsecured segment to the repo market. As unsecured activity dwindled, the Swiss franc Libor, for decades the benchmark for Swiss financial markets, lost reliability and robustness. The alternative to Libor is SARON. Today, SARON is the most representative interest rate on the Swiss franc money market. SARON is a secured overnight rate and reflects conditions in the most liquid segment of the Swiss franc money market. Unlike the Libor fixing rate, it is Page 4/13 calculated on the basis of actual transactions and binding quotes. Approximately 150 financial institutions have direct access to this market. SARON has existed since 2009 and its economic importance has grown significantly in recent years. | Put differently, for money market interest rates to stay close to the SNB’s negative interest rate on sight deposits, the supply of liquidity must exceed the demand for liquidity by a sufficient amount. In a system of bank-specific exemption thresholds, this means that the supply of liquidity by the cash-providing banks – that is, by the banks whose sight deposits exceed their exemption thresholds and which are therefore willing to provide liquidity – must exceed the demand for liquidity on the part of the cash-taking banks – that is, banks which have an unused portion of their exemption threshold and are therefore willing to accept additional sight deposits on their balance sheet. Provided this condition holds, it is possible to reduce the burden on the banking system through exemptions, without jeopardising the monetary policy objective of the negative interest rate on sight deposits. If we take another look at the time series trajectory of money market interest rates depicted in Chart 3, we notice that this condition must have been met in practice, as market interest rates have indeed been close to the negative interest rate on sight deposits ever since that rate was first introduced in 2015. Page 8/13 The exemption thresholds have significantly reduced the burden on the banking system as a whole. When the SNB initially introduced its negative interest rate on sight deposits at the beginning of 2015, around two-thirds of total sight deposits were exempt from negative interest. | 1 |
First, greater labour market efficiency, through lower temporary employment and improved employability, especially in the case of less skilled workers, could boost economic growth potential. Second, productivity gains thanks to investment in human capital, greater innovation and the elimination of inappropriate barriers to competition would also have beneficial effects on economic progress in the medium term. Before I close I would like to mention, among the structural challenges facing the Spanish economy, those facing the banking sector. Spanish banks do indeed still face challenges, such as reducing their volume of non-productive assets, improving their capital structure and profitability, strengthening their reputation and making optimum use of technological developments. | Although the crises can be explained in terms of shortcomings in the workings of the financial system, the instability has almost invariably stemmed from macroeconomic and structural problems. A reasonable economic policy is, of course, not just a requirement in emerging markets but also a standing order in the industrialised countries. Yet it is barely five years ago that Sweden regained a fairly firm economic foundation after the profound crisis in the early 1990s. There are many parallels between the Swedish crisis and the crisis in Thailand, for instance. An important factor here is, as I mentioned, the exchange rate regime. Experience has shown that exchange rates that are fixed but adjustable may often contribute to problems and currency crises. They presuppose that fiscal policy is capable of countering economic shocks at the same time as they invite speculation. In the debate it is therefore sometimes proposed that the emerging markets ought to set up currency boards (a system whereby all outstanding currency can be converted into some hard currency) or participate in some well-established regional monetary cooperation. These systems do demand just as much of policy but their stronger links are intended to confer greater credibility. There is a risk, however, of financial players being lured into a false sense of security, giving imbalances more time in which to grow. Another feature that fixed exchange rates and currency boards have in 5 BIS Review 52/1999 common is the negative effects they may exert on other countries if they have to be abandoned. | 0 |
There are examples of heavily indebted countries that have stopped the snowballing process before it led to default. The banking crisis in the early 1990s left Sweden with a substantial fiscal deficit. Lower tax revenues, increased social security expenditure and rescue measures for banks brought the deficit close to 11 per cent of GDP in 1993. Sweden’s public debt rose to 80 per cent of GDP. Fiscal consolidation continued for several years and resulted in stabilisation of government debt and provided room for its eventual reduction. The 13 See Michael Hoel and Jan F. Qvigstad (1986): “Statsgjelden – et problem når veksten er lav og renten er høy (Public debt – a problem when growth is low and interest rates high)”, Sosialøkonomen, and Unni Larsen and Bente Støholen (2010): “Public finances – the difficult path back to sustainable levels”, Economic Commentaries 2/2010, Norges Bank. BIS Review 123/2010 7 UK and Finland conducted a similar process in the 1990s. The Nordic countries in crisis at that time learned their lesson and have kept public finances in order during this crisis. The euro area countries are in a special position. They have a common currency and a common monetary policy. Governments raise loans in the area’s single currency. Monetary policy – management of the euro’s value – is a common policy, conducted by the European Central Bank with a view to maintaining price stability. The countries have common guidelines for fiscal policy, but as mentioned earlier, these have not been followed. | Hamad Al-Sayari: Challenges posed to investment in Saudi banks Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, to the Symposium on Challenges Posed to Investment and Saudi Banks, Riyadh, 2 December 2006. * * * Dear Audience, At the beginning, I would like to welcome all honorable attendance. It gives me a great pleasure today to address you at the outset of the deliberations of this symposium on "Challenges Posed to Investment and Saudi Banks in an Environment of Global Economic Openness" which is convened at a time the Kingdom is witnessing a period of economic growth accompanied with and enhanced by steps of economic reforms in the fields of streamlining of regulations, restructuring of the national economy, and approval of a number of mega development projects as well as the accession to the World Trade Organization which is an important step towards enhancing integration into the world economy, coping with economic developments, and attraction of foreign investments apart from accession to global markets which will be reflected on the competitive capacity of the national economy. Dear Audience, The current Symposium is being held in a promising economic environment in this country. The Kingdom has recorded outstanding economic results. The real gross domestic product rose by 6.5 percent in 2005. This growth rate was reflected on almost all sectors of the economy which is characterized by strong investment. International rating agencies recorded their appreciation and certified the efficiency and strength of the national economy. | 0 |
The prices of the most volatile items (food and energy) will increase more than core inflation, so headline inflation will converge to the target sooner than the core measure. Thus, the baseline scenario continues to estimate that in the coming months headline inflation 2 will decline to levels near the floor of the tolerance range, and will return to 3% at the end of the year and hover around this figure until the end of the projection horizon, mid-2019 (figure 2). First-quarter data confirmed the strong impact of the Escondida strike on the sector’s output, aggravated by reduced production in other mines (figure 3). Thus, mining activity fell by nearly 14% annually in the period, dragging along power generation and some local activities, according to various respondents to the May Business Perceptions Report (IPN) survey. Moreover, recovering former production levels has taken longer than expected, so the effect in mining output has extended into the second half. After considering these elements, the mining sector is projected to drop this year by nearly 2.5%, compared with the 1.5% increase we expected in March. Other sectors' activity continues to show two trends. On the one hand, the weakness of construction activity and related services; on the other, the more stable performance of private consumption, driven strongly by growth in durable goods. | Among these, I can mention the amendments to the Constitutional Organic Law (LOC) of the Central Bank to perfect the regulations applicable to payment systems established in the country and recognize payment infrastructures in foreign jurisdictions involving local financial institutions. Other points include raising the limits for foreign investment of insurance companies, making it easier for international custodians to settle in Chile, expanding investment alternatives for the Pension Funds and the Unemployment Fund, as well as moving towards a risk-based model of supervision for such funds. About financial inclusion, one noteworthy regulatory change has been the Law that allows nonbank entities to issue prepaid cards (Law No. 20,950—2016), aimed at promoting the development and massification of electronic payments and increasing financial inclusion, along with boosting competition in means of payment. Its implementation requires that the Bank (and the SBIF) issue the rules that will regulate this activity. These, besides regulating the implementation of prepaid cards, will incorporate another series of normative improvements on the payment system in general, which should contribute to favor the development, competition and incorporation of new technologies in the field. A final change worth mentioning is the Law that will create the Financial Market Committee, which will bring about a very significant change in our country’s financial regulation and supervision structure, and whose implementation poses a major challenge for public politics. Despite these significant advances, big challenges await us. | 1 |
Some observers make the point that, if we look at historical frequencies of cycles and recessions, it is much more likely than not that interest rates may need to return to zero at some point in the future. “Nonconventional policies” may then become part of central banks’ standard toolkit, rather than a unique exception. Second, one legacy of the crisis will be the size of central banks’ balance sheets. A central bank’s balance sheet is the foundation on which it conducts its policies, through its monopoly to create base money. An expanded balance sheet can be seen in two ways. Either as a problem because the central bank leaves too big a “footprint” on money and financial markets; and this could impair their normal functioning. Also, by holding and actively managing a portfolio of public debt, central banks take quasi-fiscal responsibilities that must be avoided. Alternatively the current situation may be seen as an opportunity, at least in times of crisis. Central banks can use their expanded balance sheet to develop a richer set of tools and better address the challenges they are facing. Finally, the pre-crisis, inflation-targeting regime, was closely associated with the “Great Moderation” when inflation was low and output growth stable. This period of sustained growth and limited volatility was considered normal at the time. We know now that it was very exceptional from a historical perspective. | Overall, the June 2013 Eurosystem staff macroeconomic projections for the euro area foresee annual real GDP declining by 0.6% in 2013 and increasing by 1.1% in 2014 thanks to three main drivers: export growth, accommodative monetary policy and low inflation. BIS central bankers’ speeches 1 2. How can we boost growth further in the euro area? A strong fiscal stimulus obviously appears unfeasible, given the necessity to rebalance public finances. I want to stress two things here: • The euro area has very rapidly and efficiently set to work to cure its fiscal weaknesses and can today boast some of the best results among the major developed economic regions: its public deficit has been reduced from 6.3% of GDP in 2009 to approximately 3% today; by the end of 2013, the euro area should show a positive primary balance; • While the commitment to progressively achieve sustainable levels of public debt and deficit has to be achieved; the measures need to be designed in such a way as to limit the negative side-effects on growth. For instance, efforts need to be focused on non-productive spending. In fact, there is only one way to durably raise the growth potential of our economies, and that is by structural reforms that enhance competitiveness. It is clear that the euro area is well equipped to confront the challenges of the 21st century. With 370 million consumers and high purchasing power, it remains the biggest market in the world. | 0 |
Spain's per capita income today stands 17% below that of the euro area, a gap that is 4 pp narrower than was the case in 1978, but 8 pp wider than in 2005. Behind this persistent negative gap lie two well-known shortcomings in the Spanish economy: low productivity and a low rate of employment, which have moreover historically been negatively correlated. 1 Today, if I may, I will focus on the first of these factors, since productivity is the only failsafe means of improving living standards.1 What's more, our low productivity issues are very closely related to some of the weaknesses of our labour market, which, in turn, condition our ability to converge in terms of the employment rate. Second, it is well worth stressing that the convergence of the Spanish economy should be sustainable over time. With this in mind, it must be acknowledged that some of our economic problems these past few decades have stemmed from a failure to understand the obligations and restrictions that come with forming part of the European integration process and, in particular, of the euro area. This led, for instance, to the build-up of serious financial imbalances after joining the euro, which meant that our economy was particularly hard hit during the global financial crisis. Since the outbreak of that crisis, the Spanish economy has displayed a healthier pattern of growth that has, in fact, partly corrected the imbalances built up over the previous upswing. | Incorporating incentives into personnel management may also improve the efficiency of public spending. 23 García-Louzao, Hospido and Ruggieri (2022) find that the employment stability afforded by a permanent contract in Spain can lead to cumulative wage differences of up to 16% between a worker on this type of contract and another on a temporary contract, over 15 working years. Bertheau et al. (2022) show that job displacements in a collective dismissal lead to a significant reduction (of 16 pp) in Spanish workers’ employability five years later. Part of this reduction can be attributed to the lower investment in active employment policies in Spain. 24 According to Eurobarometer (2023), only 7% of Spaniards say they trust political parties (as against 27% in the EU) and only 47% local and regional public authorities (56% in the EU). Furthermore, trust in the three branches of the state is also low. In 2023, 24% of those surveyed trusted the Government (as against 32% in the EU), 16% Parliament (33% in the EU) and 46% the judiciary (54% in the EU). 7 The correction of imbalances According to the available estimates, the structural budget deficit stood at around 4% of GDP, above the estimate in 2019 (3% of GDP), and the public debt-to-GDP ratio stood in 2022 at 113.2%, almost 22 pp above the euro area average. | 1 |
4 UNEP Emissions Gap Report 2019 International Energy Association (IEA) Global Energy Review 2020 IPCC Global Warming of 1.5°C Special Report 7 UNEP Emissions Gap Report 2019 5 6 3 All speeches are available online at www.bankofengland.co.uk/news/speeches 3 Let me be clear, change needs to happen in the real economy. Consumers, governments, corporates all need to act. But, if the real economy does not make that change and we head down a path of increasing climate instability or disorderly transition, the financial sector will bear that risk. It is, in my view, self-evident that the financial system cannot diversify its way out of this risk. As the pandemic has revealed, the interconnections between the real economy and the financial system run deep. And just like Covid-19, climate change is a far-reaching, system-wide risk that affects the whole economy, from which the financial system is not immune. For the same reason, while individual investors can divest, the financial system as a whole cannot. Indeed, seemingly rational individual actions that delay the transition make our collective future problems much bigger. Given the scale of change required, we will simply not be able to divest our way to net-zero. Rather if financial risk is to be reduced, then the underlying climate risks in the real economy must be managed. And fixing this collective action problem is a shared responsibility across financial institutions and regulators. We need to work together to solve it. | Role of the Bank of England That brings me to the role of the Bank. Our work is focused on building resiliency to the risks from climate change into the financial system, so that it can steward the real economy to an orderly transition to net-zero. Being resilient means pro-actively managing climate risks and pre-emptively reducing them. This is central to the Bank’s mission. Indeed earlier this year climate change was made one of the Bank’s strategic priorities.8 I became the Executive Sponsor for the Bank’s work on climate change in 2016, at a time when there was only a handful of people at a handful of central banks working on climate-related issues. But since then the scope and depth of our work and that of other central banks has expanded significantly. We are working domestically and internationally with key stakeholders including government, industry, investors, regulators, and climate scientists to further this critical agenda. 8 Bank of England Annual Report 2020 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Climate action at the Micro-level: Disclosure and Risk Management So what are we asking financial firms to do? Put simply, they need to make financial decisions that take the risks and opportunities from climate change into account. The first step in achieving that is to have the right information. That is why the Bank has been making the case for some time for consistent, comparable, and comprehensive climate disclosures. | 1 |
But a bank’s goal should be to provide service to its customers through financial intermediation, as Mark Carney has explained so eloquently. 6 Christine Lagarde sees this as a 4 Cf. E. Gerald Corrigan, Are Banks Special? Federal Reserve Bank of Minneapolis Annual Report, January 1983, (“[T]he presence of the public safety net uniquely available to a particular class of institutions also implies that those institutions have unique public responsibilities and may therefore be subject to implicit codes of conduct or explicit regulations that do not fall on other institutions.”). 5 See Thomas C. Baxter, Jr., Reflections on the New Compliance Landscape, Remarks at “The New Compliance Landscape: Increasing Roles – Increasing Risks” Conference, July 24, 2014. 6 See Mark Carney, “Inclusive Capitalism: Creating a Sense of the Systemic,” Address to the Conference on Inclusive Capitalism, May 24, 2014. BIS central bankers’ speeches 3 question of animating purpose – of “telos” – and I agree. 7 Similarly, the Archbishop of Canterbury, Justin Welby, has called for financial institutions to reset to the first principle of service, playing a role in the world that contributes to “human flourishing.” 8 If you don’t believe me, listen to the Archbishop: It is possible to do good and do well at the same time. And remember one of attributes that attracts the best and the brightest to an organization is the prospect of quality work. | Jean-Claude Trichet: Structural reforms for the European economy Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Forum ABC, Madrid, 15 February 2008. * * * Ladies and gentlemen, I would first like to thank very warmly the organisers for inviting me to speak here today in the context of the series of conferences organised by the “Forum ABC”. In my intervention I would like to share with you my views on “Structural reforms for the European economy” and on the importance such reforms have for job creation and productivity growth. This is indeed a major policy issue and, I believe, a topic of great interest to everyone here too. After all, high employment and high productivity levels are the key preconditions for a high level of real income and living standards in our societies. If we look back over the last decade, employment growth has been strong in the euro area and even more so in Spain. However, over the same period, labour productivity growth decelerated significantly in the euro area and in Spain in particular. A key challenge therefore is how to simultaneously achieve solid employment and productivity growth. It is well-established in the economic literature that structural reforms and institutions are among the main factors that explain the different performance of per capita income growth across countries over the medium to long term. | 0 |
