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Lars E O Svensson: Inflation targeting after the financial crisis Speech by Prof Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the International Research Conference “Challenges to Central Banking in the Context of Financial Crisis”, Mumbai, 12 February 2010. * * * I thank Charles Bean, Claes Berg, Alan Blinder, Stephen Cecchetti, Chuck Freedman, Charles Goodhart, Lars Nyberg, Irma Rosenberg, Hyun Shin, Frank Smets and Staffan Viotti for discussions of these issues. The views expressed here are my own and not necessarily those of other members of the Riksbank’s executive board or of the Riksbank’s staff. Hanna Armelius and Hans Dellmo of the Riksbank’s staff contributed to this speech. As the world economy begins to recover from the financial crisis and the resulting deep recession of the global economy, there is a lively debate about what caused the crisis and how the risks of future crises can be reduced. Some blame loose monetary policy for laying the foundation for the crisis and there is a lively debate about the future of monetary policy and its relation to financial stability. Here I will discuss the lessons for inflation targeting after the crisis. My view is that the crisis was not caused by monetary policy but mainly by regulatory and supervisory failures in combination with some special circumstances. | Donald Joshua Jaganathan: Digitization of remittances for migrant workers in Malaysia Welcoming remarks by Mr Donald Joshua Jaganathan, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Project Greenback 2.0 Kota Kinabalu Dinner, Kota Kinabalu, 3 November 2018. * * * Yang Berbahagia Datuk Yeo Boon Hai, Datuk Bandar, Dewan Bandaraya Kota Kinabalu, Dr. Firas Raad, Country Manager for Malaysia, World Bank Group, It is a pleasure for me to be here this evening. On behalf of Bank Negara Malaysia, I would like to express my appreciation to Dewan Bandaraya Kota Kinabalu for hosting Project Greenback 2.0 in this beautiful city; our Project partner, the World Bank, for your continued support and commitment to this important initiative; and to all of you who are gathered here today, for your hard work and dedication to ensure the Project achieves its objectives. I am also delighted that we have representatives from Bangko Sentral ng Pilipinas and Bank Indonesia with us tonight. Migrant remittances and Project Greenback 2.0 Mr. Juan Somavia, the former Director General of the International Labour Organization based in Switzerland once said “migrants are an asset to every country, where they bring their labour. Let us give them the dignity they deserve as human beings and the respect they deserve as workers”. Malaysia is a land of opportunity for many. Close to 1.8 million foreign workers, men and women, have left their loved ones behind to earn better income here. For many, they are simply chasing the “Malaysian dream”. | 0 |
Increasing corporate sector leverage in the euro area has also begun to raise questions about the likelihood of an adverse turn in the credit cycle and its possible consequences for the financial system. BIS Review 69/2007 3 Although closely related to business cycles, credit cycles are also driven by the criteria applied by banks and other investors when extending credit. By this yardstick, a long period of inertia in bank lending standards since mid-2004 and the persistent tightness of credit spreads suggest that euro area firms have not been facing financing constraints (as shown in the chart on the right of slide 8). On the contrary, as banks placed greater emphasis on the so-called “originate and distribute” business model, new opportunities have emerged for other financial institutions to acquire exposures to credit. This development has further improved firms’ access to bank credit. Euro area household sector Turning to the euro area household sector, the pace of net borrowing by the household sector has slowed since spring 2006, but has remained at high levels (see the chart on the left of slide 9). There have also been signs of moderation of house price inflation in a number of euro area housing markets. The risk of potentially disruptive property price declines in the future appears limited in the euro area as a whole, although differences continue to exist among individual Member States. | In this context, the “triangle of vulnerability”, identified in the December 2006 FSR, connecting the state of the credit cycle, credit derivatives and highly leveraged institutions, could have grown in relevance in the recent period. A shock involving any element of this triangle could have implications for the other two. For example, a sharp turn in the credit cycle could mean that credit risk protectionsellers, such as hedge funds, would have to make payments to banks which are protection-buyers, but hedge funds might not be capable of paying. Although many hedge funds have attempted to extend their investor lock-up periods, their positions are typically marked-to-market, implying that their funding remains vulnerable to any losses suffered because it could significantly impact on the willingness of banks to continue to grant credit. At the same time, a turn in the credit cycle could represent a challenging test for the functioning of the credit derivatives markets. Similarly, if widespread problems were to emerge in hedge funds active in credit risk transfer markets, this could spark a downturn in the credit cycle itself, as it could impair the “originate and distribute” business model upon which large banks have become reliant. 6. Overall assessment of the financial stability outlook Let me now conclude with the overall assessment of the financial stability outlook. | 1 |
In 2016, according to the draft State Budget, the planned reduction in the deficit will stem firstly from lower public spending, whose ceiling for the year as a whole, excluding that derived from local and regional government financing arrangements, will entail a reduction of 4.4% in relation to that set for 2015. The key expenditure-side measures are the 1% increase in the remuneration of public sector employees and the refund in 2016 of the remaining 50% of the extra salary payment eliminated in 2012. With regard to public employment, a standard 50% replacement rate has been established for public-sector vacancies, rising to 100% in priority sectors. Overall, these measures would lead to growth of 2.7% in wage expenses in the State Budget relative to the 2015 Budget outturn projection. The restrictions on current expenditure on goods and services are maintained, with a 14% reduction. Notable with regard to the Social Security system is the 0.25% revaluation of pensions, in keeping with the provisions of the 2013 reform. The projected growth in spending on contributory pensions in relation to the initial 2015 budget is rather higher, at 2.8%. This is as a result of the foreseeable increase in the number of pensions and of the substitution effect in terms of new pension claimants as opposed to deregistered pensioners, meaning that the weight of pensions spending relative to total consolidated spending of the State and Social Security system rises to 38.5% (37.8% in 2015). | The uncertainty habitually surrounding estimates of the impact of tax changes, which peaks at times of marked cyclical swings, will call over the rest of 2015 and in 2016 for a monitoring of revenue that enables risks of slippage to be identified and pre-emptive action to prevent such risks materialising. Notably, in a country as decentralised as Spain where more than 40% of public spending is by local and regional government, the Budget affecting central government and the Social Security system offers a partial view of the budgetary policy for next year. We must wait until October for the 2016 budgetary plan for the overall general government sector, including the regional and local governments. It is that document which will allow a full analysis of the budgetary forecasts for next year and which is, indeed, the draft on which basis the European Commission will deliver judgement in autumn, under the new European governance arrangements. Meeting our fiscal consolidation commitments remains the best anchor for preserving credibility and for ensuring, first, the stabilisation of the level of public debt and, subsequently, its reduction. In this respect, the different tiers of government (central, regional and local) must fulfil these commitments to the same degree of stringency. The Budgetary Stability Law has instruments at its disposal to achieve this aim. Conclusions I shall now sum up. | 1 |
Embracing the views and expertise of citizens is increasingly common in other disciplines. “Citizen Science” draws on the time and expertise of the general public to solve problems as diverse as spotting star and galaxy formations and forecasting the weather. 82 As well as helping solve these problems, Citizen Science increases public interest and understanding of science. What better time for central banks to begin enlisting the help of some Citizen Economists. Conclusion Central bank communications have come a long way. When pressed by a Parliamentary Committee in 1930 to explain the Bank’s actions, Montagu Norman replied: “Reasons, Mr Chairman? I don’t have reasons, I have instincts”. The Bank’s Chief Economist of the day was given similarly short shrift by Norman: “You are not here to tell us what to do” he scolded “but to explain why we have done it.” How things change. Central banks are public institutions, put on earth to serve the public. As the public’s norms, preferences and demands shift, so too must central bank practices. That is exactly what has happened over many years. The evolution-cum-revolution in central bank communications practices over recent years came in response to new circumstances and new responsibilities. It has delivered significant benefits. But the past few years have seen further societal and technological shifts, at a time when central banks having been bearing a heavier policy load than ever previously. As trust and technology has changed, so too must central banks. | Although financial globalisation has brought about improved macro-economic efficiency, via a more efficient allocation of resources and capital, liberalised capital flows, increased competition on financial markets, increased transparency (apart from the recent ENRON episode! ), changes in asset prices have also become more pronounced and have experienced clear misalignments or deviations from their “equilibrium” levels. Moreover, credit seems to have played a greater role in asset prices fluctuations. Initially observed during the “speculative bubbles” of the 1980s and early 1990s, this trend has persisted, if not amplified. Several factors may explain these recent and abnormal patterns in asset prices. I shall give a few examples. · First, "short-termism": some market participants may have become more inclined to be mostly preoccupied with their short-term results. This trend might result, in particular, from growing pressure to yield good results immediately. However, these results are not necessarily sustainable. Marking-to-market financial products may also have contributed to this widespread focus on immediate financial performances. This emphasis on short-term performance may result in increased volatility in the price formation process: the shorter the investment horizon of markets participants, the bigger the impact of any new information on prices. · Second, herding or mimetic behaviour: mimetic behaviour is of course by no means a new phenomenon on financial markets. Technological developments on markets may however have gradually reinforced this type of behaviour, as participants are under increasing pressure to follow their peers through matching the performance of a benchmark. | 0 |
Lower inflation rates would not only favour the competitiveness of our economy, which is so vital at a time when national spending is slowing, but would also improve household purchasing power against a background of declining household income on account of the oil price shock and the slowdown in employment. There are many other fields (such as the postal service, railway transport, ports, airports, energy, etc.) in which structural reforms giving a greater role to the private sector and competition need to be adopted as soon as possible. As I have already mentioned, the residential sector clearly needs to slim down and it has been doing so quite rapidly in recent months. The rise in uncertainty regarding both the economic outlook and house prices is inhibiting residential demand, even though household creation, due to the increase in the population and the observed tendency for average household size to decline, is still growing at significant rates. Improving the regulation of rented housing, to make it more flexible, profitable and attractive, would enable the demand for residential services from those who do not wish (or are unable) to buy to be met and would reactivate that part of the demand to purchase housing that basically stems from the investment motive, thus reducing the current excess supply in the market. In particular, providing legal certainty to home owners and deregulating the rental periods that may be agreed by tenants and landlords would boost the rental market. | For all these reasons, it is clear that there is no room for complacency and that institutions must act to achieve tighter cost control and to rationalise their procedures. Against a background of rising doubtful assets it seems essential to build up both the amount and quality of capital and to establish sound risk control mechanisms. Lastly, institutions should continuously carry out stress testing and develop contingency plans to anticipate what line of action to take in the face of different market situations. Regarding the supervisor, I believe there has been widespread recognition of the reliability and quality of Spanish banking supervision. Therefore this work should continue to cultivate a close relationship and permanent contact with institutions, but without relaxing the demands made of them. The last agent to which I wish to devote attention is households. In the current circumstances it is inevitable that households should regard the future with greater uncertainty and restrict their spending, stepping up their saving and reducing their level of indebtedness. The behaviour of households will be influenced by whether or not they are indebted and, if so, the weight of this debt burden on their current income. In the case of the more heavily indebted households (in proportion to income), the picture is more complicated since, to the prevailing uncertainty about the economic outlook may be added the tightening of financing conditions, which is largely a result of the financial turmoil. | 1 |
The other quality that helped make our things turn out well, aside from being very proactive, is that we were also practical and flexible regarding the policy response. We adjusted our response when things did not work as we would like them to be. An example is when the initial soft loan facility went out. It had very low interest rates to ease the burden on the borrowers, but it was not very attractive because the interest rates were not high enough to compensate banks for the credit risk. As a result, the credit was not flowing through that channel. We responded and adjusted by launching the additional measures I have discussed previously. I think that flexibility of response is another thing that helped get us to where we are today. Page 2 of 8 Aside from expanding credit, another important measure that we put out recently is to address the existing debt burden that the borrowers face. One important measure that we announced last year was on long-term debt restructuring to encourage banks to restructure their debt on a more sustainable basis. We had recognized our initial take on Covid-19 that the crisis would be very severe but short. Therefore, the measures we came out with were blanket, broad-based, and very large. We then realized later that Covid-19 would be staying with us for a very long time, and thus, the measures must be more targeted and longer in terms of their response. | For example, Thailand is the largest source of imports for seven of the nine ASEAN countries, excluding Thailand. The only two countries, where it is not Thailand, are Brunei, where it is Malaysia, and Singapore, where it is Malaysia, but if you are talking about links from a trade standpoint with other countries, it turns out it is Thailand. In terms of investment, the largest source of direct investment to the region is Singapore contributing about 60 percent of total intra-ASEAN FDI flows in 2020. However, a large share of that is not from Singapore itself, for example, when Taiwan firms invest in other countries through their Page 7 of 8 subsidiary in Singapore. Excluding Singapore, the next country on the rankings is Thailand contributing about 24 percent of total intra-ASEAN FDI flows (about one-fourth). We can see that both trade and investment linkages are very strong in Thailand. Furthermore, if we think about a country as a good production base, one thing we might think about is the degree of labor access. A place where labor from different places can move has the potential to act as a centralized production hub. Again, the country with the highest number of ASEAN migrants, not surprisingly, is Thailand because we have a lot of workers from Myanmar, Laos, and Cambodia. According to the United Nations in 2019, the number of intra-ASEAN migrants in Thailand is about 3.5 million compared to Malaysia, the second place, which is around 2 million. | 1 |
It is estimated that the share of foreign trade of the Euro area will be only about 10% of GNP in comparison to about 30% for Germany today. And over the long term, the Euro should become almost as widely used as the US dollar is today. One conclusion to be inferred from this is the following: since Turkey has close trade, service and financial links with Europe, and as the only country connected to Europe in a Customs Union (CU), which I hope will evolve over time towards full membership, the EMU will create completely new conditions in Turkey’s international and European relations. Therefore what will happen in Europe will be decisive for Turkey in the years ahead. It will be a challenge for the Turkish authorities, as well as for bankers and businessmen. One of the most important prerequisites for a successful monetary union is a sufficient degree of economic convergence among the potential members. From that standpoint the degree of convergence among the EU countries is remarkable, particularly as regards the convergence criteria; stable prices, stable exchange rates, low long-term interest rates and healthy public finances. In addition to these criteria, the Maastricht Treaty requires that all member countries in the EU must grant independence to their central banks before the Monetary Union and the establishment of the European System of Central Banks (ESCB). The reason behind the requirement of independent national central banks is that fixing exchange rates and unifying currencies requires a common monetary policy. | I have noticed that although real growth is evident in the region, it is accompanied by some important risks and vulnerabilities. One of the challenges attached is related to the sustainability of this growth. The National Bank of Romania shares your 1/2 BIS central bankers' speeches view. We should not forget the saying “easy come, easy go”. Loose economic policies, unbalanced budgets and wage-price spirals could cost us much when the economic downturn check is due. This problem hit us severely in the recent past, but we have hardly learned the lesson. Because I have mentioned the economic laws, I will turn now to the legal environment: the report covers extensively the rule of law, the role of institutions and the judiciary. In the report, Central and Eastern Europe is presented as an example of effective measures and progress in this respect, which is of no small importance. Romania finds itself in an upright moment when economic performance is associated with strong achievements in the reform of institutions. We should not waste this moment. In the long run, the economy’s, the institutions’ and the society’s progress goes hand-in-hand, and, conversely, so does their regress. Therefore, we have to be careful not to reverse the current trend. Banks in Europe seem to ride better on the economic tide, also thanks to wide-ranging reforms brought by the Banking and Capital markets Union. Credit is still below its potential and the needs of the economy. | 0 |
A slide in import bills associated with commodity groups, such as, petroleum products, fertiliser, paper and paper products, and industrial boilers and equipment, explained this outturn. During the same quarter, the services and income account deficits narrowed by 5.7% and 1.5% to US $ million and US $ million, respectively. The capital and financial account surplus increased to US $ million in the third quarter 2010 from US $ million the previous quarter. This was largely due to an increase in project grants coupled with a reduction in portfolio and other investment outflows. Developments in the financial sector The overall financial condition of the banking sector for the quarter ended September 2010 was satisfactory. On aggregate, the banking sector was adequately capitalised and the 10 BIS Review 148/2010 liquidity levels remained high. The sector’s profit after tax also improved, although the asset quality modestly deteriorated. The overall financial condition and performance of the Non Bank Financial Institutions sector was rated fair during the quarter under review. The sector was adequately capitalised with “fair” asset quality while earnings performance was rated “satisfactory”. However, the leasing subsector reported regulatory capital deficiencies and unsatisfactory earnings performance. During the quarter under review the Financial Sector Development Plan (FSDP) Implementation and FSDP Steering Committees approved the work plans and budgets of the six FSDP Working Groups for the period 2010 to 2012. During the quarter under review, the FinScope 2009 Consumer Survey report was launched to the public in Lusaka and Ndola. | This outturn reflected continued improvement in hydro-geological conditions and uninterrupted mining operations in the country resulting in increased ore extraction at both open pit and deep underground mines. On a year- to-date basis, copper output at 625,844.1 mt was 20.9% higher than the quantity produced in the corresponding period of 2009. 1 2 Previous quarter. BIS Review 148/2010 Cobalt output also increased by 16.1% to 2,349.41 mt during the third quarter of 2010 from 2,023.84 mt recorded in the previous quarter. The improvement in output mainly reflects continued benefits arising from the resumption of production at Konkola Copper Mines and Chambishi Metals Plc coupled with improved hydro-geological conditions. Further, cobalt output on a year-to-date basis at 6,362.2 mt was 59.7% higher than the 3,982.9 mt of cobalt produced in the corresponding period of 2009. Cement output 2 increased by 26.1% to 234,240.7 mt in the third quarter of 2010 from 185,702.0 mt during the previous quarter. However, on a year-to-date basis, output of cement at 577,130 mt was 4.0% lower than the 601,432.5 mt produced in the same period of 2009. During the quarter under review, international arrivals at the country’s four international airports 3 were 124,244 passengers compared with 105,163 passengers in the second quarter of 2010. This was 20.7% higher than 102,918 passengers recorded during the same quarter in 2009. Foreign exchange market The slow pace of economic recovery in the United States continued to cast a dark shadow on the US dollar, the world’s most traded currency. | 1 |
Often these barriers are consistent across firms. Perhaps most notable is the requirement for loss absorbency – establishing a liability structure for G-SIBs that is consistent with bail-in, not bail-out. Again, there has been significant progress here. The Financial Stability Board (FSB) issued a consultation document 2 on a minimum standard for Total Loss Absorbing Capacity (TLAC) last November and is committed to producing a final standard ahead of the G20 summit next month in Antalya. This will be a major step on the road to ending “Too Big to Fail.” Additionally, we need to pursue the same TBTF agenda for other types of G-SIFIs, in particular central counterparties (CCPs). I want to spend some time today talking to what – if anything – can be taken from the resolution of banks that is relevant for CCPs. Context for CCP resolution CCPs form a key part of the global financial landscape. They have become ever more important since the crisis. This will continue as mandatory central clearing is introduced around the world. Addressing the systemic risks associated with over-the-counter (OTC) derivatives markets is one of the reasons why G20 leaders introduced mandatory central clearing. People tell us that we have thus created in CCPs concentration risk and critical nodes. This is true in part, but we did this on the basis that in CCPs risks could be better recognised and identified, better managed and reduced via better netting. | These 4 FSB, (October 2014) Key Attributes of Effective Resolution Regimes http://www.financialstabilityboard.org/2014/10/r_141015/?page_moved=1 5 http://www.financialstabilityboard.org/wp-content/uploads/Joint-CCP-Workplan-for-2015-For-Publication.pdf 2 for Financial Institutions BIS central bankers’ speeches issues around continuity and portability will be the subject of work within the FSB over the course of the coming year. Together, these initiatives to improve the resilience and recovery arrangements for CCPs and their members will help to reduce the probability of CCP default. But while improvements to resilience are necessary they may not by themselves be sufficient. No institution is “fail sfe”. Ultimately, we need to have a credible resolution approach for CCPs. If we do, resolution should offer a continuing benefit in helping to incentivise recovery by removing expectations that the taxpayer will be compelled to step in. By contrast, if we do not have a credible regime in resolution, we run the risk of weakening the incentives both to manage a CCP prudently, as well as incentives for clearing members to contribute to a CCP’s recovery should it get into trouble. The benefits of resolution to market discipline and recovery are common to all financial institutions. But that is not the only insight from banks that is relevant to CCPs. Before going too far in talking up the similarities, I should note – although it should go without saying – that CCPs are very different from their bank clearing members in many important respects, including their business models, legal structures and balance sheets. | 1 |
Today’s discussion aims to contribute towards a deeper awareness and understanding of the risks and emerging issues in mortgage financing. We hope that this, in turn will be useful to the boards and senior management of financial institutions in framing your own approaches to managing risks in this area. Tremendous growth prospects exist in the mortgage market in Malaysia. Over the last 5 years, mortgage financing experienced a strong and sustained average annual growth of more than 9%. Such loans now constitute a significant 27% of the total industry loan books. With emerging signs of an early and stronger recovery in the domestic economy, renewed optimism can be expected for more robust growth in the domestic mortgage market. The demand for housing will also receive additional support from continuous efforts by the government to promote home ownership and investments. For example, the new scheme to be launched this year for EPF contributors to fund the purchase of higher value or additional houses is expected to increase consumer purchasing power for homes in the coming years. The growing stream of new entrants in the labour market has also enhanced prospects for an expanded market among first time home buyers. At present, the overall mortgage financing portfolio in Malaysia remains sound, with gross non-performing loan on a declining trend since 2000. However, while mortgage financing has continued to be a profitable business for most banks, competition has intensified considerably, with lending yields falling dramatically over the last decade. | On that note, I look forward to a fruitful and constructive dialogue. Thank you. BIS Review 3/2010 3 | 1 |
Nevertheless, I cannot leave the topic of the financial system without mentioning the massive overhaul of financial market infrastructure that is currently underway and the germination of ideas in the area of payment intermediation, as the Central Bank is integrally involved with both. The renewal of the most important core infrastructure elements used for decades to operate the financial system began recently. The investment as a whole represents the financial system’s largest IT investment ever undertaken. The overhaul will move us away from “home-grown” solutions to standardised international systems. The systems being renewed are the banks’ internal payment systems, the Central Bank’s interbank payment systems, and the Nasdaq securities depository’s securities settlement system. A variety of benefits accompany new financial market infrastructure, but the implementation process can be risky, partly because the new systems must communicate with the old ones during the transition phase. Supervisory bodies monitor this risk. It is analysed at meetings of the Systemic Risk Committee and is identified as a risk factor in statements issued by the Financial Stability Council. Such a risk materialised to an extent last November and the cooperative forum on operational security of financial market infrastructure that I just mentioned was set up afterwards. In that forum and elsewhere, work will be done to minimise the operational risk accompanying the ongoing renewal process. | Jean-Pierre Roth: The euro – a stabilising factor in the international currency system Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Fondation Jean Monnet pour l'Europe, Lausanne, 21 September 2007. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The euro is undoubtedly a success story. It has contributed to stabilising the international currency system. In Europe, the former monetary disorder has been replaced by a new monetary order. The European payment system has become more transparent and price stability is guaranteed. Switzerland, too, is benefiting from European currency stability. The Swiss franc is taking advantage of a monetary environment that is considerably calmer than previously. The euro and the franc are coexisting very successfully. Nevertheless, it would be wrong to claim that all the effects of European currency integration have already worked their way through to the real economy. In spurring on competition and promoting transparency, the euro is having an integrating effect. However, there are still considerable obstacles standing in the way of this integration process. BIS Review 103/2007 1 | 0 |
Usually, the ambition is to bring the public deficits close to, or below, the 3% Maastricht level. For example, the target in the Czech Republic is not to exceed 4% of GDP in 2006. Nonetheless, it has not yet been fully appreciated that upon EU accession, the Stability and Growth Pact will become relevant to the new member states. Admittedly, the application of sanctions will be postponed until a country becomes a member of the eurozone. But even if a country is not a subject to sanctions, as a member of the EU club it should have in place at least a credible programme towards achieving its objectives. Moreover, if a country targets relatively early eurozone entry, it should first create a sufficient safety margin above the 3% deficit limit to be insured against distress - i.e. it should avoid the mistake that has been made by some of the current eurozone members concerning the S&G Pact. I hope that the uncertainty surrounding the Pact’s future would not be viewed as an excuse for delaying necessary fiscal and structural adjustments. Even if redefined in a more flexible way, it is quite clear that the structural deficits currently observed in many of the CECs will not be tolerable under the Pact, as they will not pass the sustainability and policy mix tests. Therefore, the existence of the S&G Pact makes the case for fiscal consolidation even more appealing than it might look at first sight. | To this point, the recently introduced alternative procedure for the simplification of the auditing of the financial statements of very small businesses should support these efforts and facilitate the timely transmission of the financial statements to the credit institutions. It is of utmost importance that a timely flow of up-to-date customers' financials is maintained by banks at all times. Unquestionably, this will be beneficial for both parties, banks and clients, as any events signalling a deterioration of the client's financial standing will be captured early on. Consequently the most suitable restructuring solution may be sought, which could ensure the continuation of a healthy and economically viable business relationship. Conclusion To sum up, the world's economies have been through a lot in recent years, from the challenge of the pandemic, to the impact of the war in Ukraine. It is up to us to come through these challenges unscathed or even stronger, wiser and better prepared for a brighter future. We have done it before, we can do it again. After all, to quote Gever Tulley (an American writer, speaker, educator, and entrepreneur) - persistence and resilience only come from having been given the chance to work through difficult problems. Thank you for your attention. 4/4 BIS - Central bankers' speeches | 0 |
