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Brooke, M, et al (2015), ‘Measuring the macroeconomic costs and benefits of higher UK bank capital requirements’, available at http://www.bankofengland.co.uk/ financialstability/Documents/fpc/fspapers/fs_paper35.pdf. Elliott, D (2013), ‘Higher bank capital requirements would come at a price’, The Brookings Institution, February, available at http://www.brookings.edu/research/ papers/2013/02/20-bank-capital-requirements-elliott. FSA (2011), ‘The Failure of the Royal Bank of Scotland’, Financial Services Authority Board Report http://www.fsa.gov.uk/pubs/other/rbs.pdf. Kashyap, A, Stein, J and Hanson, S (2010), ‘An analysis of the impact of substantially heightened capital requirements’, Mimeo, May, available at http://chifl.shufe.edu.cn/upload/htmleditor/File/120919100455.pdf. Miles, D, Yang, J and Marcheggiano, G (2013), ‘Optimal bank capital’, Economic Journal, Vol. 123, pages 1–37. BIS central bankers’ speeches 11 | An issue that has been widely discussed in the last two years is whether other parts of the world would be able to avoid a recession despite the weak development of the US economy, that is if so-called decoupling could arise. We can now note that the rest of the world is following in the wake of the United States into an economic downturn and the debate on decoupling has faded. Measures to counter the crisis Sweden has so far been able to manage the problems caused in the financial system by the global financial crisis. The Swedish banks are profitable and have substantial buffers following a number of good years. They have not granted loans as hastily as the banks in the United States and they have not been exposed to any great extent to the type of financial products that have been part of the problem. The TED spreads have not been as large as in the United States and the euro area. The interbank market for overnight loans has functioned well in Sweden throughout the crisis, unlike in many other countries. But the Swedish banks have nevertheless experienced problems with funding and this has required that a number of measures be taken by Swedish authorities. The Riksbank has implemented a large number of measures to safeguard financial stability and mitigate the negative effects of the financial crisis. These measures have largely related to the provision of liquidity. | 0 |
Significant progress been achieved in particular in the Islamic capital market where the outstanding amount of Islamic private securities amounted to USD79 billion or 54.3% of the total outstanding private securities in the market. The number of Shariah-based unit trust funds have also increased to 136 with a net asset value of over USD5.2 billion while 85% of the listed Malaysian stocks are Shariah-approved counters. The second strategy is to accord greater emphasis on the enabling environment for increased innovation in the Islamic financial industry. The product range in Islamic finance has now expanded into a broad spectrum of innovative instruments, including investment and equity linked products based on musyarakah, mudarabah and ijarah. These products are competitive both in terms of product structure and pricing. The enhanced depth of the Islamic financial markets, in particular, the sukuk market, has increased the attractiveness of the Islamic financial instruments as an asset class for investment. The drive for innovation has been supported by the investment in human capital development. A sufficient pool of the talent and expertise has been key to the development of the Islamic financial hub in Malaysia. The International Centre for Education in Islamic Finance (INCEIF) was established in 2006. INCEIF which has an international faculty and students from more than 40 countries is focused on programmes for Islamic finance professionals and specialists in Islamic finance. | Islamic finance going forward There is now a strong and growing demand for Islamic financial products in the global market, far exceeding the current availability of financial products and services being provided by the Islamic financial institutions. Going forward, there is therefore tremendous upside potential for Islamic finance. As the pace of development of the Islamic financial services industry accelerates, the increasingly more complex and challenging environment will continue to shape the advancement of the industry. Central to this will be the expansion of the business parameters and innovative product offerings. For this, there is increased investment in research and development to yield new instruments and structures to meet the changing requirements of the international community. An area of focus, in particular, is related to the development of mechanisms for risk mitigation and liquidity management. Of importance, are the solutions needed to converge the market requirements and the Shariah compliance. Increased innovation also calls for greater emphasis on the implementation of best practices and higher standard of risk management. Vital to this is the implementation of the prudential standards promulgated by the IFSB. There is also a need to leverage more on IT applications and the strengthening of management capabilities of the Islamic financial institutions. Going forward, with the increased awareness and understanding of Islamic finance, the role of market discipline will become increasingly important in driving Islamic financial institutions towards ensuring Shariah compliance in the operations, in improving operational efficiency and in instituting sound and dynamic risk management practices. | 1 |
This occurred, in part, because of the rise in gasoline and food prices that pushed up consumer price inflation last quarter and reduced the amount of income available for other household purchases, a pattern that continued to be evident in retail sales for April. High energy prices have contributed to weaker consumer confidence, which also may have negatively affected consumer spending. However, the weakness of real output growth in the first quarter probably will prove temporary. Although manufacturing production fell in April, largely because of supply disruptions associated with the earthquake in Japan, business survey indicators, including the New York Fed’s own Empire State Manufacturing Survey, generally continue to signal growth, suggesting that production should soon return to more robust growth. And financial conditions have continued to improve, albeit gradually. The temporary reduction in payroll taxes and other fiscal measures also are providing support to demand. In addition, demand abroad – particularly in Asia – remains robust, supporting our exports. Most importantly, the labor market has shown further improvement, as demonstrated by the latest employment report. Although payroll job growth has been subdued during most of this recovery, the latest figures show the economy added 244,000 jobs in April – and an average of 233,000 over the past three months. While the unemployment rate – which is based on a different survey – ticked higher last month to 9 percent it is nonetheless 0.8 percentage points lower than it was in November, a relatively rapid decline by historic standards. | We introduced this concept exactly three years ago. You are acquainted with the main elements: definition of price stability, inflation forecast as main indicator and target range for the three-month Libor rate as operational target. Overall, our experience with our monetary policy concept has been good. Recently, this experience was discussed at an internal conference. Since the new concept was adopted, we have widened the basis of our monetary policy decisions and further developed our analysis of indicators and models. The more extensive use of relevant information enabled us to react more swiftly and with more foresight than formerly to changes in the economic situation. Our monetary policy concept met with a positive public reception in Switzerland. The same applies to the financial markets and international organisations such as the IMF and the OECD. The concept has vastly improved transparency. By publishing studies on internal decision-making processes and the forecasting models used, we have made further relevant information accessible. The public is thus in a better position to understand the reasoning behind monetary policy decisions. 2 BIS Review 73/2002 So far, we have published our inflation forecasts regularly in June and December. We should like to take this a step further and will in future publish an updated inflation forecast after every quarterly assessment of the situation. This will further help to improve transparency. From 2003 onwards, we will also inform the public of our monetary policy by publishing new inflation forecasts in March and September. | 0 |
The wage agreements contained guarantees on the development of prices, wages and earnings, as well as renegotiation clauses, which contributed to a situation in which prices and wages chased each other in an upward spiral. The levels stipulated in the agreements were often minimum levels above which there was considerable wage drift. Several factors have contributed to the improvement in wage formation. In March 1990, the government appointed the so-called Rehnberg Commission. On the basis of the Commission's proposals, stabilisation agreements were signed in most areas of the labour market. These helped to reduce the rate of wage increases from around 10 per cent in 1990 to 3-4 per cent per year in 1992-1993, and to ensure that the agreements no longer contained any flexibility clauses. In March 1997, the social partners in the industrial sector signed a new cooperation agreement, the so-called Industrial Agreement. This covered regulations on the conduct of collective bargaining and established the partners' joint responsibility for wage formation in their part of the labour market. Similar agreements, although not as far-reaching, have followed in other areas. In 2000, the new National Mediation Office began work. This established a third, independent party on the labour market with the task of promoting an effective wage formation process. The National Mediation Office was also given increased powers to take action in connection with collective bargaining. The National Institute of Economic Research was given the task of annually producing reports on the economic conditions for wage formation, the "Wage Formation in Sweden" reports. | The growth of productivity was surprisingly strong; certainly much stronger than many of us expected when the agreements were negotiated. Productivity has now fallen in seven consecutive quarters (see Figure 6). My impression is that the recent development of productivity is in all essentials a result of weaker economic activity. Growth has declined rapidly while the number of people in employment has continued to increase. If we study how GDP and employment vary over the economic cycle it becomes clear that there is a time lag in the cyclical fluctuation in employment in relation to production. It also appears that this time lag has increased since the beginning of the 1990s (see Figure 7). The Riksbank's assessment is that a recovery in the growth of productivity is probable over the next few years. This is indicated, for example, by the historical links that I have just mentioned. However, we do not expect the rate of growth to be as high as between 2002 and 2006. In the latest Monetary Policy Update, the assessment is that the growth of productivity in 2010 and 2011 will average over 2.5 per cent. It is more difficult to assess the growth of productivity in the longer term. A number of explanations have been put forward for the rapid development of productivity up to and BIS Review 154/2008 5 including 2006. | 1 |
Dear Ladies and Gentlemen, The financial system and the banking sector at the heart of it play a unique role for economic development and welfare in Albania. This system provides payment instruments, contributing to the free circulation of products and services. It also offers savings and credit instruments for households and enterprises, promoting therefore development and enhancing welfare. The financial system helps households, enterprises and the economy to withstand shocks, by undertaking risks on its balance sheets and offering products to insure life, business activities and against natural disasters. Therefore, the efficiency, stability and sophistication of the financial system are essential preconditions for rapid, stable and comprehensive growth. The development level of an economy is inter-related and inter-dependent on the development level of its financial system. This has been extensively illustrated by the Albanian experience over the last three decades. The progress marked in the first decade of transition was conditioned by, among other things, embryonic developments in the banking and financial sectors. In the second decade, the activity of the banking sector expanded and competitiveness in this sector increased, setting the stage for crediting and economic growth to gather speed. This performance was disrupted by the global financial crisis effects spilled over to Albanian economy. However, unlike in many countries of the region, the crisis did not trigger recession or a proper financial crisis in Albania. Yet, indirect effects were present both in the economy and in the financial system. | The risk premium in the interbank market has generally driven up the 3-month LIBOR which serves as the reference rate for the pricing of 15 Georgios Chortareas, David Stasavage, and Gabriel Sterne, 2002, “Does it pay to be transparent? International Evidence from Central Bank Forecasts”, Review of the Federal Reserve Bank of St. Louis, July/August, 99-117. 16 Frederic S. Mishkin, 2004, “Can Central Bank Transparency Go Too Far?”, NBER Working Paper No. 10829, p. 25. 17 In fact, the Bank of England would have preferred to act covertly, but the market abuses directive prevented this (http://www.guardian.co.uk/business/2007/sep/21/14). BIS Review 141/2007 5 credit. At the same time, interest rates on risk-free securities such as Government notes have declined. The result is a significant increase in the TED spread (the difference between an uncollateralized interbank loan and the risk free rate of the same maturity). With the 3-month LIBOR rising, central banks faced an important monetary policy decision. In countries where the official target rate is a central bank rate, for instance, the euro zone, the 3-month LIBOR became increasingly disconnected from the official target rate (typically a repo rate of two weeks or less). As you can see from Graph 1a, the ECB held its official target rate (the two-week repo rate) constant and therefore tolerated an increase in the 3month LIBOR. | 0 |
Or is there “fiscal dominance” over the central bank, which is then forced to subordinate its own objectives to those of the fiscal authority? Because they naturally respond to the economic cycle, looking at the instruments of policy on their own (fiscal and monetary measures) doesn’t really help you that much in distinguishing one situation from the other. A better method might simply be to look directly at the institutional arrangements themselves (are monetary and fiscal policies determined by independent agencies? how is that independence safeguarded?). As this is ultimately a question of ends rather than means, a better measure still is the behaviour of objectives of policy. If inflation rises materially above its target, and if it tends to do so in particular when the public finances are under strain, that may be evidence of “fiscal dominance”. If, on the 1 See https://www.bankofengland.co.uk/research/bank-of-england-agenda-for-research. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 2 other hand, easier monetary policy is necessary simply to stabilise inflation, and succeeds in doing so, it’s hard to see how it can qualify as “monetary finance”, no matter how the fiscal balance is behaving2. That’s not to say the fiscal position is wholly irrelevant because higher inflation may help – if only to a degree, and at a wider economic cost – in easing fiscal constraints. Very high levels of debt could therefore test those institutional arrangements. | Weimar Germany in the 1920s is one well-known example. Post-revolutionary France, in the 1790s, is another. There are more recent instances in some emerging economies. Hyperinflations of this sort are essentially fiscal events. Chart 1, taken from the well-known book about financial crises by Reinhart and Rogoff4, shows that waves of formal defaults on governments’ debts have broadly coincided with waves of rapid inflation. Nor do you have to go to such extremes, or away from these shores, to find episodes in which the nominal anchor has been abandoned (if only for a time) in the face of big increases in government spending. Britain 4 Reinhart and Rogoff (2009) 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 suspended the gold standard during the Napoleonic wars and again at the onset of the First World War. Prices rose significantly, particularly during WWI, and yields on government debt did so as well. But the relationship between debt and inflation isn’t a simple one, nor is it readily apparent in the long-term UK data. For example, if there was “monetary finance” during these two episodes it’s not something that endured because, in both cases, Britain restored the original price of gold after those wars had ended. If rising price levels had conferred any fiscal benefit while they were being fought, that was then reversed, via deflation, once peace was established. Any long-lasting reduction in government debt had to be achieved by running a tighter fiscal policy. | 1 |
The origins of the crisis We are all aware that the sub-prime mortgage crisis in the US during 2007 and the subsequent collapse of Lehman Brothers in September 2008 sent shock waves to the financial markets that plunged the global economy into the most severe recession since the Great Depression of the 1930s. However, although these two events did trigger off the international financial crisis, the sovereign debt crisis in Europe was largely home-grown, characterised by cases of excessive risk-taking by banks, imprudent fiscal policies on the part of a number of governments as well as shortcomings in the institutional framework of Economic and Monetary Union. With the adoption of the euro, most euro area countries benefitted from the greater credibility that the monetary policy, decided collectively by the Eurosystem, offered within a legal framework that ensured its independence and promoted price stability as its primary objective. In addition the advent of the single currency also meant a significant step forward towards the completion of the EU single market, which was viewed as an important element in bringing about faster economic growth in the European Union. The establishment of the euro area led to a significant reduction in both nominal and real interest rates, especially for the fiscally weaker member states, as these converged to German benchmark levels.1 This reduction in interest rates, coupled with stronger economic growth expectations in the euro area, gave rise to faster growth in, and cheaper interest rates on, credit to both households and non-financial corporations in many of these countries. | Thus, in terms of labour cost competitiveness, Malta has kept pace with the euro area average. However, to maintain competitiveness a further focus on the wage setting process may be appropriate. In particular the basic principle must be to emphasise that productivity improvements are at the basis of sustained wage increases, and that these are best negotiated at firm level, where improvements in productivity can be best gauged. Consequently, any cost of living adjustments should form part and parcel of the collective agreement and not be superimposed on collective agreements by legislation as happens today. Indeed, already a number of collective agreements incorporate the COLA increase, and I suggest that this should be the norm. Another important message that has emerged from the sovereign debt crisis is the need for fiscal prudence, which provides the space for countercyclical fiscal policy during a downturn. In the euro area, fiscal policy is the major macroeconomic management tool at the national level. Thus, in periods when economic activity is relatively strong, policy needs to be sufficiently prudent to build the necessary fiscal buffers that would be utilized during periods of weaker growth. BIS central bankers’ speeches 5 In the aftermath of one-off expenditure during 2008, the deficit ratio in Malta declined in 2009 despite the recession of that year and narrowed slightly further in 2010. The debt ratio generally declined until 2008, but then picked up in 2009, partly in response to the contraction in the economy. | 1 |
Let me conclude with a reflection on monetary policy. The economy is bouncing back rapidly, which is good news. With that has come a rise in inflation, and we expect that rise to continue in the near term as we go through the rest of this year, such that CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices. I have set out the reasons why we expect this rise in inflation to be a temporary feature of the bounce-back. The reasons for taking this view are well-founded, it is not a vain hope or a matter of whistling in the wind. It is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions. But it is also important that we watch the outlook for inflation very carefully, which of course we do at all times, particularly for signs of more persistent pressure and for a move of medium term inflation expectations to a higher level. And if we see those signs, we are prepared to respond with the tools of monetary policy. Over the last sixteen months we have used monetary policy decisively to respond to an unprecedented crisis which was disinflationary. We were able to act in this way because the framework of monetary policy and the record of its use are robust. This credibility gave us the scope to act in a crisis. | At the end of last year, the gap was 7¼%, on the latest numbers to end April it’s around 5%, and we expect the gap to be closed by the end of this year. Although that would still represent two years of lost growth, relative to the expected path of activity prior to the pandemic. The good news is that the economy is only around 5% smaller than it was eighteen months ago – and in view of what we have experienced, that is good news – and the gap is closing quite rapidly. But let’s pause for a moment on the good news that the economy is only 5% smaller. In any conventional time, even in the depths of a recession, that would scarcely qualify as good news. Let me add a second leg to this unconventional point. In a typical recession – to the extent there is such a thing – there is a hit to demand relative to the supply capacity of the economy which leads to an output gap, higher unemployment and weaker inflation. For crises such as wars or natural disasters, there can be a large decline in both demand and supply. But the effects on supply capacity are typically more persistent, for instance as a result of the destruction of physical capital. During the Covid crisis, we have seen a simultaneous and substantial fall in both demand and supply. But, all the indications are that for both demand and supply the decline will be temporary. | 1 |
I hope that Standard Chartered Bank will lead the way in establishing affordable products and services for our small scale farmers throughout our country. I encourage you Madam Managing Director in your capacity as the Deputy Chairperson of the Bankers Association of Zambia to expand your horizon and collectively join hands with all stakeholders in addressing this problem. I thank you for your attention. 2 BIS Review 34/2009 | 13.12.2019 Session: “Central banks, financial inclusion and digitalization: harnessing technology for inclusive growth” Conference “Financial integration and inclusive development: A view from the Mediterranean Countries”/Banco de España e Instituto del Mediterráneo (IEMed) Pablo Hernández de Cos Governor Good morning. It is a privilege for me to chair this panel on the importance of financial inclusion and how digitalisation can contribute to it. It’s all the more a privilege given that the panel includes governors from four countries with broad experience in promoting financial inclusion, where significant initiatives in this area have been launched with the central bank taking the lead. Access to financial services continues to be a primary problem globally. On the latest World Bank estimates, almost 1.7 billion adults do not have access to an account offering basic functionalities and, therefore, they are excluded from basic services such as payments, credit and saving. This has obvious repercussions for economic and social development, as there is a positive correlation both with growth and employment1, and it is thus essential to understand the causes behind it. In this respect, most studies have highlighted the fact that, although there may in specific cases be voluntary factors relating mainly to cultural or religious aspects, the explanation for this lack of access to financial services is usually to be found in involuntary factors. | 0 |
And, even for domestic imbalances, short-term interest rates would probably need to be held substantially higher for a persistent period in order to suppress rapid rises in asset prices or growing imbalances. Such policy actions could generate significant economic costs. The practical difficulty of implementing a policy of “leaning against the wind”, where the main policy instrument is short-term interest rates, should not be underestimated. If, as BIS Review 86/2009 3 policymakers, we were successful in preventing a bubble from inflating, it might appear as if we were responding to phantom concerns. The bubble or imbalance would be nowhere to be seen, but interest rates would be higher, inflation would undershoot the inflation target and we would appear to have inflicted unnecessary economic hardship. That could undermine public faith and support in both the inflation target and the MPC. For me, the single most important lesson from the financial crisis is the need to expand the range of instruments available to policymakers. The inflation targeting framework provides the scope to respond to asset price bubbles and to imbalances that threaten future economic stability. But short-term interest rates are not well suited to managing such risks. The precise design of such new instruments is now the focus of much work and analysis. It is likely that a range of instruments and initiatives will be required. These may extend beyond new regulatory instruments and should embrace the need for greater international policy coordination. | I do not think it is coincidence that arguably the two most significant monetary policy decisions taken over the past year – the decision to reduce Bank Rate by 1.5 percentage points in November and the announcement in February that the Committee had sought approval to use the Asset Purchase Facility to conduct large scale asset purchases – occurred in months when the Inflation Report was published. The quarterly forecast round provides an opportunity for the Committee to reassess thoroughly its view of the economic outlook. This view is then explained and communicated via the Inflation Report and in particular through the projections for GDP growth and inflation contained in the Report. In both November and February, the judgement of the Committee was that, without further substantial easing in monetary policy, there was a significant risk of a large and persistent undershoot of the inflation target. Given the transparency of these judgements and the clarity of the target, it would have been courageous not to have taken the decisions we did. The inflation target is symmetric. Likewise, the discipline it imposes on the MPC is symmetric. The inflation target has been instrumental in ensuring that monetary policy has responded boldly and decisively to the events that have unfolded since the autumn. And, when the time comes, the clarity and transparency of the inflation targeting framework will ensure that the Committee takes the right decisions on the way back up, however courageous or unpopular those decisions might appear. | 1 |
We are among the most transparent central banks anywhere in the world. Our debate is informed by a huge input from our very able professional staff both in London and in our Agencies throughout the UK, and I’d frankly be surprised if you were able to identify any relevant issue that we have not considered in one way or another. Indeed I would very much hope that you would let me know if you did. I don’t plead ignorance; I plead intrinsic uncertainty. Monetary policy operates with a lag, having its full effects only after about a couple of years. Unlike some outside commentators apparently we know we don’t have a crystal ball. Our judgements are necessarily based upon a very careful assessment of the balance of risks at the time, continuously updated in the light of the constant flow of information of all kinds relevant to that assessment. That’s the nature of the process. Given that, I would not expect, and you would not reasonably expect me, to be able to demonstrate to you that we have precisely the “right” answer at any particular time. But I can promise that if the evidence changes in either direction so too will our assessments. You can of course question our processes, our interpretation of the data or the quality of our analysis - it’s there for all to see. But ultimately the proof of the pudding is in the eating, and it is only on average and over time that our policy decisions can sensibly be judged. | Furthermore, the level of government welfare services (including unemployment insurance, social security and welfare services, and senior citizens’ assistance insurance) is systematically lower in the United States than in the euro area countries; at present it stands 19 at 12% of GDP in the United States and at 15% of GDP in the euro area. Thirdly, the importance of automatic stabilisers depends also on the taxation system, in terms of its level 16 Cimadomo, J. (2008), Fiscal Policy in Real Time, ECB Working Paper, No 919. 17 See, for instance, Brunila, A., M. Buti and J. in’t Veld (2002), Cyclical Stabilisation Under the Stability and Growth Pact: How Effective are Automatic Stabilisers?, Bank of Finland Research Discussion Paper, No 6; Darby, J. and J. Melitz (2008), “Social spending and automatic stabilizers in the OECD”, Economic Policy, Vol. 23, pp. 715-756. 18 Girouard, N. and C. André (2005), Measuring Cyclically-Adjusted Budget Balances for OECD Countries, OECD Economics Department Working Paper, No 434. 19 Debrun, X., J. Pisani-Ferry and A. Sapir (2008), Government Size and Output Volatility: Should We Forsake Automatic Stabilization?, European Economy – European Commission Economic Paper, No 316. BIS Review 135/2008 7 of taxation and of the overall fiscal drag in the tax system. | 0 |
These included the migration of activity and risk to unregulated “shadow banks” (Adrian and Ashcraft (2012)); the hard-wiring of rating agency risk assessments into the regulatory engine (Edmonds (2016)); the payment of bank CEOs in common equity encouraging “gambling for resurrection” (IMF (2014)); and the implicit subsidies conferred on “too-big-to-fail” institutions, encouraging them to become larger and more complex and connected still (FSB (2013b)). Another example of these incentive effects came in the area of capital regulation. Whichever risk-weighting scheme is in place, it is likely to give rise to incentives to adjust asset positions to maximise profits. For example, if the regulatory constraint takes the form of a leverage ratio there are incentives to alter the composition of assets towards those with higher risk weights – though the evidence on such “risk-shifting” is mixed (Sheldon (1996), Furlong (1988)). Contrarily, if assets are risk-weighted and determined by banks’ internal models, there are incentives to lower modelled risk weights over time (Mariathasan and Merrouche (2014)). In short, when setting capital standards for banks, there is a two-sided incentive problem. 28 All speeches are available online at www.bankofengland.co.uk/speeches 28 Pre-crisis, both incentives were at play, albeit to differing degrees in different parts of the global financial system. In the US, where a leverage ratio was in operation and often the binding constraint, there were incentives for banks to seek higher-risk assets rather than expand balance sheets (Chart 20). | I will set out each of them, and then discuss the issues that arise from them. First, we should remove the adverse incentives introduced by the liquidity thresholds related to the use of suspensions, gates and redemption fees. Second, we should simplify the landscape to make clearer the critical distinction between cash-like funds and investment funds. We should remove the ambiguity of intermediate descriptions such as low volatility funds. Third, and to support removing the ambiguity, it will be important to define in an accounting and substantive sense more explicitly what constitutes cash-like. Current guidance leaves a lot of judgement to managers and auditors to make these decisions on a fund by fund basis1. Money-market funds are a cash management instrument, so it may seem odd that the meaning of cash-like as a term has not been well defined. The resultant ambiguity may have seemed convenient as a means to stretch the boundary of the definition to allow less liquid instruments in, but when a stress event like the dash for cash happens, the flaw is badly exposed and financial stability is in jeopardy. The authorities then have to intervene in scale to restore well-functioning markets, but that should not be the accepted way to run the system. 4/6 BIS central bankers' speeches That said, the definition of cash-like therefore needs to be clear and appropriate rather than overprescriptive. For many purposes it does need to provide near instant access to cash – i.e. | 0 |
The average level of such quantities is determined by other factors, such as demography, competition and tax policies, research and development and education and training. There are therefore good reasons why monetary policy should focus on inflation and have an inflation target. Flexible inflation targeting policy A strict interpretation of the possibilities of monetary policy can easily be perceived as being that central banks can only affect inflation. However, although monetary policy can not affect the average level of real factors, this does not mean that it is ineffectual in stabilising BIS Review 111/2009 1 fluctuations in these factors. I mean by this that monetary policy can contribute to the stabilisation of resource utilisation at a normal level. In practice, central banks with an inflation target conduct what is called flexible inflation targeting. This flexibility means that – alongside the long-term inflation target – the central banks also strive to ensure that fluctuations in both inflation and the real economy are kept at a reasonable level. Striking the right balance between these factors is what the Riksbank calls a well-balanced monetary policy. The flexibility of inflation targeting becomes particularly important in situations where a conflict arises between the objective of reaching the inflation target and the objective of stabilising the real economy. In some situations, the inflation target calls for a certain type of monetary policy while resource utilisation calls for another. One example of this is the situation that prevailed during most of 2008, the year before I joined the Executive Board. | Statistics Norway has not adjusted for the direct effects of excise duties in their indices, but projects that the combined effect of changes in excise duties in January and July will depress the year-on-year rise in the CPI by 0.5-0.6 percentage points in July. According to Statistics Norway, the CPI excluding energy prices and excise duties can then be estimated at 2.2-2.3 per cent. Whereas the activity level and pressures in the Norwegian economy are high, there is growing uncertainty about developments in the global economy. The Norwegian business sector has so far largely been protected from weaker growth in the global economy, but this may change. Low growth in the world economy may reduce demand for Norwegian products and pressures in the Norwegian economy. It may also help to curb imported price inflation. This could also result in lower price inflation than we have projected. Against this background, Norges Bank has expressed its view that with an unchanged interest rate ahead, the probability that inflation two years ahead will be higher than 2½ per cent is the same as the probability that it will be lower. BIS Review 72/2001 3 | 0 |
