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Bandid Nijathaworn: Global markets outlook Opening speech by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Global Markets Outlook Conference Series 2007, organised by Deutsche Bank, Bangkok, 8 January 2007. * * * Thank you very much and good morning, First, let me thank Deutsche Bank for inviting me to give the opening remark this morning. Last year, I was also honoured with the same opportunity, so I am very pleased to be back doing this again this year, addressing this important conference. A lot of things have happened to both the global markets and to Thailand since the time we met last year. And compared to last year, to be speaking on the economy and the markets this year, I think, is much more challenging. At this time, although the mood in the markets is positive, I think considerable uncertainty still looms in the global economy to the extent that even the best of our analysts still do not seem to be coming to a common view on the key issues. For example, the pace of global slowdown and how much further would the US dollar need to adjust. But, this is, in essence, the nature of markets, and a variety of views will provide the markets with the needed latitude and balance for its continued growth and stability. So, I very much look forward to today's conference, and to the presentation on some of these issues, as well as on this year's outlook. | This means liquidity should continue to be ample as monetary policy in the major economies need to focus less on inflation. Ample global liquidity, therefore, will be a positive factor for financial markets this year. Second, structurally, the US dollar may need to stay with its softening tone on account of the moderated US growth and the possible narrowing of interest rate differentials that used to benefit the US dollar. This is a conjecture consistent with the current market's fundamental view. And third, because of ample liquidity, cross-border capital flows look to gain further momentum this year as international investors continue to search for yield and move further ahead on asset reallocation and diversification. This last implication is important for the region, because it will mean continued flows of capital into Asia, putting pressure on the region's exchange rates and asset prices. Therefore, managing the macro implications of persistent capital inflows, as well as the risk of volatile and abrupt capital outflows, will be, in my view, an important policy challenge this year. To me, the context underlying these implications relates very closely to the process of the unwinding of global imbalance. Such unwinding, as we know, requires a weaker path of the US dollar and higher US interest rates. A weaker US dollar is something that we have been seeing. | 1 |
Jessica Chew Cheng Lian: The insurance broking sector – threshold of an exciting but challenging future? Keynote address by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 3rd Asia Insurance Brokers’ Summit, Kuala Lumpur, 3 March 2015. * * * It is my great pleasure to be a part of this 3rd Asia Insurance Brokers’ Summit which is being held for the first time in Malaysia. I would also like to take this opportunity to congratulate MITBA as they celebrate 40 years in service of insurance and takaful brokers in Malaysia. In that time, the domestic insurance industry has seen significant change – beginning with an overhaul of the legal and regulatory framework when the industry was brought under the regulatory oversight of Bank Negara Malaysia, followed by a series of successive reforms that have served to strengthen the industry and promote its healthy development to first and foremost meet the needs of individuals and businesses. This continues to be a journey that the Bank and industry are committed to taking forward, mindful that as the Malaysian economy is progressively transformed, so too will demands of the industry evolve. Throughout this journey, associations like MITBA have played an important role in helping members adjust to the changing environment, by providing a platform to examine issues, make representations, communicate with stakeholders, and implement collective responses. | I expect GDP growth to be around 2-1/4 percent this year, moderately above my estimate of the long-run sustainable growth rate for the economy. In my past speeches, I often mentioned the fact that we’re nearing the longest expansion on record. Well, as of this month, I can finally say that we’ve reached that milestone. The economy has been growing for 121 months—a little over 10 years. 1/3 BIS central bankers' speeches While this is undoubtedly good news, the headline data mask a more nuanced economic picture. Consumer spending has been an important driver of growth, and the most recent readings have been very positive. However, other signs point to slowing growth. In particular, the latest indicators suggest that business fixed investment has softened and that manufacturing production is in decline. And the outlook for growth outside the United States has dimmed, which will weigh on demand for U.S. products. This mixed picture is mirrored in the employment data. On one hand, the unemployment rate, which stands at 3.7 percent, is near the lowest we’ve seen in 50 years. On the other, job growth has slowed this year relative to last year’s pace. Finally, turning to prices, the latest data show that underlying inflation is 1.6 percent, below our 2 percent goal. The major challenge with inflation that’s persistently lower than 2 percent is that low inflation feeds into inflation expectations. | 0 |
Chart 6: BBB-rated corporate bonds as a proportion of investment-grade corporate bonds in UK insurers’ Matching Adjustment portfolios Sources: Solvency II Q3 2018 asset data, Bank calculations, Bank of England. 12 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 12 Chart 7: England and Wales house price changes 2007 vs 2015 Source: house.brisket.com, using Land Registry, Ordnance Survey and Royal Mail data. 13 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 13 Chart 8: England, Scotland and Wales projected flood risk for mortgage lenders Note: This map shows how ten-year average losses from flood vary across local authority districts in Great Britain. Ten-year average losses are expressed in terms of outstanding mortgage lending. Source: ClimateWise, Sayers and Partners and Vivid Economics, based on FFE 14 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 14 | The Bank has been conducting an industry-wide benchmarking exercise since 2001, in line with recommendations of the Financial Sector Master Plan to drive performance improvement. I believe the industry has benefitted from this initiative to improve the standard of services provided to its customers. Going forward however, it is timely and economically sensible for the industry to collaborate and assume this role to develop its own range of indicators. If we were to strive for quality, the benchmarking should be against the world’s best, and not confined to our domestic market alone. The benchmarking could cover a wider range of indicators including financial and operating statistics, distribution channels as well as customer service indices that will benefit every member company. In many countries, it is the industry associations that undertake this role. In this regard, I call upon the associations present here tonight to give this matter a serious thought. Collaborate and cooperate with others as synergy drives efficiency for the ultimate benefit of customers Synergy creates new value and has a multiplier effect on outcomes that would not be possible, individually. Studies have shown that even the best individual efforts cannot stack 4 BIS central bankers’ speeches up against today’s complex and interconnected problems. The challenges of market liberalisation will require players to achieve more despite limitations in individual resources. But having to do more with less, simply means having to do it together. The industry through pooling of capacity, expertise and resources can addressed, perennial issues faced by individual companies, collectively. | 0 |
Accordingly, trade in machinery, metals and textiles were particularly hard hit during the crisis. 14 Meanwhile, demand for non-durable consumer goods – and this includes pharmaceutical products – remained relatively stable. As you can imagine, there were probably very few patients who restricted their medical treatment due to the recession. As a result, 14 However, it was precisely these industries which had, in the preceding years, already become considerably less significant for Switzerland’s goods exports. BIS Review 157/2010 5 Switzerland’s large share in exports of pharmaceuticals had a stabilising effect and helped avoid an even greater drop in Swiss goods exports. Ladies and gentlemen, in addition to the diversification towards Asia, the longer term structural change in the composition of Swiss goods exports thus also proved beneficial during the crisis. 2.3 Quality matters The third aspect I wish to address today is the quality of Swiss goods exports. As a rule, the “Made in Switzerland” hallmark is used to denote excellence. But do Swiss exports actually deliver high quality? Quality is not easily measured. Given the lack of alternatives, economists generally express the quality of goods in terms of “unit values”. Literally speaking, this represents the average price per unit of weight, for instance per kilogram. I, too, will use this unit of measure. However, this unit makes more sense if groups of similar products are examined. | Nevertheless, in the case of the large international banks, the empirical evidence would seem to suggest that these institutions have long exceeded the size needed to make full use of these advantages. It should be noted that although the instrument of size restriction is far-reaching, it is by no means new in economic policy. For decades it has been one of the tools for preventing market dominance in the area of competition policy. Within the context of financial stability, the objective of such a measure would be to reduce risks to the stability of the banking and financial system, rather than to maintain competition. I would like to run through the last few points again briefly. In the short term, priority must be given to overcoming the crisis. However, in order to increase the stability of the financial system in the medium to long term, we consider a reform of the operational environment in the banking sector to be essential. We attach particular importance to alleviating the “too big to fail” problem. Apart from stricter rules for systemically important institutions, the SNB currently envisages two further options that it intends to examine – first, measures to facilitate the wind-down of large, international institutions and, second, direct and indirect measures to limit their size. The SNB will examine all of these in depth, in close collaboration with FINMA, alongside possible further options. There can be no more taboos, given our experiences of the last two years. | 0 |
It is an idea that the ECB fully supports. The development of the market for simple and transparent Asset Backed Securities deserves particular support. Member States should consider the provision of public guarantees to support lending to small and medium sized enterprises. There also needs to be a consistent and credible application of the Stability and Growth Pact across time and across countries. Within the existing framework, countries should explore how to support productive investment. In monetary policy, we have deployed a number of non-standard tools to ensure our very accommodative monetary policy stance is transmitted to the real economy. Last week, the Governing Council decided to start the purchase of certain high-quality asset-backed securities and covered bonds in October. Senior tranches of such ABS have proven to be high quality assets. Alongside our Targeted Longer Term Refinancing Operations, we expect these measures will enhance the functioning of monetary policy transmission, provide further accommodation now that we are at the lower bound, and have a sizeable impact on our balance sheet. *** Ladies and gentlemen, It is a pleasure to be here tonight with you in Milan. In a recent speech in Jackson Hole, I spoke about the need for a policy mix involving monetary, fiscal and structural policies to jump-start the economic recovery in the euro area. We are currently facing a set of conditions – low growth and low inflation, high debt and high unemployment – that can only be addressed by concerted action on both the demand and supply sides of the economy. | Our efforts should therefore be focused on jump-starting investment. However, and this was really the crux of my argument, we will only manage to stimulate investment if structural, fiscal and monetary policies mutually reinforce each other. 4 BIS central bankers’ speeches | 1 |
Although the time profile of the adjustment process is different, as is the degree of short-term pain involved, internal adjustment arguably leaves the economy leaner and fitter than it would if everyone could simply depend on depreciation to see them right. The second flawed perception was that the intervention by the authorities in the stock market in August 1998 represented a fundamental reversal of traditional non-interventionist policy. The mistake here was to fall into the trap of characterising Hong Kong as a place where the authorities never intervened. We have always made clear our preparedness to intervene for such purposes as promoting efficiency in the market economy, providing infrastructure, or providing necessary support for the most needy in society. But our emphasis has always been to keep intervention to the minimum. This may sound uncontroversial today; indeed, it is probably an attitude shared by most governments, including those here in Europe. But you should remember that when Hong Kong was first vigorously espousing this doctrine, perhaps 30 or 40 years ago, the vogue in most western countries was for the 1 BIS Review 23/2000 state to assume an expanding role in the economy. In keeping with Hong Kong’s principles, the stock market intervention in 1998 was specifically directed towards improving the operation of the market economy rather than perverting it: it was designed to frustrate market manipulation that would otherwise have led to serious market dislocation. | Our ambition will then be to make it clear that we have done so. By raising and lowering the steering interest rate - the repo rate - the Riksbank attempts to influence inflation. As it is so difficult to steer inflation in the short term, the Riksbank makes an assessment of developments for the coming 1-2 years. This is the period of time usually assumed necessary for an interest rate adjustment to work its way through the economy and have a full impact on the rate of price increase, i.e. inflation. The Riksbank uses a simple rule-of-thumb when shaping its monetary policy. If the total picture of inflation shows that it is expected to be above or below the target level, the steering interest rate is adjusted accordingly. There are four main factors in the analysis of future inflation that stand out as central to the shaping of monetary policy: the development of total resource utilisation, international price trends, the exchange rate and the general public’s inflation expectations. Inflationary pressure varies according to the demand situation and to changes in resource utilisation. The stronger the upturn in demand in relation to potential production, the greater the risk that prices and wages will rise rapidly and vice versa. This is why we who work in central banks around the world BIS Review 12/2003 1 must analyse the picture of economic activity as a whole, despite the fact that inflation is our target variable. | 0 |
The situation is similar in substance in Europe, where new regulatory directives and regulations account so far for 2,000 pages of primary legislation, and where detailed rule-making occur on a similar scale as in the US, we would end up with 60,000 pages for a now literal regulatory blanket. Today’s financial markets are very complex and are becoming even more so. Haldane and Madouros are right: “as you do not fight fire with fire, so you 4 BIS central bankers’ speeches don’t fight complexity with complexity”. An efficient regulatory response should be grounded in simplicity. The “keep it simple” principle has never sounded truer. III.2. Fixing the financial system Attempts to fix the financial system seek to alter its structure by dealing with the scope, the size and the cross-border dimension of the financial activity. As concerns the scope, the basic idea is that financial institutions should be prohibited from undertaking certain potentially risky activities. Some proposals recommend reintroducing the separation between commercial and investment banking (as in the original Glass-Steagall Act). Others, such as the so-called “Volcker rule”, distinguish between client-service trading and proprietary trading, basically banning the latter. Criticism of these proposals is three-fold: (i) the separation between commercial and investment banking is much more suitable to remove a conflict of interests rather than reduce credit risk; (ii) the major risk for commercial banking is, after all, credit risk; and (iii) in practice, it is difficult to delineate between proprietary trading and trading to hedge risk. | As proved by the experience gathered from the `30s to the `60s, it can provide financial stability at the expense of future productivity and living standards. To quote Andrew Crockett again, “We should be careful that greater safety in banking is not purchased at the cost of reduced efficiency or additional risks elsewhere in the system”. Second, proper functioning of markets requires adequate rules. To me, it seems that something was wrong not only with markets themselves, but with the way they were regulated. Regulation did not pay enough attention to problems that may appear when markets operate. Andrew Crocket explained that the “market mechanism failed because of perverse incentive, asymmetric information and conflict of interests”. This means that, as Tommaso Padoa-Schioppa described it a few years ago, this crisis is not only a failure of markets, but also a failure of governments and regulators. In my view, free markets work properly given a set of good rules. It is natural for human beings to make free choices. It is the regulators` duty to design rules that always preserve this freedom while preventing, for as long as possible, the accumulation of problems from asymmetric information, perverse incentive and conflict of interests. The two approaches of regulation – the one up to the `60s and the one before the outbreak of the current crisis – are a proper basis for understanding what good rules might mean. III. | 1 |
Policy agenda Our immediate focus must be to limit the damage of the financial crisis on the real economy, and stop the downward spiral created by the negative feedback loop. Policy measures must include not just fiscal and monetary policy stimulus, but also an acceleration of structural changes to correct the underlying imbalances, to put the global economy on a sounder footing for renewed growth. There has also been much discussion about regulatory reform. Reform is certainly necessary, but we must avoid swinging the regulatory pendulum to the other extreme. While the present system has major flaws, it is not fundamentally broken. Fixing these flaws demands thoughtful and pragmatic changes at the global level. Piecemeal quick fixes, which may be logical and perhaps even headline grabbing, may end up creating unforeseen and unintended consequences. It would be a mistake, for instance, to swing towards overly prescriptive rules, or to severely restrict all forms of securitisation and financial innovation. As financial markets are at different stages of development in various countries, we must also avoid a “one-size-fits-all” approach. Certainly, we will need greater international cooperation, and the work of bodies such as the IMF, FSF, BCBS, IOSCO, IAIS, 3 and initiatives sponsored by groupings such as the G20 will be important in this reform effort. An effective regulatory framework for Islamic finance The current global crisis has posed a series of extreme stress tests on financial systems and our regulatory approaches, and offers many important pointers for the development of Islamic Finance. | In such a transaction, banks generally purchase the asset to be financed, and then sells it to the customer at a mark-up, to be paid on a deferred basis. 6 IFSB - Islamic Financial Services Board; IDB – Islamic Development Bank; AAOIFI - Accounting and Auditing Organisation for Islamic Financial Institutions; IIFM - International Islamic Financial Market. 7 The Bahrain Monetary Agency was the primary sponsor in establishing the Liquidity Management Centre. 4 BIS Review 147/2008 Financial Services Board Summit, Singapore's plan to set up a facility to provide Shariahcompliant regulatory assets to these financial institutions as part of our efforts to promote the growth of Islamic Finance in Singapore. The sukuk structure is based broadly on the Al-Ijarah structure, or the sale-and-leaseback of an underlying property. Sukuk issued by the facility will be given equal regulatory treatment as Singapore Government Securities, or SGS, and returns will be tied to the risk-free yield of SGS of equivalent tenor. The facility is open to all financial institutions that plan to or are currently carrying on Shariah-compliant financial services in Singapore. We are issuing on a reverse enquiry basis, which means we can size and time the issuance according to the needs of the financial institutions. A number of financial institutions have already expressed interest and we expect the first issue to take place at the start of next year. We invite eligible and interested financial institutions to approach MAS as we work towards a formal launch. | 1 |
Figure 3 shows the consequences, expressed as a percentage or percentage per year, of a reduction of the repo rate path by 0.25 percentage points over four quarters on quarterly inflation, the real repo rate, the real exchange rate, four-quarter inflation, production and hours worked. The solid curves show the effect of an anticipated reduction, while the dashed curves show the effect of an unanticipated reduction.6 We see that, all else being equal, such an anticipated reduction of the repo rate leads to an increase in inflation of just over 0.4 percentage points, an increase in output and the output gap of just over 0.4 per cent or percentage points, respectively, and an increase of the number of hours worked of approximately 0.35 per cent. If employment varies one-to-one with hours worked, which is realistic in a year or a couple of years’ time, employment will then increase by approximately 0.35 per cent. 5 One can also calculate the alternative forecasts for inflation and resource utilisation using so-called unexpected deviations from the main scenario’s repo rate path. This corresponds to a remarkable situation in which the Riksbank misleadingly announces the main scenario’s repo rate path but plans in a later monetary policy decision to surprise the market and the economic agents by deviating from the announced repo rate path. This would be the opposite of the transparent and clear monetary policy that the Riksbank says that it should conduct and does conduct. | As the Riksdag Committee on Finance states in its report in 2007: “A flexible monetary policy requires, in the Committee’s view, a high degree of transparency and that the Riksbank is very clear about why the various repo rate decisions have been made. This is also a prerequisite for the possibility to examine and evaluate monetary policy.” In my opinion, this requires a methodical and detailed discussion of the various monetary policy alternatives, together with the reason why one of them should be preferable to the others. The effects of a changed repo rate path on the forecast for inflation and resource utilisation are calculated with the help of the Riksbank’s model Ramses. In particular, they have been calculated using so-called expected deviations from the main scenario’s repo rate path. This corresponds to a situation in which the Riksbank clearly and transparently announces an alternative repo rate path that it intends to follow and that affects market expectations and thus inflation and the real economy.5 The deviations from the main scenario’s repo rate path that are shown in these graphs entail a reduction or an increase in the repo rate by 0.25 percentage points over four quarters. After this, the alternative repo rate paths gradually return to the main scenario’s repo rate path in accordance with the Riksbank’s historically-estimated reaction function. | 1 |
These initiatives reflect a tradition in our country of cooperation between the private and public sectors that is a major reason for the effectiveness, efficiency, and flexibility of our financial markets. Let me touch briefly on what some of these proposals and new measures entail. 2 BIS Review 57/2002 On the private sector side, the New York Stock Exchange approved a wide-ranging set of changes which it submitted to the Securities and Exchange Commission in August. These proposals include proposed improved corporate governance standards as well as related changes to certain other rules on its books. Among its proposals, the New York Stock Exchange would require all listed companies to have a majority of independent directors as well as nominating/corporate governance committees and compensation committees composed entirely of independent directors. The NASDAQ Board of Directors also approved a number of improvements in corporate governance measures in May and July. Its proposals range from requiring shareholder approval for the adoption of all stock option plans to increasing and strengthening the role of independent directors and the authority of audit committees. The Business Roundtable, which represents the business community, stands firmly behind the proposals of the New York Stock Exchange and NASDAQ to improve listing requirements. The Conference Board has endorsed reforms to stock option plans. Moreover, the major rating agencies are committing more of their resources to analyzing the quality of financial accounting and governance at the companies they cover - efforts that will complement the private sector reforms. | Their job is to ensure that markets operate in a fair, BIS Review 57/2002 1 transparent, and efficient manner, and that participants comply with the rules of the game. Governments must not rely on outdated notions as to what constitutes risk and effective risk management. Official supervision must evolve in line with the way financial institutions manage their activities, which is increasingly across business lines rather than across legal entities. The Basel Committee on Banking Supervision, which I chair, has developed principles for sound and effective banking supervision and continues to add to its guidance on minimum and advanced supervisory practices. Its proposed revisions to the Basel Capital Accord call for these principles to be applied to all internationally active banks within a more dynamic, risk-based, and process-oriented framework. The revisions are intended to align regulatory capital requirements more closely with underlying risks and to provide banks and their supervisors with a range of options for the assessment of capital adequacy. The third line of defense against financial instability is effective market discipline, an increasingly important ally of policymakers in a global marketplace. What do I mean by market discipline? In my view, market participants, when armed with timely, and meaningful, and accurate information about a firm's performance, can, by their investment and credit decisions, encourage managers and boards of directors to manage their risks soundly. Equally important, market participants can penalize firms that do not manage their risks soundly. | 1 |
Openness and integration – the new finance and new economy in a global context Speech given by Dave Ramsden, Deputy Governor for Markets & Banking Bund Summit, Shanghai 27 October 2019 With thanks to Cormac Sullivan for his assistance in preparing these remarks and to Ashley Collins, Tom Mutton, Niamh Reynolds and Tom Smith for their helpful comments and suggestions. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches Intro It is my great privilege to address you today. I would like to extend my sincere thanks to the China Finance 40 Forum, Huangpu District Government and the Shanghai Finance Institute for the opportunity to address this esteemed summit. I am here speaking on behalf of the Bank of England, the UK’s central bank, where I am the Deputy Governor with responsibility for our financial markets and banking policy and operations, a key element of which is fintech. China and the UK are both leading global centres of financial innovation. We share economies where commerce is rapidly becoming digital and financial systems are evolving in response. We share populations that are increasingly open to new finance providers and new financial products. We also share a common goal of ensuring regulators manage and regulate appropriately, to ensure the financial system remains sound, both domestically and globally. The UK financial sector is a national asset and a global public good. Our strong partnership with our Chinese colleagues is at the heart of that. | Most important is the engagement and the opportunity provided for the emerging world to have a voice on the issues that have fundamental implications on us and on the broader global community. Jamie Caruana and the Board of the BIS, thank you for this. It was in 1995 when I was first invited to participate in a BIS roundtable meeting and the topic then was on capital flows. Today, twenty years hence, this is still a hot topic and remains an unresolved issue as the world continues to witness massive shifts in funds across borders. Indeed, such financial flows are having serious repercussions on financial markets, notably on the money and foreign exchange markets, the capital markets and other asset markets across the world. In addressing such challenges and the many others that confront Central Banks, we have benefitted immensely from the work by the BIS. Not only has the BIS always flagged the issues important to Central Banks through its many excellent reports, research works, background notes which have always been of the highest quality and of great benefit to the Central Bank community but the BIS has also had a pivotal role in providing a platform that facilitates and strengthens engagement and cooperation among Central Banks. My own development has benefitted from the experience with the BIS including its highly prolific Asian office. It was also my privilege to be perhaps the longest serving member of the governance group at the BIS. | 0 |
This is supportive of the conclusion that the suite of postcrisis official sector actions in the U.S. has made the U.S. financial system more resilient, while not eroding global competitiveness. Provision of Financial Services I will now turn to the provision of financial services by looking at indicators of different types of banking activities such as lending or underwriting activities.10 A more rigorous analysis would identify supply and demand factors in an attempt to understand not just what has changed, but why, and could allow an assessment of whether financial services are efficiently provided. Nonetheless, this perspective provides a benchmark from the pre-crisis period to support some initial conclusions. In terms of traditional lending, (Figure 7) shows that the ratio of aggregate bank loans to GDP—a rough measure of credit intermediated through the banking sector—has recovered from the postcrisis low and is consistent with historical levels. In addition, aggregate net lending revenues, proxied by net interest income and scaled by GDP, are near historic norms despite compression of net interest margins in the low rate environment. Survey evidence of credit availability also shows ongoing provision of credit. | Greenwood, R. and Hansen, S. G. 2013. “Issuer quality and corporate bond returns”. Review of Financial Studies, Vol. 26, No. 6, pp. 1483-1525. Harris, M. and Raviv, A. 1991. “The theory of capital structure”. The Journal of Finance, Vol. XLVI, No 1. Jordà, Ò., Schularick, M., and Taylor, A. M. 2012. “When credit bites back: Leverage, business cycles, and crises”. NBER Working Paper No. 17621. 19 All speeches are available online at www.bankofengland.co.uk/speeches 19 Modigliani, F. and Miller, M. H. 1958. “The cost of capital, corporate finance and the theory of investment”. The American Economic Review, Vol. 48, pp. 261-297. Stanga, I., Vlahu, R., and de Haan, J. 2017. “Mortgage arrears, regulation and institutions: Cross-country evidence”. DNB Working Paper No. 580. Available at https://www.dnb.nl/en/binaries/Working%20Paper%20No.%20580_tcm47-370366.pdf. Thomas, R. and Dimsdale, N. 2017. “A millennium of macroeconomic data”. Bank of England OBRA dataset. Available at: https://www.bankofengland.co.uk/-/media/boe/files/statistics/research-datasets/amillennium-of-macroeconomic-data-for-the-uk.xlsx. 20 All speeches are available online at www.bankofengland.co.uk/speeches 20 | 0 |
The first principle is that the private sector should be allowed to take the lead. Although the Government played a significant role in financing the initial research and development of the Internet, the White House believes that its subsequent expansion has been, and should continue to be, driven primarily by the private sector. The Framework takes as a fundamental principle the notion that innovation, expanded services, broader participation, and lower prices will arise in a market-driven arena. The natural outgrowth of this first principle is seen in the Federal Government’s hesitance to issue any regulations governing the use of the Internet and its encouragement of private sector self-regulation. The second principle in the Framework is really a corollary to the first principle and provides that the Government should avoid undue restrictions on global electronic commerce. This principle is based on the belief that unnecessary regulation of commercial activities on the Internet will distort the development of the electronic market-place by raising the cost of products and services for consumers the world over. According to the third Framework principle, where Government involvement is needed, its aim should be to support and enforce a predictable, minimalistic, consistent, and simple legal BIS Review 26/1998 -2environment for commerce. This legal environment should be based on a commercial law model that allows for private governance though decentralized, contractual relationships or organized system rules, rather than a top-down regulation model. | What remains to be seen is whether the infrastructure needed to create binding electronic contracts between previously unaffiliated parties can be developed to meet the needs of consumers and merchants globally. This leads me to my second topic -- the establishment of a Uniform Commercial Code for Electronic Commerce. Uniform Commercial Code For Electronic Commerce The White House Framework states that, in order “to encourage electronic commerce, the United States Government should support the development of both a domestic and global commercial legal framework that recognizes, facilitates and enforces electronic transactions worldwide.” In keeping with its belief that the private sector should take the lead in electronic commerce issues, the White House is largely relying on the efforts of the National Conference of Commissioners of Uniform State Laws and the American Law Institute, the sponsors of the Uniform Commercial Code, to produce the desired domestic commercial law framework. Internationally, the United States Government is working with organizations such as the United Nations Commission on International Trade Law, the OECD, UNIDROIT and the International Chamber of Commerce to achieve the necessary global commercial law framework. The United States has adopted, and has urged others to adopt, the following drafting principles. First, parties should be free to order the contractual relations between themselves as they see fit. Second, rules should be technology neutral -- in other words, the rules should neither require nor assume a particular technology -- and should be forward looking -- should not hinder the use or development of technologies in the future. | 1 |