Along with the downturn that followed in the wake of the financial crisis, the Irish bank bailout quadrupled Ireland’s sovereign debt. 3 The interest on the debt is borne by all, rich and poor alike, regardless of who had benefited from the pre-crisis economic boom. The banking crisis and the government debt led to a deep economic downturn in Ireland. It is only now that Ireland has returned to its pre-crisis level of prosperity. But the economic and social consequences would probably have been even more serious if the banks had not been kept afloat. The Irish bank bailout illustrates a number of classic questions: Was it right for the government to risk its citizens’ money to rescue the banks? Did the Irish authorities actually have a choice? When things went wrong, was it right to protect creditors as the Irish authorities ultimately did? How has this affected the future risk taking of the banks’ owners and creditors? The answer to the question of whether banks should be rescued is about economics and incentives. But the problems banks create and how these problems are solved are also a matter of morals and ethics – law and justice. Norway has also been faced with these problems. Why are banks bailed out? In 1923, a little more than 90 years ago, there was a banking crisis in Norway. One of the banks in serious difficulty was Andresens og Bergens Kreditbank, or Foreningsbanken, as it 1 IMF Country Report No. 15/20. | In view of the limited size of the domestic capital market compared to other countries, foreign currency purchases seemed the most appropriate course of action for Switzerland. This allowed for the absorption of extreme exchange rate developments, which could have triggered a deflationary dynamic. In absorbing the upward pressure on the Swiss franc, the SNB may have taken on a higher balance sheet risk, however, in doing so, it countered the risk of a deflationary trend. Although the Swiss franc has appreciated sharply since the beginning of the year, the deflation threat has declined as the economic recovery has strengthened. The appreciation of the Swiss franc has impaired the competitive position of Swiss exporters. However, the negative impact on export demand has been reduced by robust economic growth in the economies importing Switzerland’s goods and services. Chart of conditional inflation forecast I would now like to comment on the new, conditional inflation forecast in more detail. The (dashed) red curve on the chart represents the new, conditional inflation forecast. It shows the future path of inflation, assuming that the three-month Libor remains constant at 0.25% over the entire forecast horizon, and it covers the period from the fourth quarter of 2010 to the third quarter of 2013. For purposes of comparison, the (dash-dotted) green curve shows the inflation forecast published in September, which was also based on the assumption of a three-month Libor of 0.25%. The new conditional forecast shows that inflation remains low for 2011 and 2012. | 0 |
The inadequate financial buffers held by banking institutions against risk, a growing disconnect between the creation of credit and its use for productive economic activity and a highly interconnected system of financial intermediation ultimately combined to give rise to risks that disrupted credit flows to the economy. Over time, these trends were substantially amplified. The global reform agenda has made important progress in efforts to reduce the fragility of the financial system and to strengthen its resilience. Substantial work has already been advanced and largely completed on the development of global liquidity standards, the adoption of leverage ratios, and the significantly strengthened capital regulations which are important components of the reform effort. Greater focus has also been placed on strong supervision, effective resolution regimes and arrangements for the oversight of systemically important financial institutions. While the effective implementation of these reforms is crucial, the world continues to seek more enduring solutions that will place financial institutions firmly back in the service of society. In some countries, fundamental structural changes are being pursued to reduce the complexity of banking and to protect banking services from such higher risk-taking activities. The challenge however, is how this might be achieved in a sustainable manner without undermining growth and development, and erasing the important efficiencies in financial management. | Their participation brought international best practice and standards to this landmark transaction which we expect will have a developmental impact on the local bond market. It is also our expectation that other intermediaries will look to this initiative to motivate them to seek to do more in this area for the benefit of our economy. So, in conclusion, what we as Bank of Zambia can do is to understand the dynamics of the debt market, how it is evolving, and whether it is sufficiently liquid and transparent. We can also help ensure that banks perform their proper role and enhance the price discovery process by promoting transparency in the conduct of our own monetary policy actions. Finally, and most importantly, we can strive to help create conditions in our economy that will support sustainable, non-inflationary growth and so promote the overall welfare of all citizens. It is this is a role that the Bank of Zambia is committed to playing effectively. Ladies and Gentlemen, with these remarks, I wish to thank all stakeholders in this important initiative. Thank you. 2 BIS Review 35/2007 | 0 |
Moreover, the absence of a social safety net in China creates a strong incentive for Chinese consumers to save rather than spend. Is the Norwegian economy also at a turning point? Household saving has also been low in Norway in recent years and corporate earnings have been offset by high investments. Excluding government financial and oil sector surpluses – which are redeployed abroad – Norway recorded a current account deficit of an estimated NOK 150 billion in 2007, or close to 10 per cent of mainland GDP. The corollary to the deficit on the basic balance is that Norwegian businesses, as well as Norwegian banks, borrow in foreign markets. It is the interaction between high household credit demand and an ample supply of credit that has resulted in low saving and large deficits. The banks now have to put more effort into procuring deposits and a little less into selling loans. Such a change in banks' behaviour may contribute to curbing growth in demand and output in the period ahead. There are now signs of a cooling housing market throughout the country. House price inflation peaked about a year ago when the housing market was marked by euphoria. Several large residential construction projects are now being shelved. Should weaker developments in the US lead to a broad-based pause in global growth, there may be various repercussions for the Norwegian economy: First, a downturn in the world economy may adversely affect activity and profitability in export industries and perhaps even the oil sector. | The Bank of Zambia, as a regulator, is determined to facilitate viable branch expansion, and the introduction of new and innovative financial products, to tap savings and channel these savings to investment. The BoZ will therefore continue to work in close collaboration with the financial sector to cultivate partnership in order to establish the framework necessary for build ing strong institutions that will mitigate risks and build confidence in the sector. BIS Review 69/2009 1 6. As at 30th April 2009, NATSAVE held customer deposits in excess of K135 billion with a loan portfolio of K92 billion and served over 120,000 clients. NATSAVE has also endeavoured to introduce various products such as marketeer and pensioner accounts (specific savings products for people in these categories), as well as loan products such as individual loans, salary loans and money transfer services. The development in Lukulu therefore offers some hope that rural areas, and especially the agricultural sector, may eventually be offered attractive financial products. 7. Notwithstanding this, allow me now to reflect on some of the key challenges in the financial sector that all of us must strive to address: (i) Increasing access to financial services by the small and micro entrepreneurs who form the backbone of the economy. This sector provides employment for many people who cannot be absorbed into formal employment; increased access to financial services remains a key challenge to this segment. | 0 |
Panayotou further notes the failure to provide evidence that the occurrence of lax environmental standards in emerging economies leads to FDI, on account of the fact that investment decisions by manufacturing plants and other multinationals to invest in countries is based on factors such as political stability, favourable economic policy, labour quality, and infrastructural developments. It is therefore clear that economic development is not without costs. In fact, the much desired economic growth if not carefully balanced with the need to protect the environment may result in permanent adverse effects on the environment for a country and the world. Specific to Africa, the application of these models and research findings lends itself to further caution. With the continental economy still facing numerous problems to the extent that most national economies are yet to provide sufficiently for their nationals, it is unlikely that a point would soon be reached in Africa’s economic growth, at which adequate resources become available for commitment to environmental concerns. In other words, thought needs to be given to the social background against which utilisation of resources from economic growth will depend. The various human and social challenges such as poverty and epidemics confronting the continent may well explain the relatively low emphasis by policy makers on environmental concerns when compared to their western counterparts. That said, however, it must be recognised that in respect to the ecosystem, the globe is one and benefits that accrue to one corner due to environmental preservation, accrue to the entire globe. | Although Africa’s exports at the global level are very small at about 2%, the concentration of the exports in the extraction sector is cause for concern on the environment. It means that the more Africa is integrated into the global economy the more the consequences for extraction activities on the environment will become pronounced, unless mitigating measures are taken. In addition, multinational businesses are quickly realising the existence of less strenuous environmental standards in most of the African countries, which themselves are desperately seeking for Foreign Direct Investment (FDI). As a result, these businesses are rushing to invest in these economies and realise profits but may never be available to attend to the possible redress of negative effects their business activities leave on the environment. In this respect, as African policy makers and other stakeholders pursue economic growth, it is important to appreciate the benefits presented by the natural ecosystems and diverse forms of wildlife and other species. Despite the economic benefits of constructing roads, mining areas, and farming blocks, there exists a real threat of the destruction of large areas of natural habitats. The emergence of industries and the effect of urbanisation in Africa, has largely contributed towards increased air pollution in many towns and cities. The incidence of smog and respiratory diseases in these areas has increased (UNEP, 2003), and is set to continue this trend in the foreseeable future. Africa does not contribute significantly to the emission of pollutants arising mainly from combustion in complex chemical processes of industries. | 1 |
Despite this advantage, the Bank of Thailand is not complacent and we will continue to prepare our banking sector for future challenges. In this regard, a SWOT analysis of our current financial institutions system reveals that while there was overall improvement in efficiency and soundness, operating costs remained high and financial access gaps remained. Furthermore, there was still inadequate financial infrastructure to support risk management of financial institutions. Meanwhile, future challenges of the next five years would likely come from more intensified competition – not only among banks, but from capital market, both local and overseas. It would also come from more complex and varied needs for financial services, as a result of globalizations and aging population, the shift in resource allocation with greater role of domestic demand vis-à-vis external demand as engine of growth, and finally, capital inflows and external challenges from the global economic crisis. Taken together, these remaining areas of improvement and the need to tackle future challenges have led to the recent launch of the second phase of financial sector reform. This brings me to the second part of my talk: key strategies in the Financial Sector Master Plan Phase 2. When thinking about characteristics that our future financial system is envisioned to have, several keywords come to mind: efficiency, strength and resiliency, diversification, fairness and transparency. | The task of setting a right balance in regulation, going forward, is still a global debate, in which the Bank of Thailand is closely engaged in our role in various working groups of the Basel Committee for Banking Supervision. On the one hand, it is critical that the global financial system reestablishes such trust, and ensures stability, integrity, and fair consumer treatment. On the other hand, the crisis has highlighted the complexity of the financial system, and the globalness of financial contagion. Thus, there is a critical need for the authorities and the financial market to work together to ensure that the emerging global standards and regulations can handle such complexity, and remain risk-focused at the economic and financial system, both in the national and global contexts. It is also important to avoid introducing distortion and risk of regulatory arbitrage between financial markets, products, and strategies, and most importantly, arbitrage between countries. Thus, the strong impetus on supervisory coordination, cross-border risk and coordination, as well as macro-prudential aspects are the new challenges. Turning to the situation in Thailand, thus far, despite some set-back in terms of economic contraction in the past year, both the Thai economy and financial system have shown resiliency and robustness. This helps to stand us in good stead, and provide a strong grounding to forge our strategy to handle coming challenges. Nevertheless, looking ahead into the longer term, Thailand’s economic and growth potential is still not fully and efficiently harnessed. Economic efficiency, international competitiveness, and economic stability are keys to sustainable growth. | 1 |
This is the area where the issues probably are the more complex, having to deal with different legal and failure regimes, the recognition of foreign resolution authorities and powers and for regulators and supervisors, the need to strike the right balance between the appropriate degree of transparency for stakeholders and creditors and of discretion for supervisors, to prevent runs or self-fulfilling prophecies. This heavy agenda may keep us quite busy for some times, but it is a cornerstone to our overall objective of preserving global financial stability. Encompassing all these endeavors, solving the tension between globalization, on the one hand, and differences between national or area wide regulatory framework, on the other hand are no small challenge. A healthy debate between academics, regulators and all sectors of the financial industry – who are not the least vocal-, is very much needed. I hope that today’s conference has been helpful in advancing this debate. Beyond debates, availability of data and access to these data by the various stakeholders will be key for making progress. Last but not least, concentration, increasing complexity, and the fact that some players are still very much out of the radar screen – such as hedge funds for instance- should keep everyone on their toes, in particular when assessing interconnectedness. I thank you very much for your attention. 2 BIS central bankers’ speeches | In this area, Hong Kong has been one of the first regulatory authorities to issue guidelines that, among other things, require banks to ensure that their internet security platforms are airtight and that risk management systems are properly in place. We have strengthened our supervisory skills and resources to enable us to check that this is being done. This is not going to be an easy process. No-one can predict what directions technical innovation, customer behaviour, or latent practical problems will take. The challenge for regulators like the HKMA is to seek a balance between not allowing these developments to bring unmanageable risk and not stifling the application of useful new technology by holding back innovation. It is a difficult balance to achieve. Too great an interest by the regulator in new initiatives by the bank can often be misunderstood as heavy-handed over-regulation. The answer to the dilemma, clearly, is for regulator and industry to work hand in hand in a constructive way. Our policy in this, as in other areas, is to consult with - and listen to – the industry organisations as well as to the public at large and its representatives. 24. In other areas of its work, the HKMA has itself become something of a pioneer and is currently a clear leader in this time zone. Of particular importance here is our work on financial infrastructure. This is how we look at the matter. | 0 |
Furthermore, the start of Stage Three of EMU has also eliminated short-term intra-EU exchange rate volatility and exchange rate risks, and has thereby encouraged trade and investment. In addition, the benefits of economic integration afforded by the development of the Single Market are enhanced by the elimination of the transaction costs of exchanging different currencies, a direct result of the introduction of the euro. While they are difficult to measure, they effectively form an additional layer of protection for domestic producers. The single currency makes prices across the euro area directly comparable, which should increase competition and hence efficiency and economic growth in the area. A number of further positive effects on economic growth flow from the elimination of separate currencies in the euro area countries. One benefit is the potential for the reduction of risk premia built into real interest rates, which, in turn, will stimulate productive investment. Another benefit is that by facilitating the development of deep and integrated capital markets, the single currency should further reduce long-term rates via the elimination of an illiquidity premium. In addition, a wider and deeper capital market in the euro area will improve intermediation between savers and investors. Ensuring the benefits: stability-oriented policies It should be emphasised, however, that the true benefits of EMU derive from the fact that it is a unique opportunity to shape a macroeconomic environment conducive to stability, growth and employment, and to foster structural change which is needed to maintain or restore medium to longterm dynamism in the European economies. | It is obvious that structural problems require structural solutions. Implementing an inflationary monetary policy would not result in lasting reductions in unemployment, but would actually serve to exacerbate the problem over the medium term. I recognise that structural reforms are not always easy to implement. The benefits are often enjoyed in the medium term, while short-term costs for some groups may mean that reforms are vigorously opposed by interest groups. Although there is a common objective of reducing unemployment, there is no common programme of reforms that will work in all countries. While it is possible to learn from the experience of others, each Member State will wish to develop workable policies that reflect its own particular circumstances. Although the path of structural reform is not always an easy one, it is the only way in which we can achieve the lasting reductions in unemployment that are so urgently needed. Only structural reforms that aim to create stable labour markets in which there is flexible interaction between supply and demand will ensure that the benefits of EMU in terms of economic growth are achieved to the maximum extent possible. Conclusions To conclude, Economic and Monetary Union provides a great opportunity to create and maintain a large zone of price stability and economic prosperity in Europe. However, while price stability is a necessary condition for fully grasping the opportunities of EMU, it is not, in itself, sufficient. Stability-oriented polices regarding the development of national fiscal positions and the functioning of labour markets are also of crucial importance. | 1 |
Last autumn, we took a step in the direction of becoming clearer in our communication by making direct recommendations in the Financial Stability Report to participants in the financial system. It remains to be seen whether this will lead to better results. Three possible changes After my nearly six years at the Riksbank, I think that there is reason for Sweden to think through three changes that may increase the possibilities of preventing and managing financial crises. Ahead of the investigations and deliberations regarding amendments to the Swedish regulations that have just started, I shall here present my opinions on these three points. At the same time, I would like to repeat that these are just my personal opinions and are not necessarily shared by my colleagues on the Executive Board. These three points are the ones I mentioned in my introduction: The Riksbank and Finansinspektionen should be merged The Governor’s role should be strengthened The Riksbank should have a sufficient foreign currency reserve. The Riksbank and Finansinspektionen should be merged One of the issues we highlighted in our communication to the Riksdag was the allocation of roles between the bodies sharing responsibility for financial stability: the government, BIS central bankers’ speeches 9 Finansinspektionen, the Riksbank and the Swedish National Debt Office. | That would replace what to my mind is the fuzzy distinction between what are termed “Common equity tier 1”, “Additional tier 1” and “Tier 2” capital – not all of which is capital in the ordinary sense of the term that it can absorb losses outside of liquidation.2 The other element of this policy – which, again, the FSB will be addressing – is where in a group GCLAC should be issued from, ie whether from the group holding company, from intermediate regional or national holding companies, or from operating banks and dealers. This turns on the type of resolution strategy most appropriate for a particular group; ie topdown or Single Point of Entry (SPE) where a whole-group resolution is executed from the topco, or Multiple Point of Entry (MPE) where a group is split into parts which, as necessary, are resolved separately. Of course, it is in operating companies – banks and dealers – that life-threatening losses are generated. Where those losses exceed the equity base of an operating subsidiary, they need either to be absorbed by debt issued into the external market or to be passed up the group structure via intra-group debt or guarantees. The first – GCLAC, ie term debt, issued to the market – is associated with Multiple-Point-of-Entry resolutions. | 0 |
This involves combining the insights from both experts and non-experts, to reap the benefits of diversity of thought and action. But this larger pool is not so large as to dilute the time available for slow-thinking and deliberation. It is a cocktail of expert and non-expert opinion, comprising diversity and deliberation in equal measure, that cause good ideas to flourish and bad ones to perish. A relevant, practical question is where the optimal point along the insight curve lies. What is the optimal number of people from whom to seek views if we are to maximise the benefits of folk wisdom? My stylised example cannot provide an answer to that question. But some studies have looked at this question using experimental methods and, reach interesting conclusions. Christian Wagner and Tom Vinaimont ask two questions. 39 First, how large does a group of non-experts need to be to exhibit expert-like performance? Second, how large does this group need to be to outperform consistently a group of experts? On the assumption experts’ views are ten times more precise than a non-expert, their answer to the first question is around 30 and the second around 1,000. This bookends the range of non-expert views we might need in seeking the “wisdom of crowds”. Representative Decision-Making If we take this analysis at face value, the question is how practically central banks can engage a wider, non-expert, audience to help inform their views on the economy and financial system? | King, M (2003), speech available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2003/east-midlands-development-agency-dinner Kydland, F and Prescott, E (1977), ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, Journal of Political Economy, Vol. 85, No. 3, pp. 473-492. Kynaston, D (2017), Till Time’s Last Sand: A History of the Bank of England 1694-2013, Bloomsbury Publishing. Mackay, C (1841), Extraordinary Popular Delusions and the Madness of Crowds, Richard Bentley. Mankodi, A and Pike, T (2018), ‘Can central bankers become Superforecasters?’, Bank Underground, 12 March 2018. Nelson, E (2005), ‘The Great Inflation of the 1970s: What Really Happened?’, Advances in Macroeconomics, Vol. 3. Newman, N, Fletcher, R, Levy, D and Nielsen, R (2016), ‘Reuters Institute Digital News Report 2016’, Reuters Institute for the Study of Journalism. Page, S (2008), The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies, Princeton University Press. Papacharissi, Z (2002), ‘The virtual sphere: the internet as a public sphere’, New Media & Society, Vol. 4, No. 1, pp. 927. Richardson, T, Elliott, P, Roberts, R and Jansen, M (2017), ‘A Longitudinal Study of Financial Difficulties and Mental Health in a National Sample of British Undergraduate Students’, Community Mental Health Journal, Vol. 53(3), pp. 344352. 26 All speeches are available online at www.bankofengland.co.uk/speeches 26 Roubini, N and Mihm, S (2011), Crisis Economics: A Crash Course in the Future of Finance, Penguin. Shafik, M (2017), ‘In experts we trust?’, speech available at https://www.bankofengland.co.uk/speech/2017/in-experts-we-trust Shiller, R (2017), ‘Narrative Economics’, American Economic Review, Vol 107, No. 4, pp. 967-1004. | 1 |
In terms of monetary policy, it is understandable and will continue to be the case that the Federal Reserve will focus on its own mandate in setting policy. But as the US dollar is used heavily abroad, the effective US dollar currency area extends well beyond US 2 BIS central bankers’ speeches borders. The Federal Reserve sets policy for this wider currency area, not just the 50 US states. There have been a lot of discussions about how policy cooperation and coordination may offer scope for improvement. But a practical solution still seems elusive. Ladies and Gentlemen, In closing, let me offer my special thanks to the distinguished speakers for taking part in this important endeavor and for sharing with us your expertise. All of us here very much look forward to your contributions throughout today and tomorrow. I would also like to thank the IMF – in particular, the Regional Office for Asia and the Pacific – for kindly co-hosting this event. To all conference participants, I welcome your spirited discussions as I have already noticed there are many experts present among us. Thank you for being here. I wish you a fruitful conference and a pleasant stay in Thailand. BIS central bankers’ speeches 3 | As we already know, the payment and settlement systems are the backbone of the modern economy. In this regard, the Bank of Thailand has laid down financial market infrastructure to facilitate business operations. This year the Imaged Cheque Clearing and Archive System (ICAS) coverage will be expanded across the country to speed up the provincial cheque collection and clearing. This will help promote a more efficient payment system, enabling fast, safe, and secure financial transactions. The Bank of Thailand also encourages the use of electronic payment by coordinating with relevant parties to build infrastructure to facilitate this process. Concluding remarks Ladies and gentlemen, Despite many roles that the Bank of Thailand plays in ensuring economic and financial stability, I would like to say that the Bank of Thailand’s policy alone cannot ensure sustainable economic growth. Given Thailand’s structural shortcomings, there is the need to improve Thailand’s infrastructure and productivity, by improving technology and innovation. The well-being workforce and quality of education and training are also crucial to increasing competitiveness. For this, long-term coherent vision and concerted efforts among all stakeholders, both public and private, are needed. Let me close by leaving you with some final thoughts. Thailand is now challenged by both external and internal risks. These are not necessary unfavorable, as they also come with opportunities to urge us to prepare ourselves collectively to cope with uncertainty in the global economy. In an increasingly volatile world, we must do more. | 0 |
HFT would be constrained in its offering to the liquidity feast. That is of course only one side of the coin. Setting a minimum T would also tend to reduce the risk of liquidity drought. While raising the average bid-ask spread, it might also lower its variability at times of stress. Liquidity would on average be more expensive but also more resilient. So in determining whether there is a role for minimum resting periods, this trade-off between market efficiency and stability is key. In calibrating this trade-off, a judgement would need to be made on the social value of splitsecond trading and liquidity provision and whether this more than counterbalances the greater market uncertainty it potentially engenders. At times, the efficiency of financial markets and their systemic resilience need to be traded off. This may be one such moment. Historically, the regulatory skew has been heavily towards the efficiency objective. Given today’s trading topology, it may be time for that to change. 5. Conclusion The Flash Crash was a near miss. It taught us something important, if uncomfortable, about our state of knowledge of modern financial markets. Not just that it was imperfect, but that these imperfections may magnify, sending systemic shockwaves. Technology allows us to thin-slice time. But thinner technological slices may make for fatter market tails. Flash Crashes, like car crashes, may be more severe the greater the velocity. Physical catastrophes alert us to the costs of ignoring these events, of normalising deviance. There is nothing normal about recent deviations in financial markets. | The opportunity, primarily for banks and other financial institutions, is to find ways to leverage Zambians in the diaspora to use remittance services that will both be profitable for the banks and will also provide them and their families with greater financial access. I thank you for your attention. 2 BIS Review 2/2010 | 0 |
Zeti Akhtar Aziz: Towards a more efficient payment system – electronic payments Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Mobile Digital Signature Symposium 2008 – "Towards a More Efficient Payment System: Electronic Payments", Cyberjaya, 3 June 2008. * * * It is my honour and pleasure to be here today at this Mobile Digital Signature Symposium 2008 to deliver an address at this important forum. This forum takes place at a time when developments taking place in the global economy are resulting in fundamental changes to our lives. While the global economy has benefited from an extended period of high performance and strong growth, it now requires greater agility to adapt to the rapid changes that has occurred. A major emerging international phenomenon is the rising inflationary pressures. We are now living in an environment characterised by rising prices, with energy and commodity prices prevailing at record highs. Energy and commodity prices which have risen steeply have been driven by demand and supply factors and reinforced by market conditions. Clearly, the global factors that have influenced these international prices are beyond our control. Individually and collectively, we therefore need to adjust and adapt to these new conditions. Increasing efficiency and adopting new business processes needs to be explored to reduce costs. | Philip H Penn: Enhancing and strengthening banking supervisory capabilities in Pacific countries Opening remarks by Mr Philip H Penn, Acting Governor of the Central Bank of Samoa, at the Pacific Regional Banking Supervision Seminar, Apia, Samoa, 23-25 October 2007. * * * Mr Andrew Milford, Banking Supervision Advisor from the Pacific Financial Technical Assistance Centre; Distinguished Resource Persons; Ms Elizabeth Roberts, Director of the Financial Stability Institute (FSI); Messrs Graham Johnson and Chris Gaskell from the Australian Prudential Regulatory Authority (APRA); Mr Kim Norris, Director, International Advisory Group, OSFI, Canada; Deputy Governors; Participants; Ladies and Gentlemen. As the host for this year’s Regional Seminar and the Annual Meeting of the Association of Financial Supervisors of Pacific Countries (AFSPC), I am very pleased and honored, on behalf of the Governor and Staff of the Central Bank of Samoa, to extend to you all a very warm welcome. We are very happy to see and meet again some familiar faces. And for those of you who are here on your first visit, a special warm welcome to Samoa and we hope you have time to spare to enjoy the Paradise of the Pacific. You have certainly arrived at the time when the streets of Apia are back to normal as compared to a few weeks ago when we experienced unusual busy traffic due to the influx of tourists and overseas sports people, who came to enjoy and participate at the 10th South Pacific Games which we hosted last month. | 0 |
This dynamic will test the ability of governments to sustain commitment to an open multilateral trading system, and the manner in which this plays out will have an important impact on future productivity gains. A fourth challenge involves prospective changes in the global exchange rate regime. The international monetary system now incorporates an uncomfortable disparity in the extent to which real effective exchange rates vary across regions. The monetary authorities of the United States and Europe allow considerable variability in their real exchange rates, though they are not indifferent to movements in exchange rates. Japan has somewhat less enthusiasm for flexibility and runs a regime in which it seeks to avoid large swings in the value of their currency. Emerging market economies run a mix of regimes from those that permit significant flexibility to those that run essentially fixed pegs or regimes that seek to contain variations to relatively small degrees around implicit targets for their currencies against the dollar or a basket of the currencies of their major trading partners. The world has lived with this system for some time. But this is not an ideal mix, either for the monetary system as a whole, or for those countries which permit very little variability in their real effective exchange rates, and it’s probably not sustainable over time. It also is not ideal because it limits the extent to which markets work to facilitate adjustment. It creates the risk of larger moves in the major currencies than might otherwise be the case. | What’s new is that we are significantly more dependent today on the confidence of the rest of the world in U.S. economic policy and the safety and stability of our financial markets. This gives us, along with the rest of the world, a compelling interest in sustaining credibility and confidence in U.S. financial management and the strength of our financial system. Thank you. 4 BIS Review 2/2005 | 1 |
