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To be sure, there have been times when differences of view about the central projection have been too significant to be handled within the ambit of the fan chart and on those (few) occasions the Inflation Report has included material illustrating the minority view. But, as the MPC’s preface to the Inflation Report notes, the fan charts reflect the Committee’s best collective judgement about the most likely paths for output and inflation and the uncertainties surrounding the central projections, while recognising that members may have slightly different views about the underlying assumptions. Forecasts and interest rate decisions How influential is the forecasting process when it comes to the actual business of taking decisions about interest rates? One yardstick might be whether the MPC is more likely to change rates in Inflation Report months. There is no necessary reason why this should be so: information accrues relatively evenly over the year, and the Committee goes through the same decision taking process every month. On the other hand, the MPC might be more likely to change rates after a systematic and full review of the inflation outlook, rather than in response to the news on the month. On this argument, ready-reckoners may give a rough indication of what the impact of new data may be, but they are no substitute for a full analysis. So in non-Inflation Report months the MPC may sometimes decide to ‘wait-and-see’ – to postpone a possible interest rate change until more evidence has accumulated. | This perception is not true. In this competitive landscape, it would be detrimental for players to be short-sighted and to dismiss this class of business as unworthy. With the right business model, microinsurance/ takaful could become commercially viable, profitable and sustainable. Based on Microfinance Information Exchange Market Data (2009) by CGAP, the data for microfinance providers; profit margin 8.43%, return on assets 1.5% and return on equity 7.27%. Microfinance or microbusiness will be profitable if the pricing is right, the portfolio size appropriate and strong risk management practices are put in place. On its part, the Bank will issue a microinsurance/ takaful regulatory framework to facilitate the provision of commercially sustainable micro products whilst offering protection to consumers. We have held dialogues on this, which I hope would lead to a positive outcome in furthering microinsurance/ takaful as a significant business venture going forward. It is timely for industry players to review relevant methods as well as approaches in repositioning their value propositions to attract this segment of the population. A first major step forward that BIS central bankers’ speeches 3 could be taken is to collaboratively launch nationwide awareness campaigns to promote the benefits of microinsurance/ takaful to the public. The Bank stands ready to provide appropriate avenues of support in rolling out this agenda. Evolve in tandem with customer’s preferences and assist customers in the decisionmaking process Industry players that can offer guidance to their customers will set the building blocks for developing long-term relationships. | 0 |
It is instead a qualitative judgement about the credibility and feasibility of the different types of resources of a CCP to absorb loss and replenish its going concern requirements. CCPs have different liability structures from banks and therefore the assessment of the absorbency of these structures and the appropriateness of additional forms of LAC is more likely to be different from banks than it is to be the same. That assessment of LAC will need to consider the extent to which unfunded commitments from members can be relied upon given the procyclicality of calling for them in stressed circumstances. It means assessing the credibility of allocating losses via cash calls or variation margin haircutting and the incentives that this generates in clearing members and clients to continue to clear through the CCP. And it also means looking not just at loss absorbency for clearing member default but also at the CCP’s capacity to absorb losses and recapitalise where a loss springs from operational or other losses not covered in full by loss allocation arrangements with its members. Point of entry to resolution One issue that is necessarily intertwined with the question of resources is the point of entry into resolution. As I have described, resolution is a financial reconstruction. For it to be effective it cannot be exercised only once the financial resources in a firm have already been exhausted. | Often these barriers are consistent across firms. Perhaps most notable is the requirement for loss absorbency – establishing a liability structure for G-SIBs that is consistent with bail-in, not bail-out. Again, there has been significant progress here. The Financial Stability Board (FSB) issued a consultation document 2 on a minimum standard for Total Loss Absorbing Capacity (TLAC) last November and is committed to producing a final standard ahead of the G20 summit next month in Antalya. This will be a major step on the road to ending “Too Big to Fail.” Additionally, we need to pursue the same TBTF agenda for other types of G-SIFIs, in particular central counterparties (CCPs). I want to spend some time today talking to what – if anything – can be taken from the resolution of banks that is relevant for CCPs. Context for CCP resolution CCPs form a key part of the global financial landscape. They have become ever more important since the crisis. This will continue as mandatory central clearing is introduced around the world. Addressing the systemic risks associated with over-the-counter (OTC) derivatives markets is one of the reasons why G20 leaders introduced mandatory central clearing. People tell us that we have thus created in CCPs concentration risk and critical nodes. This is true in part, but we did this on the basis that in CCPs risks could be better recognised and identified, better managed and reduced via better netting. | 1 |
Jan F Qvigstad: On managing wealth Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the Norwegian Academy of Science and Letters, Oslo, 8 November 2011. The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. * * * I would like to thank Amund Holmsen, Marie Norum Lerbak and Øystein Sjølie for their valuable assistance in preparing the speech. Thanks also to Ola Peter Krohn Gjessing, Espen Henriksen and Pål Winje for useful comments. I would also like to thank Helle Snellingen for her contribution to the translation of the Norwegian text into English. Introduction From Norges Bank we can see the corner of the two streets Tollbugaten and Kirkegaten. This is where the Collett building was situated until 1939 when it was dismantled and moved to the Norwegian Museum of Cultural History at Bygdøy. By then, the Collett family had not occupied the building for years and their wealth was long gone. Around the end of the 18th century, John Collett made a large fortune in the timber industry. He also ran the great Ullevål farm and by the time of his death in 1810 he was managing one of the country’s largest wealth portfolios. Collett was also known to spend extravagant amounts on lavish parties. The Napoleonic Wars and the English blockade took a heavy toll on the family business. | Consumers themselves would be more risk averse and prefer to stick with simple transactions and products. As mentioned already, regulatory framework would be strengthened, especially the use of macroprudential oversight that focuses on system-wide stability. As such, closer supervision of systemically important financial institutions, including non-banks, would be required. Finally, the microprudential oversight would also be strengthened to rectify previously identified shortcomings, particularly the Basel II framework, corporate governance, and incentive misalignment. Though it looks as if we could be in the process of creating a “new world order”, given what we have done so far in strengthening our financial sector resilience, I believe that this transition would be a smooth one and add further strength to our financial system. Needless to say, a strong financial system is the backbone of sustainable economic growth in the longterm. Thank you for your attention. 4 BIS Review 131/2009 | 0 |
In the light of experience of this practice, consideration can later be given to do the same for the minutes of meetings of the EFAC. Accountability 26. The third area that requires attention in the political process of monetary management concerns the accountability of the HKMA. Here again, there are certain characteristics peculiar to Hong Kong. Unlike arrangements in other jurisdictions, the HKMA, as the institution responsible for issues generically called central banking, is not a body established by law. The legal entity is the Monetary Authority, as a person, appointed by the Financial Secretary to assist him in the performance of his duties under the Exchange Fund Ordinance. I have the honour of being the person who has been so appointed. That means I am accountable to the Financial Secretary for my actions when exercising the authority delegated to me by the Financial Secretary under the Exchange Fund Ordinance. The Financial Secretary is advised by the EFAC appointed by the Chief Executive of the HKSAR, whose authority has been delegated to the Financial Secretary. 27. It is through the Financial Secretary that the Monetary Authority is accountable to third parties, and the form this takes is determined by the Financial Secretary. If the Financial Secretary wants me to appear before the Legislative Council and formally present a report to the Council every six months, as suggested by some, I am quite happy to do so. But the Financial Secretary must of course make an assessment of whether the implications of such a practice are acceptable. | It would be naive to think that we can be right all the time. Nobody can be. We can only be less wrong. But more importantly, public support should not be built merely upon faith in an esoteric and aloof BIS Review 87/1998 -3- HKMA being professional and acting in the best interest of Hong Kong. Whatever reputation the HKMA has been able to achieve, domestically and internationally, such support could never be sustained for long. We do run a system that, at times, inflicts considerable pain on the community. Many of the decisions taken by the HKMA are unpopular. The pain and the unpopular decisions may become too severe to bear just on the foundation of faith, particularly in the peculiar political setup of Hong Kong. 11. An essential part in the management of the political process concerning monetary issues, therefore, is to promote a better general understanding on those issues. This is not easy. Not only are those issues technical, but they are also changing all the time with the rapid changes in the global financial scene. Financial liberalization and the globalization of financial markets, encouraged by the advance of telecommunications and information technology, have drastically changed the behaviour of money. On top of all this, we have the complication that Hong Kong’s monetary system has really only started to take shape in the past ten years or so, as monetary reform measures were introduced to modernize it so it could cope with the demands and expectations of modern finance. | 1 |
Aggregate labor market statistics on earnings, employment and labor market transitions are readily available, yet relatively little is known about the expectations and search behaviors of labor market participants and how these change over time. Our SCE Labor Market Survey collects rich information on respondents’ actual and expected wage offers, as well as their reservation wage, which is the lowest wage or salary they say they would accept for a new job. We also elicit expectations about future labor market transitions, such as the likelihood of staying with the same employer, switching employers, finding a job or being laid off. Over time, changes in responses to these questions can shed light on how workers’ expectations evolve, and how these changes relate to observed trends in aggregate earnings and employment dynamics. Our preliminary analyses of the data suggest that these expectations measures are predictive of respondents’ subsequent labor market outcomes. In coming years, as we generate a longer time series for the survey, we will be able to explore whether the expectations we collect can be used to construct leading indicators of the job market. Now, I’d like to turn things over to our economists, beginning with Olivier Armantier, who will provide further background and specifics about our survey. 1 Olivier Armantier, Giorgio Topa, Joseph Tracy, Wilbert van der Klaauw and Basit Zafar assisted in preparing these remarks. 3/3 BIS central bankers' speeches | 5 In addition to New Zealand and Norway, the central banks in Sweden, the Czech Republic and Israel currently publish interest rate forecasts. In addition, the Federal Reserve publishes the individual interest rate forecasts of the members of the Federal Open Market Committee (FOMC). 6 Norway’s sovereign wealth fund (the “Government Pension Fund Global”) is managed by Norges Bank Investment Management (NBIM) and is invested in international capital markets. 7 For details on our institutional framework, see Qvigstad, J. with I. Fridriksson and N. Langbraaten (2013): “Monetary policy committees and communication,” Norges Bank Staff Memo 2/2013. BIS central bankers’ speeches 3 [Chart:Timeline: The first years of Norges Bank forward guidance] In 2004, we started to publish our first quantitative guidance in the form of a “strategy interval” for the key policy rate four months ahead. In November the following year, we published for the first time our own interest rate forecast for the next three years. Prior to that, we had established and published criteria for an appropriate interest rate path. 8 Up until November 2005, the analyses and forecasts in our reports had been based on either a constant interest rate path or an interest rate path as implied by the forward market. At this point however, our conclusion was that it would be easier to interpret, evaluate and communicate our view of the economy when it was based on a path for the interest rate that we considered to be appropriate. | 0 |
The US Federal Reserve has been most prominent in this connection, conducting a far-reaching review of its operational framework. In this connection, I am of the opinion that the ECB should launch a similar exercise. Among other factors, it should reflect on a clarification of our quantitative price stability objective, in order to align it with the specific definitions of other developed countries’ central banks and provide for better communication and anchoring of agents’ expectations.10 The latest Annual Report of the Banco de España, to which I referred earlier, analyses the most favourable and least favourable aspects of several possible strategic options in this area. 9 See P. Lane (2019), “Policy and Below-Target Inflation”, address delivered at the Bank of Finland on 2 July 2019. See Chapter 3, “Monetary policy design in the medium and long term”, in the Annual Report 2018, Banco de España. 10 10/16 The contribution of non-monetary economic policies is pivotal That said, the participation of non-monetary economic policies is essential for shoring up the recovery, entrenching higher growth rates and, thereby, smoothing convergence by inflation towards its medium-term reference. The need to create a fiscal stabilisation instrument in the euro area Recent experience has highlighted the difficulty of achieving a more appropriate macroeconomic policy mix for the euro area as a whole under the current framework of rules and institutions in which European fiscal policy operates. In the euro area each country decides its fiscal policy. | However, the adverse effects have spread to many other economies through global value chains. The euro area, in particular, has slowed significantly since early 2018. This is mainly due to the strong easing in its exports. As a result, average GDP last year grew by 1.8%, 0.7 pp down on 2017, and year-on-year growth in late 2018 and early 2019 fell to around 1%. The euro area’s high degree of openness (its trade flows with third countries account for 50% of the area’s GDP, compared with 38% for China and 28% for the United States) means it is particularly sensitive to external shocks and to the slowdown in world trade. Moreover, the above-mentioned uncertainty over Brexit has prompted a contraction in exports to the UK economy in recent years. Also contributing to the slowdown in growth in the euro area have been specific circumstances in certain sectors and countries. I refer in particular to the difficulties the automobile industry is undergoing in adapting to the new environmental regulations, to new production technologies and to protectionist threats. 2 For a summary of this literature, see, for example, A. Estrada, J. Martínez-Martín and F. Viani (2018), “Una revisión de la literatura económica sobre los efectos de la globalización en el crecimiento y la distribución de la renta”, Notas Económicas, Boletín Económico, 2/2018, Banco de España. | 1 |
Furthermore, the FSM Bill would extend current Bank and FCA regulatory regimes for payment systems and e-money to cover the use of ‘stablecoins’ for payments. The Bank will have responsibility for any such payment systems which are systemic or likely to become systemic. The Bank intends to consult early this year on the regulatory framework that will apply to such systemic payment systems. The PRA’s intention is that new standards for PRA-regulated firms will be coherent with rules for other sectors. 14. ‘Implementing Basel 3.1 in the UK – speech by Phil Evans’, 07 December 2022. 15. For clarity, I note that tailoring must always be carried out in a way that is consistent with the PRA’s objectives and ‘have regards’. 16. Financial Services: The Edinburgh Reforms. The PRA is contributing to reforming the Ring-Fencing Regime for banks, removing rules for the capital deduction of certain non-performing exposures held by banks (the PRA will consult soon on removing these rules), a review into reforming the Senior Managers & Certification Regime (the PRA published an ‘Evaluation of the Senior Managers and Certification Regime’ in December 2020 and will soon issue a discussion paper with the FCA in coordination with the Government), changes to the Building Societies Act, and work on a potential UK retail central bank digital currency. 17. PRA Consultation Paper 16/22 – ‘Implementation of the Basel 3.1 standards’, November 2022. Page 10 18. ‘Fundamental Spreads − speech by Sam Woods’, 20 February 2023. 19. | It is also one reason why aligning with international standards - when they are appropriate to the UK makes Britain an attractive place for international firms to do business We will tailor our rules to the UK Alignment with international standards leaves considerable scope for national authorities to make decisions about specific rules, and about risks not covered by those standards. So I’m going to move on now to explain another important way we can harness the UK’s strengths as a global financial centre. That’s by tailoring rules to UK circumstances. [15] This is something we work hard at. We are working alongside the Government to implement changes announced in December as part of the Edinburgh Reforms. [16] Meanwhile, we have used UK data to propose adjustments to some calibrations in the package of banking rules known as Basel 3.1 which we think would be overly conservative if applied here. That includes rules about unrated corporate borrowers, which form a very important sector of the UK economy. [17] We’re consulting right now on those Basel 3.1 proposals. So this is a good time for me to stress something important. That is that we are very open to evidence-based arguments about how we might change the tailoring we’ve suggested, or tailor other rules. In stressing this, I have in mind particularly some areas where the evidence is sparse, such as for infrastructure lending, or incomplete, such as for capital requirements for exposures to SMEs. | 1 |
Capacity utilisation in the business sector is high and a growing number of enterprises are now facing constraints. Statistics Norway’s business tendency survey for the third quarter shows that Norwegian manufacturing is optimistic about the prospects ahead. A clear majority of industrial leaders assess the general outlook as more positive in the short-term than in the third quarter. A majority of industrial leaders are considering an increase in investment. A shortage of skilled labour is posing a mounting challenge to manufacturing in the period ahead. This picture is consistent with information from the company contacts in Norges Bank’s regional network. In the August round of interviews, 59 per cent of the companies reported capacity problems, and this share has increased since the previous round. Output and employment are increasing in all sectors. Pressures are particularly strong in the building and construction sector and some corporate services. The rise in prices is moderate in retail trade. It also appears that extensive use of foreign contract labour, particularly in some manufacturing sectors and building and construction, is curbing wage growth. An increasing number of our company contacts report labour shortages, particularly a shortage of engineers, project managers, transport workers and skilled labour in corporate services. Labour shortages are also beginning to emerge in retail trade and household services. High demand for labour has resulted in a marked decline in unemployment so far this year. Unemployment is now in line with the unemployment level during the previous expansion at the end of the 1990s. | The conference Nearly twenty years ago, Jacob Frenkel made the following observation about the international monetary system: “academics and policymakers have made numerous proposals for reform while, at the same time, the monetary system itself has been in a constant state of change”. This points to another problem that any attempt to reform the international monetary system faces: the world economy and financial markets, and therefore the international monetary system never cease to evolve. Today’s conference is organized around four panel discussions. They will focus on issues that are at the forefront of the current debate on shortcomings of the international monetary system. The first panel, chaired by Axel Weber, will discuss the predominant concerns about the present system. Large global imbalances, volatile capital flows, and rapid reserve accumulation give rise to concerns about vulnerabilities. Are they possible sources of instability, and what reforms, if any, should be considered? As I pointed out earlier, one recurring theme in the debate has been the question of reserve assets. Our second panel, chaired by George Soros, will examine ways to improve the supply of reserve assets. Is a diversification of reserve assets desirable, and if so, should it be actively promoted? Is there a greater role for SDRs in the international monetary system, and if so, what reforms would be required to give SDRs a greater role? Over the past decades, private capital flows have greatly increased. Although capital account liberalization is clearly beneficial in the long run, it entails significant short-run vulnerabilities. | 0 |
The government has a direct interest in an efficient insolvency and resolution framework So the stakes are still high for the government in a banking crisis. While owners have little to lose when capital is low, and many creditors are protected by the deposit insurance, the state – and the whole economy in the end - may at worse suffer enormous losses. Therefore, unlike the situation in ordinary companies, the lack of an efficient insolvency regime will not primarily be a creditor problem only, but a problem which will fall right into the government’s lap. And if the insolvency framework is not efficient and cost effective, it may be rational for the government to intervene beyond the ordinary regulatory framework. If there is no other way to deal with the problem, it may even be rational to contribute capital directly. This may be the case even if such an investment cannot be justified on the basis of a corporate capital investment appraisal. The alternative of not intervening may simply be very much more expensive. Now, if this intervention by the government makes the owners and creditors better off than they would have been otherwise, the rules of the game change completely. If owners and creditors can speculate on a bail-out, market discipline will be eroded. Clearly, this needs to be avoided. And the conclusion is that, if anything, it is even more necessary to have effective and efficient insolvency and resolution frameworks for banks than for companies in general. | But I think that it is also clear that in some severe situations, a different framework will need to be applied. In case of an epidemic disease, such as the avian flu, there may be a need to direct those infected to separate hospitals. And it may be necessary to establish an order of priority for the allocation of the scarce medical resources. One where the guiding principle may be the survival of the society as a whole. It may also be the case that the crisis regulations clash with the normal regulations. For instance, you are normally not entitled to take a sick day if you are actually healthy. Now, even healthy people may be asked to leave their offices to avoid the disease from spreading, while the key employees may be asked to go to work to keep the operations running. When the principles clash, it will be vital for society that the ones needed to contain the epidemic will prevail. And if that special framework is not already in place, the politicians will need to get involved. Clearly, a bank failure cannot be compared to a serious injury or sickness in terms of personal suffering. But it can be an event which will make many people’s lives very difficult. And a systemic banking crisis, like an epidemic, may stall the functioning of our entire economies. It is therefore important to be able to deal with an ordinary bank failure as well as a more serious systemic crisis. | 1 |
Yet there are many commentators who still refer only to the central path. It would be extremely dangerous to start publishing fan charts for future interest rates unless we were confident that all commentators would understand the probabilistic nature of such statements. When the Riksbank first published a fan chart for its future policy rate in February this year, an article written by one of the most sophisticated investment banks totally ignored the probabilistic nature of the exercise. Against that background, would we be able to convince the media’s huge audiences for personal finance advice that they should not base their decisions on our central projections for interest rates because they will almost certainly not come to pass? Overall, then, I do not think that a compelling case has yet been made for the MPC to publish a forecast of the path for Bank Rate. But we must certainly provide the information necessary for financial market participants to form their own view as to the likely path of interest rates, and we must always be trying to improve the quality of that information. We shall also keep in close touch with our colleagues in central banks that do publish forecasts of policy rates to see what we can learn from their experience. If we feel that there are net benefits from following their example, then we will do so. 16 See Goldman Sachs (2006). 17 There are many ways of aggregating individual votes on paths of interest rates, but none is particularly attractive. | With inflation expectations well-anchored to the target, companies have restricted the pass-through of changes in costs to prices. The necessary adjustment of real take-home pay has taken place more through fluctuations in money wages than prices. In short, the behaviour of the UK economy has improved over the past decade, both in terms of its performance and its stability, and that improvement has been more marked in the United Kingdom than in the rest of the G-7. Although structural reforms to the economy over several decades have made the economy better able to respond to economic shocks, the new monetary framework has also played a key role. Inflation expectations have been successfully anchored to the target. And that has meant that cost changes have affected wages and profits rather than prices. As a result, inflation and output growth have been remarkably stable. 2. The change in monetary policy decision making It appears then that the success of the framework in anchoring inflation expectations has played a key role in the economic stability of the past decade. What was it about the framework that accounted for that? 4 BIS Review 43/2007 Since its inception, the MPC has met 120 times.7 At those meetings it raised Bank Rate 17 times, lowered it on 17 occasions, and left it unchanged 86 times.8 Bank Rate has varied between 3.5% and 7.5%. The MPC has changed interest rates at just over a quarter (28% in fact) of its monthly meetings. | 1 |
The level of the buffer must therefore be considered in the light of other capital requirements. Norway could be among the first countries to apply the countercyclical buffer. Growth in credit and in house prices in Norway has been high for a long period, and credit has reached a historical level relative to GDP. In view of this situation, banks must make extra allowance for the risk of an economic setback. Banks have taken due note of the requirements and are in the process of adjusting to them. Discussions with market participants suggest that an expected countercyclical buffer has been included in banks’ long-term adjustments. 3 Basel Committee on Banking Supervision, “An assessment of the long-term economic impact of stronger capital and liquidity requirements”, August 2010. http://www.bis.org/publ/bcbs173.pdf. For an updated collection of references to studies of the costs and benefits of macroprudential regulation, see Annex 1 in IMF Working Paper WP/13/167, by Arregui et al. “Evaluating the Net Benefits of Macroprudential Policy: A cookbook”, July 2013. http://www.imf.org/external/pubs/cat/longres.aspx?sk=40790.0. 4 For further detail and references, see Norges Bank Papers 1/2013. 4 BIS central bankers’ speeches Capital requirements and monetary policy The countercyclical capital buffer and the key policy rate are two instruments serving different objectives. The objective of the countercyclical capital buffer is to increase banks’ resilience to losses in a downturn. The primary objective of monetary policy is low and stable inflation. | Under CRD IV, national authorities shall take account of other variables in addition to the credit-to-GDP ratio.2 The four key indicators are also in line with the new Norwegian regulation, which states that the basis for the buffer decision from Norges Bank “shall contain an overview of the credit-to-GDP ratio and the extent to which it deviates from the long-term 1 The trend is estimated using a one-sided Hodrick-Prescott filter (lambda = 400000) extended by a forecast. The mean is for the entire period in the chart. 2 Articles 135(1)(c) and 136(3)(c) of Directive 2013/36/EU (CRD IV). BIS central bankers’ speeches 3 trend, as well as other indicators, and Norges Bank’s assessment of systemic risk that is building up or has built up over time”. Under the regulation, Norges Bank shall take account of guidance from the European Systemic Risk Board (ESRB). The ESRB is currently working to formulate guidelines for setting the buffer rate. Norges Bank and Finanstilsynet are actively participating in this effort. Once the guidelines are in place, recommendations from the ESRB on methodologies and benchmarks for setting the buffer rate will be included in the basis for the buffer decision. In line with the recommendations from the Basel Committee on Banking Supervision and the regulatory framework, there should not be a mechanical relationship between developments in the indicators and Norges Bank’s advice on the buffer as relationships in the economy are too complex. The advice will always be based on qualified judgement. | 1 |
The conditional inflation forecast is based on the assumption that the three-month Libor will remain at –0.75% over the entire forecast horizon. Despite depreciating somewhat in recent months, the Swiss franc is still significantly overvalued. Furthermore, inflation prospects have largely remained the same. We have therefore decided to maintain our expansionary monetary policy. The target range for the three-month Libor is unchanged at between –1.25% and –0.25%, and interest on sight deposits at the SNB remains at –0.75%. The interest rate differential with other currencies, even following the European Central Bank’s (ECB) mild interest rate cut, is thus still markedly higher than at the beginning of the year. The negative interest rate makes the Swiss franc less attractive, and continues to help weaken the currency. The SNB also remains active in the foreign exchange market in order to influence the exchange rate situation, as necessary. The negative interest rate and our willingness to intervene in the foreign exchange market are intended to ease pressure on the Swiss franc. Our monetary policy thus helps to stabilise price developments and support economic activity. Global economic outlook As our inflation forecast is heavily influenced by economic developments abroad, let me now present our assessment of the global economy. Global economic growth was weaker than expected in the third quarter of 2015. This was mainly due to subdued manufacturing activity around the globe and sluggish world trade. | Durmuş Yılmaz: Evaluation of global financial developments and structrual reforms Speech by Mr Durmuş Yılmaz, Governor of the Central Bank of the Republic of Turkey, at the 19th Annual World Business Congress, Konya, Central Anatolia, 21 July 2010. * * * Honorable Rector, Esteemed Academicians, Distinguished Guests, We are gathered here today for the 19th Annual World Business Congress of the International Management Development Association (IMDA), where the lessons learned from past experiences in the global business world, current issues and future tendencies will be discussed. I would like to congratulate everyone, notably Prof. Dr. Mehmet Babaoğlu, Rector of Karatay University, and distinguished members of the University for their Contributions to organizing this esteemed Congress, which is held in a different country each year. I would like to start my speech with a brief evaluation of global financial developments. Then I will address structural reforms, which we deem essential for raising Turkey’s potential growth rate, when considering the Turkish economy on a macro scale and from in a longterm perspective. 1. Global developments: As is known, problems, which emerged in the global financial markets about two years ago and spread across the corporate sector over time, affected the Turkish economy as well as other economies. We see that the impact of global turmoil on economies mainly emerged through three channels: (1) Foreign Trade, (2) Capital Flows and (3) Expectations. The Turkish economy has been affected by global turmoil through all these three channels due to its structural features. | 0 |