These efforts should pave way for faster and cheaper transaction and validation due to less intermediation process needed compared to the current systems. So far, I have discussed the Bank of Thailand’s role as a catalyst for digital infrastructure development and as a facilitator of innovation. One should not forget that our core mandate is being a regulator to safeguard financial stability. To this end, we proposed the new Payment Systems Act which became effective earlier this April. The Act unifies previously fragmented payment laws and regulations under a single Act, and empowers the Bank of Thailand with the authority to both regulate and oversee development of Thai payment systems in a manner conducive to new 8/10 payment innovations. Beside the Payment Systems Act, supervisory practices are also being updated to improve and safeguard cyber security risks. The updated guidelines on management of information technology risks of financial institutions were released in December last year to ensure that banks have appropriate governance structure in place and can swiftly respond in the event of cyberattacks. Our efforts also extend to ensuring safety of the payment system, and awareness among both financial service providers and consumers. Let me now turn to another area that is important for our region, which is the promotion of regional financial connectivity. Over the years, the Bank of Thailand has made multiple arrangements with regional central banks to support the use of local and regional currencies in trade and investment. | This could bring down the number of fraudulent transactions, and markedly reduce the merchant discount fees for credit card payments. The second one is the blockchain technology which we are working closely with the financial industry to apply them to various banking applications. ‘Thailand Blockchain Community Initiative’ was officially announced at the Bangkok FinTech Fair in March of this year. This initiative is a collaboration between 14 Thai banks and 7 leading businesses and state-owned enterprises to utilize blockchain technology in financial services, starting with a pilot project to offer blockchain-based letters of guarantee. This project is expected to become operational in the second half of this year. On a longer horizon, the blockchain technology is also planned to be applied to supply chain finance to improve authentication efficiency which would facilitate real sector activities. Other blockchain related projects in the pipeline include scriptless bond issuance which would significantly speed up saving bond allocation to retail investors from 15 days to 2 days, as well as granting more flexibility for bond issuers. The proof-of-concept of this project is almost complete, and production is expected to begin in the very near future. Another project in the pipeline is the “Project Inthanon” in which the Bank of Thailand and banks will co-develop a new way of conducting interbank settlement using wholesale central bank digital currency or CBDCs. Like other central banks, our goal is not to immediately bring CBDC into use, but rather to explore its potential and implications for back office operations. | 1 |
A sustainable financial system, oriented to new long-term horizons and prudential to risks, serves to channel savings into the most competitive sectors of the economy. * * * In the following, I would like to address the above-listed topics in more details, focusing on key points of the Bank of Albania’s work. 1. Economic and financial developments in 2010 According to INSTAT data, the Albanian economy is estimated to have grown by 3.9 % this year. Compared to 2009, economic growth is more balanced in terms of sectorial distribution and demand components. During 2010, the Albanian economy was characterised by gradual improvement of the aggregate demand and further consolidation of the macroeconomic stability. Economic development was followed by price stability, while the public debt and current account deficit narrowed. Economic growth relied mainly on foreign demand and increased Albanian exports, while domestic demand was sluggish. The latter decelerated due to public finances consolidation and budget deficit reduction in 2010, while consumer spending and private investments were affected by insecurity about the future and presence of spare capacities. Fiscal policy was oriented towards fiscal consolidation in 2010, following the stimulating nature in 2009. Fiscal consolidation accelerated especially in 2010 H2, following the approval of the revised budget. This consolidation was present on both, income and expenditure sides. Budget revenues increased by 8.4% y-o-y, reflecting the economic growth, expansion of taxpayers’ base, and privatisation receipts. On the other hand, budget expenditures decreased by 4.5%, attributable to reduction of government capital expenditures. | The Kingdom has maintained high sovereign credit ratings as assessed by global rating agencies for its financial solvency. The last rating was AA- awarded by Standard & Poor’s and Fitch for long-term credit rating in national and foreign currency, with a stable outlook . Confidence is still great and solid that strong growth and comprehensive development of the Saudi economy will continue under the wise leadership of the Custodian of the Two Holy Mosques. The Custodian of the Two Holy Mosques is well-known for his concern about his citizens, and he is determined to closely follow up their needs, including reduction of poverty, supporting Social Security, approving salaries increase & cost of living allowance, confirming wage earners, addressing the housing issue, supporting specialized development funds, etc. and other decisions aiming at improving citizen’s living conditions, which he deems as the objective and tool of the development process. We pray to Almighty Allah that there will be many happy returns of this dear national occasion for years and years for the citizens of this country, hoping that the Custodian of the Two Holy Mosques and his Crown Prince will continue to enjoy full health and wellbeing, with the Kingdom enjoying security and stability, to continue the development process, under our wise leadership. BIS central bankers’ speeches 1 | 0 |
Table 2 looks at this average ratings difference for a sample of banks and building societies in the UK, and among a sample of global banks, between 2007 and 2009. Two features are striking. First, standalone ratings are materially below support ratings, by between 1.5 and 4 notches over the sample for UK and global banks. In other words, rating agencies explicitly factor in material government support to banks. Second, this ratings difference has increased over the sample, averaging over one notch in 2007 but over three notches by 2009. In other words, actions by government during the crisis have increased the value of government support to the banks. This should come as no surprise, given the scale of intervention. Indeed, there is evidence of an up-only escalator of state support to banks dating back over the past century. 5 Table 3 takes the same data and divides the sample of UK banks and building societies into “large” and “small” institutions. Unsurprisingly, the average rating difference is consistently higher for large than for small banks. The average ratings difference for large banks is up to 5 notches, for small banks up to 3 notches. This is pretty tangible evidence of a second recurring phenomenon in the financial system – the “too big to fail” problem. It is possible to go one step further and translate these average ratings differences into a monetary measure of the implied fiscal subsidy to banks. | In some jurisdictions, national supervisors will conduct additional field tests to determine whether the new rules deliver the levels of capital we expect. Similarly, in all jurisdictions, there will be a period of time during which banks will calculate their capital requirements in parallel under the 1988 Accord and under Basel II. National field tests and the period of “parallel running” of the new framework will serve as some of the final reality checks for Basel II prior to its implementation. We recognise that these tests and reviews will demand resources and substantial efforts from both banks and supervisors. Yet I must emphasise that neither banks nor supervisors will be able to evaluate the calibration of the new framework - and hence its effectiveness - if banks do not participate fully and seriously in the national field tests or in the periods of parallel running. I urge you to devote your best efforts and resources to these undertakings. Only you can provide the data that all of us will need to ensure that Basel II functions as we intend. b) Monitor ongoing advances and clarify and provide guidance for selected rules A second area where supervisors are active is in monitoring ongoing advances in risk management while clarifying and providing supplemental guidance for some of the rules. Like the development of the framework itself, this work will require a great deal of communication and co-operation between banks and supervisors. | 0 |
On this opportunity, I wish to quote the three premises which, according to Donald Kohn 4 , the Federal Reserve Vice Chairman, are necessary to justify the activities undertaken by central banks to pursue this aim: 1 Borio C., Lowe P. Asset Prices, Financial and Monetary Stability: Exploring the Nexus, BIS Working Paper, No. 114, July 2002. 2 See references at the end of the speech. 3 Rybiński K., Globalizacja w trzech odsłonach, Difin, Warszawa 2007. 4 Kohn D., Remarks by Donald Kohn at Monetary Policy: A Journey from Theory to Practice, An ECB Colloquium held in honor of Ottmar Issing, 16 March 2005. BIS Review 134/2007 1 • a central bank must be able to identify bubbles on an asset market in a timely fashion with reasonable confidence as to the adequacy of the findings of its analysis, • there must be a fairly high probability that a modestly tighter policy will help to check a further expansion of speculative activity on a given asset market, • the expected improvement in future economic performance must be sizeable and bigger than expenses disbursed by the economy as a result of conducting those activities. | The last condition points to the restricted use of interest rates for the purpose of bursting a bubble, since the level of interest rates has a bearing not only on decisions taken by entities directly engaged in the process of forming a bubble but in fact on all the entities operating in the economy. To evoke a vivid picture, the use of interest rates to this end may be compared to the use of an atomic weapon in the battlefield – for an atomic bomb makes no distinction between friend and foe. Donald Kohn’s conditions are not easy to meet. Therefore, the opinion now prevails that supervisory authorities must enhance their macroprudentail activities 5 . Consequently, one of the conclusions is to take recourse to supervisory instruments with a view to bearing on decisions of those market participants which are primarily responsible for bubble formation and report to supervisory authorities. By way of illustration, although the supervisory authorities do not interact with financial institutions which extended a large part of subprime loans or with arbitrage funds which purchased instruments backed on those loans, they continue to oversee the process of credit risk management and liquidity at banks. Banks played an important role in the process of spreading the crisis. as investors and providers of liquidity to companies – intermediaries in the sale of assets and companies investing in those assets, as well as by organizing the securitization of those assets. The role of good supervisory policies cannot be underestimated 6 . | 1 |
2 BIS Review 82/2007 advantage of all the opportunities offered by new technologies, including ICT, and by the new division of labour initiated by globalisation. Restructuring of the productive sector and reengineering of the production processes appear to be more difficult in a less flexible economy like the European one, implying a negative influence on productivity. The structural characteristics of the US economy – a more flexible labour market, a higher degree of competition in product markets and lower barriers to entry for new firms – were more conducive to exploiting the opportunities provided by new technologies. It remains relatively easy to understand that the absence of sufficient flexibility in Europe and in the Euro area has not permitted us to take advantage of the new opportunities that were offered and therefore that Europe has not benefited from an increase in labour productivity (and in total factor productivity) like the United States. What remains hard to explain, is that not only labour productivity growth in Europe did not accelerate but that it slowed down significantly, by more than what would be accounted for by increasing employment in the unskilled segment of the labour market. A conjecture that seems to me important to test is whether in periods of very rapid technological and structural transformations not only less flexible economies are not taking advantage of the situation but they might paradoxically behave less properly than in more “normal” times. | The economic performance of the euro area since the mid-1990s Since 1996, the annual growth rate for the euro area has averaged 2.1% per year compared to 3.3% in the US. What are the fundamental causes of this unsatisfactory low trend growth in the euro area? The answers can be found by looking at the factors that determine potential or long-term economic growth, namely 1 : • The degree of labour utilisation, • Productivity growth, • And the demographic trends. - Over the period 1996-2006, the euro area witnessed a slight improvement in the utilisation of labour, which increased on average by 0.4% per year (compared with 0.1% in the US) when defined as the total annual hours worked divided by the total population. Labour utilisation reflects the extent to which the potential labour resources in an economy are actually utilised and therefore have a direct influence on output growth. This improvement in labour utilisation mainly reflects the significant rise in the euro area overall employment rate from 58% in 1996 to 64.4% in 2006, accompanied by a decline in the aggregate unemployment rate from 10.7% to 7.9%. Although this is a very encouraging fact, which shows that the positive employment effect we witnessed over the last ten years has significantly helped us to partly counteract the growth differential to the US, one has to remain aware of the inferior starting position of euro area countries. | 1 |
The noticeable slowdown across consumer and commercial loans that started in the third quarter continued into the fourth quarter, causing these loans to post an annual growth rate of 8.7 and 16.2 percent, respectively, at the end of the year (Chart 9). Thus, commercial loans continued to grow at a faster pace than consumer loans in the fourth quarter of 2015, following the same pattern since early 2014. We expect that these developments in loan growth and loan composition will contribute to the rebalancing process and financial stability as well as limit the effects of the recent cost pressures on inflation. The annualized growth rates of 13-week averages show that consumer and commercial loans lagged far behind past years’ averages; the former across 2015, the latter mainly in the second half of 2015. However, as reflected by 13-week averages, both loans, particularly commercial loans, saw a modest rise during the 4 BIS central bankers’ speeches last quarter of 2015 (Chart 10). The recent adjustments made to the risk weights of consumer loans are likely to support loan growth in the upcoming period. Yet, due to ongoing tight financial conditions, we expect annual loan growth rates to remain at reasonable levels in the coming months. Chart 9. Chart 10. (Adjusted for Exchange Rate, Percent) Rate, 13-Week Moving Average, Percent) Annual Credit Growth Rates Source: CBRT. 2. Annualized Credit Growth Rates (Adjusted for Exchange Source: CBRT. | If the telecom industry is excluded from the figures for trade and industry, productivity increased by only 1.9 per cent during the period 1995-2000, compared with a growth of 2.8 per cent if it is included. This sector has now greatly declined in importance and there is apparent confusion over its future development. Given this, the average rate of wage increase should not exceed 3.5 per cent over the coming years. In conclusion, it may be worth pointing out that if Sweden joins the Eurosystem, there will be other factors affecting the nominal wage cost scope. This is because the ECB's inflation target may be even more ambitious than the Riksbank's. In this case, and if productivity growth remains unchanged, a lower rate of increase will be needed for nominal wage costs. Summary I shall conclude with a summary. The realignment of stability policy has contributed to wage formation functioning better than previously in the two most recent wage bargaining rounds. The rate of increase in nominal wages has approached reasonable levels, while wage earners have experienced large increases in real wages. This development is underpinned by a good development in productivity. When we look ahead, the picture is more worrying. Profits are under greater pressure. It is not certain that productivity growth can remain as high as it was during the latter part of the 1990s. Given these factors, and taking into account international developments, there is a need to bring the average rate of wage increase down to, or even below, 3.5 per cent. | 0 |
The theme for this year's conference, "Reinventing retirement strategies in the new world of risks" is most appropriate and relevant to Asia . As we are aware, the ageing population is also an issue in this part of the world. Statistics have indicated that worldwide, a greater number of people are reaching old age and living longer than before. For Asian countries, the World Bank reported that by 2040, the number of the elderly will surpass the number of children and by 2050, it is estimated that there will be nearly 1 billion elderly in Asia . The increasing number of ageing population, relative to a declining workforce in Asia , would significantly increase the dependency ratio in the Asian region from approximately 10% currently to 25% in 2050. Some Asian countries' dependency ratio is expected to reach even as high as 70% in 2050. Malaysia too is not spared from this worldwide phenomenon. The proportion of Malaysians age above 60 is expected to be more than doubled from 7% of the total population in 2000 to 16% in 2020. With improved standards of living, life expectancy is expected to further increase to 79 years for females and 75 for males. By 2040, therefore, one fifth of Malaysians are expected to be in the more than 60-years age bracket. | In addition to these relatively direct effects, the price level will also be influenced by changes in prices for imported and domestically produced intermediate goods. • The expectations channel to inflation Both price and wage inflation is affected by changes in expected inflation. One reason is that firms often set prices for several periods. The same applies to wage formation. Expected price changes will figure prominently in the calculation of expected future real wages. We have seen that an increase in the nominal rate of interest reduces inflation through various channels with varying lags. As a result, inflation expectations can also be expected to be redused. The expectation channel will therefore amplify the effect of monetary policy. The time it takes for a change in the interest rate to have an impact on inflation and demand will vary. It must also be stressed that in the course of the period in which a change in the interest rate affects output and inflation - and often before monetary policy takes effect - the economy will be influenced by a number of direct and indirect disturbances. Thus, the central bank’s control over inflation and production is far from perfect. 2b. What is a reasonable objective for monetary policy? The goal of economic policy tends to be a desire for maximum welfare for the country’s inhabitants. This goal is often expressed as a number of separate goals, such as (sustainable) economic growth, efficient utilisation of resources, equitable income distribution, price stability, viable regions, etc. | 0 |
If we are to prevent another crisis, action is required on both of the fundamental causes. First, we need to resolve the problems caused by massive capital flows from poor to rich countries. Yet the imbalances are growing again. This problem can be tackled only by international cooperation – most obviously through the G20 – and I hope that the trade union movement will continue to engage with that process. Second, our financial system needs radical reform. Slowly but surely, we must move towards a banking system that does not put both the economy and your members’ livelihoods at risk. In the long run, banks will have to hold much more capital and be much less highly leveraged. Part of the answer is improving the way we regulate banks, and devising policy tools to control the risks taken by the financial system as a whole. The aim should not be to prevent all bank failures. Just as with every other company in the economy, banks that get it wrong must be allowed to fail, without risk to ordinary depositors or taxpayers. In 2008, banks were bailed out not to protect them but to protect the rest of the economy from the banks. That may not seem fair – and it isn’t – when other companies, such as Jaguar, had to stand on their own feet or go to the wall. So banks too must face market discipline. But we need to do more than reform our banking system. | 3 – A year of inclusion We can look forward to two real advances in inclusion in 2019: a fifth consecutive year of declining household over-indebtedness, by almost 40% over this period, and the implementation of a cap on bank charges at EUR 25 per month for more than three million vulnerable customers. Within this population, the specific offer – capping charges at EUR 20 per month and EUR 200 per year – now benefits 464,000 customers, or an increase of 32% compared with end-2017. I would like to take this opportunity to thank the banking community, which has worked hard to meet its commitments. Now, these commitments must be enhanced, and sustained. Enhanced in 2020: banks must detect fragile customers even more efficiently; they must correct the few remaining shortcomings; and they must raise awareness of their specific offers. These commitments must be sustained over time, and will be monitored by the ACPR, and by the Observatory for Banking Inclusion, which I chair, with an active role for the associations. Climate change will also be the priority in 2020. And you can count on the determination of the Banque de France and ACPR – with its new Climate and Sustainable Finance Committee – to support the greening of the financial sector. We will conduct the first climatic stress tests in the coming months. The aim of this exercise is twofold: to better identify the resilience of banks and insurers to climate risks, and to speed up the methodological work in order to have quality assessments. | 0 |
This restricts the future freedom of action in economic policy and means that there is a risk of fiscal policy in practice having a destabilising effect. This is particularly the case in that, with high revenue and spending ratios, the Swedish budget is sensitive to cyclical factors. Seen from this angle the Government’s target of a 2 per cent budget surplus over the economic cycle appears reasonable, though there is no academic foundation for a quantified level of ambition. There may be grounds for strategic tax cuts to improve the long-term growth potential. But in the light of the experience with government finance in recent decades a warning should be issued against tax cuts without parallel cuts in spending. Weak employment The labour market trends in recent years have been bleak. Although annual economic growth since 1993 has averaged 2.7 per cent, employment has not risen. This indicates that a considerable proportion of unemployment is structural in the sense that the level is liable to remain high even if activity continues to improve. The difficulty in generating new jobs is not confined to Sweden; it is a problem we have in common with much of Europe. But there are countries in Europe that have succeeded in turning the employment curve upwards since the mid 1980s. I am thinking in particular of the Netherlands, where employment, after a long period of stagnation, has been increased by 20 to 25 per cent since the mid 1980s. | Today, the euro is providing market stability, which is also beneficial to third currencies like the Swiss franc. In monetary affairs, size does not really matter, but the rules of the game are more challenging for small countries than for large economies. Small countries have no choice but to respect market realities. They have to accept exchange rate flexibility even if, in the short run, some exchange rate development might interfere with the interests of their export sector. If they were to complement inflation targets with specific exchange rate objectives, they would create market confusion and destabilise expectations. The implementation of a clear and coherent monetary strategy is of the essence. In my view, smallness in combination with monetary independence and flexible exchange rates is a strength rather than a weakness. For us, being able to set our own monetary policy has meant that we could react to country-specific shocks. Had we joined the euro area, we would not have had this flexibility. Furthermore, monetary independence is attractive for small open economies, because policymakers can concentrate on national data when setting interest rates. In a monetary union, data from different countries have to be combined. Also, the decision process in the union is more complicated, since there are diverging interests to be reconciled. As a consequence, monetary policy is more inertial than in a small open economy with a currency of its own. | 0 |
As the manager of the Exchange Fund, the HKMA has ensured that ESG principles are now an integral part of our investment criteria, investment process and asset allocation decisions. 42. And, once again, Hong Kong’s status as China’s offshore financial centre gives us an edge in sustainable finance. No financial centre is better positioned than Hong Kong to channel global investment into China’s ambitious plans to achieve carbon neutrality by 2060. Opportunity – Technology 43. When it comes to technology, Hong Kong is already at the forefront of the global fintech scene. The HKMA’s Smart Banking initiatives have helped drive the digital transformation of banking services, bringing competition and promoting financial inclusion that directly benefit 4/5 BIS central bankers' speeches customers. This is just the start of a long journey. The adoption of AI and data analytics in banking operations, the use of Regulatory Technology – or Regtech – in compliance and the need for enhanced cybersecurity are high on our agenda. 44. Looking ahead, apart from the technology itself, it’s clear that data will be central to the future of banking innovation. That’s why we’re building next-generation financial infrastructure. Last November, we announced plans for a pilot to build a Commercial Data Interchange. The project will enable corporates to share with banks their digital footprint kept by their business partners on a common platform. | This data access will provide new ingredients for innovative banks to create new products or processes which will allow thousands of small and medium-sized enterprises to access bank credit in an easier and cheaper way than before. 45. We’re also looking to apply new technologies to addressing long-standing pain points in banking. Take international remittances for example. The process is currently slow and costly. Along with the Bank of Thailand, the HKMA initiated a central bank digital currency project for cross-border payments that has now been joined by the central banks of the United Arab Emirates and China. This ‘m-CBDC Bridge’ project is exploring the potential of using blockchain technology to facilitate real-time cross-border payments, which could reduce costs and enhance transparency for users. CBDCs have a range of promising applications and, together with our partner central banks, we want to be at the forefront of this development. Enhancing the Platform 46. We understand that a supportive regulatory environment matters a great deal to the providers and users of financial services. That’s why the HKMA and other financial regulators are working closely with the Government to keep enhancing the attractiveness of the Hong Kong platform. We keep our market infrastructure, legal framework, regulatory regime and tax system under constant review to make sure that they are business-friendly, forward-looking and competitive. 47. In recent years, we’ve been undertaking reforms that provide modern legal structures catering to the evolving needs of the asset management industry. | 1 |
M R Pridiyathorn Devakula: Efficiency enhancements and risk management Remarks by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Asian Bankers’ Seminar, Bangkok, 16 March 2006. * * * Distinguished Guests, Fellow bankers, Ladies and Gentlemen, Today’s seminar covers wide-ranging topics of interests to the banking community ranging from efficiency enhancements to risk management needed to achieve sustainable business growth. While these issues are topical and useful to bankers, I believe that one cannot simply reduce risks by relying on risk management process alone. An effective risk management system has to be supported by proper governance of the bank’s Management and its Board of Directors. One of the painful lessons of the 1997 crisis was that improper governance practices at the Board level were amongst the root causes of the downfall of too many financial institutions. Back then, it was not unusual for banks to lend to related parties with close connections to their owners, directors, and management without the proper credit analysis. Board members of banks often neglected their responsibilities to blow the whistle against these imprudent activities. Many Board members also did not have adequate and timely access to the necessary information to detect such misdeeds so that appropriate actions could be taken to prevent the resultant damages. The concept of “governance” as understood in Western society and now introduced into our business organizations, including financial institutions, has served as a good starting point to rectify some of the root causes of the crisis. | The Western governance concept including the appointment of an independent director in the Board of Directors, the introduction of an Audit Committee, and other new initiatives to improve the governance structure, have helped to address some of the problems of the past —but only to a limited extent. Unfortunately, there have been some actual practices in the Western corporate world which are contrary to the intended ideals of good governance. The notorious examples of Enron and WorldCom are all too well-known, notwithstanding the fact that both corporations had Boards of Directors established in accordance with the Western concept of good governance. Yet both eventually faced severe financial difficulties. As I see it, there are two critical aspects of the Western practices which may potentially lead to serious financial difficulties for the firm. The first is that the Chairman and the CEO is one and the same person. The second is the practice of allowing company stock options to be part of the compensation for company Directors. Allow me to elaborate. A CEO is by designation the Chief of Management, responsible for achieving the best possible performance of the company. This means maximizing profits, increasing growth and market share, expanding business lines, and doing all that it takes to maximize the company’s share value. On the other hand, the Board of Directors has to oversee the operations of Management, ensuring that they operate well within the bounds of acceptable risks in order to ensure business continuity. | 1 |
The relative size of these two deviations is governed by the strength with which higher output translates into higher inflation; and the preferences of the policymaker, or: 𝜆 𝜋𝑡 − 𝜋 ∗ = − (𝑦𝑡 − 𝑦𝑡∗ ) 𝜅 where 𝜅 is the effect of the output gap on inflation. From this, it is clear that the higher is lambda, the greater the weight placed on output stabilisation and the more a given shock is allowed to flow through to inflation. As lambda shrinks to zero, the policymaker becomes an inflation nutter, with all of the adjustment to a shock forced through the output gap in order to keep inflation very close to the target. 13 A “micro-founded” loss function resembling this can be derived in New Keynesian models, in which lambda is a function of the underlying deep parameters in the economy (such as those governing the degree of price stickiness). These are typically based on the representative agent assumption. A newer literature drops representative agent assumption. In this case, the “micro-founded loss function” contains additional terms capturing some aspects of heterogeneity between households. For example, in a model with borrowers and savers, a term in the loss function containing the “consumption gap” arises – measuring the gap between the consumptions of the two types of household. The reason terms like this appear is that dropping the representative agent assumption tends also to introduce additional frictions, like borrowing constraints. | I assume that this is one explanation why, for instance, it took Sweden until 1999 before there was sufficient political support to grant the Riksbank increased formal independence and to confirm by law the price stability objective, despite the fact that these reforms had been proposed when the inflation target was introduced in 1993. However, the concern among politicians over making central banks independent is quite unwarranted. The independence does not, of course, mean that the central bank is free to conduct any monetary policy they wish; it only means that it should be able to use the means at its disposal to meet the objectives set by the political system without outside intervention. This is usually expressed as the central bank being instrument independent but not goal independent. The delegation of powers should be regarded as a means for politicians to ensure that the long-term aim of the monetary policy that they endeavour to achieve – but have difficulty guaranteeing – can become a reality. Furthermore, a natural consequence of the independence is that the central bank shall be accountable for its actions and that monetary policy shall be conducted in a transparent manner 7 . It is interesting to note that, despite fairly substantial initial doubts, people have afterwards been very satisfied with the reforms implemented. Monetary policy therefore appears to have essentially delivered what was hoped for and I am not aware of any country where making the central bank more independent has been regretted. Conclusion Let me round off. | 0 |