Macro prudential policies in EMEs are even more important than before due to the divergent monetary policies in AEs. 6 BIS central bankers’ speeches The Central Bank of Turkey’s roadmap of policy actions before and after global monetary policy normalization The Turkish economy has shown a relatively robust performance in the face of major external and internal shocks. GDP growth is estimated at around 4 percent in 2015 with an expected gradual strengthening of economic activity in 2016 and in 2017 (Figure 12). The rise in GDP growth rate observed in 2015 is mostly attributed to strong private consumption. Private investment recorded a moderate recovery. The challenging external conditions especially geopolitical events in the region have adversely affected exports. However, the economic recovery in most EU member states enabled Turkey to largely compensate its loss in other exports markets as Turkey increased exports to the EU countries by more than 10 percent in euro terms in 2015. This outcome also highlights Turkish exporters’ resiliency in adopting to adverse economic conditions. Of course, probably the most significant development of the last year or so has been the sharp decline in oil prices. Turkey, being an energy importing country, benefited from lower oil prices in many dimensions. The current account deficit fell from $ billion in June 2014 to below $ billion in November 2015 in 12 month cumulative terms. This sharp improvement in the current account balances has also been greatly helped by prudent macro-economic polices including monetary, macro-prudential and fiscal policies. | Efforts are now underway to address many of the shortcomings in the financial infrastructure that have contributed to the crisis. With the worst of the crisis now seemingly over, attention has turned to strengthening the global financial system. There is now an even greater need to restore confidence in the integrity of the global financial system given the loss of trust between society and the financial sector particularly in advanced economies . At the core of this reform agenda is the development of a new financial regulatory framework that would be more effective, one that is premised on greater emphasis on ethics, fairness, and accountability and that promotes global economic, social and environmental sustainability. It also needs to be anchored on a sensible balance of supporting growth while maintaining financial stability , and one founded on greater international coordination of regulatory approaches and supervisory oversight with a crisis management framework that will reduce systemic risk, and the severity of any such future financial crises. Given the scale and magnitude of this recent crisis, the global regulatory reform being shaped is wide-ranging. Bold measures are being developed in various international forums with fundamental changes to the current approaches to financial regulatory and supervisory oversight. Some of these reform proposals have attracted intense international debate generating divergent views on these issues. A broad consensus however is emerging on the need to raise both the quantity and quality of regulatory capital, strengthen liquidity rules and improve market transparency. | 0 |
European firms were lagging behind US firms in terms of foreign direct investment and they are now catching up. European firms have entered a “globalisation process” whereby they aim to reach a global size through acquisitions. BIS Review 61/2000 6 Conclusion Allow me to conclude. The euro area has adopted a sound macroeconomic policy and has embarked upon a fairly comprehensive programme of structural reforms. These reforms will still take time to be fully completed. But they are well underway and have already boosted economic growth, job creation and corporate restructuring. This move has been triggered by the creation of a monetary union and a vast unified financial market. I am impressed by what has been achieved during the past years and the National Central Banks as well as the ECB are strongly encouraging governments and businesses to foster structural reforms in the future. The euro exchange rate is clearly misaligned relative to euro area fundamentals (robust domestic growth, steady implementation of the single market, abundant domestic savings, healthy external accounts). This is the reason why we consider that the euro has a strong potential for appreciation. The Eurosystem, which is the guardian of the euro on behalf of the people of Europe, knows that our fellow citizens want the single currency to be at least as solid as their previous national currencies. In France, to give but one example, 96% of the population want the euro to be at least as solid as the franc. | I also have a number of specific remarks and views to make on the aspects of East Asian financial markets to be discussed in the next sessions. But for the benefit of time, I think I should leave them for later opportunity. For now, let me close by saying a little bit about the role of policy. Government policies, in my view, have played an important role in the current development of East Asian financial markets. The key policy, of course, has been the implementation of financial sector reform which has resulted in a much improved financial system, especially the banking sector. Policies have been directed at developing the region’s capital markets too, especially the bond market. Policy coordination has also been strengthened to increase regional financial integration and to develop a policy coordination framework that can help the region deal better with the likelihood of a crisis. I am referring here to the CMI or the Chiang Mai Initiative and its surveillance process. But while policies have been important, the process of financial market development in East Asia has essentially been left to the market, in the sense that the process is basically a market-driven one. But on account of what is perceived to be a slow progress, question arises whether policy should do more. My view is that the process should continue to be market-driven and not policy-driven. But there are areas that government policies can do more, especially on issues that involve efforts on a region-wide basis. | 0 |
Included alongside the two already mentioned are failure of climate-change adaptation and biodiversity loss.1 Thus, the transition towards a carbon-neutral economy is necessary, calling for the mobilisation of financial resources to facilitate the process. Funding the fight against climate change is one of the goals of the 2015 Paris Agreement, which set a target of $ billion a year to be mobilised by the developed countries starting in 2020, with a view to increasing this amount before 2025. In terms of public investment, the Sustainable Europe Investment Plan, which forms part of the European Green Deal, envisages the mobilisation of at least € trillion in sustainable investments through the EU budget over the coming decade, to advance towards the goal of ensuring a carbon-neutral economy by 2050. 1 See WEF (2023). The Global Risks Report 2023 18th Edition, January. In the EU's recovery plan Next Generation EU (NGEU), 37% of the € billion Recovery and Resilience Facility is being spent on climate-related objectives. Moreover, an overall climate target of 30% applies to the total amount of expenditure from the long-term EU budget for 2021-2027. The European Commission will issue green bonds to finance part of the NGEU funds. According to the first report on the allocation of funds,2 823 projects will be financed for almost € billion, around one-third of the total NGEU funds. Clean transport and infrastructure will be the biggest recipients of these funds (accounting for 55.6%), followed by energy efficiency (33.4%). | But to develop and manage such an app, a bank has to assemble a highly skilled and diverse technology team: product owners – who create the vision for the app and work with business and tech teams to deliver it; business analysts – who work with customers to understand their requirements; system and security architects – who design the app based on its security, data, and infrastructure requirements; API designers – who develop APIs that provide and pull data from various financial institutions onto the app, taking into consideration data security; UI/UX designers – who design the look and feel of the app to provide a good user experience, such as minimising the number of clicks to perform an action; so ware developers – who write the programmes that underpin the functionalities of the app and seamless integration across its different components; testers – who ensure that the app performs according to the requirements; production supporters – who monitor the performance of the app, manage incidents, and ensure timely resolution of issues; and data analysts – who analyse app usage statistics and customer feedback, in order to recommend improvements to the app. Let me catch my breath here. The multitude of technology talent needed to develop and manage just this one single product is staggering. The technology workforce in our financial sector is an estimated 25,000; 30% more than in 2014. Singaporeans make up just over one-third of this workforce. | 0 |
Employment has been under-estimated in both cases, that is, the outcomes have on average been higher than in the forecasts. Productivity has also been under-estimated both one and two years ahead. Productivity has a bias of around one tenth one year ahead and just under seven tenths two years ahead. We have thus made a relatively large under-estimation of productivity growth two years ahead.8 With regard to the annual change in inflation measured as the CPIX, the forecasts have on average been almost three tenths lower than the outcomes one year ahead. However, the forecasts two years ahead have on average been two tenths higher than the outcomes, which can be regarded as a minor deviation. What conclusions can we draw from this? The bias is relatively small for most of the variables. There are no clear signs of any systematic errors in the forecasts, with the possible exception of productivity. The rate of increase in productivity has been systematically under-estimated during the period. However, it should be added that none of the variables has any statistically significant bias. Comparison with other forecasters The study has also compared the Riksbank’s forecasting errors with the National Institute of Economic Research (NIER) and Consensus Forecasts panel, a compilation of forecasts from a number of different forecasters. It is clear from the study that the Riksbank’s forecasts for GDP growth have been among the best compared with other participants in the Consensus panel (Figure 11). | [4] Faberman, R J, Mueller A I and Sahin, A (2022), “Has the Willingness to Work Fallen during the Covid Pandemic?”, NBER Working Paper, 29784. [5] IMF (2023), “Staff Discussion Notes: Geoeconomic Fragmentation and the Future of Multilateralism”, The International Monetary Fund, January 15. [6] Goes, Carlos., and Eddy Bekkers (2022), “The Impact of Geopolitical Conflicts on Trade, Growth, and Innovation”, World Trade Organisation, July 4. [7] Source: Bain and Temasek, with contributions from Microsoft, Southeast Asia’s Green Economy 2022 Report: Investing behind new realities | 0 |
So for example, in the most recent fielding of our survey, the panel was asked: 4 BIS central bankers’ speeches In your view, what would you say is the percent chance that the following things may happen to the rate of inflation/deflation over the one-year period between February 2013 and February 2014? Chart 6 gives you the question in full. We have been fielding the forward inflation expectation question since spring 2008, and Chart 7 contains some time-series information from the responses. We use established statistical techniques to estimate continuous probability distributions from each individual set of responses. We then find the median of the medians of the individual distributions to represent the average forward expectation and the upper and lower quartiles of the individual medians to measure disagreement across respondents. For our measure of uncertainty we report the median of the individual inter-quartile ranges. As a complement to attempting to improve the measurement of household forward inflation expectations, we have also been investigating expectations about wage growth. Because firms and workers may negotiate changes in wages to be in line with their expected rate of inflation, data on wage expectations are an additional information source for analyzing inflation dynamics and the interaction between wage and price determination. Furthermore, discrepancies between expected changes in wages and expected inflation may affect households’ financial decisions. Despite the obvious importance of wage expectations, information on wage expectations is particularly scarce. | Simon M Potter: Improving survey measures of inflation expectations Speech by Mr Simon M Potter, Executive Vice President of the Federal Reserve Bank of New York, at the Forecasters Club of New York, New York City, 30 March 2011. Wilbert van der Klaauw, Giorgio Topa, Robert Rich, Olivier Armantier, Basit Zafar and Joseph Tracy. The results from the New York Fed–American Life Panel Survey I will discuss today reflect data collected through mid-March 2011. Papers containing more detail on the research I have summarized today can be found on the New York Fed website. * * * Good afternoon. It is a pleasure to be here today to talk with you about some of the New York Fed’s ongoing research on the measurement of household inflation expectations. The views expressed are mine and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. That said, I want to acknowledge my colleagues in the Research Group who have pushed our research on inflation expectations forward. Expectations, and in particular inflation expectations, play a key role in the conduct of modern monetary policy. Expectations drive people’s behavior by influencing a wide range of economic decisions such as saving, investment, purchases of durable goods and wage negotiations. These decisions in turn affect real economic activity and actual inflation. | 1 |
Similarly, the insurance and risk management markets will have to be developed further to meet corporate and individual needs. There is already a momentum, with capital markets in China, India and ASEAN economies developing well. In bigger economies, micro-finance, mobile finance and rural finance are also being developed. Cross-border financial activities within Asia are also showing signs of increase. These are positive changes, as the development of a deep and integrated financial system provides a vital support for structural adjustments in the region. Economic and financial linkages between France and Singapore Let me now say a few words on how Singapore is responding to these challenges, and how the French business and financial community can collaborate with those in Singapore to promote growth in Asia. The Singapore government has set up an Economic Strategies Committee to identify policy changes to strengthen Singapore’s value as a vibrant global economic node in the heart of Asia. Singapore’s connectivity enables it to facilitate the flow of goods, services, capital and ideas. The value of Singapore as a stable, trusted hub that respects the rule of law, and its value as a consistent regulatory regime are our core strengths. But these will need to be enhanced with new capabilities in knowledge creation and innovation, as well as the development of deeper talent pool, in order for the business community to seize new opportunities. The connectivity and ease of doing business is well acknowledged by global businesses. Today, over 26,000 international companies use Singapore as a base for their operations. | Ravi Menon: Decentralised finance and the future of money Panel remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Andrew Crockett Memorial Lecture by Mark Carney, via Video Conference, 28 June 2021. * * * Thank you for the opportunity to engage on Mark Carney’s deeply thoughtful lecture. Mark has given us a powerful rendition of the transformation taking place that will “re-wire” our monetary and financial systems. Centrifugal forces are driving financial functions away from the traditional core. These forces are not just affecting money, but all aspects of the monetary system. Mark also reminds us that, amid this transformation, money has to be anchored on “values of trust, resilience, dynamism, solidarity and sustainability”. I cannot agree more. I’d like to focus on: the decentralisation of finance across the three ‘I’s of the monetary stack — intermediaries, infrastructure, and instruments; and how central banks and regulators can potentially shape this decentralisation in a way that upholds the critical values of money that Mark has highlighted. Let me begin with Intermediaries, at the top of the monetary stack. The delivery of retail financial services is being decentralised. This is happening in two ways. First, finance by non-financial players. There is now a much broader range of non-traditional – and often unregulated intermediaries in the retail finance space. This is not just BigTechs, but also FinTechs and smaller technology firms. These players provide payments, lending, savings and investments as complements to their core digital service. | 0 |
From the building of the foundation of legal, regulatory and shariah framework, the Islamic Banking Act (1983) to the formation of the first Islamic bank and Takaful Company to instituting Islamic windows concept for banking institutions and encouraging competition amongst the Islamic financial institutions in the nineties (1990s), to establishing key infrastructures and institutional arrangements such as the Shariah Advisory Council and the Islamic Money Market, we are on a mission to be the center for Islamic finance. Today we have a comprehensive system for Islamic finance but as you would expect, because of competition and the fast changing pace of the banking industry, we must continue to strive to maintain the lead in this industry. There are a few pre requisite to maintain this competitive edge. It is the ability of the industry to meet the evolving and discerning needs of the users of Islamic finance and the ability to meet those needs in a timely and comprehensive manner. The solutions to customer needs must be as innovative and competitive as any other alternatives offered by the financial market. The shariah aspect of the products must be recognized and accepted by the majority of players practicing Islamic finance. The supply and ability to attract and retain talent, not only in shariah area and Islamic finance, but also those who are conversant in IT, legal, accounting, risk management and communication. The next level of development will probably entail the enhancement of linkages between various centers, be it in the financial markets, credits or investment of funds. | When we embark into this journey during the early 1980s there was no precedent to follow. We did not wait until we were 100% sure or until we were sure we could tackle all the possible issues that might arise. Some might say that this is a “trial and error” method. But history has taught us that many break through ideas and solutions originated from this approach. The willingness to try new things and the ability to move on should an idea doesn’t work is an important attribute. It pays over the long run. The willingness to use existing resources that had served the financial system well is another contributing factor. Malaysia has already in place an efficient custodian, payment and settlement system, the principal dealership system, the real time gross settlement system and the process of tendering of government securities. All this has a proven track record of being effective and efficient. We avoid “reinventing the wheel” because it is costly, time consuming and risky if we create an entirely new approach. We adopt and adapt with the existing system so long it does not contravene any shariah principle or requirement. Willingness of shariah scholars to practice ijtihad is another contributing factor. The courage to set a precedent and the resolve to agree to a new concept never done before. | 1 |
Growth is projected to stabilise in the second half of the year, and to remain stable in 2024 and 2025, underpinned by a recovery in real disposable income thanks to the anticipated easing of inflation, rising wages and resilient employment. Conversely, the tightening of monetary policy will exert increasing downside pressure on economic activity. All told, GDP is projected to grow by 0.9% in 2023 and by 1.5% in 2024, with both figures revised down by 0.1 percentage points (pp) compared with the March projections. The GDP growth forecast for 2025 is unchanged at 1.6%. Inflation declined further in May (to 6.1%), with a zero contribution from the energy component. Meanwhile, food and services prices have barely dropped from their recent alltime highs. Underlying inflation stood at 5.3% in May and has shown greater downward stickiness than expected a few months ago. The Eurosystem projections point to a gradual reduction in inflation as a result of base effects, the expected gradual moderation of energy and food prices and their progressive pass-through to underlying inflation. These factors should offset the mounting pressure from wages. Profit margins, which grew in recent quarters, are expected to moderate over the projection horizon. Overall, inflation is forecast to stand at 5.4% in 2023, to subsequently ease to 3% in 2024 and 2.2% in 2025. These inflation projections are similar to the March ones. | In fact, reflecting the complexity and 2/6 BIS - Central bankers' speeches exhaustiveness of this text, it is now heading for a February slot before the European Parliament, which is expected to give its final endorsement. From then on the clock will start ticking on what will most likely be a profound game changer for this industry. Contributing to shaping the regulatory framework, as we have done with MiCA, is probably the most straightforward way to deal with new developments. Nevertheless, it may not be enough to avoid certain undesired effects, and crypo-assets are a good example in this regard. Let us imagine what would happen if stablecoins denominated in a currency other than the official one were extensively used. They may not pose risks to the financial system, if properly regulated and supervised, but this situation could introduce fragmentation, undermine the role of central bank money as monetary anchor, and, ultimately, bring instability and hinder monetary sovereignty. Therefore, central banks need to stand ready to take additional measures, if needed, which leads me to the second part of my address. The Eurosystem experience in developing and providing a digital euro One of the additional measures that could be adopted to respond to the challenges raised by financial innovation is the development of a retail Central Bank Digital Currency (CBDC). | 0 |
We live in a small open economy and are forced to import inflation through our purchases of necessities from abroad. Because of this, we must trust that our trading partners will take decisive action to bring inflation down within their own borders. Iceland is now reaping the rewards of the ironbound policy formulated during its reconstruction following the 2008 financial crisis - a policy that insisted on a secure financial system with strong lines of defence against external instability. Icelandic banks have extraordinarily strong capital in historical and international context, and they are under close financial supervision. Moreover, the news from abroad confirms that merging the Central Bank and the Financial Supervisory Authority back together at the beginning of 2020 was the right decision. The merger and, in particular, the increased power the Bank has been granted in the area of financial stability have been of vital importance in ensuring that the current fluctuations in demand, interest rates, and financial conditions do not give rise to a credit bubble or excessive risk-taking in the financial sector. Iceland carries very little household, corporate, or government debt in comparison with other countries. It is clear that these conditions provide monetary policy with full flexibility to act. There are no handcuffs here. Honoured guests: I don't know whether any of you have gotten lost in the fog, found yourselves going around in circles, and been convinced that water flows upstream. I have never gotten lost in the Icelandic outback, but I have often done so in foreign megacities. | This position is unique, at the very least for two reasons: The first reason is that Bulgaria is the only country in the European Union, which is a member of the European Banking Union, a key institution of the euro area, but it is not a member of the euro area itself. The second reason is that Bulgaria is one of the two countries in the European Union, together with Denmark, whose currency has joined the European Exchange Rate Mechanism, which many observers describe as the euro area "waiting room". The preparedness of the Central Bank and of the banking sector to operate under the conditions of the euro area, as well as the stability of the exchange rate are actually two of the most important requirements for a country to enter the euro area. These requirements, in the case of Bulgaria, have already been met. As you know, in 2020 Bulgaria become a full member of the European Banking Union. Ever since our currency has been part of the European Exchange Rate Mechanism. By virtue of our membership in the European Banking Union and in its key mechanisms, the Single Supervisory Mechanism and the Single Resolution Mechanism, the Bulgarian National Bank takes part in making the most important decisions related to the supervision and resolution of the banks in the euro area, plus of course the banks in Bulgaria. | 0 |