In recent years, capacity utilisation has declined from a high level and is now on a par with the level prevailing in the years 1995-1997, before the rise in costs accelerated. Consumer price inflation in 2003 and the background for the deviation from the target In the years 1998-2002, the Norwegian economy was characterised by substantial labour shortages and a considerably higher rise in labour costs than among trading partners. Last year was the fifth consecutive year of very high annual growth. Wage growth was substantially higher than the level that over time is consistent with the inflation target and with normal productivity growth. Pay increases varied widely across the different groups. In Norges Bank’s view, there was therefore a substantial risk of new wage-wage spirals. Further rounds of such strong wage increases might have led to a decline in output and employment. Monetary policy was therefore tightened through an interest rate increase last summer while the krone remained strong. At the one-year horizon, the strong krone would push down inflation to below 2½ per cent, but subsequently the effects of strong wage growth would dominate. Last year, Norges Bank’s Executive Board struck a balance between the consideration of stable inflation developments in the short term and the consideration of stabilising developments in output and employment. Inflation was thus expected and intended to be low in 2003. In the October 2002 Inflation Report, inflation was projected to fall to 1¾ per cent in summer 2003. | Svein Gjedrem: The conduct of monetary policy Introductory statement by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at a hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 1 December 2003. Please note that the text below may differ slightly from the actual presentation. The statement is partly based on the assessments presented in “Report on monetary policy in 2003 - the first eight months” and Norges Bank’s Inflation Report 3/2003. The Charts in pdf can be found on the Norges Bank’s website. * * * I would like to thank the Storting for inviting Norges Bank to appear for the first time before this Committee to report and answer questions on monetary policy in connection with the Storting’s deliberations on the Government’s credit report. The mandate The operational target of monetary policy as defined by the Government is inflation of close to 2½ per cent over time. The target is symmetrical - it is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. The inflation target provides an anchor for economic agents’ expectations concerning future inflation. It provides an important basis for choices concerning saving, investment, budgets and wages. Households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in Norway will be 2½ per cent over time. We have a very open economy with free capital movements. | 1 |
A lot has changed in terms of the regulatory environment and the range of financial services demanded and offered as well as the organizational structure and management practices of financial institutions. BIS central bankers’ speeches 1 Thirty years ago commercial banks were primarily and basically anchored in intermediation – garnering deposits and making loans. Gradually product innovations, new distribution channels, advances in technology, deregulation on the one hand and tightening of regulations on the other hand and emerging new competitors have dramatically changed the way banks now do business. Banks have now not only grown larger but have become much more complex and now span across the globe. The advancements in information technology in particular have allowed banks to handle a phenomenal amount of data at alarming speed thus propelling the introduction of new products and services. Three decades ago, bank failure was not a frequently mentioned financial jargon unlike today where bank failure is discussed at almost every financial fora and where the collapse of one bank could trigger a domino effect across many countries simultaneously. The rapid demise of banks which were thought of being too big to fail given the unquestionable caliber of those at helm are now tumbling, and with every failure, regulators are forced to revisit regulations that were thought to provide adequate safeguards. | As emphasized by the Director of the State Statistical Office, Mr. Apostol Simovski, the Republic of Macedonia has long been integrated into the system of the so-called IMF’s Data Standards Initiatives. This system is extremely dynamic and started to develop since the mid-1990s, in response to the then international financial crisis, in order to promote transparency of both economic and financial data. I say dynamic, given that its construction blocks have been continuously changing and increasing. Its last, third construction block is the SDDS plus which reflects the weaknesses identified in the statistical data infrastructure that surfaced with the latest global economic and financial crisis from 2008. It is a fact that the genesis of the crisis was not located in the lack of data, but fact is also the identified need for an enriched data set for conducting more effective economic policies. This crisis has clearly shown how inadequate regulation and excessive risk-taking can lead to a collapse of the financial system. It has shown how the underestimation of the strength of the links of the financial system with the real sector, as well as the underestimation of cross-border exposures of economies and financial integration, could lead to inadequate assessment of macro-financial links and underestimation of risks. The SDDS plus is actually a response of the international financial community to these statistical gaps. This initiative means enrichment of statistics, in both scope and quality, in order to timely recognize and appropriately react to vulnerabilities that may arise in an economy. | 0 |
What could also be helpful in this respect is the enhancement of the surveillance of financial systems of all countries in the framework of the Financial System Assessment Program (FSAP), as well as the publication of their conclusions. 3. The last area of reform that strikes me as particularly important is enhancing the legitimacy and resources of the financial institutions at the heart of the international financial architecture For international cooperation to function, institutions must be efficient and accepted by all economic players. This means that they must have clear mandates, appropriate resources and governance that correctly reflects today’s multipolar and interdependent economic and financial world. BIS Review 101/2009 3 In this area, the G20 also agreed on robust measures aiming in particular to adapt the resources and functioning of the Bretton Woods institutions. For instance, while we have observed an increasing number of bilateral initiatives, such as swaps offered by major currency issuers, such as the Fed and Eurosystem, as well as, in a very different context, by China, these mechanisms cannot alone constitute a coherent insurance system. This is why the G20 decided to triple IMF resources to USD 750 billion, which is unprecedented. The intervention tools were also reformed. A multilateral instrument for the prevention and early management of crises was also created, the Flexible Credit Line (FCL); Mexico, Poland and Argentina have already signed up and this has without doubt reduced the risk of contagion. In addition, the Poverty Reduction and Growth Fund was established for the poorest countries. | I am rather doubtful myself, for several reasons. First, in the absence of single accounting standards, a comparison between banks belonging to different accounting universes will mean absolutely nothing. Second, that sort of ratio did exist in the United States and proved of no help, precisely in the country where the crisis emerged. Finally, in the present circumstances, it could add to the reluctance of banks to be active lenders in the interbank money market, therefore reducing market liquidity and still increasing the over-reliance of the banking sector on the central bank counterparty. That said, it is essential to enhance the counter-cyclical nature of capital requirements. For instance, implementing a forward-looking provisioning system and an additional capital requirement at the cycle peak would be effective measures to make capital requirements more contra-cyclical. In this regard and especially in the light of the profits announced by the major banking groups and the large payouts to traders, CEOs or shareholders in the form of dividends, I would like to stress that these profits should primarily be used to bolster capital ratios and allow banks to focus on their core task of financing the economy. All in all, I praise international standards in the field of prudential rules. | 1 |
There is psychological research, in the field of cognition, demonstrating that people have an easier time understanding conditional statements if they’re less abstract and more rooted in real-world experience. In addition, I suspect there may be sometimes a degree of wishfulness involved. None of us likes uncertainty. Longstanding research has identified related, and deep-seated, cognitive biases. We are all prone to over-confidence in our own predictions and, after the event, to the belief that what has happened was entirely predictable (and, indeed, that we predicted it[19]). I think there may be something of the same underlying phenomenon at work in people’s desire to know the “plan” for interest rates. In a letter to the FT in 2018, my former colleague Martin Weale made a similar point: “The pressure on the Bank of England for clearer communication is a consequence of people wanting the future to be less uncertain than it is.”[20] Anyhow, whatever the true cause, I sometimes worry that there’s a potential cost to this (one that matters more than the odd “unreliable boyfriend” tag). If people come to rely too much on explicit steers from the central bank, forward interest rates and other asset prices may become insufficiently sensitive to economic events. And if in turn the central bank acquiesces to the desire for more definitive statements about the future path of interest rates, and feels the need to signal policy changes well in advance, this could compromise its ability to respond to surprises that occur in the meantime. | So even a relatively small effect of this sort can have a material impact on the credibility, and therefore the power, of the guidance (the dotted line in Chart 5). The solid blue line presumes that there’s some mechanism – some Odyssean mast to which you could tie yourself – ensuring that the cost of breaking the promise is always greater than the temptation to do so. Chart 5. Commitment policy loses much of its power if it isn’t fully credible Results from a simulation of a small macroeconomic model under alternative assumptions about monetary policy and the average distance to the lower bound. Macroeconomic volatility is measured using a simple “loss function” that weights the variance of inflation and the output gap. The y-axis shows the square root of the loss function, scaled to 1 for the case of commitment policy with an average distance to the lower bound of 5pp. Sources: See Appendix for further details. In practice, it’s hard to see that there is one. The importance of maintaining reputation obviously helps. There’s a cost to breaking one’s word. But that mightn’t be enough, especially if your promise seeks to constrain not just your future self but your successor as well. That obstacle is all the greater if, as in the UK, policy decisions are made not by collective consensus but by democratic vote. Each member of the MPC member is individually accountable for his or her vote. It’s part of the UK’s constitution that “no parliament can bind its successor”[16]. | 1 |
And Governor Carstens’ predecessor, Guillermo Ortiz, is an advisory board member of the Dallas Fed’s Globalization and Monetary Policy Institute. The Federal Reserve Bank of Dallas and the Banco de México enjoy a unique and mutually beneficial relationship. As Guillermo and Agustín well know, there is also a personal dimension to the Dallas Fed’s relationship with the Banco de México. I grew up in Mexico City in the 1950s, attending elementary school not far from here. Spanish was my first language in school. To this day, I have many friends in El Norte who say I speak better Spanish than I do English, although that may be due to my Texas accent. Either way, I always proudly tell them, “¡No hablo español; hablo puro mexicano!” This evening, I will do my level best to speak to you in español mexicano rather than in inglés texano. Unprecedented U.S. monetary policy As you surely know, and as I am happy to report, the Federal Open Market Committee (the “FOMC”), charged with crafting U.S. monetary policy, is winding down its extraordinary “quantitative easing” phase. The Great Recession demanded extraordinary policy, and the FOMC responded. Led by Chairman Bernanke, the FOMC met the financial crisis head-on in September 2007 and by the end of 2008 had lowered the federal funds rate to zero from 5.25 percent. Once the full force of the financial crisis hit, after the failure of Lehman Brothers, the federal funds tool proved insufficient. | Richard W Fisher: ¡Ándale Pues! Having made the tough choices, Mexico stands to benefit from reforms and navigate Fed’s tapering with relative ease Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Association of Mexican banks, Mexico City, 5 March 2014. * * * The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System. Thank you, Luis [Robles], for that kind introduction. It is my great pleasure to be here tonight as the guest of the Association of Mexican Banks and reunited with my colleagues from Banco de México. I recently returned from Europe, where I met with leaders from the European Central Bank and the National Bank of Switzerland. I am very grateful to Governor Agustín Carstens for his hospitality. The Federal Reserve Bank of Dallas has enjoyed a long history of cooperation and consultation with the Banco de México. I like to call Banxico our sister bank. Agustín himself spent some time at the Dallas Fed when he was a young man, and we take pride in playing this small part in his accomplished career. For many years, the Dallas Fed’s El Paso Branch has held joint board meetings and informational exchanges with the Banco de México regional board of directors in Ciudad Juárez. Now our branches in Houston and San Antonio are holding similar joint meetings with their Banco de México counterparts. | 1 |
Causes of the financial market turmoil What have been the underlying main causes of the financial market turmoil? What have been the key weaknesses in the functioning of the financial system that have been revealed? And what are the appropriate further responses of market participants and policy-makers? A full diagnosis of the causes and weaknesses is not yet complete and, indeed, not possible as the 19 8 See ECB (2007b), Box 7, on the propagation of the sub-prime shock to other markets. BIS Review 9/2008 market adjustment is still ongoing. Nevertheless, I would like to highlight four areas that are also pertinent to the issues of financial integration and development we are discussing. • First, the underlying causes and triggers are to be found in the price dynamics of the US housing market and the excesses and shortcomings (in the practices) in the US sub-prime mortgage market. So, a main determining factor of the financial market turbulence is that same one – property price overvaluation – that characterised previous episodes, as emphasised by Kenneth Rogoff. • Second, weaknesses in the functioning of the market for structured finance products. These included valuation uncertainties due to the complexity of many products, the imperfect information available about the underlying asset characteristics, inadequate appreciation by investors of the embedded risks, and excessive reliance on the ratings of such products by credit rating agencies. | But a more careful analysis shows that other factors played an important role, such as the rapid growth of new financial instruments, the increasing presence of very active and highly leveraged financial market participants. Moreover, ample market liquidity also reflected an increase in risk appetite and a rise in leverage. And the recent market developments showed that an abrupt and sizeable increase in risk aversion caused an evaporation of liquidity in many markets and a rise in market volatility. Therefore, although financial globalisation can play a role in containing market volatility, it cannot be expected to have a dominant and permanent impact. Impact on financial stability – the financial market turmoil What are the broader potential implications of financial globalisation for the stability of financial systems? How are real and financial shocks likely to propagate across borders and asset classes in a financially integrated world? On the one hand, there is obviously an augmented risk of cross-border contagion of asymmetric shocks to the rest of the world if cross-border asset holding is widespread. On the other hand, this risk has to be weighed against the positive side of the very same coin, which is the benefit gained from an increase in international risk-sharing by means of diversification. The resilience of financial asset prices to negative shocks is improved when the market is more liquid and the investor base more heterogeneous. | 1 |
This was not at all what most people had predicted - given the earlier 1 BIS Review 92/2000 widespread fears of an overheating US economy and the progressive widening of the US current account deficit - and most conventional analysis has for some considerable time now suggested that, on “the fundamentals”, the euro has become increasingly undervalued. I share that view. Why then has the euro weakness persisted? Frankly I’m not at all sure that anyone really knows the answer to that question. What I think we were all somewhat slow to recognise was the impact of the remarkable acceleration of productivity growth in the US economy - not just faster productivity growth but accelerating productivity growth on the latest data up to the second quarter of this year. This has allowed the US economy to continue to grow faster than before without generating inflationary pressures - though there is clearly a limit to how far that can go. But accelerating productivity growth has also increased prospective returns on investment in the US which has contributed to a huge net inflow of capital - in the form of both direct and portfolio investment - which has much more than financed the US current account deficit. The numbers are truly massive. | And there has from the beginning been clear evidence of the anticipated broadening and deepening of euro financial markets more generally, reflected, for example, in increasing issuance of euro-denominated commercial paper, corporate bonds and equities. (If you would like chapter and verse on all this I commend to you the Bank of England’s half-yearly publication, “Practical issues arising from the euro” - available free from our public information department.) I am happy to say that the City of London has played a positive role in this process of euro market integration: it is in fact the greatest contribution that we can make to the success of the project from outside the Eurozone. And it runs in parallel with the distinct, but closely related, pressure for broader international integration of financial markets which is currently reflected in a whole series of market initiatives to unify trading platforms and both clearing and settlement systems, in which both London and Paris are, of course, very much involved. I have no doubt that increased financial market efficiency has an important part to play in improving overall economic efficiency - the question is how best we can bring it about. Jean-Claude and I would also agree, I suspect, that the introduction of the euro has contributed to the increasingly positive macro-economic performance of the Eurozone economy, taken as a whole, over the past couple of years. | 1 |
Paul Fisher: Microprudential, macroprudential and monetary policy – conflict, compromise or co-ordination? Speech by Mr Paul Fisher, Executive Director for Supervisory Risk Specialists & Regulatory Operations and for Insurance Supervision of the Bank of England, at Richmond University, London, 1 October 2014. * * * The author is also chair of the ifs School of Finance. Any views aired in this speech are personal and should not be taken as a policy statement by the Bank of England. Nevertheless, the speaker is grateful to colleagues at the Bank for helpful comments, and to Andrew Hughes Hallett for his advice on policy coordination issues over many years, including comments on the content of this speech. Thank you for inviting me once again to speak at Richmond University. In the last year I have moved within the Bank of England from the Markets Directorate to the Prudential Regulation Authority (PRA) and from the Monetary Policy Committee (MPC) to the PRA Board. The PRA Board is one of our three formal policy committees, and makes the highest level supervisory decisions for those firms authorised by the PRA. That includes insurance companies, banks, building societies, credit unions and major investment firms. I have been attending meetings since June and will become a voting member in due course. | If a policy is not very effective on its primary objective, one of the consequences could be unnecessarily large policy changes. • The authorities need to be able to co-ordinate or communicate in some way about what they are doing and why. Otherwise one can show that there is a risk in some circumstances of a dynamic being created which is destabilising (eg where one authority tries to offset the effects of another in turn). • And perhaps most importantly, the targets need to be achievable & coherent as a set. Let me explore this last point briefly by taking an extreme case. If the MPC were to be set a target of absolute zero unemployment, that would be physically impossible and however hard they tried, it would not be achieved. If they did try hard nevertheless, it would probably lead to an over-expansion of the economy that threatened both financial stability and prudential safety and soundness. In a less extreme case one could imagine an MPC target for money supply growth which, given time-varying shocks to the velocity of money, might not be consistent with the other objectives. Applying these conditions to the UK authorities So the first question I want to ask is whether the MPC, FPC and PRA Board have been set an achievable and coherent set of targets? Is it possible to achieve CPI inflation at 2%, financial stability, and safety and soundness of firms simultaneously 7? | 1 |
Eva Srejber: Internationalisation and financial integration Speech by Ms Eva Srejber, Second Deputy Governor of the Sveriges Riksbank, to The Bankers' Club, Gothenburg, 29 March 2001. * * * Thank you for the invitation to come to Gothenburg and speak about internationalisation and the ongoing process of integration in the financial markets. I intend to begin by putting developments on the financial markets in a historical perspective and then to deal with the forces behind current developments. I shall then focus more specifically on Europe and the role played by the euro and, finally, I shall briefly discuss the important work pursued by international organisations in strengthening the financial system and thus reducing the risk of crises arising. Globalisation from a historical perspective Over the past few decades we have seen how the global economy has been internationalised on a large scale and how deregulation and technological achievements, particularly within the IT field, have created new conditions for growth. During the same period, global purchasing power has more than doubled. And it is not only the western world that has benefited from the opportunities offered by internationalisation; many poor countries have managed to climb a few steps up the global income ladder. The Asian 'tiger' economies are good examples of this. A look back in time shows that this development is not unique. | In 1857 the Swedish National Debt Office ventured out onto the international capital market. The first railway loan was issued in Germany and comprised the start of an era with extensive capital imports to Sweden lasting more than 50 years. This provided Sweden with access to capital for productive investments on a scale that would scarcely have been possible otherwise. The central government borrowing paved the way abroad for other borrowers, such as municipalities, mortgage institutions and industrial companies. The large Swedish banks were to a large extent given the task of acting as intermediary in bond loans and thus had the opportunity to develop contacts with foreign banks. The integration of the financial markets increased. For Sweden, this meant that our manufacturing companies could make use of the greater access to capital and lower interest rates in industrially-developed Europe. Gothenburg, with its proximity to the British goods and capital markets, played an important role here. For instance, the Skandinaviska Kreditaktiebolaget, which was the country's leading bank during the latter part of the 19th century, had its registered office here. The internationalisation of the financial markets was facilitated by the fact that Sweden joined the monetary co-operation of the time, the gold standard, while the national integration of the markets was strengthened by the fact that the Riksbank was granted a monopoly on issuing banknotes at the end of the century. This also helped to lay the foundation for a more modern monetary policy. | 1 |
Capital is much higher than it was fifteen years ago before the global financial crisis with a 1 The ESRB is responsible for the macroprudential oversight of the EU financial system in order to contribute to the prevention or mitigation of risks to financial stability. 2 3 See Warning of the European Systemic Risk Board of 22 September 2022 on vulnerabilities in the Union financial system (ESRB/2022/7). Speech by ESRB Chair Christine Lagarde, Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 20 March 2023. Common Equity Tier 1 ratio of 15.5% at the end of December. The liquidity position of the European banks is also robust, with an LCR ratio of 164.7% at the end of the fourth quarter of 2022, clearly above the minimum requirements and even the pre-pandemic levels, and with a large part of these liquidity buffers in cash and deposits with the central banks. This has been the result of regulatory reforms agreed internationally over the last decade. In the EU, these reforms have been applied to all banks, irrespective of their size. The role of banking supervision is worth noting. In the Banking Union, certain supervisory priorities of the Single Supervisory Mechanism were wisely set to mitigate and anticipate the adverse effects of the current macroeconomic situation. | The ESRB has repeatedly noted8 that a lack of tools is hampering authorities’ ability to address financial stability risks beyond the banking sector. The ongoing review of the prudential rules governing investment funds and insurers provides opportunities for legislators to assign the power to operate such tools to the authorities. And the ongoing review of the rules governing central clearing offers an opportunity to enhance authorities’ monitoring capacity through better data quality. The ESRB has provided extensive input to the these legislative reviews, setting out what it believes is necessary.9 Hybrid risks The ESRB has devoted a substantial amount of efforts in recent years to advance our understanding, assessment and macroprudential policy response capacities to the so-called “hybrid” risks, in particular, cyber threats and climate risks.10 As regards cyber risk, at the ESRB we are concerned that a major, i.e. systemically relevant, cyber incident has the potential – in a worst-case scenario – to trigger financial contagion and erode public confidence in the financial system. If the financial system is not able to absorb such a shock, financial stability is very likely to be put at risk. This concern led the General Board of the ESRB to adopt in December 2021 a Recommendation to establish a pan-European systemic cyber incident coordination framework (EU-SCICF).11 The aim of this recommendation is to 8 See, for example, Macroprudential policy beyond banking: an ESRB strategy paper, ESRB, 2016. | 1 |
6 BIS Review 86/2010 With regard to how the supranational institutions competent in this area are being reorganised, special mention should be made of the political impetus from the new extended G20, since without its contribution the reform of international regulation would have been unlikely to advance so strongly. Also, the recently created Financial Stability Board (FSB), which replaces the Financial Stability Forum and of which Spain has become a full member, is playing a central role in this process of change. The FSB is charged with identifying vulnerabilities of the international financial system and coordinating the responses of the national authorities and other international fora. In addition, it oversees the international application of regulatory and supervisory standards, promotes the development of the colleges of supervisors and prepares the contingency plans required for managing international financial crises. Sweeping changes are also afoot within the European Union in micro-prudential and macroprudential supervision. In the first, although ultimate responsibility will continue to lie with national supervisors, the European System of Financial Supervisors will be in charge of improving the quality and consistency of supervision, strengthening that of cross-border groups and establishing a single set of rules applicable to all European financial institutions. In the macro-prudential area, which can be defined concisely as that entrusted with identifying systemic risks, responsibility will lie with the European Systemic Risk Board, which also makes the recommendations or proposes the corrective measures it considers appropriate. | This meant that private sector solutions were prioritised, as has been seen in the processes that have unfolded in the past few months. Today, it is fair to say that the restructuring and recapitalisation of Spain’s financial institutions is well under way. It is now just a case of formalising and implementing the agreements reached. As a result, Spain’s deposit institutions that did not already have sufficient capital have now secured it, either from the markets or from the FROB. The Banco 8 BIS Review 86/2010 de España has conducted stress tests to verify that all institutions – banks, savings banks and credit co-operatives – will actually have sufficient capital available, not only for what would currently seem to be the most reasonable scenarios, but also for complex growth scenarios in the near future. Accordingly, before end-June, the Banco de España will take the steps necessary to formalise the processes already agreed and to ensure they are correctly implemented. If, by month-end, any of these processes has failed, or any institution has been left behind, the Bank will act, using the mechanisms envisaged for this purpose in the FROB legislation. Moreover, the Bank intends to publish the results of these stress tests, to reveal the deterioration estimated, the consequent capital requirements and the capital funding committed, to provide the markets with a perfectly clear idea of the situation of the Spanish banking system. | 1 |
This in turn assumes that authorities have enough information at any point in time to “connect the dots” of a complex network of CCPs and global dealers. Hence the critical importance of enforcing the new reporting requirements to trade repositories (TRs), and further to this, of being able to aggregate data collected by TRs across products, institutions, and jurisdictions, and conduct analytical work based on this data. 2 Optimal design of loss allocation tools [slide 9] Let me now turn to the third known unknown, which is the subject of much debate: what is the optimal design and composition of a CCP’s recovery tools? [slide 10] In the field of recovery, we are entering new territory, which is why the authorities have wisely taken a very cautious approach to giving guidance to FMIs on the design of their recovery plans. Ideally, recovery tools should be comprehensive, effective and controllable; they should create appropriate incentives for risk management and minimise any negative impacts. However, the challenge is that no individual tool can equally meet all of these criteria because of trade-offs, for example: • Uncapped cash calls are comprehensive, but may create disincentives for central clearing. • Variation margin haircutting can be comprehensive and effective (as it reduces payouts rather than requiring additional pay-ins), but the loss allocation and hence the systemic effect is uncertain. • Initial margin haircutting may help achieve comprehensiveness, but increases the potential for contagion risk. The optimal choice of recovery tools is still evolving and remains a controversial issue. | But this certainly requires strong supervision, effective cooperative oversight arrangements, and setting up the right incentive structure so that CCPs don’t lose sight of public interest, starting with the interest of their indirect members. Let me conclude. Central clearing will make the global financial system safer. However, it also has the potential to redistribute risk. Its overall systemic effect will thus depend on the incentives for risk-taking and central clearing that accompany risk redistribution. Hence the need for the official sector to provide the right incentive framework ex-ante, produce data that can help understand the distribution of risk, and tightly supervise CCPs in a spirit of cooperation across jurisdictions. Thank you for your attention. BIS central bankers’ speeches 5 | 1 |
• In 2014, 43 countries ranked China as their top export market, higher than the comparative figure for the US, at 31. The recent slowdown in the Chinese economy and volatility in its financial markets have therefore sparked fears that the Chinese economy was headed for a “hard landing” and that it would drag down much of Asia with it. But much like the dreams of a vast insatiable market two centuries ago, today’s fears are understandable but overblown. To many, China’s economy seems like what Winston Churchill described the Soviet Union half a century ago: “a riddle wrapped in a mystery inside an enigma”. China is indeed a complex economy but is not necessarily beyond comprehension. China’s economy is at a major inflection point. It is facing three necessary but significant challenges at the same time: • First, the Chinese economy is adjusting to a lower rate of growth. Managing this moderation without major dislocation is a key priority for China’s policymakers. • Second, China is addressing risks and vulnerabilities in its economy and financial system. Doing this without triggering a crisis of confidence is another key priority. • Third, China’s economy is undergoing perhaps the most comprehensive and ambitious structural reform programme of any country in modern times. BIS central bankers’ speeches 1 In the short term, these three objectives may at times be in conflict, presenting a trilemma of difficult trade-offs for policymakers. | In 2007 and 2008, the IMF expects emerging countries to account for more than half of world economic growth. The same positive trend is reflected in their financing conditions. Emerging market economies increasingly finance themselves in the form of bonds in local currency at long maturities and fixed interest rates. By doing so, they have escaped the curse of “original sin” – the inability to borrow abroad in their own currencies – that made the crises of the 1990s so costly. Their capital markets have expanded rapidly, both in size and in the range of instruments available. Asian stock market capitalisation, for instance, increased five-fold between 2000 and 2005, as against only a one and a half times increase for the major European and US stock exchanges. Issuance of bonds and syndicated loans from emerging market corporates has also accelerated markedly, and has even exceeded sovereign issuance in some countries. Lastly, risk premia on emerging market assets have fallen significantly, reflecting sound economic fundamentals. For this series of reasons, emerging markets have become an attractive asset 2 BIS Review 140/2007 class for long-term international investors, as shown by their rising share in asset allocations. It is therefore not so surprising that they have so far been relatively immune to the current subprime crisis, and might even be seen as “safe havens”! Let me now turn to some major challenges of financial globalisation. First, the impact on monetary policy. | 0 |