I wish you fruitful discussions and I am looking forward to seeing what answers you might find to address the issues highlighted in the panels of this conference. As the focus of the conference is on economic growth and development in Romania and the wider South-East Europe region, allow me to elaborate on this topic. I will approach the subject from the perspective of a central banker. Let me start by saying that sustainable economic growth of both Romania and the region relies mainly on economic policy consistency. The global economic and financial crisis has proved yet again that there is no valid substitute for consistent economic policies. The correction of economic policy errors is, everywhere and always, painful and, while difficult to comprehend by the public at large, it is absolutely necessary. The case of Romania is highly illustrative in this respect. Large macroeconomic imbalances had been steadily accumulating during the boom years, as a result of sizeable foreign capital inflows and credit expansion, the impact of which was augmented by a pro-cyclical stance of fiscal policy, especially in the last two years before the onset of the crisis. As a result, Romania had large twin deficits at the start of the crisis, specifically a sizeable structural fiscal gap (around –8% of GDP in 2008) and a current account deficit in the double-digit area (between 2006 and 2008). After the crisis hit, Romania had no other choice but to undertake the necessary adjustments in order to eliminate these imbalances in an orderly manner. | Mugur Isărescu: The regional finance and investment for South East Europe Keynote address by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Euromoney Regional Finance and Investment Conference for South East Europe, Bucharest, 12 June 2014. * * * Prime Minister, Ladies and gentlemen, It is an honour for me to be invited to speak in front of such a distinguished audience. I am very glad that, after three years “off”, Euromoney Conferences is re-launching the event in Romania. Time has come for Bucharest to host this important event, held for several years in Dubrovnik. The joy of giving the keynote address at this conference is bigger as I had the opportunity to read the first issues of Euromoney magazine while being a young research fellow at the World Economy Institute in the early ‘70s. For years it was one of my favourite magazines. Back in 1978, I also had the opportunity to visit the editorial offices in London. I could not help but notice that you have chosen a generous theme: “The Regional Finance and Investment for South East Europe” and you have set yourselves to approach themes that I am particularly interested in, like: pro-growth strategies in an age of austerity; what more can policy-makers do? ; how will governments incentivise overseas investors? ; how can the region increase EU fund absorption rates? | 1 |
In fact, I see fintech as the nexus between finance and entrepreneurship. Finance is essential in helping startups and entrepreneurs get off the ground and scale up. Likewise, entrepreneurs can help to reinvent finance by providing ideas to develop innovative financial solutions. This morning, I would like to share some of my thoughts on fintech and on how the finance industry, especially Islamic finance can gain from technology-driven solutions. I will also elaborate on how multisided platforms are facilitating the interaction between investors and ventures. I will then briefly touch on the efforts that Bank Negara Malaysia is taking in promoting fintech. While Islamic finance has made significant progress domestically and globally, the next growth phase requires the industry to ride the fintech wave. At present, Islamic finance fintech is still in its infancy and growing. Encouragingly, we are seeing increasing number of fintech start-ups, innovation labs and incubators that are based on the values and principles of Islamic finance. However, they are not as visible and omnipresent as their conventional peers. The case is compelling for Islamic finance to take on a more prominent role in the fintech ecosystem. The technology is ripe, with higher penetration of mobile and internet across markets. Consumers are also becoming more and more tech-savvy. Digital-banking consumers stand at an estimated 670 million in Asia alone and are expected to reach 1.7 billion by 2020. In Malaysia, within a population of 31 million, there is high mobile and internet penetration rate at about 141% and 81% respectively. | We still estimate this neutral range to be at 5–6%, provided that inflation is close to the Bank of Russia’s target of 4%. Thank you all for your attention. 3/3 BIS central bankers' speeches | 0 |
At this stage, it is impossible not to agree with President Trichet, in this statement: “The undesirable social and economic consequences of inflation, namely inefficient allocation of resources, high levels of interest rates, the regressive inflation tax, arbitrary redistribution of income and wealth to the detriment of the most vulnerable, and, last but not least, economic instability, lower growth and lower job creation, are the benchmarks against which one has to assess the social benefits of price stability. This is why a credible commitment to maintaining price stability is so important for the living standards of European citizens.” 1 Together with its independence, the Central Bank of Turkey was set to be accountable in various ways. In this sense, according to Article 42 of the Law on the Central Bank of Turkey, we are accountable to communicate with the Government and with the public if inflation deviates excessively from the target, or even a possibility of deviation becomes evident. Moreover, in line with the transparency principle, we have started to give more importance to sharing our views about the general economic outlook, current inflation and inflation outlook and informing about monetary and exchange rate policies through press releases, announcements, reports and every other means such as press meetings, interviews, speeches and presentations. The Law also set up the Monetary Policy Committee (MPC). Having got the instrument independence, the Central Bank moved from implementing monetary policies aiming at implicit inflation targets together with certain monetary aggregates as intermediary targets to an explicit inflation targeting regime. | In order to safeguard this informal, implicit independence, the CBT was established as, and still is, a joint stock company, in which the state and BIS Review 57/2007 1 other local entities hold shares. This structure was by no means a coincidence, but of deliberate design aiming at minimizing government intervention. However, in today’s world, the relationship between ownership structure and central bank independence has become less significant. Nowadays, the most independent central banks are wholly state-owned and the central bank independence involves much more than just ownership. The early years of the establishment were the years in which autonomous functioning of the CBT was at the forefront. The central bank operations were respected and at times demand for short-term credit by the governments was then resisted. The outcome was low inflation. The basic aim of the Bank was to support the economic development of the country. To this end, the Bank’s main operational tools were to set rediscount rates, regulate money markets, execute the Treasury operations and take, jointly with the Government, all measures to protect the value of the Turkish currency. During and after the Second World War, central banking underwent drastic changes in the world in line with the gradual global economic and political transformation. The scope of the central bank’s mandate to manage and control the circulation of currency was extended. Its responsibility now ranged from issuing banknotes, functioning as a lender of last resort, achieving and maintaining low inflation to being the guardian of financial stability. | 1 |
As a result, inflation in Malta was lower than in the euro area for most of the last six months, partly compensating for the higher rates registered previously. In the context of an economic recession, Malta’s public finances performed relatively well in 2009, although the country is still subject to an Excessive Deficit Procedure. The deficit-toGDP ratio declined from 4.5% to 3.8% in spite of an outlay of some 0.7% of GDP by way of BIS Review 73/2010 1 targeted assistance to manufacturing firms and other stimulus measures. 1 To a large extent, however, the fall in the deficit ratio is explained by the presence of one-off expenditure items in 2008. 2 The general government debt ratio rose by around five percentage points to end the year at 69.1% of GDP, still below the estimated 78.7% euro area average. These developments helped to underpin confidence in Maltese government bonds, which are primarily held by domestic residents. In fact, all the government and corporate bond issues launched in 2009 were oversubscribed, in spite of the fact that the issuance volume doubled compared with 2008. Credit rating agencies have confirmed Malta’s sovereign credit standing, with Moody’s giving an A1 rating with a stable outlook. Spreads over the German benchmark ten-year bond yield have remained stable over the past year at around 123 basis points. Sources of economic resilience The relative resilience of the Maltese economy is mainly attributable to four factors. The first is the adoption of the euro. | A commonly recurring cyclical pattern is that productivity increases more quickly at the beginning of an economic upswing. Companies then normally have the capacity to increase their production with the existing resources. The need for resources then gradually increases and the companies begin to recruit new staff. Productivity growth usually falls then. When the economic cycle enters a downturn phase, productivity develops even more slowly. Another way of describing this cyclical pattern is to assume that the economy is exposed to technological shocks. This is how productivity is modelled in so-called real business cycle models. This is the case in Ramses, for instance, which is the general equilibrium model used by the Riksbank. But also by factors such as globalisation and new technology However, productivity growth did not fall back, but remained high in the latter half of the 1990s. There was only a marked reduction in connection with the bursting of the IT bubble in 2000 and in the following year productivity did not increase at all. Since then productivity has increased rapidly during the 2000s up to last year (see Figure 3). During the economic upturn in recent years it took longer before employment accelerated. Most indications are therefore that the strong productivity growth in recent years was not solely a cyclical phenomenon – it was also due to structural factors such as globalisation, use of information technology (IT), deregulation of product markets and innovations. Globalisation sharpens competition and pushes up productivity growth through a higher degree of specialisation and use of comparative advantages. | 0 |
The establishment of the company BankAxept AS is promising in this regard. Norges Bank will closely follow developments and continue to publish information on costs, prices and market conditions. Contactless payments are making their way into the Norwegian payments market. Contactless payment allows customers to make a payment by holding a mobile phone or a card over a terminal without entering a PIN. 4 While this is a new means of payment, the underlying payment solution is not new. The solutions are often based on the use of credit cards, with a low price for users. If contactless payments based on credit cards supplant payments with BankAxept, the social costs of payment services may rise. Norges Bank has noted that the new owner company of BankAxept is considering developing a solution for contactless payments. This may bolster competition and help to lower costs of this type of payment too. Efficiency is more than low costs. Payment services have become faster and more userfriendly in recent years. For example, there has been an increase from two to four daily clearings and settlements. Contactless payments make small payments faster. Soon, online bank transfers will also become faster. With the new service “instant payment”, funds will be available in the payee’s account within seconds, while interbank settlement does not take place until afterwards. But there is still a way to go – in this area, other countries have come further than Norway. Hopefully, payment services in Norway will be even faster in the coming years. | But how do we explain the episode of the sell-off this January when the market already knew in December that tapering would proceed? 3. Conceptually, it is not very difficult to understand the spillover effects of the UMP on EMEs in the five years after 2009. There was the first phase of spill-over, which entails a period of heavy capital inflows, through the banking and bond market channels, to the EMEs. This was a “happy” phase of the spill-over of UMP because the EMEs basically enjoyed apparently pleasant outcomes in investment, consumption, job creation and economic growth. At the same time, EME currencies appreciated and their foreign reserves increased. However, this period also saw the build up of vulnerabilities in the EMEs. The inflow of capital, including the carry trade in search of yields, created easy monetary conditions, which encouraged rapid credit expansion amongst the households and corporates. While domestic consumption and investment became buoyant, most EMEs experienced a significant deterioration of their current account positions. Needless to say, inflationary pressure and overheating in the asset markets also built up in most EMEs. This was why some EMEs, Hong Kong included, have introduced macroprudential measures to tackle the spill-over BIS central bankers’ speeches 1 effects of the UMP of advanced economies. While it is too early to tell whether these macroprudential measures were effective, the EMEs seem to be entering the second phase, which I would call the “unhappy” period, of the spill-over. | 0 |
As to their specification, a key principle that should be followed in economic policy design is that each of the authorities’ targets should have a differentiated instrument to avoid any clash between them (the so-called “Tinbergen principle”2). The aim of maintaining financial stability with this aggregate perspective therefore demanded having one’s own tools. And, given that financial conditions can amplify the fluctuations of the economic cycle (e.g. more extreme and volatile movements in output prices, making it more difficult for agents to foresee their future economic situation) and also macroeconomic imbalances (e.g. activity highly concentrated in sectors that are not the most productive), a macroprudential approach to financial system regulation and supervision can conceivably mitigate the accumulation of these types of risks or reduce the cost of their subsequent materialisation. Specifically, macroprudential policy is entrusted with ensuring the soundness of the financial system in the face of systemic risk. This is, namely, the risk that financial instability becomes 1 Brunnermeier et al. (2009). 2 See Tinbergen (1956). 2 so widespread that it hampers the functioning of the system to the extent that economic growth and the welfare of the population are adversely affected. The “macro” prefix to this policy thus refers, on one hand, to the fact that it adopts an aggregate approach for the financial system as a whole; and, on the other, that it seeks to regulate the financial cycle, since this may amplify the economic cycle. | 27.04.2021 Financial stability and macroprudential policy: objectives, tools and challenges* Universidad de Zaragoza Pablo Hernández de Cos Governor *English translation of the original speech in Spanish Distinguished Rector of the University of Zaragoza, Distinguished Dean of the Faculty of Business Economics, academic and other authorities, ladies and gentlemen. Good morning. It is an honour and a pleasure to be able to participate in this event organised by the University of Zaragoza. I should like to begin by expressing my gratitude to Vicente Salas, Chair of Business Economics at this University and the promoter of this meeting, who was linked for many years to the Banco de España in various capacities, as an economic adviser and as a member of our Executive Commission and our Governing Council. Over these years of intense collaboration, he played a pioneering role in theoretical and empirical works on the subject to which I wish to devote my address today: financial stability and macroprudential policy. In these papers he did not confine himself solely to studying various aspects relating to the financial system, but also devoted much of his research to analysing the interaction between the financial sector and the real economy, especially as far as firms are concerned. As I shall attempt to convey in my address, this interrelation is one of the key distinguishing characteristics that warrant and condition macroprudential policies. Financial stability is of fundamental significance for society’s well-being. | 1 |
However, we are also seeing a proliferation of Central Counterparties (CCPs) and trade repositories being set up in Asia. While this will provide choice to Asian market participants, it may also increase risk and lead to higher costs. 17. Regulators will need a comprehensive view of risks in the cross-border, interconnected market. Having multiple CCPs and trade repositories in the region may risk fragmentation, and may hamper monitoring of systemic risks as regulators may see only their own segments of the market. Market participants will also face additional costs if CCPs and trade repositories lack economies of scale. 18. Asian regulators will therefore need to work closely together to enable infrastructural entities to offer their services across different jurisdictions. For example, the infrastructure of a DTCC global trade repository and AsiaClear CCP in Singapore offers the prospect of effective surveillance by regional regulators and economies of scale. We will continue to ensure that our market infrastructure operates in a transparent and accessible way so that the needs of regional regulators and the industry can be met under clear and robust guidelines. 19. At the global level too, there are real benefits for regulators to ensure interoperability in market infrastructure to allow for more effective risk monitoring. However, interoperability will require time and effort, as risk management practices such as margin eligibility standards have to be harmonised across CCPs in different jurisdictions. 20. | Mario Draghi: Short address on the occasion of the launch of the Europa series € banknote Speech by Mr Mario Draghi, President of the European Central Bank, at the launch of the Europa series € banknote, Bratislava, 2 May 2013. * * * I mentioned this at the end of today’s press conference, but let me say again that I’m very pleased to be here today to see the launch of the new 5 euro, the first banknote of the Europa series. The new banknote will join 15 billion euro notes already in circulation. They are the most visible and tangible symbol of European integration, used from one end of the continent to the other. With the Europa series, we are giving a face to our currency. A portrait of Europa, a figure from Greek mythology, has been incorporated into some of the security features of the new series. After centuries of division, the European Union was awarded the Nobel Peace Prize last year for its contribution to “the advancement of peace and reconciliation, democracy and human rights in Europe”. We all know that Europe is experiencing some challenging times. Governments and citizens are making extraordinary efforts to put their economies on a sounder footing and to build a more stable future for the European Union. In times like these, it’s important to remember what the Union and the euro have achieved and what they mean in the longer term, especially for young people. | 0 |
We did this when we decided to use reinvestments under the pandemic emergency purchase programme more flexibly, and when we agreed on the transmission protection instrument. These programmes ensured that rate normalisation proceeded smoothly. The third element of a robust strategy is a clear reaction function. At our last meeting, we clarified our reaction function and the sources of information that will be important to us. The future calibration of the rate path will be determined by – and will require continuous monitoring of – three key inputs, and this is what I will explain now. The inflation outlook The first input is our assessment of the inflation outlook in light of the incoming economic and financial data. This will be informed primarily by our staff inflation projections. Monetary policy must be forward-looking, given the lags with which our policy works. And the staff inflation projections are the best mechanism for distilling incoming economic and financial data into a comprehensive picture of medium-term inflation dynamics. The future rate path will depend on whether we see inflation converging durably to our target in our forecasts, and the level of confidence we have in this convergence as captured by the balance of risks. Our latest forecasts see headline inflation at 2.1% in 2025 and core inflation at 2.2%, which is a downward revision compared with our last projection round in December. But the confidence band around these forecasts is now unusually wide. | Süreyya Serdengeçti: Derivatives markets - Turkish Derivatives Exchange Speech by Mr Süreyya Serdengeçti, Governor of the Central Bank of the Republic of Turkey, on the occasion of the opening of the Turkish Derivatives Exchange, İzmir, 3 February 2005. * * * Ladies and Gentlemen and Distinguished Guests, It is indeed a great pleasure for me to address you today on the occasion of the opening of the Turkish Derivatives Exchange, which is the beginning of a new era for the Turkish economy. Today, I will focus on the changing process of the Turkish economy within the framework of uncertainty and risk factors. I will also talk about the development of derivatives markets within this process, including their functions in the economy and especially in monetary policy. My remarks will be based on a macro framework rather than a micro one. Dear Participants, When we look at the Turkish economy, it can clearly be seen that risk management and derivatives markets, where risk is managed, as well as the institutionalized risk management culture established in the economy have failed to reach a satisfactory level and yet are still weak both in financial and real sectors, although this had constantly been on the agenda since the 1980s. The questions that should be asked at this point are that why risk management principles could not be established in our economy in a modern sense until now and why functionality in the derivatives markets could not be achieved in the proper sense. | 0 |
It was difficult to predict the large fall in share prices and property prices. The decline in demand was substantial in any case and production and employment fell considerably. Unemployment reached the highest level of the post-war period. The 2 BIS Review 43/2006 budget deficit and government debt (as a percentage of GDP) also increased to all-time highs as a result of the crisis. Sweden and Finland were the European countries that suffered the most from the crisis, but other countries also experienced serious problems (see Figure 4). For most countries, this proved to be dearly-bough experience. Monetary policy was reformed to inflation-targeting policy, the exchange rate was allowed to float and a deficit target and an expenditure ceiling were introduced as norms for fiscal policy. We have had this new policy in Sweden for around 10 years now, and many other countries have chosen a similar policy. The labour market situation Most people would probably agree that the period from the mid-1990s, when inflation targeting was introduced, has been a relatively successful time in macroeconomic terms. Inflation fell fairly quickly from levels close to 10 per cent to around the inflation target of 2 per cent. Inflation has remained at a low level since then, albeit slightly too low in recent years (see Figure 1). Annual GDP growth has on average been twice as high over the past ten years as during the period 1980-1993. Employment growth has also been higher (see Figure 5). | the rudiment of the Central Bank continues to distribute banknotes and coins, attract funds, extend credits to banks, organize international payment operations. As late as in the sixties of the preceding century the competences of the National Bank, i.e. the Head Office in Macedonia started to be distinguished from the competences of the commercial banks. At the same time, however, the dependence of the Head Office in Macedonia on the National Bank of Yugoslavia of that time, increased - a process which was the same for all former Yugoslav republics. In fact, the activities of the Head Office of the Republic of Macedonia were reduced to performing only routine operations of executive and operational character. All policies, decisions and regulations were created and adopted in Belgrade. The second period, period of institutionalization, represents some kind of a turning point in central banking. In 1971, instead of head offices of the former Yugoslav republics, national banks of the republics and provinces were established, including the National Bank of the Republic of Macedonia. In 1972, the Parliament of the Republic of Macedonia adopted for the first time a law on the National Bank of Macedonia on the level of the Republic, while in 1974 it was defined also with the Constitution of the Republic of Macedonia. The first Governor, appointed in 1972, was Stojan Kjosev, who was until then a member of the Executive Council of the Republic of Macedonia. | 0 |
[5] In April this year, non-euro area residents became net buyers of euro area long-term debt securities – in moving annual sums – for the first time in nearly three years. As non-residents have been important counterparties to the Eurosystem in implementing the APP, the gradual slowdown in their net sales of euro area securities may not be surprising. It is likely related to the step-wise reduction in the actual pace of Eurosystem purchases. [6] 3/7 BIS central bankers' speeches Euro area residents, by contrast, and this you can see on the right-hand side, have reduced their purchases of foreign securities to a much lesser extent. In fact, when we cut the monthly pace of our purchases from € billion to € billion in April last year, euro area residents increased their acquisition of foreign debt securities by more than 15% over the following six months. Even when we cut the monthly pace of purchases to € billion as of January this year, euro area residents remained important buyers of foreign securities. In the United States, and this you can see in the chart on the left-hand side of my next slide, euro area residents accounted for nearly 30% of total US Treasury purchases during the first half of 2018. In 2017, their share was 25%. Now, there is no simple answer that could help explain the observed investment pattern. Some would argue that foreign securities – US Treasuries in particular – offer a considerable yield pickup compared with comparable euro area securities. | Think about how difficult it is to get a mortgage if you’re a lower credit-rated borrower today compared to 2005, 2006. And two, productivity growth in the economy has been very anemic, and I think generally, most economists think there’s a relationship between productivity growth and the 2 / 13 BIS central bankers' speeches inflation-adjusted level of interest rates in the economy. So, productivity growth is strong, you tend to have high real rates. At 2% inflation you get a relatively high federal funds rate. If productivity growth is weak, you have low real rates. Add 2% inflation, you get a little bit lower level of interest rates. So generally, if you look at the FOMC projections, people think that the federal funds rate in the medium term is going to more like 3% rather than the 4% that might have been attained historically. Now there’s one little problem with this. Economists are terrible at actually forecasting productivity growth. So just because productivity growth has been weak over the last few years doesn’t mean it will necessarily be weak over the next five years. Maureen O’Hara: Well, it’s a tricky one. Here’s one that’s tricky, too. Are there issues connected with financial market valuations that concern you? And that’s kind of the grown-up question. Here’s the one we all want to know. Any predictions on the Dow reaching 30,000 this year? President Dudley: No way. Maureen O’Hara: Oh, quick, call your brokers. | 0 |
Was the adjustment of the interest rate path in June extreme? Here I intend to focus primarily on the reactions in the financial markets following the monetary policy meeting in June. As you will remember, the Riksbank at that time presented a new forecast for the repo rate. The forecast was on average 50 points above the earlier forecast that we published in our February report. We were then criticised because our revision of the repo rate forecast was greater than one would normally expect during such a short period of time. One observation is that while the revision was large, it was not in any way extreme. If one analyses how the implied forward rates are revised, one can see that the probability of these being revised to a greater degree than the Riksbank's revision of the repo rate forecast between the February and June reports is approximately 20-25 per cent. This means that on every fourth or fifth occasion the market expectations have been revised more than the Riksbank’s revision in June. What had the market agents expected? Another question is how the market agents’ expectations of interest rate developments changed after we had published our forecast in June. Figure 10 shows the expectations of monetary policy that can be understood from the implied forward rates. | Christian Noyer: No moral hazard – the banks are doing their job Comment by Mr Christian Noyer, Governor of the Bank of France, in the Financial Times, 18 September 2007. * * * In recent weeks, Central Banks in Europe and the US have acted repeatedly to provide liquidity to interbank money markets. These interventions have raised some questions. Concerns were expressed that monetary authorities were bailing out speculators, thus creating the same kind of moral hazard that may have led to excesses in the past. There were also concerns as to whether the integrity of monetary policy would be compromised. These are valid questions. On numerous occasions, in the past, we pointed out the potential dangers that mispricing of credit risk posed for financial stability. We may be now seeing some of the consequences. Excessive risks were taken, and losses will have to be accepted. It is important that monetary and financial authorities take no action that would prevent this process from running its course, let alone be seeing to be condoning past or future excesses. However, the logic behind recent interventions is different. Put very simply, financial turbulence and uncertainty have suddenly triggered an upward shift in the demand for Central Bank money. Faced with such a shift, whose direction is apparent but amplitude uncertain, the choice, for monetary authorities, is clear: either accommodate, and provide temporary liquidity; or not, in which case, interest rates would have to rise to restore balance in the interbank market. | 0 |
In contrast, in the later downturn the previously accumulated provisions provided 5.5 percentage points of additional credit to non-financial firms and they also had a positive impact on employment and firms’ survival probabilities (see Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments (G. Jiménez, S. Ongena, J. L. Peydró and J. Saurina), Journal of Political Economy, 125 (6), 2126-2177, 2017). 3 Bank capital, lending booms, and busts. Evidence from Spain in the last 150 years. M. Bedayo, A. Estrada and J. Saurina. Banco de España Working Paper No. 1847. 6/11 the expansionary phase. In fact, the cyclically varying nature of the elasticities signals that the cost of tardy activation can be much higher than the cost of an excessive anticipation. Moreover, this evidence also shows that the capacity of the CCyB to control the expansion of credit could be low, reinforcing the view that its main objective should be, on the basis of this evidence, to create resilience for the downturn. As I mentioned earlier, the current regulation makes this possibility perfectly feasible. Moreover, although it grants a preponderant role to the credit-to-GDP gap (the so-called "Basel gap"), which would tend to capture the existence of excessive credit dynamics only, it also allows the use of other complementary indicators along with expert judgement. Indeed, in Spain we complement the Basel gap indicator with another four indicators. They have been selected on the basis of their ability to predict systemic banking crises. | The activation of the macroprudential tools in order to create a buffer to be used in bad times incorporates a new dimension into the interactions with monetary policy. That is an issue which, in my view, should be analysed further. At a minimum, in these cases, monetary policy and macroprudential policy should take into account their respective decisions when calibrating the use of their instruments. As for fiscal policy, it is also important to emphasise that the creation of shockabsorption capacity through macroprudential decisions should not be used as an argument for relaxing fiscal policy. In other words, fiscal policy should also 7/11 create buffers in good times to be used in bad times, through automatic stabilisers or discretionary action, in particular in countries belonging to a monetary union. Another key issue related to this discussion is that the capital buffer built up in good times is expected to be released when the phase of the cycle changes. Significantly, this decision can be even more complex than those made in the activation phase. In this respect, and given the empirical evidence we have, there is a clear issue of timing. If it is released too early, it may even accentuate the expansion of the financial cycle. If it is released too late, it may entail a significant cost to the real economy. It is also necessary to assess whether the release has to be once-and-for-all or gradual. The release of the buffers may induce negative market reactions or generate conflicts with the microprudential supervisor. | 1 |
