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The capital requirements and other constraints we place on the regulated institutions have played an important role in encouraging the transfer of risk to a broader range of institutions, including the leveraged private pools of capital. As the aggregate size and importance of those funds increases, distress among those institutions can have greater effects on overall market dynamics, potentially increasing risks to the regulated core. Over time, this will force us to consider how to adapt the design and scope of the supervisory framework to achieve the protection against systemic risk that is so important to economic growth and stability. For the present, however, our hierarchy of priorities should focus on improving supervisory incentives to make counterparty discipline more effective and to strengthen the resilience of the core institutions to more adverse economic and financial conditions. Thank you. 8 BIS Review 85/2006 | One of those efforts is our plan to bring in a simpler regime for smaller banks and building societies – we call this “strong and simple” just in case anybody thinks we want to have a weak regime for such firms. The prudentist does not believe in letting her younger patients develop cavities, but she does want to make their visits more pleasant. As far as I can work out from the many responses to our discussion paper, pretty much everyone thinks this is a good idea. The question now is how to design the simpler regime. The responses set out a broad range of views, which we are currently analysing. For instance, the discussion paper set out two alternative approaches to designing prudential requirements for the simpler regime – a ‘streamlined’ approach, which takes the existing framework as a starting point and modifies elements that are too complex for smaller firms, and a ‘focused’ approach, which is based on a narrower but more conservatively calibrated set of prudential requirements. There are advantages and disadvantages to each, and these will need to be weighed up when 3/5 BIS central bankers' speeches designing the regime. The responses to our discussion paper seem to suggest relatively stronger support for a streamlined approach, but we’ll keep going through the responses in detail and then bring forward proposals for consultation in due course. Our other main early reform effort is less popular, strictly for the prudential enthusiast only. But it may well be more important. | 0 |
Statistics do not have a heart or a religion When we express our personal experiences, we step into a dangerous territory. Our personal experiences are guided by our emotional and subjective feelings. When we share them with others, we are inviting them to accept our emotional and subjective feelings as if they too have experienced the same. This is where we run into problems. Unless others too have the same emotional and subjective feelings, there is no reason for them to accept our experiences as their experiences. Hence, statistics to be shared by everyone should necessarily be based on objective considerations. In other words, statistics should not have a heart. Its religion should be pure objectivity. It should convey facts as has been observed by an individual free from personal biases or prejudices. Only such an impersonal statistical framework has the capability of serving people intending to use them for making judgments about the real world. How economic development occurs? An economy has to play a specific role towards its members. It has to produce and supply goods and services as demanded by them having consideration for timeliness, quantity and quality. When an economy produces these goods and services in larger and larger volumes year after year, new wealth is created, raising the well-being of its members. The continuous creation of wealth by people in this manner raising the overall welfare levels brings about what is called “economic development”. | The market for information and statistics There are market based statistics-producers in developed countries. The market agents are ready to pay a price in order to acquire such statistics. The producers of statistics conduct frequent market surveys, analyse results, supply them on line at a price and help market agents to create wealth. Unfortunately, in Sri Lanka, we do not have such market based statistics-producers. The collection and analysis of vital data that are useful to market agents are being done by a few governmental organisations. Like any other product supplied by the government, such data are also supplied as a public good free of charge. Even when the governmental agencies could sell statistics at a price, they do not venture to do so, because they are guided by such principles as “doing utmost benefit” to people as a social service. The country too, therefore, expects free goods from these governmental organisations. But this creates a problem known as “the agent-principal problem” in economics. The agent-principal problem The agent-principal problem is typical to any government service. It says that the agent who is a government bureau or a department or even a university does not have incentive to produce its output at its best. The principal who is the user of the service, on the other hand, is scattered and not in a position to influence the agent to improve quality. | 1 |
Thus, while the euro area shows a unique institutional setting – in contrast to monetary policy, fiscal policy is far from being single – national governments have agreed to common rules which ensure that the euro area remains an efficient and stability-oriented single economic area. 4 BIS Review 61/2001 Conclusion Let me conclude by saying that the single currency and the establishment of a new European institution responsible for monetary policy in the euro area complemented the process of economic integration that started half a century ago in Europe. This process and the institutional build-up, together with clear and coherent policy goals and an efficient allocation of the respective responsibilities, are transforming the euro area into an increasingly unified economic entity which, in many respects, resembles the US. Although most of the required structural reforms still have to be implemented, it cannot be denied that substantial progress has been made. The introduction of the euro has been and will continue to be a powerful catalyst, contributing to greater competition in the economic and the political sphere, thereby further enhancing the welfare of the citizens in the euro area. Ladies and gentlemen, political leaders throughout Europe have recognised the need for structural changes in both taxation and expenditure policies and regarding the deregulation of product and labour markets. | For instance, what was first a European Assembly with only consultative powers has now become a European Parliament with legislative responsibilities extended to more and more areas, and members of parliament who are directly elected by European citizens. Within the Council of Ministers, majority voting has increasingly become the norm at the expense of unanimity. Finally, in addition to institutional reform, economic integration has also served to foster progress in areas beyond the economic sphere. In order to effectively guarantee the four freedoms, it has, for example, been deemed necessary to grant powers to the EU in fields such as immigration and human rights. Ladies and gentlemen, as a consequence of the integration process that began largely in the economic sphere, the EU already exhibits a number of features of existing political unions in terms of both its institutional structure and its competencies. However, it is clearly not a complete political union. The extent to which further integration is either desirable or necessary is an ongoing debate. It is a debate that is ultimately for politicians, not for central bankers. Nevertheless, the process of European integration will undoubtedly also have implications for the conduct of the single monetary policy. No central bank operates in a vacuum. It needs to be supported by an appropriate underlying framework. There is no doubt that the overall performance of the euro area economy depends not just on economic, but also on institutional and political structures. | 1 |
Thus, at the statistical cutoff date it was within the range of estimated shortterm fundamentals, but below its 15- to 20-year average. The baseline scenario uses as a working assumption that the real exchange rate will depreciate steadily throughout the projection horizon, reflecting the interest rate differential with the US rates (figure 10). Abroad, incoming figures for output and inflation show no big changes in these tendencies so far. In the United States, activity and labor indicators point to a strong economic performance. In other developed economies, there are signs of an incipient recovery. As regards emerging economies, China’s growth is stable and Latin America shows heterogeneity. In this context, the need for further monetary stimulus in Europe and Japan is not so urgent anymore, and the expectation of a new policy rate increase by the Fed has consolidated. As I said earlier, this decision occurred after we had stopped the presses for this Report. It is worth noting that the Fed announced that the withdrawal of the monetary stimulus would be slightly faster. The copper price was fairly stable up to early November, when it jumped from around 2.2 dollars per pound to nearly 2.6. Nonetheless, this movement seems excessive given the evolution of its fundamentals. Oil, in turn, over the past few months, has fluctuated between 45 and 50 dollars per barrel most of the time. | Determination is necessary in order to act in a timely way, because an untimely monetary policy will delay the convergence of inflation to the target or will do so at an unnecessary cost. 9 / 19 BIS central bankers' speeches In practice, this means making robust monetary policy decisions in uncertain conditions. Thus, in our last monetary policy meeting we communicated that, in the most likely scenario, a bounded easing of the monetary impulse would be needed. The search for the right combination of prudence and determination is also necessary in the other fields where the Central Bank operates. To monitor the financial sector without restricting its ability to innovate; to develop instruments and facilities that are attractive to the market, and to improve risk management and transparency without compromising efficiency and timeliness. Identifying the new challenges facing the Central Bank and finding the answers that best balance prudence and determination requires organized and systematic efforts. As an expression of it, in the coming months we will develop a new institutional strategic planning exercise. We intend to consult with various players, both public and private, including, of course, this Committee. The purpose of this exercise, of the initiatives we undertake, and the conduct of our regular policy decisions must be particularly explicit. What we ultimately aspire is to continue to strengthen the Central Bank of Chile as an institution of excellence, that our fellow Chileans can trust. Thank you. | 1 |
Compared with past experience in Spain, we are currently in a fairly exceptional situation: GDP and employment are growing at over 3%, and the economy is maintaining its gains in competitiveness vis-à-vis the external sector, whereby our exports continue to increase their market share and we continue to run a substantial external surplus. This combination, which has arisen solely over very short periods in Spain’s economic history in recent decades, obviously does not in itself guarantee any continuation, nor does it mean that Spain has managed to sufficiently overcome the consequences of the crisis that broke in 2007, as indeed the unemployment and foreign debt figures, among others, testify. Continuing to pursue fiscal consolidation policies – the only means of containing the increase in public debt relative to GDP and bringing about its subsequent reduction – and the policies that have brought about our gains in competitiveness will prove pivotal to controlling our financing costs, our balance of payments and, of course, the capacity of our economy to generate employment. Thank you. BIS central bankers’ speeches 5 | Figure 3: Actual MPR versus Taylor rule (†) 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 2010 2011 Lag 2012 Inflation 2013 GDP 2014 2015 Shock 2016 D(MPR) 2017 2018 Taylor rule (†) Source: Central Bank of Chile. Figure 4: MPR Chile vs US (†) 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 2000 2002 2004 2006 2010 2008 2012 2014 2016 0 2018 CHL: Monetary Policy Rate US: Fed Fund Rate (†) Sources: FRED and Central Bank of Chile. Some key factors supporting the roles of ER as a shock absorber of financial and commodity price shocks A flexible ER regime is not a form of snake oil to alleviate any sort of global ailment. ER volatility can, of course, generate major wealth shifts, and even solvency problems to agents with large balance sheet mismatches—including government. They can induce major losses in competitiveness, which may harm overall activity if winners fail to capture benefits as fast as 6 losers realize costs. Constituencies around fixed prices—including the ER—are very concentrated and powerful. | 0 |
Estimated effect on GDP after three years.1) Percent 0.2 Approved measures Discussed measures 0.2 Gradual global tariff increases 0 0 –0.2 –0.2 –0.4 –0.4 –0.6 –0.6 –0.8 –0.8 –1 –1 –1.2 –1.2 –1.4 –1.4 US China Euro area Globally 1) The effects are based on model estimates from the IMF and Norges Bank. Approved measures are described in the box “Trade conflicts create uncertainty” in Monetary Policy Report 3/18. Discussed measures include a 25 percent tariff on all US imports from China and a 25 percent tariff on US imports of cars and car parts, in addition to retaliatory measures by countries affected. Gradual global tariff increases imply a 1 percentage point annual increase in tariffs on all imported goods in all countries over the coming years. Sources: IMF and Norges Bank Protectionism means reduced growth capacity, putting at risk the gains brought about by open borders. If the world enters a new period of rising trade barriers, a prime engine of growth and development may lose its momentum. The most serious consequences of new tariff barriers will be faced by developing countries. The WTO has more than 160 member countries. Many of the new countries have experienced rapid growth. Living standards have improved for large population groups. But not everyone has reaped the gains associated with globalisation and trade. Some have lost. Income gaps have widened. | That goal now seems to be within reach, thanks in no small way to the Government’s steadfast commitment to fiscal consolidation. The achievement of a political consensus on the euro is also a welcome development. The main remaining challenge is to meet the inflation criterion. Tonight I shall argue that the euro is a necessary, but not a sufficient condition for faster growth. More specifically, unless we establish limits on how much we consume and, within limits set by the economy’s earning capacity, allocate a greater proportion of the national income to investment, the advantages of euro area membership cannot be fully realized. It is time for the country to disown an unfortunate legacy of its colonial past that is best reflected in the notion that it is possible to spend more without first producing more. To this day, political discourse contains frequent references to tax reductions and subsidies, when it should be rallying popular support for the need to strengthen the country’s capacity to generate wealth on a sustainable basis. The benefits of euro area membership As I have said, the adoption of the euro should enhance the economy’s potential to grow faster. The elimination of exchange rate risk and currency conversion costs should result in increased trade, while the lower interest rate and inflation environment of the euro area should make for reduced business costs and greater macroeconomic stability. Combined with the fiscal discipline associated with monetary union, this is expected to translate into higher credit ratings and better investment prospects. | 0 |
Some types of cover, such as Employer’s Liability, might only be called upon years after the original policy was written. Having cover is essential to allow certain businesses to operate and such cover has, in the past, provided vital compensation to beneficiaries who have been affected by asbestos and other harms that may take decades to fully become known. It is so important, for everyone involved, that insurers will still be there, standing ready to pay these claims when they arise. 1/6 BIS central bankers' speeches Annuities represent another kind of very long term and important promise. Policyholders may entrust the results of a lifetime of work and careful saving to an annuity provider; there are currently more than ten million such annuity policies in the UK2. These policyholders do this knowing that there are no refunds, and no chance to switch provider once they are committed. They are placing a huge amount of trust in their insurer’s promise to make payments to them for years into the future. For many customers, these payments may form a substantial portion of their retirement income. This enormous trust that policyholders place in their insurers has several significant benefits to the wider economy. I already mentioned how risk transfer allows innovation and growth, and smooths consumption. | Recall that one of the key attractions in working for a particular organization is association with people who are liked and respected. Do people like 2 See Corporate Executive Board, Research Reveals That Integrity Drives Corporate Performance: Companies With Weak Ethical Cultures Experience 10x More Misconduct Than Those With Strong Ones, Press Release, September 15, 2010. See also Anthony Salz, Salz Review: An Independent Review of Barclays’ Business Practices, 189‐191 (App’x C) (discussing the impact of culture on two archetypes of employee behaviors, and collecting sources). 3 Somewhat tautologically, the proof of a good culture might be the absence of bad behavior. As Bill Dudley, the President of the Federal Reserve Bank of New York, has observed: “How will a firm know if it is making real progress [on culture]? Not having to plead guilty to felony charges or being assessed large fines is a good start.” William C. Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry, Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, October 20, 2014. 2 BIS central bankers’ speeches and respect leaders who lack integrity? Good luck attracting top talent in that kind of organization. A third key component in a strong ethical culture is values. Most firms elaborate rules of proper behavior, often in well‐crafted codes of conduct. In some large, complex organizations, the rules can be difficult and tedious, like the rules for conflicting interests and for avoiding trading on insider information. | 0 |
The financial conditions on the Mainland also present, in my opinion, a golden opportunity for the liberalisation of restrictions to facilitate the greater use of Hong Kong’s financial system and for the associated risks to be prudently managed. With nearly $ trillion, the Mainland is now the largest foreign reserve holder in the world: it is running a fairly large balance of payments surplus and its savings rate is probably the highest in the world. There may not be many precedents of any great significance, in the history of economic development in other countries, of having access to two financial systems in one country, and so we need to be cautious, as always, as we venture into something new. Deng Xiaoping, when giving guidance to the drafting of the Basic Law on 16 April 1987, also recognised that "one country, two systems" is "a new thing" and that "there are many matters we cannot predict" 4 . The important thing is to be clear about the principles behind what we are trying to do. The basic principle, as far as the financial system is concerned, has always been very clear, regardless of the characteristics of the political, economic and social systems, and this is the effective mobilisation of savings into the hands of those in need of funds to finance consumption, investment and other economic activities 5 . | So, what about the question I raised earlier on about whether the two financial systems of the country have a working relationship that maximises the mutual benefits of the two jurisdictions and therefore is in the best interests of the country? If you want an honest answer from me, it would I am afraid not be one in the affirmative. There seems to me considerable scope for a co-operative, complementary and interactive working relationship between the two financial systems, in which, as I said earlier, relative strengths are exploited and relative weaknesses addressed, and synergies maximised. The further question then is how such a working relationship should best, and realistically, be developed. It is quite natural to think that developing such a relationship between the two financial systems could be left to the market. While this is theoretically possible, it assumes that market forces are allowed to work freely across the two financial systems, which is not always the case. In merchandise trade, this is by and large true, and as a result the two economic systems specialise in areas in which they have respectively comparative advantage in producing. But in the provision of different services, as in the case of financial services, there are restrictions limiting the working of market forces, for example, restrictions on access of service providers to the other system and restrictions on the mobility of the user of services across the two systems. | 1 |
This effort stems from a critical lesson from the crisis – that we need to better understand our firms and how they operate, including a greater understanding of how the governance of the firm works. We expect that by intensifying the supervisory relationship with those overseeing the health of the firm, we can improve the flow of information and dialogue. This should give us an earlier and clearer view into emerging business trends and risk strategies within the firm. It should give us a better sense of what the senior leaders and directors are thinking. And, it also creates a better dynamic where discussions are more frequent and less monumental so that dialogue flows more naturally through all means – not just in person, but also over the phone and via email. This effort extends not just to firms where we are the home country supervisor, but also to large global firms where we are the host supervisor. We realize the challenges in building any relationship, and the challenges in doing so across geographic boundaries, cultures and corporate entities are even more challenging. Nevertheless, where we have had success in building that dialogue and deepening the engagement with business leaders and directors of global firms, we have achieved a higher degree of understanding on both sides. As relationships develop, we have found more frequent, informal dialogue to be extremely productive for all involved. Firms are in a better position to understand what our concerns are and respond more appropriately and timely to these concerns. | For many years after the second world war in this country, during the 1960s and 1970s, macroeconomic policy - overall fiscal policy and monetary policy operating together and with various forms of direct control - was aimed at juggling what were seen as the conflicting objectives of economic growth and falling unemployment on the one hand and limiting inflation and maintaining a 1 BIS Review 110/2000 manageable balance of payments position on the other. Essentially the policy levers would be set initially at go, to stimulate demand and encourage growth and employment, until the evidence of overheating became intolerable, when the levers were thrown abruptly into reverse, to bring about a juddering economic slowdown. This was the infamous go-stop economic policy cycle which led to the boom-bust economic cycle. While the objective was no doubt to ensure that we never again experienced the depression and mass unemployment of the inter-war period, the effect was to induce uncertainty and short-term economic decision-making, with an increasingly damaging impact on our overall economic performance. And the situation became progressively worse from one economic cycle to the next as each peak produced higher and higher inflation and each trough higher and higher rates of unemployment - with the peaks becoming progressively shorter-lived. It became a classic example of more haste less speed. | 0 |
Øystein Olsen: Economic perspectives Address by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), to the Supervisory Council of Norges Bank and invited guests, Oslo, 17 February 2011. * * * Nearly a decade has passed since the inflation targeting regime was introduced. In spring 2001, Norges Bank was charged with the task of setting the interest rate with a view to keeping inflation low and stable. At the same time, new fiscal policy guidelines, also known as the fiscal rule, were implemented, charting a course for petroleum revenue spending. For the first time in a long time, economic policy in Norway was given an overall long-term anchor and a binding operational objective. In Report No. 29 to the Storting from 2001, the Storting was informed of the new guidelines. The report may not qualify as poetry, but it is a document to which I have a close relationship. This evening I will take a look at the experiences of these operational guidelines and discuss the following questions. Has the inflation target and the fiscal rule lived up to the expectations of ten years ago? And how can the experiences of the past ten years be used in addressing today’s challenges? In 2011 it is also ten years since Georg Akerlof, Michael Spence and Joseph Stiglitz were awarded the Nobel Prize in Economics for their work on asymmetric information. The theories provide a backdrop to understanding the financial crisis that engulfed the world economy in 2008. | What is more important that the core purpose of banking remains intact – that is to provide reliable passage for resources to move to productive use, including under the most challenging conditions. I thought I would close these remarks by quoting Machiavelli ‘There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things’. Ladies and gentlemen, the future is about a new order of things. Thank you. 6 BIS central bankers’ speeches | 0 |
And in order to limit risk-taking by banks there is also a strong case for relating the payments made by different banks to finance the insurance scheme to the risks that they will fail. And in that context, some element of pre-funding is natural and is used in many countries, including those with banking systems similar to our own, such as Canada and Sweden. A degree of pre-funding is one of those ideas that is bound to be unpopular before the fund is called upon, but seems decidedly wise after the event as it lessens the burden on the banking system in a time of stress. On the regulation of bank liquidity, the FSA has already issued a discussion paper, and I support strongly the case for reform of liquidity regulation made this morning by Sir Callum McCarthy. I very much hope that an international initiative to include liquidity in the Basel capital regime, in which the Bank is playing a leading role, will come to fruition. For our own part we, along with other central banks, have been reviewing the way in which our market operations can alleviate stress in the banking system. The primary objective of our money market operations is to ensure that the interest rate on overnight lending in the market is close to the Bank Rate set by the Monetary Policy Committee. That constrains the net amount of central bank money we lend to the system. | The existing tripartite framework needs to develop so that the authorities are able to reduce systemic risk not just by effective management of crises but by creating incentives for financial institutions to avoid excessive risks. Some of the elements of such a framework I described in my evidence to the Treasury Committee on 20 September last year. In line with international experience, they included a special resolution regime for failing banks, changes to deposit insurance to reduce the incentives for bank runs, and a proper regime for the regulation of bank liquidity. At the heart of the case for a special resolution regime is the need to find a way to allow banks to fail in an orderly manner. As the Treasury Committee said in its report The Run on the Rock, “Banks should be allowed to ‘fail’ so as to preserve market discipline on financial institutions”. It is clear from the responses to the Consultation Document that there is widespread acceptance of the basic case for a resolution regime. But that is tempered by concerns about the details of its design. I want to highlight three key features that will be central to the success of the new regime. First, responsibility for resolving a failing bank should be delegated to a resolution authority which should have a wide range of instruments available to help resolve a failing bank. Which body assumes the role of the resolution authority is less important than the granting of those powers to some body. | 1 |
The second strategy is to ensure that we achieve the goals of social equity and economic efficiency in operationalisation of waqf projects. While projects developed from waqf proceeds should benefit society at large, it is my humble view that it makes sense from an economic efficiency standpoint to allow market mechanism to allocate these scarce resources. As waqf is intended to generate benefits in perpetuity for all generations to come, operating the fund on commercial terms allows it to be invested and managed in a manner that ensures preservation of capital. Prioritising economic efficiency can help strengthen the position of waqf to carry out its social equity objectives effectively. To illustrate, rental of waqf-developed commercial complexes should be market determined, but lots with preferential rental rates could be designated for deserving community purposes, such as co-working spaces for start-ups and entrepreneurs. In healthcare, waqf hospital charges should be comparable with private medical fees, but different pricing tiers could be provided for the B40 segment and other deserving patients. Similarly, waqf-owned universities should charge full tuition fees to all, but offer scholarships and other forms of need- and merit-based assistance for high-potential students from less privileged backgrounds. This approach is indeed in line with the conditions for waqf creation – ziyadah and nuqsan, idkhal and ikhraj, which grant flexibility and openness to redirect waqf benefits to those in greater need. If executed well, waqf can be both economically efficient and sustainable, while at the same time fulfiling its socio-economic objectives. | ' 323/ 02 3 03 @29 59735 345 3275940 73 293 E2 374 3 53 345 53 72753 9 7473 345 53 722743 345 722743 722743 925745 33 345 7 6587 17 7887 9 7 7 7 78 778517 1171*+3- 7787 13 1 13 3 0401 5 54 4 43 5304 5 ' 5 435 30 45 A 705 4 B 23 045705 CD+*/E10D+ 0 46 8 8 171798 84 7 781786 67 ,46 1798 648 1 03 813 74 7 846 7814 8 6 13 8 7 88 8 85 7+ 8 7 5 6 8 8 5 ' 5 88 88 7 8657 88 7 8657 + 686 +86572 8 ;6 8 7 &67+2 7& 7 # 8 (67 7 8 78 76A ,67 8 78 7&2 8 6 76 0 &8 668 8 | 0 |
[13] We would therefore expect that banks that have more AT1 instruments issued are even more wary of breaching their MDAs. And this is what my colleagues find happened during the pandemic. Banks with more AT1 capital[14] and low capital surpluses before the stress defended their capital ratios to a greater extent than their peers after the onset of the pandemic. They also reduced lending, especially to riskier borrowers. The evidence suggests that we need to find a way to preserve the intended effect of MDAs – the capital conservation effect – and get rid of the unintended effect – the market stigma inducing firms to deleverage. One way to do so might be to consider a broader form of capital conservation that applies distribution restrictions to firms irrespective of their capital ratios during the stress. A similar tool, would achieve two main objectives. First, it would support resilience and avoid that banks, after the release of the CCOB, make imprudent capital outlays instead of supporting lending to the real economy. Second, a sufficiently broad-based application of restrictions would mitigate the market stigma generated by firm-specific MDAs and support more buffer use. Such tools were used during the early stages in the pandemic when uncertainty was at its peak – they were unpopular in part because of fear of investor reaction but also because they were not an explicit and predictable part of the framework; this proposal will enhance predictability. | For example, the 10-year real rate beginning in 10-years’ time implied by current government bond yields is -¾%. The comparable number over 2000-2006 was +1⅔%. And even during the height of the financial and euro area crises over 2008-2012 it was +¾%. (Chart 7) In the long term, the most important determinant of potential output growth is productivity growth, which is in turn determined by the rate at which new ideas are generated and implemented. And given the very disappointing productivity performance of the UK over the past 7 years, it would perhaps be understandable were financial markets to have lost hope that productivity growth would ever return. Perhaps they agree with those who argue that recent innovations cannot contribute as much to productivity growth as historical ones such as the electric light bulb, the internal combustion engine and indoor plumbing once did. 14 Human history has had many periods in which pessimism about innovation and technological progress has been proven wrong, dating at least back to Malthus. There is much by way of exciting innovation that has yet to be fully exploited. 15 3D printing is transforming the R&D process by vastly increasing the capability to produce prototypes. Advanced robots are being developed that will allow increased precision and safety in their use, thus increasing our ability to automate many routine activities. Firms are learning how to harness the power of Big Data, which will allow them to personalise their products better and reduce waste. | 0 |
