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Because weather effects are by their nature temporary, the widely held expectation coming into the second quarter was that there would be a sharp rebound in growth similar to what took place last year. But current data suggests that the rebound has been relatively muted. I think this is because some of the non-weather factors evident in the first quarter – such as the drag from the sharp drop in oil and gas investment – have persisted into the second quarter. Also, real disposable income growth has slowed over the past three months as aggregate hours worked have grown more slowly and crude oil and gasoline prices have partially recovered. This means that the fundamentals for consumer spending are not as strong as they were at the beginning of the year. Nonetheless, my view is that growth will likely pick up further during the remainder of this year. This judgment reflects several factors. First, some of the forces that have been restraining growth are likely to fade later this year. For example, consider oil and gas investment. The U.S. oil and gas rig count dropped precipitously during the first quarter, but the rate of decline has slowed during the current quarter. Combined with the partial recovery in crude oil prices, this implies that oil and gas investment is likely to stabilize during the second half of the year. Second, business fixed investment outside of oil and gas seems likely to advance, reflecting strong fundamentals. | It is expensive to use, however, and in one way or another we all as bank customers pay for the use of it. For reasons of security and efficiency in retail payments, a more widespread use of cards would be desirable. Forces driving the development of the card payment market The forces of supply and demand shape the evolution of the card payment market in much the same manner as they influence the evolution of any other market. Demand is influenced by factors such as acceptance, convenience and relative prices. It has sometimes been argued that demand for payment instruments is not price elastic - that relative prices 1 do not greatly influence users' preferences for different payment instruments. The Nordic experience does not support this view. The rapid expansion of card payments and other electronically initiated instruments in Norway clearly point in a different direction. Norwegian consumers' shift of preferences followed immediately after banks' change of pricing strategy, where (among other changes) a price was put on the use of cash (as a small fee on ATM withdrawals). In Sweden, as previously noted, the use of checks fell sharply when banks started to charge for their use, although the charge was fairly small. Of course, good substitutes must be readily available. But if alternative ways of payment are present, fees seem to matter and matter a lot. | 0 |
Since then, we have made significant progress in moving the unemployment rate back to a more normal number. Yet, at 6.1 percent, it remains too high. And, as we have heard all morning, other measures of labor market activity remain suppressed. We have underperformed on the inflation front as well. Since 2008, year-over-year total inflation as measured by the Personal Consumption Expenditures Price Index (PCE) has averaged just 1.4 percent, well below its 2 percent target. Today, PCE inflation stands at 1–1/2 percent and is expected to move up only slowly toward the FOMC’s target. Nonetheless, we have come a long way in healing the injuries the financial crisis inflicted. Certainly monetary policy has been doing some heavy lifting. The Federal Reserve responded quickly to the unfolding recession by cutting the fed funds rate to near zero by December 2008. At the zero lower bound (ZLB), we then turned to unconventional measures, such as large-scale asset purchases and forward guidance about the federal funds rate to provide further accommodation. In the fall of 2012, with the unemployment rate hovering stubbornly at around 8 percent and core inflation steadily drifting lower than our 2 percent target, the Fed introduced open-ended asset purchases and, later, forward guidance that related federal funds rate actions to thresholds explicitly expressed in terms of our policy goals. Together, these efforts have helped the economy make impressive progress toward our employment mandate and appear to be moving us closer to our 2 percent inflation target as well. | To give you the punch line, this research and work done by others in the field lead me to conclude that, although we have made great strides, a good deal of slack remains in the labor market. Labor force participation and employment As everyone in this room is aware, the labor force participation rate has fallen throughout the recession and recovery and is now at a 35-year low. 1 As Julie Hotchkiss described earlier this morning, it is well understood that much of the decline is due to trends that far predate the Great Recession. The movement of baby boomers into retirement age and the longrunning declines in teenager and prime-age male participation would have significantly reduced labor force participation rates independently of the economic downturn. Chicago Fed economists first did work on the prospects for a declining labor force participation trend back in 2001 – near the time the rate peaked at just over 67 percent. 2 Even after revisiting this topic numerous times and with multiple generations of research assistants running the programs, their views about the trends that are consistent with the composition of the population and a labor market near equilibrium have not changed much 1 The labor force participation rate is defined as the share of the population aged 16 and older who are either employed or unemployed. To be unemployed, a person has to not have a job but be actively looking for work in the prior four weeks and to be currently available to work. | 1 |
G The desire for certainty and control which seems to underlie such proposals is understandable, as it appears to offer the promise of using less public money, and seemingly entails less risk that creditors will be bailed out for poor credit decisions. But the control and manageability that might result may be more seeming than real. G For one, a perceived disposition to preemptively lock the door seems likely to send investors heading for the exits all that much sooner. As a result, many avoidable crises soon may become inevitable. And the problem of contagion, whereby difficulties in one case spread to many, would seem likely to worsen. G Moreover, a perceived weakening of the international community’s commitment to voluntary, market-oriented approaches and its support for honoring contractual commitments would likely create deep distrust, making it harder to encourage cooperation between debtors and creditors in ultimately resolving the crisis. G An overly quick recourse to payment suspensions also risks discouraging precisely the types of flows that we should wish to encourage, that is, longer maturities with better risk-sharing characteristics, such as long-term bonds and equities. In a crisis, the hottest money leaves first - - by definition. It seems counterproductive to seek to penalize those who stay. G Finally, I would suggest that preemptive attempts to "freeze markets" also undermine market discipline of, and ownership by, the local authorities. | So despite these crises elsewhere, growth in Sweden remained stable at an average annual rate of 3 to 4%. When the unrest had subsided, the repo rate was raised to the current level of 3.75%. The Riksbank has heralded a repo rate increase for some time During the past year, Riksbank representatives have frequently said that sooner or later, a continuation of strong economic activity will make a further repo rate increase necessary. This is because an annual GDP growth rate of 3 to 4% is more than the economy can achieve without generating imbalances. Higher economic growth is, however, feasible for a time if there are unutilised resources in the economy. But when tensions arise between total demand and supply, various bottleneck problems are liable to result in price and wage increases that ultimately threaten price stability. 1 BIS Review 109/2000 Perhaps the best illustration of this is to be found in the labour market. The increase in employment in recent years has exceeded what demographic factors are contributing to labour force growth by around 40,000 to 70,000 persons a year. Employment growth is in fact the strongest for several decades. Considering how high unemployment has been, this is welcome. But sooner or later, such a development means that firms will have difficulties in recruiting labour. Then, if not before, wage costs are liable to accelerate and push prices up. | 0 |
2 BIS Review 45/2003 Third, it is extremely difficult to anticipate the future path of interest rates. That is because the Monetary Policy Committee sets rates in response to news in the economy, and that news is inherently difficult to forecast. Each month the Committee makes a careful assessment of the outlook for inflation, and it is that which will guide our decisions on the appropriate level of interest rates. It is over 3 1/2 years since interest rates were last raised - the longest such period since Bank Rate was held constant at 2% through the 1940s. At some point reducing the present degree of monetary stimulus will be necessary in order to keep inflation on track to meet the target. The timing of any such decision will reflect our judgment of the outlook for inflation. Listening to our business contacts and learning from our visits around the UK is an important input into that judgment. To retain the unrivalled degree of stability that we achieved during the “nice” decade will be an even more difficult challenge for the future. The present monetary and fiscal frameworks provide a seaworthy policy vessel, but, as all sailors know, fog, especially statistical fog, can be dangerous. So we must hope that Lady Luck will continue to smile on us. BIS Review 45/2003 3 | Marzunisham Omar: Financial advisers, trusted advisers Keynote address by Mr Marzunisham Omar, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 6th Annual Conference of the Association of Financial Advisers 2017 "Financial Advisers, Trusted Advisers", Kuala Lumpur, 9 October 2017. * * * It is indeed a great pleasure to be here this morning. I would like to thank the Association of Financial Advisers for inviting me to speak, and allow me first to congratulate the team on the successful organisation of this year’s conference. The future is as promising as it is unpredictable. As I reflect on the theme of the Conference, I am reminded of a quote from Confucius, the ancient Chinese philosopher – “I used to take on trust a man’s deeds, after having listened to his words. Now, having listened to a man’s words, I go on to observe his deeds.” This morning I would like to talk about trust – financial advisers as trusted advisers. Indeed, trust is at the heart of the financial advisory industry. While customer service and technology are increasingly the key differentiators, the most essential element has been, and will always be, trust. In an industry where the very foundations are dependent on the strength of personal relationships, trust is not only a necessary feature – it is its strongest advantage, its defining value proposition. | 0 |
I am not so pessimistic as to imagine that the best one can do, over the next twenty years, is the negative real return offered by indexed gilts. But one can’t make these predictions with any great confidence. And if that sounds rather non-committal, then it only underlines the point I’m trying to make. Whatever does cause a sustained rise in real interest rates – a lasting solution to the arrangements of the euro area, perhaps, or renewed optimism about global productivity growth – it is unlikely to be the arbitrary whim of central bankers. Those betting on long-term movements in interest rates will have to work a little harder than just listening to people like me. And that sounds like a good place to end. Chart 10 Despite low rates equities have performed poorly over the past 15 years Source: Bank of England References Baldwin, R., and Teulings, C., 2014, “Secular Stagnation: Facts, Causes and Cures”, VoxEU, http://www.voxeu.org/content/secular-stagnation-facts-causes-and-cures Bank of England, 2014, May 2014 Inflation Report, http://www.bankofengland.co.uk/ publications/Documents/inflationreport/2014/ir14feb.pdf Banks J., R. Crawford and G. Tetlow, 2010, “What does the distribution of wealth tell us about future retirement resources?”, A report of research carried out by the Institute for Fiscal Studies on behalf of the Department for Work and Pensions. Barro R., 2009, “Rare disasters, asset prices, and welfare costs”, American Economic Review 2009, 99:1, 243–264. | Because the majority are owned by institutions – banks, pension funds and insurance companies – it is hard to trace through the impact of any capital gain to its ultimate beneficiary. One thing worth saying is that, at least in terms of effective wealth, the gainers clearly include those entitled to future payouts from defined-benefit pensions. You can’t sell such an entitlement. But it does offer a guaranteed flow of future income, much like the coupons from an indexed gilt (that’s why DB pension funds are obliged to discount their liabilities using gilt yields and why, in response, they hold significant quantities of government debt). The present value of this income has therefore risen in similar fashion. To the extent they include equities, the value of defined-contribution (DC) pension funds will have performed less well. The third point is that none of this need have any bearing on the distribution of income, as opposed to that of wealth. This is an important distinction. To the extent that asset prices rise because the marginal investor is becoming more patient, lowering the discount rate (Chart 6(a)), this reflects a change in the present value of a given stream of income, not in the stream itself. Things are a little more complicated if interest rates have fallen in response to slower growth (6(b)). In that case, anyone who has locked in a future flow of income (coupons on government bonds, for example) will gain relative to others. | 1 |
I have long been clear that the risk weights for mortgages that the banks calculate using their own models are often too low. However, the causes of both the Swedish and the international problems can be traced to the same source. Internationally too, it has been concluded that the banks’ own models are inadequate for ensuring that risk weights always reflect the risks in a good and reliable way. Discussions are therefore underway as to whether the regulatory frameworks, as well as the oversight and approval of the banks’ internal models, must be reviewed so that the models cannot become tools for an unwarranted lowering of the capital requirements. In my opinion, finding ways of ensuring that the risk-weight calculations are credible and that the risk weights of different banks can be compared is one of the most important tasks of the Basel Committee going forward. A number of measures are being considered and discussed; we will gradually begin to see the fruits of this work. This relates, for example, to reviewing the banks’ choice of models for calculating risk weights and the degree of freedom for the banks to make their own assumptions in the models, as well as setting stricter requirements to ensure that the data used as input in the models is of sufficiently high quality. | This will benefit everyone, even Sweden, partly by reducing the risk of global crises and partly by reducing the risk of crises spreading to Sweden and other countries through the links that exist on the financial markets. At the same time, the problems and risks that the international regulatory initiatives aim to deal with correspond to those that Swedish authorities have identified in Sweden. The Basel III framework will therefore also have a direct positive impact on financial stability in Sweden. Let me give you a few concrete examples: • Stricter risk-based capital requirements will increase the ability of the Swedish banks to cover unexpected losses, in both their Swedish and foreign operations, thereby increasing the banks’ resilience. • The leverage ratio will provide a complementary picture to the risk-based capital requirement and means that authorities and investors will be better able to assess a bank’s capital situation. Having a quantitative requirement for the leverage ratio sets a limit for a how low the Swedish banks’ capital can fall in relation to their total assets, irrespective of how risky their operations are considered to be. A leverage ratio requirement of, let us say, 3 per cent corresponds to a risk weight for mortgages of approximately 22 per cent for a major Swedish bank with a 12 per cent CET 1 capital requirement. 1 • Another example is the NSFR. | 1 |
Philipp M Hildebrand: Do financial markets promote responsible behaviour? Speech by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the 35th ICS-Symposium, University of St Gallen, 21 May 2005. * * * I am honoured to join this distinguished panel. In his opening remarks to this year’s ISC Symposium, Federal Councillor Moritz Leuenberger compared the symposium’s theme – Liberty, Trust and Responsibility – to the Holy Trinity. Let me assure you. I will be less ambitious. In my formal comments, I will take the liberty to reflect not only on financial market but on markets more broadly. The great economist Adam Smith has famously written that “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” This often-cited reference from the Wealth of Nations can be interpreted as suggesting that markets function best when market participants are not concerned about any particular normative values of responsibility but simply pursue their self-interest. Led by the “invisible hand”, this collective pursuit of self-interest produces the optimal economic outcome. In other words, market participants need not be concerned about responsibility or, to use Adam Smith’s term, benevolence. The “invisible hand” of the market will take care of that. It seems to me such a reading of Adam Smith is too narrow. | Indeed, apart from assuring the rule of law, Smith saw two other functions for government: “the duty of protecting the society from the violence and invasion of other independent societies” and the “the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain”. Against the backdrop of these brief reflections on the great Adam Smith, let me turn back to the specific question put to us. I have no doubt that together with a functioning rule of law and limited government intervention, free markets in general and financial markets in particular are the optimal path to the promotion of wealth. I am equally convinced that responsible behaviour has the best chances of flourishing in an environment of economic opportunities and rising standards of living. Trust clearly enhances the rule of law as there will never be enough courts to permanently monitor all market transactions. Modern means of communication and transparency, in turn, are trust-enhancing. Think of seller and purchaser ratings on many internet auction sites. Now, let me conclude my remarks with a final and in my view crucial note of caution. As Charles Kindleberger demonstrated convincingly in his 1978 book Manias, Panics and Crashes, financial markets are prone to phases of irrationality and exaggeration. Such market disequilibria lend support to the need for the rule of law and the utility of limited government intervention in a number of areas. | 1 |
So far, 21 APG Typologies Workshops have been held since the APG’s formation in 1997, where the last Workshop was held in 2018, jointly with the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) in Russia. These Workshops have contributed to a better comprehension of prevalent money laundering and terrorism financing (ML/TF) threats in the region, by allowing members to understand latest trends, identify key red flags as well as sharing of information on possible counter-measures to respond to the threats. This has assisted members to take the hard decisions to prioritise, apply resources and put in place systems to effectively tackle financial crimes. With so much benefits, the APG is committed to continue holding the Annual Typologies Workshop so that members could keep abreast with the latest ML/TF trends and typologies. As you can see in the agenda, this year’s Workshop aims to discuss two key areas that were approved by the membership earlier. These two topics namely, Digital ID/e-KYC and Financing and Facilitation of Foreign Terrorist Fighters, are timely given the current development in our region. Allow me to touch briefly on these two topics. Digital ID/e-KYC The rapid technology advancement in the last decade has led to significant innovations in the financial sector. Then came the COVID-19 pandemic, which has accelerated the need for financial institutions around the world to shift their operations onto the digitalised platforms. Digital ID/e-KYC is one such innovation and the authorities have responded accordingly. | Marzunisham Omar: Digital ID/e-KYC and Financing and Facilitation of Foreign Terrorist Fighters Welcoming remarks by Mr Marzunisham Omar, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 22nd Asia/Pacific Group (APG) on Money Laundering Typologies Workshop, virtual, 2 February 2021. * * * It is my pleasure to welcome all of you to the first virtual APG Annual Typologies Workshop this week. It is rather unfortunate that I cannot personally host you in Kuala Lumpur for this event. I have recently assumed the role of APG Co-Chair, representing Malaysia. Malaysia is indeed very honoured to co-chair the APG and we are committed to working together with all members in delivering the APG’s mandates during this unprecedented and challenging times. It is my wish that during my tenure as Co-Chair, we would be able to further strengthen the strategic partnership amongst APG members and foster better collaboration in implementing the APG initiatives and agenda. Together with the APG Secretariat, we will continue to provide platforms for members to raise any issues affecting individual members as well as collectively as a group. For this purpose, together with Co-Chair Ian, we have identified several focus areas as the CoChairs’ Priorities, one of which is to host the Annual Typologies Workshop. Despite the pandemic and after a two-year hiatus, we are glad to be able to conduct the APG Typologies Workshop although in a virtual setting. | 1 |
It takes a long view to recognise returns beyond profits where social and environmental gains are also equally valued. This will represent a major paradigm shift in many institutions. For this, strong and visionary leadership that sets the tone from the top, starting from the board and senior management, is certainly crucial. Far-sighted leadership to transform culture, systems and people will be central to this paradigm shift. To facilitate the process, the recently issued Strategy Paper on VBI will be complemented with an implementation guidance that is currently being developed by the Bank in collaboration with the industry. Second, VBI will require greater stakeholder activism through increased transparency on its adoption. This is a new initiative and it is imperative that our efforts go hand in hand with creating greater awareness and understanding of key stakeholders. The public sector and advocacy groups play an important role. But customers and business ventures should also play their roles wisely and use the power of their wallets to make informed choices. To catalyse this change, a value-based scorecard will be introduced to realign behaviours and expectations towards the desire to impact the community and the environment in a positive way. The scorecard will capture important dimensions of qualitative performance that are geared towards creating sustainable outcomes by Islamic financial institutions. The third critical area is adopting a collaborative approach to implementing VBI which will be key to mobilising change. | The success of this strategy has positioned TeamBank as the country’s third largest consumer finance provider. Equally commendable is Westpac Banking Corporation, the first Australian bank that has incorporated environmental filters in its day-to-day business decisions. In Malaysia, I believe Islamic financial institutions are now at the right stage of development to drive this important change. It is expected that Islamic banks would take the lead in the VBI initiative and to embrace the new principles in their business strategies and operations. Given the universal nature of VBI, the application and adoption of similar strategies by financial groups which comprise conventional financial institutions would be the next phase of this evolution as we move forward. In time, I believe that the underpinning thrusts of VBI will also be expanded to enhance its relevance to the takaful industry. 2/4 BIS central bankers' speeches Realising the tangible impact of VBI is more of a journey than a fixed destination. However, it is encouraging to note that a number of our Islamic banks have already started applying principles of VBI in one way or another. What is needed now are strategies to realise the full potential and amplify the impact of VBI in creating positive outcomes for shareholders as well as broader stakeholders in Islamic finance. I would like to suggest three critical areas that require immediate attention, for this momentum of change to be sustained. First, VBI calls for a “transformation of the mind”, a change in how we think and how we act. | 1 |
5 After four years of low or negative growth, the economy expanded by more than 3% in each year since 2005. At 6.5% the unemployment rate is at its lowest level in eight years, and the annual rate of change in productivity has returned to more acceptable levels after years of negative or marginal growth. Reflecting this general improvement, macroeconomic imbalances have also declined. The fiscal deficit contracted from almost 8% of GDP in 1999 to an estimated 1.6% in 2007 and the public debt/GDP ratio has gone down to 63% from a peak of 73% in 2004. The other Maastricht criteria, of course, were all met in good time and in a sustainable manner. Meanwhile, the current account deficit dropped from the 6 - 8% range in the first years after EU accession to around 3% in 2007, and is expected to drop further as the fiscal consolidation programme continues to unfold. At the same time, the private sector appears to have adjusted well to the changing composition of domestic and external demand. Not only has there been a shift away from public sector employment to private services - the share of the public sector in employment shed five percentage points to 30%since 2000 - but there has also been a move away from low value manufacturing activities to skills based services. | The way forward Becoming a member of the euro area does not represent the end of a process, but rather the beginning of a new era in which the burden of adjustment will have to be carried entirely by the real economy and in which the harmful effects of inefficient institutions and practices on costs and final prices will become more visible. The policy challenge, therefore, is to maximize the benefits of participation in monetary union and so bridge the remaining income gap with the euro area. Malta’s per capita income level is still around 70% of the euro area average. Among other things, this means that further fiscal consolidation is necessary in order to achieve a balanced budget by the set date of 2010. There must also be more emphasis on expenditure-based adjustment, particularly in view of rising pressures caused by ageing- BIS Review 14/2008 5 related factors such as pension and health care costs. It will be equally important, in both the private and public sectors, for wage growth to be compatible with productivity growth, labour market conditions and cost developments in competitor countries. The further strengthening of competition in both product and resource markets and the creation of more incentives to work are also necessary in order to raise the participation rate. These ambitious objectives clearly allow no room for complacency. In this regard, it is a positive sign that the Budget for 2008 promises policy continuity. | 1 |
This approach was consciously at odds with that adopted for TAURUS, which had tried to be all things to all people 7. But it also focused minds in the industry, forcing them to make difficult tradeoffs, and creating a clear incentive to market providers to produce “add ons” for extra user functions. The project team itself projected a similarly minimalist, open approach in its work – building on their own past experience of having developed the Bank’s system for dematerialised settlement of gilts (the “Central Gilts Office”), involving a full range of disciplines (including policy, IT and legal) in all outreach and design meetings, and embracing a robust attitude to analysis and self-criticism, perhaps best summed up in their T-shirt logo “Purist and Bloody-Minded”. Not everything went to plan. Some early project management structures were found wanting. PWC’s audit of the project in Spring 1994 identified what might be euphemistically termed “a range of unfinished business”, but allowed the project to go forward. And the early months of operation after that launch day in July 1996 faced technological challenges and setbacks. But it is remarkable to think that this basic approach delivered a system that, at its core, remains with us twenty years later. How has the Bank applied the lessons from the building of CREST to the strategic renewal of RTGS? | Unsurprisingly, a fifth of all trades failed to settle on time. If the case for change was clear, so too was the common purpose shown by the public authorities. As Pen Kent, the Bank’s Executive Director in charge of CREST said at the time, “TAURUS gave the Bank the legitimacy to step in and get on with the job: it needed a market failure to get everyone pointed in the right direction.” The Bank of England, called upon privately to act by the Chairman of the Stock Exchange, had two main goals: first, to reduce the material risks to financial stability posed by such an extended and uncertain settlement process; and, second, to ensure the UK had an efficient and internationally competitive market infrastructure. There is no doubt that the second of these goals weighed particularly heavily with the Bank’s Governors of the day. Not everyone agreed that the Bank should become closely involved, worrying that it could be a costly and reputationally risky distraction from the post-ERM project of repositioning the Bank as an organisation capable of taking on independent responsibility for setting monetary policy for the country as a whole. But the majority view won out, bolstered by the active support of the UK Government, notably HM Treasury, which took responsibility for ensuring that the complex and extensive legislative changes required were delivered in a timely and effective way. | 1 |
The second piece examines the high child poverty rate in Puerto Rico and its impact on the long-term economic sustainability of the island and its ability to recover from Hurricane Maria. The island’s child poverty rate is almost three times higher than that of mainland, and has remained stagnant even during times of economic growth, suggesting the issue is not just rooted in labor demand. This chapter discusses the dual programmatic and policy strategy of the Boys and Girls Club of Puerto Rico and its sister organization the Youth Development Institute. Before I conclude my remarks, I would like to provide a quick overview of today’s sessions. First, my colleague Patrick Harker, President and CEO of the Federal Reserve Bank of Philadelphia, will discuss key shifts in perspective needed to see workforce development as an investment. Then there will be three panel sessions, each dedicated to the overarching focus of a volume in the publication – investing in workers, investing in work, and investing in systems. The day will then end with a luncheon panel discussion where speakers from various sectors will discuss what needs to happen to realize the goal of seeing workforce development as an investment in inclusive economic growth that benefits workers, employers, and communities. I am thrilled that we can bring together national and regional leaders representing the private, public, and nonprofit sectors to engage in a dialogue that can inform workforce development programming across the country and learn from one another about the opportunities for investing in America’s workforce. | The typical community college engages with more than 100 employers, spanning a broad range of industries, including healthcare, manufacturing, utilities, and tourism, just to name a few. It is also quite common for community colleges to actively assess local labor market needs, often with the help of local employers. As part of these engagement efforts, employers provide a wide range of education and training support to community colleges, offer various forms of work experience, and help students prepare for the job market. Employer engagement is a promising and important undertaking for community colleges, local employers, students, and workers. Investing in America’s Workforce These are just a few examples of the work being done across the Federal Reserve System and beyond, which is one of the reasons we have come together under the Investing in America’s Workforce umbrella. This initiative started in 2017 as a way to identify new approaches, opportunities, and challenges in the various areas of workforce development. Led by the Federal Reserve System alongside other educational and nonprofit institutions, Investing in America’s 2/3 BIS central bankers' speeches Workforce has encompassed 52 regional meetings held across the country last year, a capstone conference held in Austin, TX last October, and a three-volume book highlighting workforce development efforts as investments for economic and community growth, which the Fed and our partners are releasing today. | 1 |
