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Moreover, raising new private capital in this environment is a very tall order; while the option of public capital injection very costly for shareholders and tax payers. Therefore, it is imperative that banks need to be even more vigilant in managing not only their asset quality but also their internal capital, funding, expenditure including executive pay, and dividend policy. Looking at banks in the Asian region, such as Thailand, despite rapid development of capital market in recent years, the core banking businesses remain traditional; largely deposit taking and loan extension. Meanwhile, treasury operation remains relative small. Moreover, with the financial market predominantly bank-based rather than market-based, there tends to be less risk and complication arising from the originate-to-distribute models of securitisation. Nevertheless, in the past few years, banks have expanded business scope, operating as universal banks or financial conglomerate, with securities and insurance arms. Therefore, organisational structure and risk profile, of even the more traditional banks, have become much more complex. This, in turn, demands that bank’s risk management, Board’s oversight, and supervisory framework can match the increasing complexity and ensure adequacy of capital and risk management system on a consolidated basis. On market risk, some banks in Asia and Pacific countries have been exposed to the subprime related assets such as CDOs as well as assets of failed institutions. The losses so far have been limited to foreign assets and are addressed by private and government assistance. On hindsight, this crisis highlights the fact that it is easy to overestimate one’s risk management ability. | Banks with CDO exposure have already made full provisioning and recognized losses in line with IAS 39, and presently all sub-prime related CDOs have been unwound. Thai banks also have very low exposure to investment banks like Lehman Brothers and have no investment in US GSE securities. In all, total exposure of Thai banks to foreign investment is about 1.2 percent of total assets, about half of which are sovereign assets. Having said this, we are very mindful of the risk from second round effect of slowdown in global growth and domestic growth, which can affect credit, market, as well as liquidity risk. To handle this, the Bank of Thailand has been holding dialogue with top managements of banks to discuss financial stability outlook, and have conducted stress-test to ensure that banks are alert to these risks and are able to manage them to ensure adequate capital and liquidity. We will continue to hold candid and two-ways dialogues with all the banks operating here to ensure that we can manage these challenges and dynamics of the global turmoil. Ladies and gentlemen, I would like to conclude with some lessons learned so far to increase our immune system going forward. First, growth must be based on strong macroeconomic foundation, with prudent fiscal and monetary policy, flexible policy options, and strong external positions. | 1 |
On the other hand, some consequences of central clearing may increase systemic risk: • as a result of growing risk concentration in CCPs and in a limited number of large global dealers, which act as general clearing members as a gateway for other financial institutions to CCPs, • as a consequence of mutualisation, risks may spread among participants and markets more widely and the distribution of losses is more difficult to predict, • in order to avoid mandatory clearing, we might see migration of risk outside of the regulated universe through the artificial creation of bespoke (and hence risky) products that are not suitable for central clearing. Moreover, the systemic effect of clearing depends on whether risk is redistributed to those who are more able to deal with it, which is difficult to determine. Finally, the overall systemic effect depends on the incentives for risk-taking and central clearing that accompany risk redistribution. [slide 5] To promote central clearing and avoid regulatory arbitrage, a number of reforms have been adopted including: (i) mandatory clearing, (ii) margin requirements for non-centrally cleared trades, and (iii) higher capital requirements for non-centrally cleared trades. This highlights the crucial complementarity between the regulation of banks and the regulation of financial market infrastructures (FMIs), with the overall objective that regulation reduces overall risk, and does not shift it around the financial system. | (2003) showed that T-Bill yields track movements in the fed funds rate more successfully since the 1990’s, while Kohn and Sack (2003) found that statements released by the FOMC significantly affect market interest rates. 4 Demiralp and Jorda (2002) found that a smaller quantity of open-market operations have been required for the Fed to achieve its desired policy rate since 1994. 5 Hubert and Labondance (2018) found that the ECB’s forward guidance announcements persistently reduced rates across the yield curve, with the strongest effects at the longest maturities. Moesser (2013) found greatest effects for the US at the three-year horizon. However, Chehal and Trehan (2009) found little evidence that the Bank of Canada’s forward guidance in April 2009 significantly affected market expectations of interest rates. 6 Kahnemann (2003) 7 Mishkin (2004) 8 Cruijsen et al (2010) 9 See Dincer and Eichengreen (2014). Cruijsen et al (2010) also found diminishing returns in reducing dispersion of inflation expectations, with expectations dispersion declining initially as transparency rises but rising beyond a certain level of transparency. 10 Hayo and Neuenkirch (2018) 11 Samuelson (1994) famously likened this problem to a monkey looking at a mirror. The monkey reacts to its mirror image, unaware that it is looking at its own reflection. 12 Morris and Shin (2018) 13 Gaballo (2018) 14 Goodhart and Lim (2011) 15 Free exchange: A little less conversation, “Can central bankers talk too much?”, The Economist, 26 Oct 2019. 5/5 BIS central bankers' speeches | 0 |
Let me go over quickly these points: In order to fulfill this inadequate access to financial services by under-served consumers, the Bank of Thailand initiated a pilot project on micro finance in collaboration with commercial banks. Against misconception that micro finance is an unprofitable segment, this project aims to demonstrate that the coexistence of profitability and satisfied customers is possible with a right business model. Late last year, we invited foreign speakers to share with senior management of Thai commercial banks their experience in successful conduct of retail business in their countries. Following this seminar, a number of banks already expressed their interests to participate in this pilot project. One social aspect that has clear benefits to all parties concerned is consumer education. It has two major dimensions, one on the cultivation of responsible use of credits and the other the introduction of new financial products and channels of distribution. While the former can improve the overall risk profile of financial institutions’ retail portfolio, and thus lower the lending rates, the latter can potentially stimulate more demands and lower the cost of service provision. It is therefore the responsibility of lending institutions to convey clearly the message of ‘no free lunch’. In other words, prudent lenders must ensure that borrowers are fully aware of the financial obligation of their debt burdens and legal consequence of default. Failure of either party could tarnish the healthy usage of retail credit. | Preference of traditional channels of service provision over e-banking In terms of service distribution channel, brick banks still have competitive edge over click banks as consumers still prefer to conduct banking transaction with human contact at bank branches or sub-branches. E-banking is not yet well-accepted by consumers on account of: • uncertainty surrounding accuracy of the services; • lack of transaction evidence that might be useful in case of dispute settlement; and • lack of knowledge among some retail customers. The use of automated teller machines is quite well-spread while the use of phone banking and Internet banking is still limited to a small fraction of customers. According to the survey, high-income retail customers tend to make use of phone banking and Internet banking more often than do low income customers. Usage of phone banking and Internet banking by corporate customers is still low, though 2 BIS Review 22/2004 large and medium corporate tend to use phone banking and Internet banking more often than do small corporate. Financial service needs expected in the next few years Due to the current low return on savings with commercial banks, both individual and corporate consumers revealed preference towards alternative saving instruments such as saving bonds and government bonds. As for financing, the needs expected by individual customers are those for the purposes of working capital, residential, education and business expansion, while those of corporate customers remain financing for long-term investment for business expansion and short-term working capital requirements. | 1 |
I am passionately convinced of the need for a public service, and affected by its current crisis: its necessary modernisation, its re-legitimisation, recognition for civil servants, is not incompatible with its capacity to perform and innovate, on the contrary. The transformation of the Banque de France is a modest but real example. The idea is not to reduce public spending overall, but to stabilise it. Bringing spending growth down to 0.5% per year from 2023 onwards would lower the debt ratio to 100% of GDP in ten years, assuming the rate of tax and social security contributions remains constant - I insist on this condition; stabilising our spending in volume terms would enable us to reduce our debt even further, to 90% of GDP. The target to be set is obviously a matter for democratic debate. But the most important thing is that the targets set for this "overall spending limit" actually be respected, which unfortunately our country has never been able to do in the long term. The choice of priorities or savings to be made also legitimately belong to the political debate. I would just like to point out that the key issue of the quality of spending is the blind spot in our budgetary debate, whereas it can guide us here. Economic analysis shows that spending for the future – most investment, education, research – has a much better "multiplier" effect on growth over time than simple current spending. | Resistance is strong, particularly among those who gain most from squeezing through the loopholes. There is also an in-built professional inertia among regulators, lawyers and tax accountants with large 2 BIS central bankers’ speeches amounts of human capital invested in complexity. In removing complexities, society’s gain would be their loss. Nonetheless, in the light of the financial crisis, we may be nearing an inflection point, where the societal pendulum begins to swing in the opposite direction. There are certainly signs of the red tape tide beginning to turn in the area of financial regulation. A growing chorus of concern has emerged recently about complexities and inconsistencies in banking regulation. Earlier this year, the G20 Finance Ministers and Central Bank Governors committed themselves to addressing this problem. So too has the Basel Committee on Banking Supervision. This is a good start. But, at this stage, it is no more than that. One risk is that the regulatory inclination may be to tackle this problem slowly and piecemeal, to unwrap the onion one layer at a time, to avoid throwing the baby out with the bathwater. As Axel Leijonhufvud once remarked to me in a different context, while the bathwater in this case may be worth reusing, the baby would never have come of anything. Thin-slicing reform, whether regulation or tax, condemns us to failure. Peeling the onion one layer at a time tends to end in tears. | 0 |
This was in connection with a discussion on the general increase in prices that was expected to happen in the United States: Even those who tend to agree with the concept of a rough balance between supply and demand (i.e. no inflationary or deflationary gap), point out that there is still a huge money supply— and that is the hard core of inflation…. In time, this concept began to be used increasingly often, especially when inflation began to rise at a rapid pace in the beginning of the 1970s (see Figure 1). 4 According to Gordon (1975a), the higher rate of inflation was due to a number of factors: That food prices had begun to increase faster as a result of supply factors in the United States and abroad, that the oil price had risen as a result of production restrictions introduced by the OPEC oil cartel, that the Nixon administration had introduced price and wage freezes and the devaluation of the dollar in 1971 and 1973. Now a need arose to distinguish temporary price increases from more lasting ones. 3 See, for instance, Rogers (1998) for a discussion of how central banks use the concept. The next reference in the same text search of Wynne is Sprinkler (1975). He writes: “Recent price increases of 10-12 percent annually were about double the hard-core inflation”. 4 3 [19] Figure 1. CPI inflation in the USA Annual percentage change. | This activity is the first in its kind, and I express my highest considerations for the trust that the Bank of England has put to the Bank of Albania. The Centre of Central Banking Studies is internationally recognised as a centre of intellectual excellence in the area of central banking studies. Considering the goal that this centre has set to itself, as an opportunity provider to central banking employees to be endowed with ampler perspectives in the respective areas of expertise, I call for your attention to listen to what the distinguished experts shall say. Their professional achievements and the central banks they represent guarantee this. Thank you and good proceedings! 2/2 | 0 |
21 This might help explain why the UK’s labour share has fallen less markedly than in these other countries. Using the Acemoglu and Restrepo ready-reckoner, if the UK had the same degree of industrial robot penetration as the US spread over a decade, this would lower 22 wage growth by around 0.4 percentage points per year. 19 For example, Acemoglu and Restrepo (2018). IMF (2017). These automation measures take no account of differences in industry structure across countries. 22 We use 0.4 as the approximate mid-point of the Acemoglu and Restrepo range. 20 21 11 All speeches are available online at www.bankofengland.co.uk/speeches 11 What is true across countries appears also to be true across sectors. Chart 22 plots a measure of automation across sectors against changes in the labour share. It suggests a downward-sloping relationship, consistent with increased automation depressing pay. (d) Monopsony A final factor influencing the pay power of workers is the degree of concentration in the corporate sector. There has been much recent discussion of the rise of so-called “superstar” firms, benefitting from global network economies of scale and scope. 23 The larger a company’s share of the product (monopoly) or labour 24 (monopsony) market, the greater its degree of power over customers or workers. Measures of industry concentration in the US (and in some other countries) have trended upwards, secularly and significantly, over several decades. | The higher the BIS Review 56/2003 1 long-term sustainable rate of growth, the easier it is for us to balance aggregate demand in the economy so that it coincides with what is available for household consumption, business investment and the needs of the public sector. So monetary policy cannot raise the potential growth rate but, in a worst case scenario, as we witnessed during the 1970s and 1980s, it can worsen our chances of attaining a high potential growth rate by affecting demand in the economy in the wrong way. Consequently, on an abstract level, the “formula” for economic growth is very simple. It is the weighted sum of labour force growth and capital growth as well as technological progress. However, when we compare growth between different countries, it is not that interesting to note that a country has high growth because its labour force is growing fast. It is the standard of living that is of interest and this does not have to improve just because the population and labour force are growing. The important issue instead is how quickly a country’s production grows per capita and this leads us into concepts such as productivity in a broad sense. For productivity is just that - production per capita. It can be measured per inhabitant, per employee or per hour worked. The concepts are closely related. One interesting observation is that the United States’ rapid growth in recent years has been attributable mainly to high labour force growth. | 0 |
I begin with a brief description of international developments over the next few years and then present my view of Swedish monetary policy in the period ahead. Abroad There are many similarities between the situation in the autumn of 2008 and the spring of 2011. For the world as a whole we once again expect to see a GDP growth of over 4 per cent per year, although there are considerable differences between different regions. Growth is continuing in the United States and Europe although, due to the financial crisis, at a slower rate than after a normal downturn. We expect to see a GDP growth of around 3 per cent per year in the United States and of just below 2 per cent per year in the euro area, with an inflation rate of almost 2 per cent in both areas. But the emerging economies are growing rapidly (see Figure 16). The strong increase in demand in the emerging economies is pushing up the demand for energy and commodities. There has therefore been a substantial increase in crude oil prices and the prices of other commodities recently. There is a risk that these prices will continue to rise and that inflation will therefore also rise in both the emerging markets and the developed countries. Inflation expectations have also increased in recent months and there has been an upward shift in monetary policy expectations (see Figure 4). | 5 See The Nation’s Report Card, http://nationsreportcard.gov. BIS central bankers’ speeches 5 I would argue that an additional factor favors Texas: We have a Legislature that under both Democratic and Republican governors has over time deliberately crafted laws and regulations, and tax and spending regimes, encouraging business formation and job creation. Just last month, Fairfield, Calif.-based vehicle reseller Copart Inc. announced that it will move its headquarters to Texas, citing “greater operational efficiencies.”6 The CEO for the owner of Hardee’s and Carl’s Jr. restaurants, Andy Puzder, claims it takes six months to two years to secure permits in California to build a new Carl’s Jr., whereas in Texas, it takes six weeks. These two anecdotes from California alone clearly illustrate that firms and jobs will go to where it is easiest to do business – not where it is less convenient and more costly. Both state and federal authorities need to bear this in mind as they plot changes in the fiscal and regulatory policy needed to restore the job-creating engine of America. As an official of the Federal Reserve charged with making monetary policy for the country as a whole, I am constantly mindful that investment and job-creating capital is free to roam not only within the United States, but to any place on earth where it will earn the best risk-adjusted return. | 0 |
Indeed, the combination of sluggish economic growth globally and continuous expansion of alternative capital have led to too much insurance capital finding too little risks. These include traditional risks like property and casualty risks. At the same time, the insurance sector is struggling to find solutions for new and emerging risks. This confluence of structural changes across demand, intermediation and the supply side of the insurance value chain is an unprecedented phenomenon. But the outlook is not for all grey skies ahead. The challenges also present a unique set of profitable growth prospects for the industry, particularly here in Asia. Asia’s changing risk landscape The Asian risk landscape is changing rapidly, with demand for insurance services projected to grow especially quickly in emerging Asia as incomes rise, life expectancy increases, and Asians become more aware of catastrophic risks. Asia currently accounts for 28% of the global insurance market, and premiums in the region are expected to double by 2020, with more than $ trillion generated. So why is excess capacity not being deployed in Asia which faces the greatest need? Many of Asia’s risks, ranging from marine, to property catastrophe insurance, to directors and officers liability, are actually insurable and traditional risks. Yet, Asia continues to remain severely underinsured. Many of these insurable risks are often not well understood or well developed in this region, due to a lack of risk awareness, insufficient data and nascent insurance markets. | The insurance protection gap is widening inexorably: • Close to half of the world’s most underinsured countries are in Asia, and of these, half are in Southeast Asia. BIS central bankers’ speeches 1 • In the past two decades, Asia has borne 50% of the estimated global economic cost of natural catastrophes. Yet, less than 5% of all disaster losses in Asia are insured, compared to 40% in developed nations. • The 2008 Sichuan Earthquake is a case in point. Less than 1% of the total economic costs of $ billion were insured. The disaster further left governments and taxpayers with a hefty reconstruction bill of almost $ billion after the event. Going forward, it will also no longer be sufficient to just focus on traditional risks. As Asia continues to grow and become more digitally-connected, new and emerging risks will arise and we should be proactive in adapting to these needs. I would therefore like to challenge the industry to: • raise insurance penetration of traditional risks and find innovative ways to cast the net wider to cover more insureds, and • develop innovative and meaningful risk transfer products for new and emerging risks. Specifically, I would like to highlight 3 key growth drivers for insurers and reinsurers today: • New and emerging risks • New capital • New technology and innovation. | 1 |
Since then, many banks have been benefiting from higher exemption thresholds and have an incentive to take on liquidity via the money market. As expected, this demand for liquidity led to higher trading volumes and a slight rise in SARON and other short-term repo rates in the week following the introduction of the new calculation basis (cf. chart 4). The SNB was active in the repo market from time to time in order to keep SARON close to the SNB policy rate. The Swiss franc repo market functioned smoothly throughout the transition, not least thanks to the state-of-the-art and reliable money market infrastructure. The SNB trades using the same infrastructure as the banks on the interbank market. This is particularly helpful as it ensures that the SNB’s operations are highly effective. Transitioning from Libor to SARON SARON is currently establishing itself as the leading reference interest rate for financial products in Swiss francs and is replacing Libor. As you know, the UK’s financial regulator will only be supporting Libor until the end of 2021, so it is important that the transition process on the market take place now. Over the last few years, the National Working Group on Swiss Franc Reference Rates (NWG) has put forward recommendations on how to proceed with replacing Libor. Market participants must now act decisively to implement these recommendations. A SARON-based swap market is especially important for the financial markets. Swap markets are used to hedge interest rate risk (e.g. | in mortgages); the associated transactions produce a swap curve, which serves as a benchmark for pricing and valuing bonds and loans. To date, however, trading – and hence liquidity – in SARON swaps has been low. This will change once more SARON-based cash products become available. The successful transitioning away from Libor therefore hinges on the development of such products. Page 2/6 Berne, 12 December 2019 Andréa M. Maechler News conference In order for SARON to be used as the reference rate for cash products, a longer-term interest rate must be calculated from the daily rate. As early as 2018, the NWG recommended various options for calculating an average interest rate based on realised SARON values. This approach, known as compounding, is also gaining traction abroad. A wide range of options for calculating such average rates has been proposed and evaluated. At its latest meeting, the NWG was more specific and narrowed down its set of recommended options. 1 As a result, market participants can now begin embedding the compounding approach in products such as mortgages. In addition to new SARON-based cash products, solutions must be found for existing Liborbased products. Ideally, these will be replaced by new, SARON-based contracts. At the very least, the existing contracts must be furnished with fallback clauses, which will come into effect when Libor is no longer available as a reference rate. I should stress that it is evident that the Swiss franc Libor will cease to exist. | 1 |
Key lessons may be drawn from the recent crises that have affected emerging economies - though not only them - which should be borne in mind when designing mechanisms to reduce their frequency and cost. They include most notably: the need for a sound and well-designed institutional framework that protects property rights, prevents excessive public - or private-sector debt from accumulating and ensures economic stability; the importance of ensuring consistency between the exchange rate regime and the domestic economic policies and institutional framework; the risks entailed by the vulnerability associated with exchange rate instability processes for the balance sheets of different sectors in the economy, especially when there is a high degree of dollarisation; the marked sensitivity of emerging market economies to potentially very volatile capital flows, the direction of which can change suddenly due, at times, to factors that may even be exogenous to the country experiencing them; the importance of an appropriate regulatory and macro-prudential supervisory system to prevent crises 2 BIS Review 37/2004 generated in the financial system and to alleviate the ensuing costs if such crises finally occur, and to cushion the effects of shocks stemming from the real sector of the economy; and, finally, the importance of distinguishing, as far as possible, between liquidity and solvency crises in countries’ external debt and in governments’ public debt, as a first step towards applying suitable remedies for resolving each type of crisis. | The links between exchange rate crises and banking crises - the so-called twin crises - and the feedback mechanisms between the two are, along with the propagation and contagion channels from one country to another, matters of particular importance here. National regulators and supervisors, in addition to their initial aim of safeguarding the solvency of individual institutions, have given increasing importance to combining the presence of flexible, efficient financial markets and intermediaries with the absence of excessive volatility on financial markets and to prevent the so-called systemic risks - which affect the whole of the financial system - from materialising. International financial institutions have also become increasingly oriented towards the need to ensure a proper functioning of international financial markets and to limit the transmission of shocks from one country to another in a world of ever deeper and swifter linkages. The relationship between national and international financial stability is obviously all the more important for countries, such as Spain, whose banking system has a significant presence abroad. The expansion of Spanish banks into Latin America explains why the Banco de España has, in recent years, promoted the monitoring and analysis of financial stability problems in this region in particular, and in the emerging market economies in general, an area in which the role of the International Monetary Fund has become increasingly important. | 1 |
As a catalyst for such innovations, I am pleased to announce that following a public consultation process, the Bank has today issued details of the Financial Technology Regulatory Sandbox. Effective immediately, financial institutions and fintech companies will now be able to pilot innovations in a controlled, live-test environment with appropriate flexibilities accorded. This will include flexibilities under existing regulatory requirements that apply to outsourcing arrangements and access to customer information, subject to compensating safeguards. The experience from the sandbox will provide input into formulating more proportionate regulations that will spur the orderly growth of new innovations in the financial industry, including insurance. We see significant potential for positive disruptions to transform the business of insurance and takaful in Malaysia – from the way insurance is consumed, to opportunities for addressing leakages to drive insurance costs lower. Indeed, the greatest gains from technological innovations may well be reaped in the more mundane aspects of running a business efficiently. Today, money is still being left on the table from inefficiencies and leakages in the insurance system. From inefficient manual 2 BIS central bankers’ speeches processes to the slow take-up of electronic payments, there are large gaps in the supply chain that unduly increase the cost of insurance and limit efforts to combat insurance fraud. The insurance industry needs to accelerate its pace in terms of its technological adoption or else events will dictate the shape of the industry’s future. | This suggests that the industry is ripe for transformation to a new growth trajectory. The industry in essence has not delivered the required results. Jumping the “S-curve”: The need for positive feedback loops Successfully jumping the cusp of the “S-curve” is the only way to realise the aspiration of a deeper and more diverse insurance market. This calls for transformational change, driven and reinforced by positive drivers that will revitalise the industry. In the context of financial services today, these drivers focus on three “T”s – talent, technology and trust. These three factors can be harnessed to catapult the industry onto a path of new and stronger growth, or they can precipitate its decline over time. The industry must secure the former for its future expansion or else it will continue plateauing. Let me speak briefly on these three factors. Firstly, we must grow the talent we need to bring our insurance and takaful sector to the next level. As our economic structure evolves, we will need a deep pool of insurance and takaful professionals who can develop and support new solutions for managing risks. Unfortunately, talent shortage has been a persistent issue which, if not resolved, will not only hold back the industry from gaining new ground; it could lead to a further retrenchment of business growth. The industry needs to make further efforts to attract and nurture new talents. | 1 |
The two-tier system is designed to strike a balance between two outcomes: it seeks to preserve the incentives for banks to pass through the stimulus generated by the negative interest rate on their reserves, while mitigating the adverse effects that these negative rates might have on banks’ lending behaviour by affecting their profitability. The euro area needs financial intermediaries to remain engaged and active in 3/5 BIS central bankers' speeches monetary transmission, and the new two-tier system will make sure that the ability of banks to extend loans to their customers at favourable terms remains unimpaired. The different elements of this comprehensive package will be mutually reinforcing in supporting favourable financing conditions for businesses and households, which will sustain investment and consumption. Greater business and household expenditure, in turn, will support inflation dynamics and make sure that they durably converge to our aim. Overall, in view of the outlook and uncertainties we are facing, monetary policy needs to remain highly accommodative for a prolonged period of time. The measures we took at our last meeting underscore our determination and readiness to provide the necessary monetary stimulus in pursuit of our price stability objective. We continue to stand ready to adjust all of our instruments if warranted by the inflation outlook. | The French insurance market has also enjoyed strong growth, with revenue up by almost 3% [2.7% and 3.1% in non-life and life insurance, respectively]. In response to the legitimate concerns that many of you have raised, I have chosen to focus on two main issues: the challenge of low interest rates (I) and our ambition for the Solvency II review (II). *** I. The challenge of low interest rates A. The economic situation compels us to keep interest rates low I recently marked out the limits that I believe should be set for monetary policy. I thus feel all the more obliged to clarify why the low interest rates are needed, why they are going to continue, and how we have to adapt to them together. I hear your concerns with regard to low interest rates, and I fully understand them. However, it is important not to lose sight of the long-term perspective: low interest rates are not only driven by monetary policy – they are primarily the consequence of long-term structural trends, notably resulting from the Page 2 of 6 change in the balance between a high level of savings and a fall in investment linked to an ageing population and the slowdown in productivity. The low interest rates thus reflect the historic low level of what economists refer to as the real natural rate of interest, R*, which has declined by around 2 percentage points over the last 15 years in both the euro area and the United States. | 0 |