If we instead look at use, Sweden has a relatively large share of IT capital in the total capital stock, compared with other countries. The use of IT means that one can simplify and automate the work so that those who work can carry out more tasks in a shorter time, that is, productivity increases. Cyclical factors have also contributed But the economic cycle has also played a role in productivity developments over the past fifteen years. At the beginning of the 1990s Sweden underwent the deepest crisis since the Depression of the 1930s. After the crisis, companies had unusually large scope to increase production using the existing resources. In addition, the substantial weakening of the krona contributed in autumn 1992 to a rapid increase in exports. When production and resource utilisation rose, this led to an upswing in productivity. The fact that productivity has increased so rapidly in recent years is therefore partly due to the economic cycle. This is because the beginning of an economic upturn is normally associated with high productivity growth. The explanation for this is that, at the beginning of an upturn, companies have the capacity to increase their production using existing resources. With time, in response to the increasing need for more resources, companies start hiring staff. This implies a decline in the rate of increase in productivity. When the economic cycle enters a downturn phase, productivity develops even more slowly. Growth accounting provides a systematic description I am sure you recognise the explanations I have mentioned. | I am pleased to see that the objective of a return to fiscal equilibrium within five years is one of the new government’s priorities. The President of the Republic has undertaken to achieve balanced public accounts by the end of his mandate. This is a necessary target. So far, the tax increases have allowed the financing of additional spending and the reduction of the deficit. I am waiting to see the 2013 budget proposal to measure exactly by how much the State’s spending will be reduced. In concrete terms, what exactly would you like to see? The Cour des comptes (court of auditors) has compiled a list of the different potential savings that the government should examine. I agree with its analysis. It is indeed a colossal and ambitious project. Alongside the reduction of public expenditure, we must also encourage investment, entrepreneurship and restore confidence for those who wish to start a business. We therefore need structural reforms and a reform of our labour laws to allow greater flexibility with the objective of restoring and improving the competitiveness of our economy. We must change our social model because it is no longer coherent with global competition. BIS central bankers’ speeches 3 | 0 |
As a crucial counterpart, policy-makers are in the process of establishing the Single Resolution Mechanism, which should enable quick and efficient resolution of ailing banks without permanent recourse to taxpayer funds. Together, these new institutions will fundamentally strengthen transparency, stability and incentive-compatibility in the financial sector. In a primarily bank-based financial system like the euro area’s, these features are crucial, not only for the functioning of the financial system per se, but also for the conduct of monetary policy. This is because, with an impaired bank lending channel, monetary policy may lose its handle on the real economy and ultimately inflation. At the same time, given the persistent downside risks to price stability, monetary accommodation was a necessary ingredient in the crisis response. How has monetary policy contributed? Accordingly, since I last spoke at this venue, the ECB’s Governing Council has taken further decisive steps to engineer a monetary policy stance that is commensurate with the subdued medium-term inflation outlook. These steps included a sequence of further rate cuts, accompanied since July 2013 by explicit communication that we expect the key ECB interest rates to remain at current or lower levels for an extended period of time. But standard monetary policy in the form of rate cuts and the accompanying communication were not enough to ensure an appropriate monetary policy stance. In fact, given unwarranted fears of a euro area break-up, monetary policy transmission became severely impaired – to the extent that the financial market dislocations jeopardised our ability to deliver on our price stability mandate. | One possible solution I think is that of making all contracts on AFET U.S. dollar denominated. This way, the arbitrageurs are not exposed to any foreign exchange risk and they can manage their positions across markets with ease. Of all the commodities listed on SICOM, only one contract namely ribbed smoked rubber sheet no. 1 is Singapore dollar-denominated and coincidentally, it is also the least liquid contract on the SICOM. All other contracts are denominated in U.S. dollar. Moreover, commodity prices in the world are generally quoted in U.S. dollar, therefore, corporate buyers and sellers are already aware of their costs and revenues in terms of U.S. dollar. If we aim to establish futures price of, for instance, white rice on the AFET as a benchmark, it is logical for this reference price to be denominated in an international currency such as the U.S. dollar. That way, the price quotations would purely reflect all relevant information relating to demand and supply conditions of the products and are not influenced by exchange rate fluctuations. Some may express concern, however, that by eliminating foreign exchange risk for foreign arbitrageurs, we in turn, expose our local producers and end-users to the very same risk. I feel, on the contrary, that local buyers and sellers are already accustomed to commodity prices being quoted in U.S. dollar in the world market and manage the risk in a proficient manner. | 0 |
7 The figures are based on calculations using data from WFE, IMF, Datastream and Eurostat. 8 Financial Stability Board (2011), “Shadow Banking: Strengthening Oversight and Regulation”, October 2011. 9 See, e.g., Arcand, J.-L., Berkes, E. and Panizza, U. (2011), “Too much finance?”, on www.voxeu.org. BIS central bankers’ speeches 5 This applies in particular to our assessment of the years before the crisis. Beyond merely stating – somewhat bluntly – that “the financial sector had become too big”, I think that we can draw the more specific conclusion: “The financial sector had stepped out of its role of serving the real economy.” Let me explain in more detail what I mean by this. It has long been recognized that the financial sector does not exist in the economy “for its own sake”, but its role is one of servicing the real economy. | Jean-Pierre Roth: Real estate crisis in the United States – similar risks in Switzerland? Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Banque Cantonale Vaudoise, Lausanne, 9 June 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * In the past few months, developments in the mortgage and real estate markets have attracted increasing attention. Europe, and Switzerland in particular, have been indirectly affected as a result of commercial bank activities in US mortgage markets. Over the past few quarters, the European real estate market has also been affected, with a number of countries experiencing a downturn in prices similar to that in the United States. By contrast, other countries, such as Switzerland, have seen real estate prices rising at a steady pace. In some respects, what the United States went through is a classical property crisis of the type that Switzerland experienced in the early 1990s. However, the US real estate crisis spilled over to encompass the international financial markets, endangering their stability and prompting the intervention of several central banks. These events confirm the importance of sound real estate market developments for the economy. It is important to recognise that the Swiss mortgage and real estate markets are very different from their US counterparts. | 0 |
Maja Kadievska-Vojnovik: Current trends and future of the financial system in the region Address by Ms Maja Kadievska-Vojnovik, Vice-Governor of the National Bank of the Republic of Macedonia, at the regional summit of governors, bankers and businessmen “Financial systems in the region”, Belgrade, 8 November 2013. * * * Dear Mrs. Jorgovanka Tabakovic Dear Governors Dear guests, First of all, I on behalf of the governor of the NBRM, Mr. Bogov, I would like to apologize for his non attendance today, on this very important event. He was unable to joint this event due to objective reasons, but, let me express my truthfully pleasure that I have opportunity to express my views and the views of the governor regarding to the latest development and future challenges for our country and our banking system. After the double-dip recession, in the first half of 2013 SEE are on the way of recovery. The GDP growth in the RM in the first half of the year is 3.4% and is highly influenced by the positive contribution of reforms’ agenda. The improved business environment (RM is at the list of 10 best reformers according to the Doing Business for 2013), the entrance of FDI's that have lead to export diversification alongside with the positive developments at the labor market, are key growth drivers. | Nonperforming loans rose moderately in the second quarter of this year (to 11.9% of total private sector credits), but the growth is continuously slowing, and they are fully covered by loan loss provisions (RM is within the group of countries with largest LL provision coverage ratio). Profitability is lower but positive, and profits are being used largely to strengthen capital buffers. The euroization of deposits continues to decrease gradually to below pre-crisis levels (44% of total deposit are FX deposits or with FX clause). Even though the banking sector is in overall sound shape, the credits developments are not favorable and supportive to companies. The reasons for deceleration of the credits growth are on both sides, but mostly relay on supply side. Banks are likely to remain risk averse in an environment of low interest rate margin and the group strategies limit the credits’ growth potential. Thus, although the banking system mainly relies on domestic sources of funding, the consolidation of the Euro zone banking system and the EC pressure on troubled European banks that have received international bailout to sell their subsidiaries in the region, are the potential source of risks. The slow realization of this process could cause confidence shocks in our economies, thus endangering financial stability. The latest Deleveraging and Credit Monitor well notes this process, it says -while past efforts were focused on raising capital on the market, future efforts are expected to emphasize the sales of assets and affiliates. | 1 |
Today, I will focus my remarks on how best practice efforts can help support the integrity and effectiveness of financial markets. I will draw upon the New York Fed’s experience with the Treasury Market Practices Group (TMPG), the Foreign Exchange Committee (FXC), and the Bank for International Settlements (BIS) Foreign Exchange Working Group (BIS FXWG) in developing and refining best practices for financial markets. The markets covered by these groups are those for U.S. Treasuries, agency debt, agency mortgage-backed securities (MBS), and foreign exchange (FX). Segments of these markets have historically operated under an over-the-counter (OTC) trading model and, as a result, lack a formal central trading venue like an exchange with established rules. 2 These markets are of particular interest for central banks globally, because of their important role in the implementation of monetary policy. In light of these considerations, central banks have made extensive efforts to convene market participants to develop best practices that help cultivate fair and effective markets. 3 As a participant in these markets, the Desk has a direct interest in their integrity and effectiveness. I hope my remarks will reinforce why the New York Fed and primary dealers as a group should be interested in continuing to support best practices. Your engagement in 1 The “Desk” refers to the Federal Reserve Bank of New York’s trading desk, which implements monetary policy on behalf of the Federal Reserve System, as directed by the Federal Open Market Committee. | It has a long history – more than three decades – of publishing documentation to facilitate FX transactions and market functioning and to articulate best practices. 9 The New York Fed is also involved in the BIS FXWG to help establish and promote adherence to an FX Global Code, a single set of guiding principles for the FX market. These groups have confronted collective action problems where an individual firm may want to raise concerns, but be unable to drive market-wide improvements. Second, when central banks partner with private-sector participants to develop best practices, it can send a powerful signal to the market. For their part, private-sector in TMPG-covered markets and received feedback from firms active in electronic trading and an industry association of proprietary trading firms. This feedback helped refine the proposed best practice updates. 6 The OTC Derivatives Supervisors Group originated in 2005 when the New York Fed hosted a meeting of major OTC derivatives dealers and their domestic and international supervisors. The Alternative Reference Rates Committee was convened by the Federal Reserve in 2014 in a meeting with representatives of major OTC derivatives market participants, their supervisors, and central banks. 7 Outside of New York Fed-sponsored groups is the Group of Thirty (G30). The G30 was established in 1978 and is an international body composed of senior representatives in the private and public sectors and academia. It has a broad mandate and works on various issues relating to international economic and monetary affairs. | 1 |
To date, CCRIS has a database of 9 million users covering approximately 53% of the adult population while the Credit Bureau Malaysia has over 28,000 registered members and generated more than 1.4 million credit reports. To empower consumers to make well-informed financial decisions, Bank Negara Malaysia has also established financial advisory centres and contact points such as the Credit Counselling and Debt Management Agency and BNMLINK. Since its inception in 2006, BIS central bankers’ speeches 1 AKPK has provided financial education to the public, benefiting more than 260,000 people nationwide. To provide financial knowledge to the young, financial education elements are now incorporated as part of the syllabus for primary schools and will be extended to secondary schools by 2017. Consumer education efforts in Malaysia are also reinforced by a holistic consumer protection framework to ensure financial institutions practise responsible financing, conduct effective product transparency and disclosure, as well as, appropriate debt collection practices. These measures have produced positive outcomes. As a result, 92% of adults (aged 15 and above) in Malaysia have access to a deposit account and basic banking services. Malaysia has also been ranked first for 6 consecutive years since 2007 for “Getting Credit” in the “Ease of Doing Business” index by the World Bank. Accelerating the migration to e-payments as a key enabler for financial inclusion The success of any financial inclusion tool or policy would depend largely on the presence of a reliable, efficient and safe payment system. | Muhammad bin Ibrahim: Developing a safe and secure electronic payment ecosystem to promote financial inclusion Speech by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Regulatory Forum for the Asia Pacific Region: “Developing a Safe and Secure Electronic Payment Ecosystem to Promote Financial Inclusion”, Kuala Lumpur, 4 August 2014. * * * Ladies and gentlemen, it is my pleasure to be here today to deliver the Keynote Speech for MasterCard’s Regulatory Forum for the Asia Pacific region with the theme “Developing a Safe and Secure Electronic Payment Ecosystem to Promote Financial Inclusion”. With 2.5 billion people across the world still unbanked, financial inclusion is a significant global agenda to ensure that all segments of the society, including the most vulnerable groups, have access and usage of quality and affordable financial services. This forum, which brings together regulators, international financial institutions and other payment system stakeholders, is an important platform to surface and exchange ideas on emerging trends, risks and opportunities in the use of cost-effective electronic payment system to drive financial inclusion. Over the years, Bank Negara Malaysia has taken many measures in promoting financial inclusion and in accelerating the country’s migration to electronic payments (e-payments). I will share some of my thoughts on the key areas in the payment value chain that could drive and expand the financial inclusion agenda via e-payments. | 1 |
And I’m sorry in this respect to be jumping ship at this particular point. But I’m convinced that calmer waters lie not too far ahead. And I’ve every confidence that Mervyn King - who has in effect been our Chief Navigating Officer for much of the past decade, and who will take over as skipper at the end of the month, with an outstanding MPC and Bank crew to support him - will find the way through. I certainly wish them safe passage! My Lord Mayor, if the harsh international climate made life difficult for us on the macro-economic front, the associated, sustained, fall, in global equity markets in particular, made it an unusually tough time for many financial institutions here in the City. Happily, here too, there are more recent signs of improvement. Perhaps the truly remarkable thing about that is that the financial system as a whole withstood the pressures as well as it did. But over a longer time horizon the City’s financial institutions have responded remarkably well to sustained market pressure for change, and we have been outstandingly successful in fulfilling the City’s vital economic, and social, function of promoting growth and employment both in this country and across the globe. One can think of lots of reasons for that success - I pick out two in particular. First, we have managed over time to maintain a reasonable balance between creative market dynamics on the one hand and official intervention and regulation on the other. | A year ago there were grounds for hoping that the external storms were beginning to abate, but those hopes were deferred - by the after-effects of corporate governance and accounting failures in the US and by uncertainty associated with the war in Iraq. There nevertheless remain reasonable grounds for BIS Review 29/2003 1 thinking that the external environment will now gradually improve as we move through the second half of this year into next, and that this will help to offset the gradual moderation we are beginning to see in the growth of consumer spending. That would open the way to continued relatively steady and better balanced growth - at or above trend, with inflation remaining close to target. But there are certainly short-term risks on either side, and given those risks - including the risk of slow growth in the Eurozone, particularly in Germany - I agree with your assessment that the economic case for euro-entry has not yet been made. More generally on that subject, I very much welcome the Treasury’s exhausting - I mean exhaustive - broader assessment of the longer-term pros and cons which I hope, when people have had time to digest it properly, will result in a better balanced - less polarised - debate on the economics of the euro question. I confess that I had hoped that we would by now be further along the narrow channel I have described on past occasions between the Charybdis of external weakness and Scylla of unsustainable consumer demand. | 1 |
In other professions, such as medicine, prescriptive rules have generated a wood-from-trees problem. They have also caused defensive, backside-covering behaviour. Both may have increased risk in the system. What is true of doctors is almost certainly true of bank supervisors. In the pre-crisis period, being required to monitor many small, rule-based risks may have caused supervisors to overlook potentially life-threatening ones. This ticked-box approach failed to save the banks, just as in medicine it fails to save lives. Supervision suffered the same fate as the autistic savant – penny-wise but pound-foolish. Breaking free of that psychological state calls for a fresh approach, one which is less rules-focussed, more judgement-based. That alternative approach to financial supervision is beginning to be recognised. For example, this approach will underpin the Bank of England’s new supervisory model when it assumes prudential regulatory responsibilities next year (Bank of England and FSA (2011)). Accompanying this will be a streamlined approach to regulatory reporting in the UK. In line with US reporting from the 1860s, more regulatory data will be available “on call”. In future, the limits of Excel will hopefully no longer be tested. This will reduce the complexity quotient, making easier the wood-and-trees task for supervisors. It will also hopefully streamline compliance costs for both regulator and regulated. This approach does not come without risks. As when catching a frisbee or a criminal, catching crises relies on a lengthy sample of past experience. Good supervision means developing well-honed rules of thumb. | So one of the secrets to making this new supervisory approach a success will be the accumulated experience of supervisory staff. That means having staff with a nose for a crisis (like a hedgehog) as well as ears and eyes (like a fox). Therein lies a dilemma. Galbraith observed that: “There can be few fields of human endeavour in which history counts for so little as in the world of finance.” 23 A full crisis cycle might last 20–30 years. A systemic crisis might only occur once or twice a century. Among 22 A number of authors have proposed basing contractual triggers in banks’ debt instruments on market-based measures of capital adequacy (Calomiris and Herring (2011), Flannery (2010)). 23 Galbraith (2008). 16 BIS central bankers’ speeches risk managers, typical levels of experience are significantly less than a full crisis cycle. The same is true among bank supervisors. Historically, financial supervision has been long foxes and short hedgehogs. Ever-expanding numbers of regulators will not solve this problem – if anything, that may cause average levels of experience to fall, not rise. Nor will ever-expanding amounts of regulatory reporting – if anything, that breeds more complexity, not less. A strong case can be made for a reversal of the historical trajectory in which “more is more”. This strategy has comprehensively, and repeatedly, failed the crisis test. This calls for a different supervisory direction of travel. | 1 |
The new PvP link will eliminate this principal risk by enabling the Thai Baht delivered in Thailand and the US dollar delivered in Hong Kong to be done at the same time in a coordinated manner within the Asian time zone. The linkage of the two RTGS systems will enhance integration of the financial markets in Thailand and Hong Kong, and provide a win-win solution that will bring significant benefits to the banks on both sides. For the banks in Thailand, the USD RTGS system in Hong Kong, with its low cost and operating hours that are fully synchronized with its Thai counterpart, will provide a highly flexible and cost-effective solution for them to manage the settlement risk of their US dollar FX transactions. There are more than 90 participating banks in the USD RTGS system in Hong Kong, of which 18 have significant presence in Thailand. This extensive network will provide ample USD liquidity and easily accessible correspondent banking service to the Thai banks for the PvP service. For banks in Hong Kong, the link will provide them with new correspondent banking opportunities of serving Thai banks in settling their US dollar FX transactions in Hong Kong. Over time, this new relationship will also create opportunities for commercial cooperation on other fronts. | The other Nordic countries – Denmark, Finland and Sweden – are comparable in size and structures, but are mainly non-oil economies. 3 Three indicators may be relevant in this context. First, there is no evidence that our productivity growth has been eroded. In fact, Norway has generally managed to sustain high productivity growth compared with most other advanced countries. Second, there is no evidence that labour force participation has been impaired. In fact, labour force participation is now high, after having lagged behind our neighbouring countries up to the mid-1980s. A third indicator is welfare spending. Here, there is evidence that developments have been less favourable. Norway has seen a sharp increase in sickness absence and a steadily higher share of the working-age population is on disability benefit or rehabilitation schemes. Over the past decade, Norway has underperformed on this score compared with the other 1 The expression ”Dutch disease” originates from the Netherlands, where the government rapidly spent large revenues from extraction of gas in the 1960s. 2 The economic literature includes many studies that look at the relationship between income from natural resources and economic growth, see for example Jeffrey D. Sachs and Andrew M. Warner, “The curse of Natural Resources”, European Economic Review 45 (2001) and Thorvaldur Gylfason, “Natural Resources and Economic Growth: From Dependence to Diversification”, Discussion paper No. 4804, CEPR. 3 Denmark has also been producing oil and gas since the early 1970s, but on a smaller scale than Norway. | 0 |
Average difference between forecasts and Sources: Consensus Economics Inc. and the Riksban outcome of forecasts made during 2005 and 2006 Actual and trend labour productivity 6 6 Outcome and forecast Trend 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 81 83 85 87 Annual percentage change, seasonally adjusted data 6 5 89 91 93 95 97 99 01 03 05 07 09 Sources: Statistics Sweden and the Riksbank BIS Review 17/2007 Revised GDP 115 115 Outcome February 2007 Outcome and forecast M arch 2005 Outcome and forecast June 2005 113 113 111 111 109 109 107 107 105 105 103 103 101 101 99 99 97 97 95 95 03 04 05 Index Q1 2003 = 100 06 Sources: Statistics Sweden and the Riksbank GDP Annual percentage change 6 6 5 5 4 4 3 3 2 2 1 1 0 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 0 mar-10 Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecast. | This is critical to ensure the benefits of regional integration are experienced by all in the region. Conclusion While the future for ASEAN looks promising, ASEAN businesses, including SMEs, need to consider and explore an ASEAN strategy and to view ASEAN as an increasingly integrated market. Having such regional or international perspectives may prove to be a game changer for SMEs, paving a path towards sustained growth, increased job creation, and higher innovation capacity. A crucial element in the ASEAN economic agenda is the development of the SME sector which will contribute to stronger and more equitable growth in the region. The next frontier for SMEs is to emerge as regional players that are not constrained by the domestic consumer base. SMEs possess the potential to participate in global production networks by riding on ASEAN’s intrinsic strengths and prospects, multiple SME-focused policy initiatives as well as the continued wave of regional financial integration. This will allow for the transition for SMEs to benefit immensely from the ongoing regional economic and financial integration and thus contribute towards a balanced and sustainable growth of our region. 4 BIS central bankers’ speeches | 0 |
Inflation expectation indicators also remain low over all horizons, far from the ECB’s 2% benchmark. 2 BIS central bankers’ speeches However, it must be emphasised that monetary policy’s ability to address the challenges posed by a situation such as that we face today is not without limits. Laying the foundations for a sound and long-lasting recovery in activity, investment and employment requires an approach in concert with other economic policies, especially fiscal policy, along with institutional reform, labour and product market reforms and strengthened European governance. Thus, according to their individual circumstances, euro area countries should use the room for manoeuvre provided for in the Stability and Growth Pact to bolster aggregate demand and growth in activity. Admittedly, in many cases, the precarious state of public finances leaves little room for stimulus measures, such as tax cuts or higher public spending, especially because the countries with most spare capacity are also those with the highest levels of public debt. However, fiscal policy’s contribution to growth is not only determined by revenue and expenditure levels, but also by their composition. In that respect, there is some scope (broader in some countries than in others) for a shift in the tax structure towards taxes that are less distortionary and more favourable to growth. A further objective is to make public expenditure more efficient and direct it to those components that are more favourable to growth. | In the more medium term, the combination of negative demographics, low productivity growth and high levels of public and private debt constrains the euro area’s ability to regain precrisis growth rates, creating a breeding ground for disillusionment with and distrust of the European project. It is, therefore, essential that governments revive the reform momentum, to optimise the working of production factors and product markets, improve the business environment and complete the euro area governance framework. Important labour market reforms have been undertaken in recent years, especially in the countries hardest hit by the crisis. Empirical evidence shows the positive impact that those reforms have had on growth and employment. But preventing high unemployment rates from becoming entrenched and long-term unemployment from growing remain a priority. Where least progress is perceived is perhaps in reform of the product and service markets. Recent experience shows that it is important to implement the reform agenda in the right order, since early reforms, tending to enhance competition, may be vital to ensure that labour market reforms have the desired positive effects. BIS central bankers’ speeches 3 In various euro area countries, product market reforms should aim to improve the business environment, remove administrative barriers and increase competition. Revamped insolvency proceedings would help to improve management of the loan write-offs that currently place such a heavy burden on banks’ balance sheets. Insolvency proceedings, if well designed, can be an efficient way to reallocate resources to sectors and firms that offer higher growth potential. | 1 |
• Another welcomed development of the banking system belongs to the customer service, which through electronic terminals, has been naturally associated with the increased number of electronic cards in circulation. Presently, banks provide debit and credit cards, in cooperation with the international companies of Visa and MasterCard, Diners Club. Nine banks provide the ATM service and the number of the latter ones at end of December 2005 was 205, while in August of this year it has reached to 266. In the meantime, the number of the points of sale has reached to 1073, of debit cards to about 70,176 and of credit cards to 4,245. • Undoubtedly, the further expansion and strengthening of the banking system is an important aspect. The geographic extension of covering the territory with banking business, the increased competition, the introduction of many new products and the new recent developments constitute an additional argument for the vital role played by the banking system. The map of covering the country with banking business was further expanded, including new regions uncovered previously. Thirty new branches and agencies were opened during 2004, while in 2005 their number became 48, making the total number of branches at end of 2005 reach 127 and that of agencies reach 113. 4 BIS Review 115/2006 • The positive developments in the banking sector and the increased number of subsidiaries and agencies have brought about a considerable increase in the number of employees. | Hence, after putting into operation the real time gross settlement system and the automated electronic clearing house system, the establishment of a loans register is presently aimed at. After the completion of the automated electronic clearing house system, another possibility is created not only for the banking system but also for the business of services of a periodic nature, so as to enhance its economic efficiency. • The Bank of Albania deems that a banking system helps the economic growth if it is sound financially, since the developing economies, such as our economy, are generally characterised by a fragile stability. Therefore the Bank of Albania has taken a number of measures, aimed at enhancing its supervisory abilities, with the purpose to have a strong, sound and efficient banking system. Regardless of the positive developments, still much has to be done. The degree of financial intermediation continues to be relatively low. Some economy sectors, such as agriculture, continue to be slightly credited or not credited at all. The banking credit contribution to productive investments is still low, and moreover, given the high weight of lending to support the trade activity, the conclusion drawn is that the majority of loans go for financing the imports. Also, the degree of using the banking system is not in the required parameters, and moreover, the degree of using cash is still high. During the current year, it has been worked for improving the existing Law “On Banks in the Republic of Albania”. | 1 |