Chart 11 Distributions of cumulative 3-year GDP growth under typical conditions and with elevated debt and a wide current account deficit Distribution with typical conditions Probability density 0.12 Distribution with elevated debt and wide current account deficit 0.10 0.08 0.06 0.04 -0.3% 0.02 0.00 -8 -6 -4 -2 0 2 4 6 8 10 12 Cumulative GDP growth over 3 years (%) 14 Notes: Chart shows the predicted distribution of the cumulative GDP growth rate over 3 years. The blue line is the predicted distribution when the change in household credit-to-GDP, the change in corporate credit-to-GDP and the current account deficit are at their historical average in the UK. The red line shows how this distribution shifts when household and corporate credit have increased by 10pp relative to GDP, and the current account deficit has widened by 2pp. Our work finds that if the economic earthquake comes after a 10% increase in household debt relative to incomes, the cumulative loss of output over the 3 years after the quake is 1.5%. If it comes after a 10% increase in corporate debt, the cumulative loss of output is 1%. And for every 1% of current account deficit before the quake, a further 0.5% of output is lost after the quake (Chart 12). | Market-based debt has accounted for all of the growth in the stock of debt to UK businesses since end-2007. Overall, that shift is positive for the resilience and stability of the system. Other things equal, £ of loss incurred in the non-bank financial system is almost certainly less disruptive to the wider economy than £ of loss incurred in the banking system. But without the right resilience, could the non-bank system also result in some damage to the economy in an economic earthquake? How should financial building standards adapt to the changing nature of the buildings in our economic city? 15 All speeches are available online at www.bankofengland.co.uk/news/speeches 15 Keeping up with a changing financial system Given the non-bank system’s growth and new-found importance, we face a challenge. There is little evidence of past performance to guide any assessment of the non-bank system. And it would not be sensible to wait until we have some. Our solution is to replace wait with simulate. So this is yet another area where we are developing cutting-edge work, this time to simulate how an economic earthquake could play out in the non-bank system.10 It is our version of what earthquake engineers call a ‘shake table’: a device for testing how models of new structures respond to tremors. The simulator considers generic markets – for equity, corporate credit, government bonds and some key types of funding and derivatives – and representative insurance, hedge fund and mutual fund sectors. | 1 |
Douglass North’s definition is a good starting point: “humanly devised constraints that structure political, economic and social interactions”. 24 So defined, institutions are social infrastructure. They include formal or legal institutions, like Parliaments, judiciaries, central banks, social safety nets and schools. But they also include less formal associations and groups, such as universities, trade unions, guilds and charities. As for their genesis, history suggests institutions emerge for a variety of reasons. Sometimes they have been a direct response to political upheaval. Some of the largest transformations in political institutions have th resulted from revolutions: in the UK, after the Glorious Revolution of the 17 century, in France after the th th French Revolution of the 18 century, in the United States after the Civil War of the 19 century. At other times, institutions have emerged in response to the pressing financial or social needs of citizens. Often, those times of most pressing financial and social need have coincided with sharp changes in the economic environment which have left large swathes of society worse-off. And often, technological disruption and displacement have been the root cause of these sharp changes in the economic environment. The three Industrial Revolutions provide a useful set of case studies. Each caused technological disruption and significant job displacement. Each had, as a result, a wrenching and lasting impact on the job and income prospects of large swathes of society. Each caused a significant and sustained period of hardship for many. | Gratton, L and Scott, A (2016), The 100-Year Life: Living and working in an age of longevity, Bloomsbury Information Ltd. Haldane, A (2015a), ‘Growing, Fast and Slow’, speech available at https://www.bankofengland.co.uk/speech/2015/growing-fast-and-slow Haldane, A (2015b), ‘Labour’s Share’, speech available at https://www.bankofengland.co.uk/speech/2015/labours-share Haldane, A (2017), ‘Productivity puzzles’, speech available at https://www.bankofengland.co.uk/speech/2017/productivity-puzzles Haldane, A (2018), ‘Will Big Data Keeps Its Promise?’, speech available at https://www.bankofengland.co.uk/speech/2018/andy-haldane-centre-for-data-analytics-for-finance-andmacro 24 All speeches are available online at www.bankofengland.co.uk/speeches 24 Hansen, A (1938), Full Recovery or Stagnation?, W. W. Norton. IMF (2017), ‘Understanding the Downward Trend in Labor Income Shares’, World Economic Outlook, April 2017. Iyer, S, Kitson, M and Toh, B (2005), ‘Social Capital, Economic Growth and Regional Development’, Regional Studies, Vol. 39.8, pp. 1015-1040. Jacobs, M, Hatfield, I, King, L, Raikes, L and Stirling, A (2017), ‘Industrial Strategy: Steering structural change in the UK economy’, IPPR Commission on Economic Justice. Katz, L and Margo, R (2013), ‘Technical Change and the Relative Demand for Skilled Labor: The United States in Historical Perspective’, NBER Working Paper, No. 18752. Levine, R and Renelt, D (1992), ‘A Sensitivity Analysis of Cross-Country Growth Regressions’, American Economic Review, Vol. 84, No. 4, pp. 942-963. Malthus, T (1798), An Essay on the Principle of Population, J. Johnson. Martinelli, L (2017), ‘Assessing the Case for a Universal Basic Income in the UK’, University of Bath IPR Policy Brief. Mill, J S (1848), Principles of Political Economy, John W. Parker. Mincer, J (1984), ‘Human capital and economic growth, Economics of Education Review, Vol. 3, No. 3, pp. 195-205. | 1 |
A weakening in domestic demand already reduced export quantities in the first half of the year, and we forecast that they will contract for a wide range of goods as of the yearend. The deterioration in the global growth outlook also affects investment plans. Though, certainly, 1/3 BIS central bankers' speeches business sentiment depends not only on external factors but also on the business environment as a whole. In the first half of the year, growth in fixed capital investment slowed considerably, which is associated with, among other things, a rather sizeable drop in public investment. According to our estimates, even with a revival in national project expenditures in the second half of the year factored in, total growth of gross fixed capital formation will come in at no higher than 1% as of the year-end. Consumer demand continues to make a positive contribution to GDP growth. This year, the expansion of lending continues to offer strong support to consumption growth. Loans, however, cannot be the main driver of growth in demand. Consumption growth will remain slack as household incomes stagnate. This year, we expect it to come in at 1-1.5% range. We have also updated our medium-term baseline forecast. Now, we expect the dynamics of domestic and external demand to be more moderate in 2020–2021. The most notable revision has been made for export growth rates. This reflects the deteriorated world economic outlook amid rising trade tensions. | There are serious political choices here, and they are not for the central bank to make. I have set out in this talk many of the things that a central bank can do with its balance sheet. It can create central bank money, and does so in implementing monetary policy. It can also support financial stability. The Bank can use its operations to distribute money around the banking system when the inter-bank market is not operating properly. And it can provide emergency short-term liquidity support for the system or individual banks under operational and market stress by changing the size, the maturity and the type of collateral taken in its operations. And can even supply foreign currency in extremis. But, being without access to private sector savings, the Bank can not provide sustained, medium-term funding for banks, nor lend directly in size to the non-financial sector on a sustained basis. 16 More information is available at http://www.fsa.gov.uk/pubs/international/uk_rcb.pdf. BIS Review 126/2010 7 Credit supply and syndicated loans Finally, and especially given the nature of this conference, I want to touch on the supply of credit more generally. Despite various forms of support from the Bank of England and from Government, it is clear that the lending capacity of the banking system, in the UK and elsewhere, is impaired and will take some years yet to recover. Some banks need to continue de-risking and de-leveraging. Others, including new banks, are likely to grow. | 0 |
Looking back over the past twelve months, nearly 400,000 jobs have been created across the economy as a whole – which compares very favourably with the rate of job creation in the decade before the recession.1 Chart 1 UK employment in recessions and recoveries Numbers employed rebased to 100 at cycle peak 102 101 100 99 98 97 96 95 1977 Q4 - 1983 Q4 1988 Q2 - 1994 Q4 2006 Q2 - 2011 Q1 * 94 93 92 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 Number of quarters from cyclical peak *: Numbers employed for Q1 2011 proxied by that between Dec 2010 and Feb 2011. Source: ONS Labour Force Survey As Chart 1 shows, the performance of UK employment has been much stronger through the recent economic cycle than we saw in the early 1980s and early 1990s – reflecting the flexibility of the labour market, the resilience of businesses through the recession and the impact of the recovery in demand over the past eighteen months. According to the latest estimates, UK employment is about one per cent down on its peak level in early 2008, compared to a reduction of 5–6% at the equivalent stage of the previous two economic cycles. | In response to these shock waves from the global economic and financial system, the MPC cut the official Bank Rate to 0.5% – the lowest level in over 300 years of the history of the Bank of England – followed by direct injections of money through the programme of Quantitative Easing. These policies, accompanied by similar measures around the world and government interventions to stabilise the financial system, succeeded in arresting the sharp downturn in demand in late 2008 and early 2009 and a recovery has been underway here in the UK and in other major economies since the second half of 2009. The bounceback in the global economy since the middle of 2009 has been particularly impressive, supported by strong growth in Asia and emerging markets, and stimulatory economic policies across the world economy. World GDP growth last year was 5% according to the IMF, well above the longterm average and much stronger than most forecasts were suggesting in early 2009 at the trough of the recession, when the IMF itself was forecasting that world growth would be less than 2% in 2010. Here in the UK, we have also seen the economy begin to recover from recession over the last eighteen months or so. As is the case with all economic recoveries, growth has not been even from quarter to quarter or across sectors of the economy. | 1 |
This might be legal support, consultations, or any other services. We observe a variety of such services that are usually added to bank deposit and loan agreements. Currently, this right is only available in regard to voluntary insurance, that is, in a narrow range of financial services. We believe that this approach should be extended to almost all financial services. In order to mitigate such risks of incomplete information disclosure, we need changes to the laws. The second law allowing the establishment of requirements for the form of a bank deposit agreement has also been drafted. These laws were passed in the first reading. We are aware that you have a lot to discuss in the course of the spring session, especially taking into account that it will be shorter than usual. However, in my opinion, these are essential draft laws since they are socially focused. Therefore, we would be very grateful to you if you find time to consider them as soon as possible. I would like to thank you once again for the continuous and meaningful dialogue between the deputies and the Bank of Russia, in particular for the enormous work carried out last year when we needed prompt legislative decisions to protect individuals and companies against the aftermath of the pandemic. If it were not for such legislative changes, we would have been unable to make prompt decisions in our turn. Thank you for your attention. If you have any questions, my colleagues and I would be glad to answer them. Thank you. | This is also crucial. As these restructured loans, which were totally necessary, did not deplete banks, they were able to ramp up lending. Last year, the corporate loan portfolio expanded by 9.9%, which is nearly twice as much as in 2019. In turn, the Bank of Russia pursued a policy making it easier for banks to address these two tasks — restructure loans and issue new ones. We introduced regulatory relaxations to ensure that the volatility of various financial indicators in the market did not affect banks’ balance sheets. These measures included short-term easing providing more time to banks to adjust to the situation for them to avoid camouflaging problems and toxic assets. Looking at other nations, we know how all this might affect lending conditions. Incidentally, many banks did not even use these relaxations, which also confirms the stability of the system as a whole. Nonetheless, this provided them more comfort to continue restructuring and expand lending. In addition, we released buffers — capital cushions accumulated over previous years — for consumer and mortgage loans, which increased capital for lending. In our opinion, these measures were sufficient. What is the situation in the banking sector now? By the beginning of 2021, 75% of loan repayment holidays ended. In other words, restructured loans now pose objectively lower risks to banks’ financial standing. Moreover, the absolute majority of borrowers have managed to resume their scheduled repayments. This means that they really needed loan repayment holidays and easing for that period (which was not writing-off, but easing). | 1 |
The United States also has substantial structural current account and budget deficits. Sweden has been exposed to a major demand shock with a collapse of exports and a loss of demand in the export sector. Exports are now recovering again. Sweden does not appear to have any structural problems in the finance sector, or in any other sector, and has no structural budget or current account deficits. This being the case, I think one could claim that the development of Sweden’s potential GDP should in fact be better than that of the United States, not worse. The difference in potential GDP underlines the difficulties and the element of arbitrariness in these calculations. Figure 6 compares the Riksbank’s estimates and forecasts for potential GDP from two different points in time, namely September 2008 shortly before the investment bank Lehman Brothers went bankrupt and February 2011. The September 2008 forecast for Sweden’s potential GDP is rather similar to the CBO’s latest forecast for potential GDP in the United States in Figure 5. We can see in Figure 6 that the February 2011 assessment of potential GDP in the longer term is approximately 4 per cent below the corresponding assessment in September 2008. Why should a pure demand shock in the absence of structural problems lead to such a significantly lower potential GDP in the longer term? | Unemployment rose to very high levels. The stringent containment measures led to a sharp decline in private consumption. There was also a shift away from services and towards goods consumption. Travel plans had to be put on hold, and much of the cultural sector was shut down. The pandemic and the measures to contain it also dampened the willingness and ability of mainland firms to invest. Petroleum investment fell on the back of lower oil prices and greater uncertainty. Reduced travel resulted in a fall in both exports and imports. After the decline in March and April, economic activity picked up towards summer, and the recovery continued through Q3. Unemployment declined. Through autumn, infection rates increased in Norway, and new containment measures were introduced. Activity slowed in the first months of this year, and in March and April we saw a renewed rise in the number of furloughed workers. Recently, infection rates have fallen. A gradual reopening of society is underway, and a large portion of the adult population in Norway will likely be vaccinated by the end of summer. This suggests that economic activity will pick up through 2021. Following a rise over the past three years, wage growth slowed again slightly in 2020. The moderation in wage growth must be viewed in the light of a sharp rise in unemployment caused by the Covid-19 outbreak and a marked decline in business sector profitability. Inflation has varied quite markedly over the past year. | 0 |
A global tax, on the other hand, has a significantly larger effect. With a global carbon tax, warming would be limited to 3O C by 2200, see the turquoise line. A global tax in line with the Swedish level is sufficient to keep the temperature increase around 2O C by 220023. The Network for Greening the Financial System (NGFS)24 has been in existence since 2017 for central banks and supervisory authorities and has grown from eight members when it was founded to 55 members and 12 observers in February 2020. Its aim is to develop and highlight best practice in environment- and climate-related risk management for the financial sector. The Riksbank has been a member of NGFS since 2018. As I have already mentioned, it is important that 22 See Hassler et al. (2018). Climate sensitivity in the scenarios (how much the temperature increases in the event of a doubling of carbon dioxide concentrations in the atmosphere) is set in the middle of the interval estimated by the IPCC. 24 See Elderson (2019). 23 11 [18] central banks do not ignore the role of the financial system in the transition to a sustainable economy and integrate financial risk into the climate models.25 In the years ahead, the Riksbank will continue to take an active role in NGFS. We will also analyse how climate-related risks affect the Swedish economy in more detail and examine the link to the financial sector more closely. | Barring unforeseen developments, I believe that Asia and the Middle East can overcome their challenges and prosper together in this century. Certainly, we must all do what we can to make this an Asia-Middle East Century. Thank you. BIS Review 21/2007 3 | 0 |
The crisis revived the debate about the optimal size of the financial industry and the finance-growth nexus. Often, and especially at the beginning of the recent crisis, public opinion has blamed the excessive growth of the financial industry and the extremely advantageous remuneration packages in the sector. One argument in the debate against the traditional finance-growth paradigm is that the high wages may draw talent away from other productive sectors in the economy since financial and non-financial sectors compete for the same scarce supply of human capital. 9 Thus, an excessive growth of the financial sector may not be fully desirable. Thomas Philippon formally analyses this trade-off in his (2010) AEJ Macro paper and discusses the implementation of corrective taxes and subsidies to guarantee the optimal allocation of resources between the financial and the productive sectors. 10 Thomas Philippon’s paper published in the Quarterly Journal of Economics in 2012 11 analyses the allocation and compensation of human capital in the financial industry. Together with his co-author Ariell Reshef, he documents the pattern in wages and skill intensity in the financial industry in the US between 1909 and 2006. The authors show that this pattern is non-monotonic. High compensations in banking and the ability of the financial industry to attract the most skilled workers are not permanent features of this industry. As the paper shows, changes in financial regulation are important determinants of these patterns. Tighter regulation tends to lead to an outflow of resources from the financial sector. | The first authorised in Bulgaria providers of the two new payment services started their activities in 2020. In conclusion, we can sum up that the trends in Europe are related to the development of a single European payments infrastructure based on common standards and instruments, aiming to ensure a pan-European scope and reach. Instant payments, which are in a process of introduction also in Bulgaria, open banking, and the increasing use of mobile technologies are topical issues both in the country and in the European Union, issues that we will continue to talk about. The payment services in Bulgaria are evolving in line with the dynamic processes in Europe, gathered around digitalisation, new technologies, and the ensured security of the payment process. 1 Contactless Payments on consumer off-the-shelf devices (COTS) and Software Based PIN Entry on COTS 2 Payment Card Industry Security Standards Council (PCI SSC) 3 Commission Delegated Regulation (EU) 2018/389 of 27 November 2017 supplementing Directive (EU) 2015/2366 of the European Parliament and of the Council with regard to regulatory technical standards for strong customer authentication and common and secure open standards of communication (RTS on SCA and CSC) 4 www.eba.europa.eu/regulation-and-policy/payment-services-and-electronic-money/eba-working-group-on-apis- under-psd2 5 Opinion of the European Banking Authority on obstacles under Article 32(3) of the RTS on SCA and CSC 6 www.eba.europa.eu/single-rule-book-qa 3/3 BIS central bankers' speeches | 0 |
Thirachai Phuvanatnaranubala: Asian Bond Fund Speech by Mr Thirachai Phuvanatnaranubala, Deputy Governor of the Bank of Thailand, at Euro 50 Group Roundtable, Tokyo, 12 June 2003. * * * Mr. Chairman, On the issue of Asian Monetary Cooperation, Thailand is certainly of less importance than Japan; therefore I have to apologize for speaking before Director-General Watanabe. Since it is late in the day and time is short, I will try to make it interesting by going directly to the Question and Answer session. However, I will be the only one asking the questions, and giving the answers. But I will restrict myself to only five. The first question: There are a lot of initiatives on financial matters going on in Asia. Does it mean that we are aiming for a monetary union of sort in Asia soon, or something leading up to a single Asian currency? I cannot speak for other Asian countries, and I do not know whether something is being planned for the more advanced countries, like Japan and Korea, or not. However, looking through the eyes of someone in Thailand, which is part of ASEAN, the final goal of monetary union, should it exist, is still around many corners. In my opinion, the level of economic integration in Asia is still much looser than Europe at their early stage of integration. You may point to the rapidly expanding inter-regional trade in Asia. | Academic studies indicate that an inflation rate that is on average higher by 10 percentage points may cause, on average, a quarter point decrease in the long term growth rates of the countries.1 While the average inflation rate in Turkey during 1974–2003 – the period with chronically high inflation rates – was 56%; average real growth per person was a mere 2%. On the other hand, during the period of 2004–2011, when inflation was expressed with single digits, average real growth per person increased to 3.3%. Our inflation target for the 2013–2015 period is set as 5%. Loans, exchange rates and inflation expectations are three crucial variables that are the determinants of price stability. Therefore, decreasing excessive volatility in the credit growth rate and exchange rates highly contributes to price stability. The second area of central bank responsibility is financial stability. The loss of financial stability has deep and long-term impacts on both growth and employment.2 The cost of preventing a financial crisis is much lower than the cost of the crisis itself. Turkey’s recent history is a very good example of this statement. The economic crisis Turkey went through in 2001 increased the country’s sovereign debt by 30 percentage points and severely affected growth and employment prospects. As of 2002, Turkey focused on establishing price stability, financial stability and introducing structural reforms aimed at increasing productivity. As a result, while the economic prosperity of the country increased rapidly, the financial sector gained resilience to exogenous shocks. | 0 |
Working towards a mutually-beneficial future together is the best way to prevent history from repeating itself. 36. Japan's relations with India are less problematic. Prime Minister Koizumi's visit to India in April 2005 signalled a desire to establish a new basis for relations. But there is an undercurrent of cultural unease that needs to be transcended so as to realise the full potential of Japan-India cooperation. 37. ASEAN, as a group and individually, has much to offer Japan. ASEAN can be a strategic partner for Japan to tap into the growing economies of China and India. ASEAN can also offer Japan a competitive production base, supplies of natural resources including oil and gas, and additional markets for Japanese products. 38. Japan is already the top investor in Indonesia. Under President Susilo Bambang Yudhoyono's leadership, Indonesia has begun to develop its economy, attract investments and play an active regional role. President Yudhoyono is also pressing ahead with difficult reforms to get the country moving on the fast track. 39. Vietnam is a relatively new partner for Japan. So it should not surprise you to learn that Japan is the third largest foreign investor there, while Singapore is second. Vietnam's bid to join the WTO has catalysed FDI flows totalling $ billion in the first nine months of 2005, about double the amount in the same period in 2004. Not surprisingly, Japanese companies are increasing their presence there. Remaking Singapore 40. Singapore has been remaking itself to enhance our competitiveness and seize the opportunities in the region. 41. | How do we adjust to the new realities and seize the opportunities therein? These are the key questions before us. 5. This fourth Nomura Singapore Seminar is therefore timely. This morning, I hope to contribute to a deeper understanding of the geopolitical forces at work and highlight some of the economic opportunities available as the global landscape is being reshaped. An ascendant dragon 6. First, China. 7. I first went to China in 1971, when I was working for Neptune Orient Lines. We were exploring the possibility of chartering ships to China. China then was in the grip of the Cultural Revolution. Everybody wore drab blue or grey Mao jackets and cloth shoes. Men and women looked alike but for the length of their hair. Chairman Mao's portraits were everywhere. The air was filled with revolutionary songs praising him and the glory of communism - from morning till night, at the airport, on trains, in the hotel lobby and even in the toilets! There was no escape! There was no private enterprise either. 8. My next visit was in 1975. Deng Xiaoping and the Gang of Four were locked in a fierce ideological struggle. Deng was branded a 'capitalist roader'. While on a field trip, I asked a worker where he had learned his technical skills. He pointed to the pocket of his Mao jacket and said, "The Little Red Book". Admission to university depended not on academic performance but how 'red' a person's political thinking was. So too the job a person was assigned. 9. | 1 |
This is partly because Swedish banks have not to any great extent been exposed to the US subprime market, and we have not seen any distrust of Swedish banks. Ultimately, it is a question of a broad view that Swedish banks do not have problems. Further, there is no incentive for Swedish banks to invest in the Riksbank’s standing facilities instead of on the overnight market. One reason is that our monetary policy steering system is constructed so that it would immediately be more costly for the banks, unlike systems with average minimum reserve requirements. Let me here point out that my intention is not to say whether one system is better than another; I merely wish to illustrate that the differences in monetary policy steering systems may be one reason why central banks have acted differently. Nor has there been reason to take measures, given the background of financial stability. Swedish banks are profitable and financially strong, and therefore have good opportunities to manage unexpected negative events. However, as usual we are following developments closely. If there was a risk of problems arising that would make it difficult for the banks to conduct their operations and thereby endanger the system, the situation would be different. However, this is not the case today; we are continuing to observe the financial crisis largely from the outside. 8 BIS Review 51/2008 | It is in this context where the topic of this year’s conference falls right into the core business of central banks: understanding inflation dynamics, and how they influence monetary policymaking. 1 Central Bank of Chile October 2018 Indeed, throughout the post crisis period we have observed a puzzling behavior of inflation in many developed countries, as standard Phillips curve approaches have done a rather poor job predicting price pressures. During this period, the unemployment rate has reached historically low levels, but inflation has remained low. Economists have referred to a “twin puzzle” in inflation dynamics and several explanations with different policy implications have been put forward. Some have pointed to the existence of “hysteresis” as causing a drop in potential output and, consequently, smaller gaps in the economy after the crisis. Others argue that the weakening of the relationship between activity and inflation responds to structural changes, like globalization forces pulling wages down, or technological innovation prompting changes in industrial organization. Another alternative, a sort of “catch 22” for central bankers, is that the flattening of the Phillips curve may be the consequence of the success of central banks in targeting inflation. Measurement issues should not be ruled out either. Measuring a common movement of prices throughout the economy has never been a straightforward task, but this may be getting harder as standardized goods take a smaller and smaller share of household consumption compared to services and to goods that are subject to fast change. | 0 |
We at the ECB stress this new principle of “optionality”: it means in a risk-management approach that we must broaden our policy space, to be able to respond to a broader spectrum of possible inflation scenarios as Philip Lane explained in a recent interview. The trick is obviously to articulate this increased optionality whilst at the same time giving sufficient predictability to economic agents to reduce the adverse effects of uncertainty. This brings me to my second 2/5 BIS central bankers' speeches point, sharing some thoughts about the ECB guidance. II. How to provide predictability and optionality for the ECB Predictability – one course and two compasses Let me start with the predictability elements: one course – the inflation target of 2% as set out in our strategy review –; and two compasses – our sequencing and our forward guidance. About the course, our commitment is crystal clear: we will do what is necessary to bring inflation back firmly and durably to around 2% within our projection horizon. This reassurance is key to keeping inflation expectations close to 2% whatever the short-term uncertainties are. We have a duty to do it, we have the capacity to do it, and have no doubt we shall do it. To keep this course, the first compass is our sequencing: we will end net asset purchases first, then raise the key interest rates, before eventually starting to reduce the balance sheet. Uncertainty and speculation about the order in which things will happen is unnecessary and easily avoidable. | First, we could just be too optimistic about our growth and inflation forecasts. Second, we could be right about our forecasts, but the rise in short-term rates could provoke an outsized tightening of financial conditions that might cause the economy’s forward momentum to slow more than we anticipate. In either case, the economy would not be growing fast enough to put increased pressure on resources. In such circumstances, underlying inflation might not rise and inflation expectations could become unanchored to the downside. Consequently, not only might the FOMC be forced to reverse course and ease monetary policy, but the efficacy of additional stimulus measures could be attenuated by the fall in inflation expectations. Avoiding a Japan-like experience in which inflation expectations have become unanchored to the downside should be an important consideration in the conduct of monetary policy. On the other side, there are several risks of delaying the start of lift-off and normalizing more slowly. The first one is that the unemployment rate could fall to an unsustainably low level that is not consistent with our long-run price stability objectives. Monetary policy works with long and variable lags, so overheating is a risk. If overheating did occur, the FOMC might need to tighten monetary policy more aggressively in order to keep inflation from significantly overshooting its 2 percent objective. In such circumstances, the risk of a recession would probably climb significantly. | 0 |