These spreads narrowed continuously from mid1995 onwards and their volatility was also noticeably reduced during this period. Factors contributing to this favourable pattern included increased convergence towards low rates of inflation across the euro area during Stage Two, the gradual reduction and finally the disappearance of exchange rate risks, the commitment of governments towards improving the sustainability of public finances, and the increase in the depth and liquidity of government bond markets. As I have already said on a previous occasion, I believe that the interest rate markets of the euro area will increasingly provide an accurate reflection of the differences in credit quality between various issuers as well as differences in liquidity between bonds, while divergences purely related to the location of market participants within the euro area will become less and less relevant. It seems highly likely that the capital markets of the euro area will become even deeper and more liquid over time, and hence more efficient. The number of market participants is likely to increase as the cost of financial market transactions is lowered, and the sophistication of position-taking activities is likely to increase further as market participants equip themselves with more refined methods of adjusting their portfolio exposures. One particular area of the capital market in which the markets in euro area countries have traditionally been a lot less active than in the United States is the corporate bond and commercial paper market. | Since the financial crisis and subsequent recession, another factor likely to have contributed to depressing yields is the sharp decline in investment, prompted by the deterioration in the outlook and heightened uncertainty. To date the recovery has been painfully slow, with negligible growth in the United Kingdom over the past year and a half. And though there is some variation in the pace of recovery across countries, in general growth has been weaker than after a normal cyclical downturn. In part that reflects the fact that recoveries after financial crises tend to be weaker and more drawn out as balance sheets are repaired, but also it probably reflects the exceptional uncertainty in the aftermath of the financial crisis. It is consequently hard to know when the animal spirits of businesses, and with it the propensity to invest, are likely to revive. Certainly the impact of QE on yields should ultimately reverse when the economic environment improves and we start to sell the gilts back to the market in order to withdraw the present exceptional monetary stimulus. Unfortunately, with the present heightened uncertainty associated with the problems in the euro area, the likely future date for us to commence selling gilts has receded somewhat. And if conditions do deteriorate significantly, we may need to re-start the programme of purchases. Indeed, as the minutes released earlier today reveal, the decision at our May meeting not to extend the programme was already quite finely balanced. | 0 |
Instead of defending a fixed exchange rate, the task of monetary policy would be to keep inflation low and stable. In January 1993, the Riksbank announced that an inflation target of 2 per cent would enter into force as of 1 January 1995. Gradually, the new order was confirmed through changes in the monetary policy framework. The price stability target was written into the law in 1999 and monetary policy decisions were delegated to an independent Executive Board. The Riksbank is therefore now in a much better position to take forceful action to counteract high inflation. Another facilitating factor is, of course, that 5 [15] the period of inflation targeting has meant that long-term inflation expectations are initially much better anchored than they were in the 1970s and 1980s. Fiscal policy, for its part, would focus considerably more than before on keeping public finances in good condition so as to maintain market confidence. The budget process was changed so that it would be easier to gain control over expenditure developments, while public net lending would, on average, be positive through the so-called surplus target. These changes have meant that fiscal policy no longer contributes in itself to persistently high inflation, as was the case in the 1970s and 1980s. Swedish wage formation was also changed and now works in a completely different way than in the 1970s and 1980s. | The second factor is the process of integration of the economies of Hong Kong and southern China. This is something which is generally welcomed in the broader context, but it may put downward pressure on Hong Kong prices in certain sectors. The third is the peg which, against the global background mentioned above, has been forcing some downward adjustment of our costs and prices. The fourth factor is peculiar to the property market, namely the excesses of the property market cycle which drove prices to such peaks some five years ago, from which it was almost inevitable that there would be some correction. Attitudes to falling prices are, understandably, ambivalent. Other things being equal, consumers, especially those on fixed incomes, generally prefer falling to rising prices. Even some people who have had to suffer small cuts in pay may still be better off than previously; after all, the prices which they face, as measured by Hong Kong's consumer price index, are currently some 14% below their peak. Meanwhile, those involved in marketing Hong Kong as a business location are eager to publicise the lower costs. And prospective first-time entrants to the property market are happy. But for producers who see continuing declines in the likely prices at which they can sell their output, for wholesalers and retailers whose margins are being squeezed, for home-owners sitting on negative equity, or for financial institutions worried about the solvency of customers as a result of any of these developments, the process of deflation is not particularly welcome. | 0 |
Keeping interest rates at restrictive levels will over time reduce inflation and will guard against the risk of inflation expectations becoming de-anchored, which, if it happens, it would be a very costly outcome for the euro area economies and for both businesses and households. At the same time, fiscal support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to the vulnerable in order to avoid boosting inflationary pressures. In particular, as the energy crisis becomes less acute, it is important to start converting these broad measures to targeted ones and in a concerted manner. Any fiscal expansion falling short of these principles is likely to increase medium-term inflationary pressures, which would necessitate a stronger monetary policy response through higher interest rates. Euro area projections The euro aoof the rea latest available projections of December 2022, show that the annual average real GDP growth is anticipated to slow down significantly from 3.5% in 2022 to 0.5% this year, before rebounding to 1.9% in 2024 and 1.8% in 2025. Average annual inflation is expected to fall, from an average of 8.4% last year to 6.3% this year, with inflation projected to fall from 10% in the last quarter of 2022 to 3.6% in the last quarter of 2023. Headline Inflation is then expected to fall to an average of 3.4% in 2024 and 2.3% in 2025. | This thinking process has culminated in a strategy that we call Fintech 2025, which I am pleased to share with you here. . All Banks go fintech 14. The first part of our fintech strategy is called “all banks go fintech”. In short, we want banks to go “all in” with fintech, and fully digitalise their operations, from front-end to back-end. 15. The future is full of uncertainties. This is something we have all witnessed first-hand over the past two years with the pandemic. Challenges and interruptions to day-to-day activities, including banking activities, can happen unannounced. The only thing certain and that has been a constant throughout these ups and downs is digitalisation. 16. Indeed, the banking industry also recognises the value of digitalisation. At least we like to think this is why banks have so positively embraced the HKMA’s fintech drive so far - rather than due to any regulatory pressure! Jokes aside, I trust the figures I quoted earlier are proof that the earlier Smart Banking initiatives have laid a strong foundation for our banks to take this next step in their fintech journey. 17. The HKMA is keen to support banks during this process. Under the Fintech 2025 strategy, we will be rolling out a Tech Baseline Assessment to help the HKMA identify those areas that we may be able to offer support. As part of this exercise, we will be inviting banks to submit a Three Year Plan for technology adoption within Q4 2021. | 0 |
Coming to an innovative, cooperative and reciprocal agreement on central clearing would promote competitive financing in the euro area and maintain the resilience of the UK and global financial systems. More fundamentally, it would be an early milestone in the broader rebalancing of the UK, European and global economies. And it would produce far superior outcomes to other elements of the Commission’s proposals, which would fragment global clearing activity and raise costs and risks. V. Conclusion My Lord Mayor, this building, with all its majesty and history and this topic, central clearing of derivatives; could not appear farther from the concerns of people in this country. But they are much more closely related than they appear. A decade of radical financial reform was not an end in itself, but rather a means to serve households and businesses better. We must ensure that the real economy reaps its full benefits, including through freer trade in services and more resilient financing of the investment needed to boost wages of workers in all industries across the UK. One million people across this country work in financial services. The industry contributes 7% of output and pays taxes that cover almost two thirds of the cost of the NHS. At a time when the UK is running a 5% current account deficit, financial services runs a 1.5% trade surplus with Europe alone. The entire service sector runs a 5% surplus with the world and employs 85% of UK workers. We could take these realities for granted. | In the longer run, that increase in productivity would be expected to flow through fully into real wages. By contrast, the peak to trough fall in real wages following the crisis was in the region of 10%. 14 All speeches are available online at www.bankofengland.co.uk/speeches 14 | 1 |
No risk assessment is ever really complete and it is essential for all of us to keep up with what is going on to ensure that we are employing our resources as effectively and efficiently as possible, while achieving the dual objectives of risk-based AML/CFT efforts as well as ensuring legitimate customers have access to services. 23. So those are the three issues that I would like to highlight and which would be explored in the various sessions of this Conference. All in all, I would emphasise that the global AML landscape is an evolving one - geopolitical developments will continue to affect sanctions risks, criminals will come up with new ways of stealing money and of hiding and moving those money. Technology can hinder or help us in our AML efforts, and I have to say that although we are already doing a lot, we are far from having the perfect solution. The challenge that we face collectively, in the region, is to develop responses to existing and new risks that: Are agile and adaptable, while providing a framework of principles and rules that that we can all agree to and follow; Recognise innovation and make the best use of technology; and perhaps more importantly Challenge our established ways of meeting some expectations, and ensure the response always relates to effectiveness. 24. I note that you have a very full agenda the coming days covering these and other topics. | The second issue I would like to highlight is a emerging focus internationally on the sharing of information between the public and private sectors, which I believe offers great potential in enhancing the effectiveness of our AML efforts. Increasingly, law enforcement agencies, regulators and the financial sector are cooperating in ways that go beyond the filing of STRs and assistance with investigations although these, of course, remain essential. The focus is now more on two-way sharing of information on trends and typologies. 20. In Hong Kong, the Fraud and Money Laundering Intelligence Taskforce, led by the Police and with participation by the HKMA and the banking sector, was established as a pilot scheme in 2017. This is a public-private platform along similar lines to initiatives overseas, notably in Australia and Singapore, and while it is at an early stage, it has already shown concrete results, not least in the freezing or restraint of some $ million as well as 71 arrests over a 10-month period. I believe that this kind of cooperation shows real promise for sustainable 3/4 BIS central bankers' speeches enhancement to the effectiveness of our framework, and the HKMA strongly supports its continuation and development. 21. The third issue is that we all need to keep under constant review whether we are getting the risk-based approach right. To implement AML efforts using an approach based on risk is the cornerstone of the FATF Recommendations. No one – neither institutions nor regulators – can be watching all risk areas all the time. | 1 |
Therefore, you cannot set a limit and say that if we exceed that level, then the situation is very bad. Generally, when economic growth is slower there is a room for fiscal stimulus and higher deficit, and when economic growth is faster, there is no need for fiscal stimulus and the deficit should be minimized. Isn’t the Maastricht criterion that level? The Maastricht criterion of three percent for the budget deficit is set as a criterion in the euro area. It does not mean that Macedonia should meet that level. Perhaps in periods when fiscal stimulus is needed. In the next period for Macedonia, perhaps the level of budget deficit, which would stabilize the public debt, is even lower. BIS central bankers’ speeches 3 What is the limit that the government debt must not exceed? There is more room for the government, but that room will slowly be used up. Therefore fiscal consolidation should start to be considered, in order to avoid a situation of starting with the fiscal consolidation after this room is used up. As for the external borrowing, we will have it for a long period. And that is good, because even when we repay old liabilities, it is good to have a new loan that would compensate for that. It is not good to make repayment of the external liabilities overnight, and not to have a new inflow. Then the funds will have to be provided from home, which will adversely affect both the credit and the economic growth. | After we have determined this, then it is better for a small and open economy, such as the Macedonian, it to be fixed. Why? Because if we have a floating exchange rate, we will have higher inflation and higher interest rates for the real sector. So, I cannot understand those who stand for a floating exchange rate, though they are a minority, because the vast majority already agrees that the current exchange rate regime best suited our economy. And those who are most vocal about the floating exchange rate, are the same ones who claim that current interest rates are high. Well, then they would be even higher. Therefore, I do not see what would be the benefit, how it will contribute to higher growth. There are opinions that it is easier to be Governor of a fixed rate, that it requires less managing of the monetary policy. Is that so? It is true. It is easier to manage a fixed exchange rate than a floating one. However, regarding the advantage of a fixed exchange rate for the economy I would point out the experience of Serbia. Serbia has a floating exchange rate and since 2008 the exchange rate has depreciated some 50 percent. During the entire period, however, Serbia has had an inflation of over 10 percent, and the interest rates for the real sector have constantly been around 14 to 15 percent. Therefore, lately, the Serbian Central Bank stabilized the exchange rate, too. | 1 |
We forecast also a return to productivity growth – a real casualty of the recession – that would drive higher pay and hence provide a more sustainable base for consumer spending. And, as a corollary of higher productivity we thought the growth in output would be accompanied by a slower fall in unemployment. So overall, our expectation at the time I joined was that the recovery would broaden out in 2014. But over the year the boost from pent up demand would fade and as a result growth would begin to fall back from very strong rates to a pace around its historic averages. Three other MPC judgments from my first meeting and Inflation Report are also worth recalling. BIS central bankers’ speeches 1 First, we did not think the UK economy would get much help from the rest of the world. A combination of relatively weak growth in the parts of the word that mattered most for UK exports, particularly the Euro area, and the disappointing performance of UK exports in recent years led us to believe that the UK’s net trade would not provide a material contribution to growth. Second, while we expected productivity growth to pick up in 2014 we did not forecast that the UK would recover any of the very substantial amount of productivity growth, 14% relative to the pre-crisis trend, that had been “lost” in the five years since the crisis. | Many households – including those previously lacking access to credit or with access only to expensive credit – found they could borrow on a significant scale to finance the purchase of a home and other expenses. Prices rose across a range of real and financial assets, most notably the prices of homes. This constellation of broad economic and financial conditions was accompanied by rapid innovation in financial instruments that made credit risk easier to trade and, in principle at least, to hedge. These instruments allowed investors to buy insurance or protection against a broader range of individual credit risks, such as the default by a home owner or a company. Issuance of asset-backed securities (ABS), collateralized debt obligations (CDOs) and BIS Review 27/2008 1 collateralized loan obligations (CLOs), as well as credit default swaps (CDS), expanded on a dramatic scale, particularly from 2005 through to mid-2007. And over this same period, the composition of the assets in ABS, as well as in CDOs and CLOs, shifted to higher credit risk mortgages and loans issued by noninvestment grade companies. Even though these instruments allow credit risk to be shared, their holders remain exposed to the less probable, but potentially very damaging effects of a significant increase in losses driven by macroeconomic factors. As underwriting standards deteriorated over this period, this exposure grew. And yet risk premia continued to fall, suggesting that investors did not fully appreciate the dynamic that was at work. | 0 |
Hamad Al-Sayari: A brief overview of the Saudi Arabian banking sector Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, at the opening of a branch of the National Bank of Kuwait, Jeddah, 6 May 2006. * * * Dear Audience, It gives me great pleasure to be here tonight to inaugurate the branch of the National Bank of Kuwait (NBK) in Jeddah, a city which has long been known for embracing the business sector due to its closeness to the sacred places and its unique location on the Red Sea. The commencement of NBK of its banking operations in the Kingdom of Saudi Arabia marks further consolidation of cordial relations between the two brotherly countries (Saudi Arabia and Kuwait). This is one of the fruits of mutual Gulf work which the leaderships of the two countries are keen to enhance. Dear Brothers, The inauguration of NBK branch comes at a time when the Kingdom is witnessing robust economic performance. In 2005, the Saudi economy grew in real terms by 6.5 percent; the private sector registered a real growth of 6.6 percent. What is reassuring is that the private sector has become the main impetus of the Saudi economy. Its average growth rate for the past years stood at 5.3 percent. | This is an incarnation of the wise measures adopted by the government under the leadership of the Custodian of the Two Holy Mosques to carry out more structural reforms (institutional and regulatory) which we have begun to feel their positive effects in all aspects of economy. It will be appropriate here to say a few words about the dynamic and crucial role played by the banking sector in the Kingdom, which is manifested in the substantial increase in the credit extended to the private sector which grew by 29 percent annually during 2003 – 2005; and it amounted to Rls 436 billion at the end of 2005. As a result of the expansion in banking business, the assets of the banking sector increased by 14.4 percent annually during the past three years (2003 – 2005). At the end of the first quarter of 2006, they stood at Rls 797.4 billion, constituting about 70 percent of the Kingdom’s economy. Deposits with the banking sector rose by 13.7 percent annually during the past three years, and they amounted to Rls 521.5 billion at the end of the first quarter of 2006. The positive indicators of the banking sector which rest on the robust fundamentals of the Saudi economy have prepared an appropriate environment for banks to adapt to successive, regional and international changes during the previous period. Banks operating in the Kingdom have been able to overcome the crises that hit other economies, and have been able to benefit from banks’ experiences and modern banking technology. | 1 |
Eva Srejber: Greater budgetary discipline in the EU through transparency and national ownership Speech by Ms Eva Srejber, First Deputy Governor of the Sveriges Riksbank, at a breakfast seminar organised by Ernst & Young, Stockholm, 26 September 2006. * * * Fiscal and monetary policy are interdependent. A government needs transparent and consistent monetary policy to know how to conduct fiscal policy. Similarly, no monetary policy will be sustainable if there is a rapid accumulation of debt. This is what Sweden witnessed in the 1980s and the early 1990s. An unsustainable mix of fixed exchange rates and lax fiscal policy, which led to high inflation and eventually to a crisis that landed us with an even higher mountain of debt. When the regime collapsed, General Council decided that the Riksbank should work towards a direct inflation target. The Riksbank determined that the target would be two per cent. Today this policy is hailed as a success. However, the real breakthrough for the new regime was in the mid-1990s when a forceful implementation of fiscal consolidation, supported by a broad political majority in parliament, made the macroeconomic set-up as a whole credible. It was only then that inflation expectations among the public finally fell to the target of 2 per cent, and interest rate spreads against Germany were reduced substantially. This fiscal tightening could in turn be based on the predictability of the new monetary regime with a clear inflation target. And the tighter fiscal policy would eventually allow less restrictive monetary policy. | Bank deposits refer to money that is issued by, and is a claim on private banks. Each time a bank extends credit, new money is created. Bank deposits now account for 98 percent of the broad money supply (M3). The increasing use of new payment methods, such as mobile payment solutions, suggests that this percentage will continue to rise. We have to ask ourselves: should we allow private solutions to compete freely in developing means of payment, or must the authorities play a role? The crucial factor is whether solutions based on private money deliver the characteristics the payment system should have. The system must be able to channel payments swiftly, safely, at low cost and in a user-friendly manner. The means of payment itself – our money – must be universal, because money is only useful if it is widely used. This requires trust. Deposit guarantee schemes and banking regulation promote trust in banks’ deposit money. Trust is also underpinned by being able to convert to another secure alternative, ie cash. Norges Bank assists private operators in implementing faster and safer payments. We cooperate with other authorities to oversee and supervise the payment infrastructure to ensure robustness and efficiency. Privacy rules prevent unauthorised access to payment information. But there are some characteristics deposit money lacks. Nor is direct and immediate settlement between two parties, without the involvement of a third party, possible without cash. The system is vulnerable to advanced attacks. | 0 |
We have worked closely with our colleagues in the International Accounting Standards Board to avoid conflicts between Pillar 3 and the broader accounting standards. In fact, the Committee views Pillar 3 as a further refinement of the accounting standards that apply to banks’ specific exposures. Because we recognise that we have much to do in this area, we will continue to monitor accounting and market developments in the light of Pillar 3. Our dialogue with accounting standards-setting bodies and the accounting profession will continue to grow in the years to come. Conclusion: Basel Committee & the Global Research Community I hope that this conference will help to identify the policy options that supervisors have in order to address emerging issues in risk management, financial reporting, and transparency so that we can work toward a more stable banking system. We can expect the financial services industry to quantify new aspects of risk while refining the existing measurement and management techniques. Innovation and advances in the banking industry’s quantitative tools will open up many new areas for us to study that may enhance our ability to interpret financial information, to aggregate and report data, and to leverage the power of markets to motivate responsible business behaviour. On that note, on behalf of the Basel Committee, I would like to thank the research community in member agencies, in academic circles, and in the industry for your contributions to our work. | Transparency may be reduced if it is unclear why supervisors set certain requirements for one bank, and a different requirement for another. Allowing a discretionary approach in the absence of the other pillars also makes it difficult to ensure a level playing field, since banks would not necessarily be held to the same standards. That would certainly harm competitiveness across jurisdictions, and possibly even within the same jurisdiction. So the third pillar, market discipline, adds greater transparency. When a bank discloses information that offers meaningful insight into its risk positions and exposures, marketplace participants can better assess the financial health of the institution. They can then provide economic incentives for banks to strengthen their management of risk and hold realistic levels of capital against their risks. One might say that Basel II seeks an “efficient frontier” of policy objectives through the three pillars. Each pillar provides something that the other two cannot, and each is essential to achieving our overall objective of financial stability. I realise that this analogy of the three pillars as a portfolio of policy options is an oversimplification. But it helps us visualise why we think that the most “efficient frontier” involves a mixture of minimum rules, tempered by supervisory discretion, and supplemented by market-based incentives. IV. Consistency of accounting standards and Basel II Of course, it would be impossible to improve transparency and promote stability without examining the mechanics that define how financial data are recorded and reported. | 1 |
But the krona fluctuates sooner than the time it takes to revise our forecast, as is clear from what has happened. In the discussion that followed the publication of the Inflation Report it has been suggested that the Riksbank has lost faith in the krona. I think that’s overdoing it. And regardless of the forecast we presented, I see no strong reasons for altering the appraisal of what is a reasonable fundamental exchange rate in the long run, any more than there were grounds for revising the basic principles for share valuation just because stock markets had shot up to record levels a couple of years ago. That does not mean that some time in the future there could be a case for a different opinion about the exchange rate’s reasonable level in relation to the real economy. But that would stem in turn from an altered view of Sweden’s relative production potential, terms of trade or some other fundamental variable. In this context it should be borne in mind that an unduly weak exchange rate generates effects that should favour an appreciation further ahead: the balance of trade continues to be strong, corporate profits become higher than elsewhere, making Swedish shares more attractive, and so on. Calculations of the krona’s fundamental value will no doubt become topical at the latest if Sweden is to adopt the euro and we require a picture of the exchange rate that will be serviceable in the longer run. | Miroslav Singer: The role of creditors and debtors in the world economy Speech by Mr Miroslav Singer, Governor of the Czech National Bank, at the World Banking and Finance Summit 2012, Official Monetary and Financial Institutions Forum (OMFIF), London, 26 June 2012. * * * 1. First, let me apologize for not being an eloquent academician addressing world matters. I am a humble central banker from a small central bank in a far away country which some people know very little about. So, I fear I am not going to be a great substitute for the announced speaker. I understand that his speech was to have focused on how awful, extraordinary, and incredible it is that without German willingness to sponsor the solution to the eurozone crisis there is a strong chance that the financial crisis the eurozone faces will deepen even further. Not even daring to mimic, I will just raise few points and issues. Since I doubt I can add value with an analysis of Pacific trade and financial flow patterns carried out from the remote distance of Prague, I will ignore the global dimension of the current problems and instead focus on Europe. At the end, I will try to make up for this shortcoming with questions on global issues for the other panelists to elaborate on. 2. Now, let me give you a few facts about the Czech Republic: a. It is a net creditor country in terms of its financial sector. b. | 0 |
Jean-Claude Trichet: Towards a more integrated Europe – challenges ahead for the euro area and Central and Eastern Europe Address by Mr Jean-Claude Trichet, President of the European Central Bank, at the National Bank of Poland’s conference “Towards a more integrated Europe – challenges ahead for the euro area and Central and Eastern Europe”, Warsaw, 21 October 2011. * * * President of the Republic of Poland, President of the European Parliament, President of the National Bank of Poland, Ministers, Governors, Commissioner Rehn Distinguished guests, Ladies and gentlemen, Let me start by thanking my dear friend and colleague, President Belka, for inviting me to address such a distinguished audience today. Twenty years ago, the dissolution of the Soviet Union marked one of the most important events in European history – the final stage of the revolutions that began two years earlier in 1989; the end of communism in the countries of Central and Eastern Europe; and the beginning of their transition to democracy and market economies. It is also almost 20 years since the European Council met in the city of Maastricht in the Netherlands to agree on strengthening the pillars of the European Union (EU) and laying the foundations for the transition to Europe’s Economic and Monetary Union (EMU). The changes that Europe has seen over the last two decades have been enormous Right from the start, the countries of Central and Eastern Europe embarked on a hugely ambitious path of reform. | Many observers feared then that, if the crisis were allowed to run its course, it could be near catastrophic for the region and extremely dangerous for the European banking system. But I am pleased to say that this potential “catastrophe” was avoided and I would like to devote my remaining time to the question of how this was done – the third aspect of the convergence process I previously mentioned. I believe answering this question may provide lessons for countries that are currently facing similar challenges in the euro area. 3. The reaction of CEE countries to the global financial crisis: what can be learnt? In my view, the return to the convergence path is being achieved thanks to a combination of four main elements. First and foremost, there are domestic policy actions to address macroeconomic imbalances at the national level. The precise policy actions differ across countries, reflecting the different country-specific challenges and policy frameworks in place. But the actions generally require a strong fiscal adjustment and/or measures to maintain confidence in the soundness of the financial sector. Second, the reaction of the international community has been essential. Where funding challenges became more acute, international financial assistance led by the IMF – jointly with the EU in EU Member States,– has been crucial in supporting market confidence and avoiding financial crises. The balance of payments support facility available for EU Member States has been reactivated, while the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank have supported several countries. | 1 |
It aims to help people find out more about the notes and coins they use every day. On this occasion, though, there’s something new. The highlight today is the brand new ten euro note. It’s the first time it has been on public display since it was unveiled to the media just two days ago at the ECB in Frankfurt. That means you’ll be one of the first to see this new note before it starts circulating on 23 September this year. The new ten euro is part of what we call the Europa series of banknotes. It’s named after the figure from Greek mythology whose portrait is included in the hologram and the watermark on the notes. Take a closer look at those two security features in the exhibition, as well as the distinctive emerald number, which changes colour from green to deep blue when you tilt the note. They’re all examples of how we have used advanced technologies to make the notes even more secure. The security features will keep us well ahead of counterfeiters – and justify the confidence that the people of the euro area have in their money. There’s a lot more to be seen in this exhibition, which I hope you will all find as interesting and entertaining as I did. So without further ado, allow me to declare it open. BIS central bankers’ speeches 1 | More recently, there has also been continuous innovation and an increasing number of issuances in foreign currency. As Malaysia offers international participation in our Islamic financial system, we offer to be an international gateway, particularly in strengthening the link between the two important dynamic growth regions of Asia and the Middle East. Malaysia will also continue to collaborate with other regulatory authorities to ensure financial stability in the Islamic financial system. This will be through our active involvement in the Islamic Financial Services Board (IFSB), the Islamic Financial Stability Forum (IFSF), the initiatives by the Islamic Development Bank (IDB), and finally in the newly formed International Islamic Liquidity Management Corporation (IILM). In the area of capacity building, Malaysia has also given priority to two areas: one is in human capital development and the second, in catalysing mutual recognition of Shariah BIS Review 141/2010 1 interpretations. The International Centre of Education in Islamic finance (INCEIF) was established in 2006 for advanced education for practitioners in Islamic finance, and in 2008, the International Shariah Research Academy (ISRA) was established to conduct applied Shariah research on the contemporary Islamic finance issues and to provide a platform for active international engagement among Shariah scholars. Moving forward, Malaysia will continue its efforts in strengthening our international linkages in the global Islamic financial system through collaborative partnerships and cooperation with the objective of contributing towards greater international financial and economic integration. Let me conclude. | 0 |