10 Years of Romania’s EU Membership: Looking to the future Liviu Voinea, Deputy Governor, National Bank of Romania 26 October 2017 Ten years after Romania’s EU accession, the world has changed dramatically: the global financial crisis of 2008-09 led to the revision of rules in the international banking system, to growing social discontent with major consequences in terms of flourishing populism and protectionism, as well as to a reshuffle of maps – be they geopolitical, military or economic. Uncertainty is running higher today than prior to the crisis and the room for quantitative easing policies based on stimulating demand has narrowed considerably. Looking ahead, both the European Union and Romania need structural reforms. As regards the EU: Many steps have been taken so far at institutional level: Stability and Growth Pact, CRD IV (Capital Requirements Directive), Banking Union, SRB (Single Resolution Board), SSM (Single Supervisory Mechanism), ESRB (European Systemic Risk Board). When needed, monetary policy undertook – in Europe as well, similarly to the US, UK or Japan – to escape recession and deflation and to foster renewed economic impetus. A challenge to the EU is to maintain the pace of economic growth as the ECB gradually exits from quantitative easing. Another challenge facing the EU is to manage Brexit properly and avoid other exits, which would question the very essence of European identity. | The growth potential should be enhanced also by an increase in capital flows and stock, the absorption of EU funds and a better allocation of resources via investment prioritisation. Achieving convergence is not enough, as convergence should be sustainable, balanced and equitably distributed. Real convergence should be pursued not only in terms of income, but also in terms of output structure, by means of the level and composition of budget revenues and expenditures. 3 Good European practices should be used to fight tax evasion and strengthen financial discipline. In the medium run, a balanced primary budget should be ensured and the MTO (medium-term objective) should be again pursued; public debt should be maintained at sustainable levels and inappropriate incentives leading to over-indebtedness of private sector and households should be avoided. It is necessary to improve the access to financing. 83% of households have 6% of deposits, whereas 0.3% of households hold 25% of deposits. Housing loans have been accessed by only 1% of very low income earners (the 1st quintile) and by only 4% of relatively high income earners (the 4th quintile). 12% of the highest income earners (the 5th quintile) have accessed housing loans. A roadmap is necessary for joining the euro area. The public goods that should be preserved and even strengthened include: the country’s security, financial stability, investors’ confidence. European Union – Romania joint agenda for 2019 Conclusion of Brexit negotiations. | 1 |
We think that the underlying strength of the economy gives grounds that inflation convergence will continue in the period ahead, even after a gradual winding down of net asset purchases. What is that confidence based on? There is a path of gradual improvement towards our inflation aim, as the euro area economy will continue to grow above potential. Increasing pressure on the utilisation of resources, notably in the labour market, will continue to support inflation over the medium term. Is the ECB comfortable with the recent projection pointing to annual inflation of 1.7% over the period to 2020, clearly below the 2% aim for these three years? The Eurosystem staff projections are only one element of our assessment. What is crucial is that we see a sustained path of adjustment of inflation towards levels that are below, but close to, 2%. Over the projection period, the contribution of energy to inflation declines, and inflation excluding energy and food gradually rises, as capacity constraints become increasingly binding. What the ECB anticipated last week was the halving of asset purchases between October and December. But there was a proviso: the measure was subject to data confirming the medium-term inflation outlook. What does this mean in practice? Our baseline scenario is that the euro area expansion will continue in the period ahead. But new uncertainties have arisen in 2018. | Finally, addressing impediments to investment, increasing productivity and further improving the business environment remain key for strengthening potential growth. To conclude, my assessment is that significant progress has been made, but that ensuring prosperity on a lasting basis requires continuing the implementation of an ambitious reform agenda going forward. BANKING It is essential to complete the banking union. In this respect, the European summit on 28 and 29 June is very important. The European banking landscape is still characterised by one important feature: a strong exposure of banks to their national economy, including a high exposure to domestic public debt. The completion of the banking union will, over time, lead to a lower exposure to national economies. Regarding the situation of the banking sector, there is still a sizeable legacy of non-performing loans in some banks. An impressive effort has been made to reduce the level, but the situation has not yet been fully rectified. The banks are now much more capitalised. Their liquidity is much stronger. But, on the other hand, we have to be clear: for the large banks, the new regime under the Bank Recovery and Resolution Directive – BRRD, to use its English acronym – has still not been tested in the event of a crisis – luckily. The banks still have a strong national orientation: they have exposures to the public debt of their country and a strong focus on the domestic economy. | 1 |
Pension funds are active in repo markets but do not run highly leveraged positions. Financial leverage for risk taking is most prevalent in the hedge fund sector, but even here it appears to be relatively low compared to banks. 18 The risks from synthetic leverage - the leverage that is embedded in derivative contracts - is, however, much harder to measure, let alone categorise. Funds make very significant use of derivative contracts. An FCA survey published in 2015 suggested hedge funds have outstanding notional derivative positions 28 times greater than their net asset value. But, in many cases derivatives seem to be used to hedge and reduce rather than to gear up risk. And notional values are rarely an accurate measure of risk exposure from a derivative. So measures of total net economic leverage are preferable. That is, measures which show the extent to which derivatives increase or decrease a fund’s overall exposure to risk factors such as asset prices or interest rates. The issue here is not just whether we can identify how much synthetic leverage is being used to reduce rather than to take on risk. It is also to identify, at the level of the financial system, whether the large-scale use of derivatives to manage risk at the fund level creates a risk in the system as a whole. There are perhaps two related ways in which this could happen. The first is simply the degree of inter-connectedness this creates in the system as a whole. | If the substantial optimism regarding the future that is reflected, for instance, in the development in savings proves partially unwarranted, the problems may become even more difficult to handle at a later stage. Although the focus is on the USA at the moment, concern over developments in Japan has increased recently. Here there appear to be both severe problems in the real economy and in the finance sector, as well as political difficulties in dealing with these problems. In the insurance sector there are a number of major life insurance companies that are insolvent in the technical sense, as they have promised pensioners a return that they are unable to deliver. A large part of the insurance companies' assets are of course traditionally invested in low-yield treasury bonds. The Japanese 10-year bond rate is currently around one and one-third per cent. The Bank of Japan has declared that it intends to continue with its zero interest rate policy for the foreseeable future and the market expects to see prices falling rather than otherwise during the coming year. If interest rates and inflation were to gradually rise, which at the moment does not appear likely, this would of course further erode the value of Japanese pension money, as the bonds stock in the insurance companies would fall in value. | 0 |
BIS Review 37/2008 13 Over the past year, we have seen a growing international debate about government-owned investment vehicles; so-called sovereign wealth funds (SWFs). The increased attention reflects their rapid growth over the last decade. The debate has revealed some scepticism towards these funds, where key concerns relate to a lack of transparency and possible nonfinancial investment objectives. In my view, the debate should also reflect these funds’ potential to positively influence international financial markets through enhancing market liquidity and financial resource allocation. Typical features of this type of funds are long investment horizons, no leverage and no demands for the imminent withdrawal of funds, unlike the growing number of leveraged hedge funds with short time horizons. Hence, sovereign wealth funds have a high risk-bearing capacity and are resilient to short-term volatility. They may therefore act as a stabilising factor in financial markets by dampening asset price volatility and liquidity risk premiums. Let me elaborate and exemplify this by looking at the Government Pension Fund – Global: The Pension Fund is a policy tool to support long-term management of Norway’s petroleum wealth and avoid the resource curse. An important objective is to shield the Norwegian economy from fluctuations in prices and extraction rates in the petroleum sector. The Fund is only invested abroad in financial markets. The alternative to an oil fund would have been to regulate the extraction path by putting a conservative upper limit on annual extraction. | First, large exchange rate appreciations have not resulted in external adjustment of the Swiss current account. Instead, key components of the Swiss current account are determined by structural factors that behave independently of the exchange rate. Second, there are good and legitimate reasons for countries to have current account deficits and surpluses to smooth their output and consumption. And third, independent central banks need to fulfill their mandate of price stability in an inter-dependent environment that constrains their policy choices. More specifically, the SNB has had to – and still has to – ensure that monetary conditions do not become restrictive for Switzerland in the face of extreme exchange rate appreciation and deflationary risks. The critique does not take these three points into account. Structural factors and Switzerland’s surplus Let me first address the question of specific structural factors in the Swiss current account surplus, and why this surplus is not a reflection of Swiss franc weakness. In a nutshell, these factors are more closely correlated with external developments in real economic activity than with exchange rate movements. I’d like to highlight these structural factors with the help of three figures. Figure 2 shows the current account surplus and the real trade-weighted exchange rate of the Swiss franc. I have two observations here: In the short run, when the franc appreciates in real terms, the surplus in the current account does not automatically decline. Nor does the surplus automatically increase when the franc depreciates. | 0 |
Is the central bank forward-looking or rather “behind the curve”? These are actually some of the recurrent criticisms I have heard about the Eurosystem’s monetary policy: too obscure, too narrow-focused, too late. One can build up (see Figure page 7 of the Annex) a forward-looking Taylor-type rule for the ECB’s minimum bid rate. As an overall assessment, the Taylor-type rule closely matches Eurosystem’s monetary policy decisions. Under the proviso that this rule provides a good benchmark, it is quite unclear why the Eurosystem has attracted so much criticism: in particular, the output stabilisation “objective”, as encapsulated in a standard Taylor rule, has not been overlooked by the overriding objective of price stability. In that regard, one should be aware that, in the euro area as elsewhere, price stability aims at providing the highest sustainable growth and employment in the longer run; finally, the decisions have been taken in a timely fashion, the Eurosystem conducting its monetary policy in a forward-looking and pre-emptive way. However, the same figure shows that policy decisions deviate from the Taylor rule benchmark. Actually, being rule-based doesn’t imply being rule-bound and monetary policy decisions are not taken on the basis of mechanical rules. I already mentioned the Eurosystem adopted a full-information approach, which besides the usual array of economic and financial indicators also gives a key role to monetary analysis not factored in usual Taylor rules. Identifying in real time the nature of monetary developments and their implication for future price developments represents however increasing challenges. | And there have been a number of exercises and co-ordination initiatives in different regional groups (for example amongst the Nordic countries, Dutch and Belgian authorities, and more widely across the EU). But there has been less progress on the wider international front. Overall, I do not know anyone who believes that we have established either the common approach to crises or the practical machinery which would enable us to handle a complex cross-border failure with confidence. I would like to make some suggestions tonight on how we might take matters forward. When and how should the State intervene to prevent or manage a financial crisis? Of course the underlying questions are very difficult even for one country. Financial markets are often volatile and they can only work well if investors and firms expect to live or die by their own decisions and do not come to rely on a safety net to mitigate their losses. To avoid that ‘moral hazard’, authorities have tended to be reluctant to spell out in what circumstances and what ways they would 1 Gerard Caprio and Daniela Klingebiel, 2003. “Episodes of Systemic and Borderline Financial Crises”, World Bank Research Dataset. http://econ.worldbank.org 2 http://www.fsforum.org/home/home.html BIS Review 112/2006 1 be willing to help support a market or a participant, beyond making clear that it would only be in exceptional circumstances and where it was essential in the wider systemic interest. | 0 |
Asia’s young and increasingly urban and increasingly more affluent population, supported with policy initiatives to strengthen social safety nets – including for healthcare and retirement – will further enhance domestic demand in the region. This will further unlock our trade and growth potential. Our diversity also continues to be an important source of strength for the region. The complementarities between the economies in the region provide significant opportunities for greater shared prosperity and mutually reinforcing regional growth. The progressive liberalization of the domestic financial sectors, the development of domestic capital markets and the integration of payments and settlement systems have opened up new channels for regional financial institutions and markets to intermediate funds across borders. These developments have facilitated the recycling of surplus funds from the region for economic development in the region, while also enabling greater diversification of risks. The lessons drawn from the Asian financial crisis more than 15 years ago also continue to shape our financial sector reforms, liberalization and economic and financial integration in the region. The focus is on developing a financial sector that serves the needs of the real economy, and which is built on solid foundations of sound risk management and strong financial buffers. An important precondition for financial liberalization and integration in the region has been ensuring that we build the capacity and financial infrastructure that would enable us to respond to emerging risks while also minimising their contagion effects. | The Journal can have a significant influence in drawing attention to the financial stability issues that are most important and thus contribute towards the thinking and responses on these issues. It is a process that should have an inclusive participation in this important agenda of financial stability. BIS central bankers’ speeches 3 | 1 |
In this context, and as part of our main responsibility to guarantee the stability of the financial system, we - regulatory and supervisory authorities - must ensure that the materialisation of climate risks does not endanger financial stability. Therefore, we must make sure that financial firms address these risks. In particular, we should contribute to identifying climate-risk drivers and their transmission channels, to the adequate measurement of the economic and financial impact of the different risks, and to the definition and development of the potential mitigation and riskreduction measures. If we succeed in incorporating these risks into the decisions of the financial sector, this will translate into a change in the relative prices of financial instruments. And, in turn, that will help to internalise those consequences originating from both transition and physical risks that affect directly providers and users of funds. This will be a powerful and much-needed complement to the use of the fiscal and environmental instruments that are needed to fight against climate change. In practical terms, climate risk can probably be captured in the traditional financial risk categories (credit, market, liquidity or reputational risks). However, several crucial limitations and challenges are coming to light when trying to measure these risks. In particular, there are few sufficiently deep and harmonised databases to analyse and understand the potential effects of physical and transition risks. Data granularity is particularly important given the high heterogeneity of the potential impacts. | The decline in natural rates has shrunk the space for interest rate policy owing to the existence of a lower bound on nominal interest rates, thus making it harder for central banks to achieve our inflation aims. Climate change will likely affect the natural interest rate, but it is not obvious in which direction. On the one hand, it could (further) depress natural rates through negative effects on productivity, such as the impact of higher temperatures on labour supply and the destruction of capital stemming from natural disasters. However, the transition towards a more sustainable economy will require substantial investment in green technologies, which may push real rates up. Clearly, more analysis will be needed before we have better answers for the implications of climate change on the economy and on monetary policy. And, in this regard, we have to step up our efforts, at both the Banco de España and the Eurosystem, to develop the tools and models needed for such an analysis. In addition, climate change will affect the risks of the assets held on our balance sheets. Monetary policy implementation exposes us to such risks directly through holdings of assets and indirectly through collateral pledged by counterparties. In this regard, and very much related to my previous comments on the implications of climate change for the financial sector, central banks also have to step up their efforts to incorporate climate change into their risk management models and frameworks. | 1 |
If we are hit by a critical crisis in one or more of the major financial institutions today, the regulatory and supervisory framework is not sufficient. Second, we need to move forward and find a modified framework before problems arise. My experience is that if a crisis hits an unprepared authority, the choice of solution will suffer. Third, we should move ahead gradually, since there are obvious political difficulties and it is uncertain what the first-best solution would look like. In a political world, it is difficult to achieve first-best directly. Instead we have to move stepwise and ensure that we have our compass firmly in our hands to ensure a move in the right direction. To solve some of the problems of coordination of information and assessments, I propose the establishment a new pan-European body, a European Organization for Financial Supervision (EOFS). The idea is to create a separate agency to follow the major cross-border banking groups in Europe. The EOFS should only focus on the presently about 40 truly cross-border banking groups and not deal with the about eight thousand European banks with a predominately national character. The EOFS should have three tasks: It should gather information about the banking groups and their activities in different countries. Importantly, it should also create unified risk-assessments of each cross-border banking group. Finally, it should also oversee the activities and risks of these banking groups. To achieve these tasks, there is a need for a separate agency, staffed with a sufficient number of competent employees. | Conclusions Looking back over the run-up to the financial crisis and its initial stages, it is obvious now with the benefit of hindsight that short-term tactical missteps and long-term strategic miscalculations were made by both the private and public sectors. Many of the long-term strategic miscalculations were related to allowing perverse incentives to build within the financial system and allowing significant gaps in the regulatory framework to persist. The financial reform proposals currently being considered by Congress are appropriately trying to ensure that such perverse incentives are removed from the financial system and exploring ways to endow regulators with an efficient resolution mechanism for systemic financial institutions. Some of the short-term tactical missteps were the failure of banking regulators to force high quality capital raises early enough in the crisis, and the failure of the private sector to engage in adequate liquidity contingency planning and the failure of regulators to recognize the vulnerability of the system to erosion in liquidity conditions. As the crisis intensified to unparalleled heights and without an efficient resolution process in place, the ability of the Federal Reserve, and then other governmental agencies after the TARP appropriation, to act with speed and flexibility was vital to stabilizing the system. However, hindsight is much less definitive on some of the lessons about the underlying stability of the financial system. In Alan Greenspan’s thoughtful review of the crisis he summarized the issue this way: 9 “The aftermath of the Lehman crisis traced out a startlingly larger negative tail than most anybody had earlier imagined. | 0 |
When profit expectations ultimately fall back to more realistic levels, share prices drop. Corporate investment slackens as the economy’s aggregate capital stock is adjusted to match a more reasonable long-term return. This is accompanied by decreased household consumption, not least of capital goods, to match a more realistic assessment of the long-term development of income. The Austrian School also provides us with a fundamental insight into economic policy’s limitations. If a technological breakthrough leads to a period when the growth of investment and consumption exceeds what is sustainable in the longer run, there is bound to be a fall-off. After a supply shock of this type, measures of economic policy are simply not capable of preventing an adjustment to a more realistic appraisal of the future. The necessity of the adjustment means that the measures only postpone it and presumably tend to make it all the more painful when it does occur. History teaches us that after a period of what I would call “growing pains”, the optimism about what the new technology can achieve will be restored, albeit in a more orderly, realistic guise. In my opinion, neither the rapid fall-off in global activity nor the terrorist attacks on 11 September have upset the grounds for being optimistic about the new technology’s potential. Problems for many companies After the investment boom and the marked slowdown we are now experiencing, there is a risk of a good many companies having balance-sheet problems. | Conclusions for monetary policy All in all, growth prospects for the short term are somewhat more unfavourable than when we published our most recent inflation forecast. However, the major economic policy realignment in a number of important countries looks like paving the way for a recovery after a time. But this does presuppose that households and firms really do start to consume and invest. Major risks here are saving imbalances and over-investment. In Sweden, too, there has been an expansionary realignment of economic policy that is helping to strengthen household income. Provided there is an international recovery, the weak krona should have a stimulatory effect on exports. As regards inflation, the rate since April this year has been above the Riksbank’s target. The increase is mainly due to transitory factors and I envisage that it will, as before, dwindle during the spring. This presupposes, however, that the price rise does not spread to other items or lead to wage increases. Another argument for a future easing of inflationary pressure is the existence of unutilised resources as a result of the slowdown. However, in my opinion, the Riksbank must watch developments closely to ensure that the recent rise in the inflation rate actually falls and does not stick. Most indicators appear to imply that inflation will be close to the target level of 2 per cent, or at least within a small margin on one side or the other. | 1 |
The mandate, formulated in the regulation issued in the spring of 1994, states: “The monetary policy to be conducted by Norges Bank shall be aimed at maintaining a stable exchange rate against European currencies, based on the range of the exchange rate maintained since the krone was floated on 10 December 1992. In the event of significant changes in the exchange rate, policy instruments will be oriented with a view to returning the exchange rate over time to its initial range. No fluctuation margins are established, nor is there an appurtenant obligation on Norges Bank to intervene in the foreign exchange market” (my italics). The regulation is based on the fact that we have a floating exchange rate. The first sentence means that this is a managed float. Instruments are to be oriented towards maintaining a stable krone exchange rate against European currencies. Norges Bank chose to define the reference European currencies as the euro from 1 January 1999. The last sentence in the regulation distinguishes our system from a fixed exchange rate regime in that no fluctuation margins have been established around a central rate. To the extent this system calls forth associations with a fixed exchange rate regime, the concept initial range should be interpreted as a broad indication of a central rate around which the krone can fluctuate. The second sentence refers to significant changes in the exchange rate in relation to the initial range. | Ardian Fullani: Review of economic policies for Albania’s fast, sound and stable growth Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Meeting with the Chairman of the Socialist Party and the Albanian Banking System Executives and Representatives, Tirana, 25 July 2013. * * * Dear Mr. Rama, Dear Mr. Pencabligil, Dear banking system executives, First of all I would like to thank you for the invitation. This round table is a follow-up of our philosophy of a trialogue between the Bank of Albania, the banking system and the Government to discuss the economic policies for Albania’s fast, sound and stable growth. The presence of Mr. Rama, the incoming Prime Minister of Albania, gives this meeting special significance. The banking sector is not only the greatest and the most efficient driver of economic growth in Albania, but also the custodian of Albanian household savings and the determiner of funds destination in the economy. Today’s round table precedes discussions on the economic programme and budget of the incoming government. Dear guests, The Bank of Albania has just completed its periodic analysis of the Albanian economy. Also, in view of the Financial Sector Assessment Program (FSAP), we have maintained regular contacts with the international institutions to assess Albania’s financial soundness. Availing myself of this opportunity, I would like to share with you some preliminary conclusions and present the central bank’s vision for future development policies. The Albanian economy is facing big cyclical and structural challenges. | 0 |
Domestic loans showed no increase in the first seven months of this year. The result is that loan to deposit ratios have fallen to their lowest levels for many years - around 53% for the local banks as a group. The effect on loan margins has been quite dramatic. In particular, the margin on mortgage loans has fallen from 1.25% over prime rate prior to the crisis to the current low of 2.25% below prime. The current situation may to some extent be temporary. It is difficult to believe that loan demand will not pick up soon given the pace of economic recovery in Hong Kong. Sentiment in the property market is now looking better and this may start to feed through into increased appetite for mortgage loans. But it seems unlikely that the boom conditions of the 1990s will return for the foreseeable future. The implication of this is that the banks in Hong Kong may have to cope in the future with an environment of more restrained loan growth and finer margins. This means that they will need to find alternative means to boost income. One option is to diversify into the sale of products like unit trusts, pensions and life insurance that offer the opportunity to earn fee income. Another is to focus on lending to sectors such as the SMEs that provide higher returns at the expense of higher risk. A common factor in such initiatives is the need to cope with greater complexity in business development and risk management. | François Villeroy de Galhau: The tale of the three stabilities: price stability, financial stability and economic stability Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Financial Stability Review Conference, 3 March 2021. * * * It is a great pleasure for me to welcome you to the publication today of the 24th edition of the Banque de France Financial Stability Review. We have a set of very distinguished speakers. I would like to thank them and all the contributors to the review, as well as the Banque de France’s teams who helped prepare this issue, which focuses on macroprudential policy in the midst of the Covid crisis. The past twelve months have seen some of the most dramatic events since World War II, with this unprecedented pandemic. For this reason, and given that today is about the Financial Stability Review, I will focus on the concept of stability itself. Other sources of instability have affected the world economy in the past decade or so: the Global Financial Crisis and ensuing recession, the European Debt Crisis, or more recently rising trade tensions. It seems that the world has become more unstable. Against this backdrop, stability is all the more important for our fellow citizens, and it has different dimensions, but I will focus mainly on three key aspects. I will start (and it will be a surprise to no one) with price stability. | 0 |
This picture of the real economy in the main scenario gives a relatively stable development of inflation around the 2 per cent target in the years ahead, both in terms of the consumer price index and of indexes of underlying inflation. The risks surrounding the main scenario are chiefly concentrated to two alternative scenarios that point in different directions. One alternative scenario has to do, of course, with the risk of a deeper global economic slowdown with further stock-market falls. The Swedish economy would be affected via lower export market growth and more subdued demand from households and firms. That would keep inflationary pressure in Sweden down compared with the main scenario. However, the downside risk for inflation in Sweden would be somewhat limited in that the exchange rate would remain weak as a consequence of the lower international activity and concern about its effects on the Swedish economy. The other alternative scenario concerns a risk of higher domestic inflation. The current round of wage negotiations is still in progress and several of the signals in this respect are not encouraging. If the remaining settlements were to be above the levels that have been agreed to date, inflationary pressure may grow, both as a direct result of the high outcomes and indirectly through a greater risk of compensatory wage drift. It is also conceivable that productivity growth will be lower than assumed in the main scenario, leading to rising pressure from costs. | At the same time, expansion is accompanied with changes in the market ability to better accommodate market participants needs for funding, diversification and risk appetite. Undoubtedly, institutional participants in the financial markets find themselves with a larger number of possibilities for business developments and financial specialization. In addition, general public interest in using financial market products and services has increased dramatically based on the benefit they perceive from improved efficiency in everyday life activities. These developments highlight the importance of financial markets for our economic well-being, from a qualitative perspective. Let’s also recall that economic improvements trigger and support changes in social and cultural aspects of our life, bringing our nations closer to international values and principles, and to each other. As expected, because of the historical background, our countries have differed in the speed and in the depth, with which they have moved along the transition phase in the last decade. While we had many similarities in adopting the first basic and urgent reforms including price liberalization, enterprise restructuring and privatization in some economic areas, we were more distinctive in completing other reforms that would allow for institutional building capacities, which on the other hand, would make these changes root deeper in our societies. Today, our countries enjoy stable macroeconomic environments. We are experiencing low inflation levels, stable exchange rates, a more prudent and responsible fiscal policy associated with limited and manageable budget deficits. National Central Banks have established their independence and are perceived in public as respectable and reliable authorities. | 0 |
