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Ravi Menon: Asia's digital transformation Remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the GIC Institutional Investors Roundtable, Singapore, 31 October 2018. * * * Ladies and gentlemen, good morning. I thank GIC for the invitation and am pleased to meet all of you. Why FinTech? About three-and-a-half years ago, the Monetary Authority of Singapore (MAS) made a momentous decision - to promote an innovative and dynamic financial sector by working with the industry to harness the power of technology. We saw that technology was transforming the way people live their lives, the way companies deliver products and services, and the way cities work and connect. Meanwhile, the financial industry globally was facing the headwinds of slower economic growth, tighter regulation, and keen competition from non-financial technology players. Technology presented an opportunity to inject new dynamism and new growth in financial services. It was an opportunity to increase efficiency in an industry that had some of the most archaic practices around – just think of interbank payments and settlements. It was an opportunity to manage risks better: financial institutions were pouring ever more resources into compliance and risk management – and still getting into trouble. Most of all, it was an opportunity to improve people’s lives to bring financial services to the unbanked and uninsured in Asia; to help a growing middle class plan its finances more holistically and efficiently; to help enterprises raise money, make payments, and tap new markets. | Third, traditional financial institutions in Asia have embarked on a digitalisation journey, enabled by core technologies such as cloud computing. Almost every major financial institution has an active innovation agenda to strengthen its business by harnessing technology. In just the last three years, more than 30 global financial institutions have set up innovation labs in Singapore, testing new technologies and collaborating with FinTech start-ups to develop solutions. Let me give some examples of collaboration from the Singapore FinTech ecosystem: 2/4 BIS central bankers' speeches Hedge fund managers are using a solution deployed by SQREEM to provide them behavioural insights related to equities, foreign exchange markets or political events like Brexit. Relationship managers are using a solution by AIDA, to predict whether their clients are likely to increase their assets under management or make a withdrawal. FINQUEST is using big data analytics to connect small to mid-sized companies globally to growth capital and potential acquirers. APVERA is helping enterprises detect anomalies in the behaviour of their employees and flag data leakage risks. These three driving forces – FinTech start-ups, e-commerce platforms, and financial institutions harnessing technology in a big way – are creating the synergies that power Asia’s digital transformation. Initiatives to Foster the FinTech Ecosystem MAS has an active and wide-ranging FinTech agenda. In the interest of time, let me highlight three key initiatives we have taken in recent years to nurture the FinTech ecosystem in Singapore and integrate it across ASEAN. First, the ASEAN Financial Innovation Network, or AFIN for short. | 1 |
As a result of the work I have been talking about today, Norges Bank expects to build up further detailed information on companies’ climate risk and climate plans. We will share this information with the Council on Ethics. Divestment and exclusion are the final link in our chain of tools, but far from the most important. We plan to be a driver for change, pushing companies to make the transition to net zero emissions. Active ownership is our most important tool. Conclusion Before I finish, I should also mention that we invest in companies that can contribute to climate solutions, both through the environment-related mandates and in the rest of our equity management. We are also now building up a portfolio of high-quality wind and solar power assets. The environment-related mandates were originally introduced in December 2009 and have brought positive learning effects in several parts of our organisation. As we wrote in our letter to the Ministry of Finance, we intend to draw more on the expertise of the managers of the environment-related mandates in other areas of our management. To sum up: Our ambition is to be a leader in responsible investment. Together with other large investors, we will contribute to the development of standards and methods for reporting. We will increase both the breadth and the depth of our dialogue with companies on climate issues, and we will use the full toolbox we have as an investor. | The Bank is already doing a great deal to address climate risk, and we outline even more ambitious plans for the future. As a long-term and global investor with holdings in thousands of companies, we have a financial interest in companies adapting well to the risks and opportunities presented by climate change. Norges Bank intends to be a driver for change, pushing companies to make the transition to net zero emissions. The companies we invest in reflect the transition that the whole world needs to undergo. The fund as an investor Our characteristics as an investor The climate risk in the fund reflects who we are as an investor and our overall investment strategy. In a nutshell: the fund is large, broadly diversified, long-term and index-based. Chart: Large, broadly diversified, long-term and index-based 70 percent of the more than 12 trillion kroner in the fund is invested in equities, making us one of the world’s largest shareholders. We have holdings in 9,000 companies in 70 countries. And we are a long-term investor. Since only the real return can be spent by the government, the fund could, in principle, last forever. 1/6 BIS central bankers' speeches Put simply, the strategy for the fund is to strike the best balance between expected return and risk by spreading our investments far and wide and owning a little of everything in the market. There is a solid body of research to support such an approach. | 1 |
Thus, world growth is expected to average 3.5% in 2017–2018, with trading partners that will grow 3.3% in the same period, significantly matching the March forecasts. The copper price is also expected to remain at USD 2.55 per pound this year and USD 2.5 next year, and the oil price will average a little over USD 50 per barrel in the same time span (table 2). In the baseline scenario, monetary policy will remain expansionary through the entire projection horizon. Estimates use as a working assumption that the trajectory will be consistent with the various measures of expectations as of the closing of the Report (figure 10). As always, it must be stressed that this is a working assumption, not a commitment. Therefore, the conduct of monetary policy and possible adjustments to the MPR will be contingent on the effects of incoming information on the inflation outlook. Risk scenarios Abroad, the main sources of uncertainty remain linked to the factors identified in previous MP Reports. On the one hand, there is the conduct of fiscal and monetary policy in the United States and its impact on the global economy and on financial conditions. Also uncertainty about the political environment. In Europe, recent election results have been dissipating some of the political risks, in a context where growth has consolidated and data has been higher than expected, so a new boost from the region on the global economy cannot be ruled out. | The lack of supervision also applied to Long Term Capital Management, LTCM, some years earlier. One might wonder whether function rather than company type might not be a better base for supervision. There is otherwise a risk that functions essential to society and thus needing protection will be transferred to companies not subject to supervision. At the same time, the public sector is in practice forced to intervene if the failure comprises a threat to the system, regardless of whether it has been able to exercise supervision. To what extent Enron was involved with functions that can be assessed as worth protecting is a question for discussion, but it is an important question of principle. We cannot and should not regulate all companies involved with financial operations, e.g. in managing their own funds. Secondly, it appears obvious that accounting regulations, at least those in the US, have not developed at the same rate as the instruments and forms for capital acquisition on the financial markets. Is it really reasonable in the long term for an increasing number of companies' risks to be reported off balance sheets? In the case of Enron, it also appears that there were risks that did not need to be reported at all, according to the regulations in force, such as liquidity risks that were triggered by a down-rating. | 0 |
These guidelines will include prior approval by the ECB for transactions exceeding thresholds to be specified and will also apply to member states’ transactions with their foreign exchange working balances. The ESCB will have the technical capacity to conduct, if need be, foreign exchange intervention in order to counteract excessive or erratic exchange rate fluctuations of the euro against the major non-EU currencies (e.g., the US dollar). The need for intervention could also arise either in the context of G7 concerted operations or within the framework of the ERM II. To this end, the ESCB will use the pool of foreign assets transferred from the NCBs to the ECB. The framework that has been designed for domestic as well as foreign exchange operations allows the ESCB to build on the expertise that NCBs have acquired over the years and to make an extensive use of existing operational capacities in NCBs (dealing room, front office, back office). Common sense dictates making use of equipment, human resources and expertise currently available at NCBs. 2.4. A decentralised execution of operations A key feature of the single monetary policy is indeed that it will be decided in a centralised manner, by the Governing Council of the ECB, and executed in a decentralised manner, by the national central banks. | From the start, the program included five main parts: - Macroeconomic stabilisation policies: a restrictive fiscal and monetary policy to remove the monetary overhang and to reintroduce macroeconomic equilibrium. - Liberalisation of prices: after 40 years of central price fixing, the bulk of prices were freed. - Liberalisation of external trade - and introduction of partial convertibility (for resident firms’ current account transactions). That required initial devaluation toward an exchange rate seen as viable from the point of view of the balance of payments. - Massive and rapid privatisation, including the use of the voucher scheme. - Social safety net to protect people whose standard of living dropped below poverty line. These adverse impacts of economic transformation were to be contained within tolerable limits. The programme aimed at re-establishing the role of prices and markets for an efficient allocation of resources. For the start, rationalisation of price relations implied a rise of the price level, owing to a monetary overhang, and to low downward price elasticity. In a small open economy, it made no sense to free internal prices without opening the economy to external competition and to world price relations. And, there could be no meaningful liberalisation of imports and exports without current account convertibility, introduced at least for resident firms. The short Polish and Hungarian experience showed, however, that free trade and partial convertibility should not be attempted without a preceding macroeconomic stabilisation. | 0 |
Many players in the financial markets also appear to be governed by a “follow the leader” principle. There are probably some who avoid going their own way because of the risk of making bad investments and being depicted as losers. It then seems simpler to follow the others, as if things do go wrong, at least the player is not the only one in disgrace. The reward structure in the fund management field probably also reinforces this behaviour. As long as a person has not done a worse job than the average among the competitors, he can look forward to a bonus. It would probably be a better idea if the personal income were more closely connected to the absolute result achieved by the fund. However, the desire to follow others is probably also an expression of uncertainty. The players have too little information to really dare to act independently. It is doubtless the case that players in the financial markets, including the mutual fund investment companies, live in a complicated world. In this world it can be rational to do as the larger players do in the hope that they are better informed. However, this is not always the case, which means that the strategy of following the big players could contribute to worsening financial crises. When everyone rushes for the door at the same time, there is often a crush. And in a crush, it is easy to panic. | Benoît Coeuré: Adjustment and growth in the euro area economies Speech by Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank, at the Nova School of Business and Economics and the Bank of Portugal, Lisbon, 22 February 2013. * * * Introduction1 Dear Governor Costa, Ladies and Gentlemen, It is a great pleasure to be here today and share with you my thoughts on the adjustment under way in the euro area. This is a challenging issue, especially here in Lisbon, as Portugal is at the heart of this process. Taking the Lehman collapse as a starting point, the economic and financial crisis has now lasted four and a half years, almost one-third the age of the euro. For the stressed countries, this has been a tough time. It saw a sharp decline in GDP and a sharp rise in unemployment, with young people particularly affected. People’s daily lives have not yet visibly improved. This is why it is important to focus on the progress made during the past five years and on why and how reforms can create income and jobs. I have in mind three questions: (i) How much adjustment is still needed? (ii) Why have the costs been so high? (iii) Are conditions in place to restore growth? The public would probably formulate these questions differently: can we hope that things will get better? Will the policies work? And will we see an improvement in our daily lives? | 0 |
Jacques Necker, who had been born in Geneva, was Minister of Finance under Louis XVI. After the French Revolution, Geneva began to evolve into an important wealth management centre. 1 In 1857, the first Swiss stock market was founded in Geneva, before those in Zurich and Basel. The Geneva stock market soon ranked fifth among European stock markets. Geneva remains one of the major world financial centres today, particularly when it comes to private wealth management. 2 The financial sector in Geneva is an engine for the regional economy. In 2014, around 120 banks were based in Geneva. The financial sector creates a significant part of cantonal value added and is a major employer. 3 A strong financial sector, such as that in Geneva, makes a substantial contribution to economic growth. It is therefore a crucial foundation, both for the regional economy and for the Swiss economy as a whole. A robust financial sector is also very important for the Swiss National Bank (SNB). The SNB interacts closely with the financial sector, and in particular with the banking sector. I will talk about this later. In my presentation, I will begin by explaining how the SNB and the financial sector are interlinked. Then I will discuss the importance of an independent monetary policy in providing stability as a long-term asset. However, in the short term, this long-term stability may generate costs. I will then explain the SNB’s current monetary policy and our reaction to international developments. | It is for staff at the UK authorities to calibrate a range of holdings of liquid assets maturing within a week that would address financial stability risks from MMFs. However, it is easy to see how the illustrative scenario I talked you through earlier could be used to calibrate the appropriate resilience of MMFs. MMFs could have a range of holdings to reflect idiosyncratic and systemic risks. These holdings could be calibrated according to observed historical outflows, as seen in the dash for cash and LDI stress events. And as discussed in the discussion paper, the usability of these holdings will also be a key consideration for the UK authorities. Conclusion The FPC have recommended a framework for the steady-state resilience of LDI funds, built over three building blocks: baseline resilience, systemic resilience, and fund specific additional resilience. The first two building blocks amount to a 250 basis point minimum. And the framework also requires pension schemes to put in place operational processes enabling them to deliver collateral within five days and to support LDI funds in drawing down during stress. This framework provides us with a suitable framework for addressing non-bank vulnerabilities more generally. We can use this framework to contain non-bank vulnerabilities and so to mitigate their financial stability impacts. But this is a conference for pension funds, so I will leave on a message to the experts at this conference. Ensuring financial stability is not only a job for financial stability authorities and regulators such as TPR, but also for participants. | 0 |
A workshop held by the Committee on the Global Financial System earlier this year in Hong Kong also noted this difficulty. Appropriate calibration of macroprudential tools is difficult because of the lack of data and information about how the transmission process works―that is, what impact the tool will have on the targeted sector. Even assessing the impact ex post 1 Tobias Adrian, Meg McConnell and Joseph Tracy assisted in preparing these remarks. BIS central bankers’ speeches 1 is challenging because it is difficult to predict how the macroeconomy and financial system would have evolved if the macroprudential tool had not been in place. Second, in the U.S., even if such a framework existed, there would still be a problem in terms of timely implementation. The U.S. regulatory structure is fragmented, so that in most cases, no single regulator is able to implement macroprudential tools in a comprehensive manner. As a result, imposing macroprudential tools in the United States would almost certainly leave significant gaps in coverage. Such coverage gaps would likely lead to distortions within the financial sector, as the tool would have differential impacts across financial intermediaries inside versus outside a particular regulatory boundary. Also, activity would migrate toward those areas outside the scope of the macroprudential tools that had been implemented. It is important to note the regulatory mandates of the numerous federal and state regulatory authorities differ considerably. Some simply may not view financial stability as an important part of their mandate. | Enriching the array of financial products and payment instruments In addition to its primary function, intermediation of funds, the banking sector has an essential role to play in providing payment services to the economy. The scale and efficiency of accomplishing this role is in proportionate correlation to the scale of financial inclusion of the population, the overall efficiency of the economy, and – why not – the level of its formalisation. In the framework of its role as overseer of payment systems, the Bank of Albania has undertaken a series of measures to further improve legal and regulatory frameworks. These improvements aim to accommodate innovative technological developments in the field of payments, enhance effectiveness by promoting competition and ensure transparency and consumer protection. Acknowledging the role of other institutions, the Bank of Albania, together with the National Payment Systems Committee, have drafted for the first time the National Retail Payments Strategy, which identified market needs and relevant measures for intervention. The goal of the Strategy is to improve the retail payment market by providing Albanian citizens with more choices for their daily transactions, in an easy-to-use cost-effective way, as well as to increase financial inclusion. The Strategy has a detailed action plan; the Bank of Albania is fully committed to its implementation. In this framework, I would like to emphasise a notable achievement, the finalisation of the draft law on “Payment services”, which transposes the Revised EU Directive on Payment Services (PSD2). The draft is currently subject to public consultations. | 0 |
Shanghai could tap on Singapore’s role as a regional infrastructure-financing hub in ASEAN to jointly access infrastructure opportunities in the region. Additionally, both financial centres can work together to develop innovative capital market solutions for infrastructure projects in China, ASEAN and in third countries. Key financial institutions in China are already working closely with Singapore on this front. 4/7 BIS central bankers' speeches They have significantly scaled up their BRI-related activities in Singapore over the past two years. China and Singapore financial institutions are tapping on each other’s strengths to help Chinese firms “go out”. For example: In June 2015, Bank of China (BOC) issued four currency “Silk Road” bonds in Singapore, which included a SGD 500 million tranche and a RMB 5 billion tranche. In August 2016, China Construction Bank (CCB) listed its first RMB 1 billion BRI infrastructure bond on the Singapore Exchange (SGX). In September 2016, Industrial and Commercial Bank of China (ICBC) signed an agreement with the Singapore Exchange (SGX) to support Chinese companies looking to list equities or bonds on SGX. Both parties will also explore collaboration in derivatives trading, bond trading and market making of RMB-denominated contracts listed on SGX. Since November 2015, three of China’s top four banks (ICBC, CCB and BOC) have signed MOUs with International Enterprise Singapore to deepen BRI partnerships in ASEAN. These MOUs brought in more than SGD 90 billion worth of financing for BRIrelated projects and to support Chinese and Singapore firms investing into BRI countries. | Nevertheless, crises create opportunities for fixing policies and addressing structural issues. Policy makers have an opportunity to enact all the necessary reforms in order to lay the foundations of a more stable and prosperous future in the presence of today's overlapping crises. 5/5 BIS - Central bankers' speeches | 0 |
Banks hoarded liquidity in order to be safe from unexpected outflows or the unknown extent of write-downs. Because the usual market refinancing possibilities were blocked banks relied on highly rated collateral for their funding and the liquidity provided by the central bank. The spread between EONIA and three-month Euribor rose to the highest level ever at 70 bps and has remained high. Unsecured trading in the money market beyond one week effectively ceased to exist. II. Central bank reaction function As liquidity retracted first from the credit markets, then money markets, intermediation vanishing, central banks had to move in: to restore orderly market conditions; ensure the integrity of monetary transmission channels, and to ensure financial stability or prevent a systemic crisis. In view of the confidence crisis among market participants, due to uncertainty about financial individual exposures, the issues at stake were: 1) to have money market rates evolve close to the policy rates; 2) to address the term structure problem to the extent that it was threatening the first issue; 3) and thirdly to address the distributional problem of liquidity among market participants for reasons of financial stability. The somewhat more complex and elaborate toolbox of the Eurosystem proved very valuable in this respect. | At the same time, stock issuance up to the third quarter of 2007 is higher than that of 1996. Notice, however, that the persistent weakness of expectations indicators and the effect of the recent increases in inflation on families’ purchasing power imply a risk for private consumption growth. 2 BIS Review 120/2007 As a result of the above, the GDP and aggregate demand growth have been somewhat below the forecasts of the September 2007 MPR. There, the GDP growth forecast for this year was 5.75% to 6.25%, with a downward bias. The evidence accumulated so far, indicate that the GDP growth will be in the lower part of the range. The turbulences in international financial markets could be affecting expectations of consumers and entrepreneurs. In fact, consumer expectations have worsened and the forecast of the GDP growth in expectation surveys has fallen. The most important development in recent months, however, has been inflation. Inflation has picked up, reaching annual rates of 5.8% in September, both for total CPI and core CPI (which excludes perishable foods, energy and regulated tariffs). This surprising rise of inflation has been influenced by unusual (and simultaneous) increases in the prices of food items, given rises in their foreign similes and harsh weather conditions in Chile. These high prices have not only persisted but also intensified in the last months. Additionally, electricity power rates have also increased, as a result of natural gas restrictions coming from Argentina, and the replacement of hydro by oil-based electrical generation. | 1 |
Some remarks about distributional effects As long as assets are unevenly spread across the population, shifts in their prices will have redistributive effects. Let me now say something about what those might have been. I’ll make only a few, and very broad points. First, as regards the distribution of wealth, one of the main sources of unevenness is age. There is certainly considerable variation within age groups. In Chart 7, a snapshot taken from the ONS’s first Wealth and Asset Survey (2006), the vertical lines are interquartile ranges for each 10-year age bracket. Among households headed by 45–54 year olds, for example, those 25% from the top had over £ more in net wealth than those 25% from the bottom of the distribution. But there is also significant variation across age groups. Even relatively wealthy 25-year-olds have significantly less in the way of net assets than the average 50-year-old. This means that, during the first phase of the decline in real rates, when all asset prices were rising, it was generally older people who benefited the most. Anyone who, in the mid-1990s, happened already to own a house, or whose pension was already well funded, would have benefited materially from these trends. Chart 8 plots the age profile of net wealth in 1995 versus that a decade later.11 It steepened considerably. 8 Eggertson and Krugman (2012) develop a model where deleveraging pressure has very protracted effects on (ex ante) saving and on equilibrium real interest rates. | 2 BIS Review 48/2001 Now, let me be clear, I agree with those who argue that the single currency – by eliminating exchange risk within the participating countries – can make a significant contribution to increasing the depth and liquidity of financial markets and reducing transactions costs within the Eurozone. And indeed it already has had that effect, particularly in money and bond markets, especially the corporate bond market. It has no doubt also been a factor encouraging the tendency to, mostly national, consolidation as financial institutions prepare for greater competition from other euro-based institutions in their national markets. All of this is very positive for the competitive efficiency of Euro-zone financial systems both nationally and within the Eurozone as a whole. It is in fact one of the two main potential economic benefits of the single currency, the other, of course, being the positive effect of nominal exchange rather certainty within the Eurozone on trade flows of goods and other, non-financial, services and its impact in more efficient resource allocation. It is also the field in which the UK, through London, has been able to make a positive contribution to the development of the Euro even from outside the Eurozone. So I do not at all underestimate the contribution that the euro has made, and is making, to improving the efficiency of the Eurozone financial systems. | 0 |
Any financial system - and the Swiss system is no exception - can be misused in order to transfer or recycle money issued from, or linked to illegal activities, including terrorism, drug trafficking, illicit trades in weapons, modern slavery, and corruption, just to name a few. To be sure, a money laundering risk already existed in the past. As a result of globalisation, however, and of the growing significance of organised crime, the risk has increased considerably in recent years, not just in my country, but in every major financial centre. For this reason, a dense network of legal regulations, controls and self-regulatory mechanisms is necessary in order to make a financial centre as unattractive as possible for criminal funds. Switzerland has been one of the first countries to introduce strict anti-money laundering laws. They cover the activities not only of banks, but also of any other financial intermediary such as insurance companies, funds managers, lawyers and even fiduciaries. Our experience so far has shown that an efficient fight against financial crime requires two specific rules: first, the application of strict due diligence procedures that includes careful identification of the customers, i.e. of the beneficial owners of the assets involved; second, the obligation, imposed to the market intermediaries to inform the authorities in case of any founded suspicion of money laundering. I am fully convinced that an effective fight against money laundering can only be successful if an active co-operation between financial institutions and authorities is promoted. | Because it is a major investor, the Fund can contribute 5/8 effectively to the promotion of recognised principles of corporate governance. We believe that this will result in higher returns on the Fund’s equity investments in the longer run. The size of the Fund allows us to keep management costs low. We have built up an infrastructure that can handle large transaction volumes. Investments involving much larger amounts can be made without expanding the current infrastructure. Even though the Fund is a large institutional investor, it is not one of the world’s largest investment managers. Companies like UBS, Allianz, Barclays and State Street invest up to ten times as much as the Petroleum Fund, and these companies have funds in a much larger number of accounts with different investment mandates than the Petroleum Fund. Although the challenges facing the Petroleum Fund are considerable, the Fund’s structure is nevertheless much simpler than that of the largest investment managers. Government reserve funds Norway is not the only country to establish a reserve fund to be used in periods of fiscal stress. The age structure of virtually all the developed countries will lead to substantial changes in the ratio of pensioners to the working-age population over the next ten years or so. The working age population must be prepared for a larger share of national income to be spent on pensioners and others outside the working population. Substantial increases in pensions, benefits and health service costs will be necessary. | 0 |
Given the interconnectedness of financial activities and systems, an effective cyber defence strategy requires close co-operation and sharing of cyber intelligence. A good model for such co-operation among banks in the US is the Financial Services – Information Sharing and Analysis Centre, or FS-ISAC. 4/9 BIS central bankers' speeches It is the global financial industry’s go-to resource for cyber threat intelligence analysis and sharing. I am pleased to announce that FS-ISAC will set up in Singapore the industry body’s only cyber intelligence centre in the Asia-Pacific region. This centre will help our financial industry better monitor cyber threats and provide better intelligence support. It will also help deepen the capabilities of the cyber security community here. INFRASTRUCTURE for an Innovation Ecosystem The second key thrust of Singapore’s FinTech agenda is to facilitate the infrastructure necessary for an innovation ecosystem and the adoption of new technologies. We need an ecosystem where people can connect and collaborate, and ideas can flow and multiply. We need common standards and inter-operable systems so that innovations can be scaled up quickly and their potential benefits fully realised. W want a hundred flowers of innovation to bloom but also want to ensure they make a garden. To facilitate such an ecosystem, MAS started with itself: Last year, we formed within MAS a new FinTech & Innovation Group under a Chief FinTech Officer – probably the first regulator in the world to do so. | We are beginning to aggregate and analyse large data sets to: gain richer insights into customer behaviour and needs; detect fraud or anomalies in financial transactions; sharpen surveillance of market trends and emerging risks. Big data is in turn being driven by advances in: sensor networks and natural language processing to gather information from a wide universe of sources; cloud technologies to store and retrieve large volumes of information at low cost and ondemand; learning machines and smart algorithms that can continuously adapt and improve on their decision making with every iteration. 1/9 BIS central bankers' speeches Smart Financial Centre Vision Be it countries, businesses, or people – those who are alert to technology trends, understand their implications, and harness their potential will gain a competitive edge. To be sure, many of these technologies are disruptive to existing jobs and existing business models. But if we do not disrupt ourselves – in a manner we choose – somebody else will – in a manner we will not like. Last year, MAS laid out a vision for a Smart Financial Centre, where innovation is pervasive and technology is used widely. Since then, MAS has been working closely with the financial industry, FinTech start-ups, the institutes of higher learning and other stakeholders towards this shared vision. MAS’ role in supporting this FinTech journey is two-fold: provide regulation conducive to innovation while fostering safety and security; and facilitate infrastructure for an innovation ecosystem and adoption of new technologies. | 1 |
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. | The criticism of a Swedish membership of the Eurosystem has often concerned the possibility of being able to conduct an independent stabilisation policy under these circumstances. This is based on a supposition that the Swedish economy could for some reason become out of synch with the economic developments in the euro are, what is termed an asymmetric shock. An independent monetary policy and currency, in addition to fiscal policy, gives us the opportunity to stabilise our economy ourselves a form of shock-absorber that will be lost if we have a joint monetary policy steered by inflation and economic prospects throughout the entire euro area. This was the primary reason why the Calmfors Commission, which examined the consequences for Sweden of participation in the third stage of EMU, concluded that Sweden should wait before joining the Eurosystem until the Swedish labour market and wage formation showed sufficient flexibility to be 1 able to manage a serious shock. It is often forgotten that one of the points of the EU is that the union shall function as an insurance; that the countries are strong standing together than they are standing alone. In practice, it is also the case that when the Swedish economy has come out of synch with the euro area, this has not been due to shocks over which we had no control, but to mistakes made in our own economic policy. | 0 |