And recently, it was reported that North Korea was able to illegally transfer monies from a Bangladesh account at the Fed to an account at the Philippines. What’s being done to protect funds that are held not only at the Fed but also at other financial institutions? President Dudley: Well, that’s a good question. Cybersecurity is a really important activity for us at the Fed. We want to make sure that not only is the Federal Reserve well-protected but also the banks that we supervise are also well-protected against cyber-risk. This is a particularly hard risk to evaluate on any given day because we’re trying to improve our defenses, but the bad guys are also improving their capabilities. So, we do a lot of different activities within the bank to make sure that we’re secure from a cyber-perspective. For example, we phish our employees, and we send them emails that sort of suggest that if you’ll click on this, and if you click on this you get a message from our Information Technology Department that you’ve been phished and you learn that you have to be a lot more careful about what you actually click on. That’s important because a threat can both come from outside, but it can also come from within. The other thing we’ve done is we’re spending a lot of time internationally to try to make the financial system safer by making sure that the payment executer, their systems are secure. | I said, “Tim, that’s a great job. I really like you, I’d love to work with you, but what do I do the 39 other hours of the week besides advise you?” And then a couple of weeks or months later, I can’t remember exactly how long it was, he called up again and said, “Well, how would you like to come to the New York Fed and run the Markets Group?” Markets Group at the time had about 230 employees. They executed monetary policy for the 14 / 15 BIS central bankers' speeches Federal Reserve Bank of New York. I wasn’t sure I was going to have any time to talk to Tim Geithner in that role. And so I said yes immediately. Dr. Olajide Oladipo: You have a question? Are you a student? Audience Member: Yes, I am. Dr. Olajide Oladipo: Thank you. Audience Member: I am a student. Thank you so much for taking the time and speaking to us. My question was, being from a younger generation, I’m definitely interested in investing, but what would be your biggest piece of advice. Especially for us, the younger generation, with a limited budget, what would you – how should we go about it? President Dudley: Well, I don’t think I’ve ever been asked for investing advice before now. It’s probably not appropriate for the Federal Reserve to give out investing advice. I think the first thing is you want to get knowledgeable. | 1 |
Forecasts for inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. Disturbances to the economy may result in changes in the forecasts. Our ambition must be to reduce uncertainty with regard to our own response pattern. That actual interest rate developments will deviate somewhat from Norges Bank's forecast must be expected to be the rule rather than the exception. There is, in other words, substantial uncertainty associated with future interest rates. I would draw your attention to the fact that the Executive Board, when providing a more precise indication of where the interest rate level should lie over the coming four month period, operates with an interval of around one percentage point. Uncertainty does not of course diminish as we look further ahead. This is a familiar situation for financial market participants, who are constantly changing their expectations concerning future interest rates as the economy is exposed to disturbances. Market participants’ interest rate expectations can be calculated on the basis of observed money market rates. The deviation between market expectations and the actual interest rate has been substantial in periods. One important reason for this is that the Norwegian economy has been exposed to 7 For more about these criteria, see Qvigstad, J.F.Q. (2005): “When does an interest rate path “look good”? Criteria for an appropriate future interest rate path - A practician’s approach”, Staff Memo 2005/6, Norges Bank, se www.norges-bank.no. | 1 In addition to these changes in choice of interest rate assumption, Norges Bank has on some occasions commented on market expectations. In December 2000, the Bank stated in its editorial in the Inflation Report that market participants had a different view of the future interest rate. Communication following monetary policy meetings sometimes contained information concerning probable interest rate developments in the near future. After the inflation target was introduced in March 2001, monetary policy assessments had a more prominent position in the Inflation Report. In some cases, the Bank has indicated that it would prefer an interest rate path that differed from the path on which the projections were based. For example, Inflation Report 2/04 stated that “the most appropriate alternative now seems to be that the interest rate should be kept unchanged for a longer period than indicated by market expectations”. In other words, the interest rate considered by the Bank to provide a better balance was lower than the rate factored in by market participants. The chart illustrates what happened in summer 2004. The broken blue line shows the interest rate path underlying the projections. The line was consistent with interest rate expectations in the market as measured by forward rates. Norges Bank indicated in the Inflation Report that a lower interest rate than expected by the market would provide a better balance. What the appropriate interest rate level should be, however, was not stated explicitly, but the shaded area can perhaps provide an illustration. | 1 |
37 38 25 All speeches are available online at www.bankofengland.co.uk/news/speeches 25 That said, greater use of unconventional monetary policy could increase the risk that the Bank’s core mission is co-opted in the pursuit of other public policies goals. Perhaps reflecting the success of inflation targeting in achieving price stability, in recent years a host of issues have been laid at the door of the Bank of England from increasing housing affordability to improving poor productivity. There have also been calls for asset purchases to address policy goals not directly related to monetary policy, such as people’s QE or MMT – which essentially equate to fiscal policy – and green QE to support the transition to a net zero carbon world by supporting green finance. In my view, these should be resisted. While carefully circumscribed independence is highly effective in delivering price and financial stability, it cannot deliver lasting prosperity and it cannot address broader societal challenges. Calls for the Bank to solve broader challenges ignore the Bank’s carefully defined objectives. And they often confuse independence with omnipotence. That is not to suggest that in a liquidity trap, fiscal policy would not have an important and powerful role. But even if that unfortunate circumstance were to come to pass, those decisions are best taken by governments. Central banks are fiscal price takers; the government is the Stackelberg leader. | Another example is the construction and engineering firm Odebrecht SA using its subsidiaries and shell companies in the British Virgin Islands and Belize to facilitate at least $ million in kickbacks to government officials and political parties. The schemes involved paying consulting and agency fees to shell companies who then facilitated payments to government officials. The most prominent scheme involved Petrobras, the energy company majority owned by the government of Brazil. The U.S. government worked with law enforcement in Brazil and brought criminal charges against Odebrecht and was able to recover billions from Odebrecht and related entities to help offset the theft of national resources. And the FIFA Scandal put a spotlight on corruption in sports – there was a global cabal of FIFA officials directing corrupt payments to executives around the globe controlling “futbol” clubs, or media companies with broadcasting rights to futbol events. Although these payments did not steal government funds, they did impact nonprofit schools and futbol clubs that were supposed to be the recipient of much of these funds. Multiple officials from clubs around the globe were prosecuted in the U.S. for those violations. One common theme in cases like these is that they tend to occur in countries where the powerful can easily take advantage of limited or immature internal controls. As is typical with most classic fraud triangle schemes, these people had the motivation (greed or perceived financial pressure), opportunity (powerful positions with weak internal controls), and rationalization (they deserved the kickback for years of hard work). | 0 |
There was a great deal of surplus capacity, particularly in the major iron and steel sector. Together with the oil crisis and the collapse of Bretton Woods, the post-war international currency system, this plunged many industrial countries into an acute structural crisis. The extent of the crisis was, of course, influenced by economic policies; I say that as a reminder that the development I have described is not predetermined. The crisis for this former development cluster is sometimes seen as being connected with what we could accordingly call the third industrial revolution, namely the coming of the microprocessor. This has launched a new phase of transformation as the emergence of a new development cluster leads economic developments in new directions. Temporary setbacks not unusual when times are changing The setbacks, however, are not necessarily confined to traditional industries. Other types of economic reversals may also occur in periods of structural change. They may take the form of financial problems of varying severity. During the transformation process, investors and creditors perceive new profitable opportunities. Share prices rise and banks are willing to lend to new enterprises and novel projects. However, as share prices and the supply of credit are governed by expectations of future gains, undue optimism may sometimes cause them to rise too fast. Sooner or later, such bubbles based on expectations will burst and this tends to be associated with problems in the banking sector. The years 1907, 1920 and 1990 are three examples of this. | The bank crisis in the early 1990s is still such a recent event that I shall not dwell on it here. But it is worth noting that there was a similar crisis in the 19th century. As early as 1857 the government was obliged to intervene to safeguard the payment system in connection with a bank crisis: Skånes Enskilda Bank was threatened and finance minister Gripenstedt came to its rescue. Barely two 4 See Lennart Schön, ibid. BIS Review 10/2001 3 decades later, in 1878, another bout of excessive optimism and unduly strong credit growth led once more to a bank crisis when the boom was over. On that occasion the crisis hit Stockholm in particular. Stockholms Enskilda Bank was most vulnerable, having increased its commitments in private railroad construction in the 1870s. Government efforts saved the bank by establishing a fund in the National Debt Office so that the bank could mortgage its illiquid railroad bonds. These examples illustrate how excessive optimism is liable to lead to things getting out of hand and resulting in imbalances. The course of economic developments may then be checked for the time being but once the problems have been overcome, a new expansive phase begins. I leave you to draw your own parallels with the previous rapid price rise for IT shares and last year’s subsequent correction. The bursting of what some have called an IT bubble in the stock market is thus not the end of the new information technology’s era. | 1 |
BIS Review 91/2001 1 growth in the interest rate swap market has also been associated with the continuing development of the Hong Kong dollar bond market, where well-rated names may combine issuance of longer-term fixed-rate paper with a swap to secure floating-rate Hong Kong dollars at sub-HIBOR, or, particularly in the case of some international borrowers, link this also with a currency swap to obtain US dollars at sub-LIBOR. As regards exchange traded products, there has been a recent surge of activity in HIBOR futures. This may owe something to the steep downtrend in interest rates this year, which could have prompted both those who expect it to continue and those who are content to lock in borrowing at current low rates, to enter the futures market in order to speculate or hedge on their respective hunches. All in all, as these various examples illustrate, the derivatives infrastructure in Hong Kong has developed well to meet the evolving requirements of the business and financial communities. Supervision Despite for the most part providing a beneficial service, derivatives trading also has the potential to bring disaster. Mere mention of the word Barings is no doubt sufficient to make the point. It is for this reason that the relevant authorities exercise supervision of derivatives activity. In the Hong Kong context, HKMA supervises the banks and other deposit taking institutions to ensure suitably prudent behaviour, while the SFC regulates exchange trading and the other players. | Tony Latter: Derivatives from a Central Bank perspective Speech by Mr Tony Latter, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Seminar Programme of the FOW Derivatives Expo, Hong Kong, 5 November 2001 * * * Introduction Why may central banks be interested in derivatives? Although it is dangerous to generalise, and no two central banks may see them in precisely the same light, there are certain aspects of derivatives in which central banks, including the Hong Kong Monetary Authority, probably have a common interest. I should like to review some of these today. For present purposes one does not need to be too precise as to what is meant by derivatives, save to note that the focus here is only on financial derivatives, although these do of course share many of the same basic characteristics as commodity or other derivatives. The textbooks give various definitions of a financial derivative: for instance, that it is a contract the value of which depends on or derives from the value of some underlying financial asset or index; or that it is an instrument which does not constitute ownership but only a promise or option to convey ownership. At its widest, the definition could embrace all futures, forwards, swaps, options, warrants, convertibles, asset-backed securities and so on, and all combinations or variations of those. | 1 |
Global integration of trade and finance has followed roughly similar patterns. Both rose prior to World War I during the heyday of the classical Gold Standard, when trade and capital liberalisation were last at their peak. Both then fell during the interwar years, as national protectionism led to trade and financial barriers being erected. Then, from around 1960 onwards, trade and finance once more began to rise due to the lifting of restrictions on crossborder trade and capital flows (Broadbent (2014)). Despite this close historical correlation, the undulations in global finance are far greater than those in world trade. In 1960, global finance was around one third of its value in 1914, measured relative to world GDP. By 2010, it had risen to three times its value in 1914. Put differently, in 1980 global trade and global finance were on a broadly equal footing, at around a quarter of world GDP. By 2010, global finance was nine times global trade. At the same time world trade has flat-lined, global finance has come of age. Today, cross-border stocks of capital are almost certainly larger than at any time in human history. We have hit a new high-water mark. The same is probably true of cross-border flows of goods and services and is most certainly true of cross-border flows of information (Haldane (2013)). We are accustomed to talking of the information technology revolution. Yet the revolution in global finance has in some respects been every bit as striking. | Unlike currencies, the value of gold does not depend on a national sovereign. Moreover, payment transactions with gold are fully under a central bank's control. These are two important reasons why gold, more than any other type of investment, serves to ensure the capacity to act in extreme crisis situations. From an investment viewpoint, the price of gold often moves in the opposite direction to other financial assets, in particular to the US dollar. The price for this 'insurance function' is reflected in the fact that gold is less profitable in the long term than other financial assets. It is not surprising that Switzerland, a small open developed country with a highly integrated financial sector and an ageing but relatively wealthy population, continues to invest a significant proportion of its reserves in gold. At present, the SNB holds 1,290 tonnes of gold or roughly 30% of its assets. Price fluctuations in both directions are to be expected and may be strong and sustained. As was the case in the past, such price fluctuations will modify the proportion of gold on our balance sheet from year to year. These short-term fluctuations should not give rise to great concern. Experience has shown that extreme movements in markets tend to level out in the long run. BIS Review 61/2006 5 | 0 |
In view of our unique location as the gateway to Indochina, with a population of about 160 million, we have the strength of a potentially much bigger market. Within ASEAN, there is greater progress on the ASEAN blueprint, which lays out the strategic plan to achieve further trade and financial integration within 2015. In fact, with the AEC blueprint, we and the entire region stand to gain more from further trade and financial integration. Soon, Thailand will also be an integral part of the ASEAN Community under the new ASEAN Charter. Indeed, while we continue to wait for the resolution of WTO negotiations, Thailand and ASEAN have made progress on a number of free trade arrangements with Japan, China, Korea, Australia, and New Zealand. Ladies and Gentlemen, I hope that I have left you with some food for thought for the two days that you will hear directly from eminent experts of various fields. As a veteran central banker, I believe that over-optimism is just as dangerous as complacency in policy-making. Therefore, in today’s world of uncertainties and volatilities, vigilance and caution are crucial elements because the road ahead is likely to be a rocky one. But this should not prevent us from having a pleasant journey toward the more prosperous future for the Thai economy. The central bank is the only institution that has the legal responsibilities to preserve monetary and financial institution stability. | Today, more than half of the Thai labour force is in the non-agricultural sector (including services), which is more averse to changes in global competition for trade and investment. Moreover, to maintain competitiveness, our economy needs the labour force that possesses higher and more flexible skill sets to move up the valued added chain of production and trade. In reality, Thailand, just like other countries, has weakness in the mismatch of skills produced through formal schooling from those which firms find useful. Government policies need to address this weakness quickly, by finding ways to align formal education with training through vocational schools and apprenticeship programs organized by private businesses. Key questions will be on designing appropriate incentive structures for players in the education and business sectors, while being mindful of social safety net considerations when businesses close. This is especially important because the agricultural sector now accounts for about 10 percent of the overall economy and cannot provide social-safety support for the non-agricultural sector should a downturn hit. In addition to government policies, investors and firms can play their parts in helping to improve labour skill and quality development. This can be achieved through building more experience in the workplace by investing in the best technology and capacity to use that technology efficiently. Importantly, we also need to focus on the quality of investment that will help build skills and enhance production techniques that adds higher values and saves costs. Ladies and Gentlemen, To close, let me highlight another important underlying strength of the Thai economy. | 1 |
Jean-Pierre Danthine: Swiss monetary policy facts… and fiction Speech by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the Swiss Finance Institute Evening Seminar, Geneva, 19 May 2015. * * * The speaker would like to thank Till Ebner and Claudia Strub for their outstanding support in preparing this speech. He also thanks the SNB Language Services for their assistance. Introduction I am very pleased to return to the Swiss Finance Institute almost six years after my departure for a final speech in my capacity as Vice Chairman of the Governing Board of the Swiss National Bank (SNB). My soon-to-end tenure at the SNB has been marked by significant deviations from textbook monetary policy orthodoxies, both on conceptual and on operational levels. In many respects, it was a time that was anything but conventional: Central banks around the world stepped up their efforts and made use of increasingly expansionary measures, many of them new, to fight off the risk of a second Great Depression in the wake of the global financial crisis, and then to try and reanimate their economies in the troubled times that immediately followed. The SNB, for its part, has taken exceptional measures as well, notably the minimum exchange rate of CHF 1.20 per euro in place from 6 September 2011 until 15 January 2015. | For at least the following two 3 In fact, removing tail risks from markets was a key objective of putting central banks’ balance sheets to use during the crisis. BIS central bankers’ speeches 3 reasons, the risks associated with such a policy would have increased substantially, and were no longer justifiable. The first reason is that the policy risks linked to monetary policy normalisation further down the road would have been substantial. Policy normalisation at some point in the future will inevitably require reabsorbing excess liquidity in order to contain potential inflation risks. In this context, it is worth remembering that at more than 90% of GDP, the SNB already has the largest balance sheet of all major central banks in relative terms. The challenges and the risks involved would have increased disproportionately in the event of a further massive expansion of the balance sheet. While the technical means to reabsorb even massive amounts of liquidity are at our disposal, such an expansion would have had put us in completely uncharted territory. Attempting policy normalisation with a balance sheet several times larger than GDP has never been done before, and is certainly not for the faint-hearted. A less than perfectly controlled exit carries very significant risks for price stability, as well as the potential for policy reversals which could be very costly for the economy. Given these considerations, it is a fact that any significant balance sheet expansion amounts to what is called “exercising an option” in finance. | 1 |
The arguments against a possible Swedish membership of the EMU have often touched on the opportunity to pursue an independent stabilisation policy. The starting point for this is that the Swedish economy could for one reason or another find itself out of synch with economic developments in the eurozone, what is known as an asymmetrical shock. Having an independent monetary policy and currency would then give us the opportunity to stabilise our economy ourselves - act as a form of shock-absorber, which we will lose if we have a joint monetary policy governed by the prospects for inflation and the business climate throughout the eurozone. This was also the primary reason why the Calmfors Commission's report on the consequences of 1 Swedish membership in the EMU came to the conclusion that Sweden should wait until its labour market and wage formation showed sufficient flexibility to deal with a serious disturbance. However, it should be noted that the Commission was envisaging a “small” eurozone with around 6 countries taking part, whereas now we are talking about 12 countries, representing 40-50 per cent of Sweden's trade. Moreover, in practice the Swedish business climate has rarely come seriously out of synch with the eurozone. When Sweden has done so, it has mainly been the result of mistakes in Sweden's own economic policy and not due to any unforeseeable external disturbance that has afflicted the Swedish economy. | Aside from the important role that the solutions being considered in the European Union to better control budget deficits must play, overcoming the recessionary tendencies experienced by the Spanish economy since 2008 requires the correction of some structural features that hinder its ability to adapt. The fall in employment, which has been much greater in Spain than in the other euro area countries during the crisis, is largely explained by the insufficient adaptation of labour conditions. Indeed, wages and prices continued to grow as if no significant cyclical change had occurred. The labour market reform has addressed the serious distortions that have existed in this area for decades. Their effects on wage moderation have already begun to be noted and, although the improvement in terms of job creation is taking longer, I have no doubt that it will materialise, if the possibilities opened up by the reforms are fully harnessed and completed. The sharp deterioration in public finances since 2008, which only began to be corrected seriously in 2012, has unavoidably required the implementation of severe and unpopular austerity measures and reforms. Despite their initially restrictive impact, they are vital for restoring confidence in the sustainability of our public finances and for normalising our access to international financing, which is essential for our exit from recession and for the resumption of growth in the euro area. | 0 |
In practice what that would be likely to mean in our present situation is substantially lower interest rates: the intended effect would be to stimulate external demand, but it would inevitably also involve further stimulus to domestic demand. In effect, it implies that we should acquiesce in increasing overall demand pressure leading inevitably to faster inflation. That might conceivably even BIS Review 31/2000 2 provide some relief to the suffering sectors in the short term. But increasing demand pressure, including labour market pressure, and accelerating inflation would - as we’ve repeatedly seen in the past - ultimately need to be brought back under control, involving a more abrupt tightening of policy. That frankly would not do the suffering sectors themselves much good at least for very long - and it would have a potentially serious destabilising effect on the economy as a whole. That is precisely what we are trying to avoid. And there, I do rest the case for the defence - at least in relation to the principal charge of malice aforethought - or even malice as an after thought. Just as some of you would like to see the euro strengthen from your microeconomic standpoint, so too would I, from a macroeconomic perspective, because it would help to restore a better, more sustainable, balance within the economy. | We are among the most transparent central banks anywhere in the world. Our debate is informed by a huge input from our very able professional staff both in London and in our Agencies throughout the UK, and I’d frankly be surprised if you were able to identify any relevant issue that we have not considered in one way or another. Indeed I would very much hope that you would let me know if you did. I don’t plead ignorance; I plead intrinsic uncertainty. Monetary policy operates with a lag, having its full effects only after about a couple of years. Unlike some outside commentators apparently we know we don’t have a crystal ball. Our judgements are necessarily based upon a very careful assessment of the balance of risks at the time, continuously updated in the light of the constant flow of information of all kinds relevant to that assessment. That’s the nature of the process. Given that, I would not expect, and you would not reasonably expect me, to be able to demonstrate to you that we have precisely the “right” answer at any particular time. But I can promise that if the evidence changes in either direction so too will our assessments. You can of course question our processes, our interpretation of the data or the quality of our analysis - it’s there for all to see. But ultimately the proof of the pudding is in the eating, and it is only on average and over time that our policy decisions can sensibly be judged. | 1 |
The end result is the deep suspicion which the poor would have about the entire microfinance industry. The authorities too would view microfinance as a destabilising and fraudulent element in the financial system. This leads to a credibility issue and a reputation risk in microfinance industry. Once the industry loses its reputation, it is difficult to regain the same irrespective of whatever is being done by some genuine microfinance practitioners. The damage to the industry is done by some “black sheep” who are not controllable by other genuine performers. In this manner, the quick returns are earned by “ill-willed” practitioners, but the social cost has to be borne by the entire industry. Hence, the major challenge faced by microfinance industry today is to save itself from the spurious micro-financiers. Who is a poor person? The poor are normally defined by reference to income level or calorie intake or the level of opportunities available. All these definitions represent some aspects of the poor which are important. Yet, they do not accurately depict the real nature of the poor. A poor person is a person who is unable to assess the risks faced by him and take the required mitigating measures to avoid them. The risk factor is more suitable to identify the poor, because the poor have to operate in a market which is full of risks. If he can successfully wade through the risks, he could succeed in the market as well. | Therefore, it comes as no surprise that the main policy response has focused on regulation. Indeed, there is a widespread consensus that the cause of the current financial meltdown stems from the failure or even the absence of regulation in important segments of the financial system. But it may also have implications for monetary policy, to which I turn now. BIS Review 74/2009 1 Some implications for monetary policy Central banks have been on the frontline since the crisis unfolded in the summer of 2007. A dramatic change occurred however after the collapse of Lehman Brothers where we had the sentiment that we were moving into uncharted territories: spreads reached unprecedented levels both on the money and credit markets, leading to a worsening of financing conditions across industrialised countries. Without action some important parts of the transmission mechanisms would have been significantly impaired. In such a context, major central banks embarked on unconventional policies by: • Increasing central bank liquidity; • Influencing risk premia on private financial and credit instruments. Such policies are referred to as credit easing policies; • Pre-committing to conducting very low interest rate policies for as long as necessary in countries where the interest rate has already reached its lower bound. All these policies are set out as temporary policies and deemed to be used in times of stress only. It is obviously too early to gauge their overall impact. | 0 |
So that comes back to whether or not we can resolve the largest firms in an effective way and so can reintroduce market discipline through that route. 7. Concluding remarks Let me conclude with something on shadow banking. Martin [Wolf] talked about the grave problems that are present in the global financial system through global imbalances. I completely agree. To the extent that we do not solve the global BIS Review 148/2010 3 imbalances problem, our financial system will need to be more resilient than otherwise. That must be understood. Global capital flows are one of the givens of the world that we will continue to live in. The other given, in my view, is regulatory arbitrage. The biggest misjudgment that our predecessors made in the 1980’s and 1990’s was to underestimate the ferocious ability of capitalism to arbitrage regulatory rules. That will not change. Therefore, whatever rules we put in place now, capitalism will find ways around them. An important element of the reforms therefore has to be a much greater consciousness of regulatory arbitrage and a willingness to do something about it. This must not mean charging after windmills. It means identifying where something is happening that could threaten stability from outside the regulated sector, and being prepared to move the perimeter of regulation in those circumstances. The authorities must be more interested in shadow banking. That is something that the FSB, I believe, should focus on next year. | Paul Tucker: Financial crisis and G20 financial regulatory reform – an overview Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at the Financial Stability Board (FSB) and Korean G20 Presidential Committee Conference, Seoul, 3 September 2010. * * * Being a Western financial official, one comes to Asia with some humility in truth. This has been a financial crisis born and bred in the Western world, but inflicted throughout the world. That makes it all the more important that Korea and the other countries in Asia and elsewhere in the emerging market world are involved in the reform efforts. The reforms are not simply going to be cooked up in the West where the problems were bred. In Korea, you have to play a really important leadership role, especially in steering us through the next couple of months. Much of the work towards the Leaders summit is being handled in the Financial Stability Board. And here is a very brief overview of what is going on in the FSB contribution to the G20 effort, under the following headings: 1) surveillance; 2) bank capital and liquidity; 3) too big to fail; 4) capital markets; 5) incentives; and finally the regulatory perimeter. 1. Surveillance of the system Very obviously this was a crisis that was not spotted – in the most important sense of being prevented – ahead of time. People did issue warnings about developing leverage in the system and accumulating macroeconomic imbalances. | 1 |