Growth in the euro zone has been relatively weak, but last year there were signs that economic activity was beginning to improve there, too. At the same time as growth in demand in the world economy has been strong, price pressures have been held back. Although oil and other commodities have become significantly more expensive for consumers, the general price increases have been relatively small on the whole. This can probably be partly explained by increasing international competition. The upswing in global economic activity has also characterised developments in the Swedish economy, which has grown strongly in recent years, with the exception of a slowdown at the end of 2004/beginning of 2005. Despite the good growth in demand, inflation has been low in Sweden. This is largely attributable to import prices excluding oil BIS Review 44/2006 1 developing weakly and to cost pressures being held back, partly by the strong productivity growth and low capacity utilisation. The development we envisaged in the February Inflation Report was that international growth would continue to be good. There were some question marks regarding developments in the United States and in the euro area, where preliminary statistics for the fourth quarter of 2005 were surprisingly weak. Our assessment was that this could largely be explained by transient factors and that the upswing could nevertheless continue, although possibly at a slightly slower rate. Our assessment for the Swedish economy was that domestic demand would be strong over the coming years, with GDP growth peaking in 2006. | When the SRR was introduced in June 2016, capital flows into the bond market had more or less clogged up the interest rate channel of monetary policy transmission. As a result, the effects surfaced primarily in a higher exchange rate. Because capital controls on outflows had not yet been lifted at that time, the risk existed of an overshooting of the exchange rate, with adverse repercussions for Iceland’s tradable sector. In addition, it was considered unfortunate, and actually unnatural, that large carry trade positions should accumulate before those that had entered the economy before the crash had been released. The exchange rate of the króna was also rising, and rose even further thereafter, because of strong tourism-generated inflows through the current account. This, of course, had a crowding-out effect on other segments of the tradable sector. If this had been compounded by a steep rise in carry trade-related inflows, Iceland would have found itself in a more dangerous position, with increased risk of an abrupt correction later on and the associated impact on economic and financial stability. Because of the recent decline in the exchange rate, this risk has receded, and it could even be argued that the risk is currently in the other direction; i.e., that excessive pessimism and self-fulfilled expectations of a further depreciation in the króna could lead to undershooting. | 0 |
The household with an income of NOK 800 000 can cope reasonably well with a debt of NOK 2 million even after the interest rate has increased by 3 percentage points. The household with the lowest income will have a tight margin. Principal payments will have to be deferred and, even with a deferral of a few years, this household will have little leeway after basic expenses have been paid. In order to increase its financial leeway, it will either have to increase its income, or reduce housing consumption and dispose of its debt. Both households will be vulnerable should one member lose income from employment and have to rely on benefits. With an income loss of 10 per cent, even the household with the highest income level would have to make considerable spending adjustments. Although these households have higherthan-average debt, this debt level is not uncommon. 7 Based on the analyses in Inflation Report 3/05 and the assessments provided in the press release following Norges Bank’s monetary policy meeting on 25 January 2006. BIS Review 10/2006 5 However, for most households, it will be relatively easy to cope with gradually higher interest expenses. The outlook for the Norwegian economy is favourable. Output has picked up, although so far not to such a degree that there are visible signs of inflation. As long as the rise in prices is slow, it will be appropriate to maintain a low interest rate. | Since the implementation of our LSM, participants’ average peak intraday usage in CHAPS has fallen by around 20%, so this innovation has provided a technical means of saving liquidity, reducing incentives to otherwise adopt receipt-reactive behaviour. On-going and future priorities If the post-crisis initiatives I have discussed so far have been, or are, close to completion, one area of work where we have further to go is in ensuring continuity of access to payment services for banks that are in recovery or resolution. In the UK’s case, a new resolution regime was introduced in the Banking Act of 2009 which gave the UK authorities tools to address the risks of discontinuity. Nevertheless there is a good case that the effective statutory framework could be usefully supported by private sector initiatives (whether contractual or otherwise) to enhance further the ability of central banks, supervisors and resolution authorities to maintain continuity in payment, clearing and settlement services in recovery and resolution. For banks in recovery, that would involve avoiding “cliff-edges” in contracts that automatically exclude banks from payment schemes in the event of (say) a ratings downgrade. For banks entering resolution, we want to ensure that critical economic functions in the firm which rely on access to financial market infrastructure are not dislocated or denied. This is relevant not only for banks that are direct members of payment schemes, but also for indirect participants that rely on other banks for payment and other quasi-infrastructure services. | 0 |
Luis de Guindos: Interview with Telediario 2, Televisión Española Interview with Mr Luis de Guindos, Vice-President of the European Central Bank, and Telediario 2, Televisión Española, conducted by Mr Carlos Franganillo on 19 March 2020. * * * One way or another, this massive asset purchase programme will be of particular help to those countries that have been deeply affected, such as Spain or Italy, to ensure that spreads don’t widen dramatically at this critical time. It will help all euro area countries. Some were in a weaker position; their public finances were also more vulnerable than others. But what the ECB will not allow is fragmentation of any kind in the sovereign debt markets and a return to the nightmare caused by widened spreads. We are dealing with a huge health crisis, there is a severe economic crisis and we are going to ensure that it does not result in some kind of financial crisis or debt crisis. This is what we are going to avoid because the ECB is at the service of the European people. The European Central Bank has said that it will do whatever needs to be done to combat this crisis. Does the ECB have more weapons at its disposal for the weeks or months ahead if the situation deteriorates? We can always do more. As you mentioned earlier in your news item, our commitment knows no limits. | We have to take all the necessary measures to ensure that our economic fabric is not destroyed, to ensure that businesses that are solvent can survive and that once this urgent health crisis is over, they can return to normal. You have talked about a temporary crisis, a sort of pause. The Spanish government has talked about the same thing. But do you think this is how things will turn out or do you think the economic consequences for Europe could be more severe for longer? This will depend on how long the health crisis lasts and, to be honest, I wouldn’t dare to guess how long it might last. What happened in China is a leading indicator. What’s happening to us now happened two months ago in China and now they are starting to get back to normal. Obviously this is something that gives us hope: we can get through this. From an economic perspective, we have to look for instruments to get us through this period at the lowest economic cost and, of course, with no financial cost from a debt market perspective. 1/1 BIS central bankers' speeches | 1 |
These four institutions have submitted on a precautionary basis their recapitalisation plans to the FROB should they not be able to obtain private capital, although this is a possibility they consider unlikely in pursuing their strategies. Two of them, Bankia and Banca Cívica, are taking steps for a future market launch. If the plans proposed come to fruition, in less than 30 days these institutions will be listed, the process envisaged under the new regulations will have concluded, and they will operate with capital higher than the minimum requirement set in the new legislation. Another two banks, Mare Nostrum and Effibank, are also negotiating placing their capital in private hands, and they intend to conclude the operation within the schedule set, placing the proportion necessary to obtain the level of own funds required to meet the new core capital ratio. In both cases, the avenue being explored, without ruling out other alternatives, is the direct placement of capital with wholesale investors. Turning now to the other four savings banks, all of them have submitted their recapitalisation plans, a pre-requisite for applying for aid. The plans are in two parts: a business plan, with projections for profitability, leverage, liquidity and efficiency (among other variables); and a series of specific commitments regarding corporate governance and cost-cutting. | Falling short of these principles can drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, fiscal policies should be oriented towards making economies more productive and gradually reducing high public debt. Finally, countries should implement structural policies for intensifying their efforts to green and digitalise their economies. Inflation Euro area headline inflation declined from its October peak, reflecting a drop in energy inflation. Downward base effects, an easing of energy commodity prices, and the impact of government measures to shield consumers from high energy prices all contributed to this decline. By contrast, food and core inflation rates continued to rise, partly as a result of the past surge in energy and other input costs still feeding through to consumer prices. Pent-up demand related to the reopening of the economy and the lagged impact of supply bottlenecks also continue to push prices up. At the same time, employees demanding compensation for the loss in purchasing power amid tight labour markets has translated into higher wage growth, while many firms in sectors facing constrained supply and resurgent demand raised their profit margins. We expect euro area inflation to continue to fall, as lagged price pressures fade out and tighter monetary policy increasingly dampens demand. However, historically high wage growth, related to tight labour markets and compensation for high inflation, will support core inflation over the projection horizon, as it gradually returns to rates around our target. This outlook remains surrounded by considerable uncertainty, with both upside and downside risks. | 0 |
But it took a crisis caused by the failure of Lehman Brothers to trigger the coordinated government plan to recapitalise the system. It would be a mistake, however, to think that had Lehman Brothers not failed, a crisis would have been averted. The underlying cause of inadequate capital would eventually have provoked a crisis of one kind or another somewhere else. So where does this leave us? The recapitalisation plan is having a major impact on the restoration of market confidence in banks. Perhaps the single most important diagnostic statistic is the credit default swap premium – an indicator of market concerns about solvency of banks. These premia have fallen markedly since the announcement of the UK plan. From the close of business on 7 October to now the premia on the UK’s five largest banks have more than halved. We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner. As concerns about the viability of our banks recede, banks should regain the confidence of the market as recipients of funding. There are already some signs of greater activity. But the age of innocence – when banks lent to each other unsecured for three months or longer at only a small premium to expected policy rates – will not quickly, if ever, return. | Such lending can tide a bank over while it is taking steps to remove the cause of the concerns that generated a run or lack of confidence. But it can also serve to conceal the severity of the underlying problems, and put off the inevitable day of reckoning. I hope it is now understood that the provision of central bank liquidity, while essential to buy time, is not, and never could be, the solution to the banking crisis, nor to the problems of individual banks. Central bank liquidity is sticking plaster, useful and important, but not a substitute for proper treatment. Just as a fever is itself only a symptom of an underlying condition, so the freezing of interbank and money markets was the symptom of deeper structural problems in the banking sector. So let me explain why a major recapitalisation of the banking system was necessary, was the centrepiece of the UK plan (alongside a temporary guarantee of some wholesale funding instruments and provision of central bank liquidity), and was in turn followed by other European countries and the United States. Securitised mortgages – that is collections of mortgages bundled together and sold as securities, including the now infamous US sub-prime mortgages – had been marketed during a period of rising house prices and low interest rates which had masked the riskiness of the underlying loans. By securitising mortgages on such a scale, banks transformed the liquidity of their lending book. They also financed it by short-term wholesale borrowing. | 1 |
We are also working to improve the Fund’s website, which will include a continuous update of the Fund’s value. Conclusion Transparency is important. Transparency contributes to strengthening confidence, and confidence is crucial for an effective monetary policy – in normal times, but perhaps particularly in times of crisis. According to Lars Weisæth and Ragnar Kjeserud, two authorities in the field of crisis psychiatry, to be successful in managing a crisis, the responsible authorities must be perceived as competent and at the same time have a reputation for openness and honesty. 55 I started this lecture by describing how the Bank of England managed the crisis during the 1780 Gordon riots. A military defence was necessary to safeguard society’s values. The event gave rise to the expression “as safe as the Bank of England” and later “as safe as the bank”. We have experienced a deep financial crisis. We are now hopeful that it is coming to an end. The reputation of private banks has not been left untarnished. Banks’ own behaviour was one of the causes of the crisis. The very depth of the banking crisis is attributable to a collapse of trust among banks. They no longer considered their fellow banks as “safe”. Financial markets stopped functioning. The expression “as safe as the bank” became somewhat hollowed. We have seen that the most unexpected places, such as small coastal towns and the northern region of Norway, have been hard-hit by the financial crisis. The crisis has also left its mark on our language. | When the key rate was reduced sharply in autumn last year, we sought to communicate that the interest rate would remain low for a period, and not be raised back to the former level already the following week or month. According to theory monetary policy to a large extent seeks to affect expectations. We believe that by being transparent about our own interest rate forecasts, it is easier to influence expectations. This enhances the effectiveness of monetary policy. But the interest rate forecast is a forecast, and not a promise. The future is uncertain. Actual interest rate developments may therefore deviate from our forecasts. We try to be open about how we will react if new information implies a different interest rate path. Transparency about Norges Bank’s reaction pattern is a necessary element in the interaction with fiscal policy. It is important that the government and the Storting know the central bank’s response pattern when the size of government budgets is decided. It is also an advantage for the social partners take this into account. Our view on transparency and good communication is inspired by Wim Duisenberg, the first President of the European Central Bank. His definition of transparency was that “the external communication should reflect the internal deliberations”. 24 We have all experienced that memory is imperfect. The easiest approach is therefore to employ the same narrative everywhere. What we say in the Executive Board is also what we say to the Minister of Finance, at press conferences and in speeches. | 1 |
Luis M Linde: International financial integration and fragmentation. Drivers and policy responses Opening remarks by Mr Luis M Linde, Governor of the Bank of Spain, at the Conference on “International financial integration and fragmentation. Drivers and policy responses”, organized by the Reinventing Bretton Woods Committee and the Bank of Spain, Madrid, 12 March 2013. * * * Good morning to all. Buenos dias a todos y bienvenidos a Madrid: It is for me a pleasure to welcome you to Banco de España and to this Seminar on international financial integration. I would like to start by thanking Marc Uzan and the Reinventing Bretton Woods Committee for their fruitful cooperation in organizing an agenda that is indeed very promising. More than five years into the crisis, it is still hard to grasp the real magnitude of the changes that our financial systems are undergoing. In fact, we are still trying to restore the financial channels to support the growth of internal and external demand. While we perform such, so to say, “fire-fighter task”, it is not easy to take a step back and look at how the contours of our economic and financial landscape are evolving. But we can already distinguish some of the characteristics of the new scenario that is taking shape, and that will be our habitat as central bankers, regulators, financial intermediaries or analysts in the years to come. | In this regard, I am encouraged by the fact that non-bank e-money issuers are 2/4 BIS central bankers' speeches targeting to increase their product penetration in these unserved segments since the banks are not servicing this particular segment. The QR code could be a catalyst to reach this group. To encourage QR code payment, avoid market fragmentation and broaden financial inclusion, Bank Negara Malaysia has issued an Interoperable Credit Transfer Framework (ICTF) for consultation. The ICTF aims to connect both banks and eligible non-bank e-money issuers to ensure reachability of bank accounts and e-money accounts. For the first time in our history, customers of both banks and non-banks will soon be able to transfer funds across the network seamlessly by just referencing the mobile number and IC numbers of the recipients or scanning the QR code of the recipients. In this regard, PayNet, the merged entity of MEPS and MyClear, as the operator of the country’s shared payment infrastructure would provide open and fair access to its clearing system and other shared payment utilities to both banks and eligible non-bank e-money issuers. This would enhance the network multiplier effects and foster better allocation of industry resources, as market players would be able to compete based on value-added services rather than on the basis of infrastructure. In addition, the Interoperable Credit Transfer Framework would level the playing field between banks and non-bank players, by subjecting them to risk management requirements that are proportionate to the nature, scale and complexity of their business activities. | 0 |
And if technological advances continue at a rapid pace, we must all be ready to update our knowledge. 5 [12] The effects of digitalisation can also be much greater than the effects of earlier industrial revolutions. Online robots and AI have the potential to replace large sectors of the human workforce. Some analysts think that the whole labour market will change fundamentally, and that this will be fairly soon.13 In such a situation, it will not only be groups of employees with different skills that will be polarized. Here I am not even talking about the most dystopic forecast for the future – of an almost omniscient artificial intelligence with its own agenda that takes over the world. Instead I mean a changeover to where many tasks and jobs are no longer done by people. Such a development will create tension between those who own capital in the form of equity and funds and those who do not. This is because the capital owners will receive the productivity gains generated by the machines. Digitalisation can lead to concentrated product markets. There are other problems with digitalisation for market economies. We see already now social networks like Twitter, Facebook and Instagram dominate their respective markets. Few people use search engines other than Google. These companies are not only dominant in their respective fields; they also determine who may market themselves or express themselves on their platforms. In this way, they govern how other companies reach out to prospective customers. | Rapid developments in technology gradually lead to higher productivity and increase our welfare, but they are also a source of concern for many people. Will my job still exist in the future, or will it be done by a robot or an algorithm? How can my company compete in these days of rapid technological advances? * I would like to thank Erik Frohm for helping prepare this speech, Elizabeth Nilsson for translating and Meredith Beechey-Österholm, Charlotta Edler, Rebecka Hallerby, Jesper Hansson, Åsa Olli Segendorf, Marianne Sterner and Ulf Söderström for valuable comments. 1 Refers to Statistics Sweden's figures on private individuals’ access to and use of IT. 82% of all Swedes in the age range 16-85 years had access to the internet via a mobile phone in 2018. http://www.statistikdatabasen.scb.se/pxweb/sv/ssd/START__LE__LE0108__LE0108D/LE0108T14/?rxid=8f4a0041-1be9-4ed3-b6fb182251a2b5cd 2 https://www.zmescience.com/research/technology/smartphone-power-compared-to-apollo-432/ 1 [12] My speech today will not provide all the answers. Instead, I intend to discuss my thoughts on how digitalisation can affect various parts of the economy and what role it plays for monetary policy. Can the Riksbank attain its target of 2 per cent even in a world of digitalisation? Is it still desirable to aim for this target? My reply to both of these questions is yes, but I will return to that later. Focus on digitalisation – where are we now? What is digitalisation and how does it differ from the concepts of automation and technological advances? | 1 |
Muhammad Al-Jasser: Saudi Arabia’s economic developments in 2010/11 Speech by His Excellency Dr Muhammad Al-Jasser, Governor of the Saudi Arabian Monetary Agency (SAMA), to the Custodian of the Two Holy Mosques, on the occasion of presenting the Forty-Seventh Annual Report of the Saudi Arabian Monetary Agency, Riyadh, 12 December 2011. * * * Custodian of the Two Holy Mosques, It is of great pleasure that the meeting with you is renewed while you enjoy, thanks to Allah, good health. Our country is continuing, under your wise leadership, the march of development and prosperity in an extraordinary solidarity between leadership and citizens. I am pleased to submit the forty-seventh annual report of the Saudi Arabian Monetary Agency, which deals with economic developments in 2010 and the first quarter of 2011. Custodian of the Two Holy Mosques, The global economy is still suffering from the weakness caused by the global financial crisis and the resulting problems of sovereign debts of a number of states in the industrialized world. However, our domestic economy, thanks to Allah, has avoided the pitfalls of public and private debt which had strained the economies of many industrialized countries. Therefore, our national economy in 2010 continued its growth for the eleventh year in a row, growing by 4.1 percent, and the non-oil sector by 4.9 percent. | Despite the increasing role of the non-oil sector in the national economy, particularly the role of the private sector, the oil sector is still the main driver of the national economy, where most of the country’s revenues and receipts of the balance of payments are coming 2 BIS central bankers’ speeches from. Therefore, it is necessary to continue to work hard in order to diversify sources of income to ensure the sustainability of economic development in the long run and reduce the risks associated with relying on a single source of income. Third: Reduction of high domestic consumption of oil and gas, as figures indicate an annual average increase in domestic consumption of 7.3 percent over the past five years, which is high by any measure and not commensurate with the rate of growth in population and GDP. There is no doubt that the increase in domestic consumption of oil, in addition to being a drainage of resources that God has bestowed upon us, it limits the quantities available for export in the future. Thus, it is necessary to consider the reasons of the increase in domestic consumption of oil and gas to rationalize their consumption. Custodian of the Two Holy Mosques: As we are on the threshold of a new gracious budget, I pray for the Almighty Allah to preserve you as the leader of the march of this blessed and generous country. May Almighty Allah lead your steps to success. BIS central bankers’ speeches 3 | 1 |
Jarle Bergo: Best practice in structuring stabilization and commodity wealth funds Presentation by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at the European Institute's Sovereign Funds Roundtable, London, 8-9 May 2007. Please note that the text below may differ slightly from the actual presentation. * * * Let me begin by thanking the organizers for this opportunity to share with you some of the most important features of our Government Pension Fund – Global, formerly known as the Government Petroleum Fund. Any discussion on how to invest funds must depart from an understanding of when, and for what purpose, the funds are to be used. That is how we can distinguish between relevant risk and less relevant risk. We need to be aware of the risks of not reaching the objectives of the fund. All funds have an objective, but not all objectives can be translated into precise and clear-cut solutions for how to invest the funds. Many commodity wealth funds belong to this category, where liabilities have to be thought of in a very broad sense. The Norwegian Pension Fund has always been more similar to an endowment than to a stabilization fund, but even more so in later years as the Fund has grown faster than expected and has become very large relative to the Norwegian economy. Today I would like to focus on some of the major structures and principles supporting the Norwegian model. | Brexit was and remains bad news, above all for our British friends. But it brings for us an opportunity. The EU post-Brexit financial system will certainly be less concentrated than it is today and more active on the continent, based on Eurozone abundant savings. And, in this new environment, the Paris financial centre has obvious advantages, building on the very welcome measures announced by the Prime Minister to strengthen Paris’ attractiveness. To name a few, France has the most developed capital market in continental Europe, the largest asset management industry and is the leading private equity investor; French universities are renowned worldwide for the excellence of their finance teaching. Paris has everything it needs to be one of the best financial centres in the euro area: it depends on us, on all of us. You can rest assured that Banque de France and ACPR are strongly committed to fully playing their part in supporting the Paris ecosystem. i G20 Leaders’ Declaration, Hamburg, 7/8 July 2017. Assets of “Other Financial Intermediaries” (OFIs); sample of 21 individual non-euro area jurisdictions and the euro area aggregate. Source: FSB, Global Shadow Banking Monitoring Report 2016, May 2017. iii See U.S. Department of the Treasury, “A Financial System That Creates Economic Opportunities”, June 2017. ii 3 | 0 |
If a situation arises whereby Norges Bank is not able to return the krone to its initial range without such consequences, the Bank will inform the government authorities that measures other than those available to the Bank are required. This may involve recommendations concerning fiscal measures that make it possible to return the krone exchange rate to its initial range and to stabilise it. In the event of pronounced and prolonged shifts in the economy, fiscal policy and wage determination must contribute to restoring balance in the economy. However, if fundamental and permanent changes have taken place in the framework conditions for the Norwegian economy, it may also be appropriate to change the guidelines for monetary policy. According to the Maastricht treaty, the main objective of the ECB is the maintenance of price stability. The ECB has defined price stability as inflation of 2% or lower. BIS Review 92/2000 4 Inflation in Norway cannot remain higher than inflation in the euro area year after year without any consequences for the exchange rate between the Norwegian krone and the euro. If price and cost inflation remains higher than the rate of increase aimed at by the ECB over a long period, the krone will depreciate against the euro sooner or later. Even if instruments are oriented with a view to stability in the krone exchange rate against the euro, cyclical differences will result in inflation differentials between Norway and euro area countries. Business cycles have been desynchronised over the last 15 years. | In line with its clear mandate, enshrined in the Treaty establishing the European Communities, and for sound economic reasons, the ECB has to decide which monetary policy best serves the maintenance of price stability over the medium term and then act accordingly. At the same time, the Treaty also emphasises the need for sound fiscal policies. This clear separation of responsibilities is both efficient and transparent. Obviously, monetary policy alone cannot solve Europe’s economic problems such as the present intolerably high level of unemployment. Appropriate structural reforms implemented by national governments are of the utmost importance and much progress is required in this broad area. Moderate wage settlements in both the public and private sectors would, of course, contribute to reducing the high level of unemployment in many parts of the euro area. In this context, let me remark that recent wage agreements in some parts of the euro area do not appear to be in line with the need to encourage higher employment. The Eurosystem’s monetary policy strategy With regard to the Eurosystem’s monetary policy strategy, I should like to emphasise that the euro area monetary policy is a single one and therefore indivisible – by definition. Monetary policy decisions must be based on area-wide rather than national considerations and hence on area-wide indicators. Monetary policy has to be transparent so as to stabilise public expectations of future price developments. | 0 |
High productivity growth contributed to low inflation in 2006 Inflation rose last year, but was nevertheless below the 2 per cent target. CPI inflation rose by an average of 1.4 per cent. Underlying inflation, UND1X, was 1.2 per cent. A comparison with our forecasts shows that inflation was lower in 2006 than we had anticipated in 2004. On the other hand we succeeded in predicting last year’s inflation in the forecasts we made in 2005. One reason why inflation has been low in recent years is that prices of imported goods have developed weakly. This is probably linked to stiff international price competitive pressure. Another important reason is that productivity has risen faster than the Riksbank and other forecasters had expected. The unexpectedly high productivity growth has meant that companies have been able to increase production at a rapid rate without costs per unit produced rising to any great extent. Understanding which mechanisms and changes in the economy that lie behind the strong productivity has been, and is, an important task for the Riksbank. Other forecasters have also assumed that companies’ production conditions should have been affected by the various structural changes we have seen acting in the economy over many years now. I am thinking here of phenomena such as globalisation and the rapid development of information technology. Most analysts probably agree that these changes have contributed to increased competitive pressure and that they have enabled production to be made more efficient in several ways. | Their breadth indicates that it is not particularly meaningful to focus on tenths of percentage points in inflation. But the uncertainty bands also show that there is a large probability that inflation will remain within the tolerance interval of 1-3 per cent over the coming years. It is also worth reminding that inflation seen over a longer period of time has not on average deviated significantly from the target. In our current assessment the rate of wage increase is particularly uncertain. On the one hand, the fact that many agreements in the labour market will be renegotiated in a favourable labour market situation entails a risk that wages will increase more than we had assumed in our main scenario. On the other hand, it is also possible that we are underestimating how much the labour supply may increase. This means there is also a downside risk for wages. As before, we cannot ignore that there are risks linked to the rapid increase in house prices and loans. Imbalances could build up. When imbalances sooner or later have to be corrected, this can lead to undesirable fluctuations in inflation and the real economy. At our most recent monetary policy meeting we weighed these risks and considerations against one another. This resulted in the assessment that the repo rate needed to be raised by a further 0.25 percentage points and that it would then need to be raised once more over the coming six months. | 1 |
Promises about future actions may be seen as not fully credible given the potential for changes in a central bank’s leadership and policy committee and the degree of uncertainty about economic conditions that will prevail far out in the future. 8 In addition to acting to manage inflation expectations, the central bank can also support expectations about the outlook for growth and job creation. This can be implemented by making it clear that, subject to mediumterm price stability, it will seek to stabilize the economy and has the means to do so even at the zero bound. 6 BIS central bankers’ speeches In recent years, we have developed considerable positive experience providing accommodation through changes in the size and composition of the central bank balance sheet. Taking interest rate risk and mortgage prepayment risk out of private hands has proven to be effective in easing financial conditions, increasing wealth and lowering private sector borrowing costs.9 The impact of purchases may be attenuated to some degree by deleveraging and ongoing adjustments in markets such as real estate. But it is material even in these circumstances, and builds over time as these needed adjustments proceed. The sum is greater than its parts Another important insight is that each of the components of policy – the current stance in terms of the policy rate and the balance sheet, expectations about the future stance, the degree of commitment to future policy, and the clarity of communications – all interact. | Immediately upon reaching the zero bound, we provided additional stimulus by expanding our balance sheet and deploying forward guidance on the policy rate. These actions, in the context of a strong commitment to both our inflation and employment mandates, succeeded in preventing deflation expectations from taking hold, even though real outcomes were disappointing. We also took steps to formalize our 2 percent inflation objective.7 The Fed’s large-scale asset purchase programs differed from those originally undertaken in Japan both in theory and in practice. They were concentrated in longer-term securities – Treasuries and agency mortgage-backed securities. This reflected a different perspective on how purchases affect financial conditions and the economy, as well as the different structure of our financial system. Our view is that asset purchases work primarily through the asset side of the balance sheet by transferring duration risk from the private sector to the central bank’s balance sheet. This pushes down risk premia, and prompts private sector investors to move into riskier assets. As a result, financial market conditions ease, supporting wealth and aggregate demand. The fact that such purchases increase the amount of reserves in the banking system and the size of the monetary base is a byproduct – not the goal – of these actions. The U.S. also moved relatively quickly to recapitalize core financial institutions – partly as a result of good judgment, but also because the intense pressures of a capital markets-based financial system forced us to confront these issues. | 1 |