While the IRB approaches promise greater capital savings in the longer term, the adoption of the standardized approach in the transition is considered a more pragmatic option even for some internationally active banking groups. Under the IRB approaches, banks would need to reach an agreement with the regulator in the countries they operate on the robustness of group internal estimates and validation. The standardized approach is therefore seen to provide the breathing space for a smooth transition to IRB approaches while at the same time allowing banking institutions to avail themselves of the benefits of capital savings. BIS Review 21/2004 3 Different approaches are adopted by regulators Ladies and Gentlemen, While there has been global acceptance of the broad principles of the new accord, differing implementation approaches are being adopted by different countries. In some countries, regulators have opted for the accord to be applied to all institutions while in others selected banks are being mandated specific approaches. Some other regulators have given greater flexibility for banks or have extended the timeline for the implementation of the new accord. These reflect the different considerations and priorities accorded by the various regulators in their policy agenda. In essence, the decision by national regulators are based on a number of common factors, namely, the stage of industry development and market infrastructure, the size and types of institutions involved, the regulatory philosophy and priorities, as well as the economic environment. | This intermediation process needs to be performed in an environment of financial stability. Therein lies the importance of confidence and soundness of the financial system. Banking business inherently involves risks and these risks need to be rigorously managed. In an environment of heightened uncertainty and increased volatility, this needs to be reinforced with the development of a more robust and resilient banking system. Hence the importance of prudential regulations to ensure the soundness and stability of the financial system. An important component of prudential regulation is having a sound capital framework that measures risks accurately and allocates adequate capital to the risks. The current capital accord issued in 1988 has served as the international benchmark for capital adequacy assessment for banking institutions. While it has achieved the desired results in terms of developing more well-capitalized banking institutions globally, the rapid developments in the financial markets over the years, including the growth of off-balance sheet financing such as asset securitisation have rendered the broad-brush measurement of the existing accord to be less effective. Risk and risk management - the need for new accord New institutional structures and evolving market practices have reduced the effectiveness of the existing accord. While the basic categorization of risks have not changed significantly, the ways in which risks present themselves have changed quite substantially. With the introduction of new products and more complex financial transactions enabled by technological innovations, risks can be disaggregated and rebundled in new ways. | 1 |
20132, 2010 and Maddaloni, A. and J.-L. Peydró, “Bank Risk-Taking, Securitization, Supervision and Low Interest Rates: Evidence from the Euro Area and the U.S. Lending Standards”, ECB Working Paper Series No 1248, 2010. 6 One paper that does not focus on banks is Bekaert, G., M. Hoerova and M. Lo Duca, “Risk, Uncertainty and Monetary Policy”, NBER Working Paper Series No 16397, 2010, which finds that low policy rates lower the risk aversion on the stock market after around five months. BIS Review 164/2010 3 to bear this mechanism in mind. If the policy rate has been low for a long period of time, there may be reason for particular vigilance regarding signs of increased risk propensity. When there are such signs, it may be easier to act. Although not always easy to detect, it is not impossible to identify signs of increasing risk. For example, the Riksbank warned in speeches and reports, a long time before the crisis broke out, that the compensation for risk on the financial markets was too low. 7 Weaker monetary policy effect when agents are consolidating their balance sheets? Something that has characterised the recovery from the recent crisis in many countries, although not in Sweden, is that it has been very slow. One hypothesis is that several economies are currently undergoing what is known as a “balance sheet recession”. This concept was introduced a few years ago as an explanation for developments in Japan and its “lost decade”. | 12 Having said this, it may be worth adding that monetary policy and a policy for financial stability usually go hand in hand, more or less automatically. Moreover, problems with financial stability only arise under certain limited periods. On the other hand, one may claim that the crisis and its effects show that we actually should worry about it slightly more often than we have done. If we are successful in formulating and using regulations and supervision, the central bank can receive assistance with both of the monetary policy problems I mentioned earlier. The central bank can hold the policy rate low when the economic outlook calls for this, without being afraid of risks building up through a monetary policy risk-taking channel. And if regulation and supervision can be used to prevent credit-driven bubbles arising, the central bank need not fear a balance sheet recession where monetary policy has little effect. Regulation with monetary policy motives With regard to coordinating the interest rate lever and the regulation level, I would like to return to a question I raised when I talked about balance sheet recessions. As I noted then, a fall on the property market could lead to a weak performance in the economy if households become uncertain about the future and feel they must consolidate their balance sheets. I also noted that this does not mean that the banks will experience problems that could threaten financial stability. | 1 |
The way forward Going forward, therefore, it must be realized that in a monetary union the effects of institutional rigidities, inappropriate policies and inefficient practices on prices, costs and competitiveness will inevitably become visible in the shape of lower income levels relative to the other members of the union. Given that a sizeable income gap already exists with the euro area, removing the remaining impediments to faster growth is, therefore, a policy imperative. Two elements of an appropriate response to this challenge emerge spontaneously from an analysis of the current macroeconomic situation. Attention has already been drawn to the over reliance on consumption as a driver of growth since 2005, highlighting the need to devote more resources to investment. In Malta’s case, this must continue to take the shape predominantly of FDI because of the implied technology transfer and access to markets. Attracting further FDI, however, will require a determined effort because when the current recession is over the global marketplace will be characterised by fewer, but more costefficient suppliers and a slow-growing demand; a large pool of unemployed labour, implying downward pressures on wages; and an increased tendency for investment to shy away from relatively expensive locations. A review of Malta’s investment promotion strategy should, therefore, be undertaken that takes this scenario fully into account. Private investment must be supported by appropriate levels of public investment, mainly of an infrastructure nature. | “The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled … lest we become bankrupt. People must again learn to work, instead of living on public assistance.” BIS Review 60/2009 7 | 1 |
As set forth by the Regulation, this exercise should include elements of an asset quality review as a basis for a thorough solvency analysis. This analysis should also be instrumental in identifying potential legacy problems. It is important that the financial clean-up of these legacy problems will be undertaken by the responsible Member States and not by the ESM and certainly not by the ECB. Just like an insurance policy, the SSM can cover future risks. Past omissions must be resolved by those who are accountable for them. This does not rule out interim solutions involving actions by the SRM and (privately financed) resolution fund as well as by the ESM. Fourth, appropriate safeguards to mitigate reputational risks – for both the supervisor and the monetary policy maker – are needed. It is therefore critical to implement an actual internal separation between supervisory and monetary functions, that should also be coupled with an external dimension, reinforcing the outside perception of such clear operational and accountability separation. The Chair of the Supervisory Board is responsible for discharging the accountability duties towards the European authorities (European Parliament, finance ministers of participating Member States, the European Commission). They may also, on occasion, be asked to report to national parliaments. More regularly, the representatives of the national competent authorities will perform such a role at the domestic level. | And it failed to recognise that central banks have a vital role to play in maintaining financial stability because of the deep underlying connection between it and monetary stability. Both are fundamentally about maintaining the public trust and confidence in money and financial intermediation that are essential for them to oil the wheels of commerce. That trust and confidence can be undermined through a loss of certainty about the future value of money, a loss of confidence in financial intermediaries, or ultimately a loss of faith in the financial system. Central banks have a primordial responsibility to act as guarantors of trust and confidence in money because of their status as monopoly issuers of currency. This naturally gives them control over the quantity of money and interest rates – monetary policy. It also means that a core part of financial stability policy – acting as lender of last resort to private financial institutions at times of financial stress – falls naturally to central banks. Other instruments of financial stability policy seek to prevent the build-up of vulnerabilities in the first place. Microprudential supervision aims to maintain the safety and soundness of individual financial institutions by ensuring they are adequately capitalised and have sufficiently resilient funding and liquidity. Macroprudential policy seeks to safeguard the stability and resilience of the financial system as a whole both by using prudential policy for macroeconomic ends – for example in managing the financial cycle – and by addressing risks related to structural features of financial institutions and markets. | 0 |
If the economy is close to its underlying potential, a fiscal stimulus will end up mostly in inflation rather than growth. This brings us to the next broad theme of 2017: the return of inflation and the tightening of financial conditions globally. The normalisation of US monetary policy Global inflation, which was weighed down by the fall oil prices during the past two years, has started to gradually pick up again. Energy prices have rebounded off their lows and commodity prices appear to have bottomed out. On a global basis, producer prices have started to rise since early 2016, in tandem with the recovery of commodity and industrial input prices. 3/7 BIS central bankers' speeches Even in China, producer prices have turned positive, following 4 years of deflation. Globally, we could see a stronger pass-through from producer prices to inflation in 2017. In the US, to the extent that fiscal stimulus boosts demand and lifts inflation towards the Fed’s target, it could precipitate a faster pace of interest rate normalisation than currently priced in. The normalisation of monetary policy is a good thing and is to be welcomed. It would be in line with stronger economic growth and waning deflation risks. Faster growth in the US will be good for emerging Asia. A gradual rise in interest rates away from the zero lower bound will also be good for financial stability, helping to stem the build-up in debt and cool inflated asset prices. | But even these could spread more widely through global supply chains and dampen any uptick in demand-driven trade flows. They could even backfire on the US given how integrated production networks are across countries. In short, the growth spill-over from the US to the rest of the world will depend on the balance between fiscal stimulus on the one hand, and financial tightening and trade restrictions on the other. The current consensus is that the former will outweigh the latter. We will have to see. Conclusion On balance, chances are that global growth will be slightly higher this year compared to the last. Hope and confidence are important factors and recent improvements in business and consumer sentiments may well translate into higher investment and consumption. A shift in the macro policy mix in the US, away from excessive reliance on monetary policy towards a bigger role for fiscal support, is to be welcomed. A well-designed fiscal policy can provide some modest stimulus in the short-term but more importantly help to augment the productive capacity of the economy in the long term. A successful outcome could encourage other advanced economies to seek a better balance between monetary and fiscal policies. 6/7 BIS central bankers' speeches Some caution though is warranted. There remains considerable uncertainty as to the actual policy changes in store. They may not pan out as expected. There are serious downside risks on immigration and trade policies. | 1 |
Thanks to significant lending volumes and strong price formation on domestic loans, the mortgage institutions have also been able to compete successfully on the international bond market. Borrowing against the entire balance sheet as security requires significant risk capital or some form of guarantees from the owners. All mortgage institutions, with the exception of SEB Bolån which does not does undertake borrowing transactions in foreign currency, have a capital cover considerably above the statutory minimum of 8% (Figure 9). Swedish mortgage institutions´capital ratios, 1999. NB-Hypotek SBAB SEB Bolån Spintab Stadshypotek Total 10 9,4 8,8 13,5 12,6 Tier 1 8,8 6,5 4,8 10,0 12,6 Source: Mortgage institutions´ annual reports. The Swedish mortgage institutions are currently estimated to borrow around 20% of their capital from abroad. The major part of this is borrowed from investors in the USA and Japan. Borrowing in the euro area accounts for approximately 20% of borrowing abroad. It is difficult to see that the option of borrowing in euro would increase central European investors’ interest in Swedish housing bonds. As long as Sweden is not a member of EMU and as long as Swedish borrowers want to borrow in Swedish kronor, the foreign exchange risk will remain. Increasing competition on the mortgage market will entail a greater need for new forms of financing that are more economical with the institution’s risk capital. Two financing forms being used increasingly by foreign mortgage institutions are gilt-edged bonds and securitisation. | Borio, C and Disyatat, P (2011), “Global imbalances and the financial crisis: link or no link?”, BIS Working Papers No. 346. Eichengreen, B J and Mitchener, K J (2003), “The Great Depression as a credit boom gone wrong”, BIS Working Papers No. 137. IMF (2012), “The Liberalization and Management of Capital Flows: An Institutional View”, Staff Paper. Kuttner, K and Shim, I (2013), “Can Non-Interest Rate Policies Stabilise Housing Markets? Evidence from a Panel of 57 Economies”, BIS Working Papers No. 433. Lane, P R (2014), “International Capital Flows and Domestic Credit Conditions”, Macroeconomic Review Vol. XIII(1), Monetary Authority of Singapore, Economic Policy Group. BIS central bankers’ speeches 7 Mishkin, F S (2008), “How Should We Respond to Asset Bubbles?”, speech at the Wharton Financial Institutions Center and Oliver Wyman Institute’s Annual Financial Risk Roundtable, Philadelphia, Pennsylvania, 15 May 2008. Obstfeld, M (2014), “Trilemmas and Tradeoffs: Living with Globalization”, paper commissioned for the Asian Monetary Policy Forum (draft). Rey, H (2013), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, Proceedings – Economic Policy Symposium – Jackson Hole, Federal Reserve Bank of Kansas City. Schularick, M and Taylor, A M (2009), “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008”, NBER Working Paper No. 15512. Stein, J C (2014), Comments on “Market Tantrums and Monetary Policy”, speech at the 2014 U.S. Monetary Policy Forum, New York, 28 Feb 2014. | 0 |
In particular, mashing together diverse data sets offers the possibility of new types of insights. New software algorithms crunch the enlarged Big Data sets to make more reliable predictions on repayment and hence improve performance of loan portfolios. • For example, a lender to small businesses requires access to the company’s bank and credit card accounts, to constantly monitor the company’s cash flow and hence ability to repay the loan. Application programming interfaces Despite the greater availability of data and the possibilities for harnessing this data opened by technology, financial institutions continue to face challenges on the data front. • More data means more cost. • While technology has significantly reduced the unit costs of data gathering, it has ironically also raised the potential total cost of data by opening more possibilities for data mining and analysis. One way to improve access to data without raising costs significantly would be for the industry to pool relevant data together. • The benefits of aggregating data across the industry can be seen from our experience with the credit bureau, which has allowed banks to make better credit underwriting decisions. • However, concerns over confidentiality and market sensitivity have held back data sharing among financial institutions and restricted public access to data. One effective way to achieve seamless data sharing is through the publication of open Application Programming Interfaces, or APIs, by financial institutions for data submission. | Ravi Menon: Basics for smart finance – common standards and seamless data Closing remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the SIBOS Conference, Singapore, 15 October 2015. * * * Mr Yawar Shah, Chairman, SWIFT Mr Gottfried Leibbrandt, CEO, SWIFT Ladies and gentlemen, good afternoon. A. Revolution in communications “What hath God wrought?” read the first telegraphic message sent by Samuel Morse on 24th May, 1844. The telegraph marked a revolution in communications at the time. • Transatlantic telegraph cables cut communications between America and Europe from about 10 days – the time it took for steam ships to sail across the Atlantic – to a matter of minutes. • In fact, the mid-19th century leaps in transport and communications technologies ushered in the first phase of economic and financial globalisation. Ground-breaking as the telegraph was, a text message that takes minutes to arrive will be considered glacial by today’s standards. It will certainly not be able to support the frenetic pace of communications in the global financial system. Thankfully, we have SWIFT. Last year, there were 5.6 billion messages carried globally on SWIFT’s network. • Close to half the messages related to international payments, which lies at the heart of global banking. • Technology has transformed cross-border finance. Smart Financial Centre It is MAS’s conviction that innovation and technology will be critical to the future growth and success of Singapore’s financial sector. | 1 |
In Asia, this will pose a strong challenge to Singapore, because it will strengthen the tendency for a single major hub to emerge, rather than several smaller ones. Tokyo will perforce be the biggest financial centre in our time zone, because of the sheer size of Japan’s investment funds and its economy. But Tokyo has significant limitations - a high cost structure, domestically oriented financial markets, consensus-based decision making, and not least, a lack of English speakers. This creates room for at least one other major financial hub in Asia. Singapore enjoys good economic cooperation with our Asian partners. We are well-placed to service the region, whether it is PSA, Changi Airport, or financial services. As the region recovers and grows, we hope to prosper together with Malaysia, Indonesia and Thailand. But our relationship with them is qualitatively different from Hong Kong’s vis-à-vis China. Besides, Southeast Asia is a smaller hinterland than China. Therefore for Singapore to grow as a hub, we must extend our catchment area beyond Southeast Asia. Our orientation must be international, and not just regional. We have done this before. This is how we became the fourth largest forex centre globally and the leading centre for global derivatives trading in the Asian time zone. The challenge is to repeat this feat in new areas of competence. Developed markets and global players are already our customers. Singapore can be a portal, an intermediary or a market for them. Finding the right partners in strategic alliances will be critical. | The growth of exports in 2010 was fuelled by the recovery of global economy and the favourable conjuncture of prices in the global markets, the depreciation of the exchange rate, the Albanian entrepreneurship efforts to expand the market and by some other factors of transitory nature. Therefore, promoting exports in a stable and long-term fashion requires undertaking structural reforms, which will in turn enhance the competitiveness of the Albanian economy. This would ultimately serve to the transition to a more stable economic growth model and, at the same time, to curbing the reliance on foreign financial sources. Our analysis of monetary indicators concludes that the growth of money in economy is concurrent with the economic agents’ demand for monetary assets, hence creating no room for inflationary pressures in the future. BIS Review 170/2010 3 Aggregate M3’s average growth was 11.2% in July and August, being in line with the nominal economic growth and the enhanced confidence in the banking system. Its growth during this period was mainly determined by the increase of the banking system’s net foreign assets. Private sector credit grew by 9.8% y-o-y, close to the previous quarter’s rate. Although the better liquidity figures and the improved banks’ balance sheets led to higher banking supply and provided greater room for lending, the latter has progressed at moderate rates. Our analyses on lending in economy show that demand remains contracted and the number of worthy projects to lend is still low. The foregoing remains a constant concern for the Bank of Albania. | 0 |
The UK’s payment systems (including retail payment systems such as Faster Payments and Bacs, and the high value system – CHAPS) connect payment service providers (PSPs) together, as a means of moving money between them. It is therefore vital that the organisations that manage the payment systems dedicate a lot of time to enhancing operational resilience and cyber security. And innovations, including instant payments, will also benefit from a resilient foundation. The Bank’s operation of RTGS, and more recently CHAPS, makes a vital contribution to our overarching mission of maintaining monetary and financial stability. CHAPS is the UK’s high value payment system and settles an average of £ billion each working day, representing 93% of non-cash payments in the UK by 1 https://www.assetnews.com/fintech/europe-trumps-asia-fintech-funding-q2-2019 https://www.ukfinance.org.uk/sites/default/files/uploads/pdf/UK-Finance-UK-Payment-Markets-Report-2019-SUMMARY.pdf https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/payments-a-platform-for-innovation-speech-by-victoriacleland.pdf?la=en&hash=5841227A82F5C75B75FFE32027EEF5EDA61D2C70 4 https://www.bankofengland.co.uk/report/2019/future-of-finance 5 https://www.fca.org.uk/publication/research/technology-cyber-resilience-questionnaire-cross-sector-report.pdf 6 https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/discussion-paper/2018/dp118.pdf 2 3 2 All speeches are available online at www.bankofengland.co.uk/news/speeches 2 value. RTGS is the infrastructure where the key UK payments systems – including CHAPS – ultimately settle, supporting stability across the broader financial system. The area of the Bank that I lead (Banking, Payments and Innovation) has provided real-time settlement through our RTGS infrastructure since 1996. In 2017, as part of our vision to enhance stability, we took the step of bringing the management and operation of CHAPS into the Bank (until then the CHAPS payment scheme was operated by a private sector company – CHAPS Co). The Bank understood and mitigated the risks within RTGS, and CHAPS Co looked at risks in its participants. | We are also focused on how as operator of CHAPS the Bank can support UK-wide efforts to tackle economic crime. The recently published UK Economic Crime Plan12 noted the role that the Bank can play in this regard, including by enabling enhanced payment data through the development of interoperable message standards and by promoting wider adoption of Legal Entity Identifiers. These initiatives will help to promote greater transparency in ownership of legal entities and support detection of financial crime. Minimising impact of incidents Resilience is key to payments, and we need to be ready to respond to the unexpected. That is why we have not stopped at prevention. We are also proactively thinking about how to respond when incidents occur; how to reduce the impact and any spill-overs to the wider ecosystem; and of course how we can recover quickly (for FMIs this means within two hours under most scenarios as set out in CPMI guidance). Furthermore, like other systemically important systems, we are preparing to meet the Bank’s forthcoming operational resilience policy that will apply equally to the Bank as the operator of CHAPS as it does to payment systems recognised for statutory supervision. Our mandate for promoting the stability of the UK’s financial system means we are not only interested in the resilience of CHAPS, but also the settlement of all payments critical to the economy. In an increasingly fastmoving financial system, being able to guarantee that critical payments settle on the same day is crucial. | 1 |
The CRIB is totally dependent on these institutions for reliable information and given the objective of looking after its client institutions, the CRIB would fix negative labels on defaulting borrowers. The CRIB is not in a position to verify or go into details of the operations of any credit institution and establish the class, creed or social status of the customer. It only fix labels according to what is reported by the credit institution. On the other hand, the Bank Supervision Dept. and Non-Bank Supervision Dept. of the Central Bank of Sri Lanka, within their own regulatory ambit, can detect the non-reporting by institutions to the CRIB, but these departments are not mandated to share such information with the CRIB or vice versa. Hence, the injustice continues and often some of the deserving borrowers are denied access to credit institutions. In such a situation, how can the CRIB ensure social justice and equity in terms of public policy? The CRIB can be fair only if the credit institutions resolve to report on all defaulting customers with no exceptions. This situation clearly indicates that the decision to groom, retain or eliminate a customer rests largely with the bank or the credit institution. The injustice begins when the reporting institutions do not report defaults of all segments of borrowers. The extent to which the banks and credit institutions have done a disservice to some of the deserving borrowers, is known only to the banks and credit institutions themselves. | As we have shown, it is entirely feasible to steer secured money market interest rates effectively in negative territory. This is due in no small part to the fact that the secured Swiss franc money market is efficient, is based on a modern infrastructure, and can count on committed market participants. The SNB will continue to help shape this money market infrastructure in the future. Ladies and gentlemen, many thanks indeed for participating in this event this afternoon. The fact that you have made the effort to tune in, despite the unusual format, demonstrates your interest in the Swiss money market, and we thank you for this interest. | 0 |
Ian Plenderleith: Monetary stability as a foundation for sustained growth Speech by Ian Plenderleith, Executive Director of the Bank of England, to the National Association of Pension Funds Investment Conference held in Eastbourne on 14 March 2001. * * * The UK economy has embarked on the new millennium with much the same healthy stride as marked its progress through the final years of the old. Over the past year, we have seen the economy continue to achieve steady and sustainable growth. We are, indeed, now in the ninth year of continuous positive growth in output. This remarkable track record has brought with it a steady rise in employment, with the benefits being felt in high levels of job creation throughout the regions of the country; and unemployment has fallen to the lowest levels we have seen in decades. All of this has been achieved with inflation remaining low: the RPIX is currently running a little below our target of 2 1/2% and has averaged 2.4% pa over the nearly-four years since the MPC was given responsibility for managing interest rates. In the process, with inflationary expectations now anchored at low levels, 10-year bond yields have fallen to around 4 3/4%, as low as can be found in any industrialised country except Japan. What is particularly encouraging about the past year is not just that we have been able to continue on the track of steady growth. | Of course, it is never easy to judge what levels of financial asset prices are realistic, and the risk of volatile adjustments remains, as we have seen in recent days, but the important point is that the downwards adjustment experienced last year, which could have been abrupt and might have generated wider economic effects, was in fact achieved without significant repercussions on the real economy. In both cases, the result is a better foundation for the prospects for sustaining growth in the economy. Let me now turn from the year past to the year ahead. I have stressed the encouraging performance of the economy over the past year, and the confidence we can hopefully take in its underlying soundness, because we undoubtedly face serious challenges and a material increase in uncertainty in BIS Review 22/2001 1 the year ahead. Most notably, we have to manage the UK economy against the background of an international environment in which the US economy has begun to experience a sharp slowdown. Each quarter the Bank of England publishes an Inflation Report which sets out the MPC's considered view of the prospects for growth and inflation looking two years ahead. Let me start from our latest Inflation Report, published last month. That recognises that the weaker outlook in the US will depress global demand and dampen growth prospects in other countries. The UK cannot, of course, expect to be immune to this weakening process. | 1 |
The recent increase in inflation was to a large extent due to exceptional and short-lived factors – such as particularly adverse weather conditions in some parts of the euro area, which led to increases in food prices – as well as to the anticipated influences of indirect taxes and base effects resulting from developments in energy prices. Taking these factors into account, there is no evidence so far of a significant impact on the price level as a result of the euro cash changeover. Nor do we expect substantial effects in the months to come. There is reason to assume that the physical introduction of the euro banknotes and coins will strengthen competition, thereby supporting the maintenance of price stability. Beyond the short term, the outlook for inflation remains favourable. One important concern, however, relates to forthcoming wage negotiations. If wage moderation is maintained, as we currently expect and in any case consider warranted in order to foster employment growth, and assuming that other determining factors also develop favourably, annual inflation rates should fall safely below 2% this year. They should also remain at levels consistent with price stability. Finally, let me underline the importance which the Governing Council attaches to the Stability and Growth Pact and its strengthening through diligent implementation of the appropriate procedures. The responsibility for these procedures lies with the European Commission and the ministers of finance. | 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. | 0 |
BIS Review 69/2008 3 Any lack of interoperability across mobile operators and across banks will not achieve the required critical mass and will also result in high transaction cost for consumers. It is hoped that market participants will be able to offer new and innovative mobile payment products and services that opens up new markets for mobile service providers and payment operators, offer the convenience at reasonable costs and thus deliver the cost savings and efficiency gains that consumers and businesses seek, and thus allow for the economic benefits to be realised. Industry players also need to work together. An area that needs critical attention is for the industry players to focus on the bigger picture and regard the mobile phone as a mechanism towards achieving a common goal. To promote the significant use of the mobile phone for financial services, the industry has to respond rapidly to address the need for interoperability and collaborate in areas such as developing a common infrastructure, common payment messaging format, as well as common security and authentication standards. Common standards and infrastructure will create an accessible, open and vibrant payment eco-system that will attract a wider consumer base allowing all market participants to reap the benefits of a larger customer base. A shared integrated network with common security standards and common messaging standards will make it easier, more cost-effective, and more convenient for consumers, merchants and service providers to execute and receive payments, thereby increasing the attractiveness of the mobile network as a payment channel. | Jean-Pierre Roth: The Swiss economy and financial centre – successes and new challenges Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Handelskammer Schweiz-Österreich und Liechtenstein (Foreign Trade Chamber for Switzerland-Austria and Liechtenstein), Vienna, 25 February 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Mid-2003 saw the start of a remarkable, broad-based economic upswing in Switzerland which is still underway, even if business cycle uncertainty has increased in the recent period. A number of factors indicate that the long-term growth outlook, too, has improved for Switzerland. These factors include the increasing globalisation of our economy and the opening up of the labour market to the EU. The Swiss economy is participating in globalisation through increased direct investment as well as growing foreign trade. At the same time, there is more competition on the domestic goods market, although a fair bit still remains to be done in this area to complement the opening up of the labour market to the EU. Globalisation and market opening present companies and economic policymakers with challenges that become particularly acute when setbacks occur – as in the case of the current international financial market turbulence. | 0 |