This would indeed contribute to further broaden and develop the Islamic domestic capital market. This Islamic securities issuance is the largest Ringgit issuance by a supranational to-date. In closing, I would like to thank the International Bank for Reconstruction and Development for the confidence it has placed in the Malaysian capital market. We look forward to see other issuances by non-resident issuers into the Ringgit capital market, thereby contributing towards broadening and deepening the market. Such issues will have far reaching advantages for the domestic bond market. Let me once again, congratulate the World Bank and the Joint Lead Managers CIMB and ABN AMRO, for a successful issuance of the IBRD bond debut in Malaysia. Thank you. 2 BIS Review 29/2005 | I want to take this opportunity to commend our banks, particularly those participating in the Comprehensive Assessment, as this was a very challenging year. The changes I just mentioned coincided with the new requirements and rules under the Comprehensive Assessment. I recognize that these changes may impact profitability in the short-term, but sound governance sets the stage for sustainably higher returns in the longer term. Banks are now subject to the single rule book and this calls for increased awareness and focus to meet these new challenges. This will reduce the overall risk in the financial system both in Malta and elsewhere. Going forward, there are other challenges that will need to be addressed by our financial system in order to further mitigate certain risks. In the aftermath of the sovereign debt crisis there is a heightened recognition that a more diversified investment portfolio would reduce the risk exposure related to the bank-sovereign nexus. Looking into the future, further diversification of our sovereign debt market may be warranted. It would be advisable if, going forward, stable alternative options are identified to complement current practice. Long-term placements with certain international wealth funds, for example, would ensure that government securities can have a more diversified investor base and possibly reduce the government’s borrowing costs at the same time. | 0 |
Finally, transparency contributes to macroeconomic stability and long-term growth by enhancing the price and wage setting mechanism, and by improving the functioning of the labour market. A credible monetary policy strategy oriented towards price stability contributes to moderate nominal and real wage developments. Workers do not have to ask for extra wage increases to compensate for inflation risk and firms know beforehand that they will not be able to pass higher wages on to consumer prices. Overall, transparent and credible monetary policy enhances firms ability to manage their production costs, retain profitability and create new jobs. Transparency of the ECB Let me now turn to the ECB and its concept of transparency and external communication. It was understood at an early stage that external communication would be crucial for the ECB. Already during the time of the European Monetary Institute the ECB’s future communication policy was discussed; consequently, the ECB’s Governing Council adopted some communication policy objectives and principles as early as 1998. They reflect the duty and “self-interest” elements already mentioned: since then we have communicated to enhance the effectiveness and efficiency of our monetary policy and to make the ECB, an independent central bank, accountable. On this score, the publication of the key elements of the monetary policy strategy back in October 1998 constituted in itself a major step towards monetary policy transparency. | Nina Stoyanova: The future of money Speech by Ms Nina Stoyanova, Deputy Governor and Head of the Banking Department of the Bulgarian National Bank, at the Manager Magazine Fourth Banking and Finance Forum “The Future of Money”, Sofia, 20 October 2021. * * * Thank you for inviting me to open today’s fourth Banking and Finance Forum on the topic ofThe Future of Money. New technologies are changing the financial sector today and leading to the offering of increasingly diverse and convenient payment products in a highly competitive environment. The policies of the European Commission, the European Central Bank and national regulators are aimed at catalysing this process, to exploit more fully the potential offered by technology and to achieve cheaper, safer and more accessible payment solutions. The dynamics of the processes in Europe is also fully valid for our country. Data on payments processed by payment systems in our country show a significant growth. For the first six months of 2021, the value of payments made through the BNB-operated Real-time Gross Settlement System in BGN (RINGS) increased by 30% compared to the first half of 2020, while for the same period the value of payments in euro through the national component system of the large-value payment system in euro – TARGET2-BNB increased by 65.7%. I would like to touch briefly on some of the recent technological developments in the field of payment services in the European Union and in our country. | 0 |
Those responsible for other policy areas are urged now even more to take the necessary steps to improve longer-term growth prospects for the euro area through strictly and decisively adhering to the aims of the Stability and Growth Pact and through convincing structural reforms in the economy. I should now like to inform you about some of the other matters considered today. The Governing Council examined the outcome of a test run of the production of euro banknotes. This so-called zero production run involved the printing works of the participating countries. The main purposes of this test were, first, to check the compliance of the test banknotes against the technical specifications and, second, to prove that all printing works are in a position to produce the euro banknotes to the same high quality standards. The result of this test was positive, as only some minor technical specifications need to be modified slightly. The printing works will now start their final preparations for the commencement of the mass production of the euro banknotes. The Governing Council also decided to establish an Analysis Centre for Counterfeit Euro Banknotes. As is already indicated by its name, the main purpose of this Analysis Centre will be to technically analyse and classify new types of printed counterfeits, and to store the related technical data in a database. The Analysis Centre will be located at the ECB in Frankfurt. We are now at your disposal should you have any questions. | The problems we encountered in communicating monetary policy, which arose in conjunction with the substantial rate cuts during the second half of the 1990s, were also a significant reason for the Riksbank's decision in 1999 to publish a clarification of the formulation of policy and the application of the inflation target.1 Among other things the clarification specified the situations in which there may be reason to deviate from the simple rule of aiming policy at meeting the target of 2 per cent CPI inflation one to two years ahead. My discussion today is based on exactly the same line of reasoning as in that clarification. The second example is taken from spring 2001. Higher food and energy prices due to foot and mouth disease and mad cow disease, as well as supply shocks in energy production, caused a sharp rise in CPI inflation. The price increases were judged to be temporary, and the Riksbank decided therefore not to raise the repo rate. As the prices rises were estimated to disappear from CPI inflation relatively quickly, there was no need in this case to depart from the Bank's simple rule of monetary policy. However there was a need in our external communication to illustrate clearly the assessment that it was mainly transitory price increases that had caused CPI inflation to be so high above target. | 0 |
So the Task Force has set out how firms can comply more effectively with existing disclosure obligations, by disclosing their climate-related financial risks and opportunities in their mainstream financial reports. In turn, this should ensure that consideration of climate-related financial risk, and opportunities, is properly embedded within, and subject to, firms’ corporate governance and risk management. Reporting on these risks cannot remain a niche activity. Decision-useful, actionable information The disclosure recommendations deliver actionable information that will be useful in decision making. In particular, they focus on four areas critical to how real-world businesses operate: governance, strategy, risk management, and metrics. 4 See OECD (2015), “Climate Change Disclosure in G20 countries”. 4 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 4 The expectation is that qualitative and narrative disclosures will be complemented with quantitative ones as is the case for other disclosures made in financial statements. These are grouped into the categories of revenues, expenditures, assets and liabilities and capital. More specifically, all firms, from energy giants through to consumer goods producers, are encouraged to disclose their: - direct carbon emissions plus those from their energy consumption, in a consistent manner (i.e. scope 1 and 2), complemented by any emission reduction targets that companies may set for themselves. - these can be supplemented, where judged appropriate, with upstream and downstream (i.e. scope 3) emissions At the same time, the Task Force has set out sector-specific guidance for those sectors with the biggest carbon footprints and exposures. | A further important feature is the expectation that, where available, asset managers and owners will make disclosures of the aggregate greenhouse gas (GHG) emissions embedded in their investment portfolios. Achieving broad coverage will take time and obviously depends on adoption by issuers. Implementation We are pleased that all Task Force member organisations, companies with market capitalisations of around $ trillion and financial institutions responsible for assets of $ trillion, have today announced their support for the disclosure recommendations. 5 With better disclosure, a market in the transition to a 2-degree world can be built. That market will expose the likely future cost of doing business, of paying for emissions, and of changing processes given both those charges and tighter regulation. And it will help smooth price adjustments as opinions change, rather than concentrating them in a short, dangerous space of time. Early disclosure rules allowed 20th-century financial markets to grow our economies by pricing risks more accurately. The spread of such standards internationally has helped lift more than a billion people out of poverty. Climate-related disclosures could be as transformative for 21st-century markets. 5 Bloomberg data and Bank calculations using market capitalisation as at 12 December 2016 and assets at end-2015. 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 6 | 1 |
But if the overall story of recovery in underlying growth still looks broadly intact, there has been bad news on the inflation front. The recent inflation data, particularly for goods prices, has come in a little stronger than expected. Sterling oil prices and wholesale gas prices have risen by more than 5% since February. Together with duty changes announced in the March Budget, that seems likely to leave the short-term outlook for inflation on a path a little higher than incorporated into the central projection described in the MPC’s February Inflation Report. I think inflation might remain above 3% throughout the second quarter of this year, and possibly into the second half of the year. Already in February, there was a risk that inflation might fall back towards target less quickly than incorporated into our “most likely” central outlook. Not only was there a prospect of supply disruptions to oil production, there was also a possibility that firms might seek to rebuild margins faster than assumed as and when economic recovery becomes more secure. So one possibility is that companies have begun to rebuild or protect their profit margins more quickly than expected. According to the latest ONS data, by the end of last year the profits of mainstream businesses (excluding oil and finance) had fallen to their lowest share of GDP for a couple of decades. Companies’ willingness to tolerate a further squeeze, in the BIS central bankers’ speeches 5 face of rising import prices, might be limited. | But the number of smaller companies tapping the sterling markets remains low. More needs to be done by the industry. A number of initiatives are underway. For some while now, the London Stock Exchange has been supporting the involvement of retail investors in the corporate bond market. The recent Breedon Review made a number of suggestions intended to help open the door to non-bank sources of finance for SMEs. And the Government is entering into a scheme to co-invest with the private sector in managed funds that will lend to SMEs. Dare I say it, but securitisation might even play a role. Nearly £ of long-term financing was recently raised in the London markets by offering investors a first claim on a £ portfolio of loans to small businesses with a typical turnover of under £ million per annum. The funds were raised at a lower cost than many bank issuers would face in their own name. A few other banks are thought to be exploring similar deals. It is important, though, that the lessons from badly designed securitisations in the past should be learnt. Almost the most important lesson is that to be healthy the securitization market, like any other capital market, needs a bedrock of real, unlevered investors. Holders and traders who have borrowed to make their purchases have a tendency to sell when the weather deteriorates. We have seen where that can lead. | 1 |
Because different banks were acquiring the same merchant so that they could offer the merchant lower on-us rates for their cards dipped in their own terminals. This was good for merchants, and even for the consumer as the merchants passed on some discounts to them. But there were hidden costs: Cashiers had to be trained on different terminals, customers at self-checkout lanes fumbled with which terminal to dip their card into. So we set out to study the market, see which merchants had more than one POS terminal, prioritise them by the volume and value of transactions that they handled, and worked closely with their acquirers one-by-one to on-board onto a single terminal that can accept all schemes that use chip and contactless near-field communication (NFC). Today, the process is still underway, but you can already see these UPOS terminals deployed in supermarkets, convenience stores and petrol stations – these are merchants that we visit daily, if not weekly. Besides addressing the challenges I mentioned above, this has certainly made the self check-out experience a delight. 17. Second, Singapore Quick Response (SGQR) code. Besides chip and contactless NFC payments, many mobile payments are optical via a Quick Response (QR) code. Just as we started to tidy up the POS terminals at merchants, we started to observe a proliferation of payment QR codes as each e-payment company deployed its own QR code sticker at each merchant’s cashier. We identified the problem early and immediately formed an industry task force comprising payment schemes and acquirers. | Those three or four e-wallets may hold smaller amounts of money each, but in sum might add up to more than what he/she would have otherwise held in cash in one physical wallet. He/she needs to topup each e-wallet separately, because each wallet has a different top-up and refund mechanism. b. Merchants may proudly display all the schemes that they accept, whether by card or contactless or QR codes. Underneath all that, the merchant needs to deal with different acquirers that send him settlement files in different formats, at different times, and pay him on different days. 3/6 BIS central bankers' speeches c. Between the consumer and merchant, instead of counting cash and change, the payment ordeal could transform into checking which payment instrument is accepted, which card to dip into which terminal, or which QR code to scan. Fortunately, we have not reached that e-payment nightmare. While competition from many payment providers benefits consumers with lower prices, convenience and more innovative solutions, e-payments still need to interoperate in order for the industry to continue growing. Let me share three areas where MAS is enhancing interoperability of e15. payments, namely point-of-sale terminals, QR codes and regulatory powers. 1 6 . First, Unified Points of Sale (UPOS) terminals. Singapore is a highly-carded market, with over 349 payment cards per 100 inhabitants9. Many merchants, if they accept e-payments, have a terminal, usually provided by a bank acquirer. Five years ago, we started noticing that some 15% of merchants had more than one terminal. Why? | 1 |
This is what a responsible government ought to do: 2 BIS central bankers’ speeches • to state that the adjustment is for the country’s own good, and not just to please international lenders; • to tell the hard truth; • to explain what needs to be done; • to be clear what the consequences of non-action or of alternative policy choices would be. All this is conducive to public acceptance of the programme and, therefore, its success. And this is also in the enlightened self-interest of the government, as the electoral reward of the Latvian Prime Minister demonstrates. Beyond economic considerations, the adjustment programme has to be put into a broader context. Political factors can also be key justifications for undertaking difficult economic measures. In the case of the Baltics, the ultimate objective of adopting the euro also has a geostrategic dimension, namely completing their firm anchoring in a Union based on freedom, democracy and human rights. In fact, sharing a currency is more than just drawing economic benefits; it means being part of a community with a shared destiny. This project of political integration justifies making short-term sacrifices to join – or stay within – the euro area. To sum up, a speedy fiscal adjustment, a critical mass of structural reforms and a strong national ownership: these were, in my view, the key ingredients of the Baltic recipe for a quick economic rebound. | However, the meagre progress in structural reforms and the unorthodox direction taken by some countries’ economic policies may curtail future growth possibilities. In the short run the world economy can be expected to continue posting high growth, unless the US slowdown becomes more acute and the rest of the world is unable to continue growing under its own steam. Further ahead, the continuity of the high rate of expansion of the world economy is more uncertain. The increased efficiency and productivity gains brought about by globalisation, through greater trade integration and a far-reaching reallocation of resources and factors, might begin to weaken. In this setting, the emergence of protectionist tendencies – such as those manifest in the difficulties of moving the Doha round forward – is an added risk to continuing high growth. Inflation has remained contained worldwide. The growing integration of the emerging economies into the global economy, providing abundant low-cost labour, coupled with heightened competition on world markets and technological innovation have allowed price increases to moderate significantly. The anchoring of inflation expectations, to which the credibility acquired by central banks in their efforts to preserve price stability has contributed, and the headway in the programmes for structural reform and increased flexibility in economies have likewise eased inflationary pressures. All these developments have helped contain the upward pressures stemming from the impulse of domestic demand and have made the task of monetary policies easier. | 0 |
Stefan Ingves: Flexible inflation targeting in theory and practice Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Swedish Economics, at the Swedish Economics Association, Stockholm, 12 May. * * * Mikael Apel, Carl Andreas Claussen and Niklas Frykström have contributed to this speech. It is enjoyable, inspiring and a privilege to come here and speak at the Swedish Economics Association. It is one of the few occasions when I can take a break from current practical monetary policy and discuss issues of a more academic nature. I intend to take up some issues that I have been considering “on the side” for some time now. If I were to try to coin a title that summaries what I am going to talk about, it would probably be “the link between theory and practice in monetary policy”, and more specifically where I believe the boundaries are as to how close the links can be. I would like to point out that these are my personal reflections and not official Riksbank views. Monetary policy’s tasks in general terms… According to the Sveriges Riksbank Act, the objective of monetary policy is to maintain price stability. The Riksbank has specified this as a target for inflation – where the annual change in the consumer price index (CPI) is to be 2 per cent. | The mean squared gap analysis makes it easier for the central bank to explain why it chooses a particular monetary policy – what it means more specifically by a “well-balanced” policy. It can also provide support when assessing monetary policy. But however good the tool is, the step from theory to practice is not without complications. I intend to discuss some circumstances that in various ways complicate things when taking this step. Arguments in loss function less clear in practice than in theory One such circumstance is that although the variables included in the loss function – inflation and resource utilisation – are in theory unambiguous and well-specified, in practice it is far from evident how they should be measured. Resource utilisation can be regarded as a summary of developments in the real economy and shows to what extent labour and real capital are being used at a particular time. It normally states use in relation to the level sustainable in the long run, which is often regarded as a “normal” level. One complication is that it is not possible to directly observe how high the level of resource utilisation in the economy is, and nor is there any generally-accepted view of this should be calculated. Different measures can give fairly different results and it is therefore difficult to determine to any great degree of precision the level of resource utilisation at any given time. | 1 |
How the international downturn has influenced the Norwegian economy Turning to the Norwegian economy, our export industry is being severely affected by the sharp global downturn, and this is having repercussions on other Norwegian business sectors. Mainland GDP is expected to fall by 1 per cent this year. BIS Review 42/2009 1 As in other countries, a wide range of instruments is being used to counteract the effects of the financial crisis. In order to curb the fall in activity, government expenditure will be increased by over 10 per cent this year. Norges Bank’s bank lending survey shows that banks have been tightening credit standards substantially, particularly for corporate loans. To boost the credit market, a separate government fund 1 will buy private bonds. The government has also provided loans and guarantees for exports and expanded lending limits for the Norwegian State Housing Bank and other special vehicles for government financing. 2 At present, our banks are financially sound, but they need to strengthen their core capital in order to be able to supply credit as normal. The authorities are offering risk capital to banks, including core Tier 1 capital without voting rights, through a newly established State Finance Fund. To facilitate the funding of banks operating in Norway, a swap arrangement was established allowing banks to exchange covered bonds for up to NOK 350 billion in government securities. A number of banks have made use of this facility, so far in an amount totalling NOK 90 billion. | The Fund must enhance its surveillance activities and its advice must be acted upon to a greater extent. However, this probably requires changes in the IMF’s governance structure. Countries that are now gaining in economic strength are seeking greater influence, and the IMF must also improve its reputation in these countries. We have to ensure that the Fund has sufficient resources to grant loans to member countries that are particularly hard hit by the financial crisis. The financial resources of the IMF are being discussed at the G20 summit in London. The IMF aims to double its lending capacity and has called on member countries to provide the necessary funding. Several countries have responded positively, among them Norway. The Government has offered to make available a contribution of up to NOK 30 billion to the IMF, subject to approval by the Storting. The US has asked for the NAB 3 to be increased substantially. Even a special one-time allocation of SDRs 4 to strengthen global liquidity may be considered. The Government Pension Fund – Global Let me now turn to the Government Pension Fund – Global. International capital markets have been a boon to Norway. We drew on borrowing opportunities abroad when the petroleum industry was being built up. We did the same in order to expand welfare schemes and to finance the countercyclical policy of the mid-1970s and the early 1990s. National oil and gas resources are now converted into equities and bonds abroad in the Government Pension Fund – Global. | 1 |
Available at: https://www.bankofengland.co.uk/paper/2017/a-blueprint-for-a-new-rtgs-service-for-the-uk 3 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 3 Resilience Resilience in its many forms is vital to meeting the Mission of the Bank of England – to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. Resilience permeates the work of the Bank’s policy committees and how they go about meeting the remits they have been given. It’s the resilience of the financial system, and major banks and insurers who operate in the UK, where post-trade is most relevant. Most recently, a major focus of the Bank’s Financial Policy Committee has been resilience to the risks associated with a disorderly no deal Brexit8. This has also been a consistent focus of the recent work of AFME under Simon’s leadership. We have a responsibility to ensure the consistent supply of the vital services that the real economy demands from the financial system – things like paying for goods, services and assets; intermediating between savers and borrowers, and channelling savings into investment; and insuring against and dispersing risk. We have evaluated what effect of a worst case disorderly scenario would be on the core of the banking system, and concluded that it would be resilient to such an event9. | This means that no shock that the economy will face in the future is incorporated into both the forecast and the decision. In other words, there is no way of avoiding the last-mentioned uncertainty connected with future shocks and neither the central bank nor the markets have any superior information about them. The uncertainty surrounding the first two mentioned points – the current state of the economy and future monetary policy – will be the heart of my remarks tonight. Being forecasters we all face uncertainty surrounding the knowledge about the current state of the economy. This current state should be thought of as a shortcut to all the inflationary determinants brought from the past, but due to the transmission lags having an impact on future developments. Every forecaster, and of course also the central bank, has his own opinion about the economy’s current state. One question arises immediately: Should the central bank look at market forecasts and use them as a source of information about the economy’s current state and for its decision-making? My answer is: Market forecasts should not be neglected. On the other hand they cannot be the core for decision-making and the central bank must rely primarily on its own structural modelling. This implies that despite all the transparency and communication, the central bank will – from time to time – have to surprise other forecasters and the market. BIS Review 10/2005 1 Let me now briefly explain why this is the case. | 0 |
5 The reason for this is partly that the hedge funds have not to any great extent been exposed to the subprime sector and partly that they were flexible and could rapidly close positions where they lost money. In addition, the hedge funds generally seem to have had a stabilising role in the financial markets. In some cases hedge funds have had considerable liquidity, seen the large fall in prices as an opportunity, and taken advantage of this to go in as a buyer. In this way they have contributed to, rather than consumed liquidity. It does not appear as though the hedge funds have played a specifically negative role during the turmoil we have seen to date. Nor have the hedge funds triggered it. 4 For instance, see Khandani and Lo (November 2007) “What happened to the Quants in August 2007?”, http://ssrn.com/abstract=1015987. 5 The two indices of hedge funds’ return, the HFRX Global Index and the HFRI Composite, showed an upswing of 4.2 per cent and 10.4 per cent respectively in 2007. For example, this can be compared with the S&P 500 index which rose by 3.5 per cent. BIS Review 11/2008 3 Some reflections on events There are always experiences to reflect upon when unrest arises in the financial markets. It is already possible in this crisis to point at certain weaknesses that have come into focus. Firstly, we have had a clear reminder as to how events can turn suddenly and unpredictably. | There is need of better transparency rather than further regulation The debate about regulation of hedge funds’ activities has gained fresh impetus in the wake of the crisis – somewhat surprisingly, since the blame can hardly be placed on the hedge funds. My view in this matter is that there is no reason to introduce specific regulations for hedge funds, apart from greater insight where it is lacking. Such measures threaten the positive contribution hedge funds make, not least under the conditions which we have now experienced. For those of us who reflect on stability in the financial system, it is however extremely important that the major banks’ and the hedge funds’ other counterparties can manage their risk. If they manage their counterparty exposures in a correct manner, that is they take sufficient collateral and can manage any liquidity problems, there is no reason to specifically regulate the hedge funds. However, periods of market turmoil tend to entail certain unpleasantness. I consider that the ensuing debate should focus on market discipline in a broad sense. Transparency is a key word in this context. By means of clear and open information about strategies and risk taking conditions are created for good market discipline. Good insight is also of the utmost importance to those of us who oversee financial stability. This gives us a chance to decide where the risks are. Now that I speak of the need for market discipline, I would like to mention the global association, the Financial Stability Forum (FSF). | 1 |
As regards the collection of data, the ESCB’s Statistics Committee (STC) and Banking Supervision Committee (BSC) will, in cooperation with the Committee of European Banking Supervisors, look at means of better aligning supervisory and statistical concepts, definitions and reporting formats, with the aim of reducing the reporting burden for financial institutions in the case of overlapping data requirements. The STC will also investigate the feasibility of reusing and sharing available micro-data for Eurosystem statistical purposes – particularly data contained in central credit registers, central balance sheet offices and business registers – while maintaining strict confidentiality standards. Furthermore, it is considered best practice for a central bank to integrate the overlapping parts of the various statistics it produces and to concentrate the production of all of its statistics within a single statistical organisational unit. As far as data processing is concerned, the feasibility of a move towards the consolidated or pooled collection and production of some types of Eurosystem statistics will be explored. In addition, NCBs are invited to exploit comparative advantages in their cooperation with other national statistical authorities, 11 for instance by setting up joint business registers. In this context, it is generally agreed that an enhanced exchange of confidential information between NCBs, the ECB, NSIs and Eurostat, strictly for statistical purposes, is indispensable in order to keep the response burden to a minimum and ensure the quality of both European and national statistics. | For instance, the harmonised national average interest rates on the deposits and loans of households and BIS Review 50/2008 1 corporations that are published every month by the ECB and the NCBs provide citizens and firms with very useful preliminary insights. 1 Concerning the key developments in ECB statistics over the last two years, I would like to highlight the following 2 : 1. Since June of last year the ECB and Eurostat have jointly compiled and published quarterly euro area accounts. 3 These accounts can be considered the “national accounts” for the euro area and provide a complete and consistent overview of its economic, financial and monetary developments. A fairly unique feature of the euro area accounts is their almost entirely consistent representation of “real” and financial developments, which greatly facilitates integrated analyses and permits further enhanced cross-checking of the economic and monetary analyses that feed into the overall assessment of the ECB’s monetary policy stance. 2. The euro area accounts record not only the economic and financial transactions, but also the financial balance sheets of all institutional sectors (i.e. households, nonfinancial corporations, financial corporations and general government). They integrate and complement more timely and frequent statistics, for instance by providing a sectoral breakdown of the broad monetary aggregate M3 and by providing hitherto unavailable quarterly data on household and corporate income, expenditure, savings and wealth. 3. | 1 |
Thus, despite our vulnerability to setbacks, these factors prepared the ground for Asia to be positioned for a rebound to a more sustainable growth. Allow me to take this opportunity to also say something about China, the host country for our meetings. Let me first of all thank the PBC and in particular, Governor Zhou for the very warm hospitality that has been extended to us. China has always recognised its important role in the region. With its ascension to the WTO in 2001, the increase in intra-regional trade has been an important catalyst in driving growth in the Asian region. For many of us, China has become our largest trading partner. This trend is reinforced by the two-way foreign direct investment flows in the region. The use of the Renminbi to settle these trade and investment flows is a further factor that facilitates and strengthens these trade and investment flows. In the area of Central Bank cooperation, the PBC has actively participated in all our regional groupings including that for the ASEAN economies. For Malaysia, this cooperation has manifested itself in many ways. The one event that I will always vividly remember is the one on 21st July 2005 at 7 o’clock in the evening when both China and Malaysia transitioned to a flexible exchange rate regime. For Malaysia, we had seven years earlier fixed our exchange rate during the height of the Asian financial crisis. | The knowledge gained from this certainly benefitted the series of organisational transformation we undertook at Bank Negara Malaysia to enhance our organisational effectiveness. As this BIS meeting is taking place in Asia, allow me to take the opportunity to say something about our region. While Asia has not been immune to the turbulence and the upheavals taking place in the different parts of the world, the region has been able to rise to the challenge and each time has demonstrated the ability to experience a swift rebound. Factors that have contributed to this resilience is not so much what we have done in response to the developments but it is what we have done previously that prepared us to weather these developments. These factors in varying degrees have included undertaking rebalancing and structural adjustments of our economies, economic and financial reforms, the development of our financial systems, pursuing greater fiscal discipline, building a more extensive policy tool kits, building buffers during the good times and advancing regional integration and cooperation. BIS central bankers’ speeches 1 For most of the region, following these efforts, our more diversified economies have become less vulnerable to economic shocks, our more diversified and developed financial systems have been better able to absorb and intermediate the financial turmoil and turbulence, while the financial reforms have also increased our flexibility and produced better price and exchange rate adjustments. Those with sound macroeconomic fundamentals including more sustainable fiscal positions also had the policy space to manage the implications of these challenging developments. | 1 |