While monetary policy was strict in the sense that both nominal and real interest rates were kept at a high 2 BIS Review 21/2006 level to protect the krona, at the same time credit regulations were abolished in 1985, which led to a huge credit boom that increased demand and pushed up property prices. The excessive price and wage increases led to Sweden's cost level once again deteriorating substantially in relation to other countries. At the end of the 1980s, relative costs per produced unit had increased to the level prevailing prior to the devaluations at the beginning of the 1980s and we once again had problems with the twin deficits in the current account and public finances. The problems were aggravated by an international economic downswing at the beginning of the 1990s and by the fact that household saving increased considerably after the tax reform implemented at the beginning of the 1990s. The property bubble that had arisen in the wake of the deregulation of the credit market burst, which resulted in the whole of the Swedish banking system being on the verge of bankruptcy in 1992. Large currency flows in autumn 1992 made fiscal policy spending cuts necessary and led to a powerful defence of the Swedish krona by the Riksbank with interest rates creeping up in stages. In the end, it was necessary to give up. The krona was allowed to float, leaving the peg against the ecu in November 1992, and it depreciated by 20-25 per cent. | The calculations indicated that industrial production and investment would increase, public finances would improve, the current account deficit would disappear, employment would increase and unemployment would be kept down. After Kjell-Olof Feldt had made contact with the Nordic finance ministers and central bank governors, as well as the German central bank governor, the size of the devaluation was altered to 16 per cent and the planned pegging of the krona to the German D-mark was postponed indefinitely. I had reason to return to these calculations later on during the 1980s and I could observe that they were pretty accurate on most points, except with regard to price and wage developments. I had assumed that inflation and wage increases would adjust downwards to the international level. For devaluation to be successful, price and wage developments must be kept down after the devaluation. However, this was not the case. Sweden had an inflation rate much higher than that in Germany every year of the 1980s. Economic policy was not sufficiently strict during the 1980s to keep down price and wage increases after the devaluations in 1981 and 1982. Although public sector finances improved substantially, this was primarily due to automatic improvements resulting from a number of years of good growth. | 1 |
The increase in the number of banks, branches and their agencies, as well as the growing number of bank employees have caused the coverage of the population to improve significantly. Thus, the number of inhabitants per bank, banking unit and per bank employee has decreased considerably. 2 BIS Review 101/2006 Table 2: Coverage with banking services 2003 2004 2005 2,236 2,816 3,479 161 188 250 149 176 217 13.9 15 13.9 bank 206,851 194,971 184,410 banking unit 20,815 16,593 12,539 bank employee 1,388 1,108 901 Number of employees Number of branches, agencies Number of employees per: bank banking unit 1 Number of inhabitants per : Table 3: The expansion of the banks’ network by the end of the 9-month period of 2006Banks Nof No. Banks No. of Branches No. | In May and June we saw what could happen if expectations of a less expansionary monetary policy course become widespread in the market. At that time, the announcement by the US Federal Reserve of a possible reduction in its bond purchase programme caused share markets to plunge temporarily. The wave of selling did not recede until the beginning of July, when the Federal Reserve, the European Central Bank and the Bank of England reassured markets that key rates would remain at very low levels until the recovery of the individual economies was on a firm foundation. On bond markets, interest rates continued rising in June and July. Since then, they have largely moved sideways. This applies to US, UK, German and Swiss government bonds, in particular. Until the beginning of September, yields on ten-year Confederation bonds rose to almost 1.2%. They are currently at around 1%, which means that they have increased by about half a percent year-on-year. Government bonds in the emerging economies were particularly strongly affected by the rise in interest rates, since the expectation of an impending monetary policy normalisation in the US led to significant capital outflows from these countries. By contrast, risk premia on government bonds for the peripheral euro area economies did not increase very much. Moreover, these risk premia have fallen again in the meantime so that returns on government bonds in the peripheral economies are now in fact lower than at the beginning of the year. | 0 |
It may be that Sweden, Denmark and the UK will have to discuss their future relationship to the euro at the same time as the euro area expands to include half a dozen new countries. The Central and Eastern European countries will also have to weigh the long-term gains of adopting the euro against the risks of asymmetric shocks. The advantages for these countries are perhaps even clearer than for Sweden. Particularly substantial gains may arise from increased financial integration through the euro. Thanks to the fact that banks from EU countries have acquired large sections of the banking system in eastern Europe, the financial sector there has been able to evolve relatively quickly. But the new Member States’ financial systems are still rather undeveloped, with credits in relation to GDP of between one-eighth and one-quarter of that in the euro area. Sweden’s Baltic neighbour Estonia is one example of how currency integration can help the financial system to evolve. The Estonians have pegged their currency to the euro for over a decade and are keen to quickly take the step into monetary union. Their banking system is owned by Swedish-Nordic banks and credit volumes are growing by 20-30 per cent a year - most of which is denominated in euro. In some countries, the euro can also help to cement the macroeconomic discipline that is still a relatively new phenomenon there. | The experiences of many countries, including Sweden at the beginning of the 1990s, show that the foreign exchange market should not be deregulated until the banking system has been reformed. Could China not revalue then and adapt the exchange rate to its trade surplus without floating its currency? In my opinion, this would not be such a wise decision either. It is wrong to attribute China’s trade surplus with the US to the currency issue. The surplus is probably best explained by the cost advantages enjoyed by Chinese producers in labour-intensive goods compared with the US. China’s trade surplus can be seen as a natural consequence of the division of labour within the Pacific region where China’s position as supplier and sub-supplier of low value-added goods is highly favourable for US productivity. This is a segment in which the Chinese compete with very few US producers, which is why an exchange rate adjustment would have only a marginal impact. In actual fact, an excessively large one-off adjustment would be required to have any effect at all on the US-Chinese trade balance. Such a large correction would in turn give rise to problems for Chinese trade elsewhere. It is with the US that China enjoys a large surplus, while the trade balance is close to zero or is negative with many other areas, including the euro area. This picture is confirmed by many fundamental analyses of an equilibrium exchange rate for China, which come relatively close to China’s fixed exchange rate today. | 1 |
The credibility provided by the inflation target is a prerequisite for monetary policy to be able to respond so aggressively to the fallout from the crisis. And with inflation being above target almost consistently over this period, it is hard to argue that monetary policymakers have somehow been fixated by inflation. But the forward guidance provided by the MPC makes that support explicit. The primary objective of monetary policy remains the 2% inflation target. The sanctity of that objective is guarded by the two price stability knockouts. But subject to those knockouts and the knockout pertaining to financial stability, our guidance clearly signals the Committee’s intention to maintain a highly stimulatory stance of policy until the economy returns to something closer to normality. Abstracting from the precise details of the thresholds and knockouts, the message to businesses and families should be clear. The MPC intends to keep interest rates low until we have seen a sustained period of strong growth, rising incomes and higher employment, as long as that does not pose risks to either price stability or financial stability. To be clear: that is no different to the approach underlying our policy over the past five years. But forward guidance provides a framework and a language in which that intention can be made plain. A closely related issue is the policy trade-off currently faced by the MPC. | Spencer Dale: Inflation targeting and the Monetary Policy Committee’s forward guidance Speech by Mr Spencer Dale, Executive Director, Monetary Policy, and Chief Economist of the Bank of England, at the International Journal of Central Banking Annual Conference, “Inflation targeting and its discontents”, Warsaw, 6 September 2013. * * * A central theme of this conference has been to highlight potential shortcomings of inflation targeting and to consider potential alternatives. I believe that the traumatic events in the UK economy over the past five years have, in fact, strengthened the case for inflation targeting. The credibility of the inflation target has played a crucial role in anchoring inflation expectations over the past five years, a period in which inflation has been consistently above target. That credibility has been vital in giving the Monetary Policy Committee (MPC) the flexibility to loosen monetary policy aggressively in order to support growth and jobs. But while it has not constrained the MPC’s freedom to act in support of the economy, the inflation target, on its own, has proved less well suited to addressing some of the exceptional communications challenges posed by the sustained combination of weak growth and elevated inflation. I would highlight two in particular: the need to make clear the central role that monetary policy has played in supporting output and employment; and the need to provide guidance about the Committee’s view of the appropriate trade-off between bringing inflation back to target and stimulating the recovery. | 1 |
The changes that the Central Bank implemented at the beginning of March concerning repurchase agreements had two components. On the one hand, the definition of the collateral that qualified for repurchase agreements was widened to include again, after an intermission, all market listed government guaranteed securities and central bank certificates of deposit. The purpose of this change is to level the positions of the various government securities, as varying positions in regard to liquidity transactions with the Central Bank can influence their relative market yields. It is clear that such limitations do not exist among Iceland’s neighbours. In addition, the stock of outstanding Treasury bills has shrunk in the recent period, which has caused a shortage of these bills for deposit banks to use in their repurchase agreements with the Central Bank. The other change is, as mentioned before, that the practice of offering repurchase agreements on tap has been abolished and replaced by a weekly auction of the agreements, as is done in many industrial countries. The Central Bank can at its discretion choose to auction reverse repurchase agreements instead of straightforward repurchase agreements. Neither of these changes alters the course of monetary policy. However, they did have the effect of reversing the rise in money market rates that had occurred in January and February, when the interbank rate rose to 8.3 percent because of the shortage of Treasury bills on the market. | Only if the krona were abolished and replaced as legal tender by the euro, in a similar manner as Panama and Liberia have done with respect to the dollar, would exchange rate risk and the associated interest rate risk premium disappear. However, it is good for thought that no country with its economy in good order has chosen this path. Seignorage then accrues to another country or group of countries and all influence over monetary policy is surrendered. Nor is it clear that such a path would be acceptable to the European Central Bank. Participation in the Monetary Union would be a preferable option to adopting the unions currency unilaterally as this would allow for a share in seignorage and give the possibility for influencing monetary policy decisions. This would, however, require membership of the European Union as I mentioned earlier and any decision in that regard of course concerns wider issues than only monetary and exchange rate arrangements. This is of course a very general analysis of the options we face, but nevertheless shows that the issue is more complicated than we are sometimes led to believe. All the alternative options have strengths and weaknesses. Also, future developments and what will actually be on offer are still in doubt. One reason is that the European Monetary Institute, the precursor of the European Central Bank, has not been empowered to discuss linkages with any non-member of the European Union. The task of preparing Monetary Union has been more than sufficient. | 1 |
On the other hand, the uncertainty over developments in the labour market, lasting imbalances in savings and volatile stock market developments comprise a continued risk factor in the forecast. There are also signs that the industrial sectors in many other OECD countries are entering a phase of recovery. One particular risk factor in the developments is, in my opinion, that equity prices have been pushed up in the USA, given the economic situation. At the same time, the degree of indebtedness in the private sector remains relatively low. The low real interest rate entails risks for future developments in asset prices, particularly for the stock market. These risks need not be impending in the current situation, but the problems could become tangible in a couple of years’ time. This means that there is a risk that economic policy, which is very expansive in order to avoid a strong downward spiral, would postpone the adjustment of imbalances in the economy. Some parallels can be drawn with the events that took place after the crisis in 1987, when a financial bubble recurred. A further example of an asset bubble way back in time is what happened in the USA in 1927. At that time, the US central bank pursued an expansive monetary policy in order to stabilise the gold standard. This contributed to an over-valuation of assets and later to the crash in 1929. | As can be seen in the minutes of the Executive Board meeting on 7 February 2002, I entered a reservation against the decision to leave the interest rate unchanged. I would rather have seen an increase in the interest rate of 0.25 percentage points, which is not any severe tightening of policy, but should rather be seen as not stepping so hard on the gas. 6 BIS Review 13/2002 | 1 |
In Spain’s case, in a setting in which the state of alert affected the last two weeks of Q1, we witnessed the biggest-ever contraction in GDP historically in a single quarter, namely a quarter-on-quarter rate of 5.2%. This decline was one of the most pronounced in the euro area, and was in response to several circumstances. These included a relatively greater severity of the lockdown measures (given, too, the greater intensity of the pandemic) and the presence of certain structural factors in our economy that make it more vulnerable to a shock of these characteristics. The most significant factor here is perhaps the high weight of the tourism-related sectors, which have been particularly affected by the social distancing measures. The reduction in hours worked, estimated at 5% in Q1, was also the biggestever in the time series and highlights the marked impact of the various measures affecting movement on the labour market in the early stages of this crisis. Admittedly, the restrictions on movement were gradually eased as from early May. But the state of alert ran for much of Q2, whereby a notable increase in the decline in GDP and in employment in this period is to be expected. The latest Banco de España macroeconomic projections, published in June against a background of unusually high uncertainty, posted estimates of quarter-on-quarter declines in activity in a range between -16% and -21.8%. And the information since available tends to confirm that the decline in economic activity in Q2 as a whole will have been in this range. | According to the draft agreement, the legal spending commitments attached to the projects included in Next Generation EU shall be made, at the latest, by 31 December 2023, and the related payments will have to be made effective, at the latest, by end-2026. More specifically, 70% of the transfers should be committed during the 2021-2022 two-year period, with a country-based distribution factor that depends on the unemployment rate in 2015-2019, population and the country’s per capita income. The remaining 30% must be committed before end-2023, and the distribution factor will be adapted to incorporate more directly the heterogeneous impact of the health crisis. Thus, the unemployment rate will be replaced by a variable that will weight, in equal portions, the decline in GDP in 2020 and the cumulative decline in GDP in 2020-2021. In sum, the fund will enable, at least in part, a balance to be struck between the potential and real financial divergences among the European partners. This is because it will benefit from the positive externalities arising from joint action and it will serve to engineer a coordinated exit from the crisis, based on common budgetary instruments. The financing of the fund through Community debt will benefit from the favourable low-interest-rate environment and will prevent this new debt being assumed by Member States individually, under conditions which, in some cases, would be foreseeably more unfavourable than those 4 which are expected to be applied to this pooled instrument. | 1 |
Under this regime, it is the investor who ultimately decides whether to purchase a product that entails risks higher than the risk profile generated through the suitability assessment. But in the process we expect a bank to take due care and diligence in protecting its customers’ interests. In this connection, it may be useful for me to refer to a recent disciplinary case handled by the HKMA to demonstrate what a bank should not do to its customers. This is what happened. A bank staff managed to sell an investment linked assurance scheme, or ILAS, product to a woman who had no prior investment experience. Her monthly income was less than $ and her total life savings was $ The product would require her to pay a premium of $ per year for a total of five years. In other words, the total premium would be $ million, which was four times her life savings or 18 times her annual income. When the customer found out, after the end of the first year, that her life savings had been wiped out through the payment of premium and that she needed to make the second annual premium payment of $ she not unnaturally wanted to get out of the investment. At that point she found out that, according to the investment terms, she would have to suffer an early termination penalty amounting to 30% of the value of her investment, which is roughly equivalent to her income for one year. | Second, a set of resolutionrelated reforms are intended to limit the consequences to the financial sector if a failure by such an institution still were to occur. Given the limited time on this panel, I will not review in detail the post-crisis comprehensive capital and liquidity framework that the Federal Reserve has put in place. However, from the perspective of addressing too big to fail, it is important to highlight the Federal Reserve rule finalized this year that imposes risk-based capital surcharges on the handful of U.S. global systemically important banking organizations (GSIBs). Under this framework, a GSIB’s riskbased capital surcharge will reflect the degree to which its failure would impact the financial system. In effect, the risk-based capital surcharge confronts each U.S. GSIB with the choice to either reduce its systemic footprint or instead to hold more capital. The policy approach to too big to fail recognizes, of course, that we can reduce but cannot completely eliminate the possibility of a large financial institution’s failure. Therefore, a second aim of our post-crisis reforms has been to limit the adverse consequences that would result if a large financial institution were to fail. That is, large financial firms need to be capable of being successfully resolved without creating unacceptable collateral damage to the rest of the financial system and to the economy. | 0 |