The FSB has set in train two courses of action to prevent an excessive concentration of banking risk off the balance sheets of banks: first, it monitors their size, activities and risk characteristics; and second, it is working on the introduction of measures both for institutions (particularly closed-end money market funds) and for activities (particularly certain forms of alternative funding, such as securitisation or the funds obtained through the repo market or securities lending). Lastly, increasing emphasis will be placed on monitoring the implementation of reforms. One of the lessons learned during the crisis was that international standards must not only be appropriate, but also effectively and uniformly implemented across jurisdictions to avoid situations of lack of competitiveness, regulatory arbitrage or creation of systemic risk. I am sure that, as in previous years, your Meeting will be extremely interesting and informative. There is no shortage of issues and problems. Thank you. BIS central bankers’ speeches 5 | Since then, we’ve seen more positive readings on China’s economy, in part due to steps the authorities have taken to reignite growth. And financial markets have definitely rebounded from their winter doldrums. Still, we’re not entirely out of the woods regarding risks from a global growth slowdown. Signs of weakness in Japan, South Korea, and some regions of Europe continue, so I am particularly vigilant about monitoring the international data. Trade tensions and ongoing uncertainty regarding Brexit continue to present downside risks. Monetary Policy What does this mean for monetary policy? At last week’s meeting, the Federal Open Market Committee decided to leave the target range for the federal funds rate unchanged, between 2-1/4 and 2-1/2 percent. We also reiterated our patient approach to assessing the need to adjust interest rates in the future. In a nutshell: The economy remains on a path of healthy growth, with a very strong labor market and without the emergence of inflationary pressures. The current setting of policy positions us well to keep it that way. Although my view that we are in the right place in terms of monetary policy has not changed of late, the reasons for it have evolved in line with the economic and financial developments I sketched out earlier in my remarks. The strength of recent data on economic activity, the rebound of growth in China, and the reversal in the tightening of financial markets all imply that near-term risks to growth have receded somewhat. | 0 |
This brings me to the Basel III which not only addresses the shortcomings of Basel II but goes far beyond by introducing a variety of new concepts which have raised the bar in terms of global supervisory standards. Some of these concepts emerged from the various lessons learned exercises that were carried out following 2007, while others are a product of serious research and reflection by the global banking supervisors. Basel III has introduced some fundamental reforms such as elevating the status of Common Equity capital as the key component of Core capital. It also has introduced the concept of a conservation capital buffer and even more importantly an additional countercyclical buffer on top of the minimum capital BIS central bankers’ speeches 1 requirements. Also Basel III has recognized that liquidity is as important if not even more important than capital for safety and viability of banking institutions. It has recognized that there must be limits on leveraging by financial institutions so that bankers are restrained from excessive risk taking. Basel III also has taken a serious and perhaps a much needed closer look at risks in trading and investment activities and particularly for derivatives and off balance sheet transactions. In July 2009, as an interim measure, Basel Committee had issued a document addressing the market and trading book weaknesses in Basel II for immediate implementation. This document is known as Basel II.5. Basel III goes much further with refinements in areas such as counterparty credit risk, Credit Value adjustments, etc. | These measures should enhance the risk management, governance and supervision of such activities as securitizations, resecuritizations and credit derivatives. Also at the conceptual level there is far greater emphasis on stress testing by banking institutions for various risks. Banks are required to develop stress scenarios and demonstrate their ability to cope and survive under stressful situations. Basel III also requires supervisors to use stress testing at the systemic level. One related area of major concern that has kept Basel Committee very busy is the enhanced supervisory regime for Global Systemically Important Financial Institutions(G-SIFIs). These institutions will be subject to a more stringent, sensitive and effective supervisory regime and will also face a higher capital charge in form of common equity capital. They are already subject to supervisory colleges and to the emerging requirements of stronger resolution regimes. There is already an informal consensus that these rules will be equally applied to Domestic SIFIs. I do not want to delve into many details on these measures which I am sure will be covered by various speakers today. I just want to make a fundamental point that the Global supervision is reverting back to fundamental values of prudence, conservatism and simplicity. These are the same values that SAMA has always espoused and maintained and therefore for us the transition to Basel III raises no major concerns nor poses major challenges. | 1 |
Source: Ministry of Finance, Medium Term Program (2010-2012). 28. The determined implementation of fiscal discipline in Turkey since 2002 has helped cut the ratios of government budget deficit and debt to GDP, to a level well below the average of both advanced and emerging economies. Although Turkey’s budget deficit expanded at a faster pace than in many other emerging economies in 2009, according to the MTP projections, government debt stock is likely to remain below the average of other emerging economies in the upcoming years. 10 BIS Review 68/2010 General Government Budget Deficit and Debt Ratio Average Values in Advanced Countries and Turkey Average Values in Emerging Countries and Turkey (Percent of GDP) (Percent of GDP) 100 Aver age of A dvan ced Cou ntrie s** 80 2 008 70 2 003 2003 60 50 20 12 40 2 008 2003 2 003 60 55 2012 50 2 008 45 2012 40 Tur key Tu rkey 2008 30 35 -2 0 2 4 6 8 10 Budg et D eficit *Dashed lines indicate forecasts. **Includes USA, UK, Germany, France, Spain, Ireland, Iceland, Japan, Portugal, Israel, Greece, Italy, Austria, New Zealand and South Korea. Source: IMF. Turkish data is taken from the Ministry of Finance, Undersecreteriat of Treasury, Medium Term Program (2010-2012) and Program for 2009. 29. | Economic recovery in Spain requires structural changes that will encourage technologically dynamic productive sectors with high growth potential to take up the baton from construction. For this to occur, the labour market must function so as reallocate resources, increase and adapt workers’ skills to new demands, and make productive processes within companies more efficient. Reform should focus on ensuring that labour conditions adjust to the economy’s different cyclical junctures and, in particular, to the specific circumstances companies or productive sectors face. That should prevent the adjustment coming about through pushing large numbers of workers out of the market. Changes are also needed in hiring arrangements. These must allow workers who have lost their jobs to return promptly to active working life, so they do not spend long periods unemployed, the consequences of which were so adverse in the past. Improvements in labour market intermediation systems and in mobility and training for the unemployed are also very important. Resolute action here would help check business closures and lessen the risk of decapitalisation, which is admittedly very high at present. If, moreover, significant progress were made in eliminating administrative formalities, the Spanish economy would be better placed to resume a high growth rate once the world recovery began. To bring about a new productive pattern enabling high rates of potential growth to be regained, structural measures must span a wide range of fields. Improving the level of educational attainment of the labour force is vital for raising the quality and productivity of human capital. | 0 |
The responsibilities of individual policy areas in ensuring sustained non-inflationary growth This brings me to a crucial issue: the single currency is the joint responsibility of all policymakers and Member States. Monetary policy is strictly geared towards the maintenance of price stability and thus also makes an important contribution to strong growth in output and employment. However, monetary policy needs the support of other policy areas. This is best achieved by having specific roles, clear mandates and agreed responsibilities for the individual policy areas. Let me go into these in a little more detail. The best contribution which monetary policy can make to sustainable growth is to achieve price stability. Indeed, inflation entails numerous costs and creates an uncertain economic environment. This is harmful to an optimal allocation of resources and thus hampers economic growth. Some costs of inflation are quite tangible, as is the case with those induced by the periodic revision of prices and indices or the increasing cost and time spent in cash transactions. More generally, increased inflation is accompanied by increased volatility of inflation. Stable high inflation has almost never been observed, and is seemingly a contradiction in terms. This volatility of inflation creates uncertainty which affects economic and social decisions. | BIS Review 38/1997 -7- Diagram 3a Real w ages and em ployed persons, EU and U SA, 1970-97 Index 1970=100 EU 170 USA 170 170 160 160 150 150 140 140 130 130 130 120 120 120 110 110 110 100 100 100 90 90 90 80 80 80 160 R e a l wa ges 150 140 130 E m ploy m ent 120 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 170 160 150 E m ploy m ent 140 110 R e a l wa ges 100 90 80 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 S ource : O E CD As shown in Diagram 3a, since 1970 the average real wage in the United States has risen by a total of 15 per cent but by as much as 60 per cent in the EU area. The change in employment, as I mentioned earlier, has been the opposite. | 0 |
So we need policies and principles that stand in the way of its weakening the resilience of the system, while allowing enterprise and our capital markets to flourish. 15 See the Bank’s recently published paper: “The role of macroprudential policy: A discussion paper” and Tucker P M W (2009e), “The debate on financial system resilience: Macroprudential instruments” at the Barclays Annual Lecture in London. 8 BIS Review 6/2010 | There is no necessity to reinvent the wheel. Reinventing the wheel takes time and very expensive, and you would never be sure whether it can be successful. Established Islamic finance jurisdictions are more than happy to share their experiences. The more jurisdictions adopt Islamic finance, the better the future of the industry. There are already proven practices and documentation that bridge theology to practice. Many years of efforts have taken place. Accountants, lawyers, tax experts, regulators and bankers have put their minds to create standardised agreements and BIS central bankers’ speeches 1 instruments, such as the Wakalah Agreement and Commodity Murabahah Master Agreement that are widely accepted across jurisdictions through bilateral and multilateral agreements. These agreements and instruments have stood the test of market and time. It is wise to adapt and customise them to the local environment. Shariah a pillar of Islamic finance. It is a factor that will determine whether Islamic finance would move forwards. I have both good news and bad news on this. The good news is, a lot of concepts and contractual characteristics are already resolved and widely accepted. These are many and the differences are very few. The bad news is, there is still a very small minority continuously asking the basic questions that I thought have been resolved collectively. While giving a dissenting view is not wrong nor discouraged, but if it is made by a well-known personality, it would create doubts and uncertainty. | 0 |
Bwalya K E Ng’andu: The National Strategy on Financial Education for Zambia Remarks by Dr Bwalya K E Ng’andu, Deputy Governor (Operations) of the Bank of Zambia, at the launch of the National Strategy on Financial Education for Zambia, Lusaka, 12 July 2012. * * * The Deputy Minister of Finance, Honourable Miles Sampa, M.P; The Minister of Education, Honourable Dr. John Phiri, M.P; The Chief Executive Officer of the Securities & Exchange Commission, Dr. Wala Chabala; The Registrar, Pensions and Insurance Authority, Mr. Martin Libinga; Your Excellencies, Heads and Representatives of Diplomatic Missions invited; Senior Government and financial sector industry officials; Distinguished Invited Guests; Members of the Press; Ladies and Gentlemen. Honourable Ministers, I am delighted to welcome you, on behalf of the three financial sector regulators, i.e. the Securities and Exchange Commission, the Pensions and Insurance Authority and the Bank of Zambia, to the launching of the National Strategy on Financial Education for Zambia. The launch is being done under the auspices of the Financial Sector Development Plan and represents a culmination of a wide range of activities which have been carried out within the scope of the Plan since 2002 with the objective of addressing challenges in the financial sector and strengthening and broadening access to financial services in Zambia. | This initiative grew out of the recognition of the fact that financial institutions and certain NGOs that were engaged in promoting various financial education activities and programme were operating in isolation. What was clearly missing was a coherent and well-co-ordinated strategy among these organisations for delivering an effective education to enhance financial literacy and inclusion. Consequently the FSDP identified the need to develop a coordinated approach to financial education as a meaningful way of bringing progress to this process. It therefore, started its intervention by commissioning a stock taking study of financial education efforts taking place in Zambia in order to establish its true status. DFID provided financial support in the form of technical assistance which enabled the FSDP to recruit FinMark Trust to carry out the study. Subsequently, a report was produced and presented to various stakeholders in November last year. The recommendations from the stakeholders meeting were then sent to the FSDP Steering Committee in April this year. This Committee endorsed the report and it is this report which is being launched today as the National Strategy on Financial Education for Zambia. Once launched, it will be implemented in earnest. Honourable Ministers, the activities that have been carried out under this programme have been made possible by the very generous financial support extended throughout the different phases of the programme by the IMF, World Bank, DFID, SIDA and the Government of the Republic of Zambia. | 1 |
Both documents, the guidelines and the addendum, clearly demonstrate the attention the supervisor has been paying to credit risk in general, and to non-performing exposures in particular, and they represent the benchmark supervisory tool in the supervisory dialogue with banks. In July 2018, the ECB announced that, along with the foregoing, and with the aim of achieving similar coverage of the flows and stock of non-performing loans, the setting of bank-specific supervisory expectations in respect of prudential provisioning levels for the stock of non-performing loans would also form part of the supervisory dialogue. The better prepared institutions are for this dialogue, the more fluid it will be. Before addressing the last of the key strategic aspects I wish to talk about today, namely governance, I believe it should be said that any strategic reflection should also include appropriate liquidity planning. This should take into account those elements that may most affect it, with particular attention to monetary policy implementation decisions. To conclude these considerations on strategic reflection by banks, I shall refer to governance and risk management. The crucial element for being able to properly manage and attain profitable business models over time is to have suitable governance structures. Governance structures shape the decision framework on risks. They are thus determinants of how a bank’s risk profile develops and, ultimately, of its medium and long-term sustainability. They are a necessary and basic element without which success in any project cannot be expected. | In doing so, I will perforce refer to some of the findings included by the Single Supervisory Mechanism (SSM) in its recently published thematic review of the determinants of profitability and business models.1 A comprehensive reflection Taking the first adjective, when I say a comprehensive reflection is necessary I refer to the fact that a bank should examine its income and costs at the greatest level of detail possible: by product and not by customer, by business line and by geography. It should seek to gain detailed knowledge of which activities generate recurring profits, and which occasional profits or even losses, delving into the reasons that may explain each of these results. This will allow the bank to identify whether there is scope to turn the profitability of certain activities around, or whether it is better to change tack or abandon such activity. In addition, the bank will be in a position to judge whether the reality of its business, understood as its assets/liabilities mix, and the decisions taken in and bearing on such activity are appropriate or need adjusting. In short, if the bank has advanced tools to improve profitability, it can develop an appropriate, consistent and comprehensive price-setting policy to ensure that the price it charges for a product or service matches its total cost, including the risk premium. | 1 |
Losses were low on loans to the household sector compared with loans to the enterprise sector during the banking crisis at the end of the 1980s and beginning of the 1990s. Despite high real interest rates and a decline in income, households were largely able to service their debt. High interest expenses and a decline in income, however, led to a reduction in household consumption. This led subsequently to lower turnover in the enterprise sector and weakened profitability and debt-servicing capacity. In this way, households contributed to an increase in banks’ losses on loans to the enterprise sector. The higher the household debt burden is, the stronger the spillover effect can be from households to enterprises. 4. The stability of the financial system Given the current picture, a sharp increase in bank losses is not likely in the near future. This is also the assessment of the IMF, which recently evaluated the Norwegian financial system. The IMF concluded that the Norwegian financial system is solid and well managed, and that short-term vulnerabilities are low. Even with a strong negative shock to the economy, losses are expected to be far lower than during the banking crisis. This is probably because of the increase in the share of loans to households, for which losses are normally not very high, and because enterprises are now in a far stronger financial position than they were at the end of the 1980s and beginning of the 1990s. | On the fiscal front, cuts in wage and corporate income taxes differentiated across regions have been put in place last week to support the economy that is already growing at a moderate pace. 1 On March 15, 2009 Special Consumption Tax (SCT) rates were decreased on vehicles to %18 from %37, and on durable goods and other electrical household appliances to %0 from %6.7. These rates were increased on vehicles to %28, on durable goods to %2 and on other electrical household appliances to %6.7 on 16 June, 2009. By October 1, 2009, SCT rates were brought back to the levels before March 2009. Similarly, Value Added Tax (VAT) rates on furniture and IT products were slashed to %8 on March 30, 2009, before being raised back to the initial rate of %18 on October 1, 2009. BIS central bankers’ speeches 3 Dear Participants, So far I have touched on the impacts of movements in commodity prices on inflation and economic growth. Now I will talk about the impact of fluctuations in commodity prices on foreign trade balances. The dependency of the Turkish economy on energy imports makes the current accounts balance more sensitive to changes in commodity prices. Uncertainties regarding the global economy in recent years and the exceptionally loose monetary policies adopted by advanced economies, such as the United States, Japan and the Euro Area, foreshadow the high probability of continued excess volatility in commodity prices. | 0 |
Indeed, despite the context of an increasingly uncertain global economy, Chile has continued to show significant growth rates, has reduced unemployment and has advanced in repairing the damages caused by the earthquake and tsunami that hit us last February 27th (27-F). At the same time, after a prolonged period of very low and even below-zero figures, inflation has returned to the defined tolerance range and is headed, according to our own projections and private expectations, toward levels consistent with the 3% target range (figure 1). That the stimulative monetary policy applied during all of 2009 bore fruit is without question. The extraordinarily expansionary conditions implemented more than a year ago by way of a historical reduction in the monetary policy interest rate, together with special liquidity facilities and the communication that the monetary policy rate (MPR) would be kept at its minimum level throughout the second quarter of this year, limited the persistence of the negative effects of the crisis on the capacity of households, firms, and financial institutions to repay their debts and generate income. Furthermore, these measures helped set the grounds for the vigorous economic upturn we are seeing now. The expansionary monetary stance of early this year permitted, also, to keep at bay the financial effects of the earthquake and provide a lending environment that would foster reconstruction. | Overall the euro area banking system is now far more resilient: in terms of capital for instance, the Common Equity Tier 1 ratio of significant euro area banking groups has risen from less than 7% in 2008 to more than 14% today. In this context, and within the banking union framework, we need to allow more cross-border bank mergers. These will enable banks to better shift savings across national borders towards where investment needs are. And obviously we should preserve and complete international financial regulation on both sides of the Atlantic. Cooperation on regulation has been a win-win game. Competition on regulation would be a destructive one. 3. How I see the future of the euro area: a call for action. This leads me to the question of the future of the euro area. Let me be blunt here: I see it as promising, if we act. Obviously there are challenges today, be they domestic – euroskepticism and unemployment – or global – uncertainty in the West (US and UK) as well as in the East. But I am convinced that the answer to the current challenges is not “less Europe”. Less Europe would be a mistake if we want to remain in control of our common destiny. That said, there is room for further improvement, for a “better Europe”. Twenty-five years ago, we spoke of an “Economic and Monetary Union”. Since then, we have made a success of Monetary Union, but we have not been very effective with regard to Economic Union. | 0 |
The winter weather was quite severe in the eastern two-thirds of the United States and bottlenecks at the West Coast ports disrupted both sales and production. More important in assessing the growth potential of the U.S. are the improved underlying fundamentals. The firming of growth in 2013 and 2014 reflected several important developments that, in my view, are likely to continue to support growth over the remainder of this year and into 2016. Those developments include the fact that the household deleveraging process has largely run its course and the imbalances in the housing market have been largely worked off. In addition, federal fiscal consolidation appears to be over for BIS central bankers’ speeches 1 now, and employment and spending are again increasing at the state and local government level. My outlook for 2015 as a whole is that economic growth will be close to the pace of the past two years, supported by continued solid fundamentals and accommodative financial conditions. If I am correct, then this would lead to a further reduction of labor market slack, with the unemployment rate approaching 5 percent by the end of the year. An important underpinning of this outlook is that, after a lull in the first quarter, household spending will move back toward the kind of growth path it was on over the second half of 2014, when real PCE grew at about a 3¾ percent annual rate. | The real exchange rate of the króna is somewhat below its likely long-term average, although it has risen in the past year. 6 BIS Review 138/2010 As economic recovery gains pace, the outlook for capital account liberalisation improves. Recovery tends to be accompanied by increased inflow of foreign capital in the form of credit or direct investment. Significant inward foreign direct investment could set the stage for removal of the controls. Although suggestions that recovery began late in 2009 or in the first half of 2010 have proven to be a mirage, a number of indicators imply that Iceland has hit bottom or is close to it, and that growth will resume in the latter half of this year. But the pace of the recovery will depend greatly on our success in attracting foreign capital for exportgenerating investment. The main objective of the IMF programme is to build confidence in Iceland’s economy and economic policy. If that confidence existed now, it would be possible to lift the controls today. Considerable discussion has been devoted to the instability of foreign capital that could flee as soon as the controls that hold it in place are reduced or eliminated. Although the magnitude of foreigners’ frozen ISK assets is broadly known, information on non-resident retail owners of ISK assets is largely hidden. | 0 |
Year 2004 was characterized by the achievement of fiscal objectives in terms of budget expenditures and budget deficit, and also by a more uniform allocation of fiscal expenditures. Government demand for loans has been distinguished by a rising level during the second semester, however remaining within the projected levels. Also, the annual rate of the change of current budget expenditures was stable. The implementation of a prudential fiscal policy has provided the appropriate conditions to better control inflation rate. During the second half of 2004, the Bank of Albania monetary policy has kept an easing tendency, aiming above all at reducing the borrowing cost in the economy. Bank of Albania has twice cut the core interest rate, in July and November, by 0.25 percentage points. These cuts have brought the core interest rate to the lowest historical rate, by 5.25 percent. The banking system was characterized by an accelerated lending activity to the economy during 2004. The credit balance increased by LEK 9.2 billion during June-November 2004, being 51 percent higher than the balance growth in the first semester of the year. Lending to the economy is given an everincreasing importance in the assets structure of the banking system, constituting a considerable source of the demand for monetary assets. The credit/deposit ratio increases on a continuous basis, an indication that positively introduces the function of the intermediation role of the banking system in supporting the economic development. | This rate is in compliance with the provided demand of the economy for money, coming from its real growth by 6 percent. The Bank of Albania monetary program is designed in line with other policies of the economy, where its harmonisation with the government fiscal policy is highlighted. The Bank of Albania estimates that like in the past years, even in 2005, the country's economic development will be in conformity with the overall development program objectives. The last developments of the banking system consolidate the optimism that it will fulfil to the best of its knowledge the role of financial intermediation in the economy. We deem that its consolidation will continue with accelerated rhythms throughout this year, providing to the large public more credits, more services and more security in the savings conduct. 2/2 | 1 |
Svein Gjedrem: Inflation targeting Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the seminar on foreign exchange policy issues arranged by the Association of Economists, Gausdal, 31 January 2003. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 22 January and on previous speeches. Please note that the text below may differ slightly from the actual presentation. * * * The Norwegian economy exhibited strong growth from 1993 until 1998. This recovery brought the economy out of recession into a period of high economic activity. Mainland GPD and consumer prices Percentage change on previous year 6 6 5 5 Mainland GDP 4 4 Consumer prices 3 3 2 2 1 1 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: Statistics Norway SG Gausdal 31.01.03 Growth in the mainland economy in the 1990s averaged over 3 per cent. Inflation was low and stable at around 2½ per cent annually, while it was higher than 8 per cent in the 1980s. | A positive output gap indicates a level of activity that fuels pressures on economic resources and rising price and cost inflation. (See for example Frøyland and Nymoen (2000) and Olsen, Qvigstad and Røisland (2003) for more on the output gap.) The optimism spread to Norway, where equity prices also rose. The level of activity was very high in the securities market, among corporate lawyers, consultancies and in the ICT industry. High oil prices through most of the 1990s resulted in buoyant investment activity and growth in operating expenses in the petroleum sector. With substantial government tax revenues, expectations concerning the use of petroleum revenues also rose. It became increasingly challenging to keep pressures in the economy at bay by means of fiscal policy. The response to this challenge was the revision of economic policy in spring 2001. The most important policy change was the strategy for the phasing in of petroleum revenues – the so-called fiscal rule. An inflation target for monetary policy was introduced at the same time. The revision came after four years of strong economic expansion and high growth in labour costs, pressures to spend petroleum revenues and high household credit growth. Implementation of monetary policy • The interest rate is set so as to keep inflation at a low and stable level • Higher interest rates will reduce inflation by curbing demand and strengthening the krone. An interest rate reduction has the opposite effect. • The effects of interest rates on inflation may vary over time. | 1 |
The UK is undergoing a consolidation of key retail payment systems under a single New Payments Architecture (NPA), aimed at addressing the lack of a common entry point for access and different on-boarding processes for participants across the different systems. Similarly, Australia launched the New Payment Platform earlier this year, which is seen as a key payments infrastructure for the domestic market. Of significance, these developments share common outcomes – to avoid duplication of industry resources, widen network reach and enable economies of scale. Here in Malaysia, pooling of resources at the infrastructure level has been a longstanding strategy for the payment system. As early as 1997, Malaysia had consolidated its three ATM networks to eliminate fragmentation in that segment. More recently, we saw the formation of PayNet which serves as a shared payment infrastructure to facilitate domestic payments. Of note, PayNet will be launching the Real-time Retail Payments Platform (RPP) next week. This will be supported by a National Addressing Database (NAD) that enables users to pay seamlessly and securely using simple identifiers such as their mobile phone, national registration 4/6 BIS central bankers' speeches or business registration numbers. At the international level, regulators should also seek to collaborate towards promoting greater harmonisation or centralisation of legal, technical and operational arrangements for payments. These include exploring the adoption of international standards such as the ISO 20022 messaging standard. These standards would enhance compatibility across different infrastructures and pave the way towards greater cross-border interoperability. | If not managed well, cross-border differences may hamper efforts to support bilateral or regional integration, such as where local payment companies look to expand or integrate to enable crossborder connectivity. Shifting market expectations is the third key challenge, which can lead to a gap between customer demand and payment services available. Consumers today are increasingly used to on-demand services that are instant and seamless. To this end, retail payments are making good progress – increasingly, more countries have developed real-time payment infrastructure that support instant peer-to-peer (P2P) payments. However, the same experience is increasingly expected – but not necessarily delivered – for other segments, such as in consumer-to-business (C2B) and business-to-business (B2B) payments. Gaps also remain on the cross-border front in terms of speed, transparency and cost. The growing complexity and depth of global financial markets, such as in securities and derivatives markets, also has implications on large value payment systems. Financial institutions and large corporates are gradually facing more difficulties in handling multiple types of financial instruments across multiple jurisdictions and across multiple functions within their organisations. Perhaps there may be demand going forward for payment systems to support greater sophistication in user functionality, such as liquidity optimisation facilities for banks and automated treasury services for corporate clients. Keeping in mind these challenges, a few questions come to mind. First, what is the appropriate role for regulators when it comes to digital innovation in payments? | 1 |