Chart 12:Risky assets have under-performed Chart 13: Easier monetary policy supports prices of risky as well as risk-free assets Note: * Equity yields have been adjusted for leverage. Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream Concluding remarks This talk has been all about rational responses to higher uncertainty: how it raises the bar for decisions that are costly to reverse and – particularly when skewed towards downside risks – how it widens the gap between yields on risky and risk-free securities, contributing to the decline in the neutral real rate of interest and worsening the accounting deficits of pension funds. 10 As Charlie explained, QE probably has acted to raise the absolute deficit of schemes that were under-funded to begin with. But the more important problem has been the under-performance of risky assets (see also footnote 9). 11 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 11 But human instinct in this area isn’t always so rational. We’re prone to over-interpret noisy events, seeing 11 structure and determination when, very often, there isn’t any . If this is a general weakness, it’s no less evident in the wake of the referendum. Every bit of economic data is scrutinised for the impact of the vote to leave the EU. If it’s more positive than expected immediately beforehand, this is said to confirm the wisdom of the decision; a negative surprise and we’re meant to conclude it was a bad idea. | But early on, it’s as important to look at investment surveys as it is the official estimates. These too bear out the broad shape of the MPC’s August forecast (Chart 14). And as I’ve explained today, that shape has nothing to do with the longer-term consequences of EU exit, depending much more on the uncertainty about those consequences. All that said, there’s little doubt that the economy has performed better than surveys suggested immediately after the referendum and, although we aimed off those significantly, somewhat more strongly than our nearterm forecasts as well. The central projection in the August Inflation Report didn’t involve a recession, simply a slowing in the economy’s rate of growth. But that slowing looks so far to have been more moderate than we feared. Why might that be? Well, again, one shouldn’t rush to judgement here. Even within the quarter, the average forecast error on near-term GDP growth is around ¼% point. And even after the event, it may not be clear why a particular out-turn has differed from the central prediction, in one direction or the other. 11 I gave a talk about this in 2013, highlighting the pioneering work of Daniel Kahnemann (Broadbent (2013)). | 1 |
In fact, it represents a classic tail event: a loss of this kind is highly unlikely, yet would have dire consequences, particularly for the stability of the entire Swiss banking sector. In view of the aforementioned uncertainties in connection with risk assessment, would it not be justified to aim to create a somewhat more “well-padded” cushion of security, even if equity capital – like airbags – comes at a price? Finally, I would like to point out that central banks do not know better than banks or the market as to if and when and in what form a major crisis could hit the financial markets. In principle, we believe that the likelihood of severe disruptions in the financial system has actually declined as a result of innovations in the financial markets. At the same time, the repercussions of a crisis – should one occur 1 2 Risk Disclosures of Banks and Securities Firms, Moody’s Investors Services, May 2006. BIS Review 67/2007 after all – could be particularly severe given the current situation. With this in mind, I feel it is important that market participants – including the Swiss banks – should increasingly take tail events into consideration in their assessments. Stress tests are especially suitable in this regard. In our Financial Stability Report, we also underline the importance of stress testing. | Noteworthy in the area of regulation are the proposals made by the Basel Committee for Banking Supervision, which directly address the need to increase the amount and quality of capital held by institutions to absorb potential losses, the advisability of introducing minimum liquidity standards, and the usefulness of creating capital cushions to help moderate credit cycles. Specifically with regard to the aim of dampening the tendency of markets to amplify economic cycles, headway is being made in the design of provisioning systems which, in essence, are similar to those in place in Spain since mid-2000 (the dynamic or countercyclical provision). International accounting regulators, particularly the IASB, also seem to be converging towards these systems. Also with the aim of mitigating excessively procyclical behaviour of financial markets, management compensation guidelines have been drawn up to discourage excessively risky strategies. Also in the pipeline are major regulatory changes to mitigate the moral hazard problems posed by institutions which in various ways ultimately acquire what has come to be known as systemic significance. Naturally, this regulatory adjustment will have a significant impact on financial institutions. That means that, irrespective of how long a transition period is deemed appropriate, financial intermediaries should now set in motion the adjustment process, to ensure the least possible upheaval. Spain’s financial institutions have understood this and are notably strengthening both the level and quality of their capital. The restructuring process of the Spanish banking system runs alongside the reform of the global financial system. | 0 |
Jeanette R Semeleer: To dollarize or not to dollarize – the Central Bank of Aruba’s point of view Speech by Ms Jeanette R Semeleer, President of the Central Bank of Aruba, at the conference “Opportunities and Risks of Dollarization for the Dutch Caribbean”, organized by the Minister of Finance of the Netherlands Antilles, Curaçao, at the Bank of the Netherlands Antilles, Willemstad, 24 August 2009. * * * Ladies and gentlemen, good morning! 1. Introduction I am truly honored to have been invited to speak to such a distinguished audience on a topic that touches everyone’s wallet, and that is dollarization. With dollarization in this context I refer to as the use of the US dollar as the exclusive legal tender in a country. I must admit that at the Centrale Bank van Aruba (CBA), although we have regular bilateral meetings, we have been quite surprised with the recent consideration of the BNA to replace the Netherlands Antillean guilder for the US dollar as the legal tender for the island of Curaçao on a very short term. In view of the far-reaching consequences of such a change, possibly for Aruba too, I highly applaud Mrs. De Lanooy’s initiative to organize a forum of experts, which could enlighten us further on a rather complicated issue. At the end, it is of crucial importance that the required political decision is based on a thorough assessment of the opportunities and risks associated with dollarization. | I wish you success and thank you for your attention. 2 Werkgroep Bestuurlijke en Financiële Verhoudingen Nederlandse Antillen – Nu kan het… nu moet het!, p. 11 (8 October 2004). 3 H.J. Brouwer (director DNB) – Schuldsanering van het Land Nederlandse Antillen en de afzonderlijke eilanden., Staten-Generaal, vergaderjaar 2005–2006 30 461, D en nr. 4 (Bijlage 4). 4 BIS Review 164/2009 | 1 |
26.06.2018 Taking up of office by the Governor of the Banco de España Pablo Hernández de Cos Governor Honourable Ministers and Authorities, ladies and gentlemen, dear colleagues and friends, I believe today calls, above all, for a round of gratitude. First, I wish to thank Ministers Calviño and Montero for their presence here today. May they rest assured I am firmly committed to maintaining the close and loyal collaboration traditionally offered by the Banco de España to the Ministries for the Economy and Finance. I also wish to thank the previous minister, Román Escolano, for his presence at this ceremony, and for his proposal and defence of my appointment before the Parliamentary Committee for the Economy and Competitiveness. And my gratitude extends to the representatives of the Committee accompanying us today. I undertake to make every effort to improve the capacity of the Banco de España to face the challenges addressed during the Parliamentary Committee hearing. Ministers, as I am surrounded above all by colleagues, I trust you will allow me to continue in a more informal tone. As you know, including a three-year tour at the European Central Bank, I now have two decades behind me at the Banco de España. Professionally speaking, this is, then, my home. It is a real honour for me to have been appointed governor. | However, I believe all of us who have experienced this environment have emerged with a very different lesson learnt. Indeed, we cannot overstate the extraordinary potential this setting offers to an institution such as ours which has always valued, and legitimately so, the soundness of its judgement. With that conviction, we should devote most of our efforts to forging closer insertion, collaboration and coordination-based links with our European partners with an essential aim in mind: to reinforce our weight and ability to influence decision-making. This is a challenge and it is also an opportunity, but it is above all a responsibility to support, from the vantage of the Banco de España, the project for European construction. The second objective has to do with our contribution to financial and macroeconomic stability. After an unprecedented financial crisis, the reputation of economic policymakers, of central banks in particular and, indeed, of the economics profession as a whole was enormously dented. 4/5 Testifying to this were the regulatory and institutional changes set in train to prevent similar situations from recurring. However, the real test, where we place our social prestige and credibility on the line, will involve us truly being able to identify risks and vulnerabilities in due time, being able to issue warnings about them and, within our remit, being able to act to mitigate them or to contribute decisively to other players acting when they must. | 1 |
Second, the euro area is experiencing a protracted recession and growth in many of the largest emerging economies has slowed. This has resulted in a very sharp slowing of U.S. exports, with an associated slowing in production and employment growth in the U.S. manufacturing sector. Thus, I continue to see the economy as being in a tug-of-war between fiscal drag and underlying fundamental improvement, with a great deal of uncertainty over which force will prevail in the near-term. This tug-of-war is clearly seen in the monthly employment data. Over April and May, the average monthly gain in employment in the private service-providing sector has been well maintained at 175,000. In contrast, employment in the manufacturing sector and the federal government declined a combined 20,000 per month. And the resulting uncertainty is, I believe, an important contributing factor behind the relatively sluggish pace of business investment spending. My best guess is that growth for all of 2013, measured on a Q4/Q4 basis, will be about what it has been since the end of the recession. But I believe a strong case can be made that the pace of growth will pick up notably in 2014. The private sector of the economy should continue to heal, while the amount of fiscal drag will begin to subside. I also see some indications that growth prospects among our major trading partners have begun to improve; for example, the rise in the June euro area composite Purchasing Managers’ Index. | Miguel Fernández Ordóñez: Procyclicality in the banking activity Speech by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the Conference on Procyclicality and the Role of Financial Regulation, organised by the Bank of Spain and the Financial Stability Institute, Madrid, 4 May 2009. * * * Good morning ladies and gentlemen. First of all I would like to welcome you to the Bank of Spain. Also, let me thank you all for your presence here today to discuss on one of the most difficult and relevant topics affecting financial regulation: procyclicality in banking activity. Let me also thank the BIS Financial Stability Institute, and in particular its Chairman, Mr. Josef Tošovský, for all the support and good advice received during these last few weeks during the preparation of this event that we have co-organized. We are very pleased to have as speakers in this conference a large group of excellent professionals who are directly involved in financial supervision and regulation. A high level meeting like this one is a major opportunity to start building up a common and efficient framework in order to face the procyclicality issue. Cyclicality can be considered an inherent part of economic activity. Banking activity is no exception; it is also affected by the upswings and downturns of the real sector cycles. Not only history proves this, but current events do also. Any doubt about this has been violently resolved after the summer of 2007. | 0 |
Gilt yields fell sharply following the announcement of the asset purchase programme and our initial purchases of gilts. Yields have subsequently drifted back up, but this reflects a range of other factors and it is likely that yields are lower than they would otherwise have 4 BIS Review 86/2009 been. Borrowing costs within the commercial paper market appear to have fallen as a result of our operations. And in the corporate bond market, spreads have narrowed sharply in recent months and issuance levels have been at record highs. However, this has coincided with a global rally in corporate bond markets and so it is difficult to isolate the incremental impact of our purchases. Despite these encouraging signs, there have been some questions raised about the design and effectiveness of our operations, and I thought I would take this opportunity to address three particular criticisms that have been levelled against the asset purchase programme. The first is that the asset purchases have been too heavily skewed towards gilts and that we should have purchased a greater proportion of private sector debt. The aim of our purchases of corporate debt is to improve the functioning of corporate credit markets. This is in line with the remit specified by the Chancellor when establishing the Asset Purchase Facility. It is important not to judge the economic significance of these purchases by their scale. Even relatively small purchases of debt, if appropriately targeted, can improve liquidity and lower the cost of finance to businesses. | It may convey information about our reaction function. But such a commitment is not easy to design. If too general, it will not add anything to our existing – and over-riding – commitment to do whatever it takes to hit the inflation target. If too precise, it will not capture the myriad of factors that affect the outlook for inflation. The array of judgements underlying the Committee’s policy decisions are not easily summarised by reference to one or two economic variables. The Committee’s preferred approach is to describe its assessment of the outlook for output and inflation, and allow the public and markets to make their own assessment of the likely future path of interest rates. In the most recent Inflation Report published in May, the 2 BIS Review 86/2009 Committee judged it was more likely than not that CPI inflation would be below the 2% inflation target in two or three years time if interest rates followed a path implied by market yields and the stock of purchased assets increased to £ Market participants subsequently revised down their view about the pace at which Bank Rate was likely to rise. 2. Strengthening the policy framework I remain firmly convinced that an inflation targeting framework should continue to be central to the design of macroeconomic policy in the UK. The benefits of low and stable inflation are clear and well understood. | 1 |
Table 3: Results for regressions of non-performing loans as % of total loans on the Regulatory-Supervisory Independence Index Regulatory-Supervisory Independence Index (1) (a) (2) (a) -1.194 *** -1.300 ** (0.405) (0.495) Regulatory-Supervisory Independence Index -0.970 ** lagged by one year (0.322) Observations 29,782 28,002 Adjusted R2 0.227 0.245 (a) The regression equation includes bank fixed effects, country fixed effects, and year fixed effects. Standard errors, which are clustered at the country level, are reported in parentheses. The results are robust under different specifications, including using a set of bank-specific control variables (total assets, z-score, cost-to-income ratio, efficiency ratio, total debt, total liabilities, total gross loans) and country-specific GDP growth. This association is there even as the set of control variables in the regression is varied. The association is also persistent: the coefficient on the reforms lagged by one year is similar in magnitude and statistical significance. The association is also economically significant. A reform that increases the index in a given year is associated with a 1.3 percentage point reduction in the rate non-performing loans and a 0.97 percentage point reduction in the subsequent year, all else equal. These results are consistent with what other papers have found. Dincer and Eichengreen (2012) find that lower non-performing loans relative to GDP in countries in which the supervisor is independent of the government. | Adequate and consistent information on capital flows will also greatly improve Balance of Payments Statistics for Zambia and serve as an early warning system for Government on potential financial crises and other external shocks. Mr. Chairman, Zambia has adequate technical capacity to collect, analyse and disseminate data and information on foreign private investment. It has, however, lagged behind in terms of the frequency of these surveys compared with some other countries in the region. For instance, while we are now at the third phase of the Survey, Uganda, Tanzania and Malawi are in their eighth, fifth and fourth phases, respectively. This only emphasises the critical need to conduct this enterprise survey more regularly. To this end, I wish to reiterate the Bank of Zambia’s, continued support and commitment in working in close collaboration with Government and other Balance of Payments Statistical Committee member institutions in ensuring that the collection of this vital information is done on an annual basis. Accordingly, it is my hope that participants at this workshop will appreciate the importance of this survey and find the results useful. Distinguished Guests, I am particularly happy to learn that compared to other countries in the region, the Zambian team has conducted this enterprise survey in record time. It shows true commitment and dedication of the team to this project. Please keep up the good work. Be reminded, however, that you have established a benchmark, which can only be improved on. | 0 |
Once the investors in these financing arrangements – many conservatively managed money funds – withdrew or threatened to withdraw their funds from these markets, the system became vulnerable to a self-reinforcing cycle of forced liquidation of assets, which further increased volatility and lowered prices across a variety of asset classes. In response, margin requirements were increased, or financing was withdrawn altogether from some customers, forcing more de-leveraging. Capital cushions eroded as assets were sold into distressed markets. The force of this dynamic was exacerbated by the poor quality of assets – particularly mortgage-related assets – that had been spread across the system. This helps explain how a relatively small quantity of risky assets was able to undermine the confidence of investors and other market participants across a much broader range of assets and markets. Banks could not fully absorb and offset the effects of the pullback in investor participation – or the "run" – on this non-bank system, in part because they themselves had sponsored many of these off-balance-sheet vehicles. They had written very large contingent commitments to provide liquidity support to many of the funding vehicles that were under pressure. They had retained substantial economic exposure to the risk of a deterioration in house prices and to a broader economic downturn, and as a result, many suffered a sharp increase in their cost of borrowing. The funding and balance sheet pressures on banks were intensified by the rapid breakdown of securitization and structured finance markets. | These include the slope of the Phillips Curve, central bank’s policy responses together with the constraints imposed by elevated public debt levels, and importantly, agents’ expectations. Expectations in Macroeconomics 12. This brings me to my second set of comments. One of the truly revolutionary developments in macroeconomic analysis has been the recognition that expectations are central to the behaviour of agents. Most of us would probably reach back to at least Keynes’ General Theory, as marking its formal induction into general equilibrium macroeconomics. The theory and practice of macroeconomic expectations has evolved quite rapidly since then. In particular, Robert Shiller and George Akerlof were key figures in formalising the idea that changes in expectations may manifest as exogenous shocks rather than factor in endogenously as posited by the theory of rational expectations, thus giving analytical form to Keynes' “animal spirits” in macroeconomic research. [3] 13. More recently, Shiller and Akerlof have also led a revival in the interest of expectations in economics [4] . Placing a modern contextualisation to “animal spirits”, they describe it as “a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.” I think we can quite easily relate to such descriptions. We have seen the importance of expectations in determining aggregate outcomes during crisis, as well as in specific markets and cycles. | 0 |
Bank of France reports industrial activity increased in all sectors in December 1996 BANK OF FRANCE, MONTHLY BUSINESS SURVEY, December 1996. In December, according to the business leaders surveyed by the Banque de France, industrial activity increased in all sectors, except in the intermediate goods sector, where it remained stable. The food processing and consumer goods sectors were the most buoyant. The capacity utilization rate remained virtually unchanged. Overall demand firmed on both the domestic market and the export market, where the strongest flow of orders continued to come from the United States and Asia. The competitiveness of French products was bolstered by the recovery of currencies that had weakened earlier, including the United States dollar, sterling and the Italian lira. Order books approached normal levels in all sectors, except in the intermediate goods sector, where they remained too low. Inventories decreased with the end of the lorry drivers’ strike, and now appear to be normal in the capital goods and automobile sectors. In the coming months, most sectors are expected to continue to show moderate growth. Commodity prices as a whole showed practically no change. Finished product prices held up overall, despite the continuing high level of competition. Investment programmes were limited to renewing obsolete equipment or to meeting the desire to increase firms’ productivity in an intensely competitive international environment. There were few plans for output capacity increases and in all cases were dependent on stronger growth in demand. | However, African countries must learn from the past on how well to manage commodity booms and ensure the productive use of financial resources generated from natural resources. African countries need to invest the resources arising from the exploitation of natural resources in domestic capital formation in order to generate a higher sustainable income that compensates for the depletion of a wasting asset. In this regard, it is important that commodity booms are managed in a manner that benefits African economies through careful planning and the deployment of appropriate strategies. Commodity swaps or barter system have been suggested in some quarters as an innovative way for Africa to get development finance taking into account the fact that most African countries are not able to borrow from the international financial institutions and are just coming out of heavy indebtedness. For this option of financing to be viable and profitable, there is need for commodity swaps to have a long-term positive impact of export diversification and economic growth for Africa. In this regard, commodities could be swapped for infrastructure development to address the large infrastructure gap that is inhibiting further growth and diversification, technology transfer and market access for manufactured goods. These commodity swaps would have to be carefully crafted so that future generations are not disadvantaged from the resources. Currently, China has entered into such deals with countries like the Democratic Republic of Congo, Sudan and Angola and it would be interesting to see how these work and then other countries can learn from these countries experiences. | 0 |
Zeti Akhtar Aziz: Advancing financial inclusion to its next level Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Alliance for Financial Inclusion (AFI) 2014 Global Policy Forum – “Advancing financial inclusion to its next level”, Port of Spain, Trinidad and Tobago, 10 September 2014. * * * It is my very great honour to be invited to speak at this year’s AFI Global Policy Forum in beautiful Trinidad and Tobago. First of all, on behalf of Malaysia, let me express how greatly honoured we are to be given this opportunity to host the headquarters of AFI. Malaysia is strongly committed to the financial inclusion cause and will strive to the fullest and best of our ability to provide the necessary support to AFI towards achieving its objectives. This is an exciting time for advancing the global financial inclusion agenda, as the world economic recovery gains further progress and as there is increasing world attention and priority being accorded to achieving financial inclusion and to an economic progress that is more inclusive. While stability and growth has been restored in many parts of the world, all of us recognise that economic growth, no matter how stellar, will begin to fade when inequality sets in, and as income disparities widen. Additionally, experience has shown that financial crisis and economic recession entrenches the cycle of poverty. | Priority 5: Improving cooperation and partnerships The fifth area relates to that which has been highlighted in the theme for this Forum, the need for greater cooperation and innovative partnerships. The goal of achieving financial inclusion that delivers real and positive impact to the poor is a shared responsibility. The barriers to financial inclusion can only be resolved when different stakeholders, each with different spans of authority and oversight, work together in a coordinated and cohesive manner. It will need to involve the cumulative efforts of the government, regulators, market agents, the financial industry and the consumers. At the national level, improving inter-agency cooperation is vital to ensure that the respective strategies are aligned to achieving the common goals of financial inclusion. This may call for institutional arrangements to bring authorities together to secure a joint commitment towards clearly defined and measurable financial inclusion goals, with well-defined lines of accountability. Brazil, Mexico, Tanzania, Indonesia and Fiji have also established national BIS central bankers’ speeches 3 co-ordination frameworks, which offer AFI members diverse examples of such national collaboration. While we focus on financial inclusion initiatives at the national level, equally important is that adequate attention be accorded at the global level. In this regard, AFI assumes a unique role because it is the only global network that comprises of practising financial inclusion policy makers. | 1 |
This option makes the bank harder to manage but supervision is a very effective tool against speculators. On a more micro side, we have been putting good governance into our financial institutions. By good governance, we mean transparency, competitiveness and good internal management. Bank directors BIS Review 86/2000 2 are now required to have no more than three directorships in other limited liability institutions so that they can spend enough time running the bank. Of the 70 people who did not qualify, 50 have now complied and we are working on arranging for the rest to be compliant as soon as possible using the traditional amicable Asian way of trying to change things. We are also working on getting the major shareholders not to vote for independent directors so that minority shareholders are better represented on the board. One government bank has done this and the new private commercial bank to be set up at the end of this year has agreed to do so. Seeing that it could be done or how it could be done, we expect the remaining private commercial banks to follow suit in next year’s annual shareholders’ meeting or at other relevant times. Audit committees are now a requirement and many banks have nomination and compensation committees to reduce the power of the major shareholders in the management of the bank. Nearly all banks have risk management committees or at least asset and liability management committees, which is preferable to having no risk management at all. | ERM-II is a useful prelude to full euro area membership and, other things being equal, will reduce exchange rate volatility. But ERM-II membership is not a magic solution, and the accession process can prove risky. As a result, it is important that economic policy and the regulatory framework be designed to maintain economic stability and keep financial risk within acceptable limits. Most of the changes that will improve economic policy under a flexible exchange rate will also be helpful in the run-up to euro area membership. These changes are discussed in greater detail later in this chapter. Chapter 24 focuses on what euro area membership and full participation in European Central Bank (ECB) operations entails. A number of amendments must be made to the Act on the Central Bank of Iceland in order for the Bank to fulfil the requirements made of national central banks in the euro area, as regards independence and the ability to carry out the tasks entailed in euro area membership. In addition, increased requirements are made concerning central banks’ participation in the formulation and implementation of financial stability policy (see Chapter 25). Money serves as a medium of exchange, a unit of account, and a store of value. The better it retains its value against goods and services and other currencies, the better a store of value and the more reliable unit of account it is. The more it used in trade and the more generally it is recognised in settlement, the better a medium of exchange it is. | 0 |
Specifically, the 10year OIS rate, which proxies the euro area risk-free interest rate, has risen by 170 bp since the beginning of the year. Domestic fiscal policy Domestic economic policies also have a key role to play in the current climate. But fiscal policy headroom is constrained by high government debt and structural budget deficits. It is therefore important for domestic fiscal policy to exploit its capacity for highly granular action focused on the households, firms and sectors most vulnerable to this combination of shocks, many of which had not yet fully recovered from the adverse effects of the pandemic. In particular, fiscal policy action should target lower-income households, which bear the brunt of inflation, and more energy-intensive firms. Moreover, again with the aim of minimising their impact on budgetary imbalances, it is important that the fiscal policy measures be temporary so as not to further increase the structural deficit, and that the instruments used do not skew price signals, which would hinder the adjustment in demand. Likewise, averting any feedback into the current inflationary process is further reason to avoid an across-the-board fiscal impulse and the widespread use of automatic indexation clauses in expenditure items. This deindexation must be part of the incomes agreement to which I will return later. It is against this background that the measures adopted to soften the economic and social consequences of the war must be assessed. | Any agreements concerning wage increases should take their lead from the underlying inflation. These recommendations apply to both wage increases and, where applicable, to potential wage guarantee clauses. Arrangements such as these have already been used by the social partners in the past and have proven a useful tool for protecting jobs, making firms more competitive and spurring economic growth.10 Fifth, these guidelines on wage developments should be accompanied by explicit commitments to moderate profit margins. Only then will such wage restraint actually make firms more competitive, while, in turn, limiting the extent to which rising energy input costs are passed through to other goods and services in the economy. And some sort of mechanism would have to be set in place to ensure this restraint in profit margins can be verified. The simulations performed using the Quarterly Macroeconometric Model of the Banco de España (MTBE) underscore the benefits of a successful incomes policy. The MTBE 8 The weight of energy inputs in production and exposure to international competition vary considerably across sectors and firms. 9 To varying degrees, these types of clauses mean that, regardless of the type of underlying shock, any potential future price rises automatically pass through to wage increases, thereby triggering the second-round effects we hope to avoid. | 1 |