I also pay tribute to my predecessors in office in the independent Macedonia, governors Borko Stanoevski, Ljube Trpeski and Petar Goshev and to all management structures of the Bank, both current and former, largely present here tonight. I extend special thanks and recognition to all generations of employees of the National Bank, that dedicated their work life to the institution, and have contributed with maximum commitment and professionalism to the continuous growth and development of the National Bank. This order is your merit, but also a responsibility to continue delivering great results. To continue investing in constant upgrade and to protect the reputation of the institution, thus helping it to come closer to the family of the central banks of the Member States of the European Union. I am convinced that in the next period the National Bank will continue to build and develop itself, and will successfully accomplish its mandate! May we celebrate this great event for many years! 2/2 BIS central bankers' speeches | Tharman Shanmugaratnam: The Gallery – promoting Singapore’s central bank role and mission Remarks by Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore, at the Opening of the MAS Gallery, Singapore, 16 February 2016. * * * ESM Goh Chok Tong Family members of Former Chairmen, Mr Hon Sui Sen and Dr Goh Keng Swee, and of former Managing Director Mr Lim Kim San Former Managing Directors, Mr Michael Wong Pak-Shong, Mr JY Pillay and Mr Lee Ek Tieng Current Board members Members of the MAS management and staff, and especially, MAS Pioneers Thank you to everyone for coming to the opening of our MAS Gallery. The Gallery is aimed at helping the public understand the mission of the MAS, and its role in promoting both growth and stability of the Singapore economy and financial system. The Gallery aims to help the public understand • how we keep inflation low over the long term through MAS’ policies in managing the exchange rate of the Singapore dollar, • how we supervise the financial sector – the banking, insurance and securities industries - to ensure confidence in our financial system, • how we promote the development of a vibrant financial centre that serves a good part of Asia and in some respects the rest of the world, • how we also seek to ensure that the financial system serves the interests of consumers, and how we try to help Singaporeans manage their finances well. | 0 |
An ethical approach is needed if we are to respect the spirit of the rules – and not just the letter of the law – and if we are to make informed decisions when clear rules are not available. In addition to financial institutions' in-house ethical practices, the financial sector must now also consider how society – NGOs, the media, fellow citizens included – perceive its activities from an ethical standpoint. Clearly, the 2007–09 crisis was partly created by an imbalance : too much trust had been placed in ethics, while the rules were insufficient. The weaknesses in the corporate culture of financial institutions were thrust into the spotlight; incentives to take risks were too powerful and governance was inappropriate. 1/3 BIS central bankers' speeches Certain Anglo-Saxon expressions perfectly illustrate the period: "too big to fail" created a widespread moral hazard, "tick the box" encouraged overly lax self-regulation through a purely formal compliance with the rules... and in so doing, the "light touch" of the British FSA at the time clearly showed its limitations. Since then, I am happy to say that we have significantly tightened up the rules. With the CRD IV Capital Requirements Directive and Basel III for banks and, at least in Europe, Solvency II for insurers, quantitative requirements have been reinforced to ensure greater resilience, governance of financial institutions has been improved and compensation policies for bankers have been reined in a little. International regulation is our common good. It strengthens a sound financial system. | Bank research showed that highly indebted households in the UK cut consumption more sharply over 2007 to 2009 (Chart 1).11 And during the global financial crisis, countries with higher aggregate debt levels relative to incomes had deeper falls in aggregate consumption and hence deeper downturns (Chart 2). Chart 1. Change in consumption relative to income by LTI between 2007-09 (a)(b)(c) Chart 2. Higher household indebtedness was associated with sharper falls in consumption during the crisis Percentage point change in consumption to income ratio Adjusted consumption growth 2007-12(a), per cent 0 -5 -10 -15 -20 United Kingdom -25 0 to 1 1 to 2 2 to 3 3 to 4 ≥4 Mortgage LTI ratio Sources: Living Costs and Food (LCF) Survey, ONS and Bank calculations. (a) Change in average non-housing consumption as a share of average posttax income (net of mortgage interest payments) among households in each mortgage LTI category between 2007 and 2009. (b) LCF survey data scaled to match National Accounts (excluding imputed rental income, income received by pension funds on behalf of households and FISIM). LTI ratio is calculated using secured debt only as a proportion of gross income. (c) Repeat cross-section methodology used, with no controls for other factors, or how households may have moved between LTI categories between 2007 and 2009. | 0 |
This aimed explicitly to support lending and activity in the real economy, “the activist goal of liberalizing bank examinations to make them dynamically adjustable to current economic policies”.8 It worked. Lending and growth resumed. 8 6 Simonson and Hempel (1993). BIS central bankers’ speeches In the period since, the first two arms of macro-economic policy – monetary and fiscal – have been used actively. The third – macro-prudential – has been tied behind policymakers’ back. The crisis of the past few years has highlighted the need to free the macro-prudential arm of policy. As in the 1930s, macro-prudential policy may have a role to play in shouldering the heavy burden of damaged balance sheets and diminished risk appetites. References Akerlof, G, and Shiller, R (2009), “Animal Spirits: How Human Psycology Drives the Economy, and Why It Matters for Global Capitalism”, Princeton University Press. Barro, R (2006), “Rare Disasters and Asset Markets in the Twentieth Century”, Quarterly Journal of Economics, 121 (2006), pp. 823–866. Cogley, T, and Sargent, T J (2008), “The Market Price of Risk and the Equity Premium: A Legacy of the Great Depression?, Journal of Monetary Economics, Volume 55, Issue 3, pp. 454–476. Graham, J R, and Narasimhan, K (2004), “Corporate Survival and Managerial Experiences During the Great Depression”, Working Paper. Haldane, A (2011), “Capital Discipline”, available at http://www.bankofengland.co.uk/publications/speeches/2011/speech484.pdf. HM Treasury (2010), “A new approach to financial regulation: judgement, focus and stability”, July, available at http://www.hm-treasury.gov.uk/d/consult_financial_regulation_condoc.pdf. | I noted particularly that the Association could play a role in three main areas: by acting as an industry representative and interlocutor with regulators; by establishing common standards and documentation; and by promoting market transparency and efficiency. I am glad to say that the Association has delivered on its promises in each of these areas. Its website is, for example, now up and running, and is an important source of information for both members and non-members. If I could put in a plea, however, it would be for more market statistics to be made available on the parts of the website that are open to non-members - or honorary members such as the HKMA. In its representational role, the Association offered very helpful comments last year on the draft guideline that the HKMA prepared on the management of the risks associated with syndicated lending. Our initial draft generated a certain amount of heat. This was I think largely due to a feeling on the part of the industry that we had overplayed the inherent risks of syndicated lending. We therefore made it clear in the final version of our guideline - which we issued in non-statutory form - that syndicated loans are not necessarily riskier than other types of lending. Indeed, the distribution of lending among participants is designed to reduce risk by sharing it. | 0 |
But they also had no conviction about when, or indeed whether for sure, the music had to stop, and so feared individually that stepping away from the dance “too early” would crystallise business risk, as the dance would simply go on without them and their franchise would be undermined as customers migrated to their competitors. These seem pretty close to the circumstances that Federal Reserve Chairman William McChesney Martin had in mind, over 50 years ago, when he talked about Taking Away the Punchbowl just as the party gets going. An intervention of some kind is needed from someone outside the dance. Some commentators argue that the intervention should come via monetary policy. That as well as steering the path of nominal demand in order to maintain low medium-term inflation expectations, monetary policy should seek to tame the credit cycle. As MPC colleagues have already argued publicly, 6 we are very doubtful about that. It is likely that much higher rates would have been needed in the UK to choke off the credit boom, with the likely effect of pushing the economy into quite a prolonged recession, with a persistent and substantial undershoot of our inflation target. The business cycle and the credit cycle were simply not closely aligned. That is not to say that monetary policy should not take into account risks to the inflation outlook that accumulate slowly and with great uncertainty about when and how they will crystallise. But it makes a compelling case that monetary policy is not sufficient on its own. | Reforms to the “how” approach to the banking system oversight The Governor of the Bank said earlier this week that we face a choice between an overhaul of the regulatory regime and directly altering the structure of the banking system. As earlier policymakers would have put it, this is a choice between, on the one hand, regulating what banks and other financial firms can do and, on the other hand, leaving open the scope of what they may do but regulating and supervising how they do it. Since the thoughts on macroprudential instruments I shall go on to outline this evening are based on something like the existing structure of the banking system persisting, I shall briefly recap what I have said in a series of speeches earlier this year about the current reform agenda. 3 The three necessary planks are re-regulation and a return to supervision; for the first time, agreeing effective resolution plans with banks and any other key firms; and, I would hope, a clear Capital of Last Resort regime designed to avoid perverse incentives. 3 See “Remarks by Paul Tucker”, panel session at The FSA’s Turner Review Conference, 27 March 2009, “The Repertoire of Official Sector Interventions in the Financial System: Last Resort Lending, Market-Making, and Capital”, Tokyo, 28 May 2009, and “Regimes for Handling Bank Failures: Redrawing the Banking Social Contract”, at the British Bankers’ Association Annual International Banking Conference: Restoring Confidence – Moving Forward, 30 June 2009. | 1 |
On the contrary, most empirical studies, as you know, show that there is a negative relationship between inflation and output in the long run. Inflation is a tax on financial assets; it distorts investment decisions and increases overall uncertainty. In Switzerland, monetary stability has become part of the country’s culture and has been the guideline of monetary policy for more than 30 years now. After the collapse of the Bretton Woods system in 1973, the Swiss National Bank made it clear that the overriding objective of its policy was to preserve long-term price stability. Convinced that inflation was a monetary phenomenon, it opted for a strategy aiming at a steady growth of the money stock in line with the potential growth rate of the economy. At the time, the Swiss National bank was actually one of the first central banks to adopt a rule-based strategy. Between 1975 and 1999, we implemented a “pragmatic” policy, with monetary targets serving as benchmark and communication devices. Here I would like to emphasize the term “pragmatic”, because it was never the goal of our policy to fulfil monetary targets mechanically. As a small economy with an international currency, we had to face severe exchange rate shocks or money demand instability. In such circumstances, pre-announced monetary targets could not be met. In these particular and difficult periods, however, we never gave up our objective of preserving price stability in the long term. In the late 1990s, day-to-day implementation of monetary targeting turned increasingly difficult because of financial innovations. | Most have accumulated massive international reserves, well in excess of what would be needed for precautionary reasons. All in all, this paints a very different picture as compared to past episodes of global turbulence, when these economies used to be not only “influenced” by the ups and downs of the changing risk preferences in global financial markets, but simply “driven” – even “drowned” – by them, sometimes regardless of their economic fundamentals. In my view, this separation from the main stream of the turbulence constitutes an achievement in itself. From other stand point, it is certainly striking that in this period of global financial turbulence inflation is identified as the key economic challenge for emerging economies. Indeed, the rise of inflationary pressures on food prices derived from the commodity boom, is becoming a very worrying concern. The large change in relative prices that underlies this prolonged boom is having a stronger impact on developing economies, with very negative and substantial effects on the well being of the poorest portions of their populations. Therefore, as inflation creeps up the concern of policymakers deepens, not only in the sphere of macroeconomic stability, but beyond. In connection with this, the fact that monetary policies have remained focused on inflation stability in most emerging market economies is an additional novelty to mention in the context of the present turmoil. | 0 |
The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024, and in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly. Further, at our meeting of 14 April, the Governing Council judged that the incoming data reinforced our expectation that net asset purchases under the asset purchase programme (APP) should be concluded in the third quarter of 2022. We also indicated that the raising of key ECB interest rates will take place some time after the end of the net purchases and will be gradual. Lastly, the ECB Governing Council stated that we stand ready to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at its 2% target over the medium term. The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability. In step with the communication of this process of monetary policy normalisation, market expectations of policy rate hikes have been brought forward since December. The prospect of the monetary policy stance returning to normal has likewise been reflected in an upturn in long-term interest rates in the euro area. | The information available to date suggests that such cost sharing across firms and workers is already taking place on a tacit basis. Specifically, in the collective bargaining agreements registered to March the wage increases for 2022 stood at 2.4%, well below the recent increase in consumer prices and that expected for 2022 as a whole. Therefore, in practice workers are losing purchasing power. That said, in large part, this increase essentially reflects the deals struck by the social partners in the multi-year collective bargaining agreements negotiated over the past two years in an inflationary setting that bears little resemblance to the current one. There are therefore signs that this stabilisation mechanism is running out of road. With this in mind, I believe that concrete action is needed. Similarly, in the case of businesses, recent data reveals that they have not fully passed on their rising costs to their customers, and their margins are therefore likely to have been squeezed. This can be inferred, for instance, from the feedback from Spanish firms in the latest edition of the EBAE for the first quarter of 2022. According to the survey, around 82% of businesses saw their costs rise as a result of higher input prices, whereas just over 40% raised their selling prices. Second, the asymmetric impact of the current shocks on workers, firms and sectors must be borne in mind when determining the specific features of the incomes agreement. | 1 |
And in this area, the most important things we can to reduce the risk of systemic financial crisis are to strengthen the shock absorbers in the financial system, both in terms of the financial cushions available to absorb losses and the capacity of the financial infrastructure to manage stress. In terms of the financial cushions, the challenge is to sustain a level of capital and liquidity that is large enough to withstand a more adverse financial and economic environment than we have experience recently. Here the job of the risk management discipline is to try to compensate for failure of imagination, to counteract the gravitational effect on measured exposure produced by recent history, and to try to anticipate the adverse effects on market liquidity that may come with a shock. This requires a healthy skepticism about models, discipline and care in the face of competitive pressures, and humility about what we can know about the future. In the world of infrastructure, the challenge is not just about the strength of the physical infrastructure, the capacity to handle volume, operational resilience, and vulnerability to single points of failure. Here the challenge is about the softer infrastructure, as well, such as the arrangements for resolving a credit event or the close out or liquidation of a complex fund or institution. The Federal Reserve is involved in a range of important initiatives on both fronts, working closely with the lead supervisors of the major global financial institutions and market infrastructure operators. | Leveraged arbitrage activity, so some of the literature suggests, is likely to reduce volatility in normal times and increase it in times of stress, because of the greater financial constraints faced by leveraged funds relative to larger, more diversified banks and 2 BIS Review 49/2007 investment banks. Whether this matters in a systemic sense or not depends on the heterogeneity of funds and how correlated their exposures are with those of the major banks and investment banks. A third reason is the consequence of long periods of low losses and low volatility. When markets have been through a sustained period of relative stability and low credit losses, this reduces the estimates of potential losses produced by conventional risk management tools. Like gravity, this force is hard to counteract. And when we’ve had a long period of low realized losses, rapid change in markets, dramatic growth in new instruments, and larger potential leverage, this creates a greater possibility of unanticipated losses, and therefore a greater potential for the trend amplifying, positive feedback effects that have characterized the major asset price shocks of 1987 and 1998. Policymakers do not have the capacity to eliminate the risk of excess leverage or asset price misalignments, nor do we have the ability to act preemptively to diffuse them. And yet policy can play a very important role in limiting the vulnerability of financial markets to the risk that a shock will pose greater potential risks to the stability of the financial system and to economic growth. | 1 |
The direction of travel necessary to enrich these tests, and to make them truly macroprudential, is to incorporate feedback effects that can amplify the actions of individual institutions at the system-wide level (Demekas (2015), Brazier (2015), Tarullo (2016)) – feedbacks, for instance, that result from fire-selling assets, hoarding liquidity and counterparty risk.27 A natural consequence is that we might need to extend the field of vision for such simulations to include nonbank parts of the financial system. Non-bank sources of systemic risk proved to be potent during the crisis, in particular among shadow banks. As regulation has squeezed the banking system, there has been further migration of financial activity into the shadows, particularly within Europe. What was once credit and funding risk on the balance sheets of banking firms is metamorphosing into market and liquidity risk on the balance sheets of funds and investment vehicles of various types (Stein (2013)). Understanding these risks calls for new and enhanced surveillance tools. Systematic, market-wide stress simulations might be needed to capture new market and liquidity risks and their propagation across different financial institutions and markets (Brazier (2017b)). The same considerations apply to key pieces of the financial infrastructure, in particular central counterparties (Cœuré (2017), Duffie (2017)). As a potentially new “too big to fail” entity, they too need to be stress-tested and their resolution plans agreed and implemented. This is a whole new risk-management agenda, where work has only just begun in earnest. | The majority of advanced countries have not come close to experiencing aggregate credit booms in the post-crisis period. When it comes to assessing the efficacy of these tools, it has largely been a case of ‘learning by doing’. Cerutti et al (2017), Kuttner and Shim (2013), Crowe et al (2013) and Boar et al (2017) provide evidence on the impact of tools using cross-country panel studies. Aikman et al (forthcoming) and Banerjee and Mio (2017) study the UK’s experience with the CCyB and with macroprudential liquidity actions respectively. And He (2013) considers the impact of the HKMA’s use of LTV limits. Overall, however, the evidence base on the transmission of macroprudential tools remains fairly slim. There is also relatively little guidance from the literature on tool strategy, selection and interaction. One exception is work assessing the role of monetary policy in leaning against financial cycles. A paper by the Federal Reserve Board (Ajello et al (2016)) analyses the costs and benefits of using interest rates to lean against vulnerabilities in the financial system. In the baseline calibration of their model, the costs of using monetary policy in this way are large relative to the benefits: the optimal adjustment in interest rates in the face of financial stability risks is in the order of 3 basis points. | 1 |
According to the survey of damages from the earthquake and tsunami delivered by the government on March 23, the cost to replace the destroyed capital stock amounts to 20.94 billion US dollars. Following the reasoning described above, this figure is the equivalent to the gross value of the lost capital stock. How then can we estimate the net value of the capital destroyed? Estimates in our national accounts indicate that between the years 2000 and 2008 the net value of the capital stock was around 63 percent of the gross stock. Applying this percentage directly, we estimate that the damage to the net capital stock, consistent with the figure disclosed by the government, is 13.2 billion US dollars. If we consider that the net capital stock amounted in 2009 to an estimated 435 billion US dollars, the aforementioned loss is equivalent to nearly 3 percent of the total. Therefore, given a loss of 3 percent in the net capital stock, the Board estimates that during this year the level of trend GDP will fall 1.0% to 1.5% because of the catastrophe. The magnitude of the short-term impact of the natural disaster depends on the share in national GDP of the hardest hit regions, the sectoral composition of production by region and the duration of downtime in productive processes, among other factors. In 2008, Regions VI, VII and VIII produced nearly 16% of national GDP, mostly concentrated in the manufacturing sector. As for the labour market, the three regions generate almost one fifth of national employment. | As discussed in a box in this Report, just adding up the above elements configured a medium-term scenario where inflationary pressures and inflation would exceed December expectations. A counterfactual forecast exercise that considers developments only up to February 26 yields that the foreseen growth range for this year would have been around one percentage point higher. Output gaps, besides starting at a smaller level than had been projected, would also close sooner, with corresponding effects on inflation. In the medium term, all these changes would have shaped a scenario where inflation would have risen to 3 percent or more over the course of this year, and would have approached the 3 percent target from above in a two year horizon. The response of monetary policy in this hypothetical scenario is unambiguous. The pace of monetary policy normalization would have been faster than the one foreseen in December’s Report. Indeed, it is likely that inflation convergence to the target would have been consistent with a higher level of the MPR beginning in midyear and throughout the policy horizon. It was in this context that the earthquake and tsunami hit. Their effects on the macroeconomy are relevant for the conduct of monetary policy. First, they caused a loss in capital stock that affected the economy’s productive capacity and therefore the evaluation of output gaps, inflationary pressures and the monetary policy reaction. Second, they are having an impact on output, demand and inflation in the very short term, mostly due to the disruption of retail and manufacturing activity. | 1 |
With the recognition that similar risks are being run in different subsidiaries (for example a Japanese bank might have exposure to US interest rate risk from its activities both in London and New York), there has been a move to consolidate these homogeneous risks and manage them centrally within a group. This means control lines which transcend or cross the entity structures and a matrix management structure. It means that the head office can exercise much stronger control over the volume of a particular type of risk being run across the group. For example, for some UK banks, the management of their global foreign exchange book will be managed in London during London office hours, then it will switch to the US operation but under strict limits set by London; after the US close it will move again, to the Far East, but still under the control of limits set by London. The increasing development of whole book value at risk models has also encouraged this centralisation of control. In the foreign exchange example, the value at risk model used by the group will be maintained and run in London. So the riskiness of positions across the world wide group will be assessed according to the London model. But centralisation of controls goes even further. Oversight of credit and key credit risk decisions may well also be centralised. Oversight of FX settlement risk is sometimes centralised in London as well as control of the position risk. | As chairman of the Global Economy Meeting which takes place every two months in Basel, under the auspices of the BIS, I mentioned regularly in 2006 as well as in the first months of 2007 that my colleagues and I were judging that there was a significant underpricing of risks in global finance. This situation was substantiated by a very low level of spreads, a very low level of risk premia, an abnormally low level of volatility in a large number of markets. We had explicitly and publicly called for institutions and markets to prepare themselves for a correction that was both unavoidable and necessary to pave the way for more sustainable path of global finance. Such analysis and diagnosis were reflected pretty well in most Financial Stability Reviews published by central banks, not the least in the ECB publication a long time before the market correction. The BIS publications were themselves equally clear in this respect. Second, a good analysis and a pertinent diagnosis are a necessary condition for future necessary market corrections to be as smooth and as orderly as possible. But it is not a 8 See European Commission (2006), Financial services: Commission proposes self-regulatory improvements to deposit guarantee schemes, Brussels, 28 November. 6 BIS Review 17/2008 sufficient condition per se as is clearly demonstrated in the present episode of turbulence and as was regularly observed in the previous periods of sharp and abrupt market corrections. | 0 |
The performance of the real estate market during this crisis has also been very uneven across countries. In Spain, both the number of sales and activity in the housing segment have fallen very sharply. However, prices have proved to be more resilient, although real asset prices traditionally take longer to correct than financial asset prices. Meanwhile, prices in the non-residential real estate segment (i.e. offices, warehouses and commercial property) show highly polar behaviour, between the main areas where prices are holding up and the other areas where they are declining significantly. In any event, how well the sector ultimately recovers once the health crisis is over will depend on the greater or lesser degree of persistence of the adverse economic and financial effects. 9 3 The economic policy response The rest of my address will focus on analysing the economic policy response to this crisis, and how this response must now adapt to the latest developments connected with the pandemic and its economic impact. 3.1 Monetary policy In the monetary policy sphere, it is now almost seven months since the ECB began to roll out an extensive package of measures that sought to mitigate the impact of the pandemic on the euro area economy. This vigorous and robust response from the ECB was crucial to address the tightening of financial conditions observed in the initial phases of the pandemic and, therefore, to avoid a more severe impact on the real economy. | As stated, one aspect of recent developments that should be assessed is the fact that much of the adjustment in results is due to expectations of loan impairment provisions that have not yet materialised but will do so in the coming quarters, allowing these provisions to be appropriately distributed over time. In fact, the downturn in economic activity caused by the pandemic has so far only fed through moderately to non-performing loans, with but a slight rise in Q2 which, given the high growth of credit, has provided for additional reductions in the NPL ratio. Recurring income has already begun to feel the effects but, so far, expenses have also adjusted downwards. The downturn in banks’ profitability has not yet led to a reduction in their solvency. Indeed, in the first half of the year, solvency has increased slightly. That highlights the significance of the measures adopted by economic policymakers in their respective areas. The recommendation not to pay out dividends has enabled banks to add these resources to their capital buffers, the numerator of the solvency ratio. Further, risk-weighted assets, the denominator of the solvency ratio, have fallen owing to the use of the guarantee programme and to the rapid changes to European capital rules in late June. These amendments were dubbed “Quick Fix”, and I shall refer to them later. The ECB’s decisions, for their part, have helped keep very loose financing conditions for banks in place. But this situation must not lead to complacency. | 1 |
In a democratic society, evaluating the design and effects of public policies fulfils different political and technical functions. First, it fosters transparency regarding political actors’ actions and their outcomes. This provides for accountability and democratic control by Parliament and citizens. Second, it enables the strengthening of the decision-making process via valuable information to enhance the effectiveness and efficiency of public policies. Therefore, when “evidence-based policies” are promoted, it is both a technical argument in favour of effectiveness and a political statement in favour of citizens’ and their representatives’ democratic control of the power. Of course, some political matters cannot solely be based on quantitative evidence or purely technical criteria. Clear limits exist, imposed by the issues’ complex nature, the availability of information and the capacity of social sciences to analyse and make reliable and unambiguous projections within the timeframes in which society requires suitable answers for the challenges it faces. And one of economists’ core tasks should indeed be to highlight those limits, so that the findings of the assessments and analyses are appropriately interpreted with the due caveats. But to acknowledge and highlight these limits (especially on the ability to assess ex ante, i.e. to foresee in real time the different outcomes that may ensue from different courses of action in the many key areas when faced with complex problems) should not check our ambition for these assessments to influence the decision-making process. While not definitive, their conclusions act as an objective reference which is relevant to achieving the intended aims of public policies. | Assimilating the long-term view that price stability requires is harder for the political power, which may have incentives to prioritise shorter-term considerations tied to the electoral cycle. The grounds for the independence of central banks are thus general interest considerations. Firstly there is the belief that such independence benefits society far more than if the powers were to be directly assumed by the political authority. And further is that fact that the legitimacy resulting from this independence is conferred by a decision of the State’s highest political institutions (parliaments). Independence must of course go hand in hand with guarantees as to the professional competency and personal integrity of the members of the independent body, especially of its 1/6 BIS central bankers' speeches senior officers, and controls over, and accountability for, their actions. Control and accountability are also crucial to adequate institutional quality. Yet aside from independent central banks being an example of effective institutional design when it comes to incorporating long-term considerations into our democratic societies, I wish to use my address to outline three complementary matters. These are, in my view, essential to encouraging the public authorities to include these long-term considerations in economic policy decision-making, and how independent institutions such as the Banco de España can make a decisive contribution. An assessment culture to launch us forward The first of these three matters stems from the incorporation of an ongoing and thorough publicpolicy assessment culture. | 1 |