In addition, active and widespread use of foreign currency hedging instruments is also beneficial to mitigate the negative knock-on effects from exchange rate volatility. Liberalization of outward investment by domestic investors also helps promote more balanced capital inflows and alleviate upward pressure on the exchange rate. These international asset holdings can provide a buffer when domestic market faces rigorous tests of volatility. Nevertheless, liberalization needs to be well planned, timed, and sequenced in order to ensure that its benefits outweigh costs. The appropriate degree of liberalization for a country at a given time depends on its specific circumstances, notably its financial and institutional development. More stable and long-term flows, particularly direct investment flows, should be liberalized prior to short-term portfolio flows, which are more volatile and sensitive to cyclical factors. In October 2012, the BOT launched the Capital Account Liberalization Master Plan. This was part and parcel of our longer-term plan to facilitate Thai companies to diversify their investments abroad, especially in neighboring countries. This would encourage private companies to operate their businesses more efficiently by expanding their markets and production bases. In turn, such diversification will help strengthen their competitiveness and absorptive capacity. At the other end of the spectrum, limiting leverage in the banking system would add more cushions to the economy against external shocks. Last but not least, developing fundamental economic strengths to enhance countries’ resiliency to external shocks can work through well-diversified export items focusing on high value-added products. | The exchange rate management framework focuses on mitigating short-term excessive exchange rate volatility and ensuring alignments with economic fundamentals in the medium to long term. Exchange rate flexibility constitutes the primary buffer to cushion the effects of capital flow volatility. In the case that resulting movements in exchange rates are deemed excessive and unjustified by fundamentals, foreign exchange interventions can be undertaken. More controversial, but now increasingly accepted internationally as one of the policy options, are capital flow management measures (CFMs), aimed at directly curbing international financial flows via regulations and taxes. While there are clear economic rationales for CFMs, given the abundance of market inefficiencies and externalities, many countries tend to regard these measures only as a last resort. As such, reputation costs, asymmetric effects in managing outflows versus inflows, lack of long-term effectiveness, and limited room for calibration are but a few considerations that policy makers need to take into account. 2 BIS central bankers’ speeches Regarding foreign exchange rate interventions, we are always mindful of its costs and limited effectiveness. In particular, interventions against market views would employ large financial resources while yielding limited success, usually only to delay the pace of exchange rate movements. Active interventions under the inflation targeting framework regime may also have unintended consequences on policy framework credibility, as the central bank’s commitment to safeguard the overall macroeconomic stability may be called into question by the public. For this, consistent communications about monetary policy framework and stance would help increase central bank’s transparency and public understandings. | 1 |
I had a unique perspective on this event, witnessing its start when I was a finance minister and seeing it continue to unfold during my time as IMF Managing Director. This crisis produced the second lesson I would like to highlight, which was possibly easier to see when one was looking from the outside. It was clear early on that our monetary union was lacking a full set of institutions and needed to be strengthened. We became painfully aware that the euro area was particularly vulnerable to self-fulfilling panics. What became evident is that the perceived commitment of policymakers was a crucial variable in effective policymaking. Initially, we perhaps underestimated how important those perceptions are. It took time to realise that, in a period of high uncertainty, being seen as fully committed could shift financial markets between polar opposites – from working against us to working with us. That is why the crisis abated very quickly in 2012 when – within a few months – the Heads of State or Government agreed to launch the banking union and the ECB acted to remove unwarranted fears in financial markets. It became clear that our commitment to the euro was beyond doubt. The euro is, of course, irreversible. The lesson was also that, in times of crisis, the most important signal for policymakers is their determination to act. And this lesson was absolutely crucial when the pandemic hit us last year. | However, Romania had to choose between adjusting its external deficit by its own means or take foreign borrowings under unacceptable conditions. Romania adopted the former solution and subsequently signed an agreement with the IMF. Nevertheless, Standard&Poor’s, which had promptly downgraded Romania’s rating to one notch above a level which would have indicated external debt payment default – which had not occurred in the case of Romania – maintained this low rating for a long time, even after the crisis had been overcome band the country’s reserves had resumed growth. I reminisced this event that occurred ten years ago as I have been experiencing a particularly strong déjà-vu feeling during recent months. First came the bleak assessments of some foreign analysts, followed by the failed speculative attack against the RON. The next stage of the game was the downgrading of the sovereign rating to below investment grade, Romania being the only EU Member State in such a situation. Yesterday, I read another comment anticipating neither more nor less that Romania and Bulgaria risk a default on sovereign foreign debt payments even though most of the foreign debt stock is private. | 0 |
balance sheets Risk tolerance Private financial system Percentage of annual nominal GDP 120 120 110 100 110 100 90 80 90 80 70 60 Financial institutions - lending to private non-financial sector (a) 50 40 30 20 10 0 2005 Bank of England(b) 2008 2011 2014 Open for business 70 60 50 40 Unconventional Central banks MP 30 20 Normal conditions 10 0 2017 Liquidity crisis Degree of systemic stress Sources: Bank of England, ONS (a) Data as at February. Sterling net lending to non-financial corporations and household sector. (b) Data as at February. Final data point shows the latest published balance sheet data, at 29 February 2016, plus the increase in the loan to the Asset Purchase Facility since this time. The financial instruments underpinning these expansions tend not to be particularly complex when compared to those on commercial bank balance sheets. But the Bank of England has also accumulated material new contingent exposures, reflecting its much wider post-crisis range of policy responsibilities, and a more comprehensive liquidity insurance toolkit. The Bank’s new responsibilities for banking supervision, macro-prudential policy and resolution imply a range of potential new calls on its balance sheet. | Central banks are unlikely to come with anything as complex or potentially toxic as the CDO-squared or cubed! But as I have covered in some detail, central bank operations frequently pose complex risk issues of their own. Take the example of the collateral available to support our contingent lending for liquidity support, and how to estimate the central bank’s exposure to that. The closest this would get to in a commercial firm is a Potential Future Exposure (PFE) calculation. However most risk managers are used to considering PFE in the context of counterparty exposure through OTC derivatives instruments – which is challenging enough! But for us the underlying instrument is not a derivative product with a reasonable amount of pricing information available: it is a set of non-traded mortgage portfolios, which have to be marked to market today and at future points in time. So this is what we have to evaluate: a PFE where the underlying is a pool of marked-to-market mortgage portfolios lacking readily-available market pricing data. In response, we have had to develop robust valuation models linking observable macro-economic variables to potential exit prices, whilst being honest about the range of uncertainty around these estimates. And the Golden Rule applies in this case too – in the form of independent model validation by our own specialist risk supervisors. While central banks do not typically have a profit/risk tradeoff, they do have to trade off the risk taken against the policy objectives being pursued. | 1 |
Number of work permits in the UK, Ireland and Sweden issued to citizens of new Member States following the EU accession In thousands UK * Ireland** Sweden*** Total In % of workforce † Lithuania 44.72 26.37 0.37 71.46 4.4 Latvia 23.03 12.94 0.16 36.14 3.2 Estonia 4.68 3.39 0.36 8.43 1.3 Poland 204.90 70.14 2.16 277.20 1.6 Czech Republic 20.01 6.39 0.07 26.47 0.5 Hungary 10.35 3.83 0.20 14.37 0.3 Slovakia 36.36 10.93 0.09 47.38 1.8 10 HSBC “The Great Migration. How China’s 200 million new workers will change the economy forever”, HSBC Global Research, October 2005. 11 Chen N., Imbs J., Scott A. “Competition, Globalization and the Decline of Inflation”, CEPR Discussion Paper No. 4695, 2004. BIS Review 57/2006 5 *Source: Accession Monitoring Reports, http://www.ind.homeoffice.gov.uk. The data include the period between May 2004 and December 2005. NBP calculations. **Source: Skills needs in the Irish economy: The role of migration, A submission by the Expert Group on Future Skills Needs and Forfás to the Minister for Enterprise, Trade & Employment, http://www.skillsireland.ie. The data include the period between May 2004 and August 2005. ***Source: Migracje specjalistów wysokiej klasy w kontekście członkostwa Polski w Unii Europejskiej. Centre for Migration Research, Warsaw University. | Towards the end of 2011, with a decision unprecedented in the history of the euro, the ECB’s Governing Council decided to conduct two three-year refinancing operations. At the end of February, or when the second three-year operation was completed, the net increase in loans granted to counterparties was around € billion. The motivation for the two operations can be summarised by the following strategic view. A central bank is mandated with the crucial task of ensuring the sufficient supply of liquidity to sound bank counterparties in return for adequate collateral. In normal times, “sufficient liquidity” means a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other independent factors which explain the growth over time in the demand for money. In times of increased financial instability, “sufficient liquidity” indicates a volume of available central bank money which avoids the risk that – under such market conditions – the temporary inability of banks to provide refinancing leads to insolvency and thus to a situation of widespread default. In neither of the two cases – normal times or crisis periods – can the central bank be considered responsible for the survival of bank counterparties that are close to bankruptcy. | 0 |
As you all know, the banking industry is confronting a series of emerging challenges and environmental changes such as a rising interest rate environment, new businesses and technologies that may disrupt the traditional financial services industry, and novel cyber-threats that seek to exploit our highly interconnected society. In addition, over the past year or so, we’ve witnessed significant turnover in the leadership at federal regulatory bodies including the Federal Reserve, the FDIC, and the OCC, which has the potential to change the regulatory environment. And, finally on the legislative front, Congress is currently considering the Economic Growth, Regulatory Relief, and Consumer Protection Act, which if passed in current form would entail the most significant statutory change to the U.S. banking regulatory framework since the passage of the Dodd-Frank Act in 2010. All of this change presents both opportunities and threats. For my remarks today, I’d like to explore three specific changes that are relevant for community banks: first, a shift in community banks’ business models in response to market changes and regulatory pressures; second, the growing competition and potential disruption introduced by “fintech” firms; and third, the critical threat that cybersecurity risks pose to all community banks. Following my remarks and throughout the day, I look forward to hearing from you about these forces as well as on other changes, trends, and challenges that you and your firms are facing. | I’ll highlight a few interesting trends that our examiners and analysts have observed through this monitoring. For the three-year period ended December 31, 2016, aggregate Second District community bank loans grew by 46 percent.1 These loans were often funded by non-core funding sources, which grew by 49 percent in the aggregate over the same period. This raised concerns among supervisors who consider non-core funding sources as higher risk from a safety and soundness perspective. Moreover, the primary source of loan growth for this period was commercial real estate. In response to this growing CRE concentration, the Fed intensified its monitoring of this sector and directed our supervisory focus toward how firms are risk-managing their CRE portfolios. More recently, during 2017, we saw more moderate asset growth for community banking organizations in the District—approximately 7.5 percent—which is in line with national peer group averages. Aggregate loan growth in 2017 was 10.5 percent for the year, which is also comparable to the national peer group averages. Over this period, we observed a small shift from commercial loan growth toward retail loan growth, specifically in the areas of one-to-four family homes and indirect automobile loans. With respect to funding in 2017, we observed strong growth in core deposits and less reliance on non-core funding sources—a positive trend from a safety and soundness perspective. In the competitive environment of the Second District, we’ve observed community banks seeking revenue from more niche businesses such as wealth management and indirect automobile lending. | 1 |
As I see it, financial cycles, at least those which are big enough to create significant disorder, are often the result of the regulations governing the financial system not being sufficiently stringent or even, perhaps, of fundamental shortcomings in the entire ‘business model’ of the financial sector. The failure of important markets to function sufficiently well may also be of great significance. One example that I have raised before, but which is worth raising again, is the comparison of how policy rates and housing markets have developed in Sweden and Germany (see Figure 6). Despite a similar monetary policy, the development of housing prices in Germany has differed entirely from that in Sweden. Of course, a wellfunctioning financial sector and well-functioning markets would not generate completely stable credit paths, for example. But it is highly likely that the large and dangerous fluctuations would be heavily restrained. It seems reasonable that the financial system should be sufficiently stable and robust to be able to handle both an occasionally very low neutral interest rate – as is the case today – and that monetary policy is conducted in a manner that fulfils normal monetary policy targets – such as an inflation target – without collapsing. | Naturally, we cannot anticipate the results of the forthcoming negotiations, but one principle of consistency must be observed: access to the single market must continue to be contingent on the strict observance of all of its rules. There can be no cherry picking or free-riding. And we must obviously maintain our common European trade policy if we wish to retain our clout in future trade negotiations at the global level. Third asset: our common social model in Europe. It is less widely discussed, but it is what fundamentally defines continental Europe, and it is what German and French society and public opinion share. Our social model combines a high level of public service, relatively low levels of inequality – much lower than in the United States – and a good intensity of social dialogue. And this has been achieved in a market economy. I would like to stress the extent to which this social market economy (Soziale Marktwirtschaft) is a response to the questions raised in the AngloSaxon world, rather than protectionism: Germany, like many other European countries, proves that economic success can go hand in hand with social welfare, and less inequality. We can be proud of these three assets that we have built together. But for the future, while some no longer seem to believe in the benefits of the European project, we can no longer afford to be complacent; we cannot simply rest on our laurels. II. In order to control our common destiny we need to build a better Europe. | 0 |
4, part 2 (November 2000): 1007–35; Miles Kimball, “How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide,” Confessions of a Supply-Side Liberal blog, September 20, 2013. BIS central bankers’ speeches privacy. If these aren’t enough however, let me suggest another, very important benefit of currency that I explored in a paper with Charles Kahn and William Roberds. 3 The anonymity afforded by currency transactions prevents a buyer from suffering from any actions taken after the transactions that could exploit the knowledge gained by the seller of the buyer’s identity. For example, identity theft, or theft of credit or debit card information, is avoided through the use of currency. This is an economic benefit that is distinct from valuing privacy from a civil liberties point of view. If currency cannot be used in transactions, buyers are at a disadvantage, and many otherwise beneficial transactions (not related to buyers seeking to engage in tax evasion or otherwise illicit activity) would not take place. It is important to consider whether the move to eliminate currency, or to alter radically how currency works, represents a degradation or an improvement in technology. Should society voluntarily abandon a widely used technology that has enormous benefits and features that are currently irreplaceable, such as the privacy that comes with an untraceable transaction? While some of those features are used by criminals to facilitate socially destructive activities, the vast majority of currency uses are legal and productive. | And over 2018 it fell for four consecutive quarters by a total of 2½% - the first time this has ever happened outside a recession, and completely outside the range of recoveries from previous recessions (Chart 8). Chart 9: Business investment in the May Given all this, while the ½% increase in investment in the 2019 Inflation Report most recent data is welcome if it can be sustained, so far Percentage change on previous year it offsets only a tiny fraction of the investment weakness of the previous three years. And likewise the recent quarterly strength in GDP appears to have been driven more by stockbuilding ahead of the initial 29th March Brexit deadline, as well as by further rises in consumer spending, than by underlying strength. 15 10 5 0 -5 -10 The main driver of the investment weakness is the uncertainty generated by the Brexit negotiations, which -15 -20 2000 2003 2006 2009 2012 2015 2018 2021 is discouraging businesses from investing. We hear that 8 All speeches are available online at www.bankofengland.co.uk/news/speeches 8 message clearly both from our Agents’ and our own conversations with business leaders such as yourselves and through our formal Decision Maker Panel survey of over 7000 firms. That uncertainty intensified as the March Brexit deadline approached, explaining the further weakening in investment in 2018. If the government is able to agree a transition deal ahead of the new October deadline, that should lead to some easing in uncertainty. | 0 |
Indeed, developing an integrated surveillance mechanism, identification and prevention of emerging risks in the Islamic financial system, as well as the establishment of an integrated crisis management and resolution framework, are crucial to the maintenance of financial stability in the global Islamic financial system. This would allow for a comprehensive and prompt response to a financial stress, and thus increase the prospects for an early recovery. This was the basis behind the setting up of the Islamic Financial Stability Forum (IFSF) in 2010, as a platform to build closer cooperation among regulatory authorities. More specifically, the IFSF carries the mandate of promoting international dialogue, engagement and cooperation in the area of financial stability. It also aims to broaden the understanding on the external repercussions of policy action or inaction in a given country on other national financial systems, and in considering the merits for collective action. Whilst effective international cooperation requires a framework for shared commitments, important in this process is the recognition of the remits of national autonomy given that financial regulation and intervention are subject to country-specific circumstances. This arrangement can contribute towards enhancing mutual understanding and prevent dilution of the commitment towards common objectives. 4 BIS central bankers’ speeches A concrete advancement in cooperation and collaboration that has paved the way for the development of yet another important international financial infrastructure is the establishment of the International Islamic Liquidity Management Corporation (IILM), in 2010. | A key part of this is to make certain that banks and financial markets perform their functions efficiently, and that their business poses no systemic threat to the financial sector and the economy. Hence, for a long time now, the main focus of bank regulation and supervision have been to ensure that banks manage their exposure to risk effectively. These include exposure to credit risk, market risk, liquidity risk, and operational risk. Much progress has been made in honing the approach for a more accurate assessment and a more effective management of risk, culminating in the Basle II, which is a global standard for bank’s risk management. BIS Review 18/2008 1 But, in spite of what has been achieved, mishaps can and do happen. From time to time, we still read about banks suffering large losses that originate from the under-management of these risks. More often than not, the losses are linked to a breach of internal controls or systems that have been put in place to rein in excessive risk-taking in the first place. Ladies and gentlemen. On the security risk aspect, the growth of electronic banking and real-time funds transfer have made the challenge of risk management even greater, as the nature of security risk to banks has shifted considerably. Clearly, the main concern now is not so much about ensuring property security or preventing theft of physical assets, but about ensuring information security and preventing identity theft. | 0 |