What do we know about interactions among the economy’s moving parts? (c) Movements between regions In economic systems, interactions occur among all of the factors involved in production and consumption decisions – people, money, goods and services. Capturing flows of these factors, and their interactions, is crucial for understanding how a complex economic system will function. Below I consider flows of money, goods and services. Let me start by considering flows of people. Chart 15 plots migration in and out of various regions in 2016-17, expressed as a proportion of the regional population. Even gross inflows and outflows are relatively modest, varying between 4% (London) and ½% (Northern Ireland). Net flows of people are even more modest, in all cases bar London averaging less than 0.6%. One of the reasons regions are distinct may be because of their ring-fenced populations. 20 Simon (1962). 20 All speeches are available online at www.bankofengland.co.uk/speeches 20 Chart 15: Migration inflows and outflows between different UK regions Sources: ONS Local Area Migration Indicators and Bank calculations. Notes: Data refer to mid-2016 to mid-2017, as a percentage of 2017 population. Of course, people living in one region can still commute into another for work purposes. Table 1 looks at commuting destinations across UK regions, as a percentage of each region’s population. With the exception of London and the South-East, worker flows from outside of the home region are modest, averaging only 5% of the working population. | BIS Review 18/2006 1 The other surprising feature of the current economic environment is the pattern of global imbalances, and the size and persistence of the U.S. current account deficit. As Alan Greenspan has explained, the greater dispersion in external imbalances can be seen as the inevitable result of fundamentally healthy changes in the world economy. As the world progresses toward increasingly integrated financial and goods markets, other things being equal, one might expect to see an increase in the number of countries with surpluses or deficits, and potentially larger surpluses and deficits, as flows of both financial assets and goods work to equalize desired saving and investment around the world. If one were confident that observed imbalances simply reflected a more efficient allocation of the world’s stock of saving to its most productive uses, that relative prices adjust freely in response to changing fundamentals and that economies are flexible and agile in adapting to those changes, then we might also reasonably expect these imbalances to resolve themselves through smooth and gradual adjustments in relative prices and flows of goods and services. These conditions do not fully exist today. We do not yet live in a world of perfect capital mobility, one in which savings move across borders to their most productive use without constraint in the form of capital controls or without distortions affecting the behavior of private actors. | 0 |
The highest body responsible for the Bank of Albania, the Supervisory Council has paid attention not only to complying with the legal obligations of the Bank, but also to strengthening the institutional governance, as an essential precondition for enhancing its credibility. In 2017, the Medium-term Development Strategy of the Bank of Albania, together with the medium-term budget, was updated. The Medium-term Development Strategy of the Bank of Albania sets out the main objectives for the 2018–2020 period. It establishes the priorities in the main functions of the Bank of Albania and development of auxiliary services. Thus, the Bank of Albania has adopted the model of a number of banks of the European System of Central Banks, which have a twofold strategic planning system: (i) a major planning process, once in 3-5 years; and (ii) a yearly update. The span of the application ensures adequate planning support for the guiding medium-term budget of the Bank of Albania for 2019 and 2020. For the first time, this year the capital expenditures and the projects included in the budget were preliminary approved by the Capital Expenditure Committee, a body established as a control measure over major expenditure and investments. With a view to strengthening the internal audit process, the Audit Committee was established in 2015 and is composed of three members of the Supervisory Council. In 2017, this Committee exercised its duties with a view to support the strengthening of internal and external control lines. It met regularly, without the presence of the administrators, with the Inspector General. | The second obstacle is the still-low appetite of banks to expand lending. This behaviour continues to reflect the effect of two factors: (i) deleveraging policies for reducing exposure in the countries of the region, including Albania, implemented by parent banks from the euro area; and, (ii) perception of credit risk at home. While banks’ balance sheets have improved and the credit risk has diminished, the policies for reducing their exposure in countries outside the EU remain conservative. Such policies reflect also EBA’s new supervisory rules on reducing the exposure of European-based banking groups in South East Europe. In the context of addressing this issue, the Bank of Albania has signed a memorandum of cooperation with the European Banking Authority College in 2015, on exchanging information and harmonising supervisory policies. Regarding non-performing loans, the Bank of Albania continues to be committed to implementing the measures set out in the national plan for reducing them. The reduction of the credit risk, in parallel with the improvement of the banks’ balance sheets and economic growth, should be accompanied by more realistic lending policies by the banking system. This is a recurring appeal I have made in my public appearances. The implementation of such policies would create the conditions for fulfilling the needs of the economy for financing, which are expected to be upward in the future. The third obstacle is the development level of financial markets and the narrow range of financial instruments. | 1 |
For example, Malaysia’s top halal export markets (e.g. China, Singapore and Japan) are signatories to the Net Zero target and non-sustainability practices will lead to an increase cost of business exporting into these markets. Malaysia’s halal food and beverages segment, which makes up 80% of Malaysia’s halal production and 86%5 of total halal exports may be adversely affected by climate change. An increase in temperature will lower the resilience of the agroecosystem against pests and pathogens, resulting in lower yields and quality of crops, affecting the supply of raw materials. In addition, more MNCs are embracing the sustainability agenda compelling halal SMEs to factor in sustainability as part of their business strategies, operations and decision making. It is heartening that prominent halal MNC manufacturers have already started imposing sustainable practices across their supply chain. Nestle for example, has established the Paddy Club back in 2012 as an initiative to ensure rice used for the company’s cereal products is sourced sustainably and responsibly. Another example is the Sustainability Agriculture Code as a pre-requisite for suppliers to enter Unilever’s supply chain as part of the group’s ambition to sustainable sourcing. Towards this end, the Islamic financial institutions have put together a lot of efforts and resources in place, underpinned by the concept of Value-based intermediation (VBI) such that financing and banking activities are in line with sustainability practices. | The VBI Community of Practitioners have collectively issued sectoral guidelines on palm oil, renewable energy and energy efficiency, that serve as an impact-based risk assessment toolkit to assist financial and investment decisions of banks. The takaful industry has followed suit with the issuance of the VBI for Takaful Framework that integrates the principles of VBI into products and business practices that promote financial resilience and climate risk management. Conclusion Before I end my remarks, I would like to touch on the importance of the right skill set that can future-proof our halal industry. As we navigate beyond the pandemic, leaders in halal business community have to be agile and forward looking. This includes keeping abreast of the latest technology and constant up skilling to embrace digitalisation. In recognising the potential of digitalisation as a key ingredient to assist halal businesses, the Bank provides an enabling environment for financial institutions to foster innovation such as through the fintech regulatory sandbox and facilitation of pilot projects. These avenues enable the Bank to identify potential adjustments or responses to the existing regulatory framework that commensurate with the risk and scale of activities. The Bank has also established the SME Automation and Digitalisation Facility (ADF) in March 2020, which aims to encourage SMEs to automate processes and digitalise operations to increase productivity and efficiency. In March 2021, an additional allocation of RM700 million has been provided for the ADF, bringing the facility’s total size to RM1 billion. | 1 |
BIS Review 7/2008 7 Chart 5: Mortgage arrears and possessions rates Chart 6: Household secured and corporate credit availability Net percentage balances(a) Easier credit 30 Corporate 20 Percentage greater than 3 months in arrears Percent Household Secured 7 0.9 0.8 6 10 0.7 5 0.6 0 4 0.5 0.4 -10 -20 3 Possessions (LHS) -30 0.3 2 0.2 Arrears (RHS) 1 0.1 0 1990 -40 -50 -60 0 1993 1995 1998 2001 2004 2006 Source: CML Back cast data before 1994 Tighter credit Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Reported change, past three months Expected change, next three months Source: Bank of England Credit Conditions Survey Chart 7: Quoted mortgage spreads Chart 8: Mortgage product availability (a) Thousands Basis point spread to funding rate 250 SVR Credit impaired Prime 200 150 Bank Rate Tracker 100 5 yr fixed 50 0 2 yr fixed -50 2001 2002 2003 2004 2005 2006 2007 Source: Bank of England. (a) SVR mortgages spread over one month lag of Bank Rate; Tracker mortgages spread over Bank Rate; 2 yr, and 5 yr fixed rate mortgages spread over one month lag of 2 and 5 year swap rates. | With pressures on their capital and new capital expensive where it is available, banks are likely to attempt to increase their margins and to slow down new lending, thereby reducing their capital requirements, for example by tightening non-price terms and conditions on new loans. One factor which regulators are watching carefully at present is the impact of the shift this month to the Basle II system of capital requirements for European banks. While Basle II improves on its predecessor and removes many undesirable incentives, it retains some procyclical features and any transition needs to be managed carefully. 8 The impact on expectations and confidence The other channel by which the financial market turbulence is likely to have macroeconomic effects is by prompting more cautious behaviour by households and firms. This might simply reflect uncertainty about the future. Firms may temporarily postpone investment because of greater uncertainty about the future path of demand. We saw an effect like this after 9/11 for example. But it might also reflect a revision by households and firms about the sustainable path of income and wealth in the coming years. The change in expectations may reflect the higher costs of borrowing and a higher risk of unemployment. Again a reduction in confidence about future growth may lead directly to lower consumption and investment. It is also likely to affect equity and property markets. Potential buyers may decide to wait before purchasing if they sense that there is a chance that prices may fall. Such behaviour can be self-fulfilling. | 1 |
Subordinated debt may well help to protect depositors in the event of liquidation, but it cannot absorb losses on a going-concern basis and so does little to avoid the incentive to run or, therefore, the slide into resolution. Nor does subordinated debt alter the position of retail depositors, who can look to the deposit-protection scheme, especially now that it provides 100% cover up to £ Subordinated debt can enhance recoveries made by the Financial Services Compensation Scheme. But it is not directly stability-enhancing. The composition of regulatory capital was allowed to become too complicated. Including debt instruments is effectively to allow double leverage. The Basel Committee is itself returning to this question. As with liquidity, I do not want to say much today about how to measure the risks that capital should cover. I applaud the Turner Report’s analysis of “trading book” risks; as discussed in the Bank’s Financial Stability Review a few years ago, making Value at Risk the bedrock of market risk requirements allows capital to fall, or leverage to rise, during periods of unusually low volatility. The Basel Committee are addressing this. More generally, the degree of stress that capital should enable banks to withstand, whether against default risk or market risk, should be decided by the authorities not by individual banks, precisely because of the systemic significance of banks to the payments and credit system. | Another, not mutually exclusive, explanation is that by virtue of holding large “trading” books that were marked to market, banks found themselves having to make very large portfolio write downs in the face of sharp rises in liquidity premia in asset markets. As highly-levered institutions – as banks are unavoidably: deposits are debt – those mark-downs depleted their net worth to the point of imperilling solvency. That caused a retrenchment in the availability of credit, helping to plunge the world economy into recession, and so impairing traditional loan books, in a vicious spiral. The point of this account is that it emphasises the role of banks’ leverage. Combined with maturity transformation, this unavoidably makes banks brittle. And that underlines just why our predecessors placed such great weight on the safety and soundness of banks. Indeed, the original reason for regulating capital was that an assurance of capital adequacy, for all but the most extreme circumstances, would make runs less likely. But that was hardly meant to lead to the neglect of liquidity highlighted a few years ago by one of my predecessors, Andrew Large, and others. Liquidity We therefore welcome the Turner Report’s exploration of “core funding”. And we very much support, and have encouraged, the FSA’s plan that all banks should in future hold a minimum level of high-quality government bonds, on the grounds that only they carry a reasonable assurance of market liquidity in stressed conditions. I hope the same approach can be adopted internationally. | 1 |
I have also tried to communicate that monetary policy has considerable potential to influence the development of inflation, but that this influence does not necessarily presume that monetary policy also has substantial effects on economic activity. Expectations of the Riksbank’s ability to meet the inflation target are sometimes too low, while expectations of our ability to reduce average unemployment are too high. It is monetary policy that determines how high average inflation will be. The average level of unemployment, on the other hand, is mainly determined by factors beyond the Riksbank’s control. 26 The fact that goods prices have fallen can be seen in Figure A2, while the rapid fall in prices of technologyintensive goods can be seen in Figure 5. 27 Figure A5 in the appendix shows that services prices have increased faster than goods prices since the beginning of the 1980s. 28 This conclusion assumes that the average rates of increase for energy and food prices are not far above two per cent. BIS central bankers’ speeches 13 Finally, I would like to repeat what I said at the beginning of my speech. I am not trying to say that the Riksbank can control inflation with any precision. It is neither desirable nor possible for monetary policy to continuously hold inflation stable and close to the inflation target of 2 per cent. But monetary policy can prevent inflation from falling way below the target over a long period of time. | The reasons I will take up concern wage formation, the credibility of monetary policy, a too high real interest rate, and arbitrary reallocation from borrowers to lenders. I consider these to be serious problems. But at the same time I find some of the recent discussion on the problems with deflation – falling prices – to be exaggerated and focused on the wrong risks. Second, I wish to discuss the ability of monetary policy to prevent inflation from falling too low. Sweden is a small open economy and is affected to a great extent by international developments. This fact sometimes causes commentators to question rather resignedly whether the Riksbank can actually influence inflation. I consider this attitude to be wrong. Monetary policy determines how high average inflation will be. Having said this, I am not claiming that we can control inflation with precision. Monetary policy can prevent inflation from falling way below the target over a long period of time. It is, however, neither desirable nor possible for monetary policy to continuously hold inflation stable very close to the inflation target of 2 per cent. But let me start by commenting on where we are coming from and the current situation. Inflation has been on average 1 per cent in Sweden for the past three years, when measured in terms of the CPIF.1 The Riksbank and other analysts have had forecasts that have shown that inflation would be low over a relatively long period of time, but that it would gradually rise. | 1 |
Against this background, each bank's capital needs were identified on the basis of a rigorous stress test and, in accordance with the European authorities, restructuring or orderly resolution plans were drawn up and approved for those banks requiring them. In 2012, backed by public financial assistance, the institutions classified under “group 1” of the Memorandum of Understanding were recapitalised, and their problem construction and real estate development-related assets were transferred to SAREB (the asset management company for assets arising from bank restructuring). Into 2013, the “group 2” institutions subject to the exercise have been recapitalised, their troubled assets have been transferred to SAREB and the hybrid instrument management (burden-sharing) exercises have been conducted at all banks requiring them, except at one, where they began recently and will be concluded in the coming days. The public financial assistance to financial institutions in various forms of capital, since May 2009, has risen to € billion, € billion of which were under the Financial Assistance Programme agreed with the European authorities. Verification by the international authorities of the fulfilment of the conditions agreed in the July 2012 Memorandum of Understanding, the last round of which concluded only a few days ago, confirms that the Memorandum and its deadlines have been strictly adhered to and that the main objective, the restructuring and recapitalisation of our banking system, has progressed satisfactorily. As earlier stated, the Council of the European Union will shortly approve the Regulation governing the SSM, which will commence operating after a transitory period of one year. | I shall therefore refer solely to the State and Social Security budgets. The draft State budget for 2014 is set against a macroeconomic background in which real GDP is forecast to grow by 0.7%. This macroeconomic scenario, whose central forecast is export growth above 6%, is prudent and in keeping with the forecasts of most national and international agencies. It outlines a gradual recovery in activity and employment in a setting in which the ongoing budgetary adjustment and the deleveraging of households and firms will continue, and in which the competitiveness regained in 2012 and 2013 will not be lost. In step with our European commitments, an overall general government budget deficit target, in National Accounts terms, has been set at 5.8% of GDP, against the figure of 6.5% forecast for 2013. In terms of the different agents, a National Accounts deficit target of 3.7% of GDP has been set for central government, against 3.8% in 2013, and in the case of the social security system and the regional governments the figures mark an improvement of 0.3 pp of GDP, taking the respective deficits to 1.1% and 1%. Local governments should maintain in 2014 the balanced budget already forecast for 2013. As in previous years, three expenditure items – the public debt interest burden, pensions and unemployment benefits – will continue to condition budgetary programming. | 1 |
The solution centres on a programme of Government guaranteed bond issue that would provide for the full financing of the estimated cost. This programme of bond issuance will run for a maximum period of twenty years, and the financings will be provided for in the Government budget. This incorporation is projected to keep the share of the debt-service ratio to an average of 13.6% of the Government budget in the first decade and 11.5% in the second decade. This means that there will be little crowding-out effects on the Government’s investment expenditure in the period ahead, while the public debt stock-to-GDP is projected to trend down in the long term. With this programme, Thailand’s long-term fiscal sustainability is now assured. With monetary stability in place and fiscal stability enshrined in the Government’s long-term fiscal sustainability framework, I believe the operating environment in Thailand in the period ahead will be more assured and remain conducive to growth. But to really put the growth engine back on its feet, notably the recovery of the domestic demand, more works will have to be done at the micro level to remove the bottlenecks that inhibits the real economy. This leads to our second challenge: to put the banking system back to normal lending. Our banking system is returning to health and profitability with strengthened capital base, and a much lower level of non-performing loans. Yet, the growth in credit has been very minimal with deposit growth rising and liquidity remaining ample. | The investment-saving gap moved to surpluses averaging 10 percent of GDP in the first three years after the crisis, from the pre-crisis deficits average of 7 percent of GDP before 1997. Such magnitude of change is indicative of the depth of the adjustment Thailand had to go through. Although the initial imbalance in the lead up to the crisis was not small, the adjustment was amplified partly by the wave of contagion effect in the early years of the crisis which brought pressure on the capital account, the exchange rate, and growth. Now, while we can look back to the last two years of growth of around 4 percent, signs of fragility still abound, with important issues remaining to be resolved. This includes the continued reform of the banking sector and the resolution of the costs of financial sector restructuring. The main fragility in the recovery process at this time is the weakness in domestic demand. The problem is compounded by the slow growth in bank credit and the weak corporate balance sheets, particularly the non-export sector. Unfortunately, the current external environment does not bode well for the recovery, going forward. The global slowdown is posing strains on Thailand’s export, and is adding pressure to the current account and external stability. Official GDP forecast this year is around 2.0-2.5 percent. Given the change in external environment, this year will be more a time for consolidation than for expansion. | 1 |
We have urged French banks, in conjunction with the national institute of statutory auditors, the CNCC, to provide detailed disclosures of their subprime exposures. A joint working group made up of staff from the Commission Bancaire, the Autorité des Marchés Financiers and the French Banking Federation has defined best practices in this area. Institutions have started implementing them in a satisfactory manner and practices should be further improved in the financial statements for first-half 2008. In 2009, the Basel Committee is planning to publish recommendations on information to be disseminated under the requirements of Pillar 3 of Basel II. In-depth discussions with banks led to a convergence of practices for asset valuation, including the priority on relying on prices and directly observable market data. Where banks have had to use valuation models because liquid prices disappeared in some markets, the recommendations deal with consideration of all risks – including liquidity risk and counterparty risk – and the rigorousness of the process for determining such prices. With regard to adapting the Basel II requirements, we are also playing a very active role in the various international working groups led by the Basel Committee to give greater consideration, where necessary, to the capital requirements related to some liquidity lines or to the securitisation rules. Finally, the crisis has highlighted the need for banks to improve their analysis, measurement and management of liquidity risk. | Such approaches were used for more than 80 per cent of the relevant banking assets at 1 January 2008. I would also like to point out that the impact of Basel II on credit institutions’ capital goes beyond the capital requirement calculation stipulated in Pillar 1 (even though it provides more comprehensive coverage than Basel I of new risks, such as securitisation activities). Regarding Pillar 2, the new regulations call for major additional arrangements to refine banks’ risk management and planning for capital cushions. This could lead to additional capital requirements, or other appropriate measures to enhance bank stability by considering risks that are not dealt with or are inadequately dealt with under Pillar 1. By the end of the year, this approach should lead to individual ratios for each institution that the Commission Bancaire sets on the basis of structured dialogue with each institution. BIS Review 82/2008 3 We have also undertaken a series of major actions that are directly in line with the general framework of the recommendations made by the Financial Stability Forum. Many spheres of action have been defined, but I would like to speak about three that I think are priorities, starting with transparency and valuation, followed by adapting the capital requirements set by Basel II for certain instruments, and finally, liquidity risk. First of all, enhancing transparency and financial disclosure was quickly identified as one of the key requirements for ending the crisis. | 1 |
At the presentation of the last report on financial stability, we expressed our conviction that the financial system needs to be made more resilient to possible shocks. This is all the more valid if we consider the hundreds of billions of taxpayers’ money that had to be spent worldwide on stabilising the financial system over the past few months. The focus is on the need for improvement in the “shock absorbers”: capital and liquidity. The crisis has shown that the current regulation in these areas is no longer sufficient in the case of the big banks. Their level of capital is inadequate when set in relation to their risks. In the area of liquidity, events have occurred that were not taken into account in any of the big banks’ scenarios. The reform of the capital adequacy regulation for big banks, drawn up by the SFBC with the support of the SNB, represents an important step in the right direction – for the area of capital. It specifies an increase in risk-weighted capital together with the introduction of a leverage ratio. The leverage ratio is a supplementary instrument and does not call into question the principle of risk-sensitivity with regard to the capital regulation. An essential constituent of the reform are countercyclical mechanisms whereby, in good times, banks are required to considerably exceed the minimum requirements for capital and the leverage ratio. This ensures that a buffer is created to absorb losses during crises. | Bandid Nijathaworn: Some thoughts on IMF reform on crisis prevention and crisis resolution Speech by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, presented to the G-20 Workshop on Reform of Bretton Woods Institutions, Tokyo, 28 February 2006. * * * Thank you Chairman, First, let me thank the Ministry of Finance of Japan for inviting me to this workshop on the reform of the Bretton Woods Institutions. This workshop is another reminder that the work on IMF reform is still ongoing. Next year will be a full ten years since the height of the Asian financial crisis. Over the past decade, many important ideas on the reform of the IMF have been advanced, but still there is no consensus on how the reform should move forward. I see today’s workshop as another opportunity to contribute to this ongoing debate. And whatever the outcome may be, the reform will certainly mark a critical turning point for the global economy, as the Bretton Woods Institutions attempt to adapt their roles and responsibilities to the forces of globalization. Today, I have been asked to speak on IMF crisis prevention and crisis resolution. Given the limitation of time, and the fact that the recommendations on these two issues have been many and are well-known, I thought the best way for me to add value to today’s discussion is to share with you our thoughts on the subject, as well as to make three specific points. | 0 |
8 For example, the central banks in Chile, the Czech Republic, Israel and Mexico have been able to fulfil their tasks despite having worked with negative equity for long periods of time (Archer and Moser-Boehm, 2013). 4 [12] Both the Riksbank’s own interest rate forecasts and the statistical methods suggest that the term premiums are now very low, and maybe even negative. Chart 3 shows the Riksbank’s and the Swedish National Debt Office's estimations of the term premium on ten-year government bonds based on similar statistical methods. These statistical methods, as I have said, produce fairly uncertain results, but they clearly indicate that premiums have fallen sharply in the last decade. 9 Both the Debt Office's and the Riksbank’s estimates indicate that the term premium is negative. If the premium really is negative, the Riksbank is expected to lose money on purchasing bonds and funding them at the repo rate. The Riksbank’s estimate points to the term premium currently being around -0.7 per cent on bonds with long maturities. 10 This would mean that the loss is expected to be around 0.7 per cent of the purchase price for each year of maturity. Since the average maturity on the bonds is about five years, this would mean that the losses are expected to be 3.5 per cent of the purchase price. Chart 3. | BIS central bankers’ speeches 5 Given the importance of addressing the risks stemming from systemically important financial institutions, it is necessary for regulators to reduce and if possible eliminate the prospect that a systemically important financial institution would find itself in difficulties in the first place. This consideration also brings up the need of supervising better shadow banking,5 which consists of those parts of the financial system that are not visible to regulators and hence not under their direct control and supervision.6 Basle III goes a significant way in narrowing the gaps in regulation that result from recourse to shadow banking.7 It does so by incorporating off-balance sheet exposures in the leverage ratio and by including in the liquidity, regulatory and supervisory standards a range of risks stemming from shadow banking. Thus, stronger banking regulation and supervision will go a long way towards containing the risks of the shadow banking sector. The situation in Malta I will now take a closer look at some key issues relating to the domestic economy and financial system, particularly the fiscal situation, international competitiveness and financial stability. The outlook for the fiscal situation calls for continued vigilance and caution. Official projections of the deficit ratio for 2012 and 2013 have been revised downward, remaining below the Maastricht threshold of 3%. However debt forecasts have been generally revised moderately upward, to levels projected above the 70% level in 2012 and 2013. | 0 |
In the current crisis the National Debt Office has also helped to improve liquidity conditions in the financial system by auctioning extra treasury bills. Ultimately, the Government and the Riksdag also have a responsibility for financial stability if it becomes apparent that the initiatives of the authorities are unable to bring a crisis under control. These days the Riksbank is working very closely with other authorities to monitor developments and discuss how to handle the situation. Like other Swedish authorities, we are also in frequent contact with our foreign colleagues and with market participants. As I mentioned previously, the Riksbank has helped where we could to improve liquidity and market conditions. But what have we actually done? What has the Riksbank done? First of all, we have taken several general measures aimed at all of the Riksbank's counterparties. The purpose of the measures is to solve two problems with the Swedish banks: inadequate access to long-term financing in Swedish krona and a limited ability to gain access to US dollars. The lack of long-term financing is due to the lack of mutual trust among the banks during the crisis, which have had a negative impact on the interbank lending markets. One consequence is that the banks have been forced to borrow for shorter terms. Even if it has been possible to get financing, liquidity management have become much more difficult for the banks and risks also have increased. | Together with the measures that the National Debt Office have taken, the Riksbank's lending of both Swedish krona and US dollars contribute to a general strengthening of liquidity primarily in the Swedish credit markets, thereby also creating conditions for the markets to return to more normal conditions and allowing financial stability to be maintained. Second of all the Riksbank has – as I just mentioned – also provided special liquidity assistance to Kaupthing Bank Sweden. This loan is against collateral and with an interest rate that is above normal lending costs. Even if this measure is aimed at an individual bank, it should also be viewed as an initiative to safeguard financial stability and to maintain confidence in Sweden's entire credit and payment system. The decision is based on the assessment that although the bank is solvent, it is unable to perform its obligations without 4 BIS Review 125/2008 liquidity assistance. What happens next with Kaupthing Sweden is mainly a question for the bank's owner, the Icelandic state. The liquidity support to Kaupthing differs in many regards from the Riksbank's other measures. In this case the support is aimed at an individual institution and not at money market participants in general. In Kaupthing's case the point was to enable the bank to obtain any funding whatsoever and thereby continue to exist. | 1 |
The only periods in which persistence was lower than in the 1990s was in the early 1930s and early 1960s. 2 If index-linked contracts were widely used the relevant real rate would be the index-linked rate. And if the risk premium were determined largely in an integrated world capital market without frictions then again the real rate would be the riskless indexlinked rate. 2 BIS Review 68/2002 Table 1 Inflation in the UK Mean St. dev 1950-1959 4.14 1.06 1960-1969 3.65 0.72 1970-1979 13.07 1.81 1980-1992 6.40 1.14 1993-2002 2.49 0.24 1950-2002 5.93 1.41 Note: Mean inflation is the total increase in the quarterly price level (RPI until 1974, RPIX after 1974) over the period indicated, expressed as a four-quarter growth rate. Standard deviation is calculated on quarterly inflation rates (not annualised) over the period indicated. Data up to 2002 Q3. Source: Bank of England calculations based on ONS data. | The same menu, consisting of exactly the same brand products, would cost £ today. The food basket has increased in price by a factor of 48. A vacuum cleaner, if you wanted one in 1910, cost £ That is more than 6 years worth of food based on the menu used in the previous example. A vacuum cleaner was an item of such luxury that owners would invite their friends round to ‘Hoover parties’ to show off their prized possession. Over the years, the price of food increased in nominal terms by a factor of 48, but the price of vacuum cleaners stayed roughly the same. Today you can still buy a vacuum cleaner for £ But that is only 47 days of food shopping, rather than 6 years. As vacuum cleaners became cheaper relative to food, people bought more of them - ignoring such change would introduce a substitution bias. If there is any degree of substitutability between products, then rational consumers would have taken account of such changes in relative prices, and the weight of this particular good in the consumption bundle may BIS Review 68/2002 13 have changed. The overall result of the substitution is that the expenditure share of electrical 6 appliances has not changed much, at least not in the past 50 years. | 1 |