BIS central bankers’ speeches 5 • We have remained close to the stakeholders in RTGS throughout the first phase of the project, holding meetings with over 100 users (old and new), infrastructure providers, policymakers, academics and technologists, consulting on a vision for the next generation of the service, and confirming that the new system will be paid for by the users of the system through the future RTGS tariff (through which we also gather current running costs). • And we have stayed true to the principles of “simple, focused and open”, conducting the review using a small, dedicated, multi-disciplinary team of policy and technology experts. The consultation paper sets out our proposals in detail, which affect everyone with a stake in sterling payments and settlement. With that in mind, I hope that as many of your firms as possible will respond to the questions in that document by the deadline of 7 November. What next for securities infrastructure? Impressive though the achievement of building CREST was, it is a sad fact that the persistent delays that pre-dated the project meant the UK came late to the party. Today, as the industry again faces enormous pressures for change, it is important that it responds more proactively than it did in those pre-CREST days, avoiding the twin perils of complacency or over-ambition, embracing innovation to deliver a service to users that is both more efficient and more resilient than ever before. The case for reform is easy to state. | This approach was consciously at odds with that adopted for TAURUS, which had tried to be all things to all people 7. But it also focused minds in the industry, forcing them to make difficult tradeoffs, and creating a clear incentive to market providers to produce “add ons” for extra user functions. The project team itself projected a similarly minimalist, open approach in its work – building on their own past experience of having developed the Bank’s system for dematerialised settlement of gilts (the “Central Gilts Office”), involving a full range of disciplines (including policy, IT and legal) in all outreach and design meetings, and embracing a robust attitude to analysis and self-criticism, perhaps best summed up in their T-shirt logo “Purist and Bloody-Minded”. Not everything went to plan. Some early project management structures were found wanting. PWC’s audit of the project in Spring 1994 identified what might be euphemistically termed “a range of unfinished business”, but allowed the project to go forward. And the early months of operation after that launch day in July 1996 faced technological challenges and setbacks. But it is remarkable to think that this basic approach delivered a system that, at its core, remains with us twenty years later. How has the Bank applied the lessons from the building of CREST to the strategic renewal of RTGS? | 1 |
Today, it contributes around a tenth. China has been the mirror image. Having contributed less than 5% in 1980, today China is the single largest source of global saving, contributing around one fifth. It has been argued by some that these trends could simply reflect different cultural attitudes towards saving among US and Chinese citizens. In the US, it is often said that there is a culture of spending rather than saving – neurologically, the impatience gene may be dominant (Haldane (2010)). In China, by contrast, the culture may be biased towards saving rather than spending, with the patience gene dominant. In other words, differences in agents’ rate of time preference, or degree of patience, might account for savings imbalances (Buiter (1981)). 4 BIS Review 174/2010 But a recent survey of time preferences in 45 countries suggests cultural differences are not the full story (Wang, Rieger and Hens (2010)). Asked to choose between a payoff this month and a larger payoff next month, 68% of US students choose to wait; they exhibit patience. Facing the same trade-off, 62% of Chinese students made the same choice. These differences are small. 3 They are also the “wrong way around” to explain imbalances. So if cultural factors are not the explanation, what is? Charts 8 and 9 plot national saving rates in China and the US, broken down on a sectoral basis. There are striking differences in saving behaviour across the government, household and corporate sectors in the two countries. | Around two-thirds of the rise in Chinese savings since the early 1990s derives from the corporate sector. 4 This reflects two things. First, rapidly rising corporate profitability, against a backdrop of strong growth and rising productivity (Ma and Yi (2010)). Since 2000, profits among Chinese industrial companies have risen around 30% per year. Second, more significantly still, most of these profits have been retained within Chinese companies rather than distributed to shareholders (Qiao and Song (2009)). These differences in US/Chinese corporate savings behaviour show up dramatically in dividend payouts. The average dividend payout ratio among US corporations in 2009 was 40%, with less than a quarter of companies failing to pay a dividend. The average dividend payout ratio among listed Chinese corporations in 2009 was around 18%. Among these, more than half paid no dividend whatsoever. 3 Among the 45 countries, Germany ranked as the most patient (almost 90% of students waited), Nigeria the least patient (less than 10%). 4 Using firm-level data, Bayoumi, Tong and Wei (2010) argue that Chinese listed firms’ corporate savings rates are neither especially high compared to listed firms in other countries and the gross savings rate for a typical listed Chinese firm has declined, albeit insignificantly, between 2002–2007. BIS Review 174/2010 5 Charts 10 and 11 consider the distribution of changes in dividend payout ratios among global and Chinese companies. Among global companies, payout ratios rarely fall. More than half of the time they increase. | 1 |
Data on activity in the repo market are limited. But we know the volumes are large. The business model of the hedge fund industry relies on financing their highly-leveraged activities via the repo market. Repo activity will therefore exceed their already substantial leverage positions. Moreover, as reflected in the recent analysis of Gorton and Metrick (2009), 1 information can also be gleaned from the balance sheets of broker dealers and investment banks. For example, approximately 80% of the balance sheet of investment banks such as Lehman Brothers and Bear Stearns in 2007 – that is, before the crisis – was funded by volatile, short-term instruments. It was this balance sheet structure that, in the end, made these two banks extraordinarily vulnerable to a sudden withdrawal of liquidity in the wholesale funding market and which ultimately led to their demise. Note that more than onethird of this short-term debt was collateralised, that is acquired in the repo market. To sum up, we have seen the relentless rise of collateralised finance. Any reflections on the future of the monetary policy transmission mechanism have to start from there. 2. Collateralisation and the money market The crisis that started in August 2007 has highlighted the key role of collateralised finance in two ways: first, as a vehicle of distress; second, as a possible instrument of repair. 1 See: G.B. Gorton and A. Metrick (2009), “Securitized Banking and the Run on Repo,” Yale ICF Working Paper No. 09-14. | This includes adequate powers and instruments to mitigate losses to the system in the event of a crisis, restore stability and ensure the continuity of the financial intermediation process. The second is the lender of last resort facility that is provided by central banks to address liquidity stresses faced by financial institutions. Thirdly, is the deposit insurance scheme that provides a guarantee on deposits to protect the savings of small depositors and reduce the prospects for disruptions that could threaten the stability of the financial system. The effectiveness of the financial safety net depends on several factors. They include the capacity of central banks and supervisory authorities to assess risks, the effective coordination between the different components of the safety net, clear communication strategies and a strong and comprehensive legal framework that supports the operation of the safety net. In Malaysia, the Malaysia Deposit Insurance Corporation Act (MDIC Act) which establishes the Malaysian Deposit Insurance Corporation (MDIC) provides comprehensive intervention powers for the protection of depositors. This is complemented by an extensive operating framework developed between the Central Bank and the MDIC which clearly sets out the responsibilities and obligations of both agencies in promoting financial stability and in financial resolution. In the area of consumer protection, amendments to Malaysia's financial services legislation are also being put in place to provide for the establishment, roles and functions of a financial ombudsman to deal expediently and efficiently with disputes concerning financial services between consumers and the financial institutions. | 0 |
And in a stress, that can lead both to sudden spikes in demand for liquidity – either to support the financing of leveraged positions or as deleveraging leads to forced sales – and a corresponding contraction in liquidity supply, with potentially systemic consequences. Leverage is of course not the only cause of systemic vulnerability in the non-bank system – as we have seen with liquidity mismatch driving run dynamics in money market funds (MMFs) and open-ended funds (OEFs) during the dash for cash. [4] But it is important where any form of leverage is core to a non-bank’s business and trading strategy. Indeed what happened to LDI funds is just the latest example of poorly managed non-bank leverage throwing a large rock into the pool of financial stability. From Long Term Capital Management in 1998; to the 2007 run on the repo market; to hedge fund behaviour in the 2020 dash for cash; and the failure of Archegos in 2021. These episodes highlight the need to take into account the potential amplifying effect of poorly managed leverage, and to pay attention to non-banks’ behaviours which, particularly when aggregated, could lead to the emergence of systemic risk. I see systemic risk from leverage in the non-bank system arising through two different channels of contagion: to markets – both those non-banks invest in and those they borrow from; to counterparties – who either provide cash, or take the other side of instruments that are used to provide synthetic leverage. | As an illustration, the Pension Protection Fund’s PPF 7800 index suggests that, between end-2021 and end- September 2022 – a period in which interest rates rose substantially – the liabilities of UK DB schemes fell by 36% (from £ to £ whereas their assets fell by only 20% (from £ to £ leaving their net assets nearly three times higher. 2. See Thirteen days in October: how central bank balance sheets can support monetary and financial stability – speech by Andrew Hauser 3. See The impact of leveraged investors on market liquidity and financial stability – speech by Jon Cunliffe 4. See Taking our second chance to make MMFs more resilient - speech by Andrew Bailey 5. See ‘The role of non-bank financial intermediaries in the ‘dash for cash’ in sterling markets’, Bank of England Financial Stability Paper, number 47. 6. See ‘Seven Moments in Spring: Covid-19, financial markets and the Bank of England’s balance sheet operations’ – speech by Andrew Hauser 7. See ‘Sizing hedge funds' Treasury market activities and holdings’ , 8. See ‘Hedge Funds and the Treasury Cash-Futures Disconnect’ 9. See ‘Leverage and margin spirals in fixed income markets during the Covid-19 crisis’ 10. | 1 |
In so far as this occurs, it can be interpreted as meaning that the deposit guarantee scheme in practice subsidises risky lending, which would be unfortunate. The picture is, however, complicated by the fact that smaller banks contribute positively by increasing competition in the banking market. Larger banks may also be too large for the authorities to let them fail, which is also a problem. There are difficult considerations to make here. Experiences from the United States When the bank run on the US Silicon Valley Bank began, only about 6 per cent of its deposits were guaranteed by the US deposit guarantee scheme. The rest were unsecured deposits, primarily because they were for larger amounts. This is an example of the fact that deposits in many banks today do not only come from small savers. Many of them, including the Swedish ones, finance themselves to a large extent in the financial markets. Some of the market funding takes the form of direct deposits from financial actors and is not covered by any deposit guarantee and it is normally very volatile. Another part is funding is through the bank issuing securities with a specific maturity. These are therefore not immediately available and thus not exposed to the same risk as the deposit, but on the other hand give rise to a refinancing risk. The run on Silicon Valley Bank also highlighted that contagion effects can be large even when relatively smaller banks get into trouble. | And my main conclusion for monetary policy is that flexible inflation targeting – applied in the right way and in particular using all the information about financial conditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis. A related conclusion is that neither price stability nor interest-rate policy is sufficient to achieve financial stability. A separate financial-stability policy is needed. In particular, monetary policy and financial-stability policy need to be conceptually distinguished, since they have different objectives and different appropriate instruments, even when central banks have responsibility for both 1. So today, I will first briefly summaries my view of the causes of the crisis, and then discuss what the possible lessons are for future monetary policy, and finally I shall emphasise the distinction between monetary policy and financial-stability policy. The financial crisis had little to do with monetary policy As I see it, the financial crisis was caused by factors that had very little to do with monetary policy. The factors were the macro conditions; distorted incentives in financial markets; regulatory and supervisory failures; information problems; and some very specific circumstances, such as the US housing policy to support home ownership for low-income households 2. | 0 |
However, independent of specific events, the question arises whether regulatory and oversight control has kept up with this development everywhere. It is indeed rather problematic that custody activities lie in a grey area between banking supervision and system oversight. In some countries where the tasks deriving from banking supervision and system oversight are performed by separate authorities the regulatory and oversight 4 BIS Review 28/2003 framework is very likely to be incomplete or at least sub-optimal unless the two authorities succeed in establishing a strong and effective co-operation. This aspect seems all the more important as large custodians tend to become direct competitors to traditional market utilities like CSDs and ICSDs. This said, I must admit that regulatory and oversight authorities should address this issue with the aim of allowing an acceptable level playing field among large custodians and providers of market utilities. The aim here is not the protection of incumbents against efficient predators - or of Little Red Riding Hood against the big bad wolf - but rather to restrict the use made by large individual suppliers of their powerful market position which eventually could lead to outright dependency of the former customers of CSDs and ICSDs on huge and incontestable financial service suppliers. In view of these challenges, there is good reason to critically reassess rules and regulations related to securities clearing and settlement systems as well as to the way regulatory and oversight responsibilities are implemented in practice. A predominantly national approach no longer serves market needs. | The public debt and fiscal consolidation are still an area that requires additional vigilance by the policymakers in emerging economies, especially in light of changing financial conditions in the upcoming period. Around a decade after the global crisis, we have seen that the banks, globally, are in a quite better shape. However, the reforms and Basel requirements should be fully implemented in order to build resilient banks. The digitalization is yet another interesting phenomenon of today’s life and unavoidable element of the current global environment. Fintech in banking industry provides new revolutionary approach to the supply of banking services, as a response of the banks to the changing habits of their clients. This creates new opportunities, but also risks that regulatory authorities must be aware of. Therefore, globalization and innovation in financial sector call for deepening the international cooperation between authorities in different fields of operation. This conference is just one of the possible forms of this international cooperation. Today, we will discuss the empirical findings from the research papers received upon our Call for papers, on different and very important central banking issues, while tomorrow we will have panel discussions on policy issues with high-level representatives from central banks and international institutions. I believe that all together, we will make contribution by answering the pending economic questions that I mentioned earlier and exchanging experiences that will enable us to better cope with the future challenges. I wish you interesting conference, fruitful discussion and pleasant stay in Ohrid! Thank you. 2/2 BIS central bankers' speeches | 0 |
In some countries, like the U.S. and the U.K., stigma appeared to be sufficiently strong that banks did not use the central bank’s liquidity facilities at their disposal as much as would have been socially desirable. 12 During the crisis, the Federal Reserve encouraged banks to borrow at its discount window, to little effect. 13 As can be seen in Figure 5, much activity in the fed funds market took place at rates above the discount rate. 9 Another way to reduce the balance sheet cost faced by the banking sector is to allow nonbanks to hold some of the central bank’s liabilities directly. For example, every dollar invested in the Federal Reserve’s overnight reverse repo facility decreases the amount of reserves held by banks and, thus, the aggregate size of the banking system’s balance sheet by a dollar. 10 Keister (2016) shows that it is optimal to commit to providing liquidity to a bank that faces a run. Moral hazard is addressed ex ante, by setting a Pigouvian tax that gives incentives for the bank to invest in the optimal amount of liquid assets. The tax can be interpreted as liquidity regulation and supervision. Goodfriend and Lacker (1999), however, argue that neither constructive ambiguity nor extended supervisory and regulatory reach can effectively overcome the fundamental forces that cause a central bank to lend. They propose that the only way for a central bank to credibly limit lending is for it to build a reputation over time for restraining lending. | In my remarks, I am going to focus only on the set of unconventional monetary policies that are relevant today in an environment in which central banks are constrained from lowering their policy rate any further due to the zero lower bound. I will not discuss the type of extraordinary interventions that occurred at the height of the financial crisis.1 A starting point is that the independence of the central bank with respect to its budget supports its overall independence. The Federal Reserve’s traditional monetary policy framework has helped to assure this budgetary independence. The liability side of our balance sheet consisted primarily of currency and reserve balances on which we did not pay any interest. The asset side consisted primarily of Treasury securities. There was no meaningful credit risk and the interest rate risk was limited because assets were generally held to maturity. This, combined with the zero cost of the Fed’s liabilities, resulted in the Federal Reserve turning over a large amount of earnings to the Treasury each year after covering all of its operating costs and retaining a small portion of its earnings to maintain a level of surplus capital equal to the amount of capital paid-in by member banks. Thus, one key question is how this budgetary independence might be threatened through the use of unconventional monetary policies. After all, some of these policies do have implications for the Federal Reserve’s remittances to the Treasury and, thus, could conceivably create a potential threat to the Federal Reserve’s budgetary independence. | 0 |
All the usual suspects were present during the build-up to the Icelandic crisis: very strong capital inflows fuelling a credit and asset price boom that subsequently turned into a bubble at the same time as the economy overheated and an unsustainable external position developed, as could be seen in a double-digit current account deficit. And macroeconomic and prudential policies were not up to the task. Quite the contrary: there was a policy conflict between monetary policy and the demand levers pulled by the Government, and the risks inherent in capital flows, FX balance sheets, and credit and asset price booms were left under-regulated and insufficiently supervised. At a deeper level, the macroeconomic part of the story was related to three factors. The first factor centres on the complications that tend to arise with macroeconomic management as very small, open economies become more and more financially integrated. The second relates to the specific conditions of abundant, cheap credit at the global level. Third, major policy mistakes were made in Iceland, both of the type that would be deemed to be such in any book (such as giving an already overheated economy a demand stimulus), and those more closely related to the orthodoxy prevailing at the time: freely floating exchange rates, interest rate policy focusing mainly on low inflation in terms of goods and services, and good micro-supervision; and let the markets do the rest. In the wake of the crisis, it is better appreciated that this view is deeply flawed. | But while nearly all markets are subject to regulation, relatively little thought has been given over the past decade to how different markets matter to stability and, hence, about the role of the authorities in this area. 1 On that, see the Bank of England/FSA paper released last week on how banking supervision is being reformed in the UK in preparation for the establishment of the new Prudential Regulatory Authority. 2 See Tucker P M W “Macroprudential Policy: Building Financial Stability Institutions”, 2011 for a discussion of macroprudential regimes. 3 Bank of England Annual Report and Accounts 2010 pp 26–27. BIS central bankers’ speeches 1 Markets matter to stability in different ways As a provisional attempt at this, I think it might be helpful to distinguish between three types of market: infrastructural markets, intra-financial-system markets, and end-user markets. The first type is those markets that provide essential, quasi-infrastructural support to banking. The obvious example is the overnight wholesale money markets. They are effectively part of the payments system infrastructure. Banking, which is integral to the provision of all three core financial services, simply could not operate without these markets. They have long been, and will remain, of concern to central banks. I will not return to them today. The second category is intra-financial system markets (a slightly broader concept than inter-dealer markets). These markets determine the interlinkages amongst financial firms. | 0 |
The risk models that are in use are liable to accentuate this phenomenon, even though such models are actually intended to do the opposite, namely minimise risk and instability. A signal from a risk model can trigger sales by numerous investors, whereupon prices fall still further. In this way, a mechanical application of risk models is liable to exacerbate price fluctuations. Financial market globalisation also leads, as I mentioned initially, to increased capital flows. Low transaction costs and high liquidity enable individual investors to pledge assets in the market to a greater degree. This leads to closer links and more interaction between different markets; a player may take large positions not just in markets for different assets but also in markets in different locations. Price movements may be affected if market players lose confidence in a particular geographical market or incur losses that oblige them to dispose of other assets. Globalisation has naturally increased such contagious effects, as we clearly saw last autumn. Recurrent financial crises In many ways, global economic development in the past two to three decades has been outstanding. Annual growth since 1980 has averaged over 3 per cent. The rate in the industrialised countries has averaged just over 2.5 per cent as against almost 5 per cent in the developing countries. Many East Asian countries have achieved even higher growth and thereby a radical improvement in economic prosperity. But development has by no means been smooth. | Related to all this, the EU must ensure that requirements to clear through CCPs apply also to exchange-traded derivatives and to vital cash markets, not just to “standardized” OTC derivatives. Whatever anyone says, there is really no excuse for where things currently stand on this in Europe. The MIFID II package provides an opportunity to correct it next year. 1 Thanks for comments to Andy Haldane, Edwin Schooling-Latter, Anne Wetherilt, Graham Young and David Lawton (FSA). BIS central bankers’ speeches 1 Those who argue that the gap in the EU’s framework should persist are serious about private gain but, sadly, not about stability. The crisis that threatens to engulf us all illustrates why we should give no room to such sentiments. 3. CCP default and resolution There is a big gap in the regimes for CCPs – what happens if they go bust? I can tell you the simple answer: mayhem. As bad as, conceivably worse than, the failure of large and complex banks2. We therefore need effective resolution regimes for CCPs (and other financial market infrastructure). The Financial Stability Board will drive this forward as part of our work on the resolution of SIFIs. (A comprehensive package on the resolution of banks and dealers will go to the G20 Leaders Summit shortly. If endorsed, and Finance Ministers have already given their endorsement, it will become a Standard to which countries/jurisdictions pledge to abide.) The EU’s own work on resolution regimes has been a hugely positive input to this global process. | 0 |
East Asian, West Asian and the Middle East regions – greater inter-linkages Islamic finance has made significant inroads in the international financial markets that has achieved growing global awareness. Islamic finance now has a presence in over 60 countries, with total Islamic assets under management by Islamic banks and conventional banks offering Islamic banking services reportedly exceeding USD400 billion. At present, Islamic mutual funds are estimated to be at a value of over USD300 billion, while issuance of Islamic sovereign and corporate bonds, or sukuk, have reached about USD50 billion. Islamic finance has demonstrated its viability and competitiveness in the current environment of a more liberalised and globalised financial system, with changing business and technological climates. As a form of financial intermediation it is now becoming increasingly integrated with the international financial system. Against the backdrop of this rapid development in the international Islamic financial markets, there is potential to build greater intermediation linkages between the East Asian, the West Asian and Middle East regions to expand further the inter-regional trade and cross border investments. In an increasingly globalised financial environment, sovereigns, development institutions and corporations of capital deficit countries have the option of raising Islamic financial instruments in capital surplus countries through the Islamic financial intermediaries. Significant economic benefits will arise from the strengthening of these inter-linkages. The expansion of inter-linkages of intermediation and markets among these regions would lead to a more efficient allocation of capital and thus enhance the prospects for strengthening further the growth performance. | The new entity will be termed licensed International Islamic bank. The business that the licensed International Islamic bank would be allowed to undertake includes the wide-ranging business of Islamic commercial banking, Islamic investment banking and Islamic leasing in international currency. iii. Third, Bank Negara Malaysia will also issue new conditional registrations under the Takaful Act to qualified foreign and Malaysian insurance companies to conduct the full range of takaful business in international currencies. Similar tax treatment will be accorded to these entities as that for the banks. The new entity will be termed International Takaful Operator. iv. Fourth, the Labuan offshore Islamic banks and the Islamic divisions of the offshore banks as well as offshore takaful operators will be given greater flexibility in their business operations by allowing the opening of operational offices anywhere in Malaysia with no limitation on staffing, to conduct non-ringgit business while maintaining their presence in Labuan. This measure would be accorded to the six existing offshore Islamic banks and Islamic investment banks operating in offshore centre Labuan to participate in the MIFC. v. Fifth, incentives will be given to attract the best foreign talents and market players to the MIFC to spur innovation and offering of attractive Islamic financial instruments. This is to further strengthen the large pool of highly trained workforce with vast experience in Islamic finance already in Malaysia. Further incentives will also be introduced to spearhead the aspiration of developing Malaysia as a centre of education excellence in Islamic finance to complement the MIFC. vi. | 1 |
In addition to these important changes in relative productivity outcomes and more general gains in reducing inflation, we have seen a large increase in the mobility of global capital and a wider dispersion in gaps between saving and investment in national economies. The increase in the size of the U.S. current account deficit and the emergence of substantial surpluses in emerging Asia, the major oil exporters and Japan, reflect changes in saving and investment behaviors, changes driven by very different forces in different countries. So far, of course, these imbalances have been financed with relative ease, and it is hard to find evidence in risk premia in financial markets of concern about the sustainability of these trends. One final point about the broader environment: These changes have taken place in the context of unusually low forward interest rates, a subject that has been the focus of considerable attention in U.S. markets in particular. Forward nominal interest rates in the United States at the five- to ten-year horizon have stayed at quite low levels over the past 18 months. Using the inflation expectations derived from the TIPS (Treasury Inflation-Protected Securities), along with measures of inflation risk premia, we can conclude with some confidence that a key factor holding down forward nominal rates is a significant reduction in expected future inflation and increased confidence in those expectations. Inflation and inflation risk are not the whole story though, as forward real rates in both the United States and many other countries have declined to unusually low levels. | Beyond this general judgment about unsustainability, there is little consensus on how this adjustment process will unfold or on its implications for economic activity and financial markets. The plausible outcomes range from the gradual and benign to the more precipitous and damaging. The size of the imbalance and the inevitability of eventual adjustment, however, mean that the world will be living for a considerable period of time with some risk of large movements in relative prices, greater volatility in asset prices, and periods of slower growth in the United States and in the rest of the world. That said, a number of observers have suggested that living with these imbalances for an extended period of time presents very little risk to the U.S. and world economy. These arguments are worth some attention. One view is that the rise in the surplus saving of the rest of the world, the relative ease with which capital now moves across borders, and the increase in the relative attractiveness of claims on the United States together may suggest that the world can sustain larger imbalances, more easily, for a longer period of time than would have been possible in the absence of these conditions. This is true. | 1 |
As we all know, the global regulatory reform basically addresses the lessons learned from the crisis that insufficient capital and liquidity buffers, non-adequate on and off-balance sheet risk coverage and excessive leverage can undermine the stability of the financial system. The role of statistics in this regard is to improve the current statistical frameworks and to design new frameworks so as to provide adequate information for detecting vulnerabilities in the financial sector. Main venues in this regard are: redesign of the set of financial stability indicators to improve their value added for assessing the health of the financial systems, measurement of aggregate leverage and maturity mismatches, coverage of tail risks, more transparency about complex structured products and credit default swaps, and improvement of securities statistics. Adequate coverage of the unregulated institutions and instruments (the “shadow banking system”) seems also a key for having a complete risk-map. The need to supplement averages, with ranges and distribution was clearly demonstrated with the crisis. BIS central bankers’ speeches 1 2. Cross-border financial links should be covered more properly within national financial stability assessments. In the world of fast growing financial integration and creation of large multinational financial groups, data on these networks are indispensible for a proper financial stability assessment within the country. Enhancement of information on systemically important global financial institutions, and initiating data gathering of crossborder flows seems to become a “must” nowadays for a proper assessment of the stability of national financial systems. 3. | It is true that, more often than not, we come to the conclusion that the balance of advantage lies in not intervening; and, I must confess, I would be alarmed if we didn’t. Yet, in all cases, the decision is made positively, and not by default, and it is not the non-outcome of a do-nothing approach. But, there are many examples of the Government deciding, usually on the advice of its boards and committees, to intervene, in one way or another, in the free play of market forces.” Indeed there are many examples of intervention. We built the airport because, without government intervention, it would simply not have been economically viable. We built roads and bridges. We provided public housing, medical services, the list is long. But we tend to do less than other jurisdictions and so the size of our public sector in relation to gross domestic product is one of the smallest in the world. Specifically in the monetary and financial systems, there is significant intervention in the form of the regulation of financial markets and the supervision of financial institutions. This is precisely because we feel that, in the words of Sir Philip, ‘the balance of advantage’ lies in so intervening and because ‘imperfections in the operation of the market mechanism [may lead] to economic inefficiency’. In very much the same spirit, we intervened in 1996 and built a real time payment system because the private sector was not able to come up with this highly desirable piece of financial infrastructure. | 0 |