As highlighted in a recent statistical study, the growth of the “sharing economy” is creating new opportunities for self-employment: people who work on a shift pattern in a retail store might spend their off-days driving an Uber taxi. This kind of “micro” activity might be less simple to measure than the services of traditional taxi firms, as it may be less likely to show up in earnings data. 4 Measuring investment in a digital economy is equally tricky, as much of it concerns intangible capital. We have now started classifying R&D as investment, which is welcome, but it’s only the most tangible part, i.e. technological innovation, which is typically recorded. Business model innovation is excluded. What’s more, investment in organisational capital and human capital are not recorded in national accounts, even though this will become ever more important part of capital growth as more jobs become automated and skill premia rise. Even more complex is how to measure the value of digital innovations in terms of, say, the time they save for consumers or for national output. How should we value the ability to conduct banking via a smart phone? Or get directions through Google maps? 5 This isn’t just a question of the so-called “consumer surplus”, which is about welfare. It’s a question of whether improvements in quality are being properly valued. And as more and more services are provided in this intangible way, the likelihood of significant mismeasurement of the full value of goods and services in our economies rises. | Yves Mersch: Policy needs, knowns and unknowns in the aftermath of the crisis Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at UBS, Zurich, 4 February 2016. * * * I would like to thank Valerie Jarvis for her assistance in preparing this speech. Ladies and Gentlemen, I would like to thank Valerie Jarvis for her assistance in preparing this speech. Coming out of a crisis, one of the biggest challenges that policymakers face is uncertainty about the state of the economy. We can respond to this, of course, by looking at stylised indicators, such as inflation or employment. But for a forward-looking monetary policy, that’s not sufficient. We need to know the strength of the inflation pressures building up over the medium-term – that is, whether the economy is over-heating or under-cooking relative to its underlying potential. It is for that reason that central banks have traditionally used the concept of potential output – the level of output consistent with price stability – to gauge inflationary pressures. 1 If actual output is above potential output, there is a positive “output gap” and we can expect upward pressures on inflation. And if actual output is below potential, the opposite will be the case and disinflation will follow. In general terms, I see nothing wrong with this way of thinking. The economy is vastly complex and we need simplifying frameworks for assessing “how it’s doing” overall. | 1 |
7 The 2007-2008 food price shock was partially considered to be a one-off change in global relative demand and supply, such as the increased use of biofuels that should have no severe medium-term inflationary implications. However, with inflation rising, the monetary policy rate (MPR) was raised by 125 basis points in the second half of 2007, in order to mitigate undesirable second-round effects of the supply shocks (Figure 5). 8 By early 2008, the inflationary situation was still a complex one, but risks had decreased, and inflation was expected to reach its target thanks to the monetary policy actions already in place, lower world growth and a strengthened peso. Trend inflation tempered and monetary policy remained unchanged. During this period we decided to initiate a process of reserve accumulation. Nevertheless, halfway through the second quarter of 2008, the inflation path radically changed; the inflationary trend resumed, unexpectedly, with monthly inflation reaching more than 1%. The risks of inflation remaining above the target beyond the policy horizon also grew strongly. Consistently, monetary policy also had a strong reaction. The MPR was increased by 200 basis points in just four months. By September 2008, before the collapse of Lehman Brothers, the Central Bank estimated that it would be necessary to raise the MPR further, even above market expectations. Finally, inflation reached its 9.9% peak in October. | Philipp Hildebrand: The Swiss National Bank and the financial crisis Summary of a speech by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the Club of Rome Forum, Zurich, 20 January 2011. The complete speech can be found in German on the Swiss National Bank’s website. * * * Since August 2007, central banks have been continually at work, fighting the crisis. They have had to stabilise the financial system and limit the extent of the economic downturn. In many countries, the repercussions of the financial crisis are reflected in both government finances and central bank balance sheets. In Switzerland, these repercussions – i.e. the costs of the financial crisis – have had relatively little impact on the budgets of either the Confederation or the cantons. The costs are mainly to be found in the SNB’s balance sheet, at the moment largely in the form of risks. The SNB balance sheet has significantly lengthened, particularly as a result of foreign currency purchases. Inevitably, the large holdings of currency investments means greater risk. As the SNB announced on 14 January 2011, it is expecting a substantial loss for the year 2010. This is mainly attributable to exchange rate losses on foreign currency investments. In view of these losses, it is very tempting to argue that the SNB should not have purchased any foreign exchange. However, the purpose of the SNB is not to make a profit. | 0 |
Greater scope to enhance inclusivity and quality of e-payment adoption The first priority is to improve the quality of our e-payment migration to be more inclusive, broadbased and sustainable. The good progress so far means that Malaysia has a solid foundation for more widespread adoption of e-payments. E-payments are increasingly prevalent, with adoption picking up across a wide range of use cases. A wider network of merchants is also increasingly open to accepting e-payments as a possible driver of efficiency gains and revenue growth. Importantly, these encouraging developments have been contributed, in part, by the market reforms and incentive structures implemented since 2013. These measures have corrected market distortions and facilitated the pooling of industry resources to continuously enhance the payment infrastructure and services. Nonetheless, there are opportunities for more inclusive and broad-based adoption. Studies have shown that cash usage is still prevalent with more than 80% of Malaysians reportedly using cash in a majority of their everyday spend such as F&B, groceries and fuel. E-payment adoption is also uneven across geolocation and is largely concentrated in the urban centres. This calls for greater efforts in two key areas to address such market gaps. The first key area is to significantly expand merchant acceptance, with a focus on lower-tier merchants. E-payment acceptance points are not yet ubiquitous, especially among microenterprises that are frequented by many Malaysians, such as wet markets, night markets and hawker stalls. In this regard, solutions that are ‘infrastructure-light’ could go a long way in boosting e-payment acceptance among micro-enterprises who are cost-sensitive. | However, we should not forget that the real economy and the financial economy are largely two sides of the same coin. Without one, the other would not exist. Financing is a key element for economic activity, and channelling such financing is precisely where we need the banking sector. We have once again been able to witness this owing to COVID-19. As you will recall, the financial sector was declared an essential service during the lockdown. And, for example, without banks’ active participation, it would not have been possible to successfully structure the ICO guarantees programme. Naturally, mobilising the resources needed for this transformation, which the law estimates at around € billion, will necessarily involve public-private investment formulas in which banks will no doubt play a key role. As you can imagine, financing these public-private investment needs is reason enough for the banking system to become involved. But initiatives such as the climate agreement signed on the occasion of the COP25 and the launch of FinResp (Centre for Responsible and Sustainable Finances) show that the sector is clearly committed. How can the financial economy contribute to switching the real economy towards full decarbonisation? The response is straightforward: through correct risk measurement. When banks manage their risks properly, they are promoting the effective allocation of available economic resources, by distinguishing between those projects more likely to succeed and those not viable in the medium term. | 0 |
I urge more financial institutions to come onboard these internship programmes, so that we can more purposefully build a strong Singaporean talent pipeline for the financial sector. JOB RETENTION THROUGH UPSKILLING https://www.mas.gov.sg/news/speeches/2020/gearing-up-for-new-and-evolving-jobs-in-financial-services 15/18 04/12/2020 "Gearing up for New and Evolving Jobs in Financial Services" - Remarks by Mr Ravi Menon, Managing Director, Monetary Authorit… The third dimension of our jobs and skills agenda is job retention – to keep the existing workforce employable and relevant through continuous upskilling. We are going about this task in a systematic and rigorous manner. First, MAS and IBF conducted a detailed study on the impact of automation and data analytics over the next 3-5 years on job tasks and skills needs across 121 job roles in the financial sector. This study helped prioritise our efforts in working with FIs to reskill and redeploy 5,300 employees in consumer banking, insurance, and operations, whose jobs were identified as likely to change significantly. To-date, 1,700 workers have completed their training and have been successfully redeployed into new jobs, probably avoiding retrenchments that might otherwise have taken place. Next, MAS and IBF worked with SkillsFuture Singapore to develop a skills framework for financial services, building on IBF’s competency standards for the skills required in financial sector jobs. This framework has become the reference standard for jobs and skills in the financial services sector. What does this mean? | Governments across the world are embracing the jobs agenda more purposefully. Even central banks, hitherto focused almost exclusively on inflation control, are increasingly paying attention to the job market – and rightly so. In Singapore, the government has always been conscious that creating good jobs for Singaporeans is of paramount importance. That is why, in every downturn, the focus of government support has been on sustaining jobs, keeping Singaporeans employed. The record speaks for itself: the resident unemployment rate has averaged 3.5% in the last two decades, one of the lowest in the world. Unemployment has inched up in the face of the COVID-19 economic recession, to 4.7% in Q3 this year: too high for our own comfort but, to view matters in perspective, much lower than in most other countries. Nonetheless, there are anxieties on the ground, whether there will be enough jobs for everyone who wants to work. REACH, the feedback unit under the Ministry of Communications and Information, conducts regular surveys to gauge Singaporeans’ sentiments about the job market. Typically, less than 1 in 3 Singaporeans have negative perceptions about the job market. In August, at the depth of the recession, that proportion went up to 2 out of 3. It is now down to 1 out of 2, not back to normal yet but job anxieties have eased somewhat with the economy gradually recovering. As a country, Singapore needs to double down on the jobs and skills agenda. | 1 |
2 Providing forecasts based on both a constant interest rate and market expectations give information not only about the sign but may also give some guidance about the range. See, for example, the following citation from the Bank of England’s Inflation Report of February 2008: “Under market interest rates, the central projection for inflation was a little above the target in the medium term, while under constant interest rates, it was below the target.” This suggests that the likely interest rate path lies somewhere between a constant rate and market expectations. BIS Review 132/2008 1 Publishing endogenous interest rate paths raises a number of issues, and there is disagreement among both academics and central bankers on whether being that precise about future policy intentions is beneficial or not. The key issue in the debate is whether such communication implies guidance or noise. Some of the arguments for transparency relate to the beneficial effects when private agents understand the central bank’s reaction function, such that market interest rates will adjust more appropriately to economic news. Publishing the interest rate forecast may not be sufficient to communicate the central bank’s reaction function, as one specific forecast does not in itself convey much information about how the central bank responds to various shocks. One could argue that three ingredients are required; 1) the forecasts, 2) how the central bank responds to shocks, and 3) the criteria underlying the forecasts and reaction function. | Finally, I will briefly touch upon another important aspect of monetary policy, namely how to make good collective decisions, and the role of the staff in the monetary policy decision process. Communicating future monetary policy intentions Most central banks communicate future policy intentions in one way or another. The majority of central banks communicate indirectly through forecasts based on technical interest rate assumptions, and by giving verbal signals about future interest rate decisions in policy statements and speeches. With such indirect communication, the market participants gain information about the sign of future interest rate decisions, but may have less information about the size. Until November 2005, Norges Bank used technical interest rate assumptions in the inflation forecasts, but also on some occasions commented on whether the Bank intended to follow a different policy than what seemed to be reflected in market interest rates. Thus, the Bank gave signals about the sign of future policy intentions relative to market expectations, but not on the size. 2 From November 2005, Norges Bank started to use endogenous interest rate forecasts in the Monetary Policy Report. Norges Bank was the second central bank with endogenous interest rate assumptions, following the Reserve Bank of New Zealand, who introduced it in 1997. More recently, the Swedish Riksbank and the Czech National Bank have also started to publish interest rate forecasts. 1 Woodford, M. (2005), “Central-Bank Communication and Policy Effectiveness,” paper presented at FRB Kansas City Symposium on “The Greenspan Era: Lessons for the Future,” Jackson Hole, Wyoming, August 25-27, 2005. | 1 |
The stress tests of the banking sector against unfavourable potential developments – economic and financial ones – indicate that the banking system is capable of coping with them. Banking activity performance during this period has reflected the overall performance of the economy. During the last two years, albeit a negative output gap, the country’s economy has continued its positive growth in the range of 3.5–4.5 per cent. Other macroeconomic indicators have ranged within admissible and expectable values. We believe that this financial and macroeconomic stability reflects the commitment and coordination of core economic policies, the monetary and fiscal policies, over the time. They will continue to support the solid economic growth further on, in light of the world’s economy resurgence. Dear participants, ladies and gentlemen, The world’s financial system faced an extraordinary crisis. Equally extraordinary were the measures that were taken. Naturally, its effects will continue to be present in the global economy, while decisionmakers, experts and scholars will continue to analyse the causes and lessons that may be drawn from it. Taking advantage of being present in this panel of supervisors, I would like to list some of our conclusions: Macroprudential supervision policies constitute an essential argument of recent discussions. The role of the central bank is a part of them, especially in terms of its 2 BIS central bankers’ speeches preventive role. | As a central bank governor, I would certainly welcome such a development. After all, the credibility of our monetary policy ultimately depends on whether the public believes that we match our words with our actions. BIS Review 55/2006 3 | 0 |
But the key lesson from the upheaval in the global crypto industry is clear: investing in cryptocurrencies is highly risky. This is what MAS has been warning the public about for the past 5 years. In fact, MAS’ repeated warnings against retail investments in cryptocurrencies and ratcheting up of policies to restrain retail access have raised some questions as to where MAS stands with respect to the digital asset ecosystem. Next month, we will organise a dedicated Green Shoots seminar to share our strategies to develop Singapore as digital asset hub. We will explain our position on cryptocurrencies, stablecoins, blockchains, tokenisation, smart contracts, digital assets, etc. – their risks and opportunities; shortcomings and potential. We will set out how our developmental and regulatory approaches will work in harmony to achieve the vision of Singapore as an innovative and responsible digital asset hub. FINANCIAL SECTOR PERFORMANCE AND STRATEGIES Let me now turn to the financial sector, which continued to perform well in 2021. Value-added grew by 7.4%. FinTech investments hit a high of $ billion. A total of 4300 net jobs were created in financial services and fintech. The global financial landscape has continued to transform. The Russia-Ukraine war, COVID-19 pandemic, and US-China tensions have introduced new risks and uncertainties for financial markets and institutions. The nature of globalisation is changing and supply chains are adjusting, with a greater focus on business resilience. At the same time, structural trends towards greater adoption of technology and the drive towards sustainability have gathered pace. | But now that the economy has undergone a period of deep crisis and it is difficult to assess what structural changes the crisis may lead to, the process becomes even more complex. One illustration of this is how one should assess future developments in the labour market. So far employment has not fallen as much as might be justified given the historical relationship between unemployment and GDP, and the large fall in GDP. This has come as a surprise to us and to other forecasters. But what conclusions should one draw with regard to the effects in the slightly longer term when the economy recovers? Employment and the number of hours worked are now beginning to increase. Normally, one might have expected a greater adjustment in the number of hours worked than we have seen in this economic downturn. The fact that the 6 For further information on resource utilisation, see Jonsson, M., Nilsson, C. and Palmqvist, S., 2008, “Should monetary policy stabilise resource utilisation?” Economic Commentary, www.riksbank.se or Öberg, S. “Monetary policy and the elusive resource utilisation”, speech published on 25 May 2009, www.riksbank.se. 4 BIS Review 58/2010 adjustment has not corresponded to the fall in production means that productivity has been very weak. But as we observe in our most recent Monetary Policy Update, which was published last week, we expect productivity to improve in the future, which also means that the number of hours worked and the number of employed will grow slowly. | 0 |
The work suggests a number of possible mechanisms: consumption that is financed by debt could mean that subsequent spending is more constrained; households may choose to consume from equity gains related to house price rises during expansions but may need to cut spending if those rises reverse; and a lack of investment opportunities could also play a role, weak investment and associated weak GDP growth could show up as consumption-led growth, not least because consumption is stickier. For more details, see www.bis.org/publ/qtrpdf/r_qt1703e.htm. 8 All speeches are available online at www.bankofengland.co.uk/news/speeches 8 Chart 7: Evidence of a trade-led global slowdown Index (long-term average = 100) Percentage changes, 3 months on 3 months ago 102 8 US & EA capital goods orders (rhs) 6 OECD Business Confidence (lhs) 101 4 World trade in goods (rhs) 2 100 0 -2 99 2010 -4 2011 2012 2013 2014 2015 2016 2017 2018 2019 Indices, 50 = no change 58 Manufacturing PMI 56 Composite PMI 54 52 50 Export orders PMI 48 46 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: Conference Board, CPB, European Commission, ECB, Markit Economics, OECD, and Bank calculations. | 11 All speeches are available online at www.bankofengland.co.uk/news/speeches 11 There are three ways to measure the scale of the UK investment underperformance. - First, by using evidence from the Bank’s Decision Maker Panel survey of companies. 8 Since the referendum, Brexit has ranked as one of the three most important sources of uncertainty for over one third of respondents to this survey – and for one half since autumn last year.9 Investment growth has been persistently weaker among these companies (Chart 10), reducing total business investment by an estimated 6 to 14%. - Second, by comparing the performance of business investment in the UK with the rest of the G7. Prior to Brexit, UK business investment was growing in line with the average across the rest of the G7. Since then, it has risen by just 1% in the UK, while it is up by 12% on average elsewhere, and by 16% in the US. - And third, by comparing to pre-crisis trends. The current level of business investment is some 20% below the MPC’s projection from May 2016, conditioned on a vote to remain. These three approaches average to a 12% hit to UK business investment caused by Brexit uncertainty. To compare that to what markets may be pricing in for global trade effects, consider that expected policy rates in the US have fallen by around 150 basis points since the first trade measures took effect in July last year. | 1 |
The relationship between labour input and future pensions has weakened. The link is especially weak in the contractual early retirement scheme (AFP). For most workers, the annual pension does not depend on when they choose to retire, as long as they are between 62 and 67 years of age. Nor does the age of retirement affect the size of the national insurance benefits after the age of 67. Hence, the earlier an employee retires, the higher the total pension benefit will be. A clearer link between labour input and future pensions may be achieved in a defined-contribution pension scheme. The total pension for individual employees will then be determined by the employee’s contributions and the return on these contributions. The annual pension is determined by the individual’s age of retirement and the total contribution. For every extra year of employment, the employee increases his pension wealth. In addition, the total pension wealth will be spread over a shorter retirement period. This means the longer a person remains in employment, the higher the annual pension will be. 12 BIS Review 11/2002 The main principle is that there should be a clear link between labour input and pensions. Such a link may also be established in a system where the individual receives an annual pension that is stipulated in advance. Sweden has recently implemented a pension reform that ensures that annual pension benefits increase in relation to the number of years the individual has worked. | It is not a case of rescuing banks and bank management for their own sake or that of the shareholders or of “giving away taxpayers’ money” as it is sometimes wrongly described in the debate. In the long term we need a well-developed system for managing insolvent institutions The Riksbank’s possibility to provide liquidity assistance to a financial institution when financial stability is threatened assumes that the institution is solvent and able to continue to pursue its operations. In the case of Carnegie, Finansinspektionen withdrew the institution’s licence to conduct banking operations on Monday this week. The Riksbank then withdrew its liquidity assistance to the bank, is it no longer met the criteria for being granted this type of credit. The Riksbank’s loan to Carnegie Investment Bank AB has been repaid by the Swedish National Debt Office, which has taken over the debt and now owns the company. The Debt Office can now take over a financial institution, as in Carnegie’s case. This applies in a situation where an institution that does not meet the requirements for liquidity assistance from the Riksbank has to default on its payments and this is assessed to threaten financial stability. This is made possible by the stability plan for the financial system decided by the Riksdag just over two weeks ago. The stability plan also means that the government can extend guarantees to individual institutions or to a group of institutions. | 0 |
When GDP-at-risk is high and outside an acceptable range, however, the convexity of the 𝑓(·) function dominates 𝜙 and drives the macroprudential policymaker towards an absolute (lexicographic) preference for financial stability. 13 The Bank of England Act states that the FPC is not “required or authorised to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”. 15 All speeches are available online at www.bankofengland.co.uk/news/speeches 15 Chart 7: The relationship between GDP-at-risk and the macroprudential loss function is convex* Social cost of financial instability: 𝑓 (GDP-at-risk) A B A C Tail risks increasing (GDP-at-risk worsening) as move further right Once GDP-at-risk is within an acceptable range, the gains from taking further action to protect financial stability are modest. In this case, the secondary objective carries larger weight, and actions to boost resilience will be tempered to a greater extent by any negative impact they have on the central outlook. Tighter regulation tends to have some cost for the central GDP forecast in the near term while the system adjusts. However, by making the system more resilient, macroprudential policy avoids a much larger hit to growth tomorrow and increases expected productive capacity in the longer term. | So the contribution of energy and other commodity prices to inflation should fall back sharply as we go through the year. Of course, we cannot assume that the evolution of domestically-generated inflation is independent of these factors. Indeed, some countervailing pickup in the contribution of domestically-generated inflation is quite possible if businesses look to provide their employees with some recompense for the past squeeze in living standards. Moreover, one cannot rule out further adverse external price shocks. But a sharp fall in inflation is the most likely outcome and that in turn should mean that the squeeze on real household incomes will ease, providing some support for consumer spending. Even so, real income growth will still only be moderate and high levels of indebtedness may weigh on the spending of some households. Moreover, the uncertainties associated with the euro area are likely to persist, retarding growth there. Not only will that weigh on our exports, but funding conditions may also remain difficult, while British businesses are likely to remain cautious about investing and hiring. At its October meeting, the Monetary Policy Committee agreed that the outlook for UK output growth was markedly weaker than it had believed earlier in the year. Without action, and despite the present excessive level of inflation, the extra margin of slack meant that inflation would consequently be more likely to undershoot, rather than overshoot, the 2% target in the medium term. So it was against that background that we decided to re-start our asset purchases, buying another £ billion of gilts. | 0 |
1 Chart 1 shows the “fever curve” of the money market, i.e. the difference between the three-month Libor and the three-month (T)OIS rate (tom-next/overnight indexed swap). This difference reflects the credit and liquidity risk premium on unsecured money market trades. It is a barometer of the health of the money market and, in the broader sense, also for that of the financial markets in general. 2 The five crises in the comparison are the stock market crash of 1929, the oil crisis of 1973, Black Monday in 1987, the bursting of the IT bubble in 2000, and the current crisis. In each case, we look at price performance in and around the index’s highest recorded level prior to the crisis, which does not necessarily coincide with the onset of the turmoil. The highest levels were reached on 3 September 1929 (Black Tuesday was on 29 October 1929), on 11 January 1973 (oil crisis), on 25 August 1987 (Black Monday was on 19 October 1987), on 14 January 2000 (IT bubble), and on 9 October 2007. 3 For annual data and the Case-Shiller Composite 20 Index, cf. Robert J. Shiller, Irrational Exuberance (2006, 2nd edition). BIS Review 157/2008 1 These financial losses alone will continue to have a major impact on the real economy for some time to come, owing to the fact that their full effect is not generally felt immediately. Despite the historic disruptions in the financial markets, this is not the 1930s. | 8 A spread of this size between the Federal Reserve’s two administered-rate tools is expected to be narrow enough to provide sufficient interest rate control but wide enough to preserve a reasonable volume of trading in the federal funds market and to keep the Federal Reserve’s footprint in the nonbank financial sector from growing too large. As suggested by operational guidance in the March minutes, policymakers may adjust either side of the spread between these two rates, as needed, once normalization is under way. Fourth: Qualifications around the use and settings of an ON RRP facility. The FOMC intends to use an ON RRP facility only to the extent necessary and will phase it out when it is no longer needed to help control the federal funds rate. But what is necessary, and how can the facility be phased out? As the minutes of recent FOMC meetings show, Committee participants differ in their answers to those questions, but all agree that demonstrating sufficient control over money market rates during the critical early stages of policy normalization is a priority. Against this backdrop, the Committee has noted that it plans to allow the aggregate capacity of the facility to be temporarily elevated to support policy implementation at liftoff, but also expects that it will be appropriate to reduce ON RRP capacity fairly soon after policy firming commences. | 0 |
But we do this for partly different reasons, as we have different tasks. The risks now building up in the mortgage market concern individual banks. But risks are also building up that threaten financial stability – what are known as systemic risks. Ultimately, the macro economy may also be affected. This means that the division of responsibility is unclear. The problem with the division of responsibility can be illustrated as follows. If we assume that the trend in household indebtedness and housing prices does not slow down, despite all efforts, and continues at an alarming pace. Which authority should be the first to take action and on what grounds? Is it a question of consumer protection or of inflation and resource utilisation? Then the answer is simple. But what if it is a question of risks that threaten the financial system? Or perhaps everything at once? We in Sweden are not alone in struggling with these issues. Around the world there is intensive debate on the management of systemic risk – what is usually known as macroprudential supervision. As I have already mentioned, we in the EU have agreed to establish a European Systemic Risk Board to monitor the build-up of systemic risk in the member states and to recommend measures to deal with it. It is of course necessary that we in Sweden have a framework ready to respond to any such recommendations, in the form of allocation of responsibility and tools. | Being utilised little as resources for the economic and social development of the country, remittances may have led to individual, family or local dependency. During the first stage of transition in Albania policies for optimising the administration and utilisation of workers’ remittances for developing purposes have been completely lacking. A few sporadic measures have aimed at driving workers’ remittances into official channels and improving savings and investments incentives of emigrants in the country but have been by and large inadequate. More recently, the Albanian government has taken a more attentive approach toward remittances and their potential contributions in financing the growth and development of the country. With the assistance of the European Union by means of CARDS program, and the support of the International Organization of Migration (IOM), this year the Albanian government has compiled two important documents regarding migration and remittances issues, called: National Strategy of Migration and Action Plan. The main objectives are: (i) the review of remittances flows and (ii) the identification of political constraints and institutional and regulative framework that influence these inflows, in order to: • increase the volume of remittances; • help shifting them into formal channels; and • enhance their use in support of country’s economic growth. Bank of Albania role in achieving these objectives consists primarily in maintaining the macroeconomic and financial stability, which constitute important preconditions for the success of any policy related to workers’ remittances. | 0 |
Insurers enjoy cost savings and policyholders get faster pay-outs Asia Risk Transfer Solutions, or ARTS, is a local start-up co-founded by NTU graduate Alex Chen and Professor Haresh Shah, that has done this well. It has developed a risk analytics platform for the design, pricing and management of index based insurance products. ARTS’ flagship crop platform in India has reduced the time taken for underwriters to 2/4 BIS central bankers' speeches calculate agriculture insurance premiums, from days to a matter of hours. ARTS’ solution is being used to provide index-based agriculture insurance products to millions of farmers across the country. We are also seeing increasing use of alternative risk transfer mechanisms, such as insurancelinked securities (or ILS) in disaster risk management. Catastrophe bonds, the most common form of ILS, enable insurers and reinsurers to transfer some of their risks to the capital markets. If no catastrophe occurs, the insurance company pays a coupon to the investors in these bonds. If a catastrophe occurs, the principal is forgiven and the money is paid to those who bought the catastrophe insurance. Japan has actively tapped on ILS to diversify the insurance industry’s exposure to natural perils. Research and development Third, research and development. Singapore has made good progress in fostering a natural catastrophe research ecosystem. Since its launch in 2010, ICRM has emerged as Asia’s leading research institute in catastrophe risk. | Besides leading Nat Cat DAX, ICRM has been involved in 16 core research projects – such as conducting seismic analysis for Sumatra and flood risk assessment for Jakarta. A number of other local and global initiatives aimed at building disaster risk resilience is being undertaken in Singapore: Recently, the industry, led by Lloyds, signed a Natural Catastrophe Statement of Intent with MAS and UK Trade and Investment to promote the development of natural catastrophe insurance in regional markets. As part of the SOI, eight Lloyds Syndicates have committed $ million in natural catastrophe capacity in emerging markets, including Asia. An integrated ASEAN market Fourth, improving market access. ASEAN countries are working together to open up insurance market access within ASEAN, enabling greater risk diversification beyond national boundaries. Diversification is critical to building resilience. Last year, ASEAN member states made a commitment to liberalise by 2025 the crossborder supply of international Maritime, Aviation and Goods-in-Transit or MAT insurance, catastrophe reinsurance and remaining classes of reinsurance. The majority of ASEAN member states have already committed to liberalise MAT insurance; and are aiming to substantially liberalise catastrophe reinsurance by 2019. Conclusion Insuring Asia against natural catastrophe is a most worthwhile endeavour. The growth and prosperity that Asia has achieved over the last three to four decades can potentially be set back by the economic and social disruptions that natural disasters unleash on a periodic basis. We must put in place mechanisms for the effective assessment, management, and transfer of 3/4 BIS central bankers' speeches disaster risks. | 1 |