For that reason, there has been an exponential increase in mechanisms to hold experts to account as more decisions require technical input. Michael Power describes the proliferation of such activity – not just financial audits but audits and reviews of boards, research quality, process reviews, environmental impact, independent evaluation offices, parliamentary inquiries, etc. 39 Critics argue that such “bean counting” is costly, results in risk aversion, and diverts resources from important work. Having been on the receiving end of a great deal of this “checking,” I think it is a small price to pay to legitimize expert input to democratic decision making. Conclusion So what have the experts ever done for us? The application of knowledge and the cumulation of that through education and dissemination through various media and institutions are integral to human progress. So the question is not how to manage without experts, but how to ensure that there are mechanisms in place to ensure they are trustworthy. More humility and candour about the limits of expertise is a starting point, as is clearer communication. More rigorous assessment of ideas will generate better solutions. Better tools to allow the public to differentiate among ideas are also needed, as is the need to encourage more genuine listening to others’ views. Managing the boundaries and accountabilities between experts and politicians better will help maintain the balance between technocracy and democracy. Getting this right is vital for determining whether our futures are shaped by ignorance and narrow-mindedness, or by knowledge and informed debate. | We all know who Bill Gates is and how he set up the most profitable software company called Microsoft. Bill Gates is now the richest man in the world and is spending most of his time doing charity work worldwide. Bill Gates is clearly an idol for lots of people, old and young, and a symbol of great success. But how come Bill Gates has become so successful? Many say he is a genius, both in computer programming and in doing business. But is it that simple? I have just recently come across a book written by Malcolm Gladwell, who has referred to an interesting thesis called the 10,000 hours rule. To understand this thesis, you have to look closer at Bill Gate’s life. No doubt Bill Gates is very clever and is extremely talented in computer programming. However, what made him so special as distinct from so many other equally clever and talented people in the past three to four decades is that by the time Gates dropped out from Harvard in his sophomore year in mid-1970s to set up his little backyard software company, he already had 8 solid years of non-stop computer programming experience, something that was exceptionally unique at that time for a young man just over 20. For a number of very peculiar reasons, Gates started his programming venture in as early as 1968 when he was just an eighth grade kid in a high school in Seattle. | 0 |
Thomas C Baxter, Jr: Reflections on the new compliance landscape Remarks by Mr Thomas C Baxter, Jr, Executive Vice President and General Counsel of the Federal Reserve Bank of New York, at “The New Compliance Landscape: Increasing Roles – Increasing Risks” Conference, New York City, 23 July 2014. * * * The views expressed are the views of the author and do not necessarily reflect the views of the Federal Reserve Bank of New York, or any component of the Federal Reserve System. Let me begin by thanking the Risk Management Association, PWC, Debevoise & Plimpton, and my friend Paul Lee for inviting me to participate in this conference. Of course, I need to give what sometimes sounds like a Miranda warning – my remarks are personal, and do not represent an official position of the Federal Reserve Bank of New York, or any part of the Federal Reserve System. There is nothing I will say that can be used against them. I am going to address three specific compliance problems: economic sanctions, tax evasion, and foreign corrupt practices. I will use these three compliance problems to illustrate a larger point about organizational culture. If organizational values do not support the rules that organizations use to guide the behavior of employees, and worse, if organizational values actually conflict with those rules, the organization is headed for troubled territory. In my remaining time, I will elaborate on this fundamental point. Let me start with economic sanctions. | The Iranian sanctions are designed to stifle the Iranian regime’s nuclear ambitions. The Cuban sanctions are intended to hinder the advancement of communism in the Americas and to change an oppressive regime through a trade embargo. For U.S. financial institutions, which operate on the basis of a public charter issued in the United States, the public purposes supporting economic sanctions and the detailed sanctions regulations are in harmony. With respect to rule compliance, the staff will follow those rules not simply because they are required to but also because they want to. While I am not here to speak for foreign institutions that have committed sanctions evasion, including BNPP, my sense from the evidence is that these institutions looked at economic sanctions very differently. They looked at economic sanctions as technical “American” rules that were not seen as consistent with the organization’s and the home country’s larger value system. In Europe, they found no similar sanctions, and there it was perfectly legal at the BIS central bankers’ speeches 1 time to do business with these sanctioned jurisdictions. Some European bankers almost naturally adopted the view that there was no value system underlying the technical American legal rule. The foreign institutions saw the situation as providing financial services to just another country; not to a country committing genocide; not to a country building a nuclear weapon; and not to a country fostering a dehumanizing ideology. This failure to correlate the rule with the value is the root of real mischief. | 1 |
Miguel Fernández Ordóñez: Reflections on the Spanish banking sector and economy Opening remarks by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the “XVIII Encuentro del sector financiero”, organised by Deloitte-ABC, Madrid, 5 April 2011. * * * Good morning, I am most grateful to Deloitte and to ABC for giving me this opportunity to share with you some reflections on the banking sector and economy of our country. In my talk I am going to take a hopeful view of the future of our economy and our banking system, based on the extent of the adjustment already under way and the progress made with fiscal consolidation and structural reforms. Let no one be mistaken, I am speaking about the future, because the present continues to be dominated by an overwhelming statistic: the more than four million who are unemployed. Until this number is significantly reduced, nobody is entitled to even hint at the slightest satisfaction. But it is true that, for the first time since imbalances began to build up in the late 1990s, Spanish society seems to be prepared to change and to undertake reforms that are absolutely essential, not just for growth, but for solid and sustained growth. And such change, perceived and appreciated by the markets, is the main base for a hopeful view of the future, although there is clearly still much to be done and no time for any let-up in our efforts. | The Banco de España has to approve or, where appropriate, require the necessary changes to be made to these plans, which must be implemented by 30 September, although the Banco de España may grant an extension of this deadline in the cases specified in the Royal Decree-Law. It is important to stress that the FROB is obliged to contribute the necessary capital to the banks which request it, as either a first or a subsequent option, to supplement or replace private capital. This contribution of government funds does not constitute, as some have argued, a nationalisation of banks, but rather exceptional and temporary support, since the BIS central bankers’ speeches 5 FROB funds must be repaid or replaced by private capital as required by the Royal DecreeLaw. The participation of the FROB in this process enables an orderly entry of private investment in the savings bank sector. But what has been most effective to improve market confidence has been the very existence of the FROB as a backstop, assuring investors and lenders that, from the entry into force of the Royal Decree-Law, all Spanish banks are, de facto, operating with levels of core capital exceeding 8–10%. The entry of private capital will require savings banks to undertake a definitive and clear professionalisation of their management. This requirement is fortunate because it is a necessary condition for preventing a repeat of past events. | 1 |
The emerging economies, in general, and the Asian region in particular, have emerged with stronger growth. Several key factors have enabled this faster and stronger rebound. Firstly, is the policy flexibility to implement the monetary and fiscal stimulus. Strong fiscal positions and relatively low public debt levels have allowed many Asian governments to implement larger fiscal stimulus measures. Second, the financial sector in the region is in good shape, avoiding any disruption of credit flows to the private sector. The region has benefited from the decade long of financial reforms and development of the domestic financial infrastructure. The financial systems in Asia have remained resilient throughout this global financial turmoil. This will be an important factor in sustaining the economic recovery to support domestic private sector economic activity when the fiscal measures are gradually withdrawn. Third, households and the corporate sectors are not over-leveraged, and thus better positioned to sustain consumption and investment activity. Fourth, increased intra-regional trade in Asia BIS Review 24/2010 1 has supported the recovery in regional trade activity. This has been reinforced by the strengthening of the domestic demand in the region. While domestic sources of growth have gained significance, trade will continue to be important but with a distinct change in the pattern of trade. Trade among the emerging economies has already increased, with this trend being most evident among the emerging economies in Asia. Intra-regional trade in Asia has already risen from 32% of total exports in 1995 to an average of 50% in 2008. | Ardian Fullani: Recent economic developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Joint Press Conference of the International Monetary Fund (IMF) mission, the Ministry of Finance and the Bank of Albania, Tirana, 9 March 2010. * * * Honourable Mr. Minister of Finance, Honourable Mr. Bell, Honourable participants, During the last two weeks we have had an intensive dialogue with the IMF Mission, which visited Tirana in the framework of periodic consultations in terms of the observance of Article IV. During these discussions there is appraised the good performance of the Albanian economy during the past year and there is also emphasized the need for pursuing prudent economic policies, designed and implemented in the context of strengthening the macroeconomic and financial stability. Also, special attention has been paid to the need for ongoing structural reform that will support our long-term economic growth. The Albanian economy has recorded a positive economic growth during the past year and has successfully tackled the direct and indirect shudders of the global economic crisis. Moreover, the Albanian economy has passed the test, by maintaining the domestic economic and financial balances, which serve as a prerequisite for a sustainable and long-term growth. Thus, inflation rate fluctuated around 2 to 3 percent during 2009; the country’s external balances have shown correction signs, while the Albanian banking system remains robust and well-capitalized. However, the economic growth rate slowed down significantly during 2009. | 0 |
9 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 9 The cost of capital and employment The underlying point through all of this – that downside risks have particularly marked effects on decisions that are costly to reverse – is, I think, perfectly intuitive. One’s naturally wary about decisions that involve a degree of commitment but uncertain outcomes. Buying a house, taking a particular job, even getting married9: these are all decisions that are costly to reverse, to one degree or another, and that therefore require an extra degree of surety to be taken. You can also find examples of the same phenomenon within the economic sphere but unrelated to investment. Chart 8, for example, plots changes in our series on uncertainty against the ratio of two particular indices for hiring intentions – one for temporary posts, the other permanent – taken from the KPMG/REC employment survey. As you might expect, firms’ hiring intentions lean more towards temporary rather than permanent jobs, because the former involve less of a commitment, when they’re more uncertain about the future. Chart 8: Employment growth skews towards Chart 9: More uncertainty boosts employment temporary jobs when uncertainty rises relative to investment Sources: KPMG, REC, IHS Markit, Bloomberg Finance L.P., CBI, Consensus Economics, Dow Jones Factiva, Eikon from Refinitiv, GfK (research on behalf of the European Commission) and Bank calculations. Sources: ONS, Bloomberg Finance L.P., CBI, Consensus Economics, Dow Jones Factiva, Eikon from Refinitiv, GfK (research on behalf of the European Commission) and Bank calculations. | The blue line is a measure of the cost of finance for risky investments: it’s the profits of UK-quoted companies relative to their market value (debt as well as equity). The graph shows that, despite a protracted and significant decline in risk-free interest rates, firms have had to generate significantly more profits than in the past to raise a given amount of finance. The spread between the two lines is a measure of the risk premium on new investments, and it’s gone up significantly in the past few years, including since the EU referendum in 2016. Chart 11 carries a similar message. Here the orange line is a similar measure of that spread, between the rate of profit for private-sector firms11 and the yield on gilts. The blue line is the rate of growth of their investment spending. 10 In the simplified way that macro-economists sometimes use to describe the supply side of the economy, using a so-called “production function”, the elasticity of productivity with respect to the cost of capital – the proportionate response of the first to the second – is the product of two numbers: the share of national income going to capital (as opposed to labour), and something called the “elasticity of substitution” between the two inputs. In the data, the first is around one third; empirical estimates for UK put the second at around one half. Multiply the two and you get a figure of around one sixth. 11 The two charts use slightly different measures of profitability. | 1 |
The criticism lived on for quite a long time, but it was probably quite essential to demonstrate at that time that the inflation target was taken seriously. This was until now the only time I can remember that the Riksbank was urged not to do its best to maintain confidence in the inflation target. The criticism then was largely due to the inflation-targeting policy being so new – as I said, the inflation target had not yet even come into force. It is less easy today, after twenty years of positive economic developments, in which the inflation target has been a cornerstone, to see why the Riksbank is being urged to lower its ambitions. Perhaps it is because developments have been so positive for so long that one feels the existence of a credible nominal anchor is no longer as important. If so, I am convinced that this is a mistake. Difficult to see reasonable alternatives to the policy conducted But what about developments in household debt and housing prices? Don't they give a reason for changing monetary policy? The Riksbank has previously used the repo rate to try to subdue the upturn in debt and housing prices. But this was on a fairly modest scale and – above all – during a period when confidence in the inflation target appeared firmly rooted. 9 In recent years, on the other hand, there have been signs that this confidence has begun to be undermined, which has changed conditions rather drastically. | When the repo rate is negative, the banks pay interest to the Riksbank, as the banking system as a whole has a liquidity surplus that must be deposited in the Riksbank. The short-term interbank rates, that is interest on loans between the banks, and some government rates have followed the repo rate down below zero. However, the banks have not introduced negative deposit rates for households and most companies. Only a few economic agents, primarily other financial institutions, large companies and some municipalities, have experienced a negative deposit rate, and these can in some cases also borrow at a negative interest rate. Companies have been forced to expend a certain amount of resources on avoiding negative return on their funds, but they appear to have succeeded relatively well in this. Cutting the repo rate below zero has thus in total contributed to pushing down interest rates, but has not meant that interest rates have become negative for the general public. Good profitability among the banks and few signs of a decline in demand Another fear has been that negative interest rates reduce the banks’ profitability, which could lead to higher lending rates and a lower supply of credit. The reason for this is said to be that the banks’ deposit margin, that is, the difference between the interest on deposits and lending, would decline because it is difficult to cut the deposit rate below zero. | 1 |
The other question mark concerns the differences between countries, with inflation of 1.7% in Germany. However, following a temporary peak in the first quarter, German inflation is expected to remain under 2% on average throughout 2017. Moreover the inflation differences between countries are consistent with their different national economic situations: growth and employment are also stronger in Germany; and these differences could even contribute, via their impact on relative wages, to correcting the imbalances, hence achieving greater convergence within the euro area. I can naturally grasp the concern of German savers in the face of low interest rates. It is not our aim to keep interest rates low for too long: low interest rates are not a goal in themselves; they are merely the necessary condition today for gradually returning towards our inflation target, and ensuring lastingly higher interest rates in the future, as Mario Draghi himself has put it. This movement has already started for long-term interest rates, with the 10-year Bund gaining nearly 60 basis points since the end of September. In December, in view of the progress achieved, we decided to reduce the volume of our monthly asset purchases from 80 to 60 billion euro. I also repeat that although I am convinced that negative interest rates have their use, they have clear limitations. But, although QE will obviously not last forever, we clearly did not discuss tapering or any exit strategy. | Ravi Menon: An electronic payments society Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Sim Kee Boon Institute Conference on FinTech and Financial Inclusion, Singapore, 19 August 2016. * * * Distinguished guests, ladies and gentlemen, good morning. Singapore has embarked on a journey to become a Smart Nation. • We want to embrace innovation and harness technology so as to increase the productivity of our businesses and enhance the welfare of our citizens. The financial services sector is well placed to play a leading role in the Smart Nation project. MAS has been partnering the financial industry to create a Smart Financial Centre, where innovation is pervasive and FinTech is used widely. We want to do this to: • increase efficiency; • manage risks better; • create new opportunities; and • improve people’s lives. A key component of the FinTech agenda is payments. • All of us – as consumers, employees, or businesses – use payments. • Payments impacts every sector of the economy. • So, getting payments right is important; and we need to get it right for the future. That future is digital and mobile, and it is already here. • Our wallets are overflowing with cards of every type and form. We can dip them, tap them, and now, add them to our mobile phones. | 0 |
[5] Chart 1 Prices of bitcoin and selected altcoins (USD thousands) Source: CryptoCompare. Notes: The data are for the period from 1 January 2015 to 15 June 2023 and are based on the price of crypto-assets as in the Crypto Coin Comparison Aggregated Index (CCCAGG) provided by CryptoCompare. The altcoins’ names are abbreviated as follows: Bitcoin (BTC), Ether (ETH), Polkadot (DOT), Ripple (XRP), Cardano (ADA), Litecoin (LTC), Chainlink (LINK), Dogecoin (DOGE), Binance Coin (BNB), Bitcoin Cash (BCH), Uniswap (UNI), Solana (SOL). Understandably, many are now questioning the future of crypto-assets. But the bursting of the bubble does not necessarily spell the end of crypto-assets. [6] People like to gamble and investing in crypto offers them a way to do so. [7] Crypto valuations are highly volatile, reflecting the absence of any intrinsic value. This makes them particularly sensitive to changes in risk appetite and market narratives. The recent developments that have affected leading crypto-asset exchanges have highlighted the contradictions of a system which, though created to counteract the centralisation of the financial system, has become highly centralised itself. Today I will contend that due to their limitations, cryptos have not developed into a form of finance that is innovative and robust, but have instead morphed into one that is deleterious. The crypto ecosystem is riddled with market failures and negative externalities, and it is bound to experience further market disruptions unless proper regulatory safeguards are put in place. | Jon Nicolaisen: Responsible investment and active ownership Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at Norges Bank, Oslo, 19 November 2019. * * * The graphs can be found on the Norges Bank’s website. Introduction In 1990, visionary politicians decided to establish the Government Petroleum Fund, later renamed the Government Pension Fund Global (GPFG). On Tuesday of this week, the value of the fund passed NOK 11 000 billion – or over 3½ times Norwegian mainland GDP. The fund is now among the largest shareholders in many of the world’s listed companies. Chart: From natural resources to financial wealth What started as oil wealth in the ground has been transformed into savings and financial wealth abroad. Under the fiscal rule, we should only spend the expected real return on the fund. As long as we only spend the return, we ensure that the fund will benefit future generations. In 2020, withdrawals from the fund accounted for more than one krone in five in the central government budget. This means that the fund indirectly finances tens of thousands of public sector employees and ensures that taxes are lower than they would otherwise be. We might say that Norway has moved from being an oil nation to being an investment fund nation. The assets in the fund belong to the Norwegian people. The most important decisions, such the choice of the fund’s equity share, are anchored in the Storting (Norwegian parliament). | 0 |
4 BIS Review 113/2010 Change in interest rate forecast over time The interest rate forecast is an expression of a balance between various monetary policy considerations and a response pattern that households, firms and financial institutions can build on. The interest rate forecast is based on our understanding of the functioning of the economy. The uncertainty surrounding the interest rate forecast is highlighted in our fan charts with uncertainty intervals around the interest rate forecasts. The forecasts have shifted considerably over time. This reflects that the interest rate is an instrument that should react to all news that may influence the inflation outlook. Publication of interest rate forecasts – how does the market react? When we started forecasting the interest rate in 2005, we could refer to the experience of New Zealand 2, which had just experienced pronounced shifts in the interest rate and interest 2 The chart is from Archer, D. (2005): “Central-bank communication and the publication of interest rate projections”, presented at Sveriges Riksbank’s conference: “Inflation targeting: implementation, communication and effectiveness”: http://www.riksbank.com/templates/Page.aspx?id=15814. BIS Review 113/2010 5 rate forecasts. The chart illustrates that we were not able to anticipate the financial crisis in autumn 2008, but have otherwise been on track. Our latest interest rate forecast suggests that the interest rate will remain low for a long period. But we also note that market participants believe it will take even longer for the interest rate to move up to a more normal level. | A lack of confidence in some countries’ debt-servicing capacity and ability to boost growth capacity led to a flare-up in financial market turbulence last spring. A number of countries are in a position where they feel compelled to raise taxes and curtail spending. Exports from India, China and other Asian countries are expanding rapidly. Substantial trade deficits in the western world are partly being financed by an increase in reserves in Asian countries. Real exchange rates in western countries are most likely too strong. This is reflected in pressure tendencies in China and a number of other emerging economies and high unemployment and low inflation in traditional industrialised countries. In western countries and Japan exchange rates react to news. Pessimism translates into a flight to safe havens. Positive news, however, reduces risk premiums and tends to lead to a strengthening of exchange rates in commodity-based economies where interest rates are somewhat higher. But the nominal exchange rates of many Asian countries remain fixed. Thus, exchange rates are not allowed to fully contribute to reducing trade imbalances, narrowing cost differentials and spreading growth impulses. Growth in the world economy has an influence on the Norwegian economy. Norway is reaping the benefits of continued high commodity prices and sizeable investments by oil companies. Moreover, we have had economic policy leeway thanks to the credibility associated with solid government finances and firmly anchored inflation expectations. The Norwegian economy is experiencing a mild downturn and inflation is on the low side, while capacity utilisation now seems to have stabilised. | 1 |
The Riksbank’s steering system is constructed to influence the shortest market rate, the overnight rate. This is the rate at which the banks manage their daily liquidity surpluses or deficits with each other. Interest rates for somewhat longer maturities are to a large extent determined, as you know, by expectations of future short-term interest rates. The idea is that by steering the overnight rate we also can affect interest rates further out on the yield curve. How do we steer the overnight rate in practice? First of all we lay down an upper and a lower limit – an interest rate corridor – for movements in the overnight rate. This we do via our standing facilities, which enable the banks to borrow or deposit funds overnight at the repo rate plus/minus 75 basis points. In addition, to ensure that the overnight rate is close to the repo rate, we perform a finetuning operation, if necessary, on a daily basis. For this operation, at the end of each bank day we are prepared to lend funds at the repo rate plus 10 basis points or to accept deposits at the repo rate minus 10 basis points. Our aim is that after the fine tuning, the banking system as a whole will be balanced. That means that we only lend the equivalent of the banking system’s net borrowing requirement or accept deposits for the equivalent of the banking system’s net investment requirement. | It has long been known, however, that strong growth in credit and money aggregates often signals or accompanies the emergence of bubble-like asset price movements or incipient financial imbalances. We can therefore expect to obtain useful insights, in the future, from this second pillar in the fulfilment of our financial stability mission. Looking ahead, central banks face significant challenges. They are well equipped, however, both in terms of expertise and institutional framework, to take on new responsibilities without in any way compromising their core mandate, their independence or their credibility. Thank you. References T. Adrian and H. Shin (2009), “Financial Intermediaries and Monetary Policy”, contribution to the Handbook of Monetary Economics, forthcoming. C. Borio and I. Shim (2007), “What Can (Macro-)Prudential Policy Do to Support Monetary Policy?”, BIS Working Paper No. 242. C. Borio and P. Lowe (2002), “Asset Prices, Financial and Monetary Stability: Exploring the Nexus”, BIS Working Paper No. 114. BIS Review 147/2009 3 R. Caballero, E. Farhi and P.-O. Gourinchas (2008): “An Equilibrium Model of “Global Imbalances” and Low Interest Rates”, American Economic Review, 98(2) 358-393. S. Dubecq, B. Mojon and X. Ragot (2009), “Fuzzy Capital Requirements, Risk-Shifting and the Risk taking Channel of Monetary Policy”, Banque de France DT 254. European Central Bank (2003), Background Studies for the ECB’s Evaluation of its Monetary Policy Strategy, edited by O. Issing. F. S. Mishkin (2008), “Monetary Policy Flexibility, Risk Management, and Financial Disruptions”, speech at the Federal Reserve Bank of New York, 11 January 2008. | 0 |
It is also about looking forward and staying the course for the medium- to long-term. As institutional investors pivot towards alternative assets, Asian private equity, Asian real estate, and Asian infrastructure can provide credible stores of value in the institutional portfolio. And Singapore’s financial centre – with more than 120 global and regional banks, a diverse ecosystem of over 650 asset managers, and extensive connectivity with the rest of Asia – offers an excellent platform to tap into these opportunities. Thank you, and have a good evening. 1 The IMF forecasts refer to the ASEAN-5 economies of Indonesia, Malaysia, Thailand, Vietnam and the Philippines. 6/6 BIS central bankers' speeches | Financial institutions will be required to keep proper records related to employees and to provide the required information when requested by another institution. This will guard the system against disreputable staff and enact barriers against potential threats to the integrity of the system. As guardians of the system, bankers need to look at these requirements as useful enabling tools or defenses that help with their mission to successfully protect the integrity of the system. Guardians of knowledge and wisdom The complexity scientist, Samuel Arbesman in his study of how knowledge develops, postulates that knowledge behaves like radioactive decay. Every fact has a ‘half-life’ and it will inevitably decay. It means that the frontier of knowledge also changes constantly. What we know today may be untrue tomorrow. This rings true for matters concerning banking. The immediate manner in which our knowledge becomes obsolete certainly ties in with our experience in banking and society at large. For one, the complexity of economic, environmental and social challenges seems to increase exponentially. Furthermore, much of the knowledge frontier remains unexplored. Consider this. We only utilise less than 0.5% of our existing data. There is a long way to go. The potential is enormous. In all likelihood, what we know today will be vastly different in two, five and 10 years into the future. We see this happening already in the banking sector, with the greater use of technology and in particular, more creative use of data analytics to better serve consumers and business needs. | 0 |
They responded positively to the Bank’s recommendations, and there was no question that credit growth slowed substantially. However, there are now many indications of a return to the earlier situation, so the Bank must reiterate its words of warning. At the same time as the Central Bank announced its interest rate decision yesterday, it published Monetary Bulletin. This outlines the main assumptions behind the Bank’s decision along with indications about its policy in the near future and the viewpoints it considers important to bear in mind for economic policy. In the current edition, major changes were made to the assumptions behind the baseline forecast, which enhance both the credibility of the forecast and monetary policy transparency. By doing so, the Central Bank of Iceland joined the vanguard of the inflation-targeting central banks. Monetary Bulletin reveals that inflation developments have turned rather more favourable than the Bank’s previous forecast had indicated, and although underlying inflation was somewhat higher in February and March than was hoped, the Bank expects both headline and underlying inflation to decrease rapidly in the next months. By both measures, inflation will be close to target from the middle of 2008. There is no doubt that this outcome is largely thanks to the tight monetary stance, which included raising the policy rate by 3.75 percentage points last year. As usual it should be pointed out – and especially in the current climate – that exchange rate uncertainties can complicate this picture. | This is particularly relevant in the current setting of low demand for financing in Spain, in which this trend could contribute to further eroding the net interest margins in some market segments. To conclude, let me sum up the key messages I would like to convey. In recent years, Spanish credit institutions have made sterling efforts to overcome the problems stemming from the crisis and to adapt to the new and stricter regulatory requirements. This has been reflected in the significant improvements in their solvency, profitability and asset quality. However, despite these improvements, Spanish banks continue to face major challenges, largely shared with other euro area banking systems. These include, most notably: (i) stepping up sales of non-productive assets (ii) the need to strengthen capital, (iii) addressing profitability challenges without unduly easing credit standards and, lastly (iv) harnessing new technologies in a competitive environment of potential new competitors. In an economy as highly banked as Spain’s, overcoming these challenges is key to the banking industry gaining a sufficient position of strength from which to contribute to economic growth and job creation. Thank you for your attention. 8/8 | 0 |