Compared to the Asian financial crisis twelve years ago, the dynamic of macroeconomic adjustment in this crisis also looks similar, although the trigger point this time is more bankled than currency-led. The real surprise, however, was in the timing, the scale, and the intensity of how the problem quickly deteriorated into a major global turbulence. According to the IMF, compared with the previous crises, the cost of the current crisis in terms of financial losses could be as high as 10 percent of US GDP. This implies a very substantial welfare loss. Is this the time of upheaval? My answer is both yes and no. The “No” part refers to the fact that, despite the magnitude of the current crisis, aggressive policy response and the willingness to do more by Governments have successfully contained the fallout to the extent that collapse of the global financial system has been avoided. Financial markets, to an appreciable extent, are stabilizing, risk appetite is returning, and signs of improvement in the real economy are beginning to emerge on a world-wide basis. Although it is still early days, they do point to the beginning of stabilization which is an important first step for economic recovery to take hold. The “Yes” part of my answer comes from what I see as a major challenge in the ideas and policies on how best to manage the global economy going forward in this era of globalized finance. | The value of the Norwegian krone against the Deutsche mark was nearly halved between 1973 and 1987. We paid about 2 kroner for 1 mark in 1973 and close to 4 kroner in 1987. Since 1987, the krone exchange rate against the Deutsche mark has remained more or less unchanged. During this period, price inflation in Norway has been no higher than that in Germany. We cannot be sure how fast the inflation differential between Norway and other countries will translate into changes in nominal exchange rates in the future. Nevertheless, we must expect that any differences in the rate of inflation may be a key cause of changes in the nominal krone exchange rate over time. The Norwegian monetary authorities abandoned the devaluation approach in 1986. From 1986 to 1992 Norway had a fixed exchange rate with a defined central rate and fluctuation margins. This system was abandoned in 1992 following extensive speculation against the krone in connection with the turbulence in European exchange markets. After the krone was allowed to float on 10 December 1992, the guidelines for monetary policy were also revised. Monetary policy was still oriented towards the objective of krone exchange rate stability, but no specific central rate with fluctuation margins was stipulated. The krone depreciated slightly in 1992, but thereafter it remained relatively stable. Looking back at developments in the Norwegian foreign exchange market in the 1990s, no significant change really appears to have occurred in 1992. However, there was a marked shift in January 1997. | 0 |
First, a significant number of large, internationally active financial firms reached the brink of failure. Second, the financial system was not very resilient when these firms got into difficulty. Instead, the threat of failure propagated further shocks that reverberated throughout the global financial system. These two shortcomings reflect many factors including inadequate capital and liquidity buffers, poor incentives to correctly measure, price and manage risks ex ante, the opacity of firm balance sheet and counterparty exposures, and the manner in which large financial firms were interconnected within the financial system. In the end, there was too much leverage in which large amounts of highly illiquid, long-term assets were financed by short-term liabilities. The fact that a large amount of the wholesale funding used to finance these assets was provided by leveraged financial intermediaries to other financial intermediaries increased the BIS central bankers’ speeches 1 system’s vulnerability to adverse shocks. As it turned out, the amount and quality of capital was grossly inadequate relative to the quality of the assets and off-balance-sheet exposures of many of the major global banking institutions. Moreover, many institutions had inadequate liquidity buffers. The lack of liquidity forced the fire sale of assets, which depressed prices and increased the pressure on capital. When troubled institutions did fail, this exacerbated the pressure on the remaining institutions. Aggravated by the lack of transparency about their counterparty exposures and the contingent liabilities they faced, the problems of a single institution quickly became the problems of many. | The willingness of savers to entrust their money to a bank presupposes that those savers have confidence in the financial integrity of the institution - in other words, that their savings will be BIS Review 27/2000 2 available when they need or want access to them. If that confidence is undermined, society’s ability to collect and deploy its savings will be impaired, and the principal means to economic growth and rising living standards - intermediation by banks - will be short-circuited. With this reality in mind, it must be acknowledged that, in the final analysis, commercial banks have only one asset that really matters public confidence. Sound lending - the key to preserving public confidence The key to maintaining the financial integrity of any banking company - and, therefore, to preserving the all-important asset of public confidence - is the credit process. If credit is extended carelessly, banks are likely to incur losses, which in turn will undermine their ability to honor deposit obligations. And if banks’ ability to honor deposit obligations falls into question, if the public’s confidence is undermined, households and businesses will likely rush to redeploy their savings, raising the specter of a flight to cash and real assets with all the associated implications for inflation and destabilizing runs on banks. The best defense against this serious and very real threat is for banks to extend credit wisely, objectively and impartially. | 0 |
Property prices soared as a result (Chart 1). Such excesses were possible because a decade of non-inflationary, consistent expansion turned initially well-founded confidence into dangerous complacency. Beliefs grew that globalisation and technology would drive perpetual growth, and that the omniscience of central banks would deliver enduring stability. With a growing conviction that financial innovation had transformed risk into certainty, underwriting standards slipped from responsible to reckless and bank funding strategies from conservative to cavalier. Financial innovation made it easier to borrow. Bonus schemes valued the present and discounted the future. Banks operated in a heads-I-win-tails-you-lose bubble and were capitalised for perfection. And a steady supply of foreign capital from the global savings glut – and in Ireland’s case, the initial euphoria of European Monetary Union – made it all cheaper. When the Minsky moment finally struck, debt tolerance decisively turned and the kindness of strangers evaporated. UK households swung from borrowing 4% of GDP annually to saving 2% of GDP. The comparable swing in Ireland was more than twice as large. 3 In the wake of the crisis, three truths came back to the fore. First, while asset prices rise and fall, debt endures. Second, the distribution of debt and assets matters. And third, it is very hard to reduce high debt in one sector or region without at least temporarily increasing it in another. The debt tail is wagging the market dog. These realities continue to weigh on the European financial system. | Mr. Erçel reports on medium and long-term prospects for the Central Bank of the Republic of Turkey Address by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, before the 66th Shareholders’ General Meeting, in Ankara, on 28/4/98. A detailed account of economic developments during 1997 is given in our annual report for that year which has already been delivered to you. We are keeping the public informed of our expectations for this year through the quarterly announcements of our monetary programme. Today, instead of repeating these short-term perspectives, I would like to speak of the medium and long-term prospects of the Central Bank. For the last two years, my discourse has touched on what kind of institution an ideal central bank should be. Today, I want to consider this matter in a more detailed way. In recent years, there has been a worldwide trend towards simplification of the goals of central banking. This has led to a reduction of the responsibilities they take on. Funding their governments, for example, is no longer the main purpose of central banks. There is none among the western central banks that aims at achieving full employment of the highest level of production. Today’s modern central banks have only one aim: to maintain price stability. | 0 |
1 Kevin Warsh, quoted in the FT, 7.5.17: https://www.ft.com/content/45303028-3280-11e7-bce4-9023f8c0fd2e See for instance https://www.cato.org/blog/strange-official-economics-interest-excess-reserves 3 https://www.thetimes.co.uk/article/we-were-not-asleep-at-the-wheel-bank-of-england-managers-tell-angry-mps-6pc7bnr56lf 4 https://scholar.harvard.edu/stein/publications/federal-reserves-balance-sheet-financial-stability-tool 5 https://www.brookings.edu/blog/ben-bernanke/2016/09/02/should-the-fed-keep-its-balance-sheet-large/ 2 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 Chart 2: The Bank of England’s balance sheet as a share of GDP Source: Bank of England, available at: https://www.bankofengland.co.uk/statistics/research-datasets Where is this all going? At one level the answer to that is simple: for the foreseeable future, the path of the Bank’s balance sheet will be shaped by the decisions of the Monetary Policy Committee (MPC) in pursuit of the inflation target given to it by Government. Whether that involves further expansion of the balance sheet, or a return to less exceptional levels (so-called Quantitative Tightening or ‘QT’), we on the Bank executive need to be ready to implement those decisions. My focus today is squarely on the latter: how we plan to implement monetary policy during QT, and the likely size of our balance sheet in the medium term. Of course, market expectations don’t point to QT starting any time soon. But those views can change rapidly. And experience from the United States and elsewhere suggests that early, clear communication about the target end-state can help stabilise expectations and increase the effectiveness of normalisation when it comes. For that reason, we launched a Discussion Paper6 last year to expose our vision of the medium-term goal to challenge and feedback. We promised to share our findings from that work7 – and that’s what I aim to do today. | More institutions are expected to participate later this year. In this space, there are continuing ample and growing opportunities for Islamic finance to tap on as we ramp up in high value-added sub-sectors such as halal pharmaceutical and cosmetics, as highlighted in HDC’s sectoral development roadmap. Islamic finance also is primed to support initiatives under the National Investment Aspiration (NIA). As the new national investment policy strategy, the NIAs aim to increase Malaysia’s capacity to produce more complex and high-value products and create more high-skilled jobs5. This, in turn, will result in Malaysia producing new lines of goods and services beyond the traditional and upstream products, which will require support including in trade financing in developing businesses across these new product supply chains and penetrating new markets. The different nature of these needs, however calls for more well designed solutions that extend beyond readily available products. Conclusion Before I end my remarks, I would like to touch on the importance of calibrating trade finance processes with digitalisation. The World Bank’s Islamic Trade Finance Report recognises this as a priority area and calls for enhancements to online Islamic trade finance supply chain financing, and the use of blockchain technology. Such technological advancements that leverage distributed ledger technology and API-enabled trade finance platform can address long-standing issues in trade finance operations that mainly arise from the voluminous and manual nature of trade finance processes. | 0 |
Vitor Constancio, Vice-President of the ECB, defines the banking union as a transfer to the European level of the regulatory and institutional framework responsible for safeguarding the robustness and stability of the banking sector. More recently, the Liikanen Report recommends a structural reform of the EU banking sector to limit the likelihood of banking crises, to improve the resolvability of banks and to protect taxpayers’ interests. In this respect, the Liikanen Group concludes “that it is necessary to require legal separation of certain particularly risky financial activities from deposit-taking banks within a banking group.” This form of separation is also being discussed in the U.S. and U.K., although with some variations. It is evident that if this separation is effected, the resilience of banks will be enhanced, systemic risk reduced and tax payers safeguarded. The implications of this proposed framework will also have to be taken into account by the banking industry so as to adjust the banking models used to this now safer but more constrained model. BIS central bankers’ speeches 7 Closing an institutional gap The concept of sustainability can also be applied to the funding of the government’s capital expenditure programme. In particular, the funding of infrastructure and public utilities through fiscal resources may also have to be reviewed in light of the public sector funding constraints. The domestic financial sector has witnessed remarkable structural developments over past years. | Wage increases are not sustainable unless they are financed from higher productivity and economic growth. Financial stability The financial sector clearly plays a crucial role in the economy. This sector is a prominent employer of trained professional staff, with financial and insurance activities on their own employing 7,280 persons or 4.3% of the gainfully occupied population and contributing 8.5% of gross value added in 2011. The gap between these two ratios is a sign of the relatively high level of productivity in this sector. 1 International Monetary Fund 2011 Article IV Consultation – Staff Report, May 2011. BIS central bankers’ speeches 5 As a matter of fact, as shown in Chart 11, productivity – as measured by the value added per employee in the sector – has risen considerably in recent years and in 2011 stood at nearly EUR 65,000, significantly more than the corresponding per capita value added in the services sector in general, which stands at around EUR 34,000. Bank credit remains the main source of external funding for non-financial businesses in Malta. Moreover, as in most other European countries, bank financing is regarded as the main, if not the only, avenue of external financing for SMEs. External funding is however primarily suitable for large corporates, given the costs and regulatory requirements associated with debt issuance. A more active and innovative debt market is in the interest of the country’s economic growth potential. Undoubtedly this needs to be harnessed through an appropriate macro-prudential policy safeguard of financial stability. | 1 |
As Chairman Greenspan said recently, "in retrospect, it is clear that more investment monies flowed into these economies than could be profitably employed at modest risk". 8. The strong Asian growth would have continued but for the fact that global competition in external trade has emerged with newly industrialized and export-oriented economies with cheap labour, such as China, India, Latin American and Eastern Europe. The failure of central planning has brought at least three billion new workers and consumers into the global market. These new markets began to benefit from the growing trade liberalization and inflows of foreign investments, thus putting greater pressure on the markets of the earlier “tigers” of East Asia, leading to a widening of their current account deficits as they continued their investments in infrastructure and real estate. Issues in Asia 9. If we look more closely at the situation in Asia, the economic fundamentals remain intact. Asia has been the fastest-growing region in the world, recording growth rates of around 5%-9%. Asian economies have low inflation rates and exchange rates were stable until recently. Current account for the region as a whole is broadly in balance, while the fiscal account, excluding Japan, is in surplus. Asia has exceptionally high savings rates of above 30% of GDP. Official savings, in terms of foreign currency reserves, were even higher. In Asia, 70% of the inflows contributed to reserve accumulation. As a result, Asian central banks are now holding about 40% of the world’s foreign exchange reserves. | Undue exuberance on the part of investors, when price-earning ratios grow beyond fundamentals, or on the part of bankers who failed to assess the impact of high interest rates on collateral or cash flows, would expose both the investor and the lender to asset losses. 17. Specifically, banks in Asia, having easier access to funds as a result of high global liquidity, were able to expand lending much more quickly and, thereby, incurred higher risks in their portfolios that they need to manage more soundly. Ironically, domestic banks may have been induced to move into more risky lending due to increased competition in the form of new entrants and financial intermediation. There is no question that they need to manage these new risks better. 18. There is also one distinguishing feature of the Asian turmoil. The debt problems have not been those of the public sector. On the contrary, the fiscal positions of Asian governments have by and large been quite sound. East Asia, excluding Japan, ran a fiscal surplus of $ billion BIS Review 109/1997 -4- or 0.1% of GDP in 1996. The debt burden, in fact, has been largely one of private sector overborrowing. The resolution of the debt of the private sector makes the Asian problems quite different from the experience of the sovereign debt issues of the 1980s. 19. In essence, the Asian problem is the age-old question of efficient resource allocation. | 1 |
Public confidence is however, not one that is created and expected to remain constant without making conscious efforts to enhance it. Public confidence must be created, nurtured and continuously enhanced by all the players in the financial sector working together through a range of approaches and strategies. This mandate requires a holistic and a collaborative effort of the authorities, financial service providers, private sector, educators and related associations that are here today. I am delighted to note that MYFex2007 is one such effort. In the short 26 months it has been in existence, PIDM has gone beyond its statutory duty to create public awareness about deposit insurance and promoting public confidence in the resilience of the Malaysian financial system. They have embarked on a noteworthy initiative to contribute to financial system stability by organising a comprehensive financial awareness exhibition that seeks to create informed consumers with a view to contribute to financial system stability. I am pleased to see various Government agencies, the market players and related associations and professional bodies participating in this important financial awareness initiative. The vision for an effective, efficient and resilient financial sector requires the unified efforts of all the stakeholders in the financial system. The financial players, the regulators, the Government and the consumers all have a meaningful role in achieving this vision. With this let me conclude my remarks. 2 BIS Review 129/2007 | There are actually structural reasons why Thailand is a safe place to do business and a place where risks of economic shock, economic downturn, or significant economic crisis are Page 5 of 11 very low relative to almost any other countries in the region. If you look at the causes where a country typically experiences an economic crisis, what are those? A country sometimes might have the foreign exchange or balance of payments crisis as they run out of reserves and have too much external debt. Yet, Thailand, unlike other countries in the region, our vulnerability on this front is extremely low. We have a very low level of external debt relative to our foreign reserves which exceeds 200 billion dollars while our short-term external debt is significantly below that. Our current account has been traditionally in very large surpluses. Therefore, the risk of having a baht crisis, like what we had in 1997, remains extremely low. What are other kinds of crises? Another kind of crisis that people experience is the fiscal crisis. If you look at the Thai governments’ balance sheet, it is relatively strong, the public debtto-GDP ratio is just over 50 percent and the fact that the government is able to borrow 10-year money at only 1.7 percent indicates that people are still willing and happy to finance the government. They do not see the government as having a very high risk. | 0 |
Most worryingly, we seem to be confronted with a trade-off between price stability and financial stability, at least in the short term. To borrow a phrase from a recent award-winning movie, everything seems to be related; there are financial vulnerabilities everywhere; and economic and financial shocks seem to happen all at once. Okay, that sounds exaggerated, but I think you get my drift. As with the multiverse, there is much that we do not know about the complex interactions between the real economy and the financial system and their implications for price and financial stability. But policymakers are not entirely clueless. Let me set out four key propositions based on the experience of the last decade: securing both monetary and financial stability requires an integrated framework, combining monetary policy, fiscal policy, and macro-financial policies; financial sector vulnerabilities are best addressed using a variety of macro-financial policy tools in a coherent manner; monetary policy should remain focused on inflation control but its implications for financial stability must be taken into account; fiscal policy plays an important role in helping to secure both price stability and financial stability; Let me elaborate on each of these. AN INTEGRATED POLICY FRAMEWORK First, securing both monetary and financial stability requires an integrated framework, combining monetary policy, fiscal policy, and macro-financial policies. Macro-financial policies include macroprudential measures, foreign exchange intervention, and capital flow management measures. There are three reasons why we need an integrated policy framework. One, there are important interactions between monetary policy and the financial system. | Moreover, risk related to borrowers has diminished as the economic recovery has progressed and debt levels have fallen; indeed, at the end of 2015, total private sector debt was down to around the level last seen in 2000. Financial system risk is assessed four times a year by the Systemic Risk Committee and the Financial Stability Council, greatly increasing the monitoring that takes place. The Central Bank publishes its Financial Stability report twice a year, with the next issue forthcoming on 20 April. I will not expand further on this here. BIS central bankers’ speeches 5 However, I think it appropriate to mention four issues that, in the near future, could have a major impact on long-term developments in the financial system. The first is technology, which is advancing rapidly worldwide. In addition, we are engaged in renewing many of Iceland’s key financial market infrastructure elements and, in doing so, adopting new technology. This could create excellent opportunities to enhance security and reduce costs, including through joint utilisation of infrastructure elements, while increasing competition in areas where economies of scale are less in evidence. The Bank’s Financial Market Infrastructure report, to be published later this year, will discuss this in greater detail. The next is culture and ethics. In international discussion, it is widely emphasised that postcrisis reform will not achieve its goals in the long run unless it involves an improvement over the pre-crisis situation. It seems to me that considerable improvements have already been made here in Iceland. | 0 |
If we were convinced of the existence of a bubble and had the necessary instruments available, we should act. But it is not our conviction that monetary policy can in any meaningful way control asset price developments. Low and stable consumer price inflation is the operational target of monetary policy. There is, however, an ongoing discussion on how best to capture the cost of housing in the CPI. It might very well be that our present methods could be improved. 13 Financial Times January 17 2008. El-Erian is co-chief executive and co-chief investment officer of Pimco. 14 Kenneth S. Rogoff (2006, see footnote 8) and M. Lettau, S. C. Ludvigson and J. A. Wachter (2004) “The declining equity premium: What role does macroeconomic risk play?” NBER Working paper 10270. 15 Proponents of this view are Claudio Borio and Philip Lowe in some BIS studies, se for example Working Paper 114/2002 “Asset prices, financial and monetary stability: Exploring the nexus” and Working Paper 216/2006 “Monetary and prudential policies at a crossroad? New challenges in the new century.” 6 BIS Review 14/2008 While monetary policies aimed at nominal stability have stood us in good stead, and can continue to be pursued also in a world where markets are truly global, the sailing might very well be less smooth ahead. | The entrance of new, large emerging economies into the world trading system has strongly influenced relative prices and the prospects for nominal stability. The potential labour supply available for the global economy has doubled 7 and increased relative to the supply of capital. Wage shares have fallen and profit shares have risen, both globally and in Norway. Firms in high-cost countries increasingly offshore activities to low-cost countries. Imports of goods in industrialised countries have shifted from high-cost to low-cost countries. Furthermore, the collapse of the Soviet Union and the accession of Central and East European countries to the European Union have played a significant role for the labour market in Europe. Labour migration has increased. Off-shoring and outsourcing – or merely the threat of it – may have, at least temporarily, reduced the bargaining power of trade unions and employees. Increased competition, both in product and labour markets, has probably motivated productivityenhancing measures. Productivity growth has been unusually high. 5 John Gieve (2006): “Practical Issues in Preparing for Cross-Border Financial Crises”, at the Financial Stability Forum Workshop: “Planning and Communication for Financial Crises and Business Continuity Incidents”, 13 November. 6 Financial Times January 16 2008. 7 See Richard Freeman (2006) “Labour Market Imbalances: Shortages, or Surpluses, or Fish Stories?” presented at the Federal Reserve Bank of Boston’s Economic Conference, June. 4 BIS Review 14/2008 Lower import prices, intensified competition and high productivity growth have been important disinflationary forces both in Norway and elsewhere. | 1 |
The level of activity in the Finnish economy is still poor, but will benefit, like the Swedish economy, from the global improvement in economic activity. In Denmark and Norway, private consumption will be stimulated by tax reductions. There are also signs of a turnaround in industrial activity in the UK, while private consumption continues to develop favourably. However, there are also risks for developments in Europe: in the euro area the main cause of uncertainty is wage developments. High wage increases for metalworkers in Germany may spread to other sectors and then to other countries in the euro area. There is thus some possibility that the rate of wage increase and inflation in the euro area will be higher than in the main scenario depicted by the Riksbank. The economic situation in Sweden The Inflation Report that was published at the same time as our interest rate decision paints a mainly bright picture of the Swedish economy in the near future. The assessment is that the downturn in economic activity will be shallow and relatively short-lived. The recovery in global market growth, which for Swedish goods amounts to 2-3 per cent this year, will lead to an increase in Swedish exports. Over the next few years, this increase is expected to become 7-8 per cent a year. At the same time, households’ disposable incomes are improving, which contributes to increased consumption. | As the economy is from time to time subject to unforeseen shocks, there will be deviations from the forecasts, even if the forecasts are well-founded. If, for instance, fruit-growers’ harvests are affected by insects, the price of fruit will rise, if the water reservoirs are not filled, electricity prices could rise and if cattle in Europe suffer various diseases, the price of meat and some other foodstuffs will rise. If the Riksbank tried to make adjustments for this type of temporary price disturbance, it would probably lead to large swings in monetary policy and unnecessary fluctuations in demand and production. It would therefore be wrong to give the impression that inflation will always be above two per cent. On the other hand, it is important that the Riksbank adapts the instrumental rate so that the inflation forecast one to two years ahead is in line with the target. This means that companies and households can rely on temporary deviations upwards or downwards being only temporary. In retrospect and looking outwards The attacks on the World Trade Center and the Pentagon on 11 September last year increased the uncertainty as to how the already weak global economic activity would develop. Even before then, signals of a more evident slowdown in industry and a poor development on the stock markets had caused the Riksbank to make a downward revision of its growth forecasts. The risk was that the terrorist attacks would undermine confidence in future prospects among households and companies, which usually has a negative effect on demand. | 1 |
Banks worldwide spend over $ a year on financial crime compliance: enriched data is an important ingredient in getting this number to drop. ISO 20022 provides a common language for financial transactions that allows for richer and more structured data. However, making the most of it requires consistent adoption across jurisdictions and using it to transmit a wider set of information than legacy payment messages. Limited or inconsistent uptake could lead to fragmentation. There is no point for me to include a code for the purpose of my payment if my South African counterpart was using a different set of codes. To establish a basic level of consistency, the Joint Task Force of the CPMI and Payments Market Practice Group have consulted on harmonising requirements for enhancing crossborder payments. [15] They received an excellent response and will be announcing the results in the autumn. Another important dimension is the harmonisation of Application Programming Interfaces (APIs). Almost two-thirds of the payment systems surveyed by CPMI[16] already offer APIs to their participants. In the UK, our renewed RTGS has this month enabled its first API, with a full-fledged suite of APIs due to be delivered next year. APIs make it easier for payment systems and their participants to exchange data. The number of potential applications is vast. But to deliver real benefits these potential use cases rely on harmonised API standards. The CPMI is convening an industry panel of API Experts (APEX) from private and public sectors, to develop recommendations on the strategic direction for the industry. | With the present fiscal stimulus no longer a factor, however, economic growth is likely to slow down distinctly again next year but should remain robust. We still anticipate an upswing in the EU in the coming year. It is probable, however, that it will take slightly longer to close the output gap than we assumed as recently as September. Inflationary pressure from abroad will thus remain moderate although inflation in other countries will not recede as markedly either in the coming year as we expected three months ago. Furthermore, we anticipate a decline in the price of oil to approximately USD 25 per barrel in the course of 2004. On the assumption that the three-month Libor rate will remain stable at 0.25% during the next three years, inflation should average 0.4% in 2004, 1.0% in 2005 and 2.3% in 2006. The inflation trend according to the new forecast will exceed the September forecast until mid-2005. Until the end of 2004, inflation is likely to remain fairly stable at around 0.5% and to fluctuate only slightly due to basis effects. The new forecast shows that the threat of negative inflation rates has diminished. This is the result of an improvement in the global economy and of the less marked decline in inflation abroad, as also of the weaker Swiss franc vis-à-vis the euro. As from the beginning of 2005, inflation will show a rising trend due to the expansionary monetary policy we took as an assumption. | 0 |
Why and how supervision and resolution authorities should work more closely with one another Let me now turn to the way in which the two completed pillars of Banking Union, namely supervision and resolution, could become more consistent with one another and work more closely together. Cooperation between the SRB and the ECB does exist, and is formalised by a Memorandum of Understanding. This provides for ex-ante cooperation in calm times, and close cooperation in early intervention and resolution phases. Thanks to this tremendous ongoing preventive work conducted by the SSM and the SRB, and to continued efforts from banking institutions, recovery plans have significantly improved in recent years. Page 4 sur 5 Beyond the current areas of cooperation, which could still be enhanced in practice, greater coordination on policy issues appears desirable. In particular, policy decisions that pertain to own funds have a very concrete impact on European banks’ competitiveness, and therefore on the level playing field with foreign banks. Here, we must find a trade-off between safety and competition issues, with efforts needed on both sides. For instance, the SSM could further consider a risk-based approach rather than a flat-rate approach to estimate post-resolution Pillar 2 requirements. This entails a need to take into account a forward-looking approach and the expected risk reduction that follows a resolution. This should be acknowledged in the calibration of external minimum requirements for own funds and eligible liabilities (MREL): banks are not at the same stage today as they were seven years ago. | They were also given a monopoly on issuing banknotes and coins, which gained a special status as legal tender. The fact that banknotes and coins now have less significance as means of payment does not means that the need for a state guarantor for the payment system has disappeared. I shall return to this shortly. I shall now describe in more detail what the Riksbank does in more concrete terms and how I view our responsibility for financial stability. Promoting a stable and efficient financial system – the Riksbank’s role The Riksbank has three core tasks that contribute to an efficient and stable financial system: issuing banknotes and coins, responsibility for the system for large-value payments and providing emergency liquidity assistance (being lender of last resort). Moreover, there is a close link between monetary policy and financial stability, which I will return to later. Let me discuss the different core tasks one at a time. 3 Jonung, L. (1989), “The Economics of Private Money. Private Bank Notes in Sweden 1831 – 1902”, Research Report 282, EFI, Stockholm School of Economics. 3 [12] Issuing banknotes and coins One fundamental function that must work if a financial system is to be regarded as stable is payments. And a first important central bank task to facilitate payments is to issue banknotes and coins. | 0 |