One clear lesson from recent research in urban and regional economics is that the collective skills of the people living in an area are a critical ingredient for its growth prospects. Improving the education available to residents can pay large dividends over time. I know that this list seems long, and none of issues I have raised are easy to address. Nonetheless, I am confident that Puerto Rico has started on the road to recovery. In the current environment, it’s hard to see beyond the immediate crisis to a brighter future for Puerto Rico, but that has been said of other places that have come back stronger than ever. Getting the fiscal situation in order is an important first step. The factors leading up to the crisis took many years to develop, and history shows that a successful recovery from a crisis also takes time. It is important to recognize that fact and to stay the course. Before I conclude, let me briefly discuss our new survey. Earlier this month, the New York Fed released the Puerto Rico Small Business Survey, which focuses on the business performance, financing needs and borrowing experiences of firms across the Island. The survey is intended to fill important knowledge gaps and flag potential economic growth opportunities for the Commonwealth. It was designed with input from partners here in Puerto Rico, and we are very grateful for their cooperation. Key findings reveal that firms are persevering through Puerto Rico’s economic crisis, though a majority reported declining revenues. | One of those different lenses comes from mapping the economy bottom-up, rather than top-down, aggregating microscopic experiences into a macroscopic view. In medicine, we use a variety of different tools, at different resolutions, to diagnose problems and when prescribing solutions: thermometers, blood pressure monitors, X-rays, CT scans, ultrasound and blood tests. Rarely does one of these measures provide all of the diagnostic answers. Using them in combination can, however, help reach robust clinical conclusions. And that “micro-to-macro” approach is commonplace when understanding other complex adaptive systems like the body, natural, physical and social. 3 Rajan (2019). Coyle (2014). For example, Helliwell, Layard and Sachs (2019), Ngamaba (2017) and Commission on the Measurement of Economic Performance and Social Progress. 4 5 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 Like our bodies, the economy is also a complex, adaptive system. As in medicine, it can be measured using different tools at different resolutions. There are various metrics of societal health, in addition to GDP. For example, there has been increasing interest recently in measures of physical and mental health.6 A number of statistical agencies, including in the UK, now gather direct and indirect metrics of people’s well-being. Here we map a selection of those alternative metrics, based around health, wealth and happiness. A different sort of lens comes from viewing these metrics at different spatial resolutions – regional, local authority, postcode even. This allows a “micro-to-macro” jigsaw of the economy to be pieced together, as with other complex systems. | 0 |
They also have dropped steadily relative to those of simpler manufactured products – by 30 per cent over the last two decades – reflecting superior productivity growth.1 Your customers and society as a whole are the beneficiaries of your doing much more with less. The strong recovery of UK manufacturing over the past year – with growth stronger than at any point in the decade prior to the crisis – is a testament to the sector’s focus on continual improvement. Manufacturing punches well above its weight in spending on research and development. Manufactured products R&D has grown by a quarter since the mid-1980s and currently accounts for well over two-thirds of total UK spending on innovation. Advanced manufacturing sectors, including pharmaceutical, aerospace and automotive, represents well over half of this amount. Such contributions are crucial for the UK’s prosperity because our long-run economic performance hinges on productivity growth. Productivity is the ultimate determinant of people’s incomes, and with it the capacity of our economy to support health, wealth and happiness. The best contribution the Bank of England can make to these goals is to maintain monetary and financial stability. Our remit for monetary stability is simple: achieve 2% CPI inflation by setting Bank Rate, the fulcrum around which all other interest rates in the economy pivot, and, as necessary, conducting large-scale asset purchases to affect overall financial conditions. Our monetary policy framework is known as Inflation Targeting. 1 Based on ONS producer price indices. | Mark Carney: Writing the path back to target Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the University of Sheffield Advanced Manufacturing Research Centre, Sheffield, 12 March 2015. * * * Accompanying charts can be found at the end of the speech. It is a great pleasure to be in the City of Steel to honour both its historic role in forging the industrial foundations of modern Britain and its current leadership in promoting advanced manufacturing for the post-industrial age. This city has been at the very forefront of innovation for hundreds of years. In the 18th Century Sheffield revolutionalised steelmaking with the discovery of the crucible steel process. By the mid-19th Century the city represented almost half of Europe’s total steel output. Since then, Sheffield has remained fleet of foot through hard work and innovation. The University of Sheffield’s Advanced Manufacturing Research Centre is a prime example of that spirit. No one knows better than you that manufacturing needs to become ever-more productive to prosper in a world of steadily falling prices and relentless international competition. Prices for advanced manufactured goods fell on average by around 1 per cent a year during the decade prior to the crisis. | 1 |
It relies on positive demographic trends, high educational standards and the quality of infrastructure. So it is not true to say that the French economic model has been characterised exclusively by the excessive inflexibility of its welfare system. I would add finally that France has started taking measures to correct the excessive costs in the welfare system while not by changing radically the way it is constructed. Instead, we will probably move more towards what the Scandinavian countries have been able to do by introducing pension reforms to contain the costs of the system for corporates and containing healthcare expenditures. The Nordic countries have proved that you can have an efficient welfare system without damaging competitiveness. EUROWEEK: But countries like Portugal are seeing their exports surging, underpinned by lower unit labour costs, while France’s exports continue to fall. Does it concern you that the IMF has openly suggested that France is in danger if being overtaken by southern Europe? Noyer: My understanding of what is behind the IMF’s comment is the idea that these countries are addressing their competitiveness problems in a very strong manner, knowing that their problems were much more severe than those we had in France. Their relative productivity was lower and they also had relatively inflexible labour markets, which they are now reforming, notably in Spain and Italy. | • There will be a greater rebalancing between the role of the public and private sectors in the economy, with the public sector activity focussed on providing the enabling environment to strengthen the role of the private sector in the economy. • While large domestic corporations and multinational corporations will continue to be important in the economy, the role of the small and medium-scale enterprises will gain significance. • Greater focus will be given to secure competitiveness on a more comprehensive basis in terms of other dimensions such as productivity and efficiency, labour quality, logistics, research and development, the delivery system and the supply chain. BIS Review 44/2004 1 Malaysia will also continue to leverage on our low country risks in terms of the political stability, industrial maturity and the supply of a skilled workforce. To promote endogenous sources of growth, greater focus has been directed at promoting greater private investment, including by the small and medium enterprises (SMEs). The financial infrastructure and incentive structure will continue to be enhanced to promote investment in new sub-sectors in particular, the services, agriculture and manufacturing sectors. On the external front, while there has been a synchronisation of growth among the major economies, there has also been some rebalancing of the relative strength of the growth among the economies. The increase in the expansion of world trade and the strengthening of labour market conditions in most of these economies suggest continued and self-sustaining growth. | 0 |
2 All speeches are available online at www.bankofengland.co.uk/speeches 2 The accompanying burst of financial innovation spread the application of these technologies and supported the process of globalisation that bolstered trade, productivity and incomes. Once again, however, the hard and soft infrastructure of the financial system failed to keep pace. Lighttouch regulation, out-moded codes of market conduct, inadequate settlement and clearing infrastructure all contributed to the global financial crisis. We can draw on these experiences to help ensure that FinTech boosts growth and promotes financial stability. Not least because, following a raft of post-crisis reforms, the Bank’s regulatory frameworks are now fit for purpose. The Bank of England’s Financial Policy Committee (FPC) is mandated to assess new and emerging risks to financial stability, including those that may exist beyond the existing regulatory perimeter. And it now has the powers to treat similar risks consistently, wherever they originate. 4 With this new approach, the Bank can help build the right infrastructure for FinTech to realise its promise. The Promise of FinTech To its advocates, FinTech will democratise financial services. Consumers will get more choice and keener pricing. SMEs will get access to new credit. Banks will become more productive, with lower transaction costs, greater capital efficiency and stronger operational resilience. Financial services will be more inclusive; with people better connected, more informed and increasingly empowered. And tantalisingly, FinTech could help make the system itself more resilient with greater diversity, redundancy and depth. | We are then using our existing frameworks to respond where necessary. We are disciplined. Just because something is new doesn’t mean it should be treated differently. Similarly, just because it is outside the regulatory perimeter doesn’t mean it needs to be brought inside. We apply consistent approaches to activities that give rise to the same risks regardless of whether those are undertaken by old regulated or new FinTech firms. Some of the most important questions we are considering include: - Which FinTech activities constitute traditional banking activities by another name and should be regulated as such? 7 - How could developments change the safety and soundness of existing regulated firms? - How could developments change potential macroeconomic and macrofinancial dynamics including disruptions to systemically important markets? And 5 For further details on the New Bank Start-Up Unit, see: http://www.bankofengland.co.uk/pra/nbsu/Pages/default.aspx For further detail on the work of our FinTech Accelerator see: http://www.bankofengland.co.uk/Pages/fintech/default.aspx Systemic risks associated with credit intermediation including maturity transformation, leverage and liquidity mismatch should be regulated consistently regardless of the delivery mechanism. 6 7 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 - What could be the implications for the level of cyber and operational risks faced by regulated firms and the financial system as a whole? To illustrate some of the issues, consider how FinTech is affecting the financial services value chain (Figure 1). | 1 |
International banking and finance – a new model for a new era While this debate will surely continue to unfold over the coming years, perhaps the more pertinent question is how we can evolve the model of international banking such that it becomes more desirable and beneficial for the needs of the future. It is worth considering a new model – one that is inherently more sustainable and inclusive. If I may postulate, the starting point is perhaps an honest appraisal that international banking ought to be much more than just a commercial decision. Beyond considerations of revenue, margins and returns, international banking should fundamentally be more attuned to and invested in the developmental journey of the host country. Existing and traditional considerations on profitability, while important, should not become a border that limits the potential of transforming international banking for the benefit of the future. Here, the mindset is not one of a “winner takes all”, but rather one where the benefits of development are equitably “shared by all”. This, again, resonates with the ‘ASEAN Way’ of greater shared prosperity and is perhaps a useful reference. There are at least three ways in which international banking can further this new model. Firstly, by actively identifying the economic needs of the host country and working to serve these needs. These include, for example, national infrastructure development needs, financing gaps for certain segments of society as well as adoption of productivity-enhancing technology by firms. | The recent example of the Facebook data scandal, where personal data of up to 87 million people was improperly shared, strongly illustrates the point that there are social repercussions to the actions of multinational companies beyond just the bottom line. In my view, international banking is no different. Beyond the traditional goal of providing financial capital, there is a very compelling case for international banking to also develop socialcapital. In this way, finance, often thought to be destructive, can be a very transformative force as well. 2/3 BIS central bankers' speeches Regionalisation and digitalisation are changing the rules of the game So where does this leave us? As highlighted, the future of international banking is not necessarily bleak. With further calibration and evolution, it can continue to have a prominent role in serving global interests. The good news is this evolution is already taking place. Previously dominated by the elite few, in this case large global banks, international banking is now increasingly open to a larger group of market participants. On one hand, the circle of banks is expanding, from large global banks to smaller regional banks. This is an important point that is also highlighted in the Global Financial Development Report, reflecting the growing extent of banking relationships between developing countries, particularly in this region. On another front, digitalisation is ushering in a new era, expanding the borders of international banking to now include non-bank fintech players. These players have the distinct potential of transforming global banking as we know it today. | 1 |
There are no simple criteria for determining the most appropriate central parity rate. What the Riksbank can do is to use the various models at our disposal and combine their results with expert knowledge and good judgement to try to narrow down a reasonable interval and analyse the consequences of different choices. All models and forecasts at the Riksbank's disposal now suggest that the real exchange rate will appreciate in the coming years. The question is by how much. The different models give a wide range of estimates for the real appreciation, ranging from a few per cent up to 10 per cent from the current level. With the realistic assumption that inflation will be about the same in Sweden as in the euro area in coming years, this implies an interval for the nominal SEK/EUR rate that extends from approximately 8.20 to a little more than 9 kronor. Even if the Riksbank thus participates actively in the preparations for euro introduction it will not, as an independent and non-political institution, be actively involved in the referendum debate. In 1997, The Riksbank's governing board took a decision in favour of early participation in the EMU as a response to the government report on EMU membership chaired by Professor Lars Calmfors. However the present Executive Board has not taken any common position ahead of the referendum, although the personal views of several board members on EMU are well publicised, including my own pro-euro stance. | Norges Bank exercises its ownership rights by voting at general meetings and through direct contact with companies. Moreover, priority is given to combating child labour and we look critically at how companies influence the authorities in environmental issues. The combination of accountability and transparency has contributed to building trust in the Pension Fund, both domestically and internationally. Domestically, a high level of confidence is vital in maintaining motivation among Norwegians for saving rather than spending the petroleum wealth. Furthermore, the transparency of the Fund is also viewed in a favourable light by those countries in which we invest, and it obviously exerts a certain disciplinary pressure on the management that improves its quality. Thank you for your attention! BIS Review 37/2008 17 | 0 |
David Carse: Environmental issues and their implications for financial institutions in Hong Kong Keynote Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Conference on Environmental Risk Management for Hong Kong Financial Institutions, held in Hong Kong on 29 November 2000. * * * Ladies and gentlemen, I am pleased to be here to deliver the keynote speech for this conference on Environmental Risk Management for Hong Kong Financial Institutions. I congratulate the various organisers for putting together the conference, which I understand is the first of its kind to be held in Hong Kong. If so, it is long overdue. Environmental issues have come very much to the forefront of public awareness in Hong Kong in recent years, and cleaning up the environment has become one of the Government’s main preoccupations. There are all sorts of good reasons for wishing to do this, in terms of improving the quality of life and the long-term health and well-being of the people of Hong Kong. But there is also a growing recognition on the part of business, both here and elsewhere, that economic growth is inextricably linked with a healthy environment. At this year’s World Economic Forum in Davos, business leaders voted global climate change the most pressing issue facing the world’s business community. It is all the more disappointing therefore that last week’s UN summit conference in The Hague on climate change should have ended in failure. | Narrow mandate and independence as foundation In general, regulatory policy comprises all measures which a government puts in place to create appropriate framework conditions for the longer-term development of the economy. If, in doing so, the government follows sensible principles, it creates conditions in which the economy can optimally develop its potential and the prosperity of the population increases over time. An essential component of good framework conditions, and of good regulatory policy, is price stability. In the absence of price stability, the smooth functioning of an economy is inconceivable. Inflation as well as deflation hinder the steering role of prices in ensuring that labour and capital are used as productively as possible. Inflation also reduces household purchasing power and especially impacts the more vulnerable sections of society. In order to ensure price stability in the long term, two principles of regulatory policy are key: - First, price stability must be the fundamental guiding principle of monetary policy - and second, a central bank must be independent from politics. Both of these principles are today reflected in the legislation of many countries. In Switzerland, the independence of the central bank is enshrined in the Federal Constitution. This means that the SNB may neither accept nor seek instruction from politics or other quarters. The Constitution also states that the SNB shall pursue a monetary policy serving the interests of the country as a whole. | 0 |
Together with Finansinspektionen, we are currently working on producing better and more detailed statistics on the mortgage market with the aim of gaining a better insight into potential causes of future problems. Because although – as I mentioned earlier – we will never obtain a clear, objective indicator that tells us when it is time to take action, there is every reason to reduce the uncertainty in our assessments of the situation. The second priority concerns a serious discussion of the level of risk weights for mortgages in Sweden. 3 Our risk weights are actually among the lowest in Europe (Figure 3). The risk weight of a loan determines how much capital a bank needs to hold per krona lent. Lower risk weights thus mean that the banks need to hold less capital. But the less capital a bank holds, the less resilience it has to loan losses. The low risk weights also contribute to some extent to the credit boom in the mortgage sector, as lending to buy housing thus becomes cheaper for the bank in relation to other lending. Why do we have such low risk weights? The reason is that the current risk weights are based on actual data on historical losses on mortgages. And these were not particularly high even during the crisis of the 1990s. Despite this, I believe that there are two reasons for questioning the low risk weights for mortgages. | Analyzed in terms of the ratio to national income, the ratio of the current account deficit was 6.4 percent by the end of 2005. The said ratio rose to 6.9 percent in the first quarter of 2006. Certainly, high rates of current account deficit are not peculiar to Turkey and can also be observed in other transition economies that grow at similar high rates. For instance, the ratio of current account deficit to gross domestic product is 11.8 percent in Bulgaria, 8.7 percent in Romania, 7.9 percent in Hungary and 7.2 percent in the Slovak Republic, as of 2005 1 . Higher rates of global and financial integration enable countries to sustain higher rates of current account deficit, to the extent that the robustness of their macroeconomic fundamentals allows. Due to the impact of these conditions, a current account deficit on a higher plateau has also been sustained in Turkey in recent years. 1 IMF, World Economic Outlook, April 2006 BIS Review 89/2006 9 The recent high increase observed in the current account deficit in Turkey is not the result of the increase in consumption, but comes from the increase in investments that boosts the production capacity. Crude oil prices, which have been following a high and volatile course in international markets and maintaining their upward trend in recent years, stand as another factor explaining the widening of the current account deficit. | 0 |
How to deal with systemic risk – the traditional approach While these arguments are not profoundly new, the policy consensus before the current crisis was dominated by a reluctance to address systemic risk issues directly. This consensus was based on two key arguments. First, it was largely assumed that securing the solidity of individual financial institutions would also grant system-wide stability and thus that regulation at the level of individual firms – micro-regulation – would suffice. The crisis has shown that this view is clearly questionable. As just described, risk in a financial system can arise quasi endogenously, even if individual financial institutions appear to be robust. 3 For more details, namely on ways to address TBTF issues, cf. Danthine (2011). 4 Bank of England (2011). 2 BIS central bankers’ speeches The second critical element of the pre-crisis policy consensus is known as the “Greenspan Doctrine”. This states that pricking an asset price bubble is in general more costly than cleaning up after the bubble has burst. The foundation of this doctrine is that it is simply too difficult to identify ex ante when a bubble is forming. Specifically, it is inherently difficult to disentangle situations where a credit or asset-price boom is justified by fundamentals from those where it is based on misplaced expectations and is thus a threat to financial stability. | Some differences in our practice as compared to international standards may not warrant any further action at all, for they reflect our conscious intention to adopt rules that best suit our own unique situation as well as rules that should be phased in gradually to comply with international standards only at an appropriate time. We welcome the opportunity to discuss and share this understanding with the FSAP assessors, who are drawn not only from IMF and World Bank staff but also from other countries’ central bankers, regulators, and international experts. Before I let you get on with the workshop, I would like to conclude by saying that, with or without the FSAP, the Bank of Thailand will continue to strive for a safe and sound financial system, both through efforts to restructure financial institutions under the Financial Sector Master Plan, and through continued strengthening of prudential standards and supervisory practice. Risk-based supervision approach has been adopted. Loan classification and provisioning requirements have been and will be tightened further. Good corporate governance has been enforced, including appropriate composition of the Board of Directors and, most recently, fit and proper criteria for the top management of commercial banks. We have come a long way since the 1997 crisis and we do not intend to look back. Yet, many formidable challenges lie ahead. On the international front, a lot of preparations and adjustments are needed in response to the introduction of IAS39 and the new Basel Capital Accord. | 0 |
However, it was left to the Riksbank to determine the practical application of this objective. Our choice was to specify a quantitative target for the inflation rate: The annual increase in the consumer price index, CPI, should be two per cent with a tolerated deviation of +/- one percentage point. The purpose of a tolerated deviation is to make it clear both that inflation will deviate from the two per cent level from time to time and that the Riksbank's aim is to limit such deviations. The target is symmetrical, which means that it is as undesirable to have an inflation rate below the target level as above it. Many other countries also conduct monetary policy where they have formulated a price stability target in one way or another. The euro countries have chosen to maintain inflation at a level close to, but below, two per cent, in other words, a non-symmetrical target. The United States has taken a different view and chosen a vaguer wording for its target, with no figures expressed, as well as taking greater account of general economic trends. In New Zealand they have a target for inflation expressed in terms of an interval (1-3 per cent) but no exact figure. However, we have seen two clear advantages of having a clearly expressed target to aim for; firstly it provides a good foundation for inflation expectations and secondly it makes it easier to assess the policy conducted. | On an annual basis, M3 growth increased to 32.0% in September 2010 from 27.7% in June 2010. This outturn was due to the rise in NDA by 96.9% (June 2010, rose by 58.2%) primarily on account of increased lending to government. However, the NFA fell by 9.8% compared with a fall of 1.2% recorded in June 2010. Excluding foreign currency deposits that grew by 29.8% (June 2010, fell by 5.9%), money supply growth was 33.2% from the 49.0% recorded in June 2010. Total domestic credit, comprehensively defined to include foreign currency loans, increased by 3.1% at end-September 2010 compared with 10.1% growth registered in the second quarter of 2010. This was mainly due to a 4.4% rise in net claims on central government that contributed 1.7 percentage points to the growth in domestic credit. Similarly, lending to the private sector (including public enterprises) grew by 2.2% and contributed 1.4 percentage points to the total domestic credit outturn. Excluding foreign currency denominated credit, which fell by 4.1%, domestic credit increased by 5.2% compared to the 7.5% registered in June 2010. On an annual basis, domestic credit growth at 13.5% in September 2010 was 10.1 percentage points lower than 23.6% recorded in June 2010. This largely reflected a slowdown in credit to the private sector, including public enterprises, to 0.7% compared with the 25.9% growth recorded in June 2010. This outturn contributed 0.4 percentage points to the total domestic credit growth in the quarter under review. | 0 |
The impact of the depreciation of sterling on future inflation has increased the salience of such a trade-off for the MPC. As the Committee has made clear, there are limits to the extent to which above-target inflation can be tolerated. These limits depend inter alia on what is driving the inflation overshoot, on the impact on inflation expectations and on the scale of the output gap. The exchange rate shock has made it more difficult for policy to follow the natural rate. And finally, I have discussed the implications of a low natural rate and low real trend rate for central banks. But the implications of course go much wider than that. A secular period of very low underlying interest rates would pose many challenges. If, as I have suggested, the forces pushing down on interest rates might be less cyclical than we had thought and more secular, authorities with a longer policy horizon and with instruments more enduring in impact than monetary policy are best placed to address such challenges. A key and well recognised challenge in this respect is to raise the growth rate of productivity in advanced economies which will in turn raise the return on investment and hence the trend real rate of interest. Another might be to address the imbalance in the supply of savings and the demand for investment that appears to have pushed the trend real rate down. | In short, being transparent also means being able to explain one’s own decisions and actions. And the final related point about disclosure is that, despite the recent trend on transparency, with more and more central banks moving towards greater transparency, our research shows that there is still no clear convergence of the practice. Central banks continue to practice things differently, although in some areas the established practices are more or less uniform. To illustrate this point, let me now turn specifically to transparency in monetary policy which is the heart of central banks’ responsibilities and operations. In monetary policy, there are six areas where transparency is now well established and is being practiced by most central banks. These are (1) stating clearly what the objectives of monetary policy are; (2) explaining clearly the framework of monetary policy and its operating procedures; (3) having regular economic data release; (4) making known clearly the decision-making process of monetary policy which includes who make the decisions, how often, the timetable of meetings, and the dissemination process to announce the policy decisions; (5) publishing timely economic reports to explain views on the economy and risks as well as the rationale for their monetary policy decisions; and (6) the readiness of central banks to communicate with markets either through the media and public addresses or appearing before public or congressional committees. | 0 |
As the debate about adequate capital levels for banks rages on, we feel that it is important to keep these lessons in mind. Whatever is decided in terms of capital requirements, the numbers should be calculated with tail event analysis in mind. A new example: contingent capital securities One present issue is that, given banks will need to hold much more capital in future, how could that best be achieved? Some have called for very high levels of equity capital in banks16; others have been focusing on requirements to raise new equity before it is too late, e.g. mandatory rights issues17. We find contingent capital securities – so-called “co-co’s” – to be a potentially attractive proposition for a number of reasons. One has to evaluate contingent capital on how it would perform in a crisis. First, the funding for extra capital is already in place. In other words, no one has to scramble to execute a contingency plan, or convince someone to come up with new cash in a difficult situation. Obviously, conversion is consistent with a bank being under stress, but if conversion was always automatic, not discretionary, that could help to avoid signalling even wider problems. Second, and related to the examples in this paper, because the contingent conversion feature is explicit, no investor should be able to say that “equity conversion” could never have been anticipated. As new mechanisms are being explored, we believe that it is crucial that investors correctly assess and price the probability of conversion into common equity. | The key difference from SIVs was that the underlying assets were largely purchased from third-parties and not necessarily in securities form. 6 BIS central bankers’ speeches We now want to turn to an example of a structure that did at least partially survive the crisis: UK RMBS master trusts. These are versatile structures that allow an issuer to transform a portfolio of assets into a very different investment product. In principle, the master trust purchases mortgages from the bank and issues tailored bullet-maturity securities. The assets and the liabilities can be very different, e.g. the demand for the securities may be stronger in US dollars than in sterling, so an FX swap converts the cash-flows into dollars. Or most of the mortgages may be floating rate, whereas investor demand is stronger for fixed-rate product, and an interest rate swap(s) converts the cash flows accordingly. Mortgages typically pay down somewhat randomly and relatively quickly, whereas investors prefer straight-bullet maturities. The master trust can accommodate this by allowing on-going reinvestments of the pay downs and conversely allowing the trust to put assets back to the bank if the cash-flows are not sufficient to make a particular principal repayment. The downside is clearly that the on-going linkages between the issuer and the trust remain very strong, and it is thus hard to identify where economic risks ultimately reside. RMBS master trust securitisations are designed to be called on their bullet maturity date and that is how they were priced and traded. | 1 |