These kinds of measures can be effective where they have an impact on expectations relating to the duration of zero interest rate policies, or where the different financial assets in investor portfolios are imperfect substitutes.2 Apart from the Federal Reserve, both the Bank of England and the Bank of Japan have conducted similar, large-scale securities programmes. With respect to Switzerland, the SNB’s extensive repo transactions and foreign exchange swaps, carried out in August 2011, may be viewed as quantitative easing.3 An alternative to quantitative easing is intervening on the foreign exchange market. Apart from the SNB, Japan is an example of a country that has made use of this instrument in recent years. It is perhaps useful to recall that, between the early 1980s and 2009, the SNB’s interventions on the foreign exchange market were extremely rare. Generally speaking, such actions involved very small amounts as part of coordinated intervention by central banks of the Group of Ten countries. This changed in March 2009, after the short-term interest rate had been reduced to practically zero, when the SNB began purchasing foreign currency to stem the upward pressure on the Swiss franc and to prevent an undesirable tightening of 1 In order to simplify the breakdown, quantitative easing includes credit easing – an activity which often focuses on individual segments of the bond market. The breakdown could be simplified even further, since currency purchases from foreign exchange interventions may be regarded as a form of quantitative easing. 2 Cf. | Bank of England Page 1 The Challenges and Opportunities Ahead for the Mutual Sector − speech by David Bailey Given at The Building Societies Association Conference 04 May 2023 Bank of England Page 2 Speech Introduction Good morning everyone and I’d like to thank Robin, Mark, Rob and their colleagues at the Building Societies Association for inviting me to speak today. I’m delighted to be able to join the BSA conference in person for the first time and meet members face to face. It’s an added bonus that we are meeting in Liverpool where there is a building sense of excitement and anticipation, not just about this conference but also about the Eurovision song contest next week. In recognition of Eurovision, I did think about peppering my speech with references to famous songs from over the years, but my team told me to “Refrain1” as they said ’David, you’ll have trouble “Making your mind up2”’ so I reluctantly agreed to take a “Better the Devil you know3” approach and stuck with a more traditional format instead. This year's Eurovision theme is "united by music". Whilst the audience today is possibly dressed ‘slightly’ differently to next week’s, it does bring together a wide range of building societies and credit unions who are united by their mutual ownership model and the provision of financial services to a diverse set of members and customers right across the UK. At the PRA we recognise the vital role mutuals play in the UK financial sector. | 0 |
Since this time last year 10-year government bond yields in the major markets - with the notable exception of Japan - have all risen by over 100 basis points. And with credit spreads widening during much of the summer, the rates that corporate borrowers have faced have shown even greater increases. Despite this, however, it has been another very active year for you all. Over the past few years a notable feature of the international bond markets is that each subsequent year has set a new record in terms of volume, and 1999 has certainly been no exception to this. What is of particular note about issuance in 1999 though is the scale of this increase: up by almost a half from the level of 1998 - a pretty remarkable performance. I think that there are two major reasons for this increase: First, and most obvious, is the successful introduction of the euro. I can best demonstrate this with the fact that international issuance in the euro in 1999 was more than double that of the level that legacy currency issuance reached in 1998. This is a clear indication that the euro has established itself as a currency for international finance in its first year of existence. Not only did the volume of issuance rise, but perhaps even more strikingly, the diversity of issuers increased too. | Mr George paints a broadbrush picture of challenges and change for the markets as the year unfolds Speech by the Rt Hon Eddie George, Governor of the Bank of England, to the Euromoney International Bond Congress at the QEII Conference Centre in London on 16 February 2000. * * * It’s a pleasure, as always, to have been invited to bring proceedings at this great annual event to a close. You seem to go from strength to strength - from what I hear your sixth Congress has been as lively and interesting as its predecessors. Lively and interesting are pretty good words to describe the last twelve months in the markets too. When we were together here last year there were still plenty of clouds around. The emerging markets in Asia were still only in the early stages of patchy recovery. Russia was still fragile and there were real fears of another round of financial upset in Latin America, particularly Brazil. In the industrial countries, too, the prospects were for slow growth - some were even still forecasting recession. I concluded that we’d all need strong nerves in the year ahead. Well, by and large we kept our nerve, and the skies have brightened over the past year as the clouds of financial instability and global economic slowdown dispersed. The focus now is not on how we keep the ship afloat but how we keep her on a steadier course - which, if you’re a sailor is a comparative luxury. | 1 |
Looking at the distribution of federal funds rates this year, Figure 11 shows that the rates paid by domestic banks has increased relative to the rates paid by foreign banks. Last year, these two types of firms paid fairly similar rates. My read is that the foreign banks are generally borrowing in the federal funds market primarily to earn a spread between the IOR rate and the rate they pay to borrow funds, while some of the domestic banks, while also sensitive to the rate they pay, are borrowing in these markets to improve their LCRs. It seems like this more motivated borrowing activity helped bid up rates a bit. Figure 12 shows that, since June, we have seen small and brief divergences between rates in the federal funds and Eurodollar markets, which reflects transitory pricing of a premium on LCR-friendly borrowings around a period of heavy payment flows due to a federal tax payment due date. 29 This small effect is a minor illustration of the transitory money market “turbulence” I mentioned earlier. However, since these effects have been small and short-lived, I don’t see them as signaling that we are at or close to reserve scarcity. Taking a step back, it is hard to be definitive on the recent drivers of moves in short-term money markets. The markets have economically complex structures, and in particular, a high degree of concentration within some money market segments. | For additional discussion, see “Domestic Open Market Operations During 2017,” a report prepared by the Markets Group of the New York Fed for the FOMC. 13 4 the FOMC’s future policy stance are properly incorporated into the term structure of interest rates, and thereby appropriately affect financial conditions and the broader economy. To address the rise, the Federal Reserve made a technical adjustment to the IOR rate at the June FOMC meeting, raising it by 20 basis points while increasing the target range by 25 basis points. 14 The technical adjustment worked exactly as we expected. As you can see back in Figure 2, all rates paid on federal funds borrowings, as well as in other money markets, rose by about 20 basis points. This made it less likely that the effective federal funds rate would be above the top of the target range. Let’s spend a few minutes exploring what drivers might have been most significant in bringing about the rise in money market rates relative to IOR. 15 Leading into the technical adjustment, a shift in flows in the Treasury market had the effect of pushing both Treasury bill yields and repo rates higher in February and March. Figure 6 shows cumulative net Treasury bill issuance since the beginning of last year, as well as projections through the third quarter of this year as reported by a private-sector forecaster. | 1 |
Some of the gains of the past few years have dissipated, and our disposable income might fall by close to 10 per cent in 2009. In periods of substantial uncertainty, investors will seek to repatriate investments in foreign currency. The fragility of the Norwegian krone was illustrated when investors fled the currencies of small countries, and the krone weakened considerably. When speculators withdrew, daily fluctuations increased and hedging against exchange rate volatility became more expensive. The krone fell to a record-low level in December last year, but has appreciated since then. Consumer price inflation reached a peak in October of 2008, but has slowed markedly thereafter and was 2.5 per cent in February. Underlying inflation is still above target and stood at approximately 3 per cent in February. Looking forward, inflation will abate. Norges Bank has over a number of years focused on anchoring inflation expectations around the target of close to 2.5 per cent over time and has given weight to predictability, with a recognisable response pattern. The downturn has not affected long-term inflation expectations to any great extent. According to an expectations survey, inflation expectations five years ahead among experts in the financial industry, the social partners and academia were virtually unchanged from the fourth quarter of 2008 to the first quarter of 2009. After a prolonged upturn, both output and employment are falling in Norway. | It is important that its implementation takes place as swiftly as possible, within a broader international effort, building on the highlevel recommendations developed by the FSB, and that it is expanded in due time to cover in particular the specificities of the DEFI ecosystem. Third, confidence requires maintaining central banks money as the anchor of the financial system. This implies that central banks revisit the central bank money services they provide with the objective of adapting them to the digital age. This is necessary for the services provided in the wholesale sphere, for the settlement of transactions between financial intermediaries, which are the most important from a systemic risk perspective. Today, central bank money is the very dominant settlement asset in that space because it is the safest and most liquid settlement asset on supply. It is essential that tomorrow it remains so, in particular if tokenized finance takes off. These attributes of central bank money cannot be matched by stablecoins or commercial bank money. 2/3 BIS - Central bankers' speeches Hence our strong and early involvement at the Banque de France in a large-scale experimentation program on wholesale CBDC with a number of market participants; and the announcement by the ECB a few days ago that the Eurosystem will explore potential solutions for central bank money settlement of wholesale financial transactions recorded on DLT platforms. Adapting our central bank money services might also be necessary in the retail space. | 0 |
These include the two European countries whose banking sectors have greater assets in relation to GDP than the Swedish banking sector – Switzerland and the United Kingdom. In Switzerland, an expert committee has proposed progressive capital adequacy requirements. The larger and more important to the economy a bank is, the higher these requirements will be. The two major banks – UBS and Credit Suisse – have a capital adequacy requirement of 19 per cent, at least 10 per cent of which is to be Common Equity Tier 1. The remaining 9 per cent can be supplied by what are known as contingent convertibles (CoCos) – which is to say debt instruments that can be converted to equity under certain circumstances. In the United Kingdom, the Vickers commission proposes a structural separation of retail and investment banking. Major retail banks will have an extra capital buffer of 3 per cent. The proposal also includes forcing certain debt instruments with long maturities to cover losses when a bank encounters problems – by introducing what are known as bail-in bonds. In total, equity and bail-in bonds in major banks are to amount to 17–20 per cent. It is time to take the discussion one step further Considering the characteristics of the Swedish bank market, historical experiences and international developments, we at the Riksbank feel that there are several areas that still require attention. The Swedish system needs extra-large airbags. We consider that capital requirements for major Swedish banks need to go beyond the requirements of Basel III. | I hope that these reports will be interesting reading and thank you for having me here today. 6 BIS central bankers’ speeches BIS central bankers’ speeches 7 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches BIS central bankers’ speeches 13 14 BIS central bankers’ speeches | 1 |
Finally, an important aspect of responsible finance requires strong and effective governance. John Locke, one of the most prominent 17th century theorists, refers to the concept of a "social contract" in describing the origin of society and its inherent need for governance. The erosion of this social contract and of governance would drastically weaken the foundations of society, setting the stage for its eventual decline in the future. This was evident during the global financial crisis. The experience serves as a strong indication that the own version of the "social contract" in finance should not be overlooked. This extends not only to governance but also to trust, which has traditionally been the social bond between finance and humanity. Central to this is the realisation that financial markets cannot operate in the absence of trust, which in turn necessitates minimum standards for governance, ethics and integrity. This involves not only heightened expectations on the fiduciary duty of boards, but the alignment of compensation packages from short-term personal gains towards long-term value creation. In addition, corporate culture also have an important role in entrenching financial goals with ethical values, through the promotion of sound risk taking cultures and ethical codes of conduct. Conclusion Allow me to conclude my remarks. Often at its most defining moments in history, the rise of society has been intricately marked by the strength of its leadership and its people. | On the path to achieve stronger, more balanced and sustainable growth, the potential of responsible finance has therefore become greater than ever. Most important is for finance to be aligned towards its ultimate goal of serving humanity and of uplifting social wellbeing. Thus, more than merely performing its role as a passive intermediary of funds, finance today has the distinct potential of catalysing and shaping social outcomes. As mobilisers of funds towards socially empowering activities in the economy, the financial sector can act as a "social multiplier", significantly expanding the impact of positive finance. This is what responsible finance can achieve. Infrastructure financing, with its focus on longterm and socially impactful considerations, is an area of finance that can be instrumental in filling the vast development needs of many emerging economies, with an estimated global funding demand of about USD57 trillion by 2030, or about USD1 trillion a year. Recognising this, greater attention has been focussed on infrastructure finance, both at the national and international levels. The evolution of the sukuk market, in particular, has been an effective avenue in bridging this financing gap. Since 2003, an estimated USD115 billion of infrastructure sukuk has been issued by more than 10 different countries, which has been vital in contributing towards the long-term development of these economies. In Malaysia, the sukuk market has similarly been pivotal in supporting infrastructure financing, with Malaysiadomiciled infrastructure sukuk accounting for 79 percent of global infrastructure sukuk issuances in 2015. | 1 |
Christian Noyer: Three questions on inflation and money Speech by Mr Christian Noyer, Governor of the Bank of France, at the European Economics and Financial Centre (EEFC), London, 11 September 2007. * * * Keeping inflation in check is Central Banks' main objective. Understanding the inflation process is Central Banks main concern. In recent years, we can take satisfaction in the fact that price stability has been achieved in most countries. At the same time, inflation dynamics may have become more complex. Our ability to consolidate our past successes in the future may well depend on our capacity to further deepen our knowledge on what, ultimately, determines the inflation rate. Today, I would like to address three specific questions which have been extensively discussed, but not yet fully answered, in the academic and policy-making community: what is the impact of globalisation on inflation? Has the inflation – output trade-off changed as a consequence? And, finally, how can money aggregates help us in our efforts to achieve price stability? Globalisation and inflation In the last twenty years, greater integration in goods, services, labour and capital markets has coincided with stable and low inflation. Is there a link? Globalisation has made a significant contribution to price stability. With new large new players (such as China and India, or Eastern European countries) entering the world economy, cheap imports have become available to developed countries. The fall in import prices in developed economies allowed real consumption wages to grow without impacting real production wages. | The hands on the Great Clock on Big Ben are set to the time on 13 May 1940 when Churchill made his inaugural speech to the House of Commons as Prime Minister. 1 2 Karsh described taking the photograph thus: “I stepped toward him and without premeditation, but ever so respectfully, I said, ‘Forgive me, Sir’ and plucked the cigar out of his mouth. By the time I got back to my camera, he looked so belligerent he could have devoured me. It was at that instant I took the photograph. The silence was deafening. Then Mr Churchill, smiling benignly, said, ‘You may take another one.’ He walked toward me, shook my hand and said, ‘You can even make a roaring lion stand still to be photographed.’” BIS central bankers’ speeches His declaration then – “I have nothing to offer but blood, toil, tears and sweat” – is quoted beneath the portrait. Let’s take a look at some of these features with a video. Conclusion “A gigantic historical figure during his own lifetime, superhumanly bold, strong, and imaginative, one of the two greatest men of action his nation has produced, an orator of prodigious powers, the saviour of his country, a legendary hero who belongs to myth as much as to reality, the largest human being of our time.” This was the judgment of his contemporary, the philosopher and historian Isaiah Berlin. | 0 |
An essential characteristic of the Chilean economy is that it has very few distortions in its price-setting mechanism. This results in increases in international prices of goods being transmitted quickly to local prices, while in many other countries this is avoided by explicit price controls or massive fiscal subsidies5 (Figure 3). The most critical phase in this process began in May 2008. After a period with stable monthly inflation figures in the first quarter of last year, large and unexpected inflation rises began taking place. As we then noted, propagation effects were being generated on a higher scale than expected and they could prevent inflation from reaching its target of 3% within the policy horizon of two years. Inflation expectations also started to rise. Both unwanted second-round effects and increased expectations demanded a fast and determined response by the monetary policy aiming at mainstreaming the inflation path to reach its target. This was essential to prevent inflationary persistence from generating a wage/price spiral which would have been harder to revert, if no early measures were adopted. In fact, output costs would have been even harsher, if inflation had been allowed to persist. But the world has changed, and it has done so in a radical way. What was expected to be a mere global economic slowdown, gradually turned into a severe drop in output. Consequently, commodities’ prices began to plunge with unusual strength. After having reached almost 150 dollars halfway through 2008, the oil barrel tumbled down to 40 dollars in December. | Solvency II will introduce an enhanced system of governance standards – promoting the embedding of a strong risk culture, demonstrable within the day-to-day operations of insurers. The new regulatory regime will not look to fix firms’ business models to be identical, nor to restrict the level of innovation across the market. Rather, Solvency II seeks to promote a better understanding of the risks being taken, allowing insurers to take informed decisions. 2 BIS central bankers’ speeches It is for firms’ management to decide upon their chosen risk appetite and the precise details of their risk models. What matters to the PRA is that firms hold capital commensurate to such risk exposures, in line with the Directive. The introduction of the Prudent Person Principle is an example of how risk management and strategic decision making will be owned by the insurer and its management. The Prudent Person Principle will require investment decisions to be made as if being decided upon by the objective “prudent man” and represents a shift from quantitative to qualitative rules. Gone are the old investment limits for asset classes. So insurers will have much more freedom in their investment choices. The PRA does not and will not promote one asset class over another. | 0 |
Ajith Nivard Cabraal: Standards, codes and rules – friend or foe of poor nations? Presentation by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the luncheon of the Commonwealth Finance Ministers’ Meeting, Colombo, 12 September 2006. * * * Your Excellencies, Honourable Ministers, Distinguished Delegates, Ladies and Gentlemen, On behalf of the Central Bank of Sri Lanka, it is my great pleasure to welcome all of you to Sri Lanka and to host this Luncheon today. I hope all of you had a pleasant journey and have been able to settle down well in our city so as to be ready to face the rigours of the tight programme that is ahead of you over the next few days. I am also delighted that I have the opportunity to speak to you this afternoon, knowing that it has provided me the platform to share some thoughts with a very diverse group that constitutes the Commonwealth. As we all know, the family of Commonwealth countries is a truly global, multi-ethnic, multi-religious, multi-cultural, multi-national collection of vastly differing economies, societies and political ideologies. It may also be not inappropriate to state that the Commonwealth is enriched greatly by this diversity. | Independence is not only secured in legislation, but also by the people that have embodied it for the past 20 years: Wim Duisenberg, Jean-Claude Trichet, and today, Mario Draghi. I would go so far as to talk of a threefold independence: from national governments of course, but also from pre-existing camps (the hawks and the doves) or schools of thought, even if all three of them have their own well-established economic background. Consequently, they have been able to take a pragmatic approach to innovation: for example, when Jean Claude Trichet addressed bank liquidity risk through the Fixed Rate Full Allotment in 2008 or introduced the first security purchases with the SMP in 2010; and of course when Mario Draghi gave his “whatever it takes” speech in July 2012 or began expanding non-standard instruments in 2014. And finally, independence from trends in the media and short-termism, which I shall come back to later. C - The spirit: general European interest These three men have also upheld the European spirit, through their culture and their convictions. Far from being a technocratic arrangement, initially the euro was actually a political aspiration advocated by Helmut Kohl, Jacques Delors and François Mitterrand in parallel with German reunification. And it is now supported by 75% of euro area citizens, the highest approval rating since 2003, and as much as 85% of Luxembourgers and 81% of Germans [slide 4]. This popular support is our greatest success and our greatest asset. | 0 |
I would like now to move to the latest performance of the banking system, with both its good sides and the risks associated with them. The Albanian banking system is going through a phase of swift development and promotion of new products. I believe you have noticed that many banks have been engaged in aggressive marketing strategies which promote different types of household loans and terms and attractive interest rates for deposits collection. In addition, banks’ branches and agencies have constantly expanded. Only during the present year, 73 new branches and agencies have been opened and 15 others are in the process of being opened. The same characteristics more or less apply to the District of Kukës as well. Currently, six private banks perform their banking business in Kukës, while two other banks are in the process of commencing to operate. As of end June 2008, the banking system has extended a total of about 1.2 billion leks of new credit (around 15 million USD) of which 66% to households and the rest to the businesses in the area. It is nice to notice that this figure accounts for about 66% of deposits collected in this region, providing evidence for a relatively high financial intermediation level. The rapid development of the banking system, the high competition in the banking market and banks’ eagerness to win their market shares requires greater prudence. The Bank of Albania has taken a number of measures to increase prudence in view of attaining the banking system stability. | Ardian Fullani: The banking system – promoter of economic development Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the regional meeting “The banking system – promoter of economic development”, Kukës, 12 September 2008. * * * Dear Governor, Dear Mayor of Kukës Municipality, Dear Mayor of Prizren Municipality, Dear Mr. Uldedaj, Dear Mr. Basha, Dear participants, I am delighted to be here today and there are many good reasons why I was looking forward to this gathering. For the second time within a relatively short period of time I see this gigantic engineering work growing every day and taking its final shape. Every single person visiting the road segment Rëshen – Kalimash understands that what they have in front of them is an extraordinary engineering, civil, useful, far-sighted and patriotic work. Similarly, my return to Kukës after quite a long time has surprised me. There is now a completed airport, cross-border activity has intensified, the climate is extraordinary and soon this town will turn into a city with modern infrastructure. Numerous opportunities are ahead of you. Your cleverness stands in perceiving them and making use of them cleverly in order to enhance the opportunities of the Kukës community and the North-East region. The other reason for making me feel delighted is the presence of my Kosovar counterpart, Mr. Hashim Rexhepi. This meeting is of special significance. | 1 |
This would help spread the benefits of growth more widely and evenly while enabling the AEC to take advantage of the potential source of synergies by bringing the capital and know-how of the more mature economies together with the competitive costs and abundant resources of the new frontier member countries. Another key element for sustainability of this ambitious effort towards a pan-Asian economic integration is to bring on board private sector involvement to draw in private expertise as well as private capital in funding and operation of intra-regional investment projects. In this regard, greater efforts should be made to raise awareness of AEC among the business community in sustaining high levels of collaborative economic dynamism within the region. Last but not least, since regional integration relies much on harmonization and coordination of cross-national policies with strong commitment by national leaders in implementing the agreed arrangements, political stability and peaceful relationship among member states will prove imperative to the success. This calls for the promotion of peace and stability within the region with fair mechanism to arbitrate disputes to ensure that progress on economic integration will not be delayed or discontinued due to conflicts among member nations. Concluding remark Ladies and gentlemen, I have spoken at length, from a subject of a volatile world, onto more structural issues facing Asian economies, and the regional cooperative forces that provide promising ways forward for Asia. Let me now wrap up by leaving you with a final remark on these issues. | This brings me to the final topic of my talk, that of regional economic and financial integration in Asia. Under ASEAN economic community (AEC), the region’s prospects will be much enhanced by further integration efforts to foster freer international trade and more mobile movements of factors of production. Four broad facets of regional connectivity are expected to contribute to ASEAN economic growth and stability. First, with barriers to trade in goods and services brought down, there will likely be a substantial expansion in intra-regional demand. This increasing role of intra-regional trade in final consumption goods should provide the region with a potential source of resiliency against global demand shocks. Second, higher mobility of factors of production and crossborder infrastructure development can help unlock the tremendous potential of the region by removing supply-side constraints and bottlenecks to growth faced by individual countries, while also making best use of resources and comparative advantages through regional and global supply-chain networks. Third, through closer ties of financial and capital markets, ASEAN countries stand to benefit from tapping the vast pool of Asian savings, to finance intra-regional investment activities. This will prove particularly valuable given that many ASEAN countries are currently in much need of investment to lift their potential rates of growth after a prolonged period without largescale upgrading. | 1 |
As I mentioned earlier, we recently issued guidance to the institutions we supervise detailing sound risk management practices for the credit risk management of trading and derivatives activities. This document identifies the areas that our examiners will review during their examination of trading activities. It is important to note that the Federal Reserve’ s guidance to banks and examiners covers not only HLI and hedge fund counterparties, but all other counterparty relationships. We want to ensure that banks carry forward the lessons of the LTCM experience to all potentially high-risk trading activities. In this regard, our examiners will devote particular attention to the risks associated with rapidly growing, highly profitable and potentially high-risk activities and product lines. They will assess the adequacy of banks’ reviews of counterparty creditworthiness, exposure measurement and monitoring techniques, stress testing, limit setting, and the appropriate use of collateral and other credit enhancements. Our examiners will also look at internal policies and the degree to which behavior conforms to stated policies. We have already conducted meetings with the major banks to reinforce these messages and our examiners will conduct follow-up reviews in the course of this year. Other Possible Policy Responses Over the past few months, there has been significant debate about other measures that could be taken to limit the potential risks to the financial system arising from the activities of large, highly leveraged, unregulated financial institutions. The Basle Committee carefully considered all the ideas that have surfaced. | Among the future challenges that are likely to confront Asia is whether our prevailing growth model is sustainable given the consequences from erosion of our demographic advantage, the rising indebtedness, the rising cost of living in an apparent period of low inflation, the need to meet the massive infrastructure requirements and the need to address the rising income disparities and the environmental challenges. What then are the ways economic management can prepare us for the future? This will involve policies and reforms that will reduce leverage that will address the widening income disparities, that will effectively manage infrastructure development and urbanisation, that will accord environmental sustainability and finally that will accord importance to governance, accountability and integrity in the implementation and execution of the many endeavours to achieve a sustainable advancement. For most Central Banks in the emerging world, our mandate is broader. Most certainly we are expected to have a role in contributing to addressing many of these challenges both directly and indirectly. Most of all, not only do we have a voice but we also provide support to addressing many of these issues, whether it is on financial inclusion, financing of infrastructure or putting in place financial and social safety nets or on environmental 2 BIS central bankers’ speeches sustainability. | 0 |
Chart 2 Exposure concentration and insurance as a mitigating factor Sources: AnaCredit, 427 data, EMDAT, OECD and ECB calculations. Notes: Left panel: credit exposures to non-financial corporations (NFCs) above € are considered; € trillion of exposures overall; NFC location used to assign risk levels refers to the corporations’ headquarters; country breakdown refers to the bank’s country of residence. Right panel: sample includes 45 countries for which the OECD provides quarterly GDP data from 1996 to 2019. The chart shows the impact of large-scale natural disasters (i.e. with total damage larger than the third quartile at 0.1% of GDP) when the share of insured losses is high (above the median of 35%) on the left, and low (i.e. below the median of 35%) on the right. The estimates are obtained using a panel regression model where the dependent variable is the year-on-year difference in the log of GDP and the explanatory variables include two dummies capturing large-scale disasters with a high and low share of insured losses respectively (included with up to three lags), and country and quarterly fixed effects. For the quarter including the date(s) of the disaster (t=0) and the three subsequent quarters, the y-axis measures the percentage point impact of the disaster on the year-on-year annual growth rate at the end of that quarter. In principle, one mitigating factor may be insurance, which in the past has helped support aggregate demand and hastened reconstruction following disasters, reducing the overall impact on economic activity (Chart 2, right panel). | As we have seen in the pandemic, a common shock can have asymmetric impacts on countries which have a high concentration of certain sectors, such as tourism. Perhaps more importantly from a financial integration perspective, interconnectedness through supply chains matters. Take manufacturing, which accounts for around 20% of banks’ loan portfolios. While the reported direct emissions of these companies are comparatively lower, indirect exposures through the supply chain are more substantial. The physical risks of climate change have a clearer geographic angle and differ in their regional impact. These risks are also expected to increase in the coming decades, with some likely to be concentrated in particular geographical areas. Floods are the most significant hazard in central and northern Europe, for example, while heatwaves, droughts and wildfires represent the greatest risks in southern Europe. Taken together, around 30% of the credit exposures of euro area banks are to businesses with high or increasing exposure to at least one source of physical risk. Ultimately, the impact of climate change on financial stability depends on the degree of concentration of exposures, and what mitigation measures are in place. Both fronts give cause for concern. Over 70% of identified physical risk exposures in the euro area are held by just 25 banks. There is also a notable concentration by country (Chart 2, left panel), suggesting that physical risk could become a prominent source of asymmetric shocks. Moreover, the physical collateral backing loans may itself be damaged by the event, exacerbating the risk to banks. | 1 |