Third, as a result of the fiscal guideline the internationally exposed sector is subject to additional pressure. Over time, the phasing in of petroleum revenues will lead to restructuring and the transfer of resources from the exposed to the sheltered sector. Fourth, the response patterns in stabilisation policy function in a different way from previously. In the past, it was generally understood that high wage growth and overheating of the economy must be by with a tightening of government budgets. Today, with the fiscal guideline and inflation targeting, it is monetary policy that is tightened to a greater extent in such a situation. The burden of stabilisation policy is thus at times transferred to the internationally exposed sector. Against this background, a decline in manufacturing employment from 300 000 to 240 000 over a ten-year period, as Norges Bank has previously indicated, does not seem unreasonable. Norges Bank has one instrument: the interest rate. It has a broad impact. Monetary policy can therefore not be oriented towards stabilising developments only in the internationally exposed sector. This would create considerable imbalances in the Norwegian economy. The low interest rate policy and devaluations in the 1970s and 1980s are examples of how such a policy can fail. Monetary policy was geared towards preventing a weakening of competitiveness in manufacturing. The krone was devalued on several occasions. But wage growth accelerated to compensate for higher inflation. The result was the yuppy period, unsound investments and a wage and price spiral that hit the entire economy. | The recent litigation in New York involving claims under surety bonds is perhaps a much reported incident of this sort. And uncertainties in a world dependent on expeditious performance of contracts has to be a real issue in financial stability terms. Second, we have seen the emergence of large multifunctional financial groups. So my observation is that whatever thinking might have gone into the Basel II Accord for banks, we would be wise to focus further, on the way in which capital adequacy and other prudential supervisory techniques fit together, for different parts of the financial world, including insurance. The wisdom in earlier days was that systemic risk, in a financial stability sense, was largely confined to banks. Not any more. It has been recognised for some time that the securities arena and the process of securitisation has changed all that. And more recently, growing interlinkages with the insurance sector are giving rise to the need for a further rethink. II Looking beyond capital adequacy: the importance of liquidity Secondly a rather different angle. Viewed from the point of view of financial stability, capital adequacy is clearly a vital and valuable policy tool. That is why Basel II is so important. But systemic crises do not always emanate from capital inadequacy. The first indication of trouble ahead may well come from a completely different area. What I am talking about is the question of liquidity. | 0 |
It is essential for the financial sector to manage climate-related risks, while at the same time, support the economic transition. This means financial institutions have to internalize climate considerations into their business operations and risk management framework and offer financial products and services to help business transition especially in the high-emission and vulnerable sectors without disrupting the economy and leaving someone behind. However, there is no denying that financial sector has substantial gaps and challenges to overcome in order to achieve such goals, particularly on the risk management perspective. Financial sector resilience would be undermined by the climate-related risks without appropriate measures in a timely manner. Thus, central banks and financial regulators have a crucial role in building capacity and facilitating guidelines and tools needed for climate-related and environmental risks. The first step should be providing concrete expectation and guidance for financial industry to uplift their business operations, risk management, and disclosure that align with international standards. Simultaneously, the infrastructures and common tools for climate risk management such as climate scenario analysis, stress test, and climate-related data 1/2 BIS - Central bankers' speeches must be put in place to create an enabling ecosystem where financial institutions and regulators could assess and monitor the risks effectively. Ladies and Gentlemen, Looking ahead, it is thus inevitable that our regulatory and supervisory frameworks should take into account sustainability and climate-related factors. The conduct of prudential framework in this new landscape will arguably be the most difficult task as it is relatively new and still evolving. | This raises the question of whether this expansion has already entered its twilight years, with the risk of recession edging higher with each passing month. As I have said before, expansions do not simply die of old age. 1 Rather, expansions end either because a significant inflation risk emerges that requires a sharp tightening of monetary policy, or the economy is adversely impacted by a large shock that cannot be offset by monetary policy in a timely manner. While the sample of post-war U.S. expansions is still too small for reliable statistical analysis, the evidence suggests that after an expansion’s first few years its likelihood of ending is mostly independent of age, and depends mainly instead on the level of inflation. Since the possibility is low that a significant inflation risk would emerge over the near term, this means that the main danger facing the current expansion is the risk of large, adverse shocks. Given that the labor market still appears to have some excess slack and inflation is below the Federal Reserve’s objective, monetary policy is appropriately still quite accommodative despite the advancing age of the expansion. While this limits to an extent the degree to which monetary policy can aggressively respond to any adverse events, the good news is that the economy is more resilient to any shocks. Key sectors of the U.S. economy, such as the household sector, seem to be in good shape. | 0 |
Through collaboration and strategic alliances between Malaysian Islamic fund management companies and the participation banks in Turkey, the development and distribution of Shariah compliant funds across borders could be made possible and new investment options to divest the savings of retail clients, as well as in the BIS central bankers’ speeches 3 development of investment strategies to meet the needs of high net-worth individuals or sovereign funds. Fourthly, partnership in innovation – where the Malaysian and Turkish financial community could jointly develop innovative products and investment instruments, provide consultation and advisory services on complex legal, accounting, tax and Shariah matters as well as developing human talent to support the development of Islamic finance. Joint Shariah research could also be conducted with International Shariah Research Academy, dedicated research in applied Islamic finance based in Kuala Lumpur. And finally, on the education and research front, possible collaboration can be explored between the International Centre of Education in Islamic Finance or INCEIF and Turkish universities to give opportunities for Turkish students to enrol in professional and postgraduate programs. Students from Turkey intending to deepen their knowledge in Islamic financial industry are encouraged to consider learning opportunities offered by Malaysia including possible attachments with Malaysian financial institutions. As I speak, efforts to develop human capital are already taking place now, as a team from the Malaysian financial community led by the Central Bank of Malaysia is conducting a capacity programme on Islamic finance in Ankara. This programme is held in collaboration with the Islamic Development Bank. | Collaboration between the two countries could be in many forms; for instance Turkish investors and financial institutions could use Malaysia as a gateway to the Asean region. Malaysian financial community could use Turkey as a base to Central Asian region and Europe. In the area of Islamic finance, Malaysia is committed to be a partner with Turkey to further promote the business prospect in this country. Malaysia being an Islamic financial hub in Asia is willing to share with Turkey our 30 years of experience in developing its Islamic 2 BIS central bankers’ speeches financial industry and our knowledge and insights in operating an Islamic financial system that runs parallel with its conventional counterpart. Potential Turkey-Malaysia partnership in Islamic finance There are vast opportunities for Turkey-Malaysia bilateral cooperation, however let me mention five key areas of possible cooperation that could increase cross-border activities between our two countries. These are in the area of sukuk issuance, promoting cross-border activities, Islamic fund management, partnership in innovation and in education and research. Firstly, in the area of sukuk issuance, we welcome Turkish financial and business community to use Malaysia’s comprehensive and tested infrastructure with its extensive investors network as a platform to raise funds such as sukuk and Islamic syndication financing. The multi-currency sukuk market in Malaysia is well developed and active with over 60% of the outstanding sukuk in the world originating from Malaysia. | 1 |
The resulting systematic mis-pricing of, in particular, the super-senior tranches of these securities was a significant source of losses to banks during the crisis, with ratings downgrades large and frequent (Chart 33). A similar risk-taking strategy was the writing of explicit insurance contracts against such tail risks, for example through CDS. These too grew very rapidly ahead of crisis (Chart 34). Again, the writers of these insurance contracts gathered a steady source of premium income during the good times – apparently “excess returns”. But this was typically more than offset by losses once bad states materialised. This, famously, was the strategy pursued by some of the monoline insurers and by AIG. For example, AIG’s capital market business, which included its ill-fated financial products division, reported total operating income of $ billion in the run-up to crisis from 2003 to 2006, but reported operating losses of around $ billion in 2008 alone. What all of these strategies had in common was that they involved banks assuming risk in the hunt for yield – risk that was often disguised because it was parked in the tail of the return distribution. Excess returns – from leverage, trading books and out-of-the-money options – were built on an inability to measure and price risk. The productivity miracle was in fact a risk illusion. In that respect, mis-measurement of the contribution of banking in the National Accounts and the mis-measurement of returns to banking in their own accounts have a common underlying cause. | But the commitment to our objective also implies alertness to future risks and a readiness to respond to them should the medium-term outlook continue to deteriorate significantly. In this case as well, the ECB will adopt all the monetary policy actions that are necessary and proportionate to achieve its objective. We are not short of instruments to deliver on our mandate. 1 See Draghi, M. (2018), “The outlook for the euro area economy”, speech at the Frankfurt European Banking Congress, Frankfurt am Main, 16 November. 2 Three-month-on-three-month percentage changes; CPB Netherlands Bureau for Economic Policy Analysis. 3 See De Bondt, G. and Hahn, E. (2014), “Introducing the Euro Area-wide Leading Indicator (ALI): Real-Time Signals of Turning Points in the Growth Cycle from 2007 to 2011”, Journal of Forecasting, 33:47–68. 4 See Anderson G. and Y. Liu (2012), “On the Road to Recovery, Soft Patches Turn Up Often”, The Regional Economist, Federal Reserve Bank of St. Louis, pp. 12–13. 5 Leverage is calculated by dividing total liabilities net of shares and other equity by total assets. 6 Consolidated gross debt is defined as the sum of total loans granted to NFCs net of intra-sectoral lending, debt securities issued and pension liabilities. 7 See Botelho, V. and Dias da Silva, A. (2019), “Employment growth and GDP in the euro area”, Box 3 in Economic Bulletin, Issue 2, ECB. | 0 |
Our new approach is designed to counter the risk that policy is too accommodating in upswings and too harsh in downturns. Two important principles stand out for me: first, that we must carry out financial regulation with an eye on conditions in the real economy, which means promoting stable and sustainable credit creation and growth; and second, we should always be prepared to look to the risks ahead, and exercise sensible judgment. The financial crisis has taught us in the most painful way of the dangers of waiting too long to take action and then being unable to prevent the worst consequences of delay. The FPC has recommended that British banks make sure their capital level is high enough to withstand future threats. Some banks will need to increase their equity capital for a given level of risk in their balance sheets. Concerns have been expressed that this change will harm lending to the UK economy. I do not agree with these concerns. Equity capital is not money that has to be stashed away for a rainy day and thus put to no good use. It is the shareholders’ stake in the company. In nonfinancial companies, shareholder capital or equity is used to finance the acquisition of assets. The same is true for banks. Equity finances the provision of loans to households and companies, and those loans are the banks’ assets. In that sense, capital supports lending by banks and does not substitute for it. | It therefore seems that the Asian banking and financial markets are moving along the right track and we should congratulate each other for this accomplishment. However, I am not entirely sure if Asia can afford to feel complacent because I believe Asia’s finance is still facing many short-run and longer term challenges. In the interest of time, I would just highlight two key challenges. a. Short-run challenge: clearly this has to do with the Fed tapering and the normalisation of the US interest rates. The key question is to what extent the unwinding of the dollar carry trade, which prevailed for over 5 years since the collapse of Lehman, would lead to significant outflow of funds and tightening of market liquidity across Asia. The risk of a “new normal” causing a rise in interest rates, re-pricing of assets and a slow down of economic growth would be a big challenge for Asia in the next year or two. BIS central bankers’ speeches 1 b. Longer term challenge: there are many structural reform challenges for Asia’s capital markets, but today I would just focus on infrastructure financing. It is beyond doubt that Asia needs heavy investments in infrastructure in the next decade or two. Some have estimated the amounts of funding needed for infrastructure financing to be in the order of $ bn a year. At the same time, Asia has accumulated a huge amount of savings, which are more than adequate to finance the infrastructural investments in the region. | 0 |
However, the fact that the Riksbank clearly indicated that the development of household indebtedness and housing prices were not sustainable in the long term and that monetary policy considered this circumstance may have played an important role in curbing this development. In that case, this is exactly what is meant by leaning against the wind. The housing market today Housing prices have recently started to rise again, which has aroused some attention, not without reason. It is undeniably remarkable that housing prices are rising and that the rate of increase of the banks’ lending to households has started to grow again, at the same time as GDP is very weak and unemployment is rising. However, it seems reasonable to believe that this is because it is inexpensive to borrow money due to the low interest rates prevailing. Rising stock market rates and steadily-growing consumer confidence are certainly also significant. Household borrowing to invest in housing is also an effect we actually hoped to achieve by implementing a low interest rate. It is contributing to supporting demand and employment. Even so, household saving has risen rapidly since 2007, from approximately eight to around 13 per cent of disposable income. Over the short term, I do not consider the development of the housing market to be a problem. Housing prices in Sweden have certainly risen rather rapidly in real terms too, but there are good explanations for this. | Lars Nyberg: In the wake of the financial crisis Speech by Mr Lars Nyberg, Deputy Governor of Sveriges Riksbank, at the HQ Bank, Stockholm, 18 November 2009. * * * I would like to start by expressing my gratitude for having been invited to discuss a few of my thoughts about what may follow in the wake of the financial crisis. Make no mistake, the crisis is not behind us yet. Many balance sheets in many countries must be adjusted before the world’s banking system can be given a clean bill of health. But the acute phase is hopefully over, giving us reason to reflect not just over why developments took the turn that they did – many others have already written volumes about this – but also over what should be done to prevent these mistakes from being repeated. Much of this discussion deals with regulation and supervision and, just like after every crisis, many political initiatives are being proposed, some better than others. This is what I intend to talk about today. But there is also reason to reflect over the interplay between financial stability and monetary policy. The current crisis has indisputably demonstrated that monetary policy and financial stability overlap in many important ways that we in the central banks previously may not have entirely considered. I intend to devote the main part of my speech to this issue. | 1 |
Beyond broad effects on growth, it is also clear that the new regulations should neither derail financial systems nor favor some particular business models over others. 2 BIS central bankers’ speeches Yet, there was, and still is, a need to move from a financial world of excessive risk taking and heavy regulatory arbitrage to a new system of better quality capital and increased risk capture. An implementation of the Basel III package endorsed by the G20 will provide the appropriate foundations for such a system, provided that phase-in arrangements are respected and implementation is coordinated globally. Thank you for your attention. BIS central bankers’ speeches 3 | 1/2 I am aware that banks have their own methodologies to evaluate risks when granting loans and advances and recently, they have been adopting modern methods of credit risk mitigating techniques based on the Basle Principles. To begin with, the lack of adequate knowledge of the industry, poor credit assessment skills and ineffective follow-up and supervision of loans are the key to non-recovery of debt. A banker who lends only against collateral without looking at the viability of the project is obviously imprudent. Sometimes, banks are not familiar with the industry to which a loan is granted - it is imperative that they are conversant with yields, markets and prices to be able to assess the viability of the project. In others, follow-up and monitoring is virtually non-existent. The close monitoring of a project during the gestation period or grace will often leads project to fruition and in turn will bring in repayment according to the repayment plan. These areas call for special attention by banks and financial institutions. The banks try to mitigate these lapses by the use of modern technology and intensive evaluation processes in granting loans and advances. Even these attempts can be beaten by unexpected eventualities and by willful defaulters. While credit discipline and culture are of paramount importance for financial institutions’ viability and the stability of the financial system as a whole, we need to strike a balance between the system viability and revival of enterprises/industries, in a manner that they can be going concerns and repay their debts. | 0 |
Obviously, it is part of our mission here at the National Bank of Romania to monitor, understand and assess these and related phenomena which may affect - both positively and negatively - the Romanian monetary system and banking system and more generally our economy. That being said, the reason we have invited her here today is related to this specific aspect of her more recent work. So far we have seen blockchain and cryptocurrencies mostly discussed and assessed from the perspective of information technology and economic theory. We are interested at the same time to see how the cryptocurrency problem is also perceived from the perspective of an analysis largely rooted in the experience of intelligence studies and practice, and of an expert in strategic decision making in conditions of risk and uncertainty. We are also interested to see how such an expert is framing the problem of cryptocurrency as a massive economic challenge to the national economies, a problem requiring a strategic assessment of the alternatives; to see how an expert in structured analysis may present the issue in a systematic, methodical way. Last but not least, we are interested in the evaluations which are emerging out of this exercise, including the opportunities as well as the warnings. Hence the title of the presentation: "Bitcoin Versus Central Bank Digital Currency (CBDC): The Most Important Economic Decision Nations Have Ever Faced. Analytical Frameworks for Comparative Assessment and Strategic Decisions." In terms of how we are going to proceed, the event will have two parts. | More generally, supervision and regulation are designed to both support productive financial intermediation and limit disruption and financial stability risks.3 Today, I will talk about a simple framework for one view of policy efficiency in a world of two policy objectives – financial intermediation and financial stability. As in traditional finance theory, one can think about an “efficient policy frontier” that maps the trade-offs among these objectives. One might choose a set of policies that supports a high level of financial intermediation and also accepts a higher risk of disruption or crisis. This might be achieved, for example, with relatively light oversight or low capital requirements. Alternatively, one might choose a different set of policies, such as more intensive oversight and stringent capital requirements that likely reduces risk, but also limits intermediation. An efficient policy is one that minimizes risk for a desired level of intermediation—it is on the efficient policy frontier. This efficiency idea is distinct from the policy choice itself, as any of these policy regimes can be efficient in the sense that risk is as low as possible for a desired level of intermediation. I’ll emphasize that this framework is agnostic to the merits of one policy choice or another. That is, it is a positive framework and not a normative one, and I won’t look at this from a normative perspective. Policy preferences can vary and they are set by policymakers. | 0 |
Hence, the insignificant degree of EU cross-border banking integration is probably partly explained by economic factors. However, the existence of large differences in profitability and efficiency between individual EU countries’ banking systems indicates potential for cross-border expansion also within the EU. In competitive industries, such differences do not exist for a longer period, as less efficient firms would be pushed out of business or acquired by more efficient competitors. These wide profitability gaps should attract more efficient entrants. Against this background, it is interesting to note that many European banks seem more attracted to the US banking market. The US banking system is by many considered as the most developed and competitive in the world. You would indeed expect EU-based banks to find it easier to expand within the EU than into the US. Still, several major European banks have much larger retail operations in the US than they have in neighbouring European countries, e.g. HSBC, ABN Amro, and BNP Paribas. One cannot avoid the question of whether larger obstacles to cross border banking exist in Europe than in the US. Regulatory schemes and practices still a major problem for integration Given the gradual increase in harmonisation of EU banking and financial sector legislation, it is perhaps surprising to find regulation to be one of the most important barriers to further integration. In my view, there are two issues here. First, although the general legal framework has been converging, the practical implementation of rules and regulations still differs widely between member states. | Solvency ratio of the banking system percent 20 18 16 14 12 10 Solvency ratio mar.-18 sept.-17 mar.-17 sept.-16 mar.-16 sept.-15 mar.-15 sept.-14 mar.-14 sept.-13 Minimum regulatory capital requirements = 8% Note: Solvency ratio = Total own funds/ Risk weighted assets Source: NBR mar.-13 sept.-12 mar.-12 sept.-11 mar.-11 sept.-10 mar.-10 sept.-09 mar.-09 sept.-08 mar.-08 8 Source: NBR Source: NBR NPL ratio (NBR definition) Jun. 2018 percent Mar. 2018 Dec. 2017 Sep. 2017 Jun. 2017 Mar. 2017 Dec. 2016 Sep. 2016 Jun. 2016 Mar. 2016 60 Dec. 2015 Loan-to-Deposit ratio, % Sep. 2015 70 Jun. 2015 90 Mar. 2015 100 Dec. 2014 percent Sep. 2014 Dec. 2017 Apr. 2017 Aug. 2016 Dec. 2015 Apr. 2015 Aug. 2014 Dec. 2013 Apr. 2013 Aug. 2012 Dec. 2011 Apr. 2011 Aug. 2010 Dec. 2009 Apr. 2009 130 Aug. 2008 Dec. 2007 Figure 11. LTD and NPL ratio Non-performing loans 25 percent 61 120 60 20 59 110 58 15 57 56 10 55 80 54 5 53 52 0 51 NPL Coverage Ratio (rhs) Figure 12. | 0 |
In particular, we can’t be confident about how much fiscal drag will blunt growth. Ultimately, though, the drag should abate. When that happens – presumably later this year, the economy should strengthen. Inflation, as measured by the personal consumption expenditure deflator, is currently below the Federal Reserve’s 2 percent objective (Exhibit 9). Substantial slack remains in labor and product markets, and underlying measures of inflation are subdued. With weak labor compensation growth, the trend growth of unit labor costs is less than 1 percent annualized, which is well below price inflation. Moreover, inflation expectations remain well anchored at levels consistent with our 2 percent longer-run objective. Thus, I conclude that the risk that inflation could significantly exceed our 2 percent objective is quite low over the next few years, even if the recovery were to strengthen considerably. U.S. monetary policy initiatives Beginning in September, the FOMC made a number of important changes to monetary policy in order to promote a stronger recovery in the context of price stability. First, the FOMC began purchasing an additional $ billion of agency mortgage-backed securities (MBS) each month.4 Second, the FOMC stated, for the first time, that it would continue buying assets and employ its other policy tools as appropriate until there was a substantial improvement in the labor market outlook5. Third, the FOMC stated its intention to maintain a highly accommodative stance of monetary policy for a considerable time after the recovery strengthens. Two additional initiatives followed in December. | And, according to Congressional Budget Office projections, even if remittances drop sharply in future years, cumulative remittances would still likely be higher compared to the counterfactual regime in which the Fed had not expanded its balance sheet (Exhibit 14). In addition, because Fed purchases put downward pressure on long-term interest rates, this 12 Asset Bubbles and the Implications for Central Bank Policy, Economic Club of New York, April 7, 2010. 13 If the Fed’s net income fell below zero in a year it would record a deferred asset that it would redeem with future net income. Paid in capital and surplus would remain positive in a very wide range of scenarios. See The Federal Reserve’s Balance Sheet and Earnings: A primer and projections , Seth B. Carpenter, Jane E. Ihrig, Elizabeth C. Klee, Daniel W. Quinn, and Alexander H. Boote, Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System, 2013-01. See also SOMA annual report (forthcoming). 6 BIS central bankers’ speeches generates interest savings for the Treasury, and this benefit should be included in the fiscal cost calculations. Finally, and most importantly, to the extent that asset purchases are effective in pushing the trajectory of economic growth above what would otherwise have been the case, this will lead to higher federal government tax revenue and lower safety net spending outlays during the recovery period. | 1 |
Apart from our continuous efforts to put in place a conducive platform, it is also crucial for market players to maximize their readiness to grasp the opportunities brought by the development of Islamic finance in Hong Kong. After all, market players will be the ones who drive the growth of the market ultimately. So, I highly encourage you all to gear up for the new opportunities ahead of us. On this, I am pleased to note that some financial institutions have already started to get ready by mobilizing their staff in the Middle East or Malaysia to Hong Kong, as well as providing training to their staff in Hong Kong. The fact that you are here today is also a good indication that you are keen to prepare yourselves. I hope you would take the most out of this workshop. 14. Thank you. BIS central bankers’ speeches 3 | Since the vast majority of household debt is related to housing, it is not surprising that debtto-income ratios were highest and rose most in places that experienced rapid rises in home prices. So, for example, debt-to-income ratios are among the highest in the nation in those places most associated with the housing bubble, such as California, Florida, Nevada and Arizona. This relationship can also be seen within our region. For example, household debt grew more slowly than nationally and has remained relatively low in upstate New York, which was largely bypassed by the housing boom. The key exception is New York City, where a large share of residents rent their homes. Overall, city residents still have relatively low levels of mortgage debt, even though these debt levels rose during the run-up to the recession. Elsewhere in the region, debt levels tended to rise most in places where housing prices increased the most, such as Long Island and parts of New Jersey. During the crisis, in most parts of our region, households reduced their debts. But, because they had not accumulated as much during the run-up, the decline was well below the national average. In general, households in our region – with some exceptions that I will mention in a moment – have not been under as much pressure to deleverage. It’s particularly notable that in upstate New York, where debt levels are well below the national level, households have actually continued to very slowly add to their debt. | 0 |
But new holders of such risk may not have the same understandings of what the risks consist of, as those who generate them. And accordingly they may behave in unexpected ways when shocks arise. For example in banking, confidence in the liquidity of the system and expected behaviour is underpinned by the presumption that, in the absence of a credit event, obligations will be honoured at a known time and date. This would typically beon the expiry of a loan contract - the crystallising event if you like. In general insurance on the other hand, the industry is used to handling crystallising events differently. Rather than acting as the trigger for immediate payment of due amounts, it may instead lead to discussion - even dispute - the results of which will determine how much is eventually paid and when. So risk transfer contracts straddling the two areas may engender expectations that in practice may harbour surprises; with unexpected outcomes and adverse behaviour. 8. Implications of the new environment: new types of financial player A key ingredient of life in today’s financial world of course is the new players, or the increased significance of previously smaller players - encouraged as they have been by liberalisation and new risk transfer techniques. Firstly there is the advent of globally active Large Complex Financial Institutions - LCFIs. These create a particular challenge for public policy. They are built on highly sophisticated understandings of the global market place. Their deployment of intellectual capital has been dramatic. | These focus both on “hard infrastructure”, including payment and settlement systems, and on “soft infrastructure”; standard-setting in areas like accounting, audit, prudential and legal standards. We also analyse key developments in the international arena, for example in relation to threats of failure of emerging market economies and response to this. 12. Public policy response - institutional As to the second area - the institutional response - there are both national as well as international dimensions. On a national basis, countries increasingly recognise the distinction between supervision (looking at the individual institutions and markets) and the systemic factors involving concentrations, interrelationships and behaviour in relation to the system as a whole. Each is an essential element in the provision of financial stability oversight. In relation to supervision, in some jurisdictions - including the UK, Japan and Germany - all the supervisory functions are carried out within one institution. In others they are handled by different agencies. Certain countries have combined questions of the systemic issues with those of prudential oversight, and then put the investor and consumer protection aspects of regulation into separate agencies [the “twin peaks” approach adopted in Australia and France]. Yet others still survive with a multiplicity of agencies. The US is a case in point - and it is worth noting that, despite all its complexities and conflicts, the health of the US financial sector as well as its economy do not appear to have suffered unduly, despite episodes like the savings and loan crisis. | 1 |