At the end of this month, it is planned to approve the restructuring plans of the banks in Group 1 (those controlled by the FROB), and those of Group 2 (the other banks which will require State aid) will foreseeably be approved before year-end. The restructuring plans envisage the transfer of assets to the asset management company, which will become operational in December, and the recapitalisation of banks which need it. Each bank will 4 BIS central bankers’ speeches have a schedule for implementing the measures that it must adopt, and these are expected to be completed in the first quarter of 2013. Conclusions The State Budget for 2013 represents a substantial effort in terms of austerity. The intended fiscal adjustment is certainly very ambitious, given the ongoing recessionary setting for public finances next year. Central government efforts would be insufficient if not accompanied too by the adjustment to which regional and local government have committed. From the macroeconomic standpoint, some data show progress is being made in rebalancing the Spanish economy. The bulk of the correction has already been made by the current account and it is close to balance in 2012 which, foreseeably, will enable it to run a surplus in 2013. Similarly, we can see improvements in the competitiveness of the Spanish economy both with regard to labour cost indicators and productivity. We forecast that in 2014, and measured by unit labour costs, Spain will have recovered practically all of the competitiveness lost between 1998 and 2008. | This is fundamental for the timely detection of any slippage from stated budgetary objectives and for standing ready to respond appropriately. It should also be noted that in the past few weeks a good number of regional governments announced their budgets for 2013, although it is still early to make a full diagnosis of overall regional government expenditure. These developments remedy some of the weaknesses in the information available for assessing the budgetary adjustment scheduled for 2013. Even so, the fact that the presentation of the various budget documents by the various governments is not formally coordinated makes the work of analysts harder, given that, obviously, what matters from the macroeconomic standpoint or for the analysis of public finances is general government as a whole. The State and Social Security Budget for 2013 Let me now turn to the essential features of the State and Social Security Budget for 2013, beginning with a reference to the budget outturn in 2012. The budget deficit is being reduced this year in very adverse economic and financial circumstances. Indeed, as a result of the risks of possible slippage, a series of supplementary fiscal measures were adopted for the 2012 Budget. Their effects have begun to be perceived only in the second half of the year. Notwithstanding, on the information available, the possibility of slippage can still not be ruled out. | 1 |
Have the IMF/EU 1 financing agreements paid off? And what remains to be done in order to have our house in order? Romania itself faced a severe economic downturn which started in the fourth quarter of 2008 and continued until 2011 - first and foremost because of its domestic vulnerabilities. In the year before the crisis, the current account deficit exceeded 13%, the structural deficit was close to 9%, the economic growth was based on consumption of imported goods, and it was driven by loose fiscal policy and by the credit boom based on foreign exchange denominated loans, while the real estate bubble reached unprecedented levels. All that it was needed for a crisis was a sparkle. That sparkle was the global financial crisis, which led to massive speculative capital outflows, although the Vienna Initiative was a useful tool for damage control in this region. The rest is known and I do not want to insist upon it here. The diagnosis that I put in 2009, in my book “The end of illusion economics. Crisis and anti-crisis” is still valid. Since then, Romania witnessed a decade of major transformations. Under three successive IMF/EU programs, we have made a long way to reform the economy and to make it more resilient to further external shocks. In what follows, I will argue that Romania is now more developed and better equipped to deal with external shocks than it was ten years ago; but risks coming from unwarranted domestic policies remain. | It thus applies regardless of whether or not long-term interest rates are affected by depressed forward premiums (for instance, as a result of the Federal Reserve’s purchases of government securities). It also applies regardless of whether market expectations are good and reliable forecasters of future interest rates. The assumptions we make about long-term Swedish and foreign interest rates are thus important. This was one possible explanation why the main scenario contains such a modest krona appreciation. The other possible explanation and corresponding interpretation of the main scenario can be described as follows. In Figure 7 the red and yellow curves show the Riksbank’s forecasts for the repo rate and the TCW-weighted policy rates abroad, respectively. At the same time, the blue and grey curves show market expectations of the repo rate and the TCW-weighted policy rates abroad, respectively. If the current repo rate and the actual policy rates abroad develop over time according to the red and grey curves, the market will be surprised if the repo rate and foreign policy rates are raised more quickly 8 BIS Review 158/2010 than expected. The market will then gradually raise its expectations of future interest rates. That is, over time the blue and grey curves will show an upward shift. This means that the corresponding blue and grey yield curves in Figure 8 will shift upwards over time. | 0 |
In particular, these set out the minimum requirements for systemically important financial market infrastructure and the principles of ongoing system oversight by the National Bank. The task for the next few months will be to determine which payment and securities settlement systems are to be classed as systemically important. Then we will have to define the practical modalities that are best suited for implementing ongoing system oversight as effectively and efficiently as possible. Oversight is focused on infrastructure that is vital for the Swiss financial centre, i.e. especially those systems which together constitute the Swiss value chain. In addition to Swiss Exchange SWX, which will remain under the supervision not of the National Bank but of the SFBC, this infrastructure consists primarily of the payment system Swiss Interbank Clearing (SIC), the securities settlement system SECOM and the central counterparty x-clear. The first talks have been held with representatives of these systems to establish the implementation of system oversight. Investigations over the next few months will clarify whether other systems are also to be subject to oversight. By the end of July, all payment and securities settlement systems in Switzerland must report to the National Bank. As mentioned earlier, system oversight was not the product of a crisis. This can also be seen from the new Financial Stability Report, which examines specific aspects of the current financial market infrastructure and gives them a clean bill of health. | The aim of system oversight is to ensure that the high levels of safety and efficiency which characterise the market infrastructure of the Swiss financial centre are safeguarded for the future. Emergency liquidity assistance: a means of overcoming crises The National Bank is not only active in prevention - i.e. in the macroprudential oversight of the banking sector and in the oversight of the payment and securities settlement systems (system oversight) - but also contributes actively to overcoming crises. In a crisis, the National Bank - like any other central bank - is primarily responsible for maintaining liquidity. On the one hand, it can do this by ensuring that the market is amply supplied with liquidity. And on the other hand, as lender of last resort (LOLR) it can also provide emergency liquidity assistance to individual banks that are illiquid but still solvent. Here too we adopt internationally accepted procedures. Many central banks still prefer not to inform the commercial banks in too much detail about their role as LOLR. Quite understandably, they want to prevent the banks from being lulled into a false sense of security. The jargon term for this is “constructive ambiguity”. By contrast, the Swiss National Bank has opted - after carefully weighing up the moral hazard implications of its conduct - to communicate its terms to the banks both clearly and well in advance. The modalities are described in the Guidelines of 2 BIS Review 39/2004 the Swiss National Bank on Monetary Policy Instruments of 30 April 2004. | 1 |
In this regard, Banco de España does not consider necessary to accelerate the implementation timetable, although we believe that banks should make reasonable efforts to comply with the liquidity ratio as soon as possible. To sum up: We support banking prudential regulations incorporating liquidity ratios such as those proposed. We are aware that this will entail a major effort for banks, mainly because it demands changes in their management of this risk. Spanish banks must be active in improving balance sheet structures. I would like to conclude my comments on Basel III by referring to the importance of ensuring that it is implemented in a consistent way across institutions and across countries. This objective is framed in a project undertaken by the Basel Committee to ensure that the benefits of having risk-sensitive regulation, like Basel III, are not achieved at the cost of an extremely complex legislation which, apart from other problems, brings about results that are not comparable across banks. The Banco de España agrees with this initiative. We are in favor of simplifying current regulations, seeking an appropriate balance – indeed, always a difficult balance - between simplicity, comparability and risk sensitivity. So, we view very positively the transparency exercise carried out by the Basel Committee, with the publication of the results of the comparative analysis of banks’ calculations of risk weighted assets, both in the banking and in the trading book. | It seeks to reduce excess leverage in the banking system, and to afford an additional measure of protection against the so-called “model risk”, i.e. against the risks associated with the use of sophisticated models allowed under Basel III. There are still doubts about this ratio as a Pillar 1 measure. I understand that the doubts do not concern the concept, but, rather, its final calibration and how it will impact on specific business models, in particular, those most focused on retail activity. Moreover, it is not fully clear whether the best option will be a single percentage for all banks, irrespective of their size or business model; or whether it would be better to opt for different percentages, depending on the type of business or activity of the bank; or to establish a range within which the supervisor would have discretion to decide which figure applies best to specific institutions. We believe that this new ratio can be a good prudential tool, once it is correctly calibrated. European regulations envisage that countries may apply the leverage ratio as they consider best until its harmonization in 2018, but the Banco de España does not consider necessary to bring forward its entry into force. With regard to liquidity regulation, Basel III has included, for the first time, a short-term liquidity ratio (LCR) which seeks to ensure that banks have a buffer of high-liquidity assets equal to 100% of foreseeable liquidity requirements for, at least, 30 days. | 1 |
Even if stronger exports were to provide only a partial offset to the restraint from fiscal consolidation, the increase in demand generated by rebalancing 6 BIS Review 28/2010 would reduce the risk that the nascent recoveries might falter. This, in turn, would also reduce the risk of a protectionist backlash. To conclude, the structural case for rebalancing is compelling. The current cyclical circumstances reinforce this case. Thank you very much for your kind attention. I would be happy to take a few questions. BIS Review 28/2010 7 | 21.10.2020 Opening remarks XIX Germán Bernácer Prize Ceremony at the Banco de España Pablo Hernández de Cos Governor Ladies and Gentlemen, It is a great pleasure for me to welcome you all, and to introduce this Award Ceremony for the 19th Germán Bernácer Prize. I would like to start by thanking Luis de Guindos, Vice-President of the European Central Bank and Chairman of the Selection Committee of this award, for his contribution to this initiative. Luis, we are greatly honoured by your presence at this ceremony. Let me also thank The Observatory of the European Central Bank – chaired by Guillermo de la Dehesa – and the sponsors, represented here by Luis Isasi, President of Banco Santander España. As you know, the prize is named after Germán Bernácer, a prominent Spanish macroeconomist with deep knowledge of monetary theory, who became Head of the Servicio de Estudios of the Banco de España in 1930. The Bernácer prize recognises outstanding scientific research by young economists under 40 from the euro zone, and our institution has been a strong supporter of this award since its inception in 2001. On this occasion, I am glad to congratulate the winner of the 19th Prize edition, Mr. Loukas Karabarbounis. He is a Professor of Economics at the University of Minnesota, a Consultant at the Federal Reserve Bank of Minneapolis and a Research Associate at the National Bureau of Economic Research. | 0 |
Another way to say this is that we probably need to spend as much time discussing the limits of the quantitative outputs of the risk-management process as we do on the estimates produced by the models. Understanding and evaluating “tail events” - low probability, high severity instances of stress - is a principal, and extraordinarily difficult, aspect of risk management. These challenges have likely increased with the complexity of financial instruments, the opacity of some counterparties, the rapidity with which large positions can change, and the potential feedback effects associated with leveraged positions. Stress testing and scenario analysis have become central to the process of risk management, and we have seen substantial progress since 1998. The efficacy of these tools should be judged in part by the extent to which they capture, on a high frequency basis, the full exposure of the firm to a sufficiently broad range of adverse conditions, the aggregate exposure to specific types of different risk factors and types of counterparties, the potential interactions among those factors, the effects of a general loss of liquidity and confidence in markets, and the constraints on the ability of the firm to move to reduce its exposure to further losses. And, of course, the credibility of the risk-management process should be judged not just by the quality of attempts to estimate stress exposure, but also by the impact of these results on the decisions about how much exposure the firm actually takes. | The recognition of a market failure does not mean, of course, that policymakers have the capacity to design solutions that can effectively mitigate those failures without raising others problems. The fundamental challenge for policy is how to achieve the appropriate balance between efficiency and financial resilience. With too much government intervention, innovation is constrained and the system is stifled. With too little, the probability of systemic crisis may rise to levels that are unacceptably high. We judge the appropriate balance not against the standard of whether it reduces to zero the probability of a major financial crisis, the failure of a large individual financial institution or a major reduction in asset prices. That is not an appropriate objective of policy. Some vulnerability to crisis is a necessary and unavoidable feature of a dynamic and efficient financial system where asset prices need to be able to adjust to changes in fundamentals. The consequences of trying to induce regulated financial institutions to self-insure against all conceivable potential risks would do substantial damage to the level and efficiency of economic activity and cause the same risks to migrate to other institutions. This leaves policymakers with a set of normative questions, the answers to which must be based on knowledge about how markets work, as well as a substantial degree of judgment about what policy actions are likely to be both appropriate and effective. What level of exposure to very low probability, extreme adverse events should we be comfortable living with? | 1 |
Around USD13 billion was invested by venture capital players in fintech startups in 2017, the third highest annual total this decade. Among these, the most impressive transformation is perhaps in cross-border payments. Allow me to share an anecdote highlighting the magnitude of the change that is happening. Earlier this year, eight Chinese tourists went on a six-day trip to Finland courtesy of a Chinese online payment platform company. This trip was significant for two reasons. First, payments for the entire journey was cashless and performed through a mobile app, from the payment of flight tickets to food, ground transportation and other retail purchases. Secondly, Finland, located as far as 6,000 km away from China, became the first country where this Chinese app can be used to make virtually all payments. This is just the beginning. As fintech companies expand to other markets and enable seamless cross-border payments for other users, one can already imagine a future where one can travel the world with just a smartphone in hand. Not only that, another related consequence of such a future is that essentially all we know of “international banking” today could be performed without an actual bank. Naturally, we ask ourselves what are the implications of these changing boundaries of international finance? For financial customers, it means adapting to a new banking paradigm. A more regional and digital banking ecosystem could lead to increasing localisation, personalisation and efficiency of financial products and services. | The transfer of risks related with the debt is prohibited in Islamic finance. Therefore speculative transactions such as derivative are nonexistent. Transferring the risk related with the debt and speculative financial activities could cause unnecessary booming of the financial transaction volume well above the size of the real economy. Moreover, linking credit supply to growth rate of the economic activity, Islamic finance acts as a natural hedging scheme. In other words, financing extended by means of Islamic institutions can be used only with the real economic activity, and thereby, help restrict excessive credit boom. Credit is mainly extended for the purchasing of the real goods and services. In Islamic finance, Islamic financial institutions should own and possess the real goods and services and the buyers of the real goods and services should want to take delivery. Therefore, stakeholders share profits in good times, and losses in bad times. Distinguished Guests, There is ample room to improve Islamic financial system, more specifically on regulatory and supervisory side. While the high growth rate of the Islamic financial institutions is expected to continue in the coming years, they maintain certain market risks such as reputation and liquidity risk. Liquidity management is difficult under Islamic finance rules as practical instruments in accessing liquidity are limited. However, Islamic financial institutions, being aware of the limits in liquidity management, sustain higher liquidity ratios compared to conventional banks. Similar case is valid for their capital ratios. | 0 |
The world is simply too complex to put monetary policy on autopilot. 18 Concerns over the FOMC’s degree of discretion in monetary policy likely reflect, in part, innovations in monetary policy enacted in recent years that added accommodation at a time 17 The Board of Governors plays an important role in the oversight of the Reserve Banks. The Board of Governors regularly evaluates Reserve Bank operations and each Bank’s budget The Reserve Banks conduct supervision under delegated authority from the Board of Governors. Reserve Bank directors continue to have no role in bank supervision. 18 See The Fed at a crossroads, Where to go next? Brookings Institution panel remarks, October 15, 2015. 6 BIS central bankers’ speeches when short-term interest rates were stuck very close to the zero lower bound. In particular, the Federal Reserve’s balance sheet grew substantially as the Federal Reserve enacted a series of large-scale asset purchase programs designed to support economic activity. With respect to the argument that these programs have distorted financial markets, I would simply respond that monetary policy always affects financial markets and financial asset valuations. The expected path of the federal funds rate is an important factor influencing the level of bond yields, and the level of bond yields and bond term premia have implications for the valuations of other financial assets, such as equities, and influence the foreign exchange value of the dollar. Of course, the impact of monetary policy may have been greater this time. | I see this as necessary because there is a risk that the Federal Reserve could be changed in ways that might impair our ability to achieve our primary objectives – namely, full employment and price stability. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. The current debate surrounding this nation’s central bank is not new, but rather dates back to our nation’s independence from Great Britain. The notion of a central bank in the United States has nearly always been controversial – in concept, design and practice. So much so that the charters of the first two U.S. central banks, the First and Second Banks of the United States, were allowed to lapse. The United States, in contrast to many of our European counterparts, had no central bank from 1836 to 1913. During this period, the economy was prone to financial panics. The rapid development of the 19th century American economy, including the westward expansion made possible by railroads, outstripped the ability of the private banking system to satisfy the nation’s needs for an elastic currency and a stable supply of credit. Ultimately, the Panic of 1907 – in which J.P. Morgan, the leading financier of the day, played an outsized role in responding to the crisis – was the catalyst that turned the tide back in favor of establishing a central bank. | 1 |
In the justification for its new strategy, the Federal Reserve notes that the level of the policy rate that is compatible with maximum employment and 4 For a more detailed account, see for example, Jansson (2020). 5 It is difficult to know exactly where this bound lies, but my guess is that, in Sweden, it is slightly lower than –0.5 per cent, as the Riksbank’s repo rate was for a period, and it probably also depends on how long the repo rate remains at negative levels. 4 [17] long-term price stability has fallen relative to its historical average. The policy rate will therefore be limited by its lower bound more often than has been the case in previous periods. In order to anchor long-term inflation expectations at 2 per cent and prevent them from falling below this level – which would make the lower limit binding even more often – it has chosen to specify the target as an average of 2 per cent. This makes it clear that ‘bygones’ are not ‘bygones’: if inflation has been below the target for a period, this must be compensated for by inflation then being above target for a period.6 In turn, as I have just mentioned, the ECB has moved on to a symmetrical target of 2 per cent in the medium term. In practice, this means that the target has been raised slightly, as previously inflation should have been “below, but close to, 2 per cent”. | This symmetry means that both negative and positive deviations from the target are equally undesirable. The ECB too points out that the marked decline in the equilibrium real interest rate has meant that the effective lower bound for nominal interest rates is likely to limit monetary policy more often. It also emphasises that one consequence of this is that strong or sustained monetary policy measures are needed when the interest rate is close to the lower bound to avoid negative deviations from the inflation target becoming permanent. It also notes that the new strategy may mean that inflation periodically will be above the target, but, unlike the Federal Reserve, it has chosen not to introduce an average target.7 Mutual dependence We have thus seen that a prerequisite for fiscal policy and monetary policy to be effective is that they have a stable long-term foundation. For fiscal policy, there must be confidence that public debt is stable over the long term and, for monetary policy, there must be confidence that the central bank can keep inflation low and stable. In order for monetary policy to be able to use the policy rate to counteract economic downturns and increased unemployment, it is also necessary for average inflation not to be too low. | 1 |
The effort is clear to see. It is too in terms of foreclosed assets, which have fallen by almost 40% from their 2012 peak, and stood, as at June 2018, at around € billion. Nonetheless, the foregoing figures remain high in historical terms and dynamic management of these types of assets by banks remains necessary. They must set ambitious but credible objectives. 5/8 In designing these objectives, banks should bear in mind the supervisory expectations defined over the past 18 months. In particular, they should be very mindful of the guidelines the SSM published in March 2017 and the addendum thereto released in March 2018. The guidelines are predominantly qualitative. They describe measures, processes and best practices in the management of non-performing exposures, with a view to banks defining strategies that enable them to reduce the accumulated volume of such exposures. The addendum complements the guidelines and sets supervisory expectations as to the prudential provisioning levels for new non-performing exposures, considering as new those classified as such as from 1 April 2018. These expectations set a timeframe of two years for 100% provisioning of unsecured exposures, and one of seven years for 100% coverage of secured exposures. In this latter instance, moreover, provisioning is expected to be gradual, such that it is not left until the last year to set aside the provision. | 09.10.18 Banking business model: challenges and opportunities IX Financial Meeting. “Transformation of the banking industry in a new setting of digital innovation” Margarita Delgado Deputy Governor Good morning. It is a pleasure to participate in this ninth edition of the Financial Meeting, a classic in our calendar widely acknowledged for its prestige and which gathers together a large number of banking industry leaders. I thank the organisers for their kind invitation to me to speak at the start of the event. And it is a pleasure to follow on from Ramón Quintana, my “brotherin-arms” over the course of intense years of work, first at the Banco de España and then at the European Central Bank. Indeed, in connection with Ramón’s words, and in this my first address as Deputy Governor of the Banco de España, I wish to focus on the banking business model and the need to adapt it to a changing environment. Like all private companies, banks can only survive in a stable fashion over time if they are profitable. And, set against the current transformation of the banking industry, ensuring profitability over time calls for a comprehensive, strategic and individualised reflection on the business model. Allow me to develop this idea of “comprehensive, strategic and individualised”. | 1 |
These are created by the fact that the assets and liabilities sides denote different currency units or consist of securities with different interest rates. As a matter of fact, firms with reduced financial risks on their balance sheets can allocate more resources to production. Moreover, derivatives markets introduce new investment instruments and encourage growth in the financial system. In this way, they increase the number of instruments investors can use to diversify their portfolios, and widen the financial markets. As a result, derivatives markets contribute to the increase in national income and employment by ensuring more effective allocation of resources and they provide added value as a separate sector. At the same time, these markets enable the real and financial sector investors to manage diverse risks parallel to those in world markets as well as allowing integration with those markets. Analyzed in terms of monetary policy, derivatives markets, whose development has always been backed by the Central Bank, support the continuity of financial stability by reducing volatility in the markets and help central banks to maintain financial stability. In addition, they enhance the information set used in monetary policy by providing information about the future, and increase the effectiveness of the transmission mechanism used to steer the economy. As a consequence, an improved flow of information about the future course of monetary policy makes the economy more predictable for economic agents. In this framework, the Turkish Derivatives Exchange will make important and diverse contributions to the economy, especially in terms of monetary policy. | Sustainable fiscal adjustment in the medium and long-term will depend on the enactment of structural reforms in the public sector rather than on provisional measures. Besides jeopardizing the attainability of budget targets, a delay in structural reforms will also cause the supposedly provisional measures to become permanent. Such implementation might affect the quality of expenditures and revenues unfavorably and cause inflationary impacts due to revenue-boosting methods. Therefore, increased control and effectiveness in public expenditures are critical factors for the quality of fiscal adjustment. A study comparing the fiscal adjustment policies implemented at different times in OECD countries2 revealed that a long-term improvement in public balance can be achieved through expenditure-curbing policies rather than revenue-boosting policies. Besides controlling public expenditures, incomes policy also plays an important role in increasing the quality of fiscal adjustment. For this reason, the implementation of incomes policy must be coherent with the inflation target. As I have mentioned before, important policies are pending in the upcoming period in the framework of the European Employment Strategy. These policies are aimed at ensuring that high growth performance affects employment in such a way to assure a sustainable increase in employment, to increase the additions to the labor force and to establish a more flexible labor market. Developing coordination in economic policies and a harmonization of the decision-making process is another outstanding factor. All these factors will not only establish macroeconomic stability and increase social welfare in Turkey, but also play a key role in the European Union integration process. | 1 |
Indeed, there was also some apprehension amongst the regulatory authorities, consumers, business communities and investors on the future potential of Islamic finance. Notwithstanding this, over the recent five years, there has been a rapid evolution and expansion of the industry. Today, Islamic finance has been recognised as a viable and competitive form of financial intermediation not only in Muslim countries but also outside the Muslim world and offering a wide range of financial products and services. Licences are being issued to facilitate the establishment of Islamic banks including in the industrial economies in Western jurisdictions. There are also an increasing number of international conventional banking institutions offering Islamic financial products and services through dedicated subsidiaries or branches as well as through window arrangements. In addition, countries that have pockets of Muslim population, in particular, in the Asian region are now exploring the prospect of providing access to Islamic financial services to promote greater inclusion. These trends have not only been in terms of numbers of Islamic financial institutions, but also in terms of institutions with larger size of capital and a more established operational governance framework including risk management. Islamic financial institutions that previously operated only in their own domestic jurisdictions have also begun to venture abroad to tap new growth opportunities in other regions and forge greater cross-border linkages. In the Islamic capital markets, there has been a growing interest in the issuance of Islamic sukuks by both sovereigns and multinational corporations. | These efforts have helped to avoid retrenchment of staff who might otherwise be displaced, and contributed to the steady decline in retrenchments in the financial sector, from the peak of 2,300 in 2016 to 1,300 in 2019.7 However, given the accelerated pace of digitalisation, we need to do more, and at scale. We are now experimenting an Artificial Intelligence (AI) platform with 13 FI partners to automate the process of identifying adjacencies in jobs and skills, so that more workers can benefit from reskilling and pivot into suitable roles. We hope to share more about the platform early next year. Creating Opportunities Our second priority is to expand opportunities for those aspiring to enter or reenter the financial sector workforce. 9. The National Jobs Council has been set up to mobilise tripartite partners’ resources to create opportunities amidst the weak labour hiring conditions. I am pleased to note that the financial sector is one of the top contributing sectors to 2/6 BIS central bankers' speeches the jobs and traineeships programmes, offering a wide range of opportunities, including in technology and innovation, retail and corporate banking. Close to 60 FIs have offered about 1,300 SGUnited Traineeship positions for fresh and recent graduates in this challenging job market. As of end July 2020, 50 FIs have committed to hiring 900 Singaporeans over the next 3 years to be groomed for future leadership and specialist roles under structured talent development programmes supported by MAS. | 0 |