Efficiency in individual financial institutions As regards individual efficiency, deposits institutions have the capacity to pursue selection processes among potential borrowers and, at the same time, on the basis of the relative risk, to set different prices. Moreover, they undertake monitoring, seeking to minimise the risk of borrowers not meeting their obligations. In sum, deposit institutions help reduce both adverse selection and moral hazard problems, while their ability to transform maturities allows them to provide liquidity. The enabling mechanism for the proper functioning of this system is depositors’ confidence in deposit institutions. Efficiency in savings banks Among overall deposit institutions, savings banks undoubtedly play a significant role, contributing as they do to the distribution of market share among a bigger number of institutions, thereby fostering 2 BIS Review 31/2003 competition. Likewise, in a sector whose cornerstone is depositors’ confidence, properly run savings banks contribute to reinforcing the stability of the financial system. Savings banks are an old and peculiar form of financial institutions, and display a set of particularities relating both to the significant social content of their action and to their strong regional roots. I shall address these two aspects. First, savings banks have, since the outset, been characterised by their contribution to preventing financial exclusion. That is to say, central to their objectives is a concern to ensure that the more disadvantaged segments of the population may have access to financial services. | Therefore, these are important risk factors that should seriously be taken into account. Dear Guests, I would like to draw your attention to credit cards regarding the household indebtedness issue. As it is known, in general, the credit card is a payment instrument that enables its owner to purchase goods and services at member businesses without using cash. Moreover, if credit card users wish to withdraw cash or to delay their credit card payments for a determined period, the relevant amounts spent turn into credit and thus the credit card becomes a credit instrument. Institutions issuing credit cards incur POS (Point of Sale) machine investment and membership to national and international payment systems expenditures, and they are exposed to liquidity risk due to unforeseen cash withdrawals. Consequently, banks tend to determine higher credit card interest rates than those of consumer credits due to their higher risk exposures, namely the higher credit risk because of weak collateral structure and liquidity risk because of unforeseen cash withdrawals. A survey of country practices also reveals that credit card interest rates are determined higher than interest rates set for consumer credits. Therefore, it is in the interest of credit card users to meet their short-term credit needs via consumer credits rather than their credit cards. Moreover, the interest rates applicable to credit card transactions differ significantly from bank to bank. | 0 |
Trends in College Pricing, last accessed February 5, 2015. BIS central bankers’ speeches 3 levels more than double those at public institutions, average net tuition and average loan sizes were considerably higher at for-profit educational institutions. In addition, a much larger proportion of students at for-profits took out subsidized direct loans. [Chart 4] Returning now to the surge in aggregate student debt, an increase in borrowing for college is not by itself a concern, given the high average lifetime payoff to college. In fact, in part the increase in debt reflects an arguably sensible increase in educational investment during a period of weak labor market opportunities. However, the growth in debt has important implications for the overall economy, and there are several worrisome aspects of the increase in student debt. Many of these problems have to do with the high rates of delinquency and default on student debt, and the generally low repayment rates on these loans. Over the past eight years there has been a considerable increase in payment difficulties for student loan borrowers. The most common measure of inability to meet the debt obligation is the proportion of borrowers 90 days or more past due on their payments. We refer to this as the “measured delinquency rate.” As of the fourth quarter of 2014, about 17 percent, or 7.3 million borrowers, were 90 days or more delinquent on their student loan payments; see the left panel of Chart 5. | What the ECB can do to help in this area is, first of all, to maintain stable monetary conditions. By creating an environment of price stability, we allow private sector agents to focus their attention on those questions which are of most relevance to their activities and to take advantage of the benefits of this stable environment, such as the possible extension of their planning time horizons. Secondly, we can, to some extent, increase the awareness of the developments in the euro area’s financial structure and banking sector by providing euro area-wide information, and also analyses of these developments. All in all, the introduction of the euro and the single monetary policy has created a fundamentally new environment for banks in the euro area. A new environment that will entail certain risks, but that will also provide many opportunities for growth and enhanced efficiency in the banking industry. I am convinced that the latter will prevail. BIS Review 83/2000 6 | 0 |
Stefan Ingves: The central bank’s objectives and means throughout history – a perspective on today’s monetary policy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, to the Swedish Economic Association, Stockholm School of Economics, Stockholm, 6 May 2015. * * * I would like to thank Hanna Armelius and Björn Lagerwall who helped me with this speech. As you know, we are experiencing very unusual – not to say unique – times with regard to monetary policy. The mind boggles – in September 1992 the policy rate in Sweden was 500 per cent, and now it is below zero. How could this happen? To understand the background, we must go even further back in time. The purpose of my speech today is to describe current monetary policy in an historical perspective. The objectives and means of central banks have changed over time, usually as a result of economic crises. During all periods, monetary policy has rested on some form of nominal anchor. But regardless of how the anchor has been designed, it is a clear lesson from history that when confidence in the anchor has been undermined, major problems have arisen. The Riksbank is no exception in this respect. I hope that by accompanying me on a journey through history you will gain a deeper understanding of current monetary policy. Let’s set off on our journey! | Two were subsidiaries of foreign banks, which have been recapitalised by their respective parents; the two Spanish banks have reinforced their capital by resorting to the markets; four savings bank groups have considered an initial public offering or the raising of capital from investors as a priority option, with a subsidiary alternative of resorting to the FROB (Fund for the Orderly Restructuring of the Banking Sector) if their initial approach did not work out as planned; another savings bank has stated its preference to participate in an integration process with another more capitalised institution; and, lastly, the remaining four savings banks have expressed their preference to reach the required level of capitalisation by means of the FROB taking a stake in their capital. Before 28 April, those institutions that had considered going to the FROB as a priority source submitted their specific recapitalisation plans to the Banco de España. In the meantime, the FROB has formally undertaken, with all institutions that have submitted strategies envisaging the possibility of resorting to it, to provide the necessary funds so that all institutions in the Spanish banking system may comply with the new core capital ratio. At present, the recapitalisation plans submitted by the institutions are being analysed, as a further step in the timetable. By 30 September 2011, these institutions must have completed what was stipulated in their strategies. | 0 |
If we continue to practise these values daily and effectively, in my opinion the Banco de España can, among other things, help establish a fully fledged assessment culture that boosts the efficiency and transparency of public policies and enables us as a society to properly integrate long-term considerations into decision-making. The importance of incorporating long-term considerations into economic policymaking The available evidence on the determinants of long-term growth points to democracy and the quality of its institutions as a factor that contributes positively to economic growth. The fact that institutional quality determines the ability to incorporate long-term considerations into decisionmaking may help explain this relationship. These considerations are essential to the idea of progress and, in economic policy, to defining and implementing measures that foster prosperity and opportunities for all citizens, both present and future. Central bank independence is warranted precisely on those grounds.1 An inflationary bias arises when the monetary authority lacks independence and, in pursuit of short-term objectives, stimulates demand by repeatedly using monetary policy beyond what would be consistent with its inflation target. Higher levels of economic activity and employment can be attained in the short term, but the costs come later. The inflationary bias is ultimately anticipated and built into agents’ expectations and, therefore, into pricing and into wage negotiations. The final outcome is higher inflation, without persistent improvements in the level of output or employment in the economy. This renders monetary policy ineffective and commitments to price stability cease to be credible. | 08.10.2020 Banking resolution: firm foundations for stability SRB Conference 2020/Session II: Resolution planning under the Banking Package: continuity and innovation Pablo Hernández de Cos Governor Good afternoon, ladies and gentlemen. Let me begin by thanking the organisers, and the SRB Chair in particular, for giving me the opportunity to participate in this conference. Five years have passed since the Single Resolution Board was established as the resolution authority within the Banking Union. That is certainly a short time by institutional standards but, looking back, I would argue that the progress made has been significant. Under the leadership of its chair, Elke König, the SRB has finalised resolution plans – along with their MREL requirements – for all significant institutions. It has likewise fostered their resolvability, and has put in place effective mechanisms for cooperation with the national resolution authorities. All these arrangements have already proved their effectiveness. From a broader perspective, I would also argue that a more robust European crisis management environment has been conceived. Harmonisation of procedures not only strengthens the Banking Union as it is; I am sure it will also prove essential in future crossborder consolidation initiatives. Bail-in has aligned incentives for managers and creditors alike in reducing excessive risk-taking. And, as a much wished intangible asset to a central banker like myself, the existence of a Single Fund is another milestone, partially mutualising risks in the Euro Area, which is moving forward with a more complete Monetary Union. | 0 |
An easing of monetary policy in many parts of the world as well as in Sweden has been an important factor behind the better tendencies in recent months and the more positive forecasts. Even though the statistics show a stronger economic trend, inflation has been in line with the Riksbank’s forecasts. For this reason the repo rate has been kept unchanged since March. 1 BIS Review 108/1999 In August the 12-month rate of CPI inflation was 0.6% and inflation’s underlying rate, measured by UNDIX, was 1.5%. It is changes in indirect taxes and subsidies, together with house mortgage interest expenditure, that are continuing to result in an underlying rate of inflation that is higher than CPI inflation. Economic prospects from 1999 to 2001 We are now moving into a period of strong growth, externally as well as in Sweden. As regards the international picture, the Riksbank judges that annual growth in the OECD area up to the end of 2001 will amount to not quite 2.5%. It looks as though effects of the Asian crisis are now dying away and that emerging market growth will become stronger in the next two years, above all in the crisis-hit countries in Southeast Asia but to some extent also in Latin America and Eastern Europe. In Japan, too, the earlier risk of negative growth has turned into cautious optimism about an upturn. Prospects for the euro area have likewise improved, with a recovery in manufacturing and stronger consumer confidence. | Unemployment is therefore decreasing, though it is still above the levels that were customary in earlier decades. So the situation before us today is completely different from what we experienced last autumn. During the past year, Sweden’s economic prospects have changed considerably in the eyes of various observers and the Riksbank has been no exception in that respect. Monetary policy in the past twelve months Last autumn the financial markets became increasingly turbulent in connection with, for example, problems arising from the hedge fund Long Term Capital Management and the suspension of Russian debt payments. The financial crisis was expected to add to the negative real economic effects of the Asian crisis. International observers, including the IMF and the OECD, therefore revised their global growth and inflation forecasts downwards. The Riksbank did the same. Although growth in Sweden’s domestic sectors was relatively good and the exchange rate tendency remained weak, the overall picture did point to slacker growth and lower inflation in the forecast period. In November and December the Riksbank therefore reduced the repo rate from 4.10 to 3.40%. The early months of this year were marked by continued repercussions of the Asian crisis in the world economy, with weaker international demand. In order to prevent this from leading to a dampening of economic developments in Sweden and an even lower rate of inflation, in February and March the Riksbank reduced the repo rate in two more steps to 2.90%. Since then the situation has stabilised. | 1 |
In short, we have been designated as an honorary member of this entity. My thanks to the Association but, above all, to those who have made this work possible over the years, and to those continuing it and adding to its prestige today. Lastly, allow me to stress another of the grounds for a publication such as that we are presenting today. It is a question of transparency, understood as the possibility of sharing information with society as a whole. As I pointed out in one of my early public appearances as governor of the Banco de España, I consider making high-quality statistical information 4/5 available to researchers as absolutely crucial for sound analyses and research enabling better-founded economic policy decision-making.1 In this respect, we intend in the coming years to pursue various projects that allow these researchers to have access to our statistical information, thereby enabling different avenues of analysis and research of benefit to society as a whole. In conclusion, I would like to reiterate my satisfaction at these initiatives and to thank the efforts and contributions, from both the public and private spheres, of those who have participated in this publication. In some ways, this substantiates the fact that these avenues for sharing information and making it available to society are enormously beneficial for all. Thank you. 1 See my “Welcome address” for the Second Annual Research Conference of Banco de España, 2018, at: https://www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/IntervencionesPublicas/Gobernador/Arc/hdc030918en.pdf. 5/5 | And, whatever the periodic outcry whenever something goes wrong - as it will from time to time - the demand for these services does not of course exist in a vacuum; it exists because of the very positive contribution that the business services sectors, including financial services, make to growth and employment and rising living standards in the wider economy. That is true nationally, but it is equally true in a global context. Indeed the unique characteristic of the City is its role as the predominant international financial centre. It accounts for a fifth of all international cross-border lending, for example; for a third of global turnover in foreign exchange and OTC derivatives, and as much as two-thirds of issuance and secondary trading in eurobonds, or of global turnover in international equities, with more foreign firms listed on the LSE than on any other exchange. And London has a near-monopoly in exchange-traded short-term euro interest rate derivatives. I will not labour the point further, Mr Chairman. Despite - or perhaps driven by - a continuous stream of shocks and competitive challenges, the City has in fact gone from strength to strength, most recently coming through the global financial turbulence of the last couple of years as well as the advent of the euro at least as strong as before. It is perhaps worth asking why the City is as strong as it is. Certainly it does have to do partly with history. | 0 |
Global macroeconomic imbalances, fundamental shortcomings in the risk management of the financial players and gaps in regulatory frameworks and supervision together formed the underlying layers in the current financial and economic crisis – a crisis that many observers regard as the worst since the 1930s. In order to avoid a total breakdown in the financial system, governments, central banks and other authorities around the world have been forced to take a range of massive and unusual measures. Massive and unusual measures on the part of the authorities So, what have the authorities done? The central banks have lent large sums of money to the banks at longer maturities and against other forms of collateral than has normally been the case. This has improved the short-term funding situation for the banks. Several central banks have also provided emergency liquidity assistance to individual institutions. The Federal BIS Review 41/2009 5 Reserve, the European Central Bank and other central banks have also entered into agreements to provide loans in their own currencies to other central banks to mitigate the effects of the crisis in other countries. The central banks have also cut policy rates rapidly and forcefully, sometimes in coordinated actions, to alleviate the repercussions of the financial crisis on production, employment and inflation. Governments have offered guarantees and capital injections to reduce the risk of further bankruptcies in the banking sector. Deposit guarantee schemes have been extended. Several countries have also adopted fiscal policy stimulation packages to mitigate the effects on the real economy. | Lower tax on productive capital or companies may lead to more companies being established and thereby raise potential output. Similarly, lower tax on labour or increased educational inputs may generate an increased supply of labour and also influence wage formation. These are examples of the numerous ways in which changes in tax and expenditure systems are likely to modify economic opportunities and promote conditions for good growth without the attendant capacity shortages that generate price pressure. Current fiscal policy The trade-off between monetary and fiscal policy — the policy mix, as we economists like to say — has improved considerably in the present decade. The rapid accumulation of government debt has ceased and the stock is now being reduced. While the consolidation of government finances has made the fiscal stance restrictive, it has been possible to lower interest rates and this in turn has stimulated investment, economic activity and employment lately. This is accordingly a considerable improvement compared with the early 1990s, for example, when factors such as very weak government finances led the Riksbank to keep interest rates up at a time when government debt was rising markedly. BIS Review 77/1999 2 Government debt and budget balance Per cent of GDP. | 0 |
It is not at all certain that a peg would engender the foreign exchange stability that exporters dream of. We have learned from our experience with flexible exchange rates that any explicit foreign exchange target stimulates the appetite of speculators instead of calming the atmosphere. And this would be especially true if our pegging decision were to be taken unilaterally, without the prospect of a full and permanent integration into the euro area. Today, with global markets and global speculation, it would be an illusion to believe that a central bank can defend a specific exchange rate target unless there is strong convergence of economic fundamentals with the economy whose currency it is pegging the domestic currency to. Furthermore, a nominal peg against the euro would do little to stabilise the real value of the Swiss franc – the only thing that matters for the international competitiveness of the Swiss economy – or to stabilise the franc vis-à-vis third currencies, especially the US dollar. Given our exposure to global economic and financial shocks, and their arguably smaller importance for the euro area, pegging the Swiss franc to the euro is not a realistic option. Flexible exchange rates give us the room of manoeuvre we need. 4 BIS Review 46/2006 Conditions for monetary independence Having reviewed the advantages of retaining our national currency and flexible exchange rates, I would now like to turn to the conditions necessary for successful monetary independence. I see three crucial factors here: credibility, transparency and efficiency. | This has led to an increase in short term inflation forecasts by 0.6 points (Table 1). The assumptions about fiscal policy used for medium-term forecasts were based on the outlook presented in the Medium Term Program (MTP). Therefore, the baseline scenario envisages that the ratio of primary expenditures to GDP would gradually be reduced from 2012, the public debt-to-GDP ratio would continue to fall, and the risk premium would remain broadly unchanged. Moreover, tax adjustments and administered prices are assumed to be consistent with inflation targets and automatic pricing mechanisms. Distinguished Members of the Press, As I have already stated, since the publication of the July Inflation Report, emerging economies have faced rapid capital outflows due to the deteriorating risk appetite. In this respect, excessive depreciation in the Turkish lira has become more evident. This development, coupled with the increase in prices of administered goods, has raised the risk of deterioration in pricing behavior. We responded to these developments strongly by increasing our overnight lending rate markedly in our October meeting (Chart 6). We expect monetary tightening to contain inflationary pressures in the period ahead. However, inflation is forecasted to increase significantly in the short term with the contribution from low base effects in unprocessed food prices. | 0 |