In my speech a year ago, I said that one of the great lessons of the global financial crisis in 2008 and, not least, the coronavirus crisis in 2020, was that the repo rate, our policy rate, is not sufficient as a monetary policy tool to stabilise inflation at around 2 per cent.2 The global financial crisis in 2008 and the years thereafter showed that the socalled lower bound for the policy rate was not only an interesting fact, but also 1 I would like to thank Björn Lagerwall for his help with writing this speech, Johan Almenberg, Meredith Beechey Österholm, Emma Bylund, Charlotta Edler, Dag Edvardsson, Jesper Hansson, Stefan Ingves, Marianne Nessén, Emelie Nilsson, Åsa Olli Segendorf, Ulf Stejmar, Marianne Sterner, Anders Vredin and Magnus Åhl for their help and valuable comments, and Elizabeth Nilsson for translation of the speech into English. 2 See Skingsley (2021). 1 [19] real constraint on monetary policy. A further lesson from the crisis was that the turbulence on the financial markets could entail the monetary policy steering rate quite simply not having an impact on the interest rates charged to companies and households. Asset purchases can address both of these issues. They can contribute to further stimulus when it is not possible to cut the policy rate. And they can reduce the difference between the policy rate and the interest rate charged to households and companies when there is financial turbulence. | In the decade prior to the crisis, in both the euro area and the UK, inflation was low, stable and predictable. Inflation targets were achieved without causing undesirable volatility in output and employment, the so-called “divine coincidence”.1 Both regions experienced continuous expansions in activity. It is not entirely surprising that “end of history” declarations of the Great Moderation were increasingly commonplace. But such nominal stability masked growing financial imbalances and increasing strains in competitiveness. The financial crisis would expose how a healthy focus on price stability had become a dangerous distraction. Central banks had won the war against inflation only to lose the peace. When the music stopped, the consequences for the real economy were dire. In both the euro area and UK, output fell by around 6% and unemployment rates rose initially by 2½ percentage points. It took 7 years for GDP per capita to recover to pre-crisis levels. In response, the financial system and the institutional architecture have been fundamentally reformed. The capital requirements of large global banks are ten times higher than the pre-crisis standard. Liquid assets – 1 See Blanchard, O., and J. Galí (2007). "Real Wage Rigidities and the New Keynesian Model". Journal of Money, Credit, and Banking, 39(1), pp. 35-65. 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 relative to liabilities that can readily run – are also tenfold higher now than before crisis. We are ending too big to fail and transforming the resilience of financial market infrastructure. | 0 |
It has justifiably become a cornerstone of our global economy, which thrives on openness, including in international financial and banking services. But such openness makes domestic economies more vulnerable as a result of contagion and spillovers from shocks that originate elsewhere – whether from other international economies or global capital markets and the international financial system. In addition, when banking is international, it can generate problems of effective oversight and coordination, and so difficulties in ensuring a full understanding of the risks being run within that sector. To get the benefits of international banking safely, these risks need to be managed. We need to work out how to be better lion tamers to create a safe environment for all. And we should aim to get to the point where we are happy that even in a crisis it is safe to put our heads in the lions’ mouths. Globally, the regulators of financial services activity have been prominent in their response to the crisis. We have sought to improve the resilience of banking, domestically and globally, thereby supporting financial stability. But in pursuing this objective, we need of course to look at the costs as well as the benefits of our approach. We need in particular to ensure that that resilience and stability is not achieved at the expense of what might colloquially be described as the “stability of the graveyard”. | As host supervisors we learnt all too clearly the need to get sufficient detail on the significance of overseas banks’ branch activities to understand their potential impact on UK financial stability, the need to understand the major risks run by a global parent and the impact that might have on UK operations, and the potential need for early supervisory intervention. In the immediate aftermath of the crisis, and reflecting these lessons, there was a change in approach from this fragmentation to regulatory balkanisation. This approach is aligned with the pure host-led model I described earlier and is based on the premise that host entities should be clearly separable and separated from their parent group. At the extreme, this treats local subsidiaries in isolation from the parent group, with a sufficient local pool of capital and liquidity so that it is self-sustainable in the event of failure, ensuring that the entity can be resolved on its own. On the face of it, this provides for domestic financial stability. However, it is not without cost. The benefits of international trade and capital flows are reduced. Total global capital requirements are higher since the benefits of diversification in international banking are not recognised. And how realistic anyway is the premise of self-sustainability at the individual country level for businesses that are inherently global and closely integrated – as opposed to groups that represent in effect a collection of standalone retail banks. | 1 |
The development of fully unified European instant payment systems, integrated capital markets, and the possible creation of a safe euro-denominated asset should among others contribute to the international expansion of the euro. ** At this critical time, let me conclude with verses from Othello: “To mourn a mischief that is past and gone is the next way to draw new mischief on”. In modern English it means: “when you lament something bad that’s already happened, you’re setting yourself up for more bad news.” Making the best of such a misfortune as Brexit is the surest way to overcome it. Our collective response to Brexit should be the further integration of Europe: if we remained mired in technical nit-picking with self-satisfaction in some quarters and attacks from others, and distrust on all sides, we would not only have missed an opportunity, we would, collectively, have failed in our duty. Thank you for your attention. 3/3 BIS central bankers' speeches | To this end, under the JC3, a new subcommittee on data has been established earlier this year to take this work forward. These initiatives complement various ongoing efforts at the national level to strengthen national climate policies, institutions and frameworks. We will have the opportunity to hear more about these efforts over the course of this event. The 5 areas I have just mentioned are necessary but insufficient conditions to mitigate the worst effects of climate change. At the end of the day, actions at the individual firm level matter enormously. And the actions of financial institutions matter more than most given their role in the economy. The more we learn and observe about climate risks and practices in the financial sector, it is evident that we are still a long way from the breakthrough needed in how the financial sector thinks about and acts on climate issues. Such a breakthrough calls for financial institutions to recognise and reflect the systemic nature of the climate challenge in their business and risk considerations, and adopt an integrated and inter-disciplinary approach to climate issues. This means bringing together dimensions of climate science and technology with economic, social, risk and behavioural considerations. It means treating climate considerations not as a standalone issue, but one that is embedded in an institution’s growth strategies, risk management and business operations. It means committing substantial investments to build the capacity and culture needed to make long-term shifts in business activities that support and are aligned with climate mitigation and adaptation. | 0 |
The first school, usually identified with Professor Paul Krugman of MIT, is best summarized by the two fashionable phrases “crony capitalism” and “Asian values.” The emphasis here is on inept domestic policies, inefficient resource allocation to politically connected individuals, unrealistic speculation - particularly in real estate - and imprudent public spending, all fuelled by over-borrowing, poor bank supervision, extreme moral hazard, and a hubristic attitude generated by several years of fast growth. The trends were unsustainable, and the Nemesis came with a loud and very messy bursting of bubbles throughout the region. Asia’s downfall, says Professor Krugman, “was a punishment for Asian sins, even if the punishment was disproportionate to the crimes.” The second school, led by Professor Jeffrey Sachs of Harvard, sees the crisis in less moralistic terms. The turmoil, he says, was a classic financial panic: a run on the banks and mass capital flight exacerbated by the maturity mismatch of many Asian banks and the currency mismatch of many Asian borrowers. This was accompanied by speculative attacks on currencies and the collapse of asset values. While this approach stresses the fragility of many of the banking systems in the region, it maintains that the Asian economies were in relatively healthy shape according to the usual indicators, and that the magnitude of the crisis far exceeded the faults and errors of individual jurisdictions. Both the Sachs and the Krugman schools have much in common. But their logic points in different directions. | Jean-Claude Trichet: A rich variety of cultures at the heart of Europe Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in the Frankfurter Allgemeine Zeitung special supplement of the ECB Cultural Days, published on 4 October 2009. * * * 1. The ECB Cultural Days have been held seven times since their launch. On three occasions, they have featured countries from eastern Europe. What does eastern Europe bring to Europe and to Frankfurt, in particular? It is very important for the ECB – with our staff coming from all 27 EU Member States – to discover or rediscover the wealth of European culture in the international environment of Frankfurt and its surrounding area. As you say, it has always been our aim to embrace the whole of Europe, both the old and new members of the European Union. It is no accident that we have welcomed three central and eastern European and three western European countries. Last year, on the occasion of the tenth anniversary of the ECB, the events involved all 27 EU Member States in order to underline the diversity of European culture. This year, the 20th anniversary of the fall of the Iron Curtain, the event takes place against the unique backdrop of the reunification of Europe. 2. You made a speech on European culture in Frankfurt this spring, which explored the link between the concepts of roots, diversity and identity. Did you have the ECB Cultural Days in mind? Of course. | 0 |
Ravi Menon: The work of the NGFS in four emerging issues in climate change Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore and Chairman, Network for Greening the Financial System (NGFS), at the NGFS Workshop, Singapore, 26 April 2023. *** Good morning, ladies and gentlemen. I am delighted to welcome you to the inaugural NGFS Workshop in Singapore. We held our annual NGFS Plenary meeting yesterday. We discussed how the NGFS can continue to push the envelope in greening the financial system: to strengthen the resilience of the financial system to climate and environmental risks and; to encourage financing flows to support the transition to a net-zero world. The NGFS is well-placed to do this – we are a coalition of 125 central banks and financial regulators from over 90 jurisdictions. Our size enables us to make an impact globally and our diversity enables us to harness multiple perspectives. The work we do is not only important but urgent. Climate change is already happening – its physical manifestations are becoming increasingly evident – especially here in Asia. We are already seeing unprecedented heat waves, floods, and agricultural degradation. One of the key roles of the NGFS is to build capacity and capabilities among central banks and supervisors to deal with the climate challenge. This inaugural NGFS Workshop, with more than 150 participants from over 60 institutions, will discuss cuttingedge economic and financial issues related to climate change and nature loss. | increased sectoral granularity and geographical coverage, especially in emerging economies; inclusion of short-term scenarios, incorporating more adverse tail-risk events such as a sudden policy shock; and improved representation of acute physical risk. Blended finance To get to net-zero by 2050, we have to close a large financing gap. According to McKinsey, net zero by 2050 will require about $ trillion of investment per year, but only about $ trillion per year is being invested today. We are more than 35% short of the annual investment required for net-zero. Blended finance will be crucial to unlocking more capital for green and transition projects, particularly in emerging economies. Blended financing structures can alter the risk-return profile of many marginally bankable projects. This can be done through catalytic and concessional funding from the public sector, multilateral development banks, and philanthropic sources to crowd in multiples of private capital. By mitigating a portion of project risks, providing technical assistance, and lending their reputation and expertise, the public sector can help to attract private capital which may otherwise be hesitant to invest. We need to mobilise the financial system to deploy blended finance at scale. The NGFS will contribute to this effort in three ways. We will use our convening power to raise awareness of blended finance and help to bring the relevant parties into the room. We will seek to identify potential regulatory, market or policy barriers that hamper the scaling up of blended finance. | 1 |
Owing to the fall in oil prices, government petroleum revenues are now lower. Volatility in the return on the fund’s investments could have a considerable impact on the fiscal room for manoeuvre in the coming years. Norges Bank has managed the GPFG since the first transfer was made in May 1996. An important part of our responsibility for the operational management of the fund is to advise the Ministry of Finance on the fund’s investment strategy. Chart: Equity share in the strategic benchmark index and of the fund The investment strategy issue of most importance for the fund’s return and financial risk is the fund’s equity share. Under the current investment mandate, the size of the fund’s actual equity investments will largely be determined by the equity allocation set by the Ministry of Finance for the fund’s benchmark portfolio. The equity share in the strategic benchmark index provides an important indication of volatility tolerance with regard to the fund’s value. To be able to maintain the investment strategy, not least in periods of falling equity prices, a good understanding and broad-based acceptance of the fund’s risk are essential. The equity share in the fund’s strategic benchmark index is therefore naturally reassessed at regular intervals. The Ministry of Finance has increased the equity share in the strategic benchmark index twice on the advice of Norges Bank and others. | If government indebtedness reaches a sufficiently high level that it triggers a loss of confidence in fiscal sustainability, investors will require additional risk premia to compensate for having to bear greater sovereign credit risk. The resulting rise in sovereign risk premia can be passed through to private sector funding costs, especially if there is doubt about the ability of the public sector to counter adverse disturbances to non-financial and financial sectors. Chart 2 on slide 6 shows how CDS spreads for large banks have become increasingly correlated over the past seven and half months with the sovereign CDS spreads of the countries where these banks have their headquarters. Two snap-shots are shown in the chart: one for 26 November 2009 and the other for 19 May 2010. As can be seen from the chart, between these two dates, as sovereign CDS spreads have risen, so have bank CDS spreads. It is furthermore interesting to note that, in the cases where concerns about fiscal imbalances have been greater, the co-movement has been substantial. The third risk we have identified outside the euro area financial system is the possibility of vulnerabilities being revealed in non-financial corporations’ balance sheets, because of high leverage, low profitability and tight financing conditions. The balance sheet conditions for the euro area non-financial corporate sector have slightly improved since the last issue of the FSR, which has translated into a moderate lowering of the expected write-downs facing euro area banks on their corporate loan portfolios by end–2010. | 0 |
I think we have helped to contribute to the considerable progress made on a number of fronts, including making the financial system more resilient and robust and helping make monetary policy more effective, even at the zero lower bound. But there is much more work to do. In particular, I think we have just scratched the surface in understanding how developments in one area, such as capital and liquidity requirements for large, complex financial institutions, affect other areas, such as effective monetary policy implementation. We still don’t have well developed macro-models that incorporate a realistic financial sector. We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions – is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling? There are many other riddles that remain to be solved. How does one design an effective reference rate that is informative, verifiable and not vulnerable to manipulation? If you manage to come up with one, how do you migrate the trillions of dollars of existing contracts to the new standard? The U.S. unemployment rate has declined more sharply than one might expect given the economy’s growth rate over the past few years. Is this permanent or will it reverse if the economy continues to grow and the pressure on labor market resources increases in the coming years? How does one end “too big to fail” for large global firms operating across different jurisdictions? The list goes on and on. | In fact, many of those with economics Ph.D.s elsewhere in the Bank started their careers at the Bank in the Research Group. They moved to other areas of the Bank as their interests evolved and they became less focused on research and more focused on policy development. This movement of economists throughout the organization has helped build a deep reservoir of human capital within the Bank and has fostered close collaboration between Research and other areas of the Bank. Our model with respect to attracting economists into our Research Group is to hire people with strong research skills, with the highest academic credentials and who already have or are likely to develop a policy orientation related to the Bank’s work. We give our economists plenty of time and opportunity to conduct independent research, and expect them to publish their research in the major academic journals and to engage with the economics profession outside the Bank. As they progress in research capability, we require economists to apply the skills and techniques they use in research to policy issues. We expect that, as their academic careers develop, there will be a natural convergence between their research interests and the Bank’s policy agenda. This usually happens as a matter of course because the Bank has a rich agenda of policy issues to work on and the economists at the Bank often have unique access to data and information that would not be available elsewhere. | 1 |
Unlike the 1980s, the build up of debt in recent years has been in an environment of low inflation and low interest rates. The interest ratio, that is, interest expenditure as a share of disposable incomes, is much lower now than it was then. Although the level of households' debt ratios is not necessarily worrying, it is nevertheless the case that a borrowing level rising by more than 10 per cent a year is not sustainable in the long term. In the long term it needs to come down and be more in line with nominal disposable incomes. The Riksbank is assuming that household borrowing will continue to increase, but at a slower rate than before. The fact that interest rates have been raised contributes to this, as does the fact that economic activity is entering a calmer phase. The interest ratio has recently begun to rise but is still at an historically low level. The expected BIS Review 60/2008 1 slowdown in household borrowing will mean that the interest ratio also increases at a slower rate in future (see figure 3). The chances are good that household borrowing and house prices will have a soft landing. Although borrowing is still increasing at a rapid rate, there has nevertheless been some slackening and this is expected to continue. House prices fell slightly in the first quarter of this year compared with the final quarter of last year. However, on an annual basis the increase was just over seven per cent. | Ted spread Basis points, 3 month duration 250 250 225 200 175 200 175 150 150 125 125 100 100 75 75 50 50 25 25 0 jan-07 BIS Review 60/2008 225 USA Euroland Storbrit annien Sverige 0 mar-07 maj-07 jul-07 sep-07 nov-07 jan-08 mar-08 maj-08 7 Figure 8. Credit spreads, USA Figure 9. Premiums in CDS for a sample of banks Basis points, duration 5 years 1100 1100 1000 1000 900 800 700 800 700 600 600 500 500 400 400 300 300 200 200 100 100 0 jan-07 8 900 Kaupthing UBS Cit ibank Bear Stearns Lehman Brothers Deutsche Bank 0 mar-07 maj-07 jul-07 sep-07 nov-07 jan-08 mar-08 maj-08 BIS Review 60/2008 | 1 |
On this note, Ladies and Gentlemen, I have great pleasure in declaring open the Payment Systems Forum and Exhibition 2005. Thank you. BIS Review 84/2005 3 | That is why in the minutes of its March meeting, the MPC BIS Review 46/2009 5 indicated that, just as with its decisions on Bank Rate, we would review the appropriate scale of the asset purchase programme each and every month. 3. Conclusion The extraordinary developments in the global economy since the autumn have been matched by the magnitude of the policy response. Monetary policy continues to play its part, with Bank Rate set at a historically low level and the launch of a large-scale asset purchase programme. Throughout these dramatic developments, the objective guiding the Committee’s decisions has remained the same: the need to keep inflation on track to meet the Government’s 2% inflation target. It was that objective that underpinned the decisions to reduce Bank Rate to unprecedented levels. And it was that objective that drove the MPC to adopt unconventional policy measures. The inflation target will also dictate the rate at which the stance of monetary policy is returned to normal as economic prospects recover. The outlook for inflation relative to the inflation target provides the natural guide to exiting from this period of exceptional monetary stimulus. Importantly, this exit strategy is clear, transparent and open to public scrutiny. Openness and transparency have been the cornerstones of UK monetary policy since the Monetary Policy Committee was established in 1997. That has never been more important than now. The inflation target is symmetric. That requires the MPC to set policy in a symmetric way. | 0 |
Supervisors from different nations are working together in an effort to create more effective cross-border crisis management tools and resolution regimes, but this work is still in its very early stages and there are formidable obstacles to overcome. A second challenge is the uneven progress that has been made in reforming bank regulation and supervision across the different jurisdictions. For example, in some cases, the supervisory authorities have been quite forceful in making banks domiciled in their countries raise capital. In other cases, the response has been less aggressive. The uneven progress of reform makes comprehensive reform more difficult. It shifts the tenor of the discussion away from what is the proper macroprudential framework and set of capital and liquidity requirements to one that focuses too much on issues of relative competitiveness. Too often the questions asked are: What is most beneficial to the banks of my particular country? Do the regulations bolster or harm my “national champion”? The focus shifts away from the goal of bolstering global financial stability to finding ways of tilting or adjusting the new standards to achieve a national competitive advantage. This is in not in anyone’s interest. As discussed earlier, every nation has an interest in promoting financial stability globally, since the effects of systemic financial stress in one place can swiftly spread throughout the global economy. Moreover, although a relatively loose regulatory regime may attract business from other financial centers, there is no free lunch here. | First, the capital requirements have been raised so that internationally active banks must have common equity ratios of at least 7 percent of risk-weighted assets when the standards are fully phased in by 2019. This 7 percent standard consists of a 4.5 percent minimum plus a 2.5 percent capital conservation buffer. Banks whose capital ratios fall into the buffer range will face increasingly stringent restrictions on capital distributions such as dividends and share repurchases and discretionary bonus payments to staff. This should act as a form of “automatic stabilizer” to their capital resources and change the incentives banks face during periods of stress. Second, for many globally active banks, the amount of capital required will also rise because the amount of risk-weighted assets against which the capital ratios are calculated will increase. Explicit capital requirements for operational risk and counterparty credit risk, as well as increased requirements for certain trading activity and transactions between financial institutions should result in a significant rise in risk-weighted assets. On the quality side, capital requirements have been toughened by narrowing the definition of what can be counted toward common equity capital for regulatory capital purposes. The emphasis has been put on common equity because of the superior loss-absorbing capacity of this type of capital on a going concern basis. | 1 |
One reason for this shift is the segmentation between banks, which have access to the ECB’s deposit facility, and non-banks as well as entities outside of the euro area, which do not have access. The conference paper by Eisenschmidt, Ma and Zhang (2020)[10] studies how this market segmentation can affect monetary policy transmission. Monetary policy transmission through money markets I will now turn to the determinants of monetary policy transmission through money markets. One metric that can be used as an indicator of monetary policy pass-through is the volume-weighted cross-sectional dispersion of money market overnight rates (Slide 3). This metric, proposed by Duffie and Krishnamurthy (2016), is a useful way to combine information on money market rates and volumes. [11] Intuitively, the dispersion index is low in relatively frictionless markets. Increases in dispersion indicate that money market rates do not move in tandem, which can signal impairments in the pass-through of the https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html 2/7 24/11/2020 Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic monetary policy stance to private market rates. Based on the dispersion index, I will highlight the changing role of factors affecting monetary policy transmission in the euro area through money markets since the global financial crisis. I will focus on three key factors that have an impact on the transmission of monetary policy decisions through money markets: financial stress, central bank liquidity provision and regulatory changes. | 24/11/2020 Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic SPEECH Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the ECB Conference on Money Markets, 23 November 2020 Frankfurt am Main, 23 November 2020 I would like to welcome you warmly to our virtual ECB Conference on Money Markets. [1] This conference offers an excellent platform to facilitate the exchange between academic experts on money markets and policy makers. The conference papers address some of the most topical research questions with respect to money markets and will thus provide valuable input for the implementation of our monetary policy. Money markets are a cornerstone of the financial system. [2] Banks, non-bank financial institutions[3] and non-financial corporations all rely on money markets for their short-term funding, liquidity management and collateral needs. As a result, dislocations in money markets can severely undermine the stability of our financial system. Due to their central role as a source of short-term funding, money markets are also crucial for the implementation and transmission of our monetary policy. Money market rates serve as operational targets for central banks and also as benchmarks for the pricing of credit, thereby directly affecting financing conditions in the real economy. | 1 |
Looking out for the policyholder Speech given by Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority Association of British Insurers Annual Conference 2018, London 27 February 2018 I am grateful to Rebecca Pu for her assistance in preparing this speech and to other colleagues for comments and contributions. 1 All speeches are available online at www.bankofengland.co.uk/speeches I will begin this speech with a bold claim: insurance regulation is fun! This is just as well, because it is half of what we do at the PRA. Parliament very wisely decided to put prudential regulation of banks and insurers together in one institution following the financial crisis. I think this works very well, because there are many synergies. Both sectors provide critical services to the real economy, bringing customers’ money directly onto their balance sheets. And I would argue, for instance, that the basic qualities which make a good chairperson aren’t materially different between banking and insurance. But there are also very big differences. An annuity writer is nothing like a building society. London Market underwriters I have sat next to do a very, very different thing to what goes on in banks. The eighty actuaries we employ as part of our insurance division speak a different language from our risk specialists sat on the floor above them at 20 Moorgate. Much of the time, this insurance activity goes on underneath the radar, relative to banking. | The combination of a strong exchange rate (still about 25% above its level of August 1996), a 20% fall in dollar oil prices over the past year, and an average fall of 9.5% in other commodity prices, is holding down retail price inflation. Domestically generated inflation is significantly higher than RPIX inflation. As the one-off effects of the rise in sterling wear off over the course of the next year or so - as indeed they will unless sterling appreciates further - inflation will start to rise above the target unless domestically generated inflation declines. In the long run, domestically generated inflation is likely to be close to the rate of increase of unit labour costs. At present unit labour costs are rising at about 3½% a year. The earnings figures released earlier this month - which showed that average earnings in the economy grew by 4.9% and in the private sector by no less than 5.6% - were undoubtedly disappointing. It is too soon to judge how far they reflect the impact of higher bonuses this year than last. In any event, to hit the inflation target those rates of earnings growth will have to fall back. These high levels of earnings growth are not the underlying cause of inflationary pressure; they are a symptom of a tight labour market. Equally, the prospects for earnings growth depend critically on the future path of output and on inflation expectations. | 0 |
In ibadah (worship), there are times when differences of opinions become a blessing as they provide us a way out of a difficulty in performing a particular act of worship. In addition, specific act of worship deals with our relationship with Allah. Even in the history of Islamic civilisation, the differences in opinions and views were the main reasons for the Islamic civilisation to progress rapidly. In the context of the muamalat, differences of views would be more prevalent due to the diversity in the background, culture, and society that will inevitably result in various interpretations on a particular issue. On one hand, this could be deemed positive as it broadens the scope for Shariah scholars to make references and to understand the reasons and wherefores of the Shariah law. On the other hand, in the context of muamalat, it may lead to difficulties in managing transactions given that different interpretations may hamper parties to contract seamlessly. This is particularly evident in an Islamic financial system that is regulated by the central bank that usually places emphasis on standardising in its policies and market practices as to ensure consistency in compliance among the financial institutions. In this regard, I would like to suggest the following points which could serve as basis for the solutions to the impediments that I have mentioned earlier: i. This Dialogue should strive for all scholars to agree on important Shariah issues that can be used as basis and guidance for the industry practitioners. | This change requires the readiness of Shariah scholars to play a greater role and to interact with others from various disciplines to enrich and enhance ijtihad with new perspectives, against the backdrop of a contemporary BIS central bankers’ speeches 3 landscape. This innovation will only be generated through the openness of minds and a paradigm shift, based on sound understanding of the Shariah objectives. As the vanguard of Islamic finance, it is the responsibility of Shariah scholars to promote best practices in the Shariah fraternity through an inclusive and contemporary ijtihad, in line with the rapidly evolving operating environment. Finally, I pray that the discussions will run smoothly and will achieve the intended objectives. On this note, I end my speech with the words of Imam Ibn Taymiyyah,: “Surely among the main thrusts in a religion is the union of hearts, the unison of views and easing of disputes conducted in a good way.” Wabillahi taufik wal hidayah. Assalamu’alaikum warahmatullahi wabarakatuh. Thank you. 4 BIS central bankers’ speeches | 1 |