Monetary and fiscal policies are being implemented with a high degree of expansiveness, so as to limit any effects of the current international crisis as much as possible. This is, undoubtedly, very good news. Thank you very much. References Ahrend, R., B. Cournède, and R. Price (2008), “Monetary Policy, Market Excesses and Financial Turmoil” OECD Economics Department Working Paper # 597. Becerra, S., L. Ceballos, F. Córdova, and M. Pedersen (2009), “Evolución reciente de las tasas de interés de colocación,” Manuscript, Central Bank of Chile. Brunnermeier, M.K. (2009), “Deciphering the Liquidity and Credit Crunch 2007-08,” Journal of Economic Perspectives 23(1): 77-100. Central Bank of Chile (2009), Monetary Policy Report, January. De Gregorio, J. (2008a), “Estabilidad de precios y estabilidad financiera: algunas reflexiones en la actual crisis financiera global,” Economic Policy Paper # 28, Central Bank of Chile. De Gregorio, J. (2008b), “Monetary Policy and Commodity Prices in Turbulent Times 2008,” in Katuri Nagaswara Rao (ed. ), Global Financial Markets: Managing Turbulence, The Icafai University Press. Diamond, D.W. and R. Rajan (2009), “The Credit Crisis: Conjectures about Causes and Remedies,” NBER Working Paper # 14739. Felton, A. and C. Reinhart (2008), “The First Global Financial Crisis of the 21st Century,” CEPR-Voxeu.org. García, P. and R.O. Valdés (2005), “The Inflation Process in Chile: Changes and Stability,” Manuscript, Central Bank of Chile. Glaeser, E.L., J. Gyourko, and A. Saiz (2008), “Housing Supply and Housing Bubbles,” Journal of Urban Economics 64(2): 198-217. Taylor, J. | As a consequence, and given the potentially huge cost of a disorderly collapse of such a bank for financial stability and the economy, we cannot yet exclude the need for a public bail-out in a possible future crisis. 4 In this respect, both banks are now very well placed in an international peer comparison. At Credit Suisse, the ratio of loss-absorbing capital to risk-weighted assets has more than doubled, from 5.2% in the first quarter of 2012 to 10.8% in the second quarter of 2013, while at UBS it rose from 7.5% to 11.4% over the same period. 5 Risk weights increase from 75 to 100% for the loan tranche exceeding the 80% LTV ratio. 6 In particular, the revised guidelines require banks to apply tighter rules regarding mortgage lending, as follows. First, at least 10% of the value of the collateral must be provided in equity from sources other than borrowers’ pension assets. Second, the mortgage debt on residential properties has to be repaid such that it amounts to no more than two-thirds of the collateral value after 20 years. A 100% risk-weighting applies for new mortgage loans that do not meet these tighter minimum requirements. 7 As at Q2 2013. Pro memoria: during the crisis, UBS incurred losses of about 2%. BIS central bankers’ speeches 3 This state of affairs is still unsatisfactory, and has led to renewed debates on how to further regulate global banks. | 0 |
The functioning of the fixed-income market is important for us as a central bank. It makes it possible to implement monetary policy and thus to fulfil our task of controlling inflation. We aim to influence economic activity and thereby inflation via the price for credit – the interest rate. For this to be possible, the payment system and the credit markets must function so that the Riksbank’s interest rate decisions show up in other interest rates. What does this require of the fixed-interest market? A discussion of which characteristics the fixed-income market should have so that monetary policy can be as effective as possible must start from the answers to two questions: What is the objective of monetary policy? And, what instruments are at its disposal? The situation in both these respects – monetary policy’s objective and the toolbox – can differ somewhat between countries. My focus is, of course, on the Riksbank‘s monetary policy objective and instruments. Monetary policy’s objective and steering system We have specified the objective for the Riksbank’s monetary policy as an annual rate of inflation of 2 per cent plus or minus one percentage point. Our aim in setting the interest rate is that inflation will develop in such a way that the goal is fulfilled. When the Executive Board has decided the level of the repo rate, it is up to the monetary policy steering system to ensure that the decision shows up in market interest rates. | The relations and cooperation of the CBRT in the international scene go well beyond our bilateral dialogue with your esteemed Bank and cover also the financial level (swap agreements signed with certain countries), as well as the educational level (the establishment of an international central banking research facility and regional training centre, the İstanbul School of Central Banking). BIS central bankers’ speeches 1 I would like to thank the Bundesbank for opening a Representative Office in İstanbul, for signing the MoU agreement and for all the support and assistance you have provided us in diverse fields and at various platforms. Closing my remarks, I would like to welcome my friend and colleague, Dr. Andreas Dombret, a member of the Executive Board of the Deutsche Bundesbank, and thank him for his tremendous efforts in bringing this project to life. Now let us celebrate our achievements. Thank you for your attention. 2 BIS central bankers’ speeches | 0 |
As an example, the HKMA and our peer authorities in the region have adopted fintech sandbox 3/4 BIS central bankers' speeches regimes, which are effectively testing grounds with a well-defined scope and a clear timeline. The authorities do not generally stipulate an exhaustive list of regulatory requirements in these sandboxes; rather, the products are to be developed flexibly, and requirements would be evaluated during the process. Coordination among regulators has also already begun as the Global Financial Innovation Network (GFIN) is now inviting applications for cross-border testing of financial innovations. That said, while providing a conducive environment to support innovation, central banks and regulators would have to strike a good balance with its other functions in consumer protection and financial stability, especially as the new and innovative services grow in scale or become widely adopted. Cross-border coordination is also required to address potential arbitrage across jurisdictions, given the much wider reach of fintech products and services. Derivatives markets, on the other hand, have a much longer history. The regulatory framework should therefore be informed by history, and lessons from the global financial crisis must not be forgotten. Regulators need to guard against the problems that plagued derivatives markets before the crisis: namely, the overuse of leverage, excessive interconnectedness, and opacity. I don’t need to “preach to the choir” on the tremendous efforts exerted by regulators and market participants internationally to solve these problems. | Another longer-term challenge—and one that’s perhaps most important—is the chance that some economies in our region might fall into the so-called “middle income trap”. The middle income trap is the phenomenon that many emerging economies slow markedly as per capita income approaches a certain level, typically estimated to be around $ Many important economies in Asia are already approaching that level, so we should all be thinking about this challenge before it’s too late. Trends such as population ageing, a slowdown of urbanisation, low productivity as a result of overinvestment, and the lack of financial market development are generally cited as the causes of the middle income trap. One would think that the reversal of these trends could help economies evade the trap, but this of course is easier said than done. Crucial Role of Financial Market Development While issues such as population ageing are probably best left to other forums, those of us here today are well-suited to think about how financial market developments can help Asian economies overcome the two longer-term challenges. Informed by Hong Kong’s blueprint as an International Financial Centre, let me share a few thoughts on this issue. First, both longer term challenges – navigating China’s economic transition, and evading the middle income trap – require Asia’s financial institutions to be tech-forward. Around the world, we have seen fintech play a key role, with innovations ranging from the digitalisation of traditional banking activities, to ones aimed at promoting financial inclusion. | 1 |
One lesson that authorities in this part of the world drew from the financial crisis in the late 1990s was that strong policy fundamentals are not always enough to guard against the vagaries of international capital flows. A sizable cushion of international reserves is important as a buffer to guard against sudden changes in market sentiments that can lead to capital outflows and pressures on the currency. Starting shortly after the Asian financial crisis reserves were thus accumulated in the region to build up such buffers. But holding large amounts of reserves is of course costly as they are typically invested in highly liquid assets with relatively low yields compared with some alternative uses of the funds. It is partly for this reason that authorities in the region have taken steps to create a mechanism for pooling some of their reserves in the form of the Chiang Mai initiative which started in year 2000 and its multilateral extension which was agreed on in 2010. While the size of the pool of reserves under the Chiang Mai agreement is relatively modest compared to the potential needs for some of the larger economies in the region, the importance of the agreement goes far beyond the aggregate amount of reserves involves. It reflects a desire by authorities in the region to foster financial cooperation in the region while at the same time creating arrangements which will help safe-guard financial stability. | Peter Pang: Policies adopted by authorities in different jurisdictions with respect to international reserves Welcoming remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the International Monetary Fund Independent Evaluation Office (IEO)/Hong Kong Institute for Monetary Research (HKIMR) Workshop, Hong Kong, 24 March 2011. * * * It is a pleasure to welcome all of you to this event co-hosted by the Hong Kong Institute for Monetary Research (HKIMR) and the Independent Evaluation Office of the IMF. The HKIMR, as some of you already know, is a subsidiary of the Hong Kong Monetary Authority. Its objectives are to promote research on longer-term and wider policy issues of relevance to the monetary and financial development of Hong Kong and the Asia region; and to foster cooperation and cross-fertilisation of research efforts between academics, international financial institutions and the HKMA research activities. For this reason we are particularly pleased to co-sponsor this workshop which deals with the important topic of policies adopted by authorities in different jurisdictions with respect to international reserves and with the advice the IMF gives in this regard in its consultations with policy authorities. The accumulation of international reserves has become one of the issues at the center of debates about the functioning of the current international monetary system as well as about reforms of this system. | 1 |
The approach must be chosen by each institution under the control of the supervisor, in relation to size and level of sophistication; – the supervisory review process (Pillar II), which gives supervisors a key role in assessing the risk profile and the quality of risk management of each institution as well as the corresponding minimum regulatory capital ratios; – market discipline (Pillar III), which enhances public disclosure requirements. These three pillars, whose technical aspects I shall not discuss today, constitute an ensemble aiming mainly to: i) improve banks’ risk management, ii) align regulatory capital more closely with the actual risks incurred by banks, iii) enhance the role of BIS Review 11/2008 1 supervisors, as well as iv) that of market discipline and therefore, ultimately, v) strengthen financial stability. The implementation of such a framework, embracing a broad spectrum of possible approaches for banks and covering a large array of risks, is no simple matter and accounts for the current variety of national situations, including within the G10: Japan for example implemented Basel II in 2007, EU Member States are set to do so in 2008 and the United States in 2009. The magnitude of this task is particularly vast since Basel II, in view of the very nature of its objectives that I have just recalled, will be applied in a very large number of countries. | The latest study by the FSI on the application of Basel II, published in September 2006 and conducted among 115 countries, shows that 82 Non-Basel Committee Member Countries intend to implement the new framework, in most cases as of 2008 or 2009, and in some cases at a later date. Fully aware of the practical aspects of implementing a more modern, complete and risk-sensitive prudential framework, the Basel Committee published, in July 2004, i.e. directly in the wake of the New Capital Accord, a document entitled “Implementation of Basel II: practical considerations”. Recognising that the adoption and application of Basel II may not be a short-term priority for a certain number of supervisory authorities of non-G10 Countries, the Committee encouraged the latter to develop their own approaches and implementation timetables. Given that the necessary legislative and regulatory changes and human resource requirements have to be identified, the application of Basel II will necessarily be a gradual process throughout the world. This is especially the case since technical decisions often have to be taken on the exact choice regarding the scope of application of Basel II or the possibility of a staggered implementation of the three pillars. In this respect, I welcome the choice made by Algeria to adopt and implement Basel II in the near future. This choice should not be seen by banks as a regulatory constraint but rather as a great opportunity to converge towards best international practices. | 1 |
In general, it can be observed that many people, particularly in the financial markets, put a lot of effort into making forecasts for the repo rate. If we can contribute to reducing uncertainty over how we ourselves view the future, this should be positive for everyone. Manageable difficulties But of course there are also some difficulties that need to be managed when a central bank presents its own forecast of the interest rate path. As you know, the Riksbank’s monetary policy decisions are taken by an Executive Board consisting of six people. While the decisions we make concern the level of the repo rate applying until the next monetary policy meeting, we must also agree on what we consider to be a reasonable development for the repo rate throughout the forecast period. There may, of course, be occasions when the members of the Executive Board have different opinions. For 6 See Jansson, P., and A. Vredin, (2004), ”Preparing the Monetary Policy Decision in an Inflation Targeting Central Bank: The Case of Sveriges Riksbank”, in the conference volume Practical Experiences With Inflation Targeting, Czech National Bank, Woodford, M. (2005), “Central-Bank Communication and Policy Effectiveness”, essay presented at a symposium organised by FRB Kansas City ‘The Greenspan Era: Lessons for the Future’, Jackson Hole, Wyoming, 25-27 August and Faust, J., and D. W. Henderson, (2004), “Is Inflation Targeting Best-Practice Monetary Policy?”, Federal Reserve Bank of St Louis Review, 86(4), 117-143. | There is currently a window of opportunity for Europe’s financial industry to make use of this top-tier infrastructure and the changing patterns in retail payments. But in order to seize these opportunities, it needs to avoid the mistakes of the past. Laying the foundations The euro was introduced in 1999, with physical banknotes and coins following in 2002. However, that success was not matched by integration in the market for electronic retail payments in euro, with national solutions remaining disparate and lacking interoperability. While the establishment of TARGET, the real-time gross settlement system for the euro, resulted in a fully integrated money market and wholesale payment market, cross-border retail payments in euro remained expensive, slow and inefficient, with no standardised way of making electronic payments across the euro area. For far too long, huge economies of scale remained unexploited. The ECB played a key role in laying the foundations for such standardised cross-border payments through the establishment of the Single Euro Payments Area (SEPA) – an endeavour that required substantial efforts by all stakeholders. That initiative consisted of two key stages. First of all, a harmonised legal framework was needed for payment services in the EU. Thus, the Payment Services Directive (PSD) was adopted in 2007 and entered into force in 2009. Second, it was important to ensure that consumers and businesses in the EU could send payments to each other quickly and easily across borders, with no differences between domestic and non-domestic payments. | 0 |
Experiences from previous deep recessions in Sweden in recent decades indicate that such steep declines in GDP have long-lasting consequences. During the recessions of the second half of the 1970s and the early 1990s, the GDP level did not return to the previous trend during the ten-year period following the decline in GDP. (Figure 2. Historical GDP trends). In connection with financial crises, it is normal for GDP growth to be significantly lower and unemployment higher for an extended period after the crisis, as compared to a period of equivalent length before the crisis. Reinhart and Reinhart have described this in a paper recently presented at a conference at Jackson Hole. 7 This is partially because credit expansion and increasing real property prices prior to a crisis tend to be followed by tightening and falling prices after the crisis. They also note that dampened growth and higher unemployment after a financial crisis may result in lower investment and the depreciation of human capital, which, in turn, may lower both the level and the rate of increase of potential production. Also in connection with the current crisis, the Riksbank expects lower GDP in the long term than we did before the crisis. We are now expecting GDP to be approximately 4 per cent 3 UC models (UC = Unobserved Components) involve using economic theory to identify which development of the non-observed potential variables is compatible with the development of observed variables, such as GDP, employment, unemployment and inflation. | 8 BIS Review 130/2010 Figure 1 GDP gaps in September 2010 and in real time Per cent Source: The Riksbank. Figure 2 Historical GDP trends Index 2000 = 100 Source: Statistics Sweden and the Riksbank. BIS Review 130/2010 9 Figure 3 GDP, hours worked and productivity Index 2007 Q4 = 100 Note: Broken lines denote the Riksbank’s forecasts in MPU September 2008. Sources: Statistics Sweden and the Riksbank. Figure 4 The GDP gap according to the Riksbank, the National Institute of Economic Research and the Ministry of Finance Per cent 10 BIS Review 130/2010 Figure 5 The GDP gap according to the Riksbank, the OECD, the IMF and the European Commission Per cent Figure 6 Labour market gaps Percentage deviation from the HP-trend and from the average 2000–2007, seasonally-adjusted data Note. Broken lines denote the Riksbank’s forecast in MPU September 2010. Sources: Statistics Sweden and the Riksbank. BIS Review 130/2010 11 Figure 7 Indicators for the business sector Deviation from the average, percentage points Note. Companies’ inflation expectations 12 months ahead are denoted in tenths of a percentage point. Source: National Institute of Economic Research. Figure 8 Shortage of labour in the business sector and capacity utilisation in the manufacturing industry Deviation from average 1996–2007 Source: National Institute of Economic Research. | 1 |
The question that is being asked with increasing urgency is “How can the financial sector play a more significant role in supporting disaster risk reduction strategies?” Along with this focus has been a growing call for actors in the financial sector to do more to reduce vulnerabilities to climate and disaster risks, including through better analytics, professional advice, providing or supporting effective risk mitigation solutions, and by conducting their business in a socially and environmentally responsible manner. Going forward, society will be more demanding of financial service providers, including brokers, to discharge these responsibilities with much greater diligence, and those that do not are likely to bear more severe consequences. The fourth reason that insurance broking is finding itself at a critical crossroad is a more obvious one – the technology revolution. This phenomenon is hardly new and we continue to experience new technological revolutions at an unrelenting pace. The challenge is in 1 2 Swiss Re, Sigma No. 3/2014: “World Insurance in 2013”. BIS central bankers’ speeches understanding and anticipating how evolutions such as aggregator capabilities, internetbased insurance, and big data are impacting insurance broking business models. So far, brokers appear to be taking some comfort in views expressed that technology is having the biggest impact on the more commoditised market for personal insurance lines, while brokers will continue to retain their share in the corporate insurance placements. | Brokers will be called on to provide expertise and advice in managing a more complex set of risks that will include environmental, geopolitical, supply chain and cyber risks in a more interconnected global and regional economy. In other words, the traditional information function of brokers will expand significantly. An area that will grow in importance for brokers is the SME sector. SMEs are a significant part of economies in Asia, driving growth and employment. In Malaysia, SMEs account for about one-third of Malaysia’s GDP and 59% of employment. Within five years, the contribution of SMEs to GDP is targeted to increase to 41%. Their importance to the economy however, remains disconnected with the extent to which these businesses are effectively managing their risks through insurance solutions. A significant majority of small businesses continue to be either not insured, or have inadequate insurance to secure the prospects of survival following business disruptions due to a natural disaster or other event. Among the most important reasons for this are cost and products offered by insurance providers that fail to reflect the specific risks that SMEs face. This is more acute for businesses at the lower end of the spectrum that operate with tight margins, have limited resources dedicated to formal risk management programs and are more vulnerable to business disruptions. | 1 |
The reduction in the policy rate has been effectively transmitted into lower money market rates as well as lower commercial banks' retail rates. To date, 4 major Thai commercial banks have reduced their deposit rates and 3 of them have cut down their lending rates. The downward interest rate path should help improve sentiments and lower the cost of funds, which would support the recovery in domestic demand, particularly, investment. The outlook for the Thai economy within the next few years remains positive. The BoT's forecasts, having incorporated the aforementioned risks, show that the Thai economy should be growing by 4-5 percent in 2007 and by 4-5.5 percent in 2008. Such growth rates are respectable in light of these challenges. Regarding the challenge arising from the volatile global financial market and an appreciation of the baht, Thailand, with a relatively small and still shallow financial market like many emerging market economies, is vulnerable to the fast-moving international capital. Rapid movements of capital flows can have negative impacts on the export or import sectors, which could pass on the adverse effects to the real sector and financial sector and eventually jeopardizing economic stability. The rapid appreciation of the baht particularly in the last quarter of last year, which proved to be inconsistent with economic fundamentals and much out-of-line with the rest of the region, inevitably forced the Bank of Thailand to implement a reserve requirement on capital inflows to break the rapid one-way momentum and preserve overall stability after several capital account measures proved unsuccessful. | Under inflation targeting, the emphasis is given to maintaining core inflation within the target range and, at the same time, achieving a balanced growth path. We use the 1-day repurchase rate as a policy instrument to keep the quarterly average of core inflation within the target range of 0-3.5 percent. If inflationary pressure heightens and thereby increases the possibility of core inflation breaching the target, interest rate has to be raised. Bearing in mind that a time lag of 4-8 quarters before a change in the policy rate can be fully transmitted to the rest of the economy, policy consideration needs to be forward-looking. Upward inflationary pressure over the past few years, due to higher oil prices, has been tamed by monetary tightening. We raised the policy rate 13 times between August 2004 and June 2006, bringing the policy rate to 5.00 percent from 1.25 percent per annum. Hikes in the policy rate have brought the money market and commercial bank interest rates higher over the past 2 years. Our policy response proved timely, with inflation and its second round effects well contained. Recently, domestic demand, particularly in private consumption and investment, showed signs of a slowdown, while economic momentum from exports was expected to moderate, given the prospects of the global economy in 2007. Since inflationary pressures have subsided in line with easing energy prices, monetary policy could be eased in support of a further expansion of the economy. | 1 |
Durmuş Yılmaz: Role and responsibilities of emerging economies in the global monetary system Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the conference on "Where Is Global Finance Heading? ", Istanbul, 2 October 2009. * * * Dear Guests, I would like to welcome you all to Istanbul. It is a great pleasure for us to host this conference and such a distinguished group of central bankers, academics and experts. I hope this meeting, together with the upcoming events, will be helpful in shedding light on the future of the global financial system. It has been almost two years since the surfacing of global financial crisis of epic proportions and we are still dealing with its repercussions. One can easily identify a variety of reasons for its occurrence: Global macroeconomic imbalances certainly played a key role. Deficiencies in financial regulations and lack of coordination among monetary authorities and regulatory institutions played even a bigger role. Policy makers were quite complacent during the build up in asset bubbles. Accommodative monetary policies enabled access to cheap money. High leveraged transactions magnified the amount of liquidity created through financial system. Search for high yields led to excessive risk taking and use of complex instruments. Compensation scheme in the financial sector encouraged short-term bias. Above all, believed that with the use of complex financial instruments, one can wipe out the risk from balance sheets. | In Asia in particular, while new bond issuance fell more than 40% compared to 2021, syndicated lending saw modest growth. Quite remarkably, the green and sustainable segment grew by around 50% in 2022. 4. It's worth asking why we continued to see growth and innovation in Hong Kong during the challenging 2022: I believe it's because we benefit from some unique fundamental strengths, as well as some supportive policy measures. 5. So, what are these strengths? First, Hong Kong has a strong banking network. We are home to over three quarters of the world's top 100 banks. With a robust capital adequacy ratio of around 20%, a liquidity coverage ratio of over 160% and a low classified loan ratio of about 1.4%, our banks are always looking for new business. They give Hong Kong the liquidity and expertise needed to handle transactions of any size and complexity, and at highly competitive rates. 6. Our banking system operates within a vibrant financial ecosystem that offers plenty of opportunities for collaboration and cross-feritlisation. This is the most obvious with the bond market, which has a symbiotic relationship with the loan market in providing credit financing. Here again we are by far the number one in Asia. According to the International Capital Market Association, for six consecutive years to 2021, Hong Kong was the largest hub for arranging international bond issuance from Asia, capturing one-third of the market; we anticipate that Hong Kong will top the rankings again in 2022. | 0 |
This is usually the result of doctors weighing their own preferences (the risk of reputational or financial loss) over the patient’s (the risk of health problems worsening). Myopia biases Psychological experiments show that people differ materially in their capacity to defer gratification. The classic example is the “Marshmallow test” devised by Walter Mischel in the 1960s. 15 Mischel gave children at Stanford University’s Bing Nursery School the choice between one marshmallow for immediate consumption or two if the child waited. Not only did children differ significantly in their ability to defer gratification. As researchers followed the fortunes of these children as they grew older, a remarkable pattern emerged: children which had exhibited greater patience in their pre-school marshmallow test subsequently outperformed their impatient counterparts in everything from school examinations, to salaries, to reported levels of life satisfaction. Subsequent sociological studies have established a longer list of ways in which impatient or myopic behaviour influences human decision-making. Myopic individuals are more likely to smoke, to suffer alcohol and drug addiction problems, to be obese and to have credit card debt problems. 16 Myopia also differs significantly across countries. 17 To explain this, Richard Thaler developed a psychological model based on the “two selves”. In effect, each of us comprises a patient “planner” and an impatient “doer”. 18 Neuro-scientific evidence has subsequently lent support to Thaler’s model, with different areas of the brain found to be responsible for patient and impatient behaviours. 19 In practice, myopic behaviour appears often to hold sway in everyday decision-making. | 37 In the setting of monetary policy, the Bank’s role from the end of the second world war through to the 1990s was as implementer, not decision-maker. The Bank had little, if any, independence in the setting of monetary targets or instruments. That changed progressively in the 1990s and decisively after 1997. Through the Bank of England Act 1998, the Bank was granted operational independence for the setting of monetary policy in the UK, to meet an inflation target set by government. Specifically, monetary policy came to be set by a nine-person Monetary Policy Committee (MPC), meeting monthly and comprising five Bank “internals” and four “externals”. 38 In the light of the crisis, the UK’s policy framework has been further changed. The Financial Services Act 2012 vested the Bank with further responsibilities, creating a new 10 person Financial Policy Committee (FPC), meeting quarterly to execute macro-prudential policy. The 31 Asch (1951). 32 Janis (1972, 1982). 33 Hughes and White (2010). 34 Kaplan (1964). 35 Tuckett (2011). 36 Janis (1982). 37 Capie, Goodhart and Schnadt (1994). 38 King (2010), Lambert (2005). BIS central bankers’ speeches 5 FPC sets regulatory policy to ensure the stability of the financial system as a whole. Like the MPC, it comprises both internals and externals. 39 The Financial Services Act also gave the Bank responsibility for micro-prudential supervision – ensuring the safety and soundness of individual financial firms. | 1 |
More recently, wide publicity has been given to Chapter 11 of the United States Bankruptcy Code which allows a debtor to continue its operations under a re-organization plan. Similarly, the Indian government initiative in the form of Sick Industrial Companies (Special Provisions) Act was passed with the objective of ensuring timely detection of sick and potentially sick industrial companies, to expedite the revival of potentially viable units and closure of nonviable units is noteworthy. We are informed that India is also re-examining the provisions of this law. The prevailing labour laws and parate execution powers make it difficult for financially troubled enterprises to restructure and continue business operations. The exercise of parate execution powers lead only to closure of enterprises, although the law provides for restructuring. The purchase of the mortgaged properties by the bank at the auction sale through the exercise of rights of parate execution has resulted in another undesirable phenomena, that is the accumulation of foreclosed assets on the balance sheets of banks. Undoubtedly, the closure of enterprises results in great cost to the economy by way of loss of output, loss of employment, defaults to creditors and low return to entrepreneurs. It is therefore, vital to have a sound procedure in place to assist ailing enterprises to overcome their problems, provided the enterprises are commercially viable and the problems are of a temporary nature. | Second, the Committee stands ready to make further asset purchases should the outlook warrant them. Just as with movements in Bank Rate in more normal times, a pause in monetary loosening does not necessarily mean that loosening has come to an end. It will all depend on how the outlook for inflation evolves. Looking further ahead, the Committee at some point will need to reduce the current exceptional degree of monetary stimulus. Some commentators have suggested that the MPC has been less forthcoming than other central banks in explaining its exit strategy. But to a large extent this reflects the fact that we have less to communicate. The Committee has two instruments through which it can withdraw the stimulus, raising Bank Rate and selling assets. Unlike some other central banks which need to create new instruments to drain excess reserves or alter the terms of existing facilities, the structure of the Bank’s operating framework means these two instruments can be used at any time, in any order. And the strategy guiding our policy decisions will be unchanged – monetary policy will continue to be determined by the outlook for inflation relative to target. The most difficult decision will be to decide the timing of the withdrawal, but that is always the case. The aftermath of the financial crisis posed many questions for the theory and practice of monetary policy. | 0 |