In other words, their use has been driven by purely economic and commercial motives. 17. The growing concerns over SWFs and various proposals to restrict either the mode of their investments or areas in which they might invest are signs of a worrying trend of rising investment protectionism, and pose a risk to international financial stability. We are 4 BIS Review 51/2008 sympathetic to concerns in recipient countries and acknowledge that these worries, if left unaddressed, would only increase protectionist sentiments. In our last meeting, the IMFC called on the IMF to play a role in identifying best practices for SWFs. We share the view that as a multilateral platform, the Fund could play a useful role in this area, by allowing issues to be discussed in an open and neutral manner. We welcome the inclusive, collaborative, and voluntary approach taken by the Fund. The principles should focus on governance, institutional arrangement, and transparency and be co-written by the SWFs and for the SWFs, hence would help increase ownership of the best practices, which is critical to its successful adoption. We also welcome the parallel work undertaken by the OECD in drawing up a similar set of guidelines for recipient countries to forestall the risk of protectionism. It is highly important that in drafting such guidelines, the standards for SWFs should not be more onerous than for other large institutional investors. Conclusion 18. | In our view, the key issue here is to reduce a possible large swing in the availability and the price of credit stemming from the tendency of banks to underestimate risks in good times, and then to overestimate them in bad times. On this, our approach has been to ensure that banks’ capital and riskmanagement policy is forward-looking by using a combination of three instruments. The first is stress testing to ensure that bank’s own internal process for assessing the adequacy of capital and overall risk management is alert to possible key risks. Thai banks have begun conducting stress tests as part of the supervisory process since early last year when we first underwent the FSAP assessment. From our experience, we find stress testing to be a useful and effective instrument for helping banks in formulating strategy for capital and risk management in a forward-looking manner. Also importantly, it provides a formal process for a two-way dialogue between banks and supervisors on risk management and on other financial stability issues. The second instrument is the fair value accounting rules or IAS 39, which we have adopted for non-performing loans and for structured products. In our view, these rules can help strengthen market discipline over bank lending and investment. And because fair valuation involves marking to market, its adoption also helps make provisioning for asset impairment more forward-looking. The third instrument is prudential policy to limit excessive procyclicality. | 0 |
It is also important for us to learn from the bitter lessons experienced by others as our financial services industry too is tempted to provide low quality credit, which has been the root cause of the subprime issue. The topic therefore is very relevant and it is time to generate a wider discussion on Governance, Risk Management and Compliance – in short – GRC, which are considered to be the three key pillars or imperatives of financial management. 1. What is GRC? 1.1 By itself, GRC is not new or unknown. GRC has always been of fundamental concern to businesses, the financial service industry and to regulators and supervisors. All stakeholders realize that there are enormous benefits of observing GRC and that such benefits would outweigh the cost of putting in place processes, procedures and controls that enable effective implementation of GRC. 1.2 Governance is all about self-discipline. It is the process by which the Board of Directors sets the objectives for an organization and oversees progress towards achieving those objectives. Put it simply, it is the set of procedures and processes that keeps the organization alive and allows it to operate as a “going concern”. The higher the sophistication of the financial system, the higher would be the demand for governance as regulation and supervision cannot cover all risk elements in their supervisory processes. 1.3 The next critical pillar or imperative is Risk Management; i.e. identification, assessment, continuous monitoring of risks (real or hypothesized) and risk mitigation, while maximizing returns. | Implicit in the concerns about second round effects discussed here is the fear that domestic actors will resist that switch in the composition of demand by seeking to maintain their income and spending levels at pre-shock levels, which is inconsistent with the necessary and inevitable adjustment to the real shock to the economy and can ultimately lead to inflation. 9. As discussed in footnote 8, the composition of demand across domestic and external sources is also important for adjustment to real exchange rate shocks. In this regard, the ability and willingness of domestic firms and households to substitute away from more expensive natural gas imports – both to other sources of energy, and also to non-energy goods and services – can influence the adjustment and its potential inflationary consequences. This was discussed in Box B of the MPC’s November 2022 Monetary Policy Report. | 0 |
First, each could commit to provide the other with a safe, reliable and confidential service based on the best independent intelligence about trends in their respective markets, untainted by commercial motives. Second, as the owners of the dominant reserve currencies of the day, each understood the need of the other to maintain ‘exchange stability’, ensuring that potential borrowing 5 or lending needs were met, but in a way that did not ‘antagonise’ the policy goals of the other. And, third, such arrangements could help protect financial instability, by reducing the reliance on the increasingly strained system of physical gold movements, and providing a channel that could be used even if private banking linkages were impaired. Between 23 and 30 March 1916, Strong and Norman drew up a confidential ‘Memorandum of Conversations’ setting out a framework in which the two central banks would provide each other with mutual accounts, undertake to purchase bills on the other’s behalf in local markets, to ‘earmark’ gold for one another, and 4 ‘The Bank of England 1891-1944’ by R S Sayers, page 66. Britain briefly experienced concerns about policy antagonism itself when its attempts to borrow in dollar markets using short term Treasury Bills were forcefully censured by the Federal Reserve Board in late 1916. 5 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 6 exchange information ‘respecting credit matters and financial conditions’. | Jörg Asmussen: Europe 2014 – an outlook from the ECB Speech by Mr Jörg Asmussen, Member of the Executive Board of the European Central Bank, at the Council on Foreign Relations, New York, 21 November 2013. * * * The latest economic data suggest that the euro area is gradually advancing on the road to recovery – but doubts remain about where that road is leading. Some commentators think that the road will be so long and difficult that Europe will face a “lost decade”, like Japan experienced in the 1990s. Yet this is not my view. I would like to us my remarks today to argue that the changes taking place in the euro area today will allow us to take a different path from Japan – although we need to persevere to ensure that a “lost decade” is definitively avoided. At the same time, observers should understand that the process of restructuring and reform this entails has certain economic consequences – namely a period of current account surpluses. I see this as part of a healthy adjustment that will help the euro area to play a constructive role in global demand in the future. 1. Learning the lessons of Japan Let me start by illustrating how the euro area is learning the lessons of Japan. The term a “lost decade” came to be applied to Japan not just because economic outcomes were poor, but also because little was done to address its structural challenges. | 0 |
Urban Bäckström: What shall guide monetary policy? Speech by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, to the Swedish Economics Association, Stockholm, 17 April 2001. * * * Thank you for inviting me once again to the Swedish Economics Association to discuss various aspects of the Riksbank and monetary policy. I greatly appreciate the opportunity of addressing what can be called a historical and academic forum and conducting a dialogue about economic policy both with the two opponents and with other scholars and students. The inflation target has been monetary policy’s rudder ever since 1993 and I believe most people would agree that on the whole in this period it has functioned fairly well. After a couple of decades of high inflation, we have managed to re-establish price stability. Market players as well as people in general are now more confident in and have a better understanding of the regime and the general formation of monetary policy. It also looks as though the importance of fiscal discipline as a means of supporting the monetary policy regime is anchored in the political system and in Swedish society. Sweden is not the only country where a regime with an explicit inflation target seems to be working well. | For each wage adjustment episode in a country, the data sample starts at year T0 (the peak year) and it ends when a new peak is detected (at year T0 new – 1). We apply this only if the cumulative real wage gap has been closed before reaching the new peak. If the cumulative wage gap has not been closed, then we continue to consider the new peak as part of the same adjustment episode. A wage adjustment episode within a larger wage adjustment episode is not considered. This approach prevents data overlapping and it secures research consistency and integrity. In the analysed period, there were three historical episodes of wage adjustments. Data shows that the cumulative real wage gap was closed in all countries which experienced the first wage adjustment episode, with the exception of two countries (Japan and Korea). In the case of the second wage adjustment episode, the cumulative real wage gap has not yet been closed, with the exception of other two countries (Mexico and Latvia). These latter two countries entered a new wage adjustment episode, the third one. For simplicity reasons, the wage adjustment episodes are numbered with reference to the time periods and not to the country-specific episodes. We considered as the first wage adjustment 5 episode any episode which started in the last decade of last century (1990-1999) and the second wage adjustment episode any episode which started after the year 2000. | 0 |
Norman Chan: Hong Kong as an international debt financing centre Remarks by Mr Norman Chan, Deputy Chief Executive of the Hong Kong Monetary Authority, at the cocktail reception of HKCMA Forum 2005, Hong Kong, 26 January 2005. * * * Mr Yiu, ladies and gentlemen: I am very pleased to be invited to speak at this Cocktail Reception today. Let me first congratulate the Hong Kong Capital Markets Association for successfully organising this Forum. I am glad to note that the Forum has drawn together many market participants to discuss a number of important issues related to the role of Hong Kong as an international debt financing centre. Over the years, the Hong Kong Monetary Authority (HKMA) has been working closely with the HKCMA in developing the debt market of Hong Kong. This co-operation has turned a new page last year with the establishment of the Hong Kong Treasury Markets Forum, or the TMF in short, on which the HKCMA is represented. As the Chairman of the TMF, I would like to take this opportunity to introduce how the TMF intends to work with the industry associations, including the HKCMA, to enhance the competitiveness of the treasury markets in Hong Kong. As some of you may already know, the TMF was set up in March 2004 by restructuring the previous Foreign Exchange and Money Market Practices Committee. | 1/5 BIS central bankers' speeches Indeed, the various measures that were implemented have been instrumental in accelerating the e-payment agenda forward, only because of the cooperation of the industry, sometimes with a bit of nudging. But truth be told, we have been able to achieve so much. Today, the payments industry is no longer the exclusive domain of banks. The advent of FinTech driven by the increasingly inexpensive and pervasive internet and mobile technology has encouraged the entry of more agile non-bank players as potential disruptors or collaborators of the incumbent players. This has set the stage for an exciting new era in payments, an era in which the industry is expected to take on a larger role in delivering a more robust and efficient payments system for Malaysia. The Bank will facilitate this in three key ways: i. First, through policy initiatives to encourage collaborative competition or ‘co-opetition’; ii. Second, by further strengthening industry alignment; and iii. Third, by supporting more inclusive governance arrangements for the development of the payment system. Policies to promote co-opetition as a key enabler for greater efficiency, competition and innovation Network effects are critical to an efficient payment system. The larger the network of a payment system, the more valuable it is to users of the payment system. | 0 |
This was not the first time that Parliament had concerned itself with the affairs of insurance companies, however. In 1739, Britain entered into a war with Spain. As a consequence, trade with Spain ceased but – perhaps surprisingly – the underwriting of Spanish ships by British underwriters continued unabated. This led to a somewhat perverse situation in which British insurers compensated enemy merchants for shipping losses suffered at the hands of British privateers and squadrons of the Royal Navy. The value of insurance trade was, it seems, considered by many to be too valuable to forfeit voluntarily 10 as Britain entered a period of sustained warfare with Spain and then France. By 1748, attitudes had changed and Parliament passed an Act which banned the insurance of enemy ships by British insurers. Yet the Act was expired just a few months later (after the Seven Years War ended) such that insurers did, in fact, enjoy considerable discretion over which risks to underwrite, including foreign enemy ships. I think that what this example ultimately demonstrates is the importance of trade and competitiveness in shaping the British state’s involvement in the affairs of insurers. The protection of enemy ships was at direct odds with Britain’s foreign policy – but trade was ultimately considered strategically more important. In common with the environment in which our eighteenth-century forebears worked, trade and competitiveness remain important contextual factors in the debate about how we should regulate insurers today. | Hence, regulation and supervision in order to minimize systemic risk should concentrate on the leading global investment banks to make sure that adequate counterparty and liquidity risk management systems and processes are implemented. Against the backdrop of scarce resources, we should refrain from opening new regulatory fields which are not relevant for systemic risks. 1/1 | 0 |
Allow me to thank you once again for the work and devotion you exhibited over the course of this year. I strongly believe that the truthfulness and objectivity in reporting economic and financial news will continue to accompany you in fulfilling your duty in the coming year. I reaffirm that the Bank of Albania will continue be a transparent institution, ready to provide opinions and assessments as necessary in all public debates related to the performance of our economy and financial markets. A certificate of this commitment and achievement of the Bank of Albania in the communication with the public is the ranking first of the Bank of Albania among all the banks of Central, Eastern and South-eastern countries, for very active pubic communication, 1/2 BIS central bankers' speeches in the last report: “Focus on the European Economic Integration” for the second quarter of 2021, published by the National Bank of Austria. Dear guests, The Bank of Albania continues to focus scrupulously on financial education and research considering it a crucial pillar of its activity. They are seen as the foundations for increasing the social-economic development and welfare of the citizens of Albania. From this point of view, I kindly invite you to share together a special moment of this meeting: the traditional ceremony for the Governor’s Award for the Best Diploma. The Bank of Albania for this 15th year ceremony in a raw has selected and valued three scientific works amid all the presented researches by students graduated in Albanian and abroad. | For this reason, the commission found difficult in making a selection as all topics were coherent, interesting and properly addressed. Nevertheless, we succeeded to identify carefully those minor variations and distinguished nuances which make the difference to the winning theses amid all the presented works. Eventually, we have come to a decision on the “Governor’s Award for the Best Diploma Theses” for 2021. Though, I would like together with the winners to thank and congratulate all the participants in this contest for their engagement, ideas, the applied methods and findings based on the appropriate methodologies. I wish this passion and devotion is part of your commitment as you advance in your careers. Let us now present the winning contestants. Thank you and happy holidays! 2/2 BIS central bankers' speeches | 1 |
Chart: Relative labour costs Improved cost-competitiveness is an important factor in enabling new exports to emerge as the production of oil and gas dwindles. Tourism in Norway has risen markedly in recent years, and exports of traditional manufactured finished products have shown an appreciable increase. However, the increase is not sufficient to compensate for a decrease in exports from other sectors of the mainland economy. Total mainland exports were lower last year than in 2014. The most important reason for this is the marked decrease in oil service industry exports in the wake of the fall in oil prices. But even excluding this part of the export industry, growth in mainland exports since 2014 has been lower than growth in trading partner imports. Chart: Mainland exports Weak export growth partly reflects supply-side constraints in some sectors. Production stoppages at several large companies led to a decrease in industrial commodity exports last year, while salmon lice infestations contributed to a decline in seafood exports. Other service sector segments in addition to the oil service industry also appear to have been adversely affected by the downturn in the global petroleum industry. A weaker krone is also an advantage for Norwegian firms competing in the domestic market. Competitiveness in the oil service industry has improved considerably, particularly after the substantial cost-cutting measures introduced by companies in this industry in recent years. We have recently seen that a larger share of contracts on the Norwegian continental shelf is being awarded to Norwegian companies. | As set out in the Financial Stability Board's (FSB) latest progress reportOpens in a new window in October 2022, much progress has already been made including: agreeing global quantitative targetsOpens in a new window and a methodology for measuring progress towards them, undertaking stocktakes and analyses of existing payment systems and arrangements, and publishing proposals and best practice for achieving progress. And there have already been tangible changes, for example the move by SWIFT and some key systems to ISO 20022Opens in a new window messaging standards, increased operating hours and the launch of interlinking arrangements such as between Thailand's PromptPay and Singapore's PayNow. Now the work is at an inflection point: many of the original roadmap actions have been completed, providing a solid foundation from which to make real changes to the crossborder payments experience. In February 2023 the FSB published a set of priority actions that will be taken forward to meet the cross-border payments targets by 2027. The actions are grouped in three priority focus areasOpens in a new window: Payment system interoperability and extension; Legal, regulatory and supervisory frameworks; and Cross-border data exchange and message standards. We need to work together to make payments faster, cheaper, more accessible, and more transparent. Some of this work needs to continue to be international for example, agreeing approaches to harmonising rules and standards. | 0 |
What we want to achieve is to improve people’s ability – to manage money well – through their entire life cycle, and their ability to handle periods of difficulties. Financially literate population – will help to improve the well-being of individuals and households; ensure a sound and competitive financial system; as well as contribute to the sustainable growth of the economy. Let me explain further on the importance of elevating financial literacy: a. For individuals and households – financial literacy has become a key life skill. Those who go through life by making sound financial decisions – will potentially be more resilient and end-up with a much higher standard of living throughout their lifetime, including during retirement. With the right knowledge and skills – individuals can live within their means; manage finances; and improve chances of achieving their ultimate financial goals. A financially literate Malaysian – would be aware of the importance of long-term financial planning and will actively save for the future. b. Empowered financial consumers – is an important element in enhancing market discipline and promoting financial stability. Financially literate consumers can collectively influence the behaviour of financial institutions to operate in a responsible, transparent and efficient manner. Financial institutions would be more competitive and motivated – to provide proper advice and offer suitable products, including that can support long-term financial planning. c. Successful channelling of savings into productive investment opportunities – will also promote better economic growth. | Greater use of financial products; as well as prudent use 1/3 BIS central bankers' speeches of credit among households – would promote wealth creation. A nation with a more literate population – can achieve greater financial inclusion through the access and appropriate use of financial products and services. Such households would facilitate in achieving the intended outcomes of macroeconomic policies. Let me focus on three areas that are relevant towards shaping a better future in the context of financial literacy: 1. First – long-term financial planning begins at young age and relevant at each key life stages. 2. Second – on the individual responsibility to take charge of its own financial decisions and well-being; and 3. Third – building financial capability and enhancing literacy – is a shared responsibility. I will share the on-going collaborative efforts undertaken to raise financial literacy among Malaysians. Talking about long-term financial planning Based on Bank Negara Malaysia’s observation – there is a continuing concern – on the lack of attention to long-term financial planning among a majority of Malaysians. Only 40% of Malaysians are financially ready for retirement. A recent focus group discussion with retirees – shows that they would still rely on their children or purchase using credit in the event of emergency or for higher value items. This could be a result of lack of financial planning when they were younger. | 1 |
As an industry, banking institutions should continue to share infrastructure cost and compete on providing quality products and services. Basic payment infrastructure should not be a tool for competitive edge but rather as a means to reduce cost and adopting common standards. Migration to E-Payments to achieve cost savings Accelerating the migration to e-payments is one of the key strategies in the Financial Sector Blueprint. On numerous occasions we had highlighted that a successful migration has the potential to drive further efficiency gains and cost savings. It will improve the country’s competitive position. Research has suggested that successful migration to e-payments can save the country in terms of costs (of about 1% of GDP annually). Today, cheques and cash remain prevalent in Malaysia. Based on the last 3 years data, an average of 205 million cheques totalling to about RM2 trillion were issued on an annual basis. Our preliminary estimates showed that at RM2.70 cost per unit, the banking industry spends at least RM544 million annually on extending cheques issuing services. This is an expensive way of doing business. In terms of cash, over the last 3 years, an average of 547 million cash withdrawals at ATMs were made amounting to RM276 billion per annum. This represents 93% of the total financial transactions conducted at the ATMs, while only 7% of the ATM transactions were for noncash withdrawal. | After a thorough examination by a team of international experts, our financial system was certified as being healthy, well supervised in the context of a comprehensive legal framework, and strongly compliant with most of the relevant international standards and codes. We cannot, of course, afford to be complacent. A good reputation takes time and considerable effort to earn, but can easily be lost. It is the joint responsibility of the CBM and the MFSA, the credit institutions and the other financial service providers, and of all market participants, including the financial lawyers and accountants, to ensure that Malta’s financial centre remains synonymous with integrity, efficiency and reasonable costs. I emphasize this point because the recent rapid growth in the depth and breadth of the financial sector, and the expectation of further expansion, has sometimes given rise to behaviour - such as the use of aggressive methods to induce prospective customers to buy financial products and services and the resort to misleading advertising - which stretches the interpretation of our laws and regulations close to their limit. There should be no doubt in anybody’s mind that the CBM and the MFSA, acting in the common interest, will continue to exercise their respective responsibilities with diligence and rigour to ensure the integrity and stability of the financial system. In conclusion, I would like to wish Mediterranean Bank success in their Malta venture and to express the hope that their presence here will also serve to enhance the reputation of our financial centre. 2 BIS Review 92/2006 | 0 |
The experiences during the 1970s and 1980s contributed to the formation of the new monetary policy regime, which targets low, stable inflation. The inflation target has been set at 2 per cent. That level allows some leeway to zero inflation, which, among other things, reduces the risk of deflation and enables adjustments in relative wages without normally requiring nominal wage decreases for different groups in the labour market. On the whole, as I mentioned, it has also worked well. Inflation has fallen at the same time as economic growth has been relatively high compared with the immediately preceding decades (see Chart 2). Unemployment has gradually declined since the crisis in the early 1990s, even though it is considerably higher than in the 1960s. After the introduction of the inflation target, we thereby had maybe the clearest evidence that there is no trade-off between inflation and unemployment since both fell at the same time during the 1990s. The absence of a long-term relationship between inflation and unemployment has also been confirmed by extensive studies in a large number of OECD countries. Monetary policy and employment in the short term Having now spoken about the Riksbank’s inability to influence employment in the long run, the question remains of how monetary policy can affect employment in the short term. Monetary policy can have a short-term impact on economic activity and therefore at best reduce the fluctuations in the cyclically determined component of unemployment. 2 BIS Review 65/2004 Monetary policy is estimated to affect inflation 1-2 years ahead. | However, I think it’s important to clarify a number of points regarding the criticism in which a number of commentators have claimed that the Riksbank’s actions have caused the loss of 20,000 to 75,000 jobs. The first is that we have an entirely symmetric approach to deviations from the target. It is just as bad to undershoot the target as to overshoot it. Sometimes I get the impression that at least some of the criticism is based on the idea that the Riksbank has some kind of “hidden agenda” that is leading us to deliberately try to keep inflation below our set target, or at least that we think it’s less problematic if inflation is below target than above it. I can assure you that we have no such “hidden agenda”. The Riksbank always aims to meet the inflation target. The second is that there is no such simple relationship between interest rate decisions and unemployment, as the criticism suggests. Were the repo rate able to steer developments in the economy so directly, inflation targeting would be much easier, but this is not the case. The economy is exposed to new shocks all the time, and it is difficult to discern their significance and how they can be countered by monetary policy. | 1 |
Because inflation expectations matter to the behaviour of households and firms, the critical aspect of monetary policy is how the decisions of the central bank influence those expectations. As Michael Woodford has put it, “not only do expectations about policy matter, but, at least under current conditions, very little else matters”. Indeed, one can argue that the real influence of monetary policy is less the effect of any individual monthly decision on interest rates and more the ability of the framework of policy to condition inflation expectations. The precise “rule” which central banks follow is less important than their ability to condition expectations. That is a fundamental point on which my later argument will rest. It should be clear that, just as Maradona could not hope to score in every game by running towards goal in a straight line, so monetary policy cannot hope to meet the inflation target by leaving official interest rates unchanged indefinitely. Rates must always be set in a way that is consistent with the overall strategy of keeping inflation on track to meet the target; sometimes that will imply changes in rates, at other times not. Learning and its implication for monetary policy The academic literature on monetary policy rules has performed a great service in emphasising the importance of expectations. But there are two basic problems with the use of rules. The first is that the validity of any given rule depends upon the model of the economy that underlies it being true. | and in terms of residential investment, which is slowing somewhat due to a tightening of financial conditions. As I have said, the extraordinary savings accumulated during the pandemic were concentrated among higher-income households, whose portfolios are also more diversified. According to the 2020 Spanish Survey of Household Finances, real assets1 accounted for 88% of the total assets held by households below the 20th percentile of the distribution (with their principal residence accounting for 66% of the total). However, for households in the 90th income percentile, real assets represented 73% of all assets and the principal residence just 34%. Similarly, a very small percentage of low-income households have listed shares or investment funds in their portfolios (less than 3%, compared with 33% and 22%, respectively, of households in the top decile of the distribution). One factor that influences households’ investment decisions is familiarity with financial products. Indeed, as the Bestinver-IESE/CIF observatory has shown, even in a study targeted at people more likely to be acquainted with financial investments, familiarity with savings vehicles and financial decisions vary across income, age and gender groups. These findings are consistent with those of the Banco de España’s latest Survey of Financial Competences. This survey, based on a representative sample of the Spanish population aged between 18 and 79, shows broad differences in the level of familiarity with the most common financial products. | 0 |
Many community bankers are taking a proactive, forward-leaning approach to these new technologies with a focus on how they can be leveraged to improve their business and benefit their customers. Among the opportunities community bankers have highlighted during our discussions are: technological solutions that reduce back office costs; more efficient loan processing; and an improved customer experience through smartphone applications and other mobile technology. This proactive perspective leverages innovation as a strategic differentiator and competitive advantage, rather than just a means to enhance efficiency. The speed and magnitude of these changes also have implications for us as supervisors. We must keep pace and understand the risks associated with innovation so that we can appropriately focus our supervisory efforts on new operational, compliance, and reputational risks. For example, Supervisory and Regulatory Letter 13–19, “Guidance on Managing Outsourcing Risk,” provides supervisory expectations on partnering with outside vendors. While supervisors can provide some focus on emerging risks, it is ultimately the responsibility of each firm and its board to identify the relevant risks associated with new technologies and make appropriate and prudent business decisions for their institutions and customers. Cybersecurity The potential benefits associated with these new technologies are accompanied by the risks posed by cybersecurity. Cybersecurity risks, the third topic on my list, continue to raise challenges for all types of firms in the financial system, ranging from supervised banks to financial utilities to non-bank financial firms to government agencies. | William C Dudley: Lessons learned from the financial crisis Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Eighth Annual BIS Conference, Basel, 3 July 2009. * * * In assessing the lessons of the past two years, I will focus on five broad themes that are interrelated: • Interconnectedness of the financial system • System dynamics – How does the system respond to shocks? • Incentives – Can we improve outcomes by changing incentives? • Transparency • How should central banks respond to asset bubbles? As always, my views are my own and may not necessarily reflect those of the FOMC or the Federal Reserve System. Interconnectedness This financial crisis has exposed how important the interconnections are among the banking system, capital markets, and payment and settlement systems. Focus on only one part of the financial system can obscure vulnerabilities that may prove very important. For example, the disruption of the securitization markets caused by the poor performance of highly-rated debt securities, led to significant problems for major financial institutions. Banks had to take assets back on their books; backstop lines of credit were triggered; and banks could no longer securitize loans, increasing the pressure on their balance sheets. This reduced credit availability, which increased the downward pressure on economic activity, which caused asset values to decline further, increasing the degree of stress in the financial system. | 0 |