BIS central bankers’ speeches 1 We need to build a new system – one that delivers sustainable investment flows, based on both resilient market-based, and robust bank-based, finance. We need finance for the long term. We need a financial system that is F-A-I-R: that is Fair, Aligned, Inclusive and Resilient. Let me expand briefly on each, beginning with fairness itself. (i) Fair The twin crises of solvency and legitimacy undermined trust in market mechanisms and the effectiveness of the financial system. Banks were undercapitalised, mismanaged and operated in a privileged heads-I-win-tails-you-lose bubble. In parallel, there was widespread rigging of some markets for personal gain. By replacing such implicit privilege with the full discipline of the market, social capital is now being rebuilt and economic dynamism restored. G20 leaders have endorsed a wide range of measures to end too-big-to-fail in banking. The Financial Stability Board 6 is now working on a series of initiatives to make the system more fair and effective, including examining governance and compensation arrangements to ensure they promote good, and punish bad, behaviour. 7 In the UK, authorities are pursuing reforms that will increase individual accountability, particularly in wholesale financial markets. 8 Such initiatives are beginning to turn the tide of ethical drift which has plagued the system and would hold back the SDGs if left unchecked. (ii) Aligned Aligning incentives will increase finance’s potential to support the SDGs. Alignment requires transparency. Consider the example of climate change. | At present, with less than one percent of outstanding bonds globally being “green”, the G20 is considering initiatives to catalyse this market, including: • Developing a “term sheet” of internationally recognised standardised terms and conditions to make issuance more efficient; • Creating voluntary certification and validation frameworks to give certainty to issuers and investors that a project is “green”; • Integrating environmental risk and green certification into credit ratings; • Developing green bond indices to unlock the potential power of passively managed investments; • Standardising and harmonising principles for green bond listings to promote resilient and efficient trading and adequate liquidity; and 10 The IPCC estimates that additional investment of $ is required annually in the energy sector alone if the rise in average global temperature is to be capped at 2C. www.ipcc.ch/report/ar5/ Mercer estimates that additional cumulative investment in efficiency improvements, renewable energy, biofuels and nuclear, and carbon capture and storage could be in the range of $ trillion by 2030. www.mercer.com/insights/point/2014/climate-change-scenarios-implications-for-strategic-asset-allocation.html 11 See the Task Force on Climate-related Financial Disclosures “Phase 1 Report and Public Consultation” available at www.fsb-tcfd.org/phase1report/ BIS central bankers’ speeches 3 Evaluating mechanisms for consistent, transparent dispute resolution processes. • We all know the paradox that, as climate risks are a function of cumulative emissions, earlier action will mean less costly adjustment. Better climate disclosure and an effective green bond market will mean more investment with foresight and less regret in hindsight. | 1 |
But I will also caution that we will forfeit these gains if we once again fall under the spell of the three lies of finance that helped cause the global financial crisis. To resist their siren calls, we must maintain the new institutional frameworks created in its wake. Globally, the most important of these is the Financial Stability Board (FSB). Having agreed all the major international reforms to address the causes of the crisis, the FSB is now pivoting to focus on their timely, effective and consistent implementation. Mindful of history, the FSB is also scanning the horizon to identify and address new vulnerabilities that emerge as the structure of our economies and financial systems change. We know we cannot rest on our laurels. Financial history rhymes all too frequently, with enormous costs to our citizens. We must remain vigilant, resist the three lies of finance, and reinforce some core financial truths. II. THE THREE LIES OF FINANCE “This Time Is Different” The first lie of finance is the four most expensive words in the English language: “This Time Is Different.”1 This misconception is usually the product of an initial success, with early progress gradually building into a blind faith in a new era of effortless prosperity. It took a revolution in macroeconomic policy to help win the battles against the high and unstable inflation, rising unemployment and volatile growth of the 1970s and 1980s. | 16 Carney (2014), Inclusive capitalism: creating a sense of the systemic. 17 They have also, over the centuries, been beset by poor behaviour, as shown by the FMSB’s comprehensive review of misconduct over the past two centuries. The history of financial fraud has rhymed all too frequently. See FMSB Annual Report (2017). 5 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 5 Repeated episodes of misconduct – such as the Libor and FX scandals – called into question the social licence that markets need to innovate and grow.18 Rather than being professional and open, markets became informal and clubby. Rather than competing on merit, participants colluded online. Rather than everyone taking responsibility for their actions, few were held to account. The crisis reminded us that real markets don’t just happen; they depend on the quality of market infrastructure for their effectiveness, resilience and fairness. Robust market infrastructure is a public good in constant danger of under-provision, not least because the best markets innovate continually. This risk can only be overcome if all market actors, public and private, recognise their responsibilities for the system as a whole. III. TRUE FINANCE So this time is no different. Markets don’t always clear. And we can suffer from their amorality. What to do with such knowledge? And how to retain it? To resist the siren calls of the three lies of finance, policymakers and market participants must bind themselves to the mast. | 1 |
Thus, our banknotes promote the historical and cultural heritage of our country and highlight the most powerful achievements of many prominent historical figures through centuries. I feel good when I see that the two first denominations of this series, 200 lek and 5000 lek, put in circulation since September 2019, are welcomed by the public, have met the expectations of the Bank, and already are gradually becoming a sustainable part of currency in circulation, by supporting the continuous strengthening the quality of banknotes in circulation, aimed at preserving their integrity, in relation with the public, and upholding a dignified image of both the Bank of Albania and the Albanian state. Today, nearly two years later following the launching and the successful issuance in circulation of the first two denominations, the Bank of Albania is launching the two other banknotes, part of the new series of the Albanian banknotes, the denominations: 1000 lek and 10000 lek. The latter is a completely new denomination in the series of the Albanian banknotes. The printing and issue into circulation for the first time of the new banknote with the largest value, 10000 lekë, represents in itself, the adoption of the banknotes’ structure to the evolution of the structure of prices and wages, the development the electronic payments, and of the other indicators related to the management of currency. | The North-West and Sogn og Fjordane: In the North-West, there are still only a few contacts that report an increase in employment. Most companies can increase activity by 10-15 per cent without altering their workforce. Retail trade and construction are the only sectors that report an increase in employment. Construction companies 4 BIS Review 61/2004 report some signs of labour market tightness, due in part to the start-up of work on the Ormen Lange project. The use of foreign contract labour in connection with seasonal work in the fish processing industry, the hotel sector, tourism and the engineering industry is increasing. Growth in household demand, petroleum investment and increased activity in the business sector are paving the way for a rise in employment in the period ahead. On the other hand, intensified competition and continued rationalisation in the business sector may have a dampening impact on labour demand. Developments in real economic variables are mirrored in credit markets. In recent years, household income has shown solid growth, and household confidence has been high. Corporate earnings, however, have been low, and until recently companies have primarily focused on enhancing efficiency. Total credit growth is rising approximately on a par with GDP growth. The composition of credit growth in the past year, however, has given ambiguous signals to our interest-rate setting. Growth in household borrowing is high, while growth in corporate borrowing is low. Developments in corporate borrowing shadow developments in corporate investment. Household debt has increased sharply since 1994. | 0 |
Over the course of the program, our purchases ran at about the same pace as the total net Treasury supply coming to the market. Moreover, with the completion of the program, the SOMA portfolio holds about 18 percent of the outstanding stock of Treasury securities. Our share of the market is even higher at intermediate maturities, where our purchases were concentrated. Part of the challenge to the Desk was to structure our operations in a manner that would allow the market to absorb such a large volume of purchases. Several features of the program’s design may have helped to promote robust participation by market participants, including the decisions to relax the 35 percent limit on SOMA holdings of individual issues and to include recently issued securities in the range of eligible issues in nearly every operation. These features allowed our counterparties to offer us a wide range of securities at each operation. In the end, dealers participated aggressively, with an average offer-to-cover ratio of over 3.5. Moreover, we managed to execute these purchases at prices that were, on average, at or very near the indicative quotes on these securities that we collect as a pricing reference. In addition to focusing on the performance of our operations, we have also monitored measures of liquidity in the Treasury market. The market seems to be functioning well despite our sizable presence. Measures such as bid-ask spreads, quote depth, and trading volumes have held relatively steady at favorable levels over the life of the program. | With a view to the future, I should note that the current reform will further increase the complexity of the capital adequacy requirements. Although the potential of capital adequacy regulation has not yet been exhausted, other possibilities should also be investigated in the future. Complementing the capital adequacy approach with improved liquidity management of the banks seems to be a particularly promising measure. Shortcomings in liquidity management may give rise to problems that cannot be resolved by adequate capitalisation. It is not surprising that such considerations are made primarily by central banks. After all, liquidity concerns are typical for central banks. On the macro level, maintaining the supply of liquidity is a monetary policy task. On the micro level, however, it is the task of each bank to bring its solvency into line with the risks. This requires that the liquidity risks be correctly assessed and managed, and that assets, which can if necessary be used as collateral, be made available. The central banks and supervisory authorities of the G-10 countries should, therefore, increasingly focus their attention on minimising liquidity risks. This is of particular relevance to banks that are systemically important and internationally active. Integrated financial market oversight: what now? In the meantime, the Federal Council decided on the further procedure regarding the Federal Act on Financial Market Oversight (FINMA Act). The Federal Department of Finance will prepare a statement by the end of next year and submit it to the Federal Council. | 0 |
On the cross-section dimension, extra capital has been proposed for systemic institutions in order to make them more resilient to financial turbulences. But, the definition of systemic institutions is still blurred, and given the evolution of financial innovation, what today may be a non-systemic institution may eventually become systemic. Indeed, a non-systemic institution on a worldwide basis could be systemic from the point of view of particular economies. Again, these issues are not new in emerging market economies, which in general have more capitalized banks. In Chile, most of the industry already satisfies the requirements that are supposed to be in place by 2019. Moreover, there are larger requirements for banks that have high market share. There are other areas where we have already made significant progress, such as restrictions on currency mismatches, liquidity management and the use of derivatives. In all of these cases, the Central Bank of Chile has authority to set prudential regulation. For banks, these relate with authorizing the use of derivatives, regulation regarding market and liquidity risk, among others. In other areas, the Central Bank also has a say in “systemic” regulation, such as overall limits for Pension Funds. This scheme accommodates recent policy concerns, since it avoids the conflict of interests that arises from mixing the micro supervisor with the monetary authority, while preserving an institution that provides a broad look at the stability of the financial system. This being said, however, there is a need to continue strengthening coordination instances with other regulators. | Page 1 sur 7 8th International Insurance Conference: “Towards the insurance of tomorrow” – Paris, 14 October 2016 Speech by François Villeroy de Galhau, Chairman of the Autorité de Contrôle Prudentiel et de Résolution and Governor of the Banque de France Ladies and gentlemen, I am very happy to be here today for this 8th International Insurance Conference - the first to be organised under the aegis of the French Insurance Federation - and I would particularly like to extend my regards to the federation’s Chairman, Bernard Spitz, as well as to its vice-chairmen. Although I have met you all several times in the past year, this is the first time I have participated in an event in my capacity as Chairman of the ACPR, the Autorité de Contrôle Prudentiel et de Résolution. Rest assured that at the ACPR, I indeed we - regard the insurance sector as every bit as important as the banking sector. With a total of 826 licensed firms in France in 2015, oversight of the insurance sector is a vital part of our mission to safeguard financial stability – which, alongside monetary strategy and the provision of services to the economy, forms part of my threefold mandate as Governor of the Banque de France. Page 2 sur 7 As supervisors, we are concerned on a daily basis with the theme of this conference: the insurance industry of tomorrow. Indeed, given the speed at which things are evolving, tomorrow’s insurance landscape is already very much present today. | 0 |
For instance, if the Committee decides the interest rate on one-week maturity repo auctions is to be 16.25 percent, then it will remain as 16.25 percent unless the Committee changes this. b. In the case of liquidity shortage due to unpredicted reasons, thus leading to a decision for an intra-day repo auction, such auctions will be held at the interest rate set by the Committee via the quantity auction method. c. Each bidder shall make an offer at most for the amount announced for that day and the funding amount to be raised via the auction will be distributed to participants according to the ratios of their bids to the auction amount.. d. Other guidelines governing the auctions and transactions shall remain unchanged. (iv) In the case of a temporary liquidity surplus, instead of one-week repo auctions, the Central Bank will hold reverse repo auctions with a one-week maturity subject to the same conditions and with the interest rate announced for the repo auctions. (v) Fixed rates will be applicable only to repo and reverse repo auctions with a oneweek maturity. Repo and reverse repo auctions or other auctions with maturities longer than one-week that the Central Bank may hold within open market operations will continue to be held under the traditional method and the price/interest will be formed under market conditions. | It is stipulated in Article 42 of the CBT Law that “The Bank shall submit information to the Government in writing and inform the public disclosing the reasons of incapability to achieve the determined targets in due time published or the occurrence of the possibility of not achieving and the measures to be taken thereof”. Implementation details regarding the specification of the extent of the deviation from the target that require explanation are left to BIS Review 3/2009 5 the discretion of the Central Bank. In this respect, the Central Bank sets an uncertainty band around the target and enforces the accountability mechanism in case figures breach this band. The uncertainty band for 2009 has been maintained at two percentage points around the target. In this context, a path consistent with the end-year target has been established for the end of each quarter. The figures to be used as a reference for accountability throughout 2009 can be found in Table 1. | 1 |
And we must not lose sight of our collective values regarding individuals’ right to privacy. Before concluding, I would like to add a few words about Brexit. The French authorities are mobilised and committed to making Paris a leading destination for insurance undertakings. The ACPR has taken the lead with an English-language fast-track authorisation. We are holding serious and discrete discussions with various business prospects. The recent announcement by the American group Chubb, the United States’ leading property and casualty insurer, of its intention to transfer its operations to Paris demonstrates that our expertise in supervision in particular is a recognised asset. But mobilising must not mean abandoning our high standards and requirements, and Brexit cannot be an opportunity for British entities to simply set up empty shell corporations in Europe, mere company name plates, while keeping their resources in the United Kingdom. In this respect, I fully agree with the vigilance called for by EIOPA. And lastly, Brexit also brings with it certain risks, and consequently the need for contingency plans: I am thinking particularly of the French policyholders who took out insurance directly with British undertakings, and by way of symmetry, the French undertakings with commitments in the United Kingdom. Beyond what the insurance sector can do for our economy, I would like to conclude by telling you what we can do for you. | This is an essential step towards their possible end later; a step that is justified by our confidence in the gradual convergence of inflation towards our target of 2% over the medium term: we consider the economic recovery in Europe to be “increasingly robust and broad-based". In parallel, we said that we will continue to ensure “ample” monetary support, rather than “very substantial” support as mentioned in our previous statements – thanks to the whole range of our instruments, including the sizeable stock of assets that we will continue to hold in line with our policy of reinvestment, and our forward guidance on interest rates. In this new paragraph, the Governing Council stresses an essential point that I have often referred to over these past few weeks: our non-standard monetary policy is not a solo – it is not simply about net monthly purchases, and we shouldn’t focus too much on them –; it is a group of instruments that we can play, by following a predictable sequence, as part of our gradual normalisation strategy. It is therefore important that insurers continue to adapt their business models to the low interest rate environment. In particular, I welcome the gradual moderation of interest rates paid out on life insurance contracts, which should be pursued in order to maintain, in the long run, insurers’ solvency and their ability to meet all their commitments vis-à-vis policyholders. | 1 |
Finally, it is worth underlining that the Bank of England has an interest in the evolving structure of financial markets because, as well as being a policy body, it is also a bank. We have a fairly substantial and diverse balance sheet to manage, and that balance sheet is the basis for our financial market operations in support of our policy responsibilities. The Bank is banker to the government, and to the banking system as a whole, and maintains an operational presence in various key financial markets. In the sterling markets, the Bank obviously stands at the centre of the short term money markets, providing liquidity to the banking system and thus maintaining control over short term interest rates. We are also, as managers of the nation’s foreign exchange reserves as well as various currency assets and liabilities on the Bank’s own balance sheet, active in the foreign exchange and some foreign bond markets. Finally, although no longer responsible for debt management, we retain an operational capability in the gilts market, again primarily to manage our balance sheet and provide services to customers. Being close to developments in these markets provides a vital source of information used in the pursuit of our financial stability, as well as monetary policy, objectives. And any operations that were, in a crisis, needed in support of our financial stability objectives could take place in any of these markets. Now I will turn to some of the various forces for change in the financial services industry. First, the euro. | Obviously the changes in the Bank’s remit announced in May 1997 by the incoming Labour Government, and largely enshrined in the 1998 Bank of England Act, were profound ones. The arrival of monetary independence meant that the work of the MPC – of which I am one of the nine members – has scarcely been out of the news. Less obtrusively, the departure of banking supervision to the new FSA meant the end of one substantial – though actually comparatively recently acquired – function; and the shift of debt management to the DMO brought to an end another, much older one. So does the “new” Bank have a new relationship with the financial services sector? Let me first say that, though the Bank has been through a period of profound change, its core purposes remain the same. One is obviously to promote monetary stability; and there our role is now much more substantial and overt. But the Bank has two more core purposes, and both relate directly to the financial services sector. 1 BIS Review 43/1999 The first is to promote the overall stability of the UK financial system. This role is not new, though it has recently been set out explicitly in the Memorandum of Understanding between the Bank, HMT and the FSA. Broadly, promoting systemic stability means working to ensure that the financial system continues to perform its key roles in support of the wider economy – settling transactions, providing liquidity and allocating savings. | 1 |
We also learnt that we must ensure clear responsibilities and limits to delegation. The fund is a long-term savings plan and capable of riding out large market swings. This is the very foundation of the investment strategy with its high allocation to equities. Our ability to adhere to this strategy in a critical phase – even if this should last some time – is crucial if the Fund is to deliver the returns we expect in the longer term. Norges Bank’s Executive Board has reinforced its oversight of the Bank’s investment management. It has issued a new mandate that delegates investment management responsibility and introduces additional limits in the risk profile for investment management. As with the Fund’s long-term investment strategy based on active management and active ownership, the results of our operational management of the Fund need to be measured over time. To that extent, we need to maintain an incentive structure in order to retain and build long-term competence. We also need to ensure the quality of the investment management. In our view, the search for excess return has had a strong disciplinary effect on the organisation. 6 BIS Review 58/2009 I am confident that the operation we have built up will deliver good results in the long term. Thank you for your attention! | The return generated by Norges Bank’s investment management in 2008 was 3.4 per cent lower than the benchmark portfolio used as performance measure. This is considerably weaker than might have been expected in light of our investment strategy, which relies on a large number of small, independent positions. In the period since 1998, the Fund has recorded a cumulative annual excess return of 0.04 percentage point lower than the return on the benchmark portfolio defined by the Ministry of Finance. Norges Bank’s aim is to generate added value through our investment choices. After many years of high performance, the Fund is now right back where it started. The Fund’s underperformance and the fall in overall return can largely be attributed to the financial crisis. Assessment of the results of our active choices should, in our opinion, also take into account the long-term perspective on which the Fund’s investment strategy is based. Norges Bank’s investment results since 1998 are different for the two asset classes equities and fixed income instruments. Although active equity management generated negative results in 2008, these were well within the limits predicted by our risk models for any one year. However, since the beginning the annual excess return on equities has been close to ½ percentage point. We have established an equity management strategy that seems to be fairly robust to market fluctuations and that has, as we have seen, generated solid returns viewed over a longer period. Developments in the Fund’s fixed income portfolio have followed a different path. | 1 |
This is associated with the adaptation to a more demanding regulatory framework that involves higher requirements in respect of own funds and liquid assets, along with other additional demands derived from the new resolution regulations. These regulatory changes, which have been introduced globally, are the response by the economic authorities to the shortcomings highlighted by the international financial crisis. Their essential aim is to increase banking systems’ resilience in the face of adverse shocks and to prevent taxpayers from having to bear the cost of the resolution of ailing banks. The first raft of reforms, known as Basel III, which was designed between 2010 and 2011, focused on increasing the volume of bank capital and improving its quality, and on the introduction of new minimum liquidity requirements and counterparty exposure limits, and of macroprudential instruments, such as the so-called countercyclical capital buffer. All these requirements will be effective, practically in their entirety, in late 2019. Spanish banks have already largely adapted to these new requirements, with their liquidity and capital ratios currently standing above the minimum levels stipulated. In any event, as 6/8 regards the CET 1 and Tier 1 solvency ratios, their aggregate levels – albeit with significant dispersion across banks – are, as at March 2018, low compared with those of the euro area banking systems, according to data from the European Banking Authority. This once again highlights the need for Spanish banks to adopt capital-strengthening strategies. With regard to the solvency regulatory measure, which does not take into account risk weightings, i.e. | Low interest rate levels have contributed to compressing banks’ net interest income given that, with zero proving an effective floor for the remuneration of most deposits, once that level is reached banks have not been able to continue reducing their funding costs in a setting in which risk-free returns have come to stand at negative values. In any event, the evidence available indicates that this negative effect on net interest income has been partly offset by a lesser pass-through of market movements to the interest rates on the outstanding balance of lending. It should be borne in mind, moreover, that the reduction in interest rates also has some positive effects on bank profits via various channels. On one hand, the expansionary monetary policy has a favourable impact on economic activity, boosting the demand for credit and for other banking services. On the other, the decline in the return on risk-free assets tends to raise the value of assets by reducing the discount factor implicit in their price, which translates into capital gains for the banks. Lastly, the decline in interest rates is conducive to a decline in loan default losses, as it reduces the debt burden and raises borrowers’ income as a result of the boost to economic activity it entails. Overall, the above points suggest that the net final impact of the low interest rate levels on bank profitability has been comparatively low compared with the other above-mentioned factors. I will now move on to the third major challenge the Spanish banking industry faces. | 1 |
Other components were: • fiscal policy oriented towards full employment • regulation of credit within limits specified in a separate credit budget • channelling of loans through the state banks • regulation of capital movements • low nominal interest rates stipulated by the government authorities • a fixed, though adjustable, krone exchange rate • use of price regulation • an active business policy through state ownership and state grants and subsidies The proposal to establish an incomes policy council did not receive support. There was just too much control and coordination. Now, only 30 years later, very little of this system remains. The building was not solid enough. We know from experience that fiscal policy alone cannot ensure a high level of employment. The structure of the labour market and of wage formation is probably of greater importance. The direct regulation of credit, interest rates and capital movements broke down and was phased out in the 1980s. The krone is floating. Price regulation no longer plays a role as a macroeconomic instrument. The scope of business policy has become more general. State ownership in the Norwegian business sector remains extensive, but the management of ownership has been totally revised following the negative experience of companies in Kongsberg, Mo i Rana and Syd-Varanger. I would like to highlight two factors that have taken on considerable importance for economic policy. | Since the turning point last autumn, however, we are witnessing a very gradual rise in nominal long-term interest rates and a “steepening” of the yield curve. This is a more favourable development for bank profitability, which could turn into a weakness in the event of a sudden rise in rates: I do not believe this hypothesis is the most likely. But the ACPR remains particularly attentive to the supervision of the interest rate risk management frameworks put in place by banks. The next stress test exercise, currently underway, will look at different scenarios regarding interest rate variations. As regards the insurance sector, the moderation of the rates paid out on life insurance policies is necessary to preserve their solvency. Luckily, we have observed such a trend in 2016 on eurodenominated products, although the average return remains significant at 1.9%. The low interest rate environment has also prompted a shift in savings towards unit-linked products. Here the ACPR is vigilant as to the commercial conditions of this development. The second challenge is the rise of digital finance. Supporting new players is a priority for the ACPR, which we have materialised by the creation of the Fintech Innovation unit and the Fintech Forum with the AMF. Fintechs bring innovative solutions for customers, which are very welcome, but they must also be attentive to data protection, cyber-security and compliance with anti-money laundering measures. But the digital challenge is not limited to Fintechs. | 0 |
Accounting for 99.2% of the total business establishments in the country, there is vast potential to enhance the SMEs' contribution to the economy. In view of both their significance and potential, the Government has given due recognition and allocated significant amount of funds and resources to further enhance the growth of this sector. Various initiatives undertaken by the financial sector had also led to the SMEs enjoying a high level of financing from the financial system. In 2006, banking institutions approved RM39.6 billion to more than 84,000 SME accounts, an increase of 10.7% from the previous year. Meanwhile, outstanding loans to SMEs expanded by 4.2% on an annual basis to RM104.6 billion at end 2006, accounting for 45% of total outstanding business loans. In spite of these priorities and efforts, certain segments of the SME sector continue to lament the lack of financing access, which is deemed as a major challenge that hinders their growth and development. Interestingly, this is not unique to Malaysian SMEs, but rather a worldwide phenomenon. According to the Asian Banker's 2005 Report, it was estimated that only about 5%3 of the world's 500 million lowincome entrepreneurs have access to financial services. The main reasons for the financial constraints faced by SMEs are quite generic, and high on the list is the perception that SMEs are historically a high risk group lacking in financial discipline and unable to provide trustworthy financial track records. | To bridge this information gap, the SME Credit Bureau would effectively consolidate the fragmented information. This convergence of data from various sources would be enhanced, resulting in a convenient, timely and efficient access to SME information and credit ratings to assist the potential lenders to make a more objective evaluation of loan applications. It is our ardent hope that the SME Credit Bureau will become an integral component towards enabling SMEs to gain access to financing. The SME Credit Bureau also aims at promoting greater transparency, professionalism and sound credit culture among SMEs. SMEs can be assured that their good track records would be captured and evaluated by an independent third party, which in turn, would assist them to increase their financing and business opportunities. The credit reports would serve as a convenient tool for SMEs to carry out a self evaluation in identifying areas that needs improvement. This strategic alliance represents a meeting of the common objective of CGC and D&B to bridge the gaps in the availability and access to SME credit information in the country. The SME Credit Bureau is a big step towards a more sophisticated and transparent financing environment for SMEs in Malaysia. Both CGC, which is in the business of providing credit enhancement to Malaysian SMEs; and D&B, a global operator and provider of credit bureau services, are well equipped to drive this initiative forward. On this note, I would like to congratulate CGC and D&B Malaysia Sdn. Bhd. in making this initiative possible. | 1 |