As we know from this recent crisis, incentives and a disproportionate focus on short term gains played a central role. This does not mean that we should put on hold initiatives that would promote a more competitive, efficient and sustainable insurance sector. But it does mean that we need to ensure that we have sufficient confidence in the system of checks and balances that exist to safeguard the interests of financial consumers and the long term viability of the industry. Corporate governance is clearly an essential part of that system of checks and balances. As the Government embarks on the Economic Transformation Programme, demand will increase for new and innovative solutions for investment, protection and risk diversification. As presented in the Bank’s Financial Sector Blueprint, expectations are for the insurance industry to be able to deliver a wider range of insurance products that include medical and BIS central bankers’ speeches 1 health insurance, risk protection offerings for small and medium businesses as well as products supporting the global expansion of Malaysian businesses. Stronger insurance companies are also expected to expand beyond our domestic shores. These developments present tremendous opportunities, but also new risks that must be managed. As individual insurers chart their own paths in this landscape, strong governance systems will assume greater importance to keep business standards in check and to guard against actions that would put the long term interests of the company at risk. | Jessica Chew Cheng Lian: Corporate governance at the Central Bank of Malaysia Opening speech by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia, at the Third Institute of Chartered Accountants in Australia-The Malaysian Institute of Certified Public Accountants (ICAA-MICPA) Audit Forum, Kuala Lumpur, 27 September 2012. * * * It gives me great pleasure to be here this morning at the 3rd ICAA-MICPA Audit Forum. The theme for the Forum this year is the role of the audit committee within the context of corporate governance in insurance companies. It has been said that an audit committee is like a good insurance policy - it is better to have it and not need it, than to need it and not have it. I am certainly happy to know that we have established strong audit committee practice within our financial industry, and while admittedly, some institutions have moved further than others in improving the effectiveness of the audit committee, it represents without exception a core pillar of governance systems in our financial sector. I say this because as we speak, there are countries that are now debating the requirement for financial institutions to establish separate audit committees. There are a number of reasons why the theme chosen for this forum is particularly relevant in current times. Corporate governance problems have once again come under intense global scrutiny since the outbreak of the global financial crisis. | 1 |
The outcome was similar to the risk scenario that we presented in a Monetary Policy Report in February 2007 before the collective bargaining process began. This undermined the possibility to conduct a relatively expansionary monetary policy with low interest rates and still reach the inflation target. 4 BIS Review 154/2008 Somewhat higher wage increases in 2007-2009 than in the preceding agreement period In February 2007, the Riksbank's assessment was that hourly wages would increase by 3.9 per cent per year in the three-year period 2007-2009. When more information on the result of the rounds of collective bargaining became available in June 2007, this assessment was increased to 4.2 per cent per year. My personal belief was that hourly wages would increase more than this. Since the spring of 2007, the development of the economy has been much weaker than we expected. The crisis on the financial markets has entailed a dramatic downturn in the US economy which has had a dampening effect on economic development in other countries, including Sweden. This can in turn have made the companies more cost conscious and less willing to employ new personnel and increase wages above the levels stipulated in the agreements. It is therefore reasonable to assume that there will be lower wage increases during the threeyear agreement period than we could predict in 2007. | The argument is that the same restraining effect on wage formation could now be achieved if the service sector sets the norm rather than the manufacturing industry. The idea is that if the service sector sets the norm too high, the Riksbank would increase the interest rate and that this would dampen economic activity, employment and inflation in the same way as if the manufacturing industry set the norm too high and lost international competitiveness. The sector exposed to international competition should set the norm My own view is that the sector exposed to international competition still has a central role to play in wage formation. But this sector should not be equated with the manufacturing industry. Other sectors are also exposed to international competition to varying degrees. It is also important that there is consensus between the negotiating organisations on what part of the economy should set the norm. I do not think that there is any major difference between the previous situation with a fixed exchange rate and the present situation with a floating exchange rate. Our inflation target is largely the same as in other countries. As we saw earlier, inflation over the last 15 years has also been more or less the same in Sweden and Germany. The only way that we can have higher wage increases is if the development of productivity in Sweden is higher than in other countries. | 1 |
Rodrigo Vergara: Chile’s March 2014 Monetary Policy Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, of the Monetary Policy Report before the Honorable Senate of the Republic, Santiago de Chile, 31 March 2014. * * * Accompanying charts can be found at the end of the speech. Mr. President of the Senate’s Finance Commission, Senator Ricardo Lagos-Weber. Senators members of this Commission, ladies, gentlemen, Thank you for your invitation to share with you the vision of the Central Bank Board about the recent macroeconomic developments, its outlook and implications for monetary policy. The detail of this vision is contained in our March 2014 Monetary Policy Report. A year ago, when the Board gathered with this Commission on a similar occasion, we underscored the importance of investment in the Chilean economy’s strength and its connection with the global cycle of mining investments. We then stated that the implementation of a large number of projects in mining and related sectors, such as energy, had provided a boom in investment. This had resulted in greater domestic spending, putting pressure on installed capacity utilization and the labor market, as well as on imports and the current-account deficit of the balance of payments. The Board also noted that it foresaw at the time a gradual maturation of said investment cycle and expected a normalization of economic growth during 2013, after several years of expanding above trend. | The baseline scenario reflects those events that are believed to be the most likely to occur with the information at hand at the closing of this Report. There are risk scenarios, however, which if materialized, may reshape the macroeconomic environment and, therefore, may modify the course of monetary policy. On this opportunity, having evaluated the alternative scenarios, the Board estimates that the risk balance is downward biased for output and unbiased for inflation. Abroad, one first risk has to do with the behavior of emerging economies, especially China. The latter risk has been present in several Reports already and has recently been exacerbated because of growing doubts posed by the fragility of the Chinese financial system and the overall increase in the risk perception of the emerging world. In particular, adeterioration in the Chinese economy would have first-order effects on Chile and the group of emerging economies, spreading through both real and financial channels. Of particular importance is its impact on the prices of commodities, including copper, as well as on the growth of other important trading partners. Moreover, it cannot be ruled out that the vulnerabilities that some emerging economies have accumulated may generate new episodes of volatility It is also possible for the recovery process in the U.S. to end up being stronger than expected. The timing of its effects shows different signs. | 1 |
On August 9, 2007, the large French bank BNP Paribas announced that it had suspended activity in three of its funds so it could more precisely assess their value. The problem was stated as follows: “The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating.” 1 I would like to thank my colleagues Meg McConnell, Jamie McAndrews and Brian Peters for numerous useful comments and suggestions on these remarks. BIS Review 81/2010 1 Central banks immediately responded to the evaporation of liquidity in the standard manner. For example, the Federal Reserve issued a statement on August 10 indicating it was providing liquidity for the orderly functioning of markets, and in that statement the Federal Reserve emphasized that “As always, the discount window is available as a source of funding.” One week later it reinforced this statement with a 50 basis point cut in the discount rate and the addition of 30-day term loan to complement the standard overnight discount window loan. At that time, the discount windows of Federal Reserve Banks were only open to depository institutions. Standard monetary economic theory and previous experience were consistent with the notion that depository institutions could act as intermediaries to pass liquidity through to the rest of the financial system. Indeed, in many earlier episodes the mere fact that this backstop liquidity was present had been sufficient to calm financial markets. | What makes our task harder is that the goalposts are moving all the time. Ever increasing complexity 4 BIS Review 52/2006 and interlinkages in the international economic and financial system mean that legislators and standard-setters must run just to try to catch the moving train. In the European context, cross-border integration has progressed further than in other parts of the world, which strengthens financial development and presumably also stability. But integration means increased risks for contagion and we must be vigilant to identify and deal with any vulnerability in the system. Regional FSAP-type assessments are at the same time broad and focused and thus useful for this purpose. In my view, it would be totally wrong to regard the FSAP as a process where the IFIs are the providers, the countries the recipients and the other stakeholders form an interested but passive audience. We need an ongoing dialogue to understand and improve the process. Hence, I am particularly grateful to our Belgian hosts for having arranged this seminar which will give us an opportunity to discuss these important issues. Thus my final conclusion, which answers the question posed in the title of this speech, can be very short: Yes, I strongly believe that regional financial stability assessments in the EU and EEA areas can provide additional values to financial stability and to a better understanding of how the cross-border interlinkages between the financial groups and the infrastructural financial arrangements under certain circumstances may add to the vulnerability of the systems. | 0 |
As long as private-sector decisions are partly based on expectations about the future, and the central bank through its actions and communication can influence these expectations, the chart illustrates a result that is independent of the explicit economic model: If the central bank can commit itself credibly to a response pattern, it will be able to achieve a better outcome over time than if in each period it attempts to optimise the situation. This is illustrated in the chart in that the line that represents a commitment strategy lies closer to the origo point than the line that represents a discretionary strategy. If, however, economic agents are purely backward looking, there would not be any differences between the two approaches, and the two lines would converge into one. The more forward-looking the economic agents are, the greater the difference between the outcomes is. The way in which monetary policy is implemented and communicated may therefore influence the functioning of the economy through the expectations channel. By committing to a pattern of behaviour, the expectations channel can be used effectively. BIS Review 10/2007 11 Let us now take a closer look at our projections in the previous Inflation Report. The inflation gap closes gradually from below, while the output gap closes from above. According to the Bank’s view, these paths provide a reasonable trade-off between the objective of stabilising inflation at target and stabilising developments in output and employment. Let us now use a time machine and travel forward to 2008. | BIS Review 10/2007 13 In this example, we have been able to reconstruct (approximately) the reference path in Inflation Report 3/06 by minimising a loss function under commitment in a timeless perspective. To reconstruct the reference path, the weight on the output gap in the loss function, lambda, has been set at 0.3. We also had to place a weight on changes in the interest rate in the loss function. This weight, which penalises large changes in the interest rate, can be defended based on considerations regarding robustness and financial stability. What is the outcome if we depart from our established response pattern? 14 BIS Review 10/2007 The chart illustrates what might happen if the central bank reoptimises today, but promise never to do so again. In the model, this will result in a marked rise in interest rates today. But such an approach has been criticised in the literature. If the central bank departs from its response pattern today, it is easy to believe that it will do the same in the future. It may therefore be difficult to gain credibility for such a policy. Even if it may feel tempting, it is important to be aware of the costs associated with departing from an established response pattern. It will then be more demanding to influence private-sector expectations. Frequent reoptimisations will in practice undermine the benefit of commitment and lead to a discretionary policy. The benefit of commitment hinges on the credibility of the central bank’s actions and communication. | 1 |
The diverging competitiveness is a consequence of various factors and policies as well as of market adjustment mechanisms, which in some cases reflect rigidities in labour markets and the low degree of integration and competition in certain product markets, particularly for services. The persistence of these developments suggests that adjustment mechanisms are functioning slowly and that self-equilibrating forces are not sufficiently strong. The extent and the cumulative effects of differences in competitiveness between some euro area countries raise concerns about their impact on growth. In addition, other factors – some exogenous, such as competitive pressures resulting from globalisation, and some internal, influencing consumer sentiment – affect economic activity and tend to compound the adverse effects of the erosion of competitiveness in some countries or partly offset the benefits from the increased competitiveness attained in other countries. A better understanding of the factors and processes that determine economic fluctuations, inflation persistence and competitiveness developments across the euro area countries will contribute to the diagnosis of the present situation and the assessment of future trends. Two papers in this workshop provide insights and useful results to this end. The extent of synchronisation of economic activity in Europe is examined in the paper by Domenico Giannone and Lucrezia Reichlin, which evaluates long-run tendencies and cyclical fluctuations. Different growth trends may be due to different patterns of specialisation, which can be desirable within the monetary union provided that countries can share risk through capital market integration. | BIS central bankers’ speeches 5 monetary policy to this goal alone, and not to making profits. I would therefore like to thank you, our shareholders, also on behalf of my colleagues, Jean-Pierre Danthine and Fritz Zurbrügg, for your loyal support of and understanding for the activities of the SNB. The Governing Board thanks the SNB staff for their untiring service to our institution. Thank you all for your attention. 6 BIS central bankers’ speeches | 0 |
Since the start of the crisis, output per hour worked has fallen by around 5%, leaving it more than 15% below where it would have been if it had simply continued growing at its pre-crisis trend rate. As discussed in past Inflation Reports, as well as numerous speeches by MPC members, there are a variety of explanations for this weak productivity performance. These include: specific factors, such as the decline in North Sea oil production and an exaggeration of productivity growth in the financial sector before the crisis; the hoarding of overhead and skilled labour through the downturn; unusually low rates of investment on the back of heightened uncertainty about the outlook; the adoption of more labour-intensive production techniques, encouraged by the high degree of wage moderation; thick-market externalities, which make it easier to find and transact business when demand is strong; and a misallocation of credit as banks repair their balance sheets, with heightened forbearance shown on existing loans to low productivity firms, coupled with caution as regards lending to risky businesses that offer the prospect of higher productivity. Some of these mechanisms depressing productivity can be expected to unwind naturally as demand recovers. But others might take longer and require the restoration of the banking system to full health. And some of the lost productivity growth may prove to be permanent, for instance because of the foregone opportunities for learning by doing. | In that case, unemployment is likely to fall faster as demand grows, meaning that unemployment will reach the 7% threshold sooner. Then it will be appropriate to tighten policy sooner in this case, as potential output will be lower. The only case where the linkage of policy to unemployment is potentially problematic is where there is scope for productivity to increase as demand recovers, but for some reason firms take on extra labour before the increase in productivity takes place. But this seems rather unlikely to me. In any case, it is important to realise that the 7% threshold does not constitute a trigger for the MPC to raise Bank Rate. Rather it represents a prompt for the Committee to undertake a 1 See Bell, D N F and Blanchflower, D G (2013) ‘Underemployment in the UK revisited’, National Institute Economic Review, No. 224. BIS central bankers’ speeches 3 broad assessment of the prospects for demand, supply and inflation. If it appears that there is still a substantial degree of slack in the economy which can be absorbed without threatening the achievement of the 2% inflation target in the medium term, then there will be scope to maintain the existing stance of monetary policy longer, perhaps re-setting the unemployment threshold to a new lower level at the same time. | 1 |
2/ – the operational framework: most Central Banks conduct monetary policy through changes in interest rates. Many do not pay close attention to monetary aggregates. The Eurosystem stands alone in developing a formal monetary analysis through its “second pillar”. At the very least, however, the crisis has shown that liquidity matters. The assumption of permanent liquidity allowed the shadow banking system to develop and proper. Excessive maturity transformation has fueled the growth in leverage. Liquidity premia were all but eliminated for a long period of time. It is legitimate question whether those evolutions have implications for monetary policy. Recent research tends to show that even small changes in policy rates could have had nonnegligible implications forcing some intermediaries to close leveraged positions and, potentially, to partially correct some financial imbalances. Those issues may still be relevant today when in face of uncertainty, liquidity provision remains important. This is why, even for monetary policy purposes, Central Banks should keep actively monitoring asset prices, credit flows and liquidity conditions. 3/ – a closely related question pertains to the transmission mechanism. Evidence tends to show that risk appetite tends to increase when interest rates stay low and liquidity is perceived as abundant. This is called the “risk taking channel” of monetary policy. Risk taking behaviors are amplified when monetary policy is permissive. Ultimately, this channel creates a link between the levels of interest rates and risk premia. | BIS Review 76/2010 5 | 1 |
Second, the crisis revealed severe shortcomings in banking regulation. Banking and financial sector regulation is now being reformed in many countries. Norwegian banks have become more solid in recent years. This is a positive development. Banks’ capital, in particular that of the largest banks, should be increased further in order to satisfy the new regulations. 6 BIS central bankers’ speeches The forthcoming regulatory framework for banks in the EEA includes a countercyclical buffer – a capital requirement that can be increased in upturns and turned off in downturns. When banks are required to build up an additional buffer, they are better equipped to cope with periods of rising losses. The buffer will strengthen the resilience of the banking sector during an upturn. It may also counteract the build-up of financial imbalances, although the effect is uncertain. Thus, Norges Bank cannot disregard taking financial imbalances into consideration when setting the key policy rate. The criteria for the conduct of monetary policy remain firm, also after the introduction of a countercyclical capital buffer. Later this year, Norges Bank will provide advice to The Ministry of Finance on the size of the countercyclical buffer. An integrated analysis and set of forecasts form a common basis, both for this advice, and for the Bank’s monetary policy decisions. The Norwegian economy is also vulnerable Structural adjustment in the business sector is the key to economic progress. Over the past 40 years, the oil and gas industry has been an engine of innovation and growth in Norway. | We have invested in a profitable oil industry and found a balance between spending petroleum revenues domestically and saving petroleum revenues. On the other hand, it seems that both the public and private sectors are having difficulties finding profitable mainland investment projects. Taking a longer view, this is a source of concern. Should petroleum revenues shrink, our economy needs more pillars to stand on. Otherwise, we as well would have to embark on a path of adjustment towards renewed growth. Perhaps Norway is not so much an economy apart after all. Thank you for your attention. BIS central bankers’ speeches 13 | 1 |
As for the PSPP, Greek government bonds lost their eligibility on 21 August when the programme ended. At that point, the Eurogroup’s debt measures had still not been ratified. In any case, purchases would have been very limited over such a short period. Is there any chance that Greek bonds could be included at some point in the future in the reinvestment phase of the PSPP? How many years do you think the reinvestment of maturing securities will last? Without a programme, Greek government bonds are now treated like any other bonds for the purpose of ECB eligibility. Once they regain investment grade status they could be included in all ECB programmes, subject to a Governing Council decision. As you know, we intend to reinvest the principal payments from maturing securities purchased under the asset purchase programme (APP) for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The government seems to have put on hold, for the time being, plans to return to the markets. Do you think that Greece has now regained full access to international capital markets? Do you think it should wait until after the elections to go back to the markets? Greece’s market access conditions have clearly improved compared with one year ago. | Panicos Demetriades: The pros and cons of having a separate and independently managed asset management and development bank Welcome remarks by Mr Panicos Demetriades, Governor of the Central Bank of Cyprus, at the Institute of Directors (IoD) Open Panel Discussion, Nicosia, 27 August 2013. * * * Good evening ladies and gentlemen. I think tonight’s panel discussion is very important. The Bank of Cyprus is our largest bank and it will shortly hold its Annual General Meeting. At the AGM shareholders will choose the Board that will run the bank. The strategy that the new Board approves will need to be aggressively pursued. The Bank of Cyprus in the future will have a greater focus on its core Cypriot business, serving personal, SME and corporate customers. It will also have to deal with the legacy of historic expansion and growth in non-performing loans. The Central Bank of Cyprus does not have a fixed view as to whether the Bank of Cyprus should be split into two or not. This is a decision for shareholders and the Board. The question is whether separating certain assets is the right answer today. Opinion is divided – some say that this would be damaging to borrowers, others that it is the only way to manage the assets and restore the bank to health. I believe that we need to confront this issue and the bank should investigate all options. Any decision should be based on the facts and merits. | 0 |
And although in the end a different approach prevailed, the force of this conviction explains why the EU Treaty left open the possibility – through Article 127(6) – to give supervisory powers to the ECB based on a unanimous decision of the Member States. At least to clear-sighted observers, it was evident that at some point this article would have to be activated. The late Tommaso Padoa-Schioppa, who preceded me as the member of the ECB´s Board responsible for financial stability, wrote in 1999 that: “I am convinced that in the future the needs will change and the multilateral mode will have to deepen substantially. Over time such a mode will have to be structured to the point of providing the banking industry with a true and effective collective euro area supervisor. It will have to be enhanced to the full extent required for banking supervision in the euro area to be as prompt and effective as it is within a single nation”.2 That said, those like Padoa-Schioppa could not have complete foresight about how monetary union would evolve. We have meanwhile learned a lot that is new from the crisis. The events of recent years have revealed a variety of weaknesses in the governance of the financial sector that were not foreseen before 1999 – and that also need to be addressed through common solutions. Hence, the Banking Union we are aiming for today goes beyond purely banking supervision: in my view it must comprise five elements. First, a single rulebook for banks. | These figures show not only that the absolute level of the euro area’s deficit is half what it is elsewhere, but also that the pace of fiscal consolidation is actually faster. While these efforts are absolutely crucial, there are concerns that too abrupt an adjustment in public finances will be detrimental to growth and, ultimately, to fiscal consolidation itself. In the current circumstances facing Europe, I believe these concerns are misplaced. We have to look at the counterfactuals: delaying consolidation would expose our economies to even greater risks. At current debt levels, economic agents are very “Ricardian” and would react to fiscal permissiveness by delaying their own private expenditure. Financial markets would continue to impose very punitive interest rates on our countries to compensate for the uncertainty in the fiscal outlook. Overall, the confidence and financial benefits of fiscal consolidation far outweigh its negative effects on effective demand in the short run. In addition, everyone knows that there are ways to boost growth strongly and durably even in times of fiscal consolidation: through structural reforms. Here as well, the progress already made in many countries is impressive. In recent history, European economies have never reformed so extensively in such a brief period of time. I could cite many examples: the labour market reform in Spain and now in Italy, the pension reforms in Italy and France, privatisations, public wage decreases in Ireland, etc. Some positive effects from these measures are immediate, but naturally, most of the impact on competitiveness and growth will take time to materialize. | 0 |
If we look far enough ahead, however, we will be able to cover a smaller share of our imports using current petroleum revenues and drawings on the Petroleum Fund. Competitiveness will then have to be improved.5 In March 2004, the nominal krone exchange rate was at its weakest level since summer 2001.6 Since spring 2004, the krone has appreciated. The appreciation of the krone through 2004 was undesirable because it delayed the pick-up in inflation. It also came as somewhat unexpected. The krone was partly influenced by persistenly low international interest rates. In retrospect, it would also appear that high prices for oil and gas and other export goods have contributed to a fairly strong krone. Higher oil prices entail higher current-account surpluses and higher income for oil companies and the state. Oil companies’ additional income and surpluses will largely be channelled abroad. The additional petroleum revenues accruing to the state will essentially be invested abroad through the Government Petroleum Fund. The capital outflows through the oil companies and the Government Petroleum Fund contribute both to keeping down the value of the krone and to stabilising it. Even though surpluses deriving from petroleum activity are largely invested abroad, more oil money has been put into circulation in the Norwegian economy than earlier. Petroleum investment show a pronounced increase this year. Moreover, government petroleum revenue spending has increased in recent years. There are indications that the oil cash flows into the Norwegian economy may diminish in the period ahead. | Between December 2002 and March 2004, the interest rate has moved from a high to a low level. The real interest rate is now lower than a real interest rate that implies balance in the economy in the long term – the neutral real interest rate. A real interest rate that is lower than the neutral rate will stimulate activity and fuel pressures in the economy even after the effects of the interest rate fall have been exhausted. Calculations may indicate, on an uncertain basis, that the neutral real interest rate for Norway is between 2½ and 3½ per cent. It has probably fallen somewhat in recent years. Real post-tax mortgage rates and deposit rates at banks are also very low. Household debt is higher than household deposits in Norway. The fall in interest rates pushed up house prices. Higher housing wealth provides increased borrowing opportunities that are used. Household debt has risen by around 11-12 per cent over the past year. Household debt is now more than one and a half times as high as disposable income. The accumulation of debt partly reflects structural adaptation over time to a deregulated credit market and partly low interest rates. The higher debt burden has made households more vulnerable. A gradual normalisation of the interest rate will probably contribute to curbing the rise in house prices and gradually bring down debt accumulation. Conclusion Two and a half years after we started to lower interest rates it would appear that inflation is moving up, albeit slowly. | 1 |
Exceptionally low rates weigh on interest rate margins largely as a result of liability margins coming under pressure, as slide 5 illustrates. 4 This is because deposit rates (yellow) that are already close to zero react less strongly to an interest rate cut than market rates (red) – indeed, in extreme cases, deposit rates do not react at all. The main reason for this is that in such cases, banks do not pass on lower interest rates to private customers, or only to a very limited extent, since doing so would expose them to the risk of customers withdrawing deposits and investing them at another bank, or hoarding them as cash. Banks wish to avoid this, because otherwise they stand to lose a source of financing for their business activities which is stable and convenient in the long term. 4 Furthermore, past experience has shown that the interest rate curve tends to flatten in periods of falling interest rates. This, in turn, weighs on structural margins. Cf. Borio, Claudio et al. (2015), The influence of monetary policy on bank profitability, BIS Working Paper, 514 and Claessens, Stijn et al. (2016), Low-for-long’ interest rates and net interest margins of banks in Advanced Foreign Economies, IFDP Notes. Page 5/10 The negative interest rate has put renewed pressure on liability margins, which have since even turned negative, as shown in the blue shaded area on this slide. | The quarterly assessment in mid-March 2008 will provide the opportunity to assess the inflation and economic outlook on the basis of new data. BIS Review 13/2008 1 | 0 |