That can be influenced by the whole raft of Government policies, ranging from education and health to taxation and social security, and it depends ultimately on the ingenuity, the productivity, and the flexibility, of the economy. Employers and employees, working together, clearly have a crucial role to play in this context, and I recognise the constructive and forward-looking role that many of you are now playing to improve the supply-side capacity of the economy. Monetary policy operates on the demand side. And the best help that we can give is to keep overall demand consistently in line with that supply-side capacity - not letting it run above capacity but not letting it fall below capacity either - as reflected in consistently low inflation. That way we can moderate rather than aggravate the unavoidable ups and downs of the business cycle, enabling steadier growth, high levels of employment and rising living standards to be sustained into the medium and longer-term. And if we can do that, then we will contribute indirectly to the supply side by creating an environment which encourages more rational, longer-term, decision-making throughout the economy. I would hope, Chairman, that on this basis we could all agree at least on what it is we are trying to do. The debate is not about the ends it is about the means. We are every bit as concerned with growth and employment as you are - as anyone in their right mind must be. | Mr. George discusses monetary policy, unemployment and economic growth in the United Kingdom Speech by the Governor of the Bank of England, Mr. E.A.J. George, at The TUC Congress in Blackpool on 15/9/98. Thank you, Chairman. I’m actually very pleased to be here, and to have this opportunity to respond directly to some of the serious concerns that have been expressed recently by Trade Union leaders - among others - about monetary policy. Let me start with what is perhaps your biggest concern. You think that the Monetary Policy Committee, which I chair and which sets interest rates, is only interested in controlling inflation and takes little or no account of the effects of its decisions on real economic activity and jobs. Some of you evidently think that’s because we’re a crowd of “pointy-heads” or “inflation nutters”, or even “manufacturing hooligans” - and I’m not sure these descriptions are intended as terms of endearment. More seriously some of you think that the problem lies with our remit from the Government which is first, to maintain price stability - defined as an underlying inflation rate of 2½%, and, subject to that, to support the economic policy of the Government, including its objectives for growth and employment. Whatever the reason, your concern is that we place too much emphasis on holding prices down and not enough on keeping growth and employment up. | 1 |
The scenario also poses a number of risks to banks’ market share, to the liquidity of retail deposits, to fees from payment services and to the ability to retain and access customers and to the use of their current data advantage to cross sell products. If firms are depending more on technology like the cloud and third party providers, this environment could also pose cyber and operational risks. The impacts are not of course all one-way. There is an upside for existing banks. New technology and customer relationships gives them the opportunity to provide customers with new and better products and services, to compete and, crucially, to become more efficient. 12 All speeches are available online at www.bankofengland.co.uk/speeches 12 In their responses, the banks in the test judged they could maintain existing business models without increasing overall risk taking, meeting the requirements of both regulators and investors, and using technology to increase efficiency to offset lower margins. Our assessment was that there were a number of risks to the banks’ projections in the exploratory scenario. In particular, Open Banking, PSD2 and other related changes might cause greater and faster disruption to business models and the forecast increases in efficiency may be more difficult to deliver than assumed. Investors might also demand a higher return than banks’ forecast in the exercise. The Bank of England’s 2017 Exploratory Scenario was not a pass or fail stress test. | With the agreement of the region’s regulatory authorities, this can be achieved through the formation of a regional dealers’ network for the primary and secondary market. Such regional dealers will help to distribute securities around the region and more importantly create the market to facilitate cross-border transactions. In doing so, it creates liquidity in the fixed income market, attracting greater foreign investors’ participation and lowers the cost of funding. ASEAN corporates are thus able to tap into new markets and investors and widen their sources of financing. This contributes to greater depth and breadth of the regional fixed income market. Secondly, as intra-regional trade within ASEAN is becoming more significant with further potential in intra-regional investments, another untapped area is the cross currency foreign exchange market, that could support regional settlement for trade and investment. ASEAN is well positioned to advocate the greater use of regional currencies that will further enhance and deepen regional financial integration via use of regional currencies for trade settlement. The cost of hedging the exchange rate risk will be lower thus it promotes efficiency in trade BIS central bankers’ speeches 3 and enhances export competitiveness of our businesses. We should therefore, work together and double our effort to promote and enhance the use of regional currencies for trade and investment settlement. Sovereign funds managers could also give a timely boost to this effort by investing a fraction of their funds into domestic currencies of regional bond markets. | 0 |
For example, some banks are increasingly using AI techniques, such as Natural Language Processing, to identify contractual obligations where Libor is involved. We ourselves have recently deployed an AI tool that can support PRA supervisory judgement with efficient analysis and extraction of unstructured firm intelligence. 8 https://www.bankofengland.co.uk/speech/2021/april/gareth-ramsay-webinar-hosted-by-the-edm-council https://www.bankofengland.co.uk/paper/2020/open-data-for-sme-finance 10 https://www.bankofengland.co.uk/news/2021/february/data-collection-transformation-plan 11 https://www.gov.uk/government/publications/cdei-ai-barometer 12 https://www.bankofengland.co.uk/quarterly-bulletin/2020/2020-q4/the-impact-of-covid-on-machine-learning-and-data-science-in-ukbanking 9 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 But the rapid pace of adoption also means this is a pivotal moment for the UK to consider how best to support firms’ safe adoption of AI and what that means for the relevant regulatory frameworks. To inform our decisions about regulatory frameworks we’ve been engaging with fintech firms, other financial services firms and authorities, in particular through the AI Public-Private Forum (AIPPF). This year-long initiative, cochaired with the FCA, brings together a diverse group of experts to discuss the key issues related to data, model risk management and governance.13 This includes examining how existing policy frameworks affect and encompass AI, and what the appropriate level of any future potential policy should be. So far, the AIPPF has explored the key data-related issues, such as: 1. the use of ‘alternative data’; 2. how to adapt existing data quality standards to an AI context; 3. fair and equal access to third party data (including pricing); 4. ways to address bias and the challenges of operationalising ethical principles; and 5. approaches to data and AI governance. | This should help support a proportional approach to regulation, as part of the Future Regulatory Framework proposals set out by the Treasury.18 This new framework would make it easier for our regulation to adapt to innovation, and deliver a more tailored regime for firms, responding dynamically to new challenges. We are also looking forward to working with the FCA as their Scalebox develops. We continue to work closely more generally with them on the supervisory approach to new and growing dual-regulated firms. 14 https://www.bankofengland.co.uk/prudential-regulation/publication/2019/outsourcing-and-third-party-risk-management https://www.bankofengland.co.uk/speech/2020/sarah-breeden-climbing-mountains-safely 16 https://www.bankofengland.co.uk/prudential-regulation/publication/2020/new-and-growing-banks 17 https://www.bankofengland.co.uk/speech/2020/sam-woods-city-banquet 18 https://www.gov.uk/government/consultations/future-regulatory-framework-frf-review-consultation 15 6 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 6 Cross-authority and international collaboration The Bank is just one of many institutions with a role to play in the evolving fintech landscape. And we regularly work with other public authorities as we fulfil our role, including the FCA, the Treasury, and Payments and Competition authorities. A number of institutions have put out proposals and consultations on how the UK’s regulatory framework should adapt to support financial innovation. The Payments Landscape Review, led by the Treasury, has gathered evidence across the breadth of the payments sector to understand the rapid technological developments and what that might mean for regulation. 19 The Treasury has also launched a consultation on the regulation of stablecoins,20 and the FPC has set out its expectations for stablecoin-based payment chains.21 And Parliament has launched an inquiry into the Future of Finance in the UK. | 1 |
Private sector’s consumption expenditures rose by 36.4 percent in real terms in the period from 2001 to third quarter of 2006, while public expenditures rose by 15.5 percent with the acceleration especially in the last two quarters. Looking at the investment side, we see that the private sector’s investment spending increased by 134.3 percent in real terms while the public investment spending went up by 14.1 percent. The high increases observed in investment spending also indicate that the investment-oriented basis of growth is widening and so the production capacity is increasing. Another resource for growth is the high increase in efficiency. Accumulated efficiency increased by 39.3 percent in the last five years. The high efficiency rates support the growth process without inflation on the one hand and they contribute to the sustainability of growth on the other. The exports have had great contributions in growth in recent years and this contribution keeps growing gradually. The Turkish economy is opening its doors. Accumulated annual exports rose by 167.5 percent as of November 2006 compared to the year 2001. The total trade volume in the last year reached 220.8 billion USD and it constitutes 57 percent of the national income. BIS Review 28/2007 5 Dear Guests, The new structure of the growing process in our country is an indicator of the significance of macroeconomic stability, which lies on the basis of price stability for growth and competition. | The rising expenditures, especially the investment spending increase the demand for machinery and equipment; and this demand can be met by imports due to the structural peculiarities of the Turkish economy. This process leads to the enlargement of the difference between the domestic savings and investments, which is an indicator of the current account deficit and causes the need for foreign resources to arise. With the help of the macroeconomic stability and the inflow of foreign capital, Turkish currency is appreciated and the process is reiterated giving way to an increase in the current account deficit in the environments where this resource can be provided and foreign borrowing becomes an option. A similar process was experienced due to the improvements recorded in the macroeconomic stability in the last five years and remarkable increases were observed in the current account deficit owing to the effect of high speed of growth. The current account deficit reached 34.4 billion USD in October per annum and the ratio of the current account deficit to national income in the third quarter of 2006 became 8.5 percent. However, the reasons besides the financing method should be examined in order to determine the extent of the risk that the current account deficit poses with regard to the macroeconomic balances. Current account deficit today basically originates from the faster increase of investments in comparison with the savings. Additionally, high increases observed in energy prices and especially crude oil prices influenced the increase in current account deficit in a vast amount. | 1 |
Thus, i) The maximum amount to be purchased in daily foreign exchange buying auctions has been set as USD 45 million for 2007, with USD 15 million for auction amount and USD 30 million for optional selling amount, ii) Then, the auction amount has been raised to USD 40 million as of 25 July 2007 with an assumption that the capital inflow to Turkey will follow a strong trend due to the end of the election process and positive expectations for macroeconomic policies, iii) However, the auction amount has been lowered to USD 15 million as of 15 August 2007 due to the fact that the unfavorable developments in housing and credit markets in developing countries increased the volatilities in the Turkish markets as well as in other developing markets in the said period. iv) The measures taken by central banks in order to alleviate the problems in housing and credit markets have relatively reduced the volatilities in these markets and increased the global risk appetite. Therefore, the maximum amount to be purchased in auctions has been set as USD 90 million with USD 30 million for auction amount and USD 60 million for optional selling amount from 9 October 2007 onwards. As of 14 December 2007, the total amount of foreign exchange purchased via auctions in 2007 is USD 9.5 billion and there has not been any direct intervention in the foreign exchange market. | However, as was the case before, the developments related to foreign exchange supply will be closely monitored and in the event of unforeseen extraordinary developments, the Central Bank may, with prior notice, change the daily auction amount and/or optional selling amount in both directions and may suspend the auctions temporarily for shorter and longer periods. On the other hand, the Central Bank will continue to closely monitor the volatility in exchange rates also in 2008 and will directly intervene in the market in the event of actual and potential excessive volatilities. Banks will also be able to borrow foreign exchange in terms of USD and euro from the Central Bank within the predetermined limits with a one-week maturity in the Foreign Exchange and Banknotes Market-Foreign Exchange Deposit Market in the upcoming period. Moreover, the purchase/sale transactions of “foreign exchange against foreign exchange”, “foreign exchange against foreign banknotes” and “foreign banknotes against foreign banknotes” conducted between the Central Bank and institutions authorized to operate in the Foreign Exchange and Banknotes Markets will continue. In conclusion, within the framework of the current exchange rate regime and the exchange rate policy of the Central Bank, economic agents should take into account that they operate in an environment of exchange rate risk and that they should establish mechanisms that will ensure the efficient management of this risk. Liquidity management As an outcome of the Central Bank’s foreign exchange purchases, the excess liquidity in the market continued in 2007, as well. | 1 |
But the heavy fall of just over six per cent that occurred between the third quarter of 2008 and the first quarter of 2009 was abnormally large. This was probably partially due to a decrease of the degree of utilisation of capital and labour. According to Figure 8, actual GDP and potential GDP were largely the same in 1995 and 2005. As the estimate of potential GDP was not seriously affected by terminal point problems or deep recessions in these years, it probably provides a reasonable view of potential GDP. This is also supported by data on economic activity that shows that resource utilisation was largely normal in these years. The average rate of growth in GDP between 1995 and 2005 11 See, for example Orphanides, A. (2010), “Monetary Policy Lessons from the Crisis”, Central Bank of Cyprus. 12 Experiences of earlier financial crises are described in detail in Reinhart, C.M. and Rogoff, K.S., “This time is different: eight centuries of financial folly”, Princeton University Press, 2009. BIS central bankers’ speeches 5 was 3.1 per cent per year. Consequently, this is also the average rate of growth of potential GDP during this period. According to Figure 8, actual GDP and potential GDP were also roughly the same in 2011. Between 2005 and 2011, both GDP and potential GDP have thus increased by an average of 2.0 per cent per year. | Another measure of this type is the employment rate from the labour force surveys (AKU), which shows the proportion of the population of working age that is in employment. Figure 12 shows that the employment rate this year is close to the average for the years 2000–2008. 13 The assumed long-term GDP growth in Figure 7 after the end of the forecast period in 2013 is 2.3 per cent per year. 14 Reinhart, C. M. and Reinhart, V. R. (2010), “After the Fall”, National Bureau of Economic Research Working Paper 16334. 15 Svante Öberg, “Potential GDP, resource utilisation and monetary policy”, 7 October 2010. 6 BIS central bankers’ speeches The Riksbank’s indicator of resource utilisation (the RU indicator) summarises about thirty such economic variables regarding levels.16 The RU indicator includes survey data from the National Institute of Economic Research’s Economic Tendency Survey for private services, the retail trade and the construction and manufacturing industries. In addition, capacity utilisation in the manufacturing sector from Statistics Sweden, the employment rate and unemployment from the labour market surveys, and unfilled vacancies from the Swedish Public Employment Service are also included. According to the RU indicator, resource utilisation is slightly higher than normal (see Figure 13). Figure 14 shows unemployment together with an average for the period 2000–2008 and an assessment of long-term unemployment.17 Seasonally-adjusted unemployment is presently higher than this long-term level. But assessments of long-term unemployment are fraught with great difficulties. | 1 |
For some time now, particularly after the global financial crisis, stronger regulation and balance sheet constraints of the banking sector have also led to the rapid expansion of non-bank credit. For the most part, however, this expansion has not been 2 BIS central bankers’ speeches well-managed, resulting in growing concerns with over-indebtedness in many parts of the world. One response has been to strengthen the regulation of such institutions, and reduce the inconsistencies in prudential and conduct standards that apply between banks and non-banks. Another has been to capture better information on the activities of non-banks as a basis to inform more targeted policy measures. The question of how to evolve the role of non-bank financial institutions to continue to contribute in sustainable way to financial inclusion is a complex one. While we can agree that a different approach to regulation from that applied to banks is justified, it cannot be at the expense of protection for financial consumers, and risks to financial stability. This middle ground is what is needed, taking into account the specific context of our own economies. The role of financial education Another important strategy for financial inclusion is the enhanced role of financial education. This is not only to encourage greater participation in the mainstream financial system, but also to keep individuals already in the mainstream from being financially excluded in future as a result of changes in the financial landscape. | The theme of the AFI Forum this year, “Driving Policies for Optimal Impact”, underlines the need for us to have a better understanding of the interactions between the objectives and effects of financial inclusion, financial stability and integrity, and consumer protection policies. This need has become more pronounced with the recent global developments. Global prudential standards have been significantly strengthened and are increasingly applied to financial institutions in developing countries. This has heightened the practical challenges faced in implementing these standards in a socio-economic setting where promoting inclusive opportunity is an important objective. The same is also true with stronger standards to combat money laundering to safeguard the integrity of the financial system. In building a BIS central bankers’ speeches 1 financial system that is resilient against crises and abuse, we cannot neglect the socioeconomic impact of policies pursued. Our efforts to build a stronger and more stable financial system would also work to strengthen linkages between finance and development and not to weaken it. Consumer protection regulation is also being significantly strengthened in many countries following the global financial crisis. This has been driven in large part by the recognition that an effective consumer protection framework serves not only to protect individuals from excessive risk; it also has an important role in protecting the financial system from systemic risk. | 1 |
While markets are currently rewarding those countries which liquefy public debt, they seem to be aware of some inflation “tail risks” and hedge themselves through gold and the CHF – whose prices have reached historical highs. At this stage, therefore, the euro area is paying a double price. One for its mistakes and one for its virtues. The mistake, for governments, was to allow the piling up of debt through unsustainable fiscal policies over a decade, and then to create ex nihilo a doubt as to their ability to pay those debts. And we are also paying the price for our virtue and our refusal to liquefy our debt through massive monetization of our fiscal deficits. Will our virtue be rewarded at the end? I believe so and, to explain why, I need to take a longer-term perspective. In the next decade, the world will be divided into two: on the one hand, advanced economies, with high absorption capacity, low savings and high debt with ratios between 85% and 100%; and, on the other, emerging economies, with high savings, low debt (around 30% GDP on average) and less absorption capacity. Our common prosperity will therefore depend on our ability to create stable channels and mechanisms of financial intermediation between those two parts of the world. That, in turn, will crucially depend on the existence of assets that can be considered safe stores of value. | The weak growth in productivity during 2001 and falling profits can also have a subduing effect on wage developments. During 2003 and 2004 the labour market situation is expected to gradually improve, which could contribute to a larger wage drift. A large part (70 per cent) of wages is determined at a local level. At the same time, inflation is expected to be slightly lower, which should have a subduing effect on the wage agreements signed. On average, wages are expected to increase by 4.1 and 4.3 per cent respectively during 2003 and 2004. Pricing and wage formation are influenced by inflation expectations among the different parties concerned, and therefore comprise an important part of the monetary policy analysis. Since March, households’ inflation expectations have remained around 2.5 per cent for one year ahead and the National Institute of Economic Research’s latest economic barometer shows that companies’ inflation expectations have remained more or less unchanged. (Diagram 5 - Actual inflation (CPI) as well as households’ and companies’ inflation expectations). In April, inflation measured in terms of CPI amounted to 2.5 per cent. The effects of the disturbances in supply that temporarily contributed to higher prices on energy and certain foodstuffs last year have abated, which has contributed to a decline in the inflation rate. In the short term, inflation is expected to continue to decline as these temporary effects disappear from the inflation measure. (Diagram 6 - 4 BIS Review 37/2002 Inflation. Outcome and main scenario). | 0 |
The terrorist attack of 11 September 2001 has revealed how far-reaching implications for the international payment system may be brought about by switching off a large-value payment system in a single country. In the circumstances of the increasingly integrated financial markets, central banks must also cooperate more closely and have their contingency plans in place to inject liquidity to the global financial system in a crisis situation. 48 The private sector goes even further to suggest that in a crisis situation central banks should extend intraday credit facility to all banks (not only the domestic ones). Intraday credit could be collateralized by foreign currencies or securities denominated in foreign currencies – cross-border collateral pool facilities. 49 Conclusions Ladies and Gentlemen, globalization of financial markets, trade, manufacturing, services and knowledge is a great opportunity for the global economy. Owing to this process, the developing countries may modernise and grow faster than they have ever done before. On the other hand, both manufacturers and consumers in the developed countries take advantage of the access to the huge global labour market, which makes it possible to lower the costs of manufacturing, enhance productivity and – consequently – lower the prices of many goods and services. Both consumers and producers are also beneficiaries of globalization of the financial markets, which offer a wide range of products and enable a better adjustment of the risk profile and the expected return or cost to the preferences of investors and borrowers. Globalization also has its drawbacks. | The other option, described by Kohn as the “extra action” policy, provides for a deviation of current inflation from a level determined as stable, in return for an improvement of the perspectives of achieving price stability in the future. However, the extra action policy does not mean bursting speculative bubbles by central banks. It rather means “buying” additional insurance against possible negative shocks, which may happen in the future. In Kohn’s opinion, the extra action policy may be run very rarely and only where the three conditions are met: • the central bank must be able to identify bubbles on the asset market in a timely manner and with high certainty as to the correctness of conclusions from the analysis, • the probability that a slight tightening of monetary policy will be able to stand against the speculative activity on a given asset market must be high, • the expected improvement of the future economic situation resulting from a smaller speculative bubble must be significant and higher than the costs incurred by the economy in the aftermath of running the additional action policy. In view of the available studies, it may be stated that it is extremely difficult to sufficiently fulfil the three abovementioned conditions. It may not be excluded, however, that in the future, the understanding of economic processes will improve as much as to enable running the additional action policy in justified cases. | 1 |
In order to outline capital account policy priority, I think policymakers in emerging economies should underline the fact that big market events that pose systemic risks tend to reflect collective mistakes in which most market participants are offside in the same direction. So, to reduce the chance of prolonged financial misalignment with economic fundamentals, the priority for emerging markets may lie in improving the flows and quality of financial information, corporate and public governance, as well as legal infrastructure to allow in different players and views. 6 With players of different views and risk appetites in the market, we have a better chance that the financial system will undergo constant self-correction. Crashes in asset price will also likely be less prolonged and the ensuing economic cost less devastating. 6 See Bannier (2005) for an articulation that large players need not make market responses more aggressive if the market does not uniformly believe that fundamentals are weak. And see Abreu and Brunnermeier (2003) for argument that the resilience of financial bubbles can stem from the inability of arbitrageurs to temporarily coordinate their selling strategies. 4 BIS Review 99/2007 Emerging markets not only require stronger financial intermediaries and better supervisors, but also access to deeper and more liquid capital markets. Our own financial markets may not be deep enough soon enough, but those who are ready for it should not be encumbered from having access to the world financial markets. | It is important to strike a balance between the two by enhancing regulatory and supervisory structures, as this process should by no means result in stymieing competition or economic agents' creative energies. 3. The EU lacks certain institutions. This is clearly pointed out in the De Larosière Report. The chapter focusing on EU supervisory repair proposes a structural reform targeting two areas, namely micro-prudential and macro-prudential supervision. The Report recommends the establishment of the European Systemic Risk Council (ESRC), which should pool and analyse information pertaining to macro-prudential risks and vulnerabilities across all EU financial sectors. The ESRC shall issue risk warnings and shall adopt economic policy recommendations. Another institution proposed in the Report is the European System of Financial Supervision (ESFS), within which the level 3 committees (CEBS, CEIOPS, CESR) will be transformed into three new European Authorities: the European Banking Authority, the European Securities Authority and the European Insurance Authority. These three entities will have wider powers in the licensing and supervision of some specific EU-wide institutions, but it is the strong coordinating role of the ESFS that I want to stress. The fact that the European Systemic Risk Council would be set up under the auspices of the ECB and of the European System of Central Banks would allow it to benefit from the 2 BIS Review 56/2009 analytical capabilities and technical infrastructures developed by central banks in their own monetary and financial stability analyses. This also implies a strong cooperation between the ESFS and the ESRC. | 0 |
I am not thinking of the credit problems of SMEs in the short term due to higher risk aversion or to their weakness during the crisis. These problems have been covered extensively in previous addresses and the measures being taken to alleviate them include exceptional and, naturally, temporary programmes such as those of the Official Credit Institute. Here I am not referring to the short term. My concern is that, although it is positive that all the regulatory changes under way seek to ensure that banks will never again cause the serious problems which arose in many countries and ultimately spread to all of them, it should also be realised that those new post-crisis banks will, by definition, be less willing to lend money for business projects with a certain level of risk. Clearly, you can’t remove the punchbowl and expect the party to swing. The purpose of the calibration exercises undertaken is to avoid excessive requirements that stifle the economy. But nothing will prevent the post-crisis banks arising from the new regulatory regime from being much more prudent and focused on traditional intermediation than in the recent past. It will be possible to temper those requirements involving an excessive cost/benefit burden, but it is doubtful that a change enjoying such wide support will be stopped. The fact is that public opinion in the major countries wants the new international regulatory environment to oblige financial institutions to behave as conservatively as necessary to avoid a repeat of the current crisis. | I shall not elaborate here on this change in style, but let me stress its historical nature, since it entailed the recognition of a far different world from that when the Bretton Woods institutions were designed at the end of the Second World War. But the change in substance has not been any less. The philosophy behind international regulation until then had been based on the idea that private financial institutions knew better than anybody what they had to do, and we could therefore count on self-regulation. Meantime, in many countries, hands-off supervision was the prevailing philosophy: the less the public sector laid its hands on financial activity, the better. The crisis and the initiative of the G20 leaders have called this philosophy into question. An example of this is the radical change in direction of the work of the Basel Committee. Although the so-called Basel II reform had some very positive aspects, such as the greater sensitivity to risk of regulatory requirements and the consequent stimulus for banks to set in place better risk management systems, the Committee’s work was naturally infused by the self-regulation approach then prevailing. However, since late 2008, financial regulation has taken a radically different road. | 1 |
We closely monitor industry structure and fund flows to detect whether the framework is having any unintended impact. For example, we watch banking data and money fund holdings to see if savings are shifting between the two, because if such a shift had to reverse as we wound down the ON RRP, those flows could potentially create costs to the firms concerned and also unnecessary problems for market functioning. We also keep track of prime money funds converting into government-only money funds, because if they do so on the mistaken impression that the Federal Reserve would provide a risk-free investment opportunity indefinitely and on a very large scale, they might later have to unwind that change when their error became apparent. Avoiding financial instability The third lens for evaluating the framework is the extent to which the framework avoids augmenting risks of financial instability. In particular, the framework shouldn’t create a risk that, in times of stress, money market lenders will rapidly disintermediate their usual counterparties and come to the Federal Reserve instead, such as through the ON RRP facility.27 Of course, flight-to-quality effects existed in financial markets long before we put the new framework into place – what I’m referring to is a situation where the framework facilitates those effects or makes them larger. We address the risk of sudden surges in take-up in a couple of ways. For example, we can employ vigilant market monitoring to detect any such shifts and allow the FOMC to formulate a response. | So we couldn’t completely rule out that the federal funds rate and BIS central bankers’ speeches 3 other money market rates might not go up one for one with rises in administered rates. One might also worry that money market rates might not move together as rates rise, meaning that, for example, a disconnect might emerge between secured and unsecured rates, or between overnight and term instruments.24 Either situation could result in impaired transmission of monetary policy into broad financial conditions. Assessing the performance of the new framework To summarize my conclusion about the performance of the operating framework to date: I am extremely pleased with what we’ve seen so far. In discussing why I view the framework as effective, it’s helpful to start by explaining what it means for the tools to work well. I think about this issue through three lenses: interest rate control, avoiding unintended impact on the structure of the financial system, and avoiding financial instability. I’ll touch on what each of these mean, and then I’ll review the quantitative evidence since liftoff on how well things have gone. Interest rate control Clearly, interest rate control is the paramount objective. It is of great importance that the public is confident that the federal funds rate will be, on average over time, within the target range set forth by the FOMC, and that other money market rates will continue to move closely with changes in the federal funds rate. | 1 |