Branch closure is free as of last month and bank opening and closing time has been free for almost a year now. We are working on the product side, both credit and funding, to allow banks to be more free to offer customers better services. For good governance, no matter what you do and what you write, unless you make people who contradict the rules pay a price, no rules will work. We have therefore in the last couple of years prosecuted about 90 people for 49,000 million baht involving really 1.7 trillion baht of assets. We have recently ruled that directors of banks must devote their attention to the banks and may not be directors of more than three other companies. Some directors have already conformed even though it would not be legally sanctionable until we explicitly inform them individually, which we have not done. We are beginning the process of follow up to fully enforce these rules soon. We have also indicated that we would like to see banks, which are now large complicated places to run, have their directors devote their time to particular functions of the bank. We are also going to begin checking on this, but for sure with Siam Commercial Bank which I visited last week in order to discuss with them personally on their risk control procedures now have a Compensation Committee, and that is a good development different from the time when I was the director of that bank on the behalf of the Ministry of Finance. | In terms of transparency of letting people see what banks are doing with their deposits or their investment, or generally what banks are doing to the country even if they have no money in the bank, because this may well be important to them, we are having some difficulties since the old law was drafted with secrecy sort of more predominantly in mind than other features. In the new law, we will have no real difficulties but we are still trying to go through the exercise of finding some enabling clause in the present laws to allow us to enforce the banks to announce their NPL, related lending, fines and penalties at the end of every month, and also to announce it ourselves for better impact. This will take some time because the lawyers in the central bank and those from outside helping us with various operations at the moment differ over our ability to do this. But we intend to do it as soon as we can rather than later. In the general area of governance, things are also moving. The electronic commerce law and the electronic signature law have just passed the Cabinet. Whether it will pass Parliament in its last year of its life depends on whether the Government wishes to rush a lot of legislation through or whether it will delay them for fear of losing the election. I am inclined to think that it will be the former, as the Government does need more positive results to enhance its electability. | 1 |
Although we fully appreciated the benefits that Switzerland would draw from the creation of the euro in terms of increased transparency and lower transaction costs, we were also quite concerned about the possible risks. Three of these came to mind. First, we feared that the Swiss franc might be in for a bumpy ride. In the past, whenever the dollar was under attack, international investors turned their attention to the German mark and the Swiss franc. Their status as safe-haven currencies meant that at times of turbulences on foreign exchange markets they would move well beyond what economic fundamentals could justify. In fact, the Swiss franc often revealed a tendency to appreciate even more than the German mark, a phenomenon that was generally attributed to the relative narrowness of the Swiss financial markets. Now with the German mark gone, wouldn’t all attention focus almost exclusively on our currency? Would it not mean that in a dollar crisis the franc would have to bear even more of the adjustment than in the past? Even more frightful, what would happen if the euro itself were under attack? The last thing we needed was for the franc to become the first currency in the line of fire, or something like the lightening rod of the international monetary system. A second apprehension that we had was that it might become very difficult in the future to conduct an autonomous monetary policy. Switzerland, together with Liechtenstein, would now be totally surrounded by a single monetary zone. | If investors have doubts about the dollar, there is no need any longer to rush into the Swiss franc, the euro will do just fine. Second, the eurozone, although not quite to the extent of the United States, is largely a closed economy. Movements in the euro are far less devastating than movements of similar magnitude in the Swiss franc or in the German mark. The euro is much more capable than any other currency to take on the role of shock absorber against the U.S. dollar. The eurozone, in some ways, is the large closed economy that the world needed as the counterweight to the U.S. economy. Be it by intent or by chance, the new, two-headed international monetary system, far from being a freak of nature, is a harmonious and balanced construct that should benefit all small open economies, not least Switzerland. There is a third reason why the arrival of the euro has changed the landscape and should fundamentally prove beneficial to the stability of the international monetary system, and that is competition. Even though the U.S. monetary authorities do not have a mandate that is as specifically directed at price stability as the ECB does, investors now have a choice and can vote with their feet. Thus the pressure is on the United States to deliver price stability as well. | 1 |
In this context, the ESRB is further analysing systemic risks posed by liquidity mismatch and leverage in investment funds. Moreover, the report identifies considerable interconnectedness between banks and shadow banks, particularly money market funds (MMFs). Approximately two-thirds of MMFs’ total assets are related to banks, mainly in the form of debt securities. This interconnectedness was a key consideration underpinning the ESRB’s recommendation that MMFs should have a fluctuating net asset value, rather than promising a constant one, and that they should be subject to enhanced disclosure and liquidity requirements.12 Macroprudential policy beyond banking More generally, the ESRB is analysing connections across different sectors and geographies of the financial system. This cross-cutting analysis informs the development and calibration of macroprudential policy beyond banking. In this way, targeted research enhances the quality of policymaking and thereby improves the resilience of the financial system. 2/4 BIS Central Banker's Speeches The ESRB believes that the smooth functioning and systemic resilience of derivatives markets can be improved by requiring standardised over-the-counter contracts to be centrally cleared and traded on exchanges or electronic trading platforms, in line with the commitments made by the G20 in 2009. The EU’s first central clearing obligation came into effect in June this year for certain interest rate derivatives, and will gradually be extended to other transactions. The ESRB is monitoring the effects of this obligation on collateral demand and network structure, and will publish its findings in due course.13 The ESRB is also leading research into new macroprudential instruments beyond banking. | The value of the banknotes and coins in circulation has fallen from 9.6% of GDP in 1950 to 2.9% in 2010. So, the question is: Should cash be compared with the extinct Neanderthals or the surviving Crocodiles? But why is this of interest to the Riksbank? Well, a first obvious answer is because it is the Riksbank that issues banknotes and coins. Another, and more complicated, answer is because one of the tasks of the Riksbank is to promote a safe and efficient payment system. This may sound a little high-flown, but it means, among other things, that we should promote the development of safe and efficient payments. This is why we have a natural interest in cards and cash. Hence, we are interested in the evolution of the market for payments, and that is why I am standing before you today. What I intend to talk about today is why I believe that cash will continue to play an important role in our payment system for the foreseeable future (even though not 85 million years) and why cards and other technological developments will not be able to fully take the place of cash. Ironically, part of the explanation for this lies in the strong position that debit and credit cards hold on the Swedish market. As usual I would like to make clear that my speech is an expression of my own views and that it may not necessarily be shared by my colleagues in the Board of the Riksbank. | 0 |
Asia is at a different starting point from Europe – millions of people still do not have access to electricity. Fossil fuels are still the cheapest way to generate energy in many parts of Asia. Yet, there is scope for energy-efficient technologies and renewable energy solutions. Asia’s transition to sustainability will be progressive – through deeper shades of green. Let me describe three ways in which Singapore aims to support Asia’s transition towards greater sustainability: Asian Carbon Credit Market Green Finance Action Plan Green FinTech Asian Carbon Credit Market Given Asia’s continued dependence on fossil fuels, an Asian carbon credit market must be part of the strategy to achieve both development and sustainability in Asia. Carbon credits are increasingly seen as a complement to firms’ de-carbonisation efforts. 6 / 10 BIS central bankers' speeches Global demand for voluntary carbon credits is expected to grow 10 times over the next 10 years, from 100 million tonnes of CO2 equivalent in 2019 to over 1 billion tonnes in 2030. But today, carbon credit markets are fragmented, liquidity is thin, and carbon prices vary across markets. We need global coordination to scale up the voluntary carbon credits markets. We need more high-quality carbon credits and more trading of such credits across borders to drive convergence towards a global price on carbon. We need to put in place infrastructure and data connectivity to ensure environmental integrity and avoid double counting of credits. | SGFinDex underscores an important principle:your personal financial information belongs to you, and you should be able to have a consolidated view of that information. SGFinDex could well transform financial planning in Singapore. By breaking down information silos, it will enable more holistic financial planning. Authorised financial institutions will have to compete harder among themselves to provide quality financial planning services to their customers. It will empower and enable Singaporeans to enhance their financial well-being. FINTECH FOR AN INCLUSIVE SOCIETY – SMALL AND MEDIUM ENTERPRISES Besides individuals, small and medium enterprises are the other focus of Singapore’s FinTech agenda for a more inclusive society. An effective way to enhance the digital inclusion of SMEs is to get them plugged into common digital platforms that will enable them to enhance efficiency and expand their business opportunities. I will highlight how digital platforms are helping Singapore SMEs in three areas: seamless cross border trade enhanced access to global opportunities efficient multi-currency payments and settlements Seamless Cross Border Trade – Networked Trade Platform In a small market like Singapore, to achieve scale, SMEs will have to sell their goods or services overseas. But cross-border trade can be painfully complicated. It involves multiple parties: from government agencies, logistics and services providers to trade financiers and insurers, and countless documents often with duplicative data. Singapore Customs has developed the Networked Trade Platform, or NTP for short. NTP is a one-stop trade and logistics ecosystem which digitally connects players across the trade value chain – in Singapore and abroad. | 1 |
The Bank continues to promote London’s merits as a financial centre and, despite EMU, London remains the primary financial centre in Europe. The UK economy Let me conclude with some thoughts on the UK economy. With inflation below target and sterling so strong, whilst the MPC’s recent decision earlier this month to raise rates was expected by the market, it also attracted some criticism. But if the inflation target is to be met, the MPC cannot afford to ignore evidence of inflationary pressure emerging in the economy. Domestic demand is strong and the economy as a whole is growing above trend (at around 3%); a rate that is unsustainable unless, that is, UK productive capacity and the trend rate of growth have increased, such that the UK can enjoy a period of rapid non-inflationary growth similar to the US. The labour market is clearly tight with average earnings rising at close to 5%, even before the large jump in December’s data which we think may have been influenced by bonuses and Y2K payments. Increases through last year in the price of oil and other commodities are beginning to feed through the supply chain to producer prices. At the same time, increases in asset prices - share prices and housing - are fuelling consumption further, not least through the pick-up in mortgage equity withdrawal. Given the time it takes for interest rate changes to feed through to inflation, it is important for the MPC to be forward-looking and proactive in dealing with these threats. | This is also crucial. As these restructured loans, which were totally necessary, did not deplete banks, they were able to ramp up lending. Last year, the corporate loan portfolio expanded by 9.9%, which is nearly twice as much as in 2019. In turn, the Bank of Russia pursued a policy making it easier for banks to address these two tasks — restructure loans and issue new ones. We introduced regulatory relaxations to ensure that the volatility of various financial indicators in the market did not affect banks’ balance sheets. These measures included short-term easing providing more time to banks to adjust to the situation for them to avoid camouflaging problems and toxic assets. Looking at other nations, we know how all this might affect lending conditions. Incidentally, many banks did not even use these relaxations, which also confirms the stability of the system as a whole. Nonetheless, this provided them more comfort to continue restructuring and expand lending. In addition, we released buffers — capital cushions accumulated over previous years — for consumer and mortgage loans, which increased capital for lending. In our opinion, these measures were sufficient. What is the situation in the banking sector now? By the beginning of 2021, 75% of loan repayment holidays ended. In other words, restructured loans now pose objectively lower risks to banks’ financial standing. Moreover, the absolute majority of borrowers have managed to resume their scheduled repayments. This means that they really needed loan repayment holidays and easing for that period (which was not writing-off, but easing). | 0 |
This allowed NOKIA to free up capital for the most profitable activities of the company. Today the company has more than 50,000 employees. At the end of last year, the market value of NOKIA was about NOK 1,700 billion, which is four times the market value of all the companies listed on the Oslo Stock Exchange. The economy needs creative destruction to develop. The tendency may have been for the Norwegian authorities to provide various types of support to businesses and industries that have existed for some time. When the government intervenes, the authorities tread a fine line between business development and conservation. It is thus important to tread carefully, so that capital and labour are not tied up in less profitable activity. The required rate of return and the need for restructuring in the business sector often conflict with the need for stability and security for the individual employee. Local communities may suffer. The answer is not to oppose restructuring. The best solution is to develop and take advantage of skills and expertise. This also requires extensive adaptability and labour mobility. The welfare state The restructuring that we are facing in the Norwegian public sector is hardly of less significance than the changes in the business sector. During the last decades the Norwegian welfare state has expanded BIS Review 14/2000 14 rapidly. Household income and consumption have also shown steady and strong growth. We have also witnessed a sharp expansion in the production of services in both the public and private sector. | Fiscal policy and the Government Petroleum Fund have proved to be effective in terms of sheltering the mainland economy from more normal variations in oil revenues. A permanent change in the krone exchange rate will occur only if there is an increase in the use of oil revenues through a shift in expenditure growth. In this context, instruments other than those available to Norges Bank must be used to return the krone to its initial range. BIS Review 14/2000 8 Interest rates influence the exchange rate through two channels. The interest rate differential against other currencies has some effect on the exchange rate. The exchange rate is further influenced via the impact of interest rates on domestic price and cost trends. The isolated effect of the interest rate differential on the exchange rate may be of little consequence compared with other factors. According to Norges Bank’s calculations, the current interest rate differential against the euro area impacts the krone exhange rate in the order of 20 øre against the euro in the short term. On the other hand, the effect of the interest rate on the exchange rate through the channel of domestic demand and price and wage inflation may in many situations be considerable. The Norwegian economy may be exposed to shocks or disturbances that both reduce domestic activity and weaken the Norwegian krone. In response, interest rates should not be increased. An increase in interest rates will result in higher unemployment and mounting instability in the domestic economy and the exchange rate. | 1 |
It would hardly be consistent for us on the one hand to be promoting greater competition and on the other to seek to determine or influence fees and charges. However, the public concern about the effects of deregulation, coupled with the recognition of the importance of banking services to people’s daily lives, suggest that we should be paying more attention than we have in the past to the question of consumer issues. This is the subject to which I should now like to turn. Consumer protection First, I think it needs to be understood that the changes now going on in banking services, including the restructuring of fees and charges, are not solely the result of interest rate deregulation. There are a number of factors – global as much as local – that are driving banks into refocusing their business. These include: increased competition from both within and outside the banking industry; pressure to increase shareholder value; the need to develop new income streams amid a shortage of conventional lending opportunities; and globalisation, which is inducing banks to specialise in forms of business in which they have a competitive advantage. These various factors are forcing banks to innovate - through new products and new technologies – in order to diversify their income. They are also forcing banks to become more cost-efficient: to scrutinise the profitability of their various services, and to rationalise cost structures. | However, the reactivation of credit activity remains a challenging goal, which would require encouragement of the final demand and generation of business plans valid for bank financing, reduction of real and perceived risk in the economy, review of development strategies and commercial banks’ lending policies, as well as reduction of cost and non-cost elements in lending. All these factors are envisaged to gradually improve throughout the year; however, they will remain far from the pre-crisis levels. Bank of Albania’s monetary policy will continue to be prudent, chiefly oriented towards achievement of inflation target. The recent upward inflation trend might have been motivated by temporary-action and limited-intensity supply factors. The Bank of Albania has envisaged BIS Review 28/2010 1 that the exceeding of 4 percent inflation rate will be for a short period of time and will not be followed by steady inflationary pressures. Our projections show that consumer price inflation will fall gradually towards the 3 percent targeted rate during 2010. However, we remain committed to taking all appropriate steps to ensure this performance and meet our legal mandate for price stability in the economy. 2 BIS Review 28/2010 | 0 |
The environment in which monetary policy was now to be conducted was thus different than during ‘The Great Moderation’. We therefore needed to review the arsenal of measures that can be used in a crisis situation. Many measures during one week in March last year We are now back where we started in my story, that is to say in March last year. What we saw then was a very rapid and dramatic sequence of events. The stock markets began to decline as early as late February, when the coronavirus began to spread increasingly quickly outside of China. The WHO declared COVID-19 to be a pandemic on 11 March. On 12 March we saw the largest stock market fall in one day in Sweden so far, when the index fell by 11 per cent. This meant that the index had fallen by 30 per cent since 20 February. The fixed-income markets were also affected to an extremely large degree (see Figure 7). All bond rates rose to a varying extent. Investors’ new motto was ‘dash for cash’, as they abandoned unsafe assets in favour of safer ones with high liquidity. Corporate bonds market under scrutiny When Swedish companies have needed to finance themselves with loans, they have traditionally used bank loans. But in recent decades, there has been a structural transformation, which means that they increasingly finance themselves via interest-bearing securities (see Figure 8). At present, interest-bearing securities account for one third of their loan financing. | But a strong independence and plenty of room for manoeuvre entails freedom with responsibility – we have an important analytical and educational task to explain what we do and how this helps us attain our objectives. I want to start by going back in time around 350 years. The motive for our independence – creating long-term stability Every central bank reflects its time and its country, but some tasks are common to all of them through history, for instance, issuing means of payment in the domestic currency, and ensuring the means of payment can be used and retain its value. And this also applies to the world’s oldest central bank – the Riksbank. Monetary policy has always focused on maintaining the value of money. Historically, the Riksbank has tried to do so by having a nominal anchor. 2 The establishment of the Riksbank can be dated back to Stockholm banco, Sweden's first bank. This also became Europe’s first banknote-issuing bank. The value of the banknotes was based on it being possible to exchange them for coins. But when an abundance of banknotes were issued, the general public began to question their value and demanded to redeem them. The nominal anchor gave way. And a bank crash was unavoidable. Riksens ständers bank emerged from the ashes of this in 1668, becoming what we know now as the Riksbank, as an authority under the Riksdag, the Swedish parliament. | 1 |
These 2 BIS central bankers’ speeches measures have substantially contributed to increasing the share of credit to the private sector in total credit, which rose by 24 percentage points (from 31.3% to 55.3%) over the last decade. As a non-bank source of investment financing, financial market financing- mainly bond issuance – has significantly increased since 2002 in response to new financing needs related to private and public enterprises investment programs. As a percentage of nonhydrocarbon GDP, the financing of public and private enterprises through bond issuance reached 3.5% in 2006, up from 1.5% in 2004. 2. Macroeconomic stability and recent strengthening of the financial stability framework The return to macroeconomic stability in 2000 and the financial performance achieved between 2001 and 2008, allowed the domestic economy to weather the global crisis well. In particular, sustained accumulation of foreign reserves between 2000 and 2008 and early repayment of the external public debt in the mid-2000s put Algeria in a position of net creditor vis-à-vis the rest of the world. Its net external position reached 91% of GDP in 2013, in a context of continued prudent management of foreign reserves by the Bank of Algeria. This external financial stability is supported by Bank of Algeria’s active exchange rate management through its interventions in the interbank foreign exchange market aiming at stabilizing the real effective exchange rate of the dinar close to its medium term equilibrium level. In the first half of 2014, real effective exchange rate slightly appreciated, in a context of disinflation. | Moreover, the ratio of total credit to nonhydrocarbon GDP remained stable, whereas credit to the private sector/nonhydrocarbon GDP increased somewhat in 2013 to reach 23.45% (21.35% in 2011). In 2013, while pursuing their provisioning efforts, banks consolidated their financial soundness indicators. Solvency ratios remain high, much higher than required under the prevailing regulation and in line with the recommended level under Basel III. The banking sector soundness is anchored to high capital adequacy ratios and high profitability and liquidity. The solvency ratios are in line with those of comparable emerging market economies. In 2013, an assessment of the banking sector carried out by the International Monetary Fund and the World Bank has helped define further directions in deepening banking sector reforms and strengthening banking system stability in Algeria. Effective implementation has started in the first quarter of 2014 with the enactment by the Council on Money and Credit of three regulations related to the solvency ratios, large exposures and participations, and loans classification and provisioning. The minimum Tier 1 capital ratio has now been set at 9.5%, higher than recommended by the Basel Committee, and the regulatory capital ratio has been set at 12%. Moreover, as regards the strengthening of the capacity in assessing the banking sector risk, Bank of Algeria will rely, as of the beginning of 2015, on the effective use of the new stress test model, and on the generalization of the bank rating system. | 1 |
When we are feeling our way in trying to assess the pressure of demand in the economy, it can often be sensible to move rates gradually so that we can gather more information as we go on the effect of past rises. But, of course, we all know that if we get behind the curve, gradualism could compound the problems. The pace as well as the direction of any change is therefore a matter for discussion in most MPC meetings. Looking at the economy today there are as wide a range of uncertainties as ever, for example about the level of slack in the labour market, the pricing pressures in companies, the future path of oil prices and the strength of monetary growth. I want to discuss three which arise from developments in financial markets, and which are relevant to both the Bank’s core purposes: monetary stability and financial stability. 2 BIS Review 84/2007 Sub prime and the credit markets Let’s start with the credit markets. The backwash from defaults in the US sub prime market has been seen not just in the recent problems faced by some hedge funds 1 exposed to this sector but in credit markets more widely. Credit spreads have widened especially for riskier bonds (Chart 3), the covenant lite loans on offer a few weeks ago are off the table, and the leveraged loans in the warehouses are reported to be moving more slowly. And this has happened at a time when long term interest rates have been rising. | It takes many forms, and should extend across all areas of central banking. Few of the materials that will be discussed today and tomorrow illustrate this initiative very well. I hope there will be more similar examples in future workshops. The presentations and discussions today and tomorrow address a wide range of issues, reflecting the nature of problems that our economies are facing. I understand from the programme that our guests’ focus of research is similar to the one at the Bank of Albania. During the past year, we have focused on financial stability and monetary policy, trade integration and trade relations, and the modelling of stochastic economic process. But above all, the crisis, its implications, the channels of transmission, and policy response have become the focus of empiric and theoretic research in the central banks and academia during the last 4 years. The results of this research and analysis have taken central banks and their monetary and regulatory policies beyond what was considered sacred limits of monetary policy. However, this has not proven very helpful for the economy. It is now five years since the crisis began and the more authorities deal with short-term problems of growth and unemployment, the more they reveal long-term imbalances and structural problems of national and global scale. In the meantime, we still cannot fully define, understand and model the economy in its true stochastic form. | 0 |
Marzunisham Omar: Fintech & entrepreneurship Opening remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Islamic Fintech Dialogue 2017 "Fintech & Entrepreneurship, Kuala Lumpur, 11 October 2017. * * * The financial industry today is confronted with a new normal – rapid advances in technology and an increasingly tech-savvy demographic are presenting both opportunities and challenges to the industry. Indeed, as financial technology or fintech is disrupting the industry, it is also emerging as a major game changer with unique value propositions. The nascent yet growing fintech space has large ambitions. At the fore is its aim to revolutionise the entire value chain of financing. Globally, fintech start-ups are making large inroads and openly challenging the traditional financial players in their own space. Significantly, fintech is reshaping consumers’ expectations of financial services. And yet, fintech does offer tremendous opportunities to financial institutions. There is no doubt in my mind that the financial institutions that fully embrace the advancements in technology will be the future winners. What is required is for us to face up to the reality of fintech – what it is, how it works and how to benefit from it. I am pleased to be here with you today and to speak at this inaugural Islamic Fintech Dialogue. The theme of the dialogue opens up an avenue for interesting discussions to take place on two key emerging trends – the expansion of fintech and the rise of entrepreneurship. | We can thus expect a decrease in ROE, but this only reflects the decreased risk premium associated with the decreased risk-taking. Similarly, the cost of debt decreases and this drop in the cost of funds perfectly offsets the effect of the greater use of the more expensive source of capital in the firm’s financing structure. The essence of the Modigliani-Miller theorem is that the cost of capital and thus the firm’s value are unaffected. Of course we do not live in a perfect world, and the Modigliani-Miller equivalence does not hold. Financing matters. The relevant literature typically puts forward a number of factors to justify the higher cost of equity financing: the fiscal advantage of debt, the cost associated with bankruptcy and the differential liquidity and issuing cost between debt and equity. These arguments apply to pure equity financing, not in the case of Cocos. As debt instruments, Cocos offer the fiscal advantage of other debt instruments. As hybrid instruments, they substitute for other hybrids that are already part of the financing structure of banks and that have proved relatively inexpensive for banks to issue. Finally, it is not clear that bankruptcy costs are relevant in the context of the TBTF problem where precisely those costs are never really incurred. For all these reasons, we may hypothesise that the total cost of bank financing will not materially increase as a result of higher capital requirements, in particular if the latter can take the form of Cocos. | 0 |
A significant development relating to the Zambian financial sector was the decision to relocate the function of the Registrar of Banks and Financial Institutions to the Bank of Zambia from the Ministry of Finance and National Planning where it was previously located. This decision was taken in an effort to enhance regulatory oversight of banks and financial institutions starting from the licensing stage. Currently, all applicants have to be evaluated in line with relevant provisions of the Banking and Financial Services Act (BFSA) and international best practice such as the Basel Core Principles on Effective Banking Supervision. The intention is to ensure that only applicants who meet these stringent criteria enter the financial system in Zambia. This is crucial for fostering confidence and stability in the financial system. Mr Chairman, you may be aware that in the early stages of the reforms, a number of commercial banks faced serious problems and were subsequently liquidated. The closures were in part a consequence of the reforms. The reforms also highlighted some weaknesses in corporate governance arrangements at most failed banks. However, following improvements in the regulatory and supervisory frameworks, no bank closure has been recorded since 2002 and the banking sector has recorded significant growth. The growth in the sector can also be attributed to prudent fiscal and monetary policies aimed at achieving sustainable macroeconomic stability. This has been accomplished under a stable political environment and liberalised market conditions. | The entry of new players in the market is testimony of the confident that Bank’s supervisory oversight of the sector has instilled in both the general and investing public. We remain committed to executing our mandate and in ensuring that the financial system is properly regulated in order for economic agents to undertake their activities in a safe and sound environment. Distinguished guests, we note that financial intermediation is still very low in our economy and as such a lot of work still remains in this area. The Bank of Zambia encourages and supports market initiatives aimed at the financially excluded in order to achieve the objective on financial inclusion. It is therefore my view that promoting the initiative of reviving the operations of a Co-operative bank is important. As you are all aware, in a co-operative bank, shareholders and customers are the same group of people whose dominant purpose is to provide customer value by offering tailored-made products and services cost-effectively and close to home. Through their membership structures, Co-operatives are known to have a firm foothold in local communities and a sound knowledge of people’s overall financial situation. This enables accurate decision making and risk control which in turn, fosters regional development and social cohesion. Co-operative banks are also known for pioneering sustainable development and corporate social responsibility, through continuous engagement to fight unemployment and eradicate social exclusion. In fact, if properly managed, Co-operative banks can make the financial system more competitive. | 1 |