I trust that the topics today help us consider the state of play of financial literacy in Malaysia, what works and how to improve our financial education interventions. I also look forward to the debate on the implications of digitalisation on financial literacy and consumer protection – this can sharpen our appreciation for the difficult trade-offs between the benefits and risks of digitalisation to financial consumers, and consider the role of digital financial literacy in promoting financial well-being in the digital age. Distinguished guests, Neil Armstrong once said that "research is creating new knowledge". As policymakers and practitioners, the research of the sort we will be deliberating today is exciting because it introduces valuable insights into designing and evaluating effective interventions, tailored to the needs of those in our population. There are many ideas out there on promoting better education outcomes – be it by refreshing traditional delivery approaches (like competitions, classes or webinars) or deploying new tools such as edutainment games or those driven by artificial intelligence. However, what matters most is not the novelty of new approaches, but whether or not our efforts work well – and yield a high return in terms of financial literacy and financial well-being. Insights from the research are important to develop targeted interventions that address the financial education needs in our population. It can also give answers to what are the challenges faced by consumers to access or obtain financial education. | With the rapid changes in society, technology and economy, we need to remain flexible, constantly iterating financial education approaches to adapt to what works best in the given context. This is where fresh ideas are welcomed, like those being featured and celebrated today. On this, I would specifically acknowledge and congratulate the three winners of the Best Paper Awards today. I understand that the winners and other shortlisted papers will be given the opportunity to publish their research in a renowned academic journal or an edited publication. I trust that their exemplary work will inspire many others to contribute to this area of research. In closing, I am hopeful that all of us here today can be increasingly effective in our shared aim to promote financial literacy in Malaysia. Today's event is a step in that direction. Let us take this opportunity to learn from one another and reimagine new paths forward – helping Malaysians regain financial resilience and improve their financial well-being. Thank you. 3/3 BIS - Central bankers' speeches | 1 |
26.06.2018 Taking up of office by the Governor of the Banco de España Pablo Hernández de Cos Governor Honourable Ministers and Authorities, ladies and gentlemen, dear colleagues and friends, I believe today calls, above all, for a round of gratitude. First, I wish to thank Ministers Calviño and Montero for their presence here today. May they rest assured I am firmly committed to maintaining the close and loyal collaboration traditionally offered by the Banco de España to the Ministries for the Economy and Finance. I also wish to thank the previous minister, Román Escolano, for his presence at this ceremony, and for his proposal and defence of my appointment before the Parliamentary Committee for the Economy and Competitiveness. And my gratitude extends to the representatives of the Committee accompanying us today. I undertake to make every effort to improve the capacity of the Banco de España to face the challenges addressed during the Parliamentary Committee hearing. Ministers, as I am surrounded above all by colleagues, I trust you will allow me to continue in a more informal tone. As you know, including a three-year tour at the European Central Bank, I now have two decades behind me at the Banco de España. Professionally speaking, this is, then, my home. It is a real honour for me to have been appointed governor. | The very high growth figures for productivity during the latter part of the 1990s reflected both the macroeconomic stabilisation, an expansion in the private sector relative to the public sector, and in particular the IT expansion. It is unlikely that the development will continue in the same way in the future. However, we know that productivity growth has been surprisingly high in recent years. Many economists are busy working on the question of which factors lie behind this development. It is clear that, unlike the 1990s, it is not a question of high productivity growth in the IT sector and major investment in IT. One theory that has been put forward is that it may perhaps be explained by delayed effects in other sectors of earlier IT investment; that it has quite simply taken time for companies to adjust and to take advantage of the new technology. It is thus difficult to say anything about the durability of the most recent development. However, there are many indications that the long-term increase in productivity now is higher than it was during the 1980s. The widespread structural changes that took place during the 1990s are also an indication of this. Nor should it be forgotten, that the labour force is better educated today than it was ten years ago, particularly with regard to the percentage of those with a university education. There are studies indicating that the improvement in qualifications has also contributed to the growth in productivity. | 0 |
One of our greatest underlying economic strengths is our relationship with the Mainland of China, a relationship which helped fuel rapid growth in both economies over the last two decades. Our two economies maintain extensive and highly productive economic links yet at the same time operate entirely separate economic systems under the one country, two systems formula. Not much more than a year ago, just before the Asian financial crisis erupted and on the eve of the transfer of sovereignty over Hong Kong, pessimists were depicting this relationship as a weakness rather than a strength: they were predicting extensive meddling by the Central Government, and consequently a loss of autonomy and dynamism in Hong Kong. They have been very wrong on this. The track record so far has been impressive, and all the more so given the succession of crises over the last year. As far as Hong Kong’s monetary system is concerned, the transfer of sovereignty has meant more, not less, autonomy for Hong Kong. Whereas before the handover monetary policy often required close consultations with the Secretary of State in London, the Central Government in BIS Review 98/1998 -6- Beijing has left such matters entirely in the hands of the HKSAR Government. Furthermore, it has strongly and clearly reiterated its support for what we are doing, its confidence in our ability to manage things on our own and its preparedness to help in the unlikely event that help is needed. | Under our rule-based currency board system, any change in the Hong Kong dollar monetary base must be strictly matched, at the linked exchange rate, by a corresponding change in the amount of foreign reserves held by the currency board. This is an autopilot mechanism, in which we in the HKMA have minimal discretion: the currency board simply acts passively in response to capital flows. Under the autopilot mechanism, an expansion of the monetary base causes interest rates to fall; a contraction causes them to rise. The crucial element in the monetary base influencing the rise and fall of interest rates is the aggregate balance that banks maintain in their clearing accounts held with the currency board. Notwithstanding the enormous volume of transactions that goes through our banks, the aggregate balance is minimal, because our financial infrastructure is so efficient. We have a real-time interbank payment system and no reserve requirements, so that banks in Hong Kong do not need to maintain large balances in their clearing accounts with the currency board: in August the aggregate balance was as low as $ billion. This meant that the aggregate balance, and hence interbank interest rates, was highly sensitive to speculative attack. We saw a series of such attacks over the past year, when various currency speculators took large short positions against the Hong Kong dollar with the aim of destabilizing the linked exchange rate. On all these occasions the attacks drove up the interbank interest rates to very high levels. | 1 |
Furthermore the pattern of economic growth has changed. Today, the main sources of growth are the improvement in productivity and increasing export performance. In addition to this, the role of the private sector in economic growth has increased considerably in the last few years. Recent Turkish experience showed that tight and prudent fiscal policy is not necessarily contractionary, especially if and when an economy is facing fiscal dominance. The economy is expected to keep its growing trend in 2006 and onward and the aim obviously is to achieve sustainable growth rates at high levels. 2 BIS Review 19/2006 Secondly, substantial progress in financial stability has been achieved with the help of the restructuring of the banking sector. Financial markets are now deeper and much less fragile. Parallel to these achievements, both nominal and real interest rates have declined significantly. The average maturity of the Treasury issues increased considerably and Turkish Eurobond spreads, used as a proxy for the country risk premium, have dropped significantly since 2001. Volatility in exchange rates has gradually decreased thanks to the transparent and consistent operation of the floating exchange rate regime. All these together triggered the reverse-dollarization process: Though the process has been interrupted from time to time and more progress is necessary, the weight of Turkish lira denominated investments in portfolio preferences is now on an upward path. And finally, integration of the Turkish economy with the world has increased, leading to a more competitive environment in the real sector. | In this context, the floating exchange rate regime was introduced; the Central Bank Law has been amended and the primary objective of the Central Bank has been, for the first time in its history, defined as achieving and maintaining price stability. Together with these changes, a new economic program entitled “Strengthening the Turkish Economy-Turkey’s Transition Program” was launched in May 2001. This new program addressed the two main issues of chronic inflation and high public debt with tight monetary and fiscal policies backed up by structural reforms. In this environment, the Central Bank needed to introduce a transparent monetary policy regime with a clear nominal anchor to shape inflation expectations, as inflation inertia was the biggest problem and authorities lacked credibility. The choice of the exchange rate as a nominal anchor again was out of question: The exchange rate based stabilization program had been abandoned in total loss of confidence. The other option then could be to use monetary aggregates as a nominal anchor. However, they too were not good candidates for a couple of reasons: One, monetary targeting implicitly incorporates the inflation target as the ultimate objective of monetary policy and relies on a forward looking assessment when responding to shocks; the pure form of this regime considers only money and ignores the potential information contained in non-monetary variables. Two, the success of the monetary targeting regime relies on the two assumptions that the velocity of money is entirely predictable and inflation is solely determined by money growth. | 1 |
Open trade policies in the crisis helped Asian economies to benefit from the upswing in global trade and growth towards the turn of the millennium (see Chart 4), which in turn supported the post-crisis recovery. However, while there may be lessons to learn, what are the important differences between emerging Asia of the 1990s and the euro area today? Emerging Asian economies had greater policy leeway than euro area countries in dealing with their crises, in that they had flexible exchange rate regimes. Some might argue that this makes it hard to say which part of the Asian experience is relevant for Europe. But I would have a different interpretation: a lack of nominal exchange rate flexibility does not preclude real exchange rate adjustment. Sharing a currency entails a fundamental trade-off. It brings considerable microeconomic benefits but it creates responsibilities for participating countries. They should run prudent policies to make asymmetric shocks less frequent, ensure that relative prices can adjust if such a shock nevertheless occurs, and be prepared to insure each other against extreme outcomes when the former mechanisms are not enough. The conditions were unfortunately not met in the euro area. National policies were run on the misguided assumption that countries, companies and households could borrow forever. | The recognition of losses was postponed and, as a consequence, capital continued to be allocated to investments with limited positive impact on Japan’s long-term growth potential, which some have called “zombie lending”4. Ultimately, this resulted in Japan’s “lost decade”, namely an extended period of anaemic growth (see Chart 3). A second lesson is that institutional and structural reforms are essential Early in the crisis, emerging Asian economies strengthened prudential regulation and supervision, together with bank governance and market transparency and discipline, in order to prevent further instability and bring domestic standards closer to the international norms.5 Furthermore, they generally acknowledged that their economic “miracle” before the crisis was not sustainable. It was driven by over-investment encouraged by Colbertist policies, implicit government guarantees, and too often, opaqueness and political interference in market mechanisms.6 As a result, at the macro level, growth was led by capital accumulation in the wrong sectors and not by a rise in total factor productivity. In Paul Krugman’s words, the Asian miracle was “the fruit of perspiration, not of inspiration”7. To address the root causes of the crisis, structural reforms aimed at improving governance and challenging vested interests, both in public policy-making and in the corporate sector, 2 See FRBSF Economic Letter (2011). “Could We Have Learned from the Asian Financial Crisis of 1997–98?”, February 2011. 3 See Lindgren, C.-J. et al. (1999). “Financial Sector Crisis and Restructuring. Lessons from Asia”, IMF Occasional Paper, 188. 4 See Fukao, M. (2003). | 1 |
Since then, we’ve seen more positive readings on China’s economy, in part due to steps the authorities have taken to reignite growth. And financial markets have definitely rebounded from their winter doldrums. Still, we’re not entirely out of the woods regarding risks from a global growth slowdown. Signs of weakness in Japan, South Korea, and some regions of Europe continue, so I am particularly vigilant about monitoring the international data. Trade tensions and ongoing uncertainty regarding Brexit continue to present downside risks. Monetary Policy What does this mean for monetary policy? At last week’s meeting, the Federal Open Market Committee decided to leave the target range for the federal funds rate unchanged, between 2-1/4 and 2-1/2 percent. We also reiterated our patient approach to assessing the need to adjust interest rates in the future. In a nutshell: The economy remains on a path of healthy growth, with a very strong labor market and without the emergence of inflationary pressures. The current setting of policy positions us well to keep it that way. Although my view that we are in the right place in terms of monetary policy has not changed of late, the reasons for it have evolved in line with the economic and financial developments I sketched out earlier in my remarks. The strength of recent data on economic activity, the rebound of growth in China, and the reversal in the tightening of financial markets all imply that near-term risks to growth have receded somewhat. | This has increased my confidence that the economy remains on track for moderate growth going forward. At the same time, recent price data reaffirm that inflationary pressures remain muted. Conclusion Looking ahead, although the baseline forecast I laid out looks very good, the situation can change. We need to remain vigilant in responding to evolving economic conditions and the outlook, with our eye on sustaining the expansion, keeping the labor market strong, and fostering price stability. Thank you. I look forward to your questions. 2/2 BIS central bankers' speeches | 1 |
It took the British over four decades to lift the capital controls that were imposed partly for this reason. The most usual way to describe the problem is to consider the capital that is likely to seek an exit as soon as the controls are lifted. This includes the failed banks’ estates, the potentially volatile ISK assets held by non-residents – usually called offshore krónur – and possible outflows from Icelandic residents as well. In this context, we are best equipped to predict what would happen if the controls were lifted from the estates without any mitigating measures, as we have mapped out the estates in infinitesimal detail. There is greater uncertainty about the offshore krónur. Following the Bank’s foreign currency auctions in the past few years, some of the remaining capital could be held by patient investors, as some of the parties behind it swear faithfully that it is. But it is safer to verify and secure this before we open the exit doors wide, and there are ways to do it. The greatest uncertainty centres on potential outflows from residents. To a degree, it is possible to estimate resident investors’ need to increase the share of foreign assets in their portfolios, but naturally, they may undertake such foreign investments at varying tempos. The most important factor either way is the level of confidence in Iceland and its financial system at the time the controls are lifted, which is obviously an unknown at this point. | Well, returning for a moment to our earlier discussion. The owners, now in the form of hundreds of thousands of shareholders, have only limited “skin in the game”. Their personal or family wealth, outside of their bank shares, is not at stake if the bank fails and they can now in most cases exit from their shareholdings swiftly through trading on a stock exchange. So their perspectives can now be much shorter-term and, as they alone benefit from increases in a firm’s “value”, they may actually favour greater risk-taking to maximise share price valuation in that shorter-term. This “short-termism” mindset is more pronounced amongst some asset managers and hedge funds, which in recent years would appear to have accumulated increasing amounts of bank shares and become more proactive in 3 Capitalist Fools. Joseph E Stiglitz January 2009 (The Great Hangover: 21 Tales of the New Recession from the Pages of Vanity Fair). BIS central bankers’ speeches 3 exerting pressure on bank management. As these asset managers are themselves rewarded on the basis of the annual valuation of their funds’ holdings, including the bank shares, they have every incentive to push the banks to achieve higher profitability. So board directors and senior management were, and still are, under constant pressure to pursue higher RoEs. It is not difficult to see why capital raising, which improves the resilience of banks, is often rejected or delayed as it is negative for share prices in the short term. The result? | 0 |
As to reinforcing institutions’ solvency, mention may be made of the July 2010 savings bank reform (Decree-Law 11/2010 of 9 July 2010) which, among other measures, sought to ease their access to capital markets through the issuance of equity units with voting rights, or the pursuit of activity through a bank, separating banking activity from the Foundations that could control the savings banks; and the February 2011 Royal Decree-Law to reinforce the financial system, which included new solvency requirements in line with the standards of the revised Basel II Accord, stealing a march on the European Directive. Among other aspects, the legislation introduced greater capital requirements and more demanding definitions for their various components, along with stricter definitions for risk-weighted assets. 7/14 Moreover, in June 2010, the Banco de España reinforced accounting requirements with a view to increasing coverage more swiftly through provisions for non-performing assets. As a result of these measures, deposit institutions’ overall solvency ratio increased from December 2007 to December 2011 from 10.6% 212.2%. At end-2011, the volume of provisioning set aside by our banking system and savings banks as a whole exceeded € billion (13% of GDP). This strategy was greatly affected and indeed interrupted in 2012, with the euro area crisis. The crisis saw various periods of tension, the result of the interaction between sovereign, banking and macroeconomic risks. | This meant that, for example, the differences in the risk premia applied to the various issuers of government debt disappeared. It was thought – and this was a widely held viewpoint – that membership of the Monetary Union would reduce the risk linked to current account deficits, because they could be financed within the Union in light of the free movement of capital. This approach, which would be proven to be mistaken with the crisis, led, among other things, to the risk associated with our economy’s growing external debt not being properly estimated. As regards demographic growth, the population rose by around 5,000,000 between 2000 and 2007, an unprecedented increase in such a short period since population series have existed in Spain, i.e. since the mid-18th century. Almost 90% of this population increase was attributable to net immigrant inflows, most of whom adults, which fuelled the growth of the real estate sector by means of both a permanent increase in the demand for housing and, on the supply side, by providing the labour that helped the construction sector expand. | 1 |
We are collaborating with the Bank of Thailand to explore the potential of a blockchain-based Central Bank Digital Currency (CBDC) network, with a view towards more efficient crossborder payments. 35. We have already developed a Proof-of-Concept prototype that enables real-time crossborder funds transfers on a peer-to-peer basis. In the next phase, we are exploring business use cases such as cross-border trade settlement and capital market transactions. We will soon bring banks and large corporates into trials to test the network using actual trade transactions. 36. Looking into the future, further studies will be undertaken to extend the architecture to a 3/4 BIS central bankers' speeches multi-CBDC platform. Leveraging the wholesale-CBDCs on this platform, e-wallet service providers may be able to offer retail use cases such as remittances and cross-border payments for travelers within the region. We hope this initiative can provide the market with efficient, cost-effective, and transparent cross-border payments services. 37. Together, the CDI and CBDC initiatives show the HKMA’s commitment to delivering on our market development mandate. They are live examples of our focus on applying technology to achieve better banking. We believe they hold great potential for bank customers in Hong Kong – and for innovators like you. Concluding remarks 38. I said earlier that the principles of service, trust, and capital management are timeless and core to good banking. I hope that what you will take away from my remarks today is that the HKMA is committed to creating a healthy fintech ecosystem to enhance these principles. | The few examples that I have just described show how research on macro modeling and forecasting is important for our work. We are well aware that there will always be ample room for improvement in our toolbox, and we are fortunate to have such prominent speakers with us here today. This workshop is a great opportunity for us to become familiar with recent advances in Bayesian econometrics. In addition to the pleasure of the scholarly discourse, I also hope you will have the opportunity to enjoy Oslo. BIS central bankers’ speeches 1 | 0 |
Although differences in income levels are not incompatible with EU, it is important for accession countries to improve real convergence before entering monetary union. Indeed, it is essential to preserve a high level of economic cohesion within EMU and appropriate economic integration between Members States, thereby helping to minimize the risk and the effects of asymmetric shocks, in the best interest of accession countries themselves. Let me stress five points of particular relevance for the Eurosystem, and for accession countries themselves on the road towards achieving catching-up and convergence with the EU. • Firstly, we should never forget that nominal convergence must be sustainable and therefore constitutes a medium-term objective, rather than a short-term priority. The strict compliance with the Maastricht criteria will be key for joining the euro area. Indeed, the EU Treaty calls, as a prerequisite for adopting the euro, for a high degree of sustainable convergence in the fields of price stability, government fiscal position, stability of the exchange rate, and longterm interest-rate levels. The sustainability of nominal convergence itself presumes that sufficient preliminary progress has been made towards real and structural convergence (and namely having set a fully-fledged market economy, catching-up in income and productivity levels, as well as economic and social infrastructures, upgrading of the legal system…). Conversely, a sustainable catching-up process requires macroeconomic stability. Therefore, nominal and real convergence should be pursued in parallel, and are not antagonistic. | The enlargement process The coming EU enlargement to Central, Southern and Eastern Europe countries is a historic stage in European integration. Twelve countries from central, eastern and southern Europe are currently negotiating accession to the EU. According to the calendar endorsed by the European Council, new st accessions will take place as from 1 of January 2004. It testifies again, if necessary, to the BIS Review 60/2002 3 attractiveness of the European framework, which has contributed to both political stability and economic progress for almost half a century in Western Europe. Accession countries in western Europe have accomplished remarkable progress in stabilizing and strengthening their economies and institutions. Recent history shows the major improvements those countries have made, in hardly 10 years, on the road towards convergence with the EU. Let’s keep in mind, with some humility, the sometimes rather slow pace the current Member States took, regarding for example trade openness, price liberalisation, structural reforms and even monetary stability and fiscal soundness. Nevertheless, there is also general agreement on the fact that the gap, in terms of average GDP per capita, between the accession countries and the euro area, although diminishing, remains still quite significant. The size of the gap, combined recently with a rather limited growth differential between the two groups of countries, suggests that the process of real convergence will be gradual and will have to continue much beyond the tentative dates for EU accession. | 1 |
Hence my interest in the collaborative efforts of the business, academic and health sectors to further economic growth. These efforts capitalize on the strengths of the region and may well be a good way to further economic development not only in Syracuse but in Buffalo and Rochester as well. Each metro area has a strong university, a strong health sector and a business community all eager to find ways to leverage local assets and boost economic development. Looking forward, I believe that the colleges and universities in Syracuse will help drive the region’s economy in the years to come. Syracuse can build on these assets by continuing to make partnerships between industry and higher education a high priority. When companies and universities work together, they can become a powerful engine for innovation and economic growth. These collaborations are a key ingredient to helping improve the competitiveness of local businesses, the universities themselves, and their regions, and we should take every opportunity to exploit these partnerships as much as possible to unleash their full potential. College graduates finding jobs Let me finish off by saying a few words about the value of education. There is no doubt that the Great Recession and sluggish recovery that followed has made it difficult for many people to find jobs. I’m sure many of you here today are worried about finding a good job after you graduate, and you may be wondering whether going to college will turn out to have been a good investment. | They can be targeted to specific member countries or sectors to address the build-up of local imbalances, which cannot be addressed in an efficient way by the single monetary policy. Macroprudential measures have already been proposed or implemented in some euro area countries. Authorities have taken decisions to calibrate the systemic risk and countercyclical capital buffers, as well as sectoral capital requirements for real estate and housing, and to introduce caps on loan-to-value ratios to counteract emerging risks. Conclusion Our monetary policy measures have proven effective in sustaining a resilient recovery and addressing the risks to price stability. This in turn provides a strong contribution to financial sector resilience. Looking ahead, significant monetary policy stimulus is still needed to support the gradual build-up of price pressures for inflation to return to levels below, but close to, 2% in a durable fashion. At this stage of the cycle, careful monitoring of the risk-taking channel of monetary policy is important. While there is no evidence of excessive misalignment across asset classes in the euro area right now, there are signs that valuations are stretched in specific market segments. 4/5 BIS central bankers' speeches Macroprudential instruments are best placed to counteract the emergence of specific financial imbalances in an efficient and targeted manner. Macroprudential policy and monetary policy thus complement one another in pursuit of their respective objectives. 1 For a comprehensive overview, see Carmen M. Reinhart and Kenneth S. Rogoff (2013), “Banking crises: An equal opportunity menace”, Journal of Banking and Finance Vol. 37. | 0 |
Developments in price level and inflation with a price level target and inflation target Price level 114 Price level target Price level with price level target 114 114 Price level 114 Price level target Price level with inflation target 112 112 112 110 110 110 110 108 108 108 108 106 106 106 106 104 104 104 104 102 102 102 102 100 100 4 4 3 3 3 3 2 2 2 2 1 1 112 100 0 12 24 36 48 60 Inflation 4 1 0 Inflation target Inflation with price level target 0 12 24 36 48 60 0 0 0 12 24 36 48 60 Inflation 100 4 1 Inflation target Inflation with inflation target 0 12 24 36 48 60 0 Note. Constructed example. Vertical axis measures index value (price level) and per cent (inflation). Horizontal axis measures number of months. Source: Andersson, B. and C. A. Claussen (2017), “Alternatives to inflation targeting”, Sveriges Riksbank Economic Review, 2017:1 Figure 8. | What I have in mind here is a strategy that is usually termed “lower-for-longer” or “makeup strategy” and which has been advocated by the previous chairman of the Federal Reserve (the US central bank) Janet Yellen. 8 The idea is pretty straightforward. Let us assume that the central bank in a recession has cut its policy rate as far as it considers to be possible. Exactly how low the interest rate can be set is not obvious and the assessments vary from country to country. The Federal Reserve usually regards zero as the lower bound and talks about the “zero lower bound”, while in Sweden and other countries, which have cut their policy rates below zero, we talk about the “effective lower bound”. For the sake of simplicity I will from now on refer to this simply as the “lower bound” for the policy rate. Let us now assume that the central bank would actually have needed to cut the policy rate lower than the lower bound for monetary policy to become sufficiently expansionary. To compensate for not being able to do this, the central bank can instead hold the policy rate at the lower bound for a longer period of time (see Figure 4). 9 Seen in a slightly longer perspective, for instance a ten-year period, this should give roughly the same average policy rate as if one had been able to cut the rate below the lower bound. | 1 |
To conclude, let me just stress that it is not clear to me what is going to be the future of the crypto ecosystem and the shape that the financial landscape will eventually take as a result. Market forces will decide. But what is clear to me is that, for the crypto ecosystem to overcome the confidence crisis it is currently facing, and to develop on a sustainable basis, a confidence prone regulatory and supervisory framework is needed. Central banks have an important role to play in helping develop that framework, and in facilitating a very much needed convergent and coordinated framework at the international level. Thank you for your attention. 4/4 BIS - Central bankers' speeches | The ECB thus decided to develop a benchmark rate: a new daily euro short-term rate, also known as ESTER. This rate will complement existing rates by the private sector and serve as a backstop to them. The ECB will start publishing ESTER by October 2019. This project will entail significant challenges. Every working day, we will need to produce a reliable rate, based on individual transactions. This will need to happen within a very narrow time frame, while ensuring full quality control. Leadership Ladies and gentlemen, I have talked a lot about past achievements and future challenges. And I have talked about the need to work together as a team. But, of course, all good teams need good leaders. And speaking of good leaders brings me to Aurel Schubert. As Aurel is due to retire soon, I would like to take the opportunity tonight to say a few words about what he has done for this institution. For eight years now, he has steered the ECB statistics ship with great competence. Aurel has made invaluable contributions to some of our most ambitious projects: the granular Securities Holdings Statistics, the MMSR and Anacredit. Thanks to his leadership, supervisory statistics were available from the start of European banking supervision. He helped amend our statistical legal framework to align it with international standards. But, of course, his career started long before he became Director General of Statistics. He has worked in the field since 1997. | 0 |