Despite initial fears here in Switzerland, open and integrated labor markets between the EU and Switzerland have clearly given the Swiss economy a welcome boost in recent years. Indeed, private Swiss firms and even semi-public sectors like health care have reaped substantial benefits by drawing on the supply of large numbers of highly skilled immigrants from the EU member states and in particular from Germany. Moreover, this has not come at BIS Review 87/2010 1 the expense of Swiss workers. Recent research actually suggests that the immigration from the EU during the last couple of years has narrowed the wage differential. 1 Immigrants have also been an important source of demand during the financial crisis. They are clearly one of the reasons why Switzerland’s economy has weathered the financial crisis relatively well. Indeed, Switzerland is one of the very few developed countries where private consumption remained a steady source of growth virtually throughout the entire financial crisis. 2 A particularly relevant benefit directly linked to the introduction of the Euro pertains to exchange rate volatility. After the introduction of the Euro and before the peak of the financial crisis in 2008, the average Euro – Swiss franc volatility was roughly 30% lower than the prevailing Deutsche Mark – Swiss franc volatility in the 1990. The compression in exchange rate volatility is significantly larger if one takes the Lira or the Peseta or any of the other peripheral European currencies as a reference point. | In an attempt to understand what is currently happening in Europe, we have to go back to the 1950’s. European integration as we know it began 60 years ago, and until recently, it has been a success. The signing of the treaty establishing the European Coal and Steel Community on 18 April 1951 was the first genuine step towards economic and political integration. The six signatories – Germany, France, Italy, the Netherlands, Belgium and Luxembourg –, agreed to run their coal and steel industries under a common management. The overriding goal was to secure a lasting peace on the European continent. The introduction of the Euro in 1999 was just one further – albeit major – step in this long-standing integration process. Throughout these decades, the world benefited from economic prosperity and peace on the European continent; a continent, that had previously been torn apart by two world wars within the span of forty years. From a Swiss perspective, regardless of one’s political or ideological leanings, there can be no doubt that the Swiss economy situated at the very heart of Europe but remaining outside the European Union (EU) has benefited from the continued process of European integration. There are a host of examples to illustrate this. The bilateral agreements Switzerland concluded with the EU in 1999 and 2004 would have been very difficult to reach with 27 individual nations. Among other things, this has led to greater immigration from the EU. | 1 |
Fast and Secure Transfers A successful example of ISO 20022 adoption in Singapore is “Fast And Secure Transfers” or “FAST”. This is a secure electronic funds transfer service that is available 24/7. 2 BIS central bankers’ speeches • We started with 14 participating banks in March 2014, we now have 19. • FAST usage has risen steadily, clocking 18 million transactions since its launch. FAST offers several advantages for bank customers in Singapore. • You can pay someone almost instantaneously from your computer or mobile device at any time of the day. • You can receive confirmation of payment within seconds. • If you are a company, whether big or small, near-instant payment and confirmation round-the-clock makes a huge difference if you rely on cashflow to pay suppliers frequently. With the whole transaction going electronic, you can look forward to more efficient reconciliation of your payments with your financial accounts. • In short, FAST is almost as convenient as cash, yet potentially safer and cheaper. While the take-up of FAST has been encouraging for person-to-person payments, it has some ways more to go for merchant payments. On the payee side, a barrier to adoption by merchants is the challenge of integrating electronic payments with the existing work flow of confirming and reconciling receipt of payment, which is currently done at the cash register. Two of our banks have come up with solutions for this. | • MAS is working with several other banks and insurers on their plans to establish and expand their analytics and innovation teams in Singapore. At the heart of a Smart Financial Centre must be a progressive information technology architecture. Two key characteristics of such an architecture are: • common standards; and • seamless data sharing. Common standards Let me begin with common standards. They are key to making systems interoperable and harnessing fully the benefits of new payments technologies. Lack of standardisation leads to fragmentation, inefficiency, and inconvenience. • Take for example electronic funds transfer. • Without a common standard, an application written to effect funds transfer for one group of financial service providers may need to be rewritten to work with another group of financial service providers that operate on different interface standards. Common standards allow systems and applications to operate efficiently and seamlessly when different financial service operators and solution providers come together. • The EMV chip is one of the most impactful examples of a common standard. It is all the more impressive as it was an industry initiative without any government involvement. • NFC, or near-field communications, represents the next big thing in common standards. It is enabling contactless payments on mobile devices like smart phones. Yet another good example of a common standard is ISO 20022. This is the international standard for electronic data exchange among financial institutions. • Its growing adoption has helped to make payments platforms interoperable and reduce inefficiency. | 1 |
Ideas and Institutions – A Growth Story Speech given by Andrew G Haldane Chief Economist Bank of England The Guild Society University of Oxford 23 May 2018 The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Shiv Chowla and David Ronicle for their help in preparing the text. I would like to thank Will Abel, Sandra Batten, Sarah Kinson and Patrick Schneider for their comments and contributions. 1 All speeches are available online at www.bankofengland.co.uk/speeches Economic growth has been among the greatest gifts given to us, as individuals and societies. It may no longer be fashionable to say so. Measures of economic growth, like Gross Domestic Product (GDP), can be highly imperfect metrics of how well individuals and societies are faring, their subjective sense of well-being. 1 And growth in income and output is not, of course, an end in itself. Nonetheless, it is now pretty well-established that growth is a vital ingredient, indeed pre-requisite, for meeting many of the broader societal objectives many would view as important to our longer-term health, 2 wealth and happiness. While not an end in itself, economic growth appears to be a vitally important means of achieving those societal ends. Economic growth is the main reason why global levels of poverty and rates of infant mortality have fallen spectacularly over recent centuries. It is why longevity and educational standards have risen secularly over the same period. | 30 9 All speeches are available online at www.bankofengland.co.uk/speeches 9 During the first three Industrial Revolutions, the skills workers needed to keep one step ahead of the machine were largely cognitive. Machines undertook largely manual (“doing”) tasks, which had previously used labour-intensive technologies. Cognitive (“thinking”) tasks remained, by and large, the exclusive domain of humans. So institutions emerged to nurture thinking skills, largely in children and young adults, to increase the chances of successful transition to the cognitively-intensive future world of work. In children, the most important of these institutional innovations was probably compulsory schooling. For children between the ages of 5 and 10, this was formally introduced in the UK with the Elementary Education Act of 1880. It was extended to age 11 in 1893 and age 12 in 1899. The Fisher Act of 1918 provided for compulsory education to age 14 and part-time education to age 18. Compulsory full-time education was extended to age 15 in 1947 and age 16 in 1972. 33 As these pieces of social infrastructure developed, so too did standards of educational attainment and cognitive skills. The fraction of the population aged 15 and over that attended secondary school rose from 23% to 60% between 1950 and 2010. 34 In the 1950s, less than 11% of the relevant age group passed five or more GCSE O levels in England and Wales. By 2010, that had reached almost 80%. | 1 |
In early December, OPEC and other oil exporters agreed to cut production in 2019. However, the developments of this year demonstrate that producers can rapidly ramp up shale oil production when prices are high. Another considerable external factor is geopolitical risks affecting both Russia and other 1/3 BIS central bankers' speeches countries and regions. As far as internal factors are concerned, here we have persistent uncertainty over the price response to the VAT rate hike, the effect of this year’s weakening in the ruble on inflation, and its effect on inflation expectations. It means that the uncertainty over price movements is associated with both an estimated direct effect of proinflationary factors and the scale of secondary effects dependent on inflation expectations. Thus, our baseline scenario assumes that the VAT rise will contribute approx. 1 pp to inflation. However, the possible estimates of this contribution range between 0.6 and 1.5 pp. The scale of secondary effects is still harder to estimate. Even a temporary acceleration of price growth raises inflation expectations of both households and businesses. We saw it from the surge in petrol prices registered in May-June this year. Petrol prices have been stable in the second half of the year. However, surveys suggest that Russians are highly concerned about the rise in petrol prices. Inflation expectations remain unanchored. This means that they are highly likely to go up in response to price growth following the VAT rate hike. Therefore, we cannot consider the VAT rate revision as a purely one-off factor. | The residual impact of the one-off factors on annual inflation is set to be entirely gone in one year’s time – in the first quarter of 2020. Now, I will say a few words about the economy and the forecast. Economic growth rates remain close to their potential levels. Unemployment is invariably low and close to its natural rate. Having said that, certain economic activity indicators continue to post a mixed performance. The forecast remains essentially unchanged. Given the state of the global energy market over recent months, we have downgraded the oil price path somewhat in the baseline scenario. The assumption has been updated to reflect faster declining oil prices in the course of 2019 – based on the calculation that the average oil price will total $ per barrel (from the previous estimate of $ a barrel). Moving forward, the average price is set to remain at this level between 2020 and 2021. As before, our approach to oil price assumptions is conservative. The oil price volatility we saw in the fourth quarter (from $ to $ a barrel) is an indication of the validity of this approach. The running fiscal rule will ensure that the impact of changing oil prices on economic growth 2/3 BIS central bankers' speeches remains limited. We therefore leave our GDP growth forecast unchanged at 1.2-1.7% for 2019, admitting it may rise to 2-3% in 2021 as the Government implements its structural reforms. Changing oil price assumptions have stronger implications for our estimated balance of payments. | 1 |
Further, growing deviations between benchmark and production projections could highlight emerging (or declining) areas of risk. In this regard, a related area of research could address optimal ways for supervisory to assess the signal when benchmark and production model results deviate significantly from one another. Finally, these simpler models could potentially form the basis of a more dynamic, systemfocused stress test analysis that builds in the linkages and feedbacks not currently captured in the CCAR and DFAST stress testing programs. This is a short list of what I see as some important tactical issues in supervisory stress test modeling. But I also want to highlight some bigger picture issues where additional research could help guide the evolution of the supervisory stress testing regime. Recall that I framed my discussion by arguing that supervisory stress testing emerged from the experience of the financial crisis to address both the backward-looking nature of regulatory capital requirements and potential first-mover problems that an individual bank might face in cutting dividends or raising new capital during periods of emerging stress. If that’s the case, how well has the stress testing regime, as incorporated into the SCAP and now the CCAR and proposed Stressed Capital Buffer approaches, addressed these problems? Is the approach working? Does it stand up? It is easy to see that banks have more regulatory capital now than before the financial crisis. | Chart 7: Three-month interbank rates relative to expected policy rates Chart 8: Three-month UK interbank rate relative to expected policy rates Sterling Basis points 250 Basis points Euro 400 US dollar 200 350 300 (d)(e) 150 250 Forward spread on 7 October 2008 (c) (c) 200 150 100 Forward spread on 20 October 2008 (c) 100 50 50 0 Jan. Apr. 2007 Jul. Oct. Jan. Apr. Jul. Oct. Sources: Bloomberg 08 and Bank calculations. 0 Jul. 2008 Sep. Nov. Jan. Mar. May. Jul. 09 Sources: Bloomberg and Bank calculations BIS Review 132/2008 7 Chart 9: Dynamic provisioning Specific provisions as a percentage of total loans General provisions as a percentage of total loans Total provisions as a percentage of total loans Upswing Per cent of total loans Downturn 0 Time Table 1: Key actions to improve resilience • Macroprudential tools are needed to guard against systemic risk • Capital levels need to rise and need to be of sufficient quality • Liquidity standards should be strengthened • Strengthen the legal framework for depositor protection and bank resolution • Better management of cross-border financial institutions • More disclosure, including potential future balance sheet volatility • Developing centralised infrastructures for over-the-counter instruments 8 BIS Review 132/2008 | 0 |
In summary, the central bank, such as ours, has a key role in the attainment of the MDGs through the implementation of appropriate monetary and supervisory policies that ensure price and financial system stability. Macroeconomic analysis and modelling are key components in arriving at sound and effective macroeconomic policies which will contribute to poverty reduction through the acceleration of economic growth and facilitate the achievement of the MDGs. In a nutshell, Mr Chairman, one can simply state that low inflation coupled with a developed and stable financial system, will enhance higher economic growth. Sustained and higher growth will create more jobs and subsequently increase people’s income. An increase in people’s incomes will contribute to alleviation of poverty as it will improve their capacities to access the human basic needs such as food, shelter, education, and health. Further, with increased investment (and a growing economy) partly on account of price and financial system stability, Government revenue is more likely to rise, therefore enabling the Government to improve the provision of education and health services, the two which are among the key tenets of poverty reduction. Furthermore, increased Government revenue will allow more investment in infrastructure such roads needed to transport produce from various production centres to markets thereby enhancing the incomes, particularly those of rural communities. This would contribute to the achievement of MDGs. | Their response in turn will affect how financial institutions interact with businesses going forward. Beginning from July this year, financial institutions have started reporting their climate related risk exposures based on the Climate Change and Principle-based Taxonomy developed for the financial sector to assess and classify economic activities within their portfolios. Aside from building a strong foundation for risk assessments and disclosures, the taxonomy is expected to encourage the flow of capital towards supporting transition activities. We recognise the need to minimise macroeconomic and social dislocations in the short term as we transition to a low carbon economy. The financial sector taxonomy therefore does not adopt a binary classification of green and brown activities, but also recognises credible efforts by businesses to actively reduce the harm that their operations might pose to the environment during transition. Based on an analysis of their material exposures to climate-related risks, financial institutions would be required to take actions to address high and unmitigated exposures. We have also strengthened the standards that we expect financial institutions to meet in managing climate related risks. This includes an expectation for financial institutions to work with and support their customers in managing their transition. More to the point, if businesses are committed and willing to undertake changes to reduce their GHG emissions and green their operations, the financial sector should help them make the transition. This may take the form of appropriate financing or protection solutions and advisory services. | 0 |
The cost of building brick-and-mortar branches to outreach to rural users is high. Hence, the Bank developed the agent banking initiative to leverage on technology and deliver financial services to the rural groups in a low cost and scalable manner. It saves cost and the impact is enormous. Under the agent banking initiative, licensed financial institutions provide financial services to customers through third-party agents, such as retail outlets and post offices. Agents perform banking transactions such as deposit and withdrawal of funds in a safe manner using real time terminal technology i.e. Point-of-Sale (POS). Putting in place a mechanism to monitor performance is crucial to determine whether policy initiatives are effective. Just to give a flavour of what we have done, we actively track the coordinates of agent banks to ensure that access is provided to sub-districts in need of financial access points. Since its implementation in 2012, 95% of sub-districts now have at least one financial access point, a significant increase from 2011. As at August 2013, there were 5,661 agents and the total number of transactions has exceeded 25 million, with a total value of RM2.8 billion. Fourth, Islamic finance can play a huge role in financial inclusion given the strong parallels between the two The concept of financial inclusion – to develop a prosperous, egalitarian economy that contributes towards social development and social justice – is very much in line with the core principles of the Islamic economy, which place great emphasis on social justice, inclusive growth and equitable distribution of resources. | Of significance, proportionate regulation protects the stability and integrity of the financial sector, and at the same time encourages innovative financial inclusion solutions. It is important to recognise that regulation that is proportionate to risks does not necessarily equate to “lighter regulation” as many perceive. For example, there are fundamental differences between the risk drivers in microfinance and commercial banking. Microfinancing is labour-intensive, usually highly decentralised, and among the borrowers, the factors that are predictive of repayment capacity are very different from commercial bank borrowers. These differences need to be better understood to achieve well-designed regulatory frameworks. For example, Mexico’s tiered bank account approach prescribes different degrees of KnowYour-Client (KYC) requirements and transaction restrictions that are proportionate to the value of the account. A low value account requires less KYC requirement due to typically lower money laundering risk. However, the lower KYC requirement is compensated by more transaction restrictions. The proportionate approach expanded access to bank accounts. On stability, Pakistan introduced proportionate capital requirements for microfinance institutions based on the size of the population they intended to serve. Microfinance institutions at district, regional, provincial and national levels have varying capital requirements, so that they could serve distinct market niches sustainably without the burden of holding excess capital that is disproportionate to the risk. The global Standard-Setting Bodies (SSB) have adopted proportionality as a principle in developing risk-based standards. SSBs are collaborating with developing countries through the Alliance for Financial Inclusion (AFI) to clarify implementation of standards, build supervisory capacity and address data issues. | 1 |
To take it one step further, we are prepared to take a liberal view if an overseas bank wishes to engage in both retail banking through a subsidiary and, in parallel, corporate or private banking that would more appropriately be conducted through a branch. We have had several precedent cases and the HKMA is prepared to consider applications on the basis of the merit of the case. 18. While we maintain an open mind on the use of branches by overseas banks, we have to take steps to mitigate the potential risks arising from cross border contagion. This is particularly important given that Hong Kong is a net provider of funds, i.e. our banks collect a lot more customer deposits than they lend out locally. Hong Kong therefore has to closely monitor intra-group or inter-bank funding that flows from Hong Kong to overseas centres. We have seen in the Global Financial Crisis very clearly how wholesale funding through this kind of cross border intra-group or inter-bank channels may be susceptible to significant shocks in times of market stress. The problem could be exacerbated if the host supervisors, in selfdefence, sought to ring-fence domestic liquidity by blocking the flow of funds at the most difficult time. So the HKMA has been in discussion with banks in Hong Kong on how best they could achieve a better match between liabilities derived from Hong Kong and assets booked in Hong Kong. | At the same time, universal banking also allows some banks, if they have the resources and expertise, to provide corporate or investment banking services to the more sophisticated corporate clients in a wide range of areas such as debt finance, equity fund raising, mergers and acquisitions and other advisory services. 5. Universal banking also makes a great deal of sense from a bank’s point of view. Under this model, a bank will be able to better serve the diverse needs of its customers, and generate fee and commission income which is not subject to the same kind of credit, maturity and other risks associated with income derived from lending and trading activities. BIS central bankers’ speeches 1 Customers need the services and banks provide them: it does look like a perfect match, doesn’t it? As always, perfection rarely exists in the real world and there is a catch inherent in this one-stop financial supermarket model. This is related to the different ways in which customers perceive a bank as a deposit-taking institution versus a brokerage house or investment bank. 6. Because of the easy access and convenience universal banks offer, they tend to attract customers along a very wide spectrum of financial sophistication and risk appetite. Some of these customers go to banks to conduct very basic banking transactions, such as cash withdrawal, rolling over fixed deposits, remittances, applications for loans, getting cheque books and credit cards etc. | 1 |
As expected, today – a good six months after the new note was issued – around two-thirds of the eighthseries 50-franc notes originally in circulation have been exchanged. The next denomination to be released will be the 20-franc note. It will be presented at a press conference on Wednesday, 10 May 2017, and the first notes will be issued one week later, on 17 May 2017. The new 20-franc notes will be put into circulation continuously from that date onwards. Issuance of the third denomination, the 10-franc note, is planned for autumn 2017. We will announce the exact date in due course. Page 3/3 | To illustrate my points, let me use the work that the Bank of Thailand has been engaging with the financial institutions during the past couple of years. We have provided guidelines to improve corporate governance within the Thai financial sector to complement the on-going change within the corporate sector. Bank directors are now required to have no more than 3 directorships in other profitseeking institutions, so that they will have more time to carry out the required duties, as directors should do. Before, 82 directors did not qualify, but 60 of those have now complied. And for the rest, arrangements were made for them to observe the guideline. To improve internal management, we ask major shareholders not to vote for the independent directors so that minority shareholders are better represented on the board. Audit committees are now a requirement and many banks now have nomination and compensation committees to reduce the power of the major shareholders. Most also have risk management committee or, at least, asset and liability management committee. To further increase transparency, commercial banks now have to announce at the end of each month their NPL level, penalties and fines imposed by the authorities, as well as the amount of their related lending. By year-end, we will launch the Director's Handbook for the financial community and further encouraging increased transparency of appointment and compensations. Of course, we cannot change others without changing ourselves at the Bank of Thailand. | 0 |
The tide will turn An orderly reversal of the euro’s exchange rate will take place as a result of a triple narrowing. • Narrowing of the growth differential between the United States and the euro area. This is because the current extraordinary growth rate of the United States is probably not sustainable in view of the widening of the external deficit. Euro area growth is well balanced, while the US economy is affected by imbalances. This will be progressively taken into account by the markets. • A narrowing of the interest-rate differential as a consequence of the narrowing of the growth differential. • Narrowing of the “restructuring differential” between the United States and the euro area economies. It seems to us that although corporate restructuring in Europe was lagging behind the United States a few years ago, we are now observing a catching-up process. This leads me to my last point: the undertaking (and speeding up) of structural reforms is a major condition for the euro to be a complete success. 4. The conditions for the complete success of the euro: sound macroeconomic policies and structural reforms In this regard, the Lisbon European Council meeting last month can be viewed as a further important step towards the necessary medium-term strategy for structural reforms in the Union. The labour market has become much more flexible in the past few years in Europe. | As the country with the largest circulation of banknotes and coin in the bimetal system, France played a key role in this complex system at the international level. Things are rarely as simple as they seem. The 19th century is often depicted as a time when the international system was based on a single metal currency. However, this was not the case. Until 1873, it worked with a complex bimetal system, based on gold and silver. Let me turn now to today’s financial and monetary world. I will first present the Banque de France view on gold and follow with comments on the euro after 18 months of its existence. I. Gold A. The Banque de France’s view on gold is based on three main pillars: • We are in favour of gold holding • We are against gold selling • We have a very prudent and conservative approach to gold lending 1. Gold holding The Banque de France is a major gold holder (with more than 3,000 tons). The creation of the single currency has in no way modified our policy and motivations for holding gold, which remains in our view an important reserve asset. Let us review the reasons why central banks want to hold gold. What is the rationale for holding gold, a non-interest bearing asset, given that there is no more official role for gold since the collapse of the gold exchange standard? | 1 |
12 This set a medieval financial accelerator in train (about 750 years before Ben Bernanke coined the term) 13 by providing an alternative to storing one’s wealth in silver coin (prone to being whisked away by the King). This led to a reduction in the demand for silver money balances. An increase in money velocity would have followed and with it, all else being equal, price inflation until the transactions demand for silver had risen sufficiently to equal its supply. At the very least, the existence of an alternative store of wealth provided an environment in which money velocity could take off, were it to be nudged in that direction. One possible nudge was the anticipation of the re-coinage of 1204. 14 Re-coinages were good for the King because he benefitted from the seigniorage of the re-minting fee. They were bad for cash holders both because of the re-minting fee and because they had to exchange their clipped coins for what they were actually worth, rather than their face value (a medieval haircut – some of which were appalling). Consequently, there was a strong incentive not to be the one holding the old-issue coins when the music stopped. 15 So to sum up: a fiscal squeeze exacerbated by accelerating inflation, combined with monarchical ambition and incompetence to stretch and then break relations with the barons. | They characterise Magna Carta as a pragmatic political document that was a product of its time, including the difficult economic circumstances that then prevailed. As usual with historical arguments, the answer lies somewhere in between. In what follows, I will spend a few moments on the pragmatic element not only because it plays to my comparative advantage as an economist but also because it ultimately underscores the foundational character of the document itself. The enduring legacy of Magna Carta is how its strictures on unconstrained power are reflected in our systems of political and economic governance. I will conclude that both the constitutional and pragmatic perspectives are relevant to modern central banking and the current conduct of monetary policy. Specifically, the costs of inflation were among the key economic catalysts of Magna Carta, and its core constitutional legacy – namely the importance of delegated authority, with clear lines of public accountability – is at the heart of the Bank of England’s institutional arrangements. In the spirit of Magna Carta, the Bank of England has been given a great responsibility: to deliver monetary stability for the good of the people of the United Kingdom. Our goal, the 2 per cent inflation target, is set by the Government, and we operate under constrained discretion in its pursuit. 1. The economic and political context Where did Magna Carta come from? | 1 |
More recently, the Central Bank has encouraged banks to draw up Business Continuity Plans (BCPs), focusing on their core banking solutions, back-up systems and Disaster Recovery Sites (DRS). The Central Bank, being the owner and operator of the core payment systems, is keen to ensure that the banks have put in place adequate processes and systems to deal with any disruption to core banking and payment services. It took a considerable length of time to convince banks of the importance of having BCPs, back up systems and DRSs. Evidently, the establishment of these systems has given confidence to the customers that banks are in a position to deal with emergencies that could occur at any time. 5.2 With the advancement of IT and customers becoming comfortable with new technology, they demand greater convenience, reduced transactions costs and higher quality banking products and services. The reliability of the products and services are assured to a large extent by the attention paid to BCPs by banks. While these have increased productivity in the banking sector, banks have had to spend more money for the acquisition and installation of new IT systems. 5.3 Another risk faced by the banking industry due to its becoming a major user of technology, is the risk of failures to systems. The fact that “hackers” can get into banking IT systems, with or without inside help, demonstrates the magnitude of the problem. Specially, plastic card operations have been plagued with such risks. | Risks, costs, past failures and other factors may have built up levels of apprehension. Yet, some have committed to replace core systems, while others have invested in extensions of all systems for short-term relief. 9.1.3 Many banking services are now delivered over the Internet through mobile phones and facilities at supermarkets. Two decades ago, a bank operated with a simple set of solutions for savings, cheque clearing and lending. Today, a bank may be offering well over 100 products, but the processes and technologies underlying such advances have often been implemented in piecemeal fashion. The result has been a dramatic increase in complexity that has caused many bank efficiency ratios to stagnate. From an IT perspective, core banking systems have come to resemble an intertwined cats cradle. During different business cycles, banks world over tend to be complacent. When profits are increasing and the economic environment is good, banks may think “Why should we change the core banking systems at this stage, when the existing system is running without much trouble?” If regulators and vendors put pressure on them, they may ask the question “Haven’t we heard this story before?” But it is necessary to remember that sooner or later and those who have not attended to as yet, will be required to replace or integrate their core banking systems, given the rapid changes that are taking place in banking services as well as IT developments. 9.1.4 A core banking system replacement as part of a business transformation is not a minor task. | 1 |
Additionally, having some excess capacity, also known as headroom, in ON RRP operations over expected usage is important for the facility’s effectiveness in helping to control rates. One might want such headroom – which provides confidence to market participants that an ON RRP cap will not bind – to be somewhat higher on average if take-up in ON RRP operations becomes more volatile. Given the importance of a successful liftoff to the Federal Reserve’s credibility, the FOMC has indicated an intention to set ON RRP capacity at a temporarily elevated level when policy firming commences to support policy implementation. As always, the Federal Reserve will monitor financial markets closely and make adjustments in its execution of monetary policy, as needed, to achieve its mandated objectives. Changes in money markets The operational approach for policy normalization I described earlier refocuses the mechanism for implementing monetary policy back to money markets, after the post-crisis period in which policy has been driven by large-scale asset purchases. However, we will be operating in a complex, dynamic, and still-evolving market environment that looks much different from the money markets in which the Fed last operated actively to achieve its interest rate objectives. Still, these markets are no less important for the transmission of monetary policy or the broader U.S. financial system than they were before. 19 In order to explore how term tools might be used more broadly during normalization, the Desk also conducted a series of one-week term RRP operations in mid-February through early-March 2015. | The Committee expects that it will be appropriate to reduce the capacity of the ON RRP facility fairly soon after it commences policy firming. I’d like to explore some of these elements in more detail. 1 This measure of reserves includes current balances of RRPs conducted under the Desk’s operational exercise and term deposits. In actuality, balances held in these categories shift the composition of the Federal Reserve’s liabilities away from reserves, although they don’t reduce the total size of the balance sheet. Note that the total quantity of reserves in the banking system is largely a byproduct of Federal Reserve activities (such as asset purchases or lending programs) and the private sector’s demand for other Federal Reserve liabilities (such as currency). Individual bank lending transactions can redistribute reserves, but they do not change the total quantity of them. See Todd Keister and James J. McAndrews, “Why Are Banks Holding So Many Excess Reserves?” Federal Reserve Bank of New York Current Issues 15, no. 8, December 2009. http://www.newyorkfed.org/research/current_issues/ci15–8.pdf. 2 The FOMC’s September 2014 Normalization Principles and Plans and March 2015 meeting minutes are available, respectively, at http://federalreserve.gov/newsevents/press/monetary/20140917c.htm and http://federalreserve.gov/monetarypolicy/fomcminutes20150318.htm. 3 The Committee further specified that it expects to cease or commence phasing out reinvestments after it begins increasing the target range for the federal funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve. | 1 |