The new capital regulation is an attempt of precise risk measurement, including but not limited to the credit risk, and its reflection in the capital requirements. Newly emerging institutions operating in several segments and on several markets increase the operational risk. It seems that the scale of threats related thereto grows in line with the technological development. Globalization of financial markets and relations among institutions of various segments trigger a disruption that may bear consequences not only for individual institutions, but which may, through the payment system, spread over to many other entities, including those in the real sector. 43 The operational risk problem has been noted by the Basel Committee on Banking Supervision, which for the very first time has included it in its supervisory regulations (the New Capital Accord). Banks and investment funds have been obligated to gather information on operational risk incidents and to estimate capital to cover this risk. Capital mobility and business activity of large, international financial corporations also translate into institutional changes on local markets and challenges to be faced by supervisory authorities responsible for financial stability. Financial markets of the new EU Member States, whose large share is held by foreign investors, i.e. institutions operating globally or regionally, may serve as an example. In addition to the capital necessary for the development of the institutions and markets on which they operate, the presence of industry institutional investors has brought about a number of other positive results. | Data on inflation or output simply appeared in information services at certain times. The NBP used to send the data on the balance of payments by fax to those analysts who requested for them. When, as the first financial markets economist in Poland, I launched a weekly macroeconomic service for customers, an analysis, which was one or two pages long, would be put on the pre-programmed fax machine, and it was not until the afternoon that the transmission was accomplished. At present, nearly every bank in Poland has its chief economist supported by a team of analysts who send hundreds or thousands of e-mails every morning, which reach tens of thousands of investors worldwide (banks, investment funds, arbitrage funds, company managements, wealthy private banking customers, decision-makers and central bankers). At present, the management of a large fund may receive hundreds of e-mails daily that contain analyses of listed companies, currencies, or macroeconomic and political developments. Nowadays, the problem does no longer involve access to information, but pertains to the excessive amounts of information and analyses that must be skilfully selected. In response to these – and other – challenges 3 international standards have been elaborated in the recent years. Not only the quantity, but also the quality of information and the comparability of data have been increasingly appreciated. In addition, unification of principles that govern the functioning of individual financial market areas has been a precondition for the development of effective competition in the international financial system. | 1 |
If no referendum is sought, we assume that the Federal Council will put the new Law into force on 30 April 2004, i.e. the date of our Annual General Meeting. The new Law will modernise the legal framework of the National Bank. It lays down the mandate of the Swiss National Bank in detail, guarantees the SNB independence in its decision-making, regulates its accountability vis-à-vis the Federal Council and Parliament and strengthens the supervisory powers of the Bank Council. The latter will no longer consist of 40 members as at present; it will comprise only 11 members, six of whom are elected by the Federal Council and five by the SNB’s Annual General Meeting. The new Bank Council will be constituted on the day of our Annual General Meeting. The new Law extends the National Bank’s room for manoeuvre on the operational level. Until now, the Law laid down exactly what assets the SNB was permitted to invest in and what securities were eligible as collateral in Lombard business. In future, the National Bank will be responsible for making these decisions itself. At the time when the new Law enters into force, we shall publish two directives. One will spell out the technical preconditions for our monetary operations; the other will set out how we shall use our extended investment policy scope. My colleague, Philipp Hildebrand, in his address will present our first ideas on this subject. | With the present fiscal stimulus no longer a factor, however, economic growth is likely to slow down distinctly again next year but should remain robust. We still anticipate an upswing in the EU in the coming year. It is probable, however, that it will take slightly longer to close the output gap than we assumed as recently as September. Inflationary pressure from abroad will thus remain moderate although inflation in other countries will not recede as markedly either in the coming year as we expected three months ago. Furthermore, we anticipate a decline in the price of oil to approximately USD 25 per barrel in the course of 2004. On the assumption that the three-month Libor rate will remain stable at 0.25% during the next three years, inflation should average 0.4% in 2004, 1.0% in 2005 and 2.3% in 2006. The inflation trend according to the new forecast will exceed the September forecast until mid-2005. Until the end of 2004, inflation is likely to remain fairly stable at around 0.5% and to fluctuate only slightly due to basis effects. The new forecast shows that the threat of negative inflation rates has diminished. This is the result of an improvement in the global economy and of the less marked decline in inflation abroad, as also of the weaker Swiss franc vis-à-vis the euro. As from the beginning of 2005, inflation will show a rising trend due to the expansionary monetary policy we took as an assumption. | 1 |
The decentralised nature of the Eurosystem is an asset especially for communications with the general public. The Governors address in their country their national public in their own language. They are very well placed to participate in economic debates taking place in their home country. Finally, the ECB publishes a large array of statistics, adding essential information on the euro area available to financial markets and all other interested agents. There has been an ongoing process of extending the number of statistical series released by the ECB, which I expect to continue in the future. As a latest example, last week we have published for the first time a press release providing a geographical breakdown of balance of payments and international investment position statistics. Our concept of transparency Transparency serves our main objective of maintaining price stability. As we are a unique institution which has no precedent we have to consider very carefully the appropriate concept of transparency in our decision-making. We are convinced that as a collective body it is beneficial for the Governing Council to give its collegial assessment in the form of a comprehensive and detailed statement rather than only stating the decision and letting the interested parties wait for the detailed statement to be published later in the form of minutes. Our method of real-time communication on behalf of the Governing Council also goes to demonstrate that we are collectively accountable to the public. | During BIS Review 1/2008 1 this “French period” of your career, you acquired an extraordinary knowledge of our country, its language and culture. Since then, you have always shown deep and unswerving friendship towards France. You have many French friends, some of whom are with us today. The French Government recognised your exceptional contribution to Franco-Japanese friendship by awarding you the “Commander of the Legion of Honour” – the highest of our national honours. Let me say how happy and moved I was to be present, in Tokyo on 25 November 2005, at the ceremony where you received this decoration from France’s Ambassador in Japan. I would add that I myself am fascinated by Japan and its culture. For over 25 years I have been to your country almost every year. I also have dear friends there, some of whom have been kind enough to join us today. This mutual attraction for one another’s cultures has helped us, Governor Fukui, to build a strong personal relationship over the course of our meetings at the international institutions, in Basel and Washington in particular. This doubtless explains why we agreed straightaway, when invited by the diplomatic authorities in our respective countries, to involve our institutions in the celebrations of this 150th anniversary. If you look, on the website of the Japanese Embassy in France, at the schedule of events celebrating this occasion – some of which will be quite exceptional – we see that the arts and culture have pride of place. | 0 |
The basic banking account has no minimum balance requirement and offers free ATMs and debit cards to those who qualify. The scheme is expected to roll out by October this year. The Bank of Thailand is also undergoing regulatory reform to review outdated rules and regulations, to facilitate ease of doing business and ensure that our regulations do not impede competition and innovation and contribute to high costs of financial services. We started with foreign exchange regulations last year and are now reviewing banking regulations to improve digital banking environment and SME financing. In addition, the current backdrop of high household debt in Thailand and the need to improve individual’s financial safety net necessitate an overall improvement in financial literacy as well as financial planning skill. We have also tightened our market conduct regulations to ensure that misselling is minimized and financial institutions provide fair and transparent products and services. Given the growing importance of digital technology for financial services, we must also make sure that those with lower skills can reap the benefits that technology brings, to avoid digital divide. Last but not least, creating a financial ecosystem that values sustainability is critical to ensure that the Thai financial system of the future can continue to develop in such a way that would benefit all segments of the society and create minimal negative externalities. Later this month, the Bank of Thailand will host the first Bangkok Sustainable Banking Forum. | Spotlight: Developing a Financial System for the Future Speech by Dr. Veerathai Santiprabhob Governor of the Bank of Thailand Bloomberg ASEAN Business Summit July 12, 2018, Siam Kempinski Hotel, Bangkok Thailand Distinguished guests, Ladies and gentlemen, A very good morning to you all. It is my pleasure to be here today and take part in this event. First of all, I would like to thank Bloomberg for organizing this exciting conference and for inviting me to share with you my thoughts on “Developing a Financial System for the Future.” It is a timely and important topic as I am sure that most of us have been pondering how, in this age of disruptions, the financial system will develop to support economic growth while at the same time preserve financial stability. Ladies and gentlemen, In this VUCA world of high volatility, uncertainty, complexity, and ambiguity, Thailand’s economy, like other emerging economies, is facing new challenges. Monetary policy normalization in advanced economies, record-high debt levels in many parts of the world, stretched global asset valuation, and risks of an all-out trade war are posing immediate challenges to the stability of our financial systems. At the same time, technology disruption, aging society, and growing income inequality are also presenting structural challenges to many emerging economies, including Thailand. | 1 |
In the case of the CBC, our Facilidad de Crédito Condicional al Incremento de las Colocaciones–FCIC1 and FCIC2 facilities–have committed about 15% of GDP support to bank lending. Banks have used these facilities and government guarantees to support massive rollover of debts falling due, a robust flow of lending for working capital with a focus of small and medium-sized enterprises that far exceeds historical figures. This is making the current recession the first one to be accompanied by an increase, not constraint, of corporate lending. • Yet what may be more meaningful to this workshop, we have engineered such a robust response to the crisis without compromising some key components of our policy framework. In particular, we have maintained full convertibility of our currency, we kept FX intervention to a minimum, and we have avoided constraining capital flows in any way. In the face of large portfolio rebalancing needs, CBC actions have pointed at providing liquidity, reduce frictions and contain uncertainty. And while we have kept ourselves very busy in dealing with these shocks and turns of the crisis, we have never compromised our commitment to our mandates of keeping inflation low and preserving financial stability. • I am sure that no currency has joined CLS in a more challenging environment than this, and that no Central Bank has provided a stronger proof of commitment to principles shared by CLS. • Finally, I believe that the recent events should feed into the way banks assess the value in participating in CLS. | Central Bank of Chile July 2020 “The Chilean Peso as an Eligible CLS Currency: Second Workshop CLS-CBC” Opening remarks by Mario Marcel, Governor of the Central Bank of Chile July 21st, 2020 – Santiago, Chile (via WebEx) I. Welcoming remarks Good morning everybody and welcome to the second joint workshop between CLS and the Central Bank of Chile (CBC) dedicated to the “Nostro” service, a fundamental business in the CLS payment system operation. This event is part of the process of incorporating a new currency into the CLS System. This belongs to the due diligence and analysis phase that CLS and the CBC are respectively finalizing. Then we should move to the implementation phase. This workshop complements the provision of information on CLS and the bilateral meetings that bankers have been holding with CLS and the CBC for some time, to assist banks in assessing the benefits, prospects and opportunities in participating in the system, either as a Settlement Member or Nostro. I am looking forward to the banking sector’s active participation in this workshop that features representatives of the Nostro banks and CLS experts. II. The Chilean Peso incorporation process • The process of incorporating the Chilean Peso in CLS, started last year when we sent the Letter of Intention to CLS to demonstrate our commitment to the process and initiate the engagement stage. | 1 |
In this regard, I would like to point out that market is more aware and conscious that digitalisation is the future, as a consequence of the technological revolution taking place in each field of life, in the perspective of their strategic development, in the context of minimizing the costs and risks borne by traditional practices, and at the same time for increasing the effective productivity. Without wishing to repeat the previous statements, I consider it worthily to point out that all market actors should be seen as our strategic partners, who in their own way have always 1/3 BIS central bankers' speeches contributed to the financial inclusion and promotion of electronic payment services. Until a few years ago, paying utility bills, fines, tax payments, customs and social security via the internet and mobile seemed a utopia. Nowadays, the general public is increasingly employing and benefiting from these services. Allow me to provide some significant figures which best converge to the materialisation of this development. In 2012, about 96% of transfers were initiated in paper form at banks’ windows, while today about 50% of transfers are processed remotely. If we include in the calculations the card payments, it turns out that 79% of payments and transfers are made remotely and only 21% in bank branches. From this point of view, I deem that banks remain committed to accommodate the needs of the e-Albania platform, both in the existing conditions and after the creation of “open banking". | Gent Sejko: Digitalisation vs cash Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Albanian Association of Banks (AAB) Forum on “Digitalisation vs cash”, Pristina, 14 June 2022. * * * Honourable Deputy Prime Minister Ahmetaj, Honourable Minister of Finance and Economy Ibrahimaj, Dear Chairman of the Albanian Association of Banks, Dear guests, It is a pleasure to attend this Forum, which comes naturally as a further step and logical consequence of the joint discussions and round tables on digitalisation of financial services. I would like to highlight that the support and promotion of electronic payments, both in international experiences and the Albanian context, are seen as one of the most effective and powerful mechanisms for bolstering financial inclusion and further formalizing the economy. In this context, despite the discussions and needs for interaction and developments from the actors, it appears like the objectives and targets are increasingly converging, and in turn the created synergy, absolutely, will drive to an acceleration towards the meeting of the stated objectives. In this framework, there should be underscored that the Bank of Albania has already established the effective premises for the foundation of a digital revolution in the payment market, through the legal and regulatory framework in force. This framework may be considered avant-garde in the context of the European Union. Meanwhile, at regional level, Albania is the first country that has approved the legal and regulatory framework coupled with the promotion of “open banking” in the market. | 1 |
Yet, I would like to remind you that working day losses caused by the holiday in September will make it difficult to track the underlying trend in production as in July. Despite weaker domestic demand, growing EU demand continued to bolster Turkey’s exports in the third quarter. Turkey’s market shifting flexibility continues to cushion exports against the negative effects of geopolitical tensions on external demand. We expect domestic demand and economic activity to recover starting from the last quarter of 2016. Thanks to more accommodative monetary conditions and other measures, the recovery in consumer loans in recent months support our projections of improvement in the last quarter. Against this background, we envisage that the economic growth will be mild in 2016, which is marked by consecutive adverse shocks. In view of waning uncertainties in the upcoming period, we assess that producer and consumer confidence will be re-built, demand-stimulating policies will support consumption expenditures and negative contribution of net exports will fall, which will all contribute to economic recovery. In addition to the partial improvement both in tourism revenues and exports to Russia in the normalization process, we envisage that the recently released incentive packages will contribute to growth next year. On the other hand, uncertainties regarding the pace of global growth and monetary policies of advanced economies as well as the course of capital flows and geopolitical developments pose a downside risk to growth. | This is because the current labour market set-up discourages people from spending longer in education since it fails to differentiate BIS Review 151/2009 5 appropriately between skill levels, leaving the young facing temporary contracts or unemployment, with the adverse effects I have already mentioned. It is also essential to move to boost the knowledge economy so that it may contribute to strengthening technological capital and to bridging the gap afflicting the Spanish economy in this field. This should be done in parallel with pertinent measures to further the liberalisation of goods and services markets, the current regulation of which involves in some cases a diminished level of competition. One key area for progress along these lines is liberalisation in the services sector, as it encompasses some of the most dynamic activities and some of those with most job-creating capacity. Likewise needed is further headway in liberalisation and competition in the network industries, so that the conditions in which inputs are supplied to other productive activities allow Spanish companies to compete on an equal footing with our trading partners. And let us not forget the housing market. Further improvements to rental regulations are needed to make this option more flexible and profitable, so that the purchase of housing for investment purposes is encouraged, thus helping reduce the supply overhang, and broadening the possibilities of meeting the population's demand for residential services. Finally, I must reiterate that the soundness of the financial system is essential for ensuring the financing flows needed to restore economic dynamism. | 0 |
This is also a perspective that needs to be included in the discussion of distributional effects and monetary policy. Finally, my view is that overall resource utilisation in the Swedish economy has now passed normal levels and can be expected to rise even higher in the coming years. At the same time, we see ahead of us that inflation will rise towards the target. It is therefore probable that the Riksbank sooner or later will first ease up on the accelerator and then begin using the brake. In my opinion, it is wise to start thinking now about how such a scenario will play out. Monetary policy will then be unable to stimulate activity and the labour market in the same way as in recent years and this will of course also have distributional effects. It is important that focus is then aimed at other policy areas, where the responsibility for distributional issues is more natural. 12 [14] References Amaral, Pedro (2017), Monetary Policy and Inequality. Economic Commentary, 2017-01, Federal Reserve Bank of Cleveland. Bank of England (2012), The distributional effects of asset purchases. Quarterly Bulletin 2012Q3. Bengtsson, Niklas, Edin, Per-Anders and Holmlund, Bertil (2014), Löner, sysselsättning och inkomster – ökar klyftorna i Sverige? (Wages, employment and income – are the gaps increasing in Sweden?) Report to the Swedish Fiscal Policy Council 2014/1. Dir.2016:114, Review of the monetary policy framework and the Sveriges Riksbank Act, committee terms of reference. Ministry of Finance. Domanski, Dietrich, Scatigna, Michela and Zabai, Anna (2016), Wealth inequality and monetary policy. | Now let’s turn to what monetary policy should/can do I would like to mention four challenges: First challenge: if the factors at play are global, what can domestic policies do? CBs have domestic mandates whereas the prevalence of lowflation and low rates suggests that some common or external factors may be at play. This is especially problematic for smaller open economies. And the existence of a “global financial cycle” à la Rey highlights the limits of flexible exchange rates in insulating those economies. Ultra-accommodative policies in AEs have definitely had spillover effects on EMEs, including the often-forgotten –albeit welcome- reduction of spreads in the latter, as shown by IMF research. Nevertheless, the formulation and stance of policies in one country can take account of feedback effects from others. And it goes without saying that the world at large would have been even worse off if AEs had fallen into deflation. Aside from building and using forex reserves, domestic policies should therefore contribute towards making the domestic real economy and its financial system more resilient to external shocks. In this regard, prudential policy aimed at building buffers or protecting financial institutions may complement monetary policy, provided these measures do not conceal a form of protectionism or an attempt at deglobalization. Second challenge: what should the inflation target and its horizon be? | 0 |
Thus, the gap between producer and consumer inflation has recently increased well above the long-term average in many advanced and emerging economies. For instance, PPI is four times the rate of CPI in the euro area. In the price developments during the pandemic, we have seen that a limited group may have a significant contribution to inflation. For example, the durable goods group, which had decelerated on average in the US for the last 25 years, has been one of the items that had the largest contribution to the recent rise in inflation, due also to supply constraints. In the reopening and economic normalization period, energy and services prices registered significant increases across the world. Global central banks think that energy and pandemic-driven high rates of price increases in some sectors will prove to be temporary with the normalization in demand composition, easing of supply constraints, and waning base effects. These factors will also have a downward effect on Turkey’s inflation in the upcoming period. Having touched on the current state of global inflation and how it has been affected by pandemic-driven conditions, I would now like to share with you our evaluations of inflation developments in Turkey. In August, annual inflation rose by 0.30 points to 19.25%. | This trend appears to be in stark contrast to the 2008 crisis. As the services sector is a labor-intensive sector, the cost that the pandemic imposed on employment has been much higher than that of the financial crisis of 2008. In this process, central banks all over the world took extraordinary expansionary policy measures such as interest rate cuts, asset purchases, liquidity steps and credit support programs. The experience of policy makers in unconventional monetary policy after the 2008 crisis and the expansion of the toolkit has made a positive contribution to the policy response to the pandemic. Central banks of advanced and emerging economies used the existing policy space without hesitation and promptly, and cut policy rates as a first response to the crisis. Central banks also reintroduced bond purchases that they had included in the post-crisis toolkit. It is noteworthy that emerging market central banks also resorted to bond purchases, unlike in the 2008 crisis. Central banks have provided more funding through repo transactions and extended the maturity of funding to prevent liquidity squeeze in the money market and to facilitate access to liquidity. In this period, when economies came to a standstill, this intervention by central banks was appropriate and vital for the functioning of the financial system. Globally, policy rates have been rapidly lowered and the average interest rate in both advanced and emerging economies has fallen below the levels in the 2008 crisis. | 1 |
Conclusion Now when we are assembled here for an important conference, with interesting contributions from a number of the world’s leading experts in the field, we would do well to be temperate in our appraisal of what we believe we know today. To this end I shall quote Lawrence Summers. In connection with the Federal Reserve Bank of Kansas City’s symposium on “Achieving Price Stability”, Summers considered the major changes that have occurred in macroeconomic thinking in the past two decades and then rounded off by saying: “It would be a misreading of history to think that we have now identified final truth or that some of the views expressed here will not look archaic twenty years from now.” That is a stimulating and challenging statement. Think how dull life would seem if we ever arrived at the final truth. As luck would have it, the increasingly complex reality in which we live is an endless source of challenges for researchers as well as central bank colleagues throughout the world. References Alchian, A. & Klein, B., (1973), “On A Correct Measure of Inflation”. Journal of Money, Credit and Banking, vol. 5, no. 1, February, pp. 173–191. Goodhart, C.A.E., (1995), “Price Stability and Financial Fragility”. In The Central Bank and the Financial System, pp. 263–302, Macmillan, London Summers, L., (1996), “Commentary: Why are Central Banks Pursuing Long-Run Price Stability?”. In Achieving Price Stability. A Symposium Sponsored by Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 29–31, pp. 35–43. BIS Review 58/1998 | Ajith Nivard Cabraal: Overview of financial and economic developments in Sri Lanka Keynote address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the Opening of the Financial Services Academy at the Centre for Banking Studies, Rajagiriya, 5 March 2007. * * * Ladies and Gentlemen: Today we all have gathered here to witness an important step towards the development of the financial landscape and knowledge pool of the country, the establishment of the Financial Services Academy, a landmark organization that we hope, would shape the future of our financial services industry. As we know, the Sri Lankan economy recorded a growth of 7.8 per cent in the first three quarters of 2006 and according to current available data, it is very likely that the economic growth in 2006 would be well over 7 per cent. This will be the highest since 1978. Towards such growth, the contribution of the services sector was easily the highest and of such high growth sector, the growth in financial services was highly significant. It is therefore widely acknowledged that the contribution of the financial sector for the achievement of growth of the country is enormous, and whatever we do in that connection, would be of overall immense value. The developments in the financial sector also helps the economic growth through several other channels as well: It improves the efficiency of business processes, attracts investment, reduces unemployment and enhances access to finance, to name a few. | 0 |
But we have so much to learn from experts in other fields. Strengths as Blind Spots One of the most important lessons I’ve learned as a CEO is that there’s no fixed endpoint when it comes to shaping an organization’s culture. You can never take a step back and say, “We’ve finished the culture project. Well done! Now it’s time to focus our efforts elsewhere.” Culture is constantly evolving, and therefore needs to be constantly nurtured. One of the most challenging elements is that there’s no clear benchmark for success. And sometimes your greatest strengths can become your blind spots. As an organization with a public mission and regulatory responsibilities, the Fed needs to have a particular focus on compliance. But cultures with a heavy focus on compliance can breed a sense that individuals aren’t responsible for their actions. As a CEO, I’ve tackled these issues by focusing on principles and values rather than writing extensive policies that try to cover every potential decision. This puts a premium on individual accountability to do what’s right and creating an environment where everyone has the ability and responsibility to speak up. Somewhat paradoxically, focusing on principled decision making and accountability, rather than relying exclusively on rules and policies, can be the most effective safeguard against wrongdoing and unethical behavior. What’s the Way Forward? Creating a positive work culture is challenging and ongoing work. And there’s no silver bullet that can solve cultural problems overnight. | This defence must be accompanied, on the one hand, by a reform of the rules of world trade so as to include more effective mechanisms to guarantee a more balanced playing field; and, on the other, by domestic policies (flexibility of the labour market, a sound social security network, and the creation of educational and training opportunities) that adequately address the distributive problems that may stem from trade exchanges. It is also worth mentioning the promotion of trade openness in new sectors, mainly services, where the potential profit margin is significantly higher. Without further ado, let me introduce the panelists. We are honoured to have with us today three very experienced representatives of the central bank community of the Mediterranean region. 4/5 Mr. Abdellatif Jouahri, Governor of the Bank Al Maghrib. Mr. Sadiq al-Kabir, Governor of the Central Bank of Libya. Mr. Marc-Olivier Strauss-Kahn, Managing Director and Special Adviser of the Governor. They are very well suited to address the topics of this panel as they have a far-reaching knowledge of the economies of the region and long-dated experience as policymakers. Governor Jouahri, the floor is yours. 5/5 | 0 |
Obviously, it is part of our mission here at the National Bank of Romania to monitor, understand and assess these and related phenomena which may affect - both positively and negatively - the Romanian monetary system and banking system and more generally our economy. That being said, the reason we have invited her here today is related to this specific aspect of her more recent work. So far we have seen blockchain and cryptocurrencies mostly discussed and assessed from the perspective of information technology and economic theory. We are interested at the same time to see how the cryptocurrency problem is also perceived from the perspective of an analysis largely rooted in the experience of intelligence studies and practice, and of an expert in strategic decision making in conditions of risk and uncertainty. We are also interested to see how such an expert is framing the problem of cryptocurrency as a massive economic challenge to the national economies, a problem requiring a strategic assessment of the alternatives; to see how an expert in structured analysis may present the issue in a systematic, methodical way. Last but not least, we are interested in the evaluations which are emerging out of this exercise, including the opportunities as well as the warnings. Hence the title of the presentation: "Bitcoin Versus Central Bank Digital Currency (CBDC): The Most Important Economic Decision Nations Have Ever Faced. Analytical Frameworks for Comparative Assessment and Strategic Decisions." In terms of how we are going to proceed, the event will have two parts. | We will start with the presentation of Professor Khalsa for about 40 minutes or so, which will be followed by a questions and answers segment. I would like to invite Professor Khalsa to take the floor. Thank you! 2/2 BIS - Central bankers' speeches | 1 |