Well, paradoxically, what we do is argue that we need to regulate more and better. There is now a version III of the Basel rules, which have grown from 37 to 616 pages.11 Andy Haldane, Executive Director of Financial Stability at the Bank of England estimates that, all together, the rules – once they are fully incorporated in national legislation in Europe – will number 30,000 pages.12 Is this really the way to go? Has the pendulum swung too far?13 Are we facing a new paradigm shift? In spite of lessons learned: back to square one The philosopher Henrik Syse has reminded me of this very phenomenon. Truths we took to be eternal often prove to bear the stamp of their time. We then find new truths and throw out the old ones. Following the policy failures in the 1970s, many economists believed that Keynes and his disciples were wrong, and “Keynesian” almost became a term of abuse, referring to irresponsible government spending. But to draw such a conclusion is to go to 10 Experience shows that governments routinely bail out banks on the verge of failing. Of course, this sort of implicit government guarantee makes lending to these banks safer, and their borrowing costs fall. The difference between the rate they actually pay and what they would have had to pay without the implicit government guarantee amounts to a subsidy. | 23 1.25-2.25 1.0 0.8 -1.0 2.0-3.0 2.1 1.9 2.3 2.0-3.0 2.0 1.9 2.2 1.5 1.5 4.4 2.2 -4.0 18.7 23.0 1.8 1.9 2.2 0.5 -4.0 19.2 23.2 1.8 1.8 2.5 0.6 -3.9 19.2 23.2 (annual change, percent) GDP Demanda interna Domestic demand (w/o inventory change) Gross fixed capital formation Total consumption Private consumption Goods and services exports Goods and services imports Current account (% of GDP) Gross national savings (% of GDP) Nominal GFCF (% of GDP) (f) Forecast. Source: Central Bank of Chile. 17 Figure 18 Growth forecasts for selected economies (annual change, percent) 8 2013-2019 average 2023 (f) United States Eurozone 2024 (f) 2025 (f) 7 6 5 4 3 2 1 0 China Trading partners (*) (f) Forecast. (*) For definition, see Glossary. Source: Central Bank of Chile. Figure 19 Commodity prices (1) (2) (dollars/lb; dollars/barrel; index) Copper Oil (3) 4.5 Foods (FAO) 150 110 140 4.0 90 130 3.5 120 70 3.0 110 50 2.5 2.0 100 90 30 15 17 19 21 23(f) 25(f) 15 17 19 21 23(f) 25(f) 15 17 19 21 23(f) 25(f) (f) Forecast. (1) Actual price/index refers to average of each year. | 0 |
A characteristic and important example is the set of institutions, fiscal rules and provisions enshrined in the Treaty on European Union which lay the foundation for the maintenance of price stability and the pursuit of sound fiscal policies. The preservation of price stability in a modern economy with fiat money is the responsibility of central banks. Their monetary policy can ensure control of the price level over the medium and longer term. The effectiveness with which monetary policy can attain and maintain price stability depends on various factors pertaining to the way monetary policy is formulated and conducted. An essential condition for the effective conduct of monetary policy is the central bank’s independence so that it can take decisions on the appropriate policy to achieve its objectives without being subject to any pressure or interference by the government and any other political authorities. There are strong theoretical arguments why the central bank should be independent. But the most convincing reason, which has led many governments to de-politicise monetary policy and grant independence to the central bank as an economic institution, is past experience and the empirical evidence. | (2006), “Economic Culture and Economic Performance: What Light Is Shed on the Continent’s Problem?”, CCS Working Paper No.17, Center on Capitalism and Society, Columbia University, New York, July. Sapir, A., P. Aghion, G. Bertola, M. Hellwig, J. Pisani-Ferry, D. Rosati, J. Viñals, H. Wallace (2003), An Agenda for a Growing Europe: Making the EU Economic System Deliver, Report of an Independent High-Level Study Group established on the initiative of the President of the European Commission, Brussels. Sapir, A. (2005), Globalisation and the Reform of European Social Models, BRUEGEL Policy Brief No.1/2005, BRUEGEL, Brussels. Schumpeter, Joseph Alois (1911), Theorie der wirtschaftlichen Entwicklung, Vienna/ Leipzig, Humboldt, translation by R. Fels, Theory of Economic Development, Cambridge, Mass., Harvard University Press, 1932. Van den Noord, P., N. Girouard and C. André (2006), Social safety nets and structural adjustment, Economics Department Working Papers no. 517; OECD, Paris. Weber, M. (1905), “Die Protestantische Ethik und der “Geist” der Kapitalismus”, Sozialwissenschaften und der Sozialpolitik, 20 and 21. Trans. Talcott Parsons, Foreword by R. H. Tawney, The Protestant Ethic and the Spirit of Capitalism, London: Allen and Unwin; New York: Scribner, 1930. BIS Review 43/2007 11 12 BIS Review 43/2007 BIS Review 43/2007 13 14 BIS Review 43/2007 BIS Review 43/2007 15 16 BIS Review 43/2007 BIS Review 43/2007 17 18 BIS Review 43/2007 | 1 |
So the central bank’s mandate needs to permit a temporary undershooting of its inflation target if it thereby reduces the risk of a subsequent painful bust. The past few months have, however, seen questions asked of our inflation-targeting framework for other reasons. According to some, the framework has constrained the ability of monetary policy to support the recovery; an objective giving higher priority to growth or employment might have produced a better outcome. A particular, and increasingly popular, variant of this involves combining growth and inflation into a single target for nominal income. The first thing to be said is that the MPC’s mandate already incorporates a growth and employment objective. While our primary objective is to maintain price stability, subject to that we are also expected to support the Government’s policies for growth and employment. The Chancellor’s annual remit letter puts flesh on those bones, by specifying not only the 2% target for CPI inflation but also the Government’s desire for high and stable growth and employment. And the letter goes on to note “that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances (and that) attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.” If we had tried to offset the impact on consumer prices of, say, sharp movements in import prices, then we would need to engineer countervailing movements in domestically generated costs, in particular pay. | Moreover, it is worth noting that since the MPC’s mandate dictates that we should support growth and employment provided that it does not conflict with achieving the inflation target, we are in any case charged with seeking to eliminate that part of the shortfall in nominal demand that is associated with an output gap, or that can be eliminated without generating inflationary pressure. Second, hard-wiring in higher inflation for a while is not without risk. In many economic models – including the one I used earlier – it is only the real interest rate that matters: it is irrelevant whether a lower real interest rate comes about through a lower nominal interest rate or a higher inflation rate. In the real world, inflation erodes the real value of cash, nominal bonds and fixed-interest debts. In itself, that may reduce the impact on demand of the promise to keep policy loose for long. But it is also apt to breed suspicion of a deliberate attempt to inflate away debt burdens, and may thus lead to inflation expectations becoming de-anchored. This is a serious risk: we should not forget the high levels of unemployment in the 1970s and 1980s associated with bringing inflation expectations back under control. Third, maintaining low interest rates even after the economy has recovered carries financial stability risks. My baseline simulations suggest that the period of very loose policy is already quite extended. | 1 |
Aiming at positions of budget surplus and reducing debt to GDP ratios should free resources, which could be used by the private sector to finance new initiatives to create employment. I am confident that the first decade of the new millennium could, if all parties concerned take their responsibilities very seriously, mark the beginning of a prolonged period of price stability, growth and employment creation. Inflation rates are currently among the lowest levels observed after the war, and we are determined to maintain this very substantial achievement. Fiscal policies have already made good progress in correcting the serious mistakes of the 1980s and early 1990s and they are encouraged to continue on the path of fiscal consolidation. These favourable conditions for a period of growth are clearly better now than at any time over the last ten years and this should both foster and facilitate structural reforms. 2. Other activities of the Eurosystem From among the other activities of the Eurosystem over the last few months, I should like only briefly to report on a few specific issues, which might be of particular interest to you. BIS Review 25/2000 2 At present, the ECB is preparing this year’s Convergence Report. As you will be aware, the Treaty requires the ECB and the Commission to present such a report at least every two years. | It is more interesting to look back on the reasons for this success, which, to my mind, was built on three founding principles: the Eurosystem’s mandate of maintaining price stability; the means employed to carry out this mandate, i.e. independence; and the spirit that drives its action – general European interest. A - The mandate: price stability The Eurosystem has been entrusted with a very clear mandate by the European treaties:1 its primary objective is to “maintain price stability”, in other words to avoid prolonged periods of excessive inflation – as seen in Germany after World Wars I and II – or deflation – seen following the crisis of 1929 –, which have consistently negative effects on the economy. Price stability preserves household purchasing power; and more than that, it builds confidence in the value of the currency and consequently reinforces the confidence of economic players in all their decisions for the future, from investment to contract conclusion. Some observers would have preferred a “dual mandate” to target both inflation and growth or full employment, as is the case with the US Federal Reserve (the Fed), for example. However, this would be politically unattainable given German culture and not particularly different in economic practice. In 1998, the ECB established a quantitative definition of price stability that it went on to clarify in 2003: to maintain inflation rates below, but close to, 2% over the medium term. | 0 |
The Fourth Industrial Revolution has reached almost all sectors and all regions to some degree, even as the productivity problem in the UK as a whole has perpetuated. So how have these upper tail companies been able to buck the UK trend? The short answer appears to be because the UK is, on many dimensions, a global innovation hub. At a headline level, various indices of countries’ innovation status have been constructed. The UK has appeared in the top 5 of the Global 9 These numbers control for differences in the sectoral composition and sizes of firms between the countries in question. Further detail of the method used here is set out below Chart 7 in the annex. 10 Data refer to non-financial business sector. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 Innovation Index for each of the past five years, ahead of France and Germany. 11 It also ranks ahead of them on the European Innovation Scorecard; it describes the UK as an “innovation leader”. Digging a little deeper, the UK scores particularly highly on research and development and start-ups. For example, it tops the charts among rankings of the world’s top universities, with 5 of the world’s top 25 universities according to The Times rankings for 2018, including the top two slots. And it also ranks first globally in categories such as citable scientific publications, e-commerce and ICT. It ranks fourth globally for its creative outputs. | The UK is the largest magnet for tech talent in Europe. This creativity and entrepreneurship is reflected in business start-ups. Over 1,100 new businesses start up in Britain each day – roughly, one every 75 seconds. 12 And when started, a disproportionately large number succeed, with the UK home to half of the top 10 fastest-growing companies in Europe. 13 Financing them is a venture capital industry which, in 2017, invested more in the UK than in Germany and France combined. The upper tail of UK companies, then, is large and thriving. It more than holds its own relative to international competitors. Although there is ample scope for improvement, the upper tail is fairly well-spread, sectorally and geographically. Its success is built on world-leading education, innovation and research. The UK is, genuinely, an innovation hub, with companies to match. Let us now reduce altitude and take a closer look at the lower tail. As Chart 7 also illustrates, there is a materially larger lower tail of UK companies, productivity-wise, than there are in Germany and France. 14 The bottom 25% of UK companies have levels of productivity around 80% or more below the UK median. Their Germany and French counterparts have productivity around 60% or more below the median. If we look more closely at this lower tail, what is striking is both its scale and longevity. Table 1 shows growth in average productivity among the bottom 99% of the productivity distribution. | 1 |
Mr Latter takes a central banker’s look at new challenges in a rapidly changing environment Speech given by Mr Tony Latter, Deputy Chief Executive of the Hong Kong Monetary Authority, at The Asian Treasury Forum 2000, held in Hong Kong on 22-23 February 2000. * * * There was a time, many years - or more likely decades - ago, when it seemed that the main role of the company treasurer, if indeed there was any such identifiable position in the company, was to make sure that enough money had been transferred from time deposits to current account before each month’s pay day; and it seemed that the main, possibly the only, function of a company’s finance director was to make sure that the accounts were compiled, audited and filed on time. How times have changed. Not only has there been a ceaseless escalation in the range and complexity of financial instruments available to us all, and in the sophistication of accounting, but there has also been an inexorable rise in the expectations which others, such as shareholders or executive boards, have as to what can be delivered from the financial side of a business. | As history bears witness, such strategies are as good, but only as good, as the assumptions that are programmed in, be they about economic forecasts, covariances between various events, or whatever. But even if we felt that these particular strategies were foolproof, there are a myriad of other financial transactions which can only really be consummated by a conscious human decision. The home buyer faced with a choice between taking a mortgage from bank A or bank B is unlikely to have a sophisticated and reliable mathematical model with which to compare the offers and determine conclusively his choice. But the culture nowadays, bred at least in part by the technological feasibilities of the IT era, is one which is likely to place the home buyer under much greater pressure to reach a quick decision than his parents would have been a generation ago, or even his brother five years ago, for fear of losing the best offer - if only he could assess which was the best. There is less time to reflect; less time to seek out disinterested advice. There are of course some areas of finance which appear relatively untouched as yet by this revolution. In the realm of corporate finance, in every jurisdiction so far as I am aware, the documents seeking shareholder support for a merger, for example, are still required to be sent by post, and with a reasonable minimum notice period for response. | 1 |
Regional Development The Central Bank continues to execute many concessionary development credit schemes through Participating Financial Institutions (PFIs), with a view of providing refinance facilities, interest subsidies and/or credit guarantees and credit supplementary services targeting development of agriculture and livestock, micro, small and medium scale enterprise (MSME) sectors, improving the financial inclusion and promoting balanced regional growth in the country. In order to strengthen effective credit delivery and to broaden the outreach of the formal financial sector, several loan schemes were introduced during 2017. 30 Further, the Central Bank facilitates all sectors of the economy by enhancing flow of credit and credit plus services and provision of non-financial support to achieve sustainable development and create a conducive financial environment to bring-in under-served segments of society to the formal financial sector. Priority is also being attached to develop a National Financial Inclusion Strategy for the country. In addition, we plan to automate activities that pertain to registration of loan applications of borrowers and processing of refinance applications of PFIs and to focus on enhancing the efficiency of credit delivery mechanisms, thereby expediting the flow of credit to the needy sectors of the economy. Going forward, the improved credit delivery mechanism along with other non-financial support extended will considerably enhance regional development efforts of the Central Bank. These efforts will also support achieving the goals of the National Food Production Programme of the government. 31 5. Concluding Remarks Ladies and Gentlemen, Let me conclude with a brief summary of the Road Map. | The development of the labour market is also continuing to be strong, and unemployment has fallen somewhat more steeply than was anticipated at the monetary policy meeting in December. Furthermore, inflation has increased at a slightly faster rate due to higher energy and commodity prices. On the whole, growth abroad is also deemed to be strong. While it is true that developments in Europe are still uncertain due to the fiscal problems in several European countries, prospects in the United States are judged to have brightened somewhat. BIS central bankers’ speeches 1 As you are no doubt aware, on a number of occasions over the last year, I have entered reservations against monetary policy decisions, including the most recent one in February. One important argument for me has been that increased interest rate differentials in relation to other countries may have effects on the exchange rate. During the autumn in particular, my reservations have essentially been due to my scepticism of the assumption that foreign central banks will raise their policy rates at the rate specified by the Riksbank’s main scenario. In my opinion, this has meant that the main scenario’s repo rate path has given rise to a considerably larger interest rate differential in relation to other countries than has been assumed in the Riksbank’s forecast. This could lead to a greater appreciation of the Swedish krona than this forecast suggests, which, in turn, would dampen both inflation and resource utilisation. | 0 |
Developments over the past 40 years illustrate that the most important contribution monetary policy can make to sound economic developments in the long term is low and stable inflation. This provides the economy with a nominal anchor. Low and stable inflation makes it easier for economic agents to distinguish changes in relative prices from changes in the general price level. Prices become a more accurate information vehicle. Through the 1990s, inflation generally remained in the interval 1½ – 3½ per cent. When there is confidence in the inflation target, monetary policy can also contribute to stabilising output and employment. Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment in interest-rate setting. In order to make forecasts for inflation and output, we must also judge how interest rates will develop in the future. If inflation deviates substantially from the target for a period, the interest rate will be set with a view to returning it gradually to the target, so that we avoid substantial variations in output and employment. This chart illustrates the judgement as published in the latest Inflation Report. Past experience indicates that expectations as to future inflation remain stable even if inflation varies somewhat as long as the interest rate is used actively to curb the effects. Monetary policy cannot finetune economic developments, but it can prevent the largest effects from occurring when the economy is exposed to disturbances. | At the outset of the Conference, it has been clearly articulated by our EU speakers that the enlargement of the EU and the economic and monetary integration of acceding countries will not only strengthen the role of the EU as a global player in the long term, but also make a sustainable contribution to global stability and prosperity. On the developments and prospects for ASEAN, our ASEAN speakers have more than stressed that the overall economic and financial transformation that has occurred in ASEAN since the Asian financial crisis has resulted in an ASEAN that is a mutually reinforcing region of growth; an ASEAN that has an increasing role in the creation of wealth; and an ASEAN that will remain as an important region in promoting and supporting global stability and growth. This Conference has revealed to us that both our regions are currently at the confluence of favourable factors; factors that have led to a marked expansion in the base of opportunities that we can offer each other. It is imperative that our discussions on taking advantage of the emerging opportunities be translated into concrete actions. We are of course aware that implementing these actions will demand decision and leadership from both ASEAN and the EU. From the proceedings of the Conference, it seems to me that there may be a need to develop a more entrenched mechanism to leverage further on our respective core capabilities and which seeks to find simpler, faster and more effective ways that would enhance our joint endeavours. | 0 |
This can lead to haircut spirals in which higher haircuts lead to forced asset sales, increased volatility and still higher haircuts. These sources of instability create the risk of a cascade – of firms moving rapidly from the situation represented in Figure 1 to that shown in Figure 2. Once the firm’s viability is in question and it is does not have access to an insured deposit funding base, the next stop is often a full-scale liquidity crisis that often cannot be stopped without massive government intervention. Fortunately, there are ways to mitigate the risk of a cascade. First, we can require that financial intermediaries hold more capital. This would push the probability distribution to the right in Figure 2. With sufficient additional capital, the probability of insolvency could be reduced to a low enough level that liquidity providers would not run. Higher capital requirements work to reduce the risk of liquidity runs, but potentially at the cost of making the process of financial intermediation much more expensive. In particular, a requirement that firms must hold more capital increases intermediation costs. Moreover, banks may respond to higher capital requirements by taking on greater risk. If an increase in risk-taking were to occur, the movement of the probability distribution to the right in Figure 2 might be offset by an increase in the degree of dispersion. Thus, higher capital requirements might not necessarily be sufficient to push all of the probability distribution above zero. Second, regulators could require greater liquidity buffers. | For example, we could improve the resolution process so that less of a firm’s value is destroyed by the liquidation process. If we could reduce the difference in value between a firm as a going concern versus the same firm in liquidation we could reduce the severity of the cascade effect when financial conditions deteriorate. Sixth, we could make structural changes to the financial system to make it more stable in terms of liquidity provision. For example, consider the three structural issues outlined earlier that amplified the crisis – tri-party repo, collateral requirements tied to credit ratings, and haircut spirals. In the case of tri-party repo, the amplifying dynamics could be reduced by enforcing standards that limited the scope of eligible collateral or required more conservative haircuts. Formal loss-sharing arrangements among tri-party repo borrowers, investors, and clearing banks might reduce or eliminate any advantage that might stem from running early. Eliminating the market’s reliance on intraday credit provided by clearing banks could eliminate the tension between the interests of clearing banks and investors when a dealer becomes troubled. In the case of collateral requirements, collateral haircuts could be required to be independent of ratings. Many of these suggestions are already in the process of being implemented. For example, the Basel Committee is in the process of strengthening bank capital in four ways: 1) higher capital requirements; 2) higher quality capital; 3) more complete risk capture; and 4) capital conservation measures, including the use of contingent capital instruments. | 1 |
For example, there is a high level of employment protection legislation in Norway, Sweden, and Finland but not in Denmark. In Denmark, agreements between the social partners can stipulate firing rules. The negotiating position that employment protection offers employees can induce companies to go farther in safeguarding employees' interests in the event of restructuring. The social safety net – unemployment benefits and the more permanent benefit schemes – probably also make it easier to gain support for rationalisation. But this safety net has also become a pretext for not addressing the problems at hand. The increased use of our welfare schemes is increasingly becoming the Achilles’ heel of the Norwegian economy. Sickness absence has risen sharply in Norway and a steadily higher share of the working-age population is on disability benefit or rehabilitation schemes. Many choose to retire under contractual early retirement schemes at the age of 62, and these numbers will probably increase ahead. In Norway, close to 600 000 persons among the working-age population are outside the labour force and on benefit and retirement schemes. This accounts for 25 per cent of the labour force. Sweden has seen a similar development. BIS Review 15/2007 17 The sharp increase in benefits cannot be explained by the population’s state of health, which is steadily improving. | Lars Heikensten: The krona, Sweden and EMU Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, at the Öhman Fondkommission, Stockholm, 13 November 2002. * * * During the past six the months the issue of Sweden's full participation in EMU has again come to the fore. It now looks as though a referendum on EMU participation will be held some time next year. This in turn has revived the discussion both about the economic policy that would be appropriate if Sweden adopts the euro and about what may happen in the meantime. In these contexts the Riksbank plays a central role, making it natural that we discuss as openly as possible the matters we shall have occasion to consider in the coming years. In that way we can hopefully contribute to a better understanding of the challenges that we and others involved in economic policy face. Today I intend to concentrate on three matters in particular. First I shall be saying something about the decision-making process in connection with the possibility of participation in ERM2. Then I shall talk about the matters that should be considered before deciding on an appropriate exchange rate at EMR2 entry. Finally I shall talk a bit about my view of economic policy in ERM2. Participation in ERM2 The next step now is for the party leaders to get together and consider a date for an EMU referendum. Their meeting is scheduled for November 29. | 0 |
Although there are no candidates at present, it would be open to other non-bank issuers to go down the same route – in which case, if we received an application, we would want to be sure that the issuer was financially sound and that the card scheme itself is sound in terms of chip security and risk management policies and procedures surrounding it. When it comes to electronic banking channels, our regulatory approach is, at this stage, less specific in nature. The first step is to know what the banks are actually up to in areas such as internet banking. We therefore issued a letter to authorised institutions in 1997 saying that while banks do not need to BIS Review 108/1999 4 seek formal approval from the HKMA to offer their services through the internet, they should discuss with us in advance their plans to do so. This is to enable the HKMA to assess whether the institution’s proposed internet banking system is sound and the service provided through the internet will have adequate security. Note that we are not looking for absolute security. This does not exist in either the electronic or physical world of banking. However, the level of security should be “fit for purpose”, i.e. appropriate to the type of transactions to be conducted. The important thing is for the banks to undertake a rigorous analysis of what their security needs are in the context of the particular service that they are planning to offer. | In parallel, the reduction by 5.6 percentage points of the interest rate on lek credit compared to 2011 – when the monetary policy easing started – helps Albanian firms and households to save around ALL 15 billion per year. Third, the accommodative monetary policy has supported Albania’s financial stability. Growth of demand for goods and services and reduction of debt costs led to the improvement of the solvency of firms and households, and has encouraged loan restructuring. Also, the orientation of lending toward lek credit has reduced the exposure of the economy and of the financial system against exchange rate volatilities. Monetary policy-related measures undertaken by the Bank of Albania have contributed to the expansion of aggregate demand and boosting economic growth. Our assessments suggest that the accommodative monetary policy stance has contributed positively, on average by 0.5 percentage point, to economic growth in the last two years. Also the accommodative monetary policy stance has contributed to the stability of the domestic currency. Both transmission channels have contributed and will continue to contribute to price stability in Albania. The current trends in the development of the economy and our projections suggest that inflation will converge toward the target within a two-year horizon. Banking supervision and financial stability The main aspects of our work for safeguarding financial stability were strengthening the stability of the banking system, enhancing its resilience to shocks, adopting international standards on supervision and regulation, and administration of consolidation processes in the banking sector. | 0 |
For this reason, the Bank of Albania draws the attention on the increasing exposure of debt servicing cost and level against exchange rate volatilities. This implies the need for added attention to external borrowing, in particular to the one in commercial terms, which should be considered as the last option in the list of possible financing resources. 4.3 Further rationalisation of the selection process of public investments The selection process of public investments has improved considerably over the last years. This is realised, amid others, through the rationalisation of non-budgeted public commitments, the disciplining of several-years-long projects, and the improvement of selection mechanisms. Nevertheless, the Bank of Albania deems that there is still room for improvement. The application of a formal cost-profit analysis for public investments in certain fields, such as health and education, culture, defence or various social programmes may be difficult from the economic standpoint, even problematic from the ethic one. Nevertheless, the selection process of other public investments, in particular those in infrastructure, may be further improved, through the formalisation of the process and the standardisation of assessment techniques for the economic profitability provided by alternative projects. This would be another positive step to increase the efficiency of the Albanian public finances and support the stable and long-term growth of our economy. 4 .4 Budget implementation pattern throughout the year The uneven distribution of expenditures and public borrowing has been and remains a problem in 4/5 BIS central bankers' speeches the Albanian public finances. | Gent Sejko: Albania’s economy and its interaction with monetary and fiscal policies Statement by Mr Gent Sejko, Governor of the Bank of Albania, to the hearing session of the Parliamentary Committee on Economy and Finance, about the draft-budget 2017, Tirana, 22 November 2016. * * * Honourable Chairman, Honourable Members of the Committee, The steady and long-term development of Albania has been and is a constant priority of Bank of Albania’s work. Therefore, accomplishing this objective requires not only applying prudent monetary and fiscal policies, but also their constant and efficient coordination. The approval of the budget and the accompanying fiscal package is decisive for the country’s economic development. The budget and the relevant fiscal package outline the short and medium-term priorities for public finance, contribute to the long-term profile of growth and development by supporting with funds the structural reforms, and orientate the private sector development by determining the incentives on consumption and investments. Therefore, the Bank of Albania appreciates the opportunity to be able to present to this hearing session our opinion on the draft-budget 2017. In compliance with our legal mandate and the scope of our expertise, the opinion of the Bank of Albania on the draft-budget 2017 will focus on the following: Albania’s development perspectives, intertwined with the monetary and fiscal policies; Fiscal projections and public finance stability; and, Effects of projected public borrowing on the domestic financial markets. At the end, there are some suggestions on possible measures to boost the effectiveness and stability of public finances. 1. | 1 |
The medium and longterm inflationary threat of this large amount of liquidity is limited because we will be able to absorb it rapidly, by slowing our lending or by issuing SNB Bills, as soon as confidence returns to the markets. However, liquidity accumulated by the banks could give rise to excessive creation of money through a massive expansion of bank credit. In May, growth in the narrow monetary aggregates, which are very sensitive to changes in the rate of interest, exceeded 40% for M1 and 30% for M2. In essence, this strong rate of growth reflects a preference on the part of the general public for the most liquid monetary assets over time deposits, due to financial uncertainty and the fall in interest rates. The M3 aggregate, which is not affected by these substitution effects, continued growing at a more moderate rate of 4.2% in May, which shows that, at present, created central bank money is confined at the interbank level and has not been transmitted to the rest of the economy. Monetary policy needs to ensure that the level of the monetary aggregates does not become excessive over a longer period. The indicators we are monitoring show that this is not currently the case. Inflation and inflation risks Inflation developed in line with our expectations. In the first quarter it was zero, while we were anticipating 0.1%. Overall, our forecasts are unchanged for the current year, with inflation remaining negative for the rest of 2009. | In addition, the indices of business activity and household confidence has clearly turned upward again, even if they remain at historically low levels. The combined effect of all these developments leads us to modify our risk assessment but does not substantially affect our scenario for the global economy. We still believe that positive growth could set in within the US in the second half of the year and in Europe at the beginning of next year. We continue to expect a modest global recovery, so that the considerable under-utilisation of production capacities will not be eliminated in the next few quarters. Consequently, unemployment is likely to increase further in the developed countries as a whole. BIS Review 77/2009 1 Swiss economic outlook As expected, the Swiss economic situation continued to deteriorate in the first months of the year. In the first quarter, GDP contracted by 3.2% in annualised terms. However, this figure obscures a much sharper drop in final demand. As in the preceding quarter, part of production was, in effect, absorbed by an increase in stocks. External demand again plummeted and the level of capacity utilisation fell substantially in the manufacturing sector. Final domestic demand by private entities stagnated, and is most likely to weaken in the months ahead, since companies will reduce their equipment investment and household expenditure will be checked by growing uncertainty in the labour market. | 1 |