Generating an expansion in net exports in order to counterbalance the necessary increase in savings and to offset any reduction in the demand for financial services exports then requires a real depreciation of the currency. This was achieved by a fall of a quarter in the trade-weighted value of the nominal sterling exchange rate between the start of the crisis and the end of 20081. Although the impact of this depreciation on net exports initially seemed rather disappointing, recent revised data from the ONS now suggest that the impact on net exports has been roughly in line with that seen after previous large movements in the exchange rate (Chart 4). The third force is the loss in output and income associated with the financial crisis. Output presently lies almost 15 per cent below where it would have been if it had continued to grow in line with its pre-crisis trend. Even if that shortfall does not prove to be permanent, the 1 It is worth emphasising that the bulk of this fall occurred before the MPC cut Bank Rate sharply in the wake of the collapse of Lehman Brothers and subsequently embarked on quantitative easing. It cannot therefore be attributed to lax monetary policy. Sterling has been broadly stable since the beginning of 2009. | Last Thursday’s agreement represents an important element of a satisfactory resolution to the euro area crisis, but there are still many details to be worked out. Moreover, the announcement by the Greek government that it plans to hold a referendum on its package has injected additional uncertainty. And, even if the 27 October agreement is eventually implemented, the peripheral economies of the euro area will still be faced with substantial adjustment challenges, including the need to rebalance their economies and improve their competitiveness. So the strains in the euro area seem likely to continue for some while yet. The second factor behind the unexpected slowing in growth is the substantial rise in energy and other commodity prices during the latter part of 2010 and first part of this year, associated with strong growth in the emerging economies as well as interruptions to the supply of oil as a result of geopolitical developments in the Middle East and North Africa. UK inflation over the past year has consequently been around 1½ percentage points higher than the central view in our November 2010 Inflation Report, with the twelve-month rate reaching 5.2% in September. That has added to the squeeze on real household incomes already taking place as a result of earlier increases in energy and other import prices, together with the increase in the standard rate of VAT to 20 per cent. | 1 |
Bail-in capacities of French banks for instance have significantly improved over the last decade, reducing the likelihood of a bail out – which would in any case be subject to the rules of the Banking union’s resolution pillar. And finally, the possible negative impact on the financial stability outlook will crucially depend on the strength and sustainability of the recovery underway and the policies which will be implemented to preserve public debt sustainability. So let me stop there for these initial remarks. Thank you for your attention. 1 www.ecb.europa.eu/pub/economic-bulletin/articles/2021/html/ecb.ebart202103_02~6612ab7923.en.html 4/4 BIS central bankers' speeches | With hindsight, one of the lessons of the last decade is that structural reforms should not focus exclusively on increasing “competitiveness” – defined as lowering costs and boosting exports. They should also focus on raising productivity and modernising our economies. But what is unique about NGEU is that it combines funding for investment with future-oriented structural reforms focused on making our economies greener and more digital. This combination is critical to ensure that the crisis does not leave lasting scars. The number of people who will need to find a different job by 2030 has risen by 25% in advanced economies due to the pandemic.4 We know that strong recoveries are key for people to move into new jobs quickly5 and the focus of NGEU on productive investment should provide a sustained boost to growth. Green spending is estimated to have a multiplier two to seven times higher than non-green projects.6 At the same time, targeted structural reforms should help ensure that freed-up resources are redirected to green and digital activities, and that demand flows towards the jobs and sectors of the future. The 22 recovery and resilience plans that have been presented to the Commission so far look encouraging. All of the largest economies are planning to dedicate at least 20% of their spending to digitalisation and around 40% to the energy transition and green infrastructure.7 Conclusion Martin Luther King Jr. famously said that “the arc of the moral universe is long, but it bends towards justice”. | 0 |
As I interpret matters, it seems as though advocates of the strategy of “cleaning up afterwards” have partially modified their view, primarily because the potential profits of limiting bubbles seem to be greater than previously estimated. It seems to be an increasingly accepted view that a central bank should at least do something when it suspects that a credit-driven imbalance is building up on the property market. 9 This is not necessarily a matter of increasing the policy rate, even if it now seems to be increasingly accepted that this can also be considered. 7 See, for example, Donald L. Kohn, “Monetary Policy and Asset Prices Revisited”, speech held 19 November 2008, Federal Reserve Board. 8 Stefan Ingves, “Housing and Monetary Policy: A View from an Inflation-Targeting Central Bank”, in Housing, Housing Finance and Monetary Policy, Federal Reserve Bank of Kansas City Jackson Hole Symposium, 2007. 9 See, for example Alan S. Blinder, “How Central Should the Central Bank Be?”, Journal of Economic Literature XLVIII, March 2010. BIS Review 68/2010 15 Can time-varying regulations prevent a credit-driven property boom? I mentioned earlier that an international discussion is underway regarding the more timevaried application of regulations within the framework of macroprudential policy. Even if this discussion primarily addresses the prevention of risks to financial stability, it is conceivable that the time-varied application of regulations may also be used to prevent a credit expansion that may destabilise the real economy, without any threat to financial stability being perceived. | The situation one would like to avoid is one in which the upturn is characterised by exaggerated optimism and excessive risk propensity. In such a situation, the fall can be dramatic when something causes this sentiment to turn. Prices fall, participants become more pessimistic and risk propensity decreases among both lenders and borrowers. This may result in an extended period during which participants consolidate their balance sheets, consumption and investment develop weakly, and lending becomes exaggeratedly restrictive. Fluctuations in property prices and credit volumes can thus amplify the fluctuations of the real economy. A fall in prices or expectations of such a fall may also lead to financial instability with possible consequences in the form of increased uncertainty, a credit crunch and stresses on central government finances. This is because a credit-driven imbalance can create a significant credit risk if the banks have filled the asset side of their balance sheets with loans based on inflated prices and with high loan-to-value ratios. The credit risk also depends on the manner in which borrowers’ obligations in the event of a default will be regulated, that is to say whether the bank will be able to claim only the actual collateral or whether it will also have a claim on the remaining loan. An individual bank has no reason to take consideration of anything other than the risk to its own balance sheet and can, in general, ignore the effects on the real economy and financial stability: these are external effects. | 1 |
BIS recommendations • In the work on retail payments, central banks should focus on four important areas: - Ensure that the legal and regulatory framework is not an obstacle to innovation and development - Monitor market structure, market developments and the market performance, and ensure that conditions are conducive to competition - Monitor the development of safety and operational standards and evaluate the effect of such standards on competition in the market - Provide settlement services in a way that contributes to efficient and safe solutions in the rest of payment system The report considers how central banks should work in order to achieve the goal of efficient retail payment systems and it identifies four areas in which central banks can become involved. • Ensure that the legal and regulatory framework is no obstacle to innovation and development. • Monitor the market structure, market developments and market performance and ensure that conditions are conducive to competition. • Monitor the development of safety and operational standards and evaluate the impact of these standards on competition. • Provide settlement services in a way that contributes to efficient and safe solutions in the rest of the payment system. We will place emphasis on these recommendations in our future work on retail payment systems. The ECB has recently reviewed a proposal that key retail payment systems should also comply with six of the core principles for systemically important payment systems established by the BIS/CPSS. | An automated market maker (AMM) platform inspired from the DeFi markets, which could serve as the basis of a multi-CBDC platform where different central banks come together to enable fast, automated and transparent settlement across currencies. Page 6 sur 7 I announce today that we engage the second phase of our experimentations program with 4 or 5 additional ones starting this semester. We want to get closer to a viable prototype, testing it in practice with more private actors and more foreign central banks in the second half of 2022 and in 2023. This work ensures that we stand ready to bring central bank money as a settlement asset as early as 2023, with the implementation of the European pilot regime. This pilot regime will offer a regulatory framework to support the financial asset tokenisation trend. Finally, these experiments conducted by the Banque de France contribute directly to the Eurosystem's existing task force, and future Governing council’s decision, on improving our services to the wholesale market. This leads to the key outstanding issue of the articulation of a CBDC with existing infrastructures, such as Target Services in the EU. Both must be made interoperable: on the one hand, distributed ledger technologies are still not mature enough to handle large volumes of transactions, and therefore will not replace conventional systems from one day to another; they will rather complement them. Centralised and distributed systems will thus have to coexist securely and efficiently. | 0 |
Business investment in equipment and software is expanding, but investment in corporate office and other commercial buildings is weak. Some of the weakness in economic activity in the first half of the year was due to temporary factors such as the hit to household income from higher food and energy prices, and supply chain disruptions following the tragic earthquake in Japan. These restraining forces have abated and thus, we should see stronger growth in the second half. But it is clear that not all of the weakness was due to these one-time factors – and in light of this, I have revised down my expectations for the pace of recovery going forward. On the inflation front, the committee noted that inflation has moderated recently as energy and commodity prices have declined from their peaks – having picked up earlier in the year, mainly reflecting higher prices for commodities and imported goods, as well as the supply disruptions from Japan. Longer-term inflation expectations remain stable, and the committee now expects inflation to settle over the coming quarters at levels at or below those consistent with our mandate to promote full employment and price stability. In light of the current outlook, the FOMC in its statement noted that we now anticipate that we are likely to keep short-term interest rates exceptionally low at least through mid-2013. We also discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. | 2 BIS central bankers’ speeches Turning to jobs, data for the second quarter of 2011 indicate that businesses in the region, on balance, expanded employment at a more rapid pace than the nation. Still, the number of jobs being created each month is not enough to sustain a robust recovery. Given the slow recovery of employment across much of the region, unemployment rates have edged up in most places. June’s unemployment rate of 8.0 percent in New York State and 9.5 percent in New Jersey remain unacceptably high. While Puerto Rico’s unemployment rate has fallen sharply in recent months, it is still particularly elevated at 14.9 percent. One factor that remains a drag on overall employment growth in much of the region is the weakness of the public sector. As we have discussed at previous press briefings, our state and local governments continue to cut jobs more sharply than governments elsewhere. The recent exception to this trend is Puerto Rico. While the island sustained deep cuts in government jobs in 2009 and 2010, a recent increase in this sector was a key reason for Puerto Rico’s relatively strong job growth in June. Overall, the weakness of the public sector continues to pose a risk to employment growth throughout our region going forward. Another potentially troubling development for the region is the recent weakness in the financial sector. The finance industry, which had begun to recover late in the cycle, appeared to be showing signs of expansion when we last met. | 1 |
There is, I have to say, a sense of déjà vu here, in that twenty years ago, coming out of the recession of the early 1990s there was a concern about SME lending. Then, too, it was hard to untangle lack of supply and lack of demand as causes. A lot work was done then, including by the Bank of England, to seek to understand better the causes of the problem. This time, there remains a need for such work, a point that I will come to in a moment. But, as the central bank, we have this time put our toolkit to work more directly. It is important here to be clear on the role of a central bank. Our role is to ensure access to credit – to take steps to unblock the supply of lending. Although we can have some influence over the supply of credit generally, as we have with the FLS, it is not for us to judge the credit risks of, and hence the access to and price of credit (in terms of the risk premium above the risk-free rate) for individual borrowers. Coming out of the crisis, we want to see the market economy restored and functioning. We have recently announced an extension to the Funding for Lending Scheme, so that drawings are now possible until early 2015. We expect that this should provide confidence to scheme members to expand their lending to the real economy by virtue of them having greater confidence in their future access to funding. | But it is, at least, a job that requires very little investment in training or equipment: the only “capital” a rag collector will need is a pushcart, which might sell for $ Yet, despite saying they’d very much like to own their own, nearly all these rag collectors instead rent their pushcarts, at a cost of $ a month. They therefore spend in a matter of 3-6 months what it would cost to own the thing outright. This is an enormous, and self-imposed, effective rate of interest – an annual rate of somewhere between 200 and 400 per cent.3 1 Gathergood (2013). Laibson (1997). This would cover any depreciation costs, which the owner of the cart would have to bear. But these are likely to be only a small part of the rental cost. 2 3 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Mullainathan and Shafir document many such examples. And they go further: they claim, supported by the result of interesting experiments, that the tendency to over-weight the present, at the expense of the future, is itself increased by financial stress. The more cash-strapped people feel, the more prone they are to taking decisions that make the situation worse. Financial distress isn’t just the partial result of wanting things sooner rather than later: according to Mullainathan and Shafir it can also be the cause of it. The result can be what the authors describe as a “scarcity trap”. | 0 |
For example, one might want to set the conversion terms so that the debt holders could expect to get out at or close to whole – at par value. This is important because it would reduce the cost of the contingent instrument, making it a considerably cheaper form of capital than common equity. Consider the advantages that such an instrument would have had during this crisis. Rather than banks clumsily evaluating whether to cut dividends, raise common equity and/or conduct exchanges of common equity for preferred shares and market participants uncertain about the willingness and ability of firms to complete such transactions and successfully raise new capital, contingent capital would have been converted automatically into common equity when market triggers were hit. If these contingent capital buffers were large, which they could be because the cost of these instruments should not differ much from straight debt, then the worst aspects of the banking crisis might have been averted. If shareholders had faced the potential of automatic and substantial dilution, they may have demanded better risk management and disclosure during the boom. If common equity had been automatically bolstered during the early part of crisis, investors would have been much less concerned about the risk of insolvency. Counterparty risk concerns would have been much less significant – potentially short-circuiting one of the important amplifying mechanisms of the crisis. | The inadequate level of transparency and disclosure, particularly in the market for structured products, were also important in making the financial system more fragile and vulnerable to crisis and in increasing the degree of uncertainty and contagion once the crisis was underway. Only by fully understanding these shortcomings can we construct solutions that will strengthen our financial system and make it more robust. The initiatives underway to strengthen our financial system span a wide range of supervisory and regulatory policy areas, including ongoing efforts to improve standards for both the capital and liquidity held by financial institutions, efforts to improve the risk management practices at financial institutions and efforts to strengthen the resiliency of market infrastructures. Today, I am going to focus mainly on the need to improve the capital standards for large, systemically important financial institutions. For initiatives in this area to be effective, we need to make progress on three distinct, but related fronts: • a more thorough and complete risk capture so that the capital adequacy rules more effectively encompass a broader set of risk exposures than before, • rules that encourage the conservation of capital in adverse economic and financial circumstances, and • tougher regulatory requirements, including the use of a contingent capital instrument that would automatically replenish equity capital in times of stress. As always, my remarks reflect my own views and opinions and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. | 1 |
Since then, several decisions on measures to stimulate the economy have been taken in the United States and in European countries, but also, for example, in China. Despite these measures, the financial markets are still functioning much less efficiently than normal. Ongoing measures are therefore required to improve the functioning of the financial system. There is a need to reform the global financial system in order to reduce the likelihood of new financial crises. It is probable that the problems on the financial markets have been aggravated by weaknesses in regulation and supervision. There is therefore room for improvement. However, the changes that are made should be carefully prepared and fully justified so that regulations are not introduced that will have more negative than positive consequences. Allow me to mention a few examples of possible improvements. In the first place, we need to develop the supervision of the financial system. The basic problem is that the financial markets are international while supervision largely takes place at the national level. In Europe, there is therefore a need to strengthen the coordination between supervisory authorities in different countries. Work on this is already underway within the European Commission and in various committees. Supervision must also focus to a greater degree on macroeconomic problems. I personally believe that in the long run we should set up a European supervisory authority with responsibility for supervision of the financial institutions and markets across Europe. This must then cooperate with financial supervisory authorities in Europe and other parts of the world. | Svante Öberg: Sweden and the financial crisis Speech by Mr Svante Öberg, Deputy Governor of the Sveriges Riksbank, at Carlson Investment Management, Stockholm, 20 January 2009. * * * Introduction When I began working at the Riksbank three years ago, I had not during the preceding eight years followed the development of the economy as closely as when I worked at the Ministry of Finance and the National Institute of Economic Research. I was advised by Staffan Viotti, who is a professor of financial economics and adviser to the Executive Board, to familiarise myself with the new financial instruments that had been developed in recent years. These were instruments that the banks used to convert loans into securities that could be sold on the financial markets. I attended a couple of conferences which clarified the advantages of the new instruments; for example that they spread the risks taken by the banks to a larger group of investors. There was really only one problem. Liquidity on the new markets could "dry up", that is, a situation could arise in which there were only sellers but no buyers, but this was considered to be a hypothetical problem. I also asked experts at these conferences about the possible nature of the next financial crisis. A typical answer was that it would be triggered by an event outside the United States and that the hedge funds would be involved. Now we know better. | 1 |
BIS central bankers’ speeches The benefits of reform Having argued for the extension of the reform race, I am conscious of the risk of fatigue. But as Ravi Menon argued more than a year ago: “it is imperative that we press on with the reform agenda and do not succumb to reform fatigue.”27 Already we can hear some of the runners, particularly those at the back, making world-weary arguments that more reform will hurt jobs and growth, and even that financial crises are just something that happens every five to seven years. If that were true, we are due for another crisis about now. Does anyone find that acceptable? As the memory of the crisis fades, it will be ever more important to explain the benefits of reform to counter the fatalism. So let me take this opportunity to take stock of the benefits of reforms, both of those already agreed and of the next phase of reform I have outlined. While we all recognise that future crises can never be ruled out, the steps taken to make banks safer and simpler have certainly reduced the likely frequency and severity of future financial crises. In doing so, they have reduced the exorbitant costs of instability. The Basel Committee assessed in 2010 that the economic cost of the median financial crisis amounted, over time, to 60% of national income. With a 5% probability of a crisis each year, that is equivalent to annual costs of 3% of GDP. | In addition, we reduced the annual commission rate of 0.02 basis points that had been applied since 1 February 2015 on euro-denominated accounts of banks and financing companies at the CBRT to a yearly 0.005 basis points as of 1 July 2015, and abolished it as of 27 July 2015 due to the recent developments in the euro area. 2 BIS central bankers’ speeches Thanks to the tight monetary policy stance and the macroprudential measures, loan growth continues to stay at reasonable levels. Adjusted for exchange rate changes, loans provided to the non-financial sector increased modestly by 18.1 percent year-on-year in the second quarter of 2015. A comparison of consumer and commercial loans shows that commercial loans continue to grow more at a higher rate than consumer loans, partly due to BRSA regulations. The annualized growth rate of commercial loans dropped to 15.1 percent at the end of the second quarter of 2015, whereas this rate was 21.6 percent for exchange rateadjusted commercial loans. Likewise, comparing their growth trend to averages in past years, commercial loans are close to the average whereas consumer loans are significantly below the average (Charts 10 and 11). Due to the moderate economic activity and the recent tightening in financial conditions, loan growth is likely to slow somewhat in the forthcoming period. 2. Macroeconomic developments and main assumptions Now, I will talk about the macroeconomic outlook and our assumptions on which our forecasts are based. | 0 |
BIS central bankers’ speeches 1 Chart 2 Four years after the financial crisis engulfed the world, a European version has now emerged. Both market participants and the authorities failed in their assessments after the introduction of a single currency. Prior to the introduction of the Economic and Monetary Union, there were wide differences between interest rates facing different European countries, which primarily reflected different inflation expectations across countries. But through the 1990s, long-term interest rates drifted down to German levels. Over the next 10 years, sovereign interest rates were fairly similar – and very low – for all euro area countries despite wide differences in debt levels, budget deficits and growth rates. Market participants did not take into account differences in sovereign creditworthiness. Sovereign debt was treated as virtually risk-free, both in the markets and by the authorities. The period contrasts with the recent two to three years during which interest rates on sovereign debt have widened sharply. For many countries, interest rates have reached very high levels. In retrospect, we see that market participants failed in their risk assessment through the ten years following the introduction of the euro. Economic policy also failed. EU rules relating to budget deficits and public debt were disregarded early on when Germany and France exceeded the limits they had so eagerly advocated when the European Monetary Union was established. Other countries followed their example. Low interest rates made it easy to finance deficits by issuing new debt. | In recent years, with the financial crisis and the sovereign debt crisis, the real return has been lower, averaging about 2½ percent since 1998. We should be careful about taking a rear-view mirror approach to forming expectations about the future. Equity prices fluctuate considerably and there is a possibility that the results of the past few years will be counterbalanced by good years ahead. But changes in the global economy affect the growth outlook and the balance of risks, and hence financial market returns as well. Chart 7 BIS central bankers’ speeches 7 The yield on the presumably safest long-term government bonds can provide a basis for estimating the return on the Fund. Returns exceeding this will reflect the risk we are willing to take. In 2001, real interest rates on long-term government bonds averaged around 3 percent internationally. Real interest rates have since fallen and long-term real interest rates are now at a historical low of between 0 and 1 percent. Over time, we expect equities to yield a higher return than bonds. Over the past few years, the Fund has increased its allocation to equities, compensating to some extent for low bond yields. However, the excess return on equities must be considerable to keep up the overall return on the Fund. This is not impossible, but perhaps more than we can expect. A bolder investment strategy could compensate for low interest rates, although the risk of substantial losses would also increase. This is not a path we are likely to take. | 1 |
A number of processes, such as those concerning government finances, are being modified. But this is accompanied by an increased need to discuss issues raised by the fact of monetary union. Now that the countries which will be participating initially in monetary union have been singled out, moreover, an informal group - the Euro 11 Group - is being set up for discussions among the ministers of finance and economy in the euro area. The idea is that this group will concentrate on matters that concern just the participating countries and cater to the greater need for dialogue and cooperation that they perceive in connection with the inception of monetary union. However, this is not a decision-making body and all matters considered by Euro 11 are prepared by the Monetary Committee, in which all fifteen EU Member States are represented. The crucial institutional change is, of course, that as of next year the conduct of monetary policy will be fully centralised. The Treaty explicitly states that the ECB is not to be swayed by political considerations; its task is to concentrate on monetary policy. But naturally a dialogue will be needed with the governments in the EU and euro areas, in the first place with the ministers of finance and economy. The Treaty actually provides for this in that the Ecofin president may participate in meetings of the ECB Governing Council and even submit motions. Moreover, representatives of the NCBs and finance ministries will continue to meet in the Economic and Financial Committee. | The fiscal policy rules that have attracted most attention are those for government budgets and debt. The Maastricht Treaty stipulates that budget deficits are not to exceed 3 per cent and that the government debt-to-GDP ratio ought not to exceed 60 per cent. This was intended to make monetary union candidates put their public finances in order prior to participation. The Stability and Growth Pact has clarified what will apply once monetary union has begun. The Pact can be said to consist of two parts: a surveillance mechanism for detecting at an early stage that a country is starting to have budgetary problems and is in danger of incurring an excessive deficit, and a mechanism for sanctions on errant countries. The first mechanism covers all the EU countries and requires them to present a fiscal policy programme. The sanctions mechanism, on the other hand, applies only to countries in the euro area. The purpose of the Pact is to strengthen political mechanisms at union level so that budget discipline is permanently maintained. There has been underlying concern that otherwise a country might be strongly tempted to shift a part of the adjustment costs for consolidating government finances onto the other countries. The Pact requires every Member State to aim for a medium-term budgetary position close to balance or in surplus. If the 3 per cent limit is exceeded, the Commission and the Ecofin Council are to follow a specified plan of action: examination, opinion, recommendation, publication and, as a last resort, sanctions. | 1 |
Next year we are expecting largely zero growth and after that a fairly weak increase. Domestic demand in particular is expected to be weak for a long time to come in the euro area. The weak domestic demand means that the euro area is dependent on a boost from abroad – in particular the United States and other important trading partners – to be able to make a recovery. Since the Monetary Policy Report was published statistics received from Eurostat have reinforced the picture of production in the euro area beginning to stabilise at a lower level following the heavy fall at the beginning of the year. GDP fell by only 0.1 per cent between the first and second quarters of the year, which was much better than we had estimated. In addition, it can be noted that the purchasing managers’ index for the euro area rose in July for the fifth month in a row (see Figure 9). Both the manufacturing and service sectors show an improvement in July. However, the index is still below 50, which is the level indicating growth. Employment is continuing to be weak and unemployment rose to 9.4 per cent in June. Inflation measured in terms of the EU harmonised index, the HICP, was -0.7 per cent in July. The HICP is not affected by interest rate cuts in the same way as the Swedish CPI, but it is affected by energy prices. | This is a slightly better outcome than in our July forecast, where we assumed that GDP would fall by 0.3 per cent in the second quarter and that the fall would not come to a halt until the third quarter. However, there was unusually great uncertainty regarding the preliminary national accounts figures on this occasion. In recent months various confidence indicators have also shown an improvement. The National Institute of Economic Research’s Economic Tendency Survey, which summarises companies’ and households’ views of the economic situation, increased by almost seven units in July, to 87.1. However, the level is still below 100 and indicates that the mood among companies and households is still much weaker than normal (see Figure 13). 6 The purchasing managers’ index for July was also more positive than market expectations had implied. It rose by almost four units to 54.3 and was thus above 50 for the second month in a row (see Figure 14). The purchasing managers’ index is usually a slightly quicker indicator of developments than the economic tendency survey and an index above 50 indicates growth. 7 Labour market continues to weaken Our assessment in the most recent Monetary Policy Report was that the labour market would continue to be weak. A deterioration in the labour market usually lags behind in an economic downturn, which was also the case this time. | 1 |