We are in the process of encouraging a substantial increase in the resources held against the risk of default by a major market participant across the set of private sector and cooperative arrangements for funding, trading, clearing and settlement of financial transactions that form the "centralized infrastructure" of the financial system. We have begun to review how to reduce the vulnerability of secured lending markets, including triparty repo by reducing, in part, the scale of potentially illiquid assets financed at very short maturities. This afternoon, 17 firms that represent more than 90 percent of credit derivatives trading, meet at the Federal Reserve Bank of New York with their primary U.S. and international supervisors to outline a comprehensive set of changes to the derivatives infrastructure. This agenda includes: • the establishment of a central clearing house for credit default swaps, • a program to reduce the level of outstanding contracts through bilateral and multilateral netting, • the incorporation of a protocol for managing defaults into existing and future credit derivatives contracts, and • concrete targets for achieving substantially greater automation of trading and settlement. These changes to the infrastructure will help improve the system's ability to manage the consequences of failure by a major institution. Making these changes will take time, but we expect to make meaningful progress over the next six months. | This is a major issue given the trend towards the digitalisation of financial markets and payments, and the emergence of new, non-bank players in financial intermediation. At the Banque de France, we are convinced of the benefits of taking an experimental approach to a CBDC: we are currently in the process of finalising our programme of experiments on an interbank or “wholesale” CBDC, to test whether and how it could improve the performance, speed, transparency and security of transactions between major financial players, especially for cross-border payments. In parallel, the Banque de France is closely involved in the investigation phase for the retail digital euro, for use by the general public in everyday payments, and which the Eurosystem decided to launch in July. To conclude, I would like to share with you this observation: to meet the challenge of transforming the financial sector digitally towards greater efficiency and stability, we feel it is vital to ensure that public and private initiatives complement each other and are properly coordinated, in order to support the innovation ecosystem and safeguard the stability of the financial system. It is in this spirit that we intend to continue developing our own initiatives. Thank you for your attention. 3/4 BIS central bankers' speeches 4/4 BIS central bankers' speeches | 0 |
According to Friedman, it is therefore best for monetary policy to create the right conditions for a stable price level and to focus on the variables that a central bank can control, such as the money supply. In the 1970s and 1980s a number of countries applied a monetary policy regime that was based on steering the money supply. However, research has shown that there is no stable relationship between the money supply and inflation. The rapid financial developments and the use of new, alternative methods of payment have contributed to the money supply not functioning well as a target variable for monetary policy in our present society. Nor is the rate of circulation of money constant; it can vary substantially. It is therefore more natural to focus on trying to directly steer inflation and allow the money supply to remain one indicator among many. The past few decades’ research has pointed to the importance of inflation expectations. Although there is a relationship in the short run between unemployment and inflation, the central bank cannot make use of this in the long run, as companies and individuals will realise what policy is being conducted and adapt their expectations accordingly. For example, wage-earners may demand higher wages as compensation for coming inflation. This will in turn have a negative effect on employment. Monetary policy thus cannot have a lasting influence on real economic variables. | As I will discuss today, however, the possibility of achieving this type of stabilisation is also dependent on inflation expectations being reasonably stabile. If inflation expectations are stable, a change in the policy rate will have a direct effect on the real interest rate, which corresponds to the nominal interest rate minus expected inflation. As it is the real interest rate that determines aggregate demand, monetary policy may in the short term have an impact on the real economy. Today I shall take up the question of what monetary policy can affect in the short and long run. I shall use some examples to illustrate the balance that must be attained between the inflation target and developments in the real economy. Functioning financial markets are of vital significance for the functioning of the whole economy. The Riksbank’s other main task, beside monetary policy, is to safeguard financial stability. During the current financial crisis the Riksbank has taken a number of measures to safeguard financial stability. This has been parallel to taking monetary policy measures. BIS Review 38/2009 1 Monetary policy and financial stability are closely linked. The possibility to conduct efficient monetary policy depends on the transmission mechanism functioning. I shall return to this question later in my speech. Finally, I shall make some concluding comments. | 1 |
Hong Kong received a good FATF score card in 2019, but that only means that we are capable of doing more, sharing more, and contributing to better outcomes globally in a continuous manner. 19. Going forward, I believe that being adaptable in our implementation efforts will require changes in the way we do things. More specifically, while the pandemic continues to challenge all of us, I think it should be a catalyst for the wider adoption of latest technology, in the form of Regulatory Technology (Regtech), as well as more efficient and effective AML/CFT measures. Those I believe are also the views of David Lewis, Executive Secretary of the FATF who also said “As AML professionals, we all need to take more risks and stop just ticking the boxes.” I think he is referring to the much needed adaptability in our implementation efforts. The guidance from the FATF is reassuring in this regard, and this leads to my second point. The AML/CFT Regtech adoption is a journey for banks and we should begin to drive more effective outcomes in better leveraging that process. 20. We have seen in the past two years an increasing trend for regulators globally to call for, and through their actions, enable more innovation and flexibility in combatting money laundering and financial crime. That I think is a very welcome development. 21. | Regarding the future direction of the Regtech journey, I think the key is that regulators globally should call out specific issues and problems, so we can collaborate and leverage technology to innovate and make progress. Our work in the HKMA involves discussion across the global and regional networks of regulators, and we see benefits in our active participation in the FATF, including co-chairmanship of its Evaluation and Compliance Group for the current term. This sentiment seems to be shared by my colleague from the Monetary Authority of Singapore, which is also very active in the FATF. 28. Transformation is not just for the private sector – at the HKMA we are also implementing a series of changes which will not only apply current technology solutions to our risk based AML/CFT supervision, but will also allow us to adopt future technologies and techniques. In keeping with international trends in AML/CFT, we have been significantly enhancing our ability to source, capture, store and process data across the full spectrum of activities, augmenting the supervisory skills of our existing AML/CFT experts by hiring data specialists. Investing in people is the only way to get the most of out of technology. We need to encourage them through the right culture, and empower them with relevant, practical opportunities. 29. So, if we manage to identify the appropriate Regtech solutions and then throw enough expertise and resources behind those, is that all we need to do in order to face the upcoming challenges? We would need something more, I think. | 1 |
From that perspective, climate change introduces challenges for supervisors related to time horizon, data limitations, and inherent complexity. 7 One question that gets particular attention centers on time horizon and prioritization. More specifically, given the many risks that financial firms face—cybersecurity, geopolitical uncertainty, and the credit cycle to name a few—and the relatively long time horizon around climate change, why should supervisors focus on this particular risk? I think that is a fair question and there are good answers. First, we are already observing the impacts of climate change on financial firms. Evidence continues to grow that climate change is affecting economic and financial outcomes.8 Moreover, evidence from climate science suggests that some further physical climate impacts are lockedin due to past emissions.9 Some investors consider an assessment of sustainability to be integral to their fiduciary responsibilities.10 And, as I described earlier, supervised firms are choosing to build capacity in this areas, so supervisors need to understand and assess these changes. This is a risk management question for today with direct implications for safety and soundness. Second, given the complexity of the problem, we all need time to build data, models, and intellectual capacity to address risks as they arise in the future. It took the better part of a decade to approach a steady-state in central bank stress testing capabilities for more familiar and arguably less complex risks like credit card losses or shocks to asset values from interest rate spikes. | I think we can all admit that even with the best of intentions it is difficult for us to take a fully objective view of our domestic structure of laws and institutions, in particular when looking for weaknesses. The role of being the scapegoat for bringing bad tidings from the results of the FSAP assessments is well-known to the IFIs from their traditional work and it is actually a much appreciated role by the domestic authorities. On an FSAP mission it is quite common that high officials from the country concerned, in private, remind the IFI representatives not to forget to mention certain shortcomings. If you plan to conduct FSAP-like assessments without the involvement of the IMF or World Bank, it is important that you establish a process which ensures the integrity of the assessment. The FSAP is not only a way to identify weaknesses but also a tool for prioritisation of remedying these weaknesses and for providing technical assistance. An important part of the FSAP outcome is to leave behind a list of recommended remedial action, setting out the priorities. Since the scope of the FSAP is broad, prioritisation should become easier and more balanced than if assessments were conducted following a piecemeal approach. The FSAP process also contributes by informing about new research findings and about good practices used in other countries. 2 BIS Review 52/2006 The future FSAPs By now, FSAPs have been performed in more than 130 countries. | 0 |
So it shows that a smaller country can still benefit by negotiating Partnership Agreements with a much larger economy. For that to happen, the Agreement has to be based on two principles. One is the principle of non-reciprocity, that is, the larger country has to do much more than the smaller country. And two, special and differential treatment in terms of the phasing of the trade liberalization. So you build in mechanisms which take into account the asymmetry in the economies. Both China and India recognize the principles of non-reciprocity and special and Page 13 of 17 differential treatment. Their negative lists would be much shorter than ours; their positive lists would be much longer than ours. They will allow us, I am confident, o negotiate safeguard agreements. These mean that if you have a sudden surge in imports,; if say imports go up by say 20-25% over a short period of time, you can automatically put in place safeguards through increased tariffs. That’s a well-used practice, so that you get protection as a small country against import surges from larger countries. Equally, you can negotiate a good dispute resolution mechanism, which gives you a chance to address your issues that come up when in dealing with a larger country. So, there are these mechanisms, well tried and tested mechanisms, which can be used for us to ensure that we get a good deal. | The growth of domestic demand is likely to be held back by the relatively tight fiscal policy as well as by the monetary policy tightening since May; and the effect this year of “windfalls” as a result of building societies’ demutualisations will be very much smaller. And we expect a deterioration in our net external trade position as a result of the strength of sterling’s exchange rate and now, too, as a result of the recent developments in Asia. The difficult questions for policy relate to the timing and the extent of the slowdown that is necessary on the one hand and likely on the other. These are difficult judgements at any time. They are particularly difficult when the economy is already close to full capacity. It is not surprising BIS Review 3/1998 -3- that commentators differ in degree in their assessments. Economics is not - as I say - a precise science. Neither we at the Bank nor anyone else know with any great precision exactly where we are in relation to full capacity or exactly how fast capacity is growing; and we don’t know precisely either how demand will in fact respond to the policy tightening that is already in place. Our own best - and very carefully informed - guess is embodied in the forecasts that we publish each quarter, and we monitor immensely carefully the new information that becomes available day by day in the light of that forecast for early warning signs of emerging imbalance. | 0 |
The major economic policy challenges facing the nation today - pick your favorites among the usual suspects of low public and household savings, concerns about educational quality and achievement, high and rising income inequality, the large imbalances between our social insurance commitments and resources - are not about monetary policy. Poor monetary policy choices would make these problems harder to address, but monetary policy itself can't do much to fix them. The issues about monetary policy regimes we spend most of the time debating these days - such as those involving communications and disclosure and variants on inflation targeting - are high class problems to have. Even if they were resolved in the direction of what seems to be the broad academic consensus, they would still leave us with all the hard questions in monetary policy. The color of truth in monetary policy (apologies to McGeorge Bundy) is often grey, not black or white, and moving further along the spectrum toward greater transparency or more explicit rules, will not make easier the hard choices of what to do in the face of the normal fog that surrounds the forecast. In thinking about the durability of these gains in monetary policy delivered under Volcker and Greenspan, there are a few aspects of our history and about the world today that deserve note. The actions of individual chairmen have been very important in the history of the Fed. | Today’s MoU is meant to extend this support for another two years commencing with the 2009/2010 academic year. In addition, the MoU aims at strengthening the framework of cooperation between the Bank of Zambia and the Economics Department of the University of Zambia. Under this agreement, the Bank has committed up to K605 million per annum in support to the Economics Department of the University of Zambia. BIS Review 91/2010 1 This support will include monthly salary supplementation for 15 lecturers in the Department; scholarships to four outstanding UNZA students of Economics at Masters Degree level; acquisition of books and periodicals; research support; and the purchase of computers and software for use in research. It is the hope of the Bank that this support will help address some of the challenges facing the University, including recruitment and retention of academic staff, funding for research and the acquisition of vital equipment and software. Ladies and Gentlemen; through this support, the Bank of Zambia would like to be associated with the University’s mandate of building human capital, through delivery of quality education, and the extension of the frontiers of knowledge through research. This synergy between the Bank and the University is based on the understanding that both institutions are knowledge based. It is therefore, our belief at the Bank that this cooperation will continue to generate positive externalities not only to the two partners but to the wider community through the developmental impact of enhancing knowledge. | 0 |
It is perhaps no coincidence that the last three truly systemic crises – October 1987, August 1998, and the credit crunch which commenced in 2007 – were roughly separated by a decade. Perhaps ten years is the threshold heuristic for risk managers. Models of disaster myopia have been used to explain a number of phenomena, including the tendency for drivers to slow down having witnessed an accident and then speed up once the accident has become more distant in their memory, and for people to under-insure against low frequency natural hazards such as earthquakes and floods. In the context of financial crises, disaster myopia has been used to explain the LDC debt crisis, the US savings and 1 For example, Kahneman, Slovic and Tversky (1982). BIS Review 18/2009 3 loans debacle and various commercial property crises. 2 The credit crunch of the past 18 months is but the latest in a long line of myopia-induced disasters. Such disaster myopia is not of course confined to the private sector. The official sector is just as likely to succumb to cognitive biases borne of long periods of stability. With hindsight, the stress-tests required by the authorities over the past few years were too heavily influenced by behaviour during the Golden Decade. Many risk management models developed within the private sector during the Golden Decade were, in effect, pre-programmed to induce disaster myopia. These models were often data hungry. Improvements in data and IT technology were able to feed these beasts with vast, high-frequency datasets. | Group of Thirty (2009), Financial Reform: A Framework for Financial Stability, available at http://www.group30.org/pubs/pub_1460.htm Haldane, A. G (2009), Rethinking the Financial Network, http://www.bankofengland.co.uk/publications/speeches/2009/speech386.pdf available at Homer, S. and Sylla, R (2005), A History of Interest Rates: Fourth Edition, John Wiley & Sons. Kashyap, A. K., Raghuram, R. G. and Stein, J. C (2008), “Rethinking Capital Regulation”, Maintaining Stability in a Changing Financial System, Federal Reserve Bank of Kansas City. Kay, J (2009), Narrow Banking: The Reform of Banking Regulation. Keynes, J. M (1931), “The Consequences to the Banks of the Collapse of Money Values”, Essays in Persuasion, Macmillan Publishers. King, M (2009), Speech to Scottish business organisations, Edinburgh, available at http://www.bankofengland.co.uk/publications/speeches/2009/speech406.pdf Laeven, L. and Valencia, F. V (2009), “Systemic Banking Crises: A New Database”, IMF Working Paper No. 08/224. Logan, A (2000), “The Early 1990s Small Banks’ Crisis: Leading Indicators”, Bank of England Financial Stability Review Issue 09. NYU Stern School of Business (2008), Repairing the US Financial Architecture: An Independent View. Rajan, R (1998), “The Past and Future of Commercial Banking Viewed through an Incomplete Contract Lens”, Journal of Money, Credit and Banking Vol 30(3). Reinhart, C. M and Rogoff, K (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton University Press. Sheppard, D. K (1971), The Growth and Role of U.K. Financial Institutions 1880-1962, Methuen. Thornton, H (1802), An Inquiry into the Nature and Effects of the Paper Credit of Great Britain, J. Hatchard. | 0 |
These are the areas that institutions need to focus on to avoid becoming a “problem bank case” themselves. Let me move on now to consider the role of the banking supervisor in ensuring that an institution’s internal controls are adequate and effective. This is an area on which there has been greatly increased emphasis in recent years. Of course supervisors, like the management of financial institutions, have always been concerned with the quality of control systems. However, the approach has been rather piecemeal, and has focused on certain types of risk which are easily quantifiable, rather than the more intangible types of risk. What we are trying to do nowadays is to move towards a more systematic identification and assessment of the risks facing a bank across the whole range of its activities and the adequacy of the controls over these risks. This “risk-based” approach is intended to focus our attention on what we see as the institution’s key risk areas. Of course, the correct identification of the institution’s key risk areas is crucial in this. For most of Hong Kong’s local banks, credit risk, liquidity risk and perhaps BIS Review 48/1998 -4- reputational risk remain the highest risk areas, but for individual institutions other forms of risk such as interest rate risk and market risk also come into the equation. | From a global viewpoint, there is reason to believe that the worst of the crisis is over. The Norwegian economy is in a unique position. The wealth in our time is not a short-term asset. We are likely to benefit from revenues and positive impulses from oil activities for many decades ahead. But that source will not spring eternal. If we are to maintain our prosperity over time and reduce the vulnerability to a fall in 8 BIS central bankers’ speeches petroleum revenues, we must generate a larger number of profitable investments in the mainland economy – both in the public and the private sector. We must also provide stronger incentives for participating in the labour market and generating value added. Perhaps Norway is not so much an economy apart after all. There will be new times. Come what may. Thank you for your attention. Charts BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches BIS central bankers’ speeches 13 14 BIS central bankers’ speeches BIS central bankers’ speeches 15 16 BIS central bankers’ speeches BIS central bankers’ speeches 17 18 BIS central bankers’ speeches | 0 |
The increasing relevance of China in the world economy and in world trade following its accession into the WTO, generated a booming effect in commodity markets and world demand that more than compensated the negative effect of increases in world interest rates, giving important support for the balance of payment, fiscal accounts and the investment outlook in emerging economies. We are now at the early stages of a new and historical tightening cycle in the United States. It is reasonable to ask ourselves how comparable the current situation is relative to previous experiences. I want to make a few points here. We expect the Fed to move more gradually than on previous occasions Why? First, the Fed prefers to err on the side of moving slowly, and markets expect so. In part, as seen in Figure 3, inflation measured as the PCE core is still low compared to its level on previous hiking cycles. Also, neutral rates are estimated to be very low this time, so the Fed considers that monetary policy is not as expansionary as the headline Fed Funds Rate suggests. Besides, the Federal Reserve is very much aware of the financial stability risks of abrupt changes in rates. The term premium implicit in long term yields is very low, and the taper Tandrum episode of 2013 shows that it can change fast if markets misinterpret the Fed communication. | The impact of the Fed’s tightening cycle in the 1990s on emerging markets was not as widespread as the 1980s episode had been, and countries like Chile and Colombia were able to st 1 Remarks at the 2017 IIF Latin America Economic Forum, Asunción, Paraguay on Saturday April 1 , 2017. I acknowledge the support of Diego Gianelli and Mauricio Hitschfeld in the preparation of this speech. These remarks do not imply endorsement by the Central Bank of Chile or any of its Board members. 2 There is a third episode between June 1999 and June 2000. This process of 150 bp hikes can be understood as the final adjustment along the 1994 episode. 3 See, for example, the discussion in García‐Herrero, A., 1997, Banking Crisis in Latin America in the 1990s: Lessons from Argentina, Paraguay and Venezuela, IMF Working Paper 97/140. See also Sachs, J., A. Tornell and A. Velasco, 1996, Financial Crisis in Emerging Markets: The Lessons from 1995, NBER Working Paper 5576. 1 weather this period relatively well and to keep high growth rates.4 But there is ample evidence that, in a context of several macroeconomic imbalances in several emerging economies, the 1994 episode triggered a series of difficulties and crisis that configured the macroeconomic map in the developing world in the second half of the decade. In contrast, the monetary policy normalization process starting in 2004, did not have a negative effect on emerging economies. | 1 |
Of course, fixed income and equity markets have different characteristics but perhaps a more important distinction is the role of heterogeneous beliefs and how this might be reflected in asset prices. The economics profession has made great strides in its use of expectations in models but one of the short cuts required to produce these great strides was the simplification to homogenous beliefs. For much of the period leading up to the crisis this simplification was of no consequence. However, as we now understand from sophisticated analysis of models with heterogeneous beliefs, it can produce high valuations for certain set of assets and large abrupt moves in certain market prices when leveraged positions are unwound.10 How does this unwind express itself in real time in the views and actions of market participants? First, the views tend to become even more dispersed, as do the views regarding what the central bank should do about it. Second, market participants become more suspicious of each other and rumors can spread like wildfires. Many participants take defensive actions which if one is tracking market prices at a daily frequency add tremendously to the inherent noise in high frequency market moves.11 More importantly, when the probability of a failure of a counterparty starts to increase the signal in market prices becomes a mixture of fundamentals and assessments of the likelihood of government intervention. | The basic skills that economists can bring to such meetings are a framing of developments based on the efficient markets hypothesis, which holds that financial markets will quickly incorporate all relevant information in asset prices, along with an understanding of economic fundamentals. Many commentators have associated a blind faith in efficient markets by market participants and regulators as one of the main underlying causes of the crisis.6 This seems an overly simplistic and mostly incorrect characterization. A partially correct aspect of this critique is that market discipline failed in the period before the crisis. However, this is not a true rejection of the efficient markets hypothesis, as expounded by Gene Fama, but rather a failure for incentives to be appropriately aligned.7 An efficient markets explanation usually involves a great deal of the Monday morning quarterbacking: after observing market moves that prove an analysis incorrect, there is usually a tweak to this previous analysis prompted by the market move, which does not require any substantial changes to an underlying view. To outsiders this might sound like cheating, but if the efficient markets hypothesis has validity, then unexpected market moves always contain new information over the original analysis. Indeed, the ability of individual markets to efficiently aggregate diverse sources of information most of the time is why the efficient markets hypothesis gained empirical support.8 6 See Adam B. Ashcraft and Til Schuermann (2008), “Understanding the Securitization of Subprime Mortgage Credit” Federal Reserve Bank of New York Staff Reports No. | 1 |
Looking through the blip in the first quarter, the economy has now been growing above trend for a year and unemployment has fallen sharply over the past two. Consumer confidence is around its highest level for over a decade. Businesses investment intentions are solid. Momentum in the housing market is showing signs of returning. 23 Survey data point to continued momentum in real activity over the remainder of this year. 22 Based on average quarterly GDP growth since 1993. 23 The impact of Buy to Let changes will be examined in August Inflation Report. 8 BIS central bankers’ speeches To be sure, the international risks to the growth outlook remain. The situation in Greece is fluid, and the on-going slowdown in China could prove more significant. But on balance we can expect the global economy to proceed at a solid, not spectacular, pace. 24 Second, domestic costs need to continue to firm. After a period of particularly weak wage growth, which reflected a marked expansion in labour supply that is now largely absorbed, wage growth is picking up. 25 The recent growth in wages has been stronger than we had expected in May, though most of the upside news was in bonuses, which are a less reliable guide to firms’ future labour costs. | Last year, the Mainland of China ran a trade surplus of $ billion, equivalent to 4.5% of GDP. Foreign direct investment amounted to $ billion. Its foreign reserves are the second highest in the world. Its foreign debt amounted to only about 14% of GDP and consisting of mostly long-term loans from official sources such as the World Bank and the Asian Development Bank, and the debt service ratio at well below 10% of exports. The fiscal deficit in 1997 was small at below 1% of GDP and the monetization of such deficits is now prohibited. My contacts in Beijing have told me that even on the basis of very extreme assumptions with the amount of foreign direct investments and the growth rate of exports being halved in 1998, there will still be a balance of payments surplus. In the circumstances there really is no pressure to devalue the RMB. 17. The stability or otherwise of the RMB, understandably, would appear to some observers to have implications for the Hong Kong dollar’s link with the US dollar, particularly given the economic closeness between Hong Kong and the Mainland of China. But this does not necessarily mean that the Hong Kong dollar will need to move in sync with the RMB, in the highly unlikely event that the RMB is devalued. The Hong Kong dollar is linked to the US dollar and not to the RMB. The economic relationship has always been very close between Hong Kong and the Mainland of China. | 0 |
As various services and leisure activities – such as theatregoing, sports events and travel – were closed in waves, household demand switched to activities that could still be carried on despite the anti-epidemic measures and to goods that were previously not in such high demand, such as computers for working from home, and sports equipment, which people suddenly had much more time to use. Most of the items in high demand are of an industrial nature and are made in globally interconnected production chains. However, the changing anti-pandemic lockdowns are causing bottlenecks in international supplies of raw and semi-processed materials and in transport capacity. This is disrupting the overall production logistics and fuelling growth in prices of temporarily scarce items. As a result, we are now seeing robust growth in prices of many 6/7 BIS central bankers' speeches tradables all around the world. This is being reflected in growth in foreign producer prices and ultimately in non-falling domestic inflation. Another interesting feature of the coronavirus crisis relates to savings. During a cyclical downturn, it is usual for households and firms to start creating precautionary savings for worse times. However, the lockdown of many activities, especially in services, has made it physically impossible for people to spend on such services, and their savings have been rising as a result. Once the lockdowns are lifted, these forced savings are expected to return to the market and help revive the currently dormant sectors. | Several of them have issued their own bills for this purpose, particularly where in the early years the finance ministry was reluctant to issue government paper. Whether the market being developed is in government, central bank or private paper, the central banks have had to strike a difficult balance in deciding how frequently to intervene in the markets. In the absence of intervention, a market can remain illiquid and unused. But if the central bank intervenes too much and holds prices too steady, then private market-makers will not develop. This dilemma is not unique to transition countries. Similar dilemmas arise elsewhere, and some western central banks still sometimes play a role, if only a marginal one, in balancing supply and demand in the domestic securities and foreign exchange markets. (iv) Payment and settlement systems One area of activity in which the new central banks do mirror the diversity of their western counterparts is in responsibility for payment and settlement systems. Of the nine central banks in central and eastern Europe, five operate the main clearing system themselves. In the other four countries the position is roughly as it is here, with the central bank participating BIS Review 33/1997 -8- in, and providing final settlement for, a privately owned clearing system. In Russia the central bank has been slow to develop its own payment system, and commercial banks have been putting parallel mechanisms in place. | 0 |
Besides the obvious economic crimes such as drug trafficking and corruption, governments also need to fight against economic and financial crimes in every other shape and form. Any type of such crimes can generate feelings of resentment about an unfair society, not just the drug trafficking cases. Stock price manipulation, insider trading, or tax evasion, which even though do not directly harm people's lives, can still make people feel slighted. This is especially so if these white-collar perpetrators are quite influential or are close friends with politicians or the administrations. In all these cases, the role model set by the government is the most important element in winning people's confidence that the government is truly and sincerely committed to fighting against economic and financial crimes. If the perpetrators are members of the government, swift and decisive actions taken against them will make society confident in the government's policy on this issue and thus encourage law enforcement officers to fearlessly do the right things. What I have been talking about so far concerns economic crimes within a country. Things get more complicated and much more difficult to combat when it comes to cross-border economic crimes. These require close cooperation of law enforcement authorities in every country. Today's United Nations Congress on Crime Prevention and Criminal Justice is a good example of the collaboration effort at the international level. To combat transnational crime, the willingness to collaborate is strong when authorities hold the same view on such crimes. | From this point of view, I welcome the six very important recommendation issued in April directed to supervisors, central banks and the financial sector: i) integrating climate-related risks into financial stability monitoring and supervision; ii) integrating sustainability factors into own-portfolio management; iii) bridging the data gaps ; iv) building awareness and intellectual capacity and encouraging technical assistance and knowledge sharing ; achieving robust and intentionally consistent climate and environment related disclosure ; vi) supporting the development of a taxonomy of economic activities. In the longer-run, when there will be a global convergence about the necessity to issue global standards and regulatory requirements, global standard setter such as the BCBS and FSB would need to take the lead on addressing climate change-related risks.12 1 Main findings : Climate change: which risks for banks and insurers? acpr.banquefrance.fr/sites/default/files/medias/documents/as_cover_note_en.pdf Analysis and synthesis no. 102: “French insurers facing climate change risks” April 2019 acpr.banquefrance.fr/sites/default/files/medias/documents/as_102_climate_change_insurers_en.pdf 2 Analysis and synthesis no. 101, “French banking groups facing climate change-related risks”, April 2019acpr.banque-france.fr/sites/default/files/medias/documents/as_101_climate_risk_banks_en.pdf 2/2 BIS central bankers' speeches | 0 |