This process must be grounded on prudent macroeconomic projections, involve all tiers of general government and translate into a medium-term plan detailing the government receipt and expenditure measures aimed at ensuring a gradual reduction in the imbalances. This would shore up the sustainability of public finances and bolster the credibility of, and confidence in, economic policies. The fiscal consolidation should also go hand-in-hand with an improvement in the quality of public finances, boosting their contribution to the economy’s potential growth. And it must take into account the impact of structural aspects such as population ageing, which will exert upward pressure on public spending on pensions and other expenditure items. At the same time, addressing social imbalances is also essential as increasing inequality could undermine social cohesion and foment social conflict, with adverse repercussions for the security of investments, the incentive to work and opportunities for future generations.25 25 Grossman (1991), Dijkstra, Poelman and Rodríguez-Pose (2020), Persson and Tabellini (1994), Alesina and Rodrik (1994) and Corak (2013). 8 In recent years, the Banco de España has actively contributed to identifying sources of inequality. One factor that crucially affects productivity is educational inequality. | Spain's per capita income today stands 17% below that of the euro area, a gap that is 4 pp narrower than was the case in 1978, but 8 pp wider than in 2005. Behind this persistent negative gap lie two well-known shortcomings in the Spanish economy: low productivity and a low rate of employment, which have moreover historically been negatively correlated. 1 Today, if I may, I will focus on the first of these factors, since productivity is the only failsafe means of improving living standards.1 What's more, our low productivity issues are very closely related to some of the weaknesses of our labour market, which, in turn, condition our ability to converge in terms of the employment rate. Second, it is well worth stressing that the convergence of the Spanish economy should be sustainable over time. With this in mind, it must be acknowledged that some of our economic problems these past few decades have stemmed from a failure to understand the obligations and restrictions that come with forming part of the European integration process and, in particular, of the euro area. This led, for instance, to the build-up of serious financial imbalances after joining the euro, which meant that our economy was particularly hard hit during the global financial crisis. Since the outbreak of that crisis, the Spanish economy has displayed a healthier pattern of growth that has, in fact, partly corrected the imbalances built up over the previous upswing. | 1 |
Long-term real interest rate in Sweden and abroad 4 United States United Kingdom Euro area Sweden 3 4 3 2 2 1 1 0 0 -1 -1 -2 96 00 04 08 12 16 -2 Note. Per cent. The long-term real interest rate is calculated as the HP trend (lambda = 1600) for the average of 1 month’s real interest rate between 5 years ahead and 10 years ahead (5y5y) adjusted for the forward premium. Sources: Own calculations, Macrobond, Statistics Sweden and the Riksbank This means that on the one hand lower birth rates, as in China for instance, lead to the working age share of the population increasing and therefore to an increase in saving. On the other hand, a large share of old-age pensioners in the population leads to a decline in saving. But a larger proportion of old-age pensioners in the population also means that the supply of labour declines. This dampens the need for investment, that is, the demand for savings declines. Another effect of the ageing population is that the average life expectancy of the population increases. This means that the working age population need to save more to manage a longer period of time as old-age pensioners, which could be an important factor behind the increase in the willingness to save. | Similar weakening has taken place in the euro area, the United States and the United Kingdom. 14 There are several explanations for this 13 See, for instance, Faust and Leeper (2015) and Hansson et al. (2018). 14 See, for instance, Cunliffe (2017). 9 [24] development, even if there is no consensus in the literature regarding the underlying causes. Here I shall take up a possible reason that does not seem to have been given much attention in the general debate and may therefore be of interest. The first thing to note is that it is not surprising that the covariation, or, as we economists say, the correlation between economic variables varies over time. If we were to study two random economic variables over a longer period of time, it is probable that the covariation between them would vary between different points in time because the economy is constantly changing. For a central bank, however, it may nevertheless seem slightly worrying that it is the slope of the Phillips curve that has changed, as it has such a prominent role in monetary policy analysis. A common reasoning by a central bank might be: “We have seen an increase in unemployment recently. This has led to the labour market becoming less tight and to companies now being able to find new staff more easily – the competition for jobs has thus become greater. This dampens wage increases, which in turn pushes down prices. | 1 |
Due to the ongoing weakness in food demand owing to the tourism sector that will persist in 2017 coupled with the measures taken by the Food and Agricultural Products Markets Monitoring and Evaluation Committee (the Food Committee), we expect food inflation to be lower than its historical average in 2017 as well. Accordingly, we revised our assumption for food inflation downwards from 8 percent to 7 percent for end-2017. Our medium-term forecasts are based on an outlook that adjustments to taxes and administered prices will be consistent with the inflation target and automatic pricing mechanisms. For medium-term fiscal policy stance, we use the MTP projections covering the 2017–2019 period. 3. Inflation and the monetary policy outlook Esteemed Guests, Now, I would like to present our inflation and output gap forecasts based on the outlook I have described so far. Given a cautious policy stance that focuses on bringing inflation down, we estimate inflation to approach gradually to the 5-percent target. Inflation is likely to be 7.5 percent in 2016, falling to 6.5 percent in 2017 and stabilizing around 5 percent in 2018. Accordingly, we expect inflation to be, with 70 percent probability, between 7 percent and 8 percent (with a mid-point of 7.5 percent) at end-2016 and between 5 percent and 8 percent (with a mid-point of 6.5 percent) at end-2017 (Chart 17). 8 / 10 BIS central bankers' speeches The Turkish lira fluctuated following the July Inflation Report, while oil prices increased. | Consumer inflation was in line with the forecasts of the July Inflation Report in the third quarter of 2016, with core goods and unprocessed food pulling underlying inflation down. Domestic demand was subdued in the third quarter but leading indicators signal that economic activity will pick up by the fourth quarter of the year. Moreover, despite downside risks to external demand due to geopolitical tensions, the external trade balance continues to improve amid increasing EU demand. On the other hand, developments regarding tourism revenues cause a slight widening in the current account deficit. 1. Monetary policy and monetary conditions Esteemed Guests, We continued with monetary policy simplification in the third quarter on the back of improved core inflation indicators, the favorable course of the global risk appetite and the effective use of monetary policy tools. Accordingly, we lowered the marginal funding rate to 8.25 percent by three consecutive 25 basis point reductions in July, August and September. On the other hand, in October, we left the policy rates unchanged in view of less tight financial conditions and spillovers of other cost factors to the inflation outlook. Hence, we kept the marginal funding rate, one-week repo auction rate and the overnight borrowing rate constant at 8.25, 7.5 and 7.25 percent, respectively (Chart 3). As you all know, with simplification, we aim to provide funding via a single rate, which will bring short-term market rates closer to the funding rate. | 1 |
Some transactions are not registered at all, for example, those in the underground economy, some imports and so forth. The decomposition of nominal GDP into a change in real output and a change in the price level is not a trivial exercise even in advanced market economies. But in these countries, e.g. in Germany or USA, the prediction of real GDP rests on more solid grounds - one knows approximately what is the “potential output” as the starting point for some guessing as concerns the development in the medium term. In transition economies, in the period of deep structural changes, the estimate of both real GDP and potential output is much more difficult. BIS Review 25/1997 -7- The traditional unidirectional link from money to income is blurred in advanced market economies by the existence of many forms of financial assets with different degrees of liquidity. In transforming economies, the scope for reserve assets (Treasury bills) and investment assets (bonds, shares) is still limited but is widening step by step, thus weakening also the links between the money stock and expenditure flows. What is probably even more important, at least in the Czech Republic, is the financing of receivables and current liabilities through quasi-commercial credits (inter-enterprise indebtedness). There is a scope, created by enterprises themselves, for offsetting the potential effects of monetary stringency on spending plans. | C) new (non-bank) market entrants • the digitalisation of financial services opened the doors for a wave of new market entrants; • there are two categories of new market entrants; • first, there are start-ups making use of new information technology applied to financial services (“FinTech” companies); • second, there are established internet companies (large US social media or ecommerce platforms); • In most cases, they do not offer banking services other than the initiation of payments or access to account information; • these new product and service providers might present a challenge to the traditional market incumbents’ revenue streams; • their impact on the underlying financial market infrastructure will be more limited as the clearing and settlement of payments and securities transactions still take place between the account-holding entities. | 0 |
The result is that these proposals have almost all been adopted for the transposition of the 5th directive. We know how to think outside the box when necessary. However, to maintain a smooth risk management for projects that are likely to exploit huge network effects, and thus likely to create significant risks to financial and monetary stability, it would be prudent to ensure that regulation frameworks are perfectly tailored to the risks posed before rolling out these projects in the market. In order to help complete the adjustment of the regulatory and supervisory framework to these profound changes, central banks and supervisors first have the advantage of their legitimacy, which is primarily due to their institutional mandates: prudential supervision, financial stability, and conduct of monetary policy. Their legitimacy is also rooted in their experience of crises and their contributions to solving them. However, to live up to this legitimacy, it is up to the public authorities to identify the new risks, both in terms of their nature and magnitude, and to provide clear, strong and relevant responses. (ii) An open mind is necessary to achieve this objective: it must lead us to propose frameworks that are tailored to the new challenges and associated risks. | Norges Bank will actively pursue profitable solutions in the best interest of all the parties concerned. Payments should become faster Norway’s efficient payment system is a competitive advantage for the Norwegian business sector. This is positive, but there is no room for complacency. Other countries are catching up and may be ahead of us in some areas, in particular in terms of real time payments and the infrastructure for mobile payments. We have a job to do here. The Norwegian banking industry has collectively developed a payment solution where money is immediately received by the payee, so-called instant payments. A common system offers several advantages: The solution is cost-efficient and ensures fast payment services for customers. All banks and their customers can use the solution and it is not owned by an individual private market participant. Yet, to date, few banks offer instant payment services. This may be due to technical factors, or because mobile apps need to be more user-friendly. It may also be that the competition among participants to promote their own solutions is ultimately an obstacle to an overall efficient infrastructure. Competition is best pursued in the area of customer interface. In our neighbouring countries Sweden, Denmark and the United Kingdom, the situation is different. There has been broad cooperation in the area of instant payments in those countries. Banks have been engaged in developing common solutions – not only in the development phase, but also in the application phase. In all these countries, instant payments are widely used. | 0 |
Svein Gjedrem: Investing for the long run Dinner speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at The Norwegian Government Pension Fund’s Investment Strategy Summit, Oslo, 3 June 2009. * * * Minister, Ladies and gentlemen, We are gathered here for a conference – and a dinner – centred on investing for the long run. And indeed, it is my expectation that the Government Pension Fund – Global will endure through good times and bad times in the markets to provide a permanent revenue stream for our children and grandchildren. I would like to thank all the participants for the good advice and interesting analyses you have presented here today. It has really been inspiring to attend, and to listen to your presentations and discussions. The oil age in Norway has spanned some 40 years, and it appears that it will continue for years ahead. The idea of a fund arose in the early 1980s. Up to 1995, all government revenues were used for investment in the petroleum sector and to cover budget deficits during the recession around 1990. The formal structure of the Fund was actually decided on in 1990 in the midst of a banking and currency crisis, with meagre growth and high unemployment. I have every reason to believe that the people that prepared the proposal did not think at the time that the savings in the Fund would prove to be of any significance. | For instance, Norwegians could only purchase foreign equities through a fixed pool established in the 1960s (by using the so-called “security dollar” market), and foreigners’ investments in Norwegian equities were strictly regulated and actually limited to NOK 50 000 per person until 1979. That ceiling was raised to NOK 1 million in 1979. Experiences over the past year may cast doubt on the effectiveness and benefits of international capital markets. Nevertheless, history has seen a number of deep financial crises, and it is my belief that market conditions will also return to normal this time. I am confident that private entrepreneurship and public limited companies will continue to exist as the primary organisational bodies for commercial activities. Owners and investors will also be needed in the years to come. But capitalism will have to adapt. After all, the willingness to trust the free play of market forces in finance has been seriously impaired. International stock exchanges lost more of their value in 2008 than in any other single year in recent history. Absolute results, especially with regard to equities, were highly unusual. Many investors have suffered losses. As a result of this experience, required returns will be higher in the future. An investor such as the Government Pension Fund – Global will earn more in the long term because of wide fluctuations in equity values. 1 2 National Transport Plan 2010–2019 (St.meld.nr.16 (2008-2009). BIS Review 68/2009 The Fund has a longer investment horizon than the vast majority of other market participants. | 1 |
Figure 6 Loans by type of credit (1) Lending interest rates (3) (annual change, percent) (percent) 30 30 50 50 20 20 40 40 10 10 30 30 0 0 20 20 -10 -10 10 10 -20 -20 0 0 98 00 02 04 06 08 10 Consumer Corporate (2) Housing 02 04 06 08 Consumer, from 181 days to 1 year 10 Consumer, over 3 years (4) Commercial, 30-89 days (4) Commercial, from 181 days to 1 year (4) Housing, over 3 years (5) (1) Data for May 2010 are provisional. (2) Sum of commercial and foreign trade loans. (3) Weighted averaged rates of all operations performed in the month. (4) Nominal rates. (5) UF-indexed rates. Sources: Central Bank of Chile and Superintendence of Banks & Financial Institutions. | Internationally, the baseline scenario assumes that the world economic recovery will be more gradual than suggested by average consensus estimates. There are risks, such as a significant deceleration in the economic activity of the U.S. or China or, as is usual, persistent global imbalances. However, the greatest source of risks at this moment comes from financial stress, given the remaining by markets regarding whether the fiscal adjustment and financial support measures announced in Europe will be feasible and large enough. The magnitude and reach of the effects of a scenario in which the weak fiscal and/or financial 4 BIS Review 99/2010 situation in Europe intensifies or spreads to other regions materializes, are highly uncertain, but potentially substantial. Stress tests reported in the IEF show that current levels of capitalization of the banking industry allow it to absorb the probable consequences of this scenario of increased global financial instability. Meanwhile, banks have high levels of liquidity. Despite these strengths, banks must pay special attention to the management of their liquidity positions in foreign currencies and take any necessary actions to ensure smooth access to foreign markets. This consideration is especially important due to the fact that the European commercial banks account for a major fraction of Chilean banks’ external financing. In addition, in the risk scenario, other forms of contagion cannot be ruled out, considering the presence of foreign banks in Chile. | 1 |
Therefore, it is unlikely for unit labor costs to be subject to cost pressures in coming months. In sum, monetary conditions remained supportive of domestic demand in the fourth quarter. Private demand recovered more rapidly amid increased consumption and investment spending, therefore aggregate demand conditions provided less support for disinflation than suggested in the October Inflation Report. Nevertheless, I would like to emphasize that the recent policy measures are expected to bring domestic demand back on to a more moderate growth path in the upcoming period. Our inflation forecasts are based on the projections of the Medium-Term Program (MTP) as was the October Inflation Report. The use of a large fraction of the additional increases in tax revenues as a result of the stronger-than expected economic activity in the last quarter of 2010 has been the primary driver of the slight upward revision to output gap forecasts. However, as the budget balance remained largely in line with MTP targets, the medium-term fiscal policy outlook was barely changed. Therefore, our forecasts are based on the assumption that the primary expenditure-to-GDP ratio would decline gradually, the debt-toGDP ratio to decline further, and the risk premium to remain broadly unchanged over the forecast horizon. Moreover, I would like to note that we assume tax adjustments to be consistent with inflation targets and automatic pricing mechanisms. Now I would like to brief you about the assumptions underlying our inflation forecasts. The developments since the reporting period of the October Inflation Report urged us to revise our assumptions underlying our forecasts. | Exceptionally loose monetary policies adopted by advanced economies to eliminate the downside risks on economic activity not only boosted global liquidity but also stimulated the search for yield, which encouraged more capital flows into emerging economies. Moreover, the weak recovery in developed economies – Turkey’s main export destinations, dampened foreign demand growth (Figure 2). Low interest rates across the globe, soaring imports driven by strong credit growth amid increased short-term capital inflows, and weaker foreign demand caused the current account deficit to widen rapidly in 2010. All of these developments prompted the CBRT to adopt a strategy, which partly targets financial stability besides the main objective of price stability, parallel to the conditions referred to as the “new normal”. In this context, as stated previously, the CBRT has actively begun to use tools such as required reserves and liquidity management, in addition to the one-week repo auction rate, the main policy instrument. 1. Inflation developments Having summarized the global economic conditions and the implications of this outlook on the monetary policy, I would now like to inform you about the inflation developments of the last quarter. As you will recall, we underlined in the October 2010 Inflation Report that the increases in unprocessed food and tobacco prices – which are beyond the immediate control of the CBRT – added about 5 percentage points to annual inflation, and suggested that these items would leave sizable room for disinflation. Indeed, inflation dropped by 2.83 percentage points, yielding a rate of 6.4 percent, meeting the year-end inflation target. | 1 |
That minimum requirement must however be well-parametrised to take into account the special nature of the different institutions while preserving a level playing field both nationally and internationally. 3 The European case Let me now expand a bit more on the European resolution framework which has played a key role in the policy response to the financial and institutional crisis in the EU and is subject to relevant specific challenges. The involvement of national governments in the resolution of the financial crisis established a perverse destabilising link between sovereign and financial risks which was at the root of the severe turmoil in public debt markets that started in 2010. That turmoil challenged the very existence of the single currency as it caused the reemergence of a country risk component in all relevant asset prices and impaired the correct functioning of the monetary union. The reaction by the authorities was to adopt an ambitious common framework not only for the prevention of banking crises – through the creation of the Single Supervisory Mechanism (SSM) – but also for the resolution of those crisis through the newly founded Single Resolution Mechanism (SRM). The SRM ensures not only that the resolution framework will be harmonised in the euro area – as provided by the BRRD – but also that resolution policy, at least for SSM countries, will be managed centrally by a Single Resolution Board (SRB), which will enjoy a high degree of 2 BIS central bankers’ speeches autonomy. | Naturally, it is easy to agree on the need to minimise possible competitive distortions associated with any form of public intervention in the European banking market. Moreover, in no way, could we complain about the rigour and professionalism of EC officials involved, which generally followed technically sound yet sufficiently pragmatic criteria. Still, it could be argued, from a conceptual point of view, that purely competition-based considerations should not necessarily always prevail over other major policy considerations such as those concerning financial stability or public finances. Naturally, the BRRD and the SRM legislation would provide a more consistent and homogeneous resolution framework in which financial stability considerations and the preservation of taxpayers’ interests would be fully considered when approving resolution decisions within the European Union. Yet, as these legislative reforms involve no change with respect to State-aid rules, a good understanding will have to be reached on how different policy angles and responsibilities will be effectively combined when addressing the suitability of resolution plans involving State aid. The second relevant lesson from the Spanish experience relates to the need to ensure an appropriate investor base for bail-inable instruments. It is already commonly accepted that for the bail-in tool to be effective in helping to resolve banks without affecting financial stability, arrangements have to be put in place to limit the exposure to these instruments of other institutions with the potential for generating systemic distress. | 1 |
As indicated on several occasions, the overall aim of the comprehensive assessment of banks is two-pronged: on one hand, the exercise seeks to offer a high degree of transparency concerning the situation of banks whose supervision will be conducted by the single supervisory mechanism as from November; on the other, it intends to promote the recapitalisation of those viable institutions that show insufficient levels of solvency. Both 2 BIS central bankers’ speeches avenues will help reinforce the credibility of European banks ahead of the transfer of the supervisory function to the new authority. I should emphasise that it would be mistaken to quantify the value of the stress test in terms of the capital requirements it brings to light; and even more mistaken to measure its success on the basis of the proximity of the final result to the relatively sizeable estimates in the analyses published so far which, often, have been lacking in information and rigour. Experience shows that, beyond the size of the capital shortfall identified, these analyses are only credible if they manage to provide rigorous and consistent information on banks’ real situation and their ability to withstand adverse scenarios. Accordingly, the strategy to pursue can be none other than to ensure the methodological soundness and consistency of the exercise, and to provide the market with sufficiently accurate information on the results obtained and the process followed. In this respect, what should reasonably be expected from the comprehensive assessment under way? | Faced with these foreseeable changes in the regulatory and supervisory framework, and irrespective of whether the ongoing assessment exercise is likely to be generally satisfactory, Spanish banks must evidently seize every opportunity to strengthen their capital position as the improvement observed in financial conditions progressively firms, be this through gains in efficiency, retained profits or new securities issues. 5. Conclusions To conclude, I believe the major structural changes sweeping the banking industry will have been reiterated in this conference. We should assume that in the future the banking sector will be better capitalised and safer. As a counterpoint, however, it will likely be smaller and, probably, less profitable. All these changes will have appreciable consequences for banks’ business models and competitive strategies. The concurrence of this global process and the start-up of the banking union in Europe poses, in the short term, additional and considerable logistic and strategic challenges. Yet far from being a disadvantage, the banking union will over the medium term improve the European banking sector’s competitive capacity. Banks will benefit not only from a genuinely unified market but also, more directly, from the added strength this project brings to the monetary union. And the soundness of banks and the stability of the financial system as a whole will hinge crucially on the proper functioning of this union. Thank you. BIS central bankers’ speeches 5 | 1 |
Allow me to illustrate this in a figure showing what we know and what we don’t know about the effects of climate change, see Figure 1. First, there is scientific consensus on the fundamental connection between rising greenhouse gas emissions and rising temperatures. But there is considerable uncertainty surrounding the extent of the effects on temperature, precipitation and sea levels. The IPCC – Intergovernmental Panel of Climate Change4 – has calculated how concentrations of greenhouse gases in the atmosphere will increase in two scenarios; one in which emissions continue at their present rate, and one in which emissions decrease, see the red and yellow lines respectively in Figure 1. Figure 1 also shows the estimated effects of the two scenarios on the temperature, precipitation and sea level in Sweden. If emissions continue at their current 3 See Bolton et al. (2020), NGFS (2019) and World Economic Forum (2019). All the scenarios use year 2000 as base year and they were updated in 2005. A detailed description of the scenarios can be found at https://tntcat.iiasa.ac.at:8743/RcpDb/dsd?Action=htmlpage&page=welcome#citation. 4 2 [18] rate (red figures), we can expect the temperature to rise by between 4 and 7.9 degrees, precipitation by between 17 and 41.4 per cent and the sea level by between 21.4 and 66.4 centimetres. If, on the other hand, we manage to reduce emissions in the second scenario (yellow figures), the effects will be less, but far from negligible. | Direct greenhouse gas emissions, excluding uptake and emission of greenhouse gases from land use, GHG (kt CO2e)/GDP (USD million). Sources: UNFCCC, OEDCD and Climate Watch. Chart 4. Greenhouse gas emissions Blue bars show the Riksbank’s bond holdings and red bars show bonds sold in 2019, in Canada and Australia respectively. Emissions as a share of GDP 1,4 1,4 1,4 1,4 1,2 1,2 1,2 1,2 1,0 1 1,0 1 0,8 0,8 0,8 0,8 0,6 0,6 0,6 0,6 0,4 0,4 0,2 0,2 0,0 0 0,4 0,4 0,2 0,2 0,0 0 Note. Direct greenhouse gas emissions, excluding uptake and emission of greenhouse gases from land use, GHG (kt CO2e)/GDP (USD million). Sources: Australian Bureau of Statistics, Bloomberg, Government of Australia, Government of Canada, UNFCCC and Statistics Canada Bond purchases for monetary policy purposes Like many other central banks, the Riksbank has bought bonds for monetary policy purposes. The Riksbank has limited purchases to nominal and inflation-indexed government bonds. As I have already mentioned, the Riksbank can broaden its purchases to other types of bonds, such as corporate bonds, municipal bonds and housing bonds. There is an international debate33 on to what extent central banks should consider sustainability aspects in these types of bond purchases: should they give extra 33 See, for instance, Cœuré (2018), Honohan (2019) and Mersch (2018). | 1 |
But since the beginning of the 1990s, the average house has become more expensive also relative to income. Or to put it another way, an average wage can buy less than half as many square metres today than it could in 1991. Chart 7: Higher debt – lower interest burden Since our living conditions are generally not more cramped than before, you might think that we have to spend more of our income on financing our homes. But this is not the case. Although we hold record-high levels of debt, our interest burden is not heavier now than it was 30 years ago. Interest rates have fallen. Since income has risen markedly at the same time, principal payments on large loans have also been manageable. Norwegian households have responded by taking out increasingly larger mortgages to finance increasingly more expensive housing. This would not have been possible without access to cheap credit. Low interest rates have made it possible to maintain housing quality, even though house prices have crept steadily upwards. Moreover, lower interest rates, longer repayment periods and the introduction of interest-only periods have made it possible to borrow more without squeezing liquidity. This has also enabled prospective homebuyers to submit a bid higher than they normally would have done, with increasingly higher prices as a result. Globally, debt is matched by assets. What some people borrow, others save. Some wish to bring forward consumption and investment, others to save for old age. | Thank you for your attention. Les notes du Conseil d’analyse économique, Pour une refonte du cadre budgétaire européen, Avril 2021 Abiad A., Furceri D., Topalova P., The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies, IMF Working Paper, May 2015. iii The American Crisis (circa 1776) i ii | 0 |
The operation of automatic stabilisers will provide a relatively large and powerful fiscal impulse to the weakening economy, in addition to already announced expansionary fiscal policy measures and the government support for the banking sector. Taken together, the additional measures decided so far put a considerable burden on public finances in a large number of euro area countries. If not reversed in due time, this will negatively affect in particular the younger and future generations. It is therefore essential to return to a credible commitment to medium-term budgetary objectives as soon as possible. The significant fiscal loosening and the implied increase in government debt should in any case not risk undermining public confidence in the sustainability of public finances, thereby detracting from the effectiveness of a fiscal stimulus. Turning to structural policies, the ongoing period of weak economic activity and high uncertainty about the economic outlook imply the need to strengthen the resilience and flexibility of the euro area economy. Product market reforms should foster competition and speed up effective restructuring. Labour market reforms should help to facilitate appropriate wage-setting, as well as labour mobility across sectors and regions. The current situation should therefore be seen as a catalyst to foster the implementation of necessary domestic reforms in line with the principle of an open market economy with free competition. We are now at your disposal for questions. BIS Review 5/2009 3 | For sure, if there is a lesson to be had from the crisis, it is that there is always a risk of another crisis; we cannot easily repeat the famous “this time is different” approach. But we are now better prepared. As a general approach, the main challenge is to fully implement the reforms and to closely monitor their impact on the financial sector, and if necessary, fine-tune them. The interrelation between monetary and macroprudential policies. Under general circumstances, monetary policy and macroprudential policy complement each other. But, as shown by the run-up to the global financial crisis, there might be periods in which achieving monetary policy goals does not necessarily guarantee achieving macroprudential goals and vice versa; low interest rates had an influence on financial imbalances and excessive risk-taking while inflation was contained and the real economy did not show overheating pressures. This is a tradeoff which central banks will have to deal with. It would help to design an institutional set-up that ensures synergies and consistency among monetary, micro and macroprudential policies, but also separates ex-ante analysis, probably through Chinese wall-type structures. 5/6 3. The fintech challenge “Fintech” is gradually entering into the financial sector. Information technologies can have important implications in terms of increasing competition and redefining the relationship between consumers and suppliers of financial services, fostering efficiency gains, better financial inclusion and improvements in quality through tailored services. | 0 |