In the Bank’s case, we will be engaging bilaterally with relevant counterparties over the coming months, asking questions and seeking greater clarity. I’d strongly encourage others users of FX markets to do something similar. Work together too. It is good to see the UK’s Investment Association, for example, pushing for the standardisation of reject codes. But given the amount at stake, the buyside ought to be exerting more concerted pressure for better disclosures across the board. The GFXC’s upcoming three-yearly review of the Code provides an ideal opportunity to look again at the scope for stronger 12 See Box 4 in https://www.bankofengland.co.uk/-/media/boe/files/report/2015/fair-and-effective-markets-review-final-report https://www.globalfxc.org/docs/fx_global.pdf https://www.globalfxc.org/docs/the_role_of_disclosure_and_transparency.pdf 15 https://www.risk.net/derivatives/6888556/how-the-top-50-liquidity-providers-tackle-forex-last-look 13 14 10 All speeches are available online at www.bankofengland.co.uk/news/speeches 10 market-wide standards, including on anonymous platforms. Please make sure your local FX Committee hears your views as this work progresses. A second response to the challenges of greater fragmentation comes from seeking more effective, robust and independent aggregation, analytical and execution tools – using technology to beat technology at its own game. This isn’t a free lunch: but putting liquidity providers into competition through robust aggregation and execution tools makes good business sense. Of course, you need to be alert to the potential for services offering lower spreads to claw back that gain through greater price slippage. | The firm has access to a pool of liquidity providers, and will compare pre-trade price quotes, perhaps making use of proprietary TCA tools from those providing liquidity. It might execute some trades electronically. But it has bigger costs to worry about than FX trade execution alone – including the broader bundle of services it needs across asset classes. And it is conscious that larger FX trades involve material risk, including as a result of market dynamics it doesn’t necessarily understand. So it will also work to maintain broader relationships with liquidity providers – and will tend to revert to voice trading with a trusted counterparty for larger orders, or at times of heightened volatility. It may not always have complete clarity on the basis on which such trades are executed (internalised vs externally traded, principal vs agent) or rejected. And it recognises that, in seeking quotes, it may be leaking information about its position. But broadly speaking it is content with the service it receives on FX, and feels it has bigger fish to fry elsewhere. In many ways, it is hard to label this case ‘bad’. The firm is trying to inform itself about market trends. But it recognises that FX is a professional market, whose complexities it needs assistance to navigate. It knows it may not always be getting the finest price, or the perfect service – but feels that the cost/benefit case for investing in a lot of extra data or understanding is not in its favour. | 1 |
Since the onset of the crisis, monetary policy has been strongly accommodating, more so both in 2013 and in 2014 to date. On the conventional front, official interest rates have been cut on three occasions since January last year. As a result, the main refinancing operations rate has reached, for practical purposes, its lower bound (0.15%). And the remuneration banks receive for their deposits in the Eurosystem stands, following the recent decisions adopted on 5 June, in negative territory (–0.10%), which should promote a greater and lasting injection of liquidity into the markets. As regards liquidity, moreover, it was resolved at the Governing Council meeting on 5 June to extend the current policy of fixed rate full allotment tender procedures at least until 2 BIS central bankers’ speeches December 2016. It was also decided to suspend the fine-tuning operation sterilising the purchases under the Securities Market Programme. The ECB thereby ensures the continuity and scope of the policy of generous provision of liquid funds adopted since what was practically the very onset of the crisis. Finally, regarding unconventional measures, and following the adoption last year of forward guidance, significant additional steps have been taken in June. Firstly, targeted long-term refinancing operations explicitly geared to promoting bank lending to households and firms were announced. Further, it was decided to step up the work under way to enable a framework to be designed for outright ABS purchases by the ECB. | Thirdly, there is no indication – from our perspective – that the risks entered into in the banking industry have risen: market and interest rate risk have only increased slightly on an aggregate level, and credit risk even seems to have fallen. Consequently, the banking sector is in good shape at the moment. As far as prospects for the near future are concerned, we believe that the macroeconomic environment and financial market conditions pose no major threat to the stability of the Swiss banking system. The outlook for 2005 indicates that economic growth in most regions will only slow down at a moderate pace. In addition, the available indicators suggest that there is currently little risk of contagion effects causing a crisis in the Swiss banking sector. Nevertheless, there are still potential sources of risk. They pertain to credit risks in particular. Firstly, an unexpectedly sharp economic downturn could have a serious impact on the quality of the loan portfolios and the stock market. Secondly, should we witness a swift economic recovery, however, a sharp rise in the still very low interest rates could also result in a deterioration of the loan portfolio. This is because the growing interest burden would suddenly put considerable pressure on households and companies with mortgages to pay off. Banks would also be directly affected by the steep interest rate hike, as the interest rates on their assets tend to be fixed for a longer period than those on their liabilities. | 0 |
The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past. Similarly, it is our intention to discontinue the 6-months refinancing operations after the last operation at the end of March next year. Liquidity developments in non-euro area EU countries Allow me to say a few words on the broader implications of our decisions on non-standard measures, with a particular focus on the EU Member States outside the euro area. Macroeconomic and financial conditions in these countries seem to have stabilised, although there are significant differences across the region. A general “sudden stop” in capital flows to 2 BIS Review 161/2009 central and eastern Europe has not materialised. The significant presence of foreign banks seems to have had a stabilising effect in this regard, as parent banks have to a large degree been able to maintain their exposures to the region. The ECB’s extensive liquidity provision to parent banks established in the euro area has contributed to this. In addition, the ECB has provided liquidity support to some non-euro area central banks in cases of market malfunctioning or to facilitate the functioning of the international financial system. Fiscal policies in the euro area Finally, I should like to add a few comments on fiscal exit strategies. Many euro area governments are faced with high and sharply rising fiscal imbalances, which are not sustainable over the longer term. | And the continuing efforts of the banking sector also represent challenges of their own: banks filed over 68,000 or 90% of the suspicious transaction reports (STRs) with the JFIU in a year. And that is just the STRs: we all know what that means in terms of the massive amount of data that banks are monitoring, screening and analysing on an ongoing basis. 5. The more difficult part of the answer to my question therefore means looking forward and requires vision and – dare I say it – aspiration – because we know that FATF evaluations represent a snap shot. There are always new and emerging risks, to which the HKMA and banks have stayed vigilant and agile; criminals are also exploiting new technology and innovations to create terrible harm to consumers and the integrity of the financial system. Banks that play a frontline role in combating that harm, not only by applying preventive measures when on-boarding customers, but increasingly through the value of information they are able to extract and feed into the AML/CFT eco-system and the close cooperation with the LEAs and the HKMA in converting STRs and intelligence into actions like arrests and asset recovery. 6. This is the challenge we face so we’ve taken a step back from the FATF evaluation report and asked ourselves some potent questions: is our system working as well as we would like it to be? Are the supervisory tools and techniques we have been using for years still fit-forpurpose? 7. | 0 |
But we are not there yet. How shall we keep our balance in the future? In a financial crisis most of what is not built on stable foundations and does not have a robust structure is washed away. But when the situation has calmed, we have the chance to build up something new that will work better than that which failed the trials. We have this chance now. We must take part in the change work Keeping our balance once we have landed on our feet will require reforms with regard to legislation and supervision. Difficult and important challenges lie ahead of those of us who work with these issues – the central banks, the financial supervisory authorities and the legislators. Here Sweden must take on the challenge and play an active role in the international discussion. And it is necessary to act quickly. The reform work has already begun. Within the EU a new supervisory structure is being built up with regard to banks, insurance, securities and systemic risk. The new body, the European Systemic Risk Board, ESRB, will play an important role in this. Change is required in a number of different areas. The most recent crisis has demonstrated how a liquid market can very quickly dry up and become illiquid under certain conditions. Tougher rules are required regarding liquidity and the buffer that banks and credit institutions need to be able to withstand shocks. Further consideration is required here before we find a good solution. | While at first read this looks like a rare piece of good news, viewed through the lens of efforts to return inflation to target it is a mixed blessing. Indeed, the association with the mid1970s is not reassuring in that respect. Tight labour markets support wage growth, currently running at rates above those we typically deem as consistent with the inflation target. Crucially, the low unemployment rate reflects a fall in labour market participation to a significant extent. In other words, people are choosing to stop working or looking for work. The reasons for this rise in 'inactivity' are still being explored, but the after-effects of the pandemic on health are probably a key driver. Aside from the impact of long Covid, the backlog of operations and lengthening of waiting lists in the health service owing to the pandemic, the rise in mental health issues, and an increased need to provide at-home care for family members have all weighed on labour force participation. This is an area where we need further work, since the UK appears to be something of an outlier relative to its advanced economy peers. Another supply-side driver of labour market development is migration. Understanding the impact of Brexit and new government policies in the area are key. Demand issues are also now beginning to exert an influence. As the economy slowed through this year, vacancies have turned. Employment has stagnated and is now showing tentative signs of falling. | 0 |
Speech Embargo 28 April 2017, 10.00 am Comments on the SNB’s monetary and investment policy 109th Ordinary General Meeting of Shareholders of the Swiss National Bank Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Berne, 28 April 2017 © Swiss National Bank (speech given in German) Page 1/10 Mr President of the Bank Council Dear Shareholders Dear Guests I am delighted to be able to spend some time here with you today looking back over an eventful year and also casting a glance into the future. In the last 12 months, the international environment has been marked by two contrary developments – increasingly robust growth in the global economy on the one hand, and heightened political uncertainty on the other. In Switzerland, the moderate economic recovery continued over the course of the year, but inflation remains low and the Swiss franc is still under pressure. Overall, considerable challenges remain, both for our economy and for the Swiss National Bank. In the first part of my speech, I will outline our assessment of the current economic situation at international level and in Switzerland. I will also talk about our monetary policy and show you why our expansionary course with the negative interest rate and our willingness to intervene in the foreign exchange market remains essential in the current environment. | More than once, they brought on political tension, between those in the government who believed in it and those in the opposition, or even the military, who thought otherwise. In one incident, it even caused a change in the central bank governor. Finally, we had to float our currency in 1997. Since then, we have adopted Inflation Targeting as our monetary policy framework. A core inflation target was announced at between 0 and 3.5 % per annum. The central bank will regularly monitor economic changes and make forecasts. If we see that the rate of inflation has a tendency to exceed the range, we will adopt a tighter monetary policy stance by increasing the policy interest rate, and vice versa if we see it going under the range. The policy rate that we use is the 14 day repurchase rate. BIS Review 48/2002 1 This is completely different, of course, compared to the days of fixed currency regime when interest rates in Thailand would move mostly in tandem with the US rates. The change in the monetary policy framework therefore affects the financial environment and your businesses a great deal. Development of the bond market What other change also happened? One very important change that has occurred in Thailand is the rapid development of the bond market, which took off after the 1997 crisis. The bond market is an important tool for safety and soundness of the financial institution system. | 0 |
I am therefore very glad that this session is devoted to the Facility, whose importance to Europe and especially to the euro area is much greater. 2 BIS central bankers’ speeches I could list other problems, such as the delayed consolidation of the European banking system and the related recapitalisation of banks, and in particular the fact that the existence of the euro area has widened the long growing imbalance in the exchange of goods, capital and savings between euro area countries. The short-term rescue of the euro will not directly solve the long-term problem of imbalances, and in particular the gradually emerging path towards a fiscal pact with no significant redistribution of resources at European level will require the elimination of, or at least a considerable reduction in, the imbalances in the euro area. In the context of the three change drivers I mentioned earlier, I would like to say that the time that the ECB’s pre-Christmas actions gave the euro area, the European financial sector and many European states to solve their problems is useful but not infinite. I believe that the potential of the fiscal pact to become a true change driver is smaller than generally assumed, and I expect that the future formulation of the pact in the constitution of each country will contain (abusable) escape clauses. I base this view in particular on the fact that throughout its existence the euro area has had a tendency to soften or bend the criteria for its operation. | It is as if their judgements were expected to be consistently instinctive rather than objectively based upon their individual, open-minded, assessment - reached after careful analysis - of the most recent information available at the particular time. As a result serious economic commentary seems - perhaps temporarily - to have ceded some ground to ornithomancy - which, as of course you know, is the ancient practice of divining the future by observing the behaviour of birds - especially their flight patterns! This I suspect contributed to the surprise reaction to last week’s further rise in interest rates - which proved once again that “Hell hath no fury like a wrong-footed financial commentator”! It should not have been such a great shock. In the Inflation Report which we published a month ago we set out the analysis as I have described it to you this evening, and we drew attention to the fact that the outlook for monetary policy remained finely balanced - as it has clearly been for some months. We drew attention also to the major uncertainties surrounding the central inflation projection. These uncertainties included both the level of the exchange rate and developments in the labour market. It was - as we explained in our press notice last Thursday - the subsequent “news” essentially on these fronts, and particularly the sharp acceleration in private sector earnings growth, that caused the Committee to conclude that the necessary slowdown in domestic demand growth had become more pressing. | 0 |
By remaining true to the revolution – while not wasting our time and energy in refighting it – we can all turn our attention to the challenges of the future. In this way we will reinforce the stability of the financial system, for the good of the people of the United Kingdom. The revolution is over. Long live the revolution! 6 Have big banks gotten safer? By Natasha Sarin and Lawrence H. Summers, September 2016, available here: https://www.brookings.edu/bpea-articles/have-big-banks-gotten-safer/ 9 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 9 | According to a recent report by the World Economic Forum (WEF) on the future of jobs, 75 million jobs may be displaced by 2022, while 133 million new roles may emerge.15 Are we preparing our graduates for such a shift in the labor market? This is an equally pertinent question for the banking industry. According to the WEF study, 56% of bank employees will need to be re-skilled. Talent and resources in a number of functions will need to shift towards analytics, with fewer resources likely to be involved in manual work. New staff will need to be data scientists with expertise in AI, machine learning, etc. And business staff will be required to have the ability to translate such data insights into business actions. The WEF has reported that the largest barrier to embracing technology in banks, identified by 74% of financial institutions surveyed, was a lack of skill sets in the local labor market. If this is the case today, what will happen in the future? This is why the banking industry needs to build strong partnerships with educational institutions, to ensure that they are preparing the graduates the industry will require for its transformation. ii. Regulators The other key stakeholder in the banking industry’s transformative journey is the regulator. Regulatory authorities need to strike a balance between protecting consumers, establishing standards for sound regulatory and supervisory practices, safeguarding financial and monetary stability, and at the same time facilitating growth and innovation in the industry. | 0 |
Although they have helped to limit tensions in the money market, the situation is still far from normal. Despite all the liquidity measures that have been taken, term premiums in the money market remain elevated. This provides further evidence of the fact that the lack of confidence in the market cannot easily be removed by central bank action alone. Market participants have to undertake the necessary steps themselves to restore market confidence. 7 In October 2007 (unrelated to the financial market crisis), the SNB expanded the list of eligible collateral by around 50%, including in its list securities from issuers domiciled in the European Union and the European Economic Area denominated in Swiss francs and other major currencies. BIS Review 71/2008 5 5. Lessons and consequences for liquidity management operations What lessons can we learn from the financial market crisis? There are, of course, many lessons to be learned. However, I would like to concentrate on those that are related to central bank liquidity management operations. 8 Liquidity management vs. changes in the stance of monetary policy The first lesson concerns the distinction between liquidity management and monetary policy. The crisis has made clear to financial markets, but also to central banks, that in order to safeguard financial stability during financial market turbulence, central banks do not depend solely on the monetary policy rate, but have a broad arsenal of liquidity management instruments at their disposal. | The slower recovery abroad, with lower policy rates, indicates that interest rates in Sweden will not need to be so high. Household debts still cause concern One factor that I personally have taken into consideration when raising the repo rate this time and supporting the forecast for continued increases, is the development of household debt. If this does not slow down, I believe that there is a risk of financial imbalances arising, if not within, then beyond the forecast horizon. I believe that a gradual increase in the repo rate will contribute to reducing this risk. Finansinspektionen’s recently introduced loan restrictions are also one step in the right direction. A future challenge will be to find an appropriate balance between supervisory regulation and interest rate-setting. Of course, this overall picture may have to be revised if developments do not turn out as we are expecting. I have already pointed out that the global economy is facing fairly major challenges. A new economic downturn abroad could lead to lower resource utilisation and inflation in Sweden, too. Monetary policy would then need to be more expansionary than in the forecast. But there is also a possibility that the economic upturn in Sweden turns out to be faster and stronger than we have assumed. In this case we might need to raise the repo rate slightly faster. But none of these alternatives is our main scenario at present. | 0 |
Svein Gjedrem: Housing finance in Norway Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to the Norwegian Covered Bond Forum, Oslo, 27 January 2010. The text below may differ slightly from the actual presentation. This lecture does not contain assessments of the economic situation or current interest rate setting. * * * From state to private housing finance After the Second World War, the credit market in Norway was regulated. Credit demand was high. The Norwegian state endeavoured to steer credit flows towards priority sectors and the state banks therefore played an important role as credit intermediaries. There were considerable housing shortages after the war. For some population groups, living conditions were poor. In1946, the Norwegian State Housing Bank was established to provide credit for new residential construction. This bank and Statens Landbruksbank (the state agricultural bank) dominated housing finance for new house purchases up to the 1980s. State bank mortgage rates were initially set based on political objectives, but were over the years gradually revised up and adjusted to market rates. With the gradual deregulation of the credit market in the 1980s, state lending institutions assumed a lesser role in housing finance and the private market took over. Sales of existing homes increased. In 1992 private banks provided the majority of residential mortgages. Their share of housing finance was also high compared with other Nordic countries. In Denmark and Sweden, mortgage institutions were the primary source of residential mortgages. | To facilitate banks’ access to borrowing from Norges Bank during the period of financial turbulence, collateral requirements for loans were temporarily eased. In October 2009, it was announced that the temporary rules for collateral requirements would be changed. Acceptance of new securities eligible under the temporary rules was discontinued in October. Securities already approved under the temporary rules would be eligible as collateral until maturity, or at the latest until 15 February 2012. Changes in the so-called bank quota were also announced. Under the current rules, up to 35 per cent of a bank’s borrowing facility can be based on collateral in bonds issued by other Norwegian banks. Debt instruments issued by foreign banks will be included in the bank quota as from 1 December 2010. Securities issued by banks will no longer be eligible as collateral for loans as from 15 February 2012. Covered bonds will still be eligible as collateral, including, until further notice, bonds to which no credit rating has been assigned and bonds issued by a bank’s own mortgage company. This is expected to contribute to the development of the Norwegian covered bond market. The housing market – a source of disturbances in the economy Banks have had strong incentives to extend credit for house purchases. Even during the banking crisis around 1990, Norwegian banks’ losses on residential mortgages were low. This is reflected in the low risk weights for residential mortgages in banks’ risk models. For an individual bank, residential mortgages are low-risk loans. | 1 |
In addition, by pooling resources with those available in neighbouring countries, Luxembourg has managed to address resource limitations and other problems that it could not deal with in an effective way on its 1 Excluding OECD member states and a number of countries that are well known for their pro-trade orientation, Dollar and Kray (2001) find that developing countries who had the largest trade to GDP ratios also experienced the highest per capita growth rates since the 1960s. They note, for example, that these countries - which they term the “post-1980 globalizers” have seen their average annual growth rates jump from 2.9% in the 1970s and 3.5% in the 1980s to 5.0% in the 1990s. By contrast, the non-globalizers have seen their growth rates fall from 3.3% in the 1970s to 1.4% during the 1990s. Dollar., E. & A. Kray. (2001) Trade, Growth and Poverty. World Bank, Policy Research Department, Working Paper No. 2615. USA, Washington. 2 "The Challenge to Small, Landlocked Transition Economies - Trends and Policies in the World Economy”, in World Economic and Social Survey 2001, Department of Economic and Social Affairs, United Nations. 3 "Consequences of Trade and Financial Integration for Macroeconomic Volatility”, in IMF, World Economic Outlook 2002. 4 While Malta ranks 50th in terms of income per capita, these countries are among the 20 richest economies of the world. World Development Indicators 2002. World Bank. BIS Review 69/2002 1 own. | The situation is not expected to change in the near future in view of the differences among small 22 states themselves. As an EU member, moreover, since Malta’s representation in EU decisionmaking bodies would be more than proportionate to its population, its voice would stand a better chance of being heard, not least because most of the other acceding countries are also small and could be potential allies on issues of common concern. Indeed as Malta’s recent experience with the OECD and developments relating to the proposed EU savings tax directive have shown, Malta is likely to obtain a better deal as an EU member. Four years ago the OECD was planning to take action against non-co-operative countries on its list of “harmful tax havens”. Malta was not on the list because the Maltese Government undertook to eliminate any offending practices and to exchange information with foreign tax authorities once a level playing field was achieved. But the relevant aspect of this episode is that small jurisdictions are being compelled to revisit their strategies and diversify their economies in a manner which does not harm the interests of stronger, high-tax economies, and that standards and codes of good practice will increasingly serve as another dimension of competition. In these circumstances it cannot but be perceived as an advantage by prospective members that the EU not only has the capacity to resist threats to the competitiveness of its members, but also has enough bargaining power to persuade its competitors to reach a compromise acceptable to its members. | 1 |
For example, there could be a committee for global exchange rate issues, in which the large currency blocs are represented; another committee focused on poverty issues, where poor countries and major donor countries have a high representation; and a committee for crisis resolution, in which creditors have a strong position, etc. Reforms in this direction could also increase the efficiency of the Executive Board. It could also imply that a small increase in the number of chairs would be manageable. The problem that a number of countries would end up outside some of the discussions, should not be exaggerated particularly if the consequence of total changes is that IMF gets a more central role in the international discussion than today. To the extent that the problem remain, it should be possible to manage through a high degree of openness. 4. The role of the Executive Board should be stronger and more clearly defined in relation to the IMF’s management. The current principle whereby the IMF’s managing director is both chairman of the Board and responsible for executing the Board’s decisions is open to question. With a more clear division of responsibilities, the IMF management could be more effective and, in practice, possibly stronger. It is also vital that the Board is represented at a high enough level with full confidence from the capital level in order for the Board to be able to become an effective arena for central policy discussions. 5. The IMFC could be reinforced. | Today, we are paving the way for closer collaboration between INCEIF and the institutions of higher learning in Malaysia to realise our common objective of developing the pool of expertise in Islamic finance. This collaborative move, would establish a network of mutual co-operation and collaboration that would strengthen the efforts between the institutions of higher learning in the areas of curriculum development, research, training, exchange of ideas and information, and resources in Islamic finance. This partnership in connecting the knowledge communities in Malaysia needs to be developed and maintained on a long-term basis. Entering into strategic alliances with institutions of higher learning, Islamic financial institutions and other organisations would create greater synergy, which may bring about new approaches, new technologies and new areas of specialization. Collaborative efforts between INCEIF and institutions of higher learning in particular, would strengthen the ability to leverage on the respective institutions' expertise in research. The introduction of new research findings in Islamic financial engineering could pave the way for increased innovation of new products. This would contribute towards broadening and deepening Islamic financial markets and thus strengthen the overall development of the Islamic financial industry. In addition, active collaboration between academic researchers and the practitioners will enable the practical application of research findings. BIS Review 125/2006 1 One of the strategic steps that INCEIF has initiated is the forging into strategic alliances with the five takaful operators to collaborate in promoting and undertaking research, development, training and education in Islamic finance. | 0 |
There have been reports in the media, for instance, on importers who can no longer withstand the cost increases caused by the weak exchange rate. Mad cow disease and foot and mouth disease have made us get used to the idea of higher meat prices. Poor harvests, worm-eaten apples, etc. have meant that the resistance to higher fruit and vegetable prices is weak. The fact that certain trade union representatives are also saying in the media that they may have to break wage agreements if inflation remains high, indicates that they do not fully rely on price stability being maintained. The implicit inflation expectations, which can be seen in the pricing in the interest rate market, also show that inflation expectations two years ahead are rather high. It is, of course, worrying that inflation is higher than expected. The lowering of the repo rate by 0.5 percentage points in September was partly to contribute to reducing uncertainty and raising confidence in the future in an unusually uncertain situation. However, the future prospects are no longer as uncertain and the economic slowdown appears to be in its final stages. There is therefore no longer a need for a large insurance against a severe decline. It is important to react quickly with interest rate policy when there are downside risks, but it is equally important to react quickly to upside risks. | Beyond the yearly shadow banking monitoring exercises, policy makers intended to make sure that no part of the financial system would be left unregulated and that a similar set of rules should apply to a similar set of risks. For the sake of a better regulation of globally systemically important institutions, some progress remains possible in the monitoring, and the need for relevant data in particular as regards the better understanding of inter-linkages among G-SII. Cross-sectorial consistency was seen as a key factor to prevent any opportunity for regulatory arbitrage and preserve appropriate level playing field. The Financial Stability Board following the G20 recommendation has launched an ambitious regulatory program which aims at better controlling risks which are related the shadow banking sector. Indeed, the US have recently adopted a regulatory framework for Money Market Funds (July 2014). Other reviews are still ongoing, I am thinking of the assessment of risks and systemicity of asset managers whose assets under management have experienced a major growth these last few years, or the rapid development of ETFs providing real time liquidity on their liability while their matching assets have a lower liquidity. In Europe, this global initiative translated into a number of regulatory initiatives such as the Securities Financing Transactions Regulation (repos and SFTRs) or the Regulation of Money Market Funds. The final objective was to turn the shadow banking sector into a safer and regulated “market-based financing”. 2. | 0 |
This intelligence was soon being fed back to Head Office. During the 20th century, this intelligence-gathering role was expanded. It has grown steadily, in scale and importance, since then. Today, the Bank’s 12 Agencies across the UK have around 9,000 regular company contacts providing real-time intelligence on the economy. Structured surveys from the Agents first appeared in 1997. Agents’ National Scores were first introduced in the mid-1990s and first published in 2006. Agent’s Company Visit Scores were first developed in 2007 and first published in 2015. 59 Brexit provides as good an illustration as any of the ways the Agents’ high-frequency, high-resolution intelligence can improve the Bank’s understanding of the economy. A key question recently has been whether and how companies have been preparing for Brexit.60 The Agents’ network was used not only to track how prepared companies were over time, but what form this contingency planning was taking – stock-building, seeking alternative suppliers, building cash reserves etc (Chart 26). 56 Haldane (2017). For example, Agerström et al (2016). 58 Bank of England (1963). 59 Ellis and Pike (2005). 60 Bank of England (2019). 57 44 All speeches are available online at www.bankofengland.co.uk/speeches 44 Chart 26: Contingency planning by firms for Brexit Sources: Bank of England and Bank calculations. Company contacts also helped the Bank’s Brexit scenario planning. Companies were asked about the consequences for their businesses of a “no deal, no transition” Brexit. The results are shown in Chart 27. | And house prices and consumer confidence do seem to be closely correlated. So house prices may be a leading indicator of sentiment about the economy and hence of consumption and domestic demand. But, just like equities, house prices also reflect changes in real interest rates. Since long-term real interest rates have fallen from over 3½% to below 3% over the past year, it is not surprising that house, and other asset, prices have risen. Precisely because housing is an asset, its price is more volatile than most goods and services in the retail price index. As such, it is important to look at house price levels as well as at their rates of change. Although house prices have been rising quite rapidly over the past couple of years, they returned to the peak reached in the late 1980s only at the end of last year, and exceeded it for the first time in the first quarter of this year. That, of course, followed the sharp fall in house prices in the early 1990s - house prices fell by over 10% between 1990 and the end of 1992. For most families, apart from future earnings and pensions, their wealth is dominated by one asset and one liability. The asset is their home and the liability is the mortgage on it. But the difference between these two is sensitive to the state of the economy. In a low inflation world, house prices are likely to rise and fall whereas the mortgage liability is fixed in money terms. | 0 |