Beyond the comparison of this current terms-of-trade shock across countries, it is also instructive to compare this shock for a country like France with the period to which the present situation is often compared: the 1970s oil crisis. Page 5 of 14 The terms of trade shock in France this year is expected to be the second largest since 1974, the first oil price shock. In 2022, for the whole year, the shock would amount to -1.4 GDP percentage point versus -2.8 GDP percentage points in 1974 during the first oil shock. Our estimate for 2022 is in line with other estimates published by Insee and the Ministry of Finance of around -1.5 GDP percentage point. The shock related to import prices is of similar magnitude in 2022 and 1974 but there are some differences in the composition of the shocks. In 2022 it is not only the price of energy that increases but also the prices of many other imported goods (non-energy commodities, intermediate goods etc.). At the same time export prices rose more in 2022, reflecting the more widespread diffusion of price increases to globally traded goods. In addition, the price of services, especially transport services, also partially offsets the negative shock to goods prices resulting from the surge in energy prices. There are many uncertainties regarding 2023. If the levelling off of world commodity prices is confirmed and the global economic slowdown also weighs on imports, the terms of trade shock will diminish in 2023. | This latter factor causes the current “premium” observed on electricity prices in France that are expected in the future markets for next winter. The bottom line is that it is not really possible to disentangle domestic and external factors in the rise in electricity prices, and thus to compute the additional “external tax” due to electricity. II. The ex-ante and ex-post distribution of the external tax Let me now turn to the second key issue: the question of the distribution of the external tax, or in other terms the burden sharing of the shock. I will illustrate this issue in the case of France for the energy bill only, for which more data is available at a granular level. Analysing this question involves three logical steps. First, how the increase in the energy bill is distributed “ex-ante” (as economists say) among households, firms and the general government, based on their respective volumes of energy Page 9 of 14 consumption in the year before the price shock. In a second step, we need to take into account the fiscal measures put in place in 2021 and 2022 by the government in order to limit the energy bill of households and businesses – since they modify the distribution of the external tax. The third step should involve taking into account all the macroeconomic adjustments, in particular the pass-through of cost increases by firms in their sales’ prices and the response of wages to prices. | 1 |
Third, although supervision has to focus first on the stability of the core of financial institutions, it cannot be indifferent to the scale of leverage and risk outside the regulated institutions. I do not believe it would be desirable or feasible to extend capital requirements to institutions such as hedge funds or private equity firms. But supervision has to ensure that counterpartycredit risk management in the regulated institutions contains the level of overall exposure of the regulated to the unregulated. Prudent counterparty risk management, in turn, will work to limit the risk of a rise in overall leverage outside the regulated institutions that could threaten the stability of the financial system. Supervision has to explicitly focus on inducing higher levels of margin and collateral in normal times against derivatives and secured borrowing to better cover the risk of market illiquidity. Greater product standardization and improved disclosure can also help, as will changes to the accounting rules that govern what risks reside on and off balance sheets. Finally, central banks, governments and supervisors have to look much more carefully at the interaction between accounting, tax, disclosure and capital requirements, and their effects on overall leverage and risk across the financial system. Capital requirements alone are rarely the most important constraint. The President's Working Group on Financial Markets and the Financial Stability Forum has laid out a very detailed list of reforms to begin this process. | I am going outline some broad proposals for reform, focusing on the aspects of our system that are most important to reducing systemic risk. These proposals do not address a myriad of other important aspects of regulatory policy, including consumer protection issues in the mortgage origination business, the future role of government and government-sponsored enterprises in our housing markets, and many others. Any agenda for reform has to deal with three important dimensions of the regulatory system. • Regulatory policy. These are the incentives and constraints designed to affect the level and concentration of risk-taking across the financial system. You can think of these as a financial analog to imposing speed limits and requiring air bags and antilock brakes in cars, or establishing building codes in earthquake zones. • Regulatory structure. This is about who is responsible for setting and enforcing those rules. • Crisis management. This is about when and how we intervene and about the expectations we create for official intervention in crises. Here are a few broad points on each of these. Regulatory policy The objectives of regulatory policy should be to improve the capacity of the financial system to withstand the effects of failure and to reduce the overall vulnerability of the system to the type of funding runs and margin spirals we have seen in this crisis. First, this means looking beyond prudential supervision of the critical institutions to broader oversight of market practices and the market infrastructure that are important to market functioning. | 1 |
Despite falling premium rates, general insurer profits in the past few years have been sustained by both benign catastrophe experience and levels of prior year reserve releases that are now the highest for thirty years (Chart 2). Natural catastrophes are a major component of many GI firms’ risk profiles. Catastrophe losses returned to more normal levels by historical standards in the first half of this year. But the low incidence of catastrophic events in recent years may have given support to the idea that this component has in some way diminished, whether due to trends in nature or more effective management of risks by policyholders and insurers. I have also heard speculation that some man-made risks may have decreased: for example, if planes and ships are built better than previously, or if companies are better at managing their risks. Mindful of both the impact and the uncertainty involved in considering this, we would expect firms to seek the BIS central bankers’ speeches 1 best available evidence and to take a prudent and comprehensive view to the assessment of risks. Put simply, we would not expect a handful of recent data points to lead to a marked reduction in a firm’s assessment of its best estimate of liabilities nor its “1 in 200” risk. | The three institutions also get together at least monthly, in what we refer to as the 'tripartite Standing Committee', to exchange information and discuss current threats to financial stability. As you might expect, we have met more frequently in recent weeks. If the events of 11 September have had an important effect on monetary policy, they had huge potential implication for financial stability as well. In the immediate aftermath, a key priority was to make sure that markets had adequate liquidity to continue and settle their business. In addition to its extensive operations in the US market, the US Federal Reserve entered into swap arrangements with the ECB, the Bank of England and other central banks to ensure a continued supply of dollar liquidity in other key markets. And the main payment systems extended their opening hours in the US, enabling the huge daily volume of dollar payments to be made. I must say that I was particularly impressed by the speed with which most of the big firms affected in New York were able to switch their operations to their contingency sites. Some of those sites were in New Jersey, but others put increased volumes through their London offices. There are of course a number of lessons which firms based in the UK and elsewhere will want to take from the disaster. But, overall, I salute the US firms and the US authorities for their actions, achieved at a time which for many involved was one of acute personal anxiety. | 0 |
4 When the Reserve Fund “broke the buck” after Lehman’s failure, there was a run by institutional investors. The industry had to be given access to central banks’ liquidity facilities to contain the vortex. Many banking groups running supposedly arms-length money funds injected “capital” into their funds to keep them afloat. Yet the funds had not been consolidated, and their bank sponsors had not had to hold capital against such implicit support. Echoing the concerns that Paul Volcker is reported to have expressed at internal Federal Reserve meetings around thirty years ago, 5 the Bank of England believes that Constant-NAV money funds should not exist in their current form. They should become either regulated banks or, alternatively, Variable NAV funds that do not offer instant liquidity. Meanwhile, so-called “enhanced return" funds should surely have to make clear what they are and what they are not. Offering 300bp (or whatever) over LIBOR is to offer a risky investment. There is nothing wrong with that. But securities regulators should ensure that the marketing and distribution is appropriate. “Money fund” does not seem to be quite the right label. For both those riskier funds, and Variable NAV money funds, investors would clearly be exposed to risk, just as in mainstream equity and bond mutual funds. Finance companies My second example is so-called finance companies. They are prominent in, but by no means unique to, the US. Some operate globally. | But he stayed involved in U.S. diplomatic, political and financial matters. Until his death in 1849, he served as a diplomat in Paris, and later in London. He also directed the Bank of New York, and indulged in economic, financial and ethnographic research. He was laid to rest in the Trinity Church cemetery on Wall Street. Years earlier, Trinity Church had already become the final resting place of Alexander Hamilton. If you visit Trinity Church, you will find that the two are buried at opposite ends of the cemetery, perhaps fittingly so in light of their difficult personal and political relationship. 23 Real growth averaged 3.1 percent in OECD countries between 1994 and 2000, as compared to an average growth rate of 2.8 for the period 1980 to 2006. During the more recent seven-year period between 2000 and 2006, growth has averaged 2.5 percent, and no OECD country has reduced its debt-to-GDP ratio by more than Gallatin’s record. 24 Ireland experienced an average real growth rate of nine percent during the years in question. This compares to an estimated average growth rate for the United States between 1801 and 1808 of just over three percent. Source: Author’s own calculations based on data provided in Carter et. al, op.cit., and the IMF World Economic Outlook. 25 See, for example, Rappard, op.cit. 26 Rappard, op.cit. recounts Gallatin’s post-treasury diplomatic career as well as his travels in Europe and time spent in Geneva. BIS Review 106/2008 5 3. | 0 |
16.11.2022 The ECB’s monetary policy normalisation: a roadmap Conference of the Asociación de Mercados Financieros Pablo Hernández de Cos Go bernado r Ladies and gentlemen, good afternoon: It is a pleasure for me to take part in this conference organised by the Asociación de Mercados Financieros. I have already had the honour of speaking here on several occasions in recent years, and I am delighted to be back. Regrettably, the current economic and geopolitical setting continues to be one of unprecedented uncertainty. We now face a slowdown in global growth, but crucially, we also face much higher and more persistent inflation. In the light of today’s uncertain circumstances, the ECB has recently decided to stop providing forward guidance about the future path of its policy rates and will instead make its actions over the near term entirely “data dependent” following a “meeting-by-meeting” approach. However, eliminating forward guidance as a policy tool does not mean that we central banks wish to give up or reduce communicating on our actions. On the contrary, in the present state of uncertainty, it is particularly important that we provide the public with insight into the analysis and rationale underlying our past and future monetary policy decisions. Therefore, today I will explain the ECB’s monetary policy normalisation process. I will begin by discussing the monetary policy decisions adopted at our latest meeting, in October. | 14 However, by the same token, a faster balance sheet reduction than currently anticipated by markets could trigger some yield tightening. Second, compared with QE, QT conveys much less information about the future path of interest rates. Purchases and interest rates were linked in the ECB’s forward guidance, as I have already explained, but the ECB no longer employs forward guidance on rates as a policy instrument. Therefore, the ECB’s balance sheet adjustments alone no longer provide direct information about the timing of its interest rate adjustments. Again, this weakens the announcement effects of QT compared with QE. In sum, all these arguments point, in my view, to the need for the balance sheet reduction in the euro area to be very gradual and predictable. It is also essential that balance sheet reductions leave room for action against fragmentation if it reappears, whether either through flexibility in PEPP reinvestments or through activation of the TPI should this prove justified and necessary. 15 A coherent monetary-fiscal mix In the last part of my address, I wish to focus briefly on how the monetary -fiscal policy mix should be in the current context. High inflation and monetary policy normalisation present a complex scenario for fiscal policy. The normalisation of policy rates and of the Eurosystem balance sheet means that 13 See M. Bernardini and A. Co nti (2021), “Assessing the flexible implementatio n o f the ECB’s pandemic asset purchases”, Banca d’Italia Covid-19 Note, 20 December 2021. | 1 |
11 In this 10 See Rachel, L and Smith, T (2015), ‘Secular drivers of the global real interest rate’, Bank of England Working Paper No. 571 and ‘Resolving the climate paradox’, speech by Mark Carney at the Arthur Burns Memorial Lecture, Berlin, 22 September 2016, available at http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech923.pdf. 11 Among companies responding to the Bank’s Decision Maker Panel survey between February and April 2017, Brexit was the largest current source of uncertainty for 10%, one of the top two or three sources of uncertainty for 30%, one of many drivers of uncertainty four 40% and not important for the remaining 20%. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 context, the best contribution the Bank of England can make is maintaining financial and monetary stability by pursuing the right policies within consistent frameworks. In recent years, the Bank has been determined to remove any lingering uncertainties that companies may have about access to finance in good times and bad. The Bank is building the resilience of the financial system through much higher capital levels, more prudent underwriting standards, rigorous stress testing and appropriate contingency planning. The core tier 1 capital ratios for major UK banks are now almost 14% (Chart 12). Yesterday, the FPC increased the countercyclical capital buffer rate to 0.5% from 0%, announced higher expectations of lenders’ underwriting standards for consumer credit, and recalibrated the leverage ratio. | There is thus an explicit emphasis on the economic viability of the underlying assets and on good governance, ethics and transparency. It is these very elements of Islamic finance that provides an in-built mechanism that enhances the prospects for its soundness and stability. BIS Review 141/2009 1 As Islamic finance evolves to meet the changing requirements of businesses and consumers, innovation is integral to the development of new Islamic financial products and services. It is recognised, however, that unfettered financial innovation can become a major source of instability. In Islamic finance, innovation must be tested against the objectives of the Shariah, where the primary objective is the realisation of benefit to the people. This demands the internalisation of Shariah principles in Islamic financial transactions, both in form and substance. Indeed, Shariah-based innovation brings with it a Shariah-compliant culture in the Islamic financial institutions that serves to ensure that the product development process incorporates ethical value propositions. A central bank's perspective From a Central Bank's perspective, ensuring financial stability of the Islamic financial system is the paramount objective. Integral to the efforts in the development of Islamic finance, is therefore, the strengthening of the regulatory and supervisory framework. The Islamic Financial Services Board (IFSB) which was established in 2002 has been instrumental in developing and issuing global prudential standards and guiding principles for the industry. This has included capital adequacy requirements, to governance and risk management standards. The IFSB has also contributed to the harmonisation in the development of Islamic finance across different jurisdictions. | 0 |
However, this crisis was apparently not significant enough in an international perspective to budge the paradigm that the financial markets were functioning smoothly and could manage themselves. This required a much larger shock, like the global financial crisis that came fifteen years later. The crisis has also led to discussions of the role of central banks An obvious conclusion from the crisis is that we need to learn more about the financial markets, how they are linked together and how they interact with and influence the economy as a whole. The crisis has also led to the discussion of other questions, where it is much less obvious what conclusions should be drawn – and perhaps even which questions should be asked. As I mentioned earlier, one such debate concerns monetary policy and the role of the central banks. There is a striking contrast with the previous occasion that monetary policy was debated on such a fundamental level. Then, one quickly reached the conclusion that monetary policy should focus on price stability and be delegated to independent central banks. Today, the debate on monetary policy could be said to have arisen from the opinion that “something should be done”, but that it is as yet unclear what should be done and how. I would like to discuss two areas that were not really on the agenda at all prior to the crisis, but have cropped up again. The first is the central banks’ independence and the second is inflation targeting. | And vice versa, a reduction in confidence in the inflation target may make inflation expectations, and thereby actual inflation, more difficult to control. Inflation targeting is then perceived as unsuccessful, the political support for this policy and for central bank independence thus declines, credibility is further undermined, and so on. Criticism: Inflation targeting could not prevent the crisis and has difficulty getting us out of it Inflation targeting has also been questioned after the crisis and also from slightly different starting points.9 Two main types of criticism have been expressed.10 Firstly, some say that inflation targeting prior to the crisis focussed too heavily on its traditional targets, particularly price stability and therefore missed – or perhaps even contributed to – the credit-driven property bubbles that arose in a number of countries. Secondly, some say that inflation targeting does not appear particularly suited to helping countries out of a crisis and may even make it more difficult to conduct a sufficiently expansionary policy. It should therefore be replaced with something else. I think that this criticism is rather unfair. As I see it, there was, perhaps, a hope that inflation targeting could prevent financial crises, but one can hardly say that it was part of the deal. The main purpose of inflation targeting has been to supply a credible nominal anchor for the economy.11 It has succeeded in this purpose. | 1 |
The subdued demand has entailed declining office rents for new leases. This has led to price falls in the office market. Since 2000 real prices have dropped by 35 per cent in Stockholm and by 21 and 11 per cent, respectively, in Gothenburg and Malmö. However, since the beginning of the year, both the rate of increase in the number of vacancies and the decline in office rents has moderated; as a result prices have stopped falling and have stabilised in the metropolitan regions. Future developments in prices and rents depend on economic developments in general, and developments in office-intensive sectors in particular. The low number of new offices, coupled with expectations of higher employment in the metropolitan regions in 2004, is likely to contribute to a reduction in the number of vacancies in the office market in the long run. Given the Riksbank’s assessment that the Swedish economy will recover in 2004 and a positive outlook for the Swedish business sector, with improved earnings and a lower or unchanged risk of bankruptcy, conditions are in place for a stabilisation of prices and rent levels for commercial property during the year. It is likely, however, that price increases may not materialise until further into the economic upswing. The slowdown in recent years affected to a large extent office-intensive sectors, and many premises are vacant today as a result. Consequently there is a surplus of office space at present. | Moreover, firms today appear to be adapting their costs to more strained financial conditions, which has resulted partly in less office space per employee. A bubble in the housing market? Developments in the housing market have been markedly different than those in the rest of the property market. Housing prices have risen by almost 60 per cent since 1992. During the same period the general price level has increased by around 20 per cent. The sharp rise in prices has continued despite the economic slowdown in recent years. This is a new experience that distinguishes the situation from previous business cycles. A significant driving force behind these price developments is the lower interest rate level. Lower interest rates mean that households and firms can finance more expensive properties, all other things being equal. The low-inflation economy that has been established in Sweden since the crisis at the beginning of the 1990s has therefore also brought with it higher debt ratios among households. Debt as a proportion of disposable income has risen on average from 90 per cent in the mid-1990s mitten to around 120 per cent at the end of last year.2 In spite of this, households’ interest ratio, i.e. the proportion of disposable income that is used to make interest payments, has fallen from 7 per cent to below 5 per cent. In comparison, the ratio during the crisis years was up to 11 per cent. | 1 |
COVID-19 as catalyst for digitalisation and implications for SNB There are two trends of particular relevance to the SNB that I would like to highlight here. The first, most visible move towards a digital economy is the changing payments landscape, with an increasing use of mobile payments. A second apparent trend is big data and automation – particularly involving artificial intelligence. In addition to these two trends, cyber risk is also growing. Let me start with the changing payments landscape. Changing payments landscape The pandemic has boosted online shopping and contactless retail payments. Because of the measures to reduce interpersonal contact, such as shop closures and limited shopping hours, e-commerce has gained in importance. While cash remains important in Switzerland, the use of cashless payment methods has increased. The SNB conducted a survey on payment methods in the autumn of 2020. This will give us more insight into these trends. The details of the survey will be published this summer. Monitoring changing payment habits is important for the SNB because facilitating and securing cashless payments is one of its statutory tasks. Since the creation of the Swiss Interbank Clearing (SIC) payment system, the SNB has fulfilled its mandate as system manager and commissioning party of the SIC system. The SIC system – also referred to as the Page 5/10 ‘strong core’ of the Swiss payments ecosystem – is the central payment system for both interbank and retail payments in Swiss francs. | Page 10/10 COVID-19, financial markets and digital transformation Andréa M. Maechler, Member of the Governing Board Thomas Moser, Alternate Member of the Governing Board Swiss National Bank Virtual Money Market Event, 15 April 2021 Chart 1 Sources: SECO, Thomson Reuters, SNB Output plummeted within weeks of outbreak of pandemic 2 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank Chart 2 Sources: Bloomberg, SNB Global equity markets dropped 30% and more in a matter of weeks 3 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank Chart 3 Sources: Bloomberg, SNB In mid-March, yields on government bonds spiked 4 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank Chart 4 * 5 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank Sources: Bloomberg, SNB SNB intervened in foreign exchange market to stem appreciation pressures on Swiss franc Chart 5 Sources: Bloomberg, SNB Deterioration in USD funding markets led to increase in USD swap basis 6 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank Chart 6 Sources: JANUS, SNB Loans reached smaller firms, which are particularly vulnerable during a crisis 7 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank Chart 7 Sources: SNB Banking Operations While online payments increased in spring 2020, stationary card payments fell by more than 20% compared to 2019 8 15/04/2021 COVID-19, financial markets and digital transformation | Andréa M. Maechler and Thomas Moser | © Swiss National Bank | 1 |
After considering these elements and the prospects for the economic scenario, the right move was to reduce the MPR. I believe it is important to stress that this decision is based on an important analytical effort of the Bank, backed by the search for more evidence and capacity to identify structural phenomena that affect the Chilean economy. This is the conclusion of an announced and documented process, which required a rigorous development before materializing in a change of the MPR, because monetary policy cannot be conducted on the basis of intuitions or perceptions. We have characterized this exercise as a monetary policy recalibration because it is largely derived from an update of the structural parameters that serve to characterize the macroeconomic situation and inform the policy rate decision. This translates into a one-time adjustment of the rate, whose exceptionality is reinforced by the unusual combination of changes in the parameters, including the new measurement of inflation. However, we must make it clear that this does not mean ignoring the recent performance of the economy. On the contrary, the effective growth rate of recent months is weaker when compared with a higher trend growth. Page 1 of 18 Similarly, recalibrating the MPR does not mean that it cannot be adjusted in the future in the face of changes in the macroeconomic environment: rather it will allow for an adequate response to said changes to be evaluated on their own merits, without mistaking them for the factors that justified this adjustment. | New forecasts have not been prepared for this monetary policy meeting, but we have assessed new information against the forecasts we presented in March. Chart 3: International inflation has slowed Inflation among trading partners is also high but has eased in many countries in recent months. Gas and power prices have come down from the very high levels seen last year. Problems at some US and Swiss banks led to large movements in financial markets in March. Global equity indexes have risen since the March Report, and bond risk premiums have fallen. US and European households and firms appear to be finding it more difficult to obtain loans. Chart 4: The krone has depreciated High inflation has prompted central banks in many countries to raise policy rates quickly and more than in Norway. The Norwegian krone has depreciated in recent months and 1/2 BIS - Central bankers' speeches is now at its weakest level since the onset of the pandemic in spring 2020. The krone is weaker than we projected in March. Activity in the Norwegian economy is high. Household consumption has continued to increase despite high inflation and higher interest rates. The employment rate is high and employment has risen further so far this year. The labour market is tight. Economic growth has nevertheless slowed recently. Unemployment moved a little higher in April, and the number of job postings has declined. Chart 5: Wage growth has risen The tight labour market has led to a pick-up in wage growth. | 0 |
GDP growth in Sweden slackens from the annual rates of 3 to 4 per cent in recent years to around 2.5 per cent in the coming years. The GDP figure for Q4 last year suggests that a fall-off has already begun. Some observers talk of a soft landing. Most things point to a downward adjustment of demand to the long-term trend rather than a regular downturn with the risk of a recession. In this situation it is a help that, after a number of years with good growth and price stability, the Swedish economy is soundly balanced and that the public finances are also in a comparatively good state. Combating inflation effectively and consolidating the government budget have increased the freedom of action in economic policy and made an economic slowdown relatively less difficult to handle. The adjustment we now foresee will occur through a variety of channels. Slacker international activity implies a slowing of exports. The decreased order inflow and less pronounced capacity restrictions tend in turn to dampen investment. With falling share prices and less optimism among households, the growth of private consumption becomes more subdued. Moreover, stock adjustments this year imply a temporary lowering of demand. In the labour market, the number of new job vacancies is already levelling off, which shows that the growth of employment will be slower in the coming years. | The implementation of this strategy is funded through levies on the financial BIS Review 139/2010 1 services industry and through partnership programmes with a range of stakeholders, including financial services providers. There appears to have been little contestation of the strategy, with broad support from the industry, the Treasury and other stakeholders. In South Africa, the Financial Services Board (FSB), the regulator for non-bank, non-credit financial services, has developed and championed two national strategies; a strategy developed in 2001 and a revised version in 2008. The 2001 strategy received limited support from stakeholders and the FSB revised it in 2008. However, the revised strategy did not receive much support and is currently under review. Contestation of the South African strategies arose mainly from the fact that the FSB is not the regulator for the banking sector, and banks were against having their activities regulated through a non-bank regulator. Contestation also came from civil society organizations and other regulators, in particular, the credit regulator. Ghana has had an approved strategy for financial literacy and consumer education since January 2009. In the first attempt, largely consultant driven, it appears there was insufficient stakeholder buy-in. However, in the second process which was driven through the Ghana Micro-Finance Institutions network, there appears to have been sufficient stakeholder buy-in, and in due course, the Ministry of Finance accepted responsibility for the strategy and has been tasked with its implementation. | 0 |
If not addressed, this pro-cyclicality could erode the solvency cushions that banks should be holding against the effects of economic downturns. Addressing this is one of the most important remaining challenges of Basel II and is particularly associated with the implementation of the more sophisticated approaches of the new capital framework. Despite reassuring noises from the Basel Committee, this is not going to be an easy problem to address. Few people, and definitely not banking supervisors, can foresee the peaks and troughs of economic cycles. But our inability to perfectly foretell the future should not be a pretext for inaction. An effective supervisory review process will be critical to create a counter-weight to the cyclical tendencies of the new capital framework, in order to prevent increased incidences of failures and financial instability. Managers of banks and bank directors have an even more important role to play. They have the primary responsibility for identifying and assessing various threats to solvency of their own bank, including the risks that are partially covered or not covered at all under Pillar 1 of the framework. They also need to be cognizant of the cyclicality arising from their quantitative tools and should have sufficient compensatory mechanisms against the cyclicality of regulatory capital requirements. These issues are referred to in Pillar 2 of Basel II. This is what we refer to as “Supervisory CAR”, to address risks not covered or not fully covered by the formulae in Pillar 1. | But with more autonomous units, an internationally-active and BIS Review 42/2004 1 complex bank has to expend more effort to identify, measure, and control the risks arising from its diverse and far-flung activities. Traditional rules of thumb used by management and supervisors to assess risks and to ensure the adequacy of capital to buffer risks are no longer adequate. And continuing financial success depends critically on how a bank responds to the risk management challenges. In response to these challenges, the successful banks have developed enhanced tools for measuring risks. These can be grouped into two broad categories. The first category of tools are those that give a bank the ability to discriminate among risks by differentiating the riskiness of customers, and of various banking facilities and products. The second category of tools includes those that give a bank an enhanced capability to quantify risks. The end of the road for Basel I In and of itself, the enhanced capability of institutions to differentiate and measure risks has been a welcome development. But, the increasing sophistication of institutions in risk management meant that the crude system of risk weights under Basel I became less meaningful in ensuring the adequate capitalisation of large, complex banking institutions. By the mid-1990s, less than five years from the official implementation of Basel I,1 it was apparent that Basel I was becoming less relevant for some banking institutions. | 1 |
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