In fact, the originate-to-distribute model has stymied one of the essential functions of banking: the extraction of valuable information to allow proper discrimination between borrowers. This business model has been highly fashionable in certain countries, but not in all. The Spanish banking system has not adopted it, and the model here has continued to be a traditional banking one with closeness to bank customers, detailed knowledge of them and the forging of links over time being some of its defining characteristics. 2 BIS Review 62/2008 True, Spanish banks have made considerable use of asset securitisation, but to a totally different end than those banks which developed the originate-to-distribute model. As conceived by Spanish banks, asset securitisation was not a business in itself but a mechanism to obtain additional funding. In this way, risks were not transferred to the financial markets but were retained on the balance sheets of the banks granting financing, and the perverse incentives under the originate-to-distribute model were thus avoided. Second lesson: on the use of complex products that are difficult to assess and lacking in transparency The process of asset securitisation has also differed across banking systems as concerns the complexity of the products developed. The second key aspect of the turbulence is that some international banks, particularly when securitising US subprime mortgage loans, used highly complex structured products that are difficult to assess and lacking in transparency. | An autonomous rise in the supply of finance, for example, would tend to depress real interest rates and the expected returns on all assets, quite independently of monetary policy. More optimism about the future, increasing the demand for investment funding, would push up real interest rates. An increase in the perceived degree of risk, increasing the wedge between the required return on risky assets and the risk-free rate, can push up the first but depress the second (using a simple model of asset prices I’ll present below some stylised simulations that make these points). So the notion that real interest rates only vary because the output gap moves around, or because central banks are making mistakes, doesn’t square with theory. Nor does it make much sense empirically, particularly over the past twenty years: First, as I said in the introduction, inflation has been relatively stable. Anyone who believed in the mid-1990s that the neutral policy rate was fixed at 6% (in nominal terms) would have viewed with some alarm the sharp decline since then. Bank Rate has now been over 5% points below the estimates of the neutral rate that prevailed in the 1990s, for well over five years – a period far longer than the lags supposed to exist between policy changes and their effects. Taking into account any additional impact of quantitative easing (QE) the predicted result would presumably have been a cyclical boom in output and ever-rising inflation, throughout the developed world. That’s not what’s occurred. | 0 |
The effects of the currency collapse and the associated outburst of inflation, which rose from below 4% in late 2007 to 18% in early 2009, were magnified, as it hit one of the most indebted private sectors among advanced economies, with a high share of foreigndenominated or exchange rate-linked debt (20% for households, 70% for businesses, and 40% for municipalities). In addition, households’ CPI-indexed debt amounted to 75% of their total debt and the pass-through of exchange rate depreciation to inflation was speedy due to the magnitude of the depreciation and the lack of credibility of monetary policy at the time. Having set the scene, I shall now turn to the policy responses. The framework for these was set by the two-year Stand-By Arrangement agreed with the IMF in November 2008. The total financing associated with the programme amounts to around USD 5 bn, with just over USD 2 bn coming from IMF resources and USD 3 bn provided by bilateral loans from the Nordic countries, Poland, and others. The original Stand-By Arrangement provided for quarterly reviews; however, the first review was delayed, partly because of the deposit insurance dispute between Iceland and the Netherlands and UK, relating to online foreign overseas branches of the failed Landsbanki. The first review was completed in October 2009, the second in April 2010, and the third on 29 September 2010. | Financial institutions in Asia also had limited exposure to highly leveraged activities, such as complex derivatives and structured credit instruments. Consistent with the more traditional banking models in Asia, there are now calls for a return to basic banking and its clear separation from higher risk-taking activities. The growth of Islamic finance, with its emphasis on the close link between financial transactions and real economic activity and which embraces universal values such as transparency and fairness, further supports this trend. The emphasis on productive financial innovation has also been reinforced by a long standing focus in Asia on promoting effective consumer protection arrangements. In the recent period, this has received renewed attention by authorities given the experience of the recent crisis which has underscored how market conduct failures that led to widespread mis-selling and predatory lending, was not only detrimental to consumers, but also a source of systemic risk. An emphasis on product transparency and disclosure, responsible sales and marketing practices as well as investment in financial education have served to better align the interests of financial institutions and consumers, thus reducing the potential for harmful practices. Asian economies have also taken steps to strengthen the financial safety net including deposit insurance, while putting in place institutional arrangements for debt counselling and restructuring. These measures can contribute towards pre-empting widespread defaults particularly during periods of stress. Second is the continued commitment and sustained progress in the development of strong regulatory and supervisory systems for the financial sector. | 0 |
(2009), Fiscal Policy with Credit Constrained Households, European Economy Economic Paper No 357 and ECB Monthly Bulletin Box (2012), Fiscal multipliers based on the ECB’s New Area-Wide Model, December 2012, pages 83–85 11 See Reinhart C., V. Reinhart, K. Rogoff (2012), Public Debt Overhangs: Advanced-Economy Episodes since 1800, Journal of Economic Perspective, 26(3), pages 69–86, and Checherita-Westphal C., P. Rother (2012), The impact of high government debt on economic growth and its channels: an empirical investigation for the euro area, European Economic Review, 56, pages 1392–1405. 12 See De Fiore F., H. Uhlig, 2011, Bank Finance versus Bond Finance, Journal of Money Credit and Banking 43, pages 1399–1421. BIS central bankers’ speeches 5 alleviated the funding constraints of banks extending loans to SMEs by accepting such loans, and asset-backed securities (ABS) backed by pools of loans, as collateral in its monetary policy operations. The Banco de Portugal has been proactive in implementing these measures. Additional credit claims alone account for around 15 percent of total collateral posted by Portuguese banks with the ECB, and help to generate a large collateral buffer. The ECB will support a revival of the ABS market in the euro area, which would help SMEs to benefit from the improving financing conditions. Let me also point out that the restructuring and strong capitalisation of banks is an important condition for restoring the smooth provision of credit to euro area corporates and households. | The yields of government securities and interest rates on lek deposits have also fallen, whereas the interest rate on lek loans continues to move in line with a medium-term downward trend. Overall, while downward, the credit cost takes into account high risk levels arising from loan default. Monetary indicators have reflected developments in the real economy and exercised low inflationary pressures. Broad money expanded 2.8% in January, from 2.3% a month earlier, in annual terms, driven mainly by the expansion of the forex component. Credit to the private sector maintained the annual contraction rates in January, standing at – 1.4%. The banking system continues to be well capitalised, with sound financial parameters. But, the banking system’s lending continues to reflect the private sector’s weak demand for funds, resulting from the downward credit demand and added prudence by banks when lending. * * * New available data support our assessment for gradual growth of the economy in the quarters ahead. The transmission of the monetary stimulus, payment of arrears by the Government to businesses, and improvement of confidence are expected to boost consumption and investments in Albania. Also, the steady recovery of the global economy is expected to boost foreign demand and its contribution to aggregate demand. The Albanian economy, however, is expected to operate below its potential in the period ahead. Below-potential economic growth and low inflationary pressures from the foreign sector are expected to be reflected in low inflation rates, in the short-term period. | 0 |
Therefore, the Central Bank must be attentive to steer monetary policy to avoid secondround effects on other prices, wages, or private sector inflation expectations due to supply shocks, that could end up driving inflation persistently away from the 3% target. Of course it also has to foresee the consequences of the business cycle over inflation. It also The efficacy of this monetary policy over the 2000s is evident (Figure 3). BIS Review 97/2007 3 Figure 3: Deviation of inflation from its target Source: Central Bank of Chile. The international financial turmoil Regarding recent developments in world financial markets, the first thing to do is recognize that the adjustment they are undergoing is part of an overdue normalization process in credit risk spreads for a large variety of securities, and volatility levels of the riskier assets prices (Figure 4). In fact, for some time our Financial Stability and Monetary Policy reports have stated that a correction in risk premiums and an increase in market volatility were to be expected, because the good conditions would not last indefinitely, in particular given the monetary policy normalization period in the main economies that was already prolonging for some years. It is very likely that today we are witnessing precisely that correction in risk valuation and volatility. Figure 4: Sovereign risk premiums and volatility (basis points) (1) Risk premium on developed market corporate bonds with less than investment grade risk ratings (CCC to BB), according to Standard and Poor’s. | In parallel, commercial banks have encountered difficulties in transferring to other investors the credit risk assumed when financing private equity funds engaged in leveraged corporate purchases. In sum, in this scenario of increased uncertainty regarding the value of some assets, demand for safer financial instruments has risen sharply, with increases in risk premiums and large downward corrections in the interest rates of government bonds (Figure 5). BIS Review 97/2007 5 Figure 5: Long-term interest rates (percent) Source: Bloomberg. The measures adopted in the past few days by central banks in industrial economies to pour liquidity into banking systems have been directed at both preventing financial swings to affect monetary policy conduction in the main economic zones and to facilities the operation of credit markets. Rather than sustaining the valuations of asset prices, the main central banks focus on ensuring that the process of credit risk revaluation can proceed without jeopardizing access to funding and liquidity of solvent entities which, if occur at a generalized scale, could have negative effects on payments’ stability, economic activity and the financial system at large. So, as time goes by, information on the quality of ABSs held by agencies and hedge funds should become clear, together with the materialization of equity contributions and/or liquidation of funds that have lost a big portion of their capital. This process is currently under way. | 1 |
Third, price stability provides markets with an indispensable nominal anchor for adjusting changes in wages consistently with productivity growth, thereby contributing to preserve competitiveness. And fourth and not the least, price stability prevents the economically and politically undesirable arbitrary redistribution of wealth and income that arises in inflationary as well as deflationary environments. Ensuring price stability and ensuring the credibility of price stability over the long term is the most important contribution of the ECB and the Eurosystem to growth and job creation in Europe. The ECB makes also an important contribution to safeguarding financial stability in the euro area. This should not be underestimated, given that a well-developed and stable financial system improves the efficiency of financing decisions and ultimately fosters economic growth. Over the last five years, the ECB’s stability-oriented monetary policy has resulted in low and stable inflation and has ensured that medium and long-run inflation expectations have been well anchored. Furthermore, the euro area has enjoyed a high degree of financial stability. However, a monetary authority such as the ECB and the Eurosystem provides a necessary condition for growth but is not responsible for the other conditions that are equally necessary to ensure higher long-term growth and prosperity. This requires in particular sound fiscal policy and bold structural reforms. 2. The need for sound public finances Sound public finances support a stable macroeconomic framework. | This relates first to the completion and implementation of the FSAP and its follow up. The FSAP should give rise to genuine common financial legislation and regulation for market players. The so-called Lamfalussy framework, which allows for flexible technical rules at the EU level complemented by enhanced co-operation as regards national implementation and enforcement, has for good reasons been extended from the securities field to banking, insurance and financial conglomerates. A second area of structural reform in capital markets is the further consolidation and integration of market infrastructure and the further harmonisation of the standards and conventions routinely used by market participants. There is a large variety of remaining obstacles to a fully integrated and efficient euro area market which still needs to be addressed by the relevant actors. A simple but telling example of the benefits that collective action can bring in this regard is the development of the EONIA overnight interest rate index by market participants organised within a trade association. This index has become the generally accepted reference in the euro overnight interest rate swap market, leading in turn to the impressive development of this particular market segment. Turning to labour markets, a number of structural reforms have been undertaken in recent years and efforts are still on-going in several Member States. Although unevenly implemented across countries, the positive impact of past reforms in the labour market has become visible. | 1 |
I had a unique perspective on this event, witnessing its start when I was a finance minister and seeing it continue to unfold during my time as IMF Managing Director. This crisis produced the second lesson I would like to highlight, which was possibly easier to see when one was looking from the outside. It was clear early on that our monetary union was lacking a full set of institutions and needed to be strengthened. We became painfully aware that the euro area was particularly vulnerable to self-fulfilling panics. What became evident is that the perceived commitment of policymakers was a crucial variable in effective policymaking. Initially, we perhaps underestimated how important those perceptions are. It took time to realise that, in a period of high uncertainty, being seen as fully committed could shift financial markets between polar opposites – from working against us to working with us. That is why the crisis abated very quickly in 2012 when – within a few months – the Heads of State or Government agreed to launch the banking union and the ECB acted to remove unwarranted fears in financial markets. It became clear that our commitment to the euro was beyond doubt. The euro is, of course, irreversible. The lesson was also that, in times of crisis, the most important signal for policymakers is their determination to act. And this lesson was absolutely crucial when the pandemic hit us last year. | I believe that we can say something similar about the arc of progress. Europe moves forward in stops and starts. It often learns lessons the hard way. But its arc bends towards a stronger and more united Europe for all citizens. The common currency 3/4 BIS central bankers' speeches reflects this continued progress, with support for the euro at its highest level on record at 80%, up from 66% a decade ago.8 This should give us hope as we look to the future. And it should give us confidence that, even when Europe may seem divided or lacking in direction, there is a thread guiding us forwards. Over my career, I have had the privilege to watch this process unfold up close, to share in its highs and lows. I have been lucky enough to see it from three different perspectives – national, European and global. And I am honoured to continue working to take Europe forwards. I am very pleased to see the contributions of the European Central Bank recognised through my acceptance of this prize. Thank you. 1 Common Equity Tier 1. European Banking Authority (2020), “Basel III monitoring exercise – results based on data as of 31 December 2019”, December. 2 Lagarde, C. (2019), “The future of the euro area economy”, speech at the Frankfurt European Banking Congress, 22 November. | 1 |
When the monthly allocations to the Petroleum Fund are larger than the foreign exchange transfers from Petoro (SDFI), Norges Bank will purchase foreign exchange in the market to cover the difference. The Ministry of Finance determines the amount of the monthly transfers to the Petroleum Fund on the basis of its estimates in the National Budgets and the Revised National Budgets. The Ministry may also adjust the amount on the basis of new information concerning, for example, developments in oil prices. Given the current high level of oil prices, purchases in the next few months will probably be considerably larger than they have been during the summer. Norges Bank has not defined a target for the exchange rate. Nevertheless, developments in the krone are of considerable importance to interest-rate setting because the exchange rate influences inflation and output. Portfolio investments may easily dominate movements in the krone exchange rate in the short term. Themes in foreign exchange markets shift. In periods, investor focus on stock returns feeds through to exchange rate movements. During periods of political and economic unrest, investors may choose individual currencies as a safe haven - often the Swiss franc. The Norwegian krone was probably also perceived as a safe haven when oil prices rose in the autumn of 2002 as a result of the uncertainty concerning a possible war in Iraq. In the period from March to May 2003 and throughout the autumn, the krone showed a tendency to appreciate. | Besides these measures, with an extensive arrangement made in December, the TL required reserve ratios were differentiated by maturity and the reserve requirement base was expanded to include certain foreign and domestic repo transactions which were formerly not subject to reserve requirement. This arrangement aims to reduce maturity mismatch in banks’ balance sheets by extending the maturity of banking sector liabilities and also aims to encourage long-term capital flows. 46. The ongoing strong course of credits as well as other domestic demand indicators in March implied that additional monetary tightening would be necessary. The CBRT assessed that implementing monetary tightening through reserve requirements, rather than using policy rates, would be more effective in containing macro financial risks resulting from the divergence of domestic and external demand. In this respect, the CBRT decided to deliver a notable hike in the weighted average of required reserve rates on short term liabilities. Accordingly, TL required reserve ratios for sight deposits and short-term deposits/participation accounts and other liabilities were raised. Our measures regarding the required reserves are displayed on the slide. With the last arrangement to be effective as of April 15, 2011 in addition to prior adjustments since October 2010, a total of TL 38 billion liquidity will have been withdrawn from the market. 47. Our measures are expected to have an impact on domestic demand and credits starting from the second quarter. The adopted policy measures ultimately aim to contain macro financial risks by inducing a more balanced growth path for aggregate demand components. | 0 |
Indeed, the first time I came to Reading was in 1977 when I was supporting a pub-rock band called Sounder, who persuaded me to drive the band members to a gig in the town centre. Also around that time, the great rock band Led Zeppelin released a film and soundtrack album called “The Song Remains the Same” – featuring their live performances around the world in the mid-1970s. The question in my mind now is how long the monetary policy song can remain the same, when it might be out of tune with the rest of the background music from the real economy – of economic recovery and above target inflation. That Led Zeppelin album “The Song Remains the Same” contained an extremely long live version (lasting nearly half an hour!) of a track which appeared on their first album – entitled “Dazed and Confused”, in which Jimmy Page plays his guitar with a violin bow – something I must say that I have not attempted in my guitar-playing career. There have been many aspects of the current financial crisis and the recent performance of the economy which have left us all “dazed and confused”. The financial crisis has served as a severe jolt to the prevailing view in the mid-2000s that the economy had entered a period of “Great Stability” of steady growth and low inflation. | In my view, that now points to a gradual withdrawal of some of the stimulus we provided to the economy in more difficult circumstances last year – not so much as to undermine the recovery, but to keep it on a low inflation path, consistent with the Committee’s remit. 7 10 See Sentance (2009a) and Sentance (2009b) for a more detailed discussion. BIS Review 99/2010 References Eurostat (2010) “Regional GDP per inhabitant in 2007”, Press Release 25/2010 – 18 February 2010 Lee, N. (2010) “No city left behind”, published by the Work Foundation, July 2010 Sentance, A. (2009a) “Monetary policy in turbulent times” Speech at the Agricultural Engineers Association Annual Conference, Institution of Civil Engineers in London on 21 April 2009 Sentance, A. (2009b) “Energy and environmental challenges in the new global economy” Speech at the British Institute of Energy Economics Sustainable Energy Seminar, London on 21 September 2009 BIS Review 99/2010 11 | 1 |
At this time, consistent with developments elsewhere, more positive signs in the real economy are also beginning to emerge in Asia, and this has led to a view that conditions for recovery look more promising in Asia, given the lesser impact on the region’s economic fundamentals and the banking sector. I find this view quite plausible. This is because, in the case of Asian financial crisis, it was also the countries that did not have a serious financial sector problem or external vulnerabilities that were able to recover relatively more quickly. On this note, let me digress to the issue of decoupling. If we divide the dynamic of financial crisis into three phases, namely, first the shock of the news phase when everything is on a downturn, to the second phase of market stabilization, and the third phase of economic 2 BIS Review 92/2009 recovery, it is clear from what has happened so far that, on the downturn, it is a recoupling story both for the real economy and for finance. The downturn has been quite synchronized because of the globalized nature of the world’s production, trade, and financial investment. Nonetheless, for the market stabilization and the economic recovery phases, I see decoupling in the timing and in the pace of recovery being a strong possibility. | 4 BIS central bankers’ speeches The housing bust and the onset of the recession in 2007 strained state and local government finances. Most local governments rely heavily on property tax revenue to fund their schools and other activities. This was particularly true during the first half of the decade, when the housing boom strongly supported property tax revenues. Then came the bust; steep declines in the housing market led to corresponding drops in local property tax revenue. State governments’ revenues also fell, as rising unemployment cut income tax revenue and reduced consumption shrank sales tax revenues. Since most state and local governments spend at least half of their budgets on education, these developments have constrained funding for our primary and secondary schools. To stave off drastic state and local government spending cuts, the federal government allocated $ billion to states, including New York and New Jersey, for education through the American Recovery and Reinvestment Act (ARRA). Research done here at the New York Fed reveals that school finances in both New York and New Jersey were impacted by the Great Recession, with New Jersey sustaining particularly severe cuts.4 ARRA funds helped school finances in both states, yet did not completely compensate for lost state and local revenues. With ARRA funding drying up and our local and state economies still under stress, a question looms before us. How might we expect school finances and student learning to fare in the near future? | 0 |
Meanwhile, labor productivity has been dwarfed by the lack of capital and lagged behind the regional standard. On the overall picture of employment, Thailand has had very low unemployment but room to increase productivity remains in the area of reducing underemployment. Let me discuss an example of the agricultural sector. This sector has seen a steady decline of its share in GDP from 1980 to 2007. In contrast, its share in the country’s employment remained high, though reducing from 65 to just about 40 percent of total labor force during the same period. Meanwhile, yield of major crops per unit area is significantly lower than yields in other agriculture exporting countries. In fact, Foreign Agricultural Service of USDA, estimated that Thailand produces rice yield about 430 kilos per rai compared with the world average rice yield of 653 kilos per rai. There is thus ample room to increase productivity in this sector through better land and water management as well as a more systematic farming. Going forward, the problem of labor scarcity, though not unique to Thailand, will also become more of our concern as we are moving into aging society, while population growth remains low. Increasing productivity is therefore the solution to sustain potential growth as well as competitiveness. And, to do so, it is crucial that we increase investment, such that there is sufficient capital formation to facilitate productivity growth. On this note, I am pleased to say that collective effort to increase the level of investment has already taken place. | The government campaign – “Thailand Investment Year 2008/2009” is a spearhead project to make Thailand stand out as the investment destination for foreign investors. The campaign’s key missions include restoring investor’s confidence with more proactive marketing activities, strengthening infrastructure to accommodate for expansions, channeling investment into strategic industries for the future, as well as improving investment-related services. Recently, a good feedback on the international level has been reported by the media. In the “Doing Business 2009” survey of 181 countries by the World Bank, Thailand just ascends 6 ranks to the 13th place where investors are provided with convenience in doing business. Thailand made key improvements in areas such as protecting investors, ease of paying taxes, and trading across borders. Apart from these efforts to induce external capital, it is also necessary to support investment through domestic saving promotion scheme in an anticipation of narrowing investment-saving gap in the future. Furthermore, the ease and coverage of financial access can also be enhanced further to facilitate efficient flow of funds. Outside the realm of government policy, we stand to gain from a greater role of private sector. In this regard, I would like to commend the BCC’s effort throughout the years. A programme like “Thailand Means Business 2008” which BCC will hold in both Thailand hotspots like Bangkok and Chiang Mai, as well as abroad like England, Hong Kong, and BIS Review 119/2008 3 Singapore, is a great help for attracting foreign investment into Thailand and enhance the country’s capacity and potential. | 1 |
At that date, the Governing Council will decide on whether to launch a digital euro. We will then need a few years of serious preparatory work to turn an e-euro into reality. * Let me say it again: on both digital currency and payments, we in Europe must be ready to move as quickly as needed or risk an erosion of our monetary sovereignty – something we cannot tolerate. European citizens must have access durably to effective and independent means of exchange. Recent experience in another field shows that we can do it. Six years ago, there was almost no climate policy among central bankers. Today it has become an important topic with concrete technical advances. I could have spoken of another “road for the future”: green finance. Here also, France and Europe have a strong initial advantage: Paris is home to the global secretariat of the NGFS with about 100 members now; its financial centre participants are ahead in their disclosure of and commitments regarding climate-related risks; France is the first European country in terms of outstanding of green bonds. And last month, the French ACPR published the first climate pilot exercise worldwide actively involving both the banking and insurance sectors. | 5 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 5 Informed by these findings, the PRA will soon publish its final Supervisory Statement for banks, insurers and investment firms.10 This statement will set out the PRA’s expectations regarding firms’ approaches to managing the financial risks from climate change, including with respect to: Governance, where firms will be expected to embed fully the consideration of climate risks into governance frameworks, including at board level, and assign responsibility for oversight of these risks to specific senior role holders; Risk management, where firms will need to consider climate change in line with their boardapproved risk appetites; The regular use of scenario analysis to test strategic resilience; and Developing and maintaining an appropriate disclosure of climate risks. Recognising the need for industry to build capacity and to develop best practices, the PRA has established a Climate Financial Risk Forum, jointly with the FCA, to work with firms from across the financial system.11 The responses to our supervisory consultation reflect the urgency and significance of the issues. Perhaps for the first time in financial regulation, firms are both thanking their supervisors for raising an issue and pushing us to go further; with some asking for more prescriptive recommendations and others for mandatory disclosures.12 Certainly, while climate risk management is improving, there is more to do particularly when assessing strategic resilience. For companies, that means conducting scenario analysis. | 0 |
Denis Beau: Navigating the digital transition, maintaining a stable payment system Opening address by Mr Denis Beau, First Deputy Governor of the Bank of France, at the France Payments Forum – Les Rencontres Digitales Conference 2021 – Crypto-payments, 8 April 2021. * * * Introduction The health crisis that we have all been living through for a year now has affected people’s day-today habits, changing not only how we consume but also how we like to pay. This has sped up the transition towards more digital approaches. This acceleration raises major challenges for Europe’s payment ecosystem, but also for payment regulators and supervisors. Thinking now specifically from the viewpoint of the latter, the central question to be addressed is as follows: how to facilitate and support the transition whilst at the same time maintaining the foundations that underpin a safe and efficient payment system. From a safety perspective, these foundations are built on an appropriate regulatory framework and on the availability under any circumstance of central bank money, which alone has legal tender status and which anchors the stability of the whole system; efficiency, meanwhile, relies on having diverse and competing payment solutions and participants, to ensure inclusivity and competitiveness. I would like to share with you my perspective on the answers to this question. | There are three factors that are key to enhancing our resilience to external shocks. Capacity building: strengthening the economic and financial base The first is strengthening the economic and financial base. A deliberate policy to diversify the economy to achieve a greater balance between domestic and external sources of growth, to avoid excessive concentration in any activity and to reduce over-dependence on any particular market has increased the resilience of the economy. This has required shifting into new areas of comparative advantage and seeking new market opportunities and new areas of growth, while shifting out of those areas where comparative advantage has been eroded. Having flexible labour and capital markets has facilitated this process of adjustment. Of equal importance is the development of a resilient institutional framework and institutions. This includes the promotion of strong private and public institutions. In the public sector, strong institutions can be measured in terms of building efficient and strong delivery systems that promote coordination in the government machinery to provide an enabling environment for operations in the economy. At the same time, sound private sector institutions are crucial. In addition to healthy financial positions, good systems of risk management and corporate governance would ensure better management and a healthy corporate sector. Another important aspect is the availability of timely and reliable financial information and the strengthening of the legal and regulatory framework for enforcement of the laws and regulations. Strong professional organisations can also play an important role to improve and enforce the standards and best practices. | 0 |