Banks are thus facing a challenge with regard to a further scaling back of the physical distribution network. In general, financial institutions are facing considerable challenges in adapting to new technologies, intensified competition and globalisation. Substantial investments will probably be required to keep them competitive. Both management and employees will have to devote considerable attention to these aspects. The wrong solution or approach could weaken banks’ competitive position, profitability and financial strength. This may also have negative implications for financial stability. However, I don’t want to give you the impression it’s all doom and gloom. New technologies offer great opportunities for streamlining operations and improving efficiency. There should also be new business opportunities. Although the financial sector is undergoing fundamental changes, competent market participants should have every opportunity to thrive in a changing environment. 6. Consequences for the authorities Developments in the financial sector also pose challenges for the authorities. Let me give you a few examples. The growth of complex financial conglomerates represents considerable challenges for supervision and crisis resolution. The international trend towards one national supervisory authority is probably advantageous in this respect. The Nordic countries have led the way here. The growth of institutions with a significant presence in several countries has increased the need for cooperation between the authorities of different countries. Bilateral and multilateral memorandums of BIS Review 78/2000 10 understanding are an important tool in this respect. The Nordic supervisory authorities have recently signed a joint memorandum of understanding. The activities of central banks are also influenced. | Svein Gjedrem: Developments in the Nordic financial industry a central banker’s perspective Address by Mr Svein Gjedrem, Governor of the Norges Bank, at the Nordic Financial Services Conference, held in Stockholm, on 18 September 2000. * 1. * * Introduction What is the future of the Nordic financial services industry? Who are the winners in the consolidation process? What is the potential of e-business and the Internet? This is just a sample of the important and challenging questions that will be discussed at this conference. Fortunately, it is the task of my fellow speakers - and not mine - to try to answer them. Given their background as significant market participants, I am sure that they will provide us with some valuable insights. Today, most central banks follow structural developments in the financial sector from the sidelines. This has not always been the case. The post-war period was characterised by heavy regulation. The domestic authorities controlled market prices, financial flows and the structure of the financial sector. There was little foreign influence. Gradually, markets were deregulated and became more internationally integrated. The central banks’ main instrument is now the setting of interest rates. The main objectives of central banks have stayed the same: monetary and financial stability. Although deregulation is now completed in the industrialised countries, its full impact on the financial structure remains to be seen. In addition, technological developments, internationalisation and increased focus on shareholder value are creating pressures for structural change. | 1 |
Ksenia Yudaeva: The policy of the Bank of Russia for ensuring financial stability in an environment of economic recovery Speech by Ms Ksenia Yudaeva, Deputy Governor of the Bank of Russia, at the Forum on Financial Stability "The policy of the Bank of Russia for ensuring financial stability in an environment of economic recovery", Moscow, 13 April 2017. * * * Dear colleagues, it is my pleasure to welcome you all to the Forum on Financial Stability, which has by now become a tradition. In the last few quarters we have witnessed the beginnings of fundamental change in both the economy and financial markets. The economy has adapted to balance of payments shocks and started on a path of recovery, and the level of volatility in financial markets has gone down significantly. The relatively calm climate we now find ourselves has led to a decrease in risks that had been building up, but such a climate could nevertheless bring in new risks and lead to the creation of so-called bubbles in certain markets. The Bank of Russia must continue to be on the alert, and ready to adopt the necessary measures as they are called for. And so, through our analysis of the potential for implementing macroprudential instruments and macroprudential stress testing, that is exactly what we are doing now. Myself and a number of my colleagues will be delving deeper into these issues, and I would like to take this opportunity to highlight a few myself. | Today we will summarise our intermediate results and progress we have made so far. From the beginning of 2016 to March of this year, outstanding foreign currency loans went down by almost $ billion. This was partly offset by an increase in outstanding ruble loans, which grew to 514 billion rubles. We can also see a decrease in foreign currency lending, mainly in those industries where companies lack so-called natural hedging. Once again this refers to businesses in the construction and real estate industries, as well as wholesale and retail trade. For exporter companies the situation remains unchanged, and banks continue to make foreign currency loans to them. In 2014–2015, exporters’ external debt presented a significant potential risk to financial stability. The high number of maturing loans was a cause for concern, and we were carefully monitoring the schedule for upcoming repayments. This spike in external debt repayments has since passed. In the first quarter of 2017, the 27 largest companies repaid a combined total of $ 3/6 BIS central bankers' speeches billion in external debt. They will repay a further $ billion by the end of 2017 (April – December), which is 22% less than the payments made in the same period of the previous year $ billion). Now, given the recovery in economic activity in the world and in Russia, as well as the increase in attractiveness of Russian borrowers, there is the potential risk that these borrowers will accumulate excess foreign currency debt. | 1 |
BIS Review 55/2002 1 Developments in Iceland from the latter half of 1990´s until the present time resemble in many ways the experience of some of the other Nordic Countries a decade earlier but differ also in important respects. Soon after liberalisation, domestic demand picked up, fuelled by rapidly rising credit in the wake of intensified competition in the financial sector and a sharp increase in credit availability. At that time, Iceland was pursuing a fixed exchange rate policy but not as rigidly fixed as the other Nordic Countries had done a decade earlier. The expansion in the economy at the end of last decade led to a very rapid rise in the current account deficit, climaxing in year 2000. Through the effects of a tightening monetary policy, the exchange rate of the króna gradually appreciated. In the spring of the year 2000, expectations in the market shifted for a variety of reasons, one of them being concerns about the current account deficit. Subsequently the króna began to depreciate and continued to do so more or less uninterrupted but on the whole in an orderly fashion over a period of a year and a half until the end of November last year. By that time, it had fallen by about a third against other currencies. This large depreciation is not without precedent in other countries. | Although developments in Iceland showed many of the same characteristics as those in some of the other Nordic Countries during the post-liberalisation rapid expansion, such as credit expansion, current account deficit, exchange rate depreciation and so on, Iceland escaped the difficulties suffered by banking systems in some of the other countries. Icelandic bank credit grew very rapidly in the late 1990’s and into the year 2000 and a sizable portion of the credit expansion was financed with credit from abroad. The capital adequacy ratios of banks fell for a while but nevertheless remained comfortably above the minimum required and internationally recognised levels. The year 2001 also turned out to be quite favourable for the banks, a development which continued by and large into the current year. Consequently, the capital position of the banks has improved and all the major banking institutions have relatively strong capital adequacy ratios at present. Loan losses have increased, as was to be expected in the wake of the credit expansion, but nowhere on the scale experienced in some of the other Nordic Countries a decade ago and very much less than they did during the downturn in the Icelandic economy around and after 1990. The conclusion to be drawn is, therefore, that the Icelandic banking system weathered the relatively turbulent post-liberalization boom period of 2000 and 2001 pretty well and is well poised to meet new challenges, including continued rationalisation and intensified competition from foreign banking institutions. In the most recent decades, the Icelandic economy has also seen structural shifts. | 1 |
Price and wage developments repeatedly came on a collision course with the fixed exchange rate and Sweden suffered cost crises. To rectify the situation, BIS Review8/2007 1 the krona was devalued a total of five times during a period of seven years. But the trend increase in domestic prices and wages continued to rise. The fundamental problem still remained. The result was modest economic growth, poor productivity growth and more or less stagnant growth in real wages. The performance was markedly weak both compared with earlier periods and in relation to other countries. During the crisis years at the beginning of the 1990s the situation got even worse. Unemployment increased fourfold in the course of a few years and the central government finances deteriorated dramatically. Long-term interest rates rose and the interest rate differential towards, for example, Germany occasionally came to several percentage points. The fixed exchange rate lost its credibility and finally had to be abandoned, following large currency outflows and extreme interest rate hikes in attempts to defend the krona. The nominal anchor that was to hold down inflation and inflation expectations in the economy had loosened. To secure it again and bring the Swedish economy onto a better track required drastic measures. The solution was what one might call a stabilization policy change of regime. The tasks of both monetary policy and fiscal policy were fundamentally redefined and we were given a clear allocation of roles in economic policy. | At the same time, the implementation of ambitious and far-reaching structural reforms is urgently required in the euro area to strengthen substantially its competitiveness, flexibility and longer-term growth potential. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should rapidly carry out comprehensive economic reforms. In the case of product markets, policies that enhance competition and innovation should be vigorously pursued to facilitate productivity growth. Regarding the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities. We are now at your disposal for questions. BIS central bankers’ speeches 3 | 0 |
I and my colleagues on the Executive Board will thus continue to go out and talk about monetary policy and financial stability, but there will be no signals regarding coming interest rate decisions. We BIS Review 62/2007 1 will each express our own assessments, but this will be a case of justifying and explaining our own considerations after a meeting and not of signalling a stance to be taken at a coming meeting. The third change we decided on was to state our names in the minutes of the monetary policy meetings, with effect from the meeting to be held in June, so that it is possible to see who said what. Previously, we have only named members who have entered a reservation against the decision. This change will make differences of opinion between Executive Board members even clearer. It means that it will become easier both to predict how monetary policy will be conducted in future and to assess it. This change is also a step towards increased openness and clarity. The monetary policy decision on 3 May This naturally leads me on to the stance I myself took at the most recent monetary policy meeting in early May. My assessment was then that the new information received indicated that the repo rate should be raised more during the forecast period than was implied by the forecast in the February Monetary Policy Report. | From now on, we will hold press conferences after each monetary policy meeting, regardless of what decision has been taken. Until now we have only held a press conference if the repo rate has been adjusted or if we have published a Monetary Policy Report. But to understand the monetary policy conducted, it is equally important to explain why the repo rate has been held unchanged as to explain why the repo rate has been changed. By publishing our own interest rate forecasts and by holding press conferences after each monetary policy meeting we will provide more detailed and more regular information on the considerations taken by the Executive Board. We have also decided to make changes in our way of signalling. By signalling I mean how we communicate our monetary policy intentions. Previously, when we Executive Board members have gone out and talked about the current economic situation between the monetary policy meetings we have sometimes given indications of how we consider the repo rate should be set at the next meeting. This has been on the condition that it is clear that the points of view expressed are the individual member’s. The idea was that when the interest rate decision was taken at the monetary policy meeting, enough information on the different Executive Board members’ views would already have been given by degrees so that the decision would not surprise market agents. | 1 |
The United States drew benefit from the flexibility of its economy, which allowed a better and swifter adaptation to a more demanding environment, while policies took on an unmistaken expansionary stance. Conversely, the Japanese economy had neither the flexibility to adapt, owing to its numerous rigidities, nor scope for stimulus from its demand-side policies, whose room for manoeuvre essentially petered out some time back. Finally, the euro area economy, also beset by structural rigidities, was relatively inflexible in that fiscal policy leeway was directly proportionate in each country to the consolidation drive pursued in the previous upturn, with room for manoeuvre proving greater in the case of the single monetary policy. Consequently, the experience of recent years shows how vital it is to harness economic upturns so as first, to increase the flexibility of economies in order to absorb more readily the impact of adverse disturbances; and further, to give economic policies sufficient headroom in contractionary phases. In this context, it is of paramount importance that macroprudential policies should remain particularly vigilant and react promptly and decisively in the face of potential signs of weakness in the segments of the financial system under their supervision. In the wake of the crises of recent years, an increasing number of emerging economies undertook with varying degrees of ambition and success - structural reforms aimed at greater flexibility. Yet these improvements did not prevent crises from continuing in some of these countries, virulently so in Latin America in 2002. | But Spanish companies must also set in train strategies enabling them to harness the opportunities of enlargement and to increase their presence in the new areas of the single market, channelling their foreign direct investment efforts in that direction. Financial aspects of the Spanish economy Some of the financial features of recent developments in the Spanish economy are of particular importance. As I have said, monetary and financial conditions remained generous in the Spanish economy and, in step with this, financing received by households and firms grew by around 14% last year. This increase, which far outpaced the average for the euro area countries, led to a fresh increase in the private sector’s debt ratios which, in a few short years, have attained the average levels for the euro area. Significantly, the ongoing resort by companies and, above all, by Spanish households to debt in order to finance higher investment and consumption levels is principally a reflection of the favourable impact on agents’ expectations of the new setting of macroeconomic stability, which provides for higher sustainable growth in income and employment. One of the clearest consequences of the recent trend of financial flows in the Spanish economy has been the contribution made to curbing the scope of the recent cyclical downturn in Spain. That has helped the private sector maintain buoyant expenditure on the basis not only of its current revenue but also of its expectations of future income. | 1 |
Market inflation expectations have risen, particularly for the short term, but are still close to 3% over the policy horizon. In this Report’s baseline scenario we foresee that GDP will grow this year between 4% and 5%. This range is higher than December’s, as it responds largely to the faster output growth of late 2011 and early 2012. In addition, a number of the risks that were examined in the last Report have moderated and the dynamic of the domestic demand adjustment will be somewhat more gradual than was envisaged in December. This scenario assumes a stronger impulse from abroad, associated with better terms of trade and external credit conditions. Overall, the occurrence of temporary and limited frictions in international financial markets is a possibility that cannot be ruled out. We also assume that growth will continue to approach its trend levels – which the Board still estimates at 5% – and respond to the lagged effects of the increases made to the MPR in 2011 (table 2). The baseline scenario foresees a current account deficit in 2012 that is virtually unchanged from the December forecast: 3.4% of GDP, after posting a deficit of 1.3% of GDP in 2011. This enlargement obeys primarily to a bigger deficit of the trade balance, determined mainly by the copper price, which is down from 2011. Furthermore, the oil price has risen from last year. | Under the leadership of Tan Sri Azman Mokhtar as the Chair, it is envisioned that the Council will also evolve into a fully industry-led structure that will be better able to respond to - and capitalise on - global opportunities in Islamic finance. We are confident that with stronger industry stewardship, we will be able to foster greater market dynamism. We are also seeing greater industry leadership in many areas. In particular, I wish to acknowledge the work of AIBIM and MTA for their efforts to further advance VBI implementation, including the VBI report by AIBIM and the VBIT roadmap by MTA that will be launched today. I would also like to mention that we are delighted to see many action-oriented leaders in Islamic finance. The Royal Award for Islamic Finance recognises outstanding contributions in Islamic finance. I wish to take this opportunity to congratulate Tan Sri Dr. Mohd Daud Bakar – the 2022 winner of the Royal Award for Islamic Finance. He is an eminent Shariah scholar, recognised for his instrumental role as the Chairman of the Shariah Advisory Councils for both Bank Negara Malaysia and Securities Commission Malaysia, and in developing the first Shariah standard on gold issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), among other achievements. I would also like to congratulate in advance the winners of the Emerging Leader Prize and Impact Challenge Prize – two additional new prizes introduced this year in conjunction with RAIF – that will be awarded later today. | 0 |
This is important because long-term BIS central bankers’ speeches 3 unemployment can cause job skills to atrophy making it more difficult for such people to find jobs in the future. While the good news is that the job-finding rates of the long-term unemployed have not yet deteriorated as many feared, we ought not to take this for granted going forward. Although energy prices have begun to rise again, total inflation, as measured by year-overyear changes of the Consumer Price Index, is still around 1¾ percent – less than half the rate in September of 2011. In recent months, core inflation has also slowed and it is now also under 2 percent. Higher energy and grain prices mean that headline inflation will likely edge somewhat higher for a few months before moving slightly lower again. But measures of the underlying rate of inflation are moderate, wage gains remain subdued, and longer-term inflation expectations are fully consistent with our longer run inflation objective of 2 per cent as measured by the personal consumption expenditures (PCE) deflator. Near term, the economic outlook is that the growth pace is likely to remain disappointing. On the positive side, motor vehicle sales in August increased solidly. Nevertheless, retail sales outside of autos and gasoline were soft in August as households continue to be cautious. One brighter spot has been the housing market. Housing starts and sales of new and existing single-family homes are trending up gradually. | Page 11 of 19 How to define “future expenditure” More broadly, it is still difficult today to formally calculate productive or "future" expenditure, i.e. spending that would have the most favourable long-term effects on economic growth and output capacity or on the climate transition. A consensus appears to be emerging in economic research literature whereby spending on public investment has a more positive effect on growth than operating expenditure. For example, according to our internal models, mediumand short-term multipliers are higher for public investment than for public sector wages. But would this also be true in respect of expenditure on any roundabout or multimedia centre? There is fierce debate around what exactly investment or productive capital actually includes: “basic” infrastructure like roads, bridges and airports generally form the common denominator, to which building construction is sometimes added. “Social” infrastructure such as education or public health Page 12 of 19 facilities constitute another potential category of productive expenditure: investment in education and skills boosts labour productivity and the economy's innovation capacity. More recently, “digital” infrastructure has sometimes been included in productive expenditure, albeit with less clearly defined boundaries, and before us the enormous challenge of artificial intelligence. This list of questions without answers may appear frustrating. But it is also, primarily, a call for more research, and Paris should be a centre of excellence here thanks to institutions that are pioneers in this area (France Stratégie, OECD in the international arena, etc.). | 0 |