Spain and Italy in the danger zone At the beginning of August concern increased that the problems would spread to other countries than Greece, Portugal and Ireland, who were already receiving support. Market participants focussed on the sovereign debt situation in Spain and Italy, which caused government bond yields to rise in these countries. Both countries have problems with their public finances, but in different ways. Italy has a very large national debt, but not such a large deficit in public finances, while Spain has a smaller national debt but larger public finances deficit. Both countries have suffered declining competitiveness over the past ten years. Recently, the lack of confidence has also begun to affect France. The banks managed the stress tests There is also concern that the sovereign debt problems will spread to the banking sector. On 15 July the European Banking Authority, EBA, reported the results of the stress tests of 91 European banks, which together account for 65 per cent of the EU’s banking sector. This showed that all the banks but 8 had sufficient resilience to manage a deterioration in the 4 BIS central bankers’ speeches scenario for the period 2011–2012, but that a further 16 banks almost did not pass the tests. However, all four major Swedish banks passed the stress tests with flying colours. The results were received with some scepticism, as they were not considered to be sufficiently credible, but the markets nevertheless calmed down. | However, the decision-making system in the United States is constructed in a way that makes it difficult to take the necessary type of decision. Moreover, my impression is that the problems with the public finance deficit are underestimated in the United States to the extent that they believe growth will resolve much of the problems. On the other hand, they have now decided on certain budget-strengthening measures and the United States usually succeeds in managing difficult problems in the end. The sovereign debt problems in the euro area are actually smaller than the US problems. The deficit in public finances in the euro area is calculated by the IMF to correspond to around 4 per cent of GDP this year. All in all, there is thus less need of budget strengthening measures in the euro area than in the United States and the tightening effects need not be so great. But the deficit is unevenly distributed and some countries have very large deficits and/or national debts. The problem is that even in Europe it appears to be difficult to reach decisions on credible long-term programmes for consolidating public finances. Instead, many countries have been forced by the markets to decide on further budget strengthening during the summer to increase confidence. However, even if the sovereign debt problems in the United States and the euro area are essentially the same, the market turbulence may lead to the situation deteriorating. | 1 |
The Bank has an open mind about the eventual development of a CBDC and an active research programme dedicated to it. That said, given current technological shortcomings in distributed ledger technologies and the risks with offering central bank accounts for all, a true, widely available reliable CBDC does not appear to be a near-term prospect. 28 See Fergusson, N., (2017), ‘The Square and the Tower: Networks, Hierarchies and the Struggle for Global Power’. 12 All speeches are available online at www.bankofengland.co.uk/speeches 12 Moreover whether it is desirable depends on the answers to a series of big policy questions. While these are largely for another speech, I will note that a general purpose CBDC could mean a much greater role for central banks in the financial system. Central banks may find themselves disintermediating commercial banks in normal times and running the risk of destabilising flights to quality in times of stress. 29 There are also broader societal questions (that others would need to answer) such as how society balances privacy rights with the extent to which the information in a CBDC could be used to fight terrorism and economic crime. A CBDC shouldn’t be a solution in search of a problem or an effort of central bankers to be down with the kids. Especially because there are more immediate ways to give you what you want. | And the Governing Council underlined at its recent meeting that, should it become necessary to further address risks of too prolonged a period of low inflation, it is unanimous in its commitment to using additional unconventional instruments within its mandate. Thus, many of the necessary conditions to restart credit growth are now in place. Yet, I think it would be short-sighted to claim that these alone will be sufficient. Coming out of a major financial crisis, it was always clear that repairing the bank lending channel would be a longer process, and the measures I have just described would only be the first steps in that process. One of the most important issues now in the repair process is how banks adapt to the challenging business environment that has been bequeathed by the crisis. The banking sector in transition The euro area banking sector remains in transition. At present banks generally have low revenues and profitability arising from several factors, including legacy factors such as loan losses during the crisis; cyclical factors such as the weak macroeconomy; and in some cases regulatory factors such as the costs of adapting to new legislation. This is reflected in historically low returns on equity: the median return on equity for euro area significant banking groups is currently 5%. It is unlikely, and indeed undesirable, that we will see a return to the high returns on equity we saw before the crisis, which were distorted in particular by excessive leverage and maturity mismatch. | 0 |
Sources: UK line – Bloomberg Finance L.P, TradeWeb and Bank calculations, US and German lines – Bloomberg Finance L.P. and Bank calculations. the effect of changes in public-sector debt. When the UK government borrows money it’s tapping a global market for savings, not just a domestic one. And from the perspective of a relatively small, single borrower – certainly one who’s still judged to be creditworthy – a greater demand for credit needn’t have any impact on what is essentially a global price. This doesn’t mean a country’s fiscal position never matters at all. Just as for an individual household or company, a government’s creditworthiness can affect the risk premium it’s charged for new borrowing. If there’s a concern that high levels of debt might result in some sort of default – whether directly or in the form of a sudden burst of inflation – you’d expect to see that reflected in some sort of extra margin on its bond yields10. But that’s a long way from saying that any variation in public-sector debt will have a measurable impact on its price. It’s further still from the claim that such an effect should be the dominant (let alone the only) influence on yields. Clearly, that’s not what the data tell you. Before closing this section I should make one other point. I’m taking it as given here that monetary policy does actually have some effect on demand and inflation (all else equal), through all the channels we know about. | Svein Gjedrem: Ethics and the Government Pension Fund – global Dinner speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the conference “Investing for the future”, Oslo, 16 January 2008. * * * Minister, ladies and gentlemen, We are gathered here for a conference – and a dinner – centred on ethics. At this venue, it is obvious that no one will be cheated, and each will get his or her due. Clearly, no one should need to leave this place hungry, or unfairly treated. For that we are truly grateful. Norges Bank is proud, and fortunate, to be the manager of the global part of the Government Pension Fund. And we are proud that Norway has been one of the frontrunners in promoting the idea of ethical investment. Although the debate has broadened over the past few years, some criteria for the management of the Fund have been in place since the beginning: We must have leaders and employees who do their job in a morally impeccable way. We must also make sure that environmental sustainability and social issues are factored in, since they are crucial to future returns, and to the Fund’s legitimacy. And there should indeed be barriers against certain acts and investments, no matter how profitable, basically because ethical behaviour is a goal in itself. In addition to our job of managing the investments, we have been given the task of being active and engaged owners of our global stock portfolio. | 0 |
3 A more detailed analysis is provided in the article “Financial imbalances in the monetary policy assessment” in the Riksbank’s Monetary Policy Report published in July 2013. 4 See, for instance, IMF “World Economic Outlook”, April 2012, A. R. Mian, K. Rao and A. Sufi (2011), “Household Balance Sheets, Consumption, and the Economic Slump”, Chicago Booth Working paper, November 2011 and K. Dynan, (2012) “Is a Household Debt Overhang Holding Back Consumption?” Brookings Papers on Economic Activity, spring edition. 4 BIS central bankers’ speeches imbalances that can affect confidence in the country, the currency and the banking system. I consider the assessment we made in July to entail on the whole a good balance between these difficult questions. Macroprudential policy needs to be implemented without delay... At the same time, I consider it important to emphasise that the repo rate is a blunt instrument. Other policy areas have more effective tools for influencing household debt. One such policy area is macroprudential policy, which entails limiting the risks in the financial system as a whole. If there were more effective tools available for managing and preventing financial imbalances, monetary policy would not need to take such risks into account to the same extent. At present, several countries and international organisations are working on producing and implementing a new framework for financial stability, where macroprudential policy will be in focus and the central bank will be given an important role. However, the design is slightly different in different countries. | Mixed signals from the rest of the world... New US statistics indicate continued strength in the US economy. Preliminary figures show that GDP increased in the second quarter by 1.7 per cent, calculated as an annual rate, compared with the first quarter of this year, which is in line with the assessment we made in July. At the same time as the new outcomes were published, the statistics authority released revised GDP figures for previous periods. These show that GDP growth has been slightly higher since 2007, and that the fall in GDP during the financial crisis was thus not as large as indicated by earlier statistics. In the United Kingdom, GDP was slightly better than expected during the second quarter. The indicators for July also point to a gradual recovery in the British economy. However, in Japan, which showed positive signals at the start of the year, newly-received statistics over the summer have not been as clear. GDP growth slowed down during the second quarter and the recovery in both the household and corporate sectors appears to have been dampened slightly further at the start of the third quarter. At the same time, data shows that emerging markets are slowing down somewhat. In China, preliminary figures for the second quarter show that GDP increased by 7.5 per cent as an annual percentage change, which was a slowdown compared with the previous quarter. Indicators for the other BRIC countries, that is, Brazil, Russia and India, show some slowdown. | 1 |
I have pointed out the advantages of free movement of capital, but also the instability that has followed in the footsteps of deregulation and the crises that have occurred since the early 1990s. The free movement of capital makes great demands on the countries' economic policy. If it turns out that the crises increase in number and become more profound, the demands for a return to regulation will strengthen. There are already demands for this, which are put forward in various international forums. History shows that periods of liberalisation have been followed by periods BIS Review 9/2002 5 of regulation. It is possible that the regulatory frameworks on which the international organisations are currently working will stabilise the foreign exchange markets, but it is also possible that some form of "Tobin tax" will win political support. The story isn't finished yet. 6 BIS Review 9/2002 | At the same time, these periods of change are crucially important for economic development. In the centuries before the 1800s economic growth measured as GDP per capita averaged only 0.1 to 0.2 per cent a year. At that rate, doubling the standard of living took roughly 500 years. The change was obviously hardly noticeable to a single generation. In the first half of the 19th century, when agriculture was transformed in Sweden, GDP growth per capita averaged 0.4 per cent a year. Even at that rate, standards of living did not improve dramatically. From 1850 up to the present, however, per capital GDP has grown at an average annual rate of about 2 per cent, leading to a notable change in our living conditions. With that rate, the standard of living doubles every 35 years, which means that a marked improvement has been experienced by each generation. Concluding remarks The points I have tried to make in the light of the historical perspective can be summarised as follows: • Despite falling prices for IT shares and the economic slowdown in the United States, the IT revolution has come to stay. In fact it has only just started. • The development of the new information technology will continue in the coming decades and bring about considerable changes in many walks of life. This refers, of course, to new production processes, new products, new forms of consumption and new consumable goods and services. This may affect the location of production and thereby employment. | 0 |
Foreign investors still enjoy only very limited access to the onshore Chinese bond market, however, as the renminbi is not freely convertible and capital flows are still subject to controls. Notwithstanding this, the Chinese government has been working towards a gradual opening-up of its domestic capital market for several years now. As part of this, China’s central bank, the People’s Bank of China (PBC), launched a so-called Interbank Market Programme in 2010, enabling central banks, sovereign wealth funds and insurance companies to request an investment quota for the onshore Chinese interbank bond market from the PBC. Provided they do not exceed this quota, these entities may invest freely in the (onshore) Chinese government bond market. More than 20 central banks – including those of France, Austria, Japan, Australia and Singapore – have now received a renminbi investment quota. In July this year, the SNB signed a renminbi investment quota agreement with the PBC. The SNB’s investment quota amounts to CNY 15 billion (in excess of CHF 2 billion). While this quota represents a very 4 Swiss National Bank. 2013. 106th Annual Report. 5 Measured against a standard market index. 6 IMF. 2014. Fiscal Monitor October 2014. Includes central and local government debt as well as governmentbacked debt. BIS central bankers’ speeches 3 small proportion of our foreign exchange reserves, it allows the SNB to gather some experience of this market. We intend to make use of this quota in the foreseeable future. | On matters of vital interest to the state, however, it must be recognized that even in the absence of some such formula as the British or the Australian, it would be impossible for the Central Bank to adopt a policy or pursue a course of action contrary to the policy of the Government of the day. No agency which is a creature of the Government can be entirely independent of the Government. While the Government may be prepared to give an independent regulatory agency rather wide discretion in a field such as that of money, there is no gain-saying that in the last analysis the Government must assume responsibility for monetary policy as for other policies. The Governor and the appointed member of the Monetary Board cannot help being acutely conscious of the fact that, since no Parliament can bind its successors, their independence and tenure in office under the proposed legislation is limited by the ultimate power of the Government to change the law. The exact degree and independence of the Central Bank is likely to vary from time to time. For example, central banks can ordinarily act more independently in stable, peace-time economic conditions than in time of war or other national emergency. They also tend to take stronger stands on issues which are primarily monetary in character than on related issues which may simply have monetary repercussions. | 0 |
Zeti Akhtar Aziz: Metamorphosis into an international islamic banking and financial hub Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the ASLI’s World Islamic Economic Forum, Kuala Lumpur, 1 October 2005. * * * Distinguished guests, Ladies and gentlemen, I am honoured to deliver this luncheon address on the occasion of the inaugural World Islamic Economic Forum organised by the Asian Strategy & Leadership Institute (ASLI). Allow me to take this opportunity to share with you Malaysia’s experience in evolving a comprehensive domestic Islamic financial system that has now become an increasingly more internationally-integrated financial system, thereby strengthening our economic and financial inter-linkages with the rest of the world. In evolving the Islamic financial system, important considerations include the development of a system that is able to meet the changing requirements of the consumer and business community, that is efficient and competitive, that is safe and sound and that is robust and resilient and able to withstand a more challenging and uncertain world environment. These considerations are vital to ensure the sustainability of the system not only as a form of financial intermediation in the domestic economy but also as an integral component of the international financial system. Evolving a robust islamic financial system Malaysia has adopted a holistic approach in developing its Islamic financial system. Our initial focus was to develop a comprehensive domestic Islamic financial system. | Nevertheless, the latest forecasts provided by the ECB last Thursday continue to point to a gradual rise in inflation over the coming years: 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018. 2 BIS central bankers’ speeches II. This brings me to my second point: how effective are our non-standard measures? 1) Since the summer of 2014, we have implemented a series of monetary policy measures, dubbed “non-standard”, to complement cuts to key interest rates, which now stand at 0.00% for main refinancing operations and-0.40% for the deposit facility. These measures include: 2) Targeted longer-term refinancing operations, conditional on the provision of bank lending to the real economy. The new series of TLTROs that we decided to launch on 10 March - TLTRO 2 - will allow banks to borrow at highly favourable rates, depending on the amount of new credit they provide; 3) Purchases of private and public sector securities, to further ease monetary and financial conditions in the euro area. The Eurosystem buys asset-backed securities, covered bonds and investment grade bonds issued by euro area sovereigns, agencies and institutions. On 10 March we decided to expand this programme further by including corporate bonds among eligible assets, and increasing the amount of monthly purchases to EUR 80 billion from EUR 60 billion previously; 4) Indications on the future path of key interest rates – or “forward guidance” – in order to influence agents’ expectations. | 0 |
However, due to the forces that underlie it, it is evident that this BIS central bankers’ speeches 3 trend can be mitigated but not reversed by just a unilateral measure. In January, the CBC launched a substantial process of reserve hoarding, by announcing the purchase of 12 billion dollars, the equivalent of around 5 points of GDP, the largest since the mid-1990s (figure 7). This intervention is sterilized, that is, the pesos issued to buy the dollars are withdrawn through debt issuance. Not doing this would mean that the increase in liquidity would be inconsistent with monetary policy, which would then be oriented to a forex objective and would divert away from its inflation target. I don’t need to explain why this would be terribly damaging to our economy. The purpose of the intervention is twofold. On the one hand, it allows having more reserves which, despite their costs, are a good hedge against sharp movements in capital flows. Although most economies did not significantly deplete their reserves during the crisis, their sole existence prevents destabilizing capital movements from occurring. On the other hand, the forex intervention mitigates exchange rate adjustments. As we have said before, without the intervention the peso would have appreciated further. Still, it is worth pointing out that the appreciation of the Chilean peso is not so different from that of the currencies of a large group of emerging or commodity-exporting economies, whether they have intervened their exchange rates or not. | Benign economic and financial conditions in recent years have kept credit losses at low levels. Combined with buoyant returns from capital market activity, the profitability of major financial institutions has been strong. And capital levels are high. But as highlighted in Financial Stability Reports by the Bank of England and others, this benign environment has encouraged an increase in risk-taking and a “search for yield” which has lowered the compensation for bearing credit risk and market risk to very low levels. The vulnerability of the system as a whole to an abrupt change in conditions has consequently increased. Against this background, I would like to focus my comments today on some of the implications for the management and reduction of risks to the financial system as a whole. More specifically, how can the public policy goal of promoting systemic financial stability be best achieved? I will not provide a fully comprehensive answer to this question but will touch briefly on four aspects; improving the assessment of vulnerabilities that might threaten stability; developing appropriate buffers for capital 1 Financial System Risks in the UK – Issues and www.bankofengland.co.uk/publications/speeches/2006/speech280.pdf BIS Review 77/2007 Challenges (John Gieve) (July 2006) 1 and liquidity within the financial system that take due account of the changing nature of risks; strengthening the core market infrastructure; and lowering legal uncertainty. | 0 |
Growing challenges in the Current IMFS Chart 3: Volatile capital flows amplify domestic imbalances in EMEs Net private capital flows to emerging market economies and incidences of crises % of GDP Number of EM crises (rhs) Net private capital flows to Non-China EMEs (lhs) 6 Number 6 Crises tend to occur when capital flows slow 5 5 4 4 3 3 2 2 1 1 0 -1 1980 1985 1990 1995 2000 2005 2010 2015 0 Source: IMF. Notes: Excludes China 18 All speeches are available online at www.bankofengland.co.uk/news/speeches 18 Chart 4: Greater reliance on foreign investors increases capital flow volatility Correlation of capital flow volatility and the share of FX-denominated corporate debt Volatity of capital flows 2.0 ZAF RUS 1.5 KOR THA MYS ISR POL CZE CHN IDN CHL TUR ARG BRA 1.0 MEX COL IND 0.5 0.0 0 10 20 30 40 50 Share of non-financial corporate debt denominated in USD Sources: IMF and IIF. Notes: Measured as coefficient of variation of gross inflows scaled by external liabilities. | In these circumstances, the Committee can extend the horizon over which it returns inflation to target if doing so achieves a better balance between the scale and duration of the deviation of inflation from target and the variability of output. This same framework can be used to think through the implications of the dominance of the US dollar in international trade and invoicing. In particular, in a DCP world with sticky dollar prices, a depreciation driven by strength in the dollar will tend to result in additional imported inflation. Rather than tightening monetary policy to offset fully that exogenous increase in imported inflation through lower domestic inflationary pressures, policymakers would do better to trade off inflation and output volatility, accepting some increase in imported inflation to achieve a smaller reduction in domestic demand below potential. The ability of new exporters to benefit from the depreciation by undercutting existing dollar contracts would provide some boost to exports and help lessen the trade-off facing the monetary policy maker. A similar strategy could be pursued in the face of large financial spillovers. The ability to do this depends heavily on the credibility of the monetary policy framework and the transparency with which the strategy is pursued. As I will go on to discuss, both can be reinforced by explicit recognition of the spillovers of the IMFS, particularly if recognised in IMF surveillance. | 1 |
Several broad economic forces substantially complicate an already difficult set of political challenges: the long-term increase in income inequality, the slow pace of growth in real wages for the middle quintiles of the population, the increase in the volatility of income that is a reflection of the greater flexibility of the U.S. economy, and the greater exposure of households to the risk in financing retirement and the burden of paying for health care. More generally, the global financial system and the monetary arrangements that underpin it are in the process of a delicate and consequential transition as the major emerging market economies particularly in Asia - move toward more mature monetary policy frameworks, more flexible exchange rate regimes and more open capital markets. This transition will require careful management, and the economic dimensions of getting it right would be complicated even without the political pressures those governments face. One final note on the financial system. The global financial system is in the process of very dramatic change. The changes of even just the last five years are extraordinary, in terms of the size, and strength, and scope of the major global firms, the role of private leveraged funds, the extent of risk transfer and the increase in the size of the derivatives market, the change in the structure of the credit market, the increase in and changes in the pattern of cross border financial flows. | Volatility in inflation and growth Standard deviation per decade 14 CPI inflation 12 1910 10 1920 8 6 1950 1860 1960 1990 1880 1980 1970 4 2 0 0 1 2 1940 1870 1890 1900 1930 3 4 5 6 7 8 9 GDP growth Finally, I should like to illustrate the fact that the transformation of the economy in the 20th century has not always taken place in calm and harmonious forms. There have been some large ups and 5 BIS Review 137/1999 downs. The situation was most turbulent in the early 1910s and the 1920s. A period of high inflation and rapidly growing demand was followed by deflation and a large fall in total production. Otherwise, development has been relatively uniform and stable since the breakthrough of industrialism in the mid-19th century apart from the 1870s and also the early 1930s, which is not so clearly visible in the diagram. Challenges on the threshold to a new millennium At the end of the 20th century, the new information technology is making rapid progress. As far as we can see today, it will affect production and distribution processes as well as consumer behaviour. That in turn makes the environment more competitive and calls for further change in Sweden’s corporate sector. | 0 |
The famous economics author Neil Irwin, in his book titled “The Alchemists: Three Central Bankers and a World on Fire”, called the Governor of the German Reichsbank at the time, the “worst central banker in history”! Let us also look at the other extreme case of price movements, namely deflation. The example that will come to anyone’s mind is Japan, which underwent what was known as the “lost decade”. Now it is termed the “lost 20 years”! Since early 1990s Japan experienced deflation, a continued decline in prices of goods and services. One may think that this is great! But what could be considered good for a consumer in the short-term may not be good for the entire economy, as evidenced by the experience of Japan. Since then, the Japanese economy had experienced negative economic growth, a drop in nominal GDP, declining wages and negative interest rates! Some indications of sustained growth in Japan are seen only now. Fortunately, Sri Lanka has never experienced such episodes in the past, and clearly we want neither hyperinflation nor deflation even in the future. But what about double-digit inflation hovering around 10-20 per cent, as experienced in Sri Lanka for several decades from 1970s? Empirical evidence clearly shows that this kind of double digit inflation is bad for sustained growth. | This was an overnight 7 devaluation of the basic exchange rate by 120 per cent! The rupee was then allowed to float under a managed exchange rate regime. Accordingly, compared to the end 1976 exchange rate of Rs. 8.83 per US dollar, the exchange rate was recorded at Rs. 15.56 at end 1977. This sharp devaluation addressed the overvaluation of the rupee observed under the fixed regime. The subsequent managed exchange rate regime allowed some flexibility to determine the value of currency largely on the basis of market demand and supply, while attempting to prevent the overvaluation of the rupee by maintaining the real value of the rupee against movements of a basket of major currencies. The Aftermath of the Managed Float The introduction of the managed floating exchange rate was a welcome move from the perspective of a liberal macroeconomist. However, this resulted in new challenges to the conduct of monetary policy, particularly as the exchange rate was no longer available to anchor inflation expectations like in the past. The Central Bank also had to face a new challenge, as the government started to run extremely large fiscal deficits funded mainly by concessional external funding to develop public infrastructure such as the accelerated Mahaweli scheme. Annual fiscal deficits averaged 13.3 per cent of GDP between 1978 and 1983, External current account deficits averaged 10.8 per cent of GDP between 1979 and 1983. Year-on-year inflation averaged 15.6 per cent during February 1978 and January 1985, with a peak of 32.5 per cent in August 1980. | 1 |
Cumulative exemption thresholds come to some CHF 300 billion. When negative interest came into effect in January, thresholds were 88% exhausted. Since then, this percentage has steadily increased and is now just over 98%. There are two principle reasons for this. First, a redistribution of sight deposits between banks has taken place. Institutions whose sight deposits exceeded the exemption threshold have transferred money from their SNB accounts to banks which had not exhausted their threshold and were prepared to accept these funds at somewhat less negative interest than –0.75%. This redistribution of sight deposits can be observed, for instance, on the Swiss franc repo market. Chart 3 shows how, on that market, turnover was considerably higher than that recorded for the whole of 2014. Most of the turnover was accounted for by transactions with very short terms. This is likely to include many transactions aimed at exhausting remaining thresholds. The second reason for the higher exhaustion of the exemption thresholds is that banks’ sight deposits at the SNB have increased overall. Since negative interest came into effect in January, sight deposits have risen from approximately CHF 440 billion to some CHF 470 billion at present. The interest burden increases overall when the SNB feeds more liquidity into the system, in particular in the event of further foreign exchange market interventions. This, in its turn, makes it even less attractive to hold Swiss francs. Now that almost all exemption thresholds are exhausted, every newly-created Swiss franc is subject to negative interest. | In addition, concerns about growth in China recently slipped into the background again. The stock markets of the advanced economies, which have since been able to partially recoup their losses, were the main beneficiaries of this recovery. By contrast, in the emerging economies, the wave of selling has had a lasting impact. In the most recent period, the MSCI Emerging Markets Index – calculated in local currency – was still approximately 12% below its level at the end of June. Stronger signals of diverging monetary policy stances between the euro area and the US were also reflected on the foreign exchange markets. On the one hand, the prospect of higher interest rates in the US boosted the US dollar. On the other, it put the currencies of emerging economies under pressure. Since mid-year, the US dollar has appreciated by 4.5% on a tradeweighted basis. The euro initially gained ground at times as a result of uncertainty in the emerging economies. However, after the ECB had held out the prospect of further monetary policy easing measures, the single currency came under downward pressure. By the beginning of December, the expectations of financial market participants had not been fulfilled and the euro gained in value again. By comparison with its mid-year level, the euro has appreciated only marginally on a trade-weighted basis. Demand for secure investments remained high worldwide. On the bond markets, yields on longer-term government bonds declined further. | 1 |
However, there is a concern that this approach is judgemental and lacks a coherent framework; i.e., how can we control both the price of credit through monetary policy and the quantity of credit through macroprudential measures. Another unsettling issue is whether monetary policy should lean against the wind of asset price boom and credit expansion at a cost of somewhat weaker growth and lower inflation. On this, I think our default position should be that we should because the cost of getting it wrong by not doing enough can be very costly. Finally, information on money and credit aggregates can be made more useful in the formulation of monetary policy. Up to now, a widely shared so-called “best practice” in monetary policy did not pay enough attention to monetary aggregates partly because of the belief that there exists no stable relationship between quantity of money and economic activity. As a result, prior to the crisis there was no attempt to counteract the rapid credit 2 BIS Review 8/2010 growth even though, in most if not all cases, asset price bubble was a direct result of sustained excessive credit expansion. This issue in my view is most relevant for emerging markets where the financial sector is typically bank-based, with credit being the major source of funding for businesses, and credit risk being the most important risk to banks. Such factors make the credit channel an important transmission mechanism of monetary policy in emerging markets. | And certainly, the design of reform package did not anticipate the effect of the contagion spreading to the rest of Asia and our trading partners. The key lesson is that, even in our best effort to get the reform right, we may still fumble. So, how should Asia think about the impact of the global regulatory reform? For Asia, although the banking system has been quite resilient to the crisis, these regulatory reforms carry high stake for us, especially for our future developments. BIS central bankers’ speeches 1 The reforms such as Basel III are, to a large extent, designed to correct major weaknesses in Basel II that allowed the crisis to emerge in western countries. These weaknesses were such as undercapitalization, over-leveraging, inadequate liquidity, and procyclicality of the banking system. So, in so far as Basel III would make these banks safer, it would contribute to stability of the global economy. However, the weaknesses that were targeted by Basel III did not cause damage in Asia. This is mainly because the banking model here tends to be simpler, understandable, and traceable. The western system, on the other hand, is so complex that no one, not even the CEO, could understands the bank’s structure and activities. The value of this simpler model is that bankers know what is going on in their banks. Supervisors can keep very close eyes on their activities. | 0 |