Safeguarding consumers from harm requires a multi-pronged approach, not just MAS regulation. First, global cooperation is vital to minimise regulatory arbitrage. Cryptocurrency transactions can be conducted from anywhere around the world. MAS is actively involved in international regulatory reviews to enhance market integrity and customer protection in the digital asset space. Second, the industry has an important role in co-creating sensible measures to protect consumer interests. MAS has been sharing its concerns with the industry and inviting views on possible measures to minimise harm to consumers. We will publicly consult on the proposals by October this year. Third, consumers must take responsibility and exercise judgement and caution. No amount of MAS regulation, global co-operation, or industry safeguards will protect consumers from losses if their cryptocurrency holdings lose value. UPHOLD THE PROMISE OF STABILITY IN STABLECOINS Stablecoins can realise their potential only if there is confidence in their ability to maintain a stable value. Many stablecoins lack the ability to uphold the promise of stability in their value. Some of the assets backing these stablecoins – such as commercial papers – are exposed to credit, market, and liquidity risks There are currently no international standards on the quality of reserve assets backing stablecoins. Globally, regulators are looking to impose requirements such as secure reserve backing and timely redemption at par. MAS will propose for consultation a regulatory approach for stablecoins, also by October. MITIGATE POTENTIAL FINANCIAL STABILITY RISKS Financial stability risks from digital asset activities are currently low but bear close monitoring. | Caleb M Fundanga: Financial sector development in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the farewell cocktail hosted in honour of the Barclays Bank Zamia Limited Managing Director, Lusaka, 4 February 2010. * * * The Chairman – Barclays Bank Zambia Plc, Mr J J Sikazwe The Chairman – Bankers Association of Zambia, Mr Saviour Chibiya Chief Executive Officers of Commercial Banks Outgoing Barclays Southern Africa Regional Managing Director, Mr Zafar Masud Acting Barclays Bank Plc, Managing Director, Mr Bret Packard Management and Staff of Barclays Bank Zambia Plc Colleagues from Bank of Zambia Distinguished Guests Ladies and Gentlemen Ladies and gentlemen I am privileged to officiate at this farewell cocktail as we say goodbye to Mr. Zafar Masud who has been the Managing Director of Barclays Bank Zambia since January 2008. In the past few years, Barclays Bank Zambia Plc has contributed to making banking more accessible through its outreach programme which saw an increase in its ATM and branch network to over 150 ATMs and 55 distribution points comprising branches and agencies nationwide. Clearly the grass-root population in Zambia has continued to benefit from this initiative. As is the case with a number of other banks, Barclays Bank Zambia Plc has continued to innovate and positively contribute to financial sector development in Zambia. | 0 |
7/18 Thirdly, population ageing is one of the main medium- and long-term challenges facing developed economies. Illustrating this phenomenon is the substantial increase foreseen in the dependency ratio (percentage of the over-66s relative to the population aged 16-66). Even in the most optimistic demographic projections, this ratio will exceed 50% in Spain by the mid-21st century, far exceeding its current level of 25%. Population ageing will have – and is already having – a significant impact on public finances. The latest estimates anticipate a substantial increase in public spending on pensions, health and long-term care. In the case of the pension system, the 2011 and 2013 reforms included certain adjustment elements that would enable the effect of the expected increase in the dependency ratio in the long term to be offset significantly. This would, above all, be through a likewise significant reduction in the pension replacement rate (defined as the ratio of the average pension to the average wage or average productivity in the economy). However, the latest implemented measures have put back the application of the sustainability factor to 2023, and have reintroduced an annual revaluation system for pensions indexed to the CPI. Against this background, ensuring the financial sustainability of the public pension system and safeguarding inter-generational equity will require additional measures, on both the revenue and expenditure sides. Nor must we forget that population ageing has significant consequences not only for public finances, but also for aggregate supply and demand in the economy. | See Chapter 3 “Growth and reallocation of resources in the Spanish economy”, Annual Report 2014, Banco de España, and Chapter 2 “Financing and investment decisions of Spanish non-financial corporations”, Annual Report 2016, Banco de España. 4 13/18 Despite these positive developments, the Spanish education system has still to face significant challenges. These include most notably the high early school dropout rate (18.3% among those aged 18-24) and the poor performance of our pupils in standardised exams at the international level, indicative of low educational quality compared with that of other developed countries. The evidence available shows that these poor results have not only to do with students’ relative knowledge, but also with their non-cognitive skills (such as the desire to innovate, self-control and the ability to concentrate).5 In light of this evidence, adding to which is the need to address issues such as globalisation and digitalisation, we should reconsider the institutional design of the Spanish education system, learning methods and the content of the educational curriculum. Spanish entrepreneurs also show some disadvantages in their levels of human capital relative to what is seen in other leading economies. For example, according to Eurostat figures, the level of educational attainment of the self-employed is lower than the euro area average. Specifically, in Spain 40.5% of the self-employed and 35.1% of employers have a low educational level, compared with 24.8% and 20.1%, respectively, for their European counterparts. | 1 |
Without going into detail, we've mitigated this risk, and successfully worked remotely through subsequent severe weather events. Our business continuity planning and testing helped us navigate the early days of the pandemic, but this event was far more extreme than anything we had practiced, and we learned many lessons. I highly recommend a recent paper by the Consultative Group on Risk Management that brings together insights from central bank experiences managing business continuity risks during the pandemic.8 At the New York Fed, as we were changing where and how we worked, the pandemic's impacts spread to the economy and financial markets. From March to May 2020, gross domestic product in the United States fell by nearly one third (on an annualized basis) and employment dropped by 22 million. Equity markets sold off, and credit spreads surged to levels not seen since the 2008 Global Financial Crisis. Financial market functioning deteriorated with significant declines in liquidity; and, in the municipal bond market, underwriters cancelled new deals and municipal borrowing stopped. | We want to define and chart a course toward our desired culture, so that individual decisions reflect the interests of the organization and the intent of the rules.6 To me, there are four central aspects of culture that support effective risk management: learning, listening, helping, and speaking up.7 In a learning culture, we think about and plan for what might happen. And, we learn from experience, what went well and what didn't, so we can improve for next time. In a listening culture, we seek advice, appreciate a fresh perspective, and are open to new ideas and feedback so we can improve. In a helping culture, we work together across the organization, building on each By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. other's strengths, and helping when we have an opportunity. And, in a speaking up culture, we let our colleagues know when we see a problem or after something goes wrong so that we can get started fixing it. Risk management is a creative, social process. It is a way of thinking, doing, and interacting. To bring it to life, we need to work together across the organization, staying continuously curious about the changing risk landscape and possible futures. | 1 |
And our goal, in the moment of the transition, was to fully respect the promise made to the people of the euro area namely: “The new currency will be at least as credible and as confidence inspiring as was your own national currency.” In this perspective it was very important to explain in real time our decisions to be as clear as possible on our diagnosis and reasoning with a view to convince observers that the new currency deserved fully this very high level of credibility. Secondly we also had to take into account the fact that we were issuing a new currency for eleven countries, eleven cultures and (soon to become twelve and then later on thirteen and fifteen today) and many languages. In this framework it was indispensable to have extremely clear single terms of reference from the very moment of the collegial decision. Otherwise it would have been unavoidable that various interpretations would have been given through the grid of various cultures and different languages. Had we waited for five of six weeks to give detailed explanations we would have been facing information and communication issues that would have been very difficult to solve. Thirdly, as explained before, and totally independently of the previous two reasons which are specific to the euro area, academic research had, particularly in the 90’s, made important advances in permitting to understand better the decisive role of transparency in establishing and consolidating the credibility of central banks and in helping them to solidly anchor inflation expectations. | As expected, the very diverse European national media are playing a key role in the transmission of the information to the various audiences of the ECB. Experience so far shows that the approach works well and that the media have contributed to a homogeneous understanding of the role and tasks of the ECB. 4 As the “porte-parole” of the ECB and its Governing Council, I think we have shown our capacity to communicate in unison with a high level of team spirit in interaction with a highly sophisticated and complex media network dealing with 320 million European citizens speaking 13 languages. It must be underlined that the European Central Bank decided from the very beginning to embark on a bold concept of transparency. On 1st January 1999, at the moment of the start of the euro, the state of the art of central banking was, not to say anything immediately after each decision on monetary policy, let observers and markets guess what had been the reasoning of the central bank and publish five or six weeks afterwards, the reasons why the decision was made in the form of “minutes of the decision-making college”. We decided from the first day of the euro that we would have a significantly higher level of transparency. First, we thought it was necessary to give to the public the economic and monetary diagnosis of the Governing Council, and the reasons why the monetary policy decision was taken, immediately after the meeting. | 1 |
Unemployment is instead determined in the long run by how well the labour market functions, for instance, with regard to matching unemployed persons and job vacancies. My main message here is that there is no clear-cut and stable relationship between inflation and unemployment, either in the long term or the short term. Simplified relationships between inflation and unemployment, such as the short-term and long-term Phillips Curves, may function as pedagogical tools. However, this type of simplified relationship is not practicable in determining how monetary policy should be conducted. Nor can such simple relationships be used to analyse to what degree monetary policy has contributed to higher or lower unemployment. Monetary policy is based on forecasts Let me go on to the next issue I intend to take up, namely the conditions under which monetary policy is conducted. This is an important aspect of a discussion of how far monetary policy can be considered to have contributed to higher unemployment. As monetary policy has an impact on demand and inflation with a time lag, the Riksbank must base its interest rate decisions on a forecast of future economic developments. All forecasts are uncertain. One therefore cannot expect that the Riksbank will always be able to exactly predict what will happen in the economy. It is also difficult to quickly bring inflation back on target once a deviation has occurred. This may also be unsuitable for real economy reasons. | We are certainly moving into calmer waters for the banks but there are strong currents, and a few sharp rocks, underneath the surface. The fact is that the competitive environment for banks in Hong Kong is changing radically as it is for all banks around the world. The current competition in mortgage lending is a case in point. Banks are increasingly prepared to lend at margins well below prime. We are getting to the point where it is becoming difficult to earn an economic return from this business once funding costs and other expenses are taken into account. It can be argued that this in part reflects the current excess liquidity in the market and that margins will start to move up again as loan demand and the property market recover in line with the economy. There is some truth in this, but it is difficult to see margins on mortgage business recovering too far. Certainly they will not get back to where they were in the boom years before the crisis. There are too many active players in the market, both domestic and foreign, to allow this to happen. What this means is that the banks are going to have to work harder to earn a profit than they have done in the past. They will have to do this at a time when the last stages of interest rate deregulation in Hong Kong are taking place, starting in the middle of this year and finishing in the middle of 2001. | 0 |
As a result, at the beginning of the 1990s Sweden and other Scandinavian countries were hit by both a banking and currency crisis. As before the depression in 1930, the crises were preceded by steep rises in asset prices and a very sharp expansion in credit. Reform of a tax system that had fuelled debt and that was changed in such a way that caused a rise in post-tax interest costs, contributed to deepening the crisis. The lack of experience at banks and supervisory authorities of acting in a deregulated environment, in combination with excessively expansionary fiscal policy, were other significant causes of the negative developments. But large financial imbalances had already accumulated before the crisis was triggered. This occurred without the anchor for inflation, that is the nominal exchange rate, giving sufficient indications in time. In spite of the fact that the overheating resulted in a real appreciation of the krona against other currencies due to inflation, confidence in the fixed exchange rate regime appeared to be fairly stable for a long period. This led to substantial, partly short-term, capital inflows increasing demand for the krona at the same time as a growing current account deficit reduced krona demand. The demand for the krona was partly due to Swedish firms demanding loans in foreign currency. Consequently, monetary policy, which targeted the exchange rate, was not tight enough to prevent the build-up of the imbalances. | History has shown that inflation measured in terms of consumer prices has not always signalled when imbalances in the economy have been building up. Many of the countries that were hit by depression and banking crises during the 1930s had beforehand witnessed steep rises in asset prices and a sharp credit expansion without any increase in inflation. In Japan, the recession that followed in the wake of a strong credit expansion and rising asset prices during the second half of the 1980s proved, as we know, very severe and protracted. Neither in Japan had inflation provided signals in time that large imbalances were building up. Also during the latter part of the 1990s we have seen examples of crises with a similar course of events, for example in Thailand and other parts of Asia. Banking crises are not a necessary condition for countries to be hit hard after such a development. This is shown by what happened in the United States and England at the beginning of the 1990s. Focus on price stability and financial stability During the 1990s, confidence in an economic policy aimed at achieving price stability seems to have strengthened in earnest in large parts of the world. World inflation is now back to the levels reached before the 1970s, and monetary policy is again playing the leading role in stabilisation policy. Modern neo-Keynesian1 research based on theories of nominal rigidities has shown that not only real shocks but also monetary shocks can temporarily affect the real economy. | 1 |
This could refer, for instance, to households who now borrow money to buy a home. In the future the interest rates on these loans can be three or four times higher than the current mortgage rates. I began by discussing the major differences in time horizons in the financial decisions we all need to make. Some decisions apply only here and now. If we make the wrong decision it is not too difficult to put it right. In other cases, we make decisions today that have consequences far into the future. It is then important not to assume that the conditions applying today will apply for decades into the future. References Armelius, Bonomolo, Lindskog, Rådahl, Strid and Walentin (2014) “Lower neutral interest rate in Sweden?”, Economic Commentaries no. 8, Sveriges Riksbank. Ball, L. (2014) “The Case for a Long-Run Inflation Target of Four Percent”. IMF Working Paper WP/14/92, June. Bengtsson E & Waldenström D (2015) “Capital shares and income inequality: Evidence from the long run” CEPR Discussion Paper DP11022, December. IMF (2014) “Perspectives on Global Real Interest Rates”, World Economic Outlook, April. Karabarbounis, L & Neiman, B (2014) “The Global Decline of the Labor Share”, Quarterly Journal of Economics, 129(1), 61–103. King, M, Low, D, (2014) “Measuring the ‘world’ real interest rate”, NBER Working Paper No. 19887. Kryvtsov, O, Mendes, R (2015) “The Optimal Level of the Inflation Target: A Selective Review of the Literature and Outstanding Issues”, Bank of Canada, Discussion Paper 2015–8. | To achieve this, after raising interest rates to close to the "neutral interest rate" of 2% in December, we are now embarking on the second phase towards monetary stabilisation: ideally, it would be good to reach the right "terminal rate" by next summer, but it is still too early to say what that level will be. We need to remain pragmatic and to be guided by observed data, including on core inflation, without getting fixated on overly mechanical rate hikes. We will then be prepared to remain at this terminal rate for as long as necessary: the sprint to raise interest rates in 2022 is now becoming more of a long-distance race, and the duration will count at least as much as the level. In parallel, we shall continue to focus on maintaining financial stability, helped by the strong resilience of French banks and insurers. In Europe, 2023 needs to be the year when Basel III is transposed into EU law and the Solvency II review is completed. Regarding crypto-assets, the disruption seen in 2022 is nourishing one basic conviction: France should switch as soon as possible to the compulsory authorisation of DASPs (digital asset service providers) rather than simply requiring their registration. And this needs to happen well before MiCA enters into force, to create the necessary framework of trust. 2) Less protection and more adaptation. The government can cushion the energy shock temporarily, but it cannot make it disappear. | 0 |
Our average ownership in listed European companies is almost three times our average holdings in Asia or the Americas. Slide 12: Changing regional allocation (starting point) At the start of this year, more than half of the Fund was invested in Europe. As the Fund has grown, we have come to realise that a more even distribution between regions will better enable the Fund to take part in global value creation. Slide 13: Changing regional allocation (target) Recently, a new principle for the regional allocation of the Fund’s assets has been approved. A consequence of this principle is that the relative allocation to Europe is reduced. The Fund’s relative holdings in the Americas, Asia and emerging economies will increase accordingly. For the Fund as a whole, a more even allocation across regions will improve the overall long-term trade-off between risk and expected return. In accordance with the new allocation of the Fund’s assets, new purchases will primarily be made outside of Europe, until the adjustment process is completed. As the Fund receives inflows of fresh capital on month-by-month basis, we are able to undertake the adjustment through new purchases. This will ensure a gradual process, and will not entail a large sell-off on our part. Instead, the effect will be merely a temporary drop in our purchases of European assets. Under the new principle, the Fund will still be overweight in European assets, compared to a market neutral position. | 2/5 BIS central bankers' speeches Some have called on us to go further and incentivise change through imposing lower capital requirements for ‘green’ exposures and higher capital requirements for ‘non-green’ or carbonintensive exposures. As the prudential regulator, any incorporation of climate change into regulatory capital requirements would need to be grounded in robust data and be designed to support safety and soundness while avoiding unintended consequences or compromising our other objectives. In my view, the case for this has yet to be clearly established and possibly may never be. But our work to improve climate disclosures, scenario analysis, and risk management, could help unlock such assessments. Macroeconomy Beyond the financial system, achieving economy-wide net-zero emissions will require greening the way we heat our buildings, manufacture industrial goods like steel and cement, generate electricity and produce food. This could prove to be an opportunity for the economy to regenerate ageing capital and raise productivity. Analysis done by the Network for Greening the Financial System (NGFS) and National Institute for Economic and Social Research by 2050 suggests that such an orderly transition could lead to some increase in global GDP, and lower unemployment relative to prior trends. These positive effects should be larger in countries like the UK that are net importers of energy. However, as I mentioned earlier, much of that rests on how the transition proceeds. The lesson from previous episodes of structural change is that they never involve a frictionless re-allocation of capital. | 0 |
In particular, the speed with which the economy recovers depends largely on the flexibility of the labour market and on job mobility. When salaries develop in line with the regional economy and a potential for direct investment exists, regionally diverse shocks may be more easily absorbed despite a uniform monetary policy. The mobility of the workforce is also a helpful factor. If a workforce is mobile, there will be some who will leave a country suffering from a crisis and settle where job prospects are better. An illustration of how useful such flexibility can be was provided by the 1990-91 recession in the United States. Following substantial cuts in military expenditure, the economic downturn in particular affected regions with a high proportion of military bases and arms manufacturers. Notably in California, the unemployment rate rose much more markedly than in the rest of the country. Thereupon, between 1993 and 1994 more than 250,000 employees (in net terms) emigrated from California, while in the previous boom year 200,000 persons had been attracted to this region. Even if the adjustment process was painful for many people, the flexibility of the US labour market dampened the costs of this asymmetric shock. Coming back to the European currency union, it might be objected that monetary policy is not the sole economic policy instrument. Fiscal policy measures such as a tax reduction or an increase in public expenditure are also a means of boosting overall demand. | If this were the only correct interpretation, more favourable interest rates would not represent a genuine advantage for the Swiss economy, because the real interest rate advantage would be fully offset by a corresponding real appreciation of the Swiss franc. This has not been the case during the past decades. On the contrary, the real interest rate lead in our country has on average exceeded the trend in real appreciation. Therefore, the upward trend of the Swiss franc is only one of the reasons for the "interest rate island". More convincing explanations include the high savings rate in Switzerland, political stability, the efficiency of the financial sector, and a by and large investor-friendly legal framework. To the fore, however, are likely to be monetary arguments. In an international comparison, Switzerland has exhibited very low inflation rates and correspondingly low price fluctuations over a very long period of time. Beyond this, its higher-than-average gold and foreign exchange reserves create confidence. The relatively low Swiss franc interest rates may therefore be considered as a type of insurance premium paid by investors to hedge their portfolios against crisis situations. The more than three years of relatively calm co-existence with the euro have not significantly diminished the interest differential in favour of the Swiss franc. Currently, the difference between German and Swiss long term rates on government bonds still amounts to more than 1.5 percentage points. | 1 |
But in recent months, the spotlight of the Treasury Select Committee (TSC) has swung onto this area, and we have all been enjoying the debate! Many hours have been spent highlighting the biblical scale of the reporting requirements, the wickedness of the risk margin calculations, the mystical nature of the Ultimate Forward Rate…I could extend this list tenfold. Then we have had a rather more pointed exchange about whether we at the PRA have been over-zealous in our implementation of Solvency II, perhaps damaging competition, or making life too difficult for insurance companies, or denying the nation of vital new infrastructure by being too cautious about insurers’ investment strategies, or all three! All of these are important topics, and in the course of the debate I am as guilty of focusing on them as anyone else. Indeed, I will double-down by talking about some of them again today. So for those of us inside the insurance beltway, this is a very useful and timely debate and I think it is a great thing that the TSC has taken an interest. Can we make our implementation of Solvency II work better? In my opinion, despite some inevitable differences of view, there is in fact a strong degree of agreement between us, the TSC and the industry about the answer to that question. Where is the policyholder? However, in all the blizzard of insurance and regulatory jargon, I think something has been missing from our discussions. Where is the policyholder? | 6 Given the size of the benefit, we should all want to handle this part of the regime very carefully. We are applying particular scrutiny to two areas: first, the internal ratings and spreads on direct investments in illiquid assets, particularly the senior tranches of internal securitisations; and second, the use of financial restructuring to bring new assets within the MA. We have accepted internal securitisations as a means to achieve fixed cash flows. But that does not alter the requirement that the underlying assets must match the maturities of the annuity liabilities. We will of course take a careful and prudent approach to all such activity. We have made a series of proposals to give firms greater confidence about which assets can attract MA, and how we will deal with any breaches. But my message to the firms is: if we ended up in a position where the MA’s fundamental credibility was undermined for the sake of a few marginal items, we would all regret it immensely. Collectively, we need to remain on a sensible path. Conclusion I began by making the claim, which might sound somewhat outlandish to the uninitiated, that insurance regulation is fun. It is! But it is also a deeply serious business, precisely because the insurance industry plays such a vital role in society. | 1 |
There is also a strong catastrophe risk ecosystem to support ILS issuances, with the leading catastrophe modelling firms with ILS expertise present in Singapore, and research institutes such as the Earth Observatory of Singapore and the Institute of Catastrophe Risk Management, to support data and modelling needs. Singapore also aims to serve as the Asian knowledge centre for new and emerging risks. b. Singapore is well recognised as a premier asset management centre in Asia, with deep capabilities across both traditional and alternative asset classes. As the gateway to alternative capital providers such as pension funds, family offices, and hedge funds in Asia, ILS fund managers are increasingly assessing Asian investors through Singapore. c. Singapore has a deep debt capital market, with a broad range of bond offerings to provide collateral for and to support innovative ILS products and structures. SGX, a dynamic stock exchange, can facilitate bond trading. 13 Second, Singapore has ready corporate, regulatory and tax frameworks to facilitate ILS issuances: a. ILS instruments can be issued and regulated in Singapore via the Special Purpose Reinsurance Vehicle (“SPRV”) regulations, which allows sponsors to readily securitise insurance risks in Singapore. b. To provide tax neutrality for ILS vehicles, Singapore offers the Approved Special Purpose Vehicle (“ASPV”) scheme. 14 Third, MAS has taken steps nurture the growth of the ILS market in the region. a. MAS launched the ILS grant scheme in Jan this year, which will fund 100% upfront issuance costs of catastrophe bonds in Singapore, up to $ million. | In these countries, fund-based occupational pension schemes account for a large portion of the pension system, in the public as well as the private sector. If we include the Petroleum Fund and the National Insurance Fund at current market values, the picture changes, and funds in Norway are then higher than the OECD average. But even today, the level in Norway is below that of the Netherlands in 2003. Long-term investment strategy The Petroleum Fund employs a very careful investment strategy, with broad diversification. Large pension funds in other countries employ the same kind of strategy. Like the Petroleum Fund, these funds are intended to secure future payment flows. The consequences of large losses over time would be severe. For pure pension funds, this would mean they would not be able to honour their obligations to their members. For the Petroleum Fund, it would mean that the state would have to find other ways to finance the costs of the age wave that we know is approaching. Because of the prudence requirement, return requirements cannot be the same as for many private investors. It is important to remember that for every successful investor that achieves high returns, there are many other investors that have the same level of ambition and risk willingness, but a far 6/8 poorer track record and a history of insolvencies. The Petroleum Fund cannot run the risk of joining the worst group. Some large institutional investors have tried to copy successful private investors. | 0 |
Before I do so, I would like to take a step back and focus on three key words, which I believe are imperative for formulating financial sector policy for Thailand and the region as a whole. These three key words are productivity, immunity, and inclusivity. First, an emphasis must be placed on productivity as uplifting productivity is a critical requirement for long term growth of an economy. For one, at current stage, many countries in our region are facing structural transformation of aging workforce. Shrinking workforce can dampen long term growth prospect. We must become more productive in order to increase output level and improve standard of living of our people. Productivity is also needed to boost competitiveness of businesses as expanding global trade network and emergence of large e-business platforms have introduced new competitors into our business landscape. Moreover, roles of banks could be challenged as sharing financial platforms gain prominence in the modern economy, and new fintech firms offer financial products unbundled from the long standing value chain of banking. Without meaningful adjustment—that is improving productivity, long term growth potential of an economy could deteriorate. Second, immunity becomes imperative in the current global economic landscape. We are living in the time of changes, where outcomes can be abrupt, unpredictable, and volatile. Amidst the fallout from the Global Financial Crisis of 2008, where unconventional monetary policies flushed global financial market with excess liquidity, we are now entering the cycle where major central banks have started normalizing their monetary policies. | All of these solutions lead to lower cost of financial services, greater financial access, and greater opportunity for the public. Ultimately, “fintech” can help unlock massive potential of our people and businesses and be a powerful tool for Thailand and developing countries to improve on productivity, immunity, and inclusivity of the financial system as well as for the whole economy. Ladies and gentlemen, The theme of our very first Bangkok FinTech Fair focuses on SMEs and consumers, because these two groups face various challenges and can benefit greatly from the adoption of fintech. For Thailand, SMEs represent the majority of firms and make up over 80 percent of total employment. Many SMEs struggle to gain access to finance and payment services, which, on one hand, can be attributed to poor financial health due to loss of competitiveness. On the other hand, many SMEs lack the financial management skills and collateral needed for funding, and their 5-7 cost of finance remains high. Meanwhile, the Thai public is facing big hurdles of low long-term savings and high household debts, with Thailand having household debt to GDP ratio amongst the highest in the region. Many households lack access to efficient and low-cost financial services, be it the deposit, payment, insurance or loan products. These people need to be better served by our financial system to be able to unlock their potential, improve standard of living, and ensure their financial security as they age. | 1 |