Temporary in the sense that problems in Japan have been mitigated, at the same time, we see recovery in vehicle production for Thailand since late May. 1 JSCCIB stands for the Joint Standing Committee on Commerce, Industry and Banking. JFCCT stands for the Joint Foreign Chambers of Commerce in Thailand. BIS central bankers’ speeches 1 As for the domestic side, high income and confidence are supporting domestic economy going forward. Domestic demand, both consumption and investment have been and continue to be strong as underpinned by a high level of farm income, high employment, and good consumer and business confidence, complemented by a favorable credit condition. Tighter resource utilization also reflected these vibrant economic activities. The seasonallyadjusted unemployment rate fell to the lowest record in April. Meanwhile, the capacity utilization rate is expected to accelerate in the second half of the year following the recovery in the vehicle sector. Overall, the economic momentum in 2011 remains sound. Nevertheless, political stability remains a key factor to facilitate this ongoing momentum. Having an orderly outcome of the election is one step, but the underlying conflict must continue to resolve in order to further boost confidence and business climate in the economy. Given the current economic development, the Bank of Thailand is more concerned with inflation which is a common outcome in a good growth prospect environment. Increases in inflationary pressure have become a worldwide phenomenon particularly among emerging market economies. Thailand is no exception. | This does not bode well for productivity. Thailand’s infrastructure continuously needs improvement in several areas, particularly logistics, irrigation and quality of education. These public investments will also influence private investment through the “crowding in effect” as public and private investment complement each other. Therefore, the government policies should be prioritized, be gradual and have specific target in their spending. Priority should be given to productivity enhancement project and spending should be selective and targeted to certain areas to ensure policy’s effectiveness. At the same time, graduality of policies is necessary to minimize inflationary pressure and allow time for private sector to adjust. Second, fiscal stance, like monetary policy, is also required to normalize in order to ensure fiscal discipline and sustainability. In a time of normal trend growth, there is a lesser need for a fiscal stimulus. Rising public debt, together with increasing contingent liabilities, may endanger fiscal sustainability in the long run. Reforms of the tax revenue collection and tax structure should be implemented along with rising expenditure to ensure a healthy balance sheet of the fiscal sector. Third, political stability is a vital condition to the private sector for maintaining an investment-friendly environment. These three challenges, if prevail, will put Thailand forth into a competitive frontier. Likewise, the private sector contribution is as equally important. One immediate challenge which businesses face today is the problem of labor shortages. | 1 |
The TAF program was designed to deal with the stigma problem associated with the discount window and also to make it easier for the New York Fed to sterilize the liquidity injections into the financial system. The TAF program auctioned off a fixed quantity of term funding to depository institutions using the same collateral to back up the loans as can be pledged at the discount window. Since the quantity of funding was set in advance, it made it much easier than for discount window borrowing to offset this liquidity injection. More important, however, was the design concept: term funding priced and distributed in a competitive auction would hopefully avoid any stigma for the winning participants of the auction. The TAF auctions were essentially a better way to dump more water on the same section of the forest covered by the discount window. However, the fire was still burning elsewhere. The inadequacy of the Fed’s traditional liquidity tools and their recent enhancement with the TAF came to the forefront in the spring of 2008. Conditions were deteriorating for several primary dealers, including Bear Sterns. The Board of Governors of the Federal Reserve System (all of the governors are appointed by the U.S. president and confirmed by the Senate) decided to activate a little known or used section of the Federal Reserve Act – section 13(3) – which gives the Fed the ability lend to any “individual, partnership or corporation” in “unusual and exigent circumstances”. | Being pragmatic means having the right reservation about it, taking a careful step toward it, and be willing to take the needed action to deal with the unintended consequence. This is not going to be easy, but it is probably the best that we can do for now. Thank you. BIS Review 142/2008 3 | 0 |
Krzysztof Rybiński: Inflation targeting and the challenges ahead Opening remarks by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the “Inflation Targeting - Third Joint NBP & SNB Seminar on Monetary Policy”, Warsaw, 18-20 May 2006. * * * Ladies and Gentlemen, I am pleased to welcome you at the third seminar on monetary policy organized jointly by the Swiss National Bank and the National Bank of Poland. Let me start by thanking staff members from the host central banks, who have not spared their efforts on preparing this seminar. For the first time in our seminar, apart from economists from the host central banks we have invited representatives of other central banks to share with us their knowledge and experience with inflation targeting. Thus I would like to warmly welcome our guests from the Czech National Bank – the first inflation targeter in Central and Eastern Europe, and from the Central Bank of Turkey – a brand new inflation targeter, which has adopted the framework only this year. The topic of this year’s seminar is inflation targeting (henceforth called IT). As the distinguished former Fed chairman Paul Volcker recently remarked 1 , inflation targeting may sound like an oxymoron since usually central banks strive to fight inflation rather than to breed it. So should we gather here to discuss ways of breeding inflation? | That reflects the strong dynamism of exports, driven in recent months by the improvement in Spanish competitiveness and the buoyancy of the euro area markets; but it is also indicative of the weakness of domestic expenditure, giving rise to the contractionary behaviour of imports. As a consequence of these developments, Spain will show a net lending position against the rest of the world of around 2% of GDP, an unprecedented and record figure in recent decades. Over the past months, inflation, proxied by the CPI, has been declining notably, essentially as a result of the tapering off of the effects of the VAT increase over more than a year back. Thus, in October, the CPI fell by 0.1%. Foreseeably, however, positive though moderate rates of change will resume in the coming months, therefore proving compatible with the necessary continuation of the ongoing improvement in competitiveness our economy requires. For 2014, a central scenario has been outlined in which the factors that have been affecting domestic demand progressively slacken. It is projected that the processes of adjustment in the economy, and most particularly the redressing of private-sector debt and the ongoing fiscal consolidation, will continue to influence the pace of recovery of demand and activity; but, at the same time, the reduction in uncertainty and the culmination of the restructuring of credit institutions, along with their improved results, will lay the foundations for improving financial conditions for the resident sectors. | 0 |
Cashiers will redenominate payments in the currency used for the institution's system, regardless of which currency the customer has used. Bank branches will provide two versions of their forms, one for kronor and one for euro; new cheques and other forms will therefore be produced. Statements of account will specify the rate at which the currency has been converted. The automatic teller systems (Bankomat and Minuten) will also have to be adapted. Moreover, banks must be prepared for people who want to make giro payments in euro right from the beginning of 1999. Some large companies may also wish to pay out wages in euro before the new currency is available in the form of banknotes and coins. As mentioned earlier, it is difficult to foresee the magnitude of demand for euro services and how soon companies and individuals will switch from kronor to euro. Monetary and exchange rate policy. A single currency implies a single monetary policy, which in EMU will be decided by the ECB. The Riksbank and the other national central banks will have the task of executing this policy. The changes for Swedish banks and other financial institutions will probably not be all that great. The Riksbank is likely to remain the financial sector's counterparty. The main differences from today for Swedish banks are a much larger market for intra-day money and counterparties located all over Europe. The detailed conduct of monetary policy is not yet clear. The final decisions are due when the ECB has been established in 1998. | It is already clear however that it will amplify the headwinds to the strong recovery that the euro –area has been experiencing in 2021, and that it will intensify inflation pressures in a context where inflation has already increased significantly and will remain high over the coming months. The general uncertainty that marks the euro-area macroeconomic environment has implications for the conduct of monetary policy. In these conditions, it is important to balance carefully the risks of waiting too long to act as opposed to those of normalizing too soon. In any case, the commitment of the ECB is clear: the Governing Council will do what is necessary to bring inflation firmly and durably to around two per cent over the medium term. The forward guidance, relying on state contingent criteria and the “sequencing” are instrumental to this goal. Policy normalization will follow a clear order: the ECB will end its asset purchases first, likely in Q3 2022, then raise the key interest rates, eventually reducing its balance sheet in a third step. All along this gradual process of normalization, the Governing Council of the ECB made it clear that it will maintainoptionality; gradualism and flexibility in the conduct of monetary policy. In that context, financial markets are currently considering that the rise in interest rates might start in the near future, with a first 25 bps hike almost fully factored in (90 %) as of next July, followed by two others by the end of this year. | 0 |
Despite the fact that FinTech have so far not had a significant effect on the market, specific events, such as the implementation of PSD2, may alter the current picture. There is concern over the possibility that third parties may have access to customers’ bank data. But I must point out here that it is in fact banks that currently have all this information. Naturally, the problem lies in knowing whether banks are ready to extract and properly exploit this information. There is much talk about interaction with customers, the quality of apps and the user experience. Yet I would like to stress that it is even more important to undertake technological change “in-house”, as regards data aggregation and quality and internal applications. Here there is much potential for improvement, although Spanish banks are not in any way worse positioned than their European rivals. Banks should be capable of extracting, exploiting and analysing their customers’ data. And in this connection, it will be necessary in many cases to invest in systems. Managers must have the information to take decisions. Without it, evaluation and transformation of the business model will not be possible. Against this background of technological change, I would like to refer briefly to the recent announcement of the launch of the “libra” project, the virtual currency sponsored by Facebook. The reaction by the public sector, supervisors and central banks to this announcement has, to put it mildly, been shrouded in caution. | As indicated, the lower use of IRB models by our banks means they will not be affected by this concept. However, other changes, such as the new operational risk and Credit Valuation Adjustment (CVA) frameworks, or the introduction of changes in the standardised approach, will indeed affect our banks, which should prepare themselves to absorb the new requirements. 8/15 MREL Another challenge banks face stems from the introduction of the new eligible liabilities requirements, known as MREL. As you will be aware, the introduction of MREL is the consequence of the change in paradigm in crisis resolution. We have now moved from the bail-out to the bail-in. The aim is to ensure that banks have sufficient unsecured liabilities on their balance sheet, whether own funds or “bailinable” debt, if you will allow me to use this expression, so as to avoid the use of public funds in the event of failure. The Single Resolution Board (SRB) has set MREL objectives for each significant institution at the European level. It has also informed them of the maximum time available to cover these requirements, which must be met through organic growth of specific liabilities and new issues. It is essential that each institution should plan the issues to be made appropriately. It is worth recalling here that the characteristics of these liabilities make them rather unsuitable for distribution among retail customers. | 1 |
What I have to say starts from the report that Lars Calmfors and his colleagues presented in 1996 – one of the most extensive and penetrating studies of EMU membership’s pros and cons. When the report was circulated for comments, the Riksbank had the opportunity of submitting an opinion and stated that Sweden ought to participate in the monetary union right from the start. I shall be reminding you why the Riksbank came to this conclusion and commenting on how subsequent developments have influenced my own view of the matter. The foundation for my personal opinion includes my working experience as a close monitor of economic developments and debates, both in Sweden and internationally. This has involved participation in the European discussion over the past three or four years as Sweden’s representative in the EU’s Economic and Financial Committee (formerly the Monetary Committee). Arguments for and against Calmfors and his colleagues considered that Sweden ought to join the monetary union but that there were good reasons for waiting. The arguments for and against were presented in the report under three headings: stabilisation policy, economic efficiency and political reasons. In view of this classification’s educational merits, I shall be using it here. The report’s arguments from stabilisation policy The arguments from stabilisation policy focus on ways in which EMU membership could be expected to affect the possibility of achieving a balanced economic development in Sweden, with good economic growth, high employment, price stability and external balance. | Given the anticipated gradual pace of the economic recovery, wage developments should remain moderate. The latest data on wage growth in the fourth quarter of 2003 lend support to this view. Moreover, the past appreciation of the euro exchange rate will continue to alleviate import price pressures and dampen the inflationary impact of higher oil and commodity prices, which are also related to strong demand at the global level. Again, this outlook for price developments is in line with available forecasts and projections. Given their conditional nature, we will continue to monitor all indicators closely. In particular, the increase in commodity prices and the evolution of long-term inflation expectations deserve close attention. Turning to the monetary analysis, annual M3 growth has been moderating since the summer of 2003, though only slowly. At the same time, the growth of loans to the private sector has been edging up. Both monetary and credit growth seem to be supported by the low level of interest rates prevailing in the euro area and may also reflect the improvement in the economic environment since the summer of 2003. Given the strong M3 growth over the past few years, there is currently more liquidity in the euro area than is needed to finance non-inflationary growth. The effects of this high liquidity on inflation over the medium term will greatly depend on future developments in the economy and financial markets. Should excess liquidity persist, it could lead to inflationary pressures over the medium term. | 0 |
Graph 1 shows the progress that has been made so far with fiscal consolidation and the plans embedded in the fiscal budget for 2011. Provided the plans are carried out, the consolidation involved will be impressive in both historical and international comparison, with a roughly 9 percentage point improvement in the non-cyclically adjusted fiscal balance from 2009 to 2012, even though there will be a significant slack in the economy for most of the period. Although it has been delayed and has faced obstacles on the way, the reconstruction of the domestic financial sector is far advanced. The three major commercial banks have been recapitalised, with foreign creditors taking a majority stake in two of them and the State BIS Review 139/2010 3 holding a majority in the third. At the end of June, all three had capital ratios above 16%, most of it common equity. As a result, Iceland’s banks meet Basel III requirements more than two times over. The recapitalisation of the savings banks is in its final stages. In June of this year, however, question marks were raised about the capital position of the banking system when the Supreme Court of Iceland ruled that linking ISK loans to exchange rates was illegal. The banking system had a large number of such contracts on its books. The precise scope of the problem was uncertain, but more importantly, it was not clear what interest rates these loans should carry when they were no longer exchange rate-linked. | Már Guðmundsson: The Icelandic economy two years after the crash Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at a meeting of the Icelandic-American Chamber of Commerce, New York, 19 October 2010. * * * Chairman and honoured guests, It gives me great pleasure to be with you here today and give a speech at this meeting of the Icelandic-American Chamber of Commerce. In my remarks, I would like to take stock of the current economic situation, two years after the collapse of the bulk of Iceland’s banking system, and assess the prospects for robust recovery. I am well aware that this only gives a partial picture. The saga of economic and financial developments in Iceland during the last decade or so is made up of two separate but interrelated stories. On the one hand, there is Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. This is a well-known story that has played out in other countries several times. On the other hand, we have the story of the rise and fall of three cross-border banks operated on the basis of European Union legislation (the European “Passport”). That story, at least for smaller countries, is much more unique than the first. Today I will focus on the first story and will have to refer you to another speech 1 and a forthcoming article 2 for my views on the latter. | 1 |
Not only have the original objectives of European integration been achieved, namely to ensure peace and prosperity in a historically conflict-ridden part of the world, the European Union has also shown its ability to overcome the various economic and political challenges with which it has been confronted throughout its almost 45-year history. Such is the attractiveness of the European integration project that, since the Treaty of Rome was signed in 1957, nine countries have joined the original six, and a host of others are keen to do so. A key accomplishment of this progress towards “ever closer union” will become truly tangible in a few weeks' time, on 1 January 2002, when most of the citizens of the European Union will finally have the euro, our money, in their pockets. In many ways, the prospect of EU accession has also been instrumental in triggering reform in the 12 countries currently negotiating entry into the EU, namely five Central and Eastern European countries, the Czech Republic, Hungary, Poland, Slovakia and Slovenia; three Baltic States, Estonia, Latvia and Lithuania; two southern European countries, Bulgaria and Romania; and Cyprus and Malta in the Mediterranean. Following some troublesome years at the beginning of the transition process, the accession countries have made substantial progress in building institutions and designing appropriate policy. The accession countries have now generally achieved macroeconomic stability. | Inflationary pressures stemming from high productivity growth in the tradable sector of fast-growing economies – known as the Balassa-Samuelson effect – have also been cited as one of the main reasons for higher inflation in catching-up economies, such as those of the accession countries. A closer examination of inflation developments in the accession countries shows, however, that the Balassa-Samuelson effect alone cannot explain the persistence of inflation differentials vis-à-vis the euro area. Moreover, notwithstanding its importance, the Balassa-Samuelson effect should not be overstated when explaining current inflation rates in the accession countries. Indeed, most empirical studies estimate the Balassa-Samuelson effect within a range of 1 to 2 percentage points. This does not mean, however, that the pursuit of real convergence conflicts with further progress on disinflation. On the contrary, the process of disinflation should be advanced in the accession countries, at a pace determined by the overall economic situation and in particular by the need for these countries to increase real convergence. The Maastricht inflation criterion, which will not be revised to take into account any possible Balassa-Samuelson effect, should not be seen as an immediate requirement for these countries, but rather as a medium-term objective for central banks. As the experience of some euro area participants shows, progress in nominal and real convergence can be, and should be, pursued in parallel. | 1 |
One, we will broaden the scope of eligible investments to include blended finance structures in which financial institutions in Singapore have been substantially involved. Two, we will give more recognition to concessional capital invested in such blended finance structures. Concessional capital is capital that accepts lower returns or higher risks, compared to other investors, and can help catalyse commercial capital into worthwhile but less attractive green and transition projects. The ability to crowd in capital from other investors is why we want to encourage and give extra recognition to concessional capital. Hence, for every dollar of concessional capital invested, we will recognise it as equivalent to up to $ of investments for the purpose of assessing if the SFO has met its investment requirement. Three, we will recognise grants that SFOs give to support such blended finance structures. Grants have no expectation of income or return of principal. Given its deeply concessional nature, we will recognise as $ for every dollar of grant given to blended finance structures. Second, we will encourage SFOs to invest in climate-related projects. For the purpose of assessing if the SFO has met its investment requirement, we will recognise its climate-related investments – anywhere in the world, and not limited to Singapore. 12/16 BIS - Central bankers' speeches Climate change is a global problem that is not bounded by national borders. As a low-lying island state, Singapore is particularly vulnerable to climate change. We should thus recognise all efforts made to address climate change issues. | Zeti Akhtar Aziz: Global policy perspectives Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Federal Reserve Bank of Kansas City Economic Symposium: Overall Panel on “Global policy perspectives”, Jackson Hole, United States, 1 September 2012. * * * It is my honour to be invited to speak on this closing panel, to discuss global policy perspectives at this year’s Economic Symposium, in this magnificent environment at Jackson Hole. My remarks will focus on global policies from the perspective of a policy-maker from an emerging economy, to discuss the evolving new frontiers of global policies, the global policy spillovers in particular to emerging economies, and on the policy priorities in emerging Asia in this environment. The global economic and financial landscape has changed tremendously over this recent two decades. Yet the underlying motivation and progress in policy-making have not reflected these changes. The disparity between policy and the new landscape has become increasingly more evident since the 2008 global financial crisis. Policy-makers have thus been challenged in preventing the build-up of the risks and imbalances prior to the crisis, arresting and containing the crisis once it had erupted, and then managing its aftermath. At the national level, these changes are well known. Driven largely by innovation and advances in technology, we now have more highly complex and more inter-connected financial systems with financial activity that has broadened to beyond the traditional financial intermediaries. | 0 |