The day after the results were published, I remember that Bridgewater Associates – which had said the banks needed considerably more resources – published a paper evaluating the SCAP results. The banner headline was: “We Agree.” So this was important. However, I would note that it is important not to draw too strong a conclusion from just one episode. In the SCAP process, I also think it is important that we had some good luck. First, the banks’ needs were not that great. What people didn’t appreciate going in was that U.S. banks have strong revenue-generation capabilities: the banks had already set aside a large amount of reserves and taken large mark-to-market losses, and the banks had already bolstered their capital resources via capital raises and the sale of ancillary businesses. Second, the economy started to look a bit better in May at the time the SCAP results were released. This made the stress scenario more credible. Third, the capital markets were open to the banks. This was important because, as we saw, private capital was viewed as very much superior to Treasury mandatory convertible preferred shares. Fourth, although we made the correct decision to disclose, this was a difficult and close call. The fact that the loss experiences for the different asset classes varied across the banks helped to bolster the credibility of the results. Going into the spring of 2009, there was a prevailing view that several of the largest banks would have to be nationalized. | 1 Relevant documents are published on our website: https://www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates Page 3/5 Berne, 13 December 2018 Andréa M. Maechler News conference Charts Page 4/5 Berne, 13 December 2018 Andréa M. Maechler News conference Page 5/5 | 0 |
Moreover, in a highly competitive environment, many institutions whose customer base was typically linked to a specific region responded by looking for new markets, opening branches beyond their traditional geographical area. Clearly there was no sense in maintaining these organisational structures and such a dense branch network, with all the associated costs, at a time when the future outlook for banking activity was considerably less favourable than previous to summer 2007, and considering also the impact of possible margin squeezes. Restructuring is clearly the responsibility of the banks themselves. But the authorities designed the FROB (Fund for the Orderly Restructuring of the Banking Sector) as a mechanism to further this process in a way that would minimise the burden for the taxpayer. As a result, and as the banking sector overall is in a healthy position, Spain has been spared the voluminous and widespread recapitalisations, with no commitment to restructuring, seen elsewhere. The FROB envisaged action on two fronts. On the one hand, it gave the Banco de España broad powers to take control of any institution that were to fail. And on the other, on what we could call the preventive side, it allowed financial support to be provided for the restructuring of viable institutions and their management teams, and helped them digest the process; that said, the institutions themselves, and especially those that had experienced management failures, would have to bear the attendant cost. | This significant step frontloads the transition from the prevailing accommodative level of policy rates towards levels that will enable the timely return of inflation to our two per cent medium-term target. Current challenges of monetary policy Let me now elaborate a bit more on some of the most important challenges that Monetary Policy faces today. The crux of the matter is that the pandemic and the war in Ukraine have created significant macroeconomic uncertainty, associated with a high degree of output growth and inflation volatility. In such an environment of lasting output and inflation volatility and uncertainty, one of the main questions is how governments and central banks should formulate policy. Fiscal policy will be critical in improving the robustness of our economies. With debt ratios at record highs, expenditure should be targeted and prioritise social cohesion and productive green investments that will help assure long-term prosperity and develop fiscal flexibility needed to cushion future shocks. Non-targeted fiscal policy will counteract monetary policy efforts to contain inflation. At the same time, central banks must safeguard price stability through, mainly, monetary policy. When the degree of inflation persistence is unclear, effective policy suggests a strong reaction to deviations from the target in order to limit the risks of inflation continuing to be high for an extended period. The risk of high and persistent prices, together with signals of tightening in the labour market, create an environment which makes it possible for higher inflation expectations and higher prices to become entrenched. | 0 |
Auctions of funds against wider collateral of the kind introduced by the Fed and the Bank of England side-step the stigma problem by having a number of banks borrow at the same time. They have definitely helped to underpin the system. But, compared with a facility, those auctions are available only periodically – fortnightly in the UK at present – rather than every day. The DWF is available on a continuous basis, and is designed to avoid the stigma problem. In particular, in its usual mode of operation, it involves a collateral swap, so there is no give away of its being used in the size of either the banking system’s reserves balances or our open market operations. And we publish data on its use on an aggregate, averaged basis and with a lag. This puts onto a permanent footing some of the technology of the Bank’s Special Liquidity Scheme, which was used in 2008 to provide 3-year financing, via a collateral swap, for assets that had become illiquid as a result of the crisis. 20 How the facilities can work in extremely stressed conditions Monthly, wide-collateral repos for a 3-month maturity and typically of fairly modest size, together with a continuously available Window for 30-day collateral swaps, are now permanent features of the Bank of England’s regime. Various parameters can be adapted in the face of extremely stressed conditions of the kind we have been facing. Thus, the widecollateral repos have been held fortnightly rather than monthly, and for very large sizes. | If companies are relying on CCS to achieve net zero carbon emissions, investors will want to assess how they plan to get there – and who they expect to pay for it. 26 The IPCC estimates that additional investment of $ 190-900bn is required annually in the energy sector alone if the rise in average global temperature is to be capped at 2C. www.ipcc.ch/report/ar5/ Mercer estimates that additional cumulative investment in efficiency improvements, renewable energy, biofuels and nuclear, and carbon capture and storage could be in the range of $ by 2030. www.mercer.com/insights/point/2014/climate-change-scenarios-implications-for-strategic-asset-allocation.html 8 BIS central bankers’ speeches of attempting to use such changes in prudential rules – designed to protect financial stability – for other ends. More properly our role can be in developing the frameworks that help the market itself to adjust efficiently. Any efficient market reaction to climate change risks as well as the technologies and policies to address them must be founded on transparency of information. A “market” in the transition to a 2 degree world can be built. It has the potential to pull forward adjustment – but only if information is available and crucially if the policy responses of governments and the technological breakthroughs of the private sector are credible. That is why, following our discussions at the FSB last week, we are considering recommending to the G20 summit that more be done to develop consistent, comparable, reliable and clear disclosure around the carbon intensity of different assets. | 0 |
Problems with the global financial safety net Hume himself recognised that the nature of sovereign flows created an incentive to insure against a sudden stop, lamenting: “There still prevails, even in nations well acquainted with commerce…a fear, that all their gold and silver may be leaving them 7.” There are different ways for countries to insure against the risk of sudden stops in capital flows: (i) individually through the stockpiling of foreign exchange reserves, (ii) via collective arrangements with other countries, for example regional reserve pooling or swap arrangements or (iii) through the International Monetary Fund (IMF). This multi-layered global safety net has some advantages but it seems to me that the current configuration is suboptimal: it is fragile, costly and fragmented. Fragile The aggregate size of the global financial safety net had been in decline before of the financial crisis, despite rapid reserve accumulation. There has been some recovery since then, as the size of the IMF and Regional Financial Arrangements increased in response to the crisis and central bank swap agreements were put in place. But the composition of the global financial safety net is now more fragmented [Chart 1] and it is unclear whether it would be sufficient during a systemic crisis. The IMF element is fragile, with borrowed resources accounting for an unprecedented three-quarters, around $ billion of which are temporary loans due to start rolling off next year with no agreement in place to extend them [Chart 2]. 7 See Hume (1758). | From its inception, Malaysia’s and its founding members’ vision have always been for a strong and integrated ASEAN region. The “ASEAN Way” believes there is strength in diversity and no country should be left behind. ASEAN strongly believes in the concept of shared prosperity, where wealth creation within the region will be enjoyed by all. The spirit of cooperation and flexibility are amongst the principles which underpinned the success of Myanmar’s chairmanship of ASEAN in 2014. Under Myanmar’s leadership, we saw major strides in financial integration that culminated in the conclusion of the ASEAN Banking Integration Framework (ABIF) by the ASEAN Central Bank Governors. A framework of gargantuan achievement. Myanmar’s leadership in seeing this through was crucial and now ABIF represents the single most important agreement in strengthening the ASEAN banking system, driving deeper integration and enhancing the region’s growth potential. It is an agreement of momentous significance. I would also like to congratulate Myanmar for successfully advancing the Yangon Outcomes for Financial Inclusion during their tenure as Chair in 2014. The groundwork that Myanmar laid during their Chairmanship was key to the announcement by the Finance Ministers and Central Bank Governors in March 2015 that financial inclusion will be elevated to be an important policy priority for ASEAN. This has resulted in the establishment of a dedicated working committee in ASEAN to deliberate policy options, engage stakeholders and coordinate collective actions to advance financial inclusion. Malaysia also places a big priority on financial inclusion. | 0 |
Another natural reason for the presence of low interest rates is our history of low and stable inflation rates, at least in comparison with other countries. As a result, international investors view Switzerland as a kind of safe haven, which gives rise to an interest rate advantage in nominal as well as in real terms. If Switzerland were to give up its monetary independence by pegging the franc to the euro or by joining the euro area, it would lose its privileged status and, consequently, Swiss interest rates would increase to European levels. Since higher interest rates mean lower asset prices and lower levels of investment, and also higher mortgage rates, the Swiss are understandably not keen on giving up their national currency. Since any major decision in Switzerland has to be approved in a public referendum, the prospect of euro membership in the near future is thus highly unlikely. The final point I would like to make is that going for a currency peg instead of adopting the euro outright is not an option for Switzerland either. It could even be a dangerous solution. Currency peg not an option It is no secret that the majority of Swiss are against EU membership, at least at the moment. But you may ask: Even if Switzerland isn't an EU member, couldn't it peg the Swiss franc unilaterally to the single currency? Wouldn't this help eliminate the exchange rate risk, without giving up monetary flexibility entirely? There is no such thing as a free lunch in monetary affairs! | Looking at our development over the last ten years, I do believe that price stability, due to monetary independence and flexible exchange rates, has been beneficial to the Swiss economy. It has maintained a low interest rate environment which has facilitated the private sector's adjustment to the rapid changes of the world economy. And what about Israel? I think that the arguments in favour of Switzerland's monetary independence apply even more to this country. While we at the SNB concentrate primarily on domestic developments and trends in the euro area, the Bank of Israel also has to take into account economic conditions in the US. Thus, there are three major sources of shocks that Israeli monetary policy has to respond to in order to achieve the goal of price stability. BIS Review 46/2006 7 Despite difficult circumstances, Israel was able to stabilise its monetary framework in the 1990s. The Bank of Israel now operates with an inflation target and will soon benefit from a new law that will modernise its decision-making process and strengthen its autonomy. All the necessary ingredients are now in place for the implementation of a successful independent policy in this country, as was once also the case in Switzerland. May I wish Stanley Fisher and his colleagues all the best in this endeavour. 8 BIS Review 46/2006 | 1 |
Braun-Munzinger, K, Liu, Z and Turrell, A (2016), ‘An agent-based model of dynamics in corporate bond trading’, Bank of England Staff Working Paper, No. 592. Carlino, G and DeFina, R (1996), ‘Does Monetary Policy Have Differential Regional Effects?’, Federal Reserve Bank of Philadelphia Business Review, March-April 1996. Case, A and Deaton, A (2017), ‘Mortality and Morbidity in the 21st Century’, Brookings Papers on Economic Activity, Spring 2017. Centre for Cities (2019), ‘Cities Outlook 2019’, Centre for Cities, January 2019. Clarke, P (2018), ‘How Online Grocer Ocado Is Automating Warehouses Using Swarms of Robots’, Harvard Business Review, 22 May 2018. Chakraborty, C, Gimpelewicz, M and Uluc, A (2017), ‘A tiger by the tail: estimating the UK mortgage market vulnerabilities from loan-level data’, Bank of England Staff Working Paper, No. 703. Collier, P (2018), The Future of Capitalism: Facing the New Anxieties, Allen Lane. Coyle, D (2014), GDP: A Brief but Affectionate History, Princeton University Press. Cristelli, M, Pietronero, L and Zaccaria, A (2011), ‘Critical Overview of Agent-Based Models for Economics’, Università di Roma. Cumming, F (2018), ‘Mortgages, cash-flow shocks and local employment’, Bank of England Staff Working Paper, No. 773. Department for Business, Energy and Industrial Strategy (2017), ‘Industrial Strategy – Building a Britain fit for the future’, HM Government. Dougenik, J, Chrisman, N and Niemeyer, D (1985), ‘An algorithm to construct continuous area cartograms’, The Professional Geographer, Vol. 37, No. 1, pp. 75-81. | 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. | 1 |
The update of our Market Intelligence Charter and the UK Money Markets Code, published today, will embed diverse outreach into our working practices and help make diversity within financial markets a core standard of best practice. The Charter sets out our aims and ambitions of talking to a diverse range of contacts and affirms our commitment to open engagement, with an emphasis on challenge and diversity of thought.9 The updated Code, which the FCA have recently again recognised as an industry standard, puts the expectation to promote and develop a diverse team upfront, alongside other core principles of best practice, highlighting the benefits of accessing a wider range of skills and thinking. 10 This approach is also being in embedded in our outward-facing markets committees. We currently have two main committees: the Money Markets Committee and the FX Joint Standing Committee. We have been working with members from both committees to diversify their membership for some time now: including working to ensure women in senior roles are represented; and that the committees see a wider range of presenters at different stages of the career. This is yielding results: specifically, female representation – which is one aspect of diversity that has been historically lacking on many senior-level committees – is now approaching half on the UK Money Markets Committee, and has climbed to around a third for the FX Joint Standing Committee in the past 18 months. These changes were driven by the Bank but importantly with the full support of the external members. | Growth in trade between ASEAN and GCC have resumed postcrisis and is expected to receive a further boost with the ASEAN-GCC trade and investment framework agreement and FTA. I therefore urge all parties to work swiftly towards a mutually-beneficial conclusion. Reforming finance to sustain growth 8. The financial sector has encountered major turbulence and headwinds as a result of the financial crisis and has de-leveraged extensively in response to a more risk-sensitive environment. Significant changes in financial regulation are underway. Global regulators under the auspices of the Financial Stability Board, the Basel Committee on Banking Supervision, are working to put fractured financial markets back on a sounder footing. These changes include increasing the quality and quantity of risk-based capital, introducing new global liquidity requirements, and developing a fresh regulatory approach towards systemically important financial institutions. Such reforms should bring about greater stability to the global financial system. 9. These changes will not be dramatic for Singapore-based financial institutions because MAS’ regulation and supervision have been sound, prudent and effective. This has helped our financial system to remain resilient through the crisis. Last week, MAS communicated our long-standing approach in the latest monograph – “Tenets of Effective Regulation” where we reiterated that our approach to regulatory development is outcomefocused, risk appropriate and impact sensitive. MAS’ policies and actions need to be clear and consistent as well as responsive to industry and market changes and economic cycles. | 0 |
And they have started to assess exposures to transition risks where government policy is already pulling forward the adjustment. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles, and buy-to-let lending given new energy efficiency requirements. But many banks have some way to go to identify and measure the financial risks from climate change comprehensively. This requires strategic board oversight and more dynamic scenario analysis so actions today can be considered in light of future impacts. Informed by these findings, the PRA published in October a draft supervisory statement for banks, insurers and investments firms which sets out expectations regarding firms’ approaches to managing the financial risks from climate change.8 The supervisory statement gives guidance in four key areas: governance, risk management, scenario analysis, and disclosure. Recognising the need to build capacity and to develop best practice, the PRA is establishing a Climate Financial Risk Forum, jointly with the FCA, to work with firms from across the financial system to advance approaches to managing climate-related financial risks. And the Bank of England is working in close collaboration with central banks and supervisors from around the world as one of the founding members of the Network for Greening the Financial System (NGFS). The NGFS brings together authorities from jurisdictions responsible for almost half the world’s emissions to share analysis and develop policies to climate-related risks and green finance. A4S A4S has long recognised that the business community needs to consider the risks and opportunities presented by climate change. | Macroprudential is no longer the policy that dares not speak its name. To safeguard these hard-won reforms, Europe now has a Single Supervisory Mechanism and European Systemic Risk Board. The Bank of England now houses the Prudential Regulation Committee and the Financial Policy Committee. The independence of these committees and their accountability to the people they serve through their respective parliaments are essential bulwarks against the inevitable recidivism that follows a financial crisis. The longer we go without disruption the more important it is to remember, remember that when it comes to financial stability, success is an orphan. Since the crisis, macroeconomic outcomes have been much less benign. Growth in both the euro area and the UK has been, on average, a percentage point lower; and inflation has been twice as volatile. There has been a persistent margin of spare capacity, with unemployment, on average, 1-1½ percentage points higher. But there have also been important differences. While the euro area has continued to experience ‘divine coincidence’ the UK has not (Chart 1). In the euro area, inflation has averaged half a point below target, reflecting in part the drag from persistent slack in the labour market. In contrast, UK inflation has been above target, averaging 2.3%, during a period where the economy was operating well below potential. That reflects the inflationary impacts of two large exchange rate depreciations and weak productivity that have offset a major positive shock to labour supply. | 0 |
The Credit Guarantee Corporation is a key institutional arrangement in facilitating greater access to financing by the SMEs. By providing guarantee to loans obtained by SMEs, CGC addresses one of the main constraints of SMEs that is the lack of collateral. Bank Negara Malaysia, as the largest shareholder of CGC, is committed to ensure that CGC is in a position to have an effective role. Towards achieving this, RM1 billion was injected into CGC in 2000 to enhance its financial capacity to provide guarantees. In 2005, a process to transform CGC was initiated to enhance its role and to expand its range of products and services offered. The aim is to position CGC as not only a provider of credit guarantees, but as an important institution that enhances the ability of SMEs to obtain financing from the financial institutions, in particular, through the provision of wider credit enhancement products, advisory services on financial and business development and credit information services. In 2006, CGC has shown commendable progress in this transformation process. Indeed, the strategic partnership that is being entered today between CGC and Islamic financial institutions is part of the initiative for CGC to expand the outreach of its products. This strategic partnership between CGC and Islamic financial institutions is an important milestone as it brings together the two important objectives of the Government, namely enhancing SMEs' access to financing and promoting the growth of Islamic finance. Islamic finance has now not only experienced significant growth but is becoming more internationally integrated. | To date, more than 14,000 SMEs have registered in the SME Business Directory of the Portal. In strengthening the financial infrastructure for SMEs, Bank Negara Malaysia has also established the Small Debt Resolution Scheme where viable SMEs that are constrained by non-performing loans are assisted through loan restructuring and the provision of additional funding. In addition, through EXIM Bank, two new trade financing products for SMEs have been introduced in 2006. The Census that was completed in 2005 had however, indicated that about 80% of SMEs are micro enterprises which had limited access to financing from the formal financial system to maintain and expand their businesses. To meet the financing needs of this key segment of the SMEs, microfinancing has now been established in our financial system. A number of financial institutions are participating in providing fast, flexible and convenient access to financing to individuals and micro enterprises for their business activities. The various measures that have been undertaken have now already yielded positive results. SMEs today have had greater access to financing, with the banking institutions being the main source of financing. In 2006, RM40 billion in new loans was approved to more than 84,000 SME accounts. Of this, the Islamic banking institutions provided RM5 billion in new financing, compared with RM3 billion in 2005. The share of SME loans of the banking institutions has increased from 30% of total business loans at end-1999 to 45% at end-2006. Total SME outstanding loans of the banking institutions have now breached the RM100 billion level in 2006. | 1 |
Stress test results for the banking sector reveal the resilience of the sector as a whole in case adverse macroeconomic scenarios materialise, yet the impact of the interest rate risk on the banking sector is notable, owing to the balance sheet structure featuring longer asset duration. The analysis of interest rate-sensitive assets and liabilities shows a potential loss of 13.69 percent of own funds, assuming a standardised/uniform shock of 200 basis points on the term structure of interest rates (the analysis takes into account a parallel upward shift in the yield curve). The impact would result, ceteris paribus, in a potential decline in total capital ratio at system level by up to 2.6 percentage points (Figure 10). 2 Liquidity ratios for the banking sector continue to post, on average, significantly higher levels than the minimum requirement. The average liquidity coverage ratio (LCR) at aggregate level is 239 percent (September 2017), standing above the EU-wide average of 145.6 percent (June 2017). The LCR ratio (Figure 11) confirms that the Romanian banking sector holds a stock of quality liquid assets adequate to withstand a stress scenario for a 30day period. However, the immediate liquidity ratio calculated as the ratio of cash and bank deposits at net value and unpledged government securities to total liabilities – the minimum prudent level being 30 percent – fell marginally to 38 percent. | Yves Mersch: Risk management in times of non-conventional monetary policy Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Joint Bank of Portugal and European Central Bank Conference on “Risk Management for Central Banks”, Lisbon, 25 September 2017. * * * Let me start by thanking you for coming to this joint ECB-Banco de Portugal conference, and the Banco de Portugal for hosting us on this occasion. I am delighted to see central bank risk managers, practitioners and academics here in Lisbon to exchange views on risk management for central banks. This topic has gained such importance in recent years as central banks across the globe, including the ECB, have sharply expanded their balance sheets, even though the time for ever more of the same is behind us. Like the many great maritime expeditions that started out from this country, some of our endeavours in recent years have taken us into uncharted territory. Now is a good time to take stock of what we have learnt and map out what may come next. Following stable principles in the Eurosystem’s risk management framework The Eurosystem has a clearly defined objective, enshrined in the Treaty, to preserve price stability in the euro area.1 The Treaty does not speak of eligible counterparties, collateral haircuts or issue share limits for bond purchases. | 0 |
Small risk of a crisis on the Swedish property market In recent years, we have once again seen rapid price increases for commercial properties in Sweden. These prices have now begun to fall, however, and the question is whether this can lead to major loan losses for the banks in the same way as it did during the crisis of the 1990s (see Figure 11). The current downturn is after all much worse than that of the 1990s. I do not believe, however, that the effects on the property market will be so serious. The years prior to the property crisis of the 1990s were marked by a rapid rise in the price of office premises. This was mainly a result of the deregulation of the credit market as a pent-up demand for loans led a rapid expansion of credit. A large part of the loans went to the property sector, where optimism was high as a result of the favourable situation on the market for office premises. The good times on the property market signalled the start of a construction boom. However, when the downturn came, prices fell and real interest rates 6 It is important to point out here that the statistics regarding property prices in the Baltic states are not complete and difficult to access, which may make if difficult to get a fair picture of the situation. This may mean, therefore, that both the dramatic increases and the substantial decreases that we are now seeing are exaggerated. | That is why, as I explained in my letter to the Chancellor, we believe that a slowdown in the economy this year, creating a margin of spare capacity, will be necessary to dampen price and wage pressures and ensure that we fulfil our remit by returning inflation to the target. And growth is now slowing quite sharply – broad money growth is falling, business surveys point to particularly weak output growth in the second quarter and growth is likely to remain subdued for the rest of the year. Where Bank rate will ultimately need to move to bring inflation back to target is impossible to judge now. Decisions on Bank Rate will be made one month at a time in the careful way that the MPC has developed over more than ten years. But there should be no doubt that the BIS Review 79/2008 1 MPC is prepared to take whatever action is needed to return inflation to the 2% target and to keep expectations of inflation in the medium term anchored to the target. The fact that growth and inflation are heading in opposite directions has led some commentators to question our monetary framework. Target growth not inflation is the cry. I could not disagree more. This is precisely the situation in which the framework of inflation targeting is so necessary. Without it, what should be a short-lived, albeit sharp, rise in inflation, could become sustained. | 0 |
But, like many others, I see a role for professionalism in finance. The Banking Standards Board in the United Kingdom is a thought leader in this field. According to its most recent annual review, which I recommend to you all, “[P]rofessionalism comprises the attitudes, judgement and high standards of behaviour, knowledge and skill expected of individuals working in banking. . . . [G]reater professionalism in banking would help create a sector that, now and in the future, better met the needs and expectations of its customers, clients, members, employees, the economy and wider society.”14 In my view, various aspects of professions have a lot to offer. The eligibility requirements for many professions improve the likelihood that a practitioner will meet standards of competence and behavior in her professional conduct. These requirements cover character, prior record, and reputation—not only skill or education. Members of professions also benefit from codes of conduct that transcend specialized practices. These principles offer an ethical framework within which to tackle problems that are not easily resolved by narrow rules or processes. They make it easier to make and stick with good decisions. Gatherings in which members of a profession can come together and exchange ideas and opinions are crucial. They help members of a professional community keep up to date on important industry-wide developments and raise issues that present the need for collaboration. They also help to instill a shared sense of purpose and responsibility for carrying out the goals of the profession. A profession can also provide personal accountability. | This is good professional advice 6/7 BIS central bankers' speeches as well.”). 11 See supra n.4. 12 See Dan Awrey, William Blair, and David Kershaw, “Between Law and Markets: Is There a Role for Culture and Ethics in Financial Regulation?” 38 Del. J. Corp. L. 191, 208 (2013) (“Proximity is a measure of the physical, psychological, social, or cultural distance between a decision-maker and those whom their decisions affect.”). 13 Tim Besley and Peter Hennessy, Letter to Queen Elizabeth II (July 22, 2009), (“So in summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”). 14 Banking Standards Board, Annual Review 2017/2018. 15 See Dudley, supra n.6; Michael Held, Reforming Culture and Conduct in the Financial Services Industry: How Can Lawyers Help? Remarks at Yale Law School’s Chirelstein Colloquium (Mar. 8, 2017). 16 See Preet Bharara, Criminal Accountability and Culture, Remarks at the Federal Reserve Bank of New York’s Conference: Reforming Culture and Behavior in the Financial Services Industry: Expanding the Dialogue (Oct. 20, 2016), (“here would be less corporate crime and less painful consequences arising from the crime that does occur if more people said something early on rather than remain silent or look the other way.”). | 1 |