Hence, a compliance program was set up by the authorities with the aim of remedying this situation in the medium term. As regards personal data protection, Morocco has ratified the 108th Convention of the Council of Europe and its Additional Protocol. Since then, it set up a national control unit to ensure proper observation of the various rights (of information, access, rectification and opposition). In this respect, the central bank plays an important role as an interface between this unit and financial inclusion stakeholders. However, this legal framework is likely to evolve in view of the regulatory progress made in this area, particularly at the European Union level. With regard to cyber security risks, Morocco is moving towards developing a strategy for the security of information systems, which would be based on 5 risk identification to provide specific legal, technical and awareness-raising measures to ensure protection, defense and security. This project is coordinated by the National Defense Administration and the Central Bank also acts as an interface with financial actors. All these developments, particularly the introduction of new actors in the implementation of the national financial inclusion strategy, will have a significant impact on banks' profitability and will put their traditional business models to the test. While these banks may be hampered by their complex architecture and cumbersome organization, the rapid unbundling of banking services to the benefit of non-banking fintechs could result in a substantial loss in their market share. | Thus, in 2013, we set up the Moroccan Foundation for Financial Education, and introduced, in the 2014 Banking Law, payment institutions with a scope of activity limited to small-value transactions. As a result, several stakeholders 2 took various and disparate initiatives, which prompted us to federate them to develop a National Financial Inclusion Strategy. To this end, we proceeded from a situation analysis based on objective supply and demand data, which were collected through field surveys, mainly the Findex survey conducted by the World Bank in several countries. The paradoxical finding which emerged is that, based on indicators such as credit or deposit-to-GDP ratios or the FSAP assessment, Morocco’s financial system proves to be deep if compared internationally, but suffers from significant inequalities in terms of access. To give you some figures, the share of adults holding an account is estimated by the Findex survey at 34 percent at the national level. This proportion ranges from 20 percent in rural areas to 37 percent for urban dwellers, from 17 percent for women to 41 percent for men and from 16 percent for young people under 25 to 33 percent for those aged 25 and over. Based on these data, it became clear that priority should be given to targeting the most disadvantaged groups in order to reduce the gaps. | 1 |
On the Bank of England’s Monetary Policy Committee the nine members debate among themselves our current state of knowledge of the 7 The data in Chart 5 are for occupational pension holders of Actuarial Profession member institutions. These individuals are typically wealthier than the rest of the population, and for that reason tend to live longer. 8 Peterman et. al. (1988) found that the probability of infecting a partner was unrelated to the number of sexual acts with that partner. 9 The large models made the further simplifying assumption that the rate took one of only two values. In fact, it varies widely among the population. Robert May, and his colleague Roy Anderson, showed that a key driver of the proportion of the population eventually infected was the “variance of the rate of acquisition of new sexual partners”. Simulations of the proportion of the population ultimately infected with AIDS are sensitive to that variance, and plausible differences in the number of their partners among different people changed the estimate of the proportion likely to be infected from 25% to 90%. 10 Many non-economists believe that economists use a single “model” to explain all economic phenomena. Hence the interest of many commentators in “the model” that is alleged to generate the forecasts of inflation and economic growth published by the Bank of England. But, as we never cease pointing out, the Bank uses not one but many models to help us understand particular aspects of economic behaviour. | Chart 8 constructs a fan chart for female life expectancy at birth in the United Kingdom derived from the latest forecast published by the Government Actuary’s Department. The width of the fan chart shows how forecasts of life expectancy are likely to change in the future, as new information and ideas about mortality evolve, 12 To understand the concept of independence consider the example of a church spire that is struck by lightning several times. Is this just coincidence (implied by the assumption that the strikes are independent of each other) or does the spire have certain characteristics that lead it to be struck regularly? Given our knowledge of spires and lightening the latter is more plausible. Similarly, there may be characteristics, genetic or other, and still largely unknown, that make particular families more likely to experience cot deaths than others. 13 Hill (2002) and (2004). See also Dawid (2004) and Eggleston (1978) for a discussion of the difficulties courts find with the concepts of conditional probability and Bayes’ theorem. 14 The forecast for inflation is based on the assumption that interest rates follow the path expected by financial markets over an average of the fifteen days prior to the finalisation of the Inflation report. 6 BIS Review 73/2004 causing forecasts to be revised - assuming that news about life expectancy arrives in the future at about the same rate as in the past. | 1 |
This time limit applies only to the FROB’s competence to assist merger/SIP processes, not to processes of individual restructuring. At the present date, 38 of the 45 Spanish savings banks (39 including Cajasur, a credit institution awaiting a solution within the framework of the FROB) are involved in merger/SIP processes affecting 92% of savings bank assets. Of the 12 merger/SIP processes, seven are planned with FROB aid estimated at a total of about € billion, and the other five without government assistance. Also participating in one of these processes is Caja Castilla-La Mancha, a credit institution seized by the Banco de España which received total aid of € billion from the deposit guarantee fund (DGF). The merger/SIP plans of these 12 processes have already been authorised by the Banco de España or are at the authorisation stage, except in one case in which three credit institutions are participating in a project still under negotiation but which will not require FROB aid. The operations involving merger/SIP plans with FROB aid envisage cuts of 20–25% in the number of offices and of around 15% in staff, which gives an idea of the scale of the measures proposed to improve bank efficiency. The structure rationalisation measures are an indispensable requirement for receiving FROB aid and are being included naturally in the other planned voluntary operations, since these measures are responsive to the need to achieve more soundness, more efficiency and more economic rationality. | Islamic finance has grown by leaps and bounds, from only one Islamic financial institution three decades ago to over 300 today in more than 75 countries, including non-Islamic countries in Europe and the United States. The total assets of Islamic finance worldwide is estimated to exceed $ billion, and is growing at an estimated annual rate of 15 percent. Islamic finance has been transformed from a "nice to have" into a "must-have" system, evident by the growing number of jurisdictions allowing their financial institutions to offer Islamic financial services and increasing number of global financial players now offering Islamic financial services as part of their spectrum of services. Islamic finance continues to provide tremendous potential for growth and development due to a number of BIS Review 13/2006 1 factors. These factors include the strong demand for Shariah-compliant financial services and transactions , the availability of a wider choice of products that meet consumers' discerning expectations, as well as growing acceptance of Islamic finance as a form of financial intermediation. In Malaysia, the advancement and progress that have been achieved in Islamic finance has demonstrated its potential as an effective form of financial intermediation that supports the needs of the economy. The industry has become a major contributor to the overall economic growth, with assets encompassing nearly 25% of the country's gross national product. This is a significant achievement considering the stiff competition offered by the conventional banking and insurance sectors. 5. The takaful industry in particular has shown remarkable growth. | 0 |
And, in light of the central role of banking in our economic system, it also allows us to examine the conditioning factors of many decisions taken by bank debtors, i.e. by firms, households and governments over time. I therefore believe we should welcome a new publication which describes and identifies for the first time, in an orderly fashion, the contents of 10 different historical archives of banks or Spanish institutions and of the 218 documentary series they comprise. The publication also contains a full map of the development of the Spanish banking system from its origins until late 2017. Adding to it is the article by Pedro Tedde, which rigorously analyses the Spanish banking system during the twentieth century. A reading of the publication offers clues that the process of change has, with differing degrees of intensity, been continuous. Hence, while the current transformation in banking may have different causes and rhythms than those in the past, deep knowledge of previous events can also offer us significant lessons today on the challenges currently ahead of the Spanish financial system. In any event, the publication we present today is a good exponent of a long-standing tradition that has led the Banco de España to promote and sponsor economic history research, and to highlight the value of the documentary and bibliographical collection in our Historical Archives and in our Library. The list of eminent personalities from our central bank noted for their love of history and its study is a long one. | In recent years, both our central bank researchers and external researchers financed by us have been selected to present their papers. In this year’s edition, the conference has been jointly organised with the CEPR’s Economic History section. Secondly, since 2009, the Banco de España has had a biannual programme in place for economic history research grants. Under the programme, universities commit themselves, following an agreement signed with the Bank, to pursuing the research selected and to presenting and publishing their findings. The possibility of collaboration between researchers from both institutions is also envisaged. Since 1980, under the initial backing of Luis Ángel Rojo, the Bank has published a collection of monographs relating to monetary and financial history, Spanish and international alike, under the name “Economic History Studies” (more familiarly known as the “Red Series”). To date, this collection had solely included papers prepared or financed by the Banco de España. Currently, however, with a view to extending and maintaining its continuity, we are assessing opening it up to other research not necessarily financed by the Bank. To be added to the foregoing is all the sponsorship and funding activity of associations, universities and royal academies in the field of economic history. Actions of a differing nature and scope are involved, giving continuity to our long-standing and intense promotion work. I am particularly gratified to be able to share with you today my satisfaction at the recognition recently granted by the Spanish Economic History Association to the supportive work by the Banco de España. | 1 |
However, it is often assumed that the monetary policy pursued by the American central bank (“the Fed”) has played a decisive part. The Fed’s policy during the last twenty years differ from the policy in the preceding period in their more active and determined use of monetary policy to keep inflation low and stable. As a result, it has been possible to avoid both the overheating and the recessions that often occur when an overheated economy suddenly comes to a halt. In other words, the Fed is credited with succeeding in making recessions fewer, smaller and shorter, mainly by ensuring that the economy does not become overheated. It is important to point out that the favourable trend in the US economy during the last twenty years is not, as you might gather from following the Swedish debate, due to the American central bank “leaning back” and basically letting the economy “take care of itself”. Quite the contrary, in fact. If we were to try to draw a lesson from all this that would be relevant to the Swedish context, it would mean that in future the Riksbank should try to avoid the great fluctuations in economic activity that were caused by the devaluation policy of the 1970s and 1980s. During those years there was a long succession of cost crises and exchange rates were adjusted so many times that in the end devaluations were virtually accepted as a fact of life. | However, the discussion in recent years has mainly focused on another reason why the central bank might want to keep an eye on asset price trends, and this is that the collapse of inflated asset markets can have a serious impact on the real economy and in some cases eventually threaten the stability of the financial system. Apart from protecting monetary value, which is perhaps their best-known function, it is also the task of central banks to promote financial stability, whether directly or indirectly. This is even suggested by the Swedish legislation, which lays down that the Riksbank shall seek to “promote a secure and effective payment system”. Dramatic events following the collapse of asset markets are usually assumed to be triggered by the consequences in the credit market and company balance sheets. When asset prices rise more than economic fundamentals justify, a fall in prices is inevitable sooner or later. Such an adjustment can be very costly if financial institutions have widely accepted assets as collateral for loans during the period of rising asset prices. When there is a sudden sharp fall in prices, the value of the collateral diminishes. In such a process falling asset prices can cause losses to banks and other financial intermediaries and, if the worst comes to the worst, a full-scale financial crisis. These problems can, moreover, be exacerbated by exchange rate fluctuations. | 1 |
Saying these biases are acceptable, when viewed from the perspective of society as a whole, is quite another. There are at least two reasons why our biased minds may carry a significant societal cost. First, fear of strangers is in part a neurological relic of the past, a time of hunter-gather communities, a different ecology. Our biased minds may, in a sense, still be adapting to a multi-cultural environment. In this respect, discrimination is the neurological equivalent of the appendix: essential at the time man ate grass on the savannahs, but today a sometimesdangerous physiological fossil. Fear of strangers today may be a sometimes-dangerous neurological fossil. 12 Akerlof and Kranton (2011) . 13 For example, Akerlof and Kranton (2011) explore how our conception of who we are, and who we want to be, may influence our actions and decisions rather than just economic incentives. 14 For further details, please see the literature review provided by the Equality Challenge Unit at http://www.ecu.ac.uk/publications/unconscious-bias-in-higher-education/. 4 BIS central bankers’ speeches Second, there are many instances where the collective consequence of individually rational decisions gives rise to sub-optimal outcomes for society. It is perfectly rational for everyone to head to the exits if the fire alarm sounds in the theatre. But the collective consequences of such actions are potentially catastrophic. Economists call this an externality problem. And diversity (discrimination) can be seen as just such a positive (negative) social externality, a public good (bad). This is not a new orthodoxy. | The proportion of BAME employees is around 17%, greater than the proportion for the UK as a whole. Representation at senior management remains much lower at 5%, but is increasing. 56 Walton and Spencer (2009). 57 Page (2010). 58 Davies (2015) 59 Resolution Foundation (2015) 60 Although around half of that reflects the fact that there is a greater proportion of women working part time than men. 61 European Women on Boards (2016) 10 BIS central bankers’ speeches Like many other organisations, the Bank has sought to support diversity through a range of diversity networks covering, among other things, gender, ethnicity, LGBT, mental health, disability, caring and some of the main religions. One of my responsibilities is as Executive Sponsor of the Bank’s Ethnic Minority Network. This Network has put in place some valuable new initiatives to support greater ethnic diversity across the Bank over recent years, including reciprocal mentoring schemes and an Afro-Caribbean Scholarship Programme which funds students through university. The Bank has also recently signed up to UPstanding – an initiative to showcase BAME professionals working in the US, UK and Ireland. Plainly, there is further to go along these identity-based dimensions of diversity, in the Bank and more broadly. But there is wind in society’s sails, as well as in the Bank’s, on these dimensions of diversity, which gives good grounds for optimism about the future. | 1 |
This is not a trivial matter. Most countries have inadequate information on the composition of their external liabilities, especially those of the private sector. Nevertheless, monitoring and managing the exposures of the public and financial sectors are important to avoid a build up of potential vulnerabilities. In this respect, the IMF can play a helpful supportive role by providing assessments of vulnerability as part of the Article IV process, the new joint IMF/World Bank financial sector assessment programmes and debt management guidelines, and technical assistance on the data requirements implied by the need to monitor national balance sheets. 2. Second, limitations on official finance mean that countries should think carefully about the provision of self-insurance against a liquidity crisis. A simple, but often expensive, way to do this is to build up large foreign currency reserves, a strategy taken to heart by a number of emerging markets, including China and also Korea following its crisis. A potentially superior alternative is the creation of contingent credit facilities with both official and private sector creditors. So far, even at the high spreads on emerging market debt, these facilities have not proved attractive, and the CCL facility created by the IMF has lain dormant. The next few years will be a test of the value of such facilities. 3. Third, experience has shown the value of borrowing countries establishing good relationships with creditors well before any possibility of difficulty in repayment arises. | Another important area is to raise the professional standards of the industry that reflects the highest standards of professional conduct, knowledge and competence. In this regard, the grand design of the industry, the Financial Sector Blueprint, clearly emphasized on the need to develop talents across all levels of an institution, spanning from the entry level to senior management and the board of directors. Indeed, a holistic talent development and management is a good example of an initiative that combine art with science which a visionary institution must be able to master to achieve its goals. The second imperative is the ability of the industry to effectively leverage on technology to build strong, innovative and competitive businesses. This includes developing a deep understanding of how changes in technology impact people’s lives and transforming how consumers and investors behave and view the value proposition of businesses. For instance, mobile phone penetration in Asia alone makes up 52 per cent of total global penetration. The highly developed telecom markets of Asia with 3.6 billion people across Asia having mobile phones spread across a diverse range of markets, capitalising on mobile data/wireless broadband services would mostly likely chart the way of the future. Growth across Asia in high speed access to the internet by mobile wireless devices has been largely driven by highly competitive markets combined with a general population who are prepared to embrace new mobile technologies. | 0 |
With (changes in) long rates being equal to (changes in) average short rates under the expectations hypothesis, the contemporaneous impact on the long rate thus depends on the persistence of the short rate. [10] See, e.g., Cochrane, J. H. and Piazzesi, M. (2008), “Decomposing the Yield Curve”, Working Paper, University of Chicago. [11] It is important to keep in mind that term premia are not directly observable: decomposing observed bond yields into the expectations component and term premia requires econometric modelling, which is subject to considerable estimation and model uncertainty. For an overview see Cohen, B., Hördahl, P. and Xia, D. (2018), “Term premia: models and some stylised facts”, BIS Quarterly Review, September, pp. 79-90. Most recently, researchers have highlighted that the level and dynamics of estimated term premia depend considerably on how the long-horizon expectation of short-term rates is modelled: linking those future end-points to the time-varying levels of the natural rate gives rise to term premia that display less of a trend decline than those from commonly used models with a time-constant equilibrium rate, see Bauer and Rudebusch (2019) op. cit. Recent research by ECB economists on the euro area finds similar evidence. [12] The exercise is based on the model by Geiger, F. and Schupp, F. (2018), “With a little help from my friends: Survey-based derivation of euro area short rate expectations at the effective lower bound”, Bundesbank Discussion Paper, No 27. [13] Hanson, S. G. and Stein, J. C. (2015), “Monetary Policy and Long-Term Real Rates”, Journal of Financial Economics, 115(3), pp. | SPEECH The yield curve and monetary policy Speech by Philip R. Lane, Member of the Executive Board of the ECB, Public Lecture for the Centre for Finance and the Department of Economics at University College London London, 25 November 2019 Introduction It is a pleasure to speak this evening at University College London (UCL). In my contribution, I wish to share some thoughts about the yield curve and monetary policy. [1] UK data offer scholars a unique opportunity to take a very long view: the long-term nominal gilt yields shown in Chart 1 reach all the way back to 1826, the founding year of UCL. Over the past 200 years, gilt yields have never been as low as today. That long-term nominal yields have decreased substantially over recent decades is not specific to the United Kingdom but applies across advanced economies: long-term German yields and euro area overnight index swap (OIS) rates (which are the closest measure of a euro area-wide risk-free rate available) are currently ranging near record lows. [2], [3] Long-term rates in the euro area have even reached negative territory. [4] Chart 1 UK, US, DE and euro area OIS long-term interest rates (percentages per annum) Sources: Bank of England, Bloomberg, FRED, Jordà et al. (2019), Thomson Reuters. Notes: For the United Kingdom, the series is the rate on a consol, taken from the Bank of England data series “A Millennium of UK Data” (Thomas and Dimsdale, 2017). | 1 |
Unfortunately the most pressing concern also happens to be one that we have the least control of, that is the external demand. With uncertainty regarding the timing of economic recovery in the United States, Japan still having to undergo real and arduous reforms, and Europe not yet stepping up as the locomotive engine for the resumption of world growth, prospects for an export led rebound remains clouded. With these regions together constituting over 52 percent of the market share for Thai products, exports in 2001 are expected to fall in value by approximately 6 percent compared to last year. Assuming an economic rebound in the US, Japan, and Europe by mid-2002, exports should grow by around 3-5 percent in 2002. Real GDP growth is projected to be between 1-3 percent in 2002. Against the backdrop of increased uncertainty and weak external demand, safeguarding our economic recovery will require steady resolve, more reliance on domestic demand, and a supportive set of measures and reform. The main challenge for local authorities is to ensure proper coordination of fiscal and monetary policies as well as the acceleration of structural reforms efforts in the banking and corporate sector to facilitate a pickup in domestic demand, enhance confidence, and bolster foreign investment. Mr. Bosworth did mention yesterday that to resolve the crisis, bad loans must be placed in asset management companies and then AMCs must get rid of them. This is one of the top priority policies of this government. | Finally, the re-pricing of assets in world equity and bond markets have created unfavorable conditions for raising capital and have, to some extent, held back consumption through the negative wealth effects. Access to world capital markets has become more limited for developing countries and we have observed a major reduction in capital flows into these countries. Over the past few months, the external environment seems to have deteriorated quite considerably. The events of September 11th and the developments thereafter have put global financial markets on edge while exacerbating the already weak US economy, primarily through the effect on consumer confidence. Global demand continues to stagnate while difficulties in Latin America have heightened market uncertainty, increased investor’s risk aversion and tightened financing to emerging markets. In such a situation, it is important for the Government to come forward and play a major role in stabilizing and supporting the economy. In this light, I believe that the authorities here in Thailand have done a BIS Review 99/2001 1 commendable job in providing the economy with timely fiscal support while adhering to fiscal discipline. Fiscal policy has been expansionary and the decision to increase budget spending this year was warranted. The central government deficit of 159 billion baht (equivalent to 3.2 percent of GDP) for the 2001 fiscal year provided the needed support for economic activity and the budget disbursement rate of 88.4 percent relative to the targeted 89 percent was an improvement from the past. | 1 |
Is there a risk that the payments market will become an oligopoly, with high thresholds for competitors and where payment services are expensive? Can we ensure that those who do not have access to the banks’ services in the future will still be able to manage their payments in a safe and efficient way? What would happen in a future financial crisis, if the general public distrusts the banks and wants to withdraw savings in cash – but the banks no longer hold cash? 13 Withdrawals from ATMs have also declined significantly in recent years. In 2010, Swedes withdrew around SEK 225 billion and in 2015 they withdrew only SEK 153 billion. 14 See, for instance, the Swedish Post and Telecom Authority's report on its task from the Government with regard to fundamental payment services, 27 February 2017: http://www.pts.se/sv/Dokument/Rapporter/Post/2017/Aterrapportering-av-PTS-regeringsuppdrag-inomgrundlaggande-betaltjanster---17-201-/ 15 To some extent the Riksbank has contributed to this development by reducing the number of cash depots in Sweden. See, for example, Daltung and Ericson (2004). 11 [14] Central bank money will still be needed in the future These important questions must be answered. In my opinion, there is reason to examine whether the Riksbank should offer money in digital form to the general public. If the printing press made it possible to print banknotes in its time, then our current technology enables electronic payments. | With the purpose of increasing their liquidity safeguards and stabilizing real exchange rates, official reserves in emerging economies, accumulated through sterilized interventions, precluded current account adjustment, artificially boosting tradable sector growth. This led to global imbalances and, so the argument goes, facilitated (or even caused) global financial unrest. BIS Review 124/2010 1 The above argument depends on whether capital inflows to emerging economies, which were indeed substantial in 2006–2008 (see Figure 1), are driven primarily by interest rate differentials or by medium term growth prospects. It is noteworthy to see how these interest rate differentials have evolved over time. Figure 2 plots (simple) average monetary policy rates for a group of developed and emerging economies, as well as Chile. It is striking that, whereas on average it stood at 440 basis points (bp) between January 2006 and July 2008, now it is barely 50 bp lower (390 bp). Intriguingly, market expectations for interest rate differentials hover between 400 bp and 450 bp over the next year. It would require substantial sensitiveness to interest rate differentials to make the argument that these are the main drivers of capital inflows. Moreover, the decade from 1996 to 2005 witnessed an average differential above 1000 bp, affected of course by risk premia, but still indicates that crude short-term interest rate differentials by themselves are not suggestive of substantial capital inflows. In terms of growth prospects, the picture is markedly different. Figure 3 presents IMF’s past data and forecasts for economic growth in developed and emerging economies. | 0 |
Zeti Akhtar Aziz: Towards the positioning of Islamic finance as an integrated component of the International Financial System Opening speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 5th Annual Islamic Finance Summit, London, 24 January 2006. * * * It is my great pleasure to be here in London to speak at this 5 th Annual Islamic Finance Summit organised by Euromoney. Islamic finance has made significant breakthroughs to now gain a place in today's challenging global environment with its international dimension now becoming increasingly more significant. It has now evolved to become an integral part of the international financial system. As this international financial integration process intensifies, it will not only increase the potential for Islamic finance to contribute towards enhancing the prospects for more balanced global growth through fostering greater trade and wealth creation, but also through facilitating greater diversification of risks, it will contribute towards increased global financial stability. Rapid Evolution of the Global Islamic Financial Services Industry As recent as five years ago, the development of Islamic finance was still regarded as an infant industry striving to prove its viability and competitiveness in the global financial environment. At that time, the growth of Islamic finance was mainly organic and largely concentrated in countries where the Muslim population was significant. Islamic finance was also for the most part governed by conventional regulatory and accounting standards. In addition, the divergence of views on some of the outstanding issues called for greater harmonization. | that monetary union was a political endeavour, and that the final goal was political union, albeit a different union from those we are used to studying in textbooks. Creating the euro, adopting it or not adopting it, are not mere technical decisions but key political choices, and have profound political implications, which are quite different from being a member of the European Union. This might not have been fully realised by all. Let me give an example. No opt-out clause was offered to the Member States which joined in 2004, even though some of them might have been less enthusiastic about joining the euro area than joining the EU itself. A formalistic reading of the Treaty reveals that all countries except the UK and Denmark are committed to converging as soon as possible to the single currency, even in those countries where popular support for it seems to be still limited. A strict interpretation of the Treaty indicates that Sweden should not have had a referendum on the euro in 2003. Indeed, by ratifying the Maastricht Treaty, Sweden committed itself to joining the euro as soon as possible. In practice, nobody complains that the letter of the Treaty is being ignored, because a country cannot be forced into the euro if it is politically unready to join. Being part of a monetary union binds its members at different political levels, not all of which are easily visible. Take fiscal policy. | 0 |
Should they carry contractual foreign rates or some typical ISK rate, such as the benchmark rate published by the Central Bank of Iceland? In the former case, the blow to the capital position of the banking system would have been very serious indeed, requiring massive recapitalisation and possibly jeopardising the overall stability of the system. Those responsible for financial stability gave a sigh of relief when the Supreme Court ruled in mid-September that loans with illegal exchange rate linkage clauses should carry reference ISK rates published by the Central Bank of Iceland. After this decision, it is clear that the blow to capital ratios should be well manageable and only a very limited recapitalisation will be called for, if any. The reconstruction of the domestic financial sector paves the way for badly needed debt restructuring among households and businesses. This issue has remained unresolved due to delays in recapitalising the banks and the uncertainty following the first Supreme Court ruling. But it has also lagged because the framework for such debt restructuring has been a highly contested political issue. We have seen that Iceland has made significant progress on three main policy fronts. But before investigating how this progress has stabilised the economy, let us turn back to the recession in the Icelandic economy. As I said earlier, Iceland was well on its way into recession in 2009 before the banks collapsed in the autumn of 2008, and actually before the currency crisis materialised earlier in 2008. | The effects of the currency collapse and the associated outburst of inflation, which rose from below 4% in late 2007 to 18% in early 2009, were magnified, as it hit one of the most indebted private sectors among advanced economies, with a high share of foreigndenominated or exchange rate-linked debt (20% for households, 70% for businesses, and 40% for municipalities). In addition, households’ CPI-indexed debt amounted to 75% of their total debt and the pass-through of exchange rate depreciation to inflation was speedy due to the magnitude of the depreciation and the lack of credibility of monetary policy at the time. Having set the scene, I shall now turn to the policy responses. The framework for these was set by the two-year Stand-By Arrangement agreed with the IMF in November 2008. The total financing associated with the programme amounts to around USD 5 bn, with just over USD 2 bn coming from IMF resources and USD 3 bn provided by bilateral loans from the Nordic countries, Poland, and others. The original Stand-By Arrangement provided for quarterly reviews; however, the first review was delayed, partly because of the deposit insurance dispute between Iceland and the Netherlands and UK, relating to online foreign overseas branches of the failed Landsbanki. The first review was completed in October 2009, the second in April 2010, and the third on 29 September 2010. | 1 |