Chart 13: The near-term indicators of house price growth have weakened Chart 14: Interest cost of mortgages will probably remain below average for a while Balance 80 60 40 20 0 -20 -40 -60 -80 2000 Per cent 12 Per cent 8 6 4 2 8 0 6 -2 -4 -6 2005 2010 2015 RICS price expectations balance (LHS) House price growth (RHS) Sources: Royal Institution of Chartered Surveyors (RICS) Residential Market Survey, ONS, Land Registry and Bank calculations. RICS price expectations are three month ahead net balances. 10 4 2 Average 1993-2007Q2 0 1987 1992 1997 2002 2007 2012 2017 2022 Sources: ONS, Thomas and Dimsdale (2017) sheet M12, Bank of England, Barclays Live and Bank calculations. The fan is calculated using probability distributions implied by options on sterling interest rate swaps. For further information on how option-implied distributions are derived, see Clews, Panigirtzoglou and Proudman (2000). I can now (finally) get to the point I wanted to make about interest payments. Even if low bond yields don’t presage rapid growth of house prices, one thing they do suggest is that interest payments on mortgage debt will also remain relatively low. Chart 14 plots those payments over the past, as a share of household income. It also includes a range for the future. This assumes that mortgage debt continues to grow in line with household income (whatever that turns out to be). | They are now used by most car buyers, including (one presumes) those who are overall savers. According to the government the majority of student loans will not be fully repaid (the ONS has recently decided that most of it should therefore be re-allocated to the government, an accounting change planned for later this year.) Taken together, car finance and student loans account for almost all the rise in households’ unsecured gearing in recent years, as currently measured. The remainder – comprising the more conventional credit card balances, consumer loans and overdrafts – is plotted in blue in Chart 5. It hasn’t grown much and is pretty much the same as it was, relative to income, in the mid-1990s. 2 You might, however, expect to see them in first differences (i.e. in the growth rate of debt), as these could help cleanse the data of enduring country-specific differences in the sustainable level of debt. | 1 |
It was becoming clear that the entire system was on the brink of collapse, and on 6 October 2008, the Icelandic Parliament passed emergency legislation with the objective of ensuring continued domestic banking operations. The following day, the Icelandic Financial Supervisory Authority (FME) intervened in the operations of Glitnir and Landsbanki. On October 8, following perfunctory exchanges between the UK Chancellor of the Exchequer and the Icelandic Minister of Finance, the UK government froze the assets of Icelandic banks in the UK and took over Singer & Friedlander, a British-licensed subsidiary of Kaupthing. The deposit part of Singer & Friedlander was transferred to ING. Later that day, a system-wide response of central banks and governments emerged, emphasising international coordination. Such efforts were too little and too late for the Icelandic banks, and on October 9, the FME intervened in Kaupthing Bank. The collapse of these three banks was quite large, not only relative to Iceland, but also on an absolute scale. According to Moody’s list of defaults during the period 1920–2008, 3 Kaupthing, at USD 20 bn, ranks 4th after Lehman, Worldcom and GMAC, with Glitnir close on its heels. The combined balance sheet of these failed banks was much larger than that of Worldcom, and only Lehman’s was bigger. And the effect was felt far and wide, as these banks were truly international. Kaupthing alone was active in 13 jurisdictions. | The industry structure of our economy has changed. A growing number of firms, and not only in the engineering industry, have targeted the oil industry. Labour shedding in some sectors has freed up labour for other uses. Chart: High wages in the oil industry BIS central bankers’ speeches 1 Oil companies have had the capacity and the willingness to pay. Tax rules have favoured investment spending and earnings have been solid. Oil company employees have been wage winners here in Norway. A state-of-the-art oil service industry has emerged. New products and technological solutions have been developed. For many firms, the contracts on the Norwegian continental shelf have been a springboard to new export markets. Chart: Growth in oil investment High oil prices and a profitable petroleum production industry have led to record-high oil investment in recent years. The level of investment in 2014 was equivalent to that of all the domestic non-oil industries combined. The positive spillovers to the oil service industry and other firms have been substantial. Employment has remained high and unemployment low, even when the financial crisis hit in 2008. A large share of the business sector and the labour market is now linked to the oil industry. A relatively small number of jobs are directly involved in oil and gas production. But if account is taken of all the suppliers to the petroleum sector, about 1 in 9 jobs in Norway, a total of about 300 000, were linked to the oil industry in 20141. | 0 |
Philipp Hildebrand: Money and monetary policy – the ECB experience 1999-2006 Comments by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Fourth ECB Central Banking Conference: The role of money: money and monetary policy in the twenty-first century, Frankfurt/Main, 9 November 2006. * 1. * * Introduction Dear colleagues and friends. It is a pleasure to be here today. I am honored to have the opportunity to discuss Money and monetary policy: The ECB experience 1999-2006 by B. Fischer, M. Lenza, H. Pill and L. Reichlin in front of such a distinguished audience. The paper presents an overview of the monetary analysis at the European Central Bank (ECB) since its inception. It provides market participants with detailed information on how the monetary analysis has been deployed by the ECB and how it has evolved over time. A newly created currency presents formidable challenges to monetary policy. Arguably, this is particularly true for the monetary analysis. Two challenges strike me as being paramount: first, policy makers face a fundamentally rearranged financial environment and second, empirical estimates are difficult to come by due to the invariably short sample period. A new financial regime implies potentially unstable money demand equations; a short sample induces imprecise estimates. The presented paper makes a valuable contribution in documenting extensively how the ECB has been conducting its monetary analysis in such an environment. | In that context, both the ECB and the SNB conduct a careful analysis of monetary aggregates partly in an effort to assess the risks of long-term financial imbalances. Moreover, acknowledging the monetary source of long-term inflation helps avoid the build-up of excess liquidity in the first place. In closing, let me therefore repeat that the Fischer et al. paper could benefit from focusing more extensively on the admittedly complex but nonetheless important link between money, asset prices and long-term inflation perspectives. In the 4 For example, Nelson (2003) argues that movements in monetary aggregates provide useful indications regarding different yields usually not incorporated in economic models 5 Baltensperger, Jordan and Savioz (2001), Jordan, Peytrignet and Rich (2001) 6 Reynard (2006) 7 For example, Issing (2002) provides evidence of a close relationship between excess money growth and real asset prices, a relationship that does not appear by looking at a standard Taylor rule as a measure of monetary policy stance. Similarly, Friedman (2005) showed that pre- and post-financial market crash evolutions of stock prices and gross domestic products were strongly related to the pre- and post-market crash evolutions of monetary aggregates. White (2006) pointed to the need of pushing further the frontiers of economic research in the direction of incorporating financial variables to assess longer-term macroeconomic developments. | 1 |
Yesterday at 8 a.m. Central European Time and 2 a.m. in New York, the ECB announced, together with the Bank of England and the Swiss National Bank, that – thanks to a swap agreement with the Federal Reserve System – we will conduct tenders of US dollars funding at 7-day, 28-day and 84-day maturities at fixed interest rates for full allotment. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. This is a “world premiere” in exceptionally confident cooperation between central banks. Another exceptional “first” at global level was the coordinated reduction in policy rates by the same amount of 50 basis points, which was decided by a large number of central banks from the G10 countries. It was justified by the fact that the intensification of the financial crisis had further diminished the upside risks to price stability and that central banks were considered to have regained control of inflation expectations. The role of the Eurosystem operational framework during the financial market turbulence The current financial market turbulence has certainly provided the biggest challenge to the operational framework of the Eurosystem since its inception more than ten years ago. The recent experience has so far proved that some of the structural features of our framework have had an important role in stabilising short-term money market rates, signalling the monetary policy stance and contributing to financial stability. | Finally, addressing impediments to investment, increasing productivity and further improving the business environment remain key for strengthening potential growth. To conclude, my assessment is that significant progress has been made, but that ensuring prosperity on a lasting basis requires continuing the implementation of an ambitious reform agenda going forward. BANKING It is essential to complete the banking union. In this respect, the European summit on 28 and 29 June is very important. The European banking landscape is still characterised by one important feature: a strong exposure of banks to their national economy, including a high exposure to domestic public debt. The completion of the banking union will, over time, lead to a lower exposure to national economies. Regarding the situation of the banking sector, there is still a sizeable legacy of non-performing loans in some banks. An impressive effort has been made to reduce the level, but the situation has not yet been fully rectified. The banks are now much more capitalised. Their liquidity is much stronger. But, on the other hand, we have to be clear: for the large banks, the new regime under the Bank Recovery and Resolution Directive – BRRD, to use its English acronym – has still not been tested in the event of a crisis – luckily. The banks still have a strong national orientation: they have exposures to the public debt of their country and a strong focus on the domestic economy. | 0 |
Eddie Yue: Hong Kong's positioning and prospect as an international financial centre Opening remarks by Mr Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, at The People's Bank of China and Hong Kong Monetary Authority Joint Seminar “Hong Kong's positioning and prospect as an international financial centre”, 9 December 2021. * * * Distinguished guests and friends in Beijing, Hong Kong and overseas: Good afternoon, and a very warm welcome to you all. I begin with heartfelt thanks to Governor Yi, not only for his inspiring opening remarks, but also for the unfailing support the PBoC has given to Hong Kong over many years. My colleagues and I also extend our gratitude to international institutions such as the BIS and the IMF for your close partnership through all these years. Without your support, Hong Kong’s financial sector would be in a far less robust position than it is today. In a little over six months we will be celebrating the 25th anniversary of Hong Kong’s establishment as a Special Administrative Region. This is a good moment to pause – both to reflect on Hong Kong’s success as an international financial centre, and to consider the steps we need to take to build on that success. Tackling such a vast subject in ten minutes is a tall order. Let me make an attempt by asking two simple questions. What are the attributes of an IFC? And, how far does Hong Kong possess them? I do not have all the answers. | Christian Noyer: European financial markets – opportunities for growth and value creation Speech by Mr Christian Noyer, Governor of the Bank of France, at the First French-Indian Financial Forum, Paris EUROPLACE, Mumbai, 16 May 2007. * * * Ladies and Gentlemen, In the absence of Mr Mestrallet, Chairman of Paris EUROPLACE and CEO of Suez Group, who cannot be with us today because of last minute commitments that require his presence in France, I have the great pleasure of welcoming you to our first French-Indian Financial Forum in Mumbai. India’s rapid economic growth in recent years makes it an attractive investment destination for international investors. And the economic revival in Europe also offers interesting opportunities to Indian investors and issuers wishing to diversify their investment strategy. That’s why Paris EUROPLACE believes that we all have a common interest in attending this forum today to discuss business opportunities between European and Indian Financial Markets. I would like to express my warm thanks to my friend Dr. Rakesh MOHAN, Deputy Governor of the Reserve Bank of India, for being with us today. We are also very honoured to welcome Mr Ashok WADHWA, Chairman, Capital Markets Committee of FICCI, the partner of Paris EUROPLACE in the organization of this forum, Mr Ravi NARAIN, Managing Director and CEO of the National Stock Exchange of India Ltd and Mr Peter KURIAN, Chairman of the Association of Mutual Funds in India, as well as all the other distinguished representatives of the Indian and French financial communities. | 0 |
The new legislation will make clear that the aim 2 BIS central bankers’ speeches of banking regulation will be to ensure that the adverse impact of a failure of a firm on the stability of the system as a whole is minimised. That is why resolution will be at the heart of the new regulatory regime – supervisors should act knowing that resolution powers can and will be deployed in the event of failure. But adequate resolution procedures are not an alternative to ensuring that banks have sufficient loss-absorbing capital; rather they are complements. All institutions, especially so-called systemically important financial institutions, must have much higher levels of loss-absorbing capital than before the crisis. That should be in the form of common equity. A crucial part of the new Basel III framework is the recognition that only common equity is ultimately a truly loss-absorbing layer of capital. I am, therefore, concerned that the European Commission will propose a weakening of the Basel standards in that area. Moreover, as the IMF made clear in its recent Article IV Report, it would be misguided for the EU Capital Requirements Directive to prevent member countries from imposing higher capital requirements to protect the interests of domestic taxpayers. Nor should European legislation try to prevent the FPC from varying macro-prudential instruments, including capital ratios and risk weights, as appropriate to national circumstances. The Basel framework was agreed globally after long and difficult negotiations, at the request of the G20. | While such a divergence of opinions in Islamic financial transactions is not a new phenomenon, it has now prompted increased international dialogue among the Shariah scholars from the different parts of the world. It is the closer linkages between the global Islamic financial markets and the increased platforms for greater engagement on Shariah issues that will contribute towards promoting an increased common understanding and mutual acceptance on the rules, standards and Shariah views, and for convergence to occur. This would evolve global Shariah standards for the Islamic financial industry. As Islamic finance continues internationalise with expanding scale, there will be greater financial intermediation linkages among the East Asian, West Asian, and the Middle East regions – creating the "New Silk Road". While this New Silk Road of financial flows is enhancing connectivity between Asia and the Middle East, both regions have, as in the case of the old Silk Road, extended the New Silk Road to the rest of the world. Global investors and the international financial community have already drawn benefits from the increased diversification of investment activity to the two regions. The expansion of the interlinkages of 4 BIS Review 136/2008 intermediation to and among these regions would in turn contribute towards a more efficient allocation of capital in the global financial system. Closing remarks Against a backdrop of an increasingly uncertain global environment, Islamic finance, as a form of financial intermediation in the international financial system, has continued to be viable and competitive. | 0 |
Reflecting the complex, systemic, and cross-national nature of the threats, recent global initiatives have been undertaken at multiple levels. At the international level, SWIFT has taken the lead through its Customer Security Program (CSP). At the core of the CSP is promoting increased transparency concerning the adherence of SWIFT users to best practices on internal controls, with a related attestation required by the end of this year. At the global standard-setting level, the BIS Committee on Payments and Market Infrastructures (CPMI) initiated last year a Task Force on Wholesale Payments Security. The Task Force was established to look into the security of wholesale payments that involve banks, financial market infrastructures and other financial institutions. This effort builds on previous work by the CPMI on cyber security and operational risk and is working to make sure there are adequate checks and balances in place at each stage of the payments process. While these international efforts are important and necessary, they are in themselves inadequate unless there is buy-in at the institutional level for strengthening internal risk frameworks, controls, and cultures. For some, this may require investing in expanded technical capabilities. But for all, this is represented by “going back to basics” by continuously reinforcing strong risk management policies and practices in your work environments. Cyber incidents often originate from an initial breakdown at the human level, be it inserting an unauthorized USB drive, leaving a token inserted overnight, clicking on an improper link, or falling prey to social engineering. | But the degree of commitment is bound to be greater, compared with job creation of any kind, for new capital investment. And it’s clear in the data that it’s investment that’s particularly susceptible to uncertainty, much more so than employment. One way of demonstrating that is Chart 9. The blue line in this graph is the difference between the growth rates of employment and investment. The spread between the two is clearly correlated with uncertainty and, in that context, the fact that employment growth has held up much better than investment in the past year or so is less surprising. What the generic relationship in [1] tells you (as 9 Even the dictum that one “marries in haste [only to] repent at leisure” could perhaps be seen, if only to an unromantic economist, as a lesson about the option value of waiting. 10 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 10 does its particular incarnation in [2] and [3]) is that greater uncertainty – an increase in downside risks in particular – has exactly the same effect as an increase in the cost of finance or a tax on capital income: it penalises investment relative to employment. What is the scale of this effect? | 0 |
Altmann, R (2009), ‘Why quantitative easing is a disaster for pensions’, article in The Telegraph. Atkinson, A (2015), Inequality, Harvard University Press. Ball, L, Furceri, D, Leigh, D and Loungani, P (2013), ‘The Distributional Effects of Fiscal Consolidation’, IMF Working Paper, No. 13/151. Ball, R and Chernova, K (2008), ‘Absolute Income, Relative Income, and Happiness’, Social Indicators Research, Vol. 88, No. 3, pp. 497-529. Barnes, L, Feller, A, Haselswerdt, J and Porter, E (forthcoming), ‘Information, Knowledge and Attitudes: An Evaluation of the Taxpayer Receipt’, Journal of Politics. Brynjolfsson, E and McAfee, A (2016), The Second Machine Age – Work, Progress, and Prosperity in a Time of Brilliant Technologies, W. W. Norton & Company. Büchs, M, Bardsley, N and Duwe, S (2011), ‘Who bears the brunt? Distributional effects of climate change mitigation’, Critical Social Policy, Vol. 31, No. 2, pp. 285-307. Buiter, W (2014), ‘Central banks: Powerful, political and unaccountable?’, Journal of the British Academy, Vol. 2, pp. 269-303. Bunn, P, Drapper, L, Rowe, J and Shah, S (2015), ‘The potential impact of higher interest rates and further fiscal consolidation on households: evidence from the 2015 NMG Consulting survey’, Bank of England Quarterly Bulletin, 2015 Q4, pp. 357-368. Bunn, P, Pugh, A and Yeates, C (2018), ‘The distributional impact of monetary policy easing in the UK between 2008 and 2014’, Bank of England Staff Working Paper, No. 720. | For example, the MPC’s monetary loosening added around £ per year to the average household’s net interest income, £ to their labour income and £ to their net wealth. The lower part of Figure 1 looks at the effects of non-financial channels on well-being, namely the reduction in the probability of unemployment, translated into income-equivalent units. 44 The increased probability of being in a job adds in excess of £ each year for the average household. All in, this gives a boost to welfare for the average UK household of close to £ This is large relative to annual household income of £ As a memo item, and point of comparison, Figure 1 also shows an estimate of the annual cost of undertaking monetary policy, using data from the Bank of England’s accounts. 45 On a broad estimate, this annual cost amounts to around £ per household per year. This “servicing charge” for monetary policy is clearly a very small fraction of the annual benefit to households from looser monetary policy over the period. The disaggregated analysis set out means that, in principle, a monetary policy scorecard like this could be fitted to any individual’s circumstances. As an illustration, Figures 2-4 show scorecards for three different hypothetical households: a renter under the age of 30; a 30-50 year old mortgagor; and a 50-plus home-owning household. | 1 |
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