However, organisations which have been taking preventative approaches to combat cybersecurity threats are coming to realise that this strategy have not always been successful in blocking malicious attacks. A paradigm shift is required to move from the ‘old ways’ of trying to prevent every threat. Organisations need to emphasize on detecting and responding to malicious behaviors and incidents, because even the best preventative controls will not prevent all incidents. There is just no such thing as perfect protection. As there are more and more innovative financial inclusion initiatives coming on-board, we will all need to continually reassess how much risk and controls are appropriate. The disparity between the speed of compromise and the speed of detection is one of the starkest failures discovered in breach investigations. According to a 2015 report by Mandiant, the average targeted malware compromise was present for 205 days before detection. The longest malware presence was 2982 days, and 69% were actually discovered by external parties and not internal IT security functions. Additionally, the 2015 Verizon Data Breach Investigations Report highlighted that, “in 60% of cases, attackers are able to compromise an organization within minutes." In this digital world, the pace of change and innovation is already too fast to anticipate and, combined with advanced and persistent attacks, it will be impossible to defend against every type of cyber-attack. Organisations must invest in technical, procedural and human capabilities to detect when a compromise occurs. | Had there been one, the Northern Rock recovery plan should have challenged the management and the Board on how its business model could adapt to and survive the closure of its key funding markets, given the sheer scale of its dependence on securitisation. Likewise, how could it have handled a serious stress when it had pursued a business model of aggressively taking market share by squeezing its net interest margin and accepting more borrower default risk? And then moving further into the guts of the bank, how would it deal with stress to a funding model where the bank was excessively dependent on cash deposits from the securitisation master trust but with a hard rating agency trigger linking that funding to the position of the bank, thus creating a severe amplification of any stress? Finally on Northern Rock, how would the bank deal with a funding stress when it was having to encumber such a high proportion of its good quality assets in order to over-collateralise its securitisation master trust? A very good example of the need for resolution plans is the case of Lehmans in Europe. Two questions are relevant here: what should the resolution plan have contained; and what changes to its organisation and operations might have made the massive task of dealing with Lehmans more straightforward? You will, I hope, appreciate that I can only scratch the surface of the Lehmans case in the time available so I apologise for the laundry list approach. | 0 |
William C Dudley: Key developments in the tri-party repo market Introductory remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Workshop on “Fire Sales” as a Driver of Systemic Risk in Tri-Party Repo and Other Secured Funding Markets, Federal Reserve Bank of New York, New York City, 4 October 2013. * * * Good morning. I am pleased to have the opportunity to open this workshop and discuss key developments in the tri-party repo market. In my remarks, I would like to give a brief overview of some of the problems that surfaced in this market during the financial crisis of 2008, recognize the improvements that have occurred since then, and most importantly, highlight significant vulnerabilities that still persist despite the progress we have made. While we can feel proud of the enhancements that are currently underway in the tri-party repo market, today I want to underscore the fact that significant work remains to be done. The tri-party repo market constitutes a vital component of the U.S. financial system. It plays an important role in providing financing for broker-dealers that make markets in Treasury and agency securities, and is an important mechanism that supports dealer intermediation of credit. The market also provides a secure investment vehicle for those that manage large amounts of liquidity and need an investment vehicle to park these monies. | Demand for construction, household products and infrastructure will be strong for many decades. There is ample opportunity for Asian savings to find Asian investments. BIS Review 28/2003 3 | 0 |
In fact, the persistently high levels of inflation confirm the need for proper coordination of all policies. We at the Central Bank are firmly committed to our mandate and we will continue to conduct our monetary policy to ensure that inflation is reduced and ceases to be a burden for the Chilean people. Thank you. 9 Figure 1 Inflation indicators (1) (2) (annual change, percent) Total CPI 21 Core CPI Volatile CPI 15 18 Core goods w/o foods Core services 12 15 9 12 6 9 6 3 3 0 0 15 16 17 18 19 20 21 -3 22 15 16 17 18 19 20 21 22 (1) Dashed vertical lines mark statistical close of March 2022 MP Report. (2) For details on groupings and shares in CPI basket, see Box IV.1 in Dec. 2019 MP Report, Carlomagno & Sansone (2019), and Economic Glossary. Sources: Central Bank of Chile and National Statistics Institute. Figure 2 Structural decomposition of goods CPI w/o volatiles excl. Foods (*) (cumulative change since January 2020, percentage points) 10 Demand 8 Supply Goods CPI w/o volatiles excl. | In a context of more contractionary monetary policies in the developed world, the prospects for world growth have fallen again. The central scenario foresees that the U.S. and the Eurozone will enter a recession in 2023. Our trading partners will thus grow 2.1% next year (2.6% in September). Commodity prices are still expected to take a downward path from their current levels. Copper will trade at average prices of $ and 3.45 in the next two years, while oil will trade around $ in the same period (figure 14). 6 Monetary policy At our monetary policy meeting yesterday, we decided to keep the benchmark rate flat at 11.25%. We also communicated that the policy rate will remain unchanged until the state of the macroeconomy gives signs that the process of inflation convergence to the 3% has been consolidated. Monetary policy has made a significant adjustment and is favoring the resolution of the imbalances still present in our economy. Nonetheless, inflation is still very high and its convergence to the target is still subject to risks. Regarding future movements of the MPR, the boundaries of the MPR corridor that we present in this Report reflect some scenarios where the pace of the process of inflationary convergence gives way to either earlier or later adjustments of the rate compared with the assumptions in the central scenario. One important factor is the assessment of inflationary persistence, which owes to either the magnitude and sign of new inflationary surprises, or to the degree of adjustment of expectations. | 1 |
This means that growth in prices has generally been higher than growth in productivity. Potential rigidities in labour and product markets and, in some cases, an excessively loose macroeconomic stance may have complicated the delivery of low inflation rates. Indeed, while all countries have reduced inflation to moderate levels, the entrenchment of a low inflation environment still constitutes a challenge in many economies. 2. Importance of ensuring polices that support fast and sustainable output growth The second aspect of convergence that I would like to highlight relates to the growth model followed by some new EU Member States. Given its lower starting point in terms of real income, it could be expected that, in a world with full financial integration, large capital inflows would flow into the region. Moreover, as people expect to be richer tomorrow than today, they may choose to smooth consumption over time by borrowing today, the more so the higher the expected gains in disposable income. A process of gradual real exchange rate appreciation, supported by strong, domestically driven output growth and temporarily accompanied by relatively large current account deficits, would seem fully in line with what the theory of convergence suggests. 1 According to Mihaljek, D. and M. Klau (2008), over the period from the mid-1990s to the first quarter of 2008, the Balassa-Samuelson effect would explain around 24% of the CEE inflation differentials vis-à-vis the euro area. For more details, see, “Catching-up an inflation in transition economies: the Balassa-Samuelson effect revisited”, BIS Working Paper. | 2 BIS central bankers’ speeches In Zambia, although the financial sector was not adversely affected by the crisis in a direct fashion, over the period 1995–2000, the sector experienced numerous episodes of bank failures that have had adverse effects on the confidence in the financial system. A total of ten banks were closed during this period and a major weakness noted in all the failures were the weak governance structures and practices in the banks. A close examination of the failed banks identified the following weaknesses which were common in most of them; large credit exposures, lending to connected parties, poor or absence of a credit policy, incompetent management coupled with ineffective boards, foreign exchange exposures and an absence of or inadequate risk management frameworks. In other banks, the board chairman was also the majority shareholder and the chief executive of the bank. Such basic risk management failures, to a large extent reflect a breakdown in corporate governance. Chairperson, you may wish to note that the Zambian Banking system is stronger and properly regulated today than it was in the 1990s. The Bank of Zambia has been periodically reviewing the Banking and Financial Services Act (BFSA) to bring it up to date with international standards and current global practices. One of the areas the Banks has continued to strengthen is the corporate governance provisions to ensure that the board of directors and senior management of banks and financial institutions conduct the affairs of their institutions prudently. | 0 |
In particular, the Legislative Council passed a motion by a wide margin urging the Government “expeditiously to implement a DIS, which is cost effective and easy for depositors to understand, for effectively protecting small depositors, and to formulate appropriate complementary measures aimed at reducing the risk of moral hazard.” The HKMA has studied the responses received during the consultation and has submitted a report to the Government on the outcome. We are seeking a decision in principle on whether we should proceed with the deregulation, subject to further work on the technical arrangements during the rest of this year. I cannot anticipate what the decision of the Government will be nor can I provide details of what the final shape of any scheme would be. I will however comment on two key issues. The first is that even the supporters of deposit insurance, including Legco, are keenly aware of the need to minimise moral hazard. Moral hazard refers to the incentive for increased risk-taking that may be created by deposit insurance. The problem is that both banks and their depositors may exercise less self-responsibility if they know that deposits are protected. This is a risk in any form of insurance, but it has received particular attention in relation to deposit insurance because of its alleged role in the Savings and Loan crisis in the United States in the 1980s. BIS Review 29/2001 3 Moral hazard is a real issue, but it is one that can be addressed. | Moreover, latest developments in banking and financial markets might foster additional risk factors related to asymmetric exposure, issues of home host supervision and financial safety net with foreign banks dominance. These challenges and the expected financial developments in the region will outline the scope and the structure of reforms in the future. So, please allow me to briefly present my view on the future trends of regional financial markets. Financial markets in the region are becoming part of broader global developments which fuels financial integration, liberalization, and financial innovation. The lucrative regional market and the consolidation process have imposed a vertical financial integration in the region. Less than ten European banks with headquarters in Vienna, Athens or Milan dominate the regional banking markets. The process of financial integration will continue, making the region more and more integrated to the European Countries. Financial systems are leading the road to financial integration and the positive spillovers of such process will spread over. Financial markets are and will continue to be bank dominated. Non banking financial sector will grow very rapidly, but banks will continue to be the major players. They will help to further build the needed BIS Review 121/2006 1 financial infrastructure for nonbanking financial activities, and support growth in our economies. Not long ago I asked a friend of mine who had recently returned from migration after 15 years: “Why did you come back”? | 0 |
Even marginal improvements to productivity among the long tail of low-productivity companies – or, equivalently, a speeding up of rates of technological diffusion to these companies – could make significant inroads into the productivity puzzle. I will discuss possible policies to do so at the end. Explaining the Productivity Puzzle Before diving into the data, it is helpful to set out some of the candidate explanations that have been used to explain the productivity puzzle, in the UK and internationally. These hypotheses include: (a) Mismeasurement There is a fairly widespread perception that the productivity puzzle may, at least in part, be no more than a statistical mirage. It certainly seems likely that official statistics underestimate economic activity to some, 8 perhaps significant, degree and with it potential productivity gains. For example, a recent review concluded that productivity growth in the UK might be under-estimated by around 0.5 percentage points per year, as a result of the failure fully to capture elements of the digital economy. 9 That said, most studies have also found that mismeasurement alone is unlikely to account for the majority of the productivity puzzle, whether in the UK or internationally. 10 Many of the mismeasurement problems already existed long before productivity started slowing. These problems would need to have increased dramatically – and probably unrealistically – to explain fully the productivity slowdown. Consistent with that, the slowdown in productivity appears to be largely unrelated to the penetration of information technologies across sectors and countries. | Notes: Scenario 1 assumes that half of firms with interest cover ratios of less than 1 exit the market. In scenario 2, only the lowproductivity half of firms with interest cover ratios of less than 1 exit the market. Chart 25: The estimated relationship between leverage and labour productivity Source: Bahaj, Foulis, Gal and Pinter (2016). Notes: The figure plots the results from local regressions. The red line shows the results from local weighted scatter smoothing (LOWESS), the blue line shows the results from a third degree kernel weighted local polynomial smoothing where the gray area depicts the associated 95% bootstrapped confidence bands. Labour productivity is defined as the log of gross value-added per number of employees. During the local regression estimations, we trim the data by deleting the top and bottom 1% of estimated productivity and leverage values in order to mitigate problems of outliers. 35 All speeches are available online at www.bankofengland.co.uk/speeches 35 Chart 26: Distribution of average pay across companies Source: ONS Research Database and Bank calculations. Notes: Series show wage deciles/percentiles. Chart 27: Distribution of firm level labour productivity, wages and profits in 2014 Sources: ONS Research Database and Bank calculations. | 1 |
Commodity prices remain high by historic standards, consistently with the strength of emerging economies, some specific supply-side elements and the depreciation of the dollar. Worth noting are the recent sharp increases in the international prices of some foodstuffs and the copper price peaking at $ per pound (figure 4). The baseline scenario in the IPoM we are presenting today assumes that some of these factors will persist over the projection scenario. In the case of copper, even if it will not be as high as today, it will exceed September’s projections, at $ and $ per pound in 2011 and 2012, respectively. The price outlook for WTI oil is also revised up from September, to $ per barrel in the two years. The baseline scenario for the international economy is good, albeit with important associated risks. We expect an average growth rate of 4.2% for the world economy over the next two years, fairly high by historic standards, but around 0.3 percentage points below the market consensus forecast. This differential is based on the effects of the financial turbulences in Europe, tighter fiscal adjustment plans in the region and the absence of a vigorous recovery of demand in developed economies. In addition, because of the inflationary pressures present in some emerging economies, it is obvious they cannot continue to grow at the same pace they did this year (table 1). | Banks, meanwhile, show low and stable exchange rate mismatches, and have managed to extend the tenor of their external debt. At the same time, our reported stress tests show that the banks’ level of capital allows them to absorb a risk episode like the one just described. On the other hand, the main financial prices have generally proceeded in line with short-term fundamentals. For the stock exchange, the IEF reports results showing some degree of optimism in stock prices with respect to fundamentals. It is necessary to point out that, in the case of Chile, the risks of financial instability from potential price corrections in the stock exchange are low, because the level of debt associated to higher stock prices is small. However, it is important not to become too indulgent because of the resilience of the financial system. Credit users and financial intermediaries must internalize the risks I have just mentioned in their consumption, investment and financing decisions. On its part, the Central Bank permanently monitors these variables and, through instances such as the Capital Market Committee and the Board of Superintendents, coordinates with other institutions to watch over the health of the national financial system within the framework of its legal authorities. In this context, the Central Bank will not hesitate to perform – or request the relevant institutions – regulatory amendments whenever it detects risks threatening the financial system. To finish, let me share with you some thoughts. | 1 |
Of the many recommendations in this report, three are of particular importance to us at the Bank: - First, the consolidation of FPS, Bacs and the Cheque and Clearing Company into a new integrated retail payments scheme should ensure a strong systemic risk manager, governance body and procurer of a new generation of retail payments infrastructure for the UK as a whole. A Delivery Group, set up under the auspices of the UK authorities and with strong cross-industry membership, has already begun this important work. - Second, moving the UK onto a common messaging standard for interbank payments – ISO 20022 – will make it much easier for the different systems to speak to one another and, where necessary, exchange payments or allow them to flow through seamlessly – so-called ‘interoperability’. - Third, the proposal to develop a new Simplified Payments Platform for retail payments, if successfully translated into a workable design, offers the prospect of providing an integrated, agile infrastructure from which a wide variety of Payments Service Providers can launch innovative and secure products. But it is not only the retail payments architecture that is changing. At the start of this year, the Bank of England launched a strategic review of its own settlement platform, RTGS. RTGS provides the payments infrastructure that underpins CHAPS and CREST, and ensures that the major retail schemes can also settle in central bank money – processing some half a trillion pounds every day. | This Conference on Islamic Banking could not have come at a more opportune time than now, when the financial sector in the country is called upon to widen financial inclusiveness. Banks and Non-Bank Financial Institutions are being encouraged to increase availability of, and access to financial services to the population through the design of new and affordable products. It is through conferences and fora of this nature, among other events, that Bank of Zambia endeavours to disseminate information and share experiences with stakeholders about the importance of developing the financial sector. Ladies and Gentlemen, The last few decades have witnessed a rapid growth in Islamic banking both in terms of size and the number of players. Islamic banking is currently practiced in more than 50 countries worldwide. In some countries only Islamic banking is allowed while in others Islamic banking coexists with conventional banking. Islamic banking is not limited to Islamic countries. In August 2004, for instance, the Islamic Bank of Britain became the first bank licensed by a non-Muslim country to engage in Islamic banking. According to recent industry estimates, Islamic banking is set to grow at an annual rate of 15%. The increased trade between the sub-Saharan region and Islamic nations in the Middle East only reinforces our view that partnerships among the corporate players between the two regions will foster more development. | 0 |
Box 8 of the Review discusses recent market initiatives for improving the functioning of the credit derivatives market. As shown by the chart on the right, the structure of market participants on the two sides of the credit derivatives market has changed over the past three years. Among the buyers of credit protection, the share of banks has declined in favour of hedge funds and other investors, such as private equity firms. Among the sellers of protection, insurance companies have increased their share at the expense of banks. It is worth noting, however, that hedge funds have been active also on the issuing side of the credit derivatives markets which is a business typically characterised by lucrative fees. 5.2. Euro area banking sector With regard to the financial situation of large euro area banks, the financial results, overall, paint a picture of a very profitable banking sector with rather comfortable solvency ratios. In most euro area countries, bank profits were driven by continuing cost control and volume growth in mortgage lending that more than compensated for the narrowing of interest rate margins. Moreover, banks have also benefited from a recovery in lending to the non-financial corporate sector, as well as from the buoyant growth in fees and commissions. It should also be kept in mind, however, that the introduction of new international accounting standards might have had an impact on banks’ profitability. | The price-earnings ratio of the euro area stock market (shown on the left of slide 8) indicates that despite the rather elevated level, this valuation measure remains well below its peaks reached in 2000. However, should corporate earnings growth unexpectedly slow down, the consequent rise in price-earnings ratios could make stocks look relatively expensive to other assets. The chart on the right plots the implied volatility of euro area stock prices and corporate bond spreads which both gradually declined throughout the first five months of the current year, despite rising longterm bond yields. The rather sharp jump in these indicators during the last two weeks, suggests that there was room for adjustment to a higher pricing of risk in the context of changing views regarding the future macro-financial environment. Before discussing the developments in euro area financial institutions, let me first highlight an important dimension of the market-based intermediation process: the rapid development of structured finance products. Although the risk-transfer that this market has facilitated has very likely led to efficiency gains and a better management of risks within the financial systems, there are several concerns which mostly arise from the fact that relatively little is known about how this market has effectively spread risk and how it would function in a situation of extreme stress. Since June 2002, the size of the global credit default swaps market has increased nearly exponentially (see chart on the right on slide 9). | 1 |
Let me elaborate on where these challenges may come from. It is a well-known fact that the size of the banking sector in most post-communist acceding countries still remains far below the EU average. In the acceding countries, bank credit to the domestic private sector typically has a ratio of 30 to 40 percent of GDP, while the EU average is around 100 percent of GDP. This difference is to a large extent natural, reflecting the lower GDP levels of the acceding countries, their history, and the recent weaknesses in their legal and institutional environments. Nevertheless, it is quite likely that this legacy of the past will be overcome in the foreseeable future. The driving force might be the real convergence process. And perhaps more importantly, the acceding countries can capitalise on their reform achievements of recent years. Despite differences in their reform strategies and numerous transitional difficulties, most acceding countries have achieved great progress in building their financial systems. Their banking sectors are now mostly stabilised, privatised, and typically dominated by foreign ownership. Moreover, the acceding countries have also achieved considerable improvements in the functioning of their general legal and institutional frameworks. BIS Review 8/2004 1 Recent empirical studies by the IMF have shown that there might be scope for substantial convergence in bank credit in the acceding countries with EU levels. In some cases and in some periods, the real credit growth might reach as much as 30 percent a year, or even more. | Thus, besides the introduction of new financial instruments, it would be also necessary to activate the utilisation of the existing instruments. These improvements would be for the benefit of the economy in general, that is for the benefit of individuals, companies and banks themselves, but also of the central bank and government. Thus, individuals will have more opportunities to invest their savings, companies would have to make better use of new business activities, banks would have to gain higher benefits and the central bank with government would become more efficient in implementing their policies. Allow me now to concentrate myself a little bit on the honoured businessmen guests, who, in spite of the modest financial support offered in the beginning of transition period, have showed a really impressive performance. In my position as Governor of one of the most important institutions in the decision-making of economic policies, I would like to present you, using the opportunity of this event, some suggestions that I sincerely hope you will welcome and well-understand. First of all, I would require more professional performance in the relations between businesses and banks. Without exaggerating, I would say that we are still far away from the best practices and standards, and as a consequence all the economic, political, financial, social segments still leave to be desired. The relations to be established between you and banks should be reciprocal, open and legal cooperative relations. | 0 |
This can arise from simply not knowing what we don’t know as the world rapidly changes around us; from changing paths of risk due to more complex multidimensional networks; or from developments (such as social media) that amplify the probability and impact of risk events. This in turn calls for new ways of managing and thinking about risk. For many organisations, this represents a fundamental shift in current approaches to risk management. Reflecting on our own work in the financial sector and within the Bank’s own organisation, risk management practices would appear to be at an inflection point. More traditional approaches to risk management have come under increasing pressure for their tendency to overcompensate for risk-taking, resulting in missed opportunities that are likely to cost businesses, and society at large, much more today than before. On the other hand, managing risks by instinct or intuition can produce massive payoffs. But I suspect none of us in this room would advocate abandoning the principles, disciplines and methods of risk management that help leaders make sound decisions, particularly when those decisions can have significant negative externalities. So, where to from here? Clearly, risk and insurance management must innovate and adapt ahead of growing, new and evolving business risks. Five years ago, Steve Culp, a Senior Managing Director at Accenture, told Forbes that innovation and risk management are partners, not adversaries – “When properly fused, the two disciplines can help organisations pursue opportunities that a risk-averse culture might leave on the cutting room floor”. | $ q]Y& 4 8 8 3%8 -3% 7 8-#4 33734#3434%83 84 37 34 8 8! 847"834 4 % $ 8 8 3%8 -3% 7 8-3834 '743 8%3 74 %#%(8% %3"8# ##8"7 3%8 "8%4 +45,467. 7 373#%7 3 " --= *. 3 8 84 17434 738 %%848 7 3 8%7 774 9998 4 7 -83(8%-+,+)-,5-,?-9'%8 3 %' ( %83 3#8 7478#34 999#4 " -- 84 %3#34 8 #( 83 ). *,,.55.l78l | 0 |
I’ve considerable sympathy for this argument: the high and variable rates of inflation seen in recent years have affected the ability of both households and companies to plan their spending and investment decisions with any degree of certainty. But the remit of the MPC recognises that trying to keep inflation at target in the face of large shocks and disturbances “may cause undesirable volatility in output.”3 I fear that to some this might sound like I’m resorting to technical loop-holes to bolster my defence. But that is not the case. This element of the remit has been central to the operation of monetary policy in recent years. The foremost task of monetary policy over the past few years has been to ensure that the financial crisis did not lead to a prolonged depression. To have offset these price level shocks would have meant presiding over an even deeper recession. I’m not saying that if I had had perfect foresight, I wouldn’t have changed my policy stance at all. But the hurdle for wanting to have had materially tighter policy in the face of the most severe downturn in the post-war period is pretty high. But this argument is hypothetical. As many of you may know, the MPC did not have perfect foresight. Indeed, far from it! Which leads to the second charge against the MPC: why has inflation been so much higher than we expected? Why has inflation been so much higher than we expected? | Spencer Dale: MPC in the dock Speech by Mr Spencer Dale, Executive Director, Monetary Policy, and Chief Economist of the Bank of England, at the National Asset-Liability Management Global Conference, London, 24 March 2011. * * * I would like to thank Alina Barnett, Rohan Churm and Michael Hume for their considerable help in preparing this speech. The views expressed are my own and do not necessarily reflect those of other members of the Monetary Policy Committee. The remit of the Monetary Policy Committee is clear: to hit the 2% inflation target. But inflation in February was 4.4% – well above the target. It has been above target for much of the past 5 years. And it is likely to remain so for the next year or so. At the same time, monetary policy remains at extraordinary loose levels. This month marks the second anniversary of Bank Rate being reduced to 0.5%; it’s lowest ever level. And the stock of asset purchases financed by central bank reserves – QE – remains at £ billion. There is an onus on the Committee to explain how its actions are consistent with its remit. There is a good case for the defence. But we need to continue to make it. It needs to be made if international investors, such as many of you here this morning, are going to continue to have the confidence to invest in the UK. More generally, it needs to be made to preserve the accountability and credibility of the Committee. | 1 |
8 [20] Could confidence in the inflation target have been maintained with a less expansionary policy? As I noted, some analysts would probably argue that it is important to defend the inflation target, but that this could have been done with a less expansionary policy, where the repo rate would not have needed to be cut below zero. This is a view that I have greater understanding for. However, there are many arguments against it. The expansionary policy conducted by the Riksbank has indeed led to inflation turning upwards and to long-term inflation expectations being once again at or very close to 2 per cent (see Figure 11). But the upturn in inflation has been bumpy and fragile and there are some signs that it has slowed down in recent months. Moreover, the upturn has to a fairly large degree been based on the krona being relatively weak and its sustainability rests on the assumption that the krona will not appreciate too rapidly going forward. It is very probable that developments would have looked quite different with a higher repo rate. And in this context the significance of a repo rate that is only half a percentage point higher should not be underestimated. It is not particularly difficult to imagine a scenario where the krona in such a case would have strengthened, possibly quite significantly, economic activity would have slowed down and inflation and inflation expectations would have turned downwards. | Some transactions are not registered at all, for example, those in the underground economy, some imports and so forth. The decomposition of nominal GDP into a change in real output and a change in the price level is not a trivial exercise even in advanced market economies. But in these countries, e.g. in Germany or USA, the prediction of real GDP rests on more solid grounds - one knows approximately what is the “potential output” as the starting point for some guessing as concerns the development in the medium term. In transition economies, in the period of deep structural changes, the estimate of both real GDP and potential output is much more difficult. BIS Review 25/1997 -7- The traditional unidirectional link from money to income is blurred in advanced market economies by the existence of many forms of financial assets with different degrees of liquidity. In transforming economies, the scope for reserve assets (Treasury bills) and investment assets (bonds, shares) is still limited but is widening step by step, thus weakening also the links between the money stock and expenditure flows. What is probably even more important, at least in the Czech Republic, is the financing of receivables and current liabilities through quasi-commercial credits (inter-enterprise indebtedness). There is a scope, created by enterprises themselves, for offsetting the potential effects of monetary stringency on spending plans. | 0 |