Second, we need to look at skills development, job placements, and career pathways in an integrated manner. We cannot look at skills in isolation from job roles. And we cannot look at job roles in isolation from careers. In other words, skills are the engine that will propel career mobility – laterally or upward. This is why IBF took two important steps last year. In April, IBF began to facilitate the implementation of Professional Conversion Programmes for the industry. Then, in August, IBF launched, together with our tripartite partners, the IBF Careers Connect, providing career advisory and job matching services. 2/3 BIS central bankers' speeches IBF is now the one-stop, single point of contact for all matters relating to jobs, skills, and careers in the financial industry. It is too early to tell if this new integrated approach will work, but the preliminary signs are promising. IBF has secured commitment from 19 financial institutions to reskill 4,000 existing finance professionals – to equip them with the skills necessary to take on new or expanded roles against the backdrop of transformed business activities. IBF has also provided career advisory and job matching services to more than 600 finance professionals whose jobs have been affected by change. Third, we cannot do business transformation without workforce transformation. But workforce transformation is a capability that financial institutions are only beginning to build up. | Indeed, while in the initial consolidated State budget for 2013 these three items accounted for around 18.2% of GDP, in 2014 they are expected to represent around 18.5% of GDP and close to 55% of total consolidated public spending. The budgetary adjustment will therefore continue to focus on government consumption, for which a real-terms reduction of 2.9% is projected in 2014 for overall general government, based partly on the civil servant wage freeze and on the extension of austerity policies in relation to public-sector employment; and, moreover, on the reduction in public investment. A further expenditure-containing factor will stem from the envisaged revision of pensions, set at 0.25%, in line with the floor established in the draft law defining the sustainability factor. BIS central bankers’ speeches 5 How do these figures compare with those for the euro area as a whole? In terms of GDP, the weight of unemployment benefits continues to stand far above the euro area average, as a result of our high unemployment. Interest payments on debt in Spain are also expected to exceed the euro area average, while spending on pensions would continue to be below the average, given that demographic developments in our country remain more favourable. On the revenue side, a 2.4% increase in total tax receipts (including the share of regional and local government) is forecast, with very few tax changes. These are concentrated in the broadening of corporate income tax bases approved last June. | 0 |
21 NOU (Official Norwegian Report) 1999: 27 “Ytringsfrihed bør finde Sted (There shall be freedom of expression)”. Sejersted was awarded the Ossietzky Prize for his contribution to freedom of expression in 2008. 22 In the Norges Bank Act of 1985, Norges Bank is required to “inform the public of the assessments on which monetary policy decisions are based”. In October 2009, a new government communications policy was laid down by the Ministry of Government Administration and Reform, promoting transparency as an important principle of good communication. The government’s communication is required to be open, clear and accessible. The government is also required to ensure that relevant information reaches the relevant parties and that the information is adapted to the relevant target groups. BIS Review 140/2009 5 Modern economic theory argues in favour of transparency I mentioned that the previous view was that monetary policy operated by surprising economic agents, while the prevailing view is that it works best by being predictable. According to modern economic theory, economic decisions are heavily influenced by expectations. 23 This has also become an important economic policy recognition. Today’s key rate is important, but even more important is the expected key interest rate ahead. When the owner of a firm takes up a loan to build a new factory, the expected interest rate over the life of the loan is taken into account. | On the need for clarity in monetary policy-making”, European Central Bank Working Paper No. 26. 47 As cited in Petra M. Geraats (2007): “The Mystique of Central Bank Speak”, in International Journal of Central Banking, March 2007, p. 37. 48 Effective communication to market participants is particularly important. As economists with a university background, we often feel the need to build up a series of arguments and weigh various considerations before arriving at a conclusion. But this can sometimes render communication less effective. Financial market participants prefer to be presented with the conclusion first so that they can respond to it quickly. 10 BIS Review 140/2009 The third criterion for good communication is that it must be honest. I referred earlier to the principle that the external communication should reflect the internal deliberations. It is an honest matter to communicate that decisions are difficult and often made on an uncertain basis. But it is just as important – and more challenging – to explain why it is difficult and which factors have been considered and given weight. Before the rebuilding of Bislett Stadium in 2004, the organisation Bislett Alliansen was to decide where the Bislett Games should be moved. The choice stood between Drammen and Bergen. They chose Bergen. The head of the organisation said to the Norwegian news agency NTB: “I have participated for almost 20 years, and this was the most difficult decision I have been involved in. | 1 |
Averaged over that period average inflation has been only a fraction lower than it was before the pandemic, despite a cumulative decline of around 4% in the level of output. If that amounts to a simple matter of “overheating” – if the economy really can’t cope with aggregate demand growth any stronger than minus 2½-3% a year – then one can only conclude that the UK economy’s supply performance has been chilly at best. The reality is more nuanced. I’ve highlighted three contributing factors. By protecting individual jobs the furlough scheme has had the effect of matching lower labour demand with lower supply. In the second quarter of this year this was worth around 2-3% in terms of aggregate output. Prices of many tradable goods have risen sharply. In some cases this reflects specific supply-side problems. Also important has been the general shift in demand, away from services and towards goods, caused by the pandemic. Within the UK, those shifts – regional as well as sectoral – have caused a degree of “mismatch” in the labour market. At least during the early part of the recovery, available jobs haven’t perfectly matched available workers (including those on furlough). There’s a good case that all three of these things will prove temporary. We know the furlough scheme is being wound down, restoring a significant degree of supply to the labour market. As far as tradable goods are concerned, it’s unlikely the pandemic-related shifts in demand will continue if the threat of the illness itself recedes. | Chart 8 plots wholesale price indices for oil, metals and agricultural goods. The latter two are aggregate measures. The six-fold rise in the price of US lumber provided one of the more spectacular examples for an individual commodity (Chart 9). Chart 8: Non-oil commodity prices have also risen sharply Sources: S&P Dow Jones Indices, Bloomberg Finance L.P and Bank calculations. Chart 9: The spike in lumber prices didn’t last long Sources: CME Group5 and Bank calculations. But there have also been sharp price increases further up the supply chain – one notable example is computer chips. And the overall picture, evident in both surveys and official data, is that manufacturers the world over have been facing significantly higher prices for their inputs than they were not just some months ago but even before the pandemic (Chart 10). In many cases (Chart 11) firms have been unable to get hold of them at all, except with long delays, with knock-on effects on their own delivery times. 5 CME Group market data is used under license as a source of information for certain Bank of England products. CME Group has no other connection to Bank of England products and services and does not sponsor, endorse, recommend or promote any Bank of England products or services. CME Group has no obligation or liability in connection with the Bank of England products and services. | 1 |
The distribution chains for goods and services provision, ports, airports, railway transport and energy are just a few examples. Finally, I should like to mention the need to reform the labour market, collective bargaining and indexation clauses. In the absence of prompt and decisive reforms in these areas we will see unemployment increase sharply, with the harmful effects that this has on activity and on the stability of our financial institutions. Conclusion We are currently facing an unprecedented international financial crisis in a severely weakened macroeconomic setting. Certainly our banking system has moved in the right direction, reinforcing its risk control management mechanisms, its profitability, its efficiency and its solvency. This gives it a solid starting position but we cannot allow ourselves to be either naive or complacent: the Spanish banking sector is facing major challenges that will affect its capacity to generate profits in the coming quarters. I am convinced that our banks, which knew how to capitalise on the expansion, will also know how to take the appropriate management measures and adopt the right strategy to allow them to address these difficulties successfully. For our part, the public authorities will continue to take the measures necessary to ensure that this unavoidable adjustment takes place in the least traumatic way possible for our economy. | We would like to see only a gradual increase in non-performing loans or a gradual decrease in credit quality, given the extent of the crisis. We try to make sure that this is a gradual process and nothing unexpected or unforeseen happens. Next: lay the foundation for the longer term Aside from an immediate task of keeping the recovery intact, the other thing we have been doing is to lay the foundation for the longer term. Specifically, we try to ensure that our financial sector responds well to the landscape post-Covid-19. It is hard to say how exactly the post-Covid-19 landscape would look like, but there are at least two trends that will become significant in the future. Firstly, the world will become much more digital, and secondly, there will be a much greater emphasis on sustainability. On this, we have published the Bank of Thailand’s financial landscape consultation paper that put out our view about how we see things evolving in the financial sector. The paper indicates what we want and do not want to see and what are the red lines in each of these areas that we regulate. In the digital space, the first element of our plan is an open competition. For instance, the current financial landscape in Thailand, as in many markets in the region, is dominated overwhelmingly by banks. | 0 |
11 See H M Treasury (2013), which points out, for instance, that “The Government intends that the frameworks for monetary policy and macro-prudential policy, operated by the MPC and FPC of the Bank of England respectively, should be coordinated” (p. 5), and “In order to foster coordination between monetary and macroprudential policy, there is overlap between the membership of the Monetary Policy Committee and the Financial Policy Committee” (p. 10). BIS central bankers’ speeches 5 need to provide support to macroprudential policy when it comes to counteracting the buildup of financial imbalances.12 One argument in favour of monetary policy needing to provide support to macroprudential policy is that there will probably always be incentives to try to circumvent macroprudential policy measures, as it may be profitable for the party that succeeds, in much the same way that there are always incentives to avoid paying taxes. We do not yet know how successful the systems for macroprudential policy now being implemented around the world will be. However, we do know that changes in policy rates are significantly more difficult to circumvent.13 It may therefore be necessary to use the policy rate in certain situations, despite a side-effect being that some areas of the economy that do not need a higher interest rate will also be affected. Failure to take macroprudential policy measures, or measures that are too weak, will put more pressure on monetary policy in this respect. | The Czech Lands had been a key industrial and economic part of the former AustriaHungary and hence had a relatively well-developed banking sector. An awareness of the close links between government finances, the banking sector, firms and households shaped the economic policy of the First Czechoslovak Republic. Karel Engliš worked systematically to balance the budget and deserves most of the credit for sorting out public finances in the early 1920s. In 1927 he submitted three tax laws that substantially lowered corporate taxation and supported the creation of capital. At the same time, though, he tied the tax reform, which led to lower revenues, to cuts in government expenditure and a streamlining of the civil service. So, Rašín and Engliš established a trinity of traditions in our country: a stable currency, sound government finances and non-inflationary economic policy. These traditions became a theoretical, practical and moral legacy for subsequent generations of economic policymakers. It is unusual these days to look back to the communist period for economic inspiration. The socialist system was inefficient and cumbersome and discouraged initiative and innovation. Central planning by definition made the system less adaptable to change and created an economy of shortage. Despite this, the Czechoslovak version of socialism tried to eliminate the most glaring imbalances and preserve basic macroeconomic equilibrium. Fortunately, our central planners didn’t cause any major imbalances in the consumer market in the 1980s, so the savings surplus wasn’t as large as in other communist countries. | 0 |
Stefan Ingves: The Riksbank's role in the economy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at Umeå University, Umeå, 6 February 2006. * * * Let me begin by thanking you for the opportunity to come here and talk to you! Travelling around the country and meeting representatives of different regions, industries and sectors of society is an important part of the openness the Riksbank wishes to maintain. These trips provide us with input for our discussions at the bank, while we build up confidence in our operations. This is my first public appearance as Riksbank Governor, and it feels good to stand here in front of students, teachers, local politicians, regional business representatives and other Umeå residents. I hope we will have a stimulating discussion and I will certainly do my best to answer your questions. Introduction After living and working abroad for many years, it is an honour, as well as exciting and a pleasure to be back in Sweden and at the Riksbank. The bank I left some years ago is now different in many ways. The most important change is that the Riksbank has been governed since 1999 by an Executive Board, consisting of a Governor and five deputy governors, which makes all of the strategic decisions, including monetary policy decisions. Previously the interest rate decisions were formally made by the General Council, which now instead appoints the members of the Executive Board. | These positive developments are occurring against a background in which, moreover, competitiveness gains are being sustained, our exports continue to gain market share and the substantial external surplus persists. That said, this favourable situation 8/9 should not be understood as meaning that Spain has managed to completely overcome the imbalances built up during the previous expansion and during the crisis that began in 2007, as demonstrated by the figures for unemployment, public debt and external net borrowing, among others. Persevering with reforms to increase the economy’s growth potential, maintaining competitiveness gains and fiscal consolidation policies are a prerequisite for progress in making the reductions required in the budget deficit and public debt, controlling the economy’s financing costs, improving the balance of payments and, last but not least, increasing the Spanish economy’s capacity to generate employment. Thank you for your attention. 9/9 | 0 |
There is also firm evidence that the inflation targeting regime has earned credibility in the markets and the community. The monetary regime will be further tested in the period ahead, which will among other things be characterised by an exceptional level of foreign direct investment in the aluminium industry and associated publicly owned and debt financed power plants. Our experience is a strong indication that inflation targeting is a policy which can be pursued in a very small and open economy as in a large economy with very deep financial markets. This policy is resource-demanding and imposes by necessity a very strong discipline on the respective central bank. In our view the increased focus on financial stability in the Central Bank Act of 2001 was natural and well within the accepted framework of central bank activities. The Bank was responsible for banking supervision until the end of 1998 when that function was merged with the Insurance Supervisory Authority in a new and unified Financial Supervisory Authority, with which the Central Bank cooperates quite closely on financial stability issues. While the Central Bank had responsibility for banking supervision, its attention was necessarily focused on individual institutions and overseeing that their operations complied with existing laws and regulations. Before banking supervision was transferred elsewhere, the Central Bank had also begun to focus its attention on broader financial stability issues along the lines that many other central banks were doing at that time. | This part of the city survived the 1963 earthquake, when nearly all the city's beautiful neoclassical 18th and 19th century buildings were destroyed. After the earthquake, international financial aid poured into Skopje in order to rebuild the city. Today, Skopje is seeing a makeover in buildings, streets and shops, and many projects (Macedonian Struggle Museum, the Archeological Museum of Macedonia, National Archive, Constitutional Court, New Philharmonic Theatre) were finished in order to return some of the looks and spirit of the city. In economic aspect, being many times since 2006 on the list of 10 best reformers by the Doing Business rank of the World Bank, proves that Macedonia has undergone considerable economic reforms. It has developed as an open economy with the trade accounting more BIS central bankers’ speeches 1 than country's GDP in recent years. Although the environment was highly difficult, first with the global financial crisis, afterward with euro area crisis and more recently, with Greece crisis, our GDP growth was on average above 3% for whole this period, which is one of the highest in Europe, and for 2015 it is expected to be around 3.5%. The unemployment from a very high level, throughout this period is on declining path, by implementing many structural reforms and ALMP. The government strategy to attract foreign investments and establishment of a good business environment for the development of small and mediumsized enterprises (SMEs) was paid off. | 0 |
These entities provide a range of key services that include Shariah advisory, accounting, tax, rating, research, accreditation and legal services, many of them serving global demand and setting benchmarks for international best practices. To increase the impact and influence of Islamic finance, whether in a domestic or global context, all its key components must move forward together to provide complete and comprehensive solutions. This is also critically important to reduce risks inherent in any innovative venture where progress on one front without the other is more likely to invite problems. Conclusion There has never been a better time where a confluence of developments have called for us to propagate the value of Islamic finance in addressing the challenges confronting us today; issues relating to inequality, financial excesses and environmental damage and degradation. To elevate the Islamic finance industry to the next level, the formulation of game-changing strategies must bring in elements that leverage on technology, accelerate innovation and develop well-rounded talent to meet future needs of Islamic finance. These strategies offer an important opportunity to reinforce the foundations of a strong and resilient Islamic financial system, and advance its development and contribute towards a more inclusive and stable global financial system. It is incumbent upon us all to make the most of it to support sustainable economic growth and help to improve the lives of many. And it is on us to continuously reinvent and re-anchor our industry so that we can forge stronger links with our stakeholders. | This proposal is an important step to encourage a strong corporate and market focus on how Islamic financial institutions are generating value, not just for shareholders, but for the communities which they are a part of. On-going collaboration and active engagement with the industry are currently being undertaken under this initiative to ensure proactive behaviours and sustained momentum towards the creation of a sustainable development. Another precondition for long term sustainable value creations is the availability of top-notch talent to drive and execute innovative business strategies that will realise the full potential of Islamic finance. Based on market assessments, a greater pool of quality professionals are required to sustain the growth of global Islamic finance that is estimated to surpass $ trillion total assets size by 2020. The challenge in meeting this demand however goes beyond the numbers. The next phase of growth and development of Islamic finance calls for a deep talent pool that not only has a strong foundation in the application of Islamic finance principles, but also the much broader set of competencies required to use those applications effectively to provide and implement solutions to real world problems. And such talent must be developed not only within Islamic financial institutions, but also the professional ancillary service providers that are part of the Islamic finance ecosystem. In Malaysia, there are close to 40 professional ancillary services entities under the MIFC Community which play an important role in the development of Islamic finance. | 1 |
The flexibility of their wages and prices makes them therefore unusually well-suited to a currency union like EMU. At the same time, these countries have not shied away from reforms that many leading EU countries have not yet been able to bring about. Estonia, Latvia, Lithuania, Hungary and Poland have, for example, carried out comprehensive reforms of their pension systems, which now resemble the Swedish model with savings partly invested in funds. In these areas in particular, it is rather the EU that has something to learn from the candidate countries than the other way around. It is as Pope John Paul II said, that now finally can “Europe breathe with both lungs”. The new member states enrich the EU, not just economically but also intellectually, and of course also culturally and in human terms. The enlargement puts the EU in motion; not just the trade and investment, but also the institutions and the ideas. BIS Review 51/2004 5 | For large banks, we are making progress on resolution planning, and this world is different to five years ago, but we are not there yet by any means. I have a background in resolving banks, and I regard having the capacity to resolve failed large banks – including the largest – as the holy grail of resolution. Unlike the legendary Holy Grail, I think there is a good reason to believe that the objective of being able to resolve large banks that fail can be within our grasp. I am very clear that when firms mess up, they should be allowed to fail, and by doing so they are putting at risk the money of their shareholders and if necessary after that those who provide debt funding according to levels of seniority. But I am also very clear that really achieving the objective of avoiding a no failure regime requires a fundamental change of mindset both inside firms, the authorities and in society more broadly. Fear of failure is an important conditioner of behaviour in a financial regulator, and achieving a change on this front depends on establishing a wide acceptance of our approach that orderly failure which does not compromise our public policy objectives is an acceptable outcome. BIS central bankers’ speeches 3 To be clear, we should be criticised where failure compromises those objectives and we could have taken steps to avoid it. | 0 |
It is already clear however that it will amplify the headwinds to the strong recovery that the euro –area has been experiencing in 2021, and that it will intensify inflation pressures in a context where inflation has already increased significantly and will remain high over the coming months. The general uncertainty that marks the euro-area macroeconomic environment has implications for the conduct of monetary policy. In these conditions, it is important to balance carefully the risks of waiting too long to act as opposed to those of normalizing too soon. In any case, the commitment of the ECB is clear: the Governing Council will do what is necessary to bring inflation firmly and durably to around two per cent over the medium term. The forward guidance, relying on state contingent criteria and the “sequencing” are instrumental to this goal. Policy normalization will follow a clear order: the ECB will end its asset purchases first, likely in Q3 2022, then raise the key interest rates, eventually reducing its balance sheet in a third step. All along this gradual process of normalization, the Governing Council of the ECB made it clear that it will maintainoptionality; gradualism and flexibility in the conduct of monetary policy. In that context, financial markets are currently considering that the rise in interest rates might start in the near future, with a first 25 bps hike almost fully factored in (90 %) as of next July, followed by two others by the end of this year. | David Carse: The current state of banking reform in Hong Kong Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the luncheon of the Hong Kong Foreign Bank Representatives Association, held at the Hong Kong Club, on 5 September 2000. * * * Ladies and gentlemen, I am pleased to have the opportunity to address this lunch gathering of the Hong Kong Foreign Bank Representatives Association. As an international financial centre, it is the essence of Hong Kong that it should be a host to foreign banks. And as the banking regulator in Hong Kong, it is important that the HKMA should keep in close touch with foreign banks through events such as today’s lunch. This gives us a chance to explain aspects of our policies and how we see the current state of banking in Hong Kong. It also gives you the opportunity to provide feedback to the HKMA on any issues of current concern to you. Hopefully, I will not have to address too many hostile questions. The 1998 Banking Sector Consultancy Study I have chose to speak to you today on the subject of “The current state of banking reform in Hong Kong”. This seems a good time to undertake this stocktaking. It is over a year since we embarked on the reform programme that we devised in response to the Banking Sector Consultancy Study undertaken by KPMG and Barents in 1998. | 0 |
Normal competitive pressures can push valuation methods away from the conservative extreme and generate larger exposures to risk. As a result, individual firms and the overall market are more exposed to risk in a stress scenario than would be desirable. Another set of challenges comes with the broader damage to markets that can accompany the failure of a major financial institution. Firms have strong incentives to avoid large financial losses and to reduce the risk of failure, of course, but they do not have the incentive to internalize the potential external consequences of their distress on the financial system, and it is unrealistic for market participants to incorporate these risks into market prices. This “public good” dimension of financial stability means that while the whole economy benefits from a more stable financial system, each individual institution would prefer that others incur the costs associated with its provision. As a result, firms may collectively underinsure against the risk of failure and underinvest in the infrastructure and policies that promote financial stability. And finally, policies designed to reduce the risk of failure in financial markets create moral hazard, dulling the incentive individual firms face to self-insure against potential loss. We apply a set of capital requirements and supervisory constraints to offset the distortion created by the safety net, but these may not fully compensate for the impact on behavior of the broader range of financial intermediaries of the perception that the authorities will act to protect the financial system from systemic risk. | Timothy F Geithner: Hedge funds and derivatives and their implications for the financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Distinguished Lecture 2006, sponsored by the Hong Kong Monetary Authority and Hong Kong Association of Banks, Hong Kong, 14 September 2006. * * * I want to thank Joseph Yam for inviting me to Hong Kong for this occasion. We are approaching the 10-year anniversary of the financial crises of 1997-99. Those crises were remarkable both in the scope of countries and markets they affected, and for their speed and severity. The circumstances leading up to the crises varied across countries and regions, as did the magnitude of the resulting damage to the real economy. But each of these events had one dynamic in common the confluence of a sharp increase in risk perception, and the subsequent actions taken by financial institutions and investors to limit their exposure to future losses. As asset prices declined and volatility increased in response to increased concern about risk, firms moved to call margin, to reduce positions and to hedge against further losses. These individual actions had the aggregate effect of inducing even larger price declines and further heightening perceptions of risk, ultimately propagating and amplifying the effects of the initial shock. The dynamic I just described was not unique to the crises of the late 1990s, nor was the damage to overall economic activity they left in their wakes. | 1 |
We need to learn the lessons on accounting and valuations. We need to learn the lessons on regulation and supervision. We need to learn the lessons on macroeconomic management and the interplay between the macroeconomy and the financial sector. I am still optimistic on all of these points. There is a major international effort under way to reform regulation and supervision, also regarding cross-border banking. In the wake of the Special Investigation Commission report that I mentioned earlier, I hope that Icelanders now turn to the task of facing head-on where they went wrong on top of all the international failures. And finally, I note with pleasure that the pension funds are going to draw their own lessons on where they might have done better; for instance, by being more critical going forward, as indeed we all must be. In closing, let me welcome you to Iceland and wish you an enjoyable stay and fruitful deliberations during your convention. We need to learn from our different countries’ experiences and seek out the common challenges that we face. In spite of the financial crisis, the world will remain full of interconnections and spillovers, as we can see from the spread of cash and ash across borders. Thank you very much. BIS Review 63/2010 5 | The Chancellor decided last May that he would no longer exercise his powers to set short-term interest rates. Anticipating the Bank of England Bill, he set an inflation target and delegated the technical implementation of monetary policy to achieve that target to a new Monetary Policy Committee established within the Bank. BIS Review 18/1998 -3- The Monetary Policy Committee has been operating independently in setting interest rates ever since. This position is formalised under the Bill. With respect to monetary policy the Bill defines the Bank’s objective as the maintenance of price stability, and, subject to that, as supporting the Government’s economic policy, including its objectives for growth and employment. The Chancellor will tell the Bank each year what precisely we are to understand by “price stability” - he will, in other words - set a specific inflation target. He has in fact initially set a target of 2½% for underlying inflation, and although the Bill provides for him to set the target each year, the expectation is that the target is for the medium to longer term. That is the political decision. The task of achieving that target - the technical implementation of monetary policy - is then delegated to the Bank of England. The Government will no longer have the power to issue directions to the Bank in the field of monetary policy (except, in the terms of the Bill, in “extreme economic circumstances”). Instead, the Bill will formally establish the Monetary Policy Committee. | 0 |