Thomas Jordan: Comments on Swiss monetary policy Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 108th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 29 April 2016. * * * Mr President of the Bank Council Dear Shareholders Dear Guests Our last ordinary general meeting was dominated by the discontinuation of the minimum exchange rate. The past year has been a difficult one, with the Swiss economy once again demonstrating great flexibility and adaptability. It was also a year during which there has been broad discussion in the public arena of the monetary policy of the Swiss National Bank. It is essential that the judgements we make and the measures we take are fully understood, if our monetary policy is to be effective and trust is to be maintained in the SNB. In my comments today I would therefore like to outline once again our current monetary policy and our views on key issues. I shall divide my speech into two parts. First, I will talk about economic developments and briefly recap our reasons for discontinuing the minimum exchange rate. Then I will take a look at the current economic situation. In this context, I will discuss our mandate of ensuring price stability. I will conclude this part by looking ahead to the challenges that face us in the future. | These characteristics constitute a challenge for policymakers in that key economic variables are prone to volatility, being highly sensitive to external events and to shocks in specific sectors or individual enterprises which, though small in absolute terms, can have a disproportionately large impact in a small country context. Such an economy clearly stands to benefit from joining a monetary union, particularly in terms of greater stability and policy credibility. 1 From a central banker’s viewpoint, moreover, a key advantage is the elimination of the risks inherent in managing a small, vulnerable currency. Permanently fixing the Maltese lira / euro exchange rate, moreover, did not appear to be a radical change. The ECU, and since 1999, the euro, had in fact been the main reference currency in the exchange rate baskets since 1989. By 2002 the euro already carried a weight of 70%. Furthermore, Malta’s only devaluation, which took place in 1992, confirmed that exchange rate adjustments are not the most effective means for safeguarding an open economy’s competitiveness. The initial advantage derived from the devaluation was soon reversed, owing to the inflationary impact of compensatory wage increases resulting from a partial wage indexation mechanism and the high import content of inflation. If anything, the irrevocable fixing of the exchange rate and the economic policy co-ordination and monitoring procedures of EMU seemed to offer a congenial environment for implementing the structural changes necessary for a lasting improvement in the country’s international competitiveness. | 0 |
In these firms, formal policies and procedures do not reflect “the way things are really done.” The stated values of the organization are not reflected in senior leader behaviors and actions of the 2/5 BIS central bankers' speeches organization’s members, and misconduct results from norms and pressures that drive individuals to make decisions that are not aligned with the values, business strategies, and risk appetite set by the board and senior leaders. Employees do not speak freely when they have concerns, and senior managers or the board of directors do not find out about improper conduct until it is uncovered by the authorities. Rules may be followed to the letter, but not in spirit. All of this increases misconduct risk and potentially damages the firm and the industry over time. Like other forms of tangible and intangible capital, firms must invest or its capital will deteriorate over time and adversely impact the firm’s productive capacity. To be clear, cultural capital is not loss absorbing like equity capital, but it can be loss preventing by influencing decisions, behaviors, and outcomes over time. Market Failures and Misconduct Risk If this is the case and misconduct risk is bad for the firm, some obvious questions follow: Why don’t firms invest in cultural capital and reduce the risk themselves? Why do regulators and supervisors need to get involved? I believe firms are ultimately responsible for these decisions and we do observe progress. | Philipp M Hildebrand: Ten theories on the economic relationship Switzerland Europe Summary of a speech by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, to the Arbeitgeberverband Basel, Basel, 8 September 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The relationship between Switzerland and the EU is close in so many ways that it appears almost stronger than that among many member states themselves. The debate on a possible integration into the EU as a logical consequence should be as broad-based as possible. Economically speaking, the issue has become more pressing since the introduction of the euro, as Switzerland is now surrounded by a single-currency area. Switzerland’s weaker economic growth is also frequently quoted as an argument in favour of integration, since the necessary domestic structural reforms would then be easier to realise. However, one tends to overlook the fact that the national authorities would continue to be responsible for implementing reforms and that, moreover, the absorption potential of autonomous monetary and fiscal policies would be forfeited. Even with an independent policy, Switzerland is in a position to outperform if it again focuses on its strengths of flexibility and openness. The independent monetary policy has helped to keep inflation in Switzerland at a low level for decades. This and the diversification properties of the Swiss franc make capital cheaper in Switzerland by approximately 1.5 percentage points (interest premium). | 0 |
The successful operations of both Macedonian Interbank Payment System (MIPS), the RTGS system of which the central bank is both the owner and operator and Klirinski Interbankarski Sistemi Skopje (KIBS), of which the central bank is the settlement agent, have contributed to a high level of confidence throughout the years and have a positive effect on the stability of the banking and financial system and the economy as a whole. To conclude, commercial banks transferring among them funds held in accounts with central banks have facilitated the proper functioning of the banking and financial systems and mitigated disruptions and instability globally. This historical development has been accompanied with a slow, but steady movement towards a higher velocity of money circulation. Settling payments in accounts at the central bank still provides the link with the two main tasks of monetary policy and financial stability. While steering monetary conditions the central bank cooperates with commercial banks and thereby reduces transaction costs. This reality is a layered architecture in which central bank money is the ultimate settlement asset in the economy. The positive network externality is best described by referring to the risk reduction, service assurance and competitive neutrality the central bank provides. Using money held in accounts at the central bank to effect payment is generally regarded as risk free, service is assured even in extraordinary times of global and domestic crises, while using the central bank as a hub ensures that payment systems’ participants are not forced to rely on actual or potential competitors for payment. | Let me devote the central part of this welcome speech to these different, yet interrelated links. Monetary policy impulses are transmitted from those financial institutions that have a direct relationship with the central bank to other institutions and households. The central bank typically conducts its monetary policy only with designated financial institutions, mostly commercial banks rather than with other economic agents. As a result other economic agents rely on the designated financial institutions that have a direct relationship with the central bank. The functioning of the transmission relies on the smooth functioning of payment infrastructures enabling transactions of these institutions with the central bank, as well as amongst themselves at the interbank market. If the operation of payment systems is underdeveloped, these designated financial institutions choose to keep a relatively large buffer of central-bank money to help them manage their liquidity, which in turn leads to weaker than intended monetary-policy impulses from the central bank. But in general, after the payment systems in the economy have reached a certain threshold, the influence of the payment systems on monetary policy needs to be assessed not by efficiency alone, but by reference to the velocity of money, defined as the average frequency with which a unit of money is spent in a specific time, under the assumption of a given money supply. Velocity of money circulation is endogenously determined by the economic agents’ decisions regarding liquidity holding, lending, borrowing, investing, consumption and labour. | 1 |
This pan-European solution would be a major step forward that would help European banks withstand the challenges posed by the BigTechs. There is also another important area where we need to make headway: reducing the cost and speeding up the execution of cross-border payments by identifying concrete and useful solutions. Our aim should notably be to harmonise the technical standards used for transfers of funds, and to enhance the interoperability of payment systems and solutions. Between now and the autumn, the FSB, under the aegis of the G20, will propose concrete measures to make cross-border, extra-European payments significantly cheaper and faster. I shall turn now to a topic that is a major challenge for the future of the international monetary and financial system: the possible creation of a central bank digital currency (CBDC). The creation of a new form of currency by central banks goes beyond the challenges I have just mentioned: it is neither a precondition for nor a guarantee of more efficient payments. However, we as central banks must and want to take up this call for innovation at a time when private initiatives – especially payments between financial players – and technologies are accelerating, and public and political demand is increasing. Other countries have paved the way; it is now up to us to play our part, both ambitiously and methodically. To this end, the Banque de France is to be reorganised. | Confidence first and foremost in the currency: everyone will be free to use the payment instrument of their choice, and that still includes cash. Confidence, as well, in the ability of financial institutions to finance the economy. And the ACPR will continue and step up its efforts – notably through its FINTECH Innovation unit – to monitor all innovations that impact these methods of financing. Thank you for your attention. 4/4 BIS central bankers' speeches | 1 |
Funds investing in less liquid instruments have grown quickly at the same time as market liquidity has gone in the other direction. Market liquidity, particularly in dealer intermediated markets is lower than in the decade before the crisis. 12 Banks’ risk appetite and business models have changed and regulation has ensured that they are adequately capitalised for the risks they run as market makers. In 2015 the Bank of England and Financial Conduct Authority conducted a joint information-gathering exercise on 17 asset management firms and 143 of their funds, focusing on those with large holdings of corporate bonds. One key finding was that funds individually were assuming more liquidity than might be available if there was market-wide selling pressure. For example, in the dollar corporate bond market, funds’ individual expectations of what could be liquidated in a day, when aggregated together, was three times daily market turnover. 13 The risk of sharply falling markets triggering large-scale redemptions is exacerbated by the fact that many retail funds offer investors daily liquidity, regardless of the nature of the fund’s investments. Individual funds do of course have a variety of mechanisms – ‘gates’, penalties, discounts, suspensions, etc – to help manage large-scale redemption pressure. But in an episode of severe market stress, it is not at all clear whether activation of such mechanisms by funds under stress would dampen rather than amplify redemption pressure across the market more generally. | See for example, Allard and Blavy (2011): “market-based economies experience significantly and durably stronger rebounds than the bank-based ones (in particular the more bank-based economies of continental Europe).” 5 Carney (2014) 6 In contrast, at Northern Rock over the second half of 2016 retail and wholesale deposits each fell by nearly 60%. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 In a major crisis, market-based finance might therefore be expected to be a materially less disruptive way of passing very substantial losses back to end investors than bank lending. This is particularly true in the case of international capital flows where bank lending across borders, particularly short term inter-bank lending, can create an explosive channel of transmission of systemic risk from one jurisdiction to the next if banks do not have the resilience to absorb major losses and authorities are not able to resolve them safely if they fail. 7 It is no accident that the ECB identified market-based finance as an important risk sharing mechanism between euro area countries and encouraged the development of an EU Capital Markets Union. 8 Risks in market-based finance I have noted the trend in market-based finance away from the activities that amplified stress during the financial crisis. And I have tried to explain why, viewed through the lens of financial stability, I see major benefits in a strong market-based channel of finance. | 1 |
Nearly 50 percent of Texas public schoolchildren are Hispanic, but only 38 percent of high school graduates are Hispanic. Some 54 percent of non-Hispanic whites and 48 percent of non-Hispanic blacks age 18 to 24 with a high school degree were in college in 2008. The percentage of Hispanics was only 43 percent. Within the age cohort between 25 and 64, only 14 percent of native-born Texas Latinos have college degrees; 23 percent of native-born Hispanics in Texas age 25 to 64 are high school dropouts. No matter how you slice it or dice it, it is glaringly clear that Hispanics in Texas are failing at school. This must be corrected. If not, they will continue to trail in economic achievement. And all of us – white, black, Asian-American, Hispanic or non-Hispanic – will suffer the consequences of economic underperformance. Texas is a remarkable place. We embody the “can do” spirit. My favorite Texas historian is T.R. Fehrenbach. I recommend his book, Lone Star: A History of Texas and the Texans, to anybody who wishes to understand what makes this place unique. | in the product, services and labour markets, healthcare and social insurance systems etc. For Estonia the adoption of the euro is the only logical step and the overarching policy priority. In this context, we would like to emphasize that it is in the interest of the whole European Union that the Euro Area enlargement takes place in accordance with the clear set of well known rules while the criteria are applied, in line with the Treaty provisions, on an equal and economically meaningful manner. The countries joining should have a proven track record to fare well under the common monetary policy. This being the case, the Euro Area membership would fasten the catch-up process in these countries and strengthen the countries' ownership in the EU-wide macroeconomic co-operation at large. Macroeconomic stability and economic flexibility are prerequisites for the new Member States to ensure that investment in physical and human capital is sustained and outlays for research and development further increased. Higher growth and stronger policy coordination on the EU level will also strengthen the social dimension of enlargement. BIS Review 60/2006 1 | 0 |
That is designed to underpin incentives for banks to manage liquidity risk prudently, in the long-run interests not only of the banking system but of the wider economy. We have published a schedule for DWF pricing with those properties, structured around four broad classes of collateral, grouped according to their liquidity/risk characteristics. 17 We plan, after consultation, to introduce an auction structure for the wider-collateral long-term repo OMOs that delivers the same broad result of counterparties having to pay up to borrow against less liquid collateral. 18 16 The Bank published its general approach to collateral valuations when it disclosed use of the Special Liquidity Scheme. It stated: “Securities are valued by the Bank using observed market prices that are independent and routinely available publicly. The Bank reserves the right to use its own calculated prices, including where such independent market prices are unavailable. Those calculated prices are designed to deliver valuations taking account of securities’ contracted cash flows and yields of comparable securities, but not individual loan-byloan analysis of portfolios. To account for the risk that a calculated price is an over-estimate of what a market price would have been had it existed, an additional haircut is added. The Bank’s valuation of all securities is binding.” For more details, see the Market Notice for the Special Liquidity Scheme released on 21 April 2008. www.bankofengland.co.uk/markets/sls/index.htm. | The final brushstrokes entail developing tools that will, if applied, restrict the benefits accruing to nonresidents as a result of our having higher interest rates than our trading partners. The precise structure of this will come clear in the next few months, but possibilities include some form of taxation or a special reserve requirement. 2 Central Bank of Iceland Special Publication no. 4: Monetary policy after capital controls, December 2010 and Central Bank of Iceland Special Publication no. 6: Prudential rules following capital controls, August 2012. http://www.cb.is/publications/publications/special-publications/ BIS central bankers’ speeches 5 I have now reviewed the multiple crossroads that I mentioned at the outset. Each one of them poses a challenge for monetary policy. But it is not least the interactions among them and the timing that make monetary policy so unusually complicated at present. For instance, it would be much easier to cope with capital inflows if domestic economic developments did not call for a tighter monetary stance at this juncture. The oft-quoted Chinese blessing – or curse – “May you live in interesting times” – continues to follow us. Thank you. 6 BIS central bankers’ speeches | 0 |
And the ECB worked with the Bank of England, the Federal Reserve and the Bank of Canada amongst others on a network of central bank swaps to make liquidity available in G10 currencies across a range of jurisdictions. The Bank of England’s initial response was not as comprehensive as that of the ECB, not least because its framework for providing liquidity lagged market developments. Once under pressure, the Bank could neither stabilise overnight rates nor support the banking system. Fortunately, in the jaws of the crisis, the Bank innovated rapidly and admirably to avoid the collapse of the system. In 2013, following the Winters review, we overhauled our facilities drawing on the ECB’s example and made it clear the Bank was ‘open for business’. Facilities were made cheaper, available at longer terms and 11 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 11 against a much broader pool of collateral. We also begun a broadening access to our facilities both within the banking sector and beyond it to reach central counterparties and large broker dealers. The most recent addition to the toolkit came in March of this year when the Bank launched a new Liquidity Facility in Euros (LiFE) as part of our Brexit contingency planning. This is backstopped by the swap line between our two institutions, and underpinned by our open communications and effective supervisory cooperation. | In the decade prior to the crisis, in both the euro area and the UK, inflation was low, stable and predictable. Inflation targets were achieved without causing undesirable volatility in output and employment, the so-called “divine coincidence”.1 Both regions experienced continuous expansions in activity. It is not entirely surprising that “end of history” declarations of the Great Moderation were increasingly commonplace. But such nominal stability masked growing financial imbalances and increasing strains in competitiveness. The financial crisis would expose how a healthy focus on price stability had become a dangerous distraction. Central banks had won the war against inflation only to lose the peace. When the music stopped, the consequences for the real economy were dire. In both the euro area and UK, output fell by around 6% and unemployment rates rose initially by 2½ percentage points. It took 7 years for GDP per capita to recover to pre-crisis levels. In response, the financial system and the institutional architecture have been fundamentally reformed. The capital requirements of large global banks are ten times higher than the pre-crisis standard. Liquid assets – 1 See Blanchard, O., and J. Galí (2007). "Real Wage Rigidities and the New Keynesian Model". Journal of Money, Credit, and Banking, 39(1), pp. 35-65. 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 relative to liabilities that can readily run – are also tenfold higher now than before crisis. We are ending too big to fail and transforming the resilience of financial market infrastructure. | 1 |
What we learned as a result of this experience was, among other things, that years of historic data on fixed-income market yields and spreads could not have anticipated the size of the movements in credit spreads that in fact occurred in August and September. We also learned that markets that did not previously move together can suddenly do so, that trends that were under way for several years can abruptly come to an end, and that spreads that have been consistently narrow for years can suddenly widen. In the wake of these events, we have become all too aware that liquidity can be illusory – that individual traders may be able to exit a position when they wish but that not all traders can exit their positions at the same time. For many, these lessons have been humbling. Going forward, it is important to bear in mind that there most certainly will be further instances when the credit intermediation process is disrupted, when we will face other threats to the wellbeing of our market positions, our institutions and the global economy. These risks are in the nature of the intermediation process itself. As the global capital markets continue to grow and become ever more sophisticated – as I believe they will – what is most important for us as central bankers is to operate with a disciplined sense of priorities. It is clear that we as central banks cannot be responsible for any single bond holder, any single bank or any single financial institution. | The banks play a central role in financial stability as the majority of payments go through the bank system. The Swedish banks fund half of their borrowing through deposits from the general public and half of it through loans from one another and on the financial markets. If problems arise that prevent the banks from obtaining funding by borrowing from one another or on the financial markets, they can borrow from the Riksbank. The Riksbank is what is usually known as the lender of last resort. Figure 6 TED spread Difference between 3-month interbank rates and government security rates Basis points 500 450 400 500 Sweden Euro area USA 450 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Sources: Reuters EcoWin och Riksbanken. 6 BIS Review 160/2009 During the financial crisis several financial markets ceased functioning. The banks’ confidence in one another declined and they became unwilling to lend to one another. Developments during the crisis can be illustrated by, for instance, the so-called TED spread, the difference between the interest on three-month interbank loans and three-month treasury bills. As confidence between the banks declined, the TED spread increased during the crisis and peaked when Lehman Brothers fell (Figure 6). | 0 |
For example, CXA Group, a health technology start-up established in Singapore, is expanding its services to China and is planning to partner Shanghai Zhongheng Insurance Brokers for its China expansion. There is scope for collaboration to enhance our mutual understanding of new business models and assist in negotiating regulatory hurdles for these companies. 16 One important aspect of enhancing the eco-system is the enrichment of the range of financing opportunities for FinTech companies. Venture capital (VC) managers are an essential component of the start-up eco-system, providing capital as well as expertise to start-ups and early growth businesses. China already has the largest concentration of VC funding globally2. Singapore also hopes to create a conducive environment for VCs by simplifying the approval process and regulatory regime for VC managers. At the same time, we hope to expand the range of funding options to cater to the varied needs of companies at different stages of development. Finally, there is also room to deepen information and knowledge exchange between Shanghai and Singapore industry participants. To this end, MAS and the Shanghai Financial 17 Services Office are discussing a customised training programme to encourage mutual exchange between financial sector players. Through such exchanges, industry participants can get a better understanding of each other’s markets and enhance their knowledge of specialized topics. 18 And this marks only the beginning of our long-term relationship. | Jacqueline Loh: Strengthening Shanghai-Singapore cooperation – anchoring stability and seizing opportunities Welcome address by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at the 3rd Singapore-Shanghai Financial Forum, Singapore, 12 April 2017. * * * Shanghai Municipal Government, Deputy Secretary General Mr Jin Xingming Shanghai Municipal Financial Services Office, Director General Dr Zheng Yang Distinguished Speakers and Guests Ladies and Gentlemen Introduction 1 Good morning, and welcome to the 3rd Singapore-Shanghai Financial Forum. It is a great pleasure to welcome our good friends from Shanghai, as well as our strong representation of local stakeholders joining us at the forum today. Uncertainty is the New World Order 2 The second edition of the forum was held in November last year. Since then, global economic activity has firmed, led by robust consumption in the US and a pickup in China’s underlying growth momentum. The Eurozone and Japan have also registered steady expansions on account of stronger domestic demand and exports, respectively. Concurrently, the turnaround in commodity prices last year, followed by an IT upswing in Q4, have improved the prospects for emerging markets, including the trade-dependent economies here in Asia. A range of indicators have picked up in tandem with the strengthening of manufacturing and trade in the region, and forward-looking surveys reaffirm a continued mild improving trend into 2017. Within the region, domestic demand has generally been resilient and overall growth this year will receive additional support from the stronger performances of export industries. | 1 |
The meeting of the Heads of State and Government of the euro area, held at the Elysée Palace on 12 October, with the participation of the President of the ECB, provides Europe with a structured and coherent framework: • possibility of recapitalising banks; • guaranteeing new medium-term bank debt (1-5 years), via, in France, a EUR 320 billion funding vehicle; • revisiting the accounting rules, with the recent reforms of the IASB – international accounting standard-setters – and introducing greater flexibility in mark-to-market accounting rules, allowing assets for which there is no longer a market to be valued at amortised historical cost. Moreover, the European Investment Bank will be mobilised to support European SMEs. Lastly, long-term discussions will commence on the best way to regulate finance and how it may better serve economic development. 2 BIS Review 129/2008 3. The position of French banks and credit Our banks are not immune to the crisis. They have direct exposures, in particular through US monoline insurers. They have had to make sometimes substantial write-downs. They are also impacted indirectly by the seizing up of certain markets and the rise in their refinancing costs. That said, our banks are sound and profitable. It is worth recalling four facts that, in the current period of turmoil, are often overlooked: • The solvency ratios of French banks are high, and much higher than the minima imposed by the prudential regulation. | 5 de octubre de 2017 Presentation of the III Seminar in Economic History Banco de España Luis M. Linde Governor Good morning and welcome to the Banco de España for our III Seminar in Economic History. The Seminars in Economic History organised by the Banco de España were launched three years ago, in 2015. The first one was held on the occasion of the retirement of Pedro Tedde de Lorca, who for many years was the member of the Directorate General of Economics and Statistics in charge of the Economic History programme and that, by the way, has been recently elected as a member of the Spanish Royal Academy of History. Last year, in October, we celebrated the second edition of the Seminar. The main purpose of these seminars is to bring together economic historians from academia and economists from the Bank to engage in research into economic episodes of the past with relevance for the economic problems of today. For many years the Banco de España has devoted substantial resources to research in economic history. This tradition goes back to the mid-1960s when a project was launched to publish, in one volume, a series of essays tracing the origin and development of the Banco de España, one of the oldest banks of issue, originally established in 1782 as “Banco de San Carlos”. The result was El Banco de España. Una historia económica and Ensayos sobre la economía española a mediados del siglo XIX, both published in 1970. | 0 |
The combination of those 3 trends is translating into activities and services that first swept into the payment sector and are now spreading more broadly. Among them, socalled decentralized finance, DEFI, is emerging as a crypto-based alternative to traditional finance, where the provision of services is claimed to be disintermediated and their governance decentralized, and is enabled notably by permissionless blockchains, smart contracts and decentralized apps. Digital innovation therefore acts as centrifugal forces: they aim to create a movement of decentralisation that runs counter to the traditional architecture of the monetary and financial edifice, centralised around trusted institutions –the central bank, credit institutions and market infrastructures-. Second, these decentralisation forces might have a two-sided impact on the functioning of our financial system, both in terms of efficiency and stability. 1/3 BIS - Central bankers' speeches From an efficiency perspective, they can bring in particular more transparency, costefficiency and availability around the clock. But they bring also a risk of fragmentation of processes, if the blockchains are not interoperable and cannot also smoothly interact with legacy, centralised, clearing, settlement and payment systems. From a stability perspective, it is clear that currently the crypto ecosystem is not large enough and interconnected enough to threaten the stability of the whole financial system, as shown by the modest impact on mainstream finance of last year's turbulences, in the wake of the Terra-Luna and FTX conglomerate collapses. But these collapses did have significant negative spillover effects within the crypto ecosystem. | Denis Beau: The perils and potential of digital currencies Introductory remarks (virtual) by Mr Denis Beau, First Deputy Governor of the Bank of France, for the panel discussion on "The perils and potential of digital currencies", at the RAID (Regulation, Artificial Intelligence, Internet & Data) Digital 2023 on "Bridging Parallel Lines", 3 May 2023. *** In order to set the scene, let me: Put CBDC and stablecoins discussions and developments into the broader perspective of the transformation underway of financial services and of the financial sector. Highlight the regulatory and supervisory issues they raise from a central banker perspective, from the perspective of an institution in charge of ensuring monetary and financial stability. To do this, I would like to make three points: First, CBDC and stablecoins are the prominent and most publicized output of the 3 major disruptions of finance that digital technologies are bringing about, namely: The arrival of new players, big techs and fintechs, which to date, have been subject to little or no regulation. The emergence of new forms of investment and settlement assets in tokenized form, usually referred to as crypto-assets. Bitcoin is emblematic of a first generation of highly volatile cryptos, whose use remains essentially speculative. The second generation, stablecoins, aims to provide a broader range of services possibly with a global reach, with the support of mechanisms to stabilize their value against sovereign currencies. The emergence of decentralized market infrastructures, based on DLT and blockchains in particular. | 1 |
During the crisis, the impaired banking system and dysfunctional corporate debt markets muted the transmission of monetary stimulus and led to inefficiencies in risk-sharing and capital allocation. Ultimately, companies and households bore a heavy cost. Strains in monetary policy transmission were particularly pronounced in the euro area, where the fragmentation of markets along national lines meant cuts to the ECB’s policy rates were not passed through equally in all countries. Households and companies of comparable credit worthiness faced different borrowing rates depending on their location. These problems worsened over 2012, when markets began to price in some redenomination risk in a few euro-area countries. It fell to Benoît and his fellow members of the ECB’s Governing Council to fix the problem. 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 Throughout the crisis, the ECB rightly and swiftly injected huge quantities of additional reserves into the system, as asset-backed commercial paper and the interbank markets dried up. In response to the worsening sovereign debt crisis in 2012, the Governing Council created Outright Monetary Transactions, a programme whose very existence eliminated the unwarranted and self-reinforcing fears of a euro-area break-up and restored sovereign bond spreads to levels more consistent with credit rather than currency risk. During this time, Benoît added his voice to the calls for a capital markets union, not least because it would broaden the transmission mechanism and increase the potency of monetary policy. He also recognised that the ECB’s actions could only tackle the symptoms of financial market fragmentation. | These two regulations must naturally be enhanced by proposals on the deposit guarantee fund and the crisis resolution mechanism, which are the two other essential pillars of the banking union. The ECB, and all the other national authorities concerned, must now continue the preparatory work so that the Single Supervisory Mechanism can become operational as soon as possible. The Banque de France and the ACP provide an important contribution and intend to play an active role in the new mechanism. This is particularly the case given that around a dozen major French banking groups will be subject, according to the criteria set out in the regulation, to direct supervision by the ECB, even though the ACP will remain responsible for day-to-day supervision. 2. Resolutely pursuing efforts to strengthen the resilience of the financial system by preparing for and implementing new regulations The international financial regulatory framework evolved substantially in 2012, and will continue to do so in 2013. It is therefore particularly important to adapt to these changes. 2.1 The insurance sector must continue, in France and Europe, to prepare itself for the application of the new prudential regime, Solvency II Admittedly, 2012 was marked by tough discussions about the Omnibus II Directive and in particular the question of the treatment of insurance products with long-term guarantees. These discussions were unfruitful and will delay the entry into force of Solvency II. | 0 |
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