We are currently expanding the FedTrade platform, in order to have more flexibility in conducting MBS auctions in the future. In the Treasury market, purchases are distributed across securities with different maturities, with the intent of removing a specified amount of duration risk from the market without causing significant market disruption. For recent programs, this maturity distribution has been announced at the outset, and a schedule of specific operations is released at the beginning of each month.8 Such transparency is possible because the composition of Treasury coupon securities available for purchase is reasonably predictable. Within this purchase distribution, both newly issued (on-the-run) and more seasoned (off-the-run) securities are often purchased. Outright purchases of MBS are executed in the TBA (To-Be-Announced) market. The TBA market is built around a trading convention that allows market participants to trade thousands of different MBS backed by millions of individual mortgages using only a few standardized contracts, which are grouped based on key characteristics such as the coupon of the security that will be delivered. These factors help make the TBA market homogeneous and highly liquid – useful characteristics given the scale of Desk operations.9 Mortgage originators sell 6 Using the individual answers to Question 8 in the January 2013 Survey of Primary Dealers on the probability of the size of the balance sheet at the end of 2013 and 2014, one can calculate the average individual uncertainty around each dealers’ point forecast. For the end of 2014, this is around $ billion. | Simon M Potter: The implementation of current asset purchases Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the Annual Meeting with Primary Dealers, New York City, 1 March 2013. * * * Thank you all for attending today’s annual primary dealer meeting. Primary dealers play an important role in financial markets and an integral role as counterparties for operations to implement monetary policy. You are also an important source of market intelligence for the Desk, providing insight into market developments, structure, and functioning dynamics. A meeting like this provides a valuable opportunity to communicate our counterparty expectations, as well as strengthen our ongoing relationship. Given your important role in the implementation of monetary policy, I thought I would take this opportunity to discuss the Federal Reserve’s ongoing purchases of Treasury and agency mortgage-backed securities (MBS). As you are well aware, at the September 2012 Federal Open Market Committee (FOMC) meeting, the FOMC decided to increase policy accommodation by purchasing $ billion per month of agency MBS and continue the Maturity Extension Program (MEP). Then at its December meeting, the Committee chose to continue buying $ billion per month in longerterm Treasury securities following the completion of the MEP. | 1 |
Even though the krone has depreciated from its strong level at the beginning of the year, competitiveness is still relatively weak after many years of high wage growth. In addition, vacancy rates for commercial premises are high and rents have fallen. Another risk is that wage growth may accelerate again, as it did following the interest rate reductions in 1999. This risk is also being reduced by a slackening labour market. Unemployment in 2004 will probably be on a par with the level in 1996 and 1997. Annual wage growth in these years was a little less than 4½ per cent. The low pay increases in this year’s wage settlement also indicate that the social partners have placed more weight on the effects of pay increases on future developments in interest rates, the krone exchange rate and employment. In addition, activity in public and particularly sheltered industries is probably still feeling the impact of the expensive pay increases last year and earlier years. We expect that in light of the experience gained in 2002, public entities will exercise more caution in future wage settlements. Developments in the krone exchange rate represent another source of uncertainty. The relationship between the krone exchange rate and the interest rate differential against other countries is not necessarily stable over time. Themes in international financial markets shift. However, the depreciation of the krone this year is contributing to stabilising inflation and activity in the economy. | Svein Gjedrem: Monetary policy and the economic situation Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Norwegian University of Science and Technology, Trondheim, 2 September 2003. The text below may differ slightly from the actual presentation. The speech is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 13 August and on previous speeches. The Charts in pdf can be found on the Norges Bank’s website. * * * The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. The inflation target is a vehicle for monetary policy’s contribution to stabilising output and employment. This intention is also expressed in the Regulation on Monetary Policy. High demand for goods and services and labour shortages normally point to higher inflation. When interest rates are increased, demand falls and inflation is kept at bay. When demand is low and unemployment rises, inflation will tend to slow. Interest rates will then be reduced. Norges Bank sets the interest rate so that future inflation will be equal to the inflation target of 2½ per cent. The interest rate has been reduced since December last year in response to the change in the inflation outlook. | 1 |
Due to the use of regulatory data, the effective CET1 surplus takes into account CET1 resources (calculated from the public requirements) used, where applicable, to meet leverage ratio requirements, MREL requirements and lower quality capital requirements (i.e. where AT1 and Tier 2 instruments are allowed but not utilised). 20 We exclude corporate lending supported by government-provided relief schemes during the pandemic given the zero risk-weights attributable to that lending during Covid-19. 11 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 11 Is it stigma or is it uncertainty? One possible challenge to these findings is that they may reflect firms’ concerns about breaching regulatory minimum requirements during the pandemic, and/or about their ability to rebuild depleted buffers going forward; and may have nothing to do with the stigma of breaching regulatory buffers. The arguments go as follows: a firm entering the crisis with lower headroom would naturally be more cautious than a firm with higher headroom and hence, when the uncertainty about the economic environment is large, it would naturally increase its capital ratios by more to prevent it breaching minima. Alternatively or in addition, banks may have entered the crisis with low headroom because they faced profitability challenges, restricting their capacity to grow capital organically. If so, then they may be averse to capital ratios declining, fearful that if conditions subsequently swung around quickly, they could languish inside regulatory buffers for longer than their competitors if their profitability challenges were to persist. | 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 preliminary lessons learned earlier this month.4 Also this month, the Financial Stability Board submitted an interim report to the G20 on lessons learned for the financial system as a whole.5 A major lesson that has emerged so far is that the banking system has remained resilient through the Covid19 pandemic while continuing to provide credit to the real economy. This is, in part, due to the substantial increases in capital and liquidity held by banks as a result of the adoption of the post-Global Financial Crisis reforms, and represents a major vindication of those reforms. If I can use the analogy of a fire, one did break out in the banking system following the onset of the pandemic, but because the locus was well fire-proofed – with capital and liquidity – and because both the monetary and fiscal firefighters were alert and acted quickly and decisively, the fire was put out before it could take hold. But it was not obvious that this would have been the case at the outset. In particular, it was by no means certain that the regulatory capital buffers built up ex ante by banks as a result of those reforms, and designed to allow them to lend to the real economy whilst absorbing losses, would actually be used in that way. | 1 |
This would help foster value-added characteristics of the Thai economy and increase opportunities for our people, businesses, and everything else that will bring about a better standard of living for all. The two mega-trends I have outlined, when combined with the flood crisis at the end of last year, mean that Thailand needs to quickly upgrade infrastructure to improve competitiveness. In particular, public investment in effective natural resources management system and improved governance of public administration will serve as an important driving force for sustainable economic growth. Evolution of economic activities in line with the changing environment While the immediate obstacles may have changed, the overall challenges that have remained require all parties to formulate a strategic framework and policy space, to enable the Thai economy to stride pass the transitional gateway smoothly. For the public sector, the implementation of policy that promotes investment and enhances competitiveness effectively relating to infrastructure, education, and governance such as reducing corruption and improving political resiliency would be an important impetus to boost Thailand’s position in the competitiveness race. This is because public investment attracts further investment from both private investors and foreign investors, the so-called crowdingin effect. For the private sector, the search for new markets, improvements of production efficiencies, creation of value-added goods and services, and effective risk management are things that the private sector can do to prepare for new challenges. | Need to address communications Finally, to successfully address this risk with a unified front, we must develop an approach to enhanced communications around cyber threats and events, and revisit supervisory guidance in this area. Silence and fear of sharing intelligence in this area could be detrimental to efforts to address the vulnerabilities systematically. We know that breaches have occurred and will continue to occur until the industry is better equipped to be ahead of the attackers, not playing catch up. Right now we are interested in learning from these breaches and using intelligence garnered to get ahead of game. There is a lot to think about here. With all this in mind, I will end this part of my remarks with a reminder of what we see as the key components of any solution designed to address cybersecurity. It must: • Be comprehensive, risk-based and threat-informed; • Be a joint effort between public and private sectors; • Be flexible enough to evolve as technology advances; – Automated – Scalable • Support information sharing; • Leverage best practices; 6 BIS central bankers’ speeches • Include all in the industry – regardless of size or processes (internal systems or external providers); and • Delve deeper than one step below the surface. Conclusion We live in an ever-changing environment where speed and agility are of the essence. | 0 |
7 See the 2014 report “ERAC peer review of the Spanish research and innovation system”, authorised by the European Commission. 15/18 The growth of firms is influenced by the availability of external financing to undertake new investment projects. In Spain’s case, as is known, this financing is mainly through bank loans, especially at smaller-sized companies. In the immediate run-up to the crisis, the standards governing this type of loan to firms were relatively lax. That made for abundant bank financing, which was particularly conducive to the creation and survival of numerous firms, many of them small in size. However, the companies resorting in best conditions to such lending did not always evidence high productivity. Indeed, the buoyancy of loans extended to relatively unproductive firms in the years prior to the crisis made for the build-up of macrofinancial imbalances. Conversely, in recent years, the allocation of lending appears to be proving more efficient. Specifically, funds tend to be earmarked for companies showing a comparatively more favourable economic and financial situation and that are more productive.8 This change in lending standards might be linked both to experience of the crisis and to financial regulation changes. In particular, the regulatory requirements applied to credit institutions have been significantly tightened with the aim, among others, of better aligning the level and quality of bank capital to the real risks assumed by banks. The weight of construction-related investment has diminished, partly as a result of the credit-allocation changes I have just referred to. | 3 Because Swiss GDP statistics do not fully take into account the improvement of the terms of trade regularly realized by the tradable sector, the growth differential between Switzerland and other advanced economies is overstated but remains significant nevertheless. See e.g., Term-of-Trade Changes and Real GDP: Evidence from Switzerland, Ulrich Kohli, SNB Quarterly Bulletin, June 2002. BIS Review 24/2004 3 Monetary policy and EMU Accession to a monetary union transfers the power over monetary policy from the national to the union level. There are costs and benefits to such an abdication of monetary sovereignty. Nominal interest rates are equalized throughout a monetary union and the nominal exchange rate is no longer available as a tool for alleviating the impact of asymmetric shocks. Necessary economic adjustments between different countries of a monetary union must therefore occur through various price and factor movements. As I have already suggested, imposing real wage adjustments in particular can be politically costly. In the case of both the UK and Switzerland, these potential costs of EMU membership are mitigated by virtue of flexible labor markets in both countries. In the case of Switzerland, EMU accession would also lead to the loss of an interest rate bonus our country has traditionally enjoyed. At least partly, this bonus is rooted in the credibility of the Swiss National Bank, acquired over a long period of independent and successful monetary policy (Chart 2). | 0 |
24 Flexibility When Needed: The Technical Adjustment When overnight rates—including rates on federal funds transactions—edge higher, what tools does the Federal Reserve have to ensure that they generally remain within the target range when reserves are abundant? The federal funds target range is an important feature of the FOMC’s public communications, and maintaining control of the federal funds rate and other money market rates is therefore taken quite seriously. Public confidence in our ability to maintain rates within the target range is important for ensuring that expectations for the FOMC’s future policy stance are properly incorporated into the term structure of interest rates, and thereby appropriately affect financial conditions and the broader economy. At the March 2015 joint FOMC Board meeting, it was decided that in a situation of abundant reserves, the Federal Reserve intends to “adjust the IOER rate and the parameters of the ON RRP facility, and use 23 Recent market intelligence supports the notion that increased awareness among some banks of the LCR benefit to borrowing federal funds from FHLBs, even at rates at or slightly above IOR, has contributed to the upward pressure in federal funds rates. For further discussion of the impact of LCR treatment on money markets, see Potter, “Confidence in the Implementation of U.S. Monetary Policy Normalization,” August 4, 2018. 24 While trading volumes among smaller domestic banks have been largely steady since the beginning of normalization, their borrowing rates have increased since March with the rise in the broader constellation of money market rates. | The costs of such failures were enormous, with prices rising by 750% in the twenty-five years to 1992, more than over the previous two hundred and fifty years. Unemployment was high and growth volatile. The inflation target rose from the ashes of the ERM debacle twenty five years ago this month, marking the point when price stability became the unambiguous objective of UK monetary policy. The new framework was a success, though only a partial one. That’s because, with interest rate decisions still made by the Chancellor, it wasn’t fully credible. Experience teaches that political control of monetary policy decisions suffers from time inconsistency, in which policymakers promise low inflation, then go for faster growth and ultimately achieve neither. Conversely, welfare can be improved if governments first choose the preferred rate of inflation and then delegate operational responsibility to the central bank to achieve it. 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 The UK Framework for Monetary Independence So it was in 1997 when Gordon Brown boldly gave the Bank of England operational control for setting monetary policy. The Bank of England Act of 1998 clarified – for the first time in three centuries – the Bank’s responsibilities. 1 It gave a new independent body of the Bank, the MPC, a clear remit to achieve the inflation target over the medium term. The inflation target is symmetric (meaning we care as much about returning inflation to target from below as from above), and it applies at all times. | 0 |
BIS central bankers’ speeches 3 I am pleased to say that both the US and the EU appear now to be inching toward recognition of each other’s implementation of the standards. The threat of fragmentation of the market seems to be receding, even if success is not yet assured. But it is an example of the differences that can arise in implementation even when there is international agreement on standards – a theme to which I will return. On shadow banking, the FSB has identified activities outside the banking sector that can give rise to some of the same risks as banking. And this is beginning to generate proposals for regulatory reform. The US and EU have, for example, developed proposals on regulation of money market funds. And there should be an important first agreement this year on how to manage systemic risks that can arise from securities financing transactions such as in the huge global repo market. Finally, ending “too big to fail”. This may well be the litmus by which the public judges the success of the entire reform programme. Nothing has so incensed public opinion and damaged societal support for the financial sector than the apparent “heads I win, tails you lose” experience of private profits and pay when things went well and public losses when they did not. We will not fully restore public confidence until we can show that we can resolve failing banks – no matter how large – without public support. | It means measures to reduce disruption to financial markets if a bank is wound up. And crucially it means agreement between the authorities in the countries in which these global banks operate on how they should be resolved if they fail. We have made a lot of progress on too big to fail. But we are not yet there. I do not think we can say with confidence now that we could resolve a failing global giant. Getting agreement on international standards to end Too Big to Fail is perhaps the most important regulatory priority for the G20 Summit in Brisbane in November this year. When you stand back and look at the progress of this unprecedented programme of international financial reform, on the capital and liquidity framework, on inter-connectedness, on shadow banking and on too big to fail, a huge amount has been achieved. 4 BIS central bankers’ speeches If we can get the progress that G20 leaders committed to this year by the Brisbane G20 summit in November we will have “completed the job” of agreeing most of the key international standards and rules. And, in many areas, we will have gone a substantial way to implementing them. And I am very pleased to say that the Bank of England has played a key role – and in many areas a leadership role – in moving this programme forward. And I hope we can continue to do this as, increasingly, we move into the implementation phase. IV. Have we succeeded? | 1 |
The Producer Prices Index, which is calculated by excluding tax, indicates that manufacturing industry prices, comprising a significant part of the index, have become more susceptible to raw material prices and exchange rate developments compared to previous years (Graph 7). BIS Review 67/2006 5 Graph 7. Manufacturing Industry Prices and Exchange Rate Basket (0,5 USD + 0,5 Euro) (Annual Percentage Change) Manufacturing Industry Prices 20 Exchange Rate Basket 10 0 -10 Mar-06 Jan-06 Nov-05 Sep-05 Jul-05 May-05 Mar-05 Jan-05 Nov-04 Sep-04 Jul-04 May-04 Mar-04 Jan-04 -20 Source: TURKSTAT, CBRT. The sector, in which the said effect is clearly perceived within the PPI, is the petroleum products sector that is subject to high taxes. Excluding the said effect, the annual rate of increase in manufacturing industry prices is maintaining its low-level trend, albeit its slight upward tendency (Graph 8). Graph 8. PPI and Manufacturing Industry Prices Excluding Petroleum Products (Annual Percentage Change) 12 Manufacturing Industry Prices Excluding Petroleum PPI 9 6 3 Mar-06 Feb-06 Jan-06 Dec-05 Nov-05 Oct-05 Sep-05 Aug-05 Jul-05 Jun-05 May-05 Apr-05 Mar-05 Feb-05 Jan-05 0 Source: TURKSTAT, CBRT. Distinguished Guests, Inflation expectations are determinant on inflation realizations in view of being the basis for both pricing behavior and wage adjustments. | textiles and apparels) *Quarterly moving averages. Source: TURKSTAT. 10 BIS Review 67/2006 It is expected that the current account deficit will not pose any risk with respect to economic stability and the inflation target in the short-term. Along with growth in the share of foreign direct investments that have gained pace with privatization revenues, the increase in the share of long-term credits in the credit composition of the banking sector and the private sector eases concerns about the sustainability of the current account. It is predicted that foreign direct investments, which reached USD 8.6 billion in 2005 (2.4 percent of GDP), will prevail at high levels in 2006 as well due to the continuance of privatization revenues and company acquisitions. Moreover, the process of convergence with the European Union is expected to ensure the continuance of international capital’s interest in Turkey. Costs While productivity rose at a high rate in the private manufacturing industry, real unit wages dropped by 8.2 percent compared to the same period of the previous year due to the decline in real wages (Graph 16). The persistence of the drop in real unit wages became one of the leading factors in the continuation of the disinflation process. Graph 16. | 1 |
Nevertheless, the Report notes that productivity growth slowed down; hence, the firm dynamics is identified as one of the main issues that should concern our region. The main reasons of these developments seem to derive from some factors: First, the low capacity of markets and firms to regenerate, decelerates the replacement of non-productive firms with new innovative ones, and hinders the efficient allocation of resources. Second, small firms do not succeed in increasing their output or the number of employees. Studies show that their productivity is rather lower compared with larger firms. Smaller firms make up the majority of producing entities – around 80% in EBRD region, and 95% in Albania. For this reason, more should be done for the integration of smaller firms into global production networks, finding human capital, access in the financial system or capital markets. The Bank of Albania deems that the development of the financial system is indispensable for the economic development of the country. In this regard, through our policies, we are trying to encourage a more efficient allocation of bank lending, in order for it to be less fragmented or concentrated in certain sectors of the economy. Also, we are closely monitoring the financial and borrowing situation of micro-economic firms, including those in the agricultural sector. These firms have a considerable share in the gross value added and in the number of employed persons in Albania. | Before rejoining the IMF, where he had previously worked for 15 years in the European Department and the Monetary and Financial Systems Department, he was the Director for Financial Stability, as well as for Supervision Policy within the DNB, position that enabled the creation of the respective departments within the National Bank of Romania. Last, but not least, he shares his financial supervision knowledge as a Professor at Nyenrode Business University. It is my pleasure to offer the floor to Mr. Hilbers and thank him once again for being here with us today. 2/3 BIS - Central bankers' speeches His remarks will be followed by a recorded message from his World Bank counterpart, Executive Director Koen Davidse. Mr Davidse is a more recent, but also very good, friend of our country. With extensive knowledge in development policies, having worked with the United Nations and the Ministry of Foreign Affairs of the Netherlands, Mr. Davidse has constantly supported the efforts for structural reforms and strengthening Romania's institutions in. Unfortunately, he couldn't join us physically today, but he is with us virtually. Thank you! 3/3 BIS - Central bankers' speeches | 0 |
After this introduction, I will then go on to discuss the strong credit expansion in Sweden and the measures that a central bank can take if it assesses that this development constitutes a potential threat to financial stability. I will conclude by looking at international developments, since the development in Sweden is by no means unique. The Riksbank and financial stability The comprehensive changes that have taken place in the financial sector and the financial crises that have occurred in various parts of the world have meant that the work on securing financial stability has become increasingly prioritised. Those countries which have undergone severe banking crises in modern times are now leading the way in terms of the work on financial stability. For example, Sweden was the first country in the world to regularly and openly publish special stability reports analysing the situation of the financial system. We would say that the initiative was received with mixed feelings by other central banks, some of which were concerned that these kinds of reports would cause problems rather than preventing them. However, the attitude of the Riksbank has been that it is through open and honest communication with the financial players that we can observe and remedy potential problems at an early stage. Despite some initial scepticism, several countries have now followed the Riksbank’s example. Norway and the UK now publish stability reports and Denmark also recently issued its first stability report. | In the current uncertain environment, it is a challenging time to make predictions about the future. Nonetheless, to conclude let me say a few words on what these results might imply for the policy landscape going forward. As I discussed earlier, the new analysis presented in this speech suggests that the effects of the key drivers of Global R*, particularly increasing longevity, are expected to persist. Absent a significant reversal in the key trends that have driven down Global R*, we may expect it to remain low. So it is not unreasonable to expect that Global R*, the long-run anchor for UK equilibrium interest rates, will remain low. Therefore, cyclical adjustments in short-term nominal interest rates – like those we are currently witnessing in the United Kingdom and abroad – will for the foreseeable future continue to be played out against the backdrop of low global equilibrium real interest rates. While we have considered several important drivers of Global R* in the past, other factors may Page 16 come into play over time. You may wonder, for example, whether the pandemic could have impacted some of the key drivers of Global R*, such as productivity growth. The simple answer, of course, is that we do not yet know. It is too soon to tell what the long-run impact of the pandemic will be for the economy. | 0 |
An index over 50 indicates growth Sources: Institute for Supply Management, Markit Economics and Swedbank In the Swedish economy domestic demand has so far been supported primarily by consumption and public investment. The expansionary fiscal and monetary policy has stimulated household consumption. This includes tax cuts, low interest rates and other measures. 6 BIS Review 25/2010 Figure 5 Economies around the world are now growing Outcome and forecast, Monetary Policy Report, February 2010 GDP level, index 2007 Q4 = 100 Sources: The Bureau of Economic Analysis, Eurostat, the OECD, Statistics Sweden and the Riksbank. However, the export sector has been hit hard by the fall in world trade and one can now say there is a divide in the economy. This can be seen, for instance, if one looks at how retail trade and exports have developed (Figure 6). But at the same time, export orders and world trade have increased, which indicates that exports will recover, albeit from a low level. Figure 6 Divided economy Index 2005 = 100, seasonally adjusted data Source: Statistics Sweden BIS Review 25/2010 7 Rising domestic demand but low resource utilisation The prospects for demand in the Swedish economy continuing to increase are good. Household income has developed well and households have a high level of saving. As public finances are sound, the need for fiscal policy constraint further ahead is lower in Sweden than in many other countries. As growth abroad increases, exports will also rise again. | One central area where I believe we should have achieved more is legislation and regulation with regard to how and by whom banks in distress should be managed. Following the previous crisis I saw important reforms in legislation being investigated over a long period of time only to be more or less forgotten with nothing implemented. I fervently hope this will not happen again. Quite simply, it must not happen again. Towards a cohesive and efficient financial regulatory framework The Executive Board of the Riksbank and the General Council of the Riksbank have presented a joint report to the Riksdag where we propose that one or several commissions of enquiry should be appointed to review the regulatory framework in the financial sector. We need to create a cohesive and efficient regulatory framework. It should contribute to maintaining financial stability and if a crisis nevertheless arises, it should minimise the costs to consumers and to society as a whole. These are questions that should neither be discussed endlessly nor allowed to come to nothing when the situation stabilises. If we are to BIS Review 25/2010 11 prevent costly crises in the future, we must together investigate and implement changes. Urgently! Around the world there is already extensive work being carried out in this field, particularly with regard to the international supervision perspective. But implementing changes at international level can take time. | 1 |
The report considered that the arguments in this respect were not clear-cut either way but that the advantages of staying outside for the time being predominated. With a national monetary policy at a time when the economy still had major imbalances and was highly vulnerable to shocks, Sweden would then be in a position to parry any negative repercussions that might hit the economy while leaving the euro area relatively unaffected. 1 BIS Review 92/1999 A radical change in conditions for the forest industries is the standard example of such a shock. But even a more general worsening of conditions for growth in the rest of the world might have particularly adverse effects for a small economy with a high level of foreign trade. Moreover, with an independent monetary policy, interest rates can be increased to counter effects of a specific domestic policy failure, for instance an excessively weak budget policy or inflationary wage settlements. At present some observers might perhaps regard this as the greatest risk. According to the report, the high unemployment that had occurred in Sweden since the early 1990s made constraints on Swedish monetary policy particularly risky. In the situation at that time, a shock could have serious consequences for unemployment, with a further increase from a level that was already high. Experience in other countries, moreover, pointed to a major risk of an increase in unemployment becoming permanent. Swedish monetary policy could then provide support for the necessary labour market reforms that were advocated in the report. | The question of whether or not to join the monetary union mainly has to do with long-term aspects of economic development and how we in Sweden view our future political role in Europe. In this perspective, today’s stronger Swedish economy is an argument in favour of adopting the euro now rather than for remaining outside. Some of the Calmfors report’s arguments against participation have been weakened. A decision to join – based on long-term, strategic considerations – is now associated with smaller short-term risks than it would have been some years ago. The report and the Riksbank on economic efficiency The next step of the analysis in the Calmfors report concerned the consequences of membership for resource utilisation, that is, how the long-term output trend might be affected by the impact of membership on, for example, investment, foreign trade and transaction costs. The report focused on the effects that are easiest to measure and assess. The decreased costs for currency exchange and covering foreign-exchange transactions were seen as definitely positive. The report was uncertain both about the magnitude of this effect and about the effects on foreign trade and investment but came to the overall conclusion that they were not particularly large. The Riksbank considered that the report underestimated participation’s effect on efficiency. One reason for this was the report’s assumption that firms could reduce the costs associated with exchange rate movements by covering them in financial markets. | 1 |
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