They need to be funded by liabilities and may have capital requirements to hold against them – they therefore compete directly with other, less liquid assets on the balance sheet such as loans to the real economy. So holding more liquid assets will usually squeeze out less liquid lending. And assets which are liquid in normal times (i.e. can be easily sold or lent against cash), may become sharply less liquid in a financial crisis. These concerns give one reason why a central bank is usually willing to supply extra liquidity to the banking system in a crisis. The particular forms of liquidity requirement being introduced by CRDIV are the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). The LCR has been agreed and will be implemented on 1 October 2015 in the EU. It basically requires banks to hold liquid assets to cover one month of projected outflows, assuming that markets are closed to the raising of new funding. As you might expect, a lot of international 5 See IAIS website for more details. 6 See EIOPA website for more details. BIS central bankers’ speeches 7 negotiating time was taken up with deciding what to count as liquid assets! The liquidity requirements will be increased over time until the full requirement is in operation on by January 2019 at the latest. | This balance is critical to deliver the welfare benefits of financial innovation and avoid stalling the development of digital finance with the risk of leaving someone behind. I look forward to the presentations and discussions by the participants at the conference that I am sure will provide interesting reflections on the abovementioned challenges casting light on the fast changing financial innovation landscape, especially in the payments area. I wish all of you an enjoyable and rewarding conference in Ohrid, our charming city, protected by UNESCO for its natural and cultural heritage. Thank you! 1 The Pulse of Fintech 2018: Biannual global analysis of investment in fintech, 2019, KPMG, assets.kpmg/content/dam/kpmg/xx/pdf/2019/02/the-pulse-of-fintech-2018.pdf 2 The future of banking is open: How to seize the Open Banking opportunity, 2018, PricewaterhouseCoopers LLP, retailbankinginnovation.fintecnet.com/uploads/2/4/3/8/24384857/the_future_of_banking_is_open.pdf 4/4 BIS central bankers' speeches | 0 |
The sea and what the sea gives us has been part of the economic base for everyone who has settled along the Norwegian coast. Lighthouses, seamarks and lifeboats have made the lives of seafarers safer, but they have also helped to improve the prosperity of those who live near the coast. The first lifeboats, such as the RS 14 Stavanger, did not stay in port and wait for the alarm to sound. The lifeboats accompanied the fishing fleet out to sea, ready to respond in the event of a storm. Sometimes it was a question of life or death and lifeboat crews rescued people in danger of drowning, while at others the lifeboats were just needed to tow in a group of boats to calmer waters where they could be safe until the storm blew over. Because of the lifeboats, fishermen were able to stay out at sea longer, boosting their earnings and their ability to provide for their families. It is almost a year and a half since we launched the first two denominations in the new banknote series. The new 100-krone and 200-krone banknotes seem to have been well-received, and their production and distribution and the exchange of old banknotes have been on schedule. I am confident that the launch of the next two denominations will proceed just as smoothly. As I have touched upon, the main purpose of the banknote project is to have banknotes that are even more secure than previous banknote series. | The Stavanger was built not far from here, at Tollerodden in Larvik, and is an excellent example of the many wooden boats designed by shipbuilder legend Colin Archer. It was recently decided to return the Stavanger to Tollerodden, where it will be one of the main attractions at a planned Colin Archer Centre. The sailing performance of Colin Archer’s lifeboats was superior to that of the boats constructed by his competitors at that time, and they are beautifully designed. If you would like to see what a real Colin Archer lifeboat looks like, I recommend a trip down to the jetty once the official part of the programme here at Noatun is over to see the RS 1 Colin Archer, which, thanks to the dedicated efforts of enthusiasts, is still in magnificent condition. Moored next to it is the RS 135 Kaptein E. Nygård, which is stationed here in Horten on a daily basis and which is also open to visitors. Personally, I am no stranger to the sea. I have spent my summer holidays in Hvaler every summer since the mid-1960s, and I have thoroughly enjoyed sailing through the archipelago, admittedly at low speed. I always have sea charts and a GPS chart plotter on board and I am quite sure this is why I have not needed any assistance from the Norwegian Society for Sea Rescue so far. However, I greatly respect the Society’s work and what it means for the many people who sail along our magnificent coast. | 1 |
Again, the role of the Government must be re-emphasized, primarily in packaging suitable tax advantages which can be offered in order to incentivise even the population outside the formal sector of employment to promote higher contributions. Some pension markets remain underdeveloped or at least underutilised in part due to tax disincentives. As such, the design and implementation of an appropriate tax framework incorporating preferential tax treatment could facilitate the promotion of long-term savings. The problems experienced in recent years by public funded pension systems highlighted the importance of complementary or supplementary forms of private savings initiatives. The emergence of institutional investors in particular, primarily as risk transfer conduits and as collectors of savings has shifted focus from publicly funded pensions systems to private savings schemes. This is the fourth and last initiative I will attempt to raise. In order to reduce the cost of providing for the social security of the ageing population, developed countries have encouraged the development of private pension schemes through tax incentives. In some developed countries, employees are given higher personal tax relief for contributions to approved pension schemes. While some countries have made private pensions mandatory, others continue to grapple with ways to promote participation in private pension systems in order for households to meet adequate retirement income needs. As such, measures need to be taken to incentivise private pension schemes. | The full-time employment model does not adequately address the profound changes in employment patterns, which economies are now experiencing, such as the increasing number of women in the workforce. Then again, most pension schemes are also designed for workers with full and uninterrupted careers. This does not reflect the experience of women, as we see more and more today, who may leave their jobs to become full time housewives or homemaker. Breakdown of marriage institutions, which is now not uncommon, and the fact that women typically outlive their husbands, place women at greater risk of being in poverty in old age unless pension schemes are adapted to meet their needs. Pension schemes must also take into account the changing work patterns in economies, which in the recent decade had seen an increase in part-time workers, the self-employed and temporary workers. 2 BIS Review 137/2007 The third challenge is in instilling public awareness on planning for retirement, particularly on having an appropriate level of retirement income to support retirees' healthcare and longterm care. A recent survey conducted in Malaysia revealed that more than 80% of Malaysians are either indifferent or not worried whether or not they have enough money for retirement. Only 34% are consciously saving regularly for retirement and an alarming 60% do not know exactly how much they need during retirement. | 1 |
Second, I think we saw pre-crisis a tendency for what I, probably too loosely, call the political-economy to be pro-cyclical and thus approve of excessive light-touch supervision. This was a problem I think on both sides of the Atlantic. The public interest in financial stability was lost amidst an enthusiasm for the persistence of growth and easy credit. In 1979, the former chairman of the Federal Reserve Board, Arthur Burns, gave a lecture entitled “The Anguish of Central Banking”. It was about monetary policy, and how there had been a build-up of ideas which had accommodated inflation. Historians have suggested that Burns himself was not innocent in this respect, but the point is that there was a role for broad ideas which enabled the accommodation of pernicious inflation. It was dressed up as enthusiasm for growth and societal change which was ultimately unsustainable. We saw similar traits before the financial crisis, with the consequence that supervision was supressed. The whole thrust of the post-crisis changes in my view is to make supervision less pro-cyclical – not to aim off in the good times, but also not over-compensate the other way in the bad times. A third thought in this respect is that we underestimated the importance of system-wide risks and macro-prudential policy. Supervision – and particularly large complex firm supervision cannot be remote from macro-prudential policy. To be honest, while I think we have made some progress breaking down the barriers, we still have a long way to go to integrate micro and macro prudential approaches. | Relative to money spending, central bank money supply is at its highest levels in the 15-year history of the European Central Bank, the 100-year history of the US Federal Reserve, the 131-year history of the Bank of Japan and the 319-year history of the Bank of England. Accompanying these monetary policy changes has been a marked shift in regulatory philosophy. Since the crisis, financial regulation has become explicitly macro-prudential [Morris and Shin, 2008; Bank of England, 2011; Hanson et al, 2011]. This is an expression much-used, but generally little-understood. In a nutshell, it means that policymakers have begun using prudential means to meet macro-economic ends. Those macro-economic ends include tempering swings in credit and leverage – the classic credit cycle. The credit cycle is a long-established feature of the financial landscape [Aikman et al, 2014]. Chart 1 shows its pattern in the UK over the past 130 years or so. The credit cycle is every bit as regular as the business cycle. But it differs from the business cycle in two critical respects: its amplitude is at least twice as large and its duration at least twice as long. Both are important for the design of macro-prudential policy regimes. The larger amplitude of the credit cycle is one reason why credit booms have, more often than not historically, resulted in banking crises (Table 1). Because financial crises cause large and long-lived disruption to the economy, this suggests a strong empirical link between credit cycles and macroeconomic destabilisation. | 0 |
Growth remains strong in 2018, with issuance of catastrophe bonds the most prevalent type of ILS, more than doubling compared to the same period last year. ILS rates have stabilised after having risen post these disasters, and subsequently dipping with the influx of capital. Catastrophe bond managers have continued to launch new ILS funds in response to strong demand from investors. Today, the ILS market has grown to the point where it now provides 15% of global catastrophe reinsurance capacity. 5 Let me highlight 2 key reasons why ILS has been growing over the years: a. First, it offers sponsors a viable alternative to enhance risk transfer programs. ILS provides diversification of the source of risk capital, multi-year coverage, and also competitive rates compared to traditional reinsurance. b. Second, there is strong demand from investors given ILS’ low correlation with other asset classes, and low volatility. To illustrate, the Swiss Re Global Cat Bond Index has an annual volatility under 3%1, much below the 15% and 5% for equities and corporate bonds respectively. In addition, catastrophe bonds also offer ILS investors a liquid investment option as they can be traded on the secondary markets. 6 The ILS market has continued to innovate in response to the growing and changing needs of sponsors and investors. This innovation is happening along different dimensions, namely in risk types, geography, and structures. a. On risk types and geography. i. ILS has now expanded its scope to cover other lines of business like operational risks and mortgage risks. | Unfortunately, this came at the cost of significant macroeconomic imbalances: at the start of the crisis, Romania had a sizeable structural fiscal gap (around –8 percent of GDP in 2008), a current account deficit in the double-digit area and high inflation readings. When the crisis hit, there was no other option but to make the necessary adjustments. They appear to have produced the expected results: with the current account deficit below 1 percent of GDP, a structural fiscal position in the vicinity of 1 percent of GDP, and an annual inflation rate currently at 1.2 percent, we can safely say macroeconomic equilibria have been restored. At the same time, the economy resumed its growth at rates that can be regarded as robust when compared with the European performance (around 3 percent in both 2013 and 2014 and an even better 4.3 percent in the first quarter of 2015). As a consequence, the output lost in the first two years of the crisis has been completely recovered. Public debt is currently below 40 percent of GDP and looks set to decrease over the medium-term, assuming fiscal consolidation gains are maintained and the economic growth stays at current levels. Positive developments also occurred in terms of the external debt, whose share in GDP decreased by more than 12 percentage points since 2012, mainly due to the cross-border deleveraging and the near complete repayment of the IMF loan. | 0 |
Confidence indicators, net figures, seasonally-adjusted data 40 40 30 30 20 20 10 10 0 0 -10 -10 -20 -20 Househoulds -30 -30 Total business sector -40 -40 00 01 02 03 04 05 06 07 08 09 10 Source: National Institute of Economic Research The recovery will take time But although growth will recover during the final two quarters of this year, we believe that GDP in Sweden will fall by more than 4 per cent in 2009. And it will take a long time before the economy is back at the same level as prior to the crisis. 2009 will be the first year since the 1940s in which GDP falls in the world as a whole. But, all in all, there are many indications that the growth rate abroad and in Sweden has bottomed out and will rise in the years ahead (Figure 2). Figure 2. GDP level, index 2007 Q4 = 100 110 110 USA 108 108 Euro area 106 106 Sweden 104 104 102 102 100 100 98 98 96 96 94 94 92 92 07 08 09 10 11 12 Sources: Bureau of Economic Analysis, Eurostat, Statistics Sweden and the Riksbank. | Our policy works much better and more efficiently when we are open and clear about our objectives and the reasons for our decisions. An important piece of the puzzle is that we now have a "direct” and clear inflation target. Although the fixed exchange rate was aimed "indirectly” at providing low and stable inflation, this was not really as clear. But with a fixed exchange rate monetary policy is also governed by external events, which has both advantages and disadvantages. Up to the beginning of the 1990s, the Riksbank was on the whole a closed and rather secretive institution, just like most other central banks at that time. Today the situation is the opposite. We are now considered one of the world’s most open central banks. The fact that an independent authority must provide opportunities for insight and evaluation is natural in our society. Another aspect that may be of importance is that the openness puts a little extra pressure on us to develop and do our job as well and as efficiently as possible. And I can note that our methods have changed substantially. Willingness to change and rapid development in our working methods The fact that a lot has happened since the mid-1970s when we sat and drew diagrams and forecasts by hand on graph paper is not surprising. But even during my period in office the last six years our methods of working have shown a rapid development. | 0 |
In the baseline specification in Galí (2008), the slope is: 12 All speeches are available online at www.bankofengland.co.uk/speeches 12 𝜅= (1 − 𝜃)(1 − 𝛽𝜃) 1 − 𝛼 𝜑+𝛼 (𝜎 + ) 𝜃 1 − 𝛼 + 𝛼𝜖 1−𝛼 (6) 𝜃 is the degree of price stickiness, 𝛽 is the discount factor in household preferences, 𝛼 is the degree of decreasing returns to labour in production, 𝜑 is the inverse of the elasticity of labour supply with respect to real wages (holding marginal utility of consumption constant), and 𝜎 is the inverse of the elasticity of intertemporal substitution in consumption. Significantly, the elasticity of demand, 𝜖, and hence the mark-up, 𝜇, affect the slope of the Phillips curve. The higher the degree of market power and higher the mark-ups firms charge, the steeper the slope of the Phillips curve (or, equivalently, the smaller the sacrifice ratio). We can roughly gauge the scale of this effect by calibrating the model. Chart 16 looks at the relationship between the slope of the Phillips curve, 𝜅 and mark-ups, 𝜇, for a given parameterisation of the model. The relationship is, as we expect, a positive one. As a thought experiment, consider the scale of increase in mark-ups seen by the average firm globally since 1980, from around 1.1 to around 1.6. 23 Other things equal, this would be expected on this calibration to have steepened the slope of the Phillips curve from just under 0.1 to around 0.2. | The depreciation of the RMB, alongside a pullback of foreign funds from the region, triggered downward pressures on the region’s currencies. Since the RMB move on 11 August, Emerging Asia currencies have depreciated by an average of 3.2% against the US Dollar, with some falling by as much as 7%. 2 While markets seem to have calmed somewhat, a sense of uncertainty prevails and the risk of renewed volatility remains. What is happening? Financial markets are essentially coming to terms with four significant “re-pricings”. • First, the stock markets in China are adjusting downwards from unsustainably high levels. • Second, the RMB has become de-coupled from the US Dollar and is moving towards a more market-determined exchange rate. • Third, oil and commodity prices have eased considerably this year, marking the end of what some have called a “super-cycle”. 1 Emerging Asia economies refer to China, India, Korea, Hong Kong, Taiwan, Singapore, Thailand, Malaysia, Indonesia and the Philippines. 2 Excluding the Hong Kong Dollar. BIS central bankers’ speeches 1 • Fourth, the effects of an impending interest rate hike in the US – the first after seven years of extremely easy monetary policy – are being priced in across Asian markets. These are not necessarily unwelcome developments. The correction in China’s stock market is not surprising given the stretched valuations that had developed over the preceding year. | 0 |
We have done so more or less right from the very start, even if, when the inflation-targeting regime was new, there was particular reason to emphasise that low and stable inflation should be prioritised. However, in the present framework, the considerations that we actually make as regards both inflation and the real economy have become more apparent. However, a number of problems still remain. For example, it is not obvious which measure of the real economy monetary policy is to stabilise nor how best to calculate the trend to be stabilised around. Quite different estimates can be made, not only in terms of the present and the future, but also of past events (Figure 3). However, it remains clear that intellectual progress has been made and that developments have moved forwards. So far, relatively few central banks have gone so far as to publish forecasts of their policy rates, as the Riksbank does. But it is clear that the manner in which monetary policy is conducted has developed in most parts of the world and is presently more open and clear than was the case fifteen to twenty years ago. | For central banks and other economic forecasters, the challenge will be to attempt to make the best assessment possible of the manner in which potential output and growth may be impacted by both the crisis and the regulations resulting from it. For the authorities that are to design the regulations, the challenge will lie in finding an appropriate balance: on one hand, the regulations will need to be sufficient to reduce the risk of financial crises – which can cause potential output to fall. However, on the other hand, they should not be so comprehensive as to impede the financial sector unnecessarily, thus risking dampening potential growth. In other words, it is a matter of finding just the right level of regulation. Figure 5 Potential output with and without crises Potential output Without regulations, with crises With regulations, without crises Time Somewhat simplified, it could be said that this is a matter of making a choice between two development paths for potential output (Figure 5). In one, development is interrupted now and again by crises, during which potential output falls, but between these, growth is relatively strong. In the other, development is even, but growth may be slightly lower than is the case between crises in the first development path. It is not obvious which development provides the best welfare effects over the long term, but it is clear that general opinion at present is that we should attempt to reduce the risk of crises and abrupt halts. | 1 |
The first relates to the institutional relationship between the central bank and the government and the second to the multiple objectives assigned to the central banks. All the evidence points to improved long-term inflation performance when monetary policymakers are freed from institutional constraints that hamper their freedom of maneuver and given full operational independence. Such independence is best achieved by enshrining it in an institutional framework that provides for legal independence from the government, with accountability for achieving a clearly defined mandate focused on price stability. Few Asian central banks yet enjoy full legal independence, though most now have greater de facto independence than they once had. Fixed, or partially fixed exchange rate regimes, of course, also constrain the independence of monetary policy. As capital accounts become progressively more open, few countries can sustain over time a commitment to exchange rate stability without risking price stability. Eventually central banks will run up against limits on their capacity to sterilize the effects of exchange market intervention designed to limit the pace and extent of appreciation of the exchange rate. Although measured inflation in emerging Asian economies remains relatively low, the pace of credit growth and the behavior of asset prices provide some evidence of a growing tension among competing objectives. The longer this policy conflict persists, the greater the distortions building up in the economy, the greater the risk of future inflation and the greater the risk of a bumpy future. | In emerging Asia, two key areas where there is the need and opportunity for further progress are in the financial system and in the monetary policy framework. The financial sector plays an important role in the flexibility and adaptability of economies to change, in the resilience of economies and in the capacity of the monetary authorities to respond to adverse shocks to asset prices or demand. Although much has been achieved in Asia over the past decade, as the damage inflicted by the crises has been repaired, further reform will be important to the capacity of these economies to innovate and grow and to live more comfortably with openness to capital flows. This requires stronger banks and more developed capital markets. Thus far, we have seen more progress on the former than the latter, but both are important and there remains considerable scope for broadening and deepening capital markets in emerging Asia. The extent of financial innovation in the industrial economies makes it possible for Asian countries to take advantage of huge BIS Review 65/2007 3 improvements in the efficiency of financial intermediation. Embrace of these reforms will help ensure that high levels of domestic savings are deployed more efficiently, that companies and financial institutions are able to manage risks more effectively and that the financial system is more resilient in the face of future stress. Monetary policy regimes in much of Asia are burdened by two different types of constraints on independence. | 1 |
The design features Turner’s self-portrait, from 1799, alongside one of his most eminent paintings, The Fighting Temeraire.2 This painting is a tribute to the HMS Temeraire – which battled with distinction during Nelson’s victory at Trafalgar in 1805 – and an elegy to the decline of sail, showing the great warship being pulled by a steam tug to her last berth to be broken up for scrap. The novelist William Makepeace Thackeray called it “as grand a painting as ever figured on the walls of any academy, or came from the easel of any painter”.3 The public clearly agrees, voting it Britain’s greatest painting in a BBC poll in 2005. 4 The Fighting Temeraire exemplifies Turner’s innovative use of light, shade, colour and tone. These contributions to the visual arts are captured in the quote – ‘Light is therefore colour’ – which is from an 1818 lecture by Turner. Turner rarely signed his paintings, so the signature on the banknote was taken from his will. That is fitting because, in a codicil to that testament, he bequeathed his paintings to the nation, and in doing so made a significant contribution to British society. Few Turners are locked away in private collections or spread to the four winds. The vast majority are free for the British public to see across some of our greatest galleries. The note references several of these galleries. | Light is therefore Colour: Remarks at the launch of the new £ banknote Speech given by Mark Carney, Governor of the Bank of England Turner Contemporary Gallery, Margate 10 October 2019 I would like to thank Clare Macallan for her assistance in preparing these remarks and Lizzie Levett and Lisa Young for providing background information. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches It is a pleasure to be back at Turner Contemporary in Margate to unveil the new £ banknote featuring JMW Turner. Banknote character Turner was a frequent visitor to Margate, drawn by “the skies over Thanet”, which he held to be “the loveliest in all Europe”. The East Kent coast inspired more than 100 of his works and this gallery stands on the site of Mrs Booth’s seafront guesthouse, where Turner stayed whenever he visited. Turner’s contribution to art extends well beyond this stretch of shoreline. He was precocious – exhibiting at the Royal Academy at 15, and becoming an Academician at 24 – as well as prolific, producing more than 550 oil paintings, 2,000 watercolours, and 30,000 sketches and drawings. Turner is rightly celebrated for his unique ability to capture light and highly varied atmospheric effects through use of vibrant colour and flowing brushwork; he often went to extremes in pursuit of the visceral artistic experience. His paintings blaze with the heat of the sun, shimmer in moonshine, and rumble under the weight of gathering storm clouds. These works transformed the field of landscape art. | 1 |
For example, some banks are increasingly using AI techniques, such as Natural Language Processing, to identify contractual obligations where Libor is involved. We ourselves have recently deployed an AI tool that can support PRA supervisory judgement with efficient analysis and extraction of unstructured firm intelligence. 8 https://www.bankofengland.co.uk/speech/2021/april/gareth-ramsay-webinar-hosted-by-the-edm-council https://www.bankofengland.co.uk/paper/2020/open-data-for-sme-finance 10 https://www.bankofengland.co.uk/news/2021/february/data-collection-transformation-plan 11 https://www.gov.uk/government/publications/cdei-ai-barometer 12 https://www.bankofengland.co.uk/quarterly-bulletin/2020/2020-q4/the-impact-of-covid-on-machine-learning-and-data-science-in-ukbanking 9 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 But the rapid pace of adoption also means this is a pivotal moment for the UK to consider how best to support firms’ safe adoption of AI and what that means for the relevant regulatory frameworks. To inform our decisions about regulatory frameworks we’ve been engaging with fintech firms, other financial services firms and authorities, in particular through the AI Public-Private Forum (AIPPF). This year-long initiative, cochaired with the FCA, brings together a diverse group of experts to discuss the key issues related to data, model risk management and governance.13 This includes examining how existing policy frameworks affect and encompass AI, and what the appropriate level of any future potential policy should be. So far, the AIPPF has explored the key data-related issues, such as: 1. the use of ‘alternative data’; 2. how to adapt existing data quality standards to an AI context; 3. fair and equal access to third party data (including pricing); 4. ways to address bias and the challenges of operationalising ethical principles; and 5. approaches to data and AI governance. | In consequence, other banks struggled to get the liquidity they needed via market mechanisms, particularly term borrowing, even when there was more than sufficient cash in the system as a whole and even if the firms had good quality collateral. The amounts being rolled in overnight markets became a risk in itself. The Bank responded by massively increasing its lending at three months maturity from £ before the crisis to a peak of around £ in early 2009. Essentially we chose to lend so that any bank which needed to could bid for and obtain liquidity at three months. The significant increase in term liquidity that ensued meant that there would have been downwards pressure on short-term interest rates. So in order to keep market interest rates close to Bank Rate, the Bank drained the excess liquidity via issuing Bank of England bills. At its peak, the Bank issued around £ of one-week bills. 6 Currently, the deposit rate is zero and the borrowing rate 75bps. In more normal conditions, these spreads can be expected to be symmetric around Bank Rate. 7 The Bank can choose to lend in variable rate repos. This happened for a brief period in mid-2009. 8 Again, variable rate bills could be used. This happened during the first few months of the asset purchase programme. | 0 |
3 For example, estimates from term structure models such as those discussed in Meldrum, A and Roberts-Sklar, M (2014), ‘Long-run priors for term structure models’, Bank of England Working Paper 575. 3 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 3 The lower demand for investment accounts for nearly two-fifths of the reduction. An ongoing decline in the price of investment goods, less public investment and systematically higher credit spreads account for the reduction in desired investment. And, alongside these changes in the levels of the supply of saving and the demand for investment, there has also been a change in the underlying return on investment. Expectations of a lower rate of real global growth accounted for another fifth of the reduction in the trend real rate of interest. 4 Three caveats are important at this point. The first is that the Bank work estimated the reduction in the global average trend real rate and the impact of changes in the level of global savings and investment. To the extent that global capital markets are not perfectly integrated and that there is an element of home bias in the financial allocation of savings, changes in the national supply of savings and demand for investment matter too. For example, developments in UK demographics would suggest less of a reduction in the trend real rate here than seen globally. But overall, the evidence suggests a very significant proportion of the movement in UK trend rates reflects developments elsewhere. | We are about a month and a half behind schedule only on this issue. The consultations that the Minister of Finance and I had last week show that the signing of such a Memorandum is still possible but this will urgently require at least two things: firm political support and a clear mandate of the central bank governor. The political decision on this issue comes with a price. Over the last months, and especially the last weeks, markets have been giving us very clear and warning signals. The price of Bulgaria's newly issued debt has been rising at an unprecedentedly high rate. This implies an enormous additional financial weight in the medium term, which 3/5 BIS - Central bankers' speeches more acutely than before poses the question about the terms of funding Bulgaria's budget and economy. What is the connection with the topic under discussion? The connection is direct. If you read credit rating agencies' announcements, you will see that the key factor for Bulgaria to get a rating upgrade, i.e. for improved terms of its funding, is the successful implementation of the euro area accession process. As a reference point, after the decision on Croatia's accession was made, two credit rating agencies upgraded its credit rating by two notches even before Croatia actually joined the euro area. Thus Croatia's credit rating, which before the decision was one notch lower than Bulgaria's, now is one notch higher than Bulgaria. | 0 |
In addition, for those who opt for deeper information and knowledge, our website provides didactic tools to better understand aspects of economy and finance which affect the life of all citizens, like: what is economic growth; labour market, circulating flow, how do financial crises spread; what is competition, etc. Also, the elective module “Personal Finance in Your Hands", from some years now integrated in the high school teaching curricula, introduces to students the world of personal finance, informs and shape their needed skill to manage money in a more profitable way. This textbook is supplied and allocated for free to all high schools which elect to study it. It is accompanied with a guideline to teachers of economy subject. A similar approach has been adopted for younger children. Hence, the teaching package tailored for the financial education of pupils in class I, II and III of secondary schools, addresses issues, as: the difference between needs and desires; where does money come from and for what does it serve; the right management of money and savings, etc. This package may be used in free classes; classes dedicated to school projects; or in intra-subject projects. All that I mentioned above, makes clear that the Bank of Albania assesses that financial education should start at an early age. This affirmative sentence constitutes the philosophy of our programmes. The Bank of Albania aims at building up the communication bridges, awarenessraising and financial knowledge empowering to the new generation. | And that lies four square within the Bank of England’s mission to promote the good of the people of the United Kingdom, Muslim and non-Muslim alike. Global growth in Islamic Finance Islamic finance is a global success story, with assets of $ trillion in 2019 (Table 1). That’s 11% higher than a year earlier, and fully a third bigger than in 2015. Table 1: Size and composition of Islamic Finance Services Industry $ 2019) * *Gulf Co-operation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates). Source: Islamic Financial Services Industry Stability Report 20202 Three quarters of those Islamic finance assets are held by banks – and are large enough to play a 1 For a summary of these principles, see eg https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2017/islamic-banksand-central-banking.pdf?la=en&hash=15D94BD65C2EFA6962989D10E21543B7B7013C1C. 2 https://www.ifsb.org/download.php?id=5724&lang=English&pg=/index.php. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 2 systemic role in thirteen countries.3 There’s also a nascent Islamic insurance industry (takaful) – and a much larger capital market, anchored around the growing stock of sukuk4 issued by companies and governments (Chart 1), and over 1,500 Shari’ah compliant investment funds. Chart 1: Global sukuk issuance and stock outstanding Source: Islamic Financial Services Industry Stability Report 20202 The role of the UK and the Bank of England in supporting Islamic Finance So far, so impressive. | 0 |
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