Of course, it is not desirable that the only possibility is to withdraw the license of an institution whose capital adequacy falls below the eight per cent level. In Sweden, there is every reason to look more closely into the obligations and powers of authority of Finansinspektionen. Another motive for the authorities to act quickly is to be able to quickly pay the deposit guarantee. To be able to make the necessary preparations for this, the authorities therefore need to have access to and control over relevant data files at an early stage when an institution gets into difficulties. This has been a problem in earlier cases of compensation from the Swedish deposit guarantee. If the financial system is threatened, the authorities must also be able to temporarily take control over the bank to maintain vital functions. The banks’ central role in the payment system means that payment defaults by one bank can have substantial domino effects. The consequences for the rest of the financial system may then be difficult to survey. With regard to institutions lacking a long-term survival capacity, it is of course important that they are wound up as quickly and smoothly as possible. There must be several different alternative methods for winding up banks to make it possible to choose the model that is best suited and entails the least cost to society. Of course, it would be best if one could get another bank to take over this institution’s activities. | Ladies and Gentlemen, the development of the local bond market is central to Government’s strategy for diversification of the economy for one key reason. All businesses, including state owned enterprises, require finance, covering both equity and debt, and ranging from short-term to long-term. In the absence of a properly functioning local bond market, those in need of capital and qualified enough have had to turn to international financial markets to finance their local projects with the attendant exchange rate risk. Similarly, those seeking a competitive return on their investments that also meet their maturity preferences but are unable to find these features locally, have always sought out alternative avenues offshore in foreign currency, thereby creating pressures in the foreign exchange market. Therefore, Government’s involvement in improving the local bond market has been deliberate. Ladies and Gentlemen, Government’s participation in improving the functioning of the local bond markets has seen the establishment of appropriate market infrastructure that facilitates cost-effective and secure trading, and a transparent price discovery process. Further, Government’s decision to bring to market longer term bonds in 2005 have proved to be positive and catalytic for the local bond market as this has resulted in an extended yield curve that has provided a benchmark for pricing longer dated security issues by the private sector and banking industry. | 0 |
Anita Angelovska Bezhoska: New statistical requirements in the post-crises era Speech by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of Macedonia, at the event on the occasion of the European Statistics Day, Skopje, 17 October 2018. * * * Dear Prime Minister of the Republic of Macedonia, Zoran Zaev Dear Eurostat Director General, Mariana Koceva Dear Ambassador of the European Union, Samuel Zbogar, Dear Finance Minister, Dragan Tevdovski Dear President of MANU, Taki Fiti Dear Rector, Nikola Jankulovski Dear Dean of the Faculty of Economics in Skopje, Ljubomir Drakulevski Dear Director of the SSO, Apostol Simovski Distinguished guests, This year we are marking the European Statistics Day, exactly ten years after the outbreak of the global crisis. Its intensity and duration were so pronounced that in the last ten years it has become usual to make almost all reviews and insights through the prism of the “pre-and postcrisis period", and this is probably not surprising given that the great shocks inevitably lead to reassessment of the conventional paradigms. The statistics as well is no exception in this respect. As the great depression highlighted the need for development of the national accounts statistics, while the Asian crisis the need to better perceive the links between the domestic financial system and capital inflows, leading to the development of several new statistical standards, the global crisis of 2008 once again brought the financial system into focus. | For example, in order to understand why the huge liquidity that the ECB brought into the banking system did not lead to stronger credit growth, granular data were needed, which will enable to better understand what drives the aggregates, and thus enabling the monetary policy to be more effective. All the statistical points indicated so far in one way or another are links within the G-20 statistical initiative, which, although not a formal framework for us, is a guideline we adhere to. In addition, this initiative is in synergy with other important international statistical standards, as well as European statistical requirements, which we, as a central bank, strive to follow. One such initiative is SDDS plus, as the third and highest pillar of the IMF’s statistical standards. I can proudly say that we, as a state, have shown a willingness to join this initiative, which is currently involving only 14 countries, actively working together with the SSO and the MoF to prepare all the requested data, thus preparing for accession to this highest standard are in the final stage. An additional aspect that brings new challenges to statisticians is the digitization process, which is also gaining momentum in the financial industry. Digitization and innovation of financial services imposes new challenges for their statistical monitoring and measurement. | 1 |
At present we are using stress testing to help us judge how resilient the banking system is to different severely adverse, but plausible, scenarios. A development of this approach would be to use stress testing more countercyclically. Rather than testing every year against a scenario of constant severity, the severity of the test, and the resilience banks need to pass it, would be greater in boom times when credit and risk is building up in the financial system and it has further to fall and then reduced in weaker periods when there is less risk in the system and the economy needs the banking system to maintain lending. Third, macroprudential risk goes wider than the banking system. Risks can arise in other parts of the financial system and in the real economy. A year ago, the UK housing market was clearly developing significant momentum. Prices were growing much faster than incomes. Borrowers were increasingly driven to borrow a greater amount relative to their annual income. The amount of such new mortgages at high loan to income (LTI) ratios – borrowers borrowing over 4 times their annual income – had exceeded its pre-crisis peak. The risk the Committee saw was that if the number of high LTI mortgages continued to grow, there would be increasing numbers of highly indebted households very vulnerable to a change in economic circumstances. This would increase both macroeconomic volatility and systemic risk. The Committee came to the view that this was a macroprudential risk that needed to be insured against. | 1/5 BIS central bankers' speeches Indeed, the various measures that were implemented have been instrumental in accelerating the e-payment agenda forward, only because of the cooperation of the industry, sometimes with a bit of nudging. But truth be told, we have been able to achieve so much. Today, the payments industry is no longer the exclusive domain of banks. The advent of FinTech driven by the increasingly inexpensive and pervasive internet and mobile technology has encouraged the entry of more agile non-bank players as potential disruptors or collaborators of the incumbent players. This has set the stage for an exciting new era in payments, an era in which the industry is expected to take on a larger role in delivering a more robust and efficient payments system for Malaysia. The Bank will facilitate this in three key ways: i. First, through policy initiatives to encourage collaborative competition or ‘co-opetition’; ii. Second, by further strengthening industry alignment; and iii. Third, by supporting more inclusive governance arrangements for the development of the payment system. Policies to promote co-opetition as a key enabler for greater efficiency, competition and innovation Network effects are critical to an efficient payment system. The larger the network of a payment system, the more valuable it is to users of the payment system. | 0 |
There is often a web of details to be ascertained in each case of possible misconduct. Any premature updates to the public can also compromise investigations. In such situations, regulators would avoid alerting suspects who are under investigation at the outset, so as not to prejudice the investigations, in the process of evidence gathering. As a matter of due process, the MAS does not reveal information during ongoing investigations until the investigations have been concluded. Some of these considerations equally apply to the SGX as the frontline market regulator. 2/4 BIS central bankers' speeches Notwithstanding this, the MAS supports putting out more information on our investigation outcomes and of our enforcement approach. Some of our recent measures include: (a) Press updates on our enforcement actions as well as publishing these on our website. (b) Enhanced disclosure of the MAS’ enforcement statistics through the use of infographics and dashboards in our Annual Report. This is to provide the public with a better overview of enforcement actions that the MAS has taken over the past year. Where appropriate, we will provide more information on our investigations that could be of public interest, as long as these do not compromise the reviews. (c) In 2016, we also published a monograph that explains the role of enforcement in the supervision of Singapore’s capital markets. We are in the process of updating the monograph by later this year. | As ever, we remain in the price stability business. The open question is how we will act in order to achieve the 2% inflation target sustainably, given the substantial challenges of the moment. That is the question on which I hope to shed some light this evening. Before developing this theme, let me start by recognising what a privilege it is to gather with the ‘Money Marketeers’ here in New York tonight. I would particularly like to thank Kris Dawsey for extending the invitation to speak. I understand that the objective of this longstanding group is ‘to foster greater understanding of finance and economics among senior practitioners and developing professionals [so as] to establish greater dialogue between the public and private sector on those substantive issues that move markets’. [1] Meeting that objective is a tall order. Today, I hope to make a modest contribution in support of this collective effort by exploring some of the similarities and differences between the outlook for monetary policy back home in the UK and the outlooks in other jurisdictions. | 0 |
As time goes on, we will sort out what we are learning and set priorities. In my comments today, I have chosen to focus on two observations that seem to me to offer important tentative lessons with regard to our own specific experience since early August. As I said at the outset, I am very much looking forward to reading thorough and rigorous academic analyses on these and other topics once we gain some perspective on the current market turbulence. BIS Review 141/2007 7 Figure 1: Banking problems worldwide, 1980-96. Source: Goodhart et al. | The devastating consequences of an unstable banking system have been demonstrated, for instance, by Federal Reserve Chairman Ben Bernanke in a series of seminal papers about the Great Depression. 6 A third and perhaps more subtle reason why we as central bankers care about financial stability relates to the role of central banks as lenders of last resort. Due to their monopoly as issuers of money, only central banks can provide a virtually unlimited amount of liquidity in times of distress. This fact inevitably confronts central banks with potentially large liabilities. In order to limit the risks to ourselves and ultimately to the economy as a whole, we have strong incentives to limit the size of these potential liabilities. Moreover, we want to limit the probability that these potential liabilities materialize in the first place. Simply put, through our lending of last resort function, we provide disaster insurance to banks. In return, we want to 2 The SFBC was founded in 1934. This was at least in part a response to the banking problems experienced during the Great Depression, which affected Switzerland particularly hard. 3 See Milton Friedman, 1969, The Optimum Quantity of Money and Other Essays. 4 Comparative GDP figures are difficult to obtain. Nevertheless, comparing the banking sector’s total assets with total GDP provides some clue about the banks’ importance. In Switzerland, the ratio of total banking assets to GDP is 10%, in the US 1%, in the UK 3%, in Germany 3%, and in Japan 2%. | 1 |
In recent years, average inflation has been fairly close to, but somewhat lower than, the target of 2.5 per cent. Consumer price inflation peaked in October 2008, and has since receded. In April this year, CPI inflation was 2.9 per cent. Inflation measured by the CPI varies somewhat from month to month, primarily reflecting wide fluctuations in energy prices, but also other temporary disturbances amplify the variations. CPIXE inflation shows developments in the consumer price index adjusted for tax changes and excluding temporary changes in energy prices. This indicator provides a better picture of underlying inflation. By this measure, underlying inflation peaked at 3 per cent last autumn. Underlying inflation has since slowed somewhat and was 2.7 per cent in April. Interest rates increase in favourable periods when inflation is expected to rise and when growth and inflation recede. The interest rate is a rough instrument that we can use to keep inflation in check over time and thereby contribute to smoothing fluctuations in output and employment. We have seen that when the interest rate is increased to curb the rise in prices for goods and services, interest rate-setting also contributes to stabilising asset prices. The task of steering inflation is in itself a demanding one. The instrument at our disposable must not be overburdened by too many tasks. There is a division of responsibility for economic policy. Wage formation and economic structures and incentives lay the basis for how efficiently labour and other real economic resources are used in the long term. | In November, they described the turnaround as a “heart attack”. Government authorities worldwide have taken comprehensive measures designed to improve banks’ liquidity and solidity, boost demand for goods and services and restore the smooth functioning of credit markets. In several countries, central bank benchmark rates have been set at close to zero. In Norway, a series of measures have also been implemented to mitigate the impact of the financial crisis. Norges Bank has supplied more liquidity to banks and eased the collateral requirements for loans. We have provided liquidity at longer maturities, introduced foreign exchange swaps involving both the US dollar and the euro in order to supply Norwegian krone liquidity, and loaned US dollars to Norwegian banks, which we ourselves procured from the Federal Reserve. Norges Bank’s key policy rate has been reduced by 4.25 percentage points to 1.5 per cent since 15 October 2008. To facilitate banks’ access to funding, the government has provided banks with access to liquid government securities in exchange for covered bonds issued by mortgage companies. Moreover, the government has increased loans and guarantees for Norwegian exports and raised state bank lending quotas. At the same time, Folketrygdfondet has increased its bond purchases. In order to bolster banks’ solidity, the government plans to supply risk capital to Norwegian banks through the Norwegian State Finance Fund. To restrain the decline in activity in the Norwegian economy, central government expenditure will be increased by 10 per cent this year. | 1 |
Climate change is one of the most pressing challenges facing the world today. In recent years, we have witnessed increasing frequency and intensity of extreme weather events such as flooding and wildfires. I’m sure you still remember the catastrophic damages caused by super typhoon Mangkhut just three years ago. 22. In order to tackle the climate challenge, countries agreed, under the Paris Agreement, to take actions to cut greenhouse gas emission and eventually achieve carbon neutrality within this century. One of the most important steps is to make financial flows consistent with the pathway of lowering greenhouse gas emission. 23. To this end, we are now finalising our supervisory requirements on climate risk management. The requirements will set a benchmark to help banks formulate their plans to upgrade their risk management capability. Under the Cross-Agency Steering Group, we are also working in the areas of taxonomy and disclosure to increase the consistency of green definitions and the availability of ESG information to reduce the risk of “green washing”. 24. As the core part of the financial system, banks do have a key role to play in the transition into a low-carbon economy by channelling more financing to greener and more sustainable activities. However, if our path to green finance leads to a rapid off-ramping of “not-so-green” exposures or corporates without proper regard to transition needs, this will result in a disruptive transition. And the interim financial exclusion impact on some of the traditional industries could have profound implications for society. 25. | With increasing dependence on information technology, institutions are faced with numerous threats such as distributed denial of service, malicious hacking and virus attacks which affect vital services provided to customers. Barely a week ago, the vulnerability of major organisations to such attacks was laid bare when a massive “ransomware” virus hit up to 300,000 computers across 150 countries including Malaysia. Judging from its name, the “WannaCry” virus clearly achieved its aim as users found themselves locked out from their computers and their data held at ransom. A host of organisations were left reeling in the wake of these cyber extortion attacks, including the Russian interior ministry, delivery and shipping giant FedEx and the UK’s National Health Service where some hospitals were unable to perform operations, putting patients’ lives at stake. There is also the danger of phishing and stealing of confidential customer data which could destroy the trust placed on your company. Yahoo!, one of the internet’s top sites with a billion monthly users, suffered a massive security breach in 2014 when hackers stole the personal details of at least one billion user accounts. The implications are far-reaching as a stolen digital identity makes us vulnerable to manipulation and undermines the safety of, not just ourselves, but also the ones we love. Bank accounts, social media profiles and even medical information can be abused to put us and our family in harm’s way. In the months following the hacking revelations, more than five billion dollars was wiped off Yahoo’s market capitalisation. | 0 |
One reason for this is that after the Asian crisis and its repercussions, there is still unutilised capacity in the world economy. Another important factor is increased price competition. In addition, the pass-through from external price increases to prices in Sweden will be dampened by an appreciating krona. In our main scenario, moreover, the barrel price of crude oil is assumed to fall back from the present level around $ to just over $ The stronger international growth has also contributed to an upward revision of the Riksbank’s forecast for the domestic economy. Growth is now expected to be 3.6% this year, followed by 3.8% and 3.0% in 2000 and 2001. The upward revision also mirrors higher domestic demand growth. Firms as well as households are optimistic about the future. Real wages and employment are now rising rapidly and so is household income, particularly as fiscal policy is less restrictive. This is accompanied by rising corporate investment in the coming years. (Figure 2). BIS Review 111/1999 4 One component of the present picture that warrants the Riksbank’s attention is the development of asset prices. Share prices are high and a nationwide increase in house prices has started in the past year. House prices in Greater Stockholm, for example, had already risen substantially before that. This increases the consumption and investment propensities of households and firms. | An improvement in the workings of the economy can show up just as a larger supply of resources, be they capital or labour. To date in 1999, for instance, employment has been provided for more than 100,000 people without any signs of appreciable shortages. To me at least this is a welcome surprise. But one should not make too much of it; if we have in fact seriously misjudged how the labour market is functioning, one would expect wage increases to be lower than has been the case. It is also worth noting that the rate of wage increases in Sweden continues to be higher than elsewhere. Another difficult matter is the effect on inflation from a given level of resource utilisation. This was examined in a box in the latest Inflation Report. The results suggest that the Swedish economy can cope with somewhat higher resource utilisation than before without an acceleration of inflation. There is also a good a priori case for this. Raising prices, for example, should be more difficult in an economy where prices fluctuate less. It follows that firms should then put up more resistance in wage negotiations. It is also conceivable that increased international competition, for instance, has left firms with less room for price increases, at least for a time. Finally, then, what about the role of inflation expectations? They have indeed come down substantially in the 1990s, from 6–8% to 2%. | 1 |
The European Central Bank has cut its policy rate from 4.25 per cent in autumn 2008 to 1.25 per cent and the Riksbank has cut the repo rate from 4.75 per cent to 0.5 per cent. A number of other central banks have implemented similar monetary policy easing with the aim of stimulating demand and alleviating the repercussions of the financial crisis on production and employment. In addition to the interest rate cuts, some central banks have implemented what is known as unconventional measures. The purpose has been to secure the supply of credit and to counteract the threats to financial and macroeconomic stability. The central banks have contributed large liquidity injections, that is, lent money to the banks against collateral. Several central banks have also provided emergency liquidity assistance to individual institutions. The Federal Reserve, the European Central Bank and a number of other central banks have also lent money to other central banks through what are known as swap agreements to increase the access to foreign currencies in some other countries. Governments have offered guarantees and capital injections to reduce the risk of further bankruptcies in the domestic banking sector. Another important measure to reinforce confidence in the world economy is the decision at the G20 meeting in London at the beginning of April to increase the IMF’s resources to provide assistance to emerging economies experiencing problems. The measures taken by central banks and governments around the world so far have contributed to reducing the pressure on the interbank markets. | As the banking sector is a very important part of the way monetary policy affects the economy, it is essential to closely follow developments in the credit market. Indirectly it also means that it is important that the Swedish banks attend to their problems in the Baltic both forcefully and quickly. This is to avoid the domestic transmission mechanism being disturbed by the international uncertainty. Here monetary policy and financial stability merge. The Swedish National Debt Office and Finansinspektionen (the Swedish financial supervisory authority) have also taken measures to alleviate the financial crisis. The Government has raised the state deposit guarantee and extended it to cover all types of deposits in accounts, it has introduced a guarantee programme, established a stability fund and decided on means of capital injections to the banks. Large fiscal policy stimulus packages Governments in many countries have presented substantial fiscal policy stimulus packages, which have been supported by the countries’ parliaments. Large packages have been presented in China, Japan and the United States, but there is substantial fiscal policy expansion even in a number of European countries. These include Sweden, where there is greater scope, in the form of strong public finances to begin with, than in most other countries. However, it is difficult to determine exactly what effects the fiscal policy measures will have on individual countries and on the global economy. In addition to the positive effects from the recently decided measures, growth is being stimulated by what is known as the automatic stabilisers. | 1 |
More importantly, the available evidence suggests that participating banks (both Spanish banks and those in the euro area as a whole) have used a significant portion of the funding received to continue to provide credit to the real economy.2 1 See the speech delivered by the Governor of the Banco de España “The role of the European Central Bank’s monetary policy in the COVID-19 crisis”, October 2020. 2 See, for example, the Bank Lending Survey (BLS) for October. For a summary of the results of the survey for the Spanish banks participating in the survey see Á. Menéndez Pujadas and M. Mulino (2020), «The October 2020 Bank Lending Survey in Spain», Analytical Articles, Economic Bulletin, 4/2020, Banco de España. 2 The second block of measures related to asset purchase programmes. Since late February, financial conditions had tightened in the euro area, with both corporate and sovereign risk spreads widening considerably. This spread widening in the euro area was uneven: countries that started from weaker fiscal positions, with higher debt levels, and those that were most affected by the first wave of the pandemic experienced a much more pronounced increase in their financing costs. This cross-country financial fragmentation was a challenge for the transmission of a single monetary policy throughout the euro area, and even posed a threat of a repeat of the 2012 sovereign debt crisis. In this context, in March the ECB announced the launch of the pandemic emergency purchase programme (PEPP). | It affects the way financial decisions 2 BIS central bankers’ speeches are made, including decisions relating to savings and spending, borrowing and lending, investment and profit distribution, and it is relevant to all economic agents, be they households, businesses or governments. Soundness of financial governance is a critical prerequisite for the sustainable growth of any economy. Having said that, we also have to recognise that the process of economic growth itself is an outcome of a system that is highly complex and adaptive, and that a country’s economy, polity and society – and the institutions that underpin each of these – are embedded within a complex network of interdependencies. Therefore, there cannot be a one-size-fits-all prescription of what constitutes good financial governance for all economies. Nevertheless, I do believe that we can recognise the presence or absence of good financial governance based on broad characteristics. In this regard, three key inter-related features are typically present when there is good financial governance. Firstly, effective financial governance ensures that financial decisions take into account all externalities arising from the decisions. Financial decisions often have consequences that are not fully borne by the decision maker. Financial decisions that may appear rational at the individual level, may in fact be collectively unsustainable. For instance, corrupt practices may be optimal for the individual perspective, but they are clearly detrimental to the welfare of society and the economy. | 0 |
Elvira Nabiullina: Current problems in the post-pandemic economic recovery Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the plenary session of the Federation Council meeting, 22 September 2021. * * * Good afternoon, Ms Speaker and colleagues. Thank you very much for inviting me to speak today, on the first day of the autumn session. In my speech, I would like to focus on current problems in the post-pandemic economic recovery. Undoubtedly, we are pleased about its rapid pace. Yet, the economic rebound is bringing some side effects that we must counter to ensure the stability of our economy, the financial system, and ultimately, the well-being of our people. The economy has now returned to the growth path it would have been on but for the pandemic. Certainly, central to the successful delivery of anti-pandemic measures have been the Government’s budget support measures alongside the prompt efforts of lawmakers to set up a legal framework for anti-crisis response measures. In turn, we at the Bank of Russia have granted regulatory relaxations to banks to support consumers and businesses, and to restructure and issue new loans in this challenging period. Our monetary policy has been accommodative. It was only after we made sure that the economic recovery was becoming sustainable that we started to raise the key rate. Certainly, I will explain why we are doing this as I know that there are many questions on this subject. | Banks and microfinance institutions are now obliged to disclose to borrowers the total loan cost to rule out situations where borrowers end up paying more than agreed under seemingly clear terms. 2/5 BIS central bankers' speeches Running ahead, we think that there is a need for more stringent legislation in that area, considering that banks have adjusted and some of their ‘offerings’ circumvent the requirement of disclosing the total loan cost, that is the amount they are required to make clear to the borrower. Against the background of economic recovery, disbursements of unsecured loans have accelerated. As I have said, this is driven by high inflation expectations (when people expect higher inflation, they try to buy goods on credit) and fairly attractive interest rates. Banks like this situation, without doubt. They are looking for ways to circumvent our restrictions. For example, we have seen a rise in the share of consumer loans (I mean consumer loans, not mortgage loans) with more than five years’ maturity (from the pre-pandemic 11% to 21% in the second quarter of this year). On the one hand, by extending loan maturity, banks reduce monthly payments, making a loan seemingly more affordable to borrowers. Yet, the total amount of debt per borrower is increasing. This is normal for a mortgage that is issued for a long period (and with much lower rates), but those long periods for unsecured loans are unreasonable and are set to entail problems. We already see a deterioration in consumer lending standards. | 1 |
That’s why about two-thirds of the Mainland’s two-way capital flows consistently go through Hong Kong. 25. Some argue that this advantage is temporary. As China’s domestic capital markets open up, the argument goes, surely international capital can bypass Hong Kong and go directly to Shanghai and Shenzhen? 26. It is true that the Mainland authorities are pursuing further liberalisation of the onshore capital markets. This was evident in a series of reforms to the Qualified Foreign Institutional Investor regimes last year. Access to the China Interbank Bond Market has also been enhanced, making it easier for investors anywhere to directly access this 16 trillion US dollar market. 27. And yet Hong Kong’s own portal to Mainland bonds is more popular than ever. Orders going through our Bond Connect link to China’s Interbank Bond Market account for more than half of its turnover by foreign investors. More than 2,400 institutional investors are registered on the platform. And Bond Connect has continued to grow right through the social unrest and pandemic: volumes rose by 82 per cent in 2020. 28. Hong Kong’s two Stock Connect links – with Shanghai and Shenzhen – are also very popular with international investors. Average daily turnover on Stock Connect more than doubled last year. ‘Northbound’ traffic from here to the Mainland rose by 119 per cent. This reflects continued global demand for Chinese securities as their weighting in benchmark indices increases. 29. And investors choose Stock Connect for the same reason they choose Bond Connect. | © Swiss National Bank | 0 |