This will be aided by the fact that the relationship established via the MPF is likely to be a sticky one, and companies are unlikely to shift to another scheme unless there are good reasons to do so. This does not mean, however, that MPF providers can afford to provide a bad service. If they do, they will destroy goodwill and make it more difficult to sell other products. The cross-selling opportunities provided by the MPF are not theoretical. There are already signs that it is making an impact on sales of other funds to individuals. As your Association recently announced, the fund penetration rate in Hong Kong has risen from 7.8% to 10% in a year. This is a creditable performance in view of the weakness in the stock market. One of the reasons for the increasing willingness to invest in funds is undoubtedly the low return now offered by bank deposits. However, it also appears that the marketing of the MPF over the last year has helped by focussing employees' attention on the attractions of funds for long-term savings purposes and on the need to plan for retirement. The role of the regulators I have talked so far about the involvement of the banks in MPF business. In practice, however, the role played by banks themselves is mainly to act as intermediaries, selling and advising on MPF schemes. The various MPF services – trustee, administrator, custodian and investment manager – are generally provided by other companies which may be related to the bank. | There is a case that we should take some notice of this in the way the regime operates, rather than just ignore it. In summary, our experience of operating the MA suggests to us that the broad mechanism works but that the EU design makes insufficient allowance for uncertainty, the difference in riskiness between assets, and signals from the market. As a result of this, we are concerned that it overestimates the portion of future returns which can confidently be assumed to be free of risk for insurance companies and therefore safely banked as capital up-front. Some might suggest that this is fine, because insurance capital requirements are set to cover a 1in-200 year stress. [6] But that mixes up capital requirements and capital resources. The risk of a weak MA is that capital resources could be over-stated, and strong capital requirements are no defence if the capital being used to meet those requirements is not sufficiently solid. [7] The system as currently set up provides a particularly strong incentive for insurers to hunt out assets which happen to have a high return relative to their credit rating. Here is an intuitive way to think about the risk in this if taken too far, which our team calls the “high-spread-for-rating assets” – or more colloquially the “too-good-to-be-true assets” – issue. Imagine you have two bonds. [8] Both mature at the same time, both are in sterling and both have the same credit rating. | 0 |
Intrinsic strength of Islamic finance Islamic finance has, thus far, remained positive, despite the current challenging global financial environment. The strengths in Islamic finance are derived from the Shariah principles, the key pillar of Islamic finance that has contributed towards its overall stability and resilience. The Shariah injunctions require that the financial transactions be accompanied by an underlying productive activity thus giving rise to a close link between financial and productive flows. In addition, under the risk sharing arrangement, the Islamic financial institution will share the profit or loss incurred by the entrepreneur. Under this arrangement, there is an explicit risk sharing by the financier and the customer and the real activity is expected to generate sufficient wealth to compensate for the risks. This arrangement, thus, entails the appropriate due diligence and the integration of the risks associated with the real investment activity into the financial transactions. In addition, the Shariah principles also prohibit excessive leverage and speculative financial activities thus insulating the parties involved from excessive risks exposures. The intrinsic principle of profit and risk sharing thus provides an in-built check and balance to the Islamic financial transactions. Explicit in this arrangement is the element of risk management and governance practices. Hence, it is a modality in which there is strong explicit emphasis on the economic viability of the underlying assets and on good governance, ethics and transparency. A demand-driven industry with growing potential This decade has seen the global Islamic finance industry evolve from being faith-based to a business driven industry for all communities. | Zeti Akhtar Aziz: Islamic finance – a global growth opportunity amidst a challenging environment Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the State Street Islamic Finance Congress 2008, Boston, 6 October 2008. * * * This decade has witnessed the rapid evolution of Islamic finance. This has resulted in the dramatic transformation of the industry, from being focused on retail financing to providing an extensive spectrum of financial products and services, from being focused on the Muslim community to having an extended reach that serves the non-Muslim community, from being governed by conventional regulatory and accounting standards to having promulgated its own standards and finally from being domestic centric to becoming increasingly internationalised. The Islamic financial services industry has during this decade transitioned into a dynamic, fast growing and competitive form of financial intermediation servicing the global community. It is my honour and great pleasure to be here in Boston to participate in this inaugural State Street Islamic Finance Congress. With the recent evolution and expansion in Islamic finance, it has now emerged as a viable new asset class for investors and a competitive form of financing for businesses. It has therefore, not only allowed for the further diversification of risks, but, the resulting higher level of foreign participation and the increased cross border flows has not only strengthened international financial inter linkages between nations but also contributed to the more efficient international allocation of resources across borders. | 1 |
In response to the changing landscape following the collapse of Lehman Brothers, the HKMA expanded its efforts to protect and educate consumers, and this change resulted in the creation in April 2010 of our Banking Conduct Department. I will focus first on our work to strengthen consumer protection before going on to saying something about our work on consumer education. HKMA & consumer protection In terms of consumer protection, first, the HKMA has introduced new requirements on banks and issued guidelines on the selling of investment products. These include (a) requiring audio-recording the customer risk profile assessment and sales process to provide audit trails for reviews by banks and the regulators; (b) implementing a pre-investment cooling-off period in the sale of unlisted structured products to less sophisticated customers (such as the elderly or first-time buyer); and (c) requiring banks to carry out continuous reviews of product risk and inform investors of any upward changes to the risk ratings of the products they have purchased. These requirements were in addition to existing measures introduced by the Hong Kong Securities and Futures Commission (SFC) on the supervision of securities companies’ selling activities. Second, the HKMA is active in monitoring banks’ compliance with these and other regulatory requirements through thematic on-site examinations. Banks are expected to have control processes and procedures in place to ensure adherence to the conduct regulations. In addition, to monitor compliance levels among banking staff, the HKMA conducts mystery shopping trips. Third, the HKMA has strengthened consumer protection by working with partners. | High inflation, prevailing uncertainties and tighter financing conditions dented private consumption and investment, which fell by 0.9 per cent and 3.6 per cent respectively. Survey indicators for economic activity have steadily improved over recent months, coinciding with reduced concerns about energy shortages and price increases. These factors coupled with the ongoing support provided by fiscal policy and the continued resilience of the labour market, are expected to support a recovery over the coming quarters. Accordingly, projected growth for 2023 has been revised up to 1.0% in our latest staff projections, which also foresee growth of 1.6% in both 2024 and 2025. It has to be stressed, though, that the ECB staff projections were finalised before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth. I will now turn to inflation, which has decreased from its peak in October owing to a sharp drop in energy prices and stood at 8.5% in February. Input cost pressures, which are partly related to the past surge in energy costs and the impact of supply bottlenecks and re-opening effects, are all weakening. However, accumulated price-pressures are still spreading through the economy with a delay. As a result, inflation excluding energy and food, has continued to increase, reaching 5.6% in February. Wage pressures have strengthened on the back of robust labour markets and employees aiming to recoup some of the purchasing power they have lost to high inflation. | 0 |
These relate to the high levels of public and foreign debt and to the high dependence on foreign capital, which advise perseverance in maintaining macroeconomic stability and in furthering structural reforms, especially those aimed at strengthening the institutional framework and the respect for property rights One salient aspect, in my view, which arises from the examination of the international situation is the fact that the firming of the economic recovery did not contribute to correcting the external imbalances between the main regions. On the contrary, despite the marked depreciation of the dollar, both the US external deficit end the surplus of Japan and the rest of Asia increased, while the slight surplus in the euro area hardly changed. Possibly, the deprecation of the dollar may not yet have had a corrective effect on foreign trade flows since, as we know, this tends to come about with a considerable delay and, in the short term, the exchange rate deprecation may even lead the deficit to widen. But the scant impact of the dollar depreciation on the current-account balances of the main areas appears also to be related to the asymmetry in the reaction of the main currencies: while much of the nominal effective depreciation of the dollar in 2003 was bilaterally against the euro, the Asian economies and, to a lesser extent, Japan, checked the rising trend of their currencies by means of heavy intervention on the foreign-exchange markets which has contributed to increasing their already high levels of reserves even further. | However, these were not the only reasons why it proved difficult to gain acceptance for a low-inflation policy in Sweden and why the thought of entrusting monetary policy to an independent institution raised doubts. The Keynesian tradition has been extremely strong among Swedish economists and across party lines ever since the 1930s. Therefore, the idea that the state can continuously control or influence the economic situation has probably been more persistent here than elsewhere. Our strong parliamentary tradition, which is based on the idea that all power derives from Parliament, has also played a part. Countries where power is shared more evenly among the political institutions have found it easier to accept the delegation of monetary policy to an independent authority. Having said this, it is worthwhile recalling that there is in fact a completely different Swedish tradition. The policy shift of the early 1990s is in fact a return to a long tradition of price stability that was temporarily interrupted for a few decades. Between 1870 and 1970, the average rate of annual inflation was about 2%. 1 BIS Review 39/2000 Diagram 1. | 0 |
BIS central bankers’ speeches reduced state and federal subsidies, educational institutions raised tuition, leaving students and their parents paying a greater share of the cost of higher education, thereby leaving students less of the surplus and a lower net return on their investment. There are therefore reasons to be concerned about the viability of the current system (with various income-based repayment programs) as well as an alternative income-based repayment system. The high delinquency rate and very low repayment rates among recent cohorts have implications for the sustainability of higher education financing more generally. While there is considerable uncertainty about the ultimate amount, it appears likely that a significant portion of the outstanding federal student loans in income-based repayment-type programs will ultimately be charged off after 20 or 25 years. Another potential threat to the sustainability of the current system, especially visible in the current low interest rate environment, represents the entry of private lenders engaged in cream skimming, providing loans that slightly undercut the administratively set interest rate on federal loans for those enrolled in high-return and low-risk programs towards business, medical and law degrees at top ranked institutions. There is a risk given the rapid growth of this industry that this could have a considerable impact on the average quality of loans held by the federal government. A primary policy challenge in higher education financing is to increase access to higher education to more people through grants and loans but in such a way that the private and social net returns remain positive. | However, while the available data limits deeper analysis of this issue, it seems reasonable to suspect that high college dropout rates contributed to loan repayment problems. As is well known, approximately 40 percent of college students drop out of college before finishing their degree. Among low-income students two-thirds don’t complete their degree, with rates also varying across institutions and majors. While the average wage returns to college remain high, for the substantial share of student loan borrowers who drop out of college, the net returns are likely to be small or negative. Returns are also likely to be small for those who attended a set of for-profit institutions. Enrollment at those institutions surged during the recession. While our data don’t allow us to investigate the returns for these groups of students, their especially low loan repayment rates (as reported elsewhere) are consistent with low post-college employment and earnings, suggesting that eventual returns to these educational investments may be low. The increase in defaults and decline in repayment may also reflect a change in the composition of college entrants during the recession, where even those with relatively low, or even negative returns to college, enrolled in order to qualify for grants and loans as a source of income. The individual and macroeconomic implications of growing student debt go well beyond the high default rates and may not have been sufficiently anticipated and understood. | 1 |
Some policyholders and creditors are able to monitor and react to changes in the creditworthiness of insurance firms. Clearly, for those that can, good quality, timely disclosures enhance market discipline. Where market discipline is strong, there is less need for stringent regulatory minima. But the strength of market discipline varies widely across the sector, according to the nature of policies and policyholders, as well as being different at the point of purchase and during the subsequent life of a contract – often measured in years not months. Moreover, there is another, essential element of the regime that serves to reduce market discipline. This is not a pillar but a net strung between the pillars. Large classes of policyholder would suffer significant hardship if their insurer failed, but have either no way of observing that it is courting failure, or no way of switching to a safer firm – often both. Annuitants are an obvious example. So such policyholders are offered an unlimited, 100% safety net by the FSCS. Certain general insurance products are in the same camp, and not just indemnities covering potentially ruinous liabilities to third parties: indeed, last year we extended 100% cover to certain building guarantees policies when it became clear that they met the criteria of significant hardship and inability to switch provider. So far so good, and the safety net promotes competition by giving consumers confidence in purchasing insurance and shopping around. | Meanwhile, on the supply-side of the economy, there is little evidence as yet in the productivity data that would suggest an acceleration in the underlying rate of capacity output growth such as we have seen in the US, and which, while it lasted, would allow the economy to grow correspondingly faster without necessarily generating inflationary pressure. We might all fervently hope to become infected by that particular disease - but the actual evidence so far suggests that up to now we have remained immune. That does not necessarily mean that we will not see accelerating productivity growth. But we can’t afford to gamble on that happening either. When people approach me with the sound-bite “give 3 BIS Review 18/2000 growth a chance”, what I hear them saying is “take a risk with inflation”. But equally when they say “you must take no risks with inflation”, I hear them saying “the world will never change”. The truth is that nobody knows with any great confidence. The important thing is to keep an open mind and to monitor intensively all of the data as they becomes available to us, and then draw what inferences we can as to how those data affect the balance of risks around the inflation target looking ahead. And that of course is precisely what we do in the Monetary Policy Committee. | 0 |
Jarle Bergo: Oil prices, cyclical developments and monetary policy Speech by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at Vest-Norsk Sparebanklag’s autumn conference, Bergen, 12 November 2004. The text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 3 November, Inflation Report 3/04 and on previous speeches. The references and the Charts in pdf-format can also be found on the website of the Norges Bank. * * * The objective of monetary policy is to safeguard the value of money in the long term. In the short and medium term, monetary policy can also contribute to stabilising production and employment. Historically, the experience of Norway and other countries is that high inflation has resulted in unstable output and employment. A fall in the price level will often occur in tandem with a downturn. The objective of low and stable inflation provides an anchor for economic agents’ expectations concerning future inflation. We have a very open economy with free capital movements. Stable inflation expectations also contribute to more stable krone exchange rate expectations. I will discuss this aspect in more detail later. Inflation targeting has proved to be particularly appropriate in very open, small and medium-sized economies such as the Norwegian economy. | At its monetary policy meeting on 3 November, the Executive Board decided to leave the sight deposit rate unchanged at 1.75 per cent. At this meeting, the Executive Board did not see any clear alternatives to leaving the interest rate unchanged. In reaching its decision, the Executive Board has weighed the objective of bringing inflation back to target against the risk that output growth may eventually be too high. 6 BIS Review 67/2004 | 1 |
This is confirmed by the fact that most of the rating agencies as well as the IMF's recent mission to Estonia have expressed positive assessments of Estonia's economic outlooks. To support economic growth, it is necessary to reinforce the principles of open economy and market flexibility and to ensure the stability of the national economy. In order to meet these goals, the best state support is the resumption of investment in the private sector and using the new possibilities that accompany every crisis. Thank you for your attention! BIS Review 91/2009 3 | Jean-Pierre Roth: Impact of the global crisis on Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Schweizerisch-Deutscher Wirtschaftsclub, Frankfurt am Main, 2 March 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * What started as a financial crisis has now become a global economic crisis. Although the Swiss economy was in a very sound state before the crisis set in, Switzerland’s standing as a financial centre, its real economy and its public finances have all been strongly affected by the global turmoil. Recovery will depend largely on the development of the US economy. Despite having reached worldwide proportions by now, the crisis was not triggered by globalisation itself. Rather, it is the result of a lack of discipline in the industrialised nations. Monetary policy today must contribute to the stabilisation of the financial system and the real economy without losing sight of its principal task, which is to maintain price stability. BIS Review 24/2009 1 | 0 |
Given that monetary policy exerts its impact on the economy with a time lag, our work is based in practice on ensuring that future expected inflation is 2 per cent. Our underlying assumption is that the time lag in policy is mainly one to two years. However, there is sometimes reason to refrain from achieving the target as defined in this way. This may be the case when inflation is affected by transitory effects, such as quickly rising or falling energy prices or changes in indirect taxes or 4 BIS Review 29/2003 mortgage interest expenditure. For this reason, the Riksbank also makes use of measures of inflation that exclude such effects. Inflation measured by the index UND1X is one example. Moreover, there may be reason after a shock to bring inflation back to the target in the somewhat longer term. This enables us to avoid overly negative implications for production and employment. The ECB measures price stability as a year-on-year increase in consumer prices of below, but close to, 2 procent. The target relates to inflation measured by the Harmonised Index of Consumer Prices, HICP. The idea is to reach the goal in the medium term, which implies that the ECB also disregards transitory effects on inflation. Consequently, the ECB’s definition is similar to our own. There are some differences, however. One is that the ECB’s target is defined in terms of HICP. | I don’t want to get too sentimental, but it is clear that our centuries-long common and shared history is no mere accident and that without exactly this similarity and closeness maybe our shared history could never have been so long in the first place. Again, this does not mean that we do not have our differences. Yes, we are still not equally wealthy, for example. Our elites have different opinions on many issues. Logically, we have different historical national wounds and pains. But again, this changes nothing in our mental – and not just geographical – closeness. Ladies and gentlemen, we are in Vienna, and my favourite Czech philosopher Vilém Flusser once said that Vienna and Prague are just two halves of one, single city. I very much agree. Perhaps this is ultimately why Czechs feel good in Austria: they feel very much at home. Therefore allow me right here my last point: if you are looking for anecdotal evidence of the closeness I am talking about, here is one anecdote I like to give here in Austria. Because we have friends here at the central bank, it is good to realise that the governor of the Austrian central bank is named Nowotny, his vice-governor and my dear friend is named Duchatczek, and the head of the local financial markets authority is called Pribyl. All these are typical Czech names. | 0 |
Furthermore, the sovereign has been able to tap foreign capital markets twice, for a total of 2 billion US dollars, and use part of the proceeds to repay a significant part of the loans associated with the IMF programme ahead of schedule. FX reserves and other Central Bank FX assets currently cover scheduled sovereign foreign debt repayments beyond 2022 (see Figure 10b). The balance of payments problem that the current controls on capital outflows are intended to address therefore lies elsewhere. It is best demonstrated by Figure 11, which shows, on the one hand, liquid ISK assets held by nonresidents, which amount to 22% of GDP, and the old banks’ ISK assets, which will, in the absence of other action, accrue mostly to foreign residents and may be added to the overhang of potentially liquid offshore krónur. Given that the underlying current account surplus is in the region of 3–4% of GDP and that there are a lot of other debt repayments laying claims to it, it is clear that if these amounts were to be released overnight, we would be at risk of another currency crisis, with potentially significant financial stability implications. That is why these assets must be released after significantly reduced valuations in terms of foreign currency or must flow out over a much longer period. The more their value is reduced in terms of foreign currency, the faster can the controls be lifted. | Although the adjustment would ultimately be greater if it occurred slowly, a very rapid contraction would deliver such a jolt to the finances of many households and businesses that loan losses would result. It is likely that a range of risks will have to be faced, but efforts must be made to minimise the probability of a financial crisis that could harm potential output and living standards. In the final 2 BIS Review 41/2007 analysis, the critical factor is how strong and well equipped the financial system is to withstand shocks, i.e. its resilience. The crucial factor behind the Central Bank’s assessment that the financial system is now more resilient to shocks is the banks’ stronger liquidity and equity positions than a year ago. The major commercial banks have a diversified income base that extends to many countries. Another advantage is the somewhat different business models they have used in their expansion. Their diversified assets give less reason to fear the consequences of an unexpected strain on the financial system. Iceland’s strong fiscal position underpins the banks’ international credit ratings. Other important factors have been the strengthening of Iceland’s foreign reserves and the Central Bank’s capital. Both measures represent natural responses to changes caused in the Central Bank’s operating environment by the very rapid expansion of the commercial banks, especially abroad. Although the main function of a financial stability report is to highlight risks, factors conducive to strengthening the long-term economic outlook should also be duly noted. | 0 |
Among the factors behind these differences are the date that the first cases appeared, the speed of the spread of new cases, how strictly containment measures were adopted and the response of the population. In the case of China, the greatest impact of the pandemic was recorded in the first quarter. Peru, on the other hand, saw a dramatic drop in the second quarter, as strict nationwide quarantine was implemented. Incoming information for Chile suggests that activity is picking up in sectors that had been particularly hard hit, such as retail and some services (Figure 5). This reveals that some activities have managed to adapt more quickly to new forms of operation, notably a more intense use of online sales and teleworking. In contrast, sectors such as construction, which are highly intensive in on-site work, have suffered greater than expected consequences, given the territorial and time extension of the quarantines. Because of its highly contagious nature, the pandemic caused a particularly sharp contraction in demand and supply in socially intensive areas, directly affecting the incomes of businesses and individuals. This has had a strong impact on the labor market, including self-employment. Thus, in the moving quarter ending in July, the annual drop in employment affected slightly more than 1.8 million jobs. About half of this figure corresponds to salaried jobs, mostly formal. Another 760,000 interrupted occupations correspond to non-salaried workers (i.e. self-employed workers and employers). | 16 40 60 80 Unchanged 100 Figure 9 Labor income and social benefits (1) (2) (variación anual, porcentaje) 20 20 10 10 0 0 -3 -10 -10 -20 -20 -27 -30 -40 Second quarter Labor income -30 Third quarter Social benefits -40 Net (1) The labor income is calculated using the wage bill, where (a) the employment projection is that implicit in the baseline scenario of the September 2020 MP Report, (b) those employed covered by the Employment Protection Law are excluded from the calculation, and (c) the labor income of self-employed workers would fall by 55% in Q2 and 35% in Q3. (2) The calculation of benefits considers: Employment Protection Law, Emergency Family Income (IFE), Severance Insurance, Covid-19 Emergency Bonus, and Middle-Class Bonus. Official information regarding payments already made is updated to 27/Aug/2020 and interpolated for the remaining months. For the IFE, four payments are considered. It does not consider the reforms to these benefits that had not been approved at the statistical closing. Source: Central Bank of Chile using INE, Ministry of Finance and Superintendence of Pensions data. Figure 10 Sales by electronic billing (*) (moving two-week average, billion pesos) 7 Supermarkets 6 30/Jul,: Law for 10% pension fund withdrawal published in Official Gazette 5 +33% 6 +15% 4 2 20 01 4 2 26/Mar. | 1 |
We intend to collaborate closely, sharing perspectives on policy issues and technical designs. And we look forward to leveraging advancements arising from Benoît’s new role leading the BIS Innovation Hub. 7 All speeches are available online at www.bankofengland.co.uk/news/speeches 7 Innovation is best achieved by empowering competition. For the Bank, this means levelling the playing field between old and new by allowing new entrants access to the same resources as incumbents, while holding similar risks to similar standards. It also means updating our public infrastructure to enable state-of-the-art private sector solutions to emerge which will lower costs, increase speed and improve customer experience of domestic and international payments. Any new payments system must be efficient, resilient and secure. A safe payment system is only useful if people use it, which means it must deliver fast, user-friendly and inclusive services. This in turn requires that payment systems are open to innovation and competition, and are built around the comparative advantages of central banks and the private sector. Addressing the Climate Crisis My final challenge facing central banks is the most fundamental. Indeed, it is existential. Four years since the Paris Agreement, a more sustainable financial system is being built. It’s funding private sector innovation, it has the potential to amplify the effectiveness of government climate policies, and it could accelerate the transition to a net zero economy. But we must go much further if the world is to reach net zero carbon emissions. Disclosure must become comprehensive. Risk management must be transformed. | The sluggish consumption and investments were reflected in a low demand for loans and mainly oriented towards shorter-term maturities. On the other hand, higher prudence by banks in crediting was reflected in tighter terms of credit supply. Financial markets were generally stable and evidenced improved liquidity conditions and controlled risk premia. Money market interest rates pursued a downward trajectory, due to easing policy of the Bank of Albania and satisfactory liquidity levels. While costs for the private sector credit were lower than a year earlier, the sluggish performance of the economy and uncertainties about its outlook made the trend appear more moderate in interest rates applied on lending to this sector. BIS central bankers’ speeches 3 Pressures on foreign exchange market were low and the exchange rate of the national currency against the major foreign currencies was stable, being a supporting factor to controlling inflationary pressures at home and increasing the certainty in foreign trade relations. 2. Inflation and monetary policy In 2011, average annual consumer price inflation was 3.5%, remaining close to the previous year’s average inflation rate. The performance of inflation was featured by a high volatility in the past year. Over the first and second quarters, annual inflation rate approached the upper limit of the targeted band, mainly driven by rapid and sharp price rise for food and primary commodities in international markets. These pressures were short-term and soon moderated; over the second half of the year, inflation started to fall gradually, marking 1.7% in December. | 0 |
It seems implausible to assume that the impairment of our banking system – the very life blood of our market economy – has not affected the productivity and general efficiency with which companies operate.8 If that is the case, we may be less confident that the supply capacity of our economy will pickup markedly purely in response to an increase in demand, unless and until some of these credit frictions are repaired. Where does all this leave us? The argument that it’s possible to grow the economy without much increase in inflation is, of course, seductive and enticing. It’s like being offered a free lunch. And yes, there are some grounds for thinking that the trade-off between growth and inflation may well be unusually favourable. But how strong those mechanisms actually are is far from clear. And it seems 7 For a more detailed discussion of some of these points, see McCafferty (2013). 8 There are a number of empirical studies that suggest financial crisis can have material effects on productivity and output. See, for example, Furceri, D and Mouragane, A (2009), Oulton, N and Sebastía-Barriel, M (2013), IMF World Economic Outlook (2009). 6 BIS central bankers’ speeches particularly optimistic to assume that the financial crisis and the near crippling of our banking system has played little role in the recent limp supply-side performance of our economy. | Meanwhile, it became clear to us that the standardisation of mortgage origination documents would facilitate the securitisation of mortgages more efficiently, by removing the need for due diligence review of documentation by credit rating agencies and investors. The HKMC therefore spent considerable efforts in promoting such standardisation. With the generous support of the legal fraternity and the banking industry, the HKMC introduced, in July 2001, the Model Mortgage Deed and the Model Deed of Guarantee and Indemnity. Fourteen major mortgage lenders have since adopted these model documents. Further standardisation of mortgage origination documents is in progress. It was against this background that the HKMC found it able to embark on another MBS programme the Bauhinia MBS Programme. The first series of MBS under that programme was issued in March 2002 and amounted to $ billion. The paper issued was in the form of bonds that investors are familiar, with a secondary market of considerable liquidity. Great care has been taken to design the Programme in such a way as to provide a convenient, flexible and cost-efficient platform for the issue of MBS. Benefiting from the standardisation of product structure and legal documentation, the leadtime for arranging an issue has been shortened substantially, from six to nine months for a standalone issue, to a few weeks under the Bauhinia MBS Programme. The current issue of $ billion of MBS is the second series under the Bauhinia MBS Programme. We are grateful and greatly encouraged by the enthusiastic response of the underwriting banks and investors. | 0 |