An improved wage-setting process, in conjunction with an active fiscal policy, contributed to curbing the real economic costs. Hence, the experience of 1986 and the beginning of the 5 BIS Review 14/2000 1990s probably provides a realistic picture of the minimal costs associated with stamping out high inflation. At the same time, an active fiscal policy enhanced the credibility of monetary policy because it led to lower unemployment than would have been the case otherwise. In Norway, high inflation is a war phenomenon and phenomenon of the 1970s and 1980s. In the aftermath of high inflation, we experienced substantial real economic losses and financial instability. The cost of inflation has been high. History shows that lower unemployment cannot be achieved in exchange for higher inflation in the long run. A monetary policy that fuels inflation does not generate economic growth. On the contrary, the result is booms and speculative bubbles, which are the precursors of recession and unemployment. In the absence of nominal stability, employment and production will not show stability either. The economy must be endowed with a nominal anchor. This is the task of monetary policy. The Norwegian economy was lacking a nominal anchor during the period of low interest rates and devaluations in the 1970s and 1980s. This led to rising inflation and instability. From 1986 the fixed exchange rate regime restored confidence in monetary policy and subsequently laid a foundation for more stable economic developments. | Accordingly, since October last year we have lowered the monetary policy rate (MPR) by 150 basis points, keeping an expansionary bias for monetary policy. This, together with the performance of the internal and external macroeconomic scenarios, has heavily affected the structure of market interest rates. In particular, long-term rates are in or close to their all-time lows (figure 2). I must stress this because long-term interest rates are the ones that most influence investment. What is remarkable is that today they are even below the rates prevailing in 2008–2009, that is, even lower than they were at the height of the global financial crisis, when the MPR was down to 0.5 percent and unconventional monetary stimulus had to be added to the economy. Mortgage lending interest rates are also below where they were at the time and very close to their historic lows. At the same time, the lower cost of bank funding has been transmitted to the lending rates faced by firms and households. These rates have fallen by as much as 140 basis points since October last year. However, adjusted for inflation, lending has decelerated, particularly in commercial and consumer loans, influenced by the more cautious behavior of both suppliers and demanders of credit, as is apparent in our June Bank Lending Survey (BLS) and our August’s Business Perceptions Report (IPN). | 0 |
This, in turn, has raised the level of employment compatible with price stability, or, put differently, lowered the inflation rate for any given level of employment. The effects of globalisation may also be felt more indirectly through increased competition, both on the products and labour markets. On the products market, globalisation has eliminated the least productive domestic firms (those that set the highest prices) and reduced the pricing power of remaining domestic firms. It may also have created the conditions for wage moderation by increasing the degree of competition on the labour market. Overall, these developments have made it easier for Central Banks to bring down inflation without real costs to the economy. But it is doubtful that we can count indefinitely on such "tailwinds". Inflation only partly depends upon imported prices. Many goods and most services are still produced domestically with little competition from abroad. Domestic factors thus remain crucial determinants of inflation rates. Globalisation lowers the relative price of tradables to non-tradables in an open economy. But the overall level and dynamics of prices ultimately remain determined by the monetary authorities provided they ensure that steady growth in overall nominal demand is maintained through an appropriate monetary policy. 1 In addition, it is possible that the effects of globalisation on inflation will be reversed in the future. Strong growth in big emerging economies is increasingly putting pressures on the price of oil, food and other commodities. | In an open economy, domestic demand changes can easily be satisfied through increased imports. As a consequence, domestic inflation may become less sensitive to the domestic output gap and more sensitive to global tensions on production capacities. 2 2 Notably put forward by Laurence Ball. BIS Review 103/2007 Finally, it is possible that (due to immigration and structural reforms) labour supply has become more elastic in many countries, and, as a consequence the cyclicality of wages (and prices) has been reduced. 3 Flatter Phillips curves may be a mixed blessing for Central Banks. In such circumstances, looking at actual and projected inflation may not be sufficient to detect incipient imbalances between supply and demand. In other words, inflation becomes less informative about the output gap. There is a risk, then, that imbalances are allowed to build up to a point where a stronger reaction may become necessary. To prevent that risk, Central Banks may want to look at information coming from a broader set of indicators, chosen because of their ability to detect, at an earlier stage, potential inflationary pressures. Obviously, monetary and credit aggregates for instance are good candidates for such a job. What role for money in monetary policy? As you may know, this is precisely what is done in the context of the Eurosystem’s two-pillar monetary policy strategy which assigns an important role to money. This structure is based on a particular premise and has one important implication. | 1 |
And if London was important to the world, the world was also crucial to London; more than half the value of securities quoted on the London Stock Exchange was accounted for by loans for foreign companies and governments. 7 As an editor of the Economist during the period put it: “It [the City] is the greatest shop, the greatest store, the freest market for commoditites, gold and securities, the greatest disposer of capital, the greatest dispenser of credit, but above and beyond, as well as by reason of all these marks of financial and commercial supremacy, it is the world’s clearing house.” 8 The benign international environment disappeared with the outbreak of the Great War, and the UK’s political and economic standing in the world fell away steadily through the following 60 years. By 1950, average incomes in the UK were below those in the United States, and they fell below Germany and France by 1970. The economic dominance of the United States ensured New York’s place as the leading financial centre and the American commercial banks became the world’s largest. In the 70s and 80s the growth of Japan propelled Tokyo up the rankings. And in Britain, the share of foreign securities issuance fell to only 6% in 1961, as against more than half before 1914. So by the 1970s London was benefiting from few of the factors which had produced its golden period before the first War. | Many have been established and are staffed by people who acquired their skills and earned their capital at the more established investment banks and fund management firms of the City. Being at the heart of world markets helped them spot the opportunities and assess the competition. Once they struck out on their own, they could draw on a network of former colleagues and contacts for staff, information and expertise. Future prospects of the City of London So what are the prospects of the City of London? One of the clear lessons from history is that any position can be lost. It is always possible to throw away an advantage by ill judged decisions. Any widespread operational disruption or fear about security could also be very damaging, which is one reason why we and the other tripartite authorities are spending so much time on improving crisis response and management. But in the absence of disaster the structural factors I have discussed seem likely to favour further concentration of financial business in the City. First, the entry of China and India international market has been associated with a massive expansion of international trade and finance in relation to overall world GDP. That seems likely to continue and has been a major factor in the growth of London in the past. Fifteen years ago people worried that developments in information technology would undermine centres like the City of London. | 1 |
Before I comment on the significance of board charters in augmenting good corporate governance in the financial sector, I think it is appropriate that I acknowledge the commendable work that has gone into implementing the FSDP through collaborative effort involving government and other institutions. The Government, working with the three financial sector regulatory bodies, namely, the Bank of Zambia, the Pensions & Insurance Authority and the Securities & Exchange Commission has continued to take the lead in implementing various reforms. This effort has been supported by private sector experts and representatives responsible for the technical aspects of implementing the FSDP recommendations. | If in adopting model charters, some of you find certain provisions too onerous, it may be necessary to consider a phased approach to their adoption. In this way, the process of adopting model charters will not place on an 2 BIS central bankers’ speeches organisation undue difficulties. The model charters, it is hoped will act as guide for institutions to adopt elements that are applicable to their sub sector and industry and act as a benchmark, for you, and for assessing board and management and for assisting the oversight function by regulatory supervisors., such as ourselves. I expect that individual institutions requiring further advice will continue to engage us, as well as the consultants, to ensure that they extract maximum benefit from the work that has gone into this phase of the FSDP. I thank you all and wish you fruitful deliberations. BIS central bankers’ speeches 3 | 1 |
First, globally it is not normal for prudential regulators to have an actual competitiveness objective – to my knowledge there is only one example amongst 3/5 BIS central bankers' speeches the main prudential regulators. I worry therefore that having such an objective might be seen by others as an intention to weaken regulation in the UK, and thus undercut our authority in international bodies. I also think it’s a bit of a red herring. A robust prudential regime focussed on objectives of safety and soundness and policyholder protection is part of the national infrastructure that underpins the attractiveness of UK firms as counterparties. Second, it is wise not to give regulators too many objectives and have regards. Loading something up with ever more objects is an excellent way to decorate your Christmas tree but it’s not the best way to create an effective regulator. Solvency II Review So much for theory. What about practice? In particular the main event of this year: you may think it is defeating Covid, but of course it is in fact the review of Solvency II. I don’t want to bore this audience (any more than I have already) with a discussion of detailed measures. But I have a few brief points to make about the review itself. Perhaps most importantly, the review will stay true to the basic principles of Solvency II. | Andrew Bailey: Modern challenges for the modern central bank perspectives from the Bank of England Speech by Mr Andrew Bailey, Governor of the Bank of England, at the LSE German Symposium, virtual event, 5 February 2020. * * * It is a great pleasure to participate in the LSE German Symposium, and congratulations to the organisers for such an interesting programme. I want to take the opportunity today to step back a little and offer some thoughts on the context and framework of monetary policy. It is fast approaching twenty five years since the UK decisively changed its monetary policy framework and embraced the idea of an independent central bank with a mandate to maintain price stability in the form of an inflation target. Now, 25 years may not seem long in the broad sweep of history, but the history of UK monetary regimes points to a quarter of a century representing a relatively long-established one. Long may it last, because it has been successful, and it has delivered the much desired price stability. But the context in which policy is made does not stand still. The first decade of the MPC was with hindsight very benign – the impact of demand shocks to the economy was small, and supply shocks were typically in a favourable direction. The next decade and more has been quite different, with much larger shocks – a mix of both demand shocks and more adverse supply shocks. | 0 |
But EMU also means the harmonisation of goods and services markets as well as financial markets. In these areas, the integration process is well on track. EMU fosters economic and financial integration Financial Europe under construction: the reorganisation of capital markets In 1999, as soon as the euro was launched, one of the expected advantages was the prospect of deeper, larger and more integrated capital markets contributing to reducing the cost of capital for businesses and giving European savers a greater range of saving options. These expectations have become realities in both the money market and longer-term capital markets. On the euro money market, the unsecured deposit interbank market is highly integrated. EONIA and EURIBOR have provided the market with uniform benchmarks that are fully accepted by all market participants. This is reflected, for instance, in the huge development of the euro interest-rate swap market. These changes have prompted market participants to concentrate their euro cash management activity in order to take advantage of the higher liquidity levels on the secondary market. On the euro bond market, the integration process has registered three main developments: - a rapid internationalisation: The introduction of the euro has fostered euro-denominated private bond market, by enlarging the potential pool of investors, notably international investors. During the period 1990-98, the legacy currencies accounted for 10% of all corporate bonds issued by euro area borrowers and only 2% of those issued by companies outside the area; these ratios have risen to 75% and 20% since 1999 [Galati and Tsatsaronis, 2001]. | Let us try to remain serious, lucid, serene and balanced in our analysis, in our judgements, in our decisions. Let us all beware of the herd instinct which is always a very bad counsellor. Let us beware of fashion. As regards the present situation, we must remain prudent and cautious, but we have some signs indicating a bottoming out in the US and in Europe, including in my own country. And I see absolutely no reason why the European economy pick up would not be as early as in the US, taking account of the strong European fundamentals. § Third, confidence is of the essence in the present situation. Confidence in our currency, confidence in its capacity to be a good store of value, confidence in its medium and long-term solidity, confidence in the capacity of the European Central Bank and the Eurosystem as a whole to deliver price stability. This confidence – which is warranted by the central bank – is a very precious asset for the Europeans. It is a very important ingredient for fostering growth through consumer confidence and therefore consumer demand which is presently the main driving force behind the European economy. I thank you for your attention. 9 | 1 |
As of 2016, in all resolution cases, the BRRD will require a bail-in of shareholders and creditors equal to at least 8% of total liabilities of a given bank, including own funds. Only after the 8% threshold of bail-in is attained can money from the resolution fund be used and for a maximum amount of 5% of total liabilities (including own funds) of the concerned bank. Public money for recapitalisation, either national or European, can thus only be considered at the very end of the process after the other two sources of remedial action have been used. Furthermore, the “government financial stabilisation tools” that the Directive introduces is an instrument of last resort after having assessed and exploited the other resolution tools to the maximum extent possible. 4 BIS central bankers’ speeches The amount of 8% is very substantial compared to the losses banks faced in the recent crisis. To give you an idea, between 2008 and 2010 only one bank had losses exceeding the 8% threshold, and the average for all other banks was slightly less than 3%. Thus, under the BRRD, the injection of public money into banks, either from national governments or from direct European recapitalisation, will happen only in quite rare occasions. Bail-in of shareholders and creditors plus the use of the Resolution Fund should in most conceivable cases be enough to cover the losses incurred by a failing bank. | The plenary session will encompass all members of the SRB, which – on top of the ones just mentioned – will include 6 BIS central bankers’ speeches one member appointed by each participating Member State, representing the national resolution authorities.9 The fact that the ECB will be an observer in the Board, with no voting rights, is supported by the ECB. This accurately reflects the need to have the supervisor involved in resolution matters, while maintaining the necessary separation of institutional responsibilities between the supervisory and resolution function in the Banking Union. The decision-making within the Board is designed to enable taking resolution action in the interest of stability within the euro area and of the Union as a whole. In particular, decisions in the executive session should be made by consensus. If the executive session is not able to reach a joint agreement by consensus, the Chair and the permanent members will take a decision by a simple majority. By reaching a decision either by consensus or by a majority, efficient a European decision-making should be ensured.10 Decision-making in resolution It is important that the decision-making process in the SRM allow for timely and efficient decision-making, if necessary, within a very short time such as a weekend. It is therefore welcomed that the decision-making process in the SRM is capable of this, in spite of the fact that it may involve both the Commission and the European Council. Let me describe this process as simply as I can. | 1 |
Denis Beau: What role should banks play in the twin digital and climate revolution? Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the conference at the Jean Monnet University, Saint-Etienne, 15 April 2022. * * * Accompanying slides can be found on the Bank of France website. [SLIDE 1] Students, faculty, ladies and gentlemen, We now have sufficient distance to say that, if the health crisis unleashed by Covid-19 was not compounded by a financial crisis, this was in part because our prudential framework has made banks considerably more resilient. The new framework, coupled with the exceptional support measures introduced by governments and the European Central Bank (ECB), enabled banks to continue financing businesses during the health crisis. Today, it is enabling them to cope with the economic and financial impacts linked to the war in Ukraine. That being said, for this new architecture to be consolidated, the Basel III Accord still needs to be fully implemented in a manner that is fair, reasonable and definitive. Yet this strengthened abilities to withstand shocks cyclical crises must not blind us to more structural vulnerabilities, which the health crisis has helped to amplify, I am thinking in particular of digitalisation and the transition to a sustainable economy. | An inflation target for monetary policy was introduced, with an operational target for annual consumer price inflation of close to 2.5 per cent over time. The fiscal policy rule was also introduced. According to this rule, the cyclically adjusted non-oil government budget deficit shall correspond to the long-term real return on the Government Pension Fund – Global. The division of responsibility in economic policy has since been the following: • Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. • The central government budget – growth in public spending – affects the real krone exchange rate and the size of the internationally exposed business sector in the long term. At the same time, developments in government expenditure and revenues must ensure a reasonable distribution across generations. • Wage formation, the structure of the economy and incentives determine how well and how efficiently we utilise labour and other real economic resources. It is the government that defines the inflation target. Norges Bank sets the interest rate with the aim of reaching the inflation target. The Bank must account for its decisions. It does so through an annual report on the conduct of monetary policy. The report is submitted to the Ministry of Finance to be presented to the King and communicated to the Storting. The government’s assessment is presented in the annual credit reports. | 0 |
If one can identify the excesses, why couldn’t the market correct them itself? This could be a question of what economists call market failure. Market participants act in a way that is rational from the point of view of each individual participant, but taken together the outcome is bad for all. As long as investors continue to earn money, the demand for credit can continue to grow, even if the signs of a bubble are strong. On such occasions, intervention by public authorities may lead to a better outcome not just for the economy as a whole, but also for the individual market participants. If one looks at Swedish monetary policy over the past decade, one can actually claim that it has been characterised by some “leaning against the wind”. The published minutes of the monetary policy meetings in Sweden in 2003 and 2004 indicate that rising house prices, high growth in credit and an increased burden of debt among households were put forward by several Executive Board members as arguments in favour of conducting a less expansionary monetary policy. The message is even clearer during the period March 2005 until the end of September 2007, when the Riksbank gave consideration to house prices and growth in lending in its monetary policy decisions. However, the decisions to take into account house prices and credit growth were not made on the basis of the Riksbank including asset prices as a further target variable for monetary policy. | It might perhaps have been possible to avoid the house price bubble if tighter monetary policy had been conducted at the beginning of the 2000s, but the price in terms of deflation and low growth could have been unreasonably high. Given the situation at the time the decision was made, the chosen policy appears well-motivated. Should central banks try to prevent financial bubbles from arising? Despite the fact that central banks perhaps cannot be blamed for the crisis arising, I think there is reason – given what has happened recently and the research carried out in recent years – to further consider what role they can and should play with regard to these issues. One often tries to distinguish between pure monetary policy, which is conducted with the policy rate as the primary instrument, and measures that are first and foremost aimed at promoting financial stability. However, this crisis has shown that it can sometimes be difficult to make this distinction. Without the measures to reduce the turbulence on the financial markets, the low interest rate policy conducted to counteract the recession would hardly have had any great impact. At the same time, it may be important to make this distinction as monetary policy is something for which the central bank has sole responsibility, while promoting financial stability is a task shared with other public authorities. There is currently important work being done on designing better methods for promoting financial stability, both nationally and internationally. | 1 |
The world economic slowdown, with the attendant rise in credit risks, the deepening problems in Argentina spreading to its banking system, and the events of 11 September, creating temporary liquidity strains in New York and elsewhere, have all posed serious risks to the stability of the international financial system. So far, the response has been encouraging. The capital position of many of the larger financial players is stronger than in previous cycles. There seems to be a more sophisticated approach to differentiating between sovereign risks in the emerging markets. And the hugely impressive efforts of staff, together with the largely successful operation of contingency plans, and the flexibility of the US monetary authorities, saw us through the worst of the aftermath to last autumn's attacks without a serious crisis emerging. The latest topic of discussion in financial circles is, of course, the implications of the collapse of Enron. The case raises a host of issues for firms and policy makers. Some of these relate to accounting standards; some relate to the way in which the auditing profession organises itself; and some relate to corporate governance issues more generally. There are also some issues about the scope and operation of the financial regulation net. There have also been questions raised about the implications of the collapse for health of the financial system as a whole, which is very much of interest to the Bank, given our responsibility for systemic risk. From the current perspective, these implications appear limited, however. | Agents attend the monthly briefing in Threadneedle Street ahead of each policy meeting, so information from their contacts is fed directly into the heart of the policy process. I know I speak for all of my colleagues on the MPC when I say that we really do find this a crucial barometer of current events, so I hope you will feel that a short while with our Agents once or twice a year is time well spent! Financial stability and Enron I now turn to my final subject tonight - that of the Bank's role in ensuring financial stability. Responsibility for the day-to-day supervision of banks passed from the Bank of England to the Financial Services Authority in 1997. But as the central bank we still have a key role in overseeing the stability of the system as a whole. In this guise we meet on a monthly basis with HM Treasury and the FSA in the so-called tripartite Standing Committee, to review the risks facing the UK financial system and take stock of any actions which may be required to address them. Keeping close to the FSA is particularly important. To this end, I sit on the FSA Board, and Howard Davies is a member of the Bank's Court. Of course, as I have no need to remind you here, with the border of the euro area just a few miles down the road, we cannot look at the UK system in isolation from the wider international financial markets. | 1 |
Prasarn Trairatvorakul: Towards a multi-polar currency and reserve system Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the High-Level Conference on the International Monetary System, Zurich, 10 May 2011. * * * Governor Hildebrand, Managing Director Strauss-Kahn, Distinguished Speakers, Ladies and Gentlemen, 1. I would like to thank the co-hosts, the Swiss National Bank and the International Monetary Fund, for inviting me to speak at this high-level conference. So far in this session, we have listened to a number of insightful presentations by well-known speakers. To avoid repeating what has been said, I will try to frame my talk from the perspective of a small emerging market economy. My focus will be on the three problematic issues facing emerging market economies and the current international monetary system, and how we may think of what needs to be done to put our international monetary system on a more sustainable path. 2. Let me start with the first issue. As of now, excess global liquidity generated under the current international monetary system is complicating the conduct of macroeconomic policy in many emerging market economies. Although the expansion of the global economy has strengthened in the past few quarters, economic cycles and thus monetary policy stance among various regions greatly differ. This has been widely regarded as a key push factor for international capital flows into emerging markets. | Zeti Akhtar Aziz: Islamic finance Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the official launch of Affin Islamic Bank Berhad, Kuala Lumpur, 6 June 2006. * * * Islamic finance has become one of the most dynamic growth areas in international finance. While Islamic finance has become an increasingly important form of financial intermediation in several countries, more recently, we have seen the international dimension gain significance. The Malaysian Islamic financial system is now well positioned to become internationally integrated with the international Islamic financial system. The progress and development of the Islamic financial services sector in Malaysia is evidenced by: • the rapid expansion in new and innovative Islamic financial products and services; • the enhanced competitive environment in which Islamic finance has developed; • the progressive development of the prudential, regulatory and supervisory framework for Islamic financial institutions; • the active issuance of both corporate and sovereign Islamic financial instruments; • the progressive liberalisation for foreign participation; and • the strengthened financial and non-financial institutional infrastructure, including the development of the domestic money and capital markets, and the establishment of institutions to promote human resource development in Islamic finance to ensure the pool of talent that is necessary to sustain the long term growth of the industry. | 0 |
This might imply that the case for an equally rapid reversal of the policy easing as disinflationary risks abate is understated. However, expectations of such a rapid reversal may themselves undermine some of the stimulative effect of the easing: expectations of a steady-handed approach to policy decisions may help stabilise the economy close to the lower bound (or even avoid its incidence altogether, as in Pill (2010)). 26 Within the framework discussed in earlier sections of this speech, it may be seen as consistent with the MINIMAX characterisation of robust monetary policy that I outlined. 27 See King (1999), p. 7. 20 All speeches are available online at www.bankofengland.co.uk/news/speeches 20 | It would naturally require commitment of substantial capital and human resources from both the banks and the regulators. We should all work together, therefore, to achieve these goals. This should not only be the objective of the Central Bank as we are all guardians of financial stability – I trust this conference will provide an adequate forum for open discussion. Thank you. 2/2 | 0 |
3 See, inter alia: C. Borio and H. Zhu (2008), “Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?” BIS working paper no. 268; G. Jiménez, S.R.G. Ongena, J-L. Peydro and J. Saurina Salas (2010), “Credit supply: Identifying balance sheet channels with loan applications and granted loans”, CEPR discussion paper no. 7655; Y. Altumbas, L. Gambacorta and D. Marques (2010), “Does monetary policy affect bank risk-taking?” ECB working paper no. 1166; and A. Maddaloni and J-L. Peydró (2009), “Bank risk-taking, securitisation, supervision and low interest rates: Evidence from lending standards”, ECB working paper, forthcoming. BIS Review 45/2010 1 Upside threats to price stability were certainly emerging prior to the crisis, on the back of surging commodity prices and strong global growth. Let’s not forget, for example, that US headline inflation increased from 2.3% on average in 2003 to 3.2% in 2006 and 3.8% in 2008 (See figure 1). Core inflation increased from 1.5% in 2003 to 2.5% in 2006 and 2.3% in 2008 (See figure 2). Euro area annual inflation reached 3.3% on average in 2008. 4 To contain these upside risks to price stability, a case can be made that interest rates should have been higher than was the case before the crisis. Figure 1 Overall inflation Figure 2 Overall inflation excluding food and energy Source: ECB, BLS and OECD. Note: Average annual inflation rates. 4 2 On the basis of the harmonised index of consumer prices (HICP). | ** | 0 |
This is done by growth strongly accelerating (see slide 1A). However, when the technological revolution has subsided, the boost in growth will also subside. However, it is not self-evident that there is some form of “natural” growth rate to return to. Over a long-term perspective the growth rate has both varied and accelerated. I therefore intend to take up the other possible angle of approach sometimes mentioned, that IT could raise growth permanently. This could only be achieved by the technological innovations also creating the right conditions for a more rapid development in technology in the future (see slide 1B). One example of this type of development is what is known as Moore’s Law. It is now 25 years ago that Gordon Moore, the founder of Intel, predicted that the capacity of a microprocessor would double every 18 months. So far he has been proved right and many believe that Moore’s forecast may hold true far into the 2010s. However, despite the fact that certain technological indicators, such as the number of patents granted, indicate an increasingly rapid development in the USA and Sweden, it is difficult to believe in a perpetual technological acceleration. From a central bank perspective, we can probably keep our distance to this debate by reminding everyone that our monetary policy goal horizon is one to two years. It suffices to imagine that the adaptation periods between the first and second dotted-line curve (in slide 1A) will take perhaps five to 10 years. | There is even an element of “new economy” in the deregulation of the telecommunications and electricity markets. Firstly, it would not have been so easy to implement the deregulation without the aid of the new technology. Secondly, the deregulation might not have had the same impact without, for instance, the information provided on the internet, which helped consumers in making a choice. 7 BIS Review 89/2000 All in all, I can allow myself to make a qualified guess on some areas, without knowing for certain: 1. Productivity, total factor productivity, has risen considerably in Sweden during the latter half of the 1990s. The emergence of information technology has probably been significant in this. 2. The effects will continue to be felt for a number of years, probably beyond the monetary policy horizon, for which reason the Riksbank will continue to monitor the IT phenomenon in future. 3. Deregulation and increased competition play a special role in Sweden, particularly as they have run parallel to IT developments. At the same time, there is reason to point out that the “new economy” does not constitute a guarantee for a stable and positive development in asset prices, either in the USA or Sweden. On the contrary, history shows that rapid technological changes often lead to speculative bubbles. | 1 |
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