• MAS will work with the financial industry, the Institute of Banking and Finance, training providers, and the universities and polytechnics to provide learning pathways relevant for a Smart Financial Centre. • We will also provide FIs funding and other support for training opportunities, to help our people acquire specialist capabilities in the relevant areas of FinTech. Conclusion Let me conclude. I have said much about technology and FinTech. The larger picture is really about promoting a culture of innovation in our financial industry. • Such innovation is not always about high-tech. • It is about designing better work processes and creating new business models that will deliver higher growth, more enriching jobs, and better services for the consumer. • Technology is very likely to be a key enabler for all this, and we must make a concerted effort to understand it and use it effectively. Thank you. BIS central bankers’ speeches 11 | Big data has brought us tools and techniques that can be applied to rapidly process large sets of traditional data too. This makes it much easier for us to realise projects like MMSR and AnaCredit and helps us to keep pace with an ever-changing world. AnaCredit, for instance, involves immense sets of extremely granular data, reflecting the far greater complexity and interconnectedness of today’s economy. To understand this complexity and assess the interconnections, we need a very detailed view. And this is exactly what AnaCredit gives us. Thanks to the granular data it provides, we will be better able to understand what is driving credit growth, making it easier to know whether such growth is healthy or not. MMSR, on the other hand, is about speed: money markets move fast and never stop. So taking a snapshot every now and then does not suffice. We need much faster data, and that’s what MMSR provides. It allows us to constantly assess who lends how much money to whom in the money market and at what rates. This gives us a very clear and quick picture of how the market is structured, how exposed players are to one another and how vulnerable they are. And MMSR helps us to keep pace in other ways too. Look at the important role benchmark rates play. They provide anchors for contracts in financial markets and are important for the 3/4 BIS central bankers' speeches transmission of monetary policy. | 0 |
Moreover, it was difficult to communicate how “appropriate” the forward rate path was as an interest rate forecast, and the logical consequence of this was to quite simply go on to publish our own interest rate forecast. The period with implied forward rates as a forecast assumption can therefore be 1 See Irma Rosenberg’s speech “The Riksbank and monetary policy” in September 2005, on the reasons for changing over to implied forward rates in the forecasts. BIS Review 85/2010 1 regarded as a learning process on the road towards publishing our own interest rate forecasts, which has several advantages compared with using forward rates. 2 When we began publishing our own repo rate path, this was the start of a learning process for us at the Riksbank, but also for market participants. I believe that we have made a lot of progress in this direction. Monetary policy through “management of expectations” The established view today is that a large part of the monetary policy effect is through influencing expectations among participants in the economy. By publishing our own repo rate forecasts we improve the opportunities to influence rates with longer maturities by influencing the general public’s expectations of future repo rates (“management of expectations”), something that proved very useful during the financial crisis. Figure 1 shows the development of the repo rate and market rates with different maturities. We see that the Riksbank has considerable influence over developments in market rates with maturities of up to six months. | The Riksbank’s forecast indicated that the repo rate would remain at this low level until the second half of 2010. The forward rates prior to the publication of the repo rate path indicated that the repo rate would not be cut to 0.25 per cent and that increases in the repo rate would begin as early as the end of 2009. Surveys carried out by Prospera indicated that expectations were in line with the forward rates. Although the forward rates were adjusted down after the publication of the repo rate path, the pricing still showed that expectations were set at a first repo rate increase at the end of 2009. Where the Riksbank’s forecast indicated a first repo rate increase, the forward rate was already up at around 1.5 per cent. This large deviation caused considerable discussion, partly concerning the current situation and monetary policy, and partly more general as to whether it is a problem if market expectations deviate from the Riksbank’s forecast. As shown in Figure 2, however, market expectations were lower than the Riksbank’s repo rate forecast at the end of the forecast period. Seen across the entire forecast period, therefore, the average deviation is not so great. With hindsight, we can also note that in summer 2009 market expectations deviated considerably from the repo rate outcome we can see so far. Figure 2 The repo rate path and market expectations in July 2009 Per cent Note. Market expectations are based on forward rates. | 1 |
The financial regulator relaxed a set of regulations and allowed 1.6 million loan restructuring operations and postponed by one year the entry into force of the capital requirements established in the New General Banking Law. Finally, the CBC has applied some 20 measures aimed at expanding the monetary stimulus, deepening it through non-conventional instruments to encourage credit and liquidity, stabilizing financial markets, and gaining space to address additional stressful scenarios. These measures have pledged resources equivalent to more than 20% of GDP, doubling the size of the Bank’s balance sheet. These efforts have paid off. The decline in activity stopped in June and in the four months since then it has recovered more than half of the losses of the previous four months. As a result, almost a third of the workers who lost their jobs have obtained new ones and a large number of those who benefited from the Employment Protection Law have returned to their occupations. In the third quarter, fiscal transfers were able to compensate for all the fall in labor income of the poorest 20% of the population, and the remaining 80% will have obtained liquidity that far exceeds the loss of income through the withdrawal of pension savings. There is evidence that the FOGAPE-guaranteed loans reached preferentially the companies most affected by the drop in sales, which helped them to resume their activity. | In fact, reforms will enhance the gains from immigration, as there is some evidence that immigration offers most benefits in those countries with more flexible labour markets. Let me finish by recalling the words of Mr. Kofi Anan, the former United Nations Secretary-General, from a speech delivered to the European Parliament: “Migrants need Europe. But Europe also needs migrants. A closed Europe would be a meaner, poorer, weaker, older Europe. An open Europe will be a fairer, richer, stronger, younger Europe – provided you manage migration well”. It is hard to disagree with him. Managing migration well, will be very good for social and economic stability and will help make our job of maintaining moderate inflation easier. 4 BIS Review 59/2007 | 0 |
We have thus been faced with a broad litany of serious problems affecting many of the institutional requirements and elements that are so vital for maintaining confidence, for the efficient allocation of resources, for the orderly working of any financial system and for the effective supervision thereof. I shall return to these matters later. But let me first say that, faced with the above-mentioned multifarious shocks, the international financial system showed a capacity for resilience that should be viewed as highly satisfactory. It is not easy to assess which factors have contributed to increasing, and to what extent, such resilience. Among them, however, mention should be made of the following: the priority given to stability by many monetary and fiscal authorities during the preceding long expansionary phase; the improved workings of more integrated and better informed international financial markets with increasingly flexible trading systems; the high levels of solvency, via own funds and provisions, attained by banks during the previous upturn, which has made it easier to soak up the losses now arising; and, finally, the advances made by many banks in risk management, providing for better risk identification and monitoring, risk diversification and the reallocation of risk towards final investors, on increasingly efficient derivatives markets. Despite the resilience of the international financial system, both the independent developments within the system and the aforementioned events which perturbed the markets have repercussions for banking supervision. These are worthy of mention. | 2014 is very different from the time of the Asian Financial Crisis in 1997 when Emerging Asia only accounted for 18% of global trade and 17% the World’s GDP. Today, Emerging Asia makes up of 25% of global trade and 28% of the world’s GDP. Moreover, the world has become so much more interconnected through the trade, FDI and financial market channels. It is all too easy to give too much credence to the “decoupling” theory than it deserves, as many people did when they over-rated the prospects of the EMEs when the advanced economies were having very difficult times after the eruption of the Global Financial Crisis. So the advanced economies also need to understand and watch out for the developments of the EMEs and their spillover effects. 5. Finally, I wish the Conference every success and all the participants a very pleasant stay in Hong Kong. Thank you. 2 BIS central bankers’ speeches | 0 |
Hence, on behalf of the Bank of Albania, I would like to thank all the experts that have helped and have been actively engaged for their successful realisation. In addition to the precious work of the Bank of Albania's staff, I would like to highlight the rather 2/3 BIS central bankers' speeches precious contribution of many renowned academics, historians, Albanologists, numismatists and experts from the most experienced companies in the field of banknote production. Meanwhile, the Bank of Albania is working on the completion of the new series with two other banknotes, 500 lek and 2000 lek, which are in production process. Concluding, I like to call on the users to handle each banknote with due care, in order to preserve their durability, quality and integrity in circulation. Banknotes are more than a valuable paper. They boost and sustain the economic activity of Albania and similarly tie with visible threads our national identity. I wish the public will welcome both new banknotes we are presenting today, like the previous ones. 3/3 BIS central bankers' speeches | Better information about the credit risk profiles of the largest, internationally active banks, including the composition of their portfolio by internal ratings, would also be useful. A commitment to the use of advanced analytical tools, stress testing, and improved disclosure comes under the widely discussed rubric of seeking out and adopting industry-wide best practices. It is, perhaps, most important to note that the development of best practices is a dynamic, not a static, process that can only be enhanced by consistent risk management efforts over a long time horizon. In sum, I am led to conclude that diligent market discipline using techniques such as those I suggest here is in the long run the essential element needed to achieve both public and private goals. All market participants bear the difficult responsibility of determining and exacting adequate compensation for risk. While the public sector has a responsibility to increase the effectiveness of its overall regulatory and supervisory framework, it is the private sector’s continuous reassessment of risk and advancement of risk management techniques that ultimately will serve to preserve a safe and sound financial system while simultaneously rewarding individual institutions with long-term profitability. In the public sector, we can help markets work more effectively by ensuring that regulated financial institutions support the trading process by making sound credit decisions. We can also work to improve bank supervision by our ongoing examinations of bank risk measurement and management processes, a major focus of the examination process. | 0 |
Similarly, private borrowers residing outside the euro area issued more than a fifth of their international debt in euros from the beginning of 1999, roughly a twofold increase over the total share of the legacy currencies before the introduction of the euro. And, according to recent statistics, the euro could have been the first currency for bond issuance before the US dollar during the first quarter of 2001, with 46% of international bond issuance against 44% for US dollar. Furthermore, European investors have substantially diversified their bond portfolios since the introduction of the euro, encouraged by the removal of the exchange rate risk. This enables them to achieve higher rates of return for a given level of portfolio risk. Additionally, let me recall recent trends towards mergers or close co-operation between stock exchanges, securities settlement systems and clearing houses, and so forth. Had the euro not been created, would it have been thinkable that the Paris, Brussels and Amsterdam exchanges would merge, creating EURONEXT? It is evident that the introduction of the euro is fostering very large-scale market restructuring throughout Europe. The total stock market capitalisation of euro-area equity markets stood at more than 5.5 trillion euros at the end of 1999, compared with a market capitalisation of 3.6 trillion euros at the end of 1998. This figure reflects the powerful drive towards securitisation of private companies throughout Europe and, in particular, the take off of the “new markets” network. There are still some barriers to further integration of EU capital markets. | The authorities thus received constant feedback on key indicators affecting national economic performance and could react accordingly. These indicators were sensitive, multiple and very reactive. In contrast to the pre-euro period, a loss of competitiveness will not show up quickly on radar screens like foreign exchange markets, interest-rate markets or the external accounts. As a result, economic managers must monitor the relevant competitiveness indicators with even greater vigilance. The sanctions for economic policy errors could come more slowly and insidiously via rising unemployment and weak growth. The rules of a market economy, especially competition, continue to apply to each economy. Jobs are created by consumers when they choose the goods and services they feel are the best value for money. Businessmen allocate these jobs to various possible locations in various countries according to the relative competitiveness of these locations. It is therefore necessary to monitor competitiveness even more closely than before through indicators such as unit production costs and the tax and regulatory framework. The close multilateral surveillance and the frank discussions provided in the context, inter alia, of the Eurogroup, will help monitor competitiveness trends with a view to ensure early warnings and appropriate reactions. * * * Let me address, in conclusion, two questions: the issue of sustainable growth and the present diagnosis of the Eurosystem as regards the balance of risks. – Growth: Central bankers are sometimes portrayed as being excessively cautious and reserved with respect to economic growth. | 1 |
The world now has a unique opportunity – an opportunity to galvanise a deeper appreciation and understanding of the issues that affect us all – globally and simultaneously. Policymakers tackling the health crisis have been encouraged to pursue policies that can alleviate the economic shocks caused by the pandemic and in the same instant help address climate issues and challenges. We can leverage the opportunity presented by the current crisis to put the world on a new trajectory with a lower risk of future climate calamities. 1/3 BIS central bankers' speeches Collective responsibility This brings me to my second C that is “collective responsibility”. The former Managing Director of IMF, Madam Lagarde once remarked that “Tackling climate change is a collective endeavour, it means collective accountability and it’s not too late”. Malaysia, together with its ASEAN counterparts, has been responding to climate change by developing national sustainable roadmaps, principles and guidelines. Such actions are even more relevant now. Despite a more pressing public health crisis at the moment, the World Health Organization has warned that “climate change is a gradually increasing stress that may be the defining public health threat of the 21st century”. Now why is this? That’s because temperature and weather extremes, floods, and pollutants can impact human health, directly and indirectly. The pandemic thus stresses the need to progressively continue collective global climate change actions to reduce risk of future epidemics. Commitment This brings me to my third C, which is “commitment”. | (ii) The BoZ took a step towards regulating microfinance institutions (MFIs) in 2006 because these institutions can help in narrowing the access gap in the delivery of financial services. So far, 21 MFIs have been licensed but most of these operate along the line of rail providing mainly salary-backed loans. More institutions are still needed to increase outreach and deliver financial services in a safe, sound and sustainable manner; (iii) Zambia is predominantly an agricultural country, but lending to agriculture has been limited. The challenge therefore is to devise financial products that meet the requirements of the rural and predominantly agricultural areas while at the same time devising means of protecting the financial institutions from risks associated with agricultural lending. 8. Allow me to conclude my remarks by highlighting the need for banks and non-bank financial institutions to consider their customers and potential customers when determining the pricing of their products and services. The public continues to decry the high level of charges and interest rates for banking services and products. 9. The BoZ has previously and will continue to appeal to the financial sector to review their charges and to explore ways of enhancing efficiency in service delivery. 10. The majority of Zambians cannot afford the current banking charges and are effectively shut out of the financial system. More affordable banking services will draw in a larger number of Zambians to the financial system, which will in turn be beneficial to the development of the banking system and the economy at large. | 0 |
What does that take? Let's reframe the core components of operational risk – people, process, and technology – using a resilience lens.15 People are resilient when they are ready and able to adapt to change by adjusting priorities, replanning, and refocusing activities and resources. Resilient staff work with shared purpose across organizational siloes, operate effectively in environments of uncertainty and ambiguity, and are empowered to develop creative and innovative solutions. Processes are resilient when they are robust to changing internal and external conditions, including issues with suppliers, inputs, processing, outputs, and customers. Resilient processes provide clear signals of their operating state, have the right level of automation, and continue to function under stress. Technology systems are resilient when they are flexible, robust, and able to be recovered rapidly. And then the overall organization is resilient when these three components – people, process, and technology – work together effectively. Resilient processes and technology should support the ability of the staff to successfully manage in normal times and during disruptions. What are some concrete steps to strengthen resilience? In terms of processes, an important first step is to identify the processes that are critical to achieving organizational objectives. Gains are often found through simplification and automation of manual processes, especially when combined with performance metrics and risk metrics that provide real-time measures of process health.16 For technology, modernizing technology and software development processes can be a key area of focus. | After the Lehman collapse, central banks implemented far-reaching unconventional monetary policy measures, first by setting up liquidity facilities and then, for some of them, by undertaking large-scale asset purchase programmes. Measuring the propagation of these policies on our economy is a challenge. Unconventional policies are typically announced in order to respond to specific economic and financial conditions. They are endogenous. And disentangling their effects from those induced by other economic and financial factors can be very difficult. Empirical studies of the effects non-conventional policies, including pioneering studies by Anne Vissing-Jorgensen, have proceeded through so called “event studies”. This approach consists of measuring the response of asset prices the day when a given measure is announced. The “identification” problem is solved in the sense that reactions by interest rates and asset prices on the day when a central bank announced a new non-conventional measure are indeed very likely to the caused by the announcement. This literature has for instance showed that the effects of the so called Large Scale Asset Purchase programs of the Federal Reserve. “QE1”, launched in 2009, and “QE3”, launched in 2012, had larger effects on US long-term interest rates than the 2010 “QE2” program. Another insightful result from this literature, which is presented this morning by Simon Gilchrist, is the differential effects of these policies on credit risk. LSAP programmes have reduced the non-financial sector’s default risk, but they had a very limited impact, if any, on the default risk specific to the financial sector. | 0 |
But in order to achieve this, three cross-cutting levers will be needed: revitalising the single market; providing equal access to training and skills in the southern countries, including France; and pooling our funding. Europe has on the one hand the resources, i.e. a savings surplus of EUR 300 billion per year, and on the other hand huge digital and ecological investment needs: to build the bridge between the two, it is urgent to speed up the Capital Markets Union. The remaining two-thirds of this targeted additional growth could be achieved by addressing two issues specific to France: primarily, inadequate labour supply. To increase potential growth, we do not lack public spending or capital overall, we lack labour. In France, more than 50% of companies are experiencing recruitment difficulties whereas there are still 2.4 million unemployed, including 600,000 young people: this paradox is socially unacceptable. France has almost 3 million fewer people in employment than Germany, and the majority of these are young and elderly people. In this respect, the levers of reform are: for young people, the strengthening of basic education and apprenticeships; for older people, a fair pension reform. And for all working people, professional training more focused on the key issue of skill enhancement; a reform of the unemployment insurance system that provides good incentives for long-term employment and work; and negotiated wage increases for jobs that suffer from a lack of attractiveness. | Given the current crisis in public services, their necessary modernisation and mobilisation are not incompatible with performance and management; and spending on the future - from education to investment - has a better multiplier effect on long-term growth. Page 2 sur 15 Ladies and gentlemen, dear teachers and students, I am very happy to be with you again today, in this very important place of teaching and knowledge. I had the honour of speaking here in January 2020, on the then much disputed question of low interest rates. Two months later, the Covid crisis erupted, which not only rebuilt the consensus on these low rates, but also called into question all our forecasts and many of our common points of reference. Since then, we have been living under the continuous pressure of an emergency situation, in a permanent present that masks our structural challenges. I understand and share the suffering. But one day, we will overcome for once and for all this Covid ordeal: this is both an obvious wish for this new year, and a necessity. It is time for us to talk at last about the fundamental choices for Europe and for our country, and to do so, we must take a longer-term view. ** I. A perspective that must go beyond the short term As regards the short-term economic situation, I will therefore just make three remarks: a) The French economy is currently proving resilient to Omicron and to the fifth Covid wave. | 1 |
Historically, central banks have relied on the assumption that, even if liquidity shortages emerge in the non-banking sector, banks are likely to remain an effective conduit for LOLR. The efficacy of that channel may be less reliable in the future, however. For that reason, the Bank of England has extended access to its published facilities to broker dealers and CCPs overseen by its supervisory arm the Prudential Regulation Authority, and has ensured it faces no technical obstacles to providing ELA if required. The Bank has also set out principles under which it might operate as market maker of last resort – consistent with the role it played in sterling corporate bond and commercial paper markets during the crisis. Conclusions Ensuring central banks lend neither “too little” nor “too much” in pursuit of financial stability is vital if countries are to retain LOLR toolkits that can both protect their economies against genuine liquidity risks whilst maintaining broad-based public support and legitimacy. In recent years, reforms to the Bank of England have focused on minimising the risk that it might lend “too little”, significantly increasing the Bank’s ability to provide structured LOLR assistance, to a wider range of counterparties, against a wider set of collateral, at longer maturities and somewhat lower prices. But at the same time, safeguards have also been strengthened against the Bank lending “too much”: better supervisory and resolution frameworks; transparent terms for access, pricing and collateral; and stronger accountability and governance. The UK’s arrangements are no panacea. | The decision to lend or not to lend will always be a difficult one, conducted with imperfect information and in the midst of a crisis. Ex post judgments on whether the central bank lent too much or too little must recognise this constraint. But the UK’s experience can I hope show one way to address the risks of lending “too much” through enhanced accountability whilst also still allowing central banks the “constrained discretion” to exercise expert judgment in the pursuit of financial stability. I look forward to our discussion of these issues today. Thank you. BIS central bankers’ speeches 5 | 1 |
It is manifested in exchange rate regimes that still permit relatively limited variability against the dollar. It is manifested in the extent of reserve accumulation, in part the consequence of resistance to exchange rate appreciation. And it is manifested in the remaining controls on capital movements and the occasional experimentation with the introduction of new controls. The search for durable insurance against future volatility is an understandable response to the searing experience of the crises of a decade ago. But there is risk in this as well. And the incomplete embrace of integration could contain the seeds of future vulnerability. In this sense, the policy agenda needs to move from a focus on creating stronger defenses against crisis to building a greater ability to adapt to change. This requires strong institutions for the management of macroeconomic policy so that the monetary and fiscal policies are able to respond to shocks in a credible manner. It requires strong financial institutions with a substantial capacity to absorb losses and cope with volatility. It requires regulatory policies that encourage competition and innovation, with strong protections for property rights, low barriers to entry and effective financial supervision. And it requires investments in a nation’s human capital, in education, healthcare and pension provision. This complement of policies improves the prospects for producing the mix of flexibility and resilience necessary for sustained growth in a more integrated world economy. | Capital inflows, largely through the banking system, helped finance a boom in investment and real estate. Distortions in the financial system led to a misallocation of resources so that high rates of private investment did not generate substantial improvements in productivity. Exchange rate regimes where the domestic currency was fixed to the dollar generated false expectations of stability, and the resulting increase in unhedged borrowing generated large exposures to changes in the exchange rate or interest rates. By 1997, the short-term external debt of the private sector had risen substantially, relative to GDP and to reserves, and this created conditions similar to a classic bank run, when the crises hit. The initial spark for the loss of confidence is still not fully clear, as is often the case in financial crises. And although the particular dynamics differed across the countries in the region, the basic pattern was common, with a rapid and sustained effort by domestic and foreign investors to reduce their exposure to further losses. The initial effects of this behavior made the exchange rate commitments untenable, and when those commitments were broken and currencies fell, the panic became self-reinforcing. Uncertainty and lack of information fed the run. Market participants were unable to judge whether deteriorating developments reflected temporary liquidity problems or deeper solvency issues. They BIS Review 65/2007 1 reacted by assuming the worst. These shifts in market sentiment risked becoming self-validating, with liquidity problems transformed into solvency problems with broader risk of default. | 1 |
This policy, now a cornerstone of our prudential arrangements, pre-dates even the foundation of the HKMA and evolved out of a productive dialogue between HKAB and the supervisor. It has survived strong political pressure for relaxation and market pressure for innovative credit risk transfer through securitisation. The policy – now nearly two decades old – fits in well with the macroprudential approach which, particularly in the light of the recent crisis, supervisors in other jurisdictions now consider to be essential to banking stability. The fact that no such policy existed in the advanced financial systems is remarkable enough. But what is more remarkable is the level of initiative of the Hong Kong banking sector itself in seeing the importance of systemic stability and giving it precedence over the profitability of individual institutions. We might therefore observe, in the light of this and of our experience over the past year, that Hong Kong has got it broadly right in the relationship between the supervisor and the banking system. However, this should not lead us to the complacent conclusion that there is nothing much that needs changing. And indeed, no such conclusion is in our minds. Both the BIS Review 116/2009 1 Carse Report and the recent reports to the Financial Secretary on the Sale of Lehmanrelated products see room for development and improvement in the way we carry out our work. | The Swiss franc temporarily appreciated immediately following the outbreak of the war in Ukraine. The trade-weighted Swiss franc exchange rate, however, was recently below its level at the beginning of the year (cf. chart 4). Adjustment of the threshold factor I would now like to discuss the lowering of the threshold factor from 30 to 28 as mentioned earlier by Thomas Jordan. With this technical adjustment, which will take effect from 1 July 2022, we will ensure that sufficient amounts of sight deposits are subject to negative interest, and that the latter is being passed on to the money market as intended. From March 2022, upward pressure built up on the short-term rates on the secured money market. This stemmed from the fact that the exemption thresholds had risen over time due to the dynamic calculation model, which meant that there were no longer sufficient amounts of sight deposits subject to negative interest. To keep the secured short-term money market rates close to the SNB policy rate, the SNB provided additional liquidity to the money market via repo transactions as a temporary measure. However, given that the increase in exemption thresholds is structural in nature, it is appropriate that we lower the threshold factor. This will result in the secured short-term money market rates being close to the SNB policy rate again without the SNB having to regularly provide larger amounts of liquidity. The SNB will continue to regularly review the basis for calculating the exemption threshold and adjust it as necessary. | 0 |
To restore confidence, we BIS central bankers’ speeches 3 need less complexity and more transparency. Not every portfolio or risk can be modelled. For these portfolios, we must use simple, standardised approaches. We must reduce the complexity of the model-based approaches to a level which allows both the banks’ supervisory bodies and the supervisory authorities to understand and review them within a reasonable period of time. Standard approaches should also be used here as a control variable and indicator for capital savings. • Given the great number of regulatory measures, it is important not to lose sight of the bigger picture. We will therefore carry out a comprehensive analysis of the overall effect of regulatory measures. This project is already being planned and prepared by the Basel Committee. Such an exercise will do us good and will also be beneficial to the general debate on regulation, helping objectify it. I hope that this work will not only result a list of overlaps, duplication and other inefficiencies which we would subsequently clear up. I also expect that we will address unintended consequences of the new rules. In supervision, too, much needs to be changed. The crises of recent years did not come about solely because there were weaknesses in the regulatory framework. The supervision of banks did not function optimally, either. | 9 31 1 1 99 6 1 4 8 1 69 916 1 6996 &164131 165 931 9961 31131 8 93 64 45 6 31 6 3 1 8 6 9 7 131 631 1 9961 93 8 14I 945 139 1 891 16 31 1 15 9 3 ! &1#62 | 0 |
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