In this supportive international environment, the euro area experienced a brilliant first quarter of 2011, emphasizing the robustness of the recovery. GDP increased by 0.8% over the quarter but as fast as 1.5% in Germany and 1.0% in France. All euro area countries, except Portugal, enjoyed positive growth rates. These developments no longer reflect solely the economic policy stimulus and the inventory cycle; they testify to a broad-based recovery, with a self-sustained private sector dynamics. One remarkable development of this first quarter is that French and German growth has been mainly driven by private domestic demand and, in particular, business investment. In France, it grew at a 1.9% quarterly rate, posting a fourth consecutive quarter of strong growth. The pace of recovery may slow in the coming quarters. Business climate indices, such as the Purchasing Managers Index, the Economic Sentiment Indicator or Germany’s IFO, have peaked at high levels. Beyond these observations, the crisis may have left scars on our economies. Potential growth may have been affected. The balance sheet repair process, involving both public and private agents, may also weigh on growth in the medium term. Still, prospects are encouraging. The OECD, which recently issued its latest forecasts, has just raised its growth forecast for the euro area to 2.0% in 2011 and 2012. All in all, we have strong reasons to believe that we successfully exited the economic crisis. There are increasing signs that the recovery is now well on track. | Between 2000 and 2008, Greece and Ireland posted cumulative labor productivity growth rates, as measured by the output per employee, of 14.7% and 10.2% respectively. Both significantly outpaced that of Germany (6.1%). This is exactly what you would expect in an integrated economic and monetary area and this process should continue in the future, provided that appropriate policies are implemented. Economic convergence will therefore boost growth and support the return to debt sustainability. It is true that, looking at nominal developments, a different picture emerges. During the same period, nominal wages grew by a total of 42% in Ireland and 52% in Greece, compared with only 7.4% in Germany. There has to be a regime change in the way in which nominal wages and prices are set in some parts of the euro area. As central bankers, we have been putting forward this argument for years. Strong reforms are now being pushed in labor market legislation as well as in wage determination in the public sector in many countries. What about banks? I would like to end with a few words about the banking sector. Revenues for the twelve biggest European banks grew, in aggregate terms, by 8.6% in 2010 (as compared to 2.5% for the main US banks). As a result, European banks’ Core Tier 1 ratios stood at between 8.5% and 15.3% at the end of 2010 (corresponding numbers for US 4 BIS central bankers’ speeches banks were between 8.4% and 13.3%). | 1 |
The latest data for January also shows continuation of a broad-based economic recovery in all sectors. BIS Review 41/2010 1 • Our manufacturing production index rose at 28.6 percent; • Exports grew at 31.4 percent; • Private consumption expanded at 4.7 percent; • Number of inbound tourists are now exceeding 1.6 million for the second consecutive months; and • Farm income has improved noticeably from mid-2009. All of these have been instrumental in reducing the unemployment rate of our economy from the peak of 2.4 percent during the crisis to a near historic low level of 0.9 percent, with some sectors such as electronics and automobile industries now starting to experience labor shortages. These are exactly the picture of the economy that we are hoping and looking for: growth that is based on confidence of consumers and investors that feel secure enough about their jobs and business prospects. So much so that it leads to the renewal of consumption and investment activities, especially the consumption of durable products such as cars, refrigerators, and televisions as well as the purchase of new home and new investment projects. Going forward, the prospect of the Thai economy remains robust. The momentum of the recovery is expected to continue into both 2010 and 2011. | Lars Nyberg: The infrastructure of emergency liquidity assistance - what is required in today’s financial system? Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at the CGFS regional meeting in Tokyo, Bank of Japan, on 22 May 2000. * * * Sweden experienced a severe banking crisis in the beginning of the 1990s. To manage the crisis, the authorities had to implement measures that averted a complete breakdown of the financial system while attempting to limit the costs to taxpayers. In addition, it was imperative for the authorities to consider whether or not their actions would contribute to future moral hazard problems. During the crisis, an effective division of labour developed between the authorities involved, namely the Ministry of Finance, the Riksbank, the central bank, Finansinspektionen, the financial supervisory authority and the Bank Support Authority. As the crisis progressed, the Riksbank provided emergency liquidity assistance (ELA) twice, acting in its role as “lender of last resort”. The remarks in this note are largely drawn from the Riksbank’s experiences in this crisis, and how these experiences can be used to assessing the role of ELA in a general crisis management infrastructure. When discussing the infrastructure that is in place to handle financial crises, two aspects are of primary importance. First, ELA must be put in the context of the overall methods of crisis management that the authorities would employ should a financial crisis occur. ELA is not a measure that can or should be used in every financial crisis. | 0 |
4 See Kenneth Rogoff, Aasim M. Husain, Ashoka Mody, Robin Brooks and Nienke Oomes (2003): “Evolution and Performance of Exchange Rate Regimes”, IMF Working Paper 03/243; Eduardo Levy-Yeyati and Frederico Sturzenegger (2003): “To Float or to Fix: Evidence of the Impact of Exchange Rate Regimes on Growth”, American Economic Review, September 2003, pp. 1173-1193; Jeannine Bailliu, Robert Lafrance and Jean-Francois Perrault (2003): “Does Exchange Rate Policy Matter for Growth?”, International Finance 6:3, 2003, pp. 381-414. BIS Review 25/2004 5 In 2003, wage growth was considerably lower than in the previous five years. This provided a sounder basis for substantial reductions in Norwegian interest rates, resulting in a narrowing of the interest rate differential between Norway and other countries. The reduction has contributed to a weakening of the krone since December 2002. Thus, the real exchange rate has also weakened and business sector competitiveness has improved. However, the business sector is still feeling the effects of the loss in competitiveness that resulted from high wage increases. The internationally exposed sector has been scaled back. Those companies that are still operating may be in a better position to bear the high wage level. Nevertheless, costs may hamper activity and employment growth. For a long time, a stable exchange rate and the level of cost inflation among our trading partners provided an anchor for wage determination in Norway. | With a flexible exchange rate, a depreciation of the krone can also boost competitiveness. A flexible exchange rate can reduce fluctuations in employment and output. Empirical studies4 have also suggested that economic growth in industrialised countries with floating exchange rates has been as strong, and often stronger than in countries with a stable exchange rate. A precondition is that there is an economic policy framework so that inflation does not spin out of control. The real exchange rate The chart shows developments in two measures of the real krone exchange rate, i.e. consumer prices and relative labour costs in Norway relative to trading partners, measured in a common currency. The real exchange rate measured by relative wage costs in a common currency is an expression of the cost competitiveness of Norwegian companies. The real krone exchange rate as measured in terms of developments in relative prices is an expression of the Norwegian krone’s purchasing power. When the curves in the chart are above zero, the exchange rate is stronger and competitiveness weaker than the average level since 1970. The real exchange rate has fluctuated considerably over time and has deviated substantially from the average level over longer periods. Nevertheless, there has been a tendency for the real exchange rate to revert to this level. The points on the chart marked 2004 show the real exchange rate with wage and inflation projections for 2004 from Inflation Report 1/04. 1 2004. | 1 |
Finally, there is the puzzling matter of long term interest rates; last year, as central banks raised their policy rates, long term nominal and real rates fell to levels not seen in 40 years (though of course, US rates have now ticked up a bit recently). At the same time, risk premia of all kinds – bond spreads and term premia – have been sharply compressed. This state of affairs has caused a great deal of head scratching, and nowhere more than in central banks. Plausible explanations for low risk free real rates include the possibility that there is a global savings glut. It is also argued that there has been an investment ‘strike’ almost everywhere except China and maybe the US, perhaps reflecting a persistent overhang from the East Asian crisis or the last IT cycle. These are speculative explanations, and it is not easy to discriminate between them. However, they all seem to point to a more or less prolonged period of low rates. More worryingly, compressed risk premia of all kinds may reflect a belief that the world is no longer such a risky place, a belief fostered by the period of low inflation that many economies have enjoyed in the past decade. Hopefully, low inflation is here to stay. | I would like to reiterate: • that all European banks now have unlimited access to short-term liquidity, denominated in both euro and dollars, at a fixed rate; • that in all countries there are guarantee mechanisms enabling banks to ensure their financing and therefore to maintain their credit activities; • that banking systems are all being recapitalised at equivalent or higher levels than those prevailing before the crisis; • and lastly, that macroeconomic policy instruments are still available and could be used if economic activity were to decline durably. Moreover, for the past two months we have witnessed a reversal of the oil and food shock which strongly penalised economic growth during the first half of the year. Prices are now falling. If this trend continues, or even if it just stabilises, we can expect a gradual but marked 4 BIS Review 130/2008 slowdown in inflation. This should spontaneously give households extra purchasing power, contributing to a possible pick up in consumption. Together, these developments could stabilise the economy and allow a recovery in economic growth during 2009. We cannot, of course, predict a precise date or forecast the extent of this recovery. However, in my opinion, the prospect of a significant recovery in economic growth in 2009 is not being sufficiently taken into account, either by analysts or markets. | 0 |
Jon Nicolaisen: Challenges for the payment system Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the annual conference on payments systems, hosted by Finance Norway, Oslo, 16 November 2017. * * * Please note that the text below may differ slightly from the actual presentation. Introduction The payment system is changing along a number of dimensions. These changes will not only have an impact on the way we make payments, they will most probably also contribute towards promoting and even accelerating the structural changes we have already seen in the financial industry. Today, I will briefly outline some of the most important challenges we are facing. We can perhaps call the sum effect of these challenges a change programme. For this programme to succeed, cooperation is necessary, both within the financial industry itself and between the business community and the authorities. The authorities and the financial industry largely have coinciding interests. We all share the same aim: that Norway will continue to have an efficient, robust and modern payment system. PSD2 and new payment service providers In recent years, the EU has issued a number of regulations which we must adhere to. The revised Payment Services Directive (PSD2) is particularly important. The purpose of PSD2, together with other regulation, is to secure cheap, modern and efficient payment services. PSD2 will enter into force in the EU in two months’ time. A consultation process has been initiated on proposals to implement the directive in Norwegian law. | Fast payment solutions The general public increasingly expects to be able to transfer funds on any day of the week and outside traditional opening hours. They also expect that payees will be credited quickly. In the future, there will have to be a good reason not to credit payees immediately, rather than with a delay, as is the case currently. This means that the payment system must meet new requirements. In Norway, there is a provisional instant payments solution, which an increasing number of banks are adopting. It is positive that the solution is becoming more widely used, but it has its drawbacks. For even though participating banks have entered into a loss-sharing agreement, banks still incur credit risk before payments are settled and the solution cannot be used for certain types of payments. Bits and Norges Bank are therefore jointly developing a better solution, called BRO in Norwegian “Betalinger med raskere oppgjør” (payments with faster settlement). BRO will be an efficient underlying infrastructure that is intended for all types of payments. The solution will be in place by the end of 2019. Norges Bank has initiated an in-house project to make the necessary adjustments to the settlement system. The Bank will do its share to enable banks to settle payments to each other without incurring credit risk. Customers will also be able to make instant payments in larger amounts. Customer services will also have to be modified. | 1 |
In the United States, the largest productivity gains were not realized in the high-tech sector or from the IT investments itself but from the widespread use of information and communication technologies in traditional sectors like wholesale trade, financial intermediation and construction. The new technologies led to a complete reorganization of the value chain thereby enhancing total factor productivity, albeit with a lag. One cannot entirely exclude that this leverage effect will simply occur with a lag in Europe. After all, productivity growth is one of the least well understood phenomena in economics. While I do not want to exclude a productivity lag effect in favour of Europe, I suspect the story is a more complicated and a more challenging one. Structural conditions must be in place in Europe to allow maximum flexibility so that the full potential of the new technologies can be unleashed throughout the real economy. Conclusions The question of why the EU recovery is so slow implies a cyclical answer. The European track record of the last ten years, however, strongly suggests that there is a crucial structural dimension to the problem of weak European growth. The real challenge for the EU is to boost productivity growth and augment its potential growth rate. In the words of Mervyn King: “Raising productivity growth is the key to improving the prosperity of future generations.”4 It is therefore not particularly meaningful to analyze the growth weakness in Europe in purely cyclical terms. | Much as it did in 1994 in the U.S., the hard part lies ahead. Appendix Graph 1 Average Annual GDP Growth Rates 0 1 2 3 4 5 6 7 8 9 [%] France Germany Ireland Italy Japan Korea Spain Switzerland United Kingdom United States 1970-1980 1980-1990 1990-1995 1995-2003 EU-13 (EU-15 excl. Austria and Luxembourg) Source: OECD, Productivity Database, February 2005. 4 BIS Review 27/2005 Graph 2 Average Annual Growth Rate of Labour Input: EU-13 vs. U.S. [%] 1.5 1.0 0.5 0.0 -0.5 1990-1995 1995-2003 -1.0 EU-13 (EU-15 excluding Aust ria and Luxembourg) Unit ed St at es Source: OECD, Productivity Database, February 2005. Graph 3 Growth of Labour Productivity: EU vs. U.S. 4.0% EU - U.S. U.S. EU 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 95 96 97 98 99 00 01 02 03 04 05 Source: Datastream (OECD Economic Outlook). BIS Review 27/2005 5 Graph 4 Average Annual Growth Rates of Labour Productivity: EU vs. U.S. [%] 4 3 2 1 0 EU-11 U.S. EU-11 minus U.S. -1 -2 1970-80 1980-90 1990-95 1995-2000 2001-2003 Source: OECD, Productivity Database, February 2005. 6 BIS Review 27/2005 | 1 |
Because they are based on value-at-risk (VaR) calculations, and reflective of recent historical market conditions and correlations, they do not necessarily provide an effective measure of vulnerability to loss under more severe conditions of market stress and illiquidity. Stress tests must be designed and applied to compensate effectively for these limitations. Designing an appropriate set of stress tests that can capture the underlying pressure points and concentrations across a broad range of relationships with many different hedge funds is not easy, but it’s necessary. BIS Review 70/2004 3 And, the results of these tests need to inform judgments by the firm on the scale of exposure that it is willing to take to individual funds, groups of funds with similar strategies, and to hedge funds as a whole. Moreover, firms need to find ways to consider assessments of their stress-level exposures to hedge funds in tandem with stress tests of their own market risks to inform an overall judgment on the extent of capital market trading-related risks that the firm is taking on - especially in relation to low probability but high impact events. Third, and especially in light of the current competitive climate, we believe it is appropriate for dealers to have more exacting standards for the overall due diligence process, and to adjust credit terms on the basis of those higher standards. This is particularly important in those cases where there has been innovation in the manner in which credit is extended. | We need in particular to ensure that financial groups maintain information on the assets and liabilities of their legal entities; it is legal entities that 4 BIS Review 39/2009 go into resolution not business divisions. Lehmans shouts that out loud and clear. We need to ensure that banks, however grand they are, keep information that would facilitate rapid payout from deposit-protection schemes. We need banks to have contingency funding plans that are shared with regulators and central banks. We need, more ambitiously, to address Too Big To Fail. And we need to do just massively better at working together internationally. However much we do, I fear that the inescapable conclusion will be that we cannot rule out that very rarely the banking system will end up needing to be supported by some ultimate source of capital. If that is right, then society needs principles and policies for what might be called “Capital of Last Resort”, to sit alongside the Lender of Last Resort (LOLR) principles developed by and for central banks since the 19th century. Parts of the academic community have started to think about and advocate capital-insurance from the private sector, but over the long term we need to decide whether or not to have a policy for public sector capital insurance. At a high level, this faces exactly the challenges of central bank liquidity insurance. Its terms must not incentivise imprudent behaviour; and they must be time consistent. | 0 |
All this is not enough, but you should not doubt France too much, even in this election year. The soundness of our political institutions and majority system represent lasting advantages. From its significantly more positive economic situation, Germany should also continue with reform: demographic change is likely to result in a decline in the working population – and the present inflow of refugees will not change this to any significant extent. This means that growth will slow in the long term. However, it is obviously not for me to advise measures for your country. At European level, our competitiveness will depend in particular on creating a large digital single market. I know that when the French speak of coordination in Europe, Germans sometimes suspect it to be a new trick to avoid reform. We must break out of this dead-end: we need both national reforms and European coordination. As Helmut Schmidt repeated frequently, we must build economic union as well as monetary union. But this does not in my view mean a “Union of Transfers”, which Germany quite legitimately refuses. The second growth lever: create in parallel what I call a “Financing and Investment Union” (FIU). Why? Because numerous businesses in Europe wish to invest and innovate but are unable to find appropriate financing. Still, the funds are by no means lacking: the euro area has a savings surplus of 350 billion euro, i.e. more than 3% of GDP. The FIU would facilitate the mobilisation of these abundant savings towards investment. | Both headline and core inflation are expected to edge up from last year despite the government’s attempts to contain inflation through administrative price controls. As such, the Bank of Thailand continues to gradually normalize the policy interest rate. At present, the policy rate is still deviated from the norm as the real policy rate remains negative at around –0.7 percent. Thus, interest rate normalization is another feature for the year 2011. Last Wednesday rate hike marked the 8th increase in the policy rate to 3.25 percent. Many have asked at what level of interest rate the Bank of Thailand’s target is. There is no definite answer to when the upward cycle of interest rate will end. Theoretically, a desirable interest rate path would be the path that leads economy to its potential output level without exerting excessive inflationary pressure on the economy. However, this state is subjected to change with economic developments. Thus, the Monetary Policy Committee’s decision must be based on their assessments of current economic development and outlook at each time of the meeting. Having said that, even if inflation has been curbed and the economy is on its normal trend growth, Thailand should not be complacent with economic normalcy. We need to look beyond normalcy which is the second part of my focus today. Moving the country forward will be more challenging than the past especially now when competition intensifies across the globe. Raising productivity will be the key objective of economic development in this regard. | 0 |
On climate, remember, past is not prologue. In the depressing spirit of Bayesian updating that the current climate change trajectory demands, when considering scenarios for 2019, that we include weather-related events that are more severe and clustered. To help firms improve their own testing, the Bank has been encouraging knowledge sharing on the 9 types of scenario analysis envisaged under the TCFD. This will allow firms to explore how 2°C and other transition scenarios might impact their strategy and financials. More broadly, and like the other financial authorities represented here today, we recognise the value in sharing expertise and best practice to increase the rate at which firms, and indeed ourselves as regulators, move to embed more thoroughly climate-related financial risks into our risk assessment and mitigation. 8 https://www.bankofengland.co.uk/prudential-regulation/letter/2017/general-insurance-stress-test-2017-feedback This included co-hosting a conference with TCFD in late 2017. For further details see: https://www.fsb-tcfd.org/event/tcfd-boeconference-climate-scenarios-financial-risk-strategic-planning/ 9 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 Conclusion Given this heavy agenda, it is encouraging that central banks and supervisors – from eight countries that together account for over a third of both global financial assets and carbon emissions – have come together to found the Network for Greening the Financial System (NGFS) to take forward coordination. There are, however, limits to our roles. Financial policymakers will not drive the transition to a lowcarbon economy. Our efforts cannot substitute for those of governments who have direct responsibilities to deliver the policies to achieve their Paris commitments. | First, in time for the Argentine G20 Summit, drawing on the work of the Big Four accounting firms, the Task Force will report on implementation experience, focusing on examples of good practice to foster wider adoption. Second, the Task Force is launching a Resource Hub to provide technical support, data, and collaborative partnerships – all aimed at helping companies implement the recommendations in as effective and efficient a manner as possible. As preparers, financials and investors 'learn by doing’, a virtuous cycle will be created where more and better information creates the imperatives for others to adopt the TCFD and for everyone to up their game on the quality of information they provide. This iterative process is a reason why there is likely cause for the Task Force to continue beyond the Argentine Summit in late 2018 and into the Japanese presidency. In particular, it will be important to get feedback from investors on which disclosures are truly decision useful so that this process is as efficient and effective as possible. Third, insurers and banks. Insurers have long been on the front line of the physical risks posed by climate change such as extreme weather events. Since the 1980s, the number of registered weather-related loss events has tripled. Inflationadjusted insurance losses have increased from an annual average of around $ in the 5 See ISS, (2018), United States Proxy Voting Guidelines, Benchmark Policy Recommendations, and Glass Lewis, (2018), Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice. | 1 |
During both phases of the programme, the US Federal Reserve undertook similar policies, and in recent months the ECB has injected large amounts of liquidity through its two longer-term refinancing operations. Equity prices rose in those jurisdictions too. Many of the companies in the equity price indices are international in focus and will be as exposed to developments abroad as in their home market. Moreover, there will have been other factors affecting equity prices, though during the second programme those other factors – slowing growth and the worsening euro-area situation – seem more likely to have depressed equity prices, rather than boosted them. Given that QE is supposed to operate by driving asset prices up, however, it would seem peculiar not to ascribe some part of the rise to our actions. Econometric studies4 carried out at the Bank imply that equity prices probably rose by about 20% as a result of the first phase of purchases. Assuming QE2 has proportionately the same effect as QE1, this implies an increase of around 10% as a result of the second phase of purchases. In other words, around half of the rise over the two episodes taken together appears attributable to QE. I should, however, emphasise the considerable uncertainty around these estimates. Let me now turn to the question of how this all affects a pension fund. | Such low real interest rates would normally lead to GDP and inflation abroad being unreasonably high. If reality and models differ, it is in my opinion reality that applies. In the current abnormal times, models and historical patterns do not work so well and should to a great extent be replaced by judgement. In my opinion, the forecasts for inflation and GDP abroad under the current abnormal circumstances are compatible with the low interest rates abroad. Monetary policy alternatives in October I would thus claim that the assumption in the main scenario that policy rates abroad will be high is unrealistic, and that it is more reasonable to assume a forecast for policy rates abroad that is compatible with market expectations of interest rates abroad. This also means assuming the prevailing actual long interest rates abroad with regard to the effect on the exchange rate. Figure 9 shows monetary policy alternatives, all under the assumption of a forecast for policy rates abroad in line with market expectations, that is, a forecast for policy rates abroad that follows the grey curve in Figure 7. Figure 9a shows different interest rate paths. The red broken curve, called “Main scenario repo rate path”, is the main scenario’s repo rate path. The blue broken curve, called “Riksbank’s reaction function”, shows the repo rate path arising from the Riksbank’s historical reaction function when policy rates abroad are compatible with the prevailing market expectations. The yellow broken curve, called “Market repo rate path”, shows the prevailing market expectations for the repo rate. | 0 |
The second issue I would like to highlight is a emerging focus internationally on the sharing of information between the public and private sectors, which I believe offers great potential in enhancing the effectiveness of our AML efforts. Increasingly, law enforcement agencies, regulators and the financial sector are cooperating in ways that go beyond the filing of STRs and assistance with investigations although these, of course, remain essential. The focus is now more on two-way sharing of information on trends and typologies. 20. In Hong Kong, the Fraud and Money Laundering Intelligence Taskforce, led by the Police and with participation by the HKMA and the banking sector, was established as a pilot scheme in 2017. This is a public-private platform along similar lines to initiatives overseas, notably in Australia and Singapore, and while it is at an early stage, it has already shown concrete results, not least in the freezing or restraint of some $ million as well as 71 arrests over a 10-month period. I believe that this kind of cooperation shows real promise for sustainable 3/4 BIS central bankers' speeches enhancement to the effectiveness of our framework, and the HKMA strongly supports its continuation and development. 21. The third issue is that we all need to keep under constant review whether we are getting the risk-based approach right. To implement AML efforts using an approach based on risk is the cornerstone of the FATF Recommendations. No one – neither institutions nor regulators – can be watching all risk areas all the time. | And these are all important elements in achieving our objectives. 3. And talking about objectives, this is definitely something worth reiterating and reinforcing at the start of this conference. This is because there’s always a danger, when we’re up to our neck in discussions around compliance, policy developments and technology, so much so that we may tend to forget what AML is all about basically. So let’s be clear about this upfront. ML and TF are crimes. And they facilitate other crimes - fraud, tax evasion, trafficking in drugs and people, and of course, terrorism. These crimes have economic and social effects that are far-reaching and often very nasty ones. They also generate financial flows – in fact significant financial flows - that divert resources away from economically and socially-productive uses. But more importantly, people get hurt. Victims, who are often from the more vulnerable segments in our societies, have their life savings stolen by fraudsters, our youth are damaged by drugs, or, in the case of terrorism, we see terrible acts of violence which kill and injure indiscriminately. Of course, investigating and prosecuting these crimes is the job of law enforcement agencies. But financial institutions do have a key role to play in helping to stop bad people doing bad things, and getting away with the proceeds from doing such bad things. This is the BASIC OBJECTIVE that one should remember next time when you are working on the details of CDD policy or calibrating the settings on your transaction monitoring and sanctions screening systems. | 1 |
Research at the Bank exploits micro-level information to give more insight into NBFIs portfolio decisions, in the hope of better understanding how spreads and premia will evolve. The confluence of, on the one hand, better data resulting from post-financial crisis increased regulatory scrutiny of NBFIs and a shift towards more centralised and transparent trading at CCPs and, on the other hand, greater computing power and advances in data analytics has permitted a much more disaggregated assessment to be made. Studies have identified more precisely the ‘preferred habitats’ of various NBFIs across the spectrum of available assets, as well as the cascades of asset sales underlying the so-called ‘dash-for-cash’ at the outset of the pandemic. [14] Better understanding the financial frictions that explain these features of portfolio choices and market behaviour is central to developing a more structural view of monetarist channels in the transmission mechanism of monetary policy. After all – and as Lord King identified two decades ago – if monetary quantities affect the magnitude and incidence of transaction costs in financial markets, they will influence spending and pricing decisions – and thus inflation – via channels that are not captured simply by changes in policy rates. Understanding those frictions and how money can alleviate them constitutes the route to developing a structural understanding of QE transmission. Page 11 At the macroeconomic level, we are still some way short of having that structural view. | But in the aftermath of the global financial crisis – with a long-term downward trend in the equilibrium real interest rate, R-star; with nominal policy interest rates stuck for long periods at their effective lower bound; and with disruptions in the financial sector impeding the traditional transmission of monetary policy – the use of QE and other balance sheet policies by central banks has become mainstream. Pace Poole, QE policies have largely been expressed in quantitative terms (even if that approach has been somewhat watered down over time). For example, at the Bank of England QE measures have been announced in terms of changes in the stock of gilt holdings in the special facility created to manage the asset portfolio. Such an approach inevitably begs the question of whether, and if so in what form, monetary quantities have re-asserted themselves in the conduct, transmission and communication of monetary policy. More generally, the financial crisis and its aftermath have demonstrated that financial markets are subject to periodic disruption. This questions the assumption – embedded in much of traditional finance theory – that equilibrium yields are independent of the quantities of the supplies of different assets. Failure of that assumption opens up scope for monetary quantities to have an important influence over a wide range of asset prices and risk premia, and thereby play an important role in monetary policy transmission. | 1 |
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