The increases in official interest rates scarcely fed through in 2005 to longterm interest rates, which led to the forceful flattening of the yield curve, an unusual occurrence at this BIS Review 60/2006 1 stage of the cycle, although the rise in long-term yields in the opening months of 2006 is contributing to lessening the scale of this discrepancy. Finally, the increase in household wealth, stemming from the rise in the value of financial and real-estate assets, eased the drag on real income arising from dearer energy products in the oil-importing countries. Yet there has been a significant contrast between this optimism on financial markets and the wariness of companies, mirrored by slack investment in the real sector which is particularly striking if regard is had to the favourable trend of corporate profits. Several explanations have been offered for the muted performance of business investment in recent years, such as the difficulties in valuing investment in intangible assets appropriately, over-investment in the second half of the nineties (which caused surplus capacity in recent years), the ongoing reduction in corporations' financial leverage, the uncertainty generated by globalisation and companies' caution following the recent changes in the legislative and accounting framework in the wake of the corporate scandals in some countries. Insofar as some of these factors are probably transitory, greater investment momentum may be expected in the coming years. | That led in December 2005, and in March and June 2006, to respective quarterpoint rises in official interest rates from the historically low level of 2% at which they had held since BIS Review 60/2006 3 June 2003. Despite these rises in official rates, the Eurosystem's monetary policy stance has remained propitious to the firming of the pick-up in activity and job creation. Nonetheless, the ECB is closely monitoring developments in the euro area to ensure inflation expectations remain in line with price stability over the medium term. Budgetary policies adopted a moderately contractionary stance in the area as a whole, although the persistent fiscal imbalances in several Member States continued. Consequently, the current firming of higher growth rates should drive more resolute action to correct these imbalances, the persistence of which may, in some Member States, have dented agents' confidence and may thus affect their spending decisions. The reform of the Stability Pact appears to have successfully concluded a phase of uncertainty over the application of regulations relating to the fiscal policy discipline of the euro area countries. However, preserving the credibility of the new framework requires an unequivocal and ongoing commitment by the national authorities to strict compliance with the Pact. The recent persistence of sluggish growth rates, despite highly favourable financial conditions, highlights the pressing need to see through the European structural reform agenda with firmer resolve. The revision of the Lisbon strategy in 2005 may contribute to driving this process. | 1 |
7 BIS Review 121/1999 Chart 8 Norges Bank’s key rates 12 12 10 10 8 8 Overnight lending rate 6 6 1-week rate 4 4 Deposit rate 2 2 0 0 1996 1997 1998 1999 Source: Norges Bank Legg inn filadresse her 6. The mandate Let us turn to the mandate for monetary policy and how Norges Bank interprets its role and responsibilities. The political authorities formulate Norges Bank’s mandate for the conduct of monetary policy. The mandate is laid down in the Exchange Rate Regulation, adopted by Royal Decree of 6 May 1994. Section 2 of the Regulation states: Chart 9 The Regulation of May 6, 1994 • “The monetary policy to be conducted by Norges Bank shall be aimed at stable exchange rates against European currencies, based on the exchange rate maintained since the krone was floated 10 December 1992.” • “In the event of significant changes in the exchange rate, policy instruments will be oriented with a view to returning the exchange rate over time to its initial range. | Others have suggested that the event window on October 15 is a byproduct of regulatory changes that have reduced traditional dealers’ ability to serve as shock absorbers during periods of volatility by accommodating large net order flows. In particular, some market participants argue that recent regulatory changes have increased the cost that dealers face when expanding their balance sheets, leaving them less willing to do so for relatively lowmargin businesses, such as making markets in Treasury securities. If true, it may help explain how an unwinding of large positions, as may have been observed in the sixty minutes after retail sales on October 15, could have had such a large impact on yields. But it is far from clear that such changes, on their own, can explain the round-trip in prices during the event window itself. That said, it is possible that the dominance of electronic and automated trading and the changing composition of participants in the Treasury market have interacted with changes to dealer behavior – whether the result of regulatory incentives or other reasons – in a manner that makes unusual intraday price moves more probable. While it is precisely the intention of many recent regulatory initiatives to ensure that financial firms hold sufficient capital to support the size of their balance sheets and risk taking activities, there could be unintended consequences of these regulatory changes, including the possibility that sharp intraday price moves become more common. | 0 |
Ladies and Gentlemen, At this moment, high oil prices have put both advanced and developing economies alike in a very tough spot. Unfortunately, for Thailand, when it comes to oil shocks, we are not as resilient as many other economies as our economy depends heavily on oil. In fact, Thailand’s oil dependency ratio, although has been falling, remained among the highest in the world since our logistic system has been neglected for sometime. Prior to the recent hike in oil prices, Thailand was on the path to recovery. Indeed, economic growth picked up since the third quarter of last year with an expansion from 4.7 percent to 5.7 percent and 6.0 percent in the subsequent quarters, respectively. Domestic demand strengthened; consumption, investment and imports, all accelerated while exports performed rather well. This was a clear recovery pattern. Up to the end of the first quarter, the sentiment was lifted to a better prospect for Thailand, with many expecting average 6 percent growth for this year. Unfortunately, the story did not end there. Oil prices soared again, passing the 120USD mark in May. Despite some correction last week, oil prices remain much higher than where they were the beginning of this year. Compounding this negative external shock was the return of street protests. | The key to high-performance economy inevitably lies in supply-side policies that raise the economy’s potential growth. BIS Review 98/2008 5 The fact that supply-side policies take time should urge the government to hasten such policies. However much conflict of interest between a fixed-term government and long-term policies may be, it is important to realize that raising productivity, and hence the economy’s potential output, is ultimately the key to raise economic performance without provoking subsequent instability. As mentioned earlier, Thailand needs to be more resilient to oil shocks. For example, it is now a good opportunity to shape up our logistic system. Much integration needs to be done to coordinate the use of rail, road, river, and air transportation. Ladies and Gentlemen, My main message for you this evening is that the key for a successful economy is to preserve competitiveness and to grow at the potential rate as well as raising the potential output. This is to ensure both the performance and the sustainability of an economy. Many central banks are doing this through inflation targeting. At present, the risk of political uncertainty not only lies in terms of consumers and businesses’ confidence, but also in the efficiency of the government to pursue policies that raise productivity. As negative supply shocks persist, the better the job done by the government to enhance productivity, that is, to secure our potential output, the lesser the cost of economic stabilization. Thank you very much for your attention. 6 BIS Review 98/2008 | 1 |
This is what has been happening in Chile since the prices of foods and fuels began soaring in an unprecedented way in early 2007. Constraining the monetary policy in the presence of a commodity price hike has its costs, but as we have stated a number of times, failing to tackle the inflationary problem opportunely leads to much higher output costs in the future, because inflation becomes much more entrenched. On the contrary, when facing demand shocks the inflation targeting regimes are particularly useful, and that is the scenario we are seeing today. To rein in inflation, it is necessary to slow down growth via a more contractionary monetary policy. However, if output slowdown is caused by forces outside the monetary policy, the policy rate dosage should be small compared with that where the external scenario does not contribute to the deceleration, 5 For details on the European case, see Berger and Stavrev (2008). In Chile, there is no evidence, either, indicating that monetary aggregates improve inflation forecasts. For discussions on money and monetary policy, see papers in Cuadernos de Economía’s December 2003 issue (De Gregorio, 2003; García and Valdés, 2003; Vergara, 2003). BIS Review 150/2008 3 meaning that monetary policy conduct is countercyclical, reducing inflation and containing the demand slowdown. Financial stability Although more often than not, central banks have an explicit financial stability objective, for many years, and within a context of strong GDP growth and sound balance sheets of banks and firms, this was a second-class issue. | The high level of public debt is harmful to the economy’s financing conditions, it restricts the countercyclical leeway of budgetary policy and it means a high volume of resources must be set aside to pay the interest burden. There is room, moreover, for the fiscal consolidation process to be compatible with a revision of the structure of public revenue and spending, making it more efficient and 3/5 enhancing its contribution to growth. And, at the same time, a greater degree of fiscal coresponsibility should be promoted across the different tiers of general government. It is likewise a priority to pursue further reductions in unemployment and its persistence among specific groups, especially the lesser-skilled. The high level of joblessness is also closely related to the notable increase in inequality that came about during the crisis. Achieving this will require not only labour market measures but also, more broadly, actions targeting employee skills and training, to encourage their greater adaptability to a new environment marked by technological progress, the automation of productive processes and the knowledge economy. In parallel, despite the significant progress in recent years, the financial sector continues to face deep-seated challenges. These include the need to tackle the effects of the farreaching changes in regulation, technology and competition, to improve low profitability levels and to complete the ongoing reduction of problem assets. Looking ahead to the medium and long term, population ageing is probably the main challenge the developed societies face. | 0 |
According to the TCFD, disclosures should be: consistent (complete, and comparable across time and issuers); ‘decision useful’ (relevant to investment decisions, specific, reliable, verifiable); and forward looking (showing not just where you have been, but where you are going, and how).19 14 The Greenhouse Gas Protocol Corporate Standard classifies a company’s emissions into: Scope 1 (direct emissions from owned or controlled sources); Scope 2 (indirect emissions from generation of purchased energy); and Scope 3 (all other indirect emissions in the upstream and downstream value chain of the reporting company). 15 https://www.inrate.com/cm_data/ESG_Rating_Disagreement_and_Stock_Returns.pdf 16 According to https://citigatedewerogerson.com/wp-content/uploads/2020/10/IR-SURVEY-2020.pdf, 79% of firms report a rise in ESG investor queries in 2020; and https://shareaction.org/fossil-fuels/resolutions-tracker/ suggests a pickup in shareholder resolutions on climate change. 17 https://www.fca.org.uk/news/press-releases/fca-announces-proposals-improve-climate-related-disclosures-listed-companies 18 https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/leading-the-change-climate-action-in-the-financial-sector-speech-bysarah-breeden.pdf?la=en&hash=A76529EC3930769B0D6FA8FECBFF0507BE6DBBA3 19 https://www.tcfdhub.org/recommendations/ 7 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 7 Consistency – the first of those criteria – has been a challenge. The TCFD is widely recognised as the right overarching framework: nearly half of large companies globally were already disclosing TCFD-aligned metrics at the time of the last comprehensive survey in 2019 (Chart 3), and support for the TCFD had grown to over 1,440 organisations by September this year, with a market capitalisation of over $ trillion. | As such, there remains enormous scope for Mainland’s OPI to increase. 10. Japan’s experience in opening up its capital account in the mid-80s may also shed some light on the future path of Mainland’s OPI. Japan’s outward portfolio investment started off with 5% of GDP, then rose to 18% in 10 years’ time, and then further to over 40% in another 10 years. If we assume that Mainland’s OPI follows a path similar to that of Japan, it is possible that their OPI could reach 18% of GDP in 10 years’ time. It is not difficult to get an idea of the potential scale of such flows by simply punching the calculator: this will give a good sense of why we say the potential is huge. 11. So, given the huge potential outward portfolio investments from Mainland China, how will they be allocated across different financial markets? Our internal research shows that, despite the advances in telecommunications and technology, home bias is still very much there, and people do like investing in markets closer to their home countries. As such, Hong Kong is likely to be one of the key destinations of Mainland’s OPI. Apart from being the final destination for these investments, Hong Kong can also act as an ideal launch platform for these investment flows to reach other major global markets. 12. Since the introduction of the QDII scheme, $ billion worth of investment quotas have been granted up to June this year. | 0 |
But more importantly, gathering and processing this information is costly. There is no incentive for the various investors to incur these costs if they believe that others will do it and thus ensure the efficiency of the market. When banks are engaged in financial intermediation, they gather and process the information concerning their borrowers through their customer relations. Bank intermediation is therefore a means of overcoming the problems of the asymmetry of information and its accessibility. However, on a securitised market, where borrowers are directly in contact with lenders, this solution does not exist. The rating system is an answer to the problem, as it enables all players to have access to simple, clear and concise information on the credit risk attached to the various classes and categories of financial instruments. The rating activity has expanded in parallel with that of bond markets. All major issuers are now rated by one or more rating agencies. For them it is a sine qua non condition for widening their investor base. The rating system goes hand in hand with the development of large liquid, deep and international markets. It is a precondition and a tool for ensuring the smooth functioning of these markets. Securitisation, as we know it today, and which underpins national and international financial activity, would be impossible without these ratings. A further step was made with the expansion of structured products. The role of rating agencies now extends well beyond that of mere information providers. | These are the areas that institutions need to focus on to avoid becoming a “problem bank case” themselves. Let me move on now to consider the role of the banking supervisor in ensuring that an institution’s internal controls are adequate and effective. This is an area on which there has been greatly increased emphasis in recent years. Of course supervisors, like the management of financial institutions, have always been concerned with the quality of control systems. However, the approach has been rather piecemeal, and has focused on certain types of risk which are easily quantifiable, rather than the more intangible types of risk. What we are trying to do nowadays is to move towards a more systematic identification and assessment of the risks facing a bank across the whole range of its activities and the adequacy of the controls over these risks. This “risk-based” approach is intended to focus our attention on what we see as the institution’s key risk areas. Of course, the correct identification of the institution’s key risk areas is crucial in this. For most of Hong Kong’s local banks, credit risk, liquidity risk and perhaps BIS Review 48/1998 -4- reputational risk remain the highest risk areas, but for individual institutions other forms of risk such as interest rate risk and market risk also come into the equation. | 0 |
Kristina Persson: Globalisation, structural changes and monetary policy Speech by Ms Kristina Persson, Deputy Governor of Sveriges Riksbank, at at seminar arranged by the Confederation of Swedish Enterprise, Stockholm, 14 April 2004. * * * Thank you for the invitation to take part in this important conversation on the consequences of globalisation for Swedish economic policy. I shall primarily highlight the significance for inflation and monetary policy, although I shall also briefly discuss the increased demands for structural changes and political management entailed by globalisation. Globalisation - or “the increasing interdependence of countries around the world as a result of growing cross-border trade in goods and services, investment and financial flows” (the IMF’s definition) - is not a new phenomenon. It has been going on for some time and has given rise to rapid structural changes with considerable demands for adaptation of people and businesses. It has led to a change in the division of labour and to specialisation, as well as access to new markets, which in turn has formed a base for increased real wages and growing welfare. How well Sweden can manage these requirements for change in the future will be decisive for our economic development. In recent years, both the scope and rate of change of the globalisation process appear to have increased. | This means that the Riksbank is as anxious that inflation should not be too low as that it should not be too high. In Sweden, the annual CPI inflation rate was negative in February, for the first time since the beginning of 1999. Is there a risk of this development continuing, and what can the Riksbank do if it does? To begin with, it is important to distinguish between whether price trends are governed by developments on the demand side or on the supply side. A period of falling prices is often due to aggregate demand being significantly lower than the total supply of goods and services in the economy. This type of situation can arise for two reasons: One is that demand could fall heavily, for instance, as a result of households for some reason reducing their consumption. The other is that supply could increase significantly, for instance as a result of technological advances leading to increased productivity. While demand-driven deflation is connected with weak production growth, the opposite applies to supply-driven deflation. These are usually termed “bad deflation” and “good deflation” respectively. In practice it is not so easy to distinguish between one sort of deflation and the other. Problems arise when demand is too low in relation to supply. | 1 |
All of these forces are in flux. For the majority of the period since the UK joined the EU, the first factor – greater openness and deeper integration afforded by EU membership – very likely increased the UK’s dynamism. To be clear, by dynamism I mean the ability of an economy to grow and progress. Dynamism is reflected in the rate of productivity growth, the degree of labour engagement, the pace of new business creation and the rate of new innovation. In the period since joining the EU, the 2 BIS central bankers’ speeches UK has had among the fastest per capita growth rates in the G73 has consistently been one of the top destinations for foreign capital amongst advanced economies as well as the top destination for Foreign Direct Investment in the EU. Today, the UK economy stands as one of the most flexible not just in the EU but across the advanced world. Since the crisis began, the second factor – shocks arising from our biggest and closest trading partner – has challenged UK dynamism and made it more volatile. In the aftermath of the crisis, it is essential that the third factor – EU rules, directives and regulation – continues to support the UK’s ability to address risks to financial stability in the future. 2. Openness, dynamism and stability The UK is an open economy par excellence. In fact, the UK has bet on openness for almost two centuries. A bet that has paid off handsomely. | Broken lines refer to the Riksbank’s forecasts. 10 07 08 09 10 11 12 Sources: Statistics Sweden and the Riksbank BIS Review 111/2009 7.High unemployment throughout the forecast period Unemployment, per cent of labour force, seasonally-adjusted data 14 14 12 12 10 10 8 8 6 6 Unemployment 16-64 years Unemployment 15-74 years September July 4 2 4 2 0 0 80 85 90 95 00 Note. Broken lines represent the Riksbank’s forecast, 15-74 age group. 05 10 Sources: Statistics Sweden and the Riksbank 8. CPI and CPIF Annual percentage change 5 5 CPI 4 4 CPIF 3 3 2 2 1 1 0 0 -1 -1 -2 -2 00 01 02 03 04 05 06 Note. Broken lines represent the Riksbank’s forecast. BIS Review 111/2009 07 08 09 10 11 12 Sources: Statistics Sweden and the Riksbank 11 | 0 |
DLT) and across borders RTGS 24/7 Payments DLT 4 30.3.2023 Swiss Payments Vision – an ecosystem for future-proof payments | Money Market Event | Andréa M. Maechler / Thomas Moser | © Swiss National Bank Instant payments offer many benefits for the economy In real time, final and around the clock like cash, but in electronic form Lower costs and risks through shorter settlement chains Seamless connection with new services as part of automated value chains Cross-border payments thanks to links with other IP systems Settlement in central bank money 5 30.3.2023 Account-based at commercial banks Swiss Payments Vision – an ecosystem for future-proof payments | Money Market Event | Andréa M. Maechler / Thomas Moser | © Swiss National Bank Instant payments – an innovation based on proven principles for futureproof payments 24/7 max. | Central banks issue money in the form of cash and book money. Everyone can hold cash. Central bank book money, on the other hand, can only be held by regulated commercial banks 1 in the form of sight deposits at the central bank. The diagram shows the central bank, in dark blue, as the bank of commercial banks. It manages the accounts of commercial banks, implements monetary policy, and performs its role as lender of last resort by providing liquidity to commercial banks in the form of sight deposits.2 Commercial banks create private money in the form of book money that customers deposit with them. They compete with each other and are therefore interested in offering their customers the banking services, such as credit and payment solutions, that best meet their needs. They are also responsible for complying with anti-money-laundering and know-yourcustomer rules. Commercial banks are thus the link between the financial system, shown in light blue with the central bank at its centre, and the rest of the economy (in green). Sound and appropriate regulation plays a key role here. Banks are authorised to create private money and can obtain liquidity from the central bank, but must at the same time comply with strict capital and liquidity requirements. This brings me to the second principle: All payments that are important for the system as a whole are to be settled in risk-free central bank money (cf. slide 2). 3 These payments are represented by the dark blue lines. | 1 |
Given the small and externally-oriented nature of the Hong Kong economy and its role as an international financial centre, maintaining exchange rate stability against the US dollar, which is the most commonly used currency for conducting international trade and finance, is conducive to the long-term economic development of Hong Kong. Second, on linking the Hong Kong dollar to the renminbi instead of the US dollar: this is inappropriate and technically not feasible. The US dollar is still the most appropriate anchor currency for the Hong Kong dollar, taking into account factors such as international usage, business cycle synchronisation between Hong Kong and the US being higher than that between Hong Kong and the Mainland, the different stages of economic development between Hong Kong and the Mainland, and the fact that the renminbi is not freely convertible. Third, on inflation and the linked exchange rate system: it is true that the weakness of the US dollar and the strength of the renminbi may increase inflationary pressures in Hong Kong, but rapid growth in productivity in Hong Kong and diversification of sources of imports can in part mitigate the inflationary pressure. HKMA research showed that a 10% appreciation in the renminbi would increase Hong Kong’s inflation rate, as measured by the CCPI, by roughly 0.4 percentage points. Furthermore, only about 9-17% of imports retained in Hong Kong come from the Mainland. | And I believe that the best way of managing risks is for those concerned, not just the authorities responsible for the maintenance of systemic monetary and financial stability but more importantly also those actually assuming risks, whether as investors or as financial intermediaries, to be alert to them, and to understand that they may have peculiar characteristics. Then there are importantly those innocent parties in society, who are often hard-pressed to make ends meet or struggling to acquire a dwelling place, who could be further disadvantaged if there were monetary and financial instability, should the risks materialise to the extent of causing a shock of systemic dimension. Sub-prime crisis The FIRST such issue is the sub-prime crisis in the United States. The use of the word "crisis" is not an exaggeration on my part, notwithstanding the absence so far of anything approaching a crisis in Hong Kong. It is the word that is increasingly being used in the developed markets and in international finance when talking about the current difficulties in the United States and Europe that originated from sub-prime mortgages. At the risk of oversimplifying something that is really quite complex, let me make a few observations that might help understand what is going on. First, sub-prime mortgages are really mortgages extended to those who are, to put it bluntly and simply, not credit worthy. And as mortgages are assets on the books of the lenders, subprime mortgages are really sub-standard financial assets. | 1 |
The purple bars build on the contribution of pull factors to the conditional 5th percentile of capital flows in the current quarter and two quarters ahead. Pull factors are proxied by domestic financial condition indices (DFCIs), which are mean-orthogonalised by a global financial conditions index (GFCI). The coefficient on the DFCIs is estimated by panel quantile regressions. Push factors are proxied by the Bank of England’s global financial conditions index. The chart shows PPP-weighted averages across the 13 EMEs in our panel. Chart 7: For EMEs, market-based finance accounted for all the increase in foreign lending since the crisis Structure of external liabilities for emerging market economies Sources: IMF, EPFR and Bank of England calculations 20 All speeches are available online at www.bankofengland.co.uk/news/speeches 20 Chart 8: Market-based finance flows are particularly sensitive to push shocks The sensitivity of Capital Flow-at-Risk to push factors, by source of capital flow FDI Banking Market-based finance of which: investment funds 0 -1 -2 -3 -4 Median 5th percentile -5 Capital Flows-at-Risk as a % of GDP Sources: IMF, EPFR, Bank calculations. Notes: Chart shows the sensitivity of different capital flows to a negative "push" shock. Coefficients are standardised by each component’s share of total flows e.g. the red MBF bar shows how total Capital Flows-at-Risk would respond to a one standard deviation tightening in global financial conditions if all capital flows were accounted for by MBF. | Gent Sejko: Intensifying mutual cooperation between Albania and Turkey Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the signing of the Memorandum of Cooperation between the Bank of Albania and the Central Bank of the Republic of Turkey, Tirana, 6 November 2017. * * * Honourable Governor Çetinkaya, Your Excellency Ambassador Bayraktar, Dear members of the delegation from the Central Bank of the Republic of Turkey, Dear guests, Ladies and Gentlemen, I have the pleasure to have the Governor of the Central Bank of the Republic of Turkey, Mr Murat Çetinkaya, as our guest on a one-day visit to the Bank of Albania, on the occasion of the signing of a Memorandum of Cooperation. This memorandum is an expression of our common will and desire to continue and intensify the mutual cooperation that has been already in place for years. Opening addresses are supposed to be brief and I would rather not break with such tradition. However, I find it appropriate to share with you some thoughts on: (i) the international context surrounding the signing of this memorandum; (ii) the current level of the bilateral relations between Albania and Turkey; and, (iii) the main aspects of future cooperation. 1. International context Our institutions – the respective central banks – play a significant role in promoting and guaranteeing monetary and financial stability, supporting the sustainable development of our countries and the welfare of our citizens. | 0 |
5 These aspects are important, for instance with regard to the discussions about various possible negative side-effects of the very expansionary monetary policy. One argument is that the low interest rate constitutes a danger to pensions as the return on pension savings becomes so low. But with regard to pensions, it is the long-term return that is important. This means it is the long-term real interest rate that is the most relevant variable. The solution to the problem is thus not that central banks should raise their policy rates, much less that the Riksbank should do so singlehandedly. To make interest rates persistently higher, one needs to implement 4 Bernanke (2016). Rogoff (2016) reasons similarly. 5 See, for instance, Rachel and Smith (2015) for a more detailed discussion and quantitative estimates of the global real equilibrium rate. 4 [20] structural measures that push up the long-term real interest rate. This is unfortunately not so easy to do. With reasonable estimates of the long-term real interest rate, the Riksbank's monetary policy has in recent years been clearly expansionary. The reasons why the Riksbank has conducted this policy are that inflation has undershot the target for a long time and that long-term inflation expectations have fallen to worryingly low levels. Around the turn of the year 2014-15 the situation was particularly serious. Expectations of inflation five years ahead had fallen some way below the target and there was a tendency towards acceleration in the decline (see Figure 7). | This underlines the significance of taking resolute action particularly when more long-term inflation expectations begin to deviate fairly substantially from the target level. There are also good reasons why the target is 2 per cent and not lower. Perhaps the most important is that there should be sufficient scope to cut the policy rate in the future if inflation becomes low or economic activity wanes. A lower inflation target would mean reaching the policy rate's lower bound more often and for longer. This is why there is currently an international discussion on whether the central banks’ inflation targets should be raised. 6 A somewhat paradoxical observation here is that many of those in the Swedish debate who are critical of negative policy rates are also critical of higher inflation targets, and often even advocate lower inflation targets. But with an unchanged or lower inflation target, it becomes even more important that the policy rate can be cut below zero. A further reason that I believe should not be underestimated is that wage formation can deteriorate when average inflation is too low. The reason is that in practice it has proved difficult to lower nominal wages. If inflation is low and nominal wages cannot 6 See, for example, Blanchard et al. (2010), Ball (2014) and Rosengren (2015). 5 [20] be lowered, it becomes difficult to adjust real wages between individuals at a company and between different sectors. This can ultimately bring about both higher unemployment and poorer productivity growth in the economy. | 1 |
Monetary policy is based on forecasts The Riksbank also uses forecasts to “plan” monetary policy. This planning is reflected in our repo-rate path and if developments take a different turn than forecast then we have to adjust the repo-rate path. It may seem that the Riksbank uses forecasts in roughly the same way as other players whose operations are also affected by the development of economic activity. There is, however, an important difference. The Riksbank can, in contrast to most other forecasters, affect the forecasts. This is the whole point of monetary policy. Put simply, we can say that a well-balanced monetary policy is characterised by the forecast for inflation being close to the inflation target and the forecast for resource utilisation being close to its normal level.1 There is nothing to say that we have to publish our forecasts. Life would in some respects be easier if we did not publish them. We would avoid the criticism we are subjected to when our forecasts prove to be wrong and we would be able to write in more general terms about economic developments without needing to present a detailed and cohesive forecast. For a long time, central banks were rather closed and secretive bodies and when, for example, the Riksbank began publishing its inflation forecasts in 1997 there were many people, not least in the world of central banking, who had misgivings; wouldn’t confidence be eroded if the forecasts turned out to be wrong? | The primary objective of the European System of Central Banks (made up of the European Central Bank and national central banks) will be price stability. The ECB Council of Governors (only those of countries participating in monetary union) will decide independently the level of official interest rates. Representatives of the European Council may attend the ECB Council meetings, but they will not participate in the voting procedure. Monetary union will be characterized by a single monetary policy and national fiscal policies. In this context, the issue of fiscal discipline and coordination is crucial. Sound fiscal policies will help the ESCB to maintain price stability. Coordinated fiscal policies will contribute to a balanced policy mix in Europe. Fiscal discipline will prevent free-rider strategies by countries running large deficits and raising funds at low interest rates, thanks to the credibility and stability of other countries. This question of European fiscal discipline is important in the context of the main criticisms which are presently enumerated, particularly from outside Europe, in the analysis of the concept of EMU. Without being exhaustive in this listing, I personally see four major criticisms: First, it is sometimes argued that EMU will lead to greater rigidity, in diverting attention from the necessary structural reforms and inducing an inward-looking posture over Europe at the very moment when global competition is of the essence